Exhibit 10.1


 


SECURITIES PURCHASE AGREEMENT


 


This
Securities Purchase Agreement (this “Agreement”)
is dated as of June 18, 2010, by and among Heritage Commerce Corp, a
California corporation (the “Company”),
and each purchaser identified on the signature pages hereto (each, including
its successors and assigns, a “Purchaser”
and collectively, the “Purchasers”).


 


RECITALS


 


A.                                   The Company and
each Purchaser are executing and delivering this Agreement in reliance upon the
exemption from securities registration afforded by Section 4(2) of the
Securities Act of 1933, as amended (the “Securities
Act”), and Rule 506 of Regulation D (“Regulation D”) as promulgated by the United
States Securities and Exchange Commission (the “Commission”) under the Securities Act.


 


B.                                     Each Purchaser,
severally and not jointly, wishes to purchase, and the Company wishes to sell,
upon the terms and conditions stated in this Agreement, that aggregate number
of shares of the Company’s Series B mandatorily convertible cumulative
perpetual preferred stock, $1,000 liquidation preference per share (the “Series B Preferred Shares”),
set forth below such Purchaser’s name on the signature page of this Agreement.
When purchased, the Series B Preferred Shares will have the terms set forth in
a certificate of determination for the Series B Preferred Shares in the form
attached as Exhibit A hereto (the “Series B Certificate of Determination”) made
a part of the Company’s Articles of Incorporation, as amended, by the filing of
the Series B Certificate of Determination with the California Secretary of
State (the “California Secretary”).  Except as otherwise provided herein, the
Series B Preferred Shares will convert into shares (the “Underlying Shares” and, together with the Series
B Preferred Shares and the Series C Preferred Shares, the “Securities”) of the common
stock, no par value per share, of the Company (the “Common Stock”), subject to and in accordance with
the terms and conditions of the Series B Certificate of Determination.


 


C.                                     Castle Creek Capital
Partners IV, LP (“Castle Creek”)
is purchasing 4,815 shares of the Series B Preferred Shares and 12,960
shares of the Company’s Series C convertible perpetual preferred stock,
$1,000 liquidation preference per share (“Series C
Preferred Shares”). 
The Series C Preferred Shares will convert into Common Stock as
provided in the Series C Certificate of Determination (as defined below), only
upon a subsequent transfer to a non-affiliate of Castle Creek, and such shares
of Common Stock shall be included herein as “Underlying Shares.”  When purchased, the Series C Preferred
Shares will have the terms set forth in a certificate of determination for the
Series C Preferred Shares in the form attached as Exhibit B
hereto (the “Series C Certificate of
Determination”) made a part of the Company’s Articles of
Incorporation, as amended, by the filing of the Series C Certificate of
Determination with the California Secretary. 
The Series B Preferred Shares and the Series C Preferred Shares are
collectively referred to as the “Preferred Shares.”


 


D.                                    Patriot
Financial Partners, L.P. and Patriot Financial Partners Parallel, L.P.
(collectively “Patriot”) are purchasing in the aggregate 9,731.25 shares of the
Series B Preferred Shares and 8,043.75 shares of the Company’s Series C
Preferred Shares.  The Series C Preferred
Shares will convert into Common Stock as provided in the Series C Certificate
of Determination only upon a subsequent transfer to a non-affiliate of Patriot
and such shares of Common Stock shall be included herein as “Underlying Shares.”


 


E.                                      The amount
raised from the Series B Preferred Shares and the Series C Preferred Stock
shall aggregate at least $75 million.


 


F.                                      Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are executing
and delivering a Registration Rights Agreement, in the form attached hereto as Exhibit C
(the “Registration Rights
Agreement”), pursuant to which, among other things, the
Company will agree to provide certain registration rights with respect to the
Securities under the Securities Act and the rules and regulations promulgated
thereunder and applicable state securities laws.


 


G.                                     The Company has
engaged Sandler O’Neill & Partners, L.P. as its exclusive placement agents
(the “Placement Agent”)
for the offering of the Preferred Shares.


 


1

















 


NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Purchasers
hereby agree as follows:


 


ARTICLE I


DEFINITIONS


 


1.1                                 Definitions.  In addition to the terms defined elsewhere in
this Agreement, for all purposes of this Agreement, the following terms shall
have the meanings indicated in this Article I:


 


“Action” means any action, suit,
inquiry, notice of violation, proceeding (including any partial proceeding such
as a deposition) or investigation pending or, to the Company’s Knowledge,
threatened in writing against the Company, any Subsidiary or any of their
respective properties or any officer, director or employee of the Company or
any Subsidiary acting in his or her capacity as an officer, director or
employee before or by any federal, state, county, local or foreign court,
arbitrator, governmental or administrative agency, regulatory authority, stock
market, stock exchange or trading facility.


 


“Affiliate” means, with
respect to any Person, any other Person that, directly or indirectly through
one or more intermediaries, Controls, is controlled by or is under common
control with such Person, as such terms are used in and construed under Rule
405 under the Securities Act.


 


“Agency” has the meaning set forth
in Section 3.1(oo).


 


“Agreement” shall have the
meaning ascribed to such term in the Preamble.


 


“Articles of Incorporation” means the
Articles of Incorporation of the Company and all amendments and certificates of
determination thereto, as the same may be amended from time to time.


 


“Bank” means the Company’s wholly owned
subsidiary, Heritage Bank of Commerce, a California banking corporation.


 


“Bank Board” has the
meaning set forth in Section 4.15.


 


“Bank Board Observer” has the meaning
set forth in Section 4.15.


 


“Bank Board Representative” has the
meaning set forth in Section 4.15.


 


“BHC Act” means the Bank Holding
Company Act of 1956, as amended.


 


“Board of Directors” has the
meaning set forth in Section 2.2(v).


 


“Business Day” means a day,
other than a Saturday or Sunday, on which banks in New York City and
California are open for the general transaction of business.


 


“Buy-In” has the meaning set forth
in Section 4.1(e).


 


“Buy-In Price” has the
meaning set forth in Section 4.1(e).


 


“California Courts” means the
state and federal courts sitting in the State of California.


 


“California Secretary” has the
meaning set forth in the Recitals.


 


“Castle Creek” has the
meaning set forth in the Recitals.


 


“CIBCA” means the Change in Bank
Control Act.


 


2

















 


“Closing” means the initial closing
of the purchase and sale of the Preferred Shares pursuant to this Agreement.


 


“Closing Bid Price” means, for any
security as of any date, the last closing price for such security on the
Principal Trading Market, as reported by Bloomberg, or, if the Principal
Trading Market begins to operate on an extended hours basis and does not
designate the closing bid price then the last bid price of such security prior
to 4:00 p.m., New York City Time, as reported by Bloomberg, or, if the
Principal Trading Market is not the principal securities exchange or trading
market for such security, the last closing price of such security on the
principal securities exchange or trading market where such security is listed
or traded as reported by Bloomberg, or if the foregoing do not apply, the last
closing price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing
bid price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the “pink sheets”
by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the
Closing Bid Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Bid Price of such security on such date
shall be the fair market value as mutually determined by the Company and the
holder. If the Company and the holder are unable to agree upon the fair market
value of such security, then the Company shall, within two Business Days submit
via facsimile (a) the disputed determination to an independent, reputable
investment bank selected by the Company and approved by the holder or (b) the
disputed arithmetic calculation to the Company’s independent, outside
accountant. The Company shall cause at its expense the investment bank or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the holder of the results no later than ten Business
Days from the time it receives the disputed determinations or calculations.
Such investment bank’s or accountant’s determination or calculation, as the
case may be, shall be binding upon all parties absent demonstrable error. All
such determinations shall be appropriately adjusted for any stock dividend,
stock split, stock combination or other similar transaction during the
applicable calculation period.


 


“Closing Date” means the
Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all of the conditions set
forth in Sections 2.1, 2.2, 5.1 and 5.2 hereof are satisfied, or such other
date as the parties may mutually agree.


 


“Code” has the meaning set forth
in Section 3.1(qq).


 


“Controlled Group” has the
meaning set forth in Section 3.1(qq).


 


“Commission” has the
meaning set forth in the Recitals.


 


“Common Stock” has the
meaning set forth in the Recitals, and also includes any securities into which
the Common Stock may hereafter be reclassified or changed.


 


“Company Counsel” means
Buchalter Nemer, a professional corporation.


 


“Company Deliverables” has the
meaning set forth in Section 2.2(a).


 


“Company Reports” has the
meaning set forth in Section 3.1(kk).


 


“Company’s Knowledge” means with
respect to any statement made to the knowledge of the Company, that the
statement is based upon the actual knowledge of the executive officers of the
Company having responsibility for the matter or matters that are the subject of
the statement after reasonable investigation.


 


“Control” (including the terms “controlling”,
“controlled by” or “under common control with”) means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.


 


“Deadline Date” has the
meaning set forth in Section 4.1(e).


 


“DFI” means the California
Department of Financial Institutions.


 


3

















 


“Disclosure Materials” has the
meaning set forth in Section 3.1(h).


 


“DTC” means The Depository Trust
Company.


 


“Effective Date” means the date
on which the initial Registration Statement required by the terms hereof is
first declared effective by the Commission.


 


“Environmental Laws” has the
meaning set forth in Section 3.1(l).


 


“ERISA” has the meaning set forth
in Section 3.1(qq).


 


“ERISA Entity” has the meaning
set forth in Section 3.2(p)(ii).


 


“Exchange Act” means the
Securities Exchange Act of 1934, as amended, or any successor statute, and the
rules and regulations promulgated thereunder.


 


“Expedited Insurance” has the
meaning set forth in Section 4.20(e).


 


“FDIC” means the Federal Deposit
Insurance Corporation.


 


“Federal Reserve” has the
meaning set forth in Section 3.1(kk).


 


“Follow-up Special Meeting” has the
meaning set forth in Section 4.11(b).


 


“GAAP” means U.S. generally
accepted accounting principles, as applied by the Company.


 


“Indemnified Person” has the
meaning set forth in Section 4.8(b).


 


“Institutional Inventor” has the
meaning set forth in Section 4.15.


 


“Insurer” has the meaning set forth
in Section 3.1(oo).


 


“Intellectual Property” has the
meaning set forth in Section 3.1(r).


 


“Legend Removal Date” has the
meaning set forth in Section 4.1(c).


 


“Lien” means any lien, charge,
claim, encumbrance, security interest, right of first refusal, preemptive right
or other restrictions of any kind.


 


“Loan Investor” has the meaning set forth
in Section 3.1(oo).


 


“Material Adverse Effect” means any
circumstance, effect, event, change or development that individually or in the
aggregate that has, or is reasonably expected to have, (i) a material and
adverse effect on the legality, validity or enforceability of any Transaction
Document, (ii) any material and adverse effect on the results of
operations, assets, properties, business, or financial condition, of the
Company and its Subsidiaries, taken as a whole, or (iii) any adverse
impairment to the Company’s ability to perform its obligations under any
Transaction Document; provided, however, in determining whether a Material
Adverse Effect has occurred, there shall be excluded any effect to the extent
resulting from the following: (A) changes, after the date hereof, in
generally accepted accounting principles or regulatory accounting requirements
applicable to financial institutions or their holding companies, except to the
extent such change has a disproportionate adverse effect on the Company and its
Subsidiaries, taken as a whole, (B) changes, after the date hereof, in laws of
general applicability or interpretations thereof by courts or governmental
authorities, except to the extent such change has a disproportionate adverse
effect on the Company and its Subsidiaries, taken as a whole, (C) actions
or omissions by any party taken with the prior written permission of the other
party or required under this Agreement, (D) changes in the market price or
trading volumes of the Common Stock (but not the underlying causes of such
changes), (E)  the imposition and 


 


4

















 


announcement
of any regulatory enforcement action by the FDIC or DFI as to the Bank and by
the Federal Reserve as to the Company to the extent such matters were as
disclosed on Schedule 3.1(mm) as of the date of this Agreement,
(F) the public disclosure of this Agreement or the transactions
contemplated hereby, or (G) changes, after the date hereof, in global or
national or regional political conditions (including the outbreak of war or
acts of terrorism) or in general or regional economic or market conditions
affecting financial institutions or their holding companies generally except to
the extent that any such changes in general or regional economic or market
conditions have a disproportionate adverse effect the Company and its
Subsidiaries, taken as a whole.


 


“Material Contract” means any
contract of the Company that was filed as an exhibit to the SEC Reports on file
as of the date of this Agreement pursuant to Item 601 of Regulation S-K.


 


“Material Permits” has the meaning
set forth in Section 3.1(p).


 


“Money Laundering Laws” has the
meaning set forth in Section 3.1(ii).


 


“New Security” has the meaning
set forth in Section 4.20(a).


 


“Non-Public Information” has the
meaning set forth in Section 4.6.


 


“Observer” has the meaning set forth
in Section 4.15.


 


“OFAC” has the meaning set forth
in Section 3.1(hh).


 


“Outside Date” means the
thirtieth day following the date of this Agreement; provided that if such day
is not a Business Day, the first day following such day that is a Business Day.


 


“Pension Plan” has the meaning
set forth in Section 3.1(qq).


 


“Permitted Rights Offering” means an
offering of up to $10 million of aggregate offering price of Common Stock
pursuant to subscription rights distributed pro rata to the then existing
holders of record of Common Stock at a price per share of Common Stock of not
less than $3.75, and the associated declaration, issuance and exercise of the
subscription rights with respect to such offering and shares of Common Stock
issuable in connection with the exercise of any such rights.


 


“Person” means an individual,
corporation, partnership, limited liability company, trust, business trust,
association, joint stock company, joint venture, sole proprietorship,
unincorporated organization, governmental authority or any other form of entity
not specifically listed herein.


 


“Placement Agent” has the
meaning set forth in the Recitals.


 


“Preferred Shares” has the
meaning set forth in the Recitals.


 


“Press Release” has the
meaning set forth in Section 4.6.


 


“Principal Trading Market” means the
Trading Market on which the Common Stock is primarily listed on and quoted for
trading, which, as of the date of this Agreement and the Closing Date, shall be
the NASDAQ Global Select Market.


 


“Proceeding” means an
action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.


 


“Prospectus” means the
prospectus included in any Registration Statement, as amended or supplemented
by any prospectus supplement with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement or
any other amendments and supplements to such prospectus, including 


 


5

















 


without
limitation any preliminary prospectus, any pre-effective or post-effective
amendment and all material incorporated by reference in any prospectus.


 


“Public Offering” has the
meaning set forth in Section 4.20(b).


 


“Purchase Price” means
$1,000.00 per Preferred Share.


 


“Purchaser Deliverables” has the
meaning set forth in Section 2.2(b).


 


“Purchaser Party” has the
meaning set forth in Section 4.8(a).


 


“Registration Rights Agreement” has the
meaning set forth in the Recitals.


 


“Registration Statement” means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement and covering the resale by the Purchasers of the Registrable
Securities (as defined in the Registration Rights Agreement).


 


“Regulation D” has the
meaning set forth in the Recitals.


 


“Regulatory Agreement” has the
meaning set forth in Section 3.1(mm).


 


“Required Approvals” has the
meaning set forth in Section 3.1(e).


 


“Reserve Bank” means the
Federal Reserve Bank of San Francisco.


 


“Rule 144” means Rule 144 promulgated
by the Commission pursuant to the Securities Act, as such Rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the
Commission having substantially the same effect as such Rule.


 


“SBA” has the meaning set forth
in Section 3.1(yy).


 


“SBA Act” has the meaning set forth
in Section 3.1(yy).


 


“SBA Standard Operating Procedures and Official
Notices” means Public Law 85-536, as amended; those Rules
and Regulations, as defined in 13 C.F.R. Part 120, “Business Loans” and 13
C.F.R. Part 121, “Size Standards”; Standard Operating Procedures, (SOP) 50-10
for loan processing, 50-50 for loan liquidation as may be published and or
amended from time to time by the SBA.


 


“Schedules” means the
schedules to this Agreement.


 


“SEC Reports” has the
meaning set forth in Section 3.1(h).


 


“Secretary’s Certificate” has the
meaning set forth in Section 2.2(a)(iv).


 


“Securities” has the
meaning set forth in the Recitals.


 


“Securities Act” has the
meaning set forth in the Recitals.


 


“Series B Certificate of Determination” has the
meaning set forth in the Recitals.


 


“Series B Preferred Shares” has the
meaning set forth in the Recitals.


 


“Series C Certificate of Determination” has the
meaning set forth in the Recitals.


 


“Series C Preferred Shares” has the
meaning set forth in the Recitals.


 


6

















 


“Shareholder Approval” has the
meaning set forth in Section 4.11.


 


“Stock Certificates” has the
meaning set forth in Section 2.2(a)(ii).


 


“Shareholder Approval” has the
meaning set forth in Section 4.11.


 


“Shareholder Proposals” has the
meaning set forth in Section 4.11.


 


“Subscription Amount” means with
respect to each Purchaser, the aggregate amount to be paid for the Preferred
Shares purchased hereunder as indicated on such Purchaser’s signature page to
this Agreement next to the heading “Aggregate Purchase Price (Subscription
Amount)”.


 


“Subsidiary” means any
entity in which the Company, directly or indirectly, owns sufficient capital
stock or holds a sufficient equity or similar interest such that it is
consolidated with the Company in the financial statements of the Company.


 


“Trading Day” means (i) a
day on which the Common Stock is listed or quoted and traded on its Principal
Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock
is not listed on a Trading Market (other than the OTC Bulletin Board), a day on
which the Common Stock is traded in the over-the-counter market, as reported by
the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any
Trading Market, a day on which the Common Stock is quoted in the
over-the-counter market as reported in the “pink sheets” by Pink Sheets LLC (or
any similar organization or agency succeeding to its functions of reporting
prices); provided , that in the event that the Common Stock is not listed or
quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean
a Business Day.


 


“Trading Market” means
whichever of the New York Stock Exchange, the NYSE Amex, the NASDAQ Global
Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or the OTC
Bulletin Board on which the Common Stock is listed or quoted for trading on the
date in question.


 


“Transaction Documents” means this
Agreement, the Schedules and Exhibits attached hereto, the Registration Rights
Agreement, the Series B Certificate of Determination, the Series C
Certificate of Determination and any other documents or agreements executed in
connection with the transactions contemplated hereunder.


 


“Transfer Agent” means Wells
Fargo Shareholder Services, or any successor transfer agent for the Company.


 


“Underlying Shares” has the
meaning set forth in the Recitals.


 


“U.S. Sanctions Laws” has the
meaning set forth in Section 3.2(t).


 


“VCOC Agreement” has the
meaning set forth in Section 4.19.


 


“Written Agreement” means that
certain Written Agreement, dated February 17, 2010, by and among the
Company, the Bank, the Reserve Bank and the DFI.


 


ARTICLE II


PURCHASE AND SALE


 


2.1                                 Closing.


 


(a)                                  Purchase of
Preferred Shares.  Subject to
the terms and conditions set forth in this Agreement, at the Closing the
Company shall issue and sell to each Purchaser, and each Purchaser shall,
severally and not jointly, purchase from the Company, the number of Preferred
Shares set forth below such Purchaser’s name on the signature page of this
Agreement at a per Preferred Share price equal to the Purchase Price.


 


7

















 


(b)                                 Closing.  The Closing of the purchase and sale of the
Preferred Shares shall take place at the offices of the Company,
150 Almaden Boulevard, San Jose, CA 95113, on the Closing Date or at such
other locations or remotely by facsimile transmission or other electronic means
as the parties may mutually agree and shall occur no later than the fifth
Business Day following the date on which the conditions to closing set forth in
Article V are satisfied (other than those conditions that by their nature
are to be satisfied at Closing but subject to the fulfillment or waiver of
those conditions).


 


(c)                                  Delivery and
Payment.  At the Closing, the Company
shall deliver to each of the respective Purchasers a certificate or
certificates, in such reasonable denominations as the Purchaser may have
designated in writing not less than two Business Days before the Closing, and
registered in the name of the Purchaser (or its designee or nominee),
representing the number of Preferred Shares the Purchaser is acquiring in the
transaction. At the Closing, the Purchaser shall deliver the purchase price of
his respective Subscription Amount in immediately available funds by wire
transfer to the Escrow Account:


 


	
  ABA Routing Number:

  	
   

  	
   

  
	
  Bank:

  	
   

  	
  Heritage
  Bank of Commerce

  
	
  Acct #:

  	
   

  	
   

  
	
  Acct Name:

  	
   

  	
  Heritage
  Commerce Corp

  
	
  Attn:

  	
   

  	
   

  



 


2.2                                 Closing
Deliveries.


 


(a)                                  On or prior to
the Closing, the Company shall issue, deliver or cause to be delivered to each
Purchaser the following (the “Company
Deliverables”):


 


(i)                                     this Agreement, duly
executed by the Company;


 


(ii)                                  one or more stock
certificates (if physical certificates are required by the Purchaser to be held
immediately prior to Closing; if not, then facsimile or “.pdf” copies of such
certificates shall suffice for purposes of Closing with the original stock certificates
to be delivered within three Business Days of the Closing Date), evidencing the
Preferred Shares subscribed for by Purchaser hereunder, registered in the name
of such Purchaser or as otherwise set forth on the Investor Questionnaire
included as Exhibit D, hereto, (the “Stock Certificates”) (or, if the Company and such
Purchaser agree, the Company shall cause to be made a book-entry record through
the facilities of DTC representing the Preferred Shares registered in the name
of such Purchaser or as otherwise set forth on the Investor Questionnaire);


 


(iii)                               a legal opinion of Company
Counsel, dated as of the Closing Date and in the form attached hereto as Exhibit E,
executed by such counsel and addressed to the Purchasers;


 


(iv)                              the Registration Rights
Agreement duly executed by the Company;


 


(v)                                 a certificate of the
Secretary of the Company, in the form attached hereto as Exhibit F
(the “Secretary’s Certificate”), dated as
of the Closing Date, (a) certifying the resolutions adopted by the Board of Directors
of the Company (“Board of Directors”) or a
duly authorized committee thereof approving the transactions contemplated by
this Agreement and the other Transaction Documents and the issuance of the
Securities, (b) certifying the current versions of the articles of
incorporation, as amended, and bylaws, as amended, of the Company and (c)
certifying as to the signatures and authority of persons signing the
Transaction Documents and related documents on behalf of the Company;


 


(vi)                              the Compliance Certificate
referred to in Section 5.1(g);


 


(vii)                           a Certificate of Good
Standing for the Company from the California Secretary of State, as of a recent
date; and


 


(viii)                        a Certificate of Good
Standing for the Bank from the DFI, as of a recent date.


 


8

















 


(b)                                 On or prior to
the Closing, each Purchaser shall deliver or cause to be delivered to the
Company the following (the “Purchaser
Deliverables”):


 


(i)                                     this Agreement, duly
executed by such Purchaser;


 


(ii)                                  its Subscription Amount, in
U.S. dollars and in immediately available funds, in the amount indicated below
such Purchaser’s name on the applicable signature page hereto under the heading
“Aggregate Purchase Price (Subscription Amount)” by wire transfer in accordance
with the Company’s written instructions;


 


(iii)                               the Registration Rights
Agreement, duly executed by such Purchaser; and


 


(iv)                              a fully completed and duly
executed Investor Questionnaire, reasonably satisfactory to the Company in the
form attached hereto as Exhibit D.


 


ARTICLE III


REPRESENTATIONS AND
WARRANTIES


 


3.1                                 Representations
and Warranties of the Company.  The Company hereby represents and warrants as
of the date hereof and the Closing Date (except for the representations and
warranties that reference a specific date, which shall be made as of such
date), to each of the Purchasers that:


 


(a)                                  Subsidiaries.  The Company has no direct or indirect
Subsidiaries other than those listed in Schedule 3.1(a) hereto.
Except as disclosed in Schedule 3.1(a) hereto, the Company owns,
directly or indirectly, all of the capital stock or comparable equity interests
of each Subsidiary free and clear of any and all Liens, and all the issued and
outstanding shares of capital stock or comparable equity interest of each Subsidiary
are validly issued and are fully paid, non-assessable and free of preemptive
and similar rights to subscribe for or purchase securities.


 


(b)                                 Organization
and Qualification.  The Company
and each of its Subsidiaries is an entity duly incorporated or otherwise
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own or lease and use its properties and assets
and to carry on its business as currently conducted.   Neither the Company nor any Subsidiary is in
violation of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.  The Company and each of its Subsidiaries is
duly qualified to conduct business and is in good standing as a foreign
corporation or other entity in each jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary,
except where the failure to be so qualified or in good standing, as the case
may be, would not have a Material Adverse Effect.  The Company is duly registered as a bank
holding company under the BHC Act.  The
Bank’s deposit accounts are insured up to applicable limits by the FDIC, and
all premiums and assessments required to be paid in connection therewith have
been paid when due. The Company has conducted its business in compliance with
all applicable federal, state and foreign laws, orders, judgments, decrees, rules,
regulations and applicable stock exchange requirements, including all laws and
regulations restricting activities of bank holding companies and banking
organizations, except for any noncompliance that, individually or in the
aggregate, has not had and would not be reasonably expected to have a Material
Adverse Effect.  The Company has
furnished or made available to each of the Purchasers, prior to the date
hereof, true, correct and complete copies of the Company’s and each Subsidiary’s
articles of incorporation and bylaws (or similar governing documents).


 


(c)                                  Authorization;
Enforcement; Validity.  The
Company has the requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the Transaction Documents to
which it is a party and otherwise to carry out its obligations hereunder and
thereunder, including, without limitation, to issue the Preferred Shares, in
accordance with the terms hereof and, subject to the Shareholder Approval, to
issue the Underlying Shares in accordance with the terms of the Series B
Certificate of Determination and Series C Certificate of Determination.
The Company’s execution and delivery of each of the Transaction Documents to
which it is a party and the consummation by it of the transactions contemplated
hereby and thereby (including, but not limited to, the sale and delivery of the
Preferred Shares and the Underlying Shares) have been 


 


9

















 


duly authorized by all necessary corporate action on
the part of the Company, and no further corporate action is required by the
Company, its Board of Directors or its shareholders in connection therewith
other than in connection with the Required Approvals. Each of the Transaction
Documents to which it is a party has been (or upon delivery will have been)
duly executed by the Company and is, or when delivered in accordance with the
terms hereof, will constitute the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except
(i) as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law. There are no shareholders
agreements, voting agreements, or other similar arrangements with respect to
the Company’s capital stock to which the Company is a party or, to the Company’s
Knowledge, between or among any of the Company’s shareholders.


 


(d)                                 No Conflicts.  The execution, delivery and
performance by the Company of the Transaction Documents to which it is a party
and the consummation by the Company of the transactions contemplated hereby or
thereby (including, without limitation, (x) the issuance of the Preferred
Shares, (y) the issuance of the Underlying Shares and (z) the payment
of dividends in accordance with the terms of the Series B Certificate of
Determination and the Series C Certificate of Determination) do not and will
not (i) conflict with or violate any provisions of the Company’s or any
Subsidiary’s certificate or articles of incorporation, bylaws or otherwise
result in a violation of the organizational documents of the Company or any
Subsidiary, (ii)  conflict with, or
constitute a default (or an event that with notice or lapse of time or both
would result in a default) under, result in the creation of any Lien upon any
of the properties or assets of the Company or any Subsidiary or give to others
any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any Material Contract, or (iii)
subject to receipt of the Required Approvals, conflict with or result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company
is subject (including federal and state securities laws and regulations and the
rules and regulations, assuming the correctness of the representations and
warranties made by the Purchasers herein, of any self-regulatory organization
to which the Company or its securities are subject, including the Trading
Market), or by which any property or asset of the Company is bound or affected,
except in the case of clauses (ii) and (iii) such as would not have or
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect.


 


(e)                                  Filings,
Consents and Approvals. 
Neither the Company nor any of its Subsidiaries is required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority, self-regulatory organization (including the Trading
Market) or other Person in connection with the execution, delivery and
performance by the Company of the Transaction Documents (including, without
limitation, (x) the issuance of the Preferred Shares, (y) the issuance and
reservation for issuance of the Underlying Shares and (z) the payment of
dividends in accordance with the terms of the Series B Certificate of
Determination and the Series C Certificate of Determination), other than
(s) prior to Closing (x) the filing of the Series B Certificate of
Determination and Series C Certificate of Determination with the
California Secretary, (y) filings required by applicable state securities laws,
(z) the filing of any requisite notices and/or application(s) to the
Trading Market for the issuance and sale of the Underlying Shares and the
listing of the Underlying Shares for trading or quotation, as the case may be,
thereon in the time and manner required thereby, and (ii) after the Closing,
obtaining the Shareholder Approval required to authorize and issue the
Underlying Shares in accordance with the terms of the Series B Certificate of
Determination and the Series C Certificate of Determination, (v) the filing
with the Commission of one or more Registration Statements in accordance with
the requirements of the Registration Rights Agreement, (w) the filing of a
Notice of Sale of Securities on Form D with the Commission under Regulation D
of the Securities Act, (x) the filings required in accordance with
Section 4.6 of this Agreement, (y) obtaining the prior written approval of
the Reserve Bank and the Director of the Division of Banking Supervision and
Regulation of the Federal Reserve and the DFI under the Written Agreement to
pay dividends and to make any distributions of interest, principal or other
sums on subordinated debt or trust preferred securities; (z) removing the
limitation on payment of dividends contained in the Indenture dated September
7, 2000 (Heritage Statutory Trust I), the Indenture dated July 31, 2001
(Heritage Statutory Trust II), the Indenture dated September 26, 2002 (Heritage
Statutory Trust III) and the Indenture dated March 23, 2000 (Heritage Capital Trust
I) by the payment of all deferred interest outstanding on such securities; and
(iii) those that have been made or obtained prior to the date of this Agreement
(collectively, the “Required Approvals”).  The Company is unaware of any facts or
circumstances relating to the Company or its Subsidiaries 


 


10

















 


which would be likely to prevent the Company from
obtaining or effecting any of the foregoing, subject in the case of items (y)
and (z) to the Company’s receipt of gross proceeds at the Closing in the
minimum amount stated in Section 5.1(i).


 


(f)                                    Issuance of the
Shares.  The issuance of the Preferred
Shares has been duly authorized and the Preferred Shares, when issued and paid
for in accordance with the terms of the Transaction Documents, will be duly and
validly issued, fully paid and non-assessable and free and clear of all Liens,
other than restrictions on transfer provided for in the Transaction Documents
or imposed by applicable securities laws, and shall not be subject to
preemptive or similar rights.  The
issuance of the Underlying Shares has been duly authorized and the Underlying
Shares, when issued in accordance with the terms of the Series B
Certificate of Determination and the Series C Certificate of
Determination, will be duly and validly issued, fully paid and non-assessable
and free and clear of all Liens, other than restrictions on transfer provided for
in the Transaction Documents or imposed by applicable securities laws, and
shall not be subject to preemptive or similar rights.  Assuming the accuracy of the representations
and warranties of the Purchasers in this Agreement, the Securities will be issued
in compliance with all applicable federal and state securities laws.


 


(g)                                 Capitalization.  The number of shares and type of all
authorized, issued and outstanding capital stock, options and other securities
of the Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) is set forth in Schedule 3.1(g).  All of the outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully paid and
non-assessable, have been issued in compliance in all material respects with
all applicable federal and state securities laws, and none of such outstanding
shares was issued in violation of any preemptive rights or similar rights to
subscribe for or purchase any capital stock of the Company.  Except as set forth in the SEC Reports on
file as of the date of this Agreement, (i) no shares of the Company’s
outstanding capital stock are subject to preemptive rights or any other similar
rights; (ii) there are no outstanding options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Company, or contracts, commitments, understandings
or arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, or exercisable or exchangeable for, any
shares of capital stock of the Company; (iii) there are no material outstanding
debt securities, notes,  credit
agreements, credit facilities or other agreements, documents or instruments
evidencing indebtedness of the Company or by which the Company is bound;
(iv) there are no outstanding securities or instruments of the Company
that contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to redeem a security of the Company or any of its Subsidiaries;
(v) the Company does not have any stock appreciation rights or “phantom stock”
plans or agreements or any similar plan or agreement; (vi) there are no
securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of the Securities (vii) there are no
outstanding equity securities that will be senior to the Preferred Shares upon
issuance; and (viii) neither the Company nor any of its Subsidiaries have any
liabilities or obligations required to be disclosed in the SEC Reports but not
so disclosed in the SEC Reports.  The
Company will not be required to amend its articles of incorporation to increase
the number of authorized shares of Common Stock for purposes of the issuance of
Common Stock on the conversion of the Preferred Shares.


 


(h)                                 SEC Reports;
Disclosure Materials.  The Company
has filed all reports, schedules, forms, statements and other documents
required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, since December 31, 2008 (the
foregoing materials, including the exhibits thereto and documents incorporated
by reference therein, being collectively referred to herein as the “SEC Reports” and together
with this Agreement and the Exhibits and Schedules to this Agreement, the “Disclosure Materials”), on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. As of
their respective filing dates, the SEC Reports complied in all material
respects with the requirements of the Securities Act and the Exchange Act and
the rules and regulations of the Commission promulgated thereunder, and none of
the SEC Reports, when filed, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.


 


11
















 


(i)                                     Financial
Statements.  The
financial statements of the Company included in the SEC Reports comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in accordance with GAAP
applied on a consistent basis during the periods involved, except as may be
otherwise specified in such financial statements or the notes thereto and
except that unaudited financial statements may not contain all footnotes
required by GAAP, and fairly present in all material respects the balance sheet
of the Company and its consolidated Subsidiaries taken as a whole as of and for
the dates thereof and the results of operations and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal, year-end
audit adjustments, which would not be material, either individually or in the
aggregate.


 


(j)                                     Tax Matters.  The Company (i) has prepared and filed
all foreign, federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (ii) has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith, with respect to which
adequate reserves have been set aside on the books of the Company and (iii) has
set aside on its books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports or
declarations apply, except, in the case of clauses (i) and (ii) above,
where the failure to so pay or file any such tax, assessment, charge or return
would not have or reasonably be expected to have a Material Adverse
Effect.  There are no transfer taxes that
are required to be paid by the Company in connection with the issuance of the
Preferred Shares.


 


(k)                                  Material
Changes.  Since the date of the latest
audited financial statements included within the SEC Reports filed prior to the
date of this Agreement, except as disclosed in subsequent SEC Reports filed
prior to the date of this Agreement, the businesses of the Company and its
Subsidiaries have been conducted only in the ordinary course, in substantially
the same manner as theretofore conducted, and there has not occurred since
December 31, 2008, any event that has had a Material Adverse Effect.


 


(l)                                     Environmental
Matters.  Neither the Company nor any of
its Subsidiaries (i) is in violation of any statute, rule, regulation,
decision or order of any governmental agency or body or any court, domestic or
foreign, relating to the use, disposal or release of hazardous or toxic
substances or relating to the protection or restoration of the environment or
human exposure to hazardous or toxic substances (collectively, “Environmental Laws”), (ii) owns
or operates any real property contaminated with any substance that is in
violation of any Environmental Laws, (iii) is liable for any off-site
disposal or contamination pursuant to any Environmental Laws, or (iv) is
subject to any claim relating to any Environmental Laws; in each case, which
violation, contamination, liability or claim has had or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect;
and, to the Company’s Knowledge, there is no pending or threatened
investigation that might lead to such a claim.


 


(m)                               Litigation.  There is no Action which (i) adversely affects
or challenges the legality, validity or enforceability of any of the
Transaction Documents or the Preferred Shares or the Underlying Shares or (ii) except
as disclosed in the SEC Reports on file as of the date of this Agreement, is
reasonably likely to have a Material Adverse Effect, individually or in the
aggregate, if there were an unfavorable decision. Neither the Company nor any
Subsidiary, nor any director or officer thereof, is or has been the subject of
any Action involving a claim of violation of or liability under federal or
state securities laws and/or a claim of breach of fiduciary duty.  There has not been, and to the Company’s
Knowledge there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer
of the Company.  There are no outstanding
orders, injunctions, judgments against the Company.  The Commission has not issued any stop order
or other order suspending the effectiveness of any registration statement filed
by the Company or any of its Subsidiaries under the Exchange Act or the
Securities Act.


 


(n)                                 Employment
Matters.  No material labor dispute
exists or, to the Company’s Knowledge, is imminent with respect to any of the
employees of the Company or any of its Subsidiaries which would have or
reasonably be expected to have a Material Adverse Effect. None of the Company’s
or Subsidiaries’ employees is a member of a union that relates to such employee’s
relationship with the Company or Subsidiary, and neither the Company nor any of
its Subsidiaries is a party to a collective bargaining agreement, and the
Company and each Subsidiary believes that its relationship with its employees
is good.  To the Company’s Knowledge, no
executive 


 


12

















 


officer of the Company or any Subsidiary is, or is
now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any
restrictive covenant in favor of a third party, and to the Company’s Knowledge,
the continued employment of each such executive officer does not subject the
Company or any Subsidiary to any liability with respect to any of the foregoing
matters.  The Company and each of its
Subsidiaries is in compliance with all U.S. federal, state, local and foreign
laws and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in
compliance would not have or reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.


 


(o)                                 Compliance.  Neither the Company nor any of its
Subsidiaries (i) is in default under or in violation of (and no event has
occurred that has not been waived that, with notice or lapse of time or both,
would result in a default by the Company or any of its Subsidiaries under), nor
has the Company or any of its Subsidiaries received written notice of a claim
that it is in default under or that it is in violation of, any Material
Contract (whether or not such default or violation has been waived), (ii) is
in violation of any order of any court, arbitrator or governmental body having
jurisdiction over the Company or its properties or assets, or (iii) except
for the matters covered by Section 3.1(mm), is in violation of, or in
receipt of written notice that it is in violation of, any statute, rule,
regulation, policy or guidelines or order of any governmental authority, self
regulatory organization (including the Trading Market) applicable to the
Company or any of its Subsidiaries, or which would have the effect of revoking
or limiting FDIC deposit insurance, except in each case set forth in (i), (ii) and
(iii) of this paragraph as would not have or reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect.


 


(p)                                 Regulatory
Permits.  The Company and each of its
Subsidiaries possess or have applied for all certificates, authorizations and
permits issued by the appropriate federal, state, local or foreign regulatory
authorities necessary to conduct their respective businesses as conducted and
as described in the SEC Reports on file as of the date of this Agreement, except
where the failure to possess such permits, individually or in the aggregate,
has not and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect (“Material
Permits”), and (i) neither the Company nor any of its
Subsidiaries has received any notice in writing of proceedings relating to the
revocation or material adverse modification of any such Material Permits and (ii) the
Company is unaware of any facts or circumstances that would give rise to the
revocation or material adverse modification of any Material Permits.


 


(q)                                 Title to Assets.  The Company and its Subsidiaries have good
and marketable title to all real property and tangible personal property owned
by them which is material to the business of the Company and its Subsidiaries,
taken as a whole, in each case free and clear of all Liens except such as do
not materially affect the value of such property or do not interfere with the
use made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.


 


(r)                                    Patents and
Trademarks.  The Company
and its Subsidiaries own, possess, license or have other rights to use all
foreign and domestic patents, patent applications, trade and service marks,
trade and service mark registrations, trade names, copyrights, inventions,
trade secrets, technology, Internet domain names, know-how and other
intellectual property (collectively, the “Intellectual
Property”) necessary for the conduct of their respective
businesses as now conducted or as proposed to be conducted as disclosed in the
SEC Reports on file as of the date of this Agreement except where the failure
to own, possess, license or have such rights would not have or reasonably be
expected to have a Material Adverse Effect. 
Except as set forth in the SEC Reports on file as of the date of this
Agreement and except where such violations or infringements would not have or
reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect, (i) there are no rights of third parties to any
such Intellectual Property; (ii) there is no infringement by third parties
of any such Intellectual Property; (iii) there is no pending or to the
Company’s Knowledge threatened action, suit, proceeding or claim by others
challenging the Company’s and its Subsidiaries’ rights in or to any such
Intellectual Property; (iv) there is no pending or to the Company’s
Knowledge threatened action, suit, proceeding or claim by others challenging
the validity or scope of any such Intellectual Property; and (v) there is
no pending or to the Company’s Knowledge 


 


13

















 


threatened action, suit, proceeding or claim by
others that the Company and/or any Subsidiary infringes or otherwise violates
any patent, trademark, copyright, trade secret or other proprietary rights of
others.


 


(s)                                  Insurance.  The Company and each of the Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as the Company believes to be prudent and
customary in the businesses and locations in which the Company and the
Subsidiaries are engaged.  Neither the
Company nor any of its Subsidiaries has received any notice of cancellation of
any such insurance, nor, to the Company’s Knowledge, will it or any Subsidiary
be unable to renew their respective existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue their respective business at a cost that would not
have a Material Adverse Effect.


 


(t)                                    Transactions
With Affiliates and Employees.  Except as set forth in the SEC Reports on
file as of the date of this Agreement, none of the officers or directors of the
Company and, to the Company’s Knowledge, none of the employees of the Company,
is presently a party to any transaction with the Company or to a presently
contemplated transaction (other than for services as employees, officers and
directors) that would be required to be disclosed pursuant to Item 404 of
Regulation S-K promulgated under the Securities Act.  Neither the Company nor any of its
Subsidiaries has outstanding “extensions of credit” to directors or executive
officers of the Company or any of its Subsidiaries within the meaning of Section 402
of the Sarbanes-Oxley Act of 2002.


 


(u)                                 Internal
Control Over Financial Reporting.  Except as set forth in the SEC Reports on
file as of the date of this Agreement, the Company maintains internal control
over financial reporting (as such term is defined in Rule 13a-15(f) under
the Exchange Act) designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles
and such internal control over financial reporting is effective.  Neither the Company nor, to the Company’s
Knowledge, the Company’s independent registered public accounting firm, has
identified or been made aware of “significant deficiencies” or “material
weaknesses” (as defined by the Public Company Accounting Oversight Board) in
the design or operation of the Company’s internal controls and procedures which
could reasonably adversely affect the Company’s ability to record, process,
summarize and report financial data, in each case which has not been
subsequently remediated.


 


(v)                                 Sarbanes-Oxley;
Disclosure Controls.  The Company
is in compliance in all material respects with all of the provisions of the
Sarbanes-Oxley Act of 2002 which are applicable to it. Except as disclosed in
the SEC Reports on file as of the date hereof, the Company maintains disclosure
controls and procedures (as such term is defined in Rule 13a-15(e) and
15d-15(e) under the Exchange Act), and such disclosure controls and
procedures are effective.


 


(w)                               Certain Fees.  Except as set forth in Section 6.1 with
respect to the Placement Agent, no person or entity will have, as a result of
the transactions contemplated by this Agreement, any valid right, interest or
claim against or upon the Company or a Purchaser for any commission, fee or
other compensation pursuant to any agreement, arrangement or understanding
entered into by or on behalf of the Company, other than the Placement Agent
with respect to the offer and sale of the Preferred Shares (which placement
agent fees are being paid by the Company). The Company shall indemnify, pay,
and hold each Purchaser harmless against, any liability, loss or expense (including,
without limitation, attorneys’ fees and out-of-pocket expenses) arising in
connection with any such right, interest or claim.


 


(x)                                   Private
Placement.  Assuming
the accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2 of this Agreement and the accuracy of the information
disclosed in the Investor Questionnaires, no registration under the Securities
Act is required for the offer and sale of the Preferred Shares by the Company
to the Purchasers under the Transaction Documents.  The issuance and sale of the Preferred Shares
hereunder does not contravene the rules and regulations of the Principal
Trading Market and, upon Shareholder Approval, the issuance of the Underlying
Shares in accordance with the Series B Certificate of Determination and
the Series C Certificate of Determination, as applicable, will not
contravene the rules and regulations of the Principal Trading Market.


 


(y)                                 Registration
Rights.  Other than each of the
Purchasers, except as set forth on Schedule 3.1(y), no Person has
any right to cause the Company to effect the registration under the Securities
Act of 


 


14

















 


any securities of the Company other than those
securities which are currently registered on an effective registration
statement on file with the Commission.


 


(z)                                   No Integrated
Offering.  Assuming
the accuracy of the Purchasers’ representations and warranties set forth in
Section 3.2, none of the Company, its Subsidiaries nor, to the Company’s Knowledge,
any of its Affiliates or any Person acting on its behalf has, directly or
indirectly, at any time within the past six months, made any offers or sales of
any Company security or solicited any offers to buy any security under
circumstances that would eliminate the availability of the exemption from
registration under Regulation D under the Securities Act in connection with the
offer and sale by the Company of the Preferred Shares as contemplated hereby.


 


(aa)                            Listing and
Maintenance Requirements.  The
Company’s Common Stock is registered pursuant to Section 12(b) of the
Exchange Act, and the Company has taken no action designed to terminate the
registration of the Common Stock under the Exchange Act nor has the Company
received any notification that the Commission is contemplating terminating such
registration. The Company has not, in the 12 months preceding the date hereof,
received written notice from any Trading Market on which the Common Stock is
listed or quoted to the effect that the Company is not in compliance with the
listing or maintenance requirements of such Trading Market. The Company is, and
has no reason to believe that it will not in the foreseeable future continue to
be, in compliance in all material respects with the listing and maintenance requirements
for continued trading of the Common Stock on the Principal Trading Market.


 


(bb)                          Investment
Company.  Neither the Company nor any of
its Subsidiaries is required to be registered as, and is not an Affiliate of,
and immediately following the Closing will not be required to register as, an “investment
company” within the meaning of the Investment Company Act of 1940, as amended.


 


(cc)                            Questionable
Payments.  Neither the
Company nor any of its Subsidiaries, nor any directors, officers, nor to the Company’s
Knowledge, employees, agents or other Persons acting at the direction of or on
behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company: (a) directly or indirectly,
used any corporate funds for unlawful contributions, gifts, entertainment or
other unlawful expenses relating to foreign or domestic political activity; (b) made
any direct or indirect unlawful payments to any foreign or domestic
governmental officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds; (c) violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended, or (d) made any
other unlawful bribe, rebate, payoff, influence payment, kickback or other
material unlawful payment to any foreign or domestic government official or
employee.


 


(dd)                          Application of
Takeover Protections; Rights Agreements.  The Company has not adopted any stockholder
rights plan or similar arrangement relating to accumulations of beneficial
ownership of Common Stock or a change in control of the Company.  The Board of Directors has taken all
necessary action to ensure that the transactions contemplated by the
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby will be exempt from any anti-takeover or similar provisions
of the Company’s articles of incorporation and bylaws and any other provisions
of any applicable “moratorium”, “control share”, “fair price”, “interested
stockholder” or other applicable anti-takeover laws and regulations of any
jurisdiction.


 


(ee)                            Off Balance
Sheet Arrangements.  There is no
transaction, arrangement, or other relationship between the Company (or any
Subsidiary) and an unconsolidated or other off balance sheet entity that is
required to be disclosed by the Company in its SEC Reports and is not so
disclosed and would have or reasonably be expected to have a Material Adverse
Effect.


 


(ff)                                Acknowledgment
Regarding Purchasers’ Purchase of Preferred Shares.  The Company acknowledges and agrees that each
of the Purchasers is acting solely in the capacity of an arm’s length purchaser
with respect to the Transaction Documents and the transactions contemplated
hereby and thereby.  The Company further
acknowledges that no Purchaser is acting as a financial advisor or fiduciary of
the Company (or in any similar capacity) with respect to the Transaction
Documents and the transactions contemplated thereby and any advice given by any
Purchaser or any of their respective representatives or agents in connection
with the Transaction Documents and the transactions contemplated thereby is
merely incidental to the Purchasers’ purchase of the Preferred Shares.


 


15

















 


(gg)                          Absence of
Manipulation.  The Company
has not, and to the Company’s Knowledge no one acting on its behalf has, taken,
directly or indirectly, any action designed to cause or to result in the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of any of the Securities.


 


(hh)                          OFAC.  Neither the Company nor any Subsidiary nor,
to the Company’s Knowledge, any director, officer, agent, employee, Affiliate
or Person acting on behalf of the Company or any Subsidiary is currently subject
to any U.S. sanctions administered by the Office of Foreign Assets Control of
the U.S. Treasury Department (“OFAC”);
and the Company will not knowingly, directly or indirectly, use the proceeds of
the sale of the Preferred Shares, or lend, contribute or otherwise make
available such proceeds to any Subsidiary, joint venture partner or other
Person or entity, towards any sales or operations in Cuba, Iran, Syria,
Sudan, Myanmar or any other country sanctioned by OFAC or for the purpose of
financing the activities of any Person currently subject to any U.S. sanctions
administered by OFAC.


 


(ii)                                  Money
Laundering Laws.  The
operations of each of the Company and any Subsidiary are and have been
conducted at all times in compliance with the money laundering statutes of
applicable jurisdictions, the rules and regulations thereunder and any
related or similar rules, regulations or guidelines, issued, administered or
enforced by any applicable governmental agency (collectively, the “Money Laundering Laws”) and
no action, suit or proceeding by or before any court or governmental agency,
authority or body or any arbitrator involving the Company and/or any Subsidiary
with respect to the Money Laundering Laws is pending or to the Company’s
Knowledge threatened, except as would not reasonably be expected to have a
Material Adverse Effect.


 


(jj)                                  No Additional
Agreements.  The Company
does not have any agreement or understanding with any Purchaser with respect to
the transactions contemplated by the Transaction Documents other than as
specified in the Transaction Documents.


 


(kk)                            Reports,
Registrations and Statements.  Since January 1, 2008, the Company and
each Subsidiary have filed all material reports, registrations and statements,
together with any required amendments thereto, that it was required to file
with the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the FDIC,
the DFI, and any other applicable federal or state securities or banking
authorities, except where the failure to file any such report, registration or
statement would not have or reasonably be expected to have a Material Adverse
Effect. All such reports and statements filed with any such regulatory body or
authority are collectively referred to herein as the “Company
Reports.” As of their respective dates, the Company Reports
complied as to form in all material respects with all the rules and
regulations promulgated by the Federal Reserve, the FDIC, the DFI and any other
applicable foreign, federal or state securities or banking authorities, as the
case may be.


 


(ll)                                  Adequate
Capitalization.  As of
March 31, 2010, the Company’s Subsidiary insured depository institution
meets or exceeds the standards necessary to be considered “well capitalized”
under the FDIC’s regulatory framework for prompt corrective action.


 


(mm)                      Agreements with
Regulatory Agencies; Compliance with Certain Banking Regulations.  Except as disclosed in Schedule 3.1(mm),
neither the Company nor any Subsidiary is subject to any cease-and-desist or
other similar order or enforcement action issued by, or is a party to any
written agreement, consent agreement or memorandum of understanding with, or is
a party to any commitment letter or similar undertaking to, or is subject to
any capital directive by, or since December 31, 2008, has adopted any
board resolutions at the request of, any governmental entity that currently
restricts in any material respect the conduct of its business or that in any
material manner relates to its capital adequacy, its liquidity and funding policies
and practices, its ability to pay dividends, its credit, risk management or
compliance policies, its internal controls, its management or its operations or
business (each item in this sentence, a “Regulatory Agreement”),
nor has the Company or any Subsidiary been advised since December 31, 2008
by any governmental entity that it is considering issuing, initiating,
ordering, or requesting any such Regulatory Agreement.  With respect to any matters requiring Board
action prior to the date of this Agreement or Closing, as applicable, that were
set forth in writing by any of the Federal Reserve, the Reserve Bank, the FDIC
or the DFI, the Company and its Subsidiaries have addressed such matters in all
material respects.


 


The
Company has no knowledge of any facts and circumstances, and has no reason to
believe that any facts or circumstances exist, that would cause the Bank: (i) to
be deemed not to be in satisfactory compliance with the 


 


16

















 


Community
Reinvestment Act and the regulations promulgated thereunder or to be assigned a
CRA rating by federal or state banking regulators of lower than “satisfactory”;
(ii) to be deemed to be operating in violation of, in any material
respect, the Bank Secrecy Act, the Patriot Act, any order issued with respect
to anti-money laundering by the OFAC, or any other anti-money laundering
statute, rule or regulation; or (iii) to be deemed not to be in
satisfactory compliance, in any material respect, with all applicable privacy
of customer information requirements contained in any federal and state privacy
laws and regulations as well as the provisions of all information security
programs adopted by the Subsidiaries.


 


Except
as would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect, each of the Company and each Subsidiary has properly
administered all accounts for which it acts as a fiduciary, including accounts
for which it serves as a trustee, agent, custodian, personal representative,
guardian, conservator or investment advisor, in accordance with the terms of
the governing documents, applicable federal and state law and regulation and
common law.  None of the Company, any Subsidiary or any director,
officer or employee of the Company or any Subsidiary has committed any breach
of trust or fiduciary duty with respect to any such fiduciary account that
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect and, except as would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect, the
accountings for each such fiduciary account are true and correct and accurately
reflect the assets of such fiduciary account.


 


(nn)                          No General
Solicitation or General Advertising.  Neither the Company nor any person acting on
its behalf has engaged or will engage in any form of general solicitation or
general advertising (within the meaning of Regulation D under the Securities
Act) in connection with any offer or sale of the Preferred Shares.


 


(oo)                          Mortgage
Banking Business.  Except as
has not had and would not reasonably be expected to have a Material Adverse
Effect:


 


(i)                                     The Company and each of its
Subsidiaries has complied with, and all documentation in connection with the
origination, processing, underwriting and credit approval of any mortgage loan
originated, purchased or serviced by the Company or any of its Subsidiaries
satisfied, (A) all applicable federal, state and local laws, rules and
regulations with respect to the origination, insuring, purchase, sale, pooling,
servicing, subservicing, or filing of claims in connection with mortgage loans,
including all laws relating to real estate settlement procedures, consumer
credit protection, truth in lending laws, usury limitations, fair housing,
transfers of servicing, collection practices, equal credit opportunity and
adjustable rate mortgages, (B) the responsibilities and obligations
relating to mortgage loans set forth in any agreement between the Company or
any of its Subsidiaries and any Agency, Loan Investor or Insurer, (C) the
applicable rules, regulations, guidelines, handbooks and other requirements of
any Agency, Loan Investor or Insurer and (D) the terms and provisions of
any mortgage or other collateral documents and other loan documents with
respect to each mortgage loan; and


 


(ii)                                  No Agency, Loan Investor or
Insurer has (A) claimed in writing that the Company or any of its
Subsidiaries has violated or has not complied with the applicable underwriting
standards with respect to mortgage loans sold by the Company or any of its
Subsidiaries to a Loan Investor or Agency, or with respect to any sale of
mortgage servicing rights to a Loan Investor, (B) imposed in writing
restrictions on the activities (including commitment authority) of the Company
or any of its Subsidiaries or (C) indicated in writing to the Company or
any of its Subsidiaries that it has terminated or intends to terminate its
relationship with the Company or any of its Subsidiaries for poor performance,
poor loan quality or concern with respect to the Company’s or any of its
Subsidiaries’ compliance with laws.


 


For
purposes of this Section 3.1(oo):  (A) “Agency” means the Federal Housing Administration, the
Federal Home Loan Mortgage Corporation, the Farmers Home Administration (now
known as Rural Housing and Community Development Services), the Federal
National Mortgage Association, the U.S. Department of Veterans’ Affairs, the
Rural Housing Service of the U.S. Department of Agriculture or any other federal
or state agency with authority to (i) determine any investment,
origination, lending or servicing requirements with regard to mortgage loans
originated, purchased or serviced by the Company or any of its Subsidiaries or (ii) originate,
purchase, or service mortgage loans, or otherwise promote mortgage lending,
including state and local housing finance authorities; (B) “Loan Investor” means any person (including an Agency)
having a beneficial interest in any mortgage loan originated, purchased or serviced
by the Company or any of its Subsidiaries or a security backed by 


 


17

















 


or
representing an interest in any such mortgage loan; and (C) “Insurer” means a person who insures or guarantees for the
benefit of the mortgagee all or any portion of the risk of loss upon borrower
default on any of the mortgage loans originated, purchased or serviced by the
Company or any of its Subsidiaries, including the Federal Housing
Administration, the United States Department of Veterans’ Affairs, the Rural
Housing Service of the U.S. Department of Agriculture and any private mortgage
insurer, and providers of hazard, title or other insurance with respect to such
mortgage loans or the related collateral.


 


(pp)                          Risk Management
Instruments.  Except as
has not had or would not reasonably be expected to have a Material Adverse
Effect, since January 1, 2008, all material derivative instruments,
including, swaps, caps, floors and option agreements, whether entered into for
the Company’s own account, or for the account of one or more of the Company
Subsidiaries, were entered into (1) only in the ordinary course of
business, (2) in accordance with prudent practices and in all material
respects with all applicable laws, rules, regulations and regulatory policies
and (3) with counterparties believed to be financially responsible at the
time; and each of them constitutes the valid and legally binding obligation of
the Company or one of the Company Subsidiaries, enforceable in accordance with
its terms.  Neither the Company or the
Company Subsidiaries, nor, to the Company’s Knowledge, any other party thereto,
is in breach of any of its material obligations under any such agreement or
arrangement.


 


(qq)                          ERISA.  The Company and each “employee benefit plan”
within the meaning of Section 3(3) of ERISA (defined below) for which
the Company or any member of its Controlled Group (defined as any organization
which is a member of a controlled group of corporations within the meaning of Section 414
of the Code) would have any liability (each, a “Pension Plan”) is in compliance
in all material respects with all presently applicable provisions of the Code
(as defined below) and the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations thereunder
(herein called “ERISA”); no “reportable event”
(as defined in ERISA) has occurred with respect to any Pension Plan for which
the Company or any member of its Controlled Group would have any liability; no
Pension Plan has failed to satisfy the minimum funding standards within the
meaning of Sections 412 or 430 of the Code or Section 302 of ERISA,
whether or not waived; the Company has not incurred and does not reasonably
expect to incur liability under (i) Title IV of ERISA with respect to the
termination of, or withdrawal from, any “pension plan”; or (ii) Sections
412 or 4971 of the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the “Code”); and each
Pension Plan for which the Company would have liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.


 


(rr)                                Shell Company
Status.  The Company is not, and has
never been, an issuer identified in Rule 144(i)(1).


 


(ss)                            Reservation of
Underlying Shares.  The Company
has reserved, and will continue to reserve, free of any preemptive or similar
rights of shareholders of the Company, a number of unissued shares of Common
Stock, sufficient to issue and deliver the Underlying Shares into which the
Preferred Shares are convertible, assuming Shareholder Approval has been
obtained.


 


(tt)                                Regulatory
Capital Levels.  At the
Closing Date, taking into account the proceeds of the capital raise
contemplated as part of this Transaction and assuming the net proceeds of this
capital raise are contributed by Company to the Bank in accordance with Section 4.10
hereof, the Company and the Bank will each have a leverage ratio of not less
than 11.0% and a total risk-based capital ratio of not less than 13.0%.


 


(uu)                          Loan Loss
Reserves.  As of the
date hereof and as of the Closing Date, the Company’s management has concluded
that the loan loss reserves of the Bank are adequate.


 


(vv)                          Change in
Control.  Except as disclosed on Schedule 3.1(vv),
the issuance of the Preferred Shares to the Purchasers as contemplated by this
Agreement will not trigger any rights under any “change of control” provision
in any of the agreements to which the Company or any of its Subsidiaries is a
party, including any employment, “change in control,” severance or other
compensatory agreements and any benefit plan, which results in payments to the
counterparty or the acceleration of vesting of benefits.


 


18

















 


(ww)                      Material
Contracts.  Except for
such agreements that have expired or terminated in accordance with their terms
prior to the date hereof, each Material Contract to which the Company and its
Subsidiaries is a party, is in full force and effect and is binding on the
Company and/or its Subsidiaries, as applicable, and, to the Company’s
Knowledge, is binding upon such other parties, in each case in accordance with
its terms, and neither the Company, any of its Subsidiaries nor, to the Company’s
knowledge, any other party thereto, is in breach of or default under any such
agreement, which breach or default would reasonably be expected to have a
Material Adverse Effect. Neither the Company, nor any of its Subsidiaries, has
received any written notice regarding the termination of any such agreements.


 


(xx)                              Section 382
Compliance.  As of the
date of this Agreement and as of the Closing Date (giving effect to the
issuance of the Series B Preferred Stock and Series C Preferred Stock
and the issuance of Common Stock upon conversion of the Series B Preferred
Stock and Series C Preferred Stock), to the Company’s Knowledge (after due
inquiry with the Company’s accountants), no ownership change has occurred or
will occur prior to the Closing Date for purposes of Section 382 of the
Code.


 


(yy)                          SBA Lending.  The Bank is duly licensed as a preferred
lender under the Small Business Administration (“SBA”) Preferred Lender Program
in the districts set forth in Schedule 3.1(yy). 
To the Company’s Knowledge, the Company and each of its Subsidiaries has
complied with, and all documentation in connection with the origination,
purchase, processing, underwriting, sale and credit approval of any SBA loan
originated, purchased, sold or serviced by the Company and any of its
Subsidiaries satisfied all applicable federal, state and local laws, rules and
regulations with respect to the origination, sale or servicing of SBA loans
including but not limited to the Small Business Act of 1953, as amended (“SBA
Act”), all rules and regulations promulgated under the SBA Act and the SBA
Standard Operating Procedures and Official Notices.


 


3.2                                 Representations
and Warranties of the Purchasers.  Each Purchaser hereby, for itself and for no
other Purchaser, represents and warrants as of the date hereof and as of the
Closing Date to the Company as follows:


 


(a)                                  Organization;
Authority.  If such
Purchaser is an entity, it is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization with the
requisite corporate or partnership power and authority to enter into and to
consummate the transactions contemplated by the applicable Transaction
Documents and otherwise to carry out its obligations hereunder and thereunder.
If such Purchaser is an entity, the execution, delivery and performance by such
Purchaser of the transactions contemplated by this Agreement and the
Registration Rights Agreement have been duly authorized by all necessary
corporate or, if such Purchaser is not a corporation, such partnership, limited
liability company or other applicable like action, on the part of such
Purchaser. If such Purchaser is an entity, each of this Agreement and the
Registration Rights Agreement has been duly executed by such Purchaser, and
when delivered by such Purchaser in accordance with the terms hereof, will
constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.


 


(b)                                 No Conflicts.  The execution, delivery and performance by
such Purchaser of this Agreement and the Registration Rights Agreement and the
consummation by such Purchaser of the transactions contemplated hereby will not
(i) result in a violation of the organizational documents of such
Purchaser (if such Purchaser is an entity), (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which such Purchaser is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws) applicable to such Purchaser, except in the
case of clauses (ii) and (iii) above, for such conflicts, defaults,
rights or violations which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the ability of such
Purchaser to perform its obligations hereunder.


 


(c)                                  Investment
Intent.  Such Purchaser understands
that the Preferred Shares are “restricted securities” and have not been
registered under the Securities Act or any applicable state securities law and
is acquiring the Preferred Shares as principal for its own account and not with
a view to, or for distributing or reselling such Preferred Shares or any part
thereof in violation of the Securities Act or any applicable state securities
laws, 


 


19

















 


provided, however, that by making the
representations herein, such Purchaser does not agree to hold any of the
Preferred Shares for any minimum period of time and reserves the right at all
times to sell or otherwise dispose of all or any part of such Preferred Shares
pursuant to an effective registration statement under the Securities Act or
under an exemption from such registration and in compliance with applicable
federal and state securities laws.  Such
Purchaser does not presently have any agreement, plan or understanding,
directly or indirectly, with any Person to distribute or effect any
distribution of any of the Securities (or any securities which are derivatives
thereof) to or through any person or entity.


 


(d)                                 Purchaser
Status.  At the time such Purchaser was
offered the Preferred Shares, it was, and at the date hereof it is, an “accredited
investor” as defined in Rule 501(a) under the Securities Act.


 


(e)                                  General
Solicitation.  Such
Purchaser is not purchasing the Preferred Shares as a result of the
post-effective registration statement on Form S-1 to the Company’s Form S-3
filed by the Company on April 23, 2010, and withdrawn on April 28,
2010, any advertisement, article, notice or other communication regarding the
Preferred Shares published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or any other
general advertisement.


 


(f)                                    Experience of
Such Purchaser.  Such
Purchaser, either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial matters so
as to be capable of evaluating the merits and risks of the prospective
investment in the Preferred Shares, and has so evaluated the merits and risks
of such investment. Such Purchaser is able to bear the economic risk of an
investment in the Preferred Shares and, at the present time, is able to afford
a complete loss of such investment.


 


(g)                                 Access to
Information.  Such
Purchaser acknowledges that it has received and reviewed the Disclosure
Materials and has been afforded (i) the opportunity to ask such questions
as it has deemed necessary of, and to receive answers from, representatives of
the Company concerning the terms and conditions of the offering of the
Preferred Shares and the merits and risks of investing in the Preferred Shares;
(ii) access to information about the Company and the Subsidiaries and
their respective financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional
information that the Company possesses or can acquire without unreasonable effort
or expense that is necessary to make an informed investment decision with
respect to the investment. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives or counsel
shall modify, amend or affect such Purchaser’s right to rely on the truth,
accuracy and completeness of the Disclosure Materials and the Company’s
representations and warranties contained in the Transaction Documents. Such
Purchaser has sought such accounting, legal and tax advice as it has considered
necessary to make an informed decision with respect to its acquisition of the
Preferred Shares.


 


(h)                                 Brokers and
Finders.  Other than the Placement Agent
with respect to the Company, no Person will have, as a result of the transactions
contemplated by this Agreement, any valid right, interest or claim against or
upon the Company or any Purchaser for any commission, fee or other compensation
pursuant to any agreement, arrangement or understanding entered into by or on
behalf of the Purchaser.  Purchaser
acknowledges that it is purchasing the Preferred Shares directly from the
Company and not from the Placement Agent.


 


(i)                                     Independent
Investment Decision.  Such
Purchaser has independently evaluated the merits of its decision to purchase
Preferred Shares pursuant to the Transaction Documents, and such Purchaser
confirms that it has not relied on the advice of any other Purchaser’s business
and/or legal counsel in making such decision. Such Purchaser understands that
nothing in this Agreement or any other materials presented by or on behalf of
the Company to the Purchaser in connection with the purchase of the Preferred
Shares constitutes legal, tax or investment advice. Such Purchaser has
consulted such legal, tax and investment advisors as it, in its sole
discretion, has deemed necessary or appropriate in connection with its purchase
of the Preferred Shares. Such Purchaser understands that the Placement Agent
has acted solely as the agent of the Company in this placement of the Preferred
Shares and such Purchaser has not relied on the business or legal advice of the
Placement Agent or any of its agents, counsel or Affiliates in making its
investment decision hereunder, and confirms that none of such Persons has made
any representations or warranties to such Purchaser in connection with the
transactions contemplated by the Transaction Documents.


 


20
















 


(j)                                     Reliance on
Exemptions.  Such
Purchaser understands that the Preferred Shares being offered and sold to it in
reliance on specific exemptions from the registration requirements of U.S.
federal and state securities laws and that the Company is relying in part upon
the truth and accuracy of, and such Purchaser’s compliance with, the
representations, warranties, agreements, acknowledgements and understandings of
such Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of such Purchaser to acquire the Preferred
Shares.


 


(k)                                  No Governmental
Review.  Such Purchaser understands
that no U.S. federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Preferred
Shares or the fairness or suitability of the investment in the Preferred Shares
nor have such authorities passed upon or endorsed the merits of the offering of
the Preferred Shares.


 


(l)                                     Residency.  Such Purchaser’s residence (if an individual)
or office in which its investment decision with respect to the Preferred Shares
was made (if an entity) are located at the address immediately below such
Purchaser’s name on its signature page hereto.


 


(m)                               Trading.  Purchaser acknowledges that there is no
trading market for the Preferred Shares, and no such market is expected to
develop.


 


(n)                                 Knowledge as to
Conditions.  As of the
date of this Agreement, Purchaser has no reasonable basis to believe why any
regulatory approvals, consents or statements of non-objection required or
otherwise a condition to the consummation by it of the transactions
contemplated by this Agreement will not be obtained.


 


(o)                                 No Stockholder
Agreements.  Except with
respect to an Affiliate thereof, Purchaser reached its decision to invest in
the Company independently from any other Purchaser; has entered into no
agreements with stockholders of the Company or other Purchasers for the purpose
of controlling the Company or any of its Subsidiaries; and has entered into no
agreements with stockholders of the Company or other Purchasers regarding
voting or transferring such Purchaser’s interest in the Company.


 


(p)                                 ERISA.  (i)                                        If Purchaser is, or is
acting on behalf of, an ERISA Entity (as defined below), such Purchaser represents
and warrants that on the date hereof:


 


(A)                              The decision to
invest assets of the ERISA Entity in the Preferred Shares was made by
fiduciaries independent of the Company or its affiliates, which fiduciaries are
duly authorized to make such investment decisions and who have not relied on
any advice or recommendations of the Company or its affiliates;


 


(B)                                Neither the
Company nor any of its agents, representatives or Affiliates have exercised any
discretionary authority or control with respect to the ERISA Entity’s
investment in the Preferred Shares;


 


(C)                                The purchase
and holding of the Preferred Shares will not constitute a nonexempt prohibited
transaction under ERISA or Section 4975 of the Code or a similar violation
under any applicable similar laws; and


 


(D)                               The terms of
the Transaction Documents comply with the instruments and applicable laws
governing such ERISA Entity.


 


(ii)                                  For the purpose
of this paragraph, the term “ERISA Entity”
means (A) an “employee benefit plan” within the meaning of Section 3(3) of
ERISA subject to Title I of ERISA, (B) a “plan” within the meaning of and
subject to Section 4975 of the Code and (C) any person whose assets
are deemed to be “plan assets” of any “benefit plan investor” (each within the
meaning of ERISA Section 3(42)).


 


(q)                                 Securities Not Insured.  Purchaser understands that the Securities are
not savings accounts, deposits or other obligations of any bank and are not
insured by the FDIC, including the FDIC’s Deposit Insurance Fund, or any other
governmental agency.


 


21

















 


(r)                                    Antitrust.  No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
governmental entity or authority or any other Person in respect of any law or
regulation, including the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations thereunder, is necessary or
required, and no lapse of a waiting period under law applicable to such
Purchaser is necessary or required, in each case in connection with the
execution, delivery or performance by such Purchaser of this Agreement or the
purchase of the Preferred Shares contemplated hereby.


 


(s)                                  Regulatory Matters.  Purchaser understands and acknowledges
that:  (i) the Company is a
registered bank holding company under the BHC Act, and is subject to regulation
by the Federal Reserve; (ii) acquisitions of interests in bank holding
companies are subject to the BHC Act and the CIBCA and may be reviewed by the
Federal Reserve to determine the circumstances under which such acquisitions of
interests will result in Purchaser becoming subject to the BHC Act or subject
to the prior notice requirements of the CIBCA. 
Assuming the accuracy of the representations and warranties of the
Company contained herein, such Purchaser represents that neither it nor its
Affiliates will, as a result of the transactions contemplated herein, be deemed
to (i) own or control 10% or more of any class of voting securities of the
Company or (ii) otherwise control the Company for purposes of the BHC Act
or the CIBCA.  Purchaser is not
participating and has not participated with any other investor in the offering
of the Preferred Shares in any joint activity or parallel action towards a
common goal between or among such investors of acquiring control of the
Company.  Purchaser’s consummation of the
transactions contemplated herein will not cause any depository institution that
is a subsidiary of the Company to become subject to potential cross-guaranty
liability under 12 U.S.C. 1815(e) or any successor law with respect to the
failure of any depository institution that is not a subsidiary of the Company.


 


(t)                                    OFAC and Anti-Money
Laundering.  Purchaser
understands, acknowledges, represents and agrees that (i) such Purchaser
is not the target of any sanction, regulation, or law promulgated by the OFAC,
the Financial Crimes Enforcement Network or any other U.S. governmental entity
(“U.S. Sanctions Laws”); (ii) such
Purchaser is not owned by, controlled by, under common control with, or acting
on behalf of any person that is the target of U.S. Sanctions Laws; (iii) such
Purchaser is not a “foreign shell bank” and is not acting on behalf of a “foreign
shell bank” under applicable anti-money laundering laws and regulations; (iv) such
Purchaser’s entry into this Agreement or consummation of the transactions
contemplated hereby will not contravene U.S. Sanctions Laws or applicable
anti-money laundering laws or regulations; (v) such Purchaser will
promptly provide to the Company or any regulatory or law enforcement authority
such information or documentation as may be required to comply with U.S.
Sanctions Laws or applicable anti-money laundering laws or regulations (except
for information deemed in good faith to be confidential or proprietary); and (vi) the
Company may provide to any regulatory or law enforcement authority information
or documentation regarding, or provided by, such Purchaser for the purposes of
complying with U.S. Sanctions Laws or applicable anti-money laundering laws or
regulations.


 


3.3                                 No Other
Representations.  The Company
and each of the Purchasers acknowledge and agree that no party to this
Agreement has made or makes any representations or warranties with respect to
the transactions contemplated hereby other than those specifically set forth in
this Article III.


 


ARTICLE IV


OTHER AGREEMENTS OF THE
PARTIES


 


4.1                                 Transfer
Restrictions.


 


(a)                                  Compliance with
Laws.  Notwithstanding any other
provision of this Article IV, each Purchaser covenants that the Securities
may be disposed of only pursuant to an effective registration statement under,
and in compliance with the requirements of, the Securities Act, or pursuant to
an available exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act, and in compliance with any
applicable state, federal or foreign securities laws.  In connection with any transfer of the
Securities other than (i) pursuant to an effective registration statement,
(ii) to the Company or (iii) pursuant to Rule 144 (provided that
the transferor provides the Company with reasonable assurances (in the form of
seller and broker representation letters) that such securities may be sold
pursuant to such rule), the Company may require the transferor thereof to
provide to the Company and the Transfer Agent, at the transferor’s expense, an
opinion of counsel selected by the transferor and reasonably acceptable to the
Company and the Transfer Agent (it being agreed that in-house counsel for
Purchaser shall be reasonably acceptable to Company), the form and substance of
which opinion shall be reasonably 


 


22

















 


satisfactory to the Company and the Transfer Agent,
to the effect that such transfer does not require registration of such
transferred Securities under the Securities Act.  As a condition of transfer (other than
pursuant to clauses (i), (ii) or (iii) of the preceding sentence),
any such transferee shall agree in writing to be bound by the terms of this
Agreement and the Registration Rights Agreement with respect to such
transferred Securities.


 


(b)                                 Legends.  Certificates evidencing the Securities shall
bear any legend as required by the “blue sky” laws of any state and a
restrictive legend in substantially the following form (and, with respect to
Securities held in book-entry form, the Transfer Agent will record such a
legend on the share register), until such time as they are not required under
Section 4.1(c) or applicable law:


 


THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR
(B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS TRANSFER
AGENT OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT (PROVIDED
THAT THE TRANSFEROR PROVIDES THE COMPANY WITH REASONABLE ASSURANCES (IN THE FORM OF
SELLER AND BROKER REPRESENTATION LETTERS) THAT THE SECURITIES MAY BE SOLD
PURSUANT TO SUCH RULE).  NO
REPRESENTATION IS MADE BY THE ISSUER AS TO THE AVAILABILITY OF THE EXEMPTION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT FOR RESALES OF THESE SECURITIES.


 


(c)                                  Removal of
Legends.  The restrictive legend set
forth in Section 4.1(b) above shall be removed and the Company shall
issue a certificate without such restrictive legend or any other restrictive
legend to the holder of the applicable Securities upon which it is stamped or issue
to such holder by electronic delivery at the applicable balance account at DTC,
if (i) such Securities are registered for resale under the Securities Act,
(ii) such Securities are sold or transferred pursuant to Rule 144 (if
the transferor is not an Affiliate of the Company), or (iii) such
Securities are eligible for sale under Rule 144, without the requirement
for the Company to be in compliance with the current public information
required under Rule 144(c)(1) (or Rule 144(i)(2), if applicable)
as to such securities and without volume or manner-of-sale restrictions.  Following the earlier of (i) the
Effective Date or (ii) Rule 144 becoming available for the resale of
Securities, without the requirement for the Company to be in compliance with
the current public information required under 144(c)(1) (or Rule 144(i)(2),
if applicable) as to the Securities and without volume or manner-of-sale
restrictions, the Company shall instruct the Transfer Agent to remove the
legend from the Securities and shall cause its counsel to issue any legend
removal opinion required by the Transfer Agent.


 


Any
fees (with respect to the Transfer Agent, Company counsel or otherwise)
associated with the issuance of such opinion or the removal of such legend
shall be borne by the Company.  If a
legend is no longer required pursuant to the foregoing, the Company will no
later than three (3) Trading Days following the delivery by a Purchaser to
the Company or the Transfer Agent (with notice to the Company) of a legended
certificate or instrument representing such Securities (endorsed or with stock
powers attached, signatures guaranteed, and otherwise in form necessary to
affect the reissuance and/or transfer) and a representation letter to the
extent required by Section 4.1(a), (such third Trading Day, the “Legend Removal Date”) deliver
or cause to be delivered to such Purchaser a certificate or instrument (as the
case may be) representing such Securities that is free from all restrictive
legends.  The Company may not make any
notation on its records or give instructions to the Transfer Agent that enlarge
the restrictions on transfer set forth in this Section 4.1(c).  Certificates for Securities free from all
restrictive legends may be transmitted by the Transfer Agent to the Purchasers by
crediting the account of the Purchaser’s prime broker with DTC as directed by
such Purchaser.


 


(d)                                 Acknowledgement.  Each Purchaser hereunder acknowledges its
primary responsibilities under the Securities Act and accordingly will not sell
or otherwise transfer the Securities or any interest therein without complying
with the requirements of the Securities Act. Except as otherwise provided
below, while the Registration Statement remains effective, each Purchaser
hereunder may sell the Securities in accordance with the 


 


23

















 


plan of distribution contained in the registration
statement and if it does so it will comply therewith and with the related
prospectus delivery requirements unless an exemption therefrom is available or
unless the Securities are sold pursuant to Rule 144.  Each Purchaser, severally and not jointly
with the other Purchasers, agrees that if it is notified by the Company in
writing at any time that the Registration Statement registering the resale of
the Securities is not effective or that the prospectus included in such
Registration Statement no longer complies with the requirements of
Section 10 of the Securities Act, the Purchaser will refrain from selling
such Securities until such time as the Purchaser is notified by the Company
that such Registration Statement is effective or such prospectus is compliant
with Section 10 of the Exchange Act, unless such Purchaser is able to, and
does, sell such Securities pursuant to an available exemption from the
registration requirements of Section 5 of the Securities Act.


 


(e)                                  Buy-In. If the
Company shall fail for any reason or for no reason to issue to a Purchaser
unlegended certificates within three (3) Trading Days of receipt of all
documents necessary for the removal of the legend set forth above (the “Deadline Date”), then, in
addition to all other remedies available to such Purchaser, if on or after the
Trading Day immediately following such three (3) Trading Day period, such
Purchaser purchases (in an open market transaction or otherwise) Securities (or
a broker or trading counterparty through which the Purchaser has agreed to sell
shares makes such purchase) to deliver in satisfaction of a sale by the holder
of Securities that such Purchaser anticipated receiving from the Company
without any restrictive legend (a “Buy-In”),
then the Company shall, within three (3) Trading Days after such Purchaser’s
request and in such Purchaser’s sole discretion, either (i) pay cash to
the Purchaser in an amount equal to such Purchaser’s total purchase price
(including brokerage commissions, if any) for the Securities so purchased (the “Buy-In Price”), at which
point the Company’s obligation to deliver such certificate (and to issue such
Securities) shall terminate, or (ii) promptly honor its obligation to
deliver to such Purchaser a certificate or certificates representing such
Securities and pay cash to the Purchaser in an amount equal to the excess (if
any) of the Buy-In Price over the product of (a) such number of
Securities, times (b) the Closing Bid Price of such security on the
Deadline Date.


 


4.2                                 Acknowledgment
of Dilution.  The Company
acknowledges that the issuance of the Securities may result in dilution of the
outstanding shares of Common Stock.  The
Company further acknowledges that its obligations under the Transaction
Documents, including without limitation its obligation to issue the Securities
pursuant to the Transaction Documents, are unconditional and absolute and not
subject to any right of set off, counterclaim, delay or reduction, regardless
of the effect of any such dilution or any claim the Company may have against
any Purchaser and regardless of the dilutive effect that such issuance may have
on the ownership of the other shareholders of the Company.


 


4.3                                 Furnishing of
Information.  In order to
enable the Purchasers to sell the Securities under Rule 144 of the
Securities Act, for a period of one year from the Closing, the Company shall
maintain the registration of the Common Stock under Section 12(b) or
12(g) of the Exchange Act and to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act, and none of the reports, when filed, will contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.  During such one year period, if the Company
is not required to file reports pursuant to such laws, it will prepare and
furnish to the Purchasers and make publicly available the information described
in Rule 144(c)(2), if the provision of such information will allow resales
of the Securities pursuant to Rule 144.


 


4.4                                 Form D and
Blue Sky.  The Company
agrees to timely file a Form D with respect to the Preferred Shares as
required under Regulation D.  The
Company, on or before the Closing Date, shall take such action as the Company
shall reasonably determine is necessary in order to obtain an exemption for or
to qualify the Preferred Shares for sale to the Purchasers at the Closing
pursuant to this Agreement under applicable securities or “Blue Sky” laws of
the states of the United States (or to obtain an exemption from such
qualification). The Company shall make all filings and reports relating to the
offer and sale of the Preferred Shares required under applicable securities or “Blue
Sky” laws of the states of the United States following the Closing Date.


 


4.5                                 No Integration.  The Company shall not, and shall use its
commercially reasonable efforts to ensure that no Affiliate of the Company
shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in Section 2 of the Securities Act)
that will be integrated with the offer or sale of 


 


24

















 


the Preferred Shares in a manner that would require
the registration under the Securities Act of the sale of the Preferred Shares
to the Purchasers.


 


4.6                                 Securities Laws
Disclosure; Publicity. 
Before 9:00 a.m., New York City time, on the first Business Day
following the Closing Date, the Company shall issue one or more press releases
(collectively, the “Press
Release”) reasonably acceptable to the Purchasers
disclosing all material terms of the transactions contemplated hereby.  On or before 9:00 a.m., New York City
time, on the fourth Business Day immediately following the execution of this
Agreement, the Company will file a Current Report on Form 8-K with the
Commission describing the terms of the Transaction Documents (and including as
exhibits to such Current Report on Form 8-K the material Transaction
Documents (including, without limitation, this Agreement, the Registration
Rights Agreement, the Series B Certificate of Determination and the Series C
Certificate of Determination)). 
Notwithstanding the foregoing, the Company shall not publicly disclose
the name of any Purchaser or any Affiliate or investment adviser of any
Purchaser, or include the name of any Purchaser or any Affiliate or investment
adviser of any Purchaser in any press release or filing with the Commission
(other than the Registration Statement) or Trading Market, without the prior
written consent of such Purchaser, except (i) as required by federal
securities law in connection with (A) any Registration Statement
contemplated by the Registration Rights Agreement and (B) the filing of
final Transaction Documents with the Commission and (ii) to the extent
such disclosure is required by law, at the request of the staff of the
Commission or Trading Market regulations, in which case the Company shall
provide the Purchasers with prior written notice of such disclosure permitted
under this subclause (ii).  Each
Purchaser, severally and not jointly with the other Purchasers, covenants that
until such time as the transactions contemplated by this Agreement are publicly
disclosed by the Company as described in this Section 4.6, such Purchaser
will maintain the confidentiality of all disclosures made to it in connection
with this transaction (including the existence and terms of this Agreement and
the transactions contemplated hereby), provided, however, that each Purchaser
is permitted to disclose such information (i) to its Affiliates, partners,
members, directors, officers, employees, agents, consultants, and advisors for
the purposes of evaluating and consummating the transactions contemplated in
the Transaction Documents who agree to be bound by the terms of this Section 4.6
(or restrictions at least as restrictive as herein contained) and (ii) after
providing sufficient prior notice to the Company permitting the Company to
reasonably object, to the extent such disclosure is required by law, regulation
or judicial or administrative process, and (iii) as otherwise previously
agreed to by a Purchaser and the Company.


 


4.7                                 Non-Public
Information.  Except with
the express written consent of such Purchaser and unless prior thereto such
Purchaser shall have executed a written agreement regarding the confidentiality
and use of such information, the Company shall not, and shall cause each
Subsidiary and each of their respective officers, directors, employees and agents
not to, provide any Purchaser with any material, non-public information
regarding the Company or any of its Subsidiaries from and after the filing of
the Press Release.


 


4.8                                 Indemnification.


 


(a)                                  Indemnification
of Purchasers.  In addition
to the indemnity provided in the Registration Rights Agreement, except as
prohibited by applicable law or regulation, including 12 U.S.C. 1828(k) and
its implementing regulations at 12 C.F.R. Part 359, the Company will
indemnify and hold each Purchaser and its directors, officers, stockholders,
members, partners, employees and agents (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title), each Person who controls such Purchaser
(within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers,
stockholders, agents, members, partners or employees (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title) of such controlling
person (each, a “Purchaser Party”)
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of
investigation that any such Purchaser Party may suffer or incur as a result of (i) any
material breach of any of the representations, warranties, covenants or
agreements made by the Company in this Agreement or in the other Transaction
Documents or (ii) any action instituted against a Purchaser Party in any
capacity, or any of them or their respective affiliates, by any shareholder of
the Company who is not an Affiliate of such Purchaser Party, with respect to
any of the transactions contemplated by this Agreement.  The Company will not be liable to any
Purchaser Party under this Agreement to the extent, but only to the extent that
a loss, claim, damage or liability is attributable to any Purchaser Party’s
breach of any of the 


 


25

















 


representations, warranties, covenants or agreements
made by such Purchaser Party in this Agreement or in the other Transaction
Documents.


 


(b)                                 Conduct of
Indemnification Proceedings.  Promptly after receipt by any Person (the “Indemnified Person”) of
notice of any demand, claim or circumstances which would or might give rise to
a claim or the commencement of any action, proceeding or investigation in
respect of which indemnity may be sought pursuant to Section 4.8(a), such
Indemnified Person shall promptly notify the Company in writing and the Company
shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Person, and shall assume the
payment of all fees and expenses; provided, however, that the failure of any
Indemnified Person so to notify the Company shall not relieve the Company of
its obligations hereunder except to the extent that the Company is actually and
materially and adversely prejudiced by such failure to notify. In any such
proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person unless: (i) the Company and the Indemnified Person
shall have mutually agreed to the retention of such counsel; (ii)  the
Company shall have failed promptly to assume the defense of such proceeding and
to employ counsel reasonably satisfactory to such Indemnified Person in such
proceeding; or (iii) in the reasonable judgment of counsel to such
Indemnified Person, representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them
including if the potential defendants in, or targets of, any such action
include both the Company and the Indemnified Person, and the Indemnified Person
shall have reasonably concluded that there may be legal defenses available to
the Indemnified Person which are different from or additional to those
available to the Company (in which case the Company shall not have the right to
assume the defense of such action on the Indemnified Person’s behalf). The
Company shall not be liable for any settlement of any proceeding effected
without its written consent, which consent shall not be unreasonably withheld,
delayed or conditioned. Without the prior written consent of the Indemnified
Person, which consent shall not be unreasonably withheld, delayed or conditioned,
the Company shall not effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Party,
unless such settlement includes an unconditional release of such Indemnified
Person from all liability arising out of such proceeding.


 


4.9                                 Listing of
Common Stock.  The Company
will use its reasonable best efforts to list the Underlying Shares for
quotation on the NASDAQ Global Select and maintain the listing of the Common
Stock on the NASDAQ Global Select Market.


 


4.10                           Use of Proceeds.  Except for a minimum of $15 million and
up to a maximum of $30 million of the net proceeds (subject to any
applicable regulatory requirements) which may be retained by the Company, the
net proceeds not retained by the Company of the capital raised through the
transactions contemplated by this Agreement will be contributed to the Bank in
the form of a cash contribution or purchase of additional common equity.


 


4.11                           Shareholders
Meeting


 


(a)                                  The Company
shall call a meeting of its shareholders (the “Initial Shareholders Meeting”), as promptly as
practicable following the Closing, but in no event later than November 30,
2010, for holders of Common Stock, the Series B Preferred Shares and the Series C
Preferred Shares to vote (each voting as a separate class) on proposals (the “Shareholder Proposals”) to
approve the issuance of Common Stock upon conversion of the Series B
Preferred Shares and the Series C Preferred Shares for purposes of Rule 5635
of the NASDAQ Stock Market Rules (such approvals of the Shareholder
Proposals, “Shareholder Approval”). The
Board of Directors shall recommend to the Company’s shareholders that such
shareholders approve the Shareholder Proposals (the “Board
Recommendation”), and shall not modify or withdraw such Board
Recommendation. In connection with the Initial Shareholders Meeting, the
Company shall promptly prepare (and the Purchasers will reasonably cooperate
with the Company to prepare) and file (but in no event more than thirty (30)
days following the Closing Date) with the Commission a preliminary proxy
statement, shall use its reasonable best efforts to respond to any comments of
the Commission or its staff and to cause a definitive proxy statement related
to the Initial Shareholders Meeting to be mailed to the Company’s shareholders
not more than ten (10) calendar days after clearance thereof by the
Commission, and shall use its reasonable best efforts to solicit proxies in
favor of the Shareholder Approval, including, without limitation, engaging a
proxy solicitation firm, as necessary, to assist in obtaining the Shareholder
Approval. The Company shall notify the Purchasers promptly of the receipt of
any comments from the Commission or its staff with respect to the proxy
statement and of any request by the 


 


26

















 


Commission or its staff for amendments or
supplements to such proxy statement or for additional information (but the
Company shall not provide any Purchaser with any material, nonpublic
information, unless requested by such Purchaser and pursuant to a written
agreement regarding the confidentiality and use of such information). If at any
time prior to the Initial Shareholders Meeting there shall occur any event that
is required to be set forth in an amendment or supplement to the proxy
statement, the Company shall as promptly as practicable prepare and mail to its
shareholders such an amendment or supplement. In addition, each Purchaser and
the Company agrees to promptly correct any information provided by it or on its
behalf for use in the proxy statement if and to the extent that such
information shall have knowingly become false or misleading in any material respect,
and the Company shall as promptly as practicable prepare and mail to its
shareholders an amendment or supplement to correct such information to the
extent required by applicable laws and regulations. The Company shall consult
with the Purchasers prior to mailing any proxy statement, or any amendment or
supplement thereto, and provide the Purchasers with reasonable opportunity to
comment thereon (it being acknowledged and agreed that if a Purchaser does not
object to or comment on the aforementioned documents within three (3) Business
Days, then the Purchaser shall be deemed to have consented to and approved the
use of such documents).


 


(b)                                 In the event
that the Shareholder Approval is not obtained at the Initial Shareholders
Meeting in accordance with the requirements of NASDAQ Stock Market Rules and
the Corporations Code of the State of California, the Company shall include a
proposal to approve (and the Board shall recommend approval of) such
Shareholder Proposal(s) at a subsequent special meeting of its
shareholders to be held no later than ninety (90) days from the date of the
Initial Shareholders Meeting (the “Follow-up
Special Meeting”). 
In the event that Shareholder Approval is not obtained at the Initial
Shareholders Meeting or the Follow-up Special Meeting, the Company shall
include a proposal to approve (and the Board of Directors shall recommend
approval of) such proposal at a meeting of its shareholders to be held no less
than once in each subsequent six month period beginning on the date of the
Follow-up Special Meeting until such approval is obtained.


 


4.12                           Section 382.  Prior to January 1, 2011, without the
prior written consent of the Company, which consent will not be unreasonably
withheld, no Purchaser shall take any action, including the exercise of any
right granted under Section 4.20 of this Agreement or purchase of
additional shares of the Company’s Common Stock from and after the Closing
Date, if to its knowledge taking such actions would increase such Purchaser’s
economic interest in excess of the greater of (i) 4.9%, or (ii) the
economic interest such Purchaser held in the Company immediately following the
Closing.  If the Company withholds its
consent, it shall provide the Purchaser with its analysis of the actions
proposed to be taken by the Purchaser and the application of the provisions of Section 382
of the Code thereto.


 


4.13                           No Change of
Control.  The Company shall obtain all
necessary irrevocable waivers, adopt any required amendments and make all
appropriate determinations so that the issuance of the Preferred Shares to the
Purchasers will not trigger a “change of control” or other similar provision in
any of the agreements to which the Company or any of its Subsidiaries is a
party, including without limitation any employment, “change in control,”
severance or other agreements and any benefit plan, which results in payments
to the counterparty or the acceleration of vesting of benefits.


 


4.14                           No Additional
Issuances.  Between the
date of this Agreement and the Closing Date, except for the issuance of shares
of Common Stock under the Company’s Amended and Restated 2004 Equity Plan and
the Preferred Shares being issued pursuant to this Agreement, the Company shall
not issue or agree to issue any additional shares of Common Stock or other
securities which provide the holder thereof the right to convert such
securities into shares of Common Stock.


 


4.15                           Governance
Matters.  Within ten Business Days
subsequent to the Closing Date, the Company and the Bank will request the
non-objection or approval of the Federal Reserve, the FDIC, and the DFI, to the
extent required, for the appointment of the Board Representative (as defined
below).  The Company further covenants
and agrees that within five days of receipt of the non-objection or approval of
the Federal Reserve, the FDIC and/or the DFI, the Board of Directors shall
cause one person nominated by each of Castle Creek and Patriot (each an “Institutional Investor”)  (a “Board
Representative”) to be elected or appointed to the Board
of Directors, subject to satisfaction of the legal and governance requirements
regarding service as a director of the Company and to the reasonable approval
of the Nominating and Governance Committee of the Board of Directors (such
approval not to be unreasonably withheld or delayed).  After such appointment or election of a Board
Representative, so long as the 


 


27

















 


Institutional Investor beneficially owns (as
determined in accordance with Rule 13d-3 under the Exchange Act) 4.9% of
the outstanding shares of Common Stock whether acquired upon conversion of the
Preferred Shares or otherwise (and treating each share of Preferred Shares that
is not a share of Common Stock as if it had converted into Common Stock), the Company
will be required to recommend to its shareholders the election of the Board
Representative at the Company’s annual meeting, subject to satisfaction of the
legal and governance requirements regarding service as a director of the
Company and to the reasonable approval of the Nominating and Governance
Committee of the Board of Directors (such approval not to be unreasonably
withheld or delayed).  If such
Institutional Investor no longer beneficially owns (as determined in accordance
with Rule 13d-3 under the Exchange Act) the minimum number of shares of
the Preferred Shares or the Common Stock specified in the prior sentence, Institutional
Investor  will have no further rights under this
Section 4.15, and, at the written request of the Board of Directors, shall
use its reasonable best efforts to cause its Board Representative to resign
from the Board of Directors as promptly as possible thereafter.


 


Any
Board Representative (including any successor nominee) duly selected in
accordance with Section 4.15 shall, subject to applicable law, be the
Company’s and the Company’s Nominating and Governance Committee’s nominee to
serve on the Board of Directors.  The
Company shall use all reasonable best efforts to have the Board Representative
elected as a director of the Company and the Company shall solicit proxies for
each such person to the same extent as it does for any of its other nominees to
the Board of Directors.


 


For
only so long as any Institutional Investor has the right to nominate a Board
Representative pursuant to Section 4.15, such Institutional Investor shall
have the power to designate the Board Representative’s replacement upon the
death, resignation, retirement, disqualification or removal from office of such
director.  The Board of Directors will use
its reasonable best efforts to take all action required to fill the vacancy
resulting therefrom with such person (including such person, subject to
applicable law, being the Company’s and the Nominating and Governance Committee’s
nominee to serve on the Board of Directors, using all reasonable best efforts
to have such person elected as director of the Company and the Company
soliciting proxies for such person to the same extent as it does for any of its
other nominees to the Board of Directors).


 


Any
Board Representative shall be entitled to the same compensation and same
indemnification in connection with his or her role as a director as the other
members of the Board of Directors, and each Board Representative shall be
entitled to reimbursement for documented, reasonable out-of-pocket expenses
incurred in attending meetings of the Board of Directors or any committees
thereof, to the same extent as the other members of the Board of
Directors.  The Company shall notify each
Board Representative of all regular and special meetings of the Board of
Directors and shall notify each Board Representative of all regular and special
meetings of any committee of the Board of Directors of which the Board
Representative is a member in accordance with the Company’s bylaws as then in
effect.  The Company shall provide each
Board Representative with copies of all notices, minutes, consents and other
materials provided to all other members of the Board of Directors concurrently
as such materials are provided to the other members.  A Board Representative shall not serve on the
Audit Committee of the Board of Directors.


 


At
all times when any Institutional Investor has the right to a Board
Representative as provided in Section 4.15, upon the written request of
such Institutional Investor and so long as such Institutional Investor does not
have a Board Representative currently serving on the Board of Directors (or has
a Board Representative whose appointment is pending approval), such
Institutional Investor may appoint one individual to attend all meetings of the
Board of Directors and no more than two (2) committees thereof (the “Observer”) and
pursuant to the paragraph below the board of directors of the Bank and no more
than two (2) committees thereof, which individual shall be reasonably
acceptable to the Board of Directors (such approval not to be unreasonably
withheld or delayed).  The Observer shall
be entitled to attend such meetings only in the event such Institutional
Investor does not have a Board Representative currently serving on the Board of
Directors.  The Observer shall not have
any right to vote on any matter presented to the Board of Directors or any
committee thereof.  The Company shall
give the Observer written notice of each meeting thereof at the same time and
in the same manner as the members of the Board of Directors, shall provide the
Observer with all written materials and other information given to members of
the Board of Directors at the same time such materials and information are
given to the members of the Board of Directors and shall permit the Observer to
attend as an observer at all meetings thereof, and in the event the Company
proposes to take any action by written consent in lieu of a meeting, the
Company shall give written notice thereof to the Observer prior to the
effective date of such consent describing the nature and substance of such
action and including 


 


28

















 


the
proposed text of such written consents; provided,
however, that (A) the
Observer may be excluded from executive sessions comprised solely of
independent directors by the lead or presiding independent director if, in his
good faith judgment, such exclusion is to facilitate candid discussion of
particularly sensitive matters (it being understood that it is not expected
that the Observer would be excluded from routine executive sessions), (B) the
Company or the Board of Directors shall have the right to withhold any
information and to exclude the Observer from any meeting or portion thereof (1) if
doing so is, in the reasonable good faith judgment of the Company, after
consultation with counsel, advisable or necessary to protect the
attorney-client privilege between the Company and counsel, violates applicable
law or guidance from bank regulators or (2) if the Board of Directors
reasonably determines in good faith, after consultation with counsel, that
attendance by the Observer would conflict with fiduciary requirements under
applicable law and (C) such Institutional Investor holds and shall cause
its Observer to hold all such information obtained as provided in the prior
sentence in confidence pursuant to the Non-Disclosure Agreement entered into
between the Company and such Institutional Inventor.


 


So
long as any Institutional Investor has the right to appoint a Board
Representative pursuant to this Section, such Institutional Investor shall have
the right to either nominate one person (the “Bank Board  Representative”)
to be elected or appointed as director to the board of directors of the Bank
(the “Bank Board”) or
to appoint one person to attend all meetings of the Bank Board and no more than
two (2) committees thereof as an observer (the “Bank Board Observer”); provided that the appointment by an
Institutional Investor of a Bank Board Observer shall not prevent such
Institutional Investor from nominating a Bank Board Representative in lieu of a
Bank Board Observer at a future time. The obligations of the Company otherwise
with respect to, and the conditions on the appointment and, if applicable,
directorship of, the Bank Board Representative and the Bank Board Observer
shall be substantially the same as those with respect to or applicable to the
Board Representative and Observer, respectively.


 


The
rights provided by this Section 4.15 are personal to each Institutional
Investor and in no event shall such rights be assignable.


 


4.16                           No Rights
Agreement.  The Company
shall not enter into any poison pill agreement, stockholders’ rights plan or
similar agreement that shall limit the rights of a Purchaser to acquire Common
Stock unless such poison pill agreement, stockholders’ rights plan or similar
agreement grants an exemption or waiver to the Purchaser immediately effective
upon execution of such plan or agreement that would allow the Purchaser to
acquire such Common Stock.


 


4.17                           Certain
Transactions.  The Company
will not merge or consolidate into, or sell, transfer or lease all or
substantially all of its property or assets to, any other party unless the
successor, transferee or lessee party, as the case may be (if not the Company),
expressly assumes the due and punctual performance and observance of each and
every covenant and condition of this Agreement to be performed and observed by
the Company.


 


4.18                           Rights Offering
for Shareholders.  The Company
may at its option commence a Permitted Rights Offering to its Common Stock
shareholders of record one Business Day before the Initial Shareholders
Meeting; provided that, if the Company pursues a Permitted Rights Offering, it
will use its best efforts to ensure that such rights offering, including
exercise of such right, is completed as soon as practicable, and in any event
no later than six months from the Closing Date. 
The Purchasers will not be afforded the opportunity to participate in
the Permitted Rights Offering unless the Purchasers own Common Stock on the
record date for the Permitted Rights Offering (which record date may be prior
to the Initial Shareholders Meeting but will be after the Closing Date).


 


4.19                           VCOC Agreement;
No Other Agreements.  As of the
date of this Agreement, the Company shall enter into a customary “Venture
Capital Operating Company” agreement with each of Castle Creek and Patriot in
the form of Exhibit G attached to and made part of this Agreement
(the “VCOC Agreement”).  Other than the VCOC Agreement and the
Transaction Documents, there are no other agreements or arrangements between
any Purchaser and the Company related to the transactions contemplated by the
Transaction Documents.


 


4.20                           Gross-Up Rights.


 


(a)                                  Sale of New
Securities.  For so long as a Purchaser, together with
its Affiliates, owns 4% or more of all of the outstanding shares of Common
Stock (counting for such purposes all shares of Common Stock 


 


29

















 


into or for which any securities owned by the
Purchaser are directly or indirectly convertible or exercisable and, for the
avoidance of doubt, including as shares owned and outstanding all shares of
Common Stock issued by the Company after the Closing) (before giving effect to
any issuances triggering provisions of this Section), if at any time after the
date hereof the Company makes any public or non public offering or sale of
Common Stock, or securities convertible into Common Stock (any such security, a
“New Security”)
(other than (i) any Common Stock or other securities issuable upon the
exercise or conversion of any securities of the Company issued or agreed or
contemplated to be issued as of the date hereof; (ii) pursuant to the
granting or exercise of employee stock options, restricted stock or other stock
incentives pursuant to the Company’s stock incentive plans approved by the
Board of Directors or the issuance of stock pursuant to the Company’s employee
stock purchase plan approved by the Board of Directors or similar plan where
stock is being issued or offered to a trust, other entity or otherwise, for the
benefit of any employees, officers or directors of the Company, in each case in
the ordinary course of providing incentive compensation; (iii) issuances
of capital stock as full or partial consideration for a merger, acquisition,
joint venture, strategic alliance, license agreement or other similar
nonfinancing transaction; (iv) issuance of Common Stock upon exercise of
warrants outstanding as of the date hereof; or (v) a Permitted Rights
Offering pursuant to Section 4.18 hereof), then such Purchaser shall be
afforded the opportunity to acquire from the Company for the same price (net of
any underwriting discounts or sales commissions) and on the same terms as such
securities are proposed to be offered to others, up to the amount of New
Securities in the aggregate required to enable it to maintain its proportionate
Common Stock-equivalent interest in the Company immediately prior to any such
issuance of New Securities.  The amount of New Securities that the
Purchaser shall be entitled to purchase in the aggregate shall be determined by
multiplying (x) the total number or principal amount of such offered New
Securities by (y) a fraction, the numerator of which is the sum of
(i) the number of shares of Common Stock held by the Purchaser, if any,
and (ii) the number of shares of Common Stock represented by the Preferred
Shares held by the Purchaser on an as-converted basis as of such date, if any,
and the denominator of which is the sum of (i) the number of shares of
Common Stock then outstanding, (ii) the number of shares of Common Stock
represented by the Preferred Shares on an as-converted basis as of such
date.  Notwithstanding anything herein to the contrary, in no event shall
the Purchaser have the right to purchase securities hereunder to the extent
such purchase would result in such Purchaser, together with its Affiliates,
owning a greater percentage interest in the Company than such Purchaser held immediately
prior to the issuance of the New Securities (counting for such purposes all
shares of Common Stock into or for which any securities owned by the Purchaser
are directly or indirectly convertible or exercisable).


 


(b)                                 Notice.  In the
event the Company proposes to offer or sell New Securities, it shall give the
Purchaser written notice of its intention, describing the price (or range of
prices), anticipated amount of securities, timing, and other terms upon which
the Company proposes to offer the same no later than ten Business Days after
the commencement of marketing with respect to a Rule 144A offering, after
the filing of a registration statement, or a prospectus supplement in
connection with a shelf registration (whichever is later) for a Public Offering,
or after the Company proposes to pursue any other offering.  The Purchaser shall have ten Business Days
(three Business Days in the case of a Public Offering) from the date of receipt
of such a notice to notify the Company in writing that it intends to exercise
its rights provided in this Section 4.20 and as to the amount of New
Securities the Purchaser desires to purchase, up to the maximum amount
calculated pursuant to this Section 4.20(a).  Such notice shall
constitute a nonbinding indication of interest of the Purchaser to purchase the
amount of New Securities so specified at the terms set forth in the Company’s
notice to it.  The failure of the Purchaser to respond within such ten
Business Day period or three Business Day period, as applicable, shall be
deemed to be a waiver of such Purchaser’s rights under this Section 4.20
only with respect to the offering described in the applicable notice.  A “Public Offering”
means an underwritten offering registered with the SEC.


 


(c)                                  Purchase
Mechanism.  Subject to Section 4.20(e), if the
Purchaser exercises its rights provided in this Section 4.20, the closing
of the purchase of the New Securities with respect to which such right has been
exercised shall take place within 30 calendar days after the giving of notice
of such exercise, which period of time shall be extended, except for a Public
Offering, for a maximum of 180 days in order to comply with applicable laws and
regulations (including receipt of any applicable regulatory or shareholder
approvals).  Each of the Company and the
Purchaser agrees to use its commercially reasonable efforts to secure any
regulatory or shareholder approvals or other consents, and to comply with any
law or regulation necessary in connection with the offer, sale and purchase of,
such New Securities.


 


(d)                                 Failure of
Purchase.   In
the event the Purchaser fails to exercise its rights provided in this
Section 4.20 or, if so exercised, the Purchaser is unable to consummate
such purchase within the time period 


 


30

















 


specified in Section 4.20(c) above because
of its failure to obtain any required regulatory or shareholder consent or
approval, the Company shall thereafter be entitled (during the period of 60
days following the conclusion of the applicable period) to sell or enter into
an agreement (pursuant to which the sale of the New Securities covered thereby
shall be consummated, if at all, within 90 days from the date of said
agreement) to sell the New Securities not elected to be purchased pursuant to
this Section 4.20 by the Purchaser or which the Purchaser is unable to
purchase because of such failure to obtain any such consent or approval, upon
terms no more favorable in the aggregate to the purchasers of such securities
than were specified in the Company’s notice to the Purchaser.  In the event the Company has not sold the New
Securities or entered into an agreement to sell the New Securities within said
60-day period (or sold and issued New Securities in accordance with the foregoing
within 90 days from the date of said agreement (as such period may be extended
in the manner described above for a period not to exceed 180 days from the date
of said agreement)), the Company shall not thereafter offer, issue or sell such
New Securities without first offering such securities to the Purchaser in the
manner provided above.  Notwithstanding
the foregoing and except in a Public Offering, if such sale of the New
Securities by the Company is subject to the receipt of any regulatory or
shareholder approval or consent or the expiration of any waiting period, the
time period during which such sale may be consummated shall be extended until
the expiration of five Business Days after all such approvals or consents have
been obtained or waiting periods expired, but in no event shall such time
period exceed 180 days from the date of the applicable agreement with respect
to such sale.


 


(e)                                  Expedited
Issuance; Regulatory Directive.  Notwithstanding the foregoing provisions of
this Section 4.20, if a majority of the directors of the Board of
Directors determine that the Company must issue equity or debt securities on an
expedited basis, then the Company may consummate the proposed issuance or sale
of such securities (“Expedited Issuance”) and then comply with the provisions
of this Section 4.20(e) provided that (i) the purchaser(s) of
such New Securities has consented in writing to the issuance of additional New
Securities in accordance with the provisions of this Section 4.20, and (ii) the
sale of any such additional New Securities under this Section 4.20(e) to
one or more Purchasers pursuant to this Section 4.20 shall be consummated
as promptly as is practicable but in any event no later than ninety (90) days
subsequent to the date on which the Company consummates the Expedited Issuance
under this Section 4.20(e). 
Notwithstanding anything to the contrary herein in Section 4.20,
the provisions of Section 4.20 (other than as provided in subclause (ii) of
this Section 4.20(e)) shall not be applicable and the consent of the
purchasers of such New Securities shall not be required in connection with any
Expedited Issuance undertaken at the written direction of the applicable
federal regulator of the Company or the Bank.


 


(f)                                    Non-Cash
Consideration.  In the case of the offering of securities
for a consideration in whole or in part other than cash, including securities
acquired in exchange therefor (other than securities by their terms so
exchangeable), the consideration other than cash shall be deemed to be the fair
value thereof as determined by the Board of Directors; provided, however,
that such fair value as determined by the Board of Directors shall not exceed
the aggregate market price of the securities being offered as of the date the
Board of Directors authorizes the offering of such securities.


 


(g)                                 Termination.  Purchaser’s rights hereunder shall expire at
such time that the Purchaser, together with its Affiliates, owns less than 4%
of all of the outstanding shares of Common Stock (counting for such purposes
all shares of Common Stock into or for which any securities owned by the
Purchaser are directly or indirectly convertible or exercisable and, for the
avoidance of doubt, including as shares owned and outstanding all shares of
Common Stock issued by the Company after the Closing) (before giving effect to
any issuances triggering provisions of this Section 4.20).


 


(h)                                 Cooperation.  The
Company and the Purchaser shall cooperate in good faith to facilitate the
exercise of the Purchaser’s rights under this Section 4.20, including to
secure any required approvals or consents.


 


(i)                                     No Assignment
of Rights.  The rights
of Purchaser described herein shall be personal to Purchaser and the transfer,
assignment and/or conveyance of said rights from Purchaser to any other person
and/or entity is prohibited and shall be void and of no force or effect,
provided the Purchaser may transfer to an Affiliate.


 


31
















 


ARTICLE V


CONDITIONS PRECEDENT TO
CLOSING


 


5.1                                 Conditions
Precedent to the Obligations of the Purchasers to Purchase Preferred Shares.  The obligation of each Purchaser (on its own
behalf and not on behalf of any other Purchaser) to acquire Preferred Shares at
the Closing is subject to the fulfillment to such Purchaser’s satisfaction, on
or prior to the Closing Date, of each of the following conditions, any of which
may be waived by such Purchaser (as to itself only):


 


(a)                                  Representations
and Warranties.  The
representations and warranties of the Company contained herein shall be true
and correct as of the date when made and as of the Closing Date, as though made
on and as of such date, except for such representations and warranties that
speak as of a specific date.


 


(b)                                 Performance.  The Company shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by it at or prior to the Closing.


 


(c)                                  No Injunction.  No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents.


 


(d)                                 Consents.  The Company shall have obtained in a timely
fashion any and all consents, permits, approvals, registrations and waivers
necessary for consummation of the purchase and sale of the Preferred Shares,
all of which shall be and remain so long as necessary in full force and effect.


 


(e)                                  No Suspensions
of Trading in Common Stock; Listing.  The Common Stock (i) shall be designated
for quotation or listed on the Principal Trading Market and (ii) shall not
have been suspended, as of the Closing Date, by the Commission or the Principal
Trading Market from trading on the Principal Trading Market nor shall
suspension by the Commission or the Principal Trading Market have been
threatened, as of the Closing Date, either (A) in writing by the
Commission or the Principal Trading Market or (B) by falling below the
minimum listing maintenance requirements of the Principal Trading Market.  The Company shall have obtained approval of
the Principal Trading Market to list the Underlying Shares.


 


(f)                                    Company
Deliverables.  The Company
shall have delivered the Company Deliverables in accordance with
Section 2.2(a).


 


(g)                                 Compliance
Certificate.  The Company
shall have delivered to each Purchaser a certificate, dated as of the Closing
Date and signed by its Chief Executive Officer and its Chief Financial Officer,
certifying to the fulfillment of the conditions specified in Sections 5.1(a) and
(b).


 


(h)                                 Certificate of
Determination.  The Company
shall have duly filed the Series B Certificate of Determination and the
Series C Certificate of Determination with the California Secretary.


 


(i)                                     Minimum Gross
Proceeds.  The Company
shall simultaneously issue and deliver at such Closing to the Purchasers
hereunder in the aggregate at least sufficient shares of the Preferred Stock
against payment of an aggregate Purchase Price of at least $75 million.


 


(j)                                     Termination.  This Agreement shall not have been terminated
as to such Purchaser in accordance with Section 6.16 herein.


 


(k)                                  Bank Regulatory
Issues. The purchase of such Preferred Shares shall not cause such Purchaser
or any of its Affiliates to violate any bank regulation.


 


5.2                                 Conditions
Precedent to the Obligations of the Company to sell Preferred Shares.  The Company’s obligation to sell and issue
the Preferred Shares at the Closing is subject to the fulfillment to the
satisfaction of the Company on or prior to the Closing Date of the following
conditions, any of which may be waived by the Company:


 


32

















 


(a)                                  Representations
and Warranties.  The
representations and warranties made by the Purchaser in Section 3.2 hereof
shall be true and correct as of the date when made, and as of the Closing Date
as though made on and as of such date, except for representations and
warranties that speak as of a specific date.


 


(b)                                 Performance.  Such Purchaser shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by such Purchaser at or prior to the Closing Date.


 


(c)                                  No Injunction.  No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction that prohibits the consummation of any of the transactions
contemplated by the Transaction Documents.


 


(d)                                 Consents.  The Company shall have obtained in a timely
fashion any and all consents, permits, approvals, registrations and waivers
necessary for consummation of the purchase and sale of the Preferred Shares,
all of which shall be and remain so long as necessary in full force and effect.


 


(e)                                  Purchasers
Deliverables.  Such
Purchaser shall have delivered its Purchaser Deliverables in accordance with
Section 2.2(b).


 


(f)                                    Termination.  This Agreement shall not have been terminated
as to such Purchaser in accordance with Section 6.16 herein.


 


ARTICLE VI


MISCELLANEOUS


 


6.1                                 Fees and
Expenses.  Other than
as set forth in this Section 6.1, the parties hereto shall be responsible
for the payment of all expenses incurred by them in connection with the
preparation and negotiation of the Transaction Documents and the consummation
of the transactions contemplated hereby. 
The Company shall pay all amounts owed to the Placement Agent relating
to or arising out of the transactions contemplated hereby.  The Company shall pay all Transfer Agent
fees, stamp taxes and other taxes and duties levied in connection with the sale
and issuance of the Securities to the Purchasers.  The Company shall compensate Castle Creek for
all expenses in connection with due diligence efforts, the negotiation and
preparation of the Transaction Documents and undertaking of the transactions
contemplated by the Transaction Documents (including out-of-pocket due
diligence expenses and professional fees incurred by or on behalf of Castle
Creek or its Affiliates in connection with the transactions, but excluding the
purchase price for any of the Securities) in an amount not to exceed
$60,000.  In addition, the Company shall
compensate Patriot for all expenses in connection with due diligence efforts,
the negotiation and preparation of the Transaction Documents and undertaking of
the transactions contemplated by the Transactions Documents (including
out-of-pocket due diligence expenses and professional fees incurred by or on
behalf of Patriot or its Affiliates in connection with the transactions, but excluding
the purchase price for any of the Securities) in an amount not to exceed
$50,000.


 


6.2                                 Entire
Agreement.  The
Transaction Documents, together with the Exhibits and Schedules thereto,
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements, understandings, discussions
and representations, oral or written, with respect to such matters, which the
parties acknowledge have been merged into such documents, exhibits and
schedules. At or after the Closing, and without further consideration, the
Company and the Purchasers will execute and deliver to the other such further
documents as may be reasonably requested in order to give practical effect to
the intention of the parties under the Transaction Documents.


 


6.3                                 Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be in
writing and shall be deemed given and effective on the earliest of (a) the
date of transmission, if such notice or communication is delivered via
facsimile (provided the sender receives a machine-generated confirmation of
successful transmission) at the facsimile number specified in this
Section prior to 5:00 p.m., New York City time, on a Trading Day, (b) the
next Trading Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a 


 


33

















 


Trading Day or later than
5:00 p.m., New York City time, on any Trading Day, (c) the Trading
Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service with next day delivery specified, or (d) upon
actual receipt by the party to whom such notice is required to be given. The
address for such notices and communications shall be as follows:


 


If
to the Company:               Heritage Commerce Corp


150 Almaden Boulevard


San Jose, CA 95113


Attn: Chief Executive Officer


Tel: (408) 497-6900


Fax: (408) 947-6910


 


With
a copy to:                                                             Buchalter Nemer


A Professional Corporation


1000 Wilshire Blvd., Suite 1500


Los Angeles, CA 90017


Attn: Mark Bonenfant, Esq.


Tel: (213) 891-5020


Fax: (213) 630-5664


 


If to Purchaser:                     To address set
forth under such Purchaser’s name on the signature page hereof


 


or
such other address as may be designated in writing hereafter, in the same
manner, by such Person.


 


6.4                                 Amendments;
Waivers; No Additional Consideration.  No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Purchasers affected by such amendment or, in the
case of a waiver, by the party against whom enforcement of any such waiver is
sought. No waiver of any default with respect to any provision, condition or
requirement of this Agreement shall be deemed to be a continuing waiver in the
future or a waiver of any subsequent default or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right. No consideration shall be offered or paid to any Purchaser
to amend or consent to a waiver or modification of any provision of any
Transaction Document unless the same consideration is also offered to all
Purchasers who then hold Preferred Shares.


 


6.5                                 Construction.  The headings herein are for convenience only,
do not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.  The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent, and no rules of strict
construction will be applied against any party. This Agreement shall be
construed as if drafted jointly by the parties, and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement or any of the Transaction Documents.


 


6.6                                 Successors and
Assigns.  The provisions of this
Agreement shall inure to the benefit of and be binding upon the parties and
their successors and permitted assigns. This Agreement, or any rights or
obligations hereunder, may not be assigned by the Company without the prior
written consent of the Purchasers. Any Purchaser may assign its rights
hereunder in whole or in part to any Person to whom such Purchaser assigns or
transfers any Securities in compliance with the Transaction Documents and
applicable law, provided such transferee shall agree in writing to be bound,
with respect to the transferred Securities, by the terms and conditions of this
Agreement that apply to the “Purchasers”.


 


6.7                                 No Third-Party
Beneficiaries.  This
Agreement is intended for the benefit of the parties hereto and their
respective successors and permitted assigns and is not for the benefit of, nor
may any provision hereof be enforced by, any other Person, other than
Indemnified Persons.


 


6.8                                 Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal 


 


34

















 


laws of the State of California, without regard to
the principles of conflicts of law thereof. Each party agrees that all
Proceedings concerning the interpretations, enforcement and defense of the
transactions contemplated by this Agreement and any other Transaction Documents
(whether brought against a party hereto or its respective Affiliates, employees
or agents) may be commenced on a non-exclusive basis in the California Courts.
Each party hereto hereby irrevocably submits to the non-exclusive jurisdiction
of the California Courts for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein
(including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any
Proceeding, any claim that it is not personally subject to the jurisdiction of
any such California Court, or that such Proceeding has been commenced in an
improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.


 


6.9                                 Survival.  Subject to applicable statute of limitations,
the representations, warranties, agreements and covenants contained herein
shall survive the Closing and the delivery of the Preferred Shares.


 


6.10                           Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original
thereof.


 


6.11                           Severability.  If any provision of this Agreement is held to
be invalid or unenforceable in any respect, the validity and enforceability of
the remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.


 


6.12                           Replacement of
Shares.  If any certificate or
instrument evidencing any Preferred Shares is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation thereof, or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence
reasonably satisfactory to the Company and the Transfer Agent of such loss,
theft or destruction and the execution by the holder thereof of a customary
lost certificate affidavit of that fact and an agreement to indemnify and hold
harmless the Company and the Transfer Agent for any losses in connection
therewith or, if required by the Transfer Agent, a bond in such form and amount
as is required by the Transfer Agent. The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Shares. If a replacement
certificate or instrument evidencing any Preferred Shares is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.


 


6.13                           Remedies.  In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, each
of the Purchasers and the Company will be entitled to specific performance
under the Transaction Documents. The parties agree that monetary damages may
not be adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agree to waive in
any action for specific performance of any such obligation (other than in
connection with any action for a temporary restraining order) the defense that
a remedy at law would be adequate.


 


6.14                           Payment Set
Aside.  To the extent that the Company
makes a payment or payments to any Purchaser pursuant to any Transaction
Document or a Purchaser enforces or exercises its rights thereunder, and such
payment or payments or the proceeds of such enforcement or exercise or any part
thereof are subsequently 


 


35

















 


invalidated, declared to be fraudulent or
preferential, set aside, recovered from, disgorged by or are required to be
refunded, repaid or otherwise restored to the Company, a trustee, receiver or
any other person under any law (including, without limitation, any bankruptcy
law, state or federal law, common law or equitable cause of action), then to
the extent of any such restoration the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred.


 


6.15                           Independent
Nature of Purchasers’ Obligations and Rights.  The obligations of each Purchaser under any
Transaction Document are several and not joint with the obligations of any
other Purchaser, and no Purchaser shall be responsible in any way for the
performance of the obligations of any other Purchaser under any Transaction
Document.  The decision of each Purchaser
to purchase Preferred Shares pursuant to the Transaction Documents has been
made by such Purchaser independently of any other Purchaser and independently
of any information, materials, statements or opinions as to the business,
affairs, operations, assets, properties, liabilities, results of operations,
condition (financial or otherwise) or prospects of the Company or any
Subsidiary which may have been made or given by any other Purchaser or by any
agent or employee of any other Purchaser, and no Purchaser and any of its
agents or employees shall have any liability to any other Purchaser (or any
other Person) relating to or arising from any such information, materials,
statement or opinions.  Nothing contained
herein or in any Transaction Document, and no action taken by any Purchaser
pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by
the Transaction Documents.  Each
Purchaser acknowledges that no other Purchaser has acted as agent for such
Purchaser in connection with making its investment hereunder and that no
Purchaser will be acting as agent of such Purchaser in connection with
monitoring its investment in the Preferred Shares or enforcing its rights under
the Transaction Documents.  Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose.


 


6.16                           Termination.  This Agreement may be terminated and the sale
and purchase of the Preferred Shares abandoned at any time prior to the Closing
by either the Company or any Purchaser (with respect to itself only) upon
written notice to the other, if the Closing has not been consummated on or
prior to 5:00 p.m., New York City time, on the Outside Date; provided,
however, that the right to terminate this Agreement under this
Section 6.16 shall not be available to any Person whose failure to comply
with its obligations under this Agreement has been the cause of or resulted in
the failure of the Closing to occur on or before such time.  The Company shall give prompt notice of any
such termination to each other Purchaser, and, if necessary, work in good faith
to restructure the transaction to allow each Purchaser that does not exercise a
termination right to purchase the full number of securities set forth below
such Purchaser’s name on the signature page of this Agreement while
remaining in compliance with Section 5.1(k).  Nothing in this Section 6.16 shall be
deemed to release any party from any liability for any breach by such party of
the terms and provisions of this Agreement or the other Transaction Documents
or to impair the right of any party to compel specific performance by any other
party of its obligations under this Agreement or the other Transaction
Documents. In the event of a termination pursuant to this Section, the Company
shall promptly notify all non-terminating Purchasers. Upon a termination in
accordance with this Section, the Company and the terminating Purchaser(s) shall
not have any further obligation or liability (including arising from such
termination) to the other, and no Purchaser will have any liability to any
other Purchaser under the Transaction Documents as a result therefrom.


 


6.17                           Rescission and
Withdrawal Right. 
Notwithstanding anything to the contrary contained in (and without
limiting any similar provisions of) the Transaction Documents, whenever any
Purchaser exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within
the periods therein provided, then such Purchaser may rescind or withdraw, in
its sole discretion from time to time upon written notice to the Company, any
relevant notice, demand or election in whole or in part without prejudice to
its future actions and rights.


 


6.18                           Adjustments in
Stock Numbers and Prices.  In
the event of any stock split, subdivision, dividend or distribution payable in
shares of Common Stock (or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly shares of Common
Stock), combination or other similar 


 


36

















 


recapitalization or event occurring after the date
hereof and prior to Closing, each reference in any Transaction Document to a
number of shares or a price per share shall be deemed to be amended to
appropriately account for such event.


 


6.19                           Avoidance of
Control.  Notwithstanding anything to
the contrary in the Transaction Documents, the Company shall not knowingly take
any action to repurchase Common Stock, or securities or rights, options or
warrants to purchase Common Stock, or securities of any type whatsoever that
are, or may become, convertible into or exchangeable into or exercisable for
Common Stock in each case, where each of Castle Creek and Patriot or any other
Purchaser are not given the right to participate in such repurchase of its
respective pro rata proportion, that would cause Castle Creek’s or Patriot’s or
such other Purchaser’s ownership of voting securities of the Company (together
with the ownership by the respective Affiliates (as such term is used under the
BHC Act) of voting securities of the Company) to increase above 4.9% in the
case of Castle Creek and 9.9% in the case of Patriot or such other Purchaser,
without the prior written consent of each of Castle Creek, Patriot, or such
other Purchaser, as applicable, or to otherwise cause Castle Creek, Patriot or
such other Purchaser to “control” the Company under and for purposes of the BHC
Act.


 


6.20                           Adjustment of Terms.  In the event that the Company provides for
more favorable terms with respect to the transactions contemplated hereby,
through amendment(s) to this Agreement, letter agreement or otherwise, to
one or more of the Purchasers of Preferred Shares than the terms applicable to
the remaining Purchasers in the offering contemplated hereby who are not
parties to such revised terms, the Company will offer the remaining Purchasers
the same terms with respect to the purchase of the Preferred Shares proposed to
be purchased by them and this Agreement will be amended accordingly to reflect
such adjusted terms.


 


6.21                           Voting Agreement.  Subject to any applicable law or regulation
to the contrary, each Purchaser hereby severally and solely on its own behalf
and as further consideration to the Company for its agreement to sell to the
Purchaser the Preferred Shares agrees to vote all of the Preferred Shares held
by the Purchaser and to cause any Affiliate to vote in favor of the Shareholder
Proposals at the Initial Shareholder Meeting, the Follow-up Special Meeting (if
required) or any subsequent shareholder meeting as required and held in
accordance with Section 4.11(b) to approve the Shareholder Proposals.
For purposes of this Section 6.21, Purchasers for Series B Preferred
Shares shall only vote with respect to the Shareholder Proposals related to the
Series B Preferred Shares and Purchasers of the Series C Preferred
Shares shall only vote with respect to the Shareholder Proposals related to the
Series C Preferred Shares.  No
Purchaser shall enter into any agreement or understanding with any Person to
vote or give instructions or grant a proxy in any manner inconsistent with this
Section 6.21. Purchaser agrees that as a condition of transfer of shares
of Preferred Shares, whether by operation of law or otherwise, Purchaser shall
require the transferee of such Preferred Shares to agree to vote in favor of
the Shareholder Proposals at the Initial Shareholder Meeting, the Follow-up
Special Meeting (if required) or any subsequent shareholder meeting as required
and held in accordance with Section 4.11(b) to approve the
Shareholder Proposals. The obligations of each Purchaser under this Section 6.21
shall terminate upon the approval of the Shareholder Proposals.  Nothing contained in this Section 6.21
and no action taken in performance of the obligations under this Section 6.21
shall create any inference that or be deemed to constitute that the Purchasers
are in any way “acting in concert” or as a “group” under applicable law or
regulations.


 


37

















 


IN
WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.


 


	
   

  	
  HERITAGE
  COMMERCE CORP

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Walter T. Kaczmarek

  
	
   

  	
   

  	
  Walter
  T. Kaczmarek

  
	
   

  	
   

  	
  Chief
  Executive Office and President

  



 


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[SIGNATURE PAGES FOR PURCHASERS FOLLOW]


 


Securities Purchase Agreement


 


S-1

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  ADAKIN
  CAPITAL, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jonathan D. Abbey

  
	
   

  	
   

  	
  Jonathan
  D. Abbey

  
	
   

  	
   

  	
  Managing
  Member

  



 


Securities Purchase Agreement


 


S-2

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  BANC
  FUND VI L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  MidBanc
  VI L.P.

  
	
   

  	
   

  	
  an
  Illinois limited partnership,

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  THE
  BANC FUNDS COMPANY, L.L.C.

  
	
   

  	
   

  	
  an
  Illinois limited liability company,

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Charles J. Moore

  
	
   

  	
   

  	
   

  	
  Charles
  J. Moore

  
	
   

  	
   

  	
   

  	
  Member

  



 


Securities Purchase Agreement


 


S-3

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  BANC
  FUND VII L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  MidBanc
  VII L.P.

  
	
   

  	
   

  	
  an
  Illinois limited partnership,

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  THE
  BANC FUNDS COMPANY, L.L.C.

  
	
   

  	
   

  	
  an
  Illinois limited liability company,

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Charles J. Moore

  
	
   

  	
   

  	
   

  	
  Charles
  J. Moore

  
	
   

  	
   

  	
   

  	
  Member

  



 


Securities Purchase Agreement


 


S-4
















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  BANC
  FUND VIII L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  MidBanc
  VIII L.P.

  
	
   

  	
   

  	
  an
  Illinois limited partnership,

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  THE
  BANC FUNDS COMPANY, L.L.C.

  
	
   

  	
   

  	
  an
  Illinois limited liability company,

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Charles J. Moore

  
	
   

  	
   

  	
   

  	
  Charles
  J. Moore

  
	
   

  	
   

  	
   

  	
  Member

  



 


Securities Purchase Agreement


 


S-5

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  BASSWORD
  OPPORTUNITY PARTNERS LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Matthew Lindenbaum

  
	
   

  	
   

  	
  Matthew
  Lindenbaum

  
	
   

  	
   

  	
  General
  Partner

  



 


Securities Purchase Agreement


 


S-6

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  BASSWORD
  OPPORTUNITY FUND, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Matthew Lindenbaum

  
	
   

  	
   

  	
  Matthew
  Lindenbaum

  
	
   

  	
   

  	
  Director

  



 


Securities Purchase Agreement


 


S-7

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  MGS
  PARTNERS, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Nathan Lindenbaum

  
	
   

  	
   

  	
  Nathan
  Lindenbaum

  
	
   

  	
   

  	
  Manager

  



 


Securities Purchase Agreement


 


S-8

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  CASTLE
  CREEK CAPITAL PARTNERS IV, LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  John Eggemeyer

  
	
   

  	
   

  	
  John
  Eggemeyer

  
	
   

  	
   

  	
  Managing
  Partner

  



 


Securities Purchase Agreement


 


S-9

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  CONSECTOR
  PARTNERS LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  William J. Black Jr.

  
	
   

  	
   

  	
  William
  J. Black Jr.

  
	
   

  	
   

  	
  Managing
  Member

  



 


Securities Purchase Agreement


 


S-10

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  JOHN
  HANCOCK REGIONAL BANK FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Elizabeth Blake

  
	
   

  	
   

  	
  Elizabeth
  Blake

  
	
   

  	
   

  	
  VP
  Global Operations

  



 


Securities Purchase Agreement


 


S-11

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  JOHN
  HANCOCK BANK AND THRIFT

  
	
   

  	
  OPPORTUNITY
  FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Elizabeth Blake

  
	
   

  	
   

  	
  Elizabeth
  Blake

  
	
   

  	
   

  	
  VP
  Global Operations

  



 


Securities Purchase Agreement


 


S-12

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  FPA
  HAWKEYE FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  J. Richard Atwood

  
	
   

  	
   

  	
  J.
  Richard Atwood

  
	
   

  	
   

  	
  Chief
  Operating Officer

  



 


Securities Purchase Agreement


 


S-13

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  FPA
  HAWKEYE-7 FUND

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  J. Richard Atwood

  
	
   

  	
   

  	
  J.
  Richard Atwood

  
	
   

  	
   

  	
  Chief
  Operating Officer

  



 


Securities Purchase Agreement


 


S-14
















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  J.S.
  KELLY, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Jon S. Kelly

  
	
   

  	
   

  	
  Jon
  S. Kelly

  
	
   

  	
   

  	
  Managing
  Member

  



 


Securities Purchase Agreement


 


S-15

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  JCSD
  PARTNERS LP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Joe Colmery

  
	
   

  	
   

  	
  Joe
  Colmery

  
	
   

  	
   

  	
  Principal

  



 


Securities Purchase Agreement


 


S-16

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  MALTA
  MLC OFFSHORE, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Terry Maltese

  
	
   

  	
   

  	
  Terry
  Maltese

  
	
   

  	
   

  	
  Director

  



 


Securities Purchase Agreement


 


S-17

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  MALTA
  MLC FUND, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  SOAM
  Holdings, LLC

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Terry Maltese

  
	
   

  	
   

  	
   

  	
  Terry
  Maltese

  
	
   

  	
   

  	
   

  	
  Managing
  Member

  



 


Securities Purchase Agreement


 


S-18

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  MALTA
  OFFSHORE, LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Terry Maltese

  
	
   

  	
   

  	
  Terry
  Maltese

  
	
   

  	
   

  	
  Director

  



 


Securities Purchase Agreement


 


S-19

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  MALTA
  HEDGE FUND II, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  SOAM
  Holdings, LLC

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Terry Maltese

  
	
   

  	
   

  	
   

  	
  Terry
  Maltese

  
	
   

  	
   

  	
   

  	
  Managing
  Member

  



 


Securities Purchase Agreement


 


S-20

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  MALTA
  HEDGE FUND, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  SOAM
  Holdings, LLC

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Terry Maltese

  
	
   

  	
   

  	
   

  	
  Terry
  Maltese

  
	
   

  	
   

  	
   

  	
  Managing
  Member

  



 


Securities Purchase Agreement


 


S-21

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  MALTA
  PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  SOAM
  Holdings, LLC

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Terry Maltese

  
	
   

  	
   

  	
   

  	
  Terry
  Maltese

  
	
   

  	
   

  	
   

  	
  Managing
  Member

  



 


Securities Purchase Agreement


 


S-22

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  SOAM
  CAPITAL PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  SOAM
  Venture Holdings, LLC

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Terry Maltese

  
	
   

  	
   

  	
   

  	
  Terry
  Maltese

  
	
   

  	
   

  	
   

  	
  Managing
  Member

  



 


Securities Purchase Agreement


 


S-23

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  MFP
  PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Timothy E. Ladin

  
	
   

  	
   

  	
  Timothy
  E. Ladin

  
	
   

  	
   

  	
  General
  Counsel and Vice President

  



 


Securities Purchase Agreement


 


S-24
















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  OZ
  GLOBAL SPECIAL INVESTMENTS

  
	
   

  	
  MASTER
  FUND, LP

  
	
   

  	
   

  
	
   

  	
  By:

  	
  OZ
  Advisors II, LP

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Och-Ziff
  Holding, LLC

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Joel M. Frank

  
	
   

  	
   

  	
   

  	
  Joel
  M. Frank,

  
	
   

  	
   

  	
   

  	
  Chief
  Financial Officer

  



 


Securities Purchase Agreement


 


S-25

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  OZ
  MASTER FUND, LTD.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  OZ
  Management LP

  
	
   

  	
   

  	
  Its
  Investment Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Och-Ziff
  Holding Corporation

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Joel M. Frank

  
	
   

  	
   

  	
   

  	
  Joel
  M. Frank,

  
	
   

  	
   

  	
   

  	
  Chief
  Financial Officer

  



 


Securities Purchase Agreement


 


S-26

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  OZ
  SELECT MASTER FUND, LTD

  
	
   

  	
   

  
	
   

  	
  By:

  	
  OZ
  Management LP

  
	
   

  	
   

  	
  Its
  Investment Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Och-Ziff
  Holding Corporation

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Joel M. Frank

  
	
   

  	
   

  	
   

  	
  Joel
  M. Frank,

  
	
   

  	
   

  	
   

  	
  Chief
  Financial Officer

  



 


Securities Purchase Agreement


 


S-27

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  GORDEL
  HOLDINGS LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  OZ
  Management LP

  
	
   

  	
   

  	
  Its
  Investment Manager

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Och-Ziff
  Holding Corporation

  
	
   

  	
   

  	
  Its
  General Partner

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  Joel M. Frank

  
	
   

  	
   

  	
   

  	
  Joel
  M. Frank,

  
	
   

  	
   

  	
   

  	
  Chief
  Financial Officer

  



 


Securities Purchase Agreement


 


S-28

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  PATRIOT
  FINANCIAL PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  James J. Lynch

  
	
   

  	
   

  	
  James
  J. Lynch

  
	
   

  	
   

  	
  Managing
  Partner

  



 


Securities Purchase Agreement


 


S-29

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  PATRIOT
  FINANCIAL PARTNERS PARALLEL, LP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  James J. Lynch

  
	
   

  	
   

  	
  James
  J. Lynch

  
	
   

  	
   

  	
  Managing
  Partner

  



 


Securities Purchase Agreement


 


S-30

















 


	
   

  	
  NAME
  OF PURCHASER:

  
	
   

  	
   

  
	
   

  	
  PRIORITY
  INSIGHT PARTNERS MASTER FUND L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  PIP,
  GP (Cayman) Ltd.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/
  John G. Davenport

  
	
   

  	
   

  	
   

  	
  John
  G. Davenport

  
	
   

  	
   

  	
   

  	
  Authorized
  Signatory

  



 


Securities Purchase Agreement


 


S-31
















 


Exhibit A


 


Series B Certificate of Determination


 

















 


CERTIFICATE OF DETERMINATION


 


OF


 


SERIES B MANDATORILY CONVERTIBLE CUMULATIVE


 


PERPETUAL PREFERRED STOCK


 


OF


 


HERITAGE COMMERCE CORP


 


Pursuant
to Section 401 of the Corporations Code of the State of California:


 


We,
Lawrence McGovern, Executive Vice-President and Chief Financial Officer, and
Debbie Reuter, Secretary, of Heritage Commerce Corp, a corporation organized
under the laws of the State of California (hereinafter called the “Corporation”), do hereby certify as
follows:


 


H.                                    On
June 17, 2010, the Board of Directors of the Corporation adopted a
resolution designating 54,050 shares of preferred stock as Series B
Mandatorily Convertible Cumulative Perpetual Preferred Stock.


 


I.                                         No shares of Series B
Mandatorily Convertible Cumulative Perpetual Preferred Stock have been issued.


 


J.                                        Pursuant to the
authority conferred upon the Board of Directors by the Articles of
Incorporation of the Corporation, as amended, the following resolution was duly
adopted by the Board of Directors on June 17, 2010, creating the series of
preferred stock designated as Series B Mandatorily Convertible Cumulative
Perpetual Preferred Stock:


 


RESOLVED,
that pursuant to the provisions of the Articles of Incorporation of the
Corporation, as amended, and applicable law, a series of preferred stock of the
Corporation be and hereby is created, and that the designation and number of
shares of such series, and the voting and other powers, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations and restrictions thereof, of the shares of such series are as
follows:


 


Section 1.  Designation.  There is hereby created out of the authorized
and unissued shares of preferred stock of the Corporation a series of preferred
stock designated as the “Series B Mandatorily
Convertible Cumulative Perpetual Preferred Stock” (the “Series B Preferred Stock”).
The number of shares constituting such series shall be 54,050. The
Series B Preferred Stock shall have no par value per share.


 


Section 2.  Ranking. The
Series B Preferred Stock will, with respect to dividend rights and rights
on liquidation, winding up and dissolution, rank (i) on a parity with the
Corporation’s Series A Fixed Rate Cumulative Perpetual Stock issued on
November 21, 2008 (the “Series A Preferred
Stock”), the Corporation’s Series C Convertible Perpetual
Preferred Stock (the “Series C Preferred
Stock”), and with each class or series of equity securities of
the Corporation the terms of which do not expressly provide that such class or
series will rank senior or junior to the Series B Preferred Stock as to
dividend rights and rights on liquidation, winding-up and dissolution of the
Corporation (collectively referred to as “Parity Securities”),
and (ii) senior to the Corporation’s common stock, no par value per share
(the “Common Stock”), and each other
class or series of capital stock of the Corporation outstanding or established
on or after the Effective Date by the Corporation the terms of which do not
expressly provide that it ranks on a parity with or senior to the Series B
Preferred Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the Corporation (collectively referred to as “Junior Securities”). The
Corporation has the power to authorize and/or issue additional shares or
classes or series of Junior Securities or Parity Securities without the
approval of the Holders; provided, however, that for as long as the Series B
Preferred Stock remains outstanding, no preferred stock of the Corporation that
would rank senior to the Series B Preferred 


 


A-1

















 


Stock may be issued without, in each case, the
express approval of the Holders of at least two-thirds of the issued and outstanding
shares of Series B Preferred Stock voting as a single class.


 


Section 3.  Definitions. The
following initially capitalized terms shall have the following meanings,
whether used in the singular or the plural:


 


(a)                                  “Additional
Stock” has the meaning set forth in Section 10(a)(viii)(F).


 


(b)                                 “Affiliate” of any
specified Person means any other Person directly or indirectly controlling or
controlled by or under common control with such specified Person. For the
purposes of this definition, “control” when
used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings
correlative to the foregoing.


 


(c)                                  “Applicable
Conversion Price” means the Conversion Price in effect at any
given time.


 


(d)                                 “Business
Day” means any day that is not Saturday or Sunday and
that, in the City of New York and in the State of California, is not a day on
which banking institutions generally are authorized or obligated by law or
executive order to be closed.


 


(e)                                  “Certificate
of Determination” means this Certificate of Determination of
Heritage Commerce Corp, dated June 17, 2010.


 


(f)                                    “Closing
Price” of the Common Stock (or other relevant capital
stock or equity interest) on any date of determination means the closing sale
price or, if no closing sale price is reported, the last reported sale price of
the shares of the Common Stock (or other relevant capital stock or equity
interest) on the NASDAQ Global Select Market on such date. If the Common Stock
(or other relevant capital stock or equity interest) is not traded on the
NASDAQ Global Select Market on any date of determination, the Closing Price of
the Common Stock (or other relevant capital stock or equity interest) on such
date of determination means the closing sale price as reported in the composite
transactions for the principal U.S. national or regional securities exchange on
which the Common Stock (or other relevant capital stock or equity interest) is
so listed or quoted, or, if no closing sale price is reported, the last
reported sale price on the principal U.S. national or regional securities
exchange on which the Common Stock is so listed or quoted, or if the Common
Stock (or other relevant capital stock or equity interest) is not so listed or
quoted on a U.S. national or regional securities exchange, the last quoted bid
price for the Common Stock (or other relevant capital stock or equity interest)
in the over-the-counter market as reported by Pink OTC Markets Inc. or similar
organization, or, if that bid price is not available, the market price of the
Common Stock (or other relevant capital stock or equity interest) on that date
as determined by a nationally recognized independent investment banking firm
retained by the Corporation for this purpose, subject to the joint approval of
the Board of Directors of the Corporation and the Holders.  The Corporation shall cause at its expense
the investment bank to perform the determinations and notify the Corporation
and the Holders of the results no later than ten Business Days from the time it
receives the engagement.  All such determinations
shall be appropriately adjusted for any stock dividend, stock split, stock
combination or other similar transaction during the applicable calculation
period.


 


For
purposes of this Certificate of Determination, all references herein to the “Closing Price” and “last reported sale price” of the
Common Stock (or other relevant capital stock or equity interest) on the NASDAQ
Global Select Market shall be such closing sale price and last reported sale
price as reflected on the website of the NASDAQ Global Select Market
(www.nasdaq.com) and as reported by Bloomberg Professional Service; provided
that in the event that there is a discrepancy between the closing price and the
last reported sale price as reflected on the website of the NASDAQ Stock Market
and as reported by Bloomberg Professional Service, the closing sale price and
the last reported sale price on the website of the NASDAQ Stock Market shall
govern.


 


(g)                                 “Common
Stock” has the meaning set forth in Section 2.


 


A-2

















 


(h)                                 “Common
Stock Equivalents” means securities representing rights
convertible into or exchangeable for, or entitling the holder thereof to
purchase or receive directly or indirectly, shares of Common Stock.


 


(i)                                     “Conversion
Date” means, as applicable, the Mandatory Conversion Date
or the Section 15 Conversion Date.


 


(j)                                     “Conversion
Price” means for each share of Series B Preferred
Stock, $3.75; provided that if the Shareholder Approval is not obtained by the
six month anniversary of the Effective Date, the Conversion Price shall be
reduced by ten percent (10%) (subject to further adjustment or limitation from
time to time in a manner consistent with the provisions of Section 10).


 


(k)                                  “Corporation” means Heritage
Commerce Corp, a California corporation.


 


(l)                                     “Current
Market Price” means, on any date, the average of the daily
Closing Price per share of the Common Stock on each of the five consecutive
Trading Days preceding the earlier of the day before the date in question and
the day before the Ex-Date with respect to the issuance or distribution giving
rise to an adjustment to the Conversion Price pursuant to Section 10.


 


(m)                               “Distributed
Property” has the meaning set forth in
Section 10(a)(iv).


 


(n)                                 “Distribution” has the
meaning set forth in Section 4(g).


 


(o)                                 “Dividend
Rate” means for purposes of Section 4(b) an
annual rate equal to twenty percent (20%) per annum.


 


(p)                                 “Effective
Date” means the date on which shares of the Series B
Preferred Stock are first issued.


 


(q)                                 “Exchange
Property” has the meaning set forth in Section 11(a).


 


(r)                                    “Ex-Date”, when used
with respect to any issuance or distribution, means the first date on which the
Common Stock trades without the right to receive the issuance or distribution
giving rise to an adjustment to the Conversion Price pursuant to
Section 10.


 


(s)                                  “Filing
Date” has the meaning set forth in
Section 10(a)(viii)(A).


 


(t)                                    “First
Dilutive Issuance” has the meaning set forth in Section 10(a)(viii)(A).


 


(u)                                 “Holder” means the
Person in whose name the shares of the Series B Preferred Stock are
registered, which may be treated by the Corporation as the absolute owner of
the shares of Series B Preferred Stock for the purpose of making payment
and settling the related conversions and for all other purposes.


 


(v)                                 “Junior
Securities” has the meaning set forth in Section 2.


 


(w)                               “Liquidation
Preference” means, as to the Series B Preferred Stock,
$1,000 per share (as adjusted for any split, subdivision, combination,
consolidation, recapitalization or similar event with respect to the
Series B Preferred Stock).


 


(x)                                   “Mandatory
Conversion Date” means, with respect to the shares of Series B
Preferred Stock of any Holder, the first Business Day after the date on which
the Corporation receives the Shareholder Approval (or if a Reorganization Event
has theretofore been consummated, the date of consummation of such
Reorganization Event), provided, however, that if a Mandatory Conversion Date
would otherwise occur on or after an Ex-Date for an issuance or distribution
that results in an adjustment of the Conversion Price pursuant to Section 10
and on or before the Record Date for such issuance or distribution, such
Mandatory Conversion Date shall instead occur on the first calendar day after
the Record Date for such issuance or distribution.


 


A-3

















 


(y)                                 “Notice
of Mandatory Conversion” has the meaning set forth
in Section 9(a).


 


(z)                                   “Parity
Securities” has the meaning set forth in Section 2.


 


(aa)                            “Permitted Rights Offering” means an
offering of up to $10 million of aggregate offering price of Common Stock
pursuant to subscription rights distributed pro rata to the then existing
holders of record of Common Stock at a price per share of Common Stock of not
less than $3.75, and the associated declaration, issuance and exercise of the
subscription rights with respect to such offering and shares of Common Stock
issuable in connection with the exercise of any such rights pursuant to the
terms of the Securities Purchase Agreement.


 


(bb)                          “Person” means a legal
person, including any individual, corporation, estate, partnership, joint
venture, association, joint-stock company, limited liability company or trust.


 


(cc)                            “Series A
Preferred Stock” has the meaning set forth in Section 2.


 


(dd)                          “Series B
Preferred Stock” has the meaning set forth in Section 1.


 


(ee)                            “Series C
Preferred Stock” has the meaning set forth in Section 2.


 


(ff)                                “Record
Date” has the meaning set forth in Section 4(d).


 


(gg)                          “Reorganization
Event” has the meaning set forth in Section 11(a).


 


(hh)                          “Section 4
Dividend Payment Date” has the meaning set forth
in Section 4(b).


 


(ii)                                  “Section 4
Dividend Period” has the meaning set forth in Section 4(c).


 


(jj)                                  “Section 15
Conversion Date” has the meaning set forth in Section 15.


 


(kk)                            “Securities Purchase Agreement” means the
agreement by and among the Corporation and the purchasers named therein dated
June 18, 2010.


 


(ll)                                  “Shareholder
Approval” means the vote of a majority of the Common Stock
present and voting and vote of at least a majority of the outstanding shares of
the Series B Preferred Stock to approve the issuance of Common Stock upon
conversion of the Series B Preferred Stock for purposes of Rule 5635
of the NASDAQ Stock Market Rules.


 


(mm)                      “Subsequent
Dilutive Issuance” has the meaning set forth in Section 10(a)(viii)(A).


 


(nn)                          “Trading
Day” means a day on which the shares of Common Stock:


 


(i)                                     are not
suspended from trading on any national or regional securities exchange or
association or over-the-counter market at the close of business; and


 


(ii)                                  have traded at
least once on the national or regional securities exchange or association or
over-the-counter market that is the primary market for the trading of the
Common Stock.


 


(oo)                          “Trading
Market” means whichever of the New York Stock Exchange, the
NYSE Amex, the NASDAQ Global Select Market, the NASDAQ Global Market, the
NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed
or quoted for trading on the date in question.


 


Section 4.  Dividends.


 


(a)                                  From and after
the Effective Date, the Holders shall be entitled to receive, only if, when and
as declared by the Board of Directors or a duly authorized committee of the
Board of Directors, out of funds legally 


 


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available therefor, cumulative dividends of the type
and in the amounts determined as set forth in this Section 4, and no more,
provided, however, notwithstanding any other provision in this Section 4
other than Section 4(g), if the Mandatory Conversion Date occurs before
the six month anniversary of the Effective Date, then no accrued dividends
shall be payable.


 


(b)                                 Subject to Section 4(a),
commencing on the Effective Date, dividends shall accrue and be payable
semi-annually in arrears, with the first such dividend payable on the six month
anniversary of the Effective Date and continuing on each six (6) month
anniversary thereafter (each, a “Section 4 Dividend
Payment Date”) or, if any such day is not a Business Day, the
next Business Day, if, when and as declared by the Board of Directors or a duly
authorized committee of the Board of Directors. Dividends payable pursuant to
this Section 4, if, when and as declared by the Board of Directors or a
duly authorized committee of the Board of Directors, will be, for each
outstanding share of Series B Preferred Stock, payable in cash at an
annual rate equal to the Dividend Rate multiplied by the sum of (A) the
Liquidation Preference plus (B) all accrued and unpaid dividends for any
prior Section 4 Dividend Period that are payable on such share of
Series B Preferred Stock, payable in cash.


 


(c)                                  Dividends
payable pursuant to Section 4 will be computed on the basis of a 360-day
year of twelve 30-day months and, for any Section 4 Dividend Period
greater or less than a full Section 4 Dividend Period, will be computed on
the basis of the actual number of days elapsed in the period divided by 360.
Each period from and including a Section 4 Dividend Payment Date to but
excluding the following Section 4 Dividend Payment Date is herein referred
to as a “Section 4 Dividend Period”.


 


(d)                                 Each dividend
will be payable to Holders of record as they appear in the records of the
Corporation on the applicable record date (each, a “Record
Date”), which with respect to dividends payable pursuant to this
Section 4, shall be on the fifteenth day of the month immediately prior to
the month in which the relevant Section 4 Dividend Payment Date occurs.


 


(e)                                  Dividends on
the Series B Preferred Stock are cumulative. To the extent that the Board
of Directors does not declare or pay dividends on the Series B Preferred
Stock for a Section 4 Dividend Period prior to the related Section 4
Dividend Payment Date, in full or otherwise, such unpaid dividend shall accrue
and shall cumulate from such scheduled Section 4 Dividend Payment Date,
shall compound on each subsequent Section 4 Dividend Payment Date and
shall be payable semi-annually in arrears on each subsequent Section 4
Dividend Payment Date. As used herein, the term “accrued”
includes both accrued and accumulated dividends.


 


(f)                                    So long as any
shares of Series B Preferred Stock remain outstanding, if all dividends on
all outstanding shares of the Series B Preferred Stock for any Section 4
Dividend Period have not been declared and paid, or declared and funds set
aside therefor, the Corporation shall not (x) declare or pay dividends
with respect to, or make any distributions on, or, directly or indirectly,
redeem, purchase or acquire any of its Junior Securities or (y) directly
or indirectly, redeem, purchase or acquire any of its Parity Securities, other
than, in each case, (i) redemptions, purchases or other acquisitions of
Junior Securities or Parity Securities in connection with any employment
contract, benefit plan or other similar arrangement with or for the benefit of
any one or more employees, officers, directors or consultants or in connection
with a dividend reinvestment plan, (ii) any declaration of a dividend in
connection with any shareholders’ rights plan, or the issuance of rights, stock
or other property under any shareholders’ rights plan, or the redemption or
repurchase of rights pursuant thereto, (iii) conversions or exchanges of
Junior Securities or Parity Securities for Junior Securities or Parity
Securities, respectively, and (iv) any purchase of fractional interests in
shares of the Corporation’s capital stock pursuant to the conversion or
exchange provisions of such capital stock or the securities being converted or
exchanged. If dividends payable pursuant to Section 4 for any Section 4
Dividend Payment Date are not paid in full, or declared and funds set aside
therefor on the shares of the Series B Preferred Stock and there are
issued and outstanding shares of Parity Securities with the same Section 4
Dividend Payment Date (or, in the case of Parity Securities having dividend
payment dates different from the Section 4 Dividend Payment Dates, on a
dividend payment date falling within a Section 4 Dividend Period
applicable to such Section 4 Dividend Payment Date), then all dividends
declared on shares of the Series B Preferred Stock and such Parity
Securities on such date or dates, as the case may be, shall be declared pro
rata so that the respective amounts of such dividends shall bear the same ratio
to each other as full semi-annual dividends per share payable on the shares of
the Series B Preferred Stock pursuant to Section 4 and all such
Parity Securities otherwise payable on such Section 4 Dividend Payment
Date (or, in the case of Parity Securities having dividend payment dates
different from the Section 4 Dividend Payment Dates, on a dividend payment
date falling 


 


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within a Section 4 Dividend Period applicable
to such Section 4 Dividend Payment Date) (subject to such dividends on
such Parity Securities having been declared by the Board of Directors out of
legally available funds and including, in the case of any such Parity
Securities that bear cumulative dividends, all accrued and unpaid dividends)
bear to each other.


 


(g)                                 Subject to the
limitations in Section 4(f), if applicable, so long as any shares of
Series B Preferred Stock are outstanding, the Corporation shall not
declare, pay or set apart for payment any dividend or make any Distribution on
any Common Stock, unless at the time of such dividend or Distribution the
Corporation simultaneously pays a dividend or makes a Distribution on each
outstanding share of Series B Preferred Stock in the same form of
consideration as received by the holders of Common Stock in an amount equal to
the product of (i) the dividend payable or Distribution to be made on each
share of Common Stock and (ii) the number of shares of Common Stock
issuable upon conversion of a share of Series B Preferred Stock (assuming
receipt of the Shareholder Approval and, if necessary, regulatory approvals),
calculated on the record date for determination of holders entitled to receive
such dividend or Distribution. For purposes hereof, “Distribution”
shall mean the transfer of cash, securities or other assets or property,
including, without limitation, evidences of indebtedness, shares of capital
stock or securities (including, without limitation, any dividend or
distribution of (i) shares of capital stock of any class or series, or
similar equity interests, of or relating to a subsidiary or other business unit
in a “spin-off” transaction or (ii) rights
or warrants to purchase shares of Common Stock (other than rights issued
pursuant to a shareholders’ rights plan, a dividend reinvestment plan, other
similar plans or a Permitted Rights Offering), without consideration, whether
by way of dividend or otherwise.


 


(h)                                 If a Conversion
Date with respect to any share of Series B Preferred Stock occurs on or
prior to the Record Date for any declared dividend applicable to any Section 4
Dividend Period, the Holder of such share of Series B Preferred Stock will
have the right to receive accrued dividends on the Series B Preferred
Stock prior to the Conversion Date with respect to such Section 4 Dividend
Period, and this shall not affect any rights to receive any accrued and unpaid
dividends on the Series B Preferred Stock attributable to any Section 4
Dividend Period completed prior to such Record Date. If a Conversion Date is
after the Record Date for any declared dividend applicable to any Section 4
Dividend Period and prior to the relevant Section 4 Dividend Payment Date,
such Holder shall receive that dividend on the relevant Section 4 Dividend
Payment Date if such Holder was the Holder of record on the Record Date for
that dividend.


 


Section 5.  Liquidation.


 


(a)                                  In the event
the Corporation voluntarily or involuntarily liquidates, dissolves or winds up,
the Holders at the time shall be entitled to receive, for each share of the Series B
Preferred Stock, the sum of (i) liquidating distributions in an amount
equal to the Liquidation Preference, plus any accrued but unpaid dividends
thereon to and including the date of such liquidation, out of assets legally
available for distribution to the Corporation’s shareholders, before any
distribution of assets is made to the holders of the Common Stock or any other
Junior Securities and (ii) after all distributions have been made to
Holders pursuant to clause (i) of this sentence, liquidating
distributions, as determined by the Corporation (or the trustee or other Person
or Persons administering its liquidation, dissolution or winding-up in
accordance with applicable law) as of a date that is at least ten (10) Business
Days before the first liquidating distribution is made on Series B
Preferred Stock, that would be made on the number of shares of Common Stock
equal to the Liquidation Preference divided by the Applicable Conversion Price
as if all of the outstanding shares of Series B Preferred Stock and Series C
Preferred Stock had been converted into Common Stock on such date of
determination, out of assets legally available for distribution to the
Corporation’s shareholders, simultaneous with any distribution of assets made
to the holders of the Common Stock.


 


(b)                                 In the event
the assets of the Corporation available for distribution to shareholders upon
any liquidation, dissolution or winding-up of the affairs of the Corporation,
whether voluntary or involuntary, shall be insufficient to pay in full the
amounts payable with respect to all outstanding shares of the Series B
Preferred Stock and the corresponding amounts payable on any Parity Securities,
the Holders and the holders of such Parity Securities shall share ratably in
any distribution of assets of the Corporation in proportion to the full respective
liquidating distributions to which they would otherwise be respectively
entitled.


 


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(c)                                  Except as
provided in Section 11, the Corporation’s consolidation or merger with or
into any other entity, the consolidation or merger of any other entity with or
into the Corporation, or the sale of all or substantially all of the
Corporation’s property or business will not constitute its liquidation,
dissolution or winding up.


 


Section 6.  Maturity. The
Series B Preferred Stock shall be perpetual unless converted in accordance
with this Certificate of Determination.


 


Section 7.  Redemptions.


 


(a)                                  Redemption
by the Holder. Holders of Series B Preferred Stock will have
no right to require redemption of any shares of Series B Preferred Stock.


 


(b)                                 No
Redemption by the Corporation. The Series B
Preferred Stock shall not be redeemable by the Corporation at any time. The
Series B Preferred Stock shall not be subject to any sinking fund or other
obligation to redeem, repurchase or retire the Series B Preferred Stock.


 


Section 8.  Mandatory Conversion.  Effective as of the close of business on the
Mandatory Conversion Date with respect to the shares of Series B Preferred
Stock of a Holder, all such Holder’s shares of Series B Preferred Stock
shall, subject to the provisions of Section 15, automatically convert into
shares of Common Stock as set forth below. The number of shares of Common Stock
into which a share of Series B Preferred Stock shall be convertible shall
be determined by dividing (i) the Liquidation Preference, plus the
aggregate sum of all accrued and unpaid dividends by (ii) the Applicable
Conversion Price (subject to the conversion procedures of Section 9
hereof). Upon conversion, Holders shall receive cash in lieu of fractional
shares in accordance with Section 13 hereof.


 


Section 9.  Conversion Procedures.


 


(a)                                  Upon receipt by
the Corporation of the Shareholder Approval, the Corporation shall provide,
within two Business Days thereafter, notice of mandatory conversion to such
Holder (such notice a “Notice of Mandatory
Conversion”). In addition to any information required by
applicable law or regulation, the Notice of Mandatory Conversion with respect
to such Holder shall state, as appropriate:


 


(i)                                     the Mandatory
Conversion Date;


 


(ii)                                  after giving
effect to the provisions of Section 15, the number of shares of
Series B Preferred Stock held of record by such Holder (x) subject to
conversion on the Mandatory Conversion Date and (y) that will remain
outstanding pursuant to the provisions of Section 15, if any;


 


(iii)                               the Conversion
Price and the resulting number of shares of Common Stock to be issued upon
conversion of each share of Series B Preferred Stock subject to mandatory
conversion; and


 


(iv)                              if certificates
are to be issued, the place or places where certificates for shares of
Series B Preferred Stock held of record by such Holder and subject to
mandatory conversion are to be surrendered for issuance of certificates
representing shares of Common Stock.


 


(b)                                 Effective
immediately prior to the close of business on a Conversion Date, with respect
to any shares of Series B Preferred Stock to be converted on such
Conversion Date, dividends shall no longer be declared on any such shares of
Series B Preferred Stock and such shares of Series B Preferred Stock
shall cease to be outstanding, in each case, subject to the right of the Holder
to receive (i) shares of Common Stock issuable upon such mandatory
conversion, (ii) any accrued and unpaid dividends on such shares to the extent
provided in Section 4 and (iii) any other payments to which such
Holder is otherwise entitled pursuant to Section 8, Section 11 or Section 13
hereof, as applicable.


 


(c)                                  Prior to the
close of business on a Conversion Date, with respect to any share of
Series B Preferred Stock to be converted on such Conversion Date, the
shares of Common Stock issuable upon conversion thereof or other securities
issuable upon conversion of such share of Series B Preferred Stock shall
not be deemed outstanding 


 


A-7

















 


for any purpose, and the Holder thereof shall have
no rights with respect to such shares of Common Stock or other securities
issuable upon conversion (including voting rights, rights to respond to tender
offers for the Common Stock or other securities issuable upon conversion and
rights to receive any dividends or other distributions on the Common Stock or
other securities issuable upon conversion) by virtue of holding such share of
Series B Preferred Stock, except to the extent provided in Section 4(g).


 


(d)                                 Shares of
Series B Preferred Stock duly converted in accordance with this
Certificate of Determination, or otherwise reacquired by the Corporation, will
resume the status of authorized and unissued preferred stock, undesignated as
to series and available for future issuance. The Corporation may from time to
time take such appropriate action as may be necessary to reduce the authorized
number of shares of Series B Preferred Stock; provided, however, that the
Corporation shall not take any such action if such action would reduce the
authorized number of shares of Series B Preferred Stock below the number
of shares of Series B Preferred Stock then outstanding.


 


(e)                                  The Person or
Persons entitled to receive the Common Stock and/or cash, securities or other
property issuable upon conversion of Series B Preferred Stock shall be
treated for all purposes as the record holder(s) of such shares of Common
Stock and/or securities as of the close of business on the relevant Conversion
Date with respect thereto. In the event that a Holder shall not by written
notice designate the name in which shares of Common Stock and/or cash,
securities or other property (including payments of cash in lieu of fractional
shares) to be issued or paid upon conversion of shares of Series B
Preferred Stock should be registered or paid or the manner in which such shares
should be delivered, the Corporation shall be entitled to register and deliver
such shares, and make such payment, in the name of the Holder and in the manner
shown on the records of the Corporation.


 


(f)                                    On a Conversion
Date with respect to any share of Series B Preferred Stock, certificates
representing shares of Common Stock shall be issued and delivered to the Holder
thereof or such Holder’s designee (or, at the Corporation’s option such shares
shall be registered in book-entry form) upon presentation and surrender of the
certificate evidencing the Series B Preferred Stock to the Corporation
and, if required, the furnishing of appropriate endorsements and transfer
documents and the payment of all transfer and similar taxes.


 


Section 10.  Anti-Dilution Adjustments.


 


(a)                                  The Conversion
Price shall be subject to the following adjustments:


 


(i)                                     Stock
Dividends and Distributions. If the Corporation pays
dividends or other distributions on the Common Stock in shares of Common Stock,
then the Conversion Price in effect immediately prior to the Ex-Date for such
dividend or distribution will be multiplied by the following fraction:


 


·                                          the numerator
is the number of shares of Common Stock outstanding immediately prior to the
Ex-Date for such dividend or distribution, and


 


·                                          the denominator
is the sum of (1) the number of shares of Common Stock outstanding
immediately prior to the Ex-Date for such dividend or distribution plus (2) the
total number of shares of Common Stock constituting such dividend or
distribution.


 


For
the purposes of this Section 10(a)(i), the number of shares of Common
Stock at the time outstanding shall not include shares acquired by the
Corporation. If any dividend or distribution described in this Section 10(a)(i) is
declared but not so paid or made, the Conversion Price shall be readjusted,
effective as of the date the Board of Directors publicly announces its decision
not to make such dividend or distribution, to such Conversion Price that would
be in effect if such dividend or distribution had not been declared (but giving
effect to any intervening adjustments that may have been made with respect to
the Series B Preferred Stock).


 


A-8

















 


(ii)                                  Subdivisions,
Splits and Combinations of the Common Stock. If the Corporation
subdivides, splits or combines the shares of Common Stock, then the Conversion
Price in effect immediately prior to the effective date of such share
subdivision, split or combination will be multiplied by the following fraction:


 


·                                          the numerator
is the number of shares of Common Stock outstanding immediately prior to the
effective date of such share subdivision, split or combination, and


 


·                                          the denominator
is the number of shares of Common Stock outstanding immediately after the
opening of business on the effective date of such share subdivision, split or
combination.


 


For
the purposes of this Section 10(a)(ii), the number of shares of Common
Stock at the time outstanding shall not include shares acquired by the
Corporation. If any subdivision, split or combination described in this Section 10(a)(ii) is
announced but the outstanding shares of Common Stock are not subdivided, split
or combined, the Conversion Price shall be readjusted, effective as of the date
the Board of Directors publicly announces its decision not to subdivide, split
or combine the outstanding shares of Common Stock, to such Conversion Price
that would be in effect if such subdivision, split or combination had not been
announced (but giving effect to any intervening adjustments that may have been
made with respect to the Series B Preferred Stock).


 


(iii)                               Issuance
of Stock Purchase Rights. If the Corporation issues to all or
substantially all holders of the shares of Common Stock rights or warrants
(other than rights or warrants issued pursuant to a dividend reinvestment plan
or share purchase plan or other similar plans) entitling them to subscribe for
or purchase the shares of Common Stock at less than the Current Market Price on
the date fixed for the determination of shareholders entitled to receive such
rights or warrants, then the Conversion Price in effect immediately prior to
the Ex-Date for such distribution will be multiplied by the following fraction:


 


·                                          the numerator
is sum of (1) the number of shares of Common Stock outstanding immediately
prior to the Ex-Date for such dividend or distribution plus (2) the number
of shares of Common Stock equal to the aggregate price payable to exercise such
rights or warrants divided by the Current Market Price on the date fixed for
the determination of shareholders entitled to receive such rights or warrants,
and


 


·                                          the denominator
is the sum of (1) the number of shares of Common Stock outstanding
immediately prior to the Ex-Date for such dividend or distribution plus (2) the
total number of shares of Common Stock issuable pursuant to such rights or
warrants.


 


For
the purposes of this Section 10(a)(iii), the number of shares of Common
Stock at the time outstanding shall not include shares acquired by the
Corporation. The Corporation shall not issue any such rights or warrants in
respect of shares of the Common Stock acquired by the Corporation. In the event
that such rights or warrants described in this Section 10(a)(iii) are
not so issued, the Conversion Price shall be readjusted, effective as of the
date the Board of Directors publicly announces its decision not to issue such
rights or warrants, to the Conversion Price that would then be in effect if
such issuance had not been declared (but giving effect to any intervening
adjustments that may have been made with respect to the Series B Preferred
Stock). To the extent that such rights or warrants are not exercised prior to
their expiration or shares of Common Stock are otherwise not delivered pursuant
to such rights or warrants upon the exercise of such rights or warrants, the
Conversion Price shall be readjusted to such Conversion Price that would then
be in effect had the adjustment made upon the issuance of such rights or
warrants been made on the basis of the delivery of only the number of shares of
Common Stock actually delivered (but giving effect to any intervening
adjustments that may have been made with respect to the Series B Preferred
Stock). In determining the aggregate offering price payable for such shares of
Common Stock, there shall be taken into account any consideration received for
such rights or warrants and the value of such consideration (if other than
cash, to be determined in good faith by the Board of Directors). If an
adjustment to the Conversion Price is required under this Section 10(a)(iii),
delivery of any additional shares of Common Stock that may be deliverable upon
conversion as a 


 


A-9

















 


result
of an adjustment required under this Section 10(a)(iii) shall be
delayed to the extent necessary in order to complete the calculations provided
in this Section 10(a)(iii).


 


(iv)                              Debt or
Asset Distributions. If the Corporation distributes to all or substantially
all holders of shares of Common Stock evidences of indebtedness, shares of
capital stock, securities, cash or other assets (excluding any dividend or
distribution referred to in Section 10(a)(i), any rights or warrants
referred to in Section 10(a)(iii), any dividend or distribution paid
exclusively in cash, any consideration payable in connection with a tender or
exchange offer made by the Corporation or any of its subsidiaries, and any
dividend of shares of capital stock of any class or series, or similar equity
interests, of or relating to a subsidiary or other business unit in the case of
certain spin-off transactions as described below) (such evidences of
indebtedness, shares of capital stock, securities, cash or other assets, the “Distributed Property”), then the
Conversion Price in effect immediately prior to the Ex-Date for such
distribution will be multiplied by the following fraction:


 


·                                          the numerator
is the Current Market Price per share of Common Stock on such date minus the
fair market value of the portion of the distribution applicable to one share of
Common Stock on such date as determined in good faith by the Board of
Directors, and


 


·                                          the denominator
is the Current Market Price per share of Common Stock on such date;


 


provided
that, if the fair market value of the portion of the distribution applicable to
one share of Common Stock on such date as determined in good faith by the Board
of Directors is equal to or greater than the Current Market Price per share of
Common Stock on such date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each Holder shall receive on the date on which
the Distributed Property is distributed to holders of Common Stock, for each
share of Series B Preferred Stock, the amount of Distributed Property such
Holder would have received had such Holder’s Series B Preferred Stock been
converted into such number of shares of Common Stock that such Holder’s shares
of Series B Preferred Stock would then be convertible on the Ex-Date for
such distribution.


 


In
a “spin-off,” where the Corporation makes
a distribution to all or substantially all holders of shares of Common Stock
consisting of capital stock of any class or series, or similar equity interests
of, or relating to, a subsidiary or other business unit, the Conversion Price
will not be adjusted, but in lieu of such adjustment each Holder shall receive
the same distribution as a holder of Common Stock would as though such Holder’s
shares of Series B Preferred Stock had been converted into such number of
shares of Common Stock that such Holder’s shares of Series B Preferred
Stock would then be convertible.


 


In
the event that such distribution described in this Section 10(a)(iv) is
not so paid or made, the Conversion Price shall be readjusted, effective as of
the date the Board of Directors publicly announces its decision not to pay or
make such dividend or distribution, to the Conversion Price that would then be
in effect if such dividend or distribution had not been declared (but giving
effect to any intervening adjustments that may have been made with respect to
the Series B Preferred Stock). If an adjustment to the Conversion Price is
required under this Section 10(a)(iv), delivery of any additional shares
of Common Stock that may be deliverable upon conversion as a result of an
adjustment required under this Section 10(a)(iv) shall be delayed to
the extent necessary in order to complete the calculations provided for in this
Section 10(a)(iv).


 


(v)                                 Cash
Distributions. If the Corporation makes a distribution consisting
exclusively of cash to all holders of the Common Stock, excluding (a) any
cash dividend or distribution on the Common Stock to the extent a corresponding
cash dividend or distribution pursuant to Section 4 is paid on the
Series B Preferred Stock, (b) any dividend or distribution in
connection with the Corporation’s liquidation, dissolution or winding up, and (c) any
consideration payable in connection with a tender or exchange offer made by the
Corporation or any of its subsidiaries, then in each event, the Conversion
Price in effect immediately prior to the Ex-Date for such distribution will be
multiplied by the following fraction:


 


A-10
















 


·                                          the numerator
is the Closing Price per share of Common Stock on the Trading Day immediately
preceding the Ex-Date minus the amount per share of Common Stock of the cash
distribution, as determined pursuant to the introduction to this Section 10(a)(v),
and


 


·                                          the denominator
is the Closing Price per share of Common Stock on the Trading Day immediately
preceding the Ex-Date.


 


In
the event that any distribution described in this Section 10(a)(v) is
not so made, the Conversion Price shall be readjusted, effective as of the date
the Board of Directors publicly announces its decision not to pay such
distribution, to the Conversion Price which would then be in effect if such
distribution had not been declared (but giving effect to any intervening
adjustments that may have been made with respect to the Series B Preferred
Stock).


 


Notwithstanding
the foregoing, if the amount per share of Common Stock of the cash
distribution, as determined pursuant to the introduction to this Section 10(a)(v),
is equal to or greater than the Closing Price per share of Common Stock on the
Trading Day immediately preceding the Ex-Date, in lieu of the foregoing
adjustment, adequate provision shall be made so that each Holder shall have the
right to receive on the date on which the relevant cash dividend or
distribution is distributed to holders of Common Stock, for each share of
Series B Preferred Stock, the amount of cash such Holder would have
received had such Holder’s Series B Preferred Stock been converted into
such number of shares of Common Stock that such Holder’s shares of
Series B Preferred Stock would then be convertible on the Ex-Date for such
distribution.


 


(vi)          Self Tender Offers and
Exchange Offers. If the Corporation or any of its subsidiaries
successfully completes a tender or exchange offer for the Common Stock where
the cash and the value of any other consideration included in the payment per
share of the Common Stock exceeds the Closing Price per share of the Common
Stock on the Trading Day immediately succeeding the expiration of the tender or
exchange offer, then the Conversion Price in effect at the close of business on
such immediately succeeding Trading Day will be multiplied by the following
fraction:


 




	
   

  	
  OS-l x SP

  	
   

  
	
   

  	
  AC + (SP x OS-2)

  	
   

  






where,


 


SP =                                        the Closing Price per share
of Common Stock on the Trading Day immediately succeeding the expiration of the
tender or exchange offer.


 


OS-1 =                            the number of shares of
Common Stock outstanding immediately prior to the expiration of the tender or
exchange offer, including any shares validly tendered and not withdrawn.


 


OS-2 =                            the number of shares of
Common Stock outstanding immediately after the expiration of the tender or
exchange offer, giving effect to consummation of the acquisition of all shares
validly tendered or exchanged (and not withdrawn) in connection with such
tender or exchange.


 


AC =                                    the aggregate cash and fair
market value of the other consideration payable in the tender or exchange
offer, as determined by the Board of Directors.


 


In
the event that the Corporation, or one of its subsidiaries, is obligated to
purchase shares of Common Stock pursuant to any such tender offer or exchange
offer, but the Corporation, or such subsidiary, is permanently prevented by
applicable law from effecting any such purchases, or all such purchases are
rescinded, then the Conversion Price shall be readjusted to be such Conversion
Price that would then be in effect if such tender offer or exchange offer had
not been made (but giving effect to any intervening adjustments that may have
been made with respect to the Series B Preferred Stock). Except as set
forth in the preceding sentence, if the application of this 


 


A-11

















 


Section 10(a)(vi) to
any tender offer or exchange offer would result in a decrease in the Conversion
Price, no adjustment shall be made for such tender offer or exchange offer
under this Section 10(a)(vi).


 


(vii)         Rights Plans.
To the extent that the Corporation has a shareholders’ rights plan in effect
with respect to the Common Stock on the Conversion Date, upon conversion of any
shares of the Series B Preferred Stock, Holders will receive, in addition
to the shares of Common Stock, the rights under the rights plan, unless, prior
to such Conversion Date, the rights have separated from the shares of Common
Stock, in which case the Conversion Price will be adjusted at the time of
separation as if the Corporation had made a distribution to all holders of the
Common Stock as described in Section 10(a)(iv) above, subject to
readjustment in the event of the expiration, termination or redemption of such
rights.


 


(viii)        Other Issuances of
Additional Stock.


 


(A)          For so long as any shares of Series B Preferred Stock
remain outstanding, if the Corporation shall issue (or be deemed to have
issued), after the date of filing of this Certificate of Determination (the “Filing Date”), any Additional Stock
(as defined below in Section 10(a)(viii)(F)) without consideration or for
a consideration per share less than the Conversion Price for the Series B
Preferred Stock in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for such series in effect immediately prior to each
such issuance of Additional Stock shall forthwith (except as otherwise provided
in this Section 10(a)(viii)) be adjusted to a price equal to (calculated
to the nearest cent) the product obtained by multiplying the Conversion Price
for the Series B Preferred Stock in effect immediately prior to such
issuance of Additional Stock by a fraction, the numerator of which is equal to
the sum of (x) the total number of shares of Common Stock outstanding
(including any shares of Common Stock previously deemed to have been issued
pursuant to Section 10(a)(viii)(E)(l) or Section 10(a)(viii)(E)(2) (to
the extent not actually issued)) immediately prior to such issuance of
Additional Stock plus (y) the number of shares of Common Stock that the
aggregate consideration received by this Corporation for such issuance of
Additional Stock would purchase at the Conversion Price for Series B
Preferred Stock in effect immediately prior to such issuance of Additional
Stock, and the denominator of which is equal to the sum of (x) the total
number of shares of Common Stock outstanding (including any shares of Common Stock
previously deemed to have been issued pursuant to Section 10(a)(viii)(E)(l) or
Section 10(a)(viii)(E)(2) (to the extent not actually issued))
immediately prior to such issuance of Additional Stock plus (y) the number
of shares of Additional Stock issued. In the event that the Corporation issues
or sells, or is deemed to have issued or sold, Additional Stock (the “First Dilutive Issuance”), then in
the event that the Corporation issues or sells, or is deemed to have issued or
sold, Additional Stock other than the First Dilutive Issuance as a part of the
same transaction or series of related transactions as the First Dilutive
Issuance (a “Subsequent Dilutive Issuance”),
then and in each such case upon a Subsequent Dilutive Issuance, the Conversion
Price shall be reduced to the Conversion Price that would have been in effect
had the First Dilutive Issuance and each Subsequent Dilutive Issuance all
occurred on the closing date of the First Dilutive Issuance.


 


(B)           Except to the limited extent provided for in Section 10(a)(viii)(E)(3) or
Section 10(a)(viii)(E)(4), no adjustment of the Conversion Price for
Series B Preferred Stock pursuant to this subsection (viii) shall
have the effect of increasing any such Conversion Price above the Conversion
Price in effect immediately prior to such adjustment.


 


(C)           In the case of the issuance of Additional Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor before
deducting any discounts, commissions or other expenses allowed, paid or incurred
by the Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.


 


(D)          In the case of the issuance of Additional Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair value thereof as determined in good faith
by the Corporation’s Board of Directors irrespective of any accounting
treatment.


 


(E)           In the case of the issuance after the Filing Date of (i) options
to purchase or rights to subscribe for Common Stock, (ii) securities by
their terms convertible into or exchangeable for Common Stock or (iii) options
to purchase or rights to subscribe for securities by their terms convertible
into or exchangeable for Common Stock, the following provisions shall apply for
all purposes of this Section 10(a)(viii):


 


A-12

















 


(1)           The aggregate maximum number of shares of Common Stock
deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential anti-dilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in Section 10(a)(viii)(C) and
Section 10(a)(viii)(D)) if any, received by the Corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential anti-dilution
adjustments) for the Common Stock covered thereby.


 


(2)           The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange (assuming the satisfaction of any
conditions to convertibility or exchangeability, including without limitation,
the passage of time, but without taking into account potential anti-dilution
adjustments) for any such convertible or exchangeable securities or upon the
exercise of options to purchase or rights to subscribe for such convertible or
exchangeable securities and subsequent conversion or exchange thereof shall be
deemed to have been issued at the time such securities were issued or such options
or rights were issued and for a consideration equal to the consideration, if
any, received by the Corporation for any such securities and related options or
rights (excluding any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any, to be received
by the Corporation (without taking into account potential anti-dilution
adjustments) upon the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each case to be
determined in the manner provided in Section 10(a)(viii)(C) and Section 10(a)(viii)(D)).


 


(3)           In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to this Corporation upon
exercise of such options or rights or upon conversion of or exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the anti­dilution provisions thereof, the Conversion Price for
the Series B Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities, shall be recomputed to
reflect such change, but no further adjustment shall be made for the actual
issuance of Common Stock or any payment of such consideration upon the exercise
of any such options or rights or the conversion or exchange of such securities.


 


(4)           Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price for the Series B Preferred Stock, to the extent in any
way affected by or computed using such options, rights or securities or options
or rights related to such securities, shall be recomputed to reflect the
issuance of only the number of shares of Common Stock (and convertible or
exchangeable securities that remain in effect) actually issued upon the
exercise of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of the options or rights related to such
securities (but giving effect to any intervening adjustments that may have been
made with respect to the Series B Preferred Stock).


 


(5)           The number of shares of Common Stock deemed issued and the
consideration deemed paid therefor pursuant to Section 10(a)(viii)(E)(l) or
Section 10(a)(viii)(E)(2) shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in either Section 10(a)(viii)(E)(3) or
Section 10(a)(viii)(E)(4).


 


(F)           “Additional Stock”
shall mean any shares of Common Stock issued (or deemed to have been issued
pursuant to Section 10(a)(viii)(E)) by this Corporation after the Filing
Date for so long as any shares of Series B Preferred Stock remain
outstanding, other than:


 


(1)           shares of Common Stock or Common Stock Equivalents issued
pursuant to an event or transaction described in Section 10(a)(i) or Section 10(a)(ii);


 


(2)           shares of Common Stock issued pursuant to an event or
transaction described in Section 10(c)(iii);


 


(3)           shares of Common Stock issued or issuable upon conversion
of shares of Series B Preferred Stock;


 


A-13

















 


(4)           shares of Common Stock issued (or deemed to have been issued
pursuant to Section 10(a)(viii)(E)) in connection with a Reorganization
Event;


 


(5)           shares of Common Stock issued or issuable upon conversion
of shares of Series C Preferred Stock.


 


(b)           The Corporation may make such decreases in the Conversion
Price, in addition to any other decreases required by this Section 10, if
the Board of Directors deems it advisable to avoid or diminish any income tax
to holders of the Common Stock resulting from any dividend or distribution of
shares of Common Stock (or issuance of rights or warrants to acquire shares of
Common Stock) or from any event treated as such for income tax purposes or for
any other reason.


 


(c)           (i)            All
adjustments to the Conversion Price shall be calculated to the nearest 1/10 of
a cent. No adjustment in the Conversion Price shall be required if such
adjustment would be less than $0.01; provided, that any adjustments which by
reason of this subparagraph are not required to be made shall be carried
forward and taken into account in any subsequent adjustment; provided further
that on the applicable Conversion Date adjustments to the Conversion Price will
be made with respect to any such adjustment carried forward and which has not
been taken into account before such date.


 


(ii)           No adjustment to the Conversion Price shall be made if
Holders may participate in the transaction that would otherwise give rise to an
adjustment, as a result of holding the Series B Preferred Stock
(including, without limitation, pursuant to Section 4 hereof), without
having to convert the Series B Preferred Stock, as if they held the full
number of shares of Common Stock into which a share of the Series B
Preferred Stock may then be converted.


 


(iii)          The Conversion Price shall not be adjusted:


 


(A)          with respect to a Permitted Rights Offering;


 


(B)           upon the issuance of any shares of Common Stock pursuant
to any present or future plan providing for the reinvestment of dividends or
interest payable on the Corporation’s securities and the investment of
additional optional amounts in shares of Common Stock under any such plan;


 


(C)           upon the issuance of any shares of Common Stock or rights,
options or warrants to purchase those shares pursuant to any present or future
employee, director or consultant benefit plan, compensation plan or program of
or assumed by the Corporation or any of its subsidiaries (including the
Corporation’s 1994 Tandem Stock Option Plan and Amended and Restated 2004
Equity Plan);


 


(D)          upon the issuance of any shares of Common Stock pursuant to
any option, warrant (including the warrant issued to the U.S. Treasury on November 21,
2008) and any anti-dilution adjustments required hereunder, right or
exercisable, exchangeable or convertible security outstanding as of the date
shares of the Series B Preferred Stock were first issued and not
substantially amended thereafter;


 


(E)           for accrued and unpaid dividends on the Series A
Preferred Stock, the Series B Preferred Stock or the Series C
Preferred Stock.


 


(d)           Whenever the Conversion Price is to be adjusted in
accordance with Section 10(a) or Section 10(b), the Corporation
shall: (i) compute the Conversion Price in accordance with Section 10(a) or
Section 10(b), taking into account the $0.01 threshold set forth in Section 10(c) hereof;
(ii) as soon as practicable following the occurrence of an event that
requires an adjustment to the Conversion Price pursuant to Section 10(a) or
Section 10(b), taking into account the $0.01 threshold set forth in Section 10(c) hereof
(or if the Corporation is not aware of such occurrence, as soon as practicable
after becoming so aware), provide, or cause to be provided, a written notice to
the Holders of the occurrence of such event; and (iii) as soon as
practicable following the determination of the revised Conversion Price in
accordance with Section 10(a) or Section 10(b) hereof,
provide, or cause to be provided, 


 


A-14

















 


a written notice to the Holders setting forth in
reasonable detail the method by which the adjustment to the Conversion Price
was determined and setting forth the revised Conversion Price.


 


Section 11.  Reorganization Events.


 


(a)           In the event that, for so long as any shares of
Series B Preferred Stock remain outstanding, there occurs:


 


(i)            any consolidation, merger or other similar business
combination of the Corporation with or into another Person, in each case
pursuant to which the Common Stock will be converted into cash, securities or
other property of the Corporation or another Person;


 


(ii)           any sale, transfer, lease or conveyance to another Person
of all or substantially all of the property and assets of the Corporation, in
each case pursuant to which the Common Stock will be converted into cash,
securities or other property of the Corporation or another Person;


 


(iii)          any reclassification of the Common Stock into securities
including securities other than the Common Stock; or


 


(iv)          any statutory exchange of the outstanding shares of Common
Stock for securities of another Person (other than in connection with a merger
or acquisition);


 


(any
such event specified in this Section 11(a), a “Reorganization
Event”), then each share of Series B Preferred Stock
outstanding immediately prior to such Reorganization Event shall, at the option
of the Holders, either convert into (the kind of securities, cash and other
property receivable in such Reorganization Event by the Holder (excluding the
counterparty to the Reorganization Event or an Affiliate of such counterparty)
of that number of shares of Common Stock into which the share of Series B
Preferred Stock would then be convertible (such securities, cash and other
property, the “Exchange Property”) plus an
amount in cash equal to any accrued and unpaid dividends on such Series B
Preferred Stock, or be entitled to receive liquidating distributions in
accordance with Section 5 as if such Reorganization Event were a
liquidation of the Corporation.


 


(b)           In the event that holders of the shares of Common Stock
have the opportunity to elect the form of consideration to be received in such
transaction, the Holders shall likewise be allowed to make such an election.


 


(c)           The above provisions of this Section 11 shall
similarly apply to successive Reorganization Events and the provisions of Section 10,
if applicable, shall apply to any shares of capital stock of the Corporation
(or any successor) received by the holders of the Common Stock in any such
Reorganization Event.


 


(d)           The Corporation (or any successor) shall, within seven (7) days
of the consummation of any Reorganization Event, provide written notice to the
Holders of such consummation of such event and of the kind and amount of the
cash, securities or other property that constitutes the Exchange Property.
Failure to deliver such notice shall not affect the operation of this Section 11.


 


(e)           The Corporation shall not enter into any agreement for a
transaction constituting a Reorganization Event unless such agreement does not
interfere with or prevent (as applicable) (i) conversion of the
Series B Preferred Stock into the Exchange Property or (ii) the
ability of Holders to receive, at their option, a liquidating distribution in
accordance with Section 5, in each case, in a manner that is consistent
with and gives effect to this Section 11.


 


Section 12.  Voting Rights.


 


(a)           Holders shall not have any voting rights (including no
right to elect any directors) except (i) as required by applicable law,
and (ii) as provided in Section 12(b).


 


A-15

















 


(b)           Voting Rights.


 


(i)            So long as any shares of Series B Preferred Stock
are outstanding, in addition to any other vote or written consent of
shareholders required by law or by the Articles of Incorporation, the vote or
written consent of the Holders of at least two-thirds of the then outstanding
shares of Series B Preferred Stock (subject to the last paragraph of this Section 12(b)(i))
at the time outstanding and entitled to vote thereon, voting together as a
single class, given in person or by proxy, either in writing without a meeting
or by vote at any meeting called for the purpose, shall be necessary for
effecting or validating the following actions whether or not such approval is
required by California law:


 


(A)          Authorization of Senior
Stock. Any amendment or alteration (including by means of a merger,
consolidation or otherwise) of the Corporation’s Articles of Incorporation
(including this Certificate of Determination) to authorize, or create, or
increase the authorized amount of, any shares of, or any securities convertible
into shares of any class or series of the Corporation’s capital stock ranking
senior to the Series B Preferred Stock in the payment of dividends or in
the distribution of assets on any liquidation, dissolution or winding up of the
Corporation; or


 


(B)           Amendment of Series B
Preferred Stock. Any amendment, alteration or repeal (including by
means of a merger, consolidation or otherwise) of any provision of the
Corporation’s Articles of Incorporation (including this Certificate of
Determination) or the Corporation’s Bylaws that would significantly and
adversely affects the rights or preferences of the Series B Preferred
Stock;


 


provided,
however, that for all purposes of this Section 12(b), (1) any
increase in the amount of the Corporation’s authorized but unissued shares of
preferred stock, (2) any increase in the amount of the Corporation’s
authorized or issued Series B Preferred Stock, and (3) to the extent
allowed by California law, the creation and issuance, or an increase in the
authorized or issued amount, of other series of preferred stock of the
Corporation ranking equally with or junior to the Series B Preferred
Stock, either or both with respect to the payment of dividends (whether such
dividends are cumulative or non-cumulative) and/or the distribution of assets
upon the liquidation, dissolution or winding up of the Corporation, will not,
in and of itself, be deemed to materially and adversely affect the rights,
preferences, privileges or voting powers of the Series B Preferred Stock
and except as otherwise provided under California law, Holders will have no
right to vote solely by such an increase, creation or issuance.


 


(ii)           So long as any shares of Series B Preferred Stock are
outstanding a Holder shall be entitled to vote, with a number of votes equal to
that number of shares of Common Stock into which such Holder’s shares of
Series B Preferred Stock would then be convertible, together with the
holders of Common Stock acting as a single class, in person or by proxy, either
in writing without a meeting or by vote at any meeting called for the purpose,
for effecting or validating any consummation of any Reorganization Event, as
defined in Section 11 above;


 


(iii)          Notwithstanding the foregoing, Holders shall not have any
voting rights if, at or prior to the effective time of the act with respect to
which such vote would otherwise be required, all outstanding shares of
Series B Preferred Stock shall have been converted into shares of Common
Stock.


 


(c)           If the Board of Governors of the Federal Reserve System
determines that the Series B Preferred Stock is classified as “voting
stock” for the purposes of the Bank Holding Company Act of 1956, as amended,
the Holders and the Corporation will make such reasonable modifications to the
voting rights in this Section 12 so that the Series B Preferred Stock
is no longer considered “voting stock.”


 


(d)           Change for Clarification.
Without the vote or written consent of the holders of the Series B
Preferred Stock, so long as such action does not adversely affect the rights,
preferences, privileges and voting powers, and limitations and restrictions
thereof, of the Series B Preferred Stock, the Corporation may amend,
alter, supplement or repeal any terms of the Series B Preferred Stock:


 


(i)            to cure any ambiguity, or to cure, correct or supplement
any provision contained in this Certificate of Determination that may be
ambiguous, defective or inconsistent; or


 


A-16

















 


(ii)           to make any provision with respect to matters or questions
relating to the Series B Preferred Stock that is not inconsistent with the
provisions of this Certificate of Determination.


 


(e)           Procedures for Voting and
Written Consents. The rules and procedures for calling and
conducting any meeting of the holders of Series B Preferred Stock (including,
without limitation, the fixing of a record date in connection therewith), the
solicitation and use of proxies at such a meeting, the obtaining of written
consents and any other aspect or matter with regard to such a meeting or such
written consents shall be governed by the requirements of the Articles of
Incorporation, the Bylaws, applicable law and the Trading Market or other
trading facility, if any, on which the Series B Preferred Stock or Common
Stock is listed or traded at the time.


 


Section 13.  Fractional Shares.


 


(a)           No fractional shares of Common Stock will be issued as a
result of any conversion of shares of Series B Preferred Stock.


 


(b)           In lieu of any fractional share of Common Stock otherwise
issuable in respect of any mandatory conversion pursuant to Section 8
hereof, the Corporation shall pay an amount in cash (computed to the nearest
cent) equal to the fair value of such fraction, which fair value shall be
determined based upon the same fraction of the Closing Price of the Common
Stock determined as of the second Trading Day immediately preceding the
applicable Conversion Date.


 


(c)           If more than one share of the Series B Preferred
Stock is surrendered for conversion at one time by or for the same Holder, the
number of full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of the Series B
Preferred Stock so surrendered.


 


Section 14.  Reservation of Common Stock.


 


(a)           The Corporation shall at all times reserve and keep available
out of its authorized and unissued Common Stock solely for issuance upon the
conversion of shares of Series B Preferred Stock as provided in this
Certificate of Determination free from any preemptive or other similar rights,
such number of shares of Common Stock as shall from time to time be issuable
upon the conversion of all the shares of Series B Preferred Stock
(assuming receipt of the Shareholder Approval and, if necessary, regulatory
approvals), then outstanding, based on the Applicable Conversion Price. For
purposes of this Section 14(a), the number of shares of Common Stock that
shall be deliverable upon the conversion of all outstanding shares of
Series B Preferred Stock shall be computed as if at the time of
computation all such outstanding shares were held by a single Holder and there
was no regulatory impediment to such conversion.


 


(b)           All shares of Common Stock delivered upon conversion of
the Series B Preferred Stock shall be duly authorized, validly issued,
fully paid and non-assessable, free and clear of all liens, claims, security
interests and other encumbrances.


 


(c)           Prior to the delivery of any securities that the
Corporation shall be obligated to deliver upon conversion of the Series B
Preferred Stock, the Corporation shall use its reasonable best efforts to
comply with all federal and state laws and regulations thereunder requiring the
registration of such securities with, or any approval of or consent to the
delivery thereof by, any governmental authority.


 


(d)           The Corporation hereby covenants and agrees that it will
list and keep listed on the Trading Market, so long as the Common Stock shall
be so listed on the Trading Market, all the Common Stock issuable upon
conversion of the Series B Preferred Stock.


 


Section 15.  Limitations on Beneficial
Ownership.  Notwithstanding
anything to the contrary contained herein, if the number of shares to be issued
to a Holder of Series B Preferred Stock upon a conversion to Common Stock
would cause the Holder, together with any holdings of Common Stock already held
directly or indirectly by the Holder, or by any other Person whose Common Stock
would be aggregated with such Holder’s Common Stock for purposes of any bank
regulation, to (i) require prior approval of any banking regulator to
acquire those shares, 


 


A-17

















 


(ii) violate any bank regulation, or (iii) collectively
be deemed to own, control or have the power to vote securities which (assuming,
for this purpose only, full conversion and/or exercise of such securities by
the Holder) would represent more than 9.9% of the voting securities of the
Corporation outstanding at such time (each, a “Violation”),
the Corporation will not issue shares of Common Stock to the extent, and only
to the extent, such issuance would result in a Violation until the shares of
Common Stock may be issued without causing a Violation (the third Business Day
following the date such shares may be issued without causing a Violation, the “Section 15 Conversion Date”),
and then only in accordance with the terms and conditions of any required
approvals. Any issuance of shares of Common Stock that would result in a
Violation shall be void ab initio.  By
accepting ownership of the Series B Preferred Stock, and as a condition to
the Corporation’s obligation to issue Common Stock upon conversion or to pay
any further dividends to such Holder, each Holder agrees (i) to provide
the Corporation all such customary and necessary information and documents as
the Corporation may reasonably require in order for the Corporation to
determine the status of compliance with any potential banking regulatory
approval requirements; provided, that such Holder shall not be obligated to
provide any information, the disclosure of which either (x) is prohibited
by applicable law or contract (and such Holder shall not be obligated to seek
the consent of any person to such disclosure) or (y) in the reasonable
judgment of such Holder’s investment adviser, would be adverse to the interests
of such Holder or such investment adviser or their respective partners or
clients, and (ii) that the Holder shall be solely responsible at the
Holder’s sole expense for obtaining any such approvals, but shall keep the
Corporation fully informed as to the status of the Holder’s efforts to obtain
approvals and the resolution of any applications for approval. To the extent
such approvals are not obtained, the shares of Series B Preferred Stock
that are not convertible shall remain outstanding and accrue dividends in
accordance with the provisions of Section 4. Notwithstanding any other
provision of this Certificate of Determination (as it may hereafter be amended)
or of the Series B Preferred Stock, during any period of delay beyond the
Mandatory Conversion Date because of the need for a regulatory approval as
described in this Section 15, the Corporation shall not be obligated to
pay any damages for delay in issuance and delivery of the Common Stock.


 


Section 16.  Replacement Certificates.


 


(a)           The Corporation shall replace any mutilated certificate at
the Holder’s expense upon surrender of that certificate to the Corporation. The
Corporation shall replace certificates that become destroyed, stolen or lost at
the Holder’s expense upon delivery to the Corporation of satisfactory evidence
that the certificate has been destroyed, stolen or lost, together with any
indemnity that may be required by the Corporation.


 


(b)           The Corporation shall not be required to issue any
certificates representing the Series B Preferred Stock on or after the
Mandatory Conversion Date. In place of the delivery of a replacement
certificate following the Mandatory Conversion Date, the Corporation, upon
delivery of the evidence and indemnity described in clause (a) above,
shall deliver the shares of Common Stock pursuant to the terms of the
Series B Preferred Stock formerly evidenced by the certificate.


 


Section 17.  Miscellaneous.


 


(a)           All notices referred to herein shall be in writing, and,
unless otherwise specified herein, all notices hereunder shall be deemed to
have been given upon the earlier of receipt thereof or five (5) Business
Days after the mailing thereof if sent by registered or certified mail (unless
first-class mail shall be specifically permitted for such notice under the
terms of this Certificate of Determination) with postage prepaid, addressed: (i) if
to the Corporation, to its office at 150 Almaden Boulevard, San Jose,
California 95113, Attention: President and Chief Executive Officer, with a copy
to the Corporation’s Corporate Secretary, or (ii) if to any Holder, to
such Holder at the address of such Holder as listed in the stock record books
of the Corporation, or (iii) to such other address as the Corporation or
any such Holder, as the case may be, shall have designated by notice similarly given.


 


(b)           The Corporation shall pay any and all stock transfer and
documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of Series B Preferred Stock or shares of Common Stock
or other securities issued on account of Series B Preferred Stock pursuant
hereto or certificates representing such shares or securities. The Corporation
shall not, however, be required to pay any such tax that may be payable in
respect of any transfer involved in the issuance or delivery of shares of
Series B Preferred Stock or Common Stock or other securities in a name
other than that in which the shares of Series B Preferred Stock with
respect to which such shares or other securities are issued or delivered were
registered, or in respect of any payment to any Person 


 


A-18

















 


other than a payment to the registered holder
thereof, and shall not be required to make any such issuance, delivery or
payment unless and until the Person otherwise entitled to such issuance,
delivery or payment has paid to the Corporation the amount of any such tax or
has established, to the satisfaction of the Corporation, that such tax has been
paid or is not payable.


 


(c)           All payments on the shares of Series B Preferred Stock
shall be subject to withholding and backup withholding of tax to the extent
required by applicable law, subject to applicable exemptions, and amounts
withheld, if any, shall be treated as received by the holders thereof.


 


(d)           No share of Series B Preferred Stock shall have any
rights of preemption whatsoever under this Certificate of Determination as to
any securities of the Corporation, or any warrants, rights or options issued or
granted with respect thereto, regardless of how such securities, or such warrants,
rights or options, may be designated issued or granted.


 


(e)           The shares of Series B Preferred Stock shall not have
any voting powers, preferences or relative, participating, optional or other
rights, or qualifications, limitations or restrictions thereof, other than as
set forth herein or in the Corporation’s Articles of Incorporation or as
provided by applicable law.


 


(f)            The Corporation covenants not to treat the Series B
Preferred Stock as preferred stock for purposes of Section 305 of the Internal
Revenue Code of 1986, as amended, except as otherwise required by applicable
law.


 


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[SIGNATURE PAGE FOLLOWS]


 


A-19

















 


We
further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.


 


 


	
   

  	
   

  
	
   

  	
  Lawrence
  McGovern,

  
	
   

  	
  Executive
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Debbie
  Reuter,

  
	
   

  	
  Secretary

  
	
   

  	
   

  
	
  Date:
  June 17, 2010.

  	
   

  



 


Certificate of Determination — Series B


 


S-1
















 


Exhibit B


 


Series C Certificate of Determination


 

















 


CERTIFICATE OF DETERMINATION


 


OF


 


SERIES C CONVERTIBLE


 


PERPETUAL PREFERRED STOCK


 


OF


 


HERITAGE COMMERCE CORP


 


Pursuant
to Section 401 of the Corporations Code of the State of California:


 


We,
Lawrence McGovern, Executive Vice-President, and Debbie Reuter, Secretary, of
Heritage Commerce Corp, a corporation organized under the laws of the State of
California (hereinafter called the “Corporation”),
do hereby certify as follows:


 


K.            On June 17, 2010, the Board of
Directors of the Corporation adopted a resolution designating 21,050 shares of
preferred stock as Series C Convertible Perpetual Preferred Stock.


 


L.             No shares of Series C Convertible
Perpetual Preferred Stock have been issued.


 


M.           Pursuant to the authority conferred
upon the Board of Directors by the Articles of Incorporation of the
Corporation, as amended, the following resolution was duly adopted by the Board
of Directors on June 17, 2010, creating the series of preferred stock
designated as Series C Convertible Perpetual Preferred Stock:


 


RESOLVED,
that pursuant to the provisions of the Articles of Incorporation of the
Corporation, as amended, and applicable law, a series of preferred stock of the
Corporation be and hereby is created, and that the designation and number of
shares of such series, and the voting and other powers, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations and restrictions thereof, of the shares of such series are as follows:


 


Section 18.  Designation.  There is
hereby created out of the authorized and unissued shares of preferred stock of
the Corporation a series of preferred stock designated as the “Series C Convertible Perpetual Preferred Stock” (the “Series C Preferred Stock”). The
number of shares constituting such series shall be 21,050. The Series C
Preferred Stock shall have no par value per share.


 


Section 19.  Ranking. The Series C Preferred Stock will, with
respect to dividend rights and rights on liquidation, winding up and
dissolution, rank (i) on a parity with the Corporation’s Series A Fixed Rate
Cumulative Perpetual Stock issued on November 21, 2008 (“Series A
Preferred Stock”), and Series B Mandatory Convertible
Cumulative Perpetual Preferred Stock (“Series B Preferred
Stock”), and with each class or series of equity securities of
the Corporation the terms of which do not expressly provide that such class or
series will rank senior or junior to the Series C Preferred Stock as to
dividend rights and rights on liquidation, winding-up and dissolution of the
Corporation (collectively referred to as “Parity Securities”),
and (ii) senior to the Corporation’s common stock, no par value per share (the “Common Stock”), and each other class
or series of capital stock of the Corporation outstanding or established on or
after the Effective Date by the Corporation the terms of which do not expressly
provide that it ranks on a parity with or senior to the Series C Preferred
Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the Corporation (collectively referred to as “Junior Securities”). The Corporation
has the power to authorize and/or issue additional shares or classes or series
of Junior Securities or Parity Securities without the approval of the Holders;
provided, however, that for as long as the Series C Preferred Stock
remains outstanding, no preferred stock of the Corporation that would rank
senior to the Series C Preferred Stock may be issued without, in each case, the
express approval of the Holders of at least two-thirds of the issued and
outstanding shares of Series C Preferred Stock voting as a single class.


 


B-1

















 


Section 20.  Definitions. The following initially capitalized terms shall
have the following meanings, whether used in the singular or the plural:


 


(a)           “Additional Stock” has the meaning
set forth in Section 10(a)(viii)(F).


 


(b)           “Affiliate” of any specified Person
means any other Person directly or indirectly controlling or controlled by or
under common control with such specified Person. For the purposes of this
definition, “control” when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms “controlling” and “controlled” have meanings
correlative to the foregoing.


 


(c)           “Applicable Conversion Price” means
the Conversion Price in effect at any given time.


 


(d)           “Business Day” means any day that is
not Saturday or Sunday and that, in the City of New York and in the State of
California, is not a day on which banking institutions generally are authorized
or obligated by law or executive order to be closed.


 


(e)           “Certificate of Determination” means
this Certificate of Determination of Heritage Commerce Corp, dated
June 17, 2010.


 


(f)            “Closing Price” of the Common Stock
(or other relevant capital stock or equity interest) on any date of
determination means the closing sale price or, if no closing sale price is
reported, the last reported sale price of the shares of the Common Stock (or
other relevant capital stock or equity interest) on the NASDAQ Global Select
Market on such date. If the Common Stock (or other relevant capital stock or
equity interest) is not traded on the NASDAQ Global Select Market on any date
of determination, the Closing Price of the Common Stock (or other relevant
capital stock or equity interest) on such date of determination means the closing
sale price as reported in the composite transactions for the principal U.S.
national or regional securities exchange on which the Common Stock (or other
relevant capital stock or equity interest) is so listed or quoted, or, if no
closing sale price is reported, the last reported sale price on the principal
U.S. national or regional securities exchange on which the Common Stock is so
listed or quoted, or if the Common Stock (or other relevant capital stock or
equity interest) is not so listed or quoted on a U.S. national or regional
securities exchange, the last quoted bid price for the Common Stock (or other
relevant capital stock or equity interest) in the over-the-counter market as
reported by Pink OTC Markets Inc. or similar organization, or, if that bid
price is not available, the market price of the Common Stock (or other relevant
capital stock or equity interest) on that date as determined by a nationally
recognized independent investment banking firm retained by the Corporation for
this purpose, subject to the joint approval of the Board of Directors of the
Corporation and the Holders.  The
Corporation shall cause at its expense the investment bank to perform the
determinations and notify the Corporation and the Holders of the results no
later than ten Business Days from the time it receives the engagement. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination or other similar transaction during the applicable
calculation period.


 


For
purposes of this Certificate of Determination, all references herein to the “Closing Price” and “last reported sale price” of the
Common Stock (or other relevant capital stock or equity interest) on the NASDAQ
Global Select Market shall be such closing sale price and last reported sale
price as reflected on the website of the NASDAQ Global Select Market
(www.nasdaq.com) and as reported by Bloomberg Professional Service; provided
that in the event that there is a discrepancy between the closing price and the
last reported sale price as reflected on the website of the NASDAQ Stock Market
and as reported by Bloomberg Professional Service, the closing sale price and
the last reported sale price on the website of the NASDAQ Stock Market shall
govern.


 


(g)           “Common Stock” has the meaning set
forth in Section 2.


 


(h)           “Common Stock Equivalents” means
securities representing rights convertible into or exchangeable for, or
entitling the holder thereof to purchase or receive directly or indirectly,
shares of Common Stock.


 


B-2

















 


(i)            “Conversion Price” means for each
share of Series C Preferred Stock, $3.75; provided that if the Shareholder
Approval are not obtained by the six month anniversary of the Effective Date,
the Conversion Price shall be reduced by ten percent (10%) (subject to further
adjustment or limitation from time to time in a manner consistent with the
provisions of Section 10).


 


(j)            “Corporation” means Heritage Commerce Corp, a California
corporation.


 


(k)           “Current Market Price” means, on any
date, the average of the daily Closing Price per share of the Common Stock on
each of the five consecutive Trading Days preceding the earlier of the day
before the date in question and the day before the Ex-Date with respect to the
issuance or distribution giving rise to an adjustment to the Conversion Price
pursuant to Section 10.


 


(l)            “Distributed Property” has the
meaning set forth in Section 10(a)(iv).


 


(m)          “Distribution” has the meaning set
forth in Section 4(c).


 


(n)           “Dividend Rate” means for purposes of
Section 4(b) an annual rate equal to twenty percent (20%) per annum.


 


(o)           “Effective Date” means the date on
which shares of the Series C Preferred Stock are first issued.


 


(p)           “Exchange Property” has the meaning
set forth in Section 11(a).


 


(q)           “Ex-Date”, when used with respect to
any issuance or distribution, means the first date on which the Common Stock
trades without the right to receive the issuance or distribution giving rise to
an adjustment to the Conversion Price pursuant to Section 10.


 


(r)            “Filing Date” has the meaning set
forth in Section 10(a)(viii)(A).


 


(s)           “First Dilutive Issuance” has the
meaning set forth in Section 10(a)(viii)(A).


 


(t)            “Holder” means the Person in whose
name the shares of the Series C Preferred Stock are registered, which may be
treated by the Corporation as the absolute owner of the shares of Series C
Preferred Stock for the purpose of making payment and settling the related
conversions and for all other purposes.


 


(u)           “Junior Securities” has the meaning
set forth in Section 2.


 


(v)           “Liquidation Preference” means, as to
the Series C Preferred Stock, $1,000 per share (as adjusted for any split,
subdivision, combination, consolidation, recapitalization or similar event with
respect to the Series C Preferred Stock).


 


(w)          “Mandatory Conversion Date” means,
with respect to shares of Series C Preferred Stock of any Holder, at any time
following receipt of the Shareholder Approval and the date of the consummation
of the transfer by such Holder of shares of Series C Preferred Stock to a
non-affiliate in a Widely Dispersed Offering.


 


(x)            “Notice of Mandatory Conversion” has
the meaning set forth in Section 9(a).


 


(y)           “Parity Securities” has the meaning
set forth in Section 2.


 


(z)            “Permitted Rights Offering” means an
offering of up to $10 million of aggregate offering price of Common Stock
pursuant to subscription rights distributed pro rata to the then existing
holders of record of Common Stock at a price per share of Common Stock not less
than $3.75, and the associated declaration, issuance and exercise of the
subscription rights with respect to such offering and shares of Common Stock
issuable in connection with the exercise of any such rights pursuant to the
terms of the Securities Purchase Agreement.


 


B-3

















 


(aa)         “Person” means a legal person,
including any individual, corporation, estate, partnership, joint venture,
association, joint-stock company, limited liability company or trust.


 


(bb)         “Series A Preferred Stock” has
the meaning set forth in Section 2.


 


(cc)         “Series B Preferred Stock” has
the meaning set forth in Section 2.


 


(dd)         “Series C Preferred Stock” has the
meaning set forth in Section 1.


 


(ee)         “Record Date” has the meaning set
forth in Section 4(a)(iii).


 


(ff)           “Reorganization Event” has the
meaning set forth in Section 11(a).


 


(gg)         “Section 4(b) Dividend Payment Date”
has the meaning set forth in Section 4(b)(i).


 


(hh)         “Section 4(b) Dividend Period” has
the meaning set forth in Section 4(b)(ii).


 


(ii)           “Securities Purchase Agreement” means
the agreement by and among the Corporation and the purchasers named therein
dated June 18, 2010.


 


(jj)           “Shareholder Approval” means the vote
of a majority of the Common Stock present and voting and the vote of at least a
majority of the outstanding shares of the Series C Preferred Stock to
approve the issuance of Common Stock upon conversion of the Series C Preferred
Stock for purposes of Rule 5635 of the NASDAQ Stock Market Rules.


 


(kk)         “Subsequent Dilutive Issuance” has
the meaning set forth in Section 10(a)(viii)(A).


 


(ll)           “Trading Day” means a day on which
the shares of Common Stock:


 


(i)            are
not suspended from trading on any national or regional securities exchange or
association or over-the-counter market at the close of business; and


 


(ii)           have
traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of the Common Stock.


 


(mm)       “Trading Market” means whichever of
the New York Stock Exchange, the NYSE Amex, the NASDAQ Global Select Market,
the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on
which the Common Stock is listed or quoted for trading on the date in question.


 


(nn)         “Voting Securities” means, at any
time, shares of any class of capital stock of this Corporation that are
entitled to vote generally in the election of directors.


 


(oo)         “Widely Dispersed Offering” means (a)
a widespread public distribution, including pursuant to a registration statement
filed with and declared effective by the SEC or pursuant to Rule 144 under the
Securities Act, (b) a transfer in which no transferee (or group of associated
transferees ) after giving effect to such transfer, would own more than 2% of
any class of Voting Securities or (c) a transfer to a transferee that controls
or is acquiring control of more than 50% of the Voting Securities.


 


Section 21.  Dividends.


 


(a)           From
and after the Effective Date, and when as declared by the Board of Directors or
a duly authorized committee of the Board of Directors, out of funds legally
available thereafter, the Corporation pays dividends in cash or shares of
Common Stock (other than a Permitted Rights Offering), then the Corporation
shall pay a similar dividend in cash or shares of Common Stock or make a
similar distribution of shares of Common Stock based on the number of shares of
Common Stock that the shares of Series C Preferred Stock are then 


 


B-4

















 


convertible
on the applicable record date for such distribution in accordance with
Section 4(a), provided, however, that prior to the Shareholder Approval,
Holders shall be entitled to cumulative dividends of the type and in the
amounts determined as set forth in Section 4(b).


 


(b)           From
and after the Effective Date and prior to the Shareholder Approval, the Holders
shall be entitled to receive, only if, when and as declared by the Board of
Directors or a duly authorized committee of the Board of Directors, out of
funds legally available therefor, cumulative dividends of the type and in the
amounts determined as set forth in this Section 4(b), and no more, provided,
however, that notwithstanding any other provision in this Section 4 other than
Section 4(c), if the Shareholder Approval occurs before the six month
anniversary of the Effective Date, then no accrued dividends shall be payable
under this Section 4(b).


 


(i)            Commencing
on the Effective Date, dividends shall accrue and be payable semi-annually in
arrears with the first such dividend payable on the six month anniversary of
the Effective Date and continuing on each six (6) month anniversary thereafter
(each, a “Section 4(b) Dividend Payment Date”)
or, if any such day is not a Business Day, the next Business Day, if, when and
as declared by the Board of Directors or a duly authorized committee of the
Board of Directors. Dividends payable pursuant to this Section 4(b), if, when
and as declared by the Board of Directors or a duly authorized committee of the
Board of Directors, will be, for each outstanding share of Series C Preferred
Stock, payable in cash at an annual rate equal to the Dividend Rate multiplied
by the sum of (A) the Liquidation Preference plus (B) all accrued and unpaid
dividends for any prior Section 4(b) Dividend Period that are payable on such
share of Series C Preferred Stock, payable in cash.


 


(ii)           Dividends
payable pursuant to this Section 4(b) will be computed on the basis of a
360-day year of twelve 30-day months and, for any Section 4(b) Dividend Period
greater or less than a full Section 4(b) Dividend Period, will be computed
on the basis of the actual number of days elapsed in the period divided by 360.
Each period from and including a Section 4(b) Dividend Payment Date to but
excluding the following Section 4(b) Dividend Payment Date is herein
referred to as a “Section 4(b) Dividend Period”.


 


(iii)          Each
dividend will be payable to Holders of record as they appear in the records of
the Corporation on the applicable record date (each, a “Record
Date”), which with respect to dividends payable pursuant to this
Section 4(b), shall be on the fifteenth day of the month immediately prior to
the month in which the relevant Section 4(b) Dividend Payment Date occurs.


 


(iv)          Dividends
on the Series C Preferred Stock pursuant to this Section 4(b) are
cumulative. To the extent that the Board of Directors does not declare and pay
dividends on the Series C Preferred Stock for a Section 4(b) Dividend
Period prior to the related Section 4(b) Dividend Payment Date, in full or
otherwise, such unpaid dividend shall accrue and shall cumulate from such
scheduled Section 4(b) Dividend Payment Date, shall compound on each
subsequent Section 4(b) Dividend Payment Date and shall be payable
semi-annually in arrears on each subsequent Section 4(b) Dividend Payment
Date. As used herein, the term “accrued”
includes both accrued and accumulated dividends.


 


(v)           So
long as any shares of Series C Preferred Stock remain outstanding, if all
dividends on all outstanding shares of the Series C Preferred Stock for any
Section 4(b) Dividend Period have not been declared and paid, or declared
and funds set aside therefor, the Corporation shall not (x) declare or pay
dividends with respect to, or make any distributions on, or, directly or indirectly,
redeem, purchase or acquire any of its Junior Securities or (y) directly or
indirectly, redeem, purchase or acquire any of its Parity Securities, other
than, in each case, (i) redemptions, purchases or other acquisitions of Junior
Securities or Parity Securities in connection with any employment contract,
benefit plan or other similar arrangement with or for the benefit of any one or
more employees, officers, directors or consultants or in connection with a
dividend reinvestment plan, (ii) any declaration of a dividend in connection
with any shareholders’ rights plan, or the issuance of rights, stock or other
property under any shareholders’ rights plan, or the redemption or repurchase
of rights pursuant thereto, (iii) conversions or exchanges of Junior Securities
or Parity Securities for Junior Securities or Parity Securities, respectively,
and (iv) any purchase of fractional interests in shares of the Corporation’s
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the securities being converted or exchanged. If dividends payable
pursuant to Section 4(b) for any Section 4(b) Dividend Payment Date are
not paid in full, or declared and funds set aside therefor on the shares of the
Series C Preferred Stock and there are issued and outstanding shares of Parity
Securities with the same Section 4(b) Dividend Payment Date (or, in the case of
Parity Securities having dividend 


 


B-5

















 


payment
dates different from the Section 4(b) Dividend Payment Dates, on a dividend
payment date falling within a Section 4(b) Dividend Period applicable to such
Section 4(b) Dividend Payment Date), then all dividends declared on shares of
the Series C Preferred Stock and such Parity Securities on such date or dates,
as the case may be, shall be declared pro rata so that the respective amounts
of such dividends shall bear the same ratio to each other as full semi-annual
dividends per share payable on the shares of the Series C Preferred Stock
pursuant to this Section 4(b) and all such Parity Securities otherwise payable
on such Section 4(b) Dividend Payment Date (or, in the case of Parity
Securities having dividend payment dates different from the Section 4(b)
Dividend Payment Dates, on a dividend payment date falling within a Section
4(b) Dividend Period applicable to such Section 4(b) Dividend Payment Date)
(subject to such dividends on such Parity Securities having been declared by
the Board of Directors out of legally available funds and including, in the
case of any such Parity Securities that bear cumulative dividends, all accrued
and unpaid dividends) bear to each other.


 


(vi)          If
the Shareholder Approval are obtained by the Corporation on or prior to the
Record Date for any declared dividend applicable to any Section 4(b) Dividend
Period, the Holder of such share of Series C Preferred Stock will have the
right to receive accrued dividends on the Series C Preferred Stock prior to the
Shareholder Approval with respect to such Section 4(b) Dividend Period,
and this shall not affect any rights to receive any accrued and unpaid
dividends on the Series C Preferred Stock attributable to any Section 4(b)
Dividend Period completed prior to such Record Date. If after the Record Date
for any declared dividend applicable to any Section 4(b) Dividend Period and
prior to the relevant Section 4(b) Dividend Payment Date, such Holder shall
receive that dividend on the relevant Section 4(b) Dividend Payment Date if
such Holder was the Holder of record on the Record Date for that dividend.


 


(vii)         Notwithstanding
anything contained in this Section 4(b) to the contrary, if the
Shareholder Approval are obtained by the Corporation before the six month
anniversary the Effective Date then no accrued dividends payable under the terms
of this Section 4(b) shall be payable.


 


(c)           Subject
to the limitations of Section 4(b)(v), if applicable, so long as any shares of
Series C Preferred Stock are outstanding, the Corporation shall not declare,
pay or set apart for payment any dividend or make any Distribution on any
Common Stock, unless at the time of such dividend or Distribution the
Corporation simultaneously pays a dividend or makes a Distribution on each
outstanding share of Series C Preferred Stock in the same form of consideration
as received by the holders of the Common Stock in an amount equal to the
product of (i) the dividend payable or Distribution to be made on each share of
Common Stock and (ii) the number of shares of Common Stock issuable upon
conversion of a share of Series C Preferred Stock (assuming receipt of the
Shareholder Approval and, if necessary, regulatory approvals), calculated on
the record date for determination of holders entitled to receive such dividend
or Distribution. For purposes hereof, “Distribution”
shall mean the transfer of cash, securities or other assets or property,
including, without limitation, evidences of indebtedness, shares of capital
stock or securities (including, without limitation, any dividend or
distribution of (i) shares of capital stock of any class or series, or similar
equity interests, of or relating to a subsidiary or other business unit in a “spin-off”
transaction or (ii) rights or warrants to purchase shares of Common Stock
(other than rights issued pursuant to a shareholders’ rights plan, a dividend
reinvestment plan, other similar plans or a Permitted Rights Offering), without
consideration, whether by way of dividend or otherwise.


 


Section 22.  Liquidation.


 


(a)           Subject
to Section 5(b), in the event the Corporation voluntarily or involuntarily
liquidates, dissolves or winds up, the Holders at the time shall be entitled to
receive liquidating distributions per share of Series C Preferred Stock in an
amount equal to the Liquidation Preference, plus an amount equal to (i) any accrued
and unpaid dividends (regardless of whether any dividends are actually
declared) and (ii) any authorized and declared but unpaid dividends thereon, to
and including the date of such liquidation, out of assets legally available for
distribution to the Corporation’s shareholders, before any distribution of
assets is made to the holders of the Common Stock.  After payment of the full amount of such
liquidation distribution, the Holders shall not be entitled to any further
participation in any distribution of assets by the Corporation.


 


(b)           In
the event the Corporation voluntarily or involuntarily liquidates, dissolves or
winds up before the Shareholder Approval, the Holders at the time shall be
entitled to receive, for each share of the Series C Preferred Stock, the sum of
(i) liquidating distributions in an amount equal to the Liquidation Preference,
plus any 


 


B-6

















 


accrued
but unpaid dividends thereon to and including the date of such liquidation, out
of assets legally available for distribution to the Corporation’s shareholders,
before any distribution of assets is made to the holders of the Common Stock or
any other Junior Securities and (ii) after all distributions have been made to
Holders pursuant to clause (i) of this sentence, liquidating distributions, as
determined by the Corporation (or the trustee or other Person or Persons
administering its liquidation, dissolution or winding-up in accordance with
applicable law) as of a date that is at least ten (10) Business Days before the
first liquidating distribution is made on Series C Preferred Stock, that would
be made on the number of shares of Common Stock equal to the Liquidation
Preference divided by the Applicable Conversion Price as if all of the outstanding
shares of Series C Preferred Stock and Series B Preferred Stock had been
converted into Common Stock on such date of determination, out of assets
legally available for distribution to the Corporation’s shareholders,
simultaneous with any distribution of assets made to the holders of the Common
Stock.


 


(c)           In
the event the assets of the Corporation available for distribution to
shareholders upon any liquidation, dissolution or winding-up of the affairs of
the Corporation, whether voluntary or involuntary, shall be insufficient to pay
in full the amounts payable with respect to all outstanding shares of the
Series C Preferred Stock and the corresponding amounts payable on any Parity
Securities, the Holders and the holders of such Parity Securities shall share
ratably in any distribution of assets of the Corporation in proportion to the
full respective liquidating distributions to which they would otherwise be
respectively entitled.


 


(d)           Except
as provided in Section 11, the Corporation’s consolidation or merger with or
into any other entity, the consolidation or merger of any other entity with or
into the Corporation, or the sale of all or substantially all of the
Corporation’s property or business will not constitute its liquidation,
dissolution or winding up.


 


Section 23.  Maturity. The Series C Preferred Stock shall be perpetual
unless converted in accordance with this Certificate of Determination.


 


Section 24.  Redemptions.


 


(a)           Redemption
by the Holder. Holders of Series C Preferred Stock will have no right to
require redemption of any shares of Series C Preferred Stock.


 


(b)           No
Redemption by the Corporation. The Series C Preferred Stock shall not be
redeemable by the Corporation at any time. The Series C Preferred Stock shall
not be subject to any sinking fund or other obligation to redeem, repurchase or
retire the Series C Preferred Stock.


 


Section 25.  Mandatory Conversion. 
Effective as of the close of business on the Mandatory Conversion Date
with respect to the shares of Series C Preferred Stock of a Holder, all such
Holder’s shares of Series C Preferred Stock shall automatically convert into
shares of Common Stock held by the transferee in a Widely Dispersed Public
Offering. The number of shares of Common Stock into which a share of Series C
Preferred Stock shall be convertible shall be determined by dividing (i) the
Liquidation Preference, plus the aggregate sum of all accrued and unpaid
dividends by (ii) the Applicable Conversion Price (subject to the conversion
procedures of Section 9 hereof).  Upon
conversion, the transferee shall receive cash in lieu of fractional shares in
accordance with Section 13 hereof.


 


Section 26.  Conversion Procedures.


 


(a)           Each
Holder shall promptly provide written notice to the Corporation within three
Business Days of its intent to transfer its Series C Preferred Stock in a
Widely Dispersed Offering and, promptly upon receipt of each required
regulatory approval applicable to the transferee, if any, such transferee shall
provide written notice to the Corporation of such receipt.  Upon occurrence of the Mandatory Conversion
Date with respect to shares of Series C Preferred Stock of any Holder, the
Corporation shall provide notice of such conversion to the Holder (such notice
a “Notice of Mandatory Conversion”).  In addition to any information required by
applicable law or regulation, the Notice of Mandatory Conversion with respect
to such Holder shall state, as appropriate:


 


(i)            the
Mandatory Conversion Date applicable to such Holder;


 


B-7

















 


(ii)           the
number of shares of Common Stock to be issued upon conversion of each share of
Series C Preferred Stock held of record by such Holder and subject to such
mandatory conversion;


 


(iii)          the
place or places where certificates for shares of Series C Preferred Stock held
of record by such Holder are to be surrendered for issuance to the transferee
of certificates representing shares of Common Stock; and


 


(iv)          information
concerning the proposed transferee sufficient to allow the Corporation’s
transfer agent to effect issuance of shares of Common Stock to such transferee.


 


(b)           Effective
immediately prior to the close of business on a Mandatory Conversion Date, with
respect to any shares of Series C Preferred Stock to be converted on such Mandatory
Conversion Date, dividends shall no longer be declared on any such shares of
Series C Preferred Stock and such shares of Series C Preferred Stock shall
cease to be outstanding, in each case, subject to the right of the Holder to
receive (i) any accrued and unpaid dividends on such shares to the extent
provided in Section 4 and (ii) any other payments to which such Holder is
otherwise entitled pursuant to Section 11 or Section 13 hereof, as
applicable.


 


(c)           Prior
to the close of business on a Mandatory Conversion Date, with respect to any
share of Series C Preferred Stock to be converted on such Mandatory
Conversion Date, the shares of Common Stock issuable upon conversion thereof or
other securities issuable upon conversion of such share of Series C Preferred
Stock shall not be deemed outstanding for any purpose, and the Holder thereof
shall have no rights with respect to such shares of Common Stock or other
securities issuable upon conversion (including voting rights, rights to respond
to tender offers for the Common Stock or other securities issuable upon
conversion and rights to receive any dividends or other distributions on the
Common Stock or other securities issuable upon conversion) by virtue of holding
such share of Series C Preferred Stock, except to the extent provided in
Section 4(c).


 


(d)           Shares
of Series C Preferred Stock duly converted in accordance with this Certificate
of Determination, or otherwise reacquired by the Corporation, will resume the
status of authorized and unissued preferred stock, undesignated as to series
and available for future issuance. The Corporation may from time to time take
such appropriate action as may be necessary to reduce the authorized number of
shares of Series C Preferred Stock; provided, however, that the Corporation
shall not take any such action if such action would reduce the authorized
number of shares of Series C Preferred Stock below the number of shares of
Series C Preferred Stock then outstanding.


 


(e)           The
Person or Persons entitled to receive the Common Stock and/or cash, securities
or other property issuable upon conversion of Series C Preferred Stock shall be
treated for all purposes as the record holder(s) of such shares of Common Stock
and/or securities as of the close of business on the relevant Mandatory
Conversion Date with respect thereto. In the event that a Holder shall not by
written notice designate the name in which shares of Common Stock and/or cash,
securities or other property (including payments of cash in lieu of fractional
shares) to be issued or paid upon conversion of shares of Series C Preferred
Stock should be registered or paid or the manner in which such shares should be
delivered, the Corporation shall be entitled to withhold issuance of the Common
Stock until some time as the Holder provides the requested information.


 


Section 27.  Anti-Dilution Adjustments.


 


(a)           Prior
to the Corporation obtaining the Shareholder Approval, the Conversion Price
shall be subject to the following adjustments:


 


(i)            Stock Dividends and Distributions. If the Corporation pays
dividends or other distributions on the Common Stock in shares of Common Stock,
then the Conversion Price in effect immediately prior to the Ex-Date for such
dividend or distribution will be multiplied by the following fraction:


 


(1)                                  the numerator
is the number of shares of Common Stock outstanding immediately prior to the
Ex-Date for such dividend or distribution, and


 


B-8
















 


(2)                                  the denominator
is the sum of (1) the number of shares of Common Stock outstanding immediately
prior to the Ex-Date for such dividend or distribution plus (2) the total
number of shares of Common Stock constituting such dividend or distribution.


 


For
the purposes of this Section 10(a)(i), the number of shares of Common Stock at
the time outstanding shall not include shares acquired by the Corporation. If
any dividend or distribution described in this Section 10(a)(i) is declared but
not so paid or made, the Conversion Price shall be readjusted, effective as of
the date the Board of Directors publicly announces its decision not to make
such dividend or distribution, to such Conversion Price that would be in effect
if such dividend or distribution had not been declared (but giving effect to
any intervening adjustments that may have been made with respect to the Series
C Preferred Stock).


 


(ii)           Subdivisions, Splits and Combinations of the Common Stock.
If the Corporation subdivides, splits or combines the shares of Common Stock,
then the Conversion Price in effect immediately prior to the effective date of
such share subdivision, split or combination will be multiplied by the
following fraction:


 


(1)                                  the numerator
is the number of shares of Common Stock outstanding immediately prior to the
effective date of such share subdivision, split or combination, and


 


(2)                                  the denominator
is the number of shares of Common Stock outstanding immediately after the
opening of business on the effective date of such share subdivision, split or
combination.


 


For
the purposes of this Section 10(a)(ii), the number of shares of Common Stock at
the time outstanding shall not include shares acquired by the Corporation. If
any subdivision, split or combination described in this Section 10(a)(ii) is
announced but the outstanding shares of Common Stock are not subdivided, split
or combined, the Conversion Price shall be readjusted, effective as of the date
the Board of Directors publicly announces its decision not to subdivide, split
or combine the outstanding shares of Common Stock, to such Conversion Price
that would be in effect if such subdivision, split or combination had not been
announced (but giving effect to any intervening adjustments that may have been
made with respect to the Series C Preferred Stock).


 


(iii)          Issuance of Stock Purchase Rights. If the Corporation issues
to all or substantially all holders of the shares of Common Stock rights or
warrants (other than rights or warrants issued pursuant to a dividend
reinvestment plan or share purchase plan or other similar plans) entitling them
to subscribe for or purchase the shares of Common Stock at less than the
Current Market Price on the date fixed for the determination of shareholders
entitled to receive such rights or warrants, then the Conversion Price in
effect immediately prior to the Ex-Date for such distribution will be
multiplied by the following fraction:


 


(1)                                  the numerator
is the sum of (1) the number of shares of Common Stock outstanding immediately
prior to the Ex-Date for such dividend or distribution plus (2) the number of
shares of Common Stock equal to the aggregate price payable to exercise such
rights or warrants divided by the Current Market Price on the date fixed for
the determination of shareholders entitled to receive such rights or warrants,
and


 


(2)                                  the denominator
is the sum of (1) the number of shares of Common Stock outstanding immediately
prior to the Ex-Date for such dividend or distribution plus (2) the total
number of shares of Common Stock issuable pursuant to such rights or warrants.


 


For
the purposes of this Section 10(a)(iii), the number of shares of Common Stock
at the time outstanding shall not include shares acquired by the Corporation.
The Corporation shall not issue any such rights or warrants in respect of
shares of the Common Stock acquired by the Corporation. In the event that such
rights or warrants described in this Section 10(a)(iii) are not so issued, the
Conversion Price shall be readjusted, effective as of the date 


 


B-9

















 


the
Board of Directors publicly announces its decision not to issue such rights or
warrants, to the Conversion Price that would then be in effect if such issuance
had not been declared (but giving effect to any intervening adjustments that
may have been made with respect to the Series C Preferred Stock). To the extent
that such rights or warrants are not exercised prior to their expiration or
shares of Common Stock are otherwise not delivered pursuant to such rights or
warrants upon the exercise of such rights or warrants, the Conversion Price
shall be readjusted to such Conversion Price that would then be in effect had
the adjustment made upon the issuance of such rights or warrants been made on
the basis of the delivery of only the number of shares of Common Stock actually
delivered (but giving effect to any intervening adjustments that may have been
made with respect to the Series C Preferred Stock). In determining the
aggregate offering price payable for such shares of Common Stock, there shall
be taken into account any consideration received for such rights or warrants
and the value of such consideration (if other than cash, to be determined in
good faith by the Board of Directors). If an adjustment to the Conversion Price
is required under this Section 10(a)(iii), delivery of any additional shares of
Common Stock that may be deliverable upon conversion as a result of an
adjustment required under this Section 10(a)(iii) shall be delayed to the
extent necessary in order to complete the calculations provided in this
Section 10(a)(iii).


 


(iv)          Debt or Asset Distributions. If the Corporation distributes
to all or substantially all holders of shares of Common Stock evidences of
indebtedness, shares of capital stock, securities, cash or other assets
(excluding any dividend or distribution referred to in Section 10(a)(i), any
rights or warrants referred to in Section 10(a)(iii), any dividend or
distribution paid exclusively in cash, any consideration payable in connection
with a tender or exchange offer made by the Corporation or any of its
subsidiaries, and any dividend of shares of capital stock of any class or
series, or similar equity interests, of or relating to a subsidiary or other
business unit in the case of certain spin-off transactions as described below)
(such evidences of indebtedness, shares of capital stock, securities, cash or
other assets, the “Distributed Property”), then
the Conversion Price in effect immediately prior to the Ex-Date for such
distribution will be multiplied by the following fraction:


 


(1)                                  the numerator
is the Current Market Price per share of Common Stock on such date minus the
fair market value of the portion of the distribution applicable to one share of
Common Stock on such date as determined in good faith by the Board of
Directors, and


 


(2)                                  the denominator
is the Current Market Price per share of Common Stock on such date;


 


provided
that, if the fair market value of the portion of the distribution applicable to
one share of Common Stock on such date as determined in good faith by the Board
of Directors is equal to or greater than the Current Market Price per share of
Common Stock on such date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each Holder shall receive on the date on which
the Distributed Property is distributed to holders of Common Stock, for each
share of Series C Preferred Stock, the amount of Distributed Property such
Holder would have received had such Holder’s Series C Preferred Stock been converted
into such number of shares of Common Stock that such Holder’s shares of Series
C Preferred Stock would then be convertible on the Ex-Date for such
distribution.


 


In
a “spin-off,” where the Corporation makes a distribution to all or
substantially all holders of shares of Common Stock consisting of capital stock
of any class or series, or similar equity interests of, or relating to, a
subsidiary or other business unit, the Conversion Price will not be adjusted,
but in lieu of such adjustment each Holder shall receive the same distribution
as a holder of Common Stock would as though such Holder’s shares of Series C
Preferred Stock had been converted into such number of shares of Common Stock
that such Holder’s shares of Series C Preferred Stock would then be
convertible.


 


In
the event that such distribution described in this Section 10(a)(iv) is not so
paid or made, the Conversion Price shall be readjusted, effective as of the
date the Board of Directors publicly announces its decision not to pay or make such
dividend or distribution, to the Conversion Price that would then be in effect
if such dividend or distribution had not been declared (but giving effect to
any intervening adjustments that may have been made with respect to the Series
C Preferred Stock). If an adjustment to the Conversion Price is required under
this Section 10(a)(iv), delivery of any additional shares of Common Stock
that may be deliverable upon conversion as a 


 


B-10

















 


result
of an adjustment required under this Section 10(a)(iv) shall be delayed to the
extent necessary in order to complete the calculations provided for in this
Section 10(a)(iv).


 


(v)           Cash Distributions. If the Corporation makes a distribution
consisting exclusively of cash to all holders of the Common Stock, excluding
(a) any cash dividend or distribution on the Common Stock to the extent a
corresponding cash dividend or distribution pursuant to Section 4 is paid
on the Series C Preferred Stock, (b) any dividend or distribution in connection
with the Corporation’s liquidation, dissolution or winding up, and (c) any
consideration payable in connection with a tender or exchange offer made by the
Corporation or any of its subsidiaries, then in each event, the Conversion
Price in effect immediately prior to the Ex-Date for such distribution will be
multiplied by the following fraction:


 


(1)                                  the numerator
is the Closing Price per share of Common Stock on the Trading Day immediately
preceding the Ex-Date minus the amount per share of Common Stock of the cash
distribution, as determined pursuant to the introduction to this Section
10(a)(v), and


 


(2)                                  the denominator
is the Closing Price per share of Common Stock on the Trading Day immediately
preceding the Ex-Date.


 


In
the event that any distribution described in this Section 10(a)(v) is not so
made, the Conversion Price shall be readjusted, effective as of the date the
Board of Directors publicly announces its decision not to pay such
distribution, to the Conversion Price which would then be in effect if such
distribution had not been declared (but giving effect to any intervening
adjustments that may have been made with respect to the Series C Preferred
Stock).


 


Notwithstanding
the foregoing, if the amount per share of Common Stock of the cash
distribution, as determined pursuant to the introduction to this Section
10(a)(v), is equal to or greater than the Closing Price per share of Common
Stock on the Trading Day immediately preceding the Ex-Date, in lieu of the
foregoing adjustment, adequate provision shall be made so that each Holder
shall have the right to receive on the date on which the relevant cash dividend
or distribution is distributed to holders of Common Stock, for each share of
Series C Preferred Stock, the amount of cash such Holder would have
received had such Holder’s Series C Preferred Stock been converted into such
number of shares of Common Stock that such Holder’s shares of Series C
Preferred Stock would then be convertible on the Ex-Date for such distribution.


 


(vi)          Self Tender Offers and Exchange Offers. If the Corporation
or any of its subsidiaries successfully completes a tender or exchange offer
for the Common Stock where the cash and the value of any other consideration
included in the payment per share of the Common Stock exceeds the Closing Price
per share of the Common Stock on the Trading Day immediately succeeding the
expiration of the tender or exchange offer, then the Conversion Price in effect
at the close of business on such immediately succeeding Trading Day will be
multiplied by the following fraction:


 




	
   

  	
  OS-l x SP

  	
   

  
	
   

  	
  AC + (SP x OS-2)

  	
   

  






where,


 


SP =                                        the Closing Price per share
of Common Stock on the Trading Day immediately succeeding the expiration of the
tender or exchange offer.


 


OS-1 =                            the number of shares of
Common Stock outstanding immediately prior to the expiration of the tender or
exchange offer, including any shares validly tendered and not withdrawn.


 


OS-2 =                            the number of shares of
Common Stock outstanding immediately after the expiration of the tender or
exchange offer, giving effect to consummation of the acquisition of all shares
validly tendered or exchanged (and not withdrawn) in connection with such
tender or exchange.


 


B-11

















 


AC =                                    the aggregate cash and fair
market value of the other consideration payable in the tender or exchange
offer, as determined by the Board of Directors.


 


In
the event that the Corporation, or one of its subsidiaries, is obligated to
purchase shares of Common Stock pursuant to any such tender offer or exchange
offer, but the Corporation, or such subsidiary, is permanently prevented by
applicable law from effecting any such purchases, or all such purchases are
rescinded, then the Conversion Price shall be readjusted to be such Conversion
Price that would then be in effect if such tender offer or exchange offer had
not been made (but giving effect to any intervening adjustments that may have
been made with respect to the Series C Preferred Stock). Except as set forth in
the preceding sentence, if the application of this Section 10(a)(vi) to any
tender offer or exchange offer would result in a decrease in the Conversion
Price, no adjustment shall be made for such tender offer or exchange offer
under this Section 10(a)(vi).


 


(vii)         Rights Plans. To the extent that the Corporation has a
shareholders’ rights plan in effect with respect to the Common Stock on a
Mandatory Conversion Date, upon conversion of any shares of the Series C
Preferred Stock, the transferee will receive, in addition to the shares of
Common Stock, the rights under the rights plan, unless, prior to such Mandatory
Conversion Date, the rights have separated from the shares of Common Stock, in
which case the Conversion Price will be adjusted at the time of separation as
if the Corporation had made a distribution to all holders of the Common Stock
as described in Section 10(a)(iv) above, subject to readjustment in the event
of the expiration, termination or redemption of such rights.


 


(viii)        Other Issuances of Additional Stock.


 


(A)          If
the Corporation shall issue (or be deemed to have issued), after the date of
filing of this Certificate of Determination (the “Filing
Date”), any Additional Stock (as defined below in Section
10(a)(viii)(F)) without consideration or for a consideration per share less
than the Conversion Price for the Series C Preferred Stock in effect
immediately prior to the issuance of such Additional Stock, the Conversion
Price for such series in effect immediately prior to each such issuance of Additional
Stock shall forthwith (except as otherwise provided in this Section
10(a)(viii)) be adjusted to a price equal to (calculated to the nearest cent)
the product obtained by multiplying the Conversion Price for the Series C
Preferred Stock in effect immediately prior to such issuance of Additional
Stock by a fraction, the numerator of which is equal to the sum of (x) the
total number of shares of Common Stock outstanding (including any shares of
Common Stock previously deemed to have been issued pursuant to Section
10(a)(viii)(E)(l) or Section 10(a)(viii)(E)(2) (to the extent not actually
issued)) immediately prior to such issuance of Additional Stock plus (y) the
number of shares of Common Stock that the aggregate consideration received by
this Corporation for such issuance of Additional Stock would purchase at the
Conversion Price for Series C Preferred Stock in effect immediately prior to
such issuance of Additional Stock, and the denominator of which is equal to the
sum of (x) the total number of shares of Common Stock outstanding (including
any shares of Common Stock previously deemed to have been issued pursuant to
Section 10(a)(viii)(E)(l) or Section 10(a)(viii)(E)(2) (to the extent not
actually issued)) immediately prior to such issuance of Additional Stock plus
(y) the number of shares of Additional Stock issued. In the event that the
Corporation issues or sells, or is deemed to have issued or sold, Additional
Stock (the “First Dilutive Issuance”),
then in the event that the Corporation issues or sells, or is deemed to have
issued or sold, Additional Stock other than the First Dilutive Issuance as a
part of the same transaction or series of related transactions as the First
Dilutive Issuance (a “Subsequent Dilutive
Issuance”), then and in each such case upon a Subsequent
Dilutive Issuance, the Conversion Price shall be reduced to the Conversion
Price that would have been in effect had the First Dilutive Issuance and each
Subsequent Dilutive Issuance all occurred on the closing date of the First
Dilutive Issuance.


 


(B)           Except
to the limited extent provided for in Section 10(a)(viii)(E)(3) or Section
10(a)(viii)(E)(4), no adjustment of the Conversion Price for Series C Preferred
Stock pursuant to this subsection (viii) shall have the effect of increasing any
such Conversion Price above the Conversion Price in effect immediately prior to
such adjustment.


 


(C)           In
the case of the issuance of Additional Stock for cash, the consideration shall
be deemed to be the amount of cash paid therefor before deducting any
discounts, commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the issuance
and sale thereof.


 


B-12

















 


(D)          In
the case of the issuance of Additional Stock for a consideration in whole or in
part other than cash, the consideration other than cash shall be deemed to be
the fair value thereof as determined in good faith by the Corporation’s Board
of Directors irrespective of any accounting treatment.


 


(E)           In
the case of the issuance after the Filing Date of (i) options to purchase or
rights to subscribe for Common Stock, (ii) securities by their terms
convertible into or exchangeable for Common Stock or (iii) options to purchase
or rights to subscribe for securities by their terms convertible into or
exchangeable for Common Stock, the following provisions shall apply for all
purposes of this Section 10(a)(viii):


 


i.              The
aggregate maximum number of shares of Common Stock deliverable upon exercise
(assuming the satisfaction of any conditions to exercisability, including
without limitation, the passage of time, but without taking into account
potential anti-dilution adjustments) of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the time such
options or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in Section 10(a)(viii)(C)
and Section 10(a)(viii)(D)) if any, received by the Corporation upon the
issuance of such options or rights plus the minimum exercise price provided in
such options or rights (without taking into account potential anti-dilution
adjustments) for the Common Stock covered thereby.


 


ii.             The
aggregate maximum number of shares of Common Stock deliverable upon conversion
of or in exchange (assuming the satisfaction of any conditions to
convertibility or exchangeability, including without limitation, the passage of
time, but without taking into account potential anti-dilution adjustments) for
any such convertible or exchangeable securities or upon the exercise of options
to purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof shall be deemed to
have been issued at the time such securities were issued or such options or
rights were issued and for a consideration equal to the consideration, if any,
received by the Corporation for any such securities and related options or
rights (excluding any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any, to be received
by the Corporation (without taking into account potential anti-dilution
adjustments) upon the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each case to be
determined in the manner provided in Section 10(a)(viii)(C) and Section
10(a)(viii)(D)).


 


iii.            In
the event of any change in the number of shares of Common Stock deliverable or
in the consideration payable to this Corporation upon exercise of such options
or rights or upon conversion of or exchange for such convertible or
exchangeable securities, including, but not limited to, a change resulting from
the anti­dilution provisions thereof, the Conversion Price for the Series C
Preferred Stock, to the extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to reflect such change, but
no further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.


 


iv.            Upon
the expiration of any such options or rights, the termination of any such rights
to convert or exchange or the expiration of any options or rights related to
such convertible or exchangeable securities, the Conversion Price for the
Series C Preferred Stock, to the extent in any way affected by or computed
using such options, rights or securities or options or rights related to such
securities, shall be recomputed to reflect the issuance of only the number of
shares of Common Stock (and convertible or exchangeable securities that remain
in effect) actually issued upon the exercise of such options or rights, upon
the conversion or exchange of such securities or upon the exercise of the
options or rights related to such securities (but giving effect to any
intervening adjustments that may have been made with respect to the Series C Preferred
Stock).


 


v.             The
number of shares of Common Stock deemed issued and the consideration deemed
paid therefor pursuant to Section 10(a)(viii)(E)(l) or Section
10(a)(viii)(E)(2) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either
Section 10(a)(viii)(E)(3) or Section 10(a)(viii)(E)(4).


 


B-13

















 


(F)           “Additional Stock” shall mean any
shares of Common Stock issued (or deemed to have been issued pursuant to
Section 10(a)(viii)(E)) by this Corporation after the Filing Date, other than:


 


i.              shares
of Common Stock or Common Stock Equivalents issued pursuant to an event or
transaction described in Section 10(a)(i) or Section 10(a)(ii);


 


ii.             shares
of Common Stock issued pursuant to an event or transaction described in Section
10(c)(iii);


 


iii.            shares
of Common Stock issued or issuable upon conversion of shares of Series C
Preferred Stock;


 


iv.            shares
of Common Stock issued (or deemed to have been issued pursuant to Section
10(a)(viii)(E)) in connection with a Reorganization Event; and


 


v.             shares
of Common Stock issued or issuable upon conversion of shares of Series B
Preferred Stock.


 


(b)           The
Corporation may make such decreases in the Conversion Price, in addition to any
other decreases required by this Section 10, if the Board of Directors deems it
advisable to avoid or diminish any income tax to holders of the Common Stock
resulting from any dividend or distribution of shares of Common Stock (or
issuance of rights or warrants to acquire shares of Common Stock) or from any
event treated as such for income tax purposes or for any other reason.


 


(c)           (i)            All adjustments to the Conversion
Price shall be calculated to the nearest 1/10 of a cent. No adjustment in the
Conversion Price shall be required if such adjustment would be less than $0.01;
provided, that any adjustments which by reason of this subparagraph are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment; provided further that on the applicable Mandatory
Conversion Date adjustments to the Conversion Price will be made with respect
to any such adjustment carried forward and which has not been taken into
account before such date.


 


(ii)           No
adjustment to the Conversion Price shall be made if Holders may participate in
the transaction that would otherwise give rise to an adjustment, as a result of
holding the Series C Preferred Stock (including, without limitation, pursuant
to Section 4 hereof), without having to convert the Series C Preferred Stock,
as if they held the full number of shares of Common Stock into which a share of
the Series C Preferred Stock may then be converted.


 


(iii)          The
Conversion Price shall not be adjusted:


 


(A)          with
respect to a Permitted Rights Offering;


 


(B)           upon
the issuance of any shares of Common Stock pursuant to any present or future
plan providing for the reinvestment of dividends or interest payable on the
Corporation’s securities and the investment of additional optional amounts in
shares of Common Stock under any such plan;


 


(C)           upon
the issuance of any shares of Common Stock or rights, options or warrants to
purchase those shares pursuant to any present or future employee, director or
consultant benefit plan, compensation plan or program of or assumed by the
Corporation or any of its subsidiaries (including the Corporation’s 1994 Tandem
Stock Option Plan and Amended and Restated 2004 Equity Plan);


 


(D)          upon
the issuance of any shares of Common Stock pursuant to any option, warrant (including
the Warrant issued to the U.S. Treasury on November 21, 2008) and any
anti-dilution adjustments required thereunder, right or exercisable,
exchangeable or convertible security outstanding as of the date shares of the
Series C Preferred Stock were first issued and not substantially amended
thereafter;


 


B-14

















 


(E)           for
accrued and unpaid dividends on the Series A Preferred Stock, the
Series B Preferred Stock or the Series C Preferred Stock.


 


(d)           Whenever
the Conversion Price is to be adjusted in accordance with Section 10(a) or
Section 10(b), the Corporation shall: (i) compute the Conversion Price in
accordance with Section 10(a) or Section 10(b), taking into account the
$0.01 threshold set forth in Section 10(c) hereof; (ii) as soon as practicable
following the occurrence of an event that requires an adjustment to the
Conversion Price pursuant to Section 10(a) or Section 10(b), taking into
account the $0.01 threshold set forth in Section 10(c) hereof (or if the
Corporation is not aware of such occurrence, as soon as practicable after
becoming so aware), provide, or cause to be provided, a written notice to the
Holders of the occurrence of such event; and (iii) as soon as practicable
following the determination of the revised Conversion Price in accordance with
Section 10(a) or Section 10(b) hereof, provide, or cause to be provided, a
written notice to the Holders setting forth in reasonable detail the method by
which the adjustment to the Conversion Price was determined and setting forth
the revised Conversion Price.


 


(e)           Notwithstanding
anything contained in this Section 10 to the contrary, from and after the
date Corporation obtains the Shareholder Approval, the Corporation shall not
have any obligation to adjust the Conversion Price under the terms of this
Section 10, provided, however, that if the Corporation shall (i)) subdivide its
outstanding shares of Common Stock into a greater number of shares, then the
Corporation shall similarly subdivide its outstanding shares of Series C
Preferred Stock; (ii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock, then the Corporation shall similarly
combine its outstanding shares of Series C Preferred Stock (except for a Permitted
Rights Offering).


 


Section 28.  Reorganization Events.


 


(a)           In
the event that, for so long as any shares of Series C Preferred Stock remain
outstanding, there occurs:


 


(i)            any
consolidation, merger or other similar business combination of the Corporation
with or into another Person, in each case pursuant to which the Common Stock
will be converted into cash, securities or other property of the Corporation or
another Person;


 


(ii)           any
sale, transfer, lease or conveyance to another Person of all or substantially
all of the property and assets of the Corporation, in each case pursuant to
which the Common Stock will be converted into cash, securities or other
property of the Corporation or another Person;


 


(iii)          any
reclassification of the Common Stock into securities including securities other
than the Common Stock; or


 


(iv)          any
statutory exchange of the outstanding shares of Common Stock for securities of
another Person (other than in connection with a merger or acquisition);


 


(any
such event specified in this Section 11(a), a “Reorganization
Event”), then each share of Series C Preferred Stock outstanding
immediately prior to such Reorganization Event shall, at the option of the
Holders, either convert into the kind of securities, cash and other property receivable
in such Reorganization Event by the holder (excluding the counterparty to the
Reorganization Event or an Affiliate of such counterparty) of that number of
shares of Common Stock into which the share of Series C Preferred Stock would
then be convertible (such securities, cash and other property, the “Exchange Property”) plus an amount
in cash equal to any accrued and unpaid dividends on such Series C Preferred
Stock, or be entitled to receive liquidating distributions in accordance with
Section 5 as if such Reorganization Event were a liquidation of the
Corporation.


 


(b)           In
the event that holders of the shares of Common Stock have the opportunity to
elect the form of consideration to be received in such transaction, the Holders
shall likewise be allowed to make such an election.


 


B-15

















 


(c)           The
above provisions of this Section 11 shall similarly apply to successive
Reorganization Events and the provisions of Section 10, if applicable, shall
apply to any shares of capital stock of the Corporation (or any successor)
received by the holders of the Common Stock in any such Reorganization Event.


 


(d)           The
Corporation (or any successor) shall, within seven (7) days of the consummation
of any Reorganization Event, provide written notice to the Holders of such
consummation of such event and of the kind and amount of the cash, securities
or other property that constitutes the Exchange Property. Failure to deliver
such notice shall not affect the operation of this Section 11.


 


(e)           The
Corporation shall not enter into any agreement for a transaction constituting a
Reorganization Event unless such agreement does not interfere with or prevent
(as applicable) (i) conversion of the Series C Preferred Stock into the Exchange
Property or (ii) the ability of Holders to receive, at their option, a
liquidating distribution in accordance with Section 5, in each case, in a
manner that is consistent with and gives effect to this Section 11.


 


Section 29.  Voting Rights.


 


(a)           Holders
will not have any voting rights (including no right to elect any directors),
except (i) voting rights, if any, required by law and (ii) voting rights
described in Section 12(b).


 


(b)           So
long as any shares of Series C Preferred Stock are outstanding, in addition to
any other vote or written consent of shareholders required by law or by the
Articles of Incorporation, the vote or written consent of the Holders of at
least two-thirds of the then outstanding shares of shares of Series C Preferred
Stock at the time outstanding and entitled to vote thereon, voting as a single
class, given in person or by proxy, either in writing without a meeting or by
vote at any meeting called for the purpose, will be necessary for effecting or
validating any of the following actions, whether or not such approval is
required by California law:


 


(i)            Any
amendment, alteration or repeal (including by means of a merger, consolidation
or otherwise) of any provision of the Corporation’s Articles of Incorporation
(including this Certificate of Determination) or the Corporation’s Bylaws that
would significantly and adversely affects the rights or preferences of the
Series C Preferred Stock; provided, however, that for all purposes of this
Section 12(b)(i), (1) any increase in the amount of the Corporation’s
authorized but unissued shares of preferred stock, (2) any increase in the
amount of the Corporation’s authorized or issued Series C Preferred Stock,
and (3) to the extent allowed by California law, the creation and issuance, or
an increase in the authorized or issued amount, of other series of preferred
stock of the Corporation ranking equally with or junior to the Series C
Preferred Stock, either or both with respect to the payment of dividends
(whether such dividends are cumulative or non-cumulative) and/or the
distribution of assets upon the liquidation, dissolution or winding up of the
Corporation, will not, in and of itself, be deemed to materially and adversely
affect the rights, preferences, privileges or voting powers of the Series C
Preferred Stock and except as otherwise provided under California law, Holders
will have no right to vote solely by such an increase, creation or issuance; or


 


(ii)           So
long as any shares of Series C Preferred Stock are outstanding, the Holder
shall be entitled to vote, with a number of votes equal to that number of
shares of Common Stock into which such Holder’s shares of Series C Preferred
Stock would then be convertible, together with the holders of Common Stock
acting as a single class, in person or by proxy, either in writing without a
meeting or by vote at any meeting called for the purpose, for effecting or
validating any consummation of any Reorganization Event, as defined in
Section 11 above.


 


(c)           Notwithstanding
the foregoing, Holders shall not have any voting rights if, at or prior to the
effective time of the act with respect to which such vote would otherwise be
required, all outstanding shares of Series C Preferred Stock shall have been
converted into shares of Common Stock.


 


(d)           If
the Board of Governors of the Federal Reserve System determines that the Series
C Preferred Stock is classified as “voting stock” for the purposes of the Bank
Holding Company Act of 1956, as amended, the Holders and the Corporation will
make such reasonable modifications to the voting rights in this Section 12 so
that the Series C Preferred Stock is no longer considered “voting stock.”


 


B-16

















 


(e)           Without
the vote or written consent of the holders of the Series C Preferred Stock, so
long as such action does not adversely affect the rights, preferences,
privileges and voting powers, and limitations and restrictions thereof, of the
Series C Preferred Stock, the Corporation may amend, alter, supplement or
repeal any terms of the Series C Preferred Stock:


 


(i)            to
cure any ambiguity, or to cure, correct or supplement any provision contained
in this Certificate of Determination that may be ambiguous, defective or
inconsistent; or


 


(ii)           to
make any provision with respect to matters or questions relating to the Series
C Preferred Stock that is not inconsistent with the provisions of this
Certificate of Determination.


 


(f)            The
rules and procedures for calling and conducting any meeting of the holders of
Series C Preferred Stock (including, without limitation, the fixing of a record
date in connection therewith), the solicitation and use of proxies at such a
meeting, the obtaining of written consents and any other aspect or matter with
regard to such a meeting or such written consents shall be governed by the
requirements of the Articles of Incorporation, the Bylaws, applicable law and
any national securities exchange or other trading facility, if any, on which
the Series C Preferred Stock or Common Stock is listed or traded at the time.


 


Section 30.  Fractional Shares.


 


(a)           No
fractional shares of Common Stock will be issued as a result of any conversion
of shares of Series C Preferred Stock.


 


(b)           In
lieu of any fractional share of Common Stock otherwise issuable in respect of
any mandatory conversion pursuant to Section 8 hereof, the Corporation shall
pay an amount in cash to the transferee (computed to the nearest cent) equal to
the fair value of a fraction, which fair value shall be determined based upon
the same fraction of the Closing Price of the Common Stock determined as of the
second Trading Day immediately preceding the applicable Mandatory Conversion
Date.


 


(c)           If
more than one share of the Series C Preferred Stock is surrendered for
conversion at one time by or for the same transferee, the number of full shares
of Common Stock issuable upon conversion thereof shall be computed on the basis
of the aggregate number of shares of the Series C Preferred Stock so
surrendered.


 


Section 31.  Reservation of Common Stock.


 


(a)           The
Corporation shall at all times reserve and keep available out of its authorized
and unissued Common Stock solely for issuance upon the conversion of shares of
Series C Preferred Stock as provided in this Certificate of Determination free
from any preemptive or other similar rights, such number of shares of Common
Stock as shall from time to time be issuable upon the conversion of all the
shares of Series C Preferred Stock (assuming receipt of the Shareholder
Approval and, if necessary, regulatory approvals), then outstanding, based on
the Applicable Conversion Price. For purposes of this Section 14(a), the number
of shares of Common Stock that shall be deliverable upon the conversion of all
outstanding shares of Series C Preferred Stock shall be computed as if at the
time of computation all such outstanding shares were held by a single Holder
and there was no regulatory impediment to such conversion.


 


(b)           All
shares of Common Stock delivered upon conversion of the Series C Preferred
Stock shall be duly authorized, validly issued, fully paid and non-assessable,
free and clear of all liens, claims, security interests and other encumbrances.


 


(c)           Prior
to the delivery of any securities that the Corporation shall be obligated to
deliver upon conversion of the Series C Preferred Stock, the Corporation shall
use its reasonable best efforts to comply with all federal and state laws and
regulations thereunder requiring the registration of such securities with, or
any approval of or consent to the delivery thereof by, any governmental
authority.


 


B-17

















 


(d)           The
Corporation hereby covenants and agrees that it will list and keep listed on
the Trading Market, so long as the Common Stock shall be so listed on the
Trading Market, all the Common Stock issuable upon conversion of the Series C
Preferred Stock.


 


Section 32.  Replacement Certificates. 
The Corporation shall replace any mutilated certificate at the Holder’s
expense upon surrender of that certificate to the Corporation. The Corporation
shall replace certificates that become destroyed, stolen or lost at the Holder’s
expense upon delivery to the Corporation of satisfactory evidence that the
certificate has been destroyed, stolen or lost, together with any indemnity
that may be required by the Corporation.


 


Section 33.  Miscellaneous.


 


(a)           All
notices referred to herein shall be in writing, and, unless otherwise specified
herein, all notices hereunder shall be deemed to have been given upon the
earlier of receipt thereof or five (5) Business Days after the mailing thereof
if sent by registered or certified mail (unless first-class mail shall be
specifically permitted for such notice under the terms of this Certificate of
Determination) with postage prepaid, addressed: (i) if to the Corporation, to
its office at 150 Almaden Boulevard, San Jose, California 95113, Attention:
President and Chief Executive Officer, with a copy to the Corporation’s
Corporate Secretary, or (ii) if to any Holder, to such Holder at the address of
such Holder as listed in the stock record books of the Corporation, or (iii) to
such other address as the Corporation or any such Holder, as the case may be,
shall have designated by notice similarly given.


 


(b)           The
Corporation shall pay any and all stock transfer and documentary stamp taxes
that may be payable in respect of any issuance or delivery of shares of Series
C Preferred Stock or shares of Common Stock or other securities issued on
account of Series C Preferred Stock pursuant hereto or certificates representing
such shares or securities. The Corporation shall not, however, be required to
pay any such tax that may be payable in respect of any transfer involved in the
issuance or delivery of shares of Series C Preferred Stock or Common Stock or
other securities in a name other than that in which the shares of Series C
Preferred Stock with respect to which such shares or other securities are
issued or delivered were registered, or in respect of any payment to any Person
other than a payment to the registered holder thereof, and shall not be
required to make any such issuance, delivery or payment unless and until the
Person otherwise entitled to such issuance, delivery or payment has paid to the
Corporation the amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid or is not payable.


 


(c)           All
payments on the shares of Series C Preferred Stock shall be subject to
withholding and backup withholding of tax to the extent required by applicable
law, subject to applicable exemptions, and amounts withheld, if any, shall be
treated as received by the holders thereof.


 


(d)           No
share of Series C Preferred Stock shall have any rights of preemption
whatsoever under this Certificate of Determination as to any securities of the
Corporation, or any warrants, rights or options issued or granted with respect
thereto, regardless of how such securities, or such warrants, rights or
options, may be designated issued or granted.


 


(e)           The
shares of Series C Preferred Stock shall not have any voting powers,
preferences or relative, participating, optional or other rights, or
qualifications, limitations or restrictions thereof, other than as set forth
herein or in the Corporation’s Articles of Incorporation or as provided by
applicable law.


 


(f)            The
Corporation covenants not to treat the Series C Preferred Stock as preferred
stock for purposes of Section 305 of the Internal Revenue Code of 1986, as
amended, except as otherwise required by applicable law.


 


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[SIGNATURE PAGE FOLLOWS]


 


B-18

















 


We
further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.


 


 


	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Lawrence
  McGovern,

  
	
   

  	
   

  	
  Executive
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Debbie
  Reuter,

  
	
   

  	
   

  	
  Secretary

  
	
   

  	
   

  	
   

  
	
  Date:  June 17, 2010.

  	
   

  	
   

  



 


Certificate of Determination — Series C


 


S-1
















 


Exhibit C


 


Registration Rights Agreement


 

















 


REGISTRATION RIGHTS AGREEMENT


 


This
Registration Rights Agreement (this “Agreement”)
is made and entered into as of June 18, 2010, by and among Heritage
Commerce Corp, a California corporation (the “Company”), and the several purchasers signatory
hereto (each a “Purchaser”
and collectively, the “Purchasers”).


 


This
Agreement is made pursuant to the Securities Purchase Agreement, dated as of
the date hereof between the Company and each Purchaser (the “Purchase Agreement”).


 


NOW,
THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each of the
Purchasers agree as follows:


 


1.             Definitions.  Capitalized terms used and not otherwise
defined herein that are defined in the Purchase Agreement shall have the
meanings given such terms in the Purchase Agreement.  As used in this Agreement, the following
terms shall have the following meanings:


 


“Advice” shall have the meaning set
forth in Section 6(d).


 


“Affiliate” means, with
respect to any person, any other person which directly or indirectly controls,
is controlled by, or is under common control with, such person.


 


“Agreement” shall have the
meaning set forth in the Preamble.


 


“Availability Date” has the
meaning set forth in Section 3(n).


 


“Allowable Grace Period” shall have the
meaning set forth in Section 2(e).


 


“Business Day” means a day,
other than a Saturday or Sunday, on which banks in New York City are open for
the general transaction of business.


 


“Closing” has the meaning set forth
in the Purchase Agreement.


 


“Closing Date” has the
meaning set forth in the Purchase Agreement.


 


“Commission” means the
Securities and Exchange Commission.


 


“Common Stock” means the
common stock of the Company, no par value per share, and any securities into
which such shares of common stock may hereinafter be reclassified.


 


“Company” shall have the meaning set
forth in the Preamble.


 


“Contractual Securities” means
collectively, (i) securities issued to the U.S. Treasury Department on
November 21, 2008 in connection with the TARP Capital Purchase Program and
(ii) Registrable Securities.


 


“Contractual Securityholder” means all
Persons that hold Contractual Securities.


 


“Effective Date” means the date
that the Registration Statement filed pursuant to Section 2(a) is
first declared effective by the Commission.


 


“Effectiveness Deadline” means, with
respect to the Initial Registration Statement or the New Registration
Statement, the earlier of (i) the 90th calendar day following the Closing
Date (or the 120th calendar day following the Closing Date in the event that
such registration statement is subject to review by the Commission) and (ii) the
5th Trading Day after the date the Company is notified (orally or in writing,
whichever is earlier) by the 


 


C-1

















 


Commission
that such Registration Statement will not be “reviewed”
or will not be subject to further review; provided, that if the Effectiveness
Deadline falls on a Saturday, Sunday or other day that the Commission is closed
for business, the Effectiveness Deadline shall be extended to the next Business
Day on which the Commission is open for business.


 


“Effectiveness Period” shall have the
meaning set forth in Section 2(b).


 


“Event” shall have the meaning set
forth in Section 2(c).


 


“Event Date” shall have the
meaning set forth in Section 2(c).


 


“Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.


 


“Filing Deadline” means, with
respect to the Initial Registration Statement required to be filed pursuant to Section 2(a),
the 30th calendar day following the Closing Date, provided, however, that if
the Filing Deadline falls on a Saturday, Sunday or other day that the
Commission is closed for business, the Filing Deadline shall be extended to the
next business day on which the Commission is open for business.


 


“FINRA” shall have the meaning set
forth in Section 3(j).


 


“Grace Period” shall have the meaning set
forth in Section 2(e).


 


“Holder” or “Holders” means the holder or holders, as the case
may be, from time to time of Registrable Securities.


 


“Indemnified Party” shall have the
meaning set forth in Section 5(c).


 


“Indemnifying Party” shall have the
meaning set forth in Section 5(c).


 


“Initial Registration Statement” means the
initial Registration Statement filed pursuant to Section 2(a) of this
Agreement.


 


“Liquidated Damages” shall have the
meaning set forth in Section 2(c).


 


“Losses” shall have the meaning set
forth in Section 5(a).


 


“New Registration Statement” shall have the
meaning set forth in Section 2(a).


 


“Person” means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or
an agency or subdivision thereof) or other entity of any kind.


 


“Preferred Shares” has the
meaning set forth in the Purchase Agreement.


 


“Principal Market” means the
Trading Market on which the Common Stock is primarily listed on and quoted for
trading, which, as of the Closing Date, shall be the NASDAQ Global Select
Market.


 


“Proceeding” means an
action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition),
whether commenced or threatened.


 


“Prospectus” means the
prospectus included in a Registration Statement (including, without limitation,
a prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the 


 


C-2

















 


Registrable
Securities covered by a Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.


 


“Purchase Agreement” shall have the
meaning set forth in the Recitals.


 


“Purchaser” or “Purchasers” shall have the
meaning set forth in the Preamble.


 


“Registrable Securities” means all of
the Preferred Shares and the Underlying Shares and any securities issued or
issuable upon any stock split, dividend or other distribution, recapitalization
or similar event with respect to the Preferred Shares and the Underlying
Shares, provided, that the Holder has completed and delivered to the Company a
Selling Stockholder Questionnaire; and provided, further, that the Preferred
Shares and the Underlying Shares shall cease to be Registrable Securities upon
becoming eligible for sale without restriction under Rule 144.


 


“Registration Statements” means any one
or more registration statements of the Company filed under the Securities Act
that covers the resale of any of the Registrable Securities pursuant to the
provisions of this Agreement (including without limitation the Initial
Registration Statement, the New Registration Statement and any Remainder
Registration Statement), amendments and supplements to such Registration
Statements, including post-effective amendments, all exhibits and all material
incorporated by reference or deemed to be incorporated by reference in such
Registration Statements.


 


“Remainder Registration Statement” shall have the
meaning set forth in Section 2(a).


 


“Rule 144” means Rule 144
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.


 


“Rule 415”  means Rule 415
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.


 


“Rule 424” means Rule 424
promulgated by the Commission pursuant to the Securities Act, as such Rule may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.


 


“SEC Guidance” means (i) any
publicly-available written or oral (given directly to the Company or its legal
counsel) guidance, comments, requirements or requests of the Commission staff
and (ii) the Securities Act.


 


“Securities” has the
meaning set forth in the Purchase Agreement.


 


“Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.


 


“Selling Shareholder Questionnaire” means a
questionnaire in the form attached as Annex B hereto, or such other
form of questionnaire as may reasonably be adopted by the Company from time to
time.


 


“Trading Day” means (i) a
day on which the Common Stock is listed or quoted and traded on its Principal
Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is
not listed on a Trading Market (other than the OTC Bulletin Board), a day on
which the Common Stock is traded in the over-the-counter market, as reported by
the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any
Trading Market or over-the-counter market, a day on which the Common Stock is
quoted in the over-the-counter market as reported in the “pink sheets”
by Pink Sheets LLC (or any similar organization or agency succeeding to its
functions of reporting prices); 


 


C-3

















 


provided,
that in the event that the Common Stock is not listed or quoted as set forth in
(i), (ii) and (iii) hereof, then Trading Day shall mean a Business
Day.


 


“Trading Market” means
whichever of the New York Stock Exchange, the NYSE Amex, the NASDAQ Global
Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC
Bulletin Board on which the Common Stock is listed or quoted for trading on the
date in question.


 


“Underlying Shares” has the
meaning set forth in the Purchase Agreement.


 


2.             Registration.


 


(a)           On or prior to
the Filing Deadline, the Company shall prepare and file with the Commission a
Registration Statement covering the resale of all of the Registrable Securities
not already covered by an existing and effective Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 or, if Rule 415
is not available for offers and sales of the Registrable Securities, by such
other means of distribution of Registrable Securities as the Company may reasonably
determine (the “Initial Registration Statement”).  The Initial Registration Statement shall be
on Form S-3 (except if the Company is then ineligible to register for
resale of the Registrable Securities on Form S-3, in which case such
registration shall be on such other form available to the Company to register
for resale of the Registrable Securities as a secondary offering) subject to
the provisions of Section 2(f) and shall contain (except if otherwise
required pursuant to written comments received from the Commission upon a
review of such Registration Statement) the “Plan of Distribution”
section substantially in the form attached hereto as Annex A.  Notwithstanding the registration obligations
set forth in this Section 2, in the event the Commission informs the
Company that all of the Registrable Securities cannot, as a result of the
application of Rule 415, be registered for resale as a secondary offering
on a single registration statement, the Company agrees to promptly (i) inform
each of the Holders thereof and use its reasonable best efforts to file
amendments to the Initial Registration Statement as required by the Commission
and/or (ii) withdraw the Initial Registration Statement and file a new
registration statement (a “New
Registration Statement”), in either case covering the
maximum number of Registrable Securities permitted to be registered by the
Commission, on Form S-3 or such other form available to the Company to
register for resale the Registrable Securities as a secondary offering; provided,
however, that prior to filing such amendment or New Registration Statement, the
Company shall be obligated to use its reasonable best efforts to advocate with
the Commission for the registration of all of the Registrable Securities in
accordance with the SEC Guidance, including without limitation, Compliance and
Disclosure Interpretation 612.09. 
Notwithstanding any other provision of this Agreement and subject to the
payment of Liquidated Damages in Section 2(c), if any SEC Guidance sets
forth a limitation of the number of Registrable Securities or other shares of
Common Stock permitted to be registered on a particular Registration Statement
as a secondary offering (and notwithstanding that the Company used diligent
efforts to advocate with the Commission for the registration of all or a
greater number of Registrable Securities), the number of Registrable Securities
or other shares of Common Stock to be registered on such Registration Statement
will be reduced as follows: first, the Company shall reduce or eliminate the
shares of Common Stock to be included by any person other than a Holder;
second, the Company shall reduce or eliminate any shares of Common Stock to be
included by any Affiliate of the Company; and third, the Company shall reduce
the number of Registrable Securities to be included by all other Holders on a
pro rata basis based on the total number of unregistered Registrable Securities
held by such Holders, subject to a determination by the Commission that certain
Holders must be reduced before other Holders based on the number of Registrable
Securities held by such Holders.  In the
event the Company amends the Initial Registration Statement or files a New
Registration Statement, as the case may be, under clauses (i) or (ii) above,
the Company will use its reasonable best efforts to file with the Commission,
as promptly as allowed by Commission or SEC Guidance provided to the Company or
to registrants of securities in general, one or more registration statements on
Form S-3 or such other form available to the Company to register for
resale those Registrable Securities that were not registered for resale on the
Initial Registration Statement, as amended, or the New Registration Statement
(the “Remainder Registration
Statement”).  No
Holder shall be named as an “underwriter”
in any Registration Statement without such Holder’s prior written consent.


 


(b)           The Company
shall use its reasonable best efforts to cause each Registration Statement to
be declared effective by the Commission as soon as practicable and, with
respect to the Initial Registration Statement, and/or, if applicable, the New
Registration Statement no later than the Effectiveness Deadline, and shall use
its reasonable best efforts to keep each Registration Statement continuously effective
and in compliance with the 


 


C-4

















 


Securities
Act until the earlier of (i) such time as all of the Registrable
Securities covered by such Registration Statement have been publicly sold by
the Holders or (ii) the date that all Registrable Securities covered by
such Registration Statement cease to be Registrable Securities, as determined
by counsel for the affected Holders pursuant to a written opinion letter to
such effect, addressed and reasonably acceptable to the Company’s transfer
agent and the Company (the “Effectiveness Period”).  The Company shall request effectiveness of a
Registration Statement as of 5:00 p.m., New York City time, on a Trading
Day.  The Company shall promptly notify
the Holders via facsimile or electronic mail of a “.pdf” format data file of
the effectiveness of a Registration Statement within one (1) Business Day
of the Effective Date. The Company shall, by 9:30 a.m. New York City time
on the first Trading Day after the Effective Date, file a final Prospectus with
the Commission, as required by Rule 424(b).


 


(c)           If:  (i) the Initial Registration Statement
is not filed with the Commission on or prior to the Filing Deadline, (ii) the
Initial Registration Statement or the New Registration Statement, as
applicable, is not declared effective by the Commission (or otherwise does not
become effective) for any reason on or prior to the Effectiveness Deadline, or (iii) after
its Effective Date, (A) such Registration Statement ceases for any reason
(including without limitation by reason of a stop order, or the Company’s
failure to update the Registration Statement), to remain continuously effective
as to all Registrable Securities for which it is required to be effective
pursuant to Section 2(b) or (B) the Holders are not permitted to
utilize the Prospectus therein to resell such Registrable Securities, in the
case of (A) and (B) (other than during an Allowable Grace Period (as
defined in Section 2(e) of this Agreement)), (iv) a Grace Period
(as defined in Section 2(e) of this Agreement) exceeds the length of
an Allowable Grace Period, or (v) after the date six months following the
Closing Date, and only in the event a Registration Statement is not effective
or available to sell all Registrable Securities, the Company fails to file with
the Commission any required reports under Section 13 or 15(d) of the
1934 Act such that it is not in compliance with Rule 144(c)(1) (or Rule 144(i)(2),
if applicable), as a result of which the Holders who are not affiliates are
unable to sell Registrable Securities without restriction under Rule 144
(or any successor thereto) (any such failure or breach in clauses (i) through
(v) above being referred to as an “Event,”
and, for purposes of clauses (i), (ii), (iii) or (v), the date on which
such Event occurs, or for purposes of clause (iv) the date on which such
Allowable Grace Period is exceeded, being referred to as an “Event Date”), then in addition to
any other rights the Holders may have hereunder or under applicable law, on
each such Event Date and on each monthly anniversary of each such Event Date
(if the applicable Event shall not have been cured by such date) until the
applicable Event is cured, the Company shall pay to each Holder an amount in
cash, as liquidated damages and not as a penalty (“Liquidated
Damages”), equal to 0.5% of the aggregate purchase price paid by
such Holder pursuant to the Purchase Agreement for any Registrable Securities
held by such Holder on the Event Date.  The parties agree that notwithstanding
anything to the contrary herein or in the Purchase Agreement, no Liquidated
Damages shall be payable (i) if as of the relevant Event Date, the
Registrable Securities may be sold by non-affiliates without volume or manner
of sale restrictions under Rule 144 and the Company is in compliance with
the current public information requirements under Rule 144(c)(1) (or Rule 144(i)(2),
if applicable), as determined by counsel to the Company pursuant to a written
opinion letter to such effect, addressed and reasonably acceptable to the
Company’s transfer agent and the affected Holders and (ii) with respect to
any period after the expiration of the Effectiveness Period (it being
understood that this sentence shall not relieve the Company of any Liquidated
Damages accruing prior to the Effectiveness Period).  If the Company fails to pay any Liquidated
Damages pursuant to this Section 2(c) in full within five (5) Business
Days after the date payable, the Company will pay interest thereon at a rate of
1.0% per month (or such lesser maximum amount that is permitted to be paid by
applicable law) to the Holder, accruing daily from the date such Liquidated
Damages are due until such amounts, plus all such interest thereon, are paid in
full.  The Liquidated Damages pursuant to
the terms hereof shall apply on a daily pro-rata basis for any portion of a
month prior to the cure of an Event, except in the case of the first Event
Date.  The Effectiveness Deadline for a
Registration Statement shall be extended without default or Liquidated Damages
hereunder in the event that the Company’s failure to obtain the effectiveness
of the Registration Statement on a timely basis results from the failure of a
Purchaser to timely provide the Company with information requested by the
Company and necessary to complete the Registration Statement in accordance with
the requirements of the Securities Act (in which case the Effectiveness
Deadline would be extended with respect to Registrable Securities held by such
Purchaser).


 


(d)           Each Holder
agrees to furnish to the Company a completed Selling Shareholder Questionnaire
not more than ten (10) Trading Days following the date of this
Agreement.  At least five (5) Trading
Days prior to the first anticipated filing date of a Registration Statement for
any registration under this Agreement, the Company will notify each Holder of
the information the Company requires from that Holder other than the
information contained in the Selling Shareholder Questionnaire, if any, which
shall be completed and delivered to 


 


C-5

















 


the
Company promptly upon request and, in any event, no later than two (2) Trading
Days prior to the applicable anticipated filing date.  Each Holder further agrees that it shall not
be entitled to be named as a selling securityholder in the Registration
Statement or use the Prospectus for offers and resales of Registrable
Securities at any time, unless such Holder has returned to the Company a
completed and signed Selling Shareholder Questionnaire and a response to any
requests for further information as described in the previous sentence. If a
Holder of Registrable Securities returns a Selling Shareholder Questionnaire or
a request for further information, in either case, after its respective
deadline, the Company shall use its reasonable best efforts at the expense of
the Holder who failed to return the Selling Shareholder Questionnaire or to
respond for further information to take such actions as are required to name
such Holder as a selling security holder in the Registration Statement or any
pre-effective or post-effective amendment thereto and to include (to the extent
not theretofore included) in the Registration Statement the Registrable
Securities identified in such late Selling Shareholder Questionnaire or request
for further information. Each Holder acknowledges and agrees that the
information in the Selling Shareholder Questionnaire or request for further
information as described in this Section 2(d) will be used by the
Company in the preparation of the Registration Statement and hereby consents to
the inclusion of such information in the Registration Statement.


 


(e)           Notwithstanding
anything to the contrary herein, at any time after the Registration Statement
has been declared effective by the Commission, the Company may delay the
disclosure of material non-public information concerning the Company if the
disclosure of such information at the time is not, in the good faith judgment
of the Company, in the best interests of the Company (a “Grace
Period”); provided, however, the Company shall promptly (i) notify
the Holders in writing of the existence of material non-public information
giving rise to a Grace Period (provided that the Company shall not disclose the
content of such material non-public information to the Holders) or the need to
file a post-effective amendment or an amendment or supplement to the Prospectus
pursuant to Rule 424, as applicable, and the date on which such Grace
Period will begin, (ii) use reasonable best efforts to terminate a Grace
Period as promptly as practicable and (iii) notify the Holders in writing
of the date on which the Grace Period ends; provided, further, that no single
Grace Period shall exceed thirty (30) consecutive days, and during any three hundred
sixty-five (365) day period, the aggregate of all Grace Periods shall not
exceed an aggregate of sixty (60) days (each Grace Period complying with this
provision being an “Allowable Grace Period”).  For purposes of determining the length of a
Grace Period, the Grace Period shall be deemed to begin on and include the date
the Holders receive the notice referred to in clause (i) above and shall
end on and include the later of the date the Holders receive the notice
referred to in clause (iii) above and the date referred to in such notice;
provided, however, that no Grace Period shall be longer than an Allowable Grace
Period.  Notwithstanding anything to the
contrary, the Company shall cause the Transfer Agent to deliver unlegended
Common Stock to a transferee of a Holder in accordance with the terms of the
Purchase Agreement in connection with any sale of Registrable Securities with
respect to which a Holder has entered into a contract for sale prior to the
Holder’s receipt of the notice of a Grace Period and for which the Holder has
not yet settled.


 


(f)            In the event
that Form S-3 is not available for the registration of the resale of
Registrable Securities hereunder, the Company shall (i) register the
resale of the Registrable Securities on another appropriate form and (ii) undertake
to register the Registrable Securities on Form S-3 promptly after such
form is available, provided that the Company shall maintain the effectiveness
of the Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been
declared effective by the Commission.


 


3.             Registration
Procedures.


 


In
connection with the Company’s registration obligations hereunder:


 


(a)           the Company
shall not less than three (3) Trading Days prior to the filing of a
Registration Statement and not less than two (2) Trading Days prior to the
filing of any related Prospectus or any amendment or supplement thereto (except
for Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K and any similar or successor reports), the
Company shall, furnish to the Holder copies of such Registration Statement,
Prospectus or amendment or supplement thereto, as proposed to be filed, which
documents will be subject to the review of such Holder (it being acknowledged
and agreed that if a Holder does not object to or comment on the aforementioned
documents within such three (3) Trading Day or two (2) Trading Day
period, as the case may be, then the Holder shall be deemed to have consented
to and approved the use of such documents).  The Company shall not file any Registration
Statement or amendment or supplement thereto in a form 


 


C-6

















 


to
which a Holder reasonably objects in good faith, provided that, the Company is
notified of such objection in writing within the three (3) Trading Day or
two (2) Trading Day period described above, as applicable.


 


(b)           (i)  the
Company shall prepare and file with the Commission such amendments (including
post-effective amendments) and supplements, to each Registration Statement and
the Prospectus used in connection therewith as may be necessary to keep such
Registration Statement continuously effective as to the applicable Registrable
Securities for its Effectiveness Period (except during an Allowable Grace
Period); (ii) the Company shall cause the related Prospectus to be amended
or supplemented by any required Prospectus supplement (subject to the terms of
this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424
(except during an Allowable Grace Period); (iii) the Company shall respond
as promptly as reasonably practicable to any comments received from the
Commission with respect to each Registration Statement or any amendment thereto
and, as promptly as reasonably possible, provide the Holders true and complete
copies of all correspondence from and to the Commission relating to such
Registration Statement that pertains to the Holders as “Selling
Shareholders” but not any comments that would result in the
disclosure to the Holders of material and non-public information concerning the
Company; and (iv) the Company shall comply with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by a Registration Statement until such time as
all of such Registrable Securities shall have been disposed of (subject to the
terms of this Agreement) in accordance with the intended methods of disposition
by the Holders thereof as set forth in such Registration Statement as so
amended or in such Prospectus as so supplemented; provided, however, that each
Purchaser shall be responsible for the delivery of the Prospectus to the
Persons to whom such Purchaser sells any of the Registrable Securities
(including in accordance with Rule 172 under the Securities Act), and each
Purchaser agrees to dispose of Registrable Securities in compliance with the
plan of distribution described in the Registration Statement and otherwise in
compliance with applicable federal and state securities laws.  In the case of amendments and supplements to
a Registration Statement which are required to be filed pursuant to this
Agreement (including pursuant to this Section 3(b)) by reason of the Company
filing a report on Form 10-K, Form 10-Q or Form 8-K or any
analogous report under the Exchange Act, the Company shall have incorporated
such report by reference into such Registration Statement, if applicable, or
shall file such amendments or supplements with the Commission on the same day
on which the Exchange Act report which created the requirement for the Company
to amend or supplement such Registration Statement was filed.


 


(c)           the Company
shall notify the Holders (which notice shall, pursuant to clauses (iii) through
(v) hereof, be accompanied by an instruction to suspend the use of the
Prospectus until the requisite changes have been made) as promptly as
reasonably practicable (and, in the case of (i)(A) below, not less than
two Trading Days prior to such filing, in the case of (iii) and (iv) below,
not more than one Trading Day after such issuance or receipt, and in the case
of (v) below, not more than one Trading Day after the occurrence or
existence of such development) and (if requested by any such Person) confirm
such notice in writing no later than one Trading Day following the day (i)(A) when
a Prospectus or any Prospectus supplement or post-effective amendment to a
Registration Statement is proposed to be filed; (B) when the Commission notifies
the Company whether there will be a “review” of such Registration Statement and
whenever the Commission comments in writing on any Registration Statement (in
which case the Company shall provide to each of the Holders true and complete
copies of all comments that pertain to the Holders as a “Selling
Shareholder” or to the “Plan of Distribution”
and all written responses thereto, but not information that the Company
believes would constitute material and non-public information); and (C) with
respect to each Registration Statement or any post-effective amendment, when
the same has become effective; (ii) of any request by the Commission or
any other Federal or state governmental authority for amendments or supplements
to a Registration Statement or Prospectus or for additional information that
pertains to the Holders as “Selling Shareholders”
or the “Plan of Distribution”; (iii) of
the issuance by the Commission or any other federal or state governmental
authority of any stop order suspending the effectiveness of a Registration
Statement covering any or all of the Registrable Securities or the initiation
of any Proceedings for that purpose; (iv) of the receipt by the Company of
any notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (v) of the occurrence of any event or passage of time that
makes the financial statements included in a Registration Statement ineligible
for inclusion therein or any statement made in such Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to such
Registration Statement, Prospectus or other documents so that, in the case of
such Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or 


 


C-7

















 


necessary
to make the statements therein (in the case of any Prospectus, form of
prospectus or supplement thereto, in light of the circumstances under which they
were made), not misleading.


 


(d)           the Company
shall use its reasonable best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of a
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, as soon as practicable.


 


(e)           the Company
shall, if requested by a Holder, furnish to such Holder, without charge, at
least one conformed copy of each Registration Statement and each amendment
thereto and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission; provided, that the Company shall
have no obligation to provide any document pursuant to this clause that is
available on the Commission’s EDGAR system.


 


(f)            The Company
agrees to deliver to each Holder, without charge, as many copies of each
Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Holders may reasonably request. The
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto.


 


(g)           If  requested by a Holder in writing, the Company
shall, prior to any resale of Registrable Securities by a Holder, use its
reasonable best efforts to register or qualify or cooperate with the selling
Holders in connection with the registration or qualification (or exemption from
the registration or qualification) of such Registrable Securities for the
resale by the Holder under the securities or Blue Sky laws of such
jurisdictions within the United States as any Holder reasonably requests, to
keep each registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
commercially reasonable to enable the disposition in such jurisdictions of the
Registrable Securities covered by each Registration Statement; provided, that
the Company shall not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified, subject the Company to any material tax in
any such jurisdiction where it is not then so subject or file a general consent
to service of process in any such jurisdiction.


 


(h)           the Company
shall cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be delivered to
a transferee pursuant to the Registration Statement, which certificates shall
be free, to the extent permitted by the Purchase Agreement and under law, of
all restrictive legends, and to enable such Registrable Securities to be in
such denominations and registered in such names as any such Holders may
reasonably request.  Certificates for
Registrable Securities free from all restrictive legends may be transmitted by
the transfer agent to a Holder by crediting the account of such Holder’s prime
broker with DTC as directed by such Holder.


 


(i)            the Company
shall following the occurrence of any event contemplated by Section 3(c)(iii)-(v),
as promptly as reasonably practicable (taking into account the Company’s good
faith assessment of any adverse consequences to the Company and its
shareholders of the premature disclosure of such event), prepare and file a
supplement or amendment, including a post-effective amendment, to the affected
Registration Statements or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference, and
file any other required document so that, as thereafter delivered, no
Registration Statement nor any Prospectus will contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus, form of
prospectus or supplement thereto, in light of the circumstances under which
they were made), not misleading.


 


(j)            the Company may
require each selling Holder to furnish to the Company a certified statement as
to (i) the number of shares of Common Stock beneficially owned by such
Holder and any Affiliate thereof, (ii) any Financial Industry Regulatory
Authority (“FINRA”) affiliations, (iii) any
natural persons who have the power to vote or dispose of the Underlying Shares
and (iv) any other information as may be requested by the Commission,
FINRA or any state securities commission.  During any periods that the Company is unable
to meet its obligations under this Agreement with respect to the registration
of Registrable Securities because any Holder fails to furnish such information
within three Trading Days of the Company’s request, any Liquidated Damages that
are 


 


C-8

















 


accruing
at such time as to such Holder only shall be tolled and any Event that may
otherwise occur solely because of such delay shall be suspended as to such
Holder only, until such information is delivered to the Company.


 


(k)           the Company
shall cooperate with any registered broker through which a Holder proposes to
resell its Registrable Securities in effecting a filing with FINRA pursuant to
FINRA Rule 5110 as requested by any such Holder and the Company shall pay
the filing fee required for the first such filing within two (2) Business
Days of the request therefore.


 


(l)            provided the
Company is eligible to use Form S-3 as of the date of this Agreement or
becomes eligible to use Form S-3 during the term of this Agreement, the
Company shall use its reasonable best efforts to maintain eligibility for use
of Form S-3 (or any successor form thereto) for the registration of the
resale of Registrable Securities.


 


(m)          if requested by
a Holder, the Company shall (i) promptly as reasonably practical
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the Company reasonably agrees should
be included therein and, if the Company agrees, which agreement will not be
unreasonably withheld, (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as reasonably practicable
after the Company has received and agreed to notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment.


 


(n)           the Company
shall otherwise use its reasonable best efforts to comply with all applicable rules and
regulations of the Commission under the Securities Act and the Exchange Act,
including Rule 172, notify the Holders promptly if the Company no longer
satisfies the conditions of Rule 172 and take such other actions as may be
reasonably necessary to facilitate the registration of the Registrable
Securities hereunder; and make available to its security holders, as soon as
reasonably practicable, but not later than the Availability Date (as defined
below), an earnings statement covering a period of at least twelve (12) months,
beginning after the effective date of each Registration Statement, which
earning statement shall satisfy the provisions of Section 11(a) of
the Securities Act, including Rule 158 promulgated thereunder (for the
purpose of this Section 3(n), “Availability Date”
means the 45th day following the end of the fourth fiscal quarter that includes
the effective date of such Registration Statement, except that, if such fourth
fiscal quarter is the last quarter of the Company’s fiscal year, “Availability Date” means the 90th
day after the end of such fourth fiscal quarter).


 


4.             Registration
Expenses.  All fees and
expenses incident to the Company’s performance of or compliance with its
obligations under this Agreement (excluding any underwriting discounts and
selling commissions and all legal fees and expenses of legal counsel for any
Holder) shall be borne by the Company whether or not any Registrable Securities
are sold pursuant to a Registration Statement. 
The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to
filings required to be made with any Trading Market on which the Common Stock is
then listed for trading, (B) with respect to compliance with applicable
state securities or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as requested by the Holders) and (C) if not previously
paid by the Company in connection with a filing by the issuer, with respect to
any filing that may be required to be made by any broker through which a Holder
intends to make sales of Registrable Securities with FINRA pursuant to FINRA Rule 5110,
so long as the broker is receiving no more than a customary brokerage
commission in connection with such sale, (ii) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the printing of
prospectuses is reasonably requested by the Holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel
for the Company, (v) Securities Act liability insurance, if the Company so
desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement.  In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions contemplated
by this Agreement (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expense
of any annual audit and the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange as required
hereunder.  In no event shall the Company
be responsible for any underwriting, broker or similar fees or 


 


C-9

















 


commissions
of any Holder or, except to the extent provided for in the Transaction
Documents, any legal fees or other costs of the Holders.


 


5.             Indemnification.


 


(a)           Indemnification
by the Company.  The Company
shall, notwithstanding any termination of this Agreement, indemnify, defend and
hold harmless each Holder, the officers, directors, agents, partners, members,
managers, stockholders, Affiliates and employees of each of them, each Person
who controls any such Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers,
directors, partners, members, managers, stockholders, agents and employees of
each such controlling Person, to the fullest extent permitted by applicable
law, from and against any and all losses, claims, damages, liabilities, costs
(including, without limitation, reasonable costs of preparation and
investigation and reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, that arise
out of or are based upon any untrue or alleged untrue statement of a material
fact contained in any Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission
to state a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (A) such
untrue statements, alleged untrue statements, omissions or alleged omissions
are based solely upon information regarding such Holder furnished in writing to
the Company by such Holder expressly for use therein, or to the extent that
such information relates to such Holder or such Holder’s proposed method of
distribution of Registrable Securities and was reviewed and approved by such
Holder expressly for use in the Registration Statement, such Prospectus or such
form of Prospectus or in any amendment or supplement thereto (it being
understood that each Holder has approved Annex A hereto for this
purpose), or (B) in the case of an occurrence of an event of the type
specified in Section 3(c)(iii)-(v), related to the use by a Holder of an
outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt
by such Holder of the Advice contemplated and defined in Section 6(d) below,
but only if and to the extent that following the receipt of the Advice the
misstatement or omission giving rise to such Loss would have been
corrected.  The Company shall notify the
Holders promptly of the institution, threat or assertion of any Proceeding
arising from or in connection with the transactions contemplated by this
Agreement of which the Company is aware. 
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of an Indemnified Party (as defined in Section 5(c))
and shall survive the transfer of the Registrable Securities by the Holders.


 


(b)           Indemnification
by Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section 15
of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising out of or are based upon any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or relating to any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein (in the case of any Prospectus, or
any form of prospectus or supplement thereto, in light of the circumstances
under which they were made) not misleading (i) to the extent, but only to
the extent, that such untrue statements or omissions are based solely upon
information regarding such Holder furnished in writing to the Company by such
Holder expressly for use therein or (ii) to the extent, but only to the
extent, that such information relates to such Holder or such Holder’s proposed
method of distribution of Registrable Securities and was reviewed and approved
by such Holder expressly for use in a Registration Statement (it being
understood that the Holder has approved Annex A hereto for this
purpose), such Prospectus or such form of Prospectus or in any amendment or
supplement thereto or (iii) in the case of an occurrence of an event of
the type specified in Section 3(c)(iii)-(v), to the extent, but only to
the extent, related to the use by such Holder of an outdated or defective Prospectus
after the Company has notified such Holder in writing that the Prospectus is
outdated or defective and prior to the receipt by such Holder of the Advice
contemplated in Section 6(d), but only if and to the extent that following
the receipt of the Advice the misstatement or omission giving rise to such Loss
would have been corrected.  In no event
shall the liability of any selling Holder hereunder be greater in amount than
the dollar amount of the net proceeds received by such Holder upon the sale of
the Registrable Securities giving rise to such indemnification obligation.


 


C-10
















 


(c)           Conduct
of Indemnification Proceedings. If any Proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder (an “Indemnified Party”), such
Indemnified Party shall promptly notify the Person from whom indemnity is
sought (the “Indemnifying Party”)
in writing, and the Indemnifying Party shall have the right to assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the Indemnified Party and the payment of all reasonable fees and expenses incurred
in connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying Party
of its obligations or liabilities pursuant to this Agreement, except (and only)
to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have materially and adversely prejudiced the
Indemnifying Party.


 


An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless:  (1) the Indemnifying Party
has agreed in writing to pay such fees and expenses; (2) the Indemnifying
Party shall have failed promptly to assume the defense of such Proceeding and
to employ counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel that a
conflict of interest exists if the same counsel were to represent such
Indemnified Party and the Indemnifying Party; provided, that the Indemnifying
Party shall not be liable for the fees and expenses of more than one separate
firm of attorneys at any time for all Indemnified Parties.  The Indemnifying Party shall not be liable
for any settlement of any such Proceeding effected without its written consent,
which consent shall not be unreasonably withheld, delayed or conditioned.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party
from all liability on claims that are the subject matter of such Proceeding.


 


Subject
to the terms of this Agreement, all fees and expenses of the Indemnified Party
(including reasonable fees and expenses to the extent incurred in connection
with investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section 5(c)) shall be paid to the Indemnified
Party, as incurred, within twenty Trading Days of written notice thereof to the
Indemnifying Party; provided, that the Indemnified Party shall promptly
reimburse the Indemnifying Party for that portion of such fees and expenses
applicable to such actions for which such Indemnified Party is finally
judicially determined to not be entitled to indemnification hereunder). The
failure to deliver written notice to the Indemnifying Party within a reasonable
time of the commencement of any such action shall not relieve such Indemnifying
Party of any liability to the Indemnified Party under this Section 5,
except to the extent that the Indemnifying Party is materially and adversely
prejudiced in its ability to defend such action.


 


(d)           Contribution.  If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party or insufficient to hold an
Indemnified Party harmless for any Losses, then each Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations.  The relative fault of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of
a material fact, has been taken or made by, or relates to information supplied
by, such Indemnifying Party or Indemnified Party, and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent
such action, statement or omission.  The
amount paid or payable by a party as a result of any Losses shall be deemed to
include, subject to the limitations set forth in this Agreement, any reasonable
attorneys’ or other reasonable fees or expenses incurred by such party in
connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section 5(d) was available to such party in accordance with its
terms.


 


The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 5(d) were determined by pro rata allocation
or by any other method of allocation that does not take into account the
equitable considerations referred to in the immediately preceding
paragraph.  Notwithstanding the 


 


C-11

















 


provisions
of this Section 5(d), no Holder shall be required to contribute, in the
aggregate, any amount in excess of the amount by which the net proceeds
actually received by such Holder from the sale of the Registrable Securities
subject to the Proceeding exceeds the amount of any damages that such Holder
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.


 


The
indemnity and contribution agreements contained in this Section 5 are in
addition to any liability that the Indemnifying Parties may have to the Indemnified
Parties and are not in diminution, limitation or in lieu of the indemnification
provisions under the Purchase Agreement.


 


The
indemnity and contribution agreements of the Company contained in this Section 5
are limited by the provisions of federal law (including the Federal Deposit
Insurance Act) and California law governing indemnification provisions to the
extent such provisions are applicable.


 


6.             Miscellaneous.


 


(a)           Remedies.  In the event of a breach by the Company or by
a Holder of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this
Agreement.  The Company and each Holder
agree that monetary damages would not provide adequate compensation for any
losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.


 


(b)           No
Piggyback on Registrations; Prohibition on Filing Other Registration Statements.  Neither the Company nor any of its security
holders (other than the Contractual Securityholders) may include securities of
the Company in a Registration Statement hereunder other than the Contractual
Securities and the Company shall not prior to the Effective Date enter into any
agreement providing any such right to any of its security holders. The Company
shall not, from the date hereof until the date that is 60 days after the
Effective Date of the Initial Registration Statement, prepare and file with the
Commission a registration statement relating to an offering for its own account
under the Securities Act of any of its equity securities, other than (i) a
registration statement on Form S-8, (ii) a registration statement or
post-effective amendment to a registration statement for the resale of
Contractual Securities, (iii) in connection with an acquisition, on Form S-4
or (iv) a registration statement to register for resale securities issued
by the Company pursuant to acquisitions or strategic transactions approved by a
majority of the disinterested directors of the Company, provided that any such
issuance shall only be to a Person which is, itself or through its
subsidiaries, an operating company in a business synergistic with the business
of the Company and in which the Company receives benefits in addition to the
investment of funds, but shall not include a transaction in which the Company
is issuing securities primarily for the purpose of raising capital or to an
entity whose primary business is investing in securities.


 


(c)           Compliance.  Each Holder covenants and agrees that it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it (unless an exemption therefrom is available) in connection
with sales of Registrable Securities pursuant to the Registration Statement and
shall sell the Registrable Securities only in accordance with a plan of
distribution described in the Registration Statement.


 


(d)           Discontinued
Disposition.  By its acquisition of
Registrable Securities, each Holder agrees that, upon receipt of a notice from
the Company of the occurrence of any event of the kind described in Section 3(c)(iii)-(v),
such Holder will forthwith discontinue disposition of such Registrable
Securities under a Registration Statement until it is advised in writing (the “Advice”) by the Company that
the use of the applicable Prospectus (as it may have been supplemented or
amended) may be resumed.  The Company may
provide appropriate stop orders to enforce the provisions of this paragraph.


 


(e)           No
Inconsistent Agreements.  Neither the
Company nor any of its Subsidiaries has entered, as of the date hereof, nor
shall the Company or any of its Subsidiaries, on or after the date hereof,
enter into 


 


C-12

















 


any
agreement with respect to its securities, that would have the effect of
impairing the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof.


 


(f)            Amendments
and Waivers.  The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, or waived unless the same shall be in writing and
signed by the Company and Holders holding at least two-thirds of the then
outstanding Registrable Securities, provided that any party may give a waiver
as to itself.  Notwithstanding the
foregoing,  a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holders and that does not directly or indirectly affect the rights
of other Holders may be given by Holders of all of the Registrable Securities
to which such waiver or consent relates; provided, however, that the provisions
of this sentence may not be amended, modified, or supplemented except in
accordance with the provisions of the immediately preceding sentence.
Notwithstanding the foregoing, if any such amendment, modification or waiver
would adversely affect in any material respect any Holder or group of Holders
who have comparable rights under this Agreement disproportionately to the other
Holders having such comparable rights, such amendment, modification, or waiver
shall also require the written consent of the Holder(s) so adversely
affected.


 


(g)           Notices.  Any and all notices or other communications
or deliveries required or permitted to be provided hereunder shall be delivered
as set forth in the Purchase Agreement; provided that the Company may deliver
to each Holder the documents required to be delivered to such Holder under Section 3(a) of
this Agreement by e-mail to the e-mail addresses provided by such Holder to the
Company solely for such specific purpose.


 


(h)           Successors
and Assigns.  This Agreement shall
inure to the benefit of and be binding upon the successors and permitted
assigns of each of the parties and shall inure to the benefit of each
Holder.  Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. 
The Company may not assign its rights (except by merger or in connection
with another entity acquiring all or substantially all of the Company’s assets)
or obligations hereunder without the prior written consent of all the Holders
of the then outstanding Registrable Securities. 
Each Holder may assign its respective rights hereunder in the manner and
to the Persons as permitted under the Purchase Agreement.


 


(i)            Execution
and Counterparts.  This Agreement may
be executed in two or more counterparts, each of which when so executed shall
be deemed to be an original and, all of which taken together shall constitute
one and the same Agreement and shall become effective when counterparts have
been signed by each party and delivered to the other party, it being understood
that both parties need not sign the same counterpart.  In the event that any signature is delivered
by facsimile transmission or by e-mail delivery of a “.pdf” format data file,
such signature shall create a valid and binding obligation of the party
executing (or on whose behalf such signature is executed) with the same force
and effect as if such facsimile or “.pdf” signature were the original thereof.


 


(j)            Governing
Law.  All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be determined in accordance with the provisions of the Purchase Agreement.


 


(k)           Cumulative
Remedies.  Except as provided in Section 2(c) with
respect to Liquidated Damages, the remedies provided herein are cumulative and
not exclusive of any other remedies provided by law.


 


(l)            Severability.
If any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their good faith
reasonable efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction.  It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.


 


C-13

















 


(m)          Headings.  The headings in this Agreement are for
convenience only and shall not limit or otherwise affect the meaning hereof.


 


(n)           Independent
Nature of Purchasers’ Obligations and Rights.  The obligations of each Purchaser under this
Agreement are several and not joint with the obligations of any other Purchaser
hereunder, and no Purchaser shall be responsible in any way for the performance
of the obligations of any other Purchaser hereunder.  The decision of each Purchaser to purchase
the Securities pursuant to the Transaction Documents has been made
independently of any other Purchaser. Nothing contained herein or in any other
agreement or document delivered at any closing, and no action taken by any
Purchaser pursuant hereto or thereto, shall be deemed to constitute the
Purchasers as a partnership, an association, a joint venture or any other kind
of entity, or create a presumption that the Purchasers are in any way acting in
concert with respect to such obligations or the transactions contemplated by
this Agreement.  Each Purchaser
acknowledges that no other Purchaser has acted as agent for such Purchaser in
connection with making its investment hereunder and that no Purchaser will be
acting as agent of such Purchaser in connection with monitoring its investment
in the Securities or enforcing its rights under the Transaction Documents. Each
Purchaser shall be entitled to protect and enforce its rights, including,
without limitation, the rights arising out of this Agreement, and it shall not
be necessary for any other Purchaser to be joined as an additional party in any
Proceeding for such purpose.  The Company
acknowledges that each of the Purchasers has been provided with the same Registration
Rights Agreement for the purpose of closing a transaction with multiple
Purchasers and not because it was required or requested to do so by any
Purchaser.


 


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C-14

















 


IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.


 


	
   

  	
  HERITAGE
  COMMERCE CORP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Walter T. Kaczmarek

  
	
   

  	
   

  	
  Chief Executive Officer and President

  



 


 


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SIGNATURE PAGES OF HOLDERS TO FOLLOW]


 


Registration
Rights Agreement


 


S-1

















 


IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as of the date first written above.


 


	
   

  	
  NAME
  OF PURCHASER

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AUTHORIZED
  SIGNATORY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Its:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ADDRESS
  FOR NOTICE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attn:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Phone:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  E-mail:

  	
   

  
				



 


 


Registration Rights Agreement


 


S-2

















 


Annex
A


 


PLAN OF DISTRIBUTION


 


We
are registering the Securities issued to the selling shareholders to permit the
resale of these Securities by the holders of the Securities from time to time
after the date of this prospectus.  We
will not receive any of the proceeds from the sale by the selling shareholders
of the Securities.  We will bear all fees
and expenses incident to our obligation to register the Securities.


 


The
selling shareholders may sell all or a portion of the Securities beneficially
owned by them and offered hereby from time to time directly or through one or
more underwriters, broker-dealers or agents. 
If the Securities are sold through underwriters or broker-dealers, the
selling shareholders will be responsible for underwriting discounts or
commissions or agent’s commissions.  The
Securities may be sold on any national securities exchange or quotation service
on which the securities may be listed or quoted at the time of sale, in the
over-the-counter market or in transactions otherwise than on these exchanges or
systems or in the over-the-counter market and in one or more transactions at
fixed prices, at prevailing market prices at the time of the sale, at varying
prices determined at the time of sale, or at negotiated prices.  These sales may be effected in transactions,
which may involve crosses or block transactions.  The selling shareholders may use any one or
more of the following methods when selling Securities:


 


·                                          ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;


 


·                                          block trades in
which the broker-dealer will attempt to sell the shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction;


 


·                                          purchases by a
broker-dealer as principal and resale by the broker-dealer for its account;


 


·                                          an exchange
distribution in accordance with the rules of the applicable exchange;


 


·                                          privately
negotiated transactions;


 


·                                          settlement of
short sales entered into after the effective date of the registration statement
of which this prospectus is a part;


 


·                                          broker-dealers
may agree with the selling shareholders to sell a specified number of such
securities at a stipulated price per share;


 


·                                          through the
writing or settlement of options or other hedging transactions, whether such
options are listed on an options exchange or otherwise;


 


·                                          a combination
of any such methods of sale; and


 


·                                          any other
method permitted pursuant to applicable law.


 


The
selling shareholders also may resell all or a portion of the Securities in open
market transactions in reliance upon Rule 144 under the Securities Act, as
permitted by that rule, or Section 4(1) under the Securities Act, if
available, rather than under this prospectus, provided that they meet the
criteria and conform to the requirements of those provisions.


 


Broker-dealers
engaged by the selling shareholders may arrange for other broker-dealers to
participate in sales.  If the selling
shareholders effect such transactions by selling Securities to or through
underwriters, broker-dealers or agents, such underwriters, broker-dealers or
agents may receive commissions in the form of discounts, concessions or
commissions from the selling shareholders or commissions from purchasers of the
Securities for whom they may act as agent or to whom they may sell as
principal. Such commissions will be in amounts to be 


 


A-1

















 


negotiated,
but, except as set forth in a supplement to this prospectus, in the case of an
agency transaction will not be in excess of a customary brokerage commission in
compliance with NASD Rule 2440; and in the case of a principal transaction
a markup or markdown in compliance with NASD IM-2440.


 


In
connection with sales of the Securities or otherwise, the selling shareholders
may enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the common stock in
the course of hedging in positions they assume. 
The selling shareholders may also sell Securities short and if such
short sale shall take place after the date that the registration statement of
which this prospectus is a part is declared effective by the Securities and
Exchange Commission (the “SEC”), the
selling shareholders may deliver Securities covered by this prospectus to close
out short positions and to return borrowed shares in connection with such short
sales.  The selling shareholders may also
loan or pledge common stock to broker-dealers that in turn may sell such shares,
to the extent permitted by applicable law. 
The selling shareholders may also enter into option or other
transactions with broker-dealers or other financial institutions or the
creation of one or more derivative securities which require the delivery to
such broker-dealer or other financial institution of shares offered by this
prospectus, which shares such broker-dealer or other financial institution may
resell pursuant to this prospectus (as supplemented or amended to reflect such
transaction).  Notwithstanding the
foregoing, the selling shareholders have been advised that they may not use
shares registered on this registration statement to cover short sales of our
common stock made prior to the date the registration statement, of which this
prospectus forms a part, has been declared effective by the SEC.


 


The
selling shareholders may, from time to time, pledge or grant a security
interest in some or all of the Securities owned by them and, if they default in
the performance of their secured obligations, the pledgees or secured parties
may offer and sell the Securities from time to time pursuant to this prospectus
or any amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act, amending, if necessary, the list of
selling shareholders to include the pledgee, transferee or other successors in
interest as selling shareholders under this prospectus.  The selling shareholders also may transfer
and donate the Securities in other circumstances in which case the transferees,
donees, pledgees or other successors in interest will be the selling beneficial
owners for purposes of this prospectus.


 


The
selling shareholders and any broker-dealer or agents participating in the
distribution of the Securities may be deemed to be “underwriters” within the
meaning of Section 2(11) of the Securities Act in connection with such
sales.  In such event, any commissions
paid, or any discounts or concessions allowed to, any such broker-dealer or
agent and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
Selling shareholders who are “underwriters” within the meaning of Section 2(11)
of the Securities Act will be subject to the applicable prospectus delivery
requirements of the Securities Act and may be subject to certain statutory
liabilities of, including but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”).


 


Each
selling shareholder has informed us that it is not a registered broker-dealer
and does not have any written or oral agreement or understanding, directly or
indirectly, with any person to distribute the Securities.  Upon being notified in writing by a selling
shareholder that any material arrangement has been entered into with a
broker-dealer for the sale of Securities through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a
broker or dealer, we will file a supplement to this prospectus, if required,
pursuant to Rule 424(b) under the Securities Act, disclosing (1) the
name of each such selling shareholder and of the participating
broker-dealer(s), (2) the number of shares involved, (3) the price at
which such Securities were sold, (4) the commissions paid or discounts or
concessions allowed to such broker-dealer(s), where applicable, (5) that
such broker-dealer(s) did not conduct any investigation to verify the
information set out or incorporated by reference in this prospectus, and (6) other
facts material to the transaction.  In no
event shall any broker-dealer receive fees, commissions and markups, which, in
the aggregate, would exceed eight percent.


 


Under
the securities laws of some states, the Securities may be sold in such states
only through registered or licensed brokers or dealers.  In addition, in some states the Securities
may not be sold unless such shares have been registered or qualified for sale
in such state or an exemption from registration or qualification is available
and is complied with.


 


A-2

















 


There
can be no assurance that any selling shareholder will sell any or all of the
Securities registered pursuant to the shelf registration statement, of which
this prospectus forms a part.


 


Each
selling shareholder and any other person participating in such distribution
will be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, to the extent
applicable, Regulation M of the Exchange Act, which may limit the timing of
purchases and sales of any of the Securities by the selling shareholder and any
other participating person.  To the
extent applicable, Regulation M may also restrict the ability of any person engaged
in the distribution of the Securities to engage in market-making activities
with respect to the common stock.  All of
the foregoing may affect the marketability of the Securities and the ability of
any person or entity to engage in market-making activities with respect to the
Securities.


 


We
will pay all expenses of the registration of the Securities pursuant to a
registration rights agreement, including, without limitation, SEC filing fees
and expenses of compliance with state securities or “blue sky” laws; provided,
however, that each selling shareholder will pay all underwriting discounts and
selling commissions, if any and any related legal expenses incurred by it. We
will indemnify the selling shareholders against certain liabilities, including some
liabilities under the Securities Act, in accordance with the registration
rights agreement, or the selling shareholders will be entitled to contribution.
We may be indemnified by the selling shareholders against civil liabilities,
including liabilities under the Securities Act, that may arise from any written
information furnished to us by the selling shareholders specifically for use in
this prospectus, in accordance with the related registration rights agreements,
or we may be entitled to contribution.


 


A-3

















 


Annex
B


 


REGISTRATION STATEMENT QUESTIONNAIRE


 


In
connection with the preparation of the Registration Statement for Heritage
Commerce Corp (the “Company”), please provide us with the information requested
below. Defined terms used herein and not otherwise defined herein have the
meanings assigned to such terms in the Securities Purchase Agreement dated
June 18, 2010 (the “Purchase Agreement”) between the Company and the
Purchasers named therein.


 


1.             Pursuant to the “Selling
Stockholder” section of the Registration Statement, please state the
stockholder’s name exactly as it should appear in the Registration Statement:


 


 


2.             Please provide the number of shares
of the Company’s common stock (the “Common Stock”), the Series B
Mandatorily Convertible Cumulative Perpetual Preferred Stock (the “Series B
Preferred Stock”) and the Series C Convertible Perpetual Preferred Stock
(the “Series C Preferred Stock”) that you or your organization will own
immediately after the Closing Date, including those shares of Common Stock, Series B
Preferred Stock and/or Series C Preferred Stock purchased by you or your
organization pursuant to the Purchase Agreement and those shares purchased by
you or your organization through other transactions:


 


 


3.             Have you or your organization had
any position, office or other material relationship within the past three years
with the Company or its affiliates?


 


o Yes   o No


 


If
yes, please indicate the nature of any such relationships below:


 


 


4.             (a) Are you (i) a FINRA
Member (see definition below), (ii) a Controlling (see definition below)
shareholder of a FINRA Member, (iii) a Person Associated with a Member of
FINRA (see definition below), or (iv) an Underwriter or a Related Person
(see definition below) with respect to the proposed offering; or (b) do
you own any shares or other securities of any FINRA Member not purchased in the
open market, or (c) have you made any outstanding subordinated loans to
any FINRA Member?


 


o Yes   o No


 


B-1

















 


If
yes, please describe below:


 


 


FINRA.  The term “FINRA”
means the Financial Industry Regulatory Authority.


 


FINRA Member.  The term “FINRA
member” means either any broker or dealer admitted to membership in FINRA.


 


Control.  The term “control”
(including the terms “controlling,” “controlled by” and “under common control
with”) means the possession, direct or indirect, of the power, either
individually or with others, to direct or cause the direction of the management
and policies of a person, whether through the ownership of voting securities,
by contract, or otherwise.


 


Person Associated with a Member of FINRA.  The term “person associated with a member of
FINRA” means every sole proprietor, partner, officer, director, branch manager
or executive representative of any FINRA Member, or any natural person
occupying a similar status or performing similar functions, or any natural
person engaged in the investment banking or securities business who is directly
or indirectly controlling or controlled by a FINRA Member, whether or not such
person is registered or exempt from registration with FINRA pursuant to its
bylaws.


 


Underwriter or a Related Person.  The term “underwriter or a related person”
means, with respect to a proposed offering, underwriters, underwriters’
counsel, financial consultants and advisors, finders, members of the selling or
distribution group, and any and all other persons associated with or related to
any of such persons.


 


B-2
















 


Exhibit D


 


Investor Questionnaire


 

















 


EXHIBIT D


 


FORM OF INVESTOR QUESTIONNAIRE


 


To:
Heritage Commerce Corp


 


This
Investor Questionnaire must be completed by each potential investor in
connection with the offer and sale of the shares of the Heritage Commerce Corp’s
Series B Mandatorily Convertible Cumulative Perpetual Preferred Stock and Series C
Convertible Perpetual Preferred Stock (collectively, the “Securities”), of
Heritage Commerce Corp (the “Corporation”). The Securities are being offered
and sold by the Corporation without registration under the Securities Act of
1933, as amended (the “Act”), and the securities laws of certain states, in
reliance on the exemptions contained in Section 4(2) of the Act and
on Regulation D promulgated thereunder and in reliance on similar exemptions
under applicable state laws. The Corporation must determine that a potential
investor meets certain suitability requirements before offering or selling
Securities to such investor. The purpose of this Questionnaire is to assure the
Corporation that each investor will meet the applicable suitability
requirements. The information supplied by you will be used in determining
whether you meet such criteria, and reliance upon the private offering
exemption from registration is based in part on the information herein
supplied.


 


This
Questionnaire does not constitute an offer to sell or a solicitation of an
offer to buy any security. Your answers will be kept strictly confidential.
However, by signing this Questionnaire you will be authorizing the Corporation
to provide a completed copy of this Questionnaire to such parties as the
Corporation deems appropriate in order to ensure that the offer and sale of the
Securities will not result in a violation of the Act or the securities laws of
any state and that you otherwise satisfy the suitability standards applicable
to purchasers of the Securities. All potential investors must answer all
applicable questions and complete, date and sign this Questionnaire. Please
print or type your responses and attach additional sheets of paper if necessary
to complete your answers to any item.


 


7.             BACKGROUND
INFORMATION


 


	
  Name:

  	
   

  
	
   

  
	
  Business
  Address:

  	
   

  
	
   

  	
  (Number and Street)

  
	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (City)

  	
   

  	
  (State)

  	
   

  	
  (Zip Code)

  
	
   

  
	
  Telephone
  Number:

  	
   

  
	
   

  	
   

  
	
  Residence
  Address:

  	
   

  
	
   

  	
  (Number and Street)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (City)

  	
   

  	
  (State)

  	
   

  	
  (Zip Code)

  
	
   

  
	
  Telephone
  Number:

  	
   

  
	
   

  
								



If
an individual:


 




	
  Age:

  	
   

  	
   

  	
  Citizenship:

  	
   

  	
   

  	
  Where
  registered to vote:

  	
   

  






 


If
a corporation, partnership, limited liability company, trust or other entity:


 


	
  Type
  of entity:

  	
   

  



 


D-1

















 




	
  State
  of formation:

  	
   

  	
   

  	
  Date
  of formation:

  	
   

  






 


	
  Social
  Security or Taxpayer Identification No.

  	
   

  



 


	
  Send
  all correspondence to (check one):    Residence Address:

  	
   

  	
   

  	
  Business
  Address:

  	
   

  



 


8.             STATUS
AS ACCREDITED INVESTOR


 


The
undersigned is an “accredited investor” as such term is defined in Regulation D
under the Act, as at the time of the sale of the Securities the undersigned
falls within one or more of the following categories (Please initial one or
more, as applicable):


 


	
  o

  	
   

  	
  (1)

  	
   

  	
  a
  bank as defined in Section 3(a)(2) of the Act, or a savings and
  loan association or other institution as defined in
  Section 3(a)(5)(A) of the Act whether acting in its individual or
  fiduciary capacity; a broker dealer registered pursuant to Section 15 of
  the Securities Exchange Act of 1934; an insurance company as defined in
  Section 2(13) of the Act; an investment company registered under the
  Investment Company Act of 1940 or a business development company as defined
  in Section 2(a)(48) of that Act; a Small Business Investment Company
  licensed by the U.S. Small Business Administration under
  Section 301(c) or (d) of the Small Business Investment Act of
  1958; a plan established and maintained by a state, its political
  subdivisions, or any agency or instrumentality of a state or its political
  subdivisions for the benefit of its employees, if such plan has total assets
  in excess of $5,000,000; an employee benefit plan within the meaning of the
  Employee Retirement Income Security Act of 1974 if the investment decision is
  made by a plan fiduciary, as defined in Section 3(21) of such Act, which
  is either a bank, savings and loan association, insurance company, or
  registered investment adviser, or if the employee benefit plan has total
  assets in excess of $5,000,000 or, if a self-directed plan, with the
  investment decisions made solely by persons that are accredited investors;(1)

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (2)

  	
   

  	
  a
  private business development company as defined in Section 202(a)(22) of
  the Investment Adviser Act of 1940;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (3)

  	
   

  	
  an
  organization described in Section 501(c)(3) of the Internal Revenue
  Code of 1986, as amended, corporation, Massachusetts or similar business
  trust, or partnership, not formed for the specific purpose of acquiring the
  Securities offered, with total assets in excess of $5,000,000;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (4)

  	
   

  	
  a
  director, executive officer or general partner of the Corporation, or any
  director, executive officer or general partner of a general partner of the
  Corporation;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (5)

  	
   

  	
  a
  natural person whose individual net worth, or joint net worth with that
  person’s spouse, at the time of such person’s purchase of the Securities
  exceeds $1,000,000;

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (6)

  	
   

  	
  a
  natural person who had an individual income in excess of $200,000 in each of
  the two most recent years or joint income with that person’s spouse in excess
  of $300,000 in each of those years and has a reasonable expectation of
  reaching the same income level in the current year;

  



 






(1)  
As used in this Questionnaire, the term “net worth” means the excess of
total assets over total liabilities. In computing net worth for the purpose of
subsection (5), the principal residence of the investor must be valued at cost,
including cost of improvements, or at recently appraised value by an institutional
lender making a secured loan, net of encumbrances. In determining income, the
investor should add to the investor’s adjusted gross income any amounts
attributable to tax exempt income received, losses claimed as a limited partner
in any limited partnership, deductions claimed for depiction, contributions to
an IRA or KEOGH retirement plan, alimony payments, and any amount by which
income from long-term capital gains has been reduced in arriving at adjusted
gross income.


 


D-2

















 


	
  o

  	
   

  	
  (7)

  	
   

  	
  a
  trust, with total assets in excess of $5,000,000, not formed for the specific
  purpose of acquiring the Securities offered, whose purchase is directed by a
  sophisticated person as described in Rule 506(b)(2)(ii) of Regulation
  D; and

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  o

  	
   

  	
  (8)

  	
   

  	
  an
  entity in which all of the equity owners are accredited investors (as defined
  above).

  



 


9.             REPRESENTATIONS


 


The
undersigned hereby represents and warrants to the Corporation as follows:


 


(a)           Any purchase of the
Securities would be solely for the account of the undersigned and not for the
account of any other person or with a view to any resale, fractionalization,
division, or distribution thereof.


 


(b)           The information contained
herein is complete and accurate and may be relied upon by the Corporation, and
the undersigned will notify the Corporation immediately of any material change
in any of such information occurring prior to the closing, if any, with respect
to the purchase of Securities by the undersigned or any co-purchaser.


 


(c)           There are no suits, pending
litigation, or claims against the undersigned that could materially affect the
net worth of the undersigned as reported in this Questionnaire.


 


(d)           The undersigned understands
and acknowledges that the Securities, at issuance, are “restricted securities”
under the Act and that under such Act and applicable regulations such
Securities may be resold without registration under the Act only in certain
limited circumstances and that otherwise such Securities must be held indefinitely.  The undersigned acknowledges that there may
occasionally be times when the Corporation, based on the advice of its counsel,
determines that it must suspend the use of the prospectus forming a part of the
Registration Statement (as such term is defined in the Securities Purchase
Agreement to which this Questionnaire is attached) until such time as an
amendment to the Registration Statement has been filed by the Corporation and
declared effective by the Securities and Exchange Commission or until the
Corporation has amended or supplemented such prospectus. The undersigned is
aware that, in such event, the Securities will not be subject to ready
liquidation, and that any Securities purchased by the undersigned would have to
be held during such suspension. The overall commitment of the undersigned to
investments which are not readily marketable is not excessive in view of the
undersigned’s net worth and financial circumstances, and any purchase of the
Securities will not cause such commitment to become excessive. The undersigned
is able to bear the economic risk of an investment in the Securities.


 


(e)           The undersigned has
carefully considered the potential risks relating to the Corporation and a
purchase of the Securities, and fully understands that the Securities are
speculative investments which involve a high degree of risk of loss of the
undersigned’s entire investment. Among others, the undersigned has reviewed the
Corporation’s filings made with the Securities and Exchange Commission under
the Securities Exchange Act of 1934, as amended, including its Annual Report on
Form 10-K for the year ended December 31, 2009, and the Quarterly
Report on Form 10-Q for the three months ended March 31, 2010.


 


10.           DELIVERY INSTRUCTIONS


 


(a)           Please indicate if the undersigned
requests delivery of physical certificates and any special instructions related
thereto.


 


 


 


D-3

















 


(b)           If the undersigned requires
delivery of physical certificates, please provide the mailing address and
contact information for the location to which the undersigned would like the
physical certificates sent.


 


	
  Name:

  	
   

  
	
   

  
	
  Address:

  	
   

  
	
   

  	
  (Number and Street)

  
	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (City)

  	
   

  	
  (State)

  	
   

  	
  (Zip Code)

  
							



 


D-4

















 


IN
WITNESS WHEREOF, the undersigned has executed this Questionnaire this
          day of June, 2010,
and declares that it is truthful and correct.


 


	
   

  	
  INVESTOR:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Print Name

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
  (Required for any purchaser that is a corporation, partnership, trust
  or other entity) 

  



 


Investor Questionnaire 


 


S-1

















 


Exhibit E


 


Legal Opinion of Company Counsel


 

















 


EXHIBIT E


 


DRAFT FORM OF OPINION OF BUCHALTER NEMER


 


June 21, 2010


 


Re:
Heritage Commerce Corp


 


Ladies
and Gentlemen:


 


This
opinion is being furnished to you pursuant to Section 2.2(a)(iii) of
the Securities Purchase Agreement, dated June 18, 2010, (the “Purchase
Agreement”), by and among Heritage Commerce Corp, a California corporation (the
“Company”), and the persons identified therein as purchasers (collectively, the
“Purchasers”), relating to the issuance and sale by the Company to the
Purchasers of up to an aggregate of [    ] shares of the Series B
Mandatorily Convertible Cumulative Perpetual Preferred Stock and
[    ] shares of the Series C Convertible Perpetual
Preferred Stock of the Company (collectively, the “Preferred Shares”).


 


Capitalized
terms used but not defined in this opinion shall have the meanings described to
them in the Purchase Agreement. In rendering this opinion, we have examined
such documents and records as we deemed appropriate, including the following:


 


(i)            Copy of the Articles of
Incorporation, as amended, of the Company, certified as of a recent date by the
Secretary of State of the State of California;


 


(ii)           Copy of the Bylaws, as
amended, of the Company, certified by the Secretary of the Company to be a true
and complete copy thereof;


 


(iii)          Certificates dated as of a
recent date of the Secretary of State of the State of California certifying as
to the incorporation and good standing of the Company and Heritage Bank of
Commerce (the “Bank”) under the laws of the State of California;


 


(iv)          Certificates dated as of a
recent date of the Secretary of State of the applicable jurisdiction certifying
as to the incorporation and good standing of each Subsidiary other than the
Bank;


 


(v)           Copies, certified by the
Secretary of the Company to be true and complete, of the resolutions duly
adopted by the Board of Directors of the Company on June 17, 2010;


 


(vi)          Copy of the executed
Purchase Agreement;


 


(vii)         Copy of the executed
Registration Rights Agreement;


 


(viii)        Copy of the executed
Certificate of Determination of Series B Mandatorily Convertible
Cumulative Perpetual Preferred Stock; and


 


(ix)           Copy of the executed
Certificate of Determination of Series C Convertible Perpetual Preferred
Stock (the documents listed in (vi) through (ix), collectively, the “Transaction
Documents”).


 


In
connection with this opinion, we have examined and relied upon the originals or
copies of such records of the Company and Heritage Bank of Commerce,
certificates of officers of the Company, certificates of transfer agents and
public officials, and such other documents as we have deemed relevant and
necessary as a basis for our opinions. We have also reviewed and relied upon
the factual representations set forth in the Purchase Agreement.


 


E-1

















 


In
the course of our examination, we have assumed the genuineness of all
signatures other than signatures by officers of the Company, the authenticity
of all documents submitted to us as originals, and the conformity to original
documents of documents submitted to us as certified or photostatic copies.


 


Based
upon the foregoing, we are of the opinion that:


 


(1)           Each of the Company and its
Subsidiaries is validly existing and in good standing under its jurisdiction of
incorporation or organization.


 


(2)           The Company has the
corporate power and authority to execute and deliver and to perform its
obligations under the Transaction Documents.


 


(3)           The Company is a registered
bank holding company under the Bank Holding Company Act of 1956, as amended,
and has not made an election to be treated as a financial holding company under
the Gramm-Leach-Bliley Act.


 


(4)           The deposit accounts of the
Bank are insured by the Federal Deposit Insurance Corporation under the
provisions of the Federal Deposit Insurance Act.


 


(5)           Each of the Transaction
Documents has been duly authorized by all necessary corporate action on the
part of the Company, has been duly executed and delivered by the Company and,
assuming due execution and delivery by the Purchasers, constitutes the valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors’ rights generally, by general equitable
principles (regardless of whether considered in a proceeding in equity or at
law) or by matters of public policy.


 


(6)           The issuance of the
Preferred Shares has been duly and validly authorized by all necessary
corporate action on the part of the Company and, when paid for in accordance
with the Purchase Agreement, the Preferred Shares will be duly authorized,
validly issued, fully paid and nonassessable.


 


(7)           Except as previously made or
obtained or as may be required under state securities or Blue Sky laws and the
filing of a Form D with the Securities and Exchange Commission (the “Commission”)
following the Closing, no authorization, approval, consent, order,
registration, qualification, filing or decree of any governmental authority is
necessary for the execution, delivery and performance by the Company of its
obligations under the Transaction Documents or the issuance of the Preferred
Shares.


 


(8)           The issuance, sale and
delivery of the Preferred Shares by the Company under the circumstances
contemplated by the Purchase Agreement is not required to be registered under
the Securities Act of 1933, as amended (the “1933 Act”), due to an exemption
therefrom provided by Section (4)(2) of the 1933 Act and Regulation D
promulgated thereunder.


 


(9)           Neither the Company nor the
Bank is an “investment company” under the Investment Company Act of 1940, as
amended.


 


(10)         The execution and delivery
by the Company of the Transaction Documents and the performance by the Company
of its agreements under the Transaction Documents, including the issuance of
the Preferred Shares, do not (i) violate the Company’s Articles of
Incorporation, as amended, or Bylaws, as amended, or (ii) result in a
breach of, constitute a default under, or result in the creation of any
material lien, security interest or other encumbrance upon any of the Company’s
or the Bank’s properties or any Material Contract.


 


All
of the opinions herein expressed are specifically based upon or subject to the
following limitations and qualifications:


 


E-2

















 


a.             With respect to our opinion
in paragraph (a), we have relied solely upon certificates from the relevant
state officials dated as of the date of such certificates.


 


b.             We express no opinion herein
with respect to the laws of any jurisdiction other than the laws of the State
of California and the corporate laws of the State of Delaware and the laws of
the United States.


 


c.             We express no opinion
herein, unless otherwise expressly stated above, with respect to the antifraud
provisions of the federal securities laws and regulations administered by the
Commission, or any state “Blue Sky” laws and regulations.


 


d.             We express no opinion
regarding the effectiveness of any waiver (whether or not stated as such)
contained in the Transaction Documents of rights of any party, or duties owing
to it, that is broadly or vaguely stated or does not describe the right or duty
purportedly waived with reasonable specificity or any provision in the
Transaction Documents relating to indemnification, exculpation or contribution.


 


The
opinions expressed above are rendered as of the date of this letter and shall
not be deemed to have been updated to any other date.  We expressly disclaim any obligation to
update this letter or otherwise to advise you or any other person or entity of
any matters (including, but not limited to, any subsequently enacted, published
or reported laws, rules, regulations or judicial decisions having retroactive
effect) which may come to our attention after the date of this letter and which
affect or may affect any of the opinions or qualifications expressed in this
letter.


 


This
opinion is addressed to you and is solely for your benefit and only in
connection with the transactions contemplated by the Purchase Agreement.  This opinion may not be relied upon by you
for any other purpose or furnished or referred to, circulated, used, quoted or
relied upon by any other person, firm or corporation for any purpose without
our prior express written consent.


 


	
   

  	
  Very
  truly yours,

  



 


E-3
















 


Exhibit F


 


Secretary’s Certificate


 

















 


CERTIFICATE OF SECRETARY


OF


HERITAGE COMMERCE CORP


 


The
undersigned, Debbie Reuter, hereby certifies that she is the duly elected and
acting Secretary of Heritage Commerce Corp, a California corporation (the “Company”),
and that she makes this certificate on behalf of the Company (and not in her
individual capacity) in connection with and pursuant to Section 2.2(a)(v) of
the Securities Purchase Agreement dated as of June 18, 2010 (the “Securities
Purchase Agreement”), by and among the Company and each of the purchasers named
therein (the “Purchasers”).  Capitalized
terms, unless otherwise defined herein, shall have the meanings assigned to
them in the Securities Purchase Agreement.


 


The
undersigned hereby certifies on behalf of the Company that:


 


1.             The following individuals have been
and are now duly elected and qualified officers of the Company and on the date
hereof hold and on the date they executed the Transaction Documents held the
offices set forth opposite each name below, the signature appearing opposite
each name is the true and authentic signature of such officer, and such officer
was duly authorized to sign the Securities Purchase Agreement and the other
agreements and documents contemplated thereunder and the taking of all actions
contemplated thereunder on behalf of the Company:


 




	
  Name

  	
   

  	
  Office

  	
   

  	
  Signature

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Walter
  T. Kaczmarek

  	
   

  	
  Chief
  Executive Officer;

  President

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Lawrence
  D. McGovern

  	
   

  	
  Executive
  Vice President;

  Chief Financial Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Debbie
  Reuter

  	
   

  	
  Secretary

  	
   

  	
   

  






 


2.             Attached hereto as Exhibit “A”
is a true, complete and correct copy of the Restated Articles of Incorporation,
with all amendments thereto, and the same has not been further amended,
modified or terminated, and is in full force and effect as of the date hereof.


 


3.             Attached hereto as Exhibit “B”
is a true, complete and correct copy of the Bylaws, with all amendments
thereto, and the same has not been further amended, modified or terminated, and
is in full force and effect as of the date hereof.


 


4.             Attached hereto as Exhibit “C”
are true and correct copies of the resolutions duly adopted by the board of
directors of the Company authorizing the execution, delivery and performance of
the Securities Purchase Agreement and other Transaction Documents and the
consummation of the transactions contemplated thereby and therein.  Such resolutions were duly and validly
adopted by the board of directors at a meeting held on June 17, 2010.  The 


 


F-1

















 


resolutions
have not been modified or rescinded as of the date hereof, and are in full
force and effect on the date hereof.


 


F-2

















 


IN
WITNESS WHEREOF, I have hereunto set my hand this 21st day of June, 2010.


 


 


	
   

  	
   

  
	
   

  	
  Debbie
  Reuter, Secretary

  



 


I,
Lawrence D. McGovern, Executive Vice President and Chief Financial Officer of
the Company, do hereby certify that Debbie Reuter is the duly elected or
appointed Secretary of the Company and the signature on the foregoing
certificate is her genuine signature.


 


IN
WITNESS WHEREOF, I have hereunto set my hand this 21st day of June, 2010.


 


	
   

  	
   

  
	
   

  	
  Lawrence
  D. McGovern

  
	
   

  	
  Executive
  Vice President

  
	
   

  	
  and
  Chief Financial Officer

  



 


F-3

















 


EXHIBIT “A”


 


RESTATED ARTICLES OF INCORPORATION, AS AMENDED


 


F-4

















 


EXHIBIT “B”


 


BYLAWS, AS AMENDED


 


F-5

















 


EXHIBIT “C”


 


RESOLUTIONS OF THE BOARD OF DIRECTORS


 


F-6

















 


Exhibit G


 


VCOC Letter Agreements


 

















 


HERITAGE


COMMERCE
CORP


 


	
   

  	
  June 18,
  2010

  



 


Castle
Creek Capital Partners IV, LP


6051 El Tordo

Rancho Santa Fe, California 92067


 


Dear Sir/Madam:


 


Reference
is made to the Securities Purchase Agreement by and among Heritage Commerce
Corp (the “Company”) and Castle Creek Capital IV LP (the “VCOC Investor”) dated
as of June 18, 2010 (the “Purchase Agreement”) pursuant to which the VCOC
Investor has agreed to purchase from the Company 17,775 shares of preferred
stock (the “Stock”), no par value per share, of the Company, comprised of two
classes: (a) Series B Mandatorily Convertible Cumulative Perpetual
Preferred Stock and (b) Series C Convertible Perpetual Preferred Stock.  Unless otherwise stated herein, capitalized
terms used herein without definition shall have the respective meanings set
forth in the Purchase Agreement.


 


The
Company hereby agrees that, at any time the VCOC Investor does not have a Board
Representative serving on the Board of Directors pursuant to a unilateral right
held by the VCOC Investor to appoint such Board Representative under Section 4.15
of the Purchase Agreement, for so long as the VCOC Investor, directly or
through one or more conduit subsidiaries, continues to hold any shares of Stock
(or other securities of the Company into which such shares of Stock may be
converted or for which such shares of Stock may be exchanged), without
limitation or prejudice of any the rights provided to the VCOC Investor under
the Purchase Agreement or elsewhere, the Company shall:


 


·                                          Provide the
VCOC Investor or its designated representative with:


 


(i)            the right to visit and inspect any
of the offices and properties of the Company and its subsidiaries and inspect and
copy the books and records of the Company and its subsidiaries, at such times
as the VCOC Investor shall reasonably request, but not more frequently than
once per quarter;


 


(ii)           as soon as available and in any event
within 45 days after the end of each quarter of each fiscal year of the Company
(or 120 days for fiscal year end), consolidated balance sheets and statements
of income and cash flows of the Company and its subsidiaries as of the end of
such period or year then ended, as applicable, prepared in conformity with
generally accepted accounting principles in the United States applied on a
consistent basis, and with respect to each fiscal year end statement together
with an auditor’s report thereon of a firm of established national reputation;
and


 


150
Almaden Boulevard · Suite 200
· San Jose,
California 95113-2010


408.947.6900  ·  www.heritagecommercecorp.com  ·  fax
408.947.6910


 

















 


(iii)          to the extent the Company or any
subsidiary is required by law or pursuant to the terms of any outstanding indebtedness
of the Company to prepare such reports, any annual reports, quarterly reports
and other periodic reports pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, actually prepared by the Company or such
subsidiary as soon as available.


 


;
provided that, in each case, if the Company makes the information
described in clauses (ii) and (iii) of this bullet point available
through public filings on the EDGAR system or any successor or replacement
system of the U.S. Securities and Exchange Commission, the delivery of the
information shall be deemed satisfied by such public filings.


 


·                                          Make
appropriate officers and directors of the Company, and its subsidiaries,
available periodically and at such times as reasonably requested by the VCOC
Investor for consultation with the VCOC Investor or its designated
representative with respect to matters relating to the business and affairs of
the Company and its subsidiaries, but not more frequently than once per
quarter;


 


·                                          To the extent
consistent with applicable law (and with respect to events which require public
disclosure, only following the Company’s public disclosure thereof through
applicable securities law filings or otherwise), inform the VCOC Investor or
its designated representative in advance with respect to any significant
corporate actions, and to provide the VCOC Investor or its designated
representative with the right to consult with the Company and its subsidiaries
in advance with respect to such actions should the VCOC Investor elect to do so
and provided that the Company shall be under no obligation to provide the VCOC
Investor with any material non-public information with respect to such
significant corporation action.


 


The
Company agrees to consider, in good faith, the recommendations of the VCOC
Investor or its designated representative in connection with the matters on
which it is consulted as described above, recognizing that the ultimate
discretion with respect to all such matters shall be retained by the Company.


 


The
VCOC Investor agrees, and will require each designated representative of the
VCOC Investor to hold in confidence and not use or disclose to any third party
(other than its legal counsel and accountants) any confidential information
provided to or learned by such party in connection with the VCOC Investor’s
rights under this letter agreement except as may otherwise be required by law
or legal, judicial or regulatory process, provided that the VCOC Investor takes
reasonable steps to minimize the extent of any such required disclosure.


 


2

















 


In
the event the VCOC Investor transfers all or any portion of its investment in
the Company to an affiliated entity (or to a direct or indirect wholly-owned
conduit subsidiary of any such affiliated entity) that is intended to qualify
as a venture capital operating company under the Plan Asset Regulation, such
affiliated entity shall be afforded the same rights with respect to the Company
afforded to the VCOC Investor hereunder and shall be treated, for such
purposes, as a third party beneficiary hereunder.


 


This
letter agreement and the rights and the duties of the parties hereto shall be
governed by, and construed in accordance with, the laws of the State of New
York and may be executed in counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
one and the same instrument.


 


	
   

  	
  HERITAGE
  COMMERCE CORP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:
  

  	
  Walter
  T. Kaczmarek

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  	
  and President

  



 


 


Agreed
and acknowledged as of the date first above written:


 


 


CASTLE
CREEK CAPITAL PARTNERS IV, LP


 


By:
Castle Creek Capital IV LLC, its general partner


 


	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  



 


3
















 


HERITAGE


COMMERCE
CORP


 


	
   

  	
  June 18,
  2010

  



 


Patriot
Financial Partners, L.P.


Patriot
Financial Partners Parallel, L.P.


Cira
Centre


2929
Arch Street, 27th Floor


Philadelphia,
Pennsylvania 19104-2868


 


Dear
Sir/Madam:


 


Reference
is made to the Securities Purchase Agreement by and among Heritage Commerce
Corp (the “Company”), Patriot Financial Partners, L.P. (“Patriot”) and Patriot
Financial Partners Parallel, L.P. (“Patriot Parallel”, together with Patriot,
the “VCOC Investor”) dated as of June 18, 2010 (the “Purchase Agreement”)
pursuant to which the VCOC Investor has agreed to purchase from the Company
17,775 shares of preferred stock (the “Stock”), no par value per share, of the
Company, comprised of two classes: (a) Series B Mandatorily
Convertible Cumulative Perpetual Preferred Stock and (b) Series C
Convertible Perpetual Preferred Stock. 
Unless otherwise stated herein, capitalized terms used herein without
definition shall have the respective meanings set forth in the Purchase
Agreement.


 


The
Company hereby agrees that, at any time the VCOC Investor does not have a Board
Representative serving on the Board of Directors pursuant to a unilateral right
held by the VCOC Investor to appoint such Board Representative under Section 4.15
of the Purchase Agreement, for so long as the VCOC Investor, directly or
through one or more conduit subsidiaries, continues to hold any shares of Stock
(or other securities of the Company into which such shares of Stock may be
converted or for which such shares of Stock may be exchanged), without
limitation or prejudice of any the rights provided to the VCOC Investor under
the Purchase Agreement or elsewhere, the Company shall:


 


·                                          Provide the
VCOC Investor or its designated representative with:


 


(i)            the right to visit and inspect any
of the offices and properties of the Company and its subsidiaries and inspect
and copy the books and records of the Company and its subsidiaries, at such
times as the VCOC Investor shall reasonably request, but not more frequently
than once per quarter;


 


(ii)           as soon as available and in any event
within 45 days after the end of each quarter of each fiscal year of the Company
(or 120 days for fiscal year end), consolidated balance sheets and statements
of income and cash flows of the Company and its subsidiaries as of the end of
such period or year then ended, as applicable, prepared in conformity with
generally accepted accounting principles in the United States applied on 


 


150
Almaden Boulevard · Suite 200
· San Jose,
California 95113-2010


408.947.6900  ·  www.heritagecommercecorp.com  ·  fax
408.947.6910


 

















 


a
consistent basis, and with respect to each fiscal year end statement together
with an auditor’s report thereon of a firm of established national reputation;
and


 


(iii)          to the extent the Company or any
subsidiary is required by law or pursuant to the terms of any outstanding
indebtedness of the Company to prepare such reports, any annual reports,
quarterly reports and other periodic reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, actually prepared by the Company or such
subsidiary as soon as available.


 


;
provided that, in each case, if the Company makes the information
described in clauses (ii) and (iii) of this bullet point available
through public filings on the EDGAR system or any successor or replacement
system of the U.S. Securities and Exchange Commission, the delivery of the
information shall be deemed satisfied by such public filings.


 


·                                          Make
appropriate officers and directors of the Company, and its subsidiaries,
available periodically and at such times as reasonably requested by the VCOC
Investor for consultation with the VCOC Investor or its designated
representative with respect to matters relating to the business and affairs of
the Company and its subsidiaries, but not more frequently than once per
quarter;


 


·                                          To the extent
consistent with applicable law (and with respect to events which require public
disclosure, only following the Company’s public disclosure thereof through
applicable securities law filings or otherwise), inform the VCOC Investor or
its designated representative in advance with respect to any significant
corporate actions, and to provide the VCOC Investor or its designated
representative with the right to consult with the Company and its subsidiaries
in advance with respect to such actions should the VCOC Investor elect to do so
and provided that the Company shall be under no obligation to provide the VCOC
Investor with any material non-public information with respect to such
significant corporation action.


 


The
Company agrees to consider, in good faith, the recommendations of the VCOC
Investor or its designated representative in connection with the matters on
which it is consulted as described above, recognizing that the ultimate
discretion with respect to all such matters shall be retained by the Company.


 


The VCOC Investor agrees,
and will require each designated representative of the VCOC Investor to hold in
confidence and not use or disclose to any third party (other than its legal
counsel and accountants) any confidential information provided to or learned by
such party in connection with the VCOC Investor’s rights under this letter
agreement except as may otherwise be required by law or legal, judicial or
regulatory process, provided that the VCOC Investor takes reasonable steps to
minimize the extent of any such required disclosure.


 


2

















 


In
the event the VCOC Investor transfers all or any portion of its investment in
the Company to an affiliated entity (or to a direct or indirect wholly-owned
conduit subsidiary of any such affiliated entity) that is intended to qualify
as a venture capital operating company under the Plan Asset Regulation, such
affiliated entity shall be afforded the same rights with respect to the Company
afforded to the VCOC Investor hereunder and shall be treated, for such
purposes, as a third party beneficiary hereunder.


 


This
letter agreement and the rights and the duties of the parties hereto shall be
governed by, and construed in accordance with, the laws of the State of New
York and may be executed in counterparts, each of which when so executed shall
be deemed to be an original and all of which taken together shall constitute
one and the same instrument.


 


	
   

  	
  HERITAGE
  COMMERCE CORP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:
  

  	
  Walter
  T. Kaczmarek

  
	
   

  	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  	
  and President

  



 


 


Agreed
and acknowledged as of the date first above written:


 


 


PATRIOT
FINANCIAL PARTNERS, L.P.


 


 


	
  By:

  	
   

  	
   

  
	
   

  	
  Name:
  W. Kirk Wycoff

  	
   

  
	
   

  	
  Title:
  Managing Partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PATRIOT FINANCIAL PARTNERS PARALLEL, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:
  W. Kirk Wycoff

  	
   

  
	
   

  	
  Title:
  Managing Partner

  	
   

  



 


3

















 


Schedule 3.1(a)


 


Subsidiaries


 


The
Company’s subsidiary is Heritage Bank of Commerce.


 


In
addition, the Company has formed four trusts: Heritage Capital Trust I,
Heritage Statutory Trust I, Heritage Statutory Trust II, and Heritage Statutory
Trust III.  Pursuant to accounting
guidance on variable interest entities, these Trusts are not consolidated with
the financial statements of the Company.


 


1

















 


Schedule 3.1(g)


 


Capitalization


 


Common
Stock, no par value:


Authorized:
60,000,000 shares


Issued
and outstanding: 11,820,509 shares


 


Preferred
Stock:


Authorized
10,000,000 shares


Series A
Fixed Rate Cumulative Perpetual Stock, no par value: 40,000 shares issued and
outstanding.


 


Options:


1994
Tandem Stock Option Plan: 150,419 options outstanding.


Amended
and Restated 2004 Equity Plan: 909,392 options outstanding.


An
additional 129,500 options have been authorized for grant by the Board of
Directors under the Amended and Restated 2004 Equity Plan, but will not be
issued until the Company’s current trading black out period has expired.  Upon grant, the total amount of options
outstanding, assuming no exercises prior to the grant of additional options,
will be 1,189,311.


 


Restricted
Stock:


51,000
shares of restricted stock issued to the Company’s Chief Executive Officer
pursuant to a Restricted Stock Agreement dated May 17, 2005.


13,500
shares of restricted stock have been authorized for issuance by the Company
under the Amended and Restated 2004 Equity Plan, but will not be issued until
the Company’s current trading black out period has expired.  Upon grant, the total number of shares of
restricted stock subject to grant, assuming no grant vests in the intervening
period, will be 64,500.


 


Warrant:


 


Warrant
issued to the U.S. Treasury to purchase 462,963 shares of the Company’s common
stock at an exercise price of $12.96.(1)


 






(1)               Section 13(b) of the Warrant
provides that, until the earlier of (i) the date on which the original
warrantholder no longer holds the warrant and (ii) November 21, 2011,
if the Company issues common stock (or rights, warranties or securities
convertible into common stock) without consideration or at a consideration per
share (or conversion price per share) that is less than 90% of the Market Price
on the last trading day preceding the date of the agreement on pricing such
shares (or such convertible securities), then the number of shares issuable
upon the exercise of the Warrant immediately prior to the date of the agreement
on pricing of such shares (or convertible securities) shall be increased
pursuant to the following formula: the number of shares shall be increased to
the number obtained by multiplying the initial number by a fraction (A) the
numerator of which shall be the sum of (x) the number of commons tock
shares outstanding on such date and (y) the number of additional common
stock shares issued (or into which convertible securities may be converted) and
(B) the denominator of which shall be the sum of (I) the number of
common stock shares outstanding on such date and (II) the number of common
stock shares which the aggregate consideration receivable by the Company for
the total number of shares of common stock so issued (or into which the
convertible securities may convert) would purchase at the Market Price on the
last trading day preceding the date of the agreement on pricing such shares (or
convertible securities).  Capitalized
terms used in this footnote and not otherwise defined herein have the meanings
assigned to such terms in the Warrant.


 


2

















 


Schedule 3.1(y)


 


Registration Rights


 


None.


 


3

















 


Schedule 3.1(mm)


 


Agreements with Regulatory Agencies; 

Compliance with Certain Banking Regulations


 


On
February 17, 2010, the Company and Heritage Bank of Commerce (“HBC”)
entered into a written agreement with the Federal Reserve Bank of
San Francisco (the “Federal Reserve”), and the California Department of
Financial Institutions (the “DFI”). 
Under the terms of the written agreement, the Company must obtain the
prior written approval of the Federal Reserve and DFI before it may
(i) declare or pay any dividends, (ii) make any distributions of
principal or interest on the Company’s outstanding trust preferred securities
and related subordinated debt, (iii) incur, increase or guarantee any
debt, (iv) redeem any outstanding stock, or (v) take dividends or any
other form of payment that represents a reduction in capital from HBC. The
written agreement also requires the Company to (i) submit a written plan
to strengthen credit risk management practices, (ii) submit a written
capital plan for sufficient capitalization of both the Company and HBC,
(iii) submit a written business plan for 2010 to improve the Company’s
earnings and overall financial condition, (iv) comply with notice and
approval requirements related to the appointment of directors and senior
executive officers or change in the responsibility of any current senior
executive officer, (v) comply with restrictions on paying or agreeing to
pay certain indemnification and severance payments without prior written
approval, (vi) submit a written plan to improve management of the Company’s
liquidity position and funds management practices, (vii) notify the
Federal Reserve and DFI no more than 30 days after the end of any quarter
in which the capital ratios of the Company or HBC fall below approved capital
plan’s minimum ratios, together with an acceptable plan to increase capital
ratios above the approved capital plan’s minimum levels, (viii) comply
with specified procedures for board (or a committee of the board) approval for
the extension, renewal or restructure of any “criticized loan”,
(ix) submit plans to improve the Company’s position on outstanding past
due and other problem loans in excess of $2 million, (x) maintain
policies and procedures and submit a plan for the maintenance of an adequate
allocation for loan and lease losses, and (xi) provide quarterly progress
reports to the Federal Reserve and DFI.


 


4

















 


Section 3.1(vv)


 


Change in Control


 


None.


 


5

















 


Section 3.1(yy)


 


SBA Lending


 


Pursuant
to the SBA Procedural Notice bearing Control No.: 5000-989, effective as of
May 2, 2006, the geographic territory for each existing Preferred Lender
Program (“PLP”) lender is nationwide.  Pursuant to such Notice,
authorizing lenders to make PLP loans nationwide will enhance small business
access to capital, and make the SBA’s handling of requests by SBA lenders for
PLP status more timely and efficient.


 


6