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                                                                    EXHIBIT 10.4

                                    FORM OF
                        SEVERANCE COMPENSATION AGREEMENT
                          Dated as of ______  __, 1999
                                    Between
                            PACIFIC MERCANTILE BANK
                                      And
                                 _____________

     The Board of Directors of Pacific Mercantile Bank, a California Corporation
(the "Company") has determined that it is appropriate to reinforce and encourage
the continued attention and dedication of members of the Company's management,
including ________, the Company's ________________ Officer (the "Executive"), to
their assigned duties without distraction in potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.

     This Agreement sets forth the severance compensation which the Company
agrees it will pay to the Executive if the Executive's employment with the
Company terminates under one of the circumstances described herein following a
Change in Control of the Company (as defined in Section 2).

     1.  Term.  The term of this Agreement shall commence on the date hereof
         ----
and, subject to earlier termination pursuant to Section 3(b), 3(c) or 3(d)
hereof, shall end three (3) years following the date on which notice of non-
renewal or termination of this Agreement is given by either the Company or
Executive to the other.  Thus, this Agreement shall be renewable automatically
on a daily basis so that the outstanding term is always three (3) years
following any effective notice of non-renewal or of termination given by the
Company or Executive, other than in the event of a termination pursuant to
Section 3(b), 3(c) or 3(d) hereof.

     2.  Change in Control.  For purposes of this Agreement, a "Change in
         -----------------
Control" of the Company shall be deemed to have occurred if:

          2.1  there shall be consummated:

               (a) any consolidation or merger of the Company, in which the
     Company or such Parent is not the continuing or surviving corporation or
     pursuant to which shares of the Company's Common Stock would be converted
     into cash, securities or other property, other than a merger of the Company
     in which the holders of the Company's Common Stock immediately prior to the
     merger have substantially the same proportionate ownership of at least 65%
     of common stock of the surviving corporation immediately after the merger,
     or

               (b) 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 other than to a corporation in which the
     persons who were the holders of the Company's Common Stock immediately
     prior to such transaction have substantially the same proportionate
     ownership of at least 65% of the common stock of such corporation, or

          2.2  the stockholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company, or

          2.3  any person (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
<PAGE>

meaning of Rule 13d-3 under the Exchange Act) of 20% or more of the Company's
outstanding shares of Common Stock, other than any such person who has record or
beneficial ownership of at least 10% of the Company's outstanding shares of
Common Stock on the date hereof and any persons who acquire shares of stock in
the Company by purchasing shares in a firmly underwritten public offering by the
Company, except for any such transaction in which such person is a corporation
and immediately after such acquisition of beneficial ownership the persons who
were the holders of the Company's Common Stock immediately prior to such
transaction shall have substantially the same proportionate ownership of at
least 65% of the common stock of such corporation; or

          2.4  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 do not for any reason constitute a
majority thereof unless the election, or the nomination for election by the
Company's stockholders, 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.

     If, during the term of this Agreement, another corporation acquires
beneficial ownership of more than 65% of the Company's outstanding shares in a
transaction that does not constitute a Change in Control of the Company, within
the meaning of the above provisions of this Section 2.4, and if during the
remaining term of this Agreement and while that corporation (a "Parent
Corporation") continues to be the beneficial owner of more than 65% of the
Common Stock of the Company, there occurs one of the transactions described
above in Sections 2.1, 2.2, 2.3 or 2.4 with respect to that Parent Corporation,
such transaction shall constitute a Change in Control of the Company for
purposes of this Agreement.

     3.  Termination Following Change in Control.
         ---------------------------------------

          3.1  Executive shall become entitled to receive the compensation
provided for in Section 4 hereof if, and only if, a Change in Control of the
Company shall have occurred while the Executive is still an employee of the
Company, and there subsequently occurs a termination of the Executive's
         ---
employment:

               (a) By Executive for Good Reason (as defined in Section 3.5
     below); or

               (b) By the Company for any reason other than (i) Executive's
     death;  (ii) Executive's Disability (as defined in Section 3.2 below),
     (iii) Executive's reaching Retirement Age (as defined in Section 3.3
     below), or (iv) Cause (as defined in Section 3.4 below).

          3.2  Death or Disability.  If, as a result of the Executive's
               -------------------
incapacity due to physical or mental illness, the Executive is absent from his
duties with the Company on a full-time basis for five months, the Company may
elect to terminate his employment and this Agreement for "Disability" by written
notice to Executive; provided, however, that any such termination shall be
effective only at the end of thirty (30) days following the delivery of such
notice and only if Executive fails to return to the full-time performance of
duties by the end of such 30-day notice period.  Executive's employment and this
Agreement also shall terminate immediately in the event of the death of the
Executive occurring at any time during the term hereof.  Executive shall not be
entitled to any compensation under this Agreement by reason of the termination
of his employment and/or the termination of this Agreement due to his Disability
or death, even if such termination occurs subsequent to a Change in Control.

          3.3  Retirement or Voluntary Resignation.  This Agreement shall
               -----------------------------------
terminate automatically on Retirement (as hereinafter defined) of Executive or
due to the resignation or termination by Executive of his employment for any
reason other than Good Reason (as hereinafter defined).  The Company shall have
no obligation to pay and Executive shall have no right to receive any
compensation

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under this Agreement on or due to such Retirement or the Executive's resignation
or termination of employment other than for Good Reason, even such termination
occurs subsequent to a Change in Control.  The term "Retirement" as used in this
Agreement shall mean termination by the Company or the Executive of the
Executive's employment or of this Agreement based on the Executive's having
reached age 65 or such other age as shall have been fixed in any arrangement
established with the Executive's consent with respect to the Executive.

          3.4  Cause.  The Company may terminate Executive's Employment and/or
               -----
this Agreement for Cause (as hereinafter defined) and the Company shall have no
obligation to pay and the Executive shall have no right to receive any
compensation hereunder by reason of any such termination, even if it occurs
following a Change in Control.  The term "Cause" for purposes of this Agreement
shall have the meaning given to it Exhibit A hereto.  Notwithstanding the
foregoing, the Executive shall not be deemed, for purposes of this Agreement, to
have been terminated for Cause unless and until there shall have been delivered
to the Executive a copy of a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Company's Board of
Directors at a meeting of the Board called and held for that purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board), finding
that in the good faith opinion of the Board the Executive engaged in conduct
that constitutes grounds for a termination of his employment for Cause and
specifying the particulars thereof in reasonable detail.

          3.5  Good Reason.  If, prior to the termination of this Agreement,
               -----------
there occurs:  (i) first a Change in Control and (ii) then, within the
succeeding two years any of the events or circumstances described below in this
Section 3.5 occurs, and (iii) Executive terminates his employment in the manner
and within the applicable time period set forth hereinafter, Executive shall
become entitled to receive the severance compensation set forth in Section 4 of
this Agreement. Any such termination shall constitute a termination for "Good
Reason." For purposes of this Agreement "Good Reason" shall mean any of the
following (without the Executive's express written consent) that occurs either
as a result of, or after the occurrence of, any Change in Control:

               (a) The Company has materially changed the Executive's position,
     duties, responsibilities, status, or offices as in effect immediately prior
     to a Change in Control of the Company or has removed the Executive from or
     failed to reelect the Executive to any of such positions, except in
     connection with the termination of his employment for Disability,
     Retirement or Cause or as a result of the Executive's death or Retirement;

               (b) A reduction by the Company in the Executive's base salary as
     in effect on the date hereof or as the same may be increased from time to
     time during the term of this Agreement, or the Company's failure to
     increase (within 12 months of the Executive's last increase in base salary)
     the Executive's base salary after a Change in Control of the Company in an
     amount which at least equals, on a percentage basis, the average percentage
     increase in base salary for all officers of the Company effected in the
     preceding 12 months;

               (c) Any failure by the Company to continue in effect any benefit
     plan or arrangement (including, without limitation, the Company's life
     insurance, accident, disability and health insurance plans, 401(k) and
     bonus plans, stock options, and all other similar plans which are from time
     to time made generally available to senior executives of the Company and in
     which the Executive is participating at the time of a Change in Control of
     the Company, unless replaced by any other plan providing the Executive with
     substantially similar benefits (hereinafter referred to as "Benefit
     Plans"), or the taking of any action by the Company which would adversely
     affect the Executive's participation in or materially reduce the
     Executive's benefits under any such Benefit Plan or deprive the Executive
     of any material fringe benefit enjoyed by the Executive at

                                       3
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     the time of a Change in Control of the Company which adversely affects
     Executive in a manner materially different from other executives of the
     Company;

               (d) Any failure by the Company to continue in effect any
     incentive compensation plan or arrangement (including, without limitation,
     the Company's plans enumerated in paragraph (c) above and similar incentive
     compensation benefits) in which the Executive is participating at the time
     of a Change in Control of the Company, unless replaced by any other plans
     or arrangements providing him with substantially similar benefits
     (hereinafter referred to as "Incentive Plans"), or the taking of any action
     by the Company which would adversely affect the Executive's participation
     in any such Incentive Plan or reduce the Executive's potential benefits
     under any such Incentive Plan, expressed as a percentage of his base
     salary, by more than 10 percentage points in any fiscal year as compared to
     the immediately preceding fiscal year;

               (e) A relocation of the Company's principal executive offices to
     a location outside of Orange County, California, or the Executive's
     relocation to any place other than the location at which the Executive
     performed the Executive's duties at the time of the Change in Control of
     the Company, except for required travel by the Executive on the Company's
     business to an extent substantially consistent with the Executive's
     business travel obligations during the 12 months immediately preceding a
     Change in Control of the Company;

               (f) Any failure by the Company to provide the Executive with the
     number of paid vacation days to which the Executive is entitled at the time
     of a Change in Control of the Company;

               (g) Any material breach by the Company of any provision of this
     Agreement which it fails to cure within 15 days of written notice thereof
     from the Executive; or

               (h) Any failure by the Company to obtain the assumption of this
     Agreement by any purchaser of all or substantially all of the assets of the
     Company which constitutes a Change in Control of the Company; or

          To constitute a Termination for Good Reason, the Executive must give
written notice of the termination by him of his employment to the Company within
45 days of the occurrence of the event constituting Good Reason, which shall
describe such event in reasonable detail.  If the Company fails to cure such
event within the succeeding 10 days, such termination shall be effective at the
end of such 10 day period and Executive shall thereupon become entitled to
receive the compensation and benefits set forth in Section 4 hereof.

          3.6  Notice of Termination.  Any termination by the Company other than
               ---------------------
pursuant to Section 3.2 due to Executive' Disability, or for Cause pursuant to
Section 3.4, shall be communicated by a Notice of Termination.  For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate those specific termination provisions in this Agreement relied
upon and which set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provisions so indicated.  For purposes of this Agreement, no such purported
termination by the Company shall be effective without such Notice of
Termination.

     4.  Severance Compensation upon Termination of Employment.  Subject to
         -----------------------------------------------------
Section 4.5 below, if, within two years following a Change in Control, the
Company shall terminate Executive's employment for any reason other than other
than those set forth in Section 3.2, 3.3 or 3.4 above, or if the Executive shall
terminate his employment for Good Reason, then:

                                       4
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          4.1  The Company shall pay to the Executive as severance pay a lump
sum, in cash, in full on the fifth day following the Date of Termination in an
amount equal to ____ months' of the Executive's highest annual base salary in
effect during the 12-month period immediately preceding the Date of Termination,
and (ii) the amount of any bonus that was earned by Executive and was no longer
subject to any contingencies prior to the Date of Termination.  All payments
hereunder shall be made net of withholdings required by applicable federal,
state or local laws.

          4.2  The Company shall continue for a period of ___ months from the
Date of Termination to provide the following benefits to the Executive if and to
the extent he was receiving such benefits on the day immediately preceding the
Date of Termination:

               (a) Participation in the Company's medical, dental and vision
     plans; and

               (b) Long-term disability insurance.

Provided however, that any benefits payable under this subsection 4.4 shall
----------------
terminate at such time as the Executive becomes eligible for similar benefits
from any subsequent employer.

          4.3  Limitation.  To the extent that any or all of the payments and
               ----------
benefits provided for in this Agreement constitute "parachute payments" within
the meaning of Section 280G of the Internal Revenue Code (the "Code") and, but
for this Section 4.3, would be subject to the excise tax imposed by Section 4999
of the Code, the aggregate amount of such payments and benefits shall be reduced
such that the present value thereof (as determined under the Code and applicable
regulations) is equal to 2.99 times the Executive's "base amount" (as defined in
the Code).  The determination of any reduction of any payment or benefits under
this Section 4 pursuant to the foregoing provision shall be made by a nationally
recognized public accounting firm chosen by the Company in good faith, and such
determination shall be conclusive and binding on the Company and the Executive.

     5.  Termination without Cause in the Absence of a Change in Control.  In
         ---------------------------------------------------------------
the event that, during the term of this Agreement, the Company terminates
Executive's employment for any reason other than (i) Executive's death; (ii)
Executive's Disability (as defined in Section 3.2), (iii) Executive's reaching
Retirement Age (as defined in Section 3.3), or (iv) Cause (as defined in Section
3.4) and there has not been a Change in Control (a "Section 5 Termination"),
then Executive shall be entitled to receive the following compensation:

          5.1  The Company shall pay to the Executive as severance pay an amount
equal to six (6) months' of the Executive's highest annual base salary in effect
during the 12-month period immediately preceding the date of such Section 5
Termination, and (ii) the amount of any bonus that was earned by Executive and
was no longer subject to any contingencies prior to the date of such Section 5
Termination, which amounts shall be paid in 12 semi-monthly payments following
such date.  All payments hereunder shall be made net of withholdings required by
applicable federal, state or local laws.

          5.2  The Company shall, for a period of six (6) months from the date
of such Section 5 Termination, continue to provide the following benefits to the
Executive if and to the extent he was receiving such benefits on the day
immediately preceding the date of such Termination:

               (a) Participation in the Company's medical, dental and vision
     plans; and

               (b) Long-term disability insurance.

Provided however, that any benefits payable under this subsection 5.2 shall
----------------
terminate at such time as the Executive becomes eligible for similar benefits
from any subsequent employer.

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     6.  No Obligation to Mitigate Damages; No Effect on Other Contractual
         -----------------------------------------------------------------
Rights.
------

          (a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor, except as set forth in whichever of Section 4.2 or
5.2 is applicable, shall the amount of any payment provided for under this
Agreement be reduced by any compensation earned by the Executive as the result
of employment by another employer after the date of the termination of
Executive's employment, provided such other employer is not a competitor of the
Company.

          (b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue to the
date of the termination of Executive's employment, whether pursuant to Section
3.1 or Section 5, solely as a result of the passage of time, under any Benefit
Plan or Incentive Plan, or other written contract, plan or arrangement to which
the Company is a party.

     7.  Successor to the Company.
         ------------------------

          (a) The Company will require any successor or assignee to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance reasonably satisfactory to the Executive, expressly,
absolutely and unconditionally to assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession or assignment had taken place.  Any failure of
the Company to obtain such agreement prior to the effectiveness of any such
succession or assignment shall be a material breach of this Agreement and shall
entitle the Executive to terminate the Executive's employment for Good Reason.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor or assignee to its business and/or assets as aforesaid
which executes and delivers the agreement provided for in this Section 7 or
which otherwise becomes bound by all of the terms and provisions of this
Agreement by operation of law.  If at any time during the term of this Agreement
the Executive is employed by any corporation a majority of the voting securities
of which is then owned by the Company, "Company" as used in Sections 8, 13 and
14 of this Agreement shall in addition include such employer.  In such event,
the Company agrees that it shall pay or shall cause such employer to pay any
amounts that become due and payable to the Executive pursuant to whichever of
Section 4 or Section 5 hereof is applicable.

          (b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.  If the Executive should
die while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devisee, legatee, or other designee or, if
there be no such designee, to the Executive's estate.

     8.  Release of Claims.  The obligations of the Company under Section 4 of
         -----------------
this Agreement shall constitute the only obligations and liability of the
Company arising from a termination of Executive's employment under the
circumstances set forth in Section 3.1 hereof following a Change in Control of
the Company and the obligations and liability of the Company under Section 5 of
this Agreement shall constitute the only obligations of the Company arising from
a termination of Executive's employment under the circumstances set forth in
Section 5 hereof.  Upon the Company's tender of payment hereunder pursuant to
Section 4, or completion of the installment payments under Section 5, as the
case may be, the Company shall have no obligation to Executive by reason of his
employment or the termination thereof other than those set forth herein, and the
Executive agrees that receipt of such payment shall constitute a full and final
settlement and release of all claims or rights against the Company whether under
this Agreement or any other employment contract or agreement, that the Company
has

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with the Executive, and Executive shall execute all appropriate agreements
reflecting such settlement and release.

     9.  Notice.  For purposes of this Agreement, notices and all other
         ------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return-receipt requested, postage- prepaid, as follows:

     If to the Company:                     If to Executive

     President                              _________________________________
     Pacific Mercantile Bank                _________________________________
     450 Newport Center Drive, Suite 100    _________________, CA  9_____
     Newport Beach, CA  92660

or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.

     10.  Amendments and Waivers.  No provisions of this Agreement may be
         ----------------------
amended, modified, waived or discharged unless such amendment, modification,
waiver or discharge is set forth in a writing signed by the Executive and the
Company.  No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.

     11.  Validity.  The invalidity or unenforceability of any provisions of
          --------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.

     12.  Counterparts.  This Agreement may be executed in one or more
          ------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

     13.  Governing Law; Legal Proceedings, Fees and Expenses; Waiver of Jury
          -------------------------------------------------------------------
Trial.  This Agreement shall be governed by and construed in accordance with the
-----
laws of the State of California.  In the event any controversy, claim or dispute
arises between the parties hereto relating to this Agreement, the California
Superior Court for the County of Orange shall have exclusive jurisdiction over
such controversy claim or dispute, and each party further agrees (i) to accept
and not challenge the subject matter or the personal jurisdiction or the venue
of such court, (ii) that it shall not assert the defense of forum nonconviens,
and (iii) that it shall accept service of process in any such proceeding by
registered or certified mail. TO THE MAXIMUM EXTENT PERMITTED BY LAW, EACH PARTY
EXPRESSLY AND IRREVOCABLY WAIVES ANY RIGHT IT OR HE MAY HAVE TO A TRIAL BY JURY
WITH RESPECT TO ANY SUCH CONTROVERSY, CLAIM OR DISPUTE AND EXPRESSLY AND
IRREVOCABLY AGREES THAT THE JUDGE SHALL BE THE SOLE TRIER OF FACT IN ANY SUCH
PROCEEDING.  EACH PARTY IS AWARE THAT THE RIGHT TO A TRIAL BY JURY IS A
CONSTITUTIONAL RIGHT AND REPRESENTS THAT SUCH PARTY IS HEREBY WAIVING
VOLUNTARILY AND WITH AN UNDERSTANDING OF THE CONSEQUENCES THEREOF.  The Company
shall pay all legal fees and expenses which the Executive may incur as a result
of the Company's contesting the validity, enforceability or the Executive's
interpretation of, or determinations under, this Agreement unless the Company
prevails in such contest.

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     14.  Confidentiality.  The Executive shall retain in confidence any and all
          ---------------
confidential information known to the Executive concerning the Company and its
business so long as such information is not otherwise publicly disclosed.

     15.  Entire Agreement.  This Agreement contains all of the terms agreed
          ----------------
upon between the Executive and the Company with respect to the subject matter
hereof and replaces and supersedes all prior severance agreements between the
Executive and the Company.

     16.  Headings and Interpretation.  This Agreement is the result of arms'-
          ---------------------------
length negotiations between the parties hereto and no provision of this
Agreement, because of any ambiguity found to be contained herein, shall be
construed against a party by reason of the fact that such party or its legal
counsel was the draftsman of that provision.  Unless otherwise indicated
elsewhere in this Agreement, (a) the term "or" shall not be exclusive, (b) the
term "including" shall mean "including, but not limited to," and (c) the terms
"herein," "hereof," "hereto," "hereunder" and other terms similar to such terms
shall refer to this Agreement as a whole and not merely to the specific section,
subsection, paragraph or clause where such terms may appear.  The Section and
paragraph headings in this Agreement are included for convenience of reference
and shall not be considered in interpreting, construing or giving effect to any
of the provisions of this Agreement.

     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.

"COMPANY"                                    "EXECUTIVE"

PACIFIC MERCANTILE BANCORP

By:
   --------------------------------------    -----------------------------------
   Raymond E. Dellerba, President and CEO

                                       8
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                                   EXHIBIT A

                              DEFINITION OF CAUSE

     As used in this Severance Compensation Agreement herein, the term "Cause"
means any of the following:

        (1)  The failure of Executive to perform, in all material respects, the
duties assigned to him or her by such the President or Board of Directors of the
Company, which continues unremedied for a period of 30 days following the
receipt by Executive of a notice of such failure;

        (2)  The commission by the Executive of a felony, or of a misdemeanor
involving moral turpitude;

        (3)  The breach of any duties of Executive under any non-competition,
confidentiality or trade secret or invention transfer or similar agreement
entered into by the Executive with the Company;

        (4)  The commission of an action or an omission to act on the part of
the Executive which results in the incurrence by the Company of any criminal
liability or any material civil liability,

        (5)  Any violation of any material policies established by the Company
that is not remedied within a period of 15 days following the receipt by
Executive of a notice of such violation; and

        (6)  the issuance of an order, directive, instruction, recommendation or
report by any federal or state regulatory agency having jurisdiction over the
Company that leads the Board of Directors to determine, in good faith, that it
would be in the best interests of the Company to terminate Executive's
employment due to criticism of such Executive's performance by any such agency.