Exhibit 10.27
EARN-OUT AGREEMENT
     This EARN-OUT AGREEMENT (“Agreement”) is entered into as of May 15, 2009,
by and among Simonich Corporation, a California corporation (the “Company”),
Scott Simonich, the sole shareholder of the Company (“Simonich”), and Bank of
Commerce Holdings (together with any acquisition subsidiary that may be formed
for the purposes of effecting the transactions contemplated by this Agreement,
“BOCH”).
Stock Purchase Agreement; Capitalized Terms. Purchaser, Company and Simonich are
parties to an Stock Purchase Agreement, dated May 15, 2009 (the “Stock Purchase
Agreement”). Capitalized terms used herein have the respective meanings ascribed
thereto in the Stock Purchase Agreement unless otherwise defined herein.
Earn-Out Payment. The Earn-Out Payment (“Earn-Out Payment”) shall be calculated
and paid in the manner and on the terms and conditions set forth in this
Section 2.
               (a) Except as otherwise specified herein, BOCH shall make annual
installment payments (each, an “Earn-Out Installment Payment”) towards the
aggregate Earn-Out Payment in the event that BOCH has Allocations (as defined
below) equal to or in excess of the amounts set forth in the following tables.
Each table represents successive levels of Earn-Out Installment Payments that
Simonich may receive depending on the future performance of the Company. Except
as discussed in Section 2(d), the Earn-Out Payment shall be the cumulative
amount payable hereunder for the years 2010, 2011, and 2012.
     “Allocations” shall mean BOCH’s 51% share of the annual after tax profits
of the Company.
     (b) The maximum aggregate amount of the Earn-Out Payment is $1,000,000,
payable over the period described herein. The parties intend that Simonich will
be able to earn the $1,000,000 maximum Earn-Out Payment so long as the aggregate
Allocations to BOCH over the period 2010, 2011, and 2012 cumulate to at least
$1,950,000.
     (c) Subject to the over-ride payments described in Section 2(e), there
shall be three (3) levels of potential Earn Out Payments, labeled as
“Threshold,” “Target” and “Maximum”. The Earn-Out Installment Payment associated
with Threshold performance shall be $200,000 per year, calculated in accordance
with Table 1. The Earn-Out Installment Payment associated with Target
performance shall be $250,000 per year, calculated in accordance with Table 2.
The Earn-Out Installment Payment associated with Maximum performance shall be
$333,333.33 per year, calculated in accordance with Table 3. The Tables are set
out in Exhibit I attached to this Agreement.
     (d) With respect to any year, Simonich shall be eligible to receive the
highest level of Earn-Out Installment Payment associated with the aggregate
Allocations to BOCH in Tables 1, 2 and 3, net of any prior Earn-Out Installment
Payments made to Simonich. For years after 2012, until such time as Simonich
achieves the maximum aggregate Earn-Out Payment of $1,000,000, Simonich shall be
eligible to receive an Earn-Out Installment Payment equal to (1) up to $200,000,
if the Allocation to BOCH for such year is $500,000 or more, but less than
$625,000; (2) up to $250,000, if the Allocation to BOCH for such year is
$625,000 or more, but less than $750,000; or (3) up to $333,333, if the
Allocation to BOCH for such year is $750,000 or more. Once Simonich receives the
maximum aggregate Earn-Out Payment of $1,000,000, no

 

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

 

additional Earn-Out Payments shall be made. In calculating the Cumulative
Allocations for 2010, any Allocations occurring during 2009 shall be included.
     (e) If Simonich exceeds the Table 3 Maximum Target in any year, there shall
be an over-ride Earn-Out Payment made to Simonich equal to 50% of each dollar by
which the Cumulative Allocations to BOCH exceed the Maximum Target; provided,
however, that if Simonich is paid an over-ride Earn-Out Payment with respect to
any Cumulative Allocation, he cannot be paid in the following year with respect
to the same Cumulative Allocation amount. An over-ride Earn-Out Payment will be
available for performance exceeding the 2009 Maximum Target. An illustration of
the operation of the over-ride Earn-Out Payment is set out in Exhibit II
attached to this Agreement.
     (f) For purposes of all calculations of Allocations under this Agreement,
BOCH’s Chief Financial Officer shall prepare a statement of each such
calculation promptly after the end of each period for which Earn-Out Payments
can be earned (each, an “Earn-Out Period”), but in no event later than sixty
(60) days following the end of the relevant Earn-Out Period (subject to the
completion of the audit of BOCH’s financial statements by its outside auditor).
Copies of BOCH’s computation of Allocations shall be submitted in writing to
Simonich by BOCH and, unless Simonich notifies BOCH within forty-five (45) days
after receipt of such computation that he objects to such computation of
Allocations or Cumulative Allocations, as the case may be, the computation shall
be binding and conclusive for the purposes of this Agreement. Simonich shall
have access to the books and records of BOCH during regular business hours to
verify the computation of Allocations made by BOCH.
     (g) If Simonich notifies BOCH in writing within forty-five (45) days after
receipt of BOCH’s computation that it objects to the computation of Allocations
set forth therein, Simonich and BOCH shall negotiate in good faith to resolve
the dispute during the fifteen (15) day period following BOCH’s receipt of such
notification. If such dispute is not resolved within that period, it shall be
submitted for resolution in accordance with terms of the Stock Purchase
Agreement.
     (h) If no notice of objection is delivered by Simonich, BOCH shall make any
applicable Earn-Out Installment Payment not later than three (3) business days
after the earlier of the expiration of the 45-day period for delivery of such
notice of objection or the date Simonich notifies BOCH that the Allocation
calculation is accepted without objection. If a notice of objection is delivered
by Simonich, the Earn-Out Installment Payment will be made three (3) business
days after the date all disputed items are finally resolved.
                    (i) At Simonich’s election, the initial $100,000 of Earn-Out
Installment Payments shall be made in the form of BOCH common stock (the “Stock
Payment”) which shall be issued subject to a three-year lock up agreement
pursuant to which Simonich shall not be permitted to trade such shares. The
number of shares to be issued in connection with the Stock Payment shall be
calculated, at the time that it is earned, by dividing the BOCH common stock
trading price on the last trading date of the preceding calendar year into
$100,000. Any resulting fraction share shall be rounded upward to the nearest
whole share. The $100,000 of the Allocation represented by the Stock Payment,
which would be otherwise payable to Simonich as an Earn-Out Installment Payment
hereunder, shall be paid to BOCH.
Covenants. During the period when Earn-Out Payments may be earned (the “Term”),
the parties shall cause the Company to operate its business in a manner
consistent with the operations of Company prior to the formation of the Company,
except as augmented by the capital additions provided under the Stock Purchase
Agreement. In addition to, and not in limitation of, the foregoing, during the
Term, the Company shall not:

2

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

 

sell any of its assets outside the Ordinary Course of Business;
merge or consolidate with any other Person;
issue any shares of capital stock to any other Person;
dissolve, liquidate or otherwise end its business;
acquire any other Person, or acquire any material assets of any other Person
other than in the
Ordinary Course of Business.
Termination of Employment. In the event that the employment of Simonich is
terminated prior to all Earn-Out Installment Payments being earned, Simonich
shall nonetheless be entitled to receive Earn-Out Payments, if his employment is
terminated (a) by the Company without Cause or if Simonich either resigns his
employment for Good Reason (as defined in his Employment Agreement), or (b) as
the result of the Simonich’s death or disability. This Agreement, by itself,
shall not be deemed for any purposes to be an agreement to provide continued
employment or to amend the terms or any employment agreement that may exist
between Simonich and the Company.
Miscellaneous. This Agreement constitutes an agreement solely among the parties
hereto, and is not intended to and shall not confer any rights, remedies,
obligations or liabilities, legal or equitable, including any right of
employment, on any Person other than the parties hereto and their respective
successors, assigns and legal representatives, or otherwise constitute any
Person a third party beneficiary hereunder or by reason hereof. Neither party
may assign its rights or obligations under this Agreement without the express
written consent of the other party. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original agreement, but all
of which together shall constitute one and the same instrument. This Agreement
may only be amended or modified in writing signed by the party against whom
enforcement of such amendment or modification is sought. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, regardless of any other laws that might otherwise govern under
principles of conflicts of laws applicable thereto. Any legal proceeding to
enforce any provision of this Agreement or arising out of this Agreement must be
brought in the federal or state courts located in the State of California,
County of Shasta, and each of the parties consents to the jurisdiction of such
courts and waives any objection to venue laid therein. Process may be served on
any party anywhere in the world.

3

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

 

     IN WITNESS WHEREOF, the parties have caused this Earn-Out Agreement to be
duly executed and delivered as of the date first set forth above.

         
 
  COMPANY:    
 
       
 
  Simonich Corporation    
 
       
 
  /s/ Scott Simonich    
 
 
 
By: Scott Simonich    
 
  Title: President and Chief Executive Officer    
 
       
 
  SIMONICH:    
 
       
 
  /s/ Scott Simonich    
 
 
 
By: Scott Simonich    
 
       
 
  BOCH:    
 
       
 
  Bank of Commerce Holdings    
 
       
 
  /s/ Patrick J. Moty    
 
 
 
By: Patrick J. Moty    
 
  Title: President and Chief Executive Officer    

4