EXHIBIT 10.13

 

CHANGE IN CONTROL AGREEMENT

(AMENDED AND RESTATED)

 

THIS AMENDED AND RESTATED AGREEMENT is entered into as of the 15th day of
February, 2005, by and between C&F FINANCIAL CORPORATION, a Virginia corporation
(the “Company”), and BRYAN MCKERNON (the “Executive”).

 

RECITALS

 

I. The Executive currently serves as President and Chief Executive Officer of
C&F MORTGAGE CORPORATION, is a key member of management of the Company and its
affiliates, and his services and knowledge are valuable to the Company and its
affiliates.

 

II. The Board (as defined below) has determined that it is in the best interest
of the Company and its shareholders to assure that the Company and its
affiliates will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change in Control (as defined below)
of the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change in Control and to encourage the
Executive’s full attention and dedication to the Company and its affiliates
currently and in the event of any threatened or pending Change in Control.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.

 

NOW, THEREFORE, it is hereby agreed as follows:

 

1. CERTAIN DEFINITIONS.

 

(a) “Agreement Effective Date” means April 16, 2002.

 

(b) The “Agreement Term” means the period commencing on the Agreement Effective
Date and ending on the earlier of (i) the Agreement Regular Termination Date or
(ii) the date this Agreement terminates pursuant to Section 7. The “Agreement
Regular Termination Date” means the third anniversary of the Agreement Effective
Date, provided, however, that commencing on the first anniversary of the
Agreement Effective Date, and on each subsequent anniversary (such date and each
subsequent anniversary shall be hereinafter referred to as the “Renewal Date”),
unless this Agreement is previously terminated, the Agreement Regular
Termination Date shall be automatically extended for three years from the latest
Renewal Date, unless at least one month prior to the latest Renewal Date, the
Company shall give notice to the Executive in accordance with Section 10(c) of
this Agreement that the Agreement Regular Termination Date shall not be so
extended.

 

(c) “Board” means the Board of Directors of the Company.

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(d) “Cause” means:

 

(i) the willful and continued failure of the Executive to substantially perform
his duties with the Company or one of its affiliates (other than any such
failure resulting from incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to the Executive by the
Board, pursuant to a vote of a majority of the Directors of the Company, which
specifically identifies the manner in which the Directors of the Board believe
that the Executive has not substantially performed his duties, or

 

(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.

 

For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered “willful” unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive’s action or omission was in the best interest of the Company. Any act,
or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than two-thirds of the members of the Board
at a meeting of the Board called and held for such purpose (after reasonable
notice is provided to the Executive in accordance with Section 10(c) of this
Agreement and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive has engaged in the conduct described in paragraph (i) or
(ii) above, and specifying the particulars thereof in detail.

 

(e) The “Change in Control Date” means the first date during the Agreement Term
on which a Change in Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change in Control occurs and if
the Executive’s employment with the Company is terminated prior to the date on
which the Change in Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment either (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change in
Control or (ii) otherwise arose in connection with or anticipation of a Change
in Control, then for all purposes of this Agreement the “Change in Control Date”
shall mean the date immediately prior to the date of such termination of
employment.

 

(f) “Company” means C&F Financial Corporation, a Virginia corporation.

 

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(g) “Coverage Period” means the period of time beginning with the Change in
Control Date and ending on the earliest to occur of (i) the Executive’s death
and (ii) the sixty-first day after the first anniversary of the Change in
Control Date.

 

(h) “Disability” means the absence of the Executive from his duties with the
Company on a full-time basis for six months as a result of incapacity to serve
as the President and Chief Executive Officer of C&F Mortgage Corporation,
including substantially all duties normally considered a part thereof, due to
mental or physical illness or injury which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive’s legal representative. If the Company
determines in good faith that the Disability of the Executive has occurred, it
may give to the Executive written notice in accordance with Section 10(c) of
this Agreement of its intention to terminate the Executive’s employment. In such
event, the Executive’s employment with the Company shall terminate effective on
the 30th day after receipt of such notice by the Executive (the “Disability
Effective Date”), provided that, within the 30 days after such receipt, the
Executive shall not have returned to full-time performance of his duties.

 

(i) “Good Reason” means any good faith determination made by the Executive
(which determination shall be conclusive) that any of the following has
occurred:

 

(i) the occurrence, on or after the Agreement Effective Date and during the
Coverage Period, of any of the following:

 

(A) the assignment to the Executive of any duties inconsistent in any material
adverse respect with the Executive’s position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities immediately
prior to the Change in Control, or any other action by the Company or its
affiliates which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive in accordance
with Section 10(c) of this Agreement;

 

(B) a reduction by the Company or its affiliates in the Executive’s rate of
annual base salary, benefits (including, without limitation, incentive or bonus
pay arrangements, stock plan benefit arrangements, and retirement and welfare
plan coverage) and perquisites as in effect immediately prior to the Change in
Control or as the same may be increased from time to time thereafter, other than
an isolated, insubstantial and inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of notice thereof
given by the Executive in accordance with Section 10(c) of this Agreement;

 

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(C) the Company’s requiring the Executive to be based at any office or location
more than 35 miles from the facility where the Executive is located at the time
of the Change in Control or the Company’ s requiring the Executive to travel on
Company business to a substantially greater extent than required immediately
prior to the Change in Control Date (but determined without regard to travel
necessitated by reason of any anticipated Change in Control);

 

(D) any purported termination by the Company or its affiliates of the
Executive’s employment otherwise than as expressly permitted by this Agreement;

 

(E) any failure by the Company or its affiliates to comply with and satisfy
Section 9(c) of this Agreement by obtaining satisfactory agreement from any
successor to assume and perform this Agreement; or

 

(F) so long as no Cause for Executive’s termination by the Company exists (or
would exist assuming the Board made a determination of Cause), a voluntary
cessation by the Executive of his employment for any reason during any Window
Period.

 

(ii) any event or condition described in paragraph (i) of this Section 1(i)
which occurs on or after the Agreement Effective Date, but prior to a Change in
Control, but was at the request of a third party who effectuates the Change in
Control, notwithstanding that it occurred prior to the Change in Control, but
such event or condition shall not be considered to actually have occurred until
the Change in Control Date.

 

(j) “Covered Termination” means a termination of Executive’s employment during
the Coverage Period (i) by the Company for any reason other than Cause or the
Executive’s Disability or death, or (ii) by the Executive for Good Reason.

 

(k) “Noncovered Termination” means a cessation of Executive’s employment which
is not a Covered Termination.

 

(l) “Window Period” means any of (i) the 60-day period commencing on the Change
in Control Date, (ii) the 60-day period commencing on the first anniversary of
the Change in Control Date, and (iii) the 60-day period commencing on the second
anniversary of the Change in Control Date.

 

2. CHANGE IN CONTROL. “Change in Control” means the occurrence, during the
Agreement Term, of either an “Acquisition of Controlling Ownership” (as defined
in Section 2(a) below), a “Change in the Incumbent Board” (as defined in Section
2(b) below), a “Business Combination” (as defined in Section 2(c) below), or a
“Liquidation or Dissolution” (as defined in Section 2(d) below).

 

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(a) “Acquisition of Controlling Ownership” means the acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (a
“person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (x) the then outstanding shares
of common stock of the Company (the “Outstanding Common Stock”) or (y) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the “Outstanding Voting
Securities”). Notwithstanding the foregoing, for purposes of this Section 2(a),
the following acquisitions shall not constitute a Change in Control:

 

(i) any acquisition directly from the Company,

 

(ii) any acquisition by the Company,

 

(iii) any acquisition by any employee benefit plan (or related trust sponsored
or maintained by the Company or any corporation controlled by the Company, or

 

(iv) any acquisition by any corporation pursuant to a transaction which complies
with paragraphs (i), (ii) and (iii) of this Section 2(c).

 

(b) “Change in the Incumbent Board” means that individuals who, as of April 16,
2002, constitute the Board (the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board. For this purpose, any individual
who becomes a director subsequent to April 16, 2002, whose election, or
nomination for election by the Company’s shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be thereupon considered a member of the Incumbent Board (with his predecessor
thereafter ceasing to be a member), but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of directors
or other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board.

 

(c) “Business Combination” means the consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a “Business Combination”) unless all of the following
occur:

 

(i) all or substantially all of the individuals and entities who were the
beneficial owners respectively, of the Outstanding Common Stock and Outstanding
Voting Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than

 

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60% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantial all of the Company’s assets either directly or through one or more
subsidiaries, in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Common Stock
and Outstanding Voting Securities, as the case may be,

 

(ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination, or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and

 

(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination.

 

(d) “Liquidation or Dissolution” means the approval by the shareholders of the
Company of a complete liquidation or dissolution of the Company.

 

3. OBLIGATIONS OF THE EXECUTIVE TO REMAIN EMPLOYED.

 

The Executive agrees that in the event any person or group attempts a Change in
Control, he shall not voluntarily leave the employ of the Company without Good
Reason (i) until such attempted Change in Control terminates or (ii) if a Change
in Control shall occur, until the Change in Control Date. For purposes of the
foregoing clause (i), Good Reason shall be determined as if a Change in Control
had occurred when such attempted Change in Control became known to the Board.

 

4. OBLIGATIONS UPON THE EXECUTIVE’S TERMINATION.

 

(a) Notice of Termination. Any termination of the Executive’s employment by the
Company or by the Executive, other than by reason of death, during the Coverage
Period shall be communicated by Notice of Termination to the other party hereto
given. Any termination of the Executive’s employment by the Company or by the
Executive, other than by reason of death, prior to or after the Coverage Period
shall be communicated by such

 

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method or methods as the Company may designate from time to time for its “at
will” employees. For purposes hereof:

 

(i) “Notice of Termination” means a written notice given in accordance with
Section 10(c) of this Agreement which (A) states whether such termination is for
Cause, Good Reason or Disability, (B) indicates the specific termination
provision in this Agreement relied upon, if any, (C) to the extent applicable,
sets forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive’s employment under the provision so
indicated, and (D) if the Date of Termination is other than the date of receipt
of such notice, specifies the termination date. The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason, Cause or Disability shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive’s or the Company’s rights hereunder.

 

(ii) “Date of Termination” means (A) if the Executive’s employment is terminated
by reason of Disability, the Disability Effective Date, (B) if the Executive’s
employment is terminated by the Company for any reason other than Disability,
the date of the Executive’s receipt of the Notice of Termination or any later
date specified therein, as the case may be, and (C) if the Executive’s
employment is terminated by the Executive for any reason, the date of the
Company’s receipt of the Notice of Termination or any later date specified
therein, as the case may be.

 

(b) Obligations of the Company in a Covered Termination. If the Executive’s
employment shall cease by reason of a Covered Termination, then the following
shall be paid or provided (the payments and benefits described in (i), (ii) and
(iii) below may hereinafter sometimes be referred to as the “Change in Control
Benefit” or “Change in Control Benefits”):

 

(i) the Company shall pay or cause to be paid in cash to the Executive eight (8)
consecutive quarterly installments, with interest at the applicable federal rate
(as defined in Section 1274(d) of the Internal Revenue Code of 1986, as amended
(the Code”) determined at the Change in Control Date on the unpaid balance paid
at the same time on each installment payment other than the first payment, with
the first of such installments being paid not later than 30 days after the Date
of Termination, (or if the Executive requests and the Company agrees in a lump
sum within 30 days after the Date of Termination) and with the aggregate
payments (excluding interest) totaling an amount equal to two (2) times the
Executive’s highest aggregate annual base salary from the Company and its
affiliated companies in effect at any time during the 24 month period ending on
the Change in Control Date;

 

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(ii) for two years after the Executive’s Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue or cause to be continued benefits
to the Executive and/or the Executive’s family at least equal to those under the
Welfare Benefit Plans. If the Executive becomes reemployed with another employer
and is eligible to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits described herein
shall be secondary to those provided under such other plan during such
applicable period of eligibility. For purposes of determining eligibility (but
not the time of commencement of benefits) of the Executive for any retiree
benefits pursuant to such plans, practices, programs and policies, the Executive
shall be considered to have remained employed until two years after the Date of
Termination and to have retired on the last day of such period. For purposes
hereof, the term “Welfare Benefit Plan” means the welfare benefit plans,
practices, policies and programs provided by the Company and its affiliates
(including, without limitation, any medical, prescription, dental, vision,
disability, life, accidental death and travel accident insurance plans and split
dollar insurance programs) to the extent applicable generally to other peer
executives of the Company and its affiliates, but in no event shall such plans,
practices, policies and programs provide the Executive with benefits which are
less favorable, in the aggregate, than the most favorable of such plans,
practices, policies and programs in effect for the Executive at any time during
the one year period immediately preceding the Change in Control Date or, if more
favorable to the Executive, those provided generally at any time after the
Change in Control Date to other peer executives of the Company and its
affiliated companies;

 

(iii) to the extent not theretofore paid or provided, the Company shall timely
pay or cause to be paid or provide or cause to be provided to the Executive any
other amounts or benefits required to be paid or provided or which the Executive
is eligible to receive under any compensation arrangement, plan, program, policy
or practice or contract or agreement of the Company and its affiliated companies
(such other amounts and benefits shall be hereinafter referred to as the “Other
Benefits”).

 

(c) Obligations of the Company in a Noncovered Termination. If the Executive’s
employment shall cease by reason of a Noncovered Termination, this Agreement
shall terminate without further obligations to the Executive other than the
obligation timely to pay or cause to be paid or provide or cause to be provided
to the Executive his Other Benefits.

 

5. FULL SETTLEMENT.

 

(a) No Offset or Mitigation. The Company’s obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,

 

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recoupment, defense or other claim, right or action which the Company may have
against the Executive. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and such
amounts shall not be reduced whether or not the Executive obtains other
employment.

 

(b) Executive’s Expense in Dispute Resolution. The Company agrees to pay, to the
full extent permitted by law, all legal fees and expenses which the Executive
may reasonably incur as a result of a contest (in which the Executive
substantially prevails) by the Company, the Executive or others of the validity
or enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the lower of (i) the Wall Street
Journal Prime Rate or (ii) the applicable Federal mid-term rate provided for in
Section 1274(d), compounded semi-annually, of the Code.

 

(c) Payment prior to Dispute Resolution. If there shall be any dispute between
the Company and the Executive in the event of any termination of Executive’s
employment, then, unless and until there is a final, nonappealable judgment by a
court of competent jurisdiction declaring that such termination was a Noncovered
Termination, that the determination by the Executive of the existence of Good
Reason was not made in good faith, or that the Company is not otherwise
obligated to pay any amount or provide any benefit to the Executive and his
dependents or other beneficiaries, as the case may be, under Section 4(b), the
Company shall pay all amounts, and provide all benefits, to the Executive and
his dependents or other beneficiaries, as the case may be, that the Company
would be required to pay or provide pursuant to Section 4(b) as though such
termination were not a Noncovered Termination. Notwithstanding the foregoing,
the Company shall not be required to pay any disputed amounts pursuant to this
Section 5(c) except upon receipt of an adequate bond, letter of credit or
undertaking by or on behalf of the Executive to repay all such amounts to which
the Executive is ultimately adjudged by such court not to be entitled.

 

6. PAYMENT LIMITATION AND EXCISE TAX GROSS-UP.

 

(a) Additional Payment. Anything in this Agreement to the contrary
notwithstanding and except as set forth below, in the event it shall be
determined that any payment or benefit provided to, or for the benefit of, the
Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 6) (a “Payment”) would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive 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 the Executive shall be
entitled to receive an additional payment (a “Gross-Up Payment”) in an amount
such that after payment by the Executive of all taxes (including any interest or

 

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penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto),
employment taxes and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments. Notwithstanding the foregoing provisions of this Section 6(a), if
it shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Executive, after taking into account the Payments and the Gross-Up
Payment, would not receive a net after-tax benefit of at least $25,000 (taking
into account income taxes, employment taxes and any Excise Tax) as compared to
the net after-tax proceeds to the Executive resulting from an elimination of the
Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount
(the “Limited Payment Amount”) such that the receipt of Payments would not give
rise to any Excise Tax, then the following shall apply:

 

(i) No Gross-Up Payment shall be made to the Executive.

 

(ii) The Payments, in the aggregate, shall be reduced to the Limited Payment
Amount, and in that case, unless the Executive and the Company shall otherwise
agree, the Company shall reduce or eliminate the Payments to the Executive by
first reducing or eliminating those payments or benefits which are not payable
in cash and then by reducing or eliminating cash payments, in each case in
reverse order beginning with payments or benefits which are to be paid the
farthest in time from the Determination (as hereinafter defined). Any notice
given by the Executive pursuant to the preceding sentence shall take precedence
over the provisions of any other plan, arrangement or agreement governing
Executive’s rights and entitlements to any benefits or compensation.

 

(iii) If it is established pursuant to a final determination of a court or an
Internal Revenue Service (the “IRS”) proceeding which has been finally and
conclusively resolved, that Payments which should have been limited to the
Limited Payment Amount have been made to, or provided for the benefit of, the
Executive by the Company, which are in excess of the limitations provided in
Section 6(a) (hereinafter referred to as an “Excess Payment”), such Excess
Payment shall be deemed for all purposes to be a loan to the Executive made on
the date the Executive received the Excess Payment and the Executive shall repay
the Excess Payment to the Company on demand, together with interest on the
Excess Payment at the applicable federal rate (as defined in Section 1274(d) of
the Code) from the date of Executive’s receipt of such Excess Payment until the
date of such repayment.

 

(b) Gross-Up Payment and Limited Payment Amount Determinations. Subject to the
provisions of Section 6(c), all determinations required to be made under this
Section 6, including whether and when a Gross-Up Payment or payment of only the
Limited Payment Amount is required and the amount of such Gross-Up Payment or
Limited Payment Amount and the assumptions to be utilized in arriving at such
determination, shall be made by the Company’s

 

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public accounting firm (the “Accounting Firm”) which shall provide detailed
supporting calculations both to the Company and the Executive within fifteen
business days of the receipt of notice from the Executive in accordance with
Section 10(c) of this Agreement that there has been a Payment, or such earlier
time as is requested by the Company and, with respect to any Limited Payment
Amount, a reasonable opinion to the Executive that he is not required to report
any excise tax on his federal income tax return with respect to the Limited
Payment Amount. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change in Control,
the Executive 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 determinations regarding the
Gross-Up Payment called for herein shall be based on the maximum applicable
marginal tax rates for each year in which such payments and benefits shall be
paid or provided to, or for the benefit of, the Executive (based upon the rate
in effect for such year at the time of the first payment of the foregoing and,
as appropriate as determined by the Accounting Firm, the taxable wage base for
employment tax purposes). All fees and expenses of the Accounting Firm shall be
borne solely by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 6, shall be paid by the Company to the Executive within ten
business days of the receipt of the Accounting Firm’s determination. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Payments or Gross-Up Payments which will not have
been made by the Company should have been made (an “Underpayment”), consistent
with the calculations required to be made hereunder. In the event that the
Company exhausts its remedies pursuant to Section 6(c) and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be paid by the Company to or for the benefit of the Executive
within ten business days of such determination together with interest on such
amount (other than with respect to interest or penalties, if any, included in
the calculation of the Underpayment) at the applicable federal rate from the
date such amount would have been paid to the Executive until the date of
payment.

 

(c) Notices and Advances. The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would or may
require the payment by the Company of a Gross-Up Payment or the payment by the
Executive of an Excise Tax with respect to a Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due) in accordance with Section 10(c) of this

 

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Agreement. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:

 

(i) provide to the Company any information reasonably requested by the Company
relating to such claim,

 

(ii) take such action in connection with contesting such claim as the Company
shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company,

 

(iii) cooperate with the Company in good faith in order effectively to contest
such claim, and

 

(iv) permit the Company to participate in any proceedings relating to such
claim.

 

Notwithstanding the foregoing, the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and, if a Gross-Up Payment is due, shall indemnify
and hold the Executive harmless, on an after-tax basis, for any Excise Tax,
income tax or employment tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this Section 6(c),
the Company shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive to pay the
tax claimed and sue for a refund or to contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine. If the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax, income tax or employment tax (including interest or penalties
with respect thereto) imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company’s control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.

 

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(d) Refund Payment and Advance Forgiveness. If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 6(c), the
Executive becomes entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company’s complying with the requirements of
Section 6(c)) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company pursuant
to Section 6(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.

 

(e) Banking Payment Limitation. Notwithstanding anything contained in this
Agreement or any other agreement or plan to the contrary, the payments and
benefits provided to, or for the benefit of, the Executive under this Agreement
or under any other plan or agreement shall be reduced (but not below zero) to
the extent necessary so that no payment to be made, or benefit to be provided,
to the Executive or for his benefit under this Agreement or any other plan or
agreement shall be in violation of the golden parachute and indemnification
payment limitations and prohibitions of 12 CFR Section 359.

 

7. TERMINATION OF AGREEMENT.

 

This Agreement shall be effective as of the Agreement Effective Date and shall
normally continue until the later of the Agreement Regular Termination Date or,
if a Change in Control has occurred, until the end of the Coverage Period.
Notwithstanding the foregoing, this Agreement shall terminate in any event upon
the Executive’s cessation of employment in a Noncovered Termination.

 

8. CONFIDENTIAL INFORMATION.

 

(a) No Disclosure by Executive. The Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information, knowledge
or data relating to the Company or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the Executive during
the Executive’s employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executive’s employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it.

 

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(b) Remedies for Breach. It is recognized that damages in the event of breach of
Section 8(a) above by the Executive would be difficult, if not impossible, to
ascertain, and it is therefore specifically agreed that the Company, in addition
to and without limiting any other remedy or right it may have, shall have the
right to an injunction or other equitable relief in any court of competent
jurisdiction, enjoining any such breach. The existence of this right shall not
preclude the Company from pursuing any other rights and remedies at law or in
equity which it may have.

 

(c) Breach Not Basis to Withhold Payment. In no event shall an asserted
violation of the provisions of this Section 8 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement.

 

9. BENEFIT AND SUCCESSORS.

 

(a) Executive’s Benefit. This Agreement shall inure to the benefit of and be
enforceable by the Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive should die and any amount remains payable thereunder after his death,
any such amount, unless otherwise agreed by the Company or provided herein,
shall be paid in accordance with the terms of this Agreement to the Executive’s
devisee, legatee or other designee of such payment or, if there is no such
designee, the Executive’s estate.

 

(b) Company’s Benefit. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.

 

(c) Assumption by Successor to Company. The Company will 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 to assume
expressly 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. As used in this Agreement, “Company” shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.

 

10. MISCELLANEOUS.

 

(a) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Virginia, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect.

 

(b) Amendment. This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto on their respective successors
and legal representatives.

 

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(c) Notices. All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:

 

If to the Executive:

    

Bryan McKernon

    

    _____________________

    

    _____________________

    

    ____________________

If to the Company:

    

President, C&F Financial Corporation

    

P. O. Box 391

    

8th & main Streets

    

West Point, Virginia 23181

      

Copy to:

    

James H. Hudson III

    

Hudson & Bondurant, P.C.

    

826 Main Street – P.O. Box 231

    

West Point, VA 23181

 

or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

 

(d) Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.

 

(e) Tax Withholding. The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.

 

(f) Waiver. The Executive’s or the Company’s failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to this Agreement, shall not be deemed to be a waiver of such provision
or right or any other provision or right of this Agreement.

 

(g) Executive’s Employment. The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written agreement between
the Executive and the Company, the employment of the Executive by the Company is
“at will” and, subject to paragraph (ii) of Section 1(i) hereof deeming a
termination to have occurred on or after the occurrence of a Change in Control
Date, the Executive’s employment and/or this Agreement

 

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may be terminated by either the Executive or the Company at any time prior to
the Change in Control Date, in which case the Executive shall have no further
rights under this Agreement.

 

(h) Nonexclusivity of Rights. Except as expressly provided in Section 6, nothing
in this Agreement shall prevent or limit the Executive’s continuing or future
participation in any plan, program, policy or practice provided by the Company
or any of its affiliated companies and for which the Executive may qualify, nor
shall anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Executive’s termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.

 

(i) Statutory References. Any reference in this Agreement to a specific
statutory provision shall include that provision and any comparable provision or
provisions of future legislation amending, modifying, supplementing or
superseding the referenced provision.

 

(j) Nonassignability. This Agreement is personal to the Executive, and without
the prior written consent of the Company, no right, benefit or interest
hereunder shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, except by will or the laws
of descent and distribution, and any attempt thereat shall be void; and no
right, benefit or interest hereunder shall, prior to receipt of payment, be in
any manner liable for or subject to the recipient’s debts, contracts,
liabilities, engagements or torts.

 

(k) Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be considered an original and all of which together shall
constitute one agreement.

 

(l) Employment with Affiliates. Employment with the Company for purposes of this
Agreement shall include employment with any corporation or other entity in which
the Company has a direct or indirect ownership interest of 50% or more of the
total combined voting power of the then outstanding securities of such
corporation or other entity entitled to vote generally in the election of
directors or which has a direct or indirect ownership interest of 50% or more of
the total combined voting power of the then outstanding securities of the
Company entitled to vote generally in the election of directors.

 

(m) Supercedes Prior Agreements. This Amended and Restated Agreement amends,
restates and supercedes that Agreement entered into between Bryan McKernon and
C&F Financial Corporation dated April 16, 2002, and all amendments thereto.

 

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IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.

 

C&F FINANCIAL CORPORATION

By:

 

/s/ Larry G. Dillon

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Larry G. Dillon, President

   

/s/ Bryan McKernon

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Bryan McKernon

 

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