Exhibit 10.1

  

2019 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT

 

This 2019 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT (this “Agreement”) is
entered into as of this 23rd day of September 2019, by and between Select Bank &
Trust Company (the “Bank”), a North Carolina banking corporation, and William L.
Hedgepeth II, President and Chief Executive Officer of the Bank (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, the Bank is willing
to provide to the Executive supplemental retirement benefits 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 (12 U.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))
currently exists or, to the best knowledge of the Bank, is contemplated insofar
as the Bank is concerned;

 

WHEREAS, the Bank is a participating employer in the Pentegra Defined
Contribution Plan for Financial Institutions, a defined contribution retirement
plan which is intended to meet the requirements of Code Section 401(k) (the
“Qualified Retirement Plan”);

 

WHEREAS, this Agreement is designed to supplement, for the Executive and the
Executive’s beneficiaries, the benefits provided in the Qualified Retirement
Plan and a portion of the Executive’s Social Security benefit; and

 

WHEREAS, the parties hereto intend this Agreement to be an unfunded arrangement
maintained primarily to provide supplemental retirement benefits for the
Executive (who is a key employee and member of a select group of management),
and to be considered a top hat plan for purposes of the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”), and the Executive is fully
advised of the Bank’s financial status.

 

NOW THEREFORE, in consideration of the foregoing premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

 

ARTICLE 1 DEFINITIONS

 

1.1          “Annual Benefit Amount” means an annual amount calculated on the
basis of the following formula:

 

[(a x b%) – (c + d)]

 

(a)represents the Executive’s Final Average Pay;

 

  

 

 

(b)represents the proportion, expressed as a percentage, of the number of years
and months of service the Executive provided to the Bank divided by forty (40)
years (not to exceed one hundred percent (100%));

 

(c)represents the Qualified Retirement Plan Offset; and

 

(d)represents the Social Security Offset.

 

1.2         “Base Salary” means the gross annual salary paid to the Executive
relating to services performed by the Executive during a calendar year, whether
or not paid to the Executive in such calendar year, not including any before-tax
basic and supplemental contributions to any qualified retirement plan, Bank
sponsored health and welfare plan, or the amount of any other deferrals from
gross salary under any nonqualified deferred compensation plans which may be
maintained by the Bank from time to time. For the avoidance of doubt, Base
Salary will not include any bonus or other incentive compensation payments made
to the Executive during such calendar year.

 

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         “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         “Board of Directors” or “Board” means the Board of Directors of the
Bank.

 

1.6         “Change in Control” shall mean the occurrence of any one of the
following events, provided, for avoidance of doubt, that such occurrence must
also constitute a “change in control event” within the meaning of Treasury
Regulation § 1.409A-3(i)(5):

 

(a)         Change in ownership: any one person, or more than one person acting
as a group, accumulates ownership of the Bank’s common stock constituting more
than fifty percent (50%) of the total fair market value or total voting power of
the Bank’s common stock, or

 

(b)         Change in effective control: (x) any one person or more than one
person acting as a group acquires within a twelve (12)-month period ownership of
the Bank’s common stock possessing thirty percent (30%) or more of the total
voting power of the Bank, as the case may be, or (y) a majority of the Bank’s
board of directors is replaced during any twelve (12)-month period by directors
whose appointment or election is not endorsed in advance by a majority of the
Bank’s board of directors, or

 

(c)         Change in ownership of a substantial portion of assets: any one
person or more than one person acting as a group acquires (or has acquired in
the twelve (12)-month period ending with the last acquisition by such person or
group) from the Bank, as the case may be, assets having a total gross fair
market value equal to or exceeding forty percent (40%) of the total gross fair
market value of all of the Bank’s assets immediately before the acquisition or
acquisitions. For this purpose, gross fair market value means the value of the
Bank’s assets, or the value of the assets being disposed of, determined without
regard to any liabilities associated with the assets.

 

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1.7       “Code” means the Internal Revenue Code of 1986, as amended, and rules,
regulations, and guidance of general application issued by the U.S. Department
of the Treasury pursuant thereto.

 

1.8       “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 twelve (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 (3) months under a disability insurance plan of the Bank. Medical
determination of disability will be made by the Plan Administrator in its sole
discretion. Upon reasonable request by the Plan Administrator, Executive will
submit to an examination by a physician selected and paid by the Bank for
purposes of determining whether a Disability exists, and Executive will
authorize the disclosure of the results of such examination by the physician to
the Plan Administrator.

 

1.9       “Early Termination” means Separation from Service before Normal
Retirement Age for reasons other than death, Disability, or Termination with
Cause.

 

1.10     “Effective Date” means July 1, 2019.

 

1.11     “Final Average Pay” means (a) with respect to the benefits paid under
section 2.1 of this Agreement, the average of the Executive’s Base Salary over
the sixty-month period ending on the last day of the month prior to month in
which the Executive’s Retirement Date occurs; (b) with respect to the benefits
paid under section 2.2 of this Agreement, the average of the Executive’s Base
Salary over the sixty-month period ending on the last day of the month prior to
month in which the Executive Separates from Service; or (c) with respect to the
benefits paid under sections 2.3, 2.4, or 2.5 of this Agreement, the average of
the Executive’s Base Salary over the sixty-month period ending on the last day
of the month prior to month in which the Executive’s Retirement Date occurs,
but, for purposes of the calculation under this subclause (c), with respect to
any years prior to the Executive’s Retirement Date during which the Executive is
Separated from Service, the Base Salary used to compute Final Average Pay shall
be the Executive’s last Base Salary paid by the Bank and increased at a rate of
three percent (3%) per year for each year after the Executive’s Separation from
Service through the Executive’s Retirement Date.

 

1.12     “Good Reason” shall have the same meaning specified in any effective
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
then-effective employment agreement containing a definition of Good Reason, Good
Reason means the occurrence of any of the following events without Executive’s
consent: (i) a material reduction of Executive’s Base Salary (except in
connection with a Bank-wide decrease in executive compensation) (ii) a material
diminution of Executive’s authority, duties, or responsibilities, or (iii) the
Bank’s material breach of this Agreement. In order for Executive to resign for
Good Reason, Executive must provide written notice to the Bank of the existence
of the Good Reason condition within thirty (30) days of the date on which
Executive discovers, or reasonably should have discovered, the existence of such
Good Reason condition. Upon receipt of such notice, the Bank will have thirty
(30) days during which it may remedy the Good Reason condition and not be
required to provide for the benefits described in sections 2.3 or 2.5 as a
result of such proposed resignation. If the Good Reason condition is not
remedied within such thirty (30)-day period, Executive may resign based on the
Good Reason condition specified in the notice effective immediately upon the
expiration of the thirty (30)-day cure period.

 

 

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1.13     “Normal Retirement Age” means age 67.

 

1.14     “Plan Administrator” or “Administrator” means the plan administrator
described in Article 7.

 

1.15     “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 the
Effective Date of this Agreement.

 

1.16     “Qualified Retirement Plan Offset” means the annual benefit which could
be provided based on the actuarially determined annuity value of the Executive’s
vested account attributable to employer contributions under the Qualified
Retirement Plan.

 

1.17     “Retirement Date” means the later of the date the Executive Separates
from Service after the Executive attains Normal Retirement Age or the date the
Executive attains Normal Retirement Age.

 

1.18     “Section 409A” means Section 409A of the Code, the regulations and
guidance promulgated by the U.S. Department of the Treasury thereunder, and any
state law of similar effect.

 

1.19     “Separation from Service” or “Separates from Service” means separation
from service as defined in Section 409A and rules, regulations, and guidance of
general application thereunder issued by the U.S. Department of the Treasury,
including termination for any reason of the Executive’s service as an executive
and independent contractor to the Bank and any member of a controlled group, as
defined in Section 414 of the Code, other than because of a leave of absence
approved by the Bank or the Executive’s death. For purposes of this Agreement,
the Bank shall have sole discretion to determine any question as to the
employment status of the Executive or the date of the Executive’s Separation
from Service. In determining whether a Separation from Service for purposes of
this Agreement has occurred, service on the board of directors of the Bank shall
be disregarded to the extent allowed pursuant to Section 409A.

 

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1.20     “Social Security Offset” means fifty percent (50%) of the annual
primary Social Security benefit the Executive is entitled, or upon application,
would be entitled, to receive under the Social Security Act as of the
Executive’s Retirement Date , and which Social Security benefit the Executive
does, or would, assuming proper and timely application therefor were made, in
fact receive for such year pursuant to the payment procedures of the Social
Security Administration then in effect. The amount of such Social Security
Benefit shall be determined as of the Retirement Date under the provisions of
the Social Security Act in effect at that time by assuming that (i) the
Executive receives no earnings covered by the Social Security Act in any year
following the Retirement Date, and (ii) the Executive received wages in excess
of the Social Security taxable wage base for each year preceding the Retirement
Date.

 

1.21     “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. If the
Executive is not a party to a then-effective severance or employment agreement
containing a definition of termination with cause, Termination with Cause means
the Bank terminates the Executive’s employment because of:

 

(a)       Executive’s substantial failure to perform or material neglect of the
material duties of his or her employment with the Employer, or

 

(b)       the conviction of Executive of, or the guilty or nolo contendere plea
of Executive with respect to, any crime or offense involving property of the
Bank (other than a de minimis offense) or involving moral turpitude, or

 

(c)       the conviction of Executive of, or the guilty or nolo contendere plea
of Executive with respect to, or any crime or offense (A) constituting a felony,
or (B) which has a material adverse impact on the Bank’s reputation or financial
condition, or

 

(d)       the breach by Executive of any material provision of Executive’s
employment agreement with the Employer, or

 

(e)       Executive’s dishonesty in connection with the Bank or appropriating
assets or opportunities of the Bank for his or her own benefit, or

 

(f)       violation of a generally recognized lawful material policy of the
Bank, of which Executive is provided a copy or is otherwise made aware, (after
written notice thereof and a reasonable opportunity to cure if the violation is
an issue which reasonably is curable), or

 

(g)      removal of the Executive from office or permanent prohibition of the
Executive 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), or

 

(h)      the occurrence of any event that results in the Executive being
excluded from coverage, or having coverage limited for the Executive as compared
to other executives of the Employer, under the Employer’s blanket bond or other
fidelity or insurance policy covering its directors, officers, or employees.

 

 

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1.22      “Vested Annual Benefit Amount” means:

 

(a)         that portion of the Executive’s Annual Benefit Amount that has
vested in accordance with the following schedule: twenty percent (20%) of the
Executive’s Annual Benefit Amount shall vest on the date the Executive attains
age 63 and the remaining eighty percent (80%) shall vest on each subsequent
anniversary thereafter at a rate of twenty percent (20%) per year, or

 

(b)         in the event of: (i) a Change in Control before the Executive
attains Normal Retirement Age and before the Executive Separates from Service,
(ii) the Executive’s Separation from Service due to Disability before Normal
Retirement Age, or (iii) the Executive’s death before Separation from Service,
the Executive’s full Annual Benefit Amount without regard to the vesting
schedule set forth in section 1.22(a).

 

Any portion of the Executive’s Annual Benefit Amount that is not vested upon the
Executive’s Separation from Service shall be forfeited. For the avoidance of
doubt, any portion the Executive’s Annual Benefit Amount that is forfeited in
accordance with the previous sentence shall not form any part of the Executive’s
Vested Annual Benefit Amount.

 

ARTICLE 2 RETIREMENT BENEFITS

 

2.1         Normal Retirement. Unless Separation from Service or a Change in
Control occurs before Normal Retirement Age, when the Executive Separates from
Service on or after 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.

 

2.1.1Amount of benefit. The benefit under this section 2.1 is the Executive’s
Vested Annual Benefit Amount existing on the Executive’s Retirement Date.

 

2.1.2Payment of benefit. The Bank shall pay the benefit under this section 2.1
to the Executive for fifteen (15) years beginning with the first day of the Plan
Year immediately following the Retirement Date, provided that if the Executive
is a “specified employee” (as defined in Section 409A), the Bank shall commence
paying the benefit under this section 2.1 to the Executive on the first day of
each Plan Year beginning with the later of: (x) the first day of the Plan Year
immediately following the Executive’s Retirement Date, or (y) the seventh month
after the month in which the Executive’s Retirement Date occurs.

 

2.2         Early Termination Benefit for Voluntary Resignation without Good
Reason. Unless the Executive shall have received the benefit under section 2.5
after a Change in Control, upon Early Termination by the Executive without Good
Reason the Bank shall pay to the Executive the benefit described in this section
2.2 instead of any other benefit under this Agreement.

 

2.2.1Amount of benefit. The benefit under this section 2.2 is the Executive’s
Vested Annual Benefit Amount existing on the date the Executive Separates from
Service.

 

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2.2.2Payment of benefit. The Bank shall pay the benefit under this section 2.2
to the Executive for fifteen (15) years beginning with the first day of the Plan
Year immediately following the Executive’s Retirement Date, provided that if the
Executive is a “specified employee” (as defined in Section 409A), the Bank shall
commence paying the benefit under this section 2.2 to the Executive on the first
day of each Plan Year beginning with the later of: (x) the first day of the Plan
Year immediately following the Executive’s Retirement Date, or (y) the seventh
month after the month in which the Executive’s Separation from Service occurs.

 

2.3         Early Termination Benefit for Termination without Cause or Voluntary
Resignation for Good Reason. Unless the Executive shall have received the
benefit under section 2.5 after a Change in Control, upon Early Termination by
the Bank without Cause or by the Executive for Good Reason the Bank shall pay to
the Executive the benefit described in this section 2.3 instead of any other
benefit under this Agreement.

 

2.3.1Amount of benefit. The benefit under this section 2.3 is the Executive’s
projected Vested Annual Benefit Amount existing on the Executive’s Retirement
Date.

 

2.3.2Payment of benefit. The Bank shall pay the benefit under this section 2.3
to the Executive for fifteen (15) years beginning with the first day of the Plan
Year immediately following the Executive’s Retirement Date, provided that if the
Executive is a “specified employee” (as defined in Section 409A), the Bank shall
commence paying the benefit under this section 2.3 to the Executive on the first
day of each Plan Year beginning with the later of: (x) the first day of the Plan
Year immediately following the Executive’s Retirement Date, or (y) the seventh
month after the month in which the Executive’s Retirement Date occurs.

 

2.4         Disability Benefit. Unless the Executive shall have received the
benefit under section 2.5 after a Change in Control, upon Separation from
Service due to the Executive’s Disability before Normal Retirement Age the Bank
shall pay to the Executive the benefit described in this section 2.4 instead of
any other benefit under this Agreement.

 

2.4.1Amount of benefit. The benefit under this section 2.4 is the present value
of the Executive’s projected Vested Annual Benefit Amount on the date the
Separation from Service due to the Executive’s Disability occurs calculated by
applying a five percent (5%) discount rate.

 

2.4.2Payment of benefit. The Bank shall pay the benefit under this section 2.4
to the Executive in a single lump sum within sixty (60) days after the date on
which Separation from Service due to the Executive’s Disability occurs, provided
that if the Executive is a “specified employee” (as defined in Section 409A),
the Bank shall pay the benefit under this section 2.4 to the Executive on the
first day of the seventh month after the month in which the Separation from
Service due to the Executive’s Disability occurs.

 

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2.5         Change in Control. If a Change in Control occurs both before Normal
Retirement Age and before Separation from Service, and within twelve (12) months
following the Change in Control, the Executive has a Separation from Service by
the Bank without Cause or by the Executive for Good Reason, the Bank shall pay
to the Executive the benefit described in this section 2.5 instead of any other
benefit under this Agreement.

 

2.5.1Amount of benefit. The benefit under this section 2.5 is the present value
of the Executive’s projected Vested Annual Benefit Amount on the date the
Executive Separates from Service without Cause or for Good Reason after a Change
in Control occurs calculated by applying a five percent (5%) discount rate.

 

2.5.2Payment of benefit. Within thirty (30) days immediately following the date
the Executive Separates from Service without Cause or for Good Reason after a
Change in Control occurs, the Bank shall pay the benefit under this section 2.5
to the Executive in a single lump sum.

 

2.6         Lump-Sum Payout of Remaining Normal Retirement Benefit or Early
Termination Benefit When a Change in Control Occurs. If a Change in Control
occurs while the Executive is receiving the Normal Retirement benefit under
section 2.1, the Bank shall pay the remaining Normal Retirement benefit under
such section to the Executive in a single lump sum on the day of the Change in
Control. If a Change in Control occurs after Separation from Service but while
the Executive is receiving or is entitled to receive the Early Termination
benefit under sections 2.2 or 2.3, the Bank shall pay the remaining Early
Termination benefit under such section to the Executive in a single lump sum
within thirty (30) days after the later of (x) the effective date of the Change
in Control or (y) if the Executive is a “specified employee” (as defined in
Section 409A), the first day of the seventh month after the month in which the
Separation from Service occurs. The lump-sum payment due to the Executive as a
result of a Change in Control shall be an amount equal to the present value of
the amount of benefit (determined in accordance with sections 2.1.1, 2.2.1, or
2.3.1 as applicable) corresponding to the particular benefit when the Change in
Control occurs applying a five percent (5%) discount rate.

 

2.7         Payment Reduction. Notwithstanding anything contained in this
Agreement to the contrary, (i) to the extent that any payment or distribution of
any type to or for Executive by the Bank or any successor to the Bank after a
Change in Control, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (the “Payments”) constitute
“parachute payments” (within the meaning of Section 280G of the Code), such
Payments will be reduced (but not below zero) if and to the extent necessary so
that no Payments to be made or benefit to be provided to Executive will be
subject to the excise tax imposed under Code Section 4999. If the Payments are
so reduced, then unless Executive will have given prior written notice to the
Bank or its successor specifying a different order by which to effectuate the
reduction, the Bank or its successor will reduce or eliminate the Payments (x)
by first reducing or eliminating the portion of the Payments which are not
payable in cash (other than that portion of the Payments subject to clause (z)
hereof), (y) then by reducing or eliminating cash payments (other than that
portion of the Payments subject to clause (z) hereof) and (z) then by reducing
or eliminating the portion of the Payments (whether payable in cash or not
payable in cash) to which Treasury Regulation § 1.280G-1 Q/A 24(c) (or successor
thereto) applies, in each case in reverse order beginning with payments or
benefits which are to be paid the farthest in time. Any notice given by
Executive pursuant to the preceding sentence will take precedence over the
provisions of any other plan, arrangement or agreement governing his or her
rights and entitlements to any benefits or compensation

 

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2.8      Compliance with Section 409A. The Agreement is intended to comply with
Section 409A. Notwithstanding anything to the contrary, this Agreement shall be
interpreted, operated and administered in a manner consistent with this
intention. If any provision of this Agreement would subject the Executive to
additional tax or interest under Section 409A, then the parties agree that this
Agreement shall be amended so as to avoid the imposition of additional tax
pursuant to Section 409A, while maintaining to the maximum extent practicable
the original intent of the applicable provision without requiring the Bank to
incur any additional compensation expense as a result of the reformed provision.
Each payment pursuant to this Agreement is a separate “payment” for purposes of
Treasury Regulation § 1.409A-2(b)(2)(i). Notwithstanding anything above, in no
event will the Bank be liable for any additional tax, interest or penalties that
may be imposed on Executive by Section 409A or any damages for failing to comply
with Section 409A.

 

2.9      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 2.6 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 Before Separation from Service. If the Executive dies before
Separation from Service, at the Executive’s death the Bank shall pay to the
Executive’s Beneficiary the benefit described in this section 3.1 instead of any
other benefit under this Agreement.

 

3.1.1    Amount of benefit. The benefit under this section 3.1 is the present
value of the Executive’s projected Vested Annual Benefit Amount on the date of
the Executive’s death calculated by applying a five percent (5%) discount rate.

 

3.1.2    Payment of benefit. Within sixty (60) days immediately following the
date of the Executive’s death, the Bank shall pay the benefit under this section
3.1 to the Executive’s Beneficiary in a single lump sum.

 

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 2.2 or 2.3, at the Executive’s death the Executive’s Beneficiary
shall be entitled to an amount in cash equal to the present value of Vested
Annual Benefit Amount remaining at the Executive’s death calculated by applying
a five percent (5%) discount rate, unless the Change-in-Control benefit shall
have been paid to the Executive under section 2.5 or unless a Change-in-Control
payout shall have occurred under section 2.6. No benefit shall be paid under
this Article 3 after the Change-in-Control benefit is paid under section 2.5 or
after a Change-in-Control payout occurs under section 2.6. If a benefit is
payable to the Executive’s Beneficiary, the benefit shall be paid in a single
lump sum within sixty (60) 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.

 

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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
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 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, 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.

 

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.

 

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ARTICLE 5 GENERAL LIMITATIONS

 

5.1      Termination with Cause. Despite any contrary provision of this
Agreement, the Bank will not pay any benefit under this Agreement and this
Agreement will immediately terminate if Executive’s Separation from Service is a
Termination with Cause.

 

5.2      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.

 

5.3      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 section
3(x) of the Federal Deposit Insurance Act, 12 U.S.C. 1813(x), all obligations
under this Agreement shall terminate.

 

5.4      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, if 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.

 

ARTICLE 6

CLAIMS AND REVIEW PROCEDURES

 

6.1      Claims Procedure for other than Disability benefits. Other than with
respect to a claim for Disability benefits under section 2.4 hereunder, the Bank
will notify any person or entity that makes a claim for benefits under this
Agreement (the “Claimant”) in writing, within 90 days after receiving Claimant’s
written application for benefits, of his or her eligibility or non-eligibility
for benefits under the Agreement. If the Plan Administrator determines that the
Claimant is not eligible for benefits or full benefits, the notice will state
(w) the specific reasons for denial, (x) a specific reference to the provisions
of the Agreement on which the denial is based, (y) a description of any
additional information or material necessary for the Claimant to perfect his or
her claim, and a description of why it is needed, and (z) an explanation of the
Agreement’s claims review procedure and other appropriate information concerning
steps to be taken if the Claimant wishes to have the claim reviewed.

 

6.1.1    Extension. If the Plan Administrator determines that there are special
circumstances requiring additional time to make a decision, the Bank will notify
the Claimant of the special circumstances and the date by which a decision is
expected to be made, and may extend the time for up to an additional ninety (90)
days.

 

6.2      Claims Procedure for Disability benefits. With respect to a claim for
Disability benefits under section 2.4 hereunder, the Bank will notify the
Claimant in writing (in a culturally and linguistically appropriate manner),
within forty-five (45) days after receiving Claimant’s written application for
benefits, of his or her eligibility or non-eligibility for benefits under the
Agreement. If the Plan Administrator determines that the Claimant is not
eligible for partial or full benefits, the notice will state (s) the specific
reasons for denial, (t) a specific reference to the provisions of the Agreement
on which the denial is based, (u) a description of any additional information or
material necessary for the Claimant to perfect his or her claim, and a
description of why it is needed, (v) an explanation of the Agreement’s claims
review procedure and other appropriate information concerning steps to be taken
if the Claimant wishes to have the claim reviewed, (w) a discussion of the
decision including an explanation of the Plan Administrator’s basis for
disagreeing with or not following: (1) the views presented by the Claimant of
health care professionals treating the Claimant and vocational professionals who
evaluated the Claimant; (2) the views of medical or vocational experts whose
advice was obtained on behalf of the Plan Administrator in connection with a
Claimant's denial of benefits, without regard to whether the advice was relied
upon in making the benefit determination; and (3) a disability determination
regarding the Claimant made by the Social Security Administration, (x) if the
adverse benefit determination is based on a medical necessity or experimental
treatment or similar exclusion or limit, an explanation of the clinical or
scientific judgment for the denial or a statement that such an explanation will
be provided free of charge upon request, (y) the specific internal rules,
guidelines, protocols, standards or other similar criteria of the relied upon in
making the adverse determination or, alternatively, a statement that such rules,
guidelines, protocols, standards or other similar criteria do not exist; and (z)
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 to the Claimant's claim for Disability benefits.

 

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6.2.1    Extension. If the Plan Administrator determines that there are matters
beyond the Plan Administrator’s control requiring an extension of time to make a
decision, the Bank will notify the Claimant, before the end of the initial
forty-five (45)-day period, of the circumstances requiring the extension of time
and the date by which a decision is expected to be made, and may extend the time
for up to an additional thirty (30) days. If, before the end of the first thirty
(30)-day extension period, the Plan Administrator determines that there are
still matters beyond the Plan Administrator’s control requiring an additional
extension of time to make a decision, the Bank will notify the Claimant, before
the end of the first thirty (30)-day extension period, of the circumstances
requiring the extension of time and the date by which a decision is expected to
be made, and may extend the time for up to an additional thirty (30) days. If
the Plan Administrator extends the time to make a decision under this section
6.2.1, the notice of extension will specifically explain to the Claimant, (a)
the standards on which entitlement to a benefit is based, (b) the unresolved
issues that prevent a decision on the claim, and (c) the additional information
needed to resolve those issues. The Claimant will then be given at least
forty-five (45) days within which to provide the specified information.

 

6.3      Review Procedure. If the Claimant is determined by the Plan
Administrator not to be eligible for benefits, or if the Claimant believes that
he or she is entitled to greater or different benefits, the Claimant will have
the opportunity to have his or her claim reviewed by the Bank by filing a
petition for review with the Bank within sixty (60) days after receipt of the
notice issued by the Bank. The Claimant’s petition must state the specific
reasons the Claimant believes entitle him or her to benefits or to greater or
different benefits. Within sixty (60) days after receipt by the Bank of the
petition (forty-five (45) days for claims for Disability benefits), the Plan
Administrator will give the Claimant (and counsel, if any) an opportunity to (x)
present his or her position verbally or in writing, (y) review the pertinent
documents relevant to the Claimant’s claim for benefits, and (z) have the claim
reviewed, taking into account all comments, documents, records, and other
information submitted by the Claimant relating to the claim, whether or not such
information was submitted or considered in the initial benefit determination. In
addition, with respect to claims for Disability benefits, before the Plan
Administrator can issue a full or partial denial of benefits on review, the Plan
Administrator will provide the Claimant (and counsel, if any), as soon as
possible and sufficiently in advance of the end of the forty-five (45)-day
review period, with (a) any new or additional evidence considered, relied upon,
or generated by the Plan Administrator or other person making the benefit
determination in connection with the claim, and (b) its rationale for the
denial. The Plan Administrator will notify the Claimant of the Plan
Administrator’s decision in writing within the sixty (60)-day period (forty-five
(45)-day period for Disability benefit claims), stating specifically the basis
of its decision, written in a manner to be understood by the Claimant, and the
specific provisions of the Agreement on which the decision is based. If, because
of special circumstances (such as the need for a hearing), the sixty (60)-day
period (forty-five (45)-day period for Disability benefit claims) is not
sufficient, the decision may be deferred for up to another sixty (60) days or
forty-five (45) days (as applicable) at the election of the Plan Administrator,
but notice of this deferral will be given to the Claimant.

  

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6.4      Denial of Claims. The decision of the Plan Administrator made under
this Article will be final, subject only to the Executive’s rights to file a
lawsuit under ERISA. Failure of the Executive to follow the Claims and Review
Procedures of this Article, including meeting the deadlines set forth in those
procedures, will result in a complete waiver by the Executive of the claim and
forfeiture of the right to bring a lawsuit to enforce the claim under ERISA or
state law.

 

ARTICLE 7

ADMINISTRATION OF AGREEMENT

 

7.1      Plan Administrator Duties. This Agreement shall be administered by a
Plan Administrator consisting of the Board of Directors, or such committee or
person as the Board of Directors of the Bank shall appoint. The Executive may
not be a member of the Plan Administrator. The Plan Administrator shall 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 that may arise, including
interpretations of this 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 about 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 interest
rate and calculation method employed in the determination of the Annual Benefit
Amount.

 

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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.

 

ARTICLE 8 MISCELLANEOUS

 

8.1      Amendments and Termination. This Agreement may be amended solely by a
written agreement signed by the Bank and the Executive. This Agreement may be
terminated by the Bank without the Executive’s consent as described below.
Unless Article 5 provides that the Executive is not entitled to payment, the
Bank must pay the present value of the Vested Annual Benefit Amount, calculated
by applying a five percent (5%) discount rate, in a single lump sum to the
Executive if the Bank terminates this Agreement but only if the termination and
payment are carried out consistent with the terms of the Section 409A
plan-termination exception to the prohibition against accelerated payment. This
Agreement may be terminated within the thirty (30) days preceding or the twelve
(12) months following a Change in Control. This Agreement will then be treated
as terminated only if all substantially similar arrangements sponsored by the
Bank are also terminated so that all participants in similar arrangements are
required to receive all amounts of compensation deferred under the terminated
arrangements within twelve (12) months of the date of termination of the
arrangements. The lump-sum termination payment will be made to the Executive
within thirty (30) days of the date on which the Bank terminates this Agreement.

 

8.2      Binding Effect. This Agreement shall bind the Executive and 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 by the Executive.

 

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 Bank’s business or assets to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
the Bank would be required to perform this Agreement had no succession occurred.

 

 

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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. The 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.
The 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 subject matter. No rights are
granted to the Executive under this Agreement other than those specifically set
forth.

 

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

 

8.11    Headings. Headings are included herein 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 Bank’s Board of Directors, 700 W. Cumberland Street, Dunn,
NC 28334, 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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8.13    Payment of Legal Fees. In the event any dispute shall arise between
Executive and the Bank, or a successor thereto, as to the terms or
interpretation of this Agreement, whether instituted by formal legal proceedings
or otherwise, including any action taken by Executive to enforce the terms of
sections 2.5 and 2.6, or in defending against any action taken by the Bank, the
Bank shall reimburse Executive for all costs and expenses of such proceedings or
actions, in the event Executive prevails in any such proceeding or action.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Executive and a duly authorized Bank officer have
executed this 2019 Supplemental Executive Retirement Plan Agreement as of the
date first written above.

  

 

EXECUTIVE:   BANK:             /s/ William L. Hedgepeth II   /s/ Lynn H. Johnson
By: William L. Hedgepeth II   By: Lynn H. Johnson Title: President and Chief
Executive Officer   Title: COO, EVP