**Exhibit 10.3**

 

**EMPLOYMENT AGREEMENT**

 

This Agreement is made and is effective as of June 1, 2003, by andbetween Coast National Bank, a national banking association (“Coast”), andCoast Bancorp, a California corporation (“Bancorp”) and Jack C. Wauchope (“Executive”).

 

WHEREAS, Executive is currently employed by Coast in the capacity asChairman of the Board, President and Chief Executive Officer, and Executive’sbackground, expertise and efforts have contributed to the success and financialstrength of Coast; and

 

WHEREAS, Coast wishes to assure itself of the continued opportunity tobenefit from Executive’s services for the period provided in this Agreement,and Executive wishes to serve in the employ of Coast on a full-time basissolely in accordance with the terms hereof for such purposes; and

 

WHEREAS, the Board of Directors of Coast (“Board”) has determined thatthe best interests of Coast would be served by Executive’s continued employmentwith Coast under the terms of this Agreement;

 

NOW, THEREFORE, in order to effect the foregoing, the parties heretowish to enter into an employment agreement on the terms and conditions setforth below.  Accordingly, inconsideration of the premises and the respective covenants and agreements ofthe parties herein contained, and intending to be legally bound hereby, theparties hereto agree as follows:

 

1.                                       Definitions.

 

(a) “Agreement” means this employment agreement and anyamendments hereto complying with Section 15(a) hereof.

 

(b) “Board” means the Board of Directors of Coast unless thecontext otherwise requires.

 

(c) “Cause” means:

 

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(1)  Executive commits any act of embezzlement, fraud,dishonesty or breach of fiduciary duty;

 

(2)  Executive commits any act of unauthorized disclosure ofany secrets or confidential information of the Bank or induces any client,employee or customer of the Bank to break any contract with the Bank;

 

(3)  Executive engages in illegal activity which materiallyadversely affects

Coast’s reputation in the community or which evidences the lack ofExecutive’s fitness or ability to perform Executive’s duties as determined bythe Board of Directors in good faith;

 

(4)  Executive commits any act which would cause terminationof coverage under Coast’s Bankers’ Blanket Bond as to Executive (asdistinguished from termination of coverage as to Coast as a whole).

 

(d) “Change in Control” means a change of control of Coast orBancorp of a nature that would be required to be reported in response to Item 6(e)of Schedule 14A of Regulation 14A (or in response to any similar item on anysimilar schedule or form) promulgated under the Securities Exchange Act,whether or not Coast or Bancorp is then subject to such reporting requirement;provided, however, that without limitation, a Change in Control shall be deemedto have occurred if:

 

(1)                                  there is a transfer,voluntarily or by hostile takeover, by proxy contest (or similar action),operation of law, or otherwise, of control of Coast or Bancorp;

 

(2)                                  any Person is orbecomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under theSecurities Exchange Act or any successor provisions thereof), directly orindirectly, of securities of Bancorp representing 20% or more of the combinedvoting power of Bancorp’s then outstanding securities;

 

(3)                                  the individuals whowere members of the Board of Directors of Bancorp  immediately prior to a meeting of the shareholders of Bancorp,which meeting involves a contest for the election of directors, do not constitutea majority of the Board of Directors of Bancorp following such meeting orelection;

 

(4)                                  a merger orconsolidation (in which Bancorp is not the surviving entity) or sale of all orsubstantially all of the assets of Bancorp; or

 

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(5)                                  there is a change,during any period of two consecutive years, of a majority of the Board ofDirectors of Bancorp as constituted as of the beginning of such period, unlessthe election of each director who is not a director at the beginning of suchperiod was approved by a vote of at least two-thirds of the directors then inoffice who were directors at the beginning of such period.

 

(e)  “Code”  shall mean the Internal Revenue Code of 1986,as amended.

 

(f) “Control” means the possession, direct or indirect, by anyPerson or “group” (as defined in Section 13(d) of the Securities Exchange Act)of the power to direct or cause the direction of the management policies ofCoast or Bancorp, whether through ownership of voting securities, by contractor otherwise, and in any case means the ability to determine the election of amajority of the directors of Bancorp.

 

(g) “Disability” means physical or mental illness defined asExecutive being unable to fully perform the duties required under thisAgreement for a continuous period of ninety (90) days or a cumulative period ofone hundred twenty (120) days in any one calendar year.  If there should be  a dispute between Coast and Executive as to Executive’s physicalor mental disability for purposes of this Agreement, the question shall besettled by the opinion of an impartial reputable physician or psychiatristagreed upon by the parties or their representatives, or if the parties cannotagree within ten (10) days after a request for designation of such party, thenby a physician or psychiatrist designated by the Los Angeles County MedicalAssociation.  The certification of suchphysician or psychiatrist as to the question in dispute shall be final andbinding upon the parties hereto.

 

(h) “Expiration” means the termination of this Agreement(including Executive’s employment hereunder) and of any further obligations ofthe parties (except as specified in this Agreement) upon completion of theTerm.

 

(i) “Failure to Perform Duties” means Executive fails to performor habitually neglects the duties which he is required to perform hereunder.

 

(j) “Person” means an individual, a group acting in concert, acorporation, a partnership, an association, a joint stock company, a trust, anyunincorporated organization, a government or political subdivision thereof, orany other entity whatsoever.

 

(k) “Resign for Good Reason” or “Resignation for Good Reason”has the meaning found in Section 7(e).

 

(l) “Term” means the initial term of this Agreement and anyextensions hereof, as provided in Section 4, whether prior to or following aChange in Control.

 

(m) “Termination” or “Terminate(d)” means the termination ofExecutive’s employment hereunder for any of the following reasons unless thecontext indicates otherwise:

 

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(1)                                  Retirementby Executive;

 

(2)                                  Deathof Executive;

 

(3)                                  Disability;

 

(4)                                  Expiration;

 

(5)                                  Resignationfor Good Reason;

 

(6)                                  Resignationother than Resignation for Good Reason;

 

(7)                                  TerminationWithout Cause; and

 

(8)      Termination for Cause.

 

(n) “Termination Without Cause” or “Terminate(d) Without Cause”means the cessation of Executive’s employment hereunder for any reason except:

 

(1)                                  Aresignation by Executive;

 

(2)                                  Terminationfor Cause;

 

(3)                                  Retirement;

 

(4)                                  Disability;

 

(5)                                  Death;or

 

(6)                                  Expiration.

 

2.                                       At-WillEmployment.  Pursuant to theprovisions of 12 U.S.C. Section 24 (i.e., The National Bank Act) andnotwithstanding any other provision to the contrary contained herein, it isagreed by the parties hereto that the Executive’s employment by Coast hereundershall be at-will, and that Coast may at any time elect to terminate thisAgreement and Executive’s employment by Coast for any reason by action of itsBoard.

 

3.                                       Positionand Responsibilities.  The Executiveshall serve as Chairman of the Board, President and Chief Executive Officer ofCoast and, subject to the provisions of Section 5 below, shall have suchresponsibilities, duties and authority as are generally associated with suchpositions and as may from time to time be assigned to the Executive by theBoard that are consistent with such responsibilities, duties and authority.

 

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4.                                       Termof Agreement. Subject to the terms and provisions of this Agreement, thisAgreement and the period of Executive’s employment, shall be deemed to havecommenced as of June 1, 2003 and shall continue for an initial term of fiveyears thereafter until 12:00 midnight May 31, 2008, unless sooner terminated.  In the event Coast retains Executive as anemployee following the expiration of the Term, such employment, absent awritten agreement to the contrary, will be on an at-will basis with suchcompensation and upon such terms as the parties may then agree, subject totermination at any time with or without cause, and without liability.  If Coast does not retain Executive as anemployee after the Expiration of the Term, Executive’s employment shall ceasewithout further liability of the parties to each other.  Executive’s employment shall also terminate,and the Term of this Agreement will expire, upon Executive’s resignation(unless resignation is for Good Reason after a Change in Control), retirement,death or Disability, or upon Executive’s Termination for Cause.

 

5.                                       FullTime, Exclusive Employment.  Duringthe Term hereof, Executive shall devote exclusively  all of his business time, attention, skill and efforts to thefaithful performance of the business of Coast to the fullest extent necessary toproperly discharge his duties and responsibilities hereunder and consistentwith the highest and best standards of the banking industry and in compliancewith all applicable laws, regulations and rules as well as Coast’s Articles ofIncorporation and Bylaws.  Further, withthe approval of the Board, from time to time, Executive may serve, or continueto serve, on the boards of directors of, and hold any other offices orpositions in, companies or charitable, political or civic organizations, which,in such Board’s judgment, will not present any material conflict of interestwith Coast and will not unfavorably affect the performance of Executive’sduties pursuant to this Agreement.

 

6.   Compensation.

 

(a)   Salary.   For Executive’s services hereunder, Coastshall pay or cause to be paid as annual base salary (gross) to Executive atleast the sums set forth in accordance with the following schedule during theterm of this Agreement:

 

| June 1, 2003 - May 31, 2004 |   | $ | 175,000.00 | ;      |
|-----------------------------|--------|---|------------|--------|
| June 1, 2004 - May 31, 2005 |   | $ | 185,000.00 | ;      |
| June 1, 2005 - May 31, 2006 |   | $ | 185,000.00 | ;      |
| June 1, 2006 - May 31, 2007 |   | $ | 200,000.00 | ; and  |
| June 1, 2007 - May 31, 2008 |   | $ | 200,000.00 |   |

 

Said salary shall be payable in equal installments in conformity withCoast’s normal payroll practice, and shall be paid less all applicable taxes,with holdings, and deductions.

 

(b)   Bonuses.   Executive may receive an annual bonus in anamount to be determined by the Board of Directors in its sole discretion.

 

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(c)  Vacation.  Executive shall be entitled to up to five(5) weeks of vacation each year during the Term, which vacation shall be takenat such times as are agreed upon by Executive and the Board of Directors;provided, however, that during each year of the Term, Executive is required toand shall take at least two (2) weeks of said vacation (the “MandatoryVacation”), which shall be taken consecutively.  Executive shall not be entitled to vacation pay in lieu ofvacation; provided, however, that any vacation days earned but not used in anyyear may be carried over to future years, subject to any cap or limitation onvacation benefit accrual that may be contained in Coast’s Employee Policy Guide(which cap or limitation is hereby incorporated by reference).

 

(d) Automobile.  Duringthe Term of the Agreement, Coast shall make available to Executive aCoast-owned automobile.  Said automobileshould be of the same or similar type and/or cost of the automobile currentlyprovided to Executive by Coast. Further, said automobile shall, at Executive’s option, be replaced byanother comparable vehicle not less often than every three years.  Any Coast-owned automobile provided shall beprimarily used for business purposes only, with the exception of commuting toand from work, and Coast shall bear all expenses relating to such automobile,including insurance, maintenance and repair, gas and oil.  Coast shall be entitled to withhold incometaxes on the personal-use value of such automobile or the automobile allowancein accordance with applicable law or regulations.

 

(e)  Group Medical and LifeInsurance Benefits.  Coast, as itsexpense, shall provide for Executive medical, dental, accident, disability anddeath benefits equivalent to the normal and customary benefits available fromtime to time under the California Banker’s Association Group Insurance Program(or equivalent) for an employee of Executive’s salary level.  In addition, Coast, at its expense, willprovide Executive with permanent life insurance benefits of Four HundredThousand Dollars ($400,000).  Saidcoverage shall be in existence or shall take effect as of the Effective Datehereof and shall continue throughout the Term. Executive shall be the individual owner of such life insurance policy withall associated benefits.  Coast’sliability to Executive for any breach of this Subsection D.3 shall be limitedto the amount of premiums payable by Coast to obtain the coverage contemplatedherein.

 

(f)   Stock Option.  In addition to those stock options that havealready been granted to the Executive prior to the commencement of thisAgreement, during the term of this Agreement, Bancorp  may grant to Executive stock options to purchase Bancorp’s commonstock in such amount as may be determined in the sole discretion of the Boardof Directors of Bancorp and pursuant to such terms as are contained inBancorp’s Stock Option Plan or Plans as may be in effect during the term ofthis Agreement.

 

(g)  Club Membership.   During the Term of this Agreement, Coastshall provide the Executive with a membership to the San Luis Obispo Golf andCountry Club (“SLOGCC”) in San Luis Obispo, California, at no cost to theExecutive.  Coast agrees to payExecutive’s dues in SLOGCC, all further assessments by SLOGCC, and all otherexpenses reasonably and

 

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necessarily incurred by Executive in connection with the Executive’smaintenance and use of the Membership for business-related purposes during theTerm of this Agreement.

 

The Parties acknowledge and agree that although the Membership shall beheld in the Executive’s name during the Term of this Agreement, the Membershipshall remain an asset of Coast during the term of this Agreement, and theExecutive may not sell, transfer, encumber or hypothecate in any manner theMembership without Coast’s prior written authorization.  The Parties also agree that upon thecessation of the Executive’s employment with Coast under this Agreement for anyreason, including voluntary resignation or retirement, the Executive shallpurchase the Membership from Coast.  Thepurchase price to the Executive shall be $16,975.00, payable to Coast in cashno later than ninety (90) days after the Executive’s last day of activeemployment with Coast.  The Executivehereby consents to Coast’s assignment of its rights hereunder in the event thatCoast is acquired by or is merged with another financial institution.

 

The provisions of this Subsection 6(g) shall be binding on and inure tothe benefit of each Parties’ successors and heirs, and shall survive theexpiration of this Agreement and the termination of the Executive’s employmentwith Coast.

 

(h)  Employee Benefits andPerks.  In addition to theforegoing, during the period of the Executive’s employment hereunder, theExecutive shall be entitled to participate in all employee benefits plans orarrangements of Coast not otherwise provided for in this Agreement on the samebasis as other employees of Coast including, without limitation, plans orarrangements providing use of Coast provided credit card(s), car telephone(s),pager(s) and such other perks (if such is (are) being so provided) upon theterms and conditions previously in effect.

 

(i)  Expenses.   During the period of the Executive’semployment hereunder, the Executive shall be entitled to receive promptreimbursement for all reasonable and customary expenses incurred by theExecutive in performing services hereunder in accordance with the generalpolicies and procedures established by Coast.

 

7.  Termination.

 

(a)  Resignation, Retirement,Death or Disability.  Executive’semployment hereunder shall cease at any time by Executive’s resignation (otherthan a resignation for Good Reason as provided in Section 7(e)), or byExecutive’s retirement, death or Disability. Disability shall be deemed to have occurred only after following theprocedure contained in Section 1(g) above.

 

(b)  Termination for Cause.  Executive’s employment shall cease upon agood faith finding of Cause by the Board; provided, however, that Executiveshall be given written notice of the Board’s finding of conduct by Executiveamounting to Cause for such termination. Said notice shall be accompanied by a copy of a resolution duly adoptedby the affirmative vote

 

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of not less than a majority of a quorum of the Board at a duly-noticedmeeting of the Board, finding that in the good faith opinion of the Board,Executive was guilty of conduct amounting to Cause and specifying the particularsthereof; provided, however, that after a Change in Control, such resolution maybe adopted only by the affirmative vote of not less than a majority of acommittee composed of at least three (3) disinterested outside directors ofCoast.  In the absence of at least three(3) disinterested outside directors, a determination of Cause shall besubmitted to and made by an arbitrator(s) pursuant to Section 13 hereof.

 

(c)  Termination for Failureto Perform Duties.  Upon the goodfaith determination by the Board that Executive’s conduct amounts to a Failureto Perform Duties, the Board shall give Executive written notice of suchfinding.  Executive shall then havethirty (30) days in which to modify his job performance and cease the behaviorsleading to the Board’s determination of his Failure to Perform Duties.  Upon the expiration of said thirty (30) dayperiod, the Board shall review Executive’s job performance during that thirty(30) day period, and determine whether Executive’s conduct still amounts to a Failureto Perform Duties.  Executive’semployment shall cease upon a good faith finding of a Failure to Perform Dutiesby the Board at the end of the thirty (30) day period; provided, however, thatExecutive shall be given written notice of the Board’s finding of conduct byExecutive amounting to a Failure to Perform Duties.  Said notice shall be accompanied by a copy of a resolution dulyadopted by the affirmative vote of not less than a majority of a quorum of the Boardat a duly-noticed meeting of the Board, finding that in the good faith opinionof the Board, Executive was guilty of conduct amounting to a Failure to PerformDuties and specifying the particulars thereof; provided, however, that after aChange in Control, such resolution may be adopted only by the affirmative voteof not less than a majority of a committee composed of at least three (3)disinterested outside directors of Coast. In the absence of at least three (3) disinterested outside directors, a determinationof a Failure to Perform Duties shall be submitted to and made by anarbitrator(s) pursuant to Section 13 hereof. A termination of Executive pursuant to this subparagraph 7(c) shall bedeemed to be a, “Termination for Cause.”

 

(d)  Termination WithoutCause.  Executive’s employment maybe terminated immediately Without Cause upon written notice for any reason,subject to the payment of all amounts including severance benefits required bySection 8 hereof.  Any termination shallbe effective immediately unless another time period is specified herein uponCoast’s giving of notice to Executive, and all liability or obligation by Coasthereunder to Executive (except for severance benefits, as may be providedbelow) shall thereupon cease.  Such terminationshall not prejudice any remedy which Coast may have at law, in equity, or underthis Agreement.

 

(e)  Expiration.  Executive’s employment shall cease, or shallcontinue on an at-will basis as provided in Section 4 hereof, upon theexpiration of the Term of this Agreement as provided in Section 4 hereof.

 

(f)  Resignation for GoodReason.  Following a Change inControl during the Term hereof, Executive may, under the followingcircumstances, regard Executive’s employment

 

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as being constructively terminated by Coast (and in such caseExecutive’s employment shall terminate) and may, therefore, Resign for GoodReason within 90 days of Executive’s discovery of the occurrence of one or moreof the following events, any of which shall constitute “Good Reason” for suchResignation for Good Reason:

 

(1)                                  WithoutExecutive’s express written consent, the assignment to Executive of any dutiesmaterially inconsistent with Executive’s position, duties, responsibilities andstatus with Coast immediately prior to the Change in Control, or any subsequentremoval of Executive from or any failure to re-elect him to any such position;

 

(2)                                  WithoutExecutive’s express written consent, the termination and/or material reductionin Executive’s facilities (including office space and general location) andstaff reporting and available to Executive immediately prior to the Change inControl;

 

(3)                                  Areduction by Coast of Executive’s base salary or of any bonus compensationapplicable to him as in effect immediately prior to the Change in Control;

 

(4)                                  Afailure by Coast to maintain any of the employee benefits and perks to whichExecutive was entitled immediately prior to the Change in Control at a levelsubstantially equal to or greater than the value of those employee benefits andperks in effect immediately prior to the Change in Control; or the taking ofany action by Coast which would materially affect Executive’s participation inor reduce Executive’s benefits under any such benefits’ or perks’ plans,programs or policies, or deprive Executive of any material fringe benefitsenjoyed by him immediately prior to the Change in Control;

 

(5)                                  Coastrequiring Executive to be based at an office that is greater than 25 miles fromwhere Executive’s office is located immediately prior to the Change in Control,except for required travel on Coast’s behalf to an extent substantiallyconsistent with Executive’s present business travel obligations;

 

(6)                                  Anypurported Termination of Executive’s employment by Coast other than those effectedin good faith pursuant to Sections 7(a), 7(b) and 7(c) of this Agreement; or

 

(7)                                  Thefailure of Coast to obtain the assumption of this Agreement by any successor.

 

(g)  Supervisory Suspension.  If the Executive is suspended and/ortemporarily prohibited from participating in the conduct of Coast’s affairs bya notice served under

 

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Sections 8(e) or (g) of the Federal Deposit Insurance Act or similarstatute, rule or regulation, Coast’s obligations under this Agreement shall besuspended as of the date of service, unless stayed by appropriateproceedings.  If the charges in thenotice are dismissed, Coast shall, (i) pay the Executive all or part of thecompensation withheld while its obligations under this Agreement were suspendedand (ii) reinstate (in whole or in part) any of its obligations which weresuspended.

 

(h)  Regulatory Removal.  If the Executive is removed and/orpermanently prohibited from participating in the conduct of Coast’s affairs byan order issued under Sections 8(e) or (g) of the Federal Deposit Insurance Actor similar statute, rule or regulation, all obligations of Coast under thisAgreement shall terminate as of the effective date of the order.

 

8.  Payments to ExecutiveUpon Termination.

 

(a)  Death, Disability orRetirement.  In the event ofTermination of this Agreement due to Executive’s death, Disability orretirement, Executive or Executive’s spouse and/or estate shall be entitled toNO benefits from Coast and Coast shall have no further liability or obligationto Executive, including any obligation to provide severance benefits pursuantto this Section 8 below.

 

(b)  Resignation Without GoodReason or Expiration.  In the eventof Executive’s resignation (other than a Resignation for Good Reason), or uponExpiration, Coast shall have no further obligations to Executive under thisAgreement or otherwise, except as may be expressly required by law.

 

(c)  Termination for Cause.  In the event Executive is Terminated forCause, Coast shall have no further obligations to Executive under thisAgreement or otherwise, except as may be expressly required by law.

 

(d)  Termination WithoutCause Prior to a Change in Control. Upon the occurrence of a Termination Without Cause prior to a Change inControl, as damages for breach of this Agreement, Coast shall as severancebenefits to Executive provide the following: (a) severance pay in a sumequivalent to Executive’s then existing base salary for a period of twelve (12)months next following Executive’s termination (in lieu of any paymentsotherwise due for the balance of the Term), which payment shall be payable to Executive in one lump sumpayment on the effective date of termination of Executive’s employmenthereunder; and (b) continuation of insurance benefits provided to Executivehereunder for a period not to exceed sixty (60) days after termination.  The parties agree that the provision of suchseverance benefits shall constitute full and complete performance by Coast ofits obligations hereunder.

 

(e)  Termination WithoutCause or Resignation for Good Reason, After a Change in Control.  If in the twenty-four (24) month periodfollowing a Change in Control, Executive (i) Resigns for Good Reason or (ii) isotherwise Terminated Without Cause, Coast shall pay to

 

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Executive a lump sum payment equal to twenty four (24) months basesalary then in effect.  Such lump sumshall be paid not later than the tenth (10th) day following the date ofTermination Without Cause or a Resignation for Good Reason.

 

(f)  Source of Payments.  All payments provided in Section 8 shall bepaid in cash from the general funds of Coast, and no special or separate fundneed be established and no other segregation of assets need be made to assurepayment.

 

(g)  Consistent Returns.  Coast and Executive agree that the paymentsbeing made under this Agreement represent reasonable compensation for servicesand that neither Coast nor Executive will file any returns or reports whichtake a contrary position.

 

(h)  Reduction of Payment.  Notwithstanding anything in the foregoing tothe contrary, if the payments made to Executive following a Termination WithoutCause or Resignation For Good Reason or any of the other payments provided forin this Agreement, together with any other payments which Executive has theright to receive from Coast would constitute a “parachute payment” (as definedin Section 280G of the Code), the payments pursuant to this Agreement shall bereduced to the largest amount as will result in no portion of such paymentsbeing subject to the excise tax imposed by Section 4999 of the Code; provided,however, that the determination as to whether any reduction in the paymentsunder this Agreement pursuant to this proviso is necessary shall be made ingood faith by Coast’s independent auditors or if such firm is no longerproviding tax services to Bank to such other tax advisor as shall be mutuallyacceptable to Bank and Executive, and such determination shall be conclusiveand binding on Coast and Executive with respect to the treatment of the paymentfor tax reporting purposes.

 

(i)  Sole Remedy.  The receipt of the amounts described in thisSection 8, and attorneys’ fees  as setforth in Section 13 in the event of breach, if any, shall constituteExecutive’s sole remedy under this Agreement against Coast and its officers,directors, employees and agents.

 

9.  Confidentiality and TradeSecrets.

 

(a)  Trade Secrets.  During the Term, Executive will have accessto and become acquainted with what Executive and Bank acknowledge are tradesecrets, to wit, knowledge or data concerning Bank, including its operationsand business, and the identity of customers of Bank, including knowledge oftheir financial condition, their financial needs, as well as their methods ofdoing business.  Executive shall notdisclose any of the aforesaid trade secrets, directly or indirectly, or usethem in any way, either during the Term or for a period of twenty four (24)months after the termination of the Term of this Agreement, except as requiredin the course of Executive’s employment with Bank.

 

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(b)  Return of Documents.  Executive expressly agrees that all manuals,documents, files, reports, studies, instruments, software, computer programs orsimilarly generated electronic materials or other materials used and/ordeveloped by Executive during the Term are solely the property of Bank, andthat Executive has no right, title or interest therein.  Upon termination of the Term of thisAgreement, Executive or Executive’s representative shall promptly deliverpossession of all of said property to Bank in good condition.

 

(c)  Unauthorized Disclosure.  During the period of his employment hereunderand for a period of two years following the cessation of such employment(irrespective of the reason therefor), Executive shall not, except as requiredby any court, supervisory authority or administrative agency, without thewritten consent of the Board or a person authorized thereby, disclose to anyperson, other than an employee of Coast or a person to whom disclosure isreasonably necessary or appropriate in connection with the performance by theExecutive of his duties as an employee of Coast, any confidential informationobtained by him while in the employ of Coast; provided, however, thatconfidential information shall not include any information known generally tothe public (other than as a result of an unauthorized disclosure by the Executive).

 

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10. Business Protection Covenants.

 

(a)  Agreement Not to Compete.  Executive agrees that in the event he isterminated without cause and receives the payment required by Section 8(d),unless otherwise approved in writing by Coast, for a period of twelve (12)months from the date of his cessation of employment by Coast, Executive shallnot directly or indirectly enter into or in any manner take part in anybusiness, profession or endeavor which shall be competitive with the businessof Coast in San Luis Obispo County as an employee, officer, agent, independentcontractor, 10% or more owner of an entity, director or other businessrepresentative; in addition, Executive agrees that for the twelve (12) monthsperiod described herein, Executive shall not solicit any customer with whomCoast has done business during the preceding twelve (12) months.

 

(b)  Inducing Employees To Leave the Bank; Employment ofEmployees.  Any attempt on the partof the Executive to induce others to leave the Bank’s employ, or the employ ofany of its subsidiaries or affiliates, or any effort by the Executive tointerfere with the Bank’s relationship with its other employees would beharmful and damaging to the Bank.  TheExecutive agrees that during the Term of employment and for a period of twelve(12) months thereafter, the Executive will not in any way, directly orindirectly (i) induce or attempt to induce any employee of the Bank or any ofits subsidiaries of affiliates to quit employment with the Bank or the relevantsubsidiary or affiliate; (ii) otherwise interfere with or disrupt therelationships between the Bank and its subsidiaries and affiliates and theirrespective employees; (iii) solicit, entice, or hire away any employee of theBank or any of its subsidiaries or affiliates; or (iv) hire or engage anyemployee of the Bank or any subsidiary or affiliate or any former employee ofthe Bank or any subsidiary or affiliate whose employment ceased less than one(1) year before the date of such hiring or engagement.

 

(c)  Nonsolicitation of Business.  The Executive agrees that, in the event heis terminated without Cause and receives the payment required by Paragraph 8(d)for a period of twelve (12) months form the date of termination of employment,the Executive will not divert or attempt to divert from the Bank or any of itssubsidiaries or affiliates, any business the Bank or a subsidiary or affiliatehad enjoyed or solicited from its customers, borrowers, depositors or investorsduring the twelve (12) months prior to termination of his employment.

 

(d)  Equitable Relief.  The Executive acknowledges and agrees that irreparable injurywill result to the Bank in the event of a breach of any of the provisions ofthis Section 10 and that the Bank will have no adequate remedy at law withrespect thereto.  Accordingly, in theevent of a material breach of any part of this Section 10, and in addition toany other legal or equitable remedy the Bank or its subsidiaries or affiliatesmay have, the Bank and any relevant subsidiary or affiliate shall be entitledto the entry of a preliminary and permanent injunction (including, withoutlimitation, specific performance) by a court of competent jurisdiction in SanLuis Obispo County, California, or elsewhere, to restrain the violation orbreach thereof by the Executive or any affiliates, agents, or any other personsacting for or with the Executive in any capacity whatsoever, and the Executivesubmits to the jurisdiction of such court in any such action.

 

(e)  Severability. It is the desire and intent of the parties that each of the provisionsof Section 10 shall be enforced to the fullest extent permissible under thelaws and public policies applied in each jurisdiction in which enforcement issought.  Accordingly, if any particularprovision in the provisions of Section 10 shall be adjudicated or found to beinvalid or

 

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unenforceable, such provisions shall be deemed amended to delete therefromthe portion thus adjudicated or found to be invalid or unenforceable, suchdeletion to apply only with respect to the operation of such provision in theparticular jurisdiction in which such adjudication or fining is made.  In addition, should any court or arbitratordetermine that any of the provisions of Section 10 shall be unenforceable withrespect to scope, duration, or geographic area, such court or arbitrator shallbe empowered to substitute, to the extent enforceable, provisions similar heretoor other provisions so as to provide to the Bank, to the fullest extentpermitted by applicable law, the benefits intended by the particular paragraphat issue.

 

(f)  Resignations. The Executive agrees that upon termination of employment, for whateverreason, he will submit his resignations from all offices and directorships withthe Bank, Bancorp and all subsidiaries of it.

 

11.  Waivers.  Any waiver by a party of any breach of thisAgreement by the other party shall not be construed as a continuing waiver oras a consent to any subsequent breach by the other party.

 

12.  Notices.  All notices, requests, demands and othercommunications hereunder shall be in writing and shall be deemed to have beenduly given if delivered by hand or mailed, certified or registered mail, returnreceipt requested, with postage prepaid, to the following addresses or to suchother address as either party may designate by like notice.

 

If to the Bancorp, to:

 

Coast Bancorp

500 Marsh Street

San Luis Obispo, California 93401

Attn: President

Facsimile: (805) 541-5758

 

If to Coast, to:

Coast National Bank

500 Marsh Street

San Luis Obispo, California 93401

Attn: President

Facsimile: (805) 541-5758

 

with a copy to:

 

Barnet Reitner, Esq.

REITNER & STUART

1319 Marsh Street

San Luis Obispo, California 93401

Facsimile: (805) 545-8599

 

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If to Executive, to:

 

Jack C. Wauchope

c/o Coast National Bank

500 Marsh Street

San Luis Obispo, California 93401

 

and to such other or additional person or persons as either party shallhave designated to the other party in writing by like notice.

 

13.  Arbitration.  Any dispute or controversy arising or inconnection with this Agreement shall, upon written request of one party to theother, be submitted to and settled exclusively by arbitration in the State ofCalifornia and be governed by the California Arbitration Act as set forth inthe California Code of Civil Procedure.  Judgment may be entered on the arbitrator’s award in any court ofcompetent jurisdiction.  To the extentallowable by law, the cost of such arbitration, including reasonable attorney’sfees, shall be borne by the losing party or in such proportions as thearbitrator(s) shall decide.  Arbitrationshall be the exclusive remedy of Executive and the Company and the award of thearbitrator(s) shall be final and binding upon the parties.  All reasonable costs, including reasonableattorney’s fees, incurred in enforcing an arbitration award in court, or ofseeking a court order to compel arbitration, shall be borne by the losing partyin such proceedings.

 

14.   Indemnification.   The Company will indemnify Executive to thefullest extent permitted by the laws of the state of California and to theextent not inconsistent with the foregoing, the Articles of Incorporation andBylaws of the Company as in effect on the date of the Change in Control of theCompany, in respect of all Executive’s services rendered to the Company and itssubsidiaries prior to the Date of Termination. Executive shall be entitled to the protection of any insurance policiesthe Company now or hereafter maintains generally for the benefit of itsdirectors, officers and employees (but only to the extent of the coverageafforded by the existing provisions of such policies) to protect against allcosts, charges and expenses whatsoever incurred or sustained by Executive inconnection with any action, suit or proceeding to which Executive may be made aparty by reason of his being or having been a director, officer or employee ofthe Company or any of its subsidiaries during his employment therewith.

 

15.   General Provisions.

 

(a) Entire Agreement. This Agreement constitutes the entire agreement by the parties withrespect to the subject matter hereof, and supersedes and replaces all prioragreements among or between the parties, unless otherwise provided herein.  No amendment, waiver or termination of anyof the provisions hereof shall be effective unless in writing and signed by theparty against whom it is sought to be enforced.  Any written amendment, waiver, or termination hereof executed byCoast and Executive shall be binding upon them and upon all other Persons,without the necessity of securing the consent of any other Person, and noPerson shall be deemed to be a third-party beneficiary under this Agreement.

 

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(b) Counterparts.  ThisAgreement may be executed in one or more counterparts, each of which shall bedeemed an original, but all of which taken together shall constitute one andthe same Agreement.

 

(c) No Waiver.  Except asotherwise expressly set forth herein, no failure on the part of any partyhereto to exercise and no delay in exercising any right, power or remedyhereunder shall operate as a waiver thereof; nor shall any single or partialexercise of any right, power or remedy hereunder preclude any other or furtherexercise thereof or the exercise of any other right, power or remedy.

 

(d) Headings.  Theheadings of the Sections of this Agreement have been inserted for convenienceof reference only and shall in no way restrict or modify any of the terms orprovisions hereof.

 

(e) Severability.  If forany reason any provision of this Agreement is held invalid or unenforceable,such invalidity or unenforceability shall not affect the validity orenforceability of any other provision of this Agreement.  If any provision of this Agreement shall beheld invalid or unenforceable in part, such invalidity or unenforceability shallin no way effect the rest of such provision not held so invalid, and the restof such provision, together with all other provisions of this Agreement, shallto the full extent consistent with law continue in full force and effect.

 

(f) Governing Law.  ThisAgreement shall be governed and construed and the legal relationships of theparties determined in accordance with the laws the United States and to theextent not inconsistent therewith the laws of the State of Californiaapplicable to contracts executed and to be performed solely in the State ofCalifornia.

 

(g) Assumption.  Coastshall require any successor in interest (whether direct or indirect or as aresult of purchase, merger, consolidation, Change in Control or otherwise) toall or substantially all of the business and/or assets of Coast to expresslyassume and agree to perform the obligations under this Agreement in the samemanner and to the same extent that Coast would be required to perform it if nosuch succession had taken place.

 

(h) Advice of Counsel. Executive acknowledges that Coast has been represented by Reitner &Stuart in connection with the preparation of the Agreement and that he has beenencouraged to consult with other legal counsel of his choosing concerning theterms of this Agreement prior to executing this Agreement.  Any failure by Executive to consult withcompetent counsel prior to executing this Agreement shall not be a basis forrescinding or otherwise avoiding the binding effect of this Agreement.  The parties acknowledge that they areentering into this Agreement freely and voluntarily, with full understanding ofthe terms of this Agreement. Interpretation of the terms and provisions of this Agreement shall notbe construed for or against either party on the basis of the identity of theparty who drafted the terms or provisions in question.

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement asof the day and year first above written.

 

 
| ATTEST: | COAST NATIONAL BANK |
|---------|---------------------|
|    |                |
|    |                |
|    |                | By: |   |   |
|    |                | Its: |   |   |
|    |                | print name: |   |   |
|    |                |   |   |   |
|    |                |   |   |   |
| ATTEST: |                | COAST BANCORP |   |
|    |                |   |   |   |
|    |                |   |   |   |
|    |                | By: |   |   |
|    |                | Its: |   |   |
|    |                | print name: |   |   |
|    |                |   |   |   |
|    |                |   |   |   |
|    |                | THE EXECUTIVE |   |
|    |                |   |   |   |
|    |                |   |   |
| Witness |                |   |
|         |                     |  |  |  |  |  |  |  |

 

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