Document:

AMENDMENT NUMBER FOUR

                         TO THE GENERAL AGREEMENT AMONG

        KMC TELECOM INC., KMC TELECOM II, INC., KMC TELECOM III, INC.,

             KMC TELECOM IV, INC., KMC TELECOM OF VIRGINIA, INC.,

            KMC TELECOM LEASING I LLC, KMC TELECOM LEASING II LLC,

           KMC TELECOM LEASING III LLC, KMC TELECOM LEASING IV LLC

                          AND LUCENT TECHNOLOGIES INC.

      This Amendment  Number Four  (hereinafter  this "AMENDMENT  FOUR") is made
effective  as of February 15,  2000,  by and among KMC Telecom  Inc., a Delaware
corporation,  KMC Telecom II,  Inc.,  a Delaware  corporation,  KMC Telecom III,
Inc., a Delaware corporation,  KMC Telecom IV, Inc., a Delaware corporation, KMC
Telecom of  Virginia,  Inc.,  a Virginia  public  service  company,  KMC Telecom
Leasing I LLC, a Delaware limited liability company, KMC Telecom Leasing II LLC,
a Delaware limited  liability  company,  KMC Telecom Leasing III LLC, a Delaware
limited  liability  company,  KMC  Telecom  Leasing IV LLC,  a Delaware  limited
liability  company,  each with  offices  located at 1545  Route 206,  Suite 300,
Bedminster,   New  Jersey  07921  (hereinafter   collectively   referred  to  as
"CUSTOMER"), and Lucent Technologies Inc., a Delaware corporation acting through
its Global Service Providers Group, with offices located at 600 Mountain Avenue,
Murray Hill, New Jersey 07074 (hereinafter "SELLER").

      WHEREAS,  Customer and Seller previously entered into that certain General
Agreement  (Contract Number  LNM970313MP),  effective March 6, 1997, as modified
and amended by Amendment Number One (Contract Number LNM970922MP),  effective as
of October 15, 1997,  as further  modified and amended by Amendment  Number Two,
effective as of December 22, 1998, as further  modified and amended by Amendment
Number  Three,  effective as of November  15, 1999 (as so amended,  the "GENERAL
AGREEMENT"),  setting  forth the terms and  conditions  pursuant to which Seller
agreed to supply and Customer  agreed to procure  certain of Seller's  Products,
Licensed Materials and Services (as such terms are defined therein); and

      WHEREAS, Customer and Seller desire to amend and modify the General
Agreement as set forth herein; and

      WHEREAS,  all terms used  herein  but not  defined  herein  shall have the
meanings ascribed to them in the General Agreement.

      NOW THEREFORE,  in  consideration  of the mutual promises  hereinafter set
forth and other good and valuable consideration,  the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:

<PAGE>

1.    SCOPE OF GENERAL AGREEMENT

      The definition of "Customer"  contained in the General Agreement is hereby
amended to  additionally  include  KMC III  Services  LLC,  a  Delaware  limited
liability company ("KMC SERVICES"),  it being the intent and understanding among
the parties that KMC Services shall be authorized to procure Products,  Licensed
Materials  and  Services  from  Seller  under  and  pursuant  to the  terms  and
conditions of the General Agreement.

2.    ENTIRE AGREEMENT

      Except as specifically modified, amended or supplemented herein, all terms
and conditions of the General  Agreement  shall remain in full force and effect.
The  terms  and   conditions   contained  in  this   Amendment  Four  and  those
nonconflicting terms and conditions of the General Agreement supersede all prior
oral and  written  understandings  among the parties  and shall  constitute  the
entire  agreement  among the parties with respect to the subject  matter herein.
This Amendment  Number Four shall not be modified or amended except by a writing
signed by an authorized representative of each of the parties.

3.    COUNTERPARTS

      This Amendment  Number Four may be executed in any number of counterparts,
each of which  when so  executed  shall be deemed to be an  original  and all of
which taken together shall constitute one and the same instrument.

4.    GOVERNING LAW

      This  Amendment  Number Four shall be governed by the laws of the State of
New York.

<PAGE>

            IN WITNESS  WHEREOF,  the parties have caused this Amendment  Number
Four to be executed by their duly authorized  representatives  as of the day and
year first above written.

KMC TELECOM INC.                          KMC TELECOM LEASING I LLC
                                          By: KMC Telecom Inc., as Sole Member

By:   /s/                                 By:   /s/
      --------------------------                --------------------------------
      Name: James D. Grenfell                   Name: James D. Grenfell
      Title:Chief Financial Officer             Title:Chief Financial Officer

KMC TELECOM II, INC.                      KMC TELECOM LEASING II LLC
                                          By: KMC Telecom II, Inc., as Sole
Member

By:   /s/                                 By:   /s/
      -----------------------------             --------------------------------
      Name: James D. Grenfell                  Name: James D. Grenfell
      Title:Chief Financial Officer            Title:Chief Financial Officer

KMC TELECOM III, INC.                     KMC TELECOM LEASING III LLC
                                          By: KMC Telecom III, Inc., as Sole
                                              Member

By:   /s/                                 By:   /s/
      -----------------------------             --------------------------------
      Name: James D. Grenfell                   Name: James D. Grenfell
      Title:Chief Financial Officer             Title:Chief Financial Officer

KMC TELECOM IV, INC.                      KMC TELECOM LEASING IV LLC
                                          By: KMC Telecom IV, Inc., as Sole
                                              Member

By:   /s/                                 By:   /s/
      -----------------------------             --------------------------------
      Name: James D. Grenfell                   Name: James D. Grenfell
      Title:Chief Financial Officer             Title:Chief Financial Officer

KMC TELECOM OF VIRGINIA, INC.             KMC III SERVICES LLC
                                          By: KMC Telecom III, Inc., as Sole
                                              Member

By:   /s/                                 By:   /s/
      -----------------------------             --------------------------------
      Name: James D. Grenfell                   Name: James D. Grenfell
      Title:Chief Financial Officer             Title:Chief Financial Officer

<PAGE>

LUCENT TECHNOLOGIES INC.

By:   /s/
      -----------------------------
      Name: William H. Pittman
      Title:Area Vice PresidentExhibit 10.1 -- Employment Agreement with Dale L. Orem

                                    AGREEMENT

         AGREEMENT,  dated this 19th day of June, 1995,  between  COMMUNITY BANK
SHARES OF  INDIANA,  INC.  ("The  Corporation")  and  COMMUNITY  BANK  SHARES OF
INDIANA, INC., acting for a corporation to be formed and to be known as HERITAGE
BANKING  COMPANY,  a state  chartered  bank,  (the "Bank")  sometimes  hereafter
referred to together as the "Employers" and Dale Orem (the "Executive")

                                    PREMISES

         A. The  Corporation  is in the  process  of  trying to form a new state
chartered  bank,  which  state  chartered  bank shall be call  Heritage  Banking
Company if approved by the appropriate federal and state agencies.

         B.      The Corporation shall be the majority shareholder of the Bank.

         C.      The Corporation needs to identify its proposed officers for the
approval process.

         D.      Executive is willing to serve as an officer of the Bank if it
is approved.

         E.      In order to induce the Executive to serve as the Chairman of
the Bank, the Employers and the Executive desire to enter into this Agreement to
specify the terms of the Executive's employment,

         NOW  THEREFORE,  in  consideration  of  the  Premises  and  the  mutual
agreements herein contained, the parties hereby agree as follows:

         1.      Definitions.  The following words and terms shall have the
meanings set forth below for the purposes of this Agreement.

                  (a)      Average Annual Compensation.  The Executive's
"Average Annual  Compensation" for purposes of this Agreement shall be deemed to
mean the average level of compensation paid to the Executive by the Employers or
any subsidiary  thereof during the most recent five taxable years  preceding the
Date of Termination,  as reflected in the annual W-2 and Tax Statement  provided
to the Executive.
                  (b)      Base Salary.  "Base Salary" shall have the meaning
set forth in Section 3(a) hereof.

                  (c)      Cause.  Termination of the Executive's employment for
"Cause" shall mean termination because of personal

<PAGE>
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law,  rule or  regulation  (other  than  traffic  violations  and similar
offenses) or final cease-and-desist order or material breach of any provision of
this Agreement.

         (d)      Change in Control of the Corporation or The Bank.  (A)
"Change in Control of  Corporation or the Bank" shall be deemed to have occurred
if (i) any  "person"  (as such term is used in  Sections  13(d) and 14(d) of the
Securities  Exchange Act of 1934 ("Exchange  Act") is or becomes the "beneficial
owner"  (as  defined  in  Rule  13d-3  under  the  Exchange  Act),  directly  or
indirectly,  of securities of the  Corporation or the Bank  representing  25% or
more of the  combined  voting  power of the  Corporation's  or Pre  Bank's  then
outstanding securities.

         (e)     Code.  "Code" shall mean the Internal Revenue Code of 1986, as
amended.

         (f) Date of Termination.  "Date of  Termination"  shall mean (i) if the
Executive's  employment  is  terminate  for  Cause or for  Disability,  the date
specified in the Notice of Termination,  and (ii) if the Executive's  employment
is terminated for any reason, the date on which a Notice of Termination is given
or as specified in such Notice.

         (g)  Disability.  Termination  by  the  Employers  of  the  Executives'
employment based on "Disability" shall mean termination  because of any physical
or mental impairment which qualifies the Executive for disability benefits under
the  applicable  long-term  disability  plan  maintained by the Employers or any
subsidiary  or, if no such plan  applies,  which would qualify the Executive for
disability benefits under the Federal Social Security System.

         (h)     Good Reason. Termination by the Executive of the Executive's
employment for "Good Reason" shall mean termination by the Executive following a
Change in Control of the Corporation based on:

                  (i) Without  the  Executive's  express  written  consent,  the
                  failure to elect or to re-elect or to appoint or to re-appoint
                  the  Executive  to the  office  of  Chairman  of the Bank or a
                  material   reduction  by  the  Employers  in  the  Executive's
                  functions,  duties or responsibilities as Chairman of the Bank
                  or from those  immediately prior to a Change in Control of the
                  Corporation/Bank;

                  (ii)     Without the Executive's express written

                                        2
<PAGE>
                   consent,  a  material  reduction  by  the  Employers  in  the
                   Executive's  Base  Salary as the same may be  increased  from
                   time to time or,  except to the extent  permitted  by Section
                   3(b)  hereof,  a material  reduction in the package of fringe
                   benefits provided to the Executive, taken as a whole;

                   (iii) The  principal  executive  office of the  Employers  is
                   relocated  outside  of a 30 mile  radius  of  Jeffersonville,
                   Indiana or, without the Executive's  express written consent,
                   the  Employers  require the  Executive  to be based  anywhere
                   other than an area within a 30 mile radius of the  Employers'
                   principal  executive  office,  except for required  travel on
                   business of the Employers.

                   (iv) Any purported termination of the Executive's  employment
                   for Cause,  Disability  or  Retirement  which is not effected
                   pursuant   to  a  Notice  of   Termination   satisfying   the
                   requirements of paragraph (j) below; or

                  (v) The failure by the  Employers to obtain the  assumption of
                   and  agreement to perform this  Agreement by any successor as
                   contemplated in Section 9 hereof.

         (i)       IRS.  IRS shall mean the Internal Revenue Service.

         (j) Notice of Termination. Any purported termination of the Executive's
employment by the Employers for any reason,  including without  limitation,  for
Cause, Disability or Retirement,  or by the Executive for any reason,  including
without limitation for Good Reason,  shall be communicated by written "Notice of
Termination"  to the other  party  hereto.  For  purposes of this  Agreement,  a
"Notice  of  Termination"  shall mean a dated  notice  which (i)  indicates  the
specific termination provision in this Agreement relied upon, (ii) sets forth in
reasonable  detail  the facts and  circumstances  claimed to provide a basis for
termination of Executive's  employment  under the provision so indicated,  (iii)
specifies  a Date of  Termination,  which shall be not less than thirty (30) nor
more than ninety (90) days after such Notice of Termination is given,  except in
the case of the Employers termination of Executive's employment for Cause, which
shall be  effective  immediately;  and (iv) is given in the manner  specified in
Section 10 hereof.

         (k)       Retirement.  Termination by the Employers of the Executive's
employment based on "Retirement" shall mean voluntary termination by the
Executive in accordance with

                                        3

<PAGE>
the  Employers'  retirement  policies,  including  early  retirement,  generally
applicable to their salaried employees.

2.       Term of Employment.
           (a) The Employers hereby employ the Executive as Chairman of the Bank
and Executive  hereby accepts said employment and agrees to render such services
to the Employers on the terms and  conditions set forth in this  Agreement.  The
term of employment under this Agreement shall be for three years,  commencing on
the date of this Agreement.  This Agreement will  automatically  renew each year
for the three (3) year  period  until  2003,  unless  changes  are  agreed to in
writing by both parties, or unless terminated as provided for in this Agreement;
and in any event the term of employment will terminate eight years from the date
of execution hereof.

           (b) During the term of this  Agreement,  the Executive  shall perform
such executive  services for the Employers as may be consistent  with his titles
and from time to time assigned to him by the Employers' Board of Directors.

3.  Compensation and Benefits.

           (a) The Employers shall compensate and pay Executive for his services
during the term of this  Agreement  at a minimum base salary of  $70,000.00  per
year ("Base  Salary"),  which may be increased from time to time in such amounts
as may be determined by the Board of Directors of the Employers.  In addition to
his Base Salary, the Executive shall receive a board meeting fee of Four Hundred
Dollars  ($400.00) per month (with two paid  absences).  In addition to his Base
Salary,  the  Executive  shall be  entitled  to receive  during the term of this
Agreement the following bonus payments under the following terms:

                  (i)      Deposit Objective Based Bonuses:  A bonus shall be
                  paid to Executive if certain objectives are met.

                           First  Anniversary:   If  the  Average  Deposits  are
                           $18,000,000.00,  the Executive  shall be paid a bonus
                           of $5,000.00. In addition, Executive shall be paid an
                           additional  bonus  of  $1,000.00  for  every  million
                           dollars   of   Average    Deposits   in   excess   of
                           $18,000,000.00.

                           Second Anniversary: If the Average Deposits are
                           $35,000,000.00 or the prior year's actual deposits
                           base plus 15%, whichever is greater, then Executive
                           shall be paid a bonus of

                                        4

<PAGE>
                           $10,000.00.  In addition,  Executive shall be paid an
                           additional bonus of $1,000.00 for every million
                           dollars of Average  Deposits in excess of
                           $35,000,000.00  or the prior year's actual  Deposit
                           Base plus 15%, whichever is greater.

                           Third  Anniversary:    If   the   Average   Deposits
                           are $50,000,000.00 or the prior year's actual Deposit
                           base plus l5%,  whichever is greater,  then Executive
                           shall be paid a bonus of $15,000.00. In addition,
                           Executive shall be paid an additional  bonus of
                           $1,000.00 for every million  dollars of Average
                           Deposits in excess of  $50,000,000.00  or the prior
                           year's actual Deposit Base plus 15%, whichever is
                           greater.

                           For purposes of this section,  Average Deposit, and
                           Deposit Base shall mean the  average of  deposits
                           for the period of two months  prior to the end of the
                           month closest to the first,  second, or third
                           anniversary of the opening date of the Bank's first
                           full service banking  location.  The average deposits
                           shall be calculated by taking the total of the bank
                           deposits on the first, fifteenth, and last days of
                           those two months and dividing by six. Bank deposits
                           for purposes of this section shall not include jumbo
                           CD's which are  certificates  of deposit in excess
                           of One Hundred Thousand Dollars ($100,000.00).

                  (ii)      Return on Assets Based Bonus:  A bonus shall be paid
                  to Executive if Executive qualifies for a bonus under the
                  Deposit Objective Based Bonus for that year, and if certain
                  objectives are met.

                           First Anniversary:  If the Bank's annual after tax
                           Return of Assets is .10 of one  percent or better,
                           then  Executive  shall be paid a bonus
                           equal to one-half of the bonus he received under
                           the Deposit Objective
                           Bonus for the First Anniversary.

                           Second Anniversary: If the Bank's annual after tax
                           Return on Assets is .75 of one percent or better,
                           then  Executive  shall per paid a bonus equal to
                           one-half of the bonus he received under the Deposit
                           Objective Bonus for the Second Anniversary.

                             5

<PAGE>
                            SEE ATTACHED REVISION

                            Third  Anniversary:  If the Bank's  annual after tax
                            Return  on  Asset is One  Percent  or  better,  then
                            Executive shall be paid a bonus equal to one-half of
                            the bonus he received  under the  Deposit  Objective
                            Bonus for the Third Anniversary.

                            The First,  Second, and Third anniversaries are the
                            anniversary  of the full years  following  the
                            opening date of the Bank's first full service
                            banking location.

         (iii)  After the first  three years of this  Agreement,  Employers  and
Executive will negotiate a commercially reasonable bonus plan.

         (b) During the term of the  Agreement,  Executive  shall be entitled to
participate  in and  receive the  benefits  of any  pension or other  retirement
benefit plan, profit sharing, stock option,  employee stock ownership,  or other
plans,  benefits  and  privileges  given  to  employees  and  executives  of the
Employers, to the extent commensurate with his then duties and responsibilities,
as fixed by the Board of Directors  of the  Employers.  Specifically,  Executive
will be entitled  to  retirement  benefits  as follows:  (i) After five years of
service and  Executive  being the age of 62 -$415.00  per month (ii) After seven
years of service  and  Executive  being the age of 64 - $660.00  per month (iii)
After  eight years of service  and  Executive  being the age of 65 - $755.00 per
month.  In addition,  Executive  will be entitled to a  retirement  supplemental
annuity. The annuity will be paid to the Executive or the Executive's spouse, if
the  Executive  predeceases  spouse.  The  annuity  will pay the  amount of Five
Hundred  Dollars  ($500.00) per month after the Executive  reaches the age of 62
and after  the  Executive  has been a full time  employee  for five  years.  The
annuity will be owned  initially by the  Employers,  and will be  transferred to
Executive  in three equal parts upon the first  three  anniversary  dates of his
employment.  The Employers shall not make any changes in such plans, benefits or
privileges  which  would  adversely  affect   Executive's   rights  or  benefits
thereunder,  unless such change occurs  pursuant to a program  applicable to all
executive officers of the Employers. Nothing paid to Executive under any plan or
arrangement  presently in effect or made available in the future shall be deemed
to be in lieu of the  salary  payable to  Executive  pursuant  to  Section  3(a)
hereof.

         (c) During the term of this  Agreement,  Executive shall be entitled to
paid annual  vacation of four weeks per annum,  two weeks of which must be taken
consecutively.

                                        6
<PAGE>
         4.  Expenses.  The  Employers  shall  reimburse  Executive or otherwise
provide  for or pay  for  all  reasonable  expenses  incurred  by  Executive  in
furtherance of, or in connection with the business of the Employers,  including,
but not by way of limitation, all traveling expenses, subject to such reasonable
documentation  and  other  limitations  as may be  established  by the  Board of
Directors of the Employers. Specifically,  Executive shall be reimbursed for the
use of his personal  automobile at the rate of Three Hundred  Dollars  ($300.00)
per month.  If such expenses are paid in the first  instance by  Executive,  the
Employers shall reimburse the Executive therefor.

         5.    Termination.
                  (a) The Employers shall have the right, at any time upon prior
         Notice  of  Termination,   to  terminate  the  Executive's   employment
         hereunder for any reason,  including without limitation termination for
         Cause,  Disability or Retirement,  and Executive  shall have the right,
         upon prior Notice of Termination, to terminate his employment hereunder
         for any reason.

                  (b) In the event that (i) Executive's employment is terminated
         by the Employers for Cause, Disability or Retirement or in the event of
         the  Executive's  death,  or (ii)  Executive  terminates his employment
         hereunder  other than for Good  Reason,  Executive  shall have no right
         pursuant to this  Agreement ~o  compensation  or other benefits for any
         period after the applicable Date of Termination.

                  (c) (i) In the event that Executive's employment is terminated
         by the  Employers for other than Cause,  Disability,  Retirement or the
         Executive's death, then the Employers shall,  subject to the provisions
         of Section 6 hereof, if applicable, pay to the Executive, in nine equal
         monthly installments beginning with the first business day of the month
         following the date of Termination, a cash severance amount equal to the
         Base Salary  which the  Executive  would have earned over the next nine
         (9) months as of his Date of Termination.

                  (ii) In the event that Executive's employment is terminated by
         the  Employers  for other than  Cause,  Disability,  Retirement  or the
         Executive's  death,  or such  employment is terminated by the Executive
         due to a material  breach of this Agreement by the Employers  which has
         not been  cured  within  fifteen  (15) days  after a written  notice of
         non-compliance  has been given by the Executive to the Employers or for
         Good Reason,  and on or prior to the  Executive's  Date of  Termination
         there has been a Change in  Control  of the  Corporation,  or a written
         agreement which  contemplates a Change in Control of the Corporation is
         in effect, then the Employers shall, subject to the provisions

                                        7

<PAGE>
         of Section 6 hereof,  if applicable:

                    (A) pay to the Executive,  in thirty-six  (36) equal monthly
                  installments  beginning  with the  first  business  day of the
                  month  following  the Date of  Termination,  a cash  severance
                  amount equal to three (3) times the Executive's Base Salary as
                  of his Date of Termination, minus one dollar, and

                    (B) maintain and provide for a period  ending at the earlier
                  of (i) the  expiration  of  thirty-six  (36)  months  from the
                  Executive's  Date  of  Termination  or  (ii)  the  date of the
                  Executive's full-time employment by another employer (provided
                  that  the  Executive  is  entitled  under  the  terms  of such
                  employment   to  benefits   substantially   similar  to  those
                  described  in  this  subparagraph  (B)),  at no  cost  to  the
                  Executive,  the  Executive's  continued  participation  in all
                  group   insurance,   life  insurance,   health  and  accident,
                  disability  and other  employee  benefit  plans,  programs and
                  arrangements   in  which  the   Executive   was   entitled  to
                  participate  immediately  prior  to the  Date  of  Termination
                  (other  than stock  option and  restricted  stock plans of the
                  Employers),  provided  that in the event that the  Executive's
                  participation in any plan,  program or arrangement as provided
                  in this  subparagraph  (B) is  prohibited  by the terms of the
                  Plan or by the Employers for legal or other bona fide reasons,
                  or during such period any such plan, program or arrangement is
                  discontinued or the benefits thereunder are materially reduced
                  for all employees,  the Employers shall arrange to provide the
                  Executive with benefits  substantially  similar to those which
                  the Executive would have received had his employment continued
                  throughout  such  period to the extent  such  benefits  can be
                  provided at a commercially  reasonable cost. In the event such
                  benefits cannot be provided at a commercially reasonable cost,
                  the  Employers  shall pay the  Executive  that  portion of the
                  premiums  or  other  costs  of  such  plans  allocable  to the
                  Executive in the year prior to the Date of Termination for the
                  period set forth in this subparagraph (B)

         6. Limitation of Benefits under Certain Circumstances.  If the payments
and benefits  pursuant to Section 5 hereof,  either alone or together with other
payments  and  benefits  which  Executive  has the  right  to  receive  from the
Employers,  would  constitute a "parachute  payment"  under  Section 280G of the
Code,  the payments and benefits  pursuant to Section 5 hereof shall be reduced,
in the manner  determined by the Executive,  by the amount, if any, which is the
minimum  necessary to result in no portion of the  payments  and benefits  under
Section 5 being non-deductible to the Employers pursuant to Section 280G of the

                                        8

<PAGE>
Code and subject to the excise tax imposed under  Section 4999 of the Code.  The
determination  of any reduction in the payments and benefits to be made pursuant
to Section 5 shall be based upon the opinion of independent tax counsel selected
by the Employers' independent public accountants and paid by the Employers. Such
counsel shall be reasonably acceptable to the Employers and the Executive; shall
promptly prepare the foregoing  opinion,  but in no event later than thirty (30)
days from the Date of  Termination;  and may use such  actuaries as such counsel
deems  necessary or advisable  for the purpose.  In the event that the Employers
and/or the  Executive  do not agree with the  opinion of such  counsel,  (i) the
Employers shall pay to the Executive the maximum amount of payments and benefits
pursuant  to  Section  5, as  selected  by the  Executive,  which  such  opinion
indicates that there is a high probability do not result in any of such payments
and benefits being non-deductible to the Employers and subject to the imposition
of the excise tax imposed  under Section 4999 of the Code and (ii) the Employers
may request,  and  Executive  shall have the right to demand that the  Employers
request,  a ruling from the IRS as to whether the disputed payments and benefits
pursuant  to Section 5 hereof  have such  consequences.  Any such  request for a
ruling from the IRS shall be promptly  prepared and filed by the Employers,  but
in no event  later than thirty (30) days from the date of the opinion of counsel
referred to above, and shall be subject to Executive's approval prior to filing,
which shall not be unreasonably  withheld.  The Employers and Executive agree ~o
be bound by any ruling received from the IRS and to make appropriate payments to
each other to reflect any such rulings, together with interest at the applicable
federal  rate  provided  for in Section  7872(f) (2) of the Code as amended from
time to time.  Nothing  contained  herein  shall  result in a  reduction  of any
payments or benefits to which the Executive may be entitled upon  termination of
employment under any circumstances other than as specified in this Section 6, or
a reduction in the payments and benefits specified in Section 5 below zero.

         7.    Mitigation; Covenant Not To Compete; Exclusivity of Benefits.
         In consideration of the amount of Five Hundred
         and   No/00 Dollars ($ 500 00/00):

                  (a) The Executive shall not be required to mitigate the amount
         of any benefits hereunder by seeking other employment or otherwise, nor
         shall the amount of any such  benefits  be reduced by any  compensation
         earned by the Executive as a result of  employment by another  employer
         after the Date of Termination or otherwise.

                  (b)  The   Executive   hereby   agrees  that,   following  the
         termination  of his  employment  under this  Agreement  for any reason,
         other than a termination within six months following

                                        9
<PAGE>
          a Change in Control of the  Corporation,  he will not, for a period of
          time  equal to what would  have been the then  remaining  term of this
          Agreement absent his termination of employment, directly or indirectly
          and  in  any  way,  whether  as  principal  or as  director,  officer,
          employee,  consultant, agent, partner or stockholder to another entity
          (other than by the ownership of a passive  investment  interest of not
          more than 5% in a company with publicly traded equity securities), (i)
          own, manage,  operate,  control, be employed by, participate in, or be
          connected in any manner with the ownership,  management,  operation or
          control  of any  business  that  competes  with  any  business  of the
          Employers  and which is  located  within 50 miles of any of the Bank's
          branch  offices  which  are in  existence  during  the  term  of  this
          Agreement  and  which  are  prior  to  a  Change  in  Control  of  the
          Corporation;  (ii)  interfere  with,  solicit  on behalf of another or
          attempt  to  entice  away  from  the  Employers  any  project,   loan,
          arrangement,  agreement, financing or customer of the Employers or any
          contract,  agreement  or  arrangement  that the  Employer  is actively
          negotiating  with  any  other  party,  or  any  prospective   business
          opportunity that the Employer has identified;  or (iii) for himself or
          another,  hire, attempt to hire, or assist in or facilitate in any way
          the hiring of any employee of the Employers.

                  (c) The  specific  arrangements  referred  to  herein  are not
         intended to exclude any other  benefits  which may be  available to the
         Executive upon a termination of employment with the Employers  pursuant
         to employee benefit plans of the Employers or otherwise.

         8. Withholding.  All  payments  required  to  be  made by the Employers
hereunder to the Executive  shall be subject to the withholding of such amounts,
if any,  relating  to tax and other  payroll  deductions  as the  Employers  may
reasonably  determine  should be  withheld  pursuant  to any  applicable  law or
regulation.

         9.  Assignability.  The Employers  may assign this  Agreement and their
rights and obligations  hereunder in whole, but not in part, to any corporation,
bank or other entity with or into which the  Employers  may  hereafter  merge or
consolidate or to which the Employers may transfer all or  substantially  all of
their assets, if in any such case said  corporation,  bank or other entity shall
by  operation  of law or  expressly  in writing  assume all  obligations  of the
Employers  hereunder as fully as if it had been  originally made a party hereto,
but may not  otherwise  assign this  Agreement or their  rights and  obligations
hereunder.  The  Bank  may  assign  its  rights  under  this  Agreement  to  the
Corporation  or to any of its  subsidiaries,  and  the  Corporation  and/or  its
subsidiaries may redefine Executive's services, so long as there is not decrease
in   compensation.   Such  assignment  from  Bank  to  Corporation   and/or  its
subsidiaries shall not be an act of

                                       10
<PAGE>
termination,  and thus  Executive  shall not be entitled to  compensation  under
paragraph  5. The  Executive  may not assign or transfer  this  Agreement or any
rights or obligations hereunder.

         10. Notice.  For the purposes of this Agreement,  notices and all other
communications  provided for in this Agreement  shall be in writing and shall be
deemed  to have been duly  given  when  delivered  or  mailed  by  certified  or
registered mail,  return receipt  requested,  postage prepaid,  addressed to the
respective addresses set forth below:

To the Employers:                    C. Thomas Young
                                     Chairman of the Board of Directors
                                     Community Bank Shares of Indiana, Inc.
                                     202 East Spring Street
                                     New Albany, Indiana 47150

To the Executive:                    Dale L. Orem
                                     32 Arctic Springs
                                     Jeffersonville, Indiana 47130

         11. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver,  modification or discharge is agreed to
in  writing  signed by the  Executive  and such  officer or  officers  as may be
specifically  designated  by the Board of Directors of the  Employers to sign on
their  behalf.  No waiver by any party  hereto at any time of any  breach by any
other party hereto of, or  compliance  with,  any condition or provision of this
Agreement  to be  performed  by such  other  party  shall be  deemed a waiver of
similar or  dissimilar  provisions  or conditions at the same or at any prior or
subsequent time.

         12. Governing  Law.  The  validity,  interpretation,  construction  and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise be the substantive laws of the State of Indiana.

         13. Nature of  Obligations.  Nothing  contained  herein shall create or
require the  Employers to create a trust of any kind to fund any benefits  which
may be payable hereunder,  and to the extent that the Executive acquires a right
to receive benefits from the Employers hereunder, such right shall be no greater
than the right of any unsecured general creditor of the Employers.

         14.    Headings. The section headings contained in this Agreement  are
for  reference  purposes  only and shall not  affect in any way the  meaning  or
interpretation of this Agreement.

                                       11
<PAGE>
         15.     Validity. The invalidity or unenforceability of any  provision
of this Agreement shall not affect the validity or  enforceability  of any other
provisions of this Agreement, which shall remain in full force and effect.

         16.     Counterparts. This Agreement may be executed in one or more
counterparts,  each of which shall be deemed to be an original  but all of which
together will constitute one and the same instrument.

         17.       Regulatory Actions. The following provisions shall be
controlling  in the  event  of a  conflict  with  any  other  provision  of this
Agreement, including without limitation Section 5 hereof.

                  (a) If Executive is suspended  from office and/or  temporarily
         prohibited from  participating in the conduct of the Employers' affairs
         by a federal or state agency,  the  Employers'  obligations  under this
         Agreement  shall  be  suspended  as of the date of  suspension,  unless
         stayed by  appropriate  proceedings.  If the  charges of the federal or
         state  agency  are  dismissed,   the  Employers   shall  reinstate  its
         obligations which were suspended.

                  (b) If  Executive is removed  from office  and/or  permanently
         prohibited from  participating in the conduct of the Employers' affairs
         by an order  issued by a federal or state agency or by a final order of
         a court,  all  obligations of the Employers  under this Agreement shall
         terminate as of the effective  date of the order,  but vested rights of
         the Executive and the Employers as of the date of termination shall not
         be affected.

                  (c) If the Bank is in default,  as defined by federal or state
         law, rules or regulations,  all obligations  under this Agreement shall
         terminate as of the date of default, but vested rights of the Executive
         and the Employers as of the date of termination shall not be affected.

                (d) All obligations  under this Agreement shall be terminated if
         (i) the State of Indiana,  the Federal  Deposit  Insurance  Corporation
         ("FDIC"),  or Resolution Trust Corporation  enters into an agreement to
         provide  assistance  to or on  behalf of the Bank  under the  authority
         contained in state or federal  rules or  regulation or law ; or (ii) by
         the  Director  of the  OTS,  or  his/her  designee,  or the head of the
         Indiana  Department  of  Finance  at the time the  Director  or his/her
         designee or the head of the Indiana  Department  of Finance  approves a
         supervisory merger to resolve problems related to operation of the Bank
         or when the Bank is  determined  by the Director of the OTS or the head
         of the Indiana Department of Finance to be in an unsafe or unsound

                                       12
<PAGE>
          condition, but vested rights of the Executive and the Employers as of
          the date of termination shall not be affected.

           18. Regulatory  Prohibition.  Notwithstanding  any other provision of
this Agreement to the contrary,  any payments made to the Executive  pursuant to
this  Agreement,  or  otherwise,  are  subject  to and  conditioned  upon  their
compliance with federal or State law, rules or regulations)  and any regulations
promulgated thereunder.

IN WITNESS WHEREOF,  this Agreement has been executed as of the date first above
written.

Attest:                               COMMUNITY BANK SHARES
                                      OF INDIANA, INC.
/s/ M. Diane Murphy                   BY:  /s/ Robert E. Yates
-------------------                        --------------------

Attest:                               COMMUNITY BANK SHARES
                                      OF INDIANA ACTING FOR
                                      HERITAGE BANKING COMPANY
M. Diane Murphy                       BY:  /s/ Robert E. Yates
-------------------                        --------------------
                                      BY:
                                           --------------------
                                           Robert E. Yates

                                      /s/ Dale L. Orem
                                      -----------------------------
                                      Dale Orem

dm9a : Orem. agr

                                       13

<PAGE>
                                    REVISION

                                Third  Anniversary:  If the Bank's  annual after
                                tax  Return on Asset is One  Percent  or better,
                                then  Executive  shall be paid a bonus  equal to
                                one-half  of the  bonus he  received  under  the
                                Deposit    Objective   Bonus   for   the   Third
                                Anniversary.

                                The First,  Second, and Third  anniversaries are
                    the anniversary of the full years following the opening date
                    of the Bank's first full service banking location.

           (iii) After the first three years of this  Agreement,  Employers  and
Executive will negotiate a commercially reasonable bonus plan.

             (b) During the term of the Agreement,  Executive  shall be entitled
to  participate  in and receive the benefits of any pension or other  retirement
benefit plan, profit sharing, stock option,  employee stock ownership,  or other
plans,  benefits  and  privileges  given  to  employees  and  executives  of the
Employers, to the extent commensurate with his then duties and responsibilities,
as fixed by the Board of Directors  of the  Employers.  Specifically,  Executive
will be entitled  to  retirement  benefits  as follows:  (i) After five years of
service and  Executive  being the age of 62 - $415.00 per month (ii) After seven
years of service and  Executive  being age of 64 - $660.00 per month (iii) After
eight years of service and Executive being the age of 65 - $755.00 per month. In
addition,  Executive  will be entitled to receive a retirement  supplement.  The
supplement  will be paid to the  Executive  or the  Executive's  spouse,  if the
Executive predeceases spouse. The supplement will pay the amount of Five Hundred
Dollars  ($500.00) per month after the Executive reaches the age of 62 and after
the Executive has been a full time employee for five years.  The supplement will
be  transferred  to  Executive  in  three  equal  parts  upon  the  first  three
anniversary dates of his employment. The Employers shall not make any changes in
such plans,  benefits or privileges  which would  adversely  affect  Executive's
rights or benefits  thereunder,  unless such change occurs pursuant to a program
applicable to all executive officers of the Employers. Nothing paid to Executive
under any plan or  arrangement  presently  in effect  or made  available  in the
future shall be deemed to be in lieu of the salary payable to Executive pursuant
to Section 3 (a) hereof.

           (c) During the term of this Agreement, Executive shall be entitled to
paid annual  vacation of four weeks per annum,  two weeks of which must be taken
consecutively.

                                        6

<PAGE>
The signees hereby agree upon the revisions, as listed on page 6, that were made
to this employment  contract on February 29, 1996, and initialled by the signees
listed below.

Attest:                               COMMUNITY BANK SHARES
                                      OF INDIANA, INC.
/s/ Dale L. Orem                      BY:  /s/ Robert E. Yates
-------------------                        --------------------

Attest:                               COMMUNITY BANK SHARES
                                      OF INDIANA ACTING FOR
                                      HERITAGE BANKING COMPANY
/s/ Robert E. Yates                   BY:  /s/ Robert E. Yates
-------------------                        --------------------

                                      /s/ Dale L. Orem
                                      -----------------------------
                                      Dale Orem

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