Exhibit
10.7





HERITAGE
COMMERCE CORP


2004
STOCK OPTION PLAN




1.  Purpose
of the Plan.




The
purpose of the Heritage Commerce Corp 2004 Stock Option Plan is to attract and
retain the best available personnel for positions of substantial responsibility,
to provide additional incentive to Directors, Employees and Consultants of the
Company, and to promote the success of the Company’s business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant of an
Option and subject to the applicable provisions of Section 422 of the Code
and the regulations promulgated thereunder. The Options offered pursuant to the
Plan are a matter of separate inducement and are not in lieu of salary or other
compensation.




2.  Definitions.




As used
herein, the following definitions shall apply:




(a)           “Administrator”
means the Board or any of its Committees appointed pursuant to Section 4 of
the Plan.




(b)           “Board”
means the Board of Directors of the Company.




(c)           “Code”
means the Internal Revenue Code of 1986, as amended.




(d)           “Committee”
means a Committee appointed by the Board in accordance with Section 4 of
the Plan.




(e)           “Common
Stock” means the common stock, no par value, of the Company.




(f)           “Company”
means Heritage Commerce Corp, a California corporation.




(g)           “Consultant”
means any person who is engaged by the Company to render consulting or advisory
services and is compensated for such services.




(h)           “Continuous
Status as a Director, Employee or Consultant” means that the director,
employment or consulting relationship with the Company is not interrupted or
terminated. Continuous Status as a Director, Employee or Consultant shall not be
considered interrupted in the case of (i) any leave of absence approved by
the Company or (ii) transfers between locations of the Company or transfers
to any subsidiary of the Company, or between a subsidiary and the Company or any
successor. A leave of absence shall include sick leave or any other personal
leave approved by an authorized representative of the Company. For purposes of
Incentive Stock Options, no such leave may exceed 90 days, unless
reemployment upon expiration of such leave is guaranteed by statute or contract,
including policies of the Company. If reemployment upon expiration of a leave of
absence approved by the Company is not so guaranteed, on the day which is three
months after the 91st day
of such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.




(i)           “Director”
means a member of the Board of Directors of the Company.




(j)           “Employee”
means any person, including an Officer or Director, employed by the Company. The
payment of a director’s fee by the
Company shall not be sufficient to constitute “employment.”




(k)           “Exchange
Act” means the Securities Exchange Act of 1934, as amended.




(l)           “Fair Market
Value” means, as of any date, the value of the Common Stock determined as
follows:




(i)           If
the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq National Market of the
National Association of Securities Dealers, Inc. Automated Quotation (“NASDAQ”)
System, its Fair Market Value shall be the closing sales price for such stock
(or the closing bid, if no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the time of determination and
reported in The Wall Street
Journal or such other source as the Administrator deems
reliable;




(ii)           If
the Common Stock is quoted on the NASDAQ System (but not on the Nasdaq National
Market thereof) or regularly quoted by a recognized securities dealer but
selling prices are not reported, its Fair Market Value shall be the mean between
the high bid and low asked prices for the Common Stock on the last market
trading day prior to the day of determination; or




(iii)           In
the absence of an established market for the Common Stock, the Fair Market Value
thereof shall be determined in good faith by the Administrator.




(m)           “Incentive Stock
Option” means an Option intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code.









(n)           “Nonstatutory
Stock Option” means an option not intended to qualify as an Incentive
Stock Option.




(o)           “Notice of
Grant” means the notice of stock option grant to be given to each of the
Optionees.




(p)           “Officer”
means a person who is an officer of the Company within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated
thereunder.




(q)           “Option”
means a stock option granted pursuant to the Plan.




(r)           “Optionee”
means a Director, Employee or Consultant who receives an Option.




(s)           “Plan”
means the Heritage Commerce Corp 2004 Stock Option Plan.




(t)           “Rule 16b-3”
means Rule 16b-3 promulgated under the Exchange Act or any successor
thereto.




(u)           “Section 16(b)”
means Section 16(b) of the Exchange Act.




(v)           “Share”
means each of the shares of Common Stock subject to an Option, as adjusted in
accordance with Section 11 below.




3.  Stock
Subject to the Plan.




Subject
to the provisions of Section 11 of the Plan, the maximum number of shares
of Common Stock that may be issued under this Plan is 850,000 unless amended by the
Board or the shareholders of the Company.




If an
Option expires or becomes unexercisable without having been exercised in full,
or is surrendered pursuant to an option exchange pursuant to
Section 4(c)(vi) or otherwise, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the Plan (unless
the Plan has terminated). However, Shares that have actually been issued under
the Plan upon exercise of an Option shall not be returned to the Plan and shall
not become available for future distribution under the Plan.




4.  Administration
of the Plan.




(a)           Administration by
Board or Committee of Board.  The Plan shall be administered as
follows:




(i)           Multiple Administrative
Bodies.  If permitted by Rule 16b-3, the Plan may be
administered by different bodies with respect to Directors, Officers and
Employees who are neither Directors nor Officers.




(ii)           Administration With Respect to
Directors and Officers.  With respect to grants of Options to
Directors or Employees who are also Officers or Directors, the Plan shall be
administered by (A) the Board if the Board may administer the Plan in
compliance with any applicable laws, including the rules under Rule 16b-3
relating to the disinterested administration of employee benefit plans under
which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made, or (B) a Committee designated by the Board to
administer the Plan, which Committee shall be constituted to comply with any
applicable laws, including the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which
Section 16(b) exempt discretionary grants and awards of equity securities
are to be made. Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent
permitted by any applicable laws, including the rules under Rule 16b-3
relating to the disinterested administration of employee benefit plans under
which Section 16(b) exempt discretionary grants and awards of equity
securities are to be made.




(iii)           Administration With Respect to Other
Employees and Consultants.  With respect to grants of Options
to Employees or Consultants who are neither Directors nor Officers, the Plan
shall be administered by (A) the Board or (B) a Committee designated
by the Board, which committee shall be constituted in such a manner as to
satisfy the legal requirements relating to the administration of stock option
plans, if any, of United States securities laws, of California corporate and
securities laws, of the Code, and of any applicable stock exchange (the “Applicable
Laws”). Once appointed, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members of
the Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws.




(iv)           Compliance with
Section 162(m).  If, at any time, awards made under the
Plan shall be subject to Section 162(m) of the Code, the Plan shall be
administered by a committee comprised solely of “outside directors” (within the
meaning of Treas. Reg. § 1.162-27(e)(3)) or such other persons as may be
permitted from time to time under Section 162(m) of the Code and the
Treasury Regulations promulgated thereunder.









(b)           Powers of the
Administrator.  Subject to the provisions of the Plan and, in
the case of a Committee, the specific duties delegated by the Board to such
Committee, and subject to the approval of any relevant authorities, including
the approval, if required, of any stock exchange upon which the Common Stock is
listed, the Administrator shall have the authority in its
discretion:




(i)           to
determine the Fair Market Value of the Common Stock in accordance with
Section 2(l) of the Plan;




(ii)           to
select the Directors, Consultants and Employees to whom Options may from time to
time be granted hereunder;




(iii)           to
determine whether and to what extent Options are granted hereunder;




(iv)           to
determine the number of Shares to be covered by each such award granted
hereunder;




(v)           to
approve forms of agreement for use under the Plan;




(vi)           to
construe and interpret the terms of the Plan and awards granted pursuant to the
Plan.




(c)           Effect of Administrator’s Decision.  All
decisions, determinations and interpretations of the Administrator shall be
final and binding on all Optionees and any other holders of any
Options.




5.  Eligibility.




(a)           Nonstatutory
Stock Options may be granted to Directors, Employees and Consultants. Incentive
Stock Options may be granted only to Employees. A Director, Employee or
Consultant who has been granted an Option may, if otherwise eligible, be granted
additional Options.




(b)           Each
Option shall be designated in the written option agreement as either an
Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding
such designation, to the extent that the aggregate Fair Market Value of the
Shares with respect to which Incentive Stock Options are exercisable for the
first time by the Optionee during any calendar year (under all plans of the
Company) exceeds $100,000, such Options shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5(b), Incentive Stock Options shall
be taken into account in the order in which they were granted. The Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.




(c)           Neither
the Plan nor any Option shall confer upon any Optionee any right with respect to
continuation of his or her employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company’s
right to terminate his or her employment or consulting relationship at any time,
with or without cause.




6.  Term
of Plan.




The Plan
shall become effective upon the earlier to occur of its adoption by the Board or
its approval by the shareholders of the Company, as described in Section 17
of the Plan. It shall continue in effect for a term of ten years unless sooner
terminated under Section 13 of the Plan.




7.  Term
of Option.




The term
of each Option shall be the term stated in the Option Agreement; provided,
however, that the term shall be no more than ten years from the date of grant
thereof. In the case of an Incentive Stock Option granted to an Optionee who, at
the time the Option is granted, owns stock representing more than ten percent of
the voting power of all classes of stock of the Company, the term of the Option
shall be five years from the date of grant thereof or such shorter term as may
be provided in the Option Agreement.




8.  Option
Exercise Price and Consideration.




(a)           The
per share exercise price for the Shares to be issued upon exercise of any Option
shall be such price as is determined by the Administrator, but shall be subject
to the following:




(i)           In
the case of an Incentive Stock Option




(A)           granted
to an Employee who, at the time of grant of such Option, owns stock representing
more than ten percent of the voting power of all classes of stock of the
Company, the per Share exercise price shall be no less than 110 percent of
the Fair Market Value per Share on the date of grant.




(B)           granted
to any other Employee, the per Share exercise price shall be no less than
100 percent of the Fair Market Value per Share on the date of
grant.




(ii)           In
the case of a Nonstatutory Stock Option granted to any person, the per Share
exercise price shall be no less than 100 percent of the Fair Market Value
per Share on the date of grant.




(b)           The
consideration to be paid for the Shares to be issued upon exercise of an Option,
including the method of payment, shall be determined by the Administrator (and,
in the case of an Incentive Stock Option, shall be determined at the time of
grant). Such consideration may consist of (i) cash, (ii) check or
(iii) any combination of those methods of payment. In addition, if there is
a public market for the Shares, the Administrator may allow the Optionee to
elect to pay the exercise price through either of the following
procedures:









(i)           A
special sale and remittance procedure under which the Optionee provides
irrevocable written instructions to a designated brokerage firm to effect the
immediate sale of a portion of the purchased Shares and remit to the Company,
out of the sale proceeds available on the settlement date, an amount sufficient
to cover the aggregate option price payable for the purchased Shares plus all
applicable Federal and State income and employment taxes required to be withheld
by the Company by reason of such purchase and/or sale. The Optionee must also
provide such irrevocable written instructions to the Company to deliver the
certificates for the purchased Shares directly to such brokerage firm to effect
the sale transaction. In making its determination as to the type of
consideration to accept, the Administrator shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company. Optionee shall
also deliver a properly executed exercise notice together with such other
documentation as the Administrator and a broker, if applicable, shall require to
effect an exercise of the Option. Notwithstanding the above, the Company shall
not be required to permit the Optionee to utilize the sale and remittance
procedure described above if the Company’s legal counsel
advises the Company that the procedure may violate any applicable law,
regulation or regulatory guidance.




(ii)           The
surrender to the Company of shares of the Company’s common stock
which have already been owned by the Optionee for more than six months. The
shares of the Company’s common stock
which are surrendered to the Company as payment for Shares issued upon the
exercise of an Option shall be valued at their Fair Market Value on the date of
exercise of the Option.




9.  Exercise
of Option.




(a)           Procedure for Exercise; Rights as a
Shareholder.  Any Option granted hereunder shall be exercisable
at such times and under such conditions as determined by the Administrator and
as permissible under the terms of the Plan, but in no case at a rate of less
than 20 percent per year over five years from the date the Option is
granted. The right to exercise an Option may be conditioned on specific
performance criteria with respect to the Company and/or the Optionee. An Option
may not be exercised for a fraction of a Share.




An Option
shall be deemed to be exercised when written notice of such exercise has been
given to the Company in accordance with terms of the Option by the person
entitled to exercise the Option and full payment for the Shares with respect to
which the Option is exercised has been received by the Company. Full payment
may, as authorized by the Administrator, consist of any consideration and method
of payment allowable under Section 8(b) hereof. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote, receive dividends or any other rights as a
shareholder shall exist with respect to the Shares, notwithstanding the exercise
of the Option. The Company shall issue (or cause to be issued) such stock
certificate promptly upon exercise of the Option. No adjustment shall be made
for a dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 11
hereof.




Exercise
of an Option in any manner shall result in a decrease in the number of Shares
which thereafter may be available, both for purposes of the Plan and for sale
under the Option, by the number of Shares as to which the Option is
exercised.




(b)           Termination of Directorship,
Employment or Consulting Relationship.  Except as otherwise
provided in subsections (c) and (d) below, in the event of termination
of an Optionee’s Continuous
Status as a Director, Employee or Consultant (but not in the event of an
Optionee’s
change of status from Employee to Director or Consultant (in which case an
Employee’s
Incentive Stock Option shall automatically convert to a Nonstatutory Stock
Option three months and one day following such change of status) or from
Director or Consultant to Employee), such Optionee may, but only within three
months after the date of such termination (and in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise his or her Option to the extent that the Optionee was
entitled to exercise it at the date of such termination; provided, however, that
the Administrator may extend the period during which a Nonstatutory Stock Option
may be exercised following such termination on a case-by-case basis, as the
Administrator deems appropriate in the Administrator’s discretion. To
the extent that the Optionee was not entitled to exercise the Option at the date
of such termination, or if the Optionee does not exercise such Option to the
extent so entitled within the time specified herein, the Option shall
terminate.




(c)           Disability of
Optionee.  In the event of termination of an Optionee’s Continuous
Status as a Director, Employee or Consultant as a result of his or her
disability, the Optionee may, but only within 12 months from the date of
such termination (and in no event later than the expiration date of the
termination of such Option as set forth in the Option Agreement), exercise the
Option to the extent otherwise entitled to exercise it at the date of such
termination. However, in the event of termination of an Optionee’s Continuous
Status as a Director, Employee or Consultant as a result of his or her
“permanent disability” as such term is defined in Section 22(e)(3) of the
Code, the Optionee shall be entitled, but only within 12 months from the
date of such termination (and in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), to exercise all
Options such Director, Employee or Consultant would have been entitled to
exercise had such Director, Employee or Consultant remained employed for one
year from the date of such termination. If such disability is not a “permanent
disability,” in the case of an Incentive Stock Option such Incentive Stock
Option shall automatically cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option three months
and one day following such termination. If the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate, and the Shares covered by such Option shall revert to the
Plan.







(d)           Death of
Optionee.  In the event of the death of an Optionee, the
Optionee’s
estate or any person who acquired the right to exercise the Option by bequest or
inheritance shall be entitled, but only within 12 months from the date of
such termination (and in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), to exercise all Options such
Director, Employee or Consultant would have been entitled to exercise had such
Director, Employee or Consultant remained employed for one year from the date of
such termination. All remaining Shares covered by the unexercisable portion of
the Option shall immediately revert to the Plan. If, after the Optionee’s death, the
Optionee’s
estate or a person who acquires the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.




(e)           Rule 16b-3.  Options
granted to a person subject to Section 16(b) of the Exchange Act must
comply with Rule 16b-3 and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the Exchange Act with respect to Plan
transactions.




10.  Non-Transferability
of Options.




Options
may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in
any manner other than by will or by the laws of descent or distribution and may
be exercised, during the lifetime of the Optionee, only by the Optionee;
provided, however, that any Nonstatutory Stock Option may be transferred by the
optionee to any member of the Optionee’s immediate
family, to a partnership the members of which (other than the Optionee) are all
members of the Optionee’s immediate
family, or to a family trust the beneficiaries of which (other than the
Optionee) are all members of the Optionee’s immediate
family.




11.  Adjustments
Upon Changes in Capitalization or Merger.




(a)           Changes in
Capitalization.  Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock that have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or that have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price for each share of Common Stock covered by
each such outstanding Option, shall be proportionately adjusted for any increase
or decrease in the number of issued shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease as determined by the Administrator.
Such adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number of shares
of Common Stock subject to an Option.




(b)           Terminating
Events.  A Terminating Event shall be defined as any one of the
following events: (i) a dissolution or liquidation of the Company;
(ii) a reorganization, merger or consolidation of the Company with one or
more corporations, as the result of which (A) the Company is not the
surviving corporation or (B) the Company becomes a subsidiary of another
corporation (which shall be deemed to have occurred if another corporation shall
own directly or indirectly, over 50 percent of the aggregate voting power
of all outstanding equity securities of the Company); (iii) a sale of
substantially all the assets of the Company to another corporation; or
(iv) a sale of the equity securities of the Company representing more than
50 percent of the aggregate voting power of all outstanding equity
securities of the Company to any person or entity, or any group of persons
and/or entities acting in concert. Upon a Terminating Event (i) the Company
shall deliver to each optionee, no less than thirty days prior to the
Terminating Event, written notification of the Terminating Event and the
optionee’s
right to exercise all options granted pursuant to this Plan, whether or not
vested under this Plan or applicable stock option agreement, and (ii) all
outstanding options granted pursuant to this Plan shall completely vest and
become immediately exercisable as to all shares granted pursuant to the option
immediately prior to such Terminating Event. This right of exercise shall be
conditional upon execution of a final plan of dissolution or liquidation or a
definitive agreement of consolidation or merger. Upon the occurrence of the
Terminating Event all then outstanding options and the Plan shall terminate;
provided, however, that any outstanding options not exercised as of the
occurrence of the Terminating Event shall not terminate if there is a successor
corporation which assumes the outstanding options or substitutes for such
options, new options covering the stock of the successor corporation with
appropriate adjustments as to the number and kind of shares and
prices.




(c)           Compliance with Incentive Stock
Option Provisions.  Notwithstanding anything to the contrary
herein, each adjustment made to an Incentive Stock Option pursuant to this
Section 11 shall comply with the rules of Section 424(a) of the Code,
and no adjustment shall be made that would cause any Incentive Stock Option to
become a Nonstatutory Stock Option.




12.  Time
of Granting Options.




The date
of grant of an Option shall, for all purposes, be the date on which the
Administrator makes the determination granting such Option, or such other date
as is determined by the Administrator. Notice of the determination shall be
given to each Director, Employee or Consultant to whom an Option is so granted
within a reasonable time after the date of such grant.







13.  Amendment
and Termination of the Plan.




(a)           Amendment and
Termination.  The Board may at any time amend, alter, suspend
or discontinue the Plan, but no amendment, alteration, suspension or
discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the
Exchange Act or with Section 422 of the Code (or any other applicable law
or regulation, including the requirements of the NASD or an established stock
exchange), the Company shall obtain shareholder approval of any Plan amendment
in such a manner and to such a degree as required.




(b)           Effect of Amendment or
Termination.  Any amendment or termination of the Plan shall
not affect Options already granted, and such Options shall remain in full force
and effect as if this Plan had not been amended or terminated, unless mutually
agreed otherwise between the Optionee and the Administrator, which agreement
must be in writing and signed by the Optionee and the Company.




14.  Conditions
Upon Issuance of Shares.




Shares
shall not be issued pursuant to the exercise of an Option unless the exercise of
such Option and the issuance and delivery of such Shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation, the
laws of the United States, including the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Common Stock may then be
listed, and shall be further subject to the approval of counsel for the Company
with respect to such compliance. As a condition to the exercise of an Option,
the Company may require the person exercising such Option to represent and
warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned relevant provisions of law.




15.  Reservation
of Shares.




During
the term of this Plan, the Company shall at all times reserve and keep available
such number of Shares as shall be sufficient to satisfy the requirements of the
Plan. The inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by Company counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been
obtained.




16.  Agreements.




Options
shall be evidenced by written agreements in such form as the Administrator shall
approve from time to time.




17.  Shareholder
Approval.




Continuance
of the Plan shall be subject to approval by the shareholders of the Company
within 12 months before or after the date the Plan is adopted. Such
shareholder approval shall be obtained in the degree and manner required under
applicable state and federal law and the rules of any stock exchange upon which
the Common Stock is listed.




18.  Information
to Optionees and Purchasers.




The
Company shall provide to each Optionee and to each individual who acquires
Shares pursuant to the Plan, not less frequently than annually during the period
such Optionee or purchaser has one or more Options outstanding, and, in the case
of an individual who acquires Shares pursuant to the Plan, during the period
such individual owns such Shares, copies of annual financial statements. The
Company shall not be required to provide such statements to key employees whose
duties in connection with the Company assure their access to equivalent
information.












HERITAGE COMMERCE CORP


2004
STOCK OPTION PLAN





STOCK
OPTION AGREEMENT




Capitalized
terms used without definition in this Stock Option Agreement (the “Option
Agreement”) shall have the meanings given such terms in the Heritage
Commerce Corp 2004 Stock Option Plan (the “Plan”).




I.


NOTICE
OF STOCK OPTION GRANT





TO:







1.
            Option.You
      have been granted an option to purchase shares of common stock (the “Shares”)
      of Heritage Commerce Corp, a California corporation (the “Company”),
      subject to the terms and conditions of the Plan and this Option Agreement,
      as follows:




Date
      of Grant:




Exercise
      Price per Share:




Total
      Number of Shares Granted




Total
      Exercise Price:




Type
      of
      Option:                                 NQ




Expiration
      Date:                                  10 Years From Date of
      Grant




2.           Vesting and
Expiration:  Vesting at 1/1460thof the grant per day until
vested.




3.           Termination.  So
long as the Optionee maintains Continuous Status as a Director, Employee or
Consultant, this Option may be exercised, in whole or in part, with respect to
any vested Shares, anytime prior to the Expiration Date.  If the
Optionee’s Continuous Status as a Director, Employee or Consultant terminates
for any reason, the Optionee shall have that amount of time set forth in Section
9 of the Plan to exercise any vested Shares, after which time this Option shall
expire.




II.




AGREEMENT




1.           Grant of
Option.  The Company hereby grants to the Optionee (the “Optionee”)
named in the Notice of Stock Option Grant set forth above (the “Notice of
Grant”) an option (the “Option”)
to purchase the total number of Shares set forth in the Notice of Grant, at the
exercise price per share set forth in the Notice of Grant (the “Exercise
Price”), subject to the terms, definitions and provisions of the Plan,
which is incorporated herein by reference.




2.           Exercise of
Option.




(a)           Right to
Exercise.  This Option shall be exercisable prior to its
expiration date only, in accordance with the Vesting Schedule set out in the
Notice of Grant and with the applicable provisions of the Plan and this Option
Agreement.




(b)           Method of
Exercise.  This Option shall be exercisable by written notice
which shall state the election to exercise the Option, the number of Shares with
respect to which the Option is being exercised, and such other representations
and agreements as to the Optionee’s investment intent with respect to the Shares
as may be required by the Company pursuant to the provisions of the
Plan.  Such notice is attached hereto as Exhibit A.   The
written notice shall be signed by the Optionee and shall be delivered in person
or by certified mail to the Secretary of the Company.  The written
notice shall be accompanied by payment of the Exercise Price.  This
Option shall be deemed to be exercised upon receipt by the Company of such
written notice accompanied by the Exercise Price.




(c)           Compliance with
Law.  No Shares will be issued pursuant to the exercise of any
Option unless such issuance and such exercise shall comply with all relevant
provisions of law and the requirements of any stock exchange upon which the
Shares may then be listed.  Assuming such compliance, for income tax
purposes the Shares shall be considered transferred to the Optionee on the date
on which the Option is exercised with respect to such shares.







3.           Method of
Payment.  Subject to Section 8, payment of the Exercise Price
shall be paid by (a) cash, (b) check or (c)  any combination of
those methods of payment.  In addition, if there is a public market
for the Shares, the Optionee may elect to pay the Exercise Price through a
special sale and remittance procedure under which the Optionee provides
irrevocable written instructions to a designated brokerage firm to effect the
immediate sale of a portion of the purchased Shares and remit to the Company,
out of the sale proceeds available on the settlement date, an amount sufficient
to cover the aggregate option price payable for the purchased Shares plus all
applicable Federal and State income and employment taxes required to be withheld
by the Company by reason of such purchase and/or sale.  The Optionee
must also provide such irrevocable written instructions to the Company to
deliver the certificates for the purchased Shares directly to such brokerage
firm to effect the sale transaction.  Notwithstanding the above, the
Company shall not be required to permit the Optionee to utilize the sale and
remittance procedure described above if the Company’s legal counsel advises the
Company that the procedure may violate any applicable law, regulation or
regulatory guidance.




4.           Optionee’s
Representations.  In the event the Shares purchasable pursuant
to the exercise of this Option have not been registered under the Securities Act
of 1933, as amended, at the time this Option is exercised, Optionee shall, if
required by the Company, concurrently with the exercise of all or any portion of
this Option, deliver to the Company an investment representation statement in a
form reasonably required by the Company.




5.           Non-Transferability of Option;
Assignment by Company.  This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee; provided,
however, that any Nonstatutory Stock Option may be transferred by Optionee to
any member of Optionee’s immediate family, to a partnership the members of which
(other than Optionee) are all members of Optionee’s immediate family, or to a
family trust the beneficiaries of which (other than Optionee) are all members of
Optionee’s immediate family.  The terms of this Option shall be
binding upon the executors, administrators, heirs, successors and assigns of
Optionee.  The Company may assign any of its rights under this Option
Agreement to single or multiple assignees, and this Option Agreement shall inure
to the benefit of the successors and assigns of the Company.




6.           Restrictions on
Transfer.All certificates representing Shares purchased under
this Option Agreement may be imprinted with an appropriate legend with respect
to any applicable restriction on transfer.  The Company may issue
appropriate stop-transfer instructions to its transfer agent to ensure
compliance with these transfer restrictions.  If the Company transfers
its own securities, it may make appropriate notations to the same effect in its
own records.  The Company shall not be required to transfer on its
books any Shares that have been sold or transferred in violation of any of the
provisions of the Plan or this Option Agreement, or to treat as the owner of
such Shares or to accord the right to vote or pay dividends to any purchaser or
transferee to whom such Shares has been sold or transferred.




7.           Market Stand-Off
Agreement.  Optionee hereby agrees that if so requested by the
Company or any representative of the underwriters in connection with the first
registration statement of the Company to become effective under the Securities
Act which includes securities to be sold on behalf of the Company to the public
in an underwritten public offering, Optionee shall not sell or otherwise
transfer the Shares or any other securities of the Company during the 180-day
period following the effective date of such registration
statement.  The Company may impose stop-transfer instructions with
respect to securities subject to the foregoing restrictions until the end of
such 180-day period.  Optionee agrees that the Company may assign his
or her obligation hereunder to any underwriter of the Company’s initial public
offering.




8.           Acknowledgments of
Optionee.




(a)           NO RIGHT OF
EMPLOYMENT.OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING
OF SHARES PURSUANT TO THE OPTION IS EARNED ONLY BY CONTINUING CONSULTANCY OR
EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER).  OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE HERITAGE
COMMERCE CORP 2004 STOCK OPTION PLAN THAT IS INCORPORATED HEREIN BY REFERENCE,
SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT
OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE’S
RIGHT OR THE COMPANY’S RIGHT TO TERMINATE OPTIONEE’S EMPLOYMENT OR CONSULTANCY
AT ANY TIME, WITH OR WITHOUT CAUSE.




(b)           Receipt of
Plan.Optionee acknowledges receipt of a copy of the Plan and
represents that he or she is familiar with the terms and provisions thereof, and
hereby accepts this Option subject to all of the terms and provisions
thereof.  Optionee has reviewed the Plan and this Option in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the
Option.  Optionee hereby agrees to accept as binding, conclusive and
final all decisions or interpretations of the Administrator upon any questions
arising under the Plan or this Option.  Optionee further agrees to
notify the Company upon any change in the residence address indicated
above.







9.           Notice.  Any notice
required or permitted under this Option Agreement shall be given in writing and
shall be deemed effectively given upon personal delivery or upon deposit in the
United States mail by certified mail, with postage and fees prepaid, addressed
to the party at its address as shown below, or to such other address as such
party may designate in writing from time to time to the other
party.




10.           Entire Agreement; Governing
Law.  The Plan is incorporated herein by
reference.  The Plan and this Option Agreement constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and the
Optionee with respect to the subject matter hereof, and may not be modified
adversely to the Optionee’s interest except by means of a writing signed by the
Company and Optionee.  In case of conflict between the provisions in
the Plan and this Option Agreement, the provisions in the Plan shall
prevail.  This Option Agreement is governed by California law except
for that body of law pertaining to conflict of laws.














Date:                                                                                                      
HERITAGE COMMERCE CORP




By:
________________________________


Walter T. Kaczmarek,
CEO






































Exhibit
A




HERITAGE
COMMERCE CORP


2004
STOCK OPTION PLAN


EXERCISE
NOTICE




TO:                      Heritage
Commerce Corp


150
Almaden Boulevard


San Jose,
California 95113




ATTN:
__________________




SUBJECT:
            NOTICE
      OF EXERCISE OF STOCK OPTION






In
respect to the stock option granted to the undersigned on _____________, to
purchase an aggregate of _________ shares of the Company’s Common Stock, this is
official notice that the undersigned hereby elects to exercise such option to
purchase shares as follows:





NUMBER OF
SHARES:         
__________________________________




DATE OF
PURCHASE:         
__________________________________




MODE OF
PAYMENT:         
__________________________________


(Certified
check, cash or other [specify])




The
shares should be issued as follows:




NAME:                         
         
__________________________________
  ADDRESS:                  
         
__________________________________
  ___________________________________




Signed:                      
           
__________________________________
  Dated:                       
              
___________________________________







Please
send this notice of exercise to:




Heritage Commerce Corp


150 Almaden Boulevard


San Jose, California
95113


Attn:  ___________________