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                                                                   Exhibit 10.3

                  SEVERANCE AGREEMENT DUE TO CHANGE IN CONTROL
                            OF MIDDLEFIELD BANC CORP.

         This AGREEMENT is made and entered into this 8th day of October, 1996
by and among Middlefield Banc Corp. (the "Corporation"), a corporation organized
under the laws of the State of Ohio, with its main office in Middlefield, Ohio;
The Middlefield Banking Company (the "Bank"), an Ohio-chartered, FDIC-insured
nonmember bank with its main offices in Middlefield, Ohio; and James R. Heslop
II (the "Executive"). Any reference to "FDIC" herein shall mean the Federal
Deposit Insurance Corporation. Any reference to "FRB" shall mean the Board of
Governors of the Federal Reserve System and any reference to "Superintendent"
herein shall mean the Superintendent of Banks, Ohio Division of Financial
Institutions.

         WHEREAS, the Executive has heretofore served in the position of
Executive Vice President of the Bank:

         NOW THEREFORE, in consideration of the performance of the
responsibilities of the Executive and upon the other terms and conditions
hereinafter provided, the parties hereto agree as follows:

         1. No Employment Contract

                  The parties hereto acknowledge and agree that this Agreement
is not a management or employment agreement and that none of the terms and
conditions contained herein shall be effective unless and until such time as
there is a Change in Control as hereinafter defined in this Agreement. Prior to
a Change in Control, the Executive agrees and acknowledges that he/she is an
employee-at-will of the Bank.

         2. Term of Agreement

                  The initial term of this Agreement shall be for a period of
three (3) years commencing September 9, 1996 (hereafter referred to as the
"Commencement Date"). Commencing on the first anniversary of the Commencement
Date, and continuing at each anniversary of the Commencement Date thereafter,
the Agreement shall automatically renew for one (1) additional year beyond the
then effective expiration date unless the Board of Directors of either the Bank
or the Corporation determine by resolution duly noted in its minutes the
performance of the Executive has not met the requirements and standards of the
Board and that such term shall not be extended (if the Board of Directors
determines not to extend the term, it shall promptly so notify the Executive,
with such election by the Board not to extend the term not to otherwise affect
the then term of this Agreement). Reference herein to the term of this Agreement
shall refer both to such initial term and such extended terms. Provided, however
that in no event shall any benefits hereof extend beyond that date upon which
the Executive attains the age of sixty-five (65).

         3. Termination for Cause

                  (a) The Executive shall have no right to receive severance or
other benefits under this Agreement for any period after the date of termination
for Cause. For purposes of this Agreement, termination by the Corporation or the
Bank for "Cause" shall mean only the following events:

                           (i)    personal dishonesty;

                           (ii)   incompetence;

                           (iii)  material breach of any provision of this
                                  Agreement;

                           (iv)   breach of a fiduciary duty involving personal
                                  gain or profit;

                           (v)    intentional failure to perform stated duties;

                           (vi)   a willful and material breach of the policies
                                  and procedures for the operation of the Bank
                                  provided to the Executive by formal action of
                                  its Board of Directors.

                           (vii)  willful violation of any law, rule, regulation
                                  (other than a law, rule or regulation relating
                                  to a traffic violation or similar offense) or
                                  final cease-and-desist order; or

                           (viii) willful misconduct.

                  (b)      (i)    For purposes of Paragraph 3(a)(ii),
                                  "incompetence" shall mean the Executive's
                                  performance of his duties as measured against
                                  the then prevailing standard of the Ohio
                                  banking industry.

                           (ii)   For purposes of Paragraph 3(a)(vii) and
                                  3(a)(viii), no act, or failure to act, on the
                                  Executive's part shall be considered "willful"
                                  unless he has acted, or failed to act, with an
                                  absence of good faith and without a reasonable
                                  belief that his action or failure to act was
                                  in the best interest of the Bank.

                           (iii)  For purposes of Paragraph 3(a)(vii), a
                                  cease-and-desist order shall not become final
                                  until consent by the Corporation or the Bank,
                                  as the case may be, to such order, or the
                                  exhaustion or lapse of all (administrative and
                                  judicial) appeal rights in relation thereto.
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         4. Voluntary Termination of Agreement

                  This Agreement shall terminate automatically and without
further action in the event the Executive shall resign or otherwise voluntarily
terminate his/her employment with the Bank and/or Corporation.

         5. Governmental Termination of Agreement

                  (a) If the Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's or the Corporation's
affairs by an order issued under Section 8(e) of the Federal Deposit Insurance
Act, 12 U.S.C. Section 1818(e), or Section 1127.06 of the Ohio Revised Code, 11
O.R.C. Section 1127.06, all obligations of the Bank and the Corporation under
this Agreement shall terminate, as of the effective date of the order.

                  (b) If the Bank is declared insolvent by the Superintendent
(defined with reference to Section 1103.04 of the Ohio Revised Code, O.R.C.
Section 1103.04), all obligations of the Bank or Corporation under this
Agreement shall terminate.

                  (c) All obligations under this Agreement may be terminated by
the FDIC at the time the FDIC enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act, 12 U.S.C. Section 1823(c). Any rights of the
parties that have already vested, however, shall not be affected by such action.

                  (d) If the Executive is suspended and/or temporarily
prohibited from participating in the conduct of the Bank's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act 12
U.S.C. Section 1818(e)(3) or (g)(1), the Corporation's and the Bank's
obligations under subparagraphs 6(a), (b) and (c) of this Agreement shall be
suspended as the date of service, unless stayed by appropriate proceedings.

                  (e) If the charges in the notice referenced in subparagraph
5(d) are dismissed, the Board of Directors of the Bank or the Corporation may
in its discretion:

                           (i)    pay the Executive all or part of the severance
                                  benefits while its contract obligations were
                                  suspended, and

                           (ii)   reinstate (in whole or in part) any of its
                                  obligations which were suspended as required
                                  in subparagraph (d) above.

         6. Change in Control

                  (a) If, during the term of this Agreement, there is a Change
in Control of the Corporation and the Executive's employment by the Bank or the
Corporation is involuntarily terminated in connection with or within one (1)
year after the Change in Control other than for Cause or pursuant to Paragraphs
4 or 5, the Executive shall be entitled to the termination or severance payments
hereinafter provided. Such payments shall also be made in the case of the
Executive's voluntary termination of employment for Good Reason (as defined in
Paragraph 7) in connection with, or within one (1) year after, a Change in
Control of the Corporation. Such voluntary termination of employment for Good
Reason in connection with, or within one (1) year after, a Change in Control of
the Corporation shall not constitute a termination for Cause or a voluntary
termination subject to Paragraph 4 of this Agreement. The amount of this
severance payment shall be the benefits specified in Paragraph 8 of this
Agreement.

                  (b) For purposes of this Agreement, a "Change in Control of
the Corporation" shall mean:

                           (i)    The acquisition by a person or persons acting
                                  in concert of the power to vote twenty-five
                                  percent (25%) or more of a class of the
                                  Corporation's voting securities, or the
                                  acquisition by a person of the power to direct
                                  the Corporation's management or policies, if
                                  the Board of Directors or the FRB (or the FDIC
                                  in the case of an individual acquirer) has
                                  made a determination that such acquisition
                                  constitutes or will constitute an acquisition
                                  of control of the Corporation for the purposes
                                  of the Bank Holding Company Act or the Change
                                  in Bank Control Act and the regulations
                                  thereunder;

                           (ii)   during any period of two (2) consecutive years
                                  during the term of this Agreement, individuals
                                  who at the beginning of such period constitute
                                  the Board of Directors of the Bank or the
                                  Corporation cease for any reason to constitute
                                  at least a majority thereof, unless the
                                  election of each director who was not a
                                  director at the beginning of such period has
                                  been approved in advance by directors
                                  representing at least two-thirds (2/3) of the
                                  directors then in office who were directors in
                                  office at the beginning of the period.
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                           (iii)  the Corporation shall have merged into or
                                  consolidated with another corporation, or
                                  merged another corporation into the
                                  Corporation, on a basis whereby less than
                                  fifty percent (50%) of the total voting power
                                  of the surviving corporation is represented by
                                  shares held by former shareholders of the
                                  Corporation prior to such merger or
                                  consolidation; or

                           (iv)   the Corporation shall have sold substantially
                                  of its assets to another person. The term
                                  "person" refers to an individual, corporation,
                                  partnership, trust, association, joint
                                  venture, pool, syndicate, sole proprietorship,
                                  unincorporated organization or other entity.

                  (c) Upon the Executive's termination of employment arising
under this Paragraph 6 within one (1) year after the occurrence of a Change in
Control of the Corporation, the Corporation will at its expense, provide health
insurance coverage substantially identical to the coverage maintained by the
Bank or the Corporation for Executive prior to his severance. Such coverage
shall cease upon the earlier of Executive's employment by another employer or
twelve (12) months from such termination.

         7. Good Reason

                  For purposes of this Agreement, "Good Reason" shall mean the
occurrence after a Change in Control of any of the events or conditions
described in subparagraphs (a) through (e) hereof without the Executive's
express written consent.

                  (a) A change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, does not represent the maintenance of or a
promotion from his status, title, position or responsibilities as in effect
immediately prior thereto; the assignment to the Executive of any duties or
responsibilities which, in the Executive's reasonable judgment, are inconsistent
with such status, title, position or responsibilities; or any removal of the
Executive from or failure to reappoint him to any of such positions, except in
connection with the termination of his employment for (i) disability, (ii)
Cause, (iii) pursuant to Paragraph 4 or 5, (iv) as a result of his death or (v)
by the Executive other than for good Reason;

                  (b)  A reduction by the Bank or the Corporation in the
Executive's base salary as in effect on the date of a Change in Control of the
Corporation;

                  (c) The relocation of his/her principal place of employment to
a location other than Middlefield, Ohio, except for reasonably required travel
on the Bank's or the Corporation's business which is not materially greater than
such travel requirements prior to the Change in Control;

                  (d) The failure by the Bank or the Corporation to continue to
provide the Executive with benefits substantially similar to those provided to
him under any of the employee benefit plans in which the Executive becomes a
participant, or the taking of any action by the Bank or the Corporation which
would directly or indirectly materially reduce any of such benefits or deprive
the Executive of any material fringe benefit enjoyed by him at the time of the
Change in Control.

         8. Termination Benefits

                  Upon the occurrence of a Change in Control, followed by the
voluntary or involuntary termination of Executive's employment with the Bank
other than for Cause or pursuant to Paragraph 4 or 5, the Bank or Corporation
shall within ninety (90) days of said termination pay Executive, or in the event
of his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance pay or liquidated damages, or both, a sum equal to
twenty-four (24) times the average monthly salary paid to Executive by the Bank
and the Corporation during the sixty (60) months (or such lesser number of
months the Executive has been employed) immediately preceding Executive's
termination. The term salary shall refer to cash compensation for all services
rendered to the Bank, the Corporation or any subsidiary as is or would be
required to be reported pursuant to Section 402(a) of Regulation S-K, 17 C.F.R.
Section 229.402(a).

         9. Payment of Legal Fees

                  Reasonable legal fees and expenses paid or incurred by the
Executive pursuant to any dispute or question of interpretation relating to the
Agreement shall be paid or reimbursed by the Corporation in accordance with the
following. If the Executive, the Bank or the Corporation initiates a proceeding
and the Executive prevails, all reasonable legal fees and expenses shall be paid
by the Corporation. If the Executive initiates a proceeding and does not prevail
on his/her claim, then the Corporation and the Executive shall each pay their
own legal fees.

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         10. Successor Organization

                  The obligations of the Corporation and the Bank as set forth
herein shall continue to be the obligation of any successor organization, any
organization which purchases substantially all of the liabilities of the
Corporation or the Bank, as well as any organization which assumes substantially
all of the liabilities of the Corporation or the Bank whether by merger,
consolidation, or other form of business combination. This Agreement is personal
to the Executive and the Executive may not delegate his duties hereunder.

         11. Notices

                  All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, certified or registered mail, return receipt
requested, with postage prepaid, to the following addresses or to such other
addresses as either party may designate by like notice.

                           A.       If to the Corporation, to:

                                    Chairman
                                    Middlefield Banc Corp.
                                    15985 East High Street
                                    Middlefield, Ohio 44062

                           B.       If to the Executive, to:

                                    James R. Heslop II
                                    11731 Clarkwood Drive
                                    Chardon, Ohio 44024

and to such other additional person or persons as either party shall have
designated to the other party in writing by like notice.

         12. Amendments

                  No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties, except as herein otherwise
provided.

         13. Paragraph Headings

                  The paragraph headings used in this Agreement are included
solely for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.

         14. Severability

                  The provisions of this Agreement shall be deemed severable and
the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof.

         15. Governing Law

                  This Agreement shall, except to the extent that federal law
(including any law, rule, or regulations of the FDIC) shall be deemed to apply,
be governed by and construed and enforced in accordance with the laws of Ohio.

         16. Arbitration

                  Any dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in accordance with
the rules of the American Arbitration Association then in effect. Judgment may
be entered on the arbitrator's award in any court having jurisdiction.

         17. Safety and Soundness Limitations

                  Notwithstanding any other provisions of this Agreement, no
severance benefits under Paragraph 8 shall be paid or payable in respect of any
year in which the Bank (i) fails to meet any applicable capital requirements
imposed by Part 325 of the FDIC's regulations (or successor regulations) after
giving effect to the payment of severance benefits hereunder, (ii) receives or
maintains a safety and soundness CAMEL rating of 4 or 5 from the FDIC or the
Superintendent, or (iii) is subject to a proceeding to terminate deposit
insurance. Severance benefits can be paid under clause (i) above to the extent
that such payment would not cause the Bank to fail to meet any applicable
capital requirements imposed by Part 325 by the FDIC's regulations.


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         IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first hereinabove written.

WITNESSES:                            MIDDLEFIELD BANC CORP.

/s/                                   BY: /s/ George F.  Hasman
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/s/                                   ITS: President
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WITNESSES:                            MIDDLEFIELD BANKING COMPANY

/s/                                   BY: /s/ Donald Hunter
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/s/                                   ITS: Chairman
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WITNESSES:

/s/                                   /s/ James R. Heslop II
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                                      James R. Heslop II
/s/
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