**Exhibit 10.3****EMPLOYMENT AGREEMENT**     **AGREEMENT**made as of September 6, 2006 (this “Agreement”), by and between **TRI-COUNTY FINANCIALCORPORATION**, with its principal place of business at 3035 Leonardtown Road, Waldorf, Maryland20601 (the “Company”), and **MICHAEL L. MIDDLETON**(the “Executive”).     **WHEREAS,**the Company desires to continue to provide for the Executive’s employment by theCompany.     **NOW THEREFORE,**in consideration of the mutual covenants contained herein, the Company and theExecutive agree as follows:     **1. EMPLOYMENT.**The Executive shall serve the Company as President and Chief Executive Officer.In such positions, the Executive shall have the duties, responsibilities, functions, and authoritydetermined and designated from time to time by the Board of Directors of the Company. The Executivealso agrees to serve as an officer of one or more Company affiliates upon such designation. TheExecutive shall render such administrative and management services to the Company and itsaffiliates as are customarily performed by persons in a similar executive capacity.     **2. EFFECTIVE DATE AND TERM.**The Company agrees to employ the Executive for an initial periodof five (5) years beginning on the date first above written (the “Effective Date”) and ending onthe day before the fifth (5th) anniversary of the Effective Date, and during the periodof any additional extensions described below in this Section 2 (the “Term of Employment”). Theparties intend that, at any point in time during the Executive’s employment hereunder, thethen-remaining Term of Employment shall be five (5) years. On the day after the Effective Date andon each day thereafter, the Term of Employment shall be extended by one day, such that on any datethe Term of Employment will expire on the day before the fifth (5th) anniversary of suchdate. These extensions shall continue unless: (i) the Company gives notice to the Executive that ithas elected to discontinue the extensions; (ii) the Executive gives notice to the Company that theExecutive has elected to discontinue the extensions; or (iii) the Executive’s employment with theCompany is terminated, whether by resignation, Disability (as provided in Section 12.1), dischargeor otherwise. On the earlier of (i) the date on which such a notice is deemed given or (ii) theeffective date of a termination of the Executive’s employment with the Company, the Term ofEmployment shall be converted to a fixed period of five (5) years ending on the day before thefifth (5th) anniversary of such date (provided, however, that, subject to any rights ofthe Executive under this Agreement, the Term of Employment shall terminate on such earlier date asmay be specifically provided in this Agreement in the event of the Executive’s death, Retirement,Voluntary Termination or Termination for Just Cause or Termination Without Cause). The last day ofsuch term, as so extended from time to time, is herein sometimes referred to as the “ExpirationDate.”     **3. COMPENSATION AND BENEFITS.**The compensation and benefits payable to the Executive underthis Agreement shall be as follows, it being understood that (i) references to benefits offered by,or to officers of, the Company are intended to include benefits offered by, or to officers of, anyaffiliate of the Company which employs the Executive and (ii) payments or benefits required to beprovided by the Company may be provided by an affiliate:**3.1 SALARY.**For all services rendered by the Executive to the Company and itsaffiliates, the Executive shall be entitled to receive a base salary at an annualrate not less than the Executive’s base salary as in effect on the Effective Date,subject to increase from time to time in accordance with the usual practices of theCompany with respect to
 

 
review of compensation of its senior executives. Any increase in the Executive’sbase salary shall become the “base salary” for purposes of this Agreement. TheExecutive’s base salary shall be payable in periodic installments in accordance withthe Company’s usual practice for its senior executives.**3.2 EMPLOYEE BENEFITS.**The Executive shall also be entitled to participate in anyand all employee benefit plans, medical insurance plans, disability income plans,retirement plans, bonus incentive plans, and other benefit plans from time to timein effect for senior executives of the Company. Such participation shall be subjectto (i) the terms of the applicable plan documents, (ii) generally applicablepolicies of the Company and (iii) the discretion of the Board or any administrativeor other committee provided for in, or contemplated by, such plans.**3.3 INCENTIVE COMPENSATION.**The Executive shall be eligible to participate in anyincentive compensation or bonus program sponsored by the Company on such terms asthe Board of Directors of the Company may establish for the Executive’sparticipation.**3.4 BUSINESS EXPENSES.**The Company shall provide for, or reimburse, the Executive’sreasonable travel and other business expenses (including, without limitation,automobile and cellphone expenses) incurred by the Executive in the performance ofthe Executive’s duties and responsibilities, subject to such reasonable requirementswith respect to substantiation and documentation as may be specified by the Company.**3.5 LEAVE.**The Executive shall be entitled to leave (vacation, sick and personal)in accordance with the Company’s standard policies for senior executives; provided,however, that the Executive shall receive not less than four (4) weeks vacationleave during each calendar year.**3.6 GENERAL.**Nothing paid to the Executive under any plan, policy or arrangementcurrently in effect or made available in the future shall be deemed to be in lieu ofother compensation to the Executive as described in this Agreement.**3.7 OTHER EMPLOYEE BENEFITS.**Executive shall be entitled to participate in anycompensatory plans, arrangements or programs the Company makes available to itssenior executive officers, including, but not limited to, stock compensationprograms, supplemental retirement arrangements, or executive health or lifeinsurance programs, subject to, and on a basis consistent with, the terms andconditions of such plans, arrangements or programs. The Executive’s participationin such plans, arrangements or programs shall not be deemed to be in lieu of othercompensation to which the Executive is entitled under this Agreement.     **4. EXTENT OF SERVICE.**During the Term of Employment, the Executive shall devote theExecutive’s full time, best efforts and business judgment, skill and knowledge to the advancementof the Company’s interests and to the discharge of the Executive’s duties and responsibilitieshereunder. The Executive shall not engage in any other business activity, except as may be approvedby the Board; provided, however, that nothing herein shall be construed as preventing the Executivefrom:(a) investing the Executive’s assets in such form or manner as shall not require anymaterial services on the Executive’s part in the operations or affairs of the companies orthe other entities in which such investments are made, provided that the Executive may notown any interest in any
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entity that competes with the Company or any affiliate (other than up to 4.9% of theoutstanding voting stock of such an entity that is a publicly traded entity); or(b) serving on the board of directors of any company not in competition with the Company orany affiliate, provided that the Executive shall not render any material services withrespect to the operations or affairs of any such company; or(c) engaging in religious, charitable or other community or non-profit activities which donot impair the Executive’s ability to fulfill his duties and responsibilities under thisAgreement.     **5. TERMINATION UPON DEATH.**In the event of the Executive’s death during the Term ofEmployment, the Executive’s employment (and the Term of Employment) shall terminate on the date ofthe Executive’s death. The Company shall pay to the Executive’s beneficiary, designated in writingto the Company prior to the Executive’s death (or to the Executive’s estate, if the Executive failsto make such designation), (i) any base salary or other compensation earned through the date ofdeath, plus (ii) any other compensation and benefits as may be provided in accordance with theterms and provisions of any applicable plans and programs of the Company in which the Executiveparticipated as of his date of death.**6. DISCHARGE FOR CAUSE.**     **6.1 NOTICE AND DETERMINATION OF CAUSE.**The Company may terminate the Executive’semployment during the Term of Employment for Just Cause. Such termination shall be deemed tohave occurred for Just Cause only if:     (a) the Board of Directors of the Company, by a separate affirmative vote of atleast three-fourths (3/4) of the entire membership, determines that the Executive has(i) engaged in acts of personal dishonesty which have resulted in loss to theCompany, or one of its affiliates, (ii) intentionally failed to perform statedduties, (iii) committed a willful violation of any law, rule, regulation (other thantraffic violations or similar offenses), (iv) become subject to the entry of a finalcease and desist order which results in substantial loss to the Company or one ofits affiliates, (v) been convicted of a crime or act involving moral turpitude, (vi)willfully breached the Company’s code of conduct and business ethics, (vii) beendisqualified or barred by any governmental or self-regulatory authority from servingin the Executive’s then-current employment capacity or (viii) willfully attempted toobstruct or failed to cooperate with any investigation authorized by the Board ofDirectors or any governmental or self-regulatory entity. No act or failure to act onthe part of the Executive shall be considered “willful” unless it is done, oromitted to be done, by the Executive in bad faith or without reasonable belief thatthe Executive’s action or omission was in the best interests of the Company. Any actor failure to act that is based upon authority given pursuant to a resolution dulyadopted by the Board of Directors, or upon the advice of legal counsel for theCompany, shall be conclusively presumed to be done, or omitted to be done, by theExecutive in good faith and in the best interests of the Company; and     (b) at least ten (10) days prior to the vote contemplated by Section 6.1(a),the Company has provided the Executive with notice of intent of the Company todischarge the Executive for Just Cause, detailing with particularity the facts andcircumstances which are alleged to constitute Just Cause (the “Notice of Intent toDischarge”); and     (c) after the giving of the Notice of Intent to Discharge and before the takingof the votes contemplated by Section 6.1(a), the Executive (together with theExecutive’s
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legal counsel, if the Executive so desires) is afforded a reasonableopportunity to make both written and oral presentations before the Board ofDirectors for the purpose of refuting the alleged grounds for Just Cause for theExecutive’s discharge; and     (d) after the vote contemplated by Section 6.1(a), the Company has furnished tothe Executive a notice of termination which shall specify the effective date of theExecutive’s termination of employment (which shall in no event be earlier than thedate on which such notice is deemed given) and include a copy of a resolution orresolutions adopted by the Board of Directors authorizing the termination of theExecutive’s employment for Just Cause and stating with particularity the facts andcircumstances found to constitute Just Cause for the Executive’s discharge (the“Final Discharge Notice”).     **6.2 SUSPENSION; FINAL DISCHARGE.**Following the giving of a Notice of Intent toDischarge, the Company may temporarily suspend the Executive’s duties and authority and, insuch event, may also suspend the payment of salary and other cash compensation, but not theExecutive’s participation in retirement, insurance and other employee benefit plans. If theExecutive is discharged for Just Cause, all payments withheld during the period ofsuspension shall be deemed forfeited and shall not be payable to the Executive. If theCompany does not give a Final Discharge Notice to the Executive within one hundred twenty(120) days after giving a Notice of Intent to Discharge, the Notice of Intent to Dischargeshall be deemed withdrawn and any future action to discharge the Executive for Cause shallrequire the giving of a new Notice of Intent to Discharge.     **6.3 EFFECT OF TERMINATION.**In the event of termination pursuant to this Section 6, theTerm of Employment shall terminate and the Company shall pay to the Executive an amountequal to the sum of (i) base salary or other compensation earned through the date oftermination, plus (ii) any other compensation and benefits as may be provided in accordancewith the terms and provisions of any applicable plans and programs, if any, of the Company.All other obligations of the Company under this Agreement shall terminate as of the date oftermination.     **7. TERMINATION BY THE EXECUTIVE.**     **7.1 TERMINATION BY THE EXECUTIVE FOR GOOD REASON.**     (a) The Executive shall be entitled to terminate employment hereunder for orwith Good Reason (as defined in Section 7.4). Upon any such termination, theExecutive shall be entitled to receive the benefits set forth in Section 9. Atermination of employment by the Executive for Good Reason shall be effectuated bygiving the Company written notice (“Notice of Termination for Good Reason”) of thetermination, setting forth in reasonable detail the specific conduct of the Companythat constitutes Good Reason and the specific provision(s) of this Agreement onwhich the Executive relies. A termination of employment by the Executive for GoodReason shall be effective on the fifth business day following the date when theNotice of Termination for Good Reason is given, unless the notice sets forth a laterdate (which date shall in no event be later than 30 days after the notice is given).     (b) The failure to set forth any fact or circumstance in a Notice ofTermination for Good Reason shall not constitute a waiver of the right to assert,and shall not preclude the Executive from asserting, such fact or circumstance in anattempt to enforce any right under or provision of this Agreement.
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     **7.2 OTHER VOLUNTARY TERMINATION BY THE EXECUTIVE.**During the Term of Employment, theExecutive may effect, upon sixty (60) days prior written notice to the Company, a VoluntaryTermination of employment hereunder and thereupon the Term of Employment shall end. A“Voluntary Termination” shall mean a termination of employment by the Executive on theExecutive’s own initiative other than (i) a termination due to death or Disability (asdefined in Section 12), (ii) a termination for Good Reason (as defined in Section 7.4),(iii) a termination due to Retirement (as defined in Section 7.3), or (d) a termination as aresult of the normal expiration of the full Term of Employment. If, during the Term ofEmployment, the Executive’s employment is terminated due to a Voluntary Termination, theTerm of Employment shall thereupon end and the Company shall pay to the Executive an amountequal to the sum of (i) base salary or other compensation earned through the date oftermination, plus (ii) any other compensation and benefits as may be provided in accordancewith the terms and provisions of any applicable plans and programs, if any, of the Company.     **7.3 TERMINATION DUE TO RETIREMENT.**“Retirement” shall mean the termination of theExecutive’s employment with the Company for any reason by the Executive at any time afterthe Executive attains “Retirement Age” (as hereinafter defined). “Retirement Age” mean theearlier to occur of (i) age 65 or (ii) such other age which the Company, by resolution ofthe Board, may establish as the Executive’s Retirement Age. The Executive may terminateemployment hereunder due to Retirement upon thirty (30) days prior written notice to theCompany. If, during the Term of Employment, the Executive’s employment is terminated due toRetirement, the Term of Employment shall thereupon end and the Executive shall be entitledto (i) base salary or other compensation earned through the Retirement Date, and (ii) anyother compensation and benefits as may be provided in accordance with the terms andprovisions of any applicable plans and programs, if any, of the Company.     **7.4 GOOD REASON.**For purposes of this Agreement, the term “Good Reason” shall mean anyof the following: (i) any change in the duties, functions or responsibilities of theExecutive that is inconsistent in any material and adverse respect with theExecutive’s duties, functions or responsibilities with the Company and itsaffiliates at the Effective Date (including any material and adverse diminutionof such duties, functions or responsibilities);  (ii) a reduction of the Executive’s base salary other than inconnection with an across-the-board reduction in base salary for all similarlysituated employees;  (iii) the relocation of the Executive’s office to a location morethan thirty (30) miles from its location at the Effective Date; or  (iv) the taking of any action by the Company or any of itsaffiliates or successors which would materially and adversely affect theExecutive’s overall compensation and benefits package, excluding (A) changes tothe compensation and benefits package made on a non-discriminatory basis tosubstantially all similarly-situated employees and (B) any isolated,insubstantial and inadvertent action not taken in bad faith and which isremedied reasonably promptly after receipt of written notice thereof given bythe Executive.  (v) failure to nominate or reelect the Executive as a member of theBoard of
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   Directors of the Company or of the Board of Directors of Community Bank ofTri-County.  (vi) the liquidation or complete dissolution of the Company; or  (vii) a material breach of this Agreement by the Company.Notwithstanding anything in this Agreement to the contrary, during the twenty-four (24)month period beginning on the effective date of a Change in Control (as defined in Section7.5, and continuing through the second anniversary of such date, the Executive mayvoluntarily terminate his employment for any reason and such termination shall constitutetermination With Good Reason.     **7.5 CHANGE IN CONTROL.**For purposes of this Agreement, a “Change in Control” shall bedeemed to have occurred in any of the following events:     (i) individuals who, on the date of this Agreement, constitute the Board ofDirectors of the Company (the “Incumbent Directors”) cease for any reason toconstitute at least half of the Board of Directors of the Company, provided that anyperson becoming a director subsequent to such time, whose election or nomination forelection was approved by a vote of at least two-thirds (2/3) of the IncumbentDirectors then on the Board of Directors of the Company (either by a specific voteor by approval of the proxy statement of the Company in which such person is namedas a nominee for director, without written objection to such nomination) shall be anIncumbent Director; provided, however, that no individual initially elected ornominated as a director of the Company as a result of an actual or threatenedelection contest with respect to directors or as a result of any other actual orthreatened solicitation of proxies or consents by or on behalf of any person otherthan the Board of Directors of the Company shall be deemed to be an IncumbentDirector;     (ii) any “person” (as such term is defined in Section 3(a)(9) of the SecuritiesExchange Act of 1934 (the “Exchange Act”) and as used in Sections 13(d)(3) and14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule13d-3 under the Exchange Act), directly or indirectly, of securities of the Companyrepresenting 25% or more of the combined voting power of the Company’s thenoutstanding securities eligible to vote for the election of the Board of Directorsof the Company (the “Company Voting Securities”); provided, however, that the eventdescribed in this paragraph (ii) shall not be deemed to be a Change in Control byvirtue of any of the following acquisitions: (A) by the Company or any subsidiary,(B) by any employee benefit plan (or related trust) sponsored or maintained by theCompany or any subsidiary, (C) by any underwriter temporarily holding securitiespursuant to an offering of such securities or (D) a transaction (other than onedescribed in (iii) below) in which Company Voting Securities are acquired from theCompany, if a majority of the Incumbent Directors approve a resolution providingexpressly that the acquisition pursuant to this clause (D) does not constitute aChange in Control under this paragraph (ii);     (iii) the consummation of a merger, consolidation, statutory share exchange orsimilar form of corporate transaction involving the Company or any of itssubsidiaries that requires the approval of the Company’s stockholders, whether forsuch transaction or the issuance of securities in the transaction (a “BusinessCombination”), unless
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immediately following such Business Combination: (A) at least 50% of the totalvoting power of (x) the corporation resulting from such Business Combination (the“Surviving Corporation”), or (y) if applicable, the ultimate parent corporation thatdirectly or indirectly has beneficial ownership of 100% of the voting securitieseligible to elect directors of the Surviving Corporation (the “Parent Corporation”),is represented by the Company Voting Securities that were outstanding immediatelyprior to such Business Combination (or, if applicable, is represented by shares intowhich such Company Voting Securities were converted pursuant to such BusinessCombination), and such voting power among (and only among) the holders thereof is insubstantially the same proportion as the voting power of such Company VotingSecurities among the holders thereof immediately prior to the Business Combination,(B) no person (other than any employee benefit plan (or related trust) sponsored ormaintained by the Surviving Corporation or the Parent Corporation) is or becomes thebeneficial owner, directly or indirectly, of 25% or more of the total voting powerof the outstanding voting securities eligible to elect directors of the ParentCorporation (or, if there is no Parent Corporation, the Surviving Corporation) and(C) at least 50% of the members of the board of directors of the Parent Corporation(or, if there is no Parent Corporation, the Surviving Corporation) following theconsummation of the Business Combination were Incumbent Directors at the time of theCompany Board’s approval of the execution of the initial agreement providing forsuch Business Combination; or     (iv) the stockholders of the Company approve a plan of complete liquidation ordissolution of the Company or a sale of all or substantially all of the Company’sassets.     Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely becauseany person acquires beneficial ownership of more than 25% of Company Voting Securities as a resultof the acquisition of Company Voting Securities by the Company which reduces the number of CompanyVoting Securities outstanding; provided, that if after such acquisition by the Company such personbecomes the beneficial owner of additional Company Voting Securities that increases the percentageof outstanding Company Voting Securities beneficially owned by such person, a Change in Control ofthe Company shall then occur.     **8. TERMINATION BY THE COMPANY WITHOUT CAUSE.**The Executive’s employment with the Company maybe terminated without Just Cause by the Board of Directors of the Company, provided, however, thatthe Company shall have the obligation upon any such termination to make the payments to theExecutive provided for under Section 9 of this Agreement.     **9. CERTAIN TERMINATION BENEFITS.**In the event of termination pursuant to Section 7.1 or 8, theExecutive shall be entitled to each of the following benefits:**9.1 EARNINGS TO DATE OF TERMINATION.**An amount equal to the sum of (i) base salaryor other compensation earned through the date of termination, plus (ii) theExecutive’s pro rata share (based on the portion of the then-current calendar yearduring which the Executive was employed before termination of the Executive’semployment) of the average of the aggregate annual amounts paid to the Executive asbonuses or other cash incentive compensation for the three (3) calendar yearspreceding the termination of employment, plus (iii) any other compensation andbenefits as may be provided in accordance with the terms and provisions of anyapplicable plans and programs, if any, of the Company.
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**9.2 LUMP SUM PAYMENT.**An unreduced lump sum severance benefit equal to the sum ofthe following items:     (a) The base salary (as provided for in Section 3.1 of this Agreement) thatwould have been paid to the Executive (based on the base salary in effect on thedate of the Executive’s termination of employment) through the Expiration Date(including any amount which is contributed by the Company on the Executive’s behalfpursuant to a salary reduction agreement and which is not included in theExecutive’s gross income under Sections 125, 132(f) or 402(e)(3) of the InternalRevenue Code of 1986, as amended); and     (b) five (5) times the most recent annual incentive compensation payment (asprovided for pursuant to Section 3.3 of this Agreement) made to the Executive.Subject to Section 17.20, the severance benefit payment under this Section 9.2 shall be madeto the Executive in one lump sum on the date of the Executive’s termination of employment.     **9.3 BENEFIT CONTINUATION.**Continuation of the medical, dental and life insurancebenefits described in Section 3.2 and existing on the date of termination at the level ineffect on, and at the same out-of-pocket premium cost to the Executive, as of the date oftermination for a period of sixty (60) months following the Executive’s date of terminationof employment.     **9.4 VESTING OF STOCK AWARDS AND OPTIONS.**If the Executive’s termination of employmentoccurs on or after the effective date of a Change in Control, there shall be an accelerationof all vesting provisions, so that as of the date of termination of the Executive’semployment, all stock awards made by the Company to the Executive, to the extent thenunvested or forfeitable, shall become immediately and fully vested and non-forfeitable, andall options to purchase common stock of the Company, to the extent then not exercisable,shall become immediately and fully exercisable.     **10. ADJUSTMENT FOR UNAVAILABILITY OF BENEFITS.**If the benefits under any benefit plan orprogram continued pursuant to Section 9.3 may not be provided under any such plan to the Executiveor to the Executive’s dependents because the Executive is no longer deemed to be an employee of theCompany or an affiliate, the Company shall pay or provide for coverage on a comparable basis forthe Executive and, where applicable, the Executive’s dependents.     **11. DEATH OR DISABILITY BEFORE COMPLETION OF CHANGE IN CONTROL.**     **11.1 CERTAIN PAYMENTS.**The Executive shall be entitled to receive the payments providedfor under Section 9 of this Agreement on the date of the Executive’s termination ofemployment if:     (a) the Executive’s employment terminates due to Disability pursuant to Section12 or due to death, and     (b) either     (i) such termination of employment occurred within one (1) year afterthe occurrence of a Change in Control; or
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     (ii) such termination occurred within one (1) year after the occurrenceof a Preliminary Change in Control (as hereinafter defined), AND, inaddition, a Change in Control occurs within two (2) years after suchtermination of employment.     **11.2 PRELIMINARY CHANGE IN CONTROL. “Preliminary Change in Control”**shall mean each of(i) the signing of a definitive agreement for a transaction that, if consummated, wouldresult in a Change in Control, (ii) the commencement of a tender offer that, if successful,would result in a Change in Control, and (iii) the circulation of a proxy statement seekingproxies in opposition to management in an election contest that, if successful, would resultin a Change in Control. Any payment required to be made pursuant to this Section 11 shall bedeferred without interest until, and shall be payable immediately upon, the actualoccurrence of a Change in Control. Payments to be made pursuant to this Section 11 shall bein lieu of and in substitution for payments required to be made in connection withdisability pursuant to Section 12.     **12. DISABILITY.**     **12.1 TERMINATION DUE TO DISABILITY.**The Company may terminate the Executive’semployment upon a determination, by vote of a majority of the Board of Directors, acting inreliance on the written advice of a medical professional acceptable to the Board ofDirectors, that the Executive is suffering from a physical or mental impairment which, atthe date of the determination, has prevented the Executive from performing the Executive’sassigned duties on a substantially full-time basis for a period of at least one hundred andeighty (180) days during the one-year period ending with the date of the determination or islikely to result in death or prevent the Executive from performing the Executive’s assignedduties on a substantially full-time basis for a period of at least one hundred and eighty(180) days during the period of one (1) year beginning with the date of the determination(such impairment, the “Disability”). In such event:     (a) The Company shall pay to the Executive an amount equal to the sum of (i)base salary or other compensation earned through the date of termination, plus (ii)any other compensation and benefits as may be provided in accordance with the termsand provisions of any applicable benefit plans and programs of the Company.     (b) In addition to the amounts payable pursuant to Section 12.1(a), the Companyshall continue to pay the Executive the Executive’s base salary, at the annual ratein effect for the Executive immediately prior to the termination of the Executive’semployment, during the Initial Continuation Period. The “Initial ContinuationPeriod” shall commence on the date of termination of employment pursuant to Section12.1 and shall end on the earliest of: (i) the expiration of one hundred and eighty(180) days after the date of termination of the Executive’s employment; (ii) thedate on which long-term disability insurance benefits are first payable to theExecutive under any long-term disability insurance plan (“LTD Plan”) coveringemployees of the Company (the “LTD Eligibility Date”); (iii) the date of theExecutive’s death; and (iv) the Expiration Date. If the end of the InitialContinuation Period is neither the LTD Eligibility Date nor the date of theExecutive’s death, the Company shall continue to pay the Executive the Executive’sbase salary, at an annual rate equal to sixty percent (60%) of the annual rate ineffect for the Executive immediately prior to the termination of the Executive’semployment (the “60% AMOUNT”), during an additional period ending on the earliest ofthe LTD Eligibility Date, the date of the Executive’s death and the Expiration Date.
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While receiving disability payments under such LTD Plan, the Company shall payto the Executive an additional payment of such an amount, if any, as may benecessary so that the aggregate of such additional payment and the Executive’sdisability income payments will equal the 60% Amount, and the Executive shallcontinue to participate in the Company’s benefit plans and to receive other benefitsas specified in Section 3.2 until the Expiration Date, with all such benefits to beat the level in effect on, and at the same out-of-pocket cost to the Executive, asin effect on the date of the Disability determination.     **12.2 EFFECTIVE DATE OF TERMINATION.**A termination of employment due to Disability underthis Section 12 shall be effected by notice of termination given to the Executive by theCompany and shall take effect on the later of the effective date of termination specified insuch notice or the date on which the notice of termination is deemed given to the Executive.     **13. EXCISE TAXES.**     **13.1 COVERED BENEFITS.**“Covered Benefits” shall mean any payment or benefit paid orprovided to the Executive by the Company or any affiliate or any successor in interest tothe Company (whether pursuant to this Agreement or otherwise) that will be (or in theopinion of Tax Counsel (as defined below) might reasonably be expected to be) subject to anyexcise tax (the “Excise Tax”) imposed under Section 4999 of the Internal Revenue Code of1986, as amended (the “Code”). In the event that at any time during or after the Term ofEmployment the Executive shall receive any Covered Benefits, the Company shall pay to theExecutive an additional amount (the “Gross-Up Payment”) such that the net amount retained bythe Executive from the Gross-Up Payment, after deduction of any federal, state and localincome taxes, Excise Tax, and FICA and Medicare withholding taxes on the Gross-Up Payment,shall be equal to the Excise Tax on the Covered Benefits. For purposes of determining theamount of such Excise Tax on the Covered Benefits, the amount of the Covered Benefits thatshall be taken into account in calculating the Excise Tax shall be equal to (i) the CoveredBenefits, less (ii) the amount of such Covered Benefits that, in the opinion of tax counselselected by the Company and reasonably acceptable to the Executive (“Tax Counsel”), are notparachute payments (within the meaning of Section 280G(b)(1) of the Code).     **13.2 CERTAIN ASSUMPTIONS.**For purposes of this Section 13, the Executive shall bedeemed to pay federal income taxes at the highest marginal rate of federal income taxationin the calendar year in which the Excise Tax is payable and state and local income taxes atthe highest marginal rate of taxation in the state and locality of the Executive’s residenceon the effective date of the Executive’s termination, net of the reduction in federal incometaxes which could be obtained from deduction of such state and local taxes. Except asotherwise provided herein, all determinations required to be made under this Section 13shall be made by Tax Counsel, which determinations shall be conclusive and binding on theExecutive and Company, absent manifest error.     **13.3 TAX INDEMNIFICATION.**The Company shall indemnify and hold the Executive harmlessfrom any and all losses, costs and expenses (including without limitation, reasonableattorney’s fees, reasonable accountant’s fees, interest, fines and penalties of any kind)which the Executive incurs as a result of any administrative or judicial review of theExecutive’s liability under Section 4999 of the Code by the Internal Revenue Service or anycomparable state agency through and including a final judicial determination or finaladministrative settlement of any dispute arising out of the Executive’s liability for theExcise Tax or otherwise relating to the classification for purposes of Section 280G of theCode of any of the Covered Benefits or other payment or benefit in the nature ofcompensation made or provided to the Executive by the
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Company. The Executive shall promptly notify the Company in writing whenever theExecutive receives notice of the commencement of any judicial or administrative proceeding,formal or informal, in which the federal tax treatment under Section 4999 of the Code of anyamount paid or payable under this Agreement or otherwise is being reviewed or is in dispute(including a notice of audit or other inquiry concerning the reporting of the Executive’sliability under Section 4999). The Company may assume control at its expense over all legaland accounting matters pertaining to such federal or state tax treatment (except to theextent necessary or appropriate for the Executive to resolve any such proceeding withrespect to any matter unrelated to the Covered Benefits or other payment or benefit in thenature of compensation made or provided to the Executive by the Company) and the Executiveshall cooperate fully with the Company in any such proceeding. The Executive shall not enterinto any compromise or settlement or otherwise prejudice any rights the Company may have inconnection therewith without prior consent of the Company. In the event that the Companyelects not to assume control over such matters, the Company shall promptly reimburse theExecutive for all expenses related thereto as and when incurred upon presentation ofappropriate documentation relating thereto.     **14. CONFIDENTIAL INFORMATION.**The Executive will not disclose to any other Person (as definedin Section 17.2) (except as required by applicable law or in connection with the performance of theExecutive’s duties and responsibilities hereunder), or use for the Executive’s own benefit or gain,any confidential information of the Company or any affiliate obtained by the Executive incident tothe Executive’s employment with the Company or its affiliates. The term “Confidential Information”includes, without limitation, financial information, business plans, prospects and opportunities(such as lending relationships, financial product developments, or possible acquisitions ordispositions of business or facilities) which have been discussed or considered by the managementof the Company or its affiliates but does not include any information which has become part of thepublic domain by means other than the Executive’s failure to honor the obligations hereunder.     **15. NO MITIGATION; NO OFFSET.**In the event of any termination of employment under thisAgreement, the Executive shall be under no obligation to seek other employment or to mitigatedamages, and there shall be no offset against any amounts due to the Executive under this Agreementfor any reason, including, without limitation, on account of any remuneration attributable to anysubsequent employment that the Executive may obtain. Any amounts due under this Agreement are inthe nature of severance payments or liquidated damages, or both, and are not in the nature of apenalty.     **16. INDEMNIFICATION AND INSURANCE.**     **16.1 INDEMNIFICATION.**To the maximum extent permitted under applicable law, during theTerm of Employment and for a period of six years thereafter, the Company shall indemnify theExecutive against and hold the Executive harmless from any costs, liabilities, losses andexposures to the fullest extent and on the most favorable terms and conditions that similarindemnification is offered to any director or officer of the Company or any affiliatethereof.     **16.2 INSURANCE.**During the Term of Employment and for a period of six years thereafter,the Company shall cause the Executive to be covered by and named as an insured under anypolicy or contract of insurance obtained by either Company to insure directors and officersagainst personal liability for acts or omissions in connection with service as an officer ordirector of the Company or any of its affiliates service in other capacities at its request.The coverage provided to the Executive pursuant to this Section 16 shall be of the samescope and on the same terms and conditions as the coverage (if any) provided to otherofficers or directors of the Company.
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     **17. MISCELLANEOUS.**     **17.1 CONFLICTING AGREEMENTS.**The Executive hereby represents and warrants that theexecution of this Agreement and the performance of the Executive’s obligations hereunderwill not breach or be in conflict with any other agreement to which the Executive is a partyor is bound, and that the Executive is not now subject to any covenants against competitionor similar covenants which would affect the performance of the Executive’s obligationshereunder.     **17.2 DEFINITION OF “PERSON”.**For purposes of this Agreement, the term “PERSON” shallmean an individual, a corporation, an association, a partnership, an estate, a trust and anyother entity or organization.     **17.3 WITHHOLDING.**All payments made under this Agreement shall be net of any tax orother amounts required to be withheld under applicable law.     **17.4 ARBITRATION.**The Company and Executive agree that any claim, dispute orcontroversy arising under or in connection with this Agreement (including, withoutlimitation, any such claim, dispute or controversy arising under any federal, state or localstatute, regulation or ordinance or any of the Company’s employee benefit plans, policies orprograms) shall be resolved solely and exclusively by binding arbitration. The arbitrationshall be held in the County of Charles, Maryland (or at such other location as shall bemutually agreed by the parties). The arbitration shall be conducted in accordance with theCommercial Arbitration Rules (the “Rules”) of the American Arbitration Association (the“AAA”) in effect at the time of the arbitration, except that the arbitrator shall beselected by alternatively striking from a list of five arbitrators supplied by the AAA. Allfees and expenses of the arbitration, excluding a transcript, shall be borne equally by theparties. Each party will pay for the fees and expenses of its own attorneys, experts,witnesses, and preparation and presentation of proofs and post-hearing briefs (unless theExecutive prevails on a claim for which attorney’s fees are recoverable under theAgreement). Any action to enforce or vacate the arbitrator’s award shall be governed by theFederal Arbitration Act, if applicable, and otherwise by applicable state law. If eitherthe Company or Executive pursues any claim, dispute or controversy against the other in aproceeding other than the arbitration provided for herein, the responding party shall beentitled to dismissal or injunctive relief regarding such action and recovery of all costs,losses and attorney’s fees related to such action. Notwithstanding the provisions of thisparagraph, either party may seek injunctive relief in a court of competent jurisdiction,whether or not the case is then pending before the panel of arbitrators. Following thecourt’s determination of the injunction issue, the case shall continue in arbitration asprovided herein.     **17.5 INDEMNIFICATION FOR ATTORNEYS’ FEES.**In the event any dispute or controversyarising under or in connection with Executive’s termination or this Agreement is resolved infavor or Executive, whether by judgment, arbitration or settlement, Executive shall beentitled to the payment of: (i) all legal fees and expenses incurred by Executive inresolving such dispute or controversy, and (ii) any back-pay, including salary, bonuses andany other cash compensation, fringe benefits and any compensation and benefits due Executiveunder this Agreement.     **17.6 INTERPRETATION.**The recitals hereto constitute an integral part of this Agreement.References to Sections include subsections, which are part of the related Section (e.g., asection numbered “Section 5.5” would be part of “Section 5” and references to “Section
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5” would also refer to material contained in the subsection described as “Section5.5”).     **17.7 ASSIGNMENT; SUCCESSORS AND ASSIGNS, ETC.**     (a) This Agreement is personal to the Executive and, without the prior writtenconsent of the Company, shall not be assignable by the Executive otherwise than bywill or the laws of descent and distribution. This Agreement shall inure to thebenefit of and be enforceable by the Executive’s legal representatives.     (b) This Agreement shall inure to the benefit of and be binding upon theCompany and its successors and permitted assigns.     (c) The Company may not assign this Agreement or any interest herein withoutthe prior written consent of the Executive and without such consent any attemptedtransfer or assignment shall be null and void and of no effect; provided, however,that the Company shall require any successor (whether direct or indirect, bypurchase, merger, consolidation or otherwise) to all or substantially all of thebusiness and/or assets of the Company expressly to assume and to agree to performthis Agreement in the same manner and to the same extent that the Company would havebeen required to perform it if no such succession had taken place. As used in thisAgreement, “the Company” shall mean both the Company as defined above and anysuccessor that assumes and agrees to perform this Agreement, by operation of law orotherwise.     **17.8 ENFORCEABILITY.**If any portion or provision of this Agreement shall to any extentbe declared illegal or unenforceable by a court of competent jurisdiction, then theremainder of this Agreement, or the application of such portion or provision incircumstances other than those as to which it is so declared illegal or unenforceable, shallnot be affected thereby, and each portion and provision of this Agreement shall be valid andenforceable to the fullest extent permitted by law.     **17.9 REDUCTIONS; REGULATORY REQUIREMENTS.**Notwithstanding anything to the contrarycontained in this Agreement, any and all payments and benefits to be provided to theExecutive hereunder are subject to reduction to the extent required by applicable statutes,regulations, rules and directives of federal, state and other governmental and regulatorybodies having jurisdiction over the Company and its affiliates. The Executive confirms thatthe Executive is aware of the fact that the Federal Deposit Insurance Corporation has thepower to preclude the Company or its affiliates from making payments to the Executive underthis Agreement under certain circumstances. The Executive agrees that neither the Company orits affiliates shall be deemed to be in breach of this Agreement if it is precluded frommaking a payment otherwise payable hereunder by reason of regulatory requirements binding onthe Company or its affiliates, as the case may be.     **17.10 WAIVER.**No waiver of any provision hereof shall be effective unless made inwriting and signed by the waiving party. The failure of any party to require the performanceof any term or obligation of this Agreement, or the waiver by any party of any breach ofthis Agreement, shall not prevent any subsequent enforcement of such term or obligation orbe deemed a waiver of any subsequent breach.
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     **17.11 NOTICES.**Any notices, requests, demands and other communications provided for bythis Agreement shall be sufficient if in writing and delivered in person or sent byregistered or certified mail, postage prepaid, and addressed to the Executive at theExecutive’s last known address on the books of the Company or, in the case of the Company,at its main office, attention of the Chair of the Compensation Committee of the Board ofDirectors.     **17.12 ELECTION OF REMEDIES.**An election by the Executive to resign for Good Reasonunder the provisions of this Agreement shall not constitute a breach by the Executive of anyagreement the Executive may have with the Company and shall not be deemed a voluntarytermination of employment by the Executive for the purpose of interpreting the provisions ofany of the Company’s benefit plans, programs or policies.     **17.13 AMENDMENT.**This Agreement may be amended or modified only by a written instrumentsigned by the Executive and a duly authorized representative of the Company.     **17.14 NO EFFECT ON LENGTH OF SERVICE.**Nothing in this Agreement shall be deemed toprohibit the Company from terminating the Executive’s employment before the end of the Termof Employment with or without notice for any reason. This Agreement shall determine therelative rights and obligations of the Company and the Executive in the event of any suchtermination. In addition, nothing in this Agreement shall require the termination of theExecutive’s employment at the expiration of the Term of Employment. Any continuation of theExecutive’s employment beyond the expiration of the Term of Employment shall be on an“at-will” basis, unless the Company and the Executive agree otherwise.     **17.15 ALLOCATION OF OBLIGATIONS AS BETWEEN THE COMPANY AND ITS AFFILIATES.**The partiesunderstand that the Executive will perform substantial services for the Company and itsaffiliates. Unless otherwise determined by the Board of Directors of the Company, theExecutive shall not be entitled to compensation in addition to the compensation set forth inSection 3 of this Agreement as a result of the Executive’s serving as an officer of anyaffiliate of the Company. The Company and its affiliates shall apportion between them theamounts to be paid under this Agreement, based upon the services rendered by the Executiveto each of the affiliates and the Company, respectively. Any entitlement of the Executive toseverance compensation or other termination benefits under this Agreement shall bedetermined on the basis of the aggregate compensation payable to the Executive by theaffiliates and the Company, and liability therefor shall be apportioned between theaffiliates and the Company in the same manner as compensation paid to the Executive forservices to each of them. It is the intent and purpose of this Section 17.15 that theExecutive have the same legal and economic rights that the Executive would have if all ofthe Executive’s services were rendered to and all of the Executive’s compensation were paidby the Company.     **17.16 PAYMENTS TO ESTATE OR BENEFICIARIES.**In the event of the Executive’s death priorto the completion by the Company of all payments due the Executive under this Agreement, theCompany shall continue such payments (other than payments which by their terms cease upondeath) to the Executive’s beneficiary, as designated in writing by the Executive andprovided to the Company prior to the Executive’s death (or to the Executive’s estate, if theExecutive fails to make such designation) and, as applicable, to the Executive’s survivingdependents.     **17.17 ENTIRE AGREEMENT; EFFECT ON PRIOR AGREEMENTS.**This Agreement constitutes theentire agreement between the parties pertaining to its subject matter and supersedes allprior and contemporaneous agreements, understandings, negotiations, prior
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draft agreements, and discussions of the parties, whether oral or written.     **17.18 COUNTERPARTS AND FACSIMILE SIGNATURES.**This Agreement may be executed in two ormore counterparts, all of which shall be considered one and the same agreement and shallbecome effective when one or more counterparts have been signed by each party and deliveredto the other party, it being understood that all parties need not sign the same counterpart.This Agreement may be executed by facsimile signatures.     **17.19 GOVERNING LAW.**This is a Maryland contract and shall be construed under and begoverned in all respects by the laws of the State of Maryland without giving effect to itsconflicts of law principles.     **17.20 EFFECT OF CODE SECTION 409A.**Notwithstanding anything in this Agreement to thecontrary, if the Company in good faith determines that amounts that, as of the effectivedate of the Executive’s termination of employment are or may become payable to the Executivehereunder, are required to be suspended or delayed for six months in order to satisfy therequirements of Section 409A of the Code, then the Company will so advise the Executive, andany such payments shall be suspended and accrued for six months, whereupon they shall bepaid to the Executive in a lump sum (together with interest thereon at the then-prevailingprime rate). The Executive agrees that the Company shall be deemed to be in breach of thisAgreement if it delays making a payment otherwise payable hereunder by reason of Section409A.
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     **IN WITNESS WHEREOF,**this Agreement has been executed as a sealed instrument by the Company, byits duly authorized officer, and by the Executive, as of the date first above written.**TRI-COUNTY FINANCIAL CORPORATION            EXECUTIVE**           By: /s/ H. Beaman Smith   /s/ Michael L. Middleton                 Michael L. Middleton             Its: Secretary/ Treasurer                    Attest: /s/ Diane Deskins    Witness: /s/ Christy M. Lombardi   
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