EXHIBIT 10.4
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 RICHARD HAGARTY, an individual (the “ Executive
”) as of October 17, 2007 (the “ Effective Date
”). This Agreement amends and restates the Employment
Agreement dated July 27, 2006 (the “ Original
Agreement ”) by and between the Bank 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 Executive
Vice President/Chief Credit Officer 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 employs the
Executive and the Executive hereby accepts employment with the
Bank, upon the terms and conditions hereinafter set forth. The
Executive shall serve as the Executive Vice President/Chief Credit
Officer of the Bank and shall perform the customary duties of such
office in the commercial banking industry and such duties and
responsibilities as may be designated to him by the President of
the Bank and in accordance with the objectives or policies of the
Board of Directors of the Bank, from time to time, in connection
with the business activities of the Bank.
1.2
Devotion to Bank Business . The Executive shall devote his
full business time, ability, and attention to the business of the
Bank 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
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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. 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 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 Bank and his
responsibility relative to the 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 Bank’s reputation and image. 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 Bank. The
Executive will comply with all applicable rules, policies and
procedures of 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 Bank
at its principal executive offices located in San Jose California.
The Executive agrees that the Executive will be regularly present
at the Bank’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 Bank.
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 deemed
automatically extended for an additional one (1) year term, subject
to the termination provisions of Section 6.
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3.
Compensation .
3.1
Salary . The Executive shall receive a salary at an annual
rate of $158,000 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 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 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 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 Plan ”). Any future
grant of stock options to the Executive pursuant to the Stock
Option Plan 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 Plan.
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
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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 subject to the Bank’s
business requirements.
(b)
Automobile Allowance And Insurance . The Bank or the Company
will pay to the Executive an automobile allowance in the amount of
$500.00 per month during the term of this Agreement. The Bank or
the Company shall reimburse the Executive for gasoline 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 Bank.
(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 August 1, 2002, 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
$50,000 payable monthly commencing one month after the
Executive’s sixty-second birthday. All terms and conditions
of the Executive’s participation in the SERP 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.
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
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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 to the same extent the Bank and the Company indemnifies
and holds harmless other executive officers and directors of the
Bank 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 willfully 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 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,
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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 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
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(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 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 his 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 may give the Executive a notice of
termination. In such event, the Executive’s employment
with the Bank and this Agreement shall terminate without further
act of the parties effective on the 30th day
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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 Company, the Executive shall
immediately cease performing and discharging the duties and
responsibilities of his positions and remove himself and his
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
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