Exhibit 4.2


JAMES MONROE BANCORP, INC.


1999 DIRECTOR STOCK OPTION PLAN


1.             Purpose of
Plan.


The
purposes of this James Monroe Bancorp, Inc. (“Corporation”) 1999 Director Stock
Option Plan are to enable the Corporation to continue to attract and retain
outstanding outside Directors of the Corporation and to further the growth,
development and financial success of the Corporation and its wholly-owned
subsidiary, James Monroe Bank.


2.             Definitions.


As used herein, the
following definitions shall apply:


(a)          “Affiliate” shall mean any “parent
corporation” or “subsidiary corporation” of the Corporation, as such terms are
defined in Section 424(e) and (f), respectively, of the Code.


(b)         “Agreement” shall mean a written
agreement entered into in accordance with Paragraph 5(c).


(c)          “Awards”
shall mean a grant of Options, unless the context clearly indicates a different
meaning.


(d)         “Corporation” shall mean James Monroe
Bancorp, Inc.


(e)          “Board” shall mean the Board of
Directors of the Corporation.


(f)          “Change in Control” shall mean any one
of thc following events occurring after the Effective Date: (1) the acquisition
of ownership of, holding or power to vote more than 51% of the Corporation’s
voting stock; (2) thc acquisition of the power to control the election of a majority
of thc Corporation’s directors; (3) the exercise of a controlling influence
over thc management or policies of the Corporation by any person or by persons
acting as a “group” (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934); or (4) the failure of Continuing Directors to constitute
at least two-thirds of the Board during any period of two (2) consecutive
years. For purposes of this Plan, “Continuing Directors” shall include only
those individuals who were members of the Board at the Effective Date and those
other individuals whose election or nomination for election as a member of the
Board was approved by a vote of at least two-thirds of the Continuing Directors
then in office. For purposes of this subparagraph only, the term “person”
refers to an individual or a corporation, partnership, trust, association,
joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or any other form of entity not specifically listed herein. The
decision of the Committee as to whether a change in control has occurred shall
be conclusive and binding.


(g)         “Code” shall mean the Internal Revenue
Code of 1986, as amended.


(h)         “Committee” shall mean the entire Board
of Directors of the Corporation which shall serve as the Stock Option
Committee.


 (i)          “Common
Stock” shall mean the common stock, par value $1.00 per share, of the
Corporation.


(j)           “Effective Date” shall mean the date
specified in Paragraph 13 hereof.


(k)          “Exercise Price” shall mean the price
per Optioned Share at which an Option may be exercised.









 



(l)           “Market Value” shall mean the fair
market value of the Common Stock, as determined under Paragraph 7(b) hereof.


(m)         “Optioned Shares” shall mean Shares
subject to an Option granted pursuant to this Plan.


(n)         “Options” shall mean options granted
pursuant to this Plan.


(o)         “Participant” shall mean any person who
receives an Award pursuant to the Plan.


(p)         “Plan” shall mean this James Monroe
Bancorp, Inc. 1999 Director Stock Option Plan.


(q)         “Rule 16b-3” shall mean Rule 16b-3 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended.


(r)          “Share” shall mean one share of Common
Stock.


3.                     Term of the Plan and
Awards.


(a)           Term of the Plan.  The Plan shall continue in effect for a term
of five (5) years from the Effective Date, unless sooner terminated pursuant to
Paragraph 16 hereof. No Award shall be granted under the Plan after five (5)
years from the Effective Date.


(b)           Term of Awards.  The term of each Award granted under the Plan
shall be established by the Committee, but shall not exceed ten (10) years.


4.             Shares
Subject to the Plan.


                Except
as otherwise required by the provisions of Paragraph 12 hereof, the aggregate
number of Shares deliverable pursuant to Awards shall not exceed 66,880 Shares.
Optioned Shares may either be authorized but unissued Shares or Shares held in
treasury. If Awards should expire, become unexercisable or be forfeited for any
reason without having been exercised in full, the Optioned Shares shall, unless
the Plan shall have been terminated, be available for the grant of additional
Awards under the Plan.


5.             Administration
of the Plan.


(a)           Composition of thc
Committee.  The Plan shall be
administered by the entire Board of Directors of the Corporation which shall
serve as the Stock Option Committee (“Committee”).


(b)           Powers of the Committee.  The Committee shall have sole and complete
authority and discretion (i) to select Participants and grant Awards, (ii) to
determine the form and content of Awards to be issued in the form of Agreements
under the Plan, (iii) to interpret the Plan, (iv) to prescribe, amend and
rescind rules and regulations relating to the Plan and (v) to make other
determinations necessary or advisable for the administration of the Plan. The
Committee may appoint an advisory subcommittee to make recommendations to the
Committee as to the administration of the Plan.


(c)           Agreement.  Each Award shall be evidenced by a written
agreement containing such provisions as may be approved by the Committee. Each
such Agreement shall constitute a binding contract between the Corporation and
the Participant, and every Participant, upon acceptance of such Agreement,
shall be bound by the terms and restrictions of the Plan and of such Agreement.
The terms of each such Agreement shall be in accordance with the Plan, but each
Agreement may include such additional provisions and restrictions determined by
the Committee, in its discretion, provided that such additional provisions and
restrictions are not inconsistent with the terms of the Plan. In particular,
the 



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Committee shall set forth in each Agreement (i) the
Exercise Price of an Option, (ii) the number of Shares subject to, and the
expiration date of, the Award, (iii) the manner, time and rate (cumulative or
otherwise) of exercise or vesting of such Award, and (iv) the restrictions, if
any, to be placed upon such Award, or upon Shares which may be issued upon
exercise of such Award.


The
Chairman of the Committee, the Chief Executive Officer of the Corporation and
such other officers as shall be designated by the Committee are hereby
authorized to execute Agreements on behalf of the Corporation and to cause them
to be delivered to the recipients of Awards.


(d)           Effect of the Committee’s
Decisions.  All decisions,
determinations and interpretations of the Committee shall be final and
conclusive on all persons affected thereby.


(e)           Indemnification.  In addition to such other rights of
indemnification as they may have, the members of the Committee shall be indemnified
by the Corporation in connection with any claim, action, suit or proceeding
relating to any action taken or failure to act under or in connection with the
Plan or any Award, granted hereunder to the full extent provided for under the
Corporation’s Articles of Incorporation or Bylaws with respect to the
indemnification of Directors.


6.             Grant of
Options.  In its sole
discretion, the Committee may grant Options to Directors of the Corporation or
its Affiliates who are not employees of the Corporation or its Affiliates.


7.             Exercise
Price for Options.


(a)           Limits on Committee
Discretion.  The Exercise
Price as to any particular Option granted under the Plan shall not be less than
the Market Value of the Optioned Shares on the date of grant.


(b)           Standards for Determining
Exercise Price.  If the Common
Stock is listed on a national securities exchange (including thc NASDAQ
National Market) on the date in question, then the Market Value per Shares
shall be not less than the average of the highest and lowest selling price on
such exchange on such date, or if there were no sales on such date, then the
Exercise Price shall be not less than the mean between the bid and asked price
on such date. If the Common Stock is traded otherwise than on a national
securities exchange on the date in question, then the Market Value per Share
shall be not less than the mean between the bid and asked price on such date,
or, if there is no bid and asked price on such date, then on the next prior
business day on which there was a bid and asked price. If no such bid and asked
price is available, then the Market Value per Share shall be its fair market
value as determined by the Committee, in its sole and absolute discretion.


(c)           Reissuance of Options.  Notwithstanding anything herein to the
contrary, the Committee shall have the authority to cancel outstanding Options
with the consent of the Participant and to reissue new Options at a lower
Exercise Price equal to the then Market Value per share of Common Stock in the
event that the Market Value per share of Common Stock at any time prior to the
date of exercise outstanding Options falls below the Exercise Price.


8.             Exercise of
Options.


(a)           Generally.  Any Option granted hereunder shall be
exercisable at such times and under such conditions as shall be permissible
under the terms of the Plan and of the Agreement granted to a Participant. An
Option may not be exercised for a fractional Share.


(b)           Procedure for Exercise.  A Participant may exercise Options, subject to
provisions relative to its termination and limitations on its exercise, only by
(1) written notice of intent to exercise the Option with respect to a specified
number of Shares and (2) payment to the Corporation (contemporaneously with
delivery of such notice) in cash, in Common Stock, or a combination of cash and
Common Stock, of the amount of the Exercise Price for the number of Shares with
respect to which the Option is then being exercised. Each such notice (and
payment where required) shall be delivered, or 



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mailed by prepaid registered or certified mail,
addressed to the Secretary of the Corporation at the Corporation’s executive
offices. Common Stock utilized in full or partial payment of the Exercise Price
for Options shall be value at its Market Value at the date of exercise.


(c)           Period of Exercisability.  Any Option granted hereunder shall be
exercisable by a Participant:


(1)           In the event of death, to the extent
that the Participant would have been entitled to exercise the Option
immediately prior to his death, such Option of the deceased Participant may be
exercised within two (2) years from the date of his death (but not later than
the date on which the Option would otherwise expire) by the personal
representatives of his estate or person or persons to whom his rights under
such option shall have passed by will or by laws of descent and distribution;


(2)           In the event of permanent and total
disability (as such term is defined in Section 22(e)(3) of the Code), then to
the extent that the Participant would have been entitled to exercise the Option
immediately prior to his permanent and total disability, such option may be
exercised within one year from the date of such permanent and total disability,
but not later than the date on which the option would otherwise expire.


Notwithstanding
the provisions of any Option which provides for its exercise in installments as
designated by the Committee, such Option shall become immediately exercisable
upon the Participant’s death or Permanent and Total Disability.


9.             Change in
Control.


(a)           General Rule.  Notwithstanding the provisions of any Award
which provide for its exercise or vesting in installments, all Options shall be
immediately exercisable and fully vested upon a Change in Control. With respect
to Optioned Shares, at the time of a Change in Control, the Participant shall,
at the discretion of the Committee, be entitled to receive cash in an amount
equal to the excess of the Market Value of the Common Stock subject to such
Option over the Exercise Price of such Shares, in exchange for the cancellation
of such Options by the Participant.


(b)           Exception to General Rule.  Notwithstanding subparagraph (a) of this
Paragraph, in no event may an Option be canceled in exchange for cash within
the six-month period following the date of its grant.


10.           Effect of Changes in
Common Stock Subject to the Plan.


(a)           Recapitalization, Stock
Splits, Etc.  The number and
kind of Shares reserved for issuance under the Plan, and the number and kind of
Shares subject to outstanding Awards and the Exercise Price thereof, shall be
proportionately adjusted for any increase, decrease, change or exchange of
Shares for a different number or kind of Shares or other securities of the
Corporation which results from a merger, consolidation, recapitalization,
reorganization, reclassification, stock dividend, stock split, combination of
Shares, or similar event in which the number or kinds of Shares is changed
without the receipt or payment of consideration by the Corporation.


(b)           Transactions in which the
Corporation is Not the Surviving Entity.  Subject to Paragraph 9 hereof, in the event
of (i) the liquidation or dissolution of the Corporation, (ii) a merger or
consolidation in which the Corporation is not the surviving entity, or (iii)
the sale or disposition of all or substantially all of the Corporation’s assets
(any of the foregoing to be referred to herein as a “Transaction”), all Awards
outstanding at the effectiveness of such Transaction shall be surrendered. With
respect to each Award so surrendered, the Committee shall, in its sole and
absolute discretion, determine whether the holder of the surrendered Award
shall receive:



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(1)           for each Option then subject to an
outstanding Award, an Option for the number and kind of Shares into which each
outstanding Share (other than Shares held by dissenting stockholders) is
changed or exchanged, together with an appropriate adjustment to the Exercise
Price; or


(2)           a cash payment (from the Corporation
or the successor corporation), in an amount equal to the Market Value of the
Shares subject to the Award on the date of the Transaction, less the Exercise
Price of the Award.


(c)           Conditions and
Restrictions of New, Additional or Different Shares or Securities.  If, by reason of any adjustment
made pursuant to this Paragraph, a Participant becomes entitled to new,
additional or different Shares or securities, such new, additional or different
Shares or securities shall thereupon be subject to all of the conditions and
restrictions which were applicable to the Shares pursuant to the Award before
the adjustment was made.


(d)           Other Issuances.  Except as expressly provided in this
Paragraph, the issuance by the Corporation or an Affiliate of Shares of any
class, or of securities convertible into Shares of another class, for cash or
property or for labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, shall not affect, and no
adjustment shall be made with respect to, the number, class or Exercise Price
of Shares then subject to Awards or reserved for issuance under the Plan.


11.           Non- Transferability of
Awards.


Awards may not be
sold, pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the law of descent and distribution, or pursuant to
the terms of a “qualified domestic relations order” (within the meaning of
Section 414(p) of the Code and the regulations and rulings thereunder).


12.           Time of Granting Awards.


The date of grant
of an Award shall, for all purposes, be the later of the date on which the
Committee makes the determination of granting such Award and the Effective
Date. Notice of the determination shall be given to each Participant to whom an
Award is so granted within a reasonable time after the date of such grant.


13.           Effective Date.


The Plan shall be
effective as of April 14, 1999. Awards may be made prior to approval of the
Plan by the stockholders of the Corporation if the exercise of Awards in the
form of Options are conditioned upon stockholder approval of the Plan.


14.           Approval by Stockholders.


The Plan shall be
approved by stockholders of the Corporation within twelve (12) months before or
after the Effective Date.


15.           Modification
of Awards.


At any time, and
from time to time, the Board may authorize the Committee to direct execution of
an instrument providing for the modification of any outstanding Award, provided
no such modification shall confer on the holder of said Award any right or
benefit which could not be conferred on him by the grant of a new Award at such
time, or impair the Award without the consent of the holder of the Award.



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16.           Amendment and Termination
of the Plan.


The Board may from
time to time amend the terms of the Plan and, with respect to any Shares at the
time not subject to Awards, suspend or terminate the Plan. No amendment,
suspension or termination of the Plan shall, without the consent of any
affected holders of an Award, alter or impair any rights or obligations under
any Award theretofore granted.


17.           Conditions Upon Issuance
of Shares.


(a)           Compliance with Securities
Laws.  Shares of Common Stock
shall not be issued with respect to any Award unless the issuance and delivery
of such Shares shall comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder, any applicable state securities law and the
requirements of any stock exchange upon which the Shares may then be listed.
The Plan is intended to comply with Rule 16b-3, and any provision of the Plan
which the Committee determines in its sole and absolute discretion to be
inconsistent with said Rule shall, to the extent of such inconsistency, be
inoperative and null and void, and shall not affect the validity of the
remaining provisions of the Plan. No shares acquired upon the exercise of an
Option granted hereunder may be sold or disposed of within six (6) months of
the date of the grant of said Option.


(b)           Special Circumstances.  The inability of the Corporation to obtain
approval from any regulatory body or authority deemed by the Corporation’s
counsel to be necessary to the lawful issuance and sale of any Shares hereunder
shall relieve the Corporation of any liability in respect of the non-issuance
or sale of such Shares. As a condition to the exercise of any Option, the
Corporation may require the person exercising the Option to make such
representations and warranties as may be necessary to assure the availability
of an exemption from the registration requirements of federal or state
securities law.


(c)           Committee Discretion.  The Committee shall have the discretionary
authority to impose in Agreements such restrictions in Shares as it may deem
appropriate or desirable, including, but not limited to, the authority to
impose a right of first refusal or to establish repurchase rights or both of
these restrictions.


18.           Reservation of Shares.


The Corporation,
during the term of the Plan, will reserve and keep available a number of Shares
sufficient to satisfy the requirements of the Plan.


19.           Withholding
Tax.


The Corporation’s
obligation to deliver Shares upon exercise of Options shall be subject to the
Participant’s satisfaction of all applicable federal, state and local income
and employment tax withholding obligations. Thc Committee, in its discretion,
may permit thc Participant to satisfy the obligation, in whole or in part, by
irrevocably electing to have thc Corporation withhold Shares, or to deliver to
the Corporation Shares that he already owns, having a value equal to the amount
required to be withheld. The value of Shares to be withheld, or delivered to
the Corporation, shall bc based on the Market Value of the Shares on thc date
the amount of tax to be withheld is to be determined. As an alternative, the
Corporation may retain, or sell without notice, a number of such Shares
sufficient to cover the amount required to be withheld.


20.           No Employment or Other
Rights.


In no event shall
a Director’s eligibility to participate or participation in the Plan create or
be deemed to create any legal or equitable right of the Director or any other
party to continue service with the Corporation or any Affiliate. No Director
shall have a right to be granted an Award or, having received an Award, the
right to again be granted an Award. However, a Director who has been granted an
Award may, if otherwise eligible, be granted an additional Award or Awards.



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21.           Governing Law.


The Plan shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia except to the extent that federal law shall be deemed to apply.


 



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