PLUMAS BANCORP
EXHIBIT 10.59
<DOCUMENT>
<TYPE>EX-10.59
<SEQUENCE>16
<FILENAME>a91631exv10w59.txt
<DESCRIPTION>EXHIBIT 10.59
<TEXT>
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                                                                   EXHIBIT 10.59


                                                                Prepared 11-5-02

                                   PLUMAS BANK
                          DIRECTOR RETIREMENT AGREEMENT

         THIS AGREEMENT is adopted this 1st day of May, 2003, by and between
PLUMAS BANK, a California banking corporation located in Quincy, California (the
"Company") and THOMAS WATSON (the "Director").

                                  INTRODUCTION

         To encourage the Director to remain a member of the Company's Board of
Directors, the Company is willing to provide retirement benefits to the
Director. The Company will pay the benefits from its general assets.

                                    AGREEMENT

         The Director and the Company agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

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

         1.1      "Change of Control" means the transfer of shares of the
Company's voting common stock such that one entity or one person acquires (or is
deemed to acquire when applying Section 318 of the Code) more than 50 percent of
the Company's outstanding voting common stock.

         1.2      "Code" means the Internal Revenue Code of 1986, as amended.

         1.3      "Disability" means, if the Director is covered by a
Company-sponsored disability policy, total disability as defined in such policy
without regard to any waiting period. If the Director is not covered by such a
policy, Disability means the Director suffering a sickness, accident or injury
which, in the judgment of a physician who is satisfactory to the Company,
prevents the Director from performing substantially all of the Director's normal
duties for the Company. As a condition to receiving any Disability benefits, the
Company may require the Director to submit to such physical or mental
evaluations and tests as the Company's Board of Directors deems appropriate and
reasonable.

         1.4      "Effective Date" means May 1, 2003.

         1.5      "Normal Retirement Age" means the Director attaining age 65
and completing 15 Years of Service.

                                        1

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         1.6      "Normal Retirement Date" means the later of the Normal
Retirement Age or Termination of Service.

         1.7      "Plan Year" means a twelve-month period commencing on October
1 and ending on September 30 of each year. The initial Plan Year shall commence
on the date of this Agreement.

         1.8      "Termination for Cause" shall be defined as set forth in
Article 5.

         1.9      "Termination of Service" means that the Director ceases to be
a member of the Company's Board of Directors for any reason whatsoever, other
than by reason of a leave of absence approved by the Company.

         1.10     "Years of Service" means the total number of calendar years
that the Director has served on the Company's Board of Directors. The Director
shall be credited with a year of service for each calendar year in which the
Director is serving on the Board of Directors on the first and last day of the
calendar year except that: (1) for the Director's initial service year, the
Director shall be credited with a Year of Service as long as the Director is
serving on the Board of Director's the last day of the calendar year; and (2)
for the Director's last year of service, the Director will be credited with a
Year of Service if the Director terminates service on or after the Normal
Retirement Age.

                                    ARTICLE 2
                               SEVERANCE BENEFITS

         2.1      Normal Retirement Benefit. Upon Termination of Service on or
after Normal Retirement Age for reasons other than death, the Company shall pay
to the Director the benefit described in this Section 2.1 in lieu of any other
benefit under this Agreement.

                  2.1.1    Amount of Benefit. The annual benefit under this
         Section 2.1 is $10,000 (Ten thousand Dollars).

                  2.1.2    Payment of Benefit. The Company shall pay the annual
         benefit determined in Section 2.1.1 to the Director in 12 equal monthly
         installments commencing with the month following the Director's Normal
         Retirement Date, the annual benefit to be paid to the Director for a
         period of 12 years.

                  2.1.3    Benefit Increases. Commencing on the first
         anniversary of the first benefit payment, and continuing on each
         subsequent anniversary, the Company's Board of Directors, in its sole
         discretion, may increase the benefit.

         2.2      Disability Benefit. Upon the Director's Termination of Service
due to Disability prior to the Normal Retirement Age, the Company shall pay to
the Director the benefit described in this Section 2.2 in lieu of any other
benefit under this Agreement.

                                        2

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                  2.2.1    Amount of Benefit. The annual benefit under this
         Section 2.2 is the Normal Retirement Benefit set forth in Section 2.1.1
         multiplied by the applicable percentage in the vesting schedule set
         forth below.

<TABLE>
<CAPTION>
----------------------------------------------------------------------
NUMBER OF YEARS OF SERVICE COMPLETED
     AT TERMINATION OF SERVICE                           VESTED AMOUNT
----------------------------------------------------------------------
<S>                                                      <C>
                 1                                           6.67%
----------------------------------------------------------------------
                 2                                          13.33%
----------------------------------------------------------------------
                 3                                          20.00%
----------------------------------------------------------------------
                 4                                          26.67%
----------------------------------------------------------------------
                 5                                          33.33%
----------------------------------------------------------------------
                 6                                          40.00%
----------------------------------------------------------------------
                 7                                          46.67%
----------------------------------------------------------------------
                 8                                          53.33%
----------------------------------------------------------------------
                 9                                          60.00%
----------------------------------------------------------------------
                10                                          66.67%
----------------------------------------------------------------------
                11                                          73.33%
----------------------------------------------------------------------
                12                                          80.00%
----------------------------------------------------------------------
                13                                          86.67%
----------------------------------------------------------------------
                14                                          93.33%
----------------------------------------------------------------------
            15 or more                                     100.00%
----------------------------------------------------------------------
</TABLE>

                  2.2.2    Payment of Benefit. The Company shall pay the annual
         benefit determined in Section 2.2.1 to the Director in 12 equal monthly
         installments commencing with the month following Termination of
         Service, the annual benefit to be paid to the Director for a period of
         12 years. The Company, in its sole and absolute discretion, may pay the
         present value of the remaining annual installments in a lump sum, at
         any time, using a 7.5% discount rate.

                  2.2.3    Benefit Increases. Benefit payments may be increased
         as provided in Section 2.1.3.

         2.3      Change of Control Benefit. Upon a Change of Control, the
Company shall pay to the Director the benefit described in this Section 2.3 in
lieu of any other benefit under this Agreement.

                  2.3.1    Amount of Benefit. The annual benefit under this
         Section 2.3 is the Normal Retirement Benefit set forth in Section
         2.1.1.

                  2.3.2    Payment of Benefit. The Company shall pay the annual
         benefit determined in Section 2.3.1 to the Director in 12 equal monthly
         installments commencing with the month following Termination of
         Service, the annual benefit to be paid to the Director for a period of
         12 years. The Company, in its sole and absolute discretion, may pay the
         present value of the remaining annual installments in a lump sum, at
         any time, using a 7.5% discount rate.

                                        3

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                  2.3.3    Excess Parachute Payment. Notwithstanding any
         provision of this Agreement to the contrary, the Company shall not pay
         any benefit under this Agreement to the extent the benefit would create
         an excise tax under the excess parachute rules of Section 280G of the
         Code.

                                    ARTICLE 3
                                 DEATH BENEFITS

         3.1      Death During Active Service. Upon the Director's death while
in the active service as a Director of the Company, the Company shall pay to the
Director's beneficiary the benefit described in this Section 3.1. This benefit
shall be paid in lieu of the Lifetime Benefits under Article 2.

                  3.1.1    Amount of Benefit. The annual benefit under this
         Section 3.1 is the Normal Retirement Benefit set forth in Section
         2.1.1.

                  3.1.2    Payment of Benefit. The Company shall pay the annual
         benefit determined in Section 3.1.1 to the Director's beneficiary in 12
         equal monthly installments commencing with the month following the
         Director's death, the annual benefit to be paid to the Director's
         beneficiary for a period of 12 years.

                  3.1.3    Benefit Increases. Benefit payments may be increased
         as provided in Section 2.1.3.

         3.2      Death During Payment of a Benefit. If the Director dies after
any benefit payments have commenced under Article 2 of this Agreement but before
receiving all such payments, the Company shall pay the remaining benefits to the
Director's beneficiary at the same time and in the same manner they would have
been paid to the Director had the Director lived. The Board of Directors of the
Company reserves the right to pay the present value of the remaining benefit in
a lump sum and shall have the sole discretion to choose a reasonable discount
rate.

         3.3      Death After Termination of Service But Before Payment of a
Benefit Commences. If the Director is entitled to a benefit under Article 2 of
this Agreement, but dies prior to the commencement of said benefit payments, the
Company shall pay the same benefit payments to the Director's beneficiary that
the Director was entitled to prior to death except that the benefit payments
shall commence with the month following the Director's death. The Board of
Directors of the Company reserves the right to pay the present value of the
remaining benefit in a lump sum and shall have the sole discretion to choose a
reasonable discount rate.

                                    ARTICLE 4
                                  BENEFICIARIES

         4.1      Beneficiary Designations. The Director shall designate a
beneficiary by filing a written designation with the Company. The Director may
revoke or modify the designation at any time by filing a new designation.
However, designations will only be effective if signed by the Director and

                                        4

<PAGE>

received by the Company during the Director's lifetime. The Director's
beneficiary designation shall be deemed automatically revoked if the beneficiary
predeceases the Director or if the Director names a spouse as beneficiary and
the marriage is subsequently dissolved. If the Director dies without a valid
beneficiary designation, all payments shall be made to the Director's estate.

         4.2      Facility of Payment. If a benefit is payable to a minor, to a
person declared incompetent or to a person incapable of handling the disposition
of his or her property, the Company may pay such benefit to the guardian, legal
representative or person having the care or custody of such minor, incapacitated
person or incapable person. The Company may require proof of incompetence,
minority or guardianship as it may deem appropriate prior to distribution of the
benefit. Such distribution shall completely discharge the Company from all
liability with respect to such benefit.

                                    ARTICLE 5
                               GENERAL LIMITATIONS

         5.1      Termination for Cause. Notwithstanding any provision of this
Agreement to the contrary, the Company shall not pay any benefit under this
Agreement if the Company terminates the Director's service for:

                  (a)  Gross negligence or gross neglect of duties;

                  (b)  Commission of a felony or of a gross misdemeanor
         involving moral turpitude; or

                  (c)  Fraud, disloyalty, dishonesty or willful violation of any
         law or significant Company policy committed in connection with the
         Director's service and resulting in an adverse effect on the Company.

         5.3      Suicide or Misstatement. The Company shall not pay any benefit
under this Agreement if the Director commits suicide within three years after
the date of this Agreement or if the Director has made any material misstatement
of fact on any application for any benefits provided by the Company to the
Director.

                                    ARTICLE 6
                           CLAIMS AND REVIEW PROCEDURE

         6.1      Claims Procedure. Any person who has not received benefits
under this Agreement that he or she believes should be paid ("claimant") shall
make a claim for such benefits as follows:

                  6.1.1    Initiation - Written Claim. The claimant initiates a
         claim by submitting to the Company a written claim for the benefits.

                  6.1.2    Timing of Company Response. The Company shall respond
         to such claimant within 90 days after receiving the claim. If the
         Company determines that special circumstances require additional time
         for processing the claim, the Company can extend the response period by
         an additional 90 days by notifying the claimant in writing, prior to
         the end

                                        5

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         of the initial 90-day period, that an additional period is required.
         The notice of extension must set forth the special circumstances and
         the date by which the Company expects to render its decision.

                  6.1.3    Notice of Decision. If the Company denies part or all
         of the claim, the Company shall notify the claimant in writing of such
         denial. The Company shall write the notification in a manner calculated
         to be understood by the claimant. The notification shall set forth:

                           (a)  The specific reasons for the denial,

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

                           (c)  A description of any additional information or
                  material necessary for the claimant to perfect the claim and
                  an explanation of why it is needed,

                           (d)  An explanation of this Agreement's review
                  procedures and the time limits applicable to such procedures,
                  and

                           (e)  A statement of the claimant's right to bring a
                  civil action under ERISA Section 502(a) following an adverse
                  benefit determination on review.

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

                  6.2.1    Initiation - Written Request. To initiate the review,
         the claimant, within 60 days after receiving the Company's notice of
         denial, must file with the Company a written request for review.

                  6.2.2    Additional Submissions - Information Access. The
         claimant shall then have the opportunity to submit written comments,
         documents, records and other information relating to the claim. The
         Company shall also provide the claimant, upon request and free of
         charge, reasonable access to, and copies of, all documents, records and
         other information relevant (as defined in applicable ERISA regulations)
         to the claimant's claim for benefits.

                  6.2.3    Considerations on Review. In considering the review,
         the Company shall take into account all materials and information the
         claimant submits relating to the claim, without regard to whether such
         information was submitted or considered in the initial benefit
         determination.

                  6.2.4    Timing of Company Response. The Company shall respond
         in writing to such claimant within 60 days after receiving the request
         for review. If the Company determines that special circumstances
         require additional time for processing the claim, the Company can
         extend the response period by an additional 60 days by notifying the
         claimant in writing, prior to the end of the initial 60-day period,
         that an additional period is required. The notice of extension must set
         forth the special circumstances and the date by which the Company
         expects to render its decision.

                                        6

<PAGE>

                  6.2.5    Notice of Decision. The Company shall notify the
         claimant in writing of its decision on review. The Company shall write
         the notification in a manner calculated to be understood by the
         claimant. The notification shall set forth:

                           (a)  The specific reasons for the denial,

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

                           (c)  A statement that the claimant is entitled to
                  receive, upon request and free of charge, reasonable access
                  to, and copies of, all documents, records and other
                  information relevant (as defined in applicable ERISA
                  regulations) to the claimant's claim for benefits, and

                           (d)  A statement of the claimant's right to bring a
                  civil action under ERISA Section 502(a).

                                    ARTICLE 7
                           AMENDMENTS AND TERMINATION

         This Agreement may be amended or terminated only by a written agreement
signed by the Company and the Director.

                                    ARTICLE 8
                                  MISCELLANEOUS

         8.1      Binding Effect. This Agreement shall bind the Director and the
Company, and their beneficiaries, survivors, executors, successors,
administrators and transferees.

         8.2      No Guarantee of Service. This Agreement is not a contract for
service as a member of the Company's Board of Directors. It does not give the
Director the right to remain in the service of the Company, nor does it
interfere with the shareholder's rights to discharge the Director. It also does
not require the Director to remain in the service of the Company nor interfere
with the Director's right to terminate service at any time.

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

         8.4      Reorganization. The Company shall not merge or consolidate
into or with another company, or reorganize, or sell substantially all of its
assets to another company, firm, or person unless such succeeding or continuing
company, firm, or person agrees to assume and discharge the obligations of the
Company under this Agreement. Upon the occurrence of such event, the term
"Company" as used in this Agreement shall be deemed to refer to the successor or
survivor company.

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

                                        7

<PAGE>

         8.6      Applicable Law. The Agreement and all rights hereunder shall
be governed by the laws of the State of California, except to the extent
preempted by the laws of the United States of America.

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

         8.8      Entire Agreement. This Agreement constitutes the entire
agreement between the Company and the Director as to the subject matter hereof.
No rights are granted to the Director by virtue of this Agreement other than
those specifically set forth herein.

         8.9      Administration. The Company shall have powers which are
necessary to administer this Agreement, including but not limited to:

                  (a)  Interpreting the provisions of this Agreement;

                  (b)  Establishing and revising the method of accounting for
         this Agreement;

                  (c)  Maintaining a record of benefit payments; and

                  (d)  Establishing rules and prescribing any forms necessary or
         desirable to administer this Agreement.

         8.10     Named Fiduciary. The Company shall be the named fiduciary and
plan administrator under this Agreement. The named fiduciary may delegate to
others certain aspects of the management and operation responsibilities of the
plan including the Service of advisors and the delegation of ministerial duties
to qualified individuals.

         IN WITNESS WHEREOF, the Director and a duly authorized Company officer
have signed this Agreement.

DIRECTOR:                                COMPANY:

                                         PLUMAS BANK

/s/ Thomas Watson                        By /s/ William E. Elliott
-----------------                           ----------------------
Thomas Watson

                                         Title President & C.E.O.

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