Exhibit 10.1

This Employment Agreement (the “Agreement”) is dated as of November 7, 2011 by and between Fauquier Bankshares, Inc. a Virginia corporation (the “Company”), and Eric P. Graap and to which The Fauquier Bank, a wholly-owned banking subsidiary of the Company (the “Bank”), is made a party.

WHEREAS, the Company considers the availability of your services to be important to the management and conduct of the Company’s business and desires to secure the continued availability of your services; and

                              References in this Agreement to services rendered for the Company and compensation and benefits payable or provided by the Company shall include services rendered for, and compensation and benefits payable or provided by, any Affiliate (as defined below) of the Company.  Unless the context otherwise requires, references in this Agreement to the “Company” also shall mean and refer to any business entity, including the Bank, that, directly or indirectly through one or more intermediaries, is controlled by the Company (each, an “Affiliate”).

                              (a)           Base Salary.  During the Employment Period, you will receive for your services an annual base salary (the “Base Salary”) in an amount to be determined by the Company in accordance with its salary administration program as it may from time to time be in effect.  The Base Salary will be reviewed annually and may be adjusted upward or downward in the sole discretion of the Compensation Committee or the Board of Directors of the Company, except that any downward adjustment in your Base Salary may be made only in connection with a general reduction in Base Salary that affects all similarly situated senior officers of the Company in substantially the same proportions.  In no event, however, will the Base Salary be less than $175,500.

                              (a)           Benefit Programs.  You will eligible to participate in any plans, programs, or forms of compensation or benefits that the Company or its Affiliates provide to the class of employees that includes you, on a basis not less favorable than that provided to such class of employees, including without limitation, group medical, disability and life insurance, vacation and sick leave, and retirement.  It is understood that the Board of Directors of the Company may, in its sole discretion, establish, modify or terminate such plans, programs or benefits.

                              (b)           Business Expenses.  The Company will pay on your behalf (or promptly reimburse you for) reasonable expenses incurred by you at the request of, or on behalf of, the Company in the performance of your duties pursuant to this Agreement and in accordance with the Company’s policies.

                              (a)           Termination as a Consequence of Death or Incapacity.  If you die while employed by the Company, the Company will pay your beneficiary designated in writing (provided such writing is executed and dated by you and delivered to the Company in a form acceptable to the Company prior to your death) and surviving you or, if none, your estate your Base Salary through the end of the calendar month in which your death occurs.

  (b)           Termination for Cause.  Your employment may be terminated for Cause at any time without further liability on the part of the Company.  If the Company terminates you for Cause, this Agreement will terminate without any further obligation of the Company to you other than to pay you any unpaid Base Salary through the date of termination within thirty (30) days after the date of termination.  For purposes of this Agreement, Cause shall mean:

  (i)           your failure to perform any of the duties and responsibilities required by your position (other than by reason of Incapacity), or your willful failure to follow reasonable instructions or policies of the Company;

 

  (ii)          your conviction of or entering of a guilty plea or plea of no contest with respect to a felony, a crime of moral turpitude or any other crime with respect to which imprisonment is a possible punishment, or your misappropriation or embezzlement of funds or property of the Company or its Affiliates;

  (iii)           your fraud or dishonesty with respect to the Company or its Affiliates;

  (iv)           your breach of fiduciary duties owed by you to the Company or its Affiliates;

 

  (v)           the breach by you of a material term of this Agreement or violation in any material respect of any code or standard of behavior generally applicable to employees of the Company; or

  (c)           Termination by You Other Than for Good Reason.  You may terminate your employment hereunder without Good Reason (as defined below) by written notice to the Company effective thirty (30) days after receipt of such notice by the Company or at any time by mutual agreement in writing.  It shall not constitute a breach of this Agreement for the Company to suspend your duties and to place you on paid leave during the thirty (30) day notice period.  Upon termination of employment by you without Good Reason, this Agreement will terminate without any further obligation of the Company to you other than to pay you any unpaid Base Salary through the date of termination within thirty (30) days after the date of termination.

  (d)           Termination by the Company Without Cause.  Your employment may be terminated by the Company without Cause at any time upon written notice to you, which termination will be effective immediately or on such later date as specified in the written notice.  In the event your employment is terminated without Cause, you shall receive any unpaid Base Salary through the date of termination within thirty (30) days after the date of termination.  In addition, you shall receive the following benefits, provided you sign a release and waiver of claims in favor of the Company and its Affiliates and their respective officers and directors in a form reasonably satisfactory to the Company and such release becoming effective:

  (e)           Termination by You for Good Reason.  You may voluntarily terminate your employment under this Agreement at any time for Good Reason and be entitled to receive the compensation and other benefits set forth in Section 5(d) relating to a termination without Cause, provided you sign a release and waiver of claims in favor of the Company and its Affiliates and their respective officers and directors in a form reasonably satisfactory to the Company and such release becoming effective.  You must provide written notice to the Company of the existence of the event or condition constituting such Good Reason within ninety (90) days of the initial occurrence of the event or condition alleged to constitute Good Reason.  Upon delivery of such notice by you, the Company shall have a period of thirty (30) days during which it may remedy in good faith the event or condition constituting Good Reason, and your employment shall continue in effect during such time so long as the Company is making diligent efforts to cure.  In the event the Company shall remedy in good faith the event or condition constituting Good Reason, then such notice of termination shall be null and void, and the Company shall not be required to pay the amount due to you under this Section 5(e).

  (i)           the assignment to you of duties inconsistent with your position, authority, duties or responsibilities as contemplated by Section 1 hereof without your written consent;

 

  (ii)           any action taken by the Company that results in a substantial reduction in your status, including a diminution in your position, authority, duties or responsibilities;

 

  (iii)           requiring you to maintain your primary office outside of the Market Area (as defined in Section 6(d)), unless either the Company or the Bank moves its principal executive offices to the place to which you are required to move your primary office; or

 

  (iv)           the failure of the Company to comply with any material term of this Agreement.

  (f)           Resignation from the Board of Directors.  You will immediately submit your resignation as a director of the Company and the Bank if your employment terminates for any reason, which resignation may be accepted by the Board of Directors of the Company and/or the Bank in their sole discretion.

  (g)           Regulatory Requirement.  The Company shall not be required to make payment of, or provide any benefit under, this Section 5 to the extent such payment or benefit is prohibited by the regulations presently found at 12 C.F.R. Part 359 or to the extent that any other governmental approval for the payment or benefit that is required by law is not received.

  (h)           Notice of Nonrenewal.  If the Company gives you notice of its election not to renew the term of this Agreement as provided in Section 2, the Company has the option to pay you your Base Salary, subject to the customary deductions, in lieu of allowing you to work for the remainder of the then current employment term.  The Base Salary will be paid in regular installments, each coinciding with the Company’s regularly scheduled pay periods, for the remainder of the then current employment term.  You will also be entitled to continue to participate in the Company’s health and dental insurance plans in accordance with the terms of Section 5(d)(ii), subject to the conditions set forth in Section 5(d)(iii) with respect to such insurance benefits.

  (a)           Noncompetition.  You agree that during the Employment Period and for a one-year period following the expiration of this Agreement (subject to Section 6(c) below) or, if sooner, the termination of your employment for any reason during the Employment Period (the “Noncompete Period”), you will not directly or indirectly, as a principal, agent, employee, employer, investor, director, consultant, co-partner or in any other individual or representative capacity whatsoever, engage in a business that provides Competitive Services anywhere in the Market Area (as such terms are defined below) in any capacity that includes any of the significant responsibilities held or significant activities engaged in by you while employed with the Company or its Affiliates.  Notwithstanding the foregoing, you may purchase or otherwise acquire up to (but not more than) 1% of any class of securities of any business enterprise (but without otherwise participating in the activities of such enterprise) that engages in a Competitive Business in the Market Area and whose securities are listed on any national or regional securities exchange or have been registered under Section 12 of the Securities Exchange Act of 1934, as amended.

  (b)           Nonsolicitation.  You further agree that during the Employment Period and for a two-year period following the expiration of this Agreement or, if sooner, the termination of your employment for any reason during the Employment Period, you will not directly or indirectly: (i) solicit, or assist any other person in soliciting, any Customers (as defined below) to make deposits in, borrow money from, or otherwise become customers of any other business entity conducting a Competitive Business in the Market Area; (ii) induce any Customers to terminate their relationship with the Company or its Affiliates; or (iii) contact, solicit or assist in the solicitation of any employee to terminate his or her employment with the Company or its Affiliates.

  (c)           Expiration of the Agreement.  If the Company elects not to extend this Agreement for an additional year by giving you a Nonrenewal Notice in accordance with Section 2 and your employment is subsequently terminated after the expiration of the then current term, you will not be subject to the noncompetition provisions of Section 6(a) unless the Company makes a timely election to continue to make Base Salary payments to you at the level in effect at the date of termination of your employment for the remaining balance of the one-year Noncompete Period.  The Company must notify you in writing of its election to enforce the noncompetition provisions of Section 6(a) within seven (7) business days following the termination of your employment.  The Company may not revoke its election to enforce the noncompetition covenant.

  (d)           Definitions.  As used in this Agreement, the term “Competitive Services” means providing financial products and services, which includes offering one or more of the following services and products: depository accounts, consumer and commercial lending, residential and commercial mortgage lending, cash management services, trust and estate administration, asset management, and any other business in which the Company or any of its Affiliates are engaged and in which you are significantly engaged at the time of termination of your employment; the term “Customer” means any individual or entity to whom or to which the Company or an Affiliate provided Competitive Services within two (2) years of the date on which your employment terminates; the term “Market Area” means (i) Fauquier County and any separately incorporated municipality located within Fauquier County, including but not limited to Warrenton and The Plains and (ii) the area within a 15-mile radius of any full-service banking office established by the Company at the time of termination of your employment; the term “Person” means any person, partnership, corporation, company, group or other entity; and the term “Confidential Information” shall include, but not be limited to, all financial and personnel data, computer software and all data base technologies, capital plans, customer lists and requirements, market studies, know-how, processes, trade secrets, and any other information concerning the non-public business and affairs of the Company.

  (e)           Confidentiality.  During the Employment Period and thereafter, and except as required by any court, supervisory authority or administrative agency or as may be otherwise required by applicable law, you shall not, without the written consent of a person duly authorized by the Company, disclose to any person (other than your personal attorney, or an employee of the Company or an Affiliate, or a person to whom disclosure is reasonably necessary or appropriate in connection with the performance by you of your duties as an employee of the Company) or utilize in conducting a business any Confidential Information obtained by you while in the employ of the Company, unless such information has become a matter of public knowledge at the time of such disclosure.

  (f)           Acknowledgment.  The covenants contained in this Section 6 shall be construed and interpreted in any proceeding to permit their enforcement to the maximum extent permitted by law.  You agree that the restrictions imposed herein are necessary for the reasonable and proper protection of the Company and its Affiliates, and that each and every one of the restrictions is reasonable in respect to length of time, geographic area and scope of prohibited activities, and that the restrictions are neither overly restrictive on your post-employment activity nor overly burdensome for you to abide by.  You covenant that you will not make any contention contrary to any of the foregoing representations in the future and agree that you will be estopped to deny or contradict the truth or accuracy of these representations.  If, however, the time, geographic and/or scope of activity restrictions set forth in Section 6 are found by an arbitrator or court to exceed the standards deemed enforceable, the arbitrator or court, as applicable, is empowered and directed to modify the restriction(s) to the extent necessary to make them enforceable.  Notwithstanding anything to the contrary herein, nothing in this Agreement shall be construed to prohibit any activity that cannot reasonably be construed to further in any meaningful way any actual or potential competition against the Company or an Affiliate.

  (g)           Enforcement.  You acknowledge that damages at law would not be a measurable or adequate remedy for breach of the covenants contained in this Section 6 and, accordingly, you agree to submit to the equitable jurisdiction of any court of competent jurisdiction in connection with any action to enjoin you from violating any such covenants.  If the Company is successful in whole or in part in any legal, equitable, or arbitration action against you in connection with the enforcement of the covenants included in this Section 6, the Company shall be entitled to payment of all costs, including reasonable attorney’s fees, from you.  If, on the other hand, it is finally determined by a court of competent jurisdiction that a breach or threatened breach did not occur under Section 6 of this Agreement, the Company shall reimburse you for reasonable legal fees incurred to defend the claim.  In the event legal action is commenced with respect to the provisions of this Section 6 and you have not strictly observed the restrictions set forth in this Section 6, then the restricted periods described in Paragraphs (a) and (b) shall begin to run anew from the date of any Final Determination of such legal action.  “Final Determination” shall mean the expiration of time to file any possible appeal from a final judgment in such legal action or, if an appeal be taken, the final determination of the final appellate proceeding.  All the provisions of this Section 6 will survive termination and expiration of this Agreement.

  (a)           Except as provided in Section 8(c) below, both the Company and you acknowledge and agree that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof, shall be settled by binding arbitration unless otherwise required by law, to be held in Warrenton, Virginia in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association.  The arbitrator may grant injunctions or other relief in such dispute or controversy.  The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration.  Judgment may be entered on the arbitrator’s decision in any court having jurisdiction.  The party against whom the arbitrator(s) shall render an award shall pay the other party’s reasonable attorneys’ fees and other reasonable costs and expenses in connection with the enforcement of its rights under this Agreement (including the enforcement of any arbitration award in court), unless and to the extent the arbitrator(s) shall determine that under the circumstances recovery by the prevailing party of all or a part of any such fees and costs and expenses would be unjust.

  (b)           The arbitrator(s) shall apply Virginia law to the merits of any dispute or claim, without reference to rules of conflicts of law.  You hereby consent to the personal jurisdiction of the state and federal courts located in Virginia for any action or proceeding arising from or relating to this Agreement or relating to any arbitration in which the parties are participants.

  (c)           The parties may apply to any court of competent jurisdiction for a temporary restraining order, preliminary injunction, or other interim or conservatory relief, as necessary, without breach of this arbitration agreement and without abridgment of the powers of the arbitrator.

  (d)           YOU HEREBY CONFIRM YOU HAVE READ AND UNDERSTAND THIS SECTION 8, WHICH DISCUSSES ARBITRATION, AND UNDERSTAND THAT BY SIGNING THIS AGREEMENT, YOU AGREE, EXCEPT AS PROVIDED IN SECTION 8(c), TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDING ARBITRATION, UNLESS OTHERWISE REQUIRED BY LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF YOUR RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF YOUR RELATIONSHIP WITH THE COMPANY.

  (a)           Severability.  If any clause or provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, then the remainder of this Agreement shall not be affected thereby, and in lieu of each clause or provision of this Agreement which is illegal, invalid or unenforceable, there shall be added, as part of this Agreement, a clause or provision as similar in terms to such illegal, invalid or unenforceable clause or provision as may be possible and as may be legal, valid and enforceable.

  (b)           Applicable Law.  This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, without regard to its conflicts of law principles.

  (c)           Entire Agreement; Amendments.  This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, between the parties.  This Agreement may be amended only by an agreement signed by the parties hereto.

  (d)           Waiver.  The rights and remedies of the parties to this Agreement are cumulative and not alternative.  Neither the failure nor any delay by either party in exercising, in whole or in part, any right, power, or privilege under this Agreement will operate as a waiver of such right, power, or privilege.

  (e)           Binding Effect; Survival.  This Agreement is binding upon and shall inure to the benefit of the parties and their respective successors, heirs and assigns, provided that no part of this Agreement is assignable by you.  Except as otherwise expressly provided herein, upon the termination or expiration of this Agreement the respective rights and obligations of the parties hereto shall survive such termination or expiration to the extent necessary to carry out the intentions of the parties set forth in this Agreement.  If the Company elects not to renew this Agreement as provided in Section 2, this Agreement will no longer govern the terms of your employment following the Expiration Date, and your employment thereafter will be on an at-will employment basis.

  (f)           No Construction Against Any Party.  This Agreement is the product of informed negotiations between parties.  If any part of this Agreement is deemed to be unclear or ambiguous, it shall be construed as if it were drafted jointly by all parties.  The parties agree neither party was in a superior bargaining position regarding the substantive terms of this Agreement.

  (g)           Deferred Compensation Omnibus Provision.

  (h)           Clawback.  You agree that any incentive based compensation or award that you receive, or have received, from the Company or any Affiliate under this Agreement or otherwise, will be subject to clawback by the Company as may be required by applicable law or stock exchange listing requirement and on such basis as the Board of Directors of the Company determines, but in no event with a look-back period of more than three years, unless required by applicable law or stock exchange listing requirement.

  (i)           Documents.  All documents, records, tapes and other media of any kind or description relating to the business of the Company or its Affiliates (the “Documents”), whether or not prepared by you, shall be the sole and exclusive property of the Company.  The Documents, and any copies, shall be returned to the Company upon your termination of employment for any reason or at such earlier time as the Board of Directors of the Company or its designees may specify.