Document:

Ex-10.1

 

Exhibit 10.1

CORRECTIONS CORPORATION OF AMERICA

2008 STOCK INCENTIVE PLAN

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Tab	 
	Section 1.
	 	Purpose
	 	 	1	 
	Section 2.
	 	Definitions
	 	 	1	 
	Section 3.
	 	Administration
	 	 	4	 
	Section 4.
	 	Shares Available For Awards
	 	 	5	 
	Section 5.
	 	Eligibility
	 	 	6	 
	Section 6.
	 	Stock Options And Stock Appreciation Rights
	 	 	6	 
	Section 7.
	 	Restricted Shares And Restricted Share Units
	 	 	8	 
	Section 8.
	 	Performance Awards
	 	 	10	 
	Section 9.
	 	Other Stock-Based Awards
	 	 	10	 
	Section 10.
	 	Non-Employee Director Awards
	 	 	11	 
	Section 11.
	 	Provisions Applicable To Covered Officers And Performance Awards
	 	 	11	 
	Section 12.
	 	Termination Of Employment
	 	 	13	 
	Section 13.
	 	Change In Control
	 	 	13	 
	Section 14.
	 	Amendment And Termination
	 	 	13	 
	Section 15.
	 	General Provisions
	 	 	14	 
	Section 16.
	 	Term Of The Plan
	 	 	16	 

 

 

CORRECTIONS CORPORATION OF AMERICA

2008 STOCK INCENTIVE PLAN

Section 1. Purpose.

     This plan shall be known as the “Corrections Corporation of America 2008 Stock Incentive Plan”
(the “Plan”). The purpose of the Plan is to promote the interests of Corrections Corporation of
America, a Maryland corporation (the “Company”), its Subsidiaries and its stockholders by (i)
attracting and retaining key officers, employees, and directors of, and consultants to, the Company
and its Subsidiaries and Affiliates; (ii) motivating such individuals by means of
performance-related incentives to achieve long-range performance goals; (iii) enabling such
individuals to participate in the long-term growth and financial success of the Company; (iv)
encouraging ownership of stock in the Company by such individuals; and (v) linking their
compensation to the long-term interests of the Company and its stockholders. With respect to any
awards granted under the Plan that are intended to comply with the requirements of
“performance-based compensation” under Section 162(m) of the Code, the Plan shall be interpreted in
a manner consistent with such requirements.

Section 2. Definitions.

     As used in the Plan, the following terms shall have the meanings set forth below:

     (a) “Affiliate” shall mean (i) any entity that, directly or indirectly, is
controlled by the Company, (ii) any entity in which the Company has a significant equity interest,
(iii) an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the
Exchange Act, and (iv) any entity in which the Company has at least twenty percent (20%) of the
combined voting power of the entity’s outstanding voting securities, in each case as designated by
the Board as being a participating employer in the Plan.

     (b) “Award” shall mean any Option, Stock Appreciation Right, Restricted Share
Award, Restricted Share Unit, Performance Award, Other Stock-Based Award or other award granted
under the Plan, whether singly, in combination or in tandem, to a Participant by the Committee (or
the Board) pursuant to such terms, conditions, restrictions and/or limitations, if any, as the
Committee (or the Board) may establish or which are required by applicable legal requirements.

     (c) “Award Agreement” shall mean any written agreement, contract or other instrument
or document evidencing any Award, which may, but need not, be executed or acknowledged by a
Participant.

     (d) “Board” shall mean the Board of Directors of the Company.

     (e) “Change in Control” shall mean, unless otherwise defined in the applicable Award
Agreement, any of the following events:

     (i) any person or entity, including a “group” as defined in Section 13(d)(3)
of the Exchange Act, other than the Company or a wholly-owned subsidiary thereof or any
employee benefit plan of the Company or any of its Subsidiaries, becomes the beneficial
owner of the Company’s securities having 35% or more of the combined voting power of the
then outstanding securities of the Company that may be cast for the election of directors of
the Company (other than as a result of an issuance of securities initiated by the Company in
the ordinary course of business);

 

 

     (ii) as the result of, or in connection with, any cash tender or exchange
offer, merger or other business combination or contested election, or any combination of the
foregoing transactions, less than a majority of the combined voting power of the then
outstanding securities of the Company or any successor company or entity entitled to vote
generally in the election of the directors of the Company or such other corporation or
entity after such transaction are held in the aggregate by the holders of the Company’s
securities entitled to vote generally in the election of directors of the Company
immediately prior to such transaction;

     (iii) during any period of two (2) consecutive years, individuals who at the
beginning of any such period constitute the Board cease for any reason to constitute at
least a majority thereof, unless the election, or the nomination for election by the
Company’s shareholders, of each Director of the Company first elected during such period was
approved by a vote of at least two-thirds (2/3rds) of the Directors of the Company then
still in office who were (i) Directors of the Company at the beginning of any such period,
and (ii) not initially (a) appointed or elected to office as result of either an actual or
threatened election and/or proxy contest by or on behalf of a Person other than the Board,
or (b) designated by a Person who has entered into an agreement with the Company to effect a
transaction described in (i) or (ii) above or (iv) or (v) below;

     (iv) a complete liquidation or dissolution of the Company; or

     (v) the sale or other disposition of all or substantially all of the assets
of the Company to any Person (other than a transfer to a Subsidiary).

     (f) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to
time.

     (g) “Committee” shall mean a committee of the Board composed of not less than two
Non-Employee Directors, at least two of whom shall be (i) a “non-employee director” for purposes of
Exchange Act Section 16 and Rule 16b-3 thereunder, (ii) an “outside director” for purposes of
Section 162(m) and the regulations promulgated under the Code, and each of whom shall be
“independent” within the meaning of the listing standards of the New York Stock Exchange. To the
extent that compensation realized in respect of Awards is intended to be “performance based” under
Section 162(m) of the Code and the Committee is not comprised solely of individuals who are
“outside directors” within the meaning of Section 162(m) of the Code, the Committee may from time
to time delegate some or all of its functions under the Plan to a committee or subcommittee
composed of members that meet the relevant requirements.

     (h) “Consultant” shall mean any consultant to the Company or its Subsidiaries or
Affiliates.

     (i) “Covered Officer” shall mean at any date (i) any individual who, with respect to
the previous taxable year of the Company, was a “covered employee” of the Company within the
meaning of Section 162(m); provided, however, that the term “Covered Officer” shall not include any
such individual who is designated by the Committee, in its discretion, at the time of any Award or
at any subsequent time, as reasonably expected not to be such a “covered employee” with respect to
the current taxable year of the Company and (ii) any individual who is designated by the Committee,
in its discretion, at the time of any Award or at any subsequent time, as reasonably expected to be
such a “covered employee” with respect to the current taxable year of the Company or with respect
to the taxable year of the Company in which any applicable Award will be paid or vested.

     (j) “Director” shall mean a member of the Board.

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     (k) “Disability” shall mean, unless otherwise defined in the applicable Award
Agreement, a disability that would qualify as a total and permanent disability under the Company’s
then current long-term disability plan.

     (l) “Employee” shall mean a current or prospective officer or employee of the
Company or of any Subsidiary or Affiliate.

     (m) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from
time to time.

     (n) “Fair Market Value” with respect to the Shares, shall mean, for purposes of a
grant of an Award as of any date, (i) the closing sales price of the Shares on the New York Stock
Exchange, or any other such exchange on which the Shares are traded, on such date, or in the
absence of reported sales on such date, the closing sales price on the immediately preceding date
on which sales were reported or (ii) in the event there is no public market for the Shares on such
date, the fair market value as determined, in good faith, by the Board or Committee in its sole
discretion, and for purposes of a sale of a Share as of any date, the actual sales price on that
date.

     (o) “Incentive Stock Option” shall mean an option to purchase Shares from the
Company that is granted under Section 6 of the Plan and that is intended to meet the
requirements of Section 422 of the Code or any successor provision thereto.

     (p) “Non-Qualified Stock Option” shall mean an option to purchase Shares from the
Company that is granted under Sections 6 or 10 of the Plan and is not intended to
be an Incentive Stock Option.

     (q) “Non-Employee Director” shall mean a member of the Board who is not an officer
or employee of the Company or any Subsidiary or Affiliate.

     (r) “Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

     (s) “Option Price” shall mean the purchase price payable to purchase one Share upon
the exercise of an Option.

     (t) “Other Stock-Based Award” shall mean any Award granted under Sections 9
or 10 of the Plan.

     (u) “Participant” shall mean any Employee, Director, Consultant or other person who
receives an Award under the Plan.

     (v) “Performance Award” shall mean any Award granted under Section 8 of the
Plan.

     (w) “Person” shall mean any individual, corporation, partnership, limited liability
company, association, joint-stock company, trust, unincorporated organization, government or
political subdivision thereof or other entity.

     (x) “Restricted Share” shall mean any Share granted under Sections 7 or
10 of the Plan.

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     (y) “Restricted Share Unit” shall mean any unit granted under Sections 7 or
10 of the Plan.

     (z) “Retirement” shall mean a Participant’s termination of employment in accordance
with the provisions of the Corrections Corporation of America 401(k) Savings and Retirement Plan on
or after such Participant’s Normal Retirement Date, as defined in such plan.

     (aa) “SEC” shall mean the Securities and Exchange Commission or any successor
thereto.

     (bb) “Section 16” shall mean Section 16 of the Exchange Act and the rules
promulgated thereunder and any successor provision thereto as in effect from time to time.

     (cc) “Section 162(m)” shall mean Section 162(m) of the Code and the regulations
promulgated thereunder and any successor provision thereto as in effect from time to time.

     (dd) “Shares” shall mean shares of common stock, $0.01 par value per share, of the
Company.

     (ee) “Stock Appreciation Right” or “SAR” shall mean a stock appreciation right
granted under Sections 6 or 10 of the Plan that entitles the holder to receive,
with respect to each Share encompassed by the exercise of such SAR, the amount determined by the
Committee and specified in an Award Agreement. In the absence of such a determination, the holder
shall be entitled to receive, with respect to each Share encompassed by the exercise of such SAR,
the excess of the Fair Market Value on the date of exercise over the Fair Market Value on the date
of grant.

     (ff) “Subsidiary” shall mean any Person (other than the Company) of which a majority
of its voting power or its equity securities or equity interest is owned directly or indirectly by
the Company.

     (gg) “Substitute Awards” shall mean Awards granted solely in assumption of, or in
substitution for, outstanding awards previously granted by a company acquired by the Company or
with which the Company combines.

Section 3. Administration.

     3.1 Authority of Committee. The Plan shall be administered by the Committee, which shall be
appointed by and serve at the pleasure of the Board; provided, however, with respect to Awards to
Non-Employee Directors, all references in the Plan to the Committee shall be deemed to be
references to the Board. Subject to the terms of the Plan and applicable law, and in addition to
other express powers and authorizations conferred on the Committee by the Plan, the Committee shall
have full power and authority in its discretion to: (i) designate Participants; (ii) determine the
type or types of Awards to be granted to a Participant; (iii) determine the number of Shares to be
covered by, or with respect to which payments, rights or other matters are to be calculated in
connection with Awards; (iv) determine the timing, terms, and conditions of any Award; (v)
accelerate the time at which all or any part of an Award may be settled or exercised; (vi)
determine whether, to what extent, and under what circumstances, Awards may be settled or exercised
in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or
suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited
or suspended; (vii) determine whether, to what extent, and under what circumstances cash, Shares,
other securities, other Awards, other property, and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the holder thereof or of the
Committee; (viii) interpret and administer the Plan and any instrument or agreement relating to, or
Award made under, the Plan; (ix) except to the extent prohibited by Section 6.2, amend or
modify the terms of any Award at

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or after grant with the consent of the holder of the Award; (x) establish, amend, suspend or
waive such rules and regulations and appoint such agents as it shall deem appropriate for the
proper administration of the Plan; and (xi) make any other determination and take any other action
that the Committee deems necessary or desirable for the administration of the Plan, subject to the
exclusive authority of the Board under Section 14 hereunder to amend or terminate the Plan.
The exercise of an Option or receipt of an Award shall be effective only if an Award Agreement
shall have been duly executed and delivered on behalf of the Company following the grant of the
Option or other Award.

     3.2 Committee Discretion Binding. Unless otherwise expressly provided in the Plan, all
designations, determinations, interpretations, and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be made at any time and
shall be final, conclusive, and binding upon all Persons, including the Company, any Subsidiary or
Affiliate, any Participant and any holder or beneficiary of any Award.

     3.3 Delegation. Subject to the terms of the Plan, the Committee’s charter and applicable law,
the Committee may delegate to one or more officers or managers of the Company or of any Subsidiary
or Affiliate, or to a Committee of such officers or managers, the authority, subject to such terms
and limitations as the Committee shall determine, to grant Awards to or to cancel, modify or waive
rights with respect to, or to alter, discontinue, suspend or terminate Awards held by Participants
who are not officers or directors of the Company for purposes of Section 16 or who are otherwise
not subject to such Section.

Section 4. Shares Available For Awards.

     4.1 Shares Available. Subject to the provisions of Section 4.2 hereof, the stock to
be subject to Awards under the Plan shall be the Shares of the Company and the maximum aggregate
number of Shares with respect to which Awards may be granted under the Plan shall be 3,000,000.
Each Share subject to an Option shall reduce the aggregate number of Shares with respect to which
Awards may be granted by one share. Each Share subject to a SAR (whether the distribution upon
redemption is made in cash, stock or a combination of the two) shall reduce the aggregate number of
Shares with respect to which Awards may be granted by one share. Each Share issued pursuant to a
Restricted Share Award, Restricted Share Unit Award, Performance Award or Other Stock-Based Award
shall reduce the aggregate number of Shares with respect to which Awards may be granted by three
Shares. Notwithstanding the foregoing and subject to adjustment as provided in Section 4.2
hereof, no Participant may receive Options or SARs under the Plan in any calendar year that, taken
together, relate to more than 150,000 Shares. If, after the effective date of the Plan, any Shares
covered by an Award granted under this Plan, or to which such an Award relates, are forfeited, or
if such an Award otherwise terminates, expires unexercised or is canceled, then the Shares covered
by such Award, or to which such Award relates, or the number of Shares otherwise counted against
the aggregate number of Shares with respect to which Awards may be granted, to the extent of any
such forfeiture, termination, expiration or cancellation, shall again become Shares with respect to
which Awards may be granted in accordance with the formula described above. Notwithstanding the
foregoing and anything contained herein to the contrary, (i) the gross number of Shares issued
pursuant to an Award and not later forfeited, terminated, expired or canceled shall be deducted
from the total number of Shares available for grant under this Plan, and (ii) Shares that are
canceled, tendered or withheld in payment of all or part of the Option Price or exercise price of
an Award or in satisfaction of withholding tax obligations, and Shares that are reacquired with
cash tendered in payment of the Option Price or exercise price of an Award, shall not be included
in or added to the number of Shares available for grant under the Plan, in each case in accordance
with the formula described above.

     4.2 Adjustments. In the event that any unusual or non-recurring transactions, including an
unusual or non-recurring dividend or other distribution (whether in the form of an extraordinary
cash dividend, dividend of Shares, other securities or other property), recapitalization, stock
split, reverse stock

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split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or
exchange of Shares or other securities of the Company, issuance of warrants or other rights to
purchase Shares or other securities of the Company, or other similar corporate transaction or event
affects the Shares, then the Committee shall in an equitable and proportionate manner (and, as
applicable, in such equitable and proportionate manner as is consistent with Sections 422 and 409A
of the Code and the regulations thereunder and with Section 162(m) of the Code) either: (i) adjust
any or all of (1) the aggregate number of Shares or other securities of the Company (or number and
kind of other securities or property) with respect to which Awards may be granted under the Plan;
(2) the number of Shares or other securities of the Company (or number and kind of other securities
or property) subject to outstanding Awards under the Plan, provided that the number of Shares
subject to any Award shall always be a whole number; (3) the grant or exercise price with respect
to any Award under the Plan; and (4) the limits on the number of Shares that may be granted to
Participants under the Plan in any calendar year; (ii) provide for an equivalent award in respect
of securities of the surviving entity of any merger, consolidation or other transaction or event
having a similar effect; or (iii) make provision for a cash payment to the holder of an outstanding
Award.

     4.3 Substitute Awards. Any Shares issued by the Company as Substitute Awards in connection
with the assumption or substitution of outstanding grants from any acquired corporation shall not
reduce the Shares available for Awards under the Plan.

     4.4 Sources of Shares Deliverable Under Awards. Any Shares delivered pursuant to an Award may
consist, in whole or in part, of authorized and unissued Shares or of issued Shares which have been
reacquired by the Company.

Section 5. Eligibility.

     Any Employee, Director or Consultant shall be eligible to be designated a Participant;
provided, however, that Non-Employee Directors shall only be eligible to receive Awards granted
consistent with Section 10.

Section 6. Stock Options And Stock Appreciation Rights.

     6.1 Grant. Subject to the provisions of the Plan including, without limitation, Section
3.3 above and other applicable legal requirements, the Committee shall have sole and complete
authority to determine the Participants to whom Options and SARs shall be granted, the number of
Shares subject to each Award, the exercise price and the conditions and limitations applicable to
the exercise of each Option and SAR. An Option may be granted with or without a related SAR. A
SAR may be granted with or without a related Option. The Committee shall have the authority to
grant Incentive Stock Options, and to grant Non-Qualified Stock Options. In the case of Incentive
Stock Options, the terms and conditions of such grants shall be subject to and comply with Section
422 of the Code, as from time to time amended, and any regulations implementing such statute. A
person who has been granted an Option or SAR under this Plan may be granted additional Options or
SARs under the Plan if the Committee shall so determine; provided, however, that to the extent the
aggregate Fair Market Value (determined at the time the Incentive Stock Option is granted) of the
Shares with respect to which all Incentive Stock Options are exercisable for the first time by an
Employee during any calendar year (under all plans described in of Section 422(d) of the Code of
the Employee’s employer corporation and its parent and Subsidiaries) exceeds $100,000, such Options
shall be treated as Non-Qualified Stock Options.

     6.2 Price. The Committee in its sole discretion shall establish the Option Price at the time
each Option is granted. Except in the case of Substitute Awards, the Option Price of an Option may
not be less than one hundred percent (100%) of the Fair Market Value of the Shares with respect to
which the Option is granted on the date of grant of such Option. Notwithstanding the foregoing and
except as permitted by the

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provisions of Section 4.2 and Section 14 hereof, the Committee shall not have the
power to (i) amend the terms of previously granted Options to reduce the Option Price of such
Options, or (ii) cancel such Options and grant substitute Options with a lower Option Price than
the canceled Options. Except with respect to Substitute Awards, SARs may not be granted at a price
less than the Fair Market Value of a Share on the date of grant.

     6.3 Term. Subject to the Committee’s authority under Section 3.1 and the provisions
of Section 6.6, each Option and SAR and all rights and obligations thereunder shall expire
on the date determined by the Committee and specified in the Award Agreement. The Committee shall
be under no duty to provide terms of like duration for Options or SARs granted under the Plan.
Notwithstanding the foregoing, no Option or SAR shall be exercisable after the expiration of ten
(10) years from the date such Option or SAR was granted.

     6.4 Exercise.

     (a) Each Option and SAR shall be exercisable at such times and subject to such terms
and conditions as the Committee may, in its sole discretion, specify in the applicable Award
Agreement or thereafter. The Committee shall have full and complete authority to determine,
subject to Section 6.6 herein, whether an Option or SAR will be exercisable in full
at any time or from time to time during the term of the Option or SAR, or to provide for the
exercise thereof in such installments, upon the occurrence of such events and at such times
during the term of the Option or SAR as the Committee may determine.

     (b) The Committee may impose such conditions with respect to the exercise of Options,
including without limitation, any relating to the application of federal, state or foreign
securities laws or the Code, as it may deem necessary or advisable. The exercise of any
Option granted hereunder shall be effective only at such time as the sale of Shares pursuant
to such exercise will not violate any state or federal securities or other laws.

     (c) An Option or SAR may be exercised in whole or in part at any time, with respect to
whole Shares only, within the period permitted thereunder for the exercise thereof, and
shall be exercised by written notice of intent to exercise the Option or SAR, delivered to
the Company at its principal office, and payment in full to the Company at the direction of
the Committee of the amount of the Option Price for the number of Shares with respect to
which the Option is then being exercised.

     (d) Payment of the Option Price shall be made in cash or cash equivalents, or, at the
discretion of the Committee, (i) by transfer, either actually or by attestation, to the
Company of Shares that have been held by the Participant for at least six (6) months (or
such lesser period as may be permitted by the Committee), valued at the Fair Market Value of
such Shares on the date of exercise (or next succeeding trading date, if the date of
exercise is not a trading date), together with any applicable withholding taxes, such
transfer to be upon such terms and conditions as determined by the Committee, or (ii) by a
combination of such cash (or cash equivalents) and such Shares; provided, however, that the
optionee shall not be entitled to tender Shares pursuant to successive, substantially
simultaneous exercises of an Option or any other stock option of the Company. In addition,
if permitted by the Committee in its sole discretion, payment may also be made in whole or
in part in the form of an option to acquire Shares or in the form of another Award hereunder
(based, in each case, on the Fair Market Value of such option or Award on the date the
Option is exercised, as determined by the Committee). Subject to applicable securities
laws, an Option may also be exercised by delivering a notice of exercise of the Option and
simultaneously selling the Shares thereby acquired, pursuant to a brokerage or similar
agreement approved in advance by

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proper officers of the Company, using the proceeds of such sale as payment of the Option
Price, together with any applicable withholding taxes. Until the optionee has been issued
the Shares subject to such exercise, he or she shall possess no rights as a stockholder with
respect to such Shares.

     (e) At the Committee’s discretion, the amount payable as a result of the exercise of an
SAR may be settled in cash, Shares or a combination of cash and Shares. A fractional Share
shall not be deliverable upon the exercise of a SAR but a cash payment will be made in lieu
thereof.

     6.5 Ten Percent Stock Rule. Notwithstanding any other provisions in the Plan, if at the time
an Option is otherwise to be granted pursuant to the Plan, the optionee or rights holder owns
directly or indirectly (within the meaning of Section 424(d) of the Code) Shares of the Company
possessing more than ten percent (10%) of the total combined voting power of all classes of Stock
of the Company or its parent or Subsidiary or Affiliate corporations (within the meaning of Section
422(b)(6) of the Code), then any Incentive Stock Option to be granted to such optionee or rights
holder pursuant to the Plan shall satisfy the requirement of Section 422(c)(5) of the Code, and the
Option Price shall be not less than one hundred ten percent (110%) of the Fair Market Value of the
Shares of the Company, and such Option by its terms shall not be exercisable after the expiration
of five (5) years from the date such Option is granted.

     6.6 Transferability of Options. Except as provided in this Section 6.6, no Options shall be
(i) transferable otherwise than by will or the laws of descent and distribution, or (ii)
exercisable during the lifetime of the Participant by anyone other than the Participant.
Non-Qualified Stock Options granted to a Participant may be transferred by such Participant to a
permitted transferee (as defined below), provided that (i) such Non-Qualified Stock Options shall
be fully vested; (ii) there is no consideration for such transfer (other than receipt by the
Participant of interest in an entity that is a permitted transferee); (iii) the participant (or
such Participant’s estate or representative) shall remain obligated to satisfy all income or other
tax withholding obligations associated with the exercise of such Non-Qualified Stock Options; (iv)
the Participant shall notify the Company in writing prior to such transfer and disclose to the
Company the name and address of the permitted transferee and the relationship of the permitted
transferee to the Participant; and (v) such transfer shall be effected pursuant to transfer
documents in a form approved by the Company. A permitted transferee may not further assign or
transfer any such Non-Qualified Stock Options otherwise than by will or the laws of descent and
distribution. Following the transfer of Non-Qualified Stock Options to a permitted transferee,
such Nonqualified Options shall continue to be subject to the same terms and conditions that
applied to them prior to their transfer by the Participant, except that they shall be exercisable
by the permitted transferee to whom such transfer was made rather than by the transferring
Participant. For the purposes of the Plan, the term “permitted transferee” means, with respect to a
Participant, (i) any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law
of the Participant, including adoptive relationships, and (ii) a trust in which the Participant or
the persons described in clause (i) above have more than fifty percent of the beneficial interest.

Section 7. Restricted Shares And Restricted Share Units.

     7.1 Grant.

     (a) Subject to the provisions of the Plan and other applicable legal requirements, the
Committee shall have sole and complete authority to determine the Participants to whom
Restricted Shares and Restricted Share Units shall be granted, the number of Restricted
Shares and/or the number of Restricted Share Units to be granted to each Participant, the
duration of the period during which, and the conditions under which, the Restricted Shares
and Restricted Share Units may be forfeited to the Company, and the other terms and
conditions of such Awards; provided, however,

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that no grant of Restricted Shares or Restricted Share Unites shall vest in full prior to
the third anniversary of the date of such grant. The Restricted Share and Restricted Share
Unit Awards shall be evidenced by Award Agreements in such form as the Committee shall from
time to time approve, which agreements shall comply with and be subject to the terms and
conditions provided hereunder and any additional terms and conditions established by the
Committee that are consistent with the terms of the Plan.

     (b) Each Restricted Share and Restricted Share Unit Award made under the Plan shall be
for such number of Shares as shall be determined by the Committee and set forth in the Award
Agreement containing the terms of such Restricted Share or Restricted Share Unit Award.
Such agreement shall set forth a period of time during which the grantee must remain in the
continuous employment of the Company in order for the forfeiture and transfer restrictions
to lapse. If the Committee so determines, the restrictions may lapse during such restricted
period in installments with respect to specified portions of the Shares covered by the
Restricted Share or Restricted Share Unit Award. The Award Agreement may also, in the
discretion of the Committee, set forth performance or other conditions under which
restrictions on the Shares may lapse or that will subject the Shares to forfeiture and
transfer restrictions, including by reference to those performance goals enumerated in
Section 11 hereof. The Committee may, at its discretion, waive all or any part of
the restrictions applicable to any or all outstanding Restricted Share and Restricted Share
Unit Awards.

     7.2 Delivery of Shares and Transfer Restrictions. At the time of a Restricted Share Award, a
certificate representing the number of Shares awarded thereunder shall be registered in the name of
the grantee. Such certificate shall be held by the Company or any custodian appointed by the
Company for the account of the grantee subject to the terms and conditions of the Plan, and shall
bear such a legend setting forth the restrictions imposed thereon as the Committee, in its
discretion, may determine. The applicable Award Agreement will specify whether a grantee has the
right to receive dividends with respect to the Restricted Shares prior to the lapsing of transfer
restrictions. Unless otherwise provided in the applicable Award Agreement, the grantee shall have
all other rights of a stockholder with respect to the Restricted Shares, including the right to
vote such Shares, subject to the following restrictions: (i) the grantee shall not be entitled to
delivery of the stock certificate until the expiration of the restricted period and the fulfillment
of any other restrictive conditions set forth in the Award Agreement with respect to such Shares;
(ii) none of the Shares may be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered or disposed of during such restricted period or until after the fulfillment of any such
other restrictive conditions; and (iii) except as otherwise determined by the Committee at or after
grant, all of the Shares shall be forfeited and all rights of the grantee to such Shares shall
terminate, without further obligation on the part of the Company, unless the grantee remains in the
continuous employment of the Company for the entire restricted period in relation to which such
Shares were granted and unless any other restrictive conditions relating to the Restricted Share
Award are met. Unless otherwise provided in the applicable Award Agreement, any Shares, any other
securities of the Company and any other property (except for cash dividends) distributed with
respect to the Shares subject to Restricted Share Awards shall be subject to the same restrictions,
terms and conditions as such restricted Shares.

     7.3 Termination of Restrictions. At the end of the restricted period and provided that any
other restrictive conditions of the Restricted Share Award are met, or at such earlier time as
otherwise determined by the Committee, all restrictions set forth in the Award Agreement relating
to the Restricted Share Award or in the Plan shall lapse as to the restricted Shares subject
thereto, and a stock certificate for the appropriate number of Shares, free of the restrictions and
restricted stock legend, shall be delivered to the Participant or the Participant’s beneficiary or
estate, as the case may be.

9

 

     7.4 Payment of Restricted Share Units. Each Restricted Share Unit shall have a value equal to
the Fair Market Value of a Share. Restricted Share Units shall be paid in cash, Shares, other
securities or other property, as determined in the sole discretion of the Committee, upon the lapse
of the restrictions applicable thereto, or otherwise in accordance with the applicable Award
Agreement. The applicable Award Agreement will specify whether a Participant will be entitled to
receive dividend rights in respect of Restricted Stock Units at the time of any payment of
dividends to stockholders on Shares. If the applicable Award Agreement specifies that a
Participant will be entitled to receive dividend rights, (i) the amount of any such dividend right
shall equal the amount that would be payable to the Participant as a stockholder in respect of a
number of Shares equal to the number of Restricted Stock Units then credited to the Participant,
(ii) any such dividend right shall be paid in accordance with the Company’s payment practices as
may be established from time to time and as of the date on which such dividend would have been
payable in respect of outstanding Shares, and (iii) the applicable Award Agreement will specify
whether dividend equivalents shall be paid in respect of Restricted Share Units that are not yet
vested. Except as otherwise determined by the Committee at or after grant, Restricted Share Units
may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered or disposed
of, and all Restricted Share Units and all rights of the grantee to such Restricted Share Units
shall terminate, without further obligation on the part of the Company, unless the grantee remains
in continuous employment of the Company for the entire restricted period in relation to which such
Restricted Share Units were granted and unless any other restrictive conditions relating to the
Restricted Share Unit Award are met.

Section 8. Performance Awards.

     8.1 Grant. The Committee shall have sole and complete authority to determine the Participants
who shall receive a Performance Award, which shall consist of a right that is (i) denominated in
cash or Shares (including but not limited to Restricted Shares and Restricted Share Units), (ii)
valued, as determined by the Committee, in accordance with the achievement of such performance
goals during such performance periods as the Committee shall establish, and (iii) payable at such
time and in such form as the Committee shall determine.

     8.2 Terms and Conditions. Subject to the terms of the Plan and any applicable Award
Agreement, the Committee shall determine the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any Performance Award and
the amount and kind of any payment or transfer to be made pursuant to any Performance Award, and
may amend specific provisions of the Performance Award; provided, however, that such amendment may
not adversely affect existing Performance Awards made within a performance period commencing prior
to implementation of the amendment.

     8.3 Payment of Performance Awards. Performance Awards may be paid in a lump sum or in
installments following the close of the performance period or, in accordance with the procedures
established by the Committee, on a deferred basis. Termination of employment prior to the end of
any performance period, other than for reasons of death or Disability, will result in the
forfeiture of the Performance Award, and no payments will be made. A Participant’s rights to any
Performance Award may not be sold, assigned, transferred, pledged, hypothecated or otherwise
encumbered or disposed of in any manner, except by will or the laws of descent and distribution,
and/or except as the Committee may determine at or after grant.

Section 9. Other Stock-Based Awards.

     The Committee shall have the authority to determine the Participants who shall receive an
Other Stock-Based Award, which shall consist of any right that is (i) not an Award described in
Sections 6 or 7 above and (ii) an Award of Shares or an Award denominated or
payable in, valued in whole or in part by reference to, or otherwise based on or related to, Shares
(including, without limitation, securities convertible

10

 

into Shares), as deemed by the Committee to be consistent with the purposes of the Plan. Subject
to the terms of the Plan and any applicable Award Agreement, the Committee shall determine the
terms and conditions of any such Other Stock-Based Award.

Section 10. Non-Employee Director Awards.

     10.1 The Board may provide that all or a portion of a Non-Employee Director’s annual retainer,
meeting fees and/or other awards or compensation as determined by the Board, be payable (either
automatically or at the election of a Non-Employee Director) in the form of Non-Qualified Stock
Options, Restricted Shares, Restricted Share Units and/or Other Stock-Based Awards, including
unrestricted Shares. The Board shall determine the terms and conditions of any such Awards,
including the terms and conditions which shall apply upon a termination of the Non-Employee
Director’s service as a member of the Board, and shall have full power and authority in its
discretion to administer such Awards, subject to the terms of the Plan and applicable law.

     10.2 Subject to applicable legal requirements, the Board may also grant Awards to Non-Employee
Directors pursuant to the terms of the Plan, including any Award described in Sections 6,
7 or 9 above.

Section 11. Provisions Applicable To Covered Officers And Performance Awards.

     11.1 Notwithstanding anything in the Plan to the contrary, unless the Committee determines
that a Performance Award to be granted to a Covered Officer should not qualify as
“performance-based compensation” for purposes of Section 162(m), Performance Awards granted to
Covered Officers shall be subject to the terms and provisions of this Section 11.
Accordingly, unless otherwise determined by the Committee, if any provision of the Plan or any
Award Agreement relating to such an Award does not comply or is inconsistent with Section 162(m),
such provision shall be construed or deemed amended to the extent necessary to conform to such
requirements, and no provision shall be deemed to confer upon the Committee discretion to increase
the amount of compensation otherwise payable to a Covered Officer in connection with any such Award
upon the attainment of the performance criteria established by the Committee.

     11.2 The Committee may grant Performance Awards to Covered Officers based solely upon the
attainment of performance targets related to one or more performance goals selected by the
Committee from among the goals specified below. For the purposes of this Section 11,
performance goals shall be limited to one or more of the following Company, Subsidiary, operating
unit, business segment or division financial performance measures:

	 	(a)	 	earnings before interest, taxes, depreciation and/or
amortization;
	 
	 	(b)	 	operating income or profit;
	 
	 	(c)	 	operating efficiencies;
	 
	 	(d)	 	return on equity, assets, capital, capital employed or
investment;
	 
	 	(e)	 	net income;
	 
	 	(f)	 	earnings per share;
	 
	 	(g)	 	utilization;

11

 

	 	(h)	 	net investment income;
	 
	 	(i)	 	gross profit;
	 
	 	(j)	 	loan loss ratios;
	 
	 	(k)	 	stock price or total stockholder return;
	 
	 	(l)	 	net asset growth;
	 
	 	(m)	 	debt reduction;
	 
	 	(n)	 	strategic business objectives, consisting of one or more
objectives based on meeting specified cost targets, business expansion goals and
goals relating to acquisitions or divestitures; or
	 
	 	(o)	 	any combination thereof.

Each goal may be expressed on an absolute and/or relative basis, may be based on or otherwise
employ comparisons based on internal targets, the past performance of the Company or any
Subsidiary, operating unit, business segment or division of the Company and/or the past or current
performance of other companies, and in the case of earnings-based measures, may use or employ
comparisons relating to capital, stockholders’ equity and/or Shares outstanding, or to assets or
net assets. The Committee may appropriately adjust any evaluation of performance under criteria
set forth in this Section 11.2 to exclude any of the following events that occurs during a
performance period: (i) asset write-downs, (ii) litigation or claim judgments or settlements,
(iii) the effect of changes in tax law, accounting principles or other such laws or provisions
affecting reported results, (iv) accruals for reorganization and restructuring programs and (v) any
extraordinary non-recurring items as described in Financial Accounting Standard 144 and/or in
management’s discussion and analysis of financial condition and results of operations appearing in
the Company’s annual report to stockholders for the applicable year.

     11.3 With respect to any Covered Officer, the maximum annual number of Shares in respect of
which all Performance Awards may be granted under Section 8 of the Plan is 150,000 and the
maximum amount of all Performance Awards that are settled in cash and that may be granted under
Section 8 of the Plan in any year is $2,500,000.

     11.4 To the extent necessary to comply with Section 162(m), with respect to grants of
Performance Awards, no later than 90 days following the commencement of each performance period (or
such other time as may be required or permitted by Section 162(m) of the Code), the Committee
shall, in writing, (1) select the performance goal or goals applicable to the performance period,
(2) establish the various targets and bonus amounts which may be earned for such performance
period, and (3) specify the relationship between performance goals and targets and the amounts to
be earned by each Covered Officer for such performance period. Following the completion of each
performance period, the Committee shall certify in writing whether the applicable performance
targets have been achieved and the amounts, if any, payable to Covered Officers for such
performance period. In determining the amount earned by a Covered Officer for a given performance
period, subject to any applicable Award Agreement, the Committee shall have the right to reduce
(but not increase) the amount payable at a given level of performance to take into account
additional factors that the Committee may deem relevant in its sole discretion to the assessment of
individual or corporate performance for the performance period.

12

 

Section 12. Termination Of Employment.

     The Committee shall have the full power and authority to determine the terms and conditions
that shall apply to any Award upon a termination of employment with the Company, its Subsidiaries
and Affiliates, including a termination by the Company, by a Participant voluntarily, or by reason
of death, Disability or Retirement, and may provide such terms and conditions in the Award
Agreement or in such rules and regulations as it may prescribe.

Section 13. Change In Control.

     The Committee may specify in the applicable Award Agreement at or after grant, or otherwise by
resolution prior to a Change in Control, that all or a portion of the outstanding Awards shall
vest, become immediately exercisable or payable and have all restrictions lifted upon a Change in
Control.

Section 14. Amendment And Termination.

     14.1 Amendments to the Plan. The Board may amend, alter, suspend, discontinue or terminate
the Plan or any portion thereof at any time; provided that no such amendment, alteration,
suspension, discontinuation or termination shall be made without stockholder approval if (a) such
approval is necessary to comply with any tax or regulatory requirement for which or with which the
Board deems it necessary or desirable to comply or (b) if such amendment, alteration, suspension,
discontinuation or termination constitutes a material revision to the Plan. For the purpose of the
foregoing, a material revision shall be deemed to include (but shall not be limited to): (i) a
material increase in the number of shares subject to the Plan under Section 4; (ii) an expansion of
the types of Awards under the Plan; (iii) a material expansion of the class of employees, directors
or other participants eligible to participate in the Plan; (iv) a material extension of the term of
the Plan; (v) a material change to the method of determining the Option Price under the Plan; and
(vi) an amendment to Section 6.2 of the Plan. A material revision shall not include any revision
that curtails rather than expands the scope of the Plan.

     14.2 Amendments to Awards. Subject to the restrictions of Section 6.2, the Committee
may waive any conditions or rights under, amend any terms of or alter, suspend, discontinue, cancel
or terminate, any Award theretofore granted, prospectively or retroactively; provided that any such
waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would
materially and adversely affect the rights of any Participant or any holder or beneficiary of any
Award theretofore granted shall not to that extent be effective without the consent of the affected
Participant, holder or beneficiary.

     14.3 Adjustments of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The
Committee is hereby authorized to make equitable and proportionate adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring
events (and shall make such adjustments for events described in Section 4.2 hereof)
affecting the Company, any Subsidiary or Affiliate, or the financial statements of the Company or
any Subsidiary or Affiliate, or of changes in applicable laws, regulations or accounting
principles.

     14.4 Section 409A Compliance. No Award (or modification thereof) shall provide for deferral
of compensation that does not comply with Section 409A of the Code unless the Committee, at the
time of grant, specifically provides that the Award is not intended to comply with Section 409A of
the Code. Notwithstanding any provision of this Plan to the contrary, if one or more of the
payments or benefits received or to be received by a Participant pursuant to an Award would cause
the Participant to incur any additional tax or interest under Section 409A of the Code, the
Committee may reform such provision to maintain to the maximum extent practicable the original
intent of the applicable provision without violating the provisions of Section 409A of the Code.

13

 

Section 15. General Provisions.

     15.1 Limited Transferability of Awards. Except as otherwise provided in the Plan, no Award
shall be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a
Participant, except by will or the laws of descent and distribution. No transfer of an Award by
will or by laws of descent and distribution shall be effective to bind the Company unless the
Company shall have been furnished with written notice thereof and an authenticated copy of the will
and/or such other evidence as the Committee may deem necessary or appropriate to establish the
validity of the transfer.

     15.2 Dividend Equivalents. In the sole and complete discretion of the Committee, an Award may
provide the Participant with dividends or dividend equivalents, payable in cash, Shares, other
securities or other property on a current or deferred basis. All dividend or dividend equivalents
which are not paid currently may, at the Committee’s discretion, accrue interest, be reinvested
into additional Shares, or, in the case of dividends or dividend equivalents credited in connection
with Performance Awards, be credited as additional Performance Awards and paid to the Participant
if and when, and to the extent that, payment is made pursuant to such Award. The total number of
Shares available for grant under Section 4 shall not be reduced to reflect any dividends or
dividend equivalents that are reinvested into additional Shares or credited as Performance Awards.

     15.3 No Rights to Awards. No Person shall have any claim to be granted any Award, and there
is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards.
The terms and conditions of Awards need not be the same with respect to each Participant.

     15.4 Share Certificates. All certificates for Shares or other securities of the Company or
any Subsidiary or Affiliate delivered under the Plan pursuant to any Award or the exercise thereof
shall be subject to such stop transfer orders and other restrictions as the Committee may deem
advisable under the Plan or the rules, regulations and other requirements of the SEC or any state
securities commission or regulatory authority, any stock exchange or other market upon which such
Shares or other securities are then listed, and any applicable Federal or state laws, and the
Committee may cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.

     15.5 Withholding. A Participant may be required to pay to the Company or any Subsidiary or
Affiliate and the Company or any Subsidiary or Affiliate shall have the right and is hereby
authorized to withhold from any Award, from any payment due or transfer made under any Award or
under the Plan, or from any compensation or other amount owing to a Participant the amount (in
cash, Shares, other securities, other Awards or other property) of any applicable withholding or
other tax-related obligations in respect of an Award, its exercise or any other transaction
involving an Award, or any payment or transfer under an Award or under the Plan and to take such
other action as may be necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. The Committee may provide for additional cash payments to holders of
Options to defray or offset any tax arising from the grant, vesting, exercise or payment of any
Award.

     15.6 Award Agreements. Each Award hereunder shall be evidenced by an Award Agreement that
shall be delivered to the Participant and may specify the terms and conditions of the Award and any
rules applicable thereto. In the event of a conflict between the terms of the Plan and any Award
Agreement, the terms of the Plan shall prevail. The Committee shall, subject to applicable law,
determine the date an Award is deemed to be granted. The Committee or, except to the extent
prohibited under applicable law, its delegate(s) may establish the terms of agreements or other
documents evidencing Awards under this Plan and may, but need not, require as a condition to any
such agreement’s or document’s effectiveness that such agreement or document be executed by the
Participant, including by

14

 

electronic signature or other electronic indication of acceptance, and that such Participant
agree to such further terms and conditions as specified in such agreement or document. The grant
of an Award under this Plan shall not confer any rights upon the Participant holding such Award
other than such terms, and subject to such conditions, as are specified in this Plan as being
applicable to such type of Award (or to all Awards) or as are expressly set forth in the agreement
or other document evidencing such Award.

     15.7 No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent
the Company or any Subsidiary or Affiliate from adopting or continuing in effect other compensation
arrangements, which may, but need not, provide for the grant of Options, Restricted Shares,
Restricted Share Units, Other Stock-Based Awards or other types of Awards provided for hereunder.

     15.8 No Right to Employment. The grant of an Award shall not be construed as giving a
Participant the right to be retained in the employ of the Company or any Subsidiary or Affiliate.
Further, the Company or a Subsidiary or Affiliate may at any time dismiss a Participant from
employment, free from any liability or any claim under the Plan, unless otherwise expressly
provided in an Award Agreement.

     15.9 No Rights as Stockholder. Subject to the provisions of the Plan and the applicable Award
Agreement, no Participant or holder or beneficiary of any Award shall have any rights as a
stockholder with respect to any Shares to be distributed under the Plan until such person has
become a holder of such Shares. Notwithstanding the foregoing, in connection with each grant of
Restricted Shares hereunder, the applicable Award Agreement shall specify if and to what extent the
Participant shall not be entitled to the rights of a stockholder in respect of such Restricted
Shares.

     15.10 Governing Law. The validity, construction and effect of the Plan and any rules and
regulations relating to the Plan and any Award Agreement shall be determined in accordance with the
laws of the State of Tennessee without giving effect to conflicts of laws principles.

     15.11 Severability. If any provision of the Plan or any Award is, or becomes, or is deemed to
be invalid, illegal or unenforceable in any jurisdiction or as to any Person or Award, or would
disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to the applicable laws, or if it cannot be
construed or deemed amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, Person
or Award and the remainder of the Plan and any such Award shall remain in full force and effect.

     15.12 Other Laws. The Committee may refuse to issue or transfer any Shares or other
consideration under an Award if, acting in its sole discretion, it determines that the issuance or
transfer of such Shares or such other consideration might violate any applicable law or regulation
(including applicable non-U.S. laws or regulations) or entitle the Company to recover the same
under Exchange Act Section 16(b), and any payment tendered to the Company by a Participant, other
holder or beneficiary in connection with the exercise of such Award shall be promptly refunded to
the relevant Participant, holder or beneficiary.

     15.13 No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed
to create a trust or separate fund of any kind or a fiduciary relationship between the Company or
any Subsidiary or Affiliate and a Participant or any other Person. To the extent that any Person
acquires a right to receive payments from the Company or any Subsidiary or Affiliate pursuant to an
Award, such right shall be no greater than the right of any unsecured general creditor of the
Company or any Subsidiary or Affiliate.

     15.14 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the
Plan or any Award, and the Committee shall determine whether cash, other securities or other
property shall be

15

 

paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any
rights thereto shall be canceled, terminated or otherwise eliminated.

     15.15 Headings. Headings are given to the sections and subsections of the Plan solely as a
convenience to facilitate reference. Such headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or any provision thereof.

Section 16. Term Of The Plan.

     16.1 Effective Date. The Plan shall generally be effective for Awards granted hereunder as of
January 1, 2008, provided it has been approved by the Board and by the Company’s stockholders.
Notwithstanding the foregoing, the Committee may, in its sole discretion, grant cash-based
Performance Awards to Participants for the 2007 fiscal year, based upon the applicable provisions
of Sections 8 and 11 hereof, prior to January 1, 2008, subject to the approval of the Plan by the
Board and by the Company’s stockholders and provided that any payment for such cash-based
Performance Awards only be made after January 1, 2008.

     16.2 Expiration Date. No new Awards shall be granted under the Plan after the tenth
anniversary of the Effective Date. Unless otherwise expressly provided in the Plan or in an
applicable Award Agreement, any Award granted hereunder may, and the authority of the Board or the
Committee to amend, alter, adjust, suspend, discontinue or terminate any such Award or to waive any
conditions or rights under any such Award shall, continue after the tenth anniversary of the
Effective Date.

16EX-10.1 AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

Exhibit 10.1

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

     
THIS AGREEMENT (the “Agreement”) is entered into
this 20 day of April, 2007, by and
between Community Bank of Tri-County, with its principal place of business at 3035 Leonardtown
Road, Waldorf, Maryland 20601 (the “Bank”), William J. Pasenelli (the “Employee”), and Tri-County
Financial Corporation (the “Company”), solely as guarantor of the Bank’s obligations hereunder, and
is effective as of the date hereof (the “Effective Date”).

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

     WHEREAS, the parties desire by this writing to set forth the current terms and conditions of
the employment relationship between the Bank and Executive; and

     WHEREAS, this Agreement shall supersede any and all prior Employment Agreements, by and
between the Bank and the Employee, and any amendments thereto; and any and all prior Guaranty
Agreements, by and between the Company and the Employee.

     NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Bank and the
Employee hereby agree as follows:

     1. EMPLOYMENT. The Employee shall serve the Bank as Executive Vice President and Chief
Financial Officer. In such position, the Employee shall have the duties, responsibilities,
functions and authority determined and designated from time to time by the Board of Directors (the
“Board”) and the Chief Executive Officer. The Employee shall render such administrative and
management services to the Bank and its affiliates as are customarily performed by persons in a
similar executive capacity.

     2. EFFECTIVE DATE AND TERM. The Bank agrees to employ the Employee for an initial period of
three (3) years, beginning on the Effective Date and ending on the day before the third (3rd)
anniversary of the Effective Date, and during the period of any additional extensions described
below (the “Term of Employment”). The parties intend that, at any point in time during the
Employee’s employment hereunder, the then-remaining Term of Employment shall be three (3) years.
On the day after the Effective Date and on each day thereafter, the Term of Employment shall extend
by one day, so that, on any date, the term of Employment will expire on the day before the third
(3rd) anniversary of such date. These extensions shall continue unless (a) the Bank
notifies the Employee that it has elected to discontinue the extensions; (b) the Employee notifies
the Bank of the Employee’s election to discontinue the extensions; or (c) the Employee’s employment
with the Bank is terminated, whether by resignation, discharge or otherwise. On the earlier of (i)
the date on which such notice is given; or (ii) the effective date of a termination of Employee’s
Employment with the Bank, the Term of Employment will convert to a fixed period of three (3) years
ending on the day before the third (3rd) anniversary of such date (provided, however,
that subject to any rights of the Employee under this Agreement, the Term of Employment shall
terminate on such earlier date as may be specifically provided in this Agreement in the event of the

 Employee’s death, voluntary termination, Disability or termination for Cause). The last day of
the Agreement term, as extended in accordance with this Section 2, is referred
to in this Agreement as the “Expiration Date.”

 

 

     3. COMPENSATION AND BENEFITS.

          3.1 BASE SALARY. During the Term of Employment, the Bank agrees to pay the Employee base
salary at the rate of $170,000 per annum, subject to increase from time to time in accordance with
the usual practices of the Bank with respect to its review of compensation for senior executives.
Any increase in the Employee’s base salary shall become the “base salary” for purposes of this
Agreement. The Employee’s base salary shall be payable in periodic installments in accordance with
the Bank’s usual practice.

          3.2 EMPLOYEE BENEFITS. The Employee shall also be entitled to participate in any and all
employee benefit plans, medical insurance plans, disability income plans, retirement plans, bonus
incentive plans and other benefit plans from time to time in effect for senior executives of the
Bank. Such participation shall be subject to (a) the terms of the applicable plan documents, (b)
generally applicable policies of the Bank and (c) the discretion of the Board or any administrative
or other committee provided for in, or contemplated by, such plans.

          3.3 INCENTIVE COMPENSATION. The Employee shall be eligible to participate in any incentive
compensation or bonus programs sponsored by the Bank on such terms as the Board may establish for
the Employee’s participation.

          3.4 BUSINESS EXPENSES. The Bank shall pay, or reimburse, the Employee for reasonable travel
and other business expenses incurred by the Employee in the performance of the Employee’s duties
and responsibilities, subject to such reasonable requirements with respect to substantiation and
documentation as may be specified by the Bank.

          3.5 LEAVE. The Employee shall be entitled to leave (vacation, sick and personal) in accordance
with the Bank’s standard policies for senior executives. Further, the Board, in its discretion,
may grant to the Employee a leave or leaves of absence, with or without pay, at such time or times
and upon such terms and conditions as the Board, in its discretion, may determine.

          3.6 OTHER EMPLOYEE BENEFITS. The Employee shall be entitled to participate in any
compensatory plans, arrangements or programs the Bank makes available to its senior executive
officers, including, but not limited to, stock compensation programs, supplemental retirement
arrangements, or executive health or life insurance programs, subject to, and on a basis consistent
with, the terms and conditions of such plans, arrangements or programs.

          3.7 GENERAL. The Employee’s participation in any plans, arrangements or programs currently in
effect or made available in the future shall not be deemed to be in lieu of other compensation to
which the Employee is entitled as described under this Agreement.

     4. EXTENT OF SERVICE. During the Term of Employment, the Employee shall devote his
full time, best efforts and business judgment, skills and knowledge to the advancement of the
Bank’s interests and to the discharge of his responsibilities under this Agreement; provided,
however, that the Employee may:

2

 

     (a) invest personal assets in such form or manner as shall not require any material
services on the Employee’s part in the operations or affairs of the entities in which
such investments are made, provided that the Employee may not own any interest in an entity
that competes with the Bank or any affiliate (other than up to 4.9% of the outstanding
voting stock of such entity that is a publicly-traded entity); or

     (b) serve on the board of directors of any company not in competition with the Bank or
any affiliate, provided that the Employee shall not render any material services with
respect to the operations or affairs of any such company; or

     (c) engage in religious, charitable or other community or non-profit activities which
do not impair the Employee’s ability to fulfill the Employee’s duties and responsibilities
under this Agreement.

     5. DEATH. In the event of the Employee’s death during the Term of Employment, the Employee’s
employment (and the Term of Employment) shall terminate on the date of death. The Bank shall pay
to the Employee’s beneficiary, or estate, (a) any compensation due the Employee through the last
day of the calendar month in which death occurred, plus (b) any other compensation or benefits as
may be provided in accordance with the terms and provisions of any applicable plans and programs of
the Bank in which the Employee participated as of the date of death.

     6. DISCHARGE FOR CAUSE.

          6.1 NOTICE AND DETERMINATION OF CAUSE. The Bank may terminate the Employee’s employment at
any time during the Term of Employment for Cause, as defined below. Such termination shall be
deemed to have occurred for Cause only if:

     (a) The Board, by a separate affirmative vote of at least three-fourths (3/4) of
the entire membership, determines that the Employee has: (i) engaged in acts of personal
dishonesty which have resulted in loss to the Bank or one of its affiliates; (ii)
intentionally failed to perform stated duties; (iii) committed a willful violation of any
law, rule, regulation (other than traffic violations or similar offenses); (iv) become
subject to the entry of a final cease and desist order which results in substantial loss to
the Bank or one of its affiliates; (v) been convicted of a crime or act involving moral
turpitude; (vi) willfully breached the Bank’s or the Company’s code of conduct and business
ethics; (vii) been disqualified or barred by any governmental or self-regulatory authority
from serving in the Employee’s then-current employment capacity or (viii) willfully
attempted to obstruct or failed to cooperate with any investigation authorized by the Board or any governmental or self-regulatory entity. No act or failure to act on the part of the
Employee shall be considered “willful” unless it is done, or omitted to be done, by the
Employee in bad faith or without

reasonable belief that the Employee’s action or omission
was in the best interests of the Bank. Any act or failure to act that is based upon
authority given pursuant to a resolution duly adopted by the Board, or upon the advice of
legal counsel for the Bank, shall be conclusively presumed to be done, or omitted to be
done, by the Employee in good faith and in the best interests of the Bank and its
affiliates; and

3

 

     (b) At least ten (10) days prior to the vote contemplated by Section 6.1(a), the Bank
has provided the Employee with notice of its intent to discharge the Employee for Cause,
detailing with particularity the facts and circumstances which are alleged to constitute
Cause (a “Notice of Intent to Discharge”); and

     (c) After giving the Employee Notice of Intent to Discharge and before taking the vote
contemplated by Section 6.1(a), the Employee is afforded a reasonable opportunity to make
both written and oral presentations before the Board for the purpose of refuting the alleged
grounds for Cause for discharge; and

     (d) After the vote contemplated by Section 6.1(a), the Bank has furnished to the
Employee a notice of termination which specifies the effective date of the Employee’s
termination of employment (which shall not be earlier than the date on which such notice is
deemed given), and include a copy of a resolution or resolutions adopted by the Board of
Directors authorizing the termination of the Employee for Cause and stating with
particularity the facts and circumstances found to constitute Cause for discharge (the
“Final Discharge Notice”).

          6.2 SUSPENSION; FINAL DISCHARGE. Following the provision of Notice of Intent to Discharge,
the Bank may temporarily suspend the Employee’s duties and authority and, in such event, may also
suspend the payment of salary and other cash compensation (but not participation in retirement,
insurance and other employee benefit plans). If the Employee is discharged for Cause, all payments
withheld during the suspension period shall be deemed forfeited and shall not be payable to the
Employee. If the Bank does not give a Final Discharge Notice to the Employee within one hundred
and twenty (120) days after giving the Notice of Intent to Discharge, the Notice of Intent to
Discharge shall be deemed withdrawn and any future action to discharge the Employee for Cause shall
require the Bank to give the Employee a new Notice of Intent to Discharge.

          6.3 EFFECT OF TERMINATION FOR CAUSE. In the event of termination pursuant to this Section 6,
the Term of Employment shall terminate and the Bank shall pay to the Employee an amount equal to
the sum of (a) base salary or other compensation earned through the date of termination, plus (b)
any other compensation or vested benefits as may be provided in accordance with the terms and
provisions of any applicable plans and programs of the Bank. All other obligations of the Bank
shall terminate as of the date of termination.

     7. DISABILITY. The Bank may terminate the Employee’s employment (and the Term of
Employment) after having established the Employee’s Disability. For purposes of this Agreement,
“Disability” means a physical or mental infirmity that impairs the Employee’s ability to
substantially perform his duties under this Agreement and results in
the Employee becoming eligible
for long-term disability benefits under the Bank’s long-term disability plan (or, if the Bank has
no such plan in effect, that impairs the Employee’s ability to substantially perform full-time
duties under this Agreement for a period of one hundred eighty (180) consecutive days). The
Employee shall be entitled to the compensation and benefits provided for under this Agreement for
(a) any period during the Term of Employment and prior to the establishment of the Employee’s
Disability during which the Employee is

4

 

unable to work due to physical or mental infirmity, or (b) any period of Disability which is
prior to the Employee’s termination of employment pursuant to this Section 7.

     8. TERMINATION WITHOUT CAUSE. The Board may, by written notice to the Employee, immediately
terminate his employment at any time for a reason other than Cause, in which event the Employee
shall be entitled to receive the termination payment set forth in Section 10.2 of this Agreement,
payable in one lump sum within ten (10) days of termination. The Bank shall also continue to
provide the Employee with benefit continuation as set forth in Section 10.3 of this Agreement.

     9. VOLUNTARY TERMINATION BY EMPLOYEE. Subject to Section 11 hereof, the Employee may
voluntarily terminate employment with the Bank during the term of this Agreement, upon at least 60
days’ prior written notice, in which case the Term of Employment shall end and the Bank shall pay
to the Employee an amount equal to the (a) base salary or other compensation earned through the
date of termination plus (b) any other compensation and benefits as may be provided in accordance
with the terms and provisions of any applicable benefit plans and programs of the Bank.

     10. CHANGE IN CONTROL.

          10.1 DEFINITION OF CHANGE IN CONTROL. For purposes of this Agreement, a “Change in Control”
shall mean the occurrence of any of the following events:

     (a) individuals who, on the date of this Agreement, constitute the Board of Directors
of the Company (the “Incumbent Directors”) cease for any reason to constitute at least half
of the Board of Directors of the Company, provided that any person becoming a director
subsequent to such time, whose election or nomination for election was approved by a vote of
at least two-thirds (2/3) of the Incumbent Directors then on the Board of Directors of the
Company (either by a specific vote or by approval of the proxy statement of the Company in
which such person is named as a nominee for director, without written objection to such
nomination) shall be an Incumbent Director; provided, however, that no individual initially
elected or nominated as a director of the Company as a result of an actual or threatened
election contest with respect to

directors or as a result of any other actual or threatened
solicitation of proxies or consents by or on behalf of any person other than the Board of
Directors of the Company shall be deemed to be an Incumbent Director;

     (b) any “person” (as such term is defined in Section 3(a)(9) of the Securities
Exchange Act of 1934 (the “Exchange Act”) and as used in Sections 13(d)(3) and 14(d)(2) of
the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 25% or   more
of the combined voting power of the Company’s then outstanding securities eligible to vote
for the election of the Board of Directors of the Company (the “Company Voting Securities”);
provided, however, that the event described in this paragraph (b) shall not be deemed to be
a Change in Control by virtue of any of the following acquisitions: (A) by the Company or
any subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained
by the Company or any subsidiary, (C) by any underwriter temporarily holding securities
pursuant to an offering of such securities or (D) a transaction (other than one described in
(c) below) in

5

 

which Company Voting Securities are acquired from the Company, if a majority of the
Incumbent Directors approve a resolution providing expressly that the acquisition pursuant
to this clause (D) does not constitute a Change in Control under this paragraph (b);

     (c) the consummation of a merger, consolidation, statutory share exchange or similar
form of corporate transaction involving the Company or any of its subsidiaries that requires
the approval of the Company’s stockholders, whether for such transaction or the issuance of
securities in the transaction (a “Business Combination”), unless immediately following such
Business Combination: (A) at least 50% of the total voting power of (x) the corporation
resulting from such Business Combination (the “Surviving Corporation”), or (y) if
applicable, the ultimate parent corporation that directly or indirectly has beneficial
ownership of 100% of the voting securities eligible to elect directors of the Surviving
Corporation (the “Parent Corporation”), is represented by the Company Voting Securities that
were outstanding immediately prior to such Business Combination (or, if applicable, is
represented by shares into which such Company Voting Securities were converted pursuant to
such Business Combination), and such voting power among (and only among) the holders thereof
is in substantially the same proportion as the voting power of such Company Voting
Securities among the holders thereof immediately prior to the Business Combination, (B) no
person (other than any employee benefit plan (or related trust) sponsored or maintained by
the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner,
directly or indirectly, of 25% or more of the total voting power of the outstanding voting
securities eligible to elect directors of the Parent Corporation (or, if there is no Parent
Corporation, the Surviving Corporation) and (C) at least 50% of the members of the board of
directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) following the consummation of the Business Combination were Incumbent Directors
at the time of the Company Board’s approval of the execution of the initial agreement
providing for such Business Combination; or

     (d) the stockholders of the Company approve a plan of complete liquidation or
dissolution of the Company or a sale of all or substantially all of the Company’s assets.

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely
because any person acquires beneficial ownership of more than 25% of Company Voting
Securities as a result of the acquisition of Company Voting Securities by the Company which
reduces the number of Company Voting Securities outstanding; provided, that if after such
acquisition by the Company such person becomes the beneficial owner of additional Company
Voting Securities that increases the percentage of outstanding

Company Voting Securities
beneficially owned by such person, a Change in Control of the Company shall then occur.

6

 

          10.2 TERMINATION PAYMENT. Notwithstanding any provision herein to the contrary, if the Bank
(i) terminates the Employee’s employment pursuant to Section 8 of this Agreement or (ii) terminates
the Employee’s employment under this Agreement without the Employee’s prior written consent and for
a reason other than Cause, in connection with or within twelve (12) months after a Change in
Control, then the Employee shall be paid an unreduced lump sum severance benefit equal to the sum
of the following items:

     (a) Two (2) times the Employee’s annual base salary (as provided for in Section 3 of
this Agreement) at the rate in effect on the date of the Employee’s termination of
employment (including any amount contributed by the Bank on the Employee’s behalf pursuant
to a salary reduction agreement and which is not included in the Employee’s gross income
under Sections 125, 132(f) or 402(e)(3) of the Internal Revenue Code of 1986, as amended);
and

     (b) Two (2) times the most recent annual incentive compensation payment made to the
Employee (as provided for in Section 3 of this Agreement).

     The severance benefit payment under this Section 10.2 shall be made to the Employee in one
lump sum within ten (10) days of the Employee’s termination of employment.

          10.3
BENEFIT CONTINUATION. Employee shall also be entitled to continuation of the medical, dental and life
insurance benefits existing on the date of termination at the level in effect, and at the same
out-of-pocket premium cost to the Employee, as on the date of termination for a period of
thirty-six (36) months following the Employee’s termination of employment. If the benefits under
any benefit plan or program continued pursuant to this Section 10.3 may not be provided because the
Employee is no longer an employee of the Bank or an affiliate, the Bank shall pay or provide for
coverage on a comparable basis for the Employee and, where applicable, the Employee’s dependents.

7

 

          10.4 OTHER TERMINATION. Notwithstanding any other provision of this Agreement to the
contrary, the Employee may voluntarily terminate employment under this Agreement within twelve (12)
months following a Change in Control of the Bank or Corporation, and the Employee shall be entitled
to receive the payments and benefits described in Sections 10.2 and 10.3 of this Agreement, upon
the occurrence of any of the following events, or within ninety (90) days thereafter, which have
not been consented to in advance by the Employee in writing: (a) the requirement that the Employee
move a primary personal residence, or perform the Employee’s principal executive functions, more
than thirty-five (35) miles from the Employee’s primary office as of the date of the Change in
Control; (b) a material reduction in the Employee’s base salary as in effect on the date of the
Change in Control or as the same may be increased from time to time; (c) the failure of the Bank to
continue to provide the Employee with compensation and benefits provided for under this Agreement,
as the same may be increased from time to time, or with benefits substantially similar to those
provided under any of the employee benefit plans in which the Employee now or hereafter becomes a
participant, or the taking of any action by the Bank

which would directly or indirectly reduce any
such benefits or deprive the Employee of any material fringe benefit provided by the Bank at the
time of the Change in Control; (d) the assignment to the Employee of duties and responsibilities
materially different from those normally associated with the Employee’s position as referenced in
Section l; (e) a failure to elect or reelect the Employee to the Board if the Employee is serving
on the Board on the date of the Change in Control; or (f) a material diminution or reduction in the
Employee’s responsibilities or authority (including reporting responsibilities) in connection with
his employment with the Bank.

8

 

     11. LIMITATION OF BENEFITS UNDER CERTAIN CIRCUMSTANCES. If the payments and benefits provided
pursuant to Section 10 of this Agreement, either alone or together with other payments and benefits
the Employee has the right to receive from the Bank, would constitute a “parachute payment” under
Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), the payments and
benefits pursuant to Section 10 shall be reduced or revised, in the manner determined by the
Employee, by the amount, if any, which is the minimum necessary to result in no portion of the
payments and benefits under Section 10 being non-deductible to the Bank pursuant to Section 280G of
the Code and subject to the excise tax imposed under Section 4999 of the Code. The Bank’s
independent public accountants will determine any reduction in the payments and benefits to be made
pursuant to Section 10; the Bank will pay for the accountant’s opinion. If the Bank and/or the
Employee do not agree with the accountant’s opinion, the Bank will pay to the Employee the maximum
amount of payments and benefits pursuant to Section 10, as selected by the Employee, that the
opinion indicates have a high probability of not causing any of the payments and benefits to be
non-deductible to the Bank and subject to the excise tax imposed under Section 4999 of the Code.
The Bank may also request, and the Employee has the right to demand that the Bank request, a ruling
from the IRS as to whether the disputed payments and benefits pursuant to Section 10 have such tax
consequences. The Bank will promptly prepare and file the request for a ruling from the IRS, but
in no event will the Bank make this filing later than thirty (30) days from the date of the
accountant’s opinion referred to above. The request will be subject to the Employee’s approval
prior to filing; the Employee shall not unreasonably withhold such approval. The Bank and the
Employee agree to be bound by any ruling received from the IRS and to make appropriate payments to
each other to reflect any IRS rulings, together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code. Nothing contained in this Agreement shall result in
a reduction of any payments or benefits to which the Employee may be entitled upon termination of
employment other than pursuant to Section 10 hereof, or a reduction in the payments and benefits
specified in Section 10, below zero.

     12. NO MITIGATION. In the event of any termination of employment under this Agreement, the
Employee shall be under no obligation to seek other employment or to otherwise mitigate damages,
and there shall be no offset against any amounts due to the Employee under this Agreement for any
reason, including, without limitation, on account of any remuneration attributable to subsequent
employment. Any amounts due under this Agreement are in the nature of severance payments or
liquidated damages, or both, and are not in the nature of a penalty.

13. MISCELLANEOUS PROVISIONS.

          13.1 CONFLICTING AGREEMENTS. The Employee hereby represents and warrants that the execution
of this Agreement and the performance of the Employee’s obligations

hereunder will not breach or be
in conflict with any other agreement to which the Employee is a party or is bound, and that the
Employee is not now subject to any covenants against competition or similar covenants which would
affect the performance of the Employee’s obligations under this Agreement.

9

 

          13.2 WITHHOLDING. All payments made under this Agreement shall be net of any tax or other
amounts required to be withheld under applicable law.

          13.3 ARBITRATION. The Bank and the Employee agree that any claim, dispute or controversy
arising under or in connection with this Agreement (including, without limitation, any such claim,
dispute or controversy arising under any federal, state or local statute, regulation or ordinance
or any of the Bank’s employee benefit plans, policies or programs) shall be resolved solely and
exclusively by binding arbitration. The arbitration shall be held in the County of Charles,
Maryland (or at such other location as shall be mutually agreed upon by the parties). The
arbitration shall be conducted in accordance with the Commercial Arbitration Rules (the “Rules”) of
the American Arbitration Association (the “AAA”) in effect at the time of the arbitration, except
that the arbitrator shall be selected by alternatively striking from a list of five arbitrators
supplied by the AAA. All fees and expenses of the arbitration, excluding a transcript, shall be
borne equally by the parties. Each party will pay for the fees and expenses of its own attorneys,
experts, witnesses, and preparation and presentation of proofs and post-hearing briefs (unless the
Employee prevails on a claim for which attorney’s fees are recoverable under the Agreement). Any
action to enforce or vacate the arbitrator’s award shall be governed by the Federal Arbitration
Act, if applicable, and otherwise by applicable state law. If either the Bank or the Employee
pursues any claim, dispute or controversy against the other in a legal proceeding, other than the
arbitration provided for herein, the responding party shall be entitled to dismissal or injunctive
relief regarding such action and recovery of all costs, losses and attorneys’ fees related to such
action. Notwithstanding the provisions of this paragraph, either party may seek injunctive relief
in a court of competent jurisdiction, whether or not the case is then pending before the panel of
arbitrators. Following the court’s determination of the injunction issue, the case shall continue
in arbitration as provided herein.

          13.4 INDEMNIFICATION FOR ATTORNEYS’ FEES. In the event any dispute or controversy arising
under or in connection with the Employee’s termination of employment or this Agreement is resolved
in favor of the Employee, whether by judgment, arbitration or settlement, the Employee shall be
entitled to the payment of: (i) all legal fees and expenses incurred by the Employee in resolving
such dispute or controversy, and (ii) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due to the Employee under this
Agreement.

          13.5 ASSIGNMENT; SUCCESSORS AND ASSIGNS, ETC.

     (a) This Agreement is personal to the Employee and shall not be assignable by the
Employee without the prior written consent of the Bank, other than by will or the laws of
descent and distribution. This Agreement shall inure to the benefit of and be enforceable by
the Employee’s legal representatives.

     (b) This Agreement shall inure to the benefit of and be binding upon the Bank and its
successors and permitted assigns.

10

 

     (c) The Bank may not assign this Agreement or any interest herein without the prior
written consent of the Employee and, without such consent, any attempted transfer or
assignment shall be null and void and of no effect; provided, however, that the Bank shall
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 the Bank expressly
to assume and to agree to perform this Agreement in the same manner and to the same extent
that the Bank would have been required to perform it if no such succession had taken place.
As used in this Agreement, “the Bank” shall mean both the Bank and the Company, as defined
above, and any successor that assumes and agrees to perform this Agreement, by operation of
law or otherwise.

          13.6 ENFORCEABILITY. If any portion or provision of this Agreement shall to any extent be
declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this
Agreement, or the application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion
and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by
law.

          13.7 REDUCTIONS; REGULATORY REQUIREMENTS. Notwithstanding anything to the contrary contained
in this Agreement, any and all payments and benefits to be provided to the Employee under this
Agreement are subject to reduction to the extent required by applicable statutes, regulations,
rules and directives of federal, state and other governmental and regulatory bodies having
jurisdiction over the Bank and its affiliates. The Employee is aware and acknowledges that the
Federal Deposit Insurance Corporation has the power to preclude the Bank or its affiliates from
making payments to the Employee under this Agreement under certain circumstances. The Employee
agrees that neither the Bank nor its affiliates shall be deemed to be in breach of this Agreement
if it is precluded from making a payment otherwise payable hereunder by reason of regulatory
requirements binding on the Bank or its affiliates, as the case may be.

          13.8 WAIVER. No waiver of any provision of this Agreement shall be effective unless made in
writing and signed by the waiving party. The failure of any party to require the performance of any
term or obligation of this Agreement, or the waiver by any party of any breach of this Agreement,
shall not prevent any subsequent enforcement of such term or obligation or be deemed a waiver of
any subsequent breach.

          13.9 NOTICES. Any notices, requests, demands and other communications provided for by this
Agreement shall be sufficient if in writing and delivered in person or sent by registered or
certified mail, postage prepaid, and addressed to the Employee at the Employee’s last known address
on the books of the Bank or, in the case of the Bank, at its main office, attention of the Chief
Executive Officer of the Board of Directors.

           13.10 AMENDMENT. This Agreement may be amended or modified only by a written instrument signed
by the Employee and a duly authorized representative of the Bank.

11

 

          13.11 NO EFFECT ON LENGTH OF SERVICE. Nothing in this Agreement shall be deemed to prohibit
the Bank from terminating the Employee’s employment before the end of the Term of Employment with
or without notice for any reason. This Agreement shall determine the relative rights and
obligations of the Bank and the Employee in the event of any such termination. In addition, nothing
in this Agreement shall require the termination of the Employee’s employment at the expiration of
the Term of Employment. Any continuation of the Employee’s employment beyond the expiration of the
Term of Employment shall be on an “at-will” basis, unless the parties agree otherwise.

          13.12 SOURCE OF PAYMENTS. The Bank shall make in a timely manner all payments provided for
under this Agreement in cash or check from its general funds. The Company, however,
unconditionally guarantees payment and the provision of all amounts and benefits due to the
Employee under this Agreement. If the Bank does not timely pay or provide such amounts and
benefits, the Company shall pay or provide such amounts and benefits.

          13.13 ENTIRE AGREEMENT; EFFECT ON PRIOR AGREEMENTS. This Agreement constitutes the entire
agreement between the parties pertaining to its subject matter and supersedes all prior and
contemporaneous agreements, understandings, negotiations, prior draft agreements, and discussions
of the parties, whether oral or written.

          13.14 COUNTERPARTS AND FACSIMILE SIGNATURES. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each party and delivered to the other
party, it being understood that all parties need not sign the same counterpart. This Agreement may
be executed by facsimile signatures.

          13.15 GOVERNING LAW. This is a Maryland contract and shall be construed under and be governed
in all respects by the laws of the State of Maryland, without giving effect to its conflicts of law
principles.

     14. EFFECT OF CODE SECTION 409A. Notwithstanding anything in this Agreement to the contrary,
if the Bank in good faith determines, as of the effective date of the Employee’s termination of
employment, that amounts payable to the Employee hereunder, are required to be suspended or delayed
for six months in order to satisfy the requirements of Section 409A of the Code, then the Bank will
so advise the Employee, and any such payments shall be suspended and accrued for six months,
whereupon they shall be paid to the Employee in a lump sum (together with interest thereon at the
then-prevailing prime rate). The Employee agrees that the Bank shall be deemed to be in breach of
this Agreement if it delays making a payment otherwise payable hereunder by reason of Section 409A.

12

 

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

      

					
	ATTEST:
	 	/s/ Diane M. Deskins	 
	COMMUNITY BANK OF TRI-COUNTY
	 
	 
	 	 	 
	/s/ Michael L.
Middleton

	 
	 	 	 
	
Michael L.
Middleton
President

      

					
	ATTEST:
	 	/s/ Diane M. Deskins	 
	          TRI-COUNTY FINANCIAL
CORPORATION (As Guarantor)
       
	 
	 
	 	 	 
	/s/ Michael L.
Middleton

	 
	 	 	 
	
Michael L.
Middleton
President

      

					
	WITNESS:
	 	/s/ Diane M. Deskins	 
	     EMPLOYEE 
	 
	 
	 	 	 
	/s/
William J. Pasenelli

	 
	 	 	 
	
William J. Pasenelli

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