CHANGE-IN-CONTROL AGREEMENT
     THIS CHANGE-IN-CONTROL AGREEMENT is made and entered into as of the 23rd
day of May, 2007 by and between TSB FINANCIAL CORPORATION (the “Company”), a
North Carolina corporation, and Janet H. Hollar (“Employee”), an individual
residing in Charlotte, North Carolina.
Background Statement
     WHEREAS, The Scottish Bank (the “Bank”) is a wholly owned subsidiary of the
Company, and Employee is a valued employee of The Bank.
     WHEREAS, in order to induce Employee to continue employment with the Bank
and to enhance Employee’s job security, the Company desires to provide
compensation to Employee in the event Employee’s employment is terminated
following a change-in-control of the Company, as hereinafter provided.
     NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the compensation the Company agrees to pay to Employee, Employee’s continued
employment with the Bank, and of other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Employee agree as follows:

  1.  
Termination following a Change in Control. If a Change in Control (as defined in
Section 1(iii) hereof) occurs and if, within one year following the Change in
Control, the employment of Employee is terminated (x) by the Company or the Bank
other than for Causes or (y) by Employee for Good Reason, Employee’s
compensation shall continue to be paid, subject to applicable withholdings, by
the Company for a period of 12-months following such termination of employment.
In lieu of receiving payment of Compensation for such 12-month period
installments, the Employee may elect, at any time prior to the earlier to occur
of a Change in Control or action by the Board of Directors of the Company with
respect to an event which would, upon consummation, result in a Change in
Control (which election shall be evidence by notice filed with the Company), to
be paid the present value of any such Compensation in a lump sum within 30 days
of termination of the Employee’s employment under circumstances entitling such
Employee to Compensation hereunder. The calculation of the amount due shall be
made by the independent accounting firm then performing the Company’s
independent audit, and such calculation, including by not limited to the
discount factor used to determine present value, shall be conclusive.
       
For purposes of this Agreement, the following terms shall have the meanings
indicated:

 

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  (i)  
Cause. Termination by the Company or the Bank for “Cause” shall mean
(A) termination on account of willful misconduct of a material nature by the
Employee in connection with performance of his duties as an employee; (B) use of
alcohol or narcotics that affects his ability to perform his duties as an
employee; (C) conviction of a felony or serious misdemeanor involving moral
turpitude; (D) embezzlement or theft from the Company or the Bank; (E) gross
inattention to or dereliction of duty; or (F) performance by the Employee of any
other willful acts which Employee knew or reasonably should have known would be
materially detrimental to the Company or the Bank.
    (ii)  
Good Reason. Termination by the Employee for “Good Reason” shall mean (A) a
material reduction in Employee’s position, duties, responsibilities or status as
in effect immediately preceding the Change in Control, or a change in Employee’s
title resulting in a material reduction in his responsibilities or position with
the Company or the Bank as in effect immediately preceding the Change in
Control, in either case without Employee’s consent; (B) a material reduction in
the rate of Employee’s base salary as in effect immediately preceding the Change
in Control, or a material decrease in the bonus percentage to which Employee was
entitled pursuant to any of the Company’s incentive bonus plans tat the end of
the fiscal year immediately preceding the Change-in-Control, in either case
without Employee’s consent; provided, however, that nothing herein shall be
construed to guarantee the Employee’s bonus award if performance, either by the
Company or Employee, is below target as set forth in any of the Company’s such
incentive bonus plans; or (C) the relocation of Employee, without his consent,
to a location outside a 25 mile radius the Company’s principal location,
following a Change in Control.
    (iii)  
Change in Control. For purposes of the Agreement, “Change in Control” shall mean
(A) the consummation of a merger, consolidation, share exchange or similar
transaction of the Company with any other corporation as a result of which the
holders of the voting capital stock of the Company as a group would receive less
than 50% of the voting capital stock of the surviving or resulting corporation;
(B) the sale or transfer (other than as security for obligations of the Company)
of substantially all the assets of the Company; (C) in the absence of a prior
expression of approval by the Board of Directors, the acquisition of more than
20% of the Company’s voting capital stock by any person within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), other than a person, or group including a person, who
beneficially owned, as of the date of this Agreement, more than 5% of the
Company’s securities; (D)

 

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during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board of Directors of the Company cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by the Company’s shareholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period; or (E) any other change in
control of the Company of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act or the acquisition of control, within the meaning of
Section 2(a)(2) of the Bank Holding company Act of 1956, as amended, or
Section 602 of the Change in Bank Control Act of 1978, of the Company by any
person, company or other entity.
    (iv)  
Compensation. Employee’s Compensation shall consist of the following:
(A) Employee’s annual base salary, as paid by the Company or the Bank, in effect
immediately preceding the Change in Control and (B) the average of any bonus
paid by the Company or the Bank to Employee during the two most recent fiscal
year ending prior to such Change in Control pursuant to any of the Company’s
incentive bonus plan.

  2.  
Additional Benefits. Upon termination of Employee’s employment entitling
Employee to Compensation set forth in Section 1 hereof, the Company shall
maintain in full force and effect for the continued benefit of Employee for such
12-month period health insurance (including coverage for Employee’s dependents
to the extent dependent coverage is provided by the Company for its employees
generally) under such plans and programs in which Employee was entitled to
participate immediately prior to the date of such termination of employment,
provided that Employee’s continued participation is possible under the general
terms and provisions of such plans and programs. In the event that Employee’s
participation in any such plan or program is barred, the Company shall arrange
to provide Employee with health insurance benefits for such 12-month period
substantially similar to those which Employee would otherwise have been entitled
to receive under such plans and programs from which his continued participation
is barred. However, in no event will Employee receive from the Company the
health insurance contemplated by this Section 2 if Employee received comparable
insurance from any other source.
    3.  
Limit on Payments. It is the intention of the Company and Employee that no
portion of the payment made under this Agreement, or payments to or for Employee
under any other agreement or plan, be deemed to be an excess parachute payment
as defined in Section 280G of the Internal Revenue Coded of 1986, as amended
(the “Code”) or any successor provision. The Company and Employee agree that the
present value of any payment hereunder and any other payment to or for the
benefit of

 

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Employee in the nature of compensation, receipt of which is contingent or a
Change in Control of the Company, and to which Section 280G of the Code or any
successor provision thereto applies, shall not exceed an amount equal to one
dollar less than the maximum amount that Employee may receive without becoming
subject to the tax imposed by Section 4999 of the Code or any successor
provision or which the Company may pay without loss of deduction under
Section 280G of the Code or any successor provisions. Present value for purposes
of this Agreement shall be calculated in accordance with Section 1274(b)(2) of
the Code or any successor provision. In the event that the provisions of
Section 280G and 4999 of the Code or any successor provisions are repealed
without succession, this Section 3 shall be of no further force or effect.
    4.  
Effect of Agreement. Nothing contained in this Agreement shall confer upon
Employee any rights to continued employment by the Company or the Bank or shall
interfere in any way with the right of the Company or the Bank to terminate his
employment at any time for any reason. The provisions of this Agreement shall
not affect in any way the right or power of the company to change its business
structure or to effect a merger, consolidation, share exchange or similar
transaction, or to dissolve or liquidate, or sell or transfer all or part of its
business or assets.
    5.  
Source of Payment. All payments provided for under this Agreement shall be paid
in cash from he general funds of the Company, and no special or separate fund
shall be established, and no other segregation of assets shall be made to assure
payment, except as provided to the contrary in funded benefits plans. Employee
shall have no right, title or interest whatsoever in or to any investments that
the Company may make to aid the Company in meeting its obligations hereunder.
Nothing contained herein, and no action taken pursuant to the provisions hereof,
shall create or be construed to create a trust of any kind or a fiduciary
relationship between the Company and Employee or any other person. To the extent
that any person acquires a right to receive payments from the Company hereunder,
such right shall be no greater than the right of an unsecured creditor of the
Company.
    6.  
General Provisions.
    (i)  
Binding Effect. This Agreement shall be binding upon, and inure to the benefit
of, Employee and the Company and their respective permitted successors and
assigns. Neither this Agreement nor any right or interest hereunder shall be
assignable by Employee, his beneficiaries, or legal representatives without the
Company’s prior written consent. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation, share exchange or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to Employee, to
expressly

 

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assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle Employee to compensation from the Company in the same amount and
on the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed he date Employee’s employment was terminated. As used in the Agreement,
“Company” shall mean that company as defined herein and any successor to its
business and/or assets as aforesaid that executes and delivers the agreement
provided for in the Section 6(i) or that otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law.
    (ii)  
Entire Agreement and Amendment. This Agreement replaces any and all previous
agreements, representations and understandings relating to the same or similar
subject matter which the Employee and the Company may have entered into with the
Company in connection with Employee’s employment by the Bank. This Agreement may
not be modified or amended except by an instrument in writing signed by the
parties hereto.
    (iii)  
Headings and Gender. The headings of paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
    (iv)  
Governing Law. This agreement has been executed and delivered in the State of
North Carolina, and its validity, interpretation, performance and enforcement
shall be governed by the laws of such state.

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of
the day and year first above stated.

            TSB FINANCIAL CORPORATION
      By:   /s/ James H. Barnhardt, Jr.         Chairman        EMPLOYEE:
      /s/ Janet H. Hollar