Exhibit 10.3 

 

**STATE OF NORTH CAROLINA**

 

**COUNTY OF WAYNE**

 

**EMPLOYEE DEFERRED COMPENSATION,**

**POST RETIREMENT NON-COMPETITION**

**AND DEATH BENEFIT AGREEMENT**

 

**THIS AGREEMENT** is made, entered into and effective as of the 7th day of January, 2004, by and between **SOUTHERN BANK AND TRUST COMPANY**, aNorth Carolina banking corporation with its principal office in Mount Olive, North Carolina (“ Employer”) and **R. D. RAY**, (“Employee”); 

 

**W I T N E S S E T H**

 

**WHEREAS**, Employee is an employee of Employer currently serving as Employer’s Executive Vice President and, while employed by Employer, he hasprovided guidance, leadership and direction in the growth, management and development of Employer and has learned trade secrets, confidential procedures and information, and technical and sensitive plans of Employer; and, 

 

**WHEREAS**, Employer desires to encourage Employee to continue in itsemployment and to limit Employee’s availability to other entities in competition with Employer following Employee’s retirement from employment with Employer; and, 

 

**WHEREAS**, Employer has offered to Employee a non-competition arrangement and a deferred compensation arrangementtogether with a death benefit arrangement for Employee’s designated beneficiary or estate, as applicable, and the parties hereto have reached an agreement concerning those arrangements and other matters contained herein and desire to set forththe terms and conditions thereof. 

 

**NOW, THEREFORE**, forand in consideration of the mutual promises and undertakings herein set forth, Employee and Employer hereby agree as follows: 

 

**1. Deferred Compensation Payments**. Following Employee’s “Retirement” (as defined below) from his employment with Employer,Employer shall pay to Employee the sum of TWO THOUSAND ONE HUNDRED EIGHTY-NINE and 06/100 Dollars ($2,189.06) per month, beginning not later than two months after Employee’s Retirement, for a period of ten years following Employee’sRetirement or until his death, whichever first occurs. 

Payments hereunder (“Deferred Compensation Payments”) shall be subject to any and allapplicable withholding, Social Security, employment, income and other taxes or assessments. To the extent that Employer reasonably believes itself obligated to do so, it may withhold any such taxes from payments made to Employee hereunder. If theamount of any such taxes that Employer believes itself required to withhold and transmit to any governmental or taxing authority exceeds the amount of any payments then due and payable under this Agreement and from which such withholding may bemade, then Employer may require that Employee pay to it the full amount of any such taxes then due and, if Employee shall fail to make such payment, Employer may itself advance and pay the amount of those taxes and recover any such payments byoffset against future payments due under this Agreement. 

 

IfEmployee should die during the ten-year period during which Deferred Compensation Payments are being made under this Paragraph 1, then those payments shall terminate and future payments, if any, shall be made to Employee’s designatedbeneficiary(ies) or Employee’s estate in accordance with the provisions of Paragraph 3 of this Agreement. 

 

As used in this Agreement, the term “Retirement” shall mean a termination of Employee’s employment with Employer which is treated as a“retirement” under the terms of Employer’s defined benefit pension plan, but in no event before the date on which Employee attains the age of 65, or such other termination of Employee’s employment as Employer and Employee shallagree in writing to treat as “Retirement” for purposes of this Agreement. 

 

**2. Non-competition Payments**. Following Employee’s Retirement from his employment with Employer, Employer shall pay to Employee the sum of SEVEN HUNDRED TWENTY-NINE and 69/100 Dollars ($729.69) permonth, beginning not later than two months after Employee’s Retirement, for a period of ten years following Employee’s Retirement or until his death, whichever first occurs. Such monthly payments shall be paid for and in consideration ofEmployee’s agreement in this Paragraph 2 below (Employee’s “Covenant Not To Compete”). Payments hereunder (“Non-competition Payments”) shall be payable each month without deductions and Employee agrees to be solelyresponsible for the payment of all income or other taxes or assessments, if any, applicable on those payments. 

For and in consideration of monthly Non-competition Payments to Employee, Employee agrees not to becomean officer or employee of, provide any consultation to, nor participate in any manner with, any other entity of any type or description involved in any major element of business which Employer is performing at the time of Employee’s Retirement,nor will Employee perform or seek to perform any consultation or other type of work or service with any other firm, person or entity, directly or indirectly, in any such business which competes with Employer, whether done directly or indirectly, inownership, consultation, employment or otherwise. Employee agrees not to reveal to outside sources, without the consent of Employer, any matters, the revealing of which could, in any manner, adversely affect or disclose Employer’s business orany part thereof, unless required by law to do so. This Covenant Not To Compete by Employee is limited to the geographic area consisting of the counties in which Employer shall maintain a banking or other business office at the time ofEmployee’s Retirement, shall exist for and during the term of all payments to be made under this Paragraph 2, whether made directly by Employer or as otherwise provided herein, and shall not prevent Employee from purchasing or acquiring, as aninvestor only, a financial interest of less than 5% in a business or other entity which is in competition with Employer. 

 

Employee acknowledges that the remedy at law for breach of Employee’s Covenant Not To Compete will be inadequate and that Employer shall be entitledto injunctive relief as to any violation thereof; however, nothing herein shall be construed as prohibiting Employer from pursuing any other remedies available to it, in addition to injunctive relief, whether at law or in equity, including therecovery of damages. In the event Employee shall breach any condition of Employee’s Covenant Not To Compete, then Employee’s right to any of the payments becoming due under Paragraphs 1 and 2 of this Agreement after the date of such breachshall be forever forfeited and the right of Employee’s designated beneficiary(ies) or Employee’s estate to any payments under this Agreement shall likewise be forever forfeited. This forfeiture is in addition to and not in lieu of any ofthe above-described remedies of Employer and shall be in addition to any injunctive or other relief as described herein. Employee further acknowledges that any breach of Employee’s Covenant Not To Compete shall be deemed a material breach ofthis Agreement. 

 

If Employee should die during the ten-yearperiod during which Non-competition Payments are being made under this Paragraph 2, then those payments shall terminate and future payments, if any, shall be made to Employee’s designated beneficiary(ies) or Employee’s estate in accordancewith the provisions of Paragraph 3 of this Agreement. 

 

**3. Continuation of Payments**. Following Employee’s death during the original ten-yearperiod of payments under Paragraphs 1 and 2 above, the sum of TWO THOUSAND NINE HUNDRED EIGHTEEN and 75/100 Dollars ($2,918.75) per month shall be paid to such individual or individuals as Employee shall have designated in writing as hisbeneficiary(ies) as provided in Paragraph 11 below or, in the absence of such designation, to Employee’s estate, as applicable, beginning the first calendar month following the date of Employee’s death and continuing thereafter until theexpiration of said original ten-year period. Once the Deferred Compensation Payments and Non-competition Payments have begun, whether paid by Employer or as otherwise provided herein, the maximum payment period under this Agreement shall be tenyears. Payments hereunder shall be payable each month without deductions and the recipient shall be solely responsible for the payment of all income and other taxes and assessments, if any, applicable on those payments. 

 

**4. Death Benefits**. In the event Employee dies while employed byEmployer prior to Employee’s Retirement, Employer will pay the sum of TWO THOUSAND NINE HUNDRED EIGHTEEN and 75/100 Dollars ($2,918.75) per month for a period of ten years, to such individual or individuals as Employee shall 

have designated in writing as his beneficiary(ies) as provided in Paragraph 11 below or, in the absence of such designation, to Employee’s estate, asapplicable. The first payment shall be made not later than two months following Employee’s death. Payments under this Paragraph 4 shall be payable each month without deductions and the recipient shall be solely responsible for the payment ofall income and other taxes and assessments, if any, applicable on those payments. 

 

**5. Forfeiture of Benefits**. This Agreement is subject to termination by Employer at any time prior to Employee’s Retirement and without stated cause. In the event Employer shall terminate thisAgreement, Employee shall forfeit all rights to receive any payment provided for herein. Likewise, in the event Employee’s employment is terminated, either voluntarily or involuntarily, for reasons other than his death or Retirement, Employeeshall forfeit all rights to receive any payment provided for herein. Employee acknowledges and agrees that any benefit provided for herein is merely a contractual benefit and that nothing contained herein shall be construed as conferring uponEmployee any vested benefits or any vested rights to receive any payment provided for herein and that any and all payments provided for herein shall be subject to a substantial risk of forfeiture until such time as said payments are actually made byEmployer. 

 

**6. Claims Procedure**. Any claim for benefits under this Agreement shall be made in writingto Employer. If any claim for benefits under this Agreement is wholly or partially denied, notice of the decision shall be furnished to the claimant within a reasonable period of time, not to exceed 90 days after receipt of the claim by Employer,unless special circumstances require an extension of time for processing the claim. If such an extension of time is required, written notice of the extension shall be furnished to the claimant prior to the termination of the initial 90-day period.In no event shall such extension exceed the period of 90 days from the end of such initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date on which the administrator expects to rendera decision. 

 

Employer shall provide every claimant who isdenied a claim for benefits written notice setting forth, in a manner calculated to be understood by the claimant, the following: (i) specific reasons for the denial; (ii) specific reference to pertinent provisions upon which the denial is based;(iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (iv) an explanation of the Agreement’s claims reviewprocedure as set forth below. 

 

The claimant may appeal thedenial of his claim to Employer for a full and fair review. The claimant or his duly authorized representative may request a review upon written application to Employer, review pertinent documents, and submit issues and comments in writing. Aclaimant (or his duly authorized representative) shall request a review by filing a written application for review with Employer or its designee (the “Reviewer”) at any time within 60 days after receipt by the claimant of written notice ofthe denial of his claim. 

 

The decision on review shall be madeby the Reviewer, who may, in its or his discretion, hold a hearing on the denied claim; the Reviewer shall make this decision promptly, and not later than 60 days after Employer receives the request for review, unless special circumstances requireextension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. If such an extension of time for review is required, written notice of theextension (including the special circumstances requiring the extension of time) shall be furnished to the claimant prior to the commencement of the extension. In the event that the decision on review is not furnished within the time period set forthin this paragraph, the claim shall be deemed denied on review. 

 

The decision on review shall be in writing and shall include reasons for the decision, written in a manner calculated to be understood by the claimant, and specific references to the pertinent provisions in the relevant documents on whichthe decision is based. 

 

**7. Assignment of Rights; Spendthrift Clause**. Neither Employee nor Employee’s estate orany designated beneficiary shall have any right to sell, assign, transfer or otherwise convey the right to receive any payment hereunder. To the extent permitted by law, no benefits payable under this Agreement shall be subject to the claim of anycreditor of Employee or Employee’s estate or any designated beneficiary, or to any legal process by any creditor of any such person. 

 

**8. Unfunded Plan**. Employee and Employer do not intend that the amounts payable hereunder be held by Employer in trust or as a segregatedfund for Employee or any other person entitled to payments hereunder. The benefits provided under this Agreement shall be payable solely from the general assets of Employer, and neither Employee nor any other person entitled to payments hereundershall have any interest in any assets of Employer by virtue of this Agreement. Subject to Employer’s rights under Paragraph 5 above, Employer’s obligation under this Agreement shall be merely that of a conditional, unfunded and unsecuredpromise of Employer to pay money in the future. To the extent that this Agreement should be deemed to be a “pension plan,” Employee and Employer intend that it be unfunded for federal income tax purposes, as well as for Title I of theEmployee Retirement Income Security Act of 1974, as amended. 

 

**9. Payments and Funding**. Any payments under this Agreement shall be independent of, and in addition to, those under any other plan, program or agreement which may be in effect between the parties hereto, or any othercompensation payable to Employee or Employee’s designee by Employer. This Agreement shall not be construed as a contract of employment nor does it restrict the right of Employer to discharge Employee at will or the right of Employee toterminate employment at will. 

 

Employer may, in its solediscretion, purchase an insurance policy on the life of Employee to fund or assist in the funding of this Agreement. Employee agrees to promptly supply to Employer and its selected or prospective insurance carrier, upon request, any and allinformation requested, in order to enable the insurance carrier to evaluate the risks involved in providing the insurance requested by Employer. Any and all rights to any and all benefits under such insurance policy on the life of Employee shall besolely the property of Employer and all proceeds of such policy shall be payable by the insurer solely to Employer, as owner of such policy. Employee specifically waives any rights in any insurance policy on Employee’s life owned by Employerpursuant to this Agreement. Such policy shall not serve in any way as security to Employee for Employer’s performance under this Agreement. The rights accruing to Employee or any designee hereunder shall be solely those of an unsecured creditorof Employer and shall be subordinate to the rights of the depositors of Employer. 

Employer may, in its sole discretion, discharge its liabilities under this Agreement to Employee,Employee’s designated beneficiary(ies) or Employee’s estate at any time by the purchase of an annuity from a reputable insurance or similar company authorized to do, and doing, business in North Carolina and the assignment of the rightsunder said annuity to the benefit of Employee, Employee’s designated beneficiary(ies) or Employee’s estate. If this option is exercised by Employer, all rights accruing to Employee, Employee’s designated beneficiary(ies) orEmployee’s estate hereunder shall be governed solely by the annuity contract and any election made under said annuity contract; and Employer shall be fully discharged from any further liabilities to Employee, Employee’s designatedbeneficiary(ies) or Employee’s estate under this Agreement. 

 

Employer may, in its sole discretion, discharge its liabilities under this Agreement to Employee, Employee’s designated beneficiary(ies) or Employee’s estate at any time by determining the present value of the payments duehereunder, said amount to be determined by the use of the U.S. Government bond rate for the nearest year applicable to the time of the payments due hereunder for the present value computation, and once determined, by payment of said amount in a lumpsum to Employee, Employee’s designated beneficiary(ies) or Employee’s estate, as applicable. 

 

**10. Survivor Annuities and QDROs**. Nothing contained in this Agreement is intended to give or shall give any spouse or former spouseof Employee or any other person any right to benefits under this Agreement by virtue of sections 401(a)(11) and 417 of the Internal Revenue Code (relating to qualified pre-retirement survivor annuities and qualified joint and survivor annuities) orInternal Revenue Code sections 401(a)(13)(B) and 414(p) (relating to qualified domestic relations orders). 

 

**11. Designation of Beneficiary(ies)**. In order to designate one or more beneficiaries as described in Paragraph 3 or 4 above, Employee shallfile a written designation with Employer in the form attached as Exhibit A this Agreement. Each such designation shall specify, by name(s), the persons to whom any amounts payable under this Agreement shall be paid following Employee’s death.From time to time, Employee may change or revoke a beneficiary designation without the consent of the beneficiary(ies) by filing a new beneficiary designation form with Employer, and the filing of a new designation form automatically shall revokeany and all designation forms previously filed with Employer. A beneficiary designation form not properly filed with Employer prior to Employee’s death shall be of no force or effect under this Agreement. 

 

Subject to reasonable restrictions imposed by Employer and to Employer’sright to refuse to accept such a designation for reasons satisfactory to it, Employee may designate more than one beneficiary and/or alternative or contingent beneficiaries, in which case Employee’s designation form shall specify the relativeshares and terms and conditions upon which amounts shall be paid to such multiple or alternative or contingent beneficiaries. 

If, at the time of Employee’s death, **(i)** no beneficiary designation is on file with Employer,**(ii)** no beneficiary designated by Employee has survived Employee, or **(iii)** there are other circumstances not covered by the beneficiary designation form on file with Employer, then Employee’s estate conclusively shall be deemed tobe the beneficiary designated to receive any amounts then remaining payable to Employee under this Agreement. 

 

In making all determinations regarding Employee’s beneficiary, the latest designation form filed by Employee with Employer shall control, and allchanges in circumstances that occur after the filing of that designation shall be ignored. For example, if Employee’s spouse is designated as beneficiary in the latest designation filed by Employee but, thereafter, is divorced from Employee,such designation shall remain valid until and unless Employee files a later beneficiary designation form with Employer naming a different beneficiary. 

 

Any check for a payment under this Agreement that is issued on or before the date of Employee’s death shall remain payable to Employee and shall behandled accordingly, whether or not the check actually is received by Employee prior to death. Any check issued after the date of Employee’s death shall be the property of Employee’s beneficiary(ies) determined in accordance with thisParagraph 11. 

 

**12. Named Fiduciary andAdministrator**. The named fiduciary shall be Employer. The named fiduciary shall have the authority to control and manage the operation and administration of this Agreement. The administration of this Agreement shall be under the supervisionof a director, officer or employee of Employer (hereinafter referred to as the “Administrator”) designated by the Board of Directors of Employer. It shall be a principal duty of the Administrator to see that this Agreement is carried outin accordance with its terms. 

 

**13. Suicide**. Inthe event Employee commits suicide within two years of the execution of this Agreement, all payments provided for herein to be paid to Employee’s designated beneficiary or Employee’s estate shall be forfeited. 

 

**14. Binding Effect**. This Agreement shall be binding uponEmployee, his heirs, personal representatives and assigns, and upon Employer, its successors and assigns. 

 

**15. Amendment of Agreement**. This Agreement may not be altered, amended or revoked except by a written agreement signed by Employer andEmployee. 

 

**16. Interpretation**. Where appropriatein this Agreement, words used in the singular shall include the plural and words used in the masculine shall include the feminine. 

 

**17. Invalid Provision**. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the otherprovisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were not contained herein. 

 

**18. Governing Law**. This Agreement shall be construed and enforced in accordance with and governed by the laws of the State of NorthCarolina. 

**IN TESTIMONY WHEREOF**, Employer has caused this Agreement to be executed in its corporate name byits Chairman, and attested by its Secretary/Assistant Secretary, all by the authority of its Board of Directors duly given, and Employee has hereunto set his hand and adopted as his seal the typewritten word “SEAL” appearing beside hisname, as of the day and year first above written. 

 
**SOUTHERN BANK AND TRUST COMPANY**By: 
/s/    Robert S. Williams
     
 
**ATTEST:**
/s/    David A. Bean
Secretary/Assistant Secretary
 
  
/s/    R. D. Ray
 
(SEAL)
      R. D. Ray