**Exhibit 10.8**

 

# **EMPLOYMENT AGREEMENT**

 

**THIS AGREEMENT** is made as of the 12th day ofJanuary, 2004, between **SUN BANCORP, INC.**(“Corporation”), a Pennsylvania business corporation having a place of businessat 155 North 15th Street, Lewisburg, Pennsylvania 17837, **SUNBANK** (“Bank”), a Pennsylvania charteredbanking institution having a place of business at 155 North 15thStreet, Lewisburg, Pennsylvania 17837, **SUBISERVICES, LLC** (“Services Company”), a Pennsylvania limited liabilitycompany having a place of business at 155 North 15th Street,Lewisburg, Pennsylvania 17837 and **Byron M.Mertz, III**  (“Executive”), anindividual residing at 670 Susquehanna Rd., Northumberland, PA 17857**(collectively, the “Parties” and,individually, sometimes a “Party”).

 

**WHEREAS**, the Corporation is a registeredbank holding company;

 

**WHEREAS**, the Bank is a subsidiary of theCorporation;

 

**WHEREAS**, the Services Company is asubsidiary of the Bank;

 

**WHEREAS**, any reference solely toCorporation in this Agreement shall mean Corporation, Bank or Services Company;

 

**WHEREAS,** Corporation, Bank and ServicesCompany desire to employ Executive to serve in the capacity of RegionalPresident and Senior Vice President of Services Company, Bank and Corporationon the terms and conditions set forth in this Agreement; and

 

**WHEREAS,** Executive desires to acceptemployment with Corporation, Bank and Services Company on the terms andconditions set forth in this Agreement.

 

**NOW, THEREFORE,** the parties hereto, intending to belegally bound, agree as follows:

 

1.                                       **Employment****.**  Corporation, Bank and Services Company hereby employ Executive andExecutive hereby accepts employment with Corporation, Bank and ServicesCompany, on the terms and conditions set forth in this Agreement.

 

2.                                       **Duties and Positionof Executive****.**  Executive shall perform and discharge welland faithfully such duties as an executive officer of Corporation as may beassigned to Executive from time to time by the Board of Directors ofCorporation and/or Corporation’s President and CEO.  Executive shall be employed as Regional President and Senior VicePresident of the Services Company, Bank and Corporation, and shall hold suchother titles as may be given to him from time to time by the Board of Directorsof Corporation.  The Executive may bepromoted to other positions within the Corporation and/or Bank and/or ServicesCompany and assigned duties consistent with such a position without theCorporation, Bank or Services Company breaching this Agreement.  Such promotion may occur without amendmentof this Agreement; all other provisions of this Agreement will remain in fullforce and effect.

 

3.                                       **Engagement in OtherEmployment****.**  Executive shall devote his full time,attention and energies to the business of Corporation, Bank and Services Company during the Employment Period (asdefined in Section 4(a) of this Agreement); provided, however, that thisSection  shall not be construed as preventing Executive from (a) investingExecutive’s personal assets in enterprises that do not compete with Corporation,Bank, Services Company or any 

 

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of their subsidiaries oraffiliates or (b) being involved in any other activity with the prior approvalof the Boards of Directors of Corporation, Bank and Services Company.  The Executive shall not engage in any businessor commercial activities, duties or pursuits which compete with the business orcommercial activities of Corporation, Bank, Services Company or any of theirsubsidiaries or affiliates, nor may the Executive serve as a director orofficer or in any other capacity in a company which competes with Corporation,Bank, Services Company or any of their subsidiaries or affiliates.

 

4.             **Term of Agreement****.**

 

(a)                                  Employment Period. This Agreement shall be for a two (2) year period (the “EmploymentPeriod”) beginning on the date first mentioned above, and if not previouslyterminated pursuant to the terms of this Agreement, the Employment Period shallend two (2) years later.  The EmploymentPeriod shall be automatically extended on the second anniversary date of the commencementof the Employment Period (the “Renewal Date”) for a period ending one (1) yearfrom the Renewal Date unless either party shall give written notice ofnon-renewal to the other party at least sixty (60) days prior to the RenewalDate, in which event this Agreement shall terminate at the end of theEmployment Period.  If this Agreement isrenewed on the Renewal Date, it will be automatically renewed on the firstanniversary date of the Renewal Date and each subsequent year (the “AnnualRenewal Date”) for a period ending one (1) year from each Annual Renewal Date,unless either party gives written notice of non-renewal to the other party atleast sixty (60) days prior to the Annual Renewal Date, in which case thisAgreement will terminate on the Annual Renewal Date immediately following suchnotice.

 

(b)                                 Cause. Notwithstanding the provisions of Section 4(a) of this Agreement,this Agreement shall terminate automatically for Cause (as defined herein) uponwritten notice from the Board of Directors of Corporation to Executive.  As used in this Agreement, the term “Cause”shall mean any of the following:

 
| (i)    | Executive’s conviction  of or plea of guilty or nolo contendere to a felony, a crime of falsehood or  a crime involving moral turpitude, or the actual incarceration of Executive;                                                                                                                                                                            |
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| (ii)   | Executive’s failure to  follow the good faith lawful instructions of the Board of Directors of  Corporation with respect to its operations, after notice from Corporation,  and a failure to cure such violation within twenty (20) days of said notice;                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| (iii)  | the willful failure by  the Executive to substantially perform his duties hereunder, other than a  failure resulting from Executive’s incapacity because of physical or mental  illness, as provided in Section 3(e) of this Agreement, after notice  from the Corporation and a failure to cure such violation within twenty (20)  days of said notice; |
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| (iv)   | Executive’s  intentional violation of the provisions of this Agreement, after notice from  Corporation, and a failure to cure such violation within twenty (20) days of  said notice;                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                               |
| (v)    | dishonesty or gross  negligence of the Executive in the performance of his duties;                                                                                                                                                                                                                                                                                 |

 

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| (vi)                                                                                                                                                                                                                | conduct on the part of  the Executive which brings public discredit to  Corporation as determined by a vote of two-thirds (2/3) of the  Board of Directors of Corporation;                                                                                                                                                                                                                               |
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| (vii)                                                                                                                                                                                                               | Executive’s breach of  fiduciary duty involving personal profit;                                                                                                                                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                          |
| (viii)                                                                                                                                                                                                              | Executive’s violation  of any law, rule or regulation governing banks or bank officers or any final  cease and desist order issued by a bank regulatory authority;                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                          |
| (ix)                                                                                                                                                                                                                | Executive’s unlawful  discrimination, including harassment, against Corporation’s employees,  customers, business associates, contractors or visitors;                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                          |
| (x)                                                                                                                                                                                                                 | Executive’s theft or  abuse of Corporation’s property or the property of Corporation’s customers,  employees, contractors, vendors or business associates;                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                          |
| (xi)                                                                                                                                                                                                                | any final removal or  prohibition order to which the Executive is subject, by a federal banking  agency pursuant to Section 8(e) of the Federal Deposit Insurance Act;                                                                                                                                                                                                                                   |
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| (xii)                                                                                                                                                                                                               | any act of fraud or  misappropriation by Executive;                                                                                                                                                                                                                                                                                                                                                           |
|                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                          |
| (xiii)                                                                                                                                                                                                              | intentional  misrepresentation of a material fact, or intentional omission of information  necessary to make the information supplied not materially misleading, in an  application or other information provided by the Executive to Corporation or  any representative of Corporation in connection with the Executive’s  employment with Corporation, Bank and Services Company;                      |
|                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                          |
| (xiv)                                                                                                                                                                                                               | direction or  recommendation of a state or federal bank regulatory authority to remove the  Executive from his position with Corporation and/or Bank and/or Services  Company, as identified herein;                                                                                                                                                                                                          |
|                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                          |
| (xv)                                                                                                                                                                                                                | the willful engaging  by the Executive in misconduct injurious to Corporation, after notice from  Corporation, and a failure to cure such conduct within twenty (20) days of  said notice; or                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                          |
| (xvi)                                                                                                                                                                                                               | willful and serious  violation(s) by Executive of the Bank’s “Core Values,” and a failure to cure  such violation(s) within twenty (20) days after notice by the Corporation; if  the violation is so serious that an attempt to cure would be fruitless, no  notice need be given by the Corporation.                                                                                         |
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| (xvii)                                                                                                                                                                                                              | the existence of any  material conflict between the interests of Corporation and the Executive that  is not disclosed in writing by the Executive to Corporation,  Bank and Services Company and approved in  writing by the Boards of Directors of Corporation, Bank and Services Company  and, after notice from Corporation, a failure to cure such conflict within  twenty (20) days of said notice. |
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| If this Agreement is  terminated for Cause, all of Executive’s rights under this Agreement shall  cease as of the effective date of such termination and all of Corporation,  Bank and Services Company’s |

 

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compensation andemployment obligations under this Agreement shall terminate.

 

(c)                                  Notwithstanding the provisions ofSection 4(a) of this Agreement, all of Corporation, Bank and ServicesCompany’s  obligations under thisAgreement shall terminate automatically upon Executive’s voluntary terminationof employment.

 

(d)                                 Good Reason. Notwithstanding the provisions of Section 4(a) of this Agreement,the Executive may terminate his employment under this Agreement for GoodReason. As used in this Agreement, “Good Reason” shall mean any of thefollowing:

 
| (i)    | any reduction in the  Executive’s Annual Base Salary, as in effect on the date this Agreement is  executed or as the same may be increased from time to time, except such  reductions that are the result of a national financial depression or national  or bank emergency, or when such reduction has been implemented by the Board  of Directors for the Corporation’s senior management; or |
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| (ii)   | a requirement that  Executive move his principal residence more than seventy-five (75) miles from  the location of Corporation’s principal executive office immediately prior to  this Agreement; or                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                      |
| (iii)  | any removal of the  Executive from any of the positions indicated in Section 2 of this  Agreement, other than for a promotion except as a result of his regulatory  removal and/or in connection with termination of the Executive’s employment  for Cause.                                                                                                                                     |

 

If Executive terminateshis employment for Good Reason, then he may give notice of intention to collectbenefits under this Agreement by delivering a notice in writing (the “Notice ofTermination”) and Corporation shall pay Executive an amount equal to one (1)times the Executive’s Annual Base Salary as defined in Section 5(a) ofthis Agreement, which amount shall be payable in twelve (12) equal monthlyinstallments and shall be subject to federal, state and local taxwithholdings.  In addition, Executiveshall receive a continuation, for a period of twelve (12) months from the dateof termination of employment, or until Executive secures substantially similarbenefits through other employment, whichever shall first occur, of all health,accident, life and disability insurance benefits in effect with respect toExecutive on the date of termination of employment and that were in effectduring the two (2) years prior to Executive’s termination of employment, or, ifCorporation cannot provide such benefits because Executive is no longer anemployee, a dollar amount equal to the cost to Executive of obtaining suchbenefits or substantially similar benefits. Executive only becomes entitled to receive these payments andcontinuation of benefits if he executes a General Release in favor ofCorporation, Bank and their subsidiaries and affiliates.  However, in the event the payments describedherein, when added to all other amounts or benefits provided to or on behalf ofthe Executive in connection with his termination of employment, would result inthe imposition of an excise tax under Code Section 4999, such paymentsshall be retroactively (if necessary) reduced to the extent necessary to avoidsuch excise tax imposition.  Uponwritten notice to Executive, together with calculations of Corporation’sindependent auditors, Executive shall remit to Corporation the amount of thereduction, plus such interest as may be necessary to avoid the 

 

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imposition of suchexcise tax.  Notwithstanding theforegoing or any other provision of this contract to the contrary, if anyportion of the amount herein payable to the Executive is determined to benon-deductible pursuant to the regulations promulgated under Section 280Gof the Internal Revenue Code of 1986, as amended (the “Code”), then Corporationshall be required only to pay to Executive the amount determined to bedeductible under Section 280G.

 

(e)                                  Disability. Notwithstanding the provisions of Section 4(a) of this Agreement,if, as a result of physical or mental injury or impairment, Executive is unableto perform all of the essential job functions of his position on a full timebasis, taking into account any reasonable accommodation required by law, andwithout posing a direct threat to himself and others, for a period up to onehundred eighty (180) days, all obligations of Corporation, Bank and ServicesCompany to pay Executive an Annual Base Salary as set forth in Paragraph 5(a)of this Agreement are suspended.  Anypaid time off, sick leave, or short term disability pay Executive may beentitled to receive, pursuant to an established disability plan or program ofthe Services Company and/or Bank and/or Corporation, if any exists, shall beconsidered part of the compensation Executive shall receive while disabled, andshall not be in addition to the compensation received by Executive under thisprovision of the Agreement.  Executivefurther agrees that should he remain unable to perform all of the essentialfunctions of his position on a full time basis, taking into account anyreasonable accommodation required by law, and without posing a direct threat tohimself or others, after one hundred eighty (180) days, the Services Company,Bank and Corporation will suffer an undue hardship by continuing Executive inhis position.  Upon this event, allcompensation and employment obligations of the Services Company, Bank and Corporationunder this Agreement shall cease (except Executive’s rights under theCorporation’s then existing short term and/or long term disability plans, ifany), and this Agreement shall terminate.

 

(f)                                    Death. Notwithstanding the provisions of Section 4(a) of this Agreement,this Agreement shall terminate automatically upon Executive’s death andExecutive’s rights under this Agreement shall cease as of the date of suchtermination.

 

5.             **Employment PeriodCompensation****.**

 

(a)                                  Annual Base Salary. For services performed by Executive under this Agreement, Corporationshall pay Executive an Annual Base Salary in the aggregate during theEmployment Period at the rate of Ninety Eight Thousand Six Hundred dollars($98,600) per year, payable at the same times as salaries are payable to otherexecutive employees of Corporation. Corporation may, from time to time, increase Executive’s Annual BaseSalary, and any and all such increases shall be deemed to constitute amendmentsto this Section 5(a) to reflect the increased amounts, effective as of thedate established for such increases by the Board of Directors of Corporation orany committee of such Board in the resolutions authorizing such increases.

 

(b)                                 Bonus. Executive may be eligible for incentive compensation under the terms andconditions of any incentive compensation plan that Corporation may have ineffect from time to time.

 

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(c)                                  Vacations. During the term of this Agreement, Executive shall be entitled to paidannual vacation in accordance with the policies as established from time totime by the Board of Directors of Corporation, Bank and Services Company.  However, Executive shall not be entitled toreceive any additional compensation from Corporation for failure to take avacation, nor shall Executive be able to accumulate unused vacation time fromone year to the next, except to the extent authorized by the Board of Directorsof Corporation.

 

(d)                                 Employee Benefit Plans. During the term of this Agreement, Executive shall be entitled toparticipate in and receive the benefits of any Employee Benefit Plan currentlyin effect at Corporation, until such time that the Board of Directors ofCorporation authorizes a change in such benefits.  Executive shall also be entitled to participate in any stockoption and profit sharing plans that Corporation may have in effect, subject tothe terms and conditions of those plans. Nothing paid to Executive under any plan or arrangement presently ineffect or made available in the future shall be deemed to be in lieu of the salarypayable to Executive pursuant to Section 5(a) hereof.

 

(e)                                  Business Expenses. During the term of this Agreement, Executive shall be entitled toreceive prompt reimbursement for all reasonable expenses incurred by him, whichare properly accounted for, in accordance with the policies and proceduresestablished by the Board of Directors of Corporation for its executiveofficers.

 

6.             **Termination ofEmployment Following Change in Control****.**

 

(a)                                  If a Change in Control (as definedin Section 6(b) of this Agreement) shall occur and if, within twelve (12)months following the Change in Control (as defined in Section 6(b) of thisAgreement), Executive’s employment is involuntarily terminated (other than forthe Cause as defined in Section 4(b) of this Agreement), then, Executivemay give notice of intention to collect benefits under this Agreement, bydelivering a notice in writing (the “Notice of Termination”) to Corporation andBank and the provisions of Section 7 of this Agreement shall apply.

 

(b)                                 As used in this Agreement, “Changein Control” shall mean a change in control (other than one occurring by reasonof an acquisition of the Bank and/or Corporation by Executive) of a nature thatwould be required to be reported in response to Item 6(e) of Schedule 14Aof Regulation 14A or any successor rule or regulation promulgated under theSecurities Exchange Act of 1934, as amended (the “1934 Act”); provided that,without limiting the foregoing, a Change in Control shall be deemed to haveoccurred if:

 
| (i) | (A) the Corporation  and/or Bank shall be merged or consolidated, or (B) substantially all of the  assets of Corporation and/or Bank shall be sold, exchanged, transferred or  otherwise disposed of, and, as a result of such merger, consolidation, sale,  exchange or transfer, less than a majority of the outstanding voting stock of  the surviving, resulting, purchasing “person”is owned, immediately after the  transaction, by the holders of voting stock of the Corporation before the  transaction, unless (y) such merger, consolidation, sale, exchange, purchase  or transfer is approved in advance by seventy percent (70%) or more of the  members of the |
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|   | Board of Directors of  Corporation who are not interested in the transaction and (z) a majority of  the members of the Board of Directors of the legal entity resulting from, or  existing after, any such transaction, and of the Board of Directors of such  entity’s parent corporation, if any, are former members of the Board of  Directors of Corporation, or                                                                                                                                                                                                                                              |
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (ii)   | any “person” or group  of “persons” (as such term is used in Sections 13(d) and 14(d) of the 1934  Act), other than Corporation, Bank or any “person” who on the date hereof is  a director or officer of Corporation and/or Bank is or becomes the  “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act or any successor  rule or regulation promulgated under the 1934 Act), directly or indirectly,  of securities of Corporation representing thirty (30%) percent or more of the  combined voting power of Corporation’s then outstanding securities, or |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (iii)  | during any period of  two (2) consecutive years during the term of Executive’s employment under  this Agreement, individuals who at the beginning of such period constitute  the Board of Directors of Corporation cease for any reason to constitute at  least a majority thereof, unless the election of each director who was not a  director at the beginning of such period has been approved in advance by  directors representing at least two-thirds of the directors then in office  who were directors at the beginning of the period.                                                                  |

 

7.                                       **Rights in Event ofTermination of Employment Following Change in Control****.**

 

(a)                                  In the event that a Change inControl occurs and Executive delivers a Notice of Termination (as defined inSection 6(a) of this Agreement) to Corporation, Bank and Services Company,Executive shall be entitled to receive the compensation and benefits set forthbelow:

 
| (i)    | a lump sum equal to  two (2) times the Executive’s Annual Base Salary as defined in  Section 5(a), which amount shall be subject to federal, state and local  tax withholdings; and                                                                                                                                                                                                                                                                                                                                                                                                                           |
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| (ii)   | for a period of two  (2) years from the date of termination of employment, or until Executive  secures substantially similar benefits through other employment, whichever  shall first occur, Executive shall receive a continuation of all health,  accident, life and disability insurance benefits in effect with respect to  Executive during the two (2) years prior to his termination of employment,  or, if Corporation cannot provide such benefits because Executive is no  longer an employee, a dollar amount equal to the cost to Executive of  obtaining such benefits or substantially similar benefits. |

 

However, in the eventthe payment described herein, when added to all other amounts or benefitsprovided to or on behalf of the Executive in connection with his termination ofemployment, would result in the imposition of an excise tax under CodeSection 4999, such payments shall be retroactively (if  necessary) reduced to the extent necessaryto avoid such excise tax imposition. Upon written notice to Executive, together with calculations ofCorporation’s independent auditors, Executive shall remit to Corporation theamount of the reduction plus such interest as

 

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may be necessary toavoid the imposition of such excise tax. Notwithstanding the foregoing or any other provision of this contract tothe contrary, if any portion of the amount herein payable to the Executive isdetermined to be non-deductible pursuant to the regulations promulgated underSection 280G of the Internal Revenue Code of 1986, as amended (the“Code”), the Corporation shall be required only to pay to Executive the amountdetermined to be deductible under Section 280G.

 

(b)                                 Executive shall not be required tomitigate the amount of any payment provided for in this Section 7 byseeking other employment or otherwise. The amount of payment provided for in this Section 7(a)(i) shallnot be reduced by any compensation earned by Executive as the result ofemployment by another employer or by reason of Executive’s receipt of or rightto receive any retirement or other benefits after the date of termination ofemployment or otherwise.

 

8.             **Rights in Event ofTermination of Employment Absent Change in Control****.**

 

(a)                                  In the event that Executive’semployment is involuntarily terminated by Corporation without Cause and no Change in Control shall have occurredat the date of such termination, Corporation shall pay Executive an amountequal to and no greater than two (2) times the Executive’s Annual Base Salaryas defined in Section 5(a) of this Agreement, which amount shall bepayable in twenty-four (24) equal monthly installments.  In addition, Executive shall be entitled toa continuation of health, accident, life and disability insurance benefits fortwenty-four (24) months or until Executive secures substantially similarbenefits through other employment, whichever shall first occur.  However, if the payment described herein,when added to all other amounts or benefits provided  to  or  on behalf  of  the Executive in connection with his termination of employment, would resultin the imposition of an excise tax under Code Section 4999, such paymentsshall be retroactively (if necessary) reduced to the extent necessary to avoidsuch imposition.  Upon written notice toExecutive, together with calculations of Corporation’s independent auditors,Executive shall remit to Corporation the amount of the reduction plus suchinterest as may be necessary to avoid the imposition of such excise tax.  Notwithstanding the foregoing or any otherprovision of this contract to the contrary, if any portion of the amount hereinpayable to the Executive is determined to be non-deductible pursuant to theregulations promulgated under Section 280G of the Code, then Corporationshall be required only to pay to Executive the amount determined to bedeductible under Section 280G.

 

(b)                                 Executive shall not be required tomitigate the amount of any payment provided for in this Section 8 byseeking other employment or otherwise. The amount of payment provided for in this Section 8 (notcontinuation of benefits) shall not be reduced by any compensation earned byExecutive as the result of employment by another employer or by reason ofExecutive’s receipt of or right to receive any retirement or other benefitsafter the date of termination of employment or otherwise.

 

(c)                                  The amounts payable pursuant to thisSection 8 shall constitute Executive’s sole and exclusive remedy in theevent of involuntary termination without cause of Executive’s employment byCorporation in the absence of a Change in Control.

 

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9.                                       **RestrictiveCovenant**.

 

(a)                                  Executive hereby acknowledges andrecognizes the highly competitive nature of the business of Corporation, Bankand Services Company and, accordingly, agrees that, during and for the applicableperiod set forth in Section 9(c) hereof, Executive shall not:

 

(i)                                     be engaged, directly or indirectly,either for his own account or as agent, consultant, employee, partner, officer,director, proprietor, investor (except as an investor owning less than 5% ofthe stock of a publicly owned company) or otherwise of any person, firm,corporation or enterprise engaged in (1) the banking or financial servicesindustry (including bank holding company), or (2) any other activity in whichCorporation, Bank, Services Company or any of their subsidiaries or affiliatesare engaged during the Employment Period, in any county in which, at any timeduring the Employment Period or on the date of termination of the Executive’semployment, a branch, office or other facility of Corporation, Bank, ServicesCompany or any of their subsidiaries or affiliates is located, or in any countycontiguous to such a county, including contiguous counties located outside ofthe Commonwealth of Pennsylvania (the “Non-Competition Area”); or

 

(ii)                                  provide financial or otherassistance to any person, firm, corporation, or enterprise engaged in (1) thebanking or financial services industry (including bank holding company), or (2)any other activity in which Corporation, Bank, Services Company or any of theirsubsidiaries or affiliates are engaged during the Employment Period in theNon-Competition Area; or

 

(iii)                               directly or indirectly contact,solicit or induce any person, corporation or other entity who or which is acustomer or referral source of Corporation, Bank, Services Company or any oftheir subsidiaries or affiliates, during the term of Executive’s employment oron the date of termination of Executive’s employment; or

 

(iv)                              directly or indirectly solicit,induce or encourage any employee of Corporation, Bank, Services Company or anyof their subsidiaries or affiliates, who is employed during the term ofExecutive’s employment or on the date of termination of Executive’s employment,to leave the employ of Corporation, Bank, Services Company or any of theirsubsidiaries or affiliates, or to seek, obtain or accept employment with anyperson or entity other than Corporation, Bank, Services Company or any of theirsubsidiaries or affiliates.

 

(b)                                 It is expressly understood andagreed that, although Executive, Corporation, Bank and Services Companyconsider the restrictions contained in Section 9(a) reasonable for thepurpose of preserving for Corporation, Bank, Services Company and any of theirsubsidiaries or affiliates, their good will and other proprietary rights, if afinal judicial determination is made, by a court or arbitration panel havingjurisdiction, that the time or territory or any other restriction contained inSection 9(a) is an unreasonable or otherwise unenforceable restrictionagainst Executive, the provisions of Section 9(a) shall not be renderedvoid, but shall be deemed amended to apply as to such maximum time andterritory and to such other extent as such court may judicially determine orindicate to be reasonable.

 

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(c)                                  The provisions of thisSection 9 shall be applicable, commencing on the date of this Agreementand ending on one of the following dates, as applicable:

 

(i)                                     if Executive voluntarily terminateshis employment without Good Reason, the first anniversary date of the effectivedate of termination of employment;

 

(ii)                                  if Executive’s employment terminatesin accordance with the provisions of Section 4(b) of this Agreement(relating to termination for Cause) or the Executive voluntarily terminates hisemployment in accordance with the provisions of Section 4(c) of thisAgreement (relating to termination by Executive for Good Reason), the firstanniversary date of the effective date of termination of employment;

 

(iii)                               if the Executive’s employment isinvoluntarily terminated in accordance with the provisions of Section 6 ofthis Agreement (relating to involuntary termination without Cause following aChange in Control), the second anniversary date of the effective date oftermination of employment;

 

(iv)                              if the Executive’s employment isinvoluntarily terminated in accordance with the provisions of Section 8 ofthis Agreement (relating to involuntary termination without Cause absent aChange in Control), the second anniversary date of the effective date of terminationof employment;

 

(v)                                 if Executive’s employment terminatesin accordance with the provisions of Section 4(a) relating to non-renewalof contract, the effective date of termination of employment.

 

10.                                 **UnauthorizedDisclosure****.**  During the term of his employment hereunder,or at any later time, the Executive shall not, without the written consent ofthe Board of Directors of Corporation or a person authorized thereby, knowinglydisclose to any person, other than an employee of the Corporation or a personto whom disclosure is reasonably necessary or appropriate in connection withthe performance by the Executive of his duties as an executive of Corporation,any material confidential information obtained by him while in the employ ofCorporation with respect to any of the services, products, improvements,formulas, designs or styles, processes, customers, customer lists, methods ofbusiness or any business practices of Corporation, Bank, Services Company orany of their subsidiaries or affiliates, the disclosure of which could be orwill be damaging to Corporation, Bank, Services Company or any of theirsubsidiaries or affiliates; provided, however, that confidential informationshall not include any information known generally to the public (other than asa result of unauthorized disclosure by the Executive or any person with theassistance, consent or direction of the Executive) or any information of a typenot otherwise considered confidential by persons engaged in the same businessor a business similar to that conducted by Corporation, Bank, Services Companyor any of their subsidiaries or affiliates or any information that must bedisclosed as required by law.

 

11.                                 **Work Made for Hire.** Any work performed by the Executive under this Agreement should beconsidered a “Work Made for Hire” as that phrase is defined by the U.S. patentlaws and shall be owned by and for the express benefit of 

 

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Corporation, Bank,Services Company and their subsidiaries and affiliates.  In the event it should be established that suchwork does not qualify as a Work Made for Hire, the Executive agrees to and doeshereby assign to Corporation, Bank, Services Company and their affiliates andsubsidiaries, all of his rights, title, and/or interest in such work product,including, but not limited to, all copyrights, patents, trademarks, andproprietary rights.

 

12.                                 **Return of CompanyProperty and Documents.**  The Executive agrees that, at the time oftermination of his employment, regardless of the reason for termination, hewill deliver to Corporation, Bank, Services Company and their subsidiaries andaffiliates, any and all company property, including, but not limited to,automobiles, keys, security codes or passes, mobile telephones, pagers,computers, devices, confidential information, records, data, notes, reports,proposals, lists, correspondence, specifications, drawings, blueprints,sketches, software programs, equipment, other documents or property, orreproductions of any of the aforementioned items developed or obtained by the Executiveduring the course of his employment.

 

13.                                 **Resignation asDirector****. **Executive agrees that in the eventthat this Agreement or his employment under this Agreement is terminated,Executive shall resign as a director of Corporation, Bank, Services Company orany of their affiliates or subsidiaries, if he is then serving as a director ofany such entities.

 

14.                                 **Liability Insurance**. Corporation shall use its best efforts to obtain insurance coverage forthe Executive under an insurance policy covering officers and directors ofCorporation, Bank and Services Company against lawsuits, arbitrations or otherlegal or regulatory proceedings; however, nothing herein shall be construed torequire Corporation to obtain such insurance, if the Board of Directors of theCorporation determines that such coverage cannot be obtained at a reasonableprice.

 

15.                                 **Indemnification.** Corporation will indemnify the Executive as required by  Pennsylvania law  and as provided by the Articles and By-laws of Corporation, ifnot prohibited by federal law, with respect to any threatened, pending orcompleted legal or regulatory action, suit or proceeding brought against him byreason of the fact that he is or was a director, officer, employee or agent ofCorporation or is or was serving at the request of Corporation as a director,officer, employee or agent of another person or entity.

 

16                                    **Notices****.** For the purposes of this Agreement, notices and all other communicationsprovided for in this Agreement shall be in writing and shall be deemed to havebeen duly given when delivered or mailed by United States certified mail,return receipt requested, postage prepaid, addressed as follows  (or to such other addresses provided by aparty to the other parties in writing):

 
| If to the Executive:         | Mr. Byron M. Mertz,  III             |
|------------------------------|--------------------------------------|
|                         | 670 Susquehanna Road                 |
|                         | Northumberland, PA  17857            |
|                         |
| If to the Services  Company: |
|                         | Mr. Robert McCormack                 |
|                         | President and CEO                    |
|                         | SUBI Services, LLC                   |
|                         | 155 North 15th  Street               |
|                         | Lewisburg,  Pennsylvania  17837 |

 

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| If to the Bank:        |
|------------------------|
|                   | Mr. Robert McCormack |
|                   | President and CEO |
|                   | Sun Bank |
|                   | 155 North 15th  Street |
|                   | Lewisburg,  Pennsylvania  17837 |
|                   |   |
| If to the Corporation: | Mr. Robert McCormack |
|                   | President and CEO |
|                   | Sun Bancorp, Inc. |
|                   | 155 North 15th  Street |
|                   | Lewisburg,  Pennsylvania  17837 |

 

17.                                 **Waiver****.** No provision of this Agreement may be modified, waived or dischargedunless such waiver, modification or discharge is agreed to in writing andsigned by Executive and an executive officer specifically designated by theBoard of Directors of Corporation, Bank and Services Company.  No waiver by either party, at any time, ofany breach by the other party of, or compliance with, any condition orprovision of this Agreement to be performed by such other party shall be deemeda waiver of similar or dissimilar provisions or conditions at the same or atany prior or subsequent time. Notwithstanding this Section 17, a promotion of Executive inaccordance with Section 2 of this Agreement shall not constitute a breachof this Agreement or require an amendment in writing.

 

18.                                 **Assignment****.** This Agreement shall not be assignable by any party, except byCorporation to any successor in interest to its respective businesses.

 

19.                                 **Entire Agreement****.** This Agreement contains the entire agreement of the parties relating tothe employment of Executive and supersedes any and all agreements, either oralor in writing, between the parties with regard to the employment of Executiveby Corporation, including the Change of Control Agreement entered betweenExecutive, Corporation and Bank, dated April 19, 1999.

 

20.                                 **Successors; BindingAgreement****.**

 

(a)                                  Corporation, and Bank will requireany successor (whether direct or indirect, by purchase, merger, consolidation,or otherwise) to all or substantially all of the businesses and/or assets ofCorporation and Bank to expressly assume and agree to perform this Agreement inthe same manner and to the same extent that Corporation and Bank would berequired to perform it if no such succession had taken place.

 

(b)                                 This Agreement shall inure to thebenefit of and be enforceable by Executive’s personal or legal representatives,executors, administrators, heirs, distributees, devisees and legatees.  If Executive should die after a Notice ofTermination is delivered by Executive, or following termination of Executive’semployment without Cause, and any amounts would be payable to Executive underthis Agreement if Executive had continued to live, all such amounts shall bepaid in accordance with the terms of this Agreement to Executive’s devisee,legatee, or other designee, or, if there is no such designee, to Executive’sestate.

 

21.                                 **Arbitration****.**  Corporation and Executive recognize that in the event a dispute shouldarise between them concerning the interpretation or implementation of this Agreement(except for any enforcement sought with respect to Sections 9,

 

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10, 11, or 12, which maybe litigated in court), lengthy and expensive litigation will not afford apractical resolution of the issues within a reasonable period of time.  Consequently, each party agrees that alldisputes, disagreements and questions of interpretation concerning thisAgreement are to be submitted for resolution, in Philadelphia, Pennsylvania, tothe American Arbitration Association (the “Association”) in accordance with theAssociation’s National Rules for the Resolution of Employment Disputes or otherapplicable rules then in effect (“Rules”). Corporation or Executive may initiate an arbitration proceeding at anytime by giving notice to the other in accordance with the Rules.  Corporation and Executive may, as a matteror right, mutually agree on the appointment of a particular arbitrator from theAssociation’s pool.  The arbitrator shallnot be bound by the rules of evidence and procedure of the courts of the Commonwealthof Pennsylvania, but shall be bound by the substantive law applicable to thisAgreement.  The decision of thearbitrator, absent fraud, duress, incompetence or gross and obvious error offact, shall be final and binding upon the parties and shall be enforceable incourts of proper jurisdiction. Following written notice of a request for arbitration, Corporation, Bankand Executive shall be entitled to an injunction restraining all furtherproceedings in any pending or subsequently filed litigation concerning thisAgreement, except as otherwise provided herein or any enforcement sought withrespect to Sections 9, 10, 11, or 12.

 

22.                                 **Attorney’s Fees andCosts.**  If any action at law or in equity isnecessary to enforce or interpret the terms of this Agreement, each party shallbear his or its own attorney’s fees, costs, and expenses incurred in connectionwith the litigation, unless mandated by statute.

 

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

 

24.                                 **Applicable Law****. **This Agreement shall be governed by and construed in accordancewith the domestic, internal laws of the Commonwealth of Pennsylvania, withoutregard to its conflicts of laws principles.

 

25.                                 **Headings****.** The section headings of this Agreement are for convenience only andshall not control or affect the meaning or construction or limit the scope orintent of any of the provisions of this Agreement.

 

**[THIS SPACE WAS INTENTIONALLY LEFT BLANK]**

 

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**INWITNESS WHEREOF,** the parties have executed this Agreement as of the date firstabove written.

 

 
| ATTEST:               |   | SUN BANCORP, INC.                       |
|-----------------------|--------|-----------------------------------------|
|                  |   |                                    |
|                  |   |                                    |
| /s/ Sandra J. Miller  |   |                                    | /s/ Robert J. McCormack |   |
|                  |   | Robert J. McCormack,  President and CEO |
|                  |   |                                    |
|                  |   |                                    |
| ATTEST:               |   | SUN BANK                                |
|                  |   |                                    |
|                  |   |                                    |
| /s/ Sandra J. Miller  |   |                                    | /s/ Robert J.  McCormack |   |
|                  |   | Robert J. McCormack,  President and CEO |
|                  |   |                                    |
|                  |   |                                    |
| ATTEST:               |   | SUBI SERVICES, LLC                      |
|                  |   |                                    |
|                  |   |                                    |
| /s/ Sandra J. Miller  |   |                                    | /s/ Robert J. McCormack |   |
|                  |   |                                    |
|                  |   | Robert J. McCormack,  President and CEO |
|                  |   |                                    |
|                  |   |                                    |
| WITNESS:              |   | EXECUTIVE:                              |
|                  |   |                                    |
|                  |   |                                    |
| /s/ Annette Sarsfield |   |                                    | /s/ Byron M. Mertz,  III |   |
|                  |   | Byron M. Mertz, III                     |
|                       |        |                                         |  |  |  |  |

 

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