Document:

Exhibit 10.6

 

EMPLOYMENT
AGREEMENT 

 

This Agreement is made and is effective as of November 1, 2003, by and
between Coast National Bank, a national banking association (“Coast”), and
Coast Bancorp, a California corporation (“Bancorp”) and Leah Pauly (“Executive”).

 

WHEREAS, Executive is currently employed by Coast in the capacity of
Executive Vice President/Chief Credit Officer and Executive’s background,
expertise and efforts have contributed to the success and financial strength of
Coast; and

 

WHEREAS, Coast wishes to assure itself of the continued opportunity to
benefit from Executive’s services for the period provided in this Agreement,
and Executive wishes to serve in the employ of Coast on a full-time basis
solely in accordance with the terms hereof for such purposes; and

 

WHEREAS, the Board of Directors of Coast (“Board”) has determined that
the best interests of Coast would be served by Executive’s continued employment
with Coast under the terms of this Agreement;

 

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

 

1.             Definitions.

 

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

 

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

 

(c) “Cause” means:

 

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

 

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(2) Executive commits any act of unauthorized
disclosure of any secrets or confidential information of the Bank or induces
any client, employee or customer of the Bank to break any contract with the
Bank;

 

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

 

(4) Executive commits any act which would
cause termination of coverage under Coast’s Bankers’ Blanket Bond as to
Executive (as distinguished from termination of coverage as to Coast as a
whole).

 

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

 

(1)           there
is a transfer, voluntarily or by hostile takeover, by proxy contest (or similar
action), operation of law, or otherwise, of control of Coast or Bancorp;

 

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

 

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

 

(4)           a
merger or consolidation (in which Bancorp is not the surviving entity) or sale
of all or substantially all of the assets of Bancorp; or

 

(5)           there
is a change, during any period of two consecutive years, of a majority of the
Board of Directors of Bancorp as constituted as of the beginning of such
period, unless the election of each director who is not a director at the 

 

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beginning of such period was approved by a vote of at least two-thirds
of the directors then in office who were directors at the beginning of such
period.

 

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

 

(f) “Control”
means the possession, direct or indirect, by any Person or “group” (as defined
in Section 13(d) of the Securities Exchange Act) of the power to direct or
cause the direction of the management policies of Coast or Bancorp, whether
through ownership of voting securities, by contract or otherwise, and in any
case means the ability to determine the election of a majority of the directors
of Bancorp.

 

(g) “Disability”
means physical or mental illness defined as Executive being unable to fully
perform the duties required under this Agreement for a continuous period of
ninety (90) days or a cumulative period of one hundred twenty (120) days in any
one calendar year. If there should be a dispute between Coast and Executive as
to Executive’s physical or mental disability for purposes of this Agreement,
the question shall be settled by the opinion of an impartial reputable
physician or psychiatrist agreed upon by the parties or their representatives,
or if the parties cannot agree within ten (10) days after a request for
designation of such party, then by a physician or psychiatrist designated by
the Los Angeles County Medical Association. The certification of such physician
or psychiatrist as to the question in dispute shall be final and binding upon
the parties hereto.

 

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

 

(i) “Failure
to Perform Duties” means Executive fails to perform or habitually neglects
the duties which she is required to perform hereunder.

 

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

 

(k) “Resign
for Good Reason” or “Resignation for Good Reason” has the meaning found in
Section 7(e).

 

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

 

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

 

(1)           Retirement by
Executive;

 

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(2)           Death of Executive;

 

(3)           Disability;

 

(4)           Expiration;

 

(5)           Resignation for Good
Reason;

 

(6)           Resignation other than
Resignation for Good Reason;

 

(7)           Termination Without
Cause; and

 

(8)           Termination for Cause.

 

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

 

(1)           A resignation by
Executive;

 

(2)           Termination for Cause;

 

(3)           Retirement;

 

(4)           Disability;

 

(5)           Death; or

 

(6)           Expiration.

 

2.             At-Will Employment.
Pursuant to the provisions of 12 U.S.C. Section 24 (i.e., The National Bank
Act) and notwithstanding any other provision to the contrary contained herein,
it is agreed by the parties hereto that the Executive’s employment by Coast
hereunder shall be at-will, and that Coast may at any time elect to terminate
this Agreement and Executive’s employment by Coast for any reason by action of
its Board.

 

3.             Position and
Responsibilities. The Executive shall serve as Executive Vice President and
Chief Credit Officer of Coast and, subject to the provisions of Section 5
below, shall have such responsibilities, duties and authority as are generally
associated with such positions and as may from time to time be assigned to the
Executive by the Board that are consistent with such responsibilities, duties
and authority.

 

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4.             Term of Agreement.
Subject to the terms and provisions of this Agreement, this Agreement and the
period of Executive’s employment, shall be deemed to have commenced as of
November 1, 2003 and shall continue for an initial term of five years
thereafter until 12:00 midnight October 31, 2008, unless sooner terminated. In
the event Coast retains Executive as an employee following the expiration of
the Term, such employment, absent a written agreement to the contrary, will be
on an at-will basis with such compensation and upon such terms as the parties
may then agree, subject to termination at any time with or without cause, and
without liability. If Coast does not retain Executive as an employee after the
Expiration of the Term, Executive’s employment shall cease without further
liability of the parties to each other. Executive’s employment shall also
terminate, and the Term of this Agreement will expire, upon Executive’s
resignation (unless resignation is for Good Reason after a Change in Control),
retirement, death or Disability, or upon Executive’s Termination for Cause.

 

5.             Full Time,
Exclusive Employment. During the Term hereof, Executive shall devote
exclusively all of her business time, attention, skill and efforts to the
faithful performance of the business of Coast to the fullest extent necessary
to properly discharge her duties and responsibilities hereunder and consistent
with the highest and best standards of the banking industry and in compliance
with all applicable laws, regulations and rules as well as Coast’s Articles of
Incorporation and Bylaws. Further, with the approval of the Board, from time to
time, Executive may serve, or continue to serve, on the boards of directors of,
and hold any other offices or positions in, companies or charitable, political
or civic organizations, which, in such Board’s judgment, will not present any
material conflict of interest with Coast and will not unfavorably affect the
performance of Executive’s duties pursuant to this Agreement.

 

6.             Compensation.

 

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

 

	
  November 1, 2003 - October 31, 2004

  	
   

  	
  $100,000.00;

  
	
  November 1, 2004 - October 31, 2005

  	
   

  	
  $110,000.00;

  
	
  November 1, 2005 - October 31, 2006

  	
   

  	
  $110,000.00;

  
	
  November 1, 2006 - October 31, 2007

  	
   

  	
  $125,000.00; and

  
	
  November 1, 2007 - October 31, 2008

  	
   

  	
  $125,000.00

  

 

Said salary shall be payable in equal installments in conformity with
Coast’s normal payroll practice, and shall be paid less all applicable taxes,
with holdings, and deductions.

 

(b)   Bonuses.   Executive may
receive an annual bonus in an amount to be determined by the Board of Directors
in its sole discretion.

 

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(c) Vacation. Executive shall be entitled to up to four (4)
weeks of vacation each year during the Term, which vacation shall be taken at
such times as are agreed upon by Executive and the Board of Directors;
provided, however, that during each year of the Term, Executive is required to
and shall take at least two (2) weeks of said vacation (the “Mandatory Vacation”),
which shall be taken consecutively. Executive shall not be entitled to vacation
pay in lieu of vacation; provided, however, that any vacation days earned but
not used in any year may be carried over to future years, subject to any cap or
limitation on vacation benefit accrual that may be contained in Coast’s
Employee Policy Guide (which cap or limitation is hereby incorporated by
reference).

 

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

 

(e) Group Medical and Life Insurance Benefits. Coast, as its
expense, shall provide for Executive medical, dental, accident, disability and
death benefits equivalent to the normal and customary benefits available from
time to time under the California Banker’s Association Group Insurance Program
(or equivalent) for an employee of Executive’s salary level.

 

(f)            Stock Option.
In addition to those stock options that have already been granted to the
Executive prior to the commencement of this Agreement, during the term of this
Agreement, Bancorp may grant to Executive stock options to purchase Bancorp’s
common stock in such amount as may be determined in the sole discretion of the
Board of Directors of Bancorp and pursuant to such terms as are contained in
Bancorp’s Stock Option Plan or Plans as may be in effect during the term of
this Agreement.

 

(g)           Employee Benefits
and Perks. In addition to the foregoing, during the period of the Executive’s
employment hereunder, the Executive shall be entitled to participate in all
employee benefits plans or arrangements of Coast not otherwise provided for in
this Agreement on the same basis as other employees of Coast including, without
limitation, plans or arrangements providing use of Coast provided credit
card(s), car telephone(s), pager(s) and such other perks (if such is (are)
being so provided) upon the terms and conditions previously in effect.

 

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

 

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7. Termination.

 

(a) Resignation, Retirement, Death or Disability. Executive’s
employment hereunder shall cease at any time by Executive’s resignation (other
than a resignation for Good Reason as provided in Section 7(e)), or by
Executive’s retirement, death or Disability. Disability shall be deemed to have
occurred only after following the procedure contained in Section 1(g) above.

 

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

 

(c) Termination for Failure to Perform Duties. Upon the good
faith determination by the Board that Executive’s conduct amounts to a Failure
to Perform Duties, the Board shall give Executive written notice of such
finding. Executive shall then have thirty (30) days in which to modify her job
performance and cease the behaviors leading to the Board’s determination of her
Failure to Perform Duties. Upon the expiration of said thirty (30) day period,
the Board shall review Executive’s job performance during that thirty (30) day
period, and determine whether Executive’s conduct still amounts to a Failure to
Perform Duties. Executive’s employment shall cease upon a good faith finding of
a Failure to Perform Duties by the Board at the end of the thirty (30) day
period; provided, however, that Executive shall be given written notice of the
Board’s finding of conduct by Executive amounting to a Failure to Perform
Duties. Said notice shall be accompanied by a copy of a resolution duly adopted
by the affirmative vote of not less than a majority of a quorum of the Board at
a duly-noticed meeting of the Board, finding that in the good faith opinion of
the Board, Executive was guilty of conduct amounting to a Failure to Perform
Duties and specifying the particulars thereof; provided, however, that after a
Change in Control, such resolution may be adopted only by the affirmative vote
of not less than a majority of a committee composed of at least three (3)
disinterested outside directors of Coast. In the absence of at least three (3)
disinterested outside directors, a determination of a Failure to Perform Duties
shall be submitted to and made by an arbitrator(s) pursuant to Section 13
hereof. A termination of Executive pursuant to this subparagraph 7(c) shall be
deemed to be a, “Termination for Cause.”

 

(d) Termination Without Cause. Executive’s employment may be
terminated immediately Without Cause upon written notice for any reason,
subject to the payment of all amounts including severance benefits required by
Section 8 hereof. Any termination shall be 

 

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effective immediately unless another time period is specified herein
upon Coast’s giving of notice to Executive, and all liability or obligation by
Coast hereunder to Executive (except for severance benefits, as may be provided
below) shall thereupon cease. Such termination shall not prejudice any remedy
which Coast may have at law, in equity, or under this Agreement.

 

(e) Expiration. Executive’s employment shall cease, or shall
continue on an at-will basis as provided in Section 4 hereof, upon the
expiration of the Term of this Agreement as provided in Section 4 hereof.

 

(f) Resignation for Good Reason. Following a Change in Control
during the Term hereof, Executive may, under the following circumstances,
regard Executive’s employment as being constructively terminated by Coast (and
in such case Executive’s employment shall terminate) and may, therefore, Resign
for Good Reason within 90 days of Executive’s discovery of the occurrence of
one or more of the following events, any of which shall constitute “Good Reason”
for such Resignation for Good Reason:

 

(1)           Without
Executive’s express written consent, the assignment to Executive of any duties
materially inconsistent with Executive’s position, duties, responsibilities and
status with Coast immediately prior to the Change in Control, or any subsequent
removal of Executive from or any failure to re-elect her to any such position;

 

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

 

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

 

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

 

(5)           Coast
requiring Executive to be based at an office that is greater than 25 miles from
where Executive’s office is located immediately prior to the

 

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Change in Control, except for required travel on Coast’s behalf to an
extent substantially consistent with Executive’s present business travel
obligations;

 

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

 

(7)           The
failure of Coast to obtain the assumption of this Agreement by any successor.

 

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

 

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

 

8. Payments to Executive Upon Termination.

 

(a) Death, Disability or Retirement. In the event of Termination
of this Agreement due to Executive’s death, Disability or retirement, Executive
or Executive’s spouse and/or estate shall be entitled to NO benefits from Coast
and Coast shall have no further liability or obligation to Executive, including
any obligation to provide severance benefits pursuant to this Section 8 below.

 

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

 

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

 

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(d) Termination Without Cause Prior to a Change in Control. Upon
the occurrence of a Termination Without Cause prior to a Change in Control, as
damages for breach of this Agreement, Coast shall as severance benefits to
Executive provide the following: (a) severance pay in a sum equivalent to
Executive’s then existing base salary for a period of six (6) months next
following Executive’s termination (in lieu of any payments otherwise due for
the balance of the Term), which payment shall be payable to Executive in one
lump sum payment on the effective date of termination of Executive’s employment
hereunder; and (b) continuation of insurance benefits provided to Executive
hereunder for a period not to exceed sixty (60) days after termination. The
parties agree that the provision of such severance benefits shall constitute
full and complete performance by Coast of its obligations hereunder.

 

(e) Termination Without Cause or Resignation for Good Reason, After
a Change in Control. If in the twenty-four (24) month period following a
Change in Control, Executive (i) Resigns for Good Reason or (ii) is otherwise
Terminated Without Cause, Coast shall pay to Executive a lump sum payment equal
to twelve (12) months base salary then in effect. Such lump sum shall be paid
not later than the tenth (10th) day following the date of Termination Without
Cause or a Resignation for Good Reason.

 

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

 

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

 

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

 

(i) Sole Remedy. The receipt of the amounts described in this Section
8, and attorneys’ fees as set forth in Section 13 in the event of breach, if
any, shall constitute

 

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Executive’s sole remedy under this Agreement against Coast and its
officers, directors, employees and agents.

 

9. Confidentiality and Trade Secrets.

 

(a) Trade Secrets. During the Term, Executive will have access
to and become acquainted with what Executive and Bank acknowledge are trade
secrets, to wit, knowledge or data concerning Bank, including its operations
and business, and the identity of customers of Bank, including knowledge of
their financial condition, their financial needs, as well as their methods of
doing business. Executive shall not disclose any of the aforesaid trade
secrets, directly or indirectly, or use them in any way, either during the Term
or for a period of twenty four (24) months after the termination of this
Agreement, except as required in the course of Executive’s employment with
Bank.

 

(b) Return of Documents. Executive expressly agrees that all
manuals, documents, files, reports, studies, instruments, software, computer
programs or similarly generated electronic materials or other materials used
and/or developed by Executive during the Term are solely the property of Bank,
and that Executive has no right, title or interest therein. Upon termination of
the Term of this Agreement, Executive or Executive’s representative shall
promptly deliver possession of all of said property to Bank in good condition.

 

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

 

10. Business Protection Covenants.

 

(a) Agreement Not to Compete. Executive agrees that in the event
she is terminated without cause and receives the payment required by Section
8(d), unless otherwise approved in writing by Coast, for a period of six (6)
months from the date of her cessation of employment by Coast, Executive shall
not directly or indirectly enter into or in any manner take part in any
business, profession or endeavor which shall be competitive with the business
of Coast in San Luis Obispo County as an employee, officer, agent, independent
contractor, 10% or more owner of an entity, director or other business
representative; in addition, Executive agrees 

 

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that for the six (6) months period described herein, Executive shall
not solicit any customer with whom Coast has done business during the preceding
six (6) months.

 

(b) Inducing Employees To Leave the Bank; Employment of Employees.
Any attempt on the part of the Executive to induce others to leave the Bank’s
employ, or the employ of any of its subsidiaries or affiliates, or any effort
by the Executive to interfere with the Bank’s relationship with its other
employees would be harmful and damaging to the Bank. The Executive agrees that
during the Term of employment and for a period of six (6) months thereafter,
the Executive will not in any way, directly or indirectly (i) induce or attempt
to induce any employee of the Bank or any of its subsidiaries of affiliates to
quit employment with the Bank or the relevant subsidiary or affiliate; (ii)
otherwise interfere with or disrupt the relationships between the Bank and its
subsidiaries and affiliates and their respective employees; (iii) solicit, entice,
or hire away any employee of the Bank or any of its subsidiaries or affiliates;
or (iv) hire or engage any employee of the Bank or any subsidiary or affiliate
or any former employee of the Bank or any subsidiary or affiliate whose
employment ceased less than one (1) year before the date of such hiring or
engagement.

 

(c) Nonsolicitation of Business. The Executive agrees that, in
the event she is terminated without Cause and receives the payment required by
Paragraph 8(d) for a period of six (6) months form the date of termination of
employment, the Executive will not divert or attempt to divert from the Bank or
any of its subsidiaries or affiliates, any business the Bank or a subsidiary or
affiliate had enjoyed or solicited from its customers, borrowers, depositors or
investors during the six (6) months prior to termination of her employment.

 

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

 

(e) Severability. It is the desire and intent of the parties
that each of the provisions of Section 10 shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any particular
provision in the provisions of Section 10 shall be adjudicated or found to be
invalid or unenforceable, such provisions shall be deemed amended to delete
therefrom the portion thus 

 

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adjudicated or found to be invalid or unenforceable, such deletion to
apply only with respect to the operation of such provision in the particular
jurisdiction in which such adjudication or fining is made. In addition, should
any court or arbitrator determine that any of the provisions of Section 10
shall be unenforceable with respect to scope, duration, or geographic area,
such court or arbitrator shall be empowered to substitute, to the extent
enforceable, provisions similar hereto or other provisions so as to provide to
the Bank, to the fullest extent permitted by applicable law, the benefits
intended by the particular paragraph at issue.

 

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

 

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

 

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

 

If to the Bancorp, to:

 

Coast Bancorp

500 Marsh Street

San Luis Obispo, California 93401

Attn: President

Facsimile: (805) 541-5758

 

If to Coast, to:

 

Coast National Bank

500 Marsh Street

San Luis Obispo, California 93401

Attn: President

Facsimile: (805) 541-5758

 

with a copy to:

 

Barnet Reitner, Esq.

REITNER & STUART

1319 Marsh Street

San Luis Obispo, California 93401

Facsimile: (805) 545-8599

 

13

 

If to Executive, to:

 

Leah Pauly

c/o Coast National Bank

500 Marsh Street

San Luis Obispo, California 93401

 

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

 

13. Arbitration. Any dispute or controversy arising or in
connection with this Agreement shall, upon written request of one party to the
other, be submitted to and settled exclusively by arbitration in the State of
California and be governed by the California Arbitration Act as set forth in
the California Code of Civil Procedure.   
Judgment may be entered on the arbitrator’s award in any court of
competent jurisdiction. To the extent allowable by law, the cost of such
arbitration, including reasonable attorney’s fees, shall be borne by the losing
party or in such proportions as the arbitrator(s) shall decide. Arbitration
shall be the exclusive remedy of Executive and the Company and the award of the
arbitrator(s) shall be final and binding upon the parties. All reasonable
costs, including reasonable attorney’s fees, incurred in enforcing an arbitration
award in court, or of seeking a court order to compel arbitration, shall be
borne by the losing party in such proceedings.

 

14. Indemnification. The Company will indemnify Executive to the
fullest extent permitted by the laws of the state of California and to the
extent not inconsistent with the foregoing, the Articles of Incorporation and
Bylaws of the Company as in effect on the date of the Change in Control of the
Company, in respect of all Executive’s services rendered to the Company and its
subsidiaries prior to the Date of Termination. Executive shall be entitled to
the protection of any insurance policies the Company now or hereafter maintains
generally for the benefit of its directors, officers and employees (but only to
the extent of the coverage afforded by the existing provisions of such
policies) to protect against all costs, charges and expenses whatsoever
incurred or sustained by Executive in connection with any action, suit or
proceeding to which Executive may be made a party by reason of her being or
having been a director, officer or employee of the Company or any of its
subsidiaries during her employment therewith.

 

15. General Provisions.

 

(a) Entire Agreement. This Agreement constitutes the entire
agreement by the parties with respect to the subject matter hereof, and
supersedes and replaces all prior agreements among or between the parties,
unless otherwise provided herein. No amendment, waiver or termination of any of
the provisions hereof shall be effective unless in writing and signed by the 

 

14

 

party against whom it is sought to be enforced. Any written amendment,
waiver, or termination hereof executed by Coast and Executive shall be binding
upon them and upon all other Persons, without the necessity of securing the
consent of any other Person, and no Person shall be deemed to be a third-party
beneficiary under this Agreement.

 

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

 

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

 

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

 

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

 

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

 

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

 

(h) Advice of Counsel. Executive acknowledges that Coast has
been represented by Reitner & Stuart in connection with the preparation of
the Agreement and that she has been encouraged to consult with other legal
counsel of her choosing concerning the terms of this Agreement prior to
executing this Agreement. Any failure by Executive to consult with competent
counsel prior to executing this Agreement shall not be a basis for rescinding
or otherwise avoiding the binding effect of this Agreement. The parties
acknowledge that they are 

 

15

 

entering into this Agreement freely and voluntarily, with full
understanding of the terms of this Agreement. Interpretation of the terms and
provisions of this Agreement shall not be construed for or against either party
on the basis of the identity of the party who drafted the terms or provisions
in question.

 

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

 

 

	
  ATTEST:

  	
  COAST NATIONAL BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/Stephanie Ragsdale

  	
   

  	
  By:

  	
  /s/Jack Wauchope

  	
   

  
	
   

  	
  Its:Chairman/CEO

  
	
   

  	
  print name:Jack Wauchope

  
	
   

  	
   

  
	
   

  	
   

  
	
  ATTEST:

  	
  COAST BANCORP

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/Stephanie Ragsdale

  	
   

  	
  By:

  	
  /s/Jack Wauchope

  	
   

  
	
   

  	
  Its:Chairman/CEO

  
	
   

  	
  print name:Jack Wauchope

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Stephanie Ragsdale

  	
   

  	
  /s/ Leah Pauly

  	
   

  
	
  Witness

  	
   

  
							

 

16Exhibit
10.13

 

	
  

  	
   

  	
  01/27/05

  

 

THE SHERIDAN GROUP, INC.

 

Change-of-Control
Incentive Plan

 

Corporate
Staff

 

The Sheridan Group, Inc. (the “Company”) proposes to
adopt this Change-of-Control Incentive Plan (the “Plan”) for certain of its
corporate staff employees, providing for payment of the Severance Benefits
described below in the event of certain terminations of employment following a
change of control.  Any acquiror of the
Company will be required to assume the Plan.

 

Severance Benefits:  During the period of eighteen (18) months
following a Change of Control, each Covered Employee will be entitled to
payment by the Successor Employer of Severance Compensation following any
termination of such Covered Employee’s employment as a result of (a) such
Covered Employee’s termination of his or her employment for Good Reason or (b)
the Successor Employer’s termination of such Covered Employee’s employment
without Cause.

 

Defined Terms:

 

“Applicable Period” means, as to
any Covered Employee, the longer of (a) six (6) months and (b) a period of two
weeks for each full year of such Covered Employee’s employment by the Successor
Employer, the Company, any subsidiary, or any predecessor of the Company or any
of its subsidiaries.

 

“Board of Directors” means the
Board of Directors of the Company.

 

“Cause” means:

 

(i)                                     the
Covered Employee shall have committed an act of fraud, embezzlement or
misappropriation against the Successor Employer, including, but not limited to,
the offer, payment, solicitation or acceptance of any unlawful bribe or
kickback with respect to the Successor Employer’s business; or

 

(ii)                                  the
Covered Employee shall have been convicted by a court of competent jurisdiction
of, or pleaded guilty or nolo  contendere to, any felony or any
crime involving moral turpitude; or

 

(iii)                               the
Covered Employee shall have refused, after explicit written notice, to obey any
lawful resolution of or direction by the Successor Board which is consistent
with the duties incident to his or her employment; or

 

(iv)                              the
Covered Employee shall have been chronically absent from work (excluding
vacations, illnesses or leaves of absence approved by the Successor Board); or

 

 

(v)                                 the
Covered Employee shall have failed to perform the duties incident to his or her
employment with the Successor Employer on a regular basis, and such failure
shall have continued for a period of twenty (20) days after written notice to
the Covered Employee specifying such failure in reasonable detail (other than
as a result of the Covered Employee’s Disability); or

 

(vi)                              the
Covered Employee shall have engaged in the unlawful use (including being under
the influence) or possession of illegal drugs on the Successor Employer’s
premises.

 

“Change of Control” means (i)
the sale or other transfer of all or substantially all of the assets of the
Company or its subsidiaries in a single transaction or series of related
transactions, (ii) the merger or consolidation of the Company with any other
entity, a majority of whose voting securities are owned by any persons or persons
other than the holders of a majority of the currently outstanding voting
securities of the Company, and (iii) the sale or other transfer of a majority
of the outstanding voting securities of the Company in a single transaction or
series of related transactions.

 

“Covered Employees” means those
employees of the Company or any of its subsidiaries, who:

 

(i)                                     from
time to time have been designated as Covered Employees by the Board of
Directors and with respect to whom that designation has not been revoked (the
Board of Directors shall have the right in its sole discretion to designate
Covered Employees and to revoke that designation); and

 

(ii)                                  remain
employed by the Company

 

at the time of the
closing of a Change of Control.

 

“Disability” means that an independent
medical doctor (selected by the Successor Employer’s health or disability
insurer) shall have certified that the Covered Employee has for 180 days,
consecutive or non-consecutive, in any twelve (12) month period been physically
or mentally disabled in a manner which seriously interferes with his or her
ability to perform the duties incident to his or her employment.  Any refusal by a Covered Employee to submit
to a medical examination for the purpose of certifying Disability shall be
deemed to constitute conclusive evidence of such Covered Employee’s Disability.

 

“First Change of Control” means
the first Change of Control to occur after the date of adoption of the Plan.

 

“Good Reason” means the
occurrence of any of the events or conditions described in subparagraphs (i) -
(iv) of this definition, without the Covered Employee’s express written
consent, which is not corrected within twenty (20) days after delivery by the
Covered Employee of written notice thereof to the Successor Employer:

 

2

 

(i)                                     a
material reduction in the Covered Employee’s status, title, position, scope of
authority or responsibilities, or the assignment to the Covered Employee of any
duties or responsibilities which are materially inconsistent with such status,
title, position, authority or responsibilities;

 

(ii)                                  involuntary
relocation of the Covered Employee;

 

(iii)                               any
removal of the Covered Employee from or failure to reappoint him or her to any
of his or her positions held on the date of the Change of Control, except in
connection with the termination of his or her employment by the Successor
Employer for Cause or by the Covered Employee other than for Good Reason, or as
a result of the Covered Employee’s death or Disability; or

 

(iv)                              a
material reduction by the Successor Employer in the Covered Employee’s
compensation or benefits as in effect on the date of the Change of Control.

 

“Severance Compensation” means:

 

(i)                                     severance
payments, in accordance with the Successor Employer’s then current payroll
practices, at an annual rate equal to the Covered Employee’s base salary in
effect on the date of the Change of Control, for the Applicable Period;

 

(ii)                                  continued
coverage during the Applicable Period under the health insurance plan
maintained by the Successor Employer for its full-time, salaried employees; and

 

(iii)                               payment
of any expense reimbursements for expenses incurred in the performance of the
Covered Employee’s duties prior to termination of his or her employment.

 

“Successor Board” means
the Board of Directors of the Successor Employer.

 

“Successor Employer”
means the entity continuing the business of the Company and its subsidiaries,
or a part thereof, and employing the Covered Employee following a Change of
Control.

 

Other Terms:

 

At Will Employment:  Each of the Covered Employees is an
at-will employee of the Company or one of its subsidiaries, and his or her
employment may be terminated at any time by such Covered Employee’s or by his
or her employer’s giving the other party written notice of termination.  Nothing contained in this Plan is intended to
create for any of the Covered Employees any right to continued employment with
the Company, any of its subsidiaries, or any Successor Employer, or employment
in the same position or on the same terms as those currently in effect.

 

3

 

Arbitration of Disputes:  Any controversy or claim between any
Covered Employee and a Successor Employer arising out of or relating to this
Plan or the breach thereof shall, to the extent permitted by law, be settled by
arbitration in any forum and form agreed upon by the Covered Employee and the
Successor Employer, or in the absence of such an agreement, under the auspices
of the American Arbitration Association (“AAA”) in Baltimore, Maryland in
accordance with the Employment Dispute Resolution Rules of the AAA, including,
but not limited to, the rules and procedures applicable to the selection of
arbitrators, except that the Successor Employer shall pay all administrative
fees and arbitrator’s fees and expenses related to such arbitration.  Notwithstanding the foregoing, this provision
shall not preclude any party from pursuing a court action for the sole purpose
of obtaining a temporary restraining order or a preliminary injunction in
circumstances in which such relief is appropriate, provided that any other
relief shall be pursued through an arbitration proceeding as provided herein.

 

Severability:  If any provision of this Plan is or
becomes invalid, illegal or unenforceable in any respect under any law, the
validity, legality and enforceability of the remaining provisions hereof shall
not in any way be affected or impaired.

 

Waivers:  No delay or omission by any Covered Employee,
by the Company or any of its subsidiaries, or by any Successor Employer in
exercising any right, power or privilege hereunder shall impair such right,
power or privilege, nor shall any single or partial exercise of any such right,
power or privilege preclude any further exercise thereof or the exercise of any
other right, power or privilege.

 

Amendment; Termination:  The Successor Board may, by action(s)
duly approved in accordance with the Company’s By-Laws and applicable law,
amend or terminate the Plan at any time (or, in the case of amendments, from
time to time) after the date of completion of the First Change of Control, provided
that no such amendment or termination shall, without the prior written consent
of the Covered Employee(s) so affected, adversely affect any of the rights or
benefits to which any of the Covered Employees is entitled under the Plan
immediately following the completion of the First Change of Control (including
all rights to payments and benefits upon a subsequent termination of the
employment of such Covered Employee(s)).

 

Assignment; Rights of Parties:  The rights and obligations of the
Company, its subsidiaries, each of the Covered Employees and each Successor
Employer shall inure to the benefit of, and shall be binding upon, the
successors and assigns of each of them.

 

GOVERNING LAW.  THIS PLAN SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND, WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICTS OF LAW.

 

4

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