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                                                                    EXHIBIT 10.3

                              EMPLOYMENT AGREEMENT
                              --------------------


     This Employment Agreement (this "Agreement") is made as of April 23, 1999,
between Raymond E. Dellerba ("Executive") and Pacific Mercantile Bank, its
parent, subsidiaries and related entities. (collectively, the "Company").

                                    RECITALS

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

                                   AGREEMENT

     The parties agree as follows:

1.   DUTIES

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

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

     (c)  During the Period of Employment, Executive shall be allowed to retain
and maintain top level administrative support for his activities and shall be
provided by the Company with all

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equipment appropriate to outfit office, home, and automobile as are reasonably
necessary or appropriate for the performance of Executive's duties hereunder and
consistent with his position as the President and Chief Executive Officer of the
Company, including, as applicable, fax machine, computer, printer, scanner,
cellular telephones, laptop computer, and similar equipment, and Executive shall
be entitled to reimbursement for all reasonable expenses incurred in connection
therewith.

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


2.   PERIOD OF EMPLOYMENT

     The "Period of Employment" shall, unless sooner terminated as provided
herein, be a three (3) year period commencing on April 23, 1999 (the "Effective
Date") and ending with the close of business on April 22, 2002.  Notwithstanding
the preceding sentence, commencing with April 23, 2002 and on each April 23rd
thereafter (each an "Extension Date"), the Period of Employment shall be
automatically extended for an additional one-year period, unless the Company or
Executive provides the other party hereto sixty (60) days' prior written notice
before the next scheduled Extension Date that the Period of Employment shall not
be so extended (the "Non-Extension Notice").  The term "Period of Employment"
shall include any extension that becomes applicable pursuant to the preceding
sentence.  Notwithstanding anything to the contrary herein, the Period of
Employment shall not continue beyond January 1, 2013.  In the event Executive is
employed under this Agreement on January 1, 2013, this Agreement will terminate,
and for the purposes of this Agreement be treated as a termination under Section
7(a) below.

3.   COMPENSATION

     (a)  BASE SALARY.  During the remainder of the 1999 calendar year,
          -----------
Executive's base salary shall be at a rate of $120,000 annually, paid in
accordance with regular payroll practices, but not less than monthly; provided,
however, that in the event of a termination without Cause by Company in the
first three (3) year period of this Agreement, all salary dating back to June
1998 and any severance amount shall be paid or calculated based on the median
peer salary of the western region as disclosed in SNL Executive Compensation
Review for the years 1998, 1999 and 2000, as applicable and only if such amount
is greater than Executive's actual salary for that year. Commencing January 1,
2000 and thereafter, Executive's base salary shall be at least equal to the
median peer salary of the western region as disclosed in SNL Executive
Compensation Review for the applicable year.

     (b)  BONUS.  For the 1999 calendar year, Executive shall receive an
          -----
incentive bonus ranging from thirty-five percent (35%) to one hundred fifty
percent (150%) of his base salary with a target bonus of seventy-five percent
(75%), based on achievement of mutually agreed upon objectives, fifty percent
(50%) of which shall be personal and the remaining fifty percent (50%) of which
shall be tied to a budget and/or other measures of Company's success within the
areas of responsibility of Executive. In subsequent years, the bonus formula and
target bonus

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shall be determined in good faith by Executive, Company, and a recognized
compensation consultant and shall relate on a percentage basis to Company's pre-
tax profits. In all events, Executive shall be paid a bonus for each calendar
year at least equal to the greater of (i) thirty-five percent (35%) of
Executive's base annual salary for that calendar year or (ii) three and one-half
percent (3.5%) of the Company's pre-tax profits for that calendar year.


     (c)  EQUITY COMPENSATION.
          -------------------

          (i)  During the Period of Employment, Executive shall be entitled to
participate in any equity-based plan or arrangement, including, but not limited
to, stock options, stock appreciation rights, phantom stock rights, restricted
stock, equity-based cash or performance share awards, or other equity-based
incentive compensation plans or arrangements maintained by the Company for
executives or employees of the Company generally, on the same basis as other
executives or employees of the Company. Executive's rate of participation in
such plans or arrangements shall be 1:6 (Executive to all other
employees/executives as a group). To illustrate application of this ratio, if
60,000 options are granted to other employees/executives, Executive shall be
entitled to 10,000 options on substantially the same terms as the other grants.

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

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

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

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

     (A) approval by the shareholders of the Company of the dissolution or
         liquidation of the Company;

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     (B) approval by the shareholders of the Company of a merger, consolidation,
         or other reorganization, with or into, or the sale of all or
         substantially all of the Company's business and/or assets as an
         entirety to, one or more entities that are not Subsidiaries (a
         "Business Combination"), unless (A) as a result of the Business
         Combination at least 60% of the outstanding securities voting generally
         in the election of directors of the surviving or resulting entity or a
         parent thereof (the "Successor Entity") immediately after the
         reorganization are, or will be, owned, directly or indirectly, in
         substantially the same proportions, by shareholders of the Company
         immediately before the Business Combination; and (B) no "person" (as
         such term is used in Sections 13(d) and 14(d) of the Securities
         Exchange Act of 1934, as amended (the "Exchange Act")) (excluding the
         Successor Entity or an Excluded Person) beneficially owns, directly or
         indirectly more than 20% of the outstanding shares of the combined
         voting power of the outstanding voting securities of the Successor
         Entity, after giving effect to the Business Combination, except to the
         extent that such ownership existed prior to the Business Combination;
         and (C) at least 60% of the members of the board of directors of the
         entity resulting from the Business Combination were members of the
         Board of Directors of the Company (the "Board") at the time of the
         execution of the initial agreement, or of the action of the Board,
         providing for the Business Combination.

         The stockholders before and after the Business Combination shall be
         determined on the basis of the following assumptions (x) there is no
         change in the record ownership of the Company's securities from the
         record date for such approval until the consummation of the Business
         Combination; and (y) record owners of securities of the Corporation
         hold no securities of the other parties to such reorganization.

     (C) Any "person" (as such term is used in Sections 13(d) and 14(d) of the
         Exchange Act) other than an Excluded Person becomes the beneficial
         owner (as defined in Rule 13d-3 under the Exchange Act), directly or
         indirectly, of securities of the Company representing more than 20% of
         the combined voting power of the Company's then outstanding securities
         entitled to then vote generally in the election of directors of the
         Corporation.

     (D) during any period not longer than two consecutive years, individuals
         who at the beginning of such period constituted the Board cease to
         constitute at least a majority thereof, unless the election, or the
         nomination for election by the Company's shareholders, of each new
         Board member was approved by a vote of at least three-fourths of the
         Board members then still in office who were Board members at the
         beginning of such period (including for these purposes, new members
         whose election or nomination was so approved), but excluding, for this
         purpose, any such individual whose initial assumption of office occurs
         as a result of an actual or threatened election contest with respect to
         the election or removal of directors or other actual or threatened
         solicitation of proxies or consents by or on behalf of a person other
         than the Board.

     "Excluded Person" means (1) any person described in and satisfying the
     conditions of Rule 13d-1(b)(1) under the Exchange Act, (2) any person who
     is the beneficial owner

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     (as defined in Rule 13d-3 under the Exchange Act) of more than 20% of the
     outstanding shares of the Company's on the Effective Date, (3) the Company,
     or (4) an employee benefit plan (or related trust) sponsored or maintained
     by the Company.

     "Subsidiary" means any corporation or other entity a majority of whose
     outstanding voting stock or voting power is beneficially owned directly or
     indirectly by the Company.

          (v)  In the event of any (i) private sale of more than fifty percent
(50%) of the outstanding shares of Company Common Stock, (ii) sale of
substantially all of the assets of the Company, or (iii) merger, during the term
of this Agreement or within twenty-four (24) months after a termination of the
Executive without Cause or a termination by the Executive for Good Reason,
Executive will receive in Executive's sole discretion either a cash lump sum
payment or stock equal to one percent (1%) of the gross amount paid in such
transaction. Executive shall be eligible to receive only one such payment during
the twenty-four (24) months after termination of his employment.

          (vi) In the event of any public offering of shares of company common
stock by the company or any of its parents or subsidiaries, that is registered
under the Securities Act of 1933 (other than in connection with a registration
for shares being issued pursuant to Rule 145 or for any employee benefit plan or
program) that is consummated during the term of this agreement or within twenty-
four (24) months after a termination of the executive without cause or a
termination by the executive for good reason, executive will receive in
executive's sole discretion either a cash lump sum payment or stock equal to one
percent (1%) of the increase in shareholders' equity of the issuer of such
shares in such public offering during the year in which such offering was
consummated, less any increase therein resulting from the net earnings of that
issuer in such year.  Executive shall be eligible to receive only one such
payment during the twenty-four (24) months after termination of his employment.

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

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

4.   BENEFITS

     (a)  HEALTH AND WELFARE.  During the Period of Employment, Executive shall
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be entitled to participate, on the same terms and at the same level as other
executives, in all health and welfare benefit plans and programs and all
retirement, deferred compensation and similar plans and programs generally
available to other executives or employees of the Company as in effect from time
to time, subject to any legally required restrictions specified in such plans
and programs. Without limiting the generality of the foregoing, Company shall
provide life insurance for Executive in an amount equal to 2 1/2 times
Executive's base salary in effect on the date of this Agreement and as in effect
on the first business day of each calendar year thereafter, and long term and
short term disability insurance covering eighty percent (80%) of Executive's
base salary in effect on the date of this Agreement and as in effect on the
first business day of each calendar year thereafter, which insurance shall
expressly provide that it is portable by Executive.

     (b)  VACATION AND OTHER LEAVE.  During the Period of Employment, Executive
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shall receive four (4) weeks paid vacation per year for each of the first three
(3) years of service; five (5) weeks of paid vacation per year after three (3)
years of service; and six (6) weeks of paid vacation per year after five (5)
years of service; provided, however, that such vacation shall be

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scheduled and taken in accordance with the Company's standard vacation policies
applicable to Company executives. Executive shall also be entitled to all other
holiday and leave pay generally available to other executives of the Company.

     (c)  TRAVEL AND EXPENSE REIMBURSEMENTS.  During the Period of Employment,
          ---------------------------------
Company will provide Executive with a Company credit card and/or promptly
reimburse Executive for all reasonable expenses incurred in connection with
performance of his duties as President and Chief Executive Officer, including,
but not limited to, hotels, meals, airline tickets, transportation, automobile
rentals, and related charges on the basis of business class. Company shall
advance or reimburse Executive for all educational expenses related to career
development, including tuition, books, travel, meals and lodging expenses as
reasonably determined by Executive. Company shall advance or reimburse Executive
for all reasonable expenses associated with participation in Sheshunoff's CEO
Affiliation Group and other professional, business, trade and managerial
organizations related to Executive's employment.

     (d)  AUTOMOBILE. During the Period of Employment, Executive shall be
          ----------
entitled to receive the use of an automobile of Executive's choosing, which
shall be owned or leased by the Company and have a purchase price not to exceed
$65,000, and reimbursement for reasonable expenses associated with the operation
and maintenance of such automobile. The Company will reimburse Executive upon
presentation of vouchers and documentation for any such operational and
maintenance expenses which are consistent with the usual accounting procedures
of the Company.

     (e)  CLUB MEMBERSHIPS.  During the Period of Employment, Executive shall
          ----------------
receive from the Company reimbursement for dues, initial and other expenses at
the Pacific Club or Balboa Bay Club, and a country club of Executive's choosing.
All such memberships shall be subject to approval by only the Chairman of the
Board of the Company and shall be owned by the Company, provided, however, that
if at the time of the termination of Executive's employment the value of any
such membership is greater than its purchase price, the Company shall pay to
Executive a lump sum cash payment equal to the difference in value.

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

     (g)  RELOCATION.  In the event Executive consents to a relocation requiring
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a move of residence, Company shall advance or reimburse Executive, on a grossed-
up basis at Executive's marginal tax rate, for all moving, house-hunting,
temporary housing, and real estate transaction costs for both sale and purchase
on a fully grossed up, after-tax basis.

     (h)  SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN.
          -------------------------------------

          (i)  Subject to the vesting requirements set forth in section 4(h)(ii)
below, Executive shall be entitled, upon reaching age sixty-five (65), to
receive from the Company monthly payments over a fifteen (15) year period
("Retirement Payments") on the following terms: (a) for each of the first five
(5) years following Executive's sixty-fifth (65th) birthday, Executive shall
receive monthly payments equal to seventy-five thousand dollars ($75,000) per

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year, the first such payment payable on Executive's sixty-fifth (65th) birthday;
(b) for each of years six (6) through ten (10) following Executive's sixty-fifth
(65th) birthday, Executive shall receive monthly payments equal to one hundred
thousand dollars ($100,000) per year; and (c) for each of years eleven (11)
through fifteen (15) following Executive's sixty-fifth (65th) birthday,
Executive shall receive monthly payments equal to one hundred twenty-five
thousand dollars ($125,000) per year.

          (ii)  The Retirement Payments set forth in section 4(h)(i) above shall
vest in the following manner: For each full month of Executive's employment
during the Period of Employment, Executive shall vest in one and one-half (1.5)
monthly Retirement Payments. If Executive's employment with the Company is
terminated under any circumstance in which Executive is entitled to the benefits
set forth in Section 6(b) of this Agreement, Executive shall, in addition to any
Retirement Payments previously vested, vest in the lesser of (i) the remaining
months of unvested Retirement Payments at the time of termination or (ii) an
additional twenty-four (24) months of Retirement Payments. If Executive's
employment is terminated in any other circumstance, Executive shall only be
entitled to those Retirement Payments that have become vested prior to the
termination of Executive's employment with the Company.

          (iii)  If Executive dies prior to the payment of any or all vested
Retirement Payments, such vested but unpaid Retirement Payments shall be paid to
Executive's heirs on the terms set forth in sections 4(h)(i) and (ii) above;
provided, however, that vested but unpaid Retirement Payments shall be paid to
Executive's heirs pursuant to the following payment schedule:

                 (1)  If Executive dies prior to his sixty-fifth (65th)
                      birthday, payment of the first Retirement Payment shall be
                      paid within thirty (30) days of the date of Executive's
                      death and all subsequent Retirement Payments shall be paid
                      monthly thereafter.

                 (2)  If Executive dies after his sixty-fifth (65th) birthday,
                      but prior to the payment of all vested Retirement
                      Payments, the Company shall pay Executive's heirs each of
                      the remaining Retirement Payments in conformance with the
                      payment schedule set forth in section 4(h)(i) above.

          (iv)  At or after the time the Company has commenced payment of the
Retirement Payments, Executive or, if applicable, his heirs shall have the
option of receiving any vested but unpaid Retirement Payments in a lump sum
discounted to present value at a discount rate specified by the Company at the
time of the discount. In order to be entitled to receive such lump sum payment,
Executive or his heirs must provide written notice to the Company of such
election.

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

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5.   DEATH OR DISABILITY

     (a)  DEFINITION OF PERMANENTLY DISABLED AND PERMANENT DISABILITY.  For
          -----------------------------------------------------------
purposes of this Agreement, the terms "Permanently Disabled" and "Permanent
Disability" shall mean Executive's inability, because of physical or mental
illness or injury, to perform the essential function of his customary duties
pursuant to this Agreement, with or without reasonable accommodation, and the
continuation of such disabled condition for a period of one hundred twenty (120)
continuous days, or for not less than two hundred ten (210) days during any
continuous twenty-four (24) month period. Whether Executive is Permanently
Disabled shall be certified to the Company by a Qualified Physician (as
hereinafter defined). The determination of the individual Qualified Physician
shall be binding and conclusive for all purposes. As used herein, the term
"Qualified Physician" shall mean any medical doctor designated by Executive who
is licensed to practice medicine in the State of California. Executive and the
Company may in any instance, and in lieu of a determination by a Qualified
Physician, agree between themselves that Executive is Permanently Disabled.

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

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

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

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

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

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

6.   TERMINATION BY THE COMPANY

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

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

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

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

          (iv)  Executive's bad faith refusal to perform the duties of President
                and Chief Executive Officer.

     If Executive's employment is terminated for Cause, the termination shall
take effect on the effective date (pursuant to Section 24 ("Notices")) of
written notice of such termination to Executive.

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

     If the Company attempts to terminate Executive's employment pursuant to
this Section 6(a) and it is ultimately determined that the Company lacked Cause,
the provisions of Section 6(b) ("Termination by the Company-Termination Without
Cause") shall apply and, in addition to any other remedies that Executive may
have, Executive shall be entitled to receive the payments called for by Section
6(b) ("Termination by the Company-Termination Without Cause") with interest on
any past due payments at the rate of ten percent (10%) per year from the date on

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which the applicable payment would have been made pursuant to Section 6(b) plus
Executive's costs and expenses (including but not limited to reasonable
attorneys' fees) incurred in connection with such dispute and interest thereon
at the rate of ten percent (10%) per year from the date which the applicable
payment would have been made pursuant to Section 6(b) plus Executive's costs and
expenses (including but not limited to reasonable attorneys' fees) incurred in
connection with such dispute and interest thereon at the rate of ten percent
(10%) per year from the date of payment by Employee.

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

          (i)   a lump sum cash payment equal to the greater of (x) base salary
                and target bonus for the remainder of the contract term or (y)
                twenty-four (24) months base salary and target bonus; and

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

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

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

          (v)   continuation of all benefits, perquisites, and insurance
                payments by Company for a period of two (2) years from the
                effective date of termination.

     If Executive's employment is terminated for Cause, the termination shall
take effect on the effective date (pursuant to Section 24 ("Notices")) of
written notice of such termination to Executive. Executive shall be entitled to
payment of all cash portions of the severance compensation set forth in this
Section on a lump-sum basis on the date of termination.

7.   TERMINATION BY EMPLOYEE


     (a)  TERMINATION WITHOUT GOOD REASON.  Executive shall have the right to
          -------------------------------
terminate the Period of Employment and Executive's employment hereunder at any
time without

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Good Reason (as defined below) upon fifteen (15) days prior written notice of
such termination to the Company. Any such termination by the Executive without
Good Reason shall be treated for all purposes of this Agreement as a termination
by the Company for Cause and the provisions of Section 6(a) shall apply.

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

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

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

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

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

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

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

8.  EXPIRATION OF PERIOD OF EMPLOYMENT

     If either party elects not to extend the Period of Employment pursuant to
Section 2, unless Executive's employment is earlier terminated pursuant to
Sections 5, 6 or 7, termination of Executive's employment hereunder shall be
deemed to occur on the close of business on the

                                      -11-
<PAGE>

day immediately preceding the anniversary of the next Extension Date following
the delivery of the Non-Extension Notice pursuant to Section 2. If the Company
elects not to extend the Period of Employment, Executive's termination will be
treated for all purposes under this Agreement as a termination by the Company
without Cause under Section 6(b) as of the date of such notice. If Executive
elects not to extend the Period of Employment, Executive's termination will be
treated for all purposes under this Agreement as a termination by Executive
without Good Reason under Section 7(a).

9.  GROSS-UP

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

10. MEANS AND EFFECT OF TERMINATION

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

11. NON-COMPETITION

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

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

     (b)  Notwithstanding anything to the contrary in this Agreement, Executive
may, directly or indirectly, own, solely as an investment, securities of any
person engaged in the business of the Company or its affiliates which are
publicly traded on a national or regional stock exchange or on an over-the-
counter market if Executive (i) is not a controlling person of, or a

                                      -12-
<PAGE>

member of a group which controls, such person and (ii) does not, directly or
indirectly, own five percent (5%) or more of any class of securities of such
person.

12. CONFIDENTIALITY.

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

13. INDEMNIFICATION

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

14. ASSIGNMENT

     This Agreement is personal in its nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder; provided, however, that, in the event of a
merger, consolidation, or transfer or sale of all or substantially all of the
assets of the Company with or to any other individual(s) or entity, this
Agreement shall, subject to the provisions hereof, be binding upon and inure to
the benefit of such successor and such successor shall discharge and perform all
the promises, covenants, duties, and obligations of the Company hereunder.

15. GOVERNING LAW

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

                                      -13-
<PAGE>

16. ENTIRE AGREEMENT

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

17. MODIFICATIONS

     This Agreement shall not be modified by any oral agreement, either express
or implied, and all modifications hereof shall be in writing and signed by the
parties hereto.

18. WAIVER

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

19. NUMBER AND GENDER

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

20. SECTION HEADINGS

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

21. ARBITRATION

     Any controversy arising out of or relating to Executive's employment, this
Agreement, its enforcement or interpretation, or because of an alleged breach,
default, or misrepresentation in connection with any of its provisions, shall be
submitted to arbitration in Orange County, California, before a sole arbitrator
selected from Judicial Arbitration and Mediation Services, Inc., Orange County,
California, or its successor ("JAMS"), or if JAMS is no longer able to supply
the arbitrator, such arbitrator shall be selected from the American Arbitration
Association, and shall be conducted in accordance with the provisions of
California Civil Procedure Code (S)(S) 1280 et seq. as the exclusive remedy of
                                            -- ---
such dispute; provided, however, that provisional injunctive relief may, but
              --------  -------
need not, be sought in a court of law while arbitration proceedings are pending,
and any provisional injunctive relief granted by such court shall remain
effective until the matter is finally determined by the Arbitrator. Final
resolution of any dispute through arbitration may include any remedy or relief
which the Arbitrator deems just and equitable. Any

                                      -14-
<PAGE>

award or relief granted by the Arbitrator hereunder shall be final and binding
on the parties hereto and may be enforced by any court of competent
jurisdiction. The parties that they are hereby waiving any rights to trial by
jury in any action, proceeding or counterclaim brought by either of the parties
against the other in connection with any matter whatsoever arising out of or in
any way connected with this Agreement or Executive's employment.

22. ATTORNEYS' FEES

     Executive and the Company agree that in any dispute resolution proceedings
arising out of this Agreement, the prevailing party shall be entitled to its or
his reasonable attorneys' fees and costs incurred by it or him in connection
with resolution of the dispute in addition to any other relief granted.

23. SEVERABILITY

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

24. NOTICES

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

     (a)  if to the Company:

          Pacific Mercantile Bank
          Attention George Wells
          450 Newport Center Drive
          Newport Beach, California 92660

     (b)  if to Executive:

          Raymond E. Dellerba
          24901 Dana Maple
          Dana Point, CA  92629

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

                                      -15-
<PAGE>

25. COUNTERPARTS

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

26. WITHHOLDING TAXES

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

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


                              THE COMPANY:


                              By:    /s/  GEORGE WELLS
                                     -------------------------------------------

                              Name:       George H. Wells
                                     -------------------------------------------

                              Title:      Chairman, Board of Directors
                                     -------------------------------------------


                              EMPLOYEE:

                                        /s/ RAYMOND E. DELLERBA
                              --------------------------------------------------
                              Raymond E. Dellerba

                                      -16-
<PAGE>

                                  APPENDIX A
                                  ----------
                             (Gross-Up Provisions)


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

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

                                 Appendix A-1
<PAGE>

findings shall be deemed the binding determination with respect to the amount in
dispute, obligating the Company to make any payment as a result thereof within
10 days following the receipt of such third accounting firm's determination. All
fees and expenses of each of the accounting firms referred to in this Appendix A
shall be borne solely by the Company.

     (c)  (i)  Executive shall notify the Company in writing of any claim by the
Internal Revenue Service (or any successor thereof) or any state or local taxing
authority (individually or collectively, the "Taxing Authority") that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than 30 days
after Executive receives written notice of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid; provided, however, that failure by Executive to give such
notice within such 30-day period shall not result in a waiver or forfeiture of
any of Executive's rights under Section 10 and this Appendix A except to the
extent of actual damages suffered by the Company as a result of such failure.
Executive shall not pay such claim prior to the expiration of the 15-day period
following the date on which Executive gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes, interest, penalties
or additions to tax with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such 15-day period (regardless
of whether such claim was earlier paid as contemplated by the preceding
parenthetical) that it desires to contest such claim (and demonstrates to the
reasonable satisfaction of Executive its ability to make the payments to
Executive which may ultimately be required under this section before assuming
responsibility for the claim), Executive shall:

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

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

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

               (D)  permit the Company to participate in any proceedings
               relating to such claim; provided, however, that the Company shall
               bear and pay directly all attorneys fees, costs and expenses
               (including additional interest, penalties and additions to tax)
               incurred in connection with such contest and shall indemnify and
               hold Executive harmless, on an after-tax basis, for all taxes
               (including, without limitation, income and excise taxes),
               interest, penalties and additions to tax imposed in relation to
               such claim and in relation to the payment of such costs and
               expenses or indemnification. Without limitation on the foregoing
               provisions of this Appendix A, and to the extent its actions do
               not unreasonably interfere with or prejudice Executive's disputes
               with the Taxing Authority as to other issues, the Company shall
               control all proceedings taken in

                                 Appendix A-2
<PAGE>

               connection with such contest and, in its reasonable discretion,
               may pursue or forego any and all administrative appeals,
               proceedings, hearings and conferences with the Taxing Authority
               in respect of such claim and may, at its sole option, either
               direct Executive to pay the tax, interest or penalties claimed
               and sue for a refund or contest the claim in any permissible
               manner, and Executive agrees to prosecute such contest to a
               determination before any administrative tribunal, in a court of
               initial jurisdiction and in one or more appellate courts, as the
               Company shall determine; provided, however, that if the Company
               directs Executive to pay such claim and sue for a refund, the
               Company shall advance an amount equal to such payment to
               Executive, on an interest-free basis, and shall indemnify and
               hold Executive harmless, on an after-tax basis, from all taxes
               (including, without limitation, income and excise taxes),
               interest, penalties and additions to tax imposed with respect to
               such advance or with respect to any imputed income with respect
               to such advance, as any such amounts are incurred; and, further,
               provided, that any extension of the statute of limitations
               relating to payment of taxes, interest, penalties or additions to
               tax for the taxable year of Executive with respect to which such
               contested amount is claimed to be due is limited solely to such
               contested amount; and, provided, further, that any settlement of
               any claim shall be reasonably acceptable to Executive and the
               Company's control of the contest shall be limited to issues with
               respect to which a Gross-Up Payment would be payable hereunder,
               and Executive shall be entitled to settle or contest, as the case
               may be, any other issue.

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

               (iii) For purposes of this Appendix A, whether the Excise Tax is
          applicable to a Payment shall be deemed to be "finally determined"
          upon the earliest of: (A) the expiration of the 15-day period referred
          to in paragraph (c)(i) above if the Company has not notified Executive
          that it intends to contest the underlying claim, (B) the expiration of
          any period following which no right of appeal exists, (C) the date
          upon which a closing agreement or similar agreement with respect to
          the claim is executed by Executive and the Taxing Authority

                                 Appendix A-3
<PAGE>

          (which agreement may be executed only in compliance with this Appendix
          A), (D) the receipt by Executive of notice from the Company that it no
          longer seeks to pursue a contest (which shall be deemed received if
          the Company does not, within 15 days following receipt of a written
          inquiry from Executive, affirmatively indicate in writing to Executive
          that the Company intends to continue to pursue such contest).

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

                                 Appendix A-4