Exhibit 10.3

 

FIRST PRIORITY FINANCIAL CORP.

STOCK COMPENSATION PROGRAM

(AS AMENDED AND RESTATED EFFECTIVE March 18, 2010)

1.  Purpose.  The First Priority Financial Corp. Stock Compensation Program (the
“Program”) is intended to secure, for First Priority Financial Corp. (the
“Company”) and any parent or subsidiary, the benefits arising from ownership of
the Company’s common stock, $1.00 par value per share (the “Common Stock”), by
those selected employees and non-employee directors who will be responsible for
its future growth.  The Program is designed to help attract and retain superior
personnel for positions of substantial responsibility and to provide eligible
employees and non-employee directors with an additional incentive to contribute
to the success of the Company.

2.  Elements of the Program.  In order to maintain flexibility in the award of
equity benefits, the Program is comprised of three parts.  Part I is the
Incentive Stock Option Plan (the “Incentive Plan”).  Part II is the Compensatory
Stock Option Plan (the “Compensatory Plan”).  Part III is the Restricted Share
Plan (the “Restricted Plan”).  Copies of the Incentive Plan, the Compensatory
Plan, and the Restricted Plan are attached hereto as Part I, Part II, and
Part III, respectively, and are collectively referred to herein as the
“Plans.”  Awards under the Program may be made to non-employee directors and key
employees who are important to the success of the Company.

3.  Applicability of General Provisions.  Unless a provision in a Plan
specifically indicates to the contrary, each Plan shall be subject to the
general provisions of the Program set forth below (the General Provisions”).

4.  Administration of the Plans.  The Plans shall be administered, construed,
governed, and amended in accordance with their respective terms.

GENERAL PROVISIONS OF THE STOCK COMPENSATION PROGRAM

Article 1.  Administration.  The Program shall be administered by the
Compensation Committee of the Board of Directors of the Company.  The committee,
when acting to administer the Program, is referred to as the “Program
Administrators.”  Any action of the Program Administrators shall be taken by
majority vote or the unanimous written consent of the Program
Administrators.  The Board of Directors, with the Program Administrators not
voting, shall administer the Program with respect to the options granted to the
Program Administrators in accordance with the provisions of the Compensatory
Plan.  No Program Administrator or member of the Board of Directors of the
Company or any parent or subsidiary, shall be liable for any action or
determination made in good faith with respect to the Program or to any option or
performance share granted thereunder.

Article 1.  

 

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Article 2.  Authority of Program Administrators.  Subject to the other
provisions of this Program, and with a view to effecting its purpose, the
Program Administrators shall have sole authority in their absolute
discretion:  (a) to construe and interpret the Program; (b) to define the terms
used herein; (c) to prescribe, amend, and rescind rules and regulations relating
to the Program; (d) to determine the employees to whom options and restricted
shares shall be granted under the Program; (e) to determine the time or times at
which options and restricted shares shall be granted under the Program; (f) to
determine the number of shares subject to any option under the Program and the
number of shares to be awarded as restricted shares under the Program as well as
the option price, the duration of each option and restricted share, and any
other terms and conditions of options and restricted shares; and (g) to make any
other determinations necessary or advisable for the administration of the
Program and to do everything necessary or appropriate to administer the
Program.  All decisions, determinations, and interpretations made by the Program
Administrators shall be binding and conclusive on all participants in the
Program and on their legal representatives, heirs, and beneficiaries.

Article 3.  Maximum Number of Shares Available Under the Program. The maximum
aggregate number of shares of Common stock that may be issued under the Program
is 825,000 shares, subject to adjustment as provided in Article 6
hereof.  Subject to the limitations of Article 7 hereof, if any of the shares
awarded under the Program (a) are redeemed as part of a net exercise settlement
or as part of the payment of any option exercise or (b) expire or terminate for
any reason before they have been exercised or vested in full, such shares shall
again be available for award under the Program.

Article 4.  Eligibility and Participation.  All employees and non-employee
directors of the Company, or of any parent or any subsidiary, shall be eligible
for selection by the Program Administrators to participate in the Program
provided, however, that a director who is not an employee of the Company shall
only be eligible to be awarded options under the Compensatory Plan or restricted
shares under the Restricted Plan.

Article 5.  Effective Date and Term of Program.  The Program shall become
effective (the “Effective Date”) upon its adoption by the Board of Directors of
the Company and subsequent approval of the Program by unanimous consent of the
Company’s shareholders or by a majority of the total votes eligible to be cast
at a meeting of shareholders, which vote shall be taken within 12 months of
adoption of the Program by the Company’s Board of Directors; provided, however,
that options, and restricted shares may be granted under this Program prior to
obtaining shareholder approval of the Program, but any such options or
restricted shares shall be contingent upon such shareholder approval being
obtained and may not be exercised prior to such approval.  The Program shall
continue in effect for a term of 10 years from the Effective Date unless sooner
terminated under Article 7 of these General Provisions.

Article 6.  Adjustments.  If the shares of Common Stock of the Company as a
whole are increased, decreased, changed into, or exchanged for a different
number or kind of shares or securities through merger, consolidation,
combination, exchange of shares, other reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock split, an
appropriate and proportionate adjustment shall be made in the maximum number and
kind of shares as to which options and restricted shares may be granted under
this Program.  A corresponding adjustment changing the number or kind of shares
allocated to unexercised options, restricted

 

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shares, or portions thereof, which shall have been granted prior to any such
change, shall likewise be made.  Any such adjustment in outstanding options
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of the option, but with a corresponding adjustment in the
price for each share or other unit of any security covered by the option.  In
making any adjustment pursuant to this Article 6, any fractional shares shall be
disregarded.

Article 7.  Termination and Amendment of Program.  The Program shall terminate
no later than 10 years from the Effective Date.  No options or restricted shares
shall be granted or awarded under the Program after that date.  The Company’s
Board of Directors can terminate the Program at any time.  Subject to the
limitation contained in Article 8 of the General Provisions, the Program
Administrators may at any time amend or revise the terms of the Program,
including the form and substance of the option and restricted shares agreements
to be used hereunder; provided that no amendment or revision shall, without
approval of the Company’s shareholders, (a) increase the maximum aggregate
number of shares that may be sold or distributed pursuant to options or
restricted shares granted under this Program, except as permitted under
Article 6 of the General Provisions; (b) change the minimum purchase price for
shares under Sections 4 of the Incentive Plan or the Compensatory Plan;
(c) increase the maximum term established under the Plans for any option or
restricted share; or (d) permit the granting of an option or restricted share to
anyone other than as provided in Article 4 of the General Provisions.

Article 8.  Prior Rights and Obligations.  No amendment, suspension, or
termination of the Program shall, without the consent of the employee or
non-employee director who has received an option or restricted share, alter or
impair any of that person’s rights or obligations under any option or restricted
share granted or awarded under the Program prior to such amendment, suspension,
or termination.

Article 9.  Privileges of Stock Ownership.  Except as provided in the Restricted
Plan and notwithstanding the exercise of any options granted pursuant to the
terms of this Program, no employee or non-employee director shall have any of
the rights or privileges of a shareholder of the Company with respect to any
shares of stock awarded under the Program until certificates representing the
shares have been issued and delivered.  No shares shall be required to be issued
and delivered unless and until all of the requirements of law and of all
regulatory agencies having jurisdiction over the issuance and delivery of the
securities shall have been fully complied with.  No adjustment shall be made for
dividends or any other distributions for which the record date is prior to the
date on which such stock certificate is issued.

Article 10.  Reservation of Shares of Common Stock.  The Company, during the
term of this Program, will at all times reserve and keep available such number
of shares of its Common Stock as shall be sufficient to satisfy the requirements
of the Program.  In addition, the Company shall from time to time, as is
necessary to accomplish the purposes of this Program, seek to obtain from any
regulatory agency having jurisdiction, any requisite authority in order to issue
shares of Common Stock hereunder.  The inability of the Company to obtain from
any regulatory agency having jurisdiction the authority deemed by the Company’s
counsel to be necessary to the lawful issuance of any shares of its stock
hereunder shall relieve the Company of any liability in respect of the
non-issuance of the stock as to which the requisite authority shall not have
been obtained.

 

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Article 11.  Tax Withholding.  The exercise of any option or vesting of any
restricted share granted under the Program is subject to the condition that if
at any time the Company shall determine, in its discretion, that the
satisfaction of withholding tax or other withholding liabilities under any state
or federal law is necessary or desirable as a condition of, or in any connection
with, such exercise or the delivery or purchase of shares pursuant thereto, then
in such event, the exercise of such option or vesting of such restricted share
shall not be effective unless such withholding tax or other withholding
liabilities shall have been satisfied in a manner acceptable to the Company.

Article 12.  Employment and Service.  Nothing in the Program or in any option or
restricted share, shall confer upon any employee or non-employee director any
right to continued employment or service with the Company, or with any parent or
subsidiary corporation, or limit in any way the right of the Company or any
parent or subsidiary corporation at any time to terminate or alter the terms of
that employment or service.

Article 13.  Change in Control.  For purposes of the Program, the term “Change
in Control” shall mean the first to occur of any of the following events:

(a)  any “Person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), except for any of the Company’s
employee benefit plans, or any entity holding the Company’s voting securities
for, or pursuant to, the terms of any such plan (or any trust forming a part
thereof) (the “Benefit Plan(s)”), is or becomes the beneficial owner, directly
or indirectly, of the Company’s securities representing 19.9% or more of the
combined voting power of the Company’s then outstanding securities other than
pursuant to a transaction excepted in clauses (c) or (d);

(b)  there occurs a contested proxy solicitation of the Company’s shareholders
that results in the contesting party obtaining the ability to vote securities
representing 19.9% or more of the combined voting power of the Company’s then
outstanding securities;

(c)  a binding written agreement is executed (and, if legally required, approved
by the Company’s shareholders) providing for a sale, exchange, transfer or other
disposition of all or substantially all of the assets of the Company to another
entity,  except to an entity controlled directly or indirectly by the Company;

(d)  the shareholders of the Company approve a merger, consolidation, or other
reorganization of the Company, unless:

(i)  under the terms of the agreement approved by the Company’s shareholders
providing for such merger, consolidation or reorganization, the shareholders of
the Company immediately before such merger, consolidation or reorganization,
will own, directly or indirectly immediately following such merger,
consolidation, or reorganization, at least 51% of the combined voting power of
the outstanding voting securities of the Company resulting from such merger,
consolidation or reorganization (the “Surviving Company”) in substantially the
same proportion as their ownership of the voting securities immediately before
such merger, consolidation or reorganization;

 

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(ii)  under the terms of the agreement approved by the Company’s shareholders
providing for such merger, consolidation or reorganization, the individuals who
were members of the Board immediately prior to the execution of such agreement
will constitute at least 51% of the members of the board of directors of the
Surviving Company after such merger, consolidation or reorganization; and

(iii)  based on the terms of the agreement approved by the Company’s
shareholders providing for such merger, consolidation or reorganization, no
Person (other than (A) the Company or any subsidiary of the Company, (B) any
Benefit Plan, (C) the Surviving Company or any subsidiary of the Surviving
Company, or (D) any Person who, immediately prior to such merger, consolidation
or reorganization had beneficial ownership of 19.9% or more of the then
outstanding voting securities) will have beneficial ownership of 19.9% or more
of the combined voting power of the Surviving Company’s then outstanding voting
securities;

(e)  a plan of liquidation or dissolution of the Company, other than pursuant to
bankruptcy or insolvency laws, is adopted; or

(f)  during any period of two consecutive years, individuals, who at the
beginning of such period, constituted the Board cease for any reason to
constitute at least a majority of the Board 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 two‑thirds of the directors then still in office
who were directors at the beginning of the period.

Notwithstanding Clause (a), a Change in Control shall not be deemed to have
occurred if a Person becomes the beneficial owner, directly or indirectly, of
the Company’s securities representing 19.9% or more of the combined voting power
of the Company’s then outstanding securities solely as a result of an
acquisition by the Company of its voting securities which, by reducing the
number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to 19.9% or more of the combined voting power
of the Company’s then outstanding securities; provided, however, that if a
Person becomes a beneficial owner of 19.9% or more of the combined voting power
of the Company’s then outstanding securities by reason of share purchases by the
Company and shall, after such share purchases by the Company, become the
beneficial owner, directly or indirectly, of any additional voting securities of
the Company (other than as a result of a stock split, stock dividend or similar
transaction), then a Change in Control of the Company shall be deemed to have
occurred with respect to such Person under Clause (a).  In no event shall a
Change in Control of the Company be deemed to occur under Clause (a) with
respect to Benefit Plans.  In the event that a transaction contemplated by this
Section is not consummated, but rather is terminated, cancelled, or expires, any
awards granted under the Program shall thereafter be treated as if such
transaction had never been entered into.

Article 14.  Regulatory Directive.  This Program and any and all Options issued
under any of the Plans are subject to the following express condition:  in the
event that the primary federal regulator (as such term is defined under federal
banking law), and/or the state regulator of the Company shall determine at any
time in the future that the Company does not then have the minimum capital
required by applicable federal or state law at such time, then the primary

 

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federal regulator of the Company shall have the power to direct the Company to
notify the Optionees that such Optionees are required to exercise their Options
(or such number of their Options as the primary federal regulator shall direct)
within such number of days as the regulator directs, and if any Optionees do not
so exercise such Options, those Options shall be forfeited by such Optionees,
and shall immediately terminate and become null and void without regard to any
other provision of this Program.  The directive of the primary federal regulator
in such event shall control all aspects of this Program, the Plans, and any
Options issued thereunder, notwithstanding any other provision of this Program.

PART I

 

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FIRST PRIORITY FINANCIAL CORP.
INCENTIVE STOCK OPTION PLAN

Section 1.  Purpose.  The purpose of the First Priority Financial Corp.
Incentive Stock Option Plan (“Incentive Plan”) is to promote the growth and
general prosperity of the Company by permitting the Company to grant options to
purchase shares of the Common Stock to certain employees of the Company.  The
Incentive Plan is designed to help attract and retain superior personnel for
positions of responsibility with the Company and any parent or subsidiary, and
to provide employees with an additional incentive to contribute the success of
the Company.  The Company intends that options granted pursuant to the
provisions of the Incentive Plan will qualify and will be identified as
“incentive stock options” within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the “Code”).  An employee who has been granted
an option under this Incentive Plan is referred to herein as an
“Optionee.”  This Incentive Plan is Part I of the Program.  Unless any provision
herein indicates to the contrary, this Incentive Plan shall be subject to the
General Provisions.

Section 2.  Option Terms and Conditions.  The terms and conditions of each grant
of options under the Incentive Plan shall be embodied by an agreement in a form
approved by the Program Administrators, which agreement shall contain terms and
conditions not inconsistent with this Incentive Plan and the Program and which
shall incorporate the Incentive Plan and the Program by reference.  Each
agreement shall (a) state the date of grant of such options; (b) state the
Purchase Price for the options (as set forth in Section 4 below); (c) state that
the option shall be fully exercisable (i.e., because 100% vested) only after the
earlier of the date that (i) the Optionee has completed four years of continuous
employment with the Company following the date of grant of the option or (ii) a
Change in Control occurs after the Optionee has completed three years of
continuous employment with the Company following the date of grant of the
option; (d) be signed by the Optionee and a person designated by the Program
Administrators to sign on behalf of the Company; and (e) be delivered to the
Optionee.

Section 3.  Duration of Options.  Each option and all rights thereunder granted
pursuant to the terms of the Incentive Plan shall expire on the date determined
by the Program Administrators (the “Expiration Date”), but in no event shall any
option granted under the Incentive Plan expire later than 10 years from the date
on which such option is granted; provided, however, that any employee who owns
more than 10% of the combined voting power of all classes of stock of the
Company, or of any parent or subsidiary, must exercise any options within five
years from the date of grant.  In addition, each option shall be subject to
early termination as provided herein.

Section 4.  Purchase Price.  The purchase price (the “Purchase Price”) for
shares acquired pursuant to the exercise, in whole or in part, of any option
shall be equal to the fair market value of the shares at the time of the grant
of the option; provided, however, that (a) for any employee who owns more than
10% of the combined voting power of all classes of stock of the Company, or of
any parent or subsidiary, the Purchase Price shall be equal to 110% of fair
market value, subject to adjustment as provided in Section 6 of the General
Provisions.  Fair market value shall

 

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be determined by the Program Administrators on the basis of such factors as they
deem appropriate; provided, however, that fair market value shall be determined
without regard to any restriction other than a restriction which, by its terms,
will never lapse; and provided further, that if at the time the determination of
fair market value is made, those shares are subject to trading on a national
securities exchange for which sale prices are regularly reported, the fair
market value of those shares shall be the closing sales price reported for the
Common Stock on that exchange on the day on which the option is granted, or if
no sale has taken place on such day, the mean of the closing bid prices quoted
by the then primary market makers of the Company’s Common Stock.  For purposes
of this Section 4, the term “national securities exchange” shall include the
National Association of Securities Dealers Automated Quotation System and the
over-the-counter market.  Notwithstanding the foregoing, if in the judgment of
the Program Administrators, there are unusual circumstances or occurrences under
which the otherwise determined fair market value of the Common Stock does not
represent the actual fair value thereof or if shares of Common Stock are so
thinly traded so as the fair market value thus determined is not representative
of fair market value, then the fair market value of such Common Stock shall be
determined by the Program Administrators on the basis of such prices, market
quotations, and other pricing mechanisms that they deem appropriate and fairly
reflective of the then fair market value of such Common Stock or, at the
discretion of the Program Administrators, by an independent appraiser or
appraisers selected by the Program Administrators in either case giving due
consideration to recent transactions involving shares of Common Stock, if
any.  Notwithstanding anything in this Section 4 to the contrary, if the Common
Stock is not readily tradable on an established securities market, then fair
market value shall be determined in good faith by the Program Administrators by
the reasonable application of a reasonable valuation method consistent with Code
Section 409A and the regulations promulgated thereunder.

Section 5.  Maximum Amount of Options in Any Calendar Year.  The aggregate fair
market value (determined as of the time the option is granted) of the Common
Stock with respect to which incentive stock options are first exercisable by any
Optionee during any calendar year under the terms of this Plan and all such
plans of the Company and any parent or subsidiary corporation shall not exceed
$100,000.  Any option in excess of the foregoing limitations shall be deemed to
have been granted pursuant to the Compensatory Plan, and shall be clearly and
specifically designated as not being an incentive stock option.

Section 6.  Exercise of Options.  Each option shall be exercisable in one or
more installments during its term, and the right to exercise may be cumulative
as determined by the Program Administrators.  No option may be exercised for a
fraction of a share of Common Stock.  The purchase price of any shares purchased
shall be paid in full, in cash or by certified or cashier’s check payable to the
order of the Company or by delivery of shares of Common Stock, if permitted by
the Program Administrators, or by a combination of cash, check, or shares of
Common Stock, at the time of exercise of the option; provided that the form(s)
of payment allowed the employee shall be established when the option is
granted.  If any portion of the purchase price is paid in shares of Common
Stock, those shares shall be tendered at their then fair market value as
determined by the Program Administrators in accordance with Section 4 of this
Incentive Plan.  Notwithstanding the foregoing, Common Stock acquired pursuant
to the exercise of an incentive stock option may not be tendered as payment
unless the holding period requirements of Code Section 422(a)(1) have been
satisfied.

 

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Section 7.  Written Notice Required.  Any option granted pursuant to the terms
of the Incentive Plan shall be exercised when written notice of that exercise
has been given to the Company at its principal office by the person entitled to
exercise the option and full payment for the shares with respect to which the
option is exercised has been received by the Company.

Section 8.  Additional Exercise Provisions.

(a)  An Optionee granted and holding more than one option granted pursuant to
the terms of the Incentive Plan at any relevant time may, in accordance with the
provisions of this Incentive Plan, elect to exercise such options in any order
as such Optionee wishes.

(b)  At the request of an Optionee and to the extent permitted by applicable
law, the Company may, in its sole discretion, selectively approve arrangements
with a brokerage firm under which such brokerage firm, on behalf of the
employee, shall pay to the Company the exercise price of the options being
exercised, and the Company, pursuant to an irrevocable notice from the Optionee,
shall promptly deliver the shares being purchased to such brokerage firm.  In
the event any such arrangement is implemented, the Optionee shall acknowledge,
in writing, his or her understanding that the immediate sale of the option stock
will disqualify the related option as an incentive stock option.

Section 9.  Compliance With Securities Laws.  Shares of Common Stock shall not
be issued with respect to any option granted under the Incentive Plan unless the
exercise of that option and the issuance and delivery of those shares pursuant
to that exercise shall comply with all relevant provisions of state and federal
law including, without limitation, the Securities Act of 1933, as amended, the
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 Company with respect to such compliance.  The
Program Administrators may also require an Optionee to furnish evidence
satisfactory to the Company, including a written and signed representation
letter and consent to be bound by any transfer restriction imposed by law,
legend, condition, or otherwise, that the shares are being purchased only for
investment and without any present intention to sell or distribute the shares in
violation of any state or federal law, rule, or regulation.  Further, each
Optionee shall consent to the imposition of a legend on the shares of Common
Stock subject to his or her option restricting their transferability as required
by law or by this Section 9.

Section 10.  Option Rights Upon Termination of Employment for Cause.  If an
Optionee’s employment with the Company, or any parent or subsidiary corporation
(or a corporation or a parent or subsidiary of such corporation issuing or
assuming a stock option in a transaction to which Code Section 424(a) applies),
is terminated by the Company for Cause, such Optionee’s options shall lapse at
the earlier of the expiration of the term of such option or fifteen (15) days
from such termination of employment.

For purposes of this Section 10, “Cause” shall mean any of the following events:

(a)  the Optionee is convicted of or enters a plea of guilty or nolo contendere
to a felony, a crime of falsehood, or a crime involving fraud or moral
turpitude, or the actual incarceration of the Optionee for a period of
forty-five (45) consecutive days;

 

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(b)  the Optionee willfully fails to follow the lawful instructions of the Chief
Executive Officer of the Company or the Board of Directors after his receipt of
written notice of such instructions, other than a failure resulting from the
Optionee’s incapacity because of physical or mental illness;

(c)  the Optionee repeatedly fails in any material respect to perform the
reasonable duties required of the Executive after his receipt of written notice
of such failure from the Chief Executive Officer of the Company or the Board of
Directors;

(d)  the Optionee willfully violates any code of conduct of the Company, as the
same may be in effect from time to time, or any material bank regulatory statute
or regulation, or any cease and desist order applicable to the Company;

(e)  the Federal Deposit Insurance Corporation, the Pennsylvania Department of
Banking, or any government regulatory agency having jurisdiction over the
Company recommends or orders that the Optionee’s employment be terminated or
that he be relieved of his duties hereunder;

(f)  the Optionee engages in any activity that results in a breach of fiduciary
duty involving receipt of personal profit by him at the expense of the Company;
or

(g)  the Optionee commits a significant act of personal dishonesty or willful
misconduct, or performs his duties in an incompetent manner.

Section 11.  Option Rights Upon Termination of Employment for Retirement.  If an
Optionee’s employment with the Company, or any parent or subsidiary corporation
(or a corporation or a parent or subsidiary of such corporation issuing or
assuming a stock option in a transaction to which Code Section 424(a) applies),
terminates on or after the date that the Optionee reaches the age of 62
(“Retirement”) for any reason other than by the Company for Cause, such
Optionee’s options shall lapse at the earlier of the expiration of the term of
such option or three months from such termination of employment.

Section 12.  Option Rights Upon Termination of Employment due to a Reduction in
Force. If an Optionee’s employment with the Company, or any parent or subsidiary
corporation (or a corporation or a parent or subsidiary of such corporation
issuing or assuming a stock option in a transaction to which Code Section 424(a)
applies), is terminated by the Company due to a reduction in force (as
determined by the Program Administrators in their sole discretion), such
Optionee’s options shall lapse at the earlier of the expiration of the term of
such option or three months from such termination of employment.

Section 13.  Option Rights Upon Termination of Employment due to Disability.  If
an Optionee’s employment with the Company, or any parent or subsidiary
corporation (or a corporation or a parent or subsidiary of such corporation
issuing or assuming a stock option in a transaction to which Code Section 424(a)
applies), terminates due to becoming permanently and totally disabled within the
meaning of Code Section 22(e)(3), such Optionee’s options shall lapse at the
earlier of the expiration of the term of such option or twelve (12) months from
such termination of employment.

 

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Section 14.  Option Rights Upon Termination of Employment due to Death.  If an
Optionee’s employment with the Company, or any parent or subsidiary corporation
(or a corporation or a parent or subsidiary of such corporation issuing or
assuming a stock option in a transaction to which Code Section 424(a) applies),
terminates due to death, such Optionee’s options shall lapse at the earlier of
the expiration of the term of such option or twelve (12) months from such
termination of employment due to death.  During this period of exercise, an
option may be exercised, to the extent that such option remains unexercised on
the date of death, only by the person or persons to whom the Optionee’s rights
under the option shall pass by will or by the laws of descent and distribution.

Section 15.  Option Rights Upon Termination of Employment at Election of
Optionee.  If an Optionee’s employment with the Company, or any parent or
subsidiary corporation (or a corporation or a parent or subsidiary of such
corporation issuing or assuming a stock option in a transaction to which Code
Section 424(a) applies), is terminated at the election of the Optionee other
than for Retirement, such Optionee’s options shall lapse at the earlier of the
expiration of the term of such option or thirty (30) days from such termination
of employment.

Section 16.  Option Rights Upon Other Termination of Employment. If an
Optionee’s employment with the Company, or any parent or subsidiary corporation
(or a corporation or a parent or subsidiary of such corporation issuing or
assuming a stock option in a transaction to which Code Section 424(a) applies),
is terminated for any other reason other than as set forth in Sections 10
through 15 of this Incentive Plan, such Optionee’s options shall lapse at the
earlier of the expiration of the term of such option or three (3) months from
such termination of employment.

Section 17.  Options Not Transferable.  Options granted pursuant to the terms of
this Incentive Plan may not be sold, pledged, assigned, or transferred in any
manner otherwise than by will or the laws of descent or distribution and may be
exercised during the lifetime of an Optionee only by that Optionee.

Section 18.  Adjustments to Number and Purchase Price of Optioned Shares.  All
options granted pursuant to the terms of this Incentive Plan shall be adjusted
in the manner prescribed by Article 6 of the General Provisions.

PART II

 

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FIRST PRIORITY FINANCIAL CORP.
COMPENSATORY STOCK OPTION PLAN

Section 1.  Purpose.  The purpose of the First Priority Financial Corp.
Compensatory Stock Option Plan (“Compensatory Plan”) is to permit the Company to
grant options to purchase shares of its Common Stock to selected employees and
non-employee directors of the Company.  The Compensatory Plan is designed to
help attract and retain superior personnel for positions of substantial
responsibility with the Company and any parent or subsidiary, and to provide
employees and non-employee directors with an additional incentive to contribute
to the success of the Company.  Any option granted pursuant to this Compensatory
Plan shall be clearly and specifically designated as not being an incentive
stock option, as defined in Code Section 422(b).  An employee or non-employee
director who has been granted an option under this Compensatory Plan is referred
to herein as an “Optionee.”  Unless any provision herein indicates to the
contrary, this Compensatory Plan shall be subject to the General Provisions.

Section 2.  Option Terms and Conditions.  The terms and conditions of each grant
of options under the Compensatory Plan shall be embodied by an agreement in a
form approved by the Program Administrators, which agreement shall contain terms
and conditions not inconsistent with the Compensatory Plan and the Program and
which shall incorporate the Compensatory Plan and the Program by
reference.  Each agreement shall (a) state the date as of such grant of options;
(b) state the Purchase Price for the options (as set forth in Section 4 below);
(c) state that the options shall be fully exercisable (i.e., become 100% vested)
only after the earlier of the date that (i) the Optionee has completed four
years of continuous employment or service with the Company following the date of
grant of the options or (ii) a Change in Control occurs after the Optionee has
completed three years of continuous employment with the Company following the
date of grant of the option; (d) be signed by the Optionee and a person
designated by the Program Administrators to sign on behalf of the Company; and
(e) be delivered to the Optionee.

Section 3.  Duration of Options.  Each option and all rights thereunder granted
pursuant to the terms of this Compensatory Plan shall expire on the date
determined by the Program Administrators (the “Expiration Date”), but in no
event shall any option granted under the Compensatory Plan expire later than 10
years from the date on which such option is granted.  In addition, each option
shall be subject to early termination as provided herein.

Section 4.  Purchase Price.  The purchase price (the “Purchase Price”) for
shares acquired pursuant to the exercise, in whole or in part, of any option
shall be equal to the fair market value of the shares at the time of the grant
of the option, subject to adjustment as provided in Section 6 of the General
Provisions.  Fair market value shall be determined by the Program Administrators
on the basis of such factors as they deem appropriate; provided, however, that
fair market value shall be determined without regard to any restriction other
than a restriction which, by its terms, will never lapse; and provided further,
that if at the time the determination of fair market value is made, those shares
are subject to trading on a national securities exchange for which sale prices
are regularly reported, the fair market value of those shares shall be the
closing sales price reported for the Common Stock on that exchange on the day on
which the option is granted, or if

 

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no sale has taken place on such day, the mean of the closing bid prices quoted
by the then primary market makers of the Company’s Common Stock.  For purposes
of this Section 4, the term “national securities exchange” shall include the
National Association of Securities Dealers Automated Quotation System and the
over-the-counter market.  Notwithstanding the foregoing, if in the judgment of
the Program Administrators, there are unusual circumstances or occurrences under
which the otherwise determined fair market value of the Common Stock does not
represent the actual fair value thereof or if shares of Common Stock are so
thinly traded so as the fair market value thus determined is not representative
of fair market value, then the fair market value of such Common Stock shall be
determined by the Program Administrators on the basis of such prices, market
quotations, and other pricing mechanisms that they deem appropriate and fairly
reflective of the then fair market value of such Common Stock or, at the
discretion of the Program Administrators, by an independent appraiser or
appraisers selected by the Program Administrators in either case giving due
consideration to recent transactions involving shares of Common Stock, if
any.  Notwithstanding anything in this Section 4 to the contrary, if the Common
Stock is not readily tradable on an established securities market, then fair
market value shall be determined in good faith by the Program Administrators by
the reasonable application of a reasonable valuation method consistent with Code
Section 409A and the regulations promulgated thereunder.

Section 5.  Exercise of Options.  Each option shall be exercisable in one or
more installments during its term and the right to exercise may be cumulative as
determined by the Program Administrators (or the Board of Directors with respect
to the Program Administrators).  No options may be exercised for a fraction of a
share of Common Stock.  The purchase price of any shares purchased shall be paid
in full in cash or by certified or cashier’s check payable to the order of the
Company or by delivery of shares of Common Stock, if permitted by the Program
Administrators (or the Board of Directors with respect to the Program
Administrators), or by a combination of cash, check or shares of Common Stock,
at the time of exercise of the option.  If any portion of the purchase price is
paid in shares of Common Stock, those shares shall be tendered at their then
fair market value as determined by the Program Administrators (or the Board of
Directors with respect to the Program Administrators) in accordance with
Section 4 of this Compensatory Plan.  

Section 6.  Written Notice Required.  Any option granted pursuant to the terms
of this Compensatory Plan shall be exercised when written notice of that
exercise has been given to the Company at its principal office by the person
entitled to exercise the option and full payment for the shares with respect to
which the option is exercised has been received by the Company.

Section 7.  Additional Exercise Provisions.

(a)  An Optionee granted and holding more than one option granted pursuant to
the terms of the Compensatory Plan at any relevant time may, in accordance with
the provisions of the Compensatory Plan, elect to exercise such options in any
order as such Optionee wishes.

(b)  At the request of an Optionee and to the extent permitted by applicable
law, the Company may, in its sole discretion, selectively approve arrangements
with a brokerage firm under which such brokerage firm, on behalf of the
Optionee, shall pay to the Company the

 

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exercise price of the options being exercised, and the Company, pursuant to an
irrevocable notice from such Optionee, shall promptly deliver the shares being
purchased to such brokerage firm.

(c)  At the request of an Optionee and to the extent permitted by applicable
law, the Company may, in its sole discretion, selectively approve a “net
exercise” arrangement whereby the Company will reduce the number of shares of
Common Stock issued upon exercise of a compensatory stock option by the largest
whole number of shares of Common Stock with a fair market value that does not
exceed the exercise price of the option; provided, however, that the Optionee
provide cash to the Company to the extent of any remaining balance of the
exercise price.  Shares of Common Stock will no longer be subject to such option
and such option will no longer be exercisable thereafter to the extent of the
number of shares used to pay the exercise price pursuant to the net exercise,
the number of shares delivered to the Optionee as a result of such net exercise
and the number of shares, if any withheld to satisfy any tax withholding
obligations.

Section 8.  Compliance With Securities Laws.  Shares shall not be issued with
respect to any option granted under the Compensatory Plan unless the exercise of
that option and the issuance and delivery of the shares pursuant thereto shall
comply with all relevant provisions of state and federal law, including, without
limitation, the Securities Act of 1933, as amended, the 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 Company with respect to such compliance.  The Program
Administrators may also require an Optionee to furnish evidence satisfactory to
the Company, including a written and signed representation letter and consent to
be bound by any transfer restrictions imposed by law, legend, condition, or
otherwise, that the shares are being purchased only for investment purposes and
without any present intention to sell or distribute the shares in violation of
any state or federal law, rule, or regulation.  Further, each Optionee shall
consent to the imposition of a legend on the shares of Common Stock subject to
his or her option restricting their transferability as required by law or by
this Section 8.

Section 9.  Option Rights Upon Termination of Employment or Service for
Cause.  If an Optionee’s employment or service with the Company, or any parent
or subsidiary corporation (or a corporation or a parent or subsidiary of such
corporation issuing or assuming a stock option in a transaction to which Code
Section 424(a) applies), is terminated by the Company for Cause, such Optionee’s
options shall lapse at the earlier of the expiration of the term of such option
or fifteen (15) days from such termination of employment or service.

For purposes of this Section 9, “Cause” shall mean any of the following events:

(a)  the Optionee is convicted of or enters a plea of guilty or nolo contendere
to a felony, a crime of falsehood, or a crime involving fraud or moral
turpitude, or the actual incarceration of the Optionee for a period of
forty-five (45) consecutive days;

(b)  the Optionee willfully fails to follow the lawful instructions of the Chief
Executive Officer of the Company or the Board of Directors, as applicable, after
his receipt of written notice of such instructions, other than a failure
resulting from the Optionee’s incapacity because of physical or mental illness;

 

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(c)  the Optionee repeatedly fails in any material respect to perform the
reasonable duties required after his receipt of written notice of such failure
from the Chief Executive Officer of the Company or the Board of Directors, as
applicable;

(d)  the Optionee willfully violates any code of conduct of the Company, as the
same may be in effect from time to time, or any material bank regulatory statute
or regulation, or any cease and desist order applicable to the Company;

(e)  the Federal Deposit Insurance Corporation, the Pennsylvania Department of
Banking, or any government regulatory agency having jurisdiction over the
Company recommends or orders that the Optionee’s employment or service be
terminated or that he be relieved of his duties;

(f)  the Optionee engages in any activity that results in a breach of fiduciary
duty involving receipt of personal profit by him at the expense of the Company;
or

(g)  the Optionee commits a significant act of personal dishonesty or willful
misconduct, or performs his duties in an incompetent manner.

Section 10.  Option Rights Upon Termination of Employment or Service for
Retirement.  If an Optionee’s employment or service with the Company, or any
parent or subsidiary corporation (or a corporation or a parent or subsidiary of
such corporation issuing or assuming a stock option in a transaction to which
Code Section 424(a) applies), terminates on or after the date that the Optionee
reaches the age of 62 (“Retirement”) for any reason other than by the Company
for Cause, such Optionee’s options shall lapse at the expiration of the term of
such option.

Section 11.  Option Rights Upon Termination of Employment or Service due to a
Reduction in Force. If an Optionee’s employment  or service with the Company, or
any parent or subsidiary corporation (or a corporation or a parent or subsidiary
of such corporation issuing or assuming a stock option in a transaction to which
Code Section 424(a) applies), is terminated by the Company due to a reduction in
force (as determined by the Program Administrators in their sole discretion),
such Optionee’s options shall lapse at the earlier of the expiration of the term
of such option or twelve (12) months from such termination of employment or
service.

Section 12.  Option Rights Upon Termination of Employment or Service due to
Disability.  If an Optionee’s employment or service with the Company, or any
parent or subsidiary corporation (or a corporation or a parent or subsidiary of
such corporation issuing or assuming a stock option in a transaction to which
Code Section 424(a) applies), terminates due to becoming permanently and totally
disabled within the meaning of Code Section 22(e)(3), such Optionee’s options
shall lapse at the earlier of the expiration of the term of such option or
twelve (12) months from such termination of employment or service.

Section 13.  Option Rights Upon Termination of Employment or Service due to
Death.  If an Optionee’s employment or service with the Company, or any parent
or subsidiary corporation (or a corporation or a parent or subsidiary of such
corporation issuing or assuming a stock option in a transaction to which Code
Section 424(a) applies), terminates due to death, such Optionee’s options shall
lapse at the earlier of the expiration of the term of such option or twelve

 

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(12) months from such termination of employment or service due to death.  During
this period of exercise, an option may be exercised, to the extent that such
option remains unexercised on the date of death, only by the person or persons
to whom the Optionee’s rights under the option shall pass by will or by the laws
of descent and distribution.

Section 14.  Option Rights Upon Termination of Employment or Service at Election
of Optionee.  If an Optionee’s employment or service with the Company, or any
parent or subsidiary corporation (or a corporation or a parent or subsidiary of
such corporation issuing or assuming a stock option in a transaction to which
Code Section 424(a) applies), is terminated at the election of the Optionee
other than for Retirement, such Optionee’s options shall lapse at the earlier of
the expiration of the term of such option or thirty (30) days from such
termination of employment or service.

Section 15.  Option Rights Upon Other Termination of Employment or Service. If
an Optionee’s employment or service with the Company, or any parent or
subsidiary corporation (or a corporation or a parent or subsidiary of such
corporation issuing or assuming a stock option in a transaction to which Code
Section 424(a) applies), is terminated for any other reason other than as set
forth in Sections 9 through 14 of this Compensatory Plan, such Optionee’s
options shall lapse at the earlier of the expiration of the term of such option
or twelve (12) months from such termination of employment or service.

Section 16.  Transferability.  Except as provided below, options granted
pursuant to the terms of this Compensatory Plan may not be sold, pledged,
assigned, or transferred in any manner otherwise than by will or the laws of
descent or distribution and may be exercised during the lifetime of an Optionee
only by that Optionee.  If the Program Administrators so determine at the time
the option is granted, however, the option may be transferable to members of the
Optionee’s “immediate family” (as hereinafter defined), to a partnership whose
members are only the Optionee and/or members of the Optionee’s immediate family,
or to a trust for the benefit of only the Optionee and/or members of the
Optionee’s immediate family.  For purposes of this Section 16, an Optionee’s
“immediate family” includes only his or her spouse, parents or other ancestors,
and children and other direct descendants of the Optionee or of his or her
spouse (including such ancestors and descendants by adoption).

Section 17.  Adjustments to Number and Purchase Price of Optioned Shares.  All
options granted pursuant to the terms of this Compensatory Plan shall be
adjusted in the manner prescribed by Article 6 of the General Provisions.

PART III

 

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FIRST PRIORITY FINANCIAL CORP.
RESTRICTED SHARE PLAN

Section 1.  Purpose.  The purpose of the First Priority Financial Corp.
Restricted Share Plan (“Restricted Plan”) is to promote the growth and general
prosperity of the Company by permitting the Company to grant restricted shares
to help attract and retain superior personnel for positions of substantial
responsibility with the Company and any parent or subsidiary, and to provide
employees and non-employee directors with an additional incentive to contribute
to the success of the Company.  An employee or non-employee director who has
been awarded restricted shares under this Restricted Plan is referred to herein
as a “Grantee.”  This Restricted Plan is Part III of the Program.

Section 2.  Terms and Conditions.  The terms and conditions of each award of
restricted shares shall be embodied by an agreement in a form approved by the
Program Administrators, which shall contain terms and conditions not
inconsistent with the Restricted Plan and the Program and which shall
incorporate the Restricted Plan and the Program by reference.  Each agreement
shall (a) state the date of award of such restricted shares; (b) state the
number of shares of Common Stock subject to the award; (c) state that the
Restrictions (as defined in Section 4 of this Restricted Plan) shall apply until
the earlier of the date that (i) the Grantee has remained in the continuous
employ or service of the Company for a period of three (3) years from the date
of such award and has satisfied any other requirements that may be imposed by
the Program Administrators, in their sole discretion, including one or more
performance criteria or goals, or (ii) a Change in Control occurs; (d) be signed
by the Grantee and a person designated by the Program Administrators to sign on
behalf of the Company; and (e) be delivered to the Grantee.

Section 3.  Certificates.  A certificate or certificates representing the number
of restricted shares granted shall be registered in the name of the
Grantee.  Until the expiration of the Restrictions, the certificate or
certificates shall be held by the Company for the account of the Grantee, and
the Grantee shall have beneficial ownership of the restricted shares, including
the right to receive dividends on, and the right to vote, the restricted shares.

Section 4.  Restrictions.  Subject to the terms of this Restricted Plan and the
individual agreement reflecting a grant of restricted shares, restricted shares
shall be subject to the following restrictions and any additional restrictions
(the “Restrictions”) that the Program Administrators, in their sole discretion,
may from time to time deem desirable in furtherance of the objectives of the
Restricted Plan:

(a)  the Grantee shall not be entitled to receive the certificate or
certificates representing the restricted shares;

(b)  the restricted shares may not be sold, transferred, assigned, pledged,
conveyed, hypothecated, or otherwise disposed of; and

 

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(c)  the restricted shares may be forfeited immediately as provided in Section 6
of this Restricted Plan.

5.  Distribution of Restricted Shares.  Upon the expiration of the Restrictions,
the certificate or certificates representing the shares of Common Stock that
were granted to such Grantee in the form of restricted shares shall be delivered
to the Grantee.

6.  Termination of Employment or Service.  Subject to Section 7 below, if the
employment or service of a Grantee with the Company is terminated for any reason
before the expiration of the Restrictions, the restricted shares shall be
forfeited immediately and all rights of the Grantee to such shares shall
terminate immediately without further obligation on the part of the Company.

7.  Waiver and Lapse of Restrictions.

(a)  The Program Administrators may, in their sole discretion, waive any or all
Restrictions with respect to restricted shares.

(b)  Upon a Change in Control, all Restrictions with respect to restricted
shares shall lapse.

8.  Adjustments to Number of Restricted Shares.  All restricted shares granted
pursuant to the terms of this Restricted Plan shall be adjusted in the manner
prescribed by Article 6 of the General Provisions.

 

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