Exhibit 10(vi)(c)

 

BANK OF NORTH CAROLINA

ENDORSEMENT SPLIT DOLLAR AGREEMENT

 

THIS ENDORSEMENT SPLIT DOLLAR AGREEMENT (this “Agreement”) is entered into as of
this 31st day of December, 2004 by and between Bank of North Carolina, a North
Carolina-chartered commercial bank (the “Bank”), and David Spencer, its Chief
Financial Officer (the “Executive”). This Agreement shall append the Split
Dollar Policy Endorsement entered into on even date herewith or as subsequently
amended, by and between the aforementioned parties.

 

To encourage the Executive to remain an employee of the Bank, the Bank is
willing to divide the death proceeds of a life insurance policy on the
Executive’s life. The Bank will pay life insurance premiums from its general
assets.

 

The Bank and the Executive agree as set forth herein.

 

Article 1

General Definitions

 

Capitalized terms not otherwise defined in this Agreement are used herein as
defined in the Salary Continuation Agreement dated as of the date of this
Agreement between the Bank and the Executive. The following terms shall have the
meanings specified:

 

1.1 Administrator means the administrator described in Article 7.

 

1.2 Executive’s Interest means the benefit set forth in Section 2.2(a).

 

1.3 Insured means the Executive.

 

1.4 Insurer means each life insurance carrier in which there is a Split Dollar
Policy Endorsement attached to this Agreement.

 

1.5 Net Death Proceeds means the total death proceeds of the Policy minus the
cash surrender value.

 

1.6 Policy means the specific life insurance policy or policies issued by the
Insurers.

 

1.7 Split Dollar Policy Endorsement means the form required by the Administrator
or the Insurer to indicate the Executive’s interest, if any, in a Policy on such
Executive’s life.

 

Article 2

Policy Ownership/Interests

 

2.1 Bank Ownership. The Bank is the sole owner of the Policy and shall have the
right to exercise all incidents of ownership. The Bank shall be the beneficiary
of the remaining death proceeds of the Policy after the Executive’s Interest has
been paid according to Section 2.2 below.

--------------------------------------------------------------------------------

2.2 Death Benefit. (a) Executive’s Interest If the Policy Is Not Cancelled.
Provided the Policy is not cancelled, surrendered, terminated, or allowed to
lapse, the Executive’s beneficiary designated in accordance with the Split
Dollar Policy Endorsement shall be entitled to 100% of the Net Death Proceeds
(the “Executive’s Interest”). The Executive shall have the right to designate
the beneficiary of the Executive’s Interest. The Executive or the Executive’s
transferee shall also have the right to elect and change settlement options that
may be permitted for the Executive’s Interest.

 

(b) If the Policy Is Cancelled. If the Policy is cancelled, surrendered,
terminated, or allowed to lapse, in any such case without replacement, the
Executive’s beneficiary designated in accordance with the Split Dollar Policy
Endorsement shall be entitled to death proceeds payable by the Bank in an amount
in cash equal to the sum of (1) the amount specified in paragraph (a) of this
Section 2.2, measured at the time the Policy is cancelled, surrendered,
terminated, or allowed to lapse, plus (2) a tax gross-up payment to compensate
for federal and state taxes imposed on the benefit specified in clause (1) of
this Section 2.2(b). The tax gross-up payment required under this clause (2) of
Section 2.2(b) shall be calculated in two steps, first by dividing the total
death benefit specified in clause (1) of this Section 2.2(b) by one minus the
sum of (x) the highest marginal individual federal income tax rate under the
Internal Revenue Code at the time of the Executive’s death (offset or reduced to
account for the deductibility at the federal level of state income taxes), plus
(y) the highest marginal individual state income tax rate under North Carolina
law at the time of the Executive’s death. Second, the death benefit specified in
clause (1) of this Section 2.2(b) shall then be subtracted from the amount
calculated in that first step. The difference shall be the additional tax
gross-up payment to be made to compensate for taxes, regardless of whether it
exceeds or is less than taxes imposed on the Executive’s estate for “income in
respect of a decedent.” To illustrate with a simple hypothetical based on an
assumed death benefit amount of $100,000 paid directly by the Bank under clause
(1) of this Section 2.2(b), the additional tax gross-up payment would be
calculated as follows if the highest marginal individual income tax rates are
34% (federal) and 7.5% (North Carolina), taking into account the deductibility
at the federal level of state income taxes:

 

First Step:

  

$ 100,000 / divided by (1 - ((34% + 7.5%) - (34% x 7.5%))

    

=            $ 100,000 / divided by (1 minus 38.95%)

=   

$ 100,000 / divided by 61.05%, or .6105

    

=            $ 163,800

Second Step:

  

$ 163,800 minus $ 100,000

=   

$ 63,800, the amount of the additional tax gross-up payment

 

2.3 Comparable Coverage. The Bank may replace the Policy with a comparable
insurance policy to cover the benefit provided under this Agreement, in which
case the Bank and the Executive shall execute a new Split Dollar Policy
Endorsement for the comparable insurance policy.

--------------------------------------------------------------------------------

2.4 Internal Revenue Code Section 1035 Exchanges. The Executive recognizes and
agrees that the Bank may after this Split Dollar Agreement is adopted wish to
exchange the Policy of life insurance on the Executive’s life for another
contract of life insurance insuring the Executive’s life. Provided that the
Policy is replaced (or intended to be replaced) with a comparable policy of life
insurance, the Executive agrees to provide medical information and cooperate
with medical insurance-related testing required by a prospective insurer for
implementing the Policy or, if necessary, for modifying or updating to a
comparable insurer.

 

Article 3

Premiums

 

3.1 Premium Payment. The Bank shall pay any premiums due on the Policy.

 

3.2 Economic Benefit. The Administrator shall annually determine the economic
benefit attributable to the Executive based on the amount of the current term
rate for the Executive’s age multiplied by the aggregate death benefit payable
to the Executive’s beneficiary. The “current term rate” is the minimum amount
required to be imputed under applicable Internal Revenue Service authority.

 

3.3 Imputed Income. The Bank shall impute the economic benefit to the Executive
on an annual basis.

 

Article 4

Assignment

 

The Executive may irrevocably assign without consideration all of the
Executive’s rights and interest in this Agreement to any person, entity, or
trust established by the Executive or the Executive’s spouse. If the Executive
transfers all of the Executive’s rights and interest in this Agreement, then all
of the Executive’s rights and interest in the Agreement shall be vested in the
Executive’s transferee, who shall be substituted as a party hereunder and the
Executive shall have no further interest in this Agreement.

 

Article 5

Insurer

 

The Insurer shall be bound only by the terms of the Policy. Any payments the
Insurer makes or actions it takes in accordance with the Policy shall fully
discharge it from all claims, suits and demands of all entities or persons. The
Insurer shall not be bound by or be deemed to have notice of the provisions of
this Agreement.

--------------------------------------------------------------------------------

Article 6

Claims and Review Procedures

 

6.1 Claims Procedure. Any person or entity who has not received benefits under
this Agreement that he or she believes should be paid (the “claimant”) shall
make a claim for such benefits as follows –

 

6.1.1 Initiation – Written Claim. The claimant initiates a claim by submitting
to the Administrator a written claim for the benefits.

 

6.1.2 Timing of Administrator Response. The Administrator shall respond to such
claimant within 90 days after receiving the claim. If the Administrator
determines that special circumstances require additional time for processing the
claim, the Administrator can extend the response period by an additional 90 days
by notifying the claimant in writing, prior to the end of the initial 90-day
period, that an additional period is required. The notice of extension must set
forth the special circumstances and the date by which the Administrator expects
to render its decision.

 

6.1.3 Notice of Decision. If the Administrator denies part or all of the claim,
the Administrator shall notify the claimant in writing of such denial. The
Administrator shall write the notification in a manner calculated to be
understood by the claimant. The notification shall set forth –

 

  (a) The specific reasons for the denial,

 

  (b) A reference to the specific provisions of this Agreement on which the
denial is based,

 

  (c) A description of any additional information or material necessary for the
claimant to perfect the claim and an explanation of why it is needed,

 

  (d) An explanation of the Agreement’s review procedures and the time limits
applicable to such procedures, and

 

  (e) A statement of the claimant’s right to bring a civil action under ERISA
section 502(a) following an adverse benefit determination on review.

 

6.2 Review Procedure. If the Administrator denies part or all of the claim, the
claimant shall have the opportunity for a full and fair review by the
Administrator of the denial, as follows –

 

6.2.1 Initiation – Written Request. To initiate the review, within 60 days after
receiving the Administrator’s notice of denial the claimant must file with the
Administrator a written request for review.

 

6.2.2 Additional Submissions – Information Access. The claimant shall then have
the opportunity to submit written comments, documents, records and other
information relating to the claim. Upon request and free of charge, the
Administrator

--------------------------------------------------------------------------------

shall also provide the claimant reasonable access to, and copies of, all
documents, records and other information relevant (as defined in applicable
ERISA regulations) to the claimant’s claim for benefits.

 

6.2.3 Considerations on Review. In considering the review, the Administrator
shall take into account all materials and information the claimant submits
relating to the claim, without regard to whether such information was submitted
or considered in the initial benefit determination.

 

6.2.4 Timing of Administrator Response. The Administrator shall respond in
writing to such claimant within 60 days after receiving the request for review.
If the Administrator determines that special circumstances require additional
time for processing the claim, the Administrator can extend the response period
by an additional 60 days by notifying the claimant in writing, prior to the end
of the initial 60-day period, that an additional period is required. The notice
of extension must set forth the special circumstances and the date by which the
Administrator expects to render its decision.

 

6.2.5 Notice of Decision. The Administrator shall notify the claimant in writing
of its decision on review. The Administrator shall write the notification in a
manner calculated to be understood by the claimant. The notification shall set
forth –

 

  (a) The specific reasons for the denial,

 

  (b) A reference to the specific provisions of the Agreement on which the
denial is based,

 

  (c) A statement that the claimant is entitled to receive, upon request and
free of charge, reasonable access to, and copies of, all documents, records and
other information relevant (as defined in applicable ERISA regulations) to the
claimant’s claim for benefits, and

 

  (d) A statement of the claimant’s right to bring a civil action under ERISA
section 502(a).

 

Article 7

Administration of Agreement

 

7.1 Administrator Duties. This Agreement shall be administered by an
Administrator, which shall consist of the board or such committee as the board
shall appoint. The Executive may be a member of the Administrator. The
Administrator shall also have the discretion and authority to (a) make, amend,
interpret, and enforce all appropriate rules and regulations for the
administration of this Agreement and (b) decide or resolve any and all
questions, including interpretations of this Agreement, as may arise in
connection with the Agreement.

 

7.2 Agents. In the administration of this Agreement, the Administrator may
employ agents and delegate to them such administrative duties as it sees fit
(including acting through a duly appointed representative) and may from time to
time consult with counsel, who may be counsel to the Bank.

--------------------------------------------------------------------------------

7.3 Binding Effect of Decisions. The decision or action of the Administrator
with respect to any question arising out of or in connection with the
administration, interpretation, and application of this Agreement and the rules
and regulations promulgated hereunder shall be final and conclusive and binding
upon all persons having any interest in the Agreement.

 

7.4 Indemnity of Administrator. The Bank shall indemnify and hold harmless the
members of the Administrator against any and all claims, losses, damages,
expenses, or liabilities arising from any action or failure to act with respect
to this Agreement, except in the case of willful misconduct by the Administrator
or any of its members.

 

7.5 Information. To enable the Administrator to perform its functions, the Bank
shall supply full and timely information to the Administrator on all matters
relating to the date and circumstances of the retirement, death, or Termination
of Employment of the Executive and such other pertinent information as the
Administrator may reasonably require.

 

Article 8

Miscellaneous

 

8.1 Binding Effect. This Agreement shall bind the Executive and the Bank and
their beneficiaries, survivors, executors, administrators, and transferees, and
any Policy beneficiary.

 

8.2 Amendment and Termination of Agreement. This Agreement may be amended solely
by a written agreement signed by the Bank and the Executive. This Agreement
shall automatically terminate and the Executive’s rights and interest in this
Agreement shall be forfeited if benefits under the Salary Continuation Agreement
are neither paid nor payable because of termination under Article 5 of the
Salary Continuation Agreement. This Agreement shall also terminate upon
distribution of death benefits in accordance with Section 2.2 above.

 

8.3 Successors; Binding Agreement. By an assumption agreement in form and
substance satisfactory to the Executive, the Bank shall require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business or assets of the Bank to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Bank would be required to perform this Agreement if no
succession had occurred.

 

8.4 No Guarantee of Employment. This Agreement is not an employment policy or
contract. It does not give the Executive the right to remain an employee of the
Bank, nor does it interfere with the Bank’s right to discharge the Executive. It
also does not require the Executive to remain an employee or interfere with the
Executive’s right to terminate employment at any time.

--------------------------------------------------------------------------------

8.5 Applicable Law. This Agreement and all rights hereunder shall be governed by
and construed according to the laws of the State of North Carolina, except to
the extent preempted by the laws of the United States of America.

 

8.6 Entire Agreement. This Agreement and the Salary Continuation Agreement
constitute the entire agreement between the Bank and the Executive as to the
subject matter hereof. No rights are granted to the Executive by this Agreement
other than those specifically set forth herein.

 

8.7 Severability. If for any reason any provision of this Agreement is held
invalid, such invalidity shall not affect any other provision of this Agreement
not held invalid, and each such other provision shall continue in full force and
effect to the full extent consistent with law. If any provision of this
Agreement is held invalid in part, such invalidity shall not affect the
remainder of the provision not held invalid, and the remainder of the provision
together with all other provisions of this Agreement shall continue in full
force and effect to the full extent consistent with law.

 

8.8 Headings. Caption headings and subheadings herein are included solely for
convenience of reference and shall not affect the meaning or interpretation of
any provision of this Agreement.

 

8.9 Notices. All notices, requests, demands, and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or mailed, certified or registered mail, return receipt requested, with
postage prepaid, to the following addresses or to such other address as either
party may designate by like notice. Unless otherwise changed by notice, notice
shall be properly addressed to the Executive if addressed to the address of the
Executive on the books and records of the Bank at the time of the delivery of
such notice, and properly addressed to the Bank if addressed to the Board of
Directors, Bank of North Carolina, 831 Julian Avenue, P.O. Box 1148,
Thomasville, North Carolina 27361-1148.

 

IN WITNESS WHEREOF, the Executive and a duly authorized representative of the
Bank have executed this Agreement as of the date first written above.

 

EXECUTIVE:   BANK:    

Bank of North Carolina

/s/ David B. Spencer

--------------------------------------------------------------------------------

 

By:

 

/s/ W. Groome Fulton, Jr.

--------------------------------------------------------------------------------

David B. Spencer

           

Its:

 

Chairman

   

And By:

 

/s/ W. Swope Montgomery, Jr.

--------------------------------------------------------------------------------

             

Its:

 

President and CEO

--------------------------------------------------------------------------------

AGREEMENT TO COOPERATE WITH INSURANCE UNDERWRITING INCIDENT TO

INTERNAL REVENUE CODE SECTION 1035 EXCHANGE

 

I acknowledge that I have read the Endorsement Split Dollar Agreement and agree
to be bound by its terms, particularly the covenant on my part set forth in
section 2.4 of the Endorsement Split Dollar Agreement to provide medical
information and cooperate with medical insurance-related testing required by an
insurer to issue a comparable insurance policy to cover the benefit provided
under this Endorsement Split Dollar Agreement.

 

/s/ W. Swope Montgomery, Jr.

--------------------------------------------------------------------------------

  

/s/ David B. Spencer

--------------------------------------------------------------------------------

Witness

  

Executive

--------------------------------------------------------------------------------

SPLIT DOLLAR POLICY ENDORSEMENT

 

Insured: David B. Spencer

  

Insurers: John Hancock and Mass Mutual

Policy No. Confidential

    

 

Pursuant to the terms of the Bank of North Carolina Endorsement Split Dollar
Agreement dated as of December 31, 2004, the undersigned Owner requests that the
above-referenced policy issued by the Insurer provides for the following
beneficiary designation and limited contract ownership rights to the Insured:

 

1. Upon the death of the Insured, proceeds shall be paid in one sum to the
Owner, its successors or assigns, to the extent of its interest in the policy.
It is hereby provided that the Insurer may rely solely upon a statement from the
Owner as to the amount of proceeds it is entitled to receive under this
paragraph.

 

2. Any proceeds at the death of the Insured in excess of the amount paid under
the provisions of the preceding paragraph shall be paid in one sum to:

 

Confidential Personal Information

PRIMARY BENEFICIARY, RELATIONSHIP/SOCIAL SECURITY NUMBER

Confidential Personal Information

CONTINGENT BENEFICIARY, RELATIONSHIP/SOCIAL SECURITY NUMBER

 

The exclusive right to change the beneficiary for the proceeds payable under
this paragraph, to elect any optional method of settlement for the proceeds paid
under this paragraph which are available under the terms of the policy and to
assign all rights and interests granted under this paragraph are hereby granted
to the Insured. The sole signature of the Insured shall be sufficient to
exercise said rights. The Owner retains all contract rights not granted to the
Insured under this paragraph.

 

3. It is agreed by the undersigned that this designation and limited assignment
of rights shall be subject in all respects to the contractual terms of the
policy.

 

4. Any payment directed by the Owner under this endorsement shall be a full
discharge of the Insurer, and such discharge shall be binding on all parties
claiming any interest under the policy.

 

The undersigned for the Owner is signing in a representative capacity and
warrants that he or she has the authority to bind the entity on whose behalf
this document is being executed.

 

Signed at Thomasville, North Carolina, this 31st day of December, 2004.

 

INSURED:   Owner:    

Bank of North Carolina

/s/ David B. Spencer

--------------------------------------------------------------------------------

 

By:

 

/s/ W. Swope Montgomery, Jr.

--------------------------------------------------------------------------------

David B. Spencer

           

Its:

 

President and CEO