EMPLOYMENT AGREEMENT

EMPLOYMENT AGREEMENT

THIS AGREEMENT (“Agreement”) made as of the 25th day of August, 2009, between CODORUS VALLEY BANCORP, INC. , a Pennsylvania business corporation (the “Corporation”), PEOPLESBANK, A Codorus Valley Company , a Pennsylvania banking institution (the “Bank”), and HARRY R. SWIFT , an adult individual (the “Executive”).

WITNESSETH

WHEREAS , the Corporation, the Bank and the Executive entered into a Change of Control Agreement dated as of December 27, 2005 (the “2005 Agreement”), regarding, among other things, the entitlement of the Executive to certain payments by the Corporation and the Bank in the event the Executive was terminated pursuant to a change of control of the Corporation or the Bank; and

WHEREAS , the Corporation and the Bank consider the continued employment of the Executive to be in the best interests of the Corporation and the Bank; and

WHEREAS , the Corporation, the Bank and the Executive desire to enter into this Agreement regarding, among other things, the employment of the Executive by the Corporation and by the Bank and, concurrently therewith, to terminate the 2005 Agreement, all as hereinafter set forth; and

WHEREAS , on January 9, 2009, the Corporation issued 16,500 shares of its Series B Preferred Stock and 263,859 common stock purchase warrants to the United States Department of the Treasury (“Treasury”), pursuant to its TARP Capital Purchase Program (“CPP”). As a result, the Corporation is subject to the laws, and the Treasury regulations, currently enacted or issued or to be enacted or issued in the future, that apply to participants in the CPP, and will remain subject to these current and future legal and regulatory requirements applicable to CPP participants until such time as all shares of the Corporation’s Series B Preferred Stock are no longer owned by Treasury (such period is referred to herein as the “CPP Compliance Period”); and

WHEREAS , the Corporation, the Bank and Executive desire to set forth herein the terms and conditions of Executive’s employment by the Corporation and the Bank, all subject to, and limited by, the legal and regulatory requirements imposed on the Corporation as a CPP participant during the CPP Compliance Period. During the CPP Compliance Period, no amount provided for herein shall be accrued, vested or paid except as permitted by the CPP and the legal and regulatory restrictions applicable to the Corporation thereunder. Upon conclusion of the CPP Compliance Period, this Agreement shall be construed thereafter as if all references to the CPP and its attendant legal and regulatory restrictions were omitted herefrom.

NOW, THEREFORE , in consideration of the continued employment of the Executive and other good and valuable consideration, the parties hereto, intending to be legally bound hereby, agree as follows:

1.         EMPLOYMENT . The Corporation and the Bank each hereby employ the Executive, and the Executive hereby accepts employment with the Corporation and the Bank, on the terms and conditions set forth in this Agreement.

2.         TERM OF EMPLOYMENT . The Executive’s employment under this Agreement shall be for a term of three (3) years beginning on August 25, 2009, and ending on August 25, 2012, subject, however, to prior termination of this Agreement as set forth below. Furthermore, subject to the subsequent provisions, upon the expiration of the first twelve (12) full calendar months after the date first above written, the term hereof shall be extended for another twelve (12) full calendar months, and upon expiration of each subsequent twelve (12) full calendar months thereafter the term of this Agreement shall be likewise extended for an additional twelve (12) full calendar months. Such extension of this Agreement’s terms shall be automatic unless the Corporation and Bank provide the Executive written notice of their intention not to extend this Agreement, which written notice shall be given by the Corporation and Bank not less than ninety (90) days before the expiration of the current twelve (12) month term.

3.         POSITION AND DUTIES . The Executive shall serve as the Vice President, Secretary and General Counsel of the Corporation and as Executive Vice President, Chief Operating Officer and General Counsel of the Bank, reporting only to the President and Chief Executive Officer of the Corporation and Bank and shall have such duties and responsibilities concerning the general management and operation of the Corporation and Bank as shall be assigned by the President and Chief Executive Officer, and shall have such other powers and duties as may from time to time be prescribed by the Board of Directors of the Corporation and Bank, provided that such powers and duties are consistent with the Executive’s position as the Chief Operating Officer and General Counsel of the Bank and the General Counsel of the Corporation.

4.         ENGAGEMENT IN OTHER EMPLOYMENT . The Executive shall devote all his working time, ability and attention to the business of the Corporation and Bank during the term of this Agreement. The Executive shall notify the Board of Directors of the Corporation and Bank in writing and receive written approval from the Corporation and Bank before the Executive engages in any other business or commercial duties or pursuits, including, but not limited to, directorships of other companies. Under no circumstances may the Executive engage in any business or commercial activities, duties or pursuits which compete with the business or commercial activities of the Corporation or Bank, nor may the Executive serve as a director or officer or in any other capacity in a company which competes with the Corporation or Bank. Executive shall not be precluded, however, upon written notification to the Boards of Directors, from engaging in voluntary or philanthropic endeavors, from engaging in activities designed to maintain and improve his professional skills, or from engaging in activities incident or necessary to personal investments, so long as they are, in the Boards’ reasonable opinion, not in conflict with or detrimental to the Executive’s rendition of services on behalf of the Bank and Corporation.

(a)         ANNUAL DIRECT SALARY : As compensation for services rendered to the Corporation and Bank under this Agreement, the Executive shall be entitled to receive from the Bank an annual direct salary of One Hundred Ninety Thousand ($190,000) Dollars per year, (the “Annual Direct Salary”) payable in substantially equal bi-monthly installments (or such other intervals of the Bank’s payroll policy) prorated for any partial employment period. The Annual Direct Salary shall be reviewed annually, no later than December 30 of the then calendar year and shall be subject to such annual change (but not reduced below $190,000 without the Executive’s written consent) as may be set by the Board of Directors of the Corporation and Bank, upon recommendation of the President and Chief Executive Officer, taking into account the position and duties of the Executive and the performance of the Corporation and Bank.

(b)       BONUS . The Board of Directors of the Corporation and Bank in its sole discretion, upon recommendation of the President and Chief Executive Officer, may provide for payment of a periodic bonus to the Executive in such an amount or nature as it may deem appropriate to provide incentive to the Executive and to reward the Executive for his performance.

(a)         EMPLOYEE BENEFIT PLANS . The Executive shall be entitled to participate in or receive benefits under all Bank employment benefit plans including, but not limited to, any pension plan, profit-sharing plan, savings plan, life insurance plan or disability insurance plan as made available by the Bank to its employees, subject to and on a basis consistent with terms, conditions and overall administration of such plans and arrangements.

(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 senior executive officers, but not less than Five (5) weeks in any calendar year (prorated in any calendar year during which the Executive is employed hereunder for less than the entire such year in accordance with the number of days in such calendar year during which he is so employed). The Executive shall also be entitled to all paid holidays, sick days and personal days given by the Bank to its employees.

(c)         BUSINESS EXPENSES . During the term of his employment hereunder, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by him (in accordance with the policies and procedures established by the Board of Directors of the Bank for expense reimbursement) in performing services hereunder, provided that the Executive properly accounts therefore in accordance with Bank policy.

(d)        AUTOMOBILE . The Executive shall be entitled to the use of a Bank purchased or leased automobile of the following make and model, or such comparable model as may be agreed upon by the Board of Directors and the Executive: Volvo XC-70. The Executive shall also be entitled to reimbursement for all operating expenses of the automobile, including, but not limited to, oil, maintenance, repairs and insurance.

               (e)        MEMBERSHIP DUES . While serving as an executive officer of the Corporation and Bank, Executive shall be reimbursed for membership dues to the Lafayette Club of York or similar club along with reasonable club expenses incurred during the conduct of Bank or Corporation business.

7.         LIABILITY INSURANCE . The Corporation shall be required 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 and under a policy covering employed attorneys against liability.

8.         UNAUTHORIZED DISCLOSURE . During the term of his employment hereunder, or at any later time, the Executive shall not, without the written consent of the Board of Directors of the Corporation or Bank or a person authorized thereby, knowingly disclose to any person, other than an employee of the Corporation or Bank or a person whom disclosure is reasonably necessary or appropriate in connection with the performance by the Executive of his duties as an executive of the Corporation or Bank, any material confidential information obtained by him while in the employ of the Corporation or Bank with respect to any of the Corporation or Bank’s services, products, improvements, formulas, designs or styles, processes, customers, methods of business or any business practices the disclosure of which could be or will be materially damaging to the Corporation or Bank provided, however, that confidential information shall not include any information known generally to the public (other than as a result of unauthorized disclosure by the Executive or any person with the assistance, consent or direction of the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Corporation or Bank or any information that must be disclosed as required by law.

9.         RESTRICTIVE COVENANT .         The Executive covenants and agrees that the Executive shall not, directly or indirectly, within the marketing area of the Bank (defined as an area within fifty (50) miles of the registered office of the Bank), enter into or engage generally in direct or indirect competition with the Corporation or Bank or any subsidiary of the Corporation, either as an individual on his own or as a partner or joint venturer, or as a director, officer, shareholder, employee, agent, independent contractor, lessor or creditor of or for any person, for a period of one year after the date of termination of his employment if the Executive’s employment is terminated for any reason whatsoever, provided, however, that the restrictions in this paragraph 9 shall not apply in the event the termination of Executive’s employment occurs following a Change in Control, as defined herein. The foregoing restriction shall not be construed to prohibit the ownership by Executive of not more than five percent (5%) of any class of securities of any corporation which is in competition with the Bank or Corporation, provided that such ownership represents a passive investment and that neither Executive nor any group of persons including Executive in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising his rights as a shareholder, or seek to do any of the foregoing. The existence of any claim or cause of action of the Executive against the Corporation or Bank, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Corporation or Bank of this covenant. The Executive agrees that any breach of the restrictions set forth in paragraphs 8 and 9 will result in irreparable injury to the Corporation or Bank for which it shall have no adequate remedy at law and the Corporation or Bank shall be entitled to injunctive relief in order to enforce the provisions hereof. In the event that this paragraph shall be determined by any court of competent jurisdiction to be unenforceable in part by reason of it being too great a period of time or covering too great a geographical area, it shall be in full force and effect as to the period of time or geographical area determined to be reasonable by the court. The restriction set forth in this Agreement shall not prohibit the Executive from engaging in the private practice of law after termination of employment.

     (a)       The Executive’s employment hereunder shall terminate upon his death.

(b)       If the Executive becomes disabled because of sickness, physical or mental disability, or any other reason, the Corporation or Bank shall have the option to terminate this Agreement by giving written notice of termination to the Executive. Executive shall be deemed to have become “disabled” only in the event and at such time as he qualifies (after expiration of any applicable waiting period) to receive benefits for total disability under the employee disability insurance benefit plan referred to in paragraph 6(a) above.

(c)        The Corporation or Bank may terminate the Executive’s employment hereunder for cause. For the purposes of this Agreement, the Corporation or Bank shall have “Cause” to terminate the Executive’s employment hereund