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.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    (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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