Exhibit 10.1
EMPLOYMENT AGREEMENT

This Employment Agreement (“Agreement”), dated as of January 25, 2008, is made
and entered into between Capital Bank (hereinafter the “Bank”), and David C.
Morgan (hereinafter “Employee”).

The Bank desires to continue to employ Employee and Employee desires to accept
such employment on the terms set forth below.

In consideration of the mutual promises set forth below and other good and
valuable con­sideration, the receipt and sufficiency of which the parties
acknowledge, the Bank and Employee agree as follows:

1. Employment. The Bank employs Employee and Employee accepts employment on the
terms and conditions set forth in this Agreement.
 
2. Nature of Employment. Employee shall serve as Executive Vice President and
Chief Banking Officer and shall have such responsibilities and authority as may
be reasonably assigned to him by the Bank. Employee shall also serve as
Executive Vice President of Capital Bank Corporation (“CBC” and, along with the
Bank, sometimes collectively referred to herein as the “Corporation”). Employee
shall devote his full time and attention and best efforts to perform
successfully his duties and advance the Bank’s and CBC’s interests. Employee
shall abide by the Bank’s and CBC’s policies, procedures, and practices as they
may exist from time to time.

During this employment, Employee shall have no other employment of any nature
whatsoever without the prior consent of the Bank; provided, however, this
Agreement shall not prohibit Employee from personally owning and dealing in
stocks, bonds, securities, real estate, commodities or other investment
properties for his own benefit or those of his immediate family.

3. Term. Subject to the earlier termination provisions set forth in Section 5,
the original term of this Agreement shall be one (1) year commencing as of the
date set forth above. Upon expiration of the original term or any renewal term,
the term shall be automatically renewed for an additional one (1) year period
unless, at least thirty (30) days prior to the renewal date, either party gives
notice of its intent not to continue the relationship. During any renewal term,
the terms, conditions and provisions set forth in this Agreement shall remain in
effect unless modified in accordance with Section 13.
 
4. Compensation and Benefits.

(a) Base Salary. Employee’s initial annual base salary for all services rendered
shall be Two Hundred Thousand and No/100 Dollars ($200,000.00) (less any
applicable taxes and withholdings), payable in accordance with the Bank’s
policies, procedures, and practices as they may exist from time to time.
Employee’s salary periodically may be reviewed and adjusted at the Bank’s
discretion in accordance with the Bank’s policies, procedures and practices as
they may exist from time to time.

(b) Incentive Plan. Employee shall be eligible to participate in the Capital
Bank Corporation Equity Incentive Plan in accordance with the applicable terms,
conditions, and eligibility requirements of that Plan, some of which are in the
plan administrator’s discretion, as they may exist from time to time.

(c) Benefits. Employee may participate in any medical insurance or other
employee benefit plans and programs which may be made available from time to
time to other Bank or CBC employees at Employee’s level; provided, however, that
Employee’s participation in such benefit plans and programs is subject to the
applicable terms, conditions, and eligibility requirements of those plans and
programs, some of which are within the plan administrator’s discretion, as they
may exist from time to time.

(d) Car Allowance. Employee shall receive a car allowance of Nine Hundred and
No/100 Dollars ($900.00) per month.

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(e) Expenses. Employee shall be reimbursed by the Bank for any reasonable and
necessary business expenses incurred by Employee on behalf of the Bank or in
connection with Employee’s performance of his duties hereunder. Such
reimbursement shall be in accordance with the Bank’s practices or policies as
they may exist from time to time.

(f) Vacation. Employee shall be entitled to four (4) weeks of vacation during
calendar year 2008 and thereafter vacation entitlement shall be in accordance
with the Bank’s policies. Such vacation shall be taken in accordance with the
Bank’s policies and practices as they may exist from time to time.

5. Termination of Employment and Post-Termination Compensation.

(a) With Notice. Either the Bank or Employee may terminate this Agreement and
the employment relationship created hereunder without cause at any time by
giving thirty (30) days’ written notice to the other party.

(b) Cause, Disability, or Death. The Bank may terminate Employee’s employment
immediately for “Disability,” “Cause,” or in the event of Employee’s death. For
purposes of this Agreement, Disability shall mean Employee’s mental or physical
inability to perform the essential functions of his duties satisfactorily for a
period of one hundred eighty (180) consecutive days or one hundred eighty (180)
days within a 365-day period as determined by the Bank in its reasonable
discretion and in accordance with applicable law. For purposes of this
Agreement, “Cause” shall mean: (i) any act of Employee involving dishonesty;
(ii) any material violation by Employee of any Bank or CBC rule, regulation, or
policy; (iii) gross negligence committed by Employee; (iv) material failure of
Employee to perform his duties hereunder; or (v) Employee’s breach of any of the
express obligations of this Agreement.

(c) Post-Termination Compensation.
 
(i) In the event of termination for Cause, the Bank’s obligation to compensate
Employee ceases on the date of termination except as to the amounts of salary
due at that time.

(ii) In the event of a termination for death or Disability, the Bank’s
obligation to compensate Employee ceases on the date of termination, except as
to any accrued compensation and any pro rata bonuses to which he may be entitled
as of the date of termination. The Bank shall pay any such amounts to Employee
or Employee’s estate.
 
(iii) If there has been no Change in Control and the Bank terminates Employee’s
employment without Cause, then Employee, upon his execution of an enforceable
general release in a form prepared by the Bank, shall be entitled to (A) receive
an amount equal to his then current annual base salary plus the amount of bonus
paid to Employee, if any, in the prior bonus year (less any applicable taxes and
withholdings), payable in substantially equal amounts over a twelve (12) month
period in accordance with the payroll schedule applicable to Employee
immediately prior to the termination of employment and beginning with the first
month after the date of termination of employment (for purposes of Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”), as applicable,
each installment payment shall be considered a separate payment); and (B) for
the period of time Employee receives payments pursuant to Section 5(c)(iii)(A),
participate in all life insurance, health, accidental death and dismemberment,
and disability plans paid by the Bank for Employee in which Employee
participates immediately prior to the termination, provided that Employee’s
continued participation is possible under the applicable terms, conditions and
eligibility requirements of such plans and programs. Employee’s continued
participation in such plans and programs shall be at no greater cost to Employee
than the cost he bore for such participation immediately prior to termination.
If Employee’s participation in any such plan or program is barred, the Bank
shall arrange upon comparable terms, and at no greater cost to Employee than the
cost he bore for such plans and programs prior to termination, to provide
Employee with benefits substantially similar to, or greater than, those which he
is entitled to receive under any such plan or program. Provided, however, no
installment payments or benefits shall be provided until the required general
release becomes effective.

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6. Non-Solicitation/Non-Compete. Employee acknowledges that by virtue of
Employee’s employment with the Bank, Employee shall have access to and control
of confidential and proprietary information concerning the Corporation’s and/or
its affiliates’ business and that the Corporation’s business depends to a
considerable extent on the individual skills, efforts, and leadership of
Employee. Additionally, Employee acknowledges that the covenants contained in
this Section 6 are reasonably necessary to protect the legitimate business
interests of the Corporation and are described with sufficient accuracy and
definiteness to enable him to understand the scope of the restrictions imposed
on him. Accordingly and in consideration of the Corporation’s commitments to
Employee under this Agreement, Employee expressly covenants and agrees that
Employee shall not, without the prior consent of the Bank, during his employment
and, subject to Section 6(c) below, for one (1) year following the cessation of
his employment unless such cessation is for termination by the Bank for Cause,

(a) on Employee’s own or another’s behalf, whether as an officer, director,
stockholder, partner, associate, owner, employee, consultant or otherwise:

(i) within any city, metropolitan area or county in which the Corporation does
business or is located, engage in any business activity (or assist others to
engage in any business activity) that directly competes with the Corporation;

(ii) solicit or do business that is the same, similar to, or otherwise in
competition with the business engaged in by the Corporation from or with persons
or entities who are customers of the Corporation, who were customers of the
Corporation at any time during the last year of Employee’s employment with the
Bank, or to whom the Corporation made proposals for business at any time during
the last year of Employee’s employment with the Bank; or

(iii) employ, offer employment to, or otherwise solicit for employment, any
employee or other person who is then currently an employee of the Corporation or
who was employed by the Corporation during the last year of Employee’s
employment with the Bank.

(b) within any city, metropolitan area or county in which the Corporation does
business or is located, be employed or otherwise engaged by any entity that
engages in the same, similar or otherwise competitive business as the
Corporation, to provide the same or similar services that Employee provided to
the Corporation.

(c) (i) If (A) the Bank terminates Employee’s employment without Cause and
(B) Employee waives in writing his right to receive payments pursuant to Section
5(c)(iii) hereof, the non-competition and non-solicitation restrictions
contained in this Section 6 shall terminate on the later of (A) the cessation of
Employee’s employment with the Bank or (B) the Bank’s receipt of Employee’s
waiver described in this Section 6(c)(i). (ii) In the event that Employee’s
employment terminates under any of the circumstances described in Section 8(b)
(“Change in Control Termination”), the non-competition and non-solicitation
restrictions contained in this Section 6 shall terminate six (6) months
following cessation of Employee’s employment with the Bank.

7. Proprietary Information and Property. Employee shall not, at any time during
or following employment with the Bank, disclose or use, except in the course of
his employment with the Bank or as may be required by law, any confidential or
proprietary information of the Bank or CBC received by Employee while employed
hereunder, whether such information is in Employee’s memory or embodied in
writing or other physical form.

Confidential or proprietary information is information which is not generally
available to the general public, or the Bank’s or CBC’s competitors, or
ascertainable through common sense or general business knowledge; including, but
not limited to data, compilations, methods, financial data, financial plans,
business plans, product plans, lists of actual or potential customers, and
marketing information regarding executives and employees.

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All records, files or other objects maintained by or under the control, custody
or possession of the Bank, CBC, or their agents in their capacity as agents
shall be and remain the Bank’s or CBC’s property respectively. Upon termination
of his employment or upon the Bank’s or CBC’s earlier request, Employee shall
return to the Bank all property (including, but not limited to, credit cards,
keys, company car, cell phones, computer hardware and software, records, files,
manuals and other documents in whatever form they exist, whether electronic,
hard copy or otherwise and all copies, notes or summaries thereof) which he
received in connection with his employment. At the Bank’s request, Employee
shall bring current all such records, files or documents before returning them.

Upon notice of cessation of his employment with the Bank, Employee shall fully
cooperate with the Bank in winding up his pending work and transferring his work
to those individuals designated by the Bank.

8. Change in Control.

(a) Definition. For purposes of this Agreement, “Change in Control” shall mean
any of the following:

(i) Any “person” (as such term is used in Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the “Act”)) acquiring “beneficial
ownership” (as such term is used in Rule 13d-3 under the Act), directly or
indirectly, of securities of CBC, the parent holding company of the Bank,
representing fifty percent (50%) or more of the combined voting power of CBC’s
then outstanding voting securities (the “Voting Power”), but excluding for this
purpose an acquisition by CBC or an “affiliate” (as defined in Rule 12b-2 under
the Act) or by an employee benefit plan of CBC or of an affiliate.

(ii) The individuals who constitute the Board of Directors of CBC (“Board”) on
the effective date hereof or their successors duly appointed in the ordinary
course (collectively, the “Incumbent Directors”) cease to constitute at least a
majority of the Board in any twelve (12) month period. Any director whose
nomination is approved by a majority of the Incumbent Directors shall be
considered an Incumbent Director; provided, however, that no Director whose
initial assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of CBC shall be
considered an Incumbent Director.

(iii) The shareholders of CBC approve a reorganization, share exchange, merger
or consolidation related to CBC or the Bank following which the owners of the
Voting Power of CBC immediately prior to the closing of such transaction do not
beneficially own, directly or indirectly, more than fifty percent (50%) of the
Voting Power of CBC.

(iv) The shareholders of the Bank approve a complete liquidation or dissolution
of the Bank, or a sale or other disposition of all or substantially all of the
capital stock or assets of the Bank, but excluding for this purpose any sale or
disposition of all or substantially all of the capital stock or assets of the
Bank to an “affiliate” (as defined in Rule 12b-2 under the Act) of CBC.

Change in Control shall not include a transaction, or series of transactions,
whereby CBC or the Bank becomes a subsidiary of a holding company if the
shareholders of the holding company are substantially the same as the
shareholders of CBC prior to such transaction or series of series of
transactions.

(b) Change in Control Termination. After the occurrence of a Change in Control,
Employee shall be entitled to receive payments and benefits pursuant to this
Agreement in the following circumstances:

(i) if within the period beginning ninety (90) days prior to and ending three
(3) years after the occurrence of a Change in Control, the Bank terminates
Employee’s employment for any reason other than Cause, Disability, or death; or

(ii) if within three (3) years after the occurrence of a Change in Control,
Employee terminates his employment with the Bank for “Good Reason.” For purposes
of this Section 8(b), “Good Reason” shall mean the occurrence of any of the
following events or conditions without Employee’s prior written consent:

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(A) a change in Employee’s status, title, position, or responsibilities
(including reporting responsibilities) which represents a material adverse
change from his status, title, position, or responsibilities in effect
immediately prior thereto; the assignment to Employee of any duties or
responsibilities which are materially inconsistent with his status, title,
position or responsibilities; or any removal of Employee from or failure to
reappoint or re-elect him to any of such positions, status, or title (including
positions, titles, and responsibilities with any affiliate), except in
connection with the termination of his employment for Disability, Cause, or
death, or by Employee other than for Good Reason; provided, however, that no
such change, assignment, or removal shall constitute Good Reason so long as
Employee suffers no reduction in Base Salary as a result of such change,
assignment, or removal;

(B) the Bank’s requiring Employee to be based at any place outside a thirty (30)
mile radius from its headquarters at 333 Fayetteville Street, Raleigh, North
Carolina, except for reasonably required travel on the Bank’s business;

(C) any material breach by the Bank of any express provision of this Agreement;
or

(D) the failure of CBC to obtain an agreement, satisfactory to Employee, from
any successor or assign of CBC to assume and agree to perform this Agreement.

(c) Change in Control Benefits. In the event that Employee’s employment with the
Bank terminates under any of the circumstances described above in this Section 8
at any time, Employee shall be entitled to receive all accrued compensation and
any pro rata bonuses to which he may be entitled and which Employee may have
earned up to the date of termination and, upon Employee’s execution of an
enforceable general release in a form prepared by the Bank, severance payments
and benefits according to the following schedule and terms:

(i) a severance payment equal to: 2.99 times the amount of Employee’s then
current annual base salary plus the amount of bonus paid to Employee, if any, in
the prior bonus year (less any applicable taxes and withholdings), in the event
the termination occurs no later than twelve (12) months after the occurrence of
a Change in Control; 2.0 times the amount of Employee’s then current annual base
salary plus the amount of bonus paid to Employee, if any, in the prior bonus
year (less any applicable taxes and withholdings), in the event the termination
occurs more than twelve (12) months but within (up to and including) twenty-four
(24) months after the occurrence of a Change in Control; or 1.0 times the amount
of Employee’s then current annual base salary plus the amount of bonus paid to
Employee, if any, in the prior bonus year (less any applicable taxes and
withholdings), in the event the termination occurs more than twenty-four (24)
months but within (up to and including) thirty-six (36) months after the
occurrence of a Change in Control. The severance payment shall be paid in
substantially equal monthly installments without interest, over a period of
thirty-six (36), twenty-four (24), or twelve (12) months, respectively, in
accordance with the payroll schedule applicable to Employee immediately prior to
the termination of employment and beginning with the first month after the date
of termination of employment (for purposes of Section 409A of the Code, as
applicable, each installment payment shall be considered a separate payment);
and

(ii) a cash payment in an amount equal to the premiums that Employee would pay
in order to secure COBRA continuation coverage for health insurance under the
Bank’s medical plan and for the premiums Employee would pay for life insurance,
accidental death and dismemberment and disability insurance to continue such
insurance during the applicable severance periods following termination of
employment (irrespective of whether COBRA otherwise would terminate prior to
expiration of any such severance period) (“Premium Payment”); and the additional
federal, state, and local income and other taxes that will result from the
Premium Payment (the “Premium Tax Gross-up”). This Premium Payment and the
Premium Tax Gross-up shall be paid in a single lump-sum cash payment, less any
applicable taxes and withholdings, within thirty (30) days after the date of
termination of employment.

Provided, however, no installment payments or other cash payment shall be
provided until the required general release becomes effective.

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(d) Limitation on Payments. To the extent that any of the payments and benefits
provided for under this Agreement or otherwise payable to Employee constitute
“parachute payments” within the meaning of Section 280G of the Code, and but for
this Section 8 would be subject to the excise tax imposed by Section 4999 of the
Code, the Bank shall reduce the aggregate amount of such payments and benefits
such that the present value of such payment of benefits and any other “parachute
payments” amounts (as determined under the Code and the applicable regulations)
is equal to 2.99 times Employee’s “base amount” as defined in Section 280G(b)(3)
of the Code.

9. Survival. The terms and conditions of Sections 6 and 7 shall survive
termination of this Agreement and/or Employee’s employment and shall not be
affected by any change or modification of this Agreement unless specific
reference is made to such sections.

10. Remedies. Employee agrees that his breach or threatened violation of
Sections 6 and 7 will result in immediate and irreparable harm to the Bank or
CBC for which legal remedies would be inadequate. Therefore, in addition to any
legal or other relief to which the Bank or CBC may be entitled, (a) the Bank or
CBC may seek legal and equitable relief, including but not limited to,
preliminary and permanent injunctive relief, (b) the Bank will be released of
its obligations under this Agreement to make any payments to Employee, including
but not limited to, those payable pursuant to Sections 5 and/or 8, and
(c) Employee will indemnify the Bank or CBC for all expenses, including
attorneys’ fees, in seeking to enforce those Sections.

11. Delayed Distribution to Key Employees. If the Bank determines in accordance
with Sections 409A and 416(i) of the Code and the regulations promulgated
thereunder, in the Bank’s sole discretion, that Employee is a Key Employee of
the Bank on the date his employment with the Bank terminates and that a delay in
benefits provided under this Agreement is necessary to comply with Code Section
409A(a)(2)(B)(i), then any severance payments and any continuation of benefits
or reimbursement of benefit costs provided by this Agreement shall be delayed
for a period of six (6) months following Employee’s termination date (the “409A
Delay Period”). In such event, any severance payments and the cost of any
continuation of benefits provided under this Agreement that would otherwise be
due and payable to Employee during the 409A Delay Period shall be paid to
Employee in a lump sum cash amount in the month following the end of the 409A
Delay Period. For purposes of this Section 11, “Key Employee” shall mean an
employee who, on an Identification Date (“Identification Date” shall mean each
December 31) is a key employee as defined in Section 416(i) of the Code without
regard to paragraph (5) thereof. If Employee is identified as a Key Employee on
an Identification Date, then Employee shall be considered a Key Employee for
purposes of this Agreement during the period beginning on the first April 1
following the Identification Date and ending on the following March 31.

12. Waiver of Breach. The Bank’s or Employee’s waiver of any breach of a
provision of this Agreement shall not waive any subsequent breach by the other
party.

13. Entire Agreement. This Agreement: (i) supersedes all other understandings
and agreements, oral or written, between the parties with respect to the subject
matter of this Agreement; and (ii) constitutes the sole agreement between the
parties with respect to this subject matter. Each party acknowledges that:
(i) no representations, inducements, promises or agreements, oral or written,
have been made by any party or by anyone acting on behalf of any party, which
are not embodied in this Agreement; and (ii) no agreement, statement or promise
not contained in this Agreement shall be valid. No change or modification of
this Agreement shall be valid or binding upon the parties unless such change or
modification is in writing and is signed by the parties.

14. Severability. If a court of competent jurisdiction holds that any provision
or sub-part thereof contained in this Agreement is invalid, illegal or
unenforceable, that invalidity, illegality or unenforceability shall not affect
any other provision in this Agreement. Additionally, if any of the provisions,
clauses or phrases set forth in Section 6 or 7 of this Agreement are held
unenforceable by a court of competent jurisdiction, then the parties desire that
such provision, clause or phrase be “blue-penciled” or rewritten by the court to
the extent necessary to render it enforceable.

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15. Parties Bound. The terms, provisions, covenants and agreements contained in
this Agreement shall apply to, be binding upon and inure to the benefit of the
Bank’s successors and assigns. The Bank, at its discretion, may assign this
Agreement. Employee may not assign this Agreement without the Bank’s prior
written consent.

16. Governing Law. This Agreement and the employment relationship created by it
shall be governed by North Carolina law. The parties hereby consent to exclusive
jurisdiction in North Carolina for the purpose of any litigation relating to
this Agreement and agree that any litigation by or involving them relating to
this Agreement shall be conducted in the court of Wake County or the federal
court of the United States for the Eastern District of North Carolina.
 
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IN WITNESS WHEREOF, the parties have entered into this Agreement on the day and
year written below.

 
EMPLOYEE
                     
/s/ David C. Morgan
 
January 25, 2008
 
David C. Morgan
 
Date
                 
CAPITAL BANK
                     
By:  /s/ B. Grant Yarber
 
January 25, 2008
     
Date
                 
CAPITAL BANK CORPORATION
                     
By:  /s/  B. Grant Yarber
 
January 25, 2008
     
Date
                       

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