Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) originally effective April 23,
1999, is hereby amended and restated effective January 1, 2006 between Raymond
E. Dellerba (“Executive”) Pacific Mercantile Bank (the “Company”) (collectively
referred to as the “Parties”).

RECITALS

The Company desires to continue its right to the services of Executive in the
capacities described below, on the terms and conditions hereinafter set forth,
and Executive is willing to continue such employment on such terms and
conditions.

AGREEMENT

The Parties agree as follows:

 

1. DUTIES

(a) The Company does hereby continue to engage, and employ Executive as the
President and Chief Executive Officer of both the Company and its parent entity,
Pacific Mercantile Bancorp (the “Parent”), and Executive does hereby accept and
agree to such continuing engagement, and employment. During the Period of
Employment (as defined in Section 2, Executive shall serve the Company in such
position in conformity with the provisions of this Agreement, directives of the
Boards of Directors of both the Company and the Parent (together the “Boards”),
and the corporate policies of the Company as they presently exist, and as such
policies may be amended, modified, changed, or adopted during the Period of
Employment. Executive shall have duties and authority consistent with
Executive’s position as President and Chief Executive Officer. Subject to policy
direction from the Boards, Executive shall have full authority over all
operational, financial, administrative, and planning matters for the Company.
Executive shall serve as a member of both Boards and as a member of all
committees of the Boards, except the Audit Committee and the Compensation
Committee, (if any). Executive shall participate in all meetings of the Boards
and other committees, and as an ex officio member of the Audit Committee and the
Compensation Committee, (if any).

(b) Throughout the Period of Employment, Executive shall devote his time,
energy, and skill to the performance of his duties for the Company and the
Parent, vacations and other leave authorized under this Agreement or by
applicable law excepted. The foregoing notwithstanding, Executive shall be
permitted to (i) engage in charitable and community affairs, (ii) act as a
director of any corporations or organizations outside the Company, not to exceed
five (5) in number, and receive compensation therefore, and (iii) to make
investments of any character in any business or businesses and to manage such
investments (but not be involved in the day-to-day operations of any such
business); provided, in each case, and in the aggregate, that such activities do
not materially interfere with the performance of Executive’s duties hereunder.

(c) During the Period of Employment, Executive shall be allowed to retain and
maintain top level administrative support for his activities and shall be
provided by the Company with all equipment appropriate to outfit office, home,
and automobile as are reasonably necessary or appropriate for the performance of
Executive’s duties hereunder and consistent with his position as the President
and Chief Executive Officer of the Company, including, as applicable, fax
machine, computer, printer, scanner, cellular telephones, laptop computer, and
similar equipment, and Executive shall be entitled to reimbursement for all
reasonable expenses incurred in connection therewith. All such reimbursements
shall occur within sixty (60) days of the Company’s receipt of such expense
records.

(d) Executive hereby represents to the Company that the execution and delivery
of this Agreement by Executive and the Company and the performance by Executive
of Executive’s duties hereunder shall not constitute a breach of, or otherwise
contravene, the terms of any employment or other agreement or policy to which
Executive is a party or otherwise bound.

 

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2. PERIOD OF EMPLOYMENT

The “Period of Employment” shall, unless sooner terminated as provided herein,
be a three (3) year period commencing on January 1, 2006 (the “Effective Date”)
and ending with the close of business on December 31, 2008. Notwithstanding the
preceding sentence, commencing with January 1, 2008 and on each January 1
thereafter (each an “Extension Date”), the Period of Employment shall be
automatically extended under the same terms and conditions set forth herein for
an additional one-year period, unless the Company or Executive provides the
other party hereto sixty (60) days’ prior written notice before the next
scheduled Extension Date that the Period of Employment shall not be so extended
(the “Non-Extension Notice”). The term “Period of Employment” shall include any
extension that becomes applicable pursuant to the preceding sentence.
Notwithstanding anything to the contrary herein, the Period of Employment shall
not continue beyond January 1, 2013. In the event Executive is employed under
this Agreement on January 1, 2013, this Agreement will terminate, and for the
purposes of this Agreement be treated as a termination under Section 7(a) below.

 

3. COMPENSATION

(a) BASE SALARY. During the remainder of the 2006 calendar year, Executive’s
base salary shall be at a rate of $412,500 annually, paid in accordance with
regular payroll practices, but not less than monthly. Executive’s base salary
shall be at least equal to the median peer salary of the western region as
disclosed in SNL Executive Compensation Review for the applicable year.

(b) BONUS. The Executive shall be eligible to receive an annual incentive bonus.
The bonus formula and target bonus shall be determined in good faith by
Executive, Company, and a recognized compensation consultant and shall relate on
a percentage basis to Company’s pre-tax profits. In all events, Executive shall
be paid a bonus for each calendar year at least equal to the greater of
(i) thirty-five percent (35%) of Executive’s base annual salary for that
calendar year or (ii) three and one-half percent (3.5%) of the Company’s pre-tax
profits for that calendar year. Such bonus shall be paid as soon as practicable
but in no event later than March 15th of the calendar year following the year
for which the bonus is earned.

(c) EQUITY COMPENSATION.

(i) During the Period of Employment, Executive shall be entitled to participate
in equity-based plans or arrangements, including, but not limited to, stock
options, stock appreciation rights, phantom stock rights, restricted stock,
equity-based cash or performance share awards, or other equity-based incentive
compensation plans or arrangements maintained by the Company for executives or
employees of the Company generally, on the same basis as other executives or
employees of the Company. Executive’s rate of participation in such plans or
arrangements shall be 1:6 (Executive to all other employees/executives as a
group). To illustrate application of this ratio, if 60,000 options are granted
to other employees/executives, Executive shall be entitled to 10,000 options on
substantially the same terms as the other grants. It is not required that
Executive receive an option equal to 1/6th of every option granted to another
employee but rather that the total options granted to the Executive under this
provision (excluding options granted to the Executive under ii and iii below)
always be at least equal to 1/6th of the total number of options granted by the
Company to other employees as measured on April 1st of each year. Although the
options granted under this provision shall be granted to the Executive under the
same terms and conditions granted to other executives or employees, unvested
options granted to the Executive shall always vest on a monthly basis over five
(5) years (sixty months) rather than on an annual basis, regardless of the fact
that other employee options vest on an annual basis.

(ii) In addition to any benefits provided under (i), the Company granted, as of
March 2, 1999, to Executive options to purchase fifty thousand one hundred
seventy-five (50,175) shares of Company Common Stock. Such options were granted
at a per share exercise price equal to $10.00 per share of Company Common Stock
and vested in sixty substantially equal monthly installments commencing on
April 2, 1999.

(iii) In addition to any benefits provided under (i) or (ii), the Company shall
grant, as of the first day of the calendar year following the calendar year in
which the Company first achieves a one percent (1%) or more Return on Assets, to
Executive a stock option to purchase a number of shares of Company Common Stock
equal to one-half of one percent (1/2 of 1%) of the Company Common Stock then
issued and outstanding (without dilution for employee stock option grants then
outstanding). Such option shall be granted at a per share exercise price equal
to the

 

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fair market value of a share of Company Common Stock on the date of grant and
shall be immediately and fully vested. “Return on Assets” means the ratio of net
earnings to total average assets excluding goodwill.

(iv) All options granted to the Executive pursuant to (ii) or (iii) above:
(A) shall, to the maximum extent possible, be incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended; and
(B) shall become fully vested and exercisable upon an underwritten public
offering of the Company’s Common Stock, the termination of the Executive without
Cause, the termination by the Executive for Good Reason, or the occurrence of a
Change in Control.

For purposes of this Agreement, “Change in Control” shall mean the occurrence of
any of the following:

(A) the consummation of any merger or consolidation (hereinafter a “Merger”) of
the Company with another corporation or business entity in which the holders of
the outstanding voting securities of the Company immediately prior to such
Merger hold, in the aggregate, immediately after the consummation of such
Merger, less than fifty percent (50%) of the outstanding voting securities of
(i) the surviving party in such Merger (whether that surviving party is the
Company or another party to such Merger), or (ii) of such surviving party’s
parent (as hereinafter defined) in case the surviving party has a parent
immediately after the consummation of such Merger; or

(B) the consummation of any Merger of the Parent of the Company with another
corporation or business entity in which the holders of the outstanding voting
securities of the Company’s Parent immediately prior to such Merger hold, in the
aggregate, immediately after consummation of such Merger, less than fifty
percent (50%) of the outstanding voting securities (i) of the surviving party in
such Merger (whether that surviving party is the Parent or another party to such
Merger) or (ii) of such surviving party’s parent in any case in which the
surviving party has a parent immediately after the consummation of such Merger;
or

(C) the consummation of any Sale of Assets Transaction (as hereinafter defined)
by the Company to a Purchasing Party (as hereinafter defined), if the holder or
holders of the outstanding voting securities of the Company immediately prior to
Sale of Assets Transaction hold, in the aggregate, immediately after
consummation of such Transaction, less than fifty percent (50%) of the
outstanding voting securities (i) of the Purchasing Party, or (ii) of the
Purchasing Party’s parent in any case in which the Purchasing Party has a parent
immediately following consummation of such Sale of Assets Transaction; or

(D) the consummation of any Sale of Assets Transaction by the Company’s Parent
to a Purchasing Party (as hereinafter defined), if the holders of the
outstanding voting securities of the Company’s Parent immediately prior to the
consummation of such Sale of Assets Transaction hold, in the aggregate,
immediately after the consummation of such Transaction, less than fifty percent
(50%) of the outstanding voting securities (i) of the Purchasing Party, or
(ii) of the Purchasing Party’s parent in any case in which the Purchasing Party
has a parent immediately following consummation of such Sale of Assets
Transaction; or

(E) the shareholders of the Company or its Parent approve any plan or proposal
for the liquidation or dissolution of the Company or of the Parent, unless, in
the case of a liquidation or dissolution solely of the Company, the Parent
acquires the assets, and continues thereafter to operate the business, of the
Company; or

(F) any person or group (as such term is used in Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), shall
become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange
Act) of 50% or more of the outstanding shares of Common Stock of the Company or
its Parent, other than (i) any such person or persons who has record or
beneficial ownership of more than 10% of the Company’s or Parent’s outstanding
shares of Common Stock on the date of the establishment of this Plan, or
(ii) any such person or persons whose ownership of the outstanding shares of
Common Stock in the Company or Parent has increased to or above 50% by reason of
such person or persons’ purchase of shares in a firmly underwritten public stock
offering the Company or Parent (as the case may be); or

(G) during any period of two consecutive years during the term of this
Agreement, individuals who at the beginning of the two year period constituted
the entire Board of Directors of the Company or of its Parent do not for any
reason constitute a majority thereof unless the election, or the nomination for

 

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election by the Company’s shareholders or the Parent’s shareholders (as the case
may be), 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.

(H) “parent,” for purposes of defining a Change in Control when referring to
other than the Company’s Parent, shall mean any corporation, entity or person
that holds shares of ownership interests of such other corporation or entity
possessing at least a majority of the voting power of such other corporation or
entity.

(I) “Purchasing Party,” for purposes of defining a Change in Control, shall mean
the party that acquires ownership of substantially all of the assets of the
Company or its Parent (as the case may be) in a Sale of Asset Transaction as
defined herein.

(J) “Sale of Assets Transaction” for purposes of defining a Change in Control,
shall mean any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all, or substantially all, of the assets of
the Company or its Parent.

(v) In the event of any (i) public offering of shares of Company Common Stock by
the Company or any of its Parent, subsidiaries, or affiliate entities,
(ii) private sale of more than fifty percent (50%) of the outstanding shares of
Company Common Stock, (iii) sale of substantially all of the assets of the
Company, or (iv) merger, during the term of this Agreement or within twenty-four
(24) months after a termination of the Executive without Cause or a termination
by the Executive for Good Reason, Executive will receive in Executive’s sole
discretion either a cash lump sum payment or stock with value equal to one
percent (1%) of the gross amount paid in such transaction. Such payment shall be
made as soon as practicable upon the occurrence of such transaction but in no
event later than March 15th of the calendar year following the year in which the
transaction occurs.

(d) REVIEWS. The Boards shall review annually Executive’s salary to determine in
the Boards’ discretion whether the package should be increased from the amounts
or levels provided or required by this Agreement.

(e) CONTRACT REIMBURSEMENT. The Company shall reimburse Executive on a fully
grossed-up, after-tax basis or directly pay for all reasonable consulting and
legal fees and costs attributed to the development, reviews and modifications of
this Agreement and associated consulting and legal services. Such fees and costs
shall not exceed five thousand dollars ($5,000) and shall be payable within
sixty (60) days of the execution of this Agreement. This subsection shall not be
deemed to limit any of Executive’s rights under Section 22 (“Attorneys’ Fees”).

 

4. BENEFITS

(a) HEALTH AND WELFARE. During the Period of Employment, Executive shall be
entitled to participate, on the same terms and at the same level as other
executives, in all health and welfare benefit plans and programs and all
retirement, deferred compensation and similar plans and programs generally
available to other executives or employees of the Company as in effect from time
to time, subject to any legally required restrictions specified in such plans
and programs provided, however, that nothing contained in this Section 4(a)
shall be interpreted to require the Company to maintain any specific health or
welfare plan. Without limiting the generality of the foregoing, Company shall
provide life insurance for Executive in an amount equal to 2 1/2 times
Executive’s base salary in effect on the date of this Agreement and as in effect
on the first business day of each calendar year thereafter, and long term and
short term disability insurance covering eighty percent (80%) of Executive’s
base salary in effect on the date of this Agreement and as in effect on the
first business day of each calendar year thereafter, which insurance shall
expressly provide that it is portable by Executive.

(b) VACATION AND OTHER LEAVE. During the Period of Employment, Executive shall
accrue four (4) weeks paid vacation per year for each of the first three
(3) years of service; five (5) weeks of paid vacation per year after three
(3) years of service; and six (6) weeks of paid vacation per year after five
(5) years of service; provided, however, that such vacation shall accrue and be
scheduled and taken in accordance with the Company’s standard vacation policies
applicable to Company executives. Executive shall also be entitled to all other
holiday and leave pay generally available to other executives of the Company.

 

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(c) TRAVEL AND EXPENSE REIMBURSEMENTS. During the Period of Employment, Company
will provide Executive with a Company credit card and/or promptly reimburse
Executive for all reasonable expenses incurred in connection with performance of
his duties as President and Chief Executive Officer, including, but not limited
to, hotels, meals, airline tickets, transportation, automobile rentals, and
related charges on the basis of business class. Company shall advance or
reimburse Executive for all educational expenses related to career development,
including tuition, books, travel, meals and lodging expenses as reasonably
determined by Executive. Company shall advance or reimburse Executive for all
reasonable expenses associated with participation in Sheshunoff’s CEO
Affiliation Group and other professional, business, trade and managerial
organizations related to Executive’s employment. All such reimbursement shall
occur within sixty (60) days of Executive’s submission of such expenses to
Company in accordance with this Section 4(c), but in no event later than
March 15th of the calendar year following the year such expenses are incurred.

(d) AUTOMOBILE. During the Period of Employment, Executive shall be entitled to
receive the use of an automobile of Executive’s choosing, which shall be owned
or leased by the Company and have a purchase price not to exceed $110,000, and
reimbursement for reasonable expenses associated with the operation and
maintenance of such automobile. The Company will reimburse Executive within
sixty (60) days of presentation of vouchers and documentation for any such
operational and maintenance expenses which are consistent with the usual
accounting procedures of the Company, but in no event later than March 15th of
the calendar year following the year such expenses are incurred.

(e) CLUB MEMBERSHIPS. During the Period of Employment, Executive shall receive
from the Company reimbursement for dues, initial and other expenses at the
Pacific Club or Balboa Bay Club, and a country club of Executive’s choosing.
Such reimbursement shall be made within sixty (60) days of the Company’s receipt
of such invoices or expenses, but in no event later than March 15th of the
calendar year following the year such expenses are incurred. All such
memberships shall be subject to approval by only the Chairman of the Board of
the Company and shall be owned by the Company, provided, however, that if at the
time of the termination of Executive’s employment the value of any such
membership is greater than its purchase price, the Company shall pay to
Executive a lump sum cash payment equal to the difference in value.

(f) MOST FAVORED EXECUTIVE. During the Period of Employment, Executive shall at
all times be entitled to compensation and benefits provided to the most favored
executive of Company.

(g) RELOCATION. In the event Executive consents to a relocation requiring a move
of residence, Company shall advance to or reimburse Executive for, on a
grossed-up basis at Executive’s marginal tax rate, all moving, house-hunting,
temporary housing, and real estate transaction costs for both sale and purchase
on a fully grossed up, after-tax basis. Such reimbursement shall be made within
sixty (60) days of Executive’s presentation of such invoices/expenses for
reimbursement, but in no event later than March 15th of the calendar year
following the year such expenses are incurred.

(h) SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN. The Executive shall be provided a
supplemental retirement benefit under the terms and conditions contained in the
Supplemental Executive Retirement Plan for Raymond E. Dellerba, effective
January 1, 2005, as amended, which shall be informally funded by an irrevocable
Grantor Trust for the benefit of Raymond E. Dellerba entered into between the
Company and an unrelated institutional trustee.

(i) OTHER BENEFITS. In addition to benefits specifically provided herein, during
the Period of Employment, Executive shall be entitled to participate, on the
same terms and at the same level as other executives, in all bonus,
compensation, fringe benefit plans and perquisites provided by Company to its
executives.

 

5. DEATH OR DISABILITY

(a) DEFINITION OF PERMANENTLY DISABLED AND PERMANENT DISABILITY. For purposes of
this Agreement, except where otherwise provided by applicable law, the terms
“Permanently Disabled” and “Permanent Disability” shall mean Executive’s
inability, because of physical or mental illness or injury, to perform the
essential function of his customary duties pursuant to this Agreement, with
reasonable accommodation, and the continuation of such disabled condition for a
period of one hundred twenty (120) continuous days, or for not less than two
hundred ten (210) days during any continuous twenty-four (24) month period.
Whether Executive is

 

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Permanently Disabled shall be certified to the Company by a Qualified Physician
(as hereinafter defined). Except as otherwise provided by applicable law, the
determination of the individual Qualified Physician shall be binding and
conclusive for all purposes. As used herein, the term “Qualified Physician”
shall mean any medical doctor designated by Executive who is licensed to
practice medicine in the State of California. Executive and the Company may in
any instance, and in lieu of a determination by a Qualified Physician, agree
between themselves that Executive is Permanently Disabled.

(b) VESTING ON DEATH OR DISABILITY. Upon any termination of the Period of
Employment and Executive’s employment hereunder by reason of Executive’s death
or Permanent Disability, as defined in Section 5(a), any remaining unvested
stock or options shall thereupon automatically be deemed vested, notwithstanding
any other provision of this Agreement.

(c) TERMINATION DUE TO DEATH OR DISABILITY. If Executive dies or becomes
Permanently Disabled during the Period of Employment, the Period of Employment
and Executive’s employment shall automatically cease and terminate as of the
date the Company is provided with the documentation reasonably necessary to
establish the fact of Executive’s death or the date of Permanent Disability
(which date shall be determined by the Qualified Physician or by agreement,
under Section 5(a) above, and referred to as the “Disability Date”), as the case
may be. In the event of the termination of the Period of Employment and
Executive’s employment hereunder due to Executive’s death or Permanent
Disability, Executive or his estate shall be entitled to receive:

(i) a lump sum cash payment, payable within ten (10) business days after
termination of Executive’s employment, equal to the sum of: (x) any accrued but
unpaid Base Salary as of the date of Executive’s termination of employment
hereunder; and (y) any earned but unpaid annual incentive compensation in
respect of the most recently completed fiscal year preceding Executive’s
termination of employment hereunder (the “Earned/Unpaid Annual Bonus”); and

(ii) a pro-rated portion of the target annual incentive compensation, if any,
that Executive would have been entitled to receive pursuant to Section 3(b) in
respect of the fiscal year in which termination of Executive’s employment
occurs, based upon the percentage of such fiscal year that shall have elapsed
through the date of Executive’s termination of employment, payable when such
annual incentive would otherwise have been payable had Executive’s employment
not terminated; and

(iii) such employee benefits described in Sections 4(a) through 4(i) inclusive
(“Executive Benefits”), if any, as to which Executive may be entitled under the
employee benefit plans and arrangements of the Company.

In the event Executive’s employment is terminated on account of Executive’s
Permanent Disability, he shall, so long as his Permanent Disability continues,
remain eligible for all benefits provided under any long-term disability
programs of the Company in effect at the time of such termination, subject to
the terms and conditions of any such programs, as the same may be changed,
modified, or terminated for or with respect to all senior management personnel
of the Company.

 

6. TERMINATION BY THE COMPANY

(a) TERMINATION FOR CAUSE. The Company may, by providing written notice to
Executive, terminate the Period of Employment and Executive’s employment
hereunder for Cause at any time. The term “Cause” for purpose of this Agreement
shall mean:

(i) Executive’s conviction of or entrance of a plea of guilty or nolo contendere
to a felony; or

(ii) fraudulent conduct by Executive in connection with the business affairs of
the Company, which causes material injury to Company as determined by the
Company in its sole discretion; or

(iii) theft, embezzlement, or other criminal misappropriation of funds by
Executive from the Company; or

 

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(iv) Executive’s willful, gross misconduct or his bad faith refusal to perform
the duties of President and Chief Executive Officer; provided however, that the
Company shall have notified the Executive in writing specifically describing
such conduct and then only if the Executive has failed to cure such conduct
within a reasonable period of no less than thirty (30) days after Executive’s
receipt of such notice.

If Executive’s employment is terminated for Cause, the termination shall take
effect on the effective date (pursuant to Section 25 (“Notices”)) of written
notice of such termination to Executive.

In the event of the termination of the Period of Employment and Executive’s
employment hereunder due to a termination by the Company for Cause, then
Executive shall be entitled to receive: (i) a lump sum cash payment, payable on
the date of termination equal to the sum of: (x) accrued but unpaid Base Salary
as of the date of termination of Executive’s employment hereunder; and (y) any
Earned/Unpaid Annual Bonus in respect of the most recently completed fiscal year
preceding termination of Executive’s employment hereunder; and (ii) such
Executive Benefits, if any, as to which Executive may be entitled under the
employee benefit plans and arrangements of the Company.

If the Company attempts to terminate Executive’s employment pursuant to this
Section 6(a) and it is ultimately determined that the Company lacked Cause, the
provisions of Section 6(b) (“Termination by the Company-Termination Without
Cause”) shall apply and, in addition to any other remedies that Executive may
have, Executive shall be entitled to receive the payments called for by
Section 6(b) with interest on any past due payments at the rate of ten percent
(10%) per year from the date on which the applicable payment would have been
made pursuant to Section 6(b) plus Executive’s costs and expenses (including but
not limited to reasonable attorneys’ fees) incurred in connection with such
dispute and interest thereon at the rate of ten percent (10%) per year from the
date which the applicable payment would have been made pursuant to Section 6(b).

(b) TERMINATION WITHOUT CAUSE. The Company may, with or without reason,
terminate the Period of Employment and Executive’s employment hereunder without
Cause at any time, by providing Executive written notice of such termination. In
the event of the termination of the Period of Employment and Executive’s
employment hereunder due to a termination by the Company without Cause (other
than due to Executive’s death or Permanent Disability), then Executive shall be
entitled to:

(i) a lump sum cash payment equal to the greater of: (x) base salary and target
bonus for the remainder of the contract term; or (y) twenty-four (24) months’
base salary and target bonus payable on the effective date of termination of
employment; and

(ii) continued participation in the Company’s group health insurance plans at
the Company’s expense until the earlier of: (A) the expiration of the two
(2) years from the effective date of termination; or (B) Executive’s eligibility
for participation in a comparable group health plan of a subsequent employer or
entity for which Executive provides consulting services or is otherwise engaged;
and

(iii) full vesting of all options, equity, and incentive compensation with no
less than one (1) year to exercise the same, as applicable, and all performance
based awards (other than the target bonus paid in accordance with
Section 6(b)(i)) shall be paid no later than sixty (60) days after the effective
date of termination assuming the achievement of maximum performance during the
applicable performance period; and

(iv) senior executive outplacement at an outplacement concern of Executive’s
selection and reasonably acceptable to the Company, which outplacement shall be
available for at least twelve (12) months; and

(vi) continuation of all applicable benefits, perquisites, and insurance
payments provided under Subsections 4(a), 4(d), 4(e), 4(h) and 4(i) of this
Agreement by Company for a period of two (2) years from the effective date of
termination except as provided in Subsection 6(b)(ii) above.

If Executive’s employment is terminated without Cause, the termination shall
take effect on the effective date (pursuant to Section 25 (“Notices”)) of
written notice of such termination to Executive.

 

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7. TERMINATION BY EXECUTIVE

(a) TERMINATION WITHOUT GOOD REASON. Executive shall have the right to terminate
the Period of Employment and Executive’s employment hereunder at any time
without Good Reason (as defined below) upon fifteen (15) days prior written
notice of such termination to the Company. Any such termination by the Executive
without Good Reason shall be treated for all purposes of this Agreement as a
termination by the Company for Cause and the provisions of Section 6(a) shall
apply.

(b) TERMINATION WITH GOOD REASON. The Executive may terminate the Period of
Employment and resign from employment hereunder for “Good Reason”:

(i) if the Company requires Executive to relocate his principal office to a
location more than fifteen (15) miles from his current office, without
Executive’s consent; or

(ii) if the Company fails to provide Executive with the compensation and
benefits called for by this Agreement; or

(iii) if the Company: (A) assigns Executive to a position other than President
and Chief Executive Officer reporting directly to the Boards, or substantially
diminishes Executive’s title, assignment, duties, responsibilities, or operating
authority from those specified in Section 1 (“Duties”) or (B) employs any person
other than Executive who: (I) reports directly to the Boards or (II) is not
subordinate to Executive; provided, however, this subsection shall not apply to
a circumstance in which the Company retains an internal auditor who shall have a
dotted line reporting relationship to Executive and a direct reporting
relationship to the Audit Committee; or

(iv) for any reason during the twelve (12) month period following a Change in
Control.

Notwithstanding the forgoing, none of the events described in this Subsection
7(b)(ii) or (iii) shall constitute Good Reason unless Executive shall have
notified the Company in writing describing the events which constitute Good
Reason and then only if the Company shall have failed to cure such event within
thirty (30) days after the Company’s receipt of such written notice.

Any termination by Executive for Good Reason shall be treated for all purposes
of this Agreement as a termination by the Company without Cause and the
provisions of Section 6(b) shall apply; provided, however, that if Executive
attempts to resign for Good Reason pursuant to this Section 7(b) and it is
ultimately determined that Good Reason did not exist, Executive shall be deemed
to have resigned from employment without Good Reason and the provisions of
Section 7(a) and, by reference therein, the provisions of Section 6(a), shall
apply.

 

8. EXPIRATION OF PERIOD OF EMPLOYMENT

If either party elects not to extend the Period of Employment pursuant to
Section 2, unless Executive’s employment is earlier terminated pursuant to
Sections 5, 6 or 7, termination of Executive’s employment hereunder shall be
deemed to occur on the close of business on the day immediately preceding the
anniversary of the next Extension Date following the delivery of the
Non-Extension Notice pursuant to Section 2. If the Company elects not to extend
the Period of Employment, Executive’s termination will be treated for all
purposes under this Agreement as a termination by the Company without Cause
under Section 6(b) as of the date of such notice. If Executive elects not to
extend the Period of Employment, Executive’s termination will be treated for all
purposes under this Agreement as a termination by Executive without Good Reason
under Section 7(a). If the Agreement is terminated effective January 1, 2013
based on the expiration of the Agreement’s term, Executive’s termination shall
be treated in accordance with the dictates of Section 2.

 

9. GROSS-UP

Notwithstanding any other provision of this Agreement, if and to the extent any
payment made under this Agreement, either alone or in conjunction with other
payments Executive has the right to receive either directly or indirectly from
the Company, would constitute an “excess parachute payment” under Section 280G
of the Internal Revenue Code of 1986, as amended, then Executive shall be
entitled to receive an excise tax gross-up payment not exceeding one million
dollars ($1,000,000) in accordance with Appendix A.

 

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10. MEANS AND EFFECT OF TERMINATION

Any termination of Executive’s employment under this Agreement shall be
communicated by written notice of termination from the terminating party to the
other party. The notice of termination shall indicate the specific provision(s)
of this Agreement relied upon in effecting the termination and shall set forth
in reasonable detail the facts and circumstances alleged to provide a basis for
termination, if any such basis is required by the applicable provision(s) of
this Agreement.

 

11. NON-COMPETITION

Executive acknowledges and recognizes the highly competitive nature of the
businesses of the Company and its affiliates and accordingly agrees as follows:

(a) During the Period of Employment, Executive will not, directly or indirectly,
(i) engage in any business for Executive’s own account that competes with the
business of the Company or its affiliates (including, without limitation,
businesses which the Company or its affiliates have specific plans to conduct in
the future and as to which Executive is aware of such planning), (ii) enter the
employ of, or render any services to, any person engaged in any business that
competes with the business of the Company or its affiliates, (iii) acquire a
financial interest in any person engaged in any business that competes with the
business of the Company or its affiliates, directly or indirectly, as an
individual, partner, shareholder, officer, director, principal, agent, trustee
or consultant, or (iv) interfere with business relationships (whether formed
before or after the date of this Agreement) between the Company or any of its
affiliates and customers, suppliers, partners, members or investors of the
Company or its affiliates.

(b) Notwithstanding anything to the contrary in this Agreement, Executive may,
directly or indirectly, own, solely as an investment, securities of any person
engaged in the business of the Company or its affiliates which are publicly
traded on a national or regional stock exchange or on an over-the-counter market
if Executive (i) is not a controlling person of, or a member of a group which
controls, such person and (ii) does not, directly or indirectly, own five
percent (5%) or more of any class of securities of such person.

 

12. CONFIDENTIALITY

Executive will not at any time (whether during or after his employment with the
Company), unless compelled by lawful process, disclose or use for his own
benefit or purposes or the benefit or purposes of any other person, firm,
partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its
subsidiaries or affiliates, any trade secrets, or other confidential data or
information relating to customers, development programs, costs, marketing,
trading, investment, sales activities, promotion, credit and financial data,
financing methods, or plans of the Company or of any subsidiary or affiliate of
the Company; provided that the foregoing shall not apply to information which is
not unique to the Company or which is generally known to the industry or the
public other than as a result of Executive’s breach of this covenant. Executive
agrees that upon termination of his employment with the Company for any reason,
he will return to the Company immediately all memoranda, books, papers, plans,
information, letters and other data, and all copies thereof or therefrom, in any
way relating to the business of the Company and its affiliates, except that he
may retain personal notes, notebooks and diaries that do not contain
confidential information of the type described in the preceding sentence.
Executive further agrees that he will not retain or use for his account at any
time any trade names, trademark or other proprietary business designation used
or owned in connection with the business of the Company or its affiliates.

 

13. INDEMNIFICATION

Executive shall be indemnified to the fullest extent permitted by law against
claims asserted against him personally arising out of, or related to, the
business of the Company or Executive’s services for the Company. Company shall
provide directors’ and officers’ liability insurance coverage, including
indemnification as Director, in an amount reasonably satisfactory to Executive
with carriers who are reasonably satisfactory to Executive.

 

14. ASSIGNMENT

This Agreement is personal in its nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder; provided, however, that, in the event of a

 

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merger, consolidation, or transfer or sale of all or substantially all of the
assets of the Company with or to any other individual(s) or entity, this
Agreement shall, subject to the provisions hereof, be binding upon and inure to
the benefit of such successor and such successor shall discharge and perform all
the promises, covenants, duties, and obligations of the Company hereunder.

 

15. GOVERNING LAW

This Agreement and the legal relations hereby created between the parties hereto
shall be governed by and construed under and in accordance with the internal
laws of the State of California, without regard to conflicts of laws principles
thereof.

 

16. ENTIRE AGREEMENT

This Agreement embodies the entire agreement of the parties hereto respecting
the matters within its scope. This Agreement supersedes all prior agreements of
the parties hereto on the subject matter hereof. Any prior negotiations,
correspondence, agreements, proposals, or understandings relating to the subject
matter hereof shall he deemed to be merged into this Agreement and to the extent
inconsistent herewith, such negotiations, correspondence, agreements, proposals,
or understandings shall be deemed to be of no force or effect. There are no
representations, warranties, or agreements, whether express or implied, or oral
or written, with respect to the subject matter hereof, except as set forth
herein.

 

17. MODIFICATIONS

This Agreement shall not be modified by any oral agreement, either express or
implied, and all modifications hereof shall be in writing and signed by the
parties hereto. Notwithstanding the forgoing, neither party hereto, whether
independently or by mutual agreement, shall amend or modify the Agreement to
accelerate severance or other benefits provided under this Agreement which are
determined to be deferred compensation benefits, in a manner which would violate
Internal Revenue Code Section 409A.

 

18. SECTION 409A

All payments of “nonqualified deferred compensation” (within the meaning of
Section 409A of the Internal Revenue Code of 1986, as amended (“Code”)) are
intended to comply with the requirements of Code Section 409A, and shall be
interpreted in accordance therewith. Neither party may accelerate any such
deferred payment, except in compliance with Code Section 409A, and no amount
shall be paid prior to the earliest date on which it is permitted to be paid
under Section 409A. In the event that the Employee is a “key employee” (as
defined in Code Section 416(i) (without regard to paragraph (5) thereof) of a
corporation any stock of which is publicly traded on an established securities
market, payments determined to be “nonqualified deferred compensation” payable
following termination of employment shall be made no earlier than the earlier of
(i) the last day of the sixth (6th) complete calendar month following such
termination of employment, or (ii) the Employee’s death, consistent with the
provisions of Code Section 409A. Unless otherwise expressly provided, any
payment of compensation by the Employer to the Executive, whether pursuant to
this Agreement or otherwise, shall be made within two and one-half months
(2 1/2) months after the end of the calendar year in which the Executive’s right
to such payment vests (i.e. is not subject to a substantial risk of forfeiture
for purposes of Section 409A). Notwithstanding anything herein to the contrary
no amendment may be made to this Agreement if it would cause the Agreement or
any payment hereunder not to be in compliance with Section 409A.

 

19. WAIVER

Failure to insist upon strict compliance with any of the terms, covenants, or
conditions hereof shall not be deemed a waiver of such term, covenant, or
condition, nor shall any waiver or relinquishment of, or failure to insist upon
strict compliance with, any right or power hereunder at any one or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.

 

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20. NUMBER AND GENDER

Where the context requires, the singular shall include the plural, the plural
shall include the singular, and any gender shall include all other genders.

 

21. SECTION HEADINGS

The section headings in this Agreement are for the purpose of convenience only
and shall not limit or otherwise affect any of the terms hereof.

 

22. ATTORNEY’S FEES

Company shall pay all of Executive’s reasonable fees and expenses (including
reasonable attorneys’ fees) incurred in litigation or arbitration of any claim,
dispute or other matter in question of any kind relating to this Agreement
unless the court or arbitrator finds that Executive acted in bad faith in
bringing the action, or, if the action was brought by the Company, Executive
acted in bad faith in breaching the provisions of the Agreement.

 

23. ARBITRATION

Company and Executive agree that should claims, disputes and controversies arise
out of, or come into existence which are related to or in any way associated
with Executive’s employment or termination of Executive’s employment, this
Agreement or breach of this Agreement, Executive shall have the option of
resolving such claims, disputes and/or controversies by the selection of any
legal or administrative forum available for the resolution of such claims,
disputes and/or controversies, including the submission of such claims, disputes
and/or controversies to final and binding arbitration under the Federal
Arbitration Act, in conformity with the procedures of the California Arbitration
Act, including its discovery provisions. Executive shall make such election in
writing in accordance with the notice provision of Section 25 and such election
shall be irrevocable except by mutual agreement once proceedings have commenced.
If Executive elects to proceed by way of arbitration, each party hereto
voluntarily and knowingly irrevocably waives any rights to have any such dispute
heard or adjudicated in any other forum, including the right to trial by jury.
The selected arbitrator shall be a neutral, licensed, California attorney
experienced in Labor and Employment law. The arbitrator shall have the authority
to decide whether a particular dispute is subject to arbitration under this
Agreement, and to grant all monetary or equitable relief, including, without
limitation, ancillary costs and fees, punitive damages, and attorneys’ fees and
costs, as provided in Section 22 (“Attorney Fees”), and available under state
and federal law. The arbitrator shall not have the authority to add to, subtract
from, or modify any of the terms of this arbitration agreement, nor shall the
arbitrator have the power to decide the justice or propriety of any specific
provision of this arbitration agreement or any matter reserved solely to the
discretion of the Company. The arbitrator shall render his or her decision in
writing, setting forth therein findings of fact, conclusions of law and a final
determination. Judgment on any award rendered by the arbitrator may be entered
and enforced by any court having jurisdiction thereof. The fees of the
arbitrator and all other costs that are unique to arbitration shall be paid by
the Company. Further costs for the arbitration, including, but not limited to,
attorneys’ fees and/or its own witnesses’ fees will be paid as provided in
Section 22 (“Attorney Fees”).

 

24. SEVERABILITY

In the event that a court of competent jurisdiction determines that any portion
of this Agreement is in violation of any statute or public policy, then only the
portions of this Agreement which violate such statute or public policy shall be
stricken, and all portions of this Agreement which do not violate any statute or
public policy shall continue in full force and effect. Furthermore, any court
order striking any portion of this Agreement shall modify the stricken terms as
narrowly as possible to give as much effect as possible to the intentions of the
parties under this Agreement.

 

10.1-11

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25. NOTICES

All notices under this Agreement shall be in writing and shall be either
personally delivered or mailed postage prepaid, by certified mail, return
receipt requested:

If to the Company:

Pacific Mercantile Bank

Attention: George Wells

949 South Coast Drive, 3rd Floor

Costa Mesa, California 92626

If to Executive:

To Executive’s Address

as set forth in the Company’s Records

Notice shall be effective when personally delivered, or five (5) business days
after being so mailed.

 

26. COUNTERPARTS

This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.

 

27. WITHHOLDING TAXES

The Company may withhold from any amounts payable under this Agreement such
federal, state and local taxes as may be required to be withheld pursuant to any
applicable law or regulation.

IN WITNESS WHEREOF, the Company and Executive have executed this Employment
Agreement as of the date first above written.

 

THE COMPANY:

By:

 

/s/ GEORGE H. WELLS

Name:

 

George H. Wells

Title:

 

Chairman of the Board

 

EXECUTIVE:

/s/ RAYMOND E. DELLERBA

Raymond E. Dellerba

 

10.1-12

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APPENDIX A

(Gross-Up Provisions)

(a) In the event it is determined (pursuant to (b) below) or finally determined
(as defined in (c)(iii) below) that any payment, distribution, transfer, benefit
or other event with respect to the Company or a successor, direct or indirect
subsidiary or affiliate of the Company (or any successor or affiliate of any of
them, and including any benefit plan of any of them), and arising in connection
with an event described in Section 280G(b)(2)(A)(i) of the Internal Revenue Code
of 1986, as amended (the “Code”), occurring after the Effective Date, to or for
the benefit Executive or Executive’s dependents, heirs or beneficiaries (whether
such payment, distribution, transfer, benefit or other event occurs pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Appendix A) (each a “Payment” and
collectively the “Payments”) is or was subject to the excise tax imposed by
Section 4999 of the Code, and any successor provision or any comparable
provision of state or local income tax law (collectively, “Section 4999”), or
any interest, penalty or addition to tax is or was incurred by Executive with
respect to such excise tax (such excise tax, together with any such interest,
penalty, addition to tax, and costs (including professional fees)) hereinafter
collectively referred to as the “Excise Tax”), then, within 10 days after such
determination or final determination, as the case may be, the Company shall pay
to Executive (or to the applicable taxing authority on Executive’s behalf) an
additional cash payment (hereinafter referred to as the “Gross-Up Payment”)
equal to the lesser of (i) one million dollars ($1,000,000) or (ii) an amount
such that after payment by Executive of all taxes, interest, penalties,
additions to tax and costs imposed or incurred with respect to the Gross-Up
Payment (including, without limitation, any income and excise taxes imposed upon
the Gross-Up Payment), Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon such Payment or Payments. Subject to the
limitations in clause (i) of the preceding sentence, this provision is intended
to put Executive in the same position as Executive would have been had no Excise
Tax been imposed upon or incurred as a result of any Payment.

(b) Except as provided in subsection (c) below, the determination that a Payment
is subject to an Excise Tax shall be made in writing by a certified public
accounting firm selected by Executive (“Executive’s Accountant”). Such
determination shall include the amount of the Gross-Up Payment and detailed
computations thereof, including any assumptions used in such computations (the
written determination of the Executive’s Accountant, hereinafter, the
“Executive’s Determination”). The Executive’s Determination shall be reviewed on
behalf of the Company by a certified public accounting firm selected by the
Company (the “Company’s Accountant”). The Company shall notify Executive within
10 business days after receipt of the Executive’s Determination of any
disagreement or dispute therewith, and failure to so notify within that period
shall be considered an agreement by the Company to make payment as provided in
subsection (a) above within 10 days from the expiration of such 10 business day
period. In the event of an objection by the Company to the Executive’s
Determination, any amount not in dispute shall be paid within 10 days following
the 10 business day period referred to herein, and with respect to the amount in
dispute the Executive’s Accountant and the Company’s Accountant shall jointly
select a third nationally recognized certified public accounting firm to resolve
the dispute and the decision of such third firm shall be final, binding and
conclusive upon the Executive and the Company. In such a case, the third
accounting firm’s findings shall be deemed the binding determination with
respect to the amount in dispute, obligating the Company to make any payment as
a result thereof within 10 days following the receipt of such third accounting
firm’s determination. All fees and expenses of each of the accounting firms
referred to in this Appendix A shall be borne solely by the Company.

(c) (i) Executive shall notify the Company in writing of any claim by the
Internal Revenue Service (or any successor thereof) or any state or local taxing
authority (individually or collectively, the “Taxing Authority”) that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than 30 days
after Executive receives written notice of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid; provided, however, that failure by Executive to give such
notice within such 30-day period shall not result in a waiver or forfeiture of
any of Executive’s rights under Section 9 and this Appendix A except to the
extent of actual damages suffered by the Company as a result of such failure.
Executive shall not pay such claim prior to the expiration of the 15 day period
following the date on which Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes, interest, penalties
or additions to tax with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such 15 day period (regardless
of whether such claim was earlier paid as contemplated by the preceding
parenthetical) that it desires to contest such claim (and demonstrates to the
reasonable satisfaction of Executive its ability to make the payments to
Executive which may ultimately be required under this section before assuming
responsibility for the claim), Executive shall:

(A) give the Company any information reasonably requested by the Company
relating to such claim;

 

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(B) take such action in connection with contesting such claim as the Company
shall reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such claim by an
attorney selected by the Company that is reasonably acceptable to Executive;

(C) cooperate with the Company in good faith in order effectively to contest
such claim; and

(D) permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all attorneys’
fees, costs and expenses (including additional interest, penalties and additions
to tax) incurred in connection with such contest and shall indemnify and hold
Executive harmless, on an after-tax basis, for all taxes (including, without
limitation, income and excise taxes), interest, penalties and additions to tax
imposed in relation to such claim and in relation to the payment of such costs
and expenses or indemnification. Without limitation on the foregoing provisions
of this Appendix A, and to the extent its actions do not unreasonably interfere
with or prejudice Executive’s disputes with the Taxing Authority as to other
issues, the Company shall control all proceedings taken in connection with such
contest and, in its reasonable discretion, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the Taxing
Authority in respect of such claim and may, at its sole option, either direct
Executive to pay the tax, interest or penalties claimed and sue for a refund or
contest the claim in any permissible manner, and Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in a court
of initial jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs Executive to pay
such claim and sue for a refund, the Company shall advance an amount equal to
such payment to Executive, on an interest-free basis, and shall indemnify and
hold Executive harmless, on an after-tax basis, from all taxes (including,
without limitation, income and excise taxes), interest, penalties and additions
to tax imposed with respect to such advance or with respect to any imputed
income with respect to such advance, as any such amounts are incurred; and,
further, provided, that any extension of the statute of limitations relating to
payment of taxes, interest, penalties or additions to tax for the taxable year
of Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount; and, provided, further, that any
settlement of any claim shall be reasonably acceptable to Executive and the
Company’s control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder, and Executive shall be
entitled to settle or contest, as the case may be, any other issue.

(ii) If, after receipt by Executive of an amount advanced by the Company
pursuant to paragraph (c)(i), Executive receives any refund with respect to such
claim, Executive shall (subject to the Company’s complying with the requirements
of this Appendix A) promptly pay to the Company an amount equal to such refund
(together with any interest paid or credited thereof after taxes applicable
thereto), net of any taxes (including, without limitation, any income or excise
taxes), interest, penalties or additions to tax and any other costs incurred by
Executive in connection with such advance, after giving effect to such
repayment. If, after the receipt by Executive of an amount advanced by the
Company pursuant to paragraph (c)(i), it is finally determined that Executive is
not entitled to any refund with respect to such claim, then such advance shall
be forgiven and shall not be required to be repaid and the amount of such
advance shall be treated as a Gross-Up Payment and shall offset, to the extent
thereof, the amount of any Gross-Up Payment otherwise required to be paid.

(iii) For purposes of this Appendix A, whether the Excise Tax is applicable to a
Payment shall be deemed to be “finally determined” upon the earliest of: (A) the
expiration of the 15 day period referred to in paragraph (c)(i) above if the
Company has not notified Executive that it intends to contest the underlying
claim, (B) the expiration of any period following which no right of appeal
exists, (C) the date upon which a closing agreement or similar agreement with
respect to the claim is executed by Executive and the Taxing Authority (which
agreement may be executed only in compliance with this Appendix A), (D) the
receipt by Executive of notice from the Company that it no longer seeks to
pursue a contest (which shall be deemed received if the Company does not, within
15 days following receipt of a written inquiry from Executive, affirmatively
indicate in writing to Executive that the Company intends to continue to pursue
such contest).

 

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(d) As a result of uncertainty in the application of Section 4999 that may exist
at the time of any determination that a Gross-Up Payment is due, it may be
possible that in making the calculations required to be made hereunder, the
parties or their accountants shall determine that a Gross-Up Payment need not be
made (or shall make no determination with respect to a Gross-Up Payment) that
properly should be made (“Underpayment”), or that a Gross-Up Payment not
properly needed to be made should be made (“Overpayment”). The determination of
any Underpayment shall be made using the procedures set forth in paragraph
(b) above and shall be paid to Executive as an additional Gross-Up Payment. The
Company shall be entitled to use procedures similar to those available to
Executive in paragraph (b) to determine the amount of any Overpayment (provided
that the Company shall bear all costs of the accountants as provided in
paragraph (b)). In the event of a determination that an Overpayment was made,
any such Overpayment shall be treated for all purposes as a loan to Executive
with interest at the applicable Federal rate provided for in Section 1274(d) of
the Code; provided, however, that the amount to be repaid by Executive to the
Company shall be subject to reduction to the extent necessary to put Executive
in the same after-tax position as if such Overpayment were never made.

 

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