Document:

COMMUNITY BANK OF TRI-COUNTY
                      EXECUTIVE INCENTIVE COMPENSATION PLAN

                             As Amended and Restated
                            Effective January 1, 1998

<PAGE>

                          COMMUNITY BANK OF TRI-COUNTY
                      EXECUTIVE INCENTIVE COMPENSATION PLAN

                             ----------------------

                                Table of Contents
                             ----------------------

                                                                            Page

   ARTICLE I.        General Provisions.......................................1
     1.01            Purpose..................................................1
     1.02            Effective Date...........................................1

   ARTICLE II.       Definitions..............................................1
     2.01            "Affiliate"..............................................1
     2.02            "Bank"...................................................1
     2.03            "Beneficiary"............................................1
     2.04            "Bonuses"................................................1
     2.05            "Benefits"...............................................1
     2.06            "Board"..................................................1
     2.07            "Cause"..................................................1
     2.08            "Code"...................................................2
     2.09            "Committee"..............................................2
     2.10            "Common Stock"...........................................2
     2.11            "Compensation"...........................................2
     2.12            "Corporation"............................................2
     2.13            "Employee"...............................................2
     2.14            "ERISA"..................................................2
     2.15            "Multiplier".............................................2
     2.16            "NIATBI..................................................3
     2.17            "Option".................................................3
     2.18            "Participant"............................................3
     2.19            "Peer Group".............................................3
     2.20            "Plan"...................................................3
     2.21            "ROE Target Percentage"..................................3
     2.22            "Share"..................................................3
     2.23            "Stock Option Plan"......................................3
     2.24            "Vesting Event...........................................3

ARTICLE III.         Eligibility and Participation............................4

                                      (i)

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   ARTICLE IV.       Benefits Schedule........................................4
     4.01            Bonuses..................................................4
     4.02            Stock Option Grants......................................4
     4.03            Revocation for Misconduct................................4
     4.04            Payment of Benefits......................................5
     4.05            Source of Benefits.......................................5
     4.06            Minority, Disability, or Incompetency....................5
     4.07            Designation of Beneficiary...............................5

   ARTICLE V.        Plan Administration......................................5
     5.01            The Committee............................................5
     5.02            Claims Procedure.........................................6

   ARTICLE VI.       Amendment and Termination................................6
     6.01            Right to Amend or Terminate..............................6

   ARTICLE VII.      General Provisions.......................................6
     7.01            Prohibition Against Alienation...........................6
     7.02            No Enlargement of Employment Rights......................7
     7.03            Gender...................................................7
     7.04            Applicable Law...........................................7
     7.05            Titles and Headings......................................7
     7.06            Withholding..............................................7

                                      (ii)

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                          COMMUNITY BANK OF TRI-COUNTY
                      EXECUTIVE INCENTIVE COMPENSATION PLAN

ARTICLE I. General Provisions
           ------------------

         1.01 Purpose. This document sets forth the Community Bank of Tri-County
              -------
Executive Incentive Compensation Plan. The Plan is maintained for the purpose of
providing certain  Employees with incentive  compensation in the form of Bonuses
and  Stock  Options  in the  event  the Bank  meets  certain  performance  goals
indicative  of its  profitability  and  stability  in  comparison  to all  other
commercial banks headquartered in the Peer Group.

         It is intended that the Plan be an unfunded plan  maintained  primarily
for the purpose of providing cash bonuses and deferred compensation for a select
group of  management  or highly  compensated  employees  within  the  meaning of
Section 201(2) of ERISA and that benefits  provided under the Plan be taxable to
Participants  only  when  actually  received.  The plan  shall be  administered,
construed,  and  interpreted in a manner  consistent with the purpose and intent
set forth in this Section.

         1.02   Effective  Date.  The effective  date of the Plan was January 1,
                ---------------
1992. The effective date of this restatement of the Plan is January 1, 1998.

ARTICLE II. Definitions.
            -----------

         Unless the context  clearly  requires  otherwise,  the terms defined in
this  Article  II shall,  for all  purposes  of this Plan,  have the  respective
meanings specified in this Article II.

         2.01  "Affiliate"  means  any  company  that  would  be  considered  an
                ---------
affiliate of the Bank or the Corporation pursuant to Section 424 of the Code.

         2.02  "Bank" means Community Bank of Tri County.
                ----

         2.03  "Beneficiary"  means  the  person  or  persons  designated  as  a
                -----------
Participant's  beneficiary  or  beneficiaries  in  accordance  with Section 4.07
hereof.

         2.04  "Bonuses" means cash bonuses payable to Participants  pursuant to
                -------
Section 4.01 hereof.

         2.05  "Benefits"  shall  mean  as  to  any  Participant  any  incentive
                --------
compensation provided under Article IV hereof.

         2.06  "Board" means the Board of Directors of the Bank.
                -----

         2.07  "Cause"  means   personal   dishonesty,   incompetence,   willful
                -----
misconduct,  breach of fiduciary duty involving  personal  profits,  intentional
failure to perform stated duties,  willful violation of a material  provision of
any law, rule or regulation (other than traffic  violations or similar offense),
or a material  violation of a final  cease-and-desist  order or any other action

<PAGE>

which results in a substantial  financial loss to the Bank. A  determination  of
"Cause" shall be made by the Board within its sole discretion.

         2.08 "Code"  means the Internal  Revenue Code of 1986,  as amended from
               ----
time to time.  References to a Code section shall include any comparable section
or sections of future  legislation  that amends,  supplements or supersedes such
section.

         2.09 "Committee" means the members of the Compensation Committee of the
               ---------
Board who are  non-employee  directors  within the  meaning of Rule 16b-3 of the
General  Rules and  Regulations  under the  Securities  Exchange Act of 1934, as
amended.  In the  absence at any time of a duly  appointed  Committee,  the Plan
shall be administered by the Board.

         2.10 "Common Stock" means the common stock, par value $.01 per share of
               ------------
the Corporation.

         2.11 "Compensation"  means a Participant's base salary for the calendar
               ------------
year,  as adjusted from year to year  pursuant to the Board's  consideration  of
changes  both  in the  cost-of-living  and in the  compensation  being  paid  to
similar-situated executive employees in the Peer Group. Base salary will include
only  amounts  paid by the Bank and will  exclude  amounts  paid by third  party
providers, such as disability.

         2.12 "Corporation" means Tri-County Financial Corporation.
               -----------

         2.13  "Employee"  means any  individual  who  performs  service  in the
                --------
business of the Employer  excluding any individual who performs such services as
a self-employed person.

         2.14 "ERISA" means the Employee Retirement Income Security Act of 1974,
               -----
as amended from time to time.

         2.15 "Multiplier" means for any calendar year the average of --
               ----------

                    (i) the percentage obtained when the Bank's return-on-equity
("ROE") is  divided  by the  product of the median ROE of the Peer Group and the
ROE Target Percentage, and

                    (ii) the percentage  obtained when the median  percentage of
noncurrent to gross loans of the Peer Group is divided by the  percentage of the
Bank's  noncurrent to gross  loans;/1/  provided that the  Multiplier  shall not
exceed  1.0 for any  year  before  2002.  Either  of these  percentages  will be
negative if the Bank does not outperform the other banks in its Peer Group.  The
Committee  shall  make  its  determinations  of ROE and NPL in  accordance  with
generally accepted accounting principles,  subject to the Committee's discretion
to take into account or to disregard any financial events that are extraordinary
in the opinion of the Committee.
____________
/1/   For example,  the Multiplier would be 1.75--the average of 50% and 300% --
if (i) the Bank's  ROE was 15% and the  median ROE for its Peer Group  times the
ROE  Target Percentage  was 10%, and (ii) the  Bank's  noncurrent  to gross loan
percentage was 2% and the median percentage for its Peer Group was 6%.
<PAGE>

         2.16  "NIATBI"  means the net income  (after taxes and before  Benefits
                ------
accrued  for the  fiscal  year)  of the Bank and its  Affiliates,  and  shall be
determined by the Committee in accordance  with  generally  accepted  accounting
principles,  subject to the  Committee's  discretion  to take into account or to
disregard  any  financial  events that are  extraordinary  in the opinion of the
Committee.

         2.17  "Option," "Option Price," and "Optioned Shares" have the meanings
                ------    ------------        ---------------
set forth in the Stock Option Plan.

         2.18  "Participant"  means an Employee who has become a Participant  in
                -----------
the Plan as provided in Article III.

         2.19 "Peer Group" means the peer base of commercial  banks in the fifth
               ----------
Federal  Reserve  district  (Richmond,  VA);  provided  that the  Committee  may
redefine the Peer Group before any fiscal year to which the change relates.

         2.20 "Plan" means the Community Bank of Tri-County  Executive Incentive
               ----
Compensation  Plan  as  herein  set  forth  and as it may  from  time to time be
amended.

         2.21  "ROE  Target  Percentage"  shall be 70% for  1998,  and  shall be
                -----------------------
determined  each future  calendar  year by the  Committee  as it  exercises  its
discretion to establish this percentage as of any future January 1st. Any change
that the Committee makes  hereunder  shall be effective until further  Committee
action taken before January 1st of the year to which the change relates.

         2.22  "Share" means one share of Common Stock.
                -----

         2.23 "Stock  Option Plan" means the  Tri-County  Financial  Corporation
               ------------------
1996 Stock Option and Incentive Plan, as amended from time to time.

         2.24 "Vesting Event" means the first to occur of the following events:
               -------------

                    (i) termination of a Participant's  employment with the Bank
and its Affiliates due to the  Participant's  retirement after age 65, death, or
disability (as determined by the Committee);

                    (ii) the  occurrence  of a "change in  control" or "offer to
effect a change in  control"  of the Bank or of the  Corporation.  A "change  in
control" of the Bank or of the  Corporation is defined as the acquisition of the
beneficial ownership (as that term is defined in Rule 13d-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934) of 25% or more of the
voting securities of the Bank or of the Corporation,  as the case may be, by any
person or by persons  acting as a group  within the meaning of Section  13(d) of
the  Securities  Exchange Act of 1934; and "offer" shall refer to every offer to
buy or acquire,  solicitation of an offer to sell,  tender offer for, or request
of  invitation  for  tenders  of,  the voting  securities  of the Bank or of the
Corporation for value, as such term is defined under 12 C.F.R. ss.563b.3(i). The
term  "person"  refers to an individual or a  corporation,  partnership,  trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization  or any other form of entity not  specifically  listed herein.  The
decision of the Committee as to whether a change in

<PAGE>

control,  or  offer to  effect  a  change  in  control,  has  occurred  shall be
conclusive and binding as to all affected Participants.

ARTICLE III. Eligibility and Participation
             -----------------------------

         Each Employee who has been selected by the Committee in its  discretion
as eligible to  participate  in the Plan shall be eligible to participate in the
Plan.  The Committee  may, in its sole  discretion,  limit  eligibility  for any
reason  including,  but not limited to, ensuring that the Plan at all times is a
plan described in Section 201(2) of ERISA. An eligible Employee who has complied
with such  procedures,  if any, as the Committee in the discretion may establish
from time to time for becoming a Participant  shall become a Participant  in the
Plan at such time as the Committee designates at the time the person is selected
for participation in the Plan.

ARTICLE IV. Benefits Schedule
            -----------------

         4.01 Bonuses.  For each calendar year  beginning on or after January 1,
              -------
1998, the total Bonuses that the Bank shall pay in cash to Participants  who are
Employees on December 31st of the year to which the Bonuses  relate (or who were
employed on the date of a Vesting Event, if earlier in the year) shall equal the
product  of the  Multiplier  and 10% of the  Bank's  NIATBI;  provided  that the
Committee  may in its  discretion  change this  percentage as of any January 1st
that  occurs  after the date on which the  Committee  acts.  Any change that the
Committee  makes hereunder  shall be effective  until further  Committee  action
taken before January 1st of the year to which the change relates.  The Committee
shall divide the total amount  available for Bonuses pro rata based on the ratio
of the  Participant's  Allocation  Base to the  total  Allocation  Bases for all
Participants  who are entitled to Bonuses for the year.  Such  Allocation  Bases
shall be  determined  according  to the  following  schedule,  unless  the Chief
Executive  Officer  recommends  otherwise  and such  changes  are  confirmed  by
resolution  adopted  at the  first  meeting  of the  calendar  year  to  which a
particular Bonus or Bonuses relate:

                    Participant's Title              Allocation Base
                    -------------------              ---------------

                    President                        10% of Compensation

                    Senior Vice President            7.5% of Compensation

                    Vice President                   5% of Compensation

                    Assistant Vice President         3.5% of Compensation

         4.02 Stock  Option  Grants.  For each  calendar  year after 1997,  each
              ---------------------
Participant shall be granted, under the Stock Option Plan, an Option to purchase
Shares  having a fair market value,  as determined in accordance  with the Stock
Option  Plan,  equal to 60% of the Bonus (if any) to which  the  Participant  is
entitled under Section 4.01 hereof for the calendar  year,  unless the Committee
determines  otherwise by resolution adopted before the first day of the calendar
year to which a  particular  grant or grants  relate.  The Option Price for each
Option shall equal the fair market  value of the Optioned  Shares on the date of
grant and shall be fully and immediately exercisable.

<PAGE>
         4.03 Revocation for Misconduct.  Notwithstanding anything herein to the
              -------------------------
contrary,  the  Board  may,  by  resolution,  immediately  revoke,  rescind  and
terminate any Benefits  earned under this Plan, to the extent a Participant  has
not  collected  a Bonus or  exercised  an  Option,  as the  case may be,  if the
Participant  voluntarily or involuntarily  leaves employment with the Bank or an
Affiliate for Cause,  or is discovered  after  termination of employment to have
engaged in conduct that would have justified termination for Cause.

         4.04  Payment  of  Benefits.  All  Benefits  under  this Plan  shall be
               ---------------------
provided by the Bank directly to  Participants,  and the Committee shall have no
responsibility  thereto  other than to inform the Bank,  as soon as  practicable
after the end of each  calendar  year,  in  writing,  as to the  Benefits  to be
provided.

         4.05 Source of Benefits.  The Benefits  payable under the Plan shall be
              ------------------
paid by the Bank out of its  general  assets and shall not be funded by trust or
otherwise.  Nothing contained in this Plan shall constitute, or be treated as, a
trust  or  create  any  fiduciary  relationship.  The  Bank  shall  be  under no
obligation to segregate any assets for the purpose of providing  Benefits  under
the Plan and no person or entity which is entitled to payment under the terms of
the Plan shall have any claim,  right,  security interest,  or other interest in
any fund, trust,  account,  insurance contract, or asset of the Employer. To the
extent that a  Participant  or any other person  acquires a right to receive any
Benefit under the Plan, such right shall be limited to that of a recipient of an
unfunded,  unsecured  promise to pay amounts in the future and the Participant's
(or other  person's)  position  with respect to such amounts  shall be that of a
general unsecured creditor of the Employer.

         4.06 Minority,  Disability,  or  Incompetency.  If any Benefit  becomes
              ----------------------------------------
payable under this Plan to a minor,  to a person under legal  disability or to a
person not  adjudicated  incompetent  but who the  Committee  in its  discretion
determines to be incapable by reason of illness or mental or physical disability
of managing his  financial  affairs,  the Committee may direct that such Benefit
shall be paid to the legal  representative or custodian of such person or to any
relative or friend of such person, or that such amount be paid directly for such
person's  support  and  maintenance.  Payments  so  made  in  good  faith  shall
completely  discharge the Committee and the Bank of any and all  obligations and
liabilities with respect to such payments.

         4.07  Designation  of  Beneficiary.  A  Participant  may file  with the
               ----------------------------
Committee a written  designation  of a Beneficiary  who is to receive his vested
benefits in the event of the Participant's  death prior to his or her collection
of said benefits.  Such designation of Beneficiary may be changed at any time by
written notice to the Committee.  The designation  last filed with the Committee
shall be  controlling.  In the  event of the death of a  Participant  and in the
absence of a beneficiary  validly designated under the Plan who is living at the
time of the Participant's  death, the Participant's estate shall be deemed to be
the Beneficiary for purposes of this plan.

ARTICLE V.     Plan Administration
               -------------------

         5.01  The  Committee.  In  its  sole  and  absolute  discretion,  which
               --------------
discretion  when  exercised  shall be final  and  binding  on all  parties,  the
Committee shall have the  responsibility  and authority to control the operation
and  administration of the Plan in accordance with its terms including,  without
limiting  the  generality  of the  foregoing,  the  powers  and  duties:  (i) to
interpret,

<PAGE>

apply  and  administer  the  Plan,  to  decide  all  questions  of  eligibility,
participation,  status,  benefits,  and rights of Participants and Beneficiaries
under the Plan;  (ii) to  establish  and amend such rules and  procedures  as it
deems necessary or appropriate to the proper  administration  of the Plan; (iii)
to employ or retain such agents as it deems  necessary or advisable to assist in
the  administration  of the Plan,  and to  delegate to the extent  permitted  by
applicable law such powers and duties as it deems  necessary or advisable,  (iv)
to prepare and file all statements, returns, and reports required to be filed by
the Plan  with any  agency of  government;  (v) to  comply  with all  disclosure
requirements  of all  applicable  state and federal law; and (vi) to perform all
functions otherwise assigned to it under the terms of the Plan.

         5.02  Claims  Procedure.  Claims for  Benefits  under the Plan shall be
               -----------------
filed  in  writing  with  the  Committee.  Written  notice  of  the  Committee's
disposition of a claim  generally  shall be furnished to the claimant  within 60
days after the application therefor is filed.  However, if special circumstances
exist of which the  Committee  notifies the claimant  within such 60 day period,
the Committee may extend such period to the extent  necessary,  but in the event
beyond 180 days after the claim is filed. In the event the claim is denied,  the
reasons for the denial  shall be  specifically  set forth in writing,  pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation as
to how the claimant can perfect the claim will be provided. Any claimant who has
been denied a Benefit  shall be  entitled,  upon  request to the  Committee,  to
appeal  the  denial  of his  claim  within  60 days  following  the  Committee's
determination  described  in the  preceding  sentence.  Upon  such  appeal,  the
claimant,  or  his  representative,  shall  be  entitled  to  examine  pertinent
documents, submit issues and comments in writing to the Committee, and meet with
the  Committee.  The  Committee  shall  review  its  decision  and issue a final
decision to the claimant in writing,  generally  within 60 days  following  such
appeal.  However, if special circumstances exist of which the Committee notifies
the claimant within such 60 day period,  the Committee may extend such period to
the extent necessary, but in no event beyond 120 days following such appeal.

ARTICLE VI.   Amendment and Termination
              -------------------------

         6.01 Right to Amend or  Terminate.  The Bank  reserves the right at any
              ----------------------------
time to terminate or amend the Plan in any manner and for any reason;  provided,
that no amendment or termination  shall,  without the consent of the Participant
or, if applicable,  the  Beneficiary,  adversely  affect such  Participant's  or
Beneficiary's  rights with  respect to  Benefits  accrued as of the date of such
amendment or termination.

ARTICLE VII.  General Provisions
              ------------------

         7.01 Prohibition Against Alienation.  Benefits payable to a Participant
              ------------------------------
or  Beneficiary  under the terms of this Plan shall not be subject in any manner
to alienation,  anticipation, sale, transfer, assignment, pledge, hypothecation,
attachment,  receivership,  or encumbrance of any kind, nor shall it pass to any
trustee in  bankruptcy  or be reached  or applied by any legal  process  for the
payment of any  obligations of the  Participant or  Beneficiary,  except at such
times  and in  such  manner  as  provided  in  this  Plan.  Notwithstanding  the
foregoing,  or any other provision of this Plan, a Participant who holds Options
may  transfer  such  Options  (but not  incentive  stock  options) to his or her
spouse,  lineal ascendants,  lineal descendants,  or to a duly established trust
for the benefit of one or more of these individuals.  Options so transferred may
thereafter be

<PAGE>

transferred  only to the Participant who originally  received the grant or to an
individual or trust to whom the Participant could have initially transferred the
Options pursuant to this Section 7.01. Options which are transferred pursuant to
this Section 7.01 shall be exercisable  by the transferee  according to the same
terms and conditions as applied to the Participant.

         7.02 No Enlargement  of Employment  Rights.  Nothing  contained in this
              -------------------------------------
Plan shall give or be  construed as giving any Employee the right to be retained
in the  service  of the Bank or shall  interfere  with the  right of the Bank to
discharge or otherwise terminate any Employee's employment at any time.

         7.03 Gender.  Whenever any masculine  terminology is used in this Plan,
              ------
it  shall be taken  to  include  the  feminine,  unless  the  context  otherwise
indicates.

         7.04  Applicable  Law. This Plan shall be construed and regulated,  and
               ---------------
its validity and effect and the rights hereunder of all parties interested shall
at all  times  be  determined,  in  accordance  with  the  laws of the  State of
Maryland, except to the extent such state law is preempted by federal law.

         7.05 Titles and Headings.  The titles and headings  included herein are
              -------------------
included for convenience only and shall not be construed as in any way affecting
or modifying the text of the Plan, which text shall control.

         7.06 Withholding. The Bank reserves the right to withhold from payments
              -----------
of  Benefits  such  amounts  of  income,  payroll,  and other  taxes as it deems
advisable,  and if the amount of such cash payment is not  sufficient,  the Bank
may require the  Participant or Beneficiary to pay the Bank the amount  required
to be withheld as a condition of delivering Benefits under the Plan.

         WHEREFORE,  the undersigned  executes this Community Bank of Tri-County
Executive  Incentive  Compensation Plan this 19th day of February, 1999.

                                         Community Bank of Tri-County

                                         By: /s/ Michael L. Middleton, President
                                             -----------------------------------

Attest:  /s/ H. Beaman Smith, Secretary
         ------------------------------EMPLOYMENT AGREEMENT

     THIS  AGREEMENT  entered into this 1st day of February 2001, by and between
Community  Bank of  Tri-County  (the  "BANK")  and  William  J.  Pasenelli  (the
"Employee"), effective as of the date hereof (the "Effective Date").

     WHEREAS,  the Employee has  heretofore  been employed by the bank as and is
experienced in all phases of the business of the Bank; and

     WHEREAS,  the parties  desire by this  writing to set forth the  continuing
employment relationship of the Bank and the Employee.

     NOW, THEREFORE, it is AGREED as follows:

     1. Employment.  The Employee is employed as the Chief Financial  Officer of
        ---------
the Bank. The Employee shall render such  administrative and management services
for the Bank as are  currently  rendered  and as are  customarily  performed  by
persons  situated  in a similar  executive  capacity.  The  Employee  shall also
promote,  by entertainment or otherwise,  as and to the extent permitted by law,
the business of the Bank. The Employee's other duties shall be such as the Board
of  Directors of the Bank  ("Board")  may from time to time  reasonably  direct,
including normal duties as an officer of the Bank.

     2. Base  Compensation.  The Bank agrees to pay the Employee during the term
        ------------------
of this  agreement a salary at the rate of $103,000  per annum,  payable in cash
not less  frequently  than  monthly.  The  Board  shall  review,  not less  than
annually,  the rate of the  Employee's  salary,  and in its sole  discretion may
decide to increase his/her salary.

     3.  Discretionary  Bonus.  The Employee  shall  participate in an equitable
         --------------------
manner with all other senior  management  employees of the Bank in discretionary
bonuses  that  the  Board  may  award  from  time to time to the  Bank's  senior
management employees. No other compensation provided for in this Agreement shall
be  deemed  a  substitute  for  the  Employee's  right  to  participate  in such
discretionary bonuses.

     4. (a)  Participation in Retirement,  Medical and Other Plans. The Employee
             -----------------------------------------------------
shall  participate  in any plan that the Bank  maintains  for the benefit of its
employees  if  the  plan  relates  to  (i)  pension,  profit-sharing,  or  other
retirement  benefits,  (ii) medical insurance or the reimbursement of medical or
dependent care expenses, or (iii) other group benefits, including disability and
life insurance plans.

        (b)   Employee Benefits; Expenses. The Employee shall participate in any
              ---------------------------
fringe  benefits  which  are or  may  become  available  to  the  Bank's  senior
management employees,

                                       1
<PAGE>

any  other  benefits  which  are  commensurate  with  the  responsibilities  and
functions to be performed by the Employee  under this  Agreement.  The Employees
shall be reimbursed for all  reasonable  out-of-pocket  business  expenses which
he/she shall incur in connection with his/her services under this Agreement upon
substantiation of such expenses in accordance with the policies of the Bank.

     5. Term.  The Bank hereby  employs the  Employee,  and the Employee  hereby
        ----
accepts such employment under this Agreement,  for the period  commencing on the
Effective  Date and  ending 36 months  thereafter  (or such  earlier  date as is
determined  in  accordance  with  Section  9).  Additionally,   on  each  annual
anniversary  date from the Effective  date,  the  Employee's  term of employment
shall be extended for an additional  one-year  period beyond the then  effective
expiration date provided the Board determined in a duly adopted  resolution that
the performance of the Employee has met the Board's  requirements and standards,
and that this Agreement shall be extended.

     6. Loyalty; Non-competition.
        -------------------------

        (a)  During the period of his/her  employment  hereunder  and except for
illnesses,  reasonable vacation periods,  and reasonable leaves of absence,  the
Employee  shall devote all his/her full business  time,  attention,  skill,  and
efforts to the  faithful  performance  of his/her  duties  hereunder;  provided,
however,  from time to time,  the  Employee may serve on the boards of directors
of, and hold any other  offices or positions  in,  companies  or  organizations,
which will not  present any  conflict  of  interest  with the Bank or any of its
subsidiaries or affiliates,  or unfavorably affect the performance of Employee's
duties pursuant to this Agreement, or will not violate any applicable statute or
regulation.  "Full  business  time" is  hereby  defined  as that  amount of time
usually  devoted to like  companies by similarly  situated  executive  officers.
During the term of his/her  employment under this Agreement,  the Employee shall
not engage in any  business or  activity  contrary  to the  business  affairs or
interest of the Bank,  or be  gainfully  employed  in any other  position or job
other than as provided above.

        (b) Nothing  contained in this Paragraph 6 shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other securities of
any  business  dissimilar  from that of the  Bank,  or,  solely as a passive  or
minority investor, in any business.

     7.  Standards.  The  Employee  shall  perform  his/her  duties  under  this
         ---------
Agreement  in  accordance  with  such  reasonable  standards  as the  Board  may
establish  from time to time.  The Bank will provide  Employee  with the working
facilities and staff customary for similar  executives and necessary for him/her
to perform his/her duties.

     8. Vacation and Sick Leave. At such reasonable  times as the Board shall in
        -----------------------
its discretion permit,  the Employee shall be entitled,  without loss of pay, to
absent  himself/herself  voluntarily from the performance of his/her  employment
under this  Agreement,  all such  voluntary  absences to count as vacation time,
provided that:

                                       2
<PAGE>

        (a) The Employee  shall be entitled to an annual  vacation in accordance
with the policies that the Board periodically  established for senior management
employees of the Bank.

        (b) The Employee shall not receive any additional  compensation from the
Bank on account of his/her  failure to take a vacation,  and the Employee  shall
not accumulate  unused  vacation,  and the Employee shall not accumulate  unused
vacation  from one fiscal year to the next,  except in either case to the extent
authorized by the Board.

        (c) In addition to the aforesaid paid  vacations,  the Employee shall be
entitled,  without loss of pay, to absent  himself/herself  voluntarily from the
performance of his/her  employment with the Bank for such additional  periods of
time  and  for  such  valid  and  legitimate  reasons  as the  Board  may in its
discretion  determine.  Further,  the Board may grant to the Employee a leave or
leaves of  absence,  with or  without  pay,  at such time or times and upon such
terms and conditions as the Board in its discretion may determine.

        (d) In addition,  the Employee shall be entitled to an annual sick leave
benefit as established by the Board.

     9.  Termination  and  Termination  Pay.  Subject to Section 11 hereof,  the
         ----------------------------------
Employee's   employment   hereunder  may  be  terminated   under  the  following
circumstances:

        (a)  Death.  The  Employee's   employment  under  this  Agreement  shall
             -----
terminate upon his/her death during the term of this  Agreement,  in which event
the  Employee's  estate  shall be entitled to receive the  compensation  due the
Employee  through  the last day of the  calendar  month in which  his/her  death
occurred.

        (b) Disability.  The Bank may terminate the Employee's  employment after
            ----------
having  established the Employee's  Disability.  For purposes of this Agreement,
"Disability"  means a physical or mental  infirmity which impairs the Employee's
ability to  substantially  perform his/her duties under this Agreement and which
results in the Employee  becoming  eligible for  long-term  disability  benefits
under the Bank's long-term  disability plan (or, if the Bank has no such plan in
effect,  which impairs the Employee's  ability to substantially  perform his/her
duties under this Agreement for a period of one hundred eighty (180) consecutive
days). The Employee shall be entitled to the compensation and benefits  provided
for under this  Agreement for (i) any period  during the term of this  Agreement
and prior to the  establishment  of the Employee's  Disability  during which the
Employee is unable to work due to the physical or mental infirmity,  or (ii) any
period of Disability which is prior to the Executive's termination of employment
pursuant to this Section 9(b).

        (c)  Just  Cause.  The Board  may,  by written  notice to the  Employee,
             -----------
immediately  terminate  his/her  employment  at any  time for  Just  Cause.  The
Employee shall have no right to receive  compensation  or other benefits for any
period after termination for Just Cause. Termination for "Just Cause" shall mean
termination  because  of, in the good  faith  determination  of the  Board,  the
Employee's personal  dishonesty,  incompetence,  willful  misconduct,  breach of
fiduciary duty involving personal profit,  intentional failure to perform stated
duties,  willful  violation of any law, rule or  regulation  (other than traffic
violations or similar  offenses) or final

                                       3
<PAGE>

cease-and  desist order,  or material breach of any provision of this Agreement.
Notwithstanding the foregoing, (i) the Employee shall not be deemed to have been
terminated for Just Cause unless there shall have been delivered to the Employee
a copy of a resolution duly adopted by the  affirmative  vote of not less that a
majority of the entire  membership of the Board at a meeting of the Board called
and held  for the  purpose  (after  reasonable  notice  to the  Employee  and an
opportunity for the Employee to be heard before the board),  finding that in the
good faith  opinion of the board the  Employee  was guilty of conduct  set forth
above  in the  second  sentence  of  this  Subsection  (c)  and  specifying  the
particulars thereof in detail.

        (d) Without Just Cause.  Subject to Section II hereof, the board may, by
            ------------------
written notice to the Employee,  immediately terminate his/her employment at any
time for a reason other than Just Cause,  in which event the  Employee  shall be
entitled to receive the  following  compensation  and  benefits:  (i) the salary
provided  pursuant  to  Section  2  hereof  for a period  of one year  following
termination  of  employment,  and (ii) the cost to the Employee of obtaining all
health,  life,  disability and other benefits which the Employee would have been
eligible to  participate  in for a period of one year  following  termination of
employment based upon benefit levels  substantially equal to those that the bank
provided for the employee at the date of  termination  of  employment.  Said sum
shall be paid, at the option of the Employee,  either (I) in period payment over
the remaining term of this  Agreement,  as if the Employee's  employment had not
been  terminated,  or  (II)  in one  lump  sum  within  ten  (10)  days  of such
termination.

        Notwithstanding  the  foregoing,  but only to the extent  required under
federal banking law, the amount payable under clause (i) hereof shall be reduced
to the extent that on the date of the Employee's termination of employment,  the
present value of the benefits  payable under clauses (i) and (ii) hereof exceeds
three times his/her  average  annual  compensation  based on his/her most recent
five taxable years.

        (e)  Termination or Suspension under Federal Law. (1) If the Employee is
             -------------------------------------------
removed and/or  permanently  prohibited from participating in the conduct of the
Bank's  affairs  by an order  issued  under  Sections  8(e)(4) or 8(g)(1) of the
Federal  Deposit  Insurance Act ("FDIA") (12 U.S.C.  1818(e)(4) or (g)(1)),  all
obligations  of  the  Bank  under  this  Agreement  shall  terminate,  as of the
effective  date of the order,  but  vested  rights of the  parties  shall not be
affected.

          (2)  If the Bank is in  default  (as  defined  in  section  3(x)(1) of
               FDIA), all obligations under this agreement shall terminate as of
               the date of default; however, this Paragraph shall not affect the
               vested rights of the parties.

          (3)  If a notice  served under  Section  8(e)(3) or (g)(1) of the FDIA
               (12 U.S.C.  1818(e)(3)  or (g)(1))  suspends  and/or  temporarily
               prohibits the Employee from  participating  in the conduct of the
               Bank's affairs, the Bank's obligations under this Agreement shall
               be suspended  as of the date of such  service,  unless  stayed by
               appropriate  proceedings.  If  the  charges  in  the  notice  are
               dismissed,  the Bank may in its  discretion  (i) pay the Employee
               all or part  of the  compensation  withheld  while  its  contract
               obligations  were  suspended,  and (ii) reinstate (in whole or in
               part) any of its obligations which were suspended.

                                       4
<PAGE>

          (4)  Any payments made to the Employee pursuant to this Agreement,  or
               otherwise,  are subject to and conditioned  upon their compliance
               with applicable laws and regulations.

        (f) Voluntary Termination by Employee. Subject to Section 11 hereof, the
            ---------------------------------
Employee may voluntarily  terminate  employment with the Bank during the term of
this  Agreement,  upon at least 60 days'  prior  written  notice to the Board of
Directors,  in which case the employee shall receive only his/her  compensation,
vested rights and employee benefits up to the date of his/her termination.

     10. No  Mitigation.  The  Employee  shall not be required  to mitigate  the
         --------------
amount of any payment provided for this Agreement by seeking other employment or
otherwise  and no such  payment  shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.

     11. Change in Control.
         -----------------

        (a)  Notwithstanding  any  provision  herein  to  the  contrary,  if the
Employee's  employment  under this Agreement is terminated by the Bank,  without
the Employee's  prior written consent and for a reason other than Just Cause, in
connection  with or within twelve (12) months after any change in control of the
Bank or Tri-County Financial Corporation (the "Corporation"), the Employee shall
be paid an amount equal to the difference  between (i) the product of 2.00 times
his/her "base amount" as defined in Section 280G (b) (3) of the Internal Revenue
Code of 1986, as amended (the "Code") and  regulations  promulgated  thereunder,
and (ii) the sum of any other parachute  payments (as defined under Section 280G
(b) (2) of the Code)  that the  Employee  receives  an  account of the change in
control.  Said sum  shall be paid in one lump sum  within  ten (10) days of such
termination.  The term "change in control" shall mean (1) the ownership, holding
or power to vote more than 25% of the Bank's or Corporation's  voting stock, (2)
the  control  of the  election  of a  majority  of the  Bank's or  Corporation's
directors,  (3) the exercise of a controlling  influence  over the management or
policies of the Bank or the  Corporation by any person or by persons acting as a
"group"  (within the meaning of Section 13(d) of the Securities  Exchange Act of
1934), or (4) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Corporation of
the Bank (the "Company Board") (the "Continuing Directors") cease for any reason
to constitute at least  two-thirds  thereof,  provided that any individual whose
election  or  nomination  for  election  as a member  of the  Company  Board was
approved by a vote of at least two thirds of the  Continuing  directors  then in
office shall be considered a Continuing  Director.  The term  "person"  means an
individual  other  than the  Employee,  or a  corporation,  partnership,  trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, or any other for of entity not specifically listed herein.

        (b)  Notwithstanding  any  other  provision  of  this  Agreement  to the
contrary,  the Employee may voluntarily  terminate his/her employment under this
Agreement within twelve (12) months following a change in control of the Bank or
Corporation, and the Employee shall thereupon be entitled to receive the payment
described in Section 11(a) of this Agreement, upon

                                       5
<PAGE>

the  occurrence  of any of the  following  events,  or within  ninety  (90) days
thereafter,  which have not been  consented  to in advance  by the  Employee  in
writing:  (i) the requirement that the Employee move his/her personal residence,
or perform his/her  principal  executive  functions,  more than thirty-five (35)
miles from his/her primary office as of the date of the change in control;  (ii)
a material  reduction in the Employee's  base  compensation  as in effect on the
date of the change in control or as the same may be increased from time to time;
(iii)  the  failure  by the  Bank to  continue  to  provide  the  Employee  with
compensation and benefits provided for under this Agreement,  as the same may be
increased  from time to time,  or with benefits  substantially  similar to those
provided  to  him/her  under  any of the  employee  benefit  plans in which  the
Employee now or hereafter becomes a participant,  or the taking of any action by
the Bank which  would  directly  or  indirectly  reduce any of such  benefits or
deprive the Employee of any material  fringe  benefit  enjoyed by him/her at the
time of the change of control; (iv) the assignment to the Employee of duties and
responsibilities  materially  different  from  those  normally  associated  with
his/her  position as  referenced at Section 1; (v) a failure to elect or reelect
the Employee to the Board of  Directors of the Bank,  if the Employee is serving
on the Board on the date of the change in control; or (vi) a material diminution
or  reduction  in  the  Employee's   responsibilities  or  authority  (including
reporting responsibilities) in connection with his/her employment with the Bank.

        (c) Any payments  made to the Employee  pursuant to this  Agreement,  or
otherwise,  are subject to and conditioned  upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.

        (d) In the event that any dispute  arises  between the  Employee and the
Bank as to the terms or interpretation of this agreement, including this Section
11, whether  instituted by formal legal proceedings or otherwise,  including any
action that the  Employee  takes to enforce  the terms of this  Section 11 or to
defend  against any action taken by the Bank,  the Employee  shall be reimbursed
for all costs and expenses,  including reasonable  attorney's fees, arising form
such dispute,  proceedings or actions, provided that the Employee shall obtain a
final  judgment by a court of competent  jurisdiction  in favor of the Employee.
Such reimbursement  shall be paid within ten (10) days of Employee's  furnishing
to the Bank written evidence, which may be in the form, among other things, of a
canceled check or receipt, of any costs or expenses incurred by the Employee.

                                       6
<PAGE>

     12. Successors and Assigns.
         ----------------------

        (a) This Agreement shall incur to the benefit of and be binding upon any
corporate  of other  successor  of the Bank which  shall  acquire,  directly  or
indirectly,   by  merger,   consolidation,   purchase  or   otherwise,   all  or
substantially all of the assets or stock of the Bank.

        (b) Since the Bank is contracting  for the unique and personal skills of
the  Employee,  the Employee  shall be precluded  from  assigning or  delegating
his/her rights or duties  hereunder  without first obtaining the written consent
of the Bank.

     13.  Amendments.  No  amendments  or  additions to the  Agreement  shall be
          ----------
binding  unless  made in writing  and signed by all of the  parities,  except as
herein otherwise specifically provided.

     14. Applicable Law. Except to the extent preempted by Federal law, the laws
         --------------
of the State of Maryland shall govern this Agreement in all respects, whether as
to its validity, construction, capacity, performance or otherwise.

     15.  Severability.  The  provisions  of  this  Agreement  shall  be  deemed
          ------------
severable and the  invalidity  or  unenforceability  of any provision  shall not
affect the validity or enforceability of the other provisions hereof.

     16. Entire  Agreement.  This Agreement,  together with any understanding or
         -----------------
modifications  thereof as agreed to in writing by the parties,  shall constitute
the entire agreement between the parties hereto.

     IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first hereinabove the written.

ATTEST:                                COMMUNITY BANK OF TRI-COUNTY

/s/ H. Beaman Smith                    /s/ Michael L. Middleton
---------------------------------      -----------------------------------------
H. Beaman Smith                        Michael L. Middleton
Secretary                              President

WITNESS:                               EMPLOYEE:

/s/ Christy M. Lombardi                /s/ William J. Pasenelli
---------------------------------      ----------------------------------------
                                       William J. Pasenelli

                                       7

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