Document:

Exhibit 4.1

 

INCORPORATED UNDER THE LAWS

OF THE STATE OF CALIFORNIA

ON OCTOBER 9, 1997

 

	
  Number PA-1

  	
  40,000 Shares

  
	
   

  	
  Fixed Rate Cumulative Perpetual Preferred Stock, Series A

  

 

HERITAGE COMMERCE CORP

AUTHORIZED CAPITAL STOCK: 40,000,000 SHARES

 

	
  30,000,000
  Shares of Common Stock

  	
  10,000,000

  	
   

  	
  Shares of Preferred Stock,
  consisting of:

  
	
   

  	
  9,960,000

  	
   

  	
  Shares of Preferred Stock -
  Undesignated

  
	
   

  	
  40,000

  	
   

  	
  Shares of Fixed Rate
  Cumulative Perpetual Preferred Stock, Series A

  

 

This Certifies that UNITED STATES DEPARTMENT OF THE
TREASURY is the registered holder of Forty Thousand (40,000) shares of Fixed
Rate Cumulative Perpetual Preferred Stock, Series A of HERITAGE COMMERCE
CORP, a California corporation, hereinafter designated “the Corporation,”
transferable only upon the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed or
assigned.

 

The Corporation will furnish without charge to each shareholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof of the Corporation, and the qualifications, limitations or
restrictions of such preferences and/or rights. 
Such requests may be made to the Corporation at its principal executive
office.

 

SEE REVERSE FOR RESTRICTIONS ON TRANSFER

 

In
Witness Whereof, the
said Corporation has caused this Certificate to be signed by its duly
authorized officers as of the 21st day of November, 2008.

 

	
  /s/
  Rebecca A. Levey

  	
   

  	
  /s/ Walter T. Kaczmarek

  
	
  Rebecca
  A. Levey, Secretary

  	
   

  	
  Walter T. Kaczmarek, Chief
  Executive Officer

  

 

 

FOR VALUE RECEIVED                                 
HEREBY SELLS, ASSIGNS, AND TRANSFERS UNTO                 
THE SHARES REPRESENTED BY THIS CERTIFICATE AND DOES HEREBY IRREVOCABLY
CONSTITUTE AND APPOINT ATTORNEY WITH FULL POWER OF SUBSTITUTION IN THE
PREMISES.

 

	
  DATED

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  IN THE PRESENCE OF

  	
   

  	
   

  	
   

  
	
   

  	
  (Witness)

  	
   

  	
  (Shareholder)

  
					

 

NOTICE:  THE SIGNATURE OF THIS
ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.

 

THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

 

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD, OR
OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS
IN EFFECT UNDER SUCH ACT AND APPLICABLE STATUS SECURITIES LAWS OR PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.  EACH PURCHASER OF THE SECURITIES REPRESENTED
BY THIS INSTRUMENT IS NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A
THEREUNDER.  ANY TRANSFEREE OF THE
SECURITIES REPRESENTED BY THIS INSTRUMENT BY ITS ACCEPTANCE HEREOF (1) REPRESENTS
THAT IT IS A “QUALIFIED INSTITUTIONAL BUYER” (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT), (2) AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE
TRANSFER THE SECURITIES REPRESENTED BY THIS INSTRUMENT EXCEPT (A) PURSUANT
TO A REGISTRATION STATEMENT WHICH IS THEN EFFECTIVE UNDER THE SECURITIES ACT, (B) FOR
SO LONG AS THE SECURITIES REPRESENTED BY THIS INSTRUMENT ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A “QUALIFIED
INSTITUTIONAL BUYER” AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICES IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (C) TO THE ISSUER OR (D) PURSUANT TO ANY OTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES
THAT IT WILL GIVE TO EACH PERSON TO WHOM THE SECURITIES REPRESENTED BY THIS
INSTRUMENT ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.Exhibit 4.2

 

THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT
WHILE A REGISTRATION STATEMENT RELATING THERETO IS IN EFFECT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT OR SUCH LAWS.  THIS
INSTRUMENT IS ISSUED SUBJECT TO THE RESTRICTIONS ON TRANSFER AND OTHER
PROVISIONS OF A SECURITIES PURCHASE AGREEMENT BETWEEN THE ISSUER OF THESE
SECURITIES AND THE INVESTOR REFERRED TO THEREIN, A COPY OF WHICH IS ON FILE
WITH THE ISSUER.  THE SECURITIES
REPRESENTED BY THIS INSTRUMENT MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT IN COMPLIANCE WITH SAID AGREEMENT. 
ANY SALE OR OTHER TRANSFER NOT IN COMPLIANCE WITH SAID AGREEMENT WILL BE
VOID.

 

WARRANT

to purchase

 

462,963

Shares of Common Stock 

of Heritage Commerce Corp

 

Issue Date:  November 21,
2008.

 

1.             Definitions.  Unless the context otherwise requires, when
used herein the following terms shall have the meanings indicated.

 

“Affiliate” has the meaning ascribed to
it in the Purchase Agreement.

 

“Appraisal Procedure” means a procedure
whereby two independent appraisers, one chosen by the Company and one by the
Original Warrantholder, shall mutually agree upon the determinations then the
subject of appraisal.  Each party shall
deliver a notice to the other appointing its appraiser within 15 days after the
Appraisal Procedure is invoked.  If
within 30 days after appointment of the two appraisers they are unable to agree
upon the amount in question, a third independent appraiser shall be chosen
within 10 days thereafter by the mutual consent of such first two appraisers.  The decision of the third appraiser so
appointed and chosen shall be given within 30 days after the selection of such
third appraiser.  If three appraisers
shall be appointed and the determination of one appraiser is disparate from the
middle determination by more than twice the amount by which the other
determination is disparate from the middle determination, then the
determination of such appraiser shall be excluded, the remaining two
determinations shall be averaged and such average shall be binding and
conclusive upon the  Company and the
Original Warrantholder; otherwise, the average of all three determinations
shall be binding upon the Company and the Original Warrantholder.  The costs of conducting any Appraisal
Procedure shall be borne by the Company.

 

“Board of Directors” means the board of
directors of the Company, including any duly authorized committee thereof.

 

“Business Combination” means a merger,
consolidation, statutory share exchange or similar 

 

1

 

transaction that requires the approval of the Company’s
stockholders.

 

“business day” means any day except
Saturday, Sunday and any day on which banking institutions in the State of New
York generally are authorized or required by law or other governmental actions
to close.

 

“Capital Stock” means (A) with
respect to any Person that is a corporation or company, any and all shares,
interests, participations or other equivalents (however designated) of capital
or capital stock of such Person and (B) with respect to any Person that is
not a corporation or company, any and all partnership or other equity interests
of such Person.

 

“Charter” means, with respect to any
Person, its certificate or articles of incorporation, articles of association,
or similar organizational document.

 

“Common Stock” has the meaning ascribed
to it in the Purchase Agreement.

 

“Company” means the Person whose name,
corporate or other organizational form and jurisdiction of organization is set
forth in Item 1 of Schedule A hereto.

 

“conversion” has the meaning set forth in
Section 13(B).

 

“convertible securities” has the meaning
set forth in Section 13(B).

 

“CPP” has the meaning ascribed to it in
the Purchase Agreement.

 

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

 

“Exercise Price” means the amount set
forth in Item 2 of Schedule A hereto.

 

“Expiration Time” has the meaning set
forth in Section 3.

 

“Fair Market Value” means, with respect
to any security or other property, the fair market value of such security or
other property as determined by the Board of Directors, acting in good faith
or, with respect to Section 14, as determined by the Original
Warrantholder acting in good faith.  For
so long as the Original Warrantholder holds this Warrant or any portion
thereof, it may object in writing to the Board of Director’s calculation of
fair market value within 10 days of receipt of written notice thereof.  If the Original Warrantholder and the Company
are unable to agree on fair market value during the 10-day period following the
delivery of the Original Warrantholder’s objection, the Appraisal Procedure may
be invoked by either party to determine Fair Market Value by delivering written
notification thereof not later than the 30th day after delivery of the Original
Warrantholder’s objection.

 

“Governmental Entities” has the meaning
ascribed to it in the Purchase Agreement.

 

“Initial Number” has the meaning set
forth in Section 13(B).

 

“Issue Date” means the date set forth in
Item 3 of Schedule A hereto.

 

“Market Price” means, with respect to a
particular security, on any given day, the last reported sale price regular way
or, in case no such reported sale takes place on such day, the average of the
last closing bid and ask prices regular way, in either case on the principal
national securities exchange on which the applicable securities are listed or
admitted to trading, or if not listed or admitted to trading on 

 

2

 

any national securities exchange, the average of the
closing bid and ask prices as furnished by two members of the Financial
Industry Regulatory Authority, Inc. 
selected from time to time by the Company for that purpose.  “Market Price” shall be determined without
reference to after hours or extended hours trading.  If such security is not listed and traded in
a manner that the quotations referred to above are available for the period
required hereunder, the Market Price per share of Common Stock shall be deemed
to be (i) in the event that any portion of the Warrant is held by the
Original Warrantholder, the fair market value per share of such security as
determined in good faith by the Original Warrantholder or (ii) in all
other circumstances, the fair market value per share of such security as
determined in good faith by the Board of Directors in reliance on an opinion of
a nationally recognized independent investment banking corporation retained by
the Company for this purpose and certified in a resolution to the
Warrantholder.  For the purposes of
determining the Market Price of the Common Stock on the “trading day”
preceding, on or following the occurrence of an event, (i) that trading
day shall be deemed to commence immediately after the regular scheduled closing
time of trading on the New York Stock Exchange or, if trading is closed at an
earlier time, such earlier time and (ii) that trading day shall end at the
next regular scheduled closing time, or if trading is closed at an earlier
time, such earlier time (for the avoidance of doubt, and as an example, if the
Market Price is to be determined as of the last trading day preceding a
specified event and the closing time of trading on a particular day is 4:00 p.m.
and the specified event occurs at 5:00 p.m.  on that day, the Market Price would be
determined by reference to such 4:00 p.m. closing price).

 

“Ordinary Cash Dividends” means a regular
quarterly cash dividend on shares of Common Stock out of surplus or net profits
legally available therefor (determined in accordance with generally accepted
accounting principles in effect from time to time), provided that Ordinary Cash
Dividends shall not include any cash dividends paid subsequent to the Issue
Date to the extent the aggregate per share dividends paid on the outstanding
Common Stock in any quarter exceed the amount set forth in Item 4 of Schedule A
hereto, as adjusted for any stock split, stock dividend, reverse stock split,
reclassification or similar transaction.

 

“Original Warrantholder” means the United
States Department of the Treasury.  Any
actions specified to be taken by the Original Warrantholder hereunder may only
be taken by such Person and not by any other Warrantholder.

 

“Permitted Transactions” has the meaning
set forth in Section 13(B).

 

“Person” has the meaning given to it in Section 3(a)(9) of
the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the
Exchange Act.

 

“Per Share Fair Market Value” has the
meaning set forth in Section 13(C).

 

“Preferred Shares” means the perpetual
preferred stock issued to the Original Warrantholder on the Issue Date pursuant
to the Purchase Agreement.

 

“Pro Rata Repurchases” means any purchase
of shares of Common Stock by the Company or any Affiliate thereof pursuant to (A) any
tender offer or exchange offer subject to Section 13(e) or 14(e) of
the Exchange Act or Regulation 14E promulgated thereunder or (B) any other
offer available to substantially all holders of Common Stock, in the case of
both (A) or (B), whether for cash, shares of Capital Stock of the Company,
other securities of the Company, evidences of indebtedness of the Company or
any other Person or any other property (including, without limitation, shares
of Capital Stock, other securities or evidences of indebtedness of a
subsidiary), or any combination thereof, effected while this Warrant is
outstanding.  The “Effective
Date” of a Pro Rata Repurchase shall mean the date of acceptance of
shares for purchase or exchange by the Company under any tender or exchange
offer which is a Pro Rata Repurchase or the date of purchase with respect to
any Pro Rata Repurchase that is not a tender or 

 

3

 

exchange offer.

 

“Purchase Agreement” means the Securities
Purchase Agreement — Standard Terms incorporated into the Letter Agreement,
dated as of the date set forth in Item 5 of Schedule A hereto, as amended from
time to time, between the Company and the United States Department of the
Treasury (the “Letter Agreement”), including all
annexes and schedules thereto.

 

“Qualified Equity Offering” has the
meaning ascribed to it in the Purchase Agreement.

 

“Regulatory Approvals” with respect to
the Warrantholder, means, to the extent applicable and required to permit the
Warrantholder to exercise this Warrant for shares of Common Stock and to own
such Common Stock without the Warrantholder being in violation of applicable
law, rule or regulation, the receipt of any necessary approvals and
authorizations of, filings and registrations with, notifications to, or
expiration or termination of any applicable waiting period under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations thereunder.

 

“SEC” means the U.S.  Securities and Exchange Commission.

 

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

 

“Shares” has the meaning set forth in Section 2.

 

“trading day” means (A) if the
shares of Common Stock are not traded on any national or regional securities
exchange or association or over-the-counter market, a business day or (B) if
the shares of Common Stock are traded on any national or regional securities
exchange or association or over-the-counter market, a business day on which
such relevant exchange or quotation system is scheduled to be open for business
and on which the shares of Common Stock (i) are not suspended from trading
on any national or regional securities exchange or association or
over-the-counter market for any period or periods aggregating one half hour or
longer; and (ii) have traded at least once on the national or regional
securities exchange or association or over-the-counter market that is the
primary market for the trading of the shares of Common Stock.

 

“U.S. GAAP” means United States generally
accepted accounting principles.

 

“Warrantholder” has the meaning set forth
in Section 2.

 

“Warrant” means this Warrant, issued
pursuant to the Purchase Agreement.

 

2.             Number
of Shares; Exercise Price.  This
certifies that, for value received, the United States Department of the
Treasury or its permitted assigns (the “Warrantholder”)
is entitled, upon the terms and subject to the conditions hereinafter set
forth, to acquire from the Company, in whole or in part, after the receipt of
all applicable Regulatory Approvals, if any, up to an aggregate of the number
of fully paid and nonassessable shares of Common Stock set forth in Item 6 of
Schedule A hereto, at a purchase price per share of Common Stock equal to the
Exercise Price.  The number of shares of
Common Stock (the “Shares”) and
the Exercise Price are subject to adjustment as provided herein, and all
references to “Common Stock,” “Shares” and “Exercise Price” herein shall be
deemed to include any such adjustment or series of adjustments.

 

3.             Exercise
of Warrant, Term.  Subject to Section 2,
to the extent permitted by applicable laws and regulations, the right to
purchase the Shares represented by this Warrant is exercisable, in whole 

 

4

 

or in part by the
Warrantholder, at any time or from time to time after the execution and
delivery of this Warrant by the Company on the date hereof, but in no event
later than 5:00 p.m., New York City time on the tenth anniversary of the
Issue Date (the “Expiration Time”), by (A) the
surrender of this Warrant and Notice of Exercise annexed hereto, duly completed
and executed on behalf of the Warrantholder, at the principal executive office
of the Company located at the address set forth in Item 7 of Schedule A hereto
(or such other office or agency of the Company in the United States as it may
designate by notice in writing to the Warrantholder at the address of the
Warrantholder appearing on the books of the Company), and (B) payment of
the Exercise Price for the Shares thereby purchased:

 

(i)            by
having the Company withhold, from the shares of Common Stock that would
otherwise be delivered to the Warrantholder upon such exercise, shares of
Common Stock issuable upon exercise of the Warrant equal in value to the
aggregate Exercise Price as to which this Warrant is so exercised based on the
Market Price of the Common Stock on the trading day on which this Warrant is
exercised and the Notice of Exercise is delivered to the Company pursuant to
this Section 3, or

 

(ii)           with the
consent of both the Company and the Warrantholder, by tendering in cash, by
certified or cashier’s check payable to the order of the Company, or by wire
transfer of immediately available funds to an account designated by the
Company.

 

If the Warrantholder does not exercise this Warrant in its entirety,
the Warrantholder will be entitled to receive from the Company within a
reasonable time, and in any event not exceeding three business days, a new
warrant in substantially identical form for the purchase of that number of
Shares equal to the difference between the number of Shares subject to this
Warrant and the number of Shares as to which this Warrant is so exercised.  Notwithstanding anything in this Warrant to
the contrary, the Warrantholder hereby acknowledges and agrees that its
exercise of this Warrant for Shares is subject to the condition that the
Warrantholder will have first received any applicable Regulatory Approvals.

 

4.             Issuance
of Shares; Authorization; Listing. 
Certificates for Shares issued upon exercise of this Warrant will be
issued in such name or names as the Warrantholder may designate and will be
delivered to such named Person or Persons within a reasonable time, not to
exceed three business days after the date on which this Warrant has been duly
exercised in accordance with the terms of this Warrant.  The Company hereby represents and warrants
that any Shares issued upon the exercise of this Warrant in accordance with the
provisions of Section 3 will be duly and validly authorized and issued,
fully paid and nonassessable and free from all taxes, liens and charges (other
than liens or charges created by the Warrantholder, income and franchise taxes
incurred in connection with the exercise of the Warrant or taxes in respect of
any transfer occurring contemporaneously therewith).  The Company agrees that the Shares so issued
will be deemed to have been issued to the Warrantholder as of the close of
business on the date on which this Warrant and payment of the Exercise Price
are delivered to the Company in accordance with the terms of this Warrant,
notwithstanding that the stock transfer books of the Company may then be closed
or certificates representing such Shares may not be actually delivered on such
date.  The Company will at all times
reserve and keep available, out of its authorized but unissued Common Stock,
solely for the purpose of providing for the exercise of this Warrant, the
aggregate number of shares of Common Stock then issuable upon exercise of this
Warrant at any time.  The Company will (A) procure,
at its sole expense, the listing of the Shares issuable upon exercise of this
Warrant at any time, subject to issuance or notice of issuance, on all
principal stock exchanges on which the Common Stock is then listed or traded
and (B) maintain such listings of such Shares at all times after
issuance.  The Company will use
reasonable best efforts to ensure that the Shares may be issued without
violation of any applicable law or regulation or of any requirement of any
securities exchange on which the Shares are listed or traded.

 

5

 

5.             No
Fractional Shares or Scrip.  No
fractional Shares or scrip representing fractional Shares shall be issued upon
any exercise of this Warrant.  In lieu of
any fractional Share to which the Warrantholder would otherwise be entitled,
the Warrantholder shall be entitled to receive a cash payment equal to the
Market Price of the Common Stock on the last trading day preceding the date of
exercise less the pro-rated Exercise Price for such fractional share.

 

6.             No
Rights as Stockholders; Transfer Books. 
This Warrant does not entitle the Warrantholder to any voting rights or
other rights as a stockholder of the Company prior to the date of exercise
hereof.  The Company will at no time
close its transfer books against transfer of this Warrant in any manner which
interferes with the timely exercise of this Warrant.

 

7.             Charges,
Taxes and Expenses.  Issuance of
certificates for Shares to the Warrantholder upon the exercise of this Warrant
shall be made without charge to the Warrantholder for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificates,
all of which taxes and expenses shall be paid by the Company.

 

8.             Transfer/Assignment.

 

(A)          Subject to
compliance with clause (B) of this Section 8, this Warrant and all
rights hereunder are transferable, in whole or in part, upon the books of the
Company by the registered holder hereof in person or by duly authorized
attorney, and a new warrant shall be made and delivered by the Company, of the
same tenor and date as this Warrant but registered in the name of one or more
transferees, upon surrender of this Warrant, duly endorsed, to the office or
agency of the Company described in Section 3.  All expenses (other than stock transfer
taxes) and other charges payable in connection with the preparation, execution
and delivery of the new warrants pursuant to this Section 8 shall be paid
by the Company.

 

(B)           The
transfer of the Warrant and the Shares issued upon exercise of the Warrant are
subject to the restrictions set forth in Section 4.4 of the Purchase
Agreement.  If and for so long as
required by the Purchase Agreement, this Warrant shall contain the legends as
set forth in Sections 4.2(a) and 4.2(b) of the Purchase Agreement.

 

9.             Exchange
and Registry of Warrant.  This
Warrant is exchangeable, upon the surrender hereof by the Warrantholder to the
Company, for a new warrant or warrants of like tenor and representing the right
to purchase the same aggregate number of Shares.  The Company shall maintain a registry showing
the name and address of the Warrantholder as the registered holder of this
Warrant.  This Warrant may be surrendered
for exchange or exercise in accordance with its terms, at the office of the
Company, and the Company shall be entitled to rely in all respects, prior to
written notice to the contrary, upon such registry.

 

10.           Loss,
Theft, Destruction or Mutilation of Warrant.  Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and in the case of any such loss, theft or destruction, upon
receipt of a bond, indemnity or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company shall make and deliver, in lieu of
such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor
and representing the right to purchase the same aggregate number of Shares as
provided for in such lost, stolen, destroyed or mutilated Warrant.

 

11.           Saturdays,
Sundays, Holidays, etc.  If the last
or appointed day for the taking of any action or the expiration of any right
required or granted herein shall not be a business day, then such action may be
taken or such right may be exercised on the next succeeding day that is a
business day.

 

6

 

12.           Rule 144 Information.  The Company covenants that it will use its
reasonable best efforts to timely file all reports and other documents required
to be filed by it under the Securities Act and the Exchange Act and the rules and
regulations promulgated by the SEC thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any Warrantholder,
make publicly available such information as necessary to permit sales pursuant
to Rule 144 under the Securities Act), and it will use reasonable best
efforts to take such further action as any Warrantholder may reasonably
request, in each case to the extent required from time to time to enable such
holder to, if permitted by the terms of this Warrant and the Purchase
Agreement, sell this Warrant without registration under the Securities Act
within the limitation of the exemptions provided by (A) Rule 144
under the Securities Act, as such rule may be amended from time to time,
or (B) any successor rule or regulation hereafter adopted by the
SEC.  Upon the written request of any
Warrantholder, the Company will deliver to such Warrantholder a written
statement that it has complied with such requirements.

 

13.           Adjustments and Other Rights.  The Exercise Price and the number of Shares
issuable upon exercise of this Warrant shall be subject to adjustment from time
to time as follows; provided, that if more than one subsection of this Section 13
is applicable to a single event, the subsection shall be applied that produces
the largest adjustment and no single event shall cause an adjustment under more
than one subsection of this Section 13 so as to result in duplication:

 

(A)          Stock Splits, Subdivisions,
Reclassifications or Combinations. 
If the Company shall (i) declare and pay a dividend or make a
distribution on its Common Stock in shares of Common Stock, (ii) subdivide
or reclassify the outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify the outstanding shares of Common
Stock into a smaller number of shares, the number of Shares issuable upon
exercise of this Warrant at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the Warrantholder
after such date shall be entitled to purchase the number of shares of Common
Stock which such holder would have owned or been entitled to receive in respect
of the shares of Common Stock subject to this Warrant after such date had this
Warrant been exercised immediately prior to such date.  In such event, the Exercise Price in effect
at the time of the record date for such dividend or distribution or the
effective date of such subdivision, combination or reclassification shall be
adjusted to the number obtained by dividing (x) the product of (1) the
number of Shares issuable upon the exercise of this Warrant before such
adjustment and (2) the Exercise Price in effect immediately prior to the
record or effective date, as the case may be, for the dividend, distribution,
subdivision, combination or reclassification giving rise to this adjustment by (y) the
new number of Shares issuable upon exercise of the Warrant determined pursuant
to the immediately preceding sentence.

 

(B)           Certain Issuances of Common Shares
or Convertible Securities.  Until the
earlier of (i) the date on which the Original Warrantholder no longer
holds this Warrant or any portion thereof and (ii) the third anniversary
of the Issue Date, if the Company shall issue shares of Common Stock (or rights
or warrants or other securities exercisable or convertible into or exchangeable
(collectively, a “conversion”) for shares of Common
Stock) (collectively, “convertible securities”)
(other than in Permitted Transactions (as defined below) or a transaction to
which subsection (A) of this Section 13 is applicable) without
consideration or at a consideration per share (or having a conversion price per
share) that is less than 90% of the Market Price on the last trading day
preceding the date of the agreement on pricing such shares (or such convertible
securities) then, in such event:

 

(A)          the number of Shares
issuable upon the exercise of this Warrant immediately prior to the date of the
agreement on pricing of such shares (or of such convertible securities) (the “Initial Number”) shall be increased to the number obtained
by multiplying the Initial Number by a fraction (A) the numerator of which
shall be the sum of (x) the number of shares of Common Stock of the
Company outstanding on such date 

 

7

 

and (y) the number of additional shares of Common Stock issued (or
into which convertible securities may be exercised or convert) and (B) the
denominator of which shall be the sum of (I) the number of shares of
Common Stock outstanding on such date and (II) the number of shares of
Common Stock which the aggregate consideration receivable by the Company for
the total number of shares of Common Stock so issued (or into which convertible
securities may be exercised or convert) would purchase at the Market Price on
the last trading day preceding the date of the agreement on pricing such shares
(or such convertible securities); and

 

(B)           the Exercise Price
payable upon exercise of the Warrant shall be adjusted by multiplying such
Exercise Price in effect immediately prior to the date of the agreement on
pricing of such shares (or of such convertible securities) by a fraction, the
numerator of which shall be the number of shares of Common Stock issuable upon
exercise of this Warrant prior to such date and the denominator of which shall
be the number of shares of Common Stock issuable upon exercise of this Warrant
immediately after the adjustment described in clause (A) above.

 

For purposes of the foregoing, the aggregate consideration receivable
by the Company in connection with the issuance of such shares of Common Stock
or convertible securities shall be deemed to be equal to the sum of the net
offering price (including the Fair Market Value of any non-cash consideration
and after deduction of any related expenses payable to third parties) of all
such securities plus the minimum aggregate amount, if any, payable upon
exercise or conversion of any such convertible securities into shares of Common
Stock; and “Permitted Transactions” shall mean
issuances (i) as consideration for or to fund the acquisition of
businesses and/or related assets, (ii) in connection with employee benefit
plans and compensation related arrangements in the ordinary course and consistent
with past practice approved by the Board of Directors, (iii) in connection
with a public or broadly marketed offering and sale of Common Stock or
convertible securities for cash conducted by the Company or its affiliates
pursuant to registration under the Securities Act or Rule 144A thereunder
on a basis consistent with capital raising transactions by comparable financial
institutions and (iv) in connection with the exercise of preemptive rights
on terms existing as of the Issue Date. 
Any adjustment made pursuant to this Section 13(B) shall
become effective immediately upon the date of such issuance.

 

(C)           Other Distributions.  In case the Company shall fix a record date
for the making of a distribution to all holders of shares of its Common Stock
of securities, evidences of indebtedness, assets, cash, rights or warrants
(excluding Ordinary Cash Dividends, dividends of its Common Stock and other
dividends or distributions referred to in Section 13(A)), in each such
case, the Exercise Price in effect prior to such record date shall be reduced
immediately thereafter to the price determined by multiplying the Exercise
Price in effect immediately prior to the reduction by the quotient of (x) the
Market Price of the Common Stock on the last trading day preceding the first
date on which the Common Stock trades regular way on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
without the right to receive such distribution, minus the amount of cash and/or
the Fair Market Value of the securities, evidences of indebtedness, assets,
rights or warrants to be so distributed in respect of one share of Common Stock
(such amount and/or Fair Market Value, the “Per Share Fair Market
Value”) divided by (y) such Market Price on such date specified
in clause (x); such adjustment shall be made successively whenever such a
record date is fixed.  In such event, the
number of Shares issuable upon the exercise of this Warrant shall be increased to
the number obtained by dividing (x) the product of (1) the number of
Shares issuable upon the exercise of this Warrant before such adjustment, and (2) the
Exercise Price in effect immediately prior to the distribution giving rise to
this adjustment by (y) the new Exercise Price determined in accordance
with the immediately preceding sentence. 
In the case of adjustment for a cash dividend that is, or is coincident
with, a regular quarterly cash dividend, the Per Share Fair Market Value would
be reduced by the per share amount of the portion 

 

8

 

of the cash dividend that would
constitute an Ordinary Cash Dividend.  In
the event that such distribution is not so made, the Exercise Price and the
number of Shares issuable upon exercise of this Warrant then in effect shall be
readjusted, effective as of the date when the Board of Directors determines not
to distribute such shares, evidences of indebtedness, assets, rights, cash or
warrants, as the case may be, to the Exercise Price that would then be in
effect and the number of Shares that would then be issuable upon exercise of
this Warrant if such record date had not been fixed.

 

(D)          Certain  Repurchases  of  Common  Stock.  In  case  the  Company  effects  a  Pro  Rata  Repurchase  of  Common  Stock,  then  the  Exercise  Price  shall  be  reduced  to  the  price  determined  by  multiplying  the  Exercise  Price  in  effect  immediately  prior  to  the  Effective  Date  of  such  Pro  Rata  Repurchase  by  a  fraction  of  which  the  numerator  shall  be  (i)  the  product  of  (x)  the  number  of  shares  of  Common  Stock  outstanding  immediately  before  such  Pro  Rata  Repurchase  and  (y)  the  Market  Price  of  a  share  of  Common  Stock  on  the  trading  day  immediately  preceding  the  first  public  announcement  by  the  Company  or  any  of  its  Affiliates  of  the  intent  to  effect  such  Pro  Rata  Repurchase,  minus  (ii)  the  aggregate  purchase  price  of  the  Pro  Rata  Repurchase,  and  of  which  the  denominator  shall  be  the  product  of  (i)  the  number  of  shares  of  Common  Stock  outstanding  immediately  prior  to  such  Pro  Rata  Repurchase  minus  the  number  of  shares  of  Common  Stock  so  repurchased  and  (ii)  the  Market  Price  per  share  of  Common  Stock  on  the  trading  day  immediately  preceding  the  first  public  announcement  by  the  Company  or  any  of  its  Affiliates  of  the  intent  to  effect  such  Pro  Rata  Repurchase.  In  such  event,  the  number  of  shares  of  Common  Stock  issuable  upon  the  exercise  of  this  Warrant  shall  be  increased  to  the  number  obtained  by  dividing  (x)  the  product  of  (1)  the  number  of  Shares  issuable  upon  the  exercise  of  this  Warrant  before  such  adjustment,  and  (2)  the  Exercise  Price  in  effect  immediately  prior  to  the  Pro  Rata  Repurchase  giving  rise  to  this  adjustment  by  (y)  the  new  Exercise  Price  determined  in  accordance  with  the  immediately  preceding  sentence.  For  the  avoidance  of  doubt,  no  increase  to  the  Exercise  Price  or  decrease  in  the  number  of  Shares  issuable  upon  exercise  of  this  Warrant  shall  be  made  pursuant  to  this  Section  13(D).

 

(E)           Business Combinations.  In case of any Business Combination or
reclassification of Common Stock (other than a reclassification of Common Stock
referred to in Section 13(A)), the Warrantholder’s right to receive Shares
upon exercise of this Warrant shall be converted into the right to exercise
this Warrant to acquire the number of shares of stock or other securities or
property (including cash) which the Common Stock issuable (at the time of such
Business Combination or reclassification) upon exercise of this Warrant
immediately prior to such Business Combination or reclassification would have
been entitled to receive upon consummation of such Business Combination or
reclassification; and in any such case, if necessary, the provisions set forth
herein with respect to the rights and interests thereafter of the Warrantholder
shall be appropriately adjusted so as to be applicable, as nearly as may
reasonably be, to the Warrantholder’s right to exercise this Warrant in
exchange for any shares of stock or other securities or property pursuant to
this paragraph.  In determining the kind
and amount of stock, securities or the property receivable upon exercise of
this Warrant following the consummation of such Business Combination, if the
holders of Common Stock have the right to elect the kind or amount of
consideration receivable upon consummation of such Business Combination, then
the consideration that the Warrantholder shall be entitled to receive upon
exercise shall be deemed to be the types and amounts of consideration received
by the majority of all holders of the shares of common stock that affirmatively
make an election (or of all such holders if none make an election).

 

(F)           Rounding of Calculations; Minimum
Adjustments.  All calculations under
this Section 13 shall be made to the nearest one-tenth (1/10th) of a cent
or to the nearest one-hundredth (1/100th) of a share, as the case may be.  Any provision of this Section 13 to the
contrary notwithstanding, no adjustment in the Exercise Price or the number of
Shares into which this Warrant is exercisable shall be made if the amount of
such adjustment would be less than $0.01 or one-tenth (1/10th) of a share of
Common Stock, but any such amount shall be carried forward and an adjustment
with respect thereto shall be made at the time of and together with any
subsequent adjustment which, together 

 

9

 

with such amount and any other
amount or amounts so carried forward, shall aggregate $0.01 or 1/10th of a
share of Common Stock, or more.

 

(G)           Timing of Issuance of Additional
Common Stock Upon Certain Adjustments. 
In any case in which the provisions of this Section 13 shall
require that an adjustment shall become effective immediately after a record
date for an event, the Company may defer until the occurrence of such event (i) issuing
to the Warrantholder of this Warrant exercised after such record date and
before the occurrence of such event the additional shares of Common Stock
issuable upon such exercise by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such exercise before
giving effect to such adjustment and (ii) paying to such Warrantholder any
amount of cash in lieu of a fractional share of Common Stock; provided,
however, that the Company upon request shall deliver to such Warrantholder a
due bill or other appropriate instrument evidencing such Warrantholder’s right
to receive such additional shares, and such cash, upon the occurrence of the
event requiring such adjustment.

 

(H)          Completion of Qualified Equity
Offering.  In the event the Company
(or any successor by Business Combination) completes one or more Qualified
Equity Offerings on or prior to December 31, 2009 that result in the
Company (or any such successor) receiving aggregate gross proceeds of not less
than 100% of the aggregate liquidation preference of the Preferred Shares (and
any preferred stock issued by any such successor to the Original Warrantholder
under the CPP), the number of shares of Common Stock underlying the portion of
this Warrant then held by the Original Warrantholder shall be thereafter
reduced by a number of shares of Common Stock equal to the product of (i) 0.5
and (ii) the number of shares underlying the Warrant on the Issue Date
(adjusted to take into account all other theretofore made adjustments pursuant
to this Section 13).

 

(I)            Other Events.  For so long as the Original Warrantholder
holds this Warrant or any portion thereof, if any event occurs as to which the
provisions of this Section 13 are not strictly applicable or, if strictly
applicable, would not, in the good faith judgment of the Board of Directors of
the Company, fairly and adequately protect the purchase rights of the Warrants
in accordance with the essential intent and principles of such provisions, then
the Board of Directors shall make such adjustments in the application of such
provisions, in accordance with such essential intent and principles, as shall
be reasonably necessary, in the good faith opinion of the Board of Directors,
to protect such purchase rights as aforesaid. 
The Exercise Price or the number of Shares into which this Warrant is
exercisable shall not be adjusted in the event of a change in the par value of
the Common Stock or a change in the jurisdiction of incorporation of the
Company.

 

(J)            Statement Regarding Adjustments.  Whenever the Exercise Price or the number of
Shares into which this Warrant is exercisable shall be adjusted as provided in Section 13,
the Company shall forthwith file at the principal office of the Company a
statement showing in reasonable detail the facts requiring such adjustment and
the Exercise Price that shall be in effect and the number of Shares into which
this Warrant shall be exercisable after such adjustment, and the Company shall
also cause a copy of such statement to be sent by mail, first class postage
prepaid, to each Warrantholder at the address appearing in the Company’s
records.

 

(K)          Notice of Adjustment Event.  In the event that the Company shall propose
to take any action of the type described in this Section 13 (but only if
the action of the type described in this Section 13 would result in an
adjustment in the Exercise Price or the number of Shares into which this
Warrant is exercisable or a change in the type of securities or property to be
delivered upon exercise of this Warrant), the Company shall give notice to the
Warrantholder, in the manner set forth in Section 13(J), which notice
shall specify the record date, if any, with respect to any such action and the
approximate date on which such action is to take place.  Such notice shall also set forth the facts
with 

 

10

 

respect thereto as shall be
reasonably necessary to indicate the effect on the Exercise Price and the
number, kind or class of shares or other securities or property which shall be
deliverable upon exercise of this Warrant. 
In the case of any action which would require the fixing of a record
date, such notice shall be given at least 10 days prior to the date so fixed,
and in case of all other action, such notice shall be given at least 15 days
prior to the taking of such proposed action. 
Failure to give such notice, or any defect therein, shall not affect the
legality or validity of any such action.

 

(L)           Proceedings Prior to Any Action
Requiring Adjustment.  As a condition
precedent to the taking of any action which would require an adjustment
pursuant to this Section 13, the Company shall take any action which may
be necessary, including obtaining regulatory, New York Stock Exchange,
NASDAQ Stock Market or other applicable national securities exchange or
stockholder approvals or exemptions, in order that the Company may thereafter
validly and legally issue as fully paid and nonassessable all shares of Common
Stock that the Warrantholder is entitled to receive upon exercise of this
Warrant pursuant to this Section 13.

 

(M)         Adjustment Rules.  Any adjustments pursuant to this Section 13
shall be made successively whenever an event referred to herein shall
occur.  If an adjustment in Exercise
Price made hereunder would reduce the Exercise Price to an amount below par
value of the Common Stock, then such adjustment in Exercise Price made
hereunder shall reduce the Exercise Price to the par value of the Common Stock.

 

14.           Exchange.  At any time following the date on which the
shares of Common Stock of the Company are no longer listed or admitted to
trading on a national securities exchange (other than in connection with any
Business Combination), the Original Warrantholder may cause the Company to
exchange all or a portion of this Warrant for an economic interest (to be
determined by the Original Warrantholder after consultation with the Company)
of the Company classified as permanent equity under U.S. GAAP having a value
equal to the Fair Market Value of the portion of the Warrant so exchanged.  The Original Warrantholder shall calculate
any Fair Market Value required to be calculated pursuant to this Section 14,
which shall not be subject to the Appraisal Procedure.

 

15.           No Impairment.  The Company will not, by amendment of its
Charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Warrant and in
taking of all such action as may be necessary or appropriate in order to
protect the rights of the Warrantholder.

 

16.           Governing Law.  This Warrant will be
governed by and construed in accordance with the federal law of the United
States if and to the extent such law is applicable, and otherwise in accordance
with the laws of the State of New York applicable to contracts made and to be
performed entirely within such State. 
Each of the Company and the Warrantholder agrees (a) to submit to
the exclusive jurisdiction and venue of the United States District Court for
the District of Columbia for any civil action, suit or proceeding arising out
of or relating to this Warrant or the transactions contemplated hereby, and (b) that
notice may be served upon the Company at the address in Section 20 below
and upon the Warrantholder at the address for the Warrantholder set forth in
the registry maintained by the Company pursuant to Section 9 hereof.  To the extent permitted by applicable law,
each of the Company and the Warrantholder hereby unconditionally waives trial
by jury in any civil legal action or proceeding relating to the Warrant or the
transactions contemplated hereby or thereby.

 

11

 

17.           Binding Effect.  This Warrant shall be binding upon any
successors or assigns of the Company.

 

18.           Amendments.  This Warrant may be amended and the
observance of any term of this Warrant may be waived only with the written
consent of the Company and the Warrantholder.

 

19.           Prohibited Actions.  The Company agrees that it will not take any
action which would entitle the Warrantholder to an adjustment of the Exercise
Price if the total number of shares of Common Stock issuable after such action
upon exercise of this Warrant, together with all shares of Common Stock then
outstanding and all shares of Common Stock then issuable upon the exercise of
all outstanding options, warrants, conversion and other rights, would exceed
the total number of shares of Common Stock then authorized by its Charter.

 

20.           Notices.  Any notice, request, instruction or other
document to be given hereunder by any party to the other will be in writing and
will be deemed to have been duly given (a) on the date of delivery if
delivered personally, or by facsimile, upon confirmation of receipt, or (b) on
the second business day following the date of dispatch if delivered by a
recognized next day courier service.  All
notices hereunder shall be delivered as set forth in Item 8 of Schedule A
hereto, or pursuant to such other instructions as may be designated in writing
by the party to receive such notice.

 

21.           Entire Agreement.  This Warrant, the forms attached hereto and
Schedule A hereto (the terms of which are incorporated by reference herein),
and the Letter Agreement (including all documents incorporated therein),
contain the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior and contemporaneous arrangements or
undertakings with respect thereto.

 

[Remainder of page intentionally left blank]

 

12

 

[Form of Notice of Exercise]

	
   

  	
  Date:

  	
   

  	
   

  

 

	
  TO:

  	
  Heritage Commerce Corp

  
	
   

  	
   

  
	
  RE:

  	
  Election to Purchase Common Stock

  

 

The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to subscribe for and purchase the number of shares of
the Common Stock set forth below covered by such Warrant.  The undersigned, in accordance with Section 3
of the Warrant, hereby agrees to pay the aggregate Exercise Price for such
shares of Common Stock in the manner set forth below.  A new warrant evidencing the remaining shares
of Common Stock covered by such Warrant, but not yet subscribed for and
purchased, if any, should be issued in the name set forth below.

 

	
  Number of Shares of Common Stock

  	
   

  	
   

  

 

Method of Payment of Exercise Price (note if cashless
exercise pursuant to Section 3(i) of the Warrant or cash exercise
pursuant to Section 3(ii) of the Warrant, with consent of the Company
and the Warrantholder)

 

	
  Aggregate Exercise Price:

  	
   

  	
   

  

 

 

	
   

  	
  Holder:

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
						

 

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by a duly authorized officer.

 

Dated:  November 21,
2008

 

	
   

  	
  Heritage
  Commerce Corp

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Walter T.
  Kaczmarek

  
	
   

  	
  Walter T. Kaczmarek

  
	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Attest:

  
	
   

  	
   

  
	
   

  	
  /s/ Rebecca A.
  Levey

  
	
   

  	
  Rebecca A. Levey

  
	
   

  	
  Corporate
  Secretary

  

 

[Signature Page to Warrant]

 

S-1

 

SCHEDULE A

 

	
  Item 1

  	
   

  	
  Name:

  	
   

  	
  Heritage
  Commerce Corp

  Corporate

  California

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 2

  	
   

  	
  Exercise Price:

  	
   

  	
  $12.96

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 3

  	
   

  	
  Issue Date:

  	
   

  	
  November 21, 2008

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 4

  	
   

  	
  Amount of last dividend
  declared prior to the Issue Date:

  	
   

  	
  $0.08 per share payable in
  cash

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 5

  	
   

  	
  Date of Letter Agreement
  between the Company and the United States Department of the Treasury:

  	
   

  	
  November 21, 2008

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 6

  	
   

  	
  Number of shares of Common
  Stock:

  	
   

  	
  462,963 shares

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 7

  	
   

  	
  Company’s address:

  	
   

  	
  Heritage Commerce Corp

  150 Almaden Blvd.

  San Jose, CA 95113

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Item 8

  	
   

  	
  Notice information:

  	
   

  	
  Heritage Commerce Corp

  150 Almaden Blvd.

  San Jose, CA 95113

  Attn: Chief Financial Officer

  Phone: 408-494-4562

  Fax Number: 408-947-6919

  

 

A-1

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