Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT (the “Agreement”) is entered into by and between
HERITAGE COMMERCE CORP, a California bank holding company (the “Company”),
HERITAGE BANK OF COMMERCE, a California banking corporation (the “Bank”), and
Michael R. Ong, an individual (the “Executive”) as of August 12, 2008 (the
“Effective Date”).

 

RECITALS

 

WHEREAS, the Company is a California corporation and a bank holding Company
registered under the Bank Holding Company Act of 1956, as amended, subject to
the supervision and regulation of the Board of Governors of the Federal Reserve
System,

 

WHEREAS, the Company is the parent holding company for the Bank, which is a
California banking association, subject to the supervision and regulation of the
California Department of Financial Institution and the Federal Reserve Board,

 

WHEREAS, the Board of Directors of the Company and the Bank has approved and
authorized the entry into this Agreement with the Executive; and

 

WHEREAS, the parties desire to enter into this Agreement to set forth the terms
and conditions for the employment relationship of the Executive with the Company
and the Bank.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements herein contained and intending to be legally bound hereby, the
Company, the Bank and the Executive hereby agree as follows:

 

1.             Employment.

 

1.1           Title.  The Executive is employed as Executive Vice
President/Chief Risk Officer of the Bank.  In this capacity, the Executive shall
have such duties and responsibilities as may be designated to him by the
President of the Bank and in accordance with the objectives or policies of the
Board of Directors, from time to time, in connection with the business
activities of the Bank.

 

1.2           Devotion to Bank Business.  The Executive shall devote his full
business time, ability, and attention to the business of the Bank during the
term of this Agreement and shall not during the term of this Agreement engage in
any other business activities, duties, or pursuits whatsoever, or directly or
indirectly render any services of a business, commercial, or professional nature
to any other person or organization, whether for compensation or otherwise,
without the prior written consent of the Board of Directors of the Bank.  It
shall not be a violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (C) manage
personal investments, so long as such activities do not significantly interfere
with the performance of the Executive’s responsibilities as an employee of the
Bank in

 

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accordance with this Agreement.  Nothing in this Agreement shall be interpreted
to prohibit the Executive from making passive personal investments.  However,
the Executive shall not directly or indirectly acquire, hold, or retain any
interest in any business competing with or similar in nature to the business of
the Bank and the Company, except as permitted by Company policies or authorized
by the Chief Executive Officer of the Company.

 

1.3           Standard.  The Executive will set a high standard of professional
conduct given his role with the Bank and his responsibility relative to the
Bank’s presence and stature in the community.  The Executive will, at all times,
emulate this high professional standard of conduct in order to develop and
enhance the Bank’s reputation and image.  The Executive’s and his family’s
eligibility and all other terms and conditions of the Executive’s participation
in the Bank’s or Company’s benefit, insurance and disability plans and programs
will be governed by the official plan documents which may change from
year-to-year.  Notwithstanding the foregoing, at a minimum the Executive shall
be entitled to the same benefits as all other executives in comparable positions
with the Bank.  The Executive will comply with all applicable rules, policies
and procedures of the Bank and any of its subsidiaries and all pertinent
regulatory standards as may affect the Bank and the Company.

 

1.4           Location.  The Executive shall provide services for the Bank at
its principal executive offices located in San Jose California.  The Executive
agrees that the Executive will be regularly present at the Bank’s principal
executive offices and that the Executive may be required to travel from time to
time in the course of performing the Executive’s duties for the Bank.

 

1.5           No Breach of Contract.   The Executive hereby represents to the
Company and the Bank that:  (i) the execution and delivery of this Agreement by
the Executive and the performance by the Executive of the Executive’s duties
hereunder shall not constitute a breach of, or otherwise contravene, the terms
of any other agreement or policy to which the Executive is a party or by which
he is otherwise bound; (ii) that the Executive has no information (including,
without limitation, confidential information or trade secrets) of any other
person or entity which the Executive is not legally and contractually free to
disclose the Bank; and (iii) that the Executive is not bound by any
confidentiality, trade secret or similar agreement (other than this Agreement)
with any other person or entity.  Notwithstanding this provision, Executive has
disclosed the fact that he is subject to a nonsolicitation agreement with a
former employer Comerica Bank, which will expire on January 02, 2009.

 

2.             Term.  The term of this Agreement shall be a period of one
(1) year from the Effective Date, subject to the termination provisions of
Section 6.  Upon the occurrence of the first annual anniversary of the Effective
Date, and on each anniversary date thereafter, the term of this Agreement shall
be deemed automatically extended for an additional one (1) year term, subject to
the termination provisions of Section 6.

 

3.             Compensation.

 

3.1           Salary.  The Executive shall receive a salary at an annual rate of
$240,000 which will be paid in accordance with the Bank’s normal payroll
procedures including applicable adjustments for withholding taxes.  The
Executive shall receive such annual increases in salary,

 

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if any, as may be determined by the Company’s Board of Directors annual review
of the Executive’s compensation each year during the term of this Agreement. 
Participation in deferred compensation, discretionary or performance bonus,
retirement, stock option and other employee benefit plans and in fringe benefits
shall not reduce the annual rate.

 

3.2           Incentive Compensation.  The Executive shall be entitled to
receive an annual incentive compensation payment pursuant to the terms of the
Heritage Commerce Corp Management Incentive Compensation Plan in effect at the
date of this Agreement and as amended at any future date or pursuant to any
successor incentive plan or arrangement adopted by the Bank or the Company for
its officers (the “Incentive Plan”).  Notwithstanding any terms of the Incentive
Plan to the contrary, an annual payment under the Incentive Plan for a fiscal
year shall be paid to the Executive no later than the 15th day of the third
month following the end of the calendar year in which the annual incentive
compensation payment is no longer subject to a substantial risk of forfeiture. 
Except as set forth in the Incentive Plan or this Agreement, or in any successor
incentive plan or arrangement, no incentive compensation payments shall be
prorated for a partial year during the year Executive terminates his employment
and the Executive shall not be entitled to receive incentive compensation
payments for any year during the term of this Agreement in which Executive was
not employed by the Bank or the Company for the full fiscal year (not including
his initial year of employment).

 

3.3           2004 Stock Option Plan.  The Executive will receive a nonqualified
Stock Option grant of 25,000 shares of Common Stock pursuant to the terms of the
Company’s 2004 Stock Option Plan (the “2004 Plan”).  The exercise price will be
the Fair Market Value for the Company’s Common Stock on the date of grant as
defined in the 2004 Plan.  The Executive’s options will vest in daily increments
of 1/1460th from the date of grant until fully vested and shall expire ten years
from the date of grant.  All such options shall be subject to the terms and
conditions of the 2004 Plan and shall be conditioned upon the Executive’s
execution of an option agreement with the Company in a form specified by the
Company.

 

3.4           Other Benefits.  The Executive shall be entitled to those benefits
adopted by the Bank and the Company for all officers of the Bank, subject to
applicable qualification requirements and regulatory approval requirements, if
any.  To the extent that the level of such benefits is based on seniority or
compensation levels, the Company and the Bank shall make appropriate and
proportionate adjustments to the Executive’s benefits.  The Executive shall be
further entitled to the following additional benefits which shall supplement or
replace, to the extent duplicative of any part or all of the general officer
benefits, the benefits otherwise provided to the Executive:

 

(a)           Vacation.  The Executive shall be entitled to paid vacation in
accordance with the most favorable plans, policies, programs and practices of
the Bank as in effect for the Executive or for other executives in comparable
positions with the Bank; provided, however, that the Executive shall be entitled
to earn paid vacation at the rate of not less than 25 days vacation days for
each calendar year (reduced pro rata for any partial year), of which at least 10
days (reduced pro rata for any partial year) must be taken consecutively. 
Vacation may be accrued in accordance with the Company’s policy.  The date or
dates of vacation shall be determined by the Executive and the Bank’s President,
and will be subject to the Bank’s business requirements.

 

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(b)           Automobile Allowance and Insurance.  The Bank or the Company will
pay to the Executive an automobile allowance in the amount of $700 per month
during the term of this Agreement.  The Bank or the Company shall reimburse the
Executive for gasoline expenditures related to use of the automobile acquired or
used by the Executive upon presentation and approval of receipts, invoices or
other appropriate evidence of such expense in accordance with the policies of
the Bank or the Company.  The Executive shall acquire or otherwise make
available for his business and personal use an automobile suitable to his
position and maintain it in good condition and repair.  The Executive shall
obtain and maintain public liability insurance and property damage insurance
policies with insurer(s) acceptable to the Bank and the Company and with such
coverages in such amounts as may be acceptable to the Bank and the Company from
time to time.  The Bank or the Company may elect to provide and pay for such
insurance policies in lieu of the Executive maintaining such policies.

 

(c)           Insurance.  The Bank or the Company shall provide during the term
of this Agreement at no cost to the Executive group life, health (including
medical, dental, vision and hospitalization), accident and disability insurance
coverage for the Executive and his dependents through a policy or policies
provided by the insurer(s) selected by the Bank or the Company in their sole
discretion on the same basis as all other executives in comparable positions
with the Bank.

 

(d)           401(k).  The Company maintains a 401(k) plan for its eligible
employees.  Subject to the terms and conditions set forth in the official plan
documents, the Executive will be eligible to participate in the 401(k) plan, and
shall receive a matching contribution in accordance with the terms of the
401(k) plan from the Company.

 

(e)           Employee Stock Ownership Plan.  The Executive will be eligible to
participate in the Company’s Employee Stock Ownership Plan (“ESOP”), subject to
the terms and conditions of the ESOP.

 

3.5           Business Expenses; Memberships.  The Executive shall be entitled
to incur and be reimbursed for all reasonable business expenses.  The Bank
agrees that it will reimburse the Executive for all such expenses upon the
presentation by the Executive, from time to time, of an itemized account of such
expenditures setting forth the date, the purposes for which incurred, and the
amounts thereof, together with such receipts showing payments in conformity with
the Bank’s established policies.  Reimbursement shall be made within a
reasonable period after the Executive’s submission of an itemized account in
accordance with the Bank’s policies.  The Bank or the Company will reimburse the
Executive for the monthly dues at one country club of the Executive’s choice.

 

4.             Indemnity.  The Bank and the Company shall indemnify and hold the
Executive harmless from any cost, expense or liability arising out of or
relating to any acts or decisions made by the Executive on behalf of or in the
course of performing services for the Bank to the same extent the Bank and the
Company indemnifies and holds harmless other executive officers and directors of
the Bank and in accordance with the articles of incorporation, bylaws and
established policies of the Bank and the Company.

 

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5.             Certain Terms Defined.  For purposes of this Agreement:

 

5.1           “Accrued Obligations” means the sum of the Executive’s Base Salary
and accrued vacation through the Date of Termination to the extent not
theretofore paid, outstanding expense reimbursements and any compensation
previously deferred by the Executive to the extent not theretofore paid.

 

5.2           “Base Salary” means, as of any Date of Termination of employment,
the highest average salary of the Executive for any consecutive 12 months of the
last 36 months preceding such Date of Termination.

 

5.3           “Cause” shall mean (i) the Executive willfully breaches or
habitually neglects the duties which the Executive is required to perform under
this Agreement; (ii) the Executive commits an intentional act of moral turpitude
that has a material detrimental effect on the reputation or business of the Bank
or the Company; (iii) the Executive is convicted of a felony or commits any
material and actionable act of dishonesty, fraud, or intentional material
misrepresentation in the performance of the Executive’s duties under this
Agreement; (iv) the Executive engages in an unauthorized disclosure or use of
inside information, trade secrets or other confidential information; or (v) the
Executive willfully breaches a fiduciary duty, or violates any law, rule or
regulation, which breach or violation results in a material adverse effect on
the Company and the Bank (taken as a whole).  If the Bank decides to terminate
the Executive’s employment for Cause, the Bank will provide the Executive with
notice specifying the grounds for termination, accompanied by a brief written
statement stating the relevant facts supporting such grounds.

 

5.4           “Change of Control” shall mean, subject to the limitations of
Section 409A of the Code, set forth in Section 7 of this Agreement, the earliest
occurrence of one of the following events:

 

(a)           the acquisition (or acquisition during the 12 month period ending
on the date of the most recent acquisition) by any individual, entity, or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”) (a “Person”) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 40% or more of either (i) the then outstanding shares of common stock of the
Company (the “Outstanding the Company Common Stock”) or (ii) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (“Outstanding Company Voting
Securities”); provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control; (i) any
acquisition directly from the Company, (ii) any acquisition by the Company that
reduces the number of shares issued and outstanding through a stock repurchase
program or otherwise, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or the Bank or any
corporation controlled by the Company or the Bank or (iv) any acquisition by any
corporation pursuant to a transaction which complies with clauses (i), (ii) and
(iii) of subsection (c) of this Section 5.4; or

 

(b)           individuals who, as of the Effective Date, constitute the Board of
Directors of the Company (the “Incumbent Board”) cease for any reason other than
resignation, death or

 

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disability to constitute at least a majority of the Company’s Board of Directors
during any 12 month period; provided, however, that any individual becoming a
director subsequent to the Effective Date whose election, or nomination for
election by the Company’s shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Company’s Board of Directors; or

 

(c)           consummation of a reorganization, merger or consolidation of the
Company or the Bank, or sale or other disposition (in one transaction or a
series of transactions) of any assets of the Bank or the Company having a total
fair market value equal to, or more than, 40% of the total gross fair market
value of all of the assets of the Bank or the Company immediately prior to such
acquisition or acquisitions (a “Business Combination”), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Common Stock and Outstanding Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly, more than
50% of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns all or substantially all
of the Company’s or Bank’s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Common Stock
and Outstanding Voting Securities, as the case may be, (ii) no Person (excluding
any corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or the Bank or such corporation resulting
from such Business Combination) beneficially owns, directly or indirectly, 20%
or more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination, and
(iii) at least a majority of the members of the board of directors of the
corporation resulting from such Business Combination were members of the
Company’s Board of Directors at the time of the execution of the initial
agreement, or of the action of the Company’s Board of Directors, providing for
such Business Combination; or

 

(d)           approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.

 

5.5           “Code” means the Internal Revenue Code of 1986, as amended and any
successor provisions to such sections.

 

5.6           “Change of Control Period” shall mean the period of time
(a) commencing on the earlier of (i) 120 days before the date the Change of
Control occurs, or if earlier, 120 days before a definitive agreement is
executed by the Company or the Bank for a transaction described in
Section 5.4(c) (provided, however, that in the event of this subsection
(a)(i) the

 

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Executive reasonably demonstrates that his termination of employment should it
occur was either (x) at the request of a third party who has taken steps
reasonably calculated to effect a change in control, or (y) otherwise arose in
connection with a Change in Control), or (ii) the date the Change of Control
occurs, and (b) ending on the last day of the 24th calendar month immediately
following the month the Change of Control occurred.

 

5.7           “Date of Termination” means (i) if the Executive’s employment is
terminated due to the Executive’s death, the Date of Termination shall be the
date of death; (ii) if the Executive’s employment is terminated due to
Disability, the Date of Termination is the Disability Effective Date; (iii) if
the Executive’s employment is terminated by the Bank or the Company for Cause,
the Date of Termination is the date on which the Bank or the Company gives
notice to the Executive of such termination; (iv) if the Executive’s employment
is terminated by the Bank or the Company without Cause or voluntarily by the
Executive, the Date of Termination shall be the date specified in the notice of
termination; and (v) if the Executive’s employment terminates for any other
reason, the Date of Termination shall be the Executive’s final date of
employment.

 

5.8           “Disability” shall mean a physical or mental condition of the
Executive which occurs and persists and which, in the written opinion of a
physician selected by the Bank or its insurers and acceptable to the Executive
or the Executive’s legal representative, and, in the written opinion of such
physician, the condition will render the Executive unable to return to his
duties for an indefinite period of not less than 180 days.

 

5.9           “Highest Annual Bonus” shall mean the highest bonus or incentive
compensation amount paid to (or earned by) the Executive in any of the three
(3) fiscal years (or in any shorter number of years if the length of employment
of the Executive is less than three (3) years) immediately preceding the
termination.

 

6.             Termination.

 

6.1           This Agreement may be terminated for the following reasons:

 

(a)           Death.  This Agreement shall terminate automatically upon the
Executive’s death.

 

(b)           Disability.  In the event of the Executive’s Disability, the Bank
may give the Executive a notice of termination.  In such event, the Executive’s
employment  with the Bank and this Agreement shall terminate without further act
of the parties effective on the 30th day after receipt of such notice by the
Executive (the “Disability Effective Date”) provided, however, that within the
30 days after such receipt, the Executive shall not have returned to full-time
performance of the Executive’ duties.  Unless otherwise agreed in writing
between the Executive, the Bank and the Company, the Executive shall immediately
cease performing and discharging the duties and responsibilities of his
positions and remove himself and his personal belongings from the Bank’s and the
Company’s premises.  All rights and obligations accruing to the Executive under
this Agreement shall cease at such termination, except that such termination
shall not prejudice the Executive’s rights regarding employment benefits which
shall have

 

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accrued prior to such termination, and any other remedy which the Executive may
have at law, in equity or under this Agreement, which remedy accrued prior to
such termination.

 

(c)           Cause.  The Bank or the Company may terminate the Executive’s
employment and this Agreement for Cause.  Unless otherwise agreed in writing
between the Executive, the Bank and the Company, the Executive shall immediately
cease performing and discharging the duties and responsibilities of his
positions and remove himself and his personal belongings from the Bank’s and the
Company’s premises.  All rights and obligations accruing to the Executive under
this Agreement shall cease at such termination, except that such termination
shall not prejudice the Executive’s rights regarding employment benefits which
shall have accrued prior to such termination, and any other remedy which the
Executive may have at law, in equity or under this Agreement, which remedy
accrued prior to such termination.

 

(d)           Termination by Bank or the Company without Cause.  The Bank or the
Company may, at its election and in its sole discretion, terminate the
Executive’s employment and this Agreement at any time and for any reason or for
no reason, upon 30 days prior written notice to the Executive, without prejudice
to any other remedy to which the Bank or the Company may be entitled either at
law, in equity or under this Agreement.  Unless otherwise agreed in writing
between the Executive, the Bank and the Company, the Executive shall immediately
cease performing and discharging the duties and responsibilities of his
positions and remove himself and his personal belongings from the Bank’s and the
Company’s premises.  All rights and obligations accruing to the Executive under
this Agreement shall cease at such termination, except that such termination
shall not prejudice the Executive’s rights regarding employment benefits which
shall have accrued prior to such termination, including the right to receive the
severance benefits specified in Section 6.2(a) or 6.2(b) below, and any other
remedy which the Executive may have at law, in equity or under this Agreement,
which remedy accrued prior to such termination.

 

(e)           Voluntary Termination by Executive.  The Executive may terminate
his employment and this Agreement at any time and for any reason or no reason,
upon 30 days prior written notice to the Bank and the Company.  Unless otherwise
agreed in writing between the Executive, the Bank and the Company, the Executive
shall immediately cease performing and discharging the duties and
responsibilities of his positions and remove himself and his personal belongings
from the Bank’s and the Company’s premises All rights and obligations accruing
to the Executive under this Agreement shall cease at such termination, except
that such termination shall not prejudice the Executive’s rights regarding
employment benefits which shall have accrued prior to such termination and any
other remedy which the Executive may have at law, in equity or under this
Agreement, which remedy accrued prior to such termination.

 

6.2           Certain Benefits upon Termination.

 

(a)           Termination without Cause.  In the event this Agreement is
terminated based on Section 6.1(d) (termination without cause), then in such
case, the Executive shall receive the Accrued Obligations on the Date of
Termination, and severance benefits constituting of:

 

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(i)            cash payment in the amount equal to one (1) times the Executive’s
(A) Base Salary and (B) the Highest Annual Bonus, payable in a lump sum within
30 days of the Date of Termination, and

 

(ii)           continuation of group insurance coverages specified in
Section 3.4(c) of this Agreement on terms at least equal to those if the
Executive’s employment had not been terminated, but not less favorable than that
provided to other executives in comparable positions with the Bank, for a period
of 12 months from the Date of Termination, including, continuation of medical
coverage for the Executive and his dependents pursuant to The Consolidated
Omnibus Budget Reconciliation Act of 1985 (“COBRA”), or under applicable
California law pursuant to Assembly Bill No 1401 (“Cal COBRA”), with one hundred
percent (100%) of premiums for the insurance coverages payable by the Bank or
the Company monthly to the Executive for a period of 12 months from the Date of
Termination.  After expiration of the 12 month period, the Executive and his
dependents shall have such rights to continue to participate under the Bank’s or
the Company’s group insurance coverages specified in Section 3.4(c) of this
Agreement at the Executive’s expense to the extent available under the terms of
the plan or benefit.  The Executive agrees to notify the Bank or the Company as
soon as practicable, but not less than 10 business days in advance of the
commencement of comparable insurance coverages with another employer.  The
Bank’s obligation for the 12 month period specified herein with respect to the
foregoing benefits shall be limited to the extent that the Executive obtains any
such benefits pursuant to a subsequent employer’s benefit plans, in which case
the Bank may reduce the coverage of any benefits it is required to provide the
Executive hereunder so long as the aggregate coverages and benefits of the
combined benefit plans of the new employer are not substantially less favorable
to the Executive than the coverages and benefits required to be provided
hereunder.

 

Notwithstanding the foregoing or any other provision of this Agreement, if any
part or all of the severance benefits is subject to taxation under Section 409A
of the Code, as determined by the Bank or the Company, with the advice of its
independent accounting firm or other tax advisors, then the severance benefits
shall be subject to modification as set forth in Section 7 of this Agreement.

 

Notwithstanding the foregoing, when the Executive is entitled to the serverence
benefits provided in Section 6.2(b), then Executive shall not be entitled to the
severance benefits pursuant to this Section 6.2(a).

 

The Executive acknowledges and agrees that severance benefits pursuant to this
Section 6.2(a) are in lieu of all damages, payments and liabilities on account
of the early termination of this Agreement and are the sole and exclusive remedy
for the Executive for a termination specified in Section 6.1(d).

 

(b)           Termination and Change in Control.  In the event of a Change in
Control and at any time during the Change of Control Period (x) the Executive’s
employment is terminated, or (y) without Executive’s written consent there
occurs any material adverse change in the nature and scope of the Executive’s
position, responsibilities, duties, or a change of 10 miles or more in the
Executive’s location of employment, or any material reduction in Executive’s
compensation or benefits and Executive voluntarily terminates his employment,
then

 

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the Executive shall receive the Accrued Obligations on the Date of Termination,
and the severence benefits consisting of:

 

(i)            a cash payment in an amount equal to two (2) times the
Executive’s (A) Base Salary and (B) Highest Annual Bonus, payable in lump sum
within 30 days following such termination; and

 

(ii)           continuation of group insurance coverages specified in
Section 3.4 (c) of this Agreement on terms at least equal to those if the
Executive’s employment had not been terminated, but not less favorable than that
provided to other executives in comparable positions with the Bank, for a period
of 24 months from the Date of Termination, including continuation of medical
coverage for the Executive and his dependents pursuant to Consolidated Omnibus
Budget Reconciliation Act of 1985 (“COBRA”), or under applicable California law
pursuant to Assembly Bill No. 1401 (“Cal COBRA”), with one hundred percent
(100%) of premiums for the insurance coverages payable by the Bank or the
Company monthly to the Executive for a period of 18 months from the Date of
Termination and monthly reimbursement to the Executive for the next 6 months. 
After such expiration of the 24 month period, the Executive and his dependents
shall have such rights to continue to participate under the Bank’s or the
Company’s group insurance coverages specified in Section 3.4(c) of this
Agreement at the Executive’s expense to the extent available under the terms of
the plan or benefit.  The Executive agrees to notify the Bank or the Company as
soon as practicable, but not less than 10 business days in advance of the
commencement of comparable insurance coverages with another insurance carrier. 
The Bank’s obligation for the 24 month period specified herein with respect to
the foregoing benefits shall be limited to the extent that the Executive obtains
any such benefits pursuant to a subsequent employer’s benefit plans, in which
case the Bank may reduce the coverage of any benefits it is required to provide
the Executive hereunder so long as the aggregate coverages and benefits of the
combined benefit plans of the new employer are not substantially less favorable
to the Executive than the coverages and benefits required to be provided
hereunder.

 

Notwithstanding the foregoing or any other provision of this Agreement, if any
part or all of the severance benefits is subject to taxation under Section 409A
of the Code, as determined by the Bank or the Company, with the advice of its
independent accounting firm or other tax advisors, then the severance payment
shall be subject to modification as set forth hereafter in Section 7 of this
Agreement.

 

The Executive acknowledges and agrees that severance benefits pursuant to this
Section 6.2(b) are in lieu of all damages, payments and liabilities on account
of the events described above for which such severance benefits may be due the
Executive under Section 6.2(b)  of this Agreement.  This Section 6.2(b) shall be
binding upon and inure to the benefit of the Bank and the Company and their
respective successors and assigns.

 

Notwithstanding the foregoing, the Executive shall not be entitled to receive
severance benefits pursuant to this Section 6.2(b) in the event his termination
of employment results from an occurrence described in Sections 6.1(a), 6.1(b) or
6.1(c).

 

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(c)           Death.  If the Executive’s employment terminates by reason of the
Executive’s death, this Agreement shall terminate without further obligations to
the Executive’s legal representatives under this Agreement, other than for
payment of Accrued Obligations and any incentive compensation for the year in
which the death occurred prorated through the Date of Termination.  Accrued
Obligations shall be paid to the Executive’s estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination;
provided, however, that payment may be deferred until the Executive’s executor
or personal representative has been appointed and qualified pursuant to the laws
in effect in the Executive’s jurisdiction of residence at the time of the
Executive’s death.  The Executive’s estate and/or beneficiaries shall be
entitled to receive, benefits at least equal to the most favorable benefits
provided by the Bank to the estate and beneficiaries of other executives in
comparable positions with the Bank under such plans, programs, practices and
policies relating to death benefits, if any as in effect on the date of the
Executive’s death.

 

(d)           Disability.  If the Executive’s employment terminates during the
Term by reason of the Executive’s Disability, this Agreement shall terminate
without further obligations to the Executive under this Agreement, other than
for payment of Accrued Obligations, and any incentive compensation for the year
in which the termination occurs prorated through the Date of Termination and any
benefits under such plans, programs, practices and policies relating to
disability benefits, if any, as in effect on the Date of Termination.

 

(e)           Cause/Voluntary Termination.  If the Executive’s employment
terminates for Cause, this Agreement shall terminate without further obligations
to the Executive other than the obligation to pay to the Executive the Accrued
Obligations.  If the Executive’s employment terminates due to the Executive’s
voluntarily termination this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
the Accrued Obligations.

 

(f)            Single Trigger Event.  The provisions for payments contained in
this Section 6.2 may be triggered only once during the term of this Agreement,
so that, for example, should the Executive be terminated because of a Disability
and should there thereafter be a Change of Control, then the Executive would be
entitled to be paid only under Section 6.2(d) and not under Section 6.2(b), as
well. In addition, the Executive shall not be entitled to receive severance
benefits of any kind from any parent, wholly owned subsidiary or other
affiliated entity of the Bank or the Company if in connection with the same
event of series of events the payments provided for in this Section 6.2 have
been triggered.

 

7.             Section 409A Limitation.  It is the intention of the Bank, the
Company and the Executive that the severance benefits payable to the Executive
under Section 6.2 either be exempt from, or otherwise comply with, Section 409A
(“Section 409A”) of the Code.

 

Notwithstanding any other term or provision of this Agreement, to the extent
that any provision of this Agreement is determined by the Bank or the Company,
with the advice of its independent accounting firm or other tax advisors, to be
subject to and not in compliance with Section 409A, including, without
limitation, the definition of Change in Control or the timing of commencement
and completion of severance benefits and/or other benefit payments to the
Executive hereunder, or the amount of any such payments, such provisions shall
be interpreted in

 

11

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the manner required to exempt the benefit from or to comply with Section 409A. 
The Company, the Bank and the Executive acknowledge and agree that such
interpretation could, among other matters, (i) limit the circumstances or events
that constitute a “change in control;” (ii) delay for a period of 6 months or
more, or otherwise modify the commencement of severance and/or other benefit
payments; (iii) modify the completion date of severance and/or (iv) other
benefit payments and/or reduce the amount of the benefit otherwise provided.

 

The Company, Bank and the Executive further acknowledge and agree that if, in
the judgment of the Bank or the Company, with the advice of its independent
accounting firm or other tax advisors, amendment of this Agreement is necessary
to exempt the benefits from or to comply with Section 409A, the Bank, the
Company and the Executive will negotiate reasonably and in good faith to amend
the terms of this Agreement to the extent necessary so that it exempts the
benefits from or to comply with Section 409A (with the most limited possible
economic effect on the Bank, the Company and the Executive).  For example, if
this Agreement is subject to Section 409A and Section 409A requires that
severance and/or other benefit payments must be delayed until at least 6 months
after the Executive terminates employment, then the Bank, the Company and the
Executive shall delay payments and/or promptly seek a written amendment to this
Agreement that would, if permissible under Section 409A, eliminate any such
payments otherwise payable during the first 6 months following the Executive’s
termination of employment and substitute therefore a lump sum payment or an
initial installment payment, as applicable, at the beginning of the 7th month
following the Executive’s termination of employment which, in the case of an
initial installment payment, would be equal in the aggregate to the amount of
all such payments thus eliminated.  Notwithstanding the foregoing, (a) the
Executive and his dependents shall not be denied access to and participation in
any health or medical insurance coverage and benefits, for any period of time
the Executive and his dependants are otherwise eligible, and (b) the Executive
acknowledges and agrees that the Company or the Bank shall have the exclusive
authority to determine whether the Executive is a “specified employee” within
the meaning of Section 409A(a)(2)(B)(i).

 

8.             Gross Up Of Section 280G and 409A Tax.  If all or any portion of
the amounts payable to the Executive under this Agreement, either alone or
together with other payments or benefits which the Executive has the right to
receive from the Bank or the Company, constitute “excess parachute payments”
within the meaning of Section 280G of the Code, that are subject to the excise
tax imposed by Section 4999 of the Code (or similar tax and/or assessment) , or
any tax is imposed on the Executive under Section 409A, the Bank or the Company
(and its successor) shall increase the amounts payable under this Agreement to
the extent necessary to afford the Executive substantially the same economic
benefit under this Agreement as the Executive would have received had no such
excise tax under Section 280G or tax under Section 409A been imposed on the
payments due the Executive under this Agreement.  The determination of the
amount of any such taxes shall be made by the independent accounting firm
employed by the Bank or the Company, immediately prior to the Change in Control,
or such other independent accounting firm or advisor as may be mutually
agreeable to the Bank or the Company (and their respective successor), and the
Executive in the exercise of their reasonable good faith judgment.  If, at a
later date, it is determined (pursuant to final regulations or published rulings
of the Internal Revenue Service, final judgment of a court of competent
jurisdiction, or otherwise) that the amount of any such taxes payable to the
Executive is greater than the amount initially so determined, then the Bank or
the Company (or its successor) shall pay to the Executive an

 

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amount equal to the sum of such additional taxes and any interest, fines and
penalties resulting from such underpayment, plus an amount necessary to
reimburse the Executive substantially for any income, excise or other taxes
payable by the Executive with respect to such amounts.  All gross-up payments
made hereunder, shall be paid within the period specified by Treasury Regulation
Section 1.409A-3(i)(1)(v) so that the gross-up payment shall qualify as
providing for payment at a specified time or on a fixed schedule.

 

9.             Assignment.  This Agreement will inure to the benefit of and be
binding upon the Bank and the Company and any of their respective successors and
assigns.  In view of the personal nature of the services to be performed under
this Agreement by the Executive, the Executive will not have the right to assign
or transfer any of his rights, obligations or benefits under this Agreement. 
The Bank and the Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Bank or the Company to assume expressly and
agree to perform this Agreement in the same manner and to the same extent that
the Bank and the Company would be required to perform it if no such succession
had taken place.  As used in this Agreement, “Bank” or “the Company” shall mean
the Bank or the Company, as applicable, as hereinbefore defined and any
successor to the Company’s or Bank’s  business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.

 

10.           Specific Performance.  The Executive hereby represents and agrees
that the services to  be performed under the terms of this Agreement are of a
special, unique, unusual, extraordinary, and intellectual character that gives
them a peculiar value, the loss of which cannot be reasonably or adequately
compensated in damages in an action at law.  The Executive therefore expressly
agrees that the Bank and the Company, in addition to any other rights or
remedies that the Bank and the Company may possess, shall be entitled to
injunctive and other equitable relief to prevent or remedy a breach of this
Agreement by the Executive.

 

11.           Noncompetition, No solicitation And Nondisclosure By The Executive

 

(a)           Definitions.  The term “Trade Secrets” shall be given its broadest
possible interpretation and shall mean any information, including formulas,
patterns, compilations, reports, records, programs, devices, methods, know-how,
negative know-how, techniques, raw material properties and specifications,
formulations, discoveries, ideas, concepts, designs, technical information,
drawings, data, customer and supplier lists, information regarding customers,
buyers and suppliers, distribution techniques, production processes, research
and development projects, marketing plans, general financial information and
financial information concerning customers, the Company’s or the Bank’s legal,
business and financial structure and operations, and other confidential and
proprietary information or processes which (i) derive independent economic
value, actual or potential, from not being generally known to the public or to
other persons who can obtain economic value from its disclosure or use and
(ii) are the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.

 

The term “Proprietary Information” shall also be given its broadest possible
interpretation and shall mean any and all information disclosed or made
available by the Bank to the Executive including, without limitation, any
information which is not publicly known or available and upon which the Bank’s
business or success depends.

 

13

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(b)           The Executive shall not, during the term of this Agreement,
directly or indirectly, either as an employee, employer, consultant, agent,
principal, stockholder (except as permitted in Section 1.2 of this Agreement),
officer, director, or in any other individual or representative capacity, engage
or participate in any competitive banking or financial services business without
the prior written consent of the Board of Directors of the Bank or the Company.

 

(c)           Following termination of this Agreement and the Executive’s
employment hereunder, the Executive shall not use any Trade Secret or
Proprietary Information of the Bank or the Company or their affiliates and
subsidiaries to solicit, encourage or assist, directly, indirectly or in any
manner whatsoever, (i) any employees of the Bank, the Company or their
affiliates and subsidiaries (including any former employees who voluntarily
terminated employment with the Bank or the Company within a 12 month period
prior to the Executive’s termination of employment) to resign or to apply for or
accept employment with any other competitive banking or financial services
business within the counties in California in which the Bank has located its
headquarters or branch offices; or (ii) any customer, person or entity that has
a business relationship with the Bank or during the 12 month period prior to the
Executive’s termination of employment with the Bank was engaged in a business
relationship with the Bank, to terminate such business relationship and engage
in a business relationship with any other competitive banking or financial
services business within the counties in California in which the Bank has
located its headquarters or branch offices.

 

(d)           In addition and not as any limitation on the provisions of this
Section 11, following termination of this Agreement and the Executive’s
employment hereunder and for 12 months thereafter, the Executive shall not
directly or indirectly, individually or as a consultant to, or as an employee,
officer, stockholder, director or other owner of or participant in any business
entity that engages in or seeks to engage in any banking or financial services
business, solicit (or assist in soliciting) any person who is, or at any time
within 1 month prior to the Executive’s termination of employment was, an
employee of the Company or the Bank who earned $25,000 on an annual rate or more
as an employee of the Company or the Bank to work for (as an employee,
consultant or otherwise) any business, individual, partnership, firm,
corporation, or other entity whether or not engaged in competitive business with
the Bank or the Company.

 

12.           Disclosure of Information.  The Executive shall not, at any time
or in any manner, directly or indirectly, either before or after termination of
this Agreement, without the prior written consent of the Board of Directors of
the Company or except as required by law to comply with legal process including,
without limitation, by oral questions, interrogatories, requests for information
or documents, subpoena, civil investigative demand or similar process, use for
his own benefit or the benefit of any other person or entity, or otherwise
disclose or communicate to any person or entity including, without limitation,
the media or by way of the World Wide Web, any information concerning any Trade
Secret or Proprietary Information of the Company or the Bank.  The Executive
further recognizes and acknowledges that any Trade Secrets concerning any
customers of the Bank or the Company and their respective affiliates and
subsidiaries, as it may exist from time to time, is strictly confidential and is
a valuable, special and unique asset of the Bank’s and the Company’s business. 
In the event the Executive is required by law to disclose Trade Secrets or
Proprietary Information, the Executive will provide the Bank and the Company,
and their counsel with immediate notice of such request so that they may
consider seeking a protective order.  If, in the absence of a protective order
or the receipt of a waiver

 

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hereunder, the Executive is nonetheless, in the written opinion of knowledgeable
counsel, compelled to disclose Trade Secrets or Proprietary Information to any
tribunal or any other party or else stand liable for contempt or suffer other
material censure or material penalty, then the Executive may disclose (on an “as
needed” basis only) such information to such tribunal or other party without
liability hereunder.  Notwithstanding the foregoing, the Executive may disclose
Trade Secrets or Proprietary Information as may be required by any regulatory
agency having jurisdiction over the operations of the Bank or the Company in
connection with an examination of the Bank or the Company or other proceeding
conducted by such regulatory agency.

 

13.           Written, Printed or Electronic Material.  All written, printed or
electronic material, notebooks and records including, without limitation,
computer disks, blackberry (or similar devices), or lap top used by the
Executive in performing duties for the Bank or the Company, other than the
Executive’s personal address lists, telephone lists, notes and diaries, are and
shall remain the sole property of the Bank and the Company.  Upon termination of
employment, the Executive shall promptly return all such material (including all
copies, extracts and summaries thereof) to the Bank.

 

14.           Miscellaneous.

 

14.1         Notice.  For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or 3 days after the
date of mailing by United States mail, certified or registered, return receipt
requested, postage prepaid, addressed to the respective addresses set forth
below, or to such other addresses as either party may have furnished to the
other in writing in accordance herewith, except that notice of a change of
address shall be effective only upon actual receipt:

 

 

 

Company:

 

HERITAGE COMMERCE CORP
150 Almaden Blvd.
San Jose, CA 95113
Attn: Chief Executive Officer

 

 

 

 

 

 

 

Bank:

 

HERITAGE BANK OF COMMERCE
150 Almaden Blvd.
San Jose, CA 95113
Attn: President

 

 

 

 

 

 

 

with a copy to:

 

Buchalter Nemer
1000 Wilshire Boulevard, Suite 1500
Los Angeles, CA 90017-2457
Attn: Mark A. Bonenfant, Esq.

 

 

 

 

 

 

 

Executive:

 

Michael R. Ong
150 Almaden Boulevard
San Jose, CA 95113

 

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14.2         Amendments or Additions.  No amendment, modification or additions
to this Agreement shall be binding unless in writing and signed by the parties
hereto.

 

14.3         Section Headings.  The section headings used in this Agreement are
included solely for convenience and shall not affect, or be used in connection
with, the interpretation of this Agreement.

 

14.4         Severability.  The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.

 

14.5         Counterparts.  This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but both of which together will
constitute one and the same instrument.

 

14.6         Mediation.  Prior to engaging in any legal or equitable litigation
or other dispute resolution process, regarding any of the terms and conditions
of this Agreement between the parties, or concerning the subject matter of the
Agreement between the parties, each party specifically agrees to engage in good
faith, in a mediation process at the expense of the Bank, complying with the
procedures provided for under California Evidence Code Sections 1115 through and
including 1125, as then currently in effect.  The parties further and
specifically agree to use their best efforts to reach a mutually agreeable
resolution of the matter.  The parties understand and specifically agree that
should any party to this Agreement refuse to participate in mediation for any
reason, the other party will be entitled to seek a court order to enforce this
provision in any court of appropriate jurisdiction requiring the dissenting
party to attend, participate, and to make a good faith effort in the mediation
process to reach a mutually agreeable resolution of the matter.

 

14.7         Arbitration.  To the extent not resolved through mediation as
provided in Section 14.6, all claims, disputes and other matters in question
arising out of or relating to this Agreement, any termination of the Executive’s
employment, the enforcement or interpretation of this Agreement, or because of
an alleged breach, default, or misrepresentation in connection with any of the
provisions of this Agreement, including (without limitation) any state or
federal statutory claims, shall be resolved by binding arbitration in Santa
Clara County, California, before a sole arbitrator (the “Arbitrator”) mutually
selected by the parties from Judicial Arbitration and Mediation Services
(“JAMS”) in accordance with the rules and procedures of JAMS then in effect.  If
JAMS is no longer able to supply the arbitrator, such arbitrator shall be
mutually selected from the American Arbitration Association (“AAA”).  The
obligation of the parties to arbitrate pursuant to this clause shall be
specifically enforced in accordance with, and shall be conducted consistently
with the provisions of Title 9 of Part 3 of the California Code of Civil
Procedure as the exclusive remedy of such dispute; provided, however, that
provisional injunctive relief may, but need not, be sought in a court of law
while arbitration proceedings are pending, and any provisional injunctive relief
granted by such court shall remain effective until the matter is finally
determined by the Arbitrator.  Final resolution of any dispute through
arbitration may include any remedy or relief that the Arbitrator deems just and
equitable, including any and all remedies provided by applicable state or
federal statutes.  At the conclusion of the arbitration, the Arbitrator shall
issue a written decision that sets forth the essential findings

 

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and conclusions upon which the Arbitrator’s award or decision is based.  Any
award or relief granted by the Arbitrator hereunder shall be final and binding
on the parties hereto and may be enforced by any court of competent
jurisdiction.

 

14.8         Attorneys Fees.  In the event of litigation, arbitration or any
other action or proceeding between the parties to interpret or enforce this
Agreement, or any part thereof or relating to this Agreement, the prevailing
party shall be entitled to recover its costs related to such action or
proceeding and its reasonable fees of attorneys, accountants and expert
witnesses incurred by such party in connection with any such action or
proceedings.  The prevailing party shall be deemed to be the party which obtains
substantially the relief sought by final resolution, compromise or settlement,
or as may otherwise be determined by order of a court of competent jurisdiction
in the event of litigation, an award or decision of an arbitrator in the event
of arbitration.

 

14.9         Entire Agreement.  This Agreement supersedes any and all
agreements, either oral or in writing, between the parties with respect to the
employment of the Executive by the Bank and the Company and contains all of the
covenants and agreements between the parties with respect to the employment of
the Executive by the Bank and the Company; provided, however, that, this
Agreement does not supersede or replace the rights and benefits under any stock
option agreement between the Company and the Executive as specified in
Section 3.3 of this Agreement.  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.

 

14.10       Waiver.  The failure of a party to insist on strict compliance with
any of the terms, provisions, covenants, or conditions of this Agreement by
another party shall not be deemed a waiver of any term, provision, covenant, or
condition, individually or in the aggregate, unless such waiver is in writing,
nor shall any waiver or relinquishment of any right or power at any one time or
times be deemed a waiver or relinquishment of that right or power for all or any
other times.

 

14.11       Severability.  If any provision in this Agreement is held by a court
of competent jurisdiction or arbitrator to be invalid, void, or unenforceable,
the remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.  Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.

 

14.12       Interpretation.  This Agreement shall be construed without regard to
the party responsible for the preparation of the Agreement and shall be deemed
to have been prepared jointly by the parties.  Any ambiguity or uncertainty
existing in this Agreement shall not be interpreted against any party, but
according to the application of other rules of contract interpretation, if an
ambiguity or uncertainty exists.

 

14.13       Governing Law and Venue.  The laws of the State of California, other
than those laws denominated choice of law rules, shall govern the validity,
construction and effect of this Agreement.  Any action which in any way involves
the rights, duties and obligations of the

 

17

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parties hereunder and is not resolved by binding arbitration shall be brought in
the courts of the State of California and venue for any action or proceeding
shall be in Santa Clara County or in the United States District Court for the
Northern District of California, and the parties hereby submit to the personal
jurisdiction of said courts.

 

14.14       Payments Due Deceased Executive.  If the Executive dies prior to the
expiration of the term of his employment (except termination resulting from such
death), any payments that may be due the Executive from the Bank or the Company
under this Agreement as of the date of death shall be paid to the Executives
heirs, beneficiaries, successors, permitted assigns or transferees, executors,
administrators, trustees, or any other legal or personal representatives.

 

14.15       Effect of Termination on Certain Provisions.  Upon the termination
of this Agreement, the obligations of the Bank, the Company and the Executive
hereunder shall cease except to the extent of the Bank’s or the Company’s
obligation to make payments, if any, to or for the benefit of the Executive
following termination, and provided that Sections 3.3 and 3.4(d) (and as
provided in existing agreements relating to these sections) and Sections 4, 6.2,
7, 8, 9, 10, 11, 12, 13, 14.3, 14.4, 14.6, 14.7, 14.8, 14.9, 14.10, 14.11,
14.12, 14.13, 4.14 and 14.15 shall remain in full force and effect.

 

[Remainder of page intentionally left blank]

 

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14.16       Advice of Counsel and Advisors.  The Executive acknowledges and
agrees that he has read and understands the terms and provisions of this
Agreement and prior to signing this Agreement, he has had the advice of counsel
and/or such other advisors as he deemed appropriate in connection with his
review and analysis of such terms and provisions of this Agreement.

 

IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement on
the date first indicated above.

 

 

“COMPANY”

 

 

 

 

HERITAGE COMMERCE CORP,

 

a California bank holding company

 

 

 

 

 

 

By:

/s/ Walter Kaczmarek

 

 

        Walter Kaczmarek,

 

 

        Chief Executive Officer

 

 

 

 

“BANK”

 

 

 

 

HERITAGE BANK OF COMMERCE,

 

a California banking corporation

 

 

 

 

 

 

 

By:

/s/ Walter Kaczmarek

 

 

        Walter Kaczmarek,

 

 

        President

 

 

 

 

 

 

 

“EXECUTIVE”

 

 

 

 

 

 

 

By:

/s/ Michael R. Ong

 

 

        Michael R. Ong

 

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