Document:

Exhibit
10.7

 

FIRST AMENDED AND RESTATED

HERITAGE COMMERCE CORP

DEFERRED FEE AGREEMENT

 

RECITAL

 

This First Amended and
Restated Deferred Fee Agreement (hereinafter “Agreement”) is made and entered
into effective as of January 1, 2005, by and between HERITAGE COMMERCE CORP, a bank holding
company organized and existing under the laws of the state of California
(hereinafter the “Company”) and JAMES BLAIR,
a Director of the Company (hereinafter “Director” or “Participant”);

 

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

 

WHEREFORE, the Company and
Director hereby agree to amend and restate the original of Commerce Deferred
Fee Agreement, effective as of June 30, 1997, as amended, (hereinafter
“Original Agreement”), and further agree that this Agreement shall amend,
supersede and replace the Original Agreement in its entirety;

 

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

 

WHEREAS, it is the intent of
the parties hereto that this Agreement be considered an unfunded arrangement
maintained primarily to provide supplemental retirement benefits for the
Director; and

 

NOW, THEREFORE, in
consideration of the past service and the services to be performed by the
Director in the future, as well as the mutual promises and covenants contained
herein, the Director and the Company agree as follows:

 

A G R E E M E N T

 

1.                                      Terms and Definitions.

 

For the purposes of this
Agreement, the following terms shall have the meanings indicated, unless the
context clearly indicates otherwise:

 

1.1          Administrator.  The
Compensation and Benefits Committee of the Board of Directors of Heritage
Commerce Corp shall be the “Administrator” and, solely for the purposes of
ERISA (as defined below), the “fiduciary” of this Agreement to the extent a
fiduciary is required by ERISA.

 

1.2          Beneficiary.  The
term “Beneficiary(ies)” shall refer to the person, persons or entity designated
in writing by the Director on forms provided by the Administrator

 

1

 

(“Beneficiary Designation
Form”) to receive the benefits payable under this Agreement in the event of
Director’s death. A Director may change his Beneficiary from time to time, so
long as permissible, by filing a new written Beneficiary Designation Form with
the Administrator, and such designation shall be effective upon receipt by the
Administrator.  If Director has not
validly designated a beneficiary, or if a designated Beneficiary predeceases
the Director, then any benefit owed a beneficiary pursuant to this Agreement
shall be made to Director’s estate.

 

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

 

1.4          Code.  The
“Code” shall mean the Internal Revenue Code of 1986, as amended.

 

1.5          Company.  For
the purpose of this Agreement, the term “Company” shall include both Heritage
Bank of Commerce and Heritage Commerce Corp, when possible and not prohibited
by alternate provisions of this Agreement.

 

1.6          Deferral Amount.  The
term “Deferral Amount” shall mean 100% of Participant’s Director’s Fees.

 

1.7          Deferred Compensation Account.  The
term “Deferred Compensation Account” shall reflect the amounts Participant has
elected to defer over time. The Deferred Compensation Account shall be a
bookkeeping entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to, or in respect of, a
Participant pursuant to this Agreement. 
The Deferred Compensation Account shall be equal to the sum of (i) all
amounts deferred under this Agreement, including all amounts deferred
previously under the Original Agreement and (ii) interest thereon credited
in accordance with the applicable interest crediting provisions of this
Agreement, net of all distributions from such account. Amounts deferred
pursuant to the Original Agreement and this Agreement shall be credited to the
Deferred Compensation Account, along with the specified interest thereon.

 

1.8          Director Benefit.  The
term “Director Benefit” shall mean the benefit determined pursuant to this
Agreement, forfeited, reduced or adjusted to the extent:  (a)  required by reason of the lawful
order of any regulatory agency or body having jurisdiction over the Company; or
(b) required in order for the Company to comply with any and all
applicable state and federal laws, including, but not limited to, income,
employment and disability income tax laws (eg., FICA, FUTA, SDI).

 

1.9          Director’s Fees.  The
term “Director’s Fees” shall mean the annual cash compensation paid by the Company
to Director for services rendered during a given Plan Year, including annual
retainer fees, chair retainer fees, meeting fees, committee fees, and special
meeting fees (if applicable).

 

1.10        Distribution Election Form.  The
term “Distribution Election Form” shall refer to the form established by the
Company that a Participant completes, signs and returns to the Administrator to
make an election regarding the form and/or timing of a distribution under this
Agreement. Any changes to the Distribution Election Form must be made in
compliance with the restrictions and limitations imposed by IRC 409A.

 

2

 

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

 

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

 

1.13        IRC 409A.  The
term “IRC 409A” shall refer to Code section 409A, the final regulations
issued by the IRS and the Treasury Department under Code section 409A, and
all related guidance and notices thereon.

 

1.14        Plan.  The
“Plan” shall mean this Agreement, any Beneficiary Designation Form, and any
Distribution Election Form.

 

1.15        Plan Year.  The
term “Plan Year” shall mean the calendar year (January 1 through December 31
of any given year).

 

1.16        Rate of Interest The Rate of Interest shall refer to the
percentage used to calculate earnings on the deferred amounts in the Deferred
Compensation Account.  The earnings shall
be accrued and credited annually to the Deferred Compensation Account. Prior to
December 31, 2004, the Rate of Interest shall be eight percent (8%), the
rate designated in the Original Agreement. Thereafter, the Rate of Interest
shall be determined, in accordance with IRC 409A, and it shall be a reasonable
rate of interest.  The Rate of Interest for the years
after December 31, 2004 and prior to January 1, 2009 shall be eight
percent (8%).  Following December 31,
2008, the Rate of Interest shall be the Wall Street Journal prime rate of
interest on December 31 of each year (or if there is no such rate a
comparable rate set annually by the Board of Directors on or before December 31st
of each year) and shall remain in effect for the following calendar year.

 

1.17        Separation from Service.  The
term “Separation from Service” shall be read and interpreted consistent with
IRC 409A and any future notices or guidance related thereto.  The term “Separation from Service” shall mean
the expiration of all contracts or terms of service under which the Director is
performing services as a member of the Board of Directors, and where expiration
constitutes a good faith and complete termination of the service relationship.

 

2.                   Scope, Purpose And Effect.

 

2.1          Not an Independent Contractor or
Other Agreement.  Although this Agreement is intended to
provide the Director with an additional incentive to remain an active member of
the Board of Directors of the Company, this Agreement shall not be deemed to
constitute an independent contractor or other agreement between the Director
and the Company nor shall any provision of this Agreement restrict or expand
the right of the shareholders of the Company or the Board to remove Director
for any reason.  This Agreement shall
have no impact or effect upon any separate written agreement which the Director
may have with the Company, it being the parties’ intention and agreement that
unless this Agreement is specifically referenced in said agreement (or any
modification thereto), this Agreement (and the Company’s obligations hereunder)
shall stand separate and apart and shall have no effect on or be affected by,
the terms and provisions of said agreement.

 

3

 

3.                   Compliance With IRC 409A.

 

3.1          Compliance With IRC 409A.  In
the event of any ambiguity in terms, or in the event further clarification of
any term or provision is necessary, all interpretations and payouts of benefits
based thereon shall be in accordance with IRC 409A.

 

3.2          Changes In Time Or Form Of
Payment.  Participant may modify the time or form of
benefit payment if the following requirements are satisfied (i) the
election may not take effect until at least twelve (12) months after the date
on which the election is made (i.e. if a distribution event occurs in the
interim, the original distribution method must be followed); (ii) other
than payments relating to death, any election to delay a distribution must
delay the distribution at least five (5) years from the date such payment
would otherwise have been made (or in the case of a life annuity or installment
payments treated as a single payment, five years from the date the first amount
was scheduled to be paid); and (iii) any payment made pursuant to a fixed
time or scheduled series of distributions must be made at least twelve (12)
months in advance of the first such scheduled payment.

 

4.                   Deferred Compensation
Account.

 

4.1          Credits To Deferred Compensation
Account.  The Company shall establish the Deferred
Compensation Account.  This Deferred
Compensation Account shall be credited on the dates Director’s Fees would
otherwise have been paid.

 

4.2          Interest On The Deferred
Compensation Account.  The Deferred Compensation Account shall be
credited annually with an amount equal to the Rate of Interest earned.  Interest earned shall be calculated by
multiplying the balance of the Deferred Compensation Account by the specified
Rate of Interest. Such amount shall be credited on December thirty-first
(31st) of each year until such time as the benefits under this Agreement have
been paid in full.

 

4.3          Nature Of The Deferred Compensation
Account.  The Deferred Compensation Account shall be
utilized solely as a device for the measurement and determination of the amount
of deferred compensation to be paid to the Participant at the times hereinafter
specified, and the Company shall not segregate any of its assets in order to
satisfy any obligations under this Agreement. 
The Deferred Compensation Account shall not constitute or be treated as
a trust fund of any kind.  On the
contrary, it is understood that all amounts credited to the Deferred
Compensation Account shall be for the sole purpose of bookkeeping and remain
the sole property of the Company, and that the Participant shall have no
ownership rights of any nature with respect thereto.  The Participant’s rights are limited to the
rights to receive payments as hereinafter provided and the Participant’s
position with respect thereto is that of a general unsecured creditor of the
Company.

 

4

 

5.                   Payment of Deferred
Compensation Account.

 

Payment
of the Deferred Compensation Account shall be in accordance with the following:

 

5.1          Payment of Benefit in the Event
Participant Separates from Service.  In the event of Participant’s
Separation from Service for any reason, including his death, the Participant
(or his Beneficiary in the case of his death), shall receive the balance in his
Deferred Compensation Account as of the date of his Separation from Service.
The Deferred Compensation Account Balance shall be paid to the Participant (or
his Beneficiary in the case of his death) in accordance with the Distribution
Election Form attached hereto.

 

6.                   Witholdings.

 

6.1          Withholding.  The
Company shall withhold from payments made hereunder any taxes required to be
withheld under federal, state or local law.

 

6.2          Effect of Payment. 
Payment of the forgoing benefits shall fully and completely discharge
the Company from all further obligations under this Agreement with respect to a
Participant and the Participant’s Beneficiary(ies).

 

7.                   Beneficiary Designations.

 

7.1          Beneficiary Designation.  Each
Participant shall have the right, at any time, to designate any person or
persons as his Beneficiary(ies) to whom benefits under this Agreement shall be
paid in the event of his death prior to complete distribution to the Director
of the benefits due under the Agreement. 
Each Beneficiary designation shall be in a written form prescribed by
the Administrator, and will be effective only when filed with the Administrator
during the Participant’s lifetime and when accepted and acknowledged in writing
by the Administrator or its designated agent.

 

7.2          Amendments to Beneficiary
Designation.  Any Beneficiary designation may be changed by
Director without the consent of any designated Beneficiary by the filing of a
new Beneficiary designation with the Administrator.  The filing of a new Beneficiary designation
form will cancel all Beneficiary designations previously filed.  If a Director’s compensation is community
property, any Beneficiary designation shall be valid or effective only as
permitted under applicable law.

 

7.3          No Participant Designation.  In
the absence of an effective Beneficiary designation, or if all designated
Beneficiaries predecease the Director or die prior to complete distribution of
the Director’s benefits, then the Director’s designated Beneficiary shall be
deemed to be the Director’s estate.

 

7.4          Doubt as to Beneficiary.  If
the Administrator has any doubt as to the proper Beneficiary to receive
payments pursuant to this Agreement, the Administrator shall have the right to
withhold such payments until this matter is resolved (so long as such payments
are made in a timely fashion and in compliance with IRC 409A).

 

5

 

7.5          Payment to Guardian.  If a
benefit is payable to a minor or a person declared incompetent or to a person
incapable of handling the disposition of his property, the Administrator may
direct payment of such benefit to the guardian, legal representative or such
person having the care and custody of such minor, incompetent or person.  The Administrator may require proof of
incompetency, minority, incapacity or guardianship as it may deem appropriate
prior to distribution of the benefit. 
Such distribution shall completely discharge the Administrator and the
Company from all liability with respect to such benefit.

 

7.6          Effect of Payment to the
Beneficiary.  Payment to the deemed Beneficiary shall fully
and completely discharge the Company and the Administrator from all further
obligations under this Agreement.

 

8.                   Administration And Claims.

 

8.1          Named Fiduciary and Plan
Administrator.  The “Named Fiduciary” and “Plan
Administrator” of this Plan shall be the Compensation and Benefits Committee of
the Board of Directors.  As Named
Fiduciary and Plan Administrator, the Compensation Committee shall be
responsible for the management, control and administration of this Plan.  The Named Fiduciary may delegate to others
certain aspects of the management and operation responsibilities of the Plan,
including employment of advisors and the delegation of ministerial duties to
qualified individuals.

 

8.2          Claim.  The
Administrator shall, but only to the extent necessary to comply with ERISA, be
designated as the named fiduciary under this Agreement and shall have authority
to control and manage the operation and administration of this Agreement.  Consistent therewith, the Company shall make
all determinations as to the rights to benefits under this Agreement.  Any decision by the Administrator denying a
claim by the Participant, the Participant’s spouse, or the Participant’s
Beneficiary for benefits under this Agreement shall be stated in writing and
delivered or mailed, via registered or certified mail, to the Participant, the
Participant’s spouse or the Participant’s Beneficiary, as the case may be.  Such decision shall set forth the specific
reasons for the denial of a claim.  In
addition, the Company shall provide the Participant, the Participant’s spouse
or the Participant’s Beneficiary with a reasonable opportunity for a full and
fair review of the decision denying such claim.

 

8.3          Arbitration of Disputes.  All
unresolved claims, disputes and other matters in question arising out of or
relating to this Agreement or the breach or interpretation thereof, other than
those matters which are to be determined by the Administrator in its sole and
absolute discretion, shall be resolved by binding arbitration before a
representative member, selected by the mutual agreement of the parties, of the
Judicial Arbitration and Mediation Services, Inc. (“JAMS”), located in San
Jose, California.  In the event JAMS is
unable or unwilling to conduct the arbitration provided for under the terms of
this Paragraph, or has discontinued its business, the parties agree that a
representative member, selected by the mutual agreement of the parties, of the American
Arbitration Association (“AAA”), located in San Jose, California, shall conduct
the binding arbitration referred to in this Paragraph.  Notice of the demand for arbitration shall be
filed in writing with the other party and with JAMS (or AAA, if
necessary).  In no event shall the demand
for arbitration be made after the date when institution of legal or equitable
proceedings based on such claim, dispute or other matter in question would

 

6

 

be barred by the applicable
statute of limitations.  The arbitration
shall be subject to such rules of procedure used or established by JAMS,
or if there are none, the rules of procedure used or established by
AAA.  Any award rendered by JAMS or AAA
shall be final and binding upon the parties, and as applicable, their
respective heirs, beneficiaries, legal representatives, agents, successors and
assigns, and may be entered in any court having jurisdiction thereof.  The obligation of the parties to arbitrate
pursuant to this clause shall be specifically enforceable in accordance with,
and shall be conducted consistently with, the provisions of Title 9 of Part 3
of the California Code of Civil Procedure. 
Any arbitration hereunder shall be conducted in San Jose, California,
unless otherwise agreed to by the parties.

 

9.                   Dispute Resolution.

 

9.1          Attorneys’ Fees.  In
the event of any arbitration or litigation concerning any controversy, claim or
dispute between the parties hereto, arising out of or relating to this
Agreement or the breach hereof, or the interpretation hereof, (a) each
party shall pay his own attorneys’ arbitration fees incurred (pursuant to the
terms of this Agreement); (b) the prevailing party shall be entitled to
recover from the other party reasonable expenses, attorneys’ fees and costs
incurred in the enforcement or collection of any judgment or award rendered.
The “prevailing party” means any party (one party or both parties, as the case
may be) determined by the arbitrator(s) or court to be entitled to money
payments from the other, not necessarily the party in whose favor a judgment is
rendered.

 

10.                Status as an Unsecured
General Creditor.

 

10.1        Unsecured Creditor. 
Notwithstanding anything contained herein to the contrary:  (i) the Director shall have no legal or
equitable rights, interests or claims in or to any specific property or assets
of the Company as a result of this Agreement; (ii) none of the Company’s
assets shall be held in or under any trust for the benefit of the Director or
held in any way as security for the fulfillment of the obligations of the
Company under this Agreement; (iii) all of the Company’s assets shall be
and remain the general unpledged and unrestricted assets of the Company; (iv) the
Company’s obligation under this Agreement shall be that of an unfunded and
unsecured promise by the Company to pay money in the future; and (v) the
Director shall be an unsecured general creditor with respect to any benefits
which may be payable under the terms of this Agreement.

 

Assets set aside in trust by
the Company to meet its obligations under this Agreement shall not be placed in
a foreign trust located outside the United States.

 

10.2        Corporate Assets. 
Payments to Director or his Beneficiary(ies) shall be made from assets
which shall continue, for all purposes, to be a part of the general,
unrestricted assets of the Company. No person shall have nor acquire any interest
in any such assets by virtue of the provisions of this Agreement.

 

The Company may, in its sole
discretion, purchase assets to secure all or any part of its obligations
undertaken through this Agreement. If the Company elects to secure its promise
under this Agreement, in whole or in part, through the purchase of life
insurance, mutual funds, disability policies, annuities or other assets, then
Company may, at any time dispose of such

 

7

 

assets in whole or in part.
In no event shall Director or Beneficiary(ies) be deemed to have a lien, right,
title, or interest in any specific investment or asset of Company.

 

If Company decided to
purchase a life insurance, disability or annuity policy upon the life or health
of the Director, then Director will cooperate by furnishing any and all
information requested by the Company and by taking such physical examinations
or other action as may be requested by the Company in order to obtain such
insurance or annuity.

 

11.                Miscellaneous.

 

11.1        Opportunity To Consult With
Independent Advisors.  The Director acknowledges that he has been
afforded the opportunity to consult with independent advisors of his choosing
including, without limitation, accountants or tax advisors and counsel regarding
both the benefits granted to him under the terms of this Agreement and the (i) terms
and conditions which may affect the Director’s right to these benefits and (ii) personal
tax effects of such benefits including, without limitation, the effects of any
federal or state taxes, Section 280G of the Code, and any other taxes,
costs, expenses or liabilities whatsoever related to such benefits, which in
any of the foregoing instances the Director acknowledges and agrees shall be
the sole responsibility of the Director notwithstanding any other term or
provision of this Agreement.  The
Director further acknowledges and agrees that the Company shall have no
liability whatsoever related to any such personal tax effects or other personal
costs, expenses, or liabilities applicable to the Director and further
specifically waives any right for himself or herself, and his or her heirs,
beneficiaries, legal representatives, agents, successor and assign to claim or
assert liability on the part of the Company related to the matters described
above in this paragraph.   The Director
further acknowledges that he has read, understands and consents to all of the
terms and conditions of this Agreement, and that he enters into this Agreement
with a full understanding of its terms and conditions.

 

11.2        Notice.  Any
notice required or permitted of either the Director or the Company under this
Agreement shall be deemed to have been duly given, if by personal delivery,
upon the date received by the party or its authorized representative; if by
facsimile, upon transmission to a telephone number previously provided by the
party to whom the facsimile is transmitted as reflected in the records of the
party transmitting the facsimile and upon reasonable confirmation of such
transmission; and if by mail, on the third day after mailing via U.S. first
class mail, registered or certified, postage prepaid and return receipt
requested, and addressed to the party at the address given below for the
receipt of notices, or such changed address as may be requested in writing by a
party.

 

	
  If
  to the Company:

  	
  Heritage
  Commerce Corp

  	 

	
   

  	
  150
  Almaden Blvd.

  	 

	
   

  	
  San
  Jose, CA 95113

  	 

	
   

  	
  Attn.:

  	
  Lawrence D. McGovern

  
	
   

  	
   

  	
  Executive Vice
  President/Chief Financial Officer

  
	
   

  	
   

  	 

	
  If
  to the Director:

  	
  James
  Blair

  	 

	
   

  	
  1645
  The Alameda

  	 

	
   

  	
  San Jose, CA 95126

  	 

				

 

8

 

11.3        Assignment.  The Director shall have no power or right to
transfer, assign, anticipate, hypothecate, modify or otherwise encumber any
part or all of the amounts payable hereunder, nor, prior to payment in
accordance with the terms of this Agreement, shall any portion of such amounts
be:  (i) subject to seizure by any
creditor of the Director, by a proceeding at law or in equity, for the payment
of any debts, judgments, alimony or separate maintenance obligations which may
be owed by the Director; or (ii) transferable by operation of law in the
event of bankruptcy, insolvency or otherwise. Any such attempted assignment or
transfer shall be void. In the event the Director or any beneficiary attempts
assignment, communication, hypothecation, transfer or disposal of the benefits
hereunder, any such attempted transfer or assignment shall be void.

 

11.4        IRC Section 280G Issues.  If all or any portion of the amounts payable
to the Director under this Agreement, either alone or together with other
payments which the Director has the right to receive from the Company,
constitute “excess parachute payments” within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended (the “Code”), that are subject
to the excise tax imposed by Section 4999 of the Code (or similar tax
and/or assessment), Director shall be responsible for the payment of such
excise tax and Company (and its successor) shall be responsible for any loss of
deductibility related thereto; provided, however, that Company and Director shall
cooperate with each other and use all reasonable efforts to minimize to the
fullest extent possible the amount of excise tax imposed by Section 4999
of the Code, as long as such efforts are in accordance with IRC 409A.  If, at a later date, it is determined
(pursuant to final regulations or published rulings of the Internal Revenue
Service, final judgment of a court of competent jurisdiction, or otherwise)
that the amount of excise taxes payable by the Director is greater than the
amount initially so determined, then the Director shall pay an amount equal to
the sum of such additional excise taxes and any interest, fines and penalties
resulting from such underpayment.  The
determination of the amount of any such excise taxes shall be made by the
independent accounting firm employed by the Company immediately prior to the
change in control or such other independent accounting firm or advisor as may
be mutually agreeable to Company and Director in the exercise of their
reasonable good faith judgment.

 

11.5        Binding Effect/Merger or
Reorganization. 
This Agreement shall be binding upon and inure to the benefit of the
Director and the Company.  The term “Company”
as used in this Agreement shall be deemed to refer to any surviving or
successor firm, person, entity or corporation, or holding company, as the case
may be.

 

11.6        Nonwaiver.  The failure of either party to enforce at any
time or for any period of time any one or more of the terms or conditions of
this Agreement shall not be a waiver of such term(s) or condition(s) or
of that party’s right thereafter to enforce each and every term and condition
of this Agreement.

 

11.7        Partial Invalidity.  If any terms, provision, covenant, or
condition of this Agreement is determined by an arbitrator or a court, as the
case may be, to be invalid, void, or unenforceable, such determination shall
not render any other term, provision, covenant or condition invalid, void or
unenforceable, and the Agreement shall remain in full force and effect
notwithstanding such partial invalidity.

 

9

 

11.8        Entire Agreement.  This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties with respect to the
subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect thereto.  Each party to this Agreement acknowledges
that no other representations, inducements, promises, or agreements, oral or
otherwise, have been made by any party, or anyone acting on behalf of any
party, which are not set forth herein, and that no other agreement, statement,
or promise not contained in this Agreement shall be valid or binding on either
party.

 

11.9        Paragraph Headings.  The paragraph headings used in this Agreement
are included solely for the convenience of the parties and shall not affect or
be used in connection with the interpretation of this Agreement.

 

11.10      No Strict Construction.  The language used in this Agreement shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any
person.

 

11.11      Governing Law.  The laws of the State of California, other
than those laws denominated choice of law rules, shall govern the validity,
interpretation, construction and effect of this Agreement.

 

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

 

11.13      Amendment.  Any amendment to this Agreement shall be
effective only if it is in writing and signed by each party or such party’s
authorized representative, and only to the extent that it is compliant with all
applicable codes and statutes, including but not limited to IRC 409A. In
addition, no amendment shall be effective to decrease a Participant’s Deferred
Compensation Account balance calculated as though the Participant had
experienced a Separation from Service as of the effective date of such
amendment or modification.

 

12.                               Termination
or Modification of Agreement by Reason of Changes in the Law, Rules or
Regulations.

 

The Company is
entering into this Agreement upon the assumption that certain existing tax
laws, the Code, rules and regulations will continue in effect in their
current form. If any said assumptions should change and said change has a
detrimental effect on this Agreement, then the Company reserves the right to
terminate or modify this Agreement accordingly.

 

10

 

IN WITNESS
WHEREOF, the Company and the Director have executed this Agreement effective as
of the date first above-written in the City of San Jose, California.

 

	
  HERITAGE COMMERCE CORP

  	
   

  	
  DIRECTOR

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Lawrence
  D. McGovern

  	
   

  	
  /s/ James
  Blair

  
	
   

  	
  Lawrence D.
  McGovern-Executive

  	
   

  	
  James Blair

  
	
   

  	
  Vice
  President/Chief Financial Officer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  December 29,
  2008

  	
   

  	
  Date:

  	
  December 29,
  2008

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Witness

  	
   

  	
  Witness

  
						

 

11

 

DISTRIBUTION
ELECTION FORM – Director

 

Participant:          JAMES BLAIR

 

	
  Social Security Number:

  	
   

  

 

The following
designates my election with respect to the manner in which I elect to receive
payments and/or distributions pursuant to my participation in the First Amended
and Restated Heritage Commerce Corp Deferred Fee Agreement:

 

FORM OF BENEFIT

 

You may choose
only one of the below options, and please designate your choice by initialing.

 

o            Upon my Separation from Service, I elect to have my
Director Benefit paid to me in one lump sum on the first day of the first month
immediately following my Separation from Service.

 

o            Upon my Separation from Service, I elect to have my
Director Benefit paid to me in Thirty-Six (36) substantially equal monthly
installment payments. Payments shall commence on the first day of the first
month immediately following my Separation from Service and continue monthly
thereafter for the designated period. The exact amount of each payment shall be
determined by dividing the balance of my Deferred Compensation Account by the
number of installments remaining, with the final installment to be the entire
remaining balance in my Deferred Compensation Account.

 

o            Upon my Separation from Service, I elect to have my Director
Benefit paid to me in Sixty (60) substantially equal monthly installment
payments. Payments shall commence on the first day of the first month
immediately following my Separation from Service and continue monthly
thereafter for the designated period. The exact amount of each payment shall be
determined by dividing the balance of my Deferred Compensation Account by the
number of installments remaining, with the final installment to be the entire
remaining balance in my Deferred Compensation Account.

 

o            Upon my Separation from Service, I elect to have my
Director Benefit paid to me in One Hundred and Twenty (120) substantially equal
monthly installment payments. Payments shall commence on the first day of the
first month immediately following my Separation from Service and continue
monthly thereafter for the designated period. The exact amount of each payment
shall be determined by dividing the balance of my Deferred Compensation Account
by the number of installments remaining, with the final installment to be the
entire remaining balance in my Deferred Compensation Account.

 

o            Upon my Separation from Service, I elect to have my
Director Benefit paid to me in One Hundred and Eighty (180) substantially equal
monthly installment payments. Payments shall commence on the first day of the
first month immediately following my Separation from Service and continue
monthly thereafter for the designated period. The exact 

 

1

 

amount of each
payment shall be determined by dividing the balance of my Deferred Compensation
Account by the number of installments remaining, with the final installment to
be the entire remaining balance in my Deferred Compensation Account.

 

In addition to
the forgoing, I understand that any modification to the time and/or form of
distribution of amounts previously deferred must comply with the following
restrictions: (1) any modifying election must be made at least twelve (12)
months before it becomes effective; (2) a subsequent election must provide
for a deferral of the required payments for at least five additional (5) years;
and (3) deferral elections with respect to a specified time or fixed
schedule may not be made less than twelve (12) months before payments are
scheduled to be made.

 

	
   

  	
   

  	
   

  
	
  Director

  	
   

  	
  Date

  

 

2

 

Beneficiary Designation Form For the
First Amended and Restated

Heritage Commerce Corp Deferred Fee Agreement

 

I.              PRIMARY DESIGNATION

 

(You may
refer to the beneficiary designation information prior to completion of this
form.)

 

A.            Person(s) as a Primary Designation:

 

(Please
indicate the percentage for each beneficiary.)

 

 

	
  Name

  	
   

  	
  Relationship

  	
   

  	
  /

  	
            

  	
  %

  
	
   

  
	
  Address:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Street)

  	
  (City)

  	
  (State)

  	
  (Zip)

  
										

 

 

	
  Name

  	
   

  	
  Relationship

  	
   

  	
  /

  	
            

  	
  %

  
	
   

  
	
  Address:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Street)

  	
  (City)

  	
  (State)

  	
  (Zip)

  
										

 

 

	
  Name

  	
   

  	
  Relationship

  	
   

  	
  /

  	
            

  	
  %

  
	
   

  
	
  Address:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Street)

  	
  (City)

  	
  (State)

  	
  (Zip)

  
										

 

B.            Estate as a Primary Designation:

 

My Primary
Beneficiary is The Estate of                                            
as set forth in the last will and testament dated the                        
day of                         ,
                         and
any codicils thereto.

 

C.            Trust as a Primary Designation:

 

	
  Name of the
  Trust:

  	
   

  
	
   

  
	
  Execution
  Date of the Trust: 

  	
                  

  	
  /

  	
                  

  	
  /

  	
   

  	
   

  
	
   

  
	
  Name of the
  Trustee:

  	
   

  
	
   

  
	
  Is this an
  Irrevocable Life Insurance Trust?

  	
    o 
  Yes  o No

  
										

 

(If yes
and this designation is for a Split Dollar agreement, an Assignment of Rights
form should be completed.)

 

1

 

II.            SECONDARY
(CONTINGENT) DESIGNATION

 

(Please
indicate the percentage for each beneficiary.)

 

	
  Name

  	
   

  	
  Relationship

  	
   

  	
  /

  	
            

  	
  %

  
	
   

  
	
  Address:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Street)

  	
  (City)

  	
  (State)

  	
  (Zip)

  
										

 

 

	
  Name

  	
   

  	
  Relationship

  	
   

  	
  /

  	
            

  	
  %

  
	
   

  
	
  Address:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Street)

  	
  (City)

  	
  (State)

  	
  (Zip)

  
										

 

 

	
  Name

  	
   

  	
  Relationship

  	
   

  	
  /

  	
            

  	
  %

  
	
   

  
	
  Address:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (Street)

  	
  (City)

  	
  (State)

  	
  (Zip)

  
										

 

B.            Estate
as a Secondary (Contingent) Designation:

 

My Secondary
Beneficiary is The Estate of                               as
set forth in the last will and testament dated the      
day of                      ,
                 and
any codicils thereto.

 

C.            Trust
as a Secondary (Contingent) Designation:

 

	
  Name of the
  Trust:

  	
   

  
	
   

  
	
  Execution
  Date of the Trust: 

  	
                  

  	
  /

  	
                  

  	
  /

  	
   

  	
   

  
	
   

  
	
  Name of the
  Trustee:

  	
   

  
									

 

All sums
payable under this First Amended and Restated Heritage Commerce Corp Deferred
Fee Agreement, by reason of my death shall be paid to the Primary
Beneficiary(ies), if he or she survives me, and if no Primary Beneficiary(ies)
shall survive me, then to the Secondary (Contingent) Beneficiary(ies).  This beneficiary designation is valid until
the Participant notifies the Company in writing.

 

	
   

  	
   

  	
   

  
	
  Participant

  	
   

  	
  Date

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Witness –
  Other than a Beneficiary

  	
   

  	
  Date

  

 

2

 

NOTE***
IF YOU RESIDE IN A COMMUNITY PROPERTY STATE (ARIZONA, CALIFORNIA, IDAHO,
LOUISIANA, NEVADA, NEW MEXICO, TEXAS, WASHINGTON OR WISCONSIN), AND YOU ARE
DESIGNATING A BENEFICIARY OTHER THAN YOUR SPOUSE, THEN YOUR SPOUSE MUST ALSO
SIGN THE BENEFICIARY DESIGNATION FORM.

 

I am aware
that my spouse, the above named Participant has designated someone other than
me to be the beneficiary under this First Amended and Restated Heritage
Commerce Corp Deferred Fee Agreement, and I hereby waive any rights I may have
to the potential benefits thereunder and under applicable community property
laws. I understand that this consent and waiver supersedes any prior spousal
consent or waiver under this plan.

 

	
  Spouse
  Signature:

  	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
   

  	
   

  
	
   

  	
   

  
	
  Witness
  (other than Participant):

  	
   

  	
   

  
					

 

3Exhibit 10.8

 

FIRST
AMENDED AND RESTATED

DIRECTOR
COMPENSATION BENEFITS AGREEMENT

 

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

 

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

 

WHEREFORE, the Company and Director hereby agree to
amend and restate the prior Director Compensation Benefits Agreement, effective
as of May 24, 2007 (hereinafter “Original Agreement”, and as amended), and
further agree that this Heritage Bank of Commerce First Amended and Restated
Director Compensation Benefits Agreement shall amend, supersede and replace the
Original Agreement in its entirety;

 

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

 

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

 

NOW, THEREFORE, in
consideration of the past service and the services to be performed by the
Director in the future, as well as the mutual promises and covenants contained
herein, the Director and the Company agree as follows:

 

A G R E E
M E N T

 

1.                                      Terms
and Definitions.

 

1.1                               Administrator.  The Bank shall be the “Administrator” and,
solely for the purposes of ERISA, the Named Fiduciary of this Agreement where a
fiduciary is required by ERISA.

 

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

 

1

 

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

 

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

 

	
  Completed Years of Service

  	
   

  	
  Applicable Percentage

  	
   

  
	
  Less Than One

  	
   

  	
  10%

  	
   

  
	
  One

  	
   

  	
  20%

  	
   

  
	
  Two

  	
   

  	
  30%

  	
   

  
	
  Three

  	
   

  	
  40%

  	
   

  
	
  Four

  	
   

  	
  50%

  	
   

  
	
  Five

  	
   

  	
  60%

  	
   

  
	
  Six

  	
   

  	
  70%

  	
   

  
	
  Seven

  	
   

  	
  80%

  	
   

  
	
  Eight

  	
   

  	
  90%

  	
   

  
	
  Nine

  	
   

  	
  100%

  	
   

  

 

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

 

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

 

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

 

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

 

(i)                                     The
date any one person, or persons acting as a group acquires (or has acquired
during the twelve (12) month period ending on the date of the most recent
acquisition by such person or group) ownership of stock of the corporation
possessing thirty percent (30%) or more of the total voting power of the stock
of such corporation; or

 

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

 

2

 

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

 

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

 

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

 

As previously stated, the actual amount of the Director Benefit to be
paid shall be determined at the time Director Separates from Service and shall
be reduced to the extent: (i) required under the other provisions of this
Agreement; (ii) required by reason of the lawful order of any regulatory
agency or body having jurisdiction over the Bank; or (iii) required in
order for the Bank to properly comply with any and all applicable state and
federal laws, including, but not limited to, income, employment and disability
income tax laws (e.g., FICA, FUTA, SDI).

 

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

 

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

 

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

 

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

 

3

 

provisions of IRC 409A).

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(D)                               The
Director’s willful and intentional disclosure, without authority, of any secret
or confidential information concerning Bank or taking any action which the Bank’s
Board of Directors determines, in its sole discretion and subject to good
faith, fair dealing and reasonableness, constitutes unfair competition with or
induces any customer to breach any contract with the Bank.

 

1.13                        Separates
From Service or Termination of Service. The term “Separation from
Service” or “Termination of Service” shall be read and interpreted consistent
with Code Section 409A and any future notices or guidance related thereto.
As the term applies herein to individuals who are serving on the Board of
Directors, but who are not also acting as employees of the Bank, the term “Separation
from Service” shall means the expiration of all 

 

4

 

contracts or terms of
service under which the Director is performing services as a member of the
Board of Directors, and where expiration constitutes a good faith and complete
termination of the service relationship.

 

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

 

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

 

2.                                      Scope,
Purpose and Effect.

 

2.1                               Contract
of Employment.  Although this
Agreement is intended to provide the Director with an additional incentive to
continue to serve as a member of the Board of Directors, this Agreement shall
not be deemed to constitute a contract of employment between the Director and
the Bank nor shall any provision of this Agreement restrict the right of the
Bank to remove or cause the removal of the Director including, without
limitation, by (i) refusal to nominate the Director for election for any
successive term of office as a member of the Board of Directors of the Bank, or
(ii) complying with an order or other directive from a court of competent
jurisdiction or any regulatory authority having jurisdiction over the Bank
which requires the Bank to take action to remove the Director.

 

2.2                               Fringe
Benefit.  The benefits provided
by this Agreement are granted by the Bank as a fringe benefit to the Director
and are not a part of any salary reduction plan or any arrangement deferring a
bonus or a salary increase.  The Director
has no option to take any current payments or bonus in lieu of the benefits
provided by this Agreement.

 

3.                                      Director
Benefit Payment.

 

Normal
Retirement.  In the
event the Director Separates From Service pursuant to the terms of Paragraph
1.10 relating to Normal Retirement, then (excluding a termination under the
provisions of paragraphs 3.2 or 4 below), upon such Separation from Service,
Director shall be entitled to be paid an annual Director Benefit equal to the
Applicable Percentage of the Director Benefit based on Years of Service [i.e.
AP% X ($1,000 X Years of Service)]. Payment of this annual amount shall be made
in twelve (12) substantially equal monthly installments on the first day of
each month, with payments commencing the month following the month in which
Director Separates from Service, continuing monthly thereafter until Director’s
death (with 2% annual increase).

 

5

 

 

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

 

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

 

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

 

4.                                      Removal
for Cause.  The Director agrees
that if the Director’s service as a member of the Board of Directors of the
Bank is terminated as a result of a “Removal for Cause”, as defined in
subparagraph 1.12 of this Agreement, the Director shall forfeit any and all
rights and benefits the Director may have under the terms of this Agreement and
shall have no right to be paid any of the amounts which would otherwise be due
or paid to the Director by the Bank pursuant to the terms of this Agreement.

 

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

 

6

 

6.                                      Right
To Determine Funding Methods. 
The Bank reserves the right to determine, in its sole and absolute
discretion, whether, to what extent and by what method, if any, to provide for
the payment of the amounts which may be payable to the Director under the terms
of this Agreement.  In the event that the
Bank elects to fund this Agreement, in whole or in part, through the use of
life insurance or annuities, or both, the Bank shall determine the ownership
and beneficial interests of any such policy of life insurance or annuity.  The Bank further reserves the right, in its
sole and absolute discretion, to terminate any such policy, and any other
device used to fund its obligations under this Agreement, at any time, in whole
or in part.  Consistent with Paragraph 8
below, the Director shall have no right, title or interest in or to any funding
source or amount utilized by the Bank pursuant to this Agreement, and any such
funding source or amount shall not constitute security for the performance of
the Bank’s obligations pursuant to this Agreement. In connection with the
foregoing, the Director agrees to execute such documents and undergo such
medical examinations or tests which the Bank may request and which may be
reasonably necessary to facilitate any funding for this Agreement including,
without limitation, the Bank’s acquisition of any policy of insurance or
annuity.  Furthermore, a refusal by the
Director to consent to, participate in and undergo any such medical
examinations or tests shall result in the immediate termination of this
Agreement and the immediate forfeiture by the Director of any and all rights to
payment hereunder.

 

7.                                      Claims Procedure.

 

7.1                               Named Fiduciary and Plan Administrator. The
“Named Fiduciary and Plan Administrator” of this Director Plan shall be
Heritage Bank of Commerce until its resignation or removal by the Board.  As Named Fiduciary and Plan Administrator,
the Bank shall be responsible for the management, control and administration of
the Director Plan.  The Named Fiduciary
may delegate to others certain aspects of the management and operation
responsibilities of the Director Plan including the employment of advisors and
the delegation of ministerial duties to qualified individuals.

 

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

 

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

 

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

 

7

 

notice of extension must set forth the special circumstances and the
date by which the Plan Administrator expects to render its decision.

 

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

 

(i)                                     The specific reasons for the denial;

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

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

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

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

 

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

 

The
claimant (or his duly authorized representative) shall then have the
opportunity to submit written comments, documents, records and other
information relating to the claim.  The
Plan Administrator shall also provide the claimant, upon request and free of
charge, reasonable access to, and copies of, all documents, records and other
information relevant (as defined in applicable ERISA regulations) to the
claimant’s claim for benefits.

 

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

 

In
considering the review, the Plan Administrator shall take into account all
materials and information the claimant submits relating to the claim, without 

 

8

 

regard
to whether such information was submitted or considered in the initial benefit
determination.

 

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

 

(i)                                     The specific reasons for the denial;

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

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

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

 

8.                                      Status as an Unsecured General
Creditor. 
Notwithstanding anything contained herein to the contrary:  (i) Director shall have no legal or
equitable rights, interests or claims in or to any specific property or assets
of the Bank as a result of this Agreement; (ii) none of the Bank’s assets
shall be held in or under any trust for the benefit of the Director or held in
any way as security for the fulfillment of the obligations of the Bank under
this Agreement; (iii) all of the Bank’s assets shall be and remain the
general unpledged and unrestricted assets of the Bank; (iv) the Bank’s obligation
under this Agreement shall be that of an unfunded and unsecured promise by the
Bank to pay money in the future; and (v) the Director shall be unsecured
general creditors with respect to any benefits which may be payable under the
terms of this Agreement.

 

Notwithstanding
subparagraphs (i) through (v) above, the Bank and the Director
acknowledge and agree that upon request of the Director at any time during the
term of this Agreement, a Rabbi Trust (the “Trust”) shall be established upon
such terms and conditions as may be mutually agreeable between the Bank and the
Director in order to permit the Bank to make contributions and/or transfer
assets to the Trust to discharge its obligations pursuant to this
Agreement.  The principal of the Trust
and any earnings thereon shall be held separate and apart from other funds of
the Bank to be used exclusively for discharge of the Bank’s obligations
pursuant to this Agreement and shall continue to be subject to the claims of
the Bank’s general creditors until paid to the Director in such manner and at
such times as specified in this Agreement.

 

9.                                      Miscellaneous.

 

9.1                               Opportunity
To Consult With Independent Advisors. 
The Director acknowledges that he has been afforded the opportunity to
consult with independent advisors of his choosing including, without
limitation, accountants or tax advisors and counsel regarding both the benefits
granted to him under the terms of this Agreement and the (i) terms and
conditions which may affect the Director’s right to these benefits and (ii) personal
tax effects of such benefits including, without limitation, the effects of any
federal or state taxes, Section 280G 

 

9

 

of the Code, and any
other taxes, costs, expenses or liabilities whatsoever related to such
benefits, which in any of the foregoing instances the Director acknowledges and
agrees shall be the sole responsibility of the Director notwithstanding any
other term or provision of this Agreement. 
The Director further acknowledges and agrees that the Bank shall have no
liability whatsoever related to any such personal tax effects or other personal
costs, expenses, or liabilities applicable to the Director and further
specifically waives any right for the Director, himself, and his heirs, legal
representatives, agents, successors, and assigns to claim or assert liability
on the part of the Bank related to the matters described above in this
subparagraph 10.1.  The Director further
acknowledges and agrees that he has read, understands and consents to all of
the terms and conditions of this Agreement, and that he enters into this
Agreement with a full understanding of its terms and conditions.

 

9.2                               Arbitration
of Disputes.  All claims,
disputes and other matters in question arising out of or relating to this
Agreement or the breach or interpretation thereof, other than those matters
which are to be determined by the Bank in its sole and absolute discretion,
shall be resolved by binding arbitration before a representative member, selected
by the mutual agreement of the parties, of the Judicial Arbitration and
Mediation Services, Inc. (“JAMS”), located in San Francisco,
California.  In the event JAMS is unable
or unwilling to conduct the arbitration provided for under the terms of this
Paragraph, or has discontinued its business, the parties agree that a
representative member, selected by the mutual agreement of the parties, of the
American Arbitration Association (“AAA”), located in San Francisco, California,
shall conduct the binding arbitration referred to in this Paragraph.  Notice of the demand for arbitration shall be
filed in writing with the other party to this Agreement and with JAMS (or AAA,
if necessary).  In no event shall the
demand for arbitration be made after the date when institution of legal or
equitable proceedings based on such claim, dispute or other matter in question
would be barred by the applicable statute of limitations.  The arbitration shall be subject to such rules of
procedure used or established by JAMS, or if there are none, the rules of
procedure used or established by AAA. 
Any award rendered by JAMS or AAA shall be final and binding upon the
parties, and as applicable, their respective heirs, legal representatives,
agents, successors and assigns, and may be entered in any court having
jurisdiction thereof.  The obligation of
the parties to arbitrate pursuant to this clause shall be specifically
enforceable in accordance with, and shall be conducted consistently with, the
provisions of Title 9 of Part 3 of the California Code of Civil
Procedure.  Any arbitration hereunder
shall be conducted in San Jose, California, unless otherwise agreed to by the
parties.

 

9.3                               Attorneys’
Fees.  In the event of any
arbitration or litigation concerning any controversy, claim or dispute between
the parties hereto, arising out of or relating to this Agreement or the breach
hereof, or the interpretation hereof, the prevailing party shall be entitled to
recover from the non-prevailing party reasonable expenses, attorneys’ fees and
costs incurred in connection therewith or in the enforcement or collection of
any judgment or award rendered therein. 
The “prevailing party” means the party determined by the arbitrator(s) or
court, as the case may be, to have most nearly prevailed, even if such party
did not prevail in all matters, not necessarily the one in whose favor a
judgment is rendered.

 

9.4                               Notice.  Any notice required or permitted of either
the Director or the Bank under this Agreement shall be deemed to have been duly
given, if by personal delivery, 

 

10

 

upon the date received by
the party or its authorized representative; if by facsimile, upon transmission
to a telephone number previously provided by the party to whom the facsimile is
transmitted as reflected in the records of the party transmitting the facsimile
and upon reasonable confirmation of such transmission; and if by mail, on the
third day after mailing via U.S. first class mail, registered or certified,
postage prepaid and return receipt requested, and addressed to the party at the
address given below for the receipt of notices, or such changed address as may
be requested in writing by a party.

 

	
   

  	
  If to the Bank:

  	
   

  	
  Heritage Commerce Corp

  
	
   

  	
   

  	
   

  	
  150 Almaden Boulevard

  
	
   

  	
   

  	
   

  	
  San Jose, California
  95113

  
	
   

  	
   

  	
   

  	
  Attn: President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to the Director:

  	
   

  	
   

  

 

9.5                               Assignment.  The Director shall have no power or right to
transfer, assign, anticipate, hypothecate, modify, or otherwise encumber any
part or all of the amounts payable hereunder, nor, prior to payment in
accordance with the terms of this Agreement, shall any portion of such amounts
be: (i) subject to seizure by any creditor of the Director, by a
proceeding at law or in equity, for the payment of any debts, judgments,
alimony or separate maintenance obligations which may be owed by the Director;
or (ii) transferable by operation of law in the event of bankruptcy,
insolvency or otherwise.  Any such
attempted assignment or transfer shall be void and unenforceable without the
prior written consent of the Bank.  The
Bank’s consent, if any, to one or more assignments or transfers shall not
obligate the Bank to consent to or be construed as the Bank’s consent to any
other or subsequent assignment or transfer.

 

9.6                               Binding
Effect/Merger or Reorganization.  This
Agreement shall be binding upon and inure to the benefit of the Director and
the Bank and, as applicable, their respective heirs, legal representatives,
agents, successors, and assigns. 
Accordingly, the Bank shall not merge or consolidate into or with
another corporation, or reorganize or sell substantially all of its assets to
another corporation, firm, or person, unless and until such succeeding or
continuing corporation, firm, or person agrees to assume and discharge the
obligations of the Bank under this Agreement. 
Upon the occurrence of such event, the term “Bank” as used in this
Agreement shall be deemed to refer to such surviving or successor firm, person,
entity or corporation.

 

9.7                               Nonwaiver.  The failure of either party to enforce at
any time or for any period of time any one or more of the terms or conditions
of this Agreement shall not be a waiver of such term(s) or condition(s) or
of that party’s right thereafter to enforce each and every term and condition
of this Agreement.

 

9.8                               Partial
Invalidity.  If any term,
provision, covenant, or condition of this Agreement is determined by an
arbitrator or a court, as the case may be, to be invalid, void, or
unenforceable, such determination shall not render any other term, provision,
covenant, or 

 

11

 

condition invalid, void
or unenforceable, and the Agreement shall remain in full force and effect
notwithstanding such partial invalidity.

 

9.9                               Entire
Agreement.  This Agreement supersedes
any and all other agreements, either oral or in writing, between the parties
with respect to the subject matter of this Agreement and contains all of the
covenants and agreements between the parties with respect thereto.  Each party to this Agreement acknowledges
that no other representations, inducements, promises, or agreements, oral or
otherwise, have been made by any party, or anyone acting on behalf of any
party, which are not set forth herein, and that no other agreement, statement,
or promise not contained in this Agreement shall be valid or binding on either
party.

 

9.10                        Modifications.  Any modification of this Agreement shall be
effective only if it is in writing and signed by each party or such party’s
authorized representative.

 

9.11                        Paragraph
Headings.  The paragraph headings
used in this Agreement are included solely for the convenience of the parties
and shall not affect or be used in connection with the interpretation of this
Agreement.

 

9.12                        No
Strict Construction.  The
language used in this Agreement shall be deemed to be the language chosen by
the parties hereto to express their mutual intent, and no rule of strict
construction will be applied against any person.

 

9.13                        Governing
Law.  The laws of the State of
California, other than those laws denominated choice of law rules, and, where
applicable, the rules and regulations of the California Commissioner of
Financial Institutions and the Federal Deposit Insurance Corporation shall
govern the validity, interpretation, construction and effect of this Agreement.

 

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

 

10.                               Intentional
Act by Director which Precludes Recovery. Notwithstanding any other
provision in this Agreement or anything contained in this Agreement to the
contrary, in the event the Director takes any intentional action which prevents
the Bank from collecting the proceeds of any life insurance policy which the
Bank may happen to own at the time of the Director’s death and of which the
Bank is the designated beneficiary, then: (1) the Director’s estate or
designated beneficiary(ies) shall no longer be entitled to receive any of the
amounts payable under the terms of this Agreement, and (2) the Bank shall
have the right to recover from the Director’s estate all of the amounts paid to
the Director, the designated Beneficiary(ies) or to the Director’s estate (with
respect to amounts paid prior to the Director’s death or paid to the Director’s
estate) or designated beneficiary (with respect to amounts paid to the
designated beneficiary) pursuant to the terms of this Agreement prior to and
after the Director’s death.

 

11.                               Internal Revenue Code Section 409A
Compliance.   Notwithstanding any
provision existing in this Agreement or any amendment thereto, it is the intent
of the Bank and the Director that any payment or benefit provided pursuant to
this Agreement shall be made and 

 

12

 

paid in a manner, at a time
and in a form which complies with the applicable requirements of IRC Section 409A,
in order to avoid any unfavorable tax consequences resulting from any such
failure to comply. Furthermore, for the purposes of this Agreement, IRC Section 409A
shall be read to include any related or relevant IRS Notices (including but not
limited to Notice 2006-79 and 2007-86) and the currently proposed regulations.

 

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

 

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

 

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

 

HERITAGE
COMMERCE CORPORATION

 

	
   

  	
   

  	
   

  
	
  /s/ Lawrence D.
  McGovern

  	
   

  	
  Date:

  	
  December 29, 2008

  
	
  By Lawrence D. McGovern

  	
   

  	
   

  
	
  Executive Vice
  President & CFO

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Jack W. Conner

  	
   

  	
  Date:

  	
  December 29, 2008

  
	
  Director

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Witness

  	
   

  	
  Witness

  

 

13

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