EX-10.24



 





EXHIBIT 10.24




The Middlefield Banking Company

Executive Deferred Compensation Agreement




     This Executive Deferred Compensation Agreement (this “Agreement”) is entered into as
of this 28th day of December, 2006, by and between The Middlefield Banking Company, an
Ohio-chartered bank (the “Bank”), and James R. Heslop II, Executive Vice President and Chief
Operating Officer of the Bank (the “Executive”).



     Whereas, the Executive has contributed substantially to the success of the Bank and
Middlefield Banc Corp, an Ohio corporation of which the Bank is a wholly owned subsidiary, and the
Bank desires that the Executive remain in its employ,



     Whereas, to encourage the Executive to remain an employee of the Bank, the Bank
desires to establish a noncontributory, defined contribution arrangement to provide a supplemental
retirement income opportunity for the Executive, with contributions made solely by the Bank and
benefits payable out of the Bank’s general assets,



     Whereas, none of the conditions or events included in the definition of the term
“golden parachute payment” that is set forth in section 18(k)(4)(A)(ii) of the Federal Deposit
Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal Deposit Insurance Corporation Rule
359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)] exists or, to the best knowledge of the Bank, is
contemplated insofar as the Bank is concerned, and



     Whereas, the parties hereto intend that this Agreement shall be considered an
unfunded and noncontributory arrangement maintained primarily to provide supplemental retirement
benefits for the Executive, and to be considered a non-qualified benefit plan for purposes of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”). The Executive is fully
advised of the Bank’s financial status.



     Now Therefore, in consideration of these premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the Executive and the
Bank hereby agree as follows.



Article 1

Definitions




     Whenever used in this Agreement, the following words and phrases shall have the meanings
specified.



     1.1 “Account Balance” means the Bank’s accounting of Contributions made by the Bank, plus
accrued interest.



     1.2 “Annual Contribution” means the amount credited to the Account Balance after the end of
each Plan Year for which the Performance Goals are achieved. For the first Plan Year, the
Executive will receive an Annual Contribution amount equal to 5% of the Executive’s
Base Annual Salary. For every Plan Year after the first Plan Year, the Annual Contribution will



 









 







be
conditional on achievement of the Performance Goals. The Annual Contribution amount in any Plan
Year shall not be less than 5% or more than 15% of the Executive’s Base Annual Salary. In its
discretion, the Bank’s board of directors may increase or decrease the amount of the Annual
Contribution, but the Annual Contribution amount shall be changed no more frequently than annually.



     1.3 “Base Annual Salary” means compensation of the type that would be required to be reported
according to Securities and Exchange Commission Rule 229.402(b) (17 CFR 229.402(b)), specifically
column (c) of that rule’s Summary Compensation Table (or any successor provision).



     1.4 “Beneficiary” means each designated person, or the estate of the deceased Executive,
entitled to benefits, if any, upon the death of the Executive, determined according to Article 5.



     1.5 “Beneficiary Designation Form” means the form established from time to time by the Plan
Administrator that the Executive completes, signs, and returns to the Plan Administrator to
designate one or more Beneficiaries.



     1.6 “Change in Control” shall mean any one of the following events occurs, provided the event
constitutes a change in control within the meaning of Internal Revenue Code section 409A and rules,
regulations, and guidance of general application thereunder issued by the Department of the
Treasury, and provided the occurrence of the event is objectively determinable and does not require
the exercise of judgment or discretion on the part of the Plan Administrator or any other person –




(a) Change in Ownership: a change in ownership of Middlefield Banc Corp occurs on
the date any one person or group accumulates ownership of Middlefield Banc Corp’s
stock constituting more than 50% of the total fair market value or total voting
power of Middlefield Banc Corp’s stock,




(b) Change in Effective Control: (1) any one person, or more than one person acting
as a group, acquires within a 12-month period ownership of stock of Middlefield Banc
Corp possessing 35% or more of the total voting power of Middlefield Banc Corp’s
stock, or (2) a majority of Middlefield Banc Corp’s board of directors is replaced
during any 12-month period by directors whose appointment or election is not
endorsed in advance by a majority of Middlefield Banc Corp’s board of directors, or




(c) Change in Ownership of a Substantial Portion of Assets: a change in the
ownership of a substantial portion of Middlefield Banc Corp’s assets occurs on the
date any one person, or more than one person acting as a group, acquires assets from
Middlefield Banc Corp having a total gross fair market value equal to or exceeding
40% of the total gross fair market value of all of the assets of Middlefield Banc
Corp immediately before the acquisition or acquisitions. For
this purpose, gross fair market value means the value of Middlefield Banc Corp’s



 









 







assets, or the value of the assets being disposed of, determined without regard to
any liabilities associated with the assets.



     1.7 “Code” means the Internal Revenue Code of 1986, as amended.



     1.8 “Effective Date” means January 1, 2006.



     1.9 “Normal Retirement Age” means the Executive’s 65th birthday.



     1.10 “Performance Goals” means the performance criteria set forth in Schedule A attached to
this Agreement and incorporated herein by this reference, which criteria have been established by
the Bank’s board of directors. The Performance Goals may be changed by the board of directors no
more frequently than annually. If the performance criteria are changed, a new Schedule A shall be
substituted for and shall supersede the old Schedule A, and the new Schedule A shall be deemed to
be incorporated by reference herein and to be a part of this Agreement. A change in Performance
Goals shall not become effective for the Plan Year in which the change is made unless the change is
made on or before March 31 of the Plan Year. The Plan Administrator shall have sole authority to
determine whether the Performance Goals have been achieved for any Plan Year. The Plan
Administrator’s determination that the Performance Goals for a Plan Year have or have not been
achieved shall be conclusive and binding.



     1.11 “Plan Administrator” or “Administrator” means the plan administrator described in Article
8.



     1.12 “Plan Year” means the calendar year. The first Plan Year shall begin on the Effective
Date and end on December 31, 2006.



     1.13 “Separation from Service” means the Executive’s service as an executive or independent
contractor to the Bank and any member of a controlled group, as defined in Code section 414,
terminates for any reason, other than because of a leave of absence approved by the Bank or the
Executive’s death. If there is a dispute about the Executive’s status or the date of the
Executive’s Separation from Service, the Bank shall have the sole and absolute right to decide the
dispute unless a Change in Control shall have occurred.



     1.14 “Termination for Cause” and “Cause” shall have the same definition specified in any
effective severance or employment agreement existing on the date hereof or hereafter entered into
between the Executive and the Bank. If the Executive is not a party to a severance or employment
agreement containing a definition of termination for cause, Termination for Cause means the Bank
terminates the Executive’s employment because of –




     (a) the Executive’s gross negligence or gross neglect of duties or intentional
and material failure to perform stated duties after written notice thereof, or



 









 






     (b) disloyalty or dishonesty by the Executive in the performance of his duties,
or a breach of the Executive’s fiduciary duties for personal profit, in any case
whether in his capacity as a director or officer, or




     (c) intentional wrongful damage by the Executive to the business or property of
the Bank or its affiliates, including without limitation the reputation of the Bank,
which in the judgement of the Bank causes material harm to the Bank or affiliates,
or




     (d) a willful violation by the Executive of any applicable law or significant
policy of the Bank or an affiliate that, in the Bank’s judgement, results in an
adverse effect on the Bank or the affiliate, regardless of whether the violation
leads to criminal prosecution or conviction. For purposes of this Agreement,
applicable laws include any statute, rule, regulatory order, statement of policy, or
final cease-and-desist order of any governmental agency or body having regulatory
authority over the Bank, or




     (e) the occurrence of any event that results in the Executive being excluded
from coverage, or having coverage limited for the Executive as compared to other
executives of the Bank, under the Bank’s blanket bond or other fidelity or
insurance policy covering its directors, officers, or employees, or




     (f) the Executive is removed from office or permanently prohibited from
participating in the Bank’s affairs by an order issued under section 8(e)(4) or
section 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or
(g)(1), or




     (g) conviction of the Executive for or plea of nolo contendere to a felony or
conviction of or plea of nolo contendere to a misdemeanor involving moral turpitude,
or the actual incarceration of the Executive for 45 consecutive days or more.



Article 2

Deferral Account




     2.1 Annual Contribution. The Bank shall establish an Account Balance on its books. Within
three months after the end of each Plan Year the Bank shall credit the Annual Contribution to the
Account Balance provided the Performance Goals were achieved for the Plan Year. Contributions to
the Account Balance by the Executive are prohibited. Discretionary contributions by the Bank are
likewise prohibited. The Annual Contribution shall not be made by the Bank for the Plan Year in
which the Executive attains the Normal Retirement Age or for any year thereafter. However, if the
Performance Goals are achieved for the Plan Year in which the Executive attains the Normal
Retirement Age (and if Separation from Service does not occur before Normal Retirement Age), the
Bank shall make a final contribution in an amount equal to the Annual Contribution multiplied by a
percentage. The percentage shall equal the number of days in the Plan Year before the Executive
attained Normal Retirement Age divided by 365. No



 









 







Annual Contributions shall be made by the Bank for the Plan Year in which the Executive’s death or
Separation from Service occurs or for any year thereafter (except for a final contribution for the
year in which the Executive attains the Normal Retirement Age, unless Separation from Service
occurs before Normal Retirement Age).



     2.2 Interest. At the end of each Plan Year and until the first to occur of (a) Normal
Retirement Age, (b) the Executive’s death, or (c) the Executive’s Separation from Service, interest
is to be credited on the Account Balance at an annual rate of interest for that Plan Year,
compounded monthly on the first day of the month, equal to the prime interest rate as published in
The Wall Street Journal (the “Index”). After the first to occur of (a) Normal Retirement Age, (b)
the Executive’s death, or (c) the Executive’s Separation from Service, interest shall be credited
on the Account Balance at an annual rate equal to the yield on a 20-year corporate bond rated Aa by
Moody’s, rounded to the nearest 1/4%.



     2.3 Statement of Account. Within 120 days after the end of each Plan Year, the Bank shall
provide to the Executive a statement of the Account Balance at the end of the Plan Year. Each
annual statement of the Account Balance shall supersede the previous year’s statement of the
Account Balance.



     2.4 Accounting Device Only. The Account Balance is solely a device for measuring amounts to
be paid under this Agreement. The Account Balance is not a trust fund of any kind. The Executive
is a general unsecured creditor of the Bank for the payment of benefits. The benefits represent
the mere promise by the Bank to pay benefits. The Executive’s rights are not subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by the Executive’s creditors.



Article 3

Benefits During Lifetime




     3.1 Normal Retirement Age Benefit. If Separation from Service has not occurred by Normal
Retirement Age, instead of any other benefit under this Agreement the Bank shall pay to the
Executive the Account Balance as of the end of the month in which the Executive attains the Normal
Retirement Age. The Account Balance shall be paid in 180 substantially equal monthly installments
beginning on the first day of the month after the month in which the Executive attains Normal
Retirement Age. The Bank shall credit interest according to the formula of section 2.2, compounded
monthly, until the Account Balance is paid in full.



     3.2 Separation from Service Benefit. If Separation from Service occurs before the Normal
Retirement Age for reasons other than death, instead of any other benefit under this Agreement the
Bank shall pay to the Executive the Account Balance as of the end of the month immediately before
the month in which payments commence. The Bank shall pay the Account Balance in 180 substantially
equal monthly installments beginning on the first day of the later of (a) the seventh month after
the month in which Separation from Service occurs or (b) the month after the month in which the
Executive attains Normal Retirement Age. The Bank shall credit interest according to the formula
of section 2.2, compounded monthly, until the Account Balance is paid in full.



 









 





     3.3 Change in Control Benefit. If a Change in Control occurs after the date of this
Agreement, instead of any other benefit payable under this Agreement, the Bank shall pay to the
Executive the entire Account Balance in a single lump sum within three days after the Change in
Control. Payment of the Change-in-Control benefit shall fully discharge the Bank from all
obligations under this Agreement, except the legal fee reimbursement obligation under section 9.11.



     3.4 Payout of Normal Retirement Benefit or Separation from Service Benefit after a Change in
Control. If a Change in Control occurs when the Executive is receiving benefits provided by
sections 3.1 or 3.2, the Bank shall pay the remaining benefits to the Executive in a single lump
sum within three days after the Change in Control. The lump-sum payment shall be an amount equal
to the Executive’s Account Balance remaining unpaid.



     3.5 One Benefit Only. Despite anything to the contrary in this Agreement, the Executive and
his Beneficiary are entitled to one benefit only under this Agreement, which shall be determined by
the first event to occur that is dealt with by this Agreement. Except as provided in section 3.4,
subsequent occurrence of events dealt with by this Agreement shall not entitle the Executive or his
Beneficiary to other or additional benefits under this Agreement.



     3.6 Savings Clause Relating to Compliance with Code Section 409A. Despite any contrary
provision of this Agreement, if when the Executive’s employment terminates the Executive is a
specified employee, as defined in Code section 409A, and if any payments under Article 3 of this
Agreement will result in additional tax or interest to the Executive because of section 409A, the
Executive will not be entitled to the payments under Article 3 until the earliest of (x) the date
that is at least six months after termination of the Executive’s employment for reasons other than
the Executive’s death, (y) the date of the Executive’s death, or (z) any earlier date that does not
result in additional tax or interest to the Executive under section 409A. If any provision of this
Agreement would subject the Executive to additional tax or interest under section 409A, the Bank
shall reform the provision. However, the Bank shall maintain to the maximum extent practicable the
original intent of the applicable provision without subjecting the Executive to additional tax or
interest, and the Bank shall not be required to incur any additional compensation expense as a
result of the reformed provision. References in this Agreement to Code section 409A include rules,
regulations, and guidance of general application issued by the Department of the Treasury under
Code section 409A.



Article 4

Death Benefits




     After the Executive’s death, the Bank shall pay to the Executive’s Beneficiary the Account
Balance as of the date of the Executive’s death. The Account Balance shall be paid to the
Executive’s Beneficiary in a single lump sum within 90 days after the date of the Executive’s
death. However, if the Executive dies after termination of this Agreement under Article 6, the
Executive’s Beneficiary shall be entitled to no benefits under this Agreement.



 









 





Article 5

Beneficiaries




     5.1 Beneficiary Designations. The Executive shall have the right to designate at any time a
Beneficiary to receive any benefits payable under this Agreement after the Executive’s death. The
Beneficiary designated under this Agreement may be the same as or different from the beneficiary
designation under any other benefit plan of the Bank in which the Executive participates.



     5.2 Beneficiary Designation Change. The Executive shall designate a Beneficiary by completing
and signing the Beneficiary Designation Form and delivering it to the Plan Administrator or its
designated agent. The Executive’s Beneficiary designation shall be deemed automatically revoked if
the Beneficiary predeceases the Executive or if the Executive names a spouse as Beneficiary and the
marriage is subsequently dissolved. The Executive shall have the right to change a Beneficiary by
completing, signing, and otherwise complying with the terms of the Beneficiary Designation Form and
the Plan Administrator’s rules and procedures, as in effect from time to time. Upon the acceptance
by the Plan Administrator of a new Beneficiary Designation Form, all Beneficiary designations
previously filed shall be cancelled. The Plan Administrator shall be entitled to rely on the last
Beneficiary Designation Form filed by the Executive and accepted by the Plan Administrator before
the Executive’s death.



     5.3 Acknowledgment. No designation or change in designation of a Beneficiary shall be
effective until received, accepted, and acknowledged in writing by the Plan Administrator or its
designated agent.



     5.4 No Beneficiary Designation. If the Executive dies without a valid beneficiary
designation, or if all designated Beneficiaries predecease the Executive, then the Executive’s
spouse shall be the designated Beneficiary. If the Executive has no surviving spouse, the benefits
shall be made to the personal representative of the Executive’s estate.



     5.5 Facility of Payment. If a benefit is payable to a minor, to a person declared
incapacitated, or to a person incapable of handling the disposition of his or her property, the
Bank may pay such benefit to the guardian, legal representative, or person having the care or
custody of the minor, incapacitated person, or incapable person. The Bank may require proof of
incapacity, minority, or guardianship as it may deem appropriate before distribution of the
benefit. Distribution shall completely discharge the Bank from all liability for the benefit.



Article 6

General Limitations




     6.1 Termination for Cause. Despite any provision of this Agreement to the contrary, the Bank
shall not pay any benefit under this Agreement and this Agreement shall terminate if Separation
from Service is a result of Termination for Cause.



     6.2 Misstatement. No benefits shall be paid under this Agreement if the Executive makes any
material misstatement of fact on any application or resume provided to the Bank, on



 









 







any application for life insurance purchased by the Bank, or on any application for benefits
provided by the Bank.



     6.3 Removal. Despite any provision of this Agreement to the contrary, if the Executive is
removed from office or permanently prohibited from participating in the Bank’s affairs by an order
issued under section 8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4)
or (g)(1), all obligations of the Bank under this Agreement shall terminate as of the effective
date of the order.



     6.4 Default. Notwithstanding any provision of this Agreement to the contrary, if the Bank is
in “default” or “in danger of default”, as those terms are defined in of section 3(x) of the
Federal Deposit Insurance Act, 12 U.S.C. 1813(x), all obligations under this Agreement shall
terminate.



Article 7

Claims and Review Procedures




     7.1 Claims Procedure. Any person who has not received benefits under this Agreement that he
or she believes should be paid (the “claimant”) shall make a claim for benefits as follows.




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






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




 









 












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





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




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






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




 









 






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





Article 8

Administration of Agreement




     8.1 Plan Administrator Duties. This Agreement shall be administered by a Plan Administrator
consisting of the board or such committee or persons as the board shall appoint. The Executive may
be a member of the Plan Administrator. The Plan Administrator shall also have the discretion and
authority to (a) make, amend, interpret, and enforce all appropriate rules and regulations for the
administration of this Agreement and (b) decide or resolve any and all questions, including
interpretations of this Agreement, as may arise in connection with the Agreement.



     8.2 Agents. In the administration of this Agreement, the Plan Administrator may employ agents
and delegate to them such administrative duties as it sees fit (including acting through a duly
appointed representative) and may from time to time consult with counsel, who may be counsel to the
Bank.



     8.3 Binding Effect of Decisions. The decision or action of the Plan Administrator with
respect to any question arising out of or in connection with the administration, interpretation,
and application of the Agreement and the rules and regulations promulgated hereunder shall be final
and conclusive and binding upon all persons having any interest in the Agreement. Neither the
Executive nor any Beneficiary shall be deemed to have any right, vested or unvested, regarding the
continuing effect of any decision or action of the Plan Administrator.



     8.4 Indemnity of Plan Administrator. The Bank shall indemnify and hold harmless the members
of the Plan Administrator against any and all claims, losses, damages, expenses, or liabilities
arising from any action or failure to act with respect to this Agreement, except in the case of
willful misconduct by the Plan Administrator or any of its members.



     8.5 Bank Information. To enable the Plan Administrator to perform its functions, the Bank
shall supply full and timely information to the Plan Administrator on all matters relating to the
date and circumstances of the retirement, death, or Separation from Service of the Executive, and
such other pertinent information as the Plan Administrator may reasonably require.



Article 9

Miscellaneous




     9.1 Amendments and Termination. This Agreement may be amended solely by a written agreement
signed by the Bank and by the Executive. Except for the case of Termination



 









 







for Cause, this Agreement shall not be terminated unless the Account Balance is first paid to the
Executive or the Executive’s Beneficiary.



     9.2 Binding Effect. This Agreement shall bind the Executive and the Bank and their
beneficiaries, survivors, executors, successors, administrators, and transferees.



     9.3 Successors; Binding Agreement. By an assumption agreement in form and substance
satisfactory to the Executive, the Bank shall require any successor (whether direct or indirect, by
purchase, merger, consolidation, or otherwise) to all or substantially all of the Bank’s business
or assets to expressly assume and agree to perform this Agreement in the same manner and to the
same extent the Bank would be required to perform this Agreement if no such succession had
occurred.



     9.4 No Guarantee of Employment. This Agreement is not an employment policy or contract. It
does not give the Executive the right to remain an employee of the Bank, nor does it interfere with
the Bank’s right to discharge the Executive. It also does not require the Executive to remain an
employee nor interfere with the Executive’s right to terminate employment at any time.



     9.5 Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned,
pledged, attached, or encumbered in any manner.



     9.6 Tax Withholding. The Bank shall withhold any taxes that are required to be withheld from
the benefits provided under this Agreement.



     9.7 Applicable Law. This Agreement and all rights hereunder shall be governed by the laws of
the State of Ohio, except to the extent the laws of the United States of America otherwise require.



     9.8 Unfunded Arrangement. The Executive and the Beneficiary are general unsecured creditors
of the Bank for the payment of benefits under this Agreement. The benefits represent the mere
promise by the Bank to pay benefits. The rights to benefits are not subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors. Any insurance on the Executive’s life is a general asset of the Bank to
which the Executive and the Beneficiary have no preferred or secured claim.



     9.9 Entire Agreement. This Agreement constitutes the entire agreement between the Bank and
the Executive concerning the subject matter hereof. No rights are granted to the Executive under
this Agreement other than those specifically set forth.



     9.10 Tax Consequences. The Bank does not insure or guarantee the tax consequences of payments
provided hereunder for matters beyond its control, and the Executive certifies that his decision to
defer receipt of his compensation is not due to any reliance upon financial, tax or legal advice
given by the Bank, and of its employees, agents, accountants or legal advisors.



 









 





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



     9.12 Severability. If any provision of this Agreement is held invalid, such invalidity shall
not affect any other provision of this Agreement not held invalid, and each such other provision
shall continue in full force and effect to the full extent consistent with law. If any provision
of this Agreement is held invalid in part, such invalidity shall not affect the remainder of the
provision not held invalid, and the remainder of such provision together with all other provisions
of this Agreement shall continue in full force and effect to the full extent consistent with law.



 









 





     9.13 Waiver. A waiver by either party of any of the terms or conditions of this Agreement in
any one instance shall not be considered a waiver of such terms or conditions for the future, or of
any subsequent breach thereof. All remedies, rights, undertakings, obligations, and agreements
contained in this Agreement shall be cumulative, and none of them shall be in limitation of any
other remedy, right, undertaking, obligation or agreement of either party.



     9.14 Headings. The heading in this Agreement are for convenience only and shall not affect
the interpretation or construction of the Agreement or any of its provisions.



     9.15 Notice. All notices, requests, demands, and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered by hand or mailed, certified or
registered mail, return receipt requested, with postage prepaid. Unless otherwise changed by
notice, notice shall be properly addressed to the Executive if addressed to the address of the
Executive on the books and records of the Bank at the time of the delivery of such notice, and
properly addressed to the Bank if addressed to the Board of Directors, The Middlefield Banking
Company, 15985 East High Street, Middlefield, Ohio 44062-0035.



     9.16 Termination or Modification of Agreement Because of Changes in Law, Rules or Regulations.
The Bank is entering into this Agreement on the assumption that certain existing tax laws, rules,
and regulations will continue in effect in their current form. If that assumption materially
changes and the change has a material detrimental effect on this Agreement, then the Bank reserves
the right to terminate or modify this Agreement accordingly, subject to the written consent of the
Executive, which shall not be unreasonably withheld. This section 9.16 shall become null and void
effective immediately after a Change in Control.



     In Witness Whereof, the Executive and a duly authorized Bank officer have executed
this Executive Deferred Compensation Agreement as of the date first written above.




	 	 	 	 	 	 	 	 	 
	Executive:	 	 	 	Bank:	 	 
	 	 	 	 	The Middlefield Banking Company	 	 
	 
	 	 	 	 	 	 	 	 
	 

James R. Heslop II

	 	 	 	By:
	 	 
	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	Its:
	 	 	 	 
	 

	 	 	 	 	 	 	 	 





 









 





The Middlefield Banking Company

Executive Deferred Compensation Agreement

Beneficiary Designation




     I designate the following as beneficiary under this Executive Deferred Compensation Agreement
of benefits payable after my death.



	 	 	 
	Primary: 
 



	 

	 
	 
	 	 
	Contingent: 
	 	 
	 

	 






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





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



	 	 	 	 	 	 	 
	 

	 	Signature:
	 	 	 	 
	 

	 	 	 	 	 
	 

	 	 	 	James R. Heslop II	 	 
	 
	 	 	 	 	 	 
	 

	 	Date:
	 	 	 	, 2006
	 

	 	 	 	 	 





     Received by the Bank this                      day of                                         , 2006.



	 	 	 	 	 	 	 
	 

	 	By:
	 	 	 	 
	 

	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Title: 
	 	 	 	 
	 

	 	 	 	 	 





 









 





The Middlefield Banking Company

Executive Deferred Compensation Agreement




Schedule A

Performance Goals




     The Bank’s board of directors shall set Performance Goals, which may be absolute performance
targets taking the Bank’s performance only into account, or relative targets taking the Bank’s
performance into account relative to a peer group of companies, or a combination of both. The
measures of performance used to establish Performance Goals shall not change from one Plan Year to
the next unless the board of directors concludes that compelling reasons exist to use different or
additional measures of performance. If performance relative to a peer group is used, the peer
group analysis selected by the board of directors shall not be changed from one Plan Year to the
next unless the board of directors concludes that the peer group being employed is no longer
representative of the Bank’s actual peer group of companies, or alternatively, the company
preparing the peer group analysis ceases to exist or no longer prepares peer group analyses.



     For the first Plan Year, the Executive will receive an Annual Contribution amount equal to 5%
of the Executive’s Base Annual Salary. For every Plan Year after the first Plan Year unless
changed by the board of directors pursuant to Section 1.1 of the Agreement, the Performance Goals
are –



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





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


 









 






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




	 	 	 	 	 
	 	 	 	 	Annual Contribution for Achievement of
	Performance Target #2	 	Performance Goal #2	 	Performance Goal #2
	Bank’s Target Peer Rank

	 	Overall Ranking in
	 	2.5% of the Executive’s Base Annual Salary
	 

	 	Top 50% of	 	 
	 

	 	Ohio-Headquartered	 	 
	 

	 	Commercial Banks as	 	 
	 

	 	Reported by Ryan	 	 
	 

	 	Beck & Co.	 	 
	 
	 	 	 	 
	Bank Has An—

	 	Overall Ranking in
	 	3.5% of the Executive’s Base Annual Salary
	 

	 	Top 60% of	 	 
	 

	 	Ohio-Headquartered	 	 
	 

	 	Commercial Banks as	 	 
	 

	 	Reported by Ryan	 	 
	 

	 	Beck & Co.	 	 
	 
	 	 	 	 
	Bank Has An—

	 	Overall Ranking in
	 	4.5% of the Executive’s Base Annual Salary
	 

	 	Top 70% of	 	 
	 

	 	Ohio-Headquartered	 	 
	 

	 	Commercial Banks as	 	 
	 

	 	Reported by Ryan	 	 
	 

	 	Beck & Co.	 	 
	 
	 	 	 	 
	Bank Has An—

	 	Overall Ranking in
	 	5.5% of the Executive’s Base Annual Salary
	 

	 	Top 80% of	 	 
	 

	 	Ohio-Headquartered	 	 
	 

	 	Commercial Banks as	 	 
	 

	 	Reported by Ryan	 	 
	 

	 	Beck & Co.	 	 
	 
	 	 	 	 
	Bank Has An—

	 	Overall Ranking in
	 	6.5% of the Executive’s Base Annual Salary
	 

	 	Top 90% of	 	 
	 

	 	Ohio-Headquartered	 	 
	 

	 	Commercial Banks as	 	 
	 

	 	Reported by Ryan	 	 
	 

	 	Beck & Co.	 	 
	 
	 	 	 	 
	Bank Has An—

	 	Overall Ranking in
	 	7.5% of the Executive’s Base Annual Salary
	 

	 	Top 100% of	 	 
	 

	 	Ohio-Headquartered	 	 
	 

	 	Commercial Banks as	 	 
	 

	 	Reported by Ryan	 	 
	 

	 	Beck & Co.	 	 





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


 









 






maximum Annual Contribution for achievement of Performance Goal #2 is 7.5% of the Executive’s Base
Annual Salary.




     In the event that Ryan Beck & Co. ceases to exist or no longer prepares peer group analyses,
peer rank will be established using the Uniform Bank Performance Report (“UBPR”) as reported on the
Federal Financial Institutions Examination Council’s website at www.ffiec.gov/UBPR.htm. The UBPR
is an analytical tool created for bank supervisory, examination, and management purposes. In a
concise format, the UPBR shows the impact of management decisions and economic conditions on a
bank’s performance and balance-sheet composition. The performance and composition data contained
in the report can be used as an aid in evaluating the adequacy of earnings, liquidity, capital,
asset and liability management, and growth management.



     At a minimum, the Executive’s Annual Contribution in any Plan Year shall not be less than 5%
of the Executive’s Base Annual Salary (i.e., the 2.5% of Base Annual Salary Annual Contribution
under Performance Goal #1 plus the 2.5% of Base Annual Salary Annual Contribution under Performance
Goal #2). At a maximum, the Executive’s Annual Contribution in any Plan Year shall not exceed 15%
of the Executive’s Base Annual Salary (i.e., the 7.5% of Base Annual Salary Annual Contribution
under Performance Goal #1 plus the 7.5% of Base Annual Salary Annual Contribution under Performance
Goal #2).



     Changes in the Performance Goals approved by the board of directors shall become effective no
more frequently than annually. The Plan Administrator’s determination that the Performance Goals
for a Plan Year have or have not been achieved shall be conclusive and binding.