Exhibit 10.1

EMPLOYMENT AGREEMENT

BETWEEN

SUMMIT FINANCIAL GROUP, INC.

AND

H. CHARLES MADDY, III

 

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TABLE OF CONTENTS

              PAGE
I. EMPLOYMENT
    1  
 
       
II. DUTIES AND RESPONSIBILITIES
    2  
A. Chairman and Chief Executive Officer of Summit
    2  
B. Full Time Employment - Best Efforts
    2  
 
       
III. TERM; EXTENSIONS
    2  
 
       
IV. TERMINATION OF EMPLOYMENT BY SUMMIT OR MADDY
    3  
A. Mutual Agreement
    3  
B. Death
    3  
C. Disability
    3  
D. For Cause
    3  
E. Change in Control
    4  
F. Breach by Summit
    4  
G. Insolvency, Etc.
    4  
 
       
V. COMPENSATION AND REIMBURSEMENTS
    4  
A. Base Salary
    4  
B. Incentive Pay
    5  
C. Fringe Benefits
    5  
D. Club and Organization Membership and Dues
    5  
E. Business Expenses
    5  
F. Termination Payments
    5  
 
       
VI. ADDITIONAL PAYMENT BY SUMMIT
    7  
A. Gross-Up Payment
    7  
B. Determination of Gross-Up Payment
    7  
 
       
VII. NONCOMPETITION AND NONSOLICITATION
    7  
 
       
VIII. CONFIDENTIAL INFORMATION
    9  
 
       
IX. ARBITRATION
    10  
 
       
X. MISCELLANEOUS PROVISIONS
    11  
A. Notices
    11  
B. Prior Agreements
    11  
C. Amendments
    11  
D. Governing Law
    11  
E. Headings
    11  
F. Severability of Provisions
    12  
G. Indemnification
    12  
H. Authority to Execute Documents
    12  
I. Waiver of Breach
    12  
J. Binding Effect and Assignability
    12  

 i

 

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EMPLOYMENT AGREEMENT
BETWEEN
SUMMIT FINANCIAL GROUP, INC.
AND
H. CHARLES MADDY, III

          THIS EMPLOYMENT AGREEMENT (“Agreement”), made and entered into this
4th day of March, 2005, by and between H. Charles Maddy, III (“Maddy”) and
Summit Financial Group, Inc., a West Virginia corporation and bank holding
company (“Summit”).

W I T N E S S E T H:

          WHEREAS, Maddy is Chief Executive Officer and a Director of Summit and
Chairman and a Director of Summit Community Bank, Inc., a state banking
association (“Bank”), and

          WHEREAS, the Board of Directors of Summit believe that it is in the
best interests of Summit and its subsidiaries to enter into this Agreement with
Maddy to ensure continuity of leadership and to ensure that Summit and its
subsidiaries will have the benefit of his services as an employee of Summit and
any of its affiliated companies for a reasonable period of time in the future,
and

          WHEREAS, Maddy is willing to provide the herein described services to
Summit and its affiliates.

          NOW, THEREFORE, for and in consideration of the premises, their mutual
promises, and the other good and valuable consideration herein specified, the
receipt of which is hereby acknowledged by the parties hereto, the parties agree
as follows:

     1. EMPLOYMENT

          Summit employs Maddy and Maddy accepts employment as Chief Executive
Officer of Summit. All employment shall be in accordance with and subject to the
terms and conditions of this Agreement and is sometimes herein referred to as
the “Employment.”

 

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     2. DUTIES AND RESPONSIBILITIES

          (a) Chief Executive Officer of Summit. Maddy, as Chief Executive
Officer of Summit, shall report to and shall be responsible only to the Board of
Directors of Summit, and he shall have direction and control of the duties and
responsibilities of all other Summit officers and employees, regardless of the
title or position of any such other officer or employee, except that Summit’s
Internal Auditor shall report to and shall be responsible only to the Board of
Directors. As Chief Executive Officer, Maddy will perform all the duties and
shall have all the responsibilities normally imposed upon and held by the Chief
Executive Officer of a bank holding company. Maddy shall have the duty and
responsibility of carrying out and executing the business policies of Summit as
established from time to time by the Board of Directors, and he shall have such
other specific duties and responsibilities relating to Summit and its affiliates
as may be assigned to him from time to time by the Board of Directors.

          (b) Full Time Employment - Best Efforts. Maddy shall devote full time
and his best efforts at all times to the performance of his duties for Summit
and its subsidiaries. He shall not be employed by, nor shall he devote any of
his time and efforts to the furtherance of interests of any other person, firm
or corporation except Summit, Summit’s subsidiaries and such other entities as
may be approved by the Board of Directors of Summit. Nothing herein shall
preclude Maddy’s current level of activity with respect to Mountain Lion Land
Development LLC and the management by Maddy of his personal investment
portfolio. It is contemplated that Maddy shall serve in banking, business, civic
and social activities that will consume some part of his time and efforts, and
such activities are encouraged and expected by Summit as part of Maddy’s
position with Summit and as part of the banking, business, civic and social
communities of the State of West Virginia and Virginia, and nationally. The
provisions of this Agreement are not intended to restrict such activities by
Maddy so long as such activities do not interfere with his duties and
responsibilities as defined in this Agreement.

     3. TERM; EXTENSIONS

          The term of employment of Maddy by Summit shall be until March 4,
2008, and this Agreement shall remain in force and effect during such period
unless sooner terminated or extended as provided herein.

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          The Board of Directors or a committee designated by the Board of
Directors of Summit shall review this Agreement at least annually, and may, with
the approval of Maddy, extend the term of this Agreement annually for additional
one (1) year periods (so that the actual term of this Agreement will always be
between two and three years.).

          The term of this Agreement shall extend until all obligations under
this Agreement have been fully performed by Maddy and Summit.

     4. TERMINATION OF EMPLOYMENT BY SUMMIT OR MADDY

          The employment of Maddy may be terminated by any one of the following
prior to the expiration of its normal term, provided that unless otherwise
agreed to by the parties, all employment by both Summit and Bank shall be
terminated simultaneously and termination of employment by either Summit or Bank
shall automatically terminate employment with the other in which case Maddy
shall be entitled to the benefits due and payable upon termination set forth
elsewhere herein:

          (a) Mutual Agreement. By mutual agreement of the parties upon such
terms and conditions as they may agree.

          (b) Death. By Summit upon the death of Maddy.

          (c) Disability. By Summit upon the legal disability of Maddy, which
shall mean that Maddy shall be unable to perform his duties by reason of any
mental or physical disability which is expected to last at least six (6) months
or result in death, as certified by Maddy’s physician and as approved by Summit.

          (d) For Cause. By Summit for cause upon giving Maddy thirty (30) days
advance notice of such termination, specifying the cause of termination. For
purposes of this Agreement, “Cause” shall mean: (i) excessive absenteeism
without approval of Summit not caused by disability; (ii) gross or willful
neglect of duty resulting in substantial harm to Summit after Maddy has been
given written direction and reasonable time to perform such duties; (iii) any
acts or omissions on the part of Maddy which when proven constitute fraud or
commission of any criminal act involving the person or property of others or the
public generally; or (iv) Maddy’s negligence,

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malfeasance or misfeasance in the performance of Maddy’s duties that can
reasonably be expected to have an adverse impact on the business of Summit or
its affiliates, including but not limited to the reasonable financial objectives
established by the Board of Directors of Summit.

          (e) Change of Control. By Maddy or Summit as set forth in the Change
in Control Agreement upon a Change of Control as defined in the Change in
Control Agreement attached hereto as Exhibit A.

          (f) Breach by Summit. By Maddy in the event of a material breach by
Summit of any of the terms or conditions of this Agreement, in which case the
noncompetition and nonsolicitation provisions set forth in Section VII of this
Agreement shall not apply.

          (g) Insolvency, Etc. By Maddy, in the event of the business failure,
insolvency, bankruptcy, or assignment for the benefit of creditors of or by
Summit or Bank not attributable to Maddy, in which case the noncompetition and
nonsolicitation provisions set forth in Section VII of this Agreement shall not
apply.

     V. COMPENSATION AND REIMBURSEMENTS

          A. Base Salary. Summit shall pay Maddy for his service to both Summit
and Bank, a base salary at an annual rate not less than $350,000, payable in
equal semi-monthly installments (the “Base Salary”). Maddy’s performance shall
be evaluated by the Nominating and Compensation Committee of Summit at least
once each twelve month period, and such evaluation shall be the basis of
determining whether the compensation payable to Maddy shall be increased in the
judgment of such committee directors. Upon review and extension of the Agreement
as provided in Section III, above, the Base Salary shall be adjusted to reflect
any increase in compensation above the initial base salary in effect for that
year. All references to Base Salary in this Agreement and the Change in Control
Agreement shall include subsequent increases. No decreases in the Base Salary
shall be permitted during the term. In addition, for service as a member of the
Boards of Directors of Summit or any of Summit’s subsidiaries or affiliates, or
their respective committees, Maddy shall receive such sums as may be paid to
members and officers of such boards for their services.

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          B. Incentive Pay. In addition to the Base Salary herein provided for,
Maddy shall be entitled to receive incentive compensation from Summit in
accordance with plans adopted by its Board of Directors. The Board of Directors
agrees that Mr. Maddy’s bonus opportunities will not be less than the
opportunities currently available to him under the Summit bonus plan in place at
the time of execution of this Agreement or any extension thereof.

          C. Fringe Benefits. Summit shall afford to Maddy the benefit of all
fringe benefits afforded to other Summit or bank officers, such as pension, life
insurance, health and accident insurance benefits, vacation and sick leave.

          D. Club and Organization Membership and Dues. Summit shall maintain
the cost of stock or membership certificate and the cost of the initiation fee
for memberships for a family (general membership) in one or more country clubs
in the trade areas of Summit, which Maddy shall select, plus dues, assessments
and other costs of maintaining such memberships. Summit shall also pay Maddy’s
membership fees and dues in banking, business, civic, professional (including
continuing professional education requirement to maintain his public
accountant’s license), and social organizations in which Maddy is a
participating member.

          E. Business Expenses. Summit shall reimburse Maddy for all reasonable
expenses incurred by Maddy in carrying out his duties and responsibilities,
including furnishing an automobile of Maddy’s choice for use by Maddy, with the
costs of purchase, maintenance and operation to be borne by Summit provided that
unless otherwise approved by the Board of Directors, the cost of such automobile
shall not exceed $75,000, adjusted annually for inflation.

          F. Termination Payments. In the event of termination of Maddy’s
employment prior to expiration of the term of this Agreement, Maddy or his
family shall be compensated as follows:

               1. If terminated under Article IV, Section A of this Agreement
(mutual agreement), then such amount as the parties shall agree.

               2. If terminated under Article IV, Sections B (death) or C
(disability), of this Agreement, then Summit shall pay Maddy (or his family or
estate) in a lump sum an amount equal to three (3) times the Base Salary in
effect for the year in which termination occurs. If

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terminated because of Maddy’s death, Summit further agrees to provide health
benefits to the extent permitted under Summit’s health benefit plans to Maddy’s
spouse and dependent children for a period of one (1) year.

               3. If terminated under Article IV, Section D(iv) (for cause),
then Summit shall pay Maddy in a lump sum an amount equal to the Base Salary in
effect for the year in which termination occurs without offset for compensation
already paid prior to the effective date of termination.

               4. If terminated under Article IV, Section D(i) - (iii) (for
cause), or any combination of D(i), (ii), or (iii) or if voluntarily terminated
by Maddy and there is no material breach by Summit, Summit shall pay Maddy’s
Base Salary in effect for the year in which termination occurs, only for such
period of his active full-time employment to the date of the termination.

               5. If terminated pursuant to Article IV, Section F (material
breach by Summit), then Summit shall pay Maddy in a lump sum an amount equal to
two (2) times his Base Salary in effect for the year in which termination occurs
without offset for compensation already paid prior to the effective date of
termination.

               6. If terminated pursuant to the provisions of the Change in
Control Agreement attached hereto as Exhibit A, Maddy shall be entitled to the
compensation set forth therein.

               7. The payments provided for in the event of Maddy’s termination
are in the nature of additional compensation and liquidated damages and upon
termination, Maddy shall have no obligation to mitigate damages incurred by him
in connection with such termination and he shall be absolutely entitled to
receive said payments. Upon termination, Summit shall not be liable to Maddy for
any further payments for other damages or compensation, except liabilities to
Maddy incurred prior to termination under Article V, Section C, E and F, if any,
of this Agreement.

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     VI. ADDITIONAL PAYMENT BY SUMMIT

          A. Gross-Up Payment. Notwithstanding anything in this Agreement to the
contrary, in the event it shall be determined that any payment or distribution
by Summit and any of its subsidiaries and affiliates to or for the benefit of
Maddy (whether paid or payable or distributed or distributable pursuant to this
Agreement, the Supplemental Retirement Agreement between Summit and Maddy, the
Change in Control Agreement between Summit and Maddy, or any other agreement,
contract, plan or arrangement, but determined without regard to any additional
payments required under this Article VI) (any such payments and distributions
collectively referred to as “Payments”), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any
similar tax that may hereinafter be imposed or any interest and penalties with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the “Excise Tax”), then
Summit shall pay to Maddy an additional payment (the “Gross-Up Payment”) equal
to one hundred percent (100%) of the Excise Tax and one hundred percent (100%)
of the amount of any federal, state and local income taxes and Excise Tax
imposed on the Gross-Up Payment.

          B. Determination of Gross-Up Payment. All determinations required to
be made under this Article VI, including whether a Gross-Up Payment is required
and the amount of such Gross-Up Payment, shall be made by the firm of
independent accountants selected by Summit to audit its financial statements
(the “Accounting Firm”) which shall provide detailed supporting calculations
both to Summit and Maddy in good faith within a reasonable time period. In the
event that the Accounting Firm is serving as accountant or auditor for the
individual, entity or group effecting a “change in control,” Maddy shall appoint
another nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred to as the
“Accounting Firm” hereunder). All fees and expenses of the Accounting Firm shall
be borne solely by Summit. Any Gross-Up Payment, as determined pursuant to this
Article VI, shall be paid to Maddy within 30 days of the receipt of the
Accounting Firm’s determination.

     VII. NONCOMPETITION AND NONSOLICITATION. In consideration of the covenants
set forth herein, including but not limited to the payments set forth in
Section V(F) and the Change in Control Agreement attached as Exhibit A, Maddy
agrees as follows:

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          A. For a period of two (2) years after Maddy’s employment with Summit
is terminated for any reason other than for cause under Paragraph IV(D), or
insolvency of Summit not attributable to Maddy, or material breach by Summit,
Maddy shall not, directly or indirectly, engage in the business of banking in
the entire State of West Virginia, in any county or location in which Summit has
operating offices at the time of termination, in the following designated
locations in Virginia, (See Exhibit to Paragraph VII(A) attached, which is
incorporated herein by reference This Exhibit was molded to include the counties
where municipalities are located.) or in any location identified by Summit in
its three-year strategic plan as a location for future expansion to be adopted
by the Board and reviewed and updated at regular intervals.

          For a period of one (1) year after Maddy’s employment with Summit is
terminated for cause as set forth in Paragraph IV(D)(iv), Maddy shall not,
directly or indirectly, engage in the business of banking in the entire State of
West Virginia, in any county or location in which Summit has operating offices
at the time of termination, the following designated locations in Virginia (See
Exhibit to Paragraph VII(A) attached, which is incorporated herein by reference
This Exhibit was molded to include the counties where municipalities are
located.), or in any location identified by Summit in its three-year strategic
plan as a location for future expansion to be adopted by the Board and reviewed
and updated at regular intervals.

          For purposes of this Paragraph VII(A), being engaged in the business
of banking shall mean Maddy’s engaging in any business or activity of any nature
that is competitive with the business of Summit or its affiliates in the
specified geographic area or Maddy’s solicitation of business from clients with
a primary or principal office in the specified geographic area.

          B. During Maddy’s employment by Summit and for two (2) years after
Maddy’s employment with Summit is terminated for any reason other than for cause
under Paragraph IV(D)(iv), insolvency of Summit not attributable to Maddy, or
material breach by Summit, Maddy shall not, on his own behalf or on behalf of
any other person, corporation or entity, either directly or indirectly, solicit,
induce, recruit or cause another person in the employ of the Summit or its
affiliates to terminate his or her employment for the purpose of joining,
associating or becoming an affiliate of Maddy in any business which is in
competition with any business or activity engaged in by the Summit or its
affiliates.

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          For a period of one (1) year after Maddy’s employment is terminated
for cause as set forth in Paragraph D(iv), Maddy shall not on his own behalf or
on behalf of any other person, corporation or entity, either directly or
indirectly, solicit, induce, recruit or cause another person in the employ of
Summit or its affiliates to terminate his or her employment for the purpose of
joining, associating, or becoming affiliated with Maddy in any business that is
in competition with any business or activity engaged in by Summit or its
affiliates.

          C. Maddy further recognizes and acknowledges that in the event of the
termination of Maddy’s employment with Summit for any reason other than for
cause under Paragraph IV(D), or material breach by Summit, (1) a breach of the
obligations and conditions set forth herein will irreparably harm and damage
Summit; (2) an award of money damages may not be adequate to remedy such harm;
and (3) considering Maddy’s relevant background, education and experience, Maddy
believes that he will be able to earn a livelihood without violating the
foregoing restrictions. Consequently, Maddy agrees that, in the event that Maddy
breaches any of the covenants set forth in this Section VII, Summit and/or its
affiliates shall be entitled to both a preliminary and permanent injunction in
order to prevent the continuation of such harm and to recover money damages,
insofar as they can be determined, including, without limitation, all costs and
attorneys’ fees incurred by Summit in enforcing the provisions of this
Section VII.

          D. In the event that this provision shall be deemed by any Court or
body of competent jurisdiction to be unenforceable in whole or in part by reason
of its extending for too long a period of time, or too great a geographical area
or over too great a range of activities, or is overly broad in any other respect
or for any other reason, then in such event this Employment Agreement shall be
deemed modified and interpreted to extend over only such maximum period of time,
geographical area, or range of activity or otherwise, so as to render these
provisions valid and enforceable, and as so modified, these shall be enforceable
and enforced.

     VIII. CONFIDENTIAL INFORMATION. Maddy shall not, during the term of this
Agreement or at any time thereafter, directly or indirectly, publish or disclose
to any person or entity any confidential information (other than a Summit
employee entitled to know such confidential information) concerning the assets,
customer/client lists, business or affairs of Summit, and its affiliates,
including but not limited to any trade secrets, financial data, employee or
customer/client

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information or organizational structure. Notwithstanding the foregoing, nothing
herein shall prevent Maddy from utilizing the knowledge and experience he has
acquired in the banking industry including without limitation his knowledge of
and experience with producer bonus plans.

          All files, records, documents, information, letters, notes, media
lists, notebook and similar items relating to the business of Summit shall
remain the exclusive property of Summit. Upon the expiration or earlier
termination of this Agreement, or when requested by Summit, Maddy shall
immediately deliver to Summit all such files, computer data files, records,
documents, information and other items in the possession of or under the control
of Maddy.

          All business produced by Maddy while in the employ of Summit is the
exclusive property of Summit unless specifically excluded elsewhere in this
Agreement. Maddy shall not, during the term of this Agreement or any time
thereafter, intentionally interfere with any business or contractual
relationship of Summit.

     IX. ARBITRATION. Any dispute between the parties arising out of or with
respect to this Agreement or any of its provisions or Maddy’s employment with
Summit, whether sounding in tort or contract, shall be resolved by the sole and
exclusive remedy of binding arbitration. Maddy hereby waives his right to a jury
trial and his right to receive noneconomic damages. Arbitration shall be
conducted in Moorefield, West Virginia, in accordance with the rules of the
American Arbitration Association (“AAA”). The parties agree each to select one
arbitrator from an AAA employment panel. Within ten days after selection of the
second arbitrator, the two arbitrators shall promptly select a third arbitrator.
The arbitration shall be conducted in accordance with the West Virginia Rules of
Evidence and all discovery issues shall be decided by the arbitrator. The panel
of arbitrators shall supply a written opinion and analysis of the matter
submitted for arbitration along with the decision. The arbitration decision
shall be final and subject to enforcement in the local circuit court.

          In any arbitration proceeding between the parties, the losing party
shall pay to the prevailing party all reasonable expenses and costs including
attorneys’ fees incurred by the prevailing party. A party shall be considered a
prevailing party if:

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          (i) it initiated the arbitration and substantially obtained the relief
it sought, either through a judgment or the losing party’s voluntary action
before arbitration (after it is scheduled) or judgment;

          (ii) the other party withdraws its action without substantially
obtaining the relief it sought, or

          (iii) it did not initiate the arbitration and judgment is entered for
either party, but without substantially granting the relief sought.

     X. MISCELLANEOUS PROVISIONS

          A. Notices. Whenever notices are given pursuant to this Agreement, or
with relation to any matter arising hereunder, such notices shall be given to
such parties at the address set opposite their name below, and shall be given in
writing, by registered mail, return receipt requested:

         

  Summit Financial Group, Inc.   300 North Main Street

      Moorefield, West Virginia 26836
 
       

  H. Charles Maddy,   III P. O. Box 979

      Old Fields, West Virginia 26845

          B. Prior Agreements. This Agreement represents the entire agreement
between the parties, and all prior representations, promises or statements are
merged with and into this document.

          C. Amendments. Any amendments to this Agreement must be in writing and
signed by all parties hereto except that extensions of the term of this
Agreement under Article III may be evidenced by Board of Directors or Nominating
and Compensation Committee minutes.

          D. Governing Law. The laws of West Virginia shall govern the
interpretation and enforcement of this Agreement.

          E. Headings. The headings used in this Agreement are used solely for
the convenience of the parties and are not to be used in construing or
interpreting the Agreement.

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          F. Severability of Provisions. The effect of a determination by a
court of competent jurisdiction that one or more of the contract clauses is or
are found to be unenforceable, illegal, contrary to public policy, or otherwise
unenforceable, then this Agreement shall remain in full force and effect except
for such clauses.

          G. Indemnification. To the fullest extent permitted under West
Virginia law and federal banking law, Summit agrees that it will indemnify and
hold harmless Maddy from and against all costs and expenses, including without
limitation, all court costs and attorneys’ fees, incurred by him in defending
any and all claims, demands, proceedings, suits or actions, actually instituted
or threatened, by third parties, involving this Agreement, its validity or
enforceability or with respect to any payments to be made pursuant thereto.

          H. Authority to Execute Documents. The undersigned representative of
Summit certifies and represents that he is authorized to enter into its binding
agreement with Maddy.

          I. Waiver of Breach. A waiver of a breach of any provision of the
Agreement by any party shall not be construed as a waiver of subsequent breaches
of that provision. No requirement of this Agreement may be waived except in
writing by the party adversely affected.

          J. Binding Effect and Assignability. This Agreement shall inure to the
benefit of, and shall be binding upon, the parties hereto and their respective
successors, assigns, heirs and legal representatives, including any entity with
which Summit or Bank may merge or consolidate or to which either of them may
transfer all or substantially all of their assets. Insofar as Maddy is
concerned, this Agreement, being personal, cannot be assigned as to performance
or for any other purpose.

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          IN WITNESS WHEREOF, the parties have caused this Agreement to be
signed as of the day first written above:

              SUMMIT FINANCIAL GROUP, INC.
 
       

  By:   /s/ Oscar M. Bean

       

  Its:   Chairman of the Board
 
              /s/ H. Charles Maddy, III           H. CHARLES MADDY, III

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Exhibit to Paragraph VII(A) of Employment Agreement by and between

Summit Financial Group, Inc. and H. Charles Maddy, III, dated March 4, 2005

Designated Virginia Locations

     

  Ashburn
 
   

  Charlottesville
 
   

  Fredericksburg
 
   

  Leesburg
 
   

  Purcellville
 
   

  Warrenton

*   The designation of the municipality expressly includes the county in which
the municipality is located.

 

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Exhibit A
CHANGE IN CONTROL AGREEMENT

          THIS CHANGE IN CONTROL AGREEMENT, made and entered into this 4th day
of March, 2005, by and between Summit Financial Group, Inc. (the “Company”) and
H. Charles Maddy, III (“Maddy”);

          WHEREAS, Company recognizes that Maddy’s contribution to the growth,
success and continued operation of Company has been substantial, and

          WHEREAS, Company believes it is in the best interest of Company to
grant Maddy a level of security to preserve key management and to assure fair
consideration of any affiliation opportunities that arise.

          NOW, THEREFORE, in consideration of the promises and respective
covenants and agreements of the parties herein contained, Company and Maddy
agree as follows:

  A.   Definitions. For purposes of this Change in Control Agreement, the
following definitions shall apply:

  (1)   “Change of Control” means

  (a)   a change of ownership of the Company that would have to be reported to
the Securities and Exchange Commission as a Change of Control, including but not
limited to the acquisition by any “person” and/or entity as defined by
securities regulations and law, of direct or indirect “beneficial ownership” as
defined, of twenty-five percent (25%) or more of the combined voting power of
the Company’s then outstanding securities; or     (b)   the failure during any
period of three (3) consecutive years of individuals who at the beginning of
such period constitute the Board for any reason to constitute at least a
majority thereof, unless the election of each director who was not a director at
the beginning of such period has been approved in advance by directors
representing at least two-thirds (2/3) of the directors at the beginning of the
period; or     (c)   the consummation of a “Business Combination” as defined in
the company’s Articles of Incorporation.

  (2)   “Company” shall mean Summit Financial Group, Inc.

 

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  (3)   “Employment Agreement” shall mean the Employment Agreement dated as of
March 4, 2005, by and between Summit Financial Group, Inc. and H. Charles Maddy,
III.     (4)   “Salary” means Maddy’s Base Salary as defined in the Employment
Agreement in effect on the date of termination of Maddy’s employment under this
Agreement, or if no Employment Agreement is in effect, Maddy’s Base Salary on
the date of termination of employment hereunder, corresponding to the definition
of Base Salary in the most recent Employment Agreement.     (5)   For purposes
of this Change in Control Agreement, “Good Cause” shall mean: (i) excessive
absenteeism without approval of Summit not caused by disability; (ii) gross or
willful neglect of duty resulting in substantial harm to Summit after Maddy has
been given written direction and reasonable time to perform such duties; or
(iii) any acts or omissions on the part of Maddy which when proven constitute
fraud or commission of any criminal act involving the person or property of
others or the public generally.     (6)   “Disability” means a physical or
mental condition rendering Maddy substantially unable to perform the duties of
an officer and director of a banking organization.     (7)   “Retirement” means
termination of employment by Maddy in accordance with Company’s (or its
successor’s) retirement plan, including early retirement as approved by the
Board of Directors.     (8)   “Good Reason” means

  (a)   A Change of Control in the Company (as defined above) and:

  (i)   a decrease in Maddy’s overall compensation (including, without
limitation, salary, perquisites, bonuses and other earnings reported on IRS Form
W-2, but excluding a diminution in board fees) below its level in effect
immediately prior to the date of consummation of the Change of Control, without
Maddy’s prior written consent; or     (ii)   a material reduction in the
importance of Maddy’s job responsibilities or assignment of job responsibilities
inconsistent with Maddy’s responsibility prior to the Change of Control without
Maddy’s prior written consent; or     (iii)   a geographical relocation of Maddy
to an office more than 20 miles from Maddy’s location at the time of the Change
of Control or the imposition of travel requirements inconsistent with those

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      existing prior to the Change of Control without Maddy’s prior written
consent; or

  (b)   Failure of the Company to obtain assumption of this Change in Control
Agreement by its successor as required by Paragraph M(1) below; or     (c)   Any
removal of Maddy from, or failure to re-elect Maddy to any of Maddy’s positions
with Company immediately prior to a Change of Control (except in connection with
the termination of Maddy’s employment for Good Cause, death, Disability or
Retirement) without Maddy’s prior consent.

  (8)   “Wrongful Termination” means termination of Maddy’s employment by the
Company or its affiliates for any reason other than at Maddy’s option, Good
Cause or the death, Disability or Retirement of Maddy prior to the expiration of
twelve (12) months after consummation of the Change of Control.

  B.   Retention of Maddy After Change of Control. In order to facilitate
management continuity and to promote an orderly transition of ownership, Company
and Maddy agree that after a Change of Control, Maddy shall be employed by the
acquiring company for a period of one (1) year (the “Transition Period”),
commencing upon the date of consummation of the transaction resulting in a
Change of Control. During the Transition Period, Maddy may terminate his
employment for Good Reason, and the Company may terminate the employment of
Maddy for Good Cause. If Company terminates Maddy in a manner constituting
Wrongful Termination, or Maddy terminates for Good Reason, Maddy shall be
entitled to receive the compensation set forth in paragraph E below.         If
the Employment Agreement is still in effect, Maddy shall be employed pursuant to
the terms of Article II and Article V, A-E of the Employment Agreement. All
other terms of Maddy’s employment, including without limitation his right to
receive termination payments and the term of his employment, will be controlled
by this Agreement.     C.   Compensation of Maddy for Death or Disability During
the Transition Period. In the event of the Death or Disability of Maddy during
the Transition Period, Maddy shall be entitled to three times the greater of
(a) Maddy’s Salary in effect immediately prior to the date of consummation of a
Change of Control or (b) Maddy’s Salary in effect on the date of termination of
Maddy’s employment under this Agreement.

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  D.   Compensation of Maddy Upon Expiration of the Transition Period. Within a
period of thirty (30) days after expiration of the Transition Period, Maddy
shall be entitled to be paid an amount equal to three (3) times the greater of
(a) Maddy’s Salary in effect immediately prior to the date of consummation of a
Change of Control or (b) Maddy’s Salary in effect on the date of expiration of
the Transition Period.     E.   Compensation of Maddy Upon Termination for Good
Reason or Wrongful Termination during the Transition Period. Except as
hereinafter provided, if Maddy terminates his employment with the Company for
Good Reason or the Company terminates Maddy’s employment in a manner
constituting Wrongful Termination, the Company agrees as follows:

  (1)   The Company shall pay Maddy a cash payment equal to three (3) times the
greater of (a) Maddy’s Salary in effect immediately prior to the date of
consummation of a Change of Control or (b) Maddy’s Salary in effect on the date
of termination of Maddy’s employment under this Agreement.     (2)   Maddy will
be entitled to receive his reasonable share of the Company’s cash bonuses, if
any, allocated in accordance with existing principles and authorized by the
Board of Directors. The amount of Maddy’s cash incentive award shall not be
reduced due to Maddy not being actively employed for the full year.     (3)  
Maddy will continue to participate, without discrimination, for the number of
months between the Date of Termination and the date that is thirty-six
(36) months after the date of the consummation of the Change of Control in
benefit plans (such as retirement, disability and medical insurance) maintained
after any Change of Control for Maddy, in general, of the Company, or any
successor organization, provided Maddy’s continued participation is possible
under the general terms and conditions of such plans. In the event Maddy’s
participation in any such plan is barred, the Company shall arrange to provide
Maddy with benefits substantially similar to those which Maddy would have been
entitled had his participation not been barred. However, in no event will Maddy
receive from the Company the employee benefits contemplated by this subparagraph
if Maddy receives comparable benefits from any other source.     (4)  
Paragraph F of this Agreement and Section VII of the Employment Agreement shall
not apply.

  F.   Termination at Maddy’s Option. During the Transition Period, Maddy may
terminate his employment without reason at his option by giving written notice
of termination within six (6) months of consummation of any Change of Control;

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      provided that notice shall be given at least thirty (30) days prior to the
effective time for termination. In such event, Maddy shall be entitled to
receive a lump sum payment equal to 75% of the greater of (a) Maddy’s Salary in
effect immediately prior to the date of consummation of a Change of Control or
(b) Maddy’s Salary in effect on the date of termination of Maddy’s employment
under this Agreement.     G.   Noncompetition and Nonsolicitation. In
consideration of the covenants set forth herein, including but not limited to
the payment set forth in paragraphs C, D and E hereof, Maddy agrees as follows:

  (1)   For a period of three (3) years after expiration of the Transition
Period, provided Maddy’s employment under this Agreement is not sooner
terminated, Maddy shall not, directly or indirectly engage in the business of
banking, in the entire State of West Virginia, in any county or location in
which Summit has operating offices at the time of termination , in the following
designated locations in Virginia (See Exhibit to Paragraphs G(1) and
(2) attached, which is incorporated herein by reference This Exhibit was molded
to included the counties where the municipalities are located.), or in any
location identified by Summit in its three-year strategic plan as a location for
future expansion to be adopted by the Board and reviewed and updated at regular
intervals.     (2)   For a period of one (1) year after Maddy’s employment with
Summit is terminated for any reason other than Maddy’s Disability, Retirement,
Good Reason or termination at Maddy’s option as provided in paragraph E hereof,
Maddy shall not, directly or indirectly, engage in the business of banking in
the entire State of West Virginia, in any county or location in which Summit has
operating offices at the time of termination, , in the following designated
locations in Virginia (See Exhibit to Paragraphs G (1) and (2)) attached, which
is incorporated herein by reference This Exhibit was molded to included the
counties where the municipalities are located.), or in any location identified
by Summit in its three-year strategic plan as a location for future expansion to
be adopted by the Board and reviewed and updated at regular intervals.     (3)  
For purposes of Paragraphs G(1) - (2), being engaged in the business of banking
shall mean Maddy’s engaging in any business or activity of any nature that is
competitive with the business of Summit or its affiliates in the specified
geographic area or Maddy’s solicitation of business from clients with a primary
or principal office in the specified geographic area.     (4)   In the event
that this provision shall be deemed by any Court or body of competent
jurisdiction to be unenforceable in whole or in part by reason of its

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      extending for too long a period of time, or too great a geographical area
or over too great a range of activities, or is overly broad in any other respect
or for any other reason, then in such event this Employment Agreement shall be
deemed modified and interpreted to extend over only such maximum period of time,
geographical area, or range of activity or otherwise, so as to render these
provisions valid and enforceable, and as so modified, these shall be enforceable
and enforced.

  H.   Other Employment. Maddy shall not be required to mitigate the amount of
any payment provided for in this Change in Control Agreement by seeking other
employment. The amount of any payment provided for in this Change in Control
Agreement shall not be reduced by any compensation earned or benefits provided
(except as set forth in Paragraph E(3) above) as the result of employment by
another employer after the Date of Termination.     I.   Rights of Company Prior
to the Change of Control. This Change in Control Agreement shall not affect the
right of the Company or Maddy to terminate the foregoing Employment Agreement or
the employment of Maddy in accordance thereof; provided, however, that any
termination or reduction in salary or benefits that takes place after
discussions have commenced that result in a Change of Control shall be presumed
(without clear and convincing evidence to the contrary) to be Good Reason and a
violation of this Change in Control Agreement entitling Maddy to the benefits
hereof, so that any termination by Company shall be deemed to be a Wrongful
Termination, and all references in this Change in Control Agreement to Salary
shall be deemed to mean the Salary, as defined herein, based on the earnings
Maddy would have had prior to any reduction thereof.     J.   Confidentiality.
Maddy shall not, during the term of this Agreement or at any time thereafter,
directly or indirectly, publish or disclose to any person or entity any
confidential information (other than a Company employee entitled to know such
confidential information) concerning the assets, customer/client lists, business
or affairs of Company, and its affiliates, including but not limited to any
trade secrets, financial data, employee or customer/client information or
organizational structure. Notwithstanding the foregoing, nothing herein shall
prevent Maddy from utilizing the knowledge and experience he has acquired in the
banking industry including without limitation the knowledge of producer bonus
plans.         All files, records, documents, information, letters, notes, media
lists, notebook and similar items relating to the business of Company shall
remain the exclusive property of Company. Upon the expiration or earlier
termination of this Agreement, or when requested by Company, Maddy shall
immediately deliver to

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      Company all such files, computer data files, records, documents,
information and other items in the possession of or under the control of Maddy.
        All business produced by Maddy while in the employ of is the exclusive
property of Company unless specifically excluded elsewhere in this Agreement.
Maddy shall not, during the term of this Agreement or any time thereafter,
intentionally interfere with any business or contractual relationship of Summit.
    K.   Gross-Up Payment. Notwithstanding anything in this Agreement to the
contrary, in the event it shall be determined that any payment or distribution
by Company and any of its subsidiaries and affiliates to or for the benefit of
Maddy (whether paid or payable or distributed or distributable pursuant to this
Agreement, the Supplemental Retirement Agreement between Company and Maddy, the
Employment Agreement between Company and Maddy, or any other agreement,
contract, plan or arrangement, but determined without regard to any additional
payments required under this Paragraph J) (any such payments and distributions
collectively referred to as “Payments”), would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended, or any
similar tax that may hereinafter be imposed or any interest and penalties with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the “Excise Tax”), then
Company shall pay to Maddy an additional payment (the “Gross-Up Payment”) equal
to one hundred percent (100%) of the Excise Tax and one hundred percent (100%)
of the amount of any federal, state and local income taxes and Excise Tax
imposed on the Gross-Up Payment.         All determinations required to be made
under this Paragraph J, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall be made by the firm of independent
accountants selected by Company to audit its financial statements (the
“Accounting Firm”) which shall provide detailed supporting calculations both to
Company and Maddy in good faith within a reasonable time period. In the event
that the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting a “change in control,” Maddy shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the “Accounting
Firm” hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by Company. Any Gross-Up Payment, as determined pursuant to this
Paragraph J, shall be paid to Maddy within 30 days of the receipt of the
Accounting Firm’s determination.     L.   Arbitration. Any dispute between the
parties arising out of or with respect to this Agreement or any of its
provisions or Maddy’s employment with Company, whether sounding in tort or
contract, shall be resolved by the sole and exclusive remedy of

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      binding arbitration. Maddy hereby waives his right to a jury trial and his
right to receive noneconomic damages. Arbitration shall be conducted in
Moorefield, West Virginia, in accordance with the rules of the American
Arbitration Association (“AAA”). The parties agree each to select one arbitrator
from an AAA employment panel. Within ten days after selection of the second
arbitrator, the two arbitrators shall select a third arbitrator. The arbitration
shall be conducted in accordance with the West Virginia Rules of Evidence and
all discovery issues shall be decided by the arbitrator. The panel of
arbitrators shall supply a written opinion and analysis of the matter submitted
for arbitration along with the decision. The arbitration decision shall be final
and subject to enforcement in the local circuit court.         In any
arbitration proceeding between the parties, the losing party shall pay to the
prevailing party all reasonable expenses and costs including attorneys’ fees
incurred by the prevailing party. A party shall be considered a prevailing party
if:

  (i)   it initiated the arbitration and substantially obtained the relief it
sought, either through a judgment or the losing party’s voluntary action before
arbitration (after it is scheduled) or judgment;     (ii)   the other party
withdraws its action without substantially obtaining the relief it sought, or  
  (iii)   it did not initiate the arbitration and judgment is entered for either
party, but without substantially granting the relief sought.

  M.   Successors; Binding Agreement.

  (1)   The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to Maddy, to expressly assume and agree to perform this Change in
Control Agreement. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of the this Change in
Control Agreement and shall entitle Maddy 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 hereunder.     (2)   This Change in
Control Agreement and all rights of Maddy hereunder shall inure to the benefit
of and be enforceable by Maddy’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees. If
Maddy should die while any amounts would still be payable to him hereunder if he
had continued to live, all such amounts, unless otherwise provided herein, shall
be paid in accordance with the terms of this

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      Amended and Restated Agreement to Maddy’s devisee, legatee, or other
designee or, if there be no such designee, to Maddy’s estate.

  N.   Indemnification. To the fullest extent permitted under West Virginia law
and federal banking law, Summit agrees that it will indemnify and hold harmless
Maddy from and against all costs and expenses, including without limitation, all
court costs and attorney’s fees, incurred by him in defending any and all
claims, demands, proceedings, suits or actions, actually instituted or
threatened, by third parties, involving this Agreement, its validity or
enforceability or with respect to any payments to be made pursuant thereto.    
O.   Survival of Change in Control Agreement. This Change in Control Agreement
shall survive the expiration of the Employment Agreement.

     IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the day first written above:

              SUMMIT FINANCIAL GROUP, INC.
 
       

  By:    

       
 
       

  Its:    

       
 
            H. CHARLES MADDY, III

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Exhibit to Paragraphs G(1) and (2) of Change in Control Agreement

By and Between Summit Financial Group, Inc. and H. Charles Maddy, III, dated
March 4, 2005

Designated Virginia Locations

     

  Ashburn
 
   

  Charlottesville
 
   

  Fredericksburg
 
   

  Leesburg
 
   

  Purcellville
 
   

  Warrenton

*   The designation of the municipality expressly includes the county in which
the municipality is located.