EXHIBIT 10.2
 

 
EMPLOYMENT AGREEMENT
 
THIS EMPLOYMENT AGREEMENT is made as of the 1st day of June, 2006, between Bay
National Bank (the “Bank” or “Employer”), a national bank with a principal
office in Baltimore County, Maryland and Richard C. Springer, a resident of the
State of Maryland (the “Employee”).
 
RECITALS:
 
The Employer desires to employ the Employee as Executive Vice President of the
Employer and the Employee desires to accept such employment.
 
In consideration of the above premises and the mutual agreements hereinafter set
forth, the parties hereby agree as follows:
 
1. DEFINITIONS. Whenever used in this Agreement, the following terms and their
variant forms will have the meaning set forth below:
 
1.1 “Agreement” means this Agreement and any exhibits incorporated herein
together with any amendments hereto made in the manner described in this
Agreement. 
 
1.2 “Affiliate” means any business entity which controls the Employer, is
controlled by or is under common control with the Employer.
 
1.3 “Area” means the geographic area within a radius of 35 miles of any office
or facility maintained by the Employer from time to time. It is the express
intent of the parties that the Area as defined herein is the area where the
Employee performs or performed services on behalf of the Employer under this
Agreement as of, or within a reasonable time prior to, the termination of the
Employee's employment hereunder.
 
1.4 “Board” means the board of directors of the Bank.
 
1.5 “Business of the Employer” means the business conducted by the Employer.
 
1.6 “Cause” means, any of the following events or conduct preceding a
termination of employment initiated by the Employer:
 
(a) any act that constitutes, in the reasonable judgment of the Board after
consultation with legal counsel, fraud or dishonesty toward the Employer; toward
any employee, officer or director of the Employer or toward any person doing
business with the Employer on the part of the Employee;
 
(b) the conviction of the Employee of a felony or crime involving moral
turpitude;
 

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

(c) the Employee's entering into any transaction or contractual relationship
(other than this Agreement) with, or diversion of business opportunity from, the
Employer (other than on behalf of the Employer or with the prior written consent
of the Board); provided, however, such conduct will not constitute Cause unless
the Board delivers to the Employee written notice setting forth (1) the conduct
deemed to qualify as Cause, (2) reasonable remedial action that might remedy
such objection, and (3) a reasonable time (not less than thirty (30) days)
within which the Employee may take such remedial action, and the Employee has
not taken the specified remedial action with the specified reasonable time;
 
(d) the Employee breaches the covenants contained in Sections 5, 6, 7 or 8
hereof or materially breaches any other portion of this Agreement; or
 
(e) conduct by the Employee that results in removal of Employee as an officer or
employee of the Employer pursuant to a written order by any regulatory agency
with authority or jurisdiction over the Employer.
 
1.7 “Company” means Bay National Corporation, the parent of the Bank.
 
1.8 “Company Information” means Confidential Information and Trade Secrets.
 
1.9 “Confidential Information” means data and information relating to the
Business of the Employer and any affiliate of Employer (which does not rise to
the status of a Trade Secret) which is or has been disclosed to the Employee or
of which the Employee became aware as a consequence of or through the Employee's
relationship to the Employer and which has value to the Employer and is not
generally known to its competitors. Confidential Information does not include
any data or information that has been voluntarily disclosed to the public by the
Employer (except where such public disclosure has been made by the Employee
without authorization) or that has been independently developed and disclosed by
others, or that otherwise enters the public domain through lawful means.
 
1.10 “Change in Control” means the first to occur of any one of the following
events:
 
(a) the acquisition by any person, persons acting in concert or by an entity of
the then outstanding voting securities of either the Bank or the Company, if,
after the transaction, the acquiring person, persons or entity owns, controls or
holds with power to vote twenty-five percent (25%) or more of any class of
voting securities of the Bank or the Company, as the case may be, or such other
transaction as may be described under 12 C.F.R. Section 225.41(b)(1) or any
successor regulation thereto;
 
(b) within any twelve-month period (beginning on or after the Effective Date)
the persons who were directors of either the Bank or the Company immediately
before the beginning of such twelve-month period (the “Incumbent Directors”)
cease to constitute at least a majority of such board of directors; provided
that any director who was not a director as of the Effective Date will be deemed
to be an Incumbent Director if that director was elected to such board of
directors by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors;
 

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

(c) the approval by the stockholders of either the Bank or the Company of a
reorganization, merger or consolidation, with respect to which those persons who
were the stockholders of either the Bank or the Company, as the case may be,
immediately prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than fifty percent (50%) of the combined voting
power entitled to vote in the election of directors of the reorganized, merged
or consolidated entities; or
 
(d) the sale, transfer or assignment of all or substantially all of the assets
of the Company or the Bank to any third party; provided that if giving effect to
the foregoing definition would require the Employee to include any amount
payable pursuant to this Agreement in income pursuant to Section 409A of the
Code, then the definition shall be modified to the least extent necessary in
order that a Change of Control is a “change in the ownership or effective
control” of the Company for purposes of Section 409A of the Code and the
regulations promulgated thereunder.
 
1.11 “Effective Date” means June 1, 2006.
 
1.12 “Good Reason” means, any of the following events or conduct preceding a
termination of employment initiated by the Employee:
 
(a) a material diminution in the powers, responsibilities or duties of the
Employee hereunder or a material change as to whom Employee reports which in the
case of Employee is the President;
 
(b) a material breach of the terms of this Agreement by the Employer; or
 
(c) a change in the location of the principal office of Employee more than
twenty (20) miles from its existing location
 
provided, however, that no termination of employment which is triggered by any
conduct or event described in this Section 1.12 shall constitute a termination
of employment for Good Reason unless the Employee has first provided the
Employer with the opportunity to cure the event or conduct by giving the
Employer a written notice describing in sufficient detail the Employee's belief
that a Good Reason exists and the Employee defers resigning until the expiration
of a thirty (30) day cure period, beginning with the date such notice is
received by the Employer.

1.13 “Permanent Disability” means the total inability of the Employee to perform
the Employee's duties under this Agreement for a period of one hundred and
eighty (180) consecutive days as certified by a physician chosen by the Employer
and reasonably acceptable to the Employee.
 
1.14 “Trade Secrets” means Employer and Affiliate information including, but not
limited to, technical or nontechnical data, formulas, patterns, compilations,
programs, devices, methods, techniques, drawings, processes, financial data,
financial plans, product plans or lists of actual or potential customers or
suppliers which:
 

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

(a) derives economic value, actual or potential, from not being generally known
to, and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use; and
 
(b) is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.
 
2. DUTIES.
 
2.1 The Employee is employed as Executive Vice President of the Bank, subject to
the direction of the president of the Bank, and must perform and discharge well
and faithfully the duties which may be assigned to Employee from time to time by
the Employer in connection with the conduct of its business. The duties and
responsibilities of the Employee are set forth on Exhibit A attached hereto. In
addition to the duties and responsibilities specifically assigned to the
Employee pursuant to Section 2.1 hereof, the Employee must:
 
(a) devote substantially all of the Employee's time, energy and skill during
regular business hours to the performance of the duties of the Employee's
employment (reasonable vacations and reasonable absences due to illness
excepted) and faithfully and industriously perform such duties;
 
(b) diligently follow and implement all management policies and decisions
communicated to Employee by the Board; and
 
(c) timely prepare and forward to the Board all reports and accounting as may be
requested of the Employee.
 
2.2 The Employee must devote the Employee's entire business time, attention and
energies to the Business of the Employer and must not during the Term of this
Agreement be engaged (whether or not during normal business hours) in any other
business or professional activity, whether or not such activity is pursued for
gain, profit or other pecuniary advantage; but this will not be construed as
preventing the Employee from:
 
(a) investing the Employee's personal assets in businesses which are not in
competition with the Business of the Employer and which will not require any
services on the part of the Employee in their operation or affairs and in which
the Employee's participation is solely that of an investor;
 
(b) purchasing securities in any corporation whose securities are regularly
traded provided that such purchase will not result in Employee collectively
owning beneficially at any time five percent (5%) or more of the equity
securities of any business in competition with the Business of the Employer; and
 
(c) participating in civic and professional affairs and organizations and
conferences, preparing or publishing papers or books or teaching so long as the
Board approves of such activities prior to the Employee's engaging in them.
 

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

3. TERM AND TERMINATION.
 
3.1  Term. The term of this Agreement will initially be set at three (3) years
commencing on the Effective Date. Commencing on the first anniversary of the
Effective Date and continuing on each anniversary date thereafter (in each case
the “Anniversary Date”), this Agreement shall renew for an additional year such
that the remaining term shall be three (3) years unless written notice of
non-renewal is provided to Employee at least ten (10) and not more than (30)
days prior to such Anniversary Date. Prior to each notice period for
non-renewal, the president of the Bank will conduct a comprehensive performance
evaluation and review of the Employee for purposes of determining whether to
extend the Agreement, and the results thereof shall be reported to the Board (as
so calculated, the “Term”).
 
3.2 Termination. The employment of the Employee under this Agreement may be
terminated prior to the expiration of the Term only as follows, subject to the
conditions set forth below:
 
3.2.1 By the Employer:
 
(a) for Cause at any time, upon written notice to the Employee, including the
notice provided for in Section 1.6(c), in which event the Employer will have no
further obligation to the Employee except for the payment of any amounts due and
owing under Section 4 on the effective date of the termination; or
 
(b) without Cause or upon the Permanent Disability of Employee at any time, upon
written notice to the Employee, in which event the Employer will be required to
make the termination payments under Section 3.7.
 
3.2.2 By the Employee:
 
(a) for Good Reason at any time after notice as provided in Section 1.12, in
which event the Employer will be required to make the termination payments under
Section 3.7; or
 
(b) without Good Reason or upon the Permanent Disability of the Employee, in
which event the Employer will have no further obligation to the Employee except
for payment of any amounts due and owing under Section 4 on the effective date
of the termination.
 
3.2.3 By the Employer without Cause within twelve (12) months following a Change
in Control; provided that the Employee gives at least thirty (30) days' prior
written notice to the Employer of the Employee's intention to terminate this
Agreement with such resignation to be effective immediately at the end of such
thirty (30) day period, in which event the Employer will be required to make a
termination payment under Section 3.7 except that if Employee is terminated for
cause, Section 3.2.1(a) is applicable and no termination payments are due under
Section 3.7; or 
 
3.2.4 At any time upon mutual, written agreement of the parties, in which event
the Employer will have no further obligation to the Employee except for the
payment of any amounts due and owing under Section 4 on the effective date of
termination unless otherwise set forth in the written agreement.
 

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

3.2.5 Immediately upon the Employee's death, in which event the Employer will
have no further obligation to the Employee except for the payment of any amounts
due and owing under Section 4 on the effective date of termination.
 
3.3 Effect of Termination. Termination of the employment of the Employee
pursuant to Section 3.2 will be without prejudice to any right or claim, which
may have previously accrued to either the Employer or the Employee hereunder and
will not terminate, alter, supersede or otherwise affect the terms and covenants
and the rights and duties prescribed in this Agreement.
 
3.4 Suspension With Pay. Nothing contained herein will preclude the Employer
from releasing the Employee of the Employee's normal duties and suspending
Employee, with pay, during the pendency of any investigation or examination to
determine whether or not Cause exists for termination of employee.
 
3.5 Suspension Without Pay. If Employee is suspended and/or temporarily
prohibited from participating in the conduct of the Employer's affairs by a
notice served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance
Act, the Employer's obligations under this Agreement will be suspended as of the
date of service thereof, unless stayed by appropriate proceedings. If the
charges in such notice are dismissed, the Employer may in its discretion:
 
(a) pay Employee all or part of the compensation withheld while its contract
obligations were suspended; and/or
 
(b) reinstate (in whole or in part) any of its obligations, which were
suspended.
 
3.6 Other Regulatory Requirements. If the Bank is in default, as defined in
Section (3)(x)(1) of the Federal Deposit Insurance Act, all obligations under
this Agreement will terminate as of the date of such default, but no vested
rights of the Employee will be affected. Further, all obligations under this
Agreement will be terminated, except, to the extent determined that continuation
of the Agreement is necessary for the continued operation of the Bank:
 
(a) by the Director (the “Director”) of the Federal Deposit Insurance
Corporation (“FDIC”) or his or her designee, at the time the FDIC enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
of the Federal Deposit Insurance Act; or
 
(b) by the Director or his or her designee, at the time the Director or his or
her designee approves a supervisory merger to resolve problems relating to the
operation of the Bank or when the Bank is determined by the Director to be in an
unsafe or unsound condition.
 
3.7 Termination Payments. In the event and only in the event this Agreement is
terminated by the Employer pursuant to Section 3.2.1(b) or by the Employee
pursuant to Section 3.2.2(a) and a Change in Control has not occurred,
immediately following the effective date of such termination and continuing
thereafter on the normal payroll dates of Employer, the
 

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

Employer will pay to the Employee as severance pay and liquidated damages an
amount equal to the then current Base Salary plus all benefits then received by
Employee for a period equal to the remaining Term plus any Incentive
Compensation that may have accrued in the calendar year in which Employee was
terminated. Additionally in such event, all of Employee’s stock awards and stock
options shall immediately vest.  In the event and only in the event this
Agreement is terminated by the Employer pursuant to Section 3.1 by non renewal
and a Change in Control has not occurred, then commencing with the first payroll
date immediately following the end of the Term, the Employer will pay to the
Employee as severance pay and liquidated damages an amount equal to fifty
percent (50%) of Employee's Base Salary for the immediately preceding 12 month
period payable, at the option of Employee, either in a lump sum or in six (6)
equal monthly installments. Employer will also provide to Employee benefits
substantially similar to those received by Employee prior to the effective date
of a termination under Section 3.1 by non renewal for six (6) months after the
effective date of such termination. In the event and only in the event a Change
in Control has occurred and this Agreement is terminated by Employer or by
Employee pursuant to Section 3.2.3, the Employee shall be entitled to a lump sum
payment equal to the sum of (a) to the excess of (i) 2.99 times Employee’s
Average Annual Compensation over (ii) the aggregate present value, as determined
for federal income tax purposes, of all other payments to the Employee in the
nature of compensation that are treated for federal income tax purposes as
contingent on the Change in Control plus (b) an annual bonus equal to the
greater of target or actual bonus for the year in which employment terminates,
pro-rated for the months elapsed in the annual bonus period at the time
employment terminates and shall be paid such lump sum payment by Employer within
ten (10) days of the effective date of termination of this Agreement. As used
herein, the term “Average Annual Compensation” means the Employee’s average
annual taxable compensation paid by the Employer during the most recent five (5)
taxable years ending before the date the Change in Control occurs (or such
portion of such period during which the Employee was employed by the Employer.
In addition to the termination payments provided in this Section 3.7, in the
event and only in the event a Change in Control has occurred and this Agreement
is terminated by Employer or by Employee pursuant to Section 3.2.3: (a) all of
Employee’s stock awards shall immediately vest; (b) all of Employee’s
unexercised stock options shall become immediately exercisable and (c) Employer
shall continue Employee’s medical coverage for up to two years at the same level
as available to employees of the Employer.
 
3.8 Calculation of Payment Amount.
 
(a) Certain Adjustments of Payment Amount. If it is determined that any payment
or distribution by the Employer to or for the benefit of the Employee (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise) is subject to the limitations of section 280G of the
Internal Revenue Code (the “Code”) (a “Parachute Payment”), the following
provisions will apply:
 
(i) If the aggregate present value of Parachute Payments is less than or equal
to the 280G limit, then no adjustment to the amount of such Parachute Payments
shall be made.

(ii) If the aggregate present value of Parachute Payments is greater than the
280G limit, but equal to or less than 110% of the 280G limit, such Parachute
Payments shall be reduced to an amount, the present value of which maximizes the
aggregate present value of Parachute Payments without causing such Parachute
Payments to exceed the 280G limit.
 

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

 
(iii) If the aggregate present value of Parachute Payments is greater than 110%
of the 280G limit, the Employee shall be entitled to receive an additional
payment (a “Gross-Up Payment”) in an amount such that after payment by the
Employee of all taxes (including any interest or penalties imposed with respect
to such taxes), including any excise tax imposed by Code section 4999 or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the “Excise Tax”) imposed upon the Gross-Up Payment, the Employee retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Parachute Payments.
 
For purposes of this Section 3.8, “present value” shall be determined in
accordance with Code section 280G(d)(4), and the “280G limit” is the amount that
can be paid under this Agreement or otherwise without causing any amount to be
nondeductible under Code section 280G or subject to excise tax under section
4999.

(b) Determinations made by Accounting Firm. All determinations required to be
made under Section 3.8(a), including the aggregate present value of Parachute
Payments, whether a reduction is required under Section 3.8a(ii) and the amount
of such reduction, and whether a Gross-Up Payment is required under Section
3.8(a)(iii) and the amount of such Gross-Up Payment, shall be made by a locally
recognized accounting firm selected by the Employer (the “Accounting Firm”). The
Accounting Firm shall provide detailed supporting calculations both to the
Employer and the Employee within 15 business days after the Employee’s
termination of employment. The initial Gross-Up Payment, if any, as determined
pursuant to Section 3.8(a)(iii), shall be paid to the Employee within 15 days
after the receipt of the Accounting Firm’s determination. The Accounting Firm
shall furnish the Employee with an opinion that he or she has substantial
authority to complete and file his or her Federal income tax return in a manner
consistent with the Accounting Firm’s determination of the appropriate amount of
Parachute Payments reportable by the Employee and of the appropriate amount of
Excise Tax required to be paid, if any. Any determination by the Accounting Firm
shall be binding upon the Employer and the Employee.
 
(c) Special Rules Applicable to Reduction of Payments. The Employee shall
determine which and how much of the Parachute Payments shall be reduced
consistent with the requirements of Section 3.8(a)(ii), provided that, if the
Employee does not make such determination within 10 business days after the
receipt of the calculations made by the Accounting Firm, the Employer shall
elect which and how much of the Parachute Payments shall be eliminated or
reduced consistent with the requirements of Section 3.8(a)(ii) and shall notify
the Employee promptly of such election.
 
(d) Special Rules Applicable to Gross-Up Payments. The Employee shall notify the
Employer in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Employer of the Gross-Up Payment.
Such notification shall be given as soon as practicable but not later than ten
business days after the Employee knows of such claim and shall apprise the
Employer of the nature of such claim and the date on which such claim is
requested to be paid. The Employee shall not pay such claim prior to the
expiration of the thirty-day period following the date on which it gives such
notice to the Employer (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Employer notifies
the Employee in writing prior to the expiration of such period that it desires
to contest such claim, the Employee shall:
 

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

(i) give the Employer any information reasonably requested by the Employer
relating to such claim,

(ii) take such action in connection with contesting such claim as the Employer
shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney reasonably selected by the Employer,

(iii) cooperate with the Employer in good faith in order effectively to contest
such claim,

(iv) permit the Employer to participate in any proceedings relating to such
claim,

provided, however, that the Employer shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Employee harmless, on an after-tax
basis, for any Excise Tax or income tax, including interest and penalties with
respect thereto, imposed as a result of such representation and payment of costs
and expenses. Without limitation on the foregoing provisions of this Section
3.8(d), the Employer shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the Employee to
pay the tax claimed and sue for a refund or contest the claim in any permissible
manner, and the Employee agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Employer shall determine; provided,
however, that if the Employer directs the Employee to pay such claim and sue for
a refund, the Employer shall advance the amount of such payment to the Employee,
on an interest-free basis, and shall indemnify and hold the Employee harmless,
on an after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statue of limitations relating to payment of taxes for
the taxable year of the Employee with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Employer’s control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Employee shall be
entitled to settle or contest, as the case may be, and other issue raised by the
Internal Revenue Service or any other taxing authority.

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

If, after receipt by the Employee of an amount advanced by the Employer pursuant
to this Section 3.8(d), the Employee becomes entitled to receive any refund with
respect to such claim, the Employee shall (subject to the Employer’s complying
with the requirements of this Section 3.8(d) promptly pay to the Employer the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Employee of an amount
advanced by the Employer pursuant to this Section 3.8(d), a determination is
made that the Employee shall be entitled to any refund with respect to such
claim and the Employer does not notify the Employee in writing of its intent to
contest such denial of refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

If the Employer exhausts its remedies pursuant to this Section 3.8(d) and the
Employee thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Gross-Up Payment that the
Employer should have made (“Gross-Up Deficiency”). The amount of any such
Gross-Up Deficiency shall be promptly paid by the Employer to or for the benefit
of the Employee. To the extent that any Gross-Up Deficiency arises in the
context of a Parachute Payment that was determined pursuant to Section
3.8(a)(ii), and therefore reduced to the 280G limit, when in fact, the amount of
such Parachute Payment should have been determined under Section 3.8(a)(iii),
the amount of any Gross-Up Deficiency shall include the additional Parachute
Payment due as a result of the calculation of the amount under Section
3.8(a)(iii).

(e) Overpayments/Underpayments. As a result of the uncertainty in the
application of Code section 280G at the time of the initial determination by the
Accounting Firm hereunder, it is possible that the Parachute Payments will have
been made by the Employer which should not have been made (“Overpayment”), or
that additional Parachute Payments which will not have been made by the Employer
could have been made (“Underpayment”), in each case consistent with the
calculations required to be made hereunder. Overpayments and Underpayments
arising in connection with Parachute Payments appropriately determined pursuant
to Section 3.8(a)(i) or Section 3.8(a)(ii) are governed by this Section 3.8(e).
Any Overpayment or Underpayment arising in connection with a Parachute Payment
that is appropriately determined pursuant to Section 3.8(a)(iii) are governed by
the provisions of Section 3.8(d).
 
(i) Overpayments. The provisions of this subparagraph (i) apply in connection
with a Parachute Payment that is appropriately determined pursuant to Section
3.8(a)(ii). If the Accounting Firm, based upon the assertion of a deficiency by
the Internal Revenue Service against the Employee which the Accounting Firm
believes has a high probability of success, determines that an Overpayment has
been made, any such Overpayment paid or distributed by the Employer to or for
the benefit of the Employee shall be treated for all purposes as a loan ab
initio to the Employee which the Employee shall repay to the Employer together
with interest at the applicable federal rate provided for in Code section
7872(f)(2); provided, however, that no such loan shall be deemed to have been
made and no amount shall be payable by the Employee to the Employer if and to
the extent such deemed loan and payment would not either reduce the amount on
which the Employee is subject to tax under Code sections 1 and 4999 or generate
a refund of such taxes.

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

(ii) Underpayments. The provisions of this subparagraph (ii) apply in connection
with a Parachute Payment that is appropriately determined pursuant to Section
3.8(a)(i) or Section 3.8(a)(ii). If the Accounting Firm, based upon controlling
precedent or other substantial authority, determines that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Employer to or for
the benefit of the Employee, together with interest at the applicable federal
rate provided for in Code section 7872(f)(2).

4. COMPENSATION AND BENEFITS.
 
4.1 Compensation. The Employee will receive the following salary and benefits:
 
(a) Base Salary. During the Term, the Employee will receive a base salary at the
rate of $200,000 per annum, payable in substantially equal installments in
accordance with the Bank's regular payroll practices (“Base Salary”). The
Employee's Base Salary will be reviewed by the Board annually, and the Employee
will be entitled to receive annually an increase in such amount, if any, as may
be determined by the Board.
 
(b) Incentive Compensation.
 
(i) In addition to Employee's Base Salary under Section 4.1(a), the Employer
may, in its sole discretion, pay the Employee a cash or non cash bonus as
determined each year by the Board. The cash bonus may be in an amount of up to
60% of Employee’s Base Salary.
 
(ii) The Employee will also be entitled to participate in such other bonus,
incentive and other executive compensation programs as are made available to
senior management of the Employer from time to time.
 
(iii) Employer hereby grants to Employee, subject to the vesting schedule and
the condition of employment described herein, 12,000 shares of common stock of
Bay National Corporation (“BNC”). The stock grant described in this Section
4.1(b)(iii) shall vest as follows: 25% (3,000 shares) on the first anniversary
of this Agreement; 25% (3,000 shares) on the second anniversary of this
Agreement; 25% (3,000 shares) on the third anniversary of this agreement and 25%
(3,000 shares ) on the fourth anniversary of this Agreement. The vesting of
shares under this Section 4.1(b)(iii) is subject to Employee being employed by
Employer under this Agreement at each vesting date. If Employee is not employed
by Employer under this Agreement on a vesting date, shares to have vested on
such vesting date and subsequent thereto will not vest and Employer and/or BNC
will have no duty under this Section 4.1(b)(iii) to issue any shares to
Employee. Additional shares may be awarded from time to time to Employee subject
to approval of the Board in its sole descretion.
 

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

The bonus amounts and stock grants to which the Employee is entitled pursuant to
this Section 4.1(b) are referred to herein as “Incentive Compensation”.
 
4.2 Additional Payments. In addition to the payments described in Section 4.1
hereof, Employer shall pay Employee $30,0000 on the Effective Date and $30,000
six months there after with such second payment being contingent upon: (1)
Employee being employed by Employer pursuant to this Agreement or (2) if
Employee is employed by Employer pursuant to this Agreement, Employee not being
suspended by Employer pursuant to Section 3.5 of this Agreement.
 
4.3 Business Expenses; Memberships. The Employer specifically agrees to
reimburse the Employee for (a) reasonable business (including travel) expenses
incurred by the Employee in the performance of the Employee's duties hereunder,
as approved from time to time by the Board, and (b) the dues and business
related expenditures, including initiation fees, associated with membership in
professional associations which are commensurate with the Employee's position;
provided, however, that the Employee must, as a condition of reimbursement,
submit verification of the nature and amount of such expenses in accordance with
reimbursement policies from time to time adopted by the Employer and in
sufficient detail to comply with rules and regulations promulgated by the
Internal Revenue Service.
 
4.4 Vacation. On a non-cumulative basis the Employee will be entitled to
vacation in each year of this Agreement in accordance with the Bank's vacation
policy as then in effect, during which the Employee's Base Salary will be paid
in full.
 
4.5 Benefits. In addition to the Base Salary and Incentive Compensation, the
Employee will be entitled to such benefits as may be available from time to time
for employees of the Employer. All such benefits will be awarded and
administered in accordance with the Employer's standard policies and practices.
Such benefits may include, by way of example only, health, dental, vision,
profit-sharing plans, retirement, and disability insurance benefits and such
other benefits as the Employer deems appropriate. In addition to the benefits
described in this Section 4.5, Employer shall provide to Employee at no cost to
Employee, life insurance equal to the then current annual salary of Employee
payable to a beneficiary or beneficiaries selected by Employee.
 
4.6 Withholding. The Employer may deduct from each payment of compensation
hereunder all amounts required to be deducted and withheld in accordance with
applicable federal and state income, FICA and other withholding requirements.
 
5. COMPANY INFORMATION
 
5.1 Ownership of Information. All Company Information received or developed by
the Employee while employed by the Employer will remain the sole and exclusive
property of the Employer.
 
5.2 Obligations of the Employee. The Employee agrees (a) to hold Company
Information in strictest confidence, (b) not to use, duplicate, reproduce,
distribute, disclose or otherwise disseminate Company Information or any
physical embodiments thereof and (c) not to take or fail to take any action with
respect to Confidential Information that would result in any Company Information
losing its character or ceasing to qualify as Confidential Information or a
Trade Secret. In the event that the Employee is required by law to disclose any
Company Information, the Employee will not make such disclosure unless (and then
only to the extent that) the Employee has been advised by the Company’s legal
counsel that such disclosure is required by law and then only after prior
written notice is given to the Employer when the Employee becomes aware that
such disclosure has been requested and is required by law. This Section 5 will
survive the termination of this Agreement with respect to Confidential
Information for so long as it remains Confidential Information, but for no
longer than three (3) years following termination of this Agreement, and this
Section 5 will survive termination of this Agreement with respect to Trade
Secrets for so long as is permitted by the then-current Maryland Trade Secrets
Act.
 

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

5.3 Delivery upon Request or Termination. Upon request by the Employer, and in
any event upon termination of employment with the Employer, the Employee will
promptly deliver to the Employer all property belonging to the Employer,
including without limitation, all Company Information then in the Employee's
possession or control.
 
6. NON-COMPETITION. The Employee agrees that during the Term hereunder and, in
the event of the Employee's termination of employment for any reason, thereafter
for the period of time, if any the Employer is obligated to make payments under
Section 3.7, the Employee will not (except on behalf of or with the prior
written consent of the Employer), within the Area, either directly or
indirectly, on the Employee's own behalf or in the service or on behalf of
others, as a principal, partner, officer, director, manager, supervisor,
administrator, consultant, executive employee or in any other capacity which
involves duties and responsibilities similar to those undertaken for the
Employer, engage in any business which is the same as or essentially the same as
the Business of the Employer. Notwithstanding anything contained herein, it is
expressly agreed that Employee is free to pursue employment in the financial
services industry within the Area provided Employer’s obligation to make
payments under Section 3.7 have been satisfied or have been waived by Employee.
 
7. NON-SOLICITATION OF CUSTOMERS. The Employee agrees that during the Term
hereunder and, in the event of the Employee's termination of employment for any
reason, thereafter for a period equal to one (1) year, the Employee will not
(except on behalf of or with the prior written consent of the Employer), within
the Area, on the Employee's own behalf or in the service or on behalf of others,
solicit, divert or appropriate or attempt to solicit, divert or appropriate,
directly or by assisting others, any business from any of the Employer's
customers, including actively sought prospective customers, with whom the
Employee has or had material contact during the last two (2) years of the
Employee's employment, for purposes of providing products or services that are
competitive with those provided by the Employer.
 
8. NON-SOLICITATION OF EMPLOYEES. The Employee agrees that during the Term
hereunder and, in the event of the Employee's termination of employment for any
reason, thereafter for a period equal (1) year, the Employee will not, except
for Employee’s Administrative Assistant, within the Area, on the Employee's own
behalf or in the service or on behalf of others, solicit, recruit or hire away
or attempt to solicit, recruit or hire away, directly or by assisting others,
any employee of the Employer or its Affiliates, whether or not such employee is
a full-time employee or a temporary employee of the Employer or its Affiliates
and whether or not such employment is pursuant to written agreement and whether
or not such employment is for a determined period or is at will.
 

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

9. REMEDIES. The Employee agrees that the covenants contained in Sections 5
through 8 of this Agreement are of the essence of this Agreement; that each of
the covenants is reasonable and necessary to protect the business, interests and
properties of the Employer; and that irreparable loss and damage will be
suffered by the Employer should the Employee breach any of the covenants.
Therefore, the Employee agrees and consents that, in addition to all the
remedies provided by law or in equity, the Employer will be entitled to a
temporary restraining order and temporary and permanent injunctions to prevent a
breach or contemplated breach of any of the covenants. The Employer and the
Employee agree that all remedies available to the Employer or the Employee, as
applicable, will be cumulative.
 
10. SEVERABILITY. The parties agree that each of the provisions included in this
Agreement is separate, distinct and severable from the other provisions of this
Agreement and that the invalidity or unenforceability of any Agreement provision
will not affect the validity or enforceability of any other provision of this
Agreement. Further, if any provision of this Agreement is ruled invalid or
unenforceable by a court of competent jurisdiction because of a conflict between
the provision and any applicable law or public policy, the provision will be
redrawn to make the provision consistent with and valid and enforceable under
the law or public policy.
 
11. NO SET-OFF BY THE EMPLOYEE. The existence of any claim, demand, action or
cause of action by the Employee against the Employer, or any Affiliate of the
Employer, whether predicated upon this Agreement or otherwise, will not
constitute a defense to the enforcement by the Employer of any of its rights
hereunder.
 
12. NOTICE. All notices and other communications required or permitted under
this Agreement will be in writing and, if mailed by prepaid first-class mail or
certified mail, return receipt requested, will be deemed to have been received
on the earlier of the date shown on the receipt or three (3) business days after
the postmarked date thereof. In addition, notices hereunder may be delivered by
hand, facsimile transmission or overnight courier, in which event the notice
will be deemed effective when delivered or transmitted. All notices and other
communications under this Agreement must be given to the parties hereto at the
following addresses:
 

(i)
If to the Employer:
Hugh W. Mohler
   
President
   
Bay National Bank
   
2328 W. Joppa Road
   
Baltimore, Maryland 21093
       
With a copy to:
Frank C. Bonaventure, Esquire
   
Ober/Kaler

 

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

   
120 E. Baltimore St.
   
Baltimore, MD 21202-1643
     
(ii)
If to the Employee:
Richard C. Springer
   
13342 Pipes Lane
   
Sykesville, MD 21784

13. ASSIGNMENT. Neither party hereto may assign or delegate this Agreement or
any of its rights and obligations hereunder without the written consent of the
other party hereto.
 
14. WAIVER. A waiver by the Employer of any breach of this Agreement by the
Employee will not be effective unless in writing, and no waiver will operate or
be construed as a waiver of the same or another breach on a subsequent occasion.
 
15. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, will be settled by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The decision of the arbitration panel will be final and binding on
the parties, and judgment upon the award rendered by the arbitration panel may
be entered by any court having jurisdiction thereof.
 
16. ATTORNEYS' FEES. In the event that the parties have complied with this
Agreement with respect to arbitration of disputes and litigation ensues between
the parties concerning the enforcement of an arbitration award and the Employee
must employ separate legal counsel, the Employer shall advance to the Employee,
within thirty (30) days after receiving copies of invoices submitted by
Employee, any and all reasonable attorneys' fees and expenses incurred with
preparing, investigating and litigating such action, proceeding or suit. The
Employee must reimburse the Employer for any and all advances that exceed the
first $5,000 advanced to the Employee for such legal expenses only if and to the
extent that a final decision by a court of competent jurisdiction has determined
that the Employee is not entitled to receive any amounts due or to enforce any
of the rights under this Agreement.
 
17. APPLICABLE LAW. This Agreement will be construed and enforced under and in
accordance with the laws of the State of Maryland. The parties agree that any
appropriate state court located in Baltimore County, Maryland, will have
jurisdiction of any case or controversy arising under or in connection with this
Agreement and will be a proper forum in which to adjudicate such case or
controversy. The parties consent to the jurisdiction of such courts.
 
18. INTERPRETATION. Words importing the singular form shall include the plural
and vice versa. The terms “herein”, “hereunder”, “hereby”, “hereto”, “hereof”
and any similar terms refer to this Agreement. Any captions, titles or headings
preceding the text of any article, section or subsection herein are solely for
convenience of reference and will not constitute part of this Agreement or
affect its meaning, construction or effect.
 

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

19. ENTIRE AGREEMENT. This Agreement embodies the entire and final agreement of
the parties on the subject matter stated in the Agreement. No amendment or
modification of this Agreement will be valid or binding upon the Employer or the
Employee unless made in writing and signed by both parties. All prior
understandings and agreements relating to the subject matter of this Agreement
are hereby expressly terminated.
 
20. RIGHTS OF THIRD PARTIES. Nothing herein expressed is intended to or will be
construed to confer upon or give to any person, firm or other entity, other than
the parties hereto and their permitted assigns, any rights or remedies under or
by reason of this Agreement.
 
21. SURVIVAL. The obligations of the Employee pursuant to Sections 5, 6, 7, 8
and 9 will survive the termination of the employment of the Employee hereunder
for the period designated under each of those respective Sections.
 
[Signature Page Follows]

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

IN WITNESS WHEREOF, the Employer and the Employee have executed and delivered
this Agreement as of the date first shown above.
 

 
Employer:
       
Bay National Bank
             
By:
/s/ Hugh W. Mohler    
Name: Hugh W. Mohler
   
Title: President
                   
Employee:
             
/s/ Richard C. Springer
 
Richard C. Springer

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

Exhibit A

BAY NATIONAL BANK
JOB DESCRIPTION

JOB TITLE:
EXECUTIVE VICE PRESIDENT
FSLA:
EXEMPT
REPORTS TO:
BOARD OF DIRECTORS

SUMMARY:

ESSENTIAL DUTIES AND RESPONSIBILITIES:

SUPERVISORY RESPONSIBILITY:

CRA REQUIREMENT:

PRODUCT AND KNOWLEDGE REQUIREMENT:

QUALIFICATION REQUIREMENTS:

EDUCATION AND/OR EXPERIENCE:

LANGUAGE SKILLS:

ANALYTICAL SKILLS:

PHYSICAL DEMANDS:

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

PERFORMANCE EXPECTATIONS:

ORGANIZATIONAL EXPECTATIONS:

FINANCIAL EXPECTATIONS:

RELATIONSHIP EXPECTATIONS:

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