Document:

Exhibit 10.51

UNIVERSAL CORPORATION

Performance Share Award Agreement

THIS PERFORMANCE SHARE AWARD AGREEMENT, effective as of the Award Date, between Universal Corporation, a Virginia corporation (the “Company”), and the Participant, is made pursuant and subject to the Company’s 2007 Stock Incentive Plan, as approved on August 7, 2007, which is incorporated herein by reference, and any future amendments thereto (the “Plan”). All terms used herein that are defined in the Plan shall have the same meanings given them in the Plan. For purposes of this Agreement, the term “Performance Share” shall have the same meaning as the term “Stock Unit” used in the Plan. This agreement, along with the accompanying letter detailing an award during ______ of Performance Shares to the Participant (“Award Letter”), constitutes a single agreement governing the terms and conditions of the Participant’s award under the Plan, and is referred to herein as the “Agreement.”

1.           Award of Performance Shares. Pursuant to the Plan and this Agreement, the Company granted to Participant the number of Performance Shares specified in the Award Letter.

2.           Terms of Award and Definitions.

(a)           Award Date is the date of the Award Letter.

(b)           Change in Control means:

(i)           The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company, (B) any acquisition by the Company, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of item (iii) of this subsection 2(b); or

  

  

  

(ii)           Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(iii)           Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Business Combination”), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(iv)           Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.

(c)           Participant is the individual named in the Award Letter.

(d)           Performance Period means the period specified in the Award Letter over which the Award is earned.

(e)           Performance Shares means an award denominated in the Company’s shares of Common Stock in the amount specified in the Award Letter.

  

  

  

(f)           Retirement means, for purposes of this Agreement, early, normal or late retirement as defined in the Employees’ Retirement Plan of Universal Leaf Tobacco Company, Incorporated and Designated Affiliated Companies, or for any reason approved by the Committee in its absolute discretion.

(g)          Target means the level of attainment of the Performance Measure(s) established by the Committee and described in the Award Letter at which 100% of the Performance Shares are deemed to have been earned.

3.           Earning the Award.

(a)           Except as provided in subsection (b) below, the Award of Performance Shares is subject to the attainment of a Performance Measure(s) established by the Committee, and will be earned based on the level of attainment of the Performance Measure(s) relative to the Target described in the Award Letter.

(b)           Participants shall be entitled to a prorated number of Performance Shares if, while they are employed by the Company or an Affiliate, they Retire, die or become Disabled during the Performance Period. The applicable pro rata number of Performance Shares shall be determined by multiplying the number of Performance Shares by a fraction, the numerator of which is the number of whole months in the Performance Period that have elapsed since the beginning of the Performance Period through the date of the Participant’s death, Retirement or Disability and the denominator of which is the number of whole months in the Performance Period. The amount, if any, actually earned by such Participant shall be determined based on attainment of the Performance Measure(s) relative to Target through the end of the Performance Period, and shall be paid to such Participant in accordance with Section 5 at the same time payment would have been made had the Participant remained actively employed; provided, however, in the event of the Participant’s death, the Committee, at its sole discretion, may accelerate the end of the Performance Period to coincide with the date of the Participant’s death and may base the number of Performance Shares earned on attainment of the Performance Measure(s) relative to the Target through such date, or may deem such Participant’s Performance Shares to have been earned at the Target as of such date, or may take such other actions with respect to this Award as the Committee determines in its discretion are necessary or appropriate under the circumstances to preserve the intended benefits of this Award for such Participant. The corresponding amounts payable for Performance Shares shall be paid in the form described in Section 5. For the avoidance of doubt, the Performance Shares lost due to proration will not vest and will be deemed forfeited upon the event of a Participant’s Retirement, death or Disability.

4.           Vesting and Forfeiture of Award. Except as provided in this Agreement, Performance Shares will vest on the last day of the Performance Period. A Participant whose employment is terminated other than for reasons of the Participant’s death, Retirement or Disability prior to the end of the Performance Period will forfeit the award of Performance Shares effective upon termination.

  

  

  

5.           Settlement of Award. The Company shall deliver to the Participant a payment for each earned and vested Performance Share as determined in accordance with the Award Letter attached hereto, with such payment to be made in shares of Common Stock. Payment shall be made within ninety (90) calendar days following the close of the Performance Period, subject to the following:

	
  

	
(a)

	
Except in the case of death, Disability or Retirement, the Participant must be employed by the Company or an Affiliate on the last day of the performance period, and shall have no right with respect to any Award or a portion thereof, until such Award vests in accordance with Section 4.

	
  

	
(b)

	
Unless the Participant pays to the Company in cash (or provides for the payment of) the withholding taxes on the income realized from the payment for Performance Shares prior to or at the time of the date of payment, the Company shall withhold from the shares of Common Stock payable to the Participant the number of shares of Common Stock which on the payment date have a fair market value that equals the amount of taxes required to be withheld by the Company.

	
  

	
(c)

	
If the Committee determines, in its sole discretion, that a Participant at any time has willfully engaged in any activity that the Committee determines was or is harmful to the Company, then the Committee may cause any unpaid pending Award to be forfeited in part or in whole. In the event of a material restatement of financial statements, the Committee may cause this Award to be forfeited or the Company may seek a recoupment of payments made under this Award. In addition, the Committee may cause this Award to be forfeited or the Company may seek a recoupment of payments made under this Award in the event of the Participant’s ethical misconduct.  In addition, this Award shall be subject to any recoupment policy the Company may adopt to conform to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act or any other applicable law.

	
  

	
(d)

	
Fractional shares of Common Stock shall not be issuable hereunder upon payment, and when any provision hereof may entitle the Participant to a fractional share, such fraction shall be disregarded.

6.           Change in Control. Notwithstanding any other provision of this Agreement to the contrary:

(a)           in the event of a Change in Control as described in Sections 2(b)(ii)-(iv), all unvested Performance Shares not previously forfeited shall become vested and (if the Change in Control occurs prior to the end of the Performance Period) shall be deemed to be earned at the Target; and

  

  

  

(b)           in the event of a Change in Control as described in Section 2(b)(i), a portion of the unvested Performance Shares not previously forfeited shall become vested and (if the Change in Control occurs prior to the end of the Performance Period) shall be earned based on attainment of the Performance Measure(s) relative to the Target as of the date of the Change in Control, as though the Performance Period ended on such date. The portion that vests pursuant to the preceding sentence shall be determined by multiplying the total number of outstanding Performance Shares by a fraction, the numerator of which is the number of whole months in the Performance Period that have elapsed since the beginning of the Performance Period through the date of the Change in Control and the denominator of which is the number of whole months in the entire Performance Period; provided, however, that if the Participant has terminated employment on account of death, Disability or Retirement prior to the date of the Change in Control, such that the number of Performance Shares the Participant is entitled to earn under this Agreement has already been pro-rated pursuant to Section 3(b) above, then all of such Participant’s remaining unvested Performance Shares shall vest.  The Committee shall have the power in accordance with Section 8 to calculate the attainment of the Performance Measure(s) as of the date of the Change in Control or determine the basis on which the attainment of the Performance Measure(s) as of such date will be calculated.  For the avoidance of doubt, the Performance Shares lost due to pro-ration pursuant to this Section 6(b) will not vest and will be deemed forfeited upon the Change in Control event described in Section 2(b)(i).

Performance Shares that are earned and vested pursuant to Section 6(a) or 6(b) shall be settled in the form described in Section 5 and paid within twenty-five (25) business days following the date of the event triggering vesting under this Section 6.

7.           Nontransferability. The Performance Shares granted under this Agreement shall be nontransferable.

8.           Administration. This Agreement and the rights of the Participant hereunder are subject to all the terms and conditions of the Plan, as the same may be amended from time to time by the Board of Directors, as well as to such rules and regulations as the Committee may adopt for administration of the Plan. It is expressly understood that the Committee is authorized to administer, construe, and make all determinations necessary or appropriate to the administration of the Plan and this Agreement, in its sole discretion, all of which shall be binding upon the Participant.

9.           No Right to Continued Employment. This Agreement does not confer upon Participant any right with respect to continuance of employment by the Company or an Affiliate, nor shall it interfere in any way with the right of the Company or an Affiliate to terminate Participant’s employment at any time.

10.         Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia.

11.         Conflicts. In the event of any conflict between the provisions of the Plan and the provisions of this Agreement, the provisions of the Plan shall govern.

12.         Participant Bound by Plan. Participant hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all the terms and provisions thereof.

  

  

  

13.         Binding Effect. Subject to the limitations stated herein and in the Plan, this Agreement shall be binding upon and inure to the benefit of the legatees, distributees and personal representatives of Participant and the successors of the Company.

IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by a duly authorized officer, and Participant has affixed his signature hereto.

 

	
UNIVERSAL CORPORATION

	  	
PARTICIPANT

	  	  	  
	
By:

	  	  	  	  
	  	  	  	  
	  	  	  
	  	
Date:

	  	  
	  	  	  
	
Date:

	  	  

 

  

  

  

________, 2010

2010 Award of Performance Shares

__________________:

We are pleased to inform you that the Universal Corporation Executive Compensation, Nominating, and Corporate Governance Committee (the “Committee”) has awarded you _______ Performance Shares, subject to the terms and conditions set forth below, and the accompanying 2010 Performance Share Award Agreement.

The Award Date for this Award is ___________

The Performance Period is the period beginning April 1, 2010, and ending on March 31, 2013.

The Performance Measure is the Company’s average, adjusted diluted earnings per share (“EPS”) for the Performance Period, as calculated by the Committee.  EPS for the Performance Period will be calculated in the following manner:

	
  

	
1.

	
The adjusted diluted earnings per share for each fiscal year in the Performance Period will be determined as follows:

	
  

	
a.

	
Earnings from continuing operations available to common shareholders; plus

	
  

	
b.

	
Adjustment to exclude the after-tax effect of restructuring and impairment costs reported as a separate line in the Company’s consolidated statement of income; plus

	
  

	
c.

	
Adjustment to exclude the after-tax effect of expense recognized during the fiscal year for Annual Incentive Plan compensation applicable to officers of Universal Leaf Tobacco Co., Inc. who received grants of equity awards during the year under the Company’s shareholder-approved stock compensation plans, equals

	
  

	
d.

	
Adjusted earnings from continuing operations available to common shareholders; divided by

	
  

	
e.

	
Weighted-average diluted common shares for the fiscal year; equals

	
  

	
f.

	
Adjusted diluted earnings per share for the fiscal year.

	
  

	
2.

	
The average, adjusted earnings per share (“EPS”) for the Performance Period will be determined by dividing the sum of the adjusted earnings per share amounts for each fiscal year in the Performance Period by the number of fiscal years in the Performance Period.a6739683ex10_1.htm

Exhibit 10.1

UNITED STATES OF AMERICA

BEFORE THE

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

WASHINGTON, D.C.

STATE OF NORTH CAROLINA

OFFICE OF THE COMMISSIONER OF BANKS

RALEIGH, NORTH CAROLINA

	
Written Agreement by and among

 

FOUR OAKS FINCORP, INC.

Four Oaks, North Carolina

 

FOUR OAKS BANK & TRUST COMPANY

Four Oaks, North Carolina

 

FEDERAL RESERVE BANK OF RICHMOND

Richmond, Virginia

 

and

 

STATE OF NORTH CAROLINA

OFFICE OF THE COMMISSIONER OF BANKS

Raleigh, North Carolina

	
Docket Nos. 11-060-WA/RB-HC

11-060-WA/RB-SM

WHEREAS, in recognition of their common goal to maintain the financial soundness of Four Oaks Fincorp, Inc., Four Oaks, North Carolina (“Fincorp”), a registered bank holding company, and its subsidiary bank, Four Oaks Bank & Trust Company, Four Oaks, North Carolina (the “Bank”), a state-chartered bank that is a member of the Federal Reserve System, Fincorp, the Bank, the Federal Reserve Bank of Richmond (the “Reserve Bank”), and the State of North Carolina, Office of the Commissioner of Banks (the “Commissioner”) have mutually agreed to enter into this Written Agreement (the “Agreement”); and

 

WHEREAS, on May 19, 2011, the boards of directors of Fincorp and the Bank, at duly constituted meetings, adopted resolutions authorizing and directing Ayden R. Lee, Jr., President, CEO, and Chairman of Fincorp and the Bank, to enter into this Agreement on behalf of Fincorp and the Bank, and consenting to compliance with each and every applicable provision of this Agreement by Fincorp and the Bank, and their institution-affiliated parties, as defined in sections 3(u) and 8(b)(3) of the Federal Deposit Insurance Act, as amended (the “FDI Act”)(12 U.S.C. §§ 1813(u) and 1818(b)(3)).

 

  

  

  

 

NOW, THEREFORE, Fincorp, the Bank, the Reserve Bank, and the Commissioner agree as follows:

 

Source of Strength

 

1.   The board of directors of Fincorp shall take appropriate steps to fully utilize Fincorp’s financial and managerial resources, pursuant to section 225.4(a) of Regulation Y of the Board of Governors of the Federal Reserve System (the “Board of Governors”) (12 C.F.R. § 225.4(a)), to serve as a source of strength to the Bank, including, but not limited to, taking steps to ensure that the Bank complies with this Agreement, and any other supervisory action taken by the Bank’s federal or state regulator.

 

Board Oversight

 

2.   Within 90 days of this Agreement, the board of directors of the Bank shall submit to the Reserve Bank and the Commissioner a written plan to strengthen board oversight of the management and operations of the Bank. The plan shall, at a minimum, address, consider, and include:

 

(a)   The actions that the board of directors will take to improve the Bank’s condition and maintain effective control over, and supervision of, the Bank’s senior management and major operations and activities, including but not limited to, credit risk management, lending and credit administration, asset quality, capital, and earnings;

 

(b)   an oversight structure within the credit function that includes clear lines of responsibility and accountability;

 

  

  

  

 

(c)   the responsibility of the board of directors to monitor management’s adherence to approved Bank policies and procedures, and to require management to document exceptions thereto; and

 

(d)   a description of the information and reports that will be regularly reviewed by the board of directors in its oversight of the operations and management of the Bank, including information on the Bank’s problem loans, loan-to-value ratio reports, and commercial real estate (“CRE”) concentrations.

 

Credit Risk Management

 

3.   Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Commissioner an acceptable written plan to strengthen credit risk management practices at the Bank. The plan shall, at a minimum, address, consider, and include:

 

(a)   Timely and accurate identification and quantification of credit risk within the loan portfolio;

 

(b)   timely recognition of losses;

 

(c)   strategies to reduce the level of problem assets, including loan workout strategies, and minimize credit losses;

 

(d)   a schedule for reducing and the means by which the Bank will reduce the level of commercial real estate concentrations, and timeframes for achieving the reduced levels; and

 

(e)   an assessment of the structure, qualifications, and staffing of the credit function, along with a plan and timetable to strengthen the same.

 

  

  

  

 

Lending and Credit Administration

 

4.   Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Commissioner acceptable revised lending and credit administration policies and procedures that shall, at a minimum, address, consider, and include:

 

(a)   Standards for renewing or modifying existing loans, including, but not limited to, analysis, documentation, and approval requirements;

 

(b)   standards to require timely appraisals and updated financial statements;

 

(c)   a description of required loan documentation and a requirement for the maintenance of such documentation, updated as appropriate, in the loan file;

 

(d)   controls to monitor compliance with loan documentation requirements and ensure prompt correction of documentation exceptions;

 

(e)           procedures to ensure the timely and consistent analyses of borrowers’ and guarantors’ current financial condition, global cash flow, repayment sources, and performance;

 

(f)            steps to ensure that appraisals and reevaluations are performed on a timely basis and in compliance with regulatory requirements;

 

(g)   standards for interest-only loans;

 

(h)   standards for the timely movement of loans to non-accrual status; and

 

(i)            enhancements to the loan workout function that are consistent with relevant supervisory guidance, including the Policy Statement on Prudent Commercial Real Estate Loan Workouts, dated October 30, 2009 (SR 09-7).

 

  

  

  

 

5.   Within 30 days of the approval of the policies and procedures required by paragraph 4, the Bank shall provide training to all appropriate credit staff on the requirements of such policies and procedures, as well as all relevant regulations.

 

Appraisal Program

 

6.   Within 90 days of this Agreement, the Bank shall submit to the Reserve Bank and the Commissioner an acceptable written program and procedures for real estate appraisals that are consistent with the Interagency Statement on Independent Appraisal and Evaluation Functions dated October 27, 2003 (SR 03-18), and Interagency Appraisal and Evaluation Guidelines, dated October 27, 1994 (SR 94-55), as well as the requirements of Subpart G of Regulation Y of the Board of Governors (12 C.F.R. Part 225, Subpart G) made applicable to state member banks by Section 208.50 of Regulation H of the Board of Governors (12 C.F.R. § 208.50). The program and practices shall, at a minimum, provide for:

 

(a)   Policies and procedures to obtain current appraisals or valuations on problem credits; and

 

(b)   written standards for when reappraisals and reevaluations must be conducted, including, but not limited to, when loans are renewed or when there are material changes in market conditions or the condition of the collateral.

 

Loan Grading and Loan Review

 

7.   Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Commissioner an acceptable written program for the accurate grading of the Bank’s loan portfolio. The program shall provide for policies, procedures, and processes for the timely and ongoing grading of loans. The program shall, at a minimum, address, consider, and include:

 

  

  

  

 

(a)   Standards and criteria for assessing the credit quality of loans, including a discussion of the factors used to assign appropriate risk grades to loans;

 

(b)   procedures for the early identification of problem loans;

 

(c)   procedures to re-evaluate the grading of loans in the event of material changes in the borrower’s performance or the value of the collateral;

 

(d)   procedures to evaluate the grading of all loans assigned less than a pass grade at least quarterly;

 

(e)   designation of the person(s) responsible for the grading of loans;

 

(f)            controls to ensure staff’s consistent application and adherence to the loan grading system; and

 

(g)   a mechanism for reporting to senior management and the board of directors, at least monthly, that at a minimum: summarizes the Bank’s loan grades; describes trends in asset quality; identifies the loans that are nonperforming, adversely graded, or identified as needing special attention, describes the status of those loans, and describes the actions taken, or to be taken, by management for strengthening of the quality of any such loans.

 

8.   Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Commissioner an acceptable written program for the effective, ongoing review of the Bank’s loan portfolio by a qualified independent party or by qualified staff that is independent of the Bank’s lending function. The program shall provide for policies and procedures for the timely identification and categorization of problem loans, and processes to detect weaknesses in the Bank’s loan approval, monitoring, and grading process. The program shall, at a minimum, address, consider, and include:

 

(a)   The scope, depth, and frequency of the independent loan review;

 

  

  

  

 

(b)   clearly defined responsibilities for the loan review function; and

 

(c)   an objective and timely assessment of the overall quality of the loan portfolio and the accuracy of assigned loan grades.

 

9.   The board of directors, or a designated committee thereof, shall evaluate the loan review report(s) and take appropriate steps to ensure that management takes prompt action to address findings noted in the report(s).

 

Asset Improvement

 

10.         The Bank shall not, directly or indirectly, extend, renew, or restructure any credit to or for the benefit of any borrower, including any related interest of the borrower, whose loans or other extensions of credit are criticized in the report of examination conducted by the Reserve Bank and the Commissioner that commenced on July 26, 2010 (the “Report of Examination”), or in any subsequent report of examination, without the prior approval of a majority of the full board of directors or a designated committee thereof. The board of directors or its committee shall document in writing the reasons for the extension of credit, renewal, or restructuring, specifically certifying that: (i) the Bank’s risk management policies and practices for loan workout activity are acceptable; (ii) the extension of credit is necessary to improve and protect the Bank’s interest in the ultimate collection of the credit already granted and maximize its potential for collection; (iii) the extension of credit reflects prudent underwriting based on reasonable repayment terms and is adequately secured; and all necessary loan documentation has been properly and accurately prepared and filed; (iv) the Bank has performed a comprehensive credit analysis indicating that the borrower has the willingness and ability to repay the debt as supported by an adequate workout plan, as necessary; and (v) the board of directors or its designated committee reasonably believes that the extension of credit will not impair the Bank’s interest in obtaining repayment of the already outstanding credit and that the extension of credit or renewal will be repaid according to its terms. The written certification shall be made a part of the minutes of the meetings of the board of directors or its committee, as appropriate, and a copy of the signed certification, together with the credit analysis and related information that was used in the determination, shall be retained by the Bank in the borrower’s credit file for subsequent supervisory review. For purposes of this Agreement, the term “related interest” is defined as set forth in section 215.2(n) of Regulation O of the Board of Governors (12 C.F.R. § 215.2(n)).

 

  

  

  

 

11.           (a)           Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Commissioner an acceptable written plan designed to improve the Bank’s position through repayment, amortization, liquidation, additional collateral, or other means on each loan or other asset in excess of $750,000, including other real estate owned (“OREO”), that are past due as to principal or interest more than 90 days as of the date of this Agreement, are on the Bank’s problem loan list, or were adversely classified in the Report of Examination.

 

                                (b)          Within 30 days of the date that any additional loan or other asset in excess of $750,000, including OREO, becomes past due as to principal or interest for more than 90 days, is on the Bank’s problem loan list, or is adversely classified in any subsequent report of examination of the Bank, the Bank shall submit to the Reserve Bank and the Commissioner an acceptable written plan to improve the Bank’s position on such loan, relationship, or asset.

 

                                (c)          Within 30 days after the end of each calendar quarter thereafter, the Bank shall submit a written progress report to the Reserve Bank and the Commissioner to update each asset improvement plan, which shall include, at a minimum, the carrying value of the loan or other asset and changes in the nature and value of supporting collateral, along with a copy of the Bank’s current problem loan list, a list of all loan renewals and extensions without full collection of interest in the last quarter, and a past due/non-accrual report.

 

  

  

  

 

Allowance for Loan and Lease Losses

 

12.           (a)           Within 10 days of this Agreement, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified “loss” in the Report of Examination that have not been previously collected in full or charged off. The Bank shall, within 30 days from the receipt of any federal or state report of examination, charge off all assets classified “loss” unless otherwise approved in writing by the Reserve Bank and the Commissioner.

 

                                (b)          Within 60 days of this Agreement, the Bank shall review and revise its ALLL methodology consistent with relevant supervisory guidance, including the Interagency Policy Statements on the Allowance for Loan and Lease Losses, dated July 2, 2001 (SR 01-17 (Sup)) and December 13, 2006 (SR 06-17), and the findings and recommendations regarding the ALLL set forth in the Report of Examination, and submit a description of the revised methodology to the Reserve Bank and the Commissioner. The revised ALLL methodology shall be designed to maintain an adequate ALLL and shall address, consider, and include, at a minimum, the reliability of the Bank’s loan grading system, the volume of criticized loans, concentrations of credit, the current level of past due and nonperforming loans, past loan loss experience, evaluation of probable losses in the Bank’s loan portfolio, including adversely classified loans, and the impact of market conditions on loan and collateral valuations and collectability.

 

                                (c)          Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank and the Commissioner an acceptable written program for the maintenance of an adequate ALLL. The program shall include policies and procedures to ensure adherence to the Bank’s revised ALLL methodology and provide for periodic reviews and updates to the ALLL methodology, as appropriate. The program shall also provide for a review of the ALLL by the board of directors on at least a quarterly calendar basis. Any deficiency found in the ALLL shall be remedied in the quarter it is discovered, prior to the filing of the Consolidated Reports of Condition and Income, by additional provisions. The board of directors shall maintain written documentation of its review, including the factors considered and conclusions reached by the Bank in determining the adequacy of the ALLL. During the term of this Agreement, the Bank shall submit to the Reserve Bank and the Commissioner, within 30 days after the end of each calendar quarter, a written report regarding the board of directors’ quarterly review of the ALLL and a description of any changes to the methodology used in determining the amount of the ALLL for that quarter.

 

  

  

  

 

Capital Plan

 

13.           Within 60 days of this Agreement, Fincorp and the Bank shall submit to the Reserve Bank and the Commissioner an acceptable joint written plan to maintain sufficient capital at Fincorp on a consolidated basis, and at the Bank as a separate legal entity on a stand­alone basis. The plan shall, at a minimum, address, consider, and include:

 

                                (a)           Fincorp’s current and future capital requirements, including compliance with the Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure and Tier 1 Leverage Measure, Appendices A and D of Regulation Y of the Board of Governors (12 C.F.R. Part 225, App. A and D);

 

                                (b)          the Bank’s current and future capital requirements, including compliance with the Capital Adequacy Guidelines for State Member Banks: Risk-Based Measure and Tier 1 Leverage Measure, Appendices A and B of Regulation H of the Board of Governors (12 C.F.R. Part 208, App. A and B);

 

                                (c)          the adequacy of the Bank’s capital, taking into account the volume of classified assets, concentrations of credit, the adequacy of the ALLL, current and projected asset growth, projected earnings, and anticipated and contingency funding needs;

 

                                (d)           the source and timing of additional funds to fulfill Fincorp’s and the Bank’s future capital requirements; and

 

                                (e)           the requirements of section 225.4(a) of Regulation Y of the Board of Governors that Fincorp serve as a source of strength to the Bank.

 

  

  

  

 

14.           Fincorp and the Bank shall notify the Reserve Bank and the Commissioner, in writing, no more than 30 days after the end of any calendar quarter in which any of Fincorp’s consolidated capital ratios or the Bank’s capital ratios (total risk-based, Tier 1 risk-based, or leverage) fall below the approved capital plan’s minimum ratios. Together with the notification, Fincorp and the Bank shall submit an acceptable written plan that details the steps Fincorp or the Bank, as appropriate, will take to increase Fincorp’s or the Bank’s capital ratios to or above the approved capital plan’s minimums.

 

Business Plan and Budget

 

15.           During the term of this Agreement, a business plan and budget for each calendar year subsequent to 2011 shall be submitted to the Reserve Bank and the Commissioner at least 30 days prior to the beginning of that calendar year. The plan, at a minimum, shall provide for or describe:

 

                                (a)           a realistic and comprehensive budget for the year, including income statement and balance sheet projections; and

 

                                (b)           a description of the operating assumptions that form the basis for, and adequately support, major projected income, expense, and balance sheet components.

 

Dividends and Distributions

 

16.           (a)           Fincorp and the Bank shall not declare or pay any dividends without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors (the “Director”), and, as to the Bank, the Commissioner.

 

                                (b)           Fincorp shall not directly or indirectly take any other form of payment representing a reduction in capital from the Bank without the prior written approval of the Reserve Bank.

 

  

  

  

 

                                (c)           Fincorp and its nonbank subsidiaries shall not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Reserve Bank and the Director.

 

                                (d)          All requests for prior written approval shall be received at least 30 days prior to the proposed dividend declaration date, proposed distribution on subordinated debentures, and required notice of deferral on trust preferred securities. All requests shall contain, at a minimum, current and projected information, as appropriate, on Fincorp’s capital, earnings, and cash flow; the Bank’s capital, asset quality, earnings, and ALLL needs; and identification of the sources of funds for the proposed payment or distribution. For requests to declare or pay dividends, Fincorp and the Bank, as appropriate, must also demonstrate that the requested declaration or payment of dividends is consistent with the Board of Governors’ Policy Statement on the Payment of Cash Dividends by State Member Banks and Bank Holding Companies, dated November 14, 1985 (Federal Reserve Regulatory Service, 4-877 at page 4-323).

 

Debt and Stock Redemption

 

17.           (a)           Fincorp and its nonbank subsidiaries shall not, directly or indirectly, incur, increase, or guarantee any debt without the prior written approval of the Reserve Bank. All requests for prior written approval shall contain, but not be limited to, a statement regarding the purpose of the debt, the terms of the debt, and the planned source(s) for debt repayment, and an analysis of the cash flow resources available to meet such debt repayment.

 

                                (b)           Fincorp shall not, directly or indirectly, purchase or redeem any shares of its stock without the prior written approval of the Reserve Bank.

 

  

  

  

 

Compliance with Laws and Regulations

 

18.           (a)           The Bank shall take all necessary steps to correct all violations of law or regulation cited in the Report of Examination.

 

                                (b)           In appointing any new director or senior executive officer, or changing the responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position, Fincorp and the Bank shall comply with the notice provisions of section 32 of the FDI Act (12 U.S.C. § 1831i) and Subpart H of Regulation Y of the Board of Governors (12 C.F.R. §§ 225.71 et seq.).

 

                               (c)           Fincorp and the Bank shall comply with the restrictions on indemnification and severance payments of section 18(k) of the FDI Act (12 U.S.C. § 1828(k)) and Part 359 of the Federal Deposit Insurance Corporation’s regulations (12 C.F.R. Part 359).

 

Progress Reports

 

19.           Within 30 days after the end of each calendar quarter following the date of this Agreement, the boards of directors of Fincorp and the Bank shall submit to the Reserve Bank and the Commissioner joint written progress reports detailing the form and manner of all actions taken to secure compliance with this Agreement and the results thereof.

 

Approval and Implementation of Plans, Programs, Policies, and Procedures

 

20.           (a)           The Bank and, as applicable, Fincorp, shall submit written plans, programs, policies, and procedures that are acceptable to the Reserve Bank and the Commissioner within the applicable time periods set forth in paragraphs 3, 4, 6, 7, 8, 11(a), 11(b), 12(c), 13, and 14 of this Agreement.

 

  

  

  

 

                                (b)          Within 10 days of approval by the Reserve Bank, the Bank and, as applicable, Fincorp, shall adopt the approved plans, programs, policies, and procedures. Upon adoption, the Bank and, as applicable, Fincorp, shall promptly implement the approved plans, programs, policies, and procedures, and thereafter fully comply with them.

 

                                (c)           During the term of this Agreement, the approved plans, programs, policies, and procedures shall not be amended or rescinded without the prior written approval of the Reserve Bank and the Commissioner.

 

Communications

 

21.          All communications regarding this Agreement shall be sent to:

 

                                (a)           Ms. Joan T. Garton

Vice President

Federal Reserve Bank of Richmond

P.O. Box 27622

Richmond, Virginia 27622

 

                                (b)           Joseph A. Smith, Jr.

Commissioner

North Carolina Office of the Commissioner of Banks

4309 Mail Service Center

Raleigh, North Carolina 27699-4309

 

                                (c)           Mr. Ayden R. Lee, Jr.

President, CEO and Chairman

Four Oaks Fincorp, Inc.

Four Oaks Bank & Trust Company

P. O. Box 309

Four Oaks, North Carolina 27524-0309

Miscellaneous

 

22.           Notwithstanding any provision of this Agreement, the Reserve Bank and the Commissioner may, in their sole discretion, grant written extensions of time to Fincorp and the Bank to comply with any provision of this Agreement.

 

  

  

  

 

23.           The provisions of this Agreement shall be binding upon Fincorp and the Bank and their institution-affiliated parties, in their capacities as such, and their successors and assigns.

 

24.           Each provision of this Agreement shall remain effective and enforceable until stayed, modified, terminated, or suspended in writing by the Reserve Bank and the Commissioner.

 

25.           The provisions of this Agreement shall not bar, estop, or otherwise prevent the Board of Governors, the Reserve Bank, the Commissioner or any other federal or state agency from taking any other action affecting Fincorp and the Bank, or any of their current or former institution-affiliated parties and their successors and assigns.

 

26.           Pursuant to section 50 of the FDI Act (12 U.S.C. § 1831aa), this Agreement is enforceable by the Board of Governors under section 8 of the FDI Act (12 U.S.C. § 1818), and by the Commissioner pursuant to the provisions of N. C. Gen. Stat. 53-107.1 (2005).

 

 

 

  

  

  

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the 24th day of May, 2011.

	FOUR OAKS FINCORP, INC.	 	FEDERAL RESERVE BANK OF RICHMOND
	 	  	 	 	  
	 	  	 	 	  
	 	  	 	 	  
	By:	
/s/ Ayden R. Lee, Jr.

	 	By:	
/s/ Joan T. Garton

	 	Ayden R. Lee, Jr.	 	 	
Joan T. Garton

	 	Chairman	 	 	
Vice President

	 	  	 	 	  
	 	  	 	 	  
	 	  	 	 	  
	FOUR OAKS BANK & TRUST COMPANY	 	STATE OF NORTH CAROLINA
	 	  	 	OFFICE OF THE COMMISSIONER OF BANKS
	 	  	 	 	  
	 	  	 	 	  
	 	  	 	 	  
	By:	
/s/ Ayden R. Lee, Jr.

	 	By:	
/s/ Joseph A. Smith, Jr.

	 	Ayden R. Lee, Jr.	 	 	
Joseph A. Smith, Jr.

	 	Chairman	 	 	
Commissioner

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