EXHIBIT 10.24
The Middlefield Banking Company
Executive Deferred Compensation Agreement
     This Executive Deferred Compensation Agreement (this “Agreement”) is
entered into as of this 28th day of December, 2006, by and between The
Middlefield Banking Company, an Ohio-chartered bank (the “Bank”), and James R.
Heslop II, Executive Vice President and Chief Operating Officer of the Bank (the
“Executive”).
     Whereas, the Executive has contributed substantially to the success of the
Bank and Middlefield Banc Corp, an Ohio corporation of which the Bank is a
wholly owned subsidiary, and the Bank desires that the Executive remain in its
employ,
     Whereas, to encourage the Executive to remain an employee of the Bank, the
Bank desires to establish a noncontributory, defined contribution arrangement to
provide a supplemental retirement income opportunity for the Executive, with
contributions made solely by the Bank and benefits payable out of the Bank’s
general assets,
     Whereas, none of the conditions or events included in the definition of the
term “golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of
the Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal
Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)]
exists or, to the best knowledge of the Bank, is contemplated insofar as the
Bank is concerned, and
     Whereas, the parties hereto intend that this Agreement shall be considered
an unfunded and noncontributory arrangement maintained primarily to provide
supplemental retirement benefits for the Executive, and to be considered a
non-qualified benefit plan for purposes of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”). The Executive is fully advised of
the Bank’s financial status.
     Now Therefore, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Executive and the Bank hereby agree as follows.
Article 1
Definitions
     Whenever used in this Agreement, the following words and phrases shall have
the meanings specified.
     1.1 “Account Balance” means the Bank’s accounting of Contributions made by
the Bank, plus accrued interest.
     1.2 “Annual Contribution” means the amount credited to the Account Balance
after the end of each Plan Year for which the Performance Goals are achieved.
For the first Plan Year, the Executive will receive an Annual Contribution
amount equal to 5% of the Executive’s Base Annual Salary. For every Plan Year
after the first Plan Year, the Annual Contribution will

 

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

 

be conditional on achievement of the Performance Goals. The Annual Contribution
amount in any Plan Year shall not be less than 5% or more than 15% of the
Executive’s Base Annual Salary. In its discretion, the Bank’s board of directors
may increase or decrease the amount of the Annual Contribution, but the Annual
Contribution amount shall be changed no more frequently than annually.
     1.3 “Base Annual Salary” means compensation of the type that would be
required to be reported according to Securities and Exchange Commission
Rule 229.402(b) (17 CFR 229.402(b)), specifically column (c) of that rule’s
Summary Compensation Table (or any successor provision).
     1.4 “Beneficiary” means each designated person, or the estate of the
deceased Executive, entitled to benefits, if any, upon the death of the
Executive, determined according to Article 5.
     1.5 “Beneficiary Designation Form” means the form established from time to
time by the Plan Administrator that the Executive completes, signs, and returns
to the Plan Administrator to designate one or more Beneficiaries.
     1.6 “Change in Control” shall mean any one of the following events occurs,
provided the event constitutes a change in control within the meaning of
Internal Revenue Code section 409A and rules, regulations, and guidance of
general application thereunder issued by the Department of the Treasury, and
provided the occurrence of the event is objectively determinable and does not
require the exercise of judgment or discretion on the part of the Plan
Administrator or any other person –
(a) Change in Ownership: a change in ownership of Middlefield Banc Corp occurs
on the date any one person or group accumulates ownership of Middlefield Banc
Corp’s stock constituting more than 50% of the total fair market value or total
voting power of Middlefield Banc Corp’s stock,
(b) Change in Effective Control: (1) any one person, or more than one person
acting as a group, acquires within a 12-month period ownership of stock of
Middlefield Banc Corp possessing 35% or more of the total voting power of
Middlefield Banc Corp’s stock, or (2) a majority of Middlefield Banc Corp’s
board of directors is replaced during any 12-month period by directors whose
appointment or election is not endorsed in advance by a majority of Middlefield
Banc Corp’s board of directors, or
(c) Change in Ownership of a Substantial Portion of Assets: a change in the
ownership of a substantial portion of Middlefield Banc Corp’s assets occurs on
the date any one person, or more than one person acting as a group, acquires
assets from Middlefield Banc Corp having a total gross fair market value equal
to or exceeding 40% of the total gross fair market value of all of the assets of
Middlefield Banc Corp immediately before the acquisition or acquisitions. For
this purpose, gross fair market value means the value of Middlefield Banc Corp’s

 

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

 

assets, or the value of the assets being disposed of, determined without regard
to any liabilities associated with the assets.
     1.7 “Code” means the Internal Revenue Code of 1986, as amended.
     1.8 “Effective Date” means January 1, 2006.
     1.9 “Normal Retirement Age” means the Executive’s 65th birthday.
     1.10 “Performance Goals” means the performance criteria set forth in
Schedule A attached to this Agreement and incorporated herein by this reference,
which criteria have been established by the Bank’s board of directors. The
Performance Goals may be changed by the board of directors no more frequently
than annually. If the performance criteria are changed, a new Schedule A shall
be substituted for and shall supersede the old Schedule A, and the new
Schedule A shall be deemed to be incorporated by reference herein and to be a
part of this Agreement. A change in Performance Goals shall not become effective
for the Plan Year in which the change is made unless the change is made on or
before March 31 of the Plan Year. The Plan Administrator shall have sole
authority to determine whether the Performance Goals have been achieved for any
Plan Year. The Plan Administrator’s determination that the Performance Goals for
a Plan Year have or have not been achieved shall be conclusive and binding.
     1.11 “Plan Administrator” or “Administrator” means the plan administrator
described in Article 8.
     1.12 “Plan Year” means the calendar year. The first Plan Year shall begin
on the Effective Date and end on December 31, 2006.
     1.13 “Separation from Service” means the Executive’s service as an
executive or independent contractor to the Bank and any member of a controlled
group, as defined in Code section 414, terminates for any reason, other than
because of a leave of absence approved by the Bank or the Executive’s death. If
there is a dispute about the Executive’s status or the date of the Executive’s
Separation from Service, the Bank shall have the sole and absolute right to
decide the dispute unless a Change in Control shall have occurred.
     1.14 “Termination for Cause” and “Cause” shall have the same definition
specified in any effective severance or employment agreement existing on the
date hereof or hereafter entered into between the Executive and the Bank. If the
Executive is not a party to a severance or employment agreement containing a
definition of termination for cause, Termination for Cause means the Bank
terminates the Executive’s employment because of –
     (a) the Executive’s gross negligence or gross neglect of duties or
intentional and material failure to perform stated duties after written notice
thereof, or

 

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

 

     (b) disloyalty or dishonesty by the Executive in the performance of his
duties, or a breach of the Executive’s fiduciary duties for personal profit, in
any case whether in his capacity as a director or officer, or
     (c) intentional wrongful damage by the Executive to the business or
property of the Bank or its affiliates, including without limitation the
reputation of the Bank, which in the judgement of the Bank causes material harm
to the Bank or affiliates, or
     (d) a willful violation by the Executive of any applicable law or
significant policy of the Bank or an affiliate that, in the Bank’s judgement,
results in an adverse effect on the Bank or the affiliate, regardless of whether
the violation leads to criminal prosecution or conviction. For purposes of this
Agreement, applicable laws include any statute, rule, regulatory order,
statement of policy, or final cease-and-desist order of any governmental agency
or body having regulatory authority over the Bank, or
     (e) the occurrence of any event that results in the Executive being
excluded from coverage, or having coverage limited for the Executive as compared
to other executives of the Bank, under the Bank’s blanket bond or other fidelity
or insurance policy covering its directors, officers, or employees, or
     (f) the Executive is removed from office or permanently prohibited from
participating in the Bank’s affairs by an order issued under section 8(e)(4) or
section 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or
(g)(1), or
     (g) conviction of the Executive for or plea of nolo contendere to a felony
or conviction of or plea of nolo contendere to a misdemeanor involving moral
turpitude, or the actual incarceration of the Executive for 45 consecutive days
or more.
Article 2
Deferral Account
     2.1 Annual Contribution. The Bank shall establish an Account Balance on its
books. Within three months after the end of each Plan Year the Bank shall credit
the Annual Contribution to the Account Balance provided the Performance Goals
were achieved for the Plan Year. Contributions to the Account Balance by the
Executive are prohibited. Discretionary contributions by the Bank are likewise
prohibited. The Annual Contribution shall not be made by the Bank for the Plan
Year in which the Executive attains the Normal Retirement Age or for any year
thereafter. However, if the Performance Goals are achieved for the Plan Year in
which the Executive attains the Normal Retirement Age (and if Separation from
Service does not occur before Normal Retirement Age), the Bank shall make a
final contribution in an amount equal to the Annual Contribution multiplied by a
percentage. The percentage shall equal the number of days in the Plan Year
before the Executive attained Normal Retirement Age divided by 365. No

 

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

 

Annual Contributions shall be made by the Bank for the Plan Year in which the
Executive’s death or Separation from Service occurs or for any year thereafter
(except for a final contribution for the year in which the Executive attains the
Normal Retirement Age, unless Separation from Service occurs before Normal
Retirement Age).
     2.2 Interest. At the end of each Plan Year and until the first to occur of
(a) Normal Retirement Age, (b) the Executive’s death, or (c) the Executive’s
Separation from Service, interest is to be credited on the Account Balance at an
annual rate of interest for that Plan Year, compounded monthly on the first day
of the month, equal to the prime interest rate as published in The Wall Street
Journal (the “Index”). After the first to occur of (a) Normal Retirement Age,
(b) the Executive’s death, or (c) the Executive’s Separation from Service,
interest shall be credited on the Account Balance at an annual rate equal to the
yield on a 20-year corporate bond rated Aa by Moody’s, rounded to the nearest
1/4%.
     2.3 Statement of Account. Within 120 days after the end of each Plan Year,
the Bank shall provide to the Executive a statement of the Account Balance at
the end of the Plan Year. Each annual statement of the Account Balance shall
supersede the previous year’s statement of the Account Balance.
     2.4 Accounting Device Only. The Account Balance is solely a device for
measuring amounts to be paid under this Agreement. The Account Balance is not a
trust fund of any kind. The Executive is a general unsecured creditor of the
Bank for the payment of benefits. The benefits represent the mere promise by the
Bank to pay benefits. The Executive’s rights are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
attachment, or garnishment by the Executive’s creditors.
Article 3
Benefits During Lifetime
     3.1 Normal Retirement Age Benefit. If Separation from Service has not
occurred by Normal Retirement Age, instead of any other benefit under this
Agreement the Bank shall pay to the Executive the Account Balance as of the end
of the month in which the Executive attains the Normal Retirement Age. The
Account Balance shall be paid in 180 substantially equal monthly installments
beginning on the first day of the month after the month in which the Executive
attains Normal Retirement Age. The Bank shall credit interest according to the
formula of section 2.2, compounded monthly, until the Account Balance is paid in
full.
     3.2 Separation from Service Benefit. If Separation from Service occurs
before the Normal Retirement Age for reasons other than death, instead of any
other benefit under this Agreement the Bank shall pay to the Executive the
Account Balance as of the end of the month immediately before the month in which
payments commence. The Bank shall pay the Account Balance in 180 substantially
equal monthly installments beginning on the first day of the later of (a) the
seventh month after the month in which Separation from Service occurs or (b) the
month after the month in which the Executive attains Normal Retirement Age. The
Bank shall credit interest according to the formula of section 2.2, compounded
monthly, until the Account Balance is paid in full.

 

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

 

     3.3 Change in Control Benefit. If a Change in Control occurs after the date
of this Agreement, instead of any other benefit payable under this Agreement,
the Bank shall pay to the Executive the entire Account Balance in a single lump
sum within three days after the Change in Control. Payment of the
Change-in-Control benefit shall fully discharge the Bank from all obligations
under this Agreement, except the legal fee reimbursement obligation under
section 9.11.
     3.4 Payout of Normal Retirement Benefit or Separation from Service Benefit
after a Change in Control. If a Change in Control occurs when the Executive is
receiving benefits provided by sections 3.1 or 3.2, the Bank shall pay the
remaining benefits to the Executive in a single lump sum within three days after
the Change in Control. The lump-sum payment shall be an amount equal to the
Executive’s Account Balance remaining unpaid.
     3.5 One Benefit Only. Despite anything to the contrary in this Agreement,
the Executive and his Beneficiary are entitled to one benefit only under this
Agreement, which shall be determined by the first event to occur that is dealt
with by this Agreement. Except as provided in section 3.4, subsequent occurrence
of events dealt with by this Agreement shall not entitle the Executive or his
Beneficiary to other or additional benefits under this Agreement.
     3.6 Savings Clause Relating to Compliance with Code Section 409A. Despite
any contrary provision of this Agreement, if when the Executive’s employment
terminates the Executive is a specified employee, as defined in Code section
409A, and if any payments under Article 3 of this Agreement will result in
additional tax or interest to the Executive because of section 409A, the
Executive will not be entitled to the payments under Article 3 until the
earliest of (x) the date that is at least six months after termination of the
Executive’s employment for reasons other than the Executive’s death, (y) the
date of the Executive’s death, or (z) any earlier date that does not result in
additional tax or interest to the Executive under section 409A. If any provision
of this Agreement would subject the Executive to additional tax or interest
under section 409A, the Bank shall reform the provision. However, the Bank shall
maintain to the maximum extent practicable the original intent of the applicable
provision without subjecting the Executive to additional tax or interest, and
the Bank shall not be required to incur any additional compensation expense as a
result of the reformed provision. References in this Agreement to Code section
409A include rules, regulations, and guidance of general application issued by
the Department of the Treasury under Code section 409A.
Article 4
Death Benefits
     After the Executive’s death, the Bank shall pay to the Executive’s
Beneficiary the Account Balance as of the date of the Executive’s death. The
Account Balance shall be paid to the Executive’s Beneficiary in a single lump
sum within 90 days after the date of the Executive’s death. However, if the
Executive dies after termination of this Agreement under Article 6, the
Executive’s Beneficiary shall be entitled to no benefits under this Agreement.

 

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

 

Article 5
Beneficiaries
     5.1 Beneficiary Designations. The Executive shall have the right to
designate at any time a Beneficiary to receive any benefits payable under this
Agreement after the Executive’s death. The Beneficiary designated under this
Agreement may be the same as or different from the beneficiary designation under
any other benefit plan of the Bank in which the Executive participates.
     5.2 Beneficiary Designation Change. The Executive shall designate a
Beneficiary by completing and signing the Beneficiary Designation Form and
delivering it to the Plan Administrator or its designated agent. The Executive’s
Beneficiary designation shall be deemed automatically revoked if the Beneficiary
predeceases the Executive or if the Executive names a spouse as Beneficiary and
the marriage is subsequently dissolved. The Executive shall have the right to
change a Beneficiary by completing, signing, and otherwise complying with the
terms of the Beneficiary Designation Form and the Plan Administrator’s rules and
procedures, as in effect from time to time. Upon the acceptance by the Plan
Administrator of a new Beneficiary Designation Form, all Beneficiary
designations previously filed shall be cancelled. The Plan Administrator shall
be entitled to rely on the last Beneficiary Designation Form filed by the
Executive and accepted by the Plan Administrator before the Executive’s death.
     5.3 Acknowledgment. No designation or change in designation of a
Beneficiary shall be effective until received, accepted, and acknowledged in
writing by the Plan Administrator or its designated agent.
     5.4 No Beneficiary Designation. If the Executive dies without a valid
beneficiary designation, or if all designated Beneficiaries predecease the
Executive, then the Executive’s spouse shall be the designated Beneficiary. If
the Executive has no surviving spouse, the benefits shall be made to the
personal representative of the Executive’s estate.
     5.5 Facility of Payment. If a benefit is payable to a minor, to a person
declared incapacitated, or to a person incapable of handling the disposition of
his or her property, the Bank may pay such benefit to the guardian, legal
representative, or person having the care or custody of the minor, incapacitated
person, or incapable person. The Bank may require proof of incapacity, minority,
or guardianship as it may deem appropriate before distribution of the benefit.
Distribution shall completely discharge the Bank from all liability for the
benefit.
Article 6
General Limitations
     6.1 Termination for Cause. Despite any provision of this Agreement to the
contrary, the Bank shall not pay any benefit under this Agreement and this
Agreement shall terminate if Separation from Service is a result of Termination
for Cause.
     6.2 Misstatement. No benefits shall be paid under this Agreement if the
Executive makes any material misstatement of fact on any application or resume
provided to the Bank, on

 

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

 

any application for life insurance purchased by the Bank, or on any application
for benefits provided by the Bank.
     6.3 Removal. Despite any provision of this Agreement to the contrary, if
the Executive is removed from office or permanently prohibited from
participating in the Bank’s affairs by an order issued under section 8(e)(4) or
(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or (g)(1), all
obligations of the Bank under this Agreement shall terminate as of the effective
date of the order.
     6.4 Default. Notwithstanding any provision of this Agreement to the
contrary, if the Bank is in “default” or “in danger of default”, as those terms
are defined in of section 3(x) of the Federal Deposit Insurance Act, 12 U.S.C.
1813(x), all obligations under this Agreement shall terminate.
Article 7
Claims and Review Procedures
     7.1 Claims Procedure. Any person who has not received benefits under this
Agreement that he or she believes should be paid (the “claimant”) shall make a
claim for benefits as follows.

  7.1.1   Initiation – Written Claim. The claimant initiates a claim by
submitting to the Administrator a written claim for the benefits. If the claim
relates to the contents of a notice received by the claimant, the claim must be
made within 60 days after the notice was received by the claimant. All other
claims must be made within 180 days after the date of the event that caused the
claim to arise. The claim must state with particularity the determination
desired by the claimant.     7.1.2   Timing of Administrator Response. The
Administrator shall respond to the claimant within 90 days after receiving the
claim. If the Administrator determines that special circumstances require
additional time for processing the claim, the Administrator can extend the
response period by an additional 90 days by notifying the claimant in writing,
before the end of the initial 90-day period, that an additional period is
required. The notice of extension must set forth the special circumstances and
the date by which the Administrator expects to render its decision.     7.1.3  
Notice of Decision. If the Administrator denies part or all of the claim, the
Administrator shall notify the claimant in writing of the denial. The
Administrator shall write the notification in a manner calculated to be
understood by the claimant. The notification shall set forth –

  (a)   The specific reasons for the denial,     (b)   A reference to the
specific provisions of this Agreement on which the denial is based,

 

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

 

  (c)   A description of any additional information or material necessary for
the claimant to perfect the claim and an explanation of why it is needed,    
(d)   An explanation of the Agreement’s review procedures and the time limits
applicable to such procedures, and     (e)   A statement of the claimant’s right
to bring a civil action under ERISA section 502(a) after an adverse benefit
determination on review.

     7.2 Review Procedure. If the Administrator denies part or all of the claim,
the claimant shall have the opportunity for a full and fair review by the
Administrator of the denial, as follows.

  7.2.1   Initiation – Written Request. To initiate the review, the claimant
must file with the Administrator a written request for review within 60 days
after receiving the Administrator’s notice of denial.     7.2.2   Additional
Submissions – Information Access. The claimant shall then have the opportunity
to submit written comments, documents, records, and other information relating
to the claim. Upon request and free of charge, the Administrator shall also
provide the claimant reasonable access to and copies of all documents, records,
and other information relevant (as defined in applicable ERISA regulations) to
the claimant’s claim for benefits.     7.2.3   Considerations on Review. In
considering the review, the Administrator shall take into account all materials
and information the claimant submits relating to the claim, without regard to
whether the information was submitted or considered in the initial benefit
determination.     7.2.4   Timing of Administrator Response. The Administrator
shall respond in writing to the claimant within 60 days after receiving the
request for review. If the Administrator determines that special circumstances
require additional time for processing the claim, the Administrator can extend
the response period by an additional 60 days by notifying the claimant in
writing before the end of the initial 60-day period that an additional period is
required. The notice of extension must set forth the special circumstances and
the date by which the Administrator expects to render its decision.     7.2.5  
Notice of Decision. The Administrator shall notify the claimant in writing of
its decision on review. The Administrator shall write the notification in a
manner calculated to be understood by the claimant. The notification shall set
forth:

  (a)   The specific reasons for the denial,     (b)   A reference to the
specific provisions of the Agreement on which the denial is based,

 

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

 

  (c)   A statement that the claimant is entitled to receive, upon request and
free of charge, reasonable access to and copies of all documents, records, and
other information relevant (as defined in applicable ERISA regulations) to the
claimant’s claim for benefits, and     (d)   A statement of the claimant’s right
to bring a civil action under ERISA section 502(a).

Article 8
Administration of Agreement
     8.1 Plan Administrator Duties. This Agreement shall be administered by a
Plan Administrator consisting of the board or such committee or persons as the
board shall appoint. The Executive may be a member of the Plan Administrator.
The Plan Administrator shall also have the discretion and authority to (a) make,
amend, interpret, and enforce all appropriate rules and regulations for the
administration of this Agreement and (b) decide or resolve any and all
questions, including interpretations of this Agreement, as may arise in
connection with the Agreement.
     8.2 Agents. In the administration of this Agreement, the Plan Administrator
may employ agents and delegate to them such administrative duties as it sees fit
(including acting through a duly appointed representative) and may from time to
time consult with counsel, who may be counsel to the Bank.
     8.3 Binding Effect of Decisions. The decision or action of the Plan
Administrator with respect to any question arising out of or in connection with
the administration, interpretation, and application of the Agreement and the
rules and regulations promulgated hereunder shall be final and conclusive and
binding upon all persons having any interest in the Agreement. Neither the
Executive nor any Beneficiary shall be deemed to have any right, vested or
unvested, regarding the continuing effect of any decision or action of the Plan
Administrator.
     8.4 Indemnity of Plan Administrator. The Bank shall indemnify and hold
harmless the members of the Plan Administrator against any and all claims,
losses, damages, expenses, or liabilities arising from any action or failure to
act with respect to this Agreement, except in the case of willful misconduct by
the Plan Administrator or any of its members.
     8.5 Bank Information. To enable the Plan Administrator to perform its
functions, the Bank shall supply full and timely information to the Plan
Administrator on all matters relating to the date and circumstances of the
retirement, death, or Separation from Service of the Executive, and such other
pertinent information as the Plan Administrator may reasonably require.
Article 9
Miscellaneous
     9.1 Amendments and Termination. This Agreement may be amended solely by a
written agreement signed by the Bank and by the Executive. Except for the case
of Termination

 

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

 

for Cause, this Agreement shall not be terminated unless the Account Balance is
first paid to the Executive or the Executive’s Beneficiary.
     9.2 Binding Effect. This Agreement shall bind the Executive and the Bank
and their beneficiaries, survivors, executors, successors, administrators, and
transferees.
     9.3 Successors; Binding Agreement. By an assumption agreement in form and
substance satisfactory to the Executive, the Bank shall require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the Bank’s business or assets to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
the Bank would be required to perform this Agreement if no such succession had
occurred.
     9.4 No Guarantee of Employment. This Agreement is not an employment policy
or contract. It does not give the Executive the right to remain an employee of
the Bank, nor does it interfere with the Bank’s right to discharge the
Executive. It also does not require the Executive to remain an employee nor
interfere with the Executive’s right to terminate employment at any time.
     9.5 Non-Transferability. Benefits under this Agreement cannot be sold,
transferred, assigned, pledged, attached, or encumbered in any manner.
     9.6 Tax Withholding. The Bank shall withhold any taxes that are required to
be withheld from the benefits provided under this Agreement.
     9.7 Applicable Law. This Agreement and all rights hereunder shall be
governed by the laws of the State of Ohio, except to the extent the laws of the
United States of America otherwise require.
     9.8 Unfunded Arrangement. The Executive and the Beneficiary are general
unsecured creditors of the Bank for the payment of benefits under this
Agreement. The benefits represent the mere promise by the Bank to pay benefits.
The rights to benefits are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Executive’s life is a general
asset of the Bank to which the Executive and the Beneficiary have no preferred
or secured claim.
     9.9 Entire Agreement. This Agreement constitutes the entire agreement
between the Bank and the Executive concerning the subject matter hereof. No
rights are granted to the Executive under this Agreement other than those
specifically set forth.
     9.10 Tax Consequences. The Bank does not insure or guarantee the tax
consequences of payments provided hereunder for matters beyond its control, and
the Executive certifies that his decision to defer receipt of his compensation
is not due to any reliance upon financial, tax or legal advice given by the
Bank, and of its employees, agents, accountants or legal advisors.

 

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

 

     9.11 Payment of Legal Fees. The Bank is aware that after a Change in
Control management of the Bank could cause or attempt to cause the Bank to
refuse to comply with its obligations under this Agreement, or could institute
or cause or attempt to cause the Bank to institute litigation seeking to have
this Agreement declared unenforceable, or could take or attempt to take other
action to deny the Executive the benefits intended under this Agreement. In
these circumstances, the purpose of this Agreement would be frustrated. It is
the intention of the Bank that the Executive not be required to incur the
expenses associated with the enforcement of his rights under this Agreement,
whether by litigation or other legal action, because the cost and expense
thereof would substantially detract from the benefits intended to be granted to
the Executive hereunder. It is the intention of the Bank that the Executive not
be forced to negotiate settlement of his rights under this Agreement under
threat of incurring expenses. Accordingly, if after a Change in Control occurs
it appears to the Executive that (a) the Bank has failed to comply with any of
its obligations under this Agreement, or (b) the Bank or any other person has
taken any action to declare this Agreement void or unenforceable, or instituted
any litigation or other legal action designed to deny, diminish, or to recover
from the Executive the benefits intended to be provided to the Executive
hereunder, the Bank irrevocably authorizes the Executive from time to time to
retain counsel of his choice, at the expense of the Bank as provided in this
section 9.11, to represent the Executive in connection with the initiation or
defense of any litigation or other legal action, whether by or against the Bank
or any director, officer, stockholder, or other person affiliated with the Bank,
in any jurisdiction. Notwithstanding any existing or previous attorney-client
relationship between the Bank and any counsel chosen by the Executive under this
section 9.11, the Bank irrevocably consents to the Executive entering into an
attorney-client relationship with that counsel, and the Bank and the Executive
agree that a confidential relationship shall exist between the Executive and
that counsel. The fees and expenses of counsel selected from time to time by the
Executive as provided in this section shall be paid or reimbursed to the
Executive by the Bank on a regular, periodic basis upon presentation by the
Executive of a statement or statements prepared by such counsel in accordance
with such counsel’s customary practices, up to a maximum aggregate amount of
$500,000, whether suit be brought or not, and whether or not incurred in trial,
bankruptcy, or appellate proceedings. The Bank’s obligation to pay the
Executive’s legal fees provided by this section 9.11 operates separately from
and in addition to any legal fee reimbursement obligation the Bank may have with
the Executive under any separate employment, severance, or other agreement
between the Executive and the Bank. Despite anything in this section 9.11 to the
contrary however, the Bank shall not be required to pay or reimburse the
Executive’s legal expenses if doing so would violate section 18(k) of the
Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and Rule 359.3 of the Federal
Deposit Insurance Corporation [12 CFR 359.3].
     9.12 Severability. If any provision of this Agreement is held invalid, such
invalidity shall not affect any other provision of this Agreement not held
invalid, and each such other provision shall continue in full force and effect
to the full extent consistent with law. If any provision of this Agreement is
held invalid in part, such invalidity shall not affect the remainder of the
provision not held invalid, and the remainder of such provision together with
all other provisions of this Agreement shall continue in full force and effect
to the full extent consistent with law.

 

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

 

     9.13 Waiver. A waiver by either party of any of the terms or conditions of
this Agreement in any one instance shall not be considered a waiver of such
terms or conditions for the future, or of any subsequent breach thereof. All
remedies, rights, undertakings, obligations, and agreements contained in this
Agreement shall be cumulative, and none of them shall be in limitation of any
other remedy, right, undertaking, obligation or agreement of either party.
     9.14 Headings. The heading in this Agreement are for convenience only and
shall not affect the interpretation or construction of the Agreement or any of
its provisions.
     9.15 Notice. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid. Unless otherwise changed by notice, notice
shall be properly addressed to the Executive if addressed to the address of the
Executive on the books and records of the Bank at the time of the delivery of
such notice, and properly addressed to the Bank if addressed to the Board of
Directors, The Middlefield Banking Company, 15985 East High Street, Middlefield,
Ohio 44062-0035.
     9.16 Termination or Modification of Agreement Because of Changes in Law,
Rules or Regulations. The Bank is entering into this Agreement on the assumption
that certain existing tax laws, rules, and regulations will continue in effect
in their current form. If that assumption materially changes and the change has
a material detrimental effect on this Agreement, then the Bank reserves the
right to terminate or modify this Agreement accordingly, subject to the written
consent of the Executive, which shall not be unreasonably withheld. This section
9.16 shall become null and void effective immediately after a Change in Control.
     In Witness Whereof, the Executive and a duly authorized Bank officer have
executed this Executive Deferred Compensation Agreement as of the date first
written above.

                  Executive:       Bank:             The Middlefield Banking
Company    
 
               
 
James R. Heslop II
      By:        
 
               
 
               
 
      Its:        
 
               

 

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

 

The Middlefield Banking Company
Executive Deferred Compensation Agreement
Beneficiary Designation
     I designate the following as beneficiary under this Executive Deferred
Compensation Agreement of benefits payable after my death.

     
Primary: 
 
 
 
 
   
Contingent: 
   
 
 

Note:   To name a trust as beneficiary, please provide the name of the
trustee(s) and the exact name and date of the trust agreement.

     I understand that I may change these beneficiary designations by filing a
new written designation with the Bank. I further understand that the
designations will be automatically revoked if the beneficiary predeceases me,
or, if I have named my spouse as beneficiary and our marriage is subsequently
dissolved.

             
 
  Signature:        
 
         
 
      James R. Heslop II    
 
           
 
  Date:       , 2006
 
         

     Received by the Bank this                      day of
                                        , 2006.

             
 
  By:        
 
         
 
           
 
  Title:         
 
         

 

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

 

The Middlefield Banking Company
Executive Deferred Compensation Agreement
Schedule A
Performance Goals
     The Bank’s board of directors shall set Performance Goals, which may be
absolute performance targets taking the Bank’s performance only into account, or
relative targets taking the Bank’s performance into account relative to a peer
group of companies, or a combination of both. The measures of performance used
to establish Performance Goals shall not change from one Plan Year to the next
unless the board of directors concludes that compelling reasons exist to use
different or additional measures of performance. If performance relative to a
peer group is used, the peer group analysis selected by the board of directors
shall not be changed from one Plan Year to the next unless the board of
directors concludes that the peer group being employed is no longer
representative of the Bank’s actual peer group of companies, or alternatively,
the company preparing the peer group analysis ceases to exist or no longer
prepares peer group analyses.
     For the first Plan Year, the Executive will receive an Annual Contribution
amount equal to 5% of the Executive’s Base Annual Salary. For every Plan Year
after the first Plan Year unless changed by the board of directors pursuant to
Section 1.1 of the Agreement, the Performance Goals are –

                  Annual Contribution for Achievement of Performance Target #1  
Performance Goal #1   Performance Goal #1
Bank’s Target Net Income for Plan Year
  $3,902,000   2.5% of the Executive’s Base Annual Salary
 
       
Bank’s Net Income for Plan Year Is Equal to or Greater than —
  $3,941,020 (101%)   3.5% of the Executive’s Base Annual Salary
 
       
Bank’s Net Income for Plan Year Is Equal to or Greater than —
  $3,980,040 (102%)   4.5% of the Executive’s Base Annual Salary
 
       
Bank’s Net Income for Plan Year Is Equal to or Greater than —
  $4,019,060 (103%)   5.5% of the Executive’s Base Annual Salary
 
       
Bank’s Net Income for Plan Year Is Equal to or Greater than —
  $4,058,080 (104%)   6.5% of the Executive’s Base Annual Salary
 
       
Bank’s Net Income for Plan Year Is Equal to or Greater than —
  $4,097,100 (105%)   7.5% of the Executive’s Base Annual Salary

The Bank’s target net income for Performance Goal #1 is $3,902,000. At a
minimum, the Executive is entitled to an Annual Contribution for Performance
Goal #1 equal to 2.5% of his Base Annual Salary. In order for the Executive to
receive a greater Annual Contribution under Performance Goal #1, the Bank’s net
income for the Plan Year must meet or exceed 101% of the Bank’s target net
income for the Plan Year. For every additional 1% that the Bank’s target net
income is met or exceeded in any Plan Year, up to 105%, the Executive’s Annual
Contribution amount also increases by 1%. Thus, the maximum Annual Contribution
for achievement of Performance Goal #1 is 7.5% of the Executive’s Base Annual
Salary. The Bank and the Executive agree that the Bank’s net income for the Plan
Year shall be derived from the quarterly

 

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

 

reports of condition filed with the FDIC under the Federal Deposit Insurance Act
section 7(a), 12 U.S.C. 1817(a), and FDIC rules, 12 CFR Part 304.

                  Annual Contribution for Achievement of Performance Target #2  
Performance Goal #2   Performance Goal #2
Bank’s Target Peer Rank
  Overall Ranking in   2.5% of the Executive’s Base Annual Salary
 
  Top 50% of    
 
  Ohio-Headquartered    
 
  Commercial Banks as    
 
  Reported by Ryan    
 
  Beck & Co.    
 
       
Bank Has An—
  Overall Ranking in   3.5% of the Executive’s Base Annual Salary
 
  Top 60% of    
 
  Ohio-Headquartered    
 
  Commercial Banks as    
 
  Reported by Ryan    
 
  Beck & Co.    
 
       
Bank Has An—
  Overall Ranking in   4.5% of the Executive’s Base Annual Salary
 
  Top 70% of    
 
  Ohio-Headquartered    
 
  Commercial Banks as    
 
  Reported by Ryan    
 
  Beck & Co.    
 
       
Bank Has An—
  Overall Ranking in   5.5% of the Executive’s Base Annual Salary
 
  Top 80% of    
 
  Ohio-Headquartered    
 
  Commercial Banks as    
 
  Reported by Ryan    
 
  Beck & Co.    
 
       
Bank Has An—
  Overall Ranking in   6.5% of the Executive’s Base Annual Salary
 
  Top 90% of    
 
  Ohio-Headquartered    
 
  Commercial Banks as    
 
  Reported by Ryan    
 
  Beck & Co.    
 
       
Bank Has An—
  Overall Ranking in   7.5% of the Executive’s Base Annual Salary
 
  Top 100% of    
 
  Ohio-Headquartered    
 
  Commercial Banks as    
 
  Reported by Ryan    
 
  Beck & Co.    

The Bank’s target Peer Rank for Performance Goal #2 is an overall ranking in the
top 50% of all Ohio-headquartered publicly traded commercial banks as evaluated
in the Ryan Beck & Co. quarterly reports titled “The Midwest Manifesto” (the
“Reports”) for the applicable Plan Year. In the Reports, Ryan Beck & Co. rank
publicly traded commercial banks headquartered in Ohio based on seven factors —
earnings per share growth, return on equity, return on assets, efficiency ratio,
net charge-offs as a percentage of average loans, as well as loan and deposit
growth. At a minimum, the Executive is entitled to an Annual Contribution for
Performance Goal #2 equal to 2.5% of his Base Annual Salary. In order for the
Executive to receive a greater Annual Contribution under Performance Goal #2,
the Bank must have an overall ranking in the top 60% of Ohio-headquartered
commercial banks as reported by Ryan Beck & Co. for the Plan Year. For every
additional 10% that the Bank’s peer ranking improves in any Plan Year, up to
being ranked first, the Executive’s Annual Contribution amount also increases by
1%. Thus, the

 

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

 

maximum Annual Contribution for achievement of Performance Goal #2 is 7.5% of
the Executive’s Base Annual Salary.
     In the event that Ryan Beck & Co. ceases to exist or no longer prepares
peer group analyses, peer rank will be established using the Uniform Bank
Performance Report (“UBPR”) as reported on the Federal Financial Institutions
Examination Council’s website at www.ffiec.gov/UBPR.htm. The UBPR is an
analytical tool created for bank supervisory, examination, and management
purposes. In a concise format, the UPBR shows the impact of management decisions
and economic conditions on a bank’s performance and balance-sheet composition.
The performance and composition data contained in the report can be used as an
aid in evaluating the adequacy of earnings, liquidity, capital, asset and
liability management, and growth management.
     At a minimum, the Executive’s Annual Contribution in any Plan Year shall
not be less than 5% of the Executive’s Base Annual Salary (i.e., the 2.5% of
Base Annual Salary Annual Contribution under Performance Goal #1 plus the 2.5%
of Base Annual Salary Annual Contribution under Performance Goal #2). At a
maximum, the Executive’s Annual Contribution in any Plan Year shall not exceed
15% of the Executive’s Base Annual Salary (i.e., the 7.5% of Base Annual Salary
Annual Contribution under Performance Goal #1 plus the 7.5% of Base Annual
Salary Annual Contribution under Performance Goal #2).
     Changes in the Performance Goals approved by the board of directors shall
become effective no more frequently than annually. The Plan Administrator’s
determination that the Performance Goals for a Plan Year have or have not been
achieved shall be conclusive and binding.