Exhibit 10.12

 

COMMUNITY BANK OF THE CHESAPEAKE

EXECUTIVE DEFERRED COMPENSATION PLAN

(as amended and restated)

 

The purpose of the Community Bank of the Chesapeake Executive Deferred
Compensation Plan (hereinafter referred to as the “Plan”) is to aid in retaining
and attracting individuals of exceptional ability by providing them an
opportunity to defer the payment of their current compensation to a later date,
in accordance with the terms of the Plan. The original effective date of the
Plan was January 1, 2007. However, the Plan document has been amended and
restated to reflect the change in the name of the Bank, formerly Community Bank
of Tri-County, and the Company, formerly Tri-County Financial Corporation and to
reflect certain design changes.

 

ARTICLE I
Definitions

 

1.1 “Agreement” shall mean the Deferred Compensation Agreement attached hereto
as Exhibit A.

 

1.2 “Bank” means the Community Bank of the Chesapeake, or any successor thereto.

 

1.3 “Beneficiary” shall mean the Participant’s beneficiary designated pursuant
to Article 4 of the Plan.

 

1.4 “Board of Directors” shall mean the Board of Directors of the Bank.

 

1.5 “Change in Control” means the occurrence of a change in the ownership or
effective control of the Company, or a change in the ownership of a substantial
portion of the assets of the Company, each as defined in Treas. Reg. section
1.409A-3(i)(5).

 

1.6 “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

1.7 “Company” shall mean The Community Financial Corporation, or any successor
thereto.

 

1.8 “Compensation” shall mean base salary paid to a Participant during the
applicable Plan Year.

 

1.9 “Deferral Account” or “Account” shall mean the bookkeeping account to which
amounts deferred under the Plan are credited in accordance with Article III of
the Plan.

 

1.10 “Designation Date” means the date or dates as of which a designation of
deemed investment directions by an individual pursuant to Section 3.5, or any
change in a prior designation of deemed investment directions by an individual
pursuant to Section 3.5, shall become effective. The Designation Dates in any
Plan Year shall be designated by the Bank.

 

1.11 “Effective Date” shall have the meaning set forth in Article XVI.

 

1.12 “Participant” means a vice president of the Bank or above who is designated
by the Board of Directors as a Plan Participant, as described in Section 2.1.

 

1.13 “Plan” shall mean this Community Bank of the Chesapeake Executive Deferred
Compensation Plan.

 

1.14 “Plan Year” means a twelve month period commencing January 1st and ending
the following December 31st.

 

  

 

 

1.15 “Return on Equity (ROE)” means net income available to common shareholders
divided by common equity, as determined by the Bank, in its sole discretion, in
accordance with generally accepted accounting principles (GAAP).

 

1.16 “Separation from Service” means the Participant’s “separation from
service,” within the meaning of Code section 409A, treating as a Separation from
Service an anticipated permanent reduction in the level of bona fide services to
be performed by the Participant to 20% or less of the average level of bona fide
services performed by the Participant over the immediately preceding 36 month
period (or the full period during which the Participant performed services for
the Bank, if that is less than 36 months).

 

1.17 “Valuation Date” means the last day of each Plan Year quarter and any other
date that the Bank, in its sole discretion, designates as a Valuation Date.

 

ARTICLE II
Eligibility And Deferral Elections

 

2.1 Eligibility to participate in the Plan is limited to vice presidents of the
Bank and above who are determined by the Bank to be members of a select group of
management or highly compensated employees and who are designated by the Board
of Directors to be Participants under the Plan.

 

2.2 Subject to the remaining paragraphs of this Section 2.2 and in accordance
with rules established by the Bank, a Participant may elect to defer
Compensation which is due to be earned and which would otherwise be paid to the
Participant, in any fixed periodic dollar amounts or percentages designated by
the Participant. Amounts so deferred will be considered a Participant’s
“Compensation Deferrals.” Except as provided below, a Participant shall make
such election(s) under this paragraph with respect to a coming Plan Year during
the period beginning on the November 1 and ending on the December 31 of the
prior calendar year, or during such other period as might be established by the
Bank, which period ends no later than the December 31 preceding the Plan Year in
which the services giving rise to the Compensation to be deferred are to be
performed.

 

Notwithstanding the preceding, in the case of the first Plan Year in which an
eligible employee initially becomes eligible to participate (as described in
Treas. Reg. section 1.409A-2(a)(7)), the employee may make an irrevocable
election, no later than thirty (30) days after the date he initially becomes
eligible to participate, to defer Compensation relating to services to be
performed after the election.

 

After the deadline for making a deferral election for a Plan Year (as set forth
above) has passed, the Participant may not change or revoke his or her
Compensation Deferral election until the following Plan Year, except to the
extent permitted by the Bank and under Code section 409A upon a disability,
unforeseeable emergency (as described in Section 5.3), or a hardship
distribution pursuant to section 1.401(k)-1(d)(3) of the Treasury Regulations.
For purposes of this paragraph only, “disability” means any medically
determinable physical or mental impairment resulting in the Participant’s
inability to perform the duties of his or her position or any substantially
similar position, where such impairment can be expected to result in death or
can be expected to last for a continuous period of not less than six months.

 

Compensation Deferrals shall be credited to the Deferral Account of the
deferring Participant.

 

2.3 Deferral elections pursuant to Section 3.2, once made, shall continue in
effect for subsequent Plan Years unless a Participant files a new Agreement
prior to December 31 of the Plan Year prior to the Plan Year in which the change
will take place. A subsequent deferral election will only become effective as of
the following January 1st.

 

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ARTICLE III

Deferred Compensation

 

3.1 Compensation Deferrals shall be credited by the Bank and the Company to the
Deferral Account established in the name of each Participant, in accordance with
the terms of the Participant’s deferral election under the Agreement.
Participants shall be 100% vested in their Deferral Accounts at all times.
Compensation Deferrals shall be withheld from each regularly scheduled payroll
in approximately equal amounts (or as otherwise specified by the Plan
Administrator). Compensation Deferrals shall be credited to the Deferral Account
as soon as administratively feasible following the time such amounts would
otherwise have been paid to a Participant. Notwithstanding the foregoing,
Compensation Deferrals begin crediting of gains and losses subject to Section
3.5 on the last day of the calendar quarter in which the amounts were deferred.

 

3.2 Pursuant to Section 3.5, each Participant shall have the right to direct the
Bank as to how amounts in his or her Plan Account shall be deemed to be
invested. The Bank shall invest the account maintained on behalf of a
Participant pursuant to the directions the Bank has received from that
Participant. As of each Valuation Date, the Participant’s Account will be
credited or debited to reflect the Participant’s deemed investment.

 

3.3 A distribution to a Participant or his or her Beneficiary or Beneficiaries
shall be charged to the Participant’s Account as of the date of the
distribution. Amounts shall be charged on a pro rata basis against the
investment options in which the Participant’s Account is deemed to be invested.

 

3.4 A separate bookkeeping account under the Plan shall be established and
maintained by the Bank to reflect the Account for each Participant. Each account
will separately account for credits, debits and earnings and losses, as
described in this Article III.

 

3.5 Subject to such limitations as may from time to time be required by law,
imposed by the Bank or the Trustee (if any) or contained elsewhere in the Plan,
and subject to such operating rules and procedures as may be imposed from time
to time by the Bank or the Trustee (if any), prior to, and effective for, each
Designation Date, each Participant may communicate to the Bank a direction as to
how his or her Account should be deemed to be invested among the Plan’s deemed
investment options. The direction shall designate the percentage of the
Participant’s Account to be deemed to be invested in each investment option, and
shall become effective subject to the following rules and procedures.

 

(a)          Any initial or subsequent deemed investment direction shall be in
writing, on a form supplied by and filed with the Bank (or in any other manner
prescribed by the Bank), and shall be effective as soon as practicable after the
filing. Any subsequent deemed investment direction shall be effective the first
day of the following quarter (or as soon as practicable thereafter).

 

(b)          All amounts credited to the Participant’s Account shall be deemed
to be invested in accordance with the then effective deemed investment
direction, and as of the effective date of any new deemed investment direction,
all or a portion of the Participant’s Account at that date shall be reallocated
among the designated deemed investment options according to the new deemed
investment directions, until a subsequent deemed investment direction is filed
and becomes effective.

 

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(c)          If the Bank receives a deemed investment direction which it finds
is incomplete, unclear or improper, the Participant’s deemed investment
direction then in effect shall remain in effect (or, in the case of a deficiency
in an initial deemed investment direction, the Participant shall be deemed to
have filed no deemed investment direction) until the next Designation Date,
unless the Bank provides for, and permits the application of, corrective action
before that time.

 

(d)          If the Bank possesses at any time directions as to the deemed
investment of less than all of a Participant’s Account, the Participant shall be
considered to have directed that the undesignated portion of the Account be
deemed to be invested in any investment option selected by the Bank, and the
Bank shall not be liable for the investment option(s) it selects.

 

(e)          Each Participant, as a condition to his or her participation
hereunder, agrees to indemnify and hold harmless the Bank and its agents and
representatives from any losses or damages of any kind relating to the deemed
investment of the Participant’s Account.

 

(f)          Each reference in this Section to a Participant shall be deemed to
include, where applicable, a reference to a Beneficiary.

 

(g)          In addition to the investment options selected by the Bank as being
available under the Plan, each Participant may elect that all or a portion of
his or her Deferral Account be credited or debited, as applicable, as of the end
of each calendar quarter (or as soon as administratively practicable) by an
amount equal to the consolidated Return on Equity (“ROE”) of the Company, which
rate shall be adjusted as of each Valuation Date.

 

ARTICLE IV
Distributions

 

4.1 Upon any Separation from Service, a Participant’s Deferral Account shall be
distributed in the form of (1) a lump sum or (2) equal installments over a
period from one to 10 years, as elected by the Participant at the time the
Participant initially submits an Agreement or in accordance with Section 4.3.
Subject to Section 5.2, payment shall be made or commence by the December 31 of
the Plan Year during which the Participant experiences a Separation from Service
(or, if later, by the 15th day of the third calendar month following the
Separation from Service), or on the date designated by the Participant in the
Agreement at the time he initially submits an Agreement or in accordance with
Section 4.3. Notwithstanding anything in the Plan or an Agreement to the
contrary, however, a Participant’s Deferral Account will be paid to the
Participant (or his Beneficiary or estate) in a lump sum as soon as practicable
following the effective date of a Change in Control.

 

4.2 Upon the death of a Participant prior to receipt of all benefits payable
under this Article IV, payment(s) shall be made in accordance with the
Participant’s distribution election to the Beneficiary designated by the
Participant in his or her Agreement (and, in the absence of a validly designated
Beneficiary, to the Participant’s estate).

 

4.3 Agreements made hereunder shall be prospective only and shall be irrevocable
with respect to amounts deferred pursuant to the Agreement. Participants may not
change a previously submitted distribution election, unless such change is made
in accordance with Section 409A of the Code (i.e., the Participant may
irrevocably elect to change his or her above-described election (or deemed
election) by submitting the proper election form to the Bank at least 12 months
prior to the date on which the distribution is to be made (or commence) and
delaying the distribution (or commencement of distributions) at least five full
calendar years from the previously scheduled distribution date). Any election to
change the distribution under this paragraph shall not take effect until at
least twelve (12) months after the date on which the election is made. Any such
change in election may not result in an acceleration of any payment. .
Notwithstanding the foregoing, a Participant may at any time and from time to
time (i) change the Beneficiary designated in paragraph 3 of the Agreement,
and/or (ii) change the deferral amounts for a subsequent calendar year in
accordance with Article II of this Plan.

 

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ARTICLE V
Source and Form of Benefits

 

5.1 The Plan shall constitute an unfunded, unsecured promise to provide benefits
in the future, to the extent such benefits become payable. Benefits shall be
paid from the general assets of the Bank or Company, and no person shall, by
virtue of this Plan, have any interest in such assets (other than as an
unsecured creditor). In the event that a trust is established as described
herein at Article VIII, the trustee of such trust shall inform the Board of
Directors annually prior to the commencement of each fiscal year as to the
manner in which such trust assets shall be invested.

 

5.2 Notwithstanding anything herein to the contrary, to the extent required by
Section 409A of the Code and the regulations issued thereunder, benefits payable
under the Plan due to Separation from Service to any Participant who is a
“specified employee” for purposes of Section 409A of the Code shall be delayed
for a period of six months from the Participant’s Separation from Service.

 

ARTICLE VI
Assignment

 

6.1 Except as otherwise provided by this Plan, it is agreed that neither the
Participant, nor any other person or persons, shall have any right to commute,
sell, assign, transfer, encumber, pledge or otherwise convey the right to
receive any benefits under this Plan.

 

ARTICLE VII
No Retention of Services

 

7.1 The Plan shall not be deemed to constitute a contract of employment between
the Bank or the Company and any Participant.

 

ARTICLE VIII
Rights of Participants

 

8.1 The rights of the Participants under this Plan shall be solely those of
unsecured creditors. In the event that the Bank or the Company establish an
irrevocable trust in connection with the Plan (“Trust”), the trust assets shall
remain at all times subject to claims by their general creditors in accordance
with applicable law. Any such trust shall be intended to be treated as a
“grantor trust” under the Code and the establishment of a trust or the
utilization of any existing trust for Plan benefits, as applicable, shall not be
intended to cause any Participant to realize current income on amounts
contributed thereto, and any trust shall be so interpreted.

 

ARTICLE IX
Reorganization

 

9.1 The Bank agrees that it will not merge or consolidate into any other
corporation or organization, or permit its business activities to be taken over
by any other organization, unless and until the succeeding or continuing
corporation or other organization shall expressly assume the rights and
obligations of the parties as herein set forth. The Bank further agrees that it
will not cease its business activities or terminate its existence, other than as
heretofore set forth in this paragraph, without having made adequate provision
for the fulfillment of obligations under the Plan.

 

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ARTICLE X
Amendment and Termination

 

10.1 Subject to Code section 409A, the Board of Directors may amend or terminate
the Plan at any time; provided, however, that no amendment or termination shall,
without the written consent of the affected Participants, alter or impair any
rights of Participants under the Plan.

 

ARTICLE XI
Governing Law

 

11.1 This Plan shall be construed and governed in all respects under and by the
laws of the State of Maryland, except where those laws are preempted by the laws
of the United States. If any provision of this Plan shall be held by a court of
competent jurisdiction to be invalid or unenforceable, the remaining provisions
hereof shall continue to be fully effective.

 

ARTICLE XII
Headings

 

12.1 Headings and subheadings in this Plan are inserted for convenience of
reference only and constitute no part of this Plan.

 

ARTICLE XIII
Gender

 

13.1 This Plan shall be construed, where required, so that the masculine gender
includes the feminine.

 

ARTICLE XIV
Interpretation of the Plan

 

14.1 The Board of Directors shall have sole and absolute discretion to
administer, construe, and interpret the Plan, and the decisions of the Board of
Directors shall be conclusive and binding on all affected parties.

 

ARTICLE XV
Legal Fees

 

15.1 In the event any dispute shall arise between a Participant and the Bank or
the Company as to the terms or interpretation of this Plan, whether instituted
by formal legal proceedings or otherwise, including any action taken by a
Participant to enforce the terms of this Plan or in defending against any action
taken by the Bank or the Company, the Bank or the Company shall reimburse the
Participant for all costs and expenses, including reasonable attorneys’ fees,
arising from such dispute, proceedings or actions: provided that the Participant
shall return such amounts to the Bank or Company if he fails to obtain a final
judgment by a court of competent jurisdiction (or a settlement of such dispute,
proceedings, or actions) substantially in his favor. Such reimbursements to a
Participant shall be paid within 10 days of the Participant furnishing 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 Participant. Any such request
for reimbursement by a Participant shall be made no more frequently than at 30
day intervals. Notwithstanding the preceding, to the extent such reimbursements
to the Participant constitute deferred compensation subject to Code section
409A, the following rules apply: (a) The right to reimbursement shall be
available for the lifetime of the Participant, (b) the amount of expenses
eligible for reimbursement during one calendar year may not affect the expenses
eligible for reimbursement in any other calendar year, and (c) the reimbursement
of an eligible expense shall be made on or before the last day of the calendar
year following the calendar year in which the expense was incurred.

 

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ARTICLE XVI
Effective Date; Section 409A Compliance

 

16.1 The effective date of the amendment and restatement of this Plan is January
1, 2015. Unless terminated earlier in accordance with Article X, this Plan shall
remain in effect until all benefits payable hereunder have been made.

 

16.2 Notwithstanding anything in this Plan to the contrary, however, the Plan
and Agreements issued under the Plan shall be interpreted in accordance with,
and incorporate the terms and conditions required by, Section 409A of the Code,
together with any guidance issued thereunder, including guidance issued after
the effective date of the Plan. The Board of Directors reserves the right, in
its discretion, to adopt such amendments to the Plan and other policies and
procedures (including amendments, policies and procedures with retroactive
effect), or to take any other actions it determines to be necessary or
appropriate to comply with the requirements of Section 409A of the Code.

 

ARTICLE XVII
Claims Procedures

 

17.1 This Section 17.1 is based on final regulations issued by the Department of
Labor and published in the Federal Register on November 21, 2000 and codified at
section 2560.503-1 of the Department of Labor Regulations. If any provision of
this Section 17.1 conflicts with the requirements of those regulations, the
requirements of those regulations will prevail.

 

(a)          Initial Claim. A Participant or Beneficiary (hereinafter referred
to as a “Claimant”) who believes he is entitled to any Plan benefit under this
Plan may file a claim with the Bank. The Bank shall review the claim itself or
appoint an individual or an entity to review the claim.

 

The Claimant shall be notified within ninety (90) days after the claim is filed
whether the claim is allowed or denied, unless the Claimant receives written
notice from the Bank or appointee of the Bank prior to the end of the ninety
(90) day period stating that special circumstances require an extension of the
time for decision, such extension not to extend beyond the day which is one
hundred eighty (180) days after the day the claim is filed.

 

If the Bank denies a claim, it must provide to the Claimant, in writing or by
electronic communication:

 

(i)          The specific reasons for the denial;

 

(ii)         A reference to the Plan provision upon which the denial is based;

 

(iii)        A description of any additional information or material that the
Claimant must provide in order to perfect the claim;

 

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(iv)        An explanation of why such additional material or information is
necessary;

 

(v)         Notice that the Claimant has a right to request a review of the
claim denial and information on the steps to be taken if the Claimant wishes to
request a review of the claim denial; and

 

(vi)        A statement of the Claimant’s right to bring a civil action under
ERISA section 502(a) following a denial on review of the initial denial.

 

(b)          Review Procedures. A request for review of a denied claim must be
made in writing to the Bank within sixty (60) days after receiving notice of
denial. The decision upon review will be made within sixty (60) days after the
Bank’s receipt of a request for review, unless special circumstances require an
extension of time for processing, in which case a decision will be rendered not
later than one hundred twenty (120) days after receipt of a request for review.
A notice of such an extension must be provided to the Claimant within the
initial sixty (60) day period and must explain the special circumstances and
provide an expected date of decision.

 

The reviewer shall afford the Claimant an opportunity to review and receive,
without charge, all relevant documents, information and records and to submit
issues and comments in writing to the Bank. The reviewer shall take into account
all comments, documents, records and other information submitted by the Claimant
relating to the claim regardless of whether the information was submitted or
considered in the initial benefit determination.

 

Upon completion of its review of an adverse initial claim determination, the
Bank will give the Claimant, in writing or by electronic notification, a notice
containing:

 

(i)          its decision;

 

(ii)         the specific reasons for the decision;

 

(iii)        the relevant Plan provisions on which its decision is based;

 

(iv)        a statement that the Claimant is entitled to receive, upon request
and without charge, reasonable access to, and copies of, all documents, records
and other information in the Plan’s files which is relevant to the Claimant’s
claim for benefits;

 

(v)         a statement describing the Claimant’s right to bring an action for
judicial review under ERISA section 502(a); and

 

(vi)        if an internal rule, guideline, protocol or other similar criterion
was relied upon in making the adverse determination on review, a statement that
a copy of the rule, guideline, protocol or other similar criterion will be
provided without charge to the Claimant upon request.

 

(c)          Calculation of Time Periods. For purposes of the time periods
specified in this Section, the period of time during which a benefit
determination is required to be made begins at the time a claim is filed in
accordance with the Plan procedures without regard to whether all the
information necessary to make a decision accompanies the claim. If a period of
time is extended due to a Claimant’s failure to submit all information
necessary, the period for making the determination shall be tolled from the date
the notification is sent to the Claimant until the date the Claimant responds.

 

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(d)          Failure of Plan to Follow Procedures. If the Plan fails to follow
the claims procedures required by this Section, a Claimant shall be deemed to
have exhausted the administrative remedies available under the Plan and shall be
entitled to pursue any available remedy under ERISA section 502(a) on the basis
that the Plan has failed to provide a reasonable claims procedure that would
yield a decision on the merits of the claim.

 

(e)          Failure of Claimant to Follow Procedures. A Claimant’s compliance
with the foregoing provisions of this Article XVII is a mandatory prerequisite
to the Claimant’s right to commence any legal action with respect to any claim
for benefits under the Plan.

 

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