Exhibit 10.9



 





Exhibit 10.9




SALARY CONTINUATION AGREEMENT




          THIS SALARY CONTINUATION AGREEMENT (this “Agreement”) is entered into as of this first day of
October 1, 2006 by and between GATEWAY BANK & TRUST CO., a North Carolina banking corporation
(hereinafter referred to as the “Bank” or “Employer”) and DAVID R. TWIDDY, an individual resident
of North Carolina (hereinafter referred to as the “Executive”).




          WHEREAS, the Executive has contributed substantially to the success of the Employer and the
Employer desires that the Executive continue in its employ;




          WHEREAS, to encourage the Executive to remain an employee of the Employer, the Employer is
willing to provide salary continuation benefits to the Executive, payable out of the Employer’s
general assets; and




          WHEREAS, the parties hereto intend that this Agreement shall be considered an unfunded
arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and
shall be considered a plan described in Section 301(a)(3) of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”).




          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




          Whenever used in this Agreement, the following terms have the meanings specified —




          1.1 “Accrual Balance” means the liability that should be accrued by the Employer under
accounting principles generally accepted in the United States (“GAAP”) for the Employer’s
obligation to the Executive under this Agreement, by applying Accounting Principles Board Opinion
No. 12, as amended by Statement of Financial Accounting Standards No. 106, and the calculation
method and discount rate specified hereinafter. The Accrual Balance shall be determined by the
liability accrued by the Bank as of the Effective Date. The projected Accrual Balance is detailed
on Schedule A including annual accruals. The Accrual Balance shall be calculated assuming a level
principal amount and interest as the discount rate is accrued each period. The principal accrual
is determined such that when it is credited with interest each month, the Accrual Balance at Normal
Retirement Age equals the present value of the normal retirement benefits described in Section
2.1.1(a) and (b). At the end of each Plan Year, the Accrual Balance shall be adjusted to reflect
the Employer’s obligation under Sections 2.1.1(a) in terms of the Executive’s actual base salary
for that Plan Year. The discount rate means the rate used by the Plan Administrator for
determining the Accrual Balance. The rate is based on the yield on a 20-year corporate bond rated
Aa by Moody’s, rounded to the nearest 1/4%, or as otherwise determined by the governing Regulatory
body. The initial discount rate is 5.75%. In its sole discretion, the Plan Administrator may
adjust the discount rate to maintain the rate within reasonable standards according to GAAP and
consistent with the Interagency Advisory on Accounting for Deferred Compensation Agreements which
states that the “cost of those benefits shall be accrued over that period of the employee’s service
in a systematic and rational manner.”




 









 








          1.2 “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.




          1.3 “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.




          1.4 “Change in Control” For the purposes of this Agreement, the term Change in Control shall
mean a change in control as defined in Section 409A of the Code, including any of the following
events:





     (i) Any person, or more than one person acting as a group, accumulates ownership of the
common stock of Gateway Financial Holdings, Inc. (“Gateway Financial”) constituting more than
50% of the total fair market value or total voting power of Gateway Financial’s common stock,




     (ii) Any person, or more than one person acting as a group, acquires within a 12-month
period ownership of Gateway Financial’s common stock possessing 30% or more of the total voting
power of Gateway Financial’s common stock;




     (iii) A majority of Gateway Financial’s Board of Directors is replaced during any 12-month
period by directors whose appointment or election is not endorsed in advance by a majority of
Gateway Financial’s Board of Directors before the date of appointment or election, or




     (iv) Within a 12-month period, any person, or more than one person acting as a group,
acquires assets from Gateway Financial having a total gross fair market value equal to or
exceeding 40% of the total gross fair market value of all of the assets of Gateway Financial
immediately before the acquisition or acquisitions. For this purpose, “gross fair market value”
means the value of Gateway Financial’s assets, or the value of the assets being disposed of,
determined without regard to any liabilities associated with the assets


Persons will be considered to be acting as a group if they are owners of a corporation that enters
into a merger, consolidation, purchase, or acquisition of stock, or a similar transaction,
involving Gateway Financial. Notwithstanding the other provisions of this Section 1.4, a
transaction or event shall not be considered a Change in Control if, prior to the consummation or
occurrence of such transaction or event, Executive and Bank agree in writing that the same shall
not be treated as a Change in Control for purposes of this Agreement.




          1.4A “Code”means the Internal Revenue Code of 1986, as amended.




          1.5 “Disability” means the Executive suffers a sickness, accident or injury that is determined
by the carrier of any individual or group disability insurance policy covering the Executive to be
a disability rendering the Executive totally and permanently disabled, as certified by a physician
chosen by the Employer and reasonably acceptable to the Executive, or as later defined by the
Internal Revenue Service in IRS Notice 2005 — 1.




          1.6 “Early Retirement Date” means the date of the Executive’s Termination of Employment with
the Employer for reasons other than death, Disability, Termination for Cause, termination under
Article 5 of this Agreement, or within twenty-four (24) months after a Change




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in Control, provided, however, that an Early Retirement Date may only occur following the
later of the date the Executive attains age sixty-two (62) or the date the Executive has been
continuously employed by the Employer for ten (10) years.




          1.7 “Effective Date” means October 1, 2006.




          1.8 “Final Average Salary” means the Executive’s average annual base salary for the three year
period ending at Executive’s Normal Retirement Date.




          1.9 “Good Reason” shall mean any of the following events:





     (i) Executive is assigned any duties and/or responsibilities that, in Executive’s
reasonable determination, are inconsistent with or constitute a demotion or reduction in the
Executive’s position, duties, responsibilities or status as such existed at the time of the
Change in Control or with his reporting responsibilities or titles with the Bank in effect at
such time, regardless of Executive’s resulting position; or




     (ii) Executive’s annual base salary rate is reduced below the annual amount in effect as
of the effective date of a Change in Control or as the same shall have been increased from time
to time following such effective date; or




     (iii) Executive’s life insurance, medical or hospitalization insurance, disability
insurance, stock options plans, stock purchase plans, deferred compensation plans, management
retention plans, retirement plans or similar plans or benefits being provided by the Bank to
the Executive as of the effective date of the Change in Control are reduced in their level,
scope or coverage, or any such insurance, plans or benefits are eliminated, unless such
reduction or elimination applies proportionately to all salaried employees of the Bank who
participated in such benefits prior to such Change in Control; or




     (iv) Executive is transferred to a location which is more than 15 miles from his current
principal work location without the Executive’s express written consent.



          1.10 “Normal Retirement Age” means age sixty-five (65).




          1.11 “Normal Retirement Date” means the date of the Executive’s Termination of Employment on
or after the Executive reaches Normal Retirement Age, other than a Termination of Employment due to
the Executive’s death or due to a Termination for Cause.




          1.12 “Person” means an individual, corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization or other entity.




          1.13 “Plan Administrator” means the plan administrator described in Article 8.




          1.14 “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 and
end on December 31 of the year in which occurs the Effective Date.




          1.15 “Regulatory Body” refers to The Office of the Comptroller of the Currency (OCC), the
Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation
(FDIC), and the Office of Thrift Supervision (OTS), also known as “the agencies”.




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          1.16 “Termination for Cause” and “Cause” shall have the same definition 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 severance or employment
agreement containing a definition of termination for cause, Termination for Cause means the Bank
terminates the Executive’s employment because of:





     (a) the Executive’s gross negligence or gross neglect of duties or intentional and
material failure to perform stated duties after written notice thereof, or




     (b) disloyalty or dishonesty by the Executive in the performance of his duties, or a
breach of the Executive’s fiduciary duties for personal profit, in any case whether in his
capacity as a director or officer, or




     (c) intentional wrongful damage by the Executive to the business or property of the
Bank or its affiliates, including without limitation the reputation of the Bank, which in
the judgment of the Bank causes material harm to the Bank or affiliates, or




     (d) a willful violation by the Executive of any applicable law or significant policy of
the Bank or an affiliate that, in the Bank’s judgment, results in an adverse effect on the
Bank or the affiliate, regardless of whether the violation leads to criminal prosecution or
conviction. For purposes of this Agreement, applicable laws include any statute, rule,
regulatory order, statement of policy, or final cease-and-desist order of any governmental
agency or body having regulatory authority over the Bank, or




     (e) 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 Bank, under the Bank’s blanket bond or other fidelity or insurance policy covering its
directors, officers, or employees, or




     (f) 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 section 8(g) (1) of the
Federal Deposit Insurance Act, 12 U.S.C. 1818(e) (4) or (g)(1), or




     (g) conviction of the Executive for or plea of nolo contendere to a felony or
conviction of or plea of nolo contendere to a misdemeanor involving moral turpitude, or the
actual incarceration of the Executive for 45 consecutive days or more.



          1.17 “Termination of Employment” with the Employer means that the Executive shall have ceased
to be employed by the Employer for any reason whatsoever, excepting a leave of absence approved by
the Employer. For purposes of this Agreement, if there is a dispute over the employment status of
the Executive or the date of termination of the Executive’s employment, the Employer shall have the
sole and absolute right to decide the dispute.




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ARTICLE 2

RETIREMENT BENEFITS




     2.1 Normal Retirement Benefit. Upon the Executive’s Termination of Employment on or after
Normal Retirement Age for reason other than death, the Executive shall be eligible to receive the
benefit described in this Section 2.1 in lieu of any other benefit under Article 2 of this
Agreement provided no Change in Control benefit or Termination benefit has been paid as specified
in Section 2.6.





	 	2.1.1.	 	Amount of Benefit. The amount of the annual benefit shall be equal to the following:






	 	(a)	 	Fixed Benefit. The annual benefit under this Section 2.1(a) is
an amount equal to the benefit detailed on Schedule A payable annually for
fifteen (15) years commencing upon the first month after attaining age 65.
	 
	 	(b)	 	Variable Benefit. The variable benefit under this Section 2.1
(b) is an amount equal to seventy percent (70%) of the Executive’s Final
Average Salary, less the Fixed Benefit detailed on Schedule A, payable annually
for fifteen (15) years commencing upon the first month after attaining age 65.
If the benefit due under this Section 2.1 (b) is less than zero (0), then no
benefit is payable under this Section 2.1 (b).






	 	2.1.2.	 	Payment of Benefit. The Employer shall pay the aggregate annual benefit described in
Section 2.1.1 to the Executive over the remaining term in twelve (12) equal monthly
installments payable on the first day of each month, beginning with the month after the
Executive’s Normal Retirement Date.




     2.2    Early Retirement Benefit. Upon the Executive’s Early Retirement Date, the Executive shall
be eligible to receive the benefit described in this Section 2.2 in lieu of any other benefit under
Article 2 of this Agreement.






	 	2.2.1.	 	Amount of Benefit. The annual benefit under this Section 2.2 is an amount equal to
the Accrual Balance earned as of the last day of the Plan Year immediately preceding
the Executive’s Early Retirement Date.
	 
	 	2.2.2.	 	Payment of Benefit. The Employer shall pay the early retirement benefit to the
Executive over fifteen (15) years in twelve (12) equal monthly installments payable
annually on the first day of each month, beginning with the month after the Executive
reaches his Normal Retirement Age.





     2.3    Disability Benefit. Upon the Executive’s Termination of Employment due to a Disability
before reaching Normal Retirement Age, the Executive shall be eligible to receive the benefit
described in this Section 2.3 in lieu of any other benefit under
this Agreement.





	 	2.3.1.	 	Amount of Benefit. The annual benefit under this Section 2.3 is an amount equal to
the Accrual Balance earned as of the last day of the Plan Year immediately preceding
the effective date of the Executive’s Termination of Employment.




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	 	2.3.2.	 	Payment of Benefit. The Employer shall pay the Disability benefit to the Executive
over fifteen (15) years in twelve (12) equal monthly installments payable on the first
day of each month, beginning with the month after the Executive’s Normal Retirement
Age.





     2.4
    Change in Control Benefit. If, within twenty-four (24) months after a Change in Control,
the Employer terminates the Executive’s employment other than for Cause or as described in Section
5.2 hereof or if the Executive terminates employment for Good Reason, the Executive shall be
eligible to receive the benefit described in this Section 2.4 instead of any other benefit under
Article 2 of this Agreement.





	 	2.41	 	Amount of Benefit. The annual benefit under this Section 2.4 is an amount
equal to seventy percent (70%) of the Executive’s final annual salary at the
Executive’s Termination of Employment, or the benefit detailed on Schedule A, whichever
is greater, payable annually for fifteen (15) years commencing as of the last day of
the Plan Month preceding the effective date of the Executive’s Termination of
Employment.






	 	2.41.1	 	Payment of Benefit. The Employer shall pay the Change in Control benefit
under Section 2.4 of this Agreement to the Executive over fifteen (15) years in
twelve (12) equal monthly installments payable on the first day of each month,
beginning with the month after the Executive’s Termination of Employment.
	 
	 	2.41.2	 	Change in Control Payout of Normal Retirement Benefit, Early Retirement
Benefit, or Disability Benefit Being Paid to the Executive at the Time of a
Change in Control. If a Change in Control occurs at any time during the period
in which the Executive is receiving payment of the benefit under Section 2.1,
2.2, or 2.3, the Employer shall pay the remaining benefits due to the Executive
under the applicable section to the Executive in a single lump sum payment
within thirty (30) days after the Change in Control.





     2.5 Termination Benefit. Upon the Executive’s Termination without Cause by the Employer, the
Executive shall be eligible to receive the benefit described in this Section 2.5 in lieu of any
other benefit under Article 2 of this Agreement.





	 	2.5.1	 	Amount of Benefit. The annual benefit under this Section 2.5
is an amount equal to the benefit detailed on Schedule A payable annually for
fifteen (15) years commencing upon the first month after attaining age 65.
	 
	 	2.5.2	 	Payment of Benefit. The Employer shall pay the benefit under
this Section 2.5 to the Executive over fifteen (15) years in twelve (12) equal
monthly installments payable annually on the first day of each month, beginning
with the month after the Executive reaches his Normal Retirement Age.




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          2.6 Petition for Lump Sum Payment of Benefit. If the Executive is entitled to a benefit under
Section 2.1, Section 2.2, Section 2.3, Section 2.4 or Section 2.5, the Executive may petition the
Board of Directors of the Employer to have the Present Value of the Benefit, determined as of the
date the Executive becomes entitled to a benefit under Section 2.1, Section 2.2, Section 2.3,
Section 2.4 or Section 2.5, as applicable, paid to the Executive in a single lump sum. The Board
of Directors of the Employer may, in its sole and absolute discretion, pay the Present Value of the
Benefit to the Executive in a single lump sum. If the Present Value of the Benefit is paid to the
Executive in a single lump sum, the Employer shall have no further obligations under this
Agreement.




          2.7 Excess Parachute Payment. If the Executive receives the payment pursuant to Section 2.4
and acceleration of benefits under any other benefit, compensation, or incentive plan or
arrangement with the Bank or its parent corporation (collectively, the “Total Benefits”), and if
any part of the Total Benefits is subject to an excise tax under Section 280G and Section 4999 of
the Code (the “Excise Tax”), the Bank shall pay to the Executive the following additional amounts,
consisting of (x) a payment equal to the Excise Tax payable by the Executive under section 4999 on
the Total Benefits (the “Excise Tax Payment”) and (y) a payment equal to the amount necessary to
provide the Excise Tax Payment net of all income, payroll, and excise taxes. Together, the
additional amounts described in clauses (x) and (y) are referred to in this Agreement as the
“Gross-Up Payment Amount.” Payment of the Gross-Up Payment Amount shall be made in addition to the
amount set forth in Section 2.4 above.




          2.8 Total Benefits Subject to Excise Tax.  For purposes of determining whether any of the
Total Benefits will be subject to the Excise Tax and for purposes of determining the amount of the
Excise Tax, any other payments or benefits received or to be received by the Executive in
connection with a Change in Control or the Executive’s termination of employment following a Change
in Control (whether under the terms of this Agreement or any other agreement or any other benefit
plan or arrangement with the Bank or its parent corporation) shall be treated as “parachute
payments” within the meaning of section 280G(b)(2) of the Code, and all “excess parachute payments”
within the meaning of section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in
the opinion of the certified public accounting firm that is retained by the Bank as of the date
immediately before the Change in Control (the “Accounting Firm”), such other payments or benefits
do not constitute (in whole or in part) parachute payments, or such excess parachute payments
represent (in whole or in part) reasonable compensation for services actually rendered within the
meaning of section 280G(b)(4) of the Code in excess of the “base amount” (as defined in section
280G(b)(3) of the Code), or are otherwise not subject to the Excise Tax. The value of any noncash
benefits or any deferred payment or benefit shall be determined by the Accounting Firm in
accordance with the principles of sections 280G(d)(3) and (4) of the Code. 




          2.9 Gross Up Payment Amount. For purposes of determining the Gross-Up Payment Amount, the
Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal
income taxation in the calendar years in which the Gross-Up Payment Amount is to be made and state
and local income taxes at the highest marginal rate of taxation in the state and locality of the
Executive’s residence on the date of termination of employment, net of the reduction in federal
income taxes that can be obtained from deduction of such state and local taxes (calculated by
assuming that any reduction under section 68 of the Code in the amount of itemized deductions
allowable to the Executive applies first to reduce the amount of such state




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and local income taxes that would otherwise be deductible by the Executive, and applicable
federal FICA and Medicare withholding taxes).




          2.10 Determination by Accounting Firm. All determinations required to be made under Section
2.7, Section 2.8 and Section 2.9, including whether and when a Gross-Up Payment Amount is required,
the amount of the Gross-Up Payment Amount and the assumptions to be used to arrive at the
determination (collectively, the “Determination”), shall be made by the Accounting Firm, which
shall provide detailed supporting calculations both to the Bank and the Executive within 15
business days after receipt of notice from the Bank or the Executive that there has been a Gross-Up
Payment Amount, or such earlier time as is requested by the Bank. All fees and expenses of the
Accounting Firm shall be borne solely by the Bank. The Bank shall enter into any reasonable
agreement requested by the Accounting Firm in connection with the performance of its services
hereunder. If the Accounting Firm determines that no Excise Tax is payable by the Executive, the
Accounting Firm shall furnish the Executive with a written opinion to that effect, and to the
effect that failure to report an Excise Tax, if any, on the Executive’s applicable federal income
tax return will not result in the imposition of a negligence or similar penalty.  The Determination
by the Accounting Firm shall be binding on the Bank and the Executive. If, after a Determination by
the Accounting Firm, the Executive is required to make a payment of additional Excise Tax
(“Underpayment”), the Accounting Firm shall determine the amount of the Underpayment that has
occurred. The Underpayment (together with interest at the rate provided in section 1274(d)(2)(B) of
the Code) shall be paid promptly by the Bank to or for the benefit of the Executive. If the
Gross-Up Payment Amount exceeds the amount necessary to reimburse the Executive for his Excise Tax
(“Overpayment”), the Accounting Firm shall determine the amount of the Overpayment that has been
made. The Overpayment (together with interest at the rate provided in section 1274(d)(2)(B) of the
Code) shall be paid promptly by the Executive to or for the benefit of the Bank. Provided that his
expenses are reimbursed by the Bank, the Executive shall cooperate with any reasonable requests by
the Bank in any contests or disputes with the Internal Revenue Service relating to the Excise Tax.
 If the Accounting Firm is serving as accountant or auditor for the individual, entity, or group
effecting the Change in Control, the Executive, in his sole discretion, may appoint another
nationally recognized public accounting firm to make the Determinations required hereunder (in
which case the term “Accounting Firm” as used in this Agreement shall be deemed to refer to the
accounting firm appointed by the Executive under this Section).




          2.11 Contradiction in Terms of Agreement and Schedule A. If there is a contradiction in the
terms of this Agreement and Schedule A attached hereto concerning the actual amount of a particular
benefit amount due the Executive under Sections 2.2, 2.3, 2.4 or 2.5 hereof, then the actual amount
of the benefit set forth in the Agreement shall control.




          2.12 One Benefit Only. Despite any contrary provision of this Agreement, the Executive and
Beneficiary are entitled to one benefit only under Article 2 of this Agreement, which shall be
determined by the first event to occur that is dealt with by Article 2 of this Agreement.
Subsequent occurrence of events dealt with by this Article 2 shall not entitle the Executive or the
Executive’s Beneficiary to other or additional benefits under Article 2.




          2.13 Savings Clause Relating to Compliance with Code Section 409A. Despite any contrary
provision of this Agreement, if when the Executive’s employment terminates the Executive is a
specified employee, as defined in Code section 409A, and if any payments under




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Article 2 of this Agreement will result in additional tax or interest to the Executive because
of section 409A, the Executive will not be entitled to the payments under Article 2 until the
earliest of (a) the date that is at least six months after termination of the Executive’s
employment for reasons other than the Executive’s death, (b) the date of the Executive’s death, or
(c) any earlier date that does not result in additional tax or interest to the Executive under
section 409A. If any provision of this Agreement would subject the Executive to additional tax or
interest under section 409A, the Bank shall reform the provision. However, the Bank shall maintain
to the maximum extent practicable the original intent of the applicable provision without
subjecting the Executive to additional tax or interest, and the Bank shall not be required to incur
any additional compensation expense as a result of the reformed provision. References in this
Agreement to Code section 409A include rules, regulations, and guidance of general application
issued by the Department of the Treasury under Code section 409A.




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3

DEATH BENEFITS




          3.1 Death During Active Service. If the Executive dies while employed by the Employer,
instead of any benefits payable under Article 2 of this Agreement the Employer shall pay to the
Executive’s Beneficiary the present value of the amount necessary to provide the full benefit
described in section 2.1.1 and identified on Schedule A. The Employer shall pay the death benefit
under this Section 3.1 within thirty (30) days after the Executive’s death.




          3.2 Death During Benefit Period. If the Executive dies after benefit payments under Article 2
of this Agreement commences but before receiving all such payments, or if the Executive is entitled
to benefit payments under Article 2 but dies before payments commence, the remaining Accrual
Balance shall be payable to the Executive’s Beneficiary in accordance with the applicable payment
provisions of Article 2, until fully disbursed. Payments shall be made in the same amounts they
would have been made to the Executive had the Executive survived.




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 upon the death of the Executive.
The Beneficiary designated under this Agreement may be the same as or different from the
beneficiary designation under any other benefit plan of the Employer 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 the 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 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, then the Executive’s
spouse shall be the designated Beneficiary. If the Executive has no surviving spouse, the benefits
shall be distributed 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
Employer may pay such benefit to the guardian, legal representative, or person having the care or




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custody of the minor, incapacitated person, or incapable person. The Employer may require
proof of incapacity, minority, or guardianship as it may deem appropriate before distribution of
the benefit. Distribution shall completely discharge the Employer from all liability for the
benefit.




5

GENERAL LIMITATIONS




          5.1 Termination for Cause. If the Executive experiences a Termination of Employment which is
a Termination for Cause, notwithstanding any provision of this Agreement to the contrary, this
Agreement and the Employer’s obligations under this Agreement shall terminate as of the effective
date of the Termination for Cause.




          5.2 Suicide or Misstatement No benefits shall be paid under this Agreement if the Executive
commits suicide within two years after the Effective Date of this Agreement or if the Executive
makes any material misstatement of fact on any application for life insurance purchased by the
Bank.




          5.3 Removal. Despite any contrary provision of this Agreement, 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.




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




          5.5 FDIC Open-Bank Assistance. All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of the contract is necessary for the continued
operation of the Bank, at the time 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).




          5.6 Non-Competition. All obligations under this Agreement shall be terminated, if during the
period of one year after Termination of Employment, the Executive, within the “Restricted Area,”
directly or indirectly, engages in any business that competes with the Bank or any of its
subsidiaries without the prior written consent of the Bank; provided, however, that the provisions
of this Section shall not apply following Termination for Cause, or in the event the Executive
terminates his employment with the Bank for Good Cause following a Change of Control. The
Restricted Area covers the following divisible list of territories: Camden, Chowan, Currituck,
Dare, Pasquotank, and Perquimans Counties, North Carolina and Chesapeake and Virginia Beach,
Virginia, and within 15 miles of any Bank office operated during the term of this Agreement.
Notwithstanding the foregoing, the Executive shall be free, without such consent, to purchase or
hold as an investment or otherwise, up to five percent of the outstanding stock or other security
of any corporation which has its securities publicly traded on any recognized securities exchange
or in any over-the counter market.




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6

CLAIMS AND REVIEW PROCEDURES




     6.1 Claims Procedure. A person or beneficiary (a “claimant”) who has not received benefits
under the Agreement that he or she believes should be paid shall make a claim for such benefits as
follows –





	 	6.1.1	 	Initiation — Written Claim. The claimant initiates a claim by submitting to
the Employer a written claim for the benefits. If the claim relates to the contents of
a notice received by the claimant, the claim must be made within 60 days after the
notice was received by the claimant. All other claims must be made within 180 days
after the date of the event that caused the claim to arise. The claim must state with
particularity the determination desired by the claimant.
	 
	 	6.1.2	 	Timing of Employer Response. The Employer shall respond to such claimant
within ninety (90) days after receiving the claim. If the Employer determines that
special circumstances require additional time for processing the claim, the Employer
can extend the response period by an additional ninety (90) days by notifying the
claimant in writing, prior to the end of the initial ninety (90)-day period, that an
additional period is required. The notice of extension must set forth the special
circumstances and the date by which the Employer expects to render its decision.
	 
	 	6.1.3	 	Notice of Decision. If the Employer denies part or all of the claim, the
Employer shall notify the claimant in writing of such denial. The Employer shall write
the notification in a manner calculated to be understood by the claimant. The
notification shall set forth:






	 	6.1.3.1	 	The specific reasons for the denial,
	 
	 	6.1.3.2	 	A reference to the specific provisions of the Agreement on which the denial
is based,
	 
	 	6.1.3.3	 	A description of any additional information or material necessary for the
claimant to perfect the claim and an explanation of why it is needed,
	 
	 	6.1.3.4	 	An explanation of the Agreement’s review procedures and the time limits
applicable to such procedures, and
	 
	 	6.1.3.5	 	A statement of the claimant’s right to bring a civil action under ERISA
section 502(a) following an adverse benefit determination on review.





     6.2 Review Procedure. If the Employer denies part or all of the claim, the claimant shall
have the opportunity for a full and fair review by the Employer of the denial, as follows




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	 	6.2.1	 	Initiation — Written Request. To initiate the review, the claimant, within 60
days after receiving the Employer’s notice of denial, must file with the Employer a
written request for review.
	 
	 	6.2.2	 	Additional Submissions — Information Access. The claimant shall then have the
opportunity to submit written comments, documents, records and other information
relating to the claim. The Employer shall also provide the claimant, upon request and
free of charge, reasonable access to, and copies of, all documents, records and other
information relevant (as defined in applicable ERISA regulations) to the claimant’s
claim for benefits.
	 
	 	6.2.3	 	Considerations on Review. In considering the review, the Employer shall take
into account all materials and information the claimant submits relating to the claim,
without regard to whether such information was submitted or considered in the initial
benefit determination.
	 
	 	6.2.4	 	Timing of Employer Response. The Employer shall respond in writing to such
claimant within sixty (60) days after receiving the request for review. If the
Employer determines that special circumstances require additional time for processing
the claim, the Employer can extend the response period by an additional sixty (60) days
by notifying the claimant in writing, prior to the end of the initial sixty (60)-day
period, that an additional period is required. The notice of extension must set forth
the special circumstances and the date by which the Employer expects to render its
decision.
	 
	 	6.2.5	 	Notice of Decision. The Employer shall notify the claimant in writing of its
decision on review. The Employer shall write the notification in a manner calculated
to be understood by the claimant. The notification shall set forth –






	 	6.2.5.1	 	The specific reasons for the denial,
	 
	 	6.2.5.2	 	A reference to the specific provisions of the Agreement on which the denial
is based,
	 
	 	6.2.5.3	 	A statement 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 (as defined in applicable ERISA regulations) to the
claimant’s claim for benefits, and
	 
	 	6.2.5.4	 	A statement of the claimant’s right to bring a civil action under ERISA
Section 502(a).




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7

MISCELLANEOUS




          7.1 Amendments and Termination. Subject to Section 7.13 of this Agreement, (a) this Agreement
may be amended solely by a written agreement signed by the Employer and by the Executive, and (b)
except for termination occurring under Article 5, this Agreement may be terminated solely by a
written agreement signed by the Employer and by the Executive.




          7.2 Binding Effect. This Agreement shall bind the Executive and the Employer and their
beneficiaries, survivors, executors, successors, administrators, and transferees.




          7.3 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 Employer, nor does it interfere
with the Employer’s right to discharge the Executive. It also does not require the Executive to
remain an employee nor interfere with the Executive’s right to terminate employment at any time.




          7.4 Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned,
pledged, attached, or encumbered in any manner.




          7.5 Tax Withholding. The Employer shall withhold any taxes that are required to be withheld
from the benefits provided under this Agreement.




          7.6 Applicable Law. Except to the extent preempted by the laws of the United States of
America, the validity, interpretation, construction, and performance of this Agreement shall be
governed by and construed in accordance with the laws of the State of North Carolina, without
giving effect to the principles of conflict of laws of such state.




          7.7 Unfunded Arrangement. The Executive and the Executive’s Beneficiary are general unsecured
creditors of the Employer for the payment of benefits under this Agreement. The benefits represent
the mere promise by the Employer to pay such benefits. The rights to benefits are not subject in
any manner 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 Employer to which the Executive and Beneficiary have no preferred or secured claim.




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




          7.9 Headings. The headings of sections herein are included solely for convenience of
reference and shall not affect the meaning or interpretation of any provision of this Agreement.




          7.10 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,




14









 




certified or registered mail, return receipt requested, with postage prepaid. Unless
otherwise changed by notice, notice shall be properly addressed to the Executive if addressed to
the address of the Executive on the books and records of the Employer at the time of the delivery
of such notice, and properly addressed to the Employer if addressed to the Board of Directors, at
1145 North Road Street, Elizabeth City, North Carolina 27909.




          7.11 Entire Agreement. This Agreement constitutes the entire agreement between the Employer
and the Executive concerning the subject matter hereof. No rights are granted to the Executive
under this Agreement other than those specifically set forth herein.




          7.12 Payment of Legal Fees. In the event litigation ensues between the parties concerning the
enforcement of the obligations of the parties under this Agreement, the Employer shall pay all
costs and expenses in connection with such litigation until such time as a final determination
(excluding any appeals) is made with respect to the litigation. If the Employer prevails on the
substantive merits of the each material claim in dispute in such litigation, the Employer shall be
entitled to receive from the Executive all reasonable costs and expenses, including without
limitation attorneys’ fees, incurred by the Employer on behalf of the Executive in connection with
such litigation, and the Executive shall pay such costs and expenses to the Employer promptly upon
demand by the Employer.




          7.13 Termination or Modification of Agreement Because of Changes in Law, Rules or Regulations.
The Employer is entering into this Agreement on the assumption that certain existing tax laws,
rules, and regulations will continue in effect in their current form. If that assumption
materially changes and the change has a material detrimental effect on this Agreement, then the
Employer reserves the right to terminate or modify this Agreement accordingly, subject to the
written consent of the Executive, which shall not be unreasonably withheld. This Section 7.13
shall become null and void effective immediately if a Change in Control occurs.




8

ADMINISTRATION OF AGREEMENT




          8.1 Plan Administrator Duties. This Agreement shall be administered by a Plan Administrator
consisting of the Board of Directors of the Employer or such committee or person(s) as the Board of
Directors of the Employer shall appoint. In accordance with the rules applicable for companies
listed on the Nasdaq Stock Market and the Employer’s corporate governance procedures, the Executive
shall not serve as a member of the Plan Administrator. The Plan Administrator shall also have the
discretion and authority to (a) make, amend, interpret, and enforce all appropriate rules and
regulations for the administration of this Agreement and (b) decide or resolve any and all
questions, including interpretations of this Agreement, as may arise in connection with the
Agreement.




          8.2 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
Employer.




          8.3 Binding Effect of Decisions. The decision or action of the Plan Administrator with
respect to any question arising out of or in connection with the administration,




15









 




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
discount rate and calculation method described in Section 1.1.




          8.4 Indemnity of Plan Administrator. The Plan Administrator shall not be liable to any person
for any action taken or omitted in connection with the interpretation and administration of this
Agreement, unless such action or omission is attributable to the willful misconduct of the Plan
Administrator or any of its members. The Employer 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.




          8.5 Employer Information. To enable the Plan Administrator to perform its functions, the
Employer 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 Termination of Employment of
the Executive and such other pertinent information as the Plan Administrator may reasonably
require.




          IN WITNESS WHEREOF, the Executive and a duly authorized Executive of the Company and the Bank
have signed this Agreement as of the date first written above.




	 	 	 	 	 	 	 	 	 
	THE EXECUTIVE:	 	 	 	THE BANK:

Gateway Bank & Trust Co.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	/s/ David Twiddy
 


	 	 
	 	By:
	 	/s/ D. Ben Berry
 

	 	 
	David Twiddy
	 	 	 	 	 	 	 	 
	 

	 	 	 	Its:
	 	Chief Executive Officer	 	 
	 

	 	 	 	 	 	 	 	 





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BENEFICIARY DESIGNATION

SALARY CONTINUATION AGREEMENT




          I,                                         ., designate the following as beneficiary of any death benefits
under this Salary Continuation Agreement –




	 	 	 	 	 	 	 
	 

	 	Primary:	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	. 
	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Contingent:	 	 	 	 
	 	 	 	 	 
	 
	 	 	 	 	 	 
	 





          Note: To name a trust as beneficiary, please provide the name of the trustee(s) and the exact
name and date of the trust agreement.




          I understand that I may change these beneficiary designations by filing a new written
designation with the Employer. I further understand that the designations will be automatically
revoked if the beneficiary predeceases me, or if I have named my spouse as beneficiary and our
marriage is subsequently dissolved.




	 	 	 	 	 	 	 	 	 
	 

	 	Signature:	 	 	 	 	 	 
	 

	 	 	 	 

David Twiddy
	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	Date:
	 	 	,	2006 	 	 
	 

	 	 	 	 

	 	 	 	 
	 	 	Accepted by the Employer this                      day of                                         , 2006.  
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 

	 	 	 	 

	 	 	 	 
	 

	 	Print Name:	 	 	 	 	 	 
	 

	 	 	 	 

	 	 	 	 
	 

	 	Title:	 	 	 	 	 	 
	 

	 	 	 	 

	 	 	 	 






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SCHEDULE A




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Termination	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	without	 	 	 	 	 	Change in	 	 	 	 	 	 
	 	 	 	 	 	 	Cause	 	Disability	 	Control	 	 	 	 	 	 
	 	 	 	 	 	 	annual	 	annual	 	Annual	 	 	 	 	 	 
	 	 	 	 	 	 	benefit	 	benefit	 	Benefit	 	 	 	 	 	 
	Plan Year	 	Annual	 	payable at	 	payable at	 	Payable at	 	 	 	 	 	 
	ending	 	Retirement	 	Normal	 	Normal	 	Normal	 	 	 	 	 	Premature
	December	 	Fixed	 	Retirement	 	Retirement	 	Retirement	 	Accrual	 	Death
	31,	 	Benefit	 	Age	 	Age	 	Age	 	Balance	 	Benefit
	2006
	 	 	192,500	 	 	 	389,306	 	 	 	0	 	 	 	389,306	 	 	 	24,851	 	 	 	1,462,831	 
	2007
	 	 	201,163	 	 	 	389,306	 	 	 	5,506	 	 	 	389,306	 	 	 	131,591	 	 	 	1,546,944	 
	2008
	 	 	210,215	 	 	 	389,306	 	 	 	27,569	 	 	 	389,306	 	 	 	250,849	 	 	 	1,635,893	 
	2009
	 	 	219,674	 	 	 	389,306	 	 	 	49,697	 	 	 	389,306	 	 	 	383,730	 	 	 	1,729,957	 
	2010
	 	 	229,560	 	 	 	389,306	 	 	 	71,889	 	 	 	389,306	 	 	 	531,426	 	 	 	1,829,430	 
	2011
	 	 	239,890	 	 	 	389,306	 	 	 	94,146	 	 	 	389,306	 	 	 	695,226	 	 	 	1,934,622	 
	2012
	 	 	250,685	 	 	 	389,306	 	 	 	116,468	 	 	 	389,306	 	 	 	876,514	 	 	 	2,045,862	 
	2013
	 	 	261,966	 	 	 	389,306	 	 	 	138,854	 	 	 	389,306	 	 	 	1,076,785	 	 	 	2,163,500	 
	2014
	 	 	273,754	 	 	 	389,306	 	 	 	161,305	 	 	 	389,306	 	 	 	1,297,649	 	 	 	2,287,901	 
	2015
	 	 	286,073	 	 	 	389,306	 	 	 	183,821	 	 	 	389,306	 	 	 	1,540,839	 	 	 	2,419,455	 
	2016
	 	 	298,947	 	 	 	389,306	 	 	 	206,403	 	 	 	389,306	 	 	 	1,808,222	 	 	 	2,558,574	 
	2017
	 	 	312,399	 	 	 	389,306	 	 	 	229,049	 	 	 	389,306	 	 	 	2,101,806	 	 	 	2,705,692	 
	2018
	 	 	326,457	 	 	 	389,306	 	 	 	251,762	 	 	 	389,306	 	 	 	2,423,754	 	 	 	2,861,269	 
	2019
	 	 	341,148	 	 	 	389,306	 	 	 	274,540	 	 	 	389,306	 	 	 	2,776,391	 	 	 	3,025,792	 
	2020
	 	 	356,499	 	 	 	389,306	 	 	 	297,384	 	 	 	389,306	 	 	 	3,162,219	 	 	 	3,199,775	 
	2021
	 	 	372,542	 	 	 	389,306	 	 	 	320,293	 	 	 	389,306	 	 	 	3,583,927	 	 	 	3,383,762	 
	1-Oct
	 	 	389,306	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	3,578,328	 	 	 	3,578,328	 







18