EX-10.21






Exhibit 10.21




EMPLOYMENT AGREEMENT




THIS EMPLOYMENT AGREEMENT, dated as of this 2nd day of April, 2007, by and between
Fauquier Bankshares, Inc., a Virginia corporation (the “Company”), The Fauquier Bank, a Virginia
banking corporation (the “Bank”), and Gregory D. Frederick (the “Executive”).



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



Part I: General Employment Terms




1. Employment and Duties. The Executive shall be employed by the Bank as its Chief
Operating Officer (the “Position”) and shall also serve as an officer of the Company. The
Executive accepts such employment and agrees to perform the managerial duties and responsibilities
of Chief Operating Officer of the Bank. 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 assigned him by the Company’s Chief Executive Officer, provided, that, with the consent of the
Company’s Chief Executive Officer, 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 banking business or service for which would generate good will for the
Company and its subsidiaries and affiliates.



2. Term. The term of this Agreement (which term, together with any extension
hereunder, is referred to as the “Term”) shall commence on January 1, 2007 (the “Effective Date”)
and shall continue through December 31, 2008, unless terminated or extended as hereinafter
provided. This Agreement shall be extended for successive one-year periods at December 31, 2007
and at each December 31 thereafter during the Term unless either party notifies the other in
writing at least 90 days prior to such December 31 that the Agreement shall not be extended or
further extended as the case may be.



3. Compensation.



(a) Base Salary. The Company shall pay or cause the Bank to pay the Executive an
annual base salary not less than $150,000 for 2007. Such base salary shall be paid to the
Executive in accordance with established payroll practices of the Company. For each remaining year
of the Term, the Compensation Committee (“Compensation Committee”) of the Board of Directors of the
Company agrees to review the Executive’s base salary and to consider implementing changes to such
base salary as it may deem appropriate; however, such base salary shall not be reduced at any time
during the Term.



(b) Annual Incentive. The Executive will be eligible to participate in an annual
incentive plan that will establish measurable criteria and incentive compensation levels payable to
the Executive for corporate performance in relation to defined benchmarks. The Compensation
Committee or the Board of Directors of the Company, as the case may be, will consult with
management to establish the targeted corporate performance levels for the Company on an annual
basis consistent with the Company’s business plan and objectives. Achievement of the targeted
corporate performance levels will normally result in an annual cash incentive payment equal to 30%
of the Executive’s then current annual base salary. Any annual incentive payments due hereunder
shall be paid to the Executive no later than 75 days after the end of the year.



(c) Stock Compensation. Subject to the annual approval of the Compensation Committee
or the Board of Directors of the Company, as the case may be, the Executive will receive during the
Term an annual stock award under the Company’s Omnibus Stock Ownership and Long Term Incentive Plan
or any successor plan (the “Stock Compensation Plan”), with a value up to 90% of his actual annual
cash incentive payment earned each year. The stock award, which will consist of stock options,
restricted stock grants or other equity compensation grants, or any combination thereof, will
include such vesting and other terms and conditions as required herein and as otherwise determined
in the sole discretion of the Compensation Committee or the Board of Directors in accordance with
the Stock Compensation Plan. The valuation of a stock option award will be determined using the
Black-Scholes or similar methodology as determined by the Compensation Committee or the Board of
Directors of the Company.




	 	4.	 	Benefits and Perquisites.





(a) During the Term, the Executive shall be eligible to participate in any plans, programs or
forms of compensation or benefits that the Company or its subsidiaries and affiliates provide to
the class of employees that includes the Executive, on a basis not less favorable than that
provided to such class of employees, including, without limitation, group medical, disability and
life insurance, paid time off, and a retirement plan; provided, however, a reasonable transition
period following any change in control, merger, statutory share exchange, consolidation,
acquisition or transaction involving the Company or any of its subsidiaries and affiliates shall be
permitted in order to make appropriate adjustments in compliance with this Section 4(a). Unless
prior notice to the contrary is provided, the Executive will be eligible to participate in the
Company’s other incentive programs, dependent on the rules and goals established for such programs.



(b) The Executive shall be entitled such paid time off and perquisites as are provided to or
for similarly situated senior executives of the Bank.



5. Reimbursement of Expenses.



(a) Business Expenses. The Company shall reimburse or cause the Bank to 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
approved trade and professional association conventions, meetings and other related functions.
However, the Company’s Chief Executive Officer reserves the right to review these expenses
periodically and determine, in his sole discretion, whether future reimbursement of such expenses
to the Executive will continue without prior approval of the Company’s Chief Executive Officer.



(b) Relocation Expenses. The Company shall reimburse or cause the Bank to reimburse
the Executive, upon presentation of adequate substantiation, for the cost of packing and moving
household goods and property (including packing, loading, moving and mileage for two cars) and for
any other moving or relocation expenses approved by the Company’s Chief Executive Officer from
Louisa, Virginia to Warrenton, Virginia, provided that such reimbursement shall be limited to
$7,000 and that such relocation shall be effected no later than December 31, 2007 or any later date
approved in writing by the Company’s Chief Executive Officer.



6. Termination of Employment.



(a) Death. The Executive’s employment under this Agreement shall terminate
automatically upon the Executive’s death.



(b) Incapacity. If the Company determines that the Incapacity, as hereinafter
defined, of the Executive has occurred, it may terminate the Executive’s employment and this
Agreement upon 30 days’ written notice provided that, within 30 days after receipt of such notice,
the Executive shall not have returned to full-time performance of his assigned duties.
“Incapacity” shall mean the failure of the Executive to perform his assigned duties with the
Company and the Bank on a full-time basis as a result of mental or physical illness or injury as
determined by a physician selected by the Compensation Committee or the Board of Directors of the
Company for the greater of 90 consecutive calendar days or the longest waiting period under any
long term disability insurance contract or program provided to him as an employee.



(c) Termination by the Company with or without Cause. The Company may terminate the
Executives employment during the Term, with or without Cause. For purposes of this Agreement,
“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, or the Executive’s willful
failure to follow reasonable instructions or policies of the Company and/or the Bank after
being advised in writing of such failure and being given a reasonable opportunity and period
to remedy such failure;




(ii) conviction of, indictment for (or its procedural equivalent), 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 subsidiary or affiliate thereof;




(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 and its subsidiaries and affiliates, after being advised in writing of such
breach or violation and being given a reasonable opportunity and period to remedy such
breach or violation;




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




(v) the willful engaging by the Executive in conduct that is reasonably likely to
result, in the good faith judgment of a majority of the outside members of the Board of
Directors of the Company, in material injury to the Company or any subsidiary or affiliate,
monetarily or otherwise.



For purposes hereof, no act, or failure to act, on the Executive’s part shall be considered
“willful” unless done, or omitted to be done, by him not in good faith and without reasonable
belief that his act or omission was in the best interest of the Company; provided that any act or
omission to act on the Executive’s behalf in reliance upon an opinion of counsel to the Company or
counsel to the Executive shall not be deemed to be willful. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a copy of a certification by a majority of the outside members of the Board
of Directors of the Company finding that, in the good faith opinion of such majority, the Executive
was guilty of conduct which is deemed to be Cause within the meaning hereof and specifying the
particulars thereof in detail, after reasonable notice to the Executive and an opportunity for him,
together with his counsel, to be heard before such majority.



(d) Termination by Executive for Good Reason. The Executive may terminate his
employment for Good Reason. For purposes of this Agreement, “Good Reason” shall mean any of the
following not occurring in connection with a termination of the Executive’s employment for Cause:




(i) the continued assignment to the Executive of duties inconsistent with the
Executive’s Position, and the authority, duties or responsibilities inherent thereto, as
contemplated by Section 1 hereof or, in the event of a Change in Control (as hereinafter
defined), Section 10(a);




(ii) any action taken by the Company and/or the Bank which results in a substantial
reduction in the status of the Executive, including a diminution in his Position, and the
authority, duties or responsibilities inherent thereto, excluding for this purpose an
isolated, insubstantial and/or inadvertent action not taken in bad faith and which is
remedied promptly after receipt of notice thereof given by the Executive;




(iii) the relocation of the Executive to any other primary place of employment which
might require him to move his residence which, for this purpose, includes any reassignment
to a place of employment located within the current market area of the Company or any of its
subsidiaries or affiliates at the Effective Date, as such market area is defined for
Community Reinvestment Act purposes, without the Executive’s express written consent to such
relocation; or




(iv) any failure by the Company, or any successor entity following a Change in Control,
to comply with the provisions of Sections 3 and 4 or Section 10(b) 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.



7. Obligations upon Termination.



(a) Death. If the Executive’s employment is terminated by reason of death in
accordance with Section 6(a) hereof, this Agreement shall terminate without further obligation to
the Executive or his legal representatives under this Agreement, except that his survivors,
designees or estate shall continue to receive, in addition to all other benefits to which they may
be entitled pursuant to the terms of any plan, program or arrangement of the Company and its
subsidiaries or affiliates, his base salary hereunder for a period of three months following the
month in which his death occurred.



(b) Incapacity. If the Executive’s employment is terminated by reason of Incapacity
in accordance with Section 6(b) hereof, this Agreement shall terminate without further obligation
to the Executive under this Agreement except that the Executive shall receive any benefits to which
he may be entitled pursuant to the terms of any plan, program or arrangement of the Company and its
subsidiaries or affiliates.



(c) Without Cause; Good Reason. Except as set forth in Section 7(e), if, during the
Term, the Company shall terminate the Executive’s employment without Cause and other than for death
or Incapacity or the Executive shall terminate employment for Good Reason, the Company will pay or
provide the following to the Executive:




(i) Within 30 days after the termination of employment, the Company will pay or cause
the Bank to pay to the Executive in a lump sum the sum of (A) the Executive’s base salary
through the date of termination, (B) the amount, if any, of any incentive or bonus
compensation theretofore earned which has not yet been paid, (C) the product of the
Executive’s annual incentive payment made paid or payable, including by reason of deferral,
for the most recently completed year 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
365, and (D) an amount equal to the product of (I) two times the average of the Executive’s
annual incentive payments made for the last two calendars years preceding the calendar year
of his termination of employment multiplied by (II) the Executive’s Service Fraction. The
Executive’s “Service Fraction” is a fraction (not to exceed one), the numerator of which is
the number of whole calendar months during which the Executive has been employed by the Bank
through the date of termination (the “Service Fraction Numerator”) and the denominator of
which is 24.




(ii) Commencing within 30 days after the termination of employment, the Company shall
continue to pay or cause the Bank to continue to pay to the Executive at regular payroll
intervals Executive’s annual base salary for a period of the lesser of 24 months or the
number of months in the Executive’s Service Fraction Numerator from the date of termination
of employment.




(iii) The Company shall also maintain or cause the Bank to maintain in full force and
effect for the Executive’s continued benefit, until the lesser of 24 months or the number of
months in the Executive’s Service Fraction Numerator from the date of termination of
employment, all health and welfare plan and program coverage for the Executive, his spouse
and dependents then in effect, and provided that the Executive’s continued participation is
possible under the general terms and provisions of such plans and programs. If the Company
reasonably determines that maintaining any such health and welfare plan and program coverage
in full force and effect until the lesser of 24 months or the number of months in the
Executive’s Service Fraction Numerator from the Executive’s date of termination of
employment is not feasible, the Company either shall provide substantially identical
benefits directly or through an insurance arrangement or shall pay the Executive a lump sum
equal to 1.4 times the estimated cost of maintaining such coverage. If the Executive dies
while receiving such health and welfare benefit continuation, the Executive’s spouse and
other dependents will continue to be provided such benefits during the remainder of the
applicable 24- or lesser month period. The Executive, his spouse and his dependents will
become eligible for COBRA continuation coverage as of the date health benefits cease.




(iv) Vesting in all equity compensation awards granted to the Executive evidencing the
grant of a stock option or other award under the Company’s Stock Compensation Plan, or any
predecessor plan thereto, will automatically be accelerated and such equity compensation
awards shall be immediately exercisable and fully vested as of the date of termination of
employment. In the case of stock options, stock appreciation rights or similar awards, the
Executive will have at least 90 days after termination of employment, or such longer period
as may be provided for in the separate award agreement, to exercise his rights thereunder,
provided that such extended exercise period shall not extend beyond the maximum term of such
awards determined without regard to the Executive’s termination of employment.



In addition, the Executive shall receive any benefits to which he may be entitled pursuant to the
terms of any plan, program or arrangement of the Company and its subsidiaries or affiliates.



(d) Cause; other than for Good Reason. If the Executive’s employment shall be
terminated for Cause or for other than death, Incapacity or Good Reason, this Agreement shall
terminate without any further obligation of the Company to the Executive other than to pay to the
Executive his annual base salary through the date of termination and to provide any benefits to
which he may be entitled pursuant to the terms of any plan, program or arrangement of the Company
and its subsidiaries or affiliates. The Executive will still be required to comply with the
non-competition and confidentiality covenants set forth in Section 7(e).



(e) Non-Competition. Notwithstanding the foregoing, all payments and benefits under
Section 7(c) otherwise continuing for periods after the Executive’s termination of employment shall
cease to be paid, and the Company and the Bank shall have no further obligation due with respect
thereto, in the event the Executive engages in “Competition” or makes any “Unauthorized Disclosure
of Confidential Information.” 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 he will not engage in competition for a period of 24 months after his
employment ceases for any reason, including the expiration or nonrenewal of this Agreement. For
purposes hereof:




(i) “Competition” means the Executive’s engaging without the written consent of the
Board of Directors of the Company or a person authorized thereby, in an activity as an
officer, a director, an employee, a partner, a more than one percent shareholder or other
owner, an agent, a consultant, or in any other individual or representative capacity within
the market area of the Company or any of its subsidiaries or affiliates at the relevant
time, as such market area is defined for Community Reinvestment Act purposes, (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 such competitive activity) if
it involves:




(A) engaging in or entering into the business of banking, lending or any other business
activity in which the Company or any of its subsidiaries or affiliates is actively engaged
at the time the Executive’s employment ceases, or




(B) soliciting or contacting, either directly or indirectly, any of the customers or
clients of the Company or any of its subsidiaries or affiliates for the purpose of competing
with the products or services provided by the Company or any of its subsidiaries or
affiliates, or




(C) employing or soliciting for employment, either directly or indirectly, any
employees of the Company or any of its affiliates for the purpose of competing with the
Company or any of its subsidiaries or affiliates.




(ii) “Unauthorized Disclosure of Confidential Information” means the use or disclosure
of information in violation of Section 8 of this Agreement.




(iii) For purposes of this Agreement, “customers” or “clients” of the Company or any of
its subsidiaries or affiliates means individuals or entities to whom the Company or any of
its affiliates has provided products or services at any time from the Effective Date through
the date the Executive’s employment ceases.



(f) Remedies. The Executive acknowledges that the restrictions set forth in paragraph
7(e) of this Agreement are just, reasonable, and necessary to protect the legitimate business
interests of the Company. The Executive further acknowledges that if he breaches or threatens to
breach any provision of paragraph 7(e), the Company’s remedies at law will be inadequate, and the
Company 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 the Executive violates the provisions of
paragraph 7(e), the Executive shall pay all costs and fees, including attorneys’ 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 paragraph 7(e) of this Agreement, the Company shall reimburse the Executive for reasonable
legal fees incurred to defend that claim.



8. Confidentiality. The Executive recognizes that as an employee of the Company and
the Bank he will have access to and may participate in the origination of non-public, proprietary
and confidential information and that he owes a fiduciary duty to the Company and its subsidiaries
and affiliates. Confidential information may include, but is not limited to, trade secrets,
customer lists and information, internal corporate planning, methods of marketing and operation,
and other data or information of or concerning the Company and its subsidiaries and affiliates or
any of their customers that is not generally known to the public. The Executive agrees that he
will never use or disclose to any third party any such confidential information, either directly or
indirectly, except as may be authorized in writing specifically by the Company or required by law.



Part II: Change in Control




9. Change in Control and Changes in Employment Terms and Conditions. Notwithstanding
any other term or provision of this Agreement, in the event of a Change in Control (as defined in
Section 14), this Part II shall become effective and govern the terms and conditions of the
Executive’s employment.



(a) Continued Employment. If a Change in Control occurs during the Term, and the
Executive is employed by the Company on the Change in Control Date, the Company will continue to
employ the Executive in accordance with the terms and conditions of this Agreement for the period
beginning on the Change in Control Date (as defined in Section 14) and ending on the third
anniversary of such date (the “Change in Control Employment Period”).



(b) Vesting of Equity Compensation Awards. Upon a Change in Control, all equity
compensation awards granted to the Executive under the Stock Compensation Plan, or any predecessor
thereto, prior to the Change in Control Date, shall become immediately vested and exercisable with
respect to all or any portion of the shares covered thereby and not previously forfeited or lapsed
regardless of whether such awards are otherwise vested and exercisable. The Company shall reimburse
the Executive for any federal income tax liability incurred by the Executive in connection with the
exercise of such awards which would not have otherwise been incurred by the Executive in the
absence of such awards becoming immediately available upon a Change in Control, such reimbursement
to be submitted to the Executive within ten days of written notification to the Company by the
Executive of the exact amount of such additional tax liability.



(c) Cancellation and Cash Payment for Stock Options, Stock Appreciation Rights and Similar
Equity Compensation Awards. At any time subsequent to seven days after the public announcement
of a Change in Control, any or all stock options, stock appreciation rights and similar equity
compensation awards granted to the Executive under the Stock Compensation Plan, or any predecessor
plan thereto, held by the Executive for more than six months (“Cancelable Awards”) may, upon the
written approval of a majority of disinterested, non-employee members of the Board of Directors of
the Company, be cancelled by the Company in exchange for the payment to the Executive of cash in an
amount equal to the aggregate spread between the average exercise price of the Cancelable Awards
and the higher of: (i) the average of the closing prices of the Company’s shares as reported in
the daily newspaper for the 30 business days immediately preceding the public announcement of the
Change in Control, or (ii) the highest price per share actually paid in connection with the Change
in Control of the Company.



10. Terms of Employment following a Change in Control.



(a) Position and Duties. During the Change in Control Employment Period, (i) the
Executive’s position, authority, duties and responsibilities at the Bank will be at least
commensurate in all material respects with the most significant of those held, exercised and
assigned at any time during the 90-day period immediately preceding the Change in Control Date, and
(ii) the Executive’s services will be performed at the location where the Executive was employed
immediately preceding the Change in Control Date or any office that is the headquarters of the
Company or the Bank and is less than 10 miles from such location; it being understood and agreed
that this subsection (ii) shall supercede the provisions of Section 6(d)(iii) dealing with the
relocation of the Executive following a Change in Control.



(b) Compensation and Benefits following a Change in Control.




(i) Annual Base Salary. During the Change in Control Employment Period, the
Executive will receive an annual base salary (the “Annual Base Salary”) at least equal to
the highest base salary paid or payable to the Executive by the Company and its affiliated
companies during the 12-month period immediately preceding the Change in Control Date.
During the Change in Control Employment Period, the Annual Base Salary will be reviewed at
least annually and will be increased each year after such Change in Control by an amount
which at least equals, on a percentage basis, the percentage increase, if any, in the cost
of living as set forth in the Consumer Price Index for the area in which the principal
office of the Company is located (1967=100) published by the Bureau of Labor Statistics of
the United States Department of Labor over the preceding year, unless the failure to so
increase the Executive’s Annual Base Salary is waived in writing by the Executive. Any
increase in the Annual Base Salary will not serve to limit or reduce any other obligation to
the Executive under this Agreement. The Annual Base Salary will not be reduced after any
such increase, and the term Annual Base Salary as used in this Agreement will refer to the
Annual Base Salary as so increased. The term “affiliated companies” includes any company
controlled by, controlling or under common control with the Company.




(ii) Annual Bonus. During the Change in Control Employment Period, the
Executive will be entitled to participate in an annual incentive plan generally applicable
to other peer executives of the Company and its affiliated companies, but in no event will
such incentive plan provide the Executive with a less favorable opportunity to earn an
annual bonus that is similarly structured to the annual incentive plan as in effect at any
time during the 12-month period immediately preceding the Change in Control Date.




(iii) Incentive, Savings and Retirement Plans. During the Change in Control
Employment Period, the Executive will be entitled to participate in all incentive (including
stock incentive), savings and retirement, health and welfare plans, policies and programs
applicable generally to other peer executives of the Company and its affiliated companies,
but in no event will such plans, policies and programs provide the Executive with incentive
opportunities, savings opportunities and retirement benefit opportunities, in each case,
less favorable, in the aggregate, than those provided by the Company and its affiliated
companies for the Executive under such plans, policies and programs as in effect at any time
during the 12-month period immediately preceding the Change in Control Date.




(iv) Health and Welfare Benefit Plans. During the Change in Control Employment
Period, the Executive and/or the Executive’s family, as the case may be, will be eligible
for participation in and will receive all benefits under health and welfare benefit plans,
policies and programs provided by the Company and its affiliated companies to the extent
applicable generally to other peer executives of the Company and its affiliated companies,
but in no event will such plans, policies and programs provide the Executive with benefits
that are less favorable, in the aggregate, than the most favorable of such plans, policies
and programs in effect at any time during the 12-month period immediately preceding the
Change in Control Date.




(v) Fringe Benefits. During the Change in Control Employment Period, the
Executive will be entitled to fringe benefits in accordance with the comparable plans,
policies and programs of the Company and its affiliated companies in effect for the
Executive at any time during the 12-month period immediately preceding the Change in Control
Date or, if more favorable to the Executive, as in effect generally from time to time after
the Change in Control Date with respect to other peer executives of the Company and its
affiliated companies.




(vi) Vacation. During the Change in Control Employment Period, the Executive
will be entitled to paid vacation in accordance with the comparable plans, policies and
programs of the Company and its affiliated companies in effect for the Executive at any time
during the 12-month period immediately preceding the Change in Control Date or, if more
favorable to the Executive, as in effect generally from time to time after the Change in
Control Date with respect to other peer executives of the Company and its affiliated
companies.



11. Termination of Employment following a Change in Control.



(a) Death or Incapacity. The Executive’s employment will terminate automatically upon
the Executive’s death or Incapacity during the Change in Control Employment Period.



(b) Cause. The Company may terminate the Executive’s employment during the Change in
Control Employment Period for Cause (as defined in Section 6(c)).



(c) Good Reason. The Executive’s employment may be terminated during the Change in
Control Employment Period by the Executive for Good Reason (as defined in Section 6(d)), provided,
however, that Good Reason for this purpose shall also include the Executive’s voluntary resignation
in his discretion at any time during the 90 day period beginning on the Change in Control Date or
at any time during the 90 day period beginning on the first anniversary of the Change in Control
Date.



(d) Notice of Termination. Any termination during the Change in Control Employment
Period by the Company or by the Executive for Good Reason shall be communicated by written Notice
of Termination to the other party hereto. For purposes of this Agreement, a “Notice of
Termination” shall mean a notice which shall indicate the specific termination(s) in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide
a basis for termination of employment under the provision so indicated.



(e) Date of Termination. “Date of Termination” means the date specified in the Notice
of Termination, which shall be not less than 30 nor more than 90 days after such Notice of
Termination is given; provided, that if within 30 days after any Notice of Termination is given in
connection with a termination by the Company for Cause or by the Executive for Good Reason, the
party receiving such Notice of Termination notifies the other party that a dispute exists
concerning the termination, then pending the resolution of any such dispute the Executive shall
continue to be paid the same base salary as and when due and payable, and shall be provided with
the same or substantially comparable fringe benefits that he was paid and provided immediately
prior to the delivery of the Notice of Termination. If a termination by the Company for Cause is
challenged by the Executive and the termination is ultimately determined to be justified, then all
sums paid by the Company to the Executive pursuant to this Section 11(e), plus the cost to the
Company of providing the Executive such fringe benefits from the date of such termination to the
date of the resolution of such dispute, shall be promptly repaid by the Executive with interest at
the rate charged from time to time by The Fauquier Bank, to its most substantial customers for
unsecured parties of credit. Should it ultimately be determined that a termination by the Company
for Cause above was not justified, or that a termination by the Executive was for Good Reason, then
the Executive shall be entitled to retain all sums paid to him pending the resolution of such
dispute and he shall be entitled to receive in addition the payments and other benefits provided
for herein, and the Date of Termination shall be the date on which the dispute is finally settled,
either by mutual written agreement of the parties, or by a final judgment.



12. Obligations upon Termination following a Change in Control.



(a) Death. If the Executive dies during the Change in Control Employment Period, this
Agreement will terminate without any further obligation on the part of the Company under this
Agreement, other than for (i) payment of the Accrued Obligations and three months of the
Executive’s Annual Base Salary (which shall be paid to the Executive’s beneficiary designated in
writing or his estate, as applicable, in a lump sum cash payment within 30 days of the date of
death); (ii) the timely payment or provision of the Welfare Continuance Benefit (as defined in
Section 12(c)) to the Executive’s spouse and other dependents for 36 months following the date of
death; and (iii) any other benefits to which the Executive may be entitled pursuant to the terms of
any plan, program or arrangement of the Company and its affiliated companies.



(b) Incapacity. If the Executive’s employment is terminated because of the
Executive’s Incapacity during the Change in Control Employment Period, this Agreement will
terminate without any further obligation on the part of the Company under this Agreement, other
than for (i) payment of the Accrued Obligations and three months of the Executive’s Annual Base
Salary (which shall be paid to the Executive in a lump sum cash payment within 30 days of the Date
of Termination); (ii) the timely payment or provision of the Welfare Continuance Benefit in Section
12(c)) for 36 months following the Date of Termination; and (iii) any other benefits to which the
Executive may be entitled pursuant to the terms of any plan, program or arrangement of the Company
and its affiliated companies.



(c) Termination without Cause or for Good Reason. The Executive will be entitled to
the following benefits if, during the Change in Control Employment Period, the 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 are the sum of: (A) the
Executive’s Annual Base Salary through the Date of Termination at the rate in effect just
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; (C) the product of the
Annual Bonus paid or payable, including by reason of deferral, for the most recently
completed year 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 365; and (D) any
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). The Accrued Obligations will be paid to the Executive in
a lump sum cash payment within ten days after the Date of Termination;




(ii) Salary Continuance Benefit. The Salary Continuance Benefit is an amount
equal to 2.99 times the Executive’s Highest Annual Compensation. For purposes of this
Agreement, “Highest Annual Compensation” means the highest annual compensation consisting
only of base salary and cash bonuses paid to the Executive by the Company and its affiliated
companies for any six months ending with the Executive’s termination. 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, provided that, at the option of
the Executive, the amount required to be paid hereby shall be paid in equal monthly
installments over the six months succeeding the Date of Termination, payable on the first
day of each such month;




(iii) Continuance of Health and Welfare Benefits. For 36 months following the
Date of Termination (the “Welfare Continuance Benefit Period”), the Executive, his spouse
and his dependents will continue to be covered under all health and welfare plans and
programs (“Welfare Plans”) in which the Executive, his spouse or his dependents were
participating immediately prior to the Date of Termination (the “Welfare Continuance
Benefit”). The Company will pay all or a portion of the cost of the Welfare Continuance
Benefit for the Executive, his spouse and his dependents under the Welfare Plans on the same
basis as applicable, from time to time, to active employees covered under the Welfare Plans
and the Executive will pay any additional costs. If participation in any one or more of the
Welfare Plans included in the Welfare Continuance Benefit is not possible under the terms of
the Welfare Plan or any provision of law would create an adverse tax effect for the
Executive or the Company due to such participation, the Company either shall provide
substantially identical benefits directly or through an insurance arrangement or shall pay
the Executive a lump sum equal to 1.4 times the estimated cost of maintaining such coverage.
If the Executive dies while receiving a Welfare Continuation Benefit, the Executive’s
spouse and other dependents will continue to be covered under all applicable Welfare Plans
during the remainder of the applicable Welfare Continuance Benefit Period. The Executive,
his spouse and his dependents will become eligible for COBRA continuation coverage as of the
date the Welfare Continuance Benefit ceases for health benefits.




(iv) Continuance of Retirement Benefits. For 36 months following the Date of
Termination, the Executive will continue to be covered and accrue benefits under all
employee retirement benefit plans and programs (“Retirement Plans”) in which the Executive
was participating immediately prior to the Date of Termination based on the rate of accrual
immediately prior to the Date of Termination (the “Retirement Continuance Benefit”). If
participation in any Retirement Plan included in the Retirement Continuance Benefit is not
possible under the terms of the Retirement Plan or any provision of law would create an
adverse tax effect for the Company due to such participation, the Company will annually pay
in cash to the Executive at the end of each year in the 36-month period following the Date
of Termination the value of the Retirement Continuance Benefit accrual which is not provided
through the Retirement Plans.




(v) Acceleration of Vesting of Equity Compensation Awards and Exercisability
thereof. Except as may be otherwise agreed to by the Executive, all equity compensation
awards granted to the Executive under the Stock Compensation Plan, or any predecessor
thereto, at or after the Change in Control Date, shall become immediately vested and
exercisable with respect to all or any portion of the shares covered thereby and not
previously forfeited or lapsed regardless of whether such awards are otherwise vested and
exercisable. In additional, the Executive will have at least 90 days after Termination of
Employment to exercise all stock options, stock appreciation rights and similar awards, or
such longer period as may be provided for in the separate stock option agreement, to
exercise such awards, provided that such extended exercise period shall not extend beyond
the maximum term of such awards determined without regard to the Executive’s Termination of
Employment.



(d) Cause; other than for Good Reason. If the Executive’s employment is terminated
for Cause during the Change in Control Employment Period, this Agreement will terminate without
further obligation to the Executive other than the payment to the Executive of the Annual Base
Salary through the Date of Termination, plus the amount of any compensation previously deferred by
the Executive, and any other benefits to which the Executive may be entitled pursuant to the terms
of any plan, program or arrangement of the Company and its affiliated companies. If the Executive
terminates employment during the Change in Control Employment Period, excluding a termination
either due to death or Incapacity or for Good Reason (or Good Reason is alleged but ultimately
determined pursuant to Section 11(e) to be not justifiable), this Agreement will terminate without
further obligation to the Executive other than for the Accrued Obligations (which will be paid in a
lump sum in cash within 30 days of the Date of Termination or later determination that alleged Good
Reason is not justifiable) and any other benefits to which the Executive may be entitled pursuant
to the terms of any plan, program or arrangement of the Company and its affiliated companies.



(e) Possible Reduction in Payments and Benefits.




(i) Excess Parachute Payments. Notwithstanding the foregoing, in the event
that the payments and benefits provided to the Executive, or for the Executive’s benefit,
under this Agreement or under any other plan or agreement which become payable or are taken
into account as “parachute payments” within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the “Code”), as a result of a Change in Control or the
Executive’s termination of employment relating thereto (the “Total Parachute Payments”)
would result in the Executive’s being entitled to “excess parachute payments” as defined in
Section 280G of the Code, the payments and benefits provided to the Executive, or for the
Executive’s benefit, under this Agreement shall be reduced (but not below zero) to the
extent necessary so that no payment to be made, or benefit to be provided, to the Executive
or for the Executive’s benefit under this Agreement or any other plan or agreement would
result in “excess parachute payments” as defined in Section 280G of the Code and there would
consequently be no loss of an income tax deduction by the Company or the imposition of an
excise tax on the Executive under Section 4999 of the Code, provided, however that such
reduction shall not apply unless the Executive’s Net After-tax Benefit if such reduction
were made shall exceed the Executive’s Net After-tax Benefit if such reduction were not made
by at least $25,000. In connection with the foregoing:




(A) “Net After-tax Benefit” shall mean the sum of (1) the Total Parachute Payments
which the Executive receives or is then entitled to receive, less (2) the amount of federal,
state and local income and employment taxes payable by the Executive with respect to the
Total Parachute Payments, less (3) the amount of excise taxes imposed with respect to the
Total Parachute Payments by Section 4999 of the Code.




(B) All determinations regarding such reduction shall be made by the registered public
accounting firm under Section 102 of the Sarbanes-Oxley Act serving as auditors for the
Company on the date of a Change in Control (or any other registered public accounting firm
designated by the Company) and shall be based on the maximum applicable marginal tax rates
for each year in which such payments and benefits shall be paid or provided to the Executive
or for the Executive’s benefit (based upon the rate in effect for such year at the time of
the first payment of the foregoing and, as appropriate as determined by such tax counsel,
the taxable wage base for employment tax purposes). The determination made as to the
reduction of benefits or payments required hereunder by such registered public accounting
firm shall be binding on the parties, absent a determination by the Internal Revenue Service
which is agreed to by both the Company and the Executive or a final decision by a court of
competent jurisdiction over the tax issue in which case such determination or decision shall
control.




(C) The Executive shall have the right to designate within a reasonable period, which
payments or benefits will be reduced; provided, however, that if no direction is received
from the Executive, the Company shall implement the reductions in its discretion.




(ii) Banking Payment Limitation. Notwithstanding anything contained in this
Agreement or any other agreement or plan to the contrary, the payments and benefits provided
to, or for the benefit of, the Executive under this Agreement or under any other plan or
agreement shall be reduced (but not below zero) to the extent necessary so that no payment
to be made, or benefit to be provided, to the Executive or for his benefit under this
Agreement or any other plan or agreement shall be in violation of the golden parachute and
indemnification payment limitations and prohibitions of 12 CFR Section 359.



13. Company and Bank Obligations; Non-competition.



(a) The obligations of the Company and the Bank to pay the Executive the compensation and
benefits and to make the arrangements provided in this Part II of this Agreement 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 the Company or the Bank may
have against him or anyone else. Except as expressly provided in Section 11(e), each and every
payment made hereunder by the Company or the Bank pursuant to Part II of this Agreement shall be
final and the Company and the Bank will not seek to recover all or any part of such payment from
the Executive or from whosoever may be entitled thereto, for any reason whatsoever.



(c) The Executive will not be required to comply with the non-competition covenant in Section
7(e) if his employment is terminated during the Change in Control Employment Period without Cause
or he terminates for Good Reason.



14. Change in Control Definitions. For purposes of this Agreement, the following
terms have the following meanings.



(a) Change in Control. A “Change in Control” shall mean the occurrence of ether of
the following after the Effective Date of this Agreement:




(i) any person, including a “group” as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934 (but excluding any group of which the Executive is a member), becomes
the owner or beneficial owner of securities of the Company or the Bank having 20% or more of
the combined voting power of the then outstanding Company or Bank securities that may be
cast for the election of the Company or Bank directors other than a result of an issuance of
securities initiated by the Company or Bank, as long as the majority of the Board of
Directors approving the purchases is a majority at the time the purchases are made, or




(ii) as the direct or indirect result of, or in connection with, a tender or exchange
offer, a merger or other business combination, a sale of assets, contested election, or any
combination of these events, the persons who were directors of the Company or Bank before
such events cease to constitute a majority of the Company’s or Bank’s Board, or any
successor’s board, within two years of the last of such transactions



(b) Change in Control Date. The “Change in Control Date” is the date on which an
event constituting a Change in Control occurs. If a Change in Control occurs on account of a series
of transactions, the Control Change Date is the date of the last of such transactions.



Part III: Miscellaneous




15. Documents. All documents, record, tapes and other media of any kind or
description relating to the business of the Company or any of its subsidiaries and affiliates (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 of Directors
or its designee may specify.



16. Severability. If any provision of this Agreement, or part thereof, is determined
to be invalid or 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 thereof, to be unenforceable or unreasonable, the court may modify the
provision, or part thereof, in a manner which renders that provision reasonable, enforceable, and
in conformity with the 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 sent by registered or certified mail, return receipt requested, to the
parties at their addresses set forth below:



If to the Executive: Gregory D. Frederick



P. O. Box 680



Louisa, VA 23093-0680



	 	 	 
	If to the Bank:

	 	The Fauquier Bank

10 Courthouse Square






P. 0. Drawer 561



Warrenton, Virginia 22186



	 	 	 
	If to the Company:

	 	Fauquier Bankshares, Inc.

10 Courthouse Square






P. 0. Drawer 561



Warrenton, Virginia 22186



Each party may, from time to time, designate a different address to which notices should be sent by
providing the same in writing to the other parties .



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.



21. Binding Effect; No Mitigation; Notice and Demand Not Required.



(a) This Agreement shall be binding upon the Executive and on the Company, its successors and
assigns effective on the date first above written subject to the approval by the Compensation
Committee or the Board of Directors of the Company. 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.



(b) The Executive shall not be required to mitigate the amount of any payment or benefit the
Company becomes obligated to make or provide to the Executive in connection with this Agreement, by
seeking other employment or otherwise.



(c) All amounts payable by the Company under this Agreement shall be paid without notice or
demand except as expressly provided herein .



22. No Construction against Any Party. This Agreement is the product of informed
negotiations between the Executive and the Company. If any part of this Agreement is deemed to be
unclear or ambiguous, it shall be construed as if it were drafted jointly by all 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 constitutes the 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.



24. Arbitration. Any dispute, controversy or claim arising under or in connection
with this Agreement shall be settled exclusively by arbitration, arbitrators, conducted before a
panel of three in Richmond, Virginia in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator’s award in any court having
jurisdiction. 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.



25. Litigation. Notwithstanding the requirements of Section 24 hereof, if litigation
shall be brought to challenge, enforce or interpret any provision contained in this Agreement, and
such litigation does not end with judgment in favor of the Company, the Company hereby agrees to
indemnify the Executive for his reasonable attorney’s fees and disbursements incurred in such
litigation, and hereby agrees to pay post-judgment interest on any money judgment obtained by the
Executive calculated at the rate charged from time to time by The Fauquier Bank, to its most
substantial customers for unsecured lines of credit from the date that payment(s) to him should
have been made under the judgment to date of payment.



25. Nonqualified Deferred Compensation Plan Omnibus Provision. The parties to this
Agreement recognize and acknowledge that compensation, benefits or other remuneration provided or
available to the Executive pursuant to or in connection with this Agreement may be considered to be
provided under a nonqualified deferred compensation plan subject to Section 409A of the Code. The
parties hereby agree that any such compensation, benefit or other remuneration that is subject to
the provisions of Section 409A of the Code shall be paid in a manner, and at such time and in such
form, as complies with the applicable requirements of Section 409A of the Code to avoid a plan
failure described in Section 409A(a)(1) of the Code, including without limitation, deferring
payment until the occurrence of a specified payment event described in Section 409A(a)(2) of the
Code and including any deferral of payment or provision of benefits in connection with a separation
from service payment event to six months after a specified employee of a publicly traded
corporation as required by Section 409A(a)(2)(B)(i) of the Code (the “409A Deferral Period”), that,
notwithstanding any other provision thereof or document pertaining to any such compensation,
benefit or other remuneration subject to the provisions of Section 409A of the Code, each provision
of any plan, program or arrangement (including without limitation this Agreement) relating to the
provision of such compensation, benefit or other remuneration to or with respect to the Executive,
shall be so construed and interpreted, and that the Executive hereby consents to the amendment of
any such plan, program or arrangement as may be determined by the Company to be necessary or
appropriate to evidence or further evidence required compliance with Section 409A of the Code. In
the event such payments are otherwise due to be made in installments or periodically during the
409A Deferral Period, the payments which would otherwise have been made in the 409A Deferral Period
shall be accumulated and paid in a lump sum as soon as the 409A Deferral Period ends, and the
balance of the payments shall be made as otherwise scheduled. In the event benefits are required
to be deferred, any such benefit may be provided during the 409A Deferral Period at the Executive’s
expense, with the Executive having a right to reimbursement from the Company once the 409A Deferral
Period ends, and the balance of the benefits shall be provided as otherwise scheduled.



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



Fauquier Bankshares, Inc.



By /s/ Randy K. Ferrell



Its            CEO



The Fauquier Bank



By /s/ Randy K. Ferrell



Its            CEO



 /s/ Gregory D. Frederick 



Gregory D. Frederick