**Exhibit 10.4**

 

**EMPLOYMENTAGREEMENT**

 

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 Davina A. Palazzo (“Executive”).

 

WHEREAS, Executive is currently employed by Coast in the capacity asExecutive Vice President and Manager of the Small Business Lending Center, andExecutive’s background, expertise and efforts have contributed to the successand financial strength 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, in consideration of the premises and the respectivecovenants and agreements of the parties herein contained, and intending to belegally bound hereby, the parties hereto agree as follows:

 

1.             Definitions.

 

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

 

(b) “Board” means the Board of Directors of Coastunless the context otherwise requires.

 

(c) “Cause” means:

 

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

 

(2) Executive commits any act of unauthorized disclosure ofany secrets

 

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or confidential information of the Bank or induces any client, employeeor customer of the Bank to break any contract with the Bank;

 

(3) Executive engages in illegal activitywhich materially adversely affects Coast’s reputation in the community or whichevidences the lack of Executive’s fitness or ability to perform Executive’sduties as determined by the Board of Directors in good faith;

 

(4) Executive commits any act which wouldcause termination of coverage under Coast’s Bankers’ Blanket Bond as to Executive(as distinguished 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 Item6(e) of Schedule 14A of Regulation 14A (or in response to any similar item onany similar 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)           thereis a transfer, voluntarily or by hostile takeover, by proxy contest (or similaraction), operation of law, or otherwise, of control of Coast or Bancorp;

 

(2)           anyPerson is or becomes the “beneficial owner” (as defined in Rules 13d-3 and13d-5 under the Securities Exchange Act or any successor provisions thereof),directly or indirectly, of securities of Bancorp representing 20% or more ofthe combined voting power of Bancorp’s then outstanding securities;

 

(3)           theindividuals who were members of the Board of Directors of Bancorp immediatelyprior to a meeting of the shareholders of Bancorp, which meeting involves acontest for the election of directors, do not constitute a majority of theBoard of Directors of Bancorp following such meeting or election;

 

(4)           amerger or consolidation (in which Bancorp is not the surviving entity) or saleof all or substantially all of the assets of Bancorp; or

 

(5)           thereis a change, during any period of two consecutive years, of a majority of theBoard of Directors of Bancorp as constituted as of the beginning

 

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of such period, unless the election of each director who is not adirector at the beginning of such period was approved by a vote of at leasttwo-thirds of the directors then in office who were directors at the beginningof 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 adispute between Coast and Executive as to Executive’s physical or mentaldisability for purposes of this Agreement, the question shall be settled by theopinion of an impartial reputable physician or psychiatrist agreed upon by theparties or their representatives, or if the parties cannot agree within ten(10) days after a request for designation of such party, then by a physician orpsychiatrist designated by the Los Angeles County Medical Association. Thecertification of such physician or psychiatrist as to the question in disputeshall be final and binding 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 she 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)           Terminationfor 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-Will Employment.Pursuant to the provisions of 12 U.S.C. Section 24 (i.e., The National BankAct) and notwithstanding any other provision to the contrary contained herein,it is agreed by the parties hereto that the Executive’s employment by Coasthereunder shall be at-will, and that Coast may at any time elect to terminatethis Agreement and Executive’s employment by Coast for any reason by action ofits Board.

 

3.             Position andResponsibilities. The Executive shall serve as Executive Vice President andManager of the Small Business Lending Center of Coast and, subject to theprovisions of Section 5 below, shall have such responsibilities, duties andauthority as are generally associated with such positions and as may from timeto time be assigned to the Executive by the Board that are consistent with suchresponsibilities, duties and authority.

 

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4.             Term of Agreement.Subject to the terms and provisions of this Agreement, this Agreement and theperiod of Executive’s employment, shall be deemed to have commenced as of June1, 2003 and shall continue for an initial term of five years thereafter until12:00 midnight May 31, 2008, unless sooner terminated. In the event Coast retainsExecutive as an employee following the expiration of the Term, such employment,absent a written agreement to the contrary, will be on an at-will basis withsuch compensation and upon such terms as the parties may then agree, subject totermination at any time with or without cause, and without liability. If Coastdoes not retain Executive as an employee after the Expiration of the Term,Executive’s employment shall cease without further liability of the parties toeach other. Executive’s employment shall also terminate, and the Term of thisAgreement will expire, upon Executive’s resignation (unless resignation is forGood Reason after a Change in Control), retirement, death or Disability, orupon Executive’s Termination for Cause.

 

5.             Full Time, ExclusiveEmployment. During the Term hereof, Executive shall devote exclusively allof her business time, attention, skill and efforts to the faithful performanceof the business of Coast to the fullest extent necessary to properly dischargeher duties and responsibilities hereunder and consistent with the highest andbest standards of the banking industry and in compliance with all applicablelaws, regulations and rules as well as Coast’s Articles of Incorporation andBylaws. Further, with the approval of the Board, from time to time, Executivemay serve, or continue to serve, on the boards of directors of, and hold anyother offices or positions in, companies or charitable, political or civicorganizations, which, in such Board’s judgment, will not present any materialconflict of interest with Coast and will not unfavorably affect the performanceof Executive’s duties pursuant to this Agreement.

 

6.             Compensation.

 

(a)   Salary.   For Executive’sservices hereunder, Coast shall pay or cause to be paid as annual base salary(gross) to Executive at least the sums set forth in accordance with thefollowing schedule during the term of this Agreement: 

 
| June 1, 2003 - May 31, 2004 |   | $115,000.00;     |
|-----------------------------|--------|------------------|
| June 1, 2004 - May 31, 2005 |   | $125,000.00;     |
| June 1, 2005 - May 31, 2006 |   | $125,000.00;     |
| June 1, 2006 - May 31, 2007 |   | $140,000.00; and |
| June 1, 2007 - May 31, 2008 |   | $140,000.00      |

 

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 mayreceive an annual bonus in an amount to be determined by the Board of Directorsin its sole discretion.

 

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(c) Vacation. Executive shall be entitled to up to four (4)weeks of vacation each year during the Term, which vacation shall be taken atsuch 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 “Mandatory Vacation”),which shall be taken consecutively. Executive shall not be entitled to vacationpay in lieu of vacation; provided, however, that any vacation days earned butnot used in any year may be carried over to future years, subject to any cap orlimitation on vacation benefit accrual that may be contained in Coast’sEmployee Policy Guide (which cap or limitation is hereby incorporated byreference).

 

(d) Automobile. Commencing on the Effective Date and during theentire Term hereunder, the Bank shall pay to Executive, as an automobileallowance, the sum of Four Hundred Dollars ($400) per month.

 

(e) Group Medical and Life Insurance 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.

 

(f)  Stock Option. In addition to those stock optionsthat have already been granted to the Executive prior to the commencement ofthis Agreement, during the term of this Agreement, Bancorp may grant toExecutive stock options to purchase Bancorp’s common stock in such amount asmay be determined in the sole discretion of the Board of Directors of Bancorpand pursuant to such terms as are contained in Bancorp’s Stock Option Plan orPlans as may be in effect during the term of this 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 pay Executive’s dues in SLOGCC, all furtherassessments by SLOGCC, and all other expenses reasonably and necessarilyincurred by Executive in connection with the Executive’s maintenance and use ofthe Membership for business-related purposes during the Term 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 agreethat upon the cessation of the Executive’s employment with Coast under thisAgreement for any reason, including voluntary resignation or retirement, theExecutive shall purchase the Membership from Coast. The purchase price to theExecutive shall be equal to the 

 

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purchase price of the Membership, payable to Coast in cash no laterthan ninety (90) days after the Executive’s last day of active employment withCoast. The Executive hereby consents to Coast’s assignment of its rightshereunder in the event that Coast is acquired by or is merged with anotherfinancial 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 and Perks. In addition to the foregoing,during the period of the Executive’s employment hereunder, the Executive shallbe entitled to participate in all employee benefits plans or arrangements ofCoast not otherwise provided for in this Agreement on the same basis as otheremployees of Coast including, without limitation, plans or arrangementsproviding use of Coast provided credit card(s), car telephone(s), pager(s) andsuch other perks (if such is (are) being so provided) upon the terms andconditions 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 haveoccurred only after following the procedure contained in Section 1(g) above.

 

(b) Termination for Cause. Executive’s employment shall ceaseupon a good faith finding of Cause by the Board; provided, however, thatExecutive shall be given written notice of the Board’s finding of conduct byExecutive amounting to Cause for such termination. Said notice shall beaccompanied by a copy of a resolution duly adopted by the affirmative vote ofnot less than a majority of a quorum of the Board at a duly-noticed meeting ofthe Board, finding that in the good faith opinion of the Board, Executive wasguilty of conduct amounting to Cause and specifying the particulars thereof;provided, however, that after a Change in Control, such resolution may beadopted only by the affirmative vote of not less than a majority of a committeecomposed of at least three (3) disinterested outside directors of Coast. In theabsence of at least three (3) disinterested outside directors, a determinationof Cause shall be submitted to and made by an arbitrator(s) pursuant to Section13 hereof.

 

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(c) Termination for Failure to 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 have thirty (30) days in which to modify her jobperformance and cease the behaviors leading to the Board’s determination of herFailure to Perform Duties. Upon the expiration of said thirty (30) day period,the Board shall review Executive’s job performance during that thirty (30) dayperiod, and determine whether Executive’s conduct still amounts to a Failure toPerform Duties. Executive’s employment shall cease upon a good faith finding ofa Failure to Perform Duties by the Board at the end of the thirty (30) dayperiod; provided, however, that Executive shall be given written notice of theBoard’s finding of conduct by Executive amounting to a Failure to PerformDuties. Said notice shall be accompanied by a copy of a resolution duly adoptedby the affirmative vote of not less than a majority of a quorum of the Board ata duly-noticed meeting of the Board, finding that in the good faith opinion ofthe 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 determination of a Failure to Perform Dutiesshall be submitted to and made by an arbitrator(s) pursuant to Section 13hereof. A termination of Executive pursuant to this subparagraph 7(c) shall bedeemed to be a, “Termination for Cause.”

 

(d) Termination Without Cause. Executive’s employment may beterminated 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 shall be effective immediately unless anothertime period is specified herein upon Coast’s giving of notice to Executive, andall liability or obligation by Coast hereunder to Executive (except for severancebenefits, as may be provided below) 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 Good Reason. Following a Change in Controlduring the Term hereof, Executive may, under the following circumstances,regard Executive’s employment as being constructively terminated by Coast (andin such case Executive’s employment shall terminate) and may, therefore, Resignfor Good Reason within 90 days of Executive’s discovery of the occurrence ofone or more of the following events, any of which shall constitute “Good Reason”for such Resignation for Good Reason:

 

(1) Without Executive’s express writtenconsent, the assignment to Executive of any duties materially inconsistent withExecutive’s position, duties,

 

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responsibilities and status with Coast immediately prior to the Changein Control, or any subsequent removal of Executive from or any failure tore-elect her to any such position;

 

(2) Without Executive’s express writtenconsent, the termination and/or material reduction in Executive’s facilities(including office space and general location) and staff reporting and availableto Executive immediately prior to the Change in Control;

 

(3) A reduction by Coast of Executive’s basesalary or of any bonus compensation applicable to her as in effect immediatelyprior to the Change in Control;

 

(4) A failure by Coast to maintain any of theemployee benefits and perks to which Executive was entitled immediately priorto the Change in Control at a level substantially equal to or greater than thevalue of those employee benefits and perks in effect immediately prior to theChange in Control; or the taking of any action by Coast which would materiallyaffect Executive’s participation in or reduce Executive’s benefits under anysuch benefits’ or perks’ plans, programs or policies, or deprive Executive ofany material fringe benefits enjoyed by her immediately prior to the Change inControl;

 

(5) Coast requiring Executive to be based atan office that is greater than 25 miles from where Executive’s office islocated immediately prior to the Change in Control, except for required travelon Coast’s behalf to an extent substantially consistent with Executive’spresent business travel obligations;

 

(6) Any purported Termination of Executive’semployment by Coast other than those effected in good faith pursuant toSections 7(a), 7(b) and 7(c) of this Agreement; or

 

(7) The failure of Coast to obtain theassumption 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 Sections 8(e) or (g) of the Federal Deposit Insurance Actor similar statute, rule or regulation, Coast’s obligations under thisAgreement shall be suspended as of the date of service, unless stayed byappropriate proceedings. If the charges in the notice are dismissed, Coastshall, (i) pay the Executive all or part of the compensation withheld while itsobligations under this Agreement were suspended and (ii) reinstate (in whole orin part) any of its obligations which were suspended.

 

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(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 Executive Upon Termination.

 

(a) Death, Disability or Retirement. 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 Good Reason 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 Terminatedfor Cause, Coast shall have no further obligations to Executive under thisAgreement or otherwise, except as may be expressly required by law.

 

(d) Termination Without Cause Prior to a Change in Control. Uponthe occurrence of a Termination Without Cause prior to a Change in Control, asdamages for breach of this Agreement, Coast shall as severance benefits toExecutive provide the following: (a) severance pay in a sum equivalent toExecutive’s then existing base salary for a period of twelve (12) months nextfollowing Executive’s termination (in lieu of any payments otherwise due forthe balance of the Term), which payment shall be payable to Executive in onelump sum payment 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. Theparties agree that the provision of such severance benefits shall constitutefull and complete performance by Coast of its obligations hereunder.

 

(e) Termination Without Cause or Resignation for Good Reason, Aftera Change in Control. If in the twenty-four (24) month period following aChange in Control, Executive (i) Resigns for Good Reason or (ii) is otherwiseTerminated Without Cause, Coast shall pay to Executive a lump sum payment equalto twelve (12) months base salary then in effect. Such lump sum shall be paidnot later than the tenth (10th) day following the date of Termination Without Causeor a Resignation for Good Reason.

 

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(f) Source of Payments. All payments provided in Section 8 shallbe paid in cash from the general funds of Coast, and no special or separatefund need be established and no other segregation of assets need be made toassure payment.

 

(g) Consistent Returns. Coast and Executive agree that thepayments being made under this Agreement represent reasonable compensation forservices and that neither Coast nor Executive will file any returns or reportswhich take a contrary position.

 

(h) Reduction of Payment. Notwithstanding anything in theforegoing to the contrary, if the payments made to Executive following aTermination Without Cause or Resignation For Good Reason or any of the otherpayments provided for in this Agreement, together with any other payments whichExecutive has the right to receive from Coast would constitute a “parachutepayment” (as defined in Section 280G of the Code), the payments pursuant to thisAgreement shall be reduced to the largest amount as will result in no portionof such payments being subject to the excise tax imposed by Section 4999 of theCode; provided, however, that the determination as to whether any reduction inthe payments under this Agreement pursuant to this proviso is necessary shallbe made in good faith by Coast’s independent auditors or if such firm is nolonger providing tax services to Bank to such other tax advisor as shall bemutually acceptable to Bank and Executive, and such determination shall beconclusive and binding on Coast and Executive with respect to the treatment ofthe payment for tax reporting purposes.

 

(i) Sole Remedy. The receipt of the amounts described in thisSection 8, and attorneys’ fees as set forth in Section 13 in the event ofbreach, if any, shall constitute Executive’s sole remedy under this Agreementagainst Coast and its officers, directors, employees and agents.

 

9. Confidentiality and Trade Secrets.

 

(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 not disclose any of the aforesaid tradesecrets, directly or indirectly, or use them in any way, either during the Termor for a period of twenty four (24) months after the termination of thisAgreement, except as required in the course of Executive’s employment withBank.

 

(b) Return of Documents. Executive expressly agrees that allmanuals, documents, files, reports, studies, instruments, software, computerprograms or similarly generated electronic materials or other materials usedand/or developed by Executive during the

 

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Term are solely the property of Bank, and that Executive has no right,title or interest therein. Upon termination of the Term of this Agreement,Executive or Executive’s representative shall promptly deliver possession ofall of said property to Bank in good condition.

 

(c) Unauthorized Disclosure. During the period of her employmenthereunder and for a period of two years following the cessation of suchemployment (irrespective of the reason therefor), Executive shall not, exceptas required by any court, supervisory authority or administrative agency,without the written consent of the Board or a person authorized thereby,disclose to any person, other than an employee of Coast or a person to whomdisclosure is reasonably necessary or appropriate in connection with theperformance by the Executive of her duties as an employee of Coast, anyconfidential information obtained by her while in the employ of Coast;provided, however, that confidential information shall not include anyinformation known generally to the public (other than as a result of anunauthorized disclosure by the Executive).

 

10. Business Protection Covenants.

 

(a) Agreement Not to Compete. Executive agrees that in the eventshe is terminated without cause and receives the payment required by Section8(d), unless otherwise approved in writing by Coast, for a period of twelve(12) months from the date of her cessation of employment by Coast, Executiveshall not 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 of Employees.Any attempt on the part of the Executive to induce others to leave the Bank’semploy, or the employ of any of its subsidiaries or affiliates, or any effortby the Executive to interfere with the Bank’s relationship with its otheremployees would be harmful and damaging to the Bank. The Executive agrees thatduring the Term of employment and for a period of twelve (12) monthsthereafter, the Executive will not in any way, directly or indirectly (i)induce or attempt to induce any employee of the Bank or any of its subsidiariesof affiliates to quit employment with the Bank or the relevant subsidiary oraffiliate; (ii) otherwise interfere with or disrupt the relationships betweenthe Bank and its subsidiaries and affiliates and their respective employees;(iii) solicit, entice, or hire away any employee of the Bank or any of itssubsidiaries or affiliates; or (iv) hire or engage any employee of the Bank orany subsidiary or affiliate or any former employee of the Bank or anysubsidiary or affiliate whose employment ceased less than one (1) year beforethe date of such hiring or engagement.

 

(c) Nonsolicitation of Business. The Executive agrees that, inthe event she is

 

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terminated without Cause and receives the payment required by Paragraph8(d) for a period of twelve (12) months form the date of termination ofemployment, the Executive will not divert or attempt to divert from the Bank orany of its subsidiaries or affiliates, any business the Bank or a subsidiary oraffiliate had enjoyed or solicited from its customers, borrowers, depositors orinvestors during the twelve (12) months prior to termination of his employment.

 

(d) Equitable Relief. The Executive acknowledges and agrees thatirreparable injury will result to the Bank in the event of a breach of any ofthe provisions of this Section 10 and that the Bank will have no adequateremedy at law with respect thereto. Accordingly, in the event of a materialbreach of any part of this Section 10, and in addition to any other legal orequitable remedy the Bank or its subsidiaries or affiliates may have, the Bankand any relevant subsidiary or affiliate shall be entitled to the entry of apreliminary and permanent injunction (including, without limitation, specificperformance) by a court of competent jurisdiction in San Luis Obispo County,California, or elsewhere, to restrain the violation or breach thereof by theExecutive or any affiliates, agents, or any other persons acting for or withthe Executive in any capacity whatsoever, and the Executive submits to thejurisdiction of such court in any such action.

 

(e) Severability. It is the desire and intent of the partiesthat each of the provisions of Section 10 shall be enforced to the fullestextent permissible under the laws and public policies applied in eachjurisdiction in which enforcement is sought. Accordingly, if any particularprovision in the provisions of Section 10 shall be adjudicated or found to beinvalid or unenforceable, such provisions shall be deemed amended to deletetherefrom the portion thus adjudicated or found to be invalid or unenforceable,such deletion to apply only with respect to the operation of such provision inthe particular jurisdiction in which such adjudication or fining is made. In addition,should any court or arbitrator determine that any of the provisions of Section10 shall be unenforceable with respect to scope, duration, or geographic area,such court or arbitrator shall be empowered to substitute, to the extentenforceable, provisions similar hereto or other provisions so as to provide tothe Bank, to the fullest extent permitted by applicable law, the benefitsintended by the particular paragraph at issue.

 

(f) Resignations. The Executive agrees that upon termination ofemployment, for whatever reason, she will submit her resignations from alloffices and directorships with the Bank, Bancorp and all subsidiaries of it.

 

11. Waivers.Any waiver by a party of any breach of this Agreement by the other party shallnot be construed as a continuing waiver or as a consent to any subsequentbreach by the other party.

 

12. Notices.All notices, requests, demands and other communications hereunder shall be inwriting and shall be deemed to have been duly given if delivered by hand ormailed,

 

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certified or registered mail, return receipt requested, with postageprepaid, to the following addresses or to such other address as either partymay designate by like notice.

 

If to the Bancorp, to:

 

Coast Bancorp500 Marsh StreetSan Luis Obispo, California 93401Attn: PresidentFacsimile: (805) 541-5758

 

If to Coast, to:

 

Coast National Bank500 Marsh StreetSan Luis Obispo, California 93401Attn: PresidentFacsimile: (805) 541-5758

 

with a copy to:

 

Barnet Reitner, Esq.REITNER & STUART1319 Marsh StreetSan Luis Obispo, California 93401Facsimile: (805) 545-8599

 

If to Executive, to:

 

Davina A. Palazzoc/o Coast National Bank500 Marsh StreetSan 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 extent allowable by law, the cost of sucharbitration, including reasonable attorney’s fees, shall be borne by the losingparty

 

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or in such proportions as the arbitrator(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 reasonablecosts, including reasonable attorney’s fees, incurred in enforcing anarbitration award in court, or of seeking a court order to compel arbitration,shall be borne by the losing party in 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 tothe protection of any insurance policies the Company now or hereafter maintainsgenerally for the benefit of its directors, officers and employees (but only tothe extent of the coverage afforded by the existing provisions of suchpolicies) to protect against all costs, charges and expenses whatsoeverincurred or sustained by Executive in connection with any action, suit orproceeding to which Executive may be made a party by reason of her being orhaving been a director, officer or employee of the Company or any of itssubsidiaries during her employment therewith.

 

15. General Provisions.

 

(a) Entire Agreement. This Agreement constitutes the entireagreement by the parties with respect to the subject matter hereof, andsupersedes and replaces all prior agreements among or between the parties,unless otherwise provided herein. No amendment, waiver or termination of any ofthe 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 by Coast and Executive shall be binding uponthem and upon all other Persons, without the necessity of securing the consentof any other Person, and no Person shall be deemed to be a third-partybeneficiary under this Agreement.

 

(b) Counterparts. This Agreement may be executed in one or morecounterparts, each of which shall be deemed an original, but all of which takentogether shall constitute one and the same Agreement.

 

(c) No Waiver. Except as otherwise expressly set forth herein,no failure on the part of any party hereto to exercise and no delay inexercising any right, power or remedy hereunder shall operate as a waiverthereof; nor shall any single or partial exercise of any right, power or remedyhereunder preclude any other or further exercise thereof or the exercise of anyother right, power or remedy.

 

(d) Headings. The headings of the Sections of this Agreementhave been inserted for convenience of reference only and shall in no wayrestrict or modify any of the terms or provisions hereof.

 

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(e) Severability. If for any reason any provision of thisAgreement is held invalid or unenforceable, such invalidity or unenforceabilityshall not affect the validity or enforceability of any other provision of thisAgreement. If any provision of this Agreement shall be held invalid orunenforceable in part, such invalidity or unenforceability shall in no wayeffect the rest of such provision not held so invalid, and the rest of suchprovision, together with all other provisions of this Agreement, shall to thefull extent consistent with law continue in full force and effect.

 

(f) Governing Law. This Agreement shall be governed andconstrued and the legal relationships of the parties determined in accordancewith the laws the United States and to the extent not inconsistent therewiththe laws of the State of California applicable to contracts executed and to beperformed solely in the State of California.

 

(g) Assumption. Coast shall require any successor in interest(whether direct or indirect or as a result of purchase, merger, consolidation,Change in Control or otherwise) to all or substantially all of the businessand/or assets of Coast to expressly assume and agree to perform the obligationsunder this Agreement in the same manner and to the same extent that Coast wouldbe required to perform it if no such succession had taken place.

 

(h) Advice of Counsel. Executive acknowledges that Coast hasbeen represented by Reitner & Stuart in connection with the preparation ofthe Agreement and that she has been encouraged to consult with other legalcounsel of her choosing concerning the terms of this Agreement prior toexecuting this Agreement. Executive represents that she has been represented byLisa Lazara, Esq. in connection with the preparation of the Agreement. Anyfailure by Executive to consult with competent counsel prior to executing thisAgreement shall not be a basis for rescinding or otherwise avoiding the bindingeffect of this Agreement. The parties acknowledge that they are entering intothis Agreement freely and voluntarily, with full understanding of the terms ofthis Agreement. Interpretation of the terms and provisions of this Agreementshall not be construed for or against either party on the basis of the identityof the party 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 |
|------------------------|---------------------|
|                   |                |
|                   |                |
| /s/Stephanie Ragsdale  |                | By: | /s/ Jack Wauchope |   |
|                   |                | Its:  Chairman/CEO |
|                   |                | print name: Jack Wauchope |
|                   |                |   |
|                   |                |   |
| ATTEST:                |                | COAST BANCORP |
|                   |                |   |
|                   |                |   |
| /s/Stephanie Ragsdale  |                | By: | /s/ Jack Wauchope |   |
|                   |                | Its:  Chairman/CEO |
|                   |                | print name: Jack Wauchope |
|                   |                |   |
|                   |                |   |
|                   |                | THE EXECUTIVE |
|                   |                |   |
|                   |                |   |
| /s/ Stehpanie Ragsdale |                | /s/Davina Paalazzo |   |
| Witness                |                |
|                        |                     |  |  |  |  |  |

 

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