1997 Key Employee Stock Option Plan

BAY BANCSHARES, INC.


AMENDED AND RESTATED


1997 KEY EMPLOYEE STOCK OPTION PLAN


BAY BANCSHARES, INC.


AMENDED AND RESTATED


1997 KEY EMPLOYEE STOCK OPTION PLAN


TABLE OF CONTENTS


Section
------- ARTICLE I - PLAN


Purpose............................................................1.1
Effective Date of Plan.............................................1.2


ARTICLE II - DEFINITIONS


Affiliate..........................................................2.1
Board of Directors.................................................2.2
Change of Control..................................................2.3
Code...............................................................2.4
Committee..........................................................2.5
Company............................................................2.6
Disinterested Person...............................................2.7
Employee...........................................................2.8
Fair Market Value..................................................2.9
Incentive Option..................................................2.10
Nonqualified Option...............................................2.11
Option............................................................2.12
Option Agreement..................................................2.13
Outside Director..................................................2.14
Plan..............................................................2.15
Stock.............................................................2.16
10% Percent Stockholder...........................................2.17


ARTICLE III - ELIGIBILITY


ARTICLE IV - GENERAL PROVISIONS RELATING TO OPTIONS


Authority to Grant Options.........................................4.1
Dedicated Shares...................................................4.2
Non-Transferability................................................4.3
Requirements of Law................................................4.4
Changes in the Company's Capital Structure.........................4.5
Election Under Section 83(b) of the Code...........................4.6


-i-


ARTICLE V - OPTIONS


Type of Option.....................................................5.1
Option Price.......................................................5.2
Duration of Options................................................5.3
Amount Exercisable - Incentive Options.............................5.4
Exercise of Options................................................5.5
Exercise on Termination of Employment..............................5.6
Substitution Options...............................................5.7
No Rights as Stockholder...........................................5.8
Right to Put Stock to Company......................................5.9
Exercise Upon Change of Control...................................5.10


ARTICLE VI - ADMINISTRATION


ARTICLE VII - AMENDMENT OR TERMINATION OF PLAN


ARTICLE VIII - MISCELLANEOUS


No Establishment of a Trust Fund...................................8.1
No Employment Obligation...........................................8.2
Forfeiture ........................................................8.3
Tax Withholding....................................................8.4
Written Agreement..................................................8.5
Indemnification of the Committee and the
Board of Directors............................................8.6
Gender.............................................................8.7
Headings...........................................................8.8
Other Compensation Plans...........................................8.9
Other Options or Awards...........................................8.10
Governing Law.....................................................8.11


-ii-


ARTICLE I


PLAN


1.1 PURPOSE. This Plan is a plan for key employees of the Company and its Affiliates and is intended to advance the best interests of the Company, its Affiliates, and its stockholders by providing those persons who have substantial responsibility for the management and growth of the Company and its Affiliates with additional incentives and an opportunity to obtain or increase their proprietary interest in the Company, thereby encouraging them to continue in the employ of the Company or any of its Affiliates.


1.2 EFFECTIVE DATE OF PLAN. The Plan is effective January 1, 1997, if within one year of that date it shall have been approved by at least a majority vote of stockholders voting in person or by proxy at a duly held stockholders' meeting, or if the provisions of the corporate charter, by-laws or applicable state law prescribes a greater degree of stockholder approval for this action, the approval by the holders of that percentage, at a duly held meeting of stockholders. No Incentive Option shall be granted pursuant to the Plan after December 31, 2006.


-1-


ARTICLE II


DEFINITIONS


The words and phrases defined in this Article shall have the meaning set out in these definitions throughout this Plan, unless the context in which any such word or phrase appears reasonably requires a broader, narrower, or different meaning.


2.1 "AFFILIATE" means any parent corporation and any subsidiary corporation. The term "parent corporation" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of the action or transaction, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. The term "subsidiary corporation" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the action or transaction, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in the chain.


2.2 "CHANGE OF CONTROL" means the occurrence of one or more of the following events:


(a) Any "person", including a "syndication" or "group" as those terms are used in Section 13(d)(3) of the Securities Exchange Act of 1934, is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding voting securities;


(b) The Company is merged or consolidated with another corporation and immediately after giving effect to the merger or consolidation either (i) less than 80% of the outstanding voting securities of the surviving or resulting entity are then beneficially owned in the aggregate by (1) the stockholders of the Company immediately prior to such merger or consolidation, or (2) if a record date has been set to determine the stockholders of the Company entitled to vote on such merger or consolidation, the stockholders of the Company as of such record date, or (ii) the Board of Directors of the Company, or similar governing body, of the surviving or resulting entity does not have as a majority of its members the persons specified in clause (c)(i) and (ii) below;


(c) If at any time the following do not constitute a majority of the Board of Directors of the Company (or any successor entity referred to in clause (b) above):
(i) persons who are directors of the Company on
December 31, 1996; and


(ii) persons who, prior to their election as a director
of the Company (or successor entity if applicable) were
nominated, recommended or endorsed by a formal resolution of
the Board of Directors of the Company;


-2-


(d) If at any time during a calendar year a majority of the directors of the Company are not persons who were directors at the beginning of the calendar year; and
(e) the Company transfers substantially all of its assets to
another corporation which is a less than 80% owned subsidiary of the
Company.


2.3 "BOARD OF DIRECTORS" means the board of directors of the Company.


2.4 "CODE" means the Internal Revenue Code of 1986, as amended.


2.5 "COMMITTEE" means the Compensation Committee of the Board of Directors or such other committee designated by the Board of Directors. The Committee shall be comprised solely of at least two members who are both Disinterested Persons and Outside Directors.


2.6 "COMPANY" means Bay Bancshares, Inc.


2.7 "DISINTERESTED PERSON" means a "disinterested person" as that term is defined in Rule 16b-3 under the Securities Exchange Act of 1934.


2.8 "EMPLOYEE" means a person employed by the Company or any Affiliate to whom an Option is granted.


2.9 "FAIR MARKET VALUE" of the Stock as of any date means (a) the average of the high and low sale prices of the Stock on that date on the principal securities exchange on which the Stock is listed; or (b) if the Stock is not listed on a securities exchange, the average of the high and low sale prices of the Stock on that date as reported on the NASDAQ National Market System; or (c) if the Stock is not listed on the NASDAQ National Market System, the average of the high and low bid quotations for the Stock on that date as reported by the National Quotation Bureau Incorporated; or (d) if none of the foregoing is applicable, the average between the closing bid and ask prices per share of stock on the last preceding date on which those prices were reported or that amount as determined by the Committee in its sole discretion. In exercising its discretion, to the extent Stock is being purchased from the general public, Fair Market Value shall be the price set by the Board of Directors to purchase such Stock from the general public.


2.10 "INCENTIVE OPTION" means an option granted under this Plan which is designated as an "Incentive Option" and satisfies the requirements of Section 422 of the Code.


2.11 "NONQUALIFIED OPTION" means an option granted under this Plan other than an Incentive Option.


2.12 "OPTION" means both an Incentive Option and a Nonqualified Option granted under this Plan to purchase shares of Stock.


-3-


2.13 "OPTION AGREEMENT" means the written agreement which sets out the terms of an Option.


2.14 "OUTSIDE DIRECTOR" means a member of the Board of Directors serving on the Committee who satisfies Section 162(m) of the Code.


2.15 "PLAN" means the Bay Bancshares, Inc. 1997 Key Employee Stock Option Plan, as set out in this document and as it may be amended from time to time.


2.16 "STOCK" means the common stock of the Company, $. par value or, in the event that the outstanding shares of common stock are later changed into or exchanged for a different class of stock or securities of the Company or another corporation, that other stock or security.


2.17 "10% STOCKHOLDER" means an individual who, at the time the Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Affiliate. An individual shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, shall be considered as being owned proportionately by or for its stockholders, partners, or beneficiaries.


-4-


ARTICLE III


ELIGIBILITY


The individuals who shall be eligible to receive Options shall be those key employees as the Committee shall determine from time to time. However, no member of the Committee shall be eligible to receive any Option under any other plan of the Company or any of its Affiliates, if receipt of it would cause the individual not to be a Disinterested Person or Outside Director. The Board of Directors may designate one or more individuals who shall not be eligible to receive any Option under this Plan or under other similar plans of the Company.


-5-


ARTICLE IV


GENERAL PROVISIONS RELATING TO OPTIONS


4.1 AUTHORITY TO GRANT OPTIONS. The Committee may grant to those key Employees as it shall from time to time determine, Options under the terms and conditions of this Plan. Subject only to any applicable limitations set out in this Plan, the number of shares of Stock to be covered by any Option to be granted to an Employee shall be as determined by the Committee.


4.2 DEDICATED SHARES. The total number of shares of Stock with respect to which Options may be granted under the Plan shall be shares. The shares may be treasury shares or authorized but unissued shares. The maximum number of shares subject to Options which may be issued to any Employee under the Plan during each year is ______ shares. The number of shares stated in this Section 4.2 shall be subject to adjustment in accordance with the provisions of Section 4.5.


In the event that any outstanding Option shall expire or terminate for any reason or any Option is surrendered, the shares of Stock allocable to the unexercised portion of that Option may again be subject to an Option under the Plan.


4.3 NON-TRANSFERABILITY. Options shall not be transferab ...