Exhibit 10.1

 

AMENDED AND RESTATED

EXECUTIVE EMPLOYMENTAGREEMENT

 

THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (“Agreement”) is
entered into as of this 11th day of March, 2015 and effective January 1, 2015
(the “Effective Date”), by and between National Bankshares, Inc., a Virginia
corporation (the “Company”), and James G. Rakes (the “Executive”).

 

WHEREAS, the Company and the Executive entered into that certain employment
agreement dated as of January 1, 2002 (the "Original Agreement"); and

 

WHEREAS, the Original Agreement was amended and effective as of December 17,
2008; and

 

WHEREAS, the Company considers the availability of the Executive's services to
be important to the management and conduct of the Company's business and desires
to secure the continued availability of the Executive's services; and

 

WHEREAS, the Executive is willing to continue to make his services available to
the Company on the terms and subject to the conditions set forth herein; and

 

WHEREAS, the Company and Executive now desire to amend and restate in its
entirety the Original Agreement as set forth in this Agreement to reflect
certain substantive changes in the terms and conditions relating to the
Executive's employment, changes to the provisions regarding change of control,
and to comply with applicable provisions of Section 409A of the Internal Revenue
Code of 1986, as amended (the "Code").

 

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

 

1.     Employment and Duties. The Executive shall continue his employment by the
Company as its President and Chief Executive Officer. The Executive accepts such
continued employment and agrees to perform the managerial duties and
responsibilities traditionally associated with the positions of President and
Chief Executive Officer. The Executive agrees to devote his time and attention
on a full-time basis to the discharge of such duties and responsibilities of an
executive nature as may be reasonably assigned him by the Board of Directors of
the Company (the "Board"). The Executive shall also serve as chief executive
officer of one or more of the Affiliated Companies as the Board and the Board of
Directors of any such Affiliated Company may determine in their sole discretion.
The Executive may accept any elective or appointed positions or offices with any
duly recognized associations or organizations whose activities or purposes are
closely related to the financial services business and which the Executive
reasonably believes would generate good will for the Company and its Affiliated
Companies, but shall give advance notice of his intentions to do the same to the
Board sufficient to allow the Board to express any potential concerns with such
elected or appointed position or office. The term "Affiliated Companies"
includes any company controlled by, controlling or under common control with the
Company.

 

2.     Term. The term of this Agreement shall commence only at the Effective
Date and shall continue for a two (2) year period, unless terminated or extended
as hereinafter provided (collectively with any renewal or extended periods
provided for herein, the "Term"). This Agreement shall be extended for
successive one-year periods following the then-current Term unless either party
notifies the other in writing at least one (1) year prior to the end of the
then-current Term that the Agreement shall not be extended beyond the current
Term. Notwithstanding the foregoing, provisions of this Agreement which provide
for rights and/or obligations which extend beyond the Term shall be and remain
in full force and effect as shall be necessary to effectuate them fully.

 

 

 

 
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3.     Compensation and Benefits.

 

(a)     Base Salary. Beginning on the Effective Date, the Company shall pay the
Executive a base salary at the annual rate equivalent to not less than
$756,300.00 (as adjusted from time to time as hereinafter provided, "Base
Salary"). The Base Salary shall be paid to the Executive in accordance with
established payroll practices of the Company, but not less than monthly. The
Board agrees to review the Executive's Base Salary no later than March 30 of
each Company Fiscal Year commencing during the Term of this Agreement (including
2015) and to consider in good faith implementing an adjustment in the Base
Salary retroactive to the beginning of the then-current Company Fiscal Year as
it may deem appropriate in its sole discretion (each period from January 1 to
December 31 during the Term is a "Company Fiscal Year"); provided, however, the
Base Salary shall not be reduced at any time without the written consent of the
Executive.

 

(b)     Annual Bonus. During the Term of this Agreement, the Executive will be
eligible to receive an annual bonus ("Annual Bonus") based on the overall
performance of the Company for the then-current Company Fiscal Year. The Board
or a committee of the Board with the authority to act (a "Board Committee")
shall meet no later than March 30 following the end of each Company Fiscal Year,
determine whether the Company's overall performance during the Company Fiscal
Year merits, in their reasonable good faith judgment (or pursuant to any written
evaluation criteria adopted by the Board or a Board Committee ahead of such
review period), an Annual Bonus to the Executive and, if so, the amount of such
Annual Bonus. Any Annual Bonus so awarded shall be paid to the Executive prior
to the end of March immediately following the Company Fiscal Year for which it
is awarded (or, if earlier, no later than two and one-half (2-1/2) months after
the end of the Company Fiscal Year in which the Annual Bonus becomes earned and
vested for purposes of Section 409A of the Code).

 

(c)     Stock-Based Awards. In November of each year during the Term, the Board
or a Board Committee will determine whether, in their reasonable good faith
judgment (or pursuant to any written evaluation criteria adopted by the Board or
a Board Committee ahead of such review period), to make a stock-based award
("Stock-Based Award") to the Executive and, if so, the nature and extent of the
Stock-Based Award. The Stock-Based Award, which may consist of stock options or
restricted stock grants, or any combination thereof, will include such vesting
and other terms and conditions as determined in the sole discretion of the Board
or the Board Committee. Any Stock-Based Award so granted shall be made to the
Executive by December 31 immediately following the November in which the
Stock-Based Award determination is made.

 

(d)     Other Compensation Benefits. Unless substantially duplicative of rights
provided the Executive under this Agreement, the Executive may participate in
any other annual incentive plan, executive deferred compensation plan, savings
or savings opportunities and tax-qualified retirement plan made generally
available in the ordinary course of business to other senior executives of the
Company and its Affiliated Companies. The Board shall make a good faith
determination in the exercise of its sole discretion as to whether the
additional plans are substantially duplicative. All benefits under the above
plans and agreements shall be payable in accordance with the terms of such plans
and agreements, as amended from time to time. Also, the Company, at its cost,
will maintain the Executive's account containing the 2002 Capital Accumulation
Plan contributions. The Executive shall also be entitled to standard Board and
Board Committee fees for the Executive's attendance at Board and Board Committee
meetings of which he is a member.

 

 

 
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(e)     Welfare Benefits. The Executive shall be eligible to participate in any
plans, programs or benefits made generally available in the ordinary course of
business to other senior executives of the Company and its Affiliated Companies,
including, without limitation, group medical, dental, death, disability and life
insurance, and sick leave and any other welfare benefit plans as defined in
Section 3(1) of ERISA in accordance with their terms ("Welfare Plans" and the
benefits provided thereunder "Welfare Benefits").

 

(f)     Executive Benefits. The Company will pay the Executive's country club
dues in a reasonable amount; the Company will provide the Executive with an
appropriate automobile or automobile allowance in a reasonable amount; and the
Executive shall also receive annual reimbursement for certain personal benefits,
each of the foregoing as approved by the Board in its discretion and in
furtherance of a proper corporate purpose. These personal benefits shall
include, but not be limited to, the reasonable cost of an annual executive
physical, financial planning and tax preparation, professional and community
organizational memberships and activities, and seats at sporting events. In
addition, the Company shall reimburse the Executive promptly, upon presentation
of adequate substantiation, including receipts, for the reasonable travel,
entertainment, lodging and other business expenses incurred by the Executive,
including, without limitation, those expenses incurred by the Executive and his
spouse in attending trade and professional association conventions, meetings and
other related functions (all of the foregoing in this Section, "Executive
Benefits"). The submission and payment of such benefits shall be subject to such
policies regarding substantiation and proper corporate purpose as the Board may
adopt and require from time to time.

 

(g)     Retirement Benefits. The Executive shall be entitled to participate in
the National Bankshares Retirement Income Plan (or any successor or substitute
plan or plans of the Company ("Retirement Plan") and receive all of the benefits
thereof ("Retirement Benefits") in accordance with the terms of such plans, as
amended from time to time.

 

(h)     Vacation. The Executive shall be entitled to ten weeks vacation annually
without loss of pay, or as determined and approved by the Company’s Compensation
Committee.

 

4.     Termination of Employment. Executive's employment hereunder may be
terminated in the following ways: death of the Executive; Long Term Incapacity
of the Executive; With Cause by the Company; Without Cause by the Company; by
the Executive for Good Reason; by the Executive for Other than Good Reason; and
Retirement.

 

(a)     Definitions.

 

(i)     Accrued Obligations."Accrued Obligations" are the sum of:

(A) the Executive's Base Salary through the Date of Termination at the rate in
effect immediately prior to the time a Notice of Termination is given; (B) the
amount, if any, of any incentive or bonus compensation theretofore earned which
has not yet been paid including, but not limited to, any Annual Bonus and
Stock-Based Awards; (C) in addition to the Annual Bonus most recently paid or
payable, including by reason of deferral, the product of the total amount of
such Annual Bonus and a fraction, the numerator of which is the number of days
in the current year through the Date of Termination and the denominator of which
is three hundred sixty-five (365); and (D) any other benefits or awards
(including both the cash and stock components) which, pursuant to the terms of
any plans, policies or programs have been earned or become payable, but which
have not yet been paid to the Executive (but not including amounts that
previously had been deferred at the Executive's request, which amounts will be
paid in accordance with the Executive's existing directions). Unless otherwise
specified hereunder, Accrued Obligations shall be paid in a lump sum in cash (or
in the case of a Stock-Based Award/Change in Control Stock-Based Award (as
hereinafter defined) in the mode of the Award) within thirty (30) days of the
Date of Termination; provided, however, that if payment of any such amounts at
such time would result in a prohibited acceleration under Section 409A of the
Code, then such amount shall be paid at the time the amount would otherwise have
been paid under the applicable plan, policy, program or arrangement relating to
such amount absent such prohibited acceleration .

 

 

 
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(ii)     Executive Continuance Benefit. "Executive Continuance Benefit" is a
continuation of all Welfare and Executive Benefits on a monthly basis which the
Executive or his dependents were receiving immediately prior to the Date of
Termination for a certain amount of time as described herein, provided that the
continued receipt of the Executive or dependents is possible under the general
terms and provisions of such plans and programs as then in effect. The Company
will pay all or a portion of the cost of the Executive Continuance Benefit for
the Executive and his dependents on the same basis as applicable immediately
prior to the Date of Termination or, if more favorable, to the Executive or his
dependents, on the same basis as paid with respect to peer executives of the
Company and its Affiliated Companies under comparable plans and programs, from
time to time after the Date of Termination. If participation in any one or more
of the plans or programs included in the Executive Continuance Benefit is not
possible under the terms thereof or any provision of law would create an adverse
tax effect for the Executive or the Company due to such participation, the
Company, at its sole discretion, may choose to either (A) provide substantially
identical benefits directly or through an insurance arrangement or (B) pay the
Executive on a monthly basis the estimated cost of maintaining such plans for
the Executive for the remaining period of the Executive Continuance Benefit. A
lump sum payment of such amount shall be made, if the Executive is not living,
to the Executive's estate or to one or more beneficiaries designated in writing
by the Executive to the Company within thirty (30) days after Executive's death.
The Executive Continuance Benefit will cease if and when the Executive has
obtained coverage under one or more benefit plans of a subsequent employer that
provides for equal or greater benefits to the Executive and his dependents with
respect to the specific type of benefit. The Executive or his dependents will
become eligible for COBRA continuation coverage as of the date the Executive
Continuance Benefit ceases for all health and dental benefits.

 

(iii)     Notice of Termination. "Notice of Termination" shall mean a notice
which shall indicate the specific termination provision in this Agreement relied
upon.

 

(iv)     Date of Termination. "Date of Termination" means (A) if the Executive's
employment is terminated by the Company With Cause, or by the Executive for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be, (B) if the Executive's employment is
terminated by the Company Without Cause or by the Executive for Other than Good
Reason, the date specified in the Notice of Termination (which shall not be less
than thirty (30) nor more than sixty (60) days from the date such Notice of
Termination is given), and (C) if the Executive's employment is terminated for
Long Term Incapacity, thirty (30) days after Notice of Termination is given,
provided that the Executive shall not have returned to the full-time performance
of his duties during such thirty(30) day period.

 

 

 
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(b)     Death. The Executive's employment under this Agreement shall terminate
automatically upon the Executive's death. The Executive's survivors, designees
or estate shall receive any Accrued Obligations within thirty (30) days after
his death (provided, however, that if payment of any such amounts at such time
would result in a prohibited acceleration under Section 409A of the Code, then
such amount shall be paid at the time the amount would otherwise have been paid
under the applicable plan, policy, program or arrangement relating to such
amount absent such prohibited acceleration) plus Base Salary and the Executive
Continuance Benefit for three (3) months following his death.

 

(c)     Incapacity. Upon a Determination of Long Term Incapacity (as hereinafter
defined) the Company may terminate the Executive's employment under this
Agreement upon thirty (30) days' written notice provided that, within thirty
(30) days after receipt of such notice, the Executive shall not have returned to
full-time performance of his assigned duties.

 

(i)     Determination of Long Term Incapacity. "Determination of Long Term
Incapacity" shall mean a good faith determination by the Board that as a result
of mental or physical illness or injury the Executive has been unable to and/or
has failed to perform his assigned duties with the Company on a full-time basis
for a period exceeding twelve (12) consecutive months after a Determination of
Temporary Incapacity, and that Executive was unable to do so either with or
without reasonable accommodation, as that term is defined under the Americans
with Disabilities Act (the "ADA"). The Determination of Long Term Incapacity
shall be determined in accordance with the Company’s obligations under the ADA.

 

(ii)     Determination of Temporary Incapacity. "Determination of Temporary
Incapacity" shall mean a determination by a physician selected by the Company
that the Executive is unable to perform his assigned duties with the Company on
a full-time basis as a result of mental or physical illness or injury.

 

(iii)     Interim Compensation. During the period between a Determination of
Temporary Incapacity and a Determination of Long Term Incapacity, the Executive
shall receive full Base Salary for the first six (6) months of any such period
and 60% of Base Salary for any subsequent period prior to a Determination of
Long Term Incapacity. The Company will pay for the cost of all physicians' fees
and testing not reimbursed by insurance. The amounts payable to the Executive
under this Section shall be reduced by any benefits paid to the Executive
pursuant to any disability insurance for which the premiums were paid by the
Company ("Company Disability Insurance"). 

 

(iv)     Company Obligations. If the Executive's employment is terminated by
reason of a Determination of Long Term Incapacity, the Executive will receive
Base Salary for twenty-four (24) months payable in equal monthly installments
following the Date of Termination (less any amounts paid to the Executive under
Company Disability Insurance); the Executive Continuance Benefit on a monthly
basis for twenty-four (24) months following the Date of Termination; and any
Accrued Obligations in a lump sum which shall be paid within thirty (30) days
after the Determination of Long Term Incapacity; provided, however, that if
payment of any such amounts at such time would result in a prohibited
acceleration under Section 409A of the Code, then such amount shall be paid at
the time the amount would otherwise have been paid under the applicable plan,
policy, program or arrangement relating to such amount absent such prohibited
acceleration. Notwithstanding theforegoing, if a Change of Control occurs within
twenty-four (24) months after a Termination on account of Long Term Incapacity,
then the twenty-four (24) month period for Base Salary and the Executive
Continuance Benefit shall commence again and the Executive will receive all
benefits as if the Executive had been subject to a Termination Without Cause on
the date of the Change in Control pursuant to Section 4(e) without regard to
Section 6.

 

 

 
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(d)     Termination by Company With Cause. The Company may terminate the
Executive's employment during the term of this Agreement, With or Without Cause.
For purposes of this Agreement, "Cause" or "With Cause" shall mean: 

 

(i)     continual or deliberate neglect by the Executive in the performance of
his material duties and responsibilities as established from time to time by the
Board, or the Executive's willful failure to follow reasonable instructions or
policies of the Company or direction from the Board after being advised in
writing of such failure within thirty (30) days of such occurrence and being
given no less than sixty (60) days after such notice to remedy such failure;

 

(ii)     conviction of, or entering of a guilty plea or plea of no contest with
respect to, a felony, a crime of moral turpitude or any other crime with respect
to which imprisonment is a possible punishment, or the commission of an act of
embezzlement or fraud against the Company or any Affiliated Company;

 

(iii)     any breach by the Executive of a material term of this Agreement, or
violation in any material respect of any code or standard of behavior generally
applicable to officers of the Company, after being advised in writing of such
breach or violation within thirty (30) days of such occurrence and being given
no less than sixty (60) days after such notice to remedy such breach or
violation; 

 

(iv)     material dishonesty of the Executive with respect to the Company or any
Affiliated Company, or breach of a fiduciary duty owed to the Company or any
Affiliated Company; or 

 

(v)     the willful engaging by the Executive in conduct that is reasonably
likely to result, in the good faith judgment of the Company, in material injury
to the Company or any Affiliated Company, monetarily, reputationally or
otherwise, after being advised in writing of such conduct within thirty (30)
days of such occurrence and being given no less than sixty (60) days after such
notice to remedy such conduct. 

 

(vi)     Company Obligations. If the Company terminates Executive's employment
With Cause, employment under this Agreement shall terminate without any further
obligation of the Company to the Executive other than to pay to the Executive
any Accrued Obligations in a lump sum within thirty (30) days; provided,
however, that if payment of any such amounts at such time would result in a
prohibited acceleration under Section 409A of the Code, then such amount shall
be paid at the time the amount would otherwise have been paid under the
applicable plan, policy, program or arrangement relating to such amount absent
such prohibited acceleration.

 

(e)     Termination by Company Without Cause. The Company may terminate the
Executive's employment during the Term of this Agreement Without Cause. For
purposes hereof, Termination Without Cause shall be any termination of the
Executive's employment which does not occur by virtue of the death or Retirement
of the Executive or pursuant to a Determination of Long Term Incapacity, by the
Company With Cause, or by the Executive for Good Reason or for Other than Good
Reason. If, during the Term of this Agreement, the Company terminates the
Executive's employment Without Cause, the Company will pay to the Executive in a
lump sum within thirty (30) days after the Date of Termination an amount equal
to any Accrued Obligations (provided, however, that if payment of any such
amounts at such time would result in a prohibited acceleration under Section
409A of the Code, then such amount shall be paid at the time the amount would
otherwise have been paid under the applicable plan, policy, program or
arrangement relating to such amount absent such prohibited acceleration) and
shall provide (i) the Executive Continuance Benefits on a monthly basis for
twenty-four (24) months and (ii) an annual Base Salary over a period of
twenty-four (24) months payable in equal monthly installments from the Date of
Termination at the highest annual Base Salary in effect at any time during the
Term.

 

 

 
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(f)     Termination by Executive for Good Reason. The Executive may terminate
his employment for Good Reason or for Other than Good Reason. For purposes of
this Agreement, "Good Reason" shall mean the following: 

 

(i)     the material assignment to the Executive of duties inconsistent with the
Executive's position, title, authority, duties or responsibilities as
contemplated by Section 1 hereof or, in the event of a Change in Control (as
hereinafter defined), in Section 7(a), excluding for this purpose any action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive in writing and also excluding any
change or elimination of service in any position or office with an Affiliated
Company;

 

(ii)     any action taken by the Company which results in a material reduction
in the status of the Executive, including a diminution in his position, title,
authority, duties or responsibilities, excluding for this purpose any action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive in writing and excluding any change or
elimination of service in any position or office with an Affiliated Company;

 

(iii)     the relocation of the Executive to any other primary place of
employment which might require him to move his residence or, in any event, any
reassignment to a place of employment located more than fifty (50) miles from
the Executive's initially assigned place of employment, without the Executive's
express written consent to such relocation; provided, however that the
provisions of Section 7(a) shall supersede all of the foregoing on and after a
Change in Control;

 

(iv)     any failure by the Company, or any successor entity following a Change
in Control, to comply with the Change in Control provisions hereof or to honor
any other term or provision of this Agreement, other than an isolated,
insubstantial or inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by the
Executive; or

 

If there is a dispute between the Company and the Executive as to whether the
Executive has terminated his employment for Good Reason, the parties shall
submit the dispute to an arbitrator mutually selected by the parties, whose
determination shall be binding on both parties. Any termination by the Executive
which is not for Good Reason or Retirement shall be deemed a termination for
Other than Good Reason.

 

(v)     Company's Obligations. If the Executive terminates his employment for
Good Reason, the Company's obligations to the Executive will be the same as
provided in Section 4(e) for a Termination Without Cause.

 

 

 
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(g)     Termination by Executive for Other than Good Reason. If the Executive
terminates employment for Other than Good Reason, the Company's obligations to
the Executive shall be the same as provided in Section 4(d) for a Termination
With Cause.

 

(h)     Retirement. If the Executive's employment is terminated by reason of his
retirement ("Retirement") at or after the end of the calendar year in which the
Executive attains age 70 under the terms of the Retirement Plan, employment
under this Agreement shall terminate without further obligation to the Executive
or his legal representative except that the Executive shall be entitled to
receive any Accrued Obligations within thirty (30) days after his retirement
(provided, however, that if payment of any such amounts at such time would
result in a prohibited acceleration under Section 409A of the Code, then such
amount shall be paid at the time the amount would otherwise have been paid under
the applicable plan, policy, program or arrangement relating to such amount
absent such prohibited acceleration) and all benefits payable under the
Retirement Plan and any other qualified or non-qualified deferred compensation
plan based on the terms and conditions of those plans.

 

(i)     Notice of Termination. Any termination during the Term of this Agreement
by the Company or by the Executive for Good Reason or Other than Good Reason
shall be communicated and effectuated by written Notice of Termination to the
other party hereto.

 

(j)     No Mitigation Required. The Executive shall not be required to mitigate
the amount of any payment the Company becomes obligated to make to the Executive
in connection with this Agreement, by seeking other employment or otherwise.
Except as specifically provided with respect to the Executive Continuance
Benefit, the amount of any payment provided for in this Section shall not be
reduced, offset or subject to recovery by the Company by reason of any
compensation earned by the Executive as the result of employment by another
employer after the Date of Termination, or otherwise.

 

 

5.

Confidentiality and Non-Compete.

 

(a)     Confidentiality. The Executive recognizes that as an employee of the
Company he will have access to and will participate in the origination of
non-public, proprietary and confidential information and that he owes a
fiduciary duty to the Company to maintain the confidentiality of this
information. "Confidential information" may include, but is not limited to,
trade secrets, customer lists and information, internal corporate planning,
strategic plans, methods of marketing and operation, and other data or
information of or concerning the Company or its customers that is not generally
known to the public or in the banking industry. The Executive agrees that he
will never make a disclosure of confidential information to a third party or use
confidential information other than for the exclusive benefit of the Company and
its Affiliated Companies.

 

(b)     Non-Competition. In addition, in exchange for the payments on
termination as provided herein, other provisions of this Agreement and other
valuable consideration hereby acknowledged, the Executive agrees that, except as
otherwise provided herein, he will not engage in Competition with the Company
for a period of twenty-four (24) months after the Executive's employment with
the Company ceases for any reason, including the expiration or nonrenewal of
this Agreement, other than termination by the Executive for Good Reason or by
the Company Without Cause, in which event this Section 5(b) shall not apply. For
purposes hereof:

 

 

 
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(i)     "Competition" means the Executive's engaging, without the written
consent of the Board or a person authorized thereby, in any activity as an
officer, a director, an employee, a partner, a more than one percent (1%)
shareholder or other owner, an agent, a consultant, or in any other individual
or representative capacity, within fifty (50) miles of the Company's
headquarters or any branch office of the Company or any of its subsidiaries
(unless the Executive's duties, responsibilities and activities, including
supervisory activities, for or on behalf of such activity, are not related in
any way to or involved materially in such competitive activity) where such
activity involves:

 

(A)     engaging in or entering into the business of banking, lending,
investment, insurance sales or any other business activity in which the Company
or any of its Affiliated Companies is actively engaged at the time the
Executive's employment ceases,

 

(B)     soliciting or contacting, either directly or indirectly, any of the
customers or clients of the Company or any of its Affiliated Companies for the
purpose of providing or offering to provide, directly or indirectly, products or
services provided by the Company or any of its Affiliated Companies at the time
the Executive’s employment ceases, or

 

(C)     employing or soliciting for employment any employee(s) of the Company or
any of its Affiliated Companies for the purpose of causing them to terminate
employment with the Company or any of its Affiliated Companies and with the
purpose or effect of such employee(s) thereafter providing services or accepting
employment with an entity which provides, directly or indirectly, products or
services provided by the Company or any of its Affiliated Companies at the time
the Executive’s employment ceases.

 

(ii) For purposes of this Agreement, "customers" or "clients" of the Company or
any of its Affiliated Companies means individuals or entities to whom the
Company or any of its Affiliated Companies has provided banking, lending,
investment, insurance or other similar financial services at any time after the
Effective Date, but only within the one (1) year period just prior to the date
the Executive's employment with the Company ceases.

 

(c)     Remedies. The Executive acknowledges that the restrictions set forth in
this Section are just, reasonable, and necessary to protect the legitimate
business interests of the Company and its Affiliated Companies. The Executive
further acknowledges that if he breaches or threatens to breach any provision of
this Section, the Company's and its Affiliated Companies' remedies at law will
be inadequate, and the Company and its Affiliated Companies will be irreparably
harmed. Accordingly, the Company shall be entitled to an injunction, both
preliminary and permanent, restraining the Executive from such breach or
threatened breach, such injunctive relief not to preclude the Company from
pursuing all available legal and equitable remedies. In addition to all other
available remedies, if a court of competent jurisdiction finally determines that
the Executive has violated the provisions of this Section, the Executive shall
pay all costs and fees, including reasonable legal fees, incurred by the Company
in enforcing the provisions of that paragraph. If, on the other hand, it is
finally determined by a court of competent jurisdiction that a breach or
threatened breach did not occur under this Section, the Company shall reimburse
the Executive for all costs and fees, including reasonable legal fees, incurred
to defend that claim.

 

 

 
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6.     Employment After a Change in Control. If a Change in Control (as
hereinafter defined) of the Company occurs during the Term of this Agreement and
the Executive is employed by the Company on the date the Change in Control
occurs (the "Change in Control Date"), the then-current Term will be
automatically extended to the third (3rd) anniversary of the Change in Control
Date and shall be renewed for successive one (1) year periods following the
then-current period unless either party notifies the other in writing at least
ninety (90) days prior to the end of the then-current period that the Agreement
shall not be extended beyond its then-current period (the "Change in Control
Period"). If a Change in Control occurs on account of a series of transactions,
the Change in Control Date is the date of the last of such transactions. In the
event of a Change in Control of the Company, Sections 6 through 8 shall become
effective and govern the terms and conditions of the Executive's employment in
addition to the other provisions in this Agreement except that this and the
following provisions shall supersede and control any contrary or inconsistent
term or provision in the remainder of this Agreement.

 

 

7.

Terms of Employment After a Change in Control.

 

(a)     Position and Duties. During the Change in Control Period, (i) the
Executive's position, title, authority, duties and responsibilities will at all
times be at least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time during the one
hundred twenty (120) day period immediately preceding the Change in Control
Date, excluding any change or elimination of service in any position or office
with an Affiliated Company, and (ii) the Executive's services will be performed
at the location where the Executive was employed immediately preceding the
Change in Control Date, unless the Executive provides express written consent to
such relocation.

 

(b)     Continuity of Compensation and Benefits. During the Change in Control
Period, the Executive will continue to receive the Base Salary and shall
continue to be entitled to receive and participate in all other compensation and
benefits provided in Section 3; provided, however, that to the extent
compensation or benefits are, at any time after the Change in Control Date,
generally applicable to other senior executives of the Company and its
Affiliated Companies, the terms and conditions of any of which are more
favorable to the Executive than those provided by Section 3, the Executive shall
be entitled to receive and participate in such more favorable compensation and
benefits, as the case may be.

 

8.     Minimum Stock-Based Award. For each Company Fiscal Year, after a Change
in Control (prorated for partial Company Fiscal Years), the Executive will be
provided with an annual Stock-Based Award with a value equal to at least 30% of
his then-current Base Salary ("Change in Control Stock Based Award").

 

9.     Termination of Employment and Obligations of the Company After a Change
in Control.

 

(a)     Termination Without Cause or for Good Reason. The Executive will be
entitled to the following benefits if, on or after a Change in Control, the
Company or any Affiliated Company terminates his employment Without Cause or the
Executive terminates his employment with the Company or any Affiliated Company
for Good Reason:

 

(i)     Accrued Obligations. The Accrued Obligations will be paid to the
Executive in a lump sum cash payment (or in the case of Stock-Based or Change in
Control Stock-Based Awards, in the form of the Award) within thirty (30) days
after the Date of Termination; provided, however, that if payment of any such
amounts at such time would result in a prohibited acceleration under Section
409A of the Code, then such amount shall be paid at the time the amount would
otherwise have been paid under the applicable plan, policy, program or
arrangement relating to such amount absent such prohibited acceleration.

 

 

 
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(ii)     Salary Continuance Benefit. The Salary Continuance Benefit is an amount
equal to 2.99 times the Executive's average annual compensation includable in
the Executive's annual gross income for federal income tax purposes for the five
(5) most recent taxable years ending before the date on which the Change in
Control occurs. If the Change in Control is considered a change in ownership or
effective control of the Company or is considered a sale of substantially all of
the assets of the Company under Section 409A of the Code and the Executive's
Date of Termination is within two (2) years of such Change in Control, then the
Salary Continuance Benefit will be paid to the Executive in a lump sum cash
payment not later than the 45th day following the Date of Termination.
Otherwise, the Salary Continuation Benefit will be paid in equal monthly
installments over a twenty-four (24) month period.

 

(iii)     Executive Continuance Benefit. The Executive will receive the
Executive Continuance Benefit payable in installments on a monthly basis for
thirty-six (36) months following the Date of Termination.

 

(iv)     Additional Retirement Benefit. In addition to any retirement benefits
to which the Executive is entitled under the Retirement Plan in which the
Executive participates on the Date of Termination, the Executive shall be paid
in one sum in cash within thirty (30) days after the Date of Termination an
amount, as an additional retirement benefit, equal to the actuarial equivalent
of the additional amount that the Executive would have earned under such
Retirement Plan had he accumulated four (4) additional years of continuance
service under such Retirement Plan both for purposes of determining eligibility
for a benefit and for purposes of calculating the amount of such benefit. For
purposes of this paragraph, "actuarial equivalent" shall be determined using the
same methods and assumptions utilized under the Retirement Plan, or any
successor plan, immediately prior to the Change in Control of the Company.

 

(b)     Inapplicability of Non-Competition Covenant on Termination Without Cause
or for Good Reason. The Executive will not be required to comply with the
non-competition covenant in Section 5(b) if his employment is terminated during
the Change in Control Period Without Cause or by him for Good Reason.

 

10.     Possible Reduction in Payment and Benefits to Comply with Parachute
Payment Limits and/or Regulatory Requirements.

 

(a)     If any amount of pay or benefits provided to or with respect to the
Executive under this Agreement and/or under other Company or affiliate plans,
programs, policies, and arrangements would cause the Executive to be subject to
excise tax under Sections 280G and 4999 of the Code, then the amount of pay and
benefits provided under this Agreement and all other plans, programs, policies
and arrangements shall be reduced to the extent necessary to avoid imposition of
any such excise tax. Payments and benefits under this Agreement shall be reduced
first. Payments and benefits shall be reduced in the following order of priority
(i) first from cash compensation, (ii) next from equity compensation, and then
(iii) pro-rated among all remaining payments.

 

 

 
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(b)     Notwithstanding anything contained in this Agreement to the contrary, it
is understood and agreed that the Company (or any of its successors) shall not
be required to make any payment, provide any benefit or take any action under
this Agreement in contravention of any applicable prohibition relating thereto
if:

 

(i)     the Company or any Affiliated Company is declared by any governmental
agency or authority having jurisdiction over the Company or any Affiliated
Company ("Regulatory Authority"), including without limitation the Federal
Deposit Insurance Corporation, the Virginia Bureau of Financial Institutions,
Office of the Comptroller of the Currency, the Federal Reserve Board, the
Securities and Exchange Commission or any other regulatory agency), to be
insolvent, in default or operating in an unsafe or unsound manner, or

 

(ii)     in the opinion of counsel to the Company or any Affiliated Company,
making such payment, providing such benefit or taking such action (A) would be
prohibited by or would violate any provision of state or federal law applicable
to the Company or any Affiliated Company, including without limitation the
Federal Deposit Insurance Act, as now in effect or hereafter amended, (B) would
be prohibited by or would violate any applicable rules, regulations, orders or
formal statements of policy, whether now existing or hereafter promulgated, of
any Regulatory Authority, or (C) otherwise is prohibited by any Regulatory
Authority.

 

11.     Change in Control. For purposes of this Agreement, a "Change in Control"
shall mean the occurrence after the Effective Date of any of the following:

 

(a)     the acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act), of securities of the Company representing 20% or
more of the combined voting power of the then-outstanding securities; provided,
however, that the following acquisitions shall not constitute a Change in
Control:

 

(i)     acquisition directly from the Company (excluding an acquisition by
virtue of the exercise of a conversion privilege);

(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 pursuant to a reorganization, merger or consolidation
by any corporation owned or proposed to be owned, directly or indirectly, by
shareholders of the Company if the shareholders' ownership of securities of the
corporation resulting from such transaction constitutes a majority of the
ownership of securities of the resulting entity and at least a majority of the
members of the board of directors of the corporation resulting from such
transaction were members of the Incumbent Board as defined in this Agreement at
the time of the execution of the initial agreement providing for such
reorganization, merger or consolidation; or

 

(b)     where individuals who, as of the inception of this Agreement, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of such board of directors; provided, however, that any individual
becoming a director subsequent to the Effective Date whose election, or
nomination for election by the shareholders was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a person other than a member of the board of directors; or

 

 

 
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(c)     the shareholders of the Company approve, or the Company otherwise
consummates (i) a merger, statutory share exchange, or consolidation of the
Company with any other corporation, except as provided in subparagraph (a)(iv)
of this Section; or (ii) the sale or other disposition of all or substantially
all of the assets of the Company.

 

12.     Legal Fees and Costs. Except as otherwise provided herein, the Company
will pay or reimburse the Executive for all costs and expenses, including
without limitation court costs and reasonable attorneys' fees and expert witness
fees and expenses, incurred by the Executive (i) in contesting or disputing any
termination of the Executive's employment or (ii) in seeking to obtain or
enforce any right or benefit provided by this Agreement, in each case provided
the Executive's claim is substantially upheld by a court of competent
jurisdiction, at the conclusion of any applicable appeals or appeals period.

 

13.     Documents. All documents, records, tapes and other media of any kind or
description relating to the business of the Company or any of its Affiliated
Companies (the "Documents"), whether or not prepared by the Executive, shall be
the sole and exclusive property of the Company. The Documents (and any copies)
shall be returned to the Company upon the Executive's termination of employment
for any reason or at such earlier time or times as the Board or its designee may
specify.

 

14.     Section 409A Compliance. The Executive and the Company intend for all
payments under this Agreement either to be outside the scope of Section 409Aor
to comply with its requirements as to timing of payments or provision of
benefits. Accordingly, to the extent Section 409A is applicable, this Agreement
shall at all times be operated in accordance with the requirements of Section
409A. To the extent required by Section 409A, payments or benefits under this
Agreement that are to be paid upon the Executive's termination of employment or
retirement shall be paid to the Executive at the time that the Executive has
experienced a "separation from service" (as defined in Section 409A) from the
Company (which for purposes of this Section shall include all "affiliates" of
the Company that are required to be treated as the Company under Section 409A).
A separation from service shall not occur under Section 409A unless the
Executive has completely severed his employment or contractor relationship with
the Company or the Executive has permanently decreased his services (via his
employment relationship or his consulting relationship) to 20% or less of the
average level of bona fide services over the immediately preceding thirty-six
(36) month period (or the full period if the Executive has been providing
services for less than thirty-six (36) months). A leave of absence shall only
trigger a termination of employment that constitutes a separation from service
at the time required under Section 409A. If the Executive provides services to
the Company or any affiliate that is required to be treated as the Company under
Section 409A as both an employee and as a member of the Board of Directors of
the Company or such affiliate, to the extent permitted by Treas. Reg. §1.409A-l
(h)(5) the services provided by the Executive as a member of the Board of
Directors shall not be taken into account in determining whether the Executive
has experienced a separation from service as an employee, and the services
provided by the Executive as an employee shall not be taken into account in
determining whether the Executive has experienced a separation from service as a
member of the Board of Directors. The Company shall have authority to take
action, or refrain from taking any action, with respect to the payments and
benefits under this Agreement that is reasonably necessary to comply with
Section 409A.Specifically, the Company shall have the authority to delay the
commencement of payments to Executive if Executive is considered a "specified
employee" under Section 409A, but only to the extent such delay is mandated by
the provisions of Section 409A. Any payment or benefit that is delayed pursuant
to this Section shall be paid to the Executive at the earliest date permitted
under Section 409A; provided, however, if the Executive wishes to receive any
benefit before the time permitted under Section 409A, then to the extent
necessary to comply with Section 409A, the Executive shall pay the full cost of
such benefit and the Company shall reimburse the Executive for all such costs at
the earliest date permitted under Section 409A. If under provision of this
Agreement the Executive becomes entitled to be paid any amount in installments
(other than CAP payments) then each installment payment during the relevant
continuation period shall be considered, and is hereby designated as, a separate
payment for purposes of Section 409A (and consequently the Executive's
entitlement to such payments shall not be considered an entitlement to a single
payment of the aggregate amount to be paid during the relevant continuation
period). The Company shall not be liable for any taxes should the Executive be
assessed any additional income tax, excise tax, penalty or interest as a result
of any payment or provision of benefits, or failure to pay or to provide
benefits, in violation of Section 409A.

 

 

 
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15.     Section 409A Reimbursements. With regard to any provision herein that
provides for reimbursement of expenses or in-kind benefits, except as permitted
by Section 409A, (i) the right to reimbursement or in-kind benefits is not
subject to liquidation or exchange for another benefit, and (ii) the amount of
expenses eligible for reimbursement, or in-kind benefits, provided during any
calendar year shall not affect the expenses eligible for reimbursement, or
in-kind benefits to be provided, in any other calendar year, provided that the
foregoing clause (ii) shall not be violated with regard to expenses reimbursed
under any arrangement covered by Section 105(b) of the Code solely because such
expenses are subject to a limit related to the period the arrangement is in
effect. All reimbursements shall be reimbursed in accordance with the Company's
reimbursement policies but in no event later than the calendar year following
the calendar year in which the related expense is incurred.

 

16.     Severability. If any provision of this Agreement, or part or subdivision
thereof, is determined to be unenforceable for any reason whatsoever, it shall
be severable from the remainder of this Agreement and shall not invalidate or
affect the other provisions of this Agreement, which shall remain in full force
and effect and shall be enforceable according to their terms. No covenant shall
be dependent upon any other covenant or provision herein, each of which stands
independently.

 

17.     Modification. The parties expressly agree that should a court find any
provision of this Agreement, or part or subdivision thereof, to be unenforceable
or unreasonable, the court may (where permissible under applicable law) modify
the provision, or part thereof, in a manner which renders that provision
reasonable, enforceable, and in conformity with the law and public policy of
Virginia.

 

18.     Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia.

 

19.     Notices. All written notices required by this Agreement shall be deemed
given when delivered personally or, if sent by registered or certified mail,
three (3) days after deposit in the mail, return receipt requested, to the
parties at their addresses set forth on the signature page of this Agreement.
Each party may, from time to time, designate a different address to which
notices should be sent by giving notice thereof in writing to the other party at
least three (3) days before the effective date of such change in address.

 

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

 

 

 
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21.     Binding Effect. This Agreement shall be binding upon the Executive, as
well as the Company, its successors and assigns, effective on the date first
above written subject to the approval by the Board no later than December 31,
2014. The Company will require any successor 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; and the
Executive agrees that any such successor to the Company shall be considered to
be the Company for all purposes of this Agreement.

 

22.     No Construction Against Any Party. This Agreement is the product of
informed negotiations between the Executive and the Company, with each party
having the benefit of advice of their separate respective counsel. If any part
of this Agreement is deemed to be unclear or ambiguous, it shall be construed as
if it were drafted jointly by the parties. The Executive and the Company agree
that neither party was in a superior bargaining position regarding the
substantive terms of this Agreement.

 

23.     Entire Agreement. This Agreement, including such documents that are
incorporated and referenced herein, constitutes the complete, final and entire
agreement of the parties with respect to the matters addressed herein and it
supersedes all other prior agreements and understandings, both written and oral,
express or implied, with respect to the subject matter of this Agreement. No
promises, representations or warranties have been made by any party to or for
the benefit of the other with respect to such matters which are not expressly
set forth herein.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written herein.

 

National Bankshares, Inc.

 

 

 

By: /s/ James M. Shuler

James. M. Shuler, Chairman of the Compensation Committee

Address: c/o National Bankshares, Inc.

P.O. Box 90002

Blacksburg, VA 24062-9002

 

 

 

/s/ James G. Rakes

James G. Rakes

Address: 3335 McEver Road      

Blacksburg, VA 24060

 

 

 

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