Document:

<PAGE>   1
                                                                     EXHIBIT 4.1

                               BORDERS GROUP, INC.

                    NON-QUALIFIED DEFERRED COMPENSATION PLAN

<PAGE>   2

                               BORDERS GROUP, INC.
                    NON-QUALIFIED DEFERRED COMPENSATION PLAN

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                PAGE
<S>               <C>                                                                           <C>
ARTICLE 1             INTRODUCTION................................................................1

         1.1      Purpose of the Plan, Effective Date.............................................1

         1.2      Plan Administrator, Plan Year...................................................1

         1.3      The Employers...................................................................1

         1.4      Supplements.....................................................................1

ARTICLE 2             PLAN PARTICIPATION..........................................................1

         2.1      Eligibility.....................................................................1

         2.2      Participation...................................................................2

         2.3      Cessation of Active Participation...............................................2

ARTICLE 3             PARTICIPANTS' ACCOUNTS; DEFERRALS AND CREDITING.............................3

         3.1      Participants' Accounts..........................................................3

         3.2      Deferral Contributions..........................................................3

         3.3      Deferral Election...............................................................4

         3.4      Discretionary Contributions.....................................................4

         3.5      Debiting of Distributions and Forfeitures.......................................5

         3.6      Crediting of Earnings or Losses on Contributions................................5

         3.7      Errors in Accounts..............................................................5

ARTICLE 4             INVESTMENT FUNDS............................................................5

         4.1      Selection by Plan Administrator.................................................5

         4.2      Participant Direction of Deemed Investments.....................................5

ARTICLE 5             PAYMENT OF ACCOUNT BALANCES.................................................6

         5.1      Benefit Payments Upon Termination of Service....................................6

         5.2      Form of Distribution............................................................7

         5.3      In-Service Distributions........................................................7

         5.4      Beneficiary Designation........................................................10

ARTICLE 6             CLAIMS.....................................................................10

         6.1      Initial Claim..................................................................10

         6.2      Appeal.........................................................................10

         6.3      Satisfaction of Claims.........................................................11
</TABLE>

                                      -i-

<PAGE>   3

                                TABLE OF CONTENTS
                                  (CONTINUED)

<TABLE>
<CAPTION>
                                                                                                   PAGE
<S>               <C>                                                                              <C>
ARTICLE 7             NO FUNDING OF PLAN BENEFITS...................................................11

ARTICLE 8             PLAN ADMINISTRATOR............................................................11

         8.1      Plan Administrator's Duties.......................................................11

         8.2      Action by Administration..........................................................12

         8.3      Information Required for Plan Administration......................................12

         8.4      Decision of Plan Administrator Final..............................................13

         8.5      Indemnification...................................................................13

ARTICLE 9             RELATING TO THE COMPANY.......................................................13

         9.1      Action by Company.................................................................13

ARTICLE 10            AMENDMENT AND TERMINATION.....................................................13

         10.1     Amendment.........................................................................13

         10.2     Termination.......................................................................14

         10.3     Distribution on Termination.......................................................14

ARTICLE 11            GENERAL PROVISIONS............................................................14

         11.1     Notices...........................................................................14

         11.2     Nonalienation of Plan Benefits....................................................14

         11.3     Payment with Respect to Incapacitated Persons.....................................14

         11.4     No Employment or Benefit Guaranty.................................................15

         11.5     Litigation........................................................................15

         11.6     Headings..........................................................................15

         11.7     Evidence..........................................................................15

         11.8     Gender and Number.................................................................15

         11.9     Waiver of Notice..................................................................15

         11.10    Applicable Law....................................................................15

         11.11    Severability......................................................................15

         11.12    Withholding for Taxes.............................................................15

         11.13    Successors........................................................................16

         11.14    Effect on Other Employee Benefit Plans............................................16
</TABLE>

                                      -ii-
<PAGE>   4

                               BORDERS GROUP, INC.
                    NON-QUALIFIED DEFERRED COMPENSATION PLAN

                                   Article 1
                                  Introduction

         1.1 Purpose of the Plan, Effective Date. The Borders Group, Inc.
Non-Qualified Deferred Compensation Plan (the "Plan") has been established by
Borders Group, Inc. (the "Company"), effective as of August 1, 2001 (the
"Effective Date"), with respect to Eligible Employees (as defined in Section
2.1). The purpose of the Plan is to provide certain Eligible Employees with an
opportunity to defer the receipt and income taxation of a portion of such
employees' annual compensation. The Plan is intended to be a plan that is
unfunded and that is maintained primarily for the purpose of providing deferred
compensation to a select group of management or highly compensated employees.

         1.2 Plan Administrator, Plan Year. The Plan is administered by the
Company (the "Plan Administrator"). The Plan is administered on the basis of a
Plan Year which is the calendar year. Article 8 describes certain specific
powers, duties and responsibilities of the Plan Administrator with respect to
the administration of the Plan.

         1.3 The Employers. The Company and its Subsidiaries are referred to
herein collectively as the "Employers" and individually as an "Employer". A
"Subsidiary" means any corporation or business organization which is a member of
a controlled group of corporations which includes any employer (as determined
under Section 414(b) of the Internal Revenue Code of 1986, as amended (the
"Code")); any corporation or business organization which is under common control
with any employer (as determined under Section 414(c) of the Code); any
corporation or business organization that is a member of an affiliated service
group that includes any employer (as determined under Section 414(m) of the
Code); and any other entity required to be aggregated with the Company under
Treasury regulations to be issued under Section 414(o) of the Code.

         1.4 Supplements. From time to time supplements may by amendment be
attached to and form a part of this Plan. Such supplements may modify or
supplement the provisions of the Plan as they apply to particular groups of
Eligible Employees (as defined in Section 2.1) or groups of Participants (as
defined in Section 2.2), shall specify the person affected by such supplements
and shall supersede the other provisions of the Plan to the extent necessary to
eliminate inconsistencies between the Plan provisions and the provisions of such
supplements.

                                   Article 2
                               Plan Participation

         2.1 Eligibility. Each employee of an Employer shall become an Eligible
Employee as of the date he is notified by the Plan Administrator or its delegate
that he has been selected to become an Eligible Employee. The Plan Administrator
shall consider such factors as it, in its sole discretion, considers pertinent
in selecting Eligible Employees. "Eligible Employee" means, for a Plan Year or
portion of a Plan Year, an individual:

<PAGE>   5

            (a) who is an employee of an Employer, exclusive of any employee who
provides services to an Employer under a contract or arrangement with either the
individual or with an agency or leasing organization that treats the individual
as either an individual contractor or an employee of such agency or leasing
organization, even if such individual is later determined to have been a common
law employee of the Employer rather than an independent contractor or an
employee of such agency or leasing organization;

            (b) who is a member of a select group of management or highly
compensated employees; and

            (c) either (i) who, for such Plan Year, has satisfied such minimum
compensation or other classification requirements established from time to time
by the Plan Administrator, or (ii) who otherwise is designated by the Plan
Administrator, in its sole discretion, as eligible to elect to participate in
the Plan.

         2.2 Participation. Each Eligible Employee may irrevocably elect to have
Deferral Contributions made on his behalf for a Plan Year, or portion of a Plan
Year, pursuant to Section 3.2 and thereby become a Plan Participant.
"Participant" means any individual who has been admitted to, and has not been
removed from, participation in the Plan pursuant to this Article 2. A
Participant must complete such forms and provide such data in a timely manner as
is required by the Plan Administrator. Such forms and data may include, without
limitation, his acceptance of the terms and conditions of the Plan and his
designation of a beneficiary to receive any death benefits payable hereunder.

         2.3 Cessation of Active Participation.

            (a) Cessation of Eligible Status. A Participant shall be considered
an active Participant during any period when Deferral Contributions are being
made to the Plan on his behalf. A Participant's active participation in the Plan
shall cease as of the date his employment with all Employers terminates. In
addition, the Plan Administrator may remove a Participant from active
participation in the Plan if, as of any day during a Plan Year, he ceases to
satisfy the criteria which qualified him as an Eligible Employee. Upon cessation
of, or removal from, active participation in the Plan, a Participant's deferrals
under the Plan shall cease.

            (b) Inactive Participant Status. Even if his active participation in
the Plan ends, an employee shall remain an inactive Participant in the Plan
until the earlier of (i) the date the full amount of his Plan Accounts (as
defined in Section 3.1) is distributed from the Plan, or (ii) the date he again
recommences active participation in the Plan as an Eligible Employee by electing
to have Deferral Contributions made to the Plan on his behalf pursuant to
Section 3.2. During the period of time that an employee is an inactive
Participant in the Plan, his Plan Accounts shall continue to be credited with
earnings and losses pursuant to the terms of Section 3.6, and he shall continue
to be eligible to direct the manner in which his Accounts shall be deemed
invested pursuant to Section 4.2.

            (c) Participation after Reemployment. If an Eligible Employee
terminates employment with all Employers (either before or after he becomes a
Participant) and then is reemployed by an Employer, he shall become eligible to
participate or to recommence his participation in the Plan as of the date, on or
after his reemployment date, that he is notified by the Plan Administrator that
he has been reselected by the Plan Administrator as an Eligible

                                      - 2 -

<PAGE>   6

Employee and that he may elect to have Deferral Contributions made to the Plan
on his behalf pursuant to Section 3.2.

            (d) Application of ERISA. It is the intent of the Company that the
Plan be exempt from Parts 2, 3, and 4 of Subtitle B of Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), as an unfunded
plan that is maintained by the Company primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees (the "ERISA exemption"). Notwithstanding anything to the contrary in
this Article 2 or in any other provision of the Plan, the Plan Administrator may
in its sole discretion exclude any one or more Eligible Employees from
eligibility to participate or from participation in the Plan, may exclude any
Participant from continued participation in the Plan, and may take any further
action it considers necessary or appropriate if the Plan Administrator
reasonably determines in good faith that such exclusion or further action is
necessary in order for the Plan to qualify for, or to continue to qualify for,
the ERISA exemption.

                                   Article 3
                 Participants' Accounts; Deferrals and Crediting

         3.1 Participants' Accounts. The Plan Administrator shall establish and
maintain on behalf of each Participant the following separate bookkeeping
accounts (an "Account") under the Plan:

            (a)      Deferral Contribution Account. Each Participant shall
                     have a "Deferral Contribution Account" maintained on
                     his behalf under the Plan. With respect to any
                     Participant, this Account shall represent the amount
                     of his Deferral Contributions (as defined in Section
                     3.2) and earnings or losses attributable thereto.

            (b)      Employer Contribution Account. Each Participant shall
                     have an "Employer Contribution Account" maintained on
                     his behalf under the Plan. With respect to any
                     Participant, this Account shall represent the amount
                     of his Discretionary Contributions (as defined in
                     Section 3.4), if any, and earnings or losses
                     attributable thereto.

         The Plan Administrator, in its discretion, may also establish and
maintain such additional separate bookkeeping accounts for the Participant as it
shall deem desirable. Each Participant shall at all times have a 100 percent
vested interest in his Deferral Contribution Account and Employer Contribution
Account. Each Account of a Participant shall be maintained until the value
thereof has been distributed to or on behalf of such Participant or his
beneficiary.

         3.2 Deferral Contributions. Each Participant may irrevocably elect to
have Deferral Contributions made on his behalf for a Plan Year by completing and
submitting to the Plan Administrator (or its designee) a Deferral Election (as
defined in Section 3.3) setting forth the terms of his election. A "Deferral
Contribution" means that portion of a Participant's Base Salary that the
Participant elects to defer receipt of, in lieu of receiving such compensation
currently. "Base Salary" means the Participant's annual base salary from his
Employer for the Plan Year paid or payable in a regular salary paycheck while an
active Participant in the Plan, including any amounts deferred under the Plan or
any other nonqualified deferred compensation plan and

                                     - 3 -

<PAGE>   7

any amounts contributed by the Employer on the Participant's behalf pursuant to
a salary deferral agreement which amounts are not includible in the
Participant's income under Code Section 125 or 402(e)(3). A Participant may
elect to defer, through pay reduction each payroll period, a fixed dollar amount
that is no more than 50 percent of his Base Salary for such payroll period.
Deferral Contributions may only be made while the Participant is actively
employed by the Employer. For purposes of the Plan, a Participant will be
considered actively employed during a leave of absence. Notwithstanding the
foregoing, a Participant's Deferral Contributions shall be reduced by the Plan
Administrator, in its sole discretion, to the extent necessary to provide the
Participant with sufficient Base Salary to satisfy his employment tax
deductions, wage withholding and any other payroll deductions.

         3.3 Deferral Election. A Participant must complete and submit a written
Deferral Election to the Plan Administrator providing for the reduction of his
Base Salary for the appropriate amount of Deferral Contributions. The following
terms and conditions shall apply to Deferral Elections:

            (a) Initial Deferral Election. The Eligible Employee's initial
Deferral Election under the Plan with respect to his Base Salary for any Plan
Year shall be effective for the first regular salary paycheck earned after the
date the Deferral Election becomes effective. To be effective, the initial
Deferral Election under the Plan with respect to Base Salary must be made within
the time period prescribed by the Plan Administrator (generally, before the
first day of the Plan Year for which Deferral Contributions attributable to Base
Salary will be made or, if later during such Plan Year, within 30 days after the
date on which the Eligible Employee first becomes an Eligible Employee pursuant
to Section 2.1). Until such time as an Eligible Employee submits an initial
Deferral Election in a timely manner, he shall be deemed to have elected not to
make Deferral Contributions and to have elected not to become a Participant in
the Plan.

            (b) Subsequent Deferral Election. A Participant's subsequent
Deferral Election with respect to his Base Salary for any Plan Year must be made
within the time period prescribed by the Plan Administrator, but before the
first day of the Plan Year for which the Base Salary to be deferred is payable.

            (c) Term. Each Participant's Deferral Election shall remain in
effect for the Base Salary earned during a Plan Year until the earlier of (i)
the date the Participant ceases to be an active Participant, or (ii) the
automatic revocation of a Deferral Election pursuant to Section 5.3(a) or
5.3(b). If a Participant is transferred from the employment of one Employer to
the employment of another Employer, his Deferral Election with the first
Employer will remain in effect and will apply to his Base Salary from the second
Employer until the earlier of those events set forth in the preceding sentence.

            (d) Crediting Contributions. For each Plan Year that a Participant
has a Deferral Election in effect, the Plan Administrator shall credit the
amount of such Participant's Deferral Contributions to his Deferral Contribution
Account on the day such amount would have been paid to him but for his Deferral
Election (or such other date or time as the Plan Administrator, in its sole
discretion, determines from time-to-time).

         3.4 Discretionary Contributions. As of the last business day of each
Plan Year (or such other date or time as the Plan Administrator, in its sole
discretion, determines from time to

                                     - 4 -

<PAGE>   8

time), the Plan Administrator shall credit any Discretionary Contributions made
with respect to an active Participant for such Plan Year to such Participant's
Employer Contribution Account. "Discretionary Contribution" means a
discretionary amount contributed to the Plan by the Company with respect to an
active Participant who is making Deferral Contributions for such Plan Year. The
Company may, but is not obligated to, make a matching Discretionary Contribution
for a Plan Year for any one or more active Participants. Further, the Company
may, but is not obligated to, make additional Discretionary Contributions which
may be different amounts or different percentages of compensation for each such
active Participant. Discretionary Contributions shall be 100% vested at all
times.

         3.5 Debiting of Distributions and Forfeitures. As of each business day,
the Plan Administrator shall debit each Participant's Accounts for any amount
distributed or forfeited from such Accounts since the immediately preceding
business day.

         3.6 Crediting of Earnings or Losses on Contributions. As of each
business day, the Plan Administrator shall credit to each Participant's Accounts
the amount of earnings or losses applicable thereto for the period since the
immediately preceding business day. To effect such crediting of earnings and
losses, the Plan Administrator shall, as of each business day, first subtract
all distributions and forfeitures since the immediately preceding business day
from the Account, add to the Account the amount of the contributions, and
allocate the net earnings or losses to the Participant's Account based on the
individual account activity of the Account during such period pursuant to a
share accounting method under which each Participant's deemed investment in an
Investment Fund (as defined in Section 4.1) shall be accounted for in deemed
shares in funds selected by the Plan Administrator and offered within the Plan
for purposes of calculating earnings and losses for Participants' Accounts. For
this purpose, the Plan Administrator shall adopt uniform rules which conform
generally to accepted accounting practices.

         3.7 Errors in Accounts. If an error or omission is discovered in the
Account of a Participant, in the amount of a Participant's deferrals or in the
amount of Discretionary Contributions credited to the Participant's Account, the
Plan Administrator, in its sole discretion, shall cause appropriate equitable
adjustments to be made as soon as administratively practicable following the
discovery of such error or omission.

                                   Article 4
                                Investment Funds

         4.1 Selection by Plan Administrator. From time to time, the Plan
Administrator shall select two or more investment funds (the "Investment Funds")
for purposes of determining the rate of return on amounts deemed invested in
accordance with the terms of the Plan. The Plan Administrator will notify
Participants in writing prior to the beginning of each Plan Year and at such
other times as the Plan Administrator deems necessary or desirable of the
Investment Funds available under the Plan for such Plan Year. The Plan
Administrator may change, add or remove Investment Funds on a prospective basis
at any time and in any manner it deems appropriate.

         4.2 Participant Direction of Deemed Investments. Each Participant
generally may direct the manner in which his Accounts shall be deemed invested
in and among the Investment

                                     - 5 -

<PAGE>   9

Funds; provided, such investment directions shall be made in accordance with the
following terms:

            (a) Nature of Participant Direction. The selection of Investment
Funds by a Participant shall be for the sole purpose of determining the rate of
return to be credited to his Accounts, and shall not be treated or interpreted
in any manner whatsoever as a requirement or direction to actually invest assets
in any Investment Fund or any other investment media. The Plan, as an unfunded,
nonqualified deferred compensation plan, at no time shall have any actual
investment of assets relative to the benefits or Accounts hereunder.

            (b) Investment of Contributions. Except as otherwise provided in
this Section 4.2, each Participant may make an investment election, made in such
form as the Plan Administrator may direct or permit, prescribing the percentage
of his future contributions that will be deemed invested in each Investment
Fund. An initial investment election of a Participant shall be made as of the
date the Participant commences or recommences participation in the Plan and
shall apply to all contributions credited to such Participant's Accounts after
such date. Such Participant may make subsequent investment elections at such
times as permitted by the Plan Administrator, and such elections shall apply to
all such specified contributions credited to such Participant's Accounts after
the effective date of such election. Any investment election timely and properly
made pursuant to this subsection with respect to future contributions shall
remain effective until changed by the Participant.

            (c) Investment of Existing Account Balances. Each Participant may
make an investment election, effective as of the date the Participant commences
or recommences participation in the Plan, prescribing a different percentage of
his existing Account balances that will be deemed invested in each Investment
Fund. Such Participant may make subsequent investment elections at such times as
permitted by the Plan Administrator prescribing a different percentage of his
existing Account balances that will be deemed invested in each Investment Fund.
Each such election which is timely and properly made shall remain in effect
until changed by such Participant.

            (d) Plan Administrator Discretion. The Plan Administrator shall have
complete discretion to adopt and revise procedures to be followed in making such
investment elections. Such procedures may include, but are not limited to, the
process of making elections, the permitted frequency of making elections, the
incremental size of elections, the deadline for making elections and the
effective date of such elections. Any procedures adopted by the Plan
Administrator that are inconsistent with the deadlines or procedures specified
in this Section 4.2 shall supersede such provisions of this Section 4.2 without
the necessity of a Plan amendment.

                                   Article 5
                           Payment of Account Balances

         5.1 Benefit Payments Upon Termination of Service.

            (a) General. In accordance with the terms of subsection (b) hereof,
if a Participant's employment with the Employers terminates for any reason, he
(or his beneficiary, in the event of his death) shall be entitled to receive a
distribution of the total of (i) the entire amount credited to his Accounts, as
adjusted for earnings or losses attributable thereto, determined as of the
business day on which such distribution is processed; plus (ii) the amount of

                                     - 6 -

<PAGE>   10

Deferral Contributions and Discretionary Contributions, if any, made since such
business day; and minus (iii) the amount of any distributions made to the
Participant or forfeitures charged to the Participant since such business day.
For purposes of this subsection, the "business day on which such distribution is
processed" refers to the business day established for such purpose by
administrative practice, even if actual payment is made at a later date due to
delays in valuation, administration or any other procedure.

            (b) Timing of Distribution. The distribution of the benefit payable
to a Participant under this Section shall be made or commence as soon as
reasonably practicable after the last business day of the calendar quarter in
which the Participant's employment with the Employers terminates.

         5.2 Form of Distribution. The benefit payable to a Participant under
Section 5.1 shall be distributed in the form of a lump sum payment.

         5.3 In-Service Distributions.

            (a) Hardship Distributions. Upon receipt of a written application
for an in-service hardship distribution and the Plan Administrator's decision,
made in its sole discretion, that a Participant has suffered a "Financial
Hardship", the Participant shall be entitled to receive an in-service
distribution from his Account balances. "Financial Hardship" shall mean a severe
financial hardship to the Participant resulting from a sudden and unexpected
illness or accident of the Participant or the Participant's dependent (as
defined in Section 152(a) of the Code), loss of the Participant's property due
to casualty, or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant. Financial
Hardship shall be determined by the Plan Administrator on the basis of the facts
of each case, including information supplied by the Participant in accordance
with uniform guidelines prescribed from time to time by the Plan Administrator;
provided, the Participant will be deemed not to have a Financial Hardship to the
extent that such hardship is or may be relieved (i) through reimbursement or
compensation by insurance or otherwise; (ii) by liquidation of the Participant's
assets, to the extent the liquidation of assets would not itself cause severe
financial hardship; or (iii) by cessation of deferrals under the Plan. Examples
of what are not considered to be Financial Hardships include the need to send a
Participant's child to college or the desire to purchase a home. Such
distribution shall be paid in a lump sum payment as soon as reasonably
practicable after the Plan Administrator determines that the Participant has
incurred a Financial Hardship. The amount of such lump sum payment shall not
exceed the total of (i) the entire amount credited to the Participant's
Accounts, as adjusted for earnings or losses attributable thereto, determined as
of the business day on which such distribution is processed; plus (ii) the
amount of Deferral Contributions and Discretionary Contributions made since such
business day, if any; and minus (iii) the amount of any distributions made to
the Participant or forfeitures charged to the Participant since such business
day; and, the amount of such lump sum payment shall be further limited to the
amount that the Plan Administrator determines is reasonably necessary to meet
the Participant's requirements resulting from the Financial Hardship. For
purposes of this subsection, the "business day on which such distribution is
processed" refers to the business day established for such purpose by
administrative practice, even if actual payment is made at a later date due to
delays in valuation, administration or any other procedure. The amount of such
distribution shall reduce the Participant's Account balances as provided in
Section 3.5. A Participant who receives an in-service hardship distribution
shall not be eligible

                                     - 7 -

<PAGE>   11

to make Deferral Contributions under the Plan or be credited with any
Discretionary Contributions for the remainder of the Plan Year in which such
distribution is made and for the next following Plan Year, and such
Participant's current Deferral Election, if any, shall be automatically revoked.
When such Participant is again eligible to make Deferral Contributions, such
Participant may resume active participation in the Plan by making a new Deferral
Election and satisfying any other procedures for participation under Section
2.2.

            (b) Distributions with Forfeiture. Notwithstanding any other
provision of this Article 5 to the contrary, a Participant may elect, in
writing, at any time prior to the complete distribution of his Plan Accounts, to
receive a distribution of up to 90 percent of the total of (i) the entire amount
credited to his Accounts, as adjusted for earnings or losses attributable
thereto, determined as of the business day as of which such distribution is
processed; plus (ii) the amount of Deferral Contributions and Discretionary
Contributions made since such business day, if any; and minus (iii) the amount
of any distributions made to the Participant or forfeitures charged to the
Participant since such business day. Such distribution shall be made as soon as
reasonably practicable after the date of the Participant's distribution election
under this subsection (b). As of the business day as of which such distribution
is processed, an amount equal to ten percent of such Participant's total Account
balances determined as of such date shall be permanently and irrevocably
forfeited, and such Participant shall not be eligible to make Deferral
Contributions under the Plan or to be credited with any Discretionary
Contributions for the remainder of the Plan Year in which such distribution is
made and for the next following Plan Year, and such Participant's current
Deferral Election, if any, shall be automatically revoked. For purposes of this
subsection, "as of the date such distribution is processed" refers to the
business day established for such purpose by administrative practice, even if
actual payment is made at a later date due to delays in valuation,
administration or any other procedure. When such Participant is again eligible
to make Deferral Contributions, such Participant may resume active participation
in the Plan by making a new Deferral Election and satisfying any other
procedures for participation under Section 2.2. The amount of the distribution
and the amount of the forfeiture under this subsection (b) shall reduce the
Participant's Account balances as provided in Section 3.5.

            (c) Specified In-Service Distributions. Notwithstanding any other
provision of this Article 5 to the contrary, a Participant may elect on his
Deferral Election to receive an in-service distribution of the total of (i) the
aggregate Deferral Contributions made pursuant to such Deferral Election, as
adjusted for earnings or losses attributable thereto and reduced for any
distributions or forfeitures thereof under subsection (a) or (b) above or (d)
below, determined as of the date such distribution is processed; plus (ii) the
aggregate matching Discretionary Contributions, if any, made with respect to
such Deferral Contributions and Discretionary Contributions, if any, made for
the Plan Year of such Deferral Contributions, as adjusted for earnings or losses
attributable thereto and reduced for any distributions or forfeitures thereof
under subsection (a) or (b) above or (d) below, determined as of the date such
distribution is processed. Such distribution shall be made in a lump sum payment
in the first quarter of the Plan Year designated by the Participant on his
Deferral Election provided that such Plan Year begins after the third
anniversary of the date the Deferral Contribution to be distributed would have
been paid to the Participant but for his Deferral Election. The amount of such
distribution shall reduce the Participant's Account balances as provided in
Section 3.5. Any portion of the Participant's Accounts which are not distributed
under this subsection (c) shall be distributed in accordance with Section 5.1
and shall remain available for distributions under this Section 5.3.

                                     - 8 -

<PAGE>   12

If the Participant's employment with the Employers terminates for any reason
prior to the payment of his in-service distribution hereunder, his in-service
distribution election shall be cancelled and of no effect and the Participant's
Accounts shall be distributed in accordance with Section 5.1. In the event a
Participant elects to receive an in-service distribution under this subsection
(c), such Participant may elect once per Deferral Election, in writing, at any
time that is at least one year before the first day of the calendar quarter that
the in-service distribution would otherwise be paid, to defer such in-service
distribution to the first quarter of any subsequent Plan Year, provided that
such quarter is at least 11 full calendar quarters after the quarter in which
the in-service distribution would otherwise have been paid.

            (d) Change in Control. Notwithstanding any other provision of this
Article 5 to the contrary, a Participant may elect on his Deferral Election,
upon a Change in Control, to receive a distribution of the total of (i) the
aggregate Deferral Contributions made pursuant to such Deferral Election, as
adjusted for earnings or losses attributable thereto and reduced for any
distributions or forfeitures thereof under subsection (a), (b) or (c),
determined as of the date such distribution is processed; plus (ii) the
aggregate matching Discretionary Contributions, if any, made with respect to
such Deferral Contributions and Discretionary Contributions, if any, made for
the Plan Year of such Deferral Contributions, as adjusted for earnings or losses
attributable thereto and reduced for any distributions thereof under subsection
(a), (b) or (c) above, determined as of the date such distribution is processed.
Such distribution shall be made in a lump sum payment on the date on which a
Change in Control occurs. The amount of such distribution shall reduce the
Participant's Account balances as provided in Section 3.5. Any portion of the
Participant's Accounts which are not distributed under this subsection (d) shall
be distributed in accordance with Section 5.1 and shall remain available for
distribution under this Section 5.3. If the Participant's employment with the
Employers terminates for any reason prior to the payment of his in-service
distribution hereunder, his in-service distribution election shall be cancelled
and of no effect and the Participant's Accounts shall be distributed in
accordance with Section 5.1. "Change in Control" shall mean the first occurrence
of one of the following events:

                 (i) the "beneficial ownership" (as defined in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of securities
representing more than 20% of the combined voting power of the Company is
acquired by any "person," as defined in Sections 13(d) and 14(d) of the Exchange
Act, (other than the Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any corporation owned, directly
or indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of shares of the Company's common stock ($.001
par value) (the "Shares")), or

                 (ii) the shareholders of the Company approve a definitive
agreement to merge or consolidate the Company with or into another corporation
or to sell or otherwise dispose of all or substantially all of its assets, or
adopt a plan of liquidation, or

                 (iii) during any period of three consecutive years beginning
after the completion of the initial public offering of the Shares, individuals
who at the beginning of such period were members of the Board cease for any
reason to constitute at least a majority thereof (unless the election, or the
nomination for election by the Company's shareholders, of each new director was
approved by a vote of at least a majority of the directors then still in office

                                     - 9 -

<PAGE>   13

who were directors at the beginning of such period or whose election or
nomination was previously so approved).

            (e) Deductible Limit. Notwithstanding anything in the Plan to the
contrary other than a distribution made pursuant to a Change in Control under
Section 5.3(d), the distribution of a Participant's benefit hereunder shall be
limited to an amount that would not cause the Participant to receive
compensation that the Plan Administrator determines would not be deductible
under Code Section 162(m). Any amount that is not distributed to the Participant
pursuant to the preceding sentence shall be distributed to the Participant, as
adjusted for earnings or losses attributable thereto, as soon as reasonably
practicable after the Plan Administrator determines that such distribution would
be permissible under the terms and conditions of the preceding sentence.

         5.4 Beneficiary Designation. Participants shall designate and from time
to time may redesignate their beneficiaries to receive any death benefits that
may be payable under the Plan upon such Participant's death in such form and
manner as the Plan Administrator may determine. In the event that:

                  (i) a Participant dies without designating a beneficiary;

                  (ii) the beneficiary designated by a Participant is not alive
         when a payment is to be made to such person under the Plan, and no
         contingent beneficiary has been designated; or

                  (iii) the beneficiary designated by a Participant cannot be
         located by the Plan Administrator within one year from the date
         benefits are to be paid to such person;

then, in any of such events, the beneficiary of such Participant with respect to
any benefits that remain payable under the Plan shall be the estate of the
Participant.

                                   Article 6
                                     Claims

         6.1 Initial Claim. Claims for benefits under the Plan may be filed with
the Plan Administrator on such form, as the Plan Administrator may prescribe.
The Plan Administrator shall furnish to the claimant notice of the disposition
of a claim within 90 days after the application therefor is filed. In the event
the claim is denied, the notice of the disposition of the claim shall provide
the specific reasons for the denial, citations of the pertinent provisions of
the Plan, and, where appropriate, an explanation as to how the claimant can
perfect the claim or submit the claim for review.

         6.2 Appeal. Any Participant or beneficiary who has been denied a
benefit shall be entitled, upon request to the Plan Administrator, to appeal the
denial of his claim. The claimant (or his duly authorized representative) may
review pertinent documents related to the Plan and in the Plan Administrator's
possession in order to prepare the appeal. The request for review, together with
a statement of the claimant's position, must be filed with the Plan
Administrator no later than 60 days after receipt of the notification of denial
of a claim provided for in Section 6.1. The Plan Administrator's decision shall
be made within 60 days following the filing of the

                                     - 10 -

<PAGE>   14

request for review. If unfavorable, the notice of the decision shall explain the
reasons for denial and indicate the provisions of the Plan or other documents
used to arrive at the decision.

         6.3 Satisfaction of Claims. Any payment to a Participant or beneficiary
shall to the extent thereof be in full satisfaction of all claims hereunder
against the Plan Administrator and the Company, either of whom may require such
Participant or beneficiary, as a condition to such payment, to execute a receipt
and release therefor in such form as shall be determined by the Plan
Administrator or the Company. If receipt and release is required but the
Participant or beneficiary (as applicable) does not provide such receipt and
release in a timely enough manner to permit a timely distribution in accordance
with the general timing of distribution provisions in the Plan, the payment of
any affected distribution may be delayed until the Plan Administrator or the
Company receives a proper receipt and release.

                                   Article 7
                           No Funding of Plan Benefits

         The Company may establish a trust (known as a "grantor trust" within
the meaning of the Code) for the purpose of accumulating funds to satisfy the
obligations incurred by the Company under the Plan. Notwithstanding the
preceding sentence, nothing herein shall require the Company to segregate or set
aside any funds or other property for the purpose of paying any benefits under
the Plan. Nothing contained in this Plan, and no action taken pursuant to its
provisions by the Company or the Plan Administrator shall create, nor be
construed to create, a trust of any kind or a fiduciary relationship between the
Company and the Participant, his beneficiary, or any other person. Benefits
hereunder shall be paid from assets which shall continue, for all purposes, to
be a part of the general, unrestricted assets of the Company. The obligation of
the Company hereunder shall be an unfunded and unsecured promise to pay money in
the future. To the extent that the Participant or his beneficiary is entitled to
receive payments from the Company under the provisions hereof, such right shall
be no greater than the right of any unsecured general creditor of the Company;
no such person shall have nor acquire any legal or equitable right, interest or
claim in or to any property or assets of the Company. It is intended that the
Plan be unfunded for tax purposes and for purposes of Title I of ERISA.

                                   Article 8
                               Plan Administrator

         8.1 Plan Administrator's Duties. The Company is the plan administrator.
Except as otherwise specifically provided and in addition to the powers, rights
and duties specifically given to the Plan Administrator elsewhere in the Plan,
the Plan Administrator shall have the following discretionary powers, rights and
duties:

            (a) To construe and interpret the Plan, to decide all questions of
Plan eligibility, to determine the amount, manner and time of payment of any
benefits under the Plan, and to remedy ambiguities, inconsistencies or omissions
in its sole and complete discretion.

            (b) To adopt such rules of procedure as may be necessary for the
efficient administration of the Plan and as are consistent with the Plan, and to
enforce the Plan in accordance with its terms and such rules.

                                     - 11 -

<PAGE>   15

            (c) To make determinations as to the right of any person to a
benefit, to afford any person dissatisfied with such determination the right to
a hearing thereon, and to direct payments or distributions in accordance with
the provisions of the Plan.

            (d) To furnish the Company and Participants with such information as
may be required by them for tax or other purposes in connection with the Plan.

            (e) To enroll Participants in the Plan, distribute and receive Plan
administration forms and comply with all applicable governmental reporting and
disclosure requirements.

            (f) To employ agents, attorneys, accountants, actuaries or other
persons (who also may be employed by an Employer), and to allocate or delegate
to them such powers, rights and duties as the Plan Administrator considers
necessary or advisable to properly carry out the administration of the Plan,
provided that any such allocation or delegation and the acceptance thereof must
be in writing.

            (g) If the Company has delegated the duties of the Plan
Administrator to an entity other than its Board of Directors, to report at least
annually to the Board of Directors of the Company any significant problems which
have developed in connection with the administration of the Plan and any
recommendations which such entity may have as to the amendment of the Plan or
the modification of Plan administration. At least once for each Plan Year, the
Committee shall cause a statement of a Participant's Account balances to be
distributed to the Participant.

         8.2 Action by Administration. If the Company has delegated the duties
of the Plan Administrator to a Committee, any action by the Committee will be
subject to the following provisions:

            (a) The Committee may act by meeting (including a meeting from
different locations by telephone conference) or by document signed without
meeting, and documents may be signed through the use of a single document or
concurrent documents; provided, action shall be taken only upon the vote or
other affirmative expression of a majority of the Committee members qualified to
vote with respect to such action.

            (b) A Committee member by writing may delegate part or all of his
rights, powers, duties and discretion to any other Committee member, with such
other Committee member's consent.

            (c) No member of the Committee shall be liable or responsible for an
act or omission of other Committee members in which the former has not
concurred.

            (d) The Committee shall choose a secretary who shall keep minutes of
the Committee's proceedings and all records and documents pertaining to the
administration of the Plan. The secretary may execute any certificate or other
written direction on behalf of the Committee.

         8.3 Information Required for Plan Administration. The Employers shall
furnish the Plan Administrator with such data and information as the Plan
Administrator considers necessary or desirable to perform its duties with
respect to Plan administration. The records of an

                                     - 12 -

<PAGE>   16

Employer as to an employee's or Participant's period or periods of employment,
termination of employment and the reason therefor, leaves of absence,
reemployment and Base Salary will be conclusive on all persons unless determined
to the Plan Administrator's satisfaction to be incorrect. Participants and other
persons entitled to benefits under the Plan also shall furnish the Plan
Administrator with such evidence, data or information as the Plan Administrator
considers necessary or desirable for the Plan Administrator to perform its
duties with respect to Plan administration.

         8.4 Decision of Plan Administrator Final. Subject to applicable law and
Article 6, any interpretation of the provisions of the Plan and any decision on
any matter within the discretion of the Plan Administrator made by the Plan
Administrator in good faith shall be binding on all persons. A misstatement or
other mistake of fact shall be corrected when it becomes known and the Plan
Administrator shall make such adjustment on account thereof as the Plan
Administrator considers equitable and practicable.

         8.5 Indemnification. No person (including any present or former
director, officer or employee of the Company) shall be personally liable for any
act done or omitted to be done in good faith in the administration of the Plan.
Each present or former director, officer or employee of the Company to whom the
Company has delegated any portion of its responsibilities under the Plan shall
be indemnified and saved harmless by the Company (to the extent not indemnified
or saved harmless under any liability insurance or other indemnification
arrangement with respect to the Plan) from and against any and all claims of
liability to which they are subjected by reason of any act done or omitted to be
done in good faith in connection with the administration of the Plan, including
all expenses reasonably incurred in their defense if the Company fails to
provide such defense.

                                   Article 9
                             Relating to the Company

         9.1 Action by Company. Any action required or permitted of the Company
(including any action of the Company as the Plan Administrator) under the Plan
shall be by resolution of its Board of Directors or by a duly authorized
committee of its Board of Directors, or by a person or persons authorized by
resolution of its Board of Directors or such committee.

                                   Article 10
                            Amendment and Termination

         10.1 Amendment. While the Company expects and intends to continue the
Plan, the Company must necessarily reserve and hereby does reserve the right to
amend the Plan from time to time. Any amendment of the Plan will be by
resolution of the Board of Directors of the Company or any committee of the
Board of Directors to whom such authority has been delegated. Notwithstanding
the preceding sentence, a delegatee of the Board of Directors of the Company may
amend the Plan in the following respects without the approval of the Board of
Directors of the Company: (i) amendments required by law; (ii) amendments that
relate to the administration of the Plan and that do not materially change the
cost of the Plan; and (iii) amendments that are designed to resolve possible
ambiguities, inconsistencies, or omissions in the Plan and that do not
materially increase the cost of the Plan. No amendment shall reduce the value of
a Participant's Account balances to less than the amount (as subsequently
adjusted for

                                     - 13 -

<PAGE>   17

earnings and losses attributable thereto) he would be entitled to receive if he
had resigned from the employ of all of the Employers on the day of the
amendment.

         10.2 Termination. The Plan will terminate on the first to occur of the
following:

            (a) The date it is terminated by the Company.

            (b) The date the Company is judicially declared bankrupt or
                insolvent.

            (c) The dissolution, merger, consolidation or reorganization of the
Company, or the sale of all or substantially all of its assets, except that in
any such event arrangements may be made whereby the Plan will be continued by
any successor to the Company or any purchaser of all or substantially all of its
assets without a termination thereof, in which case the successor or purchaser
will be substituted for the Company under the Plan.

         10.3 Distribution on Termination. On termination of the Plan, each
affected Participant's Accounts shall be distributed in a lump sum payment as
soon as practicable after the date the Plan is terminated. The amount of any
such distribution shall be determined as of the business day on which such
distribution is processed. For purposes of this Section, the "business day on
which such distribution is processed" refers to the business day established for
such purpose by administrative practice, even if actual payment is made at a
later date due to delays in valuation, administration or any other procedure.
Such determination shall be binding on all Participants and beneficiaries.

                                   Article 11
                               General Provisions

         11.1 Notices. Unless the Plan provides otherwise, any notice or
document relating to the Plan required to be given to or filed with the Plan
Administrator or the Company shall be considered as given or filed at such time
and in such form as required or permitted in accordance with uniform procedures
adopted by the Plan Administrator.

         11.2 Nonalienation of Plan Benefits. The rights or interests of any
Participant or any Participant's beneficiaries to any benefits or future
payments under the Plan shall not be subject to attachment or garnishment or
other legal process by any creditor of any such Participant or beneficiary nor
shall any such Participant or beneficiary have any right to alienate,
anticipate, commute, pledge, encumber or assign any of the benefits or rights
which he may expect to receive under the Plan, except as may be required by the
tax withholding provisions of the Code or a state's income tax act.

         11.3 Payment with Respect to Incapacitated Persons. If any person
entitled to benefits under the Plan is under a legal disability or, in the Plan
Administrator's opinion, is incapacitated in any way so as to be unable to
manage his financial affairs, the Plan Administrator may direct the payment of
such benefits to such person's legal representative or to a relative or friend
of such person for such person's benefit, or the Plan Administrator may direct
the application of such benefit for the benefit of such person in any manner
which the Plan Administrator may select that is consistent with the Plan. Any
payments made in accordance with the foregoing provisions of this Section 11.3
shall be a full and complete discharge of any liability for such payments.

                                     - 14 -

<PAGE>   18

         11.4 No Employment or Benefit Guaranty. None of the establishment of
the Plan, any modification thereof, the creation of any fund or account, or the
payment of any benefits shall be construed as giving to any Participant or other
person any legal or equitable right against the Company or the Plan
Administrator except as provided herein. Under no circumstances shall the
maintenance of this Plan constitute a contract of employment or shall the terms
of employment of any Participant be modified or in any way affected hereby.
Accordingly, participation in the Plan will not give any Participant a right to
be retained in the employ of any Employer.

         11.5 Litigation. In any action or proceeding regarding any Plan
benefits or the administration of the Plan, employees or former employees of the
Employers, their beneficiaries and any other persons claiming to have an
interest in the Plan shall not be necessary parties and shall not be entitled to
any notice of process. Any final judgment which is not appealed or appealable
and which may be entered in any such action or proceeding shall be binding and
conclusive on the parties hereto and on all persons having or claiming to have
any interest in the Plan. Acceptance of participation in the Plan shall
constitute a release of the Company, the Plan Administrator and its agents from
any and all liability and obligation not involving willful misconduct or gross
neglect.

         11.6 Headings. The headings of the various Articles and Sections in the
Plan are solely for convenience and shall not be relied upon in construing any
provisions hereof. Any reference to a Section shall refer to a Section of the
Plan unless specified otherwise.

         11.7 Evidence. Evidence required of anyone under the Plan shall be
signed, made or presented by the proper party or parties and may be by
certificate, affidavit, document or other information which the person acting
thereon considers pertinent and reliable.

         11.8 Gender and Number. Words denoting the masculine gender shall
include the feminine and neuter genders, the singular shall include the plural
and the plural shall include the singular wherever required by the context.

         11.9 Waiver of Notice. Any notice required under the Plan may be waived
by the person entitled to notice.

         11.10 Applicable Law. The Plan shall be construed in accordance with
the laws of the State of Michigan.

         11.11 Severability. Whenever possible, each provision of the Plan shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of the Plan is held to be invalid, illegal or unenforceable
in any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or any other jurisdiction, and the Plan shall be reformed, construed and
enforced in such jurisdiction so as to best give effect to the intent of the
Company under the Plan.

         11.12 Withholding for Taxes. Notwithstanding any other provisions of
the Plan, the Company may withhold from any payment to be made under the Plan
such amount or amounts as may be required for purposes of complying with the tax
withholding provisions of the Code, any state or local income tax act or any
applicable similar laws.

                                     - 15 -

<PAGE>   19

         11.13 Successors. The Plan is binding on all persons entitled to
benefits hereunder and their respective heirs and legal representatives, and on
the Company and its successor, whether by way of merger, consolidation, purchase
or otherwise.

         11.14 Effect on Other Employee Benefit Plans. Any benefit paid or
payable under this Plan shall not be included in a Participant's or employee's
compensation for purposes of computing benefits under any employee benefit plan
maintained or contributed to by an Employer except as may otherwise be required
under the terms of such employee benefit plan.

                                     - 16 -<PAGE>   1
                                                                    EXHIBIT 10.5

                  COLLATERAL ASSIGNMENT SPLIT DOLLAR AGREEMENT

Insurer:          Westfield Life Insurance Company

Policy #:         80202433

Issue Date:       October 18, 1995

Planned Annual
Premium:          $6,700

Owner:            Thomas G. Caldwell

Insured:          Thomas G. Caldwell

Lender:           The Middlefield Banking Company

Parent Company:   Middlefield Banc Corp.

Effective Date:   October 18, 1995

         The Owner, being applicant and Owner of subject policy, hereby assigns
and conveys to Lender all right, title and interest in the policy as collateral
security for indebtedness as evidenced by a promissory note executed this date
and to secure such future notes and indebtedness as may subsequently exist
between the parties hereto at the time of settlement of the policy. All
incidents of ownership shall remain in Owner, including the power to surrender,
terminate, or cancel the above described policy.

         The meaning of terms in this Agreement and the respective rights and
duties of Owner and Lender in the subject policy shall be defined in the
following numbered paragraphs, namely:

I.  DEFINITIONS

         "DEATH PROCEEDS": Death Proceeds as used in this Agreement shall mean
the death benefits described as Option 2 in the policy contract.

         "CASH VALUES": Cash Values as used in this Agreement shall mean, for
purposes of policy surrender, the Cash Surrender Value, as that term is defined
in the policy contract, and, for purposes of measuring premium payments and
obligations, Accumulated Value, as that term is described in the policy
contract.

II.  BENEFICIARY DESIGNATION RIGHTS

         Owner may designate a beneficiary or beneficiaries to receive any
proceeds payable on death of the Insured that are in excess of Lender's share of
such Proceeds.

III.  PREMIUM PAYMENT METHOD

         Owner shall pay the planned annual premium annually as of the date of
issue and upon each subsequent premium due date. Lender shall lend to Owner for
this purpose an amount equal to the planned annual premium upon each policy
anniversary.

         Amounts loaned to Owner by Lender shall constitute indebtedness of
Owner for all purposes. No interest shall be payable on such indebtedness.

IV.  OWNER'S RETAINED INCIDENTS OF OWNERSHIP

         Except for the limited policy security rights specifically granted
Lender herein, Owner retains all incidents of ownership, including the right to
surrender or cancel the policy and the right to borrow or withdraw against the
policy.

         Owner's right to borrow shall be limited to an amount equal to the
maximum loan value, reduced by the cumulative premiums loaned by Lender.

<PAGE>   2

         Owner's right to withdraw from the policy cash values under any
"Partial Surrender Provision" of the policy (the cash value, less any
indebtedness, less the cost of insurance until the next month anniversary),
shall be limited to such "partial surrender value," as above defined, reduced by
the cumulative premiums paid by the Lender and subject to any policy surrender
limitations.

V.  LENDER'S LOAN AND WITHDRAWAL RIGHTS

         Lender shall have the limited right from time to time to obtain policy
loans from the Insurer, limited to the extent of its interest as defined herein
and subject to the policy's maximum loan value.

VI.  VARIATIONS OF PREMIUM PAYMENT METHODS

         The premium payment and loan obligations of the parties are those
selected under Paragraph III. Alternatively, Lender and Owner may agree that
Lender should lend to Owner some amount other than that stated in Paragraph III.
If that occurs, the rights under the policy shall be altered in the manner
described in Paragraph IX.

VII.  DIVISION OF DEATH PROCEEDS OF POLICY

         Division of death proceeds of the policy when premiums are financed in
strict accord with Paragraph III and when Insured's death occurs before the end
of the grace period for any premium in default, shall be:

         A.       Lender shall be entitled to an amount equal to the cumulative
                  loans extended to Owner by Lender, reduced by any existing
                  Lender policy loans or cash withdrawals exercised by Lender
                  under the provisions of Paragraph V above. The
                  beneficiary(ies) designated by the Owner in accordance with
                  Paragraph II shall be entitled to any remainder of such
                  proceeds,

         B.       If any Interest is due upon the death proceeds under the terms
                  of the insurance contract, Owner and Lender shall share such
                  interest as their respective share of the death proceeds (as
                  defined in the preceding paragraph) bears to the total death
                  proceeds excluding such Interest,

         C.       If, upon the death of the Insured, there is a refund of
                  unearned premium under the policy provisions, then, if that
                  occurs, any refund shall be apportioned as follows:

                  A.       Where Owner (or his assignee) has contributed to the
                           policy premium at the last required premium interval,
                           the refund of unearned premiums shall be divided
                           between the Lender and the Owner (or his assignee) as
                           their respective share of the periodic premium (or
                           loan) shall bear to the total planned periodic
                           premium for such interval, and

                  B.       Where the Owner (or his assignee) has not contributed
                           to the premium at the last premium interval, the
                           refund of unearned premium shall be refunded in total
                           to the Lender.

VIII.  DIVISION OF THE NET CASH SURRENDER VALUE OF THE POLICY

         Divisions of the cash surrender value of the policy when premiums are
financed in strict accord with Paragraph III and when surrender occurs not later
than 60 days after the due date of any premium in default shall be:

                  Lender shall be entitled to an amount equal to the cumulative
         loans extended by Lender to Owner, less any existing policy loans or
         cash withdrawals exercised by Lender under the provisions of Paragraph
         IV above. Owner shall be entitled to any remainder of such cash value.

IX.  PARTIES' RIGHTS WHERE PREMIUM PAYMENT VARIATIONS EXIST

         When premiums are not financed in strict accordance with Paragraph III,
Lender's share of the policy death proceeds or the policy cash value upon
surrender (each as defined in Paragraphs VII and VIII, respectively) shall be as
follows:

                  In the event that aggregate loans of the Lender shall be more
         or less than the amounts defined in Paragraph III, then Lender's share
         of the death proceeds or the cash value shall be increased or
         decreased, respectively, in corresponding dollar amount. The Owner's
         designated beneficiary, in the event of death, and the Owner, in the
         event of surrender, shall be entitled to any remainder of proceeds or
         cash values, as the case may be.

<PAGE>   3

         To the extent that loans under this Agreement exceed the proceeds or
cash value of the policy, as the case may be, Owner or his heirs shall be
personally responsible for repayment of same.

X.  TERMINATION OF AGREEMENT

         The Agreement shall terminate upon the occurrence of any one of the
following events:

                  A.       Termination by either party upon submission of 30-day
                           written notice to the other party,

                  B.       Termination of the Insured's employment by Lender,

                  C.       The Owner's failure to pay its proportionate share of
                           premium, if any, as mutually agreed upon by Owner and
                           Lender under the option provided within Paragraphs
                           III and VI, herein,

                  D.       The Owner's failure to apply Lender's premium loans
                           to the policy premiums as similarly agreed upon under
                           Paragraphs III and VI, herein,

                  E.       The Owner's election, at any time, to receive a
                           release of assignment of the policy from Lender.

         If this Agreement terminates, Owner shall have a 90-day option to
receive from Lender a release of assignment of the policy in consideration of a
cash payment to Lender of the total premium loans advanced. Lender, its
successor or assigns, agrees (solely for purposes of facilitating such
termination and payment of its loans secured by said policy) that Owner (or its
assignees) may borrow or withdraw from the policy cash values amounts in excess
of Owner's share of cash value as defined in this Agreement. Should Owner (or
its assignees) fail to exercise such option within the described 90-day period,
Owner agrees that the subject policy will be surrendered to the Insurer and the
proceeds distributed between Lender and Owner as prescribed by Paragraphs VII
and VIII herein.

XI.  PREMIUM WAIVER

         If subject policy contains a disability waiver of premium provision or
waiver of monthly deduction, any waived amounts shall be considered for all
purpose of this agreement as having been paid by Owner.

XII.  OWNER'S ASSIGNMENT RIGHTS

         Owner may, at any time, assign to any individual, trust or other
organization all right, title and interest in the subject policy and all rights,
options, privileges and duties created under this Agreement.

XIII.  NAMED FIDUCIARY AND PLAN ADMINISTRATOR

         is hereby designated the "Named Fiduciary" until resignation or removal
by the Board of Directors. As Named Fiduciary, shall be responsible for the
management, control and administration of the Split Dollar plan as established
herein and may allocate to others certain aspects of the management and
operation responsibilities of the plan, including the employment of advisors and
the delegation of any ministerial duties to qualified individuals.

XIV.  FUNDING

         The funding policy for the Split Dollar arrangement shall be to
maintain the subject policy in force by paying all required premiums when due.

XV.  AMENDMENT

         The Split Dollar plan may be amended at any time and from time to time
by a written instrument executed by the Lender and Owner, their successors and
assigns.

XVI.  BASIS OF PREMIUM PAYMENTS AND BENEFITS

         Payments to and from the Split Dollar Plan adopted herein shall be in
accordance with the provisions of Paragraphs III through VIII, inclusive.
<PAGE>   4

XVII.  CLAIMS PROCEDURE FOR LIFE INSURANCE AND SPLIT DOLLAR PLAN

         When the Named Fiduciary has a claim that may be covered under the
insurance policy provisions, he or she should contact The Frank Agency Inc.,
currently located at 15977 East High Street, P.O. Box 877, Middlefield, Ohio
44062 (telephone number (440) 632-5656), which will either complete a claim form
and forward it to an authorized representative of the Insurer or advise the
Named Fiduciary what further requirements exist. The Insurer will evaluate the
claim and make a decision as to payment within 90 days of the date the claim is
received by the Insurer. If the claim is payable, a benefit check will be issued
to the Named Fiduciary and forwarded through the office or person named above.
If a claim is not eligible under the policy, the Insurer will notify the Named
Fiduciary of the denial. Such notification will be made in writing within 90
days of the date the claim is received and will be transmitted through the
office or person named above. The notification will include the specific reasons
for the denial, as well as specific reference to the policy provisions upon
which the denial is based. The Named Fiduciary will also be informed as to the
steps that may be taken to have the claim denial reviewed.

         A decision as to the validity of a claim will ordinarily be made within
10 working days of the date the claim is received by the Insurer. Occasionally,
however, certain questions may prevent the Insurer from rendering a decision on
the validity of the claim within the specific 90-day period. If that occurs, the
Named Fiduciary will be notified of the reasons for the delay as well as the
anticipated length of the delay in writing and through the office or person
named above. If further information or other material is required, the Named
Fiduciary will be so informed.

         If the Named Fiduciary is dissatisfied with the denial of the claim or
the amount paid, he or she has 60 days from the date he or she receives notice
of a claim denial or receipt of the amount paid to file his or her objections to
the action taken by the Insurer. If the Named Fiduciary wishes to contest a
claim denial, he or she should notify the person or office named above, which
will assist in making inquiry to the Insurer. All objections to the Insurer's
actions should be in writing and submitted to the person or office named above
for transmittal to the Insurer.

         The Insurer will review the claim denial or amount paid and render a
decision on such objections. The Named Fiduciary will be informed in writing of
the decision of the Insurer within 60 days of the date the claim review request
is received by the Insurer. This decision will be final.

         Once a decision has been rendered as to the distribution of proceeds
under the claim procedure described above, claims for any benefits due under the
plan or the surrender of the policy may be made in writing by the Owner or the
Owner's designated beneficiary and the Insured (or its assignee) or his
designated beneficiary, as the case may be, to the Named Fiduciary.

         If a claim for benefits is wholly or partly denied or disputed, the
Named Fiduciary shall, within a reasonable period of time after receipt of the
claim, notify Owner or Owner's designated beneficiary and Insured (or his
assignee) or their designated beneficiary, as the case may be, of such total or
partial denial or dispute, listing:

                  A.       the specific reason or reasons for the denial or
                           dispute,

                  B.       specific reference to pertinent plan provisions upon
                           which the denial or dispute is based,

                  C.       a description of any additional information necessary
                           for the claimant to perfect the claim and an
                           explanation of why such material or information is
                           necessary, and

                  D.       an explanation of the plan's review procedure.

         Within 60 days of denial or notice of claim under the plan, a claimant
may request that the claim be reviewed by the Named Fiduciary in a full and fair
hearing. A final decision shall be rendered by the Named Fiduciary within 60
days after receipt of request for review.

XVIII.  AGREEMENT BINDING UPON PARTIES

         This Agreement shall bind Lender and Owner, their heirs, successors,
personal representatives and assigns.

XIX.  INSURANCE COMPANY NOT A PARTY TO AGREEMENT

         The Insurer is not responsible for the legal or tax validity or effect
of this Agreement. Further, the Insurer shall not be deemed a party to this
Agreement but will respect the rights of the parties as herein developed upon
receiving an executed copy of this Agreement.

<PAGE>   5

         Insurer shall not be responsible to account for the actual premium
contributions of the parties hereunder but shall rely solely upon the written
declarations of the parties in any distributions or settlement of the policy's
lifetime or death values. Payment or other performance of its contractual
obligations in accordance with the policy provisions shall fully discharge the
Insurer from any and al1liability.

XX.  INSURER'S RELIANCE UPON OWNER

         The Insurer is hereby authorized to recognize Owner's claim to rights
hereunder without investigating the reason for any action taken by Owner,
including Owner's statement of the amount of premiums Owner has paid on the
policy. The signature of Owner shall be sufficient to exercise any rights under
this Agreement.

XXI.  CONTROLLING STATE LAW

         This Agreement shall be subject to and construed under the laws of the
State of Ohio.

         IN WITNESS WHEREOF, this Agreement has been executed as of this 18th
day of October, 1995.

                                                OWNER

/s/ Gail A. Neikirk                             /s/ Thomas G. Caldwell
---------------------------                     -------------------------------
Witness                                         Thomas G. Caldwell
Print Name: Gail A. Neikirk

                                                LENDER:
                                                THE MIDDLEFIELD BANKING COMPANY

/s/ Teresa M. Hetrick                           By:  /s/ James R. Heslop II
---------------------------                        ----------------------------
Witness                                              James R. Heslop II
Print Name: Teresa M. Hetrick                   Its: Executive Vice President

<PAGE>   6

Insurer:          Westfield Life Insurance Company

Policy #:         80202433

Owner:            Thomas G. Caldwell

Insured:          Thomas G. Caldwell

Lender:           The Middlefield Banking Company

         This Policy Collateral Assignment and Split Dollar Agreement was
recorded by Westfield Life Insurance Company on                         , 2001.
                                                ------------------------

                                                BY:
                                                   ----------------------------

                                                Print Name:
                                                           --------------------

                                                Title:
                                                      -------------------------

<PAGE>   7

                                   DEMAND NOTE

         I, Thomas G. Caldwell, the undersigned owner of policy no. 80202433
insuring the life of Thomas G. Caldwell, which policy has been issued by
Westfield Life Insurance Company, having obtained a premium loan or loans from
The Middlefield Banking Company in the aggregate amount of $40,200 since October
18, 1995, do hereby agree to pay such loan upon demand, without interest.

         I have this date executed a collateral assignment of said policy to
secure this note and any future notes or indebtedness as may exist in the future
between The Middlefield Banking Company and the undersigned.

         IN WITNESS WHEREOF, the parties hereto have executed this note this
23rd day of April, 2001.

                                              OWNER

/s/ Gail A. Neikirk                           /s/ Thomas G. Caldwell
-------------------------------               --------------------------------
Witness                                       Thomas G. Caldwell
Print Name: Gail A. Neikirk

                                              LENDER:
                                              THE MIDDLEFIELD BANKING COMPANY

/s/ Teresa M. Hetrick                         By:  /s/ James R. Heslop II
-------------------------------                  -----------------------------
Witness                                            James R. Heslop II
Print Name: Teresa M. Hetrick                 Its: Executive Vice President

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00026-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00026-of-00352.parquet"}]]