**EXHIBIT 10.21**

 

**EMPLOYMENT AGREEMENT**

 

This Agreement is made and is effective as of June 7, 2004, by and between Community National Bank, a national banking association (“Bank”),its parent company Community Bancorp, Inc., a Delaware corporation (“Bancorp”) and Richard M. Sanborn (“Executive”). 

 

WHEREAS, the Bank wishes to employ Executive as its Senior Vice President/Administration Group as specified herein and to benefit from Executive’sservices for the period provided in this Agreement, and Executive wishes to serve in the employ of the Bank as its Senior Vice President/Administration Group on a full-time basis solely in accordance with the terms hereof for such purposes; and

 

WHEREAS, the Board of Directors of the Bank determined thatthe best interests of the Bank would be served by Executive’s employment with the Bank under the terms of this Agreement; 

 

NOW, THEREFORE, in order to effect the foregoing, the parties hereto wish to enter into an employment agreement on the terms and conditions set forthbelow. Accordingly, in consideration of the premises and the respective covenants and agreements of the parties herein contained, and intending to be legally bound hereby, the parties hereto agree as follows: 

 

1. Definitions. 

 

(a) “Agreement” means this employment agreement and anyamendments hereto complying with Section 20(a) hereof. 

 

(b)“Board” means the Board of Directors of the Bank. 

 

(c) “Cause” shall mean Executive’s: 

 

(i) Breach or willful neglect of his duties and responsibilities; 

 

(ii) Conviction for a felony offense or a misdemeanor offense involving moral turpitude under the laws of the United States or any state;

 

(iii) Material breach of this Agreement;

 

(iv) Acts of fraud, dishonesty,misappropriation or embezzlement committed by Executive which result in his personal enrichment or which damages or harms the Bank or Bancorp 

 

(v) Breach of Executive’s duty of loyalty and/or fiduciary duties; and 

 

(vi) Repeated willful failure to comply with Bank’s orders or directives or company rules, regulations,policies, procedures or practices. 

 

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

 

(i) there is a transfer, voluntarily or by hostile takeover,by proxy contest (or similar action), operation of law, or otherwise, of Control of the Bank or Bancorp; 

 

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

(iii) the individuals who were members of the Board or the Board of Directors of Bancorpimmediately prior to a meeting of the shareholders of the Bank or Bancorp, which meeting involves a contest for the election of directors, do not constitute a majority of such board following such meeting or election; 

 

(iv) a merger, consolidation or sale of all or substantiallyall of the assets of the Bank or Bancorp; or 

 

(v) there is a change, during any period of two consecutive years, of a majority of the Board or of the Board of Directors of Bancorp as constituted as of the beginning 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 least two-thirds of the directors then in office who were directors at the beginning of such period. 

 

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

 

(f) “Control” means the possession, direct or indirect, byany Person 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 of the Bank or Bancorp, whether through ownership of voting securities, by contractor otherwise, and in any case means the ability to determine the election of a majority of the directors of the Bank or Bancorp. 

 

(g) “Disability” means physical or mental illness resulting in Executive’s absence on a full-time basis from Executive’s dutieswith the Bank for 180 calendar days, subject to the procedure described in Section 7(a). 

 

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

 

(i) “Person” meansan individual, a group acting in concert, a corporation, a partnership, an association, a joint stock company, a trust, any unincorporated organization, a government or political subdivision thereof, or any other entity whatsoever. 

 

(j) “Resign for Good Reason” or “Resignation for GoodReason” has the meaning found in Section 7(d). 

 

(k)“Term” means the initial term of this Agreement and any extensions hereof, as provided in Section 4, whether prior to or following a Change in Control. 

 

(l) “Termination” or “Terminate (d)” means the termination of Executive’s employmenthereunder for any of the following reasons unless the context indicates otherwise: 

 

(i) Retirement by Executive; 

 

(ii) Death of Executive; 

 

(iii) Disability; 

 

(iv) Expiration; 

 

(v) Resignation for Good Reason; 

 

(vi) Resignation other than Resignation for Good Reason; 

 

(vii) Termination Without Cause; and 

 

(viii) Termination for Cause. 

 

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

 

(i) A resignation by Executive; 

 

(ii) Termination for Cause; 

 

(iii) Retirement; 

 

(iv) Disability; 

 

(v) Death; or

 

(vi) Expiration. 

 

2. Employment. Pursuant to the provisions of 12 U.S.C. Section 24(i.e., The National Bank Act) and notwithstanding any other provision to the contrary contained herein, it is agreed by the parties hereto that the Executive’s employment by Bank hereunder shall be at-will, and that Bank may at any time electto terminate this Agreement and Executive’s employment by Bank for any reason by action of its Board by the affirmative vote of at least a majority of the authorized number of directors of the Bank. In this Agreement, notwithstanding theforegoing, in the event of any Termination Without Cause pursuant to either Section 2 or Section 7 of this Agreement, all severance and other benefits provided for in Section 8 of this Agreement shall be provided by the Bank to the Executive in lieuof any other severance, compensation or benefits (except that Executive shall be permitted to exercise his right to seek continuing health benefits under COBRA). 

 

3. Position and Responsibilities. The Executive shall serve as Senior Vice President/Administration Group of the Bankand, subject to the provisions of Section 5 below, shall have such responsibilities, duties and authority set forth in the Articles of Association and Bylaws of Bank and as are generally associated with such positions and as may from time to time beassigned to the Executive by the Board that are consistent with such responsibilities, duties and authority. During the Term of this Agreement, the Executive shall devote all his time, attention, skill and efforts during normal business hours to thebusiness and affairs of the Bank. 

 

4. Term of Agreement.Subject to the terms and provisions of this Agreement, this Agreement and the period of Executive’s employment shall be deemed to have commenced as of June 7, 2004, and shall continue for an initial term of two (2) calendar years and 207days**** thereafter and any extensions thereafter, expiring on December 31, 2006, unless extended as provided herein. The initial term shall automatically be extended for an additional one (1) full calendar year without further action by theparties on January 1, 2005, and on each succeeding January 1 thereafter, such that as of each such January 1, this Agreement shall have a remaining term of three (3) calendar years. Each party, Bank or Executive, may stop an automatic calendar yearextension, however, by serving written notice (“Notice of Non-Renewal”) upon the other within 90 calendar days prior to January 1, 2007, or within 90 calendar days prior to January 1 of any succeeding year, as the case may be, of suchparty’s intention that this Agreement shall expire at the end of such Term. In the event the Bank retains Executive as an employee following the expiration of the Term, such employment, absent a written agreement to the contrary, will be on anat-will basis with such compensation and upon such terms as the parties may then agree, subject to termination at any time with or without cause, and without liability. If the Bank does not retain Executive as an employee after the Expiration of theTerm, Executive’s employment shall cease without further liability of the parties to each other. Executive’s employment shall also terminate, and the Term of this Agreement will expire, upon Executive’s resignation (unless resignationis for Good Reason after a Change in Control), retirement, death or Disability, or upon Executive’s Termination for Cause or Termination Without Cause. 

 

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5. Duties. 

 

(a) Bank and Executive hereby agree that, subject to the provisions of this Agreement, the Bank shall employ Executive, andExecutive shall serve the Bank (from date of appointment) as Senior Vice President/Administration Group for the Term of this Agreement. 

 

(b) During the Term hereof, Executive shall devote substantially all of his or her business time, attention, skill and efforts to the faithful performanceof the business of the Bank to the fullest extent necessary to properly discharge his or her duties and responsibilities hereunder. Executive’s position and duties with the Bank shall be as identified from time to time by the Boards. Further,with the approval of the Board, from time to time, Executive may serve, or continue to serve, on the boards of directors of, and hold any other offices or positions in, companies or charitable, political or civic organizations, which, in suchBoard’s judgment, will not present any material conflict of interest with the Bank and will not unfavorably affect the performance of Executive’s duties pursuant to this Agreement. 

 

6. Salary, Bonus Payments and Related Matters. 

 

(a) Salary. During the period of the Executive’s employmenthereunder, the Bank shall pay to the Executive a base salary of One Hundred Thirty Five Thousand Dollars ($135,000.00) per year. All base salary owed to Executive shall be payable at regular intervals in accordance with the Bank’s normalpayroll practices now or hereafter in effect. Executive’s salary shall be reviewed at least annually by the Board or a committee designated by the Board and shall be adjusted based upon Executive’s job performance and the Bank’sfinancial condition and performance; provided, however, that in no event shall Executive’s monthly salary be lower than the initial amount set forth above unless, in the good faith judgment of the Board, the financial condition of the Bankrequires a general decrease in the salaries of all executive officers of the Bank. The first such salary review shall be undertaken no later than January 1, 2005 and completed no later than June 30, 2005. Notwithstanding the foregoing, if there is aChange in Control, Executive’s salary shall not be less than Executive’s annual salary for the year immediately preceding the Change in Control. It is agreed to by Bank and Executive that all compensation (other than stock options) earnedand payable to Executive under this Agreement be paid by Bank. 

 

(b) Bonuses. Executive may receive certain annual bonus compensation during the Term of this Agreement as follows: 

 

(i) Incentive Bonus. During each year of the Term Executive shall receive a bonus in an amount which is equal to theExecutive’s portion of the Bank’s Senior Management Plan as determined by the Bank’s Board of Director’s annually, provided that the requirements of said Senior Management Plan have been satisfied for each such year. During 2004,Executive shall receive a prorated portion of said bonus determined by multiplying (1) the full bonus by (2) the fraction of 207/365. This bonus shall be paid within ninety (90) days of the end of the calendar year for which the bonus is earned evenif a payment is due after the expiration of the Term. 

 

(ii) Discretionary Bonus. Executive may also, in the discretion of the Board of Directors, receive an additional bonus based on individual merit and performance. The amount of this bonus, if any, in any such year shall be determinedby the Board of Directors, in its sole discretion. 

 

(c)Expenses. During the period of the Executive’s employment hereunder, the Executive shall be entitled to receive prompt reimbursement for all reasonable and customary expenses incurred by the Executive in performing services hereunder inaccordance with the general policies and procedures established by the Bank. 

 

(d) Employee Benefits and Perks. During the period of the Executive’s employment hereunder, the Executive shall be entitled to participate in all employee benefits plans or arrangements of the Bank on thesame basis as other employees of the Bank including, without limitation, plans or arrangements providing medical insurance, dental insurance, life insurance, disability insurance, sick leave, vacation or retirement. Executive shall also be entitledto (i) an automobile allowance in the amount of $500.00 per month, (ii) use of the Bank provided credit card(s), car telephone(s), pager(s) and such other perks (if such are being so provided) upon the terms and conditions previously in effect.

 

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(e) Stock Options. Bancorp shall grant to Executive options to purchase FifteenThousand (15,000) shares of its authorized but unissued common stock under Bancorp’s 2003 Stock Option Plan at the fair market value of the stock on the date of grant as follows: 

 

(i) Seventy-Five Hundred (7,500) shares granted as of June 7, 2004; 

 

(ii) Seventy-Five Hundred (7,500) shares granted as of thedate of the Board meeting following stockholder approval of an amendment of the 2003 Stock Option Plan to increase the number of available shares, but in no event later than the day of the 2005 Annual Stockholders Meeting as long as stockholderapproval of additional shares has been granted; 

 

Bancorp andExecutive agree that such options shall each be for a term of ten (10) years, and will vest in installments of twenty percent (20%) percent, at the end of the first anniversary of the date of grant, twenty (20%) percent on the second anniversary ofthe date of grant, twenty (20%) on the third anniversary of the date of grant, twenty (20%) percent on the fourth anniversary of the date of grant and twenty (20%) percent on the fifth anniversary of the date of grant per year over a period of five(5) years. The Company and Executive also agree that, to the maximum extent permitted by law, the option will qualify as an “incentive stock option” within the meaning of Section 422 of the Code, as amended. It is further agreed byExecutive that Bancorp shall exert its best efforts to obtain all approvals necessary for either the new stock option plan or amendment to the 2003 Stock Option Plan to effectuate the allocation of such additional shares. Such stock options will begranted to Executive, pursuant to the Plan and an agreement between Bancorp and Executive containing the terms set forth herein and all other terms as specified in the form of Stock Option Agreement approved by the Board of Directors in connectionwith their adoption of the Plan. 

 

7. Termination.

 

(a) Resignation, Retirement, Death or Disability.Executive’s employment hereunder shall cease at any time by Executive’s resignation (other than a resignation for Good Reason as provided in Section 7(d)), or by Executive’s retirement, death or Disability. If Employee’semployment terminates as a result of Employee’s death or permanent disability, no compensation or payments will be made other than accrued compensation and benefits. Disability shall be determined in accordance with the terms of theCompany’s policies and procedures and applicable law. 

 

(b) Termination for Cause. Executive’s employment shall cease upon a good faith finding of Cause by the Board; provided, however, that Executive shall be given written notice of the Board’s finding of conduct by Executiveamounting to Cause for such termination. Said notice shall be accompanied by a copy of a resolution duly adopted by the affirmative vote of not less than a majority of a quorum of the Board at a duly-noticed meeting of the Board, finding that in thegood faith opinion of the Board, Executive was guilty of conduct amounting to Cause and specifying the particulars thereof; provided, however, that after a Change in Control, such resolution may be adopted only by the affirmative vote of not lessthan a majority of a committee composed of at least three (3) disinterested outside directors of the Bank. In the absence of at least three (3) disinterested outside directors, a determination of Cause shall be submitted to and made by anarbitrator(s) pursuant to Section 19 hereof. 

 

(c)Termination Without Cause. Executive’s employment may be terminated Without Cause pursuant to either Section 2 or this Section 7(c) upon 30 days’ notice for any reason, subject to the payment of all amounts required by Section 8hereof. 

 

(d) Resignation for Good Reason. Following aChange in Control during the Term hereof, Executive may Resign for Good Reason within 90 days of Executive’s discovery of the occurrence of one or more of the following events, any of which shall constitute “Good Reason” for suchResignation for Good Reason: 

 

(i) WithoutExecutive’s express written consent, the assignment to Executive of any duties materially inconsistent with Executive’s position, duties, responsibilities and status with the Bank immediately prior to the Change in Control, or anysubsequent removal of Executive from or any failure to re-elect him to any such position; 

 

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(ii) Without Executive’s express written consent, the termination and/or materialreduction in Executive’s facilities (including office space and general location) and staff reporting and available to Executive immediately prior to the Change in Control; 

 

(iii) A material reduction (ten percent or greater) by the Bank of Executive’s base salary or of anybonus compensation applicable to him as in effect immediately prior to the Change in Control; 

 

(iv) A failure by the Bank to maintain any of the employee benefits and perks to which Executive was entitled immediately prior to theChange in Control at a level substantially equal to or greater than the value of those employee benefits and perks in effect immediately prior to the Change in Control; or the taking of any action by the Bank which would materially affectExecutive’s participation in or reduce Executive’s benefits under any such benefits or ‘perks’ plans, programs or policies, or deprive Executive of any material fringe benefits enjoyed by him immediately prior to the Change inControl; 

 

(v) The Bank requiring Executive tobe based anywhere other than in the county in which the Bank’s principal business location is currently situated, except for required travel on the Bank’s behalf to an extent substantially consistent with Executive’s present businesstravel obligations; 

 

(vi) Any purportedTermination of Executive’s employment by the Bank other than those effected in good faith pursuant to Sections 7(a) and 7(b); 

 

(vii) The failure of the Bank to obtain the assumption of this Agreement by any successor; or 

 

(viii) Receipt by Executive of a Notice of Non-Renewal.

 

(e) Supervisory Suspension. If the Executive issuspended and/or temporarily prohibited from participating in the conduct of the Bank’s affairs by a notice served under Sections 8(e) or (g) of the Federal Deposit Insurance Act or similar statute, rule or regulation, the Bank’s orBancorp’s obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Bank shall, (i) pay the Executive all or part of the compensationwithheld while its obligations under this Agreement were suspended and (ii) reinstate (in whole or in part) any of its obligations which were suspended. 

 

(f) Regulatory Removal. If the Executive is removed and/or permanently prohibited from participating in the conduct of the Bank’s orBancorp’s affairs by an order issued under Sections 8(e) or (g) of the Federal Deposit Insurance Act or similar statute, rule or regulation, all obligations of the Bank and Bancorp under this Agreement shall terminate as of the effective dateof the order. 

 

8. Payments to Executive UponTermination. 

 

(a) Death, Disability or Retirement.In the event of Termination of this Agreement due to Executive’s death, Disability or retirement, Executive or Executive’s spouse and/or estate shall be entitled to all benefits generally available to Bank employees, or their spousesand/or estates, as of the date of such death, Disability or retirement, without reduction. 

 

(b) Resignation Without Good Reason or Expiration. In the event of Executive’s resignation (other than a Resignation for Good Reason), or upon Expiration, the Bank and Bancorp shall have no furtherobligations to Executive under this Agreement or otherwise, except as may be expressly required by law. 

 

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(c) Termination for Cause. In the event Executive is Terminated for Cause, the Bank or Bancorpshall have no further obligations to Executive under this Agreement or otherwise, except as may be expressly required by law. 

 

(d) Termination Without Cause Prior to a Change in Control. Upon the occurrence of a Termination Without Cause prior to a Change in Control, asseverance pay and in lieu of damages for breach of this Agreement, Bank of Bancorp shall pay Executive accrued compensation and benefits at the time of such termination and, upon the execution and delivery of a full and complete release of claims byExecutive (in a form acceptable to Bank and Bancorp), Bank and Bancorp shall pay Executive, in the aggregate, a lump sum severance payment equal to nine (9) months base salary then in effect, less applicable state and federal withholdings. Such lumpsum shall be paid not later than the tenth (10th) day following the date of Termination Without Cause. 

 

(e) Termination Without Cause or Resignation for Good Reason, After a Change in Control. If in the 24 month period following a Change in Control,Executive (i) Resigns for Good Reason or (ii) is otherwise Terminated Without Cause, shall pay Executive accrued compensation and benefits at the time of such termination and, upon the execution and delivery of a full and complete release of claimsby Executive (in a form acceptable to Bank and Bancorp), Bank shall pay Executive, in the aggregate, a lump sum severance payment equal to the sum of 1) eighteen (18) months base salary then in effect, and 2) an amount equal to all bonuses paid toExecutive in the year prior to the Change in Control. Such lump sum shall be paid not later than the tenth (10th) day following the date of Termination Without Cause or a Resignation for Good Reason. In addition, the Bank will continue to pay theEmployer portion of the health insurance continuation premiums for the Executive (COBRA) for a period of 9 months following termination. Executive will be responsible for paying his or her portion of the premium, plus the currently applicable COBRAadministration fee during said period. 

 

(f) Source ofPayments. All payments provided in Section 8 shall be paid in cash from the general funds of the Bank, and no special or separate fund need be established and no other segregation of assets need be made to assure payment. 

 

(g) Consistent Returns. The Bank and Executive agree that thepayments being made under this Agreement represent reasonable compensation for services and that neither the Bank nor Executive will file any returns or reports which take a contrary position. 

 

(h) Reduction or Limitation on Payments. 

 

(i) Notwithstanding anything in the foregoing to thecontrary, if the payments made to Executive following a Termination Without Cause or Resignation For Good Reason or any of the other payments provided for in this Agreement, together with any other payments which Executive has the right to receivefrom the Bank or Bancorp would constitute a “parachute payment” (as defined in Section 280G of the Code), the payments pursuant to this Agreement shall be reduced to the largest amount as will result in no portion of such payments beingsubject to the excise tax imposed by Section 4999 of the Code; provided, however, that the determination as to whether any reduction in the payments under this Agreement pursuant to this proviso is necessary shall be made in good faith by theBank’s independent auditors or if such firm is no longer providing tax services to Bank to such other tax advisor as shall be mutually acceptable to Bank and Executive, and such determination shall be conclusive and binding on the Bank andExecutive with respect to the treatment of the payment for tax reporting purposes. 

 

(ii) This Agreement, and any payments or benefits hereunder, are made expressly subject to and conditioned upon compliance with allfederal and state law, regulations and policies relating to the subject matter of this Agreement, including but not limited to the provisions of law codified at 12 U.S.C. §1828(k), the regulations of the FDIC codified as 12 C.F.R. Part 359, andany successor or similar federal or state law or regulation applicable to the Bank or Bancorp. Employee acknowledges that he understands the sections of law and regulations cited above and that the Bank’s and Bancorp’s obligations to makepayments hereunder are expressly relieved if such payments violate any federal or state law or regulation applicable to the Bank or Bancorp. 

 

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9. Nondisclosure of Confidential Information. Executive acknowledges that, in the course ofemployment with the Bank, Executive will have access to confidential information. “Confidential Information” includes, but is not limited to, information about the Bank and Bancorp, its affiliates and its clients, pricing information,financing arrangements, research materials, manuals, computer programs, formulas, techniques, data, marketing plans and tactics, technical information, lists of asset sources and customers, the processes and practices of the Bank and Bancorp, andtheir affiliates, all information contained in electronic or computer files, all financial information, salary and wage information, and any other information that is designated by the Bank and Bancorp, or their affiliates as confidential or thatExecutive knows or should know is confidential. Confidential Information also includes information provided by third parties that the Bank and Bancorp, or their affiliates are obligated to keep confidential; and all other proprietary information ofthe Bank and Bancorp, or their affiliates. Executive acknowledges that all Confidential Information is and shall continue to be the exclusive property of the Bank and Bancorp or their affiliates, as applicable, whether or not prepared in whole or inpart by Executive and whether or not disclosed to or entrusted to Executive in connection with employment by the Bank. Executive agrees not to disclose Confidential Information, directly or indirectly, under any circumstances or by any means, to anythird persons without the prior written consent of the Bank or their affiliates, as applicable, both during his employment with the Bank and Bancorp and after his employment has ended. Executive agrees that he will not copy, transmit, reproduce,summarize, quote, or make any commercial or other use whatsoever of Confidential Information, except as may be necessary to perform work done by Executive for the Bank and Bancorp. Executive agrees to exercise the highest degree of care insafeguarding confidential information against loss, theft or other inadvertent disclosure and agrees generally to take all steps necessary or requested by the Bank and Bancorp or their affiliates to ensure maintenance of the confidentiality of theConfidential Information. Executive agrees that, unless compelled by law, Executive shall not, during or after employment with the Bank, make any comments or other communications contrary to the interests of, or disparaging the goodwill orreputation of, the Bank and Bancorp, their business or any of their products, services, controlling persons, affiliates, officers, directors, or executives. Executive agrees, in addition to the specific covenants contained herein, to comply with allof Bank’s and Bancorp’s policies and procedures for the protection of Confidential Information. 

 

10. ****Exclusions. Paragraph 9 shall not apply to the following information: (a) information now and hereafter voluntarily disseminated by theBank or Bancorp to the public or which otherwise becomes part of the public domain through lawful means; (b) information already known to Executive as documented by written records which predate Executive’s employment with the Bank but that wasnot subject to any obligation of confidentiality; (c) information subsequently and rightfully received from third parties and not subject to any obligation of confidentiality; and (d) information independently developed by Executive aftertermination of his employment. 

 

11. Confidential,Proprietary and Trade Secret Information of Others. Executive represents and warrants that he is not under any pre-existing obligation that conflicts or is in any way inconsistent with the provisions of this Agreement. Executive represents andwarrants that he has not granted any rights or licenses to any intellectual property or technology that would conflict with Executive’s obligations under this Agreement. Executive further represents and warrants that he has disclosed to theBank and Bancorp any agreement to which Executive is or has been a party regarding the confidential information of others and Executive understands that Executive’s employment by the Bank and Bancorp will not require Executive to breach anysuch agreement. Executive will not disclose protected confidential information of third parties to the Bank or Bancorp nor induce the Bank and Bancorp to use any such protected confidential information received from another under an agreement orunderstanding prohibiting such use or disclosure. 

 

12. NoUnfair Competition. Executive hereby acknowledges that the sale or unauthorized use or disclosure of any of the Bank’s or Bancorp’s Confidential Information obtained by Executive by any means whatsoever, at any time before, during, orafter the Term shall constitute unfair competition. Executive shall not engage in any unfair competition with the Bank or Bancorp either during the Term or at any time thereafter. 

 

13. Ownership of Copyrights. Executive agrees that all original works of authorship not otherwise within the scope ofParagraph 14 that are conceived or developed during Executive’s employment with the Bank, either alone or jointly with others, if on the Bank’s time, using Bank or Bancorp facilities, or relating to the Bank and Bancorp are “works forhire” to the greatest extent permitted by law and shall be owned exclusively by the Bank and Bancorp, and Executive hereby assigns to the Bank or Bancorp all of Executive’s right, title, and interest in all such 

 

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original works of authorship and mask works. Executive agrees that the Bank and Bancorp shall be the soleowner of all rights pertaining thereto, and further agrees to execute all documents that the Bank and Bancorp reasonably determines to be necessary or convenient for establishing in the Bank’s or Bancorp’s name the copyright to any suchoriginal works of authorship. Executive shall claim no interest in any inventions, copyrighted material, patents, or patent applications unless Executive demonstrates that any such invention, copyrighted material, patent, or patent application wasdeveloped before he began any employment with the Bank or Bancorp. This provision is intended to apply only to the extent permitted by applicable law. 

 

14.****Ownership of Records. Any written record that Executive may maintain of inventions, discoveries, improvements, trade secrets, formulae,processes, or know-how, whether or not patentable and whether or not reduced to practice, and any such records relating to original works of authorship or mask works made by Executive, alone or jointly with others, in the course of Executive’semployment with the Bank shall remain the property of the Bank and Bancorp. Executive shall furnish the Bank and Bancorp any and all such records immediately upon request. 

 

15. Return of Bank’s Property and Materials. Upon termination of employment with the Bank, Executive shalldeliver to the Bank and Bancorp all Bank and Bancorp property and materials that are in Executive’s possession or control, including all of the information described as Confidential Information in Paragraph 9 of this Agreement and including allother information relating to any inventions, discoveries, improvements, trade secrets, formulae, processes, know-how, original works of authorship, or mask works of the Bank or Bancorp. 

 

16. Waivers not to be Continued. Any waiver by a party of any breach of this Agreement by the other party shall notbe construed as a continuing waiver or as a consent to any subsequent breach by the other party. 

 

17. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given ifdelivered by hand or mailed, certified or registered mail, return receipt requested, with postage prepaid, to the following addresses or to such other address as either party may designate by like notice. 

 
 A.If to the Bank, to: 
 

Community National Bank 

900 Canterbury Place, Suite 300 

Escondido, California 92025 

Attn: President and Chief Executive Officer 

 
 B.If to Bancorp, to: 
 

Community Bancorp, Inc. 

900 Canterbury Place, Suite 300 

Escondido, California 92025 

Attn: President and Chief Executive Officer 

 
 C.If to Executive, to: 
 

Richard M. Sanborn 

c/o Community National Bank 

900 Canterbury Place, Suite 300 

Escondido, California 92025 

 

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

 

18. Indemnification. To the maximum extent and when permitted byapplicable law, the Articles of Association and Bylaws of Bank and the Certificate of Incorporation and Bylaws of Bancorp and resolutions of the Boards of Directors of the Bank and Bancorp in effect from time to time (except as limited below), theBank and 

 

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Bancorp shall indemnify Executive against liability or loss arising out of Executive’s actual or assertedmisfeasance or non-feasance in the performance of Executive’s duties or out of any actual or asserted wrongful act against, or by, the Bank or Bancorp including but not limited to judgments, fines, settlements and expenses incurred in thedefense of actions, proceedings and appeals therefrom. In the event there is any conflict between the provisions governing indemnification for the Bank or Bancorp, it is intended by the parties that the broadest protections of each be afforded toExecutive. However, the Bank and Bancorp shall have no duty to indemnify Executive with respect to any claim, issue or matter as to which Executive has been finally adjudged to be liable to the Bank or Bancorp in the performance of his duties,unless and only to the extent that the court in which such action was brought shall determine upon application that, in view of all of the circumstances of the case, Executive is fairly and reasonably entitled to indemnification for the expenseswhich such court shall determine. The Bank and Bancorp shall endeavor to maintain Directors and Officers Liability Insurance to indemnify and insure the Bank, Bancorp and Executive from and against the aforesaid liabilities. The provisions of thisSection 18 shall apply and inure to the benefit of the estate, executor, administrator, heirs, legatees or devisees of Executive. 

 

19. Arbitration.

 

(a) Policy. In order to encourage the speedy, cost effective resolution of any disputes between the Bank and Bancorp and its employees concerningall disputes that may arise in connection with, arise out of or relate to this Agreement, or any dispute that relates in any way, in whole or in part, to hiring by, employment with or separation from Bank or Bancorp, or any other dispute by andbetween Bank or Bancorp, its parent and subsidiary corporations, their affiliates and each of their respective officers, directors, agents and employees, on the one hand, and Executive, on the other hand, shall be submitted to binding arbitration.Such arbitration supplants, replaces and waives any right that the employee or the Bank or Bancorp may have to pursue any dispute, claim or controversy relating to employment with, or as a result of the termination of employment from, the Bank orBancorp (including claims for employment discrimination and harassment), in any court, agency, tribunal or other forum, including a civil action before any jury. Notwithstanding the foregoing, nothing herein is intended to nor shall preclude anyemployee from filing any administrative charge of discrimination with the California Department of Fair Employment and Housing, or the Equal Employment Opportunity Commission. 

 

(b) Procedure: 

 

(i) Except to the extent specifically modified herein, all arbitrations under this policy shall be conducted in accordance with the JAMSArbitration Rules and Procedures for Employment Disputes as are in effect at the time the dispute arises, and such rules are specifically incorporated herein by this reference. Copies of the Arbitration Rules shall be made available to employeesupon request. 

 

(ii) Either Executive or theBank and Bancorp may initiate arbitration. Executive may initiate arbitration by delivering to the Bank and Bancorp through personal delivery, certified or registered mail, a written demand for arbitration. The demand shall include a concisestatement of the issue(s) to be arbitrated, along with a statement setting forth the relief requested. Along with the demand for arbitration, Executive shall submit a check or money order payable to “JAMS” in the amount of one hundredfifty dollars ($150) as his or her portion of the administrative fees of the arbitration. Thereafter, the remaining costs of the arbitration, such as the arbitrator’s fees, costs of a court reporter, and room rental fees, if any, shall be paidby the Bank and Bancorp. Any remaining fees and costs, including but not limited to attorneys fees shall, subject to any remedy to which the prevailing party may be entitled to under the law, be borne by each party to the same extent as that partywould be responsible for such fees and costs should the matter be litigated in court. 

 

(iii) If the Bank or Bancorp initiates arbitration, it shall do so by delivering to Executive, through personal delivery, certified orregistered mail, a written demand for arbitration. The demand shall contain a concise statement of the issue(s) to be arbitrated, along with a statement setting forth the relief requested. In all respects, any arbitration initiated by the Bank andBancorp shall proceed in the same manner as set forth in paragraph (ii) above, with the exception that Executive shall not be required to pay the initial $150 administrative fee. 

 

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(iv) The Arbitrator shall be empowered to award either party any remedy at law or inequity that the prevailing party would otherwise have been entitled to had the matter been litigated in court, including but not limited to, general, special and punitive damages, recoverable costs, attorneys fees (where provided by statute orcontract) and injunctive relief; provided, however, that the authority to award any remedy is subject to whatever limitations, if any, exist in the applicable law on such remedies. The arbitrator shall have no jurisdiction to issue any awardcontrary to or inconsistent with law. 

 

(v) Inany arbitration conducted pursuant to this policy, either party may request the presence of a court reporter for the hearing, the costs of which shall be allocated as provided in paragraph (ii) above. Following the evidentiary portion of thehearing, either party shall have the right to prepare and file with the arbitrator a post-hearing brief, not to exceed fifty (50) pages in length. Any such brief shall be served on the arbitrator and the other party within thirty (30) days of theclose of the evidentiary portion of the hearing, unless the parties agree to some other time period. Either party may also request and shall be granted one extension of this time period not to exceed fifteen (15) days. The arbitrator shall have theauthority to grant other extensions, or to increase the page limitation set forth above, upon the request of any party for good cause shown. 

 

(vi) Any disputes concerning the enforcement, scope, and/or applicability of this section 19 shall in the first instance be determined bythe arbitrator. Should either the Bank and Bancorp or Executive disregard this Section 19 and pursue an action subject hereto in any court or administrative agency, upon application of the aggrieved party to a court of competent jurisdiction, thecourt shall order the matter to arbitration and shall award the prevailing party in any such hearing its reasonable costs and attorney’s fees incurred in connection therewith. Notwithstanding the foregoing, either party shall retain the rightto seek a provisional remedy pending arbitration from a court of competent jurisdiction pursuant to and consistent with Cal. Code of Civil Procedure section 1281.8. 

 

(vii) Any demand for arbitration by the Bank and Bancorp or Executive shall be filed within the statute oflimitation that is applicable to the claim(s) upon which arbitration is sought or required. Any failure to demand arbitration within this time frame and according to these rules shall constitute a waiver of all rights to raise any claims in anyforum arising out of any dispute that was subject to arbitration. 

 

(viii) By executing this Agreement, Executive represents that he has reviewed this Section 19 and understands the terms and conditions contained herein. 

 

(ix) Notwithstanding any provision to the contrary in this Agreement, should any part of this Section 19 bedeclared by a court of competent jurisdiction to be invalid, unlawful or otherwise unenforceable, the remaining parts shall not be affected thereby, and the parties shall arbitrate their dispute without reference to or reliance upon the invalid,unlawful or unenforceable part of this Section 19. 

 

20.General Provisions. 

 

(a) Entire Agreement. ThisAgreement constitutes the entire agreement by the parties with respect to the subject matter hereof, and supersedes and replaces all prior employment agreements (but not stock option or other separate benefit agreements) among or between theparties. No amendment, waiver or termination of any of the provisions hereof shall be effective unless in writing and signed by the party against whom it is sought to be enforced. Any written amendment, waiver, or termination hereof executed by theBank, Bancorp and Executive shall be binding upon them and upon all other Persons, without the necessity of securing the consent of any other Person, and no Person shall be deemed to be a third-party beneficiary 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 taken together 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 in exercisingany right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power orremedy. 

 

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(d) Headings. The headings of the Sections of this Agreement have been inserted for convenience ofreference only and shall in no way restrict or modify any of the terms or provisions hereof. 

 

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

 

(f) Governing Law. This Agreement shall be governed and construed and the legal relationships of the parties determined in accordance with the lawsthe United States and to the extent not inconsistent therewith the laws of the State of California applicable to contracts executed and to be performed solely in the State of California. 

 

(g) Assumption. The Bank and Bancorp 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 business and/or assetsof the Bank or Bancorp to expressly assume and agree to perform the obligations under this Agreement in the same manner and to the same extent that the Bank or Bancorp would be required to perform it if no such succession had taken place.

 

(h) Advice of Counsel. Executive acknowledges that hehas been encouraged to consult with legal counsel of his choosing concerning the terms of this Agreement prior to executing this Agreement. Any failure by Executive to consult with competent counsel prior to executing this Agreement shall not be abasis for rescinding or otherwise avoiding the binding effect of this Agreement. The parties acknowledge that they are entering into this Agreement freely and voluntarily, with full understanding of the terms of this Agreement. Interpretation of theterms and provisions of this Agreement shall not be construed for or against either party on the basis of the identity of the party who drafted the terms or provisions in question. 

 

(i) Binding Agreement. This Agreement and all rights of Executive hereunder shall inure to the benefit of and be enforceableby Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. Executive’s duties and obligations under this Agreement are personal to and may not be assigned byExecutive. This Agreement shall inure to the benefit of and be fully enforceable by the Bank or Bancorp’s successors or assigns. 

 

(j) Voluntary Agreement. Executive acknowledges, warrants and represents that (a) he has read and understands each of the terms and conditions of thisAgreement, including, without limitation, the Restrictive Covenants and Agreements set forth in paragraphs 9 through 14, above; (b) he is entering into this Agreement, including, without limitation, the Restrictive Covenants and Agreements set forthin paragraphs 9 through 14, above, and freely, voluntarily and knowingly and without any coercion or duress; and (c) Executive expressly intends that each of the terms and conditions of this Agreement be fully enforceable and enforced by any courtthat may later review this Agreement, if ever, and Executive never will attempt to establish, argue or otherwise claim that any of the terms and conditions of this Agreement are void, voidable or otherwise unenforceable. 

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of theday and year first above written. 

 

ATTEST:
   
COMMUNITY NATIONAL BANK

 
 By: 
 
Witness Its: President & Chief Executive Officer    Michael J. Perdue    
THE EXECUTIVE

 
   
 
Witness   Richard M. Sanborn
 

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