Exhibit 10.19

 

PACIFIC MERCANTILE BANCORP

 

2004 STOCK INCENTIVE PLAN

 

This 2004 STOCK INCENTIVE PLAN (the “Plan”) is hereby established by Pacific
Mercantile Bancorp, a California corporation (the “Company”), and adopted by its
Board of Directors as of February 17, 2004 (the “Effective Date”).

 

Section 1. Purposes of the Plan

 

1.1 Purposes. The purposes of the Plan are (a) to enhance the ability of the
Company and its Affiliated Companies to attract and retain the services of
officers, qualified employees and directors of the Company, upon whose judgment,
initiative and efforts the successful conduct and development of the Company’s
businesses largely depends, and (b) to provide additional incentives to such
persons to devote their utmost effort and skill to the advancement and
betterment of the Company, by providing them an opportunity to participate in
the ownership of the Company and thereby have an interest in the success and
increased value of the Company that coincides with the financial interests of
the Company’s shareholders.

 

Section 2. Definitions

 

For purposes of this Plan, the following terms shall have the meanings
indicated:

 

2.1 Acquiring Entity. “Acquiring Entity” means the corporation or other entity
that (i) on consummation of a merger or consolidation in which the Company is a
party, will be the owner of at least a majority of the outstanding shares of the
Surviving Entity in such merger or consolidation, or (ii) on consummation of a
sale of all or substantially all of the Company’s assets will become or be the
owner of such assets or of the securities or other ownership interests
representing at least a majority of the voting power of any corporation or other
entity that becomes the owner of such assets.

 

2.2 Administrator. “Administrator” means the Board or, if the Board delegates
responsibility for any matter to the Committee, the term Administrator shall
mean the Committee.

 

2.3 Affiliated Company. “Affiliated Company” means any “parent corporation” or
“subsidiary corporation” of the Company, whether now existing or hereafter
created or acquired, as those terms are defined in Sections 424(e) and 424(f) of
the Code, respectively.

 

2.4 Board. “Board” means the Board of Directors of the Company.

 

2.5 Change in Control. “Change in Control” means:

 

(a) The acquisition, directly or indirectly, in one transaction or a series of
related transactions, by any person or group (within the meaning of Section
13(d)(3) of the Exchange Act) of the beneficial ownership of securities of the
Company possessing more than fifty percent (50%) of the total combined voting
power of all outstanding securities of the Company;

 

(b) A merger or consolidation in which the Company is not the Surviving Entity,
except for a transaction in which the Persons who, immediately prior to such
merger or consolidation, were the holders of the outstanding voting securities
of the Company, as a result of their ownership thereof, become the holders (in
the aggregate) of securities possessing more than fifty percent (50%) of the
total combined voting power of all outstanding voting securities of the
Surviving Entity or the Acquiring Entity (as the case may be) in such merger or
consolidation immediately after consummation thereof;

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(c) A reverse merger in which the Company is the Surviving Entity, but in which
the holders of the Company’s outstanding voting securities immediately prior to
such merger will hold, in the aggregate, immediately after consummation of such
merger, securities possessing less than fifty percent (50%) of the total
combined voting power of all outstanding voting securities of the Company or its
Acquiring Entity, if any, in such merger;

 

(d) The sale, transfer or other disposition (in one transaction or a series of
related transactions) of all or substantially all of the assets of the Company,
except for a transaction in which the Company will receive, in exchange for the
sale of such assets, securities possessing more than fifty percent (50%) of the
total combined voting power of all outstanding voting securities of the
Acquiring Entity in such transaction(s); or

 

(e) The approval by the Shareholders of the Company of a plan or proposal for
the liquidation or dissolution of the Company.

 

2.6 Code. “Code” means the Internal Revenue Code of 1986, as amended from time
to time.

 

2.7 Committee. “Committee” means a committee of two or more members of the Board
appointed to administer the Plan, as set forth in Section 7.1 hereof.

 

2.8 Common Stock. “Common Stock” means the Common Stock of the Company, subject
to adjustment pursuant to Section 4.2 hereof.

 

2.9 Covered Employee. “Covered Employee” means the chief executive officer of
the Company (or the individual acting in such capacity) and the four (4) other
individuals that are the highest compensated officers of the Company for the
relevant taxable year for whom total compensation is required to be reported to
shareholders under the Exchange Act.

 

2.10 Disability. “Disability” means permanent and total disability as defined in
Section 22(e)(3) of the Code. The Administrator’s determination of a Disability
or the absence thereof shall be conclusive and binding on all interested
parties.

 

2.11 Effective Date. “Effective Date” means the date on which the Plan is
adopted by the Board, as set forth on the first page hereof.

 

2.12 Exchange Act. “Exchange Act” means the Securities and Exchange Act of 1934,
as amended.

 

2.13 Exercise Price. “Exercise Price” means the purchase price per share of
Common Stock payable upon exercise of an Option.

 

2.14 Fair Market Value. “Fair Market Value” on any given date means the value of
one share of Common Stock, determined as follows:

 

(a) If the Common Stock is then listed or admitted to trading on a Nasdaq market
system or a stock exchange which reports closing sale prices, the Fair Market
Value shall be the closing sale price on the date of valuation on such Nasdaq
market system or principal stock exchange on which the Common Stock is then
listed or admitted to trading, or, if no closing sale price is quoted on such
day, then the Fair Market Value shall be the closing sale price of the Common
Stock on such Nasdaq market system or such exchange on the next preceding day
for which a closing sale price is reported.

 

(b) If the Common Stock is not then listed or admitted to trading on a Nasdaq
market system or a stock exchange which reports closing sale prices, the Fair
Market Value shall be the average of the closing bid and asked prices of the
Common Stock in the over-the-counter market on the date of valuation.

 

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(c) If neither (a) nor (b) is applicable as of the date of valuation, then the
Fair Market Value shall be determined by the Administrator in good faith using
any reasonable method of evaluation, which determination shall be conclusive and
binding on all interested parties.

 

2.15 Incentive Option. “Incentive Option” means any Option designated and
qualified as an “incentive stock option” as defined in Section 422 of the Code.

 

2.16 Incentive Option Agreement. “Incentive Option Agreement” means an Option
Agreement with respect to an Incentive Option.

 

2.17 Involuntary Termination. “Involuntary Termination” means the termination of
a Participant’s Continuous Service by reason of:

 

(a) Optionee’s involuntary dismissal or discharge by the Company or, following
consummation of a Change in Control, by the Successor Entity or Acquiring Entity
(or any subsidiary thereof employing the Participant) for reasons other than
Misconduct, or

 

(b) Optionee’s voluntary resignation following (i) a change in Participant’s
position with the Company (or parent or any subsidiary thereof) or, following a
Change in Control, with the Successor or Acquiring Entity (as the case may be)
or any subsidiary thereof, which materially reduces Participant’s duties and
responsibilities or the level of management to which Participant reports, (ii) a
reduction in Participant’s level of compensation (including base salary, fringe
benefits and target bonus under any performance based bonus or incentive
programs) by more than ten percent (10%), or (iii) a relocation of Participant’s
principal place of employment by more than thirty (30) miles, provided and only
if such change, reduction or relocation is effected without Participant’s
written consent.

 

2.18 Misconduct. Misconduct” of a Participant means (A) the commission of any
act of fraud, embezzlement or dishonesty by Participant which materially and
adversely affects the business or reputation of the Company or any Affiliated
Company or, following a Change in Control of the Company, of any Successor
Entity or Acquiring Entity (as the case may be) in the Change in Control, or any
Affiliated Company thereof, (B) any unauthorized use or disclosure by
Participant of confidential information or trade secrets of the Company or any
Affiliated Company or, following a Change in Control of the Company, of any
Successor Entity or Acquiring Entity (as the case may be) in the Change in
Control, or any Affiliated Company thereof, (C) the continued refusal or
omission by Participant to perform any material duties required of him or her if
such duties are consistent with duties customary for the position held by such
Participant with the Company or any Affiliated Company or, following a Change in
Control of the Company, of any Successor Entity or Acquiring Entity (as the case
may be) in the Change in Control, or any Affiliated Company thereof, (D) any
material act or omission by a Participant involving malfeasance or gross
negligence in the performance of Participant’s duties to, or material deviation
from any of the policies or directives of, the Company or any Affiliated Company
or, following a Change in Control, of the Successor Entity or Acquiring Entity
(as the case may be) in the Change in Control or any Affiliated Company thereof,
(E) conduct on the part of Participant which constitutes the breach of any
statutory or common law duty of loyalty to the Company or any Affiliated Company
or, following a Change in Control, to the Successor or Entity or Acquiring
Entity (as the case may be), or any Affiliated Company thereof, or (F) any
illegal act by Participant which materially and adversely affects the business
or reputation of the Company or any Affiliated Company, or following a Change in
Control, of the Successor Entity or Acquiring Entity in the Change of Control or
any Affiliated Company thereof, or the conviction of Participant as a felon.

 

2.19 NASD Dealer. “NASD Dealer” means a broker-dealer that is a member of the
National Association of Securities Dealers, Inc.

 

2.20 Non-Employee Director. “Non-employee Director” shall mean a director of the
Company who is neither an employee nor an executive officer of the Company.

 

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2.21 Nonqualified Option. “Nonqualified Option” means any Option that is not an
Incentive Option. To the extent that any Option designated as an Incentive
Option fails in whole or in part to qualify as an Incentive Option, including,
without limitation, for failure to meet the limitations applicable to a 10%
Shareholder or because it exceeds the annual limit provided for in Section 5.6
below, it shall to that extent constitute a Nonqualified Option.

 

2.22 Nonqualified Option Agreement. “Nonqualified Option Agreement” means an
Option Agreement with respect to a Nonqualified Option.

 

2.23 Option. “Option” means any option to purchase Common Stock granted pursuant
to the Plan.

 

2.24 Option Agreement. “Option Agreement” means the written agreement entered
into between the Company and the Optionee with respect to an Option granted
under the Plan.

 

2.25 Optionee. “Optionee” means a Participant who holds an Option.

 

2.26 Participant. “Participant” means a Person who holds an Option or Restricted
Stock under the Plan.

 

2.27 Person. “Person” means any natural person, any corporation, limited
liability company, general or limited partnership, trust, estate or
unincorporated association or other entity.

 

2.28 Purchase Price. “Purchase Price” means the purchase price per share of
Restricted Stock.

 

2.29 Restricted Stock. “Restricted Stock” means shares of Common Stock issued
pursuant to Section 6 hereof, subject to any restrictions and conditions as are
established pursuant to such Section 6.

 

2.30 Stock Purchase Agreement. “Stock Purchase Agreement” means the written
agreement entered into between the Company and a Participant with respect to the
purchase of Restricted Stock under the Plan.

 

2.31 Substitute Options. “Substitute Options” means options to purchase Common
Stock to be issued by the Successor Entity or Acquiring Entity (as the case may
be) in a Change of Control transaction, on terms approved by the Administrator,
in exchange for the cancellation or surrender, on consummation of the Change in
Control, of Options granted under this Plan and held by employees of the Company
or any Subsidiary.

 

2.32 Substitute Restricted Stock. “Substitute Restricted Stock” means restricted
stock to be issued by the Successor Entity or Acquiring Entity (as the case may
be) in a Change of Control transaction, on terms approved by the Administrator,
in exchange for the cancellation or surrender, on consummation of the Change in
Control, of Restricted Stock issued this Plan and held by employees of the
Company or any Subsidiary.

 

2.33 10% Shareholder. “10% Shareholder” means a Person who, as of a relevant
date, owns or is deemed to own (by reason of the attribution rules applicable
under Section 424(d) of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or of an Affiliated
Company.

 

Section 3. Eligibility

 

3.1 Incentive Options. Only employees of the Company or of an Affiliated Company
(including officers of the Company and members of the Board if they are
employees of the Company or of an Affiliated Company) are eligible to receive
Incentive Options under the Plan.

 

3.2 Nonqualified Options and Restricted Stock. Employees of the Company or of an
Affiliated Company, officers of the Company and members of the Board (whether or
not employed by the Company or an Affiliated Company), are eligible to receive
Nonqualified Options or acquire Restricted Stock under the Plan.

 

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3.3 Section 162(m) Limitation. Subject to the provisions of Section 4.2, no
employee of the Company or of an Affiliated Company shall be eligible to be
granted Options covering more than 100,000 shares of Common Stock during any
calendar year.

 

3.4 Restrictions. Notwithstanding Sections 3.1 and 3.2 above or any other
provision of this Plan to the contrary, no director or officer of the Company or
any Affiliated Company shall be eligible to receive an Option or acquire
Restricted Stock, or any right to receive the same, pursuant to this Plan unless
and until this Plan has been approved by a majority of the shares present and
entitled to vote at a meeting of the Company’s shareholders.

 

Section 4. Plan Shares

 

4.1 Shares Subject to the Plan. A total of 400,000 shares of Common Stock may be
issued under the Plan, subject to adjustment as to the number and kind of shares
pursuant to Section 4.2 hereof. For purposes of this limitation, in the event
that (a) all or any portion of any Option or Restricted Stock granted or offered
under the Plan can no longer under any circumstances be exercised or purchased,
or (b) any shares of Common Stock are reacquired by the Company which were
initially the subject of an Incentive Option Agreement, Nonqualified Option
Agreement or Stock Purchase Agreement, the shares of Common Stock allocable to
the unexercised portion of such Option or such Stock Purchase Agreement, or the
shares so reacquired, shall again be available for grant or issuance under the
Plan.

 

4.2 Changes in Capital Structure. In the event that the outstanding shares of
Common Stock are hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company by
reason of a recapitalization, stock split, reverse stock split, combination of
shares, reclassification, stock dividend, or other similar change in the capital
structure of the Company, then appropriate adjustments shall be made by the
Administrator to the aggregate number and kind of shares issuable thereafter
under this Plan, the number and kind of shares and the price per share subject
to outstanding Option Agreements and Stock Purchase Agreements and the limit on
the number of shares under Section 3.3 above, all in order to preserve, as
nearly as practical, but not to increase, the benefits to Participants.

 

Section 5. Options

 

5.1 Option Agreement. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement that shall specify the number of shares subject
thereto, the Exercise Price per share, and whether the Option is an Incentive
Option or Nonqualified Option. As soon as is practical following the grant of an
Option, an Option Agreement shall be duly executed and delivered by or on behalf
of the Company to the Optionee to whom such Option was granted. Each Option
Agreement shall be in such form and contain such additional terms and
conditions, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable, including, without
limitation, the imposition of any rights of first refusal and resale obligations
upon any shares of Common Stock acquired pursuant to an Option Agreement. Each
Option Agreement may be different from each other Option Agreement.

 

5.2 Exercise Price. The Exercise Price per share of Common Stock covered by each
Option shall be determined by the Administrator, subject to the following: (a)
the Exercise Price of an Incentive Option and any Nonqualified Option shall not
be less than 100% of Fair Market Value on the date that Option is granted, and
(b) notwithstanding the foregoing, if the Person to whom an Incentive Option is
granted is a 10% Shareholder on the date of grant, the Exercise Price shall not
be less than 110% of Fair Market Value on the date the Option is granted.
However, an Option may be granted with an exercise price lower than that set
forth in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the
provisions of Section 424 of the Code.

 

5.3 Payment of Exercise Price. Payment of the Exercise Price shall be made upon
exercise of an Option and may be made, in the discretion of the Administrator,
subject to any legal restrictions, by: (a) cash; (b) check; (c) the surrender of
shares of Common Stock acquired pursuant to the exercise of an Option (provided
that shares acquired pursuant to the exercise of options granted by the Company
must have been held by the Optionee for the requisite period necessary to avoid
a charge to the Company’s earnings for financial reporting purposes), which
surrendered shares shall be valued at Fair Market Value as of the date of such
exercise; (d) the cancellation of

 

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indebtedness of the Company to the Optionee; (e) the waiver of compensation due
or accrued to the Optionee for services rendered; (f) a “same day sale”
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to sell a portion of the shares so purchased
to pay for the Exercise Price and whereby the NASD Dealer irrevocably commits
upon receipt of such shares to forward the Exercise Price directly to the
Company; (g) a “margin” commitment from the Optionee and an NASD Dealer whereby
the Optionee irrevocably elects to exercise the Option and to pledge the shares
so purchased to the NASD Dealer in a margin account as security for a loan from
the NASD Dealer in the amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such shares to forward the Exercise Price
directly to the Company; or (g) any combination of the foregoing methods of
payment or any other consideration or method of payment as shall be permitted by
applicable law.

 

5.4 Term and Termination of Options. The term and provisions for termination of
each Option shall be as fixed by the Administrator, but no Option may be
exercisable more than ten (10) years after the date it is granted. An Incentive
Option granted to a person who is a 10% Shareholder on the date of grant shall
not be exercisable more than five (5) years after the date it is granted.

 

5.5 Vesting and Exercise of Options. Each Option shall vest and become
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.

 

5.6 Annual Limit on Incentive Options. To the extent required for “incentive
stock option” treatment under Section 422 of the Code, the aggregate Fair Market
Value (determined as of the time of grant) of the Common Stock, with respect to
which Incentive Options granted under this Plan and any other plan of the
Company or any Affiliated Company become exercisable for the first time by an
Optionee during any calendar year, shall not exceed $100,000.

 

5.7 Nontransferability of Options. Except as otherwise provided by the
Administrator in an Option Agreement and as permissible under applicable law, no
Option shall be assignable or transferable except by will or the laws of descent
and distribution, and during the life of the Optionee shall be exercisable only
by such Optionee.

 

5.8 No Rights as Shareholder Prior to Exercise. An Optionee or permitted
transferee of an Option shall have no rights or privileges as a shareholder with
respect to any shares covered by an Option until such Option has been duly
exercised and certificates representing shares purchased upon such exercise have
been issued to such person.

 

5.9 Unvested Shares. The Administrator shall have the discretion to grant
Options which are exercisable for unvested shares of Common Stock. Should the
Optionee cease being an employee, an officer or a director of the Company while
owning such unvested shares, the Company shall have the right to repurchase, at
the exercise price paid per share, any or all of those unvested shares. The
terms upon which such repurchase right shall be exercisable (including the
period and procedure for exercise and the appropriate vesting schedule for the
purchased shares) shall be established by the Administrator and set forth in the
document evidencing such repurchase right.

 

Section 6. Restricted Stock

 

6.1 Issuance and Sale of Restricted Stock. The Administrator shall have the
right to issue, at a Purchase Price determined by the Administrator (provided
that such Purchase Price shall not be less than Fair Market Value), shares of
Common Stock subject to such terms, restrictions and conditions as the
Administrator may determine at the time of grant (“Restricted Stock”). Such
conditions may include, but are not limited to, continued employment or the
achievement of specified performance goals or objectives.

 

6.2 Restricted Stock Purchase Agreements. A Participant shall have no rights
with respect to the shares of Restricted Stock covered by a Stock Purchase
Agreement until the Participant has paid the full Purchase Price to the Company
in the manner set forth in Section 6.3 hereof and has executed and delivered to
the Company the Stock Purchase Agreement. Each Stock Purchase Agreement shall be
in such form, and shall set forth the

 

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Purchase Price and such other terms, conditions and restrictions of the
Restricted Stock, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable. Each Stock Purchase
Agreement may be different from each other Stock Purchase Agreement.

 

6.3 Payment of Purchase Price. Subject to any legal restrictions, payment of the
Purchase Price may be made, in the discretion of the Administrator, by: (a)
cash; (b) check; (c) the surrender of shares of Common Stock owned by the
Participant that have been held by the Participant for the requisite period
necessary to avoid a charge to the Company’s earnings for financial reporting
purposes, which surrendered shares shall be valued at Fair Market Value as of
the date of such acceptance; (d) the cancellation of indebtedness owed by the
Company to the Participant; (e) the waiver of compensation due or accrued to the
Participant for services rendered; or (f) any combination of the foregoing
methods of payment or any other consideration or method of payment as shall be
permitted by applicable corporate law.

 

6.4 Rights as a Shareholder. Upon complying with the provisions of Section 6.2
hereof, a Participant shall have the rights of a shareholder with respect to the
Restricted Stock purchased pursuant to a Stock Purchase Agreement, including
voting and dividend rights, subject to the terms, restrictions and conditions as
are set forth in such Stock Purchase Agreement. Unless the Administrator shall
determine otherwise, certificates evidencing shares of Restricted Stock shall
remain in the possession of the Company until such shares have vested in
accordance with the terms of the Stock Purchase Agreement.

 

6.5 Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement. In the event of
termination of a Participant’s employment or service as a director of the
Company for any reason whatsoever (including death or disability), the Stock
Purchase Agreement may provide, in the discretion of the Administrator, that the
Company shall have the right, exercisable at the discretion of the
Administrator, to repurchase, at the original Purchase Price, any shares of
Restricted Stock which have not vested as of the date of termination.

 

6.6 Vesting of Restricted Stock. Subject to Section 6.5 above, the Stock
Purchase Agreement shall specify the date or dates, or the performance goals or
objectives which must be achieved, and any other conditions on which the
Restricted Stock may vest.

 

6.8 Dividends. If payment for shares of Restricted Stock is made by promissory
note, any cash dividends paid with respect to the Restricted Stock may be
applied, in the discretion of the Administrator, to the repayment of such note.

 

Section 7. Administration of the Plan

 

7.1 Administrator. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board who are Non-Employee Directors of the Company (the
“Committee”). Members of the Committee may be appointed from time to time by,
and shall serve at the pleasure of, the Board. The Board may limit the
composition of the Committee to those persons necessary to comply with the
requirements of Section 162(m) of the Code and Section 16 of the Exchange Act.
As used herein, the term “Administrator” means the Board or, with respect to any
matter as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee.

 

7.2 Powers of the Administrator. In addition to any other powers or authority
conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the Persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options or rights to purchase Restricted Stock shall be granted, the number of
shares to be represented by each Option and the number of shares of Restricted
Stock to be offered, and the consideration to be received by the Company upon
the exercise of such Options or sale of such Restricted Stock; (b) to interpret
the Plan; (c) to create, amend or rescind rules and regulations relating to the
Plan; (d) to determine the terms, conditions and restrictions contained in, and
the form of, Option Agreements and Stock Purchase Agreements; (e) to determine
the identity or capacity of any Persons who may be entitled to exercise a
Participant’s rights under any Option or Stock Purchase Agreement under the
Plan; (f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement

 

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or Stock Purchase Agreement; (g) to accelerate the vesting of any Option or
release or waive any repurchase rights of the Company with respect to or
restrictions on Restricted Stock; (h) to extend the exercise date of any Option
or acceptance date of any Restricted Stock; (i) to provide for rights of first
refusal and/or repurchase rights; (j) to amend outstanding Option Agreements and
Stock Purchase Agreements to provide for, among other things, any change or
modification which the Administrator could have included in the original
Agreement or in furtherance of the powers provided for herein; and (k) to make
all other determinations necessary or advisable for the administration of the
Plan, but only to the extent not contrary to the express provisions of the Plan.
Any action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants.

 

7.3 Limitation on Liability. No employee of the Company or member of the Board
or Committee shall be subject to any liability with respect to duties under the
Plan unless that Person acts fraudulently or in bad faith. To the extent
permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such Person’s conduct in the performance of duties
under the Plan.

 

Section 8. Change in Control

 

8.1 Change in Control. In order to preserve a Participant’s rights in the event
of a Change in Control of the Company:

 

(a) Acceleration of Vesting and Lapse of Restrictions. Except as otherwise
provide in Paragraph 8.1(b) below, if a Change of Control is consummated,
Options that would not otherwise have become vested immediately prior to
consummation of such Change in Control shall become fully vested, and any
restrictions on Restricted Stock that would not otherwise have lapsed
immediately prior to such Change in Control shall lapse, in each case effective
immediately prior to consummation of that Change in Control.

 

(b) Exception to Acceleration Provisions. Notwithstanding Paragraph 8.1(a)
above, but subject to Paragraph 8.1(e) below, Options held by employees of the
Company or any Subsidiary that have not previously become vested shall not
become vested, and restrictions on Restricted Stock held by employees of the
Company or any Subsidiary as to which the restrictions have not previously
lapsed shall not lapse, by reason of the consummation of a Change in Control if,
pursuant to the terms of the definitive agreement providing for consummation of
the Change in Control transaction, the Surviving or Acquiring Entity (as the
case may be) in such Change in Control transaction, (i) assumes, or agrees to
and does issue to such employees Substitute Options for, such outstanding
Options, and (ii) agrees to and does issue Substitute Restricted Stock in
exchange for the cancellation and surrender of the Restricted Stock held by
employees of the Company or any Subsidiary, or (iii) agrees to and does issue,
on terms and conditions approved by the Administrator, other incentives in
exchange for the Options and Restricted Stock held by employees of the Company
or any Subsidiary under a new incentive program (“New Incentives”) that the
Administrator, in its sole discretion, determines are of a value that is
comparable to the value of the Options and Restricted Stock being exchanged
therefor by employees of the Company or any Subsidiary. The foregoing exception
shall not, however, apply to Options or Restricted Stock held by any
Non-Employee Directors.

 

(c) Special Vesting Provisions On Assumption or Substitution of Options or
Restricted Stock. In the event that the Surviving or Acquiring Entity (as the
case may be) in any Change in Control transaction assumes, or issues Substitute
Options or New Incentives for, the outstanding Options and Substitute Restricted
Stock or New Incentives for the outstanding Restricted Stock, held by employees
of the Company, on terms approved by the Administrator, as provided in Paragraph
8.1(b) above, then, the terms governing the vesting of any assumed Options shall
be modified to provide, and the terms governing any Substitute Options or
Substitute Restricted Stock or New Incentives (as the case may be) shall
provide, that any unvested assumed or Substitute Options (as the case may be)
held by a Participant shall immediately become fully vested and exercisable, and
any restrictions on any Substitute Restricted Stock held by a Participant shall
immediately lapse, if there occurs an Involuntary Termination of the Continuous
Service of such Participant, in connection with, or on or within twelve (12)
months of, the consummation of the Change in Control. Any such accelerated
vesting of Options or Substitute Options or lapse of restrictions on Restricted
Stock or Substitute Restricted Stock, or of New Incentives (as the case

 

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may be), due to an Involuntary Termination of the Continuous Service of a
Participant, as provided for in this Paragraph 8.1(c), shall be deemed to have
occurred on the day immediately prior to the date of such Involuntary
Termination of Continuous Service.

 

(d) Net Exercise Provisions. If the terms of an outstanding Option Agreement
provide for accelerated vesting, or the Administrator elects to accelerate any
outstanding Options in the event of the consummation of a Change in Control, or
to the extent that an Option is vested and not yet exercised, the Administrator
in its discretion may provide, in connection with the Change in Control
transaction, for the purchase or cancellation and exchange of any or all of such
Options for an amount of cash or other property having a value equal to the
difference (or “spread”) between: (i) the value of the cash or other property
that the Participant would have received pursuant to the Change in Control
transaction in exchange for the shares issuable upon exercise of the Option had
the Option been exercised immediately prior to the Change in Control, and (ii)
the Exercise Price of the Option.

 

(e) Discretionary Authority of the Committee. Notwithstanding anything to the
contrary that may be contained elsewhere in this Section 8, including in
Paragraph 8.1(b), the Administrator shall have the power and authority, in its
sole discretion, to accelerate the vesting of any or all of the Options and/or
the lapse of the restrictions on any or all of the Restricted Stock even if the
Surviving or Acquiring Entity in a Change in Control transaction agrees to
assume the Options outstanding under this Plan, or issue Substitute Options or
Restricted Stock or New Incentives for the then outstanding Options or
Restricted Stock, as contemplated in Paragraph 8.1(b) above. Additionally, the
terms and conditions relating to the vesting of Options and the lapse of
restrictions on Restricted Stock in the event of the consummation of a Change in
Control may vary from Option Agreement to Option Agreement and from Restricted
Stock Purchase Agreement to Restricted Stock Purchase Agreement, as the
Administrator, in its discretion, deems appropriate. For example, the
Administrator, in its discretion, may provide for full acceleration of vesting
of Options or of the lapse of restrictions on Restricted Stock in certain Option
Agreements or certain Restricted Stock Purchase Agreements and not in others.

 

(f) Termination of Options on Consummation of Change in Control. Notwithstanding
any provision to the contrary that may be contained in this Plan or in any
Option Agreement for Options granted under this Plan, all outstanding Options
that have not been exercised or deemed exercised at or before the consummation
of a Change of Control transaction shall terminate and cease to be exercisable
upon consummation of such Change in Control except to the extent that the
Options are assumed by the Surviving or Acquiring Entity pursuant to the terms
of the Change in Control transaction.

 

(g) Notice of Change in Control. If the Company enters into a definitive
agreement that provides for the consummation of a Change in Control of the
Company, the Administrator shall cause written notice of such proposed Change in
Control transaction to be given to Participants not less than fifteen (15) days
prior to the anticipated effective date of the proposed Change in Control
transaction; provided, however, that any delay in giving or any failure to give
such notice shall not affect the validity of nor shall it entitle any
Participant to obtain a delay or postponement in the consummation of the Change
in Control transaction.

 

8.2 Effect of Abandonment of Change in Control Transaction. Notwithstanding
anything to the contrary that may be contained in this Section 8 or elsewhere in
this Plan, if an acceleration of the vesting of any Options or the lapse of
restrictions on any Restricted Stock occurs is deemed to have occurred
immediately prior to the consummation of a Change in Control, pursuant to
Paragraph 8.1(a) above or any other provision of this Plan, but the Change in
Control transaction is terminated or abandoned, for any reason whatsoever,
before consummation thereof, then such acceleration of vesting and lapse of
restrictions shall be deemed to have not occurred and the vesting schedule for
this Option and the schedule for lapse of restrictions on Restricted Stock, as
in effect prior to such acceleration, shall be reinstated.

 

Section 9. Amendment and Termination of The Plan

 

9.1 Amendments. The Board may from time to time alter, amend, suspend or
terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any Participant under an
outstanding Option Agreement or Stock Purchase Agreement without such
Participant’s consent. The Board may alter or amend the Plan to comply

 

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with requirements under the Code relating to Incentive Options or other types of
options which give Optionees more favorable tax treatment than that applicable
to Options granted under this Plan as of the date of its adoption. Upon any such
alteration or amendment, any outstanding Option granted hereunder may, if the
Administrator so determines and if permitted by applicable law, be subject to
the more favorable tax treatment afforded to an Optionee pursuant to such terms
and conditions.

 

9.2 Plan Termination. Unless the Plan shall theretofore have been terminated,
the Plan shall terminate on the tenth (10th) anniversary of the Effective Date
and no Options or Restricted Stock may be granted under the Plan thereafter, but
Option Agreements and Stock Purchase Agreements then outstanding shall continue
in full force and effect in accordance with their respective terms.

 

Section 10. Tax Withholding

 

10.1 Withholding. The Company shall have the power to withhold, or require a
Participant to remit to the Company, an amount sufficient to satisfy any
applicable Federal, state, and local tax withholding requirements with respect
to any Options exercised or Restricted Stock issued under the Plan. To the
extent permissible under applicable tax, securities and other laws, the
Administrator may, in its sole discretion and upon such terms and conditions as
it may deem appropriate, permit a Participant to satisfy his or her obligation
to pay any such tax, in whole or in part, up to an amount determined on the
basis of the highest marginal tax rate applicable to such Participant, by (a)
directing the Company to apply shares of Common Stock to which the Participant
is entitled as a result of the exercise of an Option or as a result of the
purchase of or lapse of restrictions on Restricted Stock or (b) delivering to
the Company shares of Common Stock owned by the Participant. The shares of
Common Stock so applied or delivered in satisfaction of the Participant’s tax
withholding obligation shall be valued at their Fair Market Value as of the date
of measurement of the amount of income subject to withholding.

 

Section 11. Miscellaneous

 

11.1 Benefits Not Alienable. Except as otherwise provided above in this Plan,
benefits under the Plan may not be assigned or alienated, whether voluntarily or
involuntarily. Any unauthorized attempt at assignment, transfer, pledge or other
disposition shall be without effect.

 

11.2 No Enlargement of Employee Rights. This Plan is strictly a voluntary
undertaking on the part of the Company and shall not be deemed to constitute a
contract between the Company and any Participant or to be consideration for, or
an inducement to, or a condition of, the employment of any Participant. Nothing
contained in the Plan shall be deemed to give to any Participant a right to be
retained as an employee of the Company or any Affiliated Company or to interfere
with the right of the Company or any Affiliated Company to discharge any
Participant at any time.

 

11.3 Application of Funds. The proceeds received by the Company from the sale of
Common Stock pursuant to Option Agreements and Stock Purchase Agreements, except
as may otherwise be provided herein, will be used for general corporate
purposes.

 

11.4 Annual Reports. While any Option remains outstanding, the Company will
furnish to each Participant that is the holder of an Option, or any permitted
assignee thereof, who does not otherwise receive such materials, copies of all
reports, proxy statements and other communications that the Company distributes
generally to its shareholders.

 

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