**SECOND AMENDMENT**

**TO**

**NATIONAL BANKSHARES, INC.**

**SALARY CONTINUATION AGREEMENT**

**DATED FEBRUARY 8, 2006**

**FOR**

**MARILYN A. B. BUHYOFF**

 

THIS THIRD AMENDMENT is adopted this 17th day of December, 2008, effective as of January 1, 2006, by and between NATIONAL BANKSHARES, INC., a Virginia corporation headquartered in Blacksburg, Virginia (the “Company”), and MARILYN A. B. BUHYOFF (the “Executive”).

 

The Company and the Executive executed the Salary Continuation Agreement on February 8, 2006 effective as of January 1, 2006 (the “Agreement”). 

 

The undersigned hereby amend the Agreement for the purpose of bringing the Agreement into compliance with Section 409A of the Internal Revenue Code. Therefore, the following changes shall be made: 

 

*The following sentence is added at the end of Section 1.13 of the Agreement:*

 

In determining whether a Separation from Service has occurred, the term “Company” shall include its affiliates required to be treated as a service recipient along with the Company for purposes of Section 409A of the Code.

 

*Sections 2.3 and 2.3.1 of the Agreement shall be deleted in their entirety and replaced by the following:*

 

| 2.3 | Disability Benefit. If the Executive experiences a Disability prior to Normal Retirement Age while in the active service of the Company, the Company shall distribute to the Executive the benefit described in this Section 2.3 in lieu of any other benefit under this Article. |
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| 2.3.1 | Amount of Benefit. The annual benefit under this Section 2.3 is the Disability Benefit set forth on Schedule A for the Plan Year immediately preceding the date that the Executive’s cessation of service with the Company occurs due to Disability; provided, however, if the Executive ceases service with the Company due to Disability on December 31st of a Plan Year, then the Compnay shall distribute the Disability Benefit set forth on Schedule A for the Plan Year in which such Separation from Service occurs. |
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*Section 2.4.3 of the Agreement shall be deleted in its entirety and replaced by the following:*

 

| 2.4.3 | Excess Parachute Payment*.*If any benefit payable under this Agreement would create an excise tax under the excess parachute rules of Section 280G of the Code, the Company shall comply with any applicable restrictions or limitations applicable to the Executive in the Executive’s employment or other agreement, if any, with the Company or any affiliate of the Company addressing the same. |
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*Section 2.5 of the Agreement shall be deleted in its entirety and replaced by the following:*

 

| 2.5 | Restriction on Timing of Distribution. Notwithstanding any provision of this Agreement to the contrary, if the Executive is considered a Specified Employee at Separation from Service under such procedures as established by the Company in accordance with Section 409A of the Code, benefit distributions that are made upon Separation from Service may not commence earlier than six (6) months after the date of such Separation from Service. Therefore, in the event this Section 2.5 is applicable to the Executive, any distribution or series of distributions to be made due to a Separation from Service shall commence no earlier that the first day of the seventh month following the Separation from Service. No catch-up payment, or interest representing the time value of money, shall be made or due as a result of the six (6) month delay in paymentrequired by this Section 2.5 |
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*Section 8.3 of the Agreement shall be deleted in its entirety and replaced by the following:*

 

| 8.3 | Plan Terminations Under Section 409A. Notwithstanding anything to the contrary in Section 8.2, but subject to the applicable requirements of Section 409A of the Code, if this Agreement terminates in the following circumstances: |
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