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                                                                    EXHIBIT 10.1
                             BANK OF SOUTHERN OREGON
           1992 COMBINED INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN

                                    ARTICLE I
                               PURPOSE OF THE PLAN

         The purpose of this Combined Incentive and Non-Qualified Stock Option
Plan is to advance the interests of the Bank of Southern Oregon, an Oregon
chartered bank (the "Bank") and its shareholders by enabling the Bank to attract
and retain the services of people with training, experience and ability and to
provide additional incentive to key employees and directors by giving them an
opportunity to participate in the ownership of the Bank.

                                   ARTICLE II
                                   DEFINITIONS

         As used herein, the following definitions shall apply:

         (a) "Bank" shall mean Bank of Southern Oregon, an Oregon chartered
         bank.

         (b) "Board of Directors" shall mean the Board of Directors of the Bank.

         (c) "Committee" shall mean the Committee appointed as specified in
Article V of this Plan, or the Board of Directors if no such Committee shall
have been appointed.

         (d) "Common Stock" shall mean the Common Stock of the Bank.

         (e) "Employee" means any person employed by the Bank or a subsidiary.

         (f) "Option" shall mean an option to purchase Shares of Common Stock of
the Bank granted under this Plan pursuant to a written option agreement.

         (g) "Optionee" shall mean any individual who is granted an Option under
this Plan.

         (h) "Parent" shall mean any corporation in an unbroken chain of
corporations ending with the Bank if, at the time of the granting of an Option,
each of the corporations other than the Bank owns stock possessing 50 percent or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.

         (i) "Plan" means this 1992 Combined Incentive Non-Qualified Stock
Option Plan of Bank of Southern Oregon.

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and

         (j) "Share" shall mean a share of the Common Stock.

         (k) "Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Bank if, at the time of the granting of an
Option, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50 percent or more of the total combined voting
power of all classes of stock in one of the other corporations in such chain.

                                   ARTICLE III
                            STOCK SUBJECT TO THE PLAN

         Except as provided in Section 9.1, the total number of Shares of Common
Stock covered by all Options granted under this Plan shall not exceed 241,300
Shares, which Shares may be in whole or in part, as the Board shall from time to
time determine, authorized but unissued Shares or issued Shares which have been
reacquired by the Bank. There shall at all times be reserved for issuance upon
the exercise of Options to be granted from time to time under this Plan the
number of Shares of Common Stock covered by this Plan as herein set forth. If an
Option shall expire or terminate for any reason without having been exercised in
full, unless this Plan itself shall have been terminated, the unpurchased Shares
covered thereby shall be added to the Shares otherwise available for Options
which may be granted in accordance with the terms of this Plan. If an Option is
exercised in part or in full, the number of Shares covered by this Plan and
reserved for issuance under this Plan shall automatically be reduced by the
number of Shares purchased pursuant to the exercise of such Option.

                                   ARTICLE IV
                              DURATION OF THE PLAN

         This Plan shall be effective as of the date on which it is approved by
both the Board of Directors and the shareholders of the Bank as provided in
Article XIII of this Plan. This Plan shall continue in effect until Options have
been exercised with respect to all of the Shares reserved for this Plan (subject
to any adjustments under Section 9.1 of this Plan), provided, however, that
unless sooner terminated by action of the Board of Directors, this Plan shall
terminate on, and no option may be granted hereunder after ten years from the
date of shareholder approval of this Plan. The Board of Directors shall have the
right to suspend or terminate this Plan at any time except with respect to any
options then outstanding under this Plan.

                                    ARTICLE V
                           ADMINISTRATION OF THE PLAN

         The Plan shall be administered by the Committee appointed by the Board
of Directors and consisting of not less than two directors. The Board of
Directors may at any time assume the responsibilities of and act as the
Committee if the Board of Directors so elects. The Board of Directors may from
time to time appoint members of the Committee in substitution for and in
addition to members previously appointed and may fill vacancies, however
caused,~ in the Committee. The Committee may select one of its members as its
chairman and shall hold its meetings at such times and places as it shall deem
advisable. A majority of the members of the Committee shall constitute a quorum.
All actions of the Committee shall be taken by a majority of its members. Any
action may be taken by a written instrument signed by all Committee members, and
all actions so taken shall be fully as effective as if it has been taken by a
vote of a majority of the members at a meeting duly called and held.

         Subject to the provisions of this Plan and any additional terms or
conditions imposed by the Board, the Committee shall administer the Plan and the
options granted thereunder and shall have the authority, in its discretion, to
determine and designate from time to time the persons to whom options shall be
granted, the number of Shares to be covered by each option, the Option exercise
price and the period of each such Option and other terms and conditions of each
Option which need not be identical. Subject to the provisions contained in this
Plan, the Committee

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may from time to time adopt rules and regulations relating to the administration
of the Plan and the interpretation and construction by the Committee of the
provisions of the Plan or any option agreement shall be final and conclusive.
The Committee may correct any defect, supply any omission or reconcile any
inconsistency in this Plan or in any option agreement in the manner and to the
extent it shall deem appropriate.

         No Employee who is eligible to receive an Option or who holds an option
pursuant to this Plan shall be a member of the Committee.

                                   ARTICLE VI
                                   ELIGIBILITY

         Options may be granted under this Plan to such key Employees of the
Bank or its Subsidiaries (including Employees who are directors) and directors
of the Bank or its Subsidiaries who, in the judgment of the Committee, will
perform services of special importance to the Bank in the management, operation
and development of its business or the business of one or more of its
Subsidiaries. Options may also be granted under this Plan to any other person
who provides services or other value to the Bank. Notwithstanding the foregoing,
if the Bank has in effect a non-discretionary stock option plan for its
directors who are not Employees of the Bank or any of its Subsidiaries, such
directors who are not Employees of the Bank or any of its Subsidiaries shall not
be eligible to receive Options under this Plan.

                                   ARTICLE VII
                           OPTION TERMS AND CONDITIONS

         Options granted under this Plan shall be evidenced by written option
agreements the form of which shall have been approved from time to time by the
Committee. The option agreements shall be consistent with this Plan and shall
include in substance the following terms and conditions as appropriate:

         7.1 Each Option shall specify as to whether the Option is intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended ("Incentive Stock Options"); provided
that Incentive Stock Options shall be granted only to persons who are Employees
of the Bank or its Subsidiaries. All Options not specifically designated as
Incentive Stock Options shall be presumed to have been intended not to qualify
as such ("Non-Qualified Stock Options").

         7.2 Each Option shall specify the number of Shares to which it
pertains.

         7.3 Each Option shall specify the exercise price of the Shares covered
by the Option; provided that all Non- Qualified Stock Options shall have an
exercise price equal to at least the book value of a Share as of the end of the
Bank's most recently completed fiscal year and all Incentive Stock Options shall
have an exercise price equal to at least 100 percent of fair market value of a
Share at the time the option is granted; provided, further, that no Incentive
Stock Option shall have an exercise price less than 110 percent of the fair
market value of a Share at the time the option is granted if such Incentive
Stock option is granted to a person who owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Bank or any Parent or Subsidiary.

         7.4 Each option shall specify the term or duration of the option
granted; provided that no option shall be exercisable after the expiration of
ten years from the date of the grant of such Option and provided further that no
Incentive Stock option shall be exercisable after the expiration of five years
from the date of the grant of such Incentive Stock option if such Incentive
Stock option is granted to a person who owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Bank or any Parent or Subsidiary. Partial exercise shall be permitted from time
to time.

         7.5 No Option shall be transferable by the optionee otherwise than by
will or the laws of descent and distribution, and options shall be exercisable
during the lifetime of the Optionee only by that Optionee.

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         7.6 Subject to Section 7.11, each option shall provide that in the
event that an optionee who is an Employee ceases to be an Employee of the Bank
or any Subsidiary of the Bank for any reason other than the death or disability
of the optionee, any Option or unexercised portion thereof which was otherwise
exercisable on the date of termination of employment shall terminate unless
exercised within a period of sixty (60) days from the date on which the Optionee
ceased to be an Employee, provided that this provision shall not extend the time
within which the option may be exercised beyond the limits described in Section
7.4 of this Plan.

         7.7 Each Option shall provide that in the event that an optionee who is
an Employee ceases to be an Employee of the Bank or any Subsidiary of the Bank
by reason of the Optionee becoming disabled, any option or unexercised portion
thereof which was otherwise exercisable on the date of termination of employment
shall terminate unless exercised within a period of one year from the date on
which the optionee ceased to be an Employee, provided that this provision shall
not extend the time within which the Option may be exercised beyond the limits
described in Section 7.4 of this Plan. Disability shall be determined in
accordance with Section 105(d)(4) of the Internal Revenue Code of 1986, as
amended.

         7.8 Each Option shall provide that, in the event an optionee who is an
Employee shall die while an Employee of the Bank or any Subsidiary of the Bank
and shall not have fully exercised an Option, the option may be exercised, to
the extent not previously exercised and subject to any vesting provisions, at
any time within one year after the Optionee's death by the estate of the
Optionee or by any person or persons who shall have acquired the Option directly
from the Optionee by bequest or inheritance, provided that this provision shall
not extend the time within which the Option may be exercised beyond the limits
described in Section 7.4 of the Plan.

         7.9 To the extent that the aggregate fair market values (determined at
the time of grant) of Shares with respect to which an Option designated as an
Incentive Stock Option are exercisable for the first time by the Optionee during
any calendar year under this Plan and under all other incentive stock option
plans (within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended) of the Bank or any Parent or Subsidiary exceeds $100,000 plus any
unused limit carryover available in such year, such Options shall be treated as
Non-Qualified Stock Options notwithstanding any designation to the contrary.

         7.10 Subject to adjustment as set forth in Section 9.1 hereof and to
the provisions of Section 9.2 hereof, each Option shall specify that the Option
shall become exercisable as to twenty percent (20%) of the total number of
Shares to which it pertains after one year from the date of the grant of the
Option and as to an additional twenty percent (20%) of the Shares each year
beginning two years from the date of grant of the Option and ending five years
from the date of the grant of the Option, at which time the Option will have
become exercisable as to all of the Shares covered by the Option, except to the
extent previously exercised.

         7.11 Each Option shall specify that, in the event that an Optionee who
is an Employee ceases to be an Employee of the Bank or any Subsidiary by reason
of termination of the Employee "with cause," the Option, to the extent not
already exercised, shall terminate on the effective date of the Employee's
termination and shall no longer be exercisable as to any of the Shares covered
by the Option as to which the Option has not already been exercised. For
purposes of this subsection 7.11, termination "with cause" shall be defined as
termination by reason of the willful or intentional failure of the Employee to
perform his or her assigned duties which failure continues for more than five
days following notice of such failure to the Employee.

         7.12 Each Option shall specify that the Optionee by accepting the
Option agrees that whenever the Bank undertakes a firmly underwritten public
offering of its securities and if requested by the managing underwriter in such
offering, the Optionee will enter into an agreement not to sell or dispose of
any securities of the Bank owned or controlled by the Optionee provided that
such restriction shall not extend beyond 12 months from the effective date of
the prospectus or offering circular used in connection with such offering.

                                  ARTICLE VIII
                     EXERCISE OF OPTIONS TO PURCHASE SHARES

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         8.1 Shares may be purchased or acquired pursuant to an Option granted
under this Plan only upon receipt by the Bank of written notice signed and
delivered by the Optionee (or, in the case of exercise after death of the
optionee, by the executor, administrator, heir or legatee of the optionee, as
the case may be) directed to the President of the Bank at the principal business
office of the Bank. Such notice shall state the number of Shares being
purchased, shall specify the method of payment of the exercise price for the
Shares being purchased, and, unless in the opinion of counsel for the Bank such
a representation is not required in order to comply with the Securities Act of
1933, as amended, shall contain a representation that it is the optionee's then
present intention to acquire the Shares issuable upon exercise of the Option for
investment and not with a view to, or in connection with, any distribution
thereof.

         8.2 On or before the completion of the purchase of Shares pursuant to
the exercise of an Option, the Optionee must have paid the Bank the full
purchase price of said Shares by check or, if allowed by either the terms of the
Option or by actions of the Committee at the time of such exercise, by surrender
of other previously acquired securities of the Bank. If the exercise price is
being paid in whole or in part by the delivery of other securities of the Bank,
the notice shall be accompanied by delivery of the certificates or instruments
representing such other securities duly endorsed for transfer. Any other
securities of the Bank shall be valued at the publicly reported price for the
last sale, or the average of the publicly reported closing bid and asked prices,
as applicable, on the last business day preceding the day the Bank receives such
notice, or, if there are no publicly reported prices of such other securities of
the Bank, at the fair market value of such other securities of the Bank, as
determined in good faith by the Board of Directors.

         8.3 No Shares shall be issued until full payment therefor has been made
and an exercising optionee shall have none of the rights of a shareholder of the
Bank as to dividends, voting or otherwise, as to such Shares until a certificate
or certificates representing the Shares so acquired are issued to such
exercising optionee. Each Optionee who has exercised an Option shall, upon
notification of the amount due and prior to or concurrently with delivery of the
certificate or certificates representing the Shares, pay to the Bank amounts
necessary to satisfy applicable federal, state and local withholding tax
requirements and, if the Optionee fails to do so, the Bank may withhold such
amounts from other amounts owed by the Bank to the Optionee.

         8.4 No Shares shall be issued with respect to the exercise of any
Option unless the exercise and the issuance and delivery of the Shares shall
comply with all relevant provisions of law, including, without limitation, any
applicable state securities laws, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the Internal Revenue Code of 1986,
as amended, the respective rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Bank with respect to
such compliance. Inability of the Bank to obtain from any regulatory body having
jurisdiction authority deemed by the Bank's counsel to be necessary to the
lawful issuance and sale of any Shares hereunder shall relieve the Bank of any
liability for the non-issuance or sale of such Shares. The Board may require any
action or agreement by an Optionee as may from time to time be necessary to
comply with the federal and state securities laws. The Bank shall not be obliged
to register Options granted or Shares purchased under the Plan under any federal
or state securities laws.

                                   ARTICLE IX
                          CHANGES IN CAPITAL STRUCTURE

         9.1 Except as provided in Section 9.2, in the event that the
outstanding Shares of Common Stock are hereafter increased or decreased or
changed into or exchanged for a different number or kind of Shares or other
securities of the Bank or of another corporation, by reason of any
reorganization, merger, consolidation, reclassification, stock split-up,
combination of Shares, or dividend payable in Shares, appropriate adjustment
shall be made by the Committee in the number and kind of Shares for the purchase
of which Options may be granted under this Plan. In addition, the Committee
shall make appropriate adjustment in the number and kind of Shares as to which
outstanding Options, or portions thereof then unexercised, shall be made as well
as a corresponding adjustment in the exercise price per Share under each such
Option. Any determination by the Committee as to what adjustments shall be made,
and the extent thereof, shall be final, binding on all parties and conclusive.

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         9.2 In the event of any dissolution or liquidation of the Bank, or any
merger or consolidation with one or more corporations in which the Bank is not
the surviving entity, in lieu of any continuing rights under an option, the
Committee may, in its sole discretion, provide a 30-day period immediately prior
to such event during which the Optionee shall have the right to exercise an
option in whole or in part without any limitations on exercisability.

                                    ARTICLE X
                                AMENDMENT OF PLAN

         The Board of Directors may at any time and from time to time modify or
amend this Plan in such respect as it shall deem advisable in order that
Incentive Stock options granted under this Plan shall be "incentive stock
options" as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, or to conform with any other changes in the law while this Plan is in
effect or for any other reason, provided, however, that except as provided in
Section 9.1 hereof no change in an Option already granted to an optionee shall
be made without the written consent of such Optionee, and provided, further,
that unless also approved by the unanimous written consent of the shareholders
of the Bank or by a vote of shareholders owning not less than two-thirds of all
shares entitled to vote and represented at an annual meeting or a special
meeting called for the purpose of such approval, no amendment or change (a)
increasing the total number of Shares which may be purchased under this Plan;
(b) changing the minimum purchase price herein before specified for options; (c)
increasing the maximum Option period; (d) materially increasing the benefits to
participants under this Plan; or (e) materially modifying the requirements for
eligibility for participation in this Plan shall be effective.

                                   ARTICLE XI
                                EMPLOYMENT RIGHTS

         Nothing in this Plan nor in any option or right granted pursuant
thereto shall confer upon any optionee any right to be continued in the
employment of the Bank or any Subsidiary of the Bank, or to limit or affect in
any way the right of the Bank, in its sole discretion, (a) to terminate such
Optionee's employment at any time, with or without cause, (b) to change the
duties of any optionee, or to (c) increase or decrease any Optionee's
compensation from the rate in existence at the time an option is granted.

                                   ARTICLE XII
                            ISSUE AND TRANSFER TAXES

         The Board of Directors may from time to time agree to require the Bank
to pay issuance or transfer taxes on Shares issued pursuant to the exercise of
an Option under this Plan.

                                  ARTICLE XIII
                       CONDITIONS TO EFFECTIVENESS OF PLAN

         This Plan has been approved and adopted by the Board of Directors of
the Bank. However, the effectiveness of this Plan is contingent upon regulatory
approval and approval by two-thirds of the Bank's issued and outstanding shares.

         Approved by the Board of Directors of the Bank at a Special Meeting
held on March 19, 1992.

         DATED as of and approved by the shareholders of the Bank: April 24,
1992.<PAGE>   1

                                                                    EXHIBIT 10.2
                                    AGREEMENT
                                    ---------

         THIS AGREEMENT is made and entered into this 2 day of April, 1998, by
and between the BANK OF SOUTHERN OREGON, an Oregon Banking corporation,
hereinafter referred to as "Bank" and JOHN ANHORN, hereinafter referred to as
"JA".

                                R E C I T A L S:
                                ----------------

         1. Bank is an Oregon banking corporation authorized to do business in
the State of Oregon. Bank is in the process of forming a Bank Holding Company,
hereinafter referred to as "BHC", which is expected to acquire all of the stock
of the Bank in a stock exchange transaction during 1998.

         2. JA has the necessary expertise and experience to run a bank holding
company and is willing to serve as President and Chief Executive Officer of
same.

         For the reasons recited above and in consideration of the following
mutual promises and covenants, the parties hereby agree as follows:

                                   SECTION ONE
                                   EMPLOYMENT

         Bank hereby employs JA to act as the Chief Executive Officer of Bank
and, upon its approval, the BHC. JA hereby accepts such employment upon the
terms and conditions hereinafter set forth.

                                   SECTION TWO
                               TERMS OF EMPLOYMENT

         The term of employment shall begin as of May 1, 1998 and shall extend
until terminated as provided for herein. This Agreement shall not be effective
until May 1, 1998.

                                  SECTION THREE
                                  COMPENSATION

         For all the services to be rendered by JA to Bank, in any capacity,
including those services provided as Chief Executive Officer or any other duties
assigned to him by the directors of Bank, Bank agrees to pay JA a salary of
$150,000.00 for the first year of this Agreement. This shall be referred to as
the "basic salary". Such basic salary shall be paid to JA in bi-monthly
installments of $6,250.00 on the 15th of each month and on the last day of each
month. The first such bi-monthly installment of $6,250.00 shall be paid on May
15, 1998 and the same bi-monthly installments of $6,250.00 shall be paid
thereafter during the term of this Agreement. The Board of Directors of Bank
shall have the right to adjust the base salary of JA on an annual basic.
However, JA's salary and other benefits, in the aggregate, will not be less than
that initially set forth by the terms of this Agreement.

                                  SECTION FOUR
                                     DUTIES

         JA accepts employment with Bank on the terms and conditions set forth
in this Agreement, and agrees to devote his full time employment to the
performance of his duties under this Agreement. Such duties include those but
are not limited to those set forth in the Statement of Responsibilities, a copy
of which is attached hereto as Exhibit "A" and by this reference incorporated
herein.

<PAGE>   2

         JA shall perform such specific duties and shall exercise such specific
authority as may be assigned to JA from time to time by the Board of Directors
of Bank. In performing such duties JA shall be subject to the direction and
control of the Board of Directors of Bank. JA further agrees that in all aspects
of such employment JA shall comply with all applicable laws and regulations and
with the policies, of Bank from time to time established and shall perform his
duties faithfully, intelligently and honestly to the best of his ability and in
the best interest of Bank. If requested to do so JA shall serve as a director of
Bank without additional compensation.

                                  SECTION FIVE
                               ADDITIONAL BENEFITS

         In addition to the basic salary set forth above Bank agrees to provide
JA with the following benefits:

         A. JA will receive fringe benefits offered to Bank employees. These
include health insurance coverage, participation in incentive compensation and
401 plans, sick leave benefits and paid vacation benefits. The terms and
conditions of such benefits shall be as established from time to time by the
board of directors of Bank. Notwithstanding the foregoing, JA will be allowed
not less than four weeks of paid vacation per year on the terms and conditions
provided in Bank's vacation pay benefit plan.

         B. In accordance with its policies and procedures established from time
to time by its board of directors, Bank will reimburse JA for reasonable
business expenses, including travel expenses.

         C. Bank will purchase a vehicle for use by JA during the term of his
employment. The vehicle shall have a maximum cost of $35,000.00. If possible and
if to the benefit of both Bank and JA, Bank may elect to purchase JA's existing
vehicle. Bank will pay all expenses associated with the maintenance, repair and
operation of the vehicle, including insurance coverage. JA's year end W-2 will
include the value of the personal use of the vehicle as required by IRS
regulations.

         D. Bank will purchase a $250,000.00 term life insurance policy on JA to
age 65. The beneficiary shall be as designated by JA. The type and term of
policy to be at Bank's discretion.

         E. Subject to JA's ability to qualify, Bank will purchase a disability
insurance policy for JA providing income protection equivalent to 50% of JA's
base salary, initially $6,250.00 per month. This shall be payable up to age
sixty-five (65). Disability payments shall commence 90 days from the date of
disability.

         F. Bank will pay for JA's monthly dues at the Rogue Valley Country
Club.

                                   SECTION SIX
                                STOCK OPTION PLAN

         Upon the execution of this Agreement JA shall be granted an option to
purchase 25,000 shares of the common stock of Bank. If Bank grants stock
dividends, declares stock splits or other adjustments to its currently issued
and outstanding stock, JA's option to purchase shall likewise increase to
reflect the benefit of such action. This option to purchase the 25,000 shares
shall vest as follows:

         A. 30% (7,500 shares) on the third anniversary of his employment.

         B. 20% (5,000 shares) at the end of each of the fourth, fifth and sixth
years of employment.

         C. 10% (2,500 shares) after completion of the seventh year of
employment.

         Notwithstanding the above, if there is a sale or change in control of
Bank then the option to purchase the 25,000 shares shall vest as follows:

<PAGE>   3

         A. 50% (12,500 shares) if a sale or change in control occurs before a
completion of the first three (3) years of employment;

         B. 50% (12,500 shares) representing the remaining balance of option
shares if a sale or change of control occurs after the first three (3) years of
employment.

         The non-vested options will expire (i) upon termination of JA's
employment by Bank for cause, (ii) ninety [90] days after termination of JA's
employment by Bank without cause, (iii) upon termination of JA's employment by
JA without cause, (iv) ninety [90] days after termination of JA's employment by
JA with cause, or (v) one [1] year after JA's death or disability. JA shall have
ninety [90] days after termination of his employment or vesting of his stock
option, whichever last occurs, to exercise his option(s) to purchase. If the
Bank terminates JA's employment without cause, or JA leaves with cause, for
stock option vesting purposes only, JA shall be deemed to have continued through
his next employment anniversary date.

         For the purposes of this Agreement, a sale or change of control of Bank
shall constitute a sale or change in ownership of more than 40% of its voting
stock to one entity other than the BHC.

         The stock option plan, and the terms and conditions thereof, are
subject to approval by JA and the shareholders of Bank. Bank will use its
reasonable best efforts to qualify such stock option plan and to establish an
option price available to JA based upon the fair market value of the shares as
required by generally accepted accounting principles, the Internal Revenue Code
and regulations thereunder, for qualified stock options. It is anticipated that
the shareholders of Bank will approve the stock option plan at a meeting of such
shareholders in May, 1998 and that pursuant to the terms of the Bank Holding
Company formation the plan will become the plan of the BHC. The terms and
conditions of the grant of options to JA, in addition to those set forth above,
are subject to approval by JA. JA shall either approve or reject the stock
option plan and grant of option, by written notice to Bank, on or before June 1,
1998. In the event JA rejects the stock option plan or grant of option, or in
the event this stock option plan is not approved by shareholders then either JA
or Bank may terminate this Agreement and neither party shall have any liability
to the other.

                                  SECTION SEVEN
                                   TERMINATION

         JA acknowledges that he is an "at will" employee and that he may be
dismissed at any time, with or without cause, for any reason whatsoever. JA may
terminate this Agreement, at any time, for any reason whatsoever, upon written
notice to Bank. For the purposes of this Agreement, termination of JA's
employment by Bank for cause shall include, but is not limited to, the
following:

         A. JA fails or refuses to comply with the policies, standards, and
regulations of Bank as established by the Board of Directors from time to time.

         B. JA commits an act of fraud, dishonesty, material misconduct, gross
negligence, gross neglect of his duties, continued and repeated insobriety, or
conviction of any crime constituting a felony;

         C. Conduct which is seriously prejudicial to Bank including, but not
limited to neglect of duty or breach of this Agreement.

         D. JA suffers a permanent disability. For the purposes of this
Agreement "permanent disability" shall be defined as JA's inability due to
physical or mental illness, or other cause, to perform the majority of JA's
usual duties for a period of 90 days. Permanent disability shall be determined
by a licensed physician hired by Bank. JA hereby agrees in advance to an
examination by a licensed physician selected by Bank if so required to determine
whether or not JA suffers a permanent disability.

<PAGE>   4

         E. In the event of the death of JA. In such event Bank shall pay to
JA's estate the salary which would be otherwise payable to JA through the end of
the month in the month in which JA's death occurs.

         F. A violation of the State of Oregon or Federal Banking Rules and
Regulations of such a nature as to disqualify JA from his duties as set forth
herein.

         In the event JA is terminated from employment by Bank for cause or in
the event JA quits the employment of Bank without cause then JA will not be
entitled to any severance pay or other benefits following the date of
termination.

         For the purposes of this Agreement, termination by JA for cause shall
include, but is not limited to, the following:

         A. JA suffering a permanent disability as defined above.

         B. JA is required by the Board of Directors of Bank to perform any
illegal or fraudulent act.

         C. A breach by Bank of the provisions of this Agreement.

         In the event JA is terminated by Bank without cause or in the event JA
quits with cause then JA shall be entitled to the following benefits:

         A. The payment of one year's basic salary, equal to the basic salary
paid to JA during the 12-month period preceding the date of termination. Such
payment shall be made in 12 equal monthly installments during the 12 months
following the date of termination.

         B. In the event of a sale or change of control of the Bank, the
guaranteed payment will be reduced by the amounts received by JA through
employment compensation, non-competition payments and/or other benefits and
payments made by the succeeding or acquiring entity. JA will be entitled to any
additional compensation received by JA after credit to Bank for guaranteed
payments.

         C. Payment of these benefits is contingent upon JA signing a complete
release of liability to Bank for termination of his employment and all claims
arising through the date of termination of his employment.

         Notwithstanding the above, if JA goes to work for or consults with
another entity which is in competition with Bank then Bank will not be required
to make any further payments hereunder.

                                  SECTION EIGHT
                                     NOTICES

         Written notice shall be deemed to have been received by the respective
parties when mailed by both first class and certified mail, return receipt
requested to the following addresses:

Bank                                     John Anhorn
1455 E. McAndrews Road                   387 Golf View Drive
Medford, Oregon 97504                    Medford, OR 97504

         These addresses will remain in effect until the respective party has
notified the other in writing of a change of address.

                                  SECTION NINE
                                  RESTRICTIONS

<PAGE>   5

         During the term of this Agreement, or in the event Bank terminates JA's
employment for cause or JA terminates his employment without cause, and at
Bank's sole option for a period up to one (1) year after such termination, JA
agrees that the following restrictions and limitations shall apply to him:

         A. JA will not, on behalf of himself or on behalf of any other person,
firm, corporation, limited liability company or any other entity, call on any of
the customers of Bank in any county where Bank maintains an office or branch, or
of any of its affiliates or subsidiaries for the purpose of soliciting services
and/or providing to any of the customers any banking services or other products
or services provided by Bank, nor will he, in any way, directly or indirectly,
for himself or on behalf of any other person, firm, corporation, limited
liability company or other entity, solicit, divert or take away any customer of
Bank, its affiliates or subsidiaries. For the purposes of this Agreement the
phrase "call on" includes, but is not limited to, contacting a customer in
person, by telephone, by facsimile transmission, by letter, by electronic
transmission or by any other means calculated to make contact with such customer
of Bank.

         B. JA will not, on behalf of himself or on behalf of any other person,
firm, corporation, limited liability company or any other entity, solicit or
hire any of the employees of Bank or any of its affiliates or subsidiaries.

         C. If Bank elects to apply the restrictions of this Article to JA for a
period up to one (1) year after termination of JA's employment, during such
period, Bank shall timely and regularly pay JA the monthly basic salary received
by JA at the date of such termination and shall continue JA's health insurance
during such period, providing the same coverage provided to Bank's employees.

                                   SECTION TEN
                            CONFIDENTIAL INFORMATION

         Both during and after termination of employment, JA agrees, that in
addition to any other limitation contained in this Agreement, regardless of the
circumstances of the termination of employment, he will not communicate to any
person, firm, corporation, limited liability company or other entity, any other
information relating to customer lists, prices, secrets, advertising, loans,
accounts, nor any confidential knowledge, information or secrets that JA may
from time to time acquire with respect to the business of Bank, or any of its
affiliates or subsidiaries. JA agrees upon termination of his employment that he
will not retain originals or copies of any of the business records, information
or documents of Bank, in any form whatsoever, including but not limited to
information on computer disks and hard drives.

         Notwithstanding the above, disclosure is authorized only when done in
the course and scope of JA's employment or as required by law.

                                 SECTION ELEVEN
                                INJUNCTIVE RELIEF

         JA hereby acknowledges that the services to be rendered under this
Agreement are of unique, special and extraordinary character that would be
difficult or impossible for Bank to replace, and by reason of such difficulty,
JA hereby agrees that for violation of any of the provisions of this Agreement,
Bank shall, in addition to any of the rights or remedies available under this
Agreement, at law or otherwise, be entitled to an injunction to be issued by a
court of competent jurisdiction enjoining and restraining JA from committing any
violation of this Agreement and JA hereby consents to the issuance of such
injunction.

                                 SECTION TWELVE
                             COMMUNICATIONS TO BANK

         A. From the time this Agreement commences until the termination of this
Agreement, JA shall communicate and channel to Bank all knowledge, business, and
customer contacts and any other matters of information

<PAGE>   6
that could concern or be in any way beneficial to the business of Bank, whether
acquired by JA before or during the term of this Agreement; provided, however,
that nothing under this Agreement shall be construed as requiring such
communications where the information is lawfully protected from disclosure as a
trade secret of a third party.

         B. Any such information communicated to Bank as stated above shall be
and remain the property of Bank, in spite of the subsequent termination of this
Agreement.

                                SECTION THIRTEEN
                                 BINDING EFFECT

         This Agreement shall be binding upon the parties hereto, their heirs,
assigns, personal representatives and successors in interest. This Agreement may
be assigned to and assumed by the BHC upon its approval. Upon formation of BHC
this Agreement shall be deemed to have been assigned and assumed by BHC. JA
shall then be deemed to be an employee of BHC and not of Bank.

                                SECTION FOURTEEN
                                  GOVERNING LAW

         The parties agree that this Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of Oregon. The parties
agree that exclusive venue and jurisdiction shall lie in Jackson County, Oregon.

                                 SECTION FIFTEEN
                                  CREATIVE WORK

         JA agrees that all creative work and work product including, but not
limited to, all technology, business management tools, processes, software,
patents, trademarks, copyrights developed by JA during the term of this
Agreement, irrespective of when or where such work or work product was produced,
constitutes work made for hire, all rights of which are owned by Bank. In any
event, I assign to Bank all rights, title and interest, whether by way of
copyrights, trade secret, trademark, patent or otherwise, in all such work
and/or work product, whether or not the same is subject to protection by patent,
trademark, or copyright laws.

                                 SECTION SIXTEEN
                                ENTIRE AGREEMENT

         This Agreement, the stock option plan, the policies and procedures
including personnel policies adopted by Bank's board of directors, shall
constitute the entire agreement between the parties and any prior understanding
or representation of any kind preceding the date of this Agreement shall not be
binding upon either party except to the extent incorporated in this Agreement.
Notwithstanding the above, the board of directors of Bank shall have the right
to unilaterally modify, amend and/or revise its policies and procedures
including its personnel policies.

                                SECTION SEVENTEEN
                            MODIFICATION OF AGREEMENT

         Any modification of this Agreement or additional obligation assumed by
either party in connection with this Agreement shall be binding only if
evidenced in writing signed by each party or any authorized representative of
each party.

                                SECTION EIGHTEEN
                                    NO WAIVER

<PAGE>   7

         The failure of either party to this Agreement to insist upon the
performance of any of the terms and conditions of this Agreement, or the waiver
of any breach of any of the terms and conditions of this Agreement, shall not be
construed as thereafter waiving any such terms and conditions, but the same
shall continue and remain in full force and effect as if no such forbearance or
waiver had occurred.

                                SECTION NINETEEN
                                  ATTORNEY FEES

         In the event a suit or action is filed concerning this Agreement then
the prevailing party shall be awarded their reasonable attorney fees as set by
the trial court, or if on appeal, by the appellate court.

                                 SECTION TWENTY
                                TIME OF EXECUTION

         JA acknowledges that this Agreement has been executed prior to the time
that JA actually commenced working as Chief Executive Officer of Bank.

                               SECTION TWENTY-ONE
                                 REPRESENTATIONS

         After April 30, 1998, JA represents and warrants to Bank that there are
no employment contracts or other contractual obligations to which JA is subject
which prevents JA from entering into this Agreement or from fully performing
JA's duties under this Agreement.

         IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first above written.
         BANK OF SOUTHERN OREGON

                                            By
                                              --------------------------
                                            Its:
                                                ------------------------

                                            ----------------------------
                                            John Anhorn

<PAGE>   8

                          STATEMENT OF RESPONSIBILITIES
                        Chief Executive Officer/President

The CEO/President of BANK OF SOUTHERN OREGON ("Bank") shall be responsible for:

STRATEGIC LEADERSHIP

Developing and implementing a long-term plan which leverages the assets of the
companys various holdings in combination for the greatest possible return, while
minimizing the potential of loss for the whole.

Exercising leadership in decisions and activities relating to acquisitions,
mergers, divestments or joint ventures.

Understanding, seeking out and exploiting market opportunities to create a
cumulative value that is greater than the sum of the individual parts.

Establishing clear performance objectives and standards for each holding,
enuring that the president/CEO of each holding has necessary resources, then
monitoring performance and acting appropriately.

Understanding when a given holding has reached the maximum level/capacity of
growth.

Determining whether to add responsibility/market to an existing holding or to
create a new holding to respond to new opportunities.

MANAGEMENT LEADERSHIP

Understanding the strengths, priorities and weaknesses of each holding to
produce a synergistic whole.

Managing the presidents/CEOs of each of the holding, working with them to
develop plans and strategies, knowing when to step in and when to step back.

Exercising leadership in recruiting and hiring senior managers for new
enterprises.

Providing appropriate leadership and vision and communicating that to employees
throughout the organization. Ensuring that human resources philosophies, systems
and support are consistent throughout the company.

Establishing policies and mechanisms to ensure that channels of critical
dialogue are open and effective throughout the company.

FINANCIAL

Monitoring the flow of capital within the company.

Working with presidents/CEOs to ensure financial soundness and success of each
holding and the company itself.

OTHER

Representing the company to the larger community.

The CEO/President shall report to the board of directors of the company.

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