Document:

ex10-6.htm

    Exhibit
10.6

    

    CHANGE
IN CONTROL SEVERANCE AGREEMENT

    COMMONWEALTH
NATIONAL BANK

    

    This
Agreement is made and entered into, effective as of May 30, 2008, by and between
Commonwealth National
Bank, a national bank with its principal office and place of business at
33 Waldo Street, Worcester, Massachusetts (“Bank”) and Charles R. Valade, a
resident of Sutton, Massachusetts (“Executive”).  This Agreement
constitutes a restatement, in its entirety, of the agreement entered into by and
between the parties effective as of May 18, 2006.

    

    WITNESSETH:

    

    WHEREAS, Executive is employed
by Bank and its parent, CNB Financial Corp. (the “Company”), as President and
Chief Executive Officer;

    

    WHEREAS, the Board of
Directors of Bank considers it to be in the best interests of Bank and the
stockholders of Company to foster the continued employment of Executive in the
event of a Potential Change-in-Control (as hereinafter defined);

    

    WHEREAS, Bank desires to
assure Executive of what it considers to be fair and reasonable terms in the
event of a Change-in-Control (as hereinafter defined);

    

    NOW THEREFORE, in
consideration of the promises and mutual covenants herein contained, the parties
hereto, intending to be legally bound, do hereby mutually covenant and agree as
follows:

    

    1.           Term
of Agreement.

    

    This
Agreement shall be effective as of the date and year first above written (the
“Commencement Date”), and shall continue in effect through the date ending on
the second anniversary of the Commencement Date (the “Term”); provided, however,
that commencing on the date two years after the Commencement Date (the “Initial
Renewal Date”), and on the first day of each calendar month following the
calendar month in which falls the Initial Renewal Date (each such date and the
Initial Renewal Date shall be hereinafter referred to as the “Renewal Date”),
unless previously terminated, the Term shall be automatically extended so as to
terminate twenty-five (25) calendar months from such Renewal Date, unless at
least 60 days prior to the Renewal Date, Bank shall give notice to Executive
that the Term shall not be so extended; provided, however, that no such notice
by Bank shall be effective if prior to the date of such notice (i) a “Potential
Change in Control” shall have occurred and the event giving rise thereto has not
been terminated, abandoned or rescinded or (ii) a “Change in Control” shall have
occurred.

    

    2.           Definitions.

    

    For
purposes of this Agreement, the following terms shall have the following
meanings:

    

    (a)           A
“Change in Control” shall be deemed to have occurred if, during the term of this
Agreement:

    

    (i)           any
Person directly or indirectly or acting through one or more other Persons owns,
controls or has power to vote more than 50% of the voting common stock of Bank
or a Controlling Person; or

    

    (ii)           any
Person acquires or agrees to acquire all or substantially all of the assets and
business of Bank or a Controlling Person; or

    

    (iii)           any
Person (A) is a party to a merger, consolidation or any other form of
reorganization having substantially the same effect as a merger or
consolidation, with Bank or a Controlling Person and (B) immediately prior to
such transaction the Person had total assets as of the end of its most recent
fiscal year equal to or greater than 100% of the total assets of Bank or the
Controlling Person, as applicable, as of the end of its most recent fiscal year;
or

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (iv)           during
any period of twenty-four (24) consecutive months, individuals who at the
beginning of such period constitute the Board of Directors of Bank cease for any
reason to constitute a majority of such Board, unless the election, or the
nomination for election of each new Director was approved by a vote of a
majority of the Directors then still in office who were Directors at the
beginning of such period; or

    

    (v)           the
Board of Directors of Bank, by vote of two-thirds (2/3) of all the Directors
(excluding Executive if Executive is a Director), adopts a resolution to the
effect that a “Change in Control” has occurred for purposes of this
Agreement.

    

    (b)           A
“Potential Change in Control” shall be deemed to have occurred if:

    

    (i)           Bank
or any Controlling Person enters into a letter of intent, memorandum of
understanding, or definitive agreement providing for, or publicly announces that
it is considering, one or more transactions, the consummation of which would
result in the occurrence of a Change in Control;

    

    (ii)           any
Person (including Bank) publicly announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control;
or

    

    (iii)           the
Board of Directors of Bank, by vote of two-thirds (2/3) of all the Directors
(excluding Executive if Executive is a Director) adopts a resolution to the
effect that a “Potential Change in Control” has occurred for purposes of this
Agreement.

    

    (c)           A
“Person” shall include a natural person, corporation, or other entity. When two
or more persons act as a partnership, limited partnership, syndicate, or other
group for the purpose of acquiring, holding, or disposing of Beneficial
Ownership of Company common stock, such partnership, syndicate, or group shall
be considered a Person. Beneficial Ownership shall be determined under the then
current provisions of Securities Exchange Act Rule 13d-3;17 C.F.R. §
240.13d-3.

    

    (d)           A
“Controlling Person” shall mean a Person who directly or indirectly or acting
through one or more other Persons beneficially owns, controls or has power to
vote 50% or more of the voting common stock of Bank, including without
limitation, any holding company of Bank.

    

    3.           Duties
Upon Potential Change-in-Control.

    

    In the
event that a Potential Change-in-Control shall occur while Executive is employed
by Bank, Executive shall use his reasonable best efforts to fulfill Executive’s
responsibilities to Bank in the interests of Bank and the shareholders of
Company and in order to explore and pursue fully the Potential
Change-in-Control.

    

    4.           Change in Control Payments and
Benefits.

    

    (a)           Payment upon a
Change in Control. Subject to the
provisions of Section 4(e), no later than ten (10) days following a Change in
Control, Bank shall make the following payment to Executive:

    

    (i)           A
lump sum amount, in cash, equal to two and one-half times the sum
of:

    

    
      	
               
      

            	
              (A)

            	
              Executive’s
      annual base salary in effect immediately prior to the Change in Control;
      and

            

    

    

    
      	
               
      

            	
              (B)

            	
              the
      greater of (I) Executive’s annual incentive bonus for the year in which
      the Change in Control occurs or, (II) if no such incentive bonus has yet
      been determined for such year, the greater of the Executive’s annual
      incentive bonus actually earned by Executive in the year immediately
      preceding the year in which the Change in Control occurs or the target
      annual incentive bonus for the year in which the Change in Control
      occurs.

            

    

    

    (b)           Payments and
Benefit upon Termination in Connection with a Change in Control. If within twenty-four
(24) months following a Change in Control, Executive terminates employment with
Bank for Good Reason or Bank terminates Executive’s employment without Cause,
Bank shall provide the following payments and benefits to
Executive:

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (i)           Bank
shall pay Executive’s full base salary through the Date of Termination at the
rate in effect at the time Notice of Termination is given, no later than the
fifth day following the Date of Termination. Executive shall also receive all
other amounts to which Executive is entitled under any benefit plan of Bank at
the time such payments are due thereunder, subject, however, to the provisions
of Section 4(d) hereof.

    

    (ii)           An
amount in cash equal to Executive’s annual incentive bonus that would be payable
in cash for such year multiplied by a fraction, (A) the numerator of which
equals the number of full or partial days in such annual performance period
during which Executive was employed by Bank and (B) the denominator of which is
365.

    

    (iii)           Stock
options, restricted stock or other stock awards held by Executive at Executive’s
Date of Termination, the vesting of which is service based, if not then vested
and exercisable, will become fully vested and become exercisable at Executive’s
Date of Termination, and, in other respects (including the period following
termination during which such options may be exercised) such options, restricted
stock or other stock awards shall be governed by the plans and programs and the
agreements and other documents pursuant to which such options, restricted stock
or other stock awards were granted.

    

    (iv)           Any
performance objectives upon which the earning of performance-based restricted
stock or deferred stock awards, including outstanding stock plan awards and
other long-term incentive awards, is conditioned shall be deemed to have been
met at target level at Executive’s Date of Termination.

    

    (v)           Following
Executive’s Date of Termination, Bank shall arrange to provide Executive with
life and health insurance benefits no less favorable than those which Executive
was receiving immediately prior to Notice of Termination, with Executive paying
the same portion of the cost of such coverage as existed at such time. If
Executive elects after Date of Termination continued coverage under Bank’s
health plan in accordance with the applicable provisions of the Consolidated
Omnibus Reconciliation Act of 1985 (“COBRA”), Executive shall continue to
receive such individual and/or family health benefits coverage as Executive was
receiving at Executive’s Date of Termination with Executive paying the same
portion of the cost of such coverage as existed at such time, for so long during
the continuation period as Executive elects to continue coverage and pays
Executive’s portion of the costs of coverage. The foregoing coverages shall
continue for a maximum of 30 months following Executive’s Date of Termination,
provided that the coverages and reimbursement by the Bank of any expense
incurred by Executive for such coverages or payment by the Bank directly to the
person or entity providing such coverages for Executive shall not extend or be
made beyond December 31st of the second calendar year following the year in
which the Date of Termination occurs.

    

    (vi)           A
cash equivalent amount equal to the additional benefits under the Bank’s 401(k)
Plan or other similar qualified plan (plus estimated earnings thereon) that
Executive would have been entitled to had Executive continued in the employ of
Bank for a 30-month period following Executive’s Date of Termination and made
contributions under said plan at a rate, as a percentage of salary, equal to the
rate at which Executive had made contributions to said plan in the plan year
immediately preceding Executive’s Date of Termination.

    (vii)           Bank
shall reimburse Executive at least quarterly for amounts actually expended by
Executive for outplacement and job search activities (including, but not limited
to, reasonable office and secretarial expenses) in amounts in the aggregate up
to 20% of Executive’s annual base salary and annual incentive compensation taken
into account under Section 4(a)(i)(A) and (B) hereof, provided that such
expenditures are actually incurred and submitted for reimbursement by Executive
within the 24-month period following Executive’s Date of Termination and are
appropriately documented by invoices and proof of payment. Such submitted
expenses shall be reimbursed by Bank the earlier of 30 days after submission by
the Executive of such expenses for reimbursement or December 31st of the second
calendar year following the Date of Termination.

    

    (viii)           Bank
shall not be obligated to continue any disability or disability income insurance
on behalf of Executive following Executive’s Date of Termination. To the extent
permitted under any contracts, programs or policies of such nature in effect at
the time of such termination, Executive may continue at Executive’s sole cost
and expense for a period of up to eighteen (18) months.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (ix)           Following
Executive’s Date of Termination, Executive shall continue to receive such
perquisites, other than those specified in the preceding subparagraphs above, as
Executive was receiving immediately prior to Executive’s Date of Termination by
reimbursing Executive for the costs of such perquisites on the same cost sharing
with Bank as was in effect immediately prior to Executive’s Date of Termination
on or before the earlier of 30 days after submission of such costs for
reimbursement by Executive or December 31st of the second calendar year
following the year in which the Date of Termination occurs.

    

    (x)           Bank
shall reimburse Executive for the amount of any reasonable legal fees and
expenses incurred by Executive in any successful action (whether or not
arbitration or litigation shall be involved) to obtain or enforce any right or
benefit provided to Executive by Bank hereunder or as confirmed or acknowledged
hereunder on or before 30 days after submission of such costs for reimbursement
by Executive or December 31st of the
second calendar year following the year in which the Date of Termination
occurs.

    

    (c)           Termination
Process. The
following process shall apply with respect to any purported termination of
Executive’s employment by Bank or by Executive during the twenty-four (24)
months following a Change in Control.

    

    (i)           Any
such purported termination of Executive’s employment shall be communicated by
the terminating party to the other party by written Notice of
Termination.  Notwithstanding the foregoing, if Executive terminates
employment for “Good Reason,” the written Notice of Termination must be provided
within ninety (90) days following the date on which occurs the initial existence
of any circumstance as provided in Section 4(g)(iii) hereof that constitutes a
Good Reason.

    

    (ii)           Within
fifteen (15) days following communication of a Notice of Termination by Bank or
Executive, Bank shall deliver to Executive a written statement of all payments
and benefits (“Benefit Statement”) pertaining to Executive to be made pursuant
to this Agreement and otherwise to Executive by Bank. Bank and Executive shall
endeavor in good faith to address and resolve as soon as possible any questions,
issues or disagreements relating to said Benefit Statement within fifteen (15)
days following delivery to Executive of said Benefit Statement.

    

    (iii)           Thereafter,
Executive shall have a period of fifteen (15) days either to invoke the dispute
resolution provisions of Section 13 hereof by notice to Bank or to provide Bank
with a waiver in writing of his right to do so. Any failure by Executive to do
either of the foregoing shall for all purposes of this Agreement be deemed to
constitute a written waiver of Executive’s right to invoke the dispute
resolution provisions of Section 13 hereof, but shall not otherwise affect or
impair Executive’s rights or claims under this Agreement. Within five (5)
business days thereafter, Bank shall either request from an independent tax
advisor a determination of tax deductibility pursuant to Section 4(e) with
respect to all payments and benefits reflected on the Benefits Statement or
deliver to Executive a waiver in writing of its right to do so. Any failure by
Bank to do either of the foregoing shall for all purposes of this Agreement be
deemed to constitute a written waiver of Bank’s right to invoke application of
the provisions of Section 4(e).

    

    (d)           Time of
Payment. Subject to the
provisions of subsection (e) hereof, the payments provided for in the second
sentence of clause (i) and in clauses (ii), (vi) and (vii) of Section 4(b)
hereof, excluding, however, Bank’s reasonable estimate of any amounts that are
in dispute, shall be made not later than thirty (30) business days following
Executive’s Date of Termination.

    

    (e)           Limitation of
Benefits Under Certain Circumstances. If the payments and benefits
pursuant to Section 4 of this Agreement, either alone or together with other
payments and benefits Executive has the right to receive from Bank, would
constitute a “parachute payment” under Section 280G of the Internal Revenue Code
of 1986, as amended (the “Code”), the payments and benefits pursuant to Section
4 shall be reduced or revised, in the manner determined by Executive, by the
amount, if any, which is the minimum necessary to result in no portion of the
payments and benefits under Section 4 being non-deductible to Bank pursuant to
Section 280G of the Code and subject to the excise tax imposed under Section
4999 of the Code.  Bank’s independent public accountants will
determine any reduction in the payments and benefits to be made pursuant to
Section 4; Bank will pay for the accountant’s opinion.  If Bank and/or
Executive do not agree with the accountant’s opinion, Bank will pay to Executive
the maximum amount of payments and benefits pursuant 

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    to
Section 4, as selected by Executive, that the opinion indicates have a high
probability of not causing any of the payments and benefits to be non-deductible
to Bank and subject to the excise tax imposed under Section 4999 of the
Code.  Bank may also request, and Executive has the right to demand
that Bank request, a ruling from the IRS as to whether the disputed payments and
benefits pursuant to Section 4 have such tax consequences.  Bank will
promptly prepare and file the request for a ruling from the IRS, but in no event
will Bank make this filing later than thirty (30) days from the date of the
accountant’s opinion referred to above.  The request will be subject
to Executive’s approval prior to filing; Executive shall not unreasonably
withhold his approval.  Bank and Executive agree to be bound by any
ruling received from the IRS and to make appropriate payments to each other to
reflect any IRS rulings, together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code.  Nothing contained in
this Agreement shall result in a reduction of any payments or benefits to which
Executive may be entitled upon termination of employment other than pursuant to
Section 4 hereof, or a reduction in the payments and benefits specified in
Section 4, below zero.

    

    (f)           Separation from
Service.  For purpose of this Agreement, Executive’s
involuntary termination of employment or voluntary termination of employment for
“Good Reason” shall mean “Separation from Service” as defined in Section 409A of
the Code, and the Treasury Regulations promulgated thereunder, provided,
however, that the Bank and Executive reasonably anticipate that the level of
bona fide services Executive would perform after termination would permanently
decrease to a level that is less than 50% of the average level of bona fide
services performed (whether as an employee or an independent contractor) over
the immediately preceding 36-month period.

    

    (g)           Certain
Definitions. Except as otherwise
indicated in this Agreement, the following definitions shall be applicable under
this Section 4.

    

    (i)           Disability.
“Disability” shall mean Executive’s absence from the full-time performance of
Executive’s duties with Bank for six consecutive months as a result of
Executive’s incapacity due to physical or mental illness or disability, and
within 15 days after written Notice of Termination is thereafter given,
Executive shall not have returned to the full-time performance of Executive’s
duties.

    

    (ii)           Cause.
“Cause” shall mean termination on account of (A) the willful and continued
failure by Executive to substantially perform Executive’s duties with Bank
(other than any such failure resulting from Executive’s incapacity due to
physical or mental illness or Disability or any failure after the issuance of a
Notice of Termination by Executive for Good Reason) which failure is
demonstrably and materially damaging to the financial condition or reputation of
Bank and/or its affiliates, and which failure continues more than three (3)
business days after a written demand for substantial performance is delivered to
Executive by the Board, which demand specifically identifies the manner in which
the Board believes that Executive has not substantially performed Executive’s
duties or (B) the willful engaging by Executive in conduct which is demonstrably
and materially injurious to Bank or its affiliates, monetarily or otherwise.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Executive a copy of the resolution duly adopted by the affirmative vote of not
less than a majority in number of the entire membership of the Board of
Directors (excluding Executive if Executive is then a Director) at a meeting of
the Board (after reasonable notice to Executive and an opportunity for
Executive, together with Executive’s counsel, to be heard before the Board)
finding that, in the good faith opinion of the Board, Executive was guilty of
conduct set forth above in this Section 4(g)(ii) and specifying the particulars
thereof in detail. For purposes of this Section, no act or failure to act by
Executive shall be considered “willful” unless it is done, or omitted to be
done, in bad faith and without reasonable belief that Executive’s action or
omission was in the best interests of the Bank. Any act, or failure to act,
based upon the advice of counsel for the Bank shall be conclusively presumed to
be done, or omitted to be done, by Executive in good faith and in the best
interests of the Bank.

    

    (iii)           Good
Reason. “Good Reason” shall mean, without Executive’s express written consent,
the occurrence upon or after a Change in Control of any of the following
circumstances unless, in the case of subsections (A), (B), (C), (D), (E), (F) or
(G) hereof, such circumstances are fully corrected prior to the Date of
Termination specified in the Notice of Termination given in respect thereof
(provided, however, Bank will not be provided an opportunity to cure hereunder
more than once):

    

    (A)           a
material and substantial reduction or other material and adverse change by the
Bank in Executive’s position, authorities, or level of responsibilities as in
effect immediately prior to the Change in Control;

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (B)           a
material reduction in Executive’s annual base salary as in effect immediately
prior to the Change in Control;

    

    (C)           the
relocation of the principal place of Executive’s employment to a location more
than thirty-five (35) miles from Executive’s principal place of employment
immediately prior to the Change in Control;

    

    (D)           the
failure by Bank to continue in effect any material compensation or benefit plan
in which Executive participated immediately prior to the Change in Control,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by
Bank to continue Executive’s participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of the
amounts of benefits provided and the level of Executive’s participation relative
to other participants, as existed at the time of the Change in
Control;

    

    (E)           the
failure of Bank to obtain a satisfactory agreement from any successor to assume
and agree to perform this Agreement, as contemplated in Section 11
hereof;

    

    (F)           any
purported termination of Executive’s employment that is not effected pursuant to
a Notice of Termination satisfying the requirements of Section 4(g)(v) hereof,
which purported termination shall not be effective for purposes of this
Agreement; or

    

    (G)           any
other action or inaction that constitutes a material breach by the Bank under
the terms of this Agreement.

    

    (iv)           Notice
of Termination. “Notice of Termination” shall mean notice indicating the
specific termination provision in this Agreement relied upon and setting forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive’s employment under the provision so
indicated.

    

    (v)           Date
of Termination. “Date of Termination” shall mean (A) if Executive’s employment
is terminated for Disability, 15 days after Notice of Termination is given
(provided that Executive shall not have returned to the full-time performance of
Executive’s duties during such 15-day period) or (B) if Executive’s employment
is terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination for Cause, shall not be less
than 30 days from the date such Notice of Termination is given and, in the case
of a termination for Good Reason, shall not be less than 30 nor more than 60
days from the date such Notice of Termination is given).

    

    5.           Mitigation.

    

    So long
as Executive shall not be in breach of any provisions of Sections 7 or 8,
Executive shall not be required to mitigate the amount of payment provided for
under this Agreement by seeking other employment or otherwise, nor shall the
amount of payment or benefit provided for under this Agreement be reduced by any
compensation earned by Executive as the result of employment by another employer
permitted by this Agreement.

    

    6.           Release.

    

    As a
condition of receiving payments or benefits provided for in this Agreement
(other than payments under Section 4(a) of this Agreement), at the request of
Bank, or its successor, Executive shall execute and deliver for the benefit of
Bank and any Controlling Person, a general release in substantially the form set
forth in Attachment A hereto, and such release shall become effective in
accordance with its terms. The failure or refusal of Executive to sign such a
release or the revocation of such a release shall cause the termination of any
and all obligations of Bank to make payments or provide benefits hereunder, and
the forfeiture of Executive’s right to receive any such payments and benefits.
Executive acknowledges that Bank has advised Executive to consult with an
attorney prior to signing this Agreement and that Executive has had an
opportunity to do so.

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    7.           Confidential
Information.

    

    Executive
understands that in the course of Executive’s employment by Bank, Executive will
receive or have access to, or has received or had access to, confidential
information concerning the business or purposes of Bank which Bank desires to
protect. Such confidential information shall be deemed to include, but not be
limited to, Bank’s customer lists and information, and employee lists,
including, if known, personnel information and data. Executive agrees that
Executive will not at any time reveal to anyone outside Bank or use for
Executive’s own benefit any such information without specific written
authorization by Bank, which may be withheld by Bank in its sole discretion.
Executive further agrees not to use any such confidential information or trade
secrets in competing with Bank at any time.

     

    8.           Non-Competition
and Non-Disclosure; Non-Disparagement; Certain Forfeitures.

    

    (a)           Non-Competition.
In consideration for the compensation and benefits provided for by this
Agreement, as affected by the provisions of Section 4(e) above, without the
consent in writing of the Board of Directors of Bank, which may be withheld by
Bank for any reason or no reason in Bank’s sole discretion, Executive will not,
at any time that Executive shall be employed by Bank, or at any time during the
period of eighteen (18) months following Executive’s Date of Termination, acting
alone or in conjunction with others, directly or indirectly (i) engage (either
as owner, investor, partner, stockholder, employer, employee, consultant,
advisor, or director) in any business of any bank, bank holding company, savings
bank, savings and loan association, savings and loan holding company, or other
institution engaged in the business of accepting deposits and/or making loans,
or any direct or indirect subsidiary or affiliate of any such entity, that
conducts business or maintains an office within a thirty (30) mile radius of the
Bank’s headquarters at 33 Waldo Street, Worcester, MA; (ii) solicit or otherwise
induce any customer of Bank or any of its affiliates to curtail or cancel their
business with Bank or any such affiliate; (iii) solicit or otherwise induce or
attempt to influence any employee of Bank or any affiliate to terminate
employment; or (iv) solicit, hire or retain as an employee or independent
contractor, or assist any third party in the solicitation, hire, or retention as
an employee or independent contractor, any person who during the twelve months
prior to the Date of Termination was an employee of Bank or any such affiliate;
provided, however, that activities engaged in by Executive by or on behalf of
Bank are not restricted by this covenant. The provisions of clauses (i), (ii),
(iii), and (iv) above are separate and distinct commitments, each independent of
the other subparagraphs. It is agreed that the ownership by Executive of not
more than one percent (1%) of the equity securities of any company having
securities listed on an exchange or regularly traded in the over-the-counter
market shall not, of itself, be deemed inconsistent with clause (i) of this
Section 8(a).

    

    (b)           Non-Disparagement. Executive shall not, at
any time during the term of this Agreement or thereafter, willfully make
statements or representations, or otherwise communicate, directly or indirectly,
in writing, orally, or otherwise, or take any action which is intended to,
directly or indirectly, disparage and cause financial harm to Bank or any of its
affiliates or their respective officers, directors, employees, advisors,
businesses or reputations. Notwithstanding the foregoing, nothing in this
Agreement shall preclude Executive from making truthful statements that are
required by applicable law, regulation or legal process.

    

    (c)           Injunction. Executive hereby
acknowledges that Executive’s services are unique and extraordinary, and are not
readily replaceable, and hereby expressly agrees that Bank, in enforcing the
covenants contained in Sections 7 and 8 herein, in addition to any other
remedies provided for herein or otherwise available at law, shall be entitled in
any court of equity having jurisdiction to an injunction restraining him in the
event of a breach, actual or threatened, of the agreements and covenants
contained in such Sections.

     

    (d)           Scope. The
parties hereto believe that the restrictive covenants contained in Sections 7
and 8 hereof are reasonable. However, if at any time it shall be determined by
any court of competent jurisdiction that these Sections or any portion of them
as written, are unenforceable because the restrictions are unreasonable, the
parties hereto agree that such portions as shall have been determined to be
unreasonably restrictive shall thereupon be deemed so amended as to make such
restrictions reasonable in the determination of such court, and the said
covenants, as so modified, shall be enforceable between the parties to the same
extent as if such amendments had been made prior to the date of any alleged
breach of said covenants.

    

    9.           Right
of Discharge.

    

    Subject
to the obligations to make the payments specified in Section 4, it is expressly
agreed that Bank shall have the right to discharge or terminate Executive at any
time and for any reason, or no reason.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    10.           Exclusivity.

    

    It is
understood and agreed that if any payments are due and made to Executive under
this Agreement then no payments will be due or required, and Bank shall not in
any respect be obligated to Executive, under any other severance pay plan,
agreement, or arrangement that might otherwise be applicable to Executive, or
under or by reason of any employment severance pay or similar agreement between
Bank and Executive.

    

    11.           Successors;
Binding Agreement.

    

    (a)           This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by any and all successors and assigns of Bank. Bank shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of Bank, and in the case
of an acquisition of Bank in which the corporate existence of Bank continues,
the ultimate parent company following such acquisition, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent that
Bank would be required to perform it if no such succession had taken place. As
used in this Agreement, “Bank” shall mean Bank as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.

    

    (b)           This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by Executive and Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. In the
event of Executive’s death following becoming entitled to payments hereunder but
prior to completion of such payments, all amounts otherwise payable to Executive
hereunder shall, unless otherwise provided herein, be paid in accordance with
the terms of this Agreement to Executive’s devisee, legatee or other designee
specifically named in a writing signed by Executive and delivered to Bank or, if
there is no such designee, to Executive’s estate.

    

    12.           Notice.

    

    Notices
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when (a) personally delivered, (b)
sent by Federal Express or other similar overnight service or (c) mailed by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below, or to such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt. In the case of Federal Express or other similar overnight service, such
notice or advice shall be effective and deemed delivered when sent, and, in the
cases of certified or registered mail, shall be effective and deemed delivered
two days after deposit into the mail by delivery to the U.S. Post
Office.

    

    If to
Executive, to:

    Charles
R. Valade

    18 Lanes
End

    Sutton,
MA 01590-2983

    

    If to
Bank, to:

    Commonwealth
National Bank

    33 Waldo
Street

    Worcester,
MA 01613-0830

    Attn:
Chairman, Board of Directors

    

    13.           Dispute
Resolution.

    

    (a)           Negotiation. Bank and Executive shall
attempt in good faith to resolve any dispute arising out of or relating to this
Agreement promptly by negotiation between the designated representative of the
Board of Directors of Bank and Executive. Any party may give the other party
written notice of any dispute in accordance with the notice procedures set forth
in Section 12. Within 15 days after delivery of the notice, the receiving party
shall submit to the other, in accordance with the notice procedures set forth in
Section 12, a written response. The notice and response shall include a
statement of that party’s position and summary of arguments supporting that
position. Within 15 days after delivery of the initial notice, the parties shall
meet at a mutually acceptable time and place, and thereafter as often as they
reasonably deem necessary, to attempt to resolve the dispute. All negotiations
pursuant to this clause are confidential and shall be treated as compromise and
settlement negotiations for purposes of applicable rules of
evidence.

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (b)           Mediation. If the dispute has not
been resolved by negotiation as provided herein within 30 days after delivery of
the initial notice of negotiation, or if the parties failed to meet within 30
days after delivery of such notice, the parties shall endeavor to settle the
dispute by mediation; provided, however, that if one party fails to participate
in the negotiation as provided herein, the other party may initiate mediation
prior to the expiration of the 90 days.

    

    (c)           Arbitration. Any dispute arising
under or in connection with this Agreement which has not been resolved by
mediation as provided herein within 30 days after initiation of the mediation
procedure, shall be finally resolved by arbitration in accordance with the rules
of the American Arbitration Association then currently in effect. The place of
arbitration shall be Worcester or Boston, Massachusetts. For purposes of
entering any judgment upon an award rendered by the arbitrators, Bank and
Executive hereby consent to the jurisdiction of any or all of the following
courts: (i) the United States District Court for the District of Massachusetts,
(ii) any of the courts of the Commonwealth of Massachusetts, or (iii) any other
court having jurisdiction. Venue shall be in Worcester, Massachusetts. Bank and
Executive hereby agree that a judgment upon an award rendered by the arbitrators
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. Subject to subsection (e) of this Section 13, Bank shall
bear all costs and expenses arising in connection with any arbitration
proceeding pursuant to this Section 13(c). Notwithstanding any provision in this
Section 13(c), Bank shall be obligated to pay any and all undisputed amounts
under this Agreement pursuant to Section 4 above, and Executive shall be
entitled to seek specific performance of Executive’s right to be paid during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.

    

    (d)           Interest on
Unpaid Amounts. Any amount which has
become payable pursuant to the terms of this Agreement or any decision by
arbitrators or judgment by a court of law pursuant to this Section 13 but which
has not been timely paid shall bear interest at the prime rate as quoted by Bank
at the time such amount first becomes payable and remain fixed at that rate
until such amounts are paid.

    

    (e)           Costs of
Proceedings. Bank shall pay all costs
and expenses, including all attorneys’ fees and disbursements, of Bank and, at
least monthly, Executive, in connection with any proceedings undertaken pursuant
to this Section 13, whether or not instituted by Bank, or Executive, relating to
the interpretation or enforcement of any provision of this Agreement; provided
that if Executive instituted the proceeding and a finding is entered that
Executive instituted the proceeding without a good faith belief that Executive
would prevail on at least one material issue, Executive shall pay all of
Executive’s costs and expenses, including attorneys’ fees and disbursements and
reimburse Bank for all of such costs and expenses of Executive theretofore paid
by Bank, within 60 days after the final determination of all of such
proceedings.

    

    14.           Regulatory
Limitation.

    

    Notwithstanding
any other provision of this Agreement, Bank shall not be obligated to make, and
Executive shall have no right to receive, any payment, benefit or amount under
this Agreement which would violate any law, regulation or regulatory order
applicable to Bank or its parent at the time such payment, benefit or amount is
due, including, without limitation, Section 1828(k)(1) of Title 12 of the United
States Code and any regulation or order thereunder of the Federal Deposit
Insurance Corporation (“Prohibited Payment”). If and to the extent Bank shall at
a later date be relieved of the restriction on its ability to make any
Prohibited Payment, then at such time Bank shall promptly make payment of any
such amounts to Executive.

    

    15.           Miscellaneous.

    

    Except as
to a waiver described in Section 4(c) above, no provision of this Agreement may
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing and signed by Executive and such officer as may be
designated by the Board of Directors of Bank, acting upon the direction of said
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the time or at any prior or
subsequent time. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the Commonwealth of
Massachusetts without regard to its conflicts of law principles. All references
to sections of the Exchange Act, the Code or the United States Code shall be
deemed also to refer to any successor provisions to such sections. Any payments
provided for hereunder shall be paid net of any applicable withholding required
under federal, state or local law.

    

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    16.           Validity.

    

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

    

    17.           Counterparts.

    

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

    

    18.           Entire
Agreement.

    

    This
Agreement sets forth the entire agreement of the parties hereto in respect of
the subject matter contained herein and during the term of this Agreement
supersedes the provisions of all prior agreements, promises, covenants,
arrangements, communications, representations or warranties, whether oral or
written, by any officer, employee or representative of either party hereof with
respect to the subject matter contained herein. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.

    

    IN WITNESS WHEREOF, Bank has
caused this amended and restated Agreement under seal to be executed by a duly
authorized officer, and Executive has executed this Agreement, as of November 4,
2008.

    

    
      	 
      	
              COMMONWEALTH
      NATIONAL BANK

            
	 
      	 
      
	 
      	 
      
	 
      	
              By:
      ___/s/ Harris L.
      MacNeill____________

            
	 
      	
              Name:
      Harris L. MacNeill

            
	 
      	
              Its
      Chairman of the Compensation Committee of the Board

            
	 
      	
              of
      Directors

            
	 
      	 
      
	 
      	 
      
	 
      	
              EXECUTIVE

            
	 
      	 
      
	 
      	 
      
	 
      	
              By:
      ___/s/ Charles R.
      Valade____________

            
	 
      	
              Name:
      Charles R. Valadeex101.htm

    Exhibit
10.01

    

    SECOND AMENDMENT TO RENEWAL
PROMISSORY NOTE

    AND LOAN MODIFICATION
AGREEMENT

    

    This
Second Amendment to Renewal Promissory Note and Loan Modification Agreement (the
“Second
Amendment”) dated March 3, 2009, amends that certain Renewal Promissory
Note dated May 21, 2007, in the original stated amount of $5,579,847.00,
executed by Pegasi Energy Resources Corporation, a Texas corporation; (ii)
Pegasi Operating Inc., a Texas corporation (“POI”); (iii) TR Rodessa, Inc., a
Texas corporation; and (iv) 59 Disposal, Inc., a Texas corporation (each, an
“Original
Maker”), in favor of Teton, Ltd., a Texas limited partnership (“Payee”).

    

    RECITALS

    

    WHEREAS,
each of the Original Makers executed a certain Renewal Promissory Note (the
“Original
Note”) dated May 21, 2007, in the stated amount of $5,579,847.00, payable
to Teton, Ltd., a Texas limited partnership, to evidence their agreement to
repay certain working capital loans Teton Ltd. had made to the Original Makers
and to their predecessor entities (the “Loan”);

    

    WHEREAS,
the Original Note was amended by Amendment to Renewal Promissory Note dated May
21, 2008 (the “First
Amendment”), to eliminate a required interest payment. (The Original
Note, as previously amended by the First Amendment, is hereinafter referred to
as the “Note”);

    

    WHEREAS,
Pegasi Energy Resources Corporation, a Texas corporation (“PERC-TX”), became a
wholly-owned subsidiary of Pegasi Energy Resources Corporation, a Nevada
corporation f/n/a Maple Mountain Explorations Inc. (“PERC—NV”) in approximately
January of 2008; and PERC-NV is now a publicly-traded corporation;

    

    WHEREAS,
PERC-NV is executing this Second Amendment to evidence its agreement to repay
the Additional Funds (as defined below) and to acknowledge that it is now a
co-maker and joint obligor of the Note (PERC-NV, together with the Original
Makers, are hereinafter collectively referred to as “Makers”);

    

    WHEREAS,
on January 4, 2008, one or more of the Makers made a voluntary partial
prepayment of $1,000,000.00 on the Note, which payment was allocated to pay (i)
$277,456.00 in interest that had accrued as of such date (thus paying all
accrued interest to the date of payment), and (ii) $722,544.00 in outstanding
principal. Consequently, excluding the Additional Funds (as hereinafter
defined), the Note's current outstanding principal balance is $4,857,303.00; and
interest has accrued on this amount under the terms of the Note since January 4,
2008;

    

    WHEREAS,
the following additional monies (the “Additional Funds”)
have been or are being advanced to Makers by Payee and are now part of the Loan:
(i) on August 28, 2007, $10,000.00 was advanced to a third-party accounting firm
on Maker's behalf for accounting services provided to Maker, (ii) on August 30,
2007, $10,000.00 was advanced to Maker/POI for working capital, (iii) on January
13, 2009, $150,000.00 was advanced to Petrocapital on Maker's behalf for
investment advisory services to be provided to Maker/PERC-NV; (iv) on February
23, 2009, $100,000.00 was advanced to Maker/PERC-TX to provide funds to pay
amounts due under the Haggard mineral lease; and (v) on the date hereof,
$300,000.00 was advanced to Maker/PERV­NC and/or PERC/TX to provide working
capital.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    WHEREAS,
Makers and Payee desire to amend the Note to document the additional advances
and to document certain related agreements between Makers and
Payee.

    

    NOW,
THEREFORE, in consideration of the premises and the mutual promises contained in
this Amendment, Makers and Payee hereby agree as follows:

    

    AGREEMENT

    

    I.

    

    Amendments and Related
Agreements

    

    1. Amendment to Note to Add the
Additional Funds. The Note is hereby amended to confirm that the
Additional Funds have been added to the outstanding principal balance of the
Loan and shall be repaid under the terms of the Note. Consequently, the total
outstanding principal balance of the Note is now $5,427,303.00, of which (i)
$4,857,303.00 is accruing interest at eight percent (8%) per annum from January
4, 2008, and (ii) $570,000.00 in Additional Funds have been advanced and are
accruing interest at eight percent (8%) per annum from the date of each
additional advance, to-wit:

                                         

    
      
        
          
            	
                    Date
      of Advance:

                  	 	
                    Additional
      Funds Advanced:

                  	 
	
                    8/28/07

                  	 	$	10,000.00	 
	
                          
                      8/30/07

                    

                  	 	 	10,000.00	 
	
                          
                      1/13/09

                    

                  	 	 	150,000.00	 
	
                          
                      2/23/09

                    

                  	 	 	100,000.00	 
	
                          
                      3/3/09

                    

                  	 	 	300,000.00	 
	 
      	 	$	570,000.00	 

          

        

      

      
Notwithstanding
the foregoing, for the $10,000.00 advances made on 8/28/07 and 8/30/07, interest
shall begin to accrue on the date of this Second Amendment; and no interest
shall be charged on these Additional Funds for any prior period of
time.

    

    

    2. Pledge of Assets.
Makers hereby pledge their respective assets to secure repayment of the Loan.
Payee is authorized to file one or more UCC-1 financing statements to reflect
such pledge. Makers also agree to execute all additional documentation deemed
necessary by Payee to perfect such pledge, including one or more deeds of trust
to establish liens on all of Makers' real property interests and a pledge
agreement whereby PERC-NV pledges 100% of the issued and outstanding stock in
PERC-TX. Failure to execute such documentation on request shall at Payee's
option constitute a default on the Note. The Loan is hereby amended to provide
that the Note is no longer unsecured.

    

    3. Confirmation of Strike Price
stated in the Memorandum of Understanding; Anti-Dilution Provision.
(a) The parties hereby acknowledge that a Memorandum of Understanding (the
“M of O”) dated
May 21, 2007, was executed in conjunction with the Loan and that the M of U gave
or evidenced Payee's option (the “Option”) to convert
all or a portion of the indebtedness evidenced by the Note into the common stock
of PERC-NV. The M of U also set forth a “strike price” (the “Strike Price”) at
which Payee could convert the Note balance into the common stock of PERC-NV (the
“Option
Shares”); namely, the M of U provided that “[t]he strike price at which
Teton may exercise its option shall be the offering price for PERC/Pubco's stock
set forth in the PPM.”

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

     

    (b) PERC-NV
and Payee hereby confirm that the Strike Price is $1.20 per share for any Option
Shares acquired by conversion of the portion of the Note balance that existed
prior to the date of this Second Amendment (i.e., $4,857,303.00, plus accrued
interest).

    

    (c) PERC-NV
and Payee hereby agree that the Strike Price shall be $1.60 per share for any
Option Shares acquired by conversion of the portion of the Note balance that
consists of the Additional Funds (i.e., $570,000.00, plus accrued
interest).

    

    (d) PERC-NV
agrees not to issue additional stock in PERC-NV without first reaching a
definitive agreement with Payee that will protect Payee's Option from dilution
(the “Anti-Dilution
Agreement”). If,
between the date of this Second Amendment and the date of exercise of the
Option, the outstanding shares of PERC-NV shall have been increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
as a result of a reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split, or other similar change in
capitalization, an appropriate and proportionate adjustment shall be made to the
Option.

    

    II.

    

    Miscellaneous

    

    1. Makers
expressly acknowledge and agree that except as expressly amended in this Second
Amendment, the Note, as previously amended, remains in full force and effect and
is ratified and confirmed. This Second Amendment shall neither extinguish nor
constitute a novation of the Note or indebtedness evidenced
thereby.

    

    2. The Note
and this Second Amendment were negotiated and executed in Houston, Texas, and
the Loan was funded in Texas. The Loan shall be governed by Texas law. The
parties agree that the exclusive venue for any enforcement action involving the
Loan shall be in Harris County, Texas.

    

    
      	
               
      

            	
              3.

            	
              The
      parties covenant and agree as
follows:

            

    

    

    (1) The
rights and obligations of the parties shall be determined solely from the
written “Loan Agreement” (as such term is defined in Section 26.02(a)(2) of the
Texas Business and Commerce Code) executed and delivered in connection with the
Loan, and any oral agreements between or among the parties are superseded by and
merged into the Loan Agreement.

    

    (2) The Loan
Agreement has not been and may not be varied by any oral agreements or
discussions that have or may occur before, contemporaneously with, or subsequent
thereto.

    

    (3) THE
WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    Executed
to be effective as of March 3, 2009.

     

    
      
        
          
            
              
                
                  
                    	Makers:	 	 	Payee:	 
	 	 	 	 	 
	Pegasi
      Energy Resources Corporation,  	 	 	Teton,
      Ltd., a Texas limited partnership	 
	a
      Nevada corporation f/n/a	 	 	By: Notet
      Corp., a Texas corporation,	 

                  

                

              

            

          

        

      

    

    
      
        
          	

                  Maple
      Mountain Explorations Inc.

                	 	 	

                  its
      general partner

                	 
	
                   

                	 	 	
                   

                	 

        

      

    

    

      
        	 	 	 	 	 
	
                /s/
      RICHARD LINDERMANIS  

              	 	 	
                /s/
      W.L. SUDDERTH

              	 
	
                Richard
      Lindermanis, Senior Vice President and CFO

              	 	 	
                W.L.
      Sudderth, Secretary

              	 
	
                 

              	 	 	
                 

              	 

      

    

                                                                    

    Pegasi
Energy Resources Corporation,

    a Texas
corporation (and wholly-owned

    subsidiary
of Pegasi Energy Resources Corporation,

    a Nevada
corporation f/n/a Maple Mountain Explorations Inc.)

     

    
      
        
          
            	 	 	 	 	 
	
                    /s/
      RICHARD LINDERMANIS  

                  	 	 	
                     

                  	 
	
                    Richard
      Lindermanis, Vice President

                  	 	 	
                     

                  	 
	
                     

                  	 	 	
                     

                  	 

          

        

      

                                    

    

    Pegasi
Operating Inc., a Texas corporation (and wholly-owned subsidiary of Pegasi
Energy Resources Corporation, a Texas corporation)

     

    
      
        
          
            
              	 	 	 	 	 
	
                      /s/
      RICHARD LINDERMANIS  

                    	 	 	
                       

                    	 
	
                      Richard
      Lindermanis, Vice President

                    	 	 	
                       

                    	 
	
                       

                    	 	 	
                       

                    	 

            

          

        

                                     

      

    

    TR
Rodessa, Inc., a Texas corporation (and wholly-owned subsidiary of Pegasi Energy
Resources Corporation, a Texas corporation)

     

    
      
        
          
            
              	 	 	 	 	 
	
                      /s/
      RICHARD LINDERMANIS  

                    	 	 	
                       

                    	 
	
                      Richard
      Lindermanis, Vice President

                    	 	 	
                       

                    	 
	
                       

                    	 	 	
                       

                    	 

            

          

        

                                     

      

    

    59
Disposal, Inc., a Texas corporation (and wholly-owned subsidiary of Pegasi
Energy Resources Corporation, a Texas corporation)

     

    
      
        
          
            
              	 	 	 	 	 
	
                      /s/
      RICHARD LINDERMANIS  

                    	 	 	
                       

                    	 
	
                      Richard
      Lindermanis, Vice President

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