Exhibit 10.11

 

FIRST AMENDED AND RESTATED

DIRECTOR COMPENSATION BENEFITS AGREEMENT

 

This First Amended and Restated Director Compensation Benefits Agreement
(hereinafter “Agreement”) is made and entered into effective as of December 29,
2008 by and between HERITAGE BANK OF COMMERCE, a bank organized and existing
under the laws of the state of California (hereinafter the “Bank”) and, Robert
T. Moles, a Director of the Company (hereinafter “Director” or “Participant”);

 

WHEREAS it is the parties’ intent to comply with the final regulations under
Internal Revenue Code Section 409A, issued on April 10, 2007 by the Internal
Revenue Service (IRS) and the Treasury Department;

 

WHEREFORE, the Company and Director hereby agree to amend and restate the prior
Director Compensation Benefits Agreement, effective as of September 29, 2004
(hereinafter “Original Agreement”, and as amended), and further agree that this
Heritage Bank of Commerce First Amended and Restated Director Compensation
Benefits Agreement shall amend, supersede and replace the Original Agreement in
its entirety;

 

WHEREAS, to encourage the Director to remain a member of the Company’s Board of
Directors, the Company is willing to provide the Director with a deferred fee
opportunity.

 

WHEREAS, it is the intent of the parties hereto that this plan (evidenced by
this Agreement) be considered an unfunded arrangement maintained primarily to
provide supplemental retirement benefits for the Director, and be considered a
non-qualified benefit plan for the purposes of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”); and

 

NOW, THEREFORE, in consideration of the past service and 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 Company 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, the Named Fiduciary of this Agreement where a
fiduciary is required by ERISA.

 

1.2          Applicable Percentage. The term “Applicable Percentage” shall mean
that percentage which corresponds with number of “Years of Service” completed as
of the date the Director Separates from Service, or it shall be One Hundred
Percent (100%), as stipulated herein for certain described events, including but
not limited to: (i) a Termination Pursuant to a

 

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Change in Control (as defined herein), provided payments have not yet begun
hereunder or (ii) upon the Director becoming Disabled while serving on the
Board.

 

The Applicable Percentage shall remain in effect until an adjustment occurs upon
the completion of each Year of Service (as defined herein), and until Director
has reached the maximum Applicable Percentage of One-Hundred Percent (100%)
after Nine (9) Years of Service. Subject to the forgoing, the Applicable
Percentage shall be determined in accordance with the following:

 

Completed Years of Service

 

Applicable Percentage

 

Less Than One

 

10%

 

One

 

20%

 

Two

 

30%

 

Three

 

40%

 

Four

 

50%

 

Five

 

60%

 

Six

 

70%

 

Seven

 

80%

 

Eight

 

90%

 

Nine

 

100%

 

 

1.3          Board of Directors.  The term “Board of Directors” or “Board” shall
mean the Board of Directors of Heritage Bank of Commerce.

 

1.4          Change in Control.   A Change in Control shall be deemed to have
occurred upon any of the following events (as such terms are defined in
Section 409A):

 

A.            A Change in the Ownership of a Corporation. A change in the
ownership of a corporation occurs on the date that any one person or persons
acting as a group (as defined in Section 409A), acquires ownership of stock of
the corporation that, together with stock held by such person or group,
constitutes more than fifty percent (50%) of the total fair market value or
total voting power of the stock of such corporation. The acquisition of
additional stock by the same person or group is not considered to cause a change
in the ownership of the corporation.

 

B.            Change in the Effective Control of a Corporation. A change in the
effective control of the corporation shall be deemed to occur on either of the
following dates:

 

(i)            The date any one person, or persons acting as a group acquires
(or has acquired during the twelve (12) month period ending on the date of the
most recent acquisition by such person or group) ownership of stock of the
corporation possessing thirty-five percent (35%) or more of the total voting
power of the stock of such corporation; or

 

(ii)           The date a majority of members of the corporation’s board of
directors is replaced during any twelve (12) month period by directors whose
appointment or election is not endorsed by a majority of the members of the
corporation’s board of directors before the date of the appointment or election.

 

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C.            Change in the Ownership of a Substantial Portion of a
Corporation’s Assets.  A change in the ownership of a substantial portion of a
corporation’s assets shall be deemed to occur on the date that any one person or
group acquires (or has acquired during the twelve (12) month period ending on
the date of the most recent acquisition by such person or persons) assets from
the corporation that have a total gross fair market value equal to or more than
forty percent (40%) of the total gross fair market value of all of the assets of
the corporation immediately before such acquisition or acquisitions. No Change
in Control shall result if the assets are transferred to certain entities
controlled directly or indirectly by the shareholders of the transferring
corporation.

 

1.5          The Code.  The “Code” shall mean the Internal Revenue Code of 1986,
as amended (the “Code”).

 

1.6          Director Benefit.  The term “Director Benefit” shall mean the
annual benefit paid out to Director pursuant to this Agreement. Unless specified
otherwise by the terms of this Agreement and according to the circumstances
giving rise to the Separation from Service, the Director Benefit shall be
calculated by multiplying the following:  (Director’s Years of Service) X (One
Thousand Dollars) X (Applicable Percentage of 100%). The Director Benefit shall
continue to increase with each Year of Service. In addition, the annual amount
of Director Benefits payable under this Agreement shall be increased at the rate
of two percent (2%) each year from the date of commencement of payments until
the death of the Director.

 

As previously stated, the actual amount of the Director Benefit to be paid shall
be determined at the time Director Separates from Service and shall be reduced
to the extent: (i) required under the other provisions of this Agreement;
(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).

 

1.7          Disability/Disabled.  For the purposes of this Agreement, the term
“Disability” shall be interpreted in accordance with IRC 409A. Pursuant to IRC
409A, a Participant will be considered Disabled if:

 

A.            He is unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment that can be
expected to result in death or can be expected to last for a continuous period
of not less than twelve (12) months; or

 

B.            He is, by reason of any medically determinable physical or mental
impairment that can be expected to result in death or can be expected to last
for a continuous period of not less than twelve (12) months, receiving income
replacement benefits for a period of not less than three (3) months under an
accident and health plan covering employees of participant’s employer.

 

The determination of whether a Participant is Disabled shall be determined by a
physician mutually agreed upon by the Company and the Participant (and shall be
in accordance with the

 

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provisions of IRC 409A).

 

1.8          Early Retirement/ Early Retirement Age. The terms “Early
Retirement” and “Early Retirement Age” shall mean a date which satisfies the
following: (a) it shall be a date on or after Director has attained the Early
Retirement Age of Fifty-Five (55), but before he attains the Normal Retirement
Age, and (b) it shall be the date on which Director Separates From Service (for
any reason other than for Cause or following a Change in Control).

 

1.9          Effective Date.  The term “Effective Date” shall mean the date
first written above.

 

1.10        ERISA.  The term “ERISA” shall mean the Employee Retirement Income
Security Act of 1974, as amended.

 

1.11        Normal Retirement Date and Normal Retirement Age.  The terms “Normal
Retirement” and/or “Normal Retirement Date” shall refer to the date which the
Director Separates from Service for any reason other than a Removal for Cause,
and a date on or after which Director has attained the age of Sixty-Two (62)
(the “Normal Retirement Age”).

 

1.12        Plan Year.  The term “Plan Year” shall mean the Bank’s fiscal year.

 

1.13        Removal for Cause.  The term “Removal for Cause” or “Removed for
Cause” shall mean termination of the Director’s service as a member of the Board
of Directors of the Bank by reason of any of the following:

 

(A)          The willful, intentional and material breach or the habitual and
continued neglect by the Director of his duties;

 

(B)           The Director’s willful and intentional violation of (i) any State
or Federal banking or securities laws, or of the Bylaws, rules, policies or
resolutions of Bank, or the rules or regulations of the California Commissioner
of Financial Institutions, Board of Governors or the Federal Reserve System,
Federal Deposit Insurance Corporation, or other regulatory agency or
governmental authority having jurisdiction over the Bank, which has a material
adverse effect upon the Bank;

 

(C)           The Director’s conviction of (i) any felony or (ii) a crime
involving moral turpitude, or the Director’s willful and intentional commission
a fraudulent or dishonest act; or

 

(D)          The Director’s willful and intentional disclosure, without
authority, of any secret or confidential information concerning 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 induces any customer to breach any
contract with the Bank.

 

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1.14        Separates From Service or Termination of Service. The term
“Separation from Service” or “Termination of Service” shall be read and
interpreted consistent with Code Section 409A and any future notices or guidance
related thereto. As the term applies herein to individuals who are serving on
the Board of Directors, but who are not also acting as employees of the Bank,
the term “Separation from Service” shall means the expiration of all contracts
or terms of service under which the Director is performing services as a member
of the Board of Directors, and where expiration constitutes a good faith and
complete termination of the service relationship.

 

If an individual provides services both as an employee of a service recipient
and a member of the board of directors of a corporate service recipient (or an
analogous position with respect to a non-corporate service recipient), the
services provided as an employee are not taken into account in determining
whether the service provider has a separation from service as a director for
purposes of a nonqualified deferred compensation plan in which the service
provider participates as a director that is not aggregated with any plan in
which the service provider participates as an employee under paragraph
(c)(2)(ii) of Code section 409A.

 

1.15        Years of Service. The term “Years of Service” shall mean the twelve
(12) consecutive month period beginning on the date on which Director becomes a
member of the Board of Directors of the Bank, and any twelve (12) month
anniversary thereof, during which time Director has consecutively served on the
Board.  Director shall receive credit for a full Year of Service for any partial
year of service after Director has completed one full Year of Service.

 

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, 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.

 

3.             Director Benefit Payment.

 

Early or Normal Retirement.  In the event the Director Separates From Service
pursuant to the terms of Paragraph 1.8 or 1.11 relating to Early or Normal
Retirement, then (excluding a termination under the provisions of paragraphs 3.3
or 4 below), upon such Separation from Service, Director shall be entitled to be
paid an annual Director Benefit equal to

 

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the Applicable Percentage of the Director Benefit based on Years of Service
[i.e. AP% X ($1,000 X Years of Service)]. Payment of this annual amount shall be
made in twelve (12) substantially equal monthly installments on the first day of
each month, with payments commencing the month following the month in which
Director Separates from Service, continuing monthly thereafter until Director’s
death (with 2% annual increase).

 

3.2          Separation From Service Before Attainment of the Early Retirement
Age.  In the event Director Separates From Service before attaining the Early
Retirement Age and for any reason other than a Termination for Cause or pursuant
to the provisions of 3.3 below, then upon such Separation from Service, Director
shall be entitled to be paid an annual Director Benefit equal to the Applicable
Percentage of the Director Benefit based on Years of Service [i.e. AP% X ($1,000
X Years of Service)]. Payment of this annual amount shall be made in twelve (12)
substantially equal monthly installments on the first day of each month, with
payments commencing the month following the month in which Director attains the
Early Retirement Age. Payments shall continue monthly thereafter until
Director’s death (with 2% annual increase).

 

3.3          Upon Disability and Change in Control.  Upon Director’s Disability
or upon a Change in Control, the Applicable Percentage shall be advanced to One
Hundred Percent (100%).

 

In the event of Director’s Disability, then Director shall be entitled to be
paid an annual Director Benefit equal to a One Hundred Percent (100%) Applicable
Percentage of the Director Benefit based on Years of Service [i.e. AP% X ($1,000
X Years of Service)]. Payment of the annual amount shall be made in twelve (12)
substantially equal monthly installments on the first day of each month, with
payments commencing the month following the month in which Director becomes
Disabled and continuing monthly thereafter until Director’s death (with 2%
annual increase).

 

In the event of a Change in Control, then Director shall be entitled to be paid
an annual Director Benefit equal to a One Hundred Percent (100%) Applicable
Percentage of the Director Benefit based on Years of Service [i.e. AP% X ($1,000
X Years of Service)]. Payment of the annual amount shall be made in twelve (12)
substantially equal monthly installments on the first day of each month, with
payments commencing the later of the following: (i) the month following the
month in which Director Separates From Service or (ii) Director’s attainment of
the Early Retirement Age. Payments shall continue monthly thereafter until
Director’s death (with 2% annual increase).

 

4.             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 as a
result of a “Removal for Cause”, as defined in subparagraph 1.12 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.

 

5.             Section 280G Benefits Reduction.  If all or any portion of the
amounts payable to the Director under this Agreement, either alone or together
with other payments which the

 

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Director has the right to receive from the Bank, constitute “excess parachute
payments” within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the “Code”), that are subject to the excise tax imposed by
Section 4999 of the Code (or similar tax and/or assessment), Director shall be
responsible for the payment of such excise tax and Bank (and its successor)
shall be responsible for any loss of deductibility related thereto; provided,
however, that Bank and Director shall cooperate with each other and use all
reasonable efforts to minimize to the fullest extent possible the amount of
excise tax imposed by Section 4999 of the Code.  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 excise taxes payable by the Director is greater
than the amount initially so determined, then the Director shall pay an amount
equal to the sum of such additional excise taxes and any interest, fines and
penalties resulting from such underpayment.  The determination of the amount of
any such excise taxes shall be made by the independent accounting firm employed
by the Bank immediately prior to the change in control or such other independent
accounting firm or advisor as may be mutually agreeable to Bank and Director in
the exercise of their reasonable good faith judgment

 

6.             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 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 8 below,
the Director shall have no 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 of any and all rights to
payment hereunder.

 

7.             CLAIMS PROCEDURE.

 

7.1          NAMED FIDUCIARY AND PLAN ADMINISTRATOR. THE “NAMED FIDUCIARY AND
PLAN ADMINISTRATOR” OF THIS DIRECTOR PLAN SHALL BE HERITAGE BANK OF COMMERCE
UNTIL ITS RESIGNATION OR REMOVAL BY THE BOARD.  AS NAMED FIDUCIARY AND PLAN
ADMINISTRATOR, THE BANK SHALL BE RESPONSIBLE FOR THE MANAGEMENT, CONTROL AND
ADMINISTRATION OF THE DIRECTOR PLAN.  THE NAMED FIDUCIARY MAY DELEGATE TO OTHERS
CERTAIN ASPECTS OF THE MANAGEMENT AND OPERATION RESPONSIBILITIES OF THE DIRECTOR
PLAN INCLUDING THE EMPLOYMENT OF ADVISORS AND THE DELEGATION OF MINISTERIAL
DUTIES TO QUALIFIED INDIVIDUALS.

 

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7.2          Claim.  In the event a dispute arises over the benefits under this
Director plan and benefits are not paid to the Director (or to the Director’s
beneficiary[ies], if applicable) and such claimants feel they are entitled to
receive such benefits, then a written claim must be made to the Named Fiduciary
and Plan Administrator named above in accordance with the following procedures:

 

A.            Written Claim.  The claimant may file a written request for such
benefit to the Plan Administrator.

 

B.            Claim Decision.  Upon receipt of such claim, the Plan
Administrator shall respond to such claimant within ninety (90) days after
receiving the claim.  If the Plan Administrator determines that special
circumstances require additional time for processing the claim, the Plan
Administrator can extend the response period by an additional ninety (90) days
for reasonable cause by notifying the claimant in writing, prior to the end of
the initial ninety (90) day period, that an additional period is required. The
notice of extension must set forth the special circumstances and the date by
which the Plan Administrator expects to render its decision.

 

If the claim is denied in whole or in part, the Plan Administrator shall notify
the claimant in writing of such denial. The Plan Administrator shall write the
notification in a manner calculated to be understood by the claimant.  The
notification shall set forth:

 

(i)            The specific reasons for the denial;

(ii)           The specific reference to pertinent provisions of the Agreement
on which the denial is based;

(iii)          A description of any additional information or material necessary
for the claimant to perfect the claim and an explanation of why such material or
information is necessary;

(iv)          Appropriate information as to the steps to be taken if the
claimant wishes to submit the claim for review and the time limits applicable to
such procedures; and

(v)           A statement of the claimant’s right to bring a civil action under
ERISA Section 502(a) following an adverse benefit determination on review.

 

C.            Request for Review.  Within sixty (60) days after receiving notice
from the Plan Administrator that a claim has been denied (in part or all of the
claim), then claimant (or their duly authorized representative) may file with
the Plan Administrator, a written request for a review of the denial of the
claim.

 

The claimant (or his duly authorized representative) shall then have the
opportunity to submit written comments, documents, records and other information
relating to the claim.  The Plan Administrator shall also provide the claimant,
upon request and free of charge, reasonable access to, and copies of, all

 

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documents, records and other information relevant (as defined in applicable
ERISA regulations) to the claimant’s claim for benefits.

 

D.            Decision on Review.  The Plan Administrator shall respond in
writing to such claimant within sixty (60) days after receiving the request for
review.  If the Plan Administrator determines that special circumstances require
an extension of time for processing the claim, written notice of the extension
shall be furnished to the claimant prior to the termination of the initial sixty
(60) day period. In no event shall such extension exceed a period of sixty (60)
days from the end of the initial period. The notice of extension must set forth
the special circumstances requiring an extension of time and the date by which
the Plan Administrator expects to render its decision.

 

In considering the review, the Plan Administrator shall take into account all
materials and information the claimant submits relating to the claim, without
regard to whether such information was submitted or considered in the initial
benefit determination.

 

The Plan Administrator shall notify the claimant in writing of its decision on
review.  The Plan Administrator shall write the notification in a manner
calculated to be understood by the claimant.  The notification shall set forth:

 

(i)            The specific reasons for the denial;

(ii)           A reference to the specific provisions of the Agreement on which
the denial is based;

(iii)          A statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to, and copies of, all documents,
records and other information relevant (as defined in applicable ERISA
regulations) to the claimant’s claim for benefits; and

(iv)          A statement of the claimant’s right to bring a civil action under
ERISA Section 502(a).

 

8.             Status as an Unsecured General Creditor.  Notwithstanding
anything contained herein to the contrary:  (i) Director shall have no 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 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 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 in order to permit the Bank to make

 

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contributions and/or transfer assets to the Trust 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 in such manner and at such times as specified in this
Agreement.

 

9.             Miscellaneous.

 

9.1          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 the Director, himself, and his heirs, 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
10.1.  The Director further acknowledges and agrees 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.

 

9.2          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, 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

 

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the California Code of Civil Procedure.  Any arbitration hereunder shall be
conducted in San Jose, California, unless otherwise agreed to by the parties.

 

9.3          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.

 

9.4          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 Commerce Corp

 

 

150 Almaden Boulevard

 

 

San Jose, California 95113

 

 

Attn: President

 

 

 

If to the Director:

 

 

 

 

9.5          Assignment.  The Director shall have no 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
terms of this Agreement, shall any portion of such amounts be: (i) subject to
seizure by any creditor of the Director, 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; 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.

 

9.6          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, legal representatives, agents, successors,
and assigns.  Accordingly, the Bank shall not merge or consolidate into or with
another corporation, or reorganize or sell substantially

 

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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.

 

9.7          Nonwaiver.  The failure of either party to enforce at any time or
for any period of time any one or more of the terms 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.

 

9.8          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.

 

9.9          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.

 

9.10        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.

 

9.11        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.

 

9.12        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.

 

9.13        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.

 

9.14        Gender.  Whenever in this Agreement words are used in the masculine,
feminine or neuter gender, they shall be read and construed as in the masculine,
feminine or neuter gender, whenever they should so apply.

 

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10.          Intentional Act by Director which Precludes Recovery.
Notwithstanding any other provision in this Agreement 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, then: (1) the
Director’s estate or designated beneficiary(ies) 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, the designated Beneficiary(ies) or 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.

 

11.          Internal Revenue Code Section 409A Compliance.   Notwithstanding
any provision existing in this Agreement or any amendment thereto, it is the
intent of the Bank and the Director that any payment or benefit provided
pursuant to this Agreement shall be made and paid in a manner, at a time and in
a form which complies with the applicable requirements of IRC Section 409A, in
order to avoid any unfavorable tax consequences resulting from any such failure
to comply. Furthermore, for the purposes of this Agreement, IRC Section 409A
shall be read to include any related or relevant IRS Notices (including but not
limited to Notice 2006-79 and 2007-86) and the currently proposed regulations.

 

In accordance with the current restrictions on payouts of deferred compensation,
and with respect to any plan amendment or election in 2008, such amendment or
election may not act as to accelerate any payments or cause any payment to be
made in 2008 that would not otherwise be payable in 2008, nor may it delay any
payment that would otherwise have been made in 2008.

 

The parties reserve the right to amend this agreement as necessary in order to
comply with IRC Section 409A. Furthermore, this Agreement shall be administered
in compliance with IRC Section 409A and the related rules, regulations and
notices.  Any section of this Agreement which violates IRC Section 409A and the
related rules, regulations and notices shall be void and without effect.

 

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IN WITNESS WHEREOF, the Director and a duly authorized Bank officer have signed
this Agreement as of the written date.

 

HERITAGE COMMERCE CORPORATION

 

 

/s/ Lawrence D. McGovern

 

Date:

December 29, 2008

By Lawrence D. McGovern

 

 

 

Executive Vice President & CFO

 

 

 

 

 

 

 

 

 

 

 

/s/ Robert T. Moles

 

Date:

December 29, 2008

Director

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Witness

 

 

Witness

 

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