**Exhibit 10.1**

 

**Assignment, Assumption and Amendment ofEMPLOYMENT AGREEMENT**

 

This Assignment,Assumption and Amendment (the “**Amendment**”)of Employment Agreement is made effective as of January 1, 2002 by andamong MERCANTILE NATIONAL BANK, a national banking association organized andexisting under the laws of the United States (“**Bank**”), National Mercantile Bancorp, a California corporation(“**Bancorp**”), andSCOTT A. MONTGOMERY (“**Montgomery**”),with reference to the following facts:

 

A.            In 1996, Bank and Montgomery enteredinto an employment agreement pursuant to which Bank employed Montgomery asPresident and Chief Executive Officer of Bank.

 

B.            The Employment Agreement was amendedand restated as of January 1, 1999 (the “**EmploymentAgreement**”).

 

C.            Since 1997 Montgomery has alsoserved as President and Chief Executive Officer of Bancorp, the parentcorporation of Bank.

 

D.            In December 2001, Bancorp acquiredSouth Bay Bank, N.A.(“**South Bay**”),at which time Montgomery became the President and Chief Executive Officer ofSouth Bay.

 

E.             The parties desire that Bancorpassume the obligations of Bank under the Agreement and to effect certainamendments to the Employment Agreement.

 

NOW, THEREFORE,with reference to the foregoing facts and in consideration of mutual promisesof the parties set forth in this Amendment, Bank, Bancorp and Montgomery herebyagree as follows:

 

# 1.             **Assignmentand Assumption**.  Bank herebyassigns to Bancorp all of its rights and obligations under the EmploymentAgreement, and Bancorp hereby assumes such rights and obligations, but in eachcase excluding the indemnification obligations of Bank under Paragraph 4 of theEmployment Agreement.  Montgomery herebyconsents to such assignment and assumption, and agrees that Bank is releasedfrom its obligations under the Employment Agreement except for itsindemnification obligations under Paragraph 4 of the Agreement.  As a result, all references to the “Bank” inthe Employment Agreement shall be changed to “Bancorp” except: (i) underParagraph 4 of the Employment Agreement; (ii) in connection with references toemployee benefit plans, insurance and similar matters which are maintained byBank and not Bancorp (and for only so long as such plans, insurance and othermatters are so maintained by Bank); (iii) under Paragraphs 6.1, 10.11 and 10.12of the Employment Agreement; and (iv) where used in this Amendment.

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# 2.             **Paragraphs1.2 and 1.3—Employment and Directorships.**  Paragraphs 1.2 and 1.3 of the Agreement are amended in theirentirety to read as follows:

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1.2.          Performance of Duties forSubsidiaries.  Montgomery agrees toserve as chief executive officer of such direct and indirect

 

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subsidiaries ofNational Mercantile Bancorp (“Bancorp”) as the Board of Directors of Bancorpmay from time to time request.

 

1.3           Directorships.  During the term of his employment,Montgomery shall serve as a director of Bancorp and such direct and indirectsubsidiaries of Bancorp as the Board of Directors may from time to timerequest, but shall receive no director’s fees or other remuneration for hisservices as a member of said Boards of Directors.

 

# 3.             **Paragraph2—Term**.  Paragraph 2 of theEmployment Agreement is amended in its entirety to read as follows:

 

2.  Term.  Montgomery’s employment under this Agreementshall commence on January 1, 1999 and shall expire on March 31, 2007;unless terminated sooner as hereinafter provided (the “term” or “term ofemployment”).  This Agreement supersedesand replaces the Employment Agreement dated June 21, 1996.

 

# 4.             **Paragraph3.1—Base Salary**.  Paragraph 3.1 of the Agreementis amended in its entirety to read as follows:

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3.1           Base Salary. From January 1, 1999 until December 31, 2001, Bancorp shall payMontgomery a semi-monthly salary at an annualized rate of $250,000, lessapplicable withholding.  FromJanuary 1, 2002 until March 31, 2007, Bancorp shall pay Montgomery asemi-monthly salary at the annualized rate of $310,000 (“Base Salary”), lessapplicable withholding.  OnDecember 1, 2002 and each December 1 thereafter, the Base Salary shall beadjusted by multiplying the Base Salary times the percentage increase, if anyin the Consumer Price Index for All Urban Consumers (“CPI–U”) for the LosAngeles - Riverside - Orange County, California area as reported by the UnitedStates Department of Labor, Bureau of Labor Statistics for the most recent12-month period for which statistics are available (“CPI increase”) and thenadding the product to the then existing Base Salary (and such adjusted salaryshall as of the succeeding January 1 become the “Base Salary); provided,however, that in no event shall the increase in Base Salary in any yearexceed five percent (5%).  A decline inthe CPI-U shall not result in a reduction in the Base Salary; provided, however,the same CPI increase shall not be the basis of an additional adjustment to theBase Salary.

 

# 5.             **Paragraph3.2—Incentive Compensation**. Paragraph 3.2 of the Agreement is amended in its entirety to readas follows:

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3.2           Incentive Compensation

 

3.2.1 If Bancorp has positive net income before income tax provision (a“Pretax Profit”) during any calendar year commencing 1999

 

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through and including 2001,Montgomery shall receive an incentive bonus in an amount equivalent to fivepercent (5%) of such Pretax Profit for that calendar year, less applicablewithholding.  Such incentive bonus shallbe paid, if earned, on or before April 1 of the year following the year duringwhich the applicable Pretax Profit was earned. Additionally, in the event the Bancorp has a Pretax Profit and a returnratio of at least one and one-half percent (1.5%) of Pretax Profit to assetsduring a calendar year, the Board of Directors shall award Montgomery anadditional incentive bonus in an amount equivalent to two percent (2%) of suchPretax Profit for that calendar year, less applicable withholding.  Such additional incentive bonus shall bepaid, if earned, on or before April 1 of the year following the year duringwhich the applicable Pretax Profit was earned.

 

3.2.2 If Bancorp has positive “Pretax Profit” during any calendar year duringthe term of Montgomery’s employment commencing with calendar year 2002,Montgomery shall receive an incentive bonus in an amount equal to 3% of thefirst $3 million of such Pretax Profit, plus 4% of the next $2 million ofPretax Profit, plus 5% of any Pretax Profit in excess of $5 million; provided,however, the incentive bonus in any year shall not exceed Montgomery’sBase Salary for such year.

 

3.2.3 Montgomery understands and agrees that nothing in this Agreement isintended to create or imply any right on his part to receive, or duty on thepart of Bancorp to pay, a bonus or incentive compensation for any calendar yearin which Bancorp fails to achieve a Pretax Profit; provided, however,that if Bancorp fails to achieve a positive Pretax Profit during any calendaryear during the term of Montgomery’s employment, Bancorp’s Board of Directorsmay, in its sole and absolute discretion, award Montgomery a discretionaryincentive bonus in an amount it deems appropriate under the circumstances,taking into account such factors as Montgomery’s performance of his duties, theoperating results and financial condition of Bancorp, and the economic climatewithin which Bancorp operated during the year.

 

# 6.             **Paragraph8.2.2.**  Paragraph 8.2.2 isamended in its entirety to read as follows:

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8.2.2 Bancorp may terminate Montgomery’s employment hereunder at any time forcause.  For purposes of this Agreement,the term “cause” shall mean, (a) any act of dishonesty, unauthorized disclosureof confidential information or fraud by Montgomery in the performance of hisduties hereunder; (b) the commission of a felony involving theft or fraud ofany kind; (c) the commission of a fraud or misappropriation or embezzlement ofproperty of the Bancorp Group or any customer of the Bancorp Group; (d) awillful and material breach by Montgomery of obligations under this Agreement,all (a, b, c and d) with or without prosecution or conviction; (e) theinability of any member of the Bancorp Group to secure a bond for the servicesof Montgomery, or Montgomery

 

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engaging in conduct that wouldpreclude any member of the Bancorp Group’s ability to bond Montgomery; or (f) awritten order or directive from the Office of the Comptroller of the Currencyor the Board of Governors of the Federal Reserve System ordering the removal ofMontgomery as an executive officer or director of any member of the BancorpGroup.  For purposes of this Agreement,the “Bancorp Group” shall mean Bancorp and any direct or indirect subsidiarydepository institution of Bancorp.

 

# 7.             **Paragraph8.3.3**.  With respect to theclause “the Bank [now Bancorp] substantially and adversely changes Montgomery’sstatus, title, position or responsibilities,” it is understood that this refersto Montgomery’s status, title, position and responsibilities as Chief ExecutiveOfficer and President of Bancorp and not any subsidiary or subsidiaries ofBancorp.

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# 8.             **Paragraph 8.3.4**.  Paragraph 8.3.4 of the EmploymentAgreement is amended to add the words “or Paragraph 8.5.2 below”immediately after the words “Paragraph 8.3.3 above.”

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# 9.             **Paragraph8.3.7**.  A new Paragraph 8.3.7is added to the Employment Agreement to read as follows:

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8.3.7        IfMontgomery’s employment is terminated pursuant to Paragraph 8.1, by Bancorpunder Paragraphs 8.2.1 or 8.2.3, or by Montgomery under the circumstancesdescribed in Paragraph 8.3.3, and Bancorp has a positive Pre-tax Profit for thecalendar year in which his termination of employment occurs, Montgomery shallbe entitled to additional severance compensation in an amount equal to: (a) theamount of incentive compensation he would have earned under Paragraph 3.2.2 hadhe been employed for the full calendar year, multiplied by (b) a fraction, thenumerator of which is the number of days during the calendar year during whichhe was employed by Bancorp and the denominator of which is the number of daysin the calendar year.  Such additionalseverance shall be paid, if earned, on or before April 1 of the yearfollowing the calendar year in which Montgomery’s employment terminates.

 

# 10.           **Paragraph11—Change of Control Payment. **Anew Paragraph 11 is added to the Employment Agreement to read as follows:

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11.           Changeof Control

 

11.1         Forthe purposes of this Agreement, the following terms shall have the meanings setforth below:

 

11.1.1 “Affiliate” shall mean, with respectto any Person, any Person that, directly or indirectly, controls, is controlledby or is under common control with such Person.  For the purposes of this definition, “control” (including, withcorrelative meanings, the terms “controlled by” and “under common controlwith”) shall

 

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mean the possession, directlyor indirectly, of the power to direct or cause the direction of the managementand policies of such Person, whether through the ownership of voting securitiesor voting equity interests.

 

11.1.2 A “Change of Control” shall be deemedto have occurred in any of the following instances:

 

(i)                                     The sale byBancorp of all or substantially all of its assets to any Person, but not a saleto the Existing Shareholder Group if the purchaser assumes all of theobligations of Bancorp under this Agreement (with the effect that Montgomerybecomes the Chief Executive Officer of the purchaser);

 

(ii)                                  A merger orconsolidation of Bancorp with any other Person if the shareholders of Bancorpimmediately prior to such merger or consolidation beneficially own sharesrepresenting less than 50% of the voting power in the election of directors ofthe surviving entity immediately following such merger or consolidation, butexcluding a merger or consolidation with an entity which is a member of theExisting Shareholder Group; or

 

(iii)                               A Person other than theExisting Shareholder Group acquires beneficial ownership of shares representing35% or more of the voting power in the election of directors of Bancorp or itssuccessor or, if Bancorp or its successor is involved in a reorganization inwhich it becomes a subsidiary of another corporation, the ultimate parentcorporation of Bancorp or its successor; or

 

(iv)                              any other transaction,although in a different form, accomplishes substantially the same result as(i), (ii) or (iii).

 

11.1.3 “Change of Control Payment” shall meana lump-sum payment equal to 18 months salary at the Base Salary in effect onthe date of termination of Montgomery’s employment.

 

11.1.4 “Exchange Act” shall mean theSecurities Exchange Act of 1934, as amended, or any successor statute.

 

11.1.5 “Existing Shareholder Group” shallmean (i) Carl R. Pohlad, Eloise O. Pohlad, James O. Pohlad, Robert C. Pohladand William M. Pohlad; (ii) members of the immediate family of the

 

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Persons in subparagraph (i);and (iii) Affiliates of Persons listed in subparagraphs (i) or (ii).

 

11.1.6 “Person” shall have the meaning ascribed to such term inSection 3(a)(9) of the Exchange Act, which definition shall include a“person” within the meaning of Section 13(d)(3) of the Exchange Act.

 

11.2         Ifthe Company terminates Montgomery’s employment without cause and within 12months thereafter a Change of Control occurs, within 30 days following suchChange of Control, Bancorp shall pay to Montgomery a lump sum amount equal toamount to which Montgomery would thereafter be entitled under Paragraph 8.3.3of this Agreement; in other words, the remaining obligation of Bancorp underParagraph 8.3.3. shall be accelerated (and Bancorp shall have no obligationunder Paragraph 8.3.3 of this Agreement for payments accruing after the Changeof Control).

 

11.3         Ifa Change of Control occurs and within 12 months thereafter Montgomery’semployment is terminated without cause, within 30 days following suchtermination, Bancorp shall pay to Montgomery the Change of Control Payment (andwhile the Change of Control Payment shall be without reduction for salary andother compensation accruing following the Change of Control and prior totermination of employment, Bancorp shall have no obligation to make any paymentunder Paragraph 8.3.3 of this Agreement).

 

11.4         Ifa Change of Control occurs, Montgomery shall have the right to terminate hisemployment with Bancorp at any time after six months and prior to 12 monthsfollowing the Change of Control.  IfMontgomery so terminates his employment, within 30 days thereafter, Bancorpshall pay to Montgomery the Change of Control Payment (and Bancorp shall haveno obligation to make any payment under Paragraph 8.3.3).

 

11.5         Inthe event Montgomery is entitled to a Change of Control Payment under Paragraph11.2, 11.3 or 11.4 of this Agreement, Bancorp shall also pay to Montgomery: (a)at the time of the Change of Control Payment: (i) any bonus which had previouslybeen awarded to Montgomery under Paragraph 3.2.3 of this Agreement but whichhad not been paid; and (ii) amount sufficient to pay for all employee benefitsto which Montgomery may be entitled under COBRA for a period of twelve monthsfollowing such termination; and (b) by April 1 of the year following year inwhich Montgomery’s employment terminates,

 

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additional severancecompensation in the amount determined in accordance with Paragraph 8.3.7 ofthis Agreement.

 

# 11.           **Paragraph10.7**.  Paragraph 10.7 shallbe amended in its entirety to read as follows:

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10.7  Acknowledgment– Montgomery hereby acknowledges that this Agreement is, from the outset,without liability to, or recourse against, any officer or director of anymember of the Bancorp Group or any subsidiary thereof and that, except withrespect to Bank’s indemnity under Paragraph 4, his sole recourse under thisAgreement shall be against Bancorp.

 

# 12.           Except as amended pursuant to thisAgreement, all other terms, conditions, promises and undertakings set forth inthe Agreement are hereby ratified and shall remain in full force and effectuntil the termination of the Agreement as provided therein.

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IN WITNESSWHEREOF, Bank and Bancorp have caused this Amendment to be executed by its dulyauthorized officers, and Montgomery has duly executed this Agreement, to beeffective as of January 1, 2002.

 
| MERCANTILE  NATIONAL BANK | NATIONAL  MERCANTILE BANCORP |
|---------------------------|------------------------------|
|                      |                         |
|                      |                         |
| By:                       |                         |   | By: |   |   |
|                      |                         |
| Title:                    |                         |   | Title: |   |   |
|                      |                         |
|                      |                         |
| /s/ SCOTT A.  MONTGOMERY  |                         |   |
| SCOTT A.  MONTGOMERY      |                         |
|                           |                              |  |  |  |  |  |  |

 

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