COMMUNITY BANK OF TRI-COUNTY
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Restated Employment Agreement with
Michael L. Middleton
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AGREEMENT, originally entered into as of June 1, 1986 and amended as of
March 1, 1991 and August 28, 1996, and restated effective this 23rd day of
February, 1998, by and between Community Bank of Tri-County (the "Bank") and
Michael L. Middleton (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank as its
President and Chief Executive Officer and is experienced in all phases of the
business of the Bank; and
WHEREAS, the Bank and Employee are parties to an employment agreement dated
June 1, 1986 and amended as of March 1, 1991 and August 28, 1996; and
WHEREAS, the parties desire by this writing to restate the terms of such
employment agreement.
NOW, THEREFORE, it is AGREED as follows:
1. Defined Terms
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When used anywhere in this Agreement, the following terms shall have the
meaning set forth herein.
(a)"Change in Control" shall mean any one of the following events: (i)
the acquisition of ownership, holding or power to vote more than 25% of the
voting stock of the Bank or the Company, (ii) the acquisition of the
ability to control the election of a majority of the Bank's or the
Company's directors, (iii) the acquisition of a controlling influence over
the management or policies of the Bank or of the Company by any person or
by persons acting as a "group" (within the meaning of Section 13(d) of the
Securities Exchange Act of 1934), or (iv) during any period of two
consecutive years, individuals (the "Continuing Directors") who at the
beginning of such period constitute the Board of Directors of the Bank or
of the Company (the "Existing Board") cease for any reason to constitute at
least two-thirds thereof, provided that any individual whose election or
nomination for election as a member of the Existing Board was approved by a
vote of at least two-thirds of the Continuing Directors then in office
shall be considered a Continuing Director. Notwithstanding the foregoing,
the Company's ownership of the Bank shall not of itself constitute a Change
in Control for purposes of the Agreement. For purposes of this paragraph
only, the term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b)"Company" shall mean Tri-County Financial Corporation.
(c)"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and as interpreted through applicable rulings and
regulations in effect from time to time.
(d)"Code Sec.280G Maximum" shall mean the product of 2.99 and the
Employee's "base amount" as defined in Code Sec.280G(b)(3).
(e)"Disability" shall mean a physical or mental infirmity which
impairs the Employee's ability to substantially perform his duties under
this Agreement and which results in the Employee becoming eligible for
long-term disability benefits under the Bank's long-term disability plan
(or, if the Bank has no such plan in effect, which impairs the Employee's
ability to substantially perform his duties under this Agreement for a
period of 180 consecutive days).
(f)"Effective Date" shall mean the date of restatement of this
Agreement, February 23, 1998.
(g)"Good Reason" shall mean any of the following events, which has not
been consented to in advance by the Employee in writing: (i) the
requirement that the Employee move his personal residence, or perform his
principal executive functions, more than 30 miles from his primary office
as of the later of the Effective Date and the most recent voluntary
relocation by the Employee; (ii) a material reduction in the Employee's
base compensation under this Agreement as the same may be increased from
time to time; (iii) the failure by the Bank or the Company to continue to
provide the Employee with compensation and benefits provided under this
Agreement as the same may be increased from time to time, or with benefits
substantially similar to those provided to him under any of the employee
benefit plans in which the Employee now or hereafter becomes a participant,
or the taking of any action by the Bank or the Company which would directly
or indirectly reduce any of such benefits or deprive the Employee of any
material fringe benefit enjoyed by him under this Agreement; (iv) the
assignment to the Employee of duties and responsibilities materially
different from those normally associated with his position; (v) a failure
to reelect the Employee to the Board of Directors of the Bank (the "Board")
or the Company; or (vi) a material diminution or reduction in the
Employee's responsibilities or authority (including reporting
responsibilities) in connection with his employment with the Bank.
(h)"Just Cause" shall mean, in the good faith determination of the
Bank's Board of Directors, the Employee's personal 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 or
similar offenses) or final cease-and-desist order, or material breach of
any provision of this Agreement. The Employee shall have no right to
receive compensation or other benefits for any period after termination for
Just Cause. No act, or failure to act, on the Employee's part shall be
considered "willful" unless he has acted, or failed to act, with an absence
of good faith and without a reasonable belief that his action or failure to
act was in the best interest of the Bank and the Company.
(i)"Protected Period" shall mean the period that begins on the date
six months before a Change in Control and ends on the later of the second
annual anniversary of the Change in Control or the expiration date of this
Agreement.
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(j)"Trust" shall mean a grantor trust that is designed in accordance
with Revenue Procedure 92-64 and has a trustee independent of the Bank and
the Company.
2. Employment. The Employee is employed as the President and Chief
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Executive Officer of the Bank. The Employee shall render such administrative and
management services for the Bank as are currently rendered and as are
customarily performed by persons situated in a similar executive capacity. The
Employee shall also promote, by entertainment or otherwise, as and to the extent
permitted by law, the business of the Bank. The Employee's other duties shall be
such as the Board may from time to time reasonably direct, including normal
duties as an officer of the Bank.
3. Base Compensation. The Bank agrees to pay the Employee during the term
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of this Agreement a salary at the rate of $142,100 per annum, payable in cash
not less frequently than monthly. The Board shall review, not less often than
annually, the rate of the Employee's salary, and in its sole discretion may
decide to increase his salary.
4. Discretionary Bonuses. The Employee shall participate in an equitable
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manner with all other senior management employees of the Bank in discretionary
bonuses that the Board may award from time to time to the Bank's senior
management employees. No other compensation provided for in this Agreement shall
be deemed a substitute for the Employee's right to participate in such
discretionary bonuses.
5. Participation in Retirement, Medical and Other Plans.
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(a) The Employee shall be eligible to participate in any of the
following plans or programs that the Bank may now or in the future
maintain: group hospitalization, disability, health, dental, sick leave,
life insurance, travel and/or accident insurance, auto allowance/auto
lease, retirement, pension, and/or other present or future qualified or
nonqualified plans provided by the Bank, generally which benefits, taken as
a whole, must be at least as favorable as those in effect on the Effective
Date.
(b) The Employee shall also be eligible to participate in any fringe
benefits which are or may become available to the Bank's senior management
employees, including for example: any stock option or incentive
compensation plans, and any other benefits which are commensurate with the
responsibilities and functions to be performed by the Employee under this
Agreement. The Employee shall be reimbursed for all reasonable
out-of-pocket business expenses which he shall incur in connection with his
services under this Agreement upon substantiation of such expenses in
accordance with the policies of the Bank.
6. Term. The Bank hereby employs the Employee, and the Employee hereby
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accepts such employment under this Agreement, for the period commencing on the
Effective Date and ending 60 months thereafter (or such earlier date as is
determined in accordance with Section 10 or 12 hereof). Additionally, on each
annual anniversary date from the Effective Date, the Employee's term of
employment shall be extended for an additional one-year period beyond the then
effective expiration date, provided the Board determines in a duly adopted
resolution that the performance of the Employee has met the Board's requirements
and standards, and that this Agreement shall be extended. Only those members of
the Board of Directors who have no
personal interest in this Employment Agreement shall discuss and vote on the
approval and subsequent review of this Agreement.
7. Loyalty; Noncompetition.
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(a) During the period of his employment hereunder and except for
illnesses, reasonable vacation periods, and reasonable leaves of absence,
the Employee shall devote all his full business time, attention, skill, and
efforts to the faithful performance of his duties hereunder; provided,
however, from time to time, the Employee may serve on the boards of
directors of, and hold any other offices or positions in, companies or
organizations, which will not present any conflict of interest with the
Bank or any of its subsidiaries or affiliates, or unfavorably affect the
performance of the Employee's duties pursuant to this Agreement, or will
not violate any applicable statute or regulation. "Full business time" is
hereby defined as that amount of time usually devoted to like companies by
similarly situated executive officers. During the term of his employment
under this Agreement, the Employee shall not engage in any business or
activity contrary to the business affairs or interests of the Bank.
(b) Nothing contained in this Section shall be deemed to prevent or
limit the Employee's right to invest in the capital stock or other
securities of any business dissimilar from that of the Bank, or, solely as
a passive or minority investor, in any business.
8. Standards. The Employee shall perform his duties under this Agreement in
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accordance with such reasonable standards as the Board may establish from time
to time. The Bank will provide the Employee with the working facilities and
staff customary for similar executives and necessary for him to perform his
duties.
9. Vacation and Sick Leave. At such reasonable times as the Board shall in
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its discretion permit, the Employee shall be entitled, without loss of pay, to
absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time, provided that:
(a) The Employee shall be entitled to an annual vacation in accordance
with the policies that the Board periodically establishes for senior
management employees of the Bank, which shall in no event be less than four
(4) weeks per annum.
(b) The Employee shall not receive any additional compensation from
the Bank on account of his failure to take a vacation or sick leave, and
the Employee shall not accumulate unused vacation or sick leave from one
fiscal year to the next, except in either case to the extent authorized by
the Board.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the
performance of his employment with the Bank for such additional periods of
time and for such valid and legitimate reasons as the Board may in its
discretion determine. Further, the Board may grant to the Employee a leave
or leaves of absence, with or without pay, at such time or times and upon
such terms and conditions as such Board in its discretion may determine.
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(d) In addition, the Employee shall be entitled to an annual sick
leave benefit as established by the Board. In the event any sick leave time
shall not have been used during any year, such leave shall accrue to
subsequent years only to the extent authorized by the Board.
10. Termination and Termination Pay. Subject to Section 12 hereof, the
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Employee's employment hereunder may be terminated under the following
circumstances:
(a) Death. The Employee's employment under this Agreement shall
terminate upon his death during the term of this Agreement, in which event
the Employee's estate shall be entitled to receive the compensation due the
Employee through the last day of the calendar month in which his death
occurred.
(b) Disability. (1) The Bank may terminate the Employee's employment
after having established the Employee's Disability, in which event the
Employee shall be entitled to the compensation and benefits provided for
under this Agreement for (i) any period during the term of this Agreement
and prior to the establishment of the Employee's Disability during which
the Employee is unable to work due to the physical or mental infirmity, and
(ii) any period of Disability which is prior to the Employee's termination
of employment pursuant to this Section 10(b); provided that any benefits
paid pursuant to the Bank's long term disability plan will continue as
provided in such plan without reduction for payments made pursuant to this
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Agreement.
(2) During any period that the Employee shall receive disability
benefits and to the extent that the Employee shall be physically and
mentally able to do so, he shall furnish such information, assistance
and documents so as to assist in the continued ongoing business of the
Bank and, if able, shall make himself available to the Bank to
undertake reasonable assignments consistent with his prior position
and his physical and mental health. The Bank shall pay all reasonable
expenses incident to the performance of any assignment given to the
Employee during the disability period.
(c) Just Cause. The Board may, by written notice to the Employee,
immediately terminate his employment at any time, for Just Cause. The
Employee shall have no right to receive compensation or other benefits for
any period after termination for Just Cause.
(d) Without Just Cause; Constructive Discharge. The Board may, by
written notice to the Employee, immediately terminate his employment at any
time for a reason other than his Disability or Just Cause, in which event
the Employee shall be entitled to receive the following compensation and
benefits (unless such termination occurs during the Protected Period, in
which event the benefits and compensation provided for in Section 12 shall
apply):
(i) the salary provided pursuant to Section 3 hereof, together
with accrued incentive pay (based on the level of such pay for the
year in which the termination occurs) up to the expiration date of
this Agreement, including any renewal term (the "Expiration Date"),
and
(ii) at the Employee's election either (A) cash in an amount
equal to the cost to the Employee of obtaining all health, life,
disability and other benefits which the Employee would have been
eligible to participate in through the
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Expiration Date based upon the benefit levels substantially equal to
those that the Bank provided for the Employee at the date of
termination of employment or (B) continued participation under such
Bank benefit plans through the Expiration Date to the extent the
Employee continues to qualify for participation therein.
All amounts payable to the Employee shall be paid, at the option of
the Employee, either (I) in periodic payments, through the Expiration Date,
or (II) in one lump sum within ten days of such termination.
(e) Good Reason. The Employee shall be entitled to receive the
compensation and benefits payable under subsection 10(d) hereof in the
event that the Employee voluntarily terminates employment within 90 days of
an event that constitutes Good Reason, (unless such voluntary termination
occurs during the Protected Period, in which event the benefits and
compensation provided for in Section 12 shall apply).
(f) Termination or Suspension Under Federal Law. (1) If the Employee
is removed and/or permanently prohibited from participating in the conduct
of the Bank's affairs by an order issued under Sections 8(e)(4) or 8(g)(1)
of the Federal Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(4) and
(g)(1)), all obligations of the Bank under this Agreement shall terminate,
as of the effective date of the order, but vested rights of the parties
shall not be affected.
(2) If the Bank is in default (as defined in Section 3(x)(1) of
FDIA), all obligations under this Agreement shall terminate as of the
date of default; however, this Paragraph shall not affect the vested
rights of the parties.
(3) If a notice served under Section 8(e)(3) or (g)(1) of the
FDIA (12 U.S.C. 1818(e)(3) or (g)(1)) suspends and/or temporarily
prohibits the Employee from participating in the conduct of the Bank's
affairs, the Bank's obligations under this Agreement shall be
suspended as of the date of such service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may
in its discretion (i) pay the Employee all or part of the compensation
withheld while its contract obligations were suspended, and (ii)
reinstate (in whole or in part) any of its obligations which were
suspended.
(4) Any payments made to the Employee pursuant to this Agreement,
or otherwise, are subject to and conditioned upon their compliance
with applicable law and regulations.
(g) Voluntary Termination by Employee. Subject to Section 12 hereof,
the Employee may voluntarily terminate employment with the Bank during the
term of this Agreement, upon at least 90 days' prior written notice to the
Board of Directors, in which case the Employee shall receive only his
compensation, vested rights and employee benefits up to the date of his
termination (unless such termination occurs pursuant to Section 10(d)
hereof or within the Protected Period, in Section 12(a) hereof, in which
event the benefits and compensation provided for in Sections 10(d) or 12,
as applicable, shall apply).
(h) Post-termination Health Insurance. If the Employee's employment
terminates with the Bank or the Company for any reason other than Just
Cause, the Employee
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shall be entitled to purchase from the Bank, at the Employee's own expense
which shall not exceed applicable COBRA rates, family medical insurance
under any group health plan that the Bank or the Company maintains for its
employees. This right shall be (i) in addition to, and not in lieu of, any
other rights that the Employee has under this Agreement, and (ii) shall
continue until the Employee first becomes eligible for participation in
Medicare.
11. No Mitigation. The Employee shall not be required to mitigate the
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amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Employee in any subsequent employment.
12. Change in Control.
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(a) Trigger Events. The Employee shall be entitled to collect the
severance benefits set forth in Subsection (b) hereof in the event that
either (i) the Employee voluntarily terminates employment for any reason
within the 30-day period beginning on the date of a Change in Control, (ii)
the Employee voluntarily terminates employment within 90 days of an event
that both occurs during the Protected Period and constitutes Good Reason,
or (iii) the Bank or the Company or their successor(s) in interest
terminate the Employee's employment without his written consent and for any
reason other than Just Cause during the Protected Period.
(b) Amount of Severance Benefit. If the Employee becomes entitled to
collect severance benefits pursuant to Section 12(a) hereof, the Bank
shall:
(i) pay the Employee a severance benefit equal to the difference
between the Code Sec.280G Maximum and the sum of any other "parachute
payments" as defined under Code ss.280G(b)(2) that the Employee
receives on account of the Change in Control, and
(ii) pay for long-term disability and provide such medical
benefits as are available to the Employee under the provisions of
COBRA, for eighteen (18) months (or such longer period, up to 24
months, if COBRA is amended).
The amount payable under this Section 12(b) shall be paid either (i)
in one lump sum within ten days of the later of the date of the Change in
Control and the Employee's last day of employment with the Bank or the
Company, or (ii) if prior to the date which is 90 days before the date on
which a Change in Control occurs, the Employee filed a duly executed
irrevocable written election in the form attached hereto as Exhibit "A",
payment of such amount shall be made according to the elected schedule.
Deferred amounts shall bear interest from the date on which they would
otherwise be payable until the date paid at a rate equal to 120% of the
applicable federal rate, compounded semiannually, as determined under Code
Section 1274(d) and the regulations thereunder.
In the event that the Employee, the Bank, and the Company jointly
agree that the Employee has collected an amount exceeding the Code ss.280G
Maximum, the parties may agree in writing that such excess shall be treated
as a loan ab initio, which the Employee shall repay to the Bank, on terms
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and conditions mutually agreeable to the parties, together with interest at
the applicable federal rate provided for in Section 7872(f)(2)(B) of the
Code.
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(c) Funding of Grantor Trust upon Change in Control. Not later than ten
business days after a Change in Control, the Bank shall (i) deposit in a Trust
an amount equal to the Code Sec.280G Maximum, unless the Employee has previously
provided a written release of any claims under this Agreement, and (ii) provide
the trustee of the Trust with a written direction to hold said amount and any
investment return thereon in a segregated account for the benefit of the
Employee, and to follow the procedures set forth in the next paragraph as to the
payment of such amounts from the Trust. Upon the later of the Trust's final
payment of all amounts due under the following paragraph or the date 27 months
after the Change in Control, the trustee of the Trust shall pay to the Bank the
entire balance remaining in the segregated account maintained for the benefit of
the Employee. The Employee shall thereafter have no further interest in the
Trust.
During the 27-consecutive month period after a Change in Control, the
Employee may provide the trustee of the Trust with a written notice requesting
that the trustee pay to the Employee an amount designated in the notice as being
payable pursuant to this Agreement. Within three business days after receiving
said notice, the trustee of the Trust shall send a copy of the notice to the
Bank via overnight and registered mail return receipt requested. On the tenth
(10th) business day after mailing said notice to the Bank, the trustee of the
Trust shall pay the Employee the amount designated therein in immediately
available funds, unless prior thereto the Bank provides the trustee with a
written notice directing the trustee to withhold such payment. In the latter
event, the trustee shall submit the dispute to non-appealable binding
arbitration for a determination of the amount payable to the Employee pursuant
to this Agreement, and the costs of such arbitration shall be paid by the Bank.
The trustee shall choose the arbitrator to settle the dispute, and such
arbitrator shall be bound by the rules of the American Arbitration Association
in making his determination. The parties and the trustee shall be bound by the
results of the arbitration and, within 3 days of the determination by the
arbitrator, the trustee shall pay from the Trust the amounts required to be paid
to the Employee and/or the Bank, and in no event shall the trustee be liable to
either party for making the payments as determined by the arbitrator.
13. Indemnification. The Bank and the Company agree that their respective
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Bylaws shall continue to provide for indemnification of directors, officers,
employees and agents of the Bank and the company, including the Employee during
the full term of this Agreement, and to at all times provide adequate insurance
for such purposes.
14. Reimbursement of Employee for Enforcement Proceedings. In the event
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that any dispute arises between the Employee and the Bank as to the terms or
interpretation of this Agreement, whether instituted by formal legal proceedings
or otherwise, including any action that the Employee takes to defend against any
action taken by the Bank or the Company, the Employee shall be reimbursed for
all costs and expenses, including reasonable attorneys' fees, arising from such
dispute, proceedings or actions, provided that the Employee obtains either a
written settlement or a final judgement by a court of competent jurisdiction
substantially in his favor. Such reimbursement shall be paid within ten days of
the Employee's furnishing to the Bank written evidence, which may be in the
form, among other things, of a canceled check or receipt, of any costs or
expenses incurred by the Employee.
15. Federal Income Tax Withholding. The Bank may withhold all federal and
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state income or other taxes from any benefit payable under this Agreement as
shall be required pursuant to any law or government regulation or ruling.
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16. Successors and Assigns.
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(a) Bank. This Agreement shall not be assignable by the Bank, provided that
this Agreement shall inure to the benefit of and be binding upon any corporate
or other successor of the Bank which shall acquire, directly or indirectly, by
merger, consolidation, purchase or otherwise, all or substantially all of the
assets or stock of the Bank.
(b) Employee. Since the Bank is contracting for the unique and personal
skills of the Employee, the Employee shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Bank; provided, however, that nothing in this paragraph shall
preclude (i) the Employee from designating a beneficiary to receive any benefit
payable hereunder upon his death, or (ii) the executors, administrators, or
other legal representatives of the Employee or his estate from assigning any
rights hereunder to the person or persons entitled thereunto.
(c) Attachment. Except as required by law, no right to receive payments
under this Agreement shall be subject to anticipation, commutation, alienation,
sale, assignment, encumbrance, charge, pledge, or hypothecation or to exclusion,
attachment, levy or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to effect any such action shall be null, void
and of no effect.
17. Amendments. No amendments or additions to this Agreement shall be
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binding unless made in writing and signed by all of the parties, except as
herein otherwise specifically provided.
18. Applicable Law. Except to the extent preempted by Federal law, the laws
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of the State of Maryland shall govern this Agreement in all respects, whether as
to its validity, construction, capacity, performance or otherwise.
19. Severability. The provisions of this Agreement shall be deemed
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severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
20. Entire Agreement. This Agreement, together with any understanding or
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modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto and shall supersede any prior
agreement between the parties, including their agreement entered into on June 1,
1986.
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IN WITNESS WHEREOF, the parties have executed this restated Agreement on
the day and year first hereinabove written.
ATTEST: COMMUNITY BANK OF TRI-COUNTY
By: /s/ Michael L. Middleton
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Secretary Its Chairman of the Board
WITNESS:
By: /s/ Michael L. Middleton
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Michael L. Middleton
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