Document:

Exhibit
10.1

EMPLOYMENT AGREEMENT

THIS AGREEMENT is
made this 1st day of July, 2006, by and between CHINO COMMERCIAL BANK, N.A.
(the “Bank”), having its offices at 14345 Pipeline Avenue, Chino, California
91710, and DANN H. BOWMAN (“Executive”), whose residence address is [***].

WHEREAS, the Bank
is a national banking association, with power to own property and carry on its
business as it is now being conducted;

WHEREAS, the Bank
desires to avail itself of the skill, knowledge and experience of Executive in
order to insure the successful management of its business; and

WHEREAS, the
parties hereto desire to specify the terms and conditions of Executive’s
employment by the Bank;

NOW, THEREFORE, in
consideration of the mutual covenants hereinafter set forth, and intending to
be legally bound, it is agreed that from and after July 1, 2003 (the “Effective
Date”), the following terms and conditions shall apply to Executive’s said
employment:

A.   TERM OF EMPLOYMENT 

1.    Term.  The Bank hereby employs Executive and
Executive hereby accepts employment with the Bank for the period of three (3)
years (the “Term”) commencing with the Effective Date, subject, however, to
prior termination of this Agreement, as hereinafter provided. Where used
herein, “Term “ shall refer to the entire period of employment of Executive by
The Bank hereunder, whether for the period provided above, or whether
terminated earlier as hereinafter provided.

B.    DUTIES
OF EXECUTIVE 

1.    Duties.    Executive
shall perform the duties of President and Chief Executive Officer of the Bank,
subject to the powers by law vested in the Board of Directors of the Bank and
in the Bank’s shareholders. During the Term, Executive shall perform
exclusively the services herein contemplated to be performed by Executive
faithfully, diligently and to the best of Executive’s ability, consistent with
the highest and best standards of the banking industry and in compliance with
all applicable laws and the Bank’s Articles of Association and Bylaws.

2.    Conflicts
of Interest.    Except as permitted by the prior
written consent of the Board of Directors of the Bank, Executive shall devote
Executive’s entire productive time, ability and attention to the business of
the Bank during the Term and Executive shall not directly or indirectly render
any services to any other person, firm or corporation, whether for compensation
or otherwise, which are in conflict with the Bank’s interests.  Notwithstanding the foregoing, Executive may
make investments of a passive nature in any business or venture, provided
however, that such business or venture is neither in competition, directly or
indirectly, in any manner with the Bank nor a customer of the Bank.

[***] Certain information on this page has been
redacted.

 

 

C.      COMPENSATION 

1. Salary.    For
Executive’s services hereunder, the Bank shall pay or cause to be paid as
annual base salary to Executive: 
One-Hundred, Sixty-Thousand, Dollars ($160,000) for the first year of
the Term, commencing July 1, 2006 and continuing through June 30, 2007;
One-Hundred, Sixty-Eight Thousand, Dollars ($168,000) for the second year of
the Term, commencing July 1, 2007 and continuing through June 30, 2008; and One-Hundred,
Seventy-Six Thousand, Four-Hundred Dollars ($176,400) for the year of the Term,
commencing July 1, 2008 and continuing through June 30, 2009.  Said salary shall be payable in equal
installments in conformity with the Bank’s normal payroll practice.

2. Bonuses. 

(a) Incentive
Bonus Compensation   Executive shall receive annual incentive
bonus compensation equal to five percent (5.0%) of the net income (after
Federal and State income taxes) of the Bank for each fiscal year during the
Term. For purposes of this Paragraph C.2(a), net income shall be determined
based upon the Bank’s audited annual financial statements and such bonus shall
be payable to Executive upon certification of such financial statements by the
Bank’s independent accountants.

(b ) Discretionary
Bonuses.  In addition, Executive may
receive such bonuses, if any, as the Board of Directors in its sole discretion
shall determine.

D.    EXECUTIVE
BENEFITS

1. Vacation.   Executive shall be entitled to up to four
(4) weeks of vacation for each remaining year of 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. Accrual for unused vacation
time shall be determined in accordance with the Bank’s Personnel Policy as if
in effect from time to time.

2. Automobile. Commencing
on the Effective Date and during the entire Term hereunder, the Bank shall pay
to Executive an automobile allowance of Six Hundred Dollars ($600) per month.

3. Group
Medical and Life Insurance Benefits.  
The Bank, at its expense, shall provide for Executive medical, dental,
accident and health, and income continuation insurance benefits (including
disability) benefits in accordance with the Bank’s Personnel Policy as in
effect from time to time, except that in any event, Executive shall be provided
with term life insurance benefits of at least $500,000. Said coverage shall be
in existence or shall take effect as of the Effective Date hereof and shall
continue throughout the Term. Executive shall be the individual owner of such
life insurance policy with all associated benefits. The Bank’s liability to
Executive for any breach of this Paragraph D.3 shall be limited to the amount
of premiums payable by the Bank to obtain the coverage contemplated herein.
Said coverage shall be in existence or shall take effect as of the Effective
Date and shall continue throughout the Term.

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4. .Stock
Option.   No additional stock options
are included in this contract renewal over and above any options which may have
been previously awarded.

E.    REIMBURSEMENT
FOR BUSINESS EXPENSES 

Executive shall be
entitled to reimbursement by the Bank for ordinary and necessary business expenses
(the general nature of which shall be established by the Board of Directors)
incurred by Executive in the performance of Executive’s duties when acting for
the Bank during the Term, provided that:

1. Each such
expenditure is of a nature qualifying it as a proper deduction on the Federal
and State income tax returns of the Bank as a business expense and not as
compensation to Executive; and

2. Executive
furnishes to the Bank adequate records and other documentary evidence required
by Federal and State statutes and regulations issued by the appropriate taxing
authorities for the substantiation of such expenditures as deductible business
expenses of the Bank and not as compensation to Executive.

F.    TERMINATION

1. Termination
for Cause.   The Bank may terminate
this agreement at any rime without further obligation or liability to
Executive, by action of the Board of Directors, if Executive: (a) fails to
perform or habitually neglects the duties which he is required to perform
hereunder; (b) engages in illegal activity which materially adversely affects
the Bank’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; (c) engages in the use or possession of any controlled
substance or in chronic abuse of alcoholic beverages; (d) exhibits personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform his stated duties, or
willful violation of any law, rule, regulation (other than traffic violations
or similar offenses) or final cease-and-desist order; or (e) commits any act
which would cause termination of coverage under the Bank’s Bankers’ Blanket
Bond as to Executive (as distinguished from termination of coverage as to the
Bank as a whole). Such termination shall not prejudice any remedy which the
Bank may have at law, in equity, or under this Agreement. The Bank may also
terminate this Agreement without further obligation or liability to Executive
in the event that the Bank is not licensed to do business, does not receive a
Certificate of Authority to commence the business of banking from the Office of
the Comptroller of the Currency or fails to obtain insurance of accounts from
the Federal Deposit Insurance Corporation for any reason. Termination pursuant to
this Paragraph F.1 shall become effective immediately upon notice to Executive
of termination from the Bank.

2. Death Or
Disability.   In the event of
Executive’s death, or if Executive is found to be physically or mentally
disabled (as hereinafter defined) as determined by the Board of Directors in
good faith, this Agreement shall terminate without any further liability or
obligation to Executive.

For purposes of this
Agreement only, “physically or mentally disabled” shall be defined as that term
is defined in the Bank’s disability policy as in effect from time to time; if
for any reason no such policy is in effect, then “physically or mentally
disabled” shall be defined as Executive being unable to fully perform under
this Agreement for a continuous 

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period of One-hundred,
twenty (120) days or a cumulative period of One-hundred, Eighty (180) days in anyone calendar year. If
there should be a dispute between the Bank 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 San
Bernardino 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.

3. Action by
Supervisory Authority.   If the Bank
is closed or taken over by the Comptroller of the Currency or other supervisory
authority, including the Federal Deposit Insurance Corporation, or if such
supervisory authority should exercise its enforcement powers to remove
Executive from office or suggest such removal, the Bank may immediately
terminate this Agreement without further liability or obligation to Executive.

4. Merger or
Corporate Dissolution.   In the event
of a “Terminating Event” as defined below, this Agreement shall not be
terminated, in which case the surviving or resulting corporation, the
transferee of the Bank’s assets, or the Bank shall be bound by and shall have
the benefit of the provisions of this agreement. In the event Executive’s
employment is actually or constructively terminated in connection with or
following such a Terminating Event, Executive shall be entitled to the same
severance benefits as contemplated by Paragraph F .5 below. For purposes of
this Paragraph F .4, constructive termination shall include: (i) any decrease
in salary or benefits below those in effect for Executive immediately prior to
the Terminating Event, (ii) any demotion to a position below that of an
executive officer, or (iii) any relocation of Executive more than 30 miles from
his principal place of business immediately prior to the Terminating Event.
Notwithstanding any provision to the contrary in this Paragraph F.4, no
severance benefits shall be payable to Executive hereunder if Executive’s
employment is terminated for any of the reasons delineated in Paragraph F.1
hereof.

For purposes of
this Paragraph F.4, a “Terminating Event” shall include: (i) a reorganization,
merger, or consolidation of the Bank with one or more corporations as a result
of which the Bank will not be the surviving corporation, (ii) a sale of
substantially all the assets and property of the Bank to another person,
corporation or entity, or (iii) a” change in control,” i.e., any other single
transaction involving the Bank (such as a tender offer) where there is a change
in ownership of at least twenty-five percent (25%) of the Bank’s outstanding
shares, unless such change in ownership results from (i) a transfer of shares
to another corporation in exchange for at least eighty percent (80%) control of
that corporation, (ii) the issuance of additional shares of stock by the Bank
in a secondary stock offering, private placement or similar transaction, or
(iii) any acquisition in which the Bank will be the surviving entity.

In addition, and
notwithstanding any of the foregoing, if the Bank is not the surviving entity
in any transaction contemplated above and said transaction is in any manner the
result of the then poor financial condition of the Bank, however caused,
including, but not limited to, lack of profitability, deterioration of asset
condition or defalcation, or such action is the result of any suggestion or
order of the Comptroller or the FDIC, then, in such event, this Agreement shall
terminate immediately upon the consummation of such transaction and Executive
agrees that all rights, duties and obligations and benefits herein conferred
shall thereupon terminate and that Executive shall be entitled to no further compensation
or benefits from the Bank other than as required by applicable law.

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5. Termination
At Will.   Pursuant to the provisions
of 12 U.S.C. Section 24 and notwithstanding any other provision to the contrary
contained herein, it is agreed by the parties hereto that the Bank may at any
time elect to terminate this Agreement and Executive’s employment by the Bank
for any reason by action of its Board of Directors. Any termination under this
Paragraph F.5 shall be effective immediately upon the Bank’s giving of notice
to Executive, and all benefits provided by the Bank hereunder to Executive
shall thereupon cease, other than the severance benefits contemplated herein,
and the insurance benefits provided to Executive hereunder which shall be
continued by the Bank for a period not to exceed Ninety (90) days after
termination. Notwithstanding the foregoing, it is agreed that in the event of
such termination, Executive shall be entitled to receive a lump sum payment
equal to the lesser of eighteen (18) months’ severance pay or the balance due
under the Agreement, but in no event less than six (6) months salary. If
Executive is en tided to receive payments pursuant to this Paragraph F.5 and
the event causing such payment occurs within sixty (60) days of the Bank’s
fiscal year end, the Bank’s Board of Directors, or a duly authorized committee
thereof, shall consider an additional payment to Executive based on Executive’s
pro rata share of a mandatory bonus, if any, for such fiscal year. Such action
shall not be construed as a breach of this Agreement, and the payment of the
benefits stated above shall constitute full and complete performance by the
Bank of its obligations hereunder.

6. Effect of
Termination.    In the event of the
termination of this Agreement prior to the completion of the Term specified
herein, Executive shall be entitled to the salary earned by Executive prior to
the date of termination as provided for in this Agreement, computed pro rata up
to and including that date; but Executive shall be entitled to no further
compensation for services rendered after the date of termination, except as
provided in Paragraphs FA and F.5
above in the event that if Executive’s employment is terminated pursuant to
either Paragraph F.4 or F.5 hereof.

G.      GENERAL PROVISIONS 

1. Trade
Secrets.    During the Term,
Executive will have access to and become acquainted with what Executive and the
Bank acknowledge are trade secrets, to wit, knowledge or data concerning the
Bank, including its operations and business, and the identity of customers of
the 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 anyway,
either during the Term or for a period of one year thereafter, except as
required in the course of Executive’s employment with the Bank.

2. Indemnification.    To the maximum extent and when permitted by
applicable law, the Articles of Association, Bylaws and/or resolutions of the
Bank in effect from time to time (except as limited below), the Bank shall
indemnify Executive against liability or loss arising out of Executive’s actual
or asserted misfeasance or non-feasance in the performance of Executive’s
duties or out of any actual or asserted wrongful act against, or by, the Bank
including but not limited to judgments, fines, settlements and expenses
incurred in the defense of actions, proceedings and appeals there from.
However, the Bank shall have no duty to indemnify Executive with respect to any
claim, issue or matter as to which Executive has been adjudged to be liable to
the Bank in the performance of his duties, unless and only to the extent that
the court in which such action was brought shall determine upon application
that, in view of all of the circumstances of the case, Executive is fairly and
reasonably entitled to indemnification for the expenses which such court shall
determine. The Bank shall endeavor to maintain Directors and Officers Liability
Insurance to indemnify and 

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insure the Bank and
Executive from and against the aforesaid liabilities, and unless otherwise
required by law, the Bank shall have no duty to indemnify Executive in any
amount which exceeds the Bank’s insurance coverage. The provisions of this
Paragraph G.2 shall apply to the estate, executor, administrator, heirs,
legatees or devisees of Executive.

3. Arbitration.   In the event of a breach or dispute
pertaining to or arising from this Agreement, the parties hereto agree that any
such dispute between the parties arising out of any section of this Agreement
except Paragraphs G.1 and G.2 will, on the written notice of one party served
on the other, be submitted to binding arbitration governed by the laws, rules,
regulations and ordinances applicable in San Bernardino County, State of
California. In such event, each of the parties will appoint one person as an
arbitrator to hear and determine the dispute and if they are unable to agree,
then the two arbitrators so chosen will select a third impartial arbitrator
whose decision will be final and conclusive upon the parties. A material or anticipatory breach of any
section of this Agreement shall not release either party from the obligations
of this Paragraph G.5.

4. Notices.   Any notice, request, demand or other
communication required or permitted hereunder shall be in writing and shall be
deemed to be duly given upon personal delivery (professional courier
acceptable); three (3) calendar days following deposit in the United States
mail by either certified or registered mail, with return receipt requested,
postage prepaid; or upon receipt of written confirmation of transmission if
delivered by facsimile, addressed to the party at the address appearing at the
beginning of this Agreement. Either party may change its address by written
notice in accordance with this Paragraph G.6. (In the case of the Bank’s
address, no notice need be given of the change to its permanent address of
14345 Pipeline Avenue, Chino, California 91710.]

5 .Applicable
Law .   Except to the extent governed
by the laws of the United States, this Agreement is to be governed by and
construed under the laws of the State of California.

6. Captions and
Paragraph Headings.   Captions and
paragraph headings used herein are for convenience only and are not a part of
this Agreement and shall not be used in construing it.

7.  Invalid Provisions.   Should any provision of this Agreement for
any reason be declared invalid, void, or unenforceable by a court of competent jurisdiction,
the validity and binding effect of any remaining portion shall not be affected,
and the remaining portions of this Agreement shall remain in full force and
effect as if this Agreement had been executed with said provision eliminated.

8. Entire
Agreement.    This Agreement contains
the entire agreement of the parties. It supersedes any and all other
agreements, either oral or in writing, between the parties hereto with respect
to the employment of Executive by the Bank. Each party to this Agreement
acknowledges that no representations, inducements, promises, or agreements,
oral or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied herein, and that no other agreement,
statement, or promise not contained in this agreement shall be valid or
binding. This Agreement may not be modified or amended by oral agreement, but
only by an agreement in writing signed by the Bank and Executive.

19. Receipt of
Agreement.    Executive hereby
acknowledges that he has read this Agreement in its entirety and does hereby
acknowledges receipt of a fully executed copy 

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thereof.   A fully executed copy shall be an original
for all purposes, and is a duplicate original.

20.  Review by Counsel.   Executive represents and warrants to the
Bank that he has had this Agreement reviewed by independent legal counsel of
his choice, or if he has not, that he has had the opportunity to do so, and
hereby waives any claim, objection or defense on the grounds that this
Agreement has not been reviewed by legal counsel of his choice.

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

	
   

  	
  CHINO COMMERCIAL BANK, N.A.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/Pollyanna Franks

  	
   

  
	
   

  	
   

  	
  Pollyanna Franks,

  	
   

  
	
   

  	
   

  	
  Chairman of
  Compensation Committee

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/Bernard Wolfswinkel

  	
   

  
	
   

  	
   

  	
  Bernard
  Wolfswinkel.

  	
   

  
	
   

  	
   

  	
  Chairman

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /s/Dann
  H. Bowman

  	
   

  
	
   

  	
   

  	
  Dann H. Bowman

  	
   

  
	
   

  	
   

  	
  President and
  Chief Executive Officer

  (“Executive”)

  	
   

  

 

 7Exhibit 10.1

SKAGIT
STATE BANK/SKAGIT STATE BANCORP, INC.

CHANGE IN
CONTROL SEVERANCE AGREEMENT

THIS CHANGE IN CONTROL
SEVERANCE AGREEMENT (“Agreement”)
is entered into by and between SKAGIT STATE BANCORP, INC., a Washington
corporation (“Bancorp”), its wholly
owned subsidiary SKAGIT STATE BANK, a Washington state-chartered bank (the “Bank”), and RICHARD C. HUMPHREY, the
Executive Vice President and Chief Credit Officer of the Bank (“Executive”), effective as of August 15,
2006.

Recitals

A.            Executive and the Bank
are parties to that certain Employment Agreement, dated August 4, 2004 (the “Employment Agreement”), which provides,
among other things, for certain payments to be made to Executive if his
employment with the Bank is terminated under certain circumstances.

B.            Subject to the
following sentence, the parties to this Agreement wish to terminate the
Employment Agreement and to enter into this Agreement, which shall supersede
and replace the Employment Agreement in its entirety.  With respect to Section 4(g) of the
Employment Agreement, which governs the terms and conditions of a common stock
grant that was awarded to Executive, the parties wish for such grants to
continue in existence pursuant to the provisions of Section 8.2 of this
Agreement.

Agreement

The parties agree as
follows:

1.             Commitment of Executive.  In the event that any person extends any
proposal or offer that is intended to or may result in a Change in Control
(defined below), Executive shall, at the request of Bancorp and/or the Bank
(either and/or both being the “Company”),
assist the Company in evaluating such proposal or offer.  Further, subject to the additional terms and
conditions of this Agreement, in order to receive the Change in Control Payment
(defined below), Executive cannot resign from the Company during any period
from the receipt of a specific Change in Control proposal up to the
consummation or abandonment of the transaction contemplated by such proposal.

2.             Change In Control.  “Change in Control”
means a change “in the ownership or effective control” or “in the ownership of
a substantial portion of the assets” of the Company, within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”); provided,
however, that an internal reorganization of the Company shall not constitute a
Change in Control.

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3.             Payment Obligations.

3.1           Termination
Prior to Change in Control.  If the
Company terminates Executive’s employment without Cause or Executive resigns
for Good Reason (each as defined below), and within eighteen (18) months
thereafter the Company enters into an agreement for a Change in Control or any
party announces or is required by law to announce a prospective Change in
Control, which Change in Control is
consummated, then upon the closing of such Change in Control, the
Company shall pay Executive a single cash payment in an amount equal to two (2)
times the greater of (a) the highest compensation (as reportable on Executive’s
IRS W-2 form) received by Executive from the Company during any of the most
recent three (3) calendar years ending before, or simultaneously with, the date
on which Executive’s employment terminated; or (b) 130% of Executive’s base
compensation as of the date on which Executive’s employment terminated (the “Termination-Based Change in Control Payment”).

3.2           Comparable
Position Not Offered.  If a Change in
Control is consummated while Executive is employed by the Company, and
Executive is not offered a Comparable Position (as defined below) with the
acquiring company, then upon the closing of such Change in Control (regardless
of whether Executive continues his employment with the acquiring company), the
Company shall pay Executive a single cash payment in an amount equal to two (2)
times the greater of (a) the highest compensation (as reportable on Executive’s
IRS W-2 form) received by Executive from the Company during any of the most
recent three (3) calendar years ending before, or simultaneously with, the date
on which such closing occurs; or (b) 130% of Executive’s base compensation as
of the date on which such closing occurs (the “Closing-Based
Change in Control Payment”). 
For purposes of this Agreement, a “Comparable Position”
means the position of Executive Vice President and Chief Credit Officer of the
acquiring company, with compensation and benefits in the aggregate no less
favorable to Executive than those in effect immediately prior to the closing of
the Change in Control.  Further,
effective on such closing, the Company will also provide Executive with, and
pay the cost of Executive’s premiums for, group health plan benefits to the
extent authorized by and consistent with 29 U.S.C. § 1161 et seq. (commonly known as “COBRA”), for the shorter of the statutory COBRA period or
two (2) years following such closing.

3.3           Termination After
Change in Control.  If, within two
(2) years after accepting a Comparable Position, Executive’s employment is
terminated without Cause or if Executive resigns for Good Reason, then upon
such termination or resignation, Executive shall receive the Closing-Based
Change in Control Payment less the amount of any salary, bonuses and
other cash compensation earned by Executive and paid to him by the acquiring
company following the closing of the Change in Control through the date of such
termination or resignation; provided, that in no event shall Executive
receive less than one (1) times his highest compensation (as reportable on
Executive’s IRS W-2 form) received from the Company during any 

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of the most recent three (3) calendar years
ending before, or simultaneously with, the date on which the Change in Control
occurred.  Upon such termination,
Executive shall also be entitled to COBRA benefits and premium payments for the
shorter of the statutory COBRA period or one (1) year following such termination.

3.4           Parachute
Payment Limitation.  Notwithstanding
anything in this Agreement to the contrary, if the Termination-Based Change in
Control Payment or the Closing-Based Change in Control Payment (either, a “Change in Control Payment”), together with any other
payments or benefits received by Executive from the Company or the acquiring
company will be an amount that would cause them to be a “parachute payment”
within the meaning of Section 280G(b)(2)(A) of the Code (the “Parachute Payment Amount”), then the Change in Control
Payment shall be reduced so that the total amount thereof is $1 less than the
Parachute Payment Amount.

3.5           Payment of Amounts
Within 2 1⁄2 Months.  All amounts
required to be paid by the Company hereunder shall be paid by the later of the
15th day of the third month following the Executive’s
first taxable year in which the amount is no longer subject to a substantial
risk of forfeiture or the 15th day of the third month following the end of
the Company’s first taxable year in which the amount is no longer subject to a
substantial risk of forfeiture.  This
provision is intended to comply with regulations issued under Section 409A of
the Code and shall be interpreted and applied consistently therewith.

4.             Termination of
Agreement.

4.1           This
Agreement terminates upon payment by the Company (or its successor) to
Executive of the Change in Control Payment and the related payments provided
for herein.

4.2           The
Company may terminate this Agreement by action of its Board of Directors, and
such termination shall be effective one (1) year following the date on which
written notice of such termination is provided to Executive.

4.3           This
Agreement terminates immediately if, at any time before the Change in Control
transaction closes, (i) the Company terminates Executive’s employment for
Cause, (ii) Executive resigns from the Company without Good Reason,
(iii) Executive dies, or (iv) Executive is unable to perform his duties
and obligations to the Company for a period of ninety (90) consecutive days as
a result of a physical or mental disability, unless with reasonable
accommodation Executive could continue to perform such duties and making these
accommodations would not pose an undue hardship on the Company.  If no Change in Control has occurred, this
Agreement will terminate eighteen (18) months after Executive’s employment is
terminated by the Company without Cause or by Executive for Good Reason, unless
during such eighteen (18) month 

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period, the
Company enters into an agreement for a Change in Control, or a Change in
Control is announced or required by law to be announced, in which case this
Agreement will terminate upon payment of the Closing-Based Change in Control
Payment pursuant to Section 3.1
or the abandonment of such Change in Control.

5.             Definitions.

5.1           Cause.  “Cause” means
only any one or more of the following:

a.             Willful
misfeasance or gross negligence in the performance of Executive’s duties.

b.             Conviction
of a crime in connection with his duties.

c.             Conduct
demonstrably and significantly harmful to the Bank and/or Bancorp, as
reasonably determined on the advice of legal counsel by the board of directors
of the Bank and/or Bancorp, as the case may be.

5.2           Good Reason.  “Good Reason”
means only any one or more of the following:

a.             Reduction,
without Executive’s consent, of Executive’s salary or elimination of any
compensation or benefit plan benefiting Executive.

b.             The
assignment to Executive without his consent of any authority or duties
materially inconsistent with Executive’s position as of the date of this
Agreement.

c.             A
relocation or transfer of Executive’s principal place of employment that would
increase Executive’s commute as of the Effective Date by more than 30 miles
each way on a regular basis, unless Executive consents to the relocation or
transfer.

6.             Arbitration.  At any party’s request, the
parties must submit any dispute, controversy or claim arising out of or in
connection with, or relating to, this Agreement or any breach or alleged breach
of this Agreement, to arbitration under the American Arbitration Association’s
rules then in effect (or under any other form of arbitration mutually
acceptable to the parties).  A single
arbitrator agreed on by the parties will conduct the arbitration.  If the parties cannot agree on a single
arbitrator, each party must select one arbitrator and those two arbitrators
will select a third arbitrator.  This
third arbitrator will hear the dispute. 
The arbitrator’s decision is final (except as otherwise specifically
provided by law) and binds the parties, and any party may request any court
having jurisdiction to enter a judgment and to enforce the arbitrator’s
decision.  The arbitrator will provide
the parties with a written decision naming the substantially prevailing party
in the action.  This prevailing party is
entitled to reimbursement from the other parties for its costs and expenses,
including reasonable attorneys’ fees.  All
proceedings will be held at a place 

 4
 

 

designated by
the arbitrator in Skagit County, Washington. 
The arbitrator, in rendering a decision as to any state law claims, will
apply Washington law.

7.             Withholding.  All payments required to be made by the
Company hereunder to Executive shall be subject to the withholding of such
amounts, if any, relating to tax and other payroll deductions as the Company
may reasonably determine should be withheld pursuant to any applicable law or
regulation.

8.             Other Compensation and Terms of Employment.

8.1           Not an Employment
Agreement.  This Agreement is not an
employment agreement.  Accordingly,
except with respect to the Change In Control Payment and as provided in Section
8.2, this Agreement shall have no effect on the determination of any
compensation payable by the Company to Executive, or upon any of the other
terms of Executive’s employment with the Company.  The specific arrangements referred to herein
are not intended to exclude any other benefits that may be available to
Executive upon a termination of employment with the Company pursuant to employee
benefit plans of the Company.

8.2           Grant of Common
Stock.  Executive shall continue to
be entitled to the unvested portion of the five hundred (500) shares of common
stock granted pursuant to the Employment Agreement, except that any references
to “Bank common stock” shall now mean “Bancorp common stock.”  Executive was granted five (500) shares of
common stock on August 4, 2004, which vest one hundred (100) shares on each of
the first five anniversary dates of August 4, 2004, provided that Executive
remains employed by the Company on each such anniversary date.  Should Executive’s employment terminate prior
to any such anniversary date, he shall not be entitled to any prorated stock
grant for the period after the most recent anniversary date on which vesting
occurred, or to any of the remaining unvested stock grants.  Any unvested shares shall be forfeited back
to Bancorp automatically.  In the event
Executive is terminated in connection with a Change in Control, Executive shall
be fully vested in all 500 shares of stock as of the date of his termination.

9.             Miscellaneous Provisions.

9.1           Entire
Agreement.  This Agreement
constitutes the entire understanding and agreement between the parties
concerning its subject matter and supersedes all prior agreements,
correspondence, representations, or understandings between the parties relating
to its subject matter.  By executing this
Agreement, each of the Bank and Executive are terminating the Employment
Agreement in its entirety.

9.2           Binding
Effect.  This Agreement will bind and
inure to the benefit of the parties’ heirs, legal representatives, successors
and assigns.

 5
 

 

9.3           Waiver. 
Any waiver by a party of its rights under this Agreement must be written
and signed by the party waiving its rights. 
A party’s waiver of the other party’s breach of any provision of this
Agreement will not operate as a waiver of any other breach by the breaching
party.

9.4           Amendment. 
This Agreement may be modified only through a written instrument signed
by all parties.

9.5           Amendment to Comply With
Section 409A.  From time to time, the Company may
amend this Agreement as required to comply with the requirements of Section
409A of the Code and U.S. Treasury regulations issued thereunder.

9.6           Severability. 
The provisions of this Agreement are severable.  The invalidity of any provision will not
affect the validity of other provisions of this Agreement.

9.7           Counsel
Review.  Executive acknowledges that
he has consulted with independent counsel with respect to the negotiation,
preparation, and execution of this Agreement and the related termination of the
Employment Agreement.

9.8           Governing
Law and Venue.  This Agreement will
be governed by and construed in accordance with Washington law, except to the
extent that federal law may govern certain matters.  The parties must bring any legal proceeding
arising out of this Agreement in Skagit County, Washington, and the parties
will submit to jurisdiction in that county.

9.9           Counterparts. 
This Agreement may be executed in one or more counterparts, each of
which will be deemed an original, but all of which taken together will
constitute one and the same document.

[signatures appear on following page]

 6
 

 

This
Change in Control Severance Agreement is effective as of the date first set
forth above.

 

	
   

  	
  SKAGIT STATE BANK

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ B. Marvin Omdal

  	
   

  
	
   

  	
   

  	
  B. Marvin Omdal, Chairman of the Board

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SKAGIT STATE BANCORP, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/ B. Marvin Omdal

  	
   

  
	
   

  	
   

  	
  B. Marvin Omdal, Chairman of the Board

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  EXECUTIVE:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Richard C.
  Humphrey

  	
   

  
	
   

  	
  Richard C.
  Humphrey

  	
   

  
	
   

  	
   

  	
   

  
							

 

Approved
by Board of Directors August 15, 2006

 7

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