ex10-2.htm


    CHANGE OF CONTROL
AGREEMENT

     

    THIS
AGREEMENT is entered into as of the 11th day of
June, 2008 (the "Effective Date") by and between Community Financial Corporation
("CFC"), a Virginia corporation, and NORMAN C. SMILEY, III (the
"Executive").

     

    WITNESSETH:

     

    WHEREAS,
CFC owns 100% of the outstanding stock of Community Bank (the "Bank"), a
federally chartered savings bank;

     

    WHEREAS,
Executive is the President of the Bank, and as such is a key executive officer
whose continued dedication, availability, advice and counsel to CFC and the Bank
is deemed important to the Boards of Directors of CFC and the Bank and to their
respective stockholders;

     

    WHEREAS,
CFC wishes to retain the services of Executive free from any distractions or
conflicts that could arise as a result of a change in control of CFC or the
Bank.

     

    NOW,
THEREFORE, to assure CFC of Executive's continued dedication, the availability
of his advice and counsel to the Board of Directors of CFC free of any
distractions resulting from a change of control, and for other good and valuable
consideration, the receipt and adequacy whereof each party hereby acknowledges,
CFC and Executive hereby agree as follows:

     

    1.           TERM OF AGREEMENT:
This Agreement shall remain in effect until cancelled by either party hereto,
upon not less than 24 months prior written notice to the other
party.

     

    2.           CHANGE IN CONTROL: If
the Executive's employment by the Bank or CFC shall be terminated by the Bank or
CFC, other than for Cause or as a result of the Executive's death, disability or
retirement, or terminated by the Executive for Good Reason, (all as defined in
the employment agreement ("Bank Employment Agreement") between Executive and the
Bank) in either case within six (6) months preceding or twenty-four (24) months
following a Change in Control of CFC or the Bank, then CFC, in lieu of the
Bank's obligations under Section 7(a)(i) of the Bank Employment Agreement,
shall:

     

    (a)           Pay
to the Executive in cash (less any amounts previously paid to the Executive
pursuant to Section 7(a) of the Bank Employment Agreement following the
Executive's termination or resignation of employment), upon the later of the
date of such Change of Control or the effective date of the Executive's
termination of employment with CFC or the Bank, an amount equal to 299% of the
Employee's "base amount" as determined under Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"); and

     

    (b)           Maintain
and provide for a period ending at the earlier of (i) one (1) year after the
effective date of the Executive's termination or (ii) the date of the
Executive's full time employment by another employer, at no cost to the
Executive, the Corporation's obligations under Section 7(a)(ii) of the Bank
Employment Agreement.

     

    (c)           For
purposes of this Agreement, a Change of Control of CFC occurs in any of the
following events: (i) the acquisition by any "person" or "group" (as defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 ("Exchange
Act")), other than CFC, any subsidiary of CFC or their employee benefit plans,
directly or indirectly, as "beneficial owner" (as defined in Rule 

     

     

    
      
        
        

      

      
        
        

        
        

      

      
        
        

      

    

     

     

    13d-3,
under the Exchange Act) of securities of CFC representing twenty percent (20%)
or more of either the then outstanding shares or the combined voting power of
the then outstanding securities of CFC; (ii) either a majority of the directors
of CFC elected at CFC's annual stockholders meeting shall have been nominated
for election other than by or at the direction of the "incumbent directors" of
CFC, or the "incumbent directors" shall cease to constitute a majority of the
directors of CFC. The term "incumbent director" shall mean any director who was
a director of CFC on the Effective Date and any individual who becomes a
director of CFC subsequent to the Effective Date and who is elected or nominated
by or at the direction of at least two-thirds of the then incumbent directors;
(iii) the shareholders of CFC approve (x) a merger, consolidation or other
business combination of CFC with any other "person" or "group" (as defined in
Sections 13(d) and 14(d) of the Exchange Act) or affiliate thereof, other than a
merger or consolidation that would result in the outstanding common stock of CFC
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into common stock of the surviving entity or a
parent or affiliate thereof) at least fifty percent (50%) of the outstanding
common stock of CFC or such surviving entity or a parent or affiliate thereof
outstanding immediately after such merger, consolidation or other business
combination, or (y) a plan of complete liquidation of CFC or an agreement for
the sale or disposition by CFC of all or substantially all of CFC's assets; or
(iv) any other event or circumstance which is not covered by the foregoing
subsections but which the Board of Directors of CFC determines to affect control
of CFC and with respect to which the Board of Directors adopts a resolution that
the event or circumstance constitutes a Change of Control for purposes of the
Agreement.

     

    The
Change of Control Date is the date on which an event described in (i), (ii),
(iii) or (iv) occurs.

     

    3.           LIMITATION OF
BENEFITS: It is the intention of the parties that no payment be made or
benefit provided to the Executive that would constitute an "excess parachute
payment" within the meaning of Section 280G of the Code and any regulations
thereunder, thereby resulting in a loss of an income tax deduction by CFC or the
imposition of an excise tax on the Executive under Section 4999 of the Code. If
the independent accountants serving as auditors for CFC immediately prior to the
date of a Change of Control determine that some or all of the payments or
benefits scheduled under this Agreement, when combined with any other payments
or benefits provided to the Executive on a Change of Control by CFC, the Bank
and any affiliate of CFC or the Bank required to be aggregated with CFC or the
Bank under Section 280G of the Code, would constitute nondeductible excess
parachute payments by CFC under Section 280G of the Code, then the payments or
benefits scheduled under this Agreement will be reduced to one dollar less than
the maximum amount which may be paid or provided without causing any such
payments or benefits scheduled under this Agreement or otherwise provided on a
Change of Control to be nondeductible. The determination made as to the
reduction of benefits or payments required hereunder by the independent
accountants shall be binding on the parties. The Executive shall have the right
to designate within a reasonable period which payments or benefits scheduled
under this Agreement will be reduced; provided, however, that if no direction is
received from the Executive, CFC shall implement the reductions under this
Agreement in its discretion.

     

    4.           LITIGATION - OBLIGATIONS -
SUCCESSORS:

     

    (a)           If
litigation shall be brought or arbitration commenced to challenge, enforce or
interpret any provision of this Agreement, and such litigation or arbitration
does not end with judgment in favor of CFC, CFC hereby agrees to indemnify the
Executive for his reasonable attorney's fees and disbursements incurred in such
litigation or arbitration.

     

     

    
      
        
        

      

      
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    (b)           CFC's
obligation to pay the Executive the compensation and benefits and to make the
arrangements provided herein shall be absolute and unconditional and shall not
be affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which CFC may have against him
or anyone else. All amounts payable by CFC hereunder shall be paid without
notice or demand. The Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise.

     

    (c)           CFC
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of CFC, by agreement in form and substance satisfactory to the Executive,
to expressly assume and agree to perform this Agreement in its entirety. Failure
of CFC to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Executive
to the compensation described in Section 2. As used in this Agreement, "CFC"
shall mean Community Financial Corporation and any successor to its business
and/or assets as aforesaid which executes and delivers the agreement provided
for in this Section 4 or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law.

     

    5.           NOTICES: For the
purposes of this Agreement, notices and all other communications provided for in
the Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:

     

    
      	
              If
      to the Executive:

               

               

               

              If
      to CFC:

            	
              Norman
      C. Smiley, III

              36
      Fallon Street

              Staunton,
      VA 24401

               

              Community
      Financial Corporation

              38
      N. Central Avenue

              P.O.
      Box 1209

              Staunton,
      VA 24402-1209

            


    

    


    or at
such other address as any party may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.

     

    6.           MODIFICATION - WAIVERS -
APPLICABLE LAW: No provisions of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing, signed by the Executive and on behalf of CFC by such officer as may be
specifically designated by the Board of Directors of CFC. No waiver by either
party hereto at any time of any breach by the other party hereto of, or in
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the Commonwealth
of Virginia.

     

    7.           INVALIDITY -
ENFORCEABILITY: The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect. Any
provision in this Agreement which 

     

     

    
      
        
        

      

      
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    is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or unenforceability
without invalidating or affecting the remaining provisions of this Agreement,
and any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.

     

    8.           SUCCESSOR RIGHTS:
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amounts would still be payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to his executor or, if there is no such executor, to his
estate.

     

    9.           HEADINGS: Descriptive
headings contained in this Agreement are for convenience only and shall not
control or affect the meaning or construction of any provision in this
Agreement.

     

    10.           ARBITRATION: Any
dispute, controversy or claim arising under or in connection with this Agreement
shall be settled exclusively by arbitration in Staunton, Virginia (or as close
thereto as feasible) in accordance with the Commercial Arbitration Rules of the
American Arbitration Association then in effect. CFC shall pay all
administrative fees associated with such arbitration. Judgment may be entered on
the arbitrator's award in any court having jurisdiction. Subject to Section
4(a), unless otherwise provided in the rules of the American Arbitration
Association, the arbitrators shall, in their award, allocate between the parties
the costs of arbitration, which shall include reasonable attorneys' fees and
expenses of the parties, as well as the arbitrator's fees and expenses, in such
proportions as the arbitrators deem just.

     

    11.           CONFIDENTIALITY -
NONSOLICITATION:

     

    (a)           The
Executive acknowledges that CFC may disclose certain confidential information to
the Executive during the term of this Agreement to enable him to perform his
duties hereunder. The Executive hereby covenants and agrees that he will not,
without the prior written consent of CFC, during the term of this Agreement or
at any time thereafter, disclose or permit to be disclosed to any third party by
any method whatsoever any of the confidential information of CFC. For purposes
of this Agreement, "confidential information" shall include, but not be limited
to, any and all records, notes, memoranda, data, ideas, processes, methods,
techniques, systems, formulas, patents, models, devices, programs, computer
software, writings, research, personnel information, customer information, CFC'
s financial information, plans, or any other information of whatever nature in
the possession or control of CFC which has not been published or disclosed to
the general public, or which gives to CFC an opportunity to obtain an advantage
over competitors who do not know of or use it. The Executive further agrees that
if his employment hereunder is terminated for any reason, he will leave with CFC
and will not take originals or copies of any records, papers, programs, computer
software and documents and all matter of whatever nature which bears secret or
confidential information of CFC.

     

    (b)           The
foregoing paragraph shall not be applicable if and to the extent the Executive
is required to testify in a judicial or regulatory proceeding pursuant to an
order of a judge or administrative law judge issued after the Executive and his
legal counsel urge that the aforementioned confidentiality be
preserved.

     

     

    
      
        
        

      

      
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    (c)           The
foregoing covenants will not prohibit the Executive from disclosing confidential
or other information to other employees of CFC or any third parties to the
extent that such disclosure is necessary to the performance of his duties under
this Agreement.

     

    12.           COMPLIANCE WITH SECTION 409A
OF THE CODE: Notwithstanding anything herein to the contrary, any
payments to be made in accordance with this Agreement shall not be made prior to
the date that is 185 calendar days from the date of termination of employment of
the Executive if it is determined by CFC in good faith that such payments are
subject to the limitations set forth at Section 409A of the Code and regulations
promulgated thereunder, and payments made in advance of such date would result
in the requirement that Executive pay additional interest and taxes in
accordance with Section 409A(a)(1)(B)of the Code.

     


    
      
         


      

      
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    IN
WITNESS WHEREOF, the parties have executed this Agreement as of the Effective
Date referred to above.

     

    
       

      
        
          	 	 	 	
                  EXECUTIVE

                   

                   

                	 
	
                  ATTEST:

                	/s/ 	
                       
      

                	
                  /s/
      

                	 
	
                   

                	 	 	
                  Norman
      C. Smiley, III 

                	 
	
                   

                	 	 	
                   

                	 


        

      

       

       

      
         

        
          
            	 	 	 	
                    COMMUNITY
      FINANCIAL CORPORATION

                     

                     

                  	 
	
                    ATTEST:

                  	/s/ 	
                    By:     
      

                  	
                    /s/
      

                  	 
	
                     

                  	 	 	
                     

                  	 
	
                     

                  	 	 	
                     

                  	 


          

        

         

      

       

      


    

    



    
      
         


      

      
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