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Exhibit 10.2:
S
OUTHERN COMMUNITY BANK AND TRUST
Salary Continuation Agreement of
James Hastings
This
Salary Continuation Agreement (this
“Agreement”) is entered into as of this
4th
day
of June
,
2008, by and between
Southern Community Bank and
Trust ,
a North Carolina-chartered bank (the “Bank”),
and
James Hastings its
Executive Vice President/Chief Financial Officer
(the
“Executive”).
WHEREAS ,
the Executive has contributed substantially to the success of the
Bank and the Bank desires that the Executive continue in its
employ;
WHEREAS, to
encourage the Executive to remain in the employment of the Bank,
the Bank is willing to provide salary continuation benefits to the
Executive under this Agreement, payable from the Bank’s
general assets;
WHEREAS ,
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
[12U.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 the Bank, are contemplated insofar as
the Bank is concerned;
WHEREAS ,
the parties hereto intend that this Agreement shall be considered
an unfunded arrangement maintained primarily to provide
supplemental retirement benefits for the Executive, and to be
considered a non-qualified benefit plan for purposes of the
Employee Retirement Income Security Act of 1974, as amended
(“ERISA”). The Executive is fully advised of the
Bank’s financial status and understands that he is a general
creditor of the Bank;
NOW THEREFORE ,
in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Executive and the Bank hereby agree as
follows.
ARTICLE 1
DEFINITIONS
The
following words and phrases used in this Agreement have the
meanings specified.
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1.1
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“
Accrual Balance ”
means the liability that should be accrued by the Bank under
generally accepted accounting principles (“GAAP”) for
the Bank’s obligation to the Executive under this Agreement,
applying Accounting Principles Board Opinion No. 12 as amended by
Statement of Financial Accounting Standards No. 106. The Accrual
Balance shall be calculated using a
Discount Rate determined
by the Plan Administrator, resulting in an Accrual Balance at the
Executive’s Normal Retirement Age that is equal to the
present value of the normal retirement benefits assuming
commencement at Normal Retirement Date of August 1,
2017.
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The
“
Discount Rate” means
the rate used by the Plan Administrator for determining the Accrual
Balance. If required by its outside auditors, the Plan
Administrator may adjust the Discount Rate to maintain the rate
within reasonable standards according to GAAP. Unless otherwise
changed by the Plan Administrator the Discount Rate shall be seven
percent (7%). Any change in the Discount Rate shall not cause the
Executive’s Account Balance to be reduced, but would only
affect the future accounting accrual.
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1.2
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“Actuarial (Actuarially) Equivalent
”
means a benefit of equivalent value differing in timing, payment
period, or manner of payment to the Normal Annuity Form determined
by generally accepted actuarial principles. The actuarial
equivalent is calculated for different purposes, as
follows:
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(a)
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For Benefits Not Paid as a Lump Sum :
All alternate forms of distributions shall be Actuarially
Equivalent to the Normal Annuity Form of distribution at a
Participant’s Normal Retirement Date. The alternative form of
payment shall be based on the
1983 Group Annuity Male Mortality Table ,
with an interest assumption of 7.0%.
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(b)
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For Benefits Paid in a Lump Sum :
Any lump sum payment (a form of benefit differing in time, period,
or manner of payment from a specific benefit provided under this
Agreement) shall be computed using the “1983 Group Annuity
Male Mortality Table” and the “Applicable Interest
Rate” where the “Applicable Interest Rate” shall
mean the greater of either (i) seven percent (7%), or (ii) the 30
Year US Treasury Bond Rate in effect as of the first of the month
preceding the month of payment.
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1.3
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“
Beneficiary ”
means each designated person, or the estate of the deceased
Executive, entitled to benefits, if any, upon the death of the
Executive, determined according to Article 4.
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1.4
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“
Change in Control ”
shall mean a change in control as defined in Internal Revenue Code
Section 409A and rules, regulations, and guidance of general
application thereunder issued by the Department of the Treasury,
including –
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(a) |
Change in ownership :
A change in ownership of Southern Community Financial Corporation
occurs on the date any one person or group of persons accumulates
ownership of Southern Community Financial Corporation’s stock
constituting more than 50% of the total fair market value or total
voting power of Southern Community Financial Corporation’s
stock,
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(b) |
Change in effective control: A
change in effective control occurs when either (
i )
any one person or more than one person acting as a group acquires
within a 12-month period ownership of stock of Southern Community
Financial Corporation possessing 35% or more of the total voting
power of Southern Community Financial Corporation’s stock, or
(
ii )
a majority of Southern Community Financial Corporation’s
Board of Directors is replaced during any 12-month period by
Directors whose appointment or election is not endorsed in advance
by a majority of Southern Community Financial Corporation’s
Board of Directors, or
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(c) |
Change in ownership of a substantial portion of assets
:
A change in the ownership of a substantial portion of Southern
Community Financial Corporation’s assets occurs if in a 12
-month period any one person or more than one person acting as a
group acquires assets from Southern Community Financial Corporation
having a total gross fair market value equal to or exceeding 40% of
the total gross fair market value of all of the assets of Southern
Community Financial Corporation immediately before the acquisition
or acquisitions. For this purpose, “gross fair market
value” means the value of Southern Community Financial
Corporation’s assets, or the value of the assets being
disposed of, determined without regard to any liabilities
associated with the assets.
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1.5
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“
Code ”
means the Internal Revenue Code of 1986, as amended, and rules,
regulations, and guidance of general application issued thereunder
by the Department of the Treasury.
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1.6 |
“
Disability ”
means that a Participant is either:
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(a)
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Unable
to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a
continuous period of not less than 12 months, or
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(b) |
By
reason of any medically determinable physical or mental impairment
(which can be expected to result in death or can be expected to
last for a continuous period of not less than 12 months) receiving
income replacement benefits for a period of three (3) or more
months under an accident and health plan covering employees of the
Employer.
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1.7
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“
Early Termination ”
means Separation from Service before Normal Retirement Age for
reasons other than death, Disability, Termination for Cause, or
after a Change in Control.
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1.8 |
“
Effective Date ”
means July 1, 2008.
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1.9
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“
Intentional ,”
for purposes of this Agreement, no act or failure to act on the
part of the Executive shall be deemed to have been intentional if
it was due primarily to an error in judgment or negligence. An act
or failure to act on the Executive’s part shall be considered
intentional if it is not in good faith and if it is without a
reasonable belief that the action or failure to act is in the best
interests of the Bank.
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1.10 |
“
Normal Retirement Age ”
means August 1, 2017.
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The Participant’s date of
birth is July 21, 1952. |
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1.11 |
“
Plan Administrator ”
or “
Administrator ”
means the plan administrator described in Article
8.
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1.12
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“
Plan Year ”
means a twelve-month period commencing on January 1 and ending on
December 31 of each year. The initial Plan Year shall commence on
July 1, 2008 and end December 31, 2008.
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1.13
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“
Separation from Service ”
means the Executive’s service (as an executive and/or
independent contractor to the Bank and any member of a controlled
group, as defined in Code Section 414), terminates for any reason,
other than because of a leave of absence approved by the Bank or
the Executive’s death. For purposes of this Agreement, if
there is a dispute about the employment status of the Executive or
the date of the Executive’s Separation from Service, the Bank
shall have the sole and absolute right to decide the dispute unless
a Change in Control shall have occurred.
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1.14
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“
Termination for Cause ”
and “
Cause ”
shall have the same meaning specified in any effective Severance or
Employment Agreement existing on the date hereof or hereafter
entered into between the Executive and the Bank. If the Executive
is not a party to a severance or employment agreement containing a
definition of “termination for cause”, then
Termination for Cause shall
mean the Bank terminated the Executive’s employment because
of any of the following reasons:
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(a)
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the
Executive’s gross negligence or gross neglect of duties or
intentional and material failure to perform stated duties after
written notice thereof, or
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(b)
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disloyalty
or dishonesty by the Executive in the performance of the
Executive’s duties, or a breach of the Executive’s
fiduciary duties for personal profit, in any case whether in the
Executive’s capacity as a director or officer, or
Â!
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(c)
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intentional
wrongful damage by the Executive to the business or property of the
Bank or its affiliates, including without limitation the reputation
of the Bank, which in the judgment of the Bank causes material harm
to the Bank or affiliates, or
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(d)
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a
willful violation by the Executive of any applicable law or
significant policy of the Bank or an affiliate that, in the
Bank’s judgment, results in an adverse effect on the Bank or
any affiliate, regardless of whether the violation leads to
criminal prosecution or conviction. For purposes of this Agreement,
applicable laws include any statute, rule, regulatory order,
statement of policy, or final cease-and-desist order of any
governmental agency or body having regulatory authority over the
Bank, or
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(e)
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the
Executive is removed from office or permanently prohibited from
participating in the Bank’s affairs by an order issued under
Section 8(e)(4) or Section 8(g)(1) of the Federal Deposit Insurance
Act, 12 U.S.C. 1818(e)(4) or (g)(1), or
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(f)
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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.
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1.15
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Year of Vesting Service .
Shall mean each calendar year in which the Executive completes
1,000 or more hours of service in the employ of the
Bank.
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ARTICLE 2
LIFETIME BENEFITS
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2.1
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Normal Retirement Benefit .
Unless a
Separation from Service or
a
Change in Control occurs
before Normal Retirement Age, when the Executive attains his Normal
Retirement Age the Bank shall pay to the Executive the benefit
described in this Section 2.1(a) instead of any other benefit under
this Agreement
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(a)
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Amount of Normal Form of benefit .
The annual Normal Retirement benefit under this Section 2.1 is
$40,000, which shall be paid in monthly installments in the monthly
amount of $3,333.33 for the Life of the Executive (Normal Form is a
Life Annuity).
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(b)
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Payment of benefit .
Subject to the six month delay provision in Section 2.7 herein, the
Bank shall pay the annual benefit to the Executive in 12 equal
monthly installments payable on the first day of each month,
beginning with the month immediately after the month in which the
Executive attains the Normal Retirement Age. The Normal Retirement
monthly benefit as provided in Section 2.1(a) above, shall be paid
to the Executive for the Executive’s lifetime with the last
payment ceasing as of the first day of the month preceding the
Executive’s death.
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(c)
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Alternative Forms of Payment. Executive
may elect to receive his Normal Retirement Benefit payable under
this Agreement payable in a Form other than a Life Annuity (as
provided above in Section 2.1(a) above), provided he elects to do
so either on his initial Election Form or a Change of Election
Form. Any Change of Election Form must be in accordance with IRC
409A and such Change of Election Form must be received by the Plan
Administrator at least 12 months prior to the date payment of
benefits are to other commence under this Agreement.
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Accordingly,
a Participant may elect, in lieu of a Life Annuity, to receive
his Normal Retirement Benefit in one of the following
Alternative Forms of Payment:
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(i)
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Life
Annuity with either a 120 or 180 guaranteed monthly
payments;
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(ii)
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Joint
and 50% (or 100%) Survivor Annuity.
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Any
Alternative Form of Payment provide herein shall be the
Actuarial Equivalent of the Normal Form (Life Annuity) of
payment.
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If
the Executive’s
Separation from Service thereafter
is a
Termination for Cause or
if this Agreement terminates under Article 5, no further benefits
shall be paid.
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2.2
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Early Termination Benefit .
Upon Early Termination as defined in Section 1.7, the Bank shall
pay to the Executive the benefit described in this Section 2.2(a)
instead of any other benefit under this Agreement.
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(a)
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Amount of benefit .
The Executive’s vested Accrual Balance as of the end of the
month preceding his Early Termination shall be converted (without
discounting for the time value of money) as of his Normal
Retirement Date into a Life Annuity (or other Alternative Form of
Payment as provided in Section 2.1(c) above), based on the
Actuarial Equivalent of his vested Accrual Balance as of such
date.
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(b) |
Payment of benefit .
The Bank shall commence payment of the monthly retirement benefit
as computed in Section 2.2 above beginning with the
later of
(
i )
the seventh month after the Executive’s Separation from
Service, or (
ii )
the month immediately after the month in which the Executive
attains his Normal Retirement Age. The monthly benefit shall be
paid to the Executive for the Executive’s lifetime, subject
to any Alternative Form of Payment the Executive may have elected
in accordance with Section 2.1(c) herein.
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(c)
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Vesting of Accrued Balance .
The
Vested amount of a Executive’s Accrued Balance shall be
determined on the basis of the Executive’s number of Years of
Vesting Service according to the following schedule:
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Vesting Schedule
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Years of Vesting Service
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Percent Vested
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Less
than 3
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0
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%
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3
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33 1/3
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%
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4
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66 2/3
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%
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5
or more years
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100
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%
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2.3
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Disability Benefit .
Upon Separation from Service because of Disability before Normal
Retirement Age, the Bank shall pay to the Executive the benefit
described in this Section 2.3(a) instead of any other benefit under
this Agreement.
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(a)
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Amount of benefit .
The Executive’s vested Accrual Balance as of the end of the
month preceding the date of his Disability shall be converted
(without discounting for the time value of money) as of his Normal
Retirement Date into a Life Annuity (or other Alternative Form of
Payment as provided in Section 2.1(c) above), based on the
Actuarial Equivalent of his vested Accrual Balance as of such
date.
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(b)
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Payment of benefit .
The Bank shall pay the Disability benefit to the Executive in 12
equal monthly installments on the first day of each month beginning
with the
later of
(
i )
the seventh month after the Executive’s Separation from
Service, or (ii) the month immediately after the month in which the
Executive attains his Normal Retirement Age.
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2.4
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Change-in-Control Benefit .
If a
Change in Control occurs
after the Effective Date of this Agreement but before the
Executive’s Normal Retirement Age and before his Separation
from Service, the Bank shall pay to the Executive the benefit
described in this Section 2.4(a) instead of any other benefit under
this Agreement.
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(a)
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Amount of benefit :
The benefit under this Section 2.4 is the Accrual Balance existing
when the Change of Control occurs.
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(b)
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Payment of benefit :
The Bank shall pay the Change-in-Control benefit under Section 2.4
of this Agreement to the Executive in a single lump sum within ten
(10) days after the Change in Control. If the Executive receives
the benefit under this Section 2.4 because of the occurrence of a
Change in Control, the Executive shall not be entitled to claim
additional benefits under Section 2.4 if an additional Change in
Control occurs thereafter.
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2.5
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Occurrence of a Change in Control: Lump-sum Payment of Normal
Retirement Benefit, Early Termination Benefit, or Disability
Benefit Being Paid. If
a Change in Control occurs at any time during the salary
continuation benefit payment period and if when the Change in
Control occurs the Executive is receiving or is entitled to receive
at his Normal Retirement Age the benefit provided by Sections
2.1(b), 2.2(b), or 2.3(c), the Bank shall pay in a lump sum the
present value of the Actuarial Equivalent of any remaining salary
continuation benefits to the Executive in a single lump sum within
ten (10) days after the Change in Control.
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2.6
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Contradiction Between this Agreement and Schedule A
.
If there is a contradiction between this Agreement and
Schedule A attached
hereto concerning the amount of a particular benefit due the
Executive under Sections 2.2, 2.3, or 2.4 hereof, then the amount
of the benefit determined under this Agreement shall control. If
the Plan Administrator changes the Discount Rate employed for
purposes of calculating the Accrual Balance, the Plan Administrator
shall prepare or cause to be prepared a revised Schedule A, which
shall supersede and replace any and all Schedules A previously
prepared under or attached to this Agreement. However,
any
change in the Discount Rate shall not cause the Executive’s
Account Balance to be reduced, but would only affect the future
accounting accrual.
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2.7
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Savings Clause Relating to Compliance with Code Section
409A .
Despite any contrary provision of this Agreement, if when the
Executive’s employment terminates the Executive is a
Specified Employee ,
as defined in Code Section 409A, and if any payments under Article
2 of this Agreement will result in additional tax or interest to
the Executive because of Section 409A, the Executive will not be
entitled to the payments
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