EXHIBIT 10.1
 
CHANGE-IN-CONTROL PROTECTIVE AGREEMENT
 
THIS AGREEMENT entered into this 3rd day of October, 2008 (the “Effective
Date”), by and between FIRST SOUTH BANK (the “Bank”), FIRST SOUTH BANCORP, INC.
(the “Company”), and J. RANDALL WOODSON (the “Employee”).
 
WHEREAS, the Bank and the Company recognize the value of the Employee’s
contribution to the Bank and the Company and wish to protect his position
therewith for the period provided in this Agreement in the event of a Change in
Control (as defined herein); and
 
WHEREAS, the parties desire by this writing to set forth their understanding as
to their respective rights and obligations in the event a Change of Control
occurs.
 
NOW, THEREFORE, in consideration of the foregoing and upon the other terms and
conditions hereinafter provided, the parties hereto agree as follows:
 
1. Defined Terms
 
When used anywhere in the Agreement, the following terms shall have the meaning
set forth herein.
 
(a) “Change in Control” means a change in control as defined in Section 409A of
the Code and the rules, regulations and guidance of general application
thereunder issued by the Department of Treasury, including: (i) the acquisition
by any person (or persons acting as a group) of ownership, holding or power to
vote more than 25% of the voting stock of the Bank or the Company, (ii) the
acquisition of the ability to control the election of a majority of the Bank’s
or the Company’s directors, (iii) the acquisition of a controlling influence
over the management or policies of the Bank or of the Company, or (iv) during
any period of two consecutive years, individuals (the “Continuing Directors”)
who at the beginning of such period constitute the Board of Directors of the
Bank or of the Company (the “Existing Board”) cease for any reason to constitute
at least two-thirds thereof, provided that any individual whose election or
nomination for election as a member of the Existing Board was approved by a vote
of at least two-thirds of the Continuing Directors then in office shall be
considered a Continuing Director. For purposes of this paragraph only, the term
“person” refers to an individual or a corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein.
 
(b) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to
time, and as interpreted through applicable rulings and regulations in effect
from time to time.
 
(c) “Code §280G Maximum” shall mean the product of 2.99 and the Employee’s “base
amount” as defined in Code §280G(b)(3).
 
(d) “Good Reason” shall mean any of the following events, which has not been
consented to in advance by the Employee in writing: (i) the requirement that the
Employee move his personal residence, or perform his principal executive
functions, more than thirty (30) miles from his primary office as of the date of
the Change in Control; (ii) a material reduction in the Employee’s base
compensation as in effect on the date of the Change in Control or as the same
may be increased from time to time; (iii) the failure by the Bank or the Company
to continue to provide the Employee with compensation and benefits provided for
on the date of the Change in Control, as the same may be increased from time to
time, or with benefits substantially similar to those provided to him under any
of the employee benefit plans in which the Employee now or hereafter becomes a
participant, or the taking of any action by the Bank or the Company which would
directly or indirectly reduce any of such benefits or deprive the Employee of
any material fringe benefit enjoyed by him at the time of the Change in Control;
(iv) the assignment to the Employee of duties and responsibilities materially
different from those normally associated with his position; (v) a failure to
elect or reelect the Employee to the Board of Directors of the Bank or the
Company, if the Employee is serving on such Board on the date of the Change in
Control; (vi) a material diminution or reduction in the Employee’s
responsibilities or authority (including reporting responsibilities) in
connection with his employment with the Bank or the Company; or (vii) a material
reduction in the secretarial or other administrative support of the Employee.
 
 
 

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(e) “Just Cause” shall mean, in the good faith determination of the Bank’s Board
of Directors, the Employee’s personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of this Agreement.
The Employee shall have no right to receive compensation or other benefits for
any period after termination for Just Cause. No act, or failure to act, on the
Employee’s part shall be considered “willful” unless he has acted, or failed to
act, with an absence of good faith and without a reasonable belief that his
action or failure to act was in the best interest of the Bank and the Company.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for Just Cause unless there shall have been delivered to the Employee
a copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the membership of the Bank’s Board of Directors at a meeting called
and held for that purpose (after reasonable notice to the Employee and an
opportunity for the Employee to be heard before the Board), finding that in the
good faith opinion of the Board the Employee was guilty of conduct and
specifying the particulars thereof in detail.
 
(f) “Protected Period” shall mean the period that begins on the date six months
before a Change in Control and ends on the later of the second annual
anniversary of the Change in Control or the expiration date of this Agreement.
 
2. Trigger Events
 
The Employee shall be entitled to collect the severance benefits set forth in
Section 3 of this Agreement in the event that (i) the Employee voluntarily
terminates employment within 90 days of an event that both occurs during the
Protected Period and constitutes Good Reason, or (ii) the Bank, the Company, or
their successor(s) in interest terminate the Employee’s employment for any
reason other than Just Cause during the Protected Period.
 
Notwithstanding the foregoing, the Employee must give notice to the Bank or the
Company of the existence of one or more of the conditions that qualify as Good
Reason within sixty (60) days after the initial existence of the condition, and
the Bank or the Company shall have thirty (30) days thereafter to remedy the
condition. In addition, the Employee’s voluntary termination due to Good Reason
must occur within six (6) months after the initial existence of a condition
qualifying as a Good Reason.
 
3. Severance Benefit
 
(a) If the Employee becomes entitled to collect severance benefits pursuant to
Section 2 hereof, the Bank shall pay the Employee a severance benefit equal to
one (1) times the Employee’s base annual salary at the rate in effect when the
Protected Period begins. Said sum shall be paid in one lump sum within ten (10)
days of the later of the date of the Change in Control or the Employee’s last
day of employment with the Bank or the Company. In no event, however, will this
amount the Employee receives under this Agreement exceed the difference between
(i) the Code §280G Maximum and (ii) the sum of any other “parachute payments”
(as defined under Code §280G(b)(2)) that the Employee receives on account of the
Change in Control.
 
(b) In the event that the Employee and the Bank agree that the Employee has
collected an amount exceeding the Code §280G Maximum, the parties may jointly
agree in writing that such excess shall be treated as a loan ab initio which the
Employee shall repay to the Bank, on terms and conditions mutually agreeable to
the parties, together with interest at the applicable federal rate provided for
in Section 7872(f)(2)(B) of the Code.
 
(c) If when employment termination occurs the Employee is a “specified employee”
within the meaning of Section 409A of the Code, if the cash severance payment
under Section 3(a) would be considered deferred compensation under Section 409A
of the Code, and finally if an exemption from the six-month delay requirement of
Section 409A(a)(2)(B)(i) of the Code is not available, the Employee’s continued
base salary under Section 3(a) for the first six months after employment
termination shall be paid to the Employee in a single lump sum without interest
on the first day of the seventh (7th) month after the month in which the
Employee’s employment terminates. 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 Section 409A of the Code.
 
 
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4. Term of the Agreement
 
This Agreement shall remain in effect for the period commencing on the Effective
Date and ending on the earlier of (i) the date 12 months after the Effective
Date, or (ii) the date on which the Employee terminates employment with the
Bank; provided that the Employee’s rights hereunder shall continue following the
termination of this employment with the Bank under any of the circumstances
described in Section 2 hereof. Additionally, on each annual anniversary date
from the Effective Date, the term of this Agreement shall be extended for an
additional one-year period beyond the then effective expiration date provided
the Board of Directors of the Bank determines in a duly adopted resolution that
the performance of the Employee has met the requirements and standards of the
Board, and that this Agreement shall be extended.
 
5. Termination or Suspension Under Federal Law
 
(a) Any payments made to the Employee pursuant to this Agreement, or otherwise,
are subject to and conditioned upon their compliance with 12 U.S.C. Section
1828(k) and FDIC Regulation 12 C.F.R. Part 359, Golden Parachute and
Indemnification Payouts.
 
(b) If the Employee is removed and/or permanently prohibited from participating
in the conduct of the Bank’s affairs by an order issued under Sections 8(e)(4)
or 8(g)(1) of the Federal Deposit Insurance Act (“FDIA”) (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, but the vested rights of the parties shall
not be affected.
 
(c) If the Bank is in default (as defined in Section 3(x)(1) of FDIA), all
obligations under this Agreement shall terminate as of the date of default;
however, this Paragraph shall not affect the vested rights of the parties.
 
(d) If a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C.
1818(e)(3) and (g)(1)) suspends and/or temporarily prohibits the Employee from
participating in the conduct of the Bank’s affairs, the Bank’s obligations under
this Agreement shall be suspended as of the date of such service, unless stayed
by appropriate proceedings. If the charges in the notice are dismissed, the Bank
may in its discretion (i) pay the Employee all or part of the compensation
withheld while its contract obligations were suspended, and (ii) reinstate (in
whole or in part) any of its obligations which were suspended.
 
6. Expense Reimbursement
 
In the event that any dispute arises between the Employee and the Bank as to the
terms or interpretation of this Agreement, whether instituted by formal legal
proceedings or otherwise, including any action that the Employee takes to
enforce the terms of this Agreement or to defend against any action taken by the
Bank or the Company, the Employee shall be reimbursed for all costs and
expenses, including reasonable attorneys’ fees, arising from such dispute,
proceedings or actions, provided that the Employee shall obtain a final judgment
in favor of the Employee in a court of competent jurisdiction or in binding
arbitration under the rules of the American Arbitration Association. Such
reimbursement shall be paid within ten (10) days of Employee’s furnishing to the
Bank or the Company written evidence, which may be in the form, among other
things, of a cancelled check or receipt, of any costs or expenses incurred by
the Employee.
 
7. Successors and Assigns; Source of Payments
 
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Bank or Company which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank or Company.
 
(b) Since the Bank is contracting for the unique and personal skills of the
Employee, the Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Bank.
 
 
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(c) The payments and benefits due the Employee under this Agreement, if any,
shall be paid or provided by the Bank; provided, however, that the Company
agrees that it shall be jointly or severally liable with the Bank for the
payment of all amounts and the provision of all benefits due the Employee under
any provision of this Agreement.
 
8. Amendments
 
No amendments or additions to this Agreement shall be binding unless made in
writing and signed by all of the parties, except as herein otherwise
specifically provided.
 
9. Applicable Law
 
Except to the extent preempted by federal law, the laws of the State of North
Carolina shall govern this Agreement in all respects, whether as to its
validity, construction, capacity, performance or otherwise.

10. Severability
 
The provisions of this Agreement shall be deemed severable and the invalidity or
unenforceability of any provision shall not affect the validity or
enforceability of the other provisions hereof.
 
11. Entire Agreement
 
This Agreement, together with any understanding or modifications thereof as
agreed to in writing by the parties, shall constitute the entire agreement
between the parties hereto.
 
IN WITNESS WHEREOF, the parties have executed this Agreement on October 3, 2008.
 
ATTEST:
 
FIRST SOUTH BANK
     
/s/ William L. Wall
 
By: /s/ Thomas A. Vann
Secretary
 
President
     
ATTEST:
 
FIRST SOUTH BANCORP, INC.
     
/s/ William L. Wall
 
By: /s/ Thomas A. Vann
Secretary
 
President
     
WITNESS:
 
EMPLOYEE
     
/s/ Kristie W. Hawkins
 
/s/ J. Randall Woodson
   
J. Randall Woodson

 
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