Exhibit 10.1

 

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

 

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), dated October
31, 2017 (the “Effective Date”), is entered into by and between Shore
Bancshares, Inc., a corporation organized under the laws of Maryland (the
“Employer”), and Lloyd L. Beatty, Jr. (the “Employee”).

 

WHEREAS, the Employee is employed by the Employer as President and Chief
Executive Officer; and

 

WHEREAS, the Employee and the Employer have previously entered into an
employment agreement dated June 16, 2011, as amended on September 21, 2015 and
February 16, 2017, and the Employer and Employee desire to amend and restate
such agreement;

 

NOW THEREFORE, in consideration of the mutual covenants and agreements of the
parties contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Employee and the
Employer agree as follows:

 

1.          Employment and Duties. The Employee is employed by the Employer as
President and Chief Executive Officer. The Employee shall render administrative
and management services to the Employer such as are customarily performed by
persons situated in a similar executive capacity. The Employee shall also
promote, by entertainment or otherwise, and to the extent permitted by law, the
business of the Employer. The Employee’s other duties shall be such as the Board
of Directors of the Employer (the “Board”) may from time to time reasonably
direct, including normal duties of an officer of the Employer. The Employee
shall devote his full time and best efforts to the performance of his duties
under this Agreement.

 

2.          Compensation; Employee Benefits.

 

(a)          Base Salary. The Employer agrees to pay the Employee during the
term of this Agreement a base salary at the rate of Four hundred fourteen
thousand Dollars ($414,000) per annum, which shall be paid in cash in accordance
with the Employer’s normal payroll practices for its salaried employees from
time to time in effect. Such rate of salary may be periodically increased by,
and at the sole discretion of, the Board or its Compensation Committee.

 

(b)          Bonus Plans. The Employee shall be entitled to participate in such
bonus programs and plans as the Employer makes available from time to time to
similarly situated executive officers of the Employer to the extent the
provisions, rules, and regulations of such plans make the Employee eligible for
participation therein.

 

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(c)          Employee Benefits. The Employee shall be entitled to employee
benefits comparable to those provided from time to time by the Employer and/or
its Affiliates (collectively, the “Employer Group”) to similarly situated
executive officers of the Employer to the extent the provisions, rules, and
regulations of such plans make the Employee eligible for participation therein,
including, without limitation, any plan of the Employer Group relating to
pension, profit sharing, or other retirement benefits and medical coverage or
reimbursement plans that the Employer Group may adopt for the benefit of the
employees of the Employer. The Employer may also, at its discretion, enter into
other agreements with the Employee to provide supplemental retirement benefits,
additional death benefits, or the like. For purposes of this Agreement, the term
“Affiliate” means any “parent corporation” and any “subsidiary corporation” of
the Employer, as such terms are defined in Section 424 of the Internal Revenue
Code, as amended (the “Code”).

 

(d)          Fringe Benefits. During the term of this Agreement, the Employee
shall be eligible to participate in any fringe benefits which may be or become
applicable to the Employer’s executive officers, including, without limitation,
participation in any equity compensation plans and similar incentive plans
adopted by the Board or its Compensation Committee, and any other benefits which
are commensurate with the responsibilities and functions to be performed by the
Employee under this Agreement to the extent the provisions, rules, and
regulations of such plans or arrangements make the Employee eligible for
participation therein or for receipt of such benefits.

 

(e)          Reimbursement of Expenses. The Employer shall reimburse the
Employee for all out of pocket expenses which the Employee shall incur in
connection with his services for the Employer in accordance with the Employer’s
reimbursement policies. With respect to any reimbursement of expenses of, or any
provision of in-kind benefits to, the Employee, as specified under this
Agreement, such reimbursement of expenses or provision of in-kind benefits shall
be subject to the following conditions: (i) the expenses eligible for
reimbursement or the amount of in-kind benefits provided in one taxable year
shall not affect the expenses eligible for reimbursement or the amount of
in-kind benefits provided in any other taxable year, except for any medical
reimbursement arrangement providing for the reimbursement of expenses referred
to in Section 105(b) of the Code; (ii) the reimbursement of an eligible expense
shall be made no later than the end of the year in which such expense was
incurred; and (iii) the right to reimbursement or in-kind benefits shall not be
subject to liquidation or exchange for another benefit.

 

(f)          Vacation and Leave.

 

(i)          At such reasonable times as the Employer’s Board shall in its
discretion permit, the Employee shall be entitled, without loss of pay, to
absent himself voluntarily from the performance of his employment under this
Agreement, all such voluntary absences to count as vacation time; provided that:

 

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A.           The Employee shall be entitled to an annual vacation in accordance
with the policies as periodically established by the Board for executive
officers of the Employer, which shall in no event be less than 6 weeks per year.
The Employee shall not be entitled to receive any additional compensation from
the Employer on account of his failure to take a vacation, nor shall he be
entitled to accumulate unused vacation from one year to the next except to the
extent authorized by the Board for executive officers of the Employer.

 

B.           In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Employer for such additional periods of time and for
such valid and legitimate reasons as the Board in its discretion may determine.

 

C.           The Employee shall be entitled to an annual sick leave as
established by the Board for executive officers of the Employer. In the event
any sick leave shall not have been used during any year, such leave shall not
accrue to subsequent years unless authorized by the Board. Upon termination of
his employment hereunder, the Employee shall not be entitled to receive any
additional compensation from the Employer for unused sick leave.

 

3.          Term. The initial term of employment under this Agreement shall be
for 12 months commencing on the Effective Date (the “Initial Term”). Upon the
expiration of the Initial Term, this Agreement shall automatically renew for
successive terms of 12 months each (each such renewal term, together with the
Initial Term, a “Term”) without further action by the parties, unless either
party shall have served written notice on the other party at least 60 days prior
to the commencement of a new Term of such party’s decision not to renew this
Agreement. At least 120 days prior to the commencement of a new Term, the Board
or a committee thereof will conduct a comprehensive performance evaluation and
review of Employee to determine whether to give notice of non-renewal as
provided herein. The evaluation and review shall be documented in the minutes of
the Board or the committee thereof.

 

4.          Termination.

 

(a)          General. The Employee’s employment under this Agreement may be
terminated prior to the expiration of the then-current Term upon the occurrence
of any of the following events:

 

(i)          death of the Employee;

 

(ii)         written notice by the Employer to the Employee of the termination
of his employment for “Cause” (as hereinafter defined), specifying in reasonable
detail the reason constituting such Cause;

 

(iii)        written notice by the Employer to the Employee of its termination
of the Employee’s employment without Cause;

 

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(iv)        written notice by the Employee to the Employer of the termination of
his employment for “Good Reason” (as hereinafter defined), specifying in
reasonable detail the basis for such Good Reason termination;

 

(v)         30 days after the date the Employee delivers written notice to the
Employer of his intention to terminate his employment, provided that the
Employer shall have the option to pay the Employee 30 days’ salary in lieu of
his working during the notice period.

 

(b)          Cause. For purposes of this Agreement, the term “Cause” means: (i)
the Employee’s “Disability” (as hereinafter defined); (ii) an action or failure
to act by the Employee constituting fraud, misappropriation or damage to the
property or business of the Employer; (iii) conduct by Employee that amounts to
fraud, personal dishonesty or breach of fiduciary duty; (iv) Employee’s
conviction (from which no appeal may be, or is, timely taken) of a felony or
willful violation of any law, rule or regulation (other than traffic violations
or similar offenses); (v) the Employee’s breach of any of his obligations
hereunder; (vi) the unauthorized use, misappropriation or disclosure by the
Employee of any Confidential Information of the Employer or of any confidential
information of any other party to whom the Employee owes an obligation of
nondisclosure as a result of his relationship with the Employer; (vii) the
willful violation of any final cease and desist or consent order; (viii) a
knowing violation by Employee of federal and state banking laws or regulations
which is likely to have a material adverse effect on Employer, as determined by
the Board; (ix) the determination by the Board, in the exercise of its
reasonable judgment and in good faith, that Employee’s job performance is
substantially unsatisfactory and that he has failed to cure such performance
within a reasonable period (but in no event more than thirty (30) days) after
written notice specifying in reasonable detail the nature of the unsatisfactory
performance; (x) Employee’s material breach of any of Employer’s written
policies; or (xi) the issuance of any order by the Maryland Commissioner of
Financial Regulation, the Federal Deposit Insurance Corporation, the Board of
Governors of the Federal Reserve System, or any other supervisory agency with
jurisdiction over the Employer permanently prohibiting the continued service of
the Employee with the Employer. No act or failure to act on the part of the
Employee shall be considered “willful” unless it is done, or omitted to be done,
by the Employee in bad faith or without reasonable belief that the Employee’s
action or omission was in the best interests of the Employer. Any act or failure
to act that is based upon authority given pursuant to a resolution duly adopted
by the Board, or upon the advice of legal counsel for the Employer, shall be
conclusively presumed to be done, or omitted to be done, by the Employee in good
faith and in the best interest of the Employer.

 

(c)          Disability. For purposes of this Agreement, the term “Disability”
shall have the meaning given to such term in the long-term disability policy
available to employees of the Employer, as amended or replaced from time to
time.

 

(d)          Good Reason. For purposes of this Agreement, the term “Good Reason”
shall mean termination by the Employee within 12 months following a Change in
Control based on:

 

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(i)          Without the Employee’s express written consent, a material adverse
change made by the Employer which would reduce the Employee’s functions, duties
or responsibilities as President and Chief Executive Officer of the Employer.

 

(ii)         Without the Employee’s express written consent, a 5% or greater
reduction by the Employer in the Employee’s Base Salary as the same may be
increased from time to time; or

 

(iii)        Without the Employee’s express written consent, the Employer
requires the Employee to be based at a location more than 50 miles from Easton,
Maryland (which requirement shall be deemed to be a material change in the
geographic location at which the Employee must perform services for the
Employer), except for required travel on business of the Employer to an extent
substantially consistent with the Employee’s present business travel
obligations.

 

Good Reason shall, for all purposes under this Agreement, be construed and
administered in manner consistent with the definition of “good reason” under
Treasury Regulation §1.409A-1(n).

 

5.          Payments Upon Termination.

 

(a)          Payment of Unpaid Salary and Bonus. If the Employee’s employment is
terminated hereunder for any reason, the Employee shall be entitled to receive
(i) all base salary that has accrued through, but remains unpaid as of, the date
of termination, (ii) all bonus awards (pro rated through the last day of the
calendar month in which termination occurs) that the Employee would have been
eligible to receive had he remained employed when bonuses are next declared or
paid on a pro rata basis provided any applicable performance goals are
satisfied, and (iii) reimbursement of all unreimbursed expenses, all as provided
in Section 2. All such amounts shall be paid as soon as reasonably practicable
following the date of the Employee’s termination, but in no event later than the
last day of the calendar quarter of the quarter in which the Employee’s
employment was terminated. In addition, all unexercised or unvested equity
awards, or portions thereof, held by the Employee as of the date of termination
shall vest or terminate and be exercisable in accordance with their terms. The
termination of the Employee’s employment hereunder shall not impair any rights
of the Employee under any employee benefit or fringe benefit plans that have
vested as of the date of termination, which rights shall be administered after
the termination of employment in accordance with the terms of such plans.

 

(b)          Payment of Severance. Except when Section 5(c) applies, in addition
to the amounts and benefits to be paid or provided under Section 5(a), if the
Employee’s employment is terminated without Cause pursuant to Section 4(a)(iii),
then the Employer will continue to make salary payments to the Employee at his
then-current base salary level for 24 months following the date of termination
(the “Severance Period”). Subject to Section 5(g), payments under this Section
5(b) will be made pursuant to the Employer’s normal payroll schedule with the
first payment to be made on the first, regular payroll date on or after the 60th
day following the date of termination, provided that the Employee has executed
and submitted a release of claims and the statutory period during which the
Employee is entitled to revoke such release has expired on or before that 60th
day.

 

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(c)          Payments Following a Change in Control. If the Employee’s
employment is terminated (i) by the Employer without Cause pursuant to Section
4(a)(iii) or (ii) by Employee for Good Reason pursuant to Section 4(a)(iv), in
both cases in connection with or within 12 months after any “Change in Control”
(as hereinafter defined) of the Employer, then, in addition to the to the
amounts and benefits to be paid or provided under Section 5(a), the Employee
shall be paid an amount equal to the difference between (i) the product of 2.99
times the Employee’s “base amount” as defined in Section 280G(b)(3) of the Code
and regulations promulgated thereunder, and (ii) the sum of any other parachute
payments (as defined under Section 280G(b)(2) of the Code) that the Employee
receives on account of the Change in Control. Subject to Section 5(g), said sum
shall be paid to the Employee in one lump sum on the 60th day following the
Employee’s termination, provided that the Employee has executed and submitted a
release of claims and the statutory period during which Employee is entitled to
revoke the release of claims has expired on or before that 60th day.

 

(d)          Change in Control. For purposes of this Agreement, a “Change in
Control” shall be deemed to have occurred if the conditions set forth in any one
of the following paragraphs shall have been satisfied:

 

(i)          any one person, or more than one person acting as a group, acquires
ownership of securities of the Employer or of its ultimate parent company (the
“Parent”) that, together with securities held by such person or group,
constitutes more than 50 percent (50%) of the total fair market value or total
voting power of the securities of the Employer or of the Parent, as the case may
be;

 

(ii)         either (A) any one person, or more than one person acting as a
group, 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
securities of the Employer or of the Parent possessing 35 percent (35%) or more
of the total voting power of the securities of the Employer or of the Parent, as
the case may be; or (B) a majority of members of the Board of Directors of the
Employer or of the Parent is replaced during any 12-month period by directors
whose appointment or election is not endorsed by a majority of the members of
the Board of the Employer or of the Board of Directors of the Parent, as the
case may be, prior to the date of the appointment or election; or

 

(iii)        any one person, or more than one person acting as a group, 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 Employer or from
the Parent that have a total gross fair market value equal to or more than 40
percent (40%) of the total gross fair market value of all of the assets of the
Employer or of the Parent, as the case may be, immediately prior to such
acquisition or acquisitions. For this purpose, gross fair market value means the
value of the assets of the Employer or of its parent company, as the case may
be, or the value of the assets being disposed of, determined without regard to
any liabilities associated with such assets.

 

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Notwithstanding the foregoing, the acquisition of ownership or control of voting
stock of the Employer or of the Parent, individually or collectively, by the
Employer or one of its Affiliates or any benefit plan sponsored by the Employer
or any of its Affiliates shall not constitute a Change in Control.

 

(e)          Full Compensation. The payments made pursuant to this Section 5
shall be considered full compensation in payment for all claims under this
Agreement, and the Employee shall not be entitled to any other compensation.

 

(f)          Deduction for Amounts Due Employer. Upon termination of the
Employee’s employment with the Employer, subject to any restrictions imposed by
applicable law, the Employer shall have the right to deduct from the amount due
the Employee any amounts which the Employee owes the Employer. Such right shall
apply only to debts that were incurred in the ordinary course of the employment
relationship and in no event shall the Employer have the right to deduct an
amount in excess of $5,000 in any year from any payment that would be considered
deferred compensation under Section 409A of the Code. In no event shall the
Employer have the discretion to deduct any amount pursuant to this Section to
the extent such deduction would be considered a prohibited acceleration under
Section 409A of the Code. Any offset under this Section 5(f) shall comply with
Section 1.409A – 3(j)(4)(xiii) of the Treasury Regulations.

 

(g)          Compliance with Section 409A of the Code. This Agreement is
intended to comply with Section 409A of the Code and its corresponding
regulations, or an exemption, and payments may only be made in a manner
permitted by Section 409A of the Code, to the extent applicable. Severance
benefits under the Agreement are intended to be exempt from Section 409A to the
maximum extent possible under the "separation pay exception, the “short-term
deferral exception,” or another exception under Section 409A of the Code. For
purposes of Section 409A of the Code, the right to a series of installment
payments under this Agreement shall be treated as a right to a series of
separate payments. In no event may the Employee, directly or indirectly,
designate the calendar year of a payment. If a payment obligation under this
Agreement arises on account of the termination of Employee’s employment
hereunder while the Employee is a “specified employee” (as defined under Section
409A of the Code, and determined in good faith by the Employer), any payment of
“deferred compensation” (as defined in Treasury Regulation Section
1.409A-1(b)(1), after giving effect to the exemptions in Treasury Regulation
Sections 1.409A-1(b)(3) through (b)(12)) that is scheduled to be paid within six
(6) months after such termination of employment shall be paid, with interest, in
a lump sum, within 15 days after the end of the six-month period beginning on
the date of such termination or, if earlier, within 15 days after the
appointment of the personal representative or executor of the Employee’s estate
following his death.

 

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6.          Non-Competition and Non-Solicitation.

 

(a)          Restrictive Covenants. During the Employee’s employment with the
Employer and thereafter for the longer of but in no case to exceed 24 months,
(i) the Severance Period (if severance is payable pursuant to Section 5(b)) or
(ii) 12 months after the Employee ceases, for any reason, to be an employee of
the Employer, the Employee shall not, directly or indirectly, as owner, partner,
director, officer, employee, agent, consultant, advisor, contractor or
otherwise, whether for consideration or without consideration, for the benefit
of any individual, group corporation, partnership, trust, association, joint
venture, pool, syndicate, sole proprietorship, unincorporated organization of
any other form of entity not specifically listed herein (a “Person”) other than
for a member of the Employer Group, take any of the following actions:

 

(i)          compete with or otherwise engage in the sale of any products or the
performance of any services which are comparable to, or which are intended to
substitute for, the products or services offered by the Employer and/or any of
its Affiliates (the “Non-Compete Group”) in any county of any jurisdiction in
which any member of the Non-Compete Group maintains a branch or other office, or
in any county of any jurisdiction that is contiguous to such county;

 

(ii)         solicit any Business Relation (as hereinafter defined) to purchase,
or sell or otherwise provide to any Business Relation, any products or services
which are comparable to, or which are intended to substitute for, products or
services offered by any member of the Non-Compete Group during the Employee’s
employment with the Employer;

 

(iii)        accept employment with or provide services as an independent
contractor to any Business Relation if the employment or services involve the
Employee rendering services which are the same as or substantially similar to,
or which are intended to substitute for, services provided by any member of the
Non-Compete Group during the Employee’s employment with the Employer;

 

(iv)        employ, engage or solicit for employment or for engagement as an
independent contractor or consultant, any person who was employed by or any
Person who was engaged as an independent contractor by any member of the
Non-Compete Group during the preceding 24 months;

 

(v)         employ, engage or solicit for employment any employee of the
Employer, whether or not such employee is a full-time employee or a temporary
employee of the Employer and whether or not such employment is pursuant to
written agreement and whether or not such employment is for a determined period
or is at will; or

 

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(vi)        encourage any Person to reduce its business with any member of the
Non-Compete Group or to reduce its employment with or provision of services to
any member of the Non-Compete Group.

 

Provided, however, that nothing in this Section 6(a) shall be deemed to prevent
or limit the right of the Employee to own up to a five percent (5%) interest in
the securities of a Person that are registered under Section 12 of the
Securities Exchange Act of 1934, as amended.

 

(b)          Business Relation Defined. For purposes of this Agreement, the term
“Business Relation” means any Person who, at any time during the Employee’s
employment with the Employer, was a Person (i) that is or was a customer of any
member of the Non-Compete Group, (ii) that had entered into any contract or
other arrangement with any member of the Non-Compete Group for the provision of
services or the sale of products, (iii) to whom any member of the Non-Compete
Group furnished or planned to furnish a proposal for the performance of services
or the sale of products, or (iv) with whom any member of the Non-Compete Group
entered or agreed to enter into any other business relationship such as a joint
venture, collaborative agreement, joint development agreement, teaming
arrangement or agreement, or similar arrangement or understanding for the
provision of services or sale of products.

 

(c)          Acknowledgement. The Employee hereby acknowledges and agrees that
the restrictions contained in this Section 6 regarding geographical scope,
length of term and types of activities restricted, are reasonable and will not
create a hardship to or burden for him and that the Employee has no intention of
competing with the Non-Compete Group within such limitations.

 

7.          Confidential Information.

 

(a)          Covenant. The Employee acknowledges that his relationship with the
Employer shall of necessity provide him with specialized knowledge concerning
the Employer Group, which, if used for the benefit of others or disclosed to
others, could cause serious harm to the Employer Group. Accordingly, the
Employee covenants that he shall not at any time, directly or indirectly, use,
appropriate or disclose to others, or permit the use of or appropriation by or
disclosure to others of, any Confidential Information (as hereinafter defined)
except as expressly provided herein.

 

(b)          Permitted Use. While employed with the Employer, the Employee may
use Confidential Information only for the purpose that is necessary to the
carrying out of the Employee’s duties as set forth herein or assigned to him by
the Employer, and the Employee may not make use of any Confidential Information
after he is no longer an employee of the Employer.

 

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(c)          Confidential Information Defined. For purposes of this Agreement,
the term “Confidential Information” means all information of any member of the
Employer Group, whether oral, written, computerized, digitized or otherwise,
regarding the business of the Employer Group, including, without limitation,
information regarding the Employer Group’s customers, referral sources,
insurance carriers, sales and marketing information, costs, prices, earnings,
business plans, financial information and forecasts, contracts, business
arrangements, methods of operation, business strategies, prospects, and
Intellectual Property (as hereinafter defined), whether or not such information
is deemed “trade secrets” under applicable law. Confidential Information does
not include information that (i) becomes generally available to the public other
than as a result of disclosure by the Employee in violation of this Agreement,
(ii) was available to the public on a non-confidential basis from a source other
than the Employer Group, (iii) is made available to a third party on a
non-confidential basis by the Employer Group, (iv) was already known to the
Employee at the time of disclosure by the Employer Group, or (v) is required to
be disclosed by legal process or applicable law.

 

8.          Intellectual Property. The Employee agrees that any and all
information, reports, other documents and other works (whether in an electronic
format or otherwise) created by the Employee for or on behalf of the Employer
during the Employee’s service with the Employer, whether or not developed on the
Employer’s premises or equipment or during the Employer’s normal business hours
(the “Intellectual Property”), are and shall remain works made for hire and the
sole and exclusive property of the Employer. To the extent that such
Intellectual Property is not considered work made for hire, the Employee hereby
assigns to the Employer (or its nominee) any and all interest that the Employee
may now or in the future have in the Intellectual Property. Upon request by the
Employer, the Employee shall execute and deliver to the Employer any document or
instrument that may be necessary to secure or perfect the Employer’s title to or
interest in any Intellectual Property so assigned.

 

9.          Return of Property. The Employee agrees that upon termination of his
employment with the Employer, he will:

 

(a)          promptly return to the Employer all Confidential Information, all
Intellectual Property, and all other property of the Employer, including but not
limited to all correspondence, manuals, notebooks, lists of customers and
suppliers, computer programs, disks and any documents, materials or property,
whether written or stored on computerized medium, and all copies in his
possession or control;

 

(b)          not take any action to preserve or regain access to such
information through any means, including but not limited to access to the
Employer’s facilities or through a computer or other digital or electronic
means; and

 

(c)          promptly pay all amounts due, owing or otherwise payable by him to
the Employer.

 

The Employee expressly authorizes the Employer to withhold any amounts payable
to him, including for compensation, reimbursement and otherwise, until he has
complied with this Section 9, subject to the terms of Section 5(f).

 

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10.         No Disparaging Statements. During the Employee’s employment with the
Employer and for 12 months after the Employee ceases to be an employee of the
Employer, the Employee will not make any statements or comments of a disparaging
nature to third parties regarding any member of the Employer Group or its
officers, directors, personnel or products.

 

11.         Employee’s Representations and Warranties.

 

(a)          No Prior Agreements. The Employee represents and warrants that he
is not a party to or otherwise subject to or bound by the terms of any contract,
agreement or understanding which in any manner would limit or otherwise affect
his ability to perform her obligations hereunder, including without limitation
any contract, agreement or understanding containing terms and provisions similar
in any manner to those contained in Sections 6, 7, 8 or 10 of this Agreement.

 

(b)          Confidential Information of Others. The Employee represents,
warrants and covenants that he will not disclose to the Employer, or otherwise
use in the course of his service with the Employer, any confidential information
which he is restricted from disclosing or using pursuant to any other agreement
or duty to any other person.

 

12.         Remedies.

 

(a)          Arbitration of Disputes. If a dispute arises with respect to the
enforcement or interpretation of any provision of this Agreement (other than a
dispute to be resolved under Section 12(b)), then the parties hereto agree to
submit the dispute to non-appealable binding arbitration. Such arbitration shall
be conducted before a board of three arbitrators, with one member selected by
the Employee, one member selected by the Employer, and the third member selected
by the first two arbitrators. The party responsible for the payment of the costs
of such arbitration (including any legal fees and expenses incurred by the
Employee) shall be determined by the board of arbitrators. The board of
arbitrators shall be bound by the rules of the American Arbitration Association
in making its determination. The parties hereto agree that they and their heirs,
personal representatives, successors, and assigns shall be bound by the decision
of such board of arbitrators with respect to any controversy properly submitted
to it for determination.

 

(b)          Disputes Arising Under Sections 6 Through 10. The Employee
recognizes that a violation by him of any provision of Sections 6 through 10,
inclusive, of this Agreement may cause irreparable injury to the Employer, and
that there may be no adequate remedy at law for such violation. Therefore, the
Employee agrees that, in addition to any other remedies for its violation hereof
available to the Employer, which shall include the recovery of all damages
incurred, as well as reasonable attorney’s fees and other costs, the Employer
shall have the right, in the event of the breach or threatened breach of any
provision hereof by the Employee to obtain an injunction and/or temporary
restraining order against such breach or threatened breach or specifically
enforce this Agreement. The Employer’s rights and remedies specified in this
Section 12(b) are in addition to and not in lieu of any rights available under
applicable law and regulations, including, without limitation, those laws and
regulations governing trade secrets and other proprietary information.

 

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13.         Miscellaneous.

 

(a)          Withholding of Taxes. All compensation and benefits payable
pursuant to this Agreement shall be subject to all applicable tax withholding
requirements.

 

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

 

(c)          Suspension of Employment by Regulators. In the event the Employee
is temporarily prohibited from participating in the conduct of the affairs of
the Employer pursuant to notice served by a regulatory agency having
jurisdiction over the Employer, unless stayed by appropriate proceedings, then
Employer’s obligations under this Agreement shall be suspended and the Employee
shall have no right to any payment of compensation, as of the date such notice
is served on Employer. If the charges specified in any such notice shall be
dismissed, then the Employer shall (i) pay the Employee any compensation
withheld from the Employee pursuant to the suspension of the Employer’
obligations as required by this Section 13(c) as soon as practicable following
the completion of continued employment for 30 days following such dismissal and
(ii) reinstate the obligations so suspended.

 

(d)          Entire Agreement; Amendment. This Agreement supersedes all prior
agreements, written and oral, between the parties with respect to its subject
matter, is intended as a complete and exclusive statement of the terms of the
agreement between the parties with respect thereto, and may be amended only by a
writing signed by both parties hereto. The Employer and the Employee agree to
execute any and all amendments to this Agreement permitted under applicable law
that the Employer’s legal counsel determines to be necessary to ensure
compliance with the distribution provisions of Section 409A of the Code or to
otherwise ensure that this Agreement complies with Section 409A of the Code.

 

(e)          Nonwaiver. The failure of either party to insist upon strict
adherence to any term of this Agreement on any occasion will not operate as a
waiver or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement. Any waiver must be
in a writing signed by the party to be charged therewith.

 

(f)          Assignment. The Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their successors and assigns and their
representatives. This Agreement may not be assigned by either party without the
consent of the other party, except that the Employer may assign all of its
rights and delegate performance of all of its obligations hereunder in
connection with a Change in Control.

 

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(g)          Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be an original, but all of which together will
constitute the same instrument.

 

(h)          Headings. The headings in this Agreement are for convenience of
reference only and should not be given any effect in the interpretation of this
Agreement.

 

(i)          Governing Law. This Agreement shall be governed in all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the State of Maryland, without regard to any provision that would result
in the application of the laws of any other state or jurisdiction, except to the
extent that Federal law shall be deemed to apply.

 

(j)          Interpretation. This Agreement is intended to comply with, or
otherwise be exempt from, Section 409A of the Code and any regulations and
Treasury guidance promulgated thereunder. If the Company determines in good
faith that any provision of this Agreement would cause the Employee to incur an
additional tax, penalty, or interest under Section 409A of the Code, then the
Company and the Employee shall use reasonable efforts to reform such provision,
if possible, in a mutually agreeable fashion to maintain to the maximum extent
practicable the original intent of the applicable provision without violating
the provisions of Section 409A of the Code or causing the imposition of such
additional tax, penalty, or interest under Section 409A of the Code. As used in
this Agreement, the terms “termination of employment”, “resignation” and words
of similar import mean, for purposes of any payments under this Agreement that
are payments of deferred compensation subject to Section 409A of the Code, the
Employee’s “separation from service” as defined in Section 409A of the Code.

 

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

 

(l)          Employer Policies, Plans and Programs. Except as expressly provided
otherwise in this Agreement, whenever any rights under this Agreement depend on
the terms of a policy, plan, or program established or maintained by the
Employer Group, any determination of such rights will be made on the basis of
the policy, plan, or program in effect at the time as of which such
determination is made. No reference in this Agreement to any policy, plan, or
program established or maintained by the Employer Group precludes any member of
the Employer Group from prospectively or retroactively changing or amending or
terminating that policy, plan, or program or adopting a new policy, plan, or
program in lieu of the then existing policy, plan, or program.

 

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(m)          Survival of Terms. The provisions of Sections 5 through 10,
inclusive, and Sections 12 and 13 of this Agreement shall survive the
termination of the Employee’s employment hereunder.

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
written above.

 

ATTEST:   EMPLOYER:           Shore Bancshares, Inc.       /s/ W. David Morse  
By: /s/ Frank E. Mason, III W. David Morse, Secretary   Name: Frank E. Mason,
III     Title:   Chairman of the Board       WITNESS:   EMPLOYEE:       /s/ W.
David Morse   /s/ Lloyd L. Beatty, Jr. W. David Morse, Secretary   Lloyd L.
Beatty, Jr.

 

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