Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement, (the "Agreement"), made this the 1st day of June,
2008, by and between Shore Bank, a banking corporation organized under the laws
of the Commonwealth of Virginia (the "Bank" or "Employer"), with a principal
address of 25020 Shore Parkway, Onley, Virginia (23418), and Scott C. Harvard
(the "Officer"), with an address of ____________, ____, Virginia (____), and to
which Hampton Roads Bankshares, Inc., a Virginia corporation and the proposed
parent company of the Employer (“HRB”), is made a party.

 

WITNESSETH:

 

WHEREAS, this Agreement is entered into by the Bank as a condition of the
closing of that certain Agreement and Plan of Merger (the “Merger Agreement”)
dated January 8, 2008, by and between HRB and Shore Financial Corporation, a
Virginia corporation, (“SFC”), pursuant to which Merger Agreement the Bank will
become a wholly owned subsidiary of HRB and, further, Officer is being directly
and materially benefited as an equity holder and executive of SFC and through
this Agreement with the Bank;

 

WHEREAS, the Officer currently is rendering or desires to render valuable
services to the Employer and and HRB and it is the desire of the Employer and
HRB to have the benefit of the Officer's continued and future loyalty, service
and counsel;

 

WHEREAS, Employer is engaged in the business of banking and Officer has
particular and peculiar knowledge and background in the operation of a business
of this nature; and

 

WHEREAS, the Officer wishes to continue in the employ of the Employer.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
set forth, the parties covenant and agree as follows:

 

1.                        Employment.   The Employer agrees to continue to
employ the Officer, and the Officer agrees to continue to or serve the Employer,
as the Bank’s President and Chief Executive Officer, upon the terms and
conditions herein provided. As of the Commencement Date (as defined below) or as
soon thereafter as HRB’s Board of Directors shall meet, the Officer will also be
elected as the Executive Vice President for DelMarVa Operations for HRB and
serve as an executive officer of HRB in that position as HRB is currently
structured. For purposes of this Agreement, “DelMarVa” shall be defined as the
geographic area encompassing parts of Delaware, Maryland and Virginia generally
known as the DelMarVa Peninsula. The Officer agrees to perform such managerial
duties and responsibilities as shall be assigned to him by Employer’s Board of
Directors (the “Board”) and/or the President and/or Chief Executive Officer of
HRB; provided, however, as HRB is currently structured, the Officer will report
to HRB’s Chief Executive Officer. The Officer shall devote his time and
attention on a full-time basis to the discharge of the duties undertaken by him
hereunder; provided, however, that the Officer may (i) continue to serve on the
Board of the Federal Home Loan Bank of Atlanta for so long as Officer is elected
or re-elected to such position and (ii) serve on the boards of directors of
other companies with the prior consent of the Board.

 

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2.

Terms and Compensation.

 

(a)           Term of Agreement. The term (the “Term”) of this Agreement shall
commence on the date (the “Commencement Date”) of the closing of the Merger
Agreement. On the Commencement Date, the Officer’s certain Amended and Restated
Employment Agreement dated December 14, 1999, with SFC and certain Management
Continuity Agreement dated December 14, 1999, with SFC shall both terminate and
be superseded and replaced with this Agreement. Thereafter, the Agreement shall
continue until the first to occur of (i) except as otherwise provided in Section
3 hereof, the end of the sixtieth (60th) consecutive full month following the
Commencement Date, (ii) the Officer's death, or (iii) except as provided in
Paragraph (d) of this Section 2, the Officer's disability. Notwithstanding the
foregoing, however, in the event the Officer is not informed by the Bank, in
writing, prior to the last day of the forty-eighth (48th) consecutive full month
following the Commencement Date of employment, or any subsequent renewal term,
that this Agreement will not be renewed, this Agreement will automatically renew
itself for additional periods of sixty (60) months (each a “Renewal Term”) from
the original anniversary date or, as the case may be, any Renewal Term. For
purposes of this Agreement, the “Term” shall include and refer to, as
appropriate by the context, any Renewal Term.

 

(b)            Compensation. Officer shall be paid an annual base salary of not
less than $250,000 (“Base Salary”), payable in accordance with the Bank’s normal
payroll practices. Any increases or adjustments in Officer’s annual Base Salary
shall be in the sole discretion of the Board.

 

(c)            Benefits. The Officer shall be eligible for participation in any
additional plans, programs or forms of compensation or benefits that the Bank
might provide from time to time to the class of employees that includes the
Officer, or, as allowed, for the Officer solely, which benefit plans currently
or may include: (i) the Bank’s 401K Retirement Program subject to normal
Internal Revenue Service guidelines with respect to the maximum amount of
participation; (ii) a non contributory profit sharing plan where a discretionary
contribution made by the Bank on behalf of its personnel is allocated based upon
IRS allocations for profit sharing plans necessary to insure that it remains a
qualified retirement account in accordance with ERISA guidelines; and (iii) a
deferred compensation arrangement described in subsection 2(d) below. In
addition, it is the intent of HRB to have Shore Bank, subject to the approval of
the Shore Bank’s Board of Directors, establish an executive savings plan for
Shore Bank employees, including the Officer, on, or as soon as practicable
after, the Commencement Date, that provides benefits similar to the executive
savings plan currently maintained by Bank of Hampton Roads. The benefits, rights
and obligations of the Officer under the various plans or arrangements set forth
above or in this Agreement shall be exclusively governed by the respective plans
or governing documents as they may be amended or established from time to time
in the event of any conflict with this Agreement.

 

(d)          Retention Bonus; Deferred Compensation Arrangement. On the
Commencement Date, $244,000 shall be paid to Officer as a retention bonus. In
addition, on the earlier of ten years from the Commencement Date or the date on
which Officer's employment by the Bank and its affiliates ceases for whatever
reason, the Officer shall be paid $400,000 pursuant to a deferred compensation
arrangement that will offer investment options that will be as substantially
similar as possible to the investment options to be made available under the
Bank’s proposed executive savings plan, plus any additional amounts described in
the next sentence. While the Officer is employed by the Bank or its affiliates,
the Bank will accrue the

 

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following additional amounts for the benefit of Officer as of last day of each
calendar year beginning December 31, 2009 and ending December 31, 2018: (i) if
the Bank’s year-over-year net income under GAAP for such calendar year increases
by 10% or more, $100,000, or (ii) if Bank’s year-over-year net income under GAAP
for such calendar year increases, but such increase is less than 10%, $25,000,
including, in either case, earnings on such amounts beginning on or about
December 31st of each year that an award is made based on the investment options
that will be as substantially similar as possible to the investment options to
be made available under the Bank’s proposed executive savings plan. For purposes
of clarity, calculations for 2008 shall be inclusive of expenses related to the
merger of HRB and SFC.

 

(e)             Disability.   In the event of the physical or mental disability
of the Officer by reason of which the Officer is unable to perform the duties of
his employment hereunder, the Employer shall continue to pay or provide to the
Officer the compensation and benefits provided under Paragraphs (b) and (c) of
this Section 2 for the first six (6) months of such disability. If, however, the
disability continues beyond such six-month period, the Employer may, at its
election, terminate the Officer's employment under this Agreement, in which case
the Officer may be entitled to receive disability benefits, if any, available to
the Officer under the Employer’s plans in effect at that time.

 

(f)             Death.   In the event that the Officer's death should occur
during the Term of this Agreement, this Agreement shall terminate and the
Officer or his estate or beneficiaries, as the case may be, shall be entitled
only to income earned but not yet paid as of the date of death and any and all
retirement or death benefits payable under the Employer's plans in effect at
that time and no further compensation will be paid under this Agreement.

 

(g)           Automobile.    During the Term, the Bank will provide Officer with
the use of a vehicle which Officer may choose and select within a reasonable
budget established by the Board. All fuel, insurance and maintenance shall be
paid for by the Bank pursuant to the Bank’s Automobile Policy as adopted by the
Board.

 

(h)           Vacation.    The Officer will be entitled to paid vacation days in
accordance with the Bank’s vacation policy for senior executive officers as
adopted by the Board but in no event less than 20 days.

 

(i)             Insurance and other Expenses.    The Bank will provide Officer
with health insurance, dental insurance and life insurance coverage as are
provided to the class of employees that includes the Officer, as well as the
necessary tools to perform Officer’s duties as an executive officer of the Bank,
including, but not limited to, reimbursement (aa) for the Officer’s current
cellular phone plan or participation in the Bank’s cell phone plan, (bb) current
and customary dues and related expenses at the Eastern Shore Yacht & Country
Club, and (cc) dues for necessary civic organizations which Officer may join and
are used or designed to further enhance Officer’s opportunity to conduct the
business of the Bank, subject to approval by the Board.

 

(j)              Stock Options. Officer shall be eligible to participate in
HRB’s current stock option program (including the Bank’s current stock option
program as may be assumed by HRB as of the Commencement Date) and any future
stock option program as may be adopted from time to time by HRB, subject at all
times to a determination by the HRB Board of Directors to include the Officer in
any stock option program. In addition to stock options that will arise or as are
granted during Officer’s employment period, on the Commencement Date, HRB will
issue to the Officer (i) incentive

 

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stock options for 8,000 shares of HRB common stock and (ii) non-statutory stock
options for 10,000 shares of HRB common stock, with the exercise price of each
option being equal to the fair market value of HRB common stock on the date of
grant. Such options shall vest over five (5) years and be subject to the stock
incentive plan as adopted by HRB’s Board of Directors and shareholders in effect
at the time of issuance.

 

(k)          Incentive for Future Bank Acquisitions. During the course of
Officer’s employment by the Bank, if, through the substantial efforts of and
participation by Officer, either HRB or the Bank acquires another bank or
related financial institution, then, within thirty (30) days subsequent to the
closing of any such transaction, HRB will issue to the Officer incentive stock
options for 5,000 shares of HRB common stock, with the exercise price of each
option being equal to the fair market value of HRB common stock on the date of
grant. Such options shall vest over five (5) years and be subject to the stock
incentive plan as adopted by HRB’s Board of Directors and shareholders in effect
at the time of issuance.

 

(l)           Termination of Compensation and Benefits. The foregoing
compensation, benefits, and other arrangements described in this Section 2 shall
cease when Officer is no longer employed by Employer for any reason or upon
termination of this Agreement.

 

 

3.

Termination of Employment.

 

(a)           Termination by the Employer.    Officer’s employment with the Bank
may be terminated by the Bank in accordance with the following provisions:

 

(i)           The Bank may, at any time, terminate Officer’s employment for
“good cause” (as defined below). If such termination is for good cause, then the
Officer shall be entitled only to receive his base salary in respect of services
performed through the Date of Termination and the compensation and benefits of
the Officer will cease as of the Date of Termination as defined in Paragraph
3(d). For purposes of this Agreement, “good cause” means a dismissal of the
Officer by Employer because of (i) the material failure of the Officer, for
reasons other than disability, to render services to the Employer as provided
herein; (ii) the Officer's gross or willful neglect of duty, neglect or refusal
to perform all duties assigned to him, in good faith, under this Agreement or by
Employer; (iii) imprudent financial management of Employer by the Officer not
otherwise authorized which causes Employer an extraordinary or material loss;
(iv) conviction of or guilty plea to a felony or a crime involving moral
turpitude; (v) illegal use of drugs or alcohol; (vi) the material breach of this
Agreement; (vii) material waste or misuse of assets of Employer; (viii)
embezzlement, dishonesty, fraud or other similar acts reflecting adversely upon
Officer’s honesty and integrity, (ix) illegal or intentional acts by the Officer
demonstrating bad faith toward the Employer, including, but not limited to, any
conduct by Officer so as to permit, condone or acquiesce in any act or conduct
of other persons, which could cause Employer, its parent or any of its
subsidiaries, to be in material violation of any law, statute or regulation, or
(x) commission by Officer of any other act which causes a material adverse
impact on the Bank’s standing in the community or with its customers, staff or
shareholders, including, but not limited to, if Officer is suspended and/or
temporarily prohibited from participating in the conduct of the Employer’s
business by any regulatory authority governing Employer’s business.

 

(ii)          The Bank may, at any time, terminate Officer’s employment without
“good cause” (as defined above). If such termination is without good cause then
Employer shall pay the Officer a termination allowance in not more than twelve
(12) equal

 

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monthly payments commencing on the last day of the month in which the date of
actual termination occurs, the total amount of which will equal the Officer’s
Base Salary, but not including any bonuses, exclusive of any payments made
pursuant to Section 2(e), paid to the Officer by Employer in the twelve (12)
months preceding the Notice of Termination. Except as provided in this
paragraph, upon the termination herein described, the compensation and benefits
of the Officer will cease as of the Date of Termination as defined in Paragraph
3(d).

 

(iii)        If Officer’s employment is terminated by the Bank without good
cause and such termination occurs within one (1) year after a “Change in
Control” of Employer’s Parent Company (as such terms are defined below) then the
provisions of Paragraph 4 shall govern the compensation or benefits owed to the
Officer upon the Officer’s termination.

 

(b)          Termination by the Officer.  Officer’s employment with the Bank may
be terminated by the Officer in accordance with the following provisions: 

 

(i)           The Officer shall be entitled to terminate his employment pursuant
to this Agreement voluntarily at any time, provided, however, that in the event
the Officer terminates his employment pursuant to this Agreement without “good
reason” (as defined below) or other than in connection with a “Change in
Control” as described below, then the Officer shall be entitled to no
termination allowance and/or no severance allowance and no further compensation
or benefits after the "Date of Termination" as defined in part (d) of this
Paragraph 3.

 

(ii)          The Officer may terminate his employment for good reason and will
be entitled in such event to the payments and other benefits provided in
Paragraph 3(a)(ii) in the event of a termination of the Officer’s employment
without good cause. For purposes of this Agreement, “good reason” shall mean:
(aa) the continued assignment to the Officer of duties inconsistent with the
Officer’s position, duty and responsibilities with Employer as of the
Commencement Date to which the Officer objects, in writing; (bb) the relocation
of the Officer to a primary place of employment which might require the Officer
to move his residence which, for this purpose, includes any reassignment to a
place or employment located more than thirty-five (35) miles from Onley,
Virginia, without Officer’s express written consent to such relocation; or (cc)
any failure by Employer or HRB, or any successor entity following a “Change of
Control” (as defined below), to comply with the provisions of Section 2 or other
material term of this Agreement. Notwithstanding the foregoing, “good reason”
shall not include any resignation by the Officer where good cause exists for the
Officer’s termination by the Employer or an isolated, insubstantial, immaterial
and/or inadvertent action not taken in bad faith by the Employer or HRB and
which is remedied within a reasonable time after receipt of notice thereof given
by the Officer.

 

(iii)        The Officer shall be entitled to terminate his employment pursuant
to this Agreement within six (6) months after the occurrence of a “Change in
Control” with respect to HRB, its successor’s or assigns, (Employer’s “Parent
Company”), in which case Employer shall be obligated to pay the Officer and
furnish him the benefits provided in Section 4 hereof. For purposes of this
Agreement, a Change in Control shall be defined as (a) the date that any one
person, or more than one person, acting as a group, acquires ownership of stock
of the Parent Company that, together with stock held by such person or group
constitutes more than 50% of the total fair market value or total voting power
of the stock of the Parent Company, (b) the date any one person, or more than
one person, acting as a group, acquires (or has acquired

 

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ownership during the 12 month period ending on the date of the most recent
acquisition by such person) ownership of stock of the Parent Company possessing
30% or more of the total voting power of the stock, or (c) the date a majority
of the members of the Parent Company’s Board is replaced during any twelve (12)
month period by directors whose appointment or election is not endorsed by a
majority of the members of the Parent Company’s Board before the date of the
appointment or election.

 

(c)           Notice of Termination.    Any termination of the Officer's
employment by the Employer or by the Officer shall be communicated by a written
Notice of Termination to the other party hereto. For purposes of this Agreement,
a "Notice of Termination" shall mean a written notice which shall indicate the
specific termination provision(s) in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances providing the basis for
termination.

 

(d)           Date of Termination.    The "Date of Termination" shall mean (i)
if the Agreement is terminated by the Officer, the date on which the Notice of
Termination is delivered to Employer, (ii) if the Agreement is terminated by the
Employer because of the Officer's disability, thirty (30) days after the Notice
of Termination is given, or (iii) if the Officer's employment is terminated by
the Employer for any other reason, the date on which a Notice of Termination is
given.

 

4.             Compensation upon Termination for a Change in Control Event. If
the Officer’s employment is terminated by the Bank in accordance with Section
3(a)(iii) or the Officer terminates his employment pursuant to Section 3(b)(iii)
hereof, then:

 

(a)            Accrued but Unpaid Compensation.     The Employer shall pay the
Officer's full base salary through the Date of Termination at the rate then in
effect and the amount, if any, of awards theretofore made which have not yet
been paid.

 

(b)          Severance Allowance.    The Employer shall pay the Officer a
severance allowance in sixty (60) equal monthly payments commencing on the last
day of the month in which the Date of Termination occurs, the total amount of
which will equal 2.99 times (2.99x) the base amount.

 

For purposes of this Paragraph 4(b), the following definitions shall apply:

 

(i)            Base Amount - The term "base amount" means the Officer's average
annualized includible compensation for the base period.

 

(ii)          Annualized Includible Compensation for the Base Period - The term
"annualized includible compensation for the base period" means the average
annual compensation paid by the Employer, which was includible in the gross
income of the Officer for federal income tax purposes for taxable years in the
base period.

 

(iii)         Base Period - The term "base period" means the period consisting
of the most recent three (3) taxable years ending before the date on which the
Change of Control occurs.

 

(iv)          Present Value - Present value shall be determined in accordance
with Section 1274(b)(2) of the Code.

 

 

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(c)           Incentive Plans.   The Employer shall pay such other amounts to
which the Officer is entitled according to the terms of the incentive plans,
equity plans, supplemental retirement plans, etc., in which the Officer
participates.                   

 

(d)           Employee Benefits.    The Employer shall maintain in full force
and effect, for the Officer's continued benefit until the earlier of the first
(1st) anniversary of the Date of Termination or the date the Officer becomes a
participant in similar plans, programs or arrangements provided by a subsequent
employer, all life, accident, medical and dental insurance benefit plans and
programs or arrangements in which the Officer was entitled to participate
immediately prior to the Date of Termination, provided that the Officer's
continued participation is possible under the general terms and provisions of
such plans and programs. In the event that the Officer's participation in any
such plan or program is barred, the Employer shall arrange to provide the
Officer with benefits substantially similar to those which the Officer is
entitled to receive under such plans and programs. At the end of the period of
coverage, the Officer shall have the option to have assigned to him at no cost
and with no apportionment of prepaid premiums, any assignable insurance policy
owned by the Employer and relating specifically to the Officer.

 

(e)           No Duty to Mitigate.      The Officer shall not be required to
mitigate the amount of any payment provided for in this Section 4 by seeking
other employment or otherwise, nor shall the amount of any payment provided for
in this Section 4 be reduced by any compensation earned by the Officer as the
result of employment by another employer after the Date of Termination, or
otherwise.

 

5.              Return of Bank Property. When the Officer's employment with the
Bank ends, the Officer shall immediately deliver to the Bank all of its
property, including, but not limited to (i) all documents and copies of such
documents whether in hard copy or electronic format, including, but not limited
to, address and telephone records of customers, listings of customer names
and/or account numbers, and any telephone records of customers, listings of
customer names and/or account numbers, and any other items or records in the
Officer's possession, or subsequently coming into the Officer's possession
pertaining to the business of Employer, including without limitation,
confidential and proprietary information which the Officer would not possess but
for his or her employment relationship with Employer and (ii) any tangible
personal property of Employer or provided by Employer to Officer, including, but
not limited to, computer(s) and related peripherals, laptops, automobiles,
cellular telephones, access cards and credit cards.

 

 

6.

Prohibition of Certain Activities.

 

(a)              During the Officer's employment with the Bank and for a period
of one (1) year following the date Officer's employment with the Bank ends, the
Officer will not, directly or indirectly, either as a principal, agent,
employee, employer, stockholder, partner or in any other individual or
representative capacity whatsoever, engage in a position where Officer is
engaged in the process of providing services or products that compete with the
services or products the Bank provided at any time during the last year of
Officer’s employment with the Bank. This restriction shall only apply within a
twenty-five (25) mile radius of any office or branch operated by the Bank on the
date Officer’s employment with the Bank ends.

 

(b)              During the Officer's employment with the Bank and for a period
of one (1) year following the later of (i) the date Officer's employment with
the Bank ends or (ii) the date Officer ceases to receive any payment from the
Bank pursuant to this Agreement (except as provided below), Officer will

 

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not solicit, or assist any person or entity to solicit, any person or entity
who, during the six (6) month period prior to the date Officer’s employment with
the Bank ends, paid or engaged the Bank for products or services, for the
purpose of providing services or selling products where those services or
products compete with the services or products offered by the Bank as of the
date Officer’s employment with the Bank ends. If Officer’s employment with the
Bank is terminated pursuant to sections 3(a)(iii) or 3(b)(iii) of this
Agreement, the duration of the restriction set forth in this section 6(b) shall
be one (1) year from the date Officer’s employment with the Bank ends.

 

(c)              During the Officer's employment with the Bank and for a period
of one (1) year following the later of (i) the date Officer’s employment with
the Bank ends or (ii) the date Officer ceases to receive any payment from the
Bank pursuant to this Agreement (except as provided below), the Officer agrees
that he will not on his own behalf or on behalf of any person or entity, in any
capacity, solicit, recruit or hire or assist others in soliciting, recruiting or
hiring any person who is currently or was during the preceding twelve (12)
months prior to the Officer's termination of employment with Employer, an
employee or officer with Employer, Employer’s subsidiaries or Employer’s Parent
Company. If Officer’s employment with the Bank is terminated pursuant to
sections 3(a)(iii) or 3(b)(iii) of this Agreement, the duration of the
restriction set forth in this section 6(c) shall be one (1) year from the date
Officer’s employment with the Bank ends.

 

(d)              During the Officer's employment with the Bank, and at all times
thereafter, Officer agrees not to disclose, communicate or divulge to any third
party, or use, or permit others to use, any confidential information of the
Bank. For purposes of this Agreement, “confidential information” shall mean all
information disclosed to Officer, or known to Officer as a consequence of or
through Officer’s employment with the Bank, where such information is not
generally known by the public or was regarded or treated as proprietary by the
Bank.

 

Subsections (a), (b), (c), and (d) of this Section 6 are intended by the parties
hereto as separate and divisible provisions, and if for any reason either one is
held to be invalid or unenforceable, neither the validity nor the enforceability
of the other shall thereby be affected. If any court holds that the whole or any
part of Subsections (a), (b), (c), and (d) is unenforceable by reason of the
extent, duration or geographic scope thereof, or otherwise, then the court
making such determination shall have the right to reduce such extent, duration,
geographic scope, or other provisions hereof, and in its reduced form such
Section shall be enforceable in the manner contemplated hereby.

 

7.            Notice of Subsequent Employment. For a period which is the later
of one (1) year (i) after the Officer's employment with Employer ends or (ii)
the date Officer ceases to receive any payment from the Bank pursuant to this
Agreement (except as provided below), the Officer agrees to notify Employer of
the name and address of the Officer's employer and the Officer hereby authorizes
Employer to contact any such employer during that period for the limited purpose
of making the employer aware of this Agreement and protection against any
disclosure of confidential and proprietary information, or unfair competition.
If Officer’s employment with the Bank is terminated pursuant to sections
3(a)(iii) or 3(b)(iii) of this Agreement, the duration of the restriction set
forth in this section 7 shall be one (1) year from the date Officer’s employment
with the Bank ends.

 

8.            Remedies. The Officer acknowledges that if Officer breaches or
threatens to breach this Agreement, in addition to any and all other rights and
remedies it may have, Employer shall be entitled to injunctive relief, both
pendente lite and permanent, against the Officer, as the Officer recognizes that
a remedy at law would be inadequate and insufficient.

 

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Employer shall be entitled to recover from the Officer all costs and expenses,
including but not limited to reasonable attorney's fees and court costs,
incurred by Employer as a result of or arising out of any breach of threatened
breach under or pursuant to this Agreement in addition to such other rights and
remedies as Employer may have under this Agreement or any other agreement, at
law or in equity.

 

9.            Section 4999 Gross-Up Payment. In the event it shall be determined
that any payments and benefits called for under the Agreement and any Amendments
thereto, together with any other payments and benefits (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 Agreement (a "Payment") would be subject to the excise tax imposed
under Section 4999 of the Code, or any successor statute, or any interest or
penalties are incurred by the Officer with respect to such excise tax
(collectively, the "Excise Tax"), then the Officer shall be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Officer of all taxes (including any interest or penalties imposed
with respect to such taxes), including, without limitation, any income taxes
(and any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Officer retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the payments.

 

(a)          Gross -Up Determination. Subject to the provision of Subsection (b)
herein, all determinations required to be made under this Agreement, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by Employer’s external accounting firm or such other independent
certified accounting firm (the "Accounting Firm") selected by mutual consent of
Employer and the Officer, which shall provide detailed supporting calculations
both to Employer and the Officer within fifteen (15) business days of the
receipt of notice from the Officer that there has been a Payment, or such
earlier time as is requested by Employer. The calculations under this Agreement
will be made in a manner consistent with the requirements of Code Sections 280G
and 4999 and any applicable related regulations and any related Internal Revenue
Service rulings. All fees and expenses of the Accounting Firm for such
determination shall be borne solely by Employer. Any determination by the
Accounting Firm shall be binding upon Employer and the Officer. Any Gross-Up
Payment, as determined pursuant to this Agreement shall be paid by Employer to
the Officer within five (5) days of the receipt of determination by the
Accounting Firm that such payment is due; provided, however, that all gross-up
payments must be paid no later than the end of the calendar year in which the
Officer remits the related taxes. If it is determined that no Excise Tax is
payable to the Officer, it shall so indicate to the Officer in writing.

 

(b)          Notification to Employer. The Officer shall notify Employer in
writing of any claim by the Internal Revenue Service that, if successful, would
require the payment by Employer of the Gross-Up Payment. Such notice shall be
given as soon as practicable but no later than ten (10) business days after the
Officer is informed in writing of such claim and said notice shall advise
Employer of the nature of such claim and the date on which such claim is
requested to be paid. The Officer shall not pay such claim prior to the
expiration of the 30-day period following the date on which it gives such notice
to Employer (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If Employer notifies the Officer in writing
prior to the expiration of such period that it desires to contest such claim,
the Officer shall:

 

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(i)

give Employer any information reasonably requested relating to such claim,

 

(ii)

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

 

(iii)

cooperate with Employer in good faith in order to effectively contest such
claim; and

 

(iv)

permit Employer to participate in any proceedings relating to such claim;

 

provided, however, that Employer shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with any contest of a claim for payment of the Excise Taxes and Employer shall
indemnify and hold the Officer harmless, on an after tax basis, for any Excise
Tax or income 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 Agreement, Employer 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 Officer to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the Officer
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 Employer shall determine; provided, however, that if Employer directs
the Officer to pay such claim and sue for a refund, Employer shall advance the
amount of such payment to the Officer, on an interest-free basis and shall
indemnify and hold the Officer harmless, on an after-tax-basis, from any Excise
Tax or income 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 Officer
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, Employer's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Officer 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.

 

(c)           Underpayment of Gross-Up Payment. In the event there is an
underpayment of the Gross-Up Payment due to the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination the
Accounting Firm, and the Officer thereafter is required to make a payment of any
Excise Tax, the Accounting Firm will determine the amount of any such
underpayment that has occurred and such amount will be promptly paid by
Employment to or for the benefit of the Officer.

 

(d)          Refund of Gross-Up Payment. If, after the receipt by the Officer of
an amount advanced by Employer pursuant to this Agreement, the Officer becomes
entitled to receive any refund with respect to such claim, the Officer shall
subject to Employer's complying

 

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with the requirements of Subsection (b) above, promptly pay to Employer the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Officer of an amount
advanced by Employer pursuant to Subsection (b) above, a determination is made
that the Officer shall not be entitled to any refund with respect to such claim
and Employer does not notify the Officer in writing of its intent to contest
such denial of refund prior to the expiration of thirty (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.

 

10.          Specified Employee. If Officer is a Specified Employee on his
separation from service, payments under Sections 3 and 4 of this Agreement shall
be delayed until the six-month anniversary of the Officer's separation from
service date. For purposes of this Agreement, Specified Employee means an
Officer who on the date of his separation from service is a Key Employee of the
Employer provided that the Employer is publicly traded on an established
securities market. Key Employee means an Officer who meets the requirements of
Code section 416(i)(1)(A)(i), (ii), or (iii) applied in accordance with the
regulations thereunder and disregarding Code section 416(i)(5). Compensation for
purposes of identifying the Key Employee is defined according to Treasury
Regulation section 1.415(c)-2(a) applied without regard to the safe harbor
provided in Treasury Regulation section 1.415(c)-2(d), the special timing rules
provided in Treasury Regulation section 1.415(c)-2(e), and the special rules
provided in Treasury Regulation section 1.415(c)-2(g).

 

11.          Litigation Expenses. Employer agrees to pay promptly as incurred,
to the full extent permitted by law, all the legal fees and expenses which the
Officer may reasonably incur as a result of any contest (regardless of the
outcome thereof unless a court of competent jurisdiction determines that the
Officer acted in bad faith in initiating the contest) brought by Employer, the
Officer or others concerning the validity or enforceability of, or liability
under, the Change in Control of Employer’s Parent Company (as defined above)
provision of this Agreement or Amendments thereto, or any guarantee of
performance thereof (including as a result of any contest by the Officer about
the amount of any payment pursuant to the Change in Control provision or its
Amendments), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Code Section 7872(f)(2)(A); provided however, that
the reasonableness of the fees and expenses must be determined by a court of
competent jurisdiction.

 

 

12.

Miscellaneous.

 

(a)          Waiver A waiver by any party of any of the terms and conditions of
this Agreement in any instance shall not be deemed or construed to be a waiver
of such terms and conditions for the future, or of any subsequent breach
thereof.

 

(b)          Severabilitv.    If any provision of this Agreement, as applied to
any circumstances, shall be adjudged by a court to be void and unenforceable,
the same shall in no way affect any other provision of this Agreement or the
applicability of such provision to any other circumstances.

 

(c)            Amendment.    This Agreement may not be varied, altered,
modified, changed, or in any way amended except by an instrument in writing,
executed by the parties hereto or their legal representatives.

 

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(d)            Nonassignabilitv of Payments.    Neither the Officer nor his
estate shall have any right to commute, sell, assign, transfer or otherwise
convey the right to receive any payments hereunder, which payments and the right
thereto are expressly declared to be nonassignable and nontransferable.

 

(e)            Binding Effect.    This Agreement shall be binding upon and inure
to the benefit of the Officer (and his personal representative), Employer and
any successor organization or organizations which shall succeed to substantially
all of the business and property of Employer, whether by means of merger,
consolidation, acquisition of all or substantially all of the assets of Employer
or otherwise, including by operation of law.

 

(f)             Governing Law.    This Agreement shall be governed by and
construed in accordance with the Laws of the Commonwealth of Virginia, whether
statutory or decisional, applicable to agreements made and entirely to be
performed within such state and such provisions of federal law as may be
applicable. Venue for any dispute arising hereunder shall lie exclusively in the
state or federal courts located in or having jurisdiction over the City of
Norfolk, Virginia, or where Employer’s Parent Company is headquartered.

 

(g)            Assignment.    Officer shall not have the right to transfer or
assign any or all of his or her rights or interest hereunder. Pursuant to the
provisions of Section 3(b) hereof, Officer agrees that should Employer convey
all or substantially all of Employer’s assets to a third-party, which assets
include this Agreement, that Employer may assign this Agreement to such
third-party without the prior consent of Officer, and, further, that such
assignment shall be deemed to be undertaken with Officer’s consent with regard
to the third-party.

 

(h)            Background, Enumerations and Headings    The Background,
enumerations and headings contained in this Agreement are for convenience of
reference only and are not intended to have any substantive significance in
interpreting this Agreement.

 

(i)             Gender and Number. Unless the context otherwise requires,
whenever used in this Agreement the singular shall include the plural, the
plural shall include the singular, and the masculine gender shall include neuter
or feminine gender and vice versa.

 

(j)             Excise Tax.    Notwithstanding anything in this Agreement to the
contrary, for any taxable year(s) in which the Officer shall be liable for the
payment of an Excise Tax with respect to any payment or benefit in the nature of
compensation made or provided pursuant to section 2(d) of this Agreement or as a
result of the compensation paid the Officer by HRB for a certain Restrictive
Covenant executed by the Officer in favor of HRB as of the Commencement Date,
HRB shall pay to the Officer a Gross-Up Payment in an amount such that after
payment of the Officer of all taxes (including any interest or penalties imposed
with respect to such taxes), including, without limitation, any income taxes,
(and any interest and penalties imposed with respect thereto) and Excise Tax
imposed on the Gross-Up Payment, the Officer retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the payments. The determination of
the Gross-Up Payment and other matters related thereto shall be subject to the
applicable provisions of Section 9 of this Agreement. It is intended by the
parties to this Agreement that this Section 12(j) shall survive the expiration
of the Term.

 

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.

 

Scott C. Harvard

 

Shore Bank,

 

 

a Virginia banking corporation

 

 

 

/s/ Scott C. Harvard

 

By: /s/ Henry P. Custis, Jr.

 

 

 

Date: June 1, 2008

 

Print Name: Henry P. Custis, Jr.

 

 

Title: Chairman

 

 

Date: June 1, 2008

 

 

 

 

 

Hampton Roads Bankshares, Inc.,

 

 

a Virginia corporation

 

 

 

 

 

 

 

 

By: /s/ Jack W. Gibson

 

 

Print Name: Jack W. Gibson

 

 

Title: Vice Chairman, President and

 

 

Chief Executive Officer

 

 

 

 

 

Date: June 1, 2008

 

 

 

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