Exhibit 10.1

 
SOUTHERN COMMUNITY BANK AND TRUST
Amended & Restated Salary Continuation Agreement of
F. Scott Bauer

This Amended Salary Continuation Agreement (this “Agreement”) is entered into as
of this ________day of ____________________________, 2007, by and between
Southern Community Bank and Trust, a North Carolina-chartered bank (the “Bank”),
and F. Scott Bauer, its Chief Executive 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 an employee of the Bank, the Bank
is willing to provide salary continuation benefits to the Executive, 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;

WHEREAS, the Bank and the Executive entered into an Executive Supplemental
Retirement Plan Executive Agreement dated as of January 25, 2002, providing for
specified retirement benefits for the Executive after termination of his
employment;
 
WHEREAS, the Bank and the Executive have negotiated and agreed to miscellaneous
changes in the terms and conditions of the January 25, 2002 Executive
Supplemental Retirement Plan Executive Agreement, and

WHEREAS, the Bank and the Executive intend that this Agreement shall amend and
restate in its entirety the January 25, 2002 Executive Supplemental Retirement
Plan Executive Agreement effective as of January 1, 2007.

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.
 

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ARTICLE 1 DEFINITIONS

The following words and phrases used in this Agreement have the meanings
specified.

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, 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 age 62.

The Executive initial Accrual Balance as of January 1, 2007 was $202,362.
 
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.

1.2
“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:

 
(a)
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%.

 
(b)
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.

1.3
“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.

1.4
“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 -

(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,

 

(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.

1.5
“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.

1.6
“Disability” means that a Participant is either:

 
(a)
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

(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.

1.7
“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.

1.8
“Effective Date” means January 1, 2007.

1.9
“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.

1.10
“Normal Retirement Age” means the Executive’s sixty second (62nd) birthday.

 

1.11
“Plan Administrator” or “Administrator” means the plan administrator described
in Article 8.

1.12
“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 January 1,
2007.

 

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1.13
“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.

1.14
“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:

 
(a)
the Executive’s gross negligence or gross neglect of duties or intentional and
material failure to perform stated duties after written notice thereof, or

 
(b)
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

 
(c)
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

 
(d)
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

 
(e)
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

 
(f)
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.

1.15
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.

  
ARTICLE 2 LIFETIME BENEFITS

2.1
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)
Amount of Normal Form of benefit. The annual Normal Retirement benefit under
this Section 2.1 is $188,504, which shall be paid in monthly installments in the
monthly amount of $15,708.67 for the Life of the Executive (Normal Form is a
Life Annuity).

 
(b)
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
Executives death.

.

 
(c)
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.

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:

 
(i)
Life Annuity with either a 120 or 180 guaranteed monthly payments;

     

 
(ii)
Joint and 50% (or 100%) Survivor Annuity.

Any Alternative Form of Payment provide herein shall be the Actuarial Equivalent
of the Normal Form (Life Annuity) of payment.

 
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.

2.2
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.

 
(a)
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.

 

(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)
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:

 
Vesting Schedule
Years of Vesting Service
Percent Vested
Less than 3
 0%
3
33 1/3% 
4
 66 2/3%
5 or more years
100%

2.3
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.

 
(a)
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.

 
(b)
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.

 
2.4
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.

 
(a)
Amount of benefit: The benefit under this Section 2.4 is equal to the Normal
Retirement Age Accrual Balance required under Section 2.1, without discounting
for the time value of money. On the Effective Date of this Agreement, using the
initial Discount Rate of 7 % and assuming payment of the $188,504 annual benefit
under Section 2.1 beginning with the month after the month in which the
Executive attains his Normal Retirement Age and ending when the Executive
attains age, the Normal Retirement Age Accrual Balance was $1,890,148.  

 
(b)
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.

2.5
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
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

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 will result in
additional tax or interest to the Executive because of Section 409A, the
Executive will not be entitled to the payments under Article 2 until the
earliest of:

 
(i)
the date that is at least six (6) months after termination of the Executive’s
employment for reasons other than the Executive’s death, or

(ii)
the date of the Executive’s death, or

(iii)
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 of the Code or result in a violation of Section
409A of Code, the Bank shall reform such provision. 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. References in this Agreement to Section 409A
of the Code include rules, regulations, and guidance of general application
issued by the Department of the Treasury under Code 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.

ARTICLE 3 DEATH BENEFITS
 
3.1
Death During Active Service. Except as provided in Section 5.2, if the Executive
dies before a Separation from Service, at the Executive’s death the Executive’s
Beneficiary shall be entitled to the sum of:

 
(i)
an amount in cash equal to the Accrual Balance existing at the time of the
Executive’s death, unless the Change-in-Control benefit shall have previously
been paid to the Executive, plus

 

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(ii)
the benefit described in the Endorsement Split Dollar Agreement attached to this
Agreement as Addendum A.

No benefit shall be paid to the Beneficiary under sub-paragraph (i) above, if
the Change-in-Control benefit shall have previously been paid to the Executive.
If a benefit is payable to the Executive’s Beneficiary under sub-paragraph (i)
above, the benefit shall be paid in a single lump sum 90 days after the
Executive’s death. However, no benefits under this Agreement or under the
Endorsement Split Dollar Agreement shall be paid or payable 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 a Separation
from Service and if such Separation from Service was not as a result of a
Termination for Cause, at the Executive’s death the Executive’s Beneficiary
shall be entitled to a monthly payment based on the Alternative Form of Payment
the Executive elected in accordance with Section 2.1(c), provided he elected a
Alternative Form of Payment in lieu of the Normal Annuity Form which is a Life
Annuity. However, no payment shall be made to a Beneficiary under this Section
3.2 if a lump sum payment has previously been made under the Change-in-Control
benefit payable under Section 2.5 above. 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 upon the
death of the Executive. 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 Beneficiary
designation shall be deemed automatically revoked if the Beneficiary predeceases
the Executive or if the Executive names a spouse as Beneficiary and the marriage
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.

 
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, then
the Executive’s spouse shall be the designated Beneficiary. If the Executive has
no surviving spouse, the benefits shall be made to the personal representative
of the Executive’s estate.

 

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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 such 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 for Cause. Despite any contrary provision of this Agreement, the
Bank shall not pay any benefit under this Agreement and this Agreement shall
terminate if a Separation from Service is the result of Termination for Cause.
Likewise, the Beneficiary shall not be entitled to any benefits under the
Endorsement Split Dollar Agreement attached to this Agreement as Addendum A and
the Endorsement Split Dollar Agreement also shall terminate if Separation from
Service is the result of Termination for Cause.

5.2
Suicide or Misstatement. The Bank shall not pay any benefit under this Agreement
and the Beneficiary shall be entitled to no benefits under the Endorsement Split
Dollar Agreement attached as Addendum A if the Executive commits suicide within
two years after the date of this Agreement or if the Executive makes any
material misstatement of fact on any application or resume provided to the Bank
or on any life insurance application for benefits which death benefits would be
payable to the Bank.

5.3
Removal. If 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
(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, and the Endorsement Split Dollar Agreement also shall
terminate as of the effective date of the order.

5.4
Default. Notwithstanding any provision of this Agreement to the contrary, if the
Bank is in “default” or “in danger of default,” as those terms are defined in
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 Federal Deposit Insurance Act Section
13(c). 12 U.S.C. 1823(c).

However, rights of the parties that have already vested in accordance with
Section 2.2(c) shall not be affected by such action.
 
ARTICLE 6  CLAIMS AND REVIEW PROCEDURES

6.1
Claims Procedure. A person or beneficiary (“claimant”) who has not received
benefits under this Agreement that he or she believes should be paid may make a
claim for such benefits as follows -

 

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(a)
Initiation - written claim. The claimant initiates a claim by submitting to the
Administrator 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.

 
(b)
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.

 
(c)
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 -

(i)
the specific reasons for the denial,

 

(ii)
a reference to the specific provisions of the Agreement on which the denial is
based,

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

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

 
(v)
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 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 -

(a)
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.

 
(b)
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.

 
(c)
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.

 

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(d)
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.

 
(e)
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 -

(i)
the specific reason for the denial,

 
(ii)
a reference to the specific provisions of the Agreement on which the denial is
based,

 
(iii)
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

 
(iv)
a statement of the claimant’s right to bring a civil action under ERISA Section
502(a).

6.3
Reimbursement of Expenses. If the claimant prevails at the conclusion of the
claims and review procedure outlined in this Article 6, including any civil
action brought by the claimant under ERISA Section 502(a), the Bank shall
reimburse the claimant for all legal expenses incurred by the claimant in the
claims and review procedure.

ARTICLE 7  MISCELLANEOUS
 
7.1
Amendments and Termination. Subject to Section 7.15 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.

 
7.2
Binding Effect. This Agreement shall bind the Executive, the Bank, and their
Beneficiaries, survivors, executors, successors, administrators, and
transferees.

7.3
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.

 
7.4
Non-Transferability. Benefits under this Agreement cannot be sold, transferred,
assigned, pledged, attached, or encumbered in any manner.

 

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7.5
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 if no such succession had
occurred.

 
7.6
Tax Withholding. The Bank shall withhold any taxes that are required to be
withheld from the benefits provided under this Agreement.

 
7.7
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.

7.8
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 the benefits. Rights to
benefits are not subject in any manner 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.

7.9
Entire Agreement. This Agreement and the Endorsement Split Dollar Agreement
attached to this Agreement as Addendum A constitute the entire agreement between
the Bank and the Executive concerning the subject matter. No rights are granted
to the Executive under this Agreement other than those specifically set forth.
This Agreement amends and restates in its entirety the January 25, 2002
Executive Supplemental Retirement Plan Executive Agreement.

7.10
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.

7.11
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.

7.12
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:

Board of Directors
Southern Community Bank and Trust
4605 Country Club Road
Winston-Salem, North Carolina 27104

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.
 

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7.13
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.

It is the intention of the Bank 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. It is the intention of the Bank 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:

 
(i)
the Bank has failed to comply with any of its obligations under this Agreement,
or

 
(ii)
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 7.13) 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 7.13, 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 such counsel in accordance with such
counsel’s customary practices, up to a maximum aggregate amount of $500,000,
whether suit be brought or not, and whether or not incurred in trial,
bankruptcy, or appellate proceedings.

The Bank’s obligation to pay the Executive’s legal fees provided by this Section
7.13 operates separately from and in addition to any legal fee reimbursement
obligation the Bank may have with the Executive under any separate employment,
severance, or other agreement between the Executive and the Bank. Despite any
contrary provision in this Section 7.13 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)] and Rule
359.3 of the Federal Deposit Insurance Corporation [12 CFR 359.3].
 

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7.14
Internal Revenue Code Section 280G Gross Up.

(a)
Additional payment to account for Excise Taxes. If as the result of a Change in
Control the Executive becomes entitled to acceleration of benefits under this
Agreement or under any other plan or agreement of or with the Bank or its
affiliates (together, the “Total Benefits”), and if any of the Total Benefits
will be subject to the Excise Tax as set forth in Sections 280G and 4999 of the
Internal Revenue Code of 1986 (the “Excise Tax”), the Bank shall pay to the
Executive the following additional amounts, consisting of:

(i)
a payment equal to the Excise Tax payable by the Executive on the Total Benefits
under Section 4999 of the Internal Revenue Code (the “Excise Tax Payment”), and

(ii)
a payment equal to the amount necessary to provide the Excise Tax Payment net of
all income, payroll and excise taxes.

Together, the additional amounts described in clauses (i) and (ii) above are
referred to in this Agreement as the “Gross-Up Payment Amount.” Payment of the
Gross-Up Payment Amount shall be made in addition to the amount set forth in
Section 2.4.

Calculating the Excise Tax. For purposes of determining whether any of the Total
Benefits will be subject to the Excise Tax and for purposes of determining the
amount of the Excise Tax the following will apply:

1)  Determination of “parachute payments” subject to the Excise Tax: Any other
payments or benefits received or to be received by the Executive in connection
with a Change in Control or the Executive’s Separation from Service (whether
under the terms of this Agreement or any other agreement or any other benefit
plan or arrangement with the Bank, any person whose actions result in a Change
in Control, or any person affiliated with the Bank or such person) shall be
treated as “parachute payments” within the meaning of Section 280G(b)(2) of the
Internal Revenue Code, and all “excess parachute payments” within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the
opinion of the certified public accounting firm that is retained by the Bank as
of the date immediately before the Change in Control (the “Accounting Firm”)
such other payments or benefits do not constitute (in whole or in part)
parachute payments, or such excess parachute payments represent (in whole or in
part) reasonable compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Internal Revenue Code in excess of the base amount
(as defined in Section 280G(b)(3) of the Internal Revenue Code), or are
otherwise not subject to the Excise Tax,

2)  Calculation of benefits subject to the Excise Tax: The amount of the Total
Benefits that shall be treated as subject to the Excise Tax shall be equal to
the lesser of:

 
(i)
the total amount of the Total Benefits reduced by the amount of such Total
Benefits that in the opinion of the Accounting Firm are not parachute payments,
or

(ii)
the amount of excess parachute payments within the meaning of Section 280G(b)(1)
(after applying clause (1), above), and

 
3)
Value of non-cash benefits and deferred payments: The value of any non-cash
benefits or any deferred payment or benefit shall be determined by the
Accounting Firm in accordance with the principles of Sections 280G(d)(3) and (4)
of the Internal Revenue Code.

 

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Assumed Marginal Income Tax Rate. For purposes of determining the amount of the
Gross-Up Payment Amount, the Executive shall be deemed to pay federal income
taxes at the highest marginal rate of federal income taxation in the calendar
years in which the Gross-Up Payment Amount is to be made and state and local
income taxes at the highest marginal rate of taxation in the state and locality
of the Executive’s residence on the date of Separation from Service, net of the
reduction in federal income taxes that can be obtained from deduction of such
state and local taxes (calculated by assuming that any reduction under Section
68 of the Internal Revenue Code in the amount of itemized deductions allowable
to the Executive applies first to reduce the amount of such state and local
income taxes that would otherwise be deductible by the Executive, and applicable
federal FICA and Medicare withholding taxes).

Return of Reduced Excise Tax Payment or Payment of Additional Excise Tax.
If the Excise Tax is later determined to be less than the amount taken into
account hereunder when the Executive’s employment terminated, the Executive
shall repay to the Bank - when the amount of the reduction in Excise Tax is
finally determined - the portion of the Gross-Up Payment Amount attributable to
the reduction (plus that portion of the Gross-Up Payment Amount attributable to
the Excise Tax, federal, state and local income taxes and FICA and Medicare
withholding taxes imposed on the Gross-Up Payment Amount being repaid by the
Executive to the extent that the repayment results in a reduction in Excise Tax,
FICA, and Medicare withholding taxes and/or a federal, state, or local income
tax deduction).

If the Excise Tax is later determined to be more than the amount taken into
account hereunder when the Executive’s employment terminated (due, for example,
to a payment whose existence or amount cannot be determined at the time of the
Gross-Up Payment Amount), the Bank shall make an additional Gross-Up Payment
Amount to the Executive for that excess (plus any interest, penalties, or
additions payable by the Executive for the excess) when the amount of the excess
is finally determined.

(d)
Responsibilities of the Accounting Firm and the Bank.

Determinations Shall Be Made by the Accounting Firm. Subject to the provisions
of Section 7.14(a), all determinations required to be made under this Section
7.14(b) - including whether and when a Gross-Up Payment Amount is required, the
amount of the Gross-Up Payment Amount and the assumptions to be used to arrive
at the determination (collectively, the “Determination”) - shall be made by the
Accounting Firm, which shall provide detailed supporting calculations both to
the Bank and the Executive within 15 business days after receipt of notice from
the Bank or the Executive that there has been a Gross-Up Payment Amount, or such
earlier time as is requested by the Bank.

Fees and Expenses of the Accounting Firm and Agreement with the Accounting Firm.
All fees and expenses of the Accounting Firm shall be borne solely by the Bank.
The Bank shall enter into any agreement requested by the Accounting Firm in
connection with the performance of its services hereunder.

Accounting Firm’s Opinion. If the Accounting Firm determines that no Excise Tax
is payable by the Executive, the Accounting Firm shall furnish the Executive
with a written opinion to that effect, and to the effect that failure to report
Excise Tax, if any, on the Executive’s applicable federal income tax return will
not result in the imposition of a negligence or similar penalty.
 

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Accounting Firm’s Determination Is Binding; Underpayment and Overpayment. The
Determination by the Accounting Firm shall be binding on the Bank and the
Executive. Because of the uncertainty in determining whether any of the Total
Benefits will be subject to the Excise Tax at the time of the Determination, it
is possible that a Gross-Up Payment Amount that should have been made will not
have been made by the Bank (“Underpayment”), or that a Gross-Up Payment Amount
will be made that should not have been made by the Bank (“Overpayment”).

If, after a Determination by the Accounting Firm, the Executive is required to
make a payment of additional Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred. The Underpayment (together with
interest at the rate provided in Section 1274(d)(2)(B) of the Internal Revenue
Code) shall be paid promptly by the Bank to or for the benefit of the Executive.

If the Gross-Up Payment Amount exceeds the amount necessary to reimburse the
Executive for the Excise Tax according to Section 7.14(a), the Accounting Firm
shall determine the amount of the Overpayment. The Overpayment (together with
interest at the rate provided in Section 1274(d)(2)(B) of the Internal Revenue
Code) shall be paid promptly by the Executive to or for the benefit of the Bank.
Provided that the Executive’s expenses are reimbursed by the Bank, the Executive
shall cooperate with any reasonable requests by the Bank in any contests or
disputes with the Internal Revenue Service relating to the Excise Tax.

Accounting Firm Conflict of Interest. If the Accounting Firm is serving as
accountant or auditor for the individual, entity, or group effecting the Change
in Control, the Executive may appoint another nationally recognized public
accounting firm to make the Determinations required hereunder (in which case the
term “Accounting Firm” as used in this Agreement shall be deemed to refer to the
accounting firm appointed by the Executive under this paragraph).

7.15
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
7.15 shall become null and void effective immediately upon an event that is
considered a Change in Control.

ARTICLE 8 ADMINISTRATION OF AGREEMENT

8.1
Plan Administrator Duties. This Agreement shall be administered by a Plan
Administrator consisting of the Bank’s Board of Directors or such Committee or
person(s) as the Board shall appoint. The Executive may be a member of the Plan
Administrator. The Plan Administrator shall also have the discretion and
authority to (i) make, amend, interpret, and enforce all appropriate rules and
regulations for the administration of this Agreement and (ii) decide or resolve
any and all questions, including interpretations of this Agreement, as may arise
in connection with the Agreement.

 

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8.2
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.

8.3
Binding Effect of Decisions. The decision or action of the Plan Administrator
with respect to any question arising out of or in connection with 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 non-vested, regarding
the continued use of any previously adopted assumptions, including but not
limited to the Discount Rate and calculation method described in Section 1.1.

8.4
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.

8.5
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.

ARTICLE 9 AGREEMENT NOT TO COMPETE

9.1
Covenant Not to Compete.

 
(a)
Without advance written consent of the Bank, the Executive shall not compete
directly or indirectly with the Bank for two years after Separation from
Service, plus any period during which the Executive is in violation of this
covenant not to compete and any period during which the Bank seeks by litigation
to enforce this covenant not to compete.

 
(b)
If any provision of this Section or any word, phrase, clause, sentence or other
portion thereof (including, without limitation, the geographical and temporal
restrictions contained therein) is held to be unenforceable or invalid for any
reason, the unenforceable or invalid provision or portion shall be modified or
deleted so that the provisions hereof, as modified, are legal and enforceable to
the fullest extent permitted under applicable law.

 
(c)
Definitions: For purposes of this Section the following definitions shall apply:

(1)
“compete” shall mean:

 

(a)
providing financial products or services on behalf of any financial institution
for any person residing in the territory,

 
(b)
assisting (other than through the performance of ministerial or clerical duties)
any financial institution in providing financial products or services to any
person residing in the territory, or

 

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(c)
inducing or attempting to induce any person who was a customer of the Bank at
the date of the Executive’s termination of employment to seek financial products
or services from another financial institution.

 
(2)
“directly or indirectly” shall mean:

 
(a)
acting as a consultant, officer, director, independent contractor, or employee
of any financial institution in competition with the Bank in the territory, or

 
(b)
communicating to such financial institution the names or addresses or any
financial information concerning any person who was a customer of the Bank at
the date of the Executive’s Separation from Service.

 
(3)
“customer” shall mean any person to whom the Bank is providing financial
products or services at the date of the Executive’s Separation from Service.

 
(4)
“financial institution” shall mean any bank, savings association, or bank or
savings association hold company, or any other institution, the business of
which is engaging in activities that are financial in nature or incidental to
such financial activities as described in Section 4(k) of the Bank Holding
Company Act of 1956, other than the Bank or one of its affiliated corporations.

(5)
“financial product or service” shall mean any product or service that a
financial institution or a financial holding company could offer by engaging in
any activity that is financial in nature or incidental to such a firm’s activity
under Section 4(k) of the Bank Holding Company Act of 1956 and that is offered
by the Bank or any affiliate on the date of the Executive’s Separation from
Service, including but not limited to banking activities that are closely
related and a proper incident to banking.

 
(6)
“person” shall mean any individual or individuals, corporation, partnership,
fiduciary or association.

 
(7)
“territory” shall mean all of Forsyth, Guilford, Iredell, Rockingham, Surry,
Stokes, and Yadkin Counties in North Carolina and the area within a 15-mile
radius of any full-service banking office of the Bank at the date of Executive’s
Separation from Service.

9.2
Remedies. Because of the unique character of the services to be rendered by the
Executive hereunder, the Executive understands that the Bank would not have an
adequate remedy at law for the material breach or threatened breach by the
Executive of any one or more of the Executive’s covenants set forth in this
Article 9. Accordingly, the Executive agrees that the Bank’s remedies for a
material breach or threatened breach of this Article 9 include but are not
limited to forfeiture of benefits under this Agreement and a suit in equity by
the Bank to enjoin the Executive from the breach or threatened breach of such
covenants. The Executive hereby waives the claim or defense that an adequate
remedy at law is available to the Bank and the Executive agrees not to urge in
any such action the claim or defense that an adequate remedy at law exists.
Nothing herein shall be construed to prohibit the Bank from pursuing any other
remedies for the breach or threatened breach.

9.3
Article 9 Survives Termination But Is Void After a Change in Control. The rights
and obligations set forth in this Article 9 shall survive termination of this
Employment Agreement. However, Article 9 shall become null and void effective
immediately upon a Change in Control.

 

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IN WITNESS WHEREOF, the Executive and a duly authorized officer of the Bank have
executed this Amended Salary Continuation Agreement as of this 16th day of
March, 2007.
 

EXECUTIVE:     Southern Community Bank and Trust:                 x /s/ F. Scott
Bauer  
 By: /s/ Jeff T. Clark

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F. Scott Bauer
   

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Corporate Title: President

 

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