SEPARATION AGREEMENT AND GENERAL RELEASE

SEPARATION AGREEMENT AND GENERAL RELEASE

This Separation Agreement and General Release (“Agreement”) is entered into by and among Sun Bancorp, Inc., Vineland, New Jersey (the “Company”) and Sun National Bank, Vineland, New Jersey (the “Bank”), on the one hand, and Dan A. Chila (“Employee”), on the other hand, on this 17 ^th day of August, 2009 (“Agreement Effective Date”).

Employee, the Bank and the Company mutually agree as follows:

1.         As of the Agreement Effective Date, the Employee hereby irrevocably resigns his employment with the Bank and the Company, and Employee’s status as an officer of the Bank, the Company, and any subsidiary of the Bank or the Company, with such resignations to be effective as of December 31, 2009 (“Separation Date”). As of the Agreement Effective Date, the Company and the Bank hereby accept the Employee’s resignations as detailed herein.

2.         The parties acknowledge that they believe in good faith that Employee’s termination of employment with the Company and the Bank is an “involuntary separation from service” for purposes of Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the “Code”).

3.         Employee shall receive a separation payment from the Company and the Bank in the gross amount of Six-Hundred Fifty-Seven Thousand and Eight-Hundred Fifty-Five Dollars ($ 657,855.00 ) [$300k x2 = $600,000; plus $86,783 divided by 3, multiplied by 2 ($57,855) ], less required tax withholdings (“Separation Payment”), provided that the Employee fully complies with Employee’s obligations in Sections 4(b) and (c) of the Management Change in Control Severance Agreement, as amended, entered into by and between the Company and Employee on December 18, 2008, incorporated herein by reference, as modified in Paragraph 11 hereof (“Severance Agreement with the Company”) and the Employee’s obligations in Sections 4(b) and (c) of the Management Change in Control Severance Agreement, as amended, entered into by and between the Bank and Employee on December 18, 2008, incorporated herein by reference, as modified in Paragraph 11 hereof (“Severance Agreement with the Bank”) and the Employee’s covenants and agreements in this Agreement. The Separation Payment shall be paid to Employee, or in the event of his death to his estate or beneficiaries, in the form of a lump-sum payment, as of the later of (i) seven (7) days after the expiration of the Revocation Period provided under Paragraph 15, hereinafter, or (ii) the Bank’s first regularly scheduled payroll date occurring immediately following the Separation Date. Employee acknowledges and agrees that the Bank and the Company are making the Separation Payment in full and final settlement of any and all claims and disputes and in lieu of any salary, vacation pay, severance pay, all other compensation, and/or any other amounts which may be due or owing to Employee by the Bank and/or the Company for any periods after the Separation Date, including without limitation amounts provided for in Sections 4(a) of the Severance Agreement with the Bank and/or the Severance Agreement with the Company (collectively “Severance Agreements”) or in accordance with any other agreements with the Company or the Bank which may apply, whether written or oral . Employee further acknowledges and agrees that the Separation Payment is in excess of any amounts Employee may otherwise be due.

4.         Except as otherwise provided in this Agreement or in applicable Company benefit plan documents, all of Employee’s base salary, bonuses, vacation pay, compensation of any kind, and employee benefits (including without limitation group medical and dental insurance, Company-paid club membership, use of Company furnished automobiles and credit cards, and all other benefits of employment) will cease on the Separation Date. The parties further agree that:               

(i)        The Company shall continue to pay the premiums necessary to provide to the Employee participation under a life insurance policy for a period of eighteen (18) months following the Separation Date, which policy shall provide for a death benefit in the amount of $400,000 payable to the Employee’s designated beneficiary. The Employee may change the designated beneficiary at any time. The Employee will cooperate with the Company and submit to the requirements of the third-party insurance company on a confidential basis in order to obtain this insurance coverage at best available rates. The parties agree to employ their best efforts to ensure that such insurance coverage has been secured and is in effect as of the Separation Date.

(ii)       The Bank shall pay to Employee the applicable amount for any accrued but unused Paid Time Off, determined as of the Separation Date; such amount shall be paid to Employee on the Bank’s first regular pay date occurring after the Separation Date ; provided, however, no payments shall be made for any Paid Time Off leave that was first accrued during calendar years prior to 2009.

(iii)      The Employee and his dependents shall be eligible to continue coverage under the Company’s medical and/or dental insurance reimbursement plans for a period of up to eighteen (18) months after the Separation Date in accordance with the applicable elections under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), provided that the Employee shall be responsible for timely payment of all premium costs for such coverage pursuant to COBRA; provided, however, in the event that the Employee properly elects continuation of such dental coverage, the premium cost of continuation of such dental coverage shall be paid by the Company. The details of such COBRA election will be provided to you separately.

(iv)      Notwithstanding any other provisions of this Agreement to the contrary, Employee has or will receive all salary, other compensation, and employee benefits due Employee through the Separation Date; such payment(s) shall be made by the Bank or the Company (as the case may be) in accordance with their regular pay schedules.

(v)       Following the expiration of the Revocation Period without the Employee revoking the Agreement, the Company shall reimburse Employee up to $5,000 for legal fees incurred by Employee in connection with the negotiation and execution of the Agreement, upon presentation of proof of payment of such fees by Employee.

5.         The parties acknowledge and agree that, as of the Separation Date, a pro rata portion of the awards of 4,558 shares of Company common stock [21/48 or 43.75% = 1,994 shares ] and 9,641 shares of Company common stock [10/48 or 20.83% = 2,008 shares ], as detailed in the Stock Award Agreements between the Company and the Employee dated March

20, 2008 and February 19, 2009, respectively, shall be deemed earned and non-forefeitable in accordance with Paragraph 4 of each such Award Agreement.

6.         The parties acknowledge and agree that, as of the Separation Date, the Employee will hold certain vested and exercisable stock options to acquire Company stock which have not been exercised (the “Employee Options”). Such Options shall remain exercisable following the Separation Date for the remaining term of the Employee Options without regard to any prior termination of employment, as detailed below:

(i)          1997 Stock Option Plan award of 8,143 Incentive Stock Options @ $4.30 on 4-10-2000 that are exercisable through 4-10-2010 (Award #173).

(ii)         1997 Stock Option Plan award of 7,755 Incentive Stock Options @ $4.84 on 12-21-2000 that are exercisable through 12-21-2010 (Award #174).

(iii)        2002 Stock Option Plan award of 57,332 Incentive Stock Options @ $8.09 on 1-23-2002 that are exercisable through 1-23-2012 (Award #175).

(iv)        2002 Stock Option Plan award of 90,411 Non-Qualified Stock Options @ $8.09 on 1-23-2002 that are exercisable through 1-23-2012 (Award #176).

(v)         2004 Stock-Based Incentive Plan award of 13,230 Incentive Stock Options @ $14.70 on 7-19-2007 that are exercisable through 7-19-2017 (Award #629) of which 4,410 options will not become exercisable if the Separation Date is prior to 7-19-2010, absent a Change in Control of the Company or the death or disability of the Employee prior to such Separation Date.

Employee authorizes the Company to make any amendments to applicable plan documents that are deemed necessary to reflect the terms of this Paragraph 6. The remaining terms of the applicable plan documents shall govern such Employee Options. Employee acknowledges that the foregoing are all of the current outstanding stock option awards received from the Company. The Company represents and warrants that it already has taken, or prior to the Separation Date it will take, such actions as may be required by the Board of Directors or its Compensation Committee, to approve such amendments to the respective Stock Option Award Agreements to authorize such continued exercisability of such Employee Options for the initial term of such options without regard to any prior termination of employment by the Employee. The parties acknowledge that any such Employee Options that are not exercised within three months following the Separation Date shall thereafter be deemed options that do not qualify as incentive stock options in accordance with Code Section 422.

7.         In consideration jointly and severally for the Separation Payment provided in Paragraph 3 of this Agreement to the Employee by the Company and/or the Bank and the performance of the other obligations of the Company and the Bank under this Agreement, Employee voluntarily and knowingly waives, releases, and discharges the Company and the Bank, and their predecessors, successors, parent companies, subsidiaries, and in their capacities as such and/or otherwise arising from or relating to their relationships with the Company and/or

the Bank, their respective investors, affiliates, assigns, officers, administrators, employees, former employees, directors, former directors, trustees, plan administrators, plans, fiduciaries, shareholders, partners, representatives, attorneys, agents, and insurers (other than in respect of applicable directors’ and officers’ liability coverage and any medical/dental coverage under the Company’s employee benefit plans, if applicable) (collectively, “Released Parties”) from all claims, liabilities, demands, and causes of action, known or unknown by Employee, fixed or contingent, which Employee may have or claim to have against any of them as a result of Employee’s employment and/or termination from employment and/or as a result of any other matter, action, or inaction concerning or relating to any of them arising through the date of the Employee’s execution of this Agreement. Employee agrees not to file a lawsuit or commence an arbitration to assert any such claims, but Employee is not waiving any right to file a complaint with a government agency or to seek unemployment compensation or workers’ compensation benefits, if any. Employee’s waiver, release and discharge includes, but is not limited to:

(a)       claims arising under federal, state, or local laws prohibiting employment discrimination such as, without limitation, Title VII of the Civil Rights Act of 1964, the Equal Pay Act, the Age Discrimination in Employment Act (for claims arising through the date of Employee’s execution of this Agreement), the National Labor Relations Act, Section 1981 of the Civil Rights Act of 1866, the Americans with Disabilities Act, the Worker Adjustment and Retraining Notification Act, and the New Jersey Law Against Discrimination,

(c)       claims for personal injury, harm, or other damages (whether intentional or unintentional including, without limitation, negligence, defamation, misrepresentation, fraud, intentional infliction of emotional distress, invasion of privacy, and other such claims),

(d)       claims growing out of any legal restrictions on the Bank or the Company’s right to terminate their employees,

(e)       except as provided herein, claims for wages or any other compensation, including but not limited to any claim for severance pay, other compensation, and/or any other amounts under the Severance Agreements or any other policy, plan or arrangement of the Bank or the Company, whether written or oral,

(f)        claims for benefits or compensation under any Supplemental Executive Retirement Plan, deferred compensation arrangement or similar plan of the Bank or the Company that may have been proposed or discussed from time to time but was never executed in written form by the parties and reflected in the Company’s financial statements as set forth in the Company’s reports as filed with the Securities and Exchange Commission in accordance with the Securities Exchange Act of 1934, as amended,

(g)       any other claims for benefits (except for vested benefits under the Company’s qualified retirement plans, continuation benefits as permitted by COBRA under the Company’s group health plan and stock options and stock awards under the agreements referenced in Sections 5 and 6 herein (collectively, the “Plan Documents”)) including, without

limitation, those arising under the Employee Retirement Income Security Act of 1974, as amended,

(i)        claims relating to or arising under any laws of any governmental body in the United States or elsewhere. To the extent permitted by law, Employee agrees that Employee will not cause or encourage any future legal proceedings to be maintained or instituted against any of the Released Parties, and will not participate in any manner in any legal proceedings against any of the Released Parties, with respect