CHANGE IN CONTROL SEVERANCE AGREEMENT
COMMONWEALTH NATIONAL BANK

 
This Agreement is made and entered into, effective as of the 18th day of May,
2006, by and between Commonwealth National Bank, a national bank with its
principal office and place of business at 33 Waldo Street, Worcester,
Massachusetts (“Bank”) and William M. Mahoney, a resident of Auburn,
Massachusetts (“Executive”).
 
W I T N E S S E T H:
 
WHEREAS, Executive is employed by Bank as Senior Vice President and Chief
Financial Officer;
 
WHEREAS, the Board of Directors of Bank considers it to be in the best interests
of Bank and the stockholders of Bank to foster the continued employment of
Executive in the event of a Potential Change-in-Control (as hereinafter
defined), although no such event is now contemplated or foreseen;
 
WHEREAS, Bank desires to assure Executive of what it considers to be fair and
reasonable terms in the event of a Change-in-Control (as hereinafter defined);
 
NOW THEREFORE, in consideration of the promises and mutual covenants herein
contained, the parties hereto, intending to be legally bound, do hereby mutually
covenant and agree as follows:
 
1.  Term of Agreement.
 
(a)  Generally. Except as provided in Section 1(b) hereof, (i) this Agreement
shall be effective as of the date and year first above written (the
“Commencement Date”), and shall continue in effect through the date ending on
the second anniversary of the Commencement Date (the “Term”); provided, however,
that commencing on the date two years after the Commencement Date (the “Initial
Renewal Date”), and on the first day of each calendar month following the
calendar month in which falls the Initial Renewal Date (each such date and the
Initial Renewal Date shall be hereinafter referred to as the “Renewal Date”),
unless previously terminated, the Term shall be automatically extended so as to
terminate twenty-five (25) calendar months from such Renewal Date, unless at
least 60 days prior to the Renewal Date, the Bank shall give notice to the
Executive that the Term shall not be so extended; provided, however, that no
such notice by Bank shall be effective if prior to the date of such notice (i) a
“Potential Change in Control” shall have occurred and the event giving rise
thereto has not been terminated, abandoned or rescinded or (ii) a “Change in
Control” shall have occurred.
 
(b)  Upon a Change in Control. Notwithstanding Section 1(a) above, if a Change
in Control shall have occurred at any time during the period in which this
Agreement is effective, this Agreement shall continue in effect for (i) the
remainder of the month in which the Change in Control occurred and (ii) a term
of 24 months beyond the month in which such Change in Control occurred (such
entire period hereinafter referred to as the "Protected Period"). A “Protected
Period” can only occur if there is, in fact, a “Change in Control”.
 
 
 
 

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2.  Definitions.
 
For purposes of this Agreement, the following terms shall have the following
meanings:
 
(a)  A "Change in Control" shall be deemed to have occurred if, during the term
of this Agreement:
 
(i)  any Person directly or indirectly or acting through one or more other
Persons owns, controls, or has power to vote more than 50% of the voting common
stock of Bank or a Controlling Person; or
 
(ii)  any Person acquires or agrees to acquire all or substantially all of the
assets and business of Bank or a Controlling Person; or
 
(iii)  any Person (A) is a party to a merger, consolidation or any other form of
reorganization having substantially the same effect as a merger or
consolidation, with Bank or a Controlling Person and (B) immediately prior to
such transaction the Person had total assets as of the end of its most recent
fiscal year equal to or greater than 100% of the total assets of Bank or the
Controlling Person, as applicable, as of the end of its most recent fiscal year.
 
(iv)  during any period of twenty-four (24) consecutive months, individuals who
at the beginning of such period constitute the Board of Directors of Bank cease
for any reason to constitute a majority of such Board, unless the election, or
the nomination for election of each new Director was approved by a vote of a
majority of the Directors then still in office who were Directors at the
beginning of such period; or
 
(v)  the Board of Directors of Bank, by vote of two-thirds (2/3) of all the
Directors (excluding Executive if Executive is a Director), adopts a resolution
to the effect that a “Change in Control” has occurred for purposes of this
Agreement.
 
(b)  A "Potential Change in Control" shall be deemed to have occurred if:
 
(i)  Bank or any Controlling Person enters into a letter of intent, memorandum
of understanding, or definitive agreement providing for, or publicly announces
that it is considering, one or more transactions, the consummation of which
would result in the occurrence of a Change in Control;
 
(ii)  any Person (including Bank) publicly announces an intention to take or to
consider taking actions which if consummated would constitute a Change in
Control; or
 
 
 
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(iii)  the Board of Directors of Bank, by vote of two-thirds (2/3) of all the
Directors (excluding Executive if Executive is a Director) adopts a resolution
to the effect that a “Potential Change in Control” has occurred for purposes of
this Agreement.
 
(c)  A “Person” shall include a natural person, corporation, or other entity.
When two or more persons act as a partnership, limited partnership, syndicate,
or other group for the purpose of acquiring, holding, or disposing of beneficial
ownership of Bank common stock, such partnership, syndicate, or group shall be
considered a Person. Beneficial ownership shall be determined under the then
current provisions of Securities Exchange Act Rule 13d-3; 17 C.F.R. § 240.13d-3.
 
(d)  “Protected Period” shall have the meaning specified in Section 1(b) hereof.
 
(e)  A “Controlling Person” shall mean a Person who directly or indirectly or
acting through one or more other Persons owns, controls or has power to vote 50%
or more of the voting common stock of Bank, including without limitation, any
holding company of Bank.
 
(f)  Notwithstanding the definitions contained in Section 2 hereof, the
formation by Bank of a bank holding company that is approved by the Board of
Directors and the shareholders of Bank shall not constitute either a Change in
Control or a Potential Change in Control.
 
3.  Duties Upon Potential Change-in-Control.
 
In the event that a Potential Change-in-Control shall occur while Executive is
employed by Bank, Executive shall use his reasonable best efforts to fulfill
Executive’s responsibilities to Bank in the interests of Bank and the
shareholders of Bank and in order to explore and pursue fully the Potential
Change-in-Control.
 
4.  Termination. For purposes of this Section 4, certain capitalized terms used
herein and not defined in Section 2 above shall have the meanings set forth in
Section 4(f) below.
 
(a)  Termination by Bank for Cause, by Executive Without Good Reason, or by
Reason of Death, Disability or Retirement. If during the Protected Period
Executive’s employment by Bank is terminated by Bank for Cause, by Executive
without Good Reason, or because of Executive’s death, Disability or Retirement,
Bank shall not be obligated to make any payments to Executive by reason of this
Agreement other than (i) payment of amounts otherwise accrued and owing but not
yet paid and (ii) any amounts payable under then-existing employee benefit
programs, subject to the requirements thereof and at the time such amounts are
due thereunder.
 
(b)  Termination by Bank Without Cause or by Executive for Good Reason. If
during the Protected Period Executive’s employment by Bank is terminated by Bank
without Cause or by Executive for Good Reason, subject to the provisions of
Section 6 hereof, Executive shall be entitled to the compensation and benefits
described in this Section 4(b). If Executive’s employment by Bank is terminated
prior to a Change in Control at the request of a Person engaging in a
transaction or series of transactions that would result in a Change in Control,
the Protected Period shall commence upon the subsequent occurrence of a Change
in Control, Executive’s actual termination shall be deemed a termination
occurring during the Protected Period and covered by this Section 4(b),
Executive’s Date of Termination shall be deemed to have occurred immediately
following the Change in Control, and Notice of Termination shall be deemed to
have been given by Bank immediately prior to Executive’s actual termination.
Executive’s continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstances constituting Good Reason hereunder.
The compensation and benefits provided under this Section 4(b) are as follows:
 
 
 
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(i)  Bank shall pay Executive’s full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, no later than
the fifth day following the Date of Termination. Executive shall also receive
all other amounts to which Executive is entitled under any benefit plan of Bank
at the time such payments are due thereunder, subject, however, to the
provisions of Section 4(d) hereof.
 
(ii)  At the time specified in Section 4(d) hereof, Bank shall pay Executive, in
lieu of amounts which may otherwise be payable to Executive under any bonus plan
for the year in which the Date of Termination occurs, an amount in cash equal to
Executive’s annual incentive bonus that would be payable in cash for such year
multiplied by a fraction, (A) the numerator of which equals the number of full
or partial days in such annual performance period during which Executive was
employed by Bank and (B) the denominator of which is 365.
 
(iii)  At the time specified in Section 4(d) hereof, Bank shall pay Executive,
in lieu of any further salary, bonus or severance payments for periods
subsequent to the Date of Termination, a lump sum amount in cash equal to one
and one-half times the sum of:
 
(A)  the greater of (I) Executive’s annual base salary in effect immediately
prior to the Change in Control of Bank or (II) Executive’s annual base salary in
effect at the time Notice of Termination is given; and
 
(B)  the greater of (I) Executive’s annual incentive bonus for the year in which
the Change in Control occurs or, (II) if no such incentive bonus has yet been
determined for such year, the greater of the Executive’s annual incentive bonus
actually earned by Executive in the year immediately preceding the year in which
the Change in Control occurs or the target annual incentive bonus for the year
in which the Change in Control occurs.
 
(iv)  Stock options, restricted stock or other stock awards held by Executive at
Executive’s Date of Termination, the vesting of which is service based, if not
then vested and exercisable, will become fully vested and become exercisable at
Executive’s Date of Termination, and, in other respects (including the period
following termination during which such options may be exercised) such options,
restricted stock or other stock awards shall be governed by the plans and
programs and the agreements and other documents pursuant to which such options,
restricted stock or other stock awards were granted.
 
 
 
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(v)  Any performance objectives upon which the earning of performance-based
restricted stock or deferred stock awards, including outstanding stock plan
awards and other long-term incentive awards, is conditioned shall be deemed to
have been met at target level at Executive’s Date of Termination.
 
(vi)  For an 18-month period following Executive’s Date of Termination, Bank
shall arrange to provide Executive with life and health insurance benefits no
less favorable than those which Executive was receiving immediately prior to the
Notice of Termination on the payment terms hereinafter provided. If Executive
elects after Date of Termination continued coverage under Bank’s health plan in
accordance with the applicable provisions of the Consolidated Omnibus
Reconciliation Act of 1985 (“COBRA”), Executive shall continue to receive such
individual and/or family health benefits coverage as Executive was receiving at
Executive’s Date of Termination with Executive paying the same portion of the
cost of such coverage as existed at such time, for so long during the
continuation period as Executive elects to continue coverage and pays
Executive’s portion of the costs of coverage.
 
(vii)  At the time specified in Section 4(d) hereof, Bank shall contribute an
amount equal to the aggregate amounts that Bank would have contributed on behalf
of Executive under Bank’s 401(k) Plan, or similar qualified plan if any such
plan shall be in effect, for an 18-month period following Executive’s Date of
Termination (plus estimated earnings thereon) had Executive continued in the
employ of Bank until the end of said period and made contributions under said
plan at a rate, as a percentage of salary, equal to the rate at which Executive
had made contributions to said plan in the plan year immediately preceding
Executive’s Date of Termination.
 
(viii)  Bank shall reimburse Executive at least quarterly for amounts actually
expended by Executive for outplacement and job search activities (including, but
not limited to, reasonable office and secretarial expenses) in amounts in the
aggregate up to 20% of Executive’s annual base salary and annual incentive
compensation taken into account under Section 4 (b)(iii)(A) and (B) hereof,
provided that such expenditures are actually incurred and submitted for
reimbursement by Executive within the 24-month period following Executive’s Date
of Termination and are appropriately documented by invoices and proof of
payment. Such submitted expenses shall be reimbursed by Bank the earlier of the
date 30 days after submission by the Executive of such expenses for
reimbursement or December 31st of the second calendar year following the Date of
Termination.
 
(ix)  Bank shall not be obligated to continue any disability or disability
income insurance on behalf of Executive following Executive’s Date of
Termination. To the extent permitted under any contracts, programs or policies
of such nature in effect at the time of such termination, Executive may continue
at Executive’s sole cost and expense coverage thereunder for a period of up to
eighteen (18) months.
 
(x)  Following Executive’s Date of Termination, Executive shall continue to
receive such perquisites, other than those specified in the preceding
subparagraphs above, as Executive was receiving immediately prior to Executive’s
Date of Termination by reimbursing Executive for the costs of such perquisites
on the same cost sharing with Bank as was in effect immediately prior to
Executive’s Date of Termination on or before the earlier of 30 days after
submission of such costs for reimbursement by Executive or December 31st of the
second calendar year following the year in which the Date of Termination occurs.
 
 
 
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(xi)  Bank shall reimburse Executive for the amount of any reasonable legal fees
and expenses incurred by Executive in any successful action (whether or not
arbitration or litigation shall be involved) to obtain or enforce any right or
benefit provided to Executive by Bank hereunder or as confirmed or acknowledged
hereunder.
 
(c)  Termination Process. The following process shall apply with respect to any
purported termination of Executive’s employment by Bank or by Executive during
the Protected Period.
 
(i)  Any such purported termination of Executive’s employment shall be
communicated by the terminating party to the other party by written Notice of
Termination.
 
(ii)  Within fifteen (15) days following communication of a Notice of
Termination by Bank or Executive, Bank shall deliver to Executive a written
statement of all payments and benefits (“Benefit Statement”) pertaining to
Executive to be made pursuant to this Agreement and otherwise to Executive by
Bank. Bank and Executive shall endeavor in good faith to address and resolve as
soon as possible any questions, issues or disagreements relating to said Benefit
Statement within fifteen (15) days following delivery to Executive of said
Benefit Statement.
 
(iii)  Thereafter, Executive shall have a period of fifteen (15) days either to
invoke the dispute resolution provisions of Section 13 hereof by notice to Bank
or to provide Bank with a waiver in writing of his right to do so. Any failure
by Executive to do either of the foregoing shall for all purposes of this
Agreement be deemed to constitute a written waiver of Executive’s right to
invoke the dispute resolution provisions of Section 13 hereof, but shall not
otherwise affect or impair Executive’s rights or claims under this Agreement.
Within five (5) business days thereafter, Bank shall either request from the Tax
Advisor described in Section 4(e) below a determination of tax deductibility
pursuant to said Section 4(e) with respect to all payments and benefits
reflected on the Benefits Statement or deliver to Executive a waiver in writing
of its right to do so. Any failure by Bank to do either of the foregoing shall
for all purposes of this Agreement be deemed to constitute a written waiver of
Bank’s right to invoke application of the provisions of Section 4(e).
 
(d)  Time of Payment. Subject to the provisions of the final paragraph of this
subsection (d) and to the provisions of subsection (e) hereof, the payments
provided for in the second sentence of clause (i) and in clauses (ii), (iii),
(vii) and (viii) of Section 4(b) hereof, excluding, however, Bank’s reasonable
estimate of any amounts that are in dispute, shall be made not later than the
five (5) business days following the date specified in whichever of the
following clauses shall be applicable:
 
(i)  the date on which a Tax Determination Statement described in Section 4(e)
below is communicated in writing to Bank as provided therein, if Bank shall
request that a tax determination under Section 4(e) be made; or
 
 
 
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(ii)  if Bank shall not request that a tax determination under Section 4(e) be
made, either (x) the date on which Executive’s right to invoke the dispute
resolution provisions of Section 13 shall have been waived (or deemed waived)
under Section 4(c)(iii) or (y) if the aforementioned dispute resolution
provision shall have been invoked, the date of final resolution of the dispute
submitted thereto.
 
Notwithstanding any other provision of this Agreement, if Bank and Executive
determine that Executive is a “key employee” within the meaning of Section 409A
of the Internal Revenue Code of 1986, as amended (the “Code”) and that, as a
result of such status, any portion of the payments under this Agreement would be
subject to additional taxation, Bank will delay paying all or any portion of
such amount until the earliest permissible date on which payments may commence
without triggering such additional taxation (with such delay not to exceed six
months), with the first such payment to include any amounts that would have been
paid earlier but for the above delay. At the request of Executive, Bank shall
set aside those payments that would be subject to the Section 409A additional
tax in a trust that is in compliance with Rev. Proc. 92-64.
 
(e)  Section 280G Limit.
 
(i)  Notwithstanding any other provision of this Agreement, in the event that
any payment or benefit received or to be received by Executive, whether payable
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with Bank, its successors, or any person affiliated with Bank
(“Affiliate”) within the meaning of Section 1504 of the Code (collectively
“Total Payments”) would, in the determination of the independent certified
public accounting firm then retained by Bank (the “Tax Advisor”), not be
deductible (in whole or in part) by Bank, an affiliate of Bank or other person
making such payment or providing such benefit as a result of Section 280G of the
Code, or any successor to such Section, payments and benefits pursuant to this
Agreement shall be reduced until no portion of the Total Payments is not
deductible as a result of Section 280G of the Code, or payments and benefits
pursuant to this Agreement are reduced to zero.
 
(ii)  Except as provided in the last sentence of Section 4(c)(iii), Bank may at
any time request that the Tax Advisor make a determination described in (i)
above with respect to payments and benefits reflected on a Benefits Statement
delivered to Executive pursuant to Section 4(c) above, as such statement may be
modified by mutual agreement of Bank and Executive. In making its determination
of deductibility in accordance with (i) above, the Tax Adviser shall, if and as
deemed necessary or advisable by the Tax Advisor in order to avoid or minimize
any reduction of payments or benefits to Executive pursuant to (i) above, Bank
shall obtain from the Tax Advisor an appraisal of the then current present value
of the covenants by Executive set forth in Sections 7 and 8 of this Agreement
and an amount of the total payments to be made to Executive under clause (ii) of
Section 4(b) equal to said amount shall be for all purposes treated as a payment
to Executive in consideration of such covenants and the remainder, if any, shall
be treated as supplemental wage payments to Executive. For purposes of the
limitation contained in this Section 4(c), (i) no portion of the Total Payments
the receipt of which Executive, in the determination of the Tax Advisor, shall
have effectively waived prior to the date which is fifteen (15) days following
Executive’s Date of Termination and prior to the earlier of the date of
constructive receipt and the date of payment thereof shall be taken into
account; and (ii) any reduction hereunder in the payments and benefits pursuant
to Section 4(b) above shall be made from the payments and benefits to be made
pursuant to clauses (i) through (xi) of said Section 4(b) in such order as may
be determined by Executive, except to the extent that such payments and
benefits, in the determination of the Tax Advisor, are reasonable compensation
within the meaning of Section 280G of the Code. The determination of the Tax
Advisor as to the deductibility of the Total Payments shall be completed not
later than forty-five (45) days following the date on which Bank requests that a
tax determination be made hereunder, and such determination, together with a
detailed explanation thereof (together the “Tax Determination Statement”) shall
be communicated in writing to Bank, with a copy to Executive, within said
forty-five (45) day period. The determination of the Tax Advisor as to the
deductibility of the Total Payments shall be deemed conclusive and binding on
Bank and Executive and shall not be subject to the arbitration provisions of
this Agreement. Bank shall pay the fees and other costs of the Tax Advisor
hereunder. In the event that the independent certified public accounting firm
then retained by Bank is unable or declines to serve as Tax Advisor for purposes
of making the foregoing determinations, Bank shall appoint another accounting
firm of national reputation to serve as Tax Advisor.
 
 
 
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(f)  Certain Definitions. Except as otherwise indicated in this Agreement, the
following definitions shall be applicable under this Section 4.
 
(i)  Disability. "Disability" shall mean Executive’s absence from the full-time
performance of Executive’s duties with Bank for six consecutive months as a
result of Executive’s incapacity due to physical or mental illness or
disability, and within 15 days after written Notice of Termination is thereafter
given Executive shall not have returned to the full-time performance of
Executive’s duties.
 
(ii)  Cause. "Cause" shall mean termination on account of (A) the willful and
continued failure by Executive to substantially perform Executive's duties with
Bank (other than any such failure resulting from Executive's incapacity due to
physical or mental illness or Disability or any failure after the issuance of a
Notice of Termination by Executive for Good Reason) which failure is
demonstrably and materially damaging to the financial condition or reputation of
Bank and/or its affiliates, and which failure continues more than three (3)
business days after a written demand for substantial performance is delivered to
Executive by the Board, which demand specifically identifies the manner in which
the Board believes that Executive has not substantially performed Executive’s
duties or (B) the willful engaging by Executive in conduct which is demonstrably
and materially injurious to Bank or its affiliates, monetarily or otherwise.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Executive a copy of the resolution duly adopted by the affirmative vote of not
less than a majority in number of the entire membership of the Board of
Directors (excluding Executive if Executive is then a Director) at a meeting of
the Board (after reasonable notice to Executive and an opportunity for
Executive, together with Executive’s counsel, to be heard before the Board)
finding that, in the good faith opinion of the Board, Executive was guilty of
conduct set forth above in this Section 4(f)(ii) and specifying the particulars
thereof in detail. For purposes of this Section, no act or failure to act by
Executive shall be considered “willful” unless it is done, or omitted to be
done, in bad faith and without reasonable belief that Executive’s action or
omission was in the best interests of the Bank. Any act, or failure to act,
based upon the advice of counsel for the Bank shall be conclusively presumed to
be done, or omitted to be done, by Executive in good faith and in the best
interests of the Bank.
 
 
 
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(iii)  Good Reason. "Good Reason" shall mean, without Executive's express
written consent, the occurrence upon or after a Change in Control of any of the
following circumstances unless, in the case of subsections (A), (C), (F), (G)
and (H) hereof, such circumstances are fully corrected prior to the Date of
Termination specified in the Notice of Termination given in respect thereof
(provided, however, Bank will not be provided an opportunity to cure hereunder
more than once):
 
(A)  a material and substantial reduction or other material and adverse change
by the Bank in Executive’s position, authorities, or level of responsibilities
as in effect immediately prior to the Change in Control;
 
(B)  a reduction in Executive’s annual base salary as in effect immediately
prior to the Change in Control;
 
(C)  a reduction in Executive’s perquisites as in effect immediately prior to
the Change in Control as the same may be increased from time to time except for
across-the-board perquisite reductions similarly affecting all senior executives
of Bank and all senior executives of any Person in control of Bank;
 
(D)  the relocation of the principal place of Executive’s employment to a
location more than 35 miles from Executive’s principal place of employment
immediately prior to the Change in Control;
 
(E)  the failure by Bank to pay to Executive any portion of Executive’s
compensation or to pay to Executive any portion of an installment of deferred
compensation under any deferred compensation program of Bank within seven days
of the date such compensation is due;
 
(F)  the failure by Bank to continue in effect any material compensation or
benefit plan in which Executive participated immediately prior to the Change in
Control, unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by
Bank to continue Executive’s participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of the
amounts of benefits provided and the level of Executive’s participation relative
to other participants, as existed at the time of the Change in Control;
 
(G)  the failure of Bank to obtain a satisfactory agreement from any successor
to assume and agree to perform this Agreement, as contemplated in Section 11
hereof; or
 
 
 
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(H)  any purported termination of Executive's employment that is not effected
pursuant to a Notice of Termination satisfying the requirements of Section
4(f)(v) hereof, which purported termination shall not be effective for purposes
of this Agreement.
 
(iv)  Retirement. “Retirement” shall mean Executive’s retirement from Bank in
accordance with the retirement policy of Bank, including early retirement,
generally applicable to its executives or in accordance with any retirement
arrangement with respect to Executive established by the Board with the consent
of Executive.
 
(v)  Notice of Termination. "Notice of Termination" shall mean notice indicating
the specific termination provision in this Agreement relied upon and setting
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of Executive’s employment under the provision so
indicated.
 
(vi)  Date of Termination. "Date of Termination" shall mean (A) if Executive’s
employment is terminated for Disability, 15 days after Notice of Termination is
given (provided that Executive shall not have returned to the full-time
performance of Executive’s duties during such 15-day period) or (B) if
Executive’s employment is terminated for any other reason, the date specified in
the Notice of Termination (which, in the case of a termination for Cause, shall
not be less than 30 days from the date such Notice of Termination is given and,
in the case of a termination for Good Reason, shall not be less than 15 nor more
than 60 days from the date such Notice of Termination is given).
 
(vii)  Benefit Statement. “Benefit Statement” shall mean a written statement
showing in a clear and understandable presentation all payments and benefits and
the amounts and methods of calculation thereof owed by Bank to Executive upon
Executive’s termination of employment with Bank as prepared by or under the
direction of Bank.
 
(viii)  “Tax Determination Statement” shall mean the written determination of
the Tax Advisor as to the deductibility of the Total Payments as described in
Section 4(e) above.
 
5.  Mitigation.
 
So long as Executive shall not be in breach of any provisions of Sections 7 or
8, Executive shall not be required to mitigate the amount of payment provided
for under this Agreement by seeking other employment or otherwise, nor shall the
amount of payment or benefit provided for under this Agreement be reduced by any
compensation earned by Executive as the result of employment by another employer
permitted by this Agreement.
 
6.  Release.
 
As a condition of receiving payments or benefits provided for in this Agreement,
at the request of Bank, or its successor, Executive shall execute and deliver
for the benefit of Bank and any Controlling Person, a general release in
substantially the form set forth in Attachment A hereto, and such release shall
become effective in accordance with its terms. The failure or refusal of
Executive to sign such a release or the revocation of such a release shall cause
the termination of any and all obligations of Bank to make payments or provide
benefits hereunder, and the forfeiture of Executive's right to receive any such
payments and benefits. Executive acknowledges that Bank has advised Executive to
consult with an attorney prior to signing this Agreement and that Executive has
had an opportunity to do so.
 
 
 
 
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7.  Confidential Information.
 
Executive understands that in the course of Executive's employment by Bank,
Executive will receive or have access to, or has received or had access to,
confidential information concerning the business or purposes of Bank which Bank
desires to protect. Such confidential information shall be deemed to include,
but not be limited to, Bank’s customer lists and information, and employee
lists, including, if known, personnel information and data. Executive agrees
that Executive will not at any time reveal to anyone outside Bank or use for
Executive's own benefit any such information without specific written
authorization by Bank, which may be withheld by Bank in its sole discretion.
Executive further agrees not to use any such confidential information or trade
secrets in competing with Bank at any time.
 
8.  Non-Competition and Non-Disclosure; Non-Disparagement; Certain Forfeitures.
 
(a)  Non-Competition. In consideration for the compensation and benefits
provided for by this Agreement, as affected by the provisions of Section 4(e)
above, without the consent in writing of the Board of Directors of Bank, which
may be withheld by Bank for any reason or no reason in Bank’s sole discretion,
Executive will not, at any time that Executive shall be employed by Bank, or at
any time during the period of twelve (12) months following Executive’s Date of
Termination during the Protected Period, acting alone or in conjunction with
others, directly or indirectly (i) engage (either as owner, investor, partner,
stockholder, employer, employee, consultant, advisor, or director) in any
business of any bank, bank holding company, savings bank, savings and loan
association, savings and loan holding company, or other institution engaged in
the business of accepting deposits and/or making loans, or any direct or
indirect subsidiary or affiliate of any such entity, that conducts business or
maintains an office within a thirty (30) mile radius of the Bank’s headquarters
at 33 Waldo Street, Worcester, MA; (ii) solicit or otherwise induce any customer
of Bank or any of its affiliates to curtail or cancel their business with Bank
or any such affiliate; (iii) solicit or otherwise induce or attempt to influence
any employee of Bank or any affiliate to terminate employment; or (iv) solicit,
hire or retain as an employee or independent contractor, or assist any third
party in the solicitation, hire, or retention as an employee or independent
contractor, any person who during the twelve months prior to the Date of
Termination was an employee of Bank or any such affiliate; provided, however,
that activities engaged in by Executive by or on behalf of Bank are not
restricted by this covenant. The provisions of clauses (i), (ii), (iii), and
(iv) above are separate and distinct commitments, each independent of the other
subparagraphs. It is agreed that the ownership by Executive of not more than one
percent (1%) of the equity securities of any company having securities listed on
an exchange or regularly traded in the over-the-counter market shall not, of
itself, be deemed inconsistent with clause (i) of this Section 8(a).
 
(b)  Non-Disparagement. Executive shall not, at any time during the term of this
Agreement or thereafter, willfully make statements or representations, or
otherwise communicate, directly or indirectly, in writing, orally, or otherwise,
or take any action which is intended to, directly or indirectly, disparage and
cause financial harm to Bank or any of its affiliates or their respective
officers, directors, employees, advisors, businesses or reputations.
Notwithstanding the foregoing, nothing in this Agreement shall preclude
Executive from making truthful statements that are required by applicable law,
regulation or legal process.
 
 
 
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(c)  Injunction. Executive hereby acknowledges that Executive’s services are
unique and extraordinary, and are not readily replaceable, and hereby expressly
agrees that Bank, in enforcing the covenants contained in Sections 7 and 8
herein, in addition to any other remedies provided for herein or otherwise
available at law, shall be entitled in any court of equity having jurisdiction
to an injunction restraining him in the event of a breach, actual or threatened,
of the agreements and covenants contained in such Sections.
 
(d)  Scope. The parties hereto believe that the restrictive covenants contained
in Sections 7 and 8 hereof are reasonable. However, if at any time it shall be
determined by any court of competent jurisdiction that these Sections or any
portion of them as written, are unenforceable because the restrictions are
unreasonable, the parties hereto agree that such portions as shall have been
determined to be unreasonably restrictive shall thereupon be deemed so amended
as to make such restrictions reasonable in the determination of such court, and
the said covenants, as so modified, shall be enforceable between the parties to
the same extent as if such amendments had been made prior to the date of any
alleged breach of said covenants.
 
9.  Right of Discharge.
 
Subject to the obligations to make the payments specified in Section 4(b), it is
expressly agreed that, except as set forth in Section 3 above, Bank shall have
the right to discharge or terminate Executive at any time and for any reason, or
no reason.
 
10.  Exclusivity.
 
It is understood and agreed that if any payments are due and made to Executive
under this Agreement then no payments will be due or required, and Bank shall
not in any respect be obligated to Executive, under any other severance pay
plan, agreement, or arrangement that might otherwise be applicable to Executive,
or under or by reason of any employment severance pay or similar agreement
between Bank and Executive.
 
11.  Successors; Binding Agreement.
 
(a)  This Agreement shall be binding upon and inure to the benefit of and be
enforceable by any and all successors and assigns of Bank. Bank shall require
any successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of Bank,
and in the case of an acquisition of Bank in which the corporate existence of
Bank continues, the ultimate parent company following such acquisition,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that Bank would be required to perform it if no such
succession had taken place. As used in this Agreement, "Bank" shall mean Bank as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
 
 
 
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(b)  This Agreement shall be binding upon and inure to the benefit of and be
enforceable by Executive and Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. In the event of Executive's death following becoming entitled to
payments hereunder but prior to completion of such payments, all amounts
otherwise payable to Executive hereunder shall, unless otherwise provided
herein, be paid in accordance with the terms of this Agreement to Executive's
devisee, legatee or other designee specifically named in a writing signed by
Executive and delivered to Bank or, if there is no such designee, to Executive's
estate.
 
12.  Notice.
 
Notices and all other communications provided for in this Agreement shall be in
writing and shall be deemed to have been duly given when (a) personally
delivered, (b) sent by Federal Express or other similar overnight service or (c)
mailed by United States certified or registered mail, return receipt requested,
postage prepaid, addressed to the respective addresses set forth below, or to
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt. In the case of Federal Express or other similar overnight
service, such notice or advice shall be effective and deemed delivered when
sent, and, in the cases of certified or registered mail, shall be effective and
deemed delivered two days after deposit into the mail by delivery to the U.S.
Post Office.
 

 
If to Executive, to:
     
William M. Mahoney
 
7 Pondville Court
 
Auburn, MA 01501
     
If to Bank, to:
     
Commonwealth National Bank
 
33 Waldo Street
 
Worcester, MA 01613-0830
 
Attn: Chairman, Board of Directors

 
13.  Dispute Resolution.
 
(a)  Negotiation. Bank and Executive shall attempt in good faith to resolve any
dispute arising out of or relating to this Agreement promptly by negotiation
between the designated representative of the Board of Directors of Bank and
Executive. Any party may give the other party written notice of any dispute in
accordance with the notice procedures set forth in Section 12. Within 15 days
after delivery of the notice, the receiving party shall submit to the other, in
accordance with the notice procedures set forth in Section 12, a written
response. The notice and response shall include a statement of that party’s
position and summary of arguments supporting that position. Within 15 days after
delivery of the initial notice, the parties shall meet at a mutually acceptable
time and place, and thereafter as often as they reasonably deem necessary, to
attempt to resolve the dispute. All negotiations pursuant to this clause are
confidential and shall be treated as compromise and settlement negotiations for
purposes of applicable rules of evidence.
 
 
 
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(b)  Mediation. If the dispute has not been resolved by negotiation as provided
herein within 30 days after delivery of the initial notice of negotiation, or if
the parties failed to meet within 30 days after delivery of such notice, the
parties shall endeavor to settle the dispute by mediation; provided, however,
that if one party fails to participate in the negotiation as provided herein,
the other party may initiate mediation prior to the expiration of the 90 days.
 
(c)  Arbitration. Any dispute arising under or in connection with this Agreement
which has not been resolved by mediation as provided herein within 30 days after
initiation of the mediation procedure, shall be finally resolved by arbitration
in accordance with the rules of the American Arbitration Association then
currently in effect. The place of arbitration shall be Worcester or Boston,
Massachusetts. For purposes of entering any judgment upon an award rendered by
the arbitrators, Bank and Executive hereby consent to the jurisdiction of any or
all of the following courts: (i) the United States District Court for the
District of Massachusetts, (ii) any of the courts of the Commonwealth of
Massachusetts, or (iii) any other court having jurisdiction. Venue shall be in
Worcester, Massachusetts. Bank and Executive hereby agree that a judgment upon
an award rendered by the arbitrators may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Subject to
subsection (e) of this Section 13, Bank shall bear all costs and expenses
arising in connection with any arbitration proceeding pursuant to this Section
13(c). Notwithstanding any provision in this Section 13(c), Bank shall be
obligated to pay any and all undisputed amounts under this Agreement pursuant to
Section 4 above, and Executive shall be entitled to seek specific performance of
Executive’s right to be paid during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
 
(d)  Interest on Unpaid Amounts. Any amount which has become payable pursuant to
the terms of this Agreement or any decision by arbitrators or judgment by a
court of law pursuant to this Section 13 but which has not been timely paid
shall bear interest at the prime rate as quoted by Bank at the time such amount
first becomes payable and remain fixed at that rate until such amounts are paid.
 
(e)  Costs of Proceedings. Bank shall pay all costs and expenses, including all
attorneys' fees and disbursements, of Bank and, at least monthly, Executive, in
connection with any proceedings undertaken pursuant to this Section 13, whether
or not instituted by Bank, or Executive, relating to the interpretation or
enforcement of any provision of this Agreement; provided that if Executive
instituted the proceeding and a finding is entered that Executive instituted the
proceeding without a good faith belief that Executive would prevail on at least
one material issue, Executive shall pay all of Executive’s costs and expenses,
including attorneys' fees and disbursements and reimburse Bank for all of such
costs and expenses of Executive theretofore paid by Bank, within 60 days after
the final determination of all of such proceedings.
 
 
 
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14.  Regulatory Limitation.  
 
Notwithstanding any other provision of this Agreement, Bank shall not be
obligated to make, and Executive shall have no right to receive, any payment,
benefit or amount under this Agreement which would violate any law, regulation
or regulatory order applicable to Bank or its parent at the time such payment,
benefit or amount is due, including, without limitation, Section 1828(k)(1) of
Title 12 of the United States Code and any regulation or order thereunder of the
Federal Deposit Insurance Corporation (“Prohibited Payment”). If and to the
extent Bank shall at a later date be relieved of the restriction on its ability
to make any Prohibited Payment, then at such time Bank shall promptly make
payment of any such amounts to Executive.
 
15.  Miscellaneous.
 
Except as to a waiver described in Section 4(c) above, no provision of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by Executive and such officer as
may be designated by the Board of Directors of Bank, acting upon the direction
of said Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the time or at any prior or
subsequent time. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the Commonwealth of
Massachusetts without regard to its conflicts of law principles. All references
to sections of the Exchange Act, the Code or the United States Code shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law.

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

17.  Counterparts.
 
This Agreement may be executed in counterparts, each of which shall be deemed to
be an original but all of which together will constitute one and the same
instrument.

18.  Entire Agreement.
 
This Agreement sets forth the entire agreement of the parties hereto in respect
of the subject matter contained herein and during the term of this Agreement
supersedes the provisions of all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of either party hereof with
respect to the subject matter contained herein. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. Notwithstanding anything to the contrary in this
Agreement, the procedural provisions of this Agreement shall apply to all
benefits payable as a result of a Change in Control (or other change in control)
under any employee benefit plan, agreement, program, policy or arrangement of
Bank.
 
 
 
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IN WITNESS WHEREOF, Bank has caused this Agreement under seal to be executed by
a duly authorized officer, and Executive has executed this Agreement, as of the
18th day of May, 2006.
 

 
COMMONWEALTH NATIONAL BANK
 
 
By: /s/ Lawrence J. Glick
-----------------------------------------------
Name: Lawrence J. Glick
Its Chairman of the Compensation Committee of the Board of Directors
 
 
 
EXECUTIVE
 
By: /s/ William M. Mahoney
----------------------------------------------------
Name: William M. Mahoney

 

 

 
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ATTACHMENT A
 
RELEASE
 
We advise Executive to consult an attorney before Executive signs this Release.
Executive has until the date which is seven (7) days after the Release is signed
and returned to Commonwealth National Bank (“Bank”) to change Executive’s mind
and revoke this Release. Executive’s Release shall not become effective or
enforceable until after that date.
 
In consideration for the benefits provided under Executive’s Change in Control
Severance Agreement with Bank effective [ ] (the “Agreement”), and more
specifically enumerated in Exhibit 1 hereto, by Executive’s signature below,
Executive, for and on behalf of Executive, Executive’s heirs, executors, agents,
representatives, successors and assigns, hereby releases and forever discharges
Bank, its past and present parent corporations, subsidiaries, divisions,
subdivisions, affiliates and related companies (collectively, the “Company”) and
the Company’s past, present and future agents, directors, officers, employees,
representatives, successors and assigns (hereinafter “those associated with the
Company”) with respect to any and all claims, demands, actions and liabilities,
whether in law or equity, which Executive may have against the Company or those
associated with the Company of whatever kind, including but not limited to those
arising out of Executive’s employment with the Company or the termination of
that employment. Executive agrees that this release covers, but is not limited
to, claims arising under the Age Discrimination in Employment Act of 1967, 29
U.S.C. § 621 et seq., Title VII of the Civil Rights Act of 1964, 42 U.S.C. §
2000e et seq., the Americans with Disabilities Act of 1990, 42 U.S.C. § 12101 et
seq., the Fair Labor Standards Act, 29 U.S.C. § 201 et seq., the Employee
Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq., the
Massachusetts Fair Employment Practices Act, M.G.L. c. 151B §1 et seq.; the
Massachusetts Civil Rights Act, M.G.L. c.12 §§11H and 11I; the Massachusetts
Equal Rights Act, M.G.L. c.93 §102 and M.G.L. c.214, §1C; the Massachusetts
Labor and Industries Act, M.G.L. c. 149, §1 et seq .; and the Massachusetts
Privacy Act, M.G.L. c.214, §1B, and any other local, state or federal law,
regulation or order dealing with discrimination in employment on the basis of
sex, race, color, national origin, veteran status, marital status, religion,
disability, handicap, or age. Executive also agrees that this release includes
claims based on wrongful termination of employment, breach of contract (express
or implied), tort, or claims otherwise related to Executive’s employment or
termination of employment with the Company and any claim for attorneys’ fees,
expenses or costs of litigation.
 
This Release covers all claims based on any facts or events, whether known or
unknown by Executive, that occurred on or before the date of this Release.
Except to enforce this Release, Executive agrees that Executive will never
commence, prosecute, or cause to be commenced or prosecuted any lawsuit or
proceeding of any kind against the Company or those associated with the Company
in any forum and agrees to withdraw with prejudice all complaints or charges, if
any, that Executive has filed against the Company or those associated with the
Company.
 
Anything in this Release to the contrary notwithstanding, this Release does not
include a release of: (i) Executive’s rights under the Agreement or Executive’s
right to enforce the Agreement, including but not limited to any benefit or
payment amount under Section 4; (ii) any rights Executive may have to
indemnification under any agreement, law, Company organizational document or
policy, or otherwise; (iii) except as expressly provided in the Agreement, any
rights Executive may have to benefits under the Company’s benefit plans; or (iv)
Executive’s right to enforce this Release.
 
 
 
 

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By signing this Release, Executive further agrees as follows:
 
i. Executive has read this Release carefully and fully understands its terms;
 
ii. Executive has had at least twenty-one (21) days to consider the terms of the
Release;
 
iii. Executive has seven (7) days from the date Executive signs this Release to
revoke it by written notification to the Company. After this seven (7) day
period, this Release is final and binding and may not be revoked;
 
iv. Executive has been advised to seek legal counsel and has had an opportunity
to do so;
 
v. Executive would not otherwise be entitled to the benefits provided under
Executive’s Agreement had Executive not agreed to execute and deliver this
Release; and
 
vi. Executive’s agreement to the terms set forth above is voluntary.
 
IN WITNESS WHEREOF, Executive has executed and delivered this release under seal
at Worcester, Massachusetts on the date indicated below.
 
 
 
Witness:_______________________
 
 
Name:____________________________________
 
Signature:_________________________________   
Date:_____________________________________

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