Document:

Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”) is entered into by and between HERITAGE
COMMERCE CORP, a California bank holding company (the “Company”),
HERITAGE BANK OF COMMERCE, a California banking corporation (the “Bank”), and JANET R. WALWORTH, an individual (the “Executive”) as of December 15, 2008 (the “Effective Date”).

 

RECITALS

 

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

 

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

 

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

 

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

 

AGREEMENT

 

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

 

1.             Employment.

 

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

 

1.2           Devotion to Bank and Company Business.  The Executive shall devote her full business
time, ability, and attention to the business of the Bank and the Company during
the term of this Agreement and shall not during the term of this Agreement
engage in any other business activities, duties, or pursuits whatsoever, or
directly or indirectly render any services of a business, commercial, or
professional nature to any other person or organization, whether for
compensation or otherwise, without the prior written consent of the Board of
Directors of the Bank and the Company. 
It shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational institutions and
(C) manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive’s responsibilities
as an employee of the Bank and the Company in accordance with this
Agreement.  Nothing in this Agreement
shall be interpreted to prohibit the Executive from making passive personal
investments.  However, the Executive
shall not directly or indirectly acquire, hold, or retain any interest in any
business competing with or similar in nature to the business of the Bank and
the Company, except as permitted by Company policies or authorized by the Chief
Executive Officer of the Company.

 

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

 

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

 

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

 

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

 

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deemed automatically extended
for an additional one (1) year term, subject to the termination provisions of
Section 6.

 

3.             Compensation.

 

3.1           Salary.  The
Executive shall receive a salary at an annual rate of $180,000 which will be
paid in accordance with the Bank’s normal payroll procedures including
applicable adjustments for withholding taxes. 
The Executive shall receive such annual increases in salary, if any, as
may be determined by the Company’s Board of Directors annual review of the Executive’s
compensation each year during the term of this Agreement.  Participation in deferred compensation,
discretionary or performance bonus, retirement, stock option and other employee
benefit plans and in fringe benefits shall not reduce the annual rate.

 

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

 

3.3           2004 Stock Option Plan. 
The Executive will receive a nonqualified Stock Option grant of 12,000
shares of Common Stock pursuant to the terms of the Company’s 2004 Stock Option
Plan (the “2004 Plan”).  The exercise
price will be the Fair Market Value for the Company’s Common Stock on the date
of grant as defined in the 2004 Plan. 
The Executive’s options will vest in daily increments of 1/1460th from
the date of grant until fully vested and shall expire ten years from the date
of grant.  All such options shall be
subject to the terms and conditions of the 2004 Plan and shall be conditioned
upon the Executive’s execution of an option agreement with the Company in a
form specified by the Company.

 

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

 

(a)           Vacation.  The
Executive shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Bank as in effect for the
Executive or for other executives in comparable positions with the Bank;
provided, however, that the Executive shall be entitled to earn paid vacation
at the rate of not less than 22 days vacation days for each calendar year
(reduced pro rata for any partial year), of which at least 10 days (reduced pro
rata for any partial year) must be taken consecutively.  Vacation may be accrued in accordance with
the Company’s policy.  The date or dates
of vacation shall be determined by the Executive and the Bank’s President, and
will be

 

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subject to the Bank’s and the
Company’s business requirements.

 

(b)           Insurance.  The Bank
or the Company shall provide during the term of this Agreement group life,
health (including medical, dental, vision and hospitalization), accident
and            disability insurance
coverage for the Executive and her dependents through a policy or policies
provided by the insurer(s) selected by the Bank or the Company in their sole
discretion on the same basis as all other executives in comparable positions
with the Bank.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

5.4           “Change of Control”
shall mean, subject to the limitations of Section 409A of the Code, set

 

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forth in Section 7 of this
Agreement, the earliest occurrence of one of the following events:

 

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

 

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

 

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

 

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Business Combination were
members of the Company’s Board of Directors at the time of the execution of the
initial agreement, or of the action of the Company’s Board of Directors,
providing for such Business Combination; or

 

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

 

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

 

5.6           “Change of Control Period”
shall mean the period of time (a) commencing on the earlier of (i) 120 days
before the date the Change of Control occurs, or if earlier, 120 days before a
definitive agreement is executed by the Company or the Bank for a transaction
described in Section 5.4(c) (provided, however, that in the event of this
subsection (a)(i) the Executive reasonably demonstrates that her termination of
employment should it occur was either (x) at the request of a third party who
has taken steps reasonably calculated to effect a change in control, or (y)
otherwise arose in connection with a Change in Control), or (ii) the date the
Change of Control occurs, and (b) ending on the last day of the 24th calendar
month immediately following the month the Change of Control occurred.

 

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

 

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

 

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

 

6.             Termination.

 

6.1           This Agreement may be terminated for the following
reasons:

 

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

 

(b)           Disability.  In the
event of the Executive’s Disability, the Bank or the Company may give the
Executive a notice of termination.  In
such event, the Executive’s employment 
with the Bank or the Company and this Agreement shall terminate without
further act of the parties effective on the 30th day after receipt of such
notice by the Executive (the “Disability Effective
Date”) provided, however, that within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of the
Executive’ duties.  Unless otherwise
agreed in writing between the Executive, the Bank and the

 

6

 

Company, the Executive shall
immediately cease performing and discharging the duties and responsibilities of
her positions and remove herself and her personal belongings from the Bank’s
and the Company’s premises.  All rights
and obligations accruing to the Executive under this Agreement shall cease at
such termination, except that such termination shall not prejudice the
Executive’s rights regarding employment benefits which shall have accrued prior
to such termination, and any other remedy which the Executive may have at law,
in equity or under this Agreement, which remedy accrued prior to such
termination.

 

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

 

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

 

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

 

6.2           Certain Benefits upon Termination.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

(ii)           continuation of group insurance coverages specified in
Section 3.4 (c) of this Agreement on terms at least equal to those if the
Executive’s employment had not been terminated, but not less favorable than
that provided to other executives in comparable positions with the Bank or the
Company, for a period of 12 months from the Date of Termination, including
continuation of medical coverage for the Executive and her dependents pursuant
to Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”),
or under applicable California law pursuant to Assembly Bill No. 1401 (“Cal COBRA”), with one hundred percent (100%) of premiums
for the insurance coverages payable by the Bank or the Company monthly to the
Executive for a period of 12 months from the Date of Termination.  After such

 

8

 

expiration of the 12 month
period, the Executive and her dependents shall have such rights to continue to
participate under the Bank’s or the Company’s group insurance coverages
specified in Section 3.4(c) of this Agreement at the Executive’s expense to the
extent available under the terms of the plan or benefit.  The Executive agrees to notify the Bank or
the Company as soon as practicable, but not less than 10 business days in
advance of the commencement of comparable insurance coverages with another
insurance carrier.  The Bank’s or the
Company’s obligation for the 12 month period specified herein with respect to
the foregoing benefits shall be limited to the extent that the Executive
obtains any such benefits pursuant to a subsequent employer’s benefit plans, in
which case the Bank or the Company may reduce the coverage of any benefits it
is required to provide the Executive hereunder so long as the aggregate
coverages and benefits of the combined benefit plans of the new employer are
not substantially less favorable to the Executive than the coverages and
benefits required to be provided hereunder.

 

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

 

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

 

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

 

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

 

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

 

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

 

9

 

Executive other than the
obligation to pay to the Executive the Accrued Obligations.

 

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

 

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

 

Notwithstanding any other term
or provision of this Agreement, to the extent that any provision of this
Agreement is determined by the Bank or the Company, with the advice of its
independent accounting firm or other tax advisors, to be subject to and not in
compliance with Section 409A, including, without limitation, the definition of
Change in Control or the timing of commencement and completion of severance
benefits and/or other benefit payments to the Executive hereunder, or the
amount of any such payments, such provisions shall be interpreted in the manner
required to exempt the benefit from or to comply with Section 409A.  The Company, the Bank and the Executive
acknowledge and agree that such interpretation could, among other matters, (i)
limit the circumstances or events that constitute a “change in control;” (ii)
delay for a period of 6 months or more, or otherwise modify the commencement of
severance and/or other benefit payments; (iii) modify the completion date of
severance and/or (iv) other benefit payments and/or reduce the amount of the
benefit otherwise provided.

 

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

 

8.             Gross Up Of Section 280G and 409A Tax.  If all or any portion of the amounts payable
to the Executive under this Agreement, either alone or together with other
payments or benefits which the Executive has the right to receive from the Bank
or the Company, constitute “excess parachute payments” within the meaning of
Section 280G of the Code, that are subject to the excise tax imposed

 

10

 

by Section 4999 of the
Code (or similar tax and/or assessment) , or any tax is imposed on the
Executive under Section 409A, the Bank or the Company (and its successor)
shall increase the amounts payable under this Agreement to the extent necessary
to afford the Executive substantially the same economic benefit under this
Agreement as the Executive would have received had no such excise tax under Section 280G
or tax under Section 409A been imposed on the payments due the Executive
under this Agreement.  The determination
of the amount of any such taxes shall be made by the independent accounting
firm employed by the Bank or the Company, immediately prior to the Change in
Control, or such other independent accounting firm or advisor as may be
mutually agreeable to the Bank or the Company (and their respective successor),
and the Executive in the exercise of their reasonable good faith judgment.  If, at a later date, it is determined
(pursuant to final regulations or published rulings of the Internal Revenue Service,
final judgment of a court of competent jurisdiction, or otherwise) that the
amount of any such taxes payable to the Executive is greater than the amount
initially so determined, then the Bank or the Company (or its successor) shall
pay to the Executive an amount equal to the sum of such additional taxes and
any interest, fines and penalties resulting from such underpayment, plus an
amount necessary to reimburse the Executive substantially for any income,
excise or other taxes payable by the Executive with respect to such
amounts.  All gross-up payments made
hereunder, shall be paid within the period specified by Treasury Regulation Section 1.409A-3(i)(1)(v) so
that the gross-up payment shall qualify as providing for payment at a specified
time or on a fixed schedule.

 

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

 

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

 

11.           Noncompetition, No solicitation And Nondisclosure By The
Executive

 

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

 

11

 

known to the public or to other
persons who can obtain economic value from its disclosure or use and (ii) are
the subject of efforts that are reasonable under the circumstances to maintain
its secrecy.

 

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

 

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

 

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

 

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

 

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

 

12

 

disclose Trade Secrets or
Proprietary Information, the Executive will provide the Bank and the Company,
and their counsel with immediate notice of such request so that they may
consider seeking a protective order.  If,
in the absence of a protective order or the receipt of a waiver hereunder, the
Executive is nonetheless, in the written opinion of knowledgeable counsel,
compelled to disclose Trade Secrets or Proprietary Information to any tribunal
or any other party or else stand liable for contempt or suffer other material
censure or material penalty, then the Executive may disclose (on an “as needed”
basis only) such information to such tribunal or other party without liability
hereunder.  Notwithstanding the
foregoing, the Executive may disclose Trade Secrets or Proprietary Information
as may be required by any regulatory agency having jurisdiction over the
operations of the Bank or the Company in connection with an examination of the
Bank or the Company or other proceeding conducted by such regulatory agency.

 

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

 

14.           Miscellaneous.

 

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

 

	
   

  	
  Company:

  	
  HERITAGE
  COMMERCE CORP

  150 Almaden
  Blvd.

  San Jose, CA
  95113

  Attn:  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  Bank:

  	
  HERITAGE
  BANK OF COMMERCE

  150 Almaden
  Blvd.

  San Jose, CA
  95113

  Attn:  President

  
	
   

  	
   

  	
   

  
	
   

  	
  with a copy
  to:

  	
  Buchalter
  Nemer

  1000 Wilshire
  Boulevard, Suite 1500

  Los Angeles, CA  90017-2457

  Attn:  Mark A. Bonenfant, Esq.

  
	
   

  	
   

  	
   

  
	
   

  	
  Executive:

  	
  Janet
  Walworth

  150 Almaden
  Boulevard

  San Jose, CA
  95113

  

 

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

 

14.3         Section Headings. 
The section headings used in this Agreement are included solely for

 

13

 

convenience and shall not
affect, or be used in connection with, the interpretation of this Agreement.

 

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

 

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

 

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

 

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

 

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

 

14.9         Entire Agreement. 
This Agreement supersedes any and all agreements, either oral or in
writing,

 

14

 

between the parties with
respect to the employment of the Executive by the Bank and the Company and
contains all of the covenants and agreements between the parties with respect
to the employment of the Executive by the Bank and the Company; provided,
however, that, this Agreement does not supersede or replace the rights and
benefits under any stock option agreement between the Company and the Executive
as specified in Section 3.3 of this Agreement.  Each party to this Agreement acknowledges
that no other representations, inducements, promises, or agreements, oral or
otherwise, have been made by any party, or anyone acting on behalf of any
party, which are not set forth herein, and that no other agreement, statement,
or promise not contained in this Agreement shall be valid or binding on either
party.

 

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

 

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

 

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

 

14.13       Governing Law and Venue. 
The laws of the State of California, other than those laws denominated
choice of law rules, shall govern the validity, construction and effect of this
Agreement.  Any action which in any way
involves the rights, duties and obligations of the parties hereunder and is not
resolved by binding arbitration shall be brought in the courts of the State of
California and venue for any action or proceeding shall be in Santa Clara
County or in the United States District Court for the Northern District of
California, and the parties hereby submit to the personal jurisdiction of said
courts.

 

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

 

14.15       Effect of Termination on Certain Provisions.  Upon the termination of this Agreement, the
obligations of the Bank, the Company and the Executive hereunder shall cease
except to the extent of the Bank’s or the Company’s obligation to make
payments, if any, to or for the benefit of the Executive following termination,
and provided that Sections 3.3 and 3.4(d) (and as provided in
existing agreements relating to these sections) and Sections 4, 6.2, 7, 8,
9, 10, 11, 12, 13, 14.3, 14.4, 14.6, 14.7, 14.8, 14.9, 14.10, 14.11, 14.12,
14.13, 14.14, 14.15 and 14.17 shall remain in full force and effect.

 

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

 

15

 

14.17       Parachute Payment Cutback. 
As long as the U.S. Treasury owns any stock or assets of the Bank or the
Company pursuant to the Emergency Economic Stabilization Act of 2008 (the “EESA”)
and/or the Troubled Asset Relief Program established by the EESA, in the event
that any payment or benefit received or to be received by Executive pursuant to
the terms of this Agreement or otherwise in connection with the Executive’s
termination of employment or contingent upon a change in ownership or control
pursuant to any plan or arrangement or other agreement with the Bank or the
Company (or any affiliate) would constitute a “parachute payment” within the
meaning of Section 280G(b)(2) of the Internal Revenue Code of 1986,
as amended, including application of Section 280G(e) as added by the
EESA and any other applicable restrictions under the EESA for the Bank and the
Company to comply with the Troubled Asset Relief Program established by the
EESA, then the payments and benefits received or to be received by the
Executive shall be reduced to the minimum extent necessary so that such
payments and benefits do not constitute “parachute payments”.

 

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

 

	
   

  	
  “COMPANY”

  
	
   

  	
   

  
	
   

  	
  HERITAGE
  COMMERCE CORP,

  
	
   

  	
  a California
  bank holding company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Walter
  Kaczmarek

  
	
   

  	
   

  	
  Walter
  Kaczmarek,

  
	
   

  	
   

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  “BANK”

  
	
   

  	
   

  	
   

  
	
   

  	
  HERITAGE
  BANK OF COMMERCE,

  
	
   

  	
  a California
  banking corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Walter
  Kaczmarek

  
	
   

  	
   

  	
  Walter
  Kaczmarek,

  
	
   

  	
   

  	
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  “EXECUTIVE”

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Janet R.
  Walworth

  
	
   

  	
   

  	
  Janet R.
  Walworth

  
				

 

16Exhibit 10.2

 

AMENDED
AND RESTATED

EMPLOYMENT
AGREEMENT

 

This Amended and Restated
Agreement (“Agreement”) is made as of the 2nd day of December, 2008,
between Eagle Bancorp, Inc., a Maryland corporation (the “Company”),
having its principal executive offices at 7815 Woodmont Avenue, Bethesda,
Maryland 20814, and Ronald D. Paul (“Paul”), an individual maintaining an
office at 4416 East West Highway, Bethesda, Maryland 20814.

 

RECITALS

 

WHEREAS, the Company and
Paul  are parties to an Employment
Agreement dated as of December 31, 2003 (the “2003 Agreement”), pursuant
to which Paul serves as the Chairman of the Company; and

 

WHEREAS, the parties
believe that amendment of the 2003 Agreement is appropriate in order to ensure
that Section 409A(a)(1)(B) of the Internal Revenue Code does not
impose additional tax and interest on payments to Paul; and

 

WHEREAS, the parties believe that amendment of the
2003 Agreement is appropriate in order to ensure that the provisions thereof do
not impede the ability of the Company to receive funds from the U.S. Department
of Treasury pursuant to the Troubled Assets Relief Plan Capital Purchase
Program; and

 

WHEREAS, to accomplish
the foregoing, the parties desire to hereby enter into this Agreement to
supersede and replace the 2003 Agreement.

 

NOW, THEREFORE, in
consideration of the premises and the mutual promises and covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:

 

1.
Employment. The Company hereby employs Paul, and Paul hereby
accepts employment, as Chairman and Chief Executive Officer of the Company,
subject to the supervision and direction of the Board of Directors of the
Company. 
In such capacity, Paul shall provide such services and
perform such duties, functions and assignments as are normally incident to such
office, and such additional functions and services as the Board of Directors
may from time to time direct.  Subject to
his continued nomination and election as such, Paul shall serve as Chairman of
the Board of the Company’s subsidiary, EagleBank (the “Bank”), and Board member
of the Company. Notwithstanding anything to the contrary contained herein, Paul’s
service as a director of the Company and the Bank shall be subject to his
election as such by the shareholders of the Company and the Bank, as the case
may be, and Paul’s service as Chairman of the Board of Directors of the Bank
be  subject to his election as such by
the Board of Directors of the Company, and nothing contained herein shall
constitute any agreement, understanding or commitment of the Company to
nominate, appoint or elect Paul, or cause Paul to be nominated appointed or
elected to the Board of Directors of the Company or the Bank.

 

2.
Term. (a) The initial term of Paul’s employment under
this Agreement shall commence as of December 2, 2008 (the “Effective Date”)
and shall continue until December 1, 2011 (the “Initial Term”). Upon each
anniversary of the commencement of the Initial Term, unless (i) the
employment contemplated hereby is earlier terminated in accordance with the
provisions of Section 6 hereof, or (ii) Paul shall have provided
written notice to the Company, not less than 60 days prior to the anniversary
date, of Paul’s desire to terminate this Agreement upon expiration of the
Initial Term or such Renewed Term, as appropriate, this Agreement shall
automatically be extended for an additional period of one year (each a “Renewed
Term”).  For example and for illustrative
purposes only, on December 2, 2009, absent termination or notice of
termination as provided above, the term of this Agreement shall automatically
be extended for one year, and the Renewed Term of this Agreement shall continue
until December 1, 2012, and on December 2, 2010, absent termination
or notice of termination as provided above, the term of this Agreement shall
automatically be extended for one year, and the Renewed Term of this Agreement
shall continue until December 1, 2013.

 

1

 

3.
Compensation. (i) As compensation for Paul’s employment
hereunder, Paul shall be entitled to base cash compensation (“Base Compensation”)
from the Company at a rate of $350,000 per calendar year, payable in monthly
installments, or such other installments as the Company and Paul may agree
upon, and shall be subject to deduction and withholding of all necessary social
security, medicare, income and withholding taxes, and any other sums required
by law or authorized by Paul.  Notwithstanding the foregoing, the
Base Compensation payable by the Company hereunder in any year shall be reduced
by the amount paid to Paul by the Bank (or any successor thereto) as
compensation for services rendered to the Bank.

 

(ii)           Prior
to the Effective Date, the Company has granted Paul certain options to purchase
shares of the Company’s Common Stock (“Options”).  In the event that Paul’s employment hereunder
shall be terminated for any reason, all options shall vest immediately upon
such termination.

 

(iii)          During the period of the Agreement,
periodic increases (but not decreases) in the rate of Base Compensation and/or
Options hereunder may be made by the independent members of the Board of
Directors of the Company (as determined in accordance with applicable law,
regulation and rules of the Nasdaq Stock Market or other market or
exchange on which the Company’s securities trade) or a committee of the Board
of Directors of the Company consisting solely of independent members.

 

(iv)          Paul shall be entitled to receive such
incentive or bonus compensation as the Board of Directors of the Company may in
its sole discretion determine.

 

(v)           During
the term of this Agreement, and following the termination of this Agreement
during any period where payments hereunder are being made to Paul (or with
respect to which a lump sum payment has been made to Paul), Paul shall not be
entitled to receive any fees, payments or other compensation, whether in cash
or otherwise, for service as a member (including as Chairman or Vice Chairman)
of the Board of Directors of  the
Company, the Bank or other subsidiary of the Company or Bank, if any, or for
service on any committee of the Board of Directors of the Company, the Bank or
other subsidiary of the Company or Bank, if any.

 

(vi)          The Company will pay Paul a monthly
car allowance of One Thousand Five Hundred Dollars ($1,500.00).

 

(vii)         Paul may obtain a term life insurance
policy (the “Policy”) on Paul in the amount of One Million Dollars ($1,000,000.00),
the particular product and carrier to be chosen by Paul in his discretion.  Paul shall have the right to designate the
beneficiary of the Policy.  If the Policy
is obtained, Paul shall provide the Bank with a copy of the Policy, and the
Bank will pay, during the Term of this Agreement, the premiums for the Policy
upon submission by Paul to the Bank of the invoices therefor.  In the event Paul is rated and the premium
exceeds the standard rate for a One Million Dollar ($1,000,000.00) policy, the Policy
amount shall be lowered to the maximum amount that can be purchased at the
standard rate for a One Million Dollar ($1,000,000.00) policy.  For example, if Paul is rated and the
standard rate for a One Million Dollar ($1,000,000.00) policy would acquire a
Five Hundred Thousand Dollar ($500,000.00) policy, the Bank would only be
required to pay the premium for a Five Hundred Thousand Dollar ($500,000.00)
policy.  If a Policy is obtained and it
is cancelled or terminated, Paul shall immediately notify the Bank of such
cancellation or termination.

 

The Company may, at its
cost, obtain and maintain “key-man” life insurance and/or Company-owned life
insurance on Paul in such amount as determined by the Board of Directors of the
Company from time to time. Paul agrees to cooperate fully and to take all
actions reasonably required by the Company in connection with such insurance.

 

4.
Benefits and Expenses.

 

(a) Paul shall be
entitled to participate in and receive all fringe benefit programs and plans,
if any as are generally available to employees and/or directors of the Company
and the Bank.

 

(b) Paul is
authorized to incur reasonable expenses for conducting and promoting the
business and activities of the Company and the Bank, including expenses for
travel, business entertainment and similar expenses in accordance with the
policies of the Company and the Bank regarding the reimbursement of expenses
applicable to 

 

2

 

employees and/or directors of the Company and the Bank generally, as
such policies may from time to time exist.

 

(c) Paul shall be
entitled to the use of his current office located in the building in which the
principal executive offices of the Company are located, together with such
secretarial and other office support services as he may reasonably require.

 

5.
Outside Activities.  Paul
shall devote his best efforts to the performance of his duties hereunder and
shall commit and make available sufficient time to provide the services
reasonably requested by the Company and the Bank in a timely manner. However,
nothing contained herein shall be construed to prohibit Paul from engaging in
any other full or part-time employment, or any consulting or independent
contractor arrangement or any other occupation, whether or not for
remuneration, provided, however, that no such outside activity shall be in
competition with the activities of the Company or the Bank, or be otherwise
detrimental or adverse to the business. competitiveness, operations, or image
of the Company or the Bank.

 

6.
Termination.

 

(a) This Agreement
may be terminated prior to the end of the Initial Term or any Renewed Term, as
applicable, by the Company under any of the following circumstances:

 

(i)            Upon the death of Paul;

 

(ii)           Upon the inability of Paul to perform
all of his duties hereunder by reason of illness, physical, mental or emotional
disability or other incapacity, which inability shall continue for more than
three (3) successive months or six (6) months in the aggregate during
any period of twelve (12) consecutive months;

 

(iii)          For cause, defined as: the failure of
Paul (other than for reasons described in Section 6(a)(ii)) to perform or
observe and comply with any material term or provision of this Agreement; any
significant misconduct on the part of Paul that is materially damaging or
detrimental to the Company and the Bank, as determined by the Board of
Directors of the Company, Paul not participating, in the exercise of its good
faith judgment; conviction after final appeal of a crime involving a felony,
fraud, embezzlement or the like; or any breach of fiduciary duty involving
personal profit or misappropriation of the funds or property of the Company or
the Bank; or

 

(iv)          Upon the failure of Paul to be
reelected as a director of either the Company or the Bank by the respective
stockholders of the Company and the Bank, except following a “Change in Control”
(as defined in Section 6(b)) of the Company or the Bank.

 

(b) This Agreement
may be terminated prior to the end of the Initial Term or any Renewed Term, as
applicable, by Paul under any of the following circumstances:

 

(i)            Upon the failure of the Company or
the Bank to comply with any material term or provision of this Agreement;

 

(ii)           Upon the failure of Paul to be
reelected or nominated for reelection as a director of the Company or the Bank,
or any successor to the Bank, following a Change in Control of the Company or
the Bank, and/or the voluntary resignation of Paul as a director of the Company
and the Bank following a Change in Control of the Company or the Bank. For
purposes hereof, a “Change in Control” shall be deemed to have occurred if:

 

(A)          there shall be consummated any
consolidation, merger, share exchange or other transaction relating to the  Company, or pursuant to which shares of the
Company’s capital stock are converted into cash, securities of another entity
and/or other property, other than a transaction in which the holders of the
Company’s voting stock immediately before such transaction shall, upon
consummation of such transaction, own at least fifty percent (50%) of the
voting power of the surviving entity, or (2) any sale of all or
substantially all of the 

 

3

 

assets
of the Company, other than a transfer of assets to a related Person which is
not treated as a change in control event under §1.409A-3(i)(5)(vii)(B) of
the U.S. Treasury Regulations;

 

(B)           any person, entity or group (each
within the meaning of Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) shall become the
beneficial owner (within the meaning of Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the voting power of all
outstanding securities of the Company entitled to vote generally in the
election of directors of the Company (including, without limitation, any
securities of the Company that any such Person has the right to acquire
pursuant to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, which shall be deemed beneficially owned by such
Person); or

 

(C)           over a twelve (12) month period, a
majority of the members of the Board of Directors of the Company are replaced
by directors whose appointment or election was not endorsed by a majority of
the members of the Board of Directors of the Company in office prior to such
appointment or election.

 

Notwithstanding the
foregoing, if the event purportedly constituting a Change in Control under Section 6(b)(ii)(A),
(B) or C) does not also constitute a “change in ownership” of the Company,
a “change in effective control” of the Company, or a “change in the ownership
of a substantial portion of the assets” of the Company within the meaning of Section 409A,
then such event shall not constitute a “Change in Control” hereunder.

 

(c)                                  (i)            Upon any termination of this
Agreement pursuant to Section 6(a)(i), 6(a)(ii). 6(a)(iv), 6(b)(i) or
6(b)(ii), Paul, or his estate, shall be entitled to receive, in addition to the
Base Compensation, any Options that were 
awarded to him and any other amounts due hereunder to the date of such
termination, a lump-sum cash payment 
(the “Change Payment”) equal to 2.99 times the rate of Base Compensation
and Option Compensation (as defined below) that was payable to Paul for the
twelve full calendar months immediately preceding the date of termination.  For purposes of this provision, the amount of
“Option Consideration” for any twelve (12)-month period shall be the value of
all Options that the Company granted to Paul during that period, with value to
be determined by the Company’s’ regularly retained accounting firm, applying
the Black-Scholes formula consistent with past practice.

 

(ii)           Upon any termination of this
Agreement pursuant to Section 6(a)(iii), Paul shall be entitled to receive
only the Compensation and any other amounts due hereunder to the date of such
termination.

 

Notwithstanding anything
to the contrary in this Section 6(c), any payment pursuant to this Section shall
be subject to (i) any delay in payment required by Section 7(b((ii) 
hereof and (ii) any reduction required pursuant to Section 7(c)(ii) hereof,
as applicable.

 

7.
Compliance with Certain Restrictions.

 

(a)   Certain
Defined Terms. For purposes of this Agreement, the following terms are defined
as follows:

 

(i)            “Additional
280G Payments” means any distributions in the nature of compensation by the
Company or any Affiliate to or for the benefit of Paul (including, but not
limited to, the value of acceleration in vesting in restricted stock, options
or any other stock-based compensation), whether or not paid or payable or
distributed or distributable pursuant to this Agreement, which is required to
be taken into consideration in applying Section 280G(b)(2)(A) of the
Code;

 

(ii)           “Applicable
Severance” means Paul’s severance from employment by reason of involuntary
termination by the Company or in connection with any bankruptcy, liquidation or

 

4

 

receivership of the Company or any other entity that
is treated as the same employer under EESA, in each case as determined under
the regulations implementing Section 111(b) of EESA;

 

(iii)          Authorities
Period” means the period under which the authorities of Section 101 of
EESA are in effect, as determined pursuant to Section 120 thereof;

 

(iv)          “Determining
Firm” means a reputable law or accounting firm selected by the Bank to make a
determination pursuant to this Article 7;

 

(v)           “EESA”
means the Emergency Economic Stabilization Act of 2008, Public Law 110-343, as
implemented by any guidance or regulations thereunder;

 

(vi)          “Incentive
Compensation” means all bonus and other incentive-based compensation, as those
terms are applied under EESA;

 

(vii)         “Parachute
Payment” is defined as set forth in Section 280G(b)(2) of the Code,
with amounts payable during the Authorities Period upon Applicable Severance
being specifically included in applying such provision;

 

(viii)        “Total
Change in Control Payments” means the total amount of the Change Payment
together with all Additional 280G Payments that are required to be paid because
of a Change in Control; and

 

(ix)           “Total
Severance Payments” means the total amount of payments, including Additional
280G Payments, that are required to be paid to Paul but that would not have
been payable to him if no Applicable Severance had occurred.

 

(b) Compliance
with Section 280G.

 

(i)            Notwithstanding
anything in this Agreement to the contrary, if any amount becomes payable to Paul
because of an Applicable Severance and (ii) the Determining Firm
determines that any portion of the Total Severance Payments would otherwise
constitute a Parachute Payment, the amount payable to Paul shall automatically
be reduced by the smallest amount necessary so that no portion of the Total
Severance Payments will be a Parachute Payment. 
If Total Severance Payments are to be paid in other than a lump sum,
such reduction shall be applied in inverse order to the time at which the
payments are scheduled to be made (e.g., the last scheduled payment will be the
first such payment to be reduced).  If,
despite the foregoing sentence, a payment shall be made to Paul that would
constitute a Parachute Payment, Paul shall have no right to retain such
payment, and, immediately upon being informed of the impropriety of such
payment, Paul shall return such payment to the Company, the Bank or any other
affiliate that was the payer thereof, together with interest at the applicable
federal rate determined pursuant to Section 1274(d) of the Code.

 

(ii)           Notwithstanding
anything in this Agreement to the contrary, other than Section 10.2(a) above,
if the Determining Firm determines that any portion of the Total Change in
Control Payments would otherwise constitute a Parachute Payment, the amount
payable to Paul shall automatically be reduced by the smallest amount necessary
so that no portion of the Total Change in Control Payments will be a Parachute
Payment.  If Total Change in Control
Payments are to be paid in other than a lump sum, such reduction shall be
applied in inverse order to the time at which the payments are scheduled to be
made (e.g., the last scheduled payment will be the first such payment to be
reduced).  If, despite the foregoing
sentence, a payment shall be made to Paul that would constitute a Parachute
Payment, Paul shall have no right to retain such payment and, immediately upon
being informed of the impropriety of such payment, Paul shall return such
payment to the Company, the Bank or any other affiliate that was the payer 

 

5

 

thereof,, together with interest at the applicable
federal rate determined pursuant to Section 1274(d) of the Code.

 

(c) Compliance
with Section 409A.

 

(i)            It
is the intention of the parties hereto that this Agreement and the payments
provided for hereunder shall not be subject to, or shall be in accordance with,
Section 409A, and thus avoid the imposition of any tax and interest on
Paul pursuant to Section 409A(a)(1)(B) of the Code, and this
Agreement shall be interpreted and construed consistent with this intent.  Paul acknowledges and agrees that he shall be
solely responsible for the payment of any tax or penalty which may be imposed
or to which he may become subject as a result of the payment of any amounts
under this Agreement.

 

(ii)           Notwithstanding
any provision of this Agreement to the contrary, if Paul is a “specified
employee” at the time of his “separation from service”, any payment of “nonqualified
deferred compensation” (in each case as determined pursuant to Section 409A)
that is otherwise to be paid to Paul within six (6) months following  his separation from service, then to the
extent that such payment would otherwise be subject to interest and additional
tax under Section 409A(a)(1)(B) of the Code, such payment shall be
delayed and shall be paid on the first business day of the seventh calendar
month following Paul’s separation from service, or, if earlier, upon Paul’s
death.  Any deferral of payments pursuant
to the foregoing sentence shall have no effect on any payments that are
scheduled to be paid more than six (6) months after the date of separation
from service.

 

(iii)          The
parties hereto agree that they shall take such actions as may be necessary and
permissible under applicable law, regulation and guidance to amend or revise
this Agreement in order to ensure that Section 409A(a)(1)(B) does not
impose any additional tax and interest on payments made pursuant to this
Agreement.

 

(d) Clawback
if Material Inaccuracy.  If any
Incentive Compensation that is paid to Paul by the Company, the Bank or any
other Affiliate while the U.S. Treasury holds any equity securities in the
Company is based on any materially inaccurate financial statement or other
materially inaccurate performance metric criteria, as those terms are applied
under EESA, Paul shall be required to disgorge and pay over to the Company, the
Bank or the other Affiliate that was the payer thereof, all such Incentive
Compensation, together with interest at the applicable federal rate determined
pursuant to Section 1274(d) of the Code.

 

8.
Notice. Each notice, demand, request, consent, report,
approval or communication (“Notice”) which is or may be required to be given
under this Agreement by any party to any other party shall be in writing and
given by telex, telecopy, personal delivery, receipted delivery service, or by
certified mail, return receipt requested, prepaid and properly addressed to the
party to be served at the addresses first set forth above. Notices shall be
effective on the date sent via telex or telecopy, the date delivered personally
or by receipted delivery service, or three (3) days after the date mailed.
Each party may designate, by Notice in writing to the other party, a new
address to which any Notice may thereafter be given, delivered or sent.

 

9.
Action of the Company. Every decision, determination,
agreement or other action required to be taken by the Company, and every Notice
which may or is required to be given to the Company, shall be taken by or given
to, the Board of Directors of the Company, or such individual member or
committee of members as the Board of Directors may designate in writing.

 

10.
Waiver of Breach. The waiver by either party of a breach of
any provision of this Agreement by the other shall not operate or be construed
as a waiver of any subsequent breach.

 

11.
Assignment. The rights and
obligations of the Company under this Agreement shall inure to the benefit of
and shall be binding upon the successors and assigns of the Company, but the
rights and obligations of Paul are 

 

6

 

personal and may not be
assigned or delegated without the Company’s prior written consent.

 

12.
Entire Agreement. This Agreement contains the entire agreement
of the parties with respect to tile subject matter hereof. It may not be
changed orally, but only by an agreement in writing executed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought. Not in limitation of the foregoing, this Agreement
supersedes and replaces the 2003Agreement, except that Paul shall remain
entitled to receive any compensation earned but not yet paid thereunder.

 

13.
Applicable Law. This Agreement
and all covenants contained herein, shall be governed in all respects, whether
as to validity, construction, capacity, performance or otherwise, by the laws
of the State of Maryland. In the event any provision of this Agreement shall be
held invalid by a court with jurisdiction over the parties to this Agreement,
such provision shall be deleted from the Agreement, which shall then be
construed to give effect to the remaining provisions thereof.

 

14.
Paragraph Headings. The paragraph
headings contained in this Agreement are for convenience only and in no manner
shall be construed as part of this Agreement.

 

15.
Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.

 

IN WITNESS WHEREOF, the
parties have executed this Agreement as of the day and year first above
written.

 

	
   

  	
  Eagle
  Bancorp, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Ronald D. Paul

  
	
   

  	
   

  
	
   

  	
   

  

 

7

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