Exhibit 10.4
PARAGON COMMERCIAL BANK
SALARY CONTINUATION AGREEMENT
FOR
MATTHEW C. DAVIS
 
This SALARY CONTINUATION AGREEMENT (this “Agreement”) is entered into as of this
29th day of December, 2016, by and between Paragon Commercial Bank, a North
Carolina-chartered bank (the “Bank”), and Matthew C. Davis, an executive of the
Bank (the “Executive”).
 
WHEREAS, this Agreement is entered into by the Bank to provide a salary
continuation benefit to the Executive, and
 
WHEREAS, the parties hereto intend that this Agreement 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.
 
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 I
DEFINITIONS
 
1.1           “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. The Accrual Balance shall be
calculated such that when it is credited with interest each month the Accrual
Balance at Normal Retirement Age equals the present value of the normal
retirement benefits. The discount rate means the rate used by the Plan
Administrator for determining the Accrual Balance. In its sole discretion, the
Plan Administrator may adjust the discount rate to maintain the rate within
reasonable standards according to GAAP.
 
1.2           “Accrued Benefit” means an annual amount payable for 20 years
commencing on the first day of the month immediately after the Executive’s
Normal Retirement Age that has a value equal to the Accrual Balance at the time
of determination. The calculation of such annual amount shall be made using the
interest rate selected by the Plan Administrator at the time of determination
for purposes of calculating the Accrual Balance.
 
1.3           “Beneficiary” means each designated person, or in the absence of a
designated person, 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           “Beneficiary Designation Form” means the form established from
time to time by the Plan Administrator that the Executive completes, signs, and
returns to the Plan Administrator to designate one or more Beneficiaries.
 
1.5           “Change in Control” shall have the same meaning as the definition
contained in any effective severance or employment agreement existing on the
date hereof or hereafter entered into between the Executive and the Bank or
Paragon Commercial Corporation. If there is no effective severance or employment
agreement defining the term, “Change in Control” means any of the following
events occur –
 
1.5.1 
a “Person” or “Group” (as defined in or pursuant to sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, but not including Paragon Commercial
Corporation, the Bank, or any “employee benefit plan” (as defined in or pursuant
to ERISA)) becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934) or otherwise acquires control, directly or
indirectly, of securities of Paragon Commercial Corporation or the Bank
representing more than 50% of the total voting power of such entity’s then
outstanding securities,
 
1.5.2 
the acquisition by any Person or Group in any manner of the ability to elect, or
to control the election, of a majority of the directors of Paragon Commercial
Corporation or the Bank,
 
1.5.3 
the merger of Paragon Commercial Corporation or the Bank into another entity,
the merger of any entity into Paragon Commercial Corporation or the Bank, or the
acquisition of assets by Paragon Commercial Corporation or the Bank, in any such
case with the result that the beneficial owners of Paragon Commercial
Corporation’s or the Bank’s outstanding securities immediately prior to such
transaction do not beneficially own more than 60% of such entity’s outstanding
securities after the consummation of such transaction,
 
1.5.4 
the sale or other transfer of more than 50% of the assets of Paragon Commercial
Corporation or the Bank to any entity not controlled by Paragon Commercial
Corporation or the Bank, or
 
1.5.5 
the consummation of any transaction by Paragon Commercial Corporation or the
Bank resulting in (x) the majority of the Board of Directors of Paragon
Commercial Corporation or the Bank after the consummation of such transaction
not being composed of Incumbent Directors, or (y) the beneficial owners of
Paragon Commercial Corporation’s or the Bank’s outstanding securities
immediately prior to the consummation of such transaction not beneficially
owning more than 60% of Paragon Commercial Corporation’s or the Bank’s
outstanding securities after such transaction. The term “Incumbent Director”
shall mean any director who as of the Effective Date was a member of the Board,
or any individual becoming a member of the Board subsequent to the Effective
Date whose election by Paragon Commercial Corporation’s shareholders was
recommended by at least two-thirds (2/3) of the then Incumbent Directors on the
Board.
 
 
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Despite any contrary provision in this Agreement, however, the term Change in
Control shall not include (x) any transaction to which Executive consents in a
writing specifically noting this provision of this Agreement, (y) any
transaction or series of transactions, associated with the election by Paragon
Commercial Corporation to be taxed as a Subchapter S corporation under the Code,
or (z) any transaction that does not also constitute a change in control for
purposes of Code section 409A.
 
1.6           “Code” means the Internal Revenue Code of 1986, as amended, and
rules, regulations, and guidance of general application issued by the Department
of the Treasury under the Internal Revenue Code of 1986, as amended.
 
1.7           “Disability” means, because of a medically determinable physical
or mental impairment that can be expected to result in death or that can be
expected to last for a continuous period of at least 12 months, (x) the
Executive is unable to engage in any substantial gainful activity, or (y) the
Executive is receiving income replacement benefits for a period of at least
three months under an accident and health plan of the Bank. Medical
determination of disability may be made either by the Social Security
Administration or by the provider of an accident or health plan covering
employees of the Bank. Upon request of the Plan Administrator, the Executive
must submit proof to the Plan Administrator of the Social Security
Administration’s or provider’s determination.
 
1.8           “Early Termination” means Separation from Service before Normal
Retirement Age for reasons other than death, Disability, or Termination with
Cause. Early Termination excludes a Separation from Service governed by section
2.4.
 
1.9           “Effective Date” means the date set forth in Schedule A attached.
 
1.10           “Initial Vesting Date” means the date set forth in Schedule A.
 
1.11           “Normal Retirement Age” means age 65.
 
1.12           “Original Effective Date” means the date specified in Schedule A
that the Plan was first effective. If the Original Effective Date is different
than the Effective Date, this is an amendment and restatement of the Plan, with
the Effective Date being the date the amendment and restatement of the Plan is
effective. If the Original Effective Date and the Effective Date are the same,
this is a new (or additional) agreement.
 
1.13           “Plan Administrator” or “Administrator” means the plan
administrator described in Article 7.
 
1.14           “Schedule A” means the Schedule A attached hereto establishing
certain terms of the Plan. Schedule A is incorporated into the Plan by
reference.
 
 
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1.15           “Separation from Service” means a “separation from service” as
defined in Code section 409A, including termination of all of the Executive’s
service as an executive and independent contractor to the Bank and any member of
a controlled group, as defined in Code section 414, but excluding termination
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.
 
1.16           “Termination with 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 or
Paragon Commercial Corporation. If the Executive is not a party to a severance
or employment agreement containing a definition of Termination with Cause,
Termination with Cause means the Bank or Paragon Commercial Corporation
terminates the Executive’s employment for any of the following reasons –
 
1.16.1 
the willful and continued failure of Executive to substantially perform
Executive’s duties with the Bank other than any such failure resulting from
Disability, after written demand for substantial performance is delivered to
Executive by the Board which specifically identifies the manner in which the
Board believes that Executive has not substantially performed his duties, or
 
1.16.2 
dishonesty or moral turpitude, willful misconduct, breach of fiduciary duty
involving personal profit, a willful violation of any law, rule or regulation
(other than minor traffic violations or similar minor offenses) or final cease
and desist order, or material breach of any provision of this Agreement which is
materially and demonstrably injurious to the Bank.
 
For purposes of this Section, no act or failure to act on the part of the
Executive shall be considered willful unless it was done or omitted to be done
by Executive in bad faith or without reasonable belief that Executive’s action
or omission was in the best interests of the Bank. For purposes of this Section,
any act or failure to act based upon authority given pursuant to resolutions
duly adopted by the Board or based upon the advice of counsel for the Bank shall
be conclusively presumed to be done or omitted to be done by Executive in good
faith and in the best interests of the Bank. For purposes of this Section, the
cessation of employment of Executive shall not be deemed to be for Cause unless
and until there shall have been delivered to Executive copies of resolutions
duly adopted by the affirmative votes of not less than a majority of the entire
membership of the Board at meetings of the Board called and held for such
purpose (after reasonable notice is provided to Executive and Executive is given
an opportunity, together with counsel, to be heard by the Board), finding that,
in the good faith opinion of the Board, Executive is guilty of the conduct
described in clauses (a) or (b) above, and specifying the particulars thereof.
 
 
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1.17           “Voluntary Termination with Good Reason” means a voluntary
Separation from Service by the Executive within 24 months after a Change in
Control if the following conditions (x) and (y) are satisfied:
 
(x)           a voluntary Separation from Service by the Executive will be
considered a Voluntary Termination for Good Reason if any of the following occur
without the Executive’s advance written consent –
 
(1)           a material diminution of the Executive’s base salary,
 
(2)           a material diminution of the Executive’s authority, duties, or
responsibilities,
 
(3)           a material diminution in the authority, duties, or
responsibilities of the supervisor to whom the Executive is required to report,
 
(4)           a material diminution in the budget over which the Executive
retains authority,
 
(5)           a material change in the geographic location at which the
Executive must perform services for the Bank, or
 
(6)           any other action or inaction that constitutes a material breach by
the Bank of the agreement under which the Executive provides services to the
Bank.
 
(y)           the Executive must give notice to the Bank of the existence of one
or more of the conditions described in clause (x) within 90 days after the
initial existence of the condition, and the Bank shall have 30 days thereafter
to remedy the condition. In addition, the Executive’s voluntary termination
because of the existence of one or more of the conditions described in clause
(x) must occur within 24 months after the earlier of the initial existence of
the condition or the Change in Control.
 
ARTICLE 2
LIFETIME BENEFITS
 
2.1           Normal Retirement. For Separation from Service on or after the
date the Executive attains Normal Retirement Age, the Bank shall pay to the
Executive the benefit described in this section 2.1 instead of any other benefit
under this Agreement. However, if the Executive’s Separation from Service is a
Termination with Cause or if this Agreement terminates under Article 5, no
benefits shall be paid.
 
2.1.1
Amount of benefit. The annual benefit under this section 2.1 is set forth in
Schedule A.
 
2.1.2 
Payment of benefit. Beginning with the month immediately after the month in
which Separation from Service occurs, the Bank shall pay the annual benefit to
the Executive in monthly installments, each equal to 1/12th of such annual
benefit, on the first day of each month. The monthly installments shall be paid
to the Executive for 240 months.
 
 
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2.2A                      Early Termination. Unless a Change in Control shall
have occurred, upon the Executive’s Separation from Service before Normal
Retirement Age (“Early Termination”), the Bank shall pay to the Executive the
vested Accrued Benefit described in this section 2.2A instead of any other
benefit under this Agreement, as follows:
 
2.2A.l 
Vested Accrued Benefit. If Separation from Service occurs on or after the
Initial Vesting Date, the annual benefit under this section 2.2A shall be the
vested Accrued Benefit determined as of the end of the month immediately before
the month in which Separation from Service occurs. The vested Accrued Benefit
shall be determined by application of the vesting schedule set forth in Schedule
A. If Separation from Service occurs before the Initial Vesting Date, the
benefit shall be forfeited in its entirety. However, if Separation from Service
occurs after a Change in Control, Early Termination benefits shall be governed
solely by section 2.2B or Section 2.4, and this section 2.2A shall thereafter be
of no further force or effect.
 
2.2A.2 
Payment of benefit. Beginning with the month immediately after the month in
which the Executive attains Normal Retirement Age, the Bank shall pay the
benefit to the Executive in monthly installments, each equal to 1/12th of such
annual benefit, on the first day of each month. The monthly installments shall
be paid to the Executive for 240 months.
 
2.2B                      Early Termination that is Voluntary and without Good
Reason within 24 months after a Change in Control, or Early Termination that is
more than 24 Months after a Change in Control. If either: (1) the Executive has
a voluntary Early Termination that is not for Good Reason that occurs within the
24-month period after a Change in Control, or (2) the Executive has an Early
Termination that occurs after the 24-month period following a Change in Control,
the Bank shall pay to the Executive the benefit described in this section 2.2B
instead of any other benefit under this Agreement. However, no benefits shall be
payable under this Agreement if the Executive’s Separation from Service is a
Termination with Cause or if this Agreement terminates under Article 5.
 
2.2B.l 
Amount of benefit. The benefit under this section 2.2B is the Accrued Benefit
determined as of the end of the month immediately before the month in which
Separation from Service occurs.
 
2.2B.2 
Payment of benefit. Beginning with the month immediately after the month in
which the Executive attains Normal Retirement Age, the Bank shall pay the
benefit to the Executive in monthly installments, each equal to 1/12th of such
annual benefit, on the first day of each month. The monthly installments shall
be paid to the Executive for 240 months.
 
 
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2.2B.3 
Coordination with Section 2.4. If Early Termination that is involuntary or
voluntary with Good Reason occurs within the 24-month period after a Change in
Control, the Bank shall pay the Executive the benefit under section 2.4 and not
the benefit under this Section 2.2B.
 
2.3           Disability. For 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 instead of any other benefit under this Agreement.
 
2.3.1
Amount of benefit. The annual benefit under this section 2.3 shall be the
Accrued Benefit determined as of the end of the month immediately before the
month in which Separation from Service occurs.
 
2.3.2
Payment of benefit. Beginning with the month immediately after the month in
which the Executive attains Normal Retirement Age, the Bank shall pay the
benefit to the Executive in monthly installments, each equal to 1/12th of such
annual benefit, on the first day of each month. The monthly installments shall
be paid to the Executive for 240 months.
 
2.4           Change in Control. If Executive has a Separation from Service that
is an involuntary termination without Cause or a Voluntary Termination with Good
Reason, in either case within the 24-month period after a Change in Control, the
Bank shall pay to the Executive the benefit described in this section 2.4
instead of any other benefit under this Agreement. Except, however, no benefits
shall be payable under this Agreement if the Executive’s Separation from Service
is a Termination with Cause or if this Agreement terminates under Article 5.
Further, if the Executive shall have attained Normal Retirement Age when
Separation from Service occurs within 24 months after a Change in Control
occurs, whether Separation from Service is voluntary or involuntary for any
reason other than Termination with Cause, the Executive shall be entitled solely
to the benefit provided by section 2.1, not this section 2.4.
 
2.4.1
Amount of benefit. The benefit under this section 2.4 is the Normal Retirement
Age Accrual Balance required by section 2.1, discounting the Normal Retirement
Age Accrual Balance to present value at the time of payment using a discount
rate selected by the Plan Administrator, but the discount rate selected by the
Plan Administrator shall not exceed the discount rate employed at the time of
payment for purposes of calculating the Accrual Balance.
 
2.4.2
Payment of benefit. The Bank shall pay the benefit under this section 2.4 to the
Executive in a single lump sum within three days after the Executive’s
Separation from Service.
 
2.4.3
Coordination with Section 2.2B. If the Executive’s Separation following a Change
in Control is voluntary without Good Reason, or if the Executive’s Separation
from Service occurs after the 24-month period after a Change in Control, the
Executive shall be entitled solely to the benefit provided by section 2.2B, not
this section 2.4.
 
 
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2.5           Lump-Sum Payout of Remaining Normal Retirement Benefit or
Disability Benefit When a Change in Control Occurs. If a Change in Control
occurs after Separation from Service but while the Executive is receiving the
Normal Retirement Age benefit under section 2.1 or is receiving or is entitled
at Normal Retirement Age to receive the Early Termination benefit under sections
2.2A or 2.2B or the Disability benefit under section 2.3, the Bank shall pay the
remaining salary continuation benefits to the Executive in a single lump sum
within three days after the Change in Control. The lump-sum payment due to the
Executive as a result of a Change in Control shall be an amount equal to the
Accrual Balance amount corresponding to the particular benefit when the Change
in Control occurs, reduced by any payments already paid to the Executive for
that particular benefit.
 
2.6           Annual Benefit Statement. Within 120 days after the end of each
calendar year, the Plan Administrator shall provide or cause to be provided to
the Executive an annual benefit statement showing benefits payable or
potentially payable to the Executive under this Agreement. Each annual benefit
statement shall supersede the previous year’s annual benefit statement. If there
is a contradiction between this Agreement and the annual benefit statement
concerning the amount of a particular benefit payable or potentially payable to
the Executive under sections 2.2A, 2.2B, 2.3, or 2.4 hereof, the amount of the
benefit determined under the Agreement shall control.
 
2.7           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 would result
in additional tax or interest to the Executive because of section 409A, the
Executive shall not be entitled to the payments under Article 2 until the
earliest of (x) the date that is at least six months after termination of the
Executive’s employment for reasons other than the Executive’s death, (y) the
date of the Executive’s death, or (z) any earlier date that does not result in
additional tax or interest to the Executive under section 409A. If any provision
of this Agreement would subject the Executive to additional tax or interest
under section 409A, the Bank shall reform the provision to the extent possible
in order to avoid the additional tax or interest under section 409A. However,
the Bank shall maintain to the maximum extent practicable the original intent of
the applicable provision without subjecting the Executive to additional tax or
interest, and the Bank shall not be required to incur any additional
compensation expense as a result of the reformed provision. The Agreement shall
be interpreted and administered to the greatest extent possible to be either
exempt from section 409A, or in compliance with 409A. Further, each payment made
as part of installment payments under this Agreement shall be considered a
separate payment for purposes of section 409A.
 
2.8           One Benefit Only. Despite anything to the contrary in this
Agreement, the Executive and Beneficiary are entitled to one benefit only under
this Agreement, which shall be determined by the first event to occur that is
dealt with by this Agreement. Except as provided in section 2.5 or Article 3,
subsequent occurrence of events dealt with by this Agreement shall not entitle
the Executive or Beneficiary to other or additional benefits under this
Agreement.
 
 
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ARTICLE 3
DEATH BENEFITS
 
3.1           Death Before Separation from Service. If the Executive dies before
Separation from Service, at the Executive’s death the Executive’s Beneficiary
shall be entitled to an amount in cash equal to the Accrual Balance existing at
the Executive’s death. If a benefit is payable to the Executive’s Beneficiary,
the benefit shall be paid in a single lump sum within 90 days after the
Executive’s death. However, no benefits will be paid under this Agreement to the
Executive or the Executive’s Beneficiary if this Agreement is terminated under
Article 5.
 
3.2           Death after Separation from Service. If the Executive dies after
Separation from Service, if Separation from Service was not a Termination with
Cause, and if at death the Executive was receiving the benefit under section 2.1
or was receiving or was entitled at Normal Retirement Age to receive the benefit
under sections 2.2A, 2.2B, or 2.3, at the Executive’s death the Executive’s
Beneficiary shall be entitled to an amount in cash equal to the Accrual Balance
remaining at the Executive’s death, unless the Change-in-Control benefit shall
have been paid to the Executive under section 2.4 or unless a Change-in-Control
payout shall have occurred under section 2.5. No benefit shall be paid to the
Beneficiary under this section 3.2 if the Change-in-Control benefit shall have
been paid to the Executive under section 2.4 or if a Change-in-Control payout
shall have occurred under section 2.5. If a benefit is payable to the
Executive’s Beneficiary under this section 3.2, the benefit shall be paid in a
single lump sum within 90 days after the Executive’s death. However, no benefits
under this Agreement shall be paid or payable to the Executive or the
Executive’s Beneficiary if this Agreement is terminated under Article 5.
 
ARTICLE 4
BENEFICIARIES
 
4.1           Beneficiary Designations. The Executive shall have the right to
designate at any time a Beneficiary to receive any benefits payable under this
Agreement after the Executive’s death. The Beneficiary designated under this
Agreement may be the same as or different from the beneficiary designation under
any other benefit plan of the Bank in which the Executive participates.
 
4.2           Beneficiary Designation: Change. The Executive shall designate a
Beneficiary by completing and signing the Beneficiary Designation Form and
delivering it to the Plan Administrator or its designated agent. The Executive’s
designation of a particular Beneficiary shall be deemed automatically revoked if
that Beneficiary predeceases the Executive, and designation of a spouse as
Beneficiary shall be deemed automatically revoked if the marriage to that spouse
is subsequently dissolved. The Executive shall have the right to change a
Beneficiary by completing, signing, and otherwise complying with the terms of
the Beneficiary Designation Form and the Plan Administrator’s rules and
procedures, as in effect from time to time. Upon the acceptance by the Plan
Administrator of a new Beneficiary Designation Form, all Beneficiary
designations previously filed shall be cancelled. The Plan Administrator shall
be entitled to rely on the last Beneficiary Designation Form filed by the
Executive and accepted by the Plan Administrator before the Executive’s death.
 
 
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4.3           Acknowledgment. No designation or change in designation of a
Beneficiary shall be effective until received, accepted, and acknowledged in
writing by the Plan Administrator or its designated agent.
 
4.4           No Beneficiary Designation. If the Executive dies without a valid
beneficiary designation or if all designated Beneficiaries predecease the
Executive, the Executive’s spouse shall be the designated Beneficiary. If there
are no surviving designated Beneficiaries and no surviving spouse, the benefits
shall be paid to the Executive’s estate.
 
4.5           Facility of Payment. If a benefit is payable to a minor, to a
person declared incapacitated, or to a person incapable of handling the
disposition of his or her property, the Bank may pay the benefit to the
guardian, legal representative, or person having the care or custody of the
minor, incapacitated person, or incapable person. The Bank may require proof of
incapacity, minority, or guardianship as it may deem appropriate before
distribution of the benefit. Distribution shall completely discharge the Bank
from all liability for the benefit.
 
ARTICLE 5
GENERAL LIMITATIONS
 
5.1           Termination with Cause. Despite any contrary provision of this
Agreement, the Bank shall not pay any benefit under this Agreement and this
Agreement shall terminate if Separation from Service is a Termination with Cause
or, unless a Change in Control shall have occurred, if Separation from Service
is an Early Termination before any vesting under Section 2.2A of this Agreement.
 
5.2           Suicide or Misstatement. No benefits shall be paid under this
Agreement if the Executive commits suicide within two years after the Effective
Date or if the Executive makes any material misstatement of fact on any
application for life insurance purchased by the Bank, on any resume or
application provided to the Bank, or on any application for benefits provided by
the Bank.
 
5.3           Removal. If the Executive is removed from office or permanently
prohibited from participating in the Bank’s affairs by the North Carolina
Commissioner of Banks or by an order issued under section 8(e)(4) or (g)(1) of
the Federal Deposit Insurance Act, 12 U.S.C, 1818(e)(4) or (g)(1), all
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order.
 
5.4           Default. Despite any contrary provision of this Agreement, if the
Bank is in “default” or “in danger of default”, as those terms are defined in of
section 3(x) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(x), all
obligations under this Agreement shall terminate.
 
5.5           FDIC Open-Bank Assistance. All obligations under this Agreement
shall terminate, except to the extent determined that continuation of the
contract is necessary for the continued operation of the Bank, when the Federal
Deposit Insurance Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in section 13(c) of the
Federal Deposit Insurance Act. 12 U.S.C. 1823(c). Any rights of the parties that
have already vested shall not be affected by such action, however.
 
 
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5.6           No Violation of Golden Parachute Rules. The Bank and the Executive
acknowledge and agree that any payment or agreement to make any payment to the
Executive or Beneficiary under this Agreement is or may be subject to the golden
parachute limitations of 12 U.S.C. 1828(k) and FDIC rules at 12 C.F.R. Part 359.
The Bank and the Executive therefore acknowledge and agree that if any payment
or agreement to make a payment under this Agreement would be considered a golden
parachute payment under 12 C.F.R. 359.1(f), the Bank shall not have a
contractual or other obligation to make the payment and the agreement to make
the payment shall be void, unless (x) the payment receives advance approval of
the appropriate Federal banking agency, if required at that time by 12 U.S.C.
section 1828(k), 12 C.F,R. Part 359, or other Federal or state laws, rules or
regulations, and (y) the obligation and the payment comply in all other respects
with 12 U.S.C. section 1828(k), 12 C.F.R. Part 359, and other Federal and state
laws, rules or regulations, to the extent applicable at the time.
 
ARTICLE 6
CLAIMS AND REVIEW PROCEDURES
 
6.1           Claims Procedure. A person or beneficiary (“claimant”) who has not
received benefits under the Agreement that he or she believes should be paid
shall make a claim for such benefits as follows –
 
6.1.1 
Initiation – written claim. The claimant initiates a claim by submitting to the
Bank a written claim for the benefits. If the claim relates to the contents of a
notice received by the claimant, the claim must be made within 60 days after the
notice was received by the claimant. All other claims must be made within 180
days after the date of the event that caused the claim to arise. The claim must
state with particularity the determination desired by the claimant.
 
6.1.2 
Timing of Bank response. The Bank shall respond to the claimant within 90 days
after receiving the claim. If the Bank determines that special circumstances
require additional time for processing the claim, the Bank may extend the
response period by an additional 90 days by notifying the claimant in writing
before the end of the initial 90-day period that an additional period is
required. The notice of extension must state the special circumstances and the
date by which the Bank expects to render its decision.
 
6.1.3 
Notice of decision. If the Bank denies part or all of the claim, the Bank shall
notify the claimant in writing of the denial. The Bank shall write the
notification in a manner calculated to be understood by the claimant. The
notification shall set forth –
 
6.1.3.1    the specific reasons for the denial,
6.1.3.2 
a reference to the specific provisions of the Agreement on which the denial is
based,
6.1.3.3 
a description of any additional information or material necessary for the
claimant to perfect the claim and an explanation of why it is needed,
6.1.3.4 
an explanation of the Agreement’s review procedures and the time limits
applicable to such procedures, and
6.1.3.5 
a statement of the claimant’s right to bring a civil action under ERISA section
502(a) following an adverse benefit determination on review.
 
 
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6.2           Review Procedure. If the Bank denies part or all of the claim, the
claimant shall have the opportunity for a full and fair review by the Bank of
the denial, as follows –
 
6.2.1 
Initiation – written request. To initiate the review, the claimant, within 60
days after receiving the Bank’s notice of denial, must file with the Bank 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. The Bank shall also provide the claimant,
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.
 
6.2.3 
Considerations on review. In considering the review, the Bank shall take into
account all materials and information the claimant submits relating to the
claim, without regard to whether the information was submitted or considered in
the initial benefit determination.
 
6.2.4 
Timing of Bank response. The Bank shall respond in writing to the claimant
within 60 days after receiving the request for review. If the Bank determines
that special circumstances require additional time for processing the claim, the
Bank may extend the response period by an additional 60 days by notifying the
claimant in writing before the end of the initial 60-day period that an
additional period is required. The notice of extension must state the special
circumstances and the date by which the Bank expects to render its decision.
 
6.2.5 
Notice of decision. The Bank shall notify the claimant in writing of its
decision on review. The Bank shall write the notification in a manner calculated
to be understood by the claimant. The notification shall set forth –
 
6.2.5.1    the specific reason for the denial,
6.2.5.2 
a reference to the specific provisions of the Agreement on which the denial is
based,
6.2.5.3 
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
6.2.5.4 
a statement of the claimant’s right to bring a civil action under ERISA section
502(a).
 
 
12

 
 
ARTICLE 7
ADMINISTRATION OF AGREEMENT
 
7.1           Plan Administrator Duties. This Agreement shall be administered by
a Plan Administrator consisting of the Board or such committee or person(s) as
the Board shall appoint. The Executive may not be a member of the Plan
Administrator. The Plan Administrator shall also have the discretion and
authority to (x) make, amend, interpret and enforce all appropriate rules, and
regulations for the administration of this Agreement and (y) 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 Plan
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 Plan
Administrator concerning any question arising out of the administration,
interpretation and application of the Agreement and the rules and regulations
promulgated hereunder shall be final and conclusive and binding upon all persons
having any interest in the Agreement. No Executive or Beneficiary shall be
deemed to have any right, vested or nonvested, regarding the continued use of
any previously adopted assumptions, including but not limited to the discount
rate and calculation method employed in the determination of the Accrual
Balance.
 
7.4           Indemnity of Plan Administrator. The Bank shall indemnify and hold
harmless the members of the Plan 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 Plan Administrator or any of its members.
 
7.5           Bank Information. To enable the Plan Administrator to perform its
functions, the Bank shall supply full and timely information to the Plan
Administrator on all matters relating to the date and circumstances of the
retirement, Disability, death or Separation from Service of the Executive, and
such other pertinent information as the Plan Administrator may reasonably
require.
 
7.6           ERISA. The Agreement is subject to ERISA and shall be construed in
accordance with the provisions of ERISA, and, where not preempted by ERISA or
other federal law, with the laws of the State of North Carolina.
 
 
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ARTICLE 8
MISCELLANEOUS
 
8.1           Amendments and Termination. Subject to section 8.14 of this
Agreement, this Agreement may be amended solely by a written agreement signed by
the Bank and by the Executive, and except for termination occurring under
Article 5, this Agreement may be terminated solely by a written agreement signed
by the Bank and by the Executive.
 
8.2           Binding Effect. This Agreement shall bind the Executive, the Bank,
and their beneficiaries, survivors, executors, successors, administrators, and
transferees.
 
8.3           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.
 
8.4           Non-Transferability. Benefits under this Agreement may not be
sold, transferred, assigned, pledged, attached, or encumbered.
 
8.5           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 had no
succession occurred.
 
8.6           Tax Withholding. The Bank shall withhold any taxes that are
required to be withheld from the benefits provided under this Agreement.
 
8.7           Applicable Law. This Agreement and all rights hereunder shall be
governed by the laws of the State of North Carolina, except to the extent
preempted by the laws of the United States of America.
 
8.8           Unfunded Arrangement. The Executive and Beneficiary are general
unsecured creditors of the Bank for the payment of benefits under this
Agreement. The benefits represent the mere promise by the Bank to pay benefits.
Rights to benefits are not subject to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any
insurance on the Executive’s life is a general asset of the Bank to which the
Executive and Beneficiary have no preferred or secured claim.
 
8.9           Entire Agreement. This Agreement constitutes the entire agreement
between the Bank and the Executive concerning the salary continuation benefit
initially granted as of the Effective Date. No rights are granted to the
Executive under this Agreement other than those specifically set forth.
 
 
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8.10           Severability. If 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 such provision together with
all other provisions of this Agreement shall continue in full force and effect
to the full extent consistent with law.
 
8.11           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.
 
8.12           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. If to the Bank, notice
shall be given to the board of directors, Paragon Commercial Bank, 3535 Glenwood
Avenue, Raleigh, North Carolina 27612, or to such other or additional person or
persons as the Bank shall have designated to the Executive in writing. If to the
Executive, notice shall be given to the Executive at the Executive’s address
appearing on the Bank’s records, or to such other or additional person or
persons as the Executive shall have designated to the Bank in writing.
 
8.13           Payment of Legal Fees. The Bank is aware that after a Change in
Control management of the Bank could cause or attempt to cause the Bank to
refuse to comply with its obligations under this Agreement, or could institute
or cause or attempt to cause the Bank to institute litigation seeking to have
this Agreement declared unenforceable, or could take or attempt to take other
action to deny Executive the benefits intended under this Agreement. In these
circumstances the purpose of this Agreement would be frustrated. The Bank
desires that the Executive not be required to incur the expenses associated with
the enforcement of rights under this Agreement, whether by litigation or other
legal action, because the cost and expense thereof would substantially detract
from the benefits intended to be granted to the Executive hereunder. The Bank
desires that the Executive not be forced to negotiate settlement of rights under
this Agreement under threat of incurring expenses. Accordingly, if after a
Change in Control occurs it appears to the Executive that (x) the Bank has
failed to comply with any of its obligations under this Agreement, or (y) the
Bank or any other person has taken any action to declare this Agreement void or
unenforceable or instituted any litigation or other legal action designed to
deny, diminish, or to recover from the Executive the benefits intended to be
provided to the Executive hereunder, the Bank irrevocably authorizes the
Executive from time to time to retain counsel of the Executive’s choice, at the
Bank’s expense as provided in this section 8.13, to represent the Executive in
the initiation or defense of any litigation or other legal action, whether by,
or against the Bank or any director, officer, stockholder, or other person
affiliated with the Bank, in any jurisdiction. Despite any existing or previous
attorney-client relationship between the Bank and any counsel chosen by the
Executive under this section 8.13, the Bank irrevocably consents to the
Executive entering into an attorney-client relationship with that counsel, and
the Bank and the Executive agree that a confidential relationship shall exist
between the Executive and that counsel. The fees and expenses of counsel
selected from time to time by the Executive as provided in this section shall be
paid or reimbursed to the Executive by the Bank on a regular, periodic basis
upon presentation by the Executive of a statement or statements prepared by
counsel in accordance with counsel’s customary practices, up to a maximum
aggregate amount of $100,000, whether suit be brought or not, and regardless of
whether incurred in trial, bankruptcy, or appellate proceedings. The Bank’s
obligation to pay the Executive’s legal fees provided by this section 8.13
operates separately from and in addition to any legal fee reimbursement
obligation the Bank or Paragon Commercial Corporation may have with the
Executive under any separate employment, severance, or other agreement between
the Executive and the Bank or Paragon Commercial Corporation. Despite anything
in this section 8.13 to the contrary however, the Bank shall not be required to
pay or reimburse the Executive’s legal expenses if doing so would violate
section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)1 and Rule
359.3 of the Federal Deposit Insurance Corporation [12 CFR 359.3].
 
 
15

 
 
8.14           Termination or Modification of Agreement Because of Changes in
Law, Rules or Regulations. The Bank is entering into this Agreement on the
assumption that certain existing tax laws, rules, and regulations will continue
in effect in their current form. If that assumption materially changes and the
change has a material detrimental effect on this Agreement, then the Bank
reserves the right to terminate or modify this Agreement accordingly, subject to
the written consent of the Executive, which shall not be unreasonably withheld.
This section 8.14 shall become null and void effective immediately upon a Change
in Control.
 
[The next page is the signature page.]
 
16

 
IN WITNESS WHEREOF, the Executive and a duly authorized officer of the Bank have
executed this amended and restated Salary Continuation Agreement as of the date
first written above.
 
EXECUTIVE: 

 
 BANK:
 
    

 
  
 
/s/ Matthew C. Davis
 
Paragon Commercial Bank
 
Matthew C. Davis
 
 
 
 
 
 
By:

/s/ Robert C. Hatley
 
 
 
 
Robert C. Hatley
 
 

Its:
President and Chief Executive Officer
 

 
 
 
17

 
SCHEDULE A
 
VARIABLE PROVISIONS OF THE
PARAGON COMMERCIAL BANK SALARY CONTINUATION PLAN
 
 
 
 1.
 Name of Executive:

Matthew C. Davis
 
 
 
 
 
 2.
 Effective Date:

January 1, 2017
 
 
 
 
 
 3.
 Original Effective Date: 

January 1, 2017
 
 
 
 
 
 4.
 Initial Vesting Date: 

December 31, 2022
 
 
 
 
 
 5.
 Annual Benefit:

$32,000/year
 
 
 
 
 
 6.
 Vesting Schedule:
The Executive will be vested in a percentage of the Accrued Benefit according to
the following schedule:
 
 
  
 
 
 
 

● 0% if Separation from Service occurs before the Initial Vesting Date
● 20% vested if Separation from Service occurs on or after the Initial Vesting
Date and before December 31, 2023
● 40% vested if Separation from Service occurs on or after December 31, 2023 and
before December 31, 2024
● 60% vested if Separation from Service occurs on or after December 31, 2024 and
before December 31, 2025
● 80% vested if Separation from Service occurs on or after December 31, 2025 and
before December 31, 2026
● 100% vested if Separation from Service occurs on or after December 31, 2026

 
 

 
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