EMPLOYMENT AGREEMENT

1.

Employment.  The Bank hereby employs Executive and Executive hereby accepts employment with the Bank, under the terms and conditions set forth in this Agreement.

2.

Duties of Employee.  Executive shall perform and discharge well and faithfully such duties as an executive officer of the Bank as may be assigned to Executive from time to time by the President and Chief Executive Officer of the Bank.  Executive shall be employed as Executive Vice President and Chief Operating Officer of the Bank, and shall hold such other titles as may be given to him from time to time by the President or Board of Directors of the Bank.  Executive shall devote his full time, attention, ability and energies to the business of the Bank during the Employment Period (as defined in Section 3 of this Agreement); provided, however, that this Section 2 shall not be construed as preventing Executive from (a) engaging in activities incident or necessary to personal investments so long as it does not exceed 5% of the outstanding shares of any publicly held company, (b) acting as a member of the Board of Directors or Trustee of any non-profit association or corporation with the prior written approval of the Board of Directors of the Bank, or (c) being involved in any other activity with the prior written approval of the Board of Directors of the Bank.  The Executive shall not engage in any business or commercial activities (including investment in an existing or prospective customer), duties or pursuits which compete with the business or commercial activities of the Bank, its subsidiaries or parent holding company (Codorus Valley Bancorp, Inc. or the "Corporation") nor may the Executive serve as a director or officer or in any other capacity in a company which competes with Bank.

(a)  

The Bank hereby shall employ the Executive and the Executive hereby accepts employment with the Bank for a term of two years (the "Employment Period"), beginning on July 23, 2012, and ending July 22, 2014 subject, however, to prior termination of this Agreement as set forth below.  Unless written notice of nonrenewal is given by April 1st of 2014 and by April 1st of each successive calendar year thereafter, the Employment Period shall be automatically extended an additional twelve months.

(b)  

Notwithstanding the provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically for Cause (as defined herein and as determined by the Bank in its reasonable discretion) upon written notice from the President of the Bank to Executive.  As used in this Agreement, "Cause" shall mean any of the following:

(i)

Executive's conviction of or plea of guilty or nolo contendere to a felony, a crime of falsehood or a crime involving moral turpitude, or the actual incarceration of Executive for a period of thirty (30) consecutive days or more;

(ii)

Executive's failure to follow the good faith, lawful instructions of the President and CEO of the Bank following written notice of such instructions;

(iii)

Executive's failure to substantially perform Executive's duties for the Bank, other than a failure resulting from Executive's incapacity because of physical or mental illness, as provided in subsection (e) of this Section 3, which failure results in injury to the Bank, monetarily or otherwise;

(iv)

Executive's intentional violation of the provisions of this Agreement;

(v)

dishonesty or negligence of the Executive in the performance of his duties;

(vi)

conduct on the part of the Executive bringing public discredit to the Bank;

(vii)

Executive's breach of fiduciary duty involving personal profit;

(viii)

Executive's material violation of Bank policies and procedures; and

(ix)

Executive's violation of any law, rule or regulation governing banks or   bank officers or any final cease and desist order issued by a bank regulatory authority, any of which materially jeopardizes the business of the Bank.

 

(c)

Notwithstanding the provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically upon Executive's voluntary termination of employment (other than in accordance with Section 5 of this Agreement) for Good Reason.  The term "Good Reason" shall mean any of the following:

(i)

Any reduction in title or a reduction in the Executive’s responsibilities or authority which are inconsistent with, or the assignment to the Executive of duties inconsistent with, the Executive’s status as Executive Vice President and Chief Operating Officer of the Bank or any title having equivalent status or responsibility;

(ii)

Any geographical reassignment of the Executive which, in the exercise of his reasonable discretion, necessitates that the Executive move his principal residence more than fifty (50) miles from his current office or requires Executive to commute more than fifty (50) miles one way from his current office;

(iii)

Any removal of the Executive from office except for any termination of the Executive’s employment for Cause;

(iv)

Any reduction in the Executive’s Annual Base Salary as in effect on the date hereof or as the same may be increased from time to time;

(v)

Any failure by the Bank to provide the Executive with benefits at least as favorable as those enjoyed by the Executive under any of the pension, life insurance, medical, health and accident, disability or other employee plans of the Bank in which the Executive participated on the date hereof, or the taking of any action that would materially reduce any of such benefits, unless such reduction is part of a reduction applicable in each case to all other similarly situated executive officers of the Bank;

(vi)

Any delivery by the Bank to the Executive of the written notice of nonextension provided for in paragraph 3(a) hereof; and

(vii)

Any material breach of this Agreement of any nature whatsoever on the part of the Bank.

 

(d)

Notwithstanding the provisions of Section 3(a) of this Agreement, this Agreement shall terminate automatically upon Executive's death and Executive's rights under this Agreement shall cease as of the date of such termination.

 

(e)

Executive and Bank agree that if Executive becomes Disabled, within the meaning of Section 409A of the Internal Revenue Code of 1986, and the regulations thereunder, and becomes eligible for employer-provided short-term and/or long-term disability benefits, or worker's compensation benefits, then the Bank's obligation to pay Executive his Annual Base Salary shall be reduced by the amount of the disability or worker's compensation benefits received by Executive.

 

Executive and Bank agree that if, in the judgment of the Bank's Board of Directors, the Executive is unable, as a result of illness or injury, to perform the essential functions of his position on a full-time basis with or without a reasonable accommodation and without posing a direct threat to himself or others for a period of six months, the Bank will suffer an undue hardship in continuing the Executive's employment as set forth in this Agreement.  Accordingly, this Agreement shall terminate at the end of the six-month period, and all of Executive's rights under this Agreement shall cease, with the exception of those rights which Executive may have under the Bank's benefit plans.

 

(f)

Executive agrees that in the event his employment under this Agreement is terminated for any reason, Executive shall resign as a director of Bank, the Corporation or any affiliate or subsidiary thereof, if he is then serving as a director of any of such entities.

Annual Base Salary.  For services performed by Executive under this Agreement, the Bank shall pay Executive an Annual Base Salary during the Employment Period at the rate of one hundred eighty thousand dollars ($180,000) per year, minus applicable withholdings and deductions, payable at the same times as salaries are payable to other executive employees of the Bank.  The Bank may, from time to time, increase Executive's Annual Base Salary, and any and all such increases shall be deemed to constitute amendments to this Section 4(a) to reflect the increased amounts, effective as of the date established for such increases by the Board of Directors of the Bank or any committee of such Board of Directors in the resolutions authorizing such increases.

 

(b)

Vacation, Holidays, Sick Days and Personal Days.  The Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Bank from time to time for its executive officers, but not less than Four (4) weeks in any calendar year.  The Executive shall also be entitled to all paid holidays, sick days and personal days given by the Bank to its employees.

 

(c)

Employee Benefit Plans.  During the term of this Agreement, Executive shall be entitled to participate in or receive the benefits of any employee benefit plan currently in effect at the Bank, subject to the terms of said plan, until such time that the Board of Directors of the Bank authorizes a change in such benefits.

(d)  

Automobile.  During the term of this Agreement, the Bank shall provide Executive with exclusive use of an automobile.  Bank shall be responsible for and pay all costs of insurance coverage, repairs, maintenance and other incidental expenses, including license.  A vehicle is provided for Executive's use as a Bank employee and, therefore, may only be driven by Executive, his spouse or other Bank employees.

Business Expenses.  During the term of this Agreement, Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him, which are properly accounted for, in accordance with the policies and procedures established by the Board of Directors of the Bank for its executive officers.

Membership Dues.                                While serving as Executive Vice President and Chief Operating Officer of the Bank, Executive shall be reimbursed for membership dues to the Country Club of York (or similar establishment located within the Bank’s market area and as agreed to by the President and CEO) and the Lafayette Club of York along with reasonable club expenses incurred during the conduct of Bank or Corporation business.

 

(g)

Bonus.  The Board of Directors of the Bank, in its sole discretion, may provide for payment of a periodic bonus to the Executive in such amount or nature as the Board deems appropriate to provide incentive to the Executive and to reward Executive for his performance.

 

(a)

If a Change of Control (as defined in Section 5(b) of this Agreement) shall occur and if thereafter at any time during the term of this Agreement there shall be:

(i)

any involuntary termination of Executive's employment (other than for the reasons set forth in Section 3(b) of this Agreement); or

(ii)

if Executive terminates his employment for “Good Reason” during the period commencing with the date of any “Change of Control”, as defined herein, and ending on the second anniversary of the date of the Change of Control, by delivering a notice in writing (the "Notice of Termination") to the Bank, then, in either case, the provisions of Section 6 of this Agreement shall apply.

 

(b)

As used in this Agreement, "Change of Control" shall mean:  a Change in the Ownership of Codorus Valley Bancorp, Inc. (the “Corporation”) or the Bank, (as defined below), a Change in the Effective Control of the Corporation or the Bank (as defined below), or a Change in the Ownership of a Substantial Portion of the Assets of the Corporation or the Bank, (as defined below).

(i)

Change in the Ownership of the Corporation or the Bank.  A Change in the Ownership of the Corporation or the Bank occurs on the date that any one person, or more than one person acting as a group (as defined below), acquires ownership of stock of the Corporation or the Bank that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Corporation or the Bank.  However, if any one person, or more than one person acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the stock of the Corporation or the Bank, the acquisition of additional stock by the same person or persons is not considered to cause a Change in the Ownership of the Corporation or the Bank.  An increase in the percentage of stock owned by any one person, or persons acting as a group, as a result of a transaction in which the Corporation or the Bank acquires its stock in exchange for property will be treated as an acquisition of stock for these purposes.  A change in ownership of the Corporation or the Bank only occurs when there is a transfer or issuance of stock of the Corporation or the Bank and the stock remains outstanding after the transaction.

 

(ii)

Change in Effective Control of the Corporation or the Bank.  A Change in Effective Control of the Corporation or the Bank occurs only on the date that either:

(A)

Any one person, or more than one person acting as a group (as defined below), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Corporation or the Bank possessing 35 percent or more of the total voting power of the stock of the Corporation or the Bank; or

(B)

A majority of members of the Corporation’s Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Corporation’s Board of Directors prior to the date of the appointment or election.

(iii)

Change in Ownership of a Substantial Portion of the Corporation’s or the Bank’s Assets.  A Change in Ownership of a Substantial Portion of the Corporation’s or the Bank’s Assets occurs on the date that any one person, or more than one person acting as a group (as defined below), acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Corporation or the Bank that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the Corporation or the Bank immediately prior to such acquisition or acquisitions.  For this purpose, gross fair market value means the value of assets of the Corporation or the Bank, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets.

(i)

A shareholder of the Corporation or the Bank (immediately before the asset transfer) in exchange for or with respect to its stock;

(ii)

An entity, 50 percent or more of the total value or voting power of which is owned, directly or indirectly, by the Corporation or the Bank;

(iii)

A person, or more than one person acting as a group, that owns, directly or indirectly, 50 percent or more of the total value or voting power of all the outstanding stock of the Corporation or the Bank; or

(iv)

An entity, at least 50 percent of the total value or voting power of which is owned, directly or indirectly, by a person described in (i), (ii) or (iii) above.

 

(a)

In the event of a termination of employment following a change of control (as described in Section 5(a) of this Agreement) to the Bank, Executive shall be entitled to receive the compensation and benefits set forth below:

(i)

Basic Payments.  The Executive will be paid an amount equal to two times the sum of (A) his then current Annual Base Salary, and (B) the highest bonus paid to him with respect to one of the three calendar years immediately preceding the year of termination.  Such amount will be paid to the Executive in a lump sum within ten (10) days following the date of termination of employment.

(ii)

Continuation of Employee Benefits.  For a period of two (2) years from the date of termination of employment, the Bank also shall maintain in full force and effect, for the continued benefit of the Executive, all employee benefit plans and programs to which the Executive was entitled prior to the date of termination, if the Executive’s continued participation is possible under the general terms and provisions of such plans, and programs, except that if the Executive’s participation in any health, medical, life insurance, or disability plan or program is barred, the Bank shall obtain and pay for, on the Executive’s behalf, individual insurance plans, policies or programs which provide to the Executive health, medical, life and disability insurance coverage which is substantially equivalent to the insurance coverage to which Executive was entitled prior to the date of termination.

 

(b)

Executive shall not be required to mitigate the amount of any payment provided for in this Section 6 by seeking other employment or otherwise.  Except as provided in this Section 6(a), unless otherwise agreed to in writing, the amount of payment or the benefit provided for in this Section 6 shall not be reduced by any compensation earned by Executive as the result of employment by another employer or by reason of Executive's receipt of or right to receive any retirement or other benefits after the date of termination of employment or otherwise.

 

(a)

If Executive's employment is involuntarily terminated by Bank without Cause and no Change in Control shall have occurred at the date of such termination, then Bank shall pay Executive an amount equal to the greater of 1.0 times the Executive's Annual Base Salary or the remainder of the Executive's Annual Base Salary for the remaining term of the Agreement as defined in Section 4(a), subject to the Bank's receipt of a release agreement executed by the Executive and acceptable to the Bank.  Said amount shall be payable in equal monthly installments over a term equal to the term for which the Executive is being paid, i.e. twelve (12) to twenty-four (24) months and shall be subject to federal, state and local tax withholdings. In addition, Executive shall be entitled to a continuation of benefits, in the manner described in paragraph 6(a)(ii) hereof, for a period of one year following Executive’s termination of employment under paragraph 7(a).

 

(b)

Executive shall not be required to mitigate the amount of any payment provided for in this Section 7 by seeking other employment or otherwise.  Except as provided in this Section 7(a), unless otherwise agreed to in writing, the amount of payment or the benefit provided for in this Section 7 shall not be reduced by any compensation earned by Executive as the result of employment by another employer or by reason of Executive’s receipt of or right to receive any retirement or other benefits after the date of termination of employment or otherwise.

(i)

During the course of his employment with the Bank, and for a period of twenty-four (24) months following the termination of Executive’s employment with the Bank for any reason (whether such termination is voluntary or involuntary), Executive will not, except in furtherance of his duties as an employee of the Bank, either on his own behalf or on behalf of any other person, entity, firm, or corporation, whether as a principal, agent, executive, stockholder, partner, officer, member, director, sole proprietor, or otherwise, contact or solicit (either directly or indirectly) any of the Bank's customers, vendors, suppliers and referral sources.

(ii)

During the course of Executive’s employment with the Bank, and for a period of twenty-four (24) months following the termination of Executive’s employment with the Bank for any reason (whether such termination is voluntary or involuntary), Executive will not, except in furtherance of his duties as an employee of the Bank, either on his  own behalf or on behalf of any other person, entity, firm, or corporation, whether as a principal, agent, Executive, employee, stockholder, partner, officer, member, director, sole proprietor, or otherwise, engage in business with or otherwise provide (either directly or indirectly) services to any of the Bank's customers, suppliers, vendors and referral sources that are the same or similar to any services provided by the Bank.

(iii)

For a period of twelve (12) months following the termination of Executive’s employment with the Bank for any reason (whether such termination is voluntary or involuntary), Executive will not, either on Executive’s own behalf or on behalf of any other person, entity, firm, or corporation, whether as a principal, employee, stockholder, partner, or sole proprietor (except as an investor owning less than 5% of the stock of a publicly owned company), compete with the Bank, the Corporation or any of their respective subsidiaries or affiliates, or otherwise engage in lending, banking or financial services within a fifty (50) mile radius of any branch banking office of the Bank.

(iv)

For a period of twelve (12) months following the termination of Executive’s employment with the Bank for any reason (whether such termination is voluntary or involuntary), Executive will not provide financial or other assistance to any person, entity, firm, or corporation engaged in the banking, lending, financial services or insurance business within a fifty (50) mile radius of any branch banking office of the Bank.

(v)

Executive acknowledges specifically that he has been provided adequate and reasonable consideration for the promises made by him within this Section and further specifically agrees that he intends to be legally bound by these restrictions.

(vi)

The provisions of this Section 8(b) shall not apply to Executive following termination of employment following a change of control.

9.

Liability Insurance.  Bank shall use its best efforts to obtain insurance coverage for the Executive under an insurance policy covering officers and directors of the Bank against lawsuits, arbitrations or other legal or regulatory proceedings; however, nothing herein shall be construed to require Bank to obtain such insurance, if the Board of Directors of the Bank determines that such coverage cannot be obtained at a reasonable price.

10.

Specified Employee Status.  Notwithstanding anything in this Agreement to the contrary, in the event Executive is determined to be a Specified Employee, as that term is defined in Section 409A of the Internal Revenue Code and the regulations promulgated thereunder, payments to such Specified Employee under paragraphs 3(c), 6 or 7, other than payments qualifying as short term deferrals or an exempt pay arrangement under Section 409A, shall not begin earlier than the first day of the seventh month after the date of termination.

11.

Notices. Except as otherwise provided in this Agreement, any notice required or permitted to be given under this Agreement shall be in writing and deemed properly given when hand-delivered or mailed by registered or certified mail, postage prepaid with return receipt requested, to Executive's residence, in the case of notices to Executive, and to the principal executive office of the Bank, in the case of notice to the Bank, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.

12.

Waiver. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and an executive officer specifically designated by the Board of Directors of the Bank.  No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

13.

Assignment. This Agreement shall not be assignable by any party, except by the Bank or Corporation to any successor in interest to its business.

14.

Entire Agreement. This Agreement contains the entire agreement of the parties relating to the subject matter of this Agreement.  Upon the execution and delivery of this Agreement, any prior agreement relating to the subject matter hereof will be deemed automatically terminated and be of no further force or effect.

(a)  

Bank will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the businesses and/or assets of the Bank to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Bank would be required to perform it if no such succession had taken place.  Failure by the Bank to obtain such assumption and agreement prior to the effectiveness of any such succession shall constitute a breach of this Agreement and the provisions of Section 3 of this Agreement shall apply.  As used in this Agreement, "Bank" shall mean Bank, as defined previously and any successor to its respective business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law or otherwise.

(b)  

This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees.  If Executive should die after a Notice of Termination is delivered by Executive, or following termination of Executive's employment without Cause, and any amounts would be payable to Executive under this Agreement if Executive had continued to live, all such amounts shall be paid in accordance with the terms of this Agreement to Executive's devisee, legatee, or other designee, or, if there is no such designee, to Executive's estate.

16.

Arbitration. Bank and Executive recognize that in the event a dispute should arise between them concerning the interpretation or implementation of this Agreement, lengthy and expensive litigation will not afford a practical resolution of the issues within a reasonable period of time.  Consequently, each party agrees that all disputes, disagreements and questions of interpretation concerning this Agreement are to be submitted for resolution, in York, Pennsylvania, to the American Arbitration Association (the "Association") in accordance with the Association's National Rules for the Resolution of Employment Disputes or other applicable rules then in effect ("Rules").  Bank or Executive may initiate an arbitration proceeding at any time by giving notice to the other in accordance with the Rules.  Bank and Executive may, as a matter or right, mutually agree on the appointment of a particular arbitrator from the Association's pool.  The arbitrator shall not be bound by the rules of evidence and procedure of the courts of the Commonwealth of Pennsylvania but shall be bound by the substantive law applicable to this Agreement.  The decision of the arbitrator, absent fraud, duress, incompetence or gross and obvious error of fact, shall be final and binding upon the parties and shall be enforceable in courts of proper jurisdiction.  Following written notice of a request for arbitration, Bank and Executive shall be entitled to an injunction restraining all further proceedings in any pending or subsequently filed litigation concerning this Agreement, except as otherwise provided herein.

17.

RABBI TRUST.  The Corporation has established a rabbi trust (the “Trust”), to which it contributed an initial corpus of $100.  In the event of a change of control as defined herein, the Corporation shall, in accordance with the terms of the Trust, contribute thereto the amount described in Section 6 thereof.  Thereafter, amounts payable hereunder shall be paid first from the assets of such Trust and the income thereon.  To the extent that the assets of the Trust and the income thereon are insufficient, the Corporation, the Bank or any successor of the Corporation or Bank shall pay Executive the amount due hereunder.

18.

Validity.  The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

19.

Applicable Law. This Agreement shall be governed by and construed in accordance with the domestic, internal laws of the Commonwealth of Pennsylvania, without regard to its conflicts of laws principles.

20.

Headings. The section headings of this Agreement are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement.