Document:

Separation Agreement

 

Exhibit 10.1

SEPARATION AGREEMENT AND GENERAL RELEASE

     This Separation Agreement and General Release (the “AGREEMENT”) is entered into this 16th day
of December 2005 between Robert Gregg (“Gregg”) and NationsHealth, Inc. (“the Company” or
“NationsHealth”) (collectively the “Parties”).

     WHEREAS, the Parties have agreed that Gregg stepped down from his role as Chief Operating
Officer (“COO”) and all officer roles that Gregg held at the Company effective October 5, 2005, and
that Gregg will step down from all employment that Gregg holds at the Company, effective December
16, 2005 (the “Separation Date”) and that the terms of this AGREEMENT shall supersede the
Employment Agreement between Gregg and Millstream Acquisition Corp, dated March 9, 2004 (“the
Employment Agreement”) unless otherwise stated herein;

     WHEREAS, the Parties agreed that Gregg has provided valuable contributions to the Company and
that the Company will provide the separation benefits described in this AGREEMENT in exchange for a
release of claims against the Company, including a release of the Company’s obligations under the
Employment Agreement;

     WHEREAS, the Parties have agreed to this separation because the role and duties of the COO as
set forth in the Employment Agreement changed in a material way such that the prior COO function
ceased to exist, however, this separation does not foreclose the possibility of a future consulting
or advisory relationship between Gregg and the Company;

     NOW, THEREFORE, in consideration of the promises and conditions set forth herein, Gregg and
NationsHealth agree as follows:

     1. The Parties have agreed that Gregg stepped down from his role as Chief Operating Officer
and all officer roles effective October 5, 2005. Further, Parties have agreed that Gregg will step
down from all employment roles that Gregg holds at the Company, effective on the “Separation Date,”
and that, upon Gregg’s execution of this AGREEMENT and following the Effective Date as set forth in
Paragraph 9 below, NationsHealth shall provide the following benefits on the following schedule to
Gregg:

     (a) On or before December 31, 2005, the Company will provide Gregg with a lump-sum separation
payment in the amount of two hundred fifty thousand dollars ($250,000.00);

     (b) The Company shall pay Gregg one hundred fifty thousand dollars ($150,000) in lieu of a
2005 bonus opportunity. This $150,000 payment will be made on or before December 31, 2005;

     (c) The Company will provide Gregg with deferred severance compensation payments as follows:
(i) on the seven-month anniversary of the Separation Date, the Company will provide Gregg with a
payment in the amount of two hundred fifty thousand dollars ($250,000.00); and (ii) in accordance
with the Company’s standard payroll practices, the Company shall provide Gregg with salary
continuation at his current salary of $500,000 per annum for twelve (12) months, starting on the
eight-month anniversary of the Separation Date and concluding on the nineteen-month anniversary of
the Separation Date. However, if at any

 

 

time prior the seven-month anniversary of the Separation Date, the Company has arranged for a
private sale of $3,000,000 worth of Gregg’s stock that complies with the requirements for such sale
set forth in Paragraph 2(a) below, then the Company shall not be required to make the $250,000
payment on the seven-month anniversary of the Separation Date, but may instead make this payment at
any time after the seven-month anniversary and on or before December 31, 2006;

     (d) For the first eighteen months from the Separation Date or any longer period during which
Gregg receives COBRA continuation coverage at the family level, the Company shall provide group
health benefits for Gregg and his family by paying Gregg’s COBRA costs for electing COBRA
continuation coverage at the family level for the maximum period permitted under COBRA;

     (e) The Company shall accelerate the vesting of Gregg’s stock options such that all stock
options granted prior to the Separation Date shall vest immediately upon the Separation Date.

Each of the payments provided for in the AGREEMENT shall be subject to applicable withholding as
required by law. In the event of Gregg’s death or disability, each of the payments described in
this AGREEMENT shall be paid to his spouse. To the extent that CapitalSource Finance LLC
(“CapitalSource”) has or had any consent or other rights under the Subordination Agreement, dated
April 30, 2004, by and between the Co-Founders, Gregg, the United States Pharmaceutical Group,
L.L.C., the Company and CapitalSource (the “Subordination Agreement”), relating to the payments
provided for in the AGREEMENT, the payments shall be conditioned upon (i) an advance written waiver
by CapitalSource of such payment, (ii) compliance with the terms of the Subordination Agreement, or
(iii) the prior termination of the Subordination Agreement. Gregg acknowledges and agrees that
these promises, payments and benefits described above in this Paragraph 1 exceed any legal payment
obligations of NationsHealth and provide valid consideration for the release contained in Paragraph
3 of this AGREEMENT.

     2. Upon the execution of this Agreement, Gregg will be deemed to have requested that the
Company arrange for the purchase the shares of common stock, par value $0.0001 per share, of the
Company (the “Common Stock”), owned by Gregg or by an entity in which Gregg has an equity or
ownership interest worth up to three million dollars ($3,000,000). During the period prior to June
30, 2006, the Company shall use its best efforts to arrange for the sale of the shares of Common
Stock owned by Gregg or by any entity in which Gregg has an equity or ownership interest, worth up
to three million dollars ($3,000,000) in a private sale. Such Common Stock shall be valued as of
the close of business on the day prior to the date of the private sale with the proceeds up to
$3,000,000 for that Common Stock to be paid to Gregg (or his spouse in the event of his death or
disability) and, in the event that the proceeds from that sale are at least 90% of the closing
price on the night before the closing (inclusive of commissions and other closing costs), then
Gregg shall be obligated to accept the terms of the sale. If the Company arranges the sale of
Gregg’s Common Stock, regardless of whether the sale is structured to flow through the Company or
between the investor and Gregg directly, Gregg shall receive the actual selling price net of any
commissions regardless of whether the sale is below or above the current asking price. In the
event that the Company does not arrange for a sale of $3,000,000 of Gregg’s Common Stock prior to
June 30, 2006, thereafter Gregg (or his spouse as

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trustee in this event of his death or disability) has the right to require the Company to purchase
the number of shares of the Common Stock owned by Gregg or by any entity in which Gregg has an
equity or ownership interest worth up to three million dollars ($3,000,000); provided, however,
that Gregg can only require the Company to purchase one million five hundred thousand dollars
($1,500,000) worth of his Common Stock in any given calendar year (each such demand for the
purchase of up to $1,500,000 of Gregg’s Common Stock to be referred to as a “Put Notice”). Such
Common Stock shall be valued as of the close of business on the day prior to the date Gregg or his
spouse delivers a Put Notice to the Company setting forth his decision to require the Company to
purchase such Common Stock. Subject to the next two sentences of this Paragraph, within 30 days of
receiving the Put Notice, the Company shall pay Gregg or his spouse the proceeds from the purchase
of the shares of Common Stock specified in the Put Notice, up to a maximum of one million five
hundred thousand dollars ($1,500,000) per each of up to two Put Notices. To the extent that Glenn
Parker, M.D. or Lewis Stone (each a “Co-Founder”) delivers a Put Notice at the same time as Gregg,
the Company shall have the right to pay the funds due hereunder over two years (in the case of
delivery of a Put Notice by a single Co-Founder) or over three years (in the case of delivery of a
Put Notice by both Co-Founders), in equal amounts each year pro rata among Gregg and any Co-Founder
based on the number of shares of Common Stock specified in each Put Notice; provided, however, that
the Company shall not have such right to delay the payment of such funds in any succeeding year or
years if the Company elects to sell the shares of Common Stock as set forth in the succeeding
sentence. In the event that the Company has not sold $3,000,000 worth of Gregg’s Common Stock
prior to June 30, 2006 and Gregg delivers a Put Notice, the Company shall have ten (10) days to
exercise the option, in lieu of a cash payment, of causing the shares specified in a Put Notice to
be sold, as promptly as is reasonably practicable, pursuant to a registration statement filed by
the Company under the Securities Act of 1933, as amended (the “Securities Act”), in which the
shares shall be included, or pursuant to an exemption from the registration requirements of the
Securities Act, in either case with the funds requested in the Put Notice being remitted to Gregg
on the close of such sale (provided, further, that (x) Gregg shall received at
least $1,500,000 from such sale (in the event that the shares being sold pursuant to the Put Notice
are sold in a private sale or through a registration statement, Gregg shall receive the higher of
(i) the value of the amount of his shares being sold pursuant to the Put Notice times the per share
price on the date of the Put Notice or (ii) one million five hundred dollars ($1,500,000)) and (y)
any sale pursuant to a registration statement shall not count as a “Demand Registration” pursuant
to that certain Registration Rights Agreement (the “Registration Rights Agreement”), dated as of
the date of the Employment Agreement, by and among the Company, RGGPLS Holdings, Inc., a Florida
corporation (“RGGPLS”), GRH Holdings, L.L.C. (“GRH”), a Florida limited liability company, and
Becton, Dickinson and Company, a New Jersey corporation). The Company agrees and acknowledges that
Gregg shall have the right to require the Company to purchase shares of Common Stock from him
hereunder without regard to the limitations set forth in Section 2.4 of the Registration Rights
Agreement. To the extent that GRH has or had any tag-along rights under Section 4.03 of the
Stockholder Agreement, dated March 9, 2004, by and between the Company, RGGPLS and GRH (the
“Stockholder Agreement”) with respect to the sale or repurchase of the Common Stock
 by the methods
described above, GRH provided an advance written waiver of those rights by a Consent and Waiver
dated December 1, 2005. To the extent that CapitalSource has or had any consent or other rights
under the Subordination Agreement relating to payment as a result of the sale or repurchase of the
Common Stock by any of the

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methods described above, the sale or purchase of the Common Stock shall be conditioned upon: (i) an
advance written waiver by CapitalSource of such right to payment; (ii) compliance with the terms of
the Subordination Agreement; or (iii) the prior termination of the Subordination Agreement.

     3. (a) In consideration of the payment and mutual promises and covenants set forth in this
AGREEMENT, Gregg, on behalf of himself, his heirs, successors, current and former agents,
representatives, attorneys, assigns, executors, beneficiaries, and administrator, hereby releases
and forever discharges NationsHealth and each and all of its current and former parents, divisions,
subsidiaries and affiliates, attorneys, shareholders, employees, representatives and agents
(collectively “the NationsHealth Group”) and each and all of their predecessors, successors,
assigns, officers, directors, from any and all charges, complaints, claims, liabilities,
obligations, promises, agreements, controversies, damages, actions, causes of action, suits,
rights, demands, costs, losses, debts and expenses (including attorneys’ fees) of any nature
whatsoever, whether in law or in equity, which Gregg now has or ever may have had against the
NationsHealth Group, including, but not limited to, any and all matters related in any way to
Gregg’s equity interest in NationsHealth and Gregg’s employment with or separation from
NationsHealth, as well as all claims under Title VII of the Civil Rights Act of 1964, the Civil
Rights Act of 1991, the Americans with Disabilities Act, the Age Discrimination in Employment Act,
the Older Worker Benefit Protection Act, the Employee Retirement Income Security Act of 1974, the
National Labor Relations Act, the Immigration Reform and Control Act, the Workers Adjustment and
Retraining Notification Act, the Occupational Safety and Health Act, the Family and Medical Leave
Act, the Florida Civil Rights Act, the Florida Minimum Wage Law, any other federal, state or local
anti-discrimination, wage or benefits laws, and any other contractual or tort claims relating to
Gregg’s equity interest in NationsHealth and Gregg’s employment or separation from employment with
NationsHealth. Notwithstanding the foregoing, nothing in this provisions shall waive or supersede
the Parties’ obligations under this AGREEMENT, including but not limited to the Company’s
obligation to indemnify Gregg as set forth in Paragraph 5.

         (b) In consideration of the payment and mutual promises and covenants set forth in this
AGREEMENT, NationsHealth on behalf of itself and each and all of its current and former parents,
divisions, subsidiaries and affiliates (collectively “the NationsHealth Releasors”), hereby
releases and forever discharges Gregg and each and all his heirs, successors, current and former
agents, representatives, attorneys, assigns, executors, beneficiaries, and administrator, from any
and all charges, complaints, claims, liabilities, obligations, promises, agreements, controversies,
damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses
(including attorneys’ fees) of any nature whatsoever, whether in law or in equity, which the
NationsHealth Releasors now have or ever may have had against the Gregg, including, but not limited
to, any and all matters related in any way to Gregg’s equity interest in NationsHealth and Gregg’s
employment with or separation from NationsHealth. Notwithstanding the foregoing, nothing in this
provision shall waive or supersede the Parties’ obligations under this AGREEMENT, nor shall it
release Gregg from liability to the NationsHealth Releasors for any criminal acts affecting the
Company or willful misconduct by Gregg of which the Company is not aware at the time of execution
of this AGREEMENT that has a materially adverse effect on the Company.

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     4. Gregg agrees that he and his agents will not publicize or disclose, directly or indirectly,
the existence of this AGREEMENT, the terms thereof, or the circumstances giving rise to the
AGREEMENT, to anyone other than Gregg’s attorney, accountant, financial advisor and members of his
immediate family or as required by law. Gregg further agrees that he will advise any individual to
whom the terms, conditions or existence of this AGREEMENT have been disclosed of the
confidentiality requirements of this paragraph and that he will use his best efforts to ensure that
the confidentiality requirements are complied with in all respects.

     5. The Company shall indemnify and hold Gregg harmless from and against all claims,
investigations, actions, awards and judgments and settlements, including costs and attorneys’ fees,
incurred by Gregg in connection with claims made against Gregg for acts or omissions of the Company
in which Gregg was not involved and acts or decisions made by Gregg in good faith in his capacity
as an officer or employee of the Company, so long as Gregg reasonably believed that the acts or
decisions were in the best interests of the Company and (with respect to any criminal act) Gregg
had no reason to believe that Gregg’s conduct was unlawful. The Company further agrees to pay the
reasonable expenses of private counsel or investigators incurred in representing the Gregg in any
audit, inquiry, regulatory review or similar action or proceeding covered by this indemnification.
The Company shall not settle any claim or action or pay any award or judgment against Gregg without
Gregg’s prior written consent, which shall not be unreasonably withheld. The Company may obtain
coverage for Gregg under an insurance policy covering claims set forth herein if such coverage is
possible at a reasonable cost, provided, however, it is understood and agreed that the Company’s
obligation to indemnify Gregg as set forth in this Paragraph 5 not be affected by the Company’s
ability or inability to obtain insurance coverage. Further, through August 2009, the Company shall
be responsible for providing Gregg with the service providers and incurring all costs associated
with preparation of any regulatory, financial or other filings required as a result of Gregg’s
former role as an officer or employee and as a result of Gregg’s ownership of shares of the
Company.

     6. Gregg understands and agrees that his covenant to comply with the following non-compete and
non-solicitation obligations serves as material inducement for the Company to enter into this
AGREEMENT and that his obligations under this paragraph 6 survive the termination of this
AGREEMENT. Further, Gregg understands and agrees that his breach of the obligations set forth in
this paragraph 6 would be a material breach of this AGREEMENT, entitling the Company to all
available remedies at law and equity, including, but not limited to, recoupment of the payments
made to Gregg under Paragraph 1 of this AGREEMENT.

          (a) Non-Competition. Gregg acknowledges and recognizes his possession of Confidential
Information (as defined in his Employment Agreement with the Company) and acknowledges the highly
competitive nature of the business of the Company and its affiliates and subsidiaries and
accordingly agrees that, in consideration of the promises contained herein, he will not, from the
Separation Date through December 31, 2006 (the “Post-Employment Restricted Period”) engage or
invest in, own, manage, operate, finance, control, or participate in the ownership, management,
operation, financing, or control of, be employed by, lend his name to, lend his credit to, or
render services or advice to any business that competes with the business then being conducted by
the Company or any of its affiliates or subsidiaries, provided, however, that Gregg may (x)
purchase or otherwise acquire up to three percent of any class of securities of

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any enterprise if such securities are listed on any national or regional securities exchange
or have been registered under Section 12(g) of the Securities Exchange Act of 1934, as amended, and
(y) engage in other direct to consumer marketing projects, including those involving television and
those utilizing the same vendors utilized by the Company (such as, but not limited to, Koepell,
Thrill Street Entertainment, Karlin Pimsler and West Communications), provided that such projects
are not in competition with the business of the Company as of the Separation Date and do not have a
negative impact on the Company. Gregg agrees that, in consideration of the promises contained
herein, he will not, either individually or as an officer, director, stockholder, member, partner,
agent, consultant or principal of any other business firm, directly or indirectly, solicit any
business of the type being carried on by the Company or any of its affiliates or subsidiaries
during the Post-Employment Restricted Period (or any business of a similar type) from any person or
entity that was a customer of the Company or its affiliates or subsidiaries during the term of his
employment with the Company.

          (b) Non-Solicitation. Gregg recognizes that he does possess confidential information about
employees of the Company and its subsidiaries or affiliates relating to their education,
experience, skills, abilities, compensation, and benefits, and inter-personal relationships with
suppliers to and customers of the Company and its subsidiaries and affiliates. Gregg recognizes
that the information he possesses about these other employees is not generally known, is of
substantial value to the Company and its subsidiaries or affiliates in developing their respective
businesses and in securing and retaining customers, and has been acquired by Gregg because of his
engagement with the Company. Gregg agrees that, for one year after the Separation Date, Gregg will
not, directly or indirectly, solicit or recruit any employee of the Company or any of its
subsidiaries or affiliates of the purpose of becoming employed by Gregg or by any business,
individual, partnership, firm, corporation or other entity on whose behalf Gregg is acting as an
agent, representative or employee and that Gregg will not convey any such confidential information
or trade secrets about employees of the Company or any of its subsidiaries or affiliates to any
person.

     7. This AGREEMENT constitutes a compromise settlement of disputed and contested matters
between the Parties and is the product of arms-length negotiations. It shall not be construed as
an admission or any sort by either of the Parties, nor shall it be used as evidence is a proceeding
of any kind, except one in which one of the Parties alleges breach of the terms of this AGREEMENT
or one in which one of the Parties elects to use this AGREEMENT as a defense to any claim.

     8. By signing this AGREEMENT, Gregg acknowledges and agrees that:

          1. he has been afforded a reasonable and sufficient period of time for deliberation thereon
and for negotiation of the terms thereof;

          2. he has carefully read and understands the terms of this AGREEMENT;

          3. he has signed this AGREEMENT freely and voluntarily and without duress or coercion and with
full knowledge of its significance and consequences and of the rights relinquished, surrendered,
released and discharged hereunder;

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          4. the only consideration for signing this AGREEMENT are the terms stated herein and no other
promise, agreement or representation of any kind has been made to him by any person or entity
whatsoever to cause him to sign this AGREEMENT;

          5. that NationsHealth did offer him a minimum period of at least twenty-one (21) days after
his receipt of this AGREEMENT to review it; and

          6. that NationsHealth advised him that he had the opportunity to consult an attorney before
signing this AGREEMENT.

     9. This AGREEMENT may be revoked, in a writing sent to the General Counsel of the Company, by
Gregg at any time during the period of seven (7) calendar days following the date of execution by
Gregg. If such seven (7) day revocation period expires without Gregg exercising his revocation
right, the obligations of this AGREEMENT will become fully effective on the eighth day after
Gregg’s execution of the AGREEMENT (the “Effective Date”).

     10. This AGREEMENT constitutes an integrated agreement, containing the entire understanding of
the Parties with respect to the matters addressed herein and, except as set forth in this
AGREEMENT, no representations, warranties or promises have been made or relied on by the Parties.
This AGREEMENT shall prevail over any prior communications between the Parties or their
representations relative to matters addressed herein.

     11. It is the desire and intent of the parties hereto that the provisions of this AGREEMENT
shall be enforced to the fullest extent permissible under the law and public policies applied in
each jurisdiction in which enforcement is sought. Accordingly, although Gregg and the Company
consider the restrictions contained in this AGREEMENT to be reasonable for the purpose of
preserving the Company’s goodwill and proprietary rights, if any particular provision of this
AGREEMENT shall be adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete the portion adjudicated to be invalid or unenforceable, such deletion to apply
only with respect to the operation of such business in the particular jurisdiction in which such
adjudication is made. It is expressly understood and agreed that although the Company and Gregg
consider the restrictions contained in Paragraph 6 to be reasonable, if a final determination is
made by a court of competent jurisdiction that the time or territory or other restriction contained
in this AGREEMENT is unenforceable against Gregg, the provisions of this AGREEMENT shall be deemed
amended to apply as to such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable.

     The Parties acknowledge that the Company’s damages at law would be an inadequate remedy for
the breach by Gregg of any of the provisions of Paragraph 6, and agree that in the event of such
breach the Company may obtain temporary and permanent injunctive relief restraining the Gregg from
such breach, and, to the extent permissible under the applicable statutes and rules of procedure, a
temporary injunction may be granted immediately upon the commencement of any such suit. Nothing
contained herein shall be construed as prohibiting the Company from pursuing any other remedies
available at law or equity for such breach or threatened breach of Paragraph 6, or for any breach
or threatened breach of any other provision of this AGREEMENT.

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     Further, the Parties agree that any claim, controversy, or dispute between Gregg and the
Company (including without limitation Company’s affiliates, subsidiaries, officers, employees,
representatives or agents) arising out of or related to this AGREEMENT, other than a dispute
concerning a breach or a threatened breach of Paragraph 6 of this AGREEMENT, shall be submitted to
and settled by arbitration before a single arbitrator in a forum of the American Arbitration
Association (“AAA”) located in Broward County in the State of Florida and conducted in accordance
with the National Rules for the Resolution of Employment Disputes. In such arbitration: (a) the
arbitrator shall agree to treat as confidential evidence and other information presented by the
parties to the same extent as Confidential Information must be held confidential by Gregg under the
terms of his prior employment and under the terms of this AGREEMENT, (b) the arbitrator shall have
no authority to amend or modify any of the Company’s policies, and (c) the arbitrator shall have
ten business days from the closing statements or submission of post-hearing briefs by the parties
to render a decision. All AAA-imposed costs of said arbitration, including the arbitrator’s fees,
if any, shall be borne by the Company. All legal fees incurred by each party in connection with
said arbitration shall be borne by the party who incurs them, unless applicable statutory authority
exist providing for the award of attorneys’ fees to a prevailing party and the arbitration decision
and award provides for the award of such fees. Any arbitration award shall be final and binding
upon the Parties, and any court having jurisdiction may enter a judgment on the award.

     12. The Parties agree that a failure by any party at any time to require performance of any
provision of this AGREEMENT shall not waive, affect, diminish, obviate or void in any way that
party’s full right or ability to require performance of the same, or any other provisions of this
AGREEMENT, at any time thereafter.

     13. This AGREEMENT shall be interpreted, enforced and governed under the laws of the State of
Florida, without regard to conflict of laws principles.

     14. The Parties warrant and represent that they have read and understand the foregoing
provisions of this AGREEMENT and that they and their respective signatories are fully authorized
and competent to execute this AGREEMENT on their behalves. Gregg further warrants and represents
that he has not previously assigned or transferred any of claims that are the subject of the
release contained herein.

     Executed as an agreement under seal effective as of eight (8) days after Gregg’s execution of
this AGREEMENT.

	 	 	 	 	 	 	 	 	 	 	 
	NATIONSHEALTH, INC.	 	 	 	ROBERT GREGG	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	  /s/ Arthur Spector
 

	 	 	 	By:
	 	     /s/ Robert Gregg
 

	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Title:

	 	  Chairman
	 	 	 	Date:
	 	     12-16-2005	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Date:

	 	  12-16-2005	 	 	 	 	 	 	 	 

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EXHIBIT 10.1

CONSULTING AGREEMENT

     THIS CONSULTING AGREEMENT (this “Agreement”), dated as of December 19, 2005, is by and
between Bank of Granite (the “Company”), Bank of Granite Corporation, the holder of all
outstanding stock of the Company (the “Parent”) and John A. Forlines, Jr.
(“Consultant”).

Background Statement

     Consultant has skills, knowledge and expertise in the banking industry that will benefit the
Company. The Company desires to engage Consultant to perform certain services, and Consultant
agrees to provide such services according to the terms and conditions set forth hereafter.

Statement of Agreement

     Now, therefore, in consideration of the mutual covenants and benefits flowing between the
parties, and other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:

     1. Retirement. Effective as of January 8, 2006, Consultant will retire as Chairman
and as a director of each of the Company and the Parent. As consideration for such retirement and
in recognition of Consultant’s prior service to the Company and the Parent, the Company or the
Parent will pay Consultant a retirement bonus of $1,200,000.00, which bonus shall be paid in a
single payment no later than March 15, 2006.

     2. Term. The Company hereby contracts with Consultant for a term of five (5) years
commencing on January 8, 2006, unless terminated sooner pursuant to the provisions of Section 10
hereof.

     3. Responsibilities of Consultant. Consultant shall perform such consulting services
as requested from time to time by the Company’s Chief Executive Officer. Although the Company has
the right to specify the objectives, general nature and parameters of Consultant’s work, Consultant
is, and at all times shall be solely responsible for the control and direction of his services for
the Company. Consultant agrees to conduct himself in manner consistent with the best interests of
the Company, and to perform his obligations hereunder in a good and workmanlike manner, utilizing
his best efforts. Consultant shall also serve as Chairman Emeritus for the Board of Directors of
the Company (the “Board”) and the Board of Directors of the Parent; provided that this
designation shall not entitle Consultant to any voting rights on matters brought before the Board.
Consultant shall have observation rights for meetings of the Board only to the extent provided from
time to time by the Board.

     4. Noncompetition.

     (a) In the course of performing services under this Agreement, Consultant will be provided
with and have access to trade secrets of the Company, including, without limitation, knowledge and
information of customer lists and other confidential information related to the business operations
of the Company. Consultant acknowledges that such information is highly

 

 

confidential. Consultant agrees that he will not use, divulge, publish or otherwise reveal,
either directly or indirectly, to any person, firm or organization, during and after the term of
this Agreement, any such knowledge or information and shall retain such knowledge and information
for the sole benefit of the Company and its affiliates and successors and assigns.

     (b) Based on Consultant’s acknowledgement of the confidential nature and unique value to the
Company of the knowledge and information referred to above, and for the valuable consideration
provided herein, Consultant agrees that during the term of this Agreement and for a period of two
(2) years after any expiration or termination of this Agreement, Consultant will not, without the
prior written consent of the Board, (i) directly or indirectly, either as a principal, agent,
manager, employee, owner (if the percentage of ownership exceeds one percent (1%) of the net worth
of the business), partner (whether general or limited), director, officer, consultant or in any
other capacity participate in any business that competes with the Company or its affiliates
(including the Parent and its subsidiaries) within fifty (50) miles of any North Carolina office of
the Company or the Parent or its subsidiaries (the “Territory”), such determination of the
geographic scope of this covenant to be made as of the date of this Agreement or (ii) solicit
business in competition with the Company or the Parent or its subsidiaries, from any customer or
potential customer contacted by Consultant during the term of this Agreement. Consultant
acknowledges that the restrictive covenants contained in this Section are fair and reasonable.

     5. Compensation. In consideration of the services to be performed by Consultant
hereunder, the Company shall pay to Consultant in cash an annual fee, equal to the sum of
$100,000.00, which fee shall be payable in arrears in equal monthly installments beginning on
January 31, 2006.

     6. Right of First Refusal. Consultant hereby grants to the Parent a right of first
refusal to purchase common stock of the Parent owned by Consultant, whether owned on the date
hereof or acquired during the term of this Agreement (the “Shares”). If Consultant intends
to transfer any or all of the Shares pursuant to a bona fide offer to purchase all or any portion
of the Shares, Consultant shall first submit to the Parent an offer to sell such shares to the
Parent at the same price per share as offered by the third party. The offer to the Parent shall
continue to be a binding offer to sell until expressly accepted or rejected by an authorized
officer or director of the Parent or until the expiration of a period of thirty (30) days after the
delivery of such offer to the Parent, whichever is earlier. If the Parent is purchasing Shares at
an aggregate price in excess of $3,000,000.00 pursuant to this Section, then the Parent shall have
the option (but not the obligation) to pay for such Shares in twenty (20) equal quarterly
installments, with interest accruing at a rate equal to the 30-day LIBOR plus 115 basis points and
paid quarterly in arrears.

     7. Benefits. Consultant shall be entitled, during the term of this Agreement and
subject to the Company’s policies, to prompt reimbursement of out-of-pocket expenses of Consultant
in connection with his performance of the consulting services described herein. In addition, the
Company will, during the term of this Agreement, provide the following benefits to Consultant: (i)
on the effective date of this Agreement, a new vehicle selected by the Company, which shall be the
property of Consultant; provided that Consultant shall be responsible for all costs and expenses
related to the ownership and maintenance of such vehicle (other than reimbursement for business
mileage as permitted under this Section); (ii) office space at the Company’s Granite Falls, North
Carolina office; (iii) administrative support at the Company’s

2

 

headquarters; (iv) expenses related to attendance at North Carolina Bankers’ Association
meetings, the American Bankers’ Association annual meeting and any other additional banking
association meetings requested by the Company’s Chief Executive Officer; and (v) payment of
membership fees for Consultant’s membership at Cedar Rock Country Club. Except as specifically
provided herein, Consultant shall not be entitled to any fringe benefits from the Company,
including, without limitation, profit sharing, life, disability and health insurance, and coverage
under workers’ compensation and unemployment compensation laws; provided, however, that this
provision shall not affect Consultant’s right to any benefits accrued prior to the effective date
of this Agreement.

     8. Compliance with Laws. Consultant acknowledges that the Company will not be
withholding any federal, state, local or social security taxes and that Consultant is solely
responsible for the payment of all such taxes. Consultant, as an independent contractor of the
Company, agrees to abide by, and comply with, all federal, state and local laws insofar as they
relate to the filing of all necessary forms and the payments of all amounts relating to any and all
withholding amounts and taxes, including but not limited to, income taxes, workers’ compensation,
social security taxes, and/or unemployment compensation. If this independent contractor
relationship is determined by tax or other legal authorities to constitute an employment
relationship, (a) Consultant hereby waives, for the period prior to the date such determination
becomes final, any and all claims to coverage under Company pension, profit-sharing, health,
dental, welfare, or similar type plans that are generally provided to Company employees, unless
otherwise agreed by the Company in writing; and (b) Consultant agrees to indemnify and hold
harmless the Company and its affiliates and their respective employees, officers, managers,
employees, directors, equity holders and agents from any attorney’s fees, costs, claims, suits,
judgments, taxes, assessments, penalties, interest and related liabilities arising therefrom.
Consultant agrees to indemnify, defend and hold harmless the Company and its affiliates and their
respective employees, officers, managers, directors, shareholders and agents from and against any
and all other liabilities, claims, costs, damages, expenses, losses, and attorney’s fees resulting
from, or attributable to, any act or omission of Consultant related to the performance of
Consultant’s obligations under this Agreement or from any breach of Consultant’s obligations under
this Agreement. All indemnification obligations set forth in this Section shall survive any
termination of this Agreement.

     9. Independent Contractor Status/Further Assurance. The parties hereto expressly
intend that Consultant be an independent contractor of the Company and not an employee, partner,
joint venturer, or agent. Consultant shall have no authority in the affairs of the Company, nor
any authority to bind the Company to any form of contract or commitment, whether or not in writing.
Consultant, upon request of the Company or its legal or tax counsel, agrees to sign all documents,
provide any and all assistance and documentation requested (including but not limited to Form 1099,
and federal tax returns) that may be of assistance to the Company or said counsel to dispute or
explain any finding or inquiry regarding the nature of this independent contractor relationship.
Consultant further appoints the Company, or its legal or tax counsel, as its attorney in fact for
those purposes, and authorizes the Company or its qualified agent to sign and submit IRS Form 2848
or similar forms for those purposes.

     10. Termination. This Agreement shall terminate: (i) upon the death of Consultant;
(ii) upon the Disability (as defined below) of Consultant; or (iii) for cause (as defined below),

3

 

immediately upon notice from the Company to Consultant, or at such later time as the notice
may specify. For purposes of this Agreement, “Disability” means the inability of Consultant, for
physical or mental reasons, to perform Consultant’s duties under this Agreement for 60 consecutive
days, or an aggregate of 120 days during any 12-month period, as determined by a medical doctor
selected by the Company. For purposes of this Agreement, “Cause” means any of the following as
determined in the good faith judgment of the Chief Executive Officer of the Company: (i) the
failure of Consultant satisfactorily to perform his duties hereunder, (ii) the commission of a
felony or other crime involving dishonesty by Consultant or (iii) any breach by Consultant of any
material provision of this Agreement. In the event of a termination of this Agreement, Consultant
shall be entitled only to payment for services rendered through the date of termination, and all
benefits provided hereunder shall cease as of the date of termination.

     11. Governing Law. This Agreement shall be construed and governed in accordance with
the substantive laws of the State of North Carolina without regard to the effect of choice-of-law
principles.

     12. Assignment. Consultant may not assign this Agreement, or delegate or transfer any
responsibilities hereunder, to another party without the prior written consent of the Company. The
Company may assign this Agreement to any of its affiliates or subsidiaries without the prior
consent of Consultant.

     13. Notices. All notices hereunder shall be by facsimile and delivery by regular mail
or overnight courier, addressed as follows:

	 	 	 
	To Company:

	 	Bank of Granite
	 

	 	25 Third Street, NW
	 

	 	P.O. Box 578
	 

	 	Hickory, North Carolina 28603
	 

	 	Attn: Chief Executive Officer
	 

	 	Facsimile: (828) 345-6859
	 
	 	 
	To Parent:

	 	Bank of Granite Corporation
	 

	 	25 Third Street, NW
	 

	 	P.O. Box 578
	 

	 	Hickory, North Carolina 28603
	 

	 	Attn: Chief Executive Officer
	 

	 	Facsimile: (828) 345-6859
	 
	 	 
	To Consultant:

	 	John A. Forlines, Jr.
	 

	 	36 Pinewood Road
	 

	 	Granite Falls, North Carolina 28630
	 

	 	Facsimile: ____________________________

Any party may change its address for notice by giving notice thereof to the other party in
accordance with this Section.

     14. Entire Agreement. This Agreement represents the entire agreement between the
parties concerning the subject matter hereof. No addition, alteration or modification hereto and
no waiver of any of the provisions hereof shall be valid unless made in writing and executed
by both parties. The invalidity or unenforceability of a particular provision of this Agreement
shall not affect the other provisions hereof, and this Agreement shall be construed in all respects
as if such invalid or unenforceable provisions were omitted.

4

 

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above
written.

	 	 	 
	COMPANY:

	 	CONSULTANT:
	 
	 	 
	BANK OF GRANITE
	 	 
	 
	 	 
	By: /s/ Charles M. Snipes

	 	/s/ John A. Forlines, Jr.
	 

	 	 
	Name: Charles M. Snipes

	 	John A. Forlines, Jr.
	Title: Chief Executive Officer
	 	 
	 
	 	 
	 
	 	 
	PARENT:
	 	 
	 
	 	 
	BANK OF GRANITE CORPORATION
	 	 
	 
	 	 
	By: /s/ Charles M. Snipes
	 	 
	 

	 	 
	Name: Charles M. Snipes

	 	 
	Title: Chief Executive Officer
	 	 

5

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