TWO YEAR
                              EMPLOYMENT AGREEMENT

         This  AGREEMENT is made  effective as of January 26, 2000, by and among
Monterey  Bay  Bank  (the   "Association"),   a  federally   chartered   savings
institution,  with its principal administrative office at 567 Auto Center Drive,
Watsonville,  California,  Monterey Bay Bancorp,  Inc., a corporation  organized
under the laws of the State of  Delaware,  and is the  holding  company  for the
Association (the "Holding Company") and Mark R. Andino ("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:

1. EMPLOYMENT PERIOD

         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 date first above
written (the "Effective  Date") and continuing for a period of twenty-four  (24)
full calendar  months,  ending on the second  anniversary  of the Effective Date
(the "Employment Period").

2. POSITION AND RESPONSIBILITIES.

         (a) During the Employment  Period,  Executive  agrees to serve as Chief
Financial Officer of the Association.  Executive shall render administrative and
management  services to the  Association  such as are  customarily  performed by
persons situated in a similar executive capacity.  During the Employment Period,
Executive also shall serve as Chief Financial Officer of the Holding Company and
of Portola Investment Corporation, a subsidiary of the Association.

         (b)  During  the  Employment  Period,  except  for  periods  of absence
occasioned by illness,  reasonable  vacation  periods,  and reasonable leaves of
absence,  Executive shall devote substantially all his business time, attention,
skill, and efforts to the faithful performance of his duties hereunder including
activities and services related to the organization, operation and management of
the Association.


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3. COMPENSATION AND REIMBURSEMENT.

         (a) During the Employment  Period,  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 $135,000 per year ("Base Salary").  Base Salary
shall  include  any amounts of  compensation  deferred  by  Executive  under any
employee  benefit plan  maintained  by the  Association.  During the  Employment
Period, Executive's Base Salary shall be reviewed annually. Any increase in Base
Salary  shall  become the "Base  Salary"  for  purposes  of this  Agreement.  In
addition to the Base Salary provided in this Section 3(a), the Association shall
also provide  Executive,  with all such other benefits as are provided uniformly
to regular full-time employees of the Association.

         (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,    profit-sharing   plans,
health-and-accident  plans,  medical coverage or any other employee benefit plan
or arrangement  made available by the  Association or the Holding Company 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 the Holding  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 and other  reasonable  expenses
incurred by Executive 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.


<PAGE>



4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.

         (a) If the Association or the Holding Company  terminates,  actually or
constructively,  the Executive's employment during the Employment Period for any
reason other than a termination  governed by Section 5(a) hereof, or termination
for Cause, as defined in Section 7 hereof, the Association shall be obligated to
pay Executive,  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
the sum of (i)  Executive's  Base Salary at the date of termination for a period
of one year and (ii) an amount equal to the cost of providing medical and dental
coverage,  similar to the coverage in effect prior to  Executive's  termination,
for a period of one  year.  Such  payments  shall  not be  reduced  in the event
Executive  obtains  other  employment   following   termination  of  employment.
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.

         (b) In the event the  Association is not in compliance with its minimum
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 shall be deferred until such time as the Association
or successor thereto is in capital compliance.


<PAGE>



5. CHANGE IN CONTROL.

         (a) For  purposes  of this  Agreement,  a "Change  in  Control"  of the
Association  or Holding  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 Holding  Company within the meaning
of the Home Owners' Loan Act of 1933 and 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 Holding  Company  representing  25% or more of the  Association's  or the
Holding  Company's  outstanding  voting  securities or the right to acquire such
securities except for any voting securities of the Association  purchased by the
Holding  Company in connection  with the  conversion of the  Association  to the
stock form and any  securities  purchased  by any  employee  benefit plan of the
Association or the Holding 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 Holding  Company's  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 Holding Company or
similar  transaction  occurs in which the  Association or Holding 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  approvals not including the lapse of any statutory waiting
periods.

         (b) If a Change in Control  has  occurred  or the Board has  determined
that a Change in  Control  has  occurred,  Executive  shall be  entitled  to the
benefits  provided  in  Section  5(c)  and  Section  5(d)  upon  his  subsequent
termination of employment at any time during the  Employment  Period due to: (1)
Executive's  dismissal or (2) Executive's  voluntary  resignation  following any
demotion,  loss of title,  office or  significant  authority or  responsibility,
reduction in annual  compensation  or benefits or  relocation  of his  principal
place of employment by more than 50 miles from its location immediately prior to
the Change in Control.


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         (c) Upon Executive's  entitlement to benefits pursuant to Section 5(b),
the Association  shall pay Executive,  or in the event of his subsequent  death,
his beneficiary or beneficiaries, or his estate, as the case may be, a sum equal
to the greater of 1) the payments due for the remaining  term of the  Agreement;
or 2) two (2) times Executive's  average annual  compensation for the three most
recent taxable years that Executive has been employed by the Association or such
lesser number of years in the event that  Executive  shall have been employed by
the  Association  for less than three years.  Such average  annual  compensation
shall include any commissions,  bonuses,  contributions on Executive's behalf to
any pension and/or profit sharing plan, severance payments, retirement payments,
director  or  committee  fees  and  fringe  benefits  paid  or to be paid to the
Executive in any such year, any director or committee fees paid or to be paid in
any such year;  provided however that any payment under this provision shall not
exceed two (2) times the Executive's average annual  compensation.  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 shall be deferred until
such time as the Association or successor thereto is in capital  compliance.  At
the election of the Executive, which election is to be made prior to a Change in
Control,  such payment shall be made in a lump sum as of the Executive's date of
termination.  In the event that no  election is made,  payment to the  Executive
will be made in  approximately  equal  installments  on a monthly  basis  over a
period of twenty-four  (24) months following the Executive's  termination.  Such
payments shall not be reduced in the event  Executive  obtains other  employment
following termination.

         (d) Upon the  Executive's  entitlement to benefits  pursuant to Section
5(b), the Association  will cause to be continued  life,  medical and disability
coverage  similar to the coverage  maintained by the  Association  for Executive
prior to his severance at no premium cost to the Executive, except to the extent
that  such  coverage  may be  changed  in its  application  for all  Association
employees on a non-discriminatory  basis. Such coverage and payments shall cease
upon the expiration of twenty-four  (24) full calendar months following the date
of termination.

6. CHANGE OF CONTROL RELATED PROVISIONS

         Notwithstanding  the  provisions  of Section  5, in no event  shall the
aggregate  payments or benefits to be made or afforded to  Executive  under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Code or any successor  thereto,  and in order to avoid
such a result,  Termination Benefits will be reduced, if necessary, to an amount
(the  "Non-Triggering  Amount"),  the value of which is one dollar  ($1.00) less
than an amount equal to three (3) times Executive's "base amount", as determined
in accordance  with said Section 280G. The allocation of the reduction  required
hereby among the Termination  Benefits provided by Section 5 shall be determined
by Executive.


<PAGE>



7. TERMINATION FOR CAUSE.

         (a) For purposes of this  Agreement,  the term  "Cause"  shall mean (i)
fraud  or  misappropriation  with  respect  to the  business  or  assets  of the
Association or the Holding 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)
the  death of  Executive  or  incapacity  exceeding  the  maximum  leave  period
delineated in the Family & Medical Leave Act (FMLA) or California  Family Rights
Act (CFRA);  (vi)  violation of any law, rule or regulation  (excluding  Vehicle
Code  convictions,  or marijuana  convictions  more than two years old) or final
cease-and-desist  order;  (vii) the use of drugs or alcohol that interferes with
the Executive's performance of his job duties; or (viii) any breach of fiduciary
duty involving personal profit; (ix) any unlawful conduct by Executive injurious
to  the  interest,   property,   operations,   business  or  reputation  of  the
Association.

         (b) Executive shall not have the right to receive compensation or other
benefits  for any period  after  Termination  for Cause.  Any 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 Holding 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.

8. VOLUNTARY RESIGNATION

         Nothing in this Agreement shall prevent or limit  Executive's  right to
voluntarily resign at any time and for any or no reason. If Executive determines
to voluntarily  resign (i) other than in conjunction with a 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>



9. NOTICE.

         A termination  for cause by the  Association or the Holding  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 thirty (30) days after receipt of a written notice communicated to the
Executive.

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  Association  as  may  reasonably  be  required  by the
Association  in  connection  with  any  litigation  in  which  it or  any of its
subsidiaries or affiliates is, or may become, a party.

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

         (a) Executive  agrees and  acknowledges  that during the performance of
his  duties  with  the   Association,   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  Association  and
affiliates thereof.  Executive recognizes and acknowledges that the knowledge of
the business activities and plans for business activities of the Association and
affiliates  thereof,  as it may exist from time to time, is a valuable,  special
and unique asset of the business of the Association.  Executive will not, during
or after the  Employment  period,  disclose any knowledge of the past,  present,
planned or  considered  business  activities  of the  Association  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
Association. Executive may disclose any information previously made available to
the  public  by the  Association  without  limitation.  Further,  Executive  may
disclose information regarding the business activities of the Association to the
OTS and the Federal Deposit Insurance  Corporation ("FDIC") pursuant to a formal
regulatory request.


<PAGE>



         (b) Executive  further agrees and acknowledges that the Association and
its affiliates have invested  substantial  time, effort and expense in compiling
its confidential,  trade secret  information and in assembling its present staff
of  personnel.  In order to protect  the  confidentiality  of the  Association's
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. The provisions of this
paragraph do not apply in a situation 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 Association 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
Association  for which there will be no adequate  remedy at law. The Association
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  Association 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.

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 Holding 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 Holding Company.


<PAGE>



13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.

         This Agreement  contains the entire  understanding  between the parties
hereto and supersedes any prior employment  agreement between the Association or
any  predecessor of the  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.

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 their respective successors and assigns.

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>



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. ss1818(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.
ss1818(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. ss1813(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.  ss1823(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.
ss1828(k)  and 12 C.F.R.  ss545.121  and any rules and  regulations  promulgated
thereunder.


<PAGE>



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.

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.

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.

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 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.

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>



22. INDEMNIFICATION.

         (a) The  Association  shall  provide  Executive  (including  his heirs,
executors and  administrators)  with coverage  under a standard  directors'  and
officers' liability insurance policy with a minimum aggregate coverage amount of
$5 million, at its expense, or 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  (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.

23. SUCCESSOR TO THE ASSOCIATION.

         The Association 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 the  Holding
Company,  expressly  and  unconditionally  to assume  and agree to  perform  the
Association's  obligations  under this Agreement,  in the same manner and to the
same  extent  that the  Association  would be  required  to  perform  if no such
succession or assignment had taken place.


<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 5th day of July, 2000.

ATTEST:                                         MONTEREY BAY BANK



/s/ Margaret A. Green                          By:      /s/ C. Edward Holden
---------------------                                   --------------------
Margaret A. Green                                       C. Edward Holden
Secretary                                               Chief Executive Officer


[SEAL]



ATTEST:                                         MONTEREY BAY BANCORP, INC.
                                                         (Guarantor)



/s/ Margaret A. Green                          By:      /s/ C. Edward Holden
---------------------------                             --------------------
Margaret A. Green                                       C. Edward Holden
Secretary                                               Chief Executive Officer


[SEAL]


WITNESS:

/s/ Cynthia Girard                              /s/ Mark R. Andino
------------------                              ------------------
Cynthia Girard                                  Mark R. Andino
                                                Chief Financial Officer


<PAGE>



                                   APPENDIX A

                         ALTERNATIVE DISPUTE RESOLUTION

I.       AGREEMENT TO ARBITRATE

         In the event that any employment  dispute  arises between  Monterey Bay
         Bank  ("Association")  and Mark R.  Andino  ("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.

         (A) REQUEST FOR ARBITRATION

         (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) Arbitration Procedures

         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>

         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
<PAGE>

                  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.

         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.
<PAGE>

                  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.

         (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>

         (B) 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.

DATED:   July 5, 2000                       By:      /s/ Mark R. Andino
                                                     ------------------
                                                     Mark R. Andino


                                                     MONTEREY BAY BANK

DATED:   July 6, 2000                       By:      /s/ C. Edward Holden
                                                     --------------------
                                                     C. Edward Holden
                                                     Chief Executive Officer

                                                     MONTEREY BAY BANCORP, INC.
                                                     (Guarantor)

DATED:   July 6, 2000                       By:      /s/ C. Edward Holden
                                                     --------------------
                                                     C. Edward Holden
                                                     Chief Executive Officer