Exhibit 10.28
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                              EMPLOYMENT AGREEMENT


         This Employment Agreement  ("Agreement") is made effective as of May 1,
2003 ("Effective Date"), by and between Monterey Bay Bancorp,  Inc. ("Company"),
a  corporation  organized  under  the laws of the  State of  Delaware,  with its
principal  executive  offices  located at 567 Auto  Center  Drive,  Watsonville,
California, 95076; and Monterey Bay Bank ("Association"),  a federally chartered
savings and loan association,  a wholly-owned  subsidiary of the Company, and C.
Edward Holden  ("Executive").  This  Agreement  amends and  supersedes all prior
employment  agreements  between  or among  the  Company,  the  Association,  and
Executive.

         WHEREAS,  the  Association  wishes to obtain the services of Executive;
and

         WHEREAS, Executive is willing to serve in the employ of the Association
on a full-time basis;

         NOW,  THEREFORE,  in  consideration  of  the  mutual  covenants  herein
contained,  and upon the other terms and conditions  hereinafter  provided,  the
parties hereby agree as follows:

SECTION 1.  EMPLOYMENT, DUTIES, AND RESPONSIBILITIES

         (a) The Company and  Association  (collectively  "Companies")  agree to
employ the Executive and the Executive  agrees to be employed by the  Companies.
The Executive  shall serve as the President and Chief  Executive  Officer of the
Companies.  The  Executive  also shall hold the position of Vice Chairman of the
Companies' board of directors ("Board"), subject to the Bylaws of the Companies.
The Executive shall be subject to an annual  performance review conducted by the
Board no later than May 1 of each year during the term of this Agreement.

         (b) Except for periods of absence  occasioned  by  illness,  reasonable
vacation periods, and reasonable leaves of absence,  Executive agrees to perform
such duties as may be assigned by the Board,  to devote all of his working  time
to the  business of the  Companies,  and to use his best  efforts to advance the
interests of the Companies and their stockholders including, without limitation,
the  performance  by the  Executive of all  necessary  and  reasonable  services
consistent with his positions of President and Chief Executive Officer,  and, as
the Board may  request  from time to time,  membership  in and  service  to such
organizations  specified by the Board.  However,  the  expenditure of reasonable
amounts of time, for which  Executive shall not be compensated by the Companies,
for educational,  charitable,  or professional  activities shall not be deemed a
breach of this Agreement if those  activities do not  materially  interfere with
the services required of Executive under this Agreement.

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SECTION 2.  TERM OF AGREEMENT

         (a) The Association  agrees to employ the Executive,  and the Executive
agrees to accept employment by the Association, in accordance with the terms and
provisions of this  Agreement,  for the period  commencing on the Effective Date
and continuing for a period of twenty-four (24) full calendar months,  ending on
the second anniversary of the Effective Date ("TERM").

         (b)  Commencing on the first  anniversary  date of the  Agreement,  and
continuing on each  anniversary  thereafter,  the  disinterested  members of the
Board shall extend the Agreement an additional year such that the remaining term
of the Agreement shall be two (2) years unless the Executive or Board elects not
to extend the term of this Agreement by giving written notice to the other party
in accordance with Section 7 and Section 9 of this  Agreement.  If the Agreement
is  extended  pursuant to this  Section 2, the "TERM"  definition  herein  shall
include the period of extension.

SECTION 3.  COMPENSATION AND REIMBURSEMENT.

         (a) During the TERM, the Executive  shall receive a base salary,  which
shall be paid in equal installments on a semi-monthly  basis, at the annual rate
of not less than  $265,225 per year ("Base  Salary").  Base Salary shall include
any  amounts of  compensation  deferred  by  Executive  under any  qualified  or
non-qualified  employee benefit plan maintained by the  Association.  During the
TERM,  Executive's Base Salary shall be reviewed at least annually. Any increase
in Base Salary shall become the Base Salary for purposes of this Agreement.

         (b) In  addition  to the Base  Salary  provided  for by  Section  3(a),
Executive  will be  entitled to  participate  in or receive  benefits  under any
employee  benefit  plans  including  but  not  limited  to,   retirement  plans,
supplemental  retirement  plans,  pension  plans,  employee  stock option plans,
profit-sharing plans,  health-and-accident plans, medical coverage, or any other
employee benefit plan or arrangement currently made available by the Association
or Company or made  available  in the  future to its senior  executives  and key
management  employees,  subject  to and on a basis  consistent  with the  terms,
conditions, and overall administration of such plans and arrangements. Executive
will be entitled to incentive  compensation  and bonuses as provided in any plan
of the  Association  or Company in which  Executive is eligible to  participate.
Nothing paid to the Executive under any such plan or arrangement  will be deemed
to be in lieu of other  compensation  to which the  Executive is entitled  under
this Agreement.

         (c) In  addition to the Base Salary  provided  for by Section  3(a) and
other  compensation  provided for by Section 3(b), the Association  shall pay or
reimburse  Executive  for all  reasonable  travel,  auto  allowance,  and  other
reasonable  business  related  expenses  incurred by Executive in performing his
obligations  under  this  Agreement.  Executive  shall  submit  monthly  to  the
Association a request for reimbursement  together with supporting  documentation
and, if applicable, receipts.

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SECTION 4.  PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.

         (a)  If  the   Association   or   Company   terminates,   actually   or
constructively,  the Executive's employment during the TERM for any reason other
than a termination  governed by Section 5 hereof,  or termination  for Cause, as
defined in Section 7 hereof, the Association shall be obligated to pay Executive
within  thirty  (30)  days  after  his  termination,  or,  in the  event  of his
subsequent death, his beneficiary or  beneficiaries,  or his estate, as the case
may be, in a lump sum  amount  equal to (i) the cost of  providing  medical  and
dental coverage through COBRA continuation coverage,  similar to the coverage in
effect at the time of Executive's termination, for a period of one year, (ii) an
amount equal to the then currently  targeted annual bonus as defined in the Cash
Incentive  Bonus Plan of the  Association,  regardless  of the time of year such
termination  occurs and in addition to any annual  bonus earned but not yet paid
for Executive's  services  provided in a prior year, and (iii) the greater of an
amount  equal to one times  Executives  then  current  year's Base Salary or the
Executive's pro-rata Base Salary for the remainder of the TERM of the Agreement.
Such  payments  shall  not be  reduced  in the  event  Executive  obtains  other
employment following  termination of employment.  No payments under this Section
4(a) are to be "grossed up" or otherwise adjusted based upon the personal income
tax consequences to or status of Executive.  No payments under this Section 4(a)
are to be discounted or "present valued" in any manner. If Executive voluntarily
resigns during the term of this  Agreement,  other than in the event of a Change
In Control or Threatened  Change In Control as  hereinafter  defined,  or in the
event of an actual or  constructive  termination  as defined in this  Section 4,
Executive shall not be entitled to receive any payments or benefits beyond those
earned through the date of such voluntary resignation.  Constructive termination
under this Section will be deemed to occur if the  Executive is forced to resign
his employment due to intolerable  conditions as defined by California law or if
Executive  terminates his  employment due to (i) a reduction of the  Executive's
title or status or resulting from a formal change in such title or status,  (ii)
a material  reduction in Executive's  responsibilities,  (iii) the assignment to
the   Executive  of  any  duties   inconsistent   with  his  title,   duties  or
responsibilities   in  effect,   (iv)  a  material   reduction  in   Executive's
compensation or benefits (with material in this regard defined as 5.0% or more),
(v) a relocation of  Executive's  principal  place of employment by more than 30
miles from its location as of the date of this Agreement,  or (vi) a significant
increase in the Executive's travel  requirements such that Executive is required
to travel more than 30 business days per year.

         (b) In the event the  Association is not in compliance with its minimum
regulatory  capital  requirements  or if such payments  pursuant to Section 4(a)
would cause the Association's capital to be reduced below its minimum regulatory
capital  requirements,  such payments or parts thereof,  shall be deferred until
such time as the Association or successor thereto is in capital compliance.

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SECTION 5.  CHANGE IN CONTROL.

         (a) For  purposes  of this  Agreement,  a "Change  in  Control"  of the
Association  or  Company  shall  mean an event of a nature  that:  (i)  would be
required to be reported in response to Item I of the Current Report on Form 8-K,
as in  effect  on the  date  hereof,  pursuant  to  Section  13 or  15(d) of the
Securities  Exchange  Act of 1934 (the  "Exchange  Act");  or (ii)  results in a
Change in Control of the  Association  or the Company  within the meaning of the
Home Owners' Loan Act of 1933 and / or the Rules and Regulations  promulgated by
the Office of Thrift  Supervision  ("OTS") (or its  predecessor  agency),  as in
effect on the date hereof  (provided,  that in applying the definition of change
in control as set forth under the rules and  regulations  of the OTS,  the Board
shall substitute its judgment for that of the OTS); or (iii) without  limitation
such a Change in Control  shall be deemed to have  occurred  at such time as (A)
any  "person"  (as the term is used in Sections  13(d) and 14(d) of the Exchange
Act) is or becomes  the  "beneficial  owner" (as defined in Rule 13d-3 under the
Exchange Act),  directly or indirectly,  of voting securities of the Association
or the Company  representing  25% or more of the  Association's or the Company's
outstanding voting securities or the right to acquire such securities except for
any voting securities of the Association  purchased by the Company in connection
with the  conversion  of the  Association  to the stock form and any  securities
purchased by any tax qualified  employee  benefit plan of the Association or the
Company,  or (B)  individuals  who  constitute the Board on the date hereof (the
"Incumbent  Board")  cease for any  reason  to  constitute  at least a  majority
thereof,  provided  that any person  becoming a director  subsequent to the date
hereof whose election was approved by a vote of at least  three-quarters  of the
directors  comprising the Incumbent  Board, or whose  nomination for election by
the stockholders was approved by the same Nominating  Committee serving under an
Incumbent Board, shall be, for purposes of this clause "B", considered as though
he were a  member  of the  Incumbent  Board,  or (C) a plan  of  reorganization,
merger,  consolidation,  sale  of all or  substantially  all the  assets  of the
Association  or  the  Company  or  similar   transaction  occurs  in  which  the
Association or the Company is not the resulting entity, provided,  however, that
such an event  listed  above  will be  deemed to have  occurred  or to have been
effectuated  upon  the  receipt  of  all  required  regulatory  and  stockholder
approvals not including the lapse of any statutory waiting periods.

         (b) For  purposes  of this  Agreement,  the term  Threatened  Change in
Control ("Threatened Change in Control") shall mean any pending tender offer for
any class of the  Association's  or the  Company's  outstanding  shares,  or any
pending bona fide offer to acquire the  Association  or the Company by merger or
consolidation,  or any other  pending  action or plan to effect,  or which would
lead to, a Change in Control of the  Association  or the Company.  A "Threatened
Change in Control  Period" shall commence on the first day the action  described
in the preceding  sentence  become  manifest and shall end when such actions are
abandoned or the Change in Control occurs.

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         (c) If a Change in Control or Threatened Change in Control has occurred
or the Board  has  determined  that a Change in  Control  has  occurred  and the
Executive's   employment  is  terminated  by  either  a  Voluntary  Resignation,
involuntary termination,  or death: (i) within twenty-four (24) months following
the date of the Change in Control,  (ii) within six (6) months prior to the date
of the Change in Control, or (iii) during a Threatened Change in Control Period,
then the  benefits  described in Section 5(d) below shall be paid or provided to
the Executive.

         (d)  Benefits to be Provided:  If the  Executive  becomes  eligible for
benefits  under  Section  5(c) above,  the  Association  shall pay or provide to
Executive,  or in  the  event  of  his  subsequent  death,  his  beneficiary  or
beneficiaries,  or his estate, as the case may be, the compensation and benefits
("Severance Payments") set forth in this Section 5(d).

                  (i).     Salary:  The  Executive  will continue to receive his
                           current  Base  Salary,   including  auto   allowance,
                           (subject to withholding of all applicable  income and
                           payroll taxes) for a period of thirty-six (36) months
                           from his date of termination in the same manner as it
                           was  being  paid  as  of  the  date  of  termination;
                           provided,  however,  that the  payments  provided for
                           hereunder shall be paid in a single lump sum payment,
                           to  be  paid  not  later   than  30  days  after  his
                           termination of employment.

                  (ii).    Bonuses and  Incentives:  The Executive shall receive
                           bonus   payments   from  the   Association   for  the
                           thirty-six  (36) months  following the month in which
                           his  employment  is  terminated in an amount for each
                           month equal to one-twelfth  of the average  ("Average
                           Bonus")  of the  bonuses  paid  to him  for  the  two
                           calendar  years  immediately  preceding  the  year in
                           which such termination occurs. Any bonus amounts that
                           the   Executive  had   previously   earned  from  the
                           Association  but  which may not yet have been paid as
                           of the date of  termination  shall not be affected by
                           this  provision.   Executive  shall  also  receive  a
                           prorated bonus of any uncompleted  fiscal year at the
                           date  of  termination  equal  to  the  Average  Bonus
                           multiplied  by the  number  of days he worked in such
                           year   divided  by  365  days.   The  bonus   amounts
                           determined  herein  (including the Average Bonus, any
                           previously  earned but unpaid bonus, and the prorated
                           bonus for any uncompleted  fiscal year) shall be paid
                           in a single  lump sum  payment,  to be paid not later
                           than 30 days after termination of employment.

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                  (iii).   Employee Stock  Ownership  Plan: The Executive  shall
                           receive  supplemental  payments from the  Association
                           for the thirty-six (36) months following the month in
                           which his  employment  is terminated in an amount for
                           each month  equal to  one-twelfth  of the fair market
                           value as of December 31 of the  Association's  annual
                           contribution  to its Employee  Stock  Ownership  Plan
                           ("ESOP")  made on his behalf for the Plan year ending
                           immediately preceding his date of termination. If, as
                           of the date of Executive's termination, the Executive
                           is not fully  vested in his  benefit  under the ESOP,
                           the Association  shall also pay to the Executive,  an
                           additional payment equal to the amount of his account
                           under the ESOP which was forfeited as a result of his
                           termination  based upon the fair  market  value as of
                           the  most  recent   December  31.  The   supplemental
                           payments  determined  herein  shall be paid in a lump
                           sum payment,  to be paid not later than 30 days after
                           termination of employment.

                  (iv).    401(k) Plan: The Executive shall receive supplemental
                           payments from the Association for the thirty-six (36)
                           months following the month in which his employment is
                           terminated  in an  amount  for  each  month  equal to
                           one-twelfth  of  the  Association's  annual  matching
                           contribution  to its 401(k) Plan  ("401(k)")  made on
                           Executive's   behalf   for  the  Plan   year   ending
                           immediately preceding his date of termination. If, as
                           of the date of Executive's termination, the Executive
                           is not fully  vested in his benefit  under the 401(k)
                           Plan,   the   Association   shall  also  pay  to  the
                           Executive,  an additional payment equal to the amount
                           of his  account  under  the  401(k)  Plan  which  was
                           forfeited  as  a  result  of  his  termination.   The
                           supplemental payments determined herein shall be paid
                           in a lump sum  payment,  to be paid not later than 30
                           days after termination of employment.

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                  (v).     Health,  Dental,  and Life  Insurance  Coverage:  The
                           health,  dental, and life insurance benefits coverage
                           (including  any executive  medical plan)  provided to
                           the  Executive  at his date of  termination  shall be
                           continued  by the  Association  at the  Association's
                           expense at the same  level and in the same  manner as
                           if his  employment had not  terminated,  beginning on
                           the date of such  termination  and ending on the date
                           thirty-six   (36)   months  from  the  date  of  such
                           termination.  Any additional  coverages the Executive
                           had at  termination,  including  dependent  coverage,
                           will also be  continued  for such  period on the same
                           terms,  to the  extent  permitted  by the  applicable
                           policies or  contracts.  Any costs the  Executive was
                           paying for such  coverages at the time of termination
                           shall  be paid by the  Executive  by  separate  check
                           payable to the Association each month in advance.  If
                           the terms of any  benefit  plan  referred  to in this
                           Section do not permit continued  participation by the
                           Executive,  the  Association  will pay  Executive its
                           costs for providing such coverage  within thirty (30)
                           days prior to the  conclusion of such  coverage.  The
                           coverages  provided  for in  this  Section  shall  be
                           applied against and reduce the period for which COBRA
                           will be  provided.  If the  Executive is covered by a
                           split-dollar or similar life insurance program at the
                           date of termination,  he shall have the option in his
                           sole  discretion to have such policy  transferred  to
                           him upon  termination,  provided that the Association
                           is paid at par value (no premium or discount) for its
                           interest  in the  life  insurance  policy  upon  such
                           transfer.

                  (vi).    Stock  Options:  Upon the  occurrence  of a Change in
                           Control  (whether or not  Executive's  employment  is
                           terminated),  all outstanding  stock options (whether
                           incentive stock options, non-statutory stock options,
                           or  other  type(s)  of  stock  options)   granted  to
                           Executive  under  the  1995  Stock  Option  Plan,  as
                           amended and restated from time to time,  and any such
                           similar stock option plans ("Stock  Option Plans") of
                           the  Association  or Company shall become 100% vested
                           and immediately exercisable. To the extent necessary,
                           the   provisions  of  this  Section   5(d)(vi)  shall
                           constitute  an  amendment  of the  Executive's  stock
                           option agreements under the Stock Option Plans.

                  (vii).   Stock  Awards:  Upon the  occurrence  of a Change  in
                           Control  (whether or not  Executive's  employment  is
                           terminated),  all outstanding stock awards granted to
                           Executive under the 1995 Performance  Equity Plan, as
                           amended and restated from time to time,  and any such
                           similar  stock award plans  ("Stock  Award Plans") as
                           implemented  by the  Association or Company from time
                           to time shall  become  100%  vested  and  immediately
                           distributed.  To the extent necessary, the provisions
                           of  this  Section   5(d)(vii)  shall   constitute  an
                           amendment of the Executive's  stock award  agreements
                           under the Stock Award Plans.

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                  (viii).  Non-Qualified Plans: The Executive shall receive from
                           the Association the nominal  financial  equivalent of
                           thirty  six (36)  months  worth of the  Association's
                           contributions to or payments under (for the exclusive
                           benefit of Executive) any non-qualified  compensation
                           or benefit  plan in effect at the date of a Change In
                           Control  for which  Executive  was a  participant  or
                           beneficiary.

                  (ix).    Employee  Mortgage Loans: The Executive shall receive
                           from  the  Association  or its  successor  or  assign
                           either a continuation  of any employee  mortgage loan
                           rate  discount  in  effect  at the  date of the  loan
                           origination  for a period of the lesser of thirty six
                           months or the  maturity of the  mortgage  loan,  or a
                           payment  equal to the employee  loan rate discount in
                           effect on the date of the loan origination multiplied
                           by three (3) multiplied by the outstanding  principal
                           balance of the employee  mortgage loan on the date of
                           a Change In Control.

                  (x).     Vision, Short Term Disability,  Long Term Disability:
                           The Association  will have no obligation to Executive
                           for coverages  for or payment for vision,  short term
                           disability,  or long term disability  insurance under
                           this Section 5(d).

         (e) In the event the  Association is not in compliance with its minimum
capital  requirements or if such payments would cause the Association's  capital
to be reduced below its minimum regulatory capital  requirements,  such payments
or part  thereof  shall  be  deferred  until  such  time as the  Association  or
successor thereto is in capital compliance. Any such payments under Section 5(d)
shall not be reduced in the event Executive  obtains other employment  following
termination.  No payments  under this  Section  5(d) are to be  "grossed  up" or
otherwise  adjusted based upon the personal income tax consequences to or status
of  Executive.  No payments  under this  Section  5(d) are to be  discounted  or
"present valued" in any manner.

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SECTION 6.  LIMITATION AND ADJUSTMENT OF BENEFITS

         (a) Notwithstanding  anything in this Agreement to the contrary, if, in
the opinion of independent tax  accountants or counsel  selected and retained by
the Companies and reasonably acceptable to the Executive ("Tax Counsel"), any of
the  compensation or benefits  payable,  or to be provided,  to Executive by the
Companies  under  this  Agreement  are  treated as an excess  parachute  payment
("Excess  Severance  Payments") as defined in Section 280G(b)(1) of the Internal
Revenue Code of 1986, as amended  ("Internal Revenue Code") (whether alone or in
conjunction  with  payments  or  benefits  by  the  Companies  outside  of  this
Agreement),  the Companies shall direct Tax Counsel to determine and compare (i)
Executive's  net income after  Executive's  payment of all federal,  state,  and
local taxes assuming that all of the  compensation  and benefits  payable by the
Companies  under  this  Agreement  and all such other  arrangements  are paid to
Executive and Executive pays the "Excise Tax" (as imposed under Internal Revenue
Code  Section  4999);  and (ii)  Executive's  net  income  after  payment of all
federal,  state and local taxes  assuming that the total amount of  compensation
and benefits  payable by the Companies  under this  Agreement and all such other
arrangements  is reduced such that no Excess  Severance  Payments result and the
Excise Tax is not triggered.  If the amount  calculated under (ii) above is less
than 95% of the amount calculated under (i) above, then the full amount due from
the Companies under all such arrangements shall be payable to Executive.  If the
amount  calculated  under (ii)  above is at least 95% of the  amount  calculated
under (i) above,  then the total amount of  compensation  and  benefits  payable
under all such arrangements shall be reduced, as provided in Section 6(b) below,
such that Executive shall receive no Excess Severance Payments and shall have no
personal liability for Excise Tax.

         (b) In the event that the amount of any Severance  Payments,  including
any  benefits,  which would be payable to or for the benefit of Executive  under
this  Agreement  must be  modified  or  reduced to comply  with this  Section 6,
Executive shall direct which  Severance  Payments are to be modified or reduced,
including  allocating a portion of such Severance  Payments as compensation  for
ongoing obligations by Executive pursuant to Section 11; provided, however, that
no  increase in the amount of any payment or change in the timing of the payment
shall be made without the consent of the Companies.

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         (c) This  Section  6 shall be  interpreted  so as to  maximize  the net
after-tax dollar value to Executive. In determining whether any Excess Severance
Payments  exist and the most  advantageous  outcome for  Executive,  the parties
shall take into account all  provisions  of Internal  Revenue Code Section 280G,
and the Regulations thereunder, including making appropriate adjustments to such
calculations for amounts established to be "Reasonable Compensation" as provided
in Section 280G(b)(4) of the Code. The Company, Association, and Executive shall
cooperate  fully with Tax Counsel and provide Tax Counsel with all  compensation
and benefit amounts,  personal tax information,  and other information necessary
or helpful in  calculation  of such net after-tax  amounts.  In the event of any
Internal Revenue Service examination, audit, or other inquiry, the Companies and
Executive  agree to take  action to  provide,  and to  cooperate  in  providing,
evidence to the Internal Revenue Service (and, if applicable,  the state revenue
department) to achieve this goal.

         (d) If it is established  pursuant to a final  determination of a court
or an  Internal  Revenue  Service  proceeding,  or pursuant to an opinion of Tax
Counsel,  that  notwithstanding the good faith of the Companies and Executive in
applying  the terms of this  Section 6, either (i) the amounts paid to Executive
unintentionally  constituted  Excess Severance Payments and triggered the Excise
Tax,  even though the payments to  Executive  were reduced in an effort to avoid
such result; or (ii) the amounts paid to Executive were reduced by more than was
necessary to avoid  triggering  the Excise Tax,  then the parties shall make the
applicable  correction  that will  achieve the goal  described  in Section  6(c)
hereof.  In the  event the  error  referred  to in  clause  (i)  hereof  occurs,
Executive is hereby required to repay to the Companies, within 15 days after the
error is  discovered,  the amount  necessary to avoid the Excise Tax;  provided,
however, that if Executive, based on advice from Tax Counsel and Executive's own
tax  advisor,  determines  that the  return  of such  amounts  will not serve to
eliminate the Excess  Severance  Payments and the Excise Tax, the Companies then
shall be obligated to pay to Executive,  within 15 days after Executive notifies
the  Companies  of  Executive's  determination,  the  total  amount by which the
original amount of Executive's  compensation  and benefits were reduced pursuant
to the terms of Section 6(a) and (b) hereof.  In the event the error referred to
in clause (ii) hereof  occurs,  the  Companies  are hereby  required to repay to
Executive,  within 30 days after the error is discovered,  the maximum amount of
the  compensation  and  benefits  that  were  reduced  pursuant  to the terms of
Sections 6(a) and (b) hereof that Executive may receive  without  triggering the
Excise Tax.

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SECTION 7.  TERMINATION FOR CAUSE.

         (a) For purposes of this Agreement,  the term "Cause" shall mean, other
than death, (i) fraud or misappropriation with respect to the business or assets
of the Association or the Company;  (ii) gross negligence or willful  misconduct
by Executive in the  performance  of his duties;  (iii) any habitual or repeated
neglect of his duties by Executive  which  Executive fails to cure upon ten (10)
days written notice; (iv) a material breach of this Agreement by Executive;  (v)
Executive's   inability  as  a  result  of  physical  or  mental  incapacity  to
substantially  perform his duties for the  Companies  on a full time basis for a
period exceeding six (6) months;  (vi) violation of any law, rule, or regulation
(excluding  Vehicle Code  convictions,  or marijuana  convictions  more than two
years old) that has a material  adverse effect upon the  Association or Company,
(vii) violation of any final cease-and-desist  order; (viii) the use of drugs or
alcohol that interferes with the Executive's  performance of his job duties;  or
(ix) any breach of fiduciary duty involving  personal  profit;  (x) any unlawful
conduct by Executive injurious to the interest, property,  operations,  business
or reputation of the Association, or (xi) conviction for any criminal felony.

         (b) Executive shall not have the right to receive compensation or other
benefits for any period after  Termination for Cause. Any unvested stock options
and related  limited rights granted to Executive  under any stock option plan or
unvested  awards  granted  to  Executive  under  any stock  benefit  plan of the
Association,  the Company, or any subsidiary or affiliate thereof,  shall become
null and void effective upon  Executive's  receipt of Notice of Termination  for
Cause pursuant to Section 9 hereof, and shall not be exercisable by or delivered
to Executive at any time subsequent to such Termination for Cause.

SECTION 8.  VOLUNTARY RESIGNATION

         Nothing in this Agreement shall prevent or limit  Executive's right and
ability to voluntarily  resign and / or seek other gainful  employment  provided
that  Executive  gives not less than  sixty (60) days  prior  written  notice of
resignation to the Companies.  If Executive determines to voluntarily resign (i)
other  than in  conjunction  with a Change In Control  or  Threatened  Change In
Control  as defined  and  described  in Section 5 hereto,  or (ii) other than in
conjunction with an actual or constructive  termination as defined and described
in Section 4 hereto,  Executive shall be entitled to no additional  compensation
beyond that  generally  available to all or  substantially  all of the full-time
employees of the  Association at that time, and Executive shall only be entitled
to  that  compensation  and  benefits  earned  and  vested  at the  date of such
voluntary  resignation.  In  conjunction  with  such  a  voluntary  resignation,
Executive shall have no obligation or requirement to return any  compensation or
benefits earned or vested through the date of such voluntary  resignation to the
Association.

                                                                   Page 11 Of 23

<PAGE>


SECTION 9.  NOTICE.

         A  termination  for  Cause by the  Association  or the  Company  of the
Executive's  employment  shall be  effective  upon  receipt of a written  notice
communicated  to the  Executive.  A  termination  other than for Cause  shall be
effective sixty (60) days after receipt of a written notice  communicated to the
Executive.

SECTION 10.  POST-TERMINATION OBLIGATIONS.

         (a) All payments and benefits to Executive  under this Agreement  shall
be subject to Executive's  compliance with this Section 10 for one (1) full year
after the earlier of expiration of this  Agreement or termination of Executive's
employment.

         (b) Executive shall, upon reasonable  notice,  furnish such information
and  assistance to the Companies as may  reasonably be required by the Companies
in  connection  with any  litigation in which it or any of its  subsidiaries  or
affiliates  is,  or may  become,  a party.  Executive's  obligation  under  this
paragraph  shall  only be in  effect if the  Companies  provide  Executive  with
liability  insurance  coverage and  indemnification  similar to that provided to
current senior management personnel and as described in Section 22.

         (c) All written or printed  materials,  notebooks,  and records used by
Executive  in  performing  duties  for the  Companies,  other  than  Executive's
personal  notes and  diaries,  are and shall  remain  the sole  property  of the
Companies.  Upon termination of employment,  Executive shall promptly return all
such material (including all copies) to the Companies.

SECTION 11.  NON-DISCLOSURE, NO-SOLICIATION AND UNFAIR COMPETITION.

         (a) Executive  agrees and  acknowledges  that during the performance of
his duties with the Companies,  he will receive and have access to confidential,
proprietary,  and/or trade secret information concerning the business activities
and plans for business  activities  of the  Companies  and  affiliates  thereof.
Executive  recognizes  and  acknowledges  that  the  knowledge  of the  business
activities  and plans for business  activities of the  Companies and  affiliates
thereof,  as may exist from time to time,  is a  valuable,  special,  and unique
asset of the business of the Companies.  Executive will not, during or after the
TERM,  disclose  any  knowledge of the past,  present,  planned,  or  considered
business activities of the Companies or affiliates thereof to any person,  firm,
corporation,   or  other   entity  for  any   reason  or   purpose   whatsoever.
Notwithstanding the foregoing,  Executive may disclose any knowledge of banking,
financial  and/or  economic  principles,   concepts  or  ideas,  which  are  not
exclusively  derived from the business  plans,  and activities of the Companies.
Further,  Executive may disclose  information  regarding the business activities
and proprietary  information of the Companies to the OTS, Federal  Reserve,  and
the  Federal  Deposit  Insurance  Corporation  ("FDIC")  pursuant  to  a  formal
regulatory   request  or  as  mandated  by  order  of  a  court  of   applicable
jurisdiction.

                                                                   Page 12 Of 23

<PAGE>



         (b) Executive  further agrees and  acknowledges  that the Companies and
affiliates have invested  substantial time, effort, and expense in compiling its
confidential,  trade secret  information  and in assembling its present staff of
personnel,  and have an interest  in  preventing  any unfair use of  information
which  the  Executive  has  obtained  solely  through  his  employment  with the
Companies. In order to protect the confidentiality of the Companies' proprietary
confidential  information,  Executive  agrees that during his employment and for
one year thereafter,  he shall not do the following:  (1) approach,  solicit, or
accept  business  from, or otherwise do business or  communicate in any way with
any customer of the Association,  utilizing  information which the Executive has
obtained solely through his employment with the Association,  for the purpose of
engaging in or assisting  others in engaging in Competition  (as defined herein)
with the Association; (2) approach, counsel, or attempt to induce any person who
is then in the employ of the Association to leave the employ of the Association,
or employ or  attempt  to employ  any such  person or any person who at any time
during the preceding twelve (12) months or during the TERM of this Agreement was
in the  employ  of  the  Association,  unless  such  person  has  initially  and
voluntarily  approached  Executive or Executive's new employing entity of his or
her own accord; or (3) aid, assist, or counsel any other person, firm or counsel
any other person, firm or corporation to do any of the above. For the purpose of
this Agreement,  a person or business is in Competition with the business of the
Association if the business  involves the solicitation for, sale or distribution
of financial  products and services  anywhere within the  Association's  primary
service area in the counties of Santa Cruz,  Monterey,  and contiguous counties.
The  provisions  of this  paragraph  do not  apply in the  event of a Change  of
Control.

         (c) Executive agrees that in addition to any and all remedies available
at law or equity  (including  money damages),  the Companies may seek injunctive
relief  and/or a decree  for  specific  performance  to  prevent  any  breach or
threatened breach by the Executive or any other person acting for, along with or
under the  direction  of the  Executive of this Section 11, where such breach or
threatened  breach  will  result in  irreparable  and  continuing  damage to the
Companies for which there will be no adequate remedy at law. The Companies shall
be entitled  to seek such  equitable  relief in any forum,  including a court of
law,  notwithstanding the provision of Section 20 and the arbitration  provision
referenced  therein.  The  Companies  may pursue any of the  remedies  described
herein  concurrently  or  consecutively  in any  order as to any such  breach or
violation,  and the  pursuit  of one of such  remedies  at any time  will not be
deemed an election of remedies or waiver of the right to pursue any of the other
such remedies.

                                                                   Page 13 Of 23

<PAGE>



SECTION 12.  SOURCE OF PAYMENTS.

         All payments provided in this Agreement shall be timely paid in cash or
check  from  the  general  funds  of  the  Association.  The  Company,  however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder  to  Executive  and,  if  such  amounts  and  benefits  due  from  the
Association are not timely paid or provided by the Association, such amounts and
benefits shall be paid or provided by the Company.

SECTION 13.  EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.

         This Agreement  contains the entire  understanding  between the parties
hereto  and  supersedes  any and all prior  employment  agreements  between  the
Company or Association or any  predecessor  of the Company or  Association,  and
Executive,  except that this Agreement shall not affect or operate to reduce any
benefit or compensation  inuring to Executive of a kind elsewhere  provided.  No
provision  of this  Agreement  shall be  interpreted  to mean that  Executive is
subject  to  receiving  fewer  benefits  than  those  available  to him  without
reference to this Agreement.

SECTION 14.  NO ATTACHMENT.

         (a) Except as required by law, no right to receive  payments under this
Agreement  shall be  subject to  anticipation,  commutation,  alienation,  sale,
assignment,  encumbrance,  charge,  pledge, or  hypothecation,  or to execution,
attachment,  levy, or similar process or assignment by operation of law, and any
attempt,  voluntary  or  involuntary,  to affect any such action  shall be null,
void, and of no effect.

         (b) This Agreement  shall be binding upon, and inure to the benefit of,
Executive and the  Association and Company and their  respective  successors and
assigns.

SECTION 15.  MODIFICATION AND WAIVER.

         (a)  This  Agreement  may  not be  modified  or  amended  except  by an
instrument in writing signed by the parties hereto.

         (b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement,  except by written  instrument of the party charged with such
waiver or estoppel.  No such written waiver shall be deemed a continuing  waiver
unless specifically  stated therein,  and each such waiver shall operate only as
to the specific  term or condition  waived and shall not  constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.

                                                                   Page 14 Of 23

<PAGE>



SECTION 16.  REQUIRED PROVISIONS.

         (a) The Association may terminate  Executive's  employment at any time,
but any termination by the Association,  other than Termination for Cause, shall
not prejudice  Executive's  right to  compensation  or other benefits under this
Agreement.  Executive shall not have the right to receive  compensation or other
benefits  for any  period  after  Termination  for Cause as defined in Section 7
hereinabove.

         (b) If Executive is suspended from office and/or temporarily prohibited
from  participating  in the  conduct  of the  Association's  affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12
U.S.C.  ss.1818(e)(3)  or  (g)(1);  the  Association's  obligations  under  this
contract  shall  be  suspended  as of the  date of  service,  unless  stayed  by
appropriate  proceedings.  If the  charges  in the  notice  are  dismissed,  the
Association  may in  its  discretion  (i)  pay  Executive  all  or  part  of the
compensation  withheld while their contract  obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.

         (c)  If  Executive  is  removed  and/or  permanently   prohibited  from
participating  in the conduct of the  Association's  affairs by an order  issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
ss.1818(e)(4) or (g)(1),  all obligations of the Association under this contract
shall terminate as of the effective date of the order,  but vested rights of the
contracting parties shall not be affected.

         (d) If the  Association is in default as defined in Section  3(x)(1) of
the Federal Deposit  Insurance Act, 12 U.S.C.  ss.1813(x)(1)  all obligations of
the  Association  under this contract shall terminate as of the date of default,
but this  paragraph  shall not  affect  any  vested  rights  of the  contracting
parties.

         (e) All  obligations  of the  Association  under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution, (i) by the Director of
the OTS (or his  designee)  or the  FDIC,  at the time the FDIC  enters  into an
agreement to provide  assistance  to or on behalf of the  Association  under the
authority  contained in Section 13(c) of the Federal  Deposit  Insurance Act, 12
U.S.C.  ss.1823(c);  or (ii) by the Director of the OTS (or his designee) at the
time the Director (or his  designee)  approves a  supervisory  merger to resolve
problems related to the operations of the Association or when the Association is
determined by the Director to be in an unsafe or unsound  condition.  Any rights
of the parties that have already vested,  however, shall not be affected by such
action.

         (f) Any  payments  made to  Executive  pursuant to this  Agreement,  or
otherwise,  are  subject  to and  conditioned  upon  compliance  with 12  U.S.C.
ss.1828(k) and 12 C.F.R.  ss.545.121 and any rules and  regulations  promulgated
thereunder.

                                                                   Page 15 Of 23

<PAGE>

SECTION 17.  SEVERABILITY.

         If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this  Agreement or any part of such  provision not held so invalid,  and each
such other  provision and part thereof shall to the full extent  consistent with
law continue in full force and effect.

SECTION 18.  HEADINGS FOR REFERENCE ONLY.

         The headings of sections and paragraphs  herein are included solely for
convenience of reference and shall not control the meaning or  interpretation of
any of the provisions of this Agreement.

SECTION 19.  GOVERNING LAW.

         The  validity,  interpretation,  performance  and  enforcement  of this
Agreement shall be governed by the laws of the State of California,  but only to
the extent not superseded by federal law.

SECTION 20.  ARBITRATION.

         In  the  event  there  is  any  dispute   arising  out  of  Executive's
employment,  the  termination  of  that  employment,  or  arising  out  of  this
Agreement,  the  Executive  and  Association  and  Company  agree to submit such
dispute to binding  arbitration in accordance  with the terms of the Alternative
Dispute  Resolution  Agreement  set forth in  Appendix A to this  Agreement  and
incorporated herein.

SECTION 21.  PAYMENT OF COSTS AND LEGAL FEES.

         All  reasonable  costs and legal  fees paid or  incurred  by  Executive
pursuant to any dispute or question of interpretation relating to this Agreement
shall be paid or reimbursed by the Association if Executive is successful on the
merits pursuant to a legal judgment, arbitration, or settlement.

                                                                   Page 16 Of 23

<PAGE>

SECTION 22.  INDEMNIFICATION.

         (a) The Association and Company shall provide Executive  (including his
heirs,  executors and administrators)  with coverage under a standard directors'
and officers'  liability insurance policy as approved by the Board of Directors,
at its expense,  and to the extent not otherwise provided through such insurance
policy, shall indemnify Executive (and his heirs,  executors and administrators)
to the fullest  extent  permitted  under  federal law against all  expenses  and
liabilities  reasonably incurred by him in connection with or arising out of any
action,  suit or  proceeding in which he may be involved by reason of his having
been a director  or officer of the  Association  or Company  (whether  or not he
continues to be a director or officer at the time of incurring  such expenses or
liabilities),  such expenses and liabilities to include,  but not be limited to,
judgments,  court  costs,  and  attorneys'  fees,  and the  cost  of  reasonable
settlements.

         (b) Any payments made to Executive pursuant to this Section are subject
to and conditioned  upon  compliance with 12 C.F.R.ss.  545.121 and any rules or
regulations promulgated thereunder.

SECTION 23.  SUCCESSOR TO THE ASSOCIATION OR COMPANY.

         The Companies  shall require any successor or assignee,  whether direct
or  indirect,  by  purchase,  merger,  consolidation,  or  otherwise,  to all or
substantially  all  the  business  or  assets  of the  Association  or  Company,
expressly  and  unconditionally  to assume and agree to perform all  obligations
under  this  Agreement,  in the  same  manner  and to the same  extent  that the
Companies  would be required to perform if no such  succession or assignment had
taken place.


                                                                   Page 17 Of 23

<PAGE>


         IN WITNESS  WHEREOF,  Monterey Bay Bank and Monterey Bay Bancorp,  Inc.
have caused this Agreement to be executed and their seals to be affixed hereunto
by their duly authorized  officers and directors,  and Executive has signed this
Agreement, on the 24th day of April, 2003.



ATTEST:                                    MONTEREY BAY BANK




By:      /s/ Mary Anne Carson              By:      /s/ McKenzie Moss
         -------------------------------            --------------------------
         Corporate Secretary                        McKenzie Moss
                                                    Chairman of the Board


[SEAL]



ATTEST:                                             MONTEREY BAY BANCORP, INC.
                                                    (Guarantor)



By:      /s/ Mary Anne Carson              By:      /s/ McKenzie Moss
         -------------------------------            --------------------------
         Corporate Secretary                        McKenzie Moss
                                                    Chairman of the Board


[SEAL]


WITNESS:                                            EXECUTIVE:



/s/ Carlene Anderson                                /s/ C. Edward Holden
----------------------------------------            --------------------------
Carlene Anderson                                    C. Edward Holden
                                                    President & Chief
                                                    Executive Officer


                                                                   Page 18 Of 23

<PAGE>



                                   APPENDIX A

                         ALTERNATIVE DISPUTE RESOLUTION

I.       Agreement To Arbitrate

         In the event that any employment  dispute  arises between  Monterey Bay
         Bank  ("Association") and C. Edward Holden  ("Executive"),  the parties
         involved  will make all  efforts to resolve  any such  dispute  through
         informal  means.  If these informal  attempts at resolution fail and if
         the  dispute  arises out of or is  related to a breach of the  parties'
         Employment Agreement, the termination of employment or alleged unlawful
         discrimination,  Association  and Executive  will submit the dispute to
         final and binding arbitration.

         By accepting  employment with the  Association,  Executive  agrees that
         arbitration is the exclusive  remedy for all such arbitrable  disputes;
         with respect to such disputes,  no other action may be brought in court
         or any other forum (except  actions to compel  arbitration  hereunder).
         THIS ADR AGREEMENT IS A WAIVER OF THE PARTIES'  RIGHTS TO A CIVIL COURT
         ACTION FOR A DISPUTE  RELATING TO  TERMINATION OF EMPLOYMENT OR ALLEGED
         UNLAWFUL DISCRIMINATION,  WHICH INCLUDES RETALIATION OR SEXUAL OR OTHER
         UNLAWFUL  HARASSMENT;  ONLY AN  ARBITRATOR,  NOT A JUDGE OR JURY,  WILL
         DECIDE THE DISPUTE.

         Employment  disputes  arising  out  of or  related  to  termination  of
         employment or alleged unlawful  discrimination,  including retaliation,
         sexual or other unlawful harassment,  shall include, but not be limited
         to, the following:  alleged  violations of federal,  state and/or local
         constitutions,  statutes or regulations;  claims based on any purported
         breach of contractual  obligation,  including breach of the covenant of
         good faith and fair dealing;  and claims based on any purported  breach
         of duty  arising  in  tort,  including  violations  of  public  policy.
         Disputes related to workers'  compensation  and unemployment  insurance
         are not arbitrable hereunder. Claims for benefits covered by a separate
         benefit plan that provides for  arbitration are not covered by this ADR
         Agreement.  Claims  that are filed with or are being  processed  by the
         U.S. Equal  Employment  Opportunity  Commission  ("EEOC"),  or that are
         brought  under Title VII of the Civil  Rights Act of 1964,  as amended,
         are not arbitrable  under this  Agreement,  except that the parties may
         agree in writing to do so with  respect to each such  dispute  that may
         arise.

II.      Arbitration Procedures

         (a) Attempt At Informal Resolution Of Disputes

         Prior to  submission  of any dispute to  arbitration,  Association  and
         Executive  shall  attempt to resolve  the  dispute  informally  through
         mediation. Association and Executive will select a mediator from a list
         provided  by the State  Mediation  and  Conciliation  Service  or other
         similar  agency who will  assist the parties in  attempting  to reach a
         settlement of the dispute. The mediator may make settlement suggestions
         to the parties but shall not have the power to impose a settlement upon
         them.  If the  dispute is resolved in  mediation,  the matter  shall be
         deemed closed.  If the dispute is not resolved in mediation and goes to
         the next step  (binding  arbitration),  any  proposals  or  compromises
         suggested  by  either  of the  parties  or the  mediator  shall  not be
         referred  to or have any  bearing  on the  arbitration  procedure.  The
         mediator  cannot  also  serve  as  the  arbitrator  in  the  subsequent
         proceeding unless all parties expressly agree in writing.

         (b) Request for Arbitration

         Should  Association  or  Executive  wish to pursue  arbitration  of any
         arbitrable dispute,  Association,  Executive or its/his  representative
         must submit a written "Request For Arbitration" to the other party with
         (1) year of the  alleged  conduct  giving rise to the  dispute.  If the
         "Request  for  Arbitration"  is not  submitted in  accordance  with the
         aforementioned  time  limitations,  the party will not be able to bring
         its/his claims to this or any other forum. Unless otherwise required by
         law, the "Request For  Arbitration"  shall clearly state it is "Request
         For  Arbitration"  at the  beginning of the first page and includes the
         following  information:  (1) a

                                                                   Page 19 Of 23
<PAGE>


         factual  description of the dispute in sufficient  detail to advise the
         other party of the nature of the dispute, (2) the date when the dispute
         first arose, and (3) the relief requested by requesting party.

         A Request  for  Arbitration  must be mailed to the other  party's  last
         known address or  hand-delivered  to that party.  The party to whom the
         Request for  Arbitration  is directed  will respond  within thirty (30)
         days so that  the  parties  can  begin  the  process  of  selecting  an
         Arbitrator. Such response may include any counterclaims.

         (c) Selection Of The Arbitrator

         All disputes will be resolved by a single Arbitrator,  selected through
         and under the American  Arbitration  Association's  "National Rules for
         the Resolution of Employment Disputes" as amended and effective June 1,
         1997.

         (d) The Arbitrator's Authority

         The Arbitrator shall have the powers enumerated below:

         1.       Ruling  on  motions   regarding   discovery,   and  ruling  on
                  procedural   and   evidentiary   issues   arising  during  the
                  arbitration.

         2.       Ruling on  motions  to  dismiss  and/or  motions  for  summary
                  judgment  applying the standards  governing such motions under
                  the Federal Rules of Civil Procedure.

         3.       Issuing  protective orders on the motion of any party or third
                  party witness, such protective orders may include, but are not
                  limited to, sealing the record of the arbitration, in whole or
                  in  part   (including   discovery   proceedings  and  motions,
                  transcripts,  and the  decision  and  award),  to protect  the
                  privacy or other constitutional or statutory rights of parties
                  and/or witnesses.

         4.       Determining  only  the  issue(s)  submitted  to  him/her.  The
                  issue(s) must be identifiable in the "Request For Arbitration"
                  or  counterclaim(s).  Except as required by law,  any issue(s)
                  not  identifiable  in those  documents is outside the scope of
                  the  Arbitrator's  jurisdiction  and any award  involving such
                  issue(s), upon motion by a party, shall be vacated.

         (e) Discovery

         The discovery  process shall proceed and be governed,  consistent  with
         the standards of the Federal Rules of Civil Procedure, as follows:

         1.       Unless otherwise required by law, parties may obtain discovery
                  by any of the following methods:

                  a.       Depositions   of  non-expert   witnesses   upon  oral
                           examination, five (5) per side as of right, with more
                           permitted if leave is obtained from the Arbitrator;

                  b.       Written  interrogatories,  up to a  maximum  combined
                           total  of  twenty  (20),  with the  responding  party
                           having twenty (20) days to respond;

                  c.       Request  for  production  of  documents  or things or
                           permission  to enter upon land or other  property for
                           inspection,  with the responding  party having twenty
                           (20) days to produce the documents and allow entry or
                           to file objections to the request;

                  d.       Physical and mental  examination,  in accordance with
                           Federal Rule of Civil Procedure 35(a); and

                  e.       Any   motion  to  compel   production,   answers   to
                           interrogatories  or entry onto land or property  must
                           be made to the Arbitrator within fifteen (15) days of
                           receipt of objections.

                                                                   Page 20 Of 23
<PAGE>

         2.       To the extent  permitted  by the  Federal  Arbitration  Act or
                  applicable  California law, each party shall have the right to
                  subpoena  witnesses and documents during discovery and for the
                  arbitration.

         3.       All discovery  requests  shall be submitted no less than sixty
                  (60) days before the hearing date.

         4.       The scope of discoverable evidence shall be in accordance with
                  Federal Rule of Civil Procedure 26(b)(1).

         5.       The   Arbitrator   shall  have  the  power  to   enforce   the
                  aforementioned   discovery   rights  and  obligations  by  the
                  imposition  of  the  same  terms,  conditions,   consequences,
                  liabilities,  sanctions and penalties as can or may be imposed
                  in like  circumstances  in a civil  action by a federal  court
                  under the Federal Rules of Civil Procedure.

         (f) Hearing Procedure

         The  hearing  shall  proceed  according  to  the  American  Arbitration
         Association's   "National   Rules  for  the  Resolution  of  Employment
         Disputes" as amended and  effective  June 1, 1997,  with the  following
         amendments:

                  1.       The  Arbitrator  shall  rule  at  the  outset  of the
                           arbitration on procedural issues that bear on whether
                           the arbitration is allowed to proceed.

                  2.       Each party has the burden of proving  each element of
                           its claims or  counterclaims,  and each party has the
                           burden of proving any of its affirmative defenses.

                  3.       In  addition  to,  or in  lieu of  closing  argument,
                           either  party  shall  have  the  right to  present  a
                           post-hearing  brief,  and the due date for exchanging
                           any  post-hearing  briefs shall be mutually agreed on
                           by the parties and the Arbitrator.

         (g) Substantive Law

                  1.       The  parties  agree  that they will be  afforded  the
                           identical legal equitable,  and statutory remedies as
                           would be  afforded  them were they to bring an action
                           in a court of competent jurisdiction.

                  2.       The  applicable  substantive  law shall be the law of
                           the  State of  California  or  federal  law.  If both
                           federal  and state law are  applicable  to a cause of
                           action,  Executive  shall have the right to elect his
                           choice of law.  Choice of  substantive  law in no way
                           affects the  procedural  aspects of the  arbitration,
                           which are  exclusively  governed by the provisions of
                           this ADR Agreement.

         (h) Opinion And Award

         The Arbitrator  shall issue a written opinion and award, in conformance
         with the following requirements:

                  1.       The opinion and award must be signed and dated by the
                           Arbitrator.

                  2.       The  Arbitrator's  opinion and award shall decide all
                           issues submitted.

                  3.       The  Arbitrator's  opinion  and award shall set forth
                           the  legal  principles  supporting  each  part of the
                           opinion.

                  4.       The Arbitrator shall have the same authority to award
                           remedies,  damages  and costs as  provided to a judge
                           and/or jury under parallel circumstances.

                                                                   Page 21 Of 23
<PAGE>

         (i) Enforcement Of Arbitrator's Award

         Following  the  issuance of the  Arbitrator's  decision,  any party may
         petition  a  court  to   confirm,   enforce,   correct  or  vacate  the
         Arbitrator's  opinion  and award  under the  Federal  Arbitration  Act,
         and/or applicable California law.

         (j) Fees And Costs

         Unless otherwise  required by law, fees and costs shall be allocated in
         the following manner:

                  1.       Each  party   shall  be   responsible   for  its  own
                           attorneys' fees, except as otherwise provided by law.

                  2.       The  Association  shall  pay the  entire  cost of the
                           arbitrator's  services,  the  facility  in which  the
                           arbitration  is to be held,  and any  similar  costs,
                           except that Executive shall  contribute  toward these
                           costs an amount equal to the then-current  filing fee
                           in  California  Superior  Court  charged for filing a
                           complaint or for first appearing, whichever is lower.

                  3.       The Association  shall pay the entire cost of a court
                           reporter to transcribe the  arbitration  proceedings.
                           Each party shall  advance  the cost for said  party's
                           transcript  of  the  proceedings.  Each  party  shall
                           advance its own costs for witness  fees,  service and
                           subpoena charges,  copying, or other incidental costs
                           that each  party  would  bear  during the course of a
                           civil lawsuit.

                  4.       Each  party  shall  be  responsible   for  its  costs
                           associated with discovery,  except as required by law
                           or court order.

                                                                   Page 22 Of 23

<PAGE>




III.     Severability

         In the event that any  provision of this ADR Agreement is determined by
         a  court  of  competent   jurisdiction   to  be  illegal,   invalid  or
         unenforceable  to any extent,  such term or provision shall be enforced
         to the extent  permissible  under the law and all  remaining  terms and
         provisions  of this ADR  Agreement  shall  continue  in full  force and
         effect.



                                              EXECUTIVE:



DATED:  April 24, 2003                        By:      /s/ C. Edward Holden
                                                       --------------------
                                                       C. Edward Holden



                                              MONTEREY BAY BANK



DATED:  April 24, 2003                        By:      /s/ McKenzie Moss
                                                       -----------------
                                                       McKenzie Moss
                                                       Chairman of the Board



                                              MONTEREY BAY BANCORP, INC.
                                              (Guarantor)



DATED:  April 24, 2003                        By:      /s/ McKenzie Moss
                                                       -----------------
                                                       McKenzie Moss
                                                       Chairman of the Board



                                                                   Page 23 Of 23