EXHIBIT 10.02
S EVERANCE A GREEMENT
This S EVERANCE A GREEMENT is entered into as of this 22nd day of November,
2006, by and among Cape Fear Bank Corporation, a North Carolina
corporation formerly known as Bank of Wilmington Corporation (the
“ Corporation ”), Cape Fear Bank,
formerly known as Bank of Wilmington, a North Carolina bank, and
Larry W. Flowers, its Executive Vice President and Chief Credit
Officer of the Corporation and the Bank (the
“Executive”).
W HEREAS , the Executive has made and is expected to
continue to make substantial contributions to the profitability,
growth, and financial strength of Cape Fear Bank Corporation and
its subsidiary bank, Cape Fear Bank, a North Carolina-chartered
bank,
W HEREAS , Cape Fear Bank Corporation desires to assure
itself of the current and future continuity of management and,
establishing minimum severance benefits for certain officers and
other key employees, including the Executive, desires to ensure
that officers and other key employees are not practically disabled
from discharging their duties if a proposed or actual change in
control arises,
W HEREAS , Cape Fear Bank Corporation wishes to provide
additional inducement for the Executive to remain in the employ of
the Bank,
W HEREAS , Cape Fear Bank Corporation and the Executive
intend that this Severance Agreement shall supersede and replace in
its entirety the Change of Control Agreement dated as of
March 22, 1999 by and between Bank of Wilmington and the
Executive, as amended, and that from and after the date of this
Severance Agreement the Change of Control Agreement dated as of
March 22, 1999, as amended, shall be of no further force or
effect, and
W HEREAS , none of the conditions or events included in
the definition of the term “golden parachute payment”
that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit
Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit
Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)]
exists or, to the best knowledge of Cape Fear Bank Corporation, is
contemplated insofar as either of Cape Fear Bank Corporation or any
of its subsidiaries is concerned.
N OW T HEREFORE , in consideration of these premises and other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as
follows.
1 . C HANGE IN C ONTROL S EVERANCE . (a) Involuntary Termination Without
Cause or Voluntary Termination for Good Reason Within One Year
after a Change in Control . Cape Fear Bank Corporation shall
make a lump-sum payment to the Executive in an amount in
cash
equal to two times the Executive’s annual
compensation if the Executive’s employment with Cape Fear
Bank Corporation and subsidiaries is involuntarily terminated
within 12 months after a Change in Control, except for termination
under section 4 of this Severance Agreement, or if the Executive
terminates employment with Cape Fear Bank Corporation and
subsidiaries for Good Reason within 12 months after a Change in
Control. Subject to section 17, the payment required under this
section 1(a) is payable no later than three business days after the
date the Executive’s employment terminates and shall not be
reduced to account for the time value of money or discounted to
present value. If the Executive terminates employment for Good
Reason, the date of termination shall be the date specified by the
Executive in the notice of termination. If the Executive is removed
from office or if the Executive’s employment terminates
before the Change in Control occurs but after discussions with a
third party regarding a Change in Control commence, and if those
discussions ultimately conclude with a Change in Control, then for
purposes of this Severance Agreement the removal of the Executive
or termination of the Executive’s employment shall be deemed
to have occurred after the Change in Control.
For purposes of this Severance
Agreement, annual compensation means ( x ) the
Executive’s annual base salary on the date of the Change in
Control or on the date of the Executive’s employment
termination (at whichever date the Executive’s current annual
base salary is greater, but excluding any compensation earned in
the Executive’s capacity as a director), plus ( y
) any bonus earned for the most recent whole calendar year
before the year in which the Change in Control occurred or for the
most recent whole calendar year before the year in which employment
termination occurred (whichever is greater), regardless of whether
the bonus is paid in the year earned or in a later calendar year.
The term bonus means cash or non-cash compensation of the type that
is required to be reported as bonus by the Securities and Exchange
Commission’s rules governing tabular disclosure of executive
compensation, specifically Regulation S-K Item 402 (17 CFR
229.402 (2006), currently Item 402(c)(2)(iv)). For purposes of
this Severance Agreement, the term subsidiary means any entity in
which Cape Fear Bank Corporation directly or indirectly
beneficially owns 50% or more of the outstanding voting
securities.
(b) Additional Severance
Benefits . In addition to the severance payment due under
paragraph (a) of this section 1, if the Executive is entitled
to a lump-sum severance payment under paragraph (a) after
employment termination Cape Fear Bank Corporation shall ( x
) cause the Executive to become fully vested in any qualified
and non-qualified plans, programs, or arrangements in which the
Executive participated if the plan, program, or arrangement does
not address the effect of a change in control, and (y
) contribute or cause to be contributed to the
Executive’s 401(k) plan account the matching and
profit-sharing contributions, if any, that the Executive is
entitled to based upon all W-2 income earned by the Executive for
the plan year.
2 . D EFINITION OF C HANGE IN C ONTROL . For purposes of this Severance Agreement, the
term Change in Control means any of the following events occur
–
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(a) Merger : Cape Fear Bank
Corporation merges into or consolidates with another corporation,
or merges another corporation into Cape Fear Bank Corporation, and
as a result less than a majority of the combined voting power of
the resulting corporation immediately after the merger or
consolidation is held by persons who were stockholders of Cape Fear
Bank Corporation immediately before the merger or consolidation.
For purposes of this Severance Agreement, the term person means an
individual, corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated
organization, or other entity,
(b) Acquisition of Significant
Share Ownership : a report on Schedule 13D, Schedule TO, or
another form or schedule (other than Schedule 13G), is filed or is
required to be filed under sections 13(d) or 14(d) of the
Securities Exchange Act of 1934, if the schedule discloses that the
filing person or persons acting in concert has or have become the
beneficial owner of 25% or more of the combined voting power of
Cape Fear Bank Corporation’s voting securities (but this
paragraph (b) shall not apply to beneficial ownership of
voting shares held by a subsidiary in a fiduciary capacity or
beneficial ownership of voting shares held by an employee benefit
plan of Cape Fear Bank Corporation or a subsidiary),
(c) Change in Board
Composition : during any period of two consecutive years,
individuals who constitute Cape Fear Bank Corporation’s board
of directors at the beginning of the two-year period cease for any
reason to constitute at least a majority thereof; provided,
however , that – for purposes of this paragraph
(c) – each director who is first elected by the board
(or first nominated by the board for election by stockholders) by a
vote of at least two-thirds (b) of the directors who were
directors at the beginning of the period shall be deemed to have
been a director at the beginning of the two-year period,
or
(d) Sale of Assets : Cape
Fear Bank Corporation sells to a third party substantially all of
Cape Fear Bank Corporation’s assets. For purposes of this
Severance Agreement, sale of substantially all of Cape Fear Bank
Corporation’s assets includes sale of the shares or assets of
Cape Fear Bank alone.
3 . G OOD R EASON .
For purposes of this Severance Agreement, the term Good Reason
means the occurrence of any of the following without the
Executive’s written consent –
(a) reduction of the
Executive’s base salary, or
(b) reduction of the
Executive’s bonus, incentive, and other compensation award
opportunities under Cape Fear Bank Corporation’s or
subsidiary’s benefit plans, unless a company-wide reduction
of all officers’ award opportunities occurs simultaneously,
or termination of the Executive’s participation in any
officer or employee benefit plan maintained by Cape Fear Bank
Corporation or a subsidiary, unless the plan is terminated because
of changes in law or loss of tax deductibility to Cape Fear Bank
Corporation for contributions to the plan, or unless the plan is
terminated as a matter of policy applied equally to all
participants, or
(c) assignment to the Executive of
duties or responsibilities that are materially inconsistent with
the Executive’s duties and responsibilities immediately
before the Change in
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Control, or any other action by Cape Fear Bank
Corporation or its successor that results in a material reduction
or material adverse change in the Executive’s position,
authority, duties, or responsibilities, or failure to nominate the
Executive as a director of Cape Fear Bank Corporation if the
Executive shall have been a director immediately before the Change
in Control, or
(d) failure to obtain an assumption
of Cape Fear Bank Corporation’s obligations under this
Severance Agreement by a successor to Cape Fear Bank Corporation,
regardless of whether the entity becomes a successor as a result of
a merger, consolidation, sale of assets, or other form of
reorganization, or
(e) relocation of Cape Fear
Bank’s principal executive offices or requiring the Executive
to change the Executive’s principal work location to any
location that is more than 50 miles from the location of Cape Fear
Bank’s principal executive offices on the date of this
Severance Agreement.
4. T ERMINATION FOR W HICH N O S EVERANCE B ENEFITS A RE P AYABLE . (a) No Severance after Termination
for Cause . Despite any provision of this Severance Agreement
to the contrary, under no circumstance shall the Executive be
entitled to severance benefits if the Executive’s employment
terminates for Cause. For purposes of this Severance Agreement the
term Cause means the Executive shall have committed any of the
following acts –
1) Fraud, Embezzlement, Theft or
Other Crime : an act of fraud, embezzlement, or theft while
employed by Cape Fear Bank Corporation or a subsidiary, conviction
of the Executive for or plea of no contest to a felony or
conviction of or plea of no contest to a misdemeanor involving
moral turpitude, or the actual incarceration of the Executive for
45 consecutive days or more, or
2) Negligence and Other
Actions : gross negligence, insubordination, disloyalty, or
dishonesty in the performance of the Executive’s duties as an
officer of Cape Fear Bank Corporation or a subsidiary; wilful or
reckless failure by the Executive to adhere to Cape Fear Bank
Corporation’s or subsidiary’s written policies;
intentional wrongful damage by the Executive to the business or
property of Cape Fear Bank Corporation, including without
limitation its reputation, which in Cape Fear Bank
Corporation’s sole judgment causes material harm to Cape Fear
Bank Corporation; breach by the Executive of fiduciary duties to
Cape Fear Bank Corporation and its stockholders, whether in the
Executive’s capacity as an officer or a director of Cape Fear
Ba
