-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GIDm8zfMLcCJ69drR6ttS4C7UV+QtIPvTgS/xnl+V2NZMmRRKOQf2EmV4smpxUzB 1TlKkaYJgP4SgJjqsILxOw== 0000702700-99-000007.txt : 19990817 0000702700-99-000007.hdr.sgml : 19990817 ACCESSION NUMBER: 0000702700-99-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SARATOGA BANCORP CENTRAL INDEX KEY: 0000702700 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 942817587 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-77519-LA FILM NUMBER: 99692955 BUSINESS ADDRESS: STREET 1: 12000 SARATOGA SUNNYVALE RD CITY: SARATOGA STATE: CA ZIP: 95070 BUSINESS PHONE: 4089731111 10-Q 1 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1999 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to __________ Commission file number 2-77519-LA SARATOGA BANCORP (Exact name of registrant as specified in its charter) California 94-2817587 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12000 Saratoga-Sunnyvale Road Saratoga, California 95070 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (408) 973-1111 NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. CLASS SHARES OUTSTANDING AT JULY 29, 1999 Common Stock 1,586,588 Exhibit Index at Page 26 Page 1 of 176 pages 2 PART I - FINANCIAL INFORMATION Item 1. Consolidated Condensed Financial Statements
SARATOGA BANCORP AND SUBSIDIARY CONSOLIDATED CONDENSED BALANCE SHEETS June 30, December 31, 1999 1998* (Unaudited) ASSETS Cash and due from banks $ 7,212,000 $ 6,549,000 Federal funds sold 16,900,000 14,450,000 Total cash and equivalents 24,112,000 20,999,000 Interest bearing deposits in other banks 1,789,000 1,789,000 Securities available for sale 32,507,000 30,811,000 Securities held to maturity 10,791,000 9,304,000 Loans, net 68,261,000 73,847,000 Premises and equipment 3,742,000 2,268,000 Other assets 7,356,000 5,784,000 TOTAL ASSETS $148,558,000 $144,802,000 =========== =========== LIABILITIES Deposits: Non interest-bearing $ 30,038,000 $ 27,460,000 Interest-bearing 79,606,000 75,955,000 Total deposits 109,644,000 103,415,000 Federal funds purchased - 2,000,000 Other borrowings 22,613,000 22,697,000 Accrued expenses and other liabilities 1,447,000 1,433,000 TOTAL LIABILITIES 133,704,000 129,545,000 SHAREHOLDERS' EQUITY Common stock, no par value; Authorized: 20,000,000 shares; Issued and outstanding: 1,586,588 shares at June 30, 1999 and 1,629,357 shares at December 31, 1998 4,434,000 4,684,000 Retained earnings 10,857,000 10,591,000 Accumulated other comprehensive income, net of taxes of $257,000 and $11,000, respectively (437,000) (18,000) TOTAL SHAREHOLDERS' EQUITY 14,854,000 15,257,000 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $148,558,000 $144,802,000 =========== ===========
*Derived from the December 31, 1998 audited balance sheet included in the Company's 1998 Annual Report on Form 10-K. See notes to consolidated condensed financial statements. 3 SARATOGA BANCORP AND SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 INTEREST INCOME: Loans $1,716,000 $1,536,000 $3,465,000 $3,094,000 Investment securities 636,000 698,000 1,254,000 1,446,000 Federal funds sold 194,000 189,000 321,000 293,000 Total interest income 2,546,000 2,423,000 5,040,000 4,833,000 INTEREST EXPENSE: Deposits 799,000 726,000 1,575,000 1,443,000 Other 337,000 353,000 674,000 705,000 Total interest expense 1,136,000 1,079,000 2,249,000 2,148,000 NET INTEREST INCOME BEFORE PROVISION FOR CREDIT LOSSES 1,410,000 1,344,000 2,791,000 2,685,000 Provision for credit losses 26,000 51,000 66,000 102,000 Net interest income after provision for credit losses 1,384,000 1,293,000 2,725,000 2,583,000 Other income 278,000 133,000 508,000 292,000 Other expenses 903,000 729,000 1,728,000 1,505,000 INCOME BEFORE INCOME TAXES 759,000 697,000 1,505,000 1,370,000 Provision for income taxes 281,000 264,000 557,000 520,000 NET INCOME 478,000 433,000 948,000 850,000 OTHER COMPREHENSIVE INCOME, NET OF TAX: Unrealized (losses)gains on securities (288,000) 15,000 (419,000) 39,000 COMPREHENSIVE INCOME $ 190,000 $ 448,000 $ 529,000 $ 889,000 ========== ========== ========== ========== EARNINGS PER SHARE: Basic $ 0.30 $ 0.26 $ 0.59 $ 0.52 ========== ========== ========== ========== Diluted $ 0.27 $ 0.24 $ 0.53 $ 0.47 ========== ========== ========== ==========
See notes to consolidated condensed financial statements. 4 SARATOGA BANCORP AND SUBSIDIARY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 1999 1998 OPERATIONS: Net income $ 948,000 $ 850,000 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 66,000 102,000 Depreciation and amortization 194,000 90,000 Gain on sale of premises and equipment 33,000 - Other, net (73,000) 158,000 Net cash provided by operating activities 1,168,000 1,200,000 INVESTING ACTIVITIES: Net increase in interest bearing deposits in other banks - (100,000) Proceeds from maturities or sale of ` investments available for sale 3,283,000 13,309,000 Proceeds from maturities of investments held to maturity 200,000 3,012,000 Purchase of securities available for sale (5,637,000) (7,000,000) Purchase of securities held to maturity (1,695,000) (2,985,000) Net decrease (increase) in loans 5,520,000 (653,000) Purchase of life insurance policies (1,238,000) Purchases of premises and equipment (2,182,000) (473,000) Proceeds from sale of premises and equipment 481,000 - Net cash provided by (used in) investing activities (1,268,000) 5,110,000 FINANCING ACTIVITIES: Net increase (decrease) in deposits 6,229,000 1,373,000 Issuance of common stock 35,000 20,000 Payment of cash dividends (160,000) (112,000) Repurchase of common stock (807,000) - Net (decrease) increase in other borrowings (84,000) (111,000) Decrease in federal funds purchased (2,000,000) (2,000,000) Net cash (used in) provided by financing activities 3,213,000 (830,000) NET INCREASE (DECREASE)IN CASH AND EQUIVALENTS 3,113,000 5,480,000 Cash and equivalents, beginning of period 20,999,000 15,260,000 Cash and equivalents, end of period $24,112,000 $20,740,000 =========== ===========
See notes to consolidated condensed financial statements. 5 SARATOGA BANCORP AND SUBSIDIARY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS QUARTERS ENDED JUNE 30, 1999 AND 1998 1. The unaudited consolidated condensed financial statements reflect all adjustments (which include only normal recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the periods presented. The results for the periods are not necessarily indicative of the results to be expected for the full fiscal year. 2. Basic Earnings Per Share is computed by dividing net income by the weighted average common shares outstanding during the period. Diluted Earnings Per Share reflects the potential dilution if securities or other contracts to issue common stock are exercised or converted into common stock. Diluted earnings per share is computed by dividing net income by the average shares outstanding for the period plus the dilutive effect of stock options. The weighted average shares used in computing earnings per share are as follows:
Quarters ended June 30, 1999 1998 Weighted average shares used in computing: Basic earnings per share 1,588,000 1,644,000 Diluted potential common shares from exercise of stock options, using the treasury stock method 182,000 185.000 Diluted earnings per share 1,770,000 1,829,000
Six Months ended June 30, 1999 1998 Weighted average shares used in computing: Basic earnings per share 1,598,000 1,642,000 Diluted potential common shares from exercise of stock options, using the treasury stock method 179,000 178.000 Diluted earnings per share 1,777,000 1,820,000
3. In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information",which 6 establishes annual and interim reporting standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major customers. Management has determined that since all of the commercial banking products and services offered by the Bank are available in each branch of the Bank, all branches are located within the same economic environment and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate the Bank's operations into a single operating segment. 4. Effective July 1, 1998, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments and hedging activities. In connection with the adoption of SFAS 133 the Company reclassified certain securities with an amortized cost of $19,751,000 and a fair value of $19,967,000 from held-to-maturity to available-for- sale. Adoption of this statement did not have any other impact on the Company's consolidated financial position and had no impact on the Company's results of operations or cash flows. 5. During the six months ended June 30, 1999 and 1998, cash paid for taxes was $220,000 and $627,000, respectively. During the six months ended June 30, 1999 and 1998, cash paid for interest was $2,232,000 and $2,083,000, respectively. 7 SARATOGA BANCORP AND SUBSIDIARY Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Certain matters discussed or incorporated by reference in this Quarterly Report on Form 10-Q are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Changes to such risks and uncertainties, which could impact future financial performance, include, among others, (1) competitive pressures in the banking industry; (2)changes in interest rate environment; (3)general economic conditions, nationally, regionally and in operating market areas; (4) changes in the regulatory environment; (5) changes in business conditions and inflation; (6) changes in securities markets; and (7) Year 2000 compliance problems. Therefore, the information set forth herein should be carefully considered when evaluating business prospects of the Company and the Bank. SUMMARY OF FINANCIAL RESULTS At June 30, 1999, total assets were $148,558,000, an increase of $3,756,000 (2.6%) from $144,802,000 at December 31, 1998. Net loans decreased $5,586,000 (7.6%) from $73,847,000 at December 31, 1998 to $68,261,000 at June 30, 1999. Total deposits increased $6,229,000 (6.0%) from $103,415,000 at December 31, 1998 to $109,644,000 at June 30, 1999. Net income for the second quarter of 1999 was $478,000 ($0.30 basic earnings per share, $0.27 diluted earnings per share) compared to $433,000 ($0.26 basic earnings per share, $0.24 diluted earnings per share) for the comparable period in 1998. Net income for the first six months of 1999 was $948,000 ($0.59 basic earnings per share, $0.53 diluted earnings per share) compared to $850,000 ($0.52 basic earnings per share, $0.47 diluted earnings per share) for the comparable period in 1998. The increase in income resulted primarily from an increase in the volume of earning assets, offset in part by a decrease in the yield on earning assets and an increase in interest expense due to the increased volume of interest- bearing liabilities. 8 RESULTS OF OPERATIONS SECOND QUARTER OF 1999 AND 1998 An analysis of the results of operations of the Company for the second quarter of 1999 compared to the second quarter of 1998 is presented below: NET INTEREST INCOME Net interest income, the difference between interest earned on loans and investments and interest paid on deposits, is the principal component of the Bank's earnings. The components of net interest income are as follows:
Three months ended June 30, 1999 1998 Average Average Average Average Balance Interest Yield(1) Balance Interest Yield(1) (In thousands, except percentages) (unaudited) Assets: Earning assets: Loans (2) $ 72,971 $1,716 9.4% $ 62,494 $1,536 9.8% Investment securities 45,310 636 5.6 45,837 698 6.1 Federal funds sold 16,258 194 4.8 13,805 189 5.5 Total interest earning assets 134,539 2,546 7.6 122,136 2,423 7.9 Cash and due from banks 6,883 5,053 Other assets (3) 9,659 2,754 $151,081 $129,943 ======== ======== Liabilities and Shareholders' Equity: Interest-bearing liabilities: Demand deposits $ 42,388 339 3.2 $ 39,130 351 3.6 Time deposits 40,258 460 4.6 28,025 375 5.4 Other borrowings 22,641 337 6.0 22,910 353 6.2 Total interest- bearing liabilities 105,287 1,136 4.3 90,065 1,079 4.8 Demand deposits 28,756 24,632 Other liabilities 2,097 1,240 Total liabilities 136,140 115,937 Shareholders' equity 14,941 14,006 $151,081 $129,943 ======= ======= Net interest income and margin(4) $1,410 4.2% $1,344 4.4% ====== ======
(1) Annualized. (2) Loan interest income includes loan fee income of $105,000 and $98,000 for the quarters ended June 30, 1999 and 1998,respectively. (3) Net of the average allowance for loan losses of $772,000 and $668,000 and deferred loan fees of $294,000 and $317,000 for the quarters ended June 30, 1999 and 1998, respectively. (4) Net interest margin is computed by dividing net interest income by total average interest earning assets. 9 PROVISION FOR CREDIT LOSSES The Bank maintains an allowance for possible credit losses which is based, in part, on the Bank's historical loss experience, the impact of forecasted economic conditions within the Bank's market area, and, as applicable, the State of California, the value of the underlying collateral, loan performance and inherent risks in the loan portfolio. The allowance is reduced by charge-offs and increased by provisions for credit losses charged to operating expense and recoveries of previously charged-off loans. During the second quarter of 1999 the Bank provided $26,000 for the allowance for credit losses as compared to $51,000 for the second quarter of 1998. There were no loans charged-off and $44,000 in recoveries in the second quarter of 1999, as compared to $14,000 in loans charged-off and $20,000 in recoveries in the second quarter of 1998. At June 30, 1999, the allowance for credit losses was $826,000 or 1.21% of total loans, compared to $716,000 or 0.96% at December 31, 1998. There were no nonaccrual loans at June 30, 1999 or December 31, 1998. At June 30, 1999 and December 31, 1998, there were no loans past due 90 days or more as to principal or interest and still accruing interest. There were no loans at June 30, 1999 which were troubled debt restructurings as defined in Statement of Financial Accounting Standards No. 15, "Accounting by Debtors and Creditors for Troubled Debt Restructuring." At June 30, 1999, there were three potential problem loans having a combined principal balance of $1,719,000 ($259,000 at December 31, 1998). Potential problem loans are loans which are generally current as to principal and interest but have been identified by the Company as potential problem loans due either to a decrease in the underlying value of the property securing the credit or some other deterioration in the creditworthiness of the borrower. All of the three loans identified as potential problem loans are secured by real estate and personal property. There was no Other Real Estate owned ("OREO")at June 30, 1999 or December 31, 1998. 10 Nonperforming loans and other real estate owned are summarized below: June 30, 1999 December 31, 1998 Nonperforming loans: Past due 90 days or more $ - $ - Nonaccrual - - Total - - Other real estate owned - - Total nonperforming loans and other real estate owned $ - $ - ========== ==========
Management is of the opinion that the allowance for credit losses is maintained at an adequate level for known and currently anticipated future risks inherent in the loan portfolio. However, the Bank's loan portfolio, which includes approximately $49,000,000 in real estate loans representing approximately 71% of the portfolio, could be adversely affected if California economic conditions and the real estate market in the Bank's market area weaken. The effect of such events could result in an increase in the level of nonperforming loans and OREO and the level of the allowance for loan losses which could adversely affect the Company's and the Bank's future growth and profitability. NONINTEREST INCOME Other income consists of service charges on deposit accounts, income from assets acquired for lease and fees for other miscellaneous services. Total other income increased from $133,000 in the second quarter of 1998 to $278,000 in the second quarter of 1999. This increase is primarily attributable to an increase in rental income on leased assets of $110,000 and an increase in the cash surrender value of life insurance policies of $74,000, offset, in part, by the decrease in gain on sale of securities of $59,000. NONINTEREST EXPENSE Other expenses increased from $729,000 in the second quarter of 1998 to $903,000 in the second quarter of 1999. The increase is primarily attributable to an increase in deferred compensation expense of $47,000 and an increase in depreciation expense on leased assets of $88,000. As a percentage of average earning assets, other expenses for the second quarter, on an annualized basis, increased from 2.4% in 1998 to 2.7% in 1999. 11 SIX MONTHS ENDED JUNE 30, 1999 AND 1998 An analysis of the results of operations of the Company for the six month period ended June 30, 1999 compared to the comparable period in 1998 is as follows: NET INTEREST INCOME Net interest income, the difference between interest earned on loans and investments and interest paid on deposits, is the principal component of the Bank's earnings. The components of net interest income are as follows:
Six months ended June 30, 1999 1998 Average Average Average Average Balance Interest Yield(1) Balance Interest Yield(1) (In thousands, except percentages) (unaudited) Assets: Earning assets: Loans (2) $ 74,346 $3,465 9.3% $62,976 $3,094 9.8% Investment securities 44,561 1,254 5.6 46,945 1,446 6.2 Federal funds sold 13,561 321 4.7 10,745 293 5.5 Total interest earning assets 132,468 5,040 7.6 120,666 4,833 8.0 Cash and due from banks 6,481 4,963 Other assets (3) 8,452 2,786 $147,401 $128,415 ======== ======= Liabilities and Shareholders' Equity: Interest-bearing liabilities: Demand deposits $ 43,606 629 2.9 $38,577 633 3.3 Time deposits 36,923 946 5.1 28,429 810 5.7 Other borrowings 22,696 674 5.9 22,948 705 6.1 Total interest- bearing liabilities 103,225 2,249 4.4 89,954 2,148 4.8 Demand deposits 27,411 23,192 Other liabilities 1,795 1,338 Total liabilities 132,431 114,484 Shareholders' equity 14,970 13,931 $147,401 $128,415 ======== ======= Net interest income and margin(4) $2,791 4.2% $2,685 4.5% ====== ======
(1) Annualized. (2) Loan interest income includes loan fee income of $187,000 and $180,000 for the six months ended June 30, 1999 and 1998, respectively. (3) Net of the average allowance for loan losses of $752,000 and $637,000, and deferred loan fees of $295,000 and $318,000 for the six months ended June 30, 1999 and 1998, respectively. (4) Net interest margin is computed by dividing net interest income by total average interest earning assets. 11 PROVISION FOR CREDIT LOSSES During the first six months of 1999, the Bank provided $66,000 to the provision for credit losses as compared to $102,000 for the fist six months of 1998. There were no loans charged off and $44,000 in recoveries for the six months ended June 30, 1999, compared to $14,000 in loans charged off and $32,000 in recoveries for the first six months of 1998. NONINTEREST INCOME Other income consists of service charges on deposit accounts, income on assets acquired for lease and fees for other miscellaneous services. Total other income increased from $292,000 in 1998 to $508,000 in 1999. The increase is primarily attributable to an increase in rental income on leased assets of $147,000 and an increase of $105,000 in the cash surrender value value of life insurance policies. NONINTEREST EXPENSE Other expenses have increased from $1,505,000 in 1998 to $1,728,000 in 1999 due primarily to an increase of $94,000 in deferred compensation expense and an increase of $105,000 in depreciation expense on leased assets. As a percentage of average earning assets, other expenses, on an annualized basis, increased from 2.5% in 1998 to 2.6% in 1999. 13 LIQUIDITY AND CAPITAL RESOURCES The Bank manages its liquidity to provide adequate funds at an acceptable cost to support borrowing requirements and deposit flows of its customers. Liquid assets as a percentage of deposits were 53% and 52% at June 30, 1999 and December 31, 1998, respectively. In addition to cash and due from banks, liquid assets include short-term time deposits with other banks, Federal funds sold and investment securities available for sale. The Bank has $11.0 million in Federal funds lines of credit available with correspondent banks to meet liquidity needs. Management regularly reviews general economic and financial conditions, both external and internal, and determines whether the positions taken with respect to liquidity and interest rate sensitivity continue to be appropriate. The Bank also utilizes a monthly "Gap" report which identifies rate sensitivity over the short- and long-term. The following table sets forth the distribution of repricing opportunities, based on contractual terms, of the Company's earning assets and interest-bearing liabilities at June 30, 1999, the interest rate sensitivity gap (i.e. interest rate sensitive assets less interest rate sensitive liabilities), the cumulative interest rate sensitivity gap, the interest rate sensitivity gap ratio (i.e. interest rate sensitive assets divided by interest rate sensitive liabilities) and the cumulative interest rate sensitivity gap ratio. 14
DISTRIBUTION OF REPRICING OPPORTUNITIES At June 30, 1999 (Dollars in thousands) (unaudited) After Three After Six After One Within Months But Months But Year But After Three Within Six Within One Within Five Months Months Year Five Years Years Total Federal funds sold $16,900 - - - - $16,900 Interest bearing deposits in other banks 1,789 - - - - 1,789 Municipal securities 250 - $ - $ 1,901 $ 8,550 10,701 U.S. Treasury and agency securities 2,915 1,003 291 10,717 14,734 29,660 FRB stock - - - - 2,937 2,937 Loans 30,068 2,172 2,397 12,656 22,117 69,410 Total earning assets $51,922 $ 3,175 $ 2,688 $25,274 $48,338 131,397 Interest bearing demand accounts $38,442 - - - - 38,442 Savings accounts 4,878 - - - - 4,878 Time certificates of deposit of $100,000 or more 9,355 $ 8,802 $ 3,027 $ 2,224 100 23,508 Other time deposits 3,390 3,486 3,723 2,179 - 12,778 Other borrowings 25 - 2,000 12,497 $ 8,091 22,613 Total interest- bearing liabilities $56,090 $12,288 $ 8,750 $16,900 $ 8,191 102,219 Interest rate sensitivity gap $(4,168) $(9,113) $(6,062) $ 8,374 $40,147 $ 29,178 ======= ======= ======= ======== ======= ======== Cumulative interest rate sensitivity gap $(4,168) $(13,281) $(19,343) $(10,969) $29,178 ======= ======== ======== ======== ======= Interest rate sensitivity gap ratio 0.93% 0.26% 0.31% 1.50% 5.90% Cumulative interest rate sensitivity gap ratio 0.93% 0.81% 0.75% 0.88% 1.29%
The Company and the Bank are subject to capital adequacy guidelines issued by the Board of Governors of the Federal Reserve System (the "BGFRS") and the Office of the Comptroller of the Currency ("OCC"). The Company and the Bank are required to maintain total capital equal to at least 8% of assets and commitments to extend credit, weighted by risk, of which at least 4% must consist primarily of common equity including retained earnings (Tier 1 capital) and the remainder may consist of limited life (and in the case of banks, cumulative) preferred stock, mandatory convertible securities, subordinated debt and a limited amount of loan loss reserves. Effective October 1, 1998, the BGFRS and other federal agencies approved including in Tier 2 capital up to 45% of the pretax net unrealized gains on certain available-for-sale equity securities having readily determinable fair values (i.e. the excess, if any, of fair market value over the book value or historical cost of the investment security). The federal regulatory agencies reserve the right to exclude all or a portion of the unrealized gains upon a determination that the equity securities are not prudently valued. Unrealized gains and losses on other types of assets, such as bank premises and available-for-sale debt securities, are not included in Tier 2 capital, but may be taken into account in the evaluation of overall capital adequacy and net unrealized losses on available- for-sale equity securities will continue to be deducted from Tier 1 capital as a cushion against risk. Certain assets and commitments to extend credit present less risk than others and will be assigned to lower risk-weighted categories requiring less capital allocation than the 8% total ratio. For example, cash and government securities are assigned to a 0% risk-weighted category, most home mortgage loans are assigned to a 50% risk-weighted category requiring a 4% capital allocation and commercial loans are assigned to a 100% risk-weighted category requiring an 8% capital allocation. As of June 30, 1999, the Company's total risk-based capital ratio was approximately 16.7% (approximately 16.2% for the Bank) compared to approximately 16.8% (approximately 16.4% for the Bank) at December 31, 1998. The Board of Governors and other federal banking agencies have adopted a revised minimum leverage ratio for bank holding companies and banks as a supplement to the risk-weighted capital guidelines. The old rule established a 3% minimum leverage standard for well-run banking organizations (bank holding companies and banks) with diversified risk profiles. Banking organizations which did not exhibit such characteristics or had greater risk due to significant growth, among other factors, were required to maintain a minimum leverage ratio 1% to 2% higher. The old rule did not take into account the implementation of the market risk capital measure set forth in the federal regulatory agency capital adequacy guidelines. The revised leverage ratio establishes a minimum Tier 1 ratio of 3% (Tier 1 capital to total assets) for the highest rated bank holding companies and banks. All other bank holding companies must maintain a minimum Tier 1 leverage ratio of 4% with higher leverage capital ratios required for banking organizations that have significant 16 financial and/or operational weaknesses, a high risk profile, or are undergoing or anticipating rapid growth. The following table reflects the Company's leverage, Tier 1 and total risk-based capital ratios as of June 30, 1999 and December 31, 1998. June 30, 1999 December 31, 1998 Leverage ratio 10.1% 11.0% Tier 1 capital ratio 15.8% 16.0% Total risk-based capital ratio 16.7% 16.8% On December 19, 1991, the President signed the Federal Deposit Insurance Corporation Improvement Act of 1991 (the "FDICIA"). The FDICIA, among other matters, substantially revised banking regulations and established a framework for determination of capital adequacy of financial institutions. Under the FDICIA, financial institutions are placed into one of five capital adequacy catagories as follows: (1) "Well capitalized" - consisting of institutions with a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater and a leverage ratio of 5% or greater, and the institution is not subject to an order, written agreement, capital directive or prompt corrective action directive; (2) "Adequately capitalized" - consisting of institutions with a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater and a leverage ratio of 4% or greater, and the institution does not meet the definition of a "well capitalized" institution; (3) "Undercapitalized" - consisting of institutions with a total risk-based capital ratio less than 8%, a Tier 1 risk-based capital ratio of less than 4%, or a leverage ratio of less than 4%; (4) "Significantly undercapitalized" - consisting of institutions with a total risk-based capital ratio of less than 6%, a Tier 1 risk-based capital ratio of less than 3%, or a leverage ratio of less than 3%; (5) "Critically undercapitalized" - consisting of an institution with a ratio of tangible equity to total assets that is equal to or less than 2%. Financial institutions classified as undercapitalized or below are subject to various limitations including, among other matters, certain supervisory actions by bank regulatory authorities and restrictions related to (i) growth of assets, (ii) payment of interest on subordinated indebtedness, (iii) payment of dividends or other capital distributions, and (iv) payment of management fees to a parent holding company. The FDICIA requires bank regulatory authorities to initiate corrective action regarding financial institutions which fail to meet minimum capital requirements. Such action may result in orders to, among other matters, augment capital and reduce total assets. Critically undercapitalized financial institutions may also be subject to appointment of a receiver or implementation of a capitalization plan. 17 OTHER MATTERS From time to time, the Board of Directors and management of the Company consult with its investment banking, accounting and legal advisors, regarding banking industry trends and developments, as well as internal and external opportunities, in order to maximize shareholder value. Such external opportunities include potential mergers, acquisitions, reorganizations, and other transactions with third parties which may be in the interests of the Company's shareholders. The Company has been engaged in discussions and negotiations with another California-based financial institution about a possible transaction which, if consummated, would result in a merger of the Company with and into such other institution. The proposed terms and conditions of such transaction remain under negotiation and are subject to the approval of the Company's Board of Directors. Thus, no assurance can be given as to whether the proposed transaction will be consummated. Any definitive agreement, if approved by the Company's Board of Directors, would be subject to the satisfaction of certain other terms and conditions, including shareholder and regulatory approvals. YEAR 2000 As the year 2000 approaches, a critical issue has emerged regarding how existing application software programs and operating systems can accommodate this date value. In brief, many existing application software products were designed to only accommodate a two digit date position which represents the year (e.g. "97" is stored on the system and represents the year 1997.) As a result, the year 1999 (i.e. "99") could be the maximum date value these systems will be able to accurately process. This is not just a banking problem, as corporations around the world and in all industries are similarly impacted. During 1997, the Company began a plan that includes the five phases of Year 2000 compliance as defined by the FFIEC, awareness, assessment, renovation, validation, and implementation. The Company's Year 2000 Plan (the "Plan") addresses the proper function of the Company's in-house computer hardware and software, along with other products and services which the Company utilizes and which have potential for Year 2000 difficulties. Awareness and Assessment Phases The Company completed the Awareness and Assessment Phases, as defined by the FFIEC, during early 1998 and continues to update its assessment as needed. Management of the Company reports at least monthly to the Board of Directors on its Year 2000 efforts. Renovation Phase The FFIEC guideline date for institutions to substantially complete program changes and system upgrades for mission critical systems was December 31, 1998. By that date, the Company had completed replacements of all hardware and software 18 components with the exception of the item processing subsystem of the mainframe. The replacement of this system was completed in March 1999. Validation and Implementation Phases To reduce the possibility of unexpected failure of the Company's systems during and after the century date change, which could have an impact on the Company and its customers, the company continues to test its systems in accordance with a test strategy and plan developed in 1998. The FFIEC guideline date for institutions to begin testing their mission critical applications and systems was September 1, 1998. During April 1998, the Company began testing various mission critical and non-mission critical systems. The Company had completed this testing by the end of the second quarter of 1999. Business Relationships As a part of the Company's Plan, all third party suppliers and service providers have been contacted and assessed as to their Year 2000 preparedness. In addition, the Bank has communicated with its large borrowers and major depositors to determine the extent to which the Company might be vulnerable if those third parties fail to resolve their Year 2000 issues. Because the Company recognizes that its business and operations could be adversely affected if key businesses fail to achieve timely Year 2000 compliance, the Company is evaluating strategies to manage and mitigate the risk to the Company from their Year 2000 failures. Contingency Plans FFIEC guidelines indicate that contingency plans covering mission critical systems in the event of Year 2000 problems are a prudent business practice. The Company has developed contingency plans for applications and systems used by the Bank that are deemed mission critical as well as plans to cover many non-mission critical applications and systems. The contingency plans are based on a review of various emergency scenarios ranging from the Year 2000 failure of a single software or hardware component to the total loss of systems and applications. Because business resumption planning is a dynamic process, the Company may further refine and test these plans throughout 1999. Costs to Address Year 2000 Issues The majority of the costs associated with the Company's Year 2000 preparedness efforts would have been incurred in the normal course of business, as the Company regularly upgrades its various systems in an effort to more efficiently and effectively serve its clientele and conduct its operations. The Company estimates the total cost of compliance will be approximately $150,000, with the majority of this expense earmarked for the new item processing subsystem. The costs incurred in 1998 did not have a material effect on the Company's net income for 1998, and the Company does not expect the costs that will be incurred in 1999 to have a material impact on the Company's net income for 1999. 19 Even with all of the Company's preparation, there can be no assurance that problems will not arise which could have an adverse impact due, among other matters, to the complexities involved in computer programming related to resolution of Year 2000 problems and the fact that the systems of other companies on which the Company may rely must also be corrected on a timely basis. Delays, mistakes or failures in correcting Year 2000 system problems by such other companies could have a significant adverse impact upon the Company and its ability to mitigate the risk of adverse impact of Year 2000 problems for its customers. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Disclosures under this item are not required for the current fiscal year as the Company qualifies as a "Small Business" filer. 20 PART II - OTHER INFORMATION Item 1. Legal Proceedings Not applicable Item 2. Changes in Securities Not applicable Item 3. Defaults upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders The shareholders of Saratoga Bancorp took the following action at the Annual Meeting of Shareholders held on May 19, 1999 at the Company's main office located at 12000 Saratoga-Sunnyvale Road, Saratoga, California: 1. Approved the election of management's slate of nominees for directors, each of whom were incumbent directors, as follows: Votes For Withheld Victor Aboukhater 966,954 7,027 Robert G. Egan 966,954 7,027 William D. Kron 966,954 7,027 John F. Lynch, III 966,954 7,027 V. Ronald Mancuso 966,954 7,027 Richard L. Mount 971,916 2,065 2. Ratified appointment of Deloitte & Touche LLP as independent auditors of the Company for the fiscal year ending December 31, 1999. VOTES FOR 969,360 AGAINST - ABSTAIN 4,621 Item 5. Other Information Not applicable 21 Item 6. Exhibits and Reports on Form 8-K (a) (3) Exhibits. The exhibits listed on the accompanying Exhibit Index are filed as part of this report. (3.1) Articles of Incorporation, as amended, are incorporated by reference herein to Exhibit 3.1 of Registrant's Annual Report on Form 10- K for the fiscal year ended December 31, 1988, as filed with the Securitiesand Exchange Commission on March 27, 1989. (3.2) By-laws, as amended, are incorporated by reference herein to Exhibit 3.2 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 as filed with the Securities and Exchange Commission on March 29, 1994. (4.1) Specimen stock certificate is incorporated by reference to Exhibit 4.1 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 as filed with the Securities and Exchange Commission on March 30, 1995. (10.1) Lease agreement dated 10/19/87 for 15405 Los Gatos Blvd., Suite 103, Los Gatos, CA is incorporated by reference herein to Exhibit 10.1 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1987 as filed with the Securities and Exchange Commission on March 31, 1988. (10.2) Agreement of Purchase and Sale dated July 27, 1988 for 12000 Saratoga-Sunnyvale Road, Saratoga, CA is incorporated by reference herein to Exhibit 10.1 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, as filed with the Securities and Exchange Commission on March 27, 1989. *(10.3) Indemnification Agreements with directors and Executive Officers of the Registrant are incorporated by reference herein to Exhibit 10.2 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1988, as filed with the Securities and Exchange Commission on March 27, 1989. 22 (10.4) Lease agreement dated 1/17/89 for 160 West Santa Clara Street, San Jose, California is incorporated by reference herein to Exhibit 10.4 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1989, as filed with the Securities and Exchange Commission on March 27, 1990. (10.5) Bank of the West Master Profit Sharing and Savings Plan and Amendment, amended as of March, 1990 are incorporated by reference herein to Exhibit 10.5 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, as filed with the Securities and Exchange Commission on March 20, 1991. *(10.6) Employment Agreement and Management Continuity Agreement and Chief Executive Officer Compensation Plan/Richard L. Mount is incorporated by reference herein to Exhibit 10.6 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1990, as filed with the Securities and Exchange Commission on March 20, 1991. *(10.7) Saratoga Bancorp 1982 Stock Option Plan is incorporated by reference herein to the exhibits to Registration Statement No. 33- 34674 on Form S-8 as filed with the Securities and Exchange Commission on May 7, 1990. *(10.8) Saratoga National Bank Savings Plan dated June 19, 1995 is incorporated by reference herein to Exhibit 10.8 of Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Securities and Exchange Commission on March 27, 1996. *(10.9) Saratoga Bancorp 1994 Stock Option Plan dated March 18, 1994 is incorporated by referencce herein to Appendix A of Proxy Statement dated April 19, 1994 as filed with the Securities and Exchange Commission on April 27, 1994. 23 *(10.10) Forms of Incentive Stock Option Agreement, Non-Statutory Stock Option Agreement and Non-Statutory Agreement for Outside Directors, as amended is incorporated by reference herein to Exhibit 10.8 of Registrant's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1994 as filed with the Securities and Exchange Commission on August 15, 1994. *(10.11) Form if Director Supplemental Compensation Agreement dated September 24, 1998 between Saratoga National Bank and Robert G. Egan, John F. Lynch III and V. Ronald Mancuso, respectively. *(10.12) Form of Director Life Insurance Endorsement method Split Dollar Plan Agreement dated September 24, 1998 between Robert G. Egan, John F. Lynch III and V. Ronald Mancuso, respectively. *(10.13) Form of Director Surrogate Supplemental Compensation Agreement dated September 24, 1998 between Saratoga National Bank and Victor E. Aboukhater and William D. Kron, respectively. *(10.14) Form of Director Surrogate Life Insurance Endorsement Method Split Dollar Plan Agreement dated September 24, 1998 between Saratoga National Bank and Victor Aboukhater and William D. Kron, respectively. *(10.15) Form of Officer Supplemental Compensation Agreement dated September 24, 1998 between Saratoga National Bank and Earl L. Lanna, Mary Rourke, Sandra Swenson, Barbara Resop and Cathe Franklin, respectively. *(10.16) Form of Officer Life Insurance Endorsement Method Split Dollar Plan Agreement dated September 24, 1998 between Saratoga National Bank and Earl L. Lanna, Mary Rourke, Sandra Swenson, Barbara Resop and Cathe Franklin, respectively. *(10.17) Richard L. Mount Executive Benefits Agreement dated June 18, 1999. 24 *(10.18) Richard L. Mount Life Insurance Endorsement Method Split Dollar Plan Agreement dated September 24, 1998. *(10.19) Richard L. Mount Employment Agreement dated May 20, 1999. *(10.20) Richard L. Mount Executive Supplemental Compensation Agreement dated September 24, 1998. (27.1) Financial Data Schedule * Denotes management contracts, compensatory plans or arrangements. (b) Reports on Form 8-K On May 4, 1999, registrant filed a current report on Form 8-K, dated May 3, 1999 reporting Under Item 5 (Other Events) the conclusion of the stock repurchase program which commenced on December 10, 1998. On May 21, 1999, Registrant filed a Current Report on Form 8-K, dated May 19, 1999 reporting under Item 5 (Other Events) detailing actions taken at the Annual Meeting of Shareholders of Registrant held on May 19, 1999. See Item 4 herein for additional information. 25 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. SARATOGA BANCORP Date: August 13, 1999 ------------------------- Mary Page Rourke, Treasurer (Principal Accounting Officer) 26 INDEX TO EXHIBITS Sequentially Numbered Number Exhibits Page 10.11 Form of Director Supplemental Compensation Agreement dated September 24, 1998 27 - 47 10.12 Form of Director Life Insurance Endorsement Method Split Dollar Plan Agreement dated September 24, 1998 48 - 54 10.13 Form of Director Surrogate Supplemental Compensation Agreement dated September 24, 1998 55 - 77 10.14 Form of Director Surrogate Life Insurance Method Split Dollar Plan Agreement dated September 24, 1998 78 - 85 10.15 Form of Officer Supplemental Compensation Agreement dated September 24, 1998 86 - 107 10.16 Form of Officer Life Insurance Method Split Dollar Plan Agreement dated September 24, 1998 108 - 114 10.17 Richard L. Mount Executive Supplemental Compensation Agreement dated September 24, 1998 115 - 136 10.18 Richard L. Mount Life Insurance Endorsement Method Split Dollar Plan Agreement dated September 24, 1998 137 - 142 10.19 Richard L. Mount Employment Agreement dated May 20, 1999 143 - 155 10.20 Richard L. Mount Executive Benefits Agreement dated June 18, 1999 156 - 175 27.1 Financial Data Schedule 176 EX-27 2
9 1000 6-MOS DEC-31-1999 JUN-30-1999 7212 1789 16900 0 32507 10791 10537 68261 826 148558 109644 25 1447 22588 0 0 4434 10420 148558 3465 1254 321 5040 1575 2249 2791 66 0 1728 1505 948 0 0 948 0.59 0.53 4.29 0 0 0 1719 716 0 44 66 551 0 275
EX-10 3 27 DIRECTOR SUPPLEMENTAL COMPENSATION AGREEMENT This Agreement is made and entered into effective as of _________, 1998 by and between Saratoga National Bank, a national banking association chartered under the federal laws of the United States of America with its principal offices located in the City of Saratoga, Santa Clara County, California (the "Bank"), and __________________, an individual residing in the State of California (the "Director"). R E C I T A L S WHEREAS, the Director is a member of the Board of Directors of the Bank and has served in such capacity since 1982; WHEREAS, the Bank desires to establish a compensation benefit for directors who are not also officers or employees of the Bank in order to attract and retain individuals with extensive and valuable experience as directors; and WHEREAS, the Director and the Bank wish to specify in writing the terms and conditions upon which this additional compensatory incentive will be provided to the Director, or as applicable, to the Director's spouse or designated beneficiaries, as the case may be. NOW, THEREFORE, in consideration of the services to be performed by the Director in the future, as well as the mutual promises and covenants contained herein, the Director and the Bank agree as follows: A G R E E M E N T 1. Terms and Definitions. 1.1. Administrator. The Bank shall be the "Administrator" and, solely for the purposes of ERISA as defined in subparagraph 1.9 below, the "fiduciary" of this Agreement where a fiduciary is required by ERISA. 1.2. Applicable Percentage. The term "Applicable Percentage" shall mean that percentage listed on Schedule "A" attached hereto which is adjacent to the number of calendar years which shall have elapsed from the date of the Director's commencement of service to the Bank. Notwithstanding the foregoing or the percentages set forth on Schedule "A," but subject to all other terms and conditions set forth herein, the "Applicable Percentage" shall be: (i) 28 provided payments have not yet begun hereunder, one hundred percent (100%) upon the occurrence of a "Change in Control" as defined in subparagraph 1.4 below, or the Director's death, or Disability (as defined in subparagraph 1.6 below), which death or Disability occurs prior to the termination of the Director's service on the Board of Directors of the Bank; and (ii) notwithstanding subclause (i) of this subparagraph 1.2, zero percent (0%) in the event the Director takes any intentional action which prevents the Bank from collecting the proceeds of any life insurance policy which the Bank may happen to own at the time of the Director's death and of which the Bank is the designated beneficiary. Furthermore, notwithstanding the foregoing, or anything contained in this Agreement to the contrary, in the event the Director takes any intentional action which prevents the Bank from collecting the proceeds of any life insurance policy which the Bank may happen to own at the time of the Director's death and of which the Bank is the designated beneficiary: (1) the Director's estate or designated beneficiary shall no longer be entitled to receive any of the amounts payable under the terms of this Agreement, and (2) the Bank shall have the right to recover from the Director's estate all of the amounts paid to the Director's estate (with respect to amounts paid prior to the Director's death or paid to the Director's estate) or designated beneficiary (with respect to amounts paid to the designated beneficiary) pursuant to the terms of this Agreement prior to and after Director's death. 1.3. Beneficiary. The term "beneficiary" or "designated beneficiary" shall mean the person or persons whom the Director shall designate in a valid Beneficiary Designation, a copy of which is attached hereto as Schedule "C," to receive the benefits provided hereunder. A Beneficiary Designation shall be valid only if it is in the form attached hereto and made a part hereof, completed and signed by the Director and received by the Administrator prior to the Director's death. 1.4. Change in Control. The term "Change in Control" shall mean the occurrence of any of the following events with respect to the Bank (with the term "Bank" being defined for purposes of determining whether a "Change in Control" has occurred to include any parent bank holding company owning 100% of the Bank's outstanding common stock): (i) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or in response to any other form or report to the regulatory agencies or governmental authorities having jurisdiction over the Bank or any stock exchange on which the Bank's shares are listed which requires the reporting of a change in control; (ii) any merger, consolidation or reorganization of the Bank in which the Bank does not survive; (iii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) of any assets of the Bank having an aggregate fair market value of fifty percent (50%) of the total value of the assets of the Bank, reflected in the most recent balance sheet of the Bank; (iv) a transaction whereby any "person" (as such term is used in the Exchange Act) or any individual, corporation, partnership, trust or any other entity becomes the beneficial owner, directly or indirectly, of securities of the Bank representing twenty-five percent (25%) or more of the combined voting 29 power of the Bank's then outstanding securities; or (v) a situation where, in any one-year period, individuals who at the beginning of such period constitute the Board of Directors of the Bank cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Bank's shareholders, of each new director is approved by a vote of at least three-quarters (3/4) of the directors then still in office who were directors at the beginning of the period. 1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986, as amended (the "Code"). 1.6. Disability/Disabled. The term "Disability" or "Disabled" shall have the same meaning given such terms in any policy of disability insurance maintained by the Bank for the benefit of directors including the Director. In the absence of such a policy which extends coverage to the Director in the event of disability, the terms shall mean bodily injury or disease (mental or physical) which wholly and continuously prevents the performance of duty for at least three months. 1.7. Director Benefits. The term "Director Benefits" shall mean the benefits determined in accordance with Schedule "B", and reduced or adjusted to the extent: (i) required under the other provisions of this Agreement, including, but not limited to, Paragraphs 5, 6 and 7 hereof; (ii) required by reason of the lawful order of any regulatory agency or body having jurisdiction over the Bank; or (iii) required in order for the Bank to properly comply with any and all applicable state and federal laws, including, but not limited to, income, employment and disability income tax laws (e.g., FICA, FUTA, SDI). 1.8. Early Retirement Date. The term "Early Retirement Date" shall mean the Retirement, as defined below, of the Director on a date which occurs prior to the Director attaining sixty-two (62) years of age, but after the Director has attained fifty-five (55) years of age. 1.9. Effective Date. The term "Effective Date" shall mean the date first written above. 1.10. ERISA. The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.11. Plan Year. The term "Plan Year" shall mean the Bank's fiscal year. 1.12. Retirement. The term "Retirement" or "Retires" shall refer to the date which the Director acknowledges in writing to the Bank to be the last day of service as a member of the Board of Directors of the Bank. 30 1.13. Surviving Spouse. The term "Surviving Spouse" shall mean the person, if any, who shall be legally married to the Director on the date of the Director's death. 1.14. Removal for Cause. The term "Removal for Cause" shall mean termination of the service of the Director by reason of any of the following determined in good faith by the Bank's Board of Directors: (a) The willful, intentional and material breach or the habitual and continued neglect by the Director of his or her employment responsibilities and duties; (b) The continuous mental or physical incapacity of the Director, subject to disability rights under this Agreement; (c) The Director's willful and intentional violation of any federal banking or securities laws, or of the Bylaws, rules, policies or resolutions of Bank, or the rules or regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over the Bank, which has a material adverse effect upon the Bank; (d) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Bank that the Director (i) is of unsound mind, or (ii) has committed a gross abuse of authority or discretion with reference to the Bank, or (iii) otherwise is not suitable to continue to serve as a member of the Board of Directors of the Bank; (e) The Director's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Director's willful and intentional commission of a fraudulent or dishonest act; or (f) The Director's willful and intentional disclosure, without authority, of any secret or confidential information concerning Bank or taking any action which the Bank's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Bank. 31 2. Scope, Purpose and Effect. 2.1. Contract of Employment. Although this Agreement is intended to provide the Director with an additional incentive to continue to serve as a member of the Board of Directors of the Bank, this Agreement shall not be deemed to constitute a contract of employment between the Director and the Bank nor shall any provision of this Agreement restrict the right of the Bank to remove or cause the removal of the Director including, without limitation, by (i) refusal to nominate the Director for election for any successive term of office as a member of the Board of Directors of the Bank, or (ii) complying with an order or other directive from a court of competent jurisdiction or any regulatory authority having jurisdiction over the Bank which requires the Bank to take action to remove the Director. 2.2. Fringe Benefit. The benefits provided by this Agreement are granted by the Bank as a fringe benefit to the Director and are not a part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. The Director has no option to take any current payments or bonus in lieu of the benefits provided by this Agreement. 3. Payments Upon Early Retirement or Retirement and After Retirement. 3.1. Payments Upon Early Retirement. The Director shall have the right to Retire on a date which constitutes an Early Retirement Date as defined in subparagraph 1.7 above. In the event the Director elects to Retire on a date which constitutes an Early Retirement Date, the Director shall be entitled to be paid the Applicable Percentage of the Director Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Early Retirement Date occurs or upon such later date as may be mutually agreed upon by the Director and the Bank in advance of said Early Retirement Date, payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Director's death in the case of the Index Benefit defined in Schedule "B". 3.2. Payments Upon Retirement. If the Director remains a member of the Board of Directors of the Bank until attaining sixty-two (62) years of age, the Director shall be entitled to be paid the Applicable Percentage of the Director Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Director Retires or upon such later date as may be mutually agreed upon by the Director and the Bank in advance of said Retirement date, payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Director's death in the case of the Index Benefit defined in Schedule "B". At the Bank's sole and absolute discretion, the Bank may increase the Director Benefits as and when the Bank determines the same to be appropriate. 32 3.3. Payments in the Event of Death After Retirement. The Bank agrees that if the Director Retires, but shall die before receiving all of the Director Benefits Payments specified in Schedule "B", the Bank agrees to pay the Applicable Percentage of the Director Benefits to the Director's designated beneficiary in lump sum. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Director under the terms of this Agreement shall be paid to the Director's Surviving Spouse. If the Director leaves no Surviving Spouse, the remaining amounts due to the Director under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Director's estate. 4. Payments in the Event Death or Disability Occurs Prior to Retirement. 4.1. Payments in the Event of Death Prior to Retirement. If the Director dies at any time after the Effective Date of this Agreement, but prior to Retirement, the Bank agrees to pay the Applicable Percentage of the Director Benefits to the Director's designated beneficiary in lump sum. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Director under the terms of this Agreement shall be paid to the Director's Surviving Spouse. If the Director leaves no Surviving Spouse, the remaining amounts due to the Director under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Director's estate. 4.2. Payments in the Event of Disability Prior to Retirement. In the event the Director becomes Disabled at any time after the Effective Date of this Agreement but prior to Retirement, the Director shall be entitled to be paid the Applicable Percentage of the Director Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Director becomes Disabled, payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Director's death in the case of the Index Benefit defined in Schedule "B". 5. Payments in the Event Service Is Terminated Prior to Retirement. As indicated in subparagraph 2.1 above, the Bank reserves the right to remove or cause the removal of the Director at any time prior to the Director's Retirement. In the event that the Director shall be removed and his or her service as a member of the Board of Directors of the Bank terminated, other than by reason of death, Disability or Retirement, prior to the Director's attaining sixty-two (62) years of age, then this Agreement shall terminate upon the date of such termination of service; provided, however, that the Director shall be entitled to the following benefits as may be applicable depending upon the circumstances surrounding the Director's termination of service: 5.1. Termination Without Cause. If the Director's service as a member of the Board of Directors of the Bank is terminated for reasons other than as specified in paragraph 5.3 below, and such termination is not subject to the provisions of subparagraph 5.4 below, the Director shall be entitled to be paid the Applicable Percentage of the Director Benefits, in 33 substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Director attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Director and delivered to the Bank or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Director does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Director attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Director's death in the case of the Index Benefit defined in Schedule "B". 5.2. Voluntary Termination by the Director. If the Director's service as a member of the Board of Directors of the Bank is terminated by voluntary resignation and such resignation is not subject to the provisions of subparagraph 5.4 below, the Director shall be entitled to be paid the Applicable Percentage of the Director Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Director attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Director and delivered to the Bank or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Director does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Director attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Director's death in the case of the Index Benefit defined in Schedule "B". 5.3. Termination by Removal for Cause. The Director agrees that if the Director's service as a member of the Board of Directors of the Bank is terminated by "removal for cause," (as defined in subparagraph 1.14 of this Agreement) and pursuant to subparagraph 1.14 (c), (d) or (e), the Director shall forfeit any and all rights and benefits the Director may have under the terms of this Agreement and shall have no right to be paid any of the amounts which would otherwise be due or paid to the Director by the Bank pursuant to the terms of this Agreement. In the event that the Director's service as a member of the Board of Directors of the Bank is terminated by "removal for cause" pursuant to subparagraph 1.14(a), (b) or (f), the Director shall be entitled to be paid the Applicable Percentage of the Director Benefits, as defined above, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Director attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Director and delivered to the Bank or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Director does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Director attains sixty-two (62) years of age. The installments shall be payable 34 (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Director's death in the case of the Index Benefit defined in Schedule "B". 5.4. Termination on Account of or After a Change in Control. In the event: (i) the Director's service as a member of the Board of Directors of the Bank is terminated in conjunction with, or by reason of, a "Change in Control" (as defined in subparagraph 1.4 above); or (ii) by reason of the Bank's actions and without the Director's prior written consent, any change occurs in the scope of the Director's position, responsibilities, duties, fees, benefits, or location of meetings (which in the event of relocation of more than thirty (30) miles from the location of the Board or committee meetings prior to a Change in Control shall constitute such a change in location) after a Change in Control occurs, then the Director shall be entitled to be paid the Applicable Percentage of the Director Benefits, as defined above, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Director attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Director and delivered to the Bank or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Director does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Director attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Director's death in the case of the Index Benefit defined in Schedule "B". 5.5. Payments in the Event of Death Following Termination. If the Director dies prior to receiving all of the Director Benefits described in this Paragraph 5 to which the Director is entitled, then the Bank will make such payments to the Director's designated beneficiary in lump sum. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Director under the terms of this Agreement shall be paid to the Director's Surviving Spouse. If the Director leaves no Surviving Spouse, the remaining amounts due to the Director under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Director's estate. 6. Section 280G Adjustment. The Director acknowledges and agrees that the parties have entered into this Agreement based upon certain financial and tax accounting assumptions. Accordingly, with full knowledge of the potential consequences the Director agrees that, notwithstanding anything contained herein to the contrary, in the event that any payment or benefit received or to be received by the Director, whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Bank (together with the Director Benefits, the "Total Payments"), will not be deductible (in whole or in part) as a result of Code Section 280G or other applicable provisions of the Code, the Total Payments shall be reduced until no portion of the Total Payments is nondeductible as a result of Section 280G or such other applicable provisions of the Code. For purposes of this limitation: 35 (a) No portion of the Total Payments, the receipt or enjoyment of which the Director shall have effectively waived in writing prior to the date of payment of any future Director Benefits payments, shall be taken into account; (b) No portion of the Total Payments shall be taken into account, which in the opinion of the tax counsel selected by the Bank and acceptable to the Director, does not constitute a "parachute payment" within the meaning of Section 280G of the Code; (c) Any reduction of the Total Payments shall be applied to reduce any payment or benefit received or to be received by the Director pursuant to the terms of this Agreement and any other plan, arrangement or agreement with the Bank in the order determined by mutual agreement of the Bank and the Director; (d) Future payments shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in clauses (a) or (b) above in their entirety) constitute reasonable compensation for services actually rendered within the meaning of Section 280G of the Code, in the opinion of tax counsel referred to in clause (b) above; and (e) The value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by independent auditors selected by the Bank and acceptable to the Director in accordance with the principles of Section 280G of the Code. 7. Right To Determine Funding Methods. The Bank reserves the right to determine, in its sole and absolute discretion, whether, to what extent and by what method, if any, to provide for the payment of the amounts which may be payable to the Director, the Director's spouse or the Director's beneficiaries under the terms of this Agreement. In the event that the Bank elects to fund this Agreement, in whole or in part, through the use of life insurance or annuities, or both, the Bank shall determine the ownership and beneficial interests of any such policy of life insurance or annuity. The Bank further reserves the right, in its sole and absolute discretion, to terminate any such policy, and any other device used to fund its obligations under this Agreement, at any time, in whole or in part. Consistent with Paragraph 9 below, neither the Director, the Director's spouse nor the Director's beneficiaries shall have any right, title or interest in or to any funding source or amount utilized by the Bank pursuant to this Agreement, and any such funding source or amount shall not constitute security for the performance of the Bank's obligations pursuant to this Agreement. In connection with the foregoing, the Director agrees to execute such documents and undergo such medical examinations or tests which the Bank may request and which may be reasonably necessary to facilitate any funding for this Agreement including, without limitation, the Bank's acquisition of any policy of insurance or annuity. Furthermore, a refusal by the Director to consent to, participate in and undergo any such medical examinations or tests shall result in the immediate termination of this Agreement and the 36 immediate forfeiture by the Director, the Director's spouse and the Director's beneficiaries of any and all rights to payment hereunder. 8. Claims Procedure. The Bank shall, but only to the extent necessary to comply with ERISA, be designated as the named fiduciary under this Agreement and shall have authority to control and manage the operation and administration of this Agreement. Consistent therewith, the Bank shall make all determinations as to the rights to benefits under this Agreement. Any decision by the Bank denying a claim by the Director, the Director's spouse, or the Director's beneficiary for benefits under this Agreement shall be stated in writing and delivered or mailed, via registered or certified mail, to the Director, the Director's spouse or the Director's beneficiary, as the case may be. Such decision shall set forth the specific reasons for the denial of a claim. In addition, the Bank shall provide the Director, the Director's spouse or the Director's beneficiary with a reasonable opportunity for a full and fair review of the decision denying such claim. 9. Status as an Unsecured General Creditor. Notwithstanding anything contained herein to the contrary: (i) neither the Director, the Director's spouse or the Director's designated beneficiaries shall have any legal or equitable rights, interests or claims in or to any specific property or assets of the Bank as a result of this Agreement; (ii) none of the Bank's assets shall be held in or under any trust for the benefit of the Director, the Director's spouse or the Director's designated beneficiaries or held in any way as security for the fulfillment of the obligations of the Bank under this Agreement; (iii) all of the Bank's assets shall be and remain the general unpledged and unrestricted assets of the Bank; (iv) the Bank's obligation under this Agreement shall be that of an unfunded and unsecured promise by the Bank to pay money in the future; and (v) the Director, the Director's spouse and the Director's designated beneficiaries shall be unsecured general creditors with respect to any benefits which may be payable under the terms of this Agreement. Notwithstanding subparagraphs (i) through (v) above, the Bank and the Director acknowledge and agree that, in the event of a Change in Control, upon request of the Director, or in the Bank's discretion if the Director does not so request and the Bank nonetheless deems it appropriate, the Bank shall establish, not later than the effective date of the Change in Control, a Rabbi Trust or multiple Rabbi Trusts (the "Trust" or "Trusts") upon such terms and conditions as the Bank, in its sole discretion, deems appropriate and in compliance with applicable provisions of the Code, in order to permit the Bank to make contributions and/or transfer assets to the Trust or Trusts to discharge its obligations pursuant to this Agreement. The principal of the Trust or Trusts and any earnings thereon shall be held separate and apart from other funds of the Bank to be used exclusively for discharge of the Bank's obligations pursuant to this Agreement and shall continue to be subject to the claims of the Bank's general creditors until paid to the Director or its beneficiaries in such manner and at such times as specified in this Agreement. 37 10. Discretion of Board to Accelerate Payout. Notwithstanding any of the other provisions of this Agreement, the Board of Directors of the Bank may, if determined in its sole and absolute discretion to be appropriate, accelerate the payment of the amounts due under the terms of this Agreement, provided that Director (or Director's spouse or designated beneficiaries): (i) consents to the revised payout terms determined appropriate by the Bank's Board of Directors; and (ii) does not negotiate or in anyway influence the terms of proposed altered/accelerated payout (said decision to be made solely by the Bank's Board of Directors and offered to the Director [or Director's spouse or designated beneficiaries] on a "take it or leave it basis"). 11. Miscellaneous. 11.1. Opportunity To Consult With Independent Advisors. The Director acknowledges that he has been afforded the opportunity to consult with independent advisors of his choosing including, without limitation, accountants or tax advisors and counsel regarding both the benefits granted to him under the terms of this Agreement and the (i) terms and conditions which may affect the Director's right to these benefits and (ii) personal tax effects of such benefits including, without limitation, the effects of any federal or state taxes, Section 280G of the Code, and any other taxes, costs, expenses or liabilities whatsoever related to such benefits, which in any of the foregoing instances the Director acknowledges and agrees shall be the sole responsibility of the Director notwithstanding any other term or provision of this Agreement. The Director further acknowledges and agrees that the Bank shall have no liability whatsoever related to any such personal tax effects or other personal costs, expenses, or liabilities applicable to the Director and further specifically waives any right for the Director, himself, and his heirs, beneficiaries, legal representatives, agents, successors, and assigns to claim or assert liability on the part of the Bank related to the matters described above in this subparagraph 11.1. The Director further acknowledges and agrees that he has read, understands and consents to all of the terms and conditions of this Agreement, and that he enters into this Agreement with a full understanding of its terms and conditions. 11.2. Arbitration of Disputes. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Bank in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), located in San Francisco, California. In the event JAMS is unable or unwilling to conduct the arbitration provided for under the terms of this Paragraph, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association ("AAA"), located in San Francisco, California, shall conduct the binding arbitration referred to in this Paragraph. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or 38 equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. The arbitration shall be subject to such rules of procedure used or established by JAMS, or if there are none, the rules of procedure used or established by AAA. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Saratoga, California, unless otherwise agreed to by the parties. 11.3. Attorneys' Fees. In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto, arising out of or relating to this Agreement or the breach hereof, or the interpretation hereof, the prevailing party shall be entitled to recover from the non-prevailing party reasonable expenses, attorneys' fees and costs incurred in connection therewith or in the enforcement or collection of any judgment or award rendered therein. The "prevailing party" means the party determined by the arbitrator(s) or court, as the case may be, to have most nearly prevailed, even if such party did not prevail in all matters, not necessarily the one in whose favor a judgment is rendered. 11.4. Notice. Any notice required or permitted of either the Director or the Bank under this Agreement shall be deemed to have been duly given, if by personal delivery, upon the date received by the party or its authorized representative; if by facsimile, upon transmission to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the party transmitting the facsimile and upon reasonable confirmation of such transmission; and if by mail, on the third day after mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party. If to the Bank: Saratoga National Bank 12000 Saratoga-Sunnyvale Rd. Saratoga, California 95070 Attn: Chairman of the Board If to the Director: ______________________ ______________________ ______________________ 39 11.5. Assignment. Neither the Director, the Director's spouse, nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part or all of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such amounts be: (i) subject to seizure by any creditor of any such beneficiary, by a proceeding at law or in equity, for the payment of any debts, judgments, alimony or separate maintenance obligations which may be owed by the Director, the Director's spouse, or any designated beneficiary; or (ii) transferable by operation of law in the event of bankruptcy, insolvency or otherwise. Any such attempted assignment or transfer shall be void and unenforceable without the prior written consent of the Bank. The Bank's consent, if any, to one or more assignments or transfers shall not obligate the Bank to consent to or be construed as the Bank's consent to any other or subsequent assignment or transfer. 11.6. Binding Effect/Merger or Reorganization. This Agreement shall be binding upon and inure to the benefit of the Director and the Bank and, as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns. Accordingly, the Bank shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person agrees to assume and discharge the obligations of the Bank under this Agreement. Upon the occurrence of such event, the term "Bank" as used in this Agreement shall be deemed to refer to such surviving or successor firm, person, entity or corporation. 11.7. Nonwaiver. The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this Agreement shall not be a waiver of such term(s) or condition(s) or of that party's right thereafter to enforce each and every term and condition of this Agreement. 11.8. Partial Invalidity. If any term, provision, covenant, or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity. 11.9. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the subject matter of this Agreement and contains all of the covenants and agreements between the parties with respect thereto. Each party to this Agreement acknowledges that no other 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 set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party. 40 11.10. Modifications. Any modification of this Agreement shall be effective only if it is in writing and signed by each party or such party's authorized representative. 11.11. Paragraph Headings. The paragraph headings used in this Agreement are included solely for the convenience of the parties and shall not affect or be used in connection with the interpretation of this Agreement. 11.12. No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person. 11.13. Governing Law. The laws of the State of California, other than those laws denominated choice of law rules, and, where applicable, the rules and regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over Bank, shall govern the validity, interpretation, construction and effect of this Agreement. IN WITNESS WHEREOF, the Bank and the Director have executed this Agreement on the date first above-written in the City of Saratoga, Santa Clara County, California. THE BANK THE DIRECTOR SARATOGA NATIONAL BANK By:____________________________ _____________________________ William D. Kron __________________ Chairman of the Board of Directors 41 SCHEDULE A CALENDAR YEAR APPLICABLE PERCENTAGE __________, 1982 to December 31, 1998. . . . 80.00% December 31, 1999. . . . . . . . . . . . . . 90.00% December 31, 2000. . . . . . . . . . . . . . 100.00% 42 SCHEDULE B DIRECTOR BENEFITS 1. Director Benefits Determination. The Director Benefits shall be determined based upon the following: a. Benefit Account: A Benefit Account shall be established as a liability reserve account on the books of the Bank for the benefit of the Director. Prior to the date on which the Director becomes eligible to receive payments under the Agreement, such Benefit Account shall be increased (or decreased) each Plan Year (including the Plan Year in which the Director ceases to be employed by the Bank) by an amount equal to the annual earnings or loss for that Plan Year determined by the Index (described in subparagraph c below), less the Opportunity Cost (described in subparagraph d below) for that Plan Year. b. Index Benefit: After the date on which the Director becomes eligible to receive payments under the Agreement, the Index Benefit for the Director for any Plan Year shall be determined by subtracting the Opportunity Cost for that Plan Year from the earnings, if any, established by the Index. c. Index: The Index for any Plan Year shall be the aggregate annual after-tax income from the life insurance contracts described hereinafter as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such insurance contracts were purchased on the Effective Date. Insurance Company(ies)/Policy Number(s): ___________________________ ___________________________ ___________________________ If such contracts of life insurance are actually purchased by the Bank, then the actual policies as of the dates purchased shall be used in calculations to determine the Index and Opportunity Cost. If such contracts of life insurance are not purchased or are 43 subsequently surrendered or lapsed, then the Bank shall receive and use annual policy illustrations that assume the above described policies were purchased from the above named insurance company(ies) on the Effective Date to calculate the amount of the Index and Opportunity Cost. d. Opportunity Cost: The Opportunity Cost for any Plan Year shall be calculated by multiplying (a) the sum of (i) the total amount of premiums set forth in the insurance policies described above, (ii) the amount of any Index Benefits (described at subparagraph b above), and (iii) the amount of all previous years after-tax Opportunity Costs; by (b) the average annualized after-tax cost of funds calculated using a one-year U.S. Treasury Bill as published in the Wall Street Journal. The applicable tax rate used to calculate the Opportunity Cost shall be the Bank's marginal tax rate until the Director's Retirement, or other termination of service (including a Change in Control). Thereafter, the Opportunity Cost shall be calculated with the assumption of a marginal forty-two percent (42%) corporate tax rate each year regardless of whether the actual marginal tax rate of the Bank is higher or lower. EXAMPLE INDEX BENEFITS [n] [A] Index End of Cash Surrender [Annual Opportunity Annual Cumulative Year Value of Life [Policy Cost Benefit Benefit Insurance Policy Income] A0 = premium B-C D+Dn-1 An-An-1 A0+Cn-1x.05x (1-42%) 0 $1,000,000 -- -- -- -- 1 $1,050,000 $50,000 $29,000 $21,000 $21,000 2 $1,102,500 $52,500 $29,841 $22,659 $43,659 3 $1,157,625 $55,125 $30,706 $24,419 $68,078 . . . Assumptions: Initial Insurance = $1,000,000 Effective Tax Rate = 42% One Year US Treasury Yield = 5% 44 2. Director Benefits Payments. The Director shall be entitled to payment of the Applicable Percentage of (i) the balance in the Benefit Account in installments upon the terms as specified in the Agreement, and (ii) the Index Benefit for each Plan Year payable in installments until the Director's death. 45 SCHEDULE C BENEFICIARY DESIGNATION To the Administrator of the Saratoga National Bank Director Supplemental Compensation Agreement: Pursuant to the Provisions of my Director Supplemental Compensation Agreement with Saratoga National Bank, permitting the designation of a beneficiary or beneficiaries by a participant, I hereby designate the following persons and entities as primary and secondary beneficiaries of any benefit under said Agreement payable by reason of my death: Primary Beneficiary: ______________________ ____________________ _____________________________ Name Address Relationship Secondary (Contingent) Beneficiary: ______________________ _____________________ ____________________________ Name Address Relationship THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED. ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES ARE HEREBY REVOKED. The Administrator shall pay all sums payable under the Agreement by reason of my death to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named beneficiary survives me, then the Administrator shall pay all amounts in accordance with the terms of my Director Supplemental Compensation Agreement. In the event that a named beneficiary survives me and dies prior to receiving the entire benefit payable under said Agreement, then and in that event, the remaining 46 unpaid benefit payable according to the terms of my Director Supplemental Compensation Agreement shall be payable to the personal representatives of the estate of said beneficiary who survived me but died prior to receiving the total benefit provided by my Director Supplemental Compensation Agreement. Dated: ___________, 1998 __________________________ __________________ CONSENT OF THE DIRECTOR'S SPOUSE TO THE ABOVE BENEFICIARY DESIGNATION: I, ______________, being the spouse of __________________, after being afforded the opportunity to consult with independent counsel of my choosing, do hereby acknowledge that I have read, agree and consent to the foregoing Beneficiary Designation which relates to the Director Supplemental Compensation Agreement entered into by my spouse effective as of ___________, 1998. I understand that the above Beneficiary Designation may affect certain rights which I may have in the benefits provided for under the terms of the Director Supplemental Compensation Agreement and in which I may have a marital property interest. Dated: ___________, 1998 ______________________________ __________________ 47 SCHEDULE D DISTRIBUTION ELECTION Pursuant to the provisions of my Director Supplemental Compensation Agreement with Saratoga National Bank, I hereby elect to have any distribution of the balance in my Benefit Account paid to me in installments as designated below: thirty-six (36) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. sixty (60) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. one hundred twenty (120) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. one hundred eighty (180) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. Dated: ____________, 1998 Signed: _______________________ __________________ 10QEX10.11 EX-10 4 48 LIFE INSURANCE ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT Insurer/Policy Number: _______________________________ Bank: Saratoga National Bank Insured: __________________ Relationship of Insured to Bank: Director Date: June 18, 1999 The respective rights and duties of the Bank and the Insured in the above policy(ies) (individually and collectively referred to as the "Policy") shall be as follows: I. DEFINITIONS Refer to the Policy provisions for the definition of all terms in this Agreement. II. POLICY TITLE AND OWNERSHIP Title and ownership shall reside in the Bank for its use and for the use of the Insured all in accordance with this Agreement. The Bank alone may, to the extent of its interest, exercise the right to borrow or withdraw the Policy cash values. Where the Bank and the Insured (or beneficiary[ies] or assignee[s], with the consent of the Insured) mutually agree to exercise the right to increase the coverage under the subject split dollar Policy, then, in such event, the rights, duties and benefits of the parties to such increased coverage shall continue to be subject to the terms of this Agreement. III. BENEFICIARY DESIGNATION RIGHTS The Insured (or beneficiary[ies] or assignee[s]) shall have the right and power to designate a beneficiary or beneficiaries to receive his or her share of the proceeds payable upon the death of the Insured, and to elect and change a payment option for such beneficiary, subject to any right or interest the Bank may have in such proceeds, as provided in this Agreement. IV. PREMIUM PAYMENT METHOD The Bank shall pay an amount equal to the planned premiums and any other premium payments that might become necessary to maintain the Policy in force. 49 V. TAXABLE BENEFIT Annually the Insured will receive a taxable benefit equal to the assumed cost of insurance as required by the Internal Revenue Service. The Bank (or its administrator) will report to the Insured the amount of imputed income received each year on Form W-2 or its equivalent. VI. DIVISION OF DEATH PROCEEDS Subject to Paragraph VII herein, the division of the death proceeds of the Policy is as follows: 1. The Insured's beneficiary(ies), designated in accordance with Paragraph III, shall be entitled to an amount equal to eighty percent (80%) of the net at risk insurance portion of the proceeds. The net at risk insurance portion is the total proceeds less the cash value of the Policy. 2. The Bank shall be entitled to the remainder of such proceeds. 3. The Bank and the Insured (or beneficiary[ies] or assignee[s]) shall share in any interest due on the death proceeds on a pro rata basis in the ratio that the proceeds due the Bank and the Insured, respectively, bears to the total proceeds, excluding any such interest. VII. DIVISION OF CASH SURRENDER VALUE The Bank shall at all times be entitled to an amount equal to the Policy's cash value, as that term is defined in the Policy, less any Policy loans and unpaid interest or cash withdrawals previously incurred by the Bank and any applicable Policy surrender charges. Such cash value shall be determined as of the date of surrender of the Policy or death of the Insured as the case may be. VIII. PREMIUM WAIVER If the Policy contains a premium waiver provision, any such waived amounts shall be considered for all purposes of this Agreement as having been paid by the Bank. IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS In the event the Policy involves an endowment or annuity element, the Bank's right and interest in any endowment proceeds or annuity benefits shall be determined under the provisions of this Agreement by regarding such endowment proceeds or the commuted value of such annuity benefits as the Policy's cash value. Such endowment proceeds or annuity 50 benefits shall be treated like death proceeds for the purposes of division under this Agreement. X. TERMINATION OF AGREEMENT This Agreement shall terminate at the option of the Bank following thirty (30) days written notice to the Insured upon the happening of any one of the following: 1. The Insured's right to receive benefits pursuant to the terms and conditions of that certain Director Supplemental Compensation Agreement effective as of ___________, 1998, shall terminate for any reason other than the Insured's death; or 2. The Insured shall be discharged from service with the Bank as a result of a removal for cause under subparagraph (c), (d) or (e) below. Notwithstanding the foregoing, this Agreement shall remain in effect in the event that the Insured is removed pursuant to subparagraph (a), (b) or (f) below. The term "removal for cause" shall mean termination of the service of the Insured by reason of any of the following determined in good faith by the Bank's Board of Directors: (a) The willful, intentional and material breach or the habitual and continued neglect by the Insured of his or her employment responsibilities and duties; (b) The continuous mental or physical incapacity of the Insured, subject to disability rights under this Agreement; (c) The Insured's willful and intentional violation of any federal banking or securities laws, or of the Bylaws, rules, policies or resolutions of Bank, or the rules or regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over the Bank, which has a material adverse effect upon the Bank; (d) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Bank that the Insured (i) is of unsound mind, or (ii) has committed a gross abuse of authority or discretion with reference to the Bank, or (iii) otherwise is not suitable to continue to serve as a member of the Board of Directors of the Bank; 51 (e) The Insured's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Insured's willful and intentional commission of a fraudulent or dishonest act; or (f) The Insured's willful and intentional disclosure, without authority, of any secret or confidential information concerning Bank or taking any action which the Bank's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Bank. Upon such termination, the Insured (or beneficiary[ies] or assignee[s]) shall have a ninety (90) day option to receive from the Bank an absolute assignment of the Policy in consideration of a cash payment to the Bank, whereupon this Agreement shall terminate. Such cash payment shall be the greater of: 1. The Bank's share of the cash value of the Policy on the date of such assignment, as defined in this Agreement. 2. The amount of the premiums which have been paid by the Bank prior to the date of such assignment. Should the Insured (or beneficiary[ies] or assignee[s]) fail to exercise this option within the prescribed ninety (90) day period, the Insured (or beneficiary[ies] or assignee[s]) agrees that all of his or her rights, interest and claims in the Policy shall terminate as of the date of the termination of this Agreement. Except as provided above, this Agreement shall terminate upon distribution of the death benefit proceeds in accordance with Paragraph VI above. XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS The Insured may not, without the prior written consent of the Bank, which shall not be unreasonably withheld, assign to any individual, trust or other organization, any right, title or interest in the Policy nor any rights, options, privileges or duties created under this Agreement. XII. AGREEMENT BINDING UPON THE PARTIES This Agreement shall be binding upon the Insured and the Bank, and their respective heirs, successors, personal representatives and assigns, as applicable. XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR 52 The Bank is hereby designated the "Named Fiduciary" until resignation or removal by its Board of Directors. As Named Fiduciary, the Bank shall be responsible for the management, control, and administration of this Agreement as established herein. The Named Fiduciary may allocate to others certain aspects of the management and operations responsibilities of this Agreement, including the employment of advisors and the delegation of any ministerial duties to qualified individuals. XIV. FUNDING POLICY The funding policy for this Agreement shall be to maintain the Policy in force by paying, when due, all premiums required. XV. CLAIM PROCEDURES Claim forms or claim information as to the subject Policy can be obtained by contacting The Benefit Marketing Group, Inc. (770-952-1529). When the Named Fiduciary has a claim which may be covered under the provisions described in the Policy, it should contact the office named above, and they will either complete a claim form and forward it to an authorized representative of the Insurer or advise the named Fiduciary what further requirements are necessary. The Insurer will evaluate and make a decision as to payment. If the claim is payable, a benefit check will be issued to the Named Fiduciary. In the event that a claim is not eligible under the Policy, the Insurer will notify the Named Fiduciary of the denial pursuant to the requirements under the terms of the Policy. If the Named Fiduciary is dissatisfied with the denial of the claim and wishes to contest such claim denial, it should contact the office named above and they will assist in making inquiry to the Insurer. All objections to the Insurer's actions should be in writing and submitted to the office named above for transmittal to the Insurer. XVI. GENDER Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT The Insurer shall not be deemed a party to this Agreement, but will respect the rights of the parties as set forth herein upon receiving an executed copy of this Agreement. Payment or other performance in accordance with the Policy provisions shall fully discharge the Insurer from any and all liability. 53 IN WITNESS WHEREOF, the Insured and a duly authorized Bank officer or director have signed this Agreement at Saratoga, California as of the date first above written. SARATOGA NATIONAL BANK INSURED __________________________ ________________________________ Richard L. Mount __________________ President and Chief Executive Officer 54 BENEFICIARY DESIGNATION FORM Primary Designation: Name Relationship _____________________________ _______________________________________ _____________________________ _______________________________________ _____________________________ _______________________________________ Contingent Designation: _____________________________ _______________________________________ _____________________________ _______________________________________ _____________________________ _______________________________________ _____________________________ _____________, 1999 __________________ 10QEX10.12 EX-10 5 55 DIRECTOR SUPPLEMENTAL COMPENSATION AGREEMENT This Agreement is made and entered into effective as of _________, 1998 by and between Saratoga National Bank, a national banking association chartered under the federal laws of the United States of America with its principal offices located in the City of Saratoga, Santa Clara County, California (the "Bank"), and __________________, an individual residing in the State of California (the "Director"). R E C I T A L S WHEREAS, the Director is a member of the Board of Directors of the Bank and has served in such capacity since 19__; WHEREAS, the Bank desires to establish a compensation benefit for directors who are not also officers or employees of the Bank in order to attract and retain individuals with extensive and valuable experience as directors; and WHEREAS, the Director and the Bank wish to specify in writing the terms and conditions upon which this additional compensatory incentive will be provided to the Director, or as applicable, to the Director's spouse or designated beneficiaries, as the case may be. NOW, THEREFORE, in consideration of the services to be performed by the Director in the future, as well as the mutual promises and covenants contained herein, the Director and the Bank agree as follows: A G R E E M E N T 1. Terms and Definitions. 1.1. Administrator. The Bank shall be the "Administrator" and, solely for the purposes of ERISA as defined in subparagraph 1.10 below, the "fiduciary" of this Agreement where a fiduciary is required by ERISA. 1.2. Applicable Percentage. The term "Applicable Percentage" shall mean that percentage listed on Schedule "A" attached hereto which is adjacent to the number of calendar years which shall have elapsed from the date of the Director's commencement of service to the Bank. Notwithstanding the foregoing or the percentages set forth on Schedule "A," but subject to all other terms and conditions set forth herein, the "Applicable Percentage" shall be: (i) 56 provided payments have not yet begun hereunder, one hundred percent (100%) upon the occurrence of a "Change in Control" as defined in subparagraph 1.4 below, or the Director's death, or Disability (as defined in subparagraph 1.7 below), which death or Disability occurs prior to the termination of the Director's service on the Board of Directors of the Bank; and (ii) notwithstanding subclause (i) of this subparagraph 1.2, zero percent (0%) in the event the Director takes any intentional action which prevents the Bank from collecting the proceeds of any life insurance policy which the Bank may happen to own at the time of the Surrogate's death and of which the Bank is the designated beneficiary. Furthermore, notwithstanding the foregoing, or anything contained in this Agreement to the contrary, in the event the Director takes any intentional action which prevents the Bank from collecting the proceeds of any life insurance policy which the Bank may happen to own at the time of the Surrogate's death and of which the Bank is the designated beneficiary: (1) the Director's estate or designated beneficiary shall no longer be entitled to receive any of the amounts payable under the terms of this Agreement, and (2) the Bank shall have the right to recover from the Director's estate all of the amounts paid to the Director's estate (with respect to amounts paid prior to the Surrogate's death or paid to the Director's estate) or designated beneficiary (with respect to amounts paid to the designated beneficiary) pursuant to the terms of this Agreement prior to and after Surrogate's death. 1.3. Beneficiary. The term "beneficiary" or "designated beneficiary" shall mean the person or persons whom the Director shall designate in a valid Beneficiary Designation, a copy of which is attached hereto as Schedule "C," to receive the benefits provided hereunder. A Beneficiary Designation shall be valid only if it is in the form attached hereto and made a part hereof, completed and signed by the Director and received by the Administrator prior to the Director's death. 1.4. Change in Control. The term "Change in Control" shall mean the occurrence of any of the following events with respect to the Bank (with the term "Bank" being defined for purposes of determining whether a "Change in Control" has occurred to include any parent bank holding company owning 100% of the Bank's outstanding common stock): (i) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or in response to any other form or report to the regulatory agencies or governmental authorities having jurisdiction over the Bank or any stock exchange on which the Bank's shares are listed which requires the reporting of a change in control; (ii) any merger, consolidation or reorganization of the Bank in which the Bank does not survive; (iii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) of any assets of the Bank having an aggregate fair market value of fifty percent (50%) of the total value of the assets of the Bank, reflected in the most recent balance sheet of the Bank; (iv) a transaction whereby any "person" (as such term is used in the Exchange Act) or any individual, corporation, partnership, trust or any other entity becomes the beneficial owner, directly or indirectly, of securities of the Bank representing twenty-five percent (25%) or 57 more of the combined voting power of the Bank's then outstanding securities; or (v) a situation where, in any one-year period, individuals who at the beginning of such period constitute the Board of Directors of the Bank cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Bank's shareholders, of each new director is approved by a vote of at least three-quarters (3/4) of the directors then still in office who were directors at the beginning of the period. 1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986, as amended (the "Code"). 1.6. Director Benefits. The term "Director Benefits" shall mean the benefits determined in accordance with Schedule "B", and reduced or adjusted to the extent: (i) required under the other provisions of this Agreement, including, but not limited to, Paragraphs 5, 6 and 7 hereof; (ii) required by reason of the lawful order of any regulatory agency or body having jurisdiction over the Bank; or (iii) required in order for the Bank to properly comply with any and all applicable state and federal laws, including, but not limited to, income, employment and disability income tax laws (e.g., FICA, FUTA, SDI). 1.7. Disability/Disabled. The term "Disability" or "Disabled" shall have the same meaning given such terms in any policy of disability insurance maintained by the Bank for the benefit of directors including the Director. In the absence of such a policy which extends coverage to the Director in the event of disability, the terms shall mean bodily injury or disease (mental or physical) which wholly and continuously prevents the performance of duty for at least three months. 1.8. Early Retirement Date. The term "Early Retirement Date" shall mean the Retirement, as defined below, of the Director on a date which occurs prior to the Director attaining sixty-two (62) years of age, but after the Director has attained fifty-five (55) years of age. 1.9. Effective Date. The term "Effective Date" shall mean the date first written above. 1.10. ERISA. The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.11. Plan Year. The term "Plan Year" shall mean the Bank's fiscal year. 1.12. Removal for Cause. The term "Removal for Cause" shall mean termination of the employment of the Director by reason of any of the following determined in good faith by the Bank's Board of Directors: 58 (a) The willful, intentional and material breach or the habitual and continued neglect by the Director of his or her employment responsibilities and duties; (b) The continuous mental or physical incapacity of the Director, subject to disability rights under this Agreement; (c) The Director's willful and intentional violation of any federal banking or securities laws, or of the Bylaws, rules, policies or resolutions of Bank, or the rules or regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over the Bank, which has a material adverse effect upon the Bank; (d) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Bank that the Director (i) is of unsound mind, or (ii) has committed a gross abuse of authority or discretion with reference to the Bank, or (iii) otherwise is not suitable to continue to serve as a member of the Board of Directors of the Bank; (e) The Director's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Director's willful and intentional commission of a fraudulent or dishonest act; or (f) The Director's willful and intentional disclosure, without authority, of any secret or confidential information concerning Bank or taking any action which the Bank's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Bank. 1.13. Retirement. The term "Retirement" or "Retires" shall refer to the date which the Director acknowledges in writing to the Bank to be the last day of service as a member of the Board of Directors of the Bank. 59 1.14. Surrogate. The term "Surrogate" shall mean the individual selected as a substitute insured for the Director for purposes related to any insurance policy applicable to this Agreement. 1.15. Surviving Spouse. The term "Surviving Spouse" shall mean the person, if any, who shall be legally married to the Director on the date of the Director's death. 2. Scope, Purpose and Effect. 2.1. Contract of Employment. Although this Agreement is intended to provide the Director with an additional incentive to continue to serve as a member of the Board of Directors of the Bank, this Agreement shall not be deemed to constitute a contract of employment between the Director and the Bank nor shall any provision of this Agreement restrict the right of the Bank to remove or cause the removal of the Director including, without limitation, by (i) refusal to nominate the Director for election for any successive term of office as a member of the Board of Directors of the Bank, or (ii) complying with an order or other directive from a court of competent jurisdiction or any regulatory authority having jurisdiction over the Bank which requires the Bank to take action to remove the Director. 2.2. Fringe Benefit. The benefits provided by this Agreement are granted by the Bank as a fringe benefit to the Director and are not a part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. The Director has no option to take any current payments or bonus in lieu of the benefits provided by this Agreement. 3. Payments Upon Early Retirement or Retirement and After Retirement. 3.1. Payments Upon Early Retirement. The Director shall have the right to Retire on a date which constitutes an Early Retirement Date as defined in subparagraph 1.8 above. (a) In the event the Director elects to Retire on a date which constitutes an Early Retirement Date, and provided that the Surrogate is alive at the date the Director Retires, the Director shall be entitled to be paid the Applicable Percentage of the Director Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Early Retirement Date occurs, payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the first to occur of the Director's death or the Surrogate's death in the case of the Index Benefit defined in Schedule "B". 60 (b) In the event the Director elects to Retire on a date which constitutes an Early Retirement Date, and provided that the Surrogate has predeceased the Director at the date the Director Retires, the Director shall be entitled to the payments specified in subparagraph 3.3 below. 3.2. Payments Upon Retirement. (a) If the Director remains a member of the Board of Directors of the Bank until attaining sixty-two (62) years of age, and provided that the Surrogate is alive at the date the Director Retires, the Director shall be entitled to be paid the Applicable Percentage of the Director Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Director Retires or upon such later date as may be mutually agreed upon by the Director and the Bank in advance of said Retirement date, payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the first to occur of the Director's death or the Surrogate's death in the case of the Index Benefit defined in Schedule "B". At the Bank's sole and absolute discretion, the Bank may increase the Director Benefits as and when the Bank determines the same to be appropriate. (b) If the Director remains a member of the Board of Directors of the Bank until attaining sixty-two (62) years of age, and provided that the Surrogate has predeceased the Director at the date the Director Retires, the Director shall be entitled to the payments specified in subparagraph 3.3 below. 3.3. Payments in the Event of Surrogate's Death Before Retirement. Notwithstanding subparagraph 3.1(a) and subparagraph 3.2(a), if the Surrogate dies before the Director Retires, then upon the Director's Retirement, the Director Benefits to which the Director would otherwise be entitled shall be adjusted such that the portion of such Director Benefits which is derived by reference to an insurance policy, if any, underwritten using a surrogate insured (a "Surrogate Policy") shall be paid as follows: the Bank shall pay to the Director the Applicable Percentage of (i) that portion of the balance, if any, in the Benefit Account as of the date of the Surrogate's death which is derived by reference to a Surrogate Policy, if any, payable in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Director Retires (or on such later date as may be mutually agreed upon by the Director and the Bank in advance of said Retirement date) for the period designated in Schedule "D". Upon the death of the Director before receiving all of the Director Benefits to which the Director is entitled, the Bank shall pay to the Director's designated beneficiary(ies) the Applicable Percentage of the balance, if any, of the Benefit Account which is derived by reference to a Surrogate Policy, if any, in lump sum. The remaining Director Benefits to which the Director is entitled which are derived without reference to any Surrogate Policy shall continue to be paid as specified in the applicable provisions of this Agreement. 61 3.4. Payments in the Event of Death After Retirement. (a) If the Director Retires, but shall die before receiving all of the Director Benefits, and provided that the Surrogate is alive at the date of the Director's death, the Bank will pay to the Director's designated beneficiary(ies) the Applicable Percentage of the balance, if any, of the Benefit Account, in lump sum, and up to twenty (20) annual Index Benefit installment payments in the amounts that otherwise would have been paid to the Director if still alive and which are derived by reference to a Surrogate Policy, if any, minus the number of annual Index Benefit installment payments made to the Director prior to the Director's death. Upon the death of the Surrogate, such installment payments shall cease whether or not any unpaid portion of the twenty (20) installment payments shall remain unpaid. (b) If the Director Retires, but the Surrogate shall predecease the Director, the Director shall be entitled to receive the payments specified in subparagraph 3.3 above. (c) If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Director under the terms of this Agreement shall be paid to the Director's Surviving Spouse. If the Director leaves no Surviving Spouse, the remaining amounts due to the Director under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Director's estate. 4. Payments in the Event Death or Disability Occurs Prior to Retirement. 4.1. Payments in the Event of Death Prior to Retirement. (a) If the Director dies at any time after the Effective Date of this Agreement but prior to Retirement, and provided that the Surrogate is alive at the date of the Director's death, the Bank agrees to pay to the Director's designated beneficiary(ies) the Applicable Percentage of the balance, if any, in the Benefit Account, in lump sum, and up to twenty (20) annual Index Benefit installment payments in the amounts that otherwise would have been paid to the Director if still alive and which are derived by reference to a Surrogate Policy, if any. Upon the death of the Surrogate, such installment payments shall cease whether or not any unpaid portion of the twenty (20) installment payments shall remain unpaid. (b) If the Director dies at any time after the Effective Date of this Agreement but prior to Retirement, and provided that the Surrogate has predeceased the Director, the Bank agrees to pay to the Director's designated beneficiary(ies) the Applicable Percentage of the balance, if any, of the Benefit Account in lump sum. 62 (c) If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Director under the terms of this Agreement shall be paid to the Director's Surviving Spouse. If the Director leaves no Surviving Spouse, the remaining amounts due to the Director under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Director's estate. 4.2. Payments in the Event of Disability Prior to Retirement. In the event the Director becomes Disabled at any time after the Effective Date of this Agreement but prior to Retirement, the Director shall be paid the Applicable Percentage of the Director Benefits which the Director may be entitled to receive, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Director becomes Disabled, payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the first to occur of the Director's death or the Surrogate's death in the case of the Index Benefit defined in Schedule "B". 5. Payments in the Event Service Is Terminated Prior to Retirement. As indicated in subparagraph 2.1 above, the Bank reserves the right to remove or cause the removal of the Director at any time prior to the Director's Retirement. In the event that the Director shall be removed and his or her service as a member of the Board of Directors of the Bank terminated, other than by reason of death, Disability or Retirement, prior to the Director's attaining sixty-two (62) years of age, then this Agreement shall terminate upon the date of such termination of service; provided, however, that the Director shall be entitled to the following benefits as may be applicable depending upon the circumstances surrounding the Director's termination of service: 5.1. Termination Without Cause. If the Director's service as a member of the Board of Directors of the Bank is terminated for reasons other than as specified in paragraph 5.3 below, and such termination is not subject to the provisions of subparagraph 5.4 below, the Director shall be entitled to be paid the Applicable Percentage of the Director Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Director attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Director and delivered to the Bank or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Director does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Director attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the first to occur of the Director's death or the Surrogate's death in the case of the Index Benefit defined in Schedule "B". 5.2. Voluntary Termination by the Director. If the Director's service as a member of the Board of Directors of the Bank is terminated by voluntary resignation and such 63 resignation is not subject to the provisions of subparagraph 5.4 below, the Director shall be entitled to be paid the Applicable Percentage of the Director Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Director attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Director and delivered to the Bank or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Director does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Director attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the first to occur of the Director's death or the Surrogate's death in the case of the Index Benefit defined in Schedule "B". 5.3. Termination by Removal for Cause. The Director agrees that if the Director's service as a member of the Board of Directors of the Bank is terminated by "removal for cause," (as defined in subparagraph 1.12 of this Agreement) and pursuant to subparagraph 1.12 (c), (d) or (e), the Director shall forfeit any and all rights and benefits the Director may have under the terms of this Agreement and shall have no right to be paid any of the amounts which would otherwise be due or paid to the Director by the Bank pursuant to the terms of this Agreement. In the event that the Director's service as a member of the Board of Directors of the Bank is terminated by "removal for cause" pursuant to subparagraph 1.12(a), (b) or (f), the Director shall be entitled to be paid the Applicable Percentage of the Director Benefits, as defined above, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Director attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Director and delivered to the Bank or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Director does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Director attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the first to occur of the Director's death or the Surrogate's death in the case of the Index Benefit defined in Schedule "B". 5.4. Termination on Account of or After a Change in Control. In the event: (i) the Director's service as a member of the Board of Directors of the Bank is terminated in conjunction with, or by reason of, a "Change in Control" (as defined in subparagraph 1.4 above); or (ii) by reason of the Bank's actions and without the Director's prior written consent, any change occurs in the scope of the Director's position, responsibilities, duties, fees, benefits, or location of meetings (which in the event of relocation of more than thirty (30) miles from the location of the Board or committee meetings prior to a Change in Control shall constitute such a change in location) after a Change in Control occurs, then the Director shall be entitled to be paid 64 the Applicable Percentage of the Director Benefits, as defined above, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Director attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Director and delivered to the Bank or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Director does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Director attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the first to occur of the Director's death or the Surrogate's death in the case of the Index Benefit defined in Schedule "B". 5.5. Payments in the Event of Death Following Termination. If the Director dies prior to receiving all of the Director Benefits described in this Paragraph 5 to which the Director is entitled, then the Bank will make such payments to the Director's designated beneficiary in lump sum. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Director under the terms of this Agreement shall be paid to the Director's Surviving Spouse. If the Director leaves no Surviving Spouse, the remaining amounts due to the Director under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Director's estate. 6. Section 280G Adjustment. The Director acknowledges and agrees that the parties have entered into this Agreement based upon certain financial and tax accounting assumptions. Accordingly, with full knowledge of the potential consequences the Director agrees that, notwithstanding anything contained herein to the contrary, in the event that any payment or benefit received or to be received by the Director, whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Bank (together with the Director Benefits, the "Total Payments"), will not be deductible (in whole or in part) as a result of Code Section 280G or other applicable provisions of the Code, the Total Payments shall be reduced until no portion of the Total Payments is nondeductible as a result of Section 280G or such other applicable provisions of the Code. For purposes of this limitation: (a) No portion of the Total Payments, the receipt or enjoyment of which the Director shall have effectively waived in writing prior to the date of payment of any future Director Benefits payments, shall be taken into account; (b) No portion of the Total Payments shall be taken into account, which in the opinion of the tax counsel selected by the Bank and acceptable to the Director, does not constitute a "parachute payment" within the meaning of Section 280G of the Code; 65 (c) Any reduction of the Total Payments shall be applied to reduce any payment or benefit received or to be received by the Director pursuant to the terms of this Agreement and any other plan, arrangement or agreement with the Bank in the order determined by mutual agreement of the Bank and the Director; (d) Future payments shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in clauses (a) or (b) above in their entirety) constitute reasonable compensation for services actually rendered within the meaning of Section 280G of the Code, in the opinion of tax counsel referred to in clause (b) above; and (e) The value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by independent auditors selected by the Bank and acceptable to the Director in accordance with the principles of Section 280G of the Code. 7. Right To Determine Funding Methods. The Bank reserves the right to determine, in its sole and absolute discretion, whether, to what extent and by what method, if any, to provide for the payment of the amounts which may be payable to the Director, the Director's spouse or the Director's beneficiaries under the terms of this Agreement. In the event that the Bank elects to fund this Agreement, in whole or in part, through the use of life insurance or annuities, or both, the Bank shall determine the ownership and beneficial interests of any such policy of life insurance or annuity. The Bank further reserves the right, in its sole and absolute discretion, to terminate any such policy, and any other device used to fund its obligations under this Agreement, at any time, in whole or in part. Consistent with Paragraph 9 below, neither the Director, the Director's spouse nor the Director's beneficiaries shall have any right, title or interest in or to any funding source or amount utilized by the Bank pursuant to this Agreement, and any such funding source or amount shall not constitute security for the performance of the Bank's obligations pursuant to this Agreement. In connection with the foregoing, the Director agrees to execute such documents and undergo such medical examinations or tests which the Bank may request and which may be reasonably necessary to facilitate any funding for this Agreement including, without limitation, the Bank's acquisition of any policy of insurance or annuity. Furthermore, a refusal by the Director to consent to, participate in and undergo any such medical examinations or tests shall result in the immediate termination of this Agreement and the immediate forfeiture by the Director, the Director's spouse and the Director's beneficiaries of any and all rights to payment hereunder. 8. Claims Procedure. The Bank shall, but only to the extent necessary to comply with ERISA, be designated as the named fiduciary under this Agreement and shall have authority to control and manage the operation and administration of this Agreement. Consistent therewith, the Bank shall make all determinations as to the rights to benefits under this Agreement. Any decision by the Bank denying a claim by the Director, the Director's spouse, or the Director's 66 beneficiary for benefits under this Agreement shall be stated in writing and delivered or mailed, via registered or certified mail, to the Director, the Director's spouse or the Director's beneficiary, as the case may be. Such decision shall set forth the specific reasons for the denial of a claim. In addition, the Bank shall provide the Director, the Director's spouse or the Director's beneficiary with a reasonable opportunity for a full and fair review of the decision denying such claim. 9. Status as an Unsecured General Creditor. Notwithstanding anything contained herein to the contrary: (i) neither the Director, the Director's spouse or the Director's designated beneficiaries shall have any legal or equitable rights, interests or claims in or to any specific property or assets of the Bank as a result of this Agreement; (ii) none of the Bank's assets shall be held in or under any trust for the benefit of the Director, the Director's spouse or the Director's designated beneficiaries or held in any way as security for the fulfillment of the obligations of the Bank under this Agreement; (iii) all of the Bank's assets shall be and remain the general unpledged and unrestricted assets of the Bank; (iv) the Bank's obligation under this agreement shall be that of an unfunded and unsecured promise by the Bank to pay money in the future; and (v) the Director, the Director's spouse and the Director's designated beneficiaries shall be unsecured general creditors with respect to any benefits which may be payable under the terms of this Agreement. Notwithstanding subparagraphs (i) through (v) above, the Bank and the Director acknowledge and agree that, in the event of a Change in Control, upon request of the Director, or in the Bank's discretion if the Director does not so request and the Bank nonetheless deems it appropriate, the Bank shall establish, not later than the effective date of the Change in Control, a Rabbi Trust or multiple Rabbi Trusts (the "Trust" or "Trusts") upon such terms and conditions as the Bank, in its sole discretion, deems appropriate and in compliance with applicable provisions of the Code, in order to permit the Bank to make contributions and/or transfer assets to the Trust or Trusts to discharge its obligations pursuant to this Agreement. The principal of the Trust or Trusts and any earnings thereon shall be held separate and apart from other funds of the Bank to be used exclusively for discharge of the Bank's obligations pursuant to this Agreement and shall continue to be subject to the claims of the Bank's general creditors until paid to the Director or its beneficiaries in such manner and at such times as specified in this Agreement. 10. Discretion of Board to Accelerate Payout. Notwithstanding any of the other provisions of this Agreement, the Board of Directors of the Bank may, if determined in its sole and absolute discretion to be appropriate, accelerate the payment of the amounts due under the terms of this Agreement, provided that Director (or Director's spouse or designated beneficiaries): (i) consents to the revised payout terms determined appropriate by the Bank's Board of Directors; and (ii) does not negotiate or in anyway influence the terms of proposed altered/accelerated payout (said decision to be made solely by the Bank's Board of Directors and offered to the Director [or Director's spouse or designated beneficiaries] on a "take it or leave it basis"). 67 11. Miscellaneous. 11.1. Opportunity To Consult With Independent Advisors. The Director acknowledges that he has been afforded the opportunity to consult with independent advisors of his choosing including, without limitation, accountants or tax advisors and counsel regarding both the benefits granted to him under the terms of this Agreement and the (i) terms and conditions which may affect the Director's right to these benefits and (ii) personal tax effects of such benefits including, without limitation, the effects of any federal or state taxes, Section 280G of the Code, and any other taxes, costs, expenses or liabilities whatsoever related to such benefits, which in any of the foregoing instances the Director acknowledges and agrees shall be the sole responsibility of the Director notwithstanding any other term or provision of this Agreement. The Director further acknowledges and agrees that the Bank shall have no liability whatsoever related to any such personal tax effects or other personal costs, expenses, or liabilities applicable to the Director and further specifically waives any right for the Director, himself, and his heirs, beneficiaries, legal representatives, agents, successors, and assigns to claim or assert liability on the part of the Bank related to the matters described above in this subparagraph 11.1. The Director further acknowledges and agrees that he has read, understands and consents to all of the terms and conditions of this Agreement, and that he enters into this Agreement with a full understanding of its terms and conditions. 11.2. Arbitration of Disputes. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Bank in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), located in San Francisco, California. In the event JAMS is unable or unwilling to conduct the arbitration provided for under the terms of this Paragraph, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association ("AAA"), located in San Francisco, California, shall conduct the binding arbitration referred to in this Paragraph. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. The arbitration shall be subject to such rules of procedure used or established by JAMS, or if there are none, the rules of procedure used or established by AAA. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil 68 Procedure. Any arbitration hereunder shall be conducted in Saratoga, California, unless otherwise agreed to by the parties. 11.3. Attorneys' Fees. In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto, arising out of or relating to this Agreement or the breach hereof, or the interpretation hereof, the prevailing party shall be entitled to recover from the non-prevailing party reasonable expenses, attorneys' fees and costs incurred in connection therewith or in the enforcement or collection of any judgment or award rendered therein. The "prevailing party" means the party determined by the arbitrator(s) or court, as the case may be, to have most nearly prevailed, even if such party did not prevail in all matters, not necessarily the one in whose favor a judgment is rendered. 11.4. Notice. Any notice required or permitted of either the Director or the Bank under this Agreement shall be deemed to have been duly given, if by personal delivery, upon the date received by the party or its authorized representative; if by facsimile, upon transmission to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the party transmitting the facsimile and upon reasonable confirmation of such transmission; and if by mail, on the third day after mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party. If to the Bank: Saratoga National Bank 12000 Saratoga-Sunnyvale Rd. Saratoga, California 95070 Attn: Chairman of the Board If to the Director: ______________________ ______________________ ______________________ 11.5. Assignment. Neither the Director, the Director's spouse, nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part or all of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such amounts be: (i) subject to seizure by any creditor of any such beneficiary, by a proceeding at law or in equity, for the payment of any debts, judgments, alimony or separate maintenance obligations which may be owed by the Director, the Director's spouse, or any designated beneficiary; or (ii) transferable by operation of law in the event of bankruptcy, insolvency or otherwise. Any such attempted assignment or transfer shall be void and unenforceable without the prior written consent of the Bank. The Bank's consent, if any, to one or more assignments or 69 transfers shall not obligate the Bank to consent to or be construed as the Bank's consent to any other or subsequent assignment or transfer. 11.6. Binding Effect/Merger or Reorganization. This Agreement shall be binding upon and inure to the benefit of the Director and the Bank and, as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns. Accordingly, the Bank shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person agrees to assume and discharge the obligations of the Bank under this Agreement. Upon the occurrence of such event, the term "Bank" as used in this Agreement shall be deemed to refer to such surviving or successor firm, person, entity or corporation. 11.7. Nonwaiver. The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this Agreement shall not be a waiver of such term(s) or condition(s) or of that party's right thereafter to enforce each and every term and condition of this Agreement. 11.8. Partial Invalidity. If any term, provision, covenant, or condition of this agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity. 11.9. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the subject matter of this Agreement and contains all of the covenants and agreements between the parties with respect thereto. Each party to this Agreement acknowledges that no other 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 set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party. 11.10. Modifications. Any modification of this Agreement shall be effective only if it is in writing and signed by each party or such party's authorized representative. 11.11. Paragraph Headings. The paragraph headings used in this Agreement are included solely for the convenience of the parties and shall not affect or be used in connection with the interpretation of this Agreement. 70 11.12. No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person. 11.13. Governing Law. The laws of the State of California, other than those laws denominated choice of law rules, and, where applicable, the rules and regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over Bank, shall govern the validity, interpretation, construction and effect of this Agreement. IN WITNESS WHEREOF, the Bank and the Director have executed this Agreement on the date first above-written in the City of Saratoga, Santa Clara County, California. THE BANK THE DIRECTOR SARATOGA NATIONAL BANK By:____________________________ _____________________________ Richard L. Mount __________________ President and Chief Executive Officer 71 SCHEDULE A CALENDAR YEAR APPLICABLE PERCENTAGE __________, 1981 to December 31, 1998. . . . 80.00% December 31, 1999. . . . . . . . . . . . . . 90.00% December 31, 2000. . . . . . . . . . . . . . 100.00% 72 SCHEDULE B DIRECTOR BENEFITS 1. Director Benefits Determination. The Director Benefits shall be determined based upon the following: a. Benefit Account: A Benefit Account shall be established as a liability reserve account on the books of the Bank for the benefit of the Director. Prior to the date on which the Director becomes eligible to receive payments under the Agreement, such Benefit Account shall be increased (or decreased) each Plan Year (including the Plan Year in which the Director ceases to be employed by the Bank) by an amount equal to the annual earnings or loss for that Plan Year determined by the Index (described in subparagraph c below), less the Opportunity Cost (described in subparagraph d below) for that Plan Year. b. Index Benefit: After the date on which the Director becomes eligible to receive payments under the Agreement, the Index Benefit for the Director for any Plan Year shall be determined by subtracting the Opportunity Cost for that Plan Year from the earnings, if any, established by the Index. c. Index: The Index for any Plan Year shall be the aggregate annual after-tax income from the life insurance contracts described hereinafter as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such insurance contracts were purchased on the Effective Date. Insurance Company(ies)/Policy Number(s): _____________________________ _____________________________ If such contracts of life insurance are actually purchased by the Bank, then the actual policies as of the dates purchased shall be used in calculations to determine the Index and Opportunity Cost. If such contracts of life insurance are not purchased or are subsequently surrendered or lapsed, then the Bank shall receive 73 and use annual policy illustrations that assume the above described policies were purchased from the above named insurance company(ies) on the Effective Date to calculate the amount of the Index and Opportunity Cost. d. Opportunity Cost: The Opportunity Cost for any Plan Year shall be calculated by multiplying (a) the sum of (i) the total amount of premiums set forth in the insurance policies described above, (ii) the amount of any Index Benefits (described at subparagraph b above), and (iii) the amount of all previous years after-tax Opportunity Costs; by (b) the average annualized after-tax cost of funds calculated using a one-year U.S. Treasury Bill as published in the Wall Street Journal. The applicable tax rate used to calculate the Opportunity Cost shall be the Bank's marginal tax rate until the Director's Retirement, or other termination of service (including a Change in Control). Thereafter, the Opportunity Cost shall be calculated with the assumption of a marginal forty-two percent (42%) corporate tax rate each year regardless of whether the actual marginal tax rate of the Bank is higher or lower. EXAMPLE INDEX BENEFITS [n] [A] [B] [C] [D] End of Cash Surrender Index Opportunity Annual Cumulative Year Value of Life [Annual Cost Benefit Benefit Insurance Policy Policy A0=premium B-C D+Dn-1 Income] A0+Cn-1x.05x An-An-1 (1-42%) 0 $1, 000,000 -- -- -- -- 1 $1,050,000 $50,000 $29,000 $21,000 $21,000 2 $1,102,500 $52,500 $29,841 $22,659 $43,659 3 $1,157,625 $55,125 $30,706 $24,419 $68,078 . . . Assumptions: Initial Insurance = $1,000,000 Effective Tax Rate = 42% One Year US Treasury Yield = 5% 74 2. Director Benefits Payments. The Director shall be entitled to payment of the Applicable Percentage of (i) the balance in the Benefit Account in installments, and (ii) the Index Benefit for each Plan Year payable in installments, upon the terms as specified in the Agreement until the Director's death. 75 SCHEDULE C BENEFICIARY DESIGNATION To the Administrator of the Saratoga National Bank Director Supplemental Compensation Agreement: Pursuant to the Provisions of my Director Supplemental Compensation Agreement with Saratoga National Bank, permitting the designation of a beneficiary or beneficiaries by a participant, I hereby designate the following persons and entities as primary and secondary beneficiaries of any benefit under said Agreement payable by reason of my death: Primary Beneficiary: ______________________ ____________________ _____________________________ Name Address Relationship Secondary (Contingent) Beneficiary: ______________________ _____________________ ____________________________ Name Address Relationship THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED. ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES ARE HEREBY REVOKED. The Administrator shall pay all sums payable under the Agreement by reason of my death to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named beneficiary survives me, then the Administrator shall pay all amounts in accordance with the terms of my Director Supplemental Compensation Agreement. In the event that a named beneficiary survives me and dies prior to receiving the entire benefit payable under said Agreement, then and in that event, the remaining unpaid benefit payable according to the terms of my Director Supplemental Compensation Agreement 76 shall be payable to the personal representatives of the estate of said beneficiary who survived me but died prior to receiving the total benefit provided by my Director Supplemental Compensation Agreement. Dated: ___________, 1998 __________________________ __________________ CONSENT OF THE DIRECTOR'S SPOUSE TO THE ABOVE BENEFICIARY DESIGNATION: I, ____________, being the spouse of __________________, after being afforded the opportunity to consult with independent counsel of my choosing, do hereby acknowledge that I have read, agree and consent to the foregoing Beneficiary Designation which relates to the Director Supplemental Compensation Agreement entered into by my spouse effective as of ___________, 1998. I understand that the above Beneficiary Designation may affect certain rights which I may have in the benefits provided for under the terms of the Director Supplemental Compensation Agreement and in which I may have a marital property interest. Dated: ___________, 1998 ______________________________ _________________ 77 SCHEDULE D DISTRIBUTION ELECTION Pursuant to the provisions of my Director Supplemental Compensation Agreement with Saratoga National Bank, I hereby elect to have any distribution of the balance in my Benefit Account paid to me in installments as designated below: thirty-six (36) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. sixty (60) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. one hundred twenty (120) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. one hundred eighty (180) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. Dated: ____________, 1998 Signed: _______________________ __________________ EX-10 6 78 LIFE INSURANCE ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT Insurer/Policy Number: ________________________ Bank: Saratoga National Bank Participant: _________________ Insured: ______________, as the insured surrogate for Participant Relationship of Participant to Bank: Director Date: June 18, 1999 The respective rights and duties of the Bank and the Participant in the above policy(ies) (the "Policy" or "Policies") shall be as follows: I. DEFINITIONS Refer to the Policy provisions for the definition of all terms in this Agreement. Notwithstanding the foregoing, whenever the term "Insured" is used in the Policies, unless the Policy provisions otherwise require, it shall mean [Director's Name] for purposes of any beneficial interest or right to proceeds from any insurance policy to which this Agreement refers. II. POLICY TITLE AND OWNERSHIP Title and ownership shall reside in the Bank for its use and for the use of the Participant all in accordance with this Agreement. The Bank alone may, to the extent of its interest, exercise the right to borrow or withdraw the Policy cash values. Where the Bank and the Participant (or beneficiary[ies] or assignee[s], with the consent of the Participant) mutually agree to exercise the right to increase the coverage under the subject split dollar Policy, then, in such event, the rights, duties and benefits of the parties to such increased coverage shall continue to be subject to the terms of this Agreement. III. BENEFICIARY DESIGNATION RIGHTS 79 The Participant (or beneficiary[ies] or assignee[s]) shall have the right and power to designate a beneficiary or beneficiaries to receive his or her share of the proceeds payable upon the death of the Insured, and to elect and change a payment option for such beneficiary, subject to any right or interest the Bank may have in such proceeds, as provided in this Agreement. IV. PREMIUM PAYMENT METHOD The Bank shall pay an amount equal to the planned premiums and any other premium payments that might become necessary to maintain the Policy in force. V. TAXABLE BENEFIT Annually the Participant will receive a taxable benefit equal to the assumed cost of insurance as required by the Internal Revenue Service. The Bank (or its administrator) will report to the Participant the amount of imputed income received each year on Form W-2 or its equivalent. VI. DIVISION OF DEATH PROCEEDS Subject to Paragraph VII herein, the division of the death proceeds of the Policy is as follows: A. 1. Subject to paragraph VI.A.2 below, upon the death of the Participant, the Participant's beneficiary(ies) designated in accordance with Paragraph III shall be entitled to an amount equal to the net at risk insurance portion of the proceeds under all Policies. The net at risk insurance portion is the total proceeds less the cash value of the Policy. Notwithstanding the foregoing, in the event the Participant [or his or her beneficiary(ies)] becomes entitled to receive the foregoing death benefit prior to the Participant becoming entitled to receive 100% of the benefits, if any, specified in that certain Director Supplemental Compensation Agreement between the Bank and the Participant, effective __________, 1998 (the "Compensation Agreement"), then the Participant [or his or her beneficiary(ies)] shall be entitled to receive the same percentage of the foregoing death benefit as the percentage applicable to the Participant's benefits, if any, under such Compensation Agreement immediately prior to the Participant's death or, if earlier, the date on which the Participant [or his or her beneficiary(ies)] commences receiving such death benefit. 2. Notwithstanding paragraph VI.A.1 above: (a) If the Insured predeceases the Participant prior to the date on which the Participant Retires, becomes Disabled, or otherwise terminates service as a director (as defined or described in the Compensation Agreement), then that portion of the death proceeds equal to the amount to which the Participant is entitled under paragraph VI.A.1 of this Agreement shall be held by the Bank 80 in trust for the Participant under the terms of this Agreement. Such death proceeds shall be deposited into a separate, segregated interest bearing account. Neither the Participant nor the Participant's beneficiary(ies) shall have any right to or interest in such account or the funds therein except as provided in this Agreement. Such interest bearing account shall be selected by the Bank in its sole discretion and may be an account at the Bank or at another financial institution. The Bank shall have no liability whatsoever with respect to the rate of interest actually earned on such death proceeds. Accrued interest earned on such death proceeds shall be paid to the Participant within fifteen (15) days after the end of each calendar quarter (or on such other periodic basis as may be mutually agreed upon by the Bank and the Participant). The Participant shall be responsible for payment of all taxes imposed on any income earned, and shall assume all risk of loss, with respect to such funds. Upon the date on which the Participant Retires after attaining sixty-two (62) years of age, or becomes Disabled, or otherwise terminates service as a director (other than by "removal for cause" as defined in the Compensation Agreement) whichever first occurs, the Participant shall be entitled to the amount determined in accordance with paragraph VI.A.1, reduced by the amount of any Index Benefit Payments (or payments made in lieu of such Index Benefit Payments) made to the Participant or the Participant's beneficiary(ies) pursuant to the terms of the Compensation Agreement, payable in lump sum or in such periodic installments as may be mutually agreed upon by the Bank and the Participant. Upon the death of the Participant, the remaining unpaid balance of the death benefit to which the Participant is entitled shall be paid to the Participant's beneficiary(ies) in lump sum. In no event shall the Participant and/or the Participant's beneficiary(ies) receive an aggregate benefit under this Agreement exceeding the amount to which the Participant is entitled under paragraph VI.A.1 above. (b) If the Insured predeceases the Participant after the Participant Retires, becomes Disabled, or otherwise terminates service as a director (as defined or described in the Compensation Agreement), then that portion of the death proceeds equal to the amount to which the Participant is entitled under paragraph VI.A.1 of this Agreement, reduced by the amount of any Index Benefit Payments (or payments made in lieu of such Index Benefit Payments) made to the Participant or the Participant's beneficiary(ies) pursuant to the terms of the Compensation Agreement, shall be paid to the Participant in lump sum or in such periodic installments as may be mutually agreed upon by the Bank and the Participant. Upon the death of the Participant, the remaining unpaid balance of the death benefit to which the Participant is entitled shall be paid to the Participant's beneficiary(ies) in lump sum. In no event shall the Participant and/or the Participant's beneficiary(ies) receive an aggregate 81 benefit under this Agreement exceeding the amount to which the Participant is entitled under paragraph VI.A.1 above. B. The Bank shall be entitled to all remaining death proceeds of the Policy(ies), including any balance remaining in the account referenced in paragraph VI.A.2 above. C. The Bank and the Participant (or beneficiary[ies] or assignee[s]) shall share in any interest due on the death proceeds on a pro rata basis in the ratio that the proceeds due the Bank and the Participant, respectively, bears to the total proceeds, excluding any such interest. VII. DIVISION OF CASH SURRENDER VALUE The Bank shall at all times be entitled to an amount equal to the Policy's cash value, as that term is defined in the Policy, less any Policy loans and unpaid interest or cash withdrawals previously incurred by the Bank and any applicable Policy surrender charges. Such cash value shall be determined as of the date of surrender of the Policy or death of the Insured as the case may be. VIII. PREMIUM WAIVER If the Policy contains a premium waiver provision, any such waived amounts shall be considered for all purposes of this Agreement as having been paid by the Bank. IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS In the event the Policy involves an endowment or annuity element, the Bank's right and interest in any endowment proceeds or annuity benefits shall be determined under the provisions of this Agreement by regarding such endowment proceeds or the commuted value of such annuity benefits as the Policy's cash value. Such endowment proceeds or annuity benefits shall be treated like death proceeds for the purposes of division under this Agreement. X. TERMINATION OF AGREEMENT This Agreement shall terminate at the option of the Bank following thirty (30) days written notice to the Participant upon the happening of any one of the following: 1. The Participant's right to receive benefits pursuant to the terms and conditions of that certain Director Supplemental Compensation Agreement effective as of ___________, 1998, shall terminate for any reason other than the Participant's or the Insured's death; or 82 2. The Insured shall be discharged from service with the Bank as a result of a removal for cause under subparagraph (c), (d) or (e) below. Notwithstanding the foregoing, this Agreement shall remain in effect in the event that the Insured is removed pursuant to subparagraph (a), (b) or (f) below. The term "removal for cause" shall mean termination of the service of the Insured by reason of any of the following determined in good faith by the Bank's Board of Directors: (a) The willful, intentional and material breach or the habitual and continued neglect by the Insured of his or her employment responsibilities and duties; (b) The continuous mental or physical incapacity of the Insured, subject to disability rights under this Agreement; (c) The Insured's willful and intentional violation of any federal banking or securities laws, or of the Bylaws, rules, policies or resolutions of Bank, or the rules or regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over the Bank, which has a material adverse effect upon the Bank; (d) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Bank that the Insured (i) is of unsound mind, or (ii) has committed a gross abuse of authority or discretion with reference to the Bank, or (iii) otherwise is not suitable to continue to serve as a member of the Board of Directors of the Bank; (e) The Insured's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Insured's willful and intentional commission of a fraudulent or dishonest act; or (f) The Insured's willful and intentional disclosure, without authority, of any secret or confidential information concerning Bank or taking any action which the Bank's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Bank. Upon such termination, the Participant (or beneficiary[ies] or assignee[s]) shall have a ninety (90) day option to receive from the Bank an absolute assignment of the Policy in 83 consideration of a cash payment to the Bank, whereupon this Agreement shall terminate. Such cash payment shall be the greater of: 1. The Bank's share of the cash value of the Policy on the date of such assignment, as defined in this Agreement. 2. The amount of the premiums which have been paid by the Bank prior to the date of such assignment. Should the Participant (or beneficiary[ies] or assignee[s]) fail to exercise this option within the prescribed ninety (90) day period, the Participant (or beneficiary[ies] or assignee[s]) agrees that all of his or her rights, interest and claims in the Policy shall terminate as of the date of the termination of this Agreement. Except as provided above, this Agreement shall terminate upon distribution of the death benefit proceeds in accordance with Paragraph VI above. XI. PARTICIPANT'S OR ASSIGNEE'S ASSIGNMENT RIGHTS The Participant may not, without the prior written consent of the Bank, which shall not be unreasonably withheld, assign to any individual, trust or other organization, any right, title or interest in the Policy nor any rights, options, privileges or duties created under Agreement. XII. AGREEMENT BINDING UPON THE PARTIES This Agreement shall be binding upon the Participant and the Bank, and their respective heirs, successors, personal representatives and assigns, as applicable. XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR The Bank is hereby designated the "Named Fiduciary" until resignation or removal by its Board of Directors. As Named Fiduciary, the Bank shall be responsible for the management, control, and administration of this Agreement as established herein. The Named Fiduciary may allocate to others certain aspects of the management and operations responsibilities of this Agreement, including the employment of advisors and the delegation of any ministerial duties to qualified individuals. XIV. FUNDING POLICY The funding policy for this Agreement shall be to maintain the Policy in force by paying, when due, all premiums required. 84 XV. CLAIM PROCEDURES Claim forms or claim information as to the subject Policy can be obtained by contacting The Benefit Marketing Group, Inc. (770-952-1529). When the Named Fiduciary has a claim which may be covered under the provisions described in the Policy, it should contact the office named above, and they will either complete a claim form and forward it to an authorized representative of the Insurer or advise the named Fiduciary what further requirements are necessary. The Insurer will evaluate and make a decision as to payment. If the claim is payable, a benefit check will be issued to the Named Fiduciary. In the event that a claim is not eligible under the Policy, the Insurer will notify the Named Fiduciary of the denial pursuant to the requirements under the terms of the Policy. If the Named Fiduciary is dissatisfied with the denial of the claim and wishes to contest such claim denial, it should contact the office named above and they will assist in making inquiry to the Insurer. All objections to the Insurer's actions should be in writing and submitted to the office named above for transmittal to the Insurer. XVI. GENDER Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT The Insurer shall not be deemed a party to this Agreement, but will respect the rights of the parties as set forth herein upon receiving an executed copy of this Agreement. Payment or other performance in accordance with the Policy provisions shall fully discharge the Insurer from any and all liability. IN WITNESS WHEREOF, the Participant and a duly authorized Bank officer or director have signed this Agreement at Saratoga, California as of the date first above written. SARATOGA NATIONAL BANK __________________________ ________________________________ Richard L. Mount ___________________ President and Chief Executive Officer 85 BENEFICIARY DESIGNATION FORM Primary Designation: Name Relationship _____________________________ _______________________________________ _____________________________ _______________________________________ _____________________________ _______________________________________ Contingent Designation: _____________________________ _______________________________________ _____________________________ _______________________________________ _____________________________ _______________________________________ _____________________________ _____________, 1999 _____________________ EX-10 7 86 EXECUTIVE SUPPLEMENTAL COMPENSATION AGREEMENT This Agreement is made and entered into effective as of ______________, 1998 by and between Saratoga National Bank, a national banking association chartered under the federal laws of the United States of America with its principal offices located in the City of Saratoga, Santa Clara County, California (the "Employer"), and __________________, an individual residing in the State of California (the "Executive"). R E C I T A L S WHEREAS, the Executive has been an employee of the Employer since _____________, 19__, and is currently serving as its _________________________; WHEREAS, the Employer desires to establish a compensation benefit program as a fringe benefit for executive officers of the Employer in order to attract and retain individuals with extensive and valuable experience in the banking industry; WHEREAS, the Executive's experience and knowledge of the affairs of the Employer and the banking industry are extensive and valuable; WHEREAS, it is deemed to be in the best interests of the Employer to provide the Executive with certain fringe benefits, on the terms and conditions set forth herein, in order to reasonably induce the Executive to remain in the Employer's employment and to compensate the Employee for valuable services heretofore rendered to the Employer; and WHEREAS, the Executive and the Employer wish to specify in writing the terms and conditions upon which this additional compensatory incentive will be provided to the Executive, or to the Executive's spouse or the Executive's designated beneficiaries, as the case may be. NOW, THEREFORE, in consideration of the services to be performed by the Executive in the future, as well as the mutual promises and covenants contained herein, the Executive and the Employer agree as follows: A G R E E M E N T 1. Terms and Definitions. 87 1.1. Administrator. The Employer shall be the "Administrator" and, solely for the purposes of ERISA as defined in subparagraph 1.9 below, the "fiduciary" of this Agreement where a fiduciary is required by ERISA. 1.2. Applicable Percentage. The term "Applicable Percentage" shall mean that percentage listed on Schedule "A" attached hereto which is adjacent to the number of calendar years which shall have elapsed from the date of the Executive's commencement of service to the Employer. Notwithstanding the foregoing or the percentages set forth on Schedule "A," but subject to all other terms and conditions set forth herein, the "Applicable Percentage" shall be: (i) provided payments have not yet begun hereunder, one hundred percent (100%) upon the occurrence of a "Change in Control" as defined in subparagraph 1.4 below, or the Executive's death, or Disability (as defined in subparagraph 1.6 below), which death or Disability occurs prior to the termination of the Executive's employment by the Employer; and (ii) notwithstanding subclause (i) of this subparagraph 1.2, zero percent (0%) in the event the Executive takes any intentional action which prevents the Employer from collecting the proceeds of any life insurance policy which the Employer may happen to own at the time of the Executive's death and of which the Employer is the designated beneficiary. Furthermore, notwithstanding the foregoing, or anything contained in this Agreement to the contrary, in the event the Executive takes any intentional action which prevents the Employer from collecting the proceeds of any life insurance policy which the Employer may happen to own at the time of the Executive's death and of which the Employer is the designated beneficiary: (1) the Executive's estate or designated beneficiary shall no longer be entitled to receive any of the amounts payable under the terms of this Agreement, and (2) the Employer shall have the right to recover from the Executive's estate all of the amounts paid to the Executive's estate (with respect to amounts paid prior to the Executive's death or paid to the Executive's estate) or designated beneficiary (with respect to amounts paid to the designated beneficiary) pursuant to the terms of this Agreement prior to and after Executive's death. 1.3. Beneficiary. The term "beneficiary" or "designated beneficiary" shall mean the person or persons whom the Executive shall designate in a valid Beneficiary Designation, a copy of which is attached hereto as Schedule "C," to receive the benefits provided hereunder. A Beneficiary Designation shall be valid only if it is in the form attached hereto and made a part hereof, completed and signed by the Executive and received by the Administrator prior to the Executive's death. 1.4. Change in Control. The term "Change in Control" shall mean the occurrence of any of the following events with respect to the Employer (with the term "Employer" being defined for purposes of determining whether a "Change in Control" has occurred to include any parent bank holding company owning 100% of the Employer's outstanding common stock): (i) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the 88 Securities Exchange Act of 1934, as amended (the "Exchange Act"), or in response to any other form or report to the regulatory agencies or governmental authorities having jurisdiction over the Employer or any stock exchange on which the Employer's shares are listed which requires the reporting of a change in control; (ii) any merger, consolidation or reorganization of the Employer in which the Employer does not survive; (iii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) of any assets of the Employer having an aggregate fair market value of fifty percent (50%) of the total value of the assets of the Employer, reflected in the most recent balance sheet of the Employer; (iv) a transaction whereby any "person" (as such term is used in the Exchange Act) or any individual, corporation, partnership, trust or any other entity becomes the beneficial owner, directly or indirectly, of securities of the Employer representing twenty-five percent (25%) or more of the combined voting power of the Employer's then outstanding securities; or (v) a situation where, in any one-year period, individuals who at the beginning of such period constitute the Board of Directors of the Employer cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Employer's shareholders, of each new director is approved by a vote of at least three-quarters (3/4) of the directors then still in office who were directors at the beginning of the period. 1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986, as amended (the "Code"). 1.6. Disability/Disabled. The term "Disability" or "Disabled" shall have the same meaning given such terms in any policy of disability insurance maintained by the Employer for the benefit of employees including the Executive. In the absence of such a policy which extends coverage to the Executive in the event of disability, the terms shall mean bodily injury or disease (mental or physical) which wholly and continuously prevents the performance of duty for at least three months. 1.7. Early Retirement Date. The term "Early Retirement Date" shall mean the Retirement, as defined below, of the Executive on a date which occurs prior to the Executive attaining sixty-two (62) years of age, but after the Executive has attained fifty-five (55) years of age. 1.8. Effective Date. The term "Effective Date" shall mean the date first written above. 1.9. ERISA. The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.10. Executive Benefits. The term "Executive Benefits" shall mean the benefits determined in accordance with Schedule "B", and reduced or adjusted to the extent: (i) 89 required under the other provisions of this Agreement, including, but not limited to, Paragraphs 5, 6 and 7 hereof; (ii) required by reason of the lawful order of any regulatory agency or body having jurisdiction over the Employer; or (iii) required in order for the Employer to properly comply with any and all applicable state and federal laws, including, but not limited to, income, employment and disability income tax laws (e.g., FICA, FUTA, SDI). 1.11. Plan Year. The term "Plan Year" shall mean the Employer's fiscal year. 1.12. Retirement. The term "Retirement" or "Retires" shall refer to the date which the Executive acknowledges in writing to Employer to be the last day the Executive will provide any significant personal services, whether as an employee or independent consultant or contractor, to Employer. For purposes of this Agreement, the phrase "significant personal services" shall mean more than ten (10) hours of personal services rendered to one or more individuals or entities in any thirty (30) day period. 1.13. Surviving Spouse. The term "Surviving Spouse" shall mean the person, if any, who shall be legally married to the Executive on the date of the Executive's death. 1.14. Termination for Cause. The term "Termination for Cause" shall mean termination of the employment of the Executive by reason of any of the following determined in good faith by the Employer's Board of Directors: (a) The willful, intentional and material breach or the habitual and continued neglect by the Executive of his or her employment responsibilities and duties; (b) The continuous mental or physical incapacity of the Executive, subject to disability rights under this Agreement; (c) The Executive's willful and intentional violation of any federal banking or securities laws, or of the Bylaws, rules, policies or resolutions of Employer, or the rules or regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over the Employer, which has a material adverse effect upon the Employer; (d) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Employer that 90 Executive is not suitable to act in the capacity for which he or she is employed by Employer; (e) The Executive's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Executive's willful and intentional commission of a fraudulent or dishonest act; or (f) The Executive's willful and intentional disclosure, without authority, of any secret or confidential information concerning Employer or taking any action which the Employer's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Employer. 2. Scope, Purpose and Effect. 2.1. Contract of Employment. Although this Agreement is intended to provide the Executive with an additional incentive to remain in the employ of the Employer, this Agreement shall not be deemed to constitute a contract of employment between the Executive and the Employer nor shall any provision of this Agreement restrict or expand the right of the Employer to terminate the Executive's employment. This Agreement shall have no impact or effect upon any separate written Employment Agreement which the Executive may have with the Employer, it being the parties' intention and agreement that unless this Agreement is specifically referenced in said Employment Agreement (or any modification thereto), this Agreement (and the Employer's obligations hereunder) shall stand separate and apart and shall have no effect on or be affected by, the terms and provisions of said Employment Agreement. 2.2. Fringe Benefit. The benefits provided by this Agreement are granted by the Employer as a fringe benefit to the Executive and are not a part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. The Executive has no option to take any current payments or bonus in lieu of the benefits provided by this Agreement. 3. Payments Upon Early Retirement or Retirement and After Retirement. 3.1. Payments Upon Early Retirement. The Executive shall have the right to Retire on a date which constitutes an Early Retirement Date as defined in subparagraph 1.7 above. In the event the Executive elects to Retire on a date which constitutes an Early Retirement Date, the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Early Retirement Date occurs or upon 91 such later date as may be mutually agreed upon by the Executive and the Employer in advance of said Early Retirement Date, payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". 3.2. Payments Upon Retirement. If the Executive remains in the employment of the Employer until attaining sixty-two (62) years of age, the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Executive Retires or upon such later date as may be mutually agreed upon by the Executive and the Employer in advance of said Retirement date, payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". At the Employer's sole and absolute discretion, the Employer may increase the Executive Benefits as and when the Employer determines the same to be appropriate. 3.3. Payments in the Event of Death After Retirement. The Employer agrees that if the Executive Retires, but shall die before receiving all of the Executive Benefits Payments specified in Schedule "B", the Employer agrees to pay the Applicable Percentage of the Executive Benefits to the Executive's designated beneficiary in lump sum. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate. 4. Payments in the Event Death or Disability Occurs Prior to Retirement. 4.1. Payments in the Event of Death Prior to Retirement. If the Executive dies at any time after the Effective Date of this Agreement, but prior to Retirement, the Employer agrees to pay the Applicable Percentage of the Executive Benefits to the Executive's designated beneficiary in lump sum. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate. 4.2. Payments in the Event of Disability Prior to Retirement. In the event the Executive becomes Disabled at any time after the Effective Date of this Agreement but prior to Retirement, the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, in substantially equal monthly installments on the first day of each month, 92 beginning with the month following the month in which the Executive becomes Disabled, payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". 5. Payments in the Event Employment Is Terminated Prior to Retirement. As indicated in subparagraph 2.1 above, the Employer reserves the right to terminate the Executive's employment, with or without cause but subject to any written employment agreement which may then exist, at any time prior to the Executive's Retirement. In the event that the employment of the Executive shall be terminated, other than by reason of death, Disability or Retirement, prior to the Executive's attaining sixty-two (62) years of age, then this Agreement shall terminate upon the date of such termination of employment; provided, however, that the Executive shall be entitled to the following benefits as may be applicable depending upon the circumstances surrounding the Executive's termination: 5.1. Termination Without Cause. If the Executive's employment is terminated by the Employer without cause, and such termination is not subject to the provisions of subparagraph 5.4 below, the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Executive attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Executive and delivered to the Employer or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Executive does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Executive attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". 5.2. Voluntary Termination by the Executive. If the Executive's employment is terminated by voluntary resignation and such resignation is not subject to the provisions of subparagraph 5.4 below, the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Executive attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Executive and delivered to the Employer or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Executive does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Executive attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". 93 5.3. Termination for Cause. The Executive agrees that if the Executive's employment with the Employer is terminated "for cause" (as defined in subparagraph 1.14 of this Agreement) and pursuant to subparagraph 1.14(c), (d) or (e), the Executive shall forfeit any and all rights and benefits the Executive may have under the terms of this Agreement and shall have no right to be paid any of the amounts which would otherwise be due or paid to the Executive by the Employer pursuant to the terms of this Agreement. In the event that the Executive's employment with the Employer is terminated "for cause" pursuant to subparagraph 1.14(a), (b) or (f), the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Executive attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Executive and delivered to the Employer or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Executive does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Executive attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". 5.4. Termination by the Employer on Account of or After a Change in Control. In the event: (i) the Executive's employment with the Employer is terminated by the Employer in conjunction with, or by reason of, a "Change in Control" (as defined in subparagraph 1.4 above); or (ii) by reason of the Employer's actions any adverse and material change occurs in the scope of the Executive's position, responsibilities, duties, salary, benefits, or location of employment (which in the event of relocation of more than thirty (30) miles from the location of the Executive's office prior to a Change in Control shall constitute such an adverse and material change) after a Change in Control occurs; or (iii) the Employer causes an event to occur which reasonably constitutes or results in a demotion, a significant diminution of responsibilities or authority, or a constructive termination (by forcing a resignation or otherwise) of the Executive's employment after a Change in Control occurs, then the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, as defined above, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Executive attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Executive and delivered to the Employer or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Executive does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Executive attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". In the absence of the occurrence of an 94 event described above in this subparagraph 5.4 (i), (ii) or (iii), the provisions of this Agreement shall remain in full force and effect, provided, however, that the Executive shall not be entitled to receive any payments or benefits under this Agreement in the event of the Executive's voluntary termination by resignation under subparagraph 5.2 of this Agreement within six (6) months following a Change in Control. 5.5. Payments in the Event of Death Following Termination. If the Executive dies prior to receiving all of the Executive Benefits described in this Paragraph 5 to which the Executive is entitled, then the Employer will make such payments to the Executive's designated beneficiary in lump sum. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate. 6. Section 280G Adjustment. The Executive acknowledges and agrees that the parties have entered into this Agreement based upon certain financial and tax accounting assumptions. Accordingly, with full knowledge of the potential consequences the Executive agrees that, notwithstanding anything contained herein to the contrary, in the event that any payment or benefit received or to be received by the Executive, whether payable pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Employer (together with the Executive Benefits, the "Total Payments"), will not be deductible (in whole or in part) as a result of Code Section 280G or other applicable provisions of the Code, the Total Payments shall be reduced until no portion of the Total Payments is nondeductible as a result of Section 280G or such other applicable provisions of the Code. For purposes of this limitation: (a) No portion of the Total Payments, the receipt or enjoyment of which the Executive shall have effectively waived in writing prior to the date of payment of any future Executive Benefits payments, shall be taken into account; (b) No portion of the Total Payments shall be taken into account, which in the opinion of the tax counsel selected by the Employer and acceptable to the Executive, does not constitute a "parachute payment" within the meaning of Section 280G of the Code; (c) Any reduction of the Total Payments shall be applied to reduce any payment or benefit received or to be received by the Executive pursuant to the terms of this Agreement and any other plan, arrangement or agreement with the Employer in the order determined by mutual agreement of the Employer and the Executive; (d) Future payments shall be reduced only to the extent necessary so that the Total Payments (other than those referred to in clauses (a) or (b) above in their 95 entirety) constitute reasonable compensation for services actually rendered within the meaning of Section 280G of the Code, in the opinion of tax counsel referred to in clause (b) above; and (e) The value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by independent auditors selected by the Employer and acceptable to the Executive in accordance with the principles of Section 280G of the Code. 7. Right To Determine Funding Methods. The Employer reserves the right to determine, in its sole and absolute discretion, whether, to what extent and by what method, if any, to provide for the payment of the amounts which may be payable to the Executive, the Executive's spouse or the Executive's beneficiaries under the terms of this Agreement. In the event that the Employer elects to fund this Agreement, in whole or in part, through the use of life insurance or annuities, or both, the Employer shall determine the ownership and beneficial interests of any such policy of life insurance or annuity. The Employer further reserves the right, in its sole and absolute discretion, to terminate any such policy, and any other device used to fund its obligations under this Agreement, at any time, in whole or in part. Consistent with Paragraph 9 below, neither the Executive, the Executive's spouse nor the Executive's beneficiaries shall have any right, title or interest in or to any funding source or amount utilized by the Employer pursuant to this Agreement, and any such funding source or amount shall not constitute security for the performance of the Employer's obligations pursuant to this Agreement. In connection with the foregoing, the Executive agrees to execute such documents and undergo such medical examinations or tests which the Employer may request and which may be reasonably necessary to facilitate any funding for this Agreement including, without limitation, the Employer's acquisition of any policy of insurance or annuity. Furthermore, a refusal by the Executive to consent to, participate in and undergo any such medical examinations or tests shall result in the immediate termination of this Agreement and the immediate forfeiture by the Executive, the Executive's spouse and the Executive's beneficiaries of any and all rights to payment hereunder. 8. Claims Procedure. The Employer shall, but only to the extent necessary to comply with ERISA, be designated as the named fiduciary under this Agreement and shall have authority to control and manage the operation and administration of this Agreement. Consistent therewith, the Employer shall make all determinations as to the rights to benefits under this Agreement. Any decision by the Employer denying a claim by the Executive, the Executive's spouse, or the Executive's beneficiary for benefits under this Agreement shall be stated in writing and delivered or mailed, via registered or certified mail, to the Executive, the Executive's spouse or the Executive's beneficiary, as the case may be. Such decision shall set forth the specific reasons for the denial of a claim. In addition, the Employer shall provide the Executive, the Executive's spouse or the Executive's beneficiary with a reasonable opportunity for a full and fair review of the decision denying such claim. 96 9. Status as an Unsecured General Creditor. Notwithstanding anything contained herein to the contrary: (i) neither the Executive, the Executive's spouse or the Executive's designated beneficiaries shall have any legal or equitable rights, interests or claims in or to any specific property or assets of the Employer as a result of this Agreement; (ii) none of the Employer's assets shall be held in or under any trust for the benefit of the Executive, the Executive's spouse or the Executive's designated beneficiaries or held in any way as security for the fulfillment of the obligations of the Employer under this Agreement; (iii) all of the Employer's assets shall be and remain the general unpledged and unrestricted assets of the Employer; (iv) the Employer's obligation under this Agreement shall be that of an unfunded and unsecured promise by the Employer to pay money in the future; and (v) the Executive, the Executive's spouse and the Executive's designated beneficiaries shall be unsecured general creditors with respect to any benefits which may be payable under the terms of this Agreement. Notwithstanding subparagraphs (i) through (v) above, the Employer and the Executive acknowledge and agree that, in the event of a Change in Control, upon request of the Executive, or in the Employer's discretion if the Executive does not so request and the Employer nonetheless deems it appropriate, the Employer shall establish, not later than the effective date of the Change in Control, a Rabbi Trust or multiple Rabbi Trusts (the "Trust" or "Trusts") upon such terms and conditions as the Employer, in its sole discretion, deems appropriate and in compliance with applicable provisions of the Code, in order to permit the Employer to make contributions and/or transfer assets to the Trust or Trusts to discharge its obligations pursuant to this Agreement. The principal of the Trust or Trusts and any earnings thereon shall be held separate and apart from other funds of the Employer to be used exclusively for discharge of the Employer's obligations pursuant to this Agreement and shall continue to be subject to the claims of the Employer's general creditors until paid to the Executive or its beneficiaries in such manner and at such times as specified in this Agreement. 10. Discretion of Board to Accelerate Payout. Notwithstanding any of the other provisions of this Agreement, the Board of Directors of the Employer may, if determined in its sole and absolute discretion to be appropriate, accelerate the payment of the amounts due under the terms of this Agreement, provided that Executive (or Executive's spouse or designated beneficiaries): (i) consents to the revised payout terms determined appropriate by the Employer's Board of Directors; and (ii) does not negotiate or in anyway influence the terms of proposed altered/accelerated payout (said decision to be made solely by the Employer's Board of Directors and offered to the Executive [or Executive's spouse or designated beneficiaries] on a "take it or leave it basis"). 11. Miscellaneous. 11.1. Opportunity To Consult With Independent Advisors. The Executive acknowledges that he has been afforded the opportunity to consult with independent 97 advisors of his choosing including, without limitation, accountants or tax advisors and counsel regarding both the benefits granted to him under the terms of this Agreement and the (i) terms and conditions which may affect the Executive's right to these benefits and (ii) personal tax effects of such benefits including, without limitation, the effects of any federal or state taxes, Section 280G of the Code, and any other taxes, costs, expenses or liabilities whatsoever related to such benefits, which in any of the foregoing instances the Executive acknowledges and agrees shall be the sole responsibility of the Executive notwithstanding any other term or provision of this Agreement. The Executive further acknowledges and agrees that the Employer shall have no liability whatsoever related to any such personal tax effects or other personal costs, expenses, or liabilities applicable to the Executive and further specifically waives any right for the Executive, himself, and his heirs, beneficiaries, legal representatives, agents, successors, and assigns to claim or assert liability on the part of the Employer related to the matters described above in this subparagraph 11.1. The Executive further acknowledges and agrees that he has read, understands and consents to all of the terms and conditions of this Agreement, and that he enters into this Agreement with a full understanding of its terms and conditions. 11.2. Arbitration of Disputes. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Employer in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), located in San Francisco, California. In the event JAMS is unable or unwilling to conduct the arbitration provided for under the terms of This Paragraph, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association ("AAA"), located in San Francisco, California, shall conduct the binding arbitration referred to in this Paragraph. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. The arbitration shall be subject to such rules of procedure used or established by JAMS, or if there are none, the rules of procedure used or established by AAA. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Saratoga, California, unless otherwise agreed to by the parties. 11.3. Attorneys' Fees. In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto, arising out of or relating to this 98 Agreement or the breach hereof, or the interpretation hereof, the prevailing party shall be entitled to recover from the non-prevailing party reasonable expenses, attorneys' fees and costs incurred in connection therewith or in the enforcement or collection of any judgment or award rendered therein. The "prevailing party" means the party determined by the arbitrator(s) or court, as the case may be, to have most nearly prevailed, even if such party did not prevail in all matters, not necessarily the one in whose favor a judgment is rendered. 11.4. Notice. Any notice required or permitted of either the Executive or the Employer under this Agreement shall be deemed to have been duly given, if by personal delivery, upon the date received by the party or its authorized representative; if by facsimile, upon transmission to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the party transmitting the facsimile and upon reasonable confirmation of such transmission; and if by mail, on the third day after mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party. If to the Employer: Saratoga National Bank 12000 Saratoga-Sunnyvale Rd. Saratoga, California 95070 Attn: Chairman of the Board If to the Executive: ______________________ ______________________ ______________________ 11.5. Assignment. Neither the Executive, the Executive's spouse, nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part or all of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such amounts be: (i) subject to seizure by any creditor of any such beneficiary, by a proceeding at law or in equity, for the payment of any debts, judgments, alimony or separate maintenance obligations which may be owed by the Executive, the Executive's spouse, or any designated beneficiary; or (ii) transferable by operation of law in the event of bankruptcy, insolvency or otherwise. Any such attempted assignment or transfer shall be void and unenforceable without the prior written consent of the Employer. The Employer's consent, if any, to one or more assignments or transfers shall not obligate the Employer to consent to or be construed as the Employer's consent to any other or subsequent assignment or transfer. 99 11.6. Binding Effect/Merger or Reorganization. This Agreement shall be binding upon and inure to the benefit of the Executive and the Employer and, as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns. Accordingly, the Employer shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person agrees to assume and discharge the obligations of the Employer under this Agreement. Upon the occurrence of such event, the term "Employer" as used in this Agreement shall be deemed to refer to such surviving or successor firm, person, entity or corporation. 11.7. Nonwaiver. The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this Agreement shall not be a waiver of such term(s) or condition(s) or of that party's right thereafter to enforce each and every term and condition of this Agreement. 11.8. Partial Invalidity. If any term, provision, covenant, or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity. 11.9. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the subject matter of this Agreement and contains all of the covenants and agreements between the parties with respect thereto. Each party to this Agreement acknowledges that no other 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 set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party. 11.10. Modifications. Any modification of this Agreement shall be effective only if it is in writing and signed by each party or such party's authorized representative. 11.11. Paragraph Headings. The paragraph headings used in this Agreement are included solely for the convenience of the parties and shall not affect or be used in connection with the interpretation of this Agreement. 11.12. No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person. 100 11.13. Governing Law. The laws of the State of California, other than those laws denominated choice of law rules, and, where applicable, the rules and regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over Employer, shall govern the validity, interpretation, construction and effect of this Agreement. IN WITNESS WHEREOF, the Employer and the Executive have executed this Agreement on the date first above-written in the City of Saratoga, Santa Clara County, California. THE EMPLOYER THE EXECUTIVE SARATOGA NATIONAL BANK By:____________________________ _____________________________ Richard L. Mount, __________________ President and Chief Executive Officer 101 SCHEDULE A CALENDAR YEAR APPLICABLE PERCENTAGE ___________, 1987 to December 31, 1998 . . . 50.00% December 31, 1999. . . . . . . . . . . . . . 60.00% December 31, 2000. . . . . . . . . . . . . . 70.00% December 31, 2001. . . . . . . . . . . . . . 80.00% December 31, 2002. . . . . . . . . . . . . . 90.00% December 31, 2003. . . . . . . . . . . . . . 100.00% 102 SCHEDULE B EXECUTIVE BENEFITS 1. Executive Benefits Determination. The Executive Benefits shall be determined based upon the following: a. Benefit Account: A Benefit Account shall be established as a liability reserve account on the books of the Employer for the benefit of the Executive. Prior to the date on which the Executive becomes eligible to receive payments under the Agreement, such Benefit Account shall be increased (or decreased) each Plan Year (including the Plan Year in which the Executive ceases to be employed by the Employer) by an amount equal to the annual earnings or loss for that Plan Year determined by the Index (described in subparagraph c below), less the Opportunity Cost (described in subparagraph d below) for that Plan Year. b. Index Benefit: After the date on which the Executive becomes eligible to receive payments under the Agreement, the Index Benefit for the Executive for any Plan Year shall be determined by subtracting the Opportunity Cost for that Plan Year from the earnings, if any, established by the Index. c. Index: The Index for any Plan Year shall be the aggregate annual after-tax income from the life insurance contracts described hereinafter as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such insurance contracts were purchased on the Effective Date. Insurance Company(ies)/Policy Number(s): _________________________ _________________________ If such contracts of life insurance are actually purchased by the Employer, then the actual policies as of the dates purchased shall be used in calculations to determine the Index and Opportunity Cost. If such contracts of life insurance are not purchased or are subsequently surrendered or lapsed, then the Employer shall 103 receive and use annual policy illustrations that assume the above described policies were purchased from the above named insurance company(ies) on the Effective Date to calculate the amount of the Index and Opportunity Cost. d. Opportunity Cost: The Opportunity Cost for any Plan Year shall be calculated by multiplying (a) the sum of (i) the total amount of premiums set forth in the insurance policies described above, (ii) the amount of any Index Benefits (described at subparagraph b above), and (iii) the amount of all previous years after-tax Opportunity Costs; by (b) the average annualized after-tax cost of funds calculated using a one-year U.S. Treasury Bill as published in the Wall Street Journal. The applicable tax rate used to calculate the Opportunity Cost shall be the Employer's marginal tax rate until the Executive's Retirement, or other termination of service (including a Change in Control). Thereafter, the Opportunity Cost shall be calculated with the assumption of a marginal forty-two percent (42%) corporate tax rate each year regardless of whether the actual marginal tax rate of the Employer is higher or lower. EXAMPLE INDEX BENEFITS [n] End of Cash Surrender Index Opportunity Annual Cumulative Year Value of Life [Annual Cost Benefit Benefit Insurance Policy Policy A0=premium B-C D+Dn-1 Income] A0+Cn-1x.05x An-An-1 (1-42%) 0 $1,000,000 -- -- -- -- 1 $1,050,000 $50,000 $29,000 $21,000 $21,000 2 $1,102,500 $52,500 $29,840 $22,650 $43,659 3 $1,157,620 $55,120 $30,700 $24,410 $68,078 . . . Assumptions: Initial Insurance = $1,000,000 Effective Tax Rate = 42% One Year US Treasury Yield = 5% 104 2. Executive Benefits Payments. The Executive shall be entitled to payment of the Applicable Percentage of (i) the balance in the Benefit Account in installments upon the terms as specified in the Agreement, and (ii) the Index Benefit for each Plan Year payable in installments until the Executive's death. 105 SCHEDULE C BENEFICIARY DESIGNATION To the Administrator of the Saratoga National Bank Executive Supplemental Compensation Agreement: Pursuant to the Provisions of my Executive Supplemental Compensation Agreement with Saratoga National Bank, permitting the designation of a beneficiary or beneficiaries by a participant, I hereby designate the following persons and entities as primary and secondary beneficiaries of any benefit under said Agreement payable by reason of my death: Primary Beneficiary: ______________________ ____________________ _____________________________ Name Address Relationship Secondary (Contingent) Beneficiary: ______________________ _____________________ ____________________________ Name Address Relationship THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED. ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES ARE HEREBY REVOKED. The Administrator shall pay all sums payable under the Agreement by reason of my death to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named beneficiary survives me, then the Administrator shall pay all amounts in accordance with the terms of my Executive Supplemental Compensation Agreement. In the event that a named beneficiary survives me and dies prior to receiving the entire benefit payable under said Agreement, then and in that event, the remaining 106 unpaid benefit payable according to the terms of my Executive Supplemental Compensation Agreement shall be payable to the personal representatives of the estate of said beneficiary who survived me but died prior to receiving the total benefit provided by my Executive Supplemental Compensation Agreement. Dated: _____________, 1998 ________________________ __________________ CONSENT OF THE EXECUTIVE'S SPOUSE TO THE ABOVE BENEFICIARY DESIGNATION: I, _____________, being the spouse of __________________, after being afforded the opportunity to consult with independent counsel of my choosing, do hereby acknowledge that I have read, agree and consent to the foregoing Beneficiary Designation which relates to the Executive Supplemental Compensation Agreement entered into by my spouse effective as of _________, 1998. I understand that the above Beneficiary Designation may affect certain rights which I may have in the benefits provided for under the terms of the Executive Supplemental Compensation Agreement and in which I may have a marital property interest. Dated: _____________, 1998 ___________________________ _________________ 107 SCHEDULE D DISTRIBUTION ELECTION Pursuant to the Provisions of my Executive Supplemental Compensation Agreement with Saratoga National Bank, I hereby elect to have any distribution of the balance in my Benefit Account paid to me in installments as designated below: thirty-six (36) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. sixty (60) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. one hundred twenty (120) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. one hundred eighty (180) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with he final installment to be the entire remaining balance in the Benefit Account. Dated: _______________, 1998 Signed: _____________________________ __________________ EX-10 8 108 LIFE INSURANCE ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT Insurer/Policy Number: ______________________ ______________________ Bank: Saratoga National Bank Insured: __________________ Relationship of Insured to Bank: ____________________ Date: _____________, 1998 The respective rights and duties of the Bank and the Insured in the above policy(ies) (individually and collectively referred to as the "Policy") shall be as follows: I. DEFINITIONS Refer to the Policy provisions for the definition of all terms in this Agreement. II. POLICY TITLE AND OWNERSHIP Title and ownership shall reside in the Bank for its use and for the use of the Insured all in accordance with this Agreement. The Bank alone may, to the extent of its interest, exercise the right to borrow or withdraw the Policy cash values. Where the Bank and the Insured (or beneficiary[ies] or assignee[s], with the consent of the Insured) mutually agree to exercise the right to increase the coverage under the subject split dollar Policy, then, in such event, the rights, duties and benefits of the parties to such increased coverage shall continue to be subject to the terms of this Agreement. III. BENEFICIARY DESIGNATION RIGHTS The Insured (or beneficiary[ies] or assignee[s]) shall have the right and power to designate a beneficiary or beneficiaries to receive his or her share of the proceeds payable upon the death of the Insured, and to elect and change a payment option for such beneficiary, subject to any right or interest the Bank may have in such proceeds, as provided in this Agreement. IV. PREMIUM PAYMENT METHOD 109 The Bank shall pay an amount equal to the planned premiums and any other premium payments that might become necessary to maintain the Policy in force. V. TAXABLE BENEFIT Annually the Insured will receive a taxable benefit equal to the assumed cost of insurance as required by the Internal Revenue Service. The Bank (or its administrator) will report to the Insured the amount of imputed income received each year on Form W-2 or its equivalent. VI. DIVISION OF DEATH PROCEEDS Subject to Paragraph VII herein, the division of the death proceeds of the Policy is as follows: 1. The Insured's beneficiary(ies), designated in accordance with Paragraph III, shall be entitled to an amount equal to eighty percent (80%) of the net at risk insurance portion of the proceeds. The net at risk insurance portion is the total proceeds less the cash value of the Policy. 2. The Bank shall be entitled to the remainder of such proceeds. 3. The Bank and the Insured (or beneficiary[ies] or assignee[s]) shall share in any interest due on the death proceeds on a pro rata basis in the ratio that the proceeds due the Bank and the Insured, respectively, bears to the total proceeds, excluding any such interest. VII. DIVISION OF CASH SURRENDER VALUE The Bank shall at all times be entitled to an amount equal to the Policy's cash value, as that term is defined in the Policy, less any Policy loans and unpaid interest or cash withdrawals previously incurred by the Bank and any applicable Policy surrender charges. Such cash value shall be determined as of the date of surrender of the Policy or death of the Insured as the case may be. VIII. PREMIUM WAIVER If the Policy contains a premium waiver provision, any such waived amounts shall be considered for all purposes of this Agreement as having been paid by the Bank. IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS In the event the Policy involves an endowment or annuity element, the Bank's right and interest in any endowment proceeds or annuity benefits shall be determined under the 110 provisions of this Agreement by regarding such endowment proceeds or the commuted value of such annuity benefits as the Policy's cash value. Such endowment proceeds or annuity benefits shall be treated like death proceeds for the purposes of division under this Agreement. X. TERMINATION OF AGREEMENT This Agreement shall terminate at the option of the Bank following thirty (30) days written notice to the Insured upon the happening of any one of the following: 1. The Insured's right to receive benefits pursuant to the terms and conditions of that certain Executive Supplemental Compensation Agreement effective as of ___________, 1998, shall terminate for any reason other than the Insured's death; or 2. The Insured shall be discharged from service with the Bank as a result of a termination for cause under subparagraph (c), (d) or (e) below. Notwithstanding the foregoing, this Agreement shall remain in effect in the event that the Insured is terminated pursuant to subparagraph (a), (b) or (f) below. The term "termination for cause" shall mean termination of the employment of the Insured by reason of any of the following determined in good faith by the Bank's Board of Directors: (a) The willful, intentional and material breach or the habitual and continued neglect by the Insured of his or her employment responsibilities and duties; (b) The continuous mental or physical incapacity of the Insured, subject to disability rights under this Agreement; (c) The Insured's willful and intentional violation of any federal banking or securities laws, or of the Bylaws, rules, policies or resolutions of Bank, or the rules or regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over the Bank, which has a material adverse effect upon the Bank; (d) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Bank that the Insured is not suitable to act in the capacity for which he or she is employed by the Bank; 111 (e) The Insured's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Insured's willful and intentional commission of a fraudulent or dishonest act; or (f) The Insured's willful and intentional disclosure, without authority, of any secret or confidential information concerning the Bank or taking any action which the Bank's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Bank. Upon such termination, the Insured (or beneficiary[ies] or assignee[s]) shall have a ninety (90) day option to receive from the Bank an absolute assignment of the Policy in consideration of a cash payment to the Bank, whereupon this Agreement shall terminate. Such cash payment shall be the greater of: 1. The Bank's share of the cash value of the Policy on the date of such assignment, as defined in this Agreement. 2. The amount of the premiums which have been paid by the Bank prior to the date of such assignment. Should the Insured (or beneficiary[ies] or assignee[s]) fail to exercise this option within the prescribed ninety (90) day period, the Insured (or beneficiary[ies] or assignee[s]) agrees that all of his or her rights, interest and claims in the Policy shall terminate as of the date of the termination of this Agreement. Except as provided above, this Agreement shall terminate upon distribution of the death benefit proceeds in accordance with Paragraph VI above. XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS The Insured may not, without the prior written consent of the Bank, which shall not be unreasonably withheld, assign to any individual, trust or other organization, any right, title or interest in the Policy nor any rights, options, privileges or duties created under this Agreement. XII. AGREEMENT BINDING UPON THE PARTIES This Agreement shall be binding upon the Insured and the Bank, and their respective heirs, successors, personal representatives and assigns, as applicable. XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR 112 The Bank is hereby designated the "Named Fiduciary" until resignation or removal by its Board of Directors. As Named Fiduciary, the Bank shall be responsible for the management, control, and administration of this Agreement as established herein. The Named Fiduciary may allocate to others certain aspects of the management and operations responsibilities of this Agreement, including the employment of advisors and the delegation of any ministerial duties to qualified individuals. XIV. FUNDING POLICY The funding policy for this Agreement shall be to maintain the Policy in force by paying, when due, all premiums required. XV. CLAIM PROCEDURES Claim forms or claim information as to the subject Policy can be obtained by contacting The Benefit Marketing Group, Inc. (770-952-1529). When the Named Fiduciary has a claim which may be covered under the provisions described in the Policy, it should contact the office named above, and they will either complete a claim form and forward it to an authorized representative of the Insurer or advise the named Fiduciary what further requirements are necessary. The Insurer will evaluate and make a decision as to payment. If the claim is payable, a benefit check will be issued to the Named Fiduciary. In the event that a claim is not eligible under the Policy, the Insurer will notify the Named Fiduciary of the denial pursuant to the requirements under the terms of the Policy. If the Named Fiduciary is dissatisfied with the denial of the claim and wishes to contest such claim denial, it should contact the office named above and they will assist in making inquiry to the Insurer. All objections to the Insurer's actions should be in writing and submitted to the office named above for transmittal to the Insurer. XVI. GENDER Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT The Insurer shall not be deemed a party to this Agreement, but will respect the rights of the parties as set forth herein upon receiving an executed copy of this Agreement. Payment or other performance in accordance with the Policy provisions shall fully discharge the Insurer from any and all liability. 113 IN WITNESS WHEREOF, the Insured and a duly authorized Bank officer or director have signed this Agreement at Saratoga, California as of the date first above written. SARATOGA NATIONAL BANK INSURED __________________________ ________________________________ Richard L. Mount _____________________ President and Chief Executive Officer 114 BENEFICIARY DESIGNATION FORM Primary Designation: Name Relationship _____________________________ _______________________________________ _____________________________ _______________________________________ _____________________________ _______________________________________ Contingent Designation: _____________________________ _______________________________________ _____________________________ _______________________________________ _____________________________ _______________________________________ _____________________________ _____________, 1998 ___________________ EX-10 9 156 SARATOGA NATIONAL BANK ESP EXECUTIVE BENEFITS AGREEMENT THIS EXECUTIVE BENEFITS AGREEMENT is entered into on June 18, 1999 by and between Saratoga National Bank ("Employer") and Richard L. Mount ("Executive") for the purposes set forth hereinafter. RECITALS WHEREAS, the Executive has been an employee of the Employer since April 15, 1982, and is currently serving as its President and Chief Executive Officer; WHEREAS, the Employer and the Executive desire to establish a benefit arrangement for the Executive to be funded through insurance premium contributions by the Executive and certain supplemental insurance premium contributions by the Employer; WHEREAS, it is deemed to be in the best interests of the Employer to provide the Executive with such supplemental insurance premium contributions in order to eliminate certain unresolved benefit deficiencies in connection with that certain Executive Supplemental Compensation Agreement between the Employer and the Executive, dated September 24, 1998, on the terms and conditions set forth herein; and WHEREAS, the Executive and the Employer wish to specify in writing the terms and conditions upon which this additional benefit will be provided to the Executive, or to the Executive's spouse or other designated beneficiary, as the case may be. NOW, THEREFORE, in consideration of the services to be performed by the Executive in the future, as well as the mutual promises and covenants contained herein, the Executive and the Employer agree as follows: 157 AGREEMENT ARTICLE I DEFINITIONS AND TERMS 1.1 Administrator. The Benefits Marketing Group, Inc. shall be the "Administrator" and, solely for the purposes of ERISA as defined in subparagraph 1.10 below, the "fiduciary" of this Agreement where a fiduciary is required by ERISA. 1.2 Anniversary Date. The term "Anniversary Date" shall mean the first day of each Policy Year. 1.3 Beneficiary. The term "Beneficiary" shall mean the person(s) or entity(ies) whom the Executive shall designate in a valid Beneficiary Designation, a copy of which is attached hereto as Schedule "A," to receive the benefits provided hereunder. A Beneficiary Designation shall be valid only if it is in the form attached hereto and made a part hereof, completed and signed by the Executive and received by the Administrator prior to the Executive's death. 1.4 Change in Control. The term "Change in Control" shall mean the occurrence of any of the following events with respect to the Employer (with the term "Employer" being defined for purposes of determining whether a "Change in Control" has occurred to include any parent bank holding company owning 100% of the Employer's outstanding common stock): (i) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or in response to any other form or report to the regulatory agencies or governmental authorities having jurisdiction over the Employer or any stock exchange on which the Employer's shares are listed which requires the reporting of a change in control; (ii) any merger, consolidation or reorganization of the Employer in which the Employer does not survive; (iii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction 158 or a series of transactions) of any assets of the Employer having an aggregate fair market value of fifty percent (50%) of the total value of the assets of the Employer, reflected in the most recent balance sheet of the Employer; (iv) a transaction whereby any "person" (as such term is used in the Exchange Act) or any individual, corporation, partnership, trust or any other entity becomes the beneficial owner, directly or indirectly, of securities of the Employer representing twenty-five percent (25%) or more of the combined voting power of the Employer's then outstanding securities; or (v) a situation where, in any one-year period, individuals who at the beginning of such period constitute the Board of Directors of the Employer cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Employer's shareholders, of each new director is approved by a vote of at least three-quarters (3/4) of the directors then still in office who were directors at the beginning of the period. 1.5 Code. The "Code" shall mean the Internal Revenue Code of 1986, as amended (the "Code"). 1.6 Committee. The Compensation Committee of the Board of Directors of Employer. 1.7 Compensation. Compensation, with respect to any Executive, means the portion of total compensation paid by the Employer, including base salary, any Employer-paid bonuses, and excluding any non-taxable fringe benefits provided by the Employer. 1.8 Disability. The term "Disability" shall have the same meaning given such term in any policy of disability insurance maintained by the Employer for the benefit of employees including the Executive. In the absence of such a policy which extends coverage to the Executive in the event of disability, the term shall mean bodily injury or disease (mental or physical) which wholly and continuously prevents the performance of duty for at least three months. 1.9 Effective Date. June 18, 1999. 159 1.10 ERISA. The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.11 Insurance Company. The Company(s) listed in Schedule "B". 1.12 Plan Year. The initial Plan Year shall be the period commencing on June 18, 1999 and ending on December 31, 1999. Thereafter, the Plan Year shall be the same as the Policy Year. 1.13 Policy. The Policy purchased from the Insurance Company pursuant to the terms of this Agreement and listed in Schedule "B". 1.14 Policy Year. The calendar year. 1.15 Retirement Date. The date of termination of the Executive's employment with the Employer for any reason, including Disability, voluntary or involuntary termination. 1.16 Surviving Spouse. The term "Surviving Spouse" shall mean the person, if any, who shall be legally married to the Executive on the date of the Executive's death. ARTICLE II SCOPE, PURPOSE AND EFFECT 2.1 Contract of Employment. Although this Agreement is intended to provide the Executive with an additional incentive to remain in the employ of the Employer, this Agreement shall not be deemed to constitute a contract of employment between the Executive and the Employer nor shall any provision of this Agreement restrict or expand the right of the Employer to terminate the Executive's employment. This Agreement shall have no impact or effect upon any separate written Employment Agreement which the Executive may have with the Employer, it being the parties' intention and agreement that unless this Agreement is specifically referenced in said Employment Agreement (or any modification thereto), this Agreement (and the Employer's obligations hereunder) shall stand separate and apart and shall have no effect on or be affected by, 160 the terms and provisions of said Employment Agreement. 2.2 Fringe Benefit. The benefits provided by this Agreement are granted by the Employer as a fringe benefit to the Executive and are not a part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. The Executive has no option to take any current payments or bonus in lieu of the benefits provided by this Agreement. ARTICLE III POLICY APPLICATION AND DATA 3.1 Application. The Employer and the Executive shall apply to the Insurance Company for the Policy at the earliest practicable date. When the Policy is issued, it shall be subject to the terms of this Agreement. 3.2 Policy Data. The Insurance Company, Policy number, initial amount of death benefit, and such other Policy data as may be necessary or advisable to properly identify the Policy and benefits thereunder shall be recorded on Schedule "B" attached hereto. ARTICLE IV PREMIUM/BONUS PAYMENTS 4.1 Executive Premiums. The Executive shall make five (5) annual premium payments ("Executive's Premiums") each in an amount equal to $42,079 individually and $210,395 in the aggregate. 4.2 Employer Premiums. The Employer shall make five (5) annual premium payments ("Employer's Premiums") each in an amount equal to $28,058 individually and $140,290 in the aggregate. 4.3 Premium Payment Date. The Executive's Premiums and the Employer's Premiums shall be paid to the Insurance Company concurrently on such date during the first five (5) Plan 161 Years as may be required by the Insurance Company to comply with the terms of this Agreement. 4.4 Bonus Payments/Taxes. The Employer shall make five (5) annual bonus compensation payments to the Executive in the amount of $70,137 individually and $350,685 in the aggregate (the "Bonus Payments"). The Bonus Payments shall be paid not later than thirty (30) days prior to the date that Employer Premiums and Executive Premiums are required to be paid to the Insurance Company during the first five (5) Plan Years pursuant to this Agreement. The Executive shall be responsible for the payment of all taxes attributable to his receipt of such bonus compensation payments from the Employer. ARTICLE V OWNERSHIP AND ALLOCATION OF INSURANCE 5.1 Insurance Ownership. The ownership of the Policy cash surrender value and death benefit shall be as follows: (a) Cash Surrender Value. The Employer shall own that portion of the total cash surrender value of the Policy equal to the total amount of the Employer's Premiums and the Executive shall own the remaining balance of the cash surrender value. (b) Death Benefit. The Employer shall own that portion of the death benefit pursuant to the Policy equal to the total of the Employer's Premiums, plus interest on each of the Employer's Premiums accruing at the rate of six (6%) percent per annum from the date of each premium payment until the date of death, compounded annually. The remaining balance of the death benefit shall be owned by the Executive's Beneficiary. 5.2 Limited Rights. Neither the Employer or the Executive shall have or exercise any right in and to the portion of the Policy cash surrender value or death benefit which is owned by or is payable to the other party, including the right to borrow against or from the other party's 162 portion of the cash surrender value of the Policy, the right to collect the proceeds of the other party's portion of the death benefits of the Policy, or take any actions which would reduce the other party's interest in the Policy. 5.3 Policy Possession. The Employer shall maintain possession of the Policy. The Employer shall make the Policy available to the Insurance Company to the extent necessary for the purpose of endorsements or filing any change of Beneficiary in accordance with the provisions of this Agreement. The Policy shall be returned promptly to the Employer after any such action shall have been accomplished. ARTICLE VI POLICY BENEFIT PAYMENTS 6.1 Policy Withdrawals/Loans. Upon written notice to the Administrator from the Executive on or after the Executive's Retirement Date, the Executive shall be entitled to begin receiving Policy benefit payments through withdrawals and/or loans of the Policy cash surrender value to the extent of the Executive's ownership interest therein as set forth in subparagraph 5.1 (a). Such benefit payments shall be received by the Executive in annual installments beginning on the Anniversary Date coincident with or next following the Retirement Date, based on a schedule that may be changed from time to time, at the discretion of the Executive. The calculation of the installments will be based on the crediting rate of the Policy as of the Retirement Date. Should the crediting rate of the Insurance Company fluctuate during the period of distribution, the amount of the remaining installments shall be recalculated on an annual basis as of each Anniversary Date. Upon the death of the Executive, the Beneficiary shall receive any remaining amount pursuant to the death benefit payment option which is elected as set forth in subparagraph 7.3. 6.2 Benefit Payment Determination. Prior to the receipt by the Executive of any 163 benefit payments under the Policy, the amounts available for withdrawals and/or loans of the Policy cash surrender value shall be determined by the Administrator and the Insurance Company and promptly communicated to the Executive not later than thirty (30) days following receipt of notice from the Executive to the Administrator of intention to commence benefit payments. The Executive shall complete all necessary forms prescribed by the Insurance Company in order to begin receiving such benefit payments. 6.3 Third Party Loans. In any Plan Year, the Employer shall have the right to obtain loans from unrelated persons or entities, including loans from the Insurance Company or other creditors, and to secure the repayment obligation arising therefrom, including all interest charges related to any such loans, by the assignment of its portion of the Policy cash surrender value and/or death benefit. The amount of such loans, together with the interest accrued thereon, shall at no time exceed the portion of the Policy cash surrender value which the Employer owns as described in subparagraph 5.1 (a). ARTICLE VII DEATH BENEFITS 7.1 Cooperation/Prompt Action. Upon the Executive's death, the Employer, Administrator and Beneficiary shall cooperate and promptly take all reasonable action to cause the Insurance Company to pay the Policy death benefits in accordance with this Agreement. 7.2 Spousal Consent. The Beneficiary shall be the Executive's Surviving Spouse unless the Surviving Spouse consents to the designation of another Beneficiary by signing the consent at Schedule "A" or in the event that there is no such Surviving Spouse. The identity of the Beneficiary shall also be designated in the Policy in conformity with Schedule "A". 7.3 Beneficiary Payment Option. Notwithstanding any other provision of this Agreement, upon the Executive's death, the Beneficiary shall have the right to receive the benefit 164 payment to which the Beneficiary is entitled in a single lump sum, or the Beneficiary may elect to receive such benefit payment in accordance with the death benefit payment option(s) which are available under the Policy. ARTICLE VIII INSURANCE COMPANY LIABILITY 8.1 Non-Binding Effect. The Insurance Company shall be bound only by the provisions of any endorsements on the Policy, and any payments made or action taken by it in accordance therewith shall fully discharge it from all claims, suits and demands of all persons whatsoever. Except as specifically provided by endorsement on the Policy, no provisions of this Agreement shall be binding upon the Insurance Company. ARTICLE IX CLAIMS/UNSECURED CREDITOR STATUS 9.1 Claims Procedure. The Employer shall, but only to the extent necessary to comply with ERISA, be designated as the Administrator and named fiduciary under this Agreement and shall have authority to control and manage the operation and administration of this Agreement, until such time, if any, as a successor Administrator shall be named. The Administrator shall make all determinations as to the rights to benefits under this Agreement. Any decision by the Administrator denying a claim by the Executive, the Executive's Surviving Spouse, or the Beneficiary, for benefits under this Agreement shall be stated in writing and delivered or mailed, via registered or certified mail, to the Executive, the Executive's Surviving Spouse or the Beneficiary, as the case may be. Such decision shall set forth the specific reasons for the denial of a claim. In addition, the Administrator shall provide the Executive, the Executive's Surviving 165 Spouse or the Executive's Beneficiary with a reasonable opportunity for a full and fair review of the decision denying such claim. 9.2 Status as an Unsecured General Creditor. Notwithstanding anything contained herein to the contrary: (i) neither the Executive, the Executive's Surviving Spouse or the Executive's Beneficiary shall have any legal or equitable rights, interests or claims in or to any specific property or assets of the Employer as a result of this Agreement; (ii) none of the Employer's assets shall be held in or under any trust for the benefit of the Executive, the Executive's Surviving Spouse or the Executive's Beneficiary or held in any way as security for the fulfillment of the obligations of the Employer under this Agreement; (iii) all of the Employer's assets shall be and remain the general unpledged and unrestricted assets of the Employer; (iv) the Employer's obligation under this Agreement shall be that of an unfunded and unsecured promise by the Employer to pay the Employer Premiums and to permit the payment of the Executive's Premiums from the distributions of bonus compensation paid by the Employer to the Executive and (v) the Executive, the Executive's Surviving Spouse and the Executive's Beneficiary shall be unsecured general creditors with respect to any unpaid Employer Premiums and Executive Premiums which may be payable under the terms of this Agreement. Notwithstanding subparagraphs 9.2 (i) through (v) above, the Employer and the Executive acknowledge and agree that, in the event of a Change in Control, upon request of the Executive, or in the Employer's discretion if the Executive does not so request and the Employer nonetheless deems it appropriate, the Employer shall establish, not later than the effective date of the Change in Control, a Rabbi Trust or multiple Rabbi Trusts (the "Trust" or "Trusts") upon such terms and conditions as the Employer, in its sole discretion, deems appropriate and in compliance with applicable provisions of the Code, in order to permit the Employer to make contributions and/or transfer assets to the Trust or Trusts to discharge its obligations pursuant to this 166 Agreement. The principal of the Trust or Trusts and any earnings thereon shall be held separate and apart from other funds of the Employer to be used exclusively for discharge of the Employer's obligations pursuant to this Agreement and shall continue to be subject to the claims of the Employer's general creditors until paid to the Executive or the Executive's Surviving Spouse, or Beneficiary in such manner and at such times as specified in this Agreement. ARTICLE X TERMINATION OF AGREEMENT 10.1 This Agreement may be terminated prior to the Executive's death by mutual agreement of the Executive and the Employer. 10.2 In the event of termination in accordance with subparagraph 10.1 above, the date of termination of this Agreement shall be the last day of the month coincident with or next following the date of mutual agreement to terminate. The requirement of annual premium payments by the Executive and the Employer shall cease after the termination date and ownership of the Policy by the Employer and the Executive shall be recognized by the Insurance Company as described in subparagraph 5.1. ARTICLE XI MISCELLANEOUS 11.1 Miscellaneous. (a) Administrator Payment. If the Administrator shall find that any person to whom any amount is payable under this Agreement is unable to care for his affairs because of illness or accident, or is a minor, any payment due (unless a prior claim therefor shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Administrator to have incurred expense for such person otherwise entitled to payment, in such manner and 167 proportions as the Administrator may determine consistent with the provisions of this Agreement. (b) Opportunity To Consult With Independent Advisors. The Executive acknowledges that he has been afforded the opportunity to consult with independent advisors of his choosing including, without limitation, accountants or tax advisors and counsel regarding the (i) benefits granted to him under the provisions of this Agreement, (ii) terms and conditions which may affect the Executive's right to these benefits, and (iii) personal tax effects of such benefits including, without limitation, the effects of any federal or state taxes, Section 280G of the Code, and any other taxes, costs, expenses or liabilities whatsoever related to such benefits, which in any of the foregoing instances the Executive acknowledges and agrees shall be the sole responsibility of the Executive notwithstanding any other provision of this Agreement. The Executive further acknowledges and agrees that the Employer shall have no liability whatsoever related to any such personal tax effects or other personal costs, expenses, or liabilities applicable to the Executive and further specifically waives any right for the Executive, his Surviving Spouse or Beneficiary, and any other of his heirs, beneficiaries, legal representatives, agents, successors, and assigns, to claim or assert liability on the part of the Employer related to the matters described above in this subparagraph 11.1 (b). The Executive further acknowledges and agrees that he has read, understands and consents to all of the terms and conditions of this Agreement, and that he enters into this Agreement with a full understanding of its terms and conditions. (c) Arbitration of Disputes. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Employer or the Administrator in their respective sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), located in San Francisco, California. In the event JAMS is 168 unable or unwilling to conduct the arbitration provided for under the terms of this subparagraph 11.1 (c), or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association ("AAA"), located in San Francisco, California, shall conduct the binding arbitration referred to in this subparagraph 11.1 (c). Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. The arbitration shall be subject to such rules of procedure used or established by JAMS, or if there are none, the rules of procedure used or established by AAA. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this subparagraph 11.1 (c) shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Saratoga, California, unless otherwise agreed to by the parties. (d) Attorneys' Fees. In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto, arising out of or relating to this Agreement or the breach hereof, or the interpretation hereof, the prevailing party shall be entitled to recover from the non-prevailing party reasonable expenses, attorneys' fees and costs incurred in connection therewith or in the enforcement or collection of any judgment or award rendered therein. The "prevailing party" means the party determined by the arbitrator(s) or court, as the case may be, to have most nearly prevailed, even if such party did not prevail in all matters, not necessarily the one in whose favor a judgment is rendered. 169 (e) Notice. Any notice required or permitted of either the Executive or the Employer under this Agreement shall be deemed to have been duly given, if by personal delivery, upon the date received by the party or its authorized representative; if by facsimile, upon transmission to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the party transmitting the facsimile and upon reasonable confirmation of such transmission; and if by mail, on the third day after mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party. If to the Employer: Saratoga National Bank 12000 Saratoga-Sunnyvale Rd. Saratoga, California 95070 Attn: Chairman of the Board If to the Executive: Richard L. Mount 20564 Verde Court Saratoga, CA 95070 (f) Assignment. Neither the Executive, the Executive's spouse, nor any other Beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part or all of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such amounts be: (i) subject to seizure by any creditor of any such Beneficiary, by a proceeding at law 170 or in equity, for the payment of any debts, judgments, alimony or separate maintenance obligations which may be owed by the Executive, the Executive's spouse, or any such Beneficiary; or (ii) transferable by operation of law in the event of bankruptcy, insolvency or otherwise. Any such attempted assignment or transfer shall be void and unenforceable without the prior written consent of the Employer. The Employer's consent, if any, to one or more assignments or transfers shall not obligate the Employer to consent to or be construed as the Employer's consent to any other or subsequent assignment or transfer. (g) Binding Effect/Merger or Reorganization. This Agreement shall be binding upon and inure to the benefit of the Executive and the Employer and, as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns. Accordingly, the Employer shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person agrees to assume and discharge the obligations of the Employer under this Agreement. Upon the occurrence of such event, the term "Employer" as used in this Agreement shall be deemed to refer to such surviving or successor firm, person, entity or corporation. (h) Nonwaiver. The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this Agreement shall not be a waiver of such term(s) or condition(s) or of that party's right thereafter to enforce each and every term and condition of this Agreement. (i) Partial Invalidity. If any term, provision, covenant, or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect 171 notwithstanding such partial invalidity. (j) Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the subject matter of this Agreement and contains all of the covenants and agreements between the parties with respect thereto. Each party to this Agreement acknowledges that no other 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 set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party. (k) Modifications. Any modification of this Agreement shall be effective only if it is in writing and signed by each party or such party's authorized representative. (l) Paragraph Headings/Construction. The article, paragraph and subparagraph headings used in this Agreement are included solely for the convenience of the parties and shall not affect or be used in connection with the interpretation of this Agreement. Masculine terminology and use of the singular shall be construed to include the feminine and the plural, respectively, and vice versa, to the extent the context may otherwise require. (m) No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person. (n) Governing Law. The laws of the State of California, other than those laws denominated choice of law rules, and, where applicable, the rules and regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over Employer, shall govern the validity, interpretation, construction and effect of this Agreement. 172 IN WITNESS WHEREOF, the Employer and the Executive have executed this Agreement on the date first above-written in the City of Saratoga, Santa Clara County, California. THE EMPLOYER THE EXECUTIVE SARATOGA NATIONAL BANK By:______________________________ _____________________________ V. Ronald Mancuso Richard L. Mount Compensation Committee Chairman 173 SCHEDULE A BENEFICIARY DESIGNATION To the Administrator of the Saratoga National Bank Executive Benefits Agreement: Pursuant to the Provisions of my Executive Benefits Agreement with Saratoga National Bank, permitting my designation of a beneficiary or beneficiaries, I hereby designate the following person(s) and entit(y)ies as primary and secondary beneficiaries of any Benefits under said Agreement payable by reason of my death: Primary Beneficiary: ______________________ ____________________ _____________________________ Name Address Relationship Secondary (Contingent) Beneficiary: ______________________ _____________________ ____________________________ Name Address Relationship THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED. ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES ARE HEREBY REVOKED. The Administrator shall pay all sums payable under the Agreement by reason of my death to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named beneficiary survives me, then the Administrator shall pay all amounts in accordance with the terms of my Executive Benefits Agreement. In the event that a named beneficiary survives me and dies prior to receiving the entire Benefits payable under said Agreement, then and in that event, the remaining unpaid 174 Benefits payable according to the terms of my Executive Benefits Agreement shall be payable to the personal representatives of the estate of said beneficiary who survived me but died prior to receiving the total Benefits provided by my Executive Benefits Agreement. Dated: June 18, 1999 __________________________ Richard L. Mount CONSENT OF THE EXECUTIVE'S SPOUSE TO THE ABOVE BENEFICIARY DESIGNATION: I, Patricia A. Mount, being the spouse of Richard L. Mount, after being afforded the opportunity to consult with independent counsel of my choosing, do hereby acknowledge that I have read, agree and consent to the foregoing Beneficiary Designation which relates to the Executive Benefits Agreement entered into by my spouse effective as of June 18, 1999. I understand that the above Beneficiary Designation may affect certain rights which I may have in the benefits provided for under the terms of the Executive Benefits Agreement and in which I may have a marital property interest. Dated: June 18, 1999 ______________________________ Patricia A. Mount 175 SCHEDULE B Insurance Company: Jefferson Pilot Financial Life Insurance Company Policy No.: ________________________ Initial Death Benefit: $_________________________ Policy Data:________________________________________________________________ _____________________________________________________________________ _____________________________________________________________________ ________________ EX-10 10 136 LIFE INSURANCE ENDORSEMENT METHOD SPLIT DOLLAR PLAN AGREEMENT Insurer/Policy Number: Canada Life Assurance/US2651090 Southland Life Insurance/0600080553 Transamerica Life/50335062 Bank: Saratoga National Bank Insured: Richard L. Mount Relationship of Insured to Bank: President and Chief Executive Officer Date: _____________, 1998 The respective rights and duties of the Bank and the Insured in the above policy(ies) (individually and collectively referred to as the "Policy") shall be as follows: I. DEFINITIONS Refer to the Policy provisions for the definition of all terms in this Agreement. II. POLICY TITLE AND OWNERSHIP Title and ownership shall reside in the Bank for its use and for the use of the Insured all in accordance with this Agreement. The Bank alone may, to the extent of its interest, exercise the right to borrow or withdraw the Policy cash values. Where the Bank and the Insured (or beneficiary[ies] or assignee[s], with the consent of the Insured) mutually agree to exercise the right to increase the coverage under the subject split dollar Policy, then, in such event, the rights, duties and benefits of the parties to such increased coverage continue to be subject to the terms of this Agreement. III. BENEFICIARY DESIGNATION RIGHTS The Insured (or beneficiary[ies] or assignee[s]) shall have the right and power to designate a beneficiary or beneficiaries to receive his or her share of the proceeds payable upon the death of the Insured, and to elect and change a payment option for such beneficiary, subject to any right or interest the Bank may have in such proceeds, as provided in this Agreement. 137 IV. PREMIUM PAYMENT METHOD The Bank shall pay an amount equal to the planned premiums and any other premium payments that might become necessary to maintain the Policy in force. V. TAXABLE BENEFIT Annually the Insured will receive a taxable benefit equal to the assumed cost of insurance as required by the Internal Revenue Service. The Bank (or its administrator) will report to the Insured the amount of imputed income received each year on Form W-2 or its equivalent. VI. DIVISION OF DEATH PROCEEDS Subject to Paragraph VII herein, the division of the death proceeds of the Policy is as follows: 1. The Insured's beneficiary(ies), designated in accordance with Paragraph III, shall be entitled to an amount equal to eighty percent (80%) of the net at risk insurance portion of the proceeds. The net at risk insurance portion is the total proceeds less the cash value of the Policy. 2. The Bank shall be entitled to the remainder of such proceeds. 3. The Bank and the Insured (or beneficiary[ies] or assignee[s]) shall share in any interest due on the death proceeds on a pro rata basis in the ratio that the proceeds due the Bank and the Insured, respectively, bears to the total proceeds, excluding any such interest. VII. DIVISION OF CASH SURRENDER VALUE The Bank shall at all times be entitled to an amount equal to the Policy's cash value, as that term is defined in the Policy, less any Policy loans and unpaid interest or cash withdrawals previously incurred by the Bank and any applicable Policy surrender charges. Such cash value shall be determined as of the date of surrender of the Policy or death of the Insured as the case may be. VIII. PREMIUM WAIVER If the Policy contains a premium waiver provision, any such waived amounts shall be considered for all purposes of this Agreement as having been paid by the Bank. IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS 138 In the event the Policy involves an endowment or annuity element, the Bank's right and interest in any endowment proceeds or annuity benefits shall be determined under the provisions of this Agreement by regarding such endowment proceeds or the commuted value of such annuity benefits as the Policy's cash value. Such endowment proceeds or annuity benefits shall be treated like death proceeds for the purposes of division under this Agreement. X. TERMINATION OF AGREEMENT This Agreement shall terminate at the option of the Bank following thirty (30) days written notice to the Insured upon the happening of any one of the following: 1. The Insured's right to receive benefits pursuant to the terms and conditions of that certain Executive Supplemental Compensation Agreement effective as of ___________, 1998, shall terminate for any reason other than the Insured's death; or 2. The Insured shall be discharged from service with the Bank as a result of a termination for cause under subparagraph (c), (d) or (e) below. Notwithstanding the foregoing, this Agreement shall remain in effect in the event that the Insured is terminated pursuant to subparagraph a), (b) or (f) below. The term "termination for cause" shall mean termination of the employment of the Insured by reason of any of the following determined in good faith by the Bank's Board of Directors: (a) The willful, intentional and material breach or the habitual and continued neglect by the Insured of his or her employment responsibilities and duties; (b) The continuous mental or physical incapacity of the Insured, subject to disability rights under this Agreement; (c) The Insured's willful and intentional violation of any federal banking or securities laws, or of the Bylaws, rules, policies or resolutions of Bank, or the rules or regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over the Bank, which has a material adverse effect upon the Bank; (d) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Bank that the Insured is not suitable to act in the capacity for which he or she is employed by the Bank; 139 (e) The Insured's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Insured's willful and intentional commission of a fraudulent or dishonest act; or (f) The Insured's willful and intentional disclosure, without authority, of any secret or confidential information concerning the Bank or taking any action which the Bank's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Bank. Upon such termination, the Insured (or beneficiary[ies] or assignee[s]) shall have a ninety (90) day option to receive from the Bank an absolute assignment of the Policy in consideration of a cash payment to the Bank, whereupon this Agreement shall terminate. Such cash payment shall be the greater of: 1. The Bank's share of the cash value of the Policy on the date of such assignment, as defined in this Agreement. 2. The amount of the premiums which have been paid by the Bank prior to the date of such assignment. Should the Insured (or beneficiary[ies] or assignee[s]) fail to exercise this option within the prescribed ninety (90) day period, the Insured (or beneficiary[ies] or assignee[s]) agrees that all of his or her rights, interest and claims in the Policy shall terminate as of the date of the termination of this Agreement. Except as provided above, this Agreement shall terminate upon distribution of the death benefit proceeds in accordance with Paragraph VI above. XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS The Insured may not, without the prior written consent of the Bank, which shall not be unreasonably withheld, assign to any individual, trust or other organization, any right, title or interest in the Policy nor any rights, options, privileges or duties created under this Agreement. XII. AGREEMENT BINDING UPON THE PARTIES This Agreement shall be binding upon the Insured and the Bank, and their respective heirs, successors, personal representatives and assigns, as applicable. XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR 140 The Bank is hereby designated the "Named Fiduciary" until resignation or removal by its Board of Directors. As Named Fiduciary, the Bank shall be responsible for the management, control, and administration of this Agreement as established herein. The Named Fiduciary may allocate to others certain aspects of the management and operations responsibilities of this Agreement, including the employment of advisors and the delegation of any ministerial duties to qualified individuals. XIV. FUNDING POLICY The funding policy for this Agreement shall be to maintain the Policy in force by paying, when due, all premiums required. XV. CLAIM PROCEDURES Claim forms or claim information as to the subject Policy can be obtained by contacting The Benefit Marketing Group, Inc. (770-952-1529). When the Named Fiduciary has a claim which may be covered under the provisions described in the Policy, it should contact the office named above, and they will either complete a claim form and forward it to an authorized representative of the Insurer or advise the named Fiduciary what further requirements are necessary. The Insurer will evaluate and make a decision as to payment. If the claim is payable, a benefit check will be issued to the Named Fiduciary. In the event that a claim is not eligible under the Policy, the Insurer will notify the Named Fiduciary of the denial pursuant to the requirements under the terms of the Policy. If the Named Fiduciary is dissatisfied with the denial of the claim and wishes to contest such claim denial, it should contact the office named above and they will assist in making inquiry to the Insurer. All objections to the Insurer's actions should be in writing and submitted to the office named above for transmittal to the Insurer. XVI. GENDER Whenever in this Agreement words are used in the masculine or neuter gender, they shall be read and construed as in the masculine, feminine or neuter gender, whenever they should so apply. XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT The Insurer shall not be deemed a party to this Agreement, but will respect the rights of the parties as set forth herein upon receiving an executed copy of this Agreement. Payment or other performance in accordance with the Policy provisions shall fully discharge the Insurer from any and all liability. 141 IN WITNESS WHEREOF, the Insured and a duly authorized Bank officer or director have signed this Agreement at Saratoga, California as of the date first above written. SARATOGA NATIONAL BANK INSURED __________________________ ________________________________ William D. Kron Richard L. Mount Chairman of the Board of Directors 142 BENEFICIARY DESIGNATION FORM Primary Designation: Name Relationship ____________________________ _______________________________________ _____________________________ _______________________________________ _____________________________ _______________________________________ Contingent Designation: _____________________________ _______________________________________ _____________________________ _______________________________________ _____________________________ _______________________________________ _____________________________ _____________, 1998 Richard L. Mount EX-10 11 143 EMPLOYMENT AGREEMENT THIS AGREEMENT is made and entered into on May 20, 1999 by and between SARATOGA NATIONAL BANK, a national banking association ("Employer"), and Richard L. Mount ("Employee") and is effective as of January 1, 1999. RECITALS WHEREAS, Employer and Employee desire to enter into an agreement for the purposes of engaging the services of Employee by reason of his experience, training and ability in the commercial banking industry; WHEREAS, Employer is the wholly-owned subsidiary of Saratoga Bancorp, a California corporation, for which Employee provides services without direct compensation and currently holds positions as the Chairman of the Board of Directors, President and Chief Executive Officer; and WHEREAS, unless expressly stated or the context otherwise requires, any reference in this Agreement to "Employer" shall include Saratoga Bancorp. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the Employer and Employee agree as follows: AGREEMENT 1. Termination of Existing Agreements/Term of Employment. Employer and Employee acknowledge and agree that this Agreement shall supercede and replace (i) the existing employment agreement between Employer and Employee dated August 30, 1995, effective January 1, 1995, and as amended February 22, 1996, (ii) the Management Continuity Agreement dated July 9, 1990 and (iii) the deferred benefit entitlement under the Chief Executive Officer Incentive Compensation Plan dated August 30, 1995 and effective as of January 1, 1995, which are each hereby terminated effective with the date of this Agreement. Pursuant to this Agreement, Employer employs Employee and Employee hereby accepts employment with Employer, upon the terms and conditions hereinafter set forth, for a period of three (3) years from the effective date hereof. Upon the occurrence of the third annual anniversary of the effective date of this Agreement, and on each anniversary date thereafter, the term of this Agreement shall be deemed automatically extended for an additional one (1) year term, subject to the termination provisions of paragraph 16. 2. Duties and Obligations of Employee. Employee shall serve as the President and Chief Executive Officer of Employer and shall perform the customary duties of such office in the commercial banking industry as may from time to time be reasonably requested of him by the Board of Directors of Employer in addition to the following: 144 (a) Voting as a member of the Board of Directors of Employer and such committees thereof as the Board of Directors of Employer shall designate; (b) Providing leadership in planning and implementing the conduct of business and the affairs of the Employer; (c) Participating in community affairs which are beneficial to the Employer; (d) Maintaining a good relationship with Employer's Board of Directors, management officers and shareholders; (e) Maintaining a good relationship with regulatory agencies and governmental authorities having jurisdiction over Employer; and (f) Hiring and firing of all employees other than executive officers of the Employer, subject at all times to the policies and directives set by the Employer's Board of Directors. 3. Devotion to Employer's Business. (a) Employee shall devote his full business time, ability, and attention to the business of Employer during the term of this Agreement and shall not during the term of this Agreement, without the prior written consent of Employer's Board of Directors, engage in any other business activities, duties, or pursuits whatsoever, or directly or indirectly render any services of a business, commercial, or professional nature to any other person or organization, whether for compensation or otherwise, which are in conflict with Employer's business. However, the expenditure of reasonable amounts of time for educational, charitable, or professional activities shall not be deemed a breach of this Agreement if those activities do not materially interfere with the services required of Employee under this Agreement. Nothing in this Agreement shall be interpreted to prohibit Employee from making passive personal investments. However, Employee shall not directly or indirectly acquire, hold, or retain any material interest in any business competing with or similar in nature to the business of Employer. (b) Employee agrees to conduct himself at all times with due regard to public conventions and morals. Employee further agrees not to do or commit any act that will reasonably tend to shock or offend the community, or to prejudice Employer or the banking industry in general. (c) Employee hereby represents and agrees that the services to be performed 145 under the terms of this Agreement are of a special, unique, unusual, extraordinary, and intellectual character that gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law. Employee therefore expressly agrees that Employer, in addition to any other rights or remedies that Employer may possess, shall be entitled to injunctive and other equitable relief to prevent or remedy a breach of this Agreement by Employee. 4. Noncompetition by Employee. Employee shall not, during the term of this Agreement, directly or indirectly, either as an employee, employer, consultant, agent, principal, stockholder, officer, director, or in any other individual or representative capacity, engage or participate in any competitive banking or financial services business. 5. Indemnification. (a) Employee shall indemnify and hold Employer harmless from all liability for loss, damage, or injury to persons or property resulting from the gross negligence or intentional misconduct of the Employee. (b) To the extent permitted by law, Employer shall indemnify Employee if he was or is a party or is threatened to be made a party in any action brought by a third party against Employee (whether or not Employer is joined as a party defendant) against expenses, judgments, fines, settlements and other amounts actually and reasonably incurred in connection with said action if Employee acted in good faith and in a manner Employee reasonably believed to be in the best interest of Employer (and with respect to a criminal proceeding if Employee had no reasonable cause to believe his conduct was unlawful), provided that the alleged conduct of Employee arose out of and was within the course and scope of his employment as an officer or employee of Employer. Any conflict or inconsistency between this indemnification provision and the terms of any Indemnification Agreement between Employer and Employee shall be resolved in favor of the terms of such Indemnification Agreement. 6. Disclosure of Information. Employee shall not, either before or after termination of this Agreement, without the prior written consent of Employer's Board of Directors or except as required by law to comply with legal process including, without limitation, by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process, disclose to anyone any financial information, trade or business secrets, customer lists, computer software or other information not otherwise publicly available concerning the business or operations of Employer. Employee further recognizes and acknowledges that any financial information concerning any customers of Employer, as it may exist from time to time, is strictly confidential and is a valuable, special and unique asset of Employer's business. Employee shall not, either before or after 146 termination of this Agreement, without such consent or except as required by law, disclose to anyone said financial information or any part thereof, for any reason or purpose whatsoever. In the event Employee is required by law to disclose such information described in this paragraph 6, Employee will provide Employer and its respective counsel with immediate notice of such request so that they may consider seeking a protective order. If in the absence of a protective order or the receipt of a waiver hereunder, Employee is nonetheless, in the written opinion of knowledgeable counsel, compelled to disclose any of such information to any tribunal or any other party or else stand liable for contempt or suffer other material censure or material penalty, then Employee may disclose (on an 'as needed" basis only) such information to such tribunal or other party without liability hereunder. This paragraph 6 shall survive the expiration or termination of this Agreement. 7. Written, Printed or Electronic Material. All written, printed or electronic material, notebooks and records, including, without limitation, computer disks used by Employee in performing duties for Employer, other than Employee's personal notes and diaries, are and shall remain the sole property of Employer. Upon termination of employment, Employee shall promptly return all such material (including all copies, extracts and summaries thereof) to Employer. This paragraph 7 shall survive expiration or termination of this Agreement. 8. Surety Bond. Employee agrees that he will furnish all information and take any other steps necessary from time to time to enable Employer to obtain or maintain a fidelity bond conditional on the rendering of a true account by Employee of all monies, goods, or other property which may come into the custody, charge, or possession of Employee during the term of his employment. The surety company issuing the bond and the amount of the bond must be acceptable to Employer. All premiums on the bond shall be paid by Employer. Employer shall have no obligation to pay severance benefits to Employee in accordance with paragraph 16 (d) of this Agreement in the event that the Employee's employment is terminated in connection with the Employee's failure to qualify for a surety bond at any time during the term of this Agreement and such failure to qualify results from an occurrence described in paragraph 16(a) (5), (7), (8), (9), (10) or (11, to the extent of an Employee breach). 9. Base Salary. In consideration for the services to be performed hereunder, Employee shall receive a salary at the rate of One Hundred Forty Thousand Dollars ($140,000.00) per annum, payable in installments during the term of this Agreement of approximately Five Thousand Eight Hundred Thirty-Three Dollars and Thirty-Three Cents ($5,833.33) on the fifteenth and last day of each month, subject to applicable adjustments for withholding taxes and prorations for any partial employment period. Employee shall receive such annual adjustments in salary, if any, as may be determined by Employer's Board of Directors, in its sole discretion, resulting from the Board of Directors annual review of Employee's compensation each year during the term of this Agreement. 147 10. Salary Continuation During Disability. If Employee for any reason (except as expressly provided below) becomes temporarily or permanently disabled so that he is unable to perform the duties under this Agreement, Employer agrees to pay Employee the base salary otherwise payable to Employee pursuant to paragraph 9 of this Agreement, reduced by the amounts received by Employee from state disability insurance, or worker's compensation or other similar insurance benefits through policies provided by Employer, for a period of six (6) months from the date of disability. For purposes of this paragraph 10, "disability" shall be defined as provided in Employer's disability insurance program. Notwithstanding anything herein to the contrary, Employer shall have no obligation to make payments for a disability resulting from the deliberate, intentional actions of Employee, such as, but not limited to, attempted suicide or chemical dependence of Employee. 11. Incentive Compensation. Employee currently participates in the Chief Executive Officer Incentive Compensation Plan effective as of January 1, 1995 (the "Incentive Plan"). Under the Incentive Plan, Employee is entitled to receive annual cash bonus payments and certain deferred bonus payments in the future. Employee has agreed to waive his entitlement to the deferred bonus payments in consideration for benefits provided under this Agreement, but remains entitled to receive the annual cash bonus payments pursuant to the Incentive Plan. In addition, Employee shall be entitled to receive any other bonus or incentive compensation that the Board of Directors, in its sole discretion, determines to be appropriate following review of Employee's performance and Employer's results of operations each year during the term of this Agreement. Under no circumstance shall a right to receive bonus or incentive compensation other than pursuant to the Incentive Plan, exist in favor of or accrue to or for the benefit of Employee prior to actual receipt. 12. Stock Options. Employer has previously granted stock options to Employee. Employer may, but is not obligated to, grant additional stock options to Employee in the future which grants, if any, shall be within the sole discretion of the Board of Directors of Employer and subject to the terms and provisions of Employer's stock option plan pursuant to which such grants are effected. Any such grants shall be evidenced by a stock option agreement entered into between Employer and Employee pursuant to such stock option plan and a copy of each such stock option agreement shall be attached to this Agreement as an exhibit. Notwithstanding any provision of any such stock option plan or any such stock option agreement to the contrary, no rights of employment shall be conferred upon Employee or result from any such stock option plan or any stock option agreement entered into between Employer and Employee. Any employment rights and corresponding duties of Employee pursuant to his employment by Employer shall be limited to and interpreted solely in accordance with the terms and provisions of this Agreement. 13. Other Benefits. Employee shall be entitled to those employee benefits adopted by Employer for all employees of Employer, subject to applicable qualification requirements 148 and regulatory approval requirements, if any. Employee shall be further entitled to the following additional benefits which shall supplement or replace, to the extent duplicative of any part or all of the general employee benefits, the benefits otherwise provided to Employee: (a) Vacation. Employee shall be entitled to five (5) weeks annual vacation leave at his then existing rate of full salary each year during the term of this Agreement. Employee may be absent from his employment for vacation as long as such leave is reasonable and does not jeopardize his responsibilities and duties specified in this Agreement. The length of vacation should not exceed two (2) weeks without the approval of Employer's Executive Committee of the Board of Directors. Vacation time will accrue in accordance with Employer's personnel policies. (b) Automobile and Insurance. Employer shall (i) provide to Employee an automobile for his business and personal use, suitable to his position; (ii) reimburse Employee for costs to maintain it in good condition and repair; (iii) maintain public liability insurance and property damage insurance policies with insurer(s) acceptable to Employer and Employe with such coverages in such amounts as may be acceptable to Employer and Employee from time to time; and (iv) cause Employee to be named as an additional insured on such policies. (c) Personal Insurance. Employer shall provide during the term of this Agreement at Employer's sole cost, a policy or policies of term life insurance in the amount of Five Hundred Thousand Dollars ($500,000) and group life, health (including medical, dental and hospitalization), accident and disability insurance coverage for Employee and his dependents through a policy or policies provided by insurer(s) selected by Employer in its sole discretion. (d) Supplemental Compensation. Employer and Employee have entered into an agreement which provides supplemental compensation benefits to Employee payable upon retirement or as otherwise set forth in such agreement. 14. Annual Physical Examination. Employer shall pay or reimburse Employee for the cost of an annual physical examination conducted by a California licensed physician selected by Employee and reasonably acceptable to Employer. 15. Business Expenses. Employee shall be reimbursed for all ordinary and necessary expenses incurred by Employee in connection with his employment. Employee shall also be reimbursed for reasonable expenses incurred in activities associated with promoting the business of Employer, including expenses for entertainment, travel, conventions, educational programs, club memberships and similar items. Employer will pay for or will reimburse Employee for such expenses upon presentation by Employee from time to time of receipts or other appropriate evidence of such expenditures. 16. Termination of Agreement. 149 (a) Automatic Termination. This Agreement shall terminate automatically without further act of the parties and immediately upon the occurrence of any one of the following events, subject to either party's right, without any obligation whatsoever, to waive an event reasonably susceptible of waiver, and the obligation of Employer to pay the amounts which would otherwise be payable to Employee under this Agreement through the end of the month in which the event occurs, except that only in the event of termination based upon subparagraphs (1), (4) or (11, to the extent of Employer's breach) below shall Employee be entitled to receive severance payments based upon automatic termination pursuant to paragraph 16 (d) of this Agreement: (1) The occurrence of circumstances that make it impossible or impractical for Employer to conduct or continue its business. (2) The death of Employee. (3) The loss by Employee of legal capacity. (4) The loss by Employer of legal capacity to contract. (5) The willful, intentional and material breach or the habitual and continued neglect by the Employee of his employment responsibilities and duties; (6) The continuous mental or physical incapacity of the Employee, subject to disability rights under this Agreement; (7) The Employee's willful and intentional violation of any federal banking or securities laws, or of the Bylaws, rules, policies or resolutions of Employer, or the rules or regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over the Employer, which has a material adverse effect upon the Employer; (8) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Employer that Employee is not suitable to act in the capacity for which he is employed by Employer; (9) The Employee's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Employee's willful and intentional commission of a fraudulent or dishonest act; or 150 (10) The Employee's willful and intentional disclosure, without authority, of any secret or confidential information concerning Employer or taking any action which the Employer's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Employer. (11) Either party breaches the terms or provisions of this Agreement. (b) Termination by Employer. Employer may, at its election and in its sole discretion, terminate this Agreement for any reason, or for no reason, by giving not less than thirty (30) days' prior written notice of termination to Employee, without prejudice to any other remedy to which Employer may be entitled either at law, in equity or under this Agreement. Upon such termination, Employee shall be entitled to receive any employment benefits which shall have accrued prior to such termination and the severance pay specified in paragraph 16 (d) below. (c) Termination by Employee. This Agreement may be terminated by Employee for any reason, or no reason, by giving not less than thirty (30) days' prior written notice of termination to Employer. Upon such termination, all rights and obligations accruing to Employee under this Agreement shall cease, except that such termination shall not prejudice Employee's rights regarding employment benefits which shall have accrued prior to such termination and any other remedy which Employee may have at law, in equity or under this Agreement, which remedy accrued prior to such termination. (d) Severance Pay - Termination by Employer. In the event of termination by Employer pursuant to paragraph 16 (b) or automatic termination based upon paragraph 16 (a) (1), (4) or (11, to the extent of Employer's breach) of this Agreement, Employee shall be entitled to receive severance pay equal to one-half (1/2) Employee's aggregate annual compensation during the year the termination occurs (including salary and any bonus, director's fees, deferred compensation, incentive or other payments due Employee), payable in twenty-four (24) substantially equal installments on the fifteenth and last day of each month following such termination. Notwithstanding the foregoing, in the event of a "change in control" as defined in subparagraph (e) below, Employee shall not be entitled to severance pay pursuant to this subparagraph (d) and any rights of Employee to severance pay shall be limited to such rights as are specified in subparagraph (e) below. Employee acknowledges and agrees that severance pay pursuant to this subparagraph (d) is in lieu of all damages, payments and liabilities on account of the early termination of this Agreement and the sole and exclusive remedy for Employee terminated at the will of Employer pursuant to paragraph 16 (b) or pursuant to certain provisions of paragraph 16 (a) described herein. (e) Severance Pay - Change in Control. In the event of a "change in 151 control" as defined herein and within a period of one and one-half (1and 1/2) years following consummation of such a change in control (i) Employee's employment is terminated; or (ii) without Employee's consent there occurs (A) any adverse change in the nature and scope of Employee's position, responsibilities, duties, salary, benefits or location of employment, or (B) any event which reasonably constitutes a demotion, significant diminution or constructive termination (by resignation or otherwise) of Employee's employment, then Employee shall be entitled to receive severance pay in addition to any salary, bonus or incentive compensation payments due Employee. Any such severance pay due Employee shall be in an amount equal to one and one-half (1 and 1/2) times Employee's average annual compensation for the five (5) years immediately preceding the change in control. Employee's average annual compensation shall be the average of the aggregate compensation paid by Employer to Employee (including salary and any bonus, director's fees, amounts deferred during the year at the election of the Employee, incentive and other payments paid to Employee) for each of the five (5) tax years ending immediately prior to the change in control divided by the number five (5). If the Employee was employed by Employer for fewer than five (5) years immediately preceding the change in control, Employee's average annual compensation shall be determined by the same procedure described above, provided that in lieu of using five (5) years in such calculation, the number equal to the years that Employee was employed by Employer immediately prior to the change in control shall be used. In addition to the "change in control" severance payment rights of Employee described in this paragraph (e), and notwithstanding any other provisions of this Agreement, Employee shall be entitled to receive the severance payments specified in this paragraph (e) in the event that Employee voluntarily terminates his employment with Employer or its successor effective as of a date within the period of twelve (12) months immediately following a change in control, provided that Employee has given written notice to Employer, delivered within the period of six (6) months immediately following a change in control, of his intention to terminate employment, which notice shall specify the effective date of termination. If all or any portion of the amounts payable to the Employee under this Agreement, either alone or together with other payments which the Employee has the right to receive from the Employer, constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), that are subject to the excise tax imposed by Section 4999 of the Code (or similar tax and/or assessment), the Employee shall be responsible for the payment of such excise tax and the Employer (and its successor) shall be responsible for any loss of deductibility related thereto. If, at a later date, it is determined (pursuant to final regulations or published rulings of the Internal Revenue Service, final judgment of a court of competent jurisdiction, or otherwise) that the amount of excise taxes payable by the Employee is greater than the amount initially so determined, then the Employee shall pay an amount equal to the sum of such additional excise taxes and any interest, fines and penalties resulting from such underpayment. The determination of the amount of any such excise taxes shall be made by the independent accounting firm employed by the Employer immediately prior to the change in control, subject to the mutual agreement of the Employer and Employee. 152 Any such severance shall be payable in thirty-six (36) substantially equal installments on the fifteenth and last day of each month following such termination. Such severance payment, if any, shall be in lieu of all damages, payments and liabilities on account of the events described above for which such severance payment, if any, may be due Employee and any severance payment rights of Employee under paragraph 16 (d) of this Agreement. This subparagraph (e) shall be binding upon and inure to the benefit of the parties and any successors or assigns of Employer or any "person" as defined herein. Notwithstanding the foregoing, Employee shall not be entitled to receive nor shall Employer, its successors, assigns or any "person" as defined herein be obligated to pay severance payments pursuant to this subparagraph (e) in the event of an occurrence described in paragraph 16 (a), subparagraphs (5), (7), (8), (9), (10) or (11, to the extent of an Employee breach), or in the event Employee terminates employment in accordance with paragraph 16 (c) and the termination is not a result of or based upon the occurrence of any event described in paragraph 16 (e)(ii) above or a voluntary termination within the thirty (30) day period immediately after the expiration of the sixth (6th) month following a change in control as described above. A "change in control" of Employer for purposes of this Agreement and subparagraph (e) shall mean the occurrence of any of the following events with respect to Employer (with the term "Employer" being defined for such a change in control to include any parent bank holding company): (i) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or in response to any other form or report to the regulatory agencies or governmental authorities having jurisdiction over the Employer or any stock exchange on which the Employer's shares are listed which requires the reporting of a change in control; (ii) any merger, consolidation or reorganization of the Employer in which the Employer does not survive; (iii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) of any assets of the Employer having an aggregate fair market value of fifty percent (50%) of the total value of the assets of the Employer, reflected in the most recent balance sheet of the Employer; (iv) a transaction whereby any "person" (as such term is used in the Exchange Act) or any individual, corporation, partnership, trust or any other entity is or becomes the beneficial owner, directly or indirectly, of securities of the Employer representing twenty-five percent (25%) or more of the combined voting power of the Employer's then outstanding securities; or (v) a situation where, in any one-year period, individuals who at the beginning of such period constitute the Board of Directors of the Employer cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Employer's shareholders, of each new director is approved by a vote of at least three-quarters (3/4) of the directors then still in office who were directors at the beginning of the period. 17. Notices. Any notices to be given hereunder by either party to the other shall be in writing and may be transmitted by personal delivery or by U.S. mail, registered or certified, 153 postage prepaid with return receipt requested. Mailed notices shall be addressed to the parties at the addresses listed as follows: Employer: Principal place of business Employee: Principal place of business as shown in Employer's Personnel Records and Employee's personal file. Each party may change the address for receipt of notices by written notice in accordance with this paragraph 17. Notices delivered personally shall be deemed communicated as of the date of actual receipt; mailed notices shall be deemed communicated as of three (3) days after the date of mailing. 18. Arbitration. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Employer in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), presently located in San Francisco, California, in accordance with the rules and procedures of JAMS then in effect. In the event JAMS is unable or unwilling to conduct such arbitration, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association ("AAA"), presently located in San Francisco, California, shall conduct such binding arbitration in accordance with the rules and procedures of the AAA then in effect. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Saratoga, California, unless otherwise agreed to by the parties. 154 19. Attorneys' Fees and Costs. In the event of litigation, arbitration or any other action or proceeding between the parties to interpret or enforce this Agreement or any part thereof or otherwise arising out of or relating to this Agreement, the prevailing party shall be entitled to recover its costs related to any such action or proceeding and its reasonable fees of attorneys, accountants and expert witnesses incurred by such party in connection with any such action or proceeding. The prevailing party shall be deemed to be the party which obtains substantially the relief sought by final resolution, compromise or settlement, or as may otherwise be determined by order of a court of competent jurisdiction in the event of litigation, an award or decision of one or more arbitrators in the event of arbitration, or a decision of a comparable official in the event of any other action or proceeding. Every obligation to indemnify under this Agreement includes the obligation to pay reasonable fees of attorneys, accountants and expert witnesses incurred by the indemnified party in connection with matters subject to indemnification. 20. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the employment of Employee by Employer and contains all of the covenants and agreements between the parties with respect to the employment of Employee by Employer. Each party to this Agreement acknowledges that no other 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 set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party. 21. Modifications. Any modification of this Agreement will be effective only if it is in writing and signed by a party or its authorized representative. 22. Waiver. The failure of either party to insist on strict compliance with any of the terms, provisions, covenants, or conditions of this Agreement by the other party shall not be deemed a waiver of any term, provision, covenant, or condition, individually or in the aggregate, unless such waiver is in writing, nor shall any waiver or relinquishment of any right or power at any one time or times be deemed a waiver or relinquishment of that right or power for all or any other times. 23. Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void, or unenforceable, the remaining provisions shall nevertheless continue in full force and effect without being impaired or invalidated in any way. 24. Interpretation. This Agreement shall be construed without regard to the party responsible for the preparation of the Agreement and shall be deemed to have been prepared jointly by the parties. Any ambiguity or uncertainty existing in this Agreement shall not be interpreted against either party, but according to the application of other rules of contract interpretation, if an ambiguity or uncertainty exists. 155 25. Governing Law and Venue. The laws of the State of California, other than those laws denominated choice of law rules, shall govern the validity, construction and effect of this Agreement. Any action which in any way involves the rights, duties and obligations of the parties hereunder shall be brought in the courts of the State of California and venue for any action or proceeding shall be in Santa Clara County or in the United States District Court for the Northern District of California, and the parties hereby submit to the personal jurisdiction of said courts. 26. Payments Due Deceased Employee. If Employee dies prior to the expiration of the term of his employment, any payments that may be due Employee from Employer under this Agreement as of the date of death shall be paid to Employee's executors, administrators, heirs, personal representatives, successors, or assigns. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written in the City of Saratoga, County of Santa Clara, State of California. EMPLOYER: EMPLOYEE: SARATOGA NATIONAL BANK By:______________________________ __________________________ V. Ronald Mancuso Richard L.Mount Compensation Committee Chairman SARATOGA BANCORP By:______________________________ V. Ronald Mancuso Compensation Committee Chairman EX-10 12 115 EXECUTIVE SUPPLEMENTAL COMPENSATION AGREEMENT This Agreement is made and entered into effective as of _______________, 1998 by and between Saratoga National Bank, a national banking association chartered under the federal laws of the United States of America with its principal offices located in the City of Saratoga, Santa Clara County, California (the "Employer"), and Richard L. Mount, an individual residing in the State of California (the "Executive"). R E C I T A L S WHEREAS, the Executive has been an employee of the Employer since _____________, 1982, and is currently serving as its President and Chief Executive Officer; WHEREAS, the Employer desires to establish a compensation benefit program as a fringe benefit for executive officers of the Employer in order to attract and retain individuals with extensive and valuable experience in the banking industry; WHEREAS, the Executive's experience and knowledge of the affairs of the Employer and the banking industry are extensive and valuable; WHEREAS, it is deemed to be in the best interests of the Employer to provide the Executive with certain fringe benefits, on the terms and conditions set forth herein, in order to reasonably induce the Executive to remain in the Employer's employment and to compensate the Employee for valuable services heretofore rendered to the Employer; and WHEREAS, the Executive and the Employer wish to specify in writing the terms and conditions upon which this additional compensatory incentive will be provided to the Executive, or to the Executive's spouse or the Executive's designated beneficiaries, as the case may be. NOW, THEREFORE, in consideration of the services to be performed by the Executive in the future, as well as the mutual promises and covenants contained herein, the Executive and the Employer agree as follows: A G R E E M E N T 1. Terms and Definitions. 1.1. Administrator. The Employer shall be the "Administrator" and, solely for the purposes of ERISA as defined in subparagraph 1.9 below, the "fiduciary" of this Agreement where a fiduciary is required by ERISA. 116 1.2. Applicable Percentage. The term "Applicable Percentage" shall mean that percentage listed on Schedule "A" attached hereto which is adjacent to the number of calendar years which shall have elapsed from the date of the Executive's commencement of service to the Employer. Notwithstanding the foregoing or the percentages set forth on Schedule "A," but subject to all other terms and conditions set forth herein, the "Applicable Percentage" shall be: (i) provided payments have not yet begun hereunder, one hundred percent (100%) upon the occurrence of a "Change in Control" as defined in subparagraph 1.4 below, or the Executive's death, or Disability (as defined in subparagraph 1.6 below), which death or Disability occurs prior to the termination of the Executive's employment by the Employer; and (ii) notwithstanding subclause (i) of this subparagraph 1.2, zero percent (0%) in the event the Executive takes any intentional action which prevents the Employer from collecting the proceeds of any life insurance policy which the Employer may happen to own at the time of the Executive's death and of which the Employer is the designated beneficiary. Furthermore, notwithstanding the foregoing, or anything contained in this Agreement to the contrary, in the event the Executive takes any intentional action which prevents the Employer from collecting the proceeds of any life insurance policy which the Employer may happen to own at the time of the Executive's death and of which the Employer is the designated beneficiary: (1) the Executive's estate or designated beneficiary shall no longer be entitled to receive any of the amounts payable under the terms of this Agreement, and (2) the Employer shall have the right to recover from the Executive's estate all of the amounts paid to the Executive's estate (with respect to amounts paid prior to the Executive's death or paid to the Executive's estate) or designated beneficiary (with respect to amounts paid to the designated beneficiary) pursuant to the terms of this Agreement prior to and after Executive's death. 1.3. Beneficiary. The term "beneficiary" or "designated beneficiary" shall mean the person or persons whom the Executive shall designate in a valid Beneficiary Designation, a copy of which is attached hereto as Schedule "C," to receive the benefits provided hereunder. A Beneficiary Designation shall be valid only if it is in the form attached hereto and made a part hereof, completed and signed by the Executive and received by the Administrator prior to the Executive's death. 1.4. Change in Control. The term "Change in Control" shall mean the occurrence of any of the following events with respect to the Employer (with the term "Employer" being defined for purposes of determining whether a "Change in Control" has occurred to include any parent bank holding company owning 100% of the Employer's outstanding common stock): (i) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or in response to any other form or report to the regulatory agencies or governmental authorities having jurisdiction over the Employer or any stock exchange on which the Employer's shares are listed which requires the reporting of a change in control; (ii) any merger, consolidation or reorganization of the Employer 117 in which the Employer does not survive; (iii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) of any assets of the Employer having an aggregate fair market value of fifty percent (50%) of the total value of the assets of the Employer, reflected in the most recent balance sheet of the Employer; (iv) a transaction whereby any "person" (as such term is used in the Exchange Act) or any individual, corporation, partnership, trust or any other entity becomes the beneficial owner, directly or indirectly, of securities of the Employer representing twenty-five percent (25%) or more of the combined voting power of the Employer's then outstanding securities; or (v) a situation where, in any one-year period, individuals who at the beginning of such period constitute the Board of Directors of the Employer cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Employer's shareholders, of each new director is approved by a vote of at least three-quarters (3/4) of the directors then still in office who were directors at the beginning of the period. 1.5. The Code. The "Code" shall mean the Internal Revenue Code of 1986, as amended (the "Code"). 1.6. Disability/Disabled. The term "Disability" or "Disabled" shall have the same meaning given such terms in any policy of disability insurance maintained by the Employer for the benefit of employees including the Executive. In the absence of such a policy which extends coverage to the Executive in the event of disability, the terms shall mean bodily injury or disease (mental or physical) which wholly and continuously prevents the performance of duty for at least three months. 1.7. Early Retirement Date. The term "Early Retirement Date" shall mean the Retirement, as defined below, of the Executive on a date which occurs prior to the Executive attaining sixty-two (62) years of age, but after the Executive has attained fifty-five (55) years of age. 1.8. Effective Date. The term "Effective Date" shall mean the date first written above. 1.9. ERISA. The term "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. 1.10. Executive Benefits. The term "Executive Benefits" shall mean the benefits determined in accordance with Schedule "B", and reduced or adjusted to the extent: (i) required under the other provisions of this Agreement, including, but not limited to, Paragraphs 5, 6 and 7 hereof; (ii) required by reason of the lawful order of any regulatory agency or body having jurisdiction over the Employer; or (iii) required in order for the Employer to properly comply with 118 any and all applicable state and federal laws, including, but not limited to, income, employment and disability income tax laws (e.g., FICA, FUTA, SDI). 1.11. Plan Year. The term "Plan Year" shall mean the Employer's fiscal year. 1.12. Retirement. The term "Retirement" or "Retires" shall refer to the date which the Executive acknowledges in writing to Employer to be the last day the Executive will provide any significant personal services, whether as an employee or independent consultant or contractor, to Employer. For purposes of this Agreement, the phrase "significant personal services" shall mean more than ten (10) hours of personal services rendered to one or more individuals or entities in any thirty (30) day period. 1.13. Surviving Spouse. The term "Surviving Spouse" shall mean the person, if any, who shall be legally married to the Executive on the date of the Executive's death. 1.14. Termination for Cause. The term "Termination for Cause" shall mean termination of the employment of the Executive by reason of any of the following determined in good faith by the Employer's Board of Directors: (a) The willful, intentional and material breach or the habitual and continued neglect by the Executive of his or her employment responsibilities and duties; (b) The continuous mental or physical incapacity of the Executive, subject to disability rights under this Agreement; (c) The Executive's willful and intentional violation of any federal banking or securities laws, or of the Bylaws, rules, policies or resolutions of Employer, or the rules or regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over the Employer, which has a material adverse effect upon the Employer; (d) The written determination by a state or federal banking agency or governmental authority having jurisdiction over the Employer that Executive is not suitable to act in the capacity for which he or she is employed by Employer; 119 (e) The Executive's conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Executive's willful and intentional commission of a fraudulent or dishonest act; or (f) The Executive's willful and intentional disclosure, without authority, of any secret or confidential information concerning Employer or taking any action which the Employer's Board of Directors determines, in its sole discretion and subject to good faith, fair dealing and reasonableness, constitutes unfair competition with or induces any customer to breach any contract with the Employer. 2. Scope, Purpose and Effect. 2.1. Contract of Employment. Although this Agreement is intended to provide the Executive with an additional incentive to remain in the employ of the Employer, this Agreement shall not be deemed to constitute a contract of employment between the Executive and the Employer nor shall any provision of this Agreement restrict or expand the right of the Employer to terminate the Executive's employment. This Agreement shall have no impact or effect upon any separate written Employment Agreement which the Executive may have with the Employer, it being the parties' intention and agreement that unless this Agreement is specifically referenced in said Employment Agreement (or any modification thereto), this Agreement (and the Employer's obligations hereunder) shall stand separate and apart and shall have no effect on or be affected by, the terms and provisions of said Employment Agreement. 2.2. Fringe Benefit. The benefits provided by this Agreement are granted by the Employer as a fringe benefit to the Executive and are not a part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. The Executive has no option to take any current payments or bonus in lieu of the benefits provided by this Agreement. 3. Payments Upon Early Retirement or Retirement and After Retirement. 3.1. Payments Upon Early Retirement. The Executive shall have the right to Retire on a date which constitutes an Early Retirement Date as defined in subparagraph 1.7 above. In the event the Executive elects to Retire on a date which constitutes an Early Retirement Date, the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Early Retirement Date occurs or upon such later date as may be mutually agreed upon by the Executive and the Employer in advance of said Early Retirement Date, payable (i) for the period designated in Schedule "D" in the case of 120 the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". 3.2. Payments Upon Retirement. If the Executive remains in the employment of the Employer until attaining sixty-two (62) years of age, the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Executive Retires or upon such later date as may be mutually agreed upon by the Executive and the Employer in advance of said Retirement date, payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". At the Employer's sole and absolute discretion, the Employer may increase the Executive Benefits as and when the Employer determines the same to be appropriate. 3.3. Payments in the Event of Death After Retirement. The Employer agrees that if the Executive Retires, but shall die before receiving all of the Executive Benefits Payments specified in Schedule "B", the Employer agrees to pay the Applicable Percentage of the Executive Benefits to the Executive's designated beneficiary in lump sum. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate. 4. Payments in the Event Death or Disability Occurs Prior to Retirement. 4.1. Payments in the Event of Death Prior to Retirement. If the Executive dies at any time after the Effective Date of this Agreement, but prior to Retirement, the Employer agrees to pay the Applicable Percentage of the Executive Benefits to the Executive's designated beneficiary in lump sum. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate. 4.2. Payments in the Event of Disability Prior to Retirement. In the event the Executive becomes Disabled at any time after the Effective Date of this Agreement but prior to Retirement, the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Executive becomes Disabled, payable 121 (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". 5. Payments in the Event Employment Is Terminated Prior to Retirement. As indicated in subparagraph 2.1 above, the Employer reserves the right to terminate the Executive's employment, with or without cause but subject to any written employment agreement which may then exist, at any time prior to the Executive's Retirement. In the event that the employment of the Executive shall be terminated, other than by reason of death, Disability or Retirement, prior to the Executive's attaining sixty-two (62) years of age, then this Agreement shall terminate upon the date of such termination of employment; provided, however, that the Executive shall be entitled to the following benefits as may be applicable depending upon the circumstances surrounding the Executive's termination: 5.1. Termination Without Cause. If the Executive's employment is terminated by the Employer without cause, and such termination is not subject to the provisions of subparagraph 5.4 below, the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Executive attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Executive and delivered to the Employer or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Executive does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Executive attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". 5.2. Voluntary Termination by the Executive. If the Executive's employment is terminated by voluntary resignation and such resignation is not subject to the provisions of subparagraph 5.4 below, the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Executive attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Executive and delivered to the Employer or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Executive does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Executive attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". 122 5.3. Termination for Cause. The Executive agrees that if the Executive's employment with the Employer is terminated "for cause" (as defined in subparagraph 1.14 of this Agreement) and pursuant to subparagraph 1.14(c), (d) or (e), the Executive shall forfeit any and all rights and benefits the Executive may have under the terms of this Agreement and shall have no right to be paid any of the amounts which would otherwise be due or paid to the Executive by the Employer pursuant to the terms of this Agreement. In the event that the Executive's employment with the Employer is terminated "for cause" pursuant to subparagraph 1.14(a), (b) or (f), the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Executive attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Executive and delivered to the Employer or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Executive does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Executive attains sixty-two (62) years of age. The installments shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". 5.4. Termination by the Employer on Account of or After a Change in Control. In the event: (i) the Executive's employment with the Employer is terminated by the Employer in conjunction with, or by reason of, a "Change in Control" (as defined in subparagraph 1.4 above); or (ii) by reason of the Employer's actions and without the Executive's prior written consent, any change occurs in the scope of the Executive's position, responsibilities, duties, salary, benefits, or location of employment (which in the event of relocation of more than thirty (30) miles from the location of the Executive's office prior to a Change in Control shall constitute such a change in location) after a Change in Control occurs; or (iii) the Employer causes an event to occur which reasonably constitutes or results in a demotion, a significant diminution of responsibilities or authority, or a constructive termination (by forcing a resignation or otherwise) of the Executive's employment after a Change in Control occurs; or (iv) the Executive's employment with the Employer is terminated within twelve (12) months after a Change in Control occurs and the Executive notified the Employer of his intention to terminate in a writing delivered to the Employer within six (6) months after the occurrence of a Change in Control, then the Executive shall be entitled to be paid the Applicable Percentage of the Executive Benefits, as defined above, in substantially equal monthly installments on the first day of each month, beginning with the month following the month in which the Executive attains fifty-five (55) years of age or any month thereafter, as requested in writing by the Executive and delivered to the Employer or its successor thirty (30) days prior to the commencement of installment payments; provided, however, that in the event the Executive does not request a commencement date as specified, such installments shall be paid on the first day of each month, beginning with the month following the month in which the Executive attains sixty-two (62) years of age. The installments 123 shall be payable (i) for the period designated in Schedule "D" in the case of the balance in the Benefit Account and (ii) until the Executive's death in the case of the Index Benefit defined in Schedule "B". 5.5. Payments in the Event of Death Following Termination. If the Executive dies prior to receiving all of the Executive Benefits described in this Paragraph 5 to which the Executive is entitled, then the Employer will make such payments to the Executive's designated beneficiary in lump sum. If a valid Beneficiary Designation is not in effect, then the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the Executive's Surviving Spouse. If the Executive leaves no Surviving Spouse, the remaining amounts due to the Executive under the terms of this Agreement shall be paid to the duly qualified personal representative, executor or administrator of the Executive's estate. 6. Section 280G Adjustment. If all or any portion of the amounts payable to the Employee under this Agreement, either alone or together with other payments which the Employee has the right to receive from the Employer, constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), that are subject to the excise tax imposed by Section 4999 of the Code (or similar tax and/or assessment), the Employee shall be responsible for the payment of such excise tax and the Employer (and its successor) shall be responsible for any loss of deductibility related thereto. If, at a later date, it is determined (pursuant to final regulations or published rulings of the Internal Revenue Service, final judgment of a court of competent jurisdiction, or otherwise) that the amount of excise taxes payable by the Employee is greater than the amount initially so determined, then the Employee shall pay an amount equal to the sum of such additional excise taxes and any interest, fines and penalties resulting from such underpayment. The determination of the amount of any such excise taxes shall be made by the independent accounting firm employed by the Employer immediately prior to the change in control, subject to the mutual agreement of the Employer and Employee. 7. Right To Determine Funding Methods. The Employer reserves the right to determine, in its sole and absolute discretion, whether, to what extent and by what method, if any, to provide for the payment of the amounts which may be payable to the Executive, the Executive's spouse or the Executive's beneficiaries under the terms of this Agreement. In the event that the Employer elects to fund this Agreement, in whole or in part, through the use of life insurance or annuities, or both, the Employer shall determine the ownership and beneficial interests of any such policy of life insurance or annuity. The Employer further reserves the right, in its sole and absolute discretion, to terminate any such policy, and any other device used to fund its obligations under this Agreement, at any time, in whole or in part. Consistent with Paragraph 9 below, neither the Executive, the Executive's spouse nor the Executive's beneficiaries shall have any right, title or interest in or to any funding source or amount utilized by the Employer pursuant to this Agreement, and any such funding source or amount shall not constitute security for the 124 performance of the Employer's obligations pursuant to this Agreement. In connection with the foregoing, the Executive agrees to execute such documents and undergo such medical examinations or tests which the Employer may request and which may be reasonably necessary to facilitate any funding for this Agreement including, without limitation, the Employer's acquisition of any policy of insurance or annuity. Furthermore, a refusal by the Executive to consent to, participate in and undergo any such medical examinations or tests shall result in the immediate termination of this Agreement and the immediate forfeiture by the Executive, the Executive's spouse and the Executive's beneficiaries of any and all rights to payment hereunder. 8. Claims Procedure. The Employer shall, but only to the extent necessary to comply with ERISA, be designated as the named fiduciary under this Agreement and shall have authority to control and manage the operation and administration of this Agreement. Consistent therewith, the Employer shall make all determinations as to the rights to benefits under this Agreement. Any decision by the Employer denying a claim by the Executive, the Executive's spouse, or the Executive's beneficiary for benefits under this Agreement shall be stated in writing and delivered or mailed, via registered or certified mail, to the Executive, the Executive's spouse or the Executive's beneficiary, as the case may be. Such decision shall set forth the specific reasons for the denial of a claim. In addition, the Employer shall provide the Executive, the Executive's spouse or the Executive's beneficiary with a reasonable opportunity for a full and fair review of the decision denying such claim. 9. Status as an Unsecured General Creditor. Notwithstanding anything contained herein to the contrary: (i) neither the Executive, the Executive's spouse or the Executive's designated beneficiaries shall have any legal or equitable rights, interests or claims in or to any specific property or assets of the Employer as a result of this Agreement; (ii) none of the Employer's assets shall be held in or under any trust for the benefit of the Executive, the Executive's spouse or the Executive's designated beneficiaries or held in any way as security for the fulfillment of the obligations of the Employer under this Agreement; (iii) all of the Employer's assets shall be and remain the general unpledged and unrestricted assets of the Employer; (iv) the Employer's obligation under this Agreement shall be that of an unfunded and unsecured promise by the Employer to pay money in the future; and (v) the Executive, the Executive's spouse and the Executive's designated beneficiaries shall be unsecured general creditors with respect to any benefits which may be payable under the terms of this Agreement. 125 Notwithstanding subparagraphs (i) through (v) above, the Employer and the Executive acknowledge and agree that, in the event of a Change in Control, upon request of the Executive, or in the Employer's discretion if the Executive does not so request and the Employer nonetheless deems it appropriate, the Employer shall establish, not later than the effective date of the Change in Control, a Rabbi Trust or multiple Rabbi Trusts (the "Trust" or "Trusts") upon such terms and conditions as the Employer, in its sole discretion, deems appropriate and in compliance with applicable provisions of the Code, in order to permit the Employer to make contributions and/or transfer assets to the Trust or Trusts to discharge its obligations pursuant to this Agreement. The principal of the Trust or Trusts and any earnings thereon shall be held separate and apart from other funds of the Employer to be used exclusively for discharge of the Employer's obligations pursuant to this Agreement and shall continue to be subject to the claims of the Employer's general creditors until paid to the Executive or its beneficiaries in such manner and at such times as specified in this Agreement. 10. Discretion of Board to Accelerate Payout. Notwithstanding any of the other provisions of this Agreement, the Board of Directors of the Employer may, if determined in its sole and absolute discretion to be appropriate, accelerate the payment of the amounts due under the terms of this Agreement, provided that Executive (or Executive's spouse or designated beneficiaries): (i) consents to the revised payout terms determined appropriate by the Employer's Board of Directors; and (ii) does not negotiate or in anyway influence the terms of proposed altered/accelerated payout (said decision to be made solely by the Employer's Board of Directors and offered to the Executive [or Executive's spouse or designated beneficiaries] on a "take it or leave it basis"). 11. Miscellaneous. 11.1. Opportunity To Consult With Independent Advisors. The Executive acknowledges that he has been afforded the opportunity to consult with independent advisors of his choosing including, without limitation, accountants or tax advisors and counsel regarding both the benefits granted to him under the terms of this Agreement and the (i) terms and conditions which may affect the Executive's right to these benefits and (ii) personal tax effects of such benefits including, without limitation, the effects of any federal or state taxes, Section 280G of the Code, and any other taxes, costs, expenses or liabilities whatsoever related to such benefits, which in any of the foregoing instances the Executive acknowledges and agrees shall be the sole responsibility of the Executive notwithstanding any other term or provision of this Agreement. The Executive further acknowledges and agrees that the Employer shall have no liability whatsoever related to any such personal tax effects or other personal costs, expenses, or liabilities applicable to the Executive and further specifically waives any right for the Executive, himself, and his heirs, beneficiaries, legal representatives, agents, successors, and assigns to claim or assert liability on the part of the Employer related to the matters described above in this subparagraph 126 11.1. The Executive further acknowledges and agrees that he has read, understands and consents to all of the terms and conditions of this Agreement, and that he enters into this Agreement with a full understanding of its terms and conditions. 11.2. Arbitration of Disputes. All claims, disputes and other matters in question arising out of or relating to this Agreement or the breach or interpretation thereof, other than those matters which are to be determined by the Employer in its sole and absolute discretion, shall be resolved by binding arbitration before a representative member, selected by the mutual agreement of the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"), located in San Francisco, California. In the event JAMS is unable or unwilling to conduct the arbitration provided for under the terms of this Paragraph, or has discontinued its business, the parties agree that a representative member, selected by the mutual agreement of the parties, of the American Arbitration Association ("AAA"), located in San Francisco, California, shall conduct the binding arbitration referred to in this Paragraph. Notice of the demand for arbitration shall be filed in writing with the other party to this Agreement and with JAMS (or AAA, if necessary). In no event shall the demand for arbitration be made after the date when institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. The arbitration shall be subject to such rules of procedure used or established by JAMS, or if there are none, the rules of procedure used or established by AAA. Any award rendered by JAMS or AAA shall be final and binding upon the parties, and as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns, and may be entered in any court having jurisdiction thereof. The obligation of the parties to arbitrate pursuant to this clause shall be specifically enforceable in accordance with, and shall be conducted consistently with, the provisions of Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration hereunder shall be conducted in Saratoga, California, unless otherwise agreed to by the parties. 11.3. Attorneys' Fees. In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto, arising out of or relating to this Agreement or the breach hereof, or the interpretation hereof, the prevailing party shall be entitled to recover from the non-prevailing party reasonable expenses, attorneys' fees and costs incurred in connection therewith or in the enforcement or collection of any judgment or award rendered therein. The "prevailing party" means the party determined by the arbitrator(s) or court, as the case may be, to have most nearly prevailed, even if such party did not prevail in all matters, not necessarily the one in whose favor a judgment is rendered. 11.4. Notice. Any notice required or permitted of either the Executive or the Employer under this Agreement shall be deemed to have been duly given, if by personal delivery, upon the date received by the party or its authorized representative; if by facsimile, upon transmission to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the party transmitting the facsimile and upon reasonable 127 confirmation of such transmission; and if by mail, on the third day after mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party. If to the Employer: Saratoga National Bank 12000 Saratoga-Sunnyvale Rd. Saratoga, California 95070 Attn: Chairman of the Board If to the Executive: Richard L. Mount ______________________ ______________________ 11.5. Assignment. Neither the Executive, the Executive's spouse, nor any other beneficiary under this Agreement shall have any power or right to transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part or all of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such amounts be: (i) subject to seizure by any creditor of any such beneficiary, by a proceeding at law or in equity, for the payment of any debts, judgments, alimony or separate maintenance obligations which may be owed by the Executive, the Executive's spouse, or any designated beneficiary; or (ii) transferable by operation of law in the event of bankruptcy, insolvency or otherwise. Any such attempted assignment or transfer shall be void and unenforceable without the prior written consent of the Employer. The Employer's consent, if any, to one or more assignments or transfers shall not obligate the Employer to consent to or be construed as the Employer's consent to any other or subsequent assignment or transfer. 11.6. Binding Effect/Merger or Reorganization. This Agreement shall be binding upon and inure to the benefit of the Executive and the Employer and, as applicable, their respective heirs, beneficiaries, legal representatives, agents, successors and assigns. Accordingly, the Employer shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person agrees to assume and discharge the obligations of the Employer under this Agreement. Upon the occurrence of such event, the term "Employer" as used in this Agreement shall be deemed to refer to such surviving or successor firm, person, entity or corporation. 11.7. Nonwaiver. The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this Agreement shall not be a waiver 128 of such term(s) or condition(s) or of that party's right thereafter to enforce each and every term and condition of this Agreement. 11.8. Partial Invalidity. If any term, provision, covenant, or condition of this Agreement is determined by an arbitrator or a court, as the case may be, to be invalid, void, or unenforceable, such determination shall not render any other term, provision, covenant or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity. 11.9. Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with respect to the subject matter of this Agreement and contains all of the covenants and agreements between the parties with respect thereto. Each party to this Agreement acknowledges that no other 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 set forth herein, and that no other agreement, statement, or promise not contained in this Agreement shall be valid or binding on either party. 11.10. Modifications. Any modification of this Agreement shall be effective only if it is in writing and signed by each party or such party's authorized representative. 11.11. Paragraph Headings. The paragraph headings used in this Agreement are included solely for the convenience of the parties and shall not affect or be used in connection with the interpretation of this Agreement. 11.12. No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any person. 11.13. Governing Law. The laws of the State of California, other than those laws denominated choice of law rules, and, where applicable, the rules and regulations of the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, or other regulatory agency or governmental authority having jurisdiction over Employer, shall govern the validity, interpretation, construction and effect of this Agreement. 129 IN WITNESS WHEREOF, the Employer and the Executive have executed this Agreement on the date first above-written in the City of Saratoga, Santa Clara County, California. THE EMPLOYER THE EXECUTIVE SARATOGA NATIONAL BANK By:______________________________ _____________________________ V. Ronald Mancuso Richard L. Mount Compensation Committee Chairman 130 SCHEDULE A CALENDAR YEAR APPLICABLE PERCENTAGE __________, 1982 to December 31, 1998. . . . 80.00% December 31, 1999. . . . . . . . . . . . . . 90.00% December 31, 2000. . . . . . . . . . . . . . 100.00% 131 SCHEDULE B EXECUTIVE BENEFITS 1. Executive Benefits Determination. The Executive Benefits shall be determined based upon the following: a. Benefit Account: A Benefit Account shall be established as a liability reserve account on the books of the Employer for the benefit of the Executive. Prior to the date on which the Executive becomes eligible to receive payments under the Agreement, such Benefit Account shall be increased (or decreased) each Plan Year (including the Plan Year in which the Executive ceases to be employed by the Employer) by an amount equal to the annual earnings or loss for that Plan Year determined by the Index (described in subparagraph c below), less the Opportunity Cost (described in subparagraph d below) for that Plan Year. b. Index Benefit: After the date on which the Executive becomes eligible to receive payments under the Agreement, the Index Benefit for the Executive for any Plan Year shall be determined by subtracting the Opportunity Cost for that Plan Year from the earnings, if any, established by the Index. c. Index: The Index for any Plan Year shall be the aggregate annual after-tax income from the life insurance contracts described hereinafter as defined by FASB Technical Bulletin 85-4. This Index shall be applied as if such insurance contracts were purchased on the Effective Date. Insurance Company(ies)/Policy Number(s): Canada Life Assurance/US2651090 Southland Life Insurance/0600080553 Transamerica Life/50335062 If such contracts of life insurance are actually purchased by the Employer, then the actual policies as of the dates purchased shall be used in calculations to determine the Index and Opportunity Cost. If such contracts of life 132 insurance are not purchased or are subsequently surrendered or lapsed, then the Employer shall receive and use annual policy illustrations that assume the above described policies were purchased from the above named insurance company(ies) on the Effective Date to calculate the amount of the Index and Opportunity Cost. d. Opportunity Cost: The Opportunity Cost for any Plan Year shall be calculated by multiplying (a) the sum of (i) the total amount of premiums set forth in the insurance policies described above, (ii) the amount of any Index Benefits (described at subparagraph b above), and (iii) the amount of all previous years after-tax Opportunity Costs; by (b) the average annualized after-tax cost of funds calculated using a one-year U.S. Treasury Bill as published in the Wall Street Journal. The applicable tax rate used to calculate the Opportunity Cost shall be the Employer's marginal tax rate until the Executive's Retirement, or other termination of service (including a Change in Control). Thereafter, the Opportunity Cost shall be calculated with the assumption of a marginal forty-two percent (42%) corporate tax rate each year regardless of whether the actual marginal tax rate of the Employer is higher or lower. EXAMPLE INDEX BENEFITS [n] [A] [B] [C] [D] End of Cash Surrender Index Opportunity Annual Cumulative Year Value of Life [Annual Cost Benefit Benefit Insurance Policy Policy A0=premium B-C D+Dn-1 Income] A0+Cn-1x.05x An-An-1 (1-42%) 0 $1, 000,000 -- -- -- -- 1 $1,050,000 $50,000 $29,000 $21,000 $21,000 2 $1,102,500 $52,500 $29,841 $22,659 $43,659 3 $1,157,625 $55,125 $30,706 $24,419 $68,078 . . . Assumptions: Initial Insurance = $1,000,000 Effective Tax Rate = 42% One Year US Treasury Yield = 5% 133 2. Executive Benefits Payments. The Executive shall be entitled to payment of the Applicable Percentage of (i) the balance in the Benefit Account in installments upon the terms as specified in the Agreement, and (ii) the Index Benefit for each Plan Year payable in installments until the Executive's death. 134 SCHEDULE C BENEFICIARY DESIGNATION To the Administrator of the Saratoga National Bank Executive Supplemental Compensation Agreement: Pursuant to the Provisions of my Executive Supplemental Compensation Agreement with Saratoga National Bank, permitting the designation of a beneficiary or beneficiaries by a participant, I hereby designate the following persons and entities as primary and secondary beneficiaries of any benefit under said Agreement payable by reason of my death: Primary Beneficiary: ______________________ ____________________ _____________________________ Name Address Relationship Secondary (Contingent) Beneficiary: ______________________ _____________________ ____________________________ Name Address Relationship THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED. ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY BENEFICIARIES ARE HEREBY REVOKED. The Administrator shall pay all sums payable under the Agreement by reason of my death to the Primary Beneficiary, if he or she survives me, and if no Primary Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named beneficiary survives me, then the Administrator shall pay all amounts in accordance with the terms of my Executive Supplemental Compensation Agreement. In the event that a named beneficiary survives me and dies prior to receiving the entire benefit payable under said Agreement, then and in that event, the remaining unpaid benefit 135 payable according to the terms of my Executive Supplemental Compensation Agreement shall be payable to the personal representatives of the estate of said beneficiary who survived me but died prior to receiving the total benefit provided by my Executive Supplemental Compensation Agreement. Dated: ___________, 1998 __________________________ Richard L. Mount CONSENT OF THE EXECUTIVE'S SPOUSE TO THE ABOVE BENEFICIARY DESIGNATION: I, Patricia A. Mount, being the spouse of Richard L. Mount, after being afforded the opportunity to consult with independent counsel of my choosing, do hereby acknowledge that I have read, agree and consent to the foregoing Beneficiary Designation which relates to the Executive Supplemental Compensation Agreement entered into by my spouse effective as of ___________, 1998. I understand that the above Beneficiary Designation may affect certain rights which I may have in the benefits provided for under the terms of the Executive Supplemental Compensation Agreement and in which I may have a marital property interest. Dated: ___________, 1998 ______________________________ Patricia A. Mount 136 SCHEDULE D DISTRIBUTION ELECTION Pursuant to the Provisions of my Executive Supplemental Compensation Agreement with Saratoga National Bank, I hereby elect to have any distribution of the balance in my Benefit Account paid to me in installments as designated below: thirty-six (36) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. sixty (60) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. one hundred twenty (120) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. one hundred eighty (180) monthly installments with the amount of each installment determined as of each installment date by dividing the entire amount in my Benefit Account by the number of installments then remaining to be paid, with the final installment to be the entire remaining balance in the Benefit Account. Dated: ____________, 1998 Signed: _______________________ Richard L. Mount -----END PRIVACY-ENHANCED MESSAGE-----