-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JjVRfcodSXKYb0CADz/8SjlxqsXqCWYRjQDBrQQso65u2hggRz0Q+tn0N2G7bHZN u0jWbVgfTCGlynjo4iuVbg== 0001021408-02-006756.txt : 20020513 0001021408-02-006756.hdr.sgml : 20020513 ACCESSION NUMBER: 0001021408-02-006756 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ECB BANCORP INC CENTRAL INDEX KEY: 0001066254 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 562090738 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24753 FILM NUMBER: 02644288 BUSINESS ADDRESS: STREET 1: P O BOX 337 STREET 2: HWY 264 CITY: ENGELHARD STATE: NC ZIP: 27824 BUSINESS PHONE: 2529259411 10QSB 1 d10qsb.txt FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 2002 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to _____________________ Commission File No. 2017-6 -------------------------- ECB Bancorp, Inc. ----------------- (Exact name of registrant as specified in its charter) North Carolina 56-0215930 -------------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) Post Office Box 337, Engelhard, North Carolina 27824 ---------------------------------------------------- (Address of principal executive offices) (Zip Code) (252) 925-9411 -------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____ ---- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of May 10, 2002, 2,065,891 shares of the registrant's common stock, $3.50 par value, were outstanding. This Form 10-QSB has 15 pages. Part I. FINANCIAL INFORMATION Item 1. Financial Statements ECB BANCORP, INC. AND SUBSIDIARY Consolidated Balance Sheets March 31, 2002 and December 31, 2001
March 31, December 31, Assets 2002 2001* - ----------------------------------------------------------------------------------------------- ------------- (unaudited) Non-interest bearing deposits and cash $ 16,940,913 $ 17,473,420 Federal funds sold 6,500,000 7,950,000 - ----------------------------------------------------------------------------------------------- ------------- Total cash and cash equivalents 23,440,913 25,423,420 - ----------------------------------------------------------------------------------------------- ------------- Investment securities Available-for-sale, at market value (cost of $81,456,505 and $81,366,622 at March 31, 2002 and December 31, 2001, respectively) 80,745,661 81,531,173 Loans 195,444,092 188,861,167 Allowance for probable loan losses (2,890,664) (2,850,000) - ----------------------------------------------------------------------------------------------- ------------- Loans, net 192,553,428 186,011,167 - ----------------------------------------------------------------------------------------------- ------------- Real estate acquired in settlement of loans, net 100,820 170,626 Federal Home Loan Bank common stock, at cost 632,800 632,800 Bank premises and equipment, net 8,041,889 8,208,109 Accrued interest receivable 2,239,443 2,386,936 Other assets 8,091,026 7,132,258 - ----------------------------------------------------------------------------------------------- ------------- Total $ 315,845,980 $311,496,489 - ----------------------------------------------------------------------------------------------- ------------- Liabilities and Shareholders' Equity - ----------------------------------------------------------------------------------------------- ------------- Deposits Demand, noninterest bearing $ 60,224,582 $ 57,207,001 Demand interest bearing 64,800,376 63,254,778 Savings 14,225,870 13,931,905 Time 131,575,860 134,072,937 - ----------------------------------------------------------------------------------------------- ------------- Total deposits 270,826,688 268,466,621 - ----------------------------------------------------------------------------------------------- ------------- Accrued interest payable 930,216 976,002 Other liabilities 1,109,596 1,408,729 Short-term borrowings 7,532,837 5,119,212 Long-term obligations 10,000,000 10,000,000 - ----------------------------------------------------------------------------------------------- ------------- Total liabilities 290,399,337 285,970,564 - ----------------------------------------------------------------------------------------------- ------------- Shareholders' equity Common stock, par value $3.50 per share; authorized 10,000,000 shares; issued and outstanding 2,065,891 and 2,065,891 in 2002 and 2001, respectively. 7,230,619 7,230,619 Capital surplus 5,762,477 5,762,477 Retained earnings 12,960,780 12,507,403 Deferred compensation - restricted stock (70,064) (75,896) Accumulated other comprehensive (loss) income (437,169) 101,322 - ----------------------------------------------------------------------------------------------- ------------- Total shareholders' equity 25,446,643 25,525,925 - ----------------------------------------------------------------------------------------------- ------------- Commitments - ----------------------------------------------------------------------------------------------- ------------- Total $ 315,845,980 $311,496,489 - ----------------------------------------------------------------------------------------------- -------------
See accompanying notes to consolidated financial statements. * Derived from audited consolidated financial statements. 2 ECB BANCORP, INC. AND SUBSIDIARY Consolidated Income Statements For the three months ended March 31, 2002 and 2001 (unaudited)
Three months ended March 31 ------------------------------------- 2002 2001 - ---------------------------------------------------------------------- ------------ ------------ Interest income: Interest and fees on loans $ 3,417,454 $ 3,943,816 Interest on investment securities: Interest exempt from federal income taxes 170,428 148,495 Taxable interest income 877,724 812,549 Dividend income 63,828 15,972 Interest on federal funds sold 24,932 111,563 FHLB stock dividends 9,969 12,327 - ---------------------------------------------------------------------- ----------- ----------- Total interest income 4,564,335 5,044,722 - ---------------------------------------------------------------------- ----------- ----------- Interest expense: Deposits: Demand accounts 115,654 298,586 Savings 23,654 50,245 Time 1,058,335 1,829,706 Short-term borrowings 8,533 34,207 Long-term obligations 129,722 11,802 - ---------------------------------------------------------------------- ----------- ----------- Total interest expense 1,335,898 2,224,546 - ---------------------------------------------------------------------- ----------- ----------- Net interest income 3,228,437 2,820,176 Provision for probable loan losses 200,000 80,000 - ---------------------------------------------------------------------- ----------- ----------- Net interest income after provision for probable loan losses 3,028,437 2,740,176 - ---------------------------------------------------------------------- ----------- ----------- Noninterest income: Service charges on deposit accounts 627,498 386,536 Other service charges and fees 219,385 202,376 Net gain on sale of securities 46,029 47,847 Income from bank owned life insurance 67,094 - Other operating income 12,279 10,390 - ---------------------------------------------------------------------- ----------- ----------- Total noninterest income 972,285 647,149 - ---------------------------------------------------------------------- ----------- ----------- Noninterest expense: Salaries 1,154,337 1,087,507 Retirement and other employee benefits 485,158 338,801 Occupancy 225,466 248,074 Equipment 333,883 314,120 Professional fees 116,383 68,023 Supplies 59,352 60,748 Telephone 78,841 89,690 Postage 47,371 52,844 Other 592,590 508,006 - ---------------------------------------------------------------------- ----------- ----------- Total noninterest expenses 3,093,381 2,767,813 - ---------------------------------------------------------------------- ----------- ----------- Income before income taxes 907,341 619,512 Income taxes 247,373 160,000 - ---------------------------------------------------------------------- ----------- ----------- Net income $ 659,968 $ 459,512 - ---------------------------------------------------------------------- ----------- ----------- Net income per share - basic $ 0.32 $ 0.22 Net income per share - diluted $ 0.32 $ 0.22 Weighted average shares outstanding - basic 2,056,649 2,065,532 Weighted average shares outstanding - diluted 2,063,488 2,069,197
See accompanying notes to consolidated financial statements. 3 ECB BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Shareholders' Equity Three months ended March 31, 2002 and 2001 (unaudited)
Deferred Accumulated compensation- other Common Capital Retained restricted comprehensive Comprehensive stock surplus earnings stock income income Total ----------- ------------ ------------- ------------- --------------- ------------- ------------ Balance January 1, 2001 $7,255,784 $5,821,523 $10,682,300 $(23,698) $ 207,093 $23,943,002 Unrealized gains, net of income taxes of $201,652 391,480 $ 391,480 391,480 Net income 459,512 459,512 459,512 ------------- Total comprehensive income $ 850,992 ============= Deferred compensation - restricted stock issuance 21,147 54,378 (75,525) Recognition of deferred compensation - restricted stock 5,832 5,832 Repurchase of common stock (31,577) (74,905) (106,482) Cash dividends ($.09 per share) (186,086) (186,086) ------------ ----------- ------------- ------------- ----------- ------------ Balance March 31, 2001 $ 7,245,354 $5,800,996 $10,955,726 $(93,391) $ 598,573 $24,507,258 ============ =========== ============= ============= =========== ============ Deferred Accumulated compensation- other Common Capital Retained restricted comprehensive Comprehensive stock surplus earnings stock loss income Total ------------ ------------ ------------- ------------ ------------ ------------- ------------ Balance January 1, 2002 $ 7,230,619 5,762,477 $12,507,403 $ (75,896) $ 101,322 $25,525,925 Unrealized losses, net of income taxes of $ 336,904 (538,491) $(538,491) (538,491) Net income 659,968 659,968 659,968 ------------- Total comprehensive income $ 121,477 ============= Recognition of deferred compensation - restricted stock 5,832 5,832 Cash dividends ($.10 per share) (206,591) (206,591) ------------ ------------ ------------- ------------ ------------ ------------ Balance March 31, 2002 $ 7,230,619 $5,762,477 $12,960,780 $ (70,064) $ (437,169) $25,446,643 ============ ============ ============= ============ ============ ============
See accompanying notes to consolidated financial statements. 4 ECB BANCORP, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Three months ended March 31, 2002 and 2001 (Unaudited)
Three Months Ended March 31, Cash flows from operating activities: 2002 2001 ------------ ------------ Net income $ 659,968 $ 459,512 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 204,241 198,162 Amortization (accretion) of investment securities, net 12,864 (7,824) Provision for probable loan losses 200,000 80,000 Gain on sale of securities (46,029) (47,847) Deferred compensation - restricted stock 5,832 5,832 Decrease (increase) in accrued interest receivable 147,493 (62,811) Loss on disposal of premises and equipment 1,071 Gain on sale of real estate acquired in settlement of loans 8,369 - (Increase) decrease in other assets (621,864) 1,285 (Decrease) increase in accrued interest payable (45,786) 218,030 Increase in postretirement benefit liability 8,891 11,359 Decrease in other liabilities, net (328,685) (104,519) - ------------------------------------------------------------ ------------ ------------ Net cash provided by operating activities 206,365 751,179 - ------------------------------------------------------------ ------------ ------------ Cash flows from investing activities: Proceeds from sales of investment securities classified as available-for-sale 1,693,123 10,863,449 Proceeds from maturities of investment securities classified as available-for-sale 4,137,474 5,265,000 Purchases of investment securities classified as available-for-sale (5,887,315) (14,971,288) Purchases of premises and equipment (39,092) (928,742) Proceeds from disposal of real estate acquired in settlement of loans and real estate held for sale 61,437 - Net loan originations (6,742,261) (7,459,317) - ------------------------------------------------------------ ------------ ------------ Net cash used by investing activities (6,776,634) (7,230,898) - ------------------------------------------------------------ ------------ ------------ Cash flows from financing activities: Net increase in deposits 2,360,067 4,869,157 Net increase in short-term borrowings 2,413,625 60,091 Decrease in long-term obligations - (3,000,000) Dividends paid (185,930) (171,394) Repurchase of common stock - (106,482) - ------------------------------------------------------------ ------------ ------------ Net cash provided by financing activities 4,587,762 1,651,372 - ------------------------------------------------------------ ------------ ------------ Decrease in cash and cash equivalents (1,982,507) (4,828,347) Cash and cash equivalents at beginning of period 25,423,420 20,317,044 ------------ ------------ Cash and cash equivalents at end of period $ 23,440,913 $ 15,488,697 ============ ============ Cash paid during the period: Interest $ 1,381,684 $ 2,007,000 Taxes - - Supplemental disclosures of noncash financing and investing activities: Cash dividends declared but not paid $ 206,591 $ 185,930 Unrealized gains (losses) on available-for-sale securities, net of deferred taxes (538,491) 391,480
See accompanying notes to consolidated financial statements. 5 ECB BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (1) Basis of Presentation The consolidated financial statements include the accounts of ECB Bancorp, Inc. ("Bancorp") and its wholly-owned subsidiary, The East Carolina Bank (the "Bank") (collectively referred to hereafter as the "Company"). The Bank has two wholly-owned subsidiaries, Carolina Financial Services, Inc. and Carolina Financial Realty, Inc. All intercompany transactions and balances are eliminated in consolidation. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements, as well as the amounts of income and expenses during the reporting period. Actual results could differ from those estimates. All adjustments considered necessary for a fair presentation of the results for the interim periods presented have been included (such adjustments are normal and recurring in nature). The footnotes in Bancorp's annual report on Form 10-KSB should be referenced when reading these unaudited interim financial statements. Operating results for the three-month period ended March 31, 2002, are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. (2) Allowance for Probable Loan Losses The following summarizes the activity in the allowance for probable loan losses for the three-month periods ended March 31, 2002 and 2001, respectively. Three-months ended March 31, ---------------------------- 2002 2001 ---- ---- Balance at the beginning of the period $2,850,000 2,800,000 Provision for probable loan losses 200,000 80,000 Charge-offs (178,643) (63,492) Recoveries 19,307 10,065 ---------- ---------- Net charge-offs (159,336) (53,427) ---------- ---------- Balance at the end of the period $2,890,664 2,827,573 ========== ========== (3) Net Income Per Share The following is a reconciliation of the numerators and denominators used in computing Basic and Diluted Net Income Per Share.
For the periods ended March 31, - ------------------------------------------------------------------------------------------------------------ 2002 2001 - ------------------------------------------------------------------------------------------------------------ Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount Basic Net Income Per Share 659,968 2,056,649 $ 0.32 459,512 2,065,532 $ 0.22 ========== ========== Effect of dilutive securities - 6,839 - 3,665 ---------- ----------- ----------- ----------- Diluted Net Income Per Share 659,968 2,063,488 $ 0.32 459,512 2,069,197 $ 0.22 ========== =========== ========== =========== =========== ==========
6 (4) New Accounting Pronouncements The Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations". This statement improves the transparency of the accounting and reporting for business combinations by requiring that all business combinations be accounted for under a single method--the purchase method. On July 1, 2001, the Company adopted SFAS No. 141, "Business Combinations". The FASB has also issued SFAS No. 142 "Goodwill and Other Intangible Assets". This Statement requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment. This change provides investors with greater transparency regarding the economic value of goodwill and its impact on earnings. The amortization of goodwill ceases upon adoption of the statement. The Company adopted this statement on January 1, 2002 with no material effect due to the fact that the Company does not have goodwill or other intangible assets. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General - ------- ECB Bancorp, Inc. ("Bancorp") is a bank holding company headquartered in Engelhard, North Carolina. Bancorp's wholly-owned subsidiary, The East Carolina Bank (the "Bank" or "ECB") (collectively referred to hereafter as the "Company"), is a state-chartered community bank which was founded in 1919. The Bank offers a full range of banking services through 17 branches serving eastern North Carolina, including the communities of Engelhard, Swan Quarter, Columbia, Creswell, Fairfield, Nags Head, Manteo, Southern Shores, Barco, Avon, Hatteras, Ocracoke, Washington, Hertford, New Bern and Greenville (two branches). The operations of the Company and depository institutions in general are significantly influenced by general economic conditions and by related monetary, fiscal and other policies of depository institution regulatory agencies, including the Federal Reserve Board, the Federal Deposit Insurance Corporation (the "FDIC") and the North Carolina State Banking Commission. Deposit flows and costs of funds are influenced by interest rates on competing investments and general market rates of interest. Lending activities are affected by the demand for financing of real estate and other types of loans, which in turn are affected by the interest rates at which such financing may be offered and other factors affecting local demand and availability of funds. Comparison of the Results of Operations for the Three Month Periods Ended March 31, 2002 and 2001 Summary - ------- For the three months ended March 31, 2002, the Company had net income of $660,000, or $0.32 basic and diluted earnings per share, compared to $460,000, or $0.22 basic and diluted earnings per share for the three months ended March 31, 2001. Net interest income increased $408,000 or 14.48% to $3,228,000 in the first quarter of 2002 from $2,820,000 in the first quarter of 2001, and noninterest income increased $325,000 or 50.24% when compared to the same period last year. Noninterest expense increased $326,000 or 11.76% for the three month period ended March 31, 2002 as compared to the same period in 2001, as salary and employee benefits expense increased $213,000 to $1,639,000 compared to $1,426,000 during the first quarter of 2001. Net interest income - ------------------- The Company's net interest margin, on a tax-equivalent basis, for the three months ended March 31, 2002 was 4.66% compared to 4.68% in 2001. Historically, the Company has consistently maintained net interest margins exceeding 5.00%. This decrease in the Company's net interest margin is a result of a lower interest rate environment compared to prior periods as the Federal Reserve Board lowered the federal funds target rate by 475 basis points since late fourth quarter of 2000. The Bank is asset sensitive in the initial 90 to 120 day time horizon as interest rates on approximately 35% of the loan portfolio float with prime rate. Consequently, its net interest margin is negatively affected by decreases in interest rates during this period. Beyond this initial asset sensitive period the Bank becomes liability sensitive on a cumulative basis due to re-pricing opportunities within the certificate of deposit portfolio. The Bank anticipates that its net interest margin will return to historical levels once interest rates move upward. Net interest income for the three months ended March 31, 2002 was $3,228,000, an increase of $408,000 or 14.48% when compared to net interest income of $2,820,000 for the three months ended March 31, 2001. Total interest income decreased $480,000 for the three months ended March 31, 2002 compared to the three months ended March 31, 2001, due to lower yields on earning assets despite an increase of $30.9 million in average volume of earning assets. The yield on average earning assets, on a tax-equivalent basis, for the three months ended March 31, 2002 was 6.58% compared to 8.27% in 2001. 8 Total interest expense decreased $889,000 for the three months ended March 31, 2002 compared to the three months ended March 31, 2001, as a result of lower cost of funds. The cost of funds for the Company during the three months ended March 31, 2002 was 2.37%, a decrease of 208 basis points when compared to 4.45% for the three months ended March 31, 2001. The Company's decrease in cost of funding was a result of decreases in rates paid on deposits as the result of Federal Reserve action during all of last year. The average volume of interest-bearing deposits increased $25.5 million in the first quarter of 2002 compared to the same period of 2001. Provision for probable loan losses The provision for probable loan losses charged to operations during the three months ended March 31, 2002 was $200,000, compared to $80,000 during the three months ended March 31, 2001. Net charge-offs for the quarter ended March 31, 2002 totaled $159,000, compared to net charge-offs of $53,000 during the same period of 2001. The increase in provisions for probable loan loss is the result of higher current year charge-offs and an increase in loans outstanding of $6.6 million since year-end 2001. The increase in current year net charge-offs is principally the result of a charge-off of $150,000 on a single commercial credit during the first quarter of 2002. The amount charged for provision for probable loan losses is the result of management's review and evaluation of the portfolio, which considers current conditions, past due loans, and prior loan loss experience. Noninterest income Noninterest income increased $325,000 or 50.24% to $972,000 for the three months ended March 31, 2002 compared to $647,000 for the same period in 2001. This is principally due to an increase of $252,000 in Overdraft Banking Privilege fees generated from a new banking product designed to automatically advance funds to assist in the event of checking account overdrafts introduced by the Bank in December of 2001. An additional $67,000 of noninterest income was generated from Bank Owned Life Insurance (BOLI) policies purchased in November of 2001 as a funding mechanism for certain employee benefit plans. Income generated by the BOLI policies is not taxable. During the first quarter of 2002, the Bank had a gain on the sale of securities of $46,000 compared to $48,000 during the same period last year. Noninterest expense Noninterest expense increased $326,000 or 11.76% to $3,093,000 for the three months ended March 31, 2002 from the same period in 2001. This increase is principally due to general increases in salary and employee benefits expense of $213,000 or 14.95%. Salary expense increased $67,000 over the prior year period as a result general salary increases of approximately $27,000 and additional salary expense of $29,000 associated with the Bank's new financial services department formed during December of 2001. Employee benefit expense increased $146,000 over the prior year period as the Company increased its incentive pay accrual by $72,000. During November 2001, the Bank entered into separate agreements with its directors and certain key employees that provide specific individual retirement benefits from the Bank following their retirement from service resulting in expense of approximately $67,000 for the first quarter of 2002. This benefit is funded through the aforementioned BOLI policies. It is expected the Bank's annual return on the purchased life insurance policies will cover its cost associated with these benefits. Occupancy expense decreased $23,000 over the prior year period as a result of decreased utilities of $12,000 and decreases in property insurance and outside janitorial services of $3,000 and $5,000, respectively. Equipment expense increased $20,000 as equipment maintenance increased $20,000. Professional fees increased $48,000 over the prior year period primarily the result of additional consulting expense in connection with the Company's first quarter strategic planning session. Other operating expenses increased $85,000 from $508,000 for the three months ended March 31, 2001 to $593,000 for the three months ended March 31, 2002. This increase is primarily due to increased employee related training expense of $38,000 and increased contributions of $33,000. 9 Income taxes - ------------ Income tax expense for the three months ended March 31, 2002 and 2001 was $247,000 and $160,000, respectively, resulting in effective tax rates of 27.26% and 25.83%, respectively. The increase in the Bank's effective tax rate for 2002 is the result an increased state tax liability. Changes in the mix of investments within the Bank's investment portfolio during 2001 away from state tax exempt securities resulted in a higher state tax liability. The effective tax rates in both years differ from the federal statutory rate of 34.00% primarily due to tax-exempt interest income. Comparison of Financial Condition at March 31, 2002 and December 31, 2001 Total assets increased $4.3 million to $315.8 million, an increase of 1.40% when compared to $311.5 million at December 31, 2001. Asset growth was funded by increased demand deposits of $3.0 million and short-term borrowings (customer sweep accounts) of $2.4 million, partially offset by a decrease in time deposits of $2.5 million. Loans receivable have increased $6.5 million from $188.9 million at December 31, 2001 to $195.4 million at March 31, 2002. The Company has experienced steady loan demand from all of its markets throughout the quarter. During November 2001, the Bank purchased $5.06 million of BOLI policies as a funding mechanism for certain employee benefit plans. The cash surrender value of the policies at March 31, 2002 was $5.17 million and is included in other assets on the Company's balance sheet. Shareholders' equity decreased by $79,000 from December 31, 2001 to March 31, 2002, as the Company generated net income of $660,000 and experienced a decrease of net unrealized losses on available-for-sale securities of $538,000 and recognition of deferred compensation - restricted stock of $6,000. The Company declared cash dividends of $207,000 or 10 cents per share, during the first quarter of 2002 compared to 9 cents per share in the prior year period. Asset Quality - ------------- Allowance for probable loan losses The allowance for probable loan losses is established through a provision for loan and lease losses charged against earnings. The level of the allowance for probable loan losses reflects management's best estimate of probable losses inherent in the portfolio as of the balance sheet date and is based on management's evaluation of the risks in the loan portfolio and changes in the nature and volume of loan activity. Management's evaluation, which includes a review of loans for which full collectibility may not be reasonably assured, considers the loans' "risk grades," the estimated fair value of the underlying collateral, current economic conditions, historical loan loss experience and other current factors that warrant consideration in determining an adequate allowance. ECB's objective is to maintain a loan portfolio that is diverse in terms of loan type, industry concentration, and borrower concentration in order to manage overall credit risk by minimizing the adverse impact of any single event or combination of related events. Reserve Policy and Methodology The allowance for probable loan losses is composed of general reserves, specific reserves and an unallocated reserve. General reserves are established for the loan portfolio using loss percentages that are determined based on management's evaluation of the losses inherent in the various risk grades of loans. Loans are categorized as one of eight risk grades based on management's assessment of the overall credit quality of the loan, including the payment history, the financial position of the borrower, underlying collateral, internal credit reviews and the results of external regulatory examinations. The general reserve percentages are then applied to the loan balances within each risk grade to estimate the necessary allowance for probable losses in each risk category. 10 The general reserve percentages used have been determined by management to be appropriate based primarily on historical loan losses and the level of risk assumed for the various risk grades. The reserve percentages for Special Mention, Substandard and Doubtful are based on rates used by banking regulators in conjunction with their examination of ECB. The process of classifying loans into the appropriate risk grades is performed initially as a component of the approval of the loan by the appropriate credit officer. Based on the size of the loan, senior credit officers and/or the loan committee may review the classification to ensure accuracy and consistency of classification. Loan classifications are frequently reviewed by internal credit examiners to determine if any changes in the circumstances of the loan require a different risk grade. Credit Risk Management, an independent vendor engaged by the Bank on an annual basis, conducts an external review of loan classifications as part of their credit review process. To determine the most appropriate risk grade classification for each loan, credit officers examine the borrower's liquidity level, the quality of any collateral, the amount of the borrower's other indebtedness, cash flow, earnings, sources of financing and existing lending relationships. Specific reserves are provided on impaired commercial loans and are determined on a loan-by-loan basis based on management's evaluation of ECB's loss exposure for each credit, given the current payment status of the loan and the value of any underlying collateral. Loans for which specific reserves are provided are excluded from the general allowance calculations described above to prevent duplicate reserves. The calculations of specific reserves on commercial loans incorporate the results of measuring impaired loans pursuant to the requirements of Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan." SFAS No. 114, as amended, requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, at the loan's observable market price, or the fair value of the collateral if the loan is collateral-dependent. A loan is impaired when, based on current information and events, it is probable that ECB will be unable to collect all amounts due according to the contractual terms of the loan agreement. When the measurement of the impaired loan is less that the recorded investment in the loan, the amount of the impairment is recorded through a specific reserve. It is ECB's policy to classify and disclose all commercial loans that are on nonaccrual status as impaired loans. Substantially all other loans made by ECB are excluded form the scope of SFAS No. 114 as they are comprised of large groups of smaller balance homogeneous loans (e.g., residential mortgage and consumer installment) that are evaluated collectively for impairment in the general reserves estimation process discussed above. There are two primary components considered in determining an appropriate level for the unallocated reserve. A portion of the unallocated reserve is established to cover the elements of imprecision and estimation risk inherent in the calculations of the general and specific reserves described above. The remaining portion of the unallocated reserve is determined based on management's evaluation of various conditions that are not directly measured by any other component of the reserve, including current general economic and business conditions affecting key lending areas, credit quality trends, collateral values, loan volumes and concentrations, seasoning of the loan portfolio, the findings of internal credit examinations and results from external bank regulatory examinations. While management uses the best information available to establish the allowance for probable loan losses, future adjustments to the allowance or to the reserving methodology may be necessary if economic conditions differ substantially from the assumptions used in making the valuations or, if required by regulators, based upon information at the time of their examinations. Such adjustments to original estimates, as necessary, are made in the period in which these factors and other relevant considerations indicate that loss levels may vary from previous estimates. Nonperforming assets consist of loans not accruing interest, restructured debt and real estate acquired in settlement of loans and other repossessed collateral. It is ECB's policy to place loans on nonaccrual status when any portion of principal or interest becomes 90 days past due, or earlier if full collection of principal and interest become doubtful. When loans are placed on nonaccrual status, interest receivable is reversed against interest income in the current period. Interest payments received thereafter are applied as a reduction of the remaining principal balance so long as doubt exists as to the ultimate collection of the 11 principal. Loans are removed from nonaccrual status when they become current as to both principal and interest and when the collectibility of principal or interest is no longer doubtful. Nonperforming assets were $576,000 and $478,000 at March 31, 2002 and December 31, 2001, respectively. At March 31, 2002, the recorded investment in loans that are considered to be impaired under SFAS No. 114 was $24,000 compared to $68,000 at December 31, 2001, all of which were on a non-accrual basis. Trends and dollar amounts of nonperforming loans are used by management in evaluating the overall adequacy of the allowance for probable loan losses. Regulatory Matters Management is not presently aware of any current recommendations to the Company by regulatory authorities which, if they were to be implemented, would have a material effect on the Company's liquidity, capital resources or operations. Liquidity The Company relies on the investment portfolio as a source of liquidity, with maturities designed to provide needed cash flows. Further, retail deposits generated throughout the branch network have enabled management to fund asset growth and maintain liquidity. These sources have allowed limited dependence on short-term borrowed funds for liquidity or for asset expansion. External sources of funds include the ability to access advances from the Federal Home Loan Bank of Atlanta and Fed Fund lines with correspondent banks. Capital Resources Bancorp and the Bank are subject to the capital requirements of the Federal Reserve, the FDIC and the State Banking Commission. The FDIC requires the Bank to maintain minimum ratios of Tier I capital to total risk-weighted assets and total capital to risk-weighted assets of 4% and 8%, respectively. To be "well capitalized," the FDIC requires ratios of Tier I capital to total risk-weighted assets and total capital to risk-weighted assets of 6% and 10%, respectively. Tier I capital consists of total stockholders' equity calculated in accordance with generally accepted accounting principles excluding unrealized gains or losses, net of income taxes, on securities available-for-sale, and total capital is comprised of Tier I capital plus certain adjustments, the only one of which is applicable to the Bank is the allowance for probable loan losses. Risk-weighted assets reflect the Banks' on- and off-balance sheet exposures after such exposures have been adjusted for their relative risk levels using formulas set forth in FDIC regulations. As of March 31, 2002, the Bank was in compliance with all of the aforementioned capital requirements and meets the "well-capitalized" definition that is used by the FDIC in its evaluation of member banks. Additionally, at March 31, 2002, Bancorp was also in compliance with the applicable capital requirements set forth by the Federal Reserve. Current Accounting Issues The Financial Accounting Standards Board ("FASB") issues exposure drafts for proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to issued exposure drafts and to proposed effective dates. Forward-Looking Statements This discussion may contain statements that could be deemed forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act, which statements are inherently subject to risks and uncertainties. Forward-looking statements are statements that include projections, predictions, expectations, or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often characterized by the use of qualifying words (and their derivatives) such as "expect," "believe," "estimate," "plan," "project," 12 "anticipate," or other statements concerning opinions or judgment of Bancorp and its management about future events. Factors that could influence the accuracy of such forward-looking statements include, but are not limited to, the financial success or changing strategies of Bancorp's customers, actions of government regulators, the level of market interest rates, and general economic conditions. 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities and Use of Proceeds Not applicable. Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-KSB (a) Exhibits: Exhibit No. Description of Exhibit - ----------- ---------------------- 10.1 Executive Supplemental Retirement Plan between the Bank and Arthur H. Kenney, III 10.2 Executive Supplemental Retirement Plan between the Bank and J Dorson White, Jr 10.3 Split-Dollar Life Insurance Agreement between the Bank and Arthur H. Keeney, III 10.4 Split-Dollar Life Insurance Agreement between the Bank and J. Dorson White, Jr 10.5 Form of Director Supplemental Retirement Agreements between the Bank and George T. Davis, Jr., John F. Hughes, Jr., Arthur H. Keeney III, Joseph T. Lamb, Jr., Robert L. Mitchell, R. S. Spencer, Jr. and Ray M. Spencer 10.6 Form of Director Supplemental Retirement Agreements between the Bank and Gregory C. Gibbs, J. Bryant Kittrell III, and B. Martelle Marshall 10.7 Form of Split-Dollar Life Insurance Agreements between the Bank and George T. Davis, Jr., Gregory C. Gibbs, John F. Hughes, Jr., Arthur H. Keeney III, J. Bryant Kittrell III, Joseph T. Lamb, Jr., B. Martelle Marshall, and R. S. Spencer, Jr. 14 SIGNATURES Under the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ECB BANCORP, INC. ----------------- (Registrant) Date: 5/13/2002 By: /s/ Arthur H. Keeney, III - --------------- ------------------------- Arthur H. Keeney, III (President & CEO) Date: 5/13/2002 By: /s/ Gary M. Adams - --------------- ----------------- Gary M. Adams (Senior Vice President & CFO) 15 EX-10.1 3 dex101.txt EXECUTIVE AGREEMENT EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN EXECUTIVE AGREEMENT THIS AGREEMENT is made and entered into this day of , ---- -------------- 2002, by and between The East Carolina Bank, a bank organized and existing under the laws of the State of North Carolina (hereinafter referred to as the "Bank"), and Arthur H. Keeney, III, an Executive of the Bank (hereinafter referred to as the "Executive"). WHEREAS, the Executive is now in the employ of the Bank and has for many years faithfully served the Bank. It is the consensus of the Board of Directors (hereinafter referred to as the "Board") that the Executive's services have been of exceptional merit, in excess of the compensation paid and an invaluable contribution to the profits and position of the Bank in its field of activity. The Board further believes that the Executive's experience, knowledge of corporate affairs, reputation and industry contacts are of such value, and the Executive's continued services so essential to the Bank's future growth and profits, that it would suffer severe financial loss should the Executive terminate their services; WHEREAS, the Bank and the Insured are parties to a Life Comp. Plan Agreement that provides for the payment of certain benefits. This Executive Supplemental Retirement Plan Executive Agreement and the benefits provided hereunder shall replace and supercede the existing Life Comp. Plan Agreement and the benefits provided thereby; ACCORDINGLY, the Board has adopted The East Carolina Bank Executive Supplemental Retirement Plan Executive Agreement (hereinafter referred to as the "Executive Plan") and it is the desire of the Bank and the Executive to enter into this Agreement under which the Bank will agree to make certain payments to the Executive upon the Executive's retirement or to the Executive's beneficiary(ies) in the event of the Executive's death pursuant to the Executive Plan; FURTHERMORE, it is the intent of the parties hereto that this Executive Plan be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Security Act of 1974, as amended ("ERISA"). The Executive is fully advised of the Bank's financial status and has had substantial input in the design and operation of this benefit plan; and NOW THEREFORE, in consideration of services the Executive has performed in the past and those to be performed in the future, and based upon the mutual promises and covenants herein contained, the Bank and the Executive agree as follows: I. DEFINITIONS A. Effective Date: -------------- The Effective Date of the Executive Plan shall be November 5, 2001. B. Plan Year: --------- Any reference to the "Plan Year" shall mean a calendar year from January 1st to December 31st. In the year of implementation, the term "Plan Year" shall mean the period from the Effective Date to December 31st of the year of the Effective Date. C. Retirement Date: --------------- Retirement Date shall mean the first day of the calendar month following the latter of (i) the date in which the Executive reaches age sixty-five (65) or (ii) the date upon which the Executive actually retires from service with the Bank after reaching age sixty-five (65). D. Termination of Service: ---------------------- Termination of Service shall mean the Executive's voluntary resignation of service by the Executive or the Bank's discharge of the Executive without cause, prior to the Early Retirement Date (Subparagraph I [K]). E. Index Retirement Benefit: ------------------------ The Index Retirement Benefit for each Executive in the Executive Plan for each Plan Year shall be equal to the excess (if any) of the Index (Subparagraph I [F]) for that Plan Year over the Opportunity Cost (Subparagraph I [G]) for that Plan Year, divided by a factor equal to 1.13 minus the marginal tax rate. F. Index: ----- The Index for any Plan Year shall be the aggregate annual after-tax income from the life insurance contract(s) described hereinafter as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such insurance contract(s) were purchased on the Effective Date of the Executive Plan. 2 Insurance Company: Jefferson Pilot Life Insurance Company Policy Form: Flexible Premium Adjustable Life Policy Name: ESP VI Insured's Age and Sex: 57, Male Riders: None Ratings: None Option: Level Face Amount: $1,042,000 Premiums Paid: $510,491 Number of Premium Payments: Single Assumed Purchase Date: November 5, 2001 Insurance Company: Mass Mutual Life Insurance Company Policy Form: Flexible Premium Adjustable Life Policy Name: Strategic Life Exec Insured's Age and Sex: 58, Male Riders: None Ratings: None Option: Level Face Amount: $1,071,000 Premiums Paid: $510,000 Number of Premium Payments: Single Assumed Purchase Date: November 5, 2001 If such contracts of life insurance are actually purchased by the Bank, then the actual policies as of the dates they were actually purchased shall be used in calculations under this Executive Plan. If such contracts of life insurance are not purchased or are subsequently surrendered or lapsed, then the Bank shall receive annual policy illustrations that assume the above-described policies were purchased or had not subsequently surrendered or lapsed. Said illustration shall be received from the respective insurance companies and will indicate the increase in policy values for purposes of calculating the amount of the Index. In either case, references to the life insurance contracts are merely for purposes of calculating a benefit. The Bank has no obligation to purchase such life insurance and, if purchased, the Executive and the Executive's beneficiary(ies) shall have no ownership interest in such policy and shall always have no greater interest in the benefits under this Executive Plan than that of an unsecured creditor of the Bank. G. Opportunity Cost: ---------------- The Opportunity Cost for any Plan Year shall be calculated by taking the sum of the amount of premiums for the life insurance policies described in the definition of "Index" plus the amount of any after-tax benefits paid to the Executive pursuant to the Executive Plan (Paragraph II hereinafter) 3 plus the amount of all previous years' after-tax Opportunity Cost, and multiplying that sum by the greater of either one of the following: (i) the average after tax yield of a one-year Treasury bill, or (ii) the Bank's average annualized after-tax Cost of Funds Expense as determined by the Bank's third quarter call report as filed with the appropriate regulatory agency. H. Change of Control: ----------------- Change of Control shall mean the direct or indirect acquisition by another person, firm or corporation, by merger, share exchange, consolidation, purchase or otherwise, of all or substantially all of the assets or stock of the Bank or its parent company. I. Normal Retirement Age: --------------------- Normal Retirement Age shall mean the date on which the Executive attains age sixty-five (65). J. Benefit Accounting: ------------------ The Bank shall account for the benefit provided herein using the regulatory accounting principles of the Bank's primary federal regulator. The Bank shall establish an accrued liability retirement account for the Executive into which appropriate reserves shall be accrued. K. Early Retirement Date: --------------------- Early Retirement Date shall mean a retirement from service which is effective prior to the Normal Retirement Age stated herein, provided the Executive has attained age fifty-nine and one-half (59 1/2). II. INDEX BENEFITS A. Retirement Benefits: ------------------- Subject to Subparagraph II (E) hereinafter, an Executive who remains in the employ of the Bank until the Normal Retirement Age (Subparagraph I [I]) shall be entitled to receive an annual benefit amount equal to the amount set forth in Exhibit A-1. Said payments shall be made quarterly and shall commence at the beginning of the Bank's first quarter following the Executive's Retirement Date and shall continue until the Executive attains age seventy-seven (77). Upon completion of the aforestated payments and commencing subsequent thereto and subject to Subparagraph II (A) (i) hereinbelow, the Index Retirement Benefit (Subparagraph I [E]) for each Plan Year subsequent to the year in which the Executive attains age seventy-seven (77), and including the remaining 4 portion of the Plan Year in which the Executive attains age seventy-seven (77), shall be paid to the Executive until the Executive's death. (i) The Index Retirement Benefit Adjustment: --------------------------------------- The Index Retirement Benefit payment as set forth hereinabove for the three (3) Plan Years subsequent to the Executive attaining age seventy-seven (77) shall be adjusted according to a number equal to the aggregate of the Index Retirement Benefit (Subparagraph I [F]) for each Plan Year from the Effective Date of this agreement until the Plan Year subsequent to the Executive attaining age seventy-seven (77) over the aggregate of the benefit payments the Executive actually received under the terms of this Executive Plan through that date. For example, if the Executive retires at age sixty-five (65) and the aggregate annual benefits received by the Executive until the Plan Year the Executive attains age seventy-seven (77) were $900,000.00, and ----------- the aggregate Index Retirement Benefits for each Plan Year from the Effective Date of this agreement to the Plan Year the Executive's attains age seventy-seven (77) were $1,000,000.00 ------------- then the Executive's Index Retirement Benefit in the first three (3) Plan Years said payment is payable to the Executive would be increased by Thirty Three Thousand Three Hundred Thirty Three and 33/100ths Dollars ($33,333.33) each year (i.e. $100,000.00 / 3). If said number is a deficit, then the Index Retirement Benefit for the first Plan Year said payment is payable to the Executive and each subsequent Plan Year's benefit (if necessary) shall be reduced until the entire deficit has been recovered by the Bank. For each year thereafter, the Index Retirement Benefit payment shall be paid as set forth in Subparagraph I (E). For example, if the Executive retires at age sixty-five (65) and the aggregate annual benefits to be received by the Executive until the Plan Year the Executive attains age seventy-seven (77) were $1,000,000.00, and the aggregate Index Retirement Benefits for ------------- each Plan Year from the Effective Date of this agreement to the Plan Year the Executive attains age seventy-seven (77) were $900,000.00 and the Executive's Index Retirement Benefit was ----------- $90,000.00 in the first year, then the Executive would not ---------- receive any Index Retirement Benefit in the first year, and the second years' Index Retirement benefit would be reduced by $10,000.00. ---------- B. Termination of Service: ---------------------- Subject to Subparagraph II (D), should an Executive suffer a Termination of Service the Executive shall be entitled to receive the following percentage of the annual benefit set forth in Exhibit A-1. Said payments shall be made quarterly and shall commence at the beginning of the Bank's 5 first quarter following the Executive's Normal Retirement Age (Subparagraph I [I]) and shall continue until the Executive attains age seventy-seven (77). Upon completion of the aforestated payments and commencing subsequent thereto and subject to Subparagraph II (A) (i) hereinabove the following percentage of the Index Retirement Benefit for each Plan Year subsequent to the year in which the Executive attains seventy-seven (77), and including the remaining portion of the Plan Year in which the Executive attains age seventy-seven (77), shall be paid to the Executive until the Executive's death. Date of Hire 10% for each full year of service from the date of first service to a maximum of 80% PLUS If Insured is at least 62 years of age on his or her 20% date of termination For a maximum total of 100% C. Death: ----- If the Executive dies while there is a balance in the Executive's accrued liability retirement account, then the unpaid balance shall be paid in a lump sum to the individual or individuals designated in writing by the Executive and filed with the Bank. In the absence of or a failure to designate a beneficiary, the unpaid balance shall be paid in a lump sum to the personal representative of the Executive's estate. If, upon death, the Executive shall have received the total balance of the Executive's accrued liability retirement account, then no further benefit shall be due hereunder. In any event, upon the death of the Executive, the Executive's beneficiary shall not be entitled to receive any Index Retirement Benefit. D. Discharge for Cause: ------------------- All rights of Executive hereunder shall cease and terminate immediately in the event of a termination of Executive's employment with Bank "with cause." For purposes of this Agreement, "with cause" shall have the same meaning that such term has in the employment agreement between Bank and Executive. If no such employment agreement exists at the time of termination, the term "with cause" shall be deemed to mean, but is not limited to, personal dishonesty, incompetence, willful material misconduct, breach of fiduciary duty, failure to perform the obligations of the Executive as stated herein, willful violation of any law, rule, or regulation (other than minor traffic infractions), or, any material breach of any provision of this agreement. 6 E. Disability Benefit: ------------------ In the event the Executive becomes disabled, as defined herein, prior to any Termination of Service, and the Executive's employment with the Bank is terminated because of such disability, the Executive, upon submission of written documentation and verification of disability satisfactory to the Bank, shall receive one hundred percent (100%) of the benefit amount provided in Subparagraph II (A) above. Payment of such benefit shall begin when the Executive reaches his or her Normal Retirement Age. Subject to the Bank's obligations and Executive's rights under Title I of the Americans with Disabilities Act and the Family and Medical Leave Act, if applicable, and any other applicable federal or state laws, disability shall be defined as the Executive not being able to perform the duties of the Executive's own job and shall be as further defined in the Bank's long term disability policy in effect at the time of said disability. If no such policy exists at the time of the disability, then disability shall be defined as a physical or mental impairment of Executive which renders Executive incapable of performing Executive's normal and regular essential employment duties and which shall be medically determined to be of permanent duration as the same is construed for purposes of disability benefits under the federal Social Security laws and regulations. If there is a dispute regarding whether the Executive is disabled, such dispute shall be resolved by a physician selected by the Bank and such resolution shall be binding upon all parties to this Agreement. F. Death Benefit: ------------- Except as set forth above, there is no death benefit provided under this Agreement. G. Early Retirement: ---------------- Subject to Subparagraph II (D), should the Executive elect Early Retirement or be discharged without cause by the Bank subsequent to the Early Retirement Date [Subparagraph I (K)], the Executive shall be entitled to receive the annual benefit set forth in Exhibit A-2 reduced by the full number of years the Executive retires early prior to Normal Retirement Age, times eighteen and eighteen one hundredths percent (18.18%) (For example, if Executive retires at age 61, the annual benefit set forth in Exhibit A-2 shall be reduced by 72.72%: 61-65 = 4 X 18.18% = 72.72%). Said payments shall be made quarterly and shall commence at the beginning of the Bank's first quarter following the Executive's early retirement and shall continue until the Executive attains age seventy-seven (77). Upon completion of the aforestated payments and commencing subsequent thereto and subject to Subparagraph II (A) (i) hereinabove, the vested percentage set forth hereinabove of the Index Retirement Benefit for each Plan Year subsequent to the year in which the Executive attains 7 age seventy-seven (77), and including the remaining portion of the Plan Year in which the Executive attains age seventy-seven (77), shall be paid to the Executive until the Executive's death. III. RESTRICTIONS UPON FUNDING The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Executive Plan. The Executive, their beneficiary(ies), or any successor in interest shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Executive Plan or to refrain from funding the same and to determine the extent, nature and method of such funding. Should the Bank elect to fund this Executive Plan, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall any Executive be deemed to have any lien nor right, title or interest in or to any specific funding investment or to any assets of the Bank. If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities. IV. CHANGE OF CONTROL Notwithstanding other terms of this Agreement, upon a Change of Control (Subparagraph I [H]), if the Executive subsequently suffers a Termination of Service (Subparagraph I [D]), then the Executive shall receive the benefits promised in this Executive Plan upon attaining Normal Retirement Age, as if the Executive had been continuously employed by the Bank until the Executive's Normal Retirement Age. The Executive will also remain eligible for all promised death benefits in this Executive Plan. In addition, no sale, merger, or consolidation of the Bank shall take place unless the new or surviving entity expressly acknowledges the obligations under this Executive Plan and agrees to abide by its terms. V. MISCELLANEOUS A. Alienability and Assignment Prohibition: --------------------------------------- Neither the Executive, nor the Executive's surviving spouse, nor any other beneficiary(ies) under this Executive Plan shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or 8 otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive's beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease and terminate. B. Binding Obligation of the Bank and any Successor in Interest: ------------------------------------------------------------ The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Executive Plan. This Executive Plan shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives. C. Amendment or Revocation: ----------------------- It is agreed by and between the parties hereto that, during the lifetime of the Executive, this Executive Plan may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Executive and the Bank. D. Gender: ------ Whenever in this Executive Plan words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. E. Effect on Other Bank Benefit Plans: ---------------------------------- Nothing contained in this Executive Plan shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank's existing or future compensation structure. F. Headings: -------- Headings and subheadings in this Executive Plan are inserted for reference and convenience only and shall not be deemed a part of this Executive Plan. 9 G. Applicable Law: -------------- The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina. H. 12 U.S.C. Section 1828(k): ------------------------- Any payments made to the Executive pursuant to this Executive Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) or any regulations promulgated thereunder. I. Partial Invalidity: ------------------ If any term, provision, covenant, or condition of this Executive Plan is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant, or condition invalid, void, or unenforceable, and the Executive Plan shall remain in full force and effect notwithstanding such partial invalidity. J. Employment: ---------- No provision of this Executive Plan shall be deemed to restrict or limit any existing employment agreement by and between the Bank and the Executive, nor shall any conditions herein create specific employment rights to the Executive nor limit the right of the Employer to discharge the Executive with or without cause. In a similar fashion, no provision shall limit the Executive's rights to voluntarily sever the Executive's employment at any time. K. Notices: ------- All notices required or permitted to be given pursuant to this Agreement shall be in writing, unless otherwise specified, and shall be delivered personally, deposited in the United States mail, registered or certified and postage prepaid with return receipt requested, or deposited with a reputable overnight courier which provides a day and time stamped receipt, addressed to Executive, Bank or Trustee, as applicable, at the address set forth herein or to such other address as hereafter may be furnished to the other parties in writing pursuant to this paragraph. All notices so given shall be deemed effective and received upon the earlier of (i) actual receipt, (ii) receipt and refusal; or (iii) five (5) days from (1) the postmark date, if deposited with the United States Postal Service, or (2) the date of deposit, if deposited with an overnight courier, unless otherwise provided herein. 10 Bank: The East Carolina Bank Hwy. 264 Engelhard, North Carolina 27824 Trustee: Thomas A. Nussbaum Eastern Bank & Trust Co. 2 Adams Place, AP06 Quincy, MA 02169-7456 Executive: Arthur H. Keeney, III ---------------------- ---------------------- ---------------------- VI. ERISA PROVISION A. Named Fiduciary and Plan Administrator: -------------------------------------- The "Named Fiduciary and Plan Administrator" of this Executive Plan shall be The East Carolina Bank, until its resignation or removal by the Board. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. B. Claims Procedure and Arbitration: -------------------------------- In the event a dispute arises over benefits under this Executive Plan and benefits are not paid to the Executive (or to the Executive's beneficiary(ies) in the case of the Executive's death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Plan Administrator named above within sixty (60) days from the date payments are refused. The Named Fiduciary and Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, they shall provide in writing within sixty (60) days of receipt of such claim the specific reasons for such denial, reference to the provisions of this Executive Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Named Fiduciary and Plan Administrator fail to take any action within the aforesaid sixty-day period. If claimants desire a second review they shall notify the Named Fiduciary and Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Executive Plan or any documents 11 relating thereto and submit any written issues and comments it may feel appropriate. In their sole discretion, the Named Fiduciary and Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of the Plan Agreement upon which the decision is based. If claimants continue to dispute the benefit denial based upon completed performance of this Executive Plan or the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to an arbitrator for final arbitration. The arbitrator shall be selected by mutual agreement of the Bank and the claimants. The arbitrator shall operate under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such arbitrator with respect to any controversy properly submitted to it for determination. Where a dispute arises as to the Bank's discharge of the Executive "for cause," such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder. VII. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on this Executive Plan as determined by the Bank in its sole discretion, then the Bank reserves the right to terminate or modify this Agreement accordingly. Upon a Change of Control (Subparagraph I [H]), this paragraph shall become null and void effective immediately upon said Change of Control. (SIGNATURES ON THE FOLLOWING PAGE) 12 IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully read this Agreement and executed the original thereof on the first day set forth hereinabove, and that upon execution, each has received a conforming copy. THE EAST CAROLINA BANK Engelhard, North Carolina By: - ----------------------------------- ---------------------------------------- Witness Title /s/ Arthur H. Keeney, III - ----------------------------------- ------------------------------------------ Witness Arthur H. Keeney, III 13 BENEFICIARY DESIGNATION FORM FOR THE EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN AGREEMENT PRIMARY DESIGNATION: Name Address Relationship ---- ------- ------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECONDARY (CONTINGENT) DESIGNATION: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- All sums payable under the Executive Supplemental Retirement Plan Executive Agreement by reason of my death shall be paid to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary (Contingent) Beneficiary. /s/ Arthur H. Keeney, III 2-13-02 - ------------------------- Date Arthur H. Keeney, III 14 EXHIBIT "A-1" End of Benefit Year Age: Amount --------- ------ Keeney, Jr., Arthur H. 65 $ 82,779 66 $ 84,734 67 $ 86,772 68 $ 88,898 69 $ 91,145 70 $ 93,367 71 $ 95,739 72 $ 98,397 73 $100,978 74 $103,407 75 $105,742 76 $108,046 15 EXHIBIT "A-2" Plan Years Subsequent to Early Retirement Date as Defined in Subparagraph I(K) of Benefit the Agreement Amount --------------------- -------- Keeney, Jr., Arthur H. 1 $ 82,779 2 $ 84,734 3 $ 86,772 4 $ 88,898 5 $ 91,145 6 $ 93,367 7 $ 95,739 8 $ 98,397 9 $100,978 10 $103,407 11 $105,742 12 $108,046* * This benefit amount shall remain constant for any remaining Plan Years that the Executive may be entitled to receive a fixed benefit amount pursuant to Subparagraph II (G) of the Agreement; the Executive's age: 77 16 EX-10.2 4 dex102.txt EXECUTIVE AGREEMENT EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN EXECUTIVE AGREEMENT THIS AGREEMENT is made and entered into this day of , ---- -------------- 2002, by and between The East Carolina Bank, a bank organized and existing under the laws of the State of North Carolina (hereinafter referred to as the "Bank"), and J. Dorson White, Jr., an Executive of the Bank (hereinafter referred to as the "Executive"). WHEREAS, the Executive is now in the employ of the Bank and has for many years faithfully served the Bank. It is the consensus of the Board of Directors (hereinafter referred to as the "Board") that the Executive's services have been of exceptional merit, in excess of the compensation paid and an invaluable contribution to the profits and position of the Bank in its field of activity. The Board further believes that the Executive's experience, knowledge of corporate affairs, reputation and industry contacts are of such value, and the Executive's continued services so essential to the Bank's future growth and profits, that it would suffer severe financial loss should the Executive terminate their services; ACCORDINGLY, the Board has adopted The East Carolina Bank Executive Supplemental Retirement Plan Executive Agreement (hereinafter referred to as the "Executive Plan") and it is the desire of the Bank and the Executive to enter into this Agreement under which the Bank will agree to make certain payments to the Executive upon the Executive's retirement or to the Executive's beneficiary(ies) in the event of the Executive's death pursuant to the Executive Plan; FURTHERMORE, it is the intent of the parties hereto that this Executive Plan be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Executive, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Security Act of 1974, as amended ("ERISA"). The Executive is fully advised of the Bank's financial status and has had substantial input in the design and operation of this benefit plan; and NOW THEREFORE, in consideration of services the Executive has performed in the past and those to be performed in the future, and based upon the mutual promises and covenants herein contained, the Bank and the Executive agree as follows: I. DEFINITIONS A. Effective Date: -------------- The Effective Date of the Executive Plan shall be November 5, 2001. B. Plan Year: --------- Any reference to the "Plan Year" shall mean a calendar year from January 1st to December 31st. In the year of implementation, the term "Plan Year" shall mean the period from the Effective Date to December 31st of the year of the Effective Date. C. Retirement Date: --------------- Retirement Date shall mean the first day of the calendar month following the latter of (i) the date in which the Executive reaches age sixty-five (65) or (ii) the date upon which the Executive actually retires from service with the Bank after reaching age sixty-five (65). D. Termination of Service: ---------------------- Termination of Service shall mean the Executive's voluntary resignation of service by the Executive or the Bank's discharge of the Executive without cause, prior to the Early Retirement Date (Subparagraph I [K]). E. Index Retirement Benefit: ------------------------ The Index Retirement Benefit for each Executive in the Executive Plan for each Plan Year shall be equal to the excess (if any) of the Index (Subparagraph I [F]) for that Plan Year over the Opportunity Cost (Subparagraph I [G]) for that Plan Year, divided by a factor equal to 1.13 minus the marginal tax rate. F. Index: ----- The Index for any Plan Year shall be the aggregate annual after-tax income from the life insurance contract(s) described hereinafter as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such insurance contract(s) were purchased on the Effective Date of the Executive Plan. Insurance Company: Jefferson Pilot Life Insurance Company Policy Form: Flexible Premium Adjustable Life Policy Name: ESP VI Insured's Age and Sex: 50, Male Riders: None Ratings: None Option: Level Face Amount: $410,000 Premiums Paid: $165,000 Number of Premium Payments: Single Assumed Purchase Date: November 5, 2001 2 Insurance Company: Mass Mutual Life Insurance Company Policy Form: Flexible Premium Adjustable Life Policy Name: Strategic Life Exec Insured's Age and Sex: 51, Male Riders: None Ratings: None Option: Level Face Amount: $427,350 Premiums Paid: $165,000 Number of Premium Payments: Single Assumed Purchase Date: November 5, 2001 If such contracts of life insurance are actually purchased by the Bank, then the actual policies as of the dates they were actually purchased shall be used in calculations under this Executive Plan. If such contracts of life insurance are not purchased or are subsequently surrendered or lapsed, then the Bank shall receive annual policy illustrations that assume the above-described policies were purchased or had not subsequently surrendered or lapsed. Said illustration shall be received from the respective insurance companies and will indicate the increase in policy values for purposes of calculating the amount of the Index. In either case, references to the life insurance contracts are merely for purposes of calculating a benefit. The Bank has no obligation to purchase such life insurance and, if purchased, the Executive and the Executive's beneficiary(ies) shall have no ownership interest in such policy and shall always have no greater interest in the benefits under this Executive Plan than that of an unsecured creditor of the Bank. G. Opportunity Cost: ---------------- The Opportunity Cost for any Plan Year shall be calculated by taking the sum of the amount of premiums for the life insurance policies described in the definition of "Index" plus the amount of any after-tax benefits paid to the Executive pursuant to the Executive Plan (Paragraph II hereinafter) plus the amount of all previous years' after-tax Opportunity Cost, and multiplying that sum by the greater of either one of the following: (i) the average after tax yield of a one-year Treasury bill, or (ii) the Bank's average annualized after-tax Cost of Funds Expense as determined by the Bank's third quarter call report as filed with the appropriate regulatory agency. H. Change of Control: ----------------- Change of Control shall mean the direct or indirect acquisition by another person, firm or corporation, by merger, share exchange, consolidation, 3 purchase or otherwise, of all or substantially all of the assets or stock of the Bank or its parent company. I. Normal Retirement Age: --------------------- Normal Retirement Age shall mean the date on which the Executive attains age sixty-five (65). J. Benefit Accounting: ------------------ The Bank shall account for the benefit provided herein using the regulatory accounting principles of the Bank's primary federal regulator. The Bank shall establish an accrued liability retirement account for the Executive into which appropriate reserves shall be accrued. K. Early Retirement Date: --------------------- Early Retirement Date shall mean a retirement from service which is effective prior to the Normal Retirement Age stated herein, provided the Executive has attained age fifty-nine and one-half (59 1/2). II. INDEX BENEFITS A. Retirement Benefits: ------------------- Subject to Subparagraph II (E) hereinafter, an Executive who remains in the employ of the Bank until the Normal Retirement Age (Subparagraph I [I]) shall be entitled to receive an annual benefit amount equal to the amount set forth in Exhibit A-1. Said payments shall be made quarterly and shall commence at the beginning of the Bank's first quarter following the Executive's Retirement Date and shall continue until the Executive attains age seventy-six (76). Upon completion of the aforestated payments and commencing subsequent thereto and subject to Subparagraph II (A) (i) hereinbelow, the Index Retirement Benefit (Subparagraph I [E]) for each Plan Year subsequent to the year in which the Executive attains age seventy-six (76), and including the remaining portion of the Plan Year in which the Executive attains age seventy-six (76), shall be paid to the Executive until the Executive's death. (i) The Index Retirement Benefit Adjustment: --------------------------------------- The Index Retirement Benefit payment as set forth hereinabove for the four (4) Plan Years subsequent to the Executive attaining age seventy-six (76) shall be adjusted according to a number equal to the aggregate of the Index Retirement Benefit (Subparagraph I [F]) for each Plan Year from the Effective Date of this agreement until the Plan Year subsequent to the Executive attaining age seventy- 4 six (76) over the aggregate of the benefit payments the Executive actually received under the terms of this Executive Plan through that date. For example, if the Executive retires at age sixty-five (65) and the aggregate annual benefits received by the Executive until the Plan Year the Executive attains age seventy-six (76) were $900,000.00, and the aggregate Index ----------- Retirement Benefits for each Plan Year from the Effective Date of this agreement to the Plan Year the Executive's attains age seventy-six (76) were $1,000,000.00 then the Executive's Index ------------- Retirement Benefit in the first four (4) Plan Years said payment is payable to the Executive would be increased by Twenty Five Thousand and 00/100ths Dollars ($25,000.00) each year (i.e. $100,000.00 / 4). If said number is a deficit, then the Index Retirement Benefit for the first Plan Year said payment is payable to the Executive and each subsequent Plan Year's benefit (if necessary) shall be reduced until the entire deficit has been recovered by the Bank. For each year thereafter, the Index Retirement Benefit payment shall be paid as set forth in Subparagraph I (E). For example, if the Executive retires at age sixty-five (65) and the aggregate annual benefits to be received by the Executive until the Plan Year the Executive attains age seventy-six (76) were $1,000,000.00, and the aggregate Index ------------- Retirement Benefits for each Plan Year from the Effective Date of this agreement to the Plan Year the Executive attains age seventy-six (76) were $900,000.00 and the Executive's Index ----------- Retirement Benefit was $90,000.00 in the first year, then the ---------- Executive would not receive any Index Retirement Benefit in the first year, and the second years' Index Retirement benefit would be reduced by $10,000.00. ---------- B. Termination of Service: ---------------------- Subject to Subparagraph II (D), should an Executive suffer a Termination of Service the Executive shall be entitled to receive the following percentage of the annual benefit set forth in Exhibit A-1. Said payments shall be made quarterly and shall commence at the beginning of the Bank's first quarter following the Executive's Normal Retirement Age (Subparagraph I [I]) and shall continue until the Executive attains age seventy-six (76). Upon completion of the aforestated payments and commencing subsequent thereto and subject to Subparagraph II (A) (i) hereinabove the following percentage of the Index Retirement Benefit for each Plan Year subsequent to the year in which the Executive attains seventy-six (76), and including the remaining portion of the Plan Year in which the Executive attains age seventy-six (76), shall be paid to the Executive until the Executive's death. 5 Date of Hire 10% for each full year of service from the date of first service to a maximum of 80% PLUS If Insured is at least 62 years of age on his or her 20% date of termination For a maximum total of 100% C. Death: ----- If the Executive dies while there is a balance in the Executive's accrued liability retirement account, then the unpaid balance shall be paid in a lump sum to the individual or individuals designated in writing by the Executive and filed with the Bank. In the absence of or a failure to designate a beneficiary, the unpaid balance shall be paid in a lump sum to the personal representative of the Executive's estate. If, upon death, the Executive shall have received the total balance of the Executive's accrued liability retirement account, then no further benefit shall be due hereunder. In any event, upon the death of the Executive, the Executive's beneficiary shall not be entitled to receive any Index Retirement Benefit. D. Discharge for Cause: ------------------- All rights of Executive hereunder shall cease and terminate immediately in the event of a termination of Executive's employment with Bank "with cause." For purposes of this Agreement, "with cause" shall have the same meaning that such term has in the employment agreement between Bank and Executive. If no such employment agreement exists at the time of termination, the term "with cause" shall be deemed to mean, but is not limited to, personal dishonesty, incompetence, willful material misconduct, breach of fiduciary duty, failure to perform the obligations of the Executive as stated herein, willful violation of any law, rule, or regulation (other than minor traffic infractions), or, any material breach of any provision of this agreement. E. Disability Benefit: ------------------ In the event the Executive becomes disabled, as defined herein, prior to any Termination of Service, and the Executive's employment with the Bank is terminated because of such disability, the Executive, upon submission of written documentation and verification of disability satisfactory to the Bank, shall receive one hundred percent (100%) of the benefit amount provided in Subparagraph II (A) above. Payment of such benefit shall begin when the Executive reaches his or her Normal Retirement Age. Subject to the Bank's obligations and Executive's rights under Title I of the Americans with Disabilities Act and the Family and 6 Medical Leave Act, if applicable, and any other applicable federal or state laws, disability shall be defined as the Executive not being able to perform the duties of the Executive's own job and shall be as further defined in the Bank's long term disability policy in effect at the time of said disability. If no such policy exists at the time of the disability, then disability shall be defined as a physical or mental impairment of Executive which renders Executive incapable of performing Executive's normal and regular essential employment duties and which shall be medically determined to be of permanent duration as the same is construed for purposes of disability benefits under the federal Social Security laws and regulations. If there is a dispute regarding whether the Executive is disabled, such dispute shall be resolved by a physician selected by the Bank and such resolution shall be binding upon all parties to this Agreement. F. Death Benefit: ------------- Except as set forth above, there is no death benefit provided under this Agreement. G. Early Retirement: ---------------- Subject to Subparagraph II (D), should the Executive elect Early Retirement or be discharged without cause by the Bank subsequent to the Early Retirement Date [Subparagraph I (K)], the Executive shall be entitled to receive the annual benefit set forth in Exhibit A-2 reduced by the full number of years the Executive retires early prior to Normal Retirement Age, times eighteen and eighteen one hundredths percent (18.18%) (For example, if Executive retires at age 61, the annual benefit set forth in Exhibit A-2 shall be reduced by 72.72%: 61-65 = 4 X 18.18% = 72.72%). Said payments shall be made quarterly and shall commence at the beginning of the Bank's first quarter following the Executive's early retirement and shall continue until the Executive attains age seventy-six (76). Upon completion of the aforestated payments and commencing subsequent thereto and subject to Subparagraph II (A) (i) hereinabove, the vested percentage set forth hereinabove of the Index Retirement Benefit for each Plan Year subsequent to the year in which the Executive attains age seventy-six (76), and including the remaining portion of the Plan Year in which the Executive attains age seventy-six (76), shall be paid to the Executive until the Executive's death. III. RESTRICTIONS UPON FUNDING The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Executive Plan. The Executive, their beneficiary(ies), or any successor in interest shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. 7 The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Executive Plan or to refrain from funding the same and to determine the extent, nature and method of such funding. Should the Bank elect to fund this Executive Plan, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall any Executive be deemed to have any lien nor right, title or interest in or to any specific funding investment or to any assets of the Bank. If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Executive, then the Executive shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities. IV. CHANGE OF CONTROL Notwithstanding other terms of this Agreement, upon a Change of Control (Subparagraph I [H]), if the Executive subsequently suffers a Termination of Service (Subparagraph I [D]), then the Executive shall receive the benefits promised in this Executive Plan upon attaining Normal Retirement Age, as if the Executive had been continuously employed by the Bank until the Executive's Normal Retirement Age. The Executive will also remain eligible for all promised death benefits in this Executive Plan. In addition, no sale, merger, or consolidation of the Bank shall take place unless the new or surviving entity expressly acknowledges the obligations under this Executive Plan and agrees to abide by its terms. V. MISCELLANEOUS A. Alienability and Assignment Prohibition: --------------------------------------- Neither the Executive, nor the Executive's surviving spouse, nor any other beneficiary(ies) under this Executive Plan shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Executive or the Executive's beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Executive or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease and terminate. 8 B. Binding Obligation of the Bank and any Successor in Interest: ------------------------------------------------------------ The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Executive Plan. This Executive Plan shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives. C. Amendment or Revocation: ----------------------- It is agreed by and between the parties hereto that, during the lifetime of the Executive, this Executive Plan may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Executive and the Bank. D. Gender: ------ Whenever in this Executive Plan words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. E. Effect on Other Bank Benefit Plans: ---------------------------------- Nothing contained in this Executive Plan shall affect the right of the Executive to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank's existing or future compensation structure. F. Headings: -------- Headings and subheadings in this Executive Plan are inserted for reference and convenience only and shall not be deemed a part of this Executive Plan. G. Applicable Law: -------------- The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina. H. 12 U.S.C. Section 1828(k): ------------------------- Any payments made to the Executive pursuant to this Executive Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) or any regulations promulgated thereunder. 9 I. Partial Invalidity: ------------------ If any term, provision, covenant, or condition of this Executive Plan is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant, or condition invalid, void, or unenforceable, and the Executive Plan shall remain in full force and effect notwithstanding such partial invalidity. J. Employment: ---------- No provision of this Executive Plan shall be deemed to restrict or limit any existing employment agreement by and between the Bank and the Executive, nor shall any conditions herein create specific employment rights to the Executive nor limit the right of the Employer to discharge the Executive with or without cause. In a similar fashion, no provision shall limit the Executive's rights to voluntarily sever the Executive's employment at any time. K. Notices: ------- All notices required or permitted to be given pursuant to this Agreement shall be in writing, unless otherwise specified, and shall be delivered personally, deposited in the United States mail, registered or certified and postage prepaid with return receipt requested, or deposited with a reputable overnight courier which provides a day and time stamped receipt, addressed to Executive, Bank or Trustee, as applicable, at the address set forth herein or to such other address as hereafter may be furnished to the other parties in writing pursuant to this paragraph. All notices so given shall be deemed effective and received upon the earlier of (i) actual receipt, (ii) receipt and refusal; or (iii) five (5) days from (1) the postmark date, if deposited with the United States Postal Service, or (2) the date of deposit, if deposited with an overnight courier, unless otherwise provided herein. Bank: The East Carolina Bank Hwy. 264 Engelhard, North Carolina 27824 Trustee: Thomas A. Nussbaum Eastern Bank & Trust Co. 2 Adams Place, AP06 Quincy, MA 02169-7456 10 Executive: J. Dorson White, Jr. ---------------------- ---------------------- ---------------------- VI. ERISA PROVISION A. Named Fiduciary and Plan Administrator: -------------------------------------- The "Named Fiduciary and Plan Administrator" of this Executive Plan shall be The East Carolina Bank, until its resignation or removal by the Board. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Executive Plan. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Executive Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. B. Claims Procedure and Arbitration: -------------------------------- In the event a dispute arises over benefits under this Executive Plan and benefits are not paid to the Executive (or to the Executive's beneficiary(ies) in the case of the Executive's death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Plan Administrator named above within sixty (60) days from the date payments are refused. The Named Fiduciary and Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, they shall provide in writing within sixty (60) days of receipt of such claim the specific reasons for such denial, reference to the provisions of this Executive Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Named Fiduciary and Plan Administrator fail to take any action within the aforesaid sixty-day period. If claimants desire a second review they shall notify the Named Fiduciary and Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Executive Plan or any documents relating thereto and submit any written issues and comments it may feel appropriate. In their sole discretion, the Named Fiduciary and Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of the Plan Agreement upon which the decision is based. 11 If claimants continue to dispute the benefit denial based upon completed performance of this Executive Plan or the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to an arbitrator for final arbitration. The arbitrator shall be selected by mutual agreement of the Bank and the claimants. The arbitrator shall operate under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such arbitrator with respect to any controversy properly submitted to it for determination. Where a dispute arises as to the Bank's discharge of the Executive "for cause," such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder. VII. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on this Executive Plan as determined by the Bank in its sole discretion, then the Bank reserves the right to terminate or modify this Agreement accordingly. Upon a Change of Control (Subparagraph I [H]), this paragraph shall become null and void effective immediately upon said Change of Control. IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully read this Agreement and executed the original thereof on the first day set forth hereinabove, and that upon execution, each has received a conforming copy. THE EAST CAROLINA BANK Engelhard, North Carolina By: - ------------------------------------ -------------------------------------- Witness Title /s/ J. Dorson White, Jr. - ------------------------------------ -------------------------------------- Witness J. Dorson White, Jr. 12 BENEFICIARY DESIGNATION FORM FOR THE EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN AGREEMENT PRIMARY DESIGNATION: Name Address Relationship ---- ------- ------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECONDARY (CONTINGENT) DESIGNATION: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- All sums payable under the Executive Supplemental Retirement Plan Executive Agreement by reason of my death shall be paid to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary (Contingent) Beneficiary. /s/ J. Dorson White, Jr. 2-13-02 - ------------------------ Date J. Dorson White, Jr. 13 EXHIBIT "A-1" End of Benefit Year Age: Amount --------- ------- White 65 $51,362 66 $52,106 67 $52,891 68 $53,716 69 $54,585 70 $55,698 71 $57,970 72 $59,158 73 $60,317 74 $61,413 75 $62,469 14 EXHIBIT "A-2" Plan Years Subsequent to Early Retirement Date as Defined in Subparagraph I(K) Benefit of the Agreement Amount --------------------- ------- White 1 $51,362 2 $52,106 3 $52,891 4 $53,716 5 $54,585 6 $55,698 7 $57,970 8 $59,158 9 $60,317 10 $61,413 11 $62,469* * This benefit amount shall remain constant for any remaining Plan Years that the Executive may be entitled to receive a fixed benefit amount pursuant to Subparagraph II (G) of the Agreement; the Executive's age: 76 15 EX-10.3 5 dex103.txt ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT LIFE INSURANCE ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT Insurer: Jefferson Pilot Life Insurance Company Mass Mutual Life Insurance Company Policy Number: JP5221300 0046699 Bank: The East Carolina Bank Insured: Arthur H. Keeney, III Relationship of Insured to Bank: Executive Trust: Rabbi Trust for the Executive Supplemental Retirement Plan Agreement, Director Supplemental Retirement Plan Agreement, and the Endorsement Method Split Dollar Plan Agreement The respective rights and duties of the Bank and the Insured in the above-referenced policy shall be pursuant to the terms set forth below: The Bank and the Insured are parties to a Life Comp. Plan Agreement that provides for the payment of certain benefits. This Life Insurance Endorsement method Split Dollar Plan Agreement and the benefits provided hereunder shall replace and supercede the existing Life Comp. Plan Agreement and the benefits provided thereby. I. DEFINITIONS Refer to the policy contract for the definition of any terms in this Agreement that are not defined herein. If a definition of a term in the policy is inconsistent with the definition of a term in this Agreement, then the definition of the term as set forth in this Agreement shall supersede and replace the definition of the terms as set forth in the policy. II. POLICY TITLE AND OWNERSHIP Title and ownership shall reside in the Trustee for the Rabbi Trust for the Executive Supplemental Retirement Plan Agreement, Director Supplemental Retirement Plan Agreement, and the Endorsement Method Split Dollar Plan Agreement for its use and for the use of the Insured all in accordance with this Agreement. The Trustee at the direction of the Bank may, to the extent of the Bank's interest, exercise the right to borrow or withdraw on the policy cash values. Where the Trustee at the direction of the Bank and the Insured (or assignee, with the consent of the Insured) mutually agree to exercise the right to increase the coverage under the subject policy, then, in such event, the rights, duties and benefits of the parties to such increased coverage shall continue to be subject to the terms of this Agreement. III. BENEFICIARY DESIGNATION RIGHTS The Insured (or assignee) shall have the right and power to designate a beneficiary or beneficiaries to receive the Insured's share of the proceeds of the policy payable upon the death of the Insured, and to elect and change a payment option for such beneficiary, subject to any right or interest of the Bank or the Trust may have in such proceeds, as provided in this Agreement. Any such designation by the Insured shall be made in writing in the form attached hereto as Exhibit A and incorporated herein by reference. Any such designation or change therein shall be effective three (3) business days from delivery of said written notice by Insured to the Bank. IV. PREMIUM PAYMENT METHOD Subject to Subparagraph IX (B), the Bank or the Trustee at the direction of the Bank shall pay an amount equal to the planned premiums and any other premium payments that might become necessary to keep the policy in force. V. TAXABLE BENEFIT Annually the Insured will receive a taxable benefit equal to the value of the insurance protection as required by the Internal Revenue Service. The Bank or the Trustee at the direction of the Bank will report to the Insured the amount of imputed income each year on Form W-2 or its equivalent. VI. DIVISION OF DEATH PROCEEDS Subject to Paragraphs VII and IX herein, the division of the death proceeds of the policy is as follows: A. At the time of the Insured's death, should the Insured be employed by the Bank, retired from the Bank, or have had his or her employment terminated from the Bank due to disability*, the Insured's beneficiary(ies), designated in accordance with Paragraph III or the Insured's estate if no beneficiary has been so designated, shall be entitled to an amount equal to 2 eighty percent (80%) of the net-at-risk insurance portion of the proceeds. The net-at-risk insurance portion is the total proceeds less the cash value of the policy. B. Should the Insured not be employed by the Bank at the time of his or her death for reasons other than disability* or retirement, the Insured's beneficiary(ies), designated in accordance with Paragraph III or the Insured's estate if no beneficiary has been so designated, shall be entitled to the percentage as set forth hereinbelow of the proceeds described in Subparagraph VI (A) above. Date of Hire 10% for each full year of service from the date of first service to a maximum of 80% PLUS If Insured is at least 62 years of age on his or her date of death 20% For a maximum total of 100% *Subject to the Bank's obligations and Insured's rights under Title I of the Americans with Disabilities Act and the Family and Medical Leave Act, if applicable, and any other applicable federal or state laws, for purposes of this Agreement, disability shall be defined as the Insured not being able to perform the duties of the Insured's own job and shall be as further defined in the Bank's long term disability policy in effect at the time of said disability. If no such policy exists at the time of the disability, then disability shall be defined as a physical or mental impairment of Insured which renders Insured incapable of performing Insured's normal and regular essential employment duties and which shall be medically determined to be of permanent duration as the same is construed for purposes of disability benefits under the federal Social Security laws and regulations. C. The Bank shall be entitled to the remainder of such proceeds of the policy, including but not limited to the cash surrender value as provided in Paragraph VII herein. D. The Bank and the Insured (or assignees) shall share in any interest due on the death proceeds on a pro rata basis as the proceeds due each respectively bears to the total proceeds, excluding any such interest. 3 VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY The Bank or the Trust, in the discretion of the Bank, shall at all times be entitled to an amount equal to the policy's cash value, as that term is defined in the policy contract, less any policy loans and unpaid interest or cash withdrawals previously incurred by the Bank or the Trustee at the direction of the Bank and any applicable surrender charges. Such cash value shall be determined as of the date of surrender or death of the Insured as the case may be. VIII. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS In the event the policy involves an endowment or annuity element, the Bank's or the Trust's right and interest in any endowment proceeds or annuity benefits, on expiration of the deferment period, shall be determined under the provisions of this Agreement by regarding such endowment proceeds or the commuted value of such annuity benefits as the policy's cash value. Such endowment proceeds or annuity benefits shall be considered to be death proceeds for the purposes of division under this Agreement. IX. TERMINATION OF AGREEMENT This Agreement shall terminate upon the occurrence of any one of the following: A. The Insured is terminated by the Bank with cause. For purposes of this Agreement, the term "with cause" shall have the same meaning as the Employment Agreement between the Bank and the Insured. If no such employment agreement exists at the time of termination, the term "with cause" shall be deemed to mean, but is not limited to, personal dishonesty, incompetence, willful material misconduct, breach of fiduciary duty, failure to perform the obligations of the Insured as stated herein, willful violation of any law, rule, or regulation (other than minor traffic infractions), or, any material breach of any provision of this agreement. B. Surrender, lapse, or other termination of the Policy by the Bank. Upon such termination, the Insured (or assignee) shall have a fifteen (15) day option, which period shall begin to run on the date of termination of the policy, to receive from the Bank or the Trustee at the direction of the Bank an absolute assignment of the policy in consideration of a cash payment to the Bank or the Trustee at the direction of the Bank, whereupon this Agreement shall terminate. Such cash payment referred to hereinabove shall be the greater of: 1) The Bank's or the Trust's share of the cash value of the policy on the date of such assignment, as defined in this Agreement; or 4 2) The amount of the premiums which have been paid by the Bank or the Trustee at the direction of the Bank prior to the date of such assignment. If, within said fifteen (15) day period, the Insured fails to exercise said option, fails to procure the entire aforestated cash payment, or dies, then the option shall terminate and the Insured (or assignee) agrees that all of the Insured's rights, interest and claims in the policy shall terminate as of the date of the termination of this Agreement. The Insured expressly agrees that this Agreement shall constitute sufficient written notice to the Insured of the Insured's option to receive an absolute assignment of the policy as set forth herein. Except as provided above, this Agreement shall terminate upon distribution of the death benefit proceeds in accordance with Paragraph VI above. X. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS The Insured may not, without the written consent of the Bank, assign to any individual, trust or other organization, any right, title or interest in the subject policy nor any rights, options, privileges or duties created under this Agreement. XI. AGREEMENT BINDING UPON THE PARTIES This Agreement shall bind the Insured and the Bank or the Trustee, their heirs, successors, personal representatives and assigns. XII. ERISA PROVISIONS The following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"): A. Named Fiduciary and Plan Administrator. --------------------------------------- The "Named Fiduciary and Plan Administrator" of this Endorsement Method Split Dollar Agreement shall be The East Carolina Bank until its resignation or removal by the Board of Directors. As Named Fiduciary and Plan Administrator, the Bank or the Trustee at the direction of the Bank shall be responsible for the management, control, and administration of this Split Dollar Plan as established herein. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Plan, including the employment of advisors and the delegation of any ministerial duties to qualified individuals. 5 B. Funding Policy. -------------- Subject to Subparagraph IX (B), the funding policy for this Split Dollar Plan shall be to maintain the subject policy in force by paying, when due, all premiums required. C. Basis of Payment of Benefits. ---------------------------- Direct payment by the Insurer is the basis of payment of benefits under this Agreement, with those benefits in turn being based on the payment of premiums as provided in this Agreement. D. Claim Procedures. ---------------- Claim forms or claim information as to the subject policy can be obtained by contacting Benmark, Inc. (800-544-6079). When the Named Fiduciary has a claim which may be covered under the provisions described in the insurance policy, they should contact the office named above, and they will either complete a claim form and forward it to an authorized representative of the Insurer or advise the named Fiduciary what further requirements are necessary. The Insurer will evaluate and make a decision as to payment. If the claim is payable, a benefit check will be issued in accordance with the terms of this Agreement. In the event that a claim is not eligible under the policy, the Insurer will notify the Named Fiduciary of the denial pursuant to the requirements under the terms of the policy. If the Named Fiduciary is dissatisfied with the denial of the claim and wishes to contest such claim denial, they should contact the office named above and they will assist in making an inquiry to the Insurer. All objections to the Insurer's actions should be in writing and submitted to the office named above for transmittal to the Insurer. E. Notices. ------- All notices required or permitted to be given pursuant to this Agreement shall be in writing, unless otherwise specified, and shall be delivered personally, deposited in the United States mail, registered or certified and postage prepaid with return receipt requested, or deposited with a reputable overnight courier which provides a day and time stamped receipt, addressed to the Executive, Bank or Trustee, as applicable, at the address set forth herein or to such other address as hereafter may be furnished to the other parties in writing pursuant to this paragraph. All notices so given shall be deemed effective and received upon the earlier of 6 (i) actual receipt, (ii) receipt and refusal; or (iii) five (5) days from (1) the postmark date, if deposited with the United States Postal Service, or (2) the date of deposit, if deposited with an overnight courier, unless otherwise provided herein. Bank: The East Carolina Bank Hwy. 264 Engelhard, North Carolina 27824 Trustee: Thomas A. Nussbaum Eastern Bank & Trust Co. 2 Adams Place, AP06 Quincy, MA 02169-7456 Executive: Arthur H. Keeney, III ---------------------------- ---------------------------- ---------------------------- XIII. GENDER Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. XIV. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT The Insurer shall not be deemed a party to this Agreement, but will respect the rights of the parties as herein developed upon receiving an executed copy of this Agreement. Payment or other performance in accordance with the policy provisions shall fully discharge the Insurer from any and all liability. XV. CHANGE OF CONTROL Change of Control shall mean the direct or indirect acquisition by another person, firm or corporation, by merger, share exchange, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank or its parent company. Upon a Change of Control, if the Insured's employment is subsequently terminated, except for cause, then the Insured shall be one hundred percent (100%) vested in the benefits promised in this Agreement and, therefore, upon the death of the Insured, the Insured's beneficiary(ies) (designated in accordance with Paragraph III) shall receive the death benefit provided herein as if the Insured had died while employed by the Bank (See Subparagraph VI [A]). 7 XVI. AMENDMENT OR REVOCATION It is agreed by and between the parties hereto that, during the lifetime of the Insured, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Insured and the Bank. XVII. EFFECTIVE DATE The Effective Date of this Agreement shall be November 5, 2001. XVIII. SEVERABILITY AND INTERPRETATION If a provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall nonetheless be enforceable according to their terms. Further, in the event that any provision is held to be over broad as written, such provision shall be deemed amended to narrow its application to the extent necessary to make the provision enforceable according to law and enforced as amended. XIX. APPLICABLE LAW The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina. XX. SUPERSEDE AND REPLACE This Agreement shall supersede the Life Comp. Plan and shall constitute the entire agreement of the parties pertaining to this particular Life Insurance Endorsement Method Split Dollar Agreement. 8 Executed at Engelhard, North Carolina this 22nd day of January, 2002. THE EAST CAROLINA BANk Engelhard, North Carolina By: - ----------------------------------- --------------------------------- Witness Title /s/ Arthur H. Keeney, III - ----------------------------------- ------------------------------------ Witness Arthur H. Keeney, III 9 EXHIBIT A BENEFICIARY DESIGNATION FORM FOR LIFE INSURANCE ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT PRIMARY DESIGNATION: Name Address Relationship ---- ------- ------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECONDARY (CONTINGENT) DESIGNATION: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- All sums payable under the Life Insurance Endorsement Method Split Dollar Plan Agreement by reason of my death shall be paid to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary (Contingent) Beneficiary. /s/ Arthur H. Keeney, III 1-25-02 - ------------------------- Date Arthur H. Keeney, III 10 EX-10.4 6 dex104.txt ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT LIFE INSURANCE ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT Insurer: Jefferson Pilot Life Insurance Company Mass Mutual Life Insurance Company Policy Number: JP5221298 0046711 Bank: The East Carolina Bank Insured: J. Dorson White, Jr. Relationship of Insured to Bank: Executive Trust: Rabbi Trust for the Executive Supplemental Retirement Plan Agreement, Director Supplemental Retirement Plan Agreement, and the Endorsement Method Split Dollar Plan Agreement The respective rights and duties of the Bank and the Insured in the above-referenced policy shall be pursuant to the terms set forth below: I. DEFINITIONS Refer to the policy contract for the definition of any terms in this Agreement that are not defined herein. If a definition of a term in the policy is inconsistent with the definition of a term in this Agreement, then the definition of the term as set forth in this Agreement shall supersede and replace the definition of the terms as set forth in the policy. II. POLICY TITLE AND OWNERSHIP Title and ownership shall reside in the Trustee for the Rabbi Trust for the Executive Supplemental Retirement Plan Agreement, Director Supplemental Retirement Plan Agreement, and the Endorsement Method Split Dollar Plan Agreement for its use and for the use of the Insured all in accordance with this Agreement. The Trustee at the direction of the Bank may, to the extent of the Bank's interest, exercise the right to borrow or withdraw on the policy cash values. Where the Trustee at the direction of the Bank and the Insured (or assignee, with the consent of the Insured) mutually agree to exercise the right to increase the coverage under the subject policy, then, in such event, the rights, duties and benefits of the parties to such increased coverage shall continue to be subject to the terms of this Agreement. III. BENEFICIARY DESIGNATION RIGHTS The Insured (or assignee) shall have the right and power to designate a beneficiary or beneficiaries to receive the Insured's share of the proceeds of the policy payable upon the death of the Insured, and to elect and change a payment option for such beneficiary, subject to any right or interest of the Bank or the Trust may have in such proceeds, as provided in this Agreement. Any such designation by the Insured shall be made in writing in the form attached hereto as Exhibit A and incorporated herein by reference. Any such designation or change therein shall be effective three (3) business days from delivery of said written notice by Insured to the Bank. IV. PREMIUM PAYMENT METHOD Subject to Subparagraph IX (B), the Bank or the Trustee at the direction of the Bank shall pay an amount equal to the planned premiums and any other premium payments that might become necessary to keep the policy in force. V. TAXABLE BENEFIT Annually the Insured will receive a taxable benefit equal to the value of the insurance protection as required by the Internal Revenue Service. The Bank or the Trustee at the direction of the Bank will report to the Insured the amount of imputed income each year on Form W-2 or its equivalent. VI. DIVISION OF DEATH PROCEEDS Subject to Paragraphs VII and IX herein, the division of the death proceeds of the policy is as follows: A. At the time of the Insured's death, should the Insured be employed by the Bank, retired from the Bank, or have had his or her employment terminated from the Bank due to disability*, the Insured's beneficiary(ies), designated in accordance with Paragraph III or the Insured's estate if no beneficiary has been so designated, shall be entitled to an amount equal to eighty percent (80%) of the net-at-risk insurance portion of the proceeds. The net-at-risk insurance portion is the total proceeds less the cash value of the policy. 2 B. Should the Insured not be employed by the Bank at the time of his or her death for reasons other than disability* or retirement, the Insured's beneficiary(ies), designated in accordance with Paragraph III or the Insured's estate if no beneficiary has been so designated, shall be entitled to the percentage as set forth hereinbelow of the proceeds described in Subparagraph VI (A) above. Date of Hire 10% for each full year of service from the date of first service to a maximum of 80% PLUS If Insured is at least 62 years of age on his or her date of death 20% For a maximum total of 100% *Subject to the Bank's obligations and Insured's rights under Title I of the Americans with Disabilities Act and the Family and Medical Leave Act, if applicable, and any other applicable federal or state laws, for purposes of this Agreement, disability shall be defined as the Insured not being able to perform the duties of the Insured's own job and shall be as further defined in the Bank's long term disability policy in effect at the time of said disability. If no such policy exists at the time of the disability, then disability shall be defined as a physical or mental impairment of Insured which renders Insured incapable of performing Insured's normal and regular essential employment duties and which shall be medically determined to be of permanent duration as the same is construed for purposes of disability benefits under the federal Social Security laws and regulations. C. The Bank shall be entitled to the remainder of such proceeds of the policy, including but not limited to the cash surrender value as provided in Paragraph VII herein. D. The Bank and the Insured (or assignees) shall share in any interest due on the death proceeds on a pro rata basis as the proceeds due each respectively bears to the total proceeds, excluding any such interest. VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY The Bank or the Trust, in the discretion of the Bank, shall at all times be entitled to an amount equal to the policy's cash value, as that term is defined in the policy 3 contract, less any policy loans and unpaid interest or cash withdrawals previously incurred by the Bank or the Trustee at the direction of the Bank and any applicable surrender charges. Such cash value shall be determined as of the date of surrender or death of the Insured as the case may be. VIII. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS In the event the policy involves an endowment or annuity element, the Bank's or the Trust's right and interest in any endowment proceeds or annuity benefits, on expiration of the deferment period, shall be determined under the provisions of this Agreement by regarding such endowment proceeds or the commuted value of such annuity benefits as the policy's cash value. Such endowment proceeds or annuity benefits shall be considered to be death proceeds for the purposes of division under this Agreement. IX. TERMINATION OF AGREEMENT This Agreement shall terminate upon the occurrence of any one of the following: A. The Insured is terminated by the Bank with cause. For purposes of this Agreement, the term "with cause" shall have the same meaning as the Employment Agreement between the Bank and the Insured. If no such employment agreement exists at the time of termination, the term "with cause" shall be deemed to mean, but is not limited to, personal dishonesty, incompetence, willful material misconduct, breach of fiduciary duty, failure to perform the obligations of the Insured as stated herein, willful violation of any law, rule, or regulation (other than minor traffic infractions), or, any material breach of any provision of this agreement. B. Surrender, lapse, or other termination of the Policy by the Bank. Upon such termination, the Insured (or assignee) shall have a fifteen (15) day option, which period shall begin to run on the date of termination of the policy, to receive from the Bank or the Trustee at the direction of the Bank an absolute assignment of the policy in consideration of a cash payment to the Bank or the Trustee at the direction of the Bank, whereupon this Agreement shall terminate. Such cash payment referred to hereinabove shall be the greater of: 1) The Bank's or the Trust's share of the cash value of the policy on the date of such assignment, as defined in this Agreement; or 2) The amount of the premiums which have been paid by the Bank or the Trustee at the direction of the Bank prior to the date of such assignment. 4 If, within said fifteen (15) day period, the Insured fails to exercise said option, fails to procure the entire aforestated cash payment, or dies, then the option shall terminate and the Insured (or assignee) agrees that all of the Insured's rights, interest and claims in the policy shall terminate as of the date of the termination of this Agreement. The Insured expressly agrees that this Agreement shall constitute sufficient written notice to the Insured of the Insured's option to receive an absolute assignment of the policy as set forth herein. Except as provided above, this Agreement shall terminate upon distribution of the death benefit proceeds in accordance with Paragraph VI above. X. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS The Insured may not, without the written consent of the Bank, assign to any individual, trust or other organization, any right, title or interest in the subject policy nor any rights, options, privileges or duties created under this Agreement. XI. AGREEMENT BINDING UPON THE PARTIES This Agreement shall bind the Insured and the Bank or the Trustee, their heirs, successors, personal representatives and assigns. XII. ERISA PROVISIONS The following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"): A. Named Fiduciary and Plan Administrator. -------------------------------------- The "Named Fiduciary and Plan Administrator" of this Endorsement Method Split Dollar Agreement shall be The East Carolina Bank until its resignation or removal by the Board of Directors. As Named Fiduciary and Plan Administrator, the Bank or the Trustee at the direction of the Bank shall be responsible for the management, control, and administration of this Split Dollar Plan as established herein. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Plan, including the employment of advisors and the delegation of any ministerial duties to qualified individuals. 5 B. Funding Policy. -------------- Subject to Subparagraph IX (B), the funding policy for this Split Dollar Plan shall be to maintain the subject policy in force by paying, when due, all premiums required. C. Basis of Payment of Benefits. ---------------------------- Direct payment by the Insurer is the basis of payment of benefits under this Agreement, with those benefits in turn being based on the payment of premiums as provided in this Agreement. D. Claim Procedures. ---------------- Claim forms or claim information as to the subject policy can be obtained by contacting Benmark, Inc. (800-544-6079). When the Named Fiduciary has a claim which may be covered under the provisions described in the insurance policy, they should contact the office named above, and they will either complete a claim form and forward it to an authorized representative of the Insurer or advise the named Fiduciary what further requirements are necessary. The Insurer will evaluate and make a decision as to payment. If the claim is payable, a benefit check will be issued in accordance with the terms of this Agreement. In the event that a claim is not eligible under the policy, the Insurer will notify the Named Fiduciary of the denial pursuant to the requirements under the terms of the policy. If the Named Fiduciary is dissatisfied with the denial of the claim and wishes to contest such claim denial, they should contact the office named above and they will assist in making an inquiry to the Insurer. All objections to the Insurer's actions should be in writing and submitted to the office named above for transmittal to the Insurer. E. Notices. ------- All notices required or permitted to be given pursuant to this Agreement shall be in writing, unless otherwise specified, and shall be delivered personally, deposited in the United States mail, registered or certified and postage prepaid with return receipt requested, or deposited with a reputable overnight courier which provides a day and time stamped receipt, addressed to the Executive, Bank or Trustee, as applicable, at the address set forth herein or to such other address as hereafter may be furnished to the other parties in writing pursuant to this paragraph. All notices so given shall be deemed effective and received upon the earlier of (i) actual receipt, (ii) receipt and refusal; or (iii) five (5) days from (1) the 6 postmark date, if deposited with the United States Postal Service, or (2) the date of deposit, if deposited with an overnight courier, unless otherwise provided herein. Bank: The East Carolina Bank Hwy. 264 Engelhard, North Carolina 27824 Trustee: Thomas A. Nussbaum Eastern Bank & Trust Co. 2 Adams Place, AP06 Quincy, MA 02169-7456 Executive: J. Dorson White, Jr. ------------------------ ------------------------ ------------------------ XIII. GENDER Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. XIV. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT The Insurer shall not be deemed a party to this Agreement, but will respect the rights of the parties as herein developed upon receiving an executed copy of this Agreement. Payment or other performance in accordance with the policy provisions shall fully discharge the Insurer from any and all liability. XV. CHANGE OF CONTROL Change of Control shall mean the direct or indirect acquisition by another person, firm or corporation, by merger, share exchange, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank or its parent company. Upon a Change of Control, if the Insured's employment is subsequently terminated, except for cause, then the Insured shall be one hundred percent (100%) vested in the benefits promised in this Agreement and, therefore, upon the death of the Insured, the Insured's beneficiary(ies) (designated in accordance with Paragraph III) shall receive the death benefit provided herein as if the Insured had died while employed by the Bank (See Subparagraph VI [A]). 7 XVI. AMENDMENT OR REVOCATION It is agreed by and between the parties hereto that, during the lifetime of the Insured, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Insured and the Bank. XVII. EFFECTIVE DATE The Effective Date of this Agreement shall be November 5, 2001. XVIII. SEVERABILITY AND INTERPRETATION If a provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall nonetheless be enforceable according to their terms. Further, in the event that any provision is held to be over broad as written, such provision shall be deemed amended to narrow its application to the extent necessary to make the provision enforceable according to law and enforced as amended. XIX. APPLICABLE LAW The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina. Executed at Engelhard, North Carolina this 22nd day of January, 2002. THE EAST CAROLINA BANK Engelhard, North Carolina By: - ------------------------ ---------------------------- Witness Title /s/ J. Dorson White, Jr. - ------------------------ ------------------------------- Witness J. Dorson White, Jr. 8 EXHIBIT A BENEFICIARY DESIGNATION FORM FOR LIFE INSURANCE ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT PRIMARY DESIGNATION: Name Address Relationship ---- ------- ------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECONDARY (CONTINGENT) DESIGNATION: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- All sums payable under the Life Insurance Endorsement Method Split Dollar Plan Agreement by reason of my death shall be paid to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary (Contingent) Beneficiary. /s/ J. Dorson White, Jr. 1-25-02 - ------------------------- Date J. Dorson White, Jr. 9 EX-10.5 7 dex105.txt DIRECTOR AGREEMENT DIRECTOR SUPPLEMENTAL RETIREMENT PLAN DIRECTOR AGREEMENT THIS AGREEMENT is made and entered into this day of , ---- -------------- 2002, by and between The East Carolina Bank, a bank organized and existing under the laws of the State of North Carolina (hereinafter referred to as the "Bank"), and ., a Director of the Bank (hereinafter referred to as the --------------- "Director"). WHEREAS, the Director is now in the service of the Bank and has for many years faithfully served the Bank. It is the consensus of the Board of Directors (hereinafter referred to as the "Board") that the Director's services have been of exceptional merit, in excess of the compensation paid and an invaluable contribution to the profits and position of the Bank in its field of activity. The Board further believes that the Director's experience, knowledge of corporate affairs, reputation and industry contacts are of such value, and the Director's continued services so essential to the Bank's future growth and profits, that it would suffer severe financial loss should the Director terminate their services; ACCORDINGLY, the Board has adopted The East Carolina Bank Director Supplemental Retirement Plan Director Agreement (hereinafter referred to as the "Director Plan") and it is the desire of the Bank and the Director to enter into this Agreement under which the Bank will agree to make certain payments to the Director upon the Director's retirement or to the Director's beneficiary(ies) in the event of the Director's death pursuant to the Director Plan; FURTHERMORE, it is the intent of the parties hereto that this Director Plan be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Director, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Security Act of 1974, as amended ("ERISA"). The Director is fully advised of the Bank's financial status and has had substantial input in the design and operation of this benefit plan; and NOW THEREFORE, in consideration of services the Director has performed in the past and those to be performed in the future, and based upon the mutual promises and covenants herein contained, the Bank and the Director agree as follows: I. DEFINITIONS A. Effective Date: -------------- The Effective Date of the Director Plan shall be November 5, 2001. B. Plan Year: --------- Any reference to the "Plan Year" shall mean a calendar year from January 1st to December 31st. In the year of implementation, the term "Plan Year" shall mean the period from the Effective Date to December 31st of the year of the Effective Date. C. Retirement Date: --------------- Retirement Date shall mean the first day of the calendar month following the latter of (i) the date in which the Director reaches age seventy (70) or (ii) the date upon which the Director actually retires from service with the Bank after reaching age seventy (70). D. Termination of Service: ---------------------- Termination of Service shall mean the Director's voluntary resignation of service by the Director or the Bank's discharge of the Director without cause, prior to the Normal Retirement Age (Subparagraph I [I]). E. Index Retirement Benefit: ------------------------ In the event the Director receives the retirement benefit set forth in Subparagraph II (A) herein, the Index Retirement Benefit for each Director in the Director Plan for each Plan Year shall be equal to the excess (if any) of the Index (Subparagraph I [F]) for that Plan Year over the Opportunity Cost (Subparagraph I [G]) for that Plan Year, divided by a factor equal to 1.18 minus the marginal tax rate. In the event the Director elects to receive the benefit set forth in Subparagraph II (G) herein, the Index Retirement Benefit for each Director in the Director Plan for each Plan Year shall be equal to the excess (if any) of the Index (Subparagraph I [F]) for that Plan Year over the Opportunity Cost (Subparagraph I [G]) for that Plan Year. F. Index: ----- The Index for any Plan Year shall be the aggregate annual after-tax income from the life insurance contract(s) described hereinafter as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such insurance contract(s) were purchased on the Effective Date of the Director Plan. 2 Insurance Company: Jefferson Pilot Life Insurance Company Policy Form: Flexible Premium Adjustable Life Policy Name: ESP VI Insured's Age and Sex: 56, Male Riders: None Ratings: None Option: Level Face Amount: $105,000 Premiums Paid: $50,000 Number of Premium Payments: Single Assumed Purchase Date: November 5, 2001 Insurance Company: Mass Mutual Life Insurance Company Policy Form: Flexible Premium Adjustable Life Policy Name: Strategic Life Exec Insured's Age and Sex: 56, Male Riders: None Ratings: None Option: Level Face Amount: $111,500 Premiums Paid: $50,000 Number of Premium Payments: Single Assumed Purchase Date: November 5, 2001 If such contracts of life insurance are actually purchased by the Bank, then the actual policies as of the dates they were actually purchased shall be used in calculations under this Director Plan. If such contracts of life insurance are not purchased or are subsequently surrendered or lapsed, then the Bank shall receive annual policy illustrations that assume the above-described policies were purchased or had not subsequently surrendered or lapsed. Said illustration shall be received from the respective insurance companies and will indicate the increase in policy values for purposes of calculating the amount of the Index. In either case, references to the life insurance contracts are merely for purposes of calculating a benefit. The Bank has no obligation to purchase such life insurance and, if purchased, the Director and the Director's beneficiary(ies) shall have no ownership interest in such policy and shall always have no greater interest in the benefits under this Director Plan than that of an unsecured creditor of the Bank. G. Opportunity Cost: ---------------- The Opportunity Cost for any Plan Year shall be calculated by taking the sum of the amount of premiums for the life insurance policies described in the definition of "Index" plus the amount of any after-tax benefits paid to 3 the Director pursuant to the Director Plan (Paragraph II hereinafter) plus the amount of all previous years' after-tax Opportunity Cost, and multiplying that sum by the greater of either one of the following: (i) the average after tax yield of a one-year Treasury bill, or (ii) the Bank's average annualized after-tax Cost of Funds Expense as determined by the Bank's third quarter call report as filed with the appropriate regulatory agency. H. Change of Control: ----------------- Change of Control shall mean the direct or indirect acquisition by another person, firm or corporation, by merger, share exchange, consolidation, purchase or otherwise, of all or substantially all of the assets or stock of the Bank or its parent company. I. Normal Retirement Age: --------------------- Normal Retirement Age shall mean the date on which the Director attains age seventy (70). J. Benefit Accounting: ------------------ The Bank shall account for the benefit provided herein using the regulatory accounting principles of the Bank's primary federal regulator. The Bank shall establish an accrued liability retirement account for the Director into which appropriate reserves shall be accrued. II. INDEX BENEFITS A. Retirement Benefits: ------------------- Subject to Subparagraphs II (D) and (G) hereinafter, a Director who remains in the service of the Bank until the Normal Retirement Age (Subparagraph I [I]) shall be entitled to receive an annual benefit amount equal to the amount set forth in Exhibit A-1. Said payments shall be made quarterly and shall commence at the beginning of the Bank's first quarter following the Director's Retirement Date and shall continue until the Director attains age seventy-seven (77). Upon completion of the aforestated payments and commencing subsequent thereto and subject to Subparagraph II (A) (i) hereinbelow, the Index Retirement Benefit (Subparagraph I [E]) for each Plan Year subsequent to the year in which the Director attains age seventy-seven (77), and including the remaining portion of the Plan Year in which the Director attains age seventy-seven (77), shall be paid to the Director until the Director's death. 4 (i) The Index Retirement Benefit Adjustment: --------------------------------------- The Index Retirement Benefit payment as set forth hereinabove for the eight (8) Plan Years subsequent to the Director attaining age seventy-seven (77) shall be adjusted according to a number equal to the aggregate of the Index Retirement Benefit (Subparagraph I [E]) for each Plan Year from the Effective Date of this agreement until the Plan Year subsequent to the Director attaining age seventy-seven (77) over the aggregate of the benefit payments the Director actually received under the terms of this Director Plan through that date. For example, if the Director retires at age sixty-five (65) and the aggregate annual benefits received by the Director until the Plan Year the Director attains age seventy-seven (77) were $900,000.00, and the aggregate Index ----------- Retirement Benefits for each Plan Year from the Effective Date of this agreement to the Plan Year the Director's attains age seventy-seven (77) were $1,000,000.00 then the Director's Index ------------- Retirement Benefit in the first eight (8) Plan Years said payment is payable to the Director would be increased by Twelve Thousand Five Hundred and 00/100ths Dollars ($12,500.00) each year (i.e. $100,000.00 / 8). If said number is a deficit, then the Index Retirement Benefit for the first Plan Year said payment is payable to the Director and each subsequent Plan Year's benefit (if necessary) shall be reduced until the entire deficit has been recovered by the Bank. For each year thereafter, the Index Retirement Benefit payment shall be paid as set forth in Subparagraph I (E). For example, if the Director retires at age sixty-five (65) and the aggregate annual benefits to be received by the Director until the Plan Year the Director attains age seventy-seven (77) were $1,000,000.00, and the aggregate Index ------------- Retirement Benefits for each Plan Year from the Effective Date of this agreement to the Plan Year the Director attains age seventy-seven (77) were $900,000.00 and the Director's Index ----------- Retirement Benefit was $90,000.00 in the first year, then the ---------- Director would not receive any Index Retirement Benefit in the first year, and the second years' Index Retirement benefit would be reduced by $10,000.00. ---------- B. Termination of Service: ---------------------- Subject to Subparagraphs II (D) and (G), should a Director suffer a Termination of Service the Director shall be entitled to receive the following percentage of the annual benefit set forth in Exhibit A-1. Said payments shall be made quarterly and shall commence at the beginning of the Bank's first quarter following the Director's Normal Retirement Age (Subparagraph I [I]) and shall continue until the Director attains age seventy-seven (77). Upon completion of the aforestated payments and commencing subsequent thereto and subject to Subparagraph II (A) (i) 5 hereinabove the following percentage of the Index Retirement Benefit for each Plan Year subsequent to the year in which the Director attains seventy-seven (77), and including the remaining portion of the Plan Year in which the Director attains age seventy-seven (77), shall be paid to the Director until the Director's death. Subsequent to one (1) 20% for each full year of service full year on the Board of from the date of first service Directors of the Bank to a maximum of 100% C. Death: ----- If the Director dies while there is a balance in the Director's accrued liability retirement account, then the unpaid balance shall be paid in a lump sum to the individual or individuals designated in writing by the Director and filed with the Bank. In the absence of or a failure to designate a beneficiary, the unpaid balance shall be paid in a lump sum to the personal representative of the Director's estate. If, upon death, the Director shall have received the total balance of the Director's accrued liability retirement account, then no further benefit shall be due hereunder. In any event, upon the death of the Director, the Director's beneficiary shall not be entitled to receive any Index Retirement Benefit. D. Discharge for Cause: ------------------- All rights of the Director hereunder shall cease and terminate immediately in the event of a termination of Director's service with Bank "with cause." The term "with cause" shall be deemed to mean, but is not limited to, personal dishonesty, incompetence, willful material misconduct, breach of fiduciary duty, failure to perform the obligations of the Director as stated herein, willful violation of any law, rule, or regulation (other than minor traffic infractions), or, any material breach of any provision of this agreement. E. Disability Benefit: ------------------ In the event the Director becomes disabled, as defined herein, prior to any Termination of Service, and the Director's service with the Bank is terminated because of such disability, the Director, upon submission of written documentation and verification of disability satisfactory to the Bank, shall receive one hundred percent (100%) of the benefit amount provided in Subparagraph II (A) above. Payment of such benefit shall begin when the Director reaches his or her Normal Retirement Age. Subject to the Bank's obligations and Director's rights under Title I of the Americans with Disabilities Act and the Family and Medical Leave Act, if applicable, and any other applicable federal or state laws, disability shall be defined as the Director not being able to perform the duties of the 6 Director's own job and shall be as further defined in the Bank's long term disability policy in effect at the time of said disability. If no such policy exists at the time of the disability, then disability shall be defined as a physical or mental impairment of Director which renders Director incapable of performing Director's normal and regular essential service duties and which shall be medically determined to be of permanent duration as the same is construed for purposes of disability benefits under the federal Social Security laws and regulations. If there is a dispute regarding whether the Director is disabled, such dispute shall be resolved by a physician selected by the Bank and such resolution shall be binding upon all parties to this Agreement. F. Death Benefit: ------------- Except as set forth above, there is no death benefit provided under this Agreement. G. Long Term Care Policy Option: ---------------------------- The Director shall have the option, prior to receipt of any benefits under the terms of this Agreement, to elect a long term care policy to be provided by the Bank. Said option to receive said long term care policy shall be exercised prior to receipt of any benefit set forth in this Agreement and said election shall be a one time election only and shall expire at the Director's age sixty (60). The value of the long term care policy provided by the Bank shall be equal to the Index Retirement Benefit (Subparagraph I [E]) for each Plan Year from the date the policy is provided by the Bank until the date the long term care policy terminates as set forth hereinbelow. The long term care policy provided by the Bank shall continue until the policy is either paid in full or the Director dies, at which time said policy shall terminate. If the Director elects said long term care policy, then, on the date said long term care policy is provided, the balance in the Director's accrued liability retirement account on said date shall be credited interest on each anniversary date of said long term care policy at a rate equal to the yield of a one-year Treasury Bill. The balance of said accrued liability retirement account, with interest, shall be paid to the Director in a lump sum within thirty (30) days of the Director's Retirement Date (Subparagraph I [C]). Upon the exercise of the option set forth herein, the Director shall not be entitled to any benefit set forth in Subparagraphs II (A), (B), (E), or Paragraph IV. 7 III. RESTRICTIONS UPON FUNDING The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Director Plan. The Director, their beneficiary(ies), or any successor in interest shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Director Plan or to refrain from funding the same and to determine the extent, nature and method of such funding. Should the Bank elect to fund this Director Plan, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall any Director be deemed to have any lien nor right, title or interest in or to any specific funding investment or to any assets of the Bank. If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Director, then the Director shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities. IV. CHANGE OF CONTROL Notwithstanding other terms of this Agreement, upon a Change of Control (Subparagraph I [H]), if the Director subsequently suffers a Termination of Service (Subparagraph I [D]), then the Director shall receive the benefits promised in this Director Plan upon attaining Normal Retirement Age, as if the Director had been continuously serving the Bank until the Director's Normal Retirement Age. The Director will also remain eligible for all promised death benefits in this Director Plan. In addition, no sale, merger, or consolidation of the Bank shall take place unless the new or surviving entity expressly acknowledges the obligations under this Director Plan and agrees to abide by its terms. V. MISCELLANEOUS A. Alienability and Assignment Prohibition: --------------------------------------- Neither the Director, nor the Director's surviving spouse, nor any other beneficiary(ies) under this Director Plan shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Director or the Director's beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the 8 Director or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease and terminate. B. Binding Obligation of the Bank and any Successor in Interest: ------------------------------------------------------------ The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Director Plan. This Director Plan shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives. C. Amendment or Revocation: ----------------------- It is agreed by and between the parties hereto that, during the lifetime of the Director, this Director Plan may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Director and the Bank. D. Gender: ------ Whenever in this Director Plan words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. E. Effect on Other Bank Benefit Plans: ---------------------------------- Nothing contained in this Director Plan shall affect the right of the Director to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank's existing or future compensation structure. F. Headings: -------- Headings and subheadings in this Director Plan are inserted for reference and convenience only and shall not be deemed a part of this Director Plan. G. Applicable Law: -------------- The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina. 9 H. 12 U.S.C. Section 1828(k): ------------------------ Any payments made to the Director pursuant to this Director Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) or any regulations promulgated thereunder. I. Partial Invalidity: ------------------ If any term, provision, covenant, or condition of this Director Plan is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant, or condition invalid, void, or unenforceable, and the Director Plan shall remain in full force and effect notwithstanding such partial invalidity. J. Notices: ------- All notices required or permitted to be given pursuant to this Agreement shall be in writing, unless otherwise specified, and shall be delivered personally, deposited in the United States mail, registered or certified and postage prepaid with return receipt requested, or deposited with a reputable overnight courier which provides a day and time stamped receipt, addressed to Director, Bank or Trustee, as applicable, at the address set forth herein or to such other address as hereafter may be furnished to the other parties in writing pursuant to this paragraph. All notices so given shall be deemed effective and received upon the earlier of (i) actual receipt, (ii) receipt and refusal; or (iii) five (5) days from (1) the postmark date, if deposited with the United States Postal Service, or (2) the date of deposit, if deposited with an overnight courier, unless otherwise provided herein. Bank: The East Carolina Bank Hwy. 264 Engelhard, North Carolina 27824 Trustee: Thomas A. Nussbaum Eastern Bank & Trust Co. 2 Adams Place, AP06 Quincy, MA 02169-7456 Director: ----------------------------- ----------------------------- ----------------------------- ----------------------------- 10 VI. ERISA PROVISION A. Named Fiduciary and Plan Administrator: -------------------------------------- The "Named Fiduciary and Plan Administrator" of this Director Plan shall be The East Carolina Bank, until its resignation or removal by the Board. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Director Plan. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Director Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. B. Claims Procedure and Arbitration: -------------------------------- In the event a dispute arises over benefits under this Director Plan and benefits are not paid to the Director (or to the Director's beneficiary(ies) in the case of the Director`s death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Plan Administrator named above within sixty (60) days from the date payments are refused. The Named Fiduciary and Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, they shall provide in writing within sixty (60) days of receipt of such claim the specific reasons for such denial, reference to the provisions of this Director Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Named Fiduciary and Plan Administrator fail to take any action within the aforesaid sixty-day period. If claimants desire a second review they shall notify the Named Fiduciary and Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Director Plan or any documents relating thereto and submit any written issues and comments it may feel appropriate. In their sole discretion, the Named Fiduciary and Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of the Plan Agreement upon which the decision is based. If claimants continue to dispute the benefit denial based upon completed performance of this Director Plan or the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to an arbitrator for final arbitration. The arbitrator shall be selected by mutual agreement of the Bank and the claimants. The arbitrator shall operate 11 under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such arbitrator with respect to any controversy properly submitted to it for determination. Where a dispute arises as to the Bank's discharge of the Director "for cause," such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder. VII. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on this Director Plan as determined by the Bank in its sole discretion, then the Bank reserves the right to terminate or modify this Agreement accordingly. Upon a Change of Control (Subparagraph I [H]), this paragraph shall become null and void effective immediately upon said Change of Control. IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully read this Agreement and executed the original thereof on the first day set forth hereinabove, and that upon execution, each has received a conforming copy. THE EAST CAROLINA BANK Engelhard, North Carolina By: - -------------------------------- ------------------------ Witness Title - -------------------------------- --------------------------- Witness Director 12 BENEFICIARY DESIGNATION FORM FOR THE DIRECTOR SUPPLEMENTAL RETIREMENT PLAN AGREEMENT PRIMARY DESIGNATION: Name Address Relationship ---- ------- ------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECONDARY (CONTINGENT) DESIGNATION: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- All sums payable under the Director Supplemental Retirement Plan Director Agreement by reason of my death shall be paid to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary (Contingent) Beneficiary. - -------------------------------- --------------------------- Director Date 13 EXHIBIT "A-1" End of Benefit Year Age: Amount --------- ------- Director 70 $12,516 71 $12,707 72 $12,911 73 $13,145 74 $13,371 75 $13,583 76 $13,853 14 EX-10.6 8 dex106.txt DIRECTOR AGREEMENT DIRECTOR SUPPLEMENTAL RETIREMENT PLAN DIRECTOR AGREEMENT THIS AGREEMENT is made and entered into this day of , ---- -------------- 2002, by and between The East Carolina Bank, a bank organized and existing under the laws of the State of North Carolina (hereinafter referred to as the "Bank"), and , a Director of the Bank (hereinafter referred to as the ---------------- "Director"). WHEREAS, the Director is now in the service of the Bank and has for many years faithfully served the Bank. It is the consensus of the Board of Directors (hereinafter referred to as the "Board") that the Director's services have been of exceptional merit, in excess of the compensation paid and an invaluable contribution to the profits and position of the Bank in its field of activity. The Board further believes that the Director's experience, knowledge of corporate affairs, reputation and industry contacts are of such value, and the Director's continued services so essential to the Bank's future growth and profits, that it would suffer severe financial loss should the Director terminate their services; ACCORDINGLY, the Board has adopted The East Carolina Bank Director Supplemental Retirement Plan Director Agreement (hereinafter referred to as the "Director Plan") and it is the desire of the Bank and the Director to enter into this Agreement under which the Bank will agree to make certain payments to the Director upon the Director's retirement or to the Director's beneficiary(ies) in the event of the Director's death pursuant to the Director Plan; FURTHERMORE, it is the intent of the parties hereto that this Director Plan be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Director, and be considered a non-qualified benefit plan for purposes of the Employee Retirement Security Act of 1974, as amended ("ERISA"). The Director is fully advised of the Bank's financial status and has had substantial input in the design and operation of this benefit plan; and NOW THEREFORE, in consideration of services the Director has performed in the past and those to be performed in the future, and based upon the mutual promises and covenants herein contained, the Bank and the Director agree as follows: I. DEFINITIONS A. Effective Date: -------------- The Effective Date of the Director Plan shall be November 5, 2001. B. Plan Year: --------- Any reference to the "Plan Year" shall mean a calendar year from January 1st to December 31st. In the year of implementation, the term "Plan Year" shall mean the period from the Effective Date to December 31st of the year of the Effective Date. C. Retirement Date: --------------- Retirement Date shall mean the first day of the calendar month following the latter of (i) the date in which the Director reaches age seventy (70) or (ii) the date upon which the Director actually retires from service with the Bank after reaching age seventy (70). D. Termination of Service: ---------------------- Termination of Service shall mean the Director's voluntary resignation of service by the Director or the Bank's discharge of the Director without cause, prior to the Normal Retirement Age (Subparagraph I [J]). E. Pre-Retirement Account: ---------------------- A Pre-Retirement Account shall be established as a liability reserve account on the books of the Bank for the benefit of the Director. Prior to the Director's Retirement Date ([Subparagraph I [C]), such liability reserve account shall be increased or decreased each Plan Year, until the aforestated event occurs, by the Index Retirement Benefit (Subparagraph I [F]). Said Pre-Retirement Account shall be credited interest at a rate of eight percent (8%) each Plan Year or until the entire Pre-Retirement Account is entirely paid to the Director, or the Director's beneficiary, and said Pre-Retirement Account balance is zero. F. Index Retirement Benefit: ------------------------ In the event the Director receives the retirement benefit set forth in Subparagraph II (A) herein, the Index Retirement Benefit for each Director in the Director Plan for each Plan Year shall be equal to the excess (if any) of the Index (Subparagraph I [G]) for that Plan Year over the Opportunity Cost (Subparagraph I [H]) for that Plan Year. G. Index: ----- The Index for any Plan Year shall be the aggregate annual after-tax income from the life insurance contract(s) described hereinafter as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such insurance contract(s) were purchased on the Effective Date of the Director Plan. When the Director completes twenty (20) or more total full years of 2 service from the date of first service on the Board of the Bank, the premiums paid, or assumed paid, as set forth hereinbelow shall be one hundred thousand and no/100 Dollars ($100,000.00) each so that the total premiums paid, or assumed to be paid, for all policies listed hereinbelow shall be two hundred thousand and no/100 Dollars ($200,000.00). Insurance Company: Jefferson Pilot Life Insurance Company Policy Form: Flexible Premium Adjustable Life Policy Name: ESP VI Insured's Age and Sex: 51, Male Riders: None Ratings: None Option: Level Face Amount: $121,000 Premiums Paid: $50,000 Number of Premium Payments: Single Assumed Purchase Date: November 5, 2001 Insurance Company: Mass Mutual Life Insurance Company Policy Form: Flexible Premium Adjustable Life Policy Name: Strategic Life Exec Insured's Age and Sex: 52, Male Riders: None Ratings: None Option: Level Face Amount: $125,500 Premiums Paid: $50,000 Number of Premium Payments: Single Assumed Purchase Date: November 5, 2001 If such contracts of life insurance are actually purchased by the Bank, then the actual policies as of the dates they were actually purchased shall be used in calculations under this Director Plan. If such contracts of life insurance are not purchased or are subsequently surrendered or lapsed, then the Bank shall receive annual policy illustrations that assume the above-described policies were purchased or had not subsequently surrendered or lapsed. Said illustration shall be received from the respective insurance companies and will indicate the increase in policy values for purposes of calculating the amount of the Index. In either case, references to the life insurance contracts are merely for purposes of calculating a benefit. The Bank has no obligation to purchase such life insurance and, if purchased, the Director and the Director's beneficiary(ies) shall have no ownership interest in such policy and shall always have no greater interest in the benefits under this Director Plan than that of an unsecured creditor of the Bank. 3 H. Opportunity Cost: ---------------- The Opportunity Cost for any Plan Year shall be calculated by taking the sum of the amount of premiums for the life insurance policies described in the definition of "Index" plus the amount of any after-tax benefits paid to the Director pursuant to the Director Plan (Paragraph II hereinafter) plus the amount of all previous years' after-tax Opportunity Cost, and multiplying that sum by the greater of either one of the following: (i) the average after tax yield of a one-year Treasury bill, or (ii) the Bank's average annualized after-tax Cost of Funds Expense as determined by the Bank's third quarter call report as filed with the appropriate regulatory agency. I. Change of Control: ----------------- Change of Control shall mean the direct or indirect acquisition by another person, firm or corporation, by merger, share exchange, consolidation, purchase or otherwise, of all or substantially all of the assets or stock of the Bank or its parent company. J. Normal Retirement Age: --------------------- Normal Retirement Age shall mean the date on which the Director attains age seventy (70). II. INDEX BENEFITS A. Retirement Benefits: ------------------- Subject to Subparagraph II (D) hereinafter, a Director who remains on the Board until the Normal Retirement Age (Subparagraph I [J]) shall be entitled to receive the balance in the Pre-Retirement Account in fifteen (15) equal annual installments commencing thirty (30) days following the Director's retirement. In addition to these payments and commencing subsequent thereto, the Index Retirement Benefit (as defined in Subparagraph I [F]) for each Plan Year subsequent to the year that the Director begins receiving Index Retirement Benefits hereunder, and including the remaining portion of the Plan Year following the year that the Director begins receiving Index Retirement Benefits hereunder, shall be paid to the Director until the Director's death. B. Termination of Service: ---------------------- Subject to Subparagraph II (D), should a Director suffer a Termination of Service the Director shall be entitled to receive the percentage set forth hereinbelow of the balance in the Pre-Retirement Account payable to the Director in (15) equal annual installments commencing thirty (30) days 4 following the Director's Normal Retirement Age (Subparagraph I [J]). In addition to these payments and commencing subsequent thereto, the percentage set forth hereinbelow of the Index Retirement Benefit for each Plan Year subsequent to the year in which the Director begins receiving Index Retirement Benefits hereunder, and including the remaining portion of the Plan Year in which the Director begins receiving Index Retirement Benefits hereunder, shall be paid to the Director until the Director's death. Subsequent to one (1) 20% for each full year of service full year on the Board of from the date of first service Directors of the Bank to a maximum of 100% C. Death: ----- Should the Director die prior to having received the balance of the Pre-Retirement Account the Director may be entitled to under the terms of this Director Plan, the entire unpaid balance of the Director's Pre-Retirement Account at the time of death shall be paid in a lump sum to the individual or individuals the Director may have designated in writing and filed with the Bank. In the absence of any effective designation of beneficiary(ies), the unpaid balance shall be paid as set forth herein to the duly qualified executor or administrator of the Director's estate. Said payment due hereunder shall be made the first day of the second month following the decease of the Director. If, upon death, the Director shall have received the total balance of the Director's Pre-Retirement Account, then no further benefit shall be due hereunder. In no event shall the Director's beneficiary receive any Index Retirement Benefit payment upon the death of the Director. D. Discharge for Cause: ------------------- All rights of the Director hereunder shall cease and terminate immediately in the event of a termination of Director's service with Bank "with cause." The term "with cause" shall be deemed to mean, but is not limited to, personal dishonesty, incompetence, willful material misconduct, breach of fiduciary duty, failure to perform the obligations of the Director as stated herein, willful violation of any law, rule, or regulation (other than minor traffic infractions), or, any material breach of any provision of this agreement. E. Disability Benefit: ------------------ In the event the Director becomes disabled, as defined herein, prior to any Termination of Service, and the Director's service with the Bank is terminated because of such disability, the Director, upon submission of written documentation and verification of disability satisfactory to the Bank, shall receive one hundred percent (100%) of the benefit amount 5 provided in Subparagraph II (A) above. Payment of such benefit shall begin when the Director reaches his or her Normal Retirement Age. Subject to the Bank's obligations and Director's rights under Title I of the Americans with Disabilities Act and the Family and Medical Leave Act, if applicable, and any other applicable federal or state laws, disability shall be defined as the Director not being able to perform the duties of the Director's own job and shall be as further defined in the Bank's long term disability policy in effect at the time of said disability. If no such policy exists at the time of the disability, then disability shall be defined as a physical or mental impairment of Director which renders Director incapable of performing Director's normal and regular essential service duties and which shall be medically determined to be of permanent duration as the same is construed for purposes of disability benefits under the federal Social Security laws and regulations. If there is a dispute regarding whether the Director is disabled, such dispute shall be resolved by a physician selected by the Bank and such resolution shall be binding upon all parties to this Agreement. F. Death Benefit: ------------- Except as set forth above, there is no death benefit provided under this Agreement. G. Long Term Care Policy Option: ---------------------------- The Director shall have the option, prior to receipt of any benefits under the terms of this Agreement, to elect a long term care policy to be provided by the Bank. Said option to receive said long term care policy shall be exercised prior to receipt of any benefit set forth in this Agreement and said election shall be a one time election only and shall expire at the Director's age sixty (60). The value of the long term care policy provided by the Bank shall be equal to the Index Retirement Benefit (Subparagraph I [F]) for each Plan Year from the date the policy is provided by the Bank until the date the long term care policy terminates as set forth hereinbelow. The long term care policy provided by the Bank shall continue until the policy is either paid in full or the Director dies, at which time said policy shall terminate. If the Director elects said long term care policy, then, on the date said long term care policy is provided, the balance in the Director's accrued liability retirement account on said date shall be credited interest on each anniversary date of said long term care policy at a rate equal to the yield of a one-year Treasury Bill. The balance of said accrued liability retirement account, with interest, shall be paid to the Director in a lump sum within thirty (30) days of the Director's Retirement Date (Subparagraph I [C]). 6 Upon the exercise of the option set forth herein, the Director shall not be entitled to any benefit set forth in Subparagraphs II (A), (B), (E), or Paragraph IV. III. RESTRICTIONS UPON FUNDING The Bank shall have no obligation to set aside, earmark or entrust any fund or money with which to pay its obligations under this Director Plan. The Director, their beneficiary(ies), or any successor in interest shall be and remain simply a general creditor of the Bank in the same manner as any other creditor having a general claim for matured and unpaid compensation. The Bank reserves the absolute right, at its sole discretion, to either fund the obligations undertaken by this Director Plan or to refrain from funding the same and to determine the extent, nature and method of such funding. Should the Bank elect to fund this Director Plan, in whole or in part, through the purchase of life insurance, mutual funds, disability policies or annuities, the Bank reserves the absolute right, in its sole discretion, to terminate such funding at any time, in whole or in part. At no time shall any Director be deemed to have any lien nor right, title or interest in or to any specific funding investment or to any assets of the Bank. If the Bank elects to invest in a life insurance, disability or annuity policy upon the life of the Director, then the Director shall assist the Bank by freely submitting to a physical exam and supplying such additional information necessary to obtain such insurance or annuities. IV. CHANGE OF CONTROL Notwithstanding other terms of this Agreement, upon a Change of Control (Subparagraph I [I]), if the Director subsequently suffers a Termination of Service (Subparagraph I [D]), then the Director shall receive the benefits promised in this Director Plan upon attaining Normal Retirement Age, as if the Director had been continuously serving the Bank until the Director's Normal Retirement Age. The Director will also remain eligible for all promised death benefits in this Director Plan. In addition, no sale, merger, or consolidation of the Bank shall take place unless the new or surviving entity expressly acknowledges the obligations under this Director Plan and agrees to abide by its terms. V. MISCELLANEOUS A. Alienability and Assignment Prohibition: --------------------------------------- Neither the Director, nor the Director's surviving spouse, nor any other beneficiary(ies) under this Director Plan shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify or otherwise encumber in advance any of the benefits payable hereunder nor 7 shall any of said benefits be subject to seizure for the payment of any debts, judgments, alimony or separate maintenance owed by the Director or the Director's beneficiary(ies), nor be transferable by operation of law in the event of bankruptcy, insolvency or otherwise. In the event the Director or any beneficiary attempts assignment, commutation, hypothecation, transfer or disposal of the benefits hereunder, the Bank's liabilities shall forthwith cease and terminate. B. Binding Obligation of the Bank and any Successor in Interest: ------------------------------------------------------------ The Bank shall not merge or consolidate into or with another bank or sell substantially all of its assets to another bank, firm or person until such bank, firm or person expressly agrees, in writing, to assume and discharge the duties and obligations of the Bank under this Director Plan. This Director Plan shall be binding upon the parties hereto, their successors, beneficiaries, heirs and personal representatives. C. Amendment or Revocation: ----------------------- It is agreed by and between the parties hereto that, during the lifetime of the Director, this Director Plan may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Director and the Bank. D. Gender: ------ Whenever in this Director Plan words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. E. Effect on Other Bank Benefit Plans: ---------------------------------- Nothing contained in this Director Plan shall affect the right of the Director to participate in or be covered by any qualified or non-qualified pension, profit-sharing, group, bonus or other supplemental compensation or fringe benefit plan constituting a part of the Bank's existing or future compensation structure. F. Headings: -------- Headings and subheadings in this Director Plan are inserted for reference and convenience only and shall not be deemed a part of this Director Plan. G. Applicable Law: -------------- The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina. 8 H. 12 U.S.C. Section 1828(k): ------------------------- Any payments made to the Director pursuant to this Director Plan, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. Section 1828(k) or any regulations promulgated thereunder. I. Partial Invalidity: ------------------ If any term, provision, covenant, or condition of this Director Plan is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant, or condition invalid, void, or unenforceable, and the Director Plan shall remain in full force and effect notwithstanding such partial invalidity. J. Notices: ------- All notices required or permitted to be given pursuant to this Agreement shall be in writing, unless otherwise specified, and shall be delivered personally, deposited in the United States mail, registered or certified and postage prepaid with return receipt requested, or deposited with a reputable overnight courier which provides a day and time stamped receipt, addressed to Director, Bank or Trustee, as applicable, at the address set forth herein or to such other address as hereafter may be furnished to the other parties in writing pursuant to this paragraph. All notices so given shall be deemed effective and received upon the earlier of (i) actual receipt, (ii) receipt and refusal; or (iii) five (5) days from (1) the postmark date, if deposited with the United States Postal Service, or (2) the date of deposit, if deposited with an overnight courier, unless otherwise provided herein. Bank: The East Carolina Bank Hwy. 264 Engelhard, North Carolina 27824 Trustee: Thomas A. Nussbaum Eastern Bank & Trust Co. 2 Adams Place, AP06 Quincy, MA 02169-7456 Director: ---------------------------- ---------------------------- ---------------------------- ---------------------------- 9 VI. ERISA PROVISION A. Named Fiduciary and Plan Administrator: -------------------------------------- The "Named Fiduciary and Plan Administrator" of this Director Plan shall be The East Carolina Bank, until its resignation or removal by the Board. As Named Fiduciary and Plan Administrator, the Bank shall be responsible for the management, control and administration of the Director Plan. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Director Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals. B. Claims Procedure and Arbitration: -------------------------------- In the event a dispute arises over benefits under this Director Plan and benefits are not paid to the Director (or to the Director's beneficiary(ies) in the case of the Director `s death) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named Fiduciary and Plan Administrator named above within sixty (60) days from the date payments are refused. The Named Fiduciary and Plan Administrator shall review the written claim and if the claim is denied, in whole or in part, they shall provide in writing within sixty (60) days of receipt of such claim the specific reasons for such denial, reference to the provisions of this Director Plan upon which the denial is based and any additional material or information necessary to perfect the claim. Such written notice shall further indicate the additional steps to be taken by claimants if a further review of the claim denial is desired. A claim shall be deemed denied if the Named Fiduciary and Plan Administrator fail to take any action within the aforesaid sixty-day period. If claimants desire a second review they shall notify the Named Fiduciary and Plan Administrator in writing within sixty (60) days of the first claim denial. Claimants may review this Director Plan or any documents relating thereto and submit any written issues and comments it may feel appropriate. In their sole discretion, the Named Fiduciary and Plan Administrator shall then review the second claim and provide a written decision within sixty (60) days of receipt of such claim. This decision shall likewise state the specific reasons for the decision and shall include reference to specific provisions of the Plan Agreement upon which the decision is based. If claimants continue to dispute the benefit denial based upon completed performance of this Director Plan or the meaning and effect of the terms and conditions thereof, then claimants may submit the dispute to an arbitrator for final arbitration. The arbitrator shall be selected by mutual agreement of the Bank and the claimants. The arbitrator shall operate 10 under any generally recognized set of arbitration rules. The parties hereto agree that they and their heirs, personal representatives, successors and assigns shall be bound by the decision of such arbitrator with respect to any controversy properly submitted to it for determination. Where a dispute arises as to the Bank's discharge of the Director "for cause," such dispute shall likewise be submitted to arbitration as above described and the parties hereto agree to be bound by the decision thereunder. VII. TERMINATION OR MODIFICATION OF AGREEMENT BY REASON OF CHANGES IN THE LAW, RULES OR REGULATIONS The Bank is entering into this Agreement upon the assumption that certain existing tax laws, rules and regulations will continue in effect in their current form. If any said assumptions should change and said change has a detrimental effect on this Director Plan as determined by the Bank in its sole discretion, then the Bank reserves the right to terminate or modify this Agreement accordingly. Upon a Change of Control (Subparagraph I [I]), this paragraph shall become null and void effective immediately upon said Change of Control. IN WITNESS WHEREOF, the parties hereto acknowledge that each has carefully read this Agreement and executed the original thereof on the first day set forth hereinabove, and that upon execution, each has received a conforming copy. THE EAST CAROLINA BANK Engelhard, North Carolina By: - ----------------------------------- --------------------------------- Witness Title - ----------------------------------- ------------------------------------ Witness Director 11 BENEFICIARY DESIGNATION FORM FOR THE DIRECTOR SUPPLEMENTAL RETIREMENT PLAN AGREEMENT PRIMARY DESIGNATION: Name Address Relationship ---- ------- ------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECONDARY (CONTINGENT) DESIGNATION: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- All sums payable under the Director Supplemental Retirement Plan Director Agreement by reason of my death shall be paid to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary (Contingent) Beneficiary. - ------------------------- ---------- Director Date 12 EX-10.7 9 dex107.txt ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT LIFE INSURANCE ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT Insurer: Jefferson Pilot Life Insurance Company Mass Mutual Life Insurance Company Policy Number: --------- Bank: The East Carolina Bank Insured: ------------------ Relationship of Insured to Bank: Director Trust: Rabbi Trust for the Executive Supplemental Retirement Plan Agreement, Director Supplemental Retirement Plan Agreement, and the Endorsement Method Split Dollar Plan Agreement The respective rights and duties of the Bank and the Insured in the above-referenced policy shall be pursuant to the terms set forth below: I. DEFINITIONS Refer to the policy contract for the definition of any terms in this Agreement that are not defined herein. If the definition of a term in the policy is inconsistent with the definition of a term in this Agreement, then the definition of the term as set forth in this Agreement shall supersede and replace the definition of the terms as set forth in the policy. II. POLICY TITLE AND OWNERSHIP Title and ownership shall reside in the Trustee for the Rabbi Trust for the Executive Supplemental Retirement Plan Agreement, Director Supplemental Retirement Plan Agreement, and the Endorsement Method Split Dollar Plan Agreement for its use and for the use of the Insured all in accordance with this Agreement. The Trustee at the direction of the Bank may, to the extent of the Bank's interest, exercise the right to borrow or withdraw on the policy cash values. Where the Trustee at the direction of the Bank and the Insured (or assignee, with the consent of the Insured) mutually agree to exercise the right to increase the coverage under the subject policy, then, in such event, the rights, duties and benefits of the parties to such increased coverage shall continue to be subject to the terms of this Agreement. III. BENEFICIARY DESIGNATION RIGHTS The Insured (or assignee) shall have the right and power to designate a beneficiary or beneficiaries to receive the Insured's share of the proceeds of the policy payable upon the death of the Insured, and to elect and change a payment option for such beneficiary, subject to any right or interest of the Bank or the Trust may have in such proceeds, as provided in this Agreement. Any such designation by the Insured shall be made in writing in the form attached hereto as Exhibit A and incorporated herein by reference. Any such designation or change therein shall be effective three (3) business days from delivery of said written notice by Insured to the Bank. IV. PREMIUM PAYMENT METHOD Subject to Subparagraph IX (B), the Bank or the Trustee at the direction of the Bank shall pay an amount equal to the planned premiums and any other premium payments that might become necessary to keep the policy in force. V. TAXABLE BENEFIT Annually the Insured will receive a taxable benefit equal to the value of the insurance protection as required by the Internal Revenue Service. The Bank or the Trustee at the direction of the Bank will report to the Insured the amount of imputed income each year on Form W-2 or its equivalent. VI. DIVISION OF DEATH PROCEEDS Subject to Paragraphs VII and IX herein, the division of the death proceeds of the policy is as follows: A. At the time of the insured's death, should the Insured be serving on the Board of the Bank, retired from the Bank, or have had his or her service terminated from the Bank due to disability*, the Insured's beneficiary(ies), designated in accordance with Paragraph III or the Insured's estate if no beneficiary has been so designated, shall be entitled to an amount equal to eighty percent (80%) of the net-at-risk insurance portion of the proceeds. The net-at-risk insurance portion is the total proceeds less the cash value of the policy. 2 B. Should the Insured not be serving on the Board of the Bank at the time of his or her death for reasons other than disability* or retirement, the Insured's beneficiary(ies), designated in accordance with Paragraph III or the Insured's estate if no beneficiary has been so designated, shall be entitled to the percentage as set forth hereinbelow of the proceeds described in Subparagraph VI (A) above. Subsequent to one (1) 20% for each full year of service full year on the Board of from the date of first service Directors of the Bank to a maximum of 100% *Subject to the Bank's obligations and Insured's rights under Title I of the Americans with Disabilities Act and the Family and Medical Leave Act, if applicable, and any other applicable federal or state laws, for purposes of this Agreement, disability shall be defined as the Insured not being able to perform the duties of the Insured's own job and shall be as further defined in the Bank's long term disability policy in effect at the time of said disability. If no such policy exists at the time of the disability, then disability shall be defined as a physical or mental impairment of Insured which renders Insured incapable of performing Insured's normal and regular essential employment duties and which shall be medically determined to be of permanent duration as the same is construed for purposes of disability benefits under the federal Social Security laws and regulations. C. The Bank shall be entitled to the remainder of such proceeds of the policy, including but not limited to the cash surrender value as provided in Paragraph VII herein. D. The Bank and the Insured (or assignees) shall share in any interest due on the death proceeds on a pro rata basis as the proceeds due each respectively bears to the total proceeds, excluding any such interest. VII. DIVISION OF THE CASH SURRENDER VALUE OF THE POLICY The Bank or the Trust, in the discretion of the Bank, shall at all times be entitled to an amount equal to the policy's cash value, as that term is defined in the policy contract, less any policy loans and unpaid interest or cash withdrawals previously incurred by the Bank or the Trustee at the direction of the Bank and any applicable surrender charges. Such cash value shall be determined as of the date of surrender or death as the case may be. 3 VIII. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS In the event the policy involves an endowment or annuity element, the Bank's or the Trust's right and interest in any endowment proceeds or annuity benefits, on expiration of the deferment period, shall be determined under the provisions of this Agreement by regarding such endowment proceeds or the commuted value of such annuity benefits as the policy's cash value. Such endowment proceeds or annuity benefits shall be considered to be death proceeds for the purposes of division under this Agreement. IX. TERMINATION OF AGREEMENT This Agreement shall terminate upon the occurrence of any one of the following: A. The Insured is terminated by the Bank with cause. The term "with cause" includes, but is not limited to, personal dishonesty, incompetence, willful material misconduct, breach of fiduciary duty, failure to perform the obligations of the Insured as stated herein, willful violation of any law, rule, or regulation (other than minor traffic infractions), or, any material breach of any provision of this agreement. B. Surrender, lapse, or other termination of the Policy by the Bank. Upon such termination, the Insured (or assignee) shall have a fifteen (15) day option, which period shall begin to run on the date of termination of the policy, to receive from the Bank or the Trustee at the direction of the Bank an absolute assignment of the policy in consideration of a cash payment to the Bank or the Trustee at the direction of the Bank, whereupon this Agreement shall terminate. Such cash payment referred to hereinabove shall be the greater of: 1) The Bank's or the Trust's share of the cash value of the policy on the date of such assignment, as defined in this Agreement; or 2) The amount of the premiums which have been paid by the Bank or the Trustee at the direction of the Bank prior to the date of such assignment. If, within said fifteen (15) day period, the Insured fails to exercise said option, fails to procure the entire aforestated cash payment, or dies, then the option shall terminate and the Insured (or assignee) agrees that all of the Insured's right, interest and claim in the policy shall terminate as of the date of the termination of this Agreement. 4 The Insured expressly agrees that this Agreement shall constitute sufficient written notice to the Insured of the Insured's option to receive an absolute assignment of the policy as set forth herein. Except as provided above, this Agreement shall terminate upon distribution of the death benefit proceeds in accordance with Paragraph VI above. X. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS The Insured may not, without the written consent of the Bank or the Trustee at the direction of the Bank, assign to any individual, trust or other organization, any right, title or interest in the subject policy nor any rights, options, privileges or duties created under this Agreement. XI. AGREEMENT BINDING UPON THE PARTIES This Agreement shall bind the Insured and the Bank or the Trustee, their heirs, successors, personal representatives and assigns. XII. ERISA PROVISIONS The following provisions are part of this Agreement and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"): A. Named Fiduciary and Plan Administrator: -------------------------------------- The "Named Fiduciary and Plan Administrator" of this Endorsement Method Split Dollar Agreement shall be The East Carolina Bank until its resignation or removal by the Board of Directors. As Named Fiduciary and Plan Administrator, the Bank or the Trustee at the direction of the Bank shall be responsible for the management, control, and administration of this Split Dollar Plan as established herein. The Named Fiduciary may delegate to others certain aspects of the management and operation responsibilities of the Plan, including the employment of advisors and the delegation of any ministerial duties to qualified individuals. B. Funding Policy: -------------- Subject to Subparagraph IX (B), the funding policy for this Split Dollar Plan shall be to maintain the subject policy in force by paying, when due, all premiums required. 5 C. Basis of Payment of Benefits: ---------------------------- Direct payment by the Insurer is the basis of payment of benefits under this Agreement, with those benefits in turn being based on the payment of premiums as provided in this Agreement. D. Claim Procedures: ---------------- Claim forms or claim information as to the subject policy can be obtained by contacting Benmark, Inc. (800-544-6079). When the Named Fiduciary has a claim which may be covered under the provisions described in the insurance policy, it should contact the office named above, and they will either complete a claim form and forward it to an authorized representative of the Insurer or advise the named Fiduciary what further requirements are necessary. The Insurer will evaluate and make a decision as to payment. If the claim is payable, a benefit check will be issued in accordance with the terms of this Agreement. In the event that a claim is not eligible under the policy, the Insurer will notify the Named Fiduciary of the denial pursuant to the requirements under the terms of the policy. If the Named Fiduciary is dissatisfied with the denial of the claim and wishes to contest such claim denial, they should contact the office named above and they will assist in making an inquiry to the Insurer. All objections to the Insurer's actions should be in writing and submitted to the office named above for transmittal to the Insurer. E. Notices: ------- All notices required or permitted to be given pursuant to this Agreement shall be in writing, unless otherwise specified, and shall be delivered personally, deposited in the United States mail, registered or certified and postage prepaid with return receipt requested, or deposited with a reputable overnight courier which provides a day and time stamped receipt, addressed to the Insured, Bank or Trustee, as applicable, at the address set forth herein or to such other address as hereafter may be furnished to the other parties in writing pursuant to this paragraph. All notices so given shall be deemed effective and received upon the earlier of (i) actual receipt, (ii) receipt and refusal; or (iii) five (5) days from (1) the postmark date, if deposited with the United States Postal Service, or (2) the date of deposit, if deposited with an overnight courier, unless otherwise provided herein. 6 Bank: The East Carolina Bank Hwy. 264 Engelhard, North Carolina 27824 Trustee: Thomas A. Nussbaum Eastern Bank & Trust Co. 2 Adams Place, AP06 Quincy, MA 02169-7456 Insured: ---------------------------- ---------------------------- ---------------------------- ---------------------------- XIII. GENDER Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. XIV. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT The Insurer shall not be deemed a party to this Agreement, but will respect the rights of the parties as herein developed upon receiving an executed copy of this Agreement. Payment or other performance in accordance with the policy provisions shall fully discharge the Insurer from any and all liability. XV. CHANGE OF CONTROL Change of Control shall mean the direct or indirect acquisition by another person, firm or corporation, by merger, share exchange, consolidation, purchase or otherwise, all or substantially all of the assets or stock of the Bank or its parent company. Upon a Change of Control, if the Insured's service is subsequently terminated, except for cause, then the Insured shall be one hundred percent (100%) vested in the benefits promised in this Agreement and, therefore, upon the death of the Insured, the Insured's beneficiary(ies) (designated in accordance with Paragraph III) shall receive the death benefit provided herein as if the Insured had died while employed by the Bank (see Subparagraph VI [A]). XVI. AMENDMENT OR REVOCATION It is agreed by and between the parties hereto that, during the lifetime of the Insured, this Agreement may be amended or revoked at any time or times, in whole or in part, by the mutual written consent of the Insured and the Bank. 7 XVII. EFFECTIVE DATE The Effective Date of this Agreement shall be November 5, 2001. XVIII. SEVERABILITY AND INTERPRETATION If a provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall nonetheless be enforceable according to their terms. Further, in the event that any provision is held to be over broad as written, such provision shall be deemed amended to narrow its application to the extent necessary to make the provision enforceable according to law and enforced as amended. XIX. APPLICABLE LAW The validity and interpretation of this Agreement shall be governed by the laws of the State of North Carolina. Executed at Engelhard, North Carolina this 22nd day of January, 2002. THE EAST CAROLINA BANK Engelhard, North Carolina By: - ----------------------------------- --------------------------------- Witness Title - ----------------------------------- ------------------------------------ Witness Director 8 BENEFICIARY DESIGNATION FORM FOR LIFE INSURANCE ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT PRIMARY DESIGNATION: Name Address Relationship ---- ------- ------------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECONDARY (CONTINGENT) DESIGNATION: - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- All sums payable under the Life Insurance Endorsement Method Split Dollar Plan Agreement by reason of my death shall be paid to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary (Contingent) Beneficiary. - ------------------------- --------- Director Date 9 -----END PRIVACY-ENHANCED MESSAGE-----