Exhibit 10.23
 
AMENDMENT NO. 1 TO
DIRECTOR INDEXED COMPENSATION BENEFITS AGREEMENT
 
This Amendment, made and entered into by and between Heritage Bank of Commerce,
a bank chartered under the laws of the State of California (the “Bank”), and
James R. Blair, an individual residing in the State of California (the
“Director”), amends certain provisions of the Director Indexed Compensation
Benefits Agreement dated June 19, 1997 between the Bank and the Director (the
Agreement) for the purposes set forth hereinafter.
 
R E C I T A L S
 
WHEREAS, the Banks accountants, Deloitte & Touche LLP, have notified the Bank of
a change in the accounting treatment accorded to the Index Benefits under the
Agreement, which increases the benefits expense to the Bank;
 
WHEREAS, the Bank and the Director have agreed to delete the Index Benefits and
substitute a defined benefit payable during the Directors life in order to (a)
reduce the benefit expense increase caused by the change in accounting
treatment, and (b) maintain, to the extent feasible, a benefit entitlement which
is substantially equivalent, but not in excess of the projected Index Benefits
under the Agreement; and
 
WHEREAS, it is the intent of the Bank and the Director that this Amendment be
effective as of October 21, 1999, and except as amended herein, the terms and
conditions of the Agreement shall remain in full force and effect.
 
NOW, THEREFORE, in consideration of the services to be performed by the Director
in the future, as well as the mutual promises and covenants contained herein,
the Bank and the Director agree as follows:
 
A G R E E M E N T
 
1. The Agreement is hereby amended as follows:
 
a. The terms “Index”, “Indexed” and “Index Benefit”, whether plural or singular,
and all references to payments related thereto as set forth in the Agreement and
Schedules thereto, are hereby deleted.
 
b. All provisions in the Agreement which refer in any manner to payment or
distribution of Director Benefits following the Directors death to a
“beneficiary” or “designated beneficiary”, “Surviving Spouse’ or “spouse”,
“qualified personal representative”, “executor”, “administrator”, or “Director’s
estate”, along with any definitions of such terms, and Schedule C, are hereby
deleted.
 
c. The portion of subparagraphs 3.1, 3.2, and 4.2 which reads as follows:
“...payable (i) for the period designated in Schedule “D” in the case of the
balance in the Benefit Account and (ii) until the Director’s death in the case
of the Index Benefit defined in Schedule “B”., is hereby deleted from each such
subparagraph and a period inserted in lieu of the comma at the end of the text
remaining after such deletions.
 
d. The term “Employer” used in subparagraphs 3.2, 5.1, 5.2 and 5.4 is amended to
read “Bank”.
 
e. The last sentence of subparagraphs 5.1, 5.2, and 5.4 which reads as follows:
“The installments shall be payable (I) for the period designated in Schedule “D”
in the case of the balance in the Benefit Account and (ii) until the Executive’s
death in the case of the Index Benefit defined in Schedule “B”., is hereby
deleted from each such subparagraph
 
f. Subparagraphs 3.3 and 4.1 are hereby deleted and subparagraph 4.2 is
substituted in lieu of Paragraph 4.
 
g. An amended Schedule B in the form attached hereto as Exhibit 1 and
incorporated herein by this reference replaces and supersedes the prior Schedule
B in the Agreement.
 
h. Schedule D is hereby deleted.
 
i. All references to provisions of the Agreement which have been amended hereby
are themselves hereby amended to conform to such amended provisions.
 
2. Except as amended hereby, the Agreement remains in full force and effect as
of the date thereof.
 
BANK                                                      DIRECTOR
 
HERITAGE BANK OF
COMMERCE                                                                                                                
 

By:____________________________                                                                                                    
____________________________
              John E.
Rossell III                                                                                                                                 James
R. Blair
              President and CEO    
 
 
                                          
Dated: _____________,
2000                                          Dated: _______________, 2000
                              

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SPOUSAL CONSENT
 
I, ______________________, being the spouse of James R. Blair, after being
afforded the opportunity to consult with independent counsel of my choosing, do
hereby acknowledge that I have read, agree and consent to the foregoing
Amendment No. 1 to the Director Indexed Compensation Benefits Agreement between
the Bank and my spouse. I understand that Amendment No. 1 to the Agreement may
affect certain rights which I may have in the benefits provided for under
the terms of the Agreement and in which I may have a marital property interest.
 
 
 
Dated: ______________,
2000                                        _______________________________
 
 
 
 
 

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EXHIBIT 1
 
SCHEDULE B
 
DIRECTOR BENEFITS
 
A benefit account shall be established as a liability reserve account on the
books of the Bank for the benefit of the Director. The Director Benefits shall
be credited to the benefit account in an amount equal to One Thousand Dollars
($1,000.00) per year for each year of service as a member of the Board of
Directors of the Bank. The amount of Director Benefits payable under the
Agreement shall be increased at the rate of two percent (2%) each year from the
date of commencement of payments of the Director Benefits until the death of the
Director.
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 

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DIRECTOR INDEXED COMPENSATION BENEFITS AGREEMENT
 
This Agreement is made and entered into effective as of June 19, 1997 by and
between Heritage Bank of Commerce, a bank chartered under the laws of the State
of California (the “Bank”), and James R. Blair, an individual residing in the
State of California (the “Director”).
 
R E C I T A L S
 
WHEREAS; the Director is a member of the Board of Directors of the Bank and has
served in such capacity since June 8, 1994, the approximate date of the Bank’s
organization;
 
WHEREAS, the Bank desires to establish a compensation benefit for directors who
are not also officers or employees of the Bank in order to attract and retain
individuals with extensive and valuable experience as directors; and
 
WHEREAS, the Director and the Bank wish to specify in writing the terms and
conditions upon which this additional compensatory incentive will be provided to
the Director, or to the Director’s spouse or designated beneficiaries, as the
case may be.
 
NOW, THEREFORE, in consideration of the services to be performed by the Director
in the future, as well as the mutual promises and covenants contained herein,
the Director and the Bank agree as follows:
 
A G R E E M E N T
 
1. Terms and Definitions.
 
1.1 Administrator.  The Bank shall be the “Administrator” and, solely for the
purposes of ERISA as defined in subparagraph 1.9 below, the “fiduciary” of this
Agreement where a fiduciary is required by ERISA.
 
1.2 Applicable Percentage.  The term “Applicable Percentage” shall mean that
percentage adjacent to a calendar period listed on Schedule “A” attached hereto,
which percentage shall remain in effect until an adjustment occurs on each
succeeding calendar period during the term of service as a member of the Board
of Directors of the Bank.  Notwithstanding the foregoing or the percentages set
forth on Schedule “A,” but subject to all other terms and conditions set forth
herein, the “Applicable Percentage” shall be:  (i) provided payments have not
yet begun hereunder, one hundred percent (100%) upon termination of service
described in subparagraph 5.4 pursuant to a “Change in Control” as defined in
subparagraph 1.4 below, or the Director’s death, or Disability as defined in
subparagraph 1.6 below, which death or Disability occurs prior to termination of
service; and (ii) notwithstanding subclause (i) of this subparagraph 1.2, zero
percent (0%) in the event the Director takes any intentional action which
prevents the Bank from collecting the proceeds of any life insurance policy
which the Bank may happen to own at the time of the Director’s death and of
which the Bank is the designated beneficiary.  Furthermore, notwithstanding the
foregoing, or anything contained in this Agreement to the contrary, in the event
the Director takes any intentional action which prevents the Bank from
collecting the proceeds of any life insurance policy which the Bank may happen
to own at the time of the Director’s death and of which the Bank is the
designated beneficiary:  (1) the Director’s estate or designated beneficiary
shall no longer be entitled to receive any of the amounts payable under the
terms of this Agreement, and (2) the Bank shall have the right to recover from
the Director’s estate all of the amounts paid to the Director’s estate (with
respect to amounts paid prior to the Director’s death or paid to the Director’s
estate) or designated beneficiary (with respect to amounts paid to the
designated beneficiary) pursuant to the terms of this Agreement prior to and
after the Director’s death.
 
1.3 Beneficiary:  The term “beneficiary” or “designated beneficiary” shall mean
the person or persons whom the Director shall designate in a valid Beneficiary
Designation, a copy of which is attached hereto as Schedule “C,” to receive the
benefits provided hereunder.  A Beneficiary Designation shall be valid only if
it is in the form attached hereto and made a part hereof, completed and signed
by the Director and is received by the Administrator prior to the Director’s
death.
 
1.4 Change in Control.   The term “Change in Control” shall mean the occurrence
of any of the following events with respect to the Bank (with the term “Bank”
being defined for purposes of determining whether a “Change in Control” has
occurred to include any parent bank holding company organized at the direction
of the Bank to own 100% of the Bank’s outstanding common stock):  (i) a change
in control of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), or in response to any other form
or report to the regulatory agencies or governmental authorities having
jurisdiction over the Bank or any stock exchange on which the Bank’s shares are
listed which requires the reporting of a change in control; (ii) any merger,
consolidation or reorganization of the Bank in which the Bank does not survive;
(iii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition
(in one transaction or a series of transactions) of any assets of the Bank
having an aggregate fair market value of fifty percent (50%) of the total value
of the assets of the Bank, reflected in the most recent balance sheet of the
Bank; (iv) a transaction whereby any “person” (as such term is used in the
Exchange Act) or any individual, corporation, partnership, trust or any other
entity becomes the beneficial owner, directly or indirectly, of securities of
the Bank representing twenty-five percent (25%) or more of the combined voting
power of the Bank’s then outstanding securities; or (v) a situation where, in
any one-year period, individuals who at the beginning of such period constitute
the Board of Directors of the Bank cease for any reason to constitute at least a
majority thereof, unless the election, or the nomination for election by the
Bank’s shareholders, of each new director is approved by a vote of at least
three-quarters (3/4) of the directors then still in office who were directors at
the beginning of the period.
 

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Notwithstanding the foregoing or anything else contained herein to the contrary,
there shall not be a “Change of Control” for purposes of this Agreement if the
event which would otherwise come within the meaning of the term “Change of
Control” involves (i) a reorganization at the direction of the Bank solely to
form a parent bank holding company which owns 100% of the Bank’s common stock
following the reorganization, or (ii) an Employee Stock Ownership Plan sponsored
by the Bank or its parent holding company which is the party that acquires
“control” or is the principal participant in the transaction constituting a
“Change in Control,” as described above.
 
1.5 The Code.  The “Code” shall mean the Internal Revenue Code of 1986, as
amended (the “Code”).
 
1.6 Disability/Disabled.  The term “Disability” or “Disabled” shall mean bodily
injury or disease (mental or physical) which wholly and continuously prevents
the performance of duty for at least three months including, without limitation,
the total irrecoverable loss of the sight in both eyes or the loss by severance
of both hands at or above the wrist or of both feet at or above the ankle or of
one hand at or above the wrist and one foot at or above the ankle.
 
1.7 Early Retirement Date.  The term “Early Retirement Date” shall mean the
Retirement, as defined below, of the Director on a date which occurs prior to
the Director attaining sixty-two (62) years of age, but after the Director has
attained fifty-five (55) years of age written above.
 
1.8 Effective Date.  The term “Effective Date” shall mean the date first written
above.
 
1.9 ERISA.  The term “ERISA” shall mean the Employee Retirement Income Security
Act of 1974, as amended.
 
1.10 Director Benefits.  The term “Director Benefits” shall mean the benefits
determined in accordance with Schedule “B”, and reduced to the extent:  (i)
required under the other provisions of this Agreement, including, but not
limited to, Paragraphs 5, 6 and 7 hereof; (ii) required by reason of the lawful
order of any regulatory agency or body having jurisdiction over the Bank; or
(iii) required in order for the Bank to properly comply with any and all
applicable state and federal laws, including, but not limited to, income,
employment and disability income tax laws (e.g., FICA, FUTA, SDI).
 
1.11 Plan Year.  The term “Plan Year” shall mean the Bank’s fiscal year.
 
1.12 Retirement.  The term “Retirement” or “Retires” shall refer to the date
which the Director acknowledges in writing to the Bank to be the last day of
service as a member of the Board of Directors of the Bank.
 
1.13 Surviving Spouse.  The term “Surviving Spouse” shall mean the person, if
any, who shall be legally married to the Director on the date of the Director’s
death.
 
1.14 Removal for Cause.  The term “removal for cause” shall mean termination of
a Director’s service as a member of the Board of Directors of the Bank by reason
of any of the following:
 
(a) The willful breach or habitual neglect by the Director of his
responsibilities and duties;
 
(b) The Director’s deliberate violation of (i) any state or federal banking or
securities laws, or of the Bylaws, rules, policies or resolutions of the Bank,
or (ii) the rules or regulations of the California Commissioner of Financial
Institutions, the Federal Deposit Insurance Corporation or any other regulatory
agency or governmental authority having jurisdiction over the Bank, which has a
material adverse effect upon the Bank;
 
(c) The determination by a state or federal court, banking agency or other
governmental authority having jurisdiction over the Bank, that the Director (i)
is of unsound mind, or (ii) has committed a gross abuse of authority or
discretion with reference to the Bank, or (iii) otherwise is not suitable to
continue to serve as a member of the Board of Directors of the Bank;
 
(d) The Director’s conviction of any felony or a crime involving moral turpitude
or a fraudulent or dishonest act; or
 
(e) The Director’s disclosure without authority of any secret or confidential
information not otherwise publicly available concerning the Bank or taking any
action which the Bank’s Board of Directors determines, in its sole discretion
and subject to good faith, fair dealing and reasonableness, constitutes unfair
competition with or inducement of any customer to breach any contract with the
Bank.
 
2. Scope, Purpose and Effect.
 
2.1 Contract of Employment.  Although this Agreement is intended to provide the
Director with an additional incentive to continue to serve as a member of the
Board of Directors of the Bank, this Agreement shall not be deemed to constitute
a contract of employment between the Director and the Bank nor shall any
provision of this Agreement restrict the right of the Bank to remove or cause
the removal of the Director including, without limitation, by (i) refusal to
nominate the Director for election for any successive term of office as a member
of the Board of Directors of the Bank, or (ii) complying with an order or other
directive from a court of competent jurisdiction or any regulatory authority
having jurisdiction over the Bank which requires the Bank to take action to
remove the Director.
 
2.2 Fringe Benefit.  The benefits provided by this Agreement are granted by the
Bank as a fringe benefit to the Director and are not a part of any salary
reduction plan or any arrangement deferring a bonus or a salary increase.  The
Director has no option to take any current payments or bonus in lieu of the
benefits provided by this Agreement.
 

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3. Payments Upon Early Retirement or Retirement and After Retirement.
 
3.1 Payments Upon Early Retirement.  The Director shall have the right to Retire
from the Board of Directors on a date which constitutes an Early Retirement Date
as defined in subparagraph 1.7 above.  In the event the Director elects to
Retire on a date which constitutes an Early Retirement Date, the Director shall
be entitled to be paid the Applicable Percentage of the Director Benefits, in
substantially equal monthly installments on the first day of each month,
beginning with the month following the month in which the Early Retirement Date
occurs or upon such later date as may be mutually agreed upon by the Director
and the Bank in advance of said Early Retirement Date, payable (i) for the
period designated in Schedule “D” in the case of the balance in the Benefit
Account and (ii) until the Director’s death in the case of the Index Benefit
defined in Schedule “B”.
 
3.2 Payments Upon Retirement.  If the Director shall continue to serve as a
member of the Board of Directors until attaining sixty-two (62) years of age,
the Director shall be entitled to be paid the Applicable Percentage of the
Director Benefits, in substantially equal monthly installments on the first day
of each month, beginning with the month following the month in which the
Director Retires or upon such later date as may be mutually agreed upon by the
Director and the Employer in advance of said Retirement date, payable (i) for
the period designated in Schedule “D” in the case of the balance in the Benefit
Account and (ii) until the Director’s death in the case of the Index Benefit
defined in Schedule “B”.  At the Bank’s sole and absolute discretion, the Bank
may increase the Director Benefits as and when the Bank determines the same to
be appropriate.
 
3.3 Payments in the Event of Death After Retirement.  The Bank agrees that if
the Director Retires, but shall die before receiving all of the Director
Benefits Payments specified in Schedule “B”, the Bank agrees to pay the
Applicable Percentage of the Director Benefits to the Director’s designated
beneficiary in lump sum.  If a valid Beneficiary Designation is not in effect,
then the remaining amounts due to the Director under the terms of this Agreement
shall be paid to the Director’s Surviving Spouse.  If the Director leaves no
Surviving Spouse, the remaining amounts due to the Director under the terms of
this Agreement shall be paid to the duly qualified personal representative,
executor or administrator of the Director’s estate.
 
4. Payments in the Event Death or Disability Occurs Prior to Retirement.
 
4.1 Payments in the Event of Death Prior to Retirement.  If the Director dies at
any time after the Effective Date of this Agreement, but prior to Retirement,
the Bank agrees to pay the Applicable Percentage of the Director Benefits to the
Director’s designated beneficiary in lump sum.  If a valid Beneficiary
Designation is not in effect, then the remaining amounts due to the Director
under the terms of this Agreement shall be paid to the Director’s Surviving
Spouse.  If the Director leaves no Surviving Spouse, the remaining amounts due
to the Director under the terms of this Agreement shall be paid to the duly
qualified personal representative, executor or administrator of the Director’s
estate.
 
4.2 Payments in the Event of Disability Prior to Retirement.  In the event the
Director becomes Disabled at any time after the Effective Date of this
Agreement, but prior to Retirement, the Director shall be entitled to the
Applicable Percentage of the Director Benefits, in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Director becomes Disabled, payable (i) for the period
designated in Schedule “D” in the case of the balance in the Benefit Account and
(ii) until the Director’s death in the case of the Index Benefit defined in
Schedule “B”.
 
5. Payments in the Event Employment Is Terminated Prior to Retirement.   As
indicated in subparagraph 2.1 above, the Bank reserves the right to remove or
cause the removal of the Director under certain circumstances, at any time prior
to the Director’s Retirement.  In the event that the service of the Director
shall be terminated, other than by reason of death, Disability or Retirement,
prior to the Director’s attaining sixty-two (62) years of age, then this
Agreement shall terminate upon the date of such termination; provided, however,
that the Director shall be entitled to the following benefits as may be
applicable depending upon the circumstances surrounding the Director’s
termination:
 
5.1 Termination Without Cause.  If the Director’s service as a member of the
Board of Directors of the Bank is terminated for reasons other than as specified
in paragraph 5.3 below, and such termination is not subject to the provisions of
subparagraph 5.4 below, the Director shall be entitled to be paid the Applicable
Percentage of the Director Benefits, in substantially equal monthly installments
on the first day of each month, beginning with the month following the month in
which the Director attains fifty-five (55) years of age or any month thereafter,
as requested in writing by the Director and delivered to the Employer or its
successor thirty (30) days prior to the commencement of installment payments;
provided, however, that in the event the Director does not request a
commencement date as specified, such installments shall be paid on the first day
of each month, beginning with the month following the month in which the
Director attains sixty-two (62) years of age.  The installments shall be payable
(i) for the period designated in Schedule “D” in the case of the balance in the
Benefit Account and (ii) until the Director’s death in the case of the Index
Benefit defined in Schedule “B”.
 
5.2 Voluntary Termination by the Director.  If the Director’s service as a
member of the Board of Directors of the Bank is terminated by voluntary
resignation, and such resignation is not subject to the provisions of
subparagraphs 5.3 or 5.4 below, the Director shall be entitled to be paid the
Applicable Percentage of the Director Benefits, in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Director attains fifty-five (55) years of age or any
month thereafter, as requested in writing by the Director and delivered to the
Employer or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Director does not
request a commencement date as specified, such installments shall be paid on the
first day of each month, beginning with the month following the month in which
the Director attains sixty-two (62) years of age.  The installments shall be
payable (i) for the period designated in Schedule “D” in the case of the balance
in the Benefit Account and (ii) until the Director’s death in the case of the
Index Benefit defined in Schedule “B”.
 
5.3 Termination by Removal for Cause.  The Director agrees that if the
Director’s service as a member of the Board of Directors of the Bank is
terminated by “removal for cause,” as defined in subparagraph 1.14 of this
Agreement, the Director shall forfeit any and all rights and benefits the
Director may have under the terms of this Agreement and shall have no right to
be paid any of the amounts which would otherwise be due or paid to the Director
by the Bank pursuant to the terms of this Agreement.
 

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5.4 Termination by the Bank on Account of or After a Change in Control.  In the
event that the Director’s service as a member of the Board of Directors of the
Bank is terminated in conjunction with, or by reason of, a “Change in Control”,
the Director shall be entitled to be paid the Applicable Percentage of the
Director Benefits, in substantially equal monthly installments on the first day
of each month, beginning with the month following the month in which the
Director attains fifty-five (55) years of age or any month thereafter, as
requested in writing by the Director and delivered to the Employer or its
successor thirty (30) days prior to the commencement of installment payments;
provided, however, that in the event the Director does not request a
commencement date as specified, such installments shall be paid on the first day
of each month, beginning with the month following the month in which the
Director attains sixty-two (62) years of age.  The installments shall be payable
(i) for the period designated in Schedule “D” in the case of the balance in the
Benefit Account and (ii) until the Director’s death in the case of the Index
Benefit defined in Schedule “B”.
 
6. Section 280G Benefits Reduction.  The Director acknowledges and agrees that
the parties have entered into this Agreement based upon certain financial and
tax accounting assumptions.  Accordingly, with full knowledge of the potential
consequences the Director agrees that, notwithstanding anything contained herein
to the contrary, in the event that any payment or benefit received or to be
received by the Director, whether payable pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the Bank (together
with the Director Benefits, the “Total Payments”), will not be deductible (in
whole or in part) as a result of Code Section 280G or other applicable
provisions of the Code, the Total Payments shall be reduced until no portion of
the Total Payments is nondeductible as a result of Section 280G or such other
applicable provisions of the Code.  For purposes of this limitation:
 
(a) No portion of the Total Payments, the receipt or enjoyment of which the
Director shall have effectively waived in writing prior to the date of payment
of any future Director Benefits payments, shall be taken into account;
 
(b) No portion of the Total Payments shall be taken into account, which in the
opinion of the tax counsel selected by the Bank and acceptable to the Director,
does not constitute a “parachute payment” within the meaning of Section 280G of
the Code;
 
(c) Any reduction of the Total Payments shall be applied to reduce any payment
or benefit received or to be received by the Director pursuant to the terms of
this Agreement and any other plan, arrangement or agreement with the Bank in the
order determined by mutual agreement of the Bank and the Director,
 
(d) Future payments shall be reduced only to the extent necessary so that the
Total Payments (other than those referred to in clauses (a) or (b) above in
their entirety) constitute reasonable compensation for services actually
rendered within the meaning of Section 280G of the Code, in the opinion of tax
counsel referred to in clause (b) above; and
 
(e) The value of any non-cash benefit or any deferred payment or benefit
included in the Total Payments shall be determined by independent auditors
selected by the Bank and acceptable to the Director in accordance with the
principles of Section 280G of the Code.
 
7. Right To Determine Funding Methods.  The Bank reserves the right to
determine, in its sole and absolute discretion, whether, to what extent and by
what method, if any, to provide for the payment of the amounts which may be
payable to the Director, the Director’s spouse or the Director’s beneficiaries
under the terms of this Agreement.  In the event that the Bank elects to fund
this Agreement, in whole or in part, through the use of life insurance or
annuities, or both, the Bank shall determine the ownership and beneficial
interests of any such policy of life insurance or annuity.  The Bank further
reserves the right, in its sole and absolute discretion, to terminate any such
policy, and any other device used to fund its obligations under this Agreement,
at any time, in whole or in part.  Consistent with Paragraph 9 below, neither
the Director, the Director’s spouse nor the Director’s beneficiaries shall have
any right, title or interest in or to any funding source or amount utilized by
the Bank pursuant to this Agreement, and any such funding source or amount shall
not constitute security for the performance of the Bank’s obligations pursuant
to this Agreement.  In connection with the foregoing, the Director agrees to
execute such documents and undergo such medical examinations or tests which the
Bank may request and which may be reasonably necessary to facilitate any funding
for this Agreement including, without limitation, the Bank’s acquisition of any
policy of insurance or annuity.  Furthermore, a refusal by the Director to
consent to, participate in and undergo any such medical examinations or tests
shall result in the immediate termination of this Agreement and the immediate
forfeiture by the Director, the Director’s spouse and the Director’s
beneficiaries of any and all rights to payment hereunder.
 
8. Claims Procedure.  The Bank shall, but only to the extent necessary to comply
with ERISA, be designated as the named fiduciary under this Agreement and shall
have authority to control and manage the operation and administration of this
Agreement.  Consistent therewith, the Bank shall make all determinations as to
the rights to benefits under this Agreement.  Any decision by the Bank denying a
claim by the Director, the Director’s spouse, or the Director’s beneficiary for
benefits under this Agreement shall be stated in writing and delivered or
mailed, via registered or certified mail, to the Director, the Director’s spouse
or the Director’s beneficiary, as the case may be.  Such decision shall set
forth the specific reasons for the denial of a claim.  In addition, the Bank
shall provide the Director, the Director’s spouse or the Director’s beneficiary
with a reasonable opportunity for a full and fair review of the decision denying
such claim.
 
9. Status as an Unsecured General Creditor.  Notwithstanding anything contained
herein to the contrary:  (i) neither the Director, the Director’s spouse or the
Director’s designated beneficiaries shall have any legal or equitable rights,
interests or claims in or to any specific property or assets of the Bank as a
result of this Agreement; (ii) none of the Bank’s assets shall be held in or
under any trust for the benefit of the Director, the Director’s spouse or the
Director’s designated beneficiaries or held in any way as security for the
fulfillment of the obligations of the Bank under this Agreement; (iii) all of
the Bank’s assets shall be and remain the general unpledged and unrestricted
assets of the Bank; (iv) the Bank’s obligation under this Agreement shall be
that of an unfunded and unsecured promise by the Bank to pay money in the
future; and (v) the Director, the Director’s spouse and the Director’s
designated beneficiaries shall be unsecured general creditors with respect to
any benefits which may be payable under the terms of this Agreement.
 
Notwithstanding subparagraphs (i) through (v) above, the Bank and the Director
acknowledge and agree that upon request of the Director at any time during the
term of this Agreement, a Rabbi Trust (the “Trust”) shall be established upon
such terms and conditions as may be mutually agreeable between the Bank and the
Director and that it is the intention of the Bank to make contributions and/or
transfer assets to the Trust in order to discharge its obligations pursuant to
this Agreement.  The principal of the Trust and any earnings thereon shall be
held separate and apart from other funds of the Bank to be used exclusively for
discharge of the Bank’s obligations pursuant to this Agreement and shall
continue to be subject to the claims of the Bank’s general creditors until paid
to the Director or its beneficiaries in such manner and at such times as
specified in this Agreement.
 

--------------------------------------------------------------------------------

10. Discretion of Board to Accelerate Payout.  Notwithstanding any of the other
provisions of this Agreement, the Board of Directors of the Bank may, if
determined in its sole and absolute discretion to be appropriate, accelerate the
payment of the amounts due under the terms of this Agreement, provided that
Director (or Director’s spouse or designated beneficiaries):  (i) consents to
the revised payout terms determined appropriate by the Bank’s Board of
Directors; and (ii) does not negotiate or in anyway influence the terms of
proposed altered/accelerated payout (said decision to be made solely by the
Bank’s Board of Directors and offered to the Director [or Director’s spouse or
designated beneficiaries] on a “take it or leave it basis”).
 
11. Miscellaneous.
 
11.1 Opportunity To Consult With Independent Advisors.  The Director
acknowledges that he has been afforded the opportunity to consult with
independent advisors of his choosing including, without limitation, accountants
or tax advisors and counsel regarding both the benefits granted to him under the
terms of this Agreement and the (i) terms and conditions which may affect the
Director’s right to these benefits and (ii) personal tax effects of such
benefits including, without limitation, the effects of any federal or state
taxes, Section 280G of the Code, and any other taxes, costs, expenses or
liabilities whatsoever related to such benefits, which in any of the foregoing
instances the Director acknowledges and agrees shall be the sole responsibility
of the Director notwithstanding any other term or provision of this
Agreement.  The Director further acknowledges and agrees that the Bank shall
have no liability whatsoever related to any such personal tax effects or other
personal costs, expenses, or liabilities applicable to the Director and further
specifically waives any right for himself or herself, and his or her heirs,
beneficiaries, legal representatives, agents, successors and assigns to claim or
assert liability on the part of the Bank related to the matters described above
in this subparagraph 11.1.  The Director further acknowledges that he has read,
understands and consents to all of the terms and conditions of this Agreement,
and that he enters into this Agreement with a full understanding of its terms
and conditions.
 
11.2 Arbitration of Disputes.  All claims, disputes and other matters in
question arising out of or relating to this Agreement or the breach or
interpretation thereof, other than those matters which are to be determined by
the Bank in its sole and absolute discretion, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc.  (“JAMS”),
located in San Francisco, California.  In the event JAMS is unable or unwilling
to conduct the arbitration provided for under the terms of this Paragraph, or
has discontinued its business, the parties agree that a representative member,
selected by the mutual agreement of the parties, of the American Arbitration
Association (“AAA”), located in San Francisco, California, shall conduct the
binding arbitration referred to in this Paragraph.  Notice of the demand for
arbitration shall be filed in writing with the other party to this Agreement and
with JAMS (or AAA, if necessary).  In no event shall the demand for arbitration
be made after the date when institution of legal or equitable proceedings based
on such claim, dispute or other matter in question would be barred by the
applicable statute of limitations.  The arbitration shall be subject to such
rules of procedure used or established by JAMS, or if there are none, the rules
of procedure used or established by AAA.  Any award rendered by JAMS or AAA
shall be final and binding upon the parties, and as applicable, their respective
heirs, beneficiaries, legal representatives, agents, successors and assigns, and
may be entered in any court having jurisdiction thereof.  The obligation of the
parties to arbitrate pursuant to this clause shall be specifically enforceable
in accordance with, and shall be conducted consistently with, the provisions of
Title 9 of Part 3 of the California Code of Civil Procedure.  Any arbitration
hereunder shall be conducted in San Jose, California, unless otherwise agreed to
by the parties.
 
11.3 Attorneys’ Fees.  In the event of any arbitration or litigation concerning
any controversy, claim or dispute between the parties hereto, arising out of or
relating to this Agreement or the breach hereof, or the interpretation hereof,
the prevailing party shall be entitled to recover from the non-prevailing party
reasonable expenses, attorneys’ fees and costs incurred in connection therewith
or in the enforcement or collection of any judgment or award rendered
therein.  The “prevailing party” means the party determined by the arbitrator(s)
or court, as the case may be, to have most nearly prevailed, even if such party
did not prevail in all matters, not necessarily the one in whose favor a
judgment is rendered.
 
11.4 Notice.  Any notice required or permitted of either the Director or the
Bank under this Agreement shall be deemed to have been duly given, if by
personal delivery, upon the date received by the party or its authorized
representative; if by facsimile, upon transmission to a telephone number
previously provided by the party to whom the facsimile is transmitted as
reflected in the records of the party transmitting the facsimile and upon
reasonable confirmation of such transmission; and if by mail, on the third day
after mailing via U.S. first class mail, registered or certified, postage
prepaid and return receipt requested, and addressed to the party at the address
given below for the receipt of notices, or such changed address as may be
requested in writing by a party.
 
 
 
If to the Bank:
Heritage Bank of Commerce

 
 
   150 Almaden Boulevard

 
 
   San Jose, California 95113

 
 
   Attn: Chairman of the Board

 
 
If to the Director:
11 Forrester Ct.

 
 
  Los Gatos , CA 95032

 

--------------------------------------------------------------------------------

 
11.5 Assignment.  Neither the Director, the Director’s spouse, nor any other
beneficiary under this Agreement shall have any power or right to transfer,
assign, anticipate, hypothecate, modify or otherwise encumber any part or all of
the amounts payable hereunder, nor, prior to payment in accordance with the
terns of this Agreement, shall any portion of such amounts be:  (i) subject to
seizure by any creditor of any such beneficiary, by a proceeding at law or in
equity, for the payment of any debts, judgments, alimony or separate maintenance
obligations which may be owed by the Director, the Director’s spouse, or any
designated beneficiary; or (ii) transferable by operation of law in the event of
bankruptcy, insolvency or otherwise.  Any such attempted assignment or transfer
shall be void and unenforceable without the prior written consent of the
Bank.  The Bank’s consent, if any, to one or more assignments or transfers shall
not obligate the Bank to consent to or be construed as the Bank’s consent to any
other or subsequent assignment or transfer.
 
11.6 Binding Effect/Merger or Reorganization.  This Agreement shall be binding
upon and inure to the benefit of the Director and the Bank and, as applicable,
their respective heirs, beneficiaries, legal representatives, agents, successors
and assigns.  Accordingly, the Bank shall not merge or consolidate into or with
another corporation, or reorganize or sell substantially all of its assets to
another corporation, firm or person, unless and until such succeeding or
continuing corporation, firm or person agrees to assume and discharge the
obligations of the Bank under this Agreement.  Upon the occurrence of such
event, the term “Bank” as used in this Agreement shall be deemed to refer to
such surviving or successor firm, person, entity or corporation.
 
11.7 Nonwaiver.  The failure of either party to enforce at any time or for any
period of time any one or more of the terns or conditions of this Agreement
shall not be a waiver of such term(s) or condition(s) or of that party’s right
thereafter to enforce each and every term and condition of this Agreement.
 
11.8 Partial Invalidity.  If any term, provision, covenant, or condition of this
Agreement is determined by an arbitrator or a court, as the case may be, to be
invalid, void, or unenforceable, such determination shall not render any other
term, provision, covenant or condition invalid, void or unenforceable, and the
Agreement shall remain in full force and effect notwithstanding such partial
invalidity.
 
11.9 Entire Agreement.  This Agreement supersedes any and all other agreements,
either oral or in writing, between the parties with respect to the subject
matter of this Agreement and contains all of the covenants and agreements
between the parties with respect thereto.  Each party to this Agreement
acknowledges that no other representations, inducements, promises, or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not set forth herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding on either party.
 
11.10 Modifications.  Any modification of this Agreement shall be effective only
if it is in writing and signed by each party or such party’s authorized
representative.
 
11.11 Paragraph Headings.  The paragraph headings used in this Agreement are
included solely for the convenience of the parties and shall not affect or be
used in connection with the interpretation of this Agreement.
 
11.12 No Strict Construction.  The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any person.
 
11.13 Governing Law.  The laws of the State of California, other than those laws
denominated choice of law rules, and, where applicable, the rules and
regulations of the California Commissioner of Financial Institutions and the
Federal Deposit Insurance Corporation, shall govern the validity,
interpretation, construction and effect of this Agreement.
 

IN WITNESS WHEREOF, the Bank and the Director have executed this Agreement on
the date first above-written in the City of San Jose, Santa Clara County,
California.
 
 

IN WITNESS WHEREOF, the Bank and the Director have executed this Agreement on
the date first above-written in the City of San Jose, Santa Clara County,
California.
 
 
BANK                                                             DIRECTOR
 
Heritage Bank of Commerce
 
 
By:
____________________________                                        _____________________________
          William J. Del Biaggio,
Jr.                                               James R. Blair
   Chairman of the Board of Directors

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SCHEDULE A
 
CALENDAR YEAR
APPLICABLE PERCENTAGE
   
June 8, 1994 to June 7, 1997
0.00%
   
June 8, 1997 to June 7, 1998 
36.00%
   
June 8, 1998 to June 7, 1999 
48.00%
   
June 8, 1999 to June 7, 2000 
60.00%
   
June 8, 2000 to June 7, 2001 
72.00%
   
June 8, 2001 to June 7, 2002 
84.00%
    June 8, 2002 and Thereafter 
100.00%

 
 
See subparagraph 1.2 of the Agreement for a definition and discussion of the
Applicable Percentage.
 

--------------------------------------------------------------------------------

SCHEDULE B
 
DIRECTOR BENEFITS
 
1.           Director Benefits Determination.
 
The Director Benefits shall be determined based upon the following:
 
a.           Benefit Account:
 
A Benefit Account shall be established as a liability reserve account on the
books of the Bank for the benefit of the Director.  Prior to the date on which
the Director becomes eligible to receive payments under the Agreement, such
Benefit Account shall be increased or decreased each Plan Year (including the
Plan Year in which the Director ceases to serve as a member of the Board of
Directors of the Bank) by an amount equal to the annual earnings or loss for
that Plan Year determined by the Index (described in subparagraph c below), less
the Opportunity Cost (described in subparagraph d below) for that Plan Year.
 
b.           Index Benefit:
 
After the date on which the Director becomes eligible to receive payments under
the Agreement, the Index Benefit for the Director for any Plan Year shall be
determined by subtracting the Opportunity Cost for that Plan Year from the
earnings, if any, established by the Index.
 
c.           Index:
 
The Index for any Plan Year shall be the aggregate annual after-tax income from
the life insurance contracts described hereinafter as defined by FASB Technical
Bulletin 85-4.  This Index shall be applied as if such insurance contracts were
purchased on the Effective Date.
 
Insurance Company:  Canada Life Assurance Company/US2650640 American General
Life Insurance Company/CM0000764L
 
If such contracts of life insurance are actually purchased by the Bank, then the
actual policies as of the dates purchased shall be used in calculations to
determine the Index and Opportunity Cost.  If such contracts of life insurance
are not purchased or are subsequently surrendered or lapsed, then the Bank shall
receive and use annual policy illustrations that assume the above described
policies were purchased from the above named insurance company(ies) on the
Effective Date to calculate the amount of the Index and Opportunity Cost.
 
d.           Opportunity Cost:
 
The Opportunity Cost for any Plan Year shall be calculated by multiplying (a)
the sum of (i) the total amount of premiums set forth in the insurance policies
described above, (ii) the amount of any Index Benefit (described at subparagraph
b above), and (iii) the amount of all previous years after-tax Opportunity
Costs; by (b) the average annualized after-tax cost of funds calculated using a
one-year U.S. Treasury Bill as published in the Wall Street Journal.  The
applicable tax rate used to calculate the Opportunity Cost shall be the Bank’s
marginal tax rate until the Director’s Retirement, or other termination of
service (including a Change in Control).  Thereafter, the Opportunity Cost shall
be calculated with the assumption of a marginal forty-two percent (42%)
corporate tax rate each year regardless of whether the actual marginal tax rate
of the Bank is higher or lower.
 
EXAMPLE
INDEX BENEFITS
 
[n]
End of
Year
[A]
Cash Surrender Value of Life Insurance Policy
[B]
Index
[Annual Policy Income]
An-An-1
[C]
Opportunity Cost
Ao = premium
Ao+Cn-1 x 0.5x (1-42%)
[D]
Annual
Benefit
B-C
 
Cumulative Benefit
D+Dn-1
0
$1,000,000
—
—
—
—
1
$1,050,000
$50,000
$29,000
$21,000
$21,000
2
$1,102,500
$52,500
$29,841
$22,659
$43,659
3
$1,157,625
$55,125
$30,706
$24,419
$68,078
.
.
.
         

 
Assumptions:                                           Initial Insurance =
$1,000,000
 
Effective Tax Rate = 42%
 
One Year US Treasury Yield = 5%
 
2.           Director Benefits Payments.
 
The Director shall be entitled to payment of the Applicable Percentage of (i)
the balance in the Benefit Account in installments upon the terms as specified
in the Agreement, and (ii) the Index Benefit for each Plan Year payable in
installments until the Director’s death.

--------------------------------------------------------------------------------

SCHEDULE C
 
BENEFICIARY DESIGNATION
 
To the Administrator of the Heritage Bank of Commerce Director Indexed
Compensation Benefits Agreement:
 
Pursuant to the Provisions of my Director Indexed Compensation Benefits
Agreement with Heritage Bank of Commerce, permitting the designation of a
beneficiary or beneficiaries by a participant, I hereby designate the following
persons and entities as primary and secondary beneficiaries of any benefit under
said Agreement payable by reason of my death:
 
Primary Beneficiary:
 
The Blair Family
Trust                                                     u/a/d  12/22/94  111
Forrester Ct., Los Gatos, CA 95032                __________________
Name                                                                                              
Address                                                                                           Relationship
 
 
Secondary (Contingent) Beneficiary:
 
______________________                                                           
______________________________                                           
___________________
Name                                                                                                 
                   
Address                                                                   Relationship
 
 
THE RIGHT TO REVOKE OR CHANCE ANY BENEFICIARY DESIGNATION IS HEREBY
RESERVED.  ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND
SECONDARY BENEFICIARIES ARE HEREBY REVOKED.
 
The Administrator shall pay all sums payable under the Agreement by reason of my
death to the Primary Beneficiary, if he or she survives me, and if no Primary
Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named
beneficiary survives me, then the Administrator shall pay all amounts in
accordance with the terms of my Director Indexed Compensation Benefits
Agreement.  In the event that a named beneficiary survives me and dies prior to
receiving the entire benefit payable under said Agreement, then and in that
event, the remaining unpaid benefit payable according to the terms of my
Director Indexed Compensation Benefits Agreement shall be payable to the
personal representatives of the estate of said beneficiary who survived me but
died prior to receiving the total benefit provided by my Director Indexed
Compensation Benefits Agreement.
 
Dated: June ___,
1997                                                                           _______________________              
      
 
           
     
 

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CONSENT OF THE DIRECTOR’S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
 
I,                                , being the spouse of James R.  Blair, after
being afforded the opportunity to consult with independent counsel of my
choosing, do hereby acknowledge that I have read, agree and consent to the
foregoing Beneficiary Designation which relates to the Director Indexed
Compensation Benefits Agreement entered into by my spouse effective as of June
19, 1997.  I understand that the above Beneficiary Designation may affect
certain rights which I may have in the benefits provided for under the terms of
the Director Indexed Compensation Benefits Agreement and in which I may have a
marital property interest.
 
Dated:  June___, 1997.
 

 

____________________________________________
 
 
____________________________________________
Type/Print Name
 

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SCHEDULE D
 
DISTRIBUTION ELECTION
 
Pursuant to the Provisions of my Director Indexed Compensation Benefits
Agreement with Heritage Bank of Commerce, I hereby elect to have any
distribution of the balance in my Benefit Account paid to me in installments as
designated below:
 
 
____
thirty-six (36) monthly installments with the amount of each installment
determined as of each installment date by dividing the entire amount in my
Benefit Account by the number of installments then remaining to be paid, with
the final installment to be the entire remaining balance in the Benefit Account.

 
 
____
sixty (60) monthly installments with the amount of each installment determined
as of each installment date by dividing the entire amount in my Benefit Account
by the number of installments then remaining to be paid, with the final
installment to be the entire remaining balance in the Benefit Account.

 
 
____
one hundred twenty (120) monthly installments with the amount of each
installment determined as of each installment date by dividing the entire amount
in my Benefit Account by the number of installments then remaining to be paid,
with the final installment to be the entire remaining balance in the Benefit
Account.

 
 
____
one hundred eighty (180) monthly installments with the amount of each
installment determined as of each installment date by dividing the entire amount
in my Benefit Account by the number of installments then remaining to be paid,
with the final installment to be the entire remaining balance in the Benefit
Account.

 
Dated:  June ___, 1997
 
 
Signed:________________________                                           
          James R. Blair