Document:

Exhibit 10.6

    

    

    Exhibit
      10.6

    

     

    EMPLOYMENT
      AGREEMENT

     

    THIS
      EMPLOYMENT AGREEMENT is made
      and
      entered into on this
        17th      day
      of    October
                
      ,
      2005, by
      and among SUMMIT FINANCIAL GROUP, INC. (“Summit FGI”), a West Virginia
      corporation, and DOUGLAS T. MITCHELL (the “Employee”).

     

    WHEREAS,
      Summit FGI offers the terms and conditions of employment hereinafter set forth
      and Employee accepts such terms and conditions in consideration of his
      employment with the Company; and

     

    NOW
      THEREFORE, in consideration of the promises and the respective covenants and
      agreements of the parties herein contained, Summit FGI and Employee contract
      and
      agree as follows:

     

    1. Definitions.
      The
      following definitions in addition to any terms otherwise defined herein, shall
      apply to designated phrases used in this Employment Agreement.

     

    
      	
              (a)

            	
              “Change
                of Control” means (i) a change of ownership of Summit FGI that would have
                to be reported to the Securities and Exchange Commission as a change
                of
                control, including but not limited to the acquisition by any “person”
                and/or entity as defined by securities regulations and law, of direct
                or
                indirect “beneficial ownership,” as defined, of twenty-five percent (25%)
                or more of the combined voting power of Summit FGI’s then outstanding
                securities; or (ii) the failure during any period of three (3) consecutive
                years of individuals who at the beginning of such period constitute
                the
                Board of Directors of Summit FGI for any reason to constitute at
                least a
                majority thereof, unless the election of each director who was not
                a
                director at the beginning of such period has been approved by at
                least
                two-thirds (2/3) of the directors at the beginning of the period.
                In no
                event shall corporate restructuring of Summit FGI and/or its affiliates
                be
                construed as a “change in control” absent one or more of the conditions
                set forth above.

            

    

     

    
      	
              (b)

            	
              “Salary”
                means Employee’s average of full earnings reported on IRS Form W-2 for the
                two full year periods immediately prior to the date of the consummation
                of
                a Change of Control or for two full year periods immediately preceding
                the
                effective date of termination, whichever is
                greater.

            

    

     

     

    
      	
              (c)

            	
              “Good
                Cause” includes (i) Employee’s continued poor work performance after
                written notice of and reasonable opportunity to correct deficiencies;
                (ii)
                Employee’s behavior outside or on the job which affects the ability of
                management of Summit FGI or its affiliates or co-workers to perform
                their
                jobs and that is not corrected after reasonable written warning;
                (iii)
                Employee’s failure to devote reasonable time to the job that is not
                corrected after reasonable warning; (iv) any other significant deficiency
                in performance by Employee that is not corrected after reasonable
                warning;
                (v) Employee’s repeated negligence, malfeasance or misfeasance in the
                performance of Employee’s duties that can reasonably be expected to have
                an adverse impact upon the business and affairs of Summit FGI or
                its
                affiliates; (vi) Employee’s commission of any act constituting theft,
                intentional wrongdoing or fraud; (vii) the conviction of the Employee
                of a
                felony criminal offense in either state or federal court; (viii)
                any
                single act by Employee constituting gross negligence or that causes
                material harm to the reputation, financial condition or property
                of Summit
                FGI or its affiliates.

            

    

     

    
      	
              (d)

            	
              “Disability”
                means unable as a result of a physical or mental condition to perform
                Employee’s normal duties as Senior Vice President from day to day in
                Employee’s usual capacity.

            

    

     

    
      	
              (e)

            	
              “Retirement”
                means termination of employment by Employee in accordance with Summit
                FGI’s ’s retirement plan, including early retirement as approved by the
                Board of Directors of Summit FGI .

            

    

     

    
      	
              (f)

            	
              “Good
                Reason” means: (i) a Change of Control in Summit FGI and; (ii) a
                decrease in the total amount of Employee’s base salary below its level in
                effect on the date of consummation of the Change of Control, without
                Employee’s prior written consent; or (iii) a material change in Employee’s
                job duties and responsibilities without Employee’s prior written consent;
                or (iv) a geographical relocation of Employee to an office more than
                twenty (20) miles from Employee’s location at the time of the Change of
                Control without Employee’s prior written consent; or (v) failure of Summit
                FGI to obtain assumption of this Employment Agreement by its/their
                successor; or (vi) any purported termination of Employee’s employment
                which is not effected pursuant to a notice of termination required
                in
                Paragraph 15 of this Employment
                Agreement.

            

    

     

     

    
      	
              (g)

            	
              “Wrongful
                Termination” means termination of Employee’s employment prior to the
                expiration of eighteen (18) months after consummation of a Change
                of
                Control for any reason other than at Employee’s option, Good Cause or the
                death, Disability or Retirement of
                Employee.

            

    

     

    2. Term.
      The initial
      term of this Employment Agreement shall be for three (3) years, unless
      terminated sooner as provided herein. Absent termination by one of the parties
      as provided in this Employment Agreement, the term of this Employment Agreement
      shall automatically be extended for unlimited additional one (1) year term(s),
      in which case such term shall end one (1) year from the date on which it is
      last
      renewed.

     

    3. Duties.
      Employee
      shall perform and have all of the duties and responsibilities that may be
      assigned to him from time to time by the Chief Executive Officer and/or the
      Board of Directors of Summit FGI. Employee’s duties shall include, but not be
      limited to, the overall management of Summit FGI’s retail banking operation ,
      management of Summit FGI’s deposit product development (commercial and retail),
      the successful implementation and management of a new call center, and
      management of Summit FGI’s marketing and retail efforts. Employee shall devote
      his best efforts on a full-time basis to the performance of such
      duties.

     

    4. Compensation
      and Benefits.
      During the
      term of this Employment Agreement, including any extensions, Summit FGI agrees
      that Employee’s compensation and benefits shall be as follows:

     

    
      	
              (a)

            	
              Base
                Salary.
                Employee’s base salary as of the effective date of this Employment
                Agreement is One Hundred Fifty Thousand Dollars ($150,000.00) per
                year,
                paid on a semi-monthly basis. Employee shall be considered for salary
                increases on the basis of merit on an annual basis, with any future
                increases subject to the sole discretion of Summit
                FGI.

            

    

     

    
      	
              (b)

            	
              Signing
                Bonus.
                Upon
                execution of this Employment Agreement, Employee shall be entitled
                to
                receive a signing bonus in an amount equal to $30,000 to cover relocation
                expenses. Subject to paragraph 6, if within eighteen (18) months
                of the
                effective date of this Employment Agreement, Employee terminates
                his
                employment for any reason other than death or Disability, then Employee
                shall reimburse Summit FGI the full amount of the signing bonus provided
                for herein..

            

    

     

    
      	
              (c)

            	
              Bonus.
                In
                addition to the base salary provided for herein, Employee shall be
                eligible for incentive-based bonuses subject to goals and criteria
                to be
                determined by the Board of Directors of Summit
                FGI.

            

    

     

    
      	
              (d)

            	
              Paid
                Leave.
                Employee shall be entitled to all paid leave as provided by Summit
                FGI to
                other similarly-situated officers.

            

    

     

    
      	
              (e)

            	
              Fringe
                Benefits.
                Except as specified below, Summit FGI shall afford to Employee the
                benefit
                of all fringe benefits afforded to all other similarly-situated employees
                of Summit FGI, including but not limited to retirement plans, stock
                ownership or stock option plans, life insurance, disability, health
                and
                accident insurance benefits or any other fringe benefit plan now
                existing
                or hereinafter adopted by Summit FGI, subject to the terms and conditions
                thereof.

            

    

     

    
      	
              (f)

            	
              Business
                Expenses.
                Summit FGI shall reimburse Employee for reasonable expenses incurred
                by
                Employee in carrying out his duties and responsibilities, including
                but
                not limited to reimbursing civic club organization dues and reasonable
                expenses for customer entertainment. All such reimbursement shall
                be
                administered in accordance with the policies and practices established
                by
                Summit FGI from time to time.

            

    

     

    
      	
              (g)

            	
              Stock
                Options.
                Employee will be entitled to receive stock options for a total of
                3,500
                shares of Summit FGI subject to the terms and conditions of Summit
                FGI’s
                current Stock Option Plan.

            

    

     

    
      	
              (h)

            	
              Supplemental
                Executive Retirement Benefit.
                Summit FGI will provide Employee with a supplemental executive retirement
                benefit.

            

    

     

    5. Termination
      for Good Cause.
      Subject to
      the provisions of Paragraph 7 below, if Employee terminates his employment
      with
      Summit FGI for any reason or Summit FGI terminates Employee’s employment for
      Good Cause, Employee shall not be entitled to any compensation other than that
      which is earned and payable as of the effective date of termination of
      employment. 

     

    6. Termination
      Not for Good Cause.
      Employee’s
      employment may be terminated by Summit FGI for any reason permitted under
      applicable law so long as Employee is given thirty (30) days advance written
      notice (or payment in lieu thereof). In the event of a termination pursuant
      to
      this paragraph, Employee shall be entitled to payment from Summit FGI equal
      to
      the base salary compensation set forth in this Agreement for the remaining
      term
      of the Agreement, or severance pay equal to 100% of his annual base salary,
      whichever is greater.

     

    7. Termination
      for Good Reason, Wrongful Termination, or at Employee’s
      Option.

     

    
      	
              (a)

            	
              Except
                as hereinafter provided, if Employee terminates his employment with
                Summit
                FGI for Good Reason or Summit FGI terminates Employee’s employment in a
                manner constituting Wrongful Termination, Summit FGI hereby agrees
                to pay
                Employee a cash payment equal to Employee’s Salary, on a monthly basis,
                multiplied by the number of months between the effective date of
                termination and the date that is eighteen (18) months after the date
                of
                consummation of Change of Control; provided that in no event shall
                Employee receive a lump sum payment that is less than 100% of his
                annual
                base salary. Employee shall have the right to terminate his employment
                without reason at his option by giving written notice of termination
                within six (6) months of a Change of Control. In this case, Employee
                will
                be entitled to receive a lump sum equal to six months of his annual
                base
                salary.

            

    

     

    
      	
              (b)

            	
              For
                the year in which Employee terminates his employment with Summit
                FGI for
                Good Reason or Summit FGI terminates Employee’s employment in a manner
                constituting Wrongful Termination, Employee will be entitled to receive
                his reasonable share of Summit FGI’s cash bonuses and employee benefit
                plan contributions, if any, allocated in accordance with existing
                policies
                and procedures and authorized by the Board of Directors of Summit
                FGI. The
                amount of Employee’s cash incentive award shall not be reduced due to
                Employee not being actively employed for the full
                year.

            

    

     

    
      	
              (c)

            	
              If
                compensation pursuant to Paragraph 7(a) is payable, Employee will
                continue
                to participate, without discrimination, for the number of months
                between
                the Date of Termination and the date that is eighteen (18) months
                after
                the date of the consummation of the Change of Control in benefit
                plans
                (such as retirement, disability and medical insurance) maintained
                after
                any Change of Control for employees, in general, of Summit FGI and/or
                any
                successor organization(s), provided Employee’s continued participation is
                possible under the general terms and conditions of such plans. In
                the
                event Employee’s participation in any such plan is barred, Summit FGI
                shall arrange to provide Employee with benefits substantially similar
                to
                those which Employee would have been entitled had his participation
                not
                been barred. Notwithstanding the foregoing, if Employee terminates
                his
                employment after a Change of Control without reason at his option,
                as
                permitted under Paragraph 7(a), then Employee shall be entitled to
                receive
                the employee benefits contemplated in this Agreement for a period
                of six
                (6) months after termination. However, in no event will Employee
                receive
                from Summit FGI the employee benefits contemplated by this section
                if
                Employee receives comparable benefits from any other
                source.

            

    

     

    8. Other
      Employment.
      Employee
      shall not be required to mitigate the amount of any payment provided for in
      this
      Employment Agreement by seeking other employment. The amount of any payment
      provided for in this Employment Agreement shall not be reduced by any
      compensation earned or benefits provided (except as set forth in Paragraph
      7(c)
      above) as the result of employment by another employer after the date of
      termination.

     

    9. Rights
      of Summit FGI Prior to the Change of Control.
      This
      Employment Agreement shall not affect the right of Summit FGI to terminate
      Employee, or to reduce the salary or benefits of Employee, with or without
      Good
      Cause, prior to any Change of Control; provided, however, any termination for
      any reason other than at Employee’s option, Good Cause or the death, Disability
      or Retirement of Employee that takes place after discussions have commenced
      that
      result in a Change of Control shall be presumed to be a Wrongful Termination,
      absent clear and convincing evidence to the contrary.

     

    10. Noncompetition
      and Nonsolicitation.
      In
      consideration of the covenants set forth herein, including but not limited
      to
      the compensation set forth in Paragraphs 4,6 and 7 above, Employee agrees as
      follows:

     

    
      	
              (a)

            	
              For
                the entire duration of Employee’s employment with Summit FGI and for three
                (3) years following the termination of such employment for any reason
                by
                either Employee or Summit FGI (the “Restricted Period”), Employee shall
                not (i) within a seventy-five (75) mile radius of Summit FGI and/or
                its affiliate directly or indirectly engage in any business or activity
                of
                any nature whatsoever that is competitive with the business of Summit
                FGI
                or its affiliates or
                (ii)
                sell or solicit the sale of, any services related thereto, directly
                or
                indirectly, to any of Summit FGI’s or its affiliates’ customers or clients
                within the State of West Virginia, the Commonwealth of Virginia or
                any
                other states in which Summit FGI conducts such business or sells
                services
                in the future.

            

    

     

     

    
      	
              (b)

            	
              Without
                limitation of the foregoing, during the Restricted Period, Employee
                shall
                not serve as a proprietor, partner, officer, director, stockholder,
                employee, sales representative or consultant for any organization,
                company
                or business entity of any type that engages in any business or activity
                of
                any nature whatsoever, that engages in any activity described in
                Paragraph
                10(a) above.

            

    

     

    
      	
              (c)

            	
              Employee
                acknowledges and agrees that in the event of the breach or threatened
                breach of this provision, the harm and damages that will be suffered
                by
                Summit FGI are not susceptible of calculation or determination with
                a
                reasonable degree of certainty, and cannot be fully remedied by an
                award
                of money damages or other remedy at law. Employee further acknowledges
                and
                agrees that considering Employee’s relevant background, education and
                experience, Employee will be able to earn a livelihood without violating
                the foregoing restrictions. In addition to any and all other rights
                and
                remedies available to Summit FGI in the event of any threatened,
                actual or
                continuing breach of this covenant not to compete, Employee consents
                to
                and acknowledges Summit FGI’s right and option to seek and obtain in any
                court of competent jurisdiction a preliminary and/or permanent injunction
                in respect of any threatened, actual or continuing breach of the
                covenant
                not to compete set forth herein.

            

    

     

    
      	
              (d)

            	
              In
                the
                event that this provision shall be deemed by any court or body of
                competent jurisdiction to be unenforceable in whole or in part by
                reason
                of its extending for too long a period of time, or too great a
                geographical area or over too great a range of activities, or overly
                broad
                in any other respect or for any other reason, then and in such event
                this
                Employment Agreement shall be deemed modified and interpreted to
                extend
                over only such maximum period of time, geographical area or range
                of
                activities, or otherwise, so as to render these provisions valid
                and
                enforceable, and as so modified, these provisions shall be enforceable
                and
                enforced.

            

    

     

     

    
      	
              (e)

            	
              The
                Paragraph 10 shall not apply in any respect to Employee, unless Employee
                agrees otherwise in writing, in the event of the consummation of
                a Change
                in Control or in the event of Employee’s termination by Summit FGI for
                other than Good Cause.

            

    

     

     

    11. Confidential
      Information.
      

     

    
      	
              (a)

            	
              Employee
                agrees not to use, publish or otherwise disclose (except as Employee’s
                duties may require), either during or at any time subsequent to his/her
                employment, any secret, proprietary or confidential information or
                data of
                Summit FGI or any information or data of others that Summit FGI or
                its
                affiliates is obligated to maintain in confidence. Employee understands
                that the use, publication or other disclosure of such information
                may
                violate privacy rights, as well as expose Summit FGI or its affiliates
                to
                financial loss, competitive disadvantage and/or embarrassment. Employee
                also understands that it is Employee’s duty to take adequate care to
                ensure that such secret, proprietary or confidential information
                is not
                used, published or otherwise disclosed by
                others.

            

    

     

    
      	
              (b)

            	
              Employee
                also agrees that upon any termination of his/her employment to deliver
                to
                Summit FGI promptly all items that belong to Summit FGI or that by
                their
                nature are for the use of employees of Summit FGI only, including,
                without
                limitation, all written and other materials that are of a secret,
                proprietary or confidential nature relating to the business of Summit
                FGI
                and/or Summit FGI’s affiliates.

            

    

     

    
      	
              (c)

            	
              For
                purposes of this Employment Agreement, the terms “secret” or confidential”
                are used in the ordinary sense and do not refer to official security
                classifications of the United States Government. Without limitation,
                examples of materials, information and data that are considered to
                be of a
                secret or confidential nature are for purposes of this Employment
                Agreement include but are not limited to drawings, manuals, customer
                lists, notebooks, reports, models, inventions, formulas, processes,
                machines, compositions, computer programs, accounting methods, business
                plans and information systems including such materials, information
                and
                data that are in machine-readable
                form.

            

    

     

     

    12. No
      Prior Obligation:
      Other than
      this Employment Agreement, Employee represents that there are no agreements,
      covenants or arrangements, whether written or oral, in effect which would
      prevent him from rendering service to Summit FGI during the term of this
      employment and he has not made and will not make any commitments, become
      associated, either directly or indirectly, in any manner, as partner, officer,
      director, stockholder, advisor, employee or in any other capacity in any
      business or organization, or do any act in conflict with the interest of
      Company, its subsidiaries or affiliates. Employee expressly agrees to indemnify
      and hold harmless Company, its affiliates, and Company’s and its affiliates’ and
      directors, officers and employees from any and all liability resulting from
      or
      arising under the breach of this representation and warranty. This indemnify
      is
      in addition to and not in substitution of rights Company may have against
      Employee at common law or otherwise.

     

     

    13. Successors;
      Binding Agreement; Exclusive Remedy.

     

    
      	
              (a)

            	
              Summit
                FGI will require any successor (whether direct or indirect, by purchase,
                merger, consolidation or otherwise) to all or substantially all of
                the
                business and/or assets of Summit FGI, by agreement in form and substance
                satisfactory to Employee, to expressly assume and agree to perform
                this
                Employment Agreement. 

            

    

     

    
      	
              (b)

            	
              This
                Employment Agreement and all rights of Employee hereunder shall inure
                to
                the benefit of and be enforceable by Employee’s personal or legal
                representatives, executors, administrators, successors, heirs,
                distributees, devisees, and legatees. If Employee should die while
                any
                amounts would still be payable to him hereunder if he had continued
                to
                live, all such amounts, unless otherwise provided herein, shall be
                paid in
                accordance with the terms of this Employment Agreement to Employee’s
                devisee, legatee, or other designee or, if there be no such designee,
                to
                Employee’s estate.

            

    

     

    
      	
              (c)

            	
              This
                Employment Agreement shall represent the exclusive and only remedy
                of
                Employee in the event a termination occurs after a Change in Control.
                Summit FGI and Employee agree that it is impossible to determine
                with any
                reasonable accuracy the amount of prospective damages to either party
                should Employee be terminated or terminate his employment during
                the term
                of this Employment Agreement. Summit FGI and Employee agree that
                the
                payment provided herein is reasonable and not a penalty, based upon
                the
                facts and circumstances of the parties at the time of entering this
                Employment Agreement, and with due regard to future
                expectations.

            

    

     

    14. Arbitration.
      Except for
      any dispute arising out of the obligations set forth in Paragraph 10 of this
      Employment Agreement, any dispute between the parties arising out of or with
      respect to this Employment Agreement or any of its provisions or Employee’s
      employment with Summit FGI shall be resolved by the sole and exclusive remedy
      of
      binding arbitration. Unless otherwise agreed by the parties, the arbitration
      shall be conducted in Moorefield, West Virginia under the auspices of, and
      in
      accordance with the rules of the American Arbitration Association. Any decision
      issued by an arbitrator in accordance with this provision shall be final and
      binding on the parties thereto and not subject to appeal or civil
      litigation.

     

    15. Notice.
      For the
      purposes of this Employment Agreement, notices, demands and other communications
      provided for in the Employment Agreement shall be in writing and shall be deemed
      to have been duly given when delivered or (unless otherwise specified) mailed
      by
      the United States registered mail, return receipt requested, postage prepaid,
      addressed as follows:

     

                                If
      to
      Employee:    Douglas
      Mitchell

                                          
      222 Mountain View St., Petersburg, WV  26847

     

                                If
      to Summit
      FGI: Summit
      Financial Group, Inc

        
                      Attn: 
      H. Charles Maddy, III, President & CEO

                                  
      P. O. Box 179

                                 
      Moorefield, WV  26836

     

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

     

    16. Miscellaneous.
      No
      provisions of this Employment Agreement may be modified, waived or discharged
      unless such waiver, modification or discharge is agreed to in writing signed
      by
      Employee and authorized officers of Summit FGI. No waiver by either party hereto
      at any time of any breach by the other hereto of, or compliance with, any
      condition or provisions of this Employment Agreement to be performed by such
      other party shall be deemed a waiver of similar or dissimilar provisions or
      conditions at the same or any prior or subsequent time.

     

    17. Validity.
      The
      invalidity or unenforceability of any provision or provisions of this Employment
      Agreement shall not affect the validity or enforceability of any other
      provisions of this Employment Agreement, which shall remain in full force and
      effect.

     

    IN
      WITNESS
      WHEREOF, the parties have caused this Employment Agreement to be signed as
      of
      the day and year first above written.

     

                                    SUMMIT
      FINANCIAL
      GROUP, INC.

     

                                    By:
 /s/
      H. Charles Maddy, III       

                                    Its:
   President                                       

    

    

    

                                     /s/
      Douglas
      T.
      Mitchell            

                                    DOUGLAS
      T.
      MITCHELLExhibit 10.8

    

    

    Exhibit
      10.8

    Summit
      Financial Group, Inc. 

    

    Board
      Attendance and Compensation Policy

    

    I. Retainer
      and Fees for Subsidiary Board Members 

    

    Members
      of
      the board of directors of the subsidiaries of Summit Financial Group, Inc.
      (“Summit”) will be paid retainer fees based on the asset size for each bank as
      of December 31st
      of the
      prior year, as follows:

    

    Asset
      Size of Bank   
   Annual
      Retainer     Fee
      Per
      Meeting

    Up
      to $100
      Million    
  $2,000   $125
      per
      meeting attended

    $101
      Million
      - $250 Million        $3,000   $125
      per
      meeting attended

    $250
      Million
      and
      Over             
 $5,000   $125
      per
      meeting attended

    

    In
      addition
      to the above retainer fees and fees per board meeting attended, board committee
      members will also be paid $100 per committee meeting attended. Members of board
      committees may attend committee meetings in person or by video conference.
      Any
      member of any board or committee may attend meetings by telephone, but payment
      will be made for only one board meeting and one committee meeting in any given
      year where attendance is by telephone.

    

    II. Retainer
      and Fees for Summit Board Members

    

    Summit
      board
      members will be paid as follows:

    

    
      	·  	
              $1,000
                per board meeting attended;

            

    

    
      	·  	
              $150
                per committee meeting attended (other than Audit Committee and
                Compensation and Nominating
                Committee);

            

    

    
      	·  	
              $750
                per Audit Committee meeting
                attended;

            

    

    
      	·  	
              $750
                per Compensation and Nominating Committee
                attended.

            

    

    

    Members
      of
      the board of directors of Summit may attend board meetings or committee meetings
      in person or by video conference. Any member of any board or committee may
      attend meetings by telephone, but payment will be made for only one (1) board
      meeting and one (1) committee meeting in any given year where attendance is
      by
      telephone. Notwithstanding the foregoing, members of the Audit Committee may
      not
      attend meetings by telephone. In addition, Audit Committee members shall receive
      no other remuneration other than the retainer fees and fees per meeting set
      forth herein for serving on the Audit Committee.

    

    III. Meeting
      Fees for Division Board Members

    

    The
      Chairman
      of each division shall appoint individuals to serve as a member of the division
      board of directors. Each division board member shall serve for a term of two
      (2)
      years and may be re-appointed for an additional two-year term. The division
      board of directors shall operate solely as an advisory board and shall have
      no
      authority to manage the business and property of Summit or its subsidiaries
      or
      to direct the operations of Summit or its subsidiaries. Members of each division
      board of directors shall not be paid a retainer fee; however each member of
      the
      division board of directors shall be paid $100 per division meeting attended.
      The $100 fee per meeting shall only be paid to the members of the division
      board
      of directors who attend the division meetings in person and not by telephone.
      

    

    IV. Employee-Directors

    

    If
      an
      individual is a member of the board of directors of Summit or any of its
      subsidiaries and is also an employee of Summit or any of its subsidiaries,
      then
      such employee/director shall be paid the retainer fees and the fees for each
      board meeting attended as set forth above; however, such employee/director
      shall
      not be paid the fees for each committee meeting attended. 

    

    V. Expense
      Reimbursement

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Any
      member
      of the board of directors of Summit or any of its subsidiaries who must travel
      in excess of sixty (60) miles from his primary residence or place of business
      to
      attend a board meeting or committee meeting is eligible for reimbursement of
      direct expenses including, but not limited to, mileage and hotel expenses.
      Requests must be filed within 90 days of meeting date. Forms are available
      from
      the Human Resources Department for this purpose.

    

    

    VI. Payment
      by Direct Deposit and Deferral of Payments

    

    The
      retainer
      fees and per meeting fees described above may be paid by direct deposit into
      each board member’s Summit Financial Group, Inc. subsidiary bank account. If the
      board member is on a subsidiary board and is a participant in the Director
      Deferral Plan, then the compensation may be deferred. A direct deposit to a
      board member’s account will be made on the last day of the month; however, if
      the last day of the month falls on a weekend, the direct deposit will be made
      on
      the previous Friday. If the meeting date falls after the deadline for payroll,
      payments will be made the following month for attendance at a
      meeting.

    

    VII. Attendance

    

    Summit
      owns
      all of the shares of stock of each of its subsidiaries, and therefore, Summit
      has the power to elect the directors of each of its subsidiaries. Members
      serving on the board of directors of each of Summit’s subsidiaries serve at the
      will and pleasure of the board of directors of Summit. Serving on the board
      of
      directors of a financial institution is a very serious commitment. In order
      to
      do the job properly, directors must set aside the time to attend the board
      and
      committee meetings. If a director fails to attend at least 70% of the board
      and
      committee meetings of which he is a member for any given calendar year, then
      the
      director will be placed on attendance probation. If a director does not attend
      at least 70% of the board and committee meetings for two consecutive years,
      then
      the board will ask the individual to resign unless the director submits a good
      reason for his or her absence. Acceptable reasons for failing to attend board
      and committee meetings include, but are not limited to, public service, personal
      health problems, or family health problems. The Human Resources Department
      will
      send out an attendance summary at the end of June and December of each calendar
      year detailing the directors’ attendance at board and committee
      meetings.

    

    VIII. Renomination

    

    Each
      year,
      the Nominating Committee will meet to assess the performance of all board
      members and make a recommendation to the full board of Summit as to which board
      members should be renominated. The Nominating Committee will assess whether
      each
      member is continuing to fulfill his or her fiduciary duties to the board.
      Additionally the Nominating Committee will assess the contribution by said
      board
      members to furthering the mission of their respective bank.

    

    IX. Mandatory
      Retirement

     

    Members
      of
      the Board of Directors of Summit and its subsidiaries are subject to a mandatory
      retirement age of 70. When a Summit or subsidiary bank board member reaches
      age
      70, he/she will not be renominated. The following exceptions
      have been
      made to this requirement:

    

    1. Members
      of
      the board of directors of Summit Community Bank who were Potomac Valley Bank
      board members at the time of the merger of Potomac Valley Bank and South Branch
      Valley National Bank will not be renominated after obtaining age 80.

    

    2. Harry
      Welton
      and Donald Biller, members of the board of directors of Summit Community Bank,
      will not be re-nominated after the age of 80.

    

    3. Members
      of
      the board of directors of Summit who were board members of Potomac Valley Bank
      and who were at the age of 60 at the time of the Potomac Valley Bank merger
      into
      Summit will not be re-nominated after obtaining age 80.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    4. Any
      member
      of the board of directors of Summit or any of its subsidiaries who remains
      an
      active employee of Summit or any of its subsidiaries is not subject to mandatory
      retirement because of age.

    

    5. The
      division
      board members are not subject to mandatory retirement because of
      age.

    

    X. Benefits
      

    

    Individuals
      who were members of either the South Branch Valley National Bank board or
      members of the Potomac Valley Bank board at the time of merger, will continue
      benefits provided before the merger until their mandatory retirement from the
      board. At retirement, the board member may continue their benefits through
      Summit provided the board member pays 100% of the premium of the benefit.

    

    Any
      future
      offer of benefits will be reviewed and approved by the Compensation Committee
      before being offered to the board members.

    

    XI. Deferred
      Compensation Plan

    

    A
      deferred
      compensation plan (“Director Deferred Compensation Plan”) for the members of the
      board of directors of the subsidiaries of Summit was established to allow
      members of the board of directors of the subsidiaries of Summit to apply their
      deferred compensation towards the purchase of shares of stock of Summit. As
      further described below in Section XII, the shares of stock of Summit purchased
      through the Director Deferred Compensation Plan will be counted towards the
      minimum requirement of stock that each member of the board of directors of
      each
      subsidiary of Summit must own to maintain a seat on the board of
      directors.

    

    XII. Stock
      Requirements

     

    In
      order to
      be elected to and maintain a seat on the board of directors of Summit or any
      of
      its subsidiaries, a member must hold in his or her own right, a minimum number
      of shares of the stock of Summit. Regulations promulgated by the Office of
      the
      Comptroller of the Currency (the “OCC”) and West Virginia law set forth the
minimum
      number of
      shares that must be owned by each director. Qualifying share ownership for
      directors of Shenandoah Valley National Bank is governed by the OCC regulations.
      Accordingly, the directors of Shenandoah Valley National Bank are subject to
      different minimum ownership requirements than the directors of Summit and Summit
      Community Bank, which are governed by West Virginia law. The bylaws of Summit
      set forth more stringent requirements than established by West Virginia law.
      In
      addition, this policy establishes more stringent requirements than the
      requirements set forth in the bylaws of Summit Community Bank and Shenandoah
      Valley National Bank. 

    

    

    The
      requirements for each bank are as follows: 

    

    • Summit
      Financial Group, Inc.

     

    West
      Virginia law provides that each director of Summit must own in his or her own
      right, common or preferred stock of Summit, in an amount equal to or greater
      than any one of the following:

     

    (i) aggregate
      par value of $500.00;

    (ii) aggregate
      shareholders’ equity of $500.00; or

    (iii) aggregate
      fair market value of $500.00.

    

    Determination
      of the fair market value of the director’s stock in Summit is based on the value
      of the stock on the date it was purchased or on the date that the individual
      become a director, whichever is greater. 

    

    Directors
      should be aware that although based on the current market value of Summit stock,
      the minimum number of shares required to be owned under this policy exceeds
      the
      regulatory minimum, a decrease in the market value of Summit stock could require
      directors to purchase more shares to meet the regulatory minimums discussed
      below.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Summit’s
      bylaws and this policy impose more stringent requirements on directors than
      imposed by West Virginia law. Summit’s bylaws and this policy require that each
      director own in his or her own right, a minimum of 2,000 shares of Summit’s
      common stock. Summit’s bylaws specify that the following shares are held in a
      director’s “own right”: (i) shares held solely in the director’s name; (ii)
      shares held through the corporation’s employee stock option plan, a
      profit-sharing plan, individual retirement account, retirement plan or similar
      arrangement; and (iii) shares owned by a company where the director owns a
      controlling interest. 

    

    The
      West
      Virginia Attorney General has interpreted the language “own in his own right” in
      the West Virginia statute governing qualifying shares, W.Va. Code § 31A-4-8, to
      exclude any shares that a director owns jointly. Accordingly, Summit’s bylaws
      and this policy allow shares held jointly by a director and his or her spouse
      to
      be counted when determining whether the director owns 2,000 shares of common
      stock in his or her own right, as long as the director owns stock in his or
      her
      own name with a minimum value (calculated by the par value, shareholder’s equity
      or fair market value) of at least $500 (the minimum imposed by West Virginia
      law). 

    

    

    • Summit
      Community Bank 

    

    West
      Virginia state law and the bylaws of Summit Community Bank provide that each
      director of Summit Community Bank must own in his or her own right, common
      or
      preferred stock of Summit, in an amount equal to or greater than any one of
      the
      following:

    

    (i) aggregate
      par value of $500.00;

    (ii) aggregate
      shareholders’ equity of $500.00; or

    (iii) aggregate
      fair market value of $500.00.

    

    Determination
      of the fair market value of the director’s stock in Summit is based on the value
      of the stock on the date it was purchased or on the date that the individual
      become a director, whichever is greater. 

    

    This
      policy
      imposes more stringent requirements on directors of Summit Community Bank than
      imposed by West Virginia state law and the bylaws of Summit Community Bank.
      This
      policy requires that each member of the board of directors of Summit Community
      Bank own, in his or her own right, a
      minimum
      of one-thousand (1,000) shares of common stock of Summit.
      For
      purposes of determining whether shares are owned by a director in his or her
      own
      right, the following shares shall be deemed owned by a director in his or her
      own right: (i) shares held solely in the director’s name; (ii) shares held
      through the Summit’s employee stock ownership plan, the Director Deferred
      Compensation Plan, a profit-sharing plan, individual retirement account,
      retirement plan or similar arrangement; and (iii) shares owned by a company
      where the director owns a controlling interest. Shares held jointly by a
      director and his or her spouse may also be counted when determining whether
      the
      director owns 1,000 shares of common stock in his or her own right as long
      as
      the director owns stock in his or her own right with a minimum value (calculated
      by the par value, shareholder’s equity or fair market value) of at least $500.

    

    • Shenandoah
      Valley National Bank

    

    The
      OCC
      requires that each director of Shenandoah Valley National Bank own in his or
      her
      own right, shares of common or preferred stock of Summit which has not less
      than:

    

    (i) an
      aggregate
      par value of $1,000;

    (ii) an
      aggregate
      shareholder’s equity of $1,000; or

    (iii) an
      aggregate
      fair market value of $1,000.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    The
      value of
      the common or preferred stock held by the director is valued as of the date
      purchased or the date on which the individual became a director, whichever
      is
      greater. 

    

    This
      policy
      imposes more stringent requirements on directors of Shenandoah Valley National
      Bank than imposed by West Virginia state law and the bylaws of Shenandoah Valley
      National Bank. This policy requires that each member of the board of directors
      of Shenandoah Valley National Bank own, in his or her own right, a
      minimum
      of one-thousand (1,000) shares of common stock of Summit.
      

    

    The
      OCC has
      established by the following rules for determining whether shares are “held by a
      director in his or her own right”:

    

    • Joint
      Ownership
      and
      Tenancy in Common.
      Shares
      held jointly or as a tenant in common are qualifying shares held by a director
      in his or her own right only to the extent of the aggregate value of the shares
      which the director would be entitled to receive on dissolution of the joint
      tenancy or tenancy in common.

    

    • Shares
      in a
      Living Trust.
      Shares
      deposited by a director in a living trust (inter-vivos trust) as to which the
      director is a trustee and retains an absolute power of revocation are shares
      owned by the director in his or her own right.

    

    • Shares
      Held
      Through
      Retirement Plans or Similar Arrangements.
      A director
      may hold his or her qualifying shares through a profit-sharing plan, individual
      retirement account, retirement plan, or similar arrangement, if the director
      retains beneficial ownership and legal control over the shares.

    

    • Shares
      held Subject to Buyback Agreements.
      A director
      may acquire and hold his or her qualifying interest pursuant to a stock
      repurchase or buyback agreement with a transferring shareholder under which
      the
      director purchases the qualifying shares subject to an agreement that the
      transferring shareholder will repurchase the shares when, for any reason, the
      director ceases to serve in that capacity. The agreement may give the
      transferring shareholder a right of first refusal to repurchase the qualifying
      shares if the director seeks to transfer ownership of the shares to a third
      person.

    

    • Assignment
      of
      Right to Dividends or Distributions.
      A director
      may assign the right to receive all dividends or distributions on his or her
      qualifying shares to another, including a transferring shareholder, if the
      director retains beneficial ownership and legal control over the
      shares.

    

    • Execution
      of
      Proxy.
      A director
      may execute a revocable or irrevocable proxy authorizing another, including
      a
      transferring shareholder, to vote his or her qualifying shares, provided the
      director retains beneficial ownership and legal control over the
      shares.

     

    The
      OCC has
      determined that the following are not
      shares held
      by a director in “his or her own right”:

    

    (a) Shares
      pledged by the holder to secure a loan. However, all or part of the funds used
      to purchase the required qualifying equity interest may be borrowed from any
      party, including the bank or its affiliates;

    

    (b) Shares
      purchased subject to an absolute option vested in the seller to repurchase
      the
      shares within a specified period; and

     

    (c) Shares
      deposited in a voting trust where the depositor surrenders: (1) legal ownership
      (depositor ceases to be registered owner of the stock); (2) power to vote the
      stock or to direct how it shall be voted; or (3) power to transfer legal title
      to the stock.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    In
      addition
      to the above rules established by the OCC, the following shares shall be deemed
      owned by a director in his or her own right: (1) shares held through Summit’s
      employee stock ownership plan, (ii) shares held through the Director Deferred
      Compensation Plan; (iii) shares owned by a company where the director owns
      a
      controlling interest; and (iv) convertible preferred shares known as the
      Rockingham National Bank Series issued to directors of Shenandoah Valley
      National Bank.

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