Document:

exv10w2

Exhibit 10.2

TOWN SPORTS INTERNATIONAL, LLC

5 PENN PLAZA
 NEW YORK, NY 10001

March 19, 2010

Mr. Alexander A. Alimanestianu

27 Lincoln Street

Larchmont, NY 10538

Dear Alex:

     This letter agreement (the “Agreement”) confirms the terms that Town Sports International, LLC
(the “Company”) is offering you in connection with your departure from the employ of the Company
and its affiliates and from all officer, director and other positions that you currently hold with
the Company and its affiliates, including Town Sports International Holdings, Inc. (“TSI
Holdings”).

1. Departure Date.

     (a) The employment relationship between you and the Company and its subsidiaries and
affiliates, as applicable, ended on March 16, 2010 (the “Departure Date”). You also hereby resign
as a director of TSI Holdings, the Company or of any affiliate thereof.

     (b) Promptly following the Departure Date, you will be paid for any accrued, but not taken,
vacation days (10 days) in accordance with the Company’s prevailing payroll practices. Information
regarding the Company’s 401(k) Plan and your ability to continue your health insurance coverage
under the Company’s group health plan pursuant to the federal “COBRA” law (and New York mini-COBRA)
will be sent to you separately by the applicable plan administrators following the Departure Date.

2. Separation Benefits. In return for your agreement (without revocation) to, and
compliance with, your commitments and obligations set forth in this Agreement, and subject to the
terms of this Agreement:

     (a) The Company will continue to pay you your base salary of $505,870, which is the rate in
effect on the Departure Date) for a period commencing on the Departure Date and ending on March 15,
2011 (the “Severance Period”), payable in accordance with the Company’s prevailing payroll
practices (provided, however, that the last paycheck shall be paid to you on or before March 15,
2011); provided, however, that such payments will commence within 30 days after the expiration of
the revocation period (without revocation) and such first payment will include those payments that
would have previously been paid if these severance payments had begun on the first payroll date
following the Departure Date.

     (b) If you timely elect to continue your health coverage through COBRA, the Company will pay
that portion of the premium that it would have paid had you been an active

 

 

employee at the same level of coverage through Severance Period, and will pay up to $5,000 for that
portion of the premium that would have been paid by you through the end of the Severance Period or,
in each case, if earlier, until you become eligible for comparable coverage.

     (c) Each of you and the members of your immediate family will receive, for their respective
lifetimes, a Premium Passport Membership (or its equivalent) at no cost, and be entitled to receive
Personal Training sessions at employee rates (provided that such memberships and such treatment
shall cease in the event you (or such immediate family member) commence employment or a consulting
role with a competitor or in the event of your breach of this Agreement). The aforementioned
memberships are subject to all of the Company’s membership rules, regulations and policies
currently in effect and as may be amended from time to time.

     (d) The Company will pay up to $5,000 for your legal fees incurred in connection with the
negotiation of this Agreement upon presentment of an invoice.

     (e) Thirty days following the effective date of this Agreement (without revocation), the
Company will pay you $30,000, to be used by you to assist you in your job search, including
outplacement service, office supplies and travel expenses.

     (f) All payments described herein will be subject to deduction for all required income and
payroll taxes.

3. Release.

     (a) In consideration of the obligations contained in Section 2 of this Agreement, you
(for yourself, your heirs, legal representatives, executors or administrators (collectively, your
“Representatives”)) hereby release and forever discharge the Company, TSI Holdings, their
respective subsidiaries and affiliates and each of their respective officers, employees, directors
and agents (collectively, the “Released Parties”) from any and all claims and rights which you may
have against them, and you hereby specifically release, waive and forever hold them harmless from
and against any and all such claims, liability, causes of action, compensation, benefits, damages,
attorney fees, costs or expenses, of whatever nature or kind and whether known or unknown, fixed or
contingent, and by reason of any matter, cause, charge, claim, right or action whatsoever, which
have arisen at any time up to and including the date of execution of this Agreement, including, but
not limited to, those arising during or in any manner out of your employment with the Company or
the termination of such employment or anything else that may have happened up to and including the
day you sign this Agreement. The rights, claims, causes of action, and liabilities that you are
releasing and waiving include, but are not limited to, those that concern, relate to, or might
arise out of the following: salary, overtime, bonuses, equity and severance arrangements, benefit
plans; commissions; breach of express or implied contract or promise; harassment, intentional
injury or intentional tort, fraud, misrepresentation, battery, assault, defamation, breach of
fiduciary duty, tort or public policy claims, whistleblower claims, negligence (including negligent
hiring, retention and/or supervision), wrongful or retaliatory discharge, infliction of emotional
injury, or any other facts or claims; retirement or any other benefits; the Equal Pay Act (29
U.S.C. §206(d), et seq.); the Age Discrimination in Employment Act (ADEA) (29 U.S.C. §621, et
seq.); Title VII of the Civil Rights Act of 1964 (42 U.S.C. §2000e, et seq.); ERISA (the Employee
Retirement Income Security Act of 1974 (29 U.S.C.

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§1001, et seq.) other than any vested ERISA benefit; COBRA (the Consolidated Omnibus Budget
Reconciliation Act of 1986, 29 U.S.C. §21161, et seq.); the federal and NY WARN Act; the American
with Disabilities Act (42 U.S.C. §12101, et seq.); the National Labor Relations Act and the Labor
Management Relations Act, 29 U.S.C. §141 et seq.; the Family and Medical Leave Act (29 U.S.C.
§2601, et seq.); the United States Constitution; the Civil Rights Act of 1991; the Civil Rights
Acts of 1866 or 1871 (42 U.S.C. §§1981,1983,1985, et seq.); retaliation under any federal, state,
or local law; any claims for costs or attorney fees; the fair employment practices (FEP) laws and
employment-related laws of any federal, state, or local jurisdiction (including the New York State
Human Rights Law, New York Administrative Code), and any other federal, state, city, county or
other common law, law, or ordinance, including but not limited to those where you work and/or
reside. You are not releasing any rights or claims that arise following the effective date of this
Agreement.

     (b) Notwithstanding the foregoing, the release set forth in Section 3 (a), will not apply to
(i) the obligations of the Company under this Agreement, (ii) your vested benefits under the
Company’s 401(k) plan, (iii) the Company’s obligations under the Option Plans (as defined and set
forth below in Section 4), and any related option agreement or vested benefit(s) to which you are
legally entitled, (iv) your rights as a stockholder of TSI Holdings, or (v) your rights as a holder
of TSI Holdings’ 11% senior discount notes. You further agree that the payments and benefits
described in this Agreement will be in full satisfaction of any and all claims for payments or
benefits, whether express or implied, that you may have against the Company, TSI Holdings or any of
their respective subsidiaries or affiliates arising out of your employment relationship, your
service as an employee, officer or director of the Company, TSI Holdings or any of their respective
subsidiaries or affiliates and your resignation therefrom. You hereby acknowledge and confirm that
you are providing the release and discharge set forth in this Section 3 only in exchange for
consideration in addition to anything of value to which you are already entitled.

     (c) You represent and agree that you have not filed any lawsuits against any Released Party,
or filed or caused to be filed any charges or complaints against any Released Party with any
municipal, state or federal agency charged with the enforcement of any law. Pursuant to and as a
part of your release and discharge of the Released Parties, you agree, except for your right, if
any, to bring a proceeding pursuant to the Older Workers Benefit Protection Act to challenge the
validity of the release of claims pursuant to the Age Discrimination in Employment Act contained in
Section 3 of this Release, and consistent with the EEOC Enforcement Guidance On Non-Waivable
Employee Rights Under EEOC-Enforced Statutes dated April 11,1997, and otherwise to the maximum
extent permitted by applicable law, not to sue or file a charge or complaint against any Released
Party in any forum or assist or otherwise participate willingly or voluntarily in any claim, suit,
action, investigation or other proceeding of any kind which relates to any matter that involves any
Released Party, and that occurred up to and including the date of your execution of this Agreement,
unless as required to do so by court order, subpoena or other directive by a court, administrative
agency or legislative body, other than to enforce this Agreement. With respect to the claims you
are waiving herein, you are waiving any right to receive money or any other relief in any action
instituted on your behalf by any other person, entity or government agency.

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     (d) You expressly understand and acknowledge that it is possible that unknown losses or claims
exist or that present losses may have been underestimated in amount or severity, and that you
explicitly took that into account in determining the amount of consideration to be paid for the
giving of this Release, and a portion of said consideration and the mutual covenants contained
herein, having been agreed between the parties with the knowledge of the possibility of such
unknown claims, were given in exchange for a full satisfaction and discharge of all such claims.

     (e) Nothing in this release will affect the Company and TSI Holdings’ obligation to indemnify,
defend and hold you harmless to the fullest extent allowable by applicable law and their respective
charter and by-laws with respect to your acts or omissions in your capacity as an officer or
director of the Company, TSI Holdings and their respective subsidiaries and affiliates. The Company
will continue to maintain directors’ and officers’ liability insurance with respect to actions or
omissions by you as an officer of TSI Holdings, the Company (or any of its subsidiaries) in the
same manner that it maintains such insurance for other officers and directors.

4. Equity. Your options to purchase TSI Holdings common stock granted pursuant to TSI
Holdings’ stock option incentive plans (the “Option Plans”), to the extent vested as of the
Departure Date, will remain outstanding for the post-termination exercise period specified in the
applicable Option Plan and any applicable agreement (which is 90 days from the Departure Date).
Such vested options will expire at the conclusion of such post-termination exercise period to the
extent not previously exercised. That portion of the stock options that remain unvested as of the
Departure Date as well as any unvested shares of TSI Holdings restricted common stock will be
forfeited on the Departure Date without any payment.

5. No Other Compensation or Benefits. Except as otherwise specifically provided herein, you
will not be entitled to any compensation or benefits or to participate in any past, present or
future employee benefit programs or arrangements of the Company, TSI Holdings or any of their
respective subsidiaries or affiliates on or after the Departure Date.

6. Return of Company Property. No later than five (5) days after the date of this
Agreement, you hereby covenant and agree that you will deliver to the Company all Company property
and equipment in your possession or control, including, but not limited to, any and all records,
manuals, customer lists, notebooks, computers, computer programs and files, Company credit cards,
papers, electronically stored information and documents kept or made by you in connection with your
employment and you will not retain any copies thereof, except that you may retain the Company’s
laptop (after the Company’s IT department has deleted all Company information) and blackberry, and
the Company will assist in transferring your mobile telephone number to your personal telephone.
You also represent that you have left intact all electronic Company documents or files, including
those that you developed or helped develop. You are required to return all such property whether or
not you sign this Agreement.

7. Nondisclosure of Confidential Information.

     (a) You acknowledge and agree that in the course of your employment with the Company, you
have acquired certain confidential company information which you knew or understood was
confidential or proprietary to the Company and which, as used in this

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Agreement, means: information belonging to or possessed by the Company which is not available in
the public domain or not released by some third-party through no fault of yours, including, without
limitation (i) information received from the customers, suppliers, vendors, employees or agents of
the Company under confidential conditions; (ii) customer and prospect lists, and details of
agreements and communications with customers and prospects; (iii) sales plans and projections,
product pricing information, acquisition, expansion, marketing, financial and other business
information and existing and future products and business plans of the Company; (iv) the Company’s
confidential accounting, tax, or financial information, results, procedures and methods; (v)
information relating to existing claims, charges and litigations; (vi) sales proposals,
demonstrations systems, sales material; and (vii) employee information (including, but not limited
to, personnel, payroll, compensation and benefit data and plans), including all such information
recorded in manuals, memoranda, projections, reports, minutes, plans, drawings, sketches, designs,
formula books, data, specifications, software programs and records, whether or not legended or
otherwise identified by the Company as confidential information, as well as such information that
is the subject of meetings and discussions and not recorded. You understand that such confidential
company information has been disclosed to you for the Company’s use only. You understand and agree
that you (i) will not disclose or communicate confidential information to any person or persons;
and (ii) will not make use of confidential information on your own behalf, or on behalf of any
other person or persons. You will give immediate notice to the Company if you are ordered by a
court or otherwise compelled by law to reveal any confidential information to any third party.

     (b) In view of the nature of your employment and the nature of the confidential information to
which you have had access to, you acknowledge and agree that any unauthorized disclosure to any
person or persons of confidential information, or other violation or threatened violation of this
Agreement (including, without limitation, Sections 8(a) or 8(b)) will cause irreparable damage to
the Company and that, therefore, the Company will, in addition to any other available remedy, be
entitled to an injunction prohibiting you from any further disclosure, attempted disclosure,
violation or threatened violation of this Agreement and the Company will be entitled to recover the
reasonable attorneys fees and costs incurred in enforcing its rights.

     (c) The obligations described in this Section 7 are in addition to, and in no way limit, your
obligations regarding the protection of confidential information as described in Executive
Severance Agreement between you and the Company (the “Executive Severance Agreement”) or in any
option or other equity award agreement between you and the Company, which provisions are
incorporated by reference herein. In the event of a conflict between the provisions of this Section
7 and the obligations described in the Executive Severance Agreement or such award agreement, the
provisions that are more restrictive upon you will govern.

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8. Non-Solicitation and Non-Competition Obligations.

     (a) Non-Solicitation. You agree that from the date hereof through the one year
anniversary of the Departure Date (the “Restricted Period”), you will not, directly or indirectly:
(i) solicit or recruit for employment, offer employment to, or hire, on a temporary, permanent or
contract basis, anyone who was employed by the Company during the last six months of your
employment (a “Covered Employee”); or (ii) encourage or persuade any Covered Employee to leave the
Company.

     (b) Non-Competition. During the Restricted Period, you will not, directly or
indirectly, own, manage, control, participate in, consult with, render services for, or in any
manner engage in, any business competing directly or indirectly with the business as conducted by
the Company or any of its Affiliates at the Departure Date or with any other business that is the
logical extension of the Company’s and its Affiliates’ business at the Departure Date (including,
without limitation, personal training and massage services) within any metropolitan area in which
the Company or any of its Affiliates engages or has definitive plans to engage in such business;
provided, however, that you will not be precluded from purchasing or holding publicly traded
securities of any entity so long as you hold less than 2% of the outstanding units of any such
class of securities and have no active participation in the business of such entity. For purposes
of this Section 8(b), the term “Affiliate” will have the meaning ascribed to such term in the 2006
Stock Incentive Plan.

     (c) The obligations described in this Section 8 are in addition to, and in no way limit, your
obligations regarding noncompetition and non-solicitation as described in the Executive Severance
Agreement or in any option or other equity award agreement with the Company, which provisions are
incorporated by reference herein. In the event of a conflict between the provisions of this Section
8 and the obligations described in the Executive Severance Agreement or such award agreement, the
provisions that are more restrictive upon you will govern.

9. Non-Disparagement; Cooperation.

     (a) You understand and agree that as a condition for payment to you of the consideration
herein described, you, on your behalf and on behalf of your Representatives, will not (and your
Representatives will not) at any time engage in any form of conduct, or make any statements or
representations that disparage or otherwise impair the reputation, goodwill, or commercial
interests of the Company, its management, stockholders, subsidiaries, parent, and/or other
affiliates. The Company agrees that its Senior Officers (as hereinafter defined) shall not, except
as may be required by law, make any oral or written negative, disparaging or adverse statements,
suggestions or representations of or concerning you. As used in this Section 9(a), the term “Senior
Officer” means the President and Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer, Senior Vice President — Human Resources and Senior Vice President — General Counsel.

     (b) From and after the Departure Date, you will (i) cooperate in all reasonable respects with
the Company and its affiliates and their respective directors, officers, attorneys and experts in
connection with the conduct of any dispute, action, proceeding, investigation or litigation
involving the Company or any of its affiliates, including, without limitation, any such

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dispute, action, proceeding, investigation or litigation in which you are called to testify and
(ii) promptly respond to all requests by the Company and its affiliates relating to information
concerning the Company which may be in your possession. The Company will, as a condition to your
obligations under this Section 9(b), reimburse you for any reasonable out of pocket expenses and
costs incurred as a result of such cooperation (including all reasonable, out-of-pocket attorney
fees), provided that such expenses have been approved in writing in advance by an executive officer
of the Company.

     (c) You hereby consent to the disclosure of information about you that TSI Holdings is
required to disclose in its Annual Report on Form 10-K, its Proxy Statement and in any other
report(s) required to be filed with the Securities and Exchange Commission under the Securities Act
of 1933, the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder.

10. Waiver of Rights. No delay or omission by the Company in exercising any right under
this Agreement will operate as a waiver of that or any other right. A waiver or consent given by
the Company on any one occasion will be effective only in that instance and will not be construed
as a bar or waiver of any right on any other occasion.

11. Applicable Law. This Agreement will be interpreted and construed by the laws of the
State of New York, without regard to conflict of laws provisions. You hereby irrevocably submit to
and acknowledge and recognize the jurisdiction of the courts of the State of New York, or, if
appropriate, a federal court within New York (which courts, together with all applicable appellate
courts, for purposes of this agreement, are the only courts of competent jurisdiction), over any
suit, action or other proceeding arising out of, under or in connection with this Agreement or the
subject matter hereof.

12. Entire Agreement/Severability. This Agreement constitutes the sole and complete
understanding and agreement between the parties with respect to the matters set forth herein, and
there are no other agreements or understandings, whether written or oral and whether made
contemporaneously or otherwise (other than any confidentiality and/or non-competition provisions
and related covenants set forth in the Executive Severance Agreement and any agreement granting you
options under the Company’s Options Plans that you executed during your employment with the Company
the terms of which will survive execution of this Agreement). For the avoidance of doubt, nothing
contained herein shall have any effect on your rights and obligations under the Registration Rights
Agreement dated February 4, 2004, as amended. No term, condition, covenant, representation or
acknowledgment contained in this Agreement may be amended unless in writing signed by both parties.
If any section of this Agreement is determined to be void, voidable or unenforceable, it will have
no effect on the remainder of the Agreement which will remain in full force and effect.

13. Acceptance. You will have twenty-one (21) days from the date set forth above to
consider the terms of this Agreement. In order to receive the benefits and payments provided for by
Section 2 of this Agreement, you must execute this Agreement, have your signature notarized and
return the executed Agreement to the Company, addressed to the Company, Attention: General Counsel,
at the address specified in Section 20 so that it is received any time on or

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before the expiration of the twenty-one (21) day period. After executing the Agreement, you will
have seven (7) days (the “Revocation Period”) to revoke it by indicating your desire to do so in
writing addressed to and received by the General Counsel at the address set forth in Section 20 no
later than the seventh (7th) day following the date you executed the Agreement. In the
event you do not accept this Agreement or in the event you revoke this Agreement during the
Revocation Period, the obligations of the Company to make the payments and provide the benefits set
forth herein will automatically be deemed null and void. No payments or benefits will be paid or
provided under Section 2 of this Agreement, until you have signed this Agreement, had your
signature notarized and the Revocation Period has expired without a revocation by you.

14. Voluntary Assent. By your signature on this Agreement, you affirm and acknowledge that:

     (a) you have read this Agreement, and understand all of its terms, including the full and
final release of claims set forth in Section 3;

     (b) you have voluntarily entered into this Agreement and that you have not relied upon any
representation or statement, written or oral, not set forth in this Agreement;

     (c) the only consideration for signing this Agreement is as set forth herein and that the
consideration received for executing this Agreement is greater than that to which you may otherwise
be entitled;

     (d) you have been given the opportunity and you have been advised by the Company to have this
Agreement reviewed by your attorney and/or tax advisor; and

     (e) you have been given up to twenty-one (21) days to consider this Agreement and that you
understand that you have seven (7) days after executing it to revoke it in writing, and that, to be
effective, such written revocation must be received by the Company within the seven (7) day
Revocation Period.

15. No Admission. Nothing contained in this Agreement, or the fact of its submission to
you, will constitute or be construed as an admission of liability or wrongdoing by either party.

16. Counterparts. The Agreement may be executed in two (2) signature counterparts, each of
which will constitute an original, but all of which taken together will constitute but one and the
same instrument.

17. Section 409A. It is intended that the payments provided for herein are intended to
comply with, or be exempt from, the terms of Section 409A (“Section 409 A”) of the Internal Revenue
Code of 1986, as amended, and the regulations promulgated thereunder. In the event, however, that
any such payments are determined to be subject to Section 409A, then the Company may make such
adjustments as are reasonably required to comply with such section, including delaying any such
payments that would have been required to be paid to you pursuant to this Agreement during the
first six months following the Departure Date until the end of such

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six-month period in accordance with the requirements of Section 409A. Each installment payment
under this Agreement shall be considered as a separate payment for purposes of Section 409A. The
termination of your employment on March 16, 2010 is intended to be a “separation of service” for
purposes of Section 409A. In addition, any expense reimbursement under this Agreement will be made
on or before the last day of the taxable year following the taxable year in which such expense was
incurred by you, and no such reimbursement or the amount of expenses eligible for reimbursement in
any taxable year will in any way affect the expenses eligible for reimbursement in any other
taxable year. Notwithstanding any of the preceding, the Company makes no representations regarding
the tax treatment of any payments hereunder, and you will be responsible for any and all applicable
taxes.

18. Breach of Agreement. In the event of any breach by you of any provision of this
Agreement (including, without limitation, Section 7, 8 or 9 (and including the agreements
referenced and incorporated therein), which breach, if susceptible to cure, is not so cured within
10 business days of the Company providing notice to you, in addition to any other remedy available
to it, the Company will cease to have any obligation to make payments or provide benefits to you
under this Agreement, and any continued exercisability of your options will cease. You agree that
in the event you bring a claim covered by this release in which you seek damages against the
Company or in the event you seek to recover against any of such entities in any claim brought by a
governmental agency on your behalf, this Agreement shall serve as a complete defense to such
claims. In the event of any breach by the Company, you will provide the Company with notice of such
breach, and, if such breach is susceptible to cure, the Company will have 10 business days to cure
such breach. Each party will be entitled to recover the reasonable attorneys’ fees and costs
incurred in enforcing its rights in enforcing this Agreement or other obligations set forth herein,
to the extent permitted by law.

19. Third Party Beneficiaries. You acknowledge and agree that TSI Holdings and all its
direct and indirect subsidiaries (other than the Company) are third party beneficiaries of this
letter agreement. Without limiting the foregoing sentence, TSI Holdings and such subsidiaries may
enforce this letter agreement against you. This Agreement may be assigned by the Company to a
person or entity which is an affiliate, and will be assigned to any successor in interest to
substantially all of the business operations of the Company. Upon such assignment, the rights and
obligations of the Company hereunder will become the rights and obligations of such affiliate or
successor person or entity. This Agreement will be binding upon the successors, and assigns of the
Company. If you shall die, all amounts then payable to you hereunder shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or, if there be no such
devisee, legatee or designee, to Executive’s estate.

20. Notices. Any notices required or made pursuant to this Agreement will be in writing and
will be deemed to have been given when delivered or mailed by United States certified mail, return
receipt requested, postage prepaid, as follows: if to you, to the address in the Company’s payroll
records; if to the Company, at 5 Penn Plaza, 4th Floor, New York, NY 10001, Attn:
General Counsel, or to such other address as either party may furnish to the other in writing in

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accordance with this Section 20. Notices of change of address will be effective only upon receipt.

[Signatures continue on following page]

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	 	Acknowledged and accepted by:

TOWN SPORTS INTERNATIONAL, LLC

 	 
	 	By:  	/s/ Scott
Milford
 	 
	 	 	Name: 	Scott Milford	 
	 	 	Title:  	Senior Vice President-Human Resources	 
	 
	 	/s/ Alexander A. Alimanestianu 	 
	 	Alexander A. Alimanestianu 	 
	 	 	 
	 	 	 
	 

	 	 	 	 	 	 	 

	STATE OF NEW YORK

	 	 	)	 	 	 
	 

	 	 	)	 	 	SS.:
	COUNTY OF NEW YORK

	 	 	)	 	 	 

     On the 19th day of March in the year 2010, before me, the undersigned,
personally appeared ALEXANDER A. ALIMANESTIANU, personally known to me or proved to me on the basis
of satisfactory evidence to be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacity, and that by his signature on the
instrument, the individual, or the person upon behalf of which the individual acted, executed the
instrument.

	 	 	 	 	 
	 	 	 
	 	/s/ JOSHUA S HACKMAN
 	 
	 	Notary Public
 	 
	 	JOSHUA S HACKMAN

NOTARY PUBLIC STATE OF NEW YORK
NEW YORK COUNTY 

LIC. #021-440807545

COMM. EXP. 6/15/13 	 
	 

11ex10.htm

Exhibit 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“AGREEMENT”) is made as of April 28, 2010, by and between Middleburg Financial Corporation (“Corporation”) and Gary R. Shook (“Executive”).

WHEREAS, it is the desire of the Corporation to have the benefit of Executive's continued loyalty, service and counsel; and

WHEREAS, the Executive wishes to remain an employee of the Corporation; and

WHEREAS, the Corporation desires to protect its confidential information and guard against unfair competition; and

WHEREAS, Executive possesses certain valuable knowledge, professional skills and expertise which will contribute to the continued success of the business of the Corporation and its affiliates; and

WHEREAS, the Corporation and Executive desire to set forth, in writing, the current terms and conditions of their agreements and understandings, and intend that this Agreement shall supersede and replace the Employment Agreement between the Corporation and Executive dated September 1, 2007;

NOW, THEREFORE, in consideration of the mutual promises herein contained, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending legally to be bound, agree as follows:

Section 1.                      Employment.

(a)           The Corporation agrees to continue to employ Executive as President of the Corporation and, effective May 1, 2010, to employ Executive as President and Chief Executive Officer of the Corporation, and Executive agrees to serve the Corporation upon the terms and conditions herein provided.

(b)           References in this Agreement to services rendered for the Corporation and compensation and benefits payable or provided by the Corporation shall include services rendered for, and compensation and benefits payable or provided by, any Affiliate.  References in this Agreement to the “Corporation” also shall mean and refer to each Affiliate for which Executive performs services.  References in this Agreement to “Affiliate” shall mean any business entity that, directly or indirectly, through one or more intermediaries, is controlled by the Corporation.

(c)           The Executive shall devote his full time and attention to the discharge of the duties undertaken by him hereunder.  Executive shall comply with all policies, standards and regulations of the Corporation now or hereafter promulgated, and shall perform his duties under this Agreement to the best of his abilities and in accordance with general business standards of conduct.

  

  

  

      (d)           Executive acknowledges that he is entering into this Agreement of his own free will and that he has had the benefit of the advice of, and is relying solely upon the advice of, independent counsel of his own choice.

Section 2.                      Term.

The term of this Agreement shall be deemed to have commenced on the date first above written, and shall continue until April 30, 2012, unless sooner terminated in accordance with the provisions of Section 7.  Beginning on April 30, 2012, and each April 30th thereafter, the term of this Agreement and all its terms and provisions shall be automatically extended for one additional year, unless 30 days prior written notice of non-renewal is provided by the Corporation or Executive or unless employment under this Agreement is otherwise terminated in accordance with the provisions of Section 7.

Section 3.                      Compensation.

(a)           As compensation for the services to be rendered by the Executive under this Agreement, the Executive shall receive a base annual salary at the rate of Three Hundred Eleven Thousand Four Hundred Dollars ($311,400.00) per year.  The Executive may receive base salary increases and incentive, bonus compensation or other compensation in the amounts determined by the Board of Directors of the Corporation.

(b)           The Corporation shall withhold state and federal income taxes, social security taxes and such other payroll deductions as may from time to time be required by law.  The Corporation shall also withhold and remit to the proper party any amounts agreed to in writing by the Corporation and the Executive for participation in any corporate sponsored benefit plans for which a contribution is required.

(c)           Except as otherwise expressly set forth herein, no compensation shall be paid pursuant to this Agreement subsequent to any termination of Executive’s employment with the Corporation; provided, however, that Executive’s right to exercise stock options following a termination of employment shall be governed by the terms of the Corporation’s stock option plans and any stock option agreements between the Corporation and the Executive.  No stock options shall be granted to Executive after his employment terminates.

Section 4.                      Additional Benefits.

(a)           In addition to the usual and customary fringe benefits which are provided to the other executive officers of the Corporation, Executive shall be entitled to participate in the Corporation’s employee benefit plans and programs for which he is or will become eligible according to the terms of said plans or programs. It is understood that the Board of Directors may, in its sole discretion, establish, modify or terminate such plans or benefits. Fringe benefits available to Executive under this section include, but are not limited to, participation in the Corporation’s group health insurance, disability and life insurance plans, participation in its qualified and non-qualified retirement plans, and memberships currently held at tennis and golf clubs (the “Club Memberships”).  With respect to such Club Memberships, the Corporation shall pay actual membership dues incurred by Executive

  

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from May 1, 2010 through the end of the term of this Agreement (or such later date provided under Section 7(d), below).

(b)           The Corporation shall provide Executive an automobile during the term of this Agreement, and will pay or reimburse all related automobile expenses incurred during such term (or through such later date provided under Section 7(d), below).

Section 5.                      Expense Account.

The Corporation shall reimburse Executive for reasonable and customary business expenses incurred during the term of this Agreement in the conduct of the Corporation’s business.  Such expenses will include business meals, out-of-town lodging and travel expenses of Executive and, when she accompanies him on Company business, Executive’s spouse.  In no event will there be reimbursement for items which are not reimbursable under written Corporation policy.  Executive agrees to timely submit records and receipts of reimbursable items and agrees that the Corporation can adopt reasonable rules and policies regarding such reimbursement.  The Corporation agrees to make prompt payment to the Executive following receipt and verification of such reports.

Section 6.                      Paid Time Off.

Executive shall be entitled to six (6) weeks of paid time off ("PTO") leave each year, which shall be taken at such time or times as may be approved by the Corporation and during which Executive’s compensation hereunder shall continue to be paid.

Section 7.                      Termination and Survival of Obligations.

(a)           Notwithstanding the termination of this Agreement or the termination of Executive’s employment for any reason, the parties shall be required to carry out any provisions of this Agreement which contemplate performance by them subsequent to such termination.  In addition, no termination of this Agreement shall affect any liability or other obligation of either party which shall have accrued prior to such termination, including, but not limited to, any liability, loss or damage on account of breach.  No termination of employment shall terminate the obligation of the Corporation to make payments of any vested benefits provided hereunder or the obligations of Executive under Sections 8, 9 and 10 of this Agreement.  The existence of any claim or cause of action of the Executive against the Corporation, whether predicated on this Agreement or not, shall not constitute a defense to the enforcement by the Corporation of the restrictions, covenants and agreements contained in this Agreement.

(b)           Executive’s employment hereunder may be terminated by Executive upon ninety (90) days written notice to the Corporation or at any time by mutual agreement in writing.  It shall not constitute a breach of this Agreement for the Corporation to suspend Executive’s duties and to place Executive on a paid leave during the ninety (90) day notice period.

(c)           This Agreement shall terminate upon death of Executive; provided, however, that in such event the Corporation shall pay to the estate of Executive the compensation, including salary and accrued but unused PTO, which otherwise would be payable to Executive through the end of the

  

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month in which his death occurs.  Such amounts shall be paid at the end of the payroll period that follows the payroll period in which his employment terminates due to death.  Additionally, there shall be paid to the Executive’s estate (y) any bonus or other short term incentive compensation earned, but not yet paid, for any year prior to the year in which his death occurs and (z) any bonus or other short term incentive compensation for the year in which his death occurs that he would have received if he had lived, multiplied by a fraction, the numerator of which is the number of days in the year that precede the date on which his death occurs and the denominator of which is three hundred sixty-five.

Any bonus or other short term incentive compensation payable under this Section 7(c) shall be paid (i) on the date of payment to other employees eligible for bonuses or other short term incentive compensation under the same plan or plans, or, (ii) if no date or time frame for payment is specified in those plans, by March 15 of the calendar year following the calendar year in which the compensation is earned.

(d)(1)           The Corporation may terminate Executive’s employment other than for “Cause”, as defined in Section 7(e), at any time upon written notice to Executive, which termination shall be effective immediately.  Executive may resign thirty (30) days after notice to the Corporation for “Good Reason”, as hereafter defined.  In the event the Executive’s employment terminates pursuant to this Section 7(d)(1), Executive shall receive, at the end of the payroll period that follows the payroll period in which his employment terminates, his salary earned through the date of termination and accrued but unused PTO.  In the event the Executive’s employment terminates pursuant to this Section 7(d)(1), Executive shall also receive the following items on the later of the applicable date set forth below or the 60th day following his termination of employment, provided that Executive signs a release and waiver of claims reasonably satisfactory to the Corporation that becomes irrevocable within 60 days of his termination of employment, and provided further that any portion of the premium due to be paid by the Corporation during such 60-day period under item (iv) below shall be paid by the Corporation on the due date whether or not the release and waiver has been signed, and any automobile to be provided during such 60-day period under item (vi) below shall be provided by the Corporation whether or not the release and waiver has been signed:

	
  

	
(i)

	
An amount equal to 300% of his current rate of annual salary in effect immediately preceding such termination; and

	
  

	
(ii)

	
Any bonus or other short term incentive compensation earned, but not yet paid, for any year prior to the year in which his employment terminates; and

	
  

	
(iii)

	
Any bonus or other short term incentive compensation for the year in which his employment terminates that he would have received if his employment had not terminated, multiplied by a fraction, the numerator of which is the number of days in the year that precede the date on which he is notified of the termination of his employment and the denominator of which is three hundred sixty-five;

  

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(iv)  

	
If Executive timely elects COBRA coverage, his current benefits under group health and dental plans will continue.  In such case, for the period permitted by COBRA: (a) Executive will receive such benefits at the rates paid by active participants, and (b) the Corporation will continue to pay its portion of such health and dental premiums.  In no event shall such benefits continue beyond the period permitted by COBRA, and periods of coverage under this Agreement shall offset Executive’s period of coverage under COBRA: and

 

	
  

	
(v)

	
Continued payment by the Corporation of actual membership dues incurred by Executive for the Club Memberships through the end of the term of this Agreement, or, if later, the end of the thirty-six month period commencing with the date of Executive’s termination without Cause or for Good Reason under this Section 7(d)(1); and

	
  

	
(vi)

	
Continued provision to Executive by the Corporation of an automobile and payment or reimbursement of all related automobile expenses incurred through the end of the term of this Agreement or, if later, the end of the thirty-six month period commencing with the date of Executive’s termination without Cause or for Good Reason under this Section 7(d)(1).

Nineteen and four-tenths percent (19.4%) of any amount due under Section 7(d)(1)(i) shall be paid on the first day of the seventh month following the date his employment terminates and the balance shall be paid in equal monthly installments on the first day of the twenty-nine (29) succeeding months.

Any amount due under Section 7(d)(1)(ii) or (iii) shall be paid on (i) the date of payment to other employees eligible for bonuses or other short term incentive compensation under the same plan or plans or, (ii) if no date or time frame for payment is specified in those plans, by March 15 of the calendar year following the calendar year in which the compensation is earned.  Notwithstanding the foregoing, if Executive is a “specified employee” under Section 409A of the Internal Revenue Code and Treasury Regulations (“Section 409A”) on the date of his termination, payment will be deferred under the preceding sentence to the first day of the seventh month following the date Executive’s employment terminates, to the extent required by Section 409A.

(d)(2)           Notwithstanding anything in this Agreement to the contrary, if Executive breaches Section 8 or 9 of this Agreement, Executive will not thereafter be entitled to receive any further compensation or benefits pursuant to this Section 7(d)(1).

(d)(3)           The Corporation shall not be required to make payment of, or provide any benefit under, Section 7(d)(1) to the extent such payment is prohibited by the terms of the regulations presently found at 12 C.F.R. part 359 or to the extent that any other governmental approval of the payment required by law is not received.

  

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(d)(4)           For purposes of this Agreement, Good Reason shall mean:

	
  

	
(i)

	
The assignment of duties to the Executive by the Corporation which result in the Executive having significantly less authority or responsibility than he has on the date hereof without his express written consent;

	
  

	
(ii)

	
Requiring the Executive to maintain his principal office outside of Loudoun County, Virginia, unless the Corporation moves its principal executive offices to the place to which the Executive is required to move:

	
  

	
(iii)

	
A reduction by the Corporation of the Executive's base salary, as the same may have been increased from time to time:

	
  

	
(iv)

	
The failure of the Corporation to provide the Executive with substantially the same fringe benefits that are provided to other executive officers of the Corporation;

	
  

	
(v)

	
The Corporation’s failure to comply with any material term of this Agreement; or

	
  

	
(vi)

	
The failure of the Corporation to obtain the assumption of and agreement to perform this Agreement by any successor as contemplated in Section 11 hereof.

(e)           The Corporation shall have the right to terminate Executive’s employment under this Agreement at any time for Cause, which termination shall be effective immediately.  Termination for “Cause” shall mean material failure of the Executive to perform his duties under this Agreement, unlawful business conduct, theft, commission of a felony, a material violation of the Corporation’s work rules or policies; or a material breach of this Agreement.  The term “Cause” also shall include the failure of Executive for any reason within ten (10) days after receipt by Executive of written notice from the Board of Directors of the Corporation to correct, cease, or otherwise alter any action or omission that could materially or adversely affect the Corporation's profits or operations.  In the event Executive’s employment under this Agreement is terminated for Cause, Executive shall thereafter have no right to receive compensation or other benefits under this Agreement.

(f)           The Corporation may terminate Executive’s employment under this Agreement, after having established that the Executive is unable to perform his obligations under this Agreement because of the Executive's disability by giving to Executive written notice of its intention to terminate his employment due to inability to regularly perform his duties.  Executive's employment with the Corporation can be terminated effective on the 90th day after receipt of such notice if, within 90 days after such receipt, Executive shall fail to return to the full performance of the essential functions of his position on a regular basis with or without reasonable accommodations (and if Executive's disability has been established pursuant to the definition of “disability” set forth below).  For purposes of this Agreement, “disability” means either (i) disability which after the expiration of

  

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more than 13 consecutive weeks after its commencement is determined to be total and permanent by a physician selected and paid for by the Corporation or its insurers, and acceptable to Executive or his legal representative, which consent shall not be unreasonably withheld; or (ii) disability as defined in the policy of disability insurance maintained by the Corporation or its Affiliates for the benefit of Executive, whichever shall be more favorable to Executive.  Notwithstanding any other provision of this Agreement, the Corporation shall comply with all requirements of the Americans with Disabilities Act, 42 U.S.C. § 12101 et. seq.

(g)           If Executive is suspended and/or temporarily prohibited from participating in the conduct of the Corporation's affairs by a notice served pursuant to the Federal Deposit Insurance Act, the Corporation’s obligations under this Employment Agreement shall be suspended as of the date of service unless stayed by appropriate proceedings.  If the charges in the notice are dismissed, the Corporation may in its discretion (i) pay Executive 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.

(h)(1)           If Executive’s employment is terminated without Cause within one year after a Change of Control shall have occurred or if he resigns for Good Reason within one year after a Change of Control shall have occurred, then the Corporation shall pay to Executive as compensation for services rendered to the Corporation a cash amount (subject to any applicable payroll or other taxes required to be withheld) equal to 300% of his highest annual rate of cash compensation earned after 2009.  If Executive is a “specified employee” under Section 409A on the date of his termination of employment, payment shall be made six months and one day after the date his employment terminates to the extent required by Section 409A.  Otherwise, payment shall be made on or no more than thirty (30) days before the date his employment terminates.  Payment under this Section 7(h)(1)) shall be in lieu of any amount that it is or might be due under Section 7(d).

 

    (2)           For purposes of this Agreement, a Change of Control occurs if, after the date of this Agreement; (i) any person, including a “group” as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the owner or beneficial owner of Corporation securities having 50 percent or more of the combined voting power of the then outstanding Corporation securities that may be cast for the election of the Corporation’s directors other than a result of an issuance of securities initiated by the Corporation, or open market purchases approved by the Board of Directors, as long as the majority of the Board of Directors approving the purchases is a majority at the time the purchases are made; or (ii) as the direct or indirect result of, or in connection with, a tender or exchange offer, a merger or other business combination, a sale of assets, a contested election of directors, or any combination of these events, the persons who were directors of the Corporation before such events cease to constitute a majority of the Corporation’s Board, or any successor’s board, within two years of the last of such transactions.  For purposes of this Agreement, a Change of Control occurs on the date on which an event described in (i) or (ii) occurs.  If a Change of Control occurs on account of a series of transactions or events, the Change of Control occurs on the date of the last of such transactions or events.

(3)           It is the intention of the parties that no payment be made or benefit provided to Executive pursuant to this Agreement that would constitute an “excess parachute payment” within the meaning of Section 280G of the Code and any regulations thereunder, thereby resulting in a loss

  

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of an income tax deduction by the Corporation or the imposition of an excise tax on Executive under Section 4999 of the Code.  If the independent accountants serving as auditors for the Corporation on the date of a Change of  Control (or any other accounting firm designated by the Corporation) determine that some or all of  the payments or benefits scheduled under this Agreement, as well as any other payments or benefits on a Change of  Control, would be nondeductible by the Company under Section 280G of  the Code, then the payments scheduled under this Agreement will be reduced to one dollar less than the maximum amount which may be paid without causing any such payment or benefit to be nondeductible.  The determination made as to the reduction of benefits or payments required hereunder by the independent accountants shall be binding on the parties.  Executive shall have the right to designate within a reasonable period, which payments or benefits will be reduced provided, however, that if no direction is received from Executive, the Corporation shall implement the reductions in its discretion; provided, however, that no reduction shall be permitted that results in a deferral prohibited by Section 409A.

Section 8.                      Confidentiality/Nondisclosure.

Executive covenants and agrees that any and all information maintained as confidential by the Corporation and not generally known to the public concerning the customers, businesses and services of the Corporation of which he has knowledge or access as a result of his association with the Corporation in any capacity, shall be deemed confidential in nature and shall not, without the proper written consent of the Corporation, be directly or indirectly used, disseminated, disclosed or published by Executive to third parties other than in connection with the usual conduct of the business of the Corporation.  Such information shall expressly include, but shall not be limited to, information concerning the Corporation’s trade secrets, business operations, business records, customer lists or other customer information.  Upon termination of employment, the Executive shall deliver to the Corporation all property in his possession which belongs to the Corporation including all originals and copies of documents, forms, records or other information, in whatever form it may exist, concerning the Corporation or its business, customers, products or services.  This Section 8 shall not be applicable to any information which, through no misconduct or negligence of Executive, has been disclosed to the public by anyone other than Executive.

Section 9.                      Covenant Not to Compete and Related Covenants.

(a)           During the term of this Agreement and throughout any further period that he is an employee of the Corporation, and for the longer of:

 (x) twelve (12) months from and after the date that Executive is (for any reason) no longer employed by the Corporation; or

 (y) for a period of  twelve (12) months from the date of entry by a court of  competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Executive.

Executive covenants and agrees that he will not serve as the President, Chief Executive Officer or other executive officer of any bank or bank holding company within twenty-five (25) miles of

  

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headquarters of the Corporation or within five (5) miles of any bank branch operated by the Corporation.

(b)           During the term of this Agreement and throughout any further period that he is an employee of the Corporation, and for the longer of:

   (x) twenty-four (24) months from and after the date that Executive is (for any reason) no longer employed by the Corporation; or

  (y) for a period of twenty-four (24) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Executive.

the Executive will not, directly or indirectly, on behalf of the Executive or any other person or entity, solicit or induce, or attempt to solicit or induce, any person currently employed by the Corporation to terminate his or her relationship with the Corporation.

(c)           During the term of this Agreement and throughout any further period that he is an employee of the Corporation, and for the longer of:

  (x) twenty-four (24) months from and after the date that Executive is (for any reason) no longer employed by the Corporation; or

  (y) for a period of twenty-four (24) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of  a breach by Executive.

the Executive will not, except to the extent necessary to carry out his duties as an employee of the Corporation, directly or indirectly provide Competitive Services (as defined below) to any Customer (as defined below), and shall not, directly or indirectly, on behalf of the Executive or any other person or entity, solicit or divert away or attempt to solicit or divert away any Customer of the Corporation for the purpose of selling or providing Competitive Services, provided the Corporation is then still engaged in the sale or provision of  Competitive Services.

(d)           It is agreed that notwithstanding the above to the contrary, Executive may engage in business ventures as long as they are not competitive with the Corporation.  Anything to the contrary notwithstanding, Executive may own, as a passive investor, securities of any public competitor corporation, so long as his direct holdings in any one such corporation shall not in the aggregate constitute more than one percent (1%) of the voting stock of such corporation.  The parties intend that the covenants and restrictions in this Section 9 be enforceable against Executive regardless of the reason that his employment by the Corporation may terminate and that such covenants and restrictions shall be enforceable against Executive even if this Agreement expires after a notice of nonrenewal is given by Executive or the Corporation under Section 2.  The existence of any claim or cause of action by the Executive against the Corporation, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Corporation of the restrictive covenants set forth in Sections 8 and 9 of this Agreement.

  

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(e)           For purposes of this Agreement, the term “Customer” means any individual or entity to whom or to which the Corporation provided Competitive Services within two years of the date on which the Executive’s employment terminates.

(f)           For purposes of this Agreement, "Competitive Services" means providing financial products and services of the types that, as of the date of Executive’s termination of employment, are provided to Customers of the Corporation, whether such services are provided directly by the Corporation or by others under a contractual arrangement with the Corporation.

 

 

(g)           The Executive agrees that the covenants in this Section 9 are reasonably necessary to protect the legitimate interests of the Corporation, are reasonable with respect to the time and territory and do not interfere with the interests of the public.  The Executive further agrees that the descriptions of the covenants contained in this Section 9 are sufficiently accurate and definite to inform the Executive of the scope of the covenants.  Finally, the Executive agrees that the consideration set forth in this Agreement is full, fair and adequate to support the Executive’s obligations hereunder and the Corporation’s rights hereunder.  The Executive acknowledges that in the event the Executive’s employment with the Corporation is terminated for any reason, the Executive will be able to earn a livelihood without violating such covenants.

(h)           The parties have attempted to limit the Executive’s right to compete only to the extent necessary to protect the Corporation from unfair competition.  The parties recognize, however, that reasonable people may differ in making such a determination.  Accordingly, the parties intend that the covenants contained in this Section 9 to be completely severable and independent, and any invalidity or unenforceability of any one or more such covenants will not render invalid or unenforceable any one or more of the other covenants.  The parties further agree that, if the scope or enforceability of a covenant contained in this Section 9 is in any way disputed at any time, and if permitted by applicable law, a court or other trier of fact may modify and reform such provision to substitute such other terms as are reasonable to protect the Corporation’s legitimate business interests.

Section 10.                      Injunctive Relief, Damages, Etc.

The Executive agrees that, given the nature of the positions held by Executive with the Corporation, each and every one of the covenants and restrictions set forth in Sections 8 and 9 above are reasonable in scope, length of time and geographic area and are necessary for the protection of the significant investment of the Corporation in developing, maintaining and expanding its business.  Accordingly, the parties hereto agree that in the event of any breach by Executive of any of the provisions of Section 9 that monetary damages alone will not adequately compensate the Corporation for its losses and, therefore, that it shall be entitled to any and all legal or equitable relief available to it, specifically including, but not limited to, injunctive relief, and the Executive shall be liable for all damages, including actual and consequential damages, costs and expenses, and legal costs and actual attorneys fees incurred by the Corporation as a result of taking action to enforce, or recover for any breach of Section 9.  The covenants contained in Section 9 shall be construed and interpreted in any judicial proceeding to permit their enforcement to the maximum extent permitted by law.

  

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      Section 11.                      Successors.

The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business, stock or assets of the Corporation, by agreement in form and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform this Agreement in its entirety.  Failure of the Corporation to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to the compensation described in Section 7(d).  As used in this Agreement, "Corporation” shall mean Middleburg Financial Corporation, and any successor to its respective business, stock or assets as aforesaid, which executes and delivers the agreement provided for in this Section 11 or which otherwise becomes bound by all the terms and provisions of this Agreement by operation of law.

Section 12.                      Invalid Provisions.

The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.  Any provision in this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be valid and enforceable to the fullest extent permitted by law without invalidating or affecting the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 13.                      Notices.

Any and all notices, designations, consents, offers, acceptance or other communications provided for herein shall be given in writing and shall be deemed properly delivered if delivered in person or by registered or certified mail, return receipt requested, addressed in the case of the Corporation to its Board of Directors or in the case of Executive to his last known address.

Section 14.                      Arbitration.

With the exception of Sections 8 and 9 and the enforcement of said Sections (as set forth in Section 10), all other claims under this Agreement will be resolved by binding arbitration.

The parties agree that with the exception of controversies or claims arising out of Sections 8, 9 and 10, all controversies or claims arising out of or relating to this Agreement or Executive’s employment with the Corporation shall be submitted to final and binding arbitration.  The parties further agree that the arbitration will be conducted under the Federal Arbitration Act (“FAA”) and the procedural rules of the American Arbitration Association (“AAA”), specifically AAA’s National Rules for the Resolution of Employment Disputes.  Any arbitration proceeding and/or other procedural matter related to an arbitration proceeding, shall be conducted in Richmond, Virginia, at a location to be determined by the parties.  The parties agree that such arbitration will be conducted before an experienced arbitrator chosen by the Corporation and the Executive.  In the event that the parties are unable to choose an arbitrator, the parties agree that one will be designated by the AAA in

  

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accordance with their rules and procedures.  The parties further agree that the arbitrator shall apportion the fees and costs of the arbitration pursuant to the rules of the AAA and applicable law.

Section 15.                      Governing Law.

Except where preempted by federal law, the Employment Agreement shall be subject to and construed in accordance with the laws of the Commonwealth of Virginia.

Section 16.                      Captions.

The captions used in this Employment Agreement are intended for descriptive and reference purposes only and are not intended to affect the meaning of any Section hereunder.

Section 17.                      Section 409A.

This Agreement is intended to comply with Section 409A to the extent Section 409A is applicable.  This Agreement shall be interpreted and administered accordingly.

IN WITNESS WHEREOF, the parties have executed this Agreement on April 28, 2010.

MIDDLEBURG FINANCIAL CORPORATION

By:/s/ Joseph L. Boling

     Joseph L. Boling

     Chairman

By:/s/ Gary R. Shook

     Gary R. Shook

     Chief Executive Officer and President

  

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