TRI COUNTY FINANCIAL CORP /MD/
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>7
<FILENAME>0007.txt
<TEXT>

                              EMPLOYMENT AGREEMENT

     THIS  AGREEMENT  entered into this 1st day of February 2001, by and between
Community  Bank of  Tri-County  (the  "BANK")  and  William  J.  Pasenelli  (the
"Employee"), effective as of the date hereof (the "Effective Date").

     WHEREAS,  the Employee has  heretofore  been employed by the bank as and is
experienced in all phases of the business of the Bank; and

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

     NOW, THEREFORE, it is AGREED as follows:

     1. Employment.  The Employee is employed as the Chief Financial  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
of  Directors of the Bank  ("Board")  may from time to time  reasonably  direct,
including normal duties as an officer of the Bank.

     2. Base  Compensation.  The Bank agrees to pay the Employee during the term
        ------------------
of this  agreement a salary at the rate of $103,000  per annum,  payable in cash
not less  frequently  than  monthly.  The  Board  shall  review,  not less  than
annually,  the rate of the  Employee's  salary,  and in its sole  discretion may
decide to increase his/her salary.

     3.  Discretionary  Bonus.  The Employee  shall  participate in an equitable
         --------------------
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.

     4. (a)  Participation in Retirement,  Medical and Other Plans. The Employee
             -----------------------------------------------------
shall  participate  in any plan that the Bank  maintains  for the benefit of its
employees  if  the  plan  relates  to  (i)  pension,  profit-sharing,  or  other
retirement  benefits,  (ii) medical insurance or the reimbursement of medical or
dependent care expenses, or (iii) other group benefits, including disability and
life insurance plans.

        (b)   Employee Benefits; Expenses. The Employee shall participate in any
              ---------------------------
fringe  benefits  which  are or  may  become  available  to  the  Bank's  senior
management employees,

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<PAGE>


any  other  benefits  which  are  commensurate  with  the  responsibilities  and
functions to be performed by the Employee  under this  Agreement.  The Employees
shall be reimbursed for all  reasonable  out-of-pocket  business  expenses which
he/she shall incur in connection with his/her services under this Agreement upon
substantiation of such expenses in accordance with the policies of the Bank.

     5. Term.  The Bank hereby  employs the  Employee,  and the Employee  hereby
        ----
accepts such employment under this Agreement,  for the period  commencing on the
Effective  Date and  ending 36 months  thereafter  (or such  earlier  date as is
determined  in  accordance  with  Section  9).  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 determined 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.

     6. Loyalty; Non-competition.
        -------------------------

        (a)  During the period of his/her  employment  hereunder  and except for
illnesses,  reasonable vacation periods,  and reasonable leaves of absence,  the
Employee  shall devote all his/her full business  time,  attention,  skill,  and
efforts to the  faithful  performance  of his/her  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 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/her  employment under this Agreement,  the Employee shall
not engage in any  business or  activity  contrary  to the  business  affairs or
interest of the Bank,  or be  gainfully  employed  in any other  position or job
other than as provided above.

        (b) Nothing  contained in this Paragraph 6 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.

     7.  Standards.  The  Employee  shall  perform  his/her  duties  under  this
         ---------
Agreement  in  accordance  with  such  reasonable  standards  as the  Board  may
establish  from time to time.  The Bank will provide  Employee  with the working
facilities and staff customary for similar  executives and necessary for him/her
to perform his/her duties.

     8. Vacation and Sick Leave. At such reasonable  times as the Board shall in
        -----------------------
its discretion permit,  the Employee shall be entitled,  without loss of pay, to
absent  himself/herself  voluntarily from the performance of his/her  employment
under this  Agreement,  all such  voluntary  absences to count as vacation time,
provided that:


                                       2
<PAGE>

        (a) The Employee  shall be entitled to an annual  vacation in accordance
with the policies that the Board periodically  established for senior management
employees of the Bank.

        (b) The Employee shall not receive any additional  compensation from the
Bank on account of his/her  failure to take a vacation,  and the Employee  shall
not accumulate  unused  vacation,  and the Employee shall not accumulate  unused
vacation  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/herself  voluntarily from the
performance of his/her  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 the Board in its discretion may determine.

        (d) In addition,  the Employee shall be entitled to an annual sick leave
benefit as established by the Board.

     9.  Termination  and  Termination  Pay.  Subject to Section 11 hereof,  the
         ----------------------------------
Employee's   employment   hereunder  may  be  terminated   under  the  following
circumstances:

        (a)  Death.  The  Employee's   employment  under  this  Agreement  shall
             -----
terminate upon his/her 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/her  death
occurred.

        (b) Disability.  The Bank may terminate the Employee's  employment after
            ----------
having  established the Employee's  Disability.  For purposes of this Agreement,
"Disability"  means a physical or mental  infirmity which impairs the Employee's
ability to  substantially  perform his/her 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/her
duties under this Agreement for a period of one hundred eighty (180) consecutive
days). The Employee shall be entitled to the compensation and benefits  provided
for under this  Agreement for (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,  or (ii) any
period of Disability which is prior to the Executive's termination of employment
pursuant to this Section 9(b).

        (c)  Just  Cause.  The Board  may,  by written  notice to the  Employee,
             -----------
immediately  terminate  his/her  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. Termination for "Just Cause" shall mean
termination  because  of, in the good  faith  determination  of the  Board,  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

                                       3
<PAGE>

cease-and  desist order,  or material breach of any provision of this Agreement.
Notwithstanding the foregoing, (i) the Employee shall not be deemed to have been
terminated for Just Cause unless there shall have been delivered to the Employee
a copy of a resolution duly adopted by the  affirmative  vote of not less that a
majority of the entire  membership of the Board at a meeting of the Board called
and held  for the  purpose  (after  reasonable  notice  to the  Employee  and an
opportunity for the Employee to be heard before the board),  finding that in the
good faith  opinion of the board the  Employee  was guilty of conduct  set forth
above  in the  second  sentence  of  this  Subsection  (c)  and  specifying  the
particulars thereof in detail.

        (d) Without Just Cause.  Subject to Section II hereof, the board may, by
            ------------------
written notice to the Employee,  immediately terminate his/her employment at any
time for a reason other than Just Cause,  in which event the  Employee  shall be
entitled to receive the  following  compensation  and  benefits:  (i) the salary
provided  pursuant  to  Section  2  hereof  for a period  of one year  following
termination  of  employment,  and (ii) the cost to the Employee of obtaining all
health,  life,  disability and other benefits which the Employee would have been
eligible to  participate  in for a period of one year  following  termination of
employment based upon benefit levels  substantially equal to those that the bank
provided for the employee at the date of  termination  of  employment.  Said sum
shall be paid, at the option of the Employee,  either (I) in period payment over
the remaining term of this  Agreement,  as if the Employee's  employment had not
been  terminated,  or  (II)  in one  lump  sum  within  ten  (10)  days  of such
termination.

        Notwithstanding  the  foregoing,  but only to the extent  required under
federal banking law, the amount payable under clause (i) hereof shall be reduced
to the extent that on the date of the Employee's termination of employment,  the
present value of the benefits  payable under clauses (i) and (ii) hereof exceeds
three times his/her  average  annual  compensation  based on his/her most recent
five taxable years.

        (e)  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) or (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
<PAGE>

          (4)  Any payments made to the Employee pursuant to this Agreement,  or
               otherwise,  are subject to and conditioned  upon their compliance
               with applicable laws and regulations.

        (f) Voluntary Termination by Employee. Subject to Section 11 hereof, the
            ---------------------------------
Employee may voluntarily  terminate  employment with the Bank during the term of
this  Agreement,  upon at least 60 days'  prior  written  notice to the Board of
Directors,  in which case the employee shall receive only his/her  compensation,
vested rights and employee benefits up to the date of his/her termination.

     10. No  Mitigation.  The  Employee  shall not be required  to mitigate  the
         --------------
amount of any payment provided for 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.

     11. Change in Control.
         -----------------

        (a)  Notwithstanding  any  provision  herein  to  the  contrary,  if the
Employee's  employment  under this Agreement is terminated by the Bank,  without
the Employee's  prior written consent and for a reason other than Just Cause, in
connection  with or within twelve (12) months after any change in control of the
Bank or Tri-County Financial Corporation (the "Corporation"), the Employee shall
be paid an amount equal to the difference  between (i) the product of 2.00 times
his/her "base amount" as defined in Section 280G (b) (3) of the Internal Revenue
Code of 1986, as amended (the "Code") and  regulations  promulgated  thereunder,
and (ii) the sum of any other parachute  payments (as defined under Section 280G
(b) (2) of the Code)  that the  Employee  receives  an  account of the change in
control.  Said sum  shall be paid in one lump sum  within  ten (10) days of such
termination.  The term "change in control" shall mean (1) the ownership, holding
or power to vote more than 25% of the Bank's or Corporation's  voting stock, (2)
the  control  of the  election  of a  majority  of the  Bank's or  Corporation's
directors,  (3) the exercise of a controlling  influence  over the management or
policies of the Bank or the  Corporation 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 (4) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Corporation of
the Bank (the "Company Board") (the "Continuing Directors") 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  Company  Board was
approved by a vote of at least two thirds of the  Continuing  directors  then in
office shall be considered a Continuing  Director.  The term  "person"  means an
individual  other  than the  Employee,  or a  corporation,  partnership,  trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization, or any other for of entity not specifically listed herein.

        (b)  Notwithstanding  any  other  provision  of  this  Agreement  to the
contrary,  the Employee may voluntarily  terminate his/her employment under this
Agreement within twelve (12) months following a change in control of the Bank or
Corporation, and the Employee shall thereupon be entitled to receive the payment
described in Section 11(a) of this Agreement, upon


                                       5
<PAGE>


the  occurrence  of any of the  following  events,  or within  ninety  (90) days
thereafter,  which have not been  consented  to in advance  by the  Employee  in
writing:  (i) the requirement that the Employee move his/her personal residence,
or perform his/her  principal  executive  functions,  more than thirty-five (35)
miles from his/her primary office as of the date of the change in control;  (ii)
a material  reduction in the Employee's  base  compensation  as in effect on the
date of the change in control or as the same may be increased from time to time;
(iii)  the  failure  by the  Bank to  continue  to  provide  the  Employee  with
compensation and benefits provided for under this Agreement,  as the same may be
increased  from time to time,  or with benefits  substantially  similar to those
provided  to  him/her  under  any of the  employee  benefit  plans in which  the
Employee now or hereafter becomes a participant,  or the taking of any action by
the Bank which  would  directly  or  indirectly  reduce any of such  benefits or
deprive the Employee of any material  fringe  benefit  enjoyed by him/her at the
time of the change of control; (iv) the assignment to the Employee of duties and
responsibilities  materially  different  from  those  normally  associated  with
his/her  position as  referenced at Section 1; (v) a failure to elect or reelect
the Employee to the Board of  Directors of the Bank,  if the Employee is serving
on the Board on the date of the change in control; or (vi) a material diminution
or  reduction  in  the  Employee's   responsibilities  or  authority  (including
reporting responsibilities) in connection with his/her employment with the Bank.

        (c) Any payments  made to the Employee  pursuant to this  Agreement,  or
otherwise,  are subject to and conditioned  upon their compliance with 12 U.S.C.
Section 1828(k) and any regulations promulgated thereunder.

        (d) In the event that any dispute  arises  between the  Employee and the
Bank as to the terms or interpretation of this agreement, including this Section
11, whether  instituted by formal legal proceedings or otherwise,  including any
action that the  Employee  takes to enforce  the terms of this  Section 11 or to
defend  against any action taken by the Bank,  the Employee  shall be reimbursed
for all costs and expenses,  including reasonable  attorney's fees, arising form
such dispute,  proceedings or actions, provided that the Employee shall obtain a
final  judgment by a court of competent  jurisdiction  in favor of the Employee.
Such reimbursement  shall be paid within ten (10) days of 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.


                                       6
<PAGE>


     12. Successors and Assigns.
         ----------------------

        (a) This Agreement shall incur to the benefit of and be binding upon any
corporate  of 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) Since the Bank is contracting  for the unique and personal skills of
the  Employee,  the Employee  shall be precluded  from  assigning or  delegating
his/her rights or duties  hereunder  without first obtaining the written consent
of the Bank.

     13.  Amendments.  No  amendments  or  additions to the  Agreement  shall be
          ----------
binding  unless  made in writing  and signed by all of the  parities,  except as
herein otherwise specifically provided.

     14. Applicable Law. Except to the extent preempted by Federal law, the laws
         --------------
of the State of Maryland shall govern this Agreement in all respects, whether as
to its validity, construction, capacity, performance or otherwise.

     15.  Severability.  The  provisions  of  this  Agreement  shall  be  deemed
          ------------
severable and the  invalidity  or  unenforceability  of any provision  shall not
affect the validity or enforceability of the other provisions hereof.

     16. Entire  Agreement.  This Agreement,  together with any understanding or
         -----------------
modifications  thereof as agreed to in writing by the parties,  shall constitute
the entire agreement between the parties hereto.

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

ATTEST:                                COMMUNITY BANK OF TRI-COUNTY


/s/ H. Beaman Smith                    /s/ Michael L. Middleton
---------------------------------      -----------------------------------------
H. Beaman Smith                        Michael L. Middleton
Secretary                              President


WITNESS:                               EMPLOYEE:


/s/ Christy M. Lombardi                /s/ William J. Pasenelli
---------------------------------      ----------------------------------------
                                       William J. Pasenelli



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</DOCUMENT>
