MIDDLEBURG FINANCIAL CORPORATION

2007 Management Incentive Plan

 

ARTICLE I

OBJECTIVE OF THE PLAN

 

The purpose of this 2007 Management Incentive Plan ("Plan") is to reward
executives of Middleburg Financial Corporation (hereafter, the "Company") for
creating value for the Company by maximizing Corporate and CAT / Individual
goals.

 

ARTICLE II

PLAN ADMINISTRATION

 

The Compensation Committee of the Board shall administer the Plan and have
authority to settle all matters and or disputes pertaining to this Plan, subject
to Board approval.

 

The Plan is an annual Plan and is effective January 1, 2007 and shall remain in
effect until the Board deems otherwise. A new Plan year shall commence on the
first business day of the fiscal year.

 

ARTICLE III

PARTICIPANTS

 

Unless the Board deems otherwise, participation is limited to those participants
recommended by the Chairman & CEO and approved by the Committee each Plan year

 

ARTICLE IV

PERFORMANCE OBJECTIVES

 

Prior to or at the beginning of each fiscal year, the Committee shall establish:

 

(i) Plan performance objectives for the Company, subsidiary or business unit of
the Company based on the recommendation by the Chairman & CEO, and

 

(ii) the award formula or matrix by which all incentive awards under this Plan
shall be calculated for Committee review and approval.

 

The Chairman & CEO, subject to Committee input, shall establish individual
performance objectives for each Plan participant and evaluate each participant’s
performance against pre-established individual objectives.

 

ARTICLE V

AWARD CALCULATIONS

 

Each Plan participant shall be assigned an incentive award target, calculated as
a percentage of fiscal year-end base salary, which shall be awarded if the
Company and the participant achieve targeted performance goals. Participants’
target awards shall be leveraged up when performance exceeds pre-established
goals, or down if performance falls below pre-established goals. Following are
the target awards and weights by Plan participant.

 

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Target awards shall be weighted between 1) Corporate ROA to plan, 2) Corporate
ROE to Plan, 3) Efficiency Ratio to plan and 4) CAT / Individual Goals. Goals
and weightings shall be established and measured by the Compensation Committee.

 

 

 

 

 

Incentive

Award

Target

 

 

Corporate

ROA

To

Plan

(1)

 

 

 

+

 

Corporate

ROE

To

Plan

(2)

 

 

 

+

 

Efficiency

Ratio

To

Plan

(3)

 

 

 

+

 

 

 

Individual

Measures

(4)

Chairman & CEO

25%

 

33.3%

+

33.3%

+

33.3%

+

 

EVP, COO

25%

 

20%

+

20%

+

20%

+

40% (CAT)

SVP, CFO

25%

 

20%

+

20%

+

20%

+

40%

EVP, Comm. Lending

25%

 

50%

+

35%

+

15%

+

40% (CAT)

EVP, Investment Sales

25%

 

50%

+

35%

+

15%

+

40% (CAT)

SVP, Org Development

25%

 

20%

+

20%

+

20%

+

40%

SVP, Wealth Mgmt

15%

 

25%

+

25%

+

25%

+

25%

Management Team

10%

 

33.3%

+

33.3%

+

33.3%

+

 

Employee Pool

5%

 

50%

+

50%

+

 

+

 

Schedule A:

Award Percentages and Performance Measure Weightings

 

Schedule B:

Award Leverage Schedule:

 

 

 

 

 

Percent of Corporate

Measures

Performance

 

 

 

 

Percent of Corporate

Incentive

Award

 

 

 

 

 

 

Percent of

CAT or Individual

Measure Performance

 

 

 

 

Percent of

CAT or Individual

Incentive

Award

125%

150%

 

125% or (Exceeded All Goals)

150%

110%

115%

 

110% or (Met All and Exceeded Some Goals)

115%

100%

100%

 

100% or (Met Most Goals)

100%

90%

50%

 

90% or (Met Some Goals)

50%

Less than 90%

0%

 

Less than 90% or (Did Not Meet Goals)

0%

Note: Awards are capped at 150% of the executive’s Target Award

 

Award Calculation Formula:

The calculation example below assumes a participant has a base salary of
$100,000 with a target award opportunity of 20% and goal weights of 20% on
Corporate ROA, 20% on Corporate ROE, 20% on Efficiency Ratio and 40% on CAT /
Individual Goals. In addition, the example assumes Corporate ROA, ROE and
Efficiency Ratio were all achieved at 100% of plan and CAT / Individual goals
are each 110% of goal. Please refer to Schedule B above when determining
appropriate leverage percentages.

(Base Salary) x ((Corporate ROA Award x Leverage %) + (Corporate ROE Award x
Leverage %)) + (Corporate Efficiency Ratio x Leverage %) + (CAT / Individual
Award x Leverage %)) =

 

2

 

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Example:

($100,000) x ((20% x 20%) + (20% x 20%) + (20% x 20%) + (20% x 40%) =

($100,000) x ((4.0%) + (4.0%) + (4.0% + (8.0)) =

($100,000) x ((4.0% x 100%) + (4.0% x 100%) + (4.0% x 100%) + (8.0% x 115%)) =

($100,000) x ((12.0%) + (9.20%)) =

 

($100,000) x (21.20%) = $21,200 Total Annual Incentive Award

 

ARTICLE VI

ADMINISTRATIVE MATTERS

 

The Committee reserves the right to withhold or reduce awards. In the event that
Corporate financial results do not fund a Corporate incentive award, then all
other awards will be reduced by 50% for those participants who are previously
identified by the Committee.

 

Incentive awards shall be paid as soon as practicable following the end of the
fiscal year, however in no event shall awards be paid later than March 15th of
the subsequent fiscal year.

 

In the event of death, permanent disability, retirement or involuntary
termination, unpaid awards shall be calculated on a pro-rated basis by taking
the number of full months, including the month in which the terminating event
occurred, and dividing those months by twelve. Prorated awards will be payable
at the same time that normal award distributions occur.

 

Except in the case of death, disability or retirement, a participant shall
forfeit his right to receive any Plan award in the event of voluntary or
involuntary termination during the Plan year.

 

Interpolation shall be used to calculate incentive awards when performance falls
between levels detailed in Schedule B.

 

ARTICLE VII

NO ENTITLEMENT TO BONUS

 

Subject to Committee discretion, Plan participants are not entitled to a
distribution under this Plan unless the award is earned by attaining approved,
pre-established Plan performance objectives.

 

ARTICLE VIII

TERMINATION OF PLAN

 

The Committee reserves the right to amend or terminate the Plan at any time
within thirty days written notice to Plan participants. In the event of a Plan
termination, participants shall continue to be eligible for incentive awards, if
earned, for the current Plan year. Incentive awards shall be calculated as of
the date of the Plan termination and payable as soon as practicable after the
close of the Plan year.

 

ARTICLE IX

PARTICIPANT'S RIGHT OF ASSIGNABILITY

 

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Participant awards shall not be subject to assignment, pledge or other
disposition, nor shall such amounts be subject to garnishment, attachment,
transfer by operation of law, or any legal process.

 

Nothing contained in this Plan shall confer upon participants any right to
continued employment, nor interfere with the right of the Company to terminate a
participant’s employment from the Company. Participation in the Plan does not
confer rights to participation in other company programs, including annual or
long-term incentive plans, non-qualified retirement or deferred compensation
plans or other perquisite programs.

 

ARTICLE X

GOVERNING LAW

 

The laws of the Commonwealth of Virginia shall govern the validity,
construction, performance and effect of the Plan.

 

 

IN WITNESS WHEREOF, the parties have executed this Plan on the date written
below.

 

 

__________________________

__________________

 

Chairman & CEO

Date

 

 

 

__________________________

__________________

 

Chairman, Compensation Committee

Date

 

 

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