Exhibit 10.2
INCENTIVE COMPENSATION AGREEMENT
THIS INCENTIVE COMPENSATION AGREEMENT
(this “ Agreement ”), is made and entered into
as of September 14, 2007, between CapitalSouth Bank, an
Alabama banking corporation (the “ Employer ”
and also referred to herein as “ CapitalSouth Bank
”), and Mr. James C. Bowen (the “ Executive
”).
W I T N E S S
E T H :
WHEREAS, CapitalSouth Bancorp, a
Delaware corporation and a registered bank holding company (“
CapitalSouth ”), and Monticello Bancshares, Inc., a
Florida corporation (“ Monticello ”), have
executed an Agreement and Plan of Merger (the “ Merger
Agreement ”), joined in by Mr. James C. Bowen (a/k/a
Jake Bowen), a resident of Duval County, Florida, pursuant to which
Monticello will be merged into CapitalSouth (the “
Merger ”), and it is contemplated that in connection
with the consummation of the Merger Agreement and pursuant to the
terms of a certain Bank Merger Agreement (the “ Bank
Merger Agreement ”), Monticello Bank, a federal savings
bank (“ Monticello Bank ”), will be merged with
and into CapitalSouth Bank;
WHEREAS, the Executive is currently
employed by Monticello and Monticello Bank as Chief Executive
Officer;
WHEREAS, the Executive has skill and
experience in the management and operation of a residential
mortgage loan origination business, including specifically the
Mortgage Lion operation heretofore conducted by Monticello Bank
(the “ Mortgage Division ”);
WHEREAS, following the consummation
of the Bank Merger Agreement, CapitalSouth Bank desires to continue
the operation of the Mortgage Division;
WHEREAS, CapitalSouth Bank desires
for the Executive to manage the Mortgage Division following
consummation of the Merger in accordance with the terms and
provisions of this Agreement, applicable law and good business
practice;
WHEREAS, the Executive and
CapitalSouth heretofore entered into that certain Non-Competition
Agreement, dated February 28, 2007 (the “
Non-Competition Agreement ”), which is an obligation
independent of this Agreement, but which is modified hereby;
and
WHEREAS, the parties intend and
desire that this Agreement supersede and replace in all respects
existing agreements or understandings between Monticello Bank,
Mortgage Lion, Inc., or any of their affiliates, on the one hand,
and the Executive.
NOW, THEREFORE, in consideration of
the promises, mutual covenants set forth in this Agreement, and
other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to
be legally bound, do hereby agree as follows:
SECTION 1: EMPLOYMENT OF EXECUTIVE; DUTIES AND
RESPONSIBILITIES
1.1 Employment of Executive .
Employer shall employ the Executive, and the Executive shall
provide services to Employer as an employee, on an at will basis
and as further provided under the terms and conditions of this
Agreement.
1.2 Term of Agreement . The
term of this Agreement and the commencement of employment of the
Executive by Employer shall begin on the Closing Date, as that term
is defined in the Merger Agreement (the “ Closing Date
”), and shall continue for an indefinite length of time until
either the Executive or the Employer gives at least fourteen
(14) calendar days notice to the other party of its intention
to cancel this Agreement or upon the occurrence of one of the
termination provisions set forth in Section 3 hereto (the
“ Agreement Term ”). Nothing in this Agreement
shall be construed as requiring the Employer to employ the
Executive for any particular period of time or for life and for all
purposes the Executive shall be considered an AT WILL
employee.
1.3 Offices and Positions of
Executive . During the Agreement Term, except as otherwise
mutually agreed by Employer and the Executive and subject to
Section 3 hereof, the Executive shall serve as President of
the Mortgage Division.
1.4 Duties and
Responsibilities . During the Agreement Term, the Executive
shall perform such duties and responsibilities as the management of
Employer shall assign to the Executive from time to time and which
can reasonably be expected to be performed by a person serving in a
similar position. Subject to the foregoing, it is generally
contemplated that the Executive shall be responsible for the
overall management of the line of business of the Mortgage
Division, including management of loan repurchase demands and the
recommendation to Employer of legal counsel for same, and as such
shall be responsible for assembling and retaining the officers and
staff thereof, subject to the ordinary employment and compensation
policies of the Employer; provided that with respect
to key officers of the Mortgage Division, including, without
limitation, Mr. Byron McDaniel, it is expressly contemplated
that any compensation of such persons shall be determined by the
Executive, shall not be inconsistent with the compensation provided
to the Executive under this Agreement, and shall reduce, on a
dollar-for-dollar basis (before taxes), the compensation otherwise
due to the Executive under this Agreement. The Executive agrees to
devote such of his full business time and energy to the business of
Employer as is needed and shall perform his duties in a trustworthy
and business-like manner, all for the purposes of advancing the
interests of the Mortgage Division and the Employer. The Executive
shall report to the President of CapitalSouth or such other person
designated by the Chief Executive Officer of Employer. Executive
shall perform his services hereunder in a manner consistent with
customary practices of professional managers of residential
mortgage origination businesses, applicable policies of
CapitalSouth Bank (except as otherwise may be expressly modified
with respect to the business of the Mortgage Division), applicable
law and safe and sound banking practices, all in a trustworthy and
businesslike manner of the purposes of advancing the interests of
CapitalSouth and CapitalSouth Bank.
1.5 Annual Budget . The
Executive, on behalf of the Mortgage Division, shall prepare
annually a detailed budget for the Mortgage Division. It is
expected that such budget shall reflect an annual pre-tax profit of
not less than Three Hundred Sixty Thousand Dollars
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($360,000.00). An initial draft of such budget shall be completed
and submitted to executive management of the Employer for review
not later than November 30 th of each year
with respect to the following fiscal year. Executive shall provide
such further information and supporting details as may be requested
by Employer with respect to such budget and shall, based on
discussions with executive management of the Employer, revise such
budget into a final form to reflect the policies and outlook of the
Employer with respect to the Mortgage Division (such budget, as
approved by the Employer, the “ Final Budget ”).
The Executive shall use his reasonable and good faith efforts to
effectively implement the Final Budget, subject to such changes
which are approved from time to time by the Employer. All salary
levels for persons other than key officers who participate in the
Incentive Compensation Payment shall not exceed the prevailing
market and any related party transactions shall be subject to
approval by executive management of the Employer.
1.6 Scope of Mortgage Division
. All product offerings of the Mortgage Division, including
construction/permanent loans and builder loans, will be subject to
the prior approval of the executive management of the Employer,
with the general expectation that they shall be based upon
standards determined solely by CapitalSouth Bank. It is understood
that all construction loans will be subject to review and oversight
by CapitalSouth Bank personnel.
SECTION 2: COMPENSATION; REIMBURSEMENT; AND BENEFITS
2.1 Compensation . Executive
will be compensated for services hereunder during the Agreement
Term in an amount equal to forty percent (40%) of the annual
pre-tax profits of the Mortgage Division (the “ Incentive
Compensation Payment ”), based upon a deemed
March 31 fiscal year-end. Such profits shall be computed in
accordance with generally accepted accounting principles and as
further set forth on Appendix A hereto. Incentive
Compensation Payments during the Agreement term will be made on the
last business day of the month immediately following the close of
each calendar quarter; provided that fifty percent
(50%) of the Incentive Compensation Payment otherwise due at such
time shall be retained and thereafter distributed within five
(5) business days following the date on which CapitalSouth
files its quarterly report with the Securities and Exchange
Commission on Form 10-Q after the close of CapitalSouth’s
first fiscal quarter of each year. At such time any “truing
up” with respect to annual pre-tax profits shall occur.
Executive will receive no compensation for Executive’s
personal mortgage loan production or any base salary. Executive
will receive a draw of $2,500.00 per month that will be offset
against the amount of the Incentive Compensation Payment.
Notwithstanding the foregoing, any profits attributable to Reserve
Related Profits (as defined in Appendix A ) shall be
calculated solely as of the fourth anniversary of the Closing Date
and to the extent that as of such fourth anniversary date there is
a reasonable expectation of future unaccrued Loan Repurchase Costs
(as defined in Appendix A ), such amount shall be
subject to the mutual agreement of the parties or if the parties
cannot agree, any differences between their estimated future
amounts may be withheld by Employer but shall be paid at such time
in the future that the parties agree or such Loan Repurchase Costs
are otherwise finally determined and at such time, the remaining
balance, if any, of profits attributable to Favorable Reserve
Adjustments shall be paid to Executive, together with interest on
such withheld amount at a rate of 10% per annum from the fourth
anniversary date.
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2.2 Allocation of Incentive
Compensation Payments . As contemplated in Section 1.4
hereof, Executive is authorized and expected to reach arrangements
with other key officers of the Mortgage Division pursuant to which
the Employer shall compensate such key officers by remitting to
them a portion of the compensation otherwise payable to the
Executive under Section 2.1 hereof. Such arrangements shall be
evidenced by written agreements executed by each such key officer,
Executive and the Employer but shall not, in any event, be
inconsistent with the obligations of the Employer to the Executive
under this Agreement and the method and timing of compensation paid
hereunder unless otherwise expressly agreed in writing.
2.3 Other Benefits . The
Executive shall not participate in any other incentive and benefit
programs or arrangements, such as cash bonus and stock programs,
made available by CapitalSouth and its affiliates and subsidiaries
to employees; provided that it is understood that the
foregoing does not apply with respect to compensation payable to
directors, as such, of CapitalSouth. Executive shall be permitted
to participate in the health, disability and life insurance
programs of the Employer and the 401(k) or similar defined
contribution plan of the Employer in the same manner which
employees generally of the Employer are entitled to
participate.
2.4 Business Expenses .
Employer shall reimburse the Executive for all reasonable expenses
incurred by Executive in accordance with the standard policies and
procedures of Employer, in the course of rendering his services
pursuant to this Agreement; provided that such
expenses shall be consistent with the requirements of the Final
Budget; and provided further that the
Executive shall promptly submit such reasonable documentation as
may be requested by Employer to verify such expenditures.
2.5 Vacation . The Executive
shall be afforded vacation in accordance with and under the same
terms and conditions as are applicable to similarly situated
personnel of Employer and its affiliates. The Executive shall take
into consideration the needs of Employer and management
responsibilities for the Mortgage Division in setting his vacation
schedule.
2.6 Withholding Taxes . The
Executive acknowledges and agrees that Executive shall be subject
to customary income, FICA, FUTA, state unemployment and similar
payroll withholding taxes applicable to employees generally.
Executive further acknowledges that payments made to Executive
under this Agreement shall be reported to Executive on Form
W-2.
SECTION 3: TERMINATION OF EMPLOYMENT
3.1 Termination of Agreement
Term . The Agreement Term may be terminated by notice as
provided in Section 1.2 hereof or otherwise in the following
manner:
(a)
Termination on Death or Disability . The Agreement Term
shall automatically terminate upon the death or Disability of the
Executive. The term “ Disability ” shall mean
the Executive’s physical or mental incapacity, as certified
by a physician, that renders him incapable of performing the
essential functions of the duties required of him by this Agreement
for six (6) months, even with reasonable accommodation.
(b)
Termination For Cause . This Agreement, the employment of
the Executive, and the unaccrued obligations hereunder may be
terminated by Employer for “ Cause ”
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at any
time during the Agreement Term upon written notice to the
Executive, which notice shall state the facts constituting such
“Cause”. For the purpose of this Section 3.1(b),
the term “Cause” shall mean (i) willful misconduct or
gross malfeasance, or an act or acts of gross negligence in the
course of employment; (ii) the Executive’s commission,
conviction, admission or confession of any felony or crime of moral
turpitude; (iii) willful violation of any law, rule,
regulation (other than traffic violations or similar offenses) or
final cease-and-desist order, (iv) if the Executive is removed
and/or permanently prohibited from participating in the conduct of
the Employer’s affairs by an order issued under
Section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. Section 1818(e)(4) or (g)(1)); or (v) the
existence of a substantial and objective act of misfeasance or
nonfeasance by the Executive which is plainly sufficient, under
sound banking principles (as recognized by the Alabama State
Banking Department, the Federal Deposit Insurance Corporation, or
any other appropriate bank regulatory authority to the extent said
agencies would no longer approve the Executive to hold a comparable
executive position), to conclude that the Executive is unfit to
continue in the capacities stated in this Agreement. Employer shall
have the power to temporarily suspend Executive, with pay, from
duty if there is reasonable evidence of the possibility of Cause
until Cause is either proved or disproved; provided
that , if disproved, full reinstatement will immediately be
effected; provided further that before, during
or after such suspension the Employer or the Executive may
otherwise terminate this Agreement as provided in Section 1.2
hereof.
3.2 Consequences of
Termination .
(a)
For Cause; Death or Disability; Without Good Reason . In the
event Executive’s employment and this Agreement are
terminated, Employer shall be under no further obligation to make
payments or provide benefits to the Executive, except for
(i) Incentive Compensation Payments accrued through the
effective time of such termination, and reimbursable expenses
incurred by but not yet reimbursed to the Executive at the time of
such termination and (ii) with respect to profits comprising
Reserve Related Profits, shall be paid an amount equal to the full
amount of Reserve Related Profits, as otherwise determined
hereunder (i.e., Executive is fully vested therein).
(b)
Time of Payment . Any amounts due to be paid under
Section 3.2(a) hereof shall be paid at the times such payment
would have been due if this Agreement had not been terminated
(e.g., in the case of Reserve Related Profits, promptly after the
fourth anniversary of the Closing Date); provided
that with respect to the computation of profits for the
quarter in which this Agreement and employment are terminated, such
payment shall be allocated on a daily pro rata basis based on the
number of calendar days of such calendar quarter which were elapsed
up to the effective time of termination of this Agreement.
(c)
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