CHANGE OF
CONTROL AGREEMENT
THIS
AGREEMENT is entered into as of the 11 th
day of June, 2008 (the "Effective Date") by and between
Community Financial Corporation ("CFC"), a Virginia
corporation, and NORMAN C. SMILEY, III (the
"Executive").
WITNESSETH:
WHEREAS,
CFC owns 100% of the outstanding stock of Community Bank (the
"Bank"), a federally chartered savings bank;
WHEREAS,
Executive is the President of the Bank, and as such is a key
executive officer whose continued dedication, availability,
advice and counsel to CFC and the Bank is deemed important to
the Boards of Directors of CFC and the Bank and to their
respective stockholders;
WHEREAS,
CFC wishes to retain the services of Executive free from any
distractions or conflicts that could arise as a result of a
change in control of CFC or the Bank.
NOW,
THEREFORE, to assure CFC of Executive's continued dedication,
the availability of his advice and counsel to the Board of
Directors of CFC free of any distractions resulting from a
change of control, and for other good and valuable
consideration, the receipt and adequacy whereof each party
hereby acknowledges, CFC and Executive hereby agree as
follows:
1.
TERM OF
AGREEMENT : This Agreement shall remain in effect
until cancelled by either party hereto, upon not less than 24
months prior written notice to the other party.
2.
CHANGE IN
CONTROL : If the Executive's employment by the Bank or
CFC shall be terminated by the Bank or CFC, other than for
Cause or as a result of the Executive's death, disability or
retirement, or terminated by the Executive for Good Reason,
(all as defined in the employment agreement ("Bank Employment
Agreement") between Executive and the Bank) in either case
within six (6) months preceding or twenty-four (24) months
following a Change in Control of CFC or the Bank, then CFC,
in lieu of the Bank's obligations under Section 7(a)(i) of
the Bank Employment Agreement, shall:
(a) Pay
to the Executive in cash (less any amounts previously paid to
the Executive pursuant to Section 7(a) of the Bank Employment
Agreement following the Executive's termination or
resignation of employment), upon the later of the date of
such Change of Control or the effective date of the
Executive's termination of employment with CFC or the Bank,
an amount equal to 299% of the Employee's "base amount" as
determined under Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"); and
(b) Maintain
and provide for a period ending at the earlier of (i) one (1)
year after the effective date of the Executive's termination
or (ii) the date of the Executive's full time employment by
another employer, at no cost to the Executive, the
Corporation's obligations under Section 7(a)(ii) of the Bank
Employment Agreement.
(c) For
purposes of this Agreement, a Change of Control of CFC occurs
in any of the following events: (i) the acquisition by any
"person" or "group" (as defined in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934 ("Exchange Act")),
other than CFC, any subsidiary of CFC or their employee
benefit plans, directly or indirectly, as "beneficial owner"
(as defined in Rule
13d-3,
under the Exchange Act) of securities of CFC representing
twenty percent (20%) or more of either the then outstanding
shares or the combined voting power of the then outstanding
securities of CFC; (ii) either a majority of the directors of
CFC elected at CFC's annual stockholders meeting shall have
been nominated for election other than by or at the direction
of the "incumbent directors" of CFC, or the "incumbent
directors" shall cease to constitute a majority of the
directors of CFC. The term "incumbent director" shall mean any
director who was a director of CFC on the Effective Date and
any individual who becomes a director of CFC subsequent to the
Effective Date and who is elected or nominated by or at the
direction of at least two-thirds of the then incumbent
directors; (iii) the shareholders of CFC approve (x) a merger,
consolidation or other business combination of CFC with any
other "person" or "group" (as defined in Sections 13(d) and
14(d) of the Exchange Act) or affiliate thereof, other than a
merger or consolidation that would result in the outstanding
common stock of CFC immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into common stock of the surviving entity or a
parent or affiliate thereof) at least fifty percent (50%) of
the outstanding common stock of CFC or such surviving entity
or a parent or affiliate thereof outstanding immediately after
such merger, consolidation or other business combination, or
(y) a plan of complete liquidation of CFC or an agreement for
the sale or disposition by CFC of all or substantially all of
CFC's assets; or (iv) any other event or circumstance which is
not covered by the foregoing subsections but which the Board
of Directors of CFC determines to affect control of CFC and
with respect to which the Board of Directors adopts a
resolution that the event or circumstance constitutes a Change
of Control for purposes of the Agreement.
The
Change of Control Date is the date on which an event described
in (i), (ii), (iii) or (iv) occurs.
3.
LIMITATION OF
BENEFITS : It is the intention of the parties that no
payment be made or benefit provided to the Executive that
would constitute an "excess parachute payment" within the
meaning of Section 280G of the Code and any regulations
thereunder, thereby resulting in a loss of an income tax
deduction by CFC or the imposition of an excise tax on the
Executive under Section 4999 of the Code. If the independent
accountants serving as auditors for CFC immediately prior to
the date of a Change of Control determine that some or all of
the payments or benefits scheduled under this Agreement, when
combined with any other payments or benefits provided to the
Executive on a Change of Control by CFC, the Bank and any
affiliate of CFC or the Bank required to be aggregated with
CFC or the Bank under Section 280G of the Code, would
constitute nondeductible excess parachute payments by CFC
under Section 280G of the Code, then the payments or benefits
scheduled under this Agreement will be reduced to one dollar
less than the maximum amount which may be
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