Document:

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                                                                    EXHIBIT 4.14

THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO JMAR TECHNOLOGIES, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.

                           Right to Purchase 100,000 Shares of Common Stock of
                           JMAR Technologies, Inc. (subject to adjustment as
                           provided herein)

                          COMMON STOCK PURCHASE WARRANT

No. 2004-2                                           Issue Date: January 7, 2004

         JMAR TECHNOLGIES, INC., a corporation organized under the laws of the
State of Delaware (the "COMPANY"), hereby certifies that, for value received,
LAURUS MASTER FUND, LTD., or assigns (the "HOLDER"), is entitled, subject to the
terms set forth below, to purchase from the Company from and after the Issue
Date of this Warrant and at any time or from time to time before 5:00 p.m., New
York time, through seven (7) years after such date (the "EXPIRATION DATE"), up
to 100,000 fully paid and nonassessable shares of Common Stock (as hereinafter
defined), $.01 par value per share, of the Company, at the Exercise Price (as
defined below). The number and character of such shares of Common Stock and the
Exercise Price are subject to adjustment as provided herein.

         As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:

         (a)      The term "Company" shall include JMAR Technologies, Inc. and
any corporation which shall succeed or assume the obligations of JMAR
Technologies, Inc. hereunder.

         (b)      The term "Common Stock" includes (a) the Company's Common
Stock, $.01 par value per share, and (b) any other securities into which or for
which any of the securities described in (a) may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of assets
or otherwise.

         (c)      The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.

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         (d)      The term "EXERCISE PRICE" shall be $5.15 per share;

         1.       EXERCISE OF WARRANT.

                  1.1      Number of Shares Issuable upon Exercise. From and
after the date hereof through and including the Expiration Date, the Holder
shall be entitled to receive, upon exercise of this Warrant in whole or in part,
by delivery of an original or fax copy of the exercise notice attached hereto as
Exhibit A (the "EXERCISE NOTICE"), shares of Common Stock of the Company,
subject to adjustment pursuant to Section 4.

                  1.2      Fair Market Value. Fair Market Value of a share of
Common Stock as of a particular date (the "DETERMINATION DATE") shall mean:

                           (a)      If the Company's Common Stock is traded on
an exchange or is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") National Market or the NASDAQ SmallCap Market,
then the closing or last sale price, respectively, reported for the last
business day immediately preceding the Determination Date.

                           (b)      If the Company's Common Stock is not traded
on an exchange or on the NASDAQ National Market or the NASDAQ SmallCap Market
but is traded on the NASD OTC Bulletin Board or BBX Exchange, then the mean of
the average of the closing bid and asked prices reported for the last business
day immediately preceding the Determination Date.

                           (c)      Except as provided in clause (d) below, if
the Company's Common Stock is not publicly traded, then as the Holder and the
Company agree or in the absence of agreement by arbitration in accordance with
the rules then in effect of the American Arbitration Association, before a
single arbitrator to be chosen from a panel of persons qualified by education
and training to pass on the matter to be decided.

                           (d)      If the Determination Date is the date of a
liquidation, dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all amounts to
be payable per share to holders of the Common Stock pursuant to the charter in
the event of such liquidation, dissolution or winding up, plus all other amounts
to be payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of the Warrant are outstanding at the
Determination Date.

         2.       PROCEDURE FOR EXERCISE.

                  2.1      Delivery of Stock Certificates, etc. on Exercise. The
Company agrees that the shares of Common Stock purchased upon exercise of this
Warrant shall be deemed to be issued to the Holder as the record owner of such
shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 3 business days thereafter, the Company at its expense (including
the payment by it of any applicable issue taxes) will cause to be issued in the
name of and delivered to the Holder, or as

                                       2

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such Holder (upon payment by such holder of any applicable transfer taxes) may
direct in compliance with applicable securities laws, a certificate or
certificates for the number of duly and validly issued, fully paid and
nonassessable shares of Common Stock (or Other Securities) to which such Holder
shall be entitled on such exercise, plus, in lieu of any fractional share to
which such holder would otherwise be entitled, cash equal to such fraction
multiplied by the then Fair Market Value of one full share, together with any
other stock or other securities and property (including cash, where applicable)
to which such Holder is entitled upon such exercise pursuant to Section 1 or
otherwise.

                  2.2      Exercise.

                           (a)      Payment may be made by delivery of the
Warrant, and/or Common Stock receivable upon exercise of the Warrant in
accordance with Section (b) below, for the number of Common Shares specified in
such form (as such exercise number shall be adjusted to reflect any adjustment
in the total number of shares of Common Stock issuable to the holder per the
terms of this Warrant) and the Holder shall thereupon be entitled to receive the
number of duly authorized, validly issued, fully-paid and non-assessable shares
of Common Stock (or Other Securities) determined as provided herein.

                           (b)      Notwithstanding any provisions herein to the
contrary, if the Fair Market Value of one share of Common Stock is greater than
the Exercise Price (at the date of calculation as set forth below), the Holder
may elect to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being exercised) by surrender of this Warrant at
the principal office of the Company together with the properly endorsed Exercise
Notice in which event the Company shall issue to the Holder a number of shares
of Common Stock computed using the following formula:

                  X=Y (A-B)
                      -----
                        A
                  -------

            Where X=       the number of shares of Common Stock to be issued to
                           the Holder

                  Y=       the number of shares of Common Stock purchasable
                           under the Warrant or, if only a portion of the
                           Warrant is being exercised, the portion of the
                           Warrant being exercised (at the date of such
                           calculation)

                  A=       the Fair Market Value of one share of the Company's
                           Common Stock (at the date of such calculation)

                  B=       Exercise Price (as adjusted to the date of such
                           calculation)

                                       3

<PAGE>

         3.       EFFECT OF REORGANIZATION, ETC.; ADJUSTMENT OF EXERCISE PRICE.

                  3.1      Reorganization, Consolidation, Merger, etc. In case
at any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the Holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
Holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.

                  3.2      Dissolution. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the Holder of the Warrant after the
effective date of such dissolution pursuant to Section 3.1 to a bank or trust
company having its principal office in New York, NY, as trustee for the Holder
of the Warrant.

                  3.3      Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the transactions described in this Section 3, then only in such
event will the Company's securities and property (including cash, where
applicable) receivable by the holders of the Warrant be delivered to the Trustee
as contemplated by Section 3.2.

                  3.4      Adjustment of Warrant Exercise Price and Number of
Shares upon Issuance of Common Stock. Other than (i) pursuant to warrants or
options that are outstanding as of the date hereof and warrants and options that
may be granted in the future under any option plan of the Company, or any
employment agreement, joint venture, credit, leasing or other financing
agreement or any joint venture or other strategic arrangement, in each case now
or hereinafter entered into by the Company, (ii) pursuant to any securities
issued by the Company to the Holder, (iii) pursuant to any agreement entered
into by the Company or any of its subsidiaries for the acquisition of another
business (whether by stock purchase or asset purchase, merger or otherwise;
((i), (ii) and (iii) above, are hereinafter referred to as the "EXCLUDED
ISSUANCES")), if the Company at any time shall issue any shares of Common Stock
prior to the complete exercise

                                       4

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of this Warrant for a consideration less than the Exercise Price that would be
in effect at the time of such issue, then, and thereafter successively upon each
such issue, the Exercise Price shall be reduced as follows: (i) the number of
shares of Common Stock outstanding immediately prior to such issue shall be
multiplied by the Exercise Price in effect at the time of such issue and the
product shall be added to the aggregate consideration, if any, received by the
Company upon such issue of additional shares of Common Stock; and (ii) the sum
so obtained shall be divided by the number of shares of Common Stock outstanding
immediately after such issue. The resulting quotient shall be the adjusted
Exercise Price. For purposes of this adjustment, the issuance of any security of
the Company carrying the right to convert such security into shares of Common
Stock or of any warrant, right or option to purchase Common Stock shall result
in an adjustment to the Exercise Price upon the issuance of shares of Common
Stock upon exercise of such conversion or purchase rights..

         4.       EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that
the Company shall (a) issue additional shares of the Common Stock as a dividend
or other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Exercise Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Exercise Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Exercise Price then in effect. The
Exercise Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Exercise Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Exercise Price in effect
on the date of such exercise.

         5.       CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment
or readjustment in the shares of Common Stock (or Other Securities) issuable on
the exercise of the Warrant, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Exercise Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 11 hereof).

                                       5

<PAGE>

         6.       RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT.
The Company will at all times reserve and keep available, solely for issuance
and delivery on the exercise of the Warrant, shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of the Warrant.

         7.       ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "TRANSFEROR") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
"TRANSFEROR ENDORSEMENT FORM") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, which shall include, without limitation, a legal opinion from the
Transferor's counsel that such transfer is exempt from the registration
requirements of applicable securities laws, the Company at its expense (but with
payment by the Transferor of any applicable transfer taxes) will issue and
deliver to or on the order of the Transferor thereof a new Warrant of like
tenor, in the name of the Transferor and/or the transferee(s) specified in such
Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant so surrendered by the Transferor.

         8.       REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.

         9.       REGISTRATION RIGHTS. The Holder of this Warrant has been
granted certain registration rights by the Company. These registration rights
are set forth in a Registration Rights Agreement entered into by the Company and
Purchaser at or prior to the issue date of this Warrant.

         10.      MAXIMUM EXERCISE. The Holder shall not be entitled to exercise
this Warrant on an exercise date, in connection with that number of shares of
Common Stock which would result in beneficial ownership by the Holder and its
affiliates of more than 4.99% of the shares of Common Stock of the Company on
such date. For the purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate exercises which would result in the issuance of more than 4.99%. The
restriction described in this paragraph may be revoked upon 75 days prior notice
from the Holder to the Company and is automatically null and void upon an Event
of Default under the Preferred Stock.

         11.      WARRANT AGENT. The Company may, by written notice to the each
holder of the Warrant, appoint an agent for the purpose of issuing Common Stock
(or Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such

                                       6

<PAGE>

issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.

         12.      TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is
transferred on the books of the Company, the Company may treat the registered
holder hereof as the absolute owner hereof for all purposes, notwithstanding any
notice to the contrary.

         13.      NOTICES, ETC. All notices and other communications from the
Company to the Holder of this Warrant shall be mailed by first class registered
or certified mail, postage prepaid, at such address as may have been furnished
to the Company in writing by such holder or, until any such Holder furnishes to
the Company an address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.

         14.      MISCELLANEOUS. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Warrant shall be governed by and construed in
accordance with the laws of State of New York without regard to principles of
conflicts of laws. Any action brought concerning the transactions contemplated
by this Warrant shall be brought only in the state courts of New York or in the
federal courts located in the state of New York; provided, however, that the
Holder may choose to waive this provision and bring an action outside the state
of New York. The individuals executing this Warrant on behalf of the Company
agree to submit to the jurisdiction of such courts and waive trial by jury. The
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Warrant is invalid or unenforceable under any applicable statute or rule of law,
then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of this Warrant. The headings in this Warrant are for purposes of reference
only, and shall not limit or otherwise affect any of the terms hereof. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision. The Company acknowledges
that legal counsel participated in the preparation of this Warrant and,
therefore, stipulates that the rule of construction that ambiguities are to be
resolved against the drafting party shall not be applied in the interpretation
of this Warrant to favor any party against the other party.

                      [THIS SPACE INTENTIONALLY LEFT BLANK]

                                       7

<PAGE>

         IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.

                                             JMAR TECHNOLOGIES, INC.

                                             By: /s/ JOSEPH G. MARTINEZ

                                                 Joseph G. Martinez, Senior V.P.

Witness:

/s/ DENNIS E. VALENTINE

                                       8

<PAGE>

                                    EXHIBIT A

                              FORM OF SUBSCRIPTION
                   (To be signed only on exercise of Warrant)

TO:      JMAR Technologies, Inc.

The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):

___      ________ shares of the Common Stock covered by such Warrant; or

___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned herewith makes payment of the full Exercise Price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):

___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or

___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchaseable
pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to ____________________ whose address is ________________

______________________________________.

The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.

Dated:___________________              _________________________________________
                                       (Signature must conform to name of holder
                                       as specified on the face of the Warrant)

                                       _________________________________________
                                       (Address)

<PAGE>

                                                                       EXHIBIT B

                         FORM OF TRANSFEROR ENDORSEMENT
                   (To be signed only on transfer of Warrant)

                  For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of JMAR Technologies, Inc. to which the within Warrant
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of JMAR
Technologies, Inc. with full power of substitution in the premises.

<TABLE>
<CAPTION>
                         Percentage                  Number
Transferees              Transferred              Transferrred
--------------------------------------------------------------
<S>                      <C>                      <C>

--------------------------------------------------------------

--------------------------------------------------------------

--------------------------------------------------------------

--------------------------------------------------------------
</TABLE>

Dated:___________________                  _____________________________________
                                           (Signature must conform to name of
                                           holder as specified on the face of
                                           the Warrant)

Signed in the presence of:

_________________________________          _____________________________________
             (Name)                                      (address)

ACCEPTED AND AGREED:                       _____________________________________
[TRANSFEREE]                                             (address)

________________________________
             (Name)exv10w34

 

Exhibit 10.34

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT is made and entered into as of the 13th day of
January, 2004 by and between ALLIANCE BANK, a Virginia banking corporation,
hereinafter called the “Bank”, and Frank H. Grace, III hereinafter called
“Employee”, and provides as follows:

RECITALS

     WHEREAS, the Bank is a bank chartered under the laws of the Commonwealth
of Virginia and engaged in the business of banking; and

     WHEREAS, Employee has been involved in the management of the Bank and
possesses managerial experience, knowledge, skills and expertise in such type
of business; and

     WHEREAS, the employment of Employee by the Bank is in the best interests
of the Bank and Employee; and

     WHEREAS, the parties have mutually agreed upon the terms and conditions of
Employee’s continued employment by the Bank as hereinafter set forth;

TERMS OF AGREEMENT

     NOW, THEREFORE, for and in consideration of the premises and of the mutual
promises and undertakings of the parties as hereinafter set forth, the parties
covenant and agree as follows:

     Section 1. Employment. (a) Employee shall be employed as a Senior
Vice President and member of the Senior Management Team of the Bank. He shall
perform such services for the Bank and/or one or more Affiliates as may be
assigned to Employee from time to time upon the terms and conditions
hereinafter set forth.

          (b) References in this Agreement to services rendered for the Bank and
compensation and benefits payable or provided by the Bank shall include
services rendered for and compensation and benefits payable or provided by any
Affiliate. References in this Agreement to the “Bank” also shall mean and
refer to each Affiliate for which Employee performs services. References in
this Agreement to “Affiliate” shall mean any business entity that, directly or
indirectly, through one or more intermediaries, is controlled by or controls
the Bank.

          (c) The parties recognize that the Board of Directors of the Bank shall
manage the business affairs of the Bank and that the relationship between the
Bank and Employee shall be that of an employer and an employee. The Board of
Directors shall have the sole authority to set and establish the hours of
operation of the business and to set and establish reasonable work schedules
and standards applicable to Employee.

 

 

     Section 2. Term. The term of this Agreement shall continue until
March 1, 2004 unless sooner terminated under the terms of this Agreement (the
“Initial Term”). This Agreement shall be renewed automatically for successive
additional terms of one (1) year each unless either party gives the other
notice of nonrenewal at least sixty (60) days prior to the expiration of the
Initial Term or any additional term, as the case may be.

     Section 3. Exclusive Service. Employee shall devote his best
efforts and full time to rendering services on behalf of the Bank in
furtherance of its best interests. Employee shall comply with all policies,
standards and regulations of the Bank now or hereafter promulgated, and shall
perform his duties under this Agreement to the best of his abilities and in
accordance with standards of conduct applicable to chief executive officers of
banks.

     Section 4. Salary. (a) As compensation while employed hereunder,
Employee, during his faithful performance of this Agreement, in whatever
capacity rendered, shall receive an annual base salary of $106,633 payable on
such terms and in such installments as the parties may from time to time
mutually agree upon. The Board of Directors, in its discretion, may increase
Employee’s base salary during the term of this Agreement, but in no event shall
the annual base salary be reduced.

          (b) The Bank shall withhold state and federal income taxes, social
security taxes and such other payroll deductions as may from time to time be
required by law or agreed upon in writing by Employee and the Bank. The Bank
shall also withhold and remit to the proper party any amounts agreed to in
writing by the Bank and Employee for participation in any corporate sponsored
benefit plans for which a contribution is required.

          (c) Except as otherwise expressly set forth hereunder, no compensation
shall be paid pursuant to this Agreement in respect of any month or portion
thereof subsequent to any termination of Employee’s employment by the Bank.

     Section 5. Corporate Benefit Plans. (a) Employee shall be entitled
to participate in or become a participant in any employee benefit plan
maintained by the Bank for which he is or will become eligible on such terms as
the Board of Directors may, in its discretion, establish, modify or otherwise
change.

          (b) The Bank shall provide Employee with a disability insurance policy
providing benefits commensurate with other employees as so amended by the Board
from time to time.

          (c) The Bank shall pay the premiums on group term insurance on the life of
Employee in an amount equal to two times his base salary under a qualified
group benefits plan as secured by the Bank.

     Section 6. Bonuses. Employee shall receive only such bonuses as
the Board of Directors, in its discretion, decides to pay to Employee.

2

 

     Section 7. Expense Account. (a) The Bank shall reimburse Employee
for reasonable and customary business expenses incurred in the conduct of the
Bank’s business. Such expenses will include business meals, out-of-town
lodging and travel expenses, and membership dues and costs to attend meetings
and conventions of business-appropriate organizations and associations.
Employee agrees to timely submit records and receipts of reimbursable items and
agrees that the Bank can adopt reasonable rules and policies regarding such
reimbursement. The Bank agrees to make prompt payment to Employee following
receipt and verification of such reports.

          (b) The Bank will provide Employee a car allowance of up to $725 per month
and pay taxes and insurance on such automobile. In addition the Bank will
provide Employee monthly dues for use of the Tower Club and Robert Trent Jones
Golf Club.

     Section 8. Vacation and Sick Leave. Employee shall be entitled to
20 days of vacation and such sick leave as the Board of Directors may from time
to time designate for all full-time employees of the Bank.

     Section 9. Termination. (a) Notwithstanding the termination of
Employee’s employment pursuant to any provision of this Agreement, the parties
shall be required to carry out any provisions of this Agreement which
contemplate performance by them subsequent to such termination. In addition,
no termination shall affect any liability or other obligation of either party
which shall have accrued prior to such termination, including, but not limited
to, any liability, loss or damage on account of breach. No termination of
employment shall terminate the obligation of the Bank to make payments of any
vested benefits provided hereunder or the obligations of Employee under
Sections 10, 11 and 12.

          (b) Employee’s employment hereunder may be terminated by Employee upon
thirty (30) days written notice to the Bank or at any time by mutual agreement
in writing.

          (c) This Agreement shall terminate upon the death of Employee; provided,
however, that in such event the Bank shall pay to the estate of Employee the
compensation including salary and accrued bonus, if any, which otherwise would
be payable to Employee through the end of the month in which his death occurs.

          (d) The Bank may terminate Employee’s employment other than for “Cause”,
as defined in Section 9(e), at any time upon written notice to Employee, which
termination shall be effective immediately. Employee may resign thirty (30)
days after notice to the Bank for “Good Reason”, as hereafter defined. In the
event the Employee’s employment terminates pursuant to this Section 9(d),
Employee shall receive a monthly amount equal to one-twelfth (1/12) his rate of
annual base salary in effect immediately preceding such termination
(“Termination Compensation”) in each month for twelve (12) months or the
remainder of the term of this Agreement, whichever is greater. Payments of the
Termination Compensation shall be made at the times such payments would have
been made in accordance with Section 4(a). Notwithstanding anything in this
Agreement to the

3

 

contrary, if Employee breaches Section 10 or 11, Employee will
not thereafter be entitled to receive any further compensation or benefits pursuant to this Section 9(d). In addition, notwithstanding anything in this
Agreement to the contrary, the Bank shall not be required to make payment of
the Termination Compensation or any portion thereof to the extent such payment
is prohibited by the terms of the regulations presently found at 12 C.F.R. part
359 or to the extent that any other governmental approval of the payment
required by law is not received.

     For purposes of this Agreement, “Good Reason” shall mean:

     (i) The assignment of duties to the Employee by the Bank which result in
the Employee having significantly less authority or responsibility than he has
on the date hereof, without his express written consent;

     (ii) The removal of the Employee from his position as Senior Vice
President;

     (iii) A reduction by the Bank of the Employee’s annual base salary (which
shall also constitute a breach of Section 4(a) hereof);

     (iv) The failure of the Bank to obtain the assumption of and agreement to
perform this Agreement by any successor as contemplated in Section 13 hereof.

          (e) The Bank shall have the right to terminate Employee’s employment under
this Agreement at any time for Cause, which termination shall be effective
immediately. Termination for “Cause” shall include termination for one or more
of the following occurring on or after the date of this Agreement: Employee’s
personal dishonesty, incompetence, willful misconduct, breach of a fiduciary
duty involving personal profit, failure to perform stated duties, willful
violation of any law, rule or regulation (other than traffic violations or
similar offenses) or final cease-and-desist order, conviction of a felony or of
a misdemeanor involving moral turpitude, misappropriation of the Bank’s assets
(determined on a reasonable basis) or those of its Affiliates, or material
breach of any other provision of this Agreement. In the event Employee’s
employment under this Agreement is terminated for Cause, Employee shall
thereafter have no right to receive compensation or other benefits under this
Agreement.

          (f) The Bank may terminate Employee’s employment under this Agreement,
after having established the Employee’s disability by giving to Employee
written notice of its intention to terminate his employment for disability and
his employment with the Bank shall terminate effective on the 90th day after
receipt of such notice if within 90 days after such receipt Employee shall fail
to return to the full-time performance of the essential functions of his
position (and if Employee’s disability has been established pursuant to the
definition of “disability” set forth below). For purposes of this Agreement,
“disability” means either (i) disability which after the expiration of more
than 13 consecutive weeks after its commencement is determined to be total and
permanent by a physician selected and paid for by the Bank or its insurers, and
acceptable to Employee or his legal representative, which consent shall not be
unreasonably withheld or (ii) disability as defined in the policy of disability
insurance maintained by the Bank or its Affiliates for the benefit of Employee,
whichever shall be more favorable to Employee. Notwithstanding any other
provision of this Agreement, the Bank shall comply with all requirements of the
Americans
with Disabilities Act, 42 U.S.C. § 12101 et. seq.

4

 

          (g) If Employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank’s affairs by a notice served pursuant
to the Federal Deposit Insurance Act, the Bank’s obligations under this
Employment 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 may in its discretion (i) pay Employee all or part of the compensation
withheld while its contract obligations were suspended, and (ii) reinstate (in
whole or in part) any of its obligations which were suspended.

          (h) If Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank’s affairs by an order issued under the
Federal Deposit Insurance Act or the Code of Virginia, all obligations of the
Bank under this Employment Agreement shall terminate as of the effective date
of the order, but vested rights of the parties shall not be affected.

          (i) (1) If Employee’s employment is terminated without Cause within one
year after a Change of Control shall have occurred or if he resigns for Good
Reason within one year after a Change in Control shall have occurred, then on
or before Employee’s last day of employment with the Bank, the Bank shall pay
to Employee as compensation for services rendered to the Bank and its
Affiliates a cash amount (subject to any applicable payroll or other taxes
required to be withheld) equal to one and one half year’s base salary;
provided, however, that the Bank may pay said amounts in equal monthly
installments over the eighteen (18) months succeeding the date of termination,
payable on the first day of each such month.

               (2) For purposes of this Agreement, a Change of Control occurs if, after
the date of this Agreement, (i) any person, including a “group” as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, becomes the owner or
beneficial owner of Bank securities having 50% or more of the combined voting
power of the then outstanding Bank securities that may be cast for the election
of the Bank’s directors other than a result of an issuance of securities
initiated by the Bank, or open market purchases approved by the Board of
Directors, as long as the majority of the Board of Directors approving the
purchases is a majority at the time the purchases are made; or (ii) as the
direct or indirect result of, or in connection with, a tender or exchange
offer, a merger or other business combination, a sale of assets, a contested
election of directors, or any combination of these events, the persons who were
directors of the Bank before such events cease to constitute a majority of the
Bank’s Board, or any successor’s board, within two years of the last of such
transactions. For purposes of this Agreement, a Change of Control occurs on
the date on which an event described in (i) or (ii) occurs. If a Change of
Control occurs on account of a series of transactions or events, the Change of
Control occurs on the date of the last of such transactions or events.

     Section 10. Confidentiality/Nondisclosure. Employee covenants and
agrees that any and all information concerning the customers, businesses and
services of the Bank of which he has knowledge or access as a result of his
association with the Bank in any capacity, shall be deemed confidential in
nature and shall not, without the proper written consent of the Bank, be
directly or indirectly used, disseminated, disclosed or published by Employee
to third parties other than in connection with the usual conduct of the business of the Bank. Such
information shall expressly

5

 

include, but shall not be limited to, information
concerning the Bank’s trade secrets, business operations, business records,
customer lists or other customer information. Upon termination of employment
Employee shall deliver to the Bank all originals and copies of documents,
forms, records or other information, in whatever form it may exist, concerning
the Bank or its business, customers, products or services. In construing this
provision it is agreed that it shall be interpreted broadly so as to provide
the Bank with the maximum protection. This Section 10 shall not be applicable
to any information which, through no misconduct or negligence of Employee, has
previously been disclosed to the public by anyone other than Employee.

     Section 11. Covenant Not to Compete. During the term of this
Agreement and throughout any further period that he is an officer or employee
of the Bank, and for a period of twelve (12) months from and after the date
that Employee is (for any reason) no longer employed by the Bank or for a
period of twelve (12) months from the date of entry by a court of competent
jurisdiction of a final judgment enforcing this covenant in the event of a
breach by Employee, whichever is later, Employee covenants and agrees that he
will not, directly or indirectly, either as a principal, agent, employee,
employer, stockholder, co-partner or in any other individual or representative
capacity whatsoever: (i) engage in a Competitive Business anywhere within a
twenty-five (25) mile radius of any office operated by the Bank as of this
date; or (ii) solicit, or assist any other person or business entity in
soliciting, any depositors or other customers of the Bank to make deposits in
or to become customers of any other financial institution conducting a
Competitive Business; or (iii) induce any individuals to terminate their
employment with the Bank or its Affiliates. As used in this Agreement, the
term “Competitive Business” means all banking and financial products and
services (not including brokerage services) that are substantially similar to
those offered by the Bank on the date that Employee’s employment terminates.

     Section 12. Injunctive Relief, Damages, Etc. Employee agrees that
given the nature of the positions held by Employee with the Bank, that each and
every one of the covenants and restrictions set forth in Sections 10 and 11
above are reasonable in scope, length of time and geographic area and are
necessary for the protection of the significant investment of the Bank in
developing, maintaining and expanding its business. Accordingly, the parties
hereto agree that in the event of any breach by Employee of any of the
provisions of Sections 10 or 11 that monetary damages alone will not adequately
compensate the Bank for its losses and, therefore, that it may seek any and all
legal or equitable relief available to it, specifically including, but not
limited to, injunctive relief and Employee shall be liable for all damages,
including actual and consequential damages, costs and expenses, including legal
costs and actual attorneys’ fees, incurred by the Bank as a result of taking
action to enforce, or recover for any breach of, Section 10 or Section 11. The
covenants contained in Sections 10 and 11 shall be construed and interpreted in
any judicial proceeding to permit their enforcement to the maximum extent
permitted by law. Should a court of competent jurisdiction determine that any
provision of the covenants and restrictions set forth in Section 11 above is
unenforceable as being overbroad as to time, area or scope, the court may
strike the offending provision or reform such provision to substitute such
other terms as are reasonable to protect the Bank’s legitimate business
interests.

6

 

     Section 13. Binding Effect/Assignability. This Employment
Agreement shall be binding upon and inure to the benefit of the Bank and
Employee and their respective heirs, legal representatives, executors,
administrators, successors and assigns, but neither this Agreement, nor any of
the rights hereunder, shall be assignable by Employee or any beneficiary or
beneficiaries designated by Employee. The Bank will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business, stock or assets of the Bank, by
agreement in form and substance reasonably satisfactory to the Employee, to
expressly assume and agree to perform this Agreement in its entirety. Failure
of the Bank to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle the Employee
to the compensation described in Section 9(d). As used in this Agreement,
“Bank” shall mean Alliance Bankshares Bank, a Virginia Bank, and any successor
to its respective business, stock or assets as aforesaid which executes and
delivers the agreement provided for in this Section 13 or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.

     Section 14. Governing Law. This Employment Agreement shall be
subject to and construed in accordance with the laws of the Commonwealth of
Virginia, without giving effect to its principles of conflict of laws.

     Section 15. Litigation. In the event of any dispute between the
parties concerning this Agreement, each party shall be responsible for
obtaining counsel at its own expense; however, in the event that the Bank does
not substantially prevail in any litigation arising under this Agreement, the
Bank shall promptly reimburse the Employee for all reasonable attorneys’ fees
and expenses incurred in connection with such litigation.

     Section 16. Invalid Provisions. The invalidity or unenforceability
of any particular provision of this Employment Agreement shall not affect the
validity or enforceability of any other provisions hereof, and this Employment
Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.

     Section 17. Notices. Any and all notices, designations, consents,
offers, acceptance or any other communications provided for herein shall be
given in writing and shall be deemed properly delivered if delivered in person
or by registered or certified mail, return receipt requested, addressed in the
case of the Bank to its registered office or in the case of Employee to his
last known address.

     Section 18. Entire Agreement.

          (a) This Employment Agreement constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes any and all
other agreements, either oral or in writing, among the parties hereto with
respect to the subject matter hereof.

          (b) This Employment Agreement may be executed in one or more counterparts,
each of which shall be considered an original copy of this Agreement, but all
of which together shall evidence only one agreement.

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     Section 19. Amendment and Waiver. This Employment Agreement may
not be amended except by an instrument in writing signed by or on behalf of
each of the parties hereto. No waiver of any provision of this Employment
Agreement shall be valid unless in writing and signed by the person or party to
be charged.

     Section 20. Case and Gender. Wherever required by the context of
this Employment Agreement, the singular or plural case and the masculine,
feminine and neuter genders shall be interchangeable.

     Section 21. Captions. The captions used in this Employment
Agreement are intended for descriptive and reference purposes only and are not
intended to affect the meaning of any Section hereunder.

     IN WITNESS WHEREOF, the Bank has caused this Employment Agreement to be
signed by its duly authorized officer and Employee has hereunto set his hand
and seal on the day and year first above written.

	 	 	 
	 	 	
ALLIANCE BANK
	 	 	 
	 	 	
By: Thomas A. Young, Jr.
	 	 	
Title: President & CEO

ATTEST:

Joyce E. Vanneman

	 	 	 
	 	 	
EMPLOYEE
	 	 	 
	 	 	
Frank H. Grace, III.  (SEAL)

ATTEST:

Joyce E. Vanneman

8

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