Document:

EX-10.3 EMPLOYMENT AGREEMENT / MICHAEL MIDDLETON

 

Exhibit 10.3

EMPLOYMENT AGREEMENT

     AGREEMENT made as of September 6, 2006 (this “Agreement”), by and between TRI-COUNTY FINANCIAL
CORPORATION, with its principal place of business at 3035 Leonardtown Road, Waldorf, Maryland
20601 (the “Company”), and MICHAEL L. MIDDLETON (the “Executive”).

     WHEREAS, the Company desires to continue to provide for the Executive’s employment by the
Company.

     NOW THEREFORE, in consideration of the mutual covenants contained herein, the Company and the
Executive agree as follows:

     1. EMPLOYMENT. The Executive shall serve the Company as President and Chief Executive Officer.
In such positions, the Executive shall have the duties, responsibilities, functions, and authority
determined and designated from time to time by the Board of Directors of the Company. The Executive
also agrees to serve as an officer of one or more Company affiliates upon such designation. The
Executive shall render such administrative and management services to the Company and its
affiliates as are customarily performed by persons in a similar executive capacity.

     2. EFFECTIVE DATE AND TERM. The Company agrees to employ the Executive for an initial period
of five (5) years beginning on the date first above written (the “Effective Date”) and ending on
the day before the fifth (5th) anniversary of the Effective Date, and during the period
of any additional extensions described below in this Section 2 (the “Term of Employment”). The
parties intend that, at any point in time during the Executive’s employment hereunder, the
then-remaining Term of Employment shall be five (5) years. On the day after the Effective Date and
on each day thereafter, the Term of Employment shall be extended by one day, such that on any date
the Term of Employment will expire on the day before the fifth (5th) anniversary of such
date. These extensions shall continue unless: (i) the Company gives notice to the Executive that it
has elected to discontinue the extensions; (ii) the Executive gives notice to the Company that the
Executive has elected to discontinue the extensions; or (iii) the Executive’s employment with the
Company is terminated, whether by resignation, Disability (as provided in Section 12.1), discharge
or otherwise. On the earlier of (i) the date on which such a notice is deemed given or (ii) the
effective date of a termination of the Executive’s employment with the Company, the Term of
Employment shall be converted to a fixed period of five (5) years ending on the day before the
fifth (5th) anniversary of such date (provided, however, that, subject to any rights of
the Executive 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 Executive’s death, Retirement,
Voluntary Termination or Termination for Just Cause or Termination Without Cause). The last day of
such term, as so extended from time to time, is herein sometimes referred to as the “Expiration
Date.”

     3. COMPENSATION AND BENEFITS. The compensation and benefits payable to the Executive under
this Agreement shall be as follows, it being understood that (i) references to benefits offered by,
or to officers of, the Company are intended to include benefits offered by, or to officers of, any
affiliate of the Company which employs the Executive and (ii) payments or benefits required to be
provided by the Company may be provided by an affiliate:

3.1 SALARY. For all services rendered by the Executive to the Company and its
affiliates, the Executive shall be entitled to receive a base salary at an annual
rate not less than the Executive’s base salary as in effect on the Effective Date,
subject to increase from time to time in accordance with the usual practices of the
Company with respect to

 

 

review of compensation of its senior executives. Any increase in the Executive’s
base salary shall become the “base salary” for purposes of this Agreement. The
Executive’s base salary shall be payable in periodic installments in accordance with
the Company’s usual practice for its senior executives.

3.2 EMPLOYEE BENEFITS. The Executive 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 Company. Such participation shall be subject
to (i) the terms of the applicable plan documents, (ii) generally applicable
policies of the Company and (iii) the discretion of the Board or any administrative
or other committee provided for in, or contemplated by, such plans.

3.3 INCENTIVE COMPENSATION. The Executive shall be eligible to participate in any
incentive compensation or bonus program sponsored by the Company on such terms as
the Board of Directors of the Company may establish for the Executive’s
participation.

3.4 BUSINESS EXPENSES. The Company shall provide for, or reimburse, the Executive’s
reasonable travel and other business expenses (including, without limitation,
automobile and cellphone expenses) incurred by the Executive in the performance of
the Executive’s duties and responsibilities, subject to such reasonable requirements
with respect to substantiation and documentation as may be specified by the Company.

3.5 LEAVE. The Executive shall be entitled to leave (vacation, sick and personal)
in accordance with the Company’s standard policies for senior executives; provided,
however, that the Executive shall receive not less than four (4) weeks vacation
leave during each calendar year.

3.6 GENERAL. Nothing paid to the Executive under any plan, policy or arrangement
currently in effect or made available in the future shall be deemed to be in lieu of
other compensation to the Executive as described in this Agreement.

3.7 OTHER EMPLOYEE BENEFITS. Executive shall be entitled to participate in any
compensatory plans, arrangements or programs the Company 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. The Executive’s participation
in such plans, arrangements or programs shall not be deemed to be in lieu of other
compensation to which the Executive is entitled under this Agreement.

     4. EXTENT OF SERVICE. During the Term of Employment, the Executive shall devote the
Executive’s full time, best efforts and business judgment, skill and knowledge to the advancement
of the Company’s interests and to the discharge of the Executive’s duties and responsibilities
hereunder. The Executive shall not engage in any other business activity, except as may be approved
by the Board; provided, however, that nothing herein shall be construed as preventing the Executive
from:

(a) investing the Executive’s assets in such form or manner as shall not require any
material services on the Executive’s part in the operations or affairs of the companies or
the other entities in which such investments are made, provided that the Executive may not
own any interest in any

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entity that competes with the Company or any affiliate (other than up to 4.9% of the
outstanding voting stock of such an entity that is a publicly traded entity); or

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

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

     5. TERMINATION UPON DEATH. In the event of the Executive’s death during the Term of
Employment, the Executive’s employment (and the Term of Employment) shall terminate on the date of
the Executive’s death. The Company shall pay to the Executive’s beneficiary, designated in writing
to the Company prior to the Executive’s death (or to the Executive’s estate, if the Executive fails
to make such designation), (i) any base salary or other compensation earned through the date of
death, plus (ii) any other compensation and benefits as may be provided in accordance with the
terms and provisions of any applicable plans and programs of the Company in which the Executive
participated as of his date of death.

6. DISCHARGE FOR CAUSE.

     6.1 NOTICE AND DETERMINATION OF CAUSE. The Company may terminate the Executive’s
employment during the Term of Employment for Just Cause. Such termination shall be deemed to
have occurred for Just Cause only if:

     (a) the Board of Directors of the Company, by a separate affirmative vote of at
least three-fourths (3/4) of the entire membership, determines that the Executive has
(i) engaged in acts of personal dishonesty which have resulted in loss to the
Company, 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 Company or one of
its affiliates, (v) been convicted of a crime or act involving moral turpitude, (vi)
willfully breached 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 Executive’s then-current employment capacity or (viii) willfully attempted to
obstruct or failed to cooperate with any investigation authorized by the Board of
Directors or any governmental or self-regulatory entity. No act or failure to act on
the part of the Executive shall be considered “willful” unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief that
the Executive’s action or omission was in the best interests of the Company. Any act
or failure to act that is based upon authority given pursuant to a resolution duly
adopted by the Board of Directors, or upon the advice of legal counsel for the
Company, shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company; and

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

     (c) after the giving of the Notice of Intent to Discharge and before the taking
of the votes contemplated by Section 6.1(a), the Executive (together with the
Executive’s

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legal counsel, if the Executive so desires) is afforded a reasonable
opportunity to make both written and oral presentations before the Board of
Directors for the purpose of refuting the alleged grounds for Just Cause for the
Executive’s discharge; and

     (d) after the vote contemplated by Section 6.1(a), the Company has furnished to
the Executive a notice of termination which shall specify the effective date of the
Executive’s termination of employment (which shall in no event 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
Executive’s employment for Just Cause and stating with particularity the facts and
circumstances found to constitute Just Cause for the Executive’s discharge (the
“Final Discharge Notice”).

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

     6.3 EFFECT OF TERMINATION. In the event of termination pursuant to this Section 6, the
Term of Employment shall terminate and the Company shall pay to the Executive an amount
equal to the sum of (i) base salary or other compensation earned through the date of
termination, plus (ii) any other compensation and benefits as may be provided in accordance
with the terms and provisions of any applicable plans and programs, if any, of the Company.
All other obligations of the Company under this Agreement shall terminate as of the date of
termination.

     7. TERMINATION BY THE EXECUTIVE.

     7.1 TERMINATION BY THE EXECUTIVE FOR GOOD REASON.

     (a) The Executive shall be entitled to terminate employment hereunder for or
with Good Reason (as defined in Section 7.4). Upon any such termination, the
Executive shall be entitled to receive the benefits set forth in Section 9. A
termination of employment by the Executive for Good Reason shall be effectuated by
giving the Company written notice (“Notice of Termination for Good Reason”) of the
termination, setting forth in reasonable detail the specific conduct of the Company
that constitutes Good Reason and the specific provision(s) of this Agreement on
which the Executive relies. A termination of employment by the Executive for Good
Reason shall be effective on the fifth business day following the date when the
Notice of Termination for Good Reason is given, unless the notice sets forth a later
date (which date shall in no event be later than 30 days after the notice is given).

     (b) The failure to set forth any fact or circumstance in a Notice of
Termination for Good Reason shall not constitute a waiver of the right to assert,
and shall not preclude the Executive from asserting, such fact or circumstance in an
attempt to enforce any right under or provision of this Agreement.

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     7.2 OTHER VOLUNTARY TERMINATION BY THE EXECUTIVE. During the Term of Employment, the
Executive may effect, upon sixty (60) days prior written notice to the Company, a Voluntary
Termination of employment hereunder and thereupon the Term of Employment shall end. A
“Voluntary Termination” shall mean a termination of employment by the Executive on the
Executive’s own initiative other than (i) a termination due to death or Disability (as
defined in Section 12), (ii) a termination for Good Reason (as defined in Section 7.4),
(iii) a termination due to Retirement (as defined in Section 7.3), or (d) a termination as a
result of the normal expiration of the full Term of Employment. If, during the Term of
Employment, the Executive’s employment is terminated due to a Voluntary Termination, the
Term of Employment shall thereupon end and the Company shall pay to the Executive an amount
equal to the sum of (i) base salary or other compensation earned through the date of
termination, plus (ii) any other compensation and benefits as may be provided in accordance
with the terms and provisions of any applicable plans and programs, if any, of the Company.

     7.3 TERMINATION DUE TO RETIREMENT. “Retirement” shall mean the termination of the
Executive’s employment with the Company for any reason by the Executive at any time after
the Executive attains “Retirement Age” (as hereinafter defined). “Retirement Age” mean the
earlier to occur of (i) age 65 or (ii) such other age which the Company, by resolution of
the Board, may establish as the Executive’s Retirement Age. The Executive may terminate
employment hereunder due to Retirement upon thirty (30) days prior written notice to the
Company. If, during the Term of Employment, the Executive’s employment is terminated due to
Retirement, the Term of Employment shall thereupon end and the Executive shall be entitled
to (i) base salary or other compensation earned through the Retirement Date, and (ii) any
other compensation and benefits as may be provided in accordance with the terms and
provisions of any applicable plans and programs, if any, of the Company.

     7.4 GOOD REASON. For purposes of this Agreement, the term “Good Reason” shall mean any
of the following:

	 	(i)	 	any change in the duties, functions or responsibilities of the
Executive that is inconsistent in any material and adverse respect with the
Executive’s duties, functions or responsibilities with the Company and its
affiliates at the Effective Date (including any material and adverse diminution
of such duties, functions or responsibilities);
	 
	 	(ii)	 	a reduction of the Executive’s base salary other than in
connection with an across-the-board reduction in base salary for all similarly
situated employees;
	 
	 	(iii)	 	the relocation of the Executive’s office to a location more
than thirty (30) miles from its location at the Effective Date; or
	 
	 	(iv)	 	the taking of any action by the Company or any of its
affiliates or successors which would materially and adversely affect the
Executive’s overall compensation and benefits package, excluding (A) changes to
the compensation and benefits package made on a non-discriminatory basis to
substantially all similarly-situated employees and (B) any isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied reasonably promptly after receipt of written notice thereof given by
the Executive.
	 
	 	(v)	 	failure to nominate or reelect the Executive as a member of the
Board of

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	 	 	 	Directors of the Company or of the Board of Directors of Community Bank of
Tri-County.
	 
	 	(vi)	 	the liquidation or complete dissolution of the Company; or
	 
	 	(vii)	 	a material breach of this Agreement by the Company.

Notwithstanding anything in this Agreement to the contrary, during the twenty-four (24)
month period beginning on the effective date of a Change in Control (as defined in Section
7.5, and continuing through the second anniversary of such date, the Executive may
voluntarily terminate his employment for any reason and such termination shall constitute
termination With Good Reason.

     7.5 CHANGE IN CONTROL. For purposes of this Agreement, a “Change in Control” shall be
deemed to have occurred in any of the following events:

     (i) 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;

     (ii) 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 (ii) 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 (iii) below) in 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 (ii);

     (iii) 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

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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

     (iv) 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.

     8. TERMINATION BY THE COMPANY WITHOUT CAUSE. The Executive’s employment with the Company may
be terminated without Just Cause by the Board of Directors of the Company, provided, however, that
the Company shall have the obligation upon any such termination to make the payments to the
Executive provided for under Section 9 of this Agreement.

     9. CERTAIN TERMINATION BENEFITS. In the event of termination pursuant to Section 7.1 or 8, the
Executive shall be entitled to each of the following benefits:

9.1 EARNINGS TO DATE OF TERMINATION. An amount equal to the sum of (i) base salary
or other compensation earned through the date of termination, plus (ii) the
Executive’s pro rata share (based on the portion of the then-current calendar year
during which the Executive was employed before termination of the Executive’s
employment) of the average of the aggregate annual amounts paid to the Executive as
bonuses or other cash incentive compensation for the three (3) calendar years
preceding the termination of employment, plus (iii) any other compensation and
benefits as may be provided in accordance with the terms and provisions of any
applicable plans and programs, if any, of the Company.

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9.2 LUMP SUM PAYMENT. An unreduced lump sum severance benefit equal to the sum of
the following items:

     (a) The base salary (as provided for in Section 3.1 of this Agreement) that
would have been paid to the Executive (based on the base salary in effect on the
date of the Executive’s termination of employment) through the Expiration Date
(including any amount which is contributed by the Company on the Executive’s behalf
pursuant to a salary reduction agreement and which is not included in the
Executive’s gross income under Sections 125, 132(f) or 402(e)(3) of the Internal
Revenue Code of 1986, as amended); and

     (b) five (5) times the most recent annual incentive compensation payment (as
provided for pursuant to Section 3.3 of this Agreement) made to the Executive.

Subject to Section 17.20, the severance benefit payment under this Section 9.2 shall be made
to the Executive in one lump sum on the date of the Executive’s termination of employment.

     9.3 BENEFIT CONTINUATION. Continuation of the medical, dental and life insurance
benefits described in Section 3.2 and existing on the date of termination at the level in
effect on, and at the same out-of-pocket premium cost to the Executive, as of the date of
termination for a period of sixty (60) months following the Executive’s date of termination
of employment.

     9.4 VESTING OF STOCK AWARDS AND OPTIONS. If the Executive’s termination of employment
occurs on or after the effective date of a Change in Control, there shall be an acceleration
of all vesting provisions, so that as of the date of termination of the Executive’s
employment, all stock awards made by the Company to the Executive, to the extent then
unvested or forfeitable, shall become immediately and fully vested and non-forfeitable, and
all options to purchase common stock of the Company, to the extent then not exercisable,
shall become immediately and fully exercisable.

     10. ADJUSTMENT FOR UNAVAILABILITY OF BENEFITS. If the benefits under any benefit plan or
program continued pursuant to Section 9.3 may not be provided under any such plan to the Executive
or to the Executive’s dependents because the Executive is no longer deemed to be an employee of the
Company or an affiliate, the Company shall pay or provide for coverage on a comparable basis for
the Executive and, where applicable, the Executive’s dependents.

     11. DEATH OR DISABILITY BEFORE COMPLETION OF CHANGE IN CONTROL.

     11.1 CERTAIN PAYMENTS. The Executive shall be entitled to receive the payments provided
for under Section 9 of this Agreement on the date of the Executive’s termination of
employment if:

     (a) the Executive’s employment terminates due to Disability pursuant to Section
12 or due to death, and

     (b) either

     (i) such termination of employment occurred within one (1) year after
the occurrence of a Change in Control; or

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     (ii) such termination occurred within one (1) year after the occurrence
of a Preliminary Change in Control (as hereinafter defined), AND, in
addition, a Change in Control occurs within two (2) years after such
termination of employment.

     11.2 PRELIMINARY CHANGE IN CONTROL. “Preliminary Change in Control” shall mean each of
(i) the signing of a definitive agreement for a transaction that, if consummated, would
result in a Change in Control, (ii) the commencement of a tender offer that, if successful,
would result in a Change in Control, and (iii) the circulation of a proxy statement seeking
proxies in opposition to management in an election contest that, if successful, would result
in a Change in Control. Any payment required to be made pursuant to this Section 11 shall be
deferred without interest until, and shall be payable immediately upon, the actual
occurrence of a Change in Control. Payments to be made pursuant to this Section 11 shall be
in lieu of and in substitution for payments required to be made in connection with
disability pursuant to Section 12.

     12. DISABILITY.

     12.1 TERMINATION DUE TO DISABILITY. The Company may terminate the Executive’s
employment upon a determination, by vote of a majority of the Board of Directors, acting in
reliance on the written advice of a medical professional acceptable to the Board of
Directors, that the Executive is suffering from a physical or mental impairment which, at
the date of the determination, has prevented the Executive from performing the Executive’s
assigned duties on a substantially full-time basis for a period of at least one hundred and
eighty (180) days during the one-year period ending with the date of the determination or is
likely to result in death or prevent the Executive from performing the Executive’s assigned
duties on a substantially full-time basis for a period of at least one hundred and eighty
(180) days during the period of one (1) year beginning with the date of the determination
(such impairment, the “Disability”). In such event:

     (a) The Company shall pay to the Executive an amount equal to the sum of (i)
base salary or other compensation earned through the date of termination, plus (ii)
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 Company.

     (b) In addition to the amounts payable pursuant to Section 12.1(a), the Company
shall continue to pay the Executive the Executive’s base salary, at the annual rate
in effect for the Executive immediately prior to the termination of the Executive’s
employment, during the Initial Continuation Period. The “Initial Continuation
Period” shall commence on the date of termination of employment pursuant to Section
12.1 and shall end on the earliest of: (i) the expiration of one hundred and eighty
(180) days after the date of termination of the Executive’s employment; (ii) the
date on which long-term disability insurance benefits are first payable to the
Executive under any long-term disability insurance plan (“LTD Plan”) covering
employees of the Company (the “LTD Eligibility Date”); (iii) the date of the
Executive’s death; and (iv) the Expiration Date. If the end of the Initial
Continuation Period is neither the LTD Eligibility Date nor the date of the
Executive’s death, the Company shall continue to pay the Executive the Executive’s
base salary, at an annual rate equal to sixty percent (60%) of the annual rate in
effect for the Executive immediately prior to the termination of the Executive’s
employment (the “60% AMOUNT”), during an additional period ending on the earliest of
the LTD Eligibility Date, the date of the Executive’s death and the Expiration Date.

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While receiving disability payments under such LTD Plan, the Company shall pay
to the Executive an additional payment of such an amount, if any, as may be
necessary so that the aggregate of such additional payment and the Executive’s
disability income payments will equal the 60% Amount, and the Executive shall
continue to participate in the Company’s benefit plans and to receive other benefits
as specified in Section 3.2 until the Expiration Date, with all such benefits to be
at the level in effect on, and at the same out-of-pocket cost to the Executive, as
in effect on the date of the Disability determination.

     12.2 EFFECTIVE DATE OF TERMINATION. A termination of employment due to Disability under
this Section 12 shall be effected by notice of termination given to the Executive by the
Company and shall take effect on the later of the effective date of termination specified in
such notice or the date on which the notice of termination is deemed given to the Executive.

     13. EXCISE TAXES.

     13.1 COVERED BENEFITS. “Covered Benefits” shall mean any payment or benefit paid or
provided to the Executive by the Company or any affiliate or any successor in interest to
the Company (whether pursuant to this Agreement or otherwise) that will be (or in the
opinion of Tax Counsel (as defined below) might reasonably be expected to be) subject to any
excise tax (the “Excise Tax”) imposed under Section 4999 of the Internal Revenue Code of
1986, as amended (the “Code”). In the event that at any time during or after the Term of
Employment the Executive shall receive any Covered Benefits, the Company shall pay to the
Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by
the Executive from the Gross-Up Payment, after deduction of any federal, state and local
income taxes, Excise Tax, and FICA and Medicare withholding taxes on the Gross-Up Payment,
shall be equal to the Excise Tax on the Covered Benefits. For purposes of determining the
amount of such Excise Tax on the Covered Benefits, the amount of the Covered Benefits that
shall be taken into account in calculating the Excise Tax shall be equal to (i) the Covered
Benefits, less (ii) the amount of such Covered Benefits that, in the opinion of tax counsel
selected by the Company and reasonably acceptable to the Executive (“Tax Counsel”), are not
parachute payments (within the meaning of Section 280G(b)(1) of the Code).

     13.2 CERTAIN ASSUMPTIONS. For purposes of this Section 13, the Executive shall be
deemed to pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Excise Tax is payable and state and local income taxes at
the highest marginal rate of taxation in the state and locality of the Executive’s residence
on the effective date of the Executive’s termination, net of the reduction in federal income
taxes which could be obtained from deduction of such state and local taxes. Except as
otherwise provided herein, all determinations required to be made under this Section 13
shall be made by Tax Counsel, which determinations shall be conclusive and binding on the
Executive and Company, absent manifest error.

     13.3 TAX INDEMNIFICATION. The Company shall indemnify and hold the Executive harmless
from any and all losses, costs and expenses (including without limitation, reasonable
attorney’s fees, reasonable accountant’s fees, interest, fines and penalties of any kind)
which the Executive incurs as a result of any administrative or judicial review of the
Executive’s liability under Section 4999 of the Code by the Internal Revenue Service or any
comparable state agency through and including a final judicial determination or final
administrative settlement of any dispute arising out of the Executive’s liability for the
Excise Tax or otherwise relating to the classification for purposes of Section 280G of the
Code of any of the Covered Benefits or other payment or benefit in the nature of
compensation made or provided to the Executive by the

10

 

Company. The Executive shall promptly notify the Company in writing whenever the
Executive receives notice of the commencement of any judicial or administrative proceeding,
formal or informal, in which the federal tax treatment under Section 4999 of the Code of any
amount paid or payable under this Agreement or otherwise is being reviewed or is in dispute
(including a notice of audit or other inquiry concerning the reporting of the Executive’s
liability under Section 4999). The Company may assume control at its expense over all legal
and accounting matters pertaining to such federal or state tax treatment (except to the
extent necessary or appropriate for the Executive to resolve any such proceeding with
respect to any matter unrelated to the Covered Benefits or other payment or benefit in the
nature of compensation made or provided to the Executive by the Company) and the Executive
shall cooperate fully with the Company in any such proceeding. The Executive shall not enter
into any compromise or settlement or otherwise prejudice any rights the Company may have in
connection therewith without prior consent of the Company. In the event that the Company
elects not to assume control over such matters, the Company shall promptly reimburse the
Executive for all expenses related thereto as and when incurred upon presentation of
appropriate documentation relating thereto.

     14. CONFIDENTIAL INFORMATION. The Executive will not disclose to any other Person (as defined
in Section 17.2) (except as required by applicable law or in connection with the performance of the
Executive’s duties and responsibilities hereunder), or use for the Executive’s own benefit or gain,
any confidential information of the Company or any affiliate obtained by the Executive incident to
the Executive’s employment with the Company or its affiliates. The term “Confidential Information”
includes, without limitation, financial information, business plans, prospects and opportunities
(such as lending relationships, financial product developments, or possible acquisitions or
dispositions of business or facilities) which have been discussed or considered by the management
of the Company or its affiliates but does not include any information which has become part of the
public domain by means other than the Executive’s failure to honor the obligations hereunder.

     15. NO MITIGATION; NO OFFSET. In the event of any termination of employment under this
Agreement, the Executive shall be under no obligation to seek other employment or to mitigate
damages, and there shall be no offset against any amounts due to the Executive under this Agreement
for any reason, including, without limitation, on account of any remuneration attributable to any
subsequent employment that the Executive may obtain. 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.

     16. INDEMNIFICATION AND INSURANCE.

     16.1 INDEMNIFICATION. To the maximum extent permitted under applicable law, during the
Term of Employment and for a period of six years thereafter, the Company shall indemnify the
Executive against and hold the Executive harmless from any costs, liabilities, losses and
exposures to the fullest extent and on the most favorable terms and conditions that similar
indemnification is offered to any director or officer of the Company or any affiliate
thereof.

     16.2 INSURANCE. During the Term of Employment and for a period of six years thereafter,
the Company shall cause the Executive to be covered by and named as an insured under any
policy or contract of insurance obtained by either Company to insure directors and officers
against personal liability for acts or omissions in connection with service as an officer or
director of the Company or any of its affiliates service in other capacities at its request.
The coverage provided to the Executive pursuant to this Section 16 shall be of the same
scope and on the same terms and conditions as the coverage (if any) provided to other
officers or directors of the Company.

11

 

     17. MISCELLANEOUS.

     17.1 CONFLICTING AGREEMENTS. The Executive hereby represents and warrants that the
execution of this Agreement and the performance of the Executive’s obligations hereunder
will not breach or be in conflict with any other agreement to which the Executive is a party
or is bound, and that the Executive is not now subject to any covenants against competition
or similar covenants which would affect the performance of the Executive’s obligations
hereunder.

     17.2 DEFINITION OF “PERSON”. For purposes of this Agreement, the term “PERSON” shall
mean an individual, a corporation, an association, a partnership, an estate, a trust and any
other entity or organization.

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

     17.4 ARBITRATION. The Company and Executive 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 Company’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 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
Executive 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 Company or Executive pursues any claim, dispute or controversy against the other in a
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 attorney’s 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.

     17.5 INDEMNIFICATION FOR ATTORNEYS’ FEES. In the event any dispute or controversy
arising under or in connection with Executive’s termination or this Agreement is resolved in
favor or Executive, whether by judgment, arbitration or settlement, Executive shall be
entitled to the payment of: (i) all legal fees and expenses incurred by Executive 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 Executive
under this Agreement.

     17.6 INTERPRETATION. The recitals hereto constitute an integral part of this Agreement.
References to Sections include subsections, which are part of the related Section (e.g., a
section numbered “Section 5.5” would be part of “Section 5” and references to “Section

12

 

5” would also refer to material contained in the subsection described as “Section
5.5”).

     17.7 ASSIGNMENT; SUCCESSORS AND ASSIGNS, ETC.

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

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

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

     17.8 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.

     17.9 REDUCTIONS; REGULATORY REQUIREMENTS. Notwithstanding anything to the contrary
contained in this Agreement, any and all payments and benefits to be provided to the
Executive hereunder 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 Company and its affiliates. The Executive confirms that
the Executive is aware of the fact that the Federal Deposit Insurance Corporation has the
power to preclude the Company or its affiliates from making payments to the Executive under
this Agreement under certain circumstances. The Executive agrees that neither the Company or
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 Company or its affiliates, as the case may be.

     17.10 WAIVER. No waiver of any provision hereof 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

 

     17.11 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 Executive at the
Executive’s last known address on the books of the Company or, in the case of the Company,
at its main office, attention of the Chair of the Compensation Committee of the Board of
Directors.

     17.12 ELECTION OF REMEDIES. An election by the Executive to resign for Good Reason
under the provisions of this Agreement shall not constitute a breach by the Executive of any
agreement the Executive may have with the Company and shall not be deemed a voluntary
termination of employment by the Executive for the purpose of interpreting the provisions of
any of the Company’s benefit plans, programs or policies.

     17.13 AMENDMENT. This Agreement may be amended or modified only by a written instrument
signed by the Executive and a duly authorized representative of the Company.

     17.14 NO EFFECT ON LENGTH OF SERVICE. Nothing in this Agreement shall be deemed to
prohibit the Company from terminating the Executive’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 Company and the Executive in the event of any such
termination. In addition, nothing in this Agreement shall require the termination of the
Executive’s employment at the expiration of the Term of Employment. Any continuation of the
Executive’s employment beyond the expiration of the Term of Employment shall be on an
“at-will” basis, unless the Company and the Executive agree otherwise.

     17.15 ALLOCATION OF OBLIGATIONS AS BETWEEN THE COMPANY AND ITS AFFILIATES. The parties
understand that the Executive will perform substantial services for the Company and its
affiliates. Unless otherwise determined by the Board of Directors of the Company, the
Executive shall not be entitled to compensation in addition to the compensation set forth in
Section 3 of this Agreement as a result of the Executive’s serving as an officer of any
affiliate of the Company. The Company and its affiliates shall apportion between them the
amounts to be paid under this Agreement, based upon the services rendered by the Executive
to each of the affiliates and the Company, respectively. Any entitlement of the Executive to
severance compensation or other termination benefits under this Agreement shall be
determined on the basis of the aggregate compensation payable to the Executive by the
affiliates and the Company, and liability therefor shall be apportioned between the
affiliates and the Company in the same manner as compensation paid to the Executive for
services to each of them. It is the intent and purpose of this Section 17.15 that the
Executive have the same legal and economic rights that the Executive would have if all of
the Executive’s services were rendered to and all of the Executive’s compensation were paid
by the Company.

     17.16 PAYMENTS TO ESTATE OR BENEFICIARIES. In the event of the Executive’s death prior
to the completion by the Company of all payments due the Executive under this Agreement, the
Company shall continue such payments (other than payments which by their terms cease upon
death) to the Executive’s beneficiary, as designated in writing by the Executive and
provided to the Company prior to the Executive’s death (or to the Executive’s estate, if the
Executive fails to make such designation) and, as applicable, to the Executive’s surviving
dependents.

     17.17 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

14

 

draft agreements, and discussions of the parties, whether oral or written.

     17.18 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.

     17.19 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.

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

15

 

     IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by the Company, by
its duly authorized officer, and by the Executive, as of the date first above written.

TRI-COUNTY FINANCIAL CORPORATION            EXECUTIVE

	 	 	 	 	 	 	 	 	 	 	 
	By:	 	/s/ H. Beaman Smith	 	 	 	/s/ Michael L. Middleton	 	 
	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Michael L. Middleton	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Its:

	 	Secretary/ Treasurer
 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	Attest:

	 	/s/ Diane Deskins
 

	 	 
	 	Witness:
	 	/s/ Christy M. Lombardi
 

	 	 

16EX-4.0

 

 

 

KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST,
 STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION
 WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO

THE ISSUANCE OF A REPLACEMENT CERTIFICATE.

TSB FINANCIAL CORPORATION

     The following abbreviations, when used in the inscription on the face of this certificate,
shall be construed as though they were written out in full according to applicable laws or
regulations:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 

	 	TEN COM
	 	–
	 	as tenants in common
	 	UGMA/UTMA–
	 	 	 	Custodian 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	TEN ENT	 	–	 	as tenants by the entireties	 	 	 	(Cust)	 	 	 	(Minor)

	 	 	JT TEN	 	–	 	as joint tenants with right of	 	 	 	 	 	 
	 

	 	 	 	 	 	survivorship and not as tenants	 	 	 	under Uniform Gifts/Transfers	 	 
	 

	 	 	 	 	 	in common
	 	 	 	to Minors Act	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	(State)
	 	 

Additional abbreviations may also be used though not in the above list.

     For
Value Received,                     
hereby sell, assign and transfer unto

	 	 	 
	PLEASE INSERT SOCIAL SECURITY OR OTHER

IDENTIFYING NUMBER OF ASSIGNEE

	 	 
	 	 	 
	 
	 	 
	 
	 	 
	 	 	 

	 	 	 	 	 
	 	 	 
	 

	 	(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 	 	 
	 
	 	 	 	 
	 

	 	 	 	Shares
	 

	 	 	 	 
	 	 	of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
	 
	 	 	 	 
	 

	 	 	 	Attorney
	 

	 	 	 	 
	 	 	to transfer the said stock on the books of the within named Corporation with full
power of substitution in the premises.

	 	 	 	 	 	 	 
	 

	 	Dated	 	 	 	 
	 

	 	 	 	 

	 	 

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Signature(s) Guaranteed:
	 	 	 	Signature(s)
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 
	 	 	 	 
	 

	 	THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION, AS DEFINED IN RULE 17Ad-15 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.
	 	 	 	NOTICE: THE SIGNATURE(S) ON THIS
ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE,
IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR
ANY CHANGE WHATEVER.

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