COOPERATIVE BANKSHARES INC
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>coop10qaugustex10-12.txt
<TEXT>
                                                                   Exhibit 10.12

                     CHANGE IN CONTROL PROTECTION AGREEMENT

     AGREEMENT  effective  as of  this  3rd  day of  June  2004  by and  between
Cooperative Bank, a North  Carolina-chartered  commercial bank (the "Bank"), and
O.C. Burrell, Jr., an individual (the "Employee").

     WHEREAS,   the  Bank  considers  it  essential  to  foster  the  continuous
employment of key management personnel by minimizing the uncertainty, departures
or distractions of management personnel associated with a Change in Control;

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

     1.   CHANGE IN  CONTROL.  A  "Change  in  Control"  shall be deemed to have
          -------------------
          occurred in any one of the following events:

          (a)  Merger:   The  Bank's   parent   holding   company,   Cooperative
               Bankshares,  Inc.,  (the  "Company")  merges into or consolidates
               with another corporation,  or merges another corporation into the
               Company  and as a result  less than a  majority  of the  combined
               voting power of the resulting  corporation  immediately after the
               merger or consolidation is held by persons who were  stockholders
               of the Company immediately before the merger or consolidation;

          (b)  Acquisition of Significant Share Ownership:  a report on Schedule
               13D or another  form or  schedule  (other than  Schedule  13G) is
               filed or is required to be filed under Sections 13(d) or 14(d) of
               the  Securities  Exchange Act of 1934, if the schedule  discloses
               that the filing  person or persons  acting in concert has or have
               become  the  beneficial  owner  of 25% or more of a class  of the
               Company's voting securities,  but this clause (b) shall not apply
               to  beneficial  ownership  of  Company  voting  shares  held in a
               fiduciary  capacity  by an entity of which  Company  directly  or
               indirectly  beneficially  owns  50% or  more  of its  outstanding
               voting securities;

          (c)  Change in Board Composition: during any period of two consecutive
               years,  individuals  who  constitute  the Bank's or the Company's
               Board of Directors at the beginning of the two-year  period cease
               for any reason to constitute at least a majority of such Board of
               Directors;  provided,  however,  that for purposes of this clause
               (c) each  director  who is first  elected  by the board (or first
               nominated by the board for election by stockholders) by a vote of
               at least  two-thirds of the  directors who were  directors at the
               beginning  of the period  shall be deemed to have been a director
               at the beginning of the two-year period; or


<PAGE>

          (d)  Sale  of  Assets:  The  Company  sells  to a third  party  all or
               substantially all of the Company's assets.

     2.   TERMINATING EVENT. A "Terminating  Event" shall mean any of the events
          ------------------
          provided in this Section 2 occurring on or subsequent to the effective
          date of a Change in Control:

          (a)  termination  by the Bank of the  employment  of the Employee with
               the Bank for any reason  other than for Just  Cause.  Termination
               for  "Just  Cause"  shall  mean  termination  by the  Bank of the
               employment   of  the  Employee  with  the  Bank  because  of  the
               Employee's personal dishonesty, incompetence, willful misconduct,
               breach of fiduciary duty involving  personal profit,  intentional
               failure to perform stated duties,  or a willful  violation of any
               law,  rule,  or  regulation  (other than  traffic  violations  or
               similar infractions) or final  cease-and-desist order or material
               breach of any  provision of this  Agreement,  provided,  however,
               that no act, or failure to act, on the  Employee's  part shall be
               deemed  "willful"  unless  done,  or omitted  to be done,  by the
               Employee  without  reasonable  belief that the Employee's act, or
               failure to act,  was in the best  interest of the Bank and any of
               its subsidiaries.

          (b)  termination by the Employee of the Employee's employment with the
               Bank for Good Reason.  Termination  for "Good  Reason" shall mean
               termination  following  or  upon  the  occurrence  of  any of the
               following events:

               (i)  a  significant  adverse  change,  not  consented  to by  the
                    Employee,   in  the  nature  or  scope  of  the   Employee's
                    responsibilities,  authorities,  powers, title, functions or
                    duties  from  the  responsibilities,   authorities,  powers,
                    title,   functions  or  duties  exercised  by  the  Employee
                    immediately prior to the Change in Control; or

               (ii) a reduction in the Employee's annual base compensation as in
                    effect on the date  hereof  or as the same may be  increased
                    from time to time; or

               (iii)an attempt by the Bank to relocate  the  Employee  to, or to
                    require him to perform  regular  services,  at any  location
                    that is  outside  of the  metropolitan  area of  Wilmington,
                    North Carolina; or

               (iv) except as required by law, the failure by the Bank or any of
                    its  subsidiaries  to  continue  in effect any  benefits  or
                    prerequisites,  or any retirement,  life  insurance,  health
                    insurance  or  disability  plan in which  the  Employee  was
                    participating  immediately  prior to the  Change in  Control
                    unless the Bank or its successor  provides the Employee with
                    a plan or plans that provide substantially similar benefits,
                    or the taking of any action by the Bank that would adversely
                    affect  the  Employee's  benefits  under  any such  plans or
                    deprive the Employee of any material  fringe benefit enjoyed
                    by the Employee  immediately prior to the Change in Control;
                    or

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<PAGE>

               (v)  the  failure  by the Bank to obtain an  effective  agreement
                    from any  successor  to  assume  and agree to  perform  this
                    Agreement.

     Notwithstanding  anything in this  Agreement  to the  contrary,  during the
twelve (12) month period  beginning on the effective date of a Change in Control
(as defined in Section 1) and continuing  through the first  anniversary of such
date,  the  Executive  may  voluntarily  terminate  his  employment  under  this
Agreement for any reason and such termination  shall constitute  termination for
Good Reason.

     3.   SEVERANCE PAYMENT.  In the event a Terminating Event occurs within two
          ------------------
          years after a Change in Control,

          (a)  the Bank shall pay to the  Employee a sum equal to 2.99 times the
               Employee's  "base amount," within the meaning of ss.280G(b)(3) of
               the Internal  Revenue  Code of 1986  ("Code"),  as amended.  Such
               payment  shall be made in a lump sum not later than  thirty  (30)
               days after the Terminating Event.

          (b)  the Bank shall continue the Employee's  benefits under any of the
               Bank's  medical and benefit  plans,  life  insurance  plans,  and
               disability  income plans,  (collectively,  the "Employee  Benefit
               Plans" and each  individually an "Employee  Benefit Plan"),  upon
               the same terms as in effect on the date of the Terminating  Event
               through the 36-month  period  following  the  Terminating  Event.
               Solely for purposes of benefits  continuation  under the Employee
               Benefit  Plans,  the  Employee  shall be  deemed  to be an active
               employee. To the extent that benefits required under this Section
               3(b) cannot be provided  under the terms of any Employee  Benefit
               Plan,  the Bank shall enter into  alternative  arrangements  that
               will provide the Employee with comparable benefits.

     4.   LIMITATION ON BENEFITS.  Notwithstanding anything in this Agreement to
          -----------------------
          the contrary,  in the event that the aggregate payments or benefits to
          be made or afforded to Employee  under this  Agreement,  together with
          any other payments or benefits  received or to be received by Employee
          in connection with a Change in Control,  would be deemed to include an
          "excess  parachute  payment"  under  ss.280G  of the  Code,  then such
          payments or benefits shall be reduced to the extent necessary to avoid
          treatment as an excess  parachute  payment with the  allocation of any
          reduction  among  such  payments  and  benefits  to be  determined  by
          Employee.

     5.   TERM.  This  Agreement  shall take  effect on the date first set forth
          -----
          above and  remain in effect  for so long as the  Employee  remains  an
          Employee of the Bank,  subject to the rights of the Employee hereunder
          upon the occurrence of a Terminating Event.

     6.   WITHHOLDING.  All payments made by the Bank under this Agreement shall
          ------------
          be net of any tax or other amounts required to be withheld by the Bank
          under applicable law.

     7.   NO MITIGATION.  The Bank agrees that, if the Employee's  employment by
          --------------
          the Bank is terminated during the term of this Agreement, the Employee
          is not required to seek other

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<PAGE>

          employment  or to attempt in any way to reduce any amounts  payable or
          benefits  to be  provided  to the  Employee  by the Bank  pursuant  to
          Section  3(a) and (b)  hereof.  Further,  the  amount  of any  payment
          provided  for  in  this   Agreement   shall  not  be  reduced  by  any
          compensation  earned by the  Employee as the result of  employment  by
          another employer, by retirement benefits, by offset against any amount
          claimed to be owed by the Employee to the Bank or otherwise.

     8.   ASSIGNMENT.  Neither the Bank nor the Employee may make any assignment
          -----------
          of this  Agreement  or any  interest  herein,  by  operation of law or
          otherwise,  without the prior written consent of the other party,  and
          without such consent any attempted transfer shall be null and void and
          of no effect.  This  Agreement  shall  inure to the  benefit of and be
          binding upon the Bank and the Employee,  their respective  successors,
          executors,  administrators, heirs and permitted assigns, including, in
          the case of the Bank, any other corporate entity which the Bank may be
          merged or  otherwise  combined  or which may  acquire  the Bank or its
          assets in whole or  substantial  part. In the event of the  Employee's
          death after a  Terminating  Event but prior to the  completion  by the
          Bank  of all  payments  due him  under  Section  3(a)  and (b) of this
          Agreement,  the Bank shall  continue such  payments to the  Employee's
          beneficiary  designated  in writing to the Bank prior to his death (or
          to his estate, if the Employee fails to make such designation).

     9.   ENFORCEABILITY. If any portion or provision of this Agreement shall to
          ---------------
          any  extent  be  declared  illegal  or  unenforceable  by a  court  of
          competent  jurisdiction,  then the remainder of this Agreement, or the
          application of such portion or provision in  circumstances  other than
          those as to which it is so declared  illegal or  unenforceable,  shall
          not be  affected  thereby,  and each  portion  and  provision  of this
          Agreement  shall  be  valid  and  enforceable  to the  fullest  extent
          permitted by law.

     10.  WAIVER.  No waiver of any provision  hereof shall be effective  unless
          -------
          made in writing  and signed by the waiving  party.  The failure of any
          party to require the  performance  of any term or  obligation  of this
          Agreement, or the waiver by any party of any breach of this Agreement,
          shall  not  prevent  any  subsequent   enforcement  of  such  term  or
          obligation or be deemed a waiver of any subsequent breach.

     11.  NOTICES.  Any  notices,  requests,  demands  and other  communications
          --------
          provided for by this  Agreement  shall be sufficient if in writing and
          delivered in person or sent by registered or certified  mail,  postage
          prepaid, to the Employee at the last address the Employee has filed in
          writing with the Bank, or to the Bank at its main office, attention of
          the Board of Directors.

     12.  EFFECT ON OTHER PLANS;  PRIOR AGREEMENTS.  An election by the Employee
          -----------------------------------------
          to resign  after a Change in  Control  under  the  provisions  of this
          Agreement shall not be deemed a voluntary termination of employment by
          the Employee for the purpose of interpreting  the provisions of any of
          the  Bank's  benefit  plans,  programs  or  policies.  Nothing in this
          Agreement shall be construed to limit the rights of the Employee under
          the Bank's  benefit  plans,  programs or policies  except as otherwise
          provided in Section 4 hereof,  and except that the Employee shall have
          no rights to any severance benefits under any severance pay plan. This
          Agreement  supercedes and replaces in its entirety the Agreement dated
          12/18/97 between the Employee and the Bank.

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<PAGE>

     13.  REIMBURSEMENT  OF  EXPENSES.  In the event  any  dispute  shall  arise
          ----------------------------
          between the Employee and the Bank as to the terms or interpretation of
          this  Agreement,  whether  instituted by formal legal  proceedings  or
          otherwise,  including  any action taken by the Employee to enforce the
          terms hereof or in defending against any action taken by the Bank, the
          Bank  shall  reimburse  the  Employee  for  all  costs  and  expenses,
          including  reasonable  attorneys'  fees,  arising  from such  dispute,
          proceedings or actions,  if the ultimate  outcome is  substantially in
          favor of the Employee. Such reimbursement shall be paid within 10 days
          of Employee  furnishing to the Bank 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  Employee.  Any such  request for
          reimbursement by the Employee shall be made no more frequently than at
          30 day intervals.

     14.  AMENDMENT. This Agreement may be amended or modified only by a written
          ----------
          instrument   signed  by  the  Employee   and  by  a  duly   authorized
          representative of the Bank.

     15.  GOVERNING  LAW.  This  is a  North  Carolina  contract  and  shall  be
          ---------------
          construed  under and be  governed  in all  respects by the laws of the
          State of North Carolina, without regard to conflict of law principles.

     16.  OBLIGATIONS OF SUCCESSORS.  In addition to any obligations  imposed by
          --------------------------
          law upon any successor to the Bank, the Bank will use its best efforts
          to require any  successor  (whether  direct or indirect,  by purchase,
          merger, consolidation or otherwise) to all or substantially all of the
          business  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 if no such  succession had taken
          place.

     17.  CONTRACT OF EMPLOYMENT.  Nothing in this Agreement  shall be construed
          -----------------------
          as creating an express or implied  contract of employment  and, except
          as otherwise  agreed in writing between the Employee and the Bank, the
          Employee  shall not have any right to be retained in the employ of the
          Bank.

     18.  REGULATORY REQUIREMENTS.
          ------------------------

          (a)  If the Employee is suspended and/or  temporarily  prohibited from
               participating  in the  conduct of the Bank's  affairs by a notice
               served  under  Section  8(e)(3) or (8)(1) of the Federal  Deposit
               Insurance Act ("FDIA") (12 U.S.C,.  1818(e)(3)  and (g)(1)),  the
               Bank's  obligations  under the contract  shall be suspended as of
               the date of service, unless stayed by appropriate proceedings. If
               the  charges  in the notice  are  dismissed,  the Bank may in its
               discretion  (i) pay the Employee all or part of the  compensation
               withheld while its contract  obligations  were suspended and (ii)
               reinstate in whole or in part) any of its obligations  which were
               suspended.

          (b)  If the Employee is removed  and/or  permanently  prohibited  from
               participating  in the  conduct of the Bank's  affairs by an order
               issued  under  Section  8(e)(4)  or (g)(1) of the FDIA (12 U.S.C.
               1818(e)(4) or (g)(1)),  all the obligations of the Bank under the
               Agreement  shall terminate as of the effective date of the order,
               but  vested  rights  of  the  contracting  parties  shall  not be
               affected.

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<PAGE>

          (c)  If the Bank is in default (as  defined in Section  3(x)(1) of the
               FDIA), all obligations under this Agreement shall terminate as of
               the date of default,  but this subparagraph  shall not affect any
               vested rights of the contracting parties.

     IN WITNESS  WHEREOF,  this Agreement has been executed by the parties as of
the date first written above.

                                COOPERATIVE BANK



                                Name: Frederick Willetts, III
                                     -------------------------------------
                                Title: Chairman, President, CEO
                                      ------------------------------------


                                O.C. Burrell, Jr.
                                ------------------------------------------
                                Employee Name

                                /s/ O.C. Burrell, Jr.
                                ------------------------------------------
                                Employee Signature


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