Discount Rate. Accordingly, the Bank shall establish a liability retirement account for the Executive into which appropriate accruals shall be made using the applicable Discount Rate.  Notwithstanding the forgoing, the accruals shall be made as consistently as possible over the span of this Agreement (thus, the benefit shall be accrued for as evenly as possible each year).  For illustrative purposes ONLY, a sample table showing possible prospective Accrued Liability Balance numbers shall be attached hereto as Exhibit “A”; however this Exhibit A is merely a sample of the potential Accrued Liability Balance based on a future given date and using a sample discount rate employed by the Bank on the Effective Date of this Agreement. The actual Accrued Liability Balance will be determined as of the date of Separation From Service.

1.2           Administrator .  The Bank shall be the “Administrator” and, solely for the purposes of ERISA as discussed herein, the “fiduciary” of this Agreement where a fiduciary is required by ERISA.

1.3           Bank.    For the purpose of this Agreement, the term “Bank” or “Employer” shall be read so as to include the Santa Lucia Bank holding company, Santa Lucia Bancorp, when permissible.

1.4           Board of Directors.  The “Board of Directors” shall mean the Board of Directors for the Bank, hereinafter “the Board”.

1.5           The Code .  The “Code” shall mean the Internal Revenue Code of 1986, as amended.

1.6           Discount Rate.   The term “Discount Rate” means the rate used by the Plan Administrator for in any specified year to accrue benefits under this Plan; however, the Plan Administrator, in its sole discretion, may adjust the Discount Rate to maintain the rate within reasonable standards according to GAAP (Generally Accepted Accounting Principles).

1.7           Effective Date .  The term “Effective Date” shall mean the date first written above.

1.8           ERISA .  The term “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

1.9           Executive Benefit .  The term “Executive Benefit” shall mean the benefit amounts determined pursuant to Paragraphs 1 through 6 herein (including sub-paragraphs, as applicable), forfeited, reduced or adjusted to the extent:  (a) required under the other provisions of this Agreement; (b) required by reason of the lawful order of any regulatory agency or body having jurisdiction over the Employer; or (c) required in order for the Employer to comply with any and all applicable state and federal laws, including, but not limited to, income, employment and disability income tax laws ( e.g. , FICA, FUTA, SDI).

1.10         IRC 409A . The term “IRC 409A” shall refer to the final regulations issued by the IRS and the Treasury Department under Section 409A of the Code.

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1.11         Plan Year .  The “Plan Year” shall mean the calendar year.

1.12         Separation From Service/ Termination of Employment .   The terms “Separation From Service” (Separates From Service) and “Termination of Employment” shall be used interchangeably for the purposes of this Agreement and shall be interpreted in accordance with the provisions of IRC 409A. IRC 409A currently provides that, whether a termination of employment has occurred is determined based on whether the facts and circumstances indicate that the Bank and the Executive reasonably anticipate that no further services will be performed after a certain date or that the level of bona fide services the employee will perform after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than twenty (20%) percent of the average level of bona fide services performed (as an employee or an independent contractor) over the immediately preceding thirty-six (36) month period (or the full period of services to the employer  if the employee has been providing services to the employer less than 36 months). There shall be no Separation From Service while the Executive is on military leave, sick leave or other bona fide leave of absence, as long as such leave does not exceed six (6) months, or if longer, so long as the individual retains a right to re-employment with the service recipient under an applicable statute or by contract.

1.13         Specified Employee.   The term “Specified Employee” shall be defined in accordance with IRC 409A. At present, and in accordance with IRC 409A, the term “Specified Employee” means an employee who, as of the date of the employee’s Separation from Service, is a key employee of an employer of which any stock is publicly traded on an established securities market or otherwise. An employee is a key employee if the employee meets the requirements of section 416(i)(1)(A)(i), (ii), or (iii) (applied in accordance with the regulations thereunder and disregarding section 416(i)(5)) at any time during the twelve (12) month period ending on a specified employee identification date. If Executive is a key employee as of a specified employee identification date, then Executive shall be treated as a key employee for the entire twelve (12) month period beginning on the specified employee effective date.

1.14         Termination For Cause. The term “Termination For Cause” shall mean termination of Executive’s employment by reason of any of the following:

A.             Executive’s personal dishonesty, incompetence or willful misconduct;

B.             Executive’s breach of fiduciary duty involving personal profit;

C.                                      Executive’s intentional failure to perform Executive’s duties for the Bank after a written demand for performance is given to Executive by the Board which demand specifically identifies the manner in which the Board believes that Executive has not performed his duties;

D.                                     Executive’s willful violation of any law, rule, regulation or final cease and desist order (other than traffic violations or similar minor offenses) to the extent detrimental to the Bank’s business or reputation; or

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E.              Executive’s material breach of any provision of this Agreement.

2.              Scope, Purpose and Effect .

2.1           Contract of Employment .   Although this Agreement is intended to provide Executive with an additional incentive to remain in the employ of the Employer, this Agreement shall not be deemed to constitute a contract of employment between Executive and the Employer nor shall any provision of this Agreement restrict or expand the right of the Employer to terminate Executive’s employment.  This Agreement shall have no impact or effect upon any separate written Employment Agreement which Executive may have with the Employer, it being the parties’ intention and agreement that unless this Agreement is specifically referenced in said Employment Agreement (or any modification thereto), this Agreement (and the Employer’s obligations hereunder) shall stand separate and apart and shall have no effect on or be affected by, the terms and provisions of said Employment Agreement.

2.2           Fringe Benefit .  The benefits provided by this Agreement are granted by the Bank as a fringe benefit to Executive and are not a part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. Executive has no option to take any current payments or bonus in lieu of the benefits provided by this Agreement.

2.3           Prohibited Payments.   Notwithstanding anything in this Agreement to the contrary, if any payment made under this Agreement is a “golden parachute payment” as defined in Section 28(k) of the Federal Deposit Insurance Act (12 U.S.C. section 1828(k) and Part 359 of the Rules and Regulations of the Federal Deposit Insurance Corporation  (collectively, the “FDIC Rules”) or is otherwise prohibited, restricted or subject to the prior approval of a Bank Regulator, no payment shall be made hereunder without complying with said FDIC Rules.

2.4           Additional Prohibited Payments. If the Bank is subject to the executive compensation limitations under the United States Treasury Department’s Troubled Asset Relief Program (“TARP”) at the time Executive becomes entitled to any payment under this Agreement, and if such payment, together with any other payments which Executive has the right to receive from the Bank, exceed the limits allowed for Executive established under TARP, then the aggregate payments to Executive pursuant to this Agreement and any other agreement with Executive shall be reduced to the largest amount as will result in no portion of such payments violating the executive compensation limitations under TARP.

3.              Delay in Payments for Specified Employee in the Event of a  Separation From Service .

3.1           Internal Revenue Code Section 409A Compliance . It is the intent of the parties to comply with all applicable Internal Revenue Code Sections, including, but not limited to, IRC 409A. Furthermore, for the purposes of this Agreement, IRC Section 409A shall be read to include any related or relevant IRS Notices or clarifications. While it is understood that a general IRC 409A savings clause will not be effective, the parties intend that any ambiguities regarding any terms or payouts contained herein shall be interpreted in a manner consistent with IRC 409A.

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Thus, for any benefits payable pursuant to this Agreement due to a Separation From Service, if the individual is a Specified Employee (as defined herein and by IRC 409A) as of the date of the Separation From Service, and the Employer’s stock is publicly traded on an established securities market or otherwise, any such benefit shall be withheld for six (6) months following such Separation From Service in order to comply with IRC 409A. In addition, for any individual affected by this six (6) month delay in payment imposed by IRC 409A, and if and/or when applicable, the aggregate amount of the first seven (7) months of installments shall be paid at the beginning of the seventh month following the date of Separation From Service. Monthly installment payments shall continue thereafter if called for.

4.              Executive Benefits Payments .

4.1           In the Event Executive Does not Separate From Service with the Bank Until on or After Attaining Seventy Years of Age .  In the event Executive does not Separate From Service until on or after attaining age Seventy (70) (and for any reason other than for Cause), then Executive (or his designated Beneficiaries) shall be entitled to be paid an annual Executive Benefit equal to Forty-Five Thousand Dollars ($45,000). This annual Executive Benefit shall be paid in twelve (12) substantially equal monthly installments on the first day of each month, beginning with the month following the month in which Executive Separates From Service and continuing until the death of the Executive or for a period of Fifteen (15) Years, whichever is the later to occur.

4.2           Payments in the Event Executive Separates From Service Prior to Attaining Age Seventy for any Reason Other Than a Termintation For Cause (or due to death).   In the event Executive  Separates From Service prior to attaining the age of Seventy (70) for any reason other than due to a Termination For Cause or death, then Executive shall be entitled to be paid the Accrued Liability Balance as of the date of Separation From Service. This Accrued Liability Balance shall be paid out monthly over a period of  Fifteen (15) Years (180 months). Payments shall commence on the first day of