EXHIBIT 10.1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This Amended and Restated Employment Agreement
(this “ 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 WALTER KACZMAREK, an individual (the “ Executive
”) as of October 17, 2007 (the “ Effective Date
”). This Agreement amends and restates the Employment
Agreement dated March 17, 2005 (the “ Original
Agreement ”) by and between the Company and the Executive
to modify the terms of employment, makes changes to comply with
Section 409A of the Internal Revenue Code of 1986, as amended,
and make other changes.
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, Executive is currently the Chief
Executive Officer of the Company and the President of the Bank
pursuant to the terms of the Original Agreement:
NOW, THEREFORE, in consideration of the
promises and mutual covenants and agreements herein contained and
intending to be legally bound hereby, the Company, Bank and the
Executive hereby agree as follows:
AGREEMENT
1.
Employment .
1.1
Title . Pursuant to this Agreement, Bank and Company employ
the Executive and the Executive hereby accepts employment with the
Company and the Bank, upon the terms and conditions hereinafter set
forth. The Executive shall serve as the Chief Executive Officer of
the Company and the President of the Bank and shall perform the
customary duties of such officers in the commercial banking
industry and such duties and responsibilities as may be designated
to him by the Company’s Board of Directors and in accordance
with the objectives or policies of the Board of Directors of the
Company, from time to time, in connection with the business
activities of the Company and the Bank.
1.2
Devotion to Company and Bank Business . The Executive shall
devote his full business time, ability, and attention to the
business of the Company and the Bank during the term of this
Agreement and shall not during the term of this Agreement engage in
any other business
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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 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 Company and the Bank 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.
1.3
Standard . The Executive will set a high standard of
professional conduct given his role with the Company and the Bank
and his responsibility relative to the Company’s and
Bank’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 reputation and image of
the Company and Bank. The Executive’s and his 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 Company and the
Bank. The Executive will comply with all applicable rules, policies
and procedures of the Company and the 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
Company and the Bank at the Company’s principal executive
offices located in San Jose California. The Executive agrees that
the Executive will be regularly present at the Company’s
principal executive offices and that the Executive may be required
to travel from time to time in the course of performing the
Executive’s duties for the Company and the Bank.
1.5
No Breach of Contract . The Executive hereby represents to
the Company and 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
Company or 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 3
years from the Effective Date; provided, however, that commencing
on the first day of the month next following the Effective Date,
and on the first day of each month thereafter (the most recent of
such dates referred to as the “Renewal Date”), the term
of this Agreement shall be automatically extended to terminate 3
years from the Renewal Date.
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3.
Compensation .
3.1
Salary . The Executive shall receive a salary at an annual
rate of $324,000 which will be paid in accordance with the
Company’s and 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 Commerce Corp Management Incentive
Compensation 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 Company for its officers (the
“ Incentive Plan ”). The percentage of
Executive’s then current salary that may be awarded as an
award under the Incentive Plan as a result of achievement of
performance incentive targets shall be the greater of (a) 100%, or
(b) the maximum percentage permitted under 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 15 th 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 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.
3.3
Stock Options . The Executive acknowledges having received
grants of stock options pursuant to the Heritage Commerce Corp 2004
Stock Option Plan (together with any successor equity incentive
plan, the “ Stock Option Plans ”). Any future
grant of stock options to the Executive pursuant to the Stock
Option Plans shall be determined by and in the sole discretion of
the Company’s Compensation Committee and the Company’s
Board of Directors. Any such future stock option grant shall be
evidenced by a stock option agreement in the form required by the
Stock Option Plans. Notwithstanding any provision in the 2004 Plan
or Stock Option Agreement to the contrary, in the event that the
Executive’s employment is terminated by the Company without
Cause (as hereinafter defined) or by the Executive for Good Reason
(as hereinafter defined), any options not exercisable on the Date
of Termination (as hereinafter defined), shall become immediately
exercisable subject to expiration or termination as set forth in
the 2004 Plan. Upon Terminating Event (as defined in the 2004 Plan)
such options shall become immediately exercisable subject to terms
of the 2004 Plan.
3.4
Restricted Stock . The Executive acknowledges receipt of
51,000 restricted shares of Heritage Commerce Corp common stock
pursuant to the terms of the Restricted Stock Agreement dated
March 17, 2005 by and between the Company and the Executive
(“Restricted Stock Agreement”). Under the terms of the
Restricted Stock Agreement, the Executive’s restricted stock
shall vest as follows: 25% on March 17, 2008, 25% on
March 17, 2009, 25% on March 17, 2010 and 25% on
March 17, 2011; provided, however, that should a Change of
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Control occur or if the Executive’s
employment with the Company is terminated without Cause or for Good
Reason or as a result of Executive’s death or Disability, the
unvested restricted shares shall become immediately fully
vested.
3.5
Other Benefits . The Executive shall be entitled to those
benefits adopted by the Bank and the Company for all officers of
the Company, 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 Company as in effect for the Executive or for
other executives in comparable positions with the Company;
provided, however, that the Executive shall be entitled to earn
paid vacation at the rate of not less than 2.5 days vacation days
for each calendar month of employment. Vacation may be accrued in
accordance with the Company’s policy.
(b)
Automobile Allowance And Insurance . The Bank or the Company
will pay to the Executive an automobile allowance in the amount of
$1,000 per month during the term of this Agreement. The Bank or the
Company shall reimburse the Executive for gasoline and maintenance
expenditures related to use of the automobile acquired or used by
the Executive upon presentation and approval of receipts, invoices
or other appropriate evidence of such expense in accordance with
the policies of the Bank or the Company. The Executive shall
acquire or otherwise make available for his business and personal
use an automobile suitable to his position and maintain it in good
condition and repair. The Executive shall obtain and maintain
public liability insurance and property damage insurance policies
with insurer(s) acceptable to the Bank and the Company and with
such coverages in such amounts as may be acceptable to the Bank and
the Company from time to time. The Bank or the Company may elect to
provide and pay for such insurance policies in lieu of the
Executive maintaining such policies.
(c)
Insurance . The Bank or the Company shall provide during the
term of this Agreement at no cost to the Executive group life,
health (including medical, dental, vision and hospitalization),
accident and disability insurance coverage for the Executive and
his 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 Company and the Bank, provided, however,
that the following minimum insurance coverage shall be provided for
the Executive:
(i)
Life Insurance . The Company or the Bank will provide the
Executive with life insurance coverage in the amount of two times
the Executive’s then current salary up to a maximum of
$700,000, provided, however, that the Executive meets insurability
standards. This coverage will be provided through a whole life
insurance policy owned by the
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Company with the premium paid by the Company or
the Bank; the Executive shall designate the beneficiary of the life
insurance provided by this Section 3.5(c)(i).
(ii)
Disability Insurance . The Executive shall participate in
the standard group short and long term disability coverage offered
by the Company or the Bank.
(iii)
Long Term Care Insurance . The Company or the Bank will
provide the Executive with long term care insurance which will
provide an annual benefit of up to $72,000.
(d)
Supplemental Compensation . The Bank and the Executive
acknowledge that they have entered into a Supplemental Executive
Retirement Plan Agreement (“ SERP ”) with an
eligibility date of March 17, 2005, which provides
supplemental compensation benefits to the Executive payable upon
retirement or as otherwise set forth in the SERP. Subject to the
terms and conditions set forth in the SERP and Section 7, the
Executive will be eligible to receive an annual benefit of up to
$250,000 payable monthly commencing one month after the
Executive’s sixty-second birthday. If, however, the Executive
is terminated by the Company or the Bank without Cause or Executive
terminates this Agreement and his employment for Good Reason (and,
in either case, not associated with a Change of Control), the
Executive shall be credited with an additional two years of service
for purposes of the Applicable Percentage (as defined in the SERP).
All terms and conditions of the Executive’s participation in
the SERP (including in the case of a Change in Control) will be
governed by the SERP plan documents.
(e)
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.
(f)
Employee Stock Ownership Plan . The Executive will be
eligible to participate in the Company’s Employee Stock
Ownership Plan (“ ESOP ”), subject to the terms
and conditions of the ESOP.
(g)
Reimbursement for Tax Preparation . The Company or the Bank
will reimburse the Executive for up to $1,200 of expense incurred
by the Executive for tax consultation and preparation of tax
returns, upon presentation and approval of receipts, invoices or
other appropriate evidence of such expense in accordance with
policies of the Bank or the Company.
(h)
Annual Physical Exam . The Company or the Bank shall pay or
reimburse the Executive of the cost, if any, in excess of
applicable insurance coverage specified in Section 3.5(c) for
an annual physical examination conducted by a licensed physician(s)
selected by the Executive, the results of which examination shall
not be required to be disclosed to the Company or the Bank. Any
such reimbursement shall be made upon presentation and approval of
receipts, invoices or other appropriate evidence of such expense in
accordance with policies of the Company and the Bank.
3.6
Business Expenses; Memberships . The Executive shall be
entitled to incur and be reimbursed for all reasonable business
expenses. The Company agrees that the Company or the
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Bank 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
Company’s and 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 policies of the Company. The Bank or the Company shall
reimburse Executive for the monthly dues for The Capital Club,
and for the monthly dues at one country club of Executive’s
choice.
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 of the Company to the same extent the Bank and the Company
indemnifies and holds harmless other executive officers and
directors of the Bank and 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 decides to
terminate the Executive’s employment for Cause, the Bank 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 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
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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
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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
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
his 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 24 th 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 for Cause, the Date of Termination is the date on which
the Company or Bank gives notice to the Executive of such
termination; (iv) if the Executive’s employment is terminated
by the Company or Bank 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 Company 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 his duties for an indefinite period of not less than 180
days.
5.9
“ Good Reason ” shall mean:
(a)
any adverse change in the salary, incentive compensation, benefits,
status, responsibilities, authority, and duties (including offices
held, titles and reporting requirements) of the Executive, as
contemplated by Section 1 of this Agreement;
(b)
any failure by the Company or Bank to comply with any of the
provisions of Sections 3 or 4 of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company or Bank promptly
after receipt of notice thereof given by the Executive;
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