Document:

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                                                                    EXHIBIT 10.1

                            PACIFIC MERCANTILE BANK

                             1999 STOCK OPTION PLAN

     This 1999 STOCK OPTION PLAN (the "Plan") is hereby established by Pacific
Mercantile Bank, a California corporation (the "Company"), and adopted by its
Board of Directors as of March 2, 1999.

                                   Article 1.

                              PURPOSES OF THE PLAN
                              --------------------

     1.1  Purposes.  The purposes of the Plan are (a) to enhance the Company's
          --------
ability to attract and retain the services of officers and qualified employees
and directors, upon whose judgment, initiative and efforts the successful
conduct and development of the Company's business largely depends, and (b) to
provide additional incentives to such persons or entities to devote their utmost
effort and skill to the advancement and betterment of the Company, by providing
them an opportunity to participate in the ownership of the Company and thereby
have an interest in the success and increased value of the Company.

                                   Article 2.

                                  DEFINITIONS
                                  -----------

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

     2.1  Administrator.  "Administrator" means the Board or, if the Board
          -------------
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.

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

     2.3  Board.  "Board" means the Board of Directors of the Company.
          -----

     2.4  Change in Control.  "Change in Control" shall mean (i) the
          -----------------
acquisition, directly or indirectly, by any person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the
beneficial ownership of securities of the Company possessing more than fifty
percent (50%) of the total combined voting power of all outstanding securities
of the Company; (ii) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which is to
change the state in which the Company is incorporated; (iii) a reverse merger in
which the Company is the surviving entity but in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to or acquired by a person or
persons different from the persons holding those securities immediately prior to
such merger; (iv) the sale, transfer or other disposition of all or
substantially all of the assets of the Company; or (v) a complete liquidation or
dissolution of the Company.

     2.5  Code.  "Code" means the Internal Revenue Code of 1986, as amended from
          ----
time to time.

     2.6  Committee.  "Committee" means a committee of two or more members of
          ---------
the Board to which administration of the Plan is delegated, as set forth in
Section 6.1 hereof.
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     2.7  Common Stock.  "Common Stock" means the Common Stock, no par value, of
          ------------
the Company, subject to adjustment pursuant to Section 4.2 hereof.

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

     2.9  Effective Date.  "Effective Date" means the date on which the Plan is
          --------------
adopted by the Board, as set forth on the first page hereof.

     2.10  Exercise Price.  "Exercise Price" means the purchase price per share
           --------------
of Common Stock payable upon exercise of an Option.

     2.11  Fair Market Value.   "Fair Market Value" on any given date means the
           -----------------
value of one share of Common Stock, determined as follows:

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

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

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

     2.12  Incentive Option.  "Incentive Option" means any Option designated and
           ----------------
qualified as an "incentive stock option" as defined in Section 422 of the Code.

     2.13  Incentive Option Agreement.  "Incentive Option Agreement" means an
           --------------------------
Option Agreement with respect to an Incentive Option.

     2.14  NASD Dealer.  "NASD Dealer" means a broker-dealer that is a member of
           -----------
the National Association of Securities Dealers, Inc.

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

     2.16  Nonqualified Option Agreement.  "Nonqualified Option Agreement" means
           -----------------------------
an Option Agreement with respect to a Nonqualified Option.

                                       2
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     2.17  Option.  "Option" means any option to purchase Common Stock granted
           ------
pursuant to the Plan.

     2.18  Option Agreement.  "Option Agreement" means the written agreement
           ----------------
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.

     2.19  Optionee.  "Optionee" means an individual or entity who holds an
           --------
Option.

     2.20  10% Shareholder.  "10% Shareholder" means a person who, as of a
           ---------------
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.

                                   Article 3.

                                  ELIGIBILITY
                                  -----------

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

     3.2  Nonqualified Options.  Officers and other key employees and members of
          --------------------
the Board of the Company or of an Affiliated Company, and members of the Board
(whether or not they are employed by the Company or an Affiliated Company), are
eligible to receive Nonqualified Options under the Plan.

     3.3  Limitation on Shares.  In no event shall any Optionee be granted
          --------------------
Options in any one calendar year pursuant to which the aggregate number of
shares of Common Stock that may be acquired thereunder exceeds sixty thousand
(60,000) shares.

                                   Article 4.

                                  PLAN SHARES
                                  -----------

     4.1  Shares Subject to the Plan.  As of March 2, 1999, the date as of which
          --------------------------
this Plan was adopted by the Board, a total of one hundred sixty thousand
(160,000) shares of Common Stock are authorized for issuance under the Plan,
subject to adjustment as to the number and kind of shares pursuant to Section
4.2 hereof.  As of such date, a total 836,251 shares of Common Stock were
outstanding.  Upon the sale or issuance of additional shares of Common Stock by
the Company (other than shares issued pursuant to this Plan), the number of
shares of Common Stock that are authorized for issuance under this Plan shall be
increased in the same proportion as the increase in the number of outstanding
shares of Common Stock of the Company by reason of that sale and issuance of
additional shares.  By way of example, if the Company were to sell and issue a
number of shares of Common Stock, subsequent to March 2, 1999 (other than
pursuant to this Plan), which increases the total number of shares of Common
Stock that are outstanding by 20%, the number of shares of Common Stock
authorized to be issued under the Plan shall be increase by 20% (which would be
32,000 shares).  For purposes of the foregoing limitations, in the event that
(a) all or any portion of any Option granted or offered under the Plan can no
longer under any circumstances be exercised, or (b) any shares of Common Stock
are reacquired by the Company pursuant to an Incentive Option Agreement or
Nonqualified Option Agreement, the shares of Common Stock allocable to the
unexercised portion of such Option or the shares so reacquired, shall again be
available for grant or issuance under the Plan.

                                       3
<PAGE>

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

                                   Article 5.

                                    OPTIONS
                                    -------

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

     5.2  Exercise Price.  The Exercise Price per share of Common Stock covered
          --------------
by each Option shall be determined by the Administrator; provided, however, that
                                                         --------  -------
the Exercise Price of an Incentive or a Nonqualified Option shall not be less
than 100% of Fair Market Value on the date the Incentive Option is granted; and
provided, further, that, if the person to whom an Incentive Option is granted is
--------  -------
a 10% Shareholder on the date of grant, the Exercise Price shall not be less
than 110% of Fair Market Value on the date the Option is granted.

     5.3  Payment of Exercise Price.  Payment of the Exercise Price shall be
          -------------------------
made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by cash or check; or, subject
to the approval of the Administrator by any of the following methods of payment:
(a) the surrender of shares of Common Stock owned by the Optionee that have been
held by the Optionee for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (b) the
Optionee's promissory note in a form and on terms acceptable to the
Administrator; (c) the cancellation of indebtedness of the Company to the
Optionee; (d) the waiver of compensation due or accrued to the Optionee for
services rendered.  In addition, provided that a public market for the Common
Stock exists, payment may be made by means of: (x) a "same day sale" commitment
from the Optionee and an NASD Dealer whereby the Optionee irrevocably elects to
exercise the Option and to sell a portion of the shares so purchased to pay for
the Exercise Price and whereby the NASD Dealer irrevocably commits upon receipt
of such shares to forward the Exercise Price directly to the Company; or (y) a
"margin" commitment from the Optionee and an NASD Dealer whereby the Optionee
irrevocably elects to exercise the Option and to pledge the shares so purchased
to the NASD Dealer in a margin account as security for a loan from the NASD
Dealer in the amount of the Exercise Price, and whereby the NASD Dealer
irrevocably commits upon receipt of such shares to forward the Exercise Price
directly to the Company.  With the approval of the Administrator, payment may
also be made by any combination of the foregoing methods of payment or any other
consideration or method of payment as shall be permitted by applicable corporate
and banking laws.

                                       4
<PAGE>

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

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

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

     5.7  Nontransferability of Options.  No Option shall be assignable or
          -----------------------------
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be exercisable only by such Optionee; provided,
however, that, in the discretion of the Administrator, any Option may be
assigned or transferred in any manner which an "incentive stock option" is
permitted to be assigned or transferred under the Code.

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

                                   Article 6.

                           ADMINISTRATION OF THE PLAN
                           --------------------------

     6.1  Administrator.  Authority to control and manage the operation and
          -------------
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee").  Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
As used herein, the term "Administrator" means the Board or, with respect to any
matter as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee.

     6.2  Powers of the Administrator.  In addition to any other powers or
          ---------------------------
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options shall be granted, the number of shares to be represented by each Option
and the consideration to be received by the Company upon the exercise thereof;
(b) to interpret the Plan; (c) to create, amend or rescind rules and regulations
relating to the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of Option Agreements; (e) to determine the identity
or capacity of any persons who may be entitled to exercise an Optionee's rights
under any Option under the Plan; (f) to correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Option Agreement;
(g) to accelerate the vesting of any Option or release or waive any repurchase
rights of the Company; (h) to extend the exercise date of any Option; (i) to
provide for rights of first refusal and/or repurchase rights; (j) to amend
outstanding Option Agreements to provide for, among other things, any change or
modification which the Administrator could have provided for upon the grant of
an

                                       5
<PAGE>

Option or in furtherance of the powers provided for herein; and (k) to make
all other determinations necessary or advisable for the administration of the
Plan, but only to the extent not contrary to the express provisions of the Plan.
Any action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Optionees.

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

                                   Article 7.

                               CHANGE IN CONTROL
                               -----------------

     7.1  Change in Control.  In order to preserve an Optionee's rights in the
          -----------------
event of a Change in Control of the Company, (i) the time period relating to the
exercise or realization of all outstanding Options shall automatically
accelerate immediately prior to the consummation of such Change in Control, and
(ii) with respect to Options, the Administrator in its discretion may, at any
time an Option is granted, or at any time thereafter, take one or more of the
following actions:  (A) provide for the purchase or exchange of each Option for
an amount of cash or other property having a value equal to the difference, or
spread, between (x) the value of the cash or other property that the Optionee
would have received pursuant to such Change in Control transaction in exchange
for the shares issuable upon exercise of the Option had the Option been
exercised immediately prior to such Change in Control transaction and (y) the
Exercise Price of such Option, (B) adjust the terms of the Options in a manner
determined by the Administrator to reflect the Change in Control, (C) cause the
Options to be assumed, or new rights substituted therefor, by another entity,
through the continuance of the Plan and the assumption of outstanding Options,
or the substitution for such Options of new options of comparable value covering
shares of a successor corporation, with appropriate adjustments as to the number
and kind of shares and Exercise Prices, in which event the Plan and such
Options, or the new options substituted therefor, shall continue in the manner
and under the terms so provided, or (D) make such other provision as the
Administrator may consider equitable.  If the Administrator does not take any of
the forgoing actions, all Options shall terminate upon the consummation of the
Change in Control and the Administrator shall cause written notice of the
proposed transaction to be given to all Optionees not less than fifteen (15)
days prior to the anticipated effective date of the proposed transaction.

                                   Article 8.

                     AMENDMENT AND TERMINATION OF THE PLAN
                     -------------------------------------

     8.1  Amendments.  The Board may from time to time alter, amend, suspend or
          ----------
terminate the Plan in such respects as the Board may deem advisable.  No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any Optionee under an outstanding
Option Agreement without such Optionee's consent.  The Board may alter or amend
the Plan to comply with requirements under the Code relating to Incentive
Options or other types of options which give Optionees more favorable tax
treatment than that applicable to Options granted under this Plan as of the date
of its adoption.  Upon any such alteration or amendment, any outstanding Option
granted hereunder may, if the Administrator so determines and if permitted by
applicable law, be subject to the more favorable tax treatment afforded to an
Optionee pursuant to such terms and conditions.

                                       6
<PAGE>

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

                                   Article 9.

                                TAX WITHHOLDING
                                ---------------

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

                                  Article 10.

                                 MISCELLANEOUS
                                 -------------

     10.1  Benefits Not Alienable.  Other than as provided above, benefits under
           ----------------------
the Plan may not be assigned or alienated, whether voluntarily or involuntarily.
Any unauthorized attempt at assignment, transfer, pledge or other disposition
shall be without effect.

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

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

                                  Article 11.

                           EFFECTIVENESS OF THE PLAN
                           -------------------------

     11.1  Effectiveness of the Plan.  The Plan shall become effective and
           -------------------------
options maybe granted under the Plan commencing on the date that this Plan is
adopted by the Board of Directors of the Company, which was March 2, 1999.
Notwithstanding the foregoing, however, no options that may be granted under
this Plan shall become exercisable unless and until (i) the Plan is approved by
the Company's shareholders and (ii) the Company receives the approvals or
exemptions, if any, required to be obtained from regulatory agencies having
jurisdiction over the issuance of shares of stock by the Company under this
Plan.

                                       7<PAGE>

                                                                    EXHIBIT 10.2

                            PACIFIC MERCANTILE BANK

                             STOCK OPTION AGREEMENT
                             ----------------------

     Type of Option (check one):        [_]  Incentive      [_]  Nonqualified

     This Stock Option Agreement (the "Agreement") is entered into as of
________________, 1999, by and between Pacific Mercantile Bank, a California
corporation (the "Company"), and ____________________ (the "Optionee") pursuant
to the Company's 1999 Stock Option Plan (the "Plan").

     1.  Grant of Option.  The Company hereby grants to Optionee an option (the
         ---------------
"Option") to purchase all or any portion of a total of ___________________
(________) shares (the "Shares") of the Common Stock of the Company at a
purchase price of _________________________ ($_______) per share  (the "Exercise
Price"), subject to the terms and conditions set forth herein and the provisions
of the Plan.  If the box marked "Incentive" above is checked, then this Option
is intended to qualify as an "incentive stock option" as defined in Section 422
of the Internal Revenue Code of l986, as amended (the "Code").  If this Option
fails in whole or in part to qualify as an incentive stock option, or if the box
marked "Nonqualified" is checked, then this Option shall to that extent
constitute a nonqualified stock option.

     2.  Vesting of Option.  The right to exercise this Option shall vest in
         -----------------
installments, and this Option shall be exercisable from time to time in whole or
in part as to any vested installment, as follows:

                          This Option shall be
  On or After:            Exercisable as to:
  -----------             ------------------------

                    [To be Determined at the time of Grant]

No additional shares shall vest after the date of termination of Optionee's
"Continuous Service" (as defined in Section 3 below), but this Option shall
continue to be exercisable in accordance with Section 3 hereof with respect to
that number of shares that have vested as of the date of termination of
Optionee's Continuous Service.  If the Option is granted prior to the approval
of the Plan by the shareholders of the Company, then, notwithstanding anything
in this Agreement to the contrary, this Option shall not become exercisable
unless and until the Plan has been approved by the shareholders of the Company.

     3.   Term of Option.  Optionee's right to exercise this Option shall
          --------------
terminate upon the first to occur of the following:

          (a) the expiration of ten (10) years from the date of this Agreement;

          (b) the expiration of three (3) months from the date of termination of
Optionee's Continuous Service if such termination occurs for any reason other
than permanent disability, death or voluntary resignation; provided, however,
that if Optionee dies during such three-month period the provisions of Section
3(e) below shall apply;
<PAGE>

          (c) the expiration of one (1) month from the date of termination of
Optionee's Continuous Service if such termination occurs due to voluntary
resignation; provided, however, that if Optionee dies during such one-month
period the provisions of Section 3(e) below shall apply;

          (d) the expiration of one (1) year from the date of termination of
Optionee's Continuous Service if such termination is due to permanent disability
of the Optionee (as defined in Section 22(e)(3) of the Code);

          (e) the expiration of one (1) year from the date of termination of
Optionee's Continuous Service if such termination is due to Optionee's death or
if death occurs during either the three-month or one-month period following
termination of Optionee's Continuous Service pursuant to Section 3(b) or 3(c)
above, as the case may be; or

          (f) upon the consummation of a "Change in Control" (as defined in
Section 2.4 of the Plan), unless otherwise provided pursuant to Section 11
below.

As used herein, the term "Continuous Service" means (i) employment by either the
Company or any parent or subsidiary corporation of the Company, or by a
corporation or a parent or subsidiary of a corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the Code applies, which
is uninterrupted except for vacations, illness (except for permanent disability,
as defined in Section 22(e)(3) of the Code), or leaves of absence which are
approved in writing by the Company or any of such other employer corporations,
if applicable, (ii) service as a member of the Board of Directors of the Company
until Optionee resigns, is removed from office, or Optionee's term of office
expires and he or she is not reelected, or (iii) so long as Optionee is engaged
as a consultant or service provider to the Company or other corporation referred
to in clause (i) above.

     4.   Exercise of Option.  On or after the vesting of any portion of this
          ------------------
Option in accordance with Sections 2 or 11 hereof, and until termination of the
right to exercise this Option in accordance with Section 3 above, the portion of
this Option which has vested may be exercised in whole or in part by the
Optionee (or, after his or her death, by the person designated in Section 5
below) upon delivery of the following to the Company at its principal executive
offices:

          (a) a written notice of exercise which identifies this Agreement and
states the number of Shares then being purchased (but no fractional Shares may
be purchased);

          (b) a check or cash in the amount of the Exercise Price (or payment of
the Exercise Price in such other form of lawful consideration as the
Administrator may approve from time to time under the provisions of Section 5.3
of the Plan);

          (c) a check or cash in the amount reasonably requested by the Company
to satisfy the Company's withholding obligations under federal, state or other
applicable tax laws with respect to the taxable income, if any, recognized by
the Optionee in connection with the exercise of this Option (unless the Company
and Optionee shall have made other arrangements for deductions or withholding
from Optionee's wages, bonus or other compensation payable to Optionee, or by
the withholding of Shares issuable upon exercise of this Option or the delivery
of Shares owned by the Optionee in accordance with Section 10.1 of the Plan,
provided such arrangements satisfy the requirements of applicable tax laws); and

     5.   Death of Optionee; No Assignment.  The rights of the Optionee under
          --------------------------------
this Agreement may not be assigned or transferred except by will or by the laws
of descent and distribution, and may be exercised during the lifetime of the
Optionee only by such Optionee.  Any

                                       2
<PAGE>

attempt to sell, pledge, assign, hypothecate, transfer or dispose of this Option
in contravention of this Agreement or the Plan shall be void and shall have no
effect. If the Optionee's Continuous Service terminates as a result of his or
her death, and provided Optionee's rights hereunder shall have vested pursuant
to Section 2 hereof, Optionee's legal representative, his or her legatee, or the
person who acquired the right to exercise this Option by reason of the death of
the Optionee (individually, a "Successor") shall succeed to the Optionee's
rights and obligations under this Agreement. After the death of the Optionee,
only a Successor may exercise this Option.

     6.   Receipt of Plan by Optionee.  Optionee acknowledges receipt of a copy
          ---------------------------
of the Plan and understands that all rights and obligations connected with this
Option are set forth in this Agreement and in the Plan.

     7.   Adjustments Upon Changes in Capital Structure.  If the outstanding
          ---------------------------------------------
shares of Common Stock of the Company are hereafter increased or decreased or
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of a stock split, combination of shares,
reclassification, stock dividend or other similar change in the capital
structure of the Company, then appropriate adjustment shall be made by the
Administrator to the number of Shares subject to the unexercised portion of this
Option and to the Exercise Price per share, in order to preserve, as nearly as
practical, but not to increase, the benefits of the Optionee under this Option,
in accordance with the provisions of Section 4.2 of the Plan.

     8.   Change in Control.  In the event of a Change in Control (as defined in
          -----------------
Section 2.4 of the Plan) of the Company, (i) the vesting of this Option pursuant
to Section 2 above shall automatically accelerate immediately prior to the
consummation of such Change in Control, and (ii) the Administrator in its
discretion may take one or more of the following actions:  (A) provide for the
purchase or exchange of this Option for an amount of cash or other property
having a value equal to the difference, or spread, between (x) the value of the
cash or other property that the Optionee would have received pursuant to such
Change in Control transaction in exchange for the shares issuable upon exercise
of this Option had this Option been exercised immediately prior to such Change
in Control transaction and (y) the Exercise Price, (B) adjust the terms of this
Option in a manner determined by the Administrator to reflect the Change in
Control, (C) cause this Option to be assumed, or new rights substituted
therefor, by another entity, through the continuance of the Plan and the
assumption of this Option, or  the substitution for this Option of a  new option
of comparable value covering shares of a successor corporation, with appropriate
adjustments as to the number and kind of shares and Exercise Price, in which
event the Plan and this Option, or the new option substituted therefor, shall
continue in the manner and under the terms so provided, or (D) make such other
provision as the Administrator may consider equitable.  If the Administrator
does not take any of the forgoing actions, this Option shall terminate upon the
consummation of the Change in Control and the Administrator shall cause written
notice of the proposed transaction to be given to the Optionee not less than
fifteen (15) days prior to the anticipated effective date of the proposed
transaction.

     9.   No Employment Contract Created.  Neither the granting of this Option
          ------------------------------
nor the exercise hereof shall be construed as granting to the Optionee any right
with respect to continuance of employment by the Company or any of its
subsidiaries.  The right of the Company or any of its subsidiaries to terminate
at will the Optionee's employment at any time (whether by dismissal, discharge
or otherwise), with or without cause, is specifically reserved.

     10.  No Rights as Shareholder.  The Optionee (or transferee of this option
          ------------------------
by will or by the laws of descent and distribution) shall have no rights as a
shareholder with respect to any Shares

                                       3
<PAGE>

covered by this Option until the date of the issuance of a stock certificate or
certificates to him or her for such Shares, notwithstanding the exercise of this
Option.

     11.  "Market Stand-Off" Agreement.  Optionee agrees that, if requested by
          ----------------------------
the Company or the managing underwriter of any proposed public offering of the
Company's securities, Optionee will not sell or otherwise transfer or dispose of
any Shares held by Optionee without the prior written consent of the Company or
such underwriter, as the case may be, during such period of time, not to exceed
180 days following the effective date of the registration statement filed by the
Company with respect to such offering, as the Company or the underwriter may
specify.

     12.  Interpretation.  This Option is granted pursuant to the terms of the
          --------------
Plan, and shall in all respects be interpreted in accordance therewith.  The
Administrator shall interpret and construe this Option and the Plan, and any
action, decision, interpretation or determination made in good faith by the
Administrator shall be final and binding on the Company and the Optionee.  As
used in this Agreement, the term "Administrator" shall refer to the committee of
the Board of Directors of the Company appointed to administer the Plan, and if
no such committee has been appointed, the term Administrator shall mean the
Board of Directors.

     13.  Notices.  Any notice, demand or request required or permitted to be
          -------
given under this Agreement shall be in writing and shall be deemed given when
delivered personally or three (3) days after being deposited in the United
States mail, as certified or registered mail, with postage prepaid, and
addressed, if to the Company, at its principal place of business, Attention:
the Chief Financial Officer, and if to the Optionee, at his or her most recent
address as shown in the employment or stock records of the Company.

     14.  Annual and Other Periodic Reports.  During the term of this Agreement,
          ---------------------------------
the Company will furnish to the Optionee copies of all annual and other periodic
financial and informational reports that the Company distributes generally to
its shareholders.

     15.  Governing Law.  The validity, construction, interpretation, and effect
          -------------
of this Option shall be governed by and determined in accordance with the laws
of the State of California.

     16.  Severability.  Should any provision or portion of this Agreement be
          ------------
held to be unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.

     17.  Counterparts.  This Agreement may be executed in two or more
          ------------
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one instrument.

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

PACIFIC MERCANTILE BANK                    "OPTIONEE"

-----------------------------------        -------------------------------------
                                                           (Signature)
Name:
     ------------------------------
Title:
      -----------------------------        -------------------------------------
                                                    (Type or print name)

                                       4

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