Use these links to rapidly review the document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SCHEDULE 14A
(RULE
14A-101)14A 101)
INFORMATION REQUIRED IN PROXY STATEMENT
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
☐
Preliminary Proxy Statement
☐
Confidential, for Use of the Commission Only (as permitted by Rule 14a 6(e)(2))
☒
Definitive Proxy Statement
☐
Definitive Additional Materials
☐
Soliciting Material under §240.14a 12
HERITAGE COMMERCE CORP
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check all boxes that apply):
☒
No fee required.
☐
Fee paid previously with preliminary materials.
☐
Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.
| | | Letter to Our Shareholders | |
April 13, 2023
Dear Fellow Shareholders:
On behalf of our Board of Directors, thank you for your loyal support of, and investment in, Heritage Commerce Corp (the “Company”). In 2022, we continued to successfully execute our strategic business plan. We reported the most profitable year in the Company’s nearly 30 year history, with net income of $66.6 million for the full year, exceeding our 2021 record earnings by $18.9 million.
We ended the year with $5.2 billion in total assets, well above pre-pandemic levels before COVID-19 dominated 2020. The continued resilience of our franchise was also evident in the positive performance of our credit metrics in 2022, with nonperforming loans lower by 35% and classified assets lower by 57%, compared to year-end 2021. For the year ended December 31, 2022, our performance metrics were also compelling, with a return on average tangible assets of 1.27% and a return on average tangible common equity of 15.57%.
The Company is executing a focused strategy to deliver long-term value for its clients, investors, team members, and community. In light of current market conditions, we continue to take an integrated approach to our oversight obligations, including core governance practices and risk management. As the Greater San Francisco Bay Area’s premier business bank, we look forward to continuing to grow our franchise in one of the most vibrant markets in the country.
2022 Highlights:
•
Year-over-year profitability improved by 40% to $66.6 million, or $1.09 per average diluted common share, due primarily to a 23% increase in net interest income and solid growth in loans.
•
Our net interest margin improved by 52 basis points to 3.57% in 2022 from 3.05% in 2021. The net interest margin was 4.10% for the fourth quarter 2022.
•
At year-end 2022, total assets were $5.2 billion with total loans increasing 7% compared to a year ago.
•
Credit quality improved substantially with nonperforming loans declining $1.3 million from 2021 to 0.05% of total assets, while the allowance for credit losses on loans was 1.44% of total loans.
•
In July 2022, Jan Coonley, SPHR, was hired as Executive Vice President, Chief People and Diversity Officer, supporting the Company’s mission to enhance employee experiences, while expanding Diversity, Equity, Inclusion and Belonging (“DEIB”) efforts.
•
In late July 2022, we announced the opening of a new Oakland banking office at 1111 Broadway, Suite 1650, reaffirming the Heritage Bank of Commerce’s (the “Bank”) commitment to support the growth of our clients and communities.
•
In September 2022, Robertson “Clay” Jones was named President and Chief Executive Officer of both the Company and the Bank, after Walter T. Kaczmarek retired from the Company and the Bank. Mr. Jones had served as President of since 2019 after serving almost a decade at Presidio Bank. Mr. Jones was also named to both the Bank and Company Board of Directors.
•
Capital levels and liquidity positions all remain strong. With a solid earnings performance, a large diversified core deposit base and excellent credit quality, we believe we have a solid foundation upon which to continue to grow our franchise.
We are pleased to announce that our exceptional financial results for 2022 have been complemented by the recent publication of our inaugural Environmental, Social, and Governance (“ESG”) Social Responsibility Report. Our Company is proud of the progress we have made in advancing DEIB and we continue to support these initiatives across the organization.
We would like to express our sincere gratitude to Walter T. Kaczmarek and Robert T. Moles for their many years of guidance and stewardship as directors of the Company and the Bank. Their contributions will undoubtedly continue to resonate within the Company for years to come.
We look forward to your participation in our Annual Meeting. Your views are important to us, and we encourage you to read these proxy materials and to vote your shares “FOR” each of our director nominees and “FOR” each proposal.
As we continue to expand our franchise in the Greater San Francisco Bay Area, we remain committed to assisting our clients in achieving financial security while also participating in the revitalization of the communities we serve. We take great pride in our solid operating performance in 2022 and look forward to further growth in the future.
Thank you for your continued support and confidence in our Company.
| | Sincerely, | | | | |
Filed by the Registrantý | | | | | |
Filed by a Party other than the Registranto |
Check the appropriate box: |
o |
|
Preliminary Proxy Statement |
o |
|
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
ý |
|
Definitive Proxy Statement |
o |
|
Definitive Additional Materials |
o |
|
Soliciting Material under §240.14a-12
|
| | | | |
HERITAGE COMMERCE CORP |
(Name of Registrant as Specified In Its Charter) |
|
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
Payment of Filing Fee (Check the appropriate box): |
ý |
|
No fee required. |
o |
|
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
| | (1) | | Title of each class of securities to which transaction applies:
|
| | (2) | | Aggregate number of securities to which transaction applies:
|
| | (3) | | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
|
| | (4) | | Proposed maximum aggregate value of transaction:
|
| | (5) | | Total fee paid:
|
o |
|
Fee paid previously with preliminary materials: |
o |
|
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
| | (1) | | Amount Previously Paid:
|
| | (2) | | Form, Schedule or Registration Statement No.:
|
| | (3) | | Filing Party:
|
| | (4) | | Date Filed:
|
Table of Contents
HERITAGE COMMERCE CORP
April 16, 2018
Dear Shareholder:
You are cordially invited to attend the 2018 Annual Meeting of Shareholders, which will be held at 1:00 p.m., Pacific Daylight Time (PDT) on Thursday, May 24, 2018, at Heritage Commerce Corp's offices, located at 150 Almaden Boulevard, San Jose, California, 95113.
The accompanying Notice of Annual Meeting and proxy statement describe the business that will be conducted at the meeting and provide information about Heritage Commerce Corp. We have also enclosed our 2017 Annual Report on Form 10-K.
Your continued support is appreciated and we hope you will attend the Annual Meeting. Whether or not you are personally present, it is very important that your shares be represented at the meeting. Accordingly, please sign, date, and promptly mail the enclosed proxy card. You may also vote electronically over the Internet or by telephone by following the instructions on the proxy card. If you attend the meeting and prefer to vote in person, you may do so.
| | |
Sincerely, | | |
 |
|
 |
| Jack W. Conner | | Walter T. Kaczmarek |
Chairman of the Board | | | Robertson Clay Jones
President and Chief Executive Officer | |
150 Almaden Boulevard, San Jose, California 95113 · Telephone (408) 947-6900 · Fax (408) 947-6910
Table of Contents
HERITAGE COMMERCE CORP
150 Almaden Boulevard
San Jose, California 95113
Notice of Annual Meeting of Shareholders
| | | Notice of Annual Meeting of Shareholders | |
| | | | | | | | | | | |
Date and Time: | | Date: | | | Time: | | | Location: | | |
| | | Thursday, May 24, 2018, at 25, 2023 | | | 1:00 p.m., Pacific Daylight Time (PDT). | | | Virtual Annual Meeting | | |
Place: |
|
Company's offices located at 150 Almaden Boulevard, San Jose, California 95113. |
Items of Business: |
|
1. |
|
To elect 9 |
Items of Business:
1.
To elect 10 members of the Board of Directors, each for a term of one year;
|
|
2. |
|
To approve an advisory proposal on the Company's executive compensation; |
|
|
3. |
|
To approve an advisory proposal on the frequency of votes on executive compensation; |
|
|
4. |
|
To ratify the selection of Crowe Horwath LLP as the Company's independent registered public accounting firm for the year ending December 31, 2018; and |
|
|
5. |
|
To transact such other business as may properly come before the meeting, and any adjournment or postponement. |
Record Date: |
|
You can vote if you are a shareholder of record on March 26, 2018. |
Mailing Date: |
|
The proxy materials are being distributed to our shareholders on or about April 16, 2018, and include our Annual Report on Form 10-K, Notice of Annual Meeting, this proxy statement, and proxy or voting instruction card. |
Important Notice Regarding the Internet Availability of Proxy Materials: |
|
The proxy statement and Annual Report on Form 10-K are available atwww.heritagecommercecorp.com.Your Vote is Important. Please vote as promptly as possible by using the Internet or telephone or by signing, dating and returning the enclosed proxy card.
|
| | |
| | By Order of the Board of Directors, |
|
|
 |
| | Deborah Reuter
Executive Vice President
and Corporate Secretary
|
April 16, 2018
San Jose, California
Table of Contents
TABLE OF CONTENTS
| | |
| | Page |
|---|
QUESTIONS & ANSWERS
| | |
Why did you send me this proxy statement?
| | 1 |
Who is entitled to vote?
| | 1 |
What constitutes a quorum?
| | 1 |
How many votes do I have?
| | 1 |
Is voting confidential?
| | 1 |
How do I vote by proxy?
| | 1 |
What do I have to do to vote my shares if they are held in the name of my broker?
| | 2 |
What are the procedures for attending the Annual Meeting?
| | 2 |
How do I vote in person?
| | 3 |
May I vote electronically over the Internet or by telephone?
| | 3 |
What is cumulative voting and how do I cumulate my shares?
| | 3 |
May I change my vote after I return my proxy?
| | 4 |
What if I receive multiple proxy cards?
| | 4 |
What vote is required to approve each proposal?
| | 4 |
How will voting on any other business be conducted?
| | 5 |
What are the costs of soliciting these proxies?
| | 5 |
How do I obtain an Annual Report on Form 10-K?
| | 5 |
BENEFICIAL OWNERSHIP OF COMMON STOCK
| | 6 |
CORPORATE GOVERNANCE AND BOARD MATTERS
| | 8 |
Board of Directors
| | 8 |
Code of Ethics
| | 12 |
Reporting of Complaints/Concerns Regarding Accounting or Auditing Matters
| | 12 |
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
| | 13 |
The Board of Directors
| | 13 |
Board Leadership Structure
| | 13 |
Board Authority for Risk Oversight
| | 13 |
The Committees of the Board
| | 14 |
Role of Compensation Consultant
| | 16 |
Executive Officers of the Company
| | 17 |
Compliance with Section 16(a) of the Securities Exchange Act of 1934
| | 18 |
Transactions with Management
| | 18 |
Policies and Procedures for Approving Related Party Transactions
| | 18 |
Compensation Discussion and Analysis
| | 19 |
Overview of Compensation Philosophy
| | 20 |
Compensation Program Objectives and Rewards
| | 20 |
Consideration of Say-On-Pay Vote Results
| | 22 |
Role of Compensation Committee in Determining Compensation
| | 22 |
Role of the Chief Executive Officer
| | 23 |
Role of Compensation Consultants
| | 23 |
Market Positioning and Pay Benchmarking
| | 23 |
Chief Executive Officer Compensation
| | 24 |
Base Salary Decisions for the Other Named Executive Officers
| | 25 |
Management Incentive Plan
| | 26 |
Equity Based Compensation
| | 28 |
Retirement Plans
| | 30 |
Prohibition on Speculation in Company Stock
| | 31 |
Termination of Employment and Change in Control Provisions
| | 31 |
i
Table of Contents
| | |
| | Page |
|---|
Tax Considerations
| | 31 |
Accounting Considerations
| | 32 |
Dodd-Frank and Regulating Considerations
| | 32 |
Compensation Committee Report
| | 33 |
Compensation Committee of the Board
| | 33 |
Executive Compensation Tables
| | 33 |
CEO Pay Ratio
| | 34 |
Executive Contracts
| | 35 |
Plan Based Awards
| | 37 |
Equity Compensation Plan Information
| | 39 |
Outstanding Equity Awards
| | 40 |
Option Exercises and Vested Stock Awards
| | 41 |
401(k) Plan
| | 41 |
Employee Stock Ownership Plan
| | 41 |
Supplemental Retirement Plan for Executive Officers
| | 42 |
Management Deferral Plan
| | 43 |
Change of Control Arrangements and Termination of Employment
| | 44 |
Director Compensation
| | 48 |
Director Outstanding Stock Options and Stock Awards
| | 49 |
Director Compensation Benefits Agreement
| | 49 |
PROPOSAL 1—ELECTION OF DIRECTORS
| | 50 |
PROPOSAL 2—ADVISORY VOTE ON EXECUTIVE COMPENSATION
| | 53 |
PROPOSAL 3—ADVISORY VOTE ON FREQUENCY OF VOTE ON EXECUTIVE COMPENSATION
| | 54 |
PROPOSAL 4—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| | 55 |
OTHER BUSINESS
| | 59 |
SHAREHOLDER PROPOSALS
| | 59 |
ii
Table of Contents
PROXY STATEMENT FOR HERITAGE COMMERCE CORP
2018 ANNUAL MEETING OF SHAREHOLDERS
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Why did you send me this proxy statement?
We sent you this proxy statement and the enclosed proxy card because our Board of Directors, is soliciting your proxy to vote at the 2018 Annual Meetingeach for a term of Shareholders. This proxy statement summarizes the information you need to know to cast an informed vote at the Annual Meeting. However, you do not need to attend the Annual Meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card. You may also vote electronically by telephone or the Internet by following the instructions on the proxy card.
Along with this proxy statement, we are also sending youone year;
2.
To approve the Heritage Commerce Corp 20172023 Equity Incentive Plan;
3.
To approve the advisory proposal on the Company’s 2022 executive compensation;
4.
To ratify the selection of Crowe LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2023; and
5.
To transact such other business as may properly come before the meeting, and any adjournment or postponement.
Record Date:
You can vote if you are a shareholder of record on March 27, 2023.
Mailing Date:
The proxy materials are being distributed to our shareholders on or about April 13, 2023, and include our Annual Report on Form 10-K, which includes our consolidated financial statements. Heritage Commerce Corp is also referred to in this proxy statement as the "Company." Who is entitled to vote?
We will begin sending this proxy statement, the attached Notice of Annual Meeting, this proxy statement, and proxy or voting instruction card.
Important Notice Regarding the Internet Availability of Proxy Materials:
The proxy statement and 2022 Annual Report on Form 10-K are available at www.heritagecommercecorp.com. Your Vote is Important. Please vote as promptly as possible by using the Internet or telephone or by signing, dating and returning the enclosed proxy card on or about April 16, 2018,card.
VIRTUAL ANNUAL MEETING
The Annual Meeting will be held in a virtual-only meeting format, via live video webcast that will provide shareholders with the ability to participate in the Annual Meeting, vote their shares and ask questions. We are implementing a virtual-only meeting format in order to leverage technology to enhance shareholder access to the Annual Meeting. We believe a virtual-only meeting format facilitates shareholder attendance and participation by enabling all shareholders entitled to vote. participate fully and equally, and without cost, using an Internet-connected device from any location around the world. In addition, the virtual-only meeting format increases our ability to engage with all shareholders, regardless of size, resources or physical location.
Shareholders who wereof record and beneficial owners as of the close of the business day on March 27, 2023, the record date, will have the ability to submit questions and vote electronically at the Annual Meeting via the virtual-only meeting platform.
ATTENDANCE AT THE VIRTUAL ANNUAL MEETING
Only shareholders of record and beneficial owners of the Company'sshares of our common stock atas of the close of business on March 26, 2018, are entitled to vote. On this27, 2023, the record date, there were 38,269,789 shares of common stock outstanding. What constitutes a quorum?
A majority of the outstanding shares of the common stock entitled to vote atmay attend and participate in the Annual Meeting, mustincluding voting and asking questions before and during the virtual Annual Meeting. You will not be present, in person or by proxy, in orderable to constitute a quorum. We can only conduct the business ofattend the Annual Meeting if a quorum has been established. We will include proxies marked as abstentions and broker non-votes in determining the number of shares present at the Annual Meeting.
How many votes do I have?
Each share of common stock entitles youperson.
In order to one vote in person or by proxy, for each share of common stock outstanding in your name on the books of the Company as of March 26, 2018, the record date forattend the Annual Meeting, on any matter submitted to a voteyou must register at register.proxypush.com/HTBK. Upon completing your registration, you will receive an email confirming your registration.
As part of the shareholders, except that in connection withregistration process, you must enter the election of directors (Proposal 1), you may cumulatecontrol number located on your shares(see "What is cumulative voting and how do I cumulate my shares?" on page 3). The proxy card indicatesor voting instruction form. If you are a beneficial owner of shares registered in the numbername of votes that you have as of the record date. Is voting confidential?
We have a confidential voting policy to protect the privacy of our shareholders' votes. Under this policy, ballots, proxy cards and voting instructions returned to banks, brokers and other nominees are kept confidential. Only the proxy tabulator and the Inspector of Election have access to the ballots, proxy cards and voting instructions.
How do I vote by proxy?
You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions to your broker or other nominee. If your shares are held by a broker, bank or other nominee, you will receive instructions that you must followalso need to have your shares voted. If you hold your shares as a shareholder of record, you may vote by completing, signing and datingprovide the enclosed proxy card and returning it promptly in the envelope provided. You may also vote electronically by telephone or over the Internet (see page 3). Returning the proxy card will not affect your right to attend the Annual Meeting and vote.
Table of Contents
If you properly fill in your proxy card and send it to us in time to vote, your "proxy" (one of the individuals namedregistered name on your proxy card) will vote your shares as you have directed. If you sign the proxy card but do not make specific choices, your proxy will vote your shares as recommended by the Board of Directors as follows:
•"FOR" the election of all 9 nominees for director;
•"FOR" the approval of the advisory proposal on the Company's executive compensation;
•"FOR" the option of every three years as the preferred frequency for advisory votes on executive compensation;account and
•"FOR" the ratification of the selection of Crowe Horwath LLP as our independent registered public accounting firm for 2018.
For the election of directors (Proposal 1), a shareholder may withhold authority for the proxy holders to vote for any one or more of the nominees by marking the enclosed proxy card in the manner instructed on the proxy card. Unless authority to vote for the nominees is withheld, the proxy holders will vote the proxies received by them for the election of the nominees listed on the proxy card as directors of the Company. Your proxy does not have an obligation to vote for nominees not identified on the preprinted proxy card (that is, write-in candidates). Should any shareholder attempt to "write in" a vote for a nominee not identified on the preprinted card (and described in these proxy materials), your proxy will NOT vote the shares represented by your proxy card for any such write-in candidate, but will instead vote the shares for any and all other indicated candidates. If any of the nominees should be unable or decline to serve, which is not now anticipated, your proxy will have discretionary authority to vote for a substitute who shall be designated by the present Board of Directors to fill the vacancy. In the event that additional persons are nominated for election as directors, your proxy intends to vote all of the proxies in such a manner, in accordance with the cumulative voting, as will assure the election of as many of the nominees identified on the proxy card as possible. In such event, the specific nominees to be voted for will be determined by the proxy holders, in their sole discretion.
What do I have to do to vote my shares if they are held in the name of my broker?
If your shares are held by your broker, sometimes called "street name" shares, you must vote your shares through your broker. You should receive a form from your broker asking how you want to vote your shares. Follow the instructions on that form to give voting instructions to your broker. Under the rules that govern brokers who are voting with respect to shares held in street name, brokers have the discretion to vote such shares on routine, but not on non-routine matters. A "broker non-vote" occurs when your broker does not vote on a particular proposal because the broker does not receive instructions from the beneficial owner and does not have discretionary authority. Proposal 1 (election of directors), Proposal 2 (advisory proposal on the executive compensation), and Proposal 3 (advisory proposal on the frequency of votes on executive compensation) are non-routine items on which a broker may vote only if the beneficial owner has provided voting instructions. Proposal 4 (ratification of independent registered public accounting firm) is a routine item.
What are the procedures for attending the Annual Meeting?
Only shareholders owning the Company's common stock at the close of business on March 26, 2018, or their legal proxy holders, are entitled to attend the Annual Meeting. You must present photo identification for admittance. If you are a shareholder of record, your name will be verified against the list of shareholders of record on the Record Date prior to your admission to the Annual Meeting. If you are not a shareholder of record but hold shares through a bank, broker or other nominee, you must provide proof of beneficial ownership on the Record Date, such as your most recent account statement prior to
Table of Contents
March 26, 2018, or other similar evidence of ownership. If you do not provide photo identification or comply with the other procedures outlined above, you will not be admitted to the Annual Meeting.
How do I vote in person?
If you plan to attend the Annual Meeting and desire to vote in person, we will give you a ballot form when you arrive. However, if your shares are held in the name of your broker, bank or other nominee as part of the registration process.
On the day of the Annual Meeting, May 25, 2023, shareholders who register in advance of the meeting start time will receive an email one hour before. Shareholders registering near the meeting start time will receive a confirmation email and be taken directly to the meeting site. 15 minutes prior to the meeting start time, shareholders can click the “Join Meeting” button. Once the meeting starts, shareholders will be able to hear the speakers, view presentations and submit questions. The Annual Meeting will begin promptly at 1:00 p.m., Pacific Daylight Time.
We will have technicians ready to assist you must bringwith any technical difficulties you may have accessing the Annual Meeting. If you encounter any difficulties accessing the virtual-only Annual Meeting platform, including any difficulties voting or submitting questions, you may call the technical support number that will be included in the link to the Meeting Access FAQs Guide included in your confirmation email.
QUESTIONS AT THE VIRTUAL ANNUAL MEETING
Our virtual Annual Meeting will allow shareholders to submit questions before and during the Annual Meeting. During a power of attorney from your nominee in order to votedesignated question and answer period at the Annual Meeting. May I vote electronically overMeeting, we will respond to appropriate questions submitted by shareholders.
We will answer as many shareholder-submitted questions as time permits, and any questions that we are unable to address during the Internet or by telephone?
Shareholders whose sharesAnnual Meeting will be answered following the meeting, with the exception of any questions that are registered in their own names may vote either over the Internet or by telephone. Special instructions for voting over the Internet or by telephone are set forth on the enclosed proxy card. The Internet and telephone voting procedures are designed to authenticate the shareholder's identity and to allow shareholders to vote their shares and confirm that their voting instructions have been properly recorded.
If your shares are registered in the name of a bank or brokerage firm, you may be eligible to vote your shares electronically by telephone or over the Internet. Most U.S. banks and brokerage firms are clients of Broadridge Financial Solutions ("Broadridge"). As such, shareholders who receive either a paper copy of their proxy statement or electronic delivery notification have the opportunity to vote by telephone or over the Internet. If your bank or brokerage firm is a Broadridge client, your proxy card or Voting Instruction Form ("VIF") will provide the instructions. If your proxy card or VIF does not provide instructions for Internet and telephone voting, please complete and return the proxy card in the self-addressed, postage-paid envelope provided.
What is cumulative voting and how do I cumulate my shares?
For the election of directors (Proposal 1), California law provides that a shareholder of a California corporation, or his/her proxy, may cumulate votes in the election of directors. That is, each shareholder may cast that number of votes equalirrelevant to the numberpurpose of shares owned by him/her, multiplied by the number of directors to be elected,Annual Meeting or our business or that contain inappropriate or derogatory references. If we receive substantially similar questions, we will group such questions together and he/she may cumulate such votes forprovide a single candidate or distribute such votes among as many candidates as he/she deems appropriate.
Certain affirmative steps must be taken by you in orderresponse to be entitled to vote your shares cumulatively for the election of directors. At the shareholders' meeting at which directors are to be elected, no shareholder is entitled to cumulate votes (i.e., cast for any one or more candidates a number of votes greater than the number of the shareholder's shares) unless the candidates' names have been placed in nomination at the meeting and prior to the commencement of the voting and at least one shareholder has given notice at the meeting and prior to commencement of the voting of the shareholder's intention to cumulate votes. If any shareholder has given such notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are entitled, or distribute the shareholder's votes on the same principle among any or all of the candidates, as the shareholder thinks appropriate. The candidates receiving the highest number of votes, up to the number of directors to be elected, will be elected.
The proxies designated on your proxy card do not, at this time, intend to cumulate votes, to the extent they have the shareholder's discretionary authority to do so, pursuant to the proxies solicited in this proxy statement unless another shareholder gives notice to cumulate, in which case your proxy may cumulate votes in accordance with the recommendationsavoid repetition.
By Order of the Board of Directors. Therefore, discretionary authorityDirectors,
Deborah K. Reuter
Executive Vice President, Chief Risk Officer and Corporate Secretary
April 13, 2023
San Jose, California
Heritage Commerce Corp • 2023 Proxy Statement i
| | | The Board and Corporate Governance | |
Heritage Commerce Corp (the “Company”) is committed to cumulate votesachieving excellence in suchour corporate governance practices with an event is solicited in this proxy statement.
Tableemphasis on a culture of Contents
May I change my vote after I return my proxy?
If you fill outaccountability and return the enclosed proxy card, or vote by telephone or over the Internet, you may change your vote at any time before the vote is conducted at the Annual Meeting. You may change your vote in any one of four ways:
•You may send to the Company's Corporate Secretary another completed proxy card with a later date.
•You may notify the Company's Corporate Secretary in writing before the Annual Meeting that you have revoked your proxy.
•You may attend the Annual Meeting and vote in person.
•If you have voted your shares by telephone or over the Internet, you can revoke your prior telephone or Internet vote by recording a different vote, or by signing and returning a proxy card dated as of a date that is later than your last telephone or Internet vote.
What if I receive multiple proxy cards?
If you receive multiple proxy cards, your shares are probably registered differently or are in more than one account. Vote all proxy cards received to ensure that all your shares are voted. Unless you need multiple accounts for specific purposes, we recommend that you consolidate as many of your accounts as possible under the same name and address. If the shares are registered in your name, contact our transfer agent, EQ Shareowner Services, 1-866-883-3382; otherwise, contact your bank, broker or other nominee.
What vote is required to approve each proposal?
Approval of Proposal 1 (election of directors) requires a plurality of votes cast for each nominee. This means that the 9 nominees who receive the most votes will be elected. So, if you do not vote for a particular nominee, or you indicate "WITHHOLD AUTHORITY" to vote for a particular nominee on your proxy card, your vote will not count either "for" or "against" the nominee. Abstentions will not have any effect on the outcome of the vote. You may cumulate your votes in the election of directors as described under"What is cumulative voting and how do I cumulate my shares?" on page 3. Broker non-votes will not count as a vote on the proposal and will not affect the outcome of the vote.
Shareholders' choices for Proposal 3 (advisory proposal on the frequency of votes on executive compensation) are limited to "one year," "two years," "three years" and "abstain." A plurality of the votes cast will determine the shareholders' preferred frequency for holding an advisory vote on executive compensation. This means that the alternative for holding an advisory vote every year, every two years, or every three years receiving the greatest number of "for" votes will be the preferred frequency of the stockholders. For purposes of Proposal 3, abstentions and broker non-votes will not affect the outcome of Proposal 4 because the advisory vote is based on the votes actually cast.
Proposal 2 (advisory proposal on the executive compensation), and Proposal 4 (ratification of independent registered public accounting firm) each requires a vote that satisfies two criteria: (i) the affirmative vote for the proposal must constitute a majority of the common shares present or represented or by proxy and voting on the proposal at the Annual Meeting; and (ii) the affirmative vote for the proposal must constitute a majority of the common shares required to constitute the quorum. For purposes of Proposal 2 and 4, abstentions and broker non-votes will not affect the outcome under clause (i), which recognizes only actual votes cast. However, abstentions and broker non-votes will affect the outcome under clause (ii) if the number of affirmative votes, though a majority of the votes represented and cast, does not constitute a majority of the voting power required to constitute a quorum. The ratification of the appointment of the independent registered public accounting firm for 2018 is a matter on which a broker
Table of Contents
or other nominee is generally empowered to vote and, therefore, no broker non-votes are expected to exist with respect to Proposal 4.
How will voting on any other business be conducted?
Your proxy card confers discretionary authority to your proxy to vote your shares on the matters which may properly be presented for action at the Annual Meeting, and may include action with respect to procedural matters pertaining to the conduct of the Annual Meeting.
What are the costs of soliciting these proxies?
We will pay all the costs of soliciting these proxies. In additionour business that is fair, ethical and responsible to mailing proxy soliciting material, our directors, officers and employees also may solicit proxies in person, by telephone or by other electronic means of communication for which they will receive no compensation. We will ask banks, brokersshareholders and other institutions, nominees and fiduciaries to forward the proxy materials to their principals and to obtain authority to execute proxies. We will then reimburse them for their reasonable expenses. We have hired Advantage Proxy to seek the proxies of custodians, such as brokers, which hold shares which belong to other people. This service will cost the Company approximately $5,000 plus expenses.
How do I obtain an Annual Report on Form 10-K?
A copy of our 2017 Annual Report on Form 10-K accompanies this proxy statement. If you would like another copy of this report, we will send you one without charge.stakeholders. The Annual Report on Form 10-K includes a list of exhibits filed with the Securities and Exchange Commission ("SEC"), but does not include the exhibits. If you wish to receive copies of the exhibits, we will send them to you. Please write to:
Heritage Commerce Corp
150 Almaden Boulevard
San Jose, California 95113
Attention: Executive Vice President and Corporate Secretary
You can also find out more information about us at our websitewww.heritagecommercecorp.com. Our website is available for information purposes only and should not be relied upon for investment purposes, nor is it incorporated by reference into this proxy statement. On our website you can access electronically filed copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 filings, and amendments to those reports and filings, free of charge. The SEC also maintains a website atwww.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including the Company.
Table of Contents
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information as of February 28, 2018, pertaining to beneficial ownership of the Company's common stock by persons known to the Company to own 5% or more of the Company's common stock, nominees to be elected to the Board of Directors (the “Board”) oversees our business and monitors the executive officers namedperformance of management. In accordance with corporate governance principles, the Board does not involve itself in the Summary Compensation Table presented in this proxy statement, and allday-to-day operations. The directors and executive officers of the Company, as a group. This information has been obtained from the Company's records, or from information furnished directly by the individual or entity to the Company.
For purposes of the following table, shares issuable pursuant to stock options which may be exercised within 60 days of February 28, 2018, are deemed to be issued and outstanding and have been treated as outstanding in determining the amount and nature of beneficial ownership and in calculating the percentage of ownership of those individuals possessing such interest, but not for anykeep themselves informed through, among other individuals.
| | | | | | | | | | | | |
Name of Beneficial Owner(1) | | Position | | Shares
Beneficially
Owned(2)(3) | | Exercisable
Options | | Percent of
Class(3) | |
|---|
Michael E. Benito | | Executive Vice President/Banking Division of Heritage Bank of Commerce | | | 75,389 | (4)(19) | | 38,500 | | | 0.20 | % |
Julianne M. Biagini-Komas | | Director | | | 25,696 | (5) | | — | | | 0.07 | % |
Frank G. Bisceglia | | Director | | | 134,320 | (6) | | 25,000 | | | 0.35 | % |
Margo G. Butsch | | Executive Vice President and Chief Credit Officer of Heritage Bank of Commerce | | | 3,286 | (19) | | 3,286 | | | 0.01 | % |
Jack W. Conner | | Director and Chairman of the Board | | | 92,874 | (7) | | 1,767 | | | 0.24 | % |
J. Philip DiNapoli | | Director | | | 501,360 | (8) | | — | | | 1.31 | % |
Steven L. Hallgrimson | | Director | | | 127,483 | (9) | | 6,345 | | | 0.33 | % |
Walter T. Kaczmarek | | Chief Executive Officer, President and Director | | | 147,833 | (10)(19) | | 15,000 | | | 0.39 | % |
Lawrence D. McGovern | | Executive Vice President and Chief Financial Officer | | | 96,206 | (11)(19) | | 30,000 | | | 0.25 | % |
Robert T. Moles | | Director | | | 120,387 | (12) | | 25,000 | | | 0.31 | % |
Laura Roden | | Director | | | 27,083 | (13) | | 12,000 | | | 0.07 | % |
Ranson W. Webster | | Director | | | 632,661 | (14) | | 25,000 | | | 1.65 | % |
Keith A. Wilton | | Executive Vice President and Chief Operating Officer and President of Heritage Bank of Commerce | | | 91,207 | (15)(19) | | — | | | 0.24 | % |
All directors, and executive officers (13 individuals) | | | | | 2,075,785 | | | | | | 5.40 | % |
BlackRock Inc. | | | | |
2,898,549 |
(16) | | | | |
7.57 |
% |
T. Rowe Price Associates, Inc. | | | | | 4,030,236 | (17) | | | | | 10.53 | % |
Wellington Management Group LLP | | | | | 1,951,979 | (18) | | | | | 5.10 | % |
1.Except as otherwise noted, the address for all persons is c/o Heritage Commerce Corp, 150 Almaden Boulevard, San Jose, California, 95113.
2.Subject to applicable community property laws and shared voting and investment power with a spouse, the persons listed have sole voting and investment power with respect to such shares unless otherwise noted. Listed amounts reflect all previous stock splits and stock dividends.
3.Includes shares beneficially owned (including options exercisable within 60 days of February 28, 2018, as shown in the "Exercisable Options" column).
Table of Contents
4.Includes 15,375 shares of restricted stock that have not vested and of which Mr. Benito has the right to vote.
5.Includes 1,381 shares of restricted stock that have not vested and of which Ms. Biagini-Komas has the right to vote.
6.Includes 93,237 shares as one of two trustees of the Bisceglia Family Trust, and 11,000 shares held by Mr. Bisceglia in a personal Individual Retirement Account. Also includes 2,265 shares of restricted stock that have not vested and of which Mr. Bisceglia has the right to vote.
7.Includes 7,783 shares held by Mr. Conner's spouse. Also includes 2,985 shares of restricted stock that have not vested and of which Mr. Conner has the right to vote.
8.Includes 339,130 shares held by partnerships and 18,000 held by a charitable foundation. Also includes 1,381 shares of restricted stock that have not vested and of which Mr. DiNapoli has the right to vote.
9.Includes 82,438 shares held directly. Includes 3,500 shares held in a SEP IRA account, 2,000 shares held in a personal IRA account, 4,000 shares held in Mr. Hallgrimson's private foundation, 3,000 shares held by Mr. Hallgrimson's spouse, 7,000 shares in a limited company with his son, 2,900 shares that Mr. Hallgrimson holds as trustee of various trusts and 16,300 shares held in a accounts of other over which Mr. Hallgrimson has voting and investment power. Also includes 2,265 shares of restricted stock that have not vested and of which Mr. Hallgrimson has the right to vote.
10.Includes 41,000 shares held in a personal Individual Retirement Account. Also includes 30,213 shares of restricted stock that have not vested and of which Mr. Kaczmarek has the right to vote.
11.Includes 4,980 shares held by Mr. McGovern in a personal Individual Retirement Account. Also includes 20,150 shares of restricted stock that have not vested and of which Mr. McGovern has the right to vote.
12.Includes 18,295 shares held by Mr. Moles' spouse. Also includes 2,265 shares of restricted stock that have not vested and of which Mr. Moles has the right to vote.
13.Includes 2,265 shares of restricted stock that have not vested and of which Ms. Roden has the right to vote.
14.Includes 8,493 shares held indirectly. Also includes 2,265 shares of restricted stock that have not vested and of which Mr. Webster has the right to vote.
15.Includes 36,250 shares of restricted stock that have not vested and of which Mr. Wilton has the right to vote.
16.BlackRock, Inc. is an investment management firm and may be deemed to beneficially own 2,898,549 shares of the Company which are held of record by clients of BlackRock, Inc. The address for BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. All of the foregoing information has been obtained by Schedule 13G filedthings, discussions with the SEC on January 25, 2018.
17.T. Rowe Price Associates, Inc. is an investment management firmChief Executive Officer, other key executives and may be deemed to beneficially own 4,030,236 shares of the Company which are held of recordour principal outside advisors (legal counsel, outside auditors, and other consultants), by clients of T. Rowe Price Associates, Inc. the address for T. Rowe Price Associates, Inc. is 100 East Pratt Street, Baltimore, MD 21202. All of the foregoing information has been obtainedreading reports and other materials and by Schedule 13G filed with the SEC on February 14, 2018.
18.Wellington Management Group LLP is an investment management firmparticipating in Board and may be deemed to beneficially own 1,951,879 shares of the Company which are held of record by clients of Wellington Management Group LLP. The address for Wellington Management Group LLP is 280 Congress Street, Boston, MA 02210. All of the foregoing information has been obtained by Schedule 13G filed with the SEC on February 8, 2018.
19.The Company's Employee Stock Ownership Plan owns 115,838 shares of our common stock, all of which have allocated. These include shares held for the account of the following named executive officers and includes in the table for Mr. Kaczmarek 1,906 shares, Mr. McGovern 5,506 shares, Mr. Benito 2,289 shares, and zero shares for Ms. Butsch and Mr. Wilton. Mr. Kaczmarek and Mr. McGovern are two of the three trustees of the Employee Stock Ownership Plan. As trustees, they have the power to vote any unallocated shares of the Employee Stock Ownership Plan (currently no shares are unallocated) and allocated shares for which voting instructions are not otherwise provided.
committee meetings.
Table of Contents
CORPORATE GOVERNANCE AND BOARD MATTERS
The Board of Directors is committed to good business practices, transparency in financial reporting and the highest level of corporate governance. To that end, the Board continually reviews its governance policies and practices, as well as the requirements of the Sarbanes-Oxley Act of 2002 and the listing standards of the Nasdaq Stock Market, to help ensure that such policies and practices are compliant and up to date.
Corporate Governance
| | | | | |
| | | Accountability to Shareholders | | | | Shareholder Voting Rights | | | | Independent Board Leadership | | |
| | | •
All directors elected annually •
Annual say on pay advisory vote •
Policy against pledging and hedging Company common stock | | | | •
One class of voting stock •
No “poison pill” •
No super majority voting provisions in Articles of Incorporation or Bylaws | | | | •
Separate Board Chair and Chief Executive Officer roles •
Nine of ten Board members nominated for election in 2023 are independent* •
All members of the Audit Committee, Personal and Compensation Committee, and the Corporate Governance and Nominating Committee are independent directors | | |
| | | | | |
*
Walter T. Kaczmarek and Robert T. Moles will not stand for reelection to the Board at the Annual Meeting.
Heritage Commerce Corp • 2023 Proxy Statement 1
| | The Board and Corporate Governance | |
| | | Effective Board Policies and Practices | | |
| | | | | | A Board composed of accomplished professionals with experience, skills and knowledge relevant to our business and industry, including four former Chief Executive Officers* and our current Chief Executive Officer | | |
| | | | | | A diverse Board with four out of twelve directors, and four out of ten directors nominated for election in 2023, meeting Nasdaq diversity standards* | | |
| | | | | | Each of the Audit Committee, Personnel and Compensation Committee, and Corporate Governance and Nominating Committee has a charter that is publicly available on our website and that meets applicable legal requirements and reflects our corporate governance culture | | |
| | | | | | Executive sessions of independent directors are held at the Board and Committee levels | | |
| | | | | | A Code of Business Conduct and Ethics applicable to executives officers and directors | | |
| | | | | | Annual self-evaluation and assessment process for the Board and its committees through the Corporate Governance and Nominating Committee | | |
| | | | | | Special procedures and limits on related party transactions | | |
| | | | | | Board and committee access to independent advisors | | |
| | | | | | A robust insider trading policy | | |
*
Mr. Kaczmarek, our former Chief Executive Officer, and Mr. Moles will not stand for reelection to the Board at the Annual Meeting.
| | | | | |
| | | Regular Shareholder Engagement | | | | | | | | Management Compensation Program Aligned with Long-term Interests of Shareholders | | |
| | | | | | | We participate in investor conferences and other shareholder engagements throughout the fiscal year | | | | | | | | | | | | Stock ownership requirements for directors and executive officers | | |
| | | | | | | We engage on business performance and strategic, governance, executive compensation, and human capital matters | | | | | | | | | | | | Annual review by the Personnel and Compensation Committee of incentive program design, goals and objectives for alignment with compensation business strategies | | |
| | | | | | | | | | | | | | | | | | | A compensation philosophy and practices focused on using incentive programs to attract and retain talented personnel in a heavily competitive market | | |
| | | | | | | | | | | | | | | | | | | A compensation claw-back policy for senior management | | |
| | | | | |
Our Independent Board of Directors
Our directors bring diverse skills to our Board. The Board Independence In 2017 eight (8) outis committed to strong corporate governance practices and policies. The Board is committed to maintaining an independent Board, and a majority of nine (9)the Board is comprised of “independent” directors.” For this purpose, the Board relies on the definitions of “independence” and “non-employee directors” found in rules promulgated by the Securities and Exchange Commission (the “SEC”) and the NASDAQ Stock Market.
Ten of 12 members of the Board of Directors wereare independent directors, as defined by the applicable rules and regulations of the Nasdaq Stock Market, as follows:
| |
Julianne M. Biagini-Komas
Frank | | | Stephen G. Bisceglia
Heitel | | | Laura Roden | |
| | Bruce H. Cabral | | | Kamran F. Husain | | | Marina H. Park Sutton | |
| | Jack W. Conner, Chairman of the Board
J. Philip DiNapoli
Steven L. Hallgrimson
| | | Robert T. Moles
Laura Roden
Moles* | | | Ranson W. Webster
| |
| | Jason DiNapoli | | | | | | | |
| | The Board and Corporate Governance | |
Walter T. Kaczmarek* is not deemed independent because he is the former Chief Executive Officer of the Company, and Robertson Clay Jones is not independent as the current President and Chief Executive Officer of the Company.
*
Mr. Kaczmarek and Mr. Moles will not stand for reelection to the Board at the Annual Meeting.
Board Refreshment
Over the prior seven years, new members have joined our Board as independent directors as follows:
Board Leadership Structure
The Board is committed to maintaining an independent Board, and Committee Meeting Attendance Duringa majority of the fiscal year ended December 31, 2017,Board has been comprised of independent directors. It has further been the practice for many years of the Company to separate the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. The Board believes that the separation of the duties of the Chief Executive Officer and the Chairman of the Board eliminates any inherent conflict of interest that may arise when the roles are combined, and that an independent director who has not served as an executive of the Company can best provide the necessary leadership and objectivity required as Chairman of the Board.
Chief Executive Officer. The Chief Executive Officer is responsible for setting the strategic direction for the Company and the day-to-day leadership and performance of the Company.
Board Chair. The Chairman of the Board provides guidance to the Chief Executive Officer, sets the agenda for Board meetings, presides over meetings of the full Board (including executive sessions), and facilitates communication among the independent directors and between the independent directors and the Chief Executive Officer.
Term of Office
Directors serve for a one-year term (subject to retirement) or until their successors are elected. The Board does not have term limits, instead preferring to rely upon the evaluation procedures described herein as the primary methods of ensuring that each director continues to act in a manner consistent with the Company’s and its shareholders’ best interest.
Heritage Commerce Corp • 2023 Proxy Statement 3
| | The Board and Corporate Governance | |
Board Expertise
The following section summarizes the specific skills, professional experience and background information of each director name that led the Board to conclude that each such person should serve on the Board.
| | | | | Julianne M. Biagini-Komas | | | Bruce H. Cabral | | | Jack W. Conner | | | Jason DiNapoli | | | Stephen G. Heitel | | | Kamran F. Husain | | | Robertson Clay Jones | | | Walter T. Kaczmarek* | | | Robert T. Moles* | | | Marina H. Park Sutton | | | Laura Roden | | | Ranson W. Webster | |
| | Key Client Industries | | | | | | X | | | | | | X | | | | | | | | | X | | | X | | | X | | | | | | | | | | |
| | Banking/Financial Services | | | X | | | X | | | X | | | X | | | X | | | X | | | X | | | X | | | X | | | | | | X | | | X | |
| | Accounting/Auditing/Financial Reporting | | | X | | | X | | | X | | | X | | | X | | | X | | | X | | | X | | | | | | | | | X | | | X | |
| | Marketing/Sales | | | | | | | | | X | | | X | | | | | | | | | X | | | X | | | X | | | | | | X | | | X | |
| | Human Capital Management/DEIB | | | X | | | | | | X | | | | | | | | | X | | | X | | | X | | | X | | | X | | | | | | | |
| | Leadership as President and/or CEO, EVP or SVP | | | X | | | | | | X | | | X | | | X | | | X | | | X | | | X | | | X | | | X | | | X | | | X | |
| | Cybersecurity/Technology | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | X | |
| | Legal/ Regulatory | | | X | | | X | | | X | | | X | | | | | | X | | | | | | X | | | X | | | X | | | | | | | |
| | Public Company Governance | | | X | | | | | | X | | | X | | | | | | X | | | X | | | X | | | X | | | | | | | | | X | |
| | Risk Management | | | X | | | X | | | X | | | | | | X | | | X | | | X | | | X | | | X | | | | | | | | | X | |
| | Strategic Planning/Mergers & Acquisitions | | | X | | | X | | | X | | | X | | | X | | | X | | | X | | | X | | | X | | | | | | X | | | X | |
| | Community Affairs/Engagement | | | | | | | | | X | | | | | | X | | | | | | X | | | X | | | X | | | X | | | X | | | X | |
| | Digital Innovation | | | | | | | | | | | | | | | | | | | | | | | | | | | X | | | | | | | | | X | |
| | Environmental/Sustainability | | | | | | | | | | | | | | | | | | | | | X | | | | | | X | | | | | | | | | | |
*
Mr. Kaczmarek and Mr. Moles will not stand for reelection to the Board at the Annual Meeting.
4 Heritage Commerce Corp • 2023 Proxy Statement
| | The Board and Corporate Governance | |
Diversity of our Board
The following section summarizes the diversity of our Board.
| | Board Diversity Matrix for Heritage Commerce Corp
As of April 13, 2023* | | | | | | | | | | | | | |
| | Total Number of Directors | | | 12 | |
| | Part I: Gender Identity | | | Female | | | Male | | | Non-Binary | | | Did Not
Disclose
Gender | |
| | Directors | | | 3 | | | 9 | | | | | | | |
| | Part II: Demographic Background | | | | | | | | | | | | | |
| | African American or Black | | | | | | | | | | | | | |
| | Alaskan Native or American Indian | | | | | | | | | | | | | |
| | Asian | | | | | | 1 | | | | | | | |
| | Hispanic or Latinx | | | | | | | | | | | | | |
| | Native Hawaiian or Pacific Islander | | | | | | | | | | | | | |
| | White | | | 3 | | | 8 | | | | | | | |
| | Two or More Races or Ethnicities | | | | | | | | | | | | | |
| | LGBTQ+ | | | | | | | | | | | | | |
| | Did Not Disclose Demographic Background | | | | | | | | | | | | | |
*
Mr. Kaczmarek and Mr. Moles will not stand for reelection to the Board at the Annual Meeting.
Risk Oversight
The Board has ultimate authority and responsibility for overseeing risk management of the Company arising out of its operations and business strategy. This includes overseeing the Company’s enterprise-wide risk management framework, which establishes the Company’s overall risk appetite and risk management strategy and enables senior management to understand, manage and report on the risks faced by the Company. The Board reviews and oversees policies and practices established by management to identify, assess, measure and manage key risks, including risk appetite metrics developed by management and approved by the Board. The Board on a periodic basis monitors, reviews and reacts to material enterprise risks identified by management. The Board receives specific reports from senior management with oversight responsibility for particular risks within the Company. These reports include strategic, operational, execution, financial, investment, credit, liquidity, interest rate, capital, technology, cyber security, legal and regulatory compliance and reputation risks, and the Company’s degree of exposure to those risks. The Board as part of its annual strategic plan process, reviews a risk tolerance matrix that identifies potential Company risks and evaluates the Board’s tolerance level for each risk identified.
The Board insures that senior management is properly focused on risk and understands that it is responsible to the Board regarding the Company’s risk management process, including by assessing and managing the risks faced by the Company. Senior management is responsible for creating and recommending to the Board for approval appropriate risk appetite metrics reflecting the aggregate levels and types of risk the Company would be willing to accept in connection with the operation of the Company’s business and pursuit of the Company’s business objectives.
Board committees are responsible for risk oversight in specific areas. The Audit Committee is responsible for monitoring the Company’s overall risk program. The Audit Committee oversees financial, accounting, internal control, and informational technology risk management policies. The Company’s internal Risk Management Steering Committee reports directly to the Audit Committee. Our Chief Risk Officer chairs the internal Risk Management Steering Committee. The Audit Committee receives quarterly reports from the Risk Management Steering Committee, the Company’s internal audit department and information technology department. The Audit Committee reports periodically to the Board on the effectiveness of risk management processes in place, risk trends, and the overall risk assessment of the Company’s activities. The Personnel and Compensation Committee assesses and monitors risks in
Heritage Commerce Corp • 2023 Proxy Statement 5
| | The Board and Corporate Governance | |
the Company’s compensation, human capital, and diversity programs. The Corporate Governance and Nominating Committee recommends director candidates with appropriate experience, skills and diversity who will set the proper tone for the Company’s risk profile and provide competent oversight over our material risks. This Committee also monitors the Company’s risk related to environmental, social and governance (“ESG”) concerns.
Board Self-Assessment
The Board and its committees perform a self-assessment of its performance at least annually. The purpose of the assessment is to improve the functioning of the Board and committees as a unit, and not to target the performance of any individual director.
The Corporate Governance and Nominating Committee oversees the Board assessment. In particular, the Corporate Governance and Nominating Committee identifies the subject matters the assessment will address, seeks written comments from all directors, and communicates the results of the assessment to the Board for discussion.
The Board’s assessment in 2022 was conducted through a secure online board portal on an anonymous basis by the Corporate Secretary’s office. As a result of the 2022 assessment, the Board has focused and will continue to focus on its strategic planning, succession planning, and risk management.
Stock Ownership Guidelines
Board. The Corporate Governance and Nominating Committee has adopted stock ownership guidelines to further align the interests of our non-employee directors with the interests of the Company’s shareholders. These guidelines provide that each member of the Board who is not an employee of the Company is expected to hold a minimum number of shares of the Company’s common stock. In 2022, each such director was required to hold a minimum of 17,500 shares of the Company’s common stock. Any director not meeting the minimum level as of the effective date of his or her initial election to the Board or on the effective date of any change in policy has three years to bring his or her holdings up to this minimum level. The Corporate Governance and Nominating Committee reviews progress towards satisfying stock ownership guidelines at least annually.
Executive Management. Executive management is subject to our executive management ownership and retention guidelines. Our Chief Executive Officer is required to maintain ownership in the Company’s shares of common stock equal to three times his base salary, and the other executive officers are require to maintain ownership in the Company’s shares of common stock equal to one times their respective base salaries. The executives are not required to purchase shares to reach these guidelines, however, they are restricted from selling shares received as equity-based compensation (net of required holding tax) until they reach their respective guideline level. Furthermore, executives are required to retain at least 50% of shares earned under equity-based compensation plans once the guidelines have been met. Stock options and unvested performance-based equity awards are not included in satisfying the guidelines.
Director and Shareholder Meetings
The Board holds eight regular meetings a year. Special meetings may be called from time to time as circumstances warrant. Directors held a totalare expected to attend all Board meetings and are asked to attend the annual shareholders meeting. The non-employee directors convened six executive sessions after Board meetings without management participation. Such sessions are generally chaired by the Chairman of 15 meetings. Each incumbentthe Board.
For the meetings directors were qualified to attend in 2022, each director who was a director during 2017 attended at least 75% of the aggregate of (a) the total number of such meetings and (b) the total number of meetings held by the standing committees of the Board on which such director served.Director Attendance at Annual Meetingsserved, except for Ranson W. Webster who attended 74.20% of Shareholders
The Board believes it is important forsuch meetings.
Senior members of management have attended each annual meeting to engage with shareholders and answer any questions. Historically, shareholder attendance has been limited, which we attribute to our policy of regular and detailed communications with our shareholders and investors through meetings with management and other investor relations activities. Since very few shareholders have historically attended our annual meetings and all directors to attend the Annual Meeting of Shareholders in order to show their support for the Company and to provide an opportunity for shareholders to communicate any concerns to them. The Company's policy is to encourage, but not require, attendance by each director at the Company's Annual Meeting of Shareholders. All of the directors of the Company are encouraged to attend the Annual Meeting of Shareholders and at the 2017 Annual Meeting of Shareholders eight of our directors weretypically attend, we encourage but have not adopted a policy requiring the attendance of directors at the annual meeting. All but one of our directors attended the 2022 annual shareholders meeting.
Shareholder Communications and Outreach
We proactively interact with our shareholders and other interested parties throughout the year in
attendance.a variety of forums. Our interactions cover a broad range of governance and business topics, including strategy and execution, compensation practices, risk oversight, sustainability, culture/human capital and ESG. The exchanges we have had with shareholders provide us with a valuable understanding
6 Heritage Commerce Corp • 2023 Proxy Statement
| | The Board and Corporate Governance | |
of our shareholders’ perspectives and meaningful opportunities to share views with them. We have outlined a brief description of our shareholder engagement efforts in 2022 below.
In 2023, in addition to our participation in investment conferences and in-person, individual investor meetings, we specifically reached out to 20 institutional shareholders, representing 58.5% of our shares. We held meetings directly or by telephone or video conference with each investor who accepted our invitation resulting in 8 meetings as of March 15, 2023. Shareholder views are communicated to the Board throughout the year at monthly Board meetings and are instrumental in the development of our governance, compensation and environmental and social policies and inform our business strategy. Below are some of the investor priorities discussed during our meetings:
•
Ongoing Company performance, financial condition and credit quality
•
Executive compensation disclosure
•
Implementation of performance measures for equity grants and other compensation issues discussed below in the section of this proxy statement entitled “Compensation Discussion and Analysis-Shareholder Outreach”
•
Assessment of our ESG and DEIB strategy and progress
Heritage Commerce Corp • 2023 Proxy Statement 7
| | The Board and Corporate Governance | |
We integrated feedback from shareholders as follows:
•
Enhanced our ESG and DEIB disclosure in our Proxy Statement
•
Developed and designed our ESG Report available on our website
•
Expanded our Compensation Discussion and Analysis
•
Implemented a Long-term Performance Incentive Equity Program for management that commences for the 2023 performance year in the form of performance-based restricted stock units that vest based on the Company’s relative return on average common tangible equity over a three-year performance period relative to our peer group
•
Hired an Executive Vice President/Chief People and Diversity Officer who has organization-wide responsibility to design and implement DEIB initiatives
•
Continued to expand the implementation of a robust Board, executive and senior management succession planning process with a focus on identifying and developing diverse talent
•
Adopted stock ownership guidelines for executive officers
Our management team also commits significant time meeting with our regulators. Frequent interaction helps us learn firsthand from regulators about matters of importance to them and their expectations of us. It also gives the Board and management a forum for keeping our regulators well informed about our performance and business practices.
Communications with the Board
Shareholders may communicate with the Board, of Directors, including a committee of the Board or individual directors, by writing to the Corporate Secretary, Heritage Commerce Corp, 150 Almaden Boulevard,224 Airport Parkway, San Jose, California 95113.95110. Each communication from a shareholder should include the following information in order to permit shareholder status to be confirmed and to provide an address to forward a response if deemed appropriate: •
The name, mailing address and telephone number of the shareholder sending the communication; and
•
If the shareholder is not a record holder of our common stock, the name of the record holder of our common stock beneficially owned must be identified along with the shareholder.
Our Corporate Secretary will forward all appropriate communications to the Board or individual members of the Board specified in the communication. Our Corporate Secretary may (but is not required
Table of Contents
to) review all correspondence addressed to the Board or any individual member of the Board, for any inappropriate correspondence more suitably directed to management. Communications may be deemed inappropriate for this purpose if it is reasonably apparent from the face of the correspondence that it relates principally to a customerclient dispute. Our policies regarding the handling of security holder communications were approved by a majority of our independent directors.
The Company has a Corporate Governance and Nominating Committee. The duties of the Corporate Governance and Nominating Committee include the recommendation of candidates for election to the Company's Board of Directors.Company’s Board.
The Corporate Governance and Nominating
Committee'sCommittee’s minimum qualifications for a director are persons of high ethical character who have both personal and professional integrity, which is consistent with the image and values of the Company. The Corporate Governance and Nominating Committee considers some or all of the following criteria in considering candidates to serve as directors:
•
commitment to ethical conduct and personal and professional integrity as evidenced through the person'sperson’s business associations, diversity, service as a director or executive officer or other commitment to ethical conduct and personal and professional integrity as evidenced in organizations and/or education;
•
objective perspective and mature judgment developed through business experiences and/or educational endeavors;
•
the candidate'scandidate’s ability to work with other members of the Board of Directors and management to further our goals and increase shareholder value;
•
the ability and commitment to devote sufficient time to carry out the duties and responsibilities as a director;
•
demonstrated experience at policy making levels in various organizations and in areas that are relevant to our activities;
8 Heritage Commerce Corp • 2023 Proxy Statement
| | The Board and Corporate Governance | |
•
the skills and experience of the potential nominee in relation to the capabilities already present on the Board of Directors;Board;
•
diversity as to race, gender and
national origin; and
•
such other attributes, including independence, relevant in constituting a board that also satisfies the requirements imposed by the SEC and the Nasdaq Stock Market.
The Corporate Governance and Nominating Committee does not have a separate policy for consideration of any director candidates recommended by shareholders. Instead, the Corporate Governance and Nominating Committee considers any candidate meeting the requirements for nomination by a shareholder set forth in the Company'sCompany’s Bylaws (as well as applicable laws and regulations) in the same manner as any other director candidate. The Corporate Governance and Nominating Committee believes that requiring shareholder recommendations for director candidates to comply with the requirements for nominations in accordance with the Company'sCompany’s Bylaws ensures that the Corporate Governance and Nominating Committee receives at least the minimum information necessary for it to begin an appropriate evaluation of any such director nominee. Section 5.14 of the Company'sCompany’s Bylaws provide that any shareholder that desires to nominate a person to the Board must give advance written notice to the Company of an intention to nominate a director at a shareholder meeting. Notice of intention to make any nominations must be delivered to the Secretary of the Company at the principal executive offices of the Company not later than the close of business on the ninetieth (90th) day90 days nor earlier than the close of business on the one hundred twentieth (120th) day120 days prior to the first anniversary of the preceding year'syear’s annual meeting. If the date of the annual meeting is more than thirty (30)30 days before or more than sixty
Table of Contents
(60)60 days after such anniversary date of the annual meeting, notice by the shareholder must be delivered not earlier than the close of business on the one hundred twentieth (120th) day120 days prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day90 days prior to such annual meeting or the tenth (10th) day10 days following the day on which public announcement of the date of such meeting is first made by the Company.
To be in proper written form, a shareholder'sshareholder’s notice to the Corporate Secretary must provide as to each person, whom the shareholder proposes to nominate for election as a director (each referred to as the "Nominee"): (1) all information relating to the Nominee that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to and in accordancecomply with Regulation 14A under the Securities Exchange Act of 1934 (the "Exchange Act"); (2) the Nominee's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (3) the number of shares of capital stock of any bank, bank holding company, savings and loan association or other depository institution owned beneficially by the Nominee and the identities and locations of any such institutions; (4) whether the Nominee has ever been convicted of or pleaded nolo contender to any criminal offensive involving dishonestly or breach of trust, filed a petition in bankruptcy or been adjudged bankrupt; (5) a written statement executed by the Nominee acknowledging that as a director of the Company, the Nominee will owe a fiduciary duty exclusively to the Company and its shareholders; (6) a representation whether the Nominee satisfies the requirements of Section 2.2(b)5.14 of the Company's Bylaws (see below); (7) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of the Nominee respect to any securities of the Company, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit of share price changes for, or to increase or decrease the voting power of the Nominee; and (8) a description of all arrangements or understandings between the shareholder and the Nominee and any other person or persons (naming such person or persons) pursuant to which the nomination is to be made by the shareholder. The notice must also set forth with respect to the shareholder submitting the nomination: (1) the name and address of the shareholder (and beneficial owner, if applicable), as it appears on the Company's books, (and of such beneficial owner, if applicable) and any other shareholders and beneficial owners known by such shareholder to be supporting the Nominee(s) for election; (2) the class or series and number of shares of capital stock of the Company that are, directly or indirectly, owned beneficially and of record by such shareholder (and by such beneficial owner, if applicable); (3) any derivative positions with respect to shares of capital stock of the Company held or beneficially held by or on behalf of such shareholder (and by or on behalf of such beneficial owner), the extent to which any hedging or other transaction or series of transactions has been entered into with respect to the shares of capital stock of the Company by or on behalf of such shareholder (and by or on behalf of such beneficial owner), and the extent to which any other agreement, arrangement or understanding has been made, the effect or intent of which is to increase or decrease the voting power of such shareholder (and such beneficial owner) with respect to shares of capital stock of the Company; (4) a representation that the shareholder is a holder of record of stock of the Company entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to propose the Nominee; and (5) a representation whether the shareholder (or the beneficial owner, if any), intends or is part of a group that intends to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Company's outstanding capital stock required to elect the nominee or otherwise to solicit proxies from shareholders in support of such nomination (and a copy of such documents must be provided with the notice). The information required of clauses (3) and (4) must be supplemented not later than ten days following the record date to disclose the information contained in clauses (3) and (4) above as of the record date.
The Company may require any proposed nominee to furnish such other information as it may reasonably require to determine: (1) the eligibility of the Nominee to serve as a director of the Company
Table of Contents
(including the information required to be set forth in the shareholder's notice of nomination of such person as a director as of a date subsequent to the date on which the notice of such person's nomination was given); and (2) whether the Nominee qualifies as an "independent director" or "audit committee financial expert" under applicable law, securities exchange rule or regulation, or any publicly-disclosed corporate governance guideline or committee charter of the Company.
our Bylaws. Nominees for the Board of Directors must also meet certain qualifications set forth in Section 2.2(b) of our Bylaws, which prohibit the election as a director of any person who is a director, executive officer, branch manager or trustee for any unaffiliated commercial bank, savings bank, trust company, savings and loan association, building and loan association, industrial bank or credit union that is engaged in business in: (1)(i) any city, town or village in which the Company or any affiliate or subsidiary thereof has offices; or (2)(ii) any city, town or village adjacent to a city, town or village in which the Company or any affiliate or subsidiary thereof has offices.
Consideration of Diversity of the Board of Directors
In considering diversity of the Board (in all aspects of that term) as a criteria for selecting nominees in accordance with its charter, the Corporate Governance and Nominating Committee takes into account various factors and perspectives, including differences of viewpoint, high quality business and professional experience, education, skills and other individual qualities and attributes that contribute to Board heterogeneity,diversity, as well as race, gender and national origin. The Corporate Governance and Nominating Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all prospective nominees. The Corporate Governance and Nominating Committee seeks persons with leadership experience in a variety of contexts and industries. The Committee includes women and underrepresented minorities in its pool of candidates when selecting new director nominees. The Corporate Governance and Nominating Committee believes that this expansive conceptualization of diversity is the most effective means to implement Board diversity. The Corporate Governance and Nominating Committee will assessassesses the effectiveness of this approach as part of its annual review of its charter. Directors serve Of the ten nominees for a one-year term or until their successorselection to our Board at the Annual Meeting, 30% are elected. women and 40% are women and underrepresented minorities.
Management Performance and Compensation
The Board does not have term limits, instead preferring to rely upon the evaluation procedures described herein as the primary methods of ensuring that each director continues to act in a manner consistent with the best interests of the shareholdersPersonnel and the Company. The Board may delegate portions of its responsibilities to committees of its members. These standing committees of the Board meet at regular intervals to attend to their particular areas of responsibility. Our Board has five standing committees: Audit Committee, Compensation Committee Corporate Governance and Nominating Committee, Finance and Investment Committee, and Strategic Initiatives Committee. In addition, Heritage Bank of Commerce maintains a Loan Committee. An independent director, as defined by the applicable rules and regulations of the Nasdaq Stock Market, chairs the Board and its other standing committees (including Heritage Bank of Commerce's Loan Committee). The Chair determines the agenda, the frequency and the length of the meetings and receives input from Board members.
Independent directors meet in executive sessions throughout the year including meeting annually to consider and act upon the recommendation of the Compensation Committee regarding the compensation and performance ofreviews the Chief Executive Officer.
Table of Contents
A Board assessmentOfficer’s performance at least annually, and director self-evaluations are conducted annually in accordance with an established evaluation process and includes performance of committees. The Corporate Governance and Nominating Committee oversees this process and reviews the assessment and self-evaluation with the full Board.
The Compensation Committeealso reviews and approves the Chief Executive Officer'sOfficer’s evaluation of the top management team on an annual basis. The Board (largely through the Personnel and Compensation Committee) evaluates the compensation plans for senior management and other employees to ensure they are appropriate, competitive and properly reflect the Company'sCompany’s objectives and performance.
The Board has adopted a policy that each member of the Board is expected to hold, at a minimum, $200,000 market value shares of the Company's common stock. Any director not meeting the minimum level as of the effective date of their election to the Board has three years to bring his or her holdings up to this minimum level. The Corporate Governance and Nominating Committee will review this policy on an annual basis.
The Board expects all directors, as well as officers and employees, to display the highest standard of ethics, consistent with the principles that have guided the Company over the years. The Board has adopted an Executive andthe Principal Financial Officer'sOfficers / Senior Management Code of Ethics that applies to the Chief Executive Officer, Chief Financial Officer and the seniorother principal financial officers, and other senior management personnel, as designated, of the Company to
Heritage Commerce Corp • 2023 Proxy Statement 9
| | The Board and Corporate Governance | |
help ensure that the financial affairs of the Company are conducted honestly, ethically, accurately, objectively, consistent with generally accepted accounting principles and in compliance with all applicable governmental law, rules and regulations. We will disclose any amendment to, or a waiver from a provision of our Code of Ethics on our website. The Executive and Principal Financial Officer'sOfficers / Senior Management Code of Ethics is available on our website atwww.heritagecommercecorp.com.
Reporting of Complaints/Concerns Regarding Accounting or Auditing Matters
The Company's Board of Directors has adopted procedures for receiving and responding to complaints or concerns regarding accounting and auditing matters. These procedures were designed to provide a channel of communication for employees and others who have complaints or concerns regarding accounting or auditing matters involving the Company. Employee concerns may be communicated to a third-party service provider in a confidential or anonymous manner, which will then be forwarded by the third-party service provider to the Audit Committee and the Personnel and Compensation Committee of the Board. The Audit Committee ChairmanChair and the Chair of the Personnel and Compensation Committee will make a determination on the level of inquiry, investigation or disposal of the complaint. All complaints are discussed with the Company'sCompany’s senior management and monitored by the Audit Committee for handling, investigation and final disposition. The ChairmanChair of the Audit Committee will report the status and disposition of all complaints to the Board of Directors.Board.
Table of Contents
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors
The Board of Directors oversees our business and monitors the performance of management. In accordance with corporate governance principles, the Board does not involve itself in day-to-day operations. The directors keep themselves informed through, among other things, discussions with the Chief Executive Officer, other key executives and our principal outside advisors (legal counsel, outside auditors, and other consultants), by reading reports and other materials that we send them and by participating in Board and committee meetings.
The Company's Bylaws currently permit the number of Board members to range from 9 to 15, leaving the Board authority to fix the exact number of directors within that range. The Board has fixed the number of directors at 9.
Board Leadership Structure
The Board of Directors is committed to maintaining an independent Board, and a majority of the Board has been comprised of independent directors. It has further been the practice for many years of the Company to separate the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. The Chief Executive Officer is responsible for setting the strategic direction for the Company and the day-to-day leadership and performance of the Company. The Chairman of the Board provides guidance to the Chief Executive Officer, sets the agenda for Board meetings, presides over meetings of the full Board (including executive sessions), and facilitates communication among the independent directors and between the independent directors and the Chief Executive Officer. The Board further believes that the separation of the duties of the Chief Executive Officer and the Chairman of the Board eliminates any inherent conflict of interest that may arise when the roles are combined, and that an independent director who has not served as an executive of the Company can best provide the necessary leadership and objectivity required as Chairman of the Board.
Board Authority for Risk Oversight
The Board has active involvement and responsibility for overseeing risk management of the Company arising out of its operations and business strategy. The Board monitors, reviews and reacts to material enterprise risks identified by management. The Board receives specific oral and written reports from officers with oversight responsibility for particular risks within the Company. Reports cover executive management on financial, credit, liquidity, interest rate, capital, operational, legal and regulatory compliance and reputation risks and the Company's degree of exposure to those risks. The Board helps ensure that management is properly focused on risk by, among other things, reviewing and discussing the performance of senior management and business line leaders.
Board committees also have the responsibility for risk oversight in specific areas. The Audit Committee oversees financial, accounting and internal control risk management policies. The Company's internal Risk Management Steering Committee reports directly to the Audit Committee. The Audit Committee is responsible for monitoring the Company's overall risk program. The Audit Committee receives quarterly reports from the Risk Management Steering Committee and the Company's internal audit department. The Audit Committee reports periodically to the Board on the effectiveness of risk management processes in place, risk trends, and the overall risk assessment of the Company's activities. The Compensation Committee assesses and monitors risks in the Company's compensation program. The Corporate Governance and Nominating Committee recommends director candidates with appropriate experience and skills who will set the proper tone for the Company's risk profile and provide competent oversight over our material risks.
Table of Contents
The Committees of the Board
The Board may delegate portions of its responsibilities to committees of its members. These standing committees of the Board meet at regular intervals to attend to their particular areas of responsibility. Our Board has five standingthe following committees: the Audit Committee, Personnel and Compensation Committee, Corporate Governance and Nominating Committee, the Strategic Initiatives Committee, and Finance and Investment Committee, and Strategic Initiatives Committee. In addition, Heritage Bank of Commerce also maintains a Loan Committee. An independent director, as defined by the applicable rules and regulations of the Nasdaq Stock Market, chairs each of these standing committees (including the Heritage Bank of Commerce’s Loan Committee). The Chair determines the agenda, the frequency and the length of the meetings and receives input from Board members.
Audit Committee.Committee. The Company has a separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The Audit Committee charter adopted by the Board sets out the responsibilities, authority and specific duties of the Audit Committee. The Audit Committee charter is available on the Company'sCompany’s website atwww.heritagecommercecorp.com. The responsibilities of the Audit Committee include the following: •oversight of
oversee our financial, accounting and reporting process, our system of internal accounting and financial controls, and our compliance with related legal and regulatory requirements;
•
oversee the appointment, compensation, retention and oversight of our independent auditors, including conducting a review of their independence, reviewing and approving the planned scope of our annual audit, overseeing the independent auditors'auditors’ work, and reviewing and pre-approving any audit and non-audit services that may be performed by them;
•
review with management and our independent auditors the effectiveness of our internal controls over financial reporting;
•
approve the scope and engagement of external audit services and review significant accounting policies and adjustments recommended by the independent auditors and address any significant, unresolved disagreements between the independent auditors and management;
•
review and discuss quarterly earnings releases and Quarterly Reports on Form 10-Q with management and the independent auditors;
•
review and discuss the annual audited financial statements with management and the independent auditors prior to publishing the annual report and filing the Annual Report on Form 10-K with the SEC;
•
review and discuss with management and the independent auditors any significant changes, significant deficiencies and material weaknesses regarding internal controls over financial reporting required by the Sarbanes-OxleySarbanes Oxley Act of 2002, and oversee the corrective action taken to mitigate any significant deficiencies and material weaknesses identified;
•
review with management and the independent auditors the effect of significant regulatory and accounting initiatives, changes, and pronouncements as well as significant and unique transactions and financial relationships;
10 Heritage Commerce Corp • 2023 Proxy Statement
| | The Board and Corporate Governance | |
•
review with the independent auditors the matters required to be discussed by Auditing Standards No. 61,1301, and receive and discuss with the independent auditors disclosures regarding the auditors'auditors’ independence;
•
oversee the internal audit function and the audits directed under its auspices;
•
establish policies to ensure all non-audit services provided by the independent auditors are approved prior to work being performed;
•
review the Company’s information technology and
information security risks; and
•
oversee and report to the full Board on the effectiveness of the Company'sCompany’s risk management processes and overall risk assessment of the Company'sCompany’s activities.
Each member of the Audit Committee meets the independence criteria as defined by applicable rules and regulations of the SEC for audit committee membership and is independent and is "financially
Table of Contents
sophisticated"“financially sophisticated” as defined by the applicable rules and regulations of the Nasdaq Stock Market. The members of the Audit Committee are Julianne M. Biagini-Komas Steven L. Hallgrimson (Committee Chair), Kamran F. Husain, Laura Roden, and Laura Roden.Marina H. Park Sutton. The Audit Committee met 1110 times during 2017.
During 2017, the2022.
The Board of Directorshas determined that Mr. Steven L. Hallgrimson has: (1) an understanding of generally accepted accounting principles and financial statements; (2) an ability to assess the general application of such principles in connection with the accounting for estimates, accruals and reserves; (3) an experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by our financial statements, or experience actively supervising one or more persons engaged in such activities; (4) an understanding of internal control over financial reporting; and (5) an understanding of audit committee functions. Therefore, in 2017 the Board determined that Mr. HallgrimsonJulianne M. Biagini-Komas meets the definition of "audit“audit committee financial expert"expert” under the applicable rules and regulations of the SEC and is "financially sophisticated"“financially sophisticated” as defined by the applicable rules and regulations of the Nasdaq Stock Market. The designation of a person as an audit committee financial expert does not result in the person being deemed an expert for any purpose, including under Section 11 of the Securities Act of 1933. The designation does not impose on the person any duties, obligations or liability greater than those imposed on any other audit committee member or any other director and does not affect the duties, obligations or liability of any other member of the Audit Committee or Board of Directors.
Board.
The Audit Committee Report for 20172022 appears on page 5571 of this proxy statement.
Personnel and Compensation Committee.Committee. The Company has a separately designated Personnel and Compensation Committee, which consists entirely of independent directors as defined by the applicable rules and regulations of the Nasdaq Stock Market. The Personnel and Compensation Committee has adopted a charter, which is available on the Company'sCompany’s website atwww.heritagecommercecorp.com. The Personnel and Compensation Committee has the following responsibilities: •
review and approve our compensation philosophy;
•
review industry compensation practices and our relative compensation positioning;
•
review the incentive compensation programs by the Company to evaluate and ensure that none of them encourage excessive risk;
•
retain compensation consultants to provide independent professional advice;
•
approve compensation paid to our Chief Executive Officer and other executive officers;
•
review the Company’s human capital and DEIB policies;
•
review and approve the Compensation Discussion and Analysis appearing in our proxy statement;
•
review director compensation programs, plans and awards;
•
administer our short-termshort term and long-termlong term executive incentive plans and stock or stock-basedstock based plans; and
•
review and approve general employee welfare benefit plans and other plans on an as needed basis.
The members of the Personnel and Compensation Committee are Julianne M. Biagini-Komas, (Committee Chair), Frank G. Bisceglia,Kamran F. Husain, Robert T. Moles, Marina H. Park Sutton (Committee Chair), and Ranson W. Webster. The Committee met 8 times during 2017.2022.
Corporate Governance and Nominating Committee.Committee. The Company has a separately designated Corporate Governance and Nominating Committee, which consists entirely of entirely independent directors as defined by the applicable rules and regulations of the Nasdaq Stock Market. The Corporate Governance and Nominating Committee have adopted a charter, which is available on the Company'sCompany’s website atwww.heritagecommercecorp.com.
Table of Contents
The purposes of the Corporate Governance and Nominating Committee include the following responsibilities:
•
identifying individuals qualified to become Board members and making recommendations to the full Board of candidates for election to the Board;
Heritage Commerce Corp • 2023 Proxy Statement 11
| | The Board and Corporate Governance | |
•
recommending to the Board corporate governance guidelines;
•leading the Board in an annual review of its performance; and
•
recommending director appointments to Board committees.committees;
•
periodically review and evaluate the Company’s response to ESG issues and developments and best practices, including the Company’s policies, programs and directives;
•
annually administer a self-evaluation program for the Board and each Committee, review the results of the evaluation, and report the findings of the entire Board;
•
evaluate the effectiveness of the Board’s committee structure and recommend to the full Board changes to committee structure or committee charters that the Corporate Governance and Nominating Committee perceives to be necessary; and
•
participate in the development of a formal succession plan.
The members of the Corporate Governance and Nominating Committee are J. PhilipJason DiNapoli, Robert T. Moles, Marina H. Park Sutton, and Ranson W. Webster (Committee Chair). The Committee met 57 times during 2017. Finance and Investment Committee. The Finance and Investment Committee is responsible for the development of policies and procedures related to liquidity, asset-liability management, and supervision of the Company's investments. The Committee also oversees and reviews internal financial reports including annual forecasts and budgets, and stress test analysis prepared by management. The members of the Finance and Investment Committee are Frank G. Bisceglia, Jack W. Conner (Committee Chair), Walter T. Kaczmarek, and Laura Roden. The Finance and Investment Committee met 8 times during 2017.
2022.
Strategic Initiatives Committee.Committee. The principal duties of the Strategic Initiatives Committee are to provide oversight and guidance to senior management regarding the strategic direction of the Company, including development of an overall strategic business plan. The members of the Strategic Initiatives Committee are Jack W. Conner, J. PhilipKamran F. Husain (Committee Chair), Robertson Clay Jones, and Ranson W. Webster.
Finance and Investment Committee. The Finance and Investment Committee is responsible for the development of policies and procedures related to liquidity, asset-liability management, and supervision of the Company’s investments. The Committee also oversees and reviews internal financial reports including annual forecasts and budgets, and stress test analysis prepared by management. The members of the Finance and Investment Committee are Bruce H. Cabral, Jack W. Conner, Jason DiNapoli, Stephen G. Heitel, Robertson Clay Jones, Walter T. Kaczmarek, and Laura Roden (Committee Chair),.
During 2022, the Finance and Ranson W. Webster. TheInvestment Committee and Strategic Initiatives Committee met 6as a combined committee and met 8 times during 2017.2022. In 2023, they will meet separately.
Heritage Bank of Commerce Loan Committee.Committee. The Heritage Bank of Commerce Loan Committee is responsible for the approval and supervision of loans and the development of the Company'sCompany’s loan policies and procedures. The members of the Loan Committee are Julianne M. Biagini-Komas, Frank G. BiscegliaBruce H. Cabral (Committee Chair), Steven L. Hallgrimson,Jason DiNapoli, Stephen G. Heitel, Robertson Clay Jones and Walter T. Kaczmarek, Robert T. Moles, and J. Philip DiNapoli (alternate).Kaczmarek. The Loan Committee met 3228 times during 2017. Role of Compensation Consultant
The Compensation Committee of the Board of Directors retained McLagan, an Aon Hewitt Company ("McLagan") as its independent compensation consultant in the fourth quarter of 2016 and it delivered its report in the first quarter of 2017.
The Compensation Committee has the authority to obtain assistance and advice from advisors to assist it with the evaluation of compensation matters without the approval or permission of management or the Board. The Compensation Committee uses advisors to obtain candid and direct advice independent of management, and takes steps to satisfy this objective. First, in evaluating firms to potentially provided advisory services to the Compensation Committee, the Compensation Committee considers if the firm provides any other services to the Company. In addition, while members of management may assist the Compensation Committee in the search for advisors, the Compensation Committee ultimately and in its sole discretion makes the decision to hire or engage a consultant and provides direction as to the scope of work to be conducted. The Chairman of the Compensation Committee has evaluated the relationship of the compensation consultant with both the Company and the Compensation Committee, including the nature and amount of work performed for the Compensation Committee during the year. The Compensation Committee retained McLagan, to:
•review existing compensation programs for executive officers;
Table of Contents
•provide information based on third-party data and analysis of compensation programs at comparable financial institutions for the design and implementation of our executive compensation programs;
•assist the Compensation Committee in forming a peer group; and
•provide independent information as to the reasonableness and appropriateness of the compensation levels and compensation programs of the Company as compared to comparable financial services companies.
Executive Officers of the Company
Set forth below is certain information with respect to the executive officers of the Company:
2022.
| | |
Name
| | Position |
|---|
Walter T. Kaczmarek | | President and Chief Executive Officer of Heritage Commerce Corp and Chief Executive Officer of Heritage Bank of Commerce |
Keith A. Wilton | | Executive Vice President and Chief Operating Officer of Heritage Commerce Corp and President of Heritage Bank of Commerce |
Michael E. Benito | | Executive Vice President/Banking Division of Heritage Bank of Commerce |
Margo G. Butsch | | Executive Vice President and Chief Credit Officer of Heritage Bank of Commerce |
Lawrence D. McGovern | | Executive Vice President and Chief Financial Officer of Heritage Commerce Corp and Heritage Bank of Commerce |
Biographical information for Walter T. Kaczmarek is found under "Proposal 1—Election of Directors."
Keith A. Wilton, age 60, was promoted to President of Heritage Bank of Commerce in April 2017. He also has served as Executive Vice President and Chief Operating Officer of Heritage Commerce Corp since February 2014. Prior to joining Heritage Commerce Corp and Heritage Bank of Commerce, Mr. Wilton was an Executive Vice President with Pacific Capital Bancorp from 2010 through 2013. Mr. Wilton was a consultant from 2008 to 2010 for several private equity firms assisting with investment and acquisition opportunities in the financial industry. He was with Greater Bay Bancorp holding positions of Executive Vice President and President of the Specialty Finance Group from 2002 to 2007. Mr. Wilton has over 30 years' experience with bank and finance companies.
Michael E. Benito, age 57, has served as Executive Vice President/Banking Division of Heritage Bank of Commerce since January 2012. Mr. Benito joined Heritage Bank of Commerce in 2003 as Senior Vice President/Director of Sales & Business Development. From 1998 through 2003, Mr. Benito served as a Managing Director for Greater Bay Bank and from December 1986 through 1998, he served as Regional Vice President with Imperial Bancorp. Mr. Benito began his banking career more than 32 years ago at Union Bank.
Margo G. Butsch, age 54 was promoted to Executive Vice President and Chief Credit Officer of Heritage Bank of Commerce, effective July 8, 2017. Ms. Butsch joined Heritage Bank of Commerce through Focus Business Bank which was acquired by Heritage Bank of Commerce in August, 2015. After the acquisition, Ms. Butsch joined Heritage Bank of Commerce as Senior Vice-President/Credit Administration. Since 1995 and prior to joining Heritage Bank of Commerce, Ms. Butsch held various
Table of Contents
Vice-President and Senior Vice President relationship management and loan administration positions with Focus Business Bank, The Independent Bankers Bank, Greater Bay Bank, and Imperial Bank.
Lawrence D. McGovern, age 63, has served as Executive Vice President and Chief Financial Officer of Heritage Commerce Corp and Heritage Bank of Commerce since July, 1998.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors, executive officers and persons who own more than 10% of a registered class of the Company's equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities. They are required by SEC rules and regulations to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required, all Section 16(a) filing requirements applicable to our executive officers and directors were complied with during the year ended December 31, 2017.
Transactions with Management
Some of the Company'sCompany’s directors and executive officers, as well as other related persons (as defined under "Policies“Policies and Procedures for Approving Related Party Transactions"Transactions” below), are customersclients of, and have banking transactions with, the Company'sCompany’s subsidiary, Heritage Bank of Commerce, in the ordinary course of business, and Heritage Bank of Commerce expects to have such ordinary banking transactions with these persons in the future. In the opinion of the management of the Company and Heritage Bank of Commerce, all loans and commitments to lend included in such transactions were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other persons of similar creditworthiness, and do not involve more than the normal risk of collectability or present other unfavorable features. Loans to individual directors, officers and related persons must comply with Heritage Bank of Commerce'sCommerce’s lending policies and statutory lending limits. In addition, prior approval of Heritage Bank of Commerce'sthe Board of Directors is required for all loans advanced to directors and executive officers. These loans are exempt from the loan prohibitions of the Sarbanes-Oxley Act. In 2013, Heritage Bank of Commerce entered into an arms-length 5-year lease for office space in Sunnyvale, California with Sunnyvale Village Associates, a California general partnership. One of the general partners at the time of lease was entered into is the father of director Julianne M. Biagini-Komas. Ms. Biagini-Komas's father is no longer the general partner as of December 31, 2017. Heritage Bank of Commerce entered into the lease prior to Ms. Biagini-Komas joining the Board of Directors in August 2015. Heritage Bank of Commerce paid $161,602 in rent to the partnership in 2017.
Policies and Procedures for Approving Related Party Transactions
The Board
of Directors has adopted a written Statement of Policy with Respect to Related Party Transactions. Under this policy, any
"related“related party
transaction"transaction” may be consummated or may continue only if the Audit Committee approves or ratifies the transaction in accordance with the guidelines in the policy and if the transaction is on terms comparable to those that could be obtained in
arm'sarm’s length dealings with an unrelated third party. For purposes of this policy, a
"related person"“related person” means:
(1)(i) any person who is, or at any time since the beginning of the
Company'sCompany’s last fiscal year was, a director or executive officer of the Company or a nominee to become a director of the Company;
(2)(ii) any person who is known to be the beneficial owner of more than 5% of any class of the
Company'sCompany’s voting securities;
(3)(iii) any immediate family member of any of the foregoing persons, which means any child, stepchild, parent, stepparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law,
Table of Contents
brother-in-law,mother in law, father in law, son in law, daughter in law, brother in law, or sister-in-lawsister in law of the director, executive
12 Heritage Commerce Corp • 2023 Proxy Statement
| | The Board and Corporate Governance | |
officer, nominee or more than 5% beneficial owner, and any person (other than a tenant or employee) sharing the household of such director, executive officer, nominee or more than 5% beneficial owner; and (4)(iv) any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner, principal or in a similar position, or in which such person has a 10% or greater beneficial ownership interest. A "related“related party transaction"transaction” is a transaction in which the Company or any of its subsidiaries is a participant and in which a related person had or will have a direct or indirect interest, other than transactions involving: (1)(i) less than $5,000 when aggregated with all similar transactions; (2)(ii) customary bank deposits and accounts (including certificates of deposit); and (3)(iii) loans and commitments to lend included in such transactions that are made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing for comparable transactions with other persons of similar creditworthiness, and do not involve more than the normal risk of collectability or present other unfavorable features to the Company. A related party who has a position or relationship with a firm, corporation, or other entity that engaged in a transaction with the Company shall not be deemed to have an indirect material interest within the meaning of this policy where the interest in the transaction arises only: (1)(i) from such related party'sparty’s position as a director of another corporation or organization that is party to the transaction; (2)(ii) from the direct or indirect ownership by the related party of less than a 10% equity interest in another person (other than a partnership) which is a party to the transaction; or (3)(iii) from the related party'sparty’s position as a limited partner in a partnership in which the related party has an interest of less than 10%, and the related party is not a general partner of and does not hold another position in the partnership. The Board of Directors has determined that the Audit Committee is best suited to review and approve related party transactions. The Audit Committee considers all of the relevant facts and circumstances available to the Audit Committee, including (if applicable) but not limited to: (1)(i) the benefits to the Company; (2)(ii) the impact on a director'sdirector’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer; (3)(iii) the availability of other sources for comparable productssolutions or services; (4)(iv) the terms of the transaction; and (5)(v) the terms available to unrelated third parties or to employees generally. No member of the Audit Committee may participate in any review, consideration or approval of any related person transaction with respect to which such member or any of his or her immediate family members is the related person. The Audit Committee will approve only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its shareholders, as the Audit Committee determines in good faith. The Audit Committee conveys its decision to the Chief Executive Officer, who conveys the decision to the appropriate persons within the Company. Role of Compensation Consultant
The Personnel and Compensation Committee of the Board retained McLagan, an Aon Hewitt Company (“McLagan”) as its independent compensation consultant in the fourth quarter of 2020 and its report delivered in the first quarter of 2021 was used to make compensation decisions for 2021 and 2022.
The Personnel and Compensation Committee has retained Meridian Compensation Partners, LLC (“Meridian”) as its compensation consultant in 2022 to advise the Personnel and Compensation Committee for 2023 compensation decisions.
The Personnel and Compensation Committee has the authority to obtain assistance and advice from advisors to assist it with the evaluation of compensation matters without the approval or permission of management or the Board. The Personnel and Compensation Committee uses advisors to obtain candid and direct advice independent of management, and takes steps to satisfy this objective. First, in evaluating firms to potentially provided advisory services to the Personnel and Compensation Committee, the Personnel and Compensation Committee considers if the firm provides any other services to the Company. In addition, while members of management may assist the Personnel and Compensation Committee in the search for advisors, the Personnel and Compensation Committee ultimately and in its sole discretion makes the decision to hire or engage a consultant and provides direction as to the scope of work to be conducted. The Chair of the Personnel and Compensation Committee has evaluated the relationship of the compensation consultant with both the Company and the Personnel and Compensation Committee, including the nature and amount of work performed for the Personnel and Compensation Committee during 2022. The Personnel and Compensation Committee retained McLagan, to:
•
review existing compensation programs for executive officers;
•
provide information based on third party data and analysis of compensation programs at comparable financial institutions for the design and implementation of our executive compensation programs;
•
assist the Personnel and Compensation Committee in forming a peer group;
Heritage Commerce Corp • 2023 Proxy Statement 13
| | The Board and Corporate Governance | |
•
provide independent information as to the reasonableness and appropriateness of the compensation levels and compensation programs of the Company as compared to comparable financial services companies; and
•
assist in designing the Company’s Long-term Performance Incentive Equity Program.
14 Heritage Commerce Corp • 2023 Proxy Statement
| | | Director Compensation | |
In order to attract and retain qualified directors, our practice is to set non-employee director compensation within a competitive range of pay at comparable companies. Our independent compensation consultant presents a market pay benchmarking analysis relative to the same peer group used to assess executive compensation levels.
The following tables set forth compensation information for the fiscal year ended December 31, 2022, for the Company’s non-employee directors. Mr. Kaczmarek’s compensation as the Company’s former President and Chief Executive Officer is discussed in the Compensation Discussion and Analysis
section of this proxy statement. Mr. Kaczmarek did not receive any additional compensation for serving as a director prior to September 15, 2022. Mr. Jones, our President and Chief Executive Officer whose term as a director started September 15, 2022, will not receive any additional compensation for serving as a director.
For 2022, the Personnel and Compensation Committee recommended and the Board approved an annual retainer fee of $50,000 for each director, except for the Chairman of the Board whose retainer was increased to $75,000, in recognition of the Chairman’s responsibilities for supporting a successful CEO transition during 2022. In addition, the chair of each standing committee of the Board received an additional $8,000 per year, except for the Chair of the Audit Committee and the Chair of the combined Strategic Initiatives and Financing and Investment Committee, who each received $12,000, and the Chair of the Heritage Bank of Commerce Loan Committee, who received $10,000. Board members are not paid separate fees for attending Board or committee meetings.
The Personnel and Compensation Committee has adopted a policy to grant directors restricted stock on an annual basis in lieu of stock options. Under this policy the Personnel and Compensation Committee reviewed the compensation consultant report and recommended and the Board approved awards of restricted stock with an economic value on the date of grant as follows:
| | Board Chairman | | | | $ | 75,000 | | |
| | Board members (non-chairman) | | | | $ | 50,000 | | |
The following table summarizes the compensation of non-employee directors for the year ended December 31, 2022:
| | Name
(a) | | | Fees
Earned
or Paid in
Cash
(b) | | | Stock
Awards
(c)(1) | | | Options
Awards
(d) | | | Non-Equity
Incentive Plan
Compensation
(e) | | | Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
(f)(2) | | | Cash Dividend
on Unvested
Restricted Stock
Award
(g) | | | All Other
Compensation
(h)(3) | | | Total
(i) | |
| | Julianne M. Biagini-Komas | | | | $ | 62,000 | | | | | $ | 49,994 | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,260 | | | | | | — | | | | | $ | 114,254 | | |
| | Bruce H. Cabral | | | | $ | 60,000 | | | | | $ | 49,994 | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,260 | | | | | | — | | | | | $ | 112,254 | | |
| | Jack W. Conner | | | | $ | 82,500 | | | | | $ | 84,998 | | | | | | — | | | | | | — | | | | | | — | | | | | | 3,621 | | | | | $ | 1,516 | | | | | $ | 172,635 | | |
| | Jason DiNapoli | | | | $ | 50,000 | | | | | $ | 49,994 | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,260 | | | | | | — | | | | | $ | 102,254 | | |
| | Stephen G. Heitel | | | | $ | 50,000 | | | | | $ | 49,994 | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,260 | | | | | | — | | | | | $ | 102,254 | | |
| | Kamran F. Husain | | | | $ | 50,000 | | | | | $ | 49,994 | | | | | | — | | | | | | — | | | | | | — | | | | | | 1,153 | | | | | | — | | | | | $ | 101,147 | | |
| | Walter T. Kaczmarek(4) | | | | $ | 12,500 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | $ | 12,500 | | |
| | Robert T. Moles(5) | | | | $ | 50,000 | | | | | $ | 49,994 | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,260 | | | | | | — | | | | | $ | 102,254 | | |
| | Laura Roden | | | | $ | 62,000 | | | | | $ | 49,994 | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,260 | | | | | | — | | | | | $ | 114,254 | | |
| | Marina H. Park Sutton | | | | $ | 58,000 | | | | | $ | 49,994 | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,260 | | | | | | — | | | | | $ | 110,254 | | |
| | Ranson W. Webster | | | | $ | 58,000 | | | | | $ | 49,994 | | | | | | — | | | | | | — | | | | | | — | | | | | | 2,260 | | | | | $ | 955 | | | | | $ | 111,209 | | |
(1)
The amounts shown in column (c) reflect the applicable full grant date value for stock awards in accordance with ASC 718 (excluding the effect of forfeitures). See Note 12 to the Company’s consolidated financial statements for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 9, 2023.
(2)
The amounts shown in column (f) represent only the aggregate change in the actuarial present value of the accumulated benefit measured from December 31, 2021 to December 31, 2022, under the respective director compensation benefits agreements. The amounts in column (f) were determined using interest rate and mortality rate assumptions, consistent with those used in the Company’s consolidated financial statements, and include amounts which the named director may not currently be entitled to receive because such amounts are not vested. Assumptions used in the calculation of these amounts are included in Note 13 to the Company’s consolidated financial statements for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 9, 2023.
Heritage Commerce Corp • 2023 Proxy Statement 15
(3)
The amounts shown reflect the annual income imputed to each director in connection with Company owned split dollar life insurance policies for which the Company has fully paid the applicable premiums.
(4)
Mr. Kaczmarek rejoined the Company as President and Chief Executive Officer on March 15, 2021 and retired in September 2022, but remained on the Board. Amounts reflect his service on the Board as a non-employee director. Mr. Kaczmarek will not stand for reelection to the Board at the Annual Meeting.
(5)
Mr. Moles will not stand for reelection to the Board at the Annual Meeting.
Director Outstanding Stock Options and Stock Awards
Each of the non-employee directors owned the following stock options and stock awards as of December 31, 2022:
| | Director | | | Stock Options | | | Stock Awards | |
| | Julianne M. Biagini-Komas | | | | | — | | | | | | 4,436 | | |
| | Bruce H. Cabral* | | | | | 17,290 | | | | | | 4,436 | | |
| | Jack W. Conner | | | | | — | | | | | | 7,542 | | |
| | Jason DiNapoli | | | | | — | | | | | | 4,436 | | |
| | Stephen G. Heitel* | | | | | 123,499 | | | | | | 4,436 | | |
| | Kamran F. Husian | | | | | — | | | | | | 4,436 | | |
| | Robert T. Moles** | | | | | 9,000 | | | | | | 4,436 | | |
| | Laura Roden | | | | | 4,000 | | | | | | 4,436 | | |
| | Marina H. Park Sutton* | | | | | 22,230 | | | | | | 4,436 | | |
| | Ranson W. Webster | | | | | 9,000 | | | | | | 4,436 | | |
*
The stock options were granted by Presidio Bank prior to its acquisition by the Company and were assumed by the Company in connection with the acquisition.
**
Mr. Moles will not stand for reelection to the Board at the Annual Meeting.
Director Compensation Benefits Agreement
Prior to 2007, the Company entered into individual director compensation benefits agreements with each of its then directors. These agreements were amended and restated in December, 2008 (“Benefit Agreements”). The Benefit Agreements provide an annual benefit equal to a designated applicable percentage of $1,000 times each year served as a director, subject to a 2% increase each year from the date of the commencement of payments. The applicable percentage increases over time and equals 100% after nine years of service. In the event of a disability, or a resignation or termination pursuant to a change of control, the director’s applicable percentage will be accelerated to 100% payments of benefits will be made in equal monthly payments on the first day of each month, commencing on the later of the director’s attaining the age of 62 or the month following the month in which the director separates from service on the Board and continuing until the director’s death. If a director is removed from the Board for cause he or she will forfeit any benefits under the Benefit Agreement.
Company owned split dollar life insurance policies support the Company’s obligations under the Benefit Agreements. The premiums on the policies are paid by the Company. The cash value accrued on the policies supports the payment of the supplemental benefits for each participant. In the case of death of the participant, the participant’s designated beneficiaries will receive 80% of the net at risk insurance (which means the amount of the death benefit in excess of the cash value of the policy).
The following table shows the present value of the accumulated benefit payable to each director who has a director compensation benefit agreement, including the number of service years credited to each director under the Benefit Agreements at December 31, 2022:
| | Name
(a) | | | Plan Name
(b) | | | Number
of Years
Credited
Service
(#)(c) | | | Present
Value of
Accumulated
Benefit(1)(2)
($)(d) | | | Payments
During
Last
Fiscal
Year
($)(e) | |
| | Jack W. Conner | | | Heritage Commerce Corp SERP | | | | | 19 | | | | | $ | 109,600 | | | | | | — | | |
| | Robert T. Moles | | | Heritage Commerce Corp SERP | | | | | 19 | | | | | $ | 250,100 | | | | | | — | | |
| | Ranson W. Webster | | | Heritage Commerce Corp SERP | | | | | 19 | | | | | $ | 160,300 | | | | | | — | | |
(1)
The amounts in column (d) were determined using interest rate and mortality rate assumptions consistent with those used in the Company’s consolidated financial statements and include amounts which the director may not currently be entitled to receive because such amounts are not vested. Assumptions used in the calculation of these amounts are included in Note 13 to the Company’s consolidated financial statements for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 9, 2023.
(2)
Each participant is fully vested.
16 Heritage Commerce Corp • 2023 Proxy Statement
| | | Sustainability and Corporate Social Responsibility | |
Heritage Commerce Corp is the parent company of Heritage Bank of Commerce. Founded in 1994, we remain a premier community business bank in the heart of Silicon Valley. With 18 full-service branches, Heritage Bank of Commerce employs trusted values of relationship and client-focused community business banking, combined with competitive technology, to provide solutions for the banking needs of businesses, professional organizations, nonprofits and community groups and their employees.
Our mission is to reward all of our shareholders, serve and support all of our clients and communities, and value all of our employees. As part of this overall mission, we focused on integrating environmental, social and governance (“ESG”) principles into how we conduct business. In 2021, the Company continued to build upon and improve our ESG oversight framework, and to further evolve our strategy. Our executive leadership team and our Board recognize the importance of these responsibilities, and we have established an internal cross-functional management working team that is tasked with driving additional progress in the initiatives that promote sustainability and further transparency. We believe in focusing our efforts on where we can have the most impact.
ESG Oversight
The Company strives to foster a team that reflects our strong belief in ESG principles. The Board is updated quarterly regarding the Company’s ESG initiatives, and the working team meets regularly. Our Board actively oversees and supports the management team as they lead the Company’s efforts to integrate sustainability and corporate social responsibility into day-to-day operations. Against this backdrop, the Company has determined that our ESG pillars include: (1) Environmental Responsibility; (2) Our People; (3) Our Community; and (4) Governance.
With a mission to reward our shareholders, serve and support our clients and communities, and value our employees through a more sustainable company, our commitment to ESG is both a strategic and an operational imperative. Our four pillars arose from a priority-based approach to ESG disclosure, in line with best practices.
In spring of 2022, we completed our first assessment of ESG priorities, which included examining a range of key stakeholders, including investors, clients, employees, and ESG rating organizations and by studying industry peers. Our analysis of ESG topics included alignment to the Sustainability Accounting Standards Board (“SASB”). We also drew upon subject matter expertise to collect and organize content. In the fall of 2022, the Company released its inaugural ESG Report, which details our progress against the SASB framework and our four pillars.
Heritage Commerce Corp • 2023 Proxy Statement 17
| | Sustainability and Corporate Social Responsibility | |
| | | | | Environmental Responsibility | |
We embed the principles of advancing a circular economy into our practices. We are committed to operating our business in a sustainable manner. Heritage Bank of Commerce has undertaken several initiatives designed to reduce our impact on the environment and to promote environmentally friendly projects and practices. With a goal to increasing efficiency and reducing waste, we continue to digitize manual back office and financial center functions. In 2022, we:
•
Encouraged continuance of environmentally friendly work practices by supporting the recycling of plastic, glass, and paper.
•
Increased the use of e-records and e-signing technology resulting in paper waste and carbon emissions reduction, including utilizing digital solutions such as mobile/online banking, eStatements, electronic bill pay, and remote deposit capture.
•
Continued to migrate technology infrastructure to a cloud environment, reducing energy usage, and our carbon footprint.
Through modernization efforts, we strive to offset negative environmental impacts. Currently, 61% of our total office space, including our headquarters building, is Leadership, Energy and Environmental Design (“LEED”) certified. The certification, awarded by the U.S. Green Building Council, is based on the properties’ use of sustainable materials, water and energy efficiency, indoor environmental quality, location and transportation, and overall innovation. We continue to evaluate green equipment for office use such as Energy-Star® appliances, motion detector lighting, as well as high-efficiency HVAC units. Over 64% of the Company’s total office space utilizes LED lighting. Our older office technology is donated to local non-profits, and we contract with a certified e-waste company, for disposal of outdated equipment.
The Company does not currently incorporate specific environmental aspects into our credit analyses. However, we actively seek business partners that align with our values and long-term sustainable goals. We believe that our focus on environmental sustainability, with the objective of reducing costs and improving sustainability of our operations will provide a strategic benefit to the Company. Furthermore, we recognize that climate change is a growing risk for our planet, and we are committed to doing our part to mitigate this risk by placing increased focus and emphasis on environmental consciousness.
Heritage Bank of Commerce continues to be recognized by the business community as the business bank of choice in our markets. For our employees, we remain the best place to work where everyone has the opportunity to thrive. We strive to hire, develop and promote a workforce that shares our mission and values and cultivates a culture of teamwork, diversity and inclusion that will meet the expectations of our clients, markets and communities. To foster these goals and to attract and retain quality employees, we aim to ensure an inclusive, safe and healthy workplace, and to provide our employees with competitive and comprehensive compensation, professional development opportunities and robust health and welfare programs.
We have begun to transform and modernize our culture and talent management function by implementing a Human Capital Management (“HCM”) technology platform to enable leaders to better attract, develop and manage talent. These practices include developing standards for setting goals, performance evaluations, succession planning, and learning and development. We are committed to pay equity and regularly review our compensation model to ensure fair and inclusive pay practices across our business.
Diversity, Equity, Inclusion and Belonging (“DEIB”)
A diverse and inclusive workplace begins with our core values. Our goal is to attract, retain and develop a workforce that is diverse in background, knowledge, skill and experience. We are committed to providing equal employment opportunities for training, compensation, transfer, promotion and other aspects of employment for all qualified applicants and employees without regard to sex, race, color, religion, national origin, age, disability, sexual orientation, gender identity, veteran status or any other protected status. As of December 31, 2022, we are proud to share that females represent 63% of our workforce and self-identified racially and/or ethnically diverse individuals represent approximately 52%. Of all new 2022 hires, 61% were females and 63% were racially and/or ethnically diverse individuals.
In 2022, we furthered our commitment to DEIB. We formalized our DEIB Steering Committee, which is comprised of diverse company leaders charged with review and implementation of our policies, procedures, DEIB training and behavior, in order to create an even more inclusive place to work. Notably:
18 Heritage Commerce Corp • 2023 Proxy Statement
| | Sustainability and Corporate Social Responsibility | |
•
We hired an Executive Vice President, Chief People and Diversity Officer who enhanced the DEIB Steering Committee initiatives and to expand efforts across the enterprise.
•
We created a staff-wide DEIB education program.
•
We hosted listening sessions for all employees offering group and one-on-one conversations.
•
We rolled out our inaugural in-person DEIB seminar with 93% of Senior Vice Presidents and above participating by February 2023, and with a goal of having all employees attend by mid-year 2023.
•
We created a self-nominated Culture Ambassador Group (akin to employee resource group for larger organizations) to help drive DEIB and engagement efforts across the Company.
We recognize the Company plays an important part in the lives of our employees and strive to create an inclusive workplace where employees feel heard, valued and appreciated for who they are. We encourage every one of our team members to form deeper relationships with those around them based on mutual respect, dignity and understanding.
Health, Safety and Wellbeing
The health, safety and wellbeing of our employees is paramount, and our success is fundamentally connected with the well-being of our people. To support those beliefs, we aim to provide a robust health and wellness package that includes:
•
Medical, dental and vision benefits for employee, spouse and dependents
•
Flexible spending accounts for both healthcare and dependent care
•
Health savings accounts and health reimbursement accounts
•
Life insurance and short- and long-term disability insurance
•
401(k) retirement savings program with matching contributions
•
Access to wellness programs and counseling sessions through our Employee Assistance Program
The package also includes various wellness programs, including a monthly fitness stipend, tuition reimbursement, and paid time off for volunteer initiatives. Members of our Human Resources department annually review benefit offerings to ensure the wellbeing of our people and their families.
Culture and Conduct
Teamwork is not only promoted but celebrated through various recognition programs. One of our most popular programs allow managers to award physical tokens called “FOCUS” (friendly, outstanding, courteous, unequaled, and service) to thank individuals for going above and beyond their responsibilities. At year end, employees exchange their physical tokens for currency. In 2022, 119 employees received token awards. We also celebrate anniversary milestones allowing employees to select a gift of their choosing.
We pride ourselves on expecting and enforcing nothing less than the highest level of integrity, ethical standards, operational excellence and will always strive to do what’s right. We continually promote a speak-up culture so our workplace feels welcoming and safe. We expect employees to treat clients and stakeholders with common courtesy and respect. The Company has a non-discrimination and an anti-harassment policy as outlined in our employee handbook. These policies drive a workplace and workforce that embraces the highest ethical and moral standards. We maintain strong and confidential reporting processes and procedures that support an open and honest environment in an effort to ensure that the highest principles of integrity and inclusion are maintained.
We take all complaints seriously and promptly investigate concerns. Employees have the ability to report concerns through a variety of channels including their immediate manager, any leader at the company, Human Resources or through our external anonymous complaints hotline. We have a zero tolerance, non-retaliation policy.
Talent Development and Succession Planning
Our Company’s pay for performance compensation philosophy offers all employees the opportunity to earn annual bonuses in addition to base salaries depending on individual and team performance results. We adhere to the new Senate Bill 1162 CA Pay Transparency Regulations on requirements and the spirit behind the bill. We use a balanced performance evaluation approach to assess four core areas: Business Results, Internal/External Client Experience, Teamwork/Leadership and Risk/Compliance/Controls.
Heritage Commerce Corp • 2023 Proxy Statement 19
| | Sustainability and Corporate Social Responsibility | |
Throughout the year, employees have the opportunity to participate in a variety of learning and education programs such as attending internal and external seminars/workshops, on-line training courses, panel discussions and trade group conferences. Additionally, we offer a generous tuition reimbursement to support employees’ desire to pursue higher education degrees. Employees also have the opportunity to earn industry related and/or role related professional certifications and our Company reimburses for classes, materials, test fees, and on-going required education costs. Each year, we offer leaders the opportunity to attend Pacific Coast Banking School as part of their career development plan. Internal career mobility continues to be an important part of employee engagement and development. In 2022, 62% of promotions were females and 58% were racially and/or ethnically diverse. Females accounted for 71% of internal transfers and racially and/or ethnically diverse accounted for 47%.
We further enhanced our Talent Management and Succession Planning framework that was shared with the Board which includes ongoing board governance oversight for CEO and executive officers. We developed a robust Succession Planning roadmap that clearly outlines a plan for unexpected vacancies and a longer term executive talent development plan for executive ranks and key roles. Additionally, we’ve embedded a discipline of building a strong external diverse talent pipeline for executive and board seats. The enhanced Succession Planning framework will cascade to the non-executive population starting in 2023.
Since our inception in 1994, we have been deeply committed to building relationships and making a difference in our local communities. Investing in people, neighborhoods and local businesses is part of our mission. We strive to understand their needs and how we can help them attain their goals and improve the quality of lives throughout the greater Bay Area.
We are extremely grateful for the efforts of so many local nonprofit organizations and are proud of our long-standing history of supporting these organizations. Our goal is to have a positive impact on the communities we serve. We focus our philanthropic giving on initiatives that promote community and economic development, affordable housing, asset building, financial education, and youth programs, as well as those that support human service organizations with programs that assist low and moderate income or minority individuals.
In 2022, we donated $770,000 to over 280+ nonprofit organizations while serving on 45 nonprofit boards of directors. We are perennially named a Top Corporate Philanthropist by both the Silicon Valley Business Journal and San Francisco Business Times, which recognizes for-profit companies that make contributions to charitable organizations in the San Francisco Bay Area. We also invest in our local communities through the unwavering commitment of our employees as they volunteered over 2,000 hours.
Community engagement highlights include:
•
Relaunching the Heritage Bank of Commerce’s Heritage Hearts Program to source nonprofit volunteer and board opportunities for staff across the Bay Area, with a goal of increasing volunteer hours by 20% and number of staff participating in volunteer events by 20%.
•
Adopting Rudsdale High School through the Oakland Public Education Fund’s Adopt an Oakland School Program.
•
Inviting nonprofits to take part in Heritage Bank of Commerce events to meet clients.
•
Sponsoring bank advertisements for nonprofits.
•
Offering financial literacy classes, career resources, staff support and other annual donations to local students including low income and ethnically and racially diverse students.
•
Maintaining our long-time support of Catholic Charities of Santa Clara County whose mission is to alleviate the conditions of chronic poverty, reduce the effects of situational poverty, and prevent the cycle of generational poverty.
•
Hosting an inaugural Small Business Toolbox Event/Seminar Series that focused on minority-owned small businesses in Oakland.
20 Heritage Commerce Corp • 2023 Proxy Statement
| | Sustainability and Corporate Social Responsibility | |
As a publicly-traded community financial institution, it is incumbent upon us to assure that our operations are conducted in a manner that is both consistent with our ESG programs and supportive of the entire community in which we operate. Our Board and senior leadership actively support and promote sound corporate governance and risk management across the Company. This culture of accountability, integrity and transparency affirms our unwavering commitment to building sustainable value.
We conduct our business in a manner that is fair, ethical, and responsible to earn and maintain the trust of our stakeholders. Our corporate governance policies and practices include evaluations of the Board and its committees, as well as continuing director education. Our Principal Officers / Senior Management Code of Ethics is publicly available and, in conjunction with other internal Company and Board policies, communicates our values and expectations for our directors, officers, and colleagues. These policies are reviewed periodically by our Board.
90% of our director nominees are independent, with diverse backgrounds, skills and experiences. Showcasing our commitment to a well-rounded Board, 40% of director nominees are female/persons of underrepresented communities. We separate the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. Our Board maintains fully independent Audit, Personnel and Compensation and Corporate Governance and Nominating committees. Our Corporate Governance Committee oversees annual Board and committee self-evaluation programs. Our Board is responsible for risk oversight. The Board maintains an open dialogue with various levels of the management.
We are accountable to our shareholders and we believe shareholders should be entitled to voting rights in proportion to their economic interests. We hold annual elections of the Board (no classified Board), each shareholder is entitled to one vote per share (no dual class structure), we do not have super majority voting, and we do not have a poison pill. We recently placed more emphasis on year-round shareholder outreach and engagement. As a result, we routinely engage with our shareholders to better understand their views, carefully considering the feedback and act when appropriate. We are also transparent about the feedback we receive and the decisions we make. Stock ownership policies for directors and executive officers aligns director and executive and shareholder interests. We hold annual shareholder advisory votes on executive compensation. Our executive management incentive compensation is subject to our “claw-back” policy. Our Board and executive management are subject to our insider trading policy (as are all employees) and are prohibited from engaging in hedging and pledging transactions.
We implement robust risk management programs to ensure compliance with applicable laws and regulations governing ethical business practices. We maintain a complaint and whistleblower policy monitored by an independent third party to receive notice of financial regularities, breaches of internal controls, conflicts of interest and fraud. The Company is subject to rigorous controls and audits, and our Board actively oversees our cybersecurity practices. Our risk management teams ensure compliance with applicable laws and regulations and coordinate with subject-matter experts (“SMEs”) throughout the business to identify, monitor and mitigate material risks. We leverage the latest encryption configurations and cyber-technologies on our systems, devices, and third-party connections and further reviews vendor encryption to ensure proper information security safeguards are maintained.
We have a robust Information Security program. Our IT team uses a combination of industry-leading tools and innovative technologies to help protect our stakeholder’s data. Our team members are responsible for complying with our data security standards and complete mandatory annual training to understand the behaviors and technical requirements necessary to keep Personal Identifiable Information (“PII”) secure. We also offer ongoing education for team members to recognize and report unusual or suspicious activity. Management provides mandatory periodic employee and director compliance training on a variety of topics including, but not limited to, the areas of Anti-Money Laundering (“AML”), Fair Lending, and Privacy.
For more information on our sustainability program and policies, please visit: www.heritagecommercecorp.com, to view our inaugural ESG Report.
Heritage Commerce Corp • 2023 Proxy Statement 21
| | | Executive Compensation | |
Executive Officers
The Board has designated the following officers as executive officers of the Company and/or Heritage Bank of Commerce set forth below is certain information with respect to the executive officers:
| | Name | | | Position | |
| | Robertson Clay Jones | | | President and Chief Executive Officer of Heritage Commerce Corp and Heritage Bank of Commerce | |
| | Margo G. Butsch | | | Executive Vice President and Chief Credit Officer of Heritage Bank of Commerce | |
| | Janice Y. Coonley | | | Executive Vice President and Chief People and Diversity Officer of Heritage Bank of Commerce | |
| | Lawrence D. McGovern | | | Executive Vice President and Chief Financial Officer of Heritage Commerce Corp and Heritage Bank of Commerce | |
| | Deborah K. Reuter | | | Executive Vice President, Chief Risk Officer and Corporate Secretary of Heritage Commerce Corp and Heritage Bank of Commerce | |
Biographical information for Robertson Clay Jones is found under “Proposal 1—Election of Directors.”
Margo G. Butsch, age 59, has served as Executive Vice President and Chief Credit Officer of Heritage Bank of Commerce since July 2017. Ms. Butsch joined Heritage Bank of Commerce through Focus Business Bank which was acquired by Heritage Bank of Commerce in August 2015. After the acquisition, Ms. Butsch joined Heritage Bank of Commerce as Vice President/Credit Administration and was promoted to Senior Vice President/Credit Administration in November 2015. Since 1995 and prior to joining Heritage Bank of Commerce, Ms. Butsch held various Vice President and Senior Vice President relationship management and loan administration positions with Focus Business Bank, The Independent Bankers Bank, Greater Bay Bank, and Imperial Bank.
Janice Y. Coonley, age 48, joined Heritage Bank of Commerce in July 2022 serving as the Executive Vice President, Chief People and Diversity Officer. Prior to joining Heritage Bank of Commerce, Ms. Coonley was head of culture and DEI for JP Morgan Chase & Co.’s consumer bank. She previously held a progression of roles at U.S. Bank in Human Resources, culminating as Vice President of Strategy and Transformation.
Lawrence D. McGovern, age 68, has served as Executive Vice President and Chief Financial Officer of Heritage Commerce Corp and Heritage Bank of Commerce since July 1998.
Deborah K. Reuter, age 69, has served as Executive Vice President, Chief Risk Officer and Corporate Secretary of Heritage Commerce Corp and Heritage Bank of Commerce since April 2014. She was appointed Corporate Secretary in January 2010. Ms. Reuter joined Heritage Bank of Commerce in June 1994, as Vice President/Loan Support Services Manager.
22 Heritage Commerce Corp • 2023 Proxy Statement
Compensation Discussion and Analysis
This Compensation Discussion and Analysis identifies the Company's currentoutlines our executive compensation philosophy and objectives, and describes the various methodologies, policieselements of our executive compensation program, and practices for establishingexplains how the Personnel and administeringCompensation Committee (“Committee”) of the Company’s Board arrived at its compensation programsdecisions for our executives including the2022 named executive officers. The strategiesofficers (NEOs) listed below:
| | Name of NEO | | | Title | |
| | Robertson Clay Jones(1) | | | President and Chief Executive Officer of Heritage Commerce Corp and Heritage Bank of Commerce | |
| | Walter T. Kaczmarek(2) | | | Former President and Chief Executive Officer of Heritage Commerce Corp | |
| | Margo G. Butsch | | | Executive Vice President and Chief Credit Officer of Heritage Bank of Commerce | |
| | Janice Y. Coonley(3) | | | Executive Vice President and Chief People and Diversity Officer of Heritage Bank of Commerce | |
| | Lawrence D. McGovern | | | Executive Vice President and Chief Financial Officer of Heritage Commerce Corp and Heritage Bank of Commerce | |
| | Deborah K. Reuter | | | Executive Vice President, Chief Risk Officer and Corporate Secretary of Heritage Commerce Corp and Heritage Bank of Commerce | |
(1)
Mr. Jones served as President and policiesChief Operating Officer of the Compensation Committee have been developed so that there is a direct correlation between executive compensationHeritage Bank of Commerce until he was promoted to President and the Company's overall performance and individual performance. The individuals whoChief Executive Officer of Heritage Commerce Corp on September 15, 2022.
(2)
Mr. Kaczmarek served as the Company'sCompany’s President and Chief Executive Officer from March 2005 until he retired in August of 2019. He was not an officer or employee of the Company in 2020. He rejoined the Company on March 15, 2021 and retired on September 15, 2022, but remained on the Board. Mr. Kaczmarek will not stand for reelection to the Board at the Annual Meeting.
(3)
Ms. Coonley joined the Company as Executive Vice President and Chief FinancialPeople and Diversity Officer during 2017, as well as, the other individuals includedof Heritage Bank of Commerce on July 12, 2022.
Heritage Commerce Corp • 2023 Proxy Statement 23
EXECUTIVE SUMMARY
The compensation programs in which our NEOs participate are designed to drive our financial results, align with our business strategy and create long-term value for our shareholders. In 2022, Committee members participated in our ongoing shareholder outreach program to have meaningful and transparent discussions regarding executive compensation programs, practices and policies. The feedback from these discussions resulted in the Summary Compensation Table, are referred to asfollowing actions after thorough Committee deliberations throughout the "named executive officers."year.
| | What we heard | | | What we are doing | |
| | Poor Responsiveness to Shareholder Concerns | | | Prior to our 2022 Annual Meeting, we engaged with 12 institutional shareholders representing 33% of our shares. In 2023, we reached out to 20 institutional shareholders, representing 58.5% of our shares; we held meetings with each investor who accepted our invitation resulting in 8 meetings. The remaining 12 declined our invitation. | |
| | Lack of Performance Based Equity Awards | | | In 2023, NEOs will participate in the Long-term Performance Incentive Equity Program (LTIEP), in which 50% of the NEO’s award value will be in the form of performance-based restricted stock units (PRSUs). Vesting is contingent on Return on Average Tangible Common Equity (“ROATCE”) which is measured on a relative basis to a peer group at the end of a three-year performance period. The remaining 50% of the NEO’s award value will be in the form of time-based restricted stock units (RSUs) with ratably 3-year vesting to encourage stock ownership and satisfy the stock ownership and retention guidelines. | |
| | Consider Other Metrics for Performance Based Equity Awards | | | In addition to ROATCE, Shareholders have suggested using other metrics such as Total Share Return (TSR) and/or Earnings Per Share (EPS). The Committee will continue to work with management and compensation consultants to consider other metrics. | |
| | Lack of Executive Stock Ownership | | | The Company instituted robust stock ownership and retention guidelines for our NEOs to appropriately link wealth creation to the value of the Company’s common stock. | |
| | Lack of Differentiated Qualitative Goals For Individual NEOs | | | In 2023, Management Incentive Cash Bonus Plan (“Management Incentive Plan”) includes differentiated qualitative goals based on individual roles. | |
| | Single Trigger Equity Vesting Acceleration on Change of Control | | | The Committee continues to monitor the prevalence of single-trigger equity vesting acceleration on a change of control and our philosophy of value sharing. Acceleration of vesting on a change of control is common practice for banks of similar size and enables award recipients to share in value creation alongside shareholders. | |
Table of Contents
Overview of Compensation Philosophy
The Compensation Committee believes executive compensation packages provided by the Company to its executives, including the named executive officers, should include base salary, variable performance based cash awards and equity based compensation in order to achieve three primary goals.
The Compensation Committee believes that the first goalchanges we have instituted for 2023 will motivate and reward NEOs for collective and individual efforts and results that are aligned with key drivers of shareholder value. While certain pay actions in 2022, such as the issuance of the NEOs long-term incentive awards in the form of time-based restricted stock are not reflective of our compensation program isgo-forward practices, the Committee believed that a reasonable percentagethoughtful and measured approach in 2022 was most prudent. During this time, the Company was undergoing a CEO transition in which it was important to address compensation related to the transition as well as receive perspectives from the new President and Chief Executive Officer. The Committee also added to the NEO group a Chief People and Diversity Officer and changed its independent compensation advisor during 2022 to obtain additional perspectives. During this period of transition, the Committee also consulted with management, to gain management perspectives on relevant metrics aligned with the Company's business strategy.
24 Heritage Commerce Corp • 2023 Proxy Statement
2022 Financial Accomplishments
The year 2022 was a pivotal for the Company. We delivered solid financial results, increasing loans and achieving record revenue while maintaining solid credit quality and a strong capital position. We accomplished this through our unwavering commitment to serve our clients, communities and shareholders. Highlights for the change from 2021 to 2022 include:
| | Net income increased | | | Net interest income increased | | | Total deposits decreased | |
| | 40% to $66.6M | | | 23% to
$179.9M | | | (8%) | |
| | The efficiency ratio | | | Nonperforming assets totaled | |
| | 49.93% | | | $2.4M | |
Advisory Vote on Executive Compensation
In 2022, the annual advisory vote on executive compensation (“Say-on-Pay”) resulted in 72% of the voting shareholders casting their votes in favor of the say-on-pay resolution. While the vote count was a meaningful majority, shareholder outreach was conducted to receive feedback regarding the compensation programs, practices and policies in which our NEOs participate. A summary of the feedback and outcomes from these discussions are located in the “Role of Shareholder Input and Shareholder Outreach Efforts” of this Compensation Discussion and Analysis. Furthermore, significant actions have been taken by the Committee to address the feedback.
Heritage Commerce Corp • 2023 Proxy Statement 25
Governance Best Practices
The Company aims to support the long-term interests of shareholders through best-practice compensation programs, practices and policies. The Committee reviews on an ongoing basis the Company’s executive compensation program should be linked to evaluate whether it supports the financial performanceCompany’s executive compensation philosophies and objectives and is aligned with shareholder interests. Our executive compensation practices are comprised of the Company. The Compensationfollowing, each of which the Committee believes that a properly structuredreinforces our executive compensation program will focus on performance to motivate and support individuals to achieve specific short-term and long-term objectives while taking into consideration potential risk implications. We achieve this goal by providing our named executive officers the opportunity to significantly increase their annual cash compensation through our variable performance based cash award incentive plan. The plan awards improvement in the Company's performance in key financial metrics on an annual basis. We also expect that as those improvements are maintained and built upon, they will be reflected in the Company's stock price. The second goal of ourobjectives:
| | What We Do | |
| | ✔ | | | Compensation Principles. Our compensation program is guided by our goals to align the interests of our executive officers with our long-term strategy and the interests of shareholders in a manner that appropriately considers the safety and soundness of Heritage Bank of Commerce. | |
| | ✔ | | | Shareholder Outreach. We conduct regular and transparent outreach to our shareholders, which we consider in the determination of pay levels, practices and policies. | |
| | ✔ | | | Formula-based Incentive Plans. Our Management Incentive Plan is comprised primarily of formula-based objective financial measures. Additional disclosure is also provided for the six key areas of the qualitative scorecard including goal obtainment for each area. Starting in 2023, NEOs will participate in the LTIEP and receive 50% of their award value in PRSUs contingent on relative ROATCE performance compared to a peer group at the end of a three-year performance period. | |
| | ✔ | | | Incentive Plan Risk Mitigation. The Management Incentive Plan uses multiple measures to reduce overreliance on any one metric. A Management Incentive Plan risk review is conducted annually to ensure prudent risk management. | |
| | ✔ | | | Clawback Policy. We have a recoupment policy that provides the Board with the ability to recover compensation in the case of fraud or if the Company is required to restate its financial statements to correct a material error. | |
| | ✔ | | | Share Ownership Guidelines. We require that our President and Chief Executive Officer own shares with a market value equal to three times base salary and that the other NEOs own shares equal to one times base salary. | |
| | ✔ | | | Anti-Hedging/Pledging Policy. We have “anti-hedging” and “anti-pledging” policies on Company shares. | |
| | ✔ | | | Independent Compensation Consultant. The Committee retains an independent compensation consultant that provides no other services to the Company. | |
| | What We Don’t Do | |
| | X | | | No Tax Gross Ups. With the exception of one legacy arrangement, we do not provide for tax gross-ups in the event of a change of control. | |
| | X | | | No Repricing or Repurchase of Underwater Equity Awards. We do not permit the repricing or repurchase of underwater stock options or stock appreciation rights without shareholder approval. | |
| | X | | | No Multi-Year Guarantees. We do not provide multi-year guaranteed salary increases, equity awards or non-performance bonus arrangements. | |
| | X | | | No “Single Trigger” Cash Severance Payments on Change in Control in Executive Contracts. Our executive employment agreements do not have “single-trigger” cash severance payments resulting solely from the occurrence of a change of control. | |
26 Heritage Commerce Corp • 2023 Proxy Statement
Summary of Executive Compensation Actions
The Committee made the following decisions in 2022.
| | Action | |
| | ✔ | | | Adjusted Mr. Jones’ base salary to $560,000 to reflect his promotion to President and Chief Executive Officer of Heritage Commerce Corp. The Committee also awarded a promotion award of 25,000 restricted shares. | |
| | ✔ | | | Adjusted other NEO base salaries 5%—8.75%, based on a review of peer market data. | |
| | ✔ | | | Approved award payouts under the 2022 Management Incentive Plan ranging between 43.5% to 62% of NEOs’ base earnings. | |
| | ✔ | | | Granted restricted stock awards in May 2022. | |
| | ✔ | | | Participated in discussions with shareholders concerning the Company’s executive compensation programs. | |
| | ✔ | | | Engaged independent compensation consultants to provide data and advice; and assist in the development of market-based programs for 2023 based on shareholder input received in 2022, and during the first quarter of 2023. | |
| | ✔ | | | Developed and approved a long term performance-based incentive equity program for our NEOs. | |
| | ✔ | | | Developed a 2023 Equity Plan for shareholder approval, which includes terms that are considered best practice. | |
| | ✔ | | | Approved new stock ownership and retention guidelines for our NEOs | |
HOW COMPENSATION DECISIONS ARE MADE
Role and Responsibilities Relating to Compensation Decisions
| | Responsible Party | | | Primary Role and Responsibilities Relating to Compensation Decisions | |
| | Personnel and Compensation
Committee
(Composed solely of
independent,
non-employee Directors
and reports to the Board)(1) | | | •
Oversees the executive compensation program, policies, and practices •
Conducts an annual evaluation of the President and CEO’s performance in consultation with the full Board •
Reviews and approves the President and CEO’s recommendations for compensation for the other NEOs •
Approves performance goals for purposes of compensation decisions for the NEOs •
At least annually, reviews the executive compensation program overall, and establishes base salaries, target annual variable cash bonus opportunities and equity grants (if any) for the fiscal year •
Approves all changes to the composition of the Compensation Peer Group •
Reviews compensation risk on an annual basis •
Reviews and makes recommendations to the Board with respect to director compensation | |
| | Independent Consultant
to the Committee(2)
(McLagan and Meridian
Compensation Partners, LLC) | | | •
Provides the Committee with analysis and advice pertaining to compensation program design, including proxy and survey analysis, explanation of current and developing best practices, and regulatory changes •
Recommends a relevant group of peer companies and appropriate sources of survey data in which to compare the competitiveness and structure of compensation •
Analyzes peer company data to assist the Committee in determining the appropriateness and competitiveness of compensation levels •
Reviews proposed changes to compensation program design •
Reviews compensation disclosure materials •
Provides specific analysis and advice periodically as requested by the Committee | |
| | Executive Management | | | •
The President and CEO recommends to the Committee annual compensation for the other NEOs and senior executives based on his assessment of their performance •
Members of management support the Committee in establishing agendas with the Chair, developing materials for Committee meetings, attending meetings at the request of the Committee and preparing meeting minutes •
No member of management is present in Committee meetings when matters related to his or her individual compensation is under discussion, or when the Committee is approving or deliberating on the President and CEO compensation | |
(1)
The Personnel and Compensation Committee Charter can be found at https://www.heritagecommercecorp.com/documents/ which provides a complete listing of duties.
Heritage Commerce Corp • 2023 Proxy Statement 27
(2)
During 2022, the Committee was assisted by its independent compensation consultants McLagan and Meridian. Other than the support that it provided to the Committee, McLagan and Meridian provided no other services to the Company or management and only received fees from the Company for the services provided to the Committee. The Committee conducted an evaluation of the independence of its advisors considering the relevant regulations of the SEC and the NASDAQ listing standards. The Committee concluded that McLagan and Meridian were independent of the Company and the services performed by these firms and the individual consultants employed by McLagan and Meridian raised no conflicts of interest.
Role of Shareholder Input and Shareholder Outreach Efforts
Our Board and Committee value our shareholders’ views on our executive compensation program, as communicated to us via our shareholder outreach and through our shareholders’ voting decisions. The Committee takes seriously, and believes it is important to respond to, shareholders’ input on our executive compensation program. The Committee also considers the views and recommendations provided by proxy advisors who review and analyze public company executive compensation programs and express their views to their institutional investor clients. The Committee has taken a deliberate approach to implementing best practices in our compensation programs, policies and practices. We have regularly communicated with our shareholders. See “Shareholder Communications and Outreach” on page 6 of this proxy statement for more information on our shareholder outreach program. Over the last two years, members of management and the Committee have reached out to our shareholders with regard to executive compensation matters.
Prior to our 2022 Annual Meeting, our Chief Executive Officer, Chief Financial Officer and our President and Chief Operating Officer of Heritage Bank of Commerce, and in one meeting the Chair of our Personnel and Compensation Committee, held meetings with 12 institutional investors representing 33% of our outstanding common stock. In addition, written requests for meetings were sent to five other institutional investors. The following are some of the investor priorities discussed at those meetings:
•
Align pay with performance by implementing the use of performance-based equity awards by using one or more financial metrics.
•
Enhance disclosure about our outreach program to shareholders.
•
Review the compensation peer group to assure a close correlation with the Company and its business.
•
Eliminate “single-trigger” provisions in equity awards.
•
Review “gross-up” provisions in executive contracts.
•
Review use of interpolation for cash incentives and PRSUs.
At our 2022 Annual Meeting, our non-binding advisory proposal was approved with approximately 72% of the voting shareholders casting their votes in favor of the Say-on-Pay resolution. While the vote count was sufficient to approve the resolution, our management team and Board set out on a course to continue to reach out to shareholders and provide them with opportunities to discuss our executive compensation program. Following the 2022 Annual Meeting, our Chief Executive Officer, Chief Financial Officer and our President and Chief Operating Officer of Heritage Bank of Commerce and other invited members of our executive team attended four investment conferences and held 33 one-on-one meetings with shareholders.
Prior to our 2022 Annual Meeting, we engaged with 12 institutional investors representing 33% of our shares. In 2023, in addition to our participation in investment conferences and in-person, individual investor meetings, we specifically reached out to 20 institutional shareholders, representing 58.5% of our shares. We held meetings directly or by telephone or video conference with each investor who accepted our invitation resulting in 8 meetings as of March 15, 2023. Commencing in the first quarter of 2023, two members of the Committee also participated in meetings with institutional investors.
The shareholder perspectives that we receive, through direct engagement as well as through voting decisions, provide valuable insight and have continued to help influence our program.
As a result of these meetings along with further analysis by the Committee with the assistance of our independent compensation consultant, the Company took the following steps:
•
Enhanced the qualitative portion of the Management Incentive Plan to include specific corporate goals that further our growth, safety and soundness, and the development of a strong and diverse workforce; additional disclosure regarding results and payouts.
•
In 2023, NEOs will participate in the LTIEP, in which 50% of the NEO’s award value will be in the form of PRSUs. Vesting is contingent on ROATCE which is measured on a relative basis to our peer group at the end of a three-year performance period.
28 Heritage Commerce Corp • 2023 Proxy Statement
The remaining 50% of the NEO’s award value will be in the form of time-based restricted stock units (RSUs) to encourage stock ownership and satisfy the stock ownership and retention guidelines.
•
Implemented a robust stock ownership and retention guidelines for our NEOs.
•
Continues to monitor the prevalence of single-trigger equity vesting acceleration on a change of control. This practice is prevalent for banks of similar size and enables award recipients to share in value creation alongside shareholders on a change in control.
•
Developed a 2023 Equity Incentive Plan for shareholder approval, which includes terms that are considered best practice.
•
Discussed the existing gross-up provision in a legacy employment agreement for our Chief Financial Officer. Because the current executive contract is an enforceable contract in good standing, the Committee is unable to unilaterally change its terms. No other NEO employment agreements include a gross-up provision and the Committee maintains a policy that eliminates this practice.
The Committee believes these changes reflect the feedback received from our shareholders and incorporate many of the governance practices that are prevalent and mitigates compensation risk. We welcome feedback regarding our executive compensation program and will continue to engage with our shareholders in 2023.
Overview of Compensation Philosophy
The Committee believes that the continued success of the Company in achieving its strategic objectives depends in large part on the talent and leadership of its executives and the alignment of those executives with the interests of our shareholders. Our compensation philosophy can be summarized as follows:
•
Competitive Compensation.We use equity awards (stock options and/provide compensation opportunities to our NEOs that, in the aggregate, reflect the median practices of similarly sized banks in our geographical region, adjusted for individual performance, skills and expertise.
•
Pay-for-Performance. To earn competitive total pay levels, NEOs must achieve financial and operating objectives derived from our internal business plan. Pay should be aligned with short-and long-term performance that is comparable or restricted stock) to rewardexceeds the long-term efforts of management and to retain management. These equity awards serve to increase the ownership stakeperformance of our managementpeers.
•
Link Compensation and Accountability. To attract, retain and develop superior talent, we assess the leadership skills of our NEOs as part of an assessment of their individual performance. NEOs are held accountable for providing leadership to the organization and the achievement of financial and non-financial objectives, as well as identifying and developing successors. These assessments are used in deliberations regarding salary increases and incentive awards.
•
Promote Share Ownership. All long-term incentive awards are paid with shares of Company stock, and our NEOs are expected to maintain a significant investment in the Company further aligningin accordance with our stock ownership and retention guidelines.
•
Avoid Encouraging Excessive Risk Taking. To reduce compensation risk, the interests ofNEO’s compensation programs are developed to include risk mitigation elements. We balance fixed and variable pay opportunities, use short-and long-term incentive plan horizons and subject payments to our clawback policy. Furthermore, the executivesManagement Incentive Plan uses multiple performance measures, and includes meeting a capital requirement threshold as a condition to receiving a payout.
•
Provide Reasonable Income Security. We provide employment agreements to our executive officers consistent with those of our shareholders. The third goal of our compensation program ismarket practices. These agreements are designed to attractfoster stability and retain highly competent executives. Our executives, and particularly our named executive officers, are talented managers and they are often presented with opportunities at other institutions, including opportunities at potentially higher compensation levels. We seek to attract and retain ourwell-qualified executives by setting base compensation and incentives at competitive levels and awarding equity based awards. We also consider other formsproviding reasonable income protection upon termination of executive pay, including severance arrangements (includingemployment following a change of control. All employment agreements are “double trigger,” requiring both a change of control provisions) as a meansand the loss of employment in order to attract and retain our executive officers includingreceive severance benefits. Other than one legacy agreement, no other agreements provide for the named executive officers.
Compensation Program Objectives and Rewards
The componentsgross-up of Company's compensation and benefits programs are driven by our business environment and are designed to enable us to achieve the goalstaxes.
Heritage Commerce Corp • 2023 Proxy Statement 29
COMPENSATION PROGRAM OBJECTIVES AND REWARDS
Summary of
our compensation program within a framework that adheres to the Company's mission and values. The programs' objectives are to:•Reflect our position as a leading community bank in our service areas;
•Attract, engage and retain the workforce that helps ensure our future success;
•Motivate and inspire employee behavior that fosters a high performance culture;
•Support a one company culture;
•Support overall business objectives;
•Provide shareholders with a superior rateComponents of return over the long term; and
•Create shareholder value through the continuous provision of quality service to our customers.
Consequently, the guiding principles of our programs are to:
•Promote and maintain a high performance banking organization;
•Remain competitive in our marketplace for talent;
•Balance our compensation costs with our desire to provide value to employees and shareholders; and
•Avoid encouraging excessive risk taking.
Executive Compensation
Table of Contents
To this end, we will measure success of our programs by:
•Overall business performance and employee engagement;
•Ability to attract and retain key talent;
•Costs and business risks that are limited to levels that optimize risk and return; and
•Employee understanding and perceptions that ensure program value equals or exceeds program cost.
All of our compensation and benefits for our named executive officersNEOs described below have as a primary purpose our need to attract, retain and motivate the highly talented individuals whose performance will enable us to succeed in creating shareholder value in a highly competitive marketplace. Beyond that, different elements have specific purposes designed to reward different performance and retention goals.
| | Compensation Element | | | Purpose | |
| | Base Salary | | | •
Provides a fixed amount of compensation to recognize the duties, responsibilities and scope of influence of the executive’s role. The level of base salary also takes into consideration the executive’s experience, skills, and performance. | |
| | Management Incentive Plan | | | •
Rewards the achievement of annual goals for financial performance, as well as key annual individual goals that strengthen the business and position the Company for long-term success. | |
| | Long-Term Incentives | | | •
Rewards long-term performance through increases in share appreciation and aligns executives with shareholder interests. Starting in 2023, 50% of the NEO’s award value will be in the form of PRSUs. Vesting is contingent on ROATCE which is measured on a relative basis to our peer group at the end of a three-year performance period. | |
| | Other Compensation | | | •
NEOs participate in the benefit and retirement programs generally available to all full-time Company employees with the purpose of providing health, welfare and financial stability. Perquisites are generally limited to those that assist our NEOs in conducting their business duties productively. Employment agreements and other separation benefits are provided to ensure that executives act in the best interest of the Company regardless of future employment status. | |
Compensation Mix
The Committee evaluates the mix of compensation components. Pay mix is balanced considering short-and long-term time horizons, allocation between cash and benefits are designed to:
•Reward core competence in the executive role relative to position, performance, experienceequity, and responsibility;
•Provide fixed cash compensation with merit increases competitive with the market place; and
•Control fixed expenses.
•Annual incentive variable cash awards are designed to:
•Focus employees on annual financial objectives derived from the business plan that lead to long-term success;
•Provide annual variable performance based cash awards to reward and motivate achievement of critical annual performance metrics selected by the Compensation Committee; and
•Foster a pay for performance culture that aligns our compensation programs with our overall business and strategic strategy.
•Equity based compensation awards are designed to:
•Link compensation rewards to the creation of shareholder wealth;
•Promote teamwork by tying compensation significantly to the value of our common stock;
•Attract the next generation of management by providing significant capital accumulation opportunities; and
•Retain executives by providing a long-term oriented program whose value could only be achieved by remaining with and performing for the Company.
•Change of control and separation benefits:
•Individual employment contracts with certain executives provide for change of control and separation benefits;
•Separation benefits provide benefits to ease an employee's transition due to an unexpected employment termination by the Company due to ongoing changes in the Company's employment needs; and
•Change in control benefits encourage key executives to remain focused on the Company's business in the event of rumored or actual fundamental corporate changes which will enhance shareholder value.
Table of Contents
•Manage excessive risk-taking through plan design and oversight of incentive plans:
•Incentive awards are capped;
•Performance objectives are aligned with annual financial plan approval by the Board of Directors;
•Multiple financial metrics are used taking into account performance and risk;
•A "claw-back policy" is applied to performance based cash payments;
•Payouts are modified through the use of risk-based capital ratio metrics;
•Long-term incentive equity awards are deferred through vesting requirements; and
•The Compensation Committee has discretion to reduce cash bonus payments.
The use of these compensation programs and benefits enables us to reinforce our pay-for-performance philosophy, align our executives' interests with shareholders, and strengthen our ability to attract, retain and motivate highly qualified executives. We believe that this combination of programs provides an appropriate mix ofbetween fixed and variable pay, balances short-term operational performance with long-term shareholder value, and encourages executive recruitment and retention.
Consideration of Say-On-Pay Vote Results
The Board of Directors believes that holding say-on-pay proposals every three years is in the best interest of shareholders. The Board believes that three years provides shareholders with sufficient time to evaluate the effectiveness of our overall compensation philosophy, policies and practices in the context of our long-term business results for the corresponding period, while avoiding over emphasis on short term variations in compensation and business results. The Compensation Committee has been mindful of the strong support our shareholders expressed for our compensation program when making executive compensation decisions, including base salary adjustments and long-term incentive awards.components. In making these executive compensation decisions, which are discussed more fully below, the Compensation Committee's main considerations included our shareholders' support for our executive compensation program, and the peer and market information provided by the Compensation Committee's compensation consultant. The Compensation Committee will continue to consider our shareholders' views when making executive compensation decisions in the future.
The last time we held a non-binding shareholder advisory vote on executive compensation was at the 2015 Annual Meeting. At that meeting our shareholders approved our 2015 executive compensation (as they had in each prior year where we had a say-on-pay vote), with approximately 98% of voting shareholders casting their vote in favor of the say-on-pay resolution.
Role of Compensation Committee in Determining Compensation
The Compensation Committee of the Board of Directors has strategic and oversight responsibility for the overall compensation and benefits programs for executives of the Company. These responsibilities include establishing, implementing, and continually monitoringdetermining the compensation structure, policies, and programs ofmix, the Company. Committee strives to motivate near-term performance, while also focusing the executives on longer-term corporate goals that drive shareholder value.The following reflects the compensation mix for 2022.
![[MISSING IMAGE: pc_compen-pn.jpg]](/files/DEF 14A/0001104659-23-045018/pc_compen-pn.jpg)
The Compensation Committee also periodically reviews assesses and monitors the performance, and regularly reviews the design and function, of the Company's incentive compensation arrangements to ensure that any risk-taking incentives are consistent with regulatory guidance and the safety and soundness of the organization. The Compensation Committee is responsible for assessing and approving the total compensation paidthat may be awarded to NEOs. Decisions are made consistent with the Chief Executive OfficerCompany’s compensation philosophy, considering each element and allthe combined total compensation delivered through the Company’s executive officers. compensation programs.
30 Heritage Commerce Corp • 2023 Proxy Statement
Pay Positioning
The Compensation Committee is responsiblehas not established a specific percentile positioning for determining whetherits NEOs. Generally, base salaries are targeted near the compensation paid to each of these executives is fair, reasonable and competitive, and whether the compensation program serves the interestsmedian of the Company's shareholders.
Table of Contents
The Compensation Committee generally targets compensation in relation to the Company's Compensation Peer Group (discussed under "Market Positioning and Pay Benchmarking"). Base salary is targeted at the 60th percentile, total cash (salary and incentive cash awards) is targeted at the 70th percentile, and total direct compensation (total cash plus the three-year average value of equity awards) is targeted at the 75th percentile. We target above the median because of the competition in our market, adjusted for talented executives and our desire to attract and, more importantly, retain and motivate talented individuals we believe are necessary to achieve the goals and objectives of our Board of Directors.
The Compensation Committee is comprised of four independent directors who satisfy The Nasdaq Stock Market listing requirements and relevant Internal Revenue Service and SEC regulations on independence. The Compensation Committee's Chair regularly reports to the Board of Directors on the Compensation Committee actions and recommendations. To evaluate and administer the compensation practices of the Chief Executive Officer and other executive officers, the Compensation Committee meets a minimum of four times a year. The Compensation Committee also holds special meetings and meets telephonically to discuss extraordinary items, such as the hiring or dismissal of executive officers.
Role of the Chief Executive Officer
The Chief Executive Officer is not a member of the Compensation Committee, but is invited to attend meetings as necessary to provide input and recommendations on compensation for the other named executive officers. The Chief Executive Officer provides the Compensation Committee with his assessment of the performance of each named executive officer and his perspective on the factors described above in developing his recommendations for the executive's compensation, including salary adjustments, incentive bonuses, annual equity grants and equity grants awarded in conjunction with promotions. Because the Chief Executive Officer works closely with and supervises our executive team, the Compensation Committee believes that the Chief Executive Officer provides valuable insight in evaluating their performance. The Chief Executive Officer also provides the Compensation Committee with additional information regarding the effect, if any, of market competition and changes in business strategy or priorities. The Compensation Committee discusses the Chief Executive Officer's recommendations and then approves or modifies the recommendations in collaboration with the Chief Executive Officer.
Role of Compensation Consultants
Generally, at least every two years the Compensation Committee retains the services of an independent executive compensation consultant to assess the competitiveness of our compensation programs, conduct other research as directed by the Compensation Committee, and support the Compensation Committeewage rates in the design and implementation of executive and Board of Director compensation. InCalifornia Bay Area, which are higher than the fourth quarter of 2016, the Compensation Committee retained McLagan, an Aon Hemitt Company ("McLagan") to: (1) review existing compensation programs; (2) provide market benchmark information pertaining to both cash and noncash compensation for executives; (3) provide recommendations and guidance to the Compensation Committee to support its oversight over such compensation programs; and (4) provide other advice and consultation, including guidance relative to evolving compensation-related regulatory requirements and industry best practices. McLagan reported directly to the Compensation Committee and did not provide services to, or on behalf of, any other part of the Company's business. There are no known conflicts of interests between McLagan and the Company.
Market Positioning and Pay Benchmarking
Manynational average. Individual factors are taken into account in determining the actual positioning of each executive officer's compensation, including the executive's experience, responsibilities, management abilities and job performance, overall performance of the Company, current market conditions and competitive pay for similar positions at comparable companies. In addition, the Compensation Committee reviews the relationship of various positions between departments, the affordability of desired pay levels and the
Table of Contents
importance of each position within the Company. These factors aremay also be considered by the Compensation Committee in a subjective manner without any specific formula or weighting.
including individual performance, importance of the role to achieve strategic objectives, and other relevant factors.
Use of Peer Group and Market Data
In 2020, the fourth quarter of 2016, theCompensation Committee engaged McLagan to provideconduct a report forcompetitive review of the Committee's review and consideration and itCompany’s executive compensation program, which was delivered its report to the Compensation Committee in the first quarter of 2017 ("2017 Report"). The Compensation Committee undertook2021 and used to inform 2021 and 2022 pay decisions. One data source used in setting market-competitive guidelines for the executive officers is the information publicly disclosed by a reviewpeer group of the Company's compensation programs for executive officers. McLagan, in consultation withother publicly traded banks which the Compensation Committee uses as a competitive reference point.
Banks selected a custom peer group of financial institutions to establish a "Compensation Peer Group"as peers for the 2017 Report. The companies included in the Compensation Peer Group were selected from publiclycompensation purposes are public and actively traded banks which align with some or all of the following criteria:
•
Geographic location in California, Colorado, Nevada, Oregon, Utah and Washington based on: (1) compatibility of the bank based on size as measured through total assets
•
Asset sizes between $1.1$2 billion and $5.0$9 billion (median
•
Similarity of $2.6 billion); (2) similarity of their product lines and business focus; and (3) comparablefocus
•
Comparable performance criteria relating to nonperforming assets (less than 4% of assets). In addition toincluding, asset growth, profitability, credit quality, capitalization and total shareholder return
Based on these criteria, the
following companies were included in the Company’s Compensation Peer Group
McLagan's primary data sources also included its proprietary regional and community banking database and published industry survey data for
national and California banks. The American Bankers Association (ABA) Compensation and benefits survey was also reviewed by McLagan. Compensation Peer Group and proprietary survey data represented actual 2015 compensation information. The ABA data represented actual 2014 compensation information, adjusted to 2015 at an annual rate of 3%. McLagan adjusted national survey data upwards by 27.4% for regional salary differentials, and also to reflect higher costs of salaries in the Company's principal market. The Comparative Peer Group and the comparative survey data were used to benchmark executive compensation levels against banks that have executive positions with responsibilities similar in breadth and scope to ours and that compete with us for executive talent. The Compensation Committee reviewed and analyzed compensation for the Chief Executive Officer and the other named executive officers for the 2017 Compensation Program.
The Compensation Peer Group component companies used in the evaluation of the Company's executive compensation programs in the 2017 Report for executive officers were as follows:
2022 decision making:
| | Banc of California | | | Luther Burbank Corp.* | |
| | Bank of Marin Bancorp | | | National Bank of Commerce Holdings | |
| | BayCom Corp | | | PCB Bancorp | |
| | Farmers & Merchants Bancorp | | Pacific Continental Corp. | Preferred Bank | |
Heritage Oaks Bancorp* | First Choice Bancorp | | | RBB Bancorp | |
| | First Foundation Inc. | | | Sierra Bancorp | |
| | Hanmi Financial Corp. | | | TriCo Bancshares | |
| | Heritage Financial Corp. |
CU Bancorp* | | Central Valley CommunityWestamerica Bancorp | |
Preferred Bank | HomeStreet Inc. | First Foundation Inc. |
Pacific Premier Bancorp | | FNB Bancorp |
Provident Financial Holdings | | First Northern Community Bancorp |
Sierra Bancorp | | Hanmi Financial Corp |
TriCo Bancshares | | Cascade Bancorp |
*
*Since acquired by another financial institution.
Subsequently acquired.
The competitive review also included Data from McLagan’s Regional & Community Banking Survey database. National survey data was adjusted upward 29.5% to account for wage rates in San Jose, California, relative to the national average.
In the fall of 2022, the Committee engaged Meridian Compensation Partners, LLC to assist with incentive award payouts, Compensation Discussion and Analysis drafting, and planning for 2023 compensation decision-making.
Chief Executive Officer Compensation
The Compensation Committee meets with the other independent directors each year in an executive session without management present to evaluate the performance of the Chief Executive Officer. The Compensation Committee also confers with the Chief Executive Officer when setting his base salary. The Chief Executive Officer does not participate in any deliberations regarding his own compensation. The Compensation Committee annually reviews and approves goals and objectives relevant to the Chief Executive Officer and evaluates the Chief Executive'sExecutive Officer’s performance against those objectives.objectives and other relevant factors. The Compensation Committee typically considers corporate financial performance, and the Company'sCompany’s achievement of its short and long-term goals versus its strategic objectives and financial targets. With the
Table of Contents
assistance of the compensation consultant, the Compensation Committee also considers the compensation data related to the Compensation Peer Group for base pay, total cash compensation, and total direct compensation. The Compensation Committee approves the Chief Executive Officer's compensation level basedOfficer does not participate in any deliberations regarding his own compensation.
Walter T. Kaczmarek rejoined the Company on its evaluation. In its reviewMarch 15, 2021, as President and Chief Executive Officer of the Company and Mr. Kaczmarek entered into an employment agreement. Under the agreement, Mr. Kaczmarek received an annual salary of $721,000. He also received a grant of $540,000 of restricted common stock that vests over three years with acceleration with the hiring of a new Chief Executive Officer, a change of control, termination for good reason, or termination without cause. For 2022, the Committee believes thatrecommended a 4% increase in his base salary to $749,840.
Heritage Commerce Corp • 2023 Proxy Statement 31
In September 2022, Mr. Kaczmarek retired as President and Chief Executive Officer and Robertson Clay Jones assumed the CEO's performance has been exemplaryposition of President and that his leadership and management have been critical to the continual improvement and successChief Executive Officer of the Company. In this regard, the Company entered into a new employment agreement with Mr. Jones. The 2017 Report concludedCompany previously reported the key terms of our employment agreement with Mr. Jones, pursuant to a Form 8-K filing with the SEC on September 19, 2022. Under the employment agreement, Mr. Jones received an annual salary of $560,000, which may be adjusted upwards through annual increases as determined by the Board and an award of 25,000 shares of restricted stock that the CEO base salary in 2016 was 18% below the 60th percentile, his total cash compensation was 27% below the 70th percentile and his direct compensation was 51% below the 75th percentile. The Compensation Committee in its review of the 2017 Report approved an increase in the CEO base salary to $480,000 for 2017. This brought the CEO's base salary to approximately 10% below the 60th percentile basedvests on the 2017 report.a pro-rata basis over three years.
Base Salary Decisions for the Other Named Executive Officers
Generally
The Committee approved the Compensation Committee believes that executive basefollowing salaries should be targeted so as not to be substantially below the 60th percentile of the Compensation Peer Group for executives in similar positions with similar responsibilities. Base salaries are reviewed annually and adjusted as necessary to realign them with market levels after taking into account the value of the position in the marketplace, career experience, and the contribution and performance of the individual. Although each of the named executive officers has an employment agreement with the Company, the initial base salary in each of the agreements may be increased (and has been in the past) in accordance with the Chief Executive Officer's evaluation of the executive's performance and the Compensation Committee's evaluation of the Company's overall compensation programs and policies. In 2017, the Compensation Committee considered the pay practices of the Compensation Peer Group and the analyses and recommendations provided by its independent consultant in the 2017 Report. In the evaluation of base salaries for 2017adjustments for the named executive officers, the Compensation Committee reviewed the 60th percentile for the Compensation Peer Group, but also considered the minimum, mid-range and maximum salaries paid to similarly situated positions at companies in the Compensation Peer Group as well as the performance levels of the named executive officers. As a result of its review the Compensation Committee made the following changes to the base salary of theother named executive officers effective April 1, 2017 which, except2022:
| | | | | Base Salary | |
| | NEO | | | 2021 | | | 2022 | | | Change from
2021 | |
| | Robertson Clay Jones(1) | | | | $ | 400,000 | | | | | $ | 560,000 | | | | | | 40.00% | | |
| | Walter T. Kaczmarek(2) | | | | $ | 721,000 | | | | | $ | 749,840 | | | | | | 4.00% | | |
| | Margo G. Butsch | | | | $ | 313,635 | | | | | $ | 329,317 | | | | | | 5.00% | | |
| | Janice Y. Coonley(3) | | | | | — | | | | | $ | 325,000 | | | | | | — | | |
| | Lawrence D. McGovern | | | | $ | 367,710 | | | | | $ | 399,885 | | | | | | 8.75% | | |
| | Deborah K. Reuter | | | | $ | 319,043 | | | | | $ | 334,995 | | | | | | 5.00% | | |
(1)
Mr. Jones received a 40% increase in 2022 upon his appointment as President and Chief Executive Officer on September 15, 2022 to $560,000.
(2)
Mr. Kaczmarek received a salary of $721,000 pursuant to his employment agreement dated April 5, 2021. Mr. Kaczmarek served as the Company’s President and Chief Executive Office from March 2005 until he retired in August of 2019. He was not an officer or employee of the Company in 2020. He rejoined the Company on March 15, 2021 and retired on September 15, 2022, but remained on the Board. Mr. Kaczmarek will not stand for Walter T. Kaczmarek, exceededreelection to the 60th percentile:Board at the Annual Meeting.
| | | | |
Named Executive | | 2017 Salary | |
|---|
Walter T. Kaczmarek | | $ | 480,000 | |
Keith A. Wilton | | $ | 348,000 | |
Michael E. Benito | | $ | 273,852 | |
Lawrence D. McGovern | | $ | 296,574 | |
David E. Porter* | | $ | 290,843 | |
Ms. Coonley joined the Company as Executive Vice President and Chief CreditPeople and Diversity Officer of Heritage Bank of Commerce inon July 2017.
12, 2022.
In July 2017, the Company entered into an employment agreement with Margo G. Butsch when she was promoted to Executive Vice President and Chief Credit Officer of Heritage Bank of Commerce. The employment agreement provided an initial base salary of $235,000 and as with other executive officers is subject to annual increases.
Base salary drives the formula used
Management Incentive Plan
Our NEOs participate in the Management Incentive Plan, which is an annual cash-based incentive program linked to achievement of certain corporate performance goals.
Taking into consideration the recommendations of its independent compensation consultant and the President and Chief Executive Officer’s recommendations for the other NEOs, the Committee approves an incentive award target as discussed below under "Management Incentive Plan." Basea percentage of base salary isfor the only element of compensation that is used in determiningNEOs.
| | | | | % of Base Salary | |
| | Named Executive | | | Threshold | | | Target | | | Maximum | |
| | Robertson Clay Jones* | | | | | 30% | | | | | | 75% | | | | | | 100% | | |
| | Walter T. Kaczmarek | | | | | 30% | | | | | | 75% | | | | | | 100% | | |
| | Margo G. Butsch | | | | | 30% | | | | | | 45% | | | | | | 65% | | |
| | Janice Y. Coonley | | | | | 30% | | | | | | 45% | | | | | | 65% | | |
| | Lawrence D. McGovern | | | | | 30% | | | | | | 50% | | | | | | 70% | | |
| | Deborah K. Reuter | | | | | 30% | | | | | | 45% | | | | | | 65% | | |
*
Mr. Jones 2022 award for Target was 50% and 70% for Maximum until he assumed the amount of contributions permitted under the Company's 401(k) plan.position as President and Chief Executive Officer on September 15, 2022. His Target and Maximum bonus opportunities were then increased to 75% and 100%, respectively.
32 Heritage Commerce Corp • 2023 Proxy Statement
The Committee also assigned weightings between a portion of the annual incentive compensation for named executive officers should beCompany scorecard based on performance against pre-defined financial metrics (80%) and performance objectives. The Company's Management Incentive Plan ("Incentive Plan") plays a key role in fulfilling the objective. In 2017, each ofqualitative scorecard based on specific goals that further our named executive officers was eligible to receive a bonus under the Incentive Plan. Annual performance bonuses are designed to focus participants on,growth, safety and reward them for, the achievement of specific annual financial, strategic and/or operational objectives of the Company. The incentive levels (as a percent of salary) are designed to provide for the achievement of threshold, target and maximum performance objectives. The financial metrics, performance objectives,soundness, and the formula for computingdevelopment of a strong and diverse workforce (20%). The following performance metrics along with the performance bonus arerelative weights of each metric were established by the Compensation Committee in the first quarter of 2022:
| | | | | | | | | | | Performance Goals (‘000s) | |
| | Performance Metrics | | | Weight | | | Threshold | | | Target | | | Maximum | |
| | Pre-Tax Income | | | | | 20% | | | | | $ | 67,221 | | | | | $ | 74,690 | | | | | $ | 82,159 | | |
| | Nonperforming Assets | | | | | 20% | | | | | $ | 14,446 | | | | | $ | 13,132 | | | | | $ | 11,819 | | |
| | Loan Growth(1) | | | | | 25% | | | | | $ | 2,738,946 | | | | | $ | 2,883,101 | | | | | $ | 3,027,256 | | |
| | Deposit Growth(2) | | | | | 15% | | | | | $ | 4,680,607 | | | | | $ | 4,926,954 | | | | | $ | 5,173,302 | | |
| | Qualitative Factors(3) | | | | | 20% | | | | Qualitative Assessment of Six Factors | |
(1)
Loan Threshold and Maximum are established at 95% and 105% of the Company’s budget, respectively. Includes factored accounts receivable but excludes purchased mortage loans in 2022 and Paycheck Protection Program (“PPP”) loans.
(2)
Deposits exclusive of brokered, CDARS and state certificates of deposit. Deposit Threshold and Maximum are established at 95% and 105% of the Company’s budget, respectively.
(3)
The qualitative factors were based on the Company’s strategic plan for 2022, which included six goals, each fiscal year.weighted equally. The award opportunitiesqualitative goals were: 1) ESG/DEI Progress; 2) Fee Growth; 3) Audit Quality; 4) CRA/Fair Lending Quality; 5) Hiring Goals; and 6) Succession Planning/Employee Development for an overall achievement.
The Management Incentive Plan includes a performance “gate” requiring a year-end total risk-based capital ratio at or above 10.5%. Otherwise, no payment would be made under the Management Incentive Plan.
The Committee has the right, in its sole and absolute discretion, to make adjustments to the performance goals within the defined parameters set forth in the Management Incentive Plan including: one-time, non-recurring, or extraordinary events or any other reason that the Committee deems appropriate. Additionally, the Committee may adjust awards considering factors such as regulatory compliance and credit quality; and to reduce or eliminate any cash award otherwise payable. In 2022, the Committee did not make any such adjustments.
Performance metrics were derived in partidentified through our annual financial planning and budgeting process and are intended to align with the Board’s strategic plan for 2022. The Committee received recommendations from our Compensation Peer Groupthe senior management along with other relevant data including economic forecasts and other comparative data provided by our independent consultant,historical goal setting and in part byachievement. The Committee believed that the Compensation Committee's judgment on internal equity of the positions, their relative value to the CompanyThreshold, Target and the desire to maintain a consistent annual incentive targetMaximum levels established for the Chief Executive Officer and the other named executive officers. The payouts for executives under theManagement Incentive Plan are targetedin 2022 were sufficiently challenging to provide aggregate cash compensation together with base salary atmeet the 70th percentile of our Compensation Peer Group when we reach our target annual financialCompany’s long-term performance ("Target"). Smaller payouts can be awarded if we reach 90% to 95% of our target performance ("Threshold"). Larger payouts can be awarded if we achieve 105% to 110% of target performance ("Maximum"). objectives.
Payouts generally arewere not calculated by mathematical interpolation (on a continuous scale), therefore an incentive level musthad to be reached or exceeded for a cash award. The incentive levels assignedCommittee approved the following goal achievement for 2022 performance:
| | | | | | | | | | | Performance Goals (‘000s) | | | Payout | |
| | Performance Metrics | | | Weight | | | Threshold | | | Target | | | Maximum | | | Actual | | | Level Achieved | |
| | Pre-Tax Income | | | | | 20% | | | | | $ | 67,221 | | | | | $ | 74,690 | | | | | $ | 82,159 | | | | | $ | 94,366 | | | | Maximum | |
| | Nonperforming Assets | | | | | 20% | | | | | $ | 14,446 | | | | | $ | 13,132 | | | | | $ | 11,819 | | | | | $ | 2,425 | | | | Maximum | |
| | Loan Growth | | | | | 25% | | | | | $ | 2,738,946 | | | | | $ | 2,883,101 | | | | | $ | 3,027,256 | | | | | $ | 2,815,153 | | | | Threshold | |
| | Deposit Growth | | | | | 15% | | | | | $ | 4,680,607 | | | | | $ | 4,926,954 | | | | | $ | 5,173,302 | | | | | $ | 4,359,230 | | | | Not Met | |
| | Qualitative Factors | | | | | 20% | | | | Qualitative Assessment of Six Factors | | | See Footnote(1) | | | Target | |
(1)
The Qualitative factors were achieved as a percentage of base salaryfollows: 1) ESG/DEI Progress (Target); 2) Fee Growth (Maximum); 3) Audit Quality (Maximum); 4) CRA/Fair Lending Quality (Threshold); 5) Hiring Goals (Maximum); and 6) Succession Planning/Employee Development (Threshold) for 2017 were as follows:an overall achievement at Target.
Heritage Commerce Corp • 2023 Proxy Statement 33
| | | | | | | | | | |
| | As a percent of base salary | |
|---|
Named Executive | | Threshold | | Target | | Maximum | |
|---|
Walter T. Kaczmarek | | | 10 | % | | 45 | % | | 75 | % |
Keith A. Wilton | | | 10 | % | | 40 | % | | 60 | % |
Michael E. Benito | | | 10 | % | | 40 | % | | 60 | % |
Margo G. Butsch* | | | 10 | % | | 40 | % | | 60 | % |
Lawrence D. McGovern | | | 10 | % | | 40 | % | | 60 | % |
*Ms. Butsch was assigned her incentive levels when she entered into her employment agreement in July 2017.
Management recommends, and the Compensation Committee reviews and approves, the financial metrics for each plan year that must be met in order for awards to be paid. These financial metrics are weighted and are intended to motivate and reward eligible executives to strive for continued financial improvement of the Company, consistent with performance based compensation and increasing shareholder value. The Compensation Committee typically identifies from three to six financial metrics which may be revised from year to year to reflect the Company's business and strategic goals. The Compensation Committee determines the weighting of financial metrics each year based upon
TABLE OF CONTENTSTable of Contents
recommendations from the Chief Executive Officer. For 2017, the following financial metrics along with the relative weights of each financial metric were established by the Compensation Committee:
| | Executive Compensation | | | |
Financial Metrics
| | Weight | |
|---|
Pre-Tax Income
| | | 20 | % |
Nonperforming Assets
| | | 15 | % |
Loan Growth
| | | 20 | % |
Noninterest Income
| | | 15 | % |
Noninterest Expense
| | | 15 | % |
Deposit Growth
| | | 15 | % |
The
Compensation Committee
believes pre-tax income is a valid measurement in assessing howapproved the
Company is performingfollowing incentive cash awards for 2022 performance. Awards are calculated using 2022 base earnings, which may differ from
a financial standpoint. Pre-tax income is an accepted accounting measures that drives earnings per share and shareholder returns over the long term. Noninterest income and noninterest expense are important components of net income that senior management and the Board of Directors sought to improve upon in 2017. In addition, the Compensation Committee, in consultation with the Chief Executive Officer, concluded that management should continue its focus on credit quality and loan and deposit growth. Financial metrics for noninterest income and noninterest expense are financial metrics that drive overall net income. The Compensation Committee believes that nonperforming assets are an effective measure to monitor the Company's progress in improving its credit quality. Further, in view of the Company's plans to continue its focus on growth, the Compensation Committee sought to incentivize and measure growth by increases in outstanding loans and deposits. The Compensation Committee did not realign the weighting of the mix of the financial metrics in 2017 from 2016. Because the Compensation Committee believed that the Incentive Plan should also balance risk-taking with performance, the Compensation Committee maintained a risk-based capital element2022 base salaries due to the plan. If the total risk-based capital ratio was below 10% at year-end 2017, bonus payments would be reduced to zero.
Performance objectives were generally identified through our annual financial planning and budgeting process. Senior management developed a financial plan for 2017, and the financial plan was reviewed and approved by the Boardtiming of Directors. The Compensation Committee received recommendations from senior management for financial performance objective ranges. In setting the Threshold, Target and Maximum levels, the Compensation Committee considered specific circumstances anticipated to be encountered by the Company during the coming year and the level of improvement from year-to-year required to achieve the performance level. The Compensation Committee believed that the Threshold, Target and Maximum levels established for the Incentive Plan in 2017 were sufficiently challenging given the economic climate and the level of growth and improvement in the various financial metrics that would have to occur to meet the various performance objectives.
For 2017, performance was assessed relative to performances for the year ended December 31, 2017, as shown below and compared to actual results:
| | | | | | | | | | | | | |
Financial Metrics | | Threshold
(90% of Plan) | | Target
(Plan) | | Maximum
(110% of Plan) | | 2017 Actual | |
|---|
Pre-Tax Income | | $ | 41,271,000 | | $ | 45,857,000 | | $ | 50,443,000 | | $ | 50,298,000 | |
Nonperforming Assets | | $ | 14,300,000 | | $ | 13,000,000 | | $ | 11,700,000 | | $ | 2,485,000 | |
Loans Outstanding(1) | | $ | 1,610,310,000 | | $ | 1,695,063,000 | | $ | 1,779,816,000 | | $ | 1,582,667,000 | |
Noninterest Income | | $ | 9,510,000 | | $ | 10,567,000 | | $ | 11,624,000 | | $ | 9,612,000 | |
Noninterest Expense(2) | | $ | 63,452,000 | | $ | 61,952,000 | | $ | 60,452,000 | | $ | 60,738,000 | |
Deposits Outstanding (3) | | $ | 2,126,137,000 | | $ | 2,238,039,000 | | $ | 2,349,941,000 | | $ | 2,401,000,000 | |
(1)Threshold and Maximum at 95% and 105% of plan.
Table of Contents
(2)90% and 110% of plan not used. A $1.5 million differential below and over Target was used for Threshold and Maximum.
(3)Threshold and Maximum at 95% and 105% of plan. Excludes Brokered Deposits, CDARS and State CDs.
During the first quarter of the following fiscal year, the Compensation Committee assesses the performance of the Company for each financial metric comparing the actual fiscal year results to the pre-determined performance objectives for each financial metric calculated with reference to the pre-determined weight accorded the financial metric, and an overall percentage amount for the award is calculated. In addition, the Compensation Committee has discretionary authority to include qualitative subjective measures which may increase or decrease an award by an additional 15% of base salary. The positive discretion may be utilized to address completion of special projects, department initiatives, or favorable achievements reflected in regulatory exam results. The Compensation Committee may also use its discretion in adjusting financial metrics and performance objectives for unexpected economic conditions or changes in the business of the Company.
In 2017, the Company reached (i) the "Maximum" for Nonperforming Assets, and Deposits Outstanding, (ii) "Target" for Pre-Tax Income and Noninterest Expense, and (iii) "Threshold" for Noninterest Income. Loans Outstanding did not meet the "Threshold," "Target," or "Maximum" level. However, the Compensation Committee took into consideration a recent down grade to a classified risk grade large credit in early March 2018. The Committee determined that the Nonperforming Assets performance measure should be reduced to the "Target" level for 2017. The Committee also recognized that the Noninterest Expense included $671,000 of pre-merger related expenses in 2017 relating to the Company's announced proposed merger transactions with Tri-Valley Bank and United American Bank. As a result, the Committee increased the noninterest performance measure from "Target" to "Maximum" for 2017. After consideration of these performance levels for 2017, as adjusted, the Committee awarded the following bonuses which were paid in the first quarter of 2018:
| | | | | | | |
Named Executive* | | Bonus
Award | | Percentage
of 2017
Base Salary | |
|---|
Walter T. Kaczmarek | | $ | 186,824 | | | 39.75 | % |
Keith A. Wilton | | $ | 114,486 | | | 33.50 | % |
Michael E. Benito | | $ | 91,070 | | | 33.50 | % |
Margo G. Butsch | | $ | 63,701 | | | 33.50 | % |
Larry D. McGovern | | $ | 98,431 | | | 33.50 | % |
*David E. Porter resigned in July 2017 and, therefore, was not awarded a bonus under the Plan.
Equity Based Compensation
The Compensation Committee believes that equity based compensation should be a significant component of total executive compensation to align executive compensation with the long-term performance of the Company and to encourage executives to make value enhancing decisions for the benefit of our shareholders. Each of the named executive officers is eligible to receive equity compensation. The Compensation Committee is responsible for determining equity grants to all staff members, including named executive officers. The Compensation Committee may also grant equity-based awards to award performance, coincide withsalary adjustments promotions and hirings, and for recruiting and retention purposes.
partial year participation.| | Named Executive | | | Award
Payout | |
| | Robertson Clay Jones(1) | | | | $ | 232,452 | | |
| | Walter T. Kaczmarek(2) | | | | $ | 324,596 | | |
| | Margo G. Butsch | | | | $ | 141,547 | | |
| | Janice Y. Coonley(3) | | | | $ | 66,972 | | |
| | Lawrence D. McGovern | | | | $ | 180,987 | | |
| | Deborah K. Reuter | | | | $ | 143,988 | | |
(1)
Table of Contents
In considering whether to grant an equity award and the size of the grants to be
Mr. Jones was awarded the Compensation Committee considers, with respect to each executive officer, the salary level, the contributions expected toward the growth and profitability of the Company and, to the extent available, survey data indicating grants made to similarly situated officers at comparable financial institutions. The Compensation Committee decides whether to approve the grant of equity awards, and the terms of such grant, after deliberation in executive session with respect to grants to the Chief Executive Officer, and after discussion with the Chief Executive Officer, with respect to grants to other executive officers. The Company's Amended and Restated 2004 Equity Plan (the "2004 Plan") provided for the grant of non-qualified and incentive stock options, and restricted stock. In 2013, the Board of Directors and shareholders approved the 2013 Equity Incentive Plan (the "2013 Plan") and the 2004 Plan was terminated. Stock options and restricted stock awards issued under the 2004 Plan remain outstanding. The Compensation Committee approved all awards under the 2004 Plan and continues to do so under the 2013 Plan. The Compensation Committee is the administrator of the 2004 and 2013 Plans.
Stock options provide for financial gain derived from the potential appreciation in stock price from the date that the option is granted until the date that the option is exercised. The exercise price of stock option grants is set at fair market value on the grant date. We do not grant stock options at a discount to fair market value or reduce the exercise price of outstanding stock options except in the case of a stock split or other similar event. We do not grant stock options with a so-called "reload" feature, nor do we loan funds to employees to enable them to exercise stock options. The Board has also never re-priced stock options. Stock options granted to date generally vest pro rata on a daily basis over four years and expire ten years from the grant date, and vesting accelerates on a change of control. Our long-term performance ultimately determines the value of stock options, because gains from stock option exercises are entirely dependent on the long-term appreciation of our stock price.
In addition to stock options, both the 2004 and 2013 Plans authorize the issuance of restricted stock. An award18,132 shares of restricted stock, involveswhich represented 50% of his base salary at the immediate transfer by the Company totime on May 16, 2023, with a participant of ownership of a specific number of shares of common stock. The restricted stock is valued at its fair$199,996 market value on the date of grant. Restricted stock is subjectWhen he was promoted to a "substantial risk of forfeiture" within the meaning of Section 83 of the Internal Revenue Code of 1986, as amended. To date, the Compensation Committee has chosen to grant time-based restricted stock awards. Restricted stock awarded by the Compensation Committee have vesting periods that vary,President and vesting accelerates on a change of controlChief Executive Officer of the Company or the holder's death or disability.
The Compensation Committee has established a stock option and restricted stock policy which recognizes that stock options and restricted stock haveon September 15, 2022, he was awarded an impact on the profits of the Company under current accounting rules and also have a dilutive effect on the Company's shareholders. Accordingly, they are recognized as a scarce resource and option grants and awardsadditional 25,000 shares of restricted stock are given the same consideration as any other form of compensation. The Compensation Committee has established ranges for the amount of options that may be granted that dependwith a $298,000 market value on the individual's position withdate of grant. The total number of shares is the total number of both awards.
(2)
Mr. Kaczmarek retired in September 2022 and received a pro rata share of his bonus award.
(3)
Ms. Coonley joined the Company in July 2022 and whetherher payout was calculated using her earnings of $153,958 and 45% award target through December 31, 2022.
Equity Awards in 2022
Equity awards for 2022 were awarded under the option is awarded as an incentive to attract an individual, to retain an individual or to reward performance. The Compensation Committee approves primarily nonstatutory stock options instead of incentive stock options because of2013 Equity Plan on May 16, 2022, in the tax advantages available to the Company for nonstatutory options and because employees generally do not take full advantage of the tax benefits available to them from incentive stock options. We do not backdate options or grant options or award restricted stock retroactively. In addition, we do not plan to coordinate grants of options or awardsform of restricted stock so that they are made before announcement of favorable information, or after announcement of unfavorable information. The Company's options and restricted stock are granted at fair market valueawards based on a fixed date or event (the first day of service for new hires and the date of Compensation Committee approval for existing employees), with all required approvals obtained in advance of or on the actual grant date. All grants to executive
Table of Contents
officers require the approvalpercentage of the Compensation Committee andNEO’s current base salary. Target percentages were established at the Board of Directors. Fair market value has been consistently determinedsame percentage as the closing price on The Nasdaq Global Select Market onManagement Incentive Plan vesting ratably over a three-year period. For 2022, the grant date. In order to ensure that an option exercise price or restricted stock date of grant valuation fairly reflects all material information, without regard to whether the information seems positive or negative, every grant of options and restricted stock is contingent upon an assurance by management and legal counsel that the Company is not in possession of material undisclosed information. If the Company is in a "black-out" period for trading under its trading policy or otherwise in possession of inside information, the date of grant is suspended until the second business day after public dissemination of the information.
The Company's general practice has been to grant options and restricted stock only on the annual grant date at a Compensation Committee and Board of Directors' regular meeting held during the first quarter for the named executive officers as well as current staff, and at any other Compensation Committee meeting (whether a regular meeting or otherwise) held on the same date as a regularly scheduled Board meeting (which are held monthly) as required to attract new staff, retain staff or recognize key specific achievements.
According to the 2017 Report, the Company's direct compensation for 2016 was on average 12% above the median but 14% below the targeted 75th percentile. In response and in connection with its annual consideration of the grant of equity awards the Compensation Committee approved the following restricted stock awards for 2017 which were issuedawards:
| | | | | Restricted Stock Award | |
| | Named Executive | | | % of Base Salary | | | Number of
Shares | | | Dollar Value | |
| | Robertson Clay Jones(1) | | | | | 50% | | | | | | 43,132 | | | | | $ | 488,996 | | |
| | Walter T. Kaczmarek(2) | | | | | 75% | | | | | | 48,957 | | | | | $ | 539,996 | | |
| | Margo G. Butsch | | | | | 45% | | | | | | 12,795 | | | | | $ | 141,129 | | |
| | Janice Y. Coonley(3) | | | | | — | | | | | | 12,000 | | | | | $ | 139,440 | | |
| | Lawrence D. McGovern | | | | | 50% | | | | | | 16,668 | | | | | $ | 183,848 | | |
| | Deborah K. Reuter | | | | | 45% | | | | | | 13,016 | | | | | $ | 143,566 | | |
(1)
Mr. Jones was awarded 18,132 restricted on May 16, with a $199,996 market value. Upon his promotion to President and Chief Executive Officer of Heritage Commerce Corp, Mr. Jones was awarded 25,000 shares with a $289,000 market value on September 15, 2022.
(2)
Mr. Kaczmarek fully vested in his shares at retirement per his award agreement.
(3)
Ms. Coonley received the first quartergrant of 2017:12,000 restricted shares with a $139,440 market value on the date grant as provided in her employment agreement.
Performance Based Long-Term Incentive Equity Program
In response to our shareholder outreach program, the Committee in consultation with its independent compensation consultants designed the LTIEP, with the objective of further aligning our NEOs with the interests of shareholders and our pay-for-performance philosophy. Under the LTIEP, 50% of the NEO’s award value is granted in PRSUs. The remaining 50% is granted in RSUs.
PRSUs. Awards vest at the end of a three-year performance period (2023—2025) based on the ROATCE as compared to a peer group of banks approved by the Committee.
34 Heritage Commerce Corp • 2023 Proxy Statement
| | | | |
Named Executive
| | Restricted
Shares | |
|---|
Walter T. Kaczmarek
| | | 15,000 | |
Keith A. Wilton
| | | 12,000 | |
Michael E. Benito
| | | 6,000 | |
Lawrence D. McGovern
| | | 9,000 | |
David E. Porter*
| | | 8,000 | |
*Mr. Porter resigned in July 2017.
In March 2018, the Compensation Committee approved the following restricted stock awards for 2018:
| | Executive Compensation | | | |
Named Executive
| | Restricted
Shares | |
|---|
Walter T. Kacmarek
| | | 25,000 | |
Keith A. Wilton
| | | 12,000 | |
Michael E. Benito
| | | 6,000 | |
Margo G. Butsch
| | | 7,000 | |
Lawrence D. McGovern
| | | 9,000 | |
PRSUs vest based on percentile performance using the table below. The Committee will use straight-line interpolation reward incremental achievements between performance levels.
| | | | | Performance Levels | |
| | Performance Metrics | | | Threshold | | | Target | | | Maximum | |
| | ROATCE Percentile Rank | | | | | 35th | | | | | | 50th | | | | | | 75th | | |
| | Percent of PRSUs Vested | | | | | 50% | | | | | | 100% | | | | | | 150% | | |
RSUs. Each RSU will vest ratably over three years of continual employment and will accelerate upon a change of control, death or disability.
Dividend Equivalents
Holders of RSUs and PRSUs are entitled to receive dividend equivalents with respect to the payment of cash dividends on the Company’s common stock. Dividends are deferred until vesting.
Perquisites
Perquisites are generally limited to those that assist our NEOs in conducting their business duties productively and are limited to car allowances for the NEOs and a club memberships for the President and Chief Executive Officer.
Supplemental Executive Retirement
PlansPlan—SERP
Our 2005 Amended and Restated Supplemental Retirement Plan ("SERP"(“SERP”) is a legacy arrangement in which the Chief Financial Officer and Chief Risk Officer participates. While the SERP is still an element of our compensationactive program, that was offered to certain executive officers. These types of plans had been commonly offeredthe Committee has not approved any new participation in the community bank industry for some time. program since 2011.
The SERP is a nonqualified defined benefit plan andwhich is unsecured and unfunded and there are no plan assets. When the Company offered key employees participationunfunded. Upon normal retirement, as defined in the SERP, including some but not all of the named executive officers, the supplemental retirement benefit awarded was based on the individual's position within the Company and a vesting schedule determined by the desirability of incenting the retention element of the program. The participant receives his or her vested benefit at retirement. A participant whose employment terminates
Table of Contents
after the normal retirement date willparticipants receive 100% of his or her supplemental retirement benefit, payable monthly, commencing on the first of the month following retirement (unless selected otherwise by the participant and except executive officers who will receive their benefit six months following retirement) and continuing until the death of the participant (unless the joint survivor option is selected). For information on the plan, see "Supplementalthe “Summary Compensation” table and the “Supplemental Retirement Plan for Executive Officers." The Company has reduced its use”
Employment Agreements and Change of the SERP as a programControl Provisions
We provide employment agreements to attractour executive officers consistent with market practices. These agreements are designed to foster stability and retain well-qualified executives by providing reasonable income protection upon termination of employment following voluntary and key employees. It has been moreinvoluntary termination as defined by the agreement. The agreements also provide some benefits due to death or disability. Other than six years since the Company has offered SERP benefits to executives and key employees. Prohibition on SpeculationChief Financial Officer’s legacy employment agreement, gross up provisions are not provided in Company Stock
Our stock trading guidelines prohibit executives from speculating in our stock, which includes, but is not limited to, short selling (profiting if the market price of the securities decreases), buying or selling publicly traded options, including writing covered calls, and hedging or any other typeexecutive agreements.
The Committee and the Board believe that the likelihood of derivative arrangement that has a similar economic effect. Termination of Employment and Change in Control Provisions
The Compensation Committee believes that a change in control transaction, or potential change inof control transaction would create uncertainty regarding the continued employment of our executives. This is because many change in control transactions result in significant organizational changes, particularly atour executives facing uncertainties about their future employment and may result in concern over how the senior executive level. In order to encouragepotential transaction might affect them. To allow our executives to remain employed with us during an important time when their continued employment in connection with or following a transaction is often uncertain and to help keep our executives focusedfocus solely on our business rather than on their personal financial security, we believemaking decisions that providing certain of our executives with severance benefits upon certain terminations of employment isare in the best interests of our Company andshareholders, our shareholders.
The Company does notNEOs have company-wide separate change of control agreements with its executive officers. Instead, the Chief Executive Officer and the other named executive officers have specific change of control and severance provisions in their respective employment agreements. The Compensation Committee considersagreements that provide them with certain payments and benefits in the use of change of control provisions and severance provisions on a case by case basis depending on the individual's position with the Company and the need to attract and/or retain the individuals. The employment agreements for Mr. Kaczmarek, Mr. Benito, and Mr. McGovern contain excise tax gross-up provisions for purposes of Section 280Gevent of the Internal Revenue Codetermination of 1986, as amended. It has been the policy of the Company since those agreements were entered into to exclude such provisions from its executive contracts.
The severance benefits provided for our named executive officers were determined by the Compensation Committee based on its judgment of prevailing market practices at the time each agreement was entered into. At present, we havetheir employment agreements with the Chief Executive Officer and the other named executive officers, which detail their eligibility for payments under various termination scenarios. In addition, certain equity grants made to the named executive officers provide for vesting of stock options and restricted stock upon a change of control.control of the Company.
All NEO employment agreements require both a change of control and termination in order to receive severance benefits (i.e., double trigger). We have disclosed the severance and/or change in control payouts that would be payable to each
named executive officerNEO if the triggering event occurred on December 31,
2017,2022, in the
"Change“Change in Control Arrangements and Termination of
Employment"Employment” section in this proxy statement.
Heritage Commerce Corp • 2023 Proxy Statement 35
TABLE OF CONTENTS Tax Considerations
Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986, as amended, limits the allowable deduction for compensation paid or accrued with respect to the Chief Executive Officer
Compensation Policies and eachPractices
| | | | | Summary | |
| | Stock
Ownership and
Retention
Guidelines | | | The Company has established stock ownership guidelines to encourage Company share ownership by our NEOs and directors through retention of shares granted under the Company’s incentive plans. The stock ownership guidelines are summarized in the table below. | |
| | | | | Position | | | Stock Ownership Guideline | |
| | | | | Chief Executive Officer | | | 3x base salary | |
| | Other Executive Officers | | | 1x base salary | |
| | Directors | | | 17,500 common shares | |
| | Executives are not required to purchase shares to reach these ownership guidelines. However, executives are restricted from selling shares received as equity-based compensation (net of required withholding tax) until the guidelines are achieved. Furthermore, executives are required to retain at least 50% of shares earned under equity-based compensation plans once the guidelines have been met. The policy specifically excludes stock options and unvested performance-based awards toward the meeting the ownership guidelines. | |
| | Directors have a three-year period from the time he or she joins the Board to satisfy the Board’s ownership policy. | |
| | As of the record date for the annual meeting, all directors and NEOs are in compliance, with the exception of Kamran Husain who joined as a director in December 2021 and Janice Y. Coonley who joined as the Chief People and Diversity Officer July 2022, both of whom are in the process of complying with their respective guidelines. | |
| | Clawback Policy | | | The Company may recoup incentive compensation paid to NEOs and other executives where (i) the payment, grant or vesting of an incentive award was based on the achievement of financial results that were subsequently the subject of a restatement of the Company’s financial statements filed with the SEC, (ii) the amount of the compensation that would have been received by the executive officer had the financial results been properly reported would have been lower than the amount actually received, and (iii) the Board determines in its sole discretion and the exercise of its business judgement that it is in the best interests of the four other most highly compensated executive officers of a publicly held corporation to no more than $1 million per year.
Table of Contents
In light of Section 162(m), it is the policy of the Compensation Committee to modify, where necessary, our executive compensation program to maximize the tax deductibility of compensation paid to our executive officers when and if the $1 million threshold becomes an issue. At the same time, the Compensation Committee also believes that the overall performance of our executives cannot in all cases be reduced to a fixed formula and that the prudent use of discretion in determining pay levels is in our best interests and those of our shareholders. Under some circumstances, the Compensation Committee's use of discretion in determining appropriate amounts of compensation may be essential. In those situations where discretion is or can be used by the Compensation Committee, compensation may not be fully deductible.
Section 409A ("Section 409A") of the Internal Revenue Code of 1986, as amended, among other things, limits flexibility with respect to the time and form of payment of deferred compensation. If a payment or award is subject to Section 409A, but does not meet the requirements that exempt such amounts from taxation under such section, the recipient is subject to: (1) income tax at the time the payment or award is not subject to a substantial risk of forfeiture; (2) an additional 20% tax at that time; and (3) an additional tax equal to the amount of interest (at the underpayment rate under the Internal Revenue Code plus one percentage point) on the underpayment that would have occurred had the award been includable in the recipient's income when first deferred or, if later, when not subject to a substantial risk of forfeiture. We have made modifications to our plans and arrangements such that payments or awards under those arrangements either are intended to not constitute "deferred compensation" for Section 409A purposes (and will thereby be exempt from Section 409A's requirements) or, if they constitute "deferred compensation," are intended to comply with the Section 409A statutory provisions and final regulations.
Accounting Considerations
Accounting considerations play an important role in the design of our executive compensation program. Accounting rules require us to expense the fair value of restricted stock awards and the estimated fair value of our stock option grants which reduces the amount of our reported profits. The Compensation Committee considers the amount of this expense in determining the amount of equity compensation awards.
Dodd-Frank and Regulating Considerations
The Compensation Committee undertakes to review, consider and approve compensation decisions in accordance with proposed regulations and guidelines set forth under Dodd-Frank and bank regulators. Dodd-Frank requires the federal bank regulators and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities, including the Company and its shareholders for the executive officer to repay or forfeit all or any portion of the awards.
| |
| | Insider trading Policy | | | Our policy applies to directors, officers, employees and consultants with respect to the trading of Company’s securities, as well as the securities of publicly traded companies with whom we have a business relationship. The Company prohibits the unauthorized disclosure of any nonpublic information acquired in the workplace or otherwise as a result of an individual’s employment or other relationship with the Company or any of its subsidiaries, as well as the misuse of any material nonpublic information about the Company or any of its subsidiaries or their respective businesses in securities trading. | |
| | Prohibition on Hedging | | | Our stock trading guidelines prohibit executive officers and directors from speculating in our stock, which includes, but is not limited to, short selling (profiting if the market price of the securities decreases), buying or selling publicly traded options, including writing covered calls, and hedging or any other type of derivative arrangement that has a similar economic effect. | |
36 Heritage
Bank of Commerce
having at least $1 billion in total assets that encourage inappropriate risks by providing an executive officer, employee, director or principal stockholder with excessive compensation, fees, or benefits or that could lead to material financial loss to the entity. The proposed regulations apply to incentive compensation paid to "covered persons" at covered financial institutions, including executive officers. The proposed regulations prohibit a covered financial institution from creating or maintaining an incentive-based compensation arrangement that encourages inappropriate risks by providing a covered person either: (1) with excessive compensation; or (2) with incentive-based compensation that could lead to material financial loss to the financial institution. A compensation arrangement would be considered able to lead to material financial loss unless: (1) it balances risk and financial reward; (2) is compatible with effective controls and risk management; and (3) is supported by strong corporate governance. The Federal Reserve and Federal Deposit Insurance Corporation have also issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking.
Corp • 2023 Proxy Statement
| | Prohibition on Pledging | | | Executive officers and directors are prohibited from purchasing Company securities on margin, borrowing against Company securities held in a margin account, or pledging Company securities as collateral for a loan. | |
| | Equity Grant Practices | | | The Company’s practice is to approve annual equity awards to eligible recipients, including our NEOs, during the first quarter of the year, with the exception of grants related to new hires or other off-cycle awards. We do not backdate equity awards. In addition, we do not coordinate grants of equity awards so that they are made before announcement of favorable information, or after announcement of unfavorable information. The Company’s equity awards are granted at fair market value on a fixed date or event (the first day of service for new hires and the date of Committee approval for existing employees). We do not grant stock options with a so-called “reload” feature, nor do we loan funds to employees to enable them to exercise stock options. We have never re-priced stock options. | |
| | Compensation Risk Assessment | | | The Committee oversees a periodic risk assessment of the Company’s compensation programs to determine whether such programs are reasonably likely to have a material adverse effect on the Company. For 2022, the Committee concluded that the Company’s compensation programs were appropriately balanced to mitigate compensation-related risk with cash and stock elements, financial and non-financial goals, formal goals and discretion, and short-term and long-term rewards. The Company also has policies to mitigate compensation-related risk, including stock ownership guidelines, clawback provisions, and prohibitions on employee pledging and hedging activities, as described above. Furthermore, the Committee believes the Company’s policies on ethics and compliance along with its internal controls also mitigate against unnecessary or excessive risk-taking. The Company hired an Executive Vice President/People and Diversity Officer in 2022 to work with the Committee and external compensation advisors to ensure compensation programs and payouts are aligned with short term and long-term compensation plans and the spirit of such plans. | |
| | Tax Considerations | | | In light of Section 162(m) of the Code, it is the policy of the Committee to examine our executive compensation program to maximize the tax deductibility of compensation paid to our executive officers when and if the $1 million threshold becomes an issue. At the same time, the Committee also believes that the overall performance of our executives cannot in all cases be reduced to a fixed formula and that the prudent use of discretion in determining pay levels is in our best interests and those of our shareholders. Under some circumstances, the Committee’s use of discretion in determining appropriate amounts of compensation may be essential. In those situations where discretion is or can be used by the Committee, compensation may not be fully deductible. | |
| | Compensation Committee Interlocks and Insider Participation | | | No member of the Committee serves or has served as an employee of the Company or its subsidiaries, and there are no common participants between the compensation committee of any other entity and the Company. | |
Heritage Commerce Corp • 2023 Proxy Statement 37
Compensation Committee Report
The Personnel and Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 401(b) of Regulation S-K with management and based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
Compensation Committee of the Board
Marina H. Park Sutton, Chair
Julianne M. Biagini-Komas
ChairmanFrank G. Bisceglia
Kamran F. Husain
Robert
T. Moles
Ranson
W. Webster
38 Heritage Commerce Corp • 2023 Proxy Statement
Executive Compensation Tables
The following table provides for the periods shown, information as to compensation for services of the Company'sCompany’s principal executive officer, principal financial officer, and the three other executive officers of the Company who had the highest total compensation (as defined in accordance with applicable regulations) with respect to the year ended 20172022 (collectively referred to as the "named executive officers"“NEOs”):
Summary Compensation Table
| | Name and
Principal Position
(a) | | | Year
(b) | | | Salary
(c)(1) | | | Bonus
(d) | | | Stock
Awards
(e)(2) | | | Option
Awards
(f)(2) | | | Non-Equity
Incentive Plan
Compensation
(g)(3) | | | Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
(h)(4) | | | All Other
Compensation
(i)(5) | | | Total
($)(j) | |
| | Robertson Clay Jones*
President and Chief Executive Officer of Heritage Commerce Corp and Heritage Bank of Commerce | | | | | 2022 | | | | | $ | 447,282 | | | | | | — | | | | | $ | 488,996 | | | | | | — | | | | | $ | 232,452 | | | | | | — | | | | | $ | 28,284 | | | | | $ | 1,197,014 | | |
| | | | 2021 | | | | | $ | 353,645 | | | | | | — | | | | | $ | 180,068 | | | | | | — | | | | | $ | 215,723 | | | | | $ | 26,900 | | | | | $ | 19,655 | | | | | $ | 795,992 | | |
| | | | 2020 | | | | | $ | 322,088 | | | | | | — | | | | | $ | 64,847 | | | | | | — | | | | | $ | 128,835 | | | | | $ | 44,900 | | | | | $ | 13,534 | | | | | $ | 574,204 | | |
| | Walter T. Kaczmarek**
Former President and Chief Executive Officer of Heritage Commerce Corp and Chief Executive Officer of Heritage Bank of Commerce | | | | | 2022 | | | | | $ | 523,542 | | | | | | — | | | | | $ | 539,996 | | | | | | — | | | | | $ | 324,596 | | | | | | — | | | | | $ | 122,830 | | | | | $ | 1,510,963 | | |
| | | | 2021 | | | | | $ | 573,565 | | | | | | — | | | | | $ | 540,000 | | | | | | — | | | | | $ | 490,000 | | | | | | — | | | | | $ | 55,481 | | | | | $ | 1,659,046 | | |
| | Margo G. Butsch
Executive Vice President/Chief
Credit Officer of Heritage Bank of
Commerce | | | | | 2022 | | | | | $ | 325,397 | | | | | | — | | | | | $ | 141,129 | | | | | | — | | | | | $ | 141,547 | | | | | | — | | | | | $ | 26,290 | | | | | $ | 634,363 | | |
| | | | 2021 | | | | | $ | 309,901 | | | | | | — | | | | | $ | 141,127 | | | | | | — | | | | | $ | 173,545 | | | | | | — | | | | | $ | 28,190 | | | | | $ | 652,763 | | |
| | | | 2020 | | | | | $ | 296,525 | | | | | | — | | | | | $ | 119,474 | | | | | | — | | | | | $ | 118,610 | | | | | | — | | | | | $ | 26,199 | | | | | $ | 560,808 | | |
| | Janice Y. Coonley***
Executive Vice President/Chief People and Diversity Officer of Heritage Bank of Commerce | | | | | 2022 | | | | | $ | 153,958 | | | | | | — | | | | | $ | 139,440 | | | | | | — | | | | | $ | 66,972 | | | | | | — | | | | | $ | 40,729 | | | | | $ | 401,099 | | |
| | Lawrence D. McGovern
Executive Vice President/Chief Financial Officer of Heritage Commerce Corp and Heritage Bank of Commerce | | | | | 2022 | | | | | $ | 391,841 | | | | | | — | | | | | $ | 183,848 | | | | | | — | | | | | $ | 180,897 | | | | | | — | | | | | $ | 52,427 | | | | | $ | 809,013 | | |
| | | | 2021 | | | | | $ | 363,333 | | | | | | — | | | | | $ | 183,853 | | | | | | — | | | | | $ | 221,633 | | | | | $ | 8,700 | | | | | $ | 53,738 | | | | | $ | 831,257 | | |
| | | | 2020 | | | | | $ | 347,650 | | | | | | — | | | | | $ | 157,582 | | | | | | — | | | | | $ | 156,443 | | | | | $ | 375,900 | | | | | $ | 50,068 | | | | | $ | 1,087,643 | | |
| | Deborah K. Reuter
Executive Vice President/Chief
Risk Officer and Corporate
Secretary of Heritage Commerce
Corp and Heritage Bank of
Commerce | | | | | 2022 | | | | | $ | 331,007 | | | | | | — | | | | | $ | 143,566 | | | | | | — | | | | | $ | 143,988 | | | | | | — | | | | | $ | 28,140 | | | | | $ | 646,701 | | |
*
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Name and
Principal Position
(a) | | Year
(b) | | Salary
($)
(c)(1) | | Bonus
($)
(d) | | Stock
Awards
($)
(e)(2) | | Option
Awards
($)
(f)(2) | | Non-Equity
Incentive
Plan
Compensation
($)
(g)(3) | | Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(h)(4) | | All Other
Compensation
($)
(i)(5) | | Total
($)
(j) | |
|---|
Walter T. Kaczmarek | | | 2017 | | $ | 470,000 | | | — | | $ | 217,200 | | $ | — | | $ | 186,824 | | $ | 92,700 | | $ | 40,302 | | $ | 1,007,026 | |
President & Chief Executive Officer of Heritage | | | 2016 | | $ | 435,303 | | | — | | $ | 155,100 | | $ | — | | $ | 163,238 | | $ | 11,200 | | $ | 25,305 | | $ | 790,146 | |
Commerce Corp and Chief Executive Officer of Heritage Bank of Commerce | | | 2015 | | $ | 408,712 | | | — | | $ | 74,197 | | $ | — | | $ | 130,787 | | $ | — | | $ | 24,263 | | $ | 637,959 | |
Keith A. Wilton | | |
2017 | |
$ |
341,750 | | |
— | |
$ |
173,760 | | |
— | |
$ |
114,486 | | |
— | |
$ |
34,614 | |
$ |
664,610 | |
Executive Vice President & Chief Operating Officer of | | | 2016 | | $ | 319,250 | | | — | | $ | 93,060 | | | — | | $ | 116,526 | | | — | | $ | 12,722 | | $ | 541,558 | |
Heritage Commerce Corp and President of Heritage Bank of Commerce | | | 2015 | | $ | 301,000 | | | — | | $ | 93,600 | | | — | | $ | 96,320 | | | — | | $ | 12,222 | | $ | 503,142 | |
Michael E. Benito | | |
2017 | |
$ |
271,852 | | |
— | |
$ |
86,880 | |
$ |
— | |
$ |
91,070 | |
$ |
126,400 | |
$ |
26,258 | |
$ |
602,427 | |
Executive Vice President/Banking Division | | | 2016 | | $ | 263,352 | | | — | | $ | 77,550 | | $ | — | | $ | 96,123 | | $ | 101,000 | | $ | 20,011 | | $ | 558,036 | |
of Heritage Bank of Commerce | | | 2015 | | $ | 253,689 | | | — | | $ | 70,200 | | $ | — | | $ | 81,181 | | $ | 55,900 | | $ | 19,147 | | $ | 480,117 | |
Margo G. Butsch(6) | | |
2017 | |
$ |
190,153 | | |
— | |
$ |
21,450 | | | | |
$ |
63,701 | |
$ |
— | |
$ |
7,120 | |
$ |
282,424 | |
Executive Vice President & Chief Credit Officer of Heritage Bank of Commerce | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Lawrence D. McGovern | | |
2017 | |
$ |
293,824 | | |
— | |
$ |
130,320 | |
$ |
— | |
$ |
98,431 | |
$ |
— | |
$ |
27,118 | |
$ |
549,693 | |
Executive Vice President & Chief Financial Officer of | | | 2016 | | $ | 282,824 | | | — | | $ | 84,788 | | $ | — | | $ | 103,231 | | $ | 152,200 | | $ | 19,125 | | $ | 642,168 | |
Heritage Commerce Corp and Heritage Bank of Commerce | | | 2015 | | $ | 271,618 | | | — | | $ | 93,600 | | $ | — | | $ | 86,918 | | $ | 71,200 | | $ | 18,263 | | $ | 541,599 | |
David E. Porter(6)(7) | | |
2017 | |
$ |
147,646 | | |
— | |
$ |
115,840 | |
$ |
— | |
$ |
— | | |
— | |
$ |
21,235 | |
$ |
284,721 | |
Executive Vice President & Chief Credit Officer of | | | 2016 | | $ | 279,343 | | | — | | $ | 82,720 | | $ | — | | $ | 101,960 | | | — | | $ | 20,796 | | $ | 484,819 | |
Heritage Bank of Commerce | | | 2015 | | $ | 269,545 | | | — | | $ | 70,200 | | $ | — | | $ | 86,255 | | | — | | $ | 22,272 | | $ | 448,272 | |
Mr. Jones was promoted to President and Chief Executive Officer effective September 15, 2022. Prior to his promotion he was serving as President and Chief Operating Officer of Heritage Bank of Commerce.**
Mr. Kaczmarek served as the Company’s President and Chief Executive Office until he retired in August of 2019. He was not an officer or employee of the Company in 2020. He rejoined the Company on March 15, 2021 and he retired on September 15, 2022, but remained on the Board. Mr. Kaczmarek will not stand for reelection to the Board at the Annual Meeting.
***
Ms. Coonley joined the Company as Executive Vice President and Chief People and Diversity Officer of Heritage Bank of Commerce on July 12, 2022.
(1)
The amounts in column (c) include amounts voluntarily deferred by each of the named executive officers into their 401(k) plan accounts. For 2017,2022, each executive officer deferred $27,000, except Mr. Kaczmarek deferred $24,000, Mr. McGovernzero and Ms. Coonley deferred $24,000, Mr. Benito deferred $24,000, Ms. Butsch deferred $24,000, Mr. Porter deferred $13,000 and Mr. Wilton deferred $24,000.
$12,188.
(2)
The amounts shown in columns (e) and (f) reflect the applicable full grant date fair values for stock options and stock awards in accordance with ASC 718 (excluding the effect of forfeitures), and are reported for the fiscal year during which the stock options and stock awards were issued. The
Table of Contents
assumptions used in calculating the valuation for stock options and stock awards may be found in Note 12 to the Company'sCompany’s consolidated financial statements for the year ended December 31, 2017,2022, included in the Company'sCompany’s Annual Report on Form 10-K, filed with the SEC on March 16, 2018.
- 9, 2023.
(3)
The amounts shown in column (g) for 2017 reflect payments made under the terms of the Management Incentive Plan for 20172022 performance and paid in the first quarter of 2018.
2023.
(4)
The amounts shown in column (h) for 20172022 represent only the aggregate change in the actuarial present value of the accumulated benefit under the Company's Supplemental Executive Retirement PlanCompany’s SERP from December 31, 20162021 to December 31, 2017.2022. The amounts in column (h) were determined using interest rate and mortality rate assumptions consistent with those used in the Company'sCompany’s consolidated financial statements and include amounts which the named executive officer may not currently be entitled to receive because such amounts are not vested. Assumptions used in the calculation of these amounts are included in Note 13 to the Company'sCompany’s consolidated financial statements for the year ended December 31, 2017,2022, included in the Company'sCompany’s Annual Report on Form 10-K, filed with the SEC on March 16, 2018.
9, 2023.
Mr. Jones has a fully vested Supplemental Executive Retirement Agreement, dated November 28, 2017 (amended November 9, 2018) that was entered into with Presidio Bank. The agreement was assumed by the Company when the Company acquired Presidio Bank. Under the agreement, Mr. Jones is entitled to a present value accumulated benefit of $112,300 as of December 31, 2022. The amount shown in column (h) for 2022 represents only the aggregate change in the actuarial present value of the accumulated benefit from December 31, 2021 to December 31, 2022.
Heritage Commerce Corp • 2023 Proxy Statement 39
(5)
The amounts shown in column (i) for 2022 include the following for each named executive:
| | Named Executive | | | Economic
Value of Death
Benefit of Life
Insurance for
Beneficiaries(*) | | | 401(k) Plan
Company
Matching
Contributions | | | Other
Insurance
Benefit | | | Vacation | | | Auto
Compensation | | | Cash
Dividend on
Unvested
Restricted
Stock Award | | | Moving
Allowance | | | Total | |
| | Robertson Clay Jones | | | | $ | 650 | | | | | $ | 3,000 | | | | | $ | 1,518 | | | | | | — | | | | | $ | 7,766 | | | | | $ | 15,350 | | | | | | — | | | | | $ | 28,284 | | |
| | Walter T. Kaczmarek | | | | $ | 11,231 | | | | | | — | | | | | $ | 9,631 | | | | | $ | 70,576 | | | | | $ | 8,500 | | | | | $ | 22,892 | | | | | | — | | | | | $ | 122,830 | | |
| | Margo G. Butsch | | | | | — | | | | | $ | 3,000 | | | | | $ | 2,838 | | | | | | — | | | | | $ | 8,400 | | | | | $ | 12,052 | | | | | | — | | | | | $ | 26,290 | | |
| | Janice Y. Coonley | | | | | — | | | | | $ | 3,000 | | | | | $ | 536 | | | | | $ | 6,250 | | | | | $ | 2,823 | | | | | $ | 3,120 | | | | | $ | 25,000 | | | | | $ | 40,729 | | |
| | Lawrence D. McGovern | | | | $ | 1,576 | | | | | $ | 3,000 | | | | | $ | 8,382 | | | | | $ | 15,380 | | | | | $ | 8,400 | | | | | $ | 15,689 | | | | | | — | | | | | $ | 52,427 | | |
| | Deborah K. Reuter | | | | $ | 4,520 | | | | | $ | 3,000 | | | | | $ | 8,382 | | | | | | — | | | | | | — | | | | | $ | 12,238 | | | | | | — | | | | | $ | 28,140 | | |
| | | | | | | | | | | | | | | | | | | | | | |
Named Executive | | Economic Value
of Death Benefit
of Life
Insurance for
Beneficiaries(*) | | 401(k) Plan
Company
Matching
Contributions | | Other
Insurance
Benefit | | Vacation | | Auto
Compensation | | Cash Dividend on
Unvested
Restricted Stock
Award | | Total | |
|---|
Walter T. Kaczmarek | | $ | 8,286 | | $ | 2,000 | | $ | 6,858 | | $ | — | | $ | 12,000 | | $ | 11,158 | | $ | 40,302 | |
Keith A. Wilton | | $ | — | | $ | 2,000 | | $ | 3,564 | | $ | — | | $ | 8,400 | | $ | 20,650 | | $ | 34,614 | |
Michael E. Benito | | $ | 2,248 | | $ | 2,000 | | $ | 2,419 | | $ | 5,266 | | $ | 8,400 | | $ | 5,925 | | $ | 26,258 | |
Margo G. Butsch | | $ | — | | $ | 2,000 | | $ | 920 | | $ | — | | $ | 4,200 | | $ | — | | $ | 7,120 | |
Lawrence D. McGovern | | $ | 2,088 | | $ | 2,000 | | $ | 3,712 | | $ | 5,703 | | $ | 6,000 | | $ | 7,615 | | $ | 27,118 | |
David E. Porter | | $ | — | | $ | 2,000 | | $ | 3,825 | | $ | 7,914 | | $ | 4,358 | | $ | 3,138 | | $ | 21,235 | |
(*)
*- The economic value of the death benefit amounts shown above reflects the annual income imputed to each executive in connection with Company owned
split-dollarsplit dollar life insurance policies for which the Company has fully paid the applicable premiums. These policies are discussed under "Supplemental“Supplemental Retirement Plan for Executive Officers."
”(6)In July 2017, Mr. Porter resigned from and Ms. Butsch was promoted to Executive Vice President and Chief Credit Officer of Heritage Bank of Commerce.
(7)Restricted stock award was cancelled in July 2017 after Mr. Porter resigned.
CEO Pay Ratio
Beginning with our 2018 proxy statement, we are required
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and SEC rules require us to disclose the pay ratio of our CEO to our median employee under the Dodd-Frank Act and SEC rules.employee. The pay ratio disclosure below is a reasonable estimate calculated in a manner consistent with SEC rules and guidance. We identified the median employee for 20172022 by examining the 20172022 total W-2 compensation from our payroll and employment records, including 401(k) deferrals and 401(k) matching of up to $2,000$3,000 per employee, for all individuals, excluding our CEO, who werewas employed by us on December 31, 2017.2022. We included all employees, whether employed on a full-time, part-time,full time, part time, temporary or seasonal basis as of that payroll date. We did not make any assumptions, adjustments or estimates with respect to such total W-2 reported compensation except for the 401(k) matching as described above. We did not annualize the compensation for any full or part time employees that were not employed by us for all of 2017.2022. We believe the use of total W-2 compensation, including 401(k) deferrals and 401(k) matching of up to $3,000 per employee, for all employees is a consistently applied compensation measure. After identifying the median employee based upon the methodology described above, we calculated annual total compensation for such employee using the same methodology we used for our CEO and other
Table of Contents
named executive officers as set forth in the 20172022 Summary Compensation Table in this proxy statement. The annual total compensation in 20172022 for our median employee using this methodology was $76,211.$95,364. The annual total compensation in 20172022 for our CEO using this methodology is shown in the Summary Compensation Table and was $1,007,026.$1,309,733 which includes an additional $112,718 to annualize his salary for a full year prior to assuming the CEO position at the Company on September 15, 2022. The ratio of the annual total compensation of our CEO to the annual total compensation of our median employee in 20172022 was 1313.73 to 1.
This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on our payroll and employment records and the methodology described above. Because the SEC rules identifying the median compensated employee and calculating the pay ratio based on the
employee'semployee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates and assumptions that reflect their compensation practices, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
40 Heritage Commerce Corp • 2023 Proxy Statement
Pay Versus Performance
The following table sets forth information concerning the compensation of our NEOs for each of the fiscal years ended December 31, 2020, 2021 and 2022, and our financial performance for each such fiscal year:
Pay Versus Performance Table for 2022
| | Year
(a) | | | Summary
Compensation
Table Total
for CEO(1)
(b) | | | Compensation
Actually
Paid(4)
(c) | | | Summary
Compensation
Table Total for
CEO(2)
(d) | | | Compensation
Actually
Paid(4)
(e) | | | Summary
Compensation
Table Total for
CEO(3)
(f) | | | Compensation
Actually
Paid(4)
(g) | | | Average
Summary
Compensation
Table Total
for
Other
NEOs(5)
(h) | | | Average
Compensation
Actually
Paid to
Other
NEOs(6)
(i) | | | Value of Initial Fixed
$100 Investment
Based on: | | | Net
Income(9)
($ in
thousands)
(l) | | | Pre-Tax
Income(10)
($ in
thousands)
(m) | |
| | Cumulative
TSR(7)
(j) | | | NASDAQ
Bank
Index(8)
(k) | |
| | 2022 | | | | | n/a | | | | | | n/a | | | | | $ | 1,510,963 | | | | | $ | 1,502,691 | | | | | $ | 1,197,014 | | | | | $ | 1,310,688 | | | | | $ | 622,794 | | | | | $ | 650,479 | | | | | $ | 113.48 | | | | | $ | 101.92 | | | | | $ | 66,555 | | | | | $ | 94,366 | | |
| | 2021 | | | | $ | 1,756,569 | | | | | $ | 1,498,586 | | | | | $ | 1,659,046 | | | | | $ | 1,754,118 | | | | | | n/a | | | | | | n/a | | | | | $ | 753,751 | | | | | $ | 839,014 | | | | | $ | 101.17 | | | | | $ | 124.84 | | | | | $ | 47,700 | | | | | $ | 65,870 | | |
| | 2020 | | | | $ | 1,237,428 | | | | | $ | 1,076,898 | | | | | | n/a | | | | | | n/a | | | | | | n/a | | | | | | n/a | | | | | $ | 785,615 | | | | | $ | 588,764 | | | | | $ | 73.19 | | | | | $ | 89.37 | | | | | $ | 35,299 | | | | | $ | 49,068 | | |
(1)
The dollar amounts reported in column (b) are the amounts of total compensation reported for Keith A. Wilton (Former President and CEO) for each corresponding year in the “Total” column of the “Summary Compensation Table for 2021 and 2020.” Mr. Wilton retired from the Company on March 12, 2021.
(2)
The dollar amounts reported in column (d) are the amounts of total compensation reported for Walter T. Kaczmarek (Former President and CEO) for each corresponding year in the “Total” column of the “Summary Compensation Table for 2022 and 2021.” Mr. Kaczmarek served as the President and Chief Executive Officer in 2019 until he retired in August of 2019. He was not an officer or employee of the Company in 2020. He rejoined the Company on March 15, 2021 and retired on September 15, 2022, but remained on the Board. Mr. Kaczmarek will not stand for reelection to the Board at the Annual Meeting.
(3)
The dollar amounts reported in column (f) are the amounts of total compensation reported for Robertson Clay Jones (President and CEO) for each corresponding year in the “Total” column of the “Summary Compensation Table for 2022.” Mr. Jones was promoted to President and Chief Executive Officer effective September 15, 2022.
(4)
The dollar amounts reported in column (c), (e) and (g) represent the amount of “compensation actually paid” to (1) Mr. Wilton, (2) Mr. Kaczmarek, and (3) Mr. Jones, as computed in accordance with Item 402(v) of SEC Regulation S-K. The dollar amounts reported do not reflect the actual amount of compensation earned by or paid to (1) Mr. Wilton, (2) Mr. Kaczmarek, and (3) Mr. Jones during the applicable year. In accordance with the requirements of Item 402(v) of SEC Regulation S-K, the following adjustments were made to (1) Mr. Wilton’s, (2) Mr. Kaczmarek’s, and (3) Mr. Jones’s total compensation for each year to determine the compensation actually paid to (1) Mr. Wilton, (2) Mr. Kaczmarek, and (3) Mr. Jones, respectively:
| | | | | Year | | | Reported
Summary
Compensation
Table Total for
CEO | | | Reported
Grant Date
Fair Value of
Equity
Awards
(a) | | | Equity Award
Adjustments
(b) | | | Reported
Change in
the
Actuarial
Present
Value of
Pension
Benefits
(c) | | | Pension
Benefit
Adjustments
(d) | | | Fair Value of
Awards
Forfeited
(e) | | | Compensation
Actually Paid
to CEO | |
| | (1) | | | | | 2022 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | | | | 2021 | | | | | $ | 1,756,569 | | | | | | — | | | | | $ | 46,772 | | | | | | — | | | | | | — | | | | | $ | (304,755) | | | | | $ | 1,498,586 | | |
| | | | | | | 2020 | | | | | $ | 1,237,428 | | | | | $ | (330,000) | | | | | $ | 169,470 | | | | | | — | | | | | | — | | | | | | — | | | | | $ | 1,076,898 | | |
| | (2) | | | | | 2022 | | | | | $ | 1,510,963 | | | | | $ | (539,996) | | | | | $ | 531,724 | | | | | | — | | | | | | — | | | | | | — | | | | | $ | 1,502,691 | | |
| | | | | | | 2021 | | | | | $ | 1,659,046 | | | | | $ | (540,000) | | | | | $ | 635,072 | | | | | | — | | | | | | — | | | | | | — | | | | | $ | 1,754,118 | | |
| | | | | | | 2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | (3) | | | | | 2022 | | | | | $ | 1,197,014 | | | | | $ | (488,996) | | | | | $ | 569,915 | | | | | | — | | | | | $ | 32,755 | | | | | | — | | | | | $ | 1,310,688 | | |
| | | | | | | 2021 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | | | | 2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
(a)
The “reported grant date fair value of equity awards” represents the amount reported in the “Stock Awards” column in the “Summary Compensation Table” for 2020 to 2022.
Heritage Commerce Corp • 2023 Proxy Statement 41
(b)
The “equity award adjustments” for each applicable year include the addition or (subtraction, as applicable) of the following: (i) the year-end fair value of any equity awards granted in the applicable year that were outstanding and unvested as of the end of the applicable year and (ii) change in fair value from end of prior fiscal year to end of current fiscal year for awards made in prior fiscal years that were unvested at the end of current fiscal year; (iii) change in fair value from end of prior fiscal year to vesting date for awards made in prior fiscal years that vested during current fiscal year; (iv) for equity awards that were granted and vested in the same applicable year, the fair value of the equity awards as of the vesting date; and (v) Dividends paid on unvested shares/share units and stock options. Note that for calculation purposes dividends on unvested restricted stock are already included in the “Summary Compensation Table” under “All Other Comp.” for the applicable year. The fair value for all unvested equity awards is based on restricted stock awards with vesting periods of three and four years. The amounts deducted or added in calculating the “equity award adjustments” are as follows for (1) Mr. Wilton, (2) Mr. Kaczmarek, and (3) Mr. Jones, respectively:
| | | | | Year | | | Year-End Fair
Value of
Outstanding
and Unvested
Equity Awards
Granted in
Applicable Year | | | Year over Year
Change in Fair
Value of
Outstanding
Unvested Equity
Awards Granted
in Prior Years | | | Year over Year
Change in Fair
Value of Equity
Awards Granted
in Prior Years
That Vested in
The Year | | | Fair Value as of
Vesting Date of
Equity Awards
Granted and
Vested in the
Year | | | Dollar Value of
Dividends or
Other Earnings
Paid on Equity
Awards not
Otherwise
Reflected in Fair
Value or Total
Compensation | | | Total Equity
Award
Adjustments | |
| | (1) | | | | | 2022 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | | | | 2021 | | | | | | — | | | | | | — | | | | | $ | 46,772 | | | | | | — | | | | | | — | | | | | $ | 46,772 | | |
| | | | | | | 2020 | | | | | $ | 328,518 | | | | | $ | (88,438) | | | | | $ | (70,610) | | | | | | — | | | | | | — | | | | | $ | 169,470 | | |
| | (2) | | | | | 2022 | | | | | | — | | | | | | — | | | | | $ | (34,219) | | | | | $ | 565,943 | | | | | | — | | | | | $ | 531,724 | | |
| | | | | | | 2021 | | | | | $ | 533,300 | | | | | $ | 44,773 | | | | | $ | 56,999 | | | | | | — | | | | | | — | | | | | $ | 635,072 | | |
| | | | | | | 2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | (3) | | | | | 2022 | | | | | $ | 560,716 | | | | | $ | 13,096 | | | | | $ | (3,897) | | | | | | — | | | | | | — | | | | | $ | 569,915 | | |
| | | | | | | 2021 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | | | | 2020 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
(c)
The amounts included in this column are the amounts reported in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column of the “Summary Compensation Table” for the applicable year.
(d)
The total “pension benefit adjustments” for each applicable year include the aggregate of two components: (i) the actuarially determined pension service cost for services rendered by the CEOs during the applicable year (the “SERP service cost”) and (ii) the entire cost of benefits granted in a plan amendment (or initiation) during the applicable year that are attributed by the benefit formula to services rendered in periods prior to the plan amendment or initiation (the “SERP Prior Service Cost”), in each case, calculated in accordance with U.S. GAAP. The amounts included in this column is the SERP service cost for services rendered by Mr. Jones during 2022.
(e)
The amounts in this column reflect the fair value of awards forfeited by Mr. Wilton when he retired from the Company on March 12, 2021. The Fair value of forfeited awards are determined at the end of the prior year for awards made in prior fiscal years that were forfeited during the current fiscal year.
(5)
The dollar amounts reported in column (h) represent the average of the amounts reported for the Company’s NEOs as a group (excluding the CEOs) in the “Total” column of the ”Summary Compensation Table” for 2022, 2021 and 2020. The names of the NEOs for each applicable year are as follows:
| | Year | | | Other NEOs | | | Position | |
| | 2022 | | | Margo G. Butsch | | | Executive Vice President & Chief Credit Officer of Heritage Bank of Commerce | |
| | | | | Janice Y. Coonley | | | Executive Vice President & Chief People and Diversity Officer of Heritage Bank of Commerce | |
| | | | | Lawrence D. McGovern | | | Executive Vice President & Chief Financial Officer | |
| | | | | Deborah K. Reuter | | | Executive Vice President & Chief Risk Officer and Corporate Secretary | |
| | 2021 | | | Michael E. Benito | | | Executive Vice President /Business Banking Manager of Heritage Bank of Commerce | |
| | | | | Margo G. Butsch | | | Executive Vice President & Chief Credit Officer of Heritage Bank of Commerce | |
| | | | | Robertson Clay Jones | | | President and Chief Operating Officer of Heritage Bank of Commerce | |
| | | | | Lawrence D. McGovern | | | Executive Vice President & Chief Financial Officer | |
| | 2020 | | | Michael E. Benito | | | Executive Vice President /Business Banking Manager of Heritage Bank of Commerce | |
| | | | | Margo G. Butsch | | | Executive Vice President & Chief Credit Officer of Heritage Bank of Commerce | |
| | | | | Robertson Clay Jones | | | Executive Vice President & President of Community Business Bank Group of Heritage Bank of Commerce | |
| | | | | Lawrence D. McGovern | | | Executive Vice President & Chief Financial Officer | |
(6)
The dollar amounts reported in column (i) represent the average amount of “compensation actually paid” to the NEOs as a group (excluding the CEOs) as computed in accordance with Item 402(v) of SEC Regulation S-K. The names of the NEOs (excluding the CEOs) included for the purposes of calculating the average amounts in each applicable year are the same as the table noted in footnote (5) above. The dollar amounts reported do not reflect the actual average amount of compensation earned by or paid to the NEOs as a group (excluding the CEOs) during the applicable year. In accordance with the requirements of Item 402(v) of SEC Regulation S-K, the following adjustments were made to average total compensation for the NEOs as a group (excluding the CEOs) for each year to determine the compensation actually paid, using the same methodology described above in footnote (4).
42 Heritage Commerce Corp • 2023 Proxy Statement
| | Year | | | Average
Reported
Summary
Compensation
Table Total
for NEOs | | | Average
Reported
Grant Date
Fair Value
of Equity
Awards | | | Average
Equity Award
Adjustments(a) | | | Average
Reported
Change in the
Actuarial
Present
Value of
Pension
Benefits | | | Average
Pension
Benefit
Adjustments(b) | | | Average Fair
Value of
Awards
Forfeited | | | Average
Compensation
Actually Paid
to NEOs | |
| | 2022 | | | | $ | 622,794 | | | | | $ | (151,996) | | | | | $ | 179,681 | | | | | | — | | | | | | — | | | | | | — | | | | | $ | 650,479 | | |
| | 2021 | | | | $ | 753,751 | | | | | $ | (162,275) | | | | | $ | 232,544 | | | | | $ | (21,925) | | | | | $ | 36,919 | | | | | | — | | | | | $ | 839,014 | | |
| | 2020 | | | | $ | 785,615 | | | | | $ | (115,964) | | | | | $ | 42,875 | | | | | $ | (190,950) | | | | | $ | 67,188 | | | | | | — | | | | | $ | 588,764 | | |
(a)
The amounts deducted or added in calculating the total average equity award adjustments were determined In the same method described in footnote (4)b above and are as follows:
| | Year | | | Average Year-
End Fair
Value of
Outstanding
and Unvested
Equity
Awards
Granted in
Applicable
Year | | | Average
Year over
Year Change
in Fair Value
of
Outstanding
Unvested
Equity
Awards
Granted in
Prior Years | | | Average Year
over Year
Change in Fair
Value of Equity
Awards Granted
in Prior Years
that Vested in
the Year | | | Average Fair
Value as of
Vesting Date
of Equity
Awards
Granted and
Vested in the
Year | | | Average Dollar
Value of Dividends
or Other Earnings
Paid on Equity
Awards not
Otherwise Reflected
in Fair Value or
Total Compensation | | | Total Average
Equity Award
Adjustments | |
| | 2022 | | | | $ | 177,057 | | | | | $ | 10,798 | | | | | $ | (8,174) | | | | | | — | | | | | | — | | | | | $ | 179,681 | | |
| | 2021 | | | | $ | 160,262 | | | | | $ | 40,836 | | | | | $ | 31,446 | | | | | | — | | | | | | — | | | | | $ | 232,544 | | |
| | 2020 | | | | $ | 115,443 | | | | | $ | (40,684) | | | | | $ | (31,884) | | | | | | — | | | | | | — | | | | | $ | 42,875 | | |
(b)
The amounts added in calculating the total average pension benefit adjustments are as follows:
| | Year | | | Average
Pension
Service Cost | | | Average
SERP Prior
Service Cost | | | Average SERP
Service Cost | | | Total Average
Pension
Benefit
Adjustments | |
| | 2022 | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | 2021 | | | | | — | | | | | | — | | | | | $ | 36,919 | | | | | $ | 36,919 | | |
| | 2020 | | | | | — | | | | | $ | 36,244 | | | | | $ | 30,944 | | | | | $ | 67,188 | | |
(7)
Represents the cumulative three-year total return to shareholders of our common stock and assumes that the value of the investment was $100 on December 31, 2019 and that the subsequent dividends were reinvested. The stock price performance included in this column is not necessarily indicative of future stock price performance.
(8)
Represents a cumulative three-year total return of shareholders of a peer group calculated using the same method described in footnote (7). For 2020, 2021 and 2022, the peer group used is the “NASDAQ Bank Index” as listed under Item 5 of our Annual Report on Form 10-K for the years ended December 31, 2020, 2021 and 2022, respectively.
(9)
The dollar amounts reported represent the amount of net income (in thousands) reflected in the Company’s audited consolidated financial statements for the applicable year.
(10)
Pre-tax income has been chosen as a “Selected Performance Measure.” While the Company uses numerous financial and non-financial performance measures for the purpose of evaluating performance for the Company’s compensation programs, the Company has determined that Pre-tax income is the financial performance measure that, in the Company’s assessment, represents the most important performance measure (that is not otherwise required to be disclosed in this table) used by the Company to link compensation actually paid to the Company’s NEOs for the most recently completed fiscal year, to the Company’s performance.
Heritage Commerce Corp • 2023 Proxy Statement 43
Financial Performance Measures
As described in greater detail in the section captioned “Executive Compensation—Compensation Discussion and Analysis” The Company’s executive compensation program includes variable components in the form of annual incentive compensation and long-term incentive awards. The metrics that the Company uses for both annual incentive compensation and long-term incentive awards are selected based on an objective of incentivizing our CEO and NEOs (excluding the CEO) to increase shareholder value. The metrics are also correlated with the Company’s strategic plan as approved each year by the Board. Changes in shareholder value are reflected in compensation actually paid above through the fair value of the Company’s equity awards. Compensation actually paid for 2021 reflects an increase in the fair value of these equity awards as a result of an increase in the Company’s common share price from $8.87 at December 31, 2020 to $11.94 at December 31, 2021. Compensation actually paid for 2022 reflects an increase in the fair value of these equity awards as a result of an increase in the Company’s common share price from $11.94 at December 31, 2021 to $13.00 at December 31, 2022. The most important financial performance measures used by the Company to link executive compensation actually paid to the CEO and other NEOs (excluding the CEO) for the most recently completed fiscal year, to the Company’s performance are as follows:
•
Pre-tax Income
•
Nonperforming Assets
•
Loan Growth
•
Deposit Growth
Analysis of the Information Presented in the Pay Versus Performance Table
As described in more detail in the section captioned “Executive Compensation—Compensation Discussion and Analysis” the Company’s executive compensation program includes variable components in the form of annual incentive compensation and long- term incentive awards. While the Company utilizes several performance measures to align executive compensation with performance, all of those measures are not presented in the “Pay Versus Performance Table for 2022.” Moreover, the Company generally seeks to incentivize long-term performance and, therefore, does not specifically align the Company’s performance measures with compensation actually paid (as computed in accordance with Item 102(v) of SEC Regulation S-K) for a particular year. In accordance with Item 402(v) of SEC Regulation S-K, the Company is providing the following descriptions of the relationships between information presented in the “Pay Versus Performance Table for 2022.”
The following graphs show the relationship between the average of the compensation actually paid to our NEOs and the compensation actually paid to our CEOs (compensation actually paid is aggregated by year) to our total shareholder return, net income and pre-tax income, and the relationship between our cumulative total shareholder return and the cumulative total shareholder return of the peer group, each over the three fiscal years ending December 31, 2022 as reported in the table above.
Compensation Actually Paid and Cumulative TSR
Compensation Actually Paid vs. the Company’s TSR
44 Heritage Commerce Corp • 2023 Proxy Statement
Cumulative TSR vs. Peer Group Index
Cumulative TSR vs Peer Group Index
Compensation Actually Paid and Net Income
Though, the Company does not use net income as a performance measure in the overall executive compensation program, the measure of net income is correlated with the measure of pre-tax income which is a measure used in the overall executive compensation program.
Compensation Actually Paid vs. Net Income
Heritage Commerce Corp • 2023 Proxy Statement 45
Compensation Actually Paid and Pre-Tax Income
The Company uses pre-tax income as a performance measure in the overall executive compensation program including equity awards.
Compensation Actually Paid vs. Pre-Tax Income
Executive Contracts
Robertson Clay Jones—On October 17, 2007,11, 2019, the Company entered into an Amended and Restated Employment Agreementemployment agreement with Walter T. Kaczmarek.Robertson Clay Jones. The employment contract isagreement was for three yearsone year and is automatically renewed each month for three additional years.one year terms. Under the agreement, Mr. Kaczmarek receivesJones received an annual salary of $500,000$400,000 (last increased in December 2021) with annual increases, if any, (last increased in March 2018), as determined by the Board of Directors'Company’s Chief Executive Officer and the Personnel and Compensation Committee annual review of executive salaries. In addition to his salary, he is eligible to participateparticipated in the Management Incentive Plan. Mr. Kaczmarek participatesJones participated in the Company'sCompany’s 401(k) plan, under which he may receive matching contributions up to $2,000. He also participates in the Company's Employee Stock Ownership Plan.$3,000. The Company providesprovided to Mr. Kaczmarek,Jones, at no cost to him, group life, health, accident and disability insurance coverage for himself and his dependents. Mr. Kaczmarek isJones received an automobile allowance in the amount of $500 per month. Mr. Jones was provided with life insurance coverage in the amount of two times his then current salary but no more thannot to exceed $700,000. He iswas also provided with long-termlong term care insurance, with a lifetime benefit of up to $432,000.$72,000.
On September 15, 2022, the Company and Heritage Bank of Commerce entered into a new employment agreement with Mr. Jones at the time when he assumed his new position as President and Chief Executive Officer of the Company and Heritage Bank of Commerce. The employment agreement is for one year and is automatically renewed for one year terms. Under the agreement, Mr. Jones receives an annual salary of $560,000, which was increased as of April 1, 2023 to $622,000. He is entitled to annual increases, if any, determined by the Personnel and Compensation Committee annual review of executive salaries. Mr. Jones continues to participate in the Management Incentive Plan. Mr. Jones continues to participate in the Company’s 401(k) plan, under which he may receive matching contributions up to $3,000. The Company reimburseswill continue to provide Mr. KaczmarekJones, at no cost to him, group life, health, accident and disability insurance coverage for himself and his dependents. Mr. Jones will continue to be provided with life insurance coverage in the amount of $700,000. The Company will reimburse Mr. Jones for up to $1,200 for tax consultation and tax return preparation. He is also reimbursed for expenses that exceed insurance coverage for an annual physical examination, certain long-term care policy expenses, monthly dues for one country club membership and one business club membership. He receives an automobile allowance in the amount of $1,000 per month, together with reimbursements for gasoline and maintenance expenditures. Under his employment agreement, Mr. KaczmarekJones is entitled to certain severance benefits on termination of his employment, including a change of control. See "Change“Change of Control Arrangements and Termination of Employment."
Keith A. Wilton—”
Walter T. Kaczmarek—On February 18, 2014,April 5, 2021, the Company and Heritage Bank of Commerce entered into an Employment Agreementemployment agreement with Keith Wilton, when Mr. Wilton joinedWalter T. Kaczmarek who was appointed by the CompanyBoard as Executive Vice President and Chief Operating Officer. Effective April 1, 2017, Mr. Wilton was also promoted to PresidentExecutive Officer of Heritage Commerce Corp and Heritage Bank of Commerce. Mr. Kaczmarek retired on September 15, 2022. The employment contract isagreement was for one year and is automatically renewedprovided for automatic renewal for one year terms. Under the agreement, Mr. Wilton receivesKaczmarek received an annual salary of $361,920 (last increased in March 2018)$749,840 with annual increases, if any (last increased in March 2022), as determined by the Company's Chief Executive OfficerPersonnel and Board of Directors' Compensation Committee annual
46 Heritage Commerce Corp • 2023 Proxy Statement
review of executive salaries. He also received a grant of $540,000 of restricted stock. In addition to his salary, he iswas eligible to participate in the Management Incentive Plan. Mr. Wilton participatesKaczmarek also was eligible to participate in the Company'sCompany’s 401(k) plan, under which he maywas eligible to receive matching contributions up to $2,000. He also participates in the Company's Employee Stock Ownership Plan.$3,000. The Company provides toprovided Mr. Wilton, at no cost to him, group life, health, accident and disability insurance coverage for himself and his dependents. He also receives an automobile allowance in the amount of $700 per month. Mr. Wilton is provided with life insurance coverage in the amount of two times his salary not to exceed $700,000. He is also provided with long-term care insurance, with a lifetime benefit of up to $72,000.
Table of Contents
Under his employment agreement, Mr. Wilton is entitled to certain severance benefits on termination of his employment, including a change of control. See "Change of Control Arrangements and Termination of Employment."
Michael E. Benito—On February 1, 2012, the Company entered into an employment agreement with Michael E. Benito when he was promoted to Executive Vice President/Banking Division. The employment contract is for one year and is automatically renewed for one year terms. Under the Agreement, Mr. Benito receives an annual salary of $282,067 with annual increases, if any (last increased in March 2018), as determined by the Company's Chief Executive Officer and Board of Directors' Compensation Committee annual review of executive salaries. In addition to his salary, he is eligible to participate in the Management Incentive Plan. Mr. Benito participates in the Company's 401(k) plan, under which he may receive matching contributions up to $2,000. Mr. Benito also participates in the Company's Employee Stock Ownership Plan. The Company provides to Mr. Benito,Kaczmarek, at no cost to him, group life, health, accident and disability insurance coverage for himself and his dependents. Mr. Benito receives an automobile allowance in the amount of $700 per month, together with reimbursements for gasoline expenditures. Mr. Benito isKaczmarek was provided with life insurance coverage in the amount of two times his salary not$700,000. The Company reimbursed Mr. Kaczmarek for up to $1,200 for tax consultation and tax return preparation. He was also reimbursed for expenses that exceed $700,000. He is also provided withinsurance coverage for an annual physical examination, certain long-term care insurance,policy expenses, monthly dues for one country club membership and one business club membership. He received an automobile allowance in the amount of $1,000 per month, together with a lifetime benefit of up to $72,000.
reimbursements for gasoline and maintenance expenditures. Under his employment agreement, Mr. Benito isKaczmarek was entitled to certain severance benefits on termination of his employment, including a change ofin control. See "Change“Change of Control Arrangements and Termination of Employment."
”
Margo G. Butsch—On July 8, 2017, the Company entered into an employment agreement with Margo G. Butsch when she was promoted by the Company to Executive Vice President and Chief Credit Officer of Heritage Bank of Commerce. The employment contractagreement is for one year and is automatically renewed for one year terms. Under the agreement, Ms. Butsch receives an annual salary of $255,000$342,490 with annual increases, if any (last increased in March 2018)as of April 1, 2023), as determined by the Company'sCompany’s Chief Executive Officer and Board of Directors'the Personnel and Compensation Committee annual review of executive salaries. In addition to her salary, she is eligible to participate in the Management Incentive Plan. Ms. Butsch participates in the Company'sCompany’s 401(k) plan, under which she could receive matching contributions up to $2,000.$3,000. Ms. Butsch also participates in the Company'sCompany’s Employee Stock Ownership Plan. The Company provides to Ms. Butsch, at no cost to her, group life, health, accident and disability insurance coverage for herself and her dependents. Ms. Butsch also receives an automobile allowance in the amount of $700 per month. Ms. Butsch is provided with life insurance coverage in the amount of two times her salary not to exceed $700,000. She is also provided with long-termlong term care insurance, with a lifetime benefit of up to $72,000. Under her employment agreement, Ms. Butsch is entitled to certain severance benefits on termination of her employment, including a change of control. See "Change“Change of Control Arrangements and Termination of Employment."
”
Janice Y. Coonley—On July 12, 2022, the Company entered into an employment agreement with Janice Y. Coonley. The employment agreement is for one year and is automatically renewed for one year terms. Under the agreement, Ms. Coonley receives an annual salary of $338,000 with annual increases, if any (last increased as of April 1, 2023), as determined by the Company’s Chief Executive Officer and the Personnel and Compensation Committee annual review of executive salaries. In addition to her salary, she is eligible to participate in the Management Incentive Plan. Ms. Coonley participates in the Company’s 401(k) plan, under which she may receive matching contributions up to $3,000. The Company provides to Ms. Coonley, at no cost to her, group life, health, accident and disability insurance coverage for herself and her dependents. Ms. Coonley receives an automobile allowance in the amount of $500 per month. Ms. Coonley is provided with life insurance coverage in the amount of two times her salary not to exceed $700,000. She is also provided with long term care insurance, with a lifetime benefit of up to $72,000. At the time the employment agreement was entered into, Ms. Coonley was awarded 12,000 shares of restricted common stock that vests over three years. Under her employment agreement, Ms. Coonley is entitled to certain severance benefits on termination of her employment, including a change of control. See “Change of Control Arrangements and Termination of Employment.”
Lawrence D. McGovern—On July 21,1, 2011, the Company entered into an Employment Agreementemployment agreement with Lawrence D. McGovern. The employment contractagreement is for one year and is automatically renewed for one year terms. Under the agreement, Mr. McGovern receives an annual salary of $308,437$415,880 with annual increases, if any (last increased in March 2018)as of April 1, 2023), as determined by the Company'sCompany’s Chief Executive Officer and Board of Directors'the Personnel and Compensation Committee annual review of executive salaries. In addition to his salary, he is eligible to participate in the Management Incentive Plan. Mr. McGovern participates in the Company'sCompany’s 401(k) plan, under which he may receive matching contributions up to $2,000.$3,000. He also participates in the Company'sCompany’s Employee Stock Ownership Plan. The Company provides to Mr. McGovern, at no cost to him, group life, health, accident and disability insurance coverage for himself and his dependents. Mr. McGovern receives an automobile allowance in the amount of $500$700 per month, together with reimbursements for gasoline expenditures. Mr. McGovern is provided with life insurance coverage in the amount of two times his salary but not to exceed $700,000. He is also provided with long-termlong term care insurance, with a lifetime benefit of up to $72,000.
Table of Contents
Under his employment agreement, Mr. McGovern is entitled to certain severance benefits on termination of his employment, including a change of control. See "Change“Change of Control Arrangements and Termination of Employment."
”
Deborah K. Reuter—On March 23, 2023, the Company entered into an employment agreement with Deborah K. Reuter, which became effective on April 1, 2023. The employment agreement is for one year and is automatically renewed for one year terms. Under the agreement, Ms. Reuter receives an annual salary of $348,395 with annual increases, if any, as determined by the Company’s Chief Executive Officer and the Personnel and Compensation Committee annual review of executive salaries. In addition to her salary, she is eligible to participate in the Management Incentive Plan. Ms. Reuter participates in the Company’s 401(k) plan, under which she may receive matching contributions up to $3,000. The Company provides to Ms. Reuter, at no cost to her, group life, health,
Heritage Commerce Corp • 2023 Proxy Statement 47
accident and disability insurance coverage for herself and her dependents. Ms. Reuter receives an automobile allowance in the amount of $ 700 per month. Ms. Reuter is provided with life insurance coverage in the amount of two times her salary not to exceed $700,000. She is also provided with long term care insurance, with a lifetime benefit of up to $72,000. Under her employment agreement, Ms. Reuter is entitled to certain severance benefits on termination of her employment, including a change of control. See “Change of Control Arrangements and Termination of Employment.”
Equity Based Plans.Plans. In 2004, the Board of Directors adopted the Heritage Commerce Corp 2004 Stock Option Plan (the "2004 Plan"“2004 Equity Plan”), which was approved by the Company'sCompany’s shareholders at the 2004 Annual Meeting. The 2004 Equity Plan authorized the Company to grant stock options to officers, employees and directors of the Company and its affiliates. In 2009, the 2004 Equity Plan was amended and restated as the 2004 Equity Plan to authorize the issuance of restricted stock in addition to stock options. The 2004 Equity Planoptions and was approved by the Company'sCompany’s shareholders at the 2009 Annual Meeting. There are options for 43,418 shares outstanding all of which are vested and they expire April 30, 2023.
In 2013, the Board of Directors approved the Heritage Commerce Corp 2013 Equity Incentive Plan ("(“2013 Equity Plan"Plan”) to replace the 2004 Equity Plan. The 2013 Equity Plan was approved by the Company'sCompany’s shareholders at the 2013 Annual Meeting. At the 2020 Annual Meeting the shareholders approved an amendment to the 2013 Equity Plan to increase the number of shares authorized under the 2013 Equity Plan from 3,000,000 to 5,000,000.
The 2013 Equity Plan will terminate at the 2023 Annual Meeting. The purpose of the 2013 Equity Plan is to promote the long-term success of the Company and the creation of shareholder value. The Board of Directors believes that the availability of stock awards is a key factor in the ability of the Company to attract and retain qualified individuals to serve as directors, officers and employees. UnderThe Board has approved the Heritage Commerce Corp 2023 Equity Incentive Plan (the “2023 Equity Plan”) to replace the 2013 Equity Plan incentives are provided throughand is seeking shareholder approval of the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, and performance units (individually, an "Award"). The 20132023 Equity Plan is also intended to permitat the Annual Meeting. See “Proposal 2—Approval of the Heritage Commerce Corp 2023 Equity Incentive Plan.”
In connection with its acquisition of Presidio Bank in October 2019, the Company to grant Awards that qualify as performance based compensation under Section 162(m)assumed the Presidio Bank Amended and Restated 2006 Stock Option Plan and the Presidio Bank 2016 Equity Incentive Plan (collectively the “Presidio Equity Plans”) and the options issued and outstanding at the time of the Internal Revenue Code, 1986, as amended.acquisition. The issued and outstanding options were exchanged for options to acquire an aggregate of 1,176,757 shares of the Company’s common stock at an adjusted weighted average exercise price of $5.05.
Management Incentive Plan. The Company maintains aPlan. Under the Management Incentive Plan adopted by the Board of Directors in 2005. ExecutiveJanuary 2022, executive officers are eligible for target bonuses which are expressed as a percentage of their respective base salaries which increase as the level of performance of established goals increases. The bonuses are tied directly to the satisfaction of overall Company performance and qualitative objectives for the year. See "Compensation“Compensation Discussion and Analysis" for information about the Analysis—Management Incentive Plan.”
48 Heritage Commerce Corp • 2023 Proxy Statement
The following table provides information on the potential performance based awards available if defined performance objectives were achieved in 20172022 for each of the Company'sCompany’s named executive officers
Table of Contents
under the Company'sCompany’s Management Incentive Plan, and stock options or other stock awards granted to the named executive officers for the year ended December 31, 2017:
2022:
Grants of Plan-Based Awards
| | | | | | | | | | | Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1) | | | Estimated Future Payouts
Under Equity
Incentive Plan Awards | | | All
Other
Stock
Awards:
Number
of
Shares
of Stock
or Units
(#)(i)(2) | | | All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)(i) | | | Exercise
or Base
Price of
Option
Awards
($/Sh)
(k)(1)(3) | | | Grant
Date
Fair
Value
of
Stock
And
Options
Awards
(l)(1) | |
| | Name
(a) | | | Grant
Date
(b) | | | Threshold
(c) | | | Target
(d) | | | Maximum
(e) | | | Threshold
(f) | | | Target
(g) | | | Maximum
(h) | |
| | Robertson Clay Jones* | | | | | 5/16/2022 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 18,132 | | | | | | — | | | | | | — | | | | | $ | 199,996 | | |
| | | | 9/15/2022 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 25,000 | | | | | | — | | | | | | — | | | | | $ | 289,000 | | |
| | | | 1/27/2022 | | | | | $ | 168,000 | | | | | $ | 420,000 | | | | | $ | 560,000 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Walter T. Kaczmarek** | | | | | 5/16/2022 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 48,957 | | | | | | — | | | | | | — | | | | | $ | 539,996 | | |
| | | | 1/27/2022 | | | | | $ | 224,952 | | | | | $ | 562,380 | | | | | $ | 749,840 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Margo G. Butsch | | | | | 5/16/2022 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 12,795 | | | | | | — | | | | | | — | | | | | $ | 141,129 | | |
| | | | 1/27/2022 | | | | | $ | 98,795 | | | | | $ | 148,193 | | | | | $ | 214,056 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Janice Y. Coonley*** | | | | | 8/2/2022 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 12,000 | | | | | | — | | | | | | — | | | | | $ | 139,440 | | |
| | | | 7/12/2022 | | | | | $ | 97,500 | | | | | $ | 146,250 | | | | | $ | 211,250 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Lawrence D. McGovern | | | | | 5/16/2022 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 16,668 | | | | | | — | | | | | | — | | | | | $ | 183,848 | | |
| | | | 1/27/2022 | | | | | $ | 119,966 | | | | | $ | 199,943 | | | | | $ | 279,920 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Deborah K. Reuter | | | | | 5/16/2022 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 13,016 | | | | | | — | | | | | | — | | | | | $ | 143,566 | | |
| | | | 1/27/2022 | | | | | $ | 100,499 | | | | | $ | 150,748 | | | | | $ | 217,747 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
*
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | Estimated Future Payouts
Under Non-Equity | | Estimated Future Payouts
Under Equity | | All Other
Stock
Awards:
Number of
Shares of
Stock
or Units
(#)
(i)(2) | | All Other
Option
Awards:
Number of
Securities
Underlying
Options
(#)
(j) | |
| | Grant
Date
Fair
Value
of Stock
and
Options
Awards
(l)(3) | |
|---|
| |
| | Exercise
or Base
Price of
Option
Awards
($/Sh)
(k) | |
|---|
| |
| | Incentive Plan Awards(1) | | Incentive Plan Awards | |
|---|
Name
(a) | | Grant
Date
(b) | | Threshold
($)
(c) | | Target
($)
(d) | | Maximum
($)
(e) | | Threshold
(#)
(f) | | Target
(#)
(g) | | Maximum
(#)
(h) | |
|---|
Walter T. Kaczmarek | | | 5/2/2017 | | | — | | | — | | | — | | | — | | | — | | | — | | | 15,000 | | | — | | $ | — | | $ | 217,200 | |
| | | 3/23/2017 | | $ | 48,000 | | $ | 216,000 | | $ | 360,000 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Keith A. Wilton | | |
5/2/2017 | | | | | | | | | | | |
— | | |
— | | |
— | | |
12,000 | | |
— | |
$ |
— | |
$ |
173,760 | |
| | | 3/23/2017 | | $ | 34,800 | | $ | 139,200 | | $ | 208,800 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Michael E. Benito | | |
5/2/2017 | | |
— | | |
— | | |
— | | |
— | | |
— | | |
— | | |
6,000 | | |
— | |
$ |
— | |
$ |
86,880 | |
| | | 3/23/2017 | | $ | 27,385 | | $ | 109,541 | | $ | 164,311 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Margo G. Butsch(4) | | |
5/2/2017 | | |
— | | |
— | | |
— | | |
— | | |
— | | |
— | | |
— | | |
8,000 | |
$ |
14.48 | |
$ |
21,450 | |
| | | 3/23/2017 | | $ | 23,500 | | $ | 94,000 | | $ | 141,000 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Lawrence D. McGovern | | |
5/2/2017 | | |
— | | |
— | | |
— | | |
— | | |
— | | |
— | | |
9,000 | | |
— | |
$ |
— | |
$ |
130,320 | |
| | | 3/23/2017 | | $ | 29,657 | | $ | 118,630 | | $ | 177,944 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
David E. Porter(4)(5) | | |
5/2/2017 | | |
— | | |
— | | |
— | | |
— | | |
— | | |
— | | |
8,000 |
(5) | |
— | |
$ |
— | |
$ |
115,840 | |
| | | 3/23/2017 | | $ | 29,084 | | $ | 116,337 | | $ | 174,506 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Mr. Jones was promoted to President and Chief Executive Officer effective September 15, 2022. Prior to his promotion he was serving as President and Chief Operating Officer of Heritage Bank of Commerce.**
Mr. Kaczmarek served as the Company’s President and Chief Executive Office in 2019 until he retired in August of 2019. He was not an officer or employee of the Company in 2020. He rejoined the Company on March 15, 2021 and retired on September 15, 2022, but remained on the Board. Mr. Kaczmarek will not stand for reelection to the Board at the Annual Meeting.
***
Ms. Coonley joined the Company as Executive Vice President and Chief People and Diversity Officer of Heritage Bank of Commerce on July 12, 2022.
(1)
These potential performance-basedperformance based awards were established under the Management Incentive Plan if the indicated level of performance was achieved in 20172022 as described further in the "Compensation“Compensation and Discussion Analysis"Analysis—Management Incentive Plan” and in the discussion under "Plan“Plan Based Awards—Management Incentive Plan."” They do not represent the actual payments made to the named executive officers. The payments made for actual performance in 20172022 are reflected in column (g) in the Summary Compensation Table.
The amounts set forth for Mr. Jones reflect increases received when he became the President and Chief Executive Officer on September 15, 2022. The grant date 1/27/2022 was the initial grant date for the initial award opportunity.
(2)
This column reflects restricted stock awardawards granted in 20172022 pursuant to the 2013 Equity Incentive Plan.
(3)
The amounts shown in column (l) reflect the applicable full grant date fair values for restricted stock award in accordance with ASC 718 (excluding the effect of forfeitures), and are reported for the fiscal year during which the restricted stock awards were issued. The assumptions used in calculating the valuation for stock and options awards may be found in Note 12 to the Company'sCompany’s consolidated financial statements for the year ended December 31, 2017,2022, included in the Company'sCompany’s Annual Report on Form 10-K, filed with the SEC on March 16, 2018.
(4)In July 2017, Mr. Porter resigned from and Ms. Butsch was promoted to Executive Vice President and Chief Credit Officer of 9, 2023.
Heritage Bank of Commerce.
(5)Restricted stock award was cancelled in July 2017 after Mr. Porter resigned.
Commerce Corp • 2023 Proxy Statement 49
Equity Compensation Plan Information
The following table shows the number and weighted-averageweighted average exercise price of securities to be issued upon exercise of outstanding options, warrants and rights, and the number of securities remaining available for future issuance under equity compensation plans at December 31, 2017:2022:
| | | | | Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights
(a) | | | Weighted average
exercise price of
outstanding
options, warrants
and rights
(b) | | | Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in
column (a))
(c) | |
| | Equity compensation plans approved by security holders | | | | | 2,527,173(1) | | | | | $ | 10.44 | | | | | | 1,475,594(2) | | |
| | Equity compensation plans not approved by security holders | | | | | N/A | | | | | | N/A | | | | | | N/A | | |
(1)
| | | | | | | | | | |
| | Number of securities to
be issued upon exercise of
outstanding options,
warrants and rights
(a) | | Weighted average
exercise price of
outstanding options,
warrants and rights
(b) | | Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c) | |
|---|
Equity compensation plans approved by security holders | | | 1,602,732 | (1) | $ | 9.54 | | | 1,528,099 | (2) |
Equity compensation plans not approved by security holders | | | N/A | | | N/A | | | N/A | |
(1)- Consists of
561,13142,418 options to acquire shares under the Company'sCompany’s 2004 Equity Incentive Plan, and 1,041,6011,989,683 options to acquired shares under the Company'sCompany’s 2013 Equity Incentive Plan.
- Plan, and the aggregate amount of 495,072 stock options assumed under the Presidio Plans.
(2)
Available under the Company'sCompany’s 2013 Equity Incentive Plan.Plan which will terminate at this year’s Annual Meeting.
Table of Contents
Outstanding Equity Awards
The following table shows the number of Company shares of common stock covered by exercisable and unexercisable stock options and the number of Company unvested shares of restricted common stock held by the Company'sCompany’s named executive officers as of December 31, 2017:
2022:
Outstanding Equity Awards at Year End
| | Name
(a) | | | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(b) | | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(c) | | | Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
(d) | | | Options
Exercise
Price ($)
(e) | | | Options
Expiration
Date
(f) | | | Number
of Shares
or Units
of Stock
That
Have Not
Vested (#)
(g)(1) | | | Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
(h)(2) | | | Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested (#)
(i) | | | Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(j) | |
| | Robertson Clay Jones* | | | | | 49,399(3) | | | | | | — | | | | | | — | | | | | $ | 10.74 | | | | | | 7/1/2028 | | | | | | 55,487 | | | | | | 721,331 | | | | | | — | | | | | | — | | |
| | | | 37,050(3) | | | | | | — | | | | | | — | | | | | $ | 4.92 | | | | | | 1/29/2025 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | | | 37,050(3) | | | | | | — | | | | | | — | | | | | $ | 3.98 | | | | | | 1/30/2024 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Walter T. Kaczmarek** | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Margo G. Butsch | | | | | 8,000 | | | | | | — | | | | | | — | | | | | $ | 14.48 | | | | | | 5/2/2027 | | | | | | 25,046 | | | | | | 325,598 | | | | | | — | | | | | | — | | |
| | | | 3,000 | | | | | | — | | | | | | — | | | | | $ | 10.34 | | | | | | 5/3/2026 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Janice Y. Coonley*** | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 12,000 | | | | | | 156,000 | | | | | | — | | | | | | — | | |
| | Lawrence D. McGovern | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 32,702 | | | | | | 425,126 | | | | | | — | | | | | | — | | |
| | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Deborah K. Reuter | | | | | 9,000 | | | | | | — | | | | | | — | | | | | $ | 8.07 | | | | | | 2/27/2024 | | | | | | 25,479 | | | | | | 331,227 | | | | | | — | | | | | | — | | |
| | | | 6,000 | | | | | | — | | | | | | — | | | | | $ | 6.57 | | | | | | 4/30/2023 | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
*
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Option Awards | | Stock Awards | |
|---|
Name
(a) | | Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
(b) | | Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
(c) | | Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
(d) | | Options
Exercise
Price
($)
(e) | | Options
Expiration
Date
(f) | | Number of
Shares
or Units
of
Stock That
Have Not
Vested (#)
(g)(1) | | Market
Value of
Shares
or Units
of
Stock That
Have Not
Vested ($)
(h)(2) | | Equity
Incentive
Plan Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested (#)
(i) | | Equity
Incentive
Plan Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested ($)
(j) | |
|---|
Walter T. Kaczmarek | | | 14,375 | | | 625 | (3) | | — | | $ | 8.07 | | | 02/27/2024 | | | 30,213 | | $ | 462,863 | | | — | | | — | |
Keith A. Wilton | | |
— | | |
— | | |
— | | |
— | | |
— | | |
40,000 | |
$ |
612,800 | | |
— | | |
— | |
Michael E. Benito | | |
11,979 | | |
521 |
(3) | |
— | |
$ |
8.07 | | |
02/27/2024 | | |
15,375 | |
$ |
235,545 | | |
— | | |
— | |
| | | 10,000 | | | — | | | — | | $ | 6.57 | | | 04/30/2023 | | | — | | | — | | | — | | | — | |
| | | 4,500 | | | — | | | — | | $ | 3.57 | | | 07/26/2020 | | | — | | | — | | | — | | | — | |
| | | 4,500 | | | — | | | — | | $ | 7.43 | | | 05/04/2019 | | | — | | | — | | | — | | | — | |
| | | 7,000 | | | — | | | — | | $ | 16.00 | | | 05/22/2018 | | | — | | | — | | | — | | | — | |
Margo G. Butsch(6) | | |
1,169 | | |
6,831 |
(6)(4) | |
— | |
$ |
14.48 | | |
5/2/2027 | | |
— | | |
— | | |
— | | |
— | |
| | | 1,197 | | | 1,803 | (5) | | — | | $ | 10.34 | | | 5/3/2026 | | | — | | | — | | | — | | | — | |
Lawrence D. McGovern | | |
14,375 | | |
625 |
(3) | |
— | |
$ |
8.07 | | |
02/27/2024 | | |
20,150 | |
$ |
308,698 | | |
— | | |
— | |
| | | 15,000 | | | — | | | — | | $ | 6.57 | | | 04/30/2023 | | | — | | | — | | | — | | | — | |
David E. Porter(6) | | |
— | | |
— | | |
— | | |
— | | |
— | | |
— | | |
— | | |
— | | |
— | |
| | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Mr. Jones was promoted to President and Chief Executive Officer effective September 15, 2022. Prior to his promotion he was serving as President and Chief Operating Officer of Heritage Bank of Commerce.**
Mr. Kaczmarek served as the Company’s President and Chief Executive Office in 2019 until he retired in August of 2019. He was not an officer or employee of the Company in 2020. He rejoined the Company on March 15, 2021 and retired on September 15, 2022, but remained on the Board. Mr. Kaczmarek will not stand for reelection to the Board at the Annual Meeting.
***
Ms. Coonley joined the Company as Executive Vice President and Chief People and Diversity Officer of Heritage Bank of Commerce on July 12, 2022.
(1)
This column represents the unvested shares for restricted stock awards granted. Restricted stock awards vest 25%33% per year from the date of grant.
grant for the 2019, 2020, 2021 and 2022 awards.
50 Heritage Commerce Corp • 2023 Proxy Statement
(2)
The market value of the shares of restricted stock that have not vested is calculated by multiplying the number of shares of stock that have not vested by the closing price of our common stock at December 31, 2017,2022, as reported on The Nasdaq Global Select Market, which was $15.32.
$13.00.
(3)
Stock options granted by Presidio Bank under the Presidio Plans which the Company assumed at the effective time of the acquisition of Presidio Bank. The options vest daily over 4 years beginning February 27, 2014, and have a term of 10 years.
(4)were adjusted to reflect the acquisition exchange ratio. The options vest daily over 4 years beginning May 2, 2017, and have a term of 10 years.
(5)The options vest daily over 4 years beginning May 3, 2016, and have a term of 10 years.
(6)In July 2017, Mr. Porter resigned from and Ms. Butsch was promoted to Executive Vice President and Chief Credit Officer of Heritage Bank of Commerce.are fully vested.
Table of Contents
Option Exercises and Vested Stock Awards
The following table sets forth information with regard to the exercise and vesting of stock options and vesting of shares of restricted stock for the year ended December 31, 2017,2022, for each of the named executive officers:
Option Exercises and Stock Vested
| | | | | Option Awards | | | Stock Awards | |
| | Name
(a) | | | Number of
Shares
Acquired on
Exercise
(#)
(b) | | | Value Realized
upon Exercise
(c) | | | Number of
Shares
Acquired on
Vesting
(#)
(d) | | | Value
Realized on
Vesting
(e)(4) | |
| | Robertson Clay Jones(1) | | | | | — | | | | | | — | | | | | | 7,391 | | | | | $ | 84,351 | | |
| | Walter T. Kaczmarek(2) | | | | | — | | | | | | — | | | | | | 108,206 | | | | | $ | 1,239,720 | | |
| | Janice Y. Coonley(3) | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Margo G. Butsch | | | | | — | | | | | | — | | | | | | 14,111 | | | | | $ | 158,538 | | |
| | Lawrence D. McGovern | | | | | 30,000 | | | | | $ | 218,842 | | | | | | 18,214 | | | | | $ | 204,745 | | |
| | Deborah K. Reuter | | | | | 4,500 | | | | | $ | 20,970 | | | | | | 14,255 | | | | | $ | 160,185 | | |
(1)
| | | | | | | | | | | | | |
| | Option Awards | | Stock Awards | |
|---|
Name
(a) | | Number of
Shares Acquired
on Exercise
(#)
(b) | | Value
Realized upon
Exercise
($)
(c) | | Number of
Shares Acquired
on Vesting
(#)
(d) | | Value
Realized
on Vesting
($)
(e)(1) | |
|---|
Walter T. Kaczmarek | | | — | | | — | | | 5,732 | | $ | 82,565 | |
Keith A. Wilton | | | — | | | — | | | 21,000 | | $ | 314,170 | |
Michael E. Benito | | | — | | | — | | | 3,750 | | $ | 53,906 | |
Margo G. Butsch(2) | | | — | | | — | | | — | | | — | |
Lawrence D. McGovern | | | — | | | — | | | 4,550 | | $ | 65,364 | |
David E. Porter(2) | | | 20,490 | | | 122,737 | | | 3,875 | | $ | 55,715 | |
Mr. Jones was promoted to President and Chief Executive Officer effective September 15, 2022. Prior to his promotion he was serving as President and Chief Operating Officer of Heritage Bank of Commerce.(2)
Mr. Kaczmarek served as the Company’s President and Chief Executive Office in 2019 until he retired in August of 2019. He was not an officer or employee of the Company in 2020. He rejoined the Company on March 15, 2021 and retired on September 15, 2022, but remained on the Board. Mr. Kaczmarek will not stand for reelection to the Board at the Annual Meeting.
(3)
Ms. Coonley joined the Company as Executive Vice President and Chief People and Diversity Officer of Heritage Bank of Commerce on July 12, 2022.
(4)
The number of vested shares reflects the gross amount of shares, without netting any shares surrendered to pay taxes. The aggregate dollar amount realized upon vesting was calculated by multiplying the number of shares by the fair market value on the vesting date.
(2)In July 2017, Mr. Porter resigned from and Ms. Butsch was promoted to Executive Vice President and Chief Credit Officer of Heritage Bank of Commerce.
The Company has established a broad-basedbroad based employee benefit plan under Section 401(k) of the Internal Revenue Code of 1986 ("(“401(k) Plan"Plan”). The purpose of the 401(k) Plan is to encourage employees to save for retirement. Eligible employees may make contributions to the plan subject to the limitations of Section 401(k). The 401(k) Plan trustees administer the 401(k) Plan. The Company matched up to $2,000$3,000 of each employee'semployee’s contributions in 2017.2021. The 401(k) Plan allows highly compensated employees to contribute up to a maximum percentage of their base salary, up to the limits imposed by the Internal Revenue Code, on a pre-tax basis. Participants choose to invest their account balances from an array of investment options as selected by plan fiduciaries. The 401(k) Plan is designed to provide for distributions in a lump sum after termination of service. However, loans and in-servicein service distributions under certain circumstances such as hardship, attainment of age 591/ 1/2,, or a disability are permitted. For named executive officers, these amounts are included in the Summary Compensation Table under "All“All Other Compensation."”
Employee Stock Ownership Plan
In 1997, Heritage Bank of Commerce initiated a broad-basedbroad based employee stock ownership plan ("(“Stock Ownership Plan"Plan”). The Stock Ownership Plan was subsequently adopted by the Company as the successor corporation to Heritage Bank of Commerce. The Stock Ownership Plan allows the Company, at its option, to purchase shares of the Company common stock on the open market. To be eligible to receive an award of shares under the Stock Ownership Plan, an employee must have worked at least 1,000 hours during the year and must be employed by the Company on December 31. The executive officers have the same eligibility to receive awards as other employees of the Company. Awards under the Stock Ownership Plan generally vest over four years. In addition, the value of a participant'sparticipant’s account becomes fully vested upon reaching the age of 65 or termination of employment by death or disability. TheSince 2010, the Company has suspended
Table of Contents
contributions to the Stock Ownership Plan. The Stock Ownership Plan since 2010.was “frozen” as of January 1, 2019. The amounts of contributions to the Stock Ownership Plan for named executive officers are included in the Summary Compensation Table in the column entitled "All“All Other Compensation."
”
Heritage Commerce Corp • 2023 Proxy Statement 51
Supplemental Retirement Plan for Executive Officers
The Company has established the 2005 Amended and Restated Supplemental Executive Retirement Plan (the "SERP" or the "Plan"“SERP”) covering key employees, including several of the named executive officers. The SERP is a nonqualified defined benefit plan and is unsecured and unfunded and there are no plan assets. When the Company offers key executives participation in the SERP, the supplemental retirement benefit awarded is based on the individual'sindividual’s position within the Company and a vesting schedule determined by the desirability of incentivizing the retention element of the program. Normally the participant is 100% vested in his or her benefit at retirement, upon termination within two years from a change in control, or upon disability. However, the participant'sparticipant’s vested benefit is reduced for payment prior to retirement age in accordance with the PlanSERP terms, should that be selected by the participant. The Company has reduced its use of the SERP as a program to attract and retain executives and key employees. It has been more than sixnine years since the Company has offered SERP benefits to new executives and key employees.
Normal Retirement.Retirement. A participant whose employment terminates after normal retirement (as defined in the Plan)SERP) will receive 100% of his or her supplemental retirement benefit, payable monthly, commencing on the first of the month following retirement (unless selected otherwise by the participant and except executive officers who receive their benefit six months after retirement) and continuing until the death of the participant (unless the joint survivor option is selected).
Early Retirement.Retirement. In order to be eligible for early retirement benefits, the planSERP requires the participant to terminate employment (for reasons other than for cause or within two years from a change of control) after the date that the participant is at least 55 years old but prior to normal retirement as defined in the participant'sparticipant’s participation agreement. The participant will then receive the portion of the supplemental retirement benefit that has vested as of the actual early retirement date. However, for each year (or partial year) before normal retirement age the participant receives an early retirement benefit, the vested benefit is reduced by five percent. Unless otherwise selected by the participant, the early retirement benefit will be paid monthly, with payments to commence on the first day of the month following the participant'sparticipant’s separation from service (except executive officers who receive their benefit six months from retirement) and continuing until the death of the participant (unless the joint survivor option is selected).
Termination Beforebefore Early Retirement.Retirement. If a participant'sparticipant’s employment is terminated without cause or the participant resigns, the participant shall be eligible to receive the portion of the supplemental retirement benefit that has vested as of the effective date of termination reduced by 5% for each year (or partial year) that the participant'sparticipant’s benefits are paid prior to the participant'sparticipant’s normal retirement age. Benefits are payable monthly commencing on the first of the month elected by the participant but not before the participant'sparticipant’s early retirement age (except executive officers who receive their benefit six months from retirement), and continuing until the death of the participant (unless the joint survivor option is selected). Disability.
Disability. In the event a participant becomes disabled, the participant will receive the actuarial equivalent of his or her supplemental retirement benefit, payable monthly, commencing on the first of the month following determination that the participant is disabled and continuing until the death of the participant. Cause.
Cause. If a participant'sparticipant’s employment is terminated for cause, the participant forfeits any rights the participant may have under the SERP.
Change of Control.Control. If a participant'sparticipant’s employment is terminated for any reason (except cause or after qualifying for normal retirement) within two years following a change of control, the participant will receive 100% of his or her supplemental retirement benefit commencing at the later of the first month
Table of Contents
following the age selected by the participant or the first month following the participant'sparticipant’s separation from service (except executive officers who receive their benefit six months from separation of service), and continuing until the death of the participant (unless the joint survivor option is selected). In the event payments commence prior to the participant'sparticipant’s normal retirement age, then the benefit due to the participant will be reduced by 5% for each year (or partial year) that the participant'sparticipant’s benefit is paid prior to the participant'sparticipant’s normal retirement age.
The Company has purchased life insurance contracts on the participants in order to finance the cost of these benefits and it is anticipated that, because of the
tax-advantagedtax advantaged effect of this life insurance investment, the return on the life insurance contracts will be approximately equal to the accrued benefits to the participants under the SERP, other than in the event of accelerated vesting because of the change of control.
52 Heritage Commerce Corp • 2023 Proxy Statement
The following table shows the present value of the accumulated benefit payable to each of the named executive officers that participate in the SERP, including the number of service years credited to each named executive officer at December 31, 2017:2022:
| | Name
(a) | | | Plan Name
(b) | | | Number
of Years
Credited
Service
(#)
(c) | | | Present Value
of Accumulated
Benefit(1)(2)
($)
(d) | | | Payments
During Last
Fiscal Year
($)
(e) | |
| | Robertson Clay Jones | | | Heritage Commerce Corp SERP | | | | | 12 | | | | | $ | 112,300 | | | | | | — | | |
| | Walter T. Kaczmarek(3) | | | Heritage Commerce Corp SERP | | | | | 15 | | | | | $ | 3,316,900 | | | | | $ | 262,270 | | |
| | Lawrence D. McGovern | | | Heritage Commerce Corp SERP | | | | | 24 | | | | | $ | 1,462,600 | | | | | | — | | |
| | Deborah K. Reuter | | | Heritage Commerce Corp SERP | | | | | 29 | | | | | $ | 1,037,500 | | | | | | — | | |
(1)
| | | | | | | | | | | | |
Name
(a) | | Plan Name
(b) | | Number of
Years Credited
Service
(#)
(c) | | Present Value of
Accumulated
Benefit(1)(2)
($)
(d) | | Payments
During Last
Fiscal
Year
($)
(e) | |
|---|
Walter T. Kaczmarek | | Heritage Commerce Corp SERP | | | 13 | | $ | 3,996,000 | | | — | |
Michael E. Benito(3) | | Heritage Commerce Corp SERP | | | 14 | | $ | 704,700 | | | — | |
Lawrence D. McGovern | | Heritage Commerce Corp SERP | | | 19 | | $ | 1,268,100 | | | — | |
(1)- The amounts in column (d) were determined using interest rate and mortality rate assumptions consistent with those used in the
Company'sCompany’s consolidated financial statements and include amounts which the named executive officer may not currently be entitled to receive because such amounts are not vested. Assumptions used in the calculation of these amounts are included in Note 13 to the Company'sCompany’s consolidated financial statements for the fiscal year ended December 31, 2017,2022, included in the Company'sCompany’s Annual Report on Form 10-K, filed with the SEC on March 16, 2018.
- 9, 2023.
(2)
All SERP agreements are fully vested.
(3)
The following vesting percentages applyCompany issued a SERP agreement when Mr. Kaczmarek first joined the Company in 2005. In August 2019, Mr. Kaczmarek retired from the Company as President and Chief Executive Officer. At that time under the terms of the SERP, Mr. Kaczmarek was entitled to begin receiving the benefits payment under the SERP. Mr. Kaczmarek rejoined the Company as President and Chief Executive Officer on March 15, 2021 and at that time he was not issued an additional SERP agreement. He retired on September 15, 2022, but remained on the Board. Mr. Kaczmarek will not stand for reelection to the named executive officers who participate inBoard at the SERP:Annual Meeting. | | | | | | | | | | | | | |
End of the year prior
to termination | | Walter T.
Kaczmarek | | Michael E.
Benito(3) | | Lawrence D.
McGovern | |
|---|
12/31/2017 | | | 100 | % | | 100 | % | | 60 | % | | 100 | % |
12/31/2018 | | | 100 | % | | 100 | % | | 70 | % | | 100 | % |
12/31/2019 | | | 100 | % | | 100 | % | | 80 | % | | 100 | % |
12/31/2020 | | | 100 | % | | 100 | % | | 90 | % | | 100 | % |
12/31/2021 | | | 100 | % | | 100 | % | | 100 | % | | 100 | % |
(3)Mr. Benito has two separate SERP agreements.
Management Deferral Plan
In January 2004, the Company adopted the Heritage Commerce Corp Nonqualified Deferred Compensation Plan for certain executive officers. The purpose of the plan is to offer those employees an opportunity to elect to defer the receipt of compensation in order to provide termination of employment and related benefits taxable pursuant to Section 451 of the Internal Revenue Code of 1986, as amended. The plan is intended to be a "top-hat"“top hat” plan (i.e., an unfunded deferred compensation plan maintained for a select group of management or highly-compensatedhighly compensated employees) under Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974. The executive may elect to defer up to 100% of any bonus and 50% of any regular salary into the Management DeferralDeferred Compensation Plan. Amounts deferred are invested in a portfolio of approved investment choices as directed by the executive. Under the Management DeferralDeferred Compensation Plan, the Company may make discretionary contributions for the executive, but has not done so. Amounts deferred by executives to the plan will be distributed at a future date they have selected or upon termination of employment. The executive can select a distribution schedule of up to fifteen years. Mr. Benito and Ms. Butsch elected to participate in the plan during 2017.
Table of Contents
Change of Control Arrangements and Termination of Employment
Equity Plans. EachPlans. Several of the named executive officers holdshold options granted under the 2004 Equity Plan and the 2013 Equity Plan. Under these plans, option holders will be given 30 days advance notice of the consummation of a change of control transaction during which time the option holders will have the right to exercise their options, and all outstanding options become immediately vested. The options terminate on the consummation of the change of control. In the event the option holder dies or becomes disabled, the option holder or his or her estate will have 12 months to exercise those options that have vested as of the date of termination of employment from a disability or death.
Restricted Stock. Several of theStock. The named executive officers hold shares of restricted stock subject to vesting requirement.requirements. Under the terms of the restricted stock awards the vesting of the shares will acceleratedaccelerate upon a change of control of the Company, or the holder'sholder’s death or disability.
Supplemental Executive Retirement Plan.Plan. Several of the named executives are participants in the 2005 Amended and Restated Supplemental Executive Retirement Plan. If a participant'sparticipant’s employment is terminated without cause or the participant resigns, the participant shall be eligible to receive the portion of the supplemental retirement benefit that has vested as of the effective date of termination reduced by 5% for each year (or partial year) that the participant'sparticipant’s benefits are paid prior to the participant'sparticipant’s normal retirement age. Benefits are payable monthly commencing on the first of the month elected by the participant (except executive officers who receive their benefits six months from separation from service), but not before the participant'sparticipant’s early retirement age, and continuing until the death of the participant (unless the joint survivor option is selected). In the event a participant becomes disabled, the participant will receive the actuarial equivalent of his or her supplemental retirement benefit, payable monthly, commencing on the first of the month following determination that the participant is disabled and continuing until the death of the
Heritage Commerce Corp • 2023 Proxy Statement 53
participant. If a participant'sparticipant’s employment is terminated for cause, the participant forfeits any rights the participant may have under the plan. If a participant'sparticipant’s employment is terminated for any reason (except cause or after qualifying for normal retirement) within two years following a change of control, the participant will receive 100% of his or her supplemental retirement benefits commencing at the later of the first month following the age selected by the participant, or the first month following the participant'sparticipant’s separation from service (except executive officers who receive their benefits six months from separation from service), and continuing until the death of the participant (unless the joint survivor option is selected). In the event payments commence prior to the participant'sparticipant’s normal retirement age, then the benefit due to the participant will be reduced by 5% for each year (or partial year) that the participant'sparticipant’s benefit is paid prior to the participant'sparticipant’s normal retirement age.
Mr. Kaczmarek'sJones’ Employment Agreement.Agreement. If Mr. Kaczmarek'sJones’ employment agreement is terminated without cause, or he resigns for good reason, he will be entitled to a lump sum payment equal to two times his base salary and his highestaverage annual bonus induring the last three years. If Mr. Kaczmarek's employment is terminated or he resigns for good reason 120 days before, or within two years after, a change of control, he will be paid a lump sum of 2.75 times his base salary and highest annual bonus in the last three years. If his employment is terminated by the Company without cause, or he resigns for good reason, or as a result of a change of control the Company terminates his employment or he resigns for good reason, his participation in group insurance coverages will continue on at least the same level as at the time of termination for a period of 36 months from the date of termination. In the event that the amounts payable to Mr. Kaczmarek under the agreement constitute "excess parachute payments" under the Internal Revenue Code of 1986, as amended, that are subject to an excise or similar tax, the amounts payable to Mr. Kaczmarek will be increased so that he receives substantially the same economic benefit under the agreement had there been no such tax imposed. Additionally, following the termination of his employment, Mr. Kaczmarek has agreed to refrain from certain activities that would be competitive with the Company within the counties in California in which the Company has located its headquarters or
Table of Contents
branch offices, including refraining for 12 months from the date of termination from soliciting Company employees and customers.
Mr. Wilton's Employment Agreement. If Mr. Wilton's employment is terminated without cause, he will be entitled to a lump sum payment equal to one times his base salary and his average annual bonus in the last three years. If Mr. Wilton'sJones’ employment is terminated by the Company or he resigns for good reason 120 days before or within two years after a change in control, he will be entitled to a lump sum payment of two2.75 times his base salary and his average annual bonus induring the last three years. If hisMr. Jones’ employment is terminated by the Company without cause, his participation in group insurance coverage will continue on at least the same level as at the time of termination for a period of 1224 months from the date of termination. If Mr. Wilton'sJones’ employment is terminated by the Company as a result of a change in control, or he resigns for a good reason as a result of a change in control, these benefits will continue for an additional 2436 months from the date of termination. Additionally, following the termination of his employment, Mr. WiltonJones has agreed to refrain from certain activities that would be competitive with the Company within the counties in California in which the Company has located its headquarters or branch offices, including refraining for 12 months from the date of termination from soliciting Company employees or customers.
clients.
Mr. Benito'sKaczmarek’s Employment Agreement. IfAgreement. Mr. Benito'sKaczmarek retired from the Company on September 15, 2022. He remained on the Board. Under Mr. Kaczmarek’s employment agreement isif he was terminated without cause or he will beresigned for good reason (as defined in the agreement), he is entitled to a lump sum payment equal to onetwo times his base salary and his average annual bonus duringin the last three years.years (or shorter period if less than three years). The appointment of a new President and Chief Executive Officer within 24 months of the date of his employment agreement did not result in a severance payment under the termination without cause or good reason resignation provisions. If Mr. Benito'sKaczmarek’s employment iswas terminated by the Company or he resignsresigned for good reason 120 days before, or within two years after, a change inof control, he will be entitled towould have been paid a lump sum payment of two2.75 times his base salary and his average annual bonus duringin the last three years. If Mr. Benito's employment is terminatedyears (or shorter period if less than three years). His shares of restricted common stock granted to him under his contract was subject to vest over three years, but the vesting was accelerated when Robertson Clay Jones was appointed the new President and Chief Executive Officer. The restricted stock vesting would have also accelerated on a change of control, a termination by the Company without cause his participation in group insurance coverage will continue on at least the same level as at the time ofor a termination by Mr. Kaczmarekt for a period of 12 months from the date of termination. If Mr. Benito's employment is terminated by the Company as a result of a change in control, or he resigns for a good reason as a result of a change in control, these benefits will continue for an additional 24 months from the date of termination. In the event that the amounts payable to Mr. Benito under the agreement constituted "excess parachute payments" under the Internal Revenue Code of 1986, as amended, that are subject to an excise or similar tax, the amounts payable to Mr. Benito will be increased so that he receives substantially the same economic benefit under the agreement had there been no such tax imposed.reason. Additionally, following the termination of his employment, Mr. BenitoKaczmarek has agreed to refrain from using trade secrets or proprietary information in certain activities that would be competitive with the Company within the counties in California in which the Company has located its headquarters or branch offices, including refraining for 12 months from the date of termination from soliciting Company employees or customers.Company.
Ms. Butsch'sButsch’s Employment Agreement.Agreement. If Ms. Butsch'sButsch’s employment agreement is terminated without cause, she will be entitled to a lump sum payment equal to one times her base salary and her average annual bonus during the last three years. If Ms. Butsch'sButsch’s employment is terminated by the Company or she resigns for good reason 120 days before or within two years after a change in control, she will be entitled to a lump sum payment of two times her base salary and her average annual bonus during the last three years. If Ms. Butsch'sButsch’s employment is terminated by the Company without cause, her participation in group insurance coverage will continue on at least the same level as at the time of termination for a period of 12 months from the date of termination. If Ms. Butsch'sButsch’s employment is terminated by the Company as a result of a change in control, or she resigns for a good reason as a result of a change in control, these benefits will continue for an additional 24 months from the date of termination. Additionally, following the termination of her employment, Ms. Butsch has agreed to refrain from certain activities that would be competitive with the Company within the counties in California in which the Company has located its headquarters or branch offices, including refraining for 12 months from the date of termination from soliciting Company employees or customers.clients.
TableMs. Coonley’s Employment Agreement. If Ms. Coonley’s employment agreement is terminated without cause, she will be entitled to a lump sum payment equal to one times her base salary and her average annual bonus during the last three years. If Ms. Coonley’s employment is terminated by the Company or she resigns for good reason 120 days before or within two years after a change in control, she will be entitled to a lump sum payment of Contentstwo times her base salary and her average annual bonus during the last three years. If Ms. Coonley’s employment is terminated by the Company without cause, her participation in group insurance coverage will continue on at least the same level as at the time of termination for a period of 12 months from the date of termination. If Ms. Coonley’s employment is terminated by the Company as a result of a change in control, or she resigns for a good reason as a result of a change in control, these benefits will continue for an additional 24 months from the date of termination. Additionally, following the termination of her employment, Ms. Coonley has agreed to refrain from certain activities that would be competitive with
54 Heritage Commerce Corp • 2023 Proxy Statement
the Company within the counties in California in which the Company has located its headquarters or branch offices, including refraining for 12 months from the date of termination from soliciting Company employees or clients.
Mr. McGovern'sMcGovern’s Employment Agreement.Agreement. If Mr. McGovern'sMcGovern’s employment is terminated without cause, he will be entitled to a lump sum payment equal to one times his base salary, his highest annual bonus in the last three years and his annual automobile allowance. If Mr. McGovern'sMcGovern’s employment is terminated by the Company or he resigns for good reason 120 days before, or within two years after, a change in control, he will be entitled to a lump sum payment of two times his base salary, his highest annual bonus in the last three years and his annual automobile allowance. If the employment agreement is terminated by the Company without cause, his participation in group insurance coverage will continue on at least the same level as at the time of termination for a period of 12 months from the date of termination. If Mr. McGovern'sMcGovern’s employment is terminated as a result of a change in control during the change of control period, or he resigns for a good reason as a result of a change in control, these benefits will continue for an additional 24 months from the date of termination. In the event that the amounts payable to Mr. McGovern under the agreement constitute "excess“excess parachute payments"payments” under the Internal Revenue Code of 1986, as amended, that are subject to an excise or similar tax, the amounts payable to Mr. McGovern will be increased so that he receives substantially the same economic benefit under the agreement had there been no such tax imposed. Additionally, following the termination of his employment, Mr. McGovern has agreed to refrain from certain activities that would be competitive with the Company within the counties in California in which the Company has located its headquarters or branch offices, including refraining for 12 months from the date of termination from soliciting Company employees or customers.clients.
Ms. Reuter’s Employment Agreement. If Ms. Reuter’s employment agreement is terminated without cause, she will be entitled to a lump sum payment equal to one times her base salary and her average annual bonus during the last three years. If Ms. Reuter’s employment is terminated by the Company or she resigns for good reason 120 days before or within two years after a change in control, she will be entitled to a lump sum payment of two times her base salary and her average annual bonus during the last three years. If Ms. Reuter’s employment is terminated by the Company without cause, her participation in group insurance coverage will continue on at least the same level as at the time of termination for a period of 12 months from the date of termination. If Ms. Reuter’s employment is terminated by the Company as a result of a change in control, or she resigns for a good reason as a result of a change in control, these benefits will continue for an additional 24 months from the date of termination. Additionally, following the termination of her employment, Ms. Reuter has agreed to refrain from certain activities that would be competitive with the Company within the counties in California in which the Company has located its headquarters or branch offices, including refraining for 12 months from the date of termination from soliciting Company employees or clients.
Heritage Commerce Corp • 2023 Proxy Statement 55
The following tables summarize the payments which would be payable to our named executive officers in the event of various termination scenarios as of December 31, 2017.2022. This information is for illustrative purposes only. Regardless of the manner in which a named executive'sexecutive’s employment terminates, the officer would be entitled to: (1)(i) the vested portion of any stock option or restricted stock;stock, and (2)(ii) the vested portion of the officer'sofficer’s benefit under the Supplemental Executive Retirement Plan.SERP.
| | | | | Change in
Control | | | Involuntary
Termination
Without Cause | | | Termination for
Good Reason | | | Death | | | Disability | |
| | Robertson Clay Jones(1) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash severance under employment agreement | | | | $ | 1,986,470 | | | | | $ | 1,444,705 | | | | | $ | 1,444,705 | | | | | $ | — | | | | | $ | — | | |
| | Health insurance premiums | | | | | 158,052 | | | | | | 79,026 | | | | | | 79,026 | | | | | | — | | | | | | — | | |
| | Life insurance benefits | | | | | — | | | | | | — | | | | | | — | | | | | | 700,000 | | | | | | 180,000(4) | | |
| | Long-term care insurance benefits | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 72,000 | | |
| | Supplemental executive retirement plan(5) | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Split-dollar death benefits (upon death) | | | | | — | | | | | | — | | | | | | — | | | | | | 800,000 | | | | | | — | | |
| | Unvested restricted stock awards (accelerated) | | | | | 721,331 | | | | | | — | | | | | | — | | | | | | 721,331 | | | | | | 721,331 | | |
| | Outplacement services (layoff) | | | | | — | | | | | | 5,000 | | | | | | 5,000 | | | | | | — | | | | | | — | | |
| | Total: | | | | $ | 2,865,853 | | | | | $ | 1,528,731 | | | | | $ | 1,528,731 | | | | | $ | 2,221,331 | | | | | $ | 973,331 | | |
| | Walter T. Kaczmarek(2) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash severance under employment agreement | | | | $ | 2,925,502 | | | | | $ | 2,127,638 | | | | | $ | 2,127,638 | | | | | $ | — | | | | | $ | — | | |
| | Health insurance premiums | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Life insurance benefits | | | | | — | | | | | | — | | | | | | — | | | | | | 700,000 | | | | | | 180,000(4) | | |
| | Long-term care insurance benefits | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 72,000 | | |
| | Supplemental executive retirement plan(5) | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Split-dollar death benefits (upon death) | | | | | — | | | | | | — | | | | | | — | | | | | | 3,085,464 | | | | | | — | | |
| | Outplacement services (layoff) | | | | | — | | | | | | 5,000 | | | | | | 5,000 | | | | | | — | | | | | | — | | |
| | Total: | | | | $ | 2,925,502 | | | | | $ | 2,132,638 | | | | | $ | 2,132,638 | | | | | $ | 3,785,464 | | | | | $ | 252,000 | | |
| | Margo G. Butsch | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash severance under employment agreement | | | | $ | 911,378 | | | | | $ | 455,689 | | | | | | — | | | | | $ | — | | | | | $ | — | | |
| | Health insurance premiums | | | | | 158,052 | | | | | | 79,026 | | | | | | — | | | | | | — | | | | | | — | | |
| | Life insurance benefits | | | | | — | | | | | | — | | | | | | — | | | | | | 658,634 | | | | | | 180,000(4) | | |
| | Long-term care insurance benefits | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 72,000 | | |
| | Unvested restricted stock awards (accelerated) | | | | | 325,598 | | | | | | — | | | | | | — | | | | | | 325,598 | | | | | | 325,598 | | |
| | Total: | | | | $ | 1,395,028 | | | | | $ | 534,715 | | | | | | — | | | | | $ | 984,232 | | | | | $ | 577,598 | | |
| | Janice Y. Coonley(3) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash severance under employment agreement | | | | $ | 783,944 | | | | | $ | 391,972 | | | | | | — | | | | | $ | — | | | | | $ | — | | |
| | Health insurance premiums | | | | | 50,572 | | | | | | 25,286 | | | | | | — | | | | | | — | | | | | | — | | |
| | Life insurance benefits | | | | | — | | | | | | — | | | | | | — | | | | | | 650,000 | | | | | | 180,000(4) | | |
| | Long-term care insurance benefits | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 72,000 | | |
| | Unvested restricted stock awards (accelerated) | | | | | 156,000 | | | | | | — | | | | | | — | | | | | | 156,000 | | | | | | 156,000 | | |
| | Total: | | | | $ | 990,516 | | | | | $ | 417,258 | | | | | | — | | | | | $ | 806,000 | | | | | $ | 408,000 | | |
56 Heritage Commerce Corp • 2023 Proxy Statement
| | | | | | | | | | | | | | | | |
| | Change in
Control | | Involuntary
Termination
Without
Cause | | Termination
for
Good Reason | | Death | | Disability | |
|---|
Walter T. Kaczmarek | | | | | | | | | | | | | | | | |
Cash severance under employment agreement | | $ | 1,768,905 | | $ | 1,286,476 | | $ | 1,286,476 | | $ | — | | $ | — | |
Health and life insurance premiums | | | 109,375 | | | 109,375 | | | 109,375 | | | — | | | — | |
Health and life insurance benefits | | | — | | | — | | | — | | | 700,000 | | | 180,000 | (3) |
Long-term care insurance benefits | | | — | | | — | | | — | | | — | | | 72,000 | |
Split-dollar death benefits (upon death) | | | — | | | — | | | — | | | 2,991,233 | | | — | |
Unvested stock options (accelerated) | | | 4,531 | | | — | | | — | | | — | | | — | |
Unvested restricted stock awards (accelerated) | | | 462,863 | | | 462,863 | | | 462,863 | | | 462,863 | | | 462,863 | |
Outplacement services (layoff) | | | 5,000 | | | — | | | — | | | — | | | — | |
IRC 280(G) excise tax gross-up | | | 1,153,744 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
Total: | | $ | 3,504,418 | | $ | 1,858,714 | | $ | 1,858,714 | | $ | 4,154,096 | | $ | 714,863 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Keith A. Wilton | | | | | | | | | | | | | | | | |
Cash severance under employment agreement | | $ | 911,631 | | $ | 455,815 | | $ | — | | $ | — | | $ | — | |
Health and life insurance premiums | | | 6,811 | | | 3,405 | | | — | | | — | | | — | |
Health and life insurance benefits | | | — | | | — | | | — | | | 696,000 | | | 180,000 | (3) |
Long-term care insurance benefits | | | — | | | — | | | — | | | — | | | 72,000 | |
Unvested restricted stock awards (accelerated) | | | 612,800 | | | — | | | — | | | 612,800 | | | 612,800 | |
| | | | | | | | | | | | | | | | | |
Total: | | $ | 1,531,242 | | $ | 459,221 | | $ | — | | $ | 1,308,800 | | $ | 864,800 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | Change in
Control | | | Involuntary
Termination
Without Cause | | | Termination for
Good Reason | | | Death | | | Disability | |
| | Lawrence D. McGovern | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash severance under employment agreement | | | | $ | 1,259,836 | | | | | $ | 629,918 | | | | | | — | | | | | $ | — | | | | | $ | — | | |
| | Health insurance premiums | | | | | 111,248 | | | | | | 55,624 | | | | | | — | | | | | | — | | | | | | — | | |
| | Life insurance benefits | | | | | — | | | | | | — | | | | | | — | | | | | | 700,000 | | | | | | 180,000(4) | | |
| | Long-term care insurance benefits | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 72,000 | | |
| | Supplemental executive retirement plan(5) | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Unvested restricted stock awards (accelerated) | | | | | 425,126 | | | | | | — | | | | | | — | | | | | | 425,126 | | | | | | 425,126 | | |
| | Split-dollar death benefits (upon death) | | | | | — | | | | | | — | | | | | | — | | | | | | 829,487 | | | | | | — | | |
| | Total: | | | | $ | 1,796,210 | | | | | $ | 685,542 | | | | | | — | | | | | $ | 1,954,613 | | | | | $ | 677,126 | | |
| | Deborah K. Reuter | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cash severance under employment agreement | | | | $ | 927,042 | | | | | $ | 463,521 | | | | | | — | | | | | $ | — | | | | | $ | — | | |
| | Health insurance premiums | | | | | 68,782 | | | | | | 34,391 | | | | | | — | | | | | | — | | | | | | — | | |
| | Life insurance benefits | | | | | — | | | | | | — | | | | | | — | | | | | | 669,990 | | | | | | 180,000(4) | | |
| | Long-term care insurance benefits | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | 72,000 | | |
| | Supplemental executive retirement plan(5) | | | | | — | | | | | | — | | | | | | — | | | | | | — | | | | | | — | | |
| | Unvested restricted stock awards (accelerated) | | | | | 331,227 | | | | | | — | | | | | | — | | | | | | 331,227 | | | | | $ | 331,227 | | |
| | Split-dollar death benefits (upon death) | | | | | — | | | | | | — | | | | | | — | | | | | | 588,869 | | | | | | — | | |
| | Total: | | | | $ | 1,327,051 | | | | | $ | 497,912 | | | | | | — | | | | | $ | 1,590,086 | | | | | $ | 583,227 | | |
(1)
TableMr. Jones was promoted to President and Chief Executive Officer effective September 15, 2022. Prior to his promotion he was serving as President and Chief Operating Officer of ContentsHeritage Bank of Commerce.
| | | | | | | | | | | | | | | | |
| | Change in
Control | | Involuntary
Termination
Without
Cause | | Termination
for
Good Reason | | Death | | Disability | |
|---|
Michael E. Benito | | | | | | | | | | | | | | | | |
Cash severance under employment agreement | | $ | 730,377 | | $ | 365,189 | | $ | — | | $ | — | | $ | — | |
Health and life insurance premiums | | | 72,961 | | | 36,480 | | | — | | | — | | | — | |
Health and life insurance benefits | | | — | | | — | | | — | | | 547,704 | | | 180,000 | (3) |
Long-term care insurance benefits | | | — | | | — | | | — | | | — | | | 72,000 | |
Supplemental executive retirement plan(1)(2) | | | 62,962 | | | 28,348 | | | — | | | — | | | 37,435 | |
Unvested stock options (accelerated) | | | 3,777 | | | — | | | — | | | — | | | — | |
Unvested restricted stock awards (accelerated) | | | 235,545 | | | — | | | — | | | 235,545 | | | 235,545 | |
Split-dollar death benefits (upon death) | | | — | | | — | | | — | | | 1,249,967 | | | — | |
IRC 280(G) excise tax gross-up | | | 500,300 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
Total: | | $ | 1,605,922 | | $ | 430,017 | | $ | — | | $ | 2,033,216 | | $ | 524,980 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Margo G. Butsch | | | | | | | | | | | | | | | | |
Cash severance under employment agreement | | $ | 556,701 | | $ | 278,351 | | $ | — | | $ | — | | $ | — | |
Health and life insurance premiums | | | 58,043 | | | 29,022 | | | — | | | — | | | — | |
Health and life insurance benefits | | | — | | | — | | | — | | | 470,000 | | | 156,651 | (3) |
Long-term care insurance benefits | | | — | | | — | | | — | | | — | | | 72,000 | |
Unvested stock options (accelerated) | | | 14,717 | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | |
Total: | | $ | 629,461 | | $ | 307,372 | | $ | — | | $ | 470,000 | | $ | 228,651 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Lawrence D. McGovern | | | | | | | | | | | | | | | | |
Cash severance under employment agreement | | $ | 811,610 | | $ | 405,800 | | $ | — | | $ | — | | $ | — | |
Health and life insurance premiums | | | 104,038 | | | 52,019 | | | — | | | — | | | — | |
Health and life insurance benefits | | | — | | | — | | | — | | | 593,148 | | | 180,000 | (3) |
Long-term care insurance benefits | | | — | | | — | | | — | | | — | | | 72,000 | |
Unvested stock options (accelerated) | | | 4,531 | | | — | | | — | | | — | | | — | |
Unvested restricted stock awards (accelerated) | | | 308,698 | | | — | | | — | | | 308,698 | | | 308,698 | |
Split-dollar death benefits (upon death) | | | — | | | — | | | — | | | 933,823 | | | — | |
| | | | | | | | | | | | | | | | | |
Total: | | $ | 1,228,877 | | $ | 457,824 | | $ | — | | $ | 1,835,669 | | $ | 560,698 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
(1)Assumes executive selected age 62 for commencement(2)
Mr. Kaczmarek served as the Company’s President and Chief Executive Office in 2019 until he retired in August of 2019. He was not an officer or employee of the payment of this benefit.
(2)The amount reflectedCompany in 2020. He rejoined the table isCompany on March 15, 2021 and retired on September 15, 2022, but remained on the incremental increase in the benefit payableBoard. Mr. Kaczmarek will not stand for reelection to the named executive officer in addition toBoard at the benefit payable underAnnual Meeting.
(3)
Ms. Coonley joined the termsCompany as Executive Vice President and Chief People and Diversity Officer of the Supplemental Executive Retirement Plan. See "Supplemental Retirement Plan for Executive Officers" and the tables included therein for information about the valueHeritage Bank of the accumulated benefit payable to each named executive officer.
(3)Commerce on July 12, 2022.
(4)
This balance represents the annual payment of long-term disability for the named executive officers. This long-term payment would begin after an elimination period and a twenty-five week short term disability period. This long-term disability payment will increase by 3% (cost of living adjustment) over the first ten years of payments and cease at age 65.
(5)
The SERP agreement is fully vested.
Heritage Commerce Corp • 2023 Proxy Statement 57
| | | Beneficial Ownership of
Common Stock | |
The following table sets forth information as of Contents Director Compensation
This section provides information regardingFebruary 28, 2023, pertaining to beneficial ownership of the compensation policies for non-employeeCompany’s common stock by persons known to the Company to own 5% or more of the Company’s common stock, directors and amounts paidnominees to thesebe elected to the Board, the executive officers named in the Summary Compensation Table presented in this proxy statement, and all directors in 2017. Mr. Kaczmarek does not receive any separate compensation for his serviceand executive officers of the Company, as a director.
The Companygroup. This information has a policy of compensating non-employee directors for their service onbeen obtained from the Board and Board committeesCompany’s records, or from information furnished directly by the individual or entity to the Company.
For purposes of the Company. On an annual basis,following table, shares issuable pursuant to stock options which may be exercised within 60 days of February 28, 2023, are deemed to be issued and outstanding and have been treated as outstanding in determining the Compensation Committee reviews director compensation, includingamount and nature of beneficial ownership and in calculating the individual feespercentage of ownership of those individuals possessing such interest, but not for any other individuals.
| | Name of Beneficial Owner(1) | | | Position | | | Shares
Beneficially
Owner(2)(3) | | | Exercisable
Options | | | Percent of
Class(3) | |
| | Julianne M. Biagini-Komas | | | Director | | | | | 40,924(4) | | | | | | — | | | | | | * | | |
| | Margo G. Butsch | | | Executive Vice President and Chief Credit Officer of
Heritage Bank of Commerce | | | | | 67,877(5)(24) | | | | | | 11,000 | | | | | | * | | |
| | Bruce H. Cabral | | | Director | | | | | 118,976(6) | | | | | | 17,290 | | | | | | * | | |
| | Jack W. Conner | | | Director and Chairman of the Board | | | | | 136,339(7) | | | | | | — | | | | | | * | | |
| | Janice Y. Coonley | | | Executive Vice President/Chief People and Diversity
Officer | | | | | 12,000(8)(24) | | | | | | — | | | | | | * | | |
| | Jason DiNapoli | | | Director | | | | | 377,165(9) | | | | | | — | | | | | | * | | |
| | Stephen G. Heitel | | | Director | | | | | 194,430(10) | | | | | | 93,499 | | | | | | * | | |
| | Kamran F. Husain | | | Director | | | | | 6,436(11) | | | | | | — | | | | | | * | | |
| | Robertson Clay Jones | | | President and Chief Executive Officer | | | | | 318,149(12)(24) | | | | | | 123,499 | | | | | | * | | |
| | Walter T. Kaczmarek | | | Director | | | | | 179,808(13)(14)(24) | | | | | | — | | | | | | * | | |
| | Lawrence D. McGovern | | | Executive Vice President and Chief Financial Officer | | | | | 140,526(15)(24) | | | | | | — | | | | | | * | | |
| | Robert T. Moles | | | Director | | | | | 52,560(16)(17) | | | | | | — | | | | | | * | | |
| | Deborah K. Reuter | | | Executive Vice President/Chief Risk Officer and
Corporate Secretary | | | | | 94,967(18)(24) | | | | | | 15,000 | | | | | | * | | |
| | Laura Roden | | | Director | | | | | 42,311(19) | | | | | | 4,000 | | | | | | * | | |
| | Marina H. Park Sutton | | | Director | | | | | 112,843(20) | | | | | | 22,230 | | | | | | * | | |
| | Ranson W. Webster | | | Director | | | | | 647,889(21) | | | | | | 9,000 | | | | | | 1.06% | | |
| | All directors, and executive officers
(16 individuals) | | | | | | | | 2,543,200 | | | | | | 295,518 | | | | | | 4.15% | | |
| | BlackRock Inc. | | | | | | | | 4,971,935(22) | | | | | | — | | | | | | 8.16% | | |
| | T. Rowe Price Investment Management,
Inc. | | | | | | | | 5,621,035(23) | | | | | | — | | | | | | 9.22% | | |
*
Less than one percent (1%).
(1)
Except as otherwise noted, the address for all persons is c/o Heritage Commerce Corp, 224 Airport Parkway, San Jose, California, 95110.
(2)
Subject to applicable community property laws and retainers,shared voting and investment power with a spouse, the componentspersons listed have sole voting and investment power with respect to such shares unless otherwise noted. Listed amounts reflect all previous stock splits and stock dividends.
(3)
Includes shares beneficially owned (including options exercisable within 60 days of compensation,February 28, 2023, as well asshown in the total amount of director compensation appropriate for the Company. In 2017, each director received an annual retainer fee of $50,000. The chairman of each standing committee of the Board received an additional $6,000 per year, and the Chairman of the Board receives an additional $17,500 per year. Board Members are not paid separate fees for attending Board or committee meetings.
The Compensation Committee has adopted a policy to grant directors restricted stock on an annual basis in lieu of stock options. Under this policy directors are entitled to awards“Exercisable Options” column).
(4)
Includes 4,436 shares of restricted stock with an economic valuethat have not vested and of which Ms. Biagini-Komas has the right to vote.
(5)
Includes 25,046 shares of restricted stock that have not vested and of which Ms. Butsch has the right to vote.
58 Heritage Commerce Corp • 2023 Proxy Statement
| | Beneficial Ownership of Common Stock | |
(6)
Includes 92,995 shares held indirectly by trust. Also includes 4,436 shares of restricted stock that have not vested and of which Mr. Cabral has the right to vote.
(7)
Includes 29,344 shares held by Mr. Conner’s spouse. Also includes 7,542 shares of restricted stock that have not vested and of which Mr. Conner has the right to vote.
(8)
Includes 12,000 shares of restricted stock that have not vested and of which Ms. Coonley has the right to vote.
(9)
Includes 336,527 shares held by a partnership. Also includes 4,436 shares of restricted stock that have not vested and of which Mr. DiNapoli has the right to vote.
(10)
Includes 48,308 shares held by Individual Retirement Account. Also includes 4,436 shares of restricted stock that have not vested and of which Mr. Heitel has the right to vote.
(11)
Includes 4,436 shares of restricted stock that have not vested and of which Mr. Husain has the right to vote.
(12)
Includes 139,163 shares held directly. Also includes 55,487 shares of restricted stock that have not vested and of which Mr. Jones has the right to vote.
(13)
Mr. Kaczmarek rejoined the Company as President and Chief Executive Officer on March 15, 2021 and retired on September 15, 2022, but remained on the dateBoard. Mr. Kaczmarek will not stand for reelection to the Board at the Annual Meeting.
(14)
Includes 42,906 shares held in a personal Individual Retirement Account. Includes 28,696 shares held indirectly by trust.
(15)
Includes 4,980 shares held by Mr. McGovern in a personal Individual Retirement Account. Includes 97,029 shares held indirectly by trust. Also includes 32,702 shares of grantrestricted stock that have not vested and of which Mr. McGovern has the right to exceedvote.
(16)
Includes 4,436 shares of restricted stock that have not vested and of which Mr. Moles has the following:right to vote.
| | | | |
Board Chairman | | $ | 25,000 | |
Board members (non-chairman) | | $ | 20,000 | |
In 2017, each
Mr. Moles will not stand for reelection to the Board at the Annual Meeting.
(18)
Includes 25,479 shares of restricted stock that have not vested and of which Ms. Reuter has the right to vote.
(19)
Includes 4,436 shares of restricted stock that have not vested and of which Ms. Roden has the right to vote.
(20)
Includes 43,225 shares held indirectly by a trust. Also includes 4,436 shares of restricted stock that have not vested and of which Ms. Sutton has the right to vote.
(21)
Includes 8,493 shares held indirectly. Also includes 4,436 shares of restricted stock that have not vested and of which Mr. Webster has the right to vote.
(22)
BlackRock, Inc. is an investment management firm and may be deemed to beneficially own 4,971,953 shares of the directors received restricted stock in accordance withCompany, which are held of record by clients of BlackRock, Inc. The address for BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055. All of the above schedule. The following table summarizes the compensation of non-employee directors for the year ended December 31, 2017:
Director Compensation Table
| | | | | | | | | | | | | | | | | | | | | | | | | |
Name
(a) | | Fees
Earned or
Paid in
Cash
($)
(b) | | Stock
Awards
($)
(c) | | Options
Awards
($)
(d)(1) | | Non-Equity
Incentive
Plan
Compensation
($)
(e) | | Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(f)(2) | | Cash
Dividend
on Unvested
Restricted
Stock Award
($)
(g) | | All Other
Compensation
($)
(h)(3) | | Total
($)
(i) | |
|---|
Julianne M. Biagini-Komas | | $ | 54,000 | | $ | 19,997 | | | — | | | — | | | — | | $ | 608 | | | — | | $ | 74,605 | |
Frank G. Bisceglia | | $ | 55,333 | | $ | 19,997 | | | — | | | — | | $ | 8,200 | | $ | 1,006 | | $ | 669 | (3) | $ | 85,205 | |
Jack W. Conner | | $ | 72,000 | | $ | 25,007 | | | — | | | — | | $ | 6,900 | | $ | 1,326 | | $ | 1,209 | (3) | $ | 106,442 | |
J. Philip DiNapoli | | $ | 50,000 | | $ | 19,997 | | | — | | | — | | | — | | $ | 608 | | | — | | $ | 70,605 | |
Steven L. Hallgrimson | | $ | 55,333 | | $ | 19,997 | | | — | | | — | | | — | | $ | 1,006 | | | — | | $ | 76,336 | |
Robert T. Moles | | $ | 51,333 | | $ | 19,997 | | | — | | | — | | $ | 36,900 | | $ | 1,006 | | | — | | $ | 109,236 | |
Laura Roden | | $ | 55,333 | | $ | 19,997 | | | — | | | — | | | — | | $ | 1,006 | | | — | | $ | 76,336 | |
Ranson W. Webster | | $ | 55,333 | | $ | 19,997 | | | — | | | — | | $ | 8,100 | | $ | 1,006 | | $ | 691 | (3) | $ | 85,127 | |
(1)The amounts shown in column (c) reflect the applicable full grant date value for stock awards in accordance with ASC 718 (excluding the effect of forfeitures). See Note 12 to the Company's consolidated financial statements for the year ended December 31, 2017, included in the Company's Annual Report on Form 10-K,foregoing information has been obtained by Schedule 13G filed with the SEC on March 16, 2018.
(2)The amounts shown in column (f) represent only the aggregate change in the actuarial present valueFebruary 3, 2023.
(23)
T. Rowe Price Investment Management, Inc. is an investment management firm and may be deemed to beneficially own 5,621,035 shares of the accumulated benefit measured from December 31, 2016 to December 31, 2017, underCompany, which are held of record by clients of T. Rowe Price Investment Management, Inc. The address for T. Rowe Price Investment Management, Inc. is 101 East Pratt Street, Baltimore, MD 21201. All of the respective director compensation benefits agreements. The amounts in column (f) were determined using interest rate and mortality rate assumptions, consistent with those used in the Company's consolidated financial statements, and include amounts which the named director may not currently be entitled to receive because such amounts are not vested. Assumptions used in the calculation of these amounts are included in Note 13 to the Company's consolidated financial statements for the year ended December 31, 2017, included in the Company's Annual Report on Form 10-Kforegoing information has been obtained by Schedule 13G filed with the SEC on March 16, 2018.
(3)February 14, 2023.
(24)
The amounts shown reflectCompany’s Employee Stock Ownership Plan owns 91,343 shares of our common stock, all of which have been allocated. These include shares held for the annual income imputedaccount of the following named executive officers and includes in the table for Mr. McGovern 5,815 shares, Ms. Reuter 4,061 shares, and zero shares for Mr. Kaczmarek, Ms. Butsch, Ms. Coonley and Mr. Jones. Mr. Kaczmarek and Mr. McGovern are two of the three trustees of the Employee Stock Ownership Plan. As trustees, they have the power to each director in connection with Company owned split-dollar life insurance policiesvote any unallocated shares of the Employee Stock Ownership Plan (currently no shares are unallocated) and allocated shares for which the Company has fully paid the applicable premiums.voting instructions are not otherwise provided.
Table of Contents
Director Outstanding Stock Options and Stock Awards
Each of the non-employee directors owned the following stock options and stock awards as of December 31, 2017:
Heritage Commerce Corp • 2023 Proxy Statement 59
| | | | | | | |
Director | | Stock Options | | Stock Awards | |
|---|
Julianne M. Biagini-Komas | | | — | | | 1,381 | |
Frank G. Bisceglia | | | 25,000 | | | 2,265 | |
Jack W. Conner | | | 1,767 | | | 2,985 | |
J. Philip DiNapoli | | | — | | | 1,381 | |
Steven L. Hallgrimson | | | 6,345 | | | 2,265 | |
Robert T. Moles | | | 25,000 | | | 2,265 | |
Laura Roden | | | 12,000 | | | 2,265 | |
Ranson W. Webster | | | 25,000 | | | 2,265 | |
Director Compensation Benefits Agreement
Prior to 2007, the Company entered into individual director compensation benefits agreements with each of its then directors. These agreements were amended and restated in December, 2008 ("Benefit Agreements"). The Benefit Agreements provide an annual benefit equal to a designated applicable percentage of $1,000 times each year served as a director, subject to a 2% increase each year from the date of the commencement of payments. The applicable percentage increases over time and equals 100% after nine years of service. In the event of a disability, or a resignation or termination pursuant to a change of control, the director's applicable percentage will be accelerated to 100%. Payments of benefits will be made in equal monthly payments on the first day of each month, commencing on the later of the director's attaining the age of 62 or the month following the month in which the director separates from service on the Board and continuing until the director's death. If a director is removed from the Board for cause he or she will forfeit any benefits under the Benefit Agreement.
Company-owned split-dollar life insurance policies support the Company's obligations under the Benefit Agreements. The premiums on the policies are paid by the Company. The cash value accrued on the policies supports the payment of the supplemental benefits for each participant. In the case of death of the participant, the participant's designated beneficiaries will receive 80% of the net-at-risk insurance (which means the amount of the death benefit in excess of the cash value of the policy).
The following table shows the present value of the accumulated benefit payable to each director who has a director compensation benefit agreement, including the number of service years credited to each director under the Benefit Agreements:
| | | Proposal 1—Election of Directors | |
| | | | | | | | | | | | |
Name
(a) | | Plan Name
(b) | | Number of
Years Credited
Service
(#)
(c) | | Present Value of
Accumulated
Benefit(1)(2)
($)
(d) | | Payments
During Last
Fiscal Year
($)
(e) | |
|---|
Frank G. Bisceglia | | Heritage Commerce Corp SERP | | | 24 | | $ | 311,000 | | | — | |
Jack W. Conner | | Heritage Commerce Corp SERP | | | 14 | | $ | 127,200 | | | — | |
Robert T. Moles | | Heritage Commerce Corp SERP | | | 14 | | $ | 256,900 | | | — | |
Ranson W. Webster | | Heritage Commerce Corp SERP | | | 14 | | $ | 173,600 | | | — | |
(1)The amounts in column (d) were determined using interest rate and mortality rate assumptions consistent with those used in the Company's consolidated financial statements and include amounts which the director may not currently be entitled to receive because such amounts are not vested. Assumptions used in the calculation of these amounts are included in Note 13 to the Company's consolidated financial statements for the year ended December 31, 2017, included in the Company's Annual Report on Form 10-K, filed with the SEC on March 16, 2017.
(2)Each participant is fully vested.
Table of Contents
PROPOSAL 1—ELECTION OF DIRECTORS
The Bylaws of the Company provide that the number of directors shall not be less than 9 nor more than 15. By resolution adopted March 23, 2023 and effective immediately before the Annual Meeting, the Board of Directors has fixed the number of directors at 9 effective on the date of and prior to the Annual Meeting.10. All of our directors serve one year terms that expire at the next following annual meeting. The Bylaws of the Company provide the procedure for nominations and election of the Board of Directors.Board. For information on these procedures see "Corporate“Corporate Governance and Board Matters—Nomination of Directors."” Nominations not made in accordance with the procedures may be disregarded by the Chairman of the Annual Meeting and upon his instructions, the inspector of election will disregard all votes cast for such nominees.
The Board, of Directors, upon the recommendation of the Corporate Governance and Nominating Committee, has recommended the nomination of 910 of the current members of the Board of Directors for one year terms that will expire at the Annual Meeting to be held in 2019.2024. If any nominee should become unable or unwilling to serve as a director, the proxies will be voted at the Annual Meeting for substitute nominees designated by the Board. The Board presently has no knowledge that any of the nominees will be unable or unwilling to serve. The following provides information with respect to each individual nominated and recommended to be elected to the Board of Directors.Board. Each individual below is also a director on the Board of Directors of Heritage Bank of Commerce:JULIANNE M. BIAGINI-KOMAS, age 55, was formerly a member on the Focus Business Bank board of directors and joined the Board of Directors of the Company in August 2015. Ms. Biagini-Komas is currently the Vice President, Finance and Human Resources of CNEX Labs, Inc., San Jose, California. She was the Chief Financial Officer of Quantumscape Corporation, San Jose, California, from 2011 to 2014. Previously, she was the Chief Financial Officer of Endwave Corporation, a Nasdaq-listed company, from 1994 to 2007. Ms. Biagini-Komas has a Bachelor of Science degree in Accounting from San Jose State University and a Masters in Business Administration degree from Santa Clara University. Ms. Biagini-Komas is a Certified Public Accountant. With over 20 years of human resource administration experience, Ms. Biagini-Komas is particularly suited to serve as Chairman of the Compensation Committee. With her experience as a chief financial officer and her accounting background, Ms. Biagini-Komas provides valuable insight and perspective regarding accounting and tax issues and is particularly suited to serve as a member of the Board's Audit Committee and the Loan Committee.
FRANK G. BISCEGLIA, age 72, became a director of the Company in 1994. Mr. Bisceglia is a Senior Vice President—Investments, Advisory and Brokerage Services, Senior Portfolio Manager, Portfolio Management Program at UBS Financial Services, Inc., a full-service securities firm. Mr. Bisceglia has a Bachelor of Science degree in Industrial Management from San Jose State University. Mr. Bisceglia contributes to the Board a substantial understanding of finance and investments from over 41 years of experience as a financial advisor to corporate and high-wealth individuals. As a long-term member of the Board and Chairman of the Loan Committee, he has a broad based understanding of the Company's business and he has developed a general knowledge of the Company's credit administration and loan underwriting process.
JACK W. CONNER, age 78, became a director of the Company in 2004. Mr. Conner was elected Chairman of the Board in July, 2006. Mr. Conner was Chairman and Chief Executive Officer of Comerica California from 1991 until his retirement in 1998, and remained a director until 2002. He was President and a director of Plaza Bank of Commerce from 1979 to 1991. Prior to joining Plaza Bank of Commerce, he held various positions with Union Bank of California where he began his banking career in 1964. Mr. Conner has a Bachelor of Arts degree from San Jose State University. Mr. Conner contributes to the Board over 20 years of executive leadership and substantial experience in the community banking industry. Having served as a Chief Executive Officer and President at several successful community banks in the Company's primary market, he brings a wide-ranging understanding of bank management, finance,
Table of Contents
operations and strategic planning. His demonstrated leadership ability, judgment and executive experience led the Board to elect him as Chairman of the Board.
J. PHILIP DINAPOLI, age 78, was a member of| | Julianne M. Biagini-Komas | |
| | Age 60 | | | | Background: | |
| | | | | | Formerly a member on the Focus Business Bank board of directors from 2006 until 2015, and joined the Board of Directors of the Company in August 2015. Mr. DiNapoli is a director of J. P. DiNapoli Companies, Inc., a real estate investment, development and property management organization based in San Jose, California. Mr. DiNapoli has been a director of SJW Corp, a utility company listed on the NYSE, from 1989 until 2012, and served on the board of Comerica Incorporated, a NYSE listed bank holding company, from 1993 until 2006. He was also a founder of Plaza Commerce Corp and, from 1979 to 1993, served on the board of directors of Plaza Bank of Commerce. Mr. DiNapoli has a Bachelor of Arts degree from Stanford University and a Bachelor of Law degree from University of Santa Clara Law School. He is a member of the California State Bar Association. The Board benefits from Mr. DiNapoli's deep understanding of banking from his prior banking background and his knowledge of the local economy and his involvement in the local community. He is active in philanthropic activities in Santa Clara county.STEVEN L. HALLGRIMSON, age 76, had been practicing law in the San Jose, California area since 1969 in the areas of real estate, taxation and general business planning and is a certified public accountant. He is currently of counsel with the law firm of Berliner Cohen located in San Jose, California. Mr. Hallgrimson has founded and served as a board member for several private business entities engaged in automobile lending, commercial real estate brokerage and telecommunications. He has been an instructor at San Jose State University Business School and University of California, Santa Cruz teaching a variety of business, real estate and tax courses. Mr. Hallgrimson is a member of the California State Bar and California Society of Certified Public Accountants. He serves as a trustee and President of the Santa Clara County Law Library and is a director of Loaves & Fishes and the San Jose Sports Hall of Fame. Mr. Hallgrimson has a Bachelor of Arts degree from Claremont McKenna College and a Juris Doctor degree from the University of California at Berkeley, Boalt Hall School of Law. Mr. Hallgrimson brings legal, accounting and tax knowledge and experience to the Board and provides a valuable perspective to the Board as a result of his involvement and extensive relationships in the community in which the Company serves. His background is particularly suited to serve as Chairman of the Audit Committee and as the committee's "financial expert."
WALTER T. KACZMAREK, age 66, is President, Chief Executive Officer and joined the Board of Directors of the Company in August 2015. Ms. Biagini-Komas was formally the Vice President, Finance and Human Resources of CNEX Labs, Inc., San Jose, California (retired in April 2021). She was the Chief Financial Officer of Quantumscape Corporation, San Jose, California, from 2011 to 2014. Previously, she was the Chief Financial Officer of Endwave Corporation, a Nasdaq listed company, from 1994 to 2007. Ms. Biagini-Komas has a Bachelor of Science degree in Accounting from San Jose State University and a Masters in Business Administration degree from Santa Clara University. She is a Certified Public Accountant. With her experience as a chief financial officer and her accounting background, Ms. Biagini-Komas provides valuable insight and perspective regarding accounting and tax issues and is particularly suited to serve as the Chair of the Audit Committee. Ms. Biagini-Komas also brings 20 years of human resource administration experience, as a member of the Personnel and Compensation Committee.
| |
| | Bruce H. Cabral | |
| | Age 68 | | | | Background: | |
| | | | | | Became a director of the Company in October 2019 when the Company acquired Presidio Bank. Mr. Cabral was a director of Presidio Bank. Mr. Cabral is the former Senior Executive Vice President and Chief Credit Officer of Union Bank, in San Francisco, California. Mr. Cabral retired from Union Bank in January, 2010 after a 32 year tenure which lasted from 1977 until his retirement. Mr. Cabral brings to the Board his previous experience and knowledge of the business of Presidio Bank and his vast experience in the banking industry. He serves as Chair of the Heritage Bank of Commerce’s Loan Committee and as a member of the Finance and Investment Committee. | |
60 Heritage Commerce Corp • 2023 Proxy Statement
| | Proposal 1—Election of Directors | |
| | Jack W. Conner | |
| | Age 83 | | | | Background: | |
| | | | | | Became a director of the Company in 2004. Mr. Conner was elected Chairman of the Board in July, 2006. Mr. Conner was Chairman and Chief Executive Officer of Comerica California from 1991 until his retirement in 1998, and remained a director until 2002. He was President and a director of Plaza Bank of Commerce from 1979 to 1991. Prior to joining Plaza Bank of Commerce, he held various positions with Union Bank of California (formerly Union Bank) where he began his banking career in 1964. Mr. Conner has a Bachelor of Arts degree from San Jose State University. Mr. Conner contributes to the Board over 20 years of executive leadership and substantial experience in the community banking industry. Having served as a Chief Executive Officer and President at several successful community banks in the Company’s primary market, he brings a wide ranging understanding of bank management, finance, operations and strategic planning. His demonstrated leadership ability, judgment and executive experience led the Board to elect him as Chairman of the Board. Mr. Conner is also a member of the Strategic Initiatives Committee and the Financing Investment Committee. | |
| | Jason DiNapoli | |
| | Age 54 | | | | Background: | |
| | | | | | Became a director in 2018. He was one of the founders of 1st Century Bank, N.A., a wholly owned subsidiary of 1st Century Bancshares, Inc., headquartered in Los Angeles, California. In 2008, Mr. DiNapoli assumed the role of the President and Chief Executive Officer of 1st Century Bank and President of 1st Century Bancshares, Inc. He served in this role until July 1, 2016, when 1st Century Bancshares, Inc. was acquired by Midland Financial Co., a privately held bank holding company based in Oklahoma City, Oklahoma, as a division of MidFirst Bank, a subsidiary of Midland. Mr. DiNapoli presently serves as an Executive Vice President of MidFirst Bank and President and Chief Executive Officer of the 1st Century Bank division. Before joining 1st Century Bank, Mr. DiNapoli was vice president of finance for JP DiNapoli Companies Inc., a real estate investment, development and property management organization. Prior thereto, he served as a Vice President at Union Bank of California (formerly Union Bank). Mr. DiNapoli earned a bachelor’s degree from the University of California, Berkeley. He is active in numerous community organizations. Mr. DiNapoli brings to the Board his extensive experience and knowledge in banking and finance and management experience in the financial industry as well as experience as a board member of a publicly traded bank holding company. Mr. DiNapoli is a member of the Corporate Governance and Nominating Committee, the Finance and Investment Committee and the Heritage Bank of Commerce’s Loan Committee. | |
| | Stephen G. Heitel | |
| | Age 64 | | | | Background: | |
| | | | | | Became a director of the Company in October 2019 when the Company acquired Presidio Bank. Mr. Heitel is the former Chief Executive Officer and director of Presidio Bank. Prior to joining Presidio Bank in October 2008, he served as President and Chief Executive Officer of Mid-Peninsula Bank based in Palo Alto, California. Mr. Heitel served in other senior positions at Greater Bay Bancorp, including President and Chief Executive Officer of San Jose National Bank from December 2003 to November 2005, and as Executive Vice President and Chief Operating Officer of Cupertino National Bank from August 2001 to December 2003. Mr. Heitel’s additional experience also includes executive roles with Bank of America including serving as head of Commercial Banking activities for the Bay Area, focused on middle market businesses. Mr. Heitel brings to the Board an understanding and knowledge of the business and personnel of Presidio Bank as well as his previous executive experience and knowledge of the community banking industry. Mr. Heitel is a member of the Finance and Investment Committee and the Heritage Bank of Commerce’s Loan Committee. | |
Heritage Bank of Commerce. Prior to joining the Company in 2005, Mr. Kaczmarek was Executive Vice President of Comerica Bank and of Plaza Bank of Commerce from 1990. Prior to joining PlazaCorp • 2023 Proxy Statement 61
| | Proposal 1—Election of Directors | |
| | Kamran F. Husain | |
| | Age 57 | | | | Background: | |
| | | | | | Became a director of the Company in December 2021. Mr. Husain currently is the Chief Financial Officer at Tribal Credit, a B2B payments FinTech focused serving SMBs in Latin America and MENA. Prior to that he was the Chief Accounting Officer of SVB Financial Group and Silicon Valley Bank from September 2008 to November 2019. He started his career in investment banking followed by seven years at PwC in the audit practice and nine years at Greater Bay Bancorp. He is a seasoned finance and accounting executive and leader with deep banking and financial services experience having spent over twenty-five years in the financial services industry. Throughout his career he has also worked on and led several merger and acquisition projects. Over the last fifteen years he has directly managed relationships and communications with auditors as well as with bank regulators on matters related to reporting and compliance. Mr. Husain is also experienced in corporate governance matters from his prior positions. Mr. Husain holds a Masters in Business Administration degree from the Haas School of Business at University of California, Berkeley and a Bachelor of Arts degree from Ohio Wesleyan University. With his background and experience Mr. Husian is particularly suited to serve as Chair of the Strategic Initiatives Committee and as a member of the Audit Committee and the Personnel and Compensation Committee. | |
| | Robertson Clay Jones | |
| | Age 52 | | | | Background: | |
| | | | | | Became a director and President and Chief Executive officer of the Company and Heritage Bank of Commerce effective September 15, 2022. Previously he served as President and Chief Operating Officer of Heritage Bank of Commerce from December 2021 and, prior thereto, Mr. Jones previously served as Executive Vice President/ President Community Business Banking Group for Heritage Bank of Commerce from October 12, 2019. Mr. Jones was formally the President of Presidio Bank assuming the positon in July 2018. Mr. Jones joined Presidio Bank in 2010 as Executive Vice President and Mid-Peninsula Market President. Prior to joining Presidio Bank, Mr. Jones was the organizing and initial President and Chief Executive Officer of New Resource Bank. From October 1993 to May 2005, Mr. Jones served in ever increasing corporate capacities for subsidiaries of Greater Bay Bancorp and Comerica Bank, including his position as Executive Vice President and Chief Operating Officer at Cupertino National Bank and Executive Vice President and Manager of the Venture Banking Group. As the Company’s President and Chief Executive Officer, Mr. Jones provides the Board with an overall perspective of the Company’s business, financial condition and its strategic direction. Mr. Jones serves on the Finance and Investment committee, the Strategic Initiatives Committee and the Heritage Bank of Commerce Loan Committee. | |
| | Laura Roden | |
| | Age 64 | | | | Background: | |
| | | | | | Became a director of the Company in 2011. The founder and managing director of Capital Formation Consultants LLC, an advisor to alternative asset funds including venture capital, private equity, hedge and debt funds. Prior to founding Capital Formation Consultants LLC, Ms. Roden was the managing director for The Angels’ Forum, an early stage angel and venture capital investing group for high net worth individuals. For most of Ms. Roden’s prior career she was engaged as chief financial officer at both established and emerging corporations, including most notably Chronicle Broadcasting Company and PowerTV, Inc. (acquired by Cisco Corporation). Ms. Roden has expertise in general management, finance, fundraising and marketing. Ms. Roden is a Professor Emeritus in the Department of Accounting and Finance at San Jose State University, and is a frequent speaker for angel investment and venture capital groups and associations. Ms. Roden has a Bachelor of Arts degree from Harvard College and Masters in Business Administration degree from Harvard Business School. Ms. Roden has extensive management experience in a full range of business operations, strategic planning, marketing strategies and capital formation for entrepreneurial companies in the technology industry. In addition, with her prior experience as a chief financial officer, she is particularly suited to serve as Chair of the Finance and Investment Committee, and also serves as a member of the Audit Committee. | |
62 Heritage Commerce
he served in various positions with Union Bank of California and also The Martin Group, a real estate investment development company. Mr. Kaczmarek has a Bachelor of Science in Commerce degree from Santa Clara University, and a Masters in Business Administration degree from San Jose State University. Mr. Kaczmarek contributes to the Board his breadth of knowledge of the Company's business, industry and strategy. He brings to the Board a full understanding of the Company's banking business, markets, community and culture. He provides the Board with an overall perspective of all facets of the Company's business, financial condition and its strategic direction. Mr. Kaczmarek's leadership, communication, and decision-making skills are of particular value to the Board.ROBERT T. MOLES, age 63, became a director of the Company in 2004. Mr. Moles has been the Chairman of the Board of Intero Real Estate Services, Inc., a full-service real estate firm since 2002. Prior to joining Intero, he served as President and Chief Executive Officer of the Real Estate Franchise Group of Cendant Corporation, the largest franchiser of residential and commercial real estate brokerage offices in the world. Prior to joining Cendant, he served as President and Chief Executive Officer of Contempo Realty, Inc. in Santa Clara, California. Mr. Moles contributes to the Board a substantial expertise in the real estate industry in the Company's primary market. With over 33 years of experience in executive and managerial positions, he brings to the Board his skills in dealing with business and financial planning and
Corp • 2023 Proxy Statement
TABLE OF CONTENTSTable of Contents
personnel management. With his background, Mr. Moles is particularly suited to serve as a member of the Compensation Committee.
LAURA RODEN, age 59, is the founder and managing director of Capital Formation Consultants LLC, an advisor to alternative asset funds including venture capital, private equity, hedge and debt funds. Prior to founding Capital Formation Consultants LLC, Ms. Roden was the managing director for The Angels' Forum (Palo Alto, CA), an early stage angel and venture capital investing group for high net worth individuals. For most of Ms. Roden's prior career she was engaged as chief financial officer at both established and emerging corporations, including most notably Chronicle Broadcasting Company (San Francisco, CA) and PowerTV, Inc (acquired by Cisco Corporation, San Jose, CA). Ms. Roden has expertise in general management, finance, fundraising and marketing. Ms. Roden has taught courses on finance at San Jose State University, and is a frequent speaker for angel investment and venture capital groups and associations. Ms. Roden has a Bachelor of Arts degree from Harvard College and Masters in Business Administration degree from Harvard Business School. Ms. Roden has extensive management experience in a full range of business operations, strategic planning, marketing strategies and capital formation for entrepreneurial companies in the technology industry. In addition, with her prior experience as a chief financial officer, she is particularly suited to chair the Board's Strategic Initiatives Committee, serve as a member of the Audit Committee and the Finance and Investment Committee.
RANSON W. WEBSTER, age 73, became a director of the Company in 2004. Mr. Webster founded Computing Resources, Inc. ("CRI") in 1978, a privately-held general purpose data processing service bureau specializing in payroll processing for small business nationwide. He served as CRI's Chief Executive Officer and Chief Financial Officer. In 1999, CRI merged with Intuit, Inc., the maker of QuickBooks and Quicken financial software. In 1998, Mr. Webster founded Evergreen Capital, LLC, an early stage investment company focused on Internet and biotech companies. In 2012, Mr. Webster became the Chief Executive Officer for Chargerback, Inc. a cloud based startup company dedicated to automating the lost and found process at hotels, airlines, rental car companies and other public spaces. Mr. Webster contributes to the Board substantial business acumen, executive strategic planning and financial experience developed through years of proven entrepreneurial success. Mr. Webster has a unique perspective of the Company from his long-standing service on the Board. He has a general understanding of corporate governance principles as Chairman of the Board's Nominating and Corporate Governance Committee.
| | Proposal 1—Election of Directors | |
| | Marina H. Park Sutton | |
| | Age 66 | | | | Background: | |
| | | | | | Became a director of the Company in October, 2019 when the Company acquired Presidio Bank. Ms. Park Sutton was a director of Presidio Bank. Ms. Park Sutton retired in December 2022 as Chief Executive Officer of Girl Scouts of Northern California, which serves 19 counties in Northern California with almost 30,000 girls and 25,000 adults taking part in programs each year. Prior to joining Girl Scouts of Northern California in 2007, Ms. Park Sutton held a variety of progressively more senior positions at Pillsbury Winthrop Shaw Pittman LLP, an international law firm. Ms. Park Sutton has a Bachelor of Arts degree from the University of California, Berkeley and a Juris Doctor degree from the University of Michigan Law School. The Board benefits from Ms. Park Sutton’s experience as a director and member of the audit, corporate governance and compensation committees at Presidio Bank, as well as her valuable general business insight and legal experience. With her background she is suited to serve as the Chair of the Personnel and Compensation Committee, and as a member of the Audit Committee and the Corporate Governance and Nominating Committee. | |
| | Ranson W. Webster | |
| | Age 77 | | | | Background: | |
| | | | | | Became a director of the Company in 2004. Mr. Webster founded Computing Resources, Inc. (“CRI”) in 1978, a privately held general purpose data processing service bureau specializing in payroll processing for small business nationwide. He served as CRI’s Chief Executive Officer and Chief Financial Officer. In 1999, CRI merged with Intuit, Inc., the maker of QuickBooks and Quicken financial software. In 1998, Mr. Webster founded Evergreen Capital, LLC, an early stage investment company focused on Internet and biotech companies. In 2012, Mr. Webster became the Chief Executive Officer for Chargerback, Inc. a cloud based startup company dedicated to automating the lost and found process at hotels, airlines, rental car companies and other public spaces. Mr. Webster contributes to the Board substantial business acumen, executive strategic planning, cybersecurity and financial experience developed through years of proven entrepreneurial success. Mr. Webster has a unique perspective of the Company from his long standing service on the Board. He has a general understanding of corporate governance principles as Chairman of the Corporate Governance and Nominating Committee. Mr. Webster is also a member of Personnel and Compensation Committee and the Strategic Initiatives Committee. | |
Recommendation of the Board of Directors
| | | | | |
| | | | | | | The Board of Directors recommends the election of each nominee. The proxy holders intend to vote all proxies they hold in favor of the election of each of the nominees. If no instruction is given, the proxy holders intend to vote FOR each nominee listed. | | |
| | | | | |
Heritage Commerce Corp • 2023 Proxy Statement 63
| | | Proposal 2—Approval of the Heritage Commerce Corp 2023 Equity Incentive Plan | |
The Board has approved the Heritage Commerce Corp 2023 Equity Incentive Plan (“2023 Equity Plan”) to replace the Heritage Commerce Corp 2013 Equity Incentive Plan (“2013 Equity Plan”) that terminates by its terms at the 2023 Annual Meeting. The 2013 Equity Plan was approved by the Company’s shareholders at the 2013 Annual Meeting to replace the Company’s 2004 Equity Plan. The 2023 Equity Plan requires approval of the Company’s shareholders.
The Board has determined that it is in the best interests of the Company and its shareholders to approve this proposal to promote the long-term success of the Company and the creation of shareholder value. The Board believes that the availability of stock awards is a key factor in the ability of the Company to attract, incentivize and retain qualified individuals to serve as directors, officers and employees.
The Board has approved the 2023 Equity Plan subject to shareholder approval and recommends that shareholders vote in favor of this proposal at the Annual Meeting. If the shareholders approve this proposal, it will become effective as of the date of shareholder approval. The number of shares of common stock reserved and available for delivery in connection with awards under the 2023 Equity Plan will equal 600,000, plus the number of shares available for issuance under the 2013 Plan that have not been made subject to outstanding awards as of the effective date of the 2023 Plan. See “Equity Awards Outstanding” below.
If the shareholders do not approve this proposal, the Company will have no ability to issue equity awards to its officers, directors or employees going forward. Our executive officers have an interest in this proposal by virtue of their being eligible to receive equity awards in the future under the 2023 Equity Plan.
Reasons for Voting For the Proposal
Long-Term Equity Is a Key Component of Our Compensation Program
As discussed in the “Compensation Discussion and Analysis” section, our overall compensation objective is to compensate our personnel in a manner that attracts and retains the highly talented employees necessary to manage and staff a high-growth business in an innovative and competitive industry. Our employees are our most valuable asset, and we strive to provide them with compensation packages that are competitive, that reward personal and company performance and that help meet our retention needs. Equity awards, whose value depends on our financial and stock performance and which require continued service over time before any value can be realized, help achieve these objectives and are a key element of our compensation program. Equity awards also incentivize our employees to manage our business as owners, aligning their interests with those of our shareholders. We believe we must continue to use equity compensation on a broad basis to help attract, retain and motivate employees to continue to grow our business and ultimately increase shareholder value. As of March 15, 2023 approximately 24% of our employees or former employees held outstanding equity awards.
The 2023 Equity Plan Is Required to Replace the Heritage Commerce Corp 2013 Equity Incentive Plan
The 2013 Equity Plan terminates at the 2023 Annual Meeting, and a new plan must be established so that the Company may continue to issue equity awards to our officers and employees. We operate in a highly competitive banking industry and geography for employee talent and do not expect required rates of compensation to decline. One alternative to using equity awards would be to significantly increase cash compensation. We do not believe this would be practical or advisable. We believe that a combination of equity and cash compensation is better for attracting, retaining and motivating employees. We do not believe a more cash-oriented program would have the same long-term retention value or serve to align employees’ interests to those of our shareholders as well as a program that includes equity.
We Manage Our Equity Incentive Program Thoughtfully
We manage our long-term shareholder dilution by limiting the number of equity awards granted annually and limiting what we grant to what we believe is an appropriate amount of equity necessary to attract, reward and retain employees. Our three-year average
64 Heritage Commerce Corp • 2023 Proxy Statement
| | Proposal 2—Approval of the Heritage Commerce Corp 2023 Equity Incentive Plan | |
burn rate, which we define as the number of shares subject to equity awards granted in a fiscal year divided by the weighted average shares outstanding for that fiscal year, was 0.93% for fiscal years 2020 through 2022. We are also mindful of the ratio of our stock-based compensation expense to our revenues over time.
Equity Awards Outstanding
The information included in our 2022 Annual Report on Form 10-K is updated by the following information regarding all existing equity compensation plans as of March 15, 2023:
| | Total number of stock options outstanding(1) | | | | | 2,410,796 | | |
| | Weighted-average exercise price of stock options outstanding(2) | | | | $ | 10.53 | | |
| | Weighted-average remaining duration (years) of stock options outstanding(2) | | | | | 5.42 | | |
| | Total number of full value awards outstanding | | | | | 253,491 | | |
| | Approximate number of stock options and full value awards to be issued from March 15, 2023 until the Annual Meeting(3) | | | | | 581,882 | | |
| | Shares available for grant under the 2013 Equity Plan(4) | | | | | 1,498,474 | | |
| | Total shares of common stock outstanding as of the record date (March 27, 2023) | | | | | 60,947,875 | | |
(1)
No stock appreciation rights were outstanding as of March 15, 2023.
(2)
Includes stock options outstanding granted under Company originated equity plans or assumed in connection with corporate transactions.
(3)
Only estimated for purposes of this table and uses the closing price of the Company’s common stock as of March 15, 2023. Full value awards include restricted stock, restricted stock units (RSUs) and performance-based restricted stock units (PRSUs). The number of shares of outstanding performance based PRSUs assumes performance at the target performance level.
(4)
The number of shares remaining available for future grant under the 2013 Equity Plan reflects PRSUs at target payout. Remaining shares under the 2013 Equity Plan are being rolled over into the 2023 Equity Plan as of the effective date of the 2023 Equity Plan.
Our outstanding awards plus shares available for future grant under our equity plans as of March 15, 2023 represented approximately 7.22% of our common stock outstanding as of the record date (commonly referred to as the “overhang”). The 2023 Equity Plan will increase potential dilution by 0.84 percentage points. Therefore, as of the record date, the total potential dilution with the shares requested for the 2023 Equity Plan would approximate 8.06% in total.
The 2023 Equity Plan Incorporates Good Compensation and Governance Practices
•
Administration. The 2023 Equity Plan is administered by the Personnel and Compensation Committee of the Board, which is comprised entirely of independent non-employee directors.
•
Broad-based eligibility for equity awards. We grant equity awards to a broad range of our employees. By doing so, we align employee interests with those of shareholders. Approximately 80% of all outstanding equity awards, on a share basis, as of March 15, 2023 were held by employees who are not NEOs or directors. In fiscal year 2022, approximately 69% of all equity awards, on a share basis, were issued to employees who are not NEOs or directors, with approximately 18% of all employees who are not NEOs or directors receiving awards.
•
Minimum vesting for equity awards. The 2023 Equity Plan provides that awards may not become exercisable, vest or settle prior to a minimum of the one-year anniversary of the date of grant, except in the case of a participant’s death, disability or in the event of a change in control (as described in the 2023 Equity Plan).
•
Shareholder approval is required for additional Shares. The 2023 Equity Plan does not contain an annual “evergreen” provision but instead reserves a fixed maximum number of shares for issuance. Shareholder approval is required to increase that number.
•
Explicit prohibition on repricing without shareholder approval. The 2023 Equity Plan prohibits the repricing, cash-out or other exchange of underwater stock options without shareholder approval.
•
No discounted stock options. The 2023 Equity Plan requires that stock options must have an exercise price equal to at least the fair market value of our common stock on the date the award is granted.
•
No dividends or dividend equivalents on unvested restricted stock or restricted stock units. The 2023 Equity Plan provides that dividends or other distributions credited or payable in connection with restricted stock or restricted stock units are subject to the same restrictions as the underlying award and will not be paid until the underlying award vests.
Heritage Commerce Corp • 2023 Proxy Statement 65
| | Proposal 2—Approval of the Heritage Commerce Corp 2023 Equity Incentive Plan | |
•
Share-counting provisions. In general, when awards granted under the 2023 Equity Plan expire or are cancelled without having been fully exercised, or are settled in cash, the shares reserved for those awards are not returned to the share reserve and do not become available for future awards. Similarly, if shares are tendered to us or withheld by us to pay a stock option’s exercise price or satisfy an award’s tax withholding obligations, those shares do not become available for future awards.
•
Annual limits on non-employee director awards. The 2023 Equity Plan limits the number of shares that may be granted to non-employee directors each fiscal year.
•
No tax gross-ups. The 2023 Equity Plan does not provide for any tax gross-ups.
•
Clawback policy. Awards granted under the 2023 Equity Plan are subject to the Company’s clawback policy.
Description of the Heritage Commerce Corp 2023 Equity Incentive Plan
A summary of the material terms of the 2023 Equity Plan is set forth below. The following summary does not purport to be a complete description of all the provisions of the 2023 Equity Plan and is qualified in its entirety by reference to the 2023 Equity Plan included as Appendix A hereto, which is incorporated by reference into this Proposal 2.
Under the 2023 Equity Plan incentives are provided through the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares, and performance units (individually, an “Award”).
Appropriate adjustments will be made in the number of authorized shares and in outstanding Awards to prevent dilution or enlargement of participants’ rights in the event of a merger, consolidation, reorganization, reincorporation, recapitalization, reclassification, stock dividend, stock split, reverse stock split, split-up, split-off, spin-off, combination of shares, exchange of shares or other change in our capital structure that is effected without receipt of consideration by the Company. Shares subject to Awards that expire or are cancelled or forfeited will not again become available for issuance under the 2023 Equity Plan. The shares available will be reduced by Awards settled in cash or by shares withheld to satisfy tax withholding obligations.
Administration. The Personnel and Compensation Committee (“Committee”) will administer the 2023 Equity Plan. Subject to the provisions of the 2023 Equity Plan, the Committee determines in its discretion the persons to whom and the times at which Awards are granted, the types and sizes of such Awards, and all of their terms and conditions. All Awards must be evidenced by a written agreement between the Company and the participant. The Committee may amend, cancel or renew any Award, waive any restrictions or conditions applicable to any Award, and accelerate, continue, extend or defer the vesting of any Award. The Committee will not have the authority to reprice, adjust or amend the exercise price of options or the grant price of stock appreciation rights previously awarded to any participant, whether through amendment, cancellation and replacement grant, or any other means. The Committee has the authority to construe and interpret the terms of the 2023 Equity Plan and Awards granted under it.
Eligibility. Awards may be granted under the 2023 Equity Plan to our employees, officers, directors, or consultants or those of any present or future parent or subsidiary corporation or other affiliated entity. While we may grant “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) only to employees, we may grant nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares and performance units to any eligible participant. The actual number of individuals who will receive an Award under the 2023 Equity Plan cannot be determined in advance because the Committee has the discretion to select the participants and the amount and type of Awards.
The maximum amount of grant date value of equity awards and cash paid to a non-employee director in any calendar year for their service to the Company as a non-employee shall not exceed (i) $500,000 in the case of a non-employee director who is serving as the chairman of the Board, and (ii) $400,000 in the case of any other such director.
Stock Options. The Committee may grant nonstatutory stock options, “incentive stock options,” or any combination of these. The number of shares of our common stock covered by each option will be determined by the Committee.
The exercise price of each option may not be less than the fair market value of a share of our common stock on the date of grant. Any incentive stock option granted to a person who owns stock possessing more than 10% of the total combined voting power of all classes of our stock or of any parent or subsidiary corporation must have an exercise price equal to at least 110% of the fair market value of a share of our common stock on the date of grant, and the option must have a term not exceeding five years. In addition, the aggregate fair market value of the shares (determined on the grant date) covered by incentive stock options which first become exercisable by any participant during any calendar year may not exceed $100,000. The term of all options, other than any incentive
66 Heritage Commerce Corp • 2023 Proxy Statement
| | Proposal 2—Approval of the Heritage Commerce Corp 2023 Equity Incentive Plan | |
stock option granted to a person who owns stock possessing more than 10% of the total combined voting power of all classes of our stock or of any parent or subsidiary corporation, may not exceed ten years.
Options vest and become exercisable at such times or upon such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Committee. Unless a longer period is provided by the Committee, an option generally will remain exercisable for ninety days following the participant’s termination of service, except that if service terminates as a result of the participant’s death or disability, the option generally will remain exercisable for one year, but in any event not beyond the expiration of its term.
The exercise price of each option must be paid in full in cash (or cash equivalent) at the time of exercise, through the tender of shares of our common stock that are already owned by the participant, or through cashless exercise, or by any combination thereof. At the time of exercise, a participant who is an employee must pay any taxes that the Company is required to withhold.
Stock Appreciation Rights. A stock appreciation right gives a participant the right to receive the appreciation in the fair market value of our common stock between the date of grant of the Award and the date of its exercise. We may pay the appreciation either in cash or in shares of our common stock. We may make this payment in a lump sum, or payment may be deferred in accordance with the terms of the participant’s Award agreement. The Committee may grant stock appreciation rights under the 2023 Equity Plan in tandem with a related stock option or as a freestanding Award. A tandem stock appreciation right is exercisable only at the time and to the same extent that the related option is exercisable, and its exercise causes the related option to be canceled. Freestanding stock appreciation rights vest and become exercisable at the times and on the terms established by the Committee. The maximum term of any stock appreciation right granted under the 2023 Equity Plan is 10.
Restricted Stock Awards. The Committee may grant Awards of restricted stock under the 2023 Equity Plan. Awards of restricted stock may vest subject to the attainment of performance goals similar to those described below or satisfaction of certain service- based or other vesting conditions as the Committee specifies, and the shares acquired may not be transferred by the participant until vested. Unless otherwise determined by the Committee, a participant will forfeit any unvested shares upon voluntary or involuntary termination of service with us for any reason, except death or disability. Participants holding restricted stock will have the right to vote the shares and to receive any dividends paid, except that dividends or other distributions paid in shares will be subject to the same restrictions as the original Award and will be deferred until vested.
Restricted Stock Units. Restricted stock units granted under the 2023 Equity Plan represent a right to receive shares of our common stock at a future date determined in accordance with the participant’s Award agreement. The Committee may grant restricted stock units subject to the attainment of performance goals similar to those described below for performance shares and performance units, or may make the Awards subject to service-based and other vesting conditions. Participants holding restricted stock units do not have the right to vote the underlying shares and are not entitled to dividends until the restricted stock units have vested.
Performance Shares and Performance Units. The Committee may grant performance shares and performance units under the 2023 Equity Plan, which are Awards of restricted stock or restricted stock units that will vest only if specified performance goals are achieved during a specified performance period. The performance goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and may include a threshold level of performance below which no payment shall be made (or no vesting shall occur), levels of performance at which specified payments shall be made (or specified vesting shall occur), and a maximum level of performance above which no additional payment shall be made (or at which full vesting shall occur). Unless an award agreement provides otherwise, Participants holding performance shares, restricted stock or restricted stock units do not have the right to vote the underlying shares and are not entitled to dividends until vesting.
Change in Control. Upon a change of control (as defined in the 2023 Equity Plan) and certain other corporate events, outstanding Awards will be governed by the Award agreement (or by the Committee if not otherwise governed by the Award agreement), which may provide for the assumption or substitution of the Award, acceleration of the vesting an Award, cancellation of an Award (with payment for vested Awards), or replacement of an Award, subject to various requirements under the 2023 Equity Plan. It is the present intention of the Company to continue to provide for “single-trigger” acceleration upon a change of control in its Award Agreements.
Transferability. Awards granted under the 2023 Equity Plan shall not be subject in any manner to anticipation, alienation, sale, exchange, transfer, assignment, pledge, encumbrance, or garnishment by creditors of the participant or the participant’s beneficiary, except transfer by will or by the laws of descent and distribution.
Heritage Commerce Corp • 2023 Proxy Statement 67
| | Proposal 2—Approval of the Heritage Commerce Corp 2023 Equity Incentive Plan | |
Amendment and Termination. The 2023 Equity Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of our common stock available for issuance under the 2023 Equity Plan have been issued and all restrictions on such shares under the terms of the 2023 Equity Plan and the agreements evidencing Awards granted under the 2023 Equity Plan have lapsed. However, no Awards will be granted under the 2023 Equity Plan after the 10th anniversary of the 2023 Equity Plan’s effective date.
In addition, the Committee may amend, suspend or terminate the 2023 Equity Plan at any time, provided that without shareholder approval, the 2023 Equity Plan cannot be amended to increase the number of shares authorized, change the class of persons eligible to receive incentive stock options or effect any other change that would require shareholder approval under any applicable law or listing rule. Amendment, suspension or termination of the 2023 Equity Plan may not adversely affect any outstanding Award without the consent of the participant, unless such amendment, suspension or termination is necessary to comply with applicable law.
New Benefits. Grants of Awards under the 2023 Plan to the Company’s executive officers, non-executive directors and other eligible participants are subject to the discretion of the Committee. Therefore, it is not possible to determine the future benefits that will be received by these participants under the 2023 Equity Plan.
Certain United States Federal Income Tax Information
The following paragraphs are a summary of the certain federal income tax consequences to participants who are U.S. taxpayers and the Company of Awards granted under the 2023 Equity Plan. The information set forth below does not purport to be a complete description of the applicable tax considerations. The information is based upon current federal income tax rules and therefore is subject to change, potentially retroactively. Moreover, the tax consequences to any particular participant may depend on the participant’s particular situation. Accordingly, participants should consult their own tax advisors regarding the federal, state, local, and other tax consequences of the grant or exercise of an Award or the disposition of stock acquired as a result of an Award.
The following discussion assumes that the fair market value of our common stock on the date of exercise is greater than the per share exercise price.
Nonstatutory Stock Options. Income generally is not recognized by a participant upon the grant of a nonstatutory stock option with an exercise price that is equal to or greater than the fair market value of the underlying shares as of the grant date. Upon exercise of a nonstatutory stock option, the participant will recognize ordinary income in an amount equal to the excess of the fair market value (on the exercise date) of the purchased shares over the option’s exercise price. Any income recognized in connection with an option exercised by an employee of the Company is subject to income tax withholding as a “supplemental wage payment.”
A participant’s tax basis in the shares received upon the exercise of a nonstatutory stock option will equal the fair market value of the shares on the date the option is exercised. Upon a subsequent sale or other disposition by a participant of these shares, any gain or loss recognized generally would be long-term or short-term capital gain or loss depending on whether the participant holds the shares for more than one year from the date of exercise.
Incentive Stock Options. Participants generally will not recognize income upon the grant or exercise of an “incentive stock option” that qualifies as such under Section 422 of the Code (although there may be alternative minimum tax consequences upon the exercise of the option to the extent the value of the option shares at the time of exercise exceeds the exercise price, unless the participant sells or disposes of the option shares in the same taxable year as the exercise.)
Participants who sell or dispose of a share received upon the exercise of an incentive stock option generally will recognize long- term capital gain or loss in an amount equal to the difference between the amount realized on the sale or disposition and the holder’s tax basis in the disposed share, provided that (i) the disposition is more than two years after the option grant date and more than one year after the participant receives the share (the two year and one year periods, collectively, the “required holding period”) and (ii) the participant is an employee at all times from the grant date until three months before the exercise date.
If a participant disposes of a share acquired on exercise of an incentive stock option before the end of the required holding period (a “disqualifying disposition”), then the participant generally will recognize ordinary compensation income in the year of the disqualifying disposition in an amount equal to the excess, if any, of the share’s fair market value as of the option exercise date over the exercise price. If the amount realized on the disposition of the share exceeds (or is less than) the sum of the exercise price plus the amount of compensation income recognized on the disqualified disposition (as described in the prior sentence), then the character of any such additional gain or loss as capital or ordinary will depend on the circumstances.
Subject to certain exceptions for death or disability, if an option holder exercises an incentive stock option more than three months after termination of employment, the exercise of the option will be taxed in a manner similar to the exercise of a nonstatutory stock option.
68 Heritage Commerce Corp • 2023 Proxy Statement
| | Proposal 2—Approval of the Heritage Commerce Corp 2023 Equity Incentive Plan | |
Stock Appreciation Rights. Participants generally will not recognize income upon the grant of a stock appreciation right with an exercise price equal to the fair market value of the underlying stock on the grant date. Upon exercise, the participant will recognize ordinary income (subject to withholding taxes in the case of an employee) in an amount equal to the amount of cash and the fair market value of any shares received. Any gain or loss recognized upon any later disposition of the shares received pursuant to the stock appreciation rights would generally be long-term or short-term capital gain or loss depending on whether the holding period for the shares is more than one year.
Restricted Stock Awards, Restricted Stock Units, Performance Shares and Performance Units. A participant generally will not recognize income at the time an Award of restricted stock, restricted stock units, performance shares, or performance units is granted. Instead, he or she will recognize ordinary income in the first taxable year in which his or her interest in the shares underlying the Award becomes either: (i) freely transferable or (ii) no longer subject to a substantial risk of forfeiture. However, the recipient of an Award of restricted stock may elect to recognize income at the time he or she receives the Award in an amount equal to the fair market value of the shares underlying the Award (less any cash paid for the shares) as of the Award is granted. A participant who makes an election under Section 83(b) of the Code within thirty days of the date of grant of the restricted stock will recognize ordinary income on the date of grant of the restricted shares equal to the excess of the fair market value of the such shares (determined without regard to the risk of forfeiture or restrictions on transfer) over any purchase price paid for the shares. If a Section 83(b) election has not been made, any dividends received with respect to restricted shares of stock that are subject at that time to a risk of forfeiture or restrictions on transfer generally will be treated as ordinary compensation income to the recipient.
Section 409A. Section 409A of the Code contains certain requirements for nonqualified deferred compensation arrangements, which may include Awards under the 2023 Equity Plan, with respect to an individual’s deferral and distribution elections and permissible distribution events. Awards granted under the 2023 Equity Plan with a deferral feature will be subject to the requirements of Section 409A. If an Award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that Award may recognize ordinary income on the amounts deferred under the Award, at the time of vesting, which may be prior to when the compensation is actually or constructively received. Also, if an Award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation. In addition, certain states (such as California) have laws similar to Section 409A and as a result, failure to comply with such similar laws may result in additional state income, penalty and interest charges.
Tax Consequences to the Company.
The Company generally will be entitled to a tax deduction in connection with an Award under the 2023 Equity Plan in an amount equal to the ordinary income realized by a participant and at the time the participant recognizes such income (for example, upon the exercise of a nonstatutory stock option). In the case of an incentive stock option, the Company generally will not be allowed a compensation deduction. However, if the participant makes a disqualified disposition of shares received upon the exercise of an incentive stock option, then the Company generally should be allowed a deduction in an amount equal to the fair market value of the option shares over the option exercise price. However, if the participant recognizes any additional income or gain on the disqualified disposition (as described under the heading “—Incentive Stock Options” above), the Company would not entitled to an additional corresponding deduction.
The foregoing discussion is only a summary of some of the United States federal income tax considerations to participants and the Company with respect to the grant, exercise and/or vesting of Awards under the 2023 Equity Plan, and subsequent sale of shares received pursuant to such Awards. This discussion does not purport to be complete, and neither discusses the tax laws of any state, municipality, or foreign country nor any federal tax other than the federal income tax (including the federal gift and estate taxes).
Recommendation of the Board of Directors recommends the election of each nominee. The proxy holders intend to vote all proxies they hold in favor of the election of each of the nominees. If no instruction is given, the proxy holders intend to vote FOR each nominee listed.
| | | | | |
| | | | | | | The Board of Directors recommends a vote FOR the approval of the Heritage Commerce Corp 2023 Equity Incentive Plan. The proxy holders intend to vote all proxies in favor of this proposal. If no instruction is given, the proxy holders intend to vote FOR the proposal. | | |
| | | | | |
Heritage Commerce Corp • 2023 Proxy Statement 69
| | | Proposal 3—Approval of the Advisory Proposal on Executive Compensation | |
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") requires, among other things, that we permit a non-binding, advisory vote on the 2022 compensation of our named executive officers, as described in the Compensation Discussion and Analysis, compensation tables and accompanying narrative discussion contained in this proxy statement. As described in greater detail under the heading "Compensation“Compensation Discussion and Analysis,"” we seek to closely align the interests of our named executive officers with the interests of our shareholders. Our compensation practices are designed to encourage and motivate our named executive officers to achieve superior performance on both a short-termshort term and long-term basis while at the same time avoiding the encouragement of unnecessary or excessive risk-taking.risk taking. The Personnel and Compensation Committee of the Board believes that the executive compensation for 2022 was reasonable and appropriate, and was the result of a carefully considered approach.
Accordingly, the Company is presenting this proposal, which gives you as a shareholder the opportunity to endorse or not endorse our executive pay program by voting for or against the following resolution: "RESOLVED,
“RESOLVED, that the shareholders approve the 2022 compensation of our named executive officers, as disclosed in the Compensation Discussion and Analysis, the compensation tables, and the related disclosures required by Item 402 of Regulation S-K contained in the proxy statement." As discussed in the Compensation Discussion and Analysis contained in this proxy statement, the Compensation Committee of the Board of Directors believes that the executive compensation for 2017 was reasonable and appropriate, and was the result of a carefully considered approach.
”
The vote on this resolution is not intended to address any specific item of compensation, but rather that the overall compensation of our named executive officers and the policies and practices described in this proxy statement. In the event this non-binding proposal is not approved by our shareholders, such a vote shall not be construed as overruling a decision by the Board of Directors or the Personnel and Compensation Committee, nor create or imply any additional fiduciary duty of the Board of Directors or the Personnel and Compensation Committee, nor shall such a vote be construed to restrict or omit the ability of our shareholders to make proposals for inclusion in proxy materials related to executive compensation. Notwithstanding the foregoing, the Board of Directors and the Personnel and Compensation Committee will consider the non-binding vote of our shareholders to this proposal when reviewing compensation policies and practices in the future. Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR the Advisory Proposal on Executive Compensation. The proxy holders intend to vote all proxies they hold in favor of this proposal. If no instruction is given, the proxy holders intend to vote FOR the proposal.
Table of Contents
PROPOSAL 3—ADVISORY VOTE ON FREQUENCY OF VOTE ON EXECUTIVE COMPENSATION
The Dodd-Frank Act requires that we provide our shareholders with the opportunity to vote, on an advisory or non-binding basis, for their preference as to how frequently we should seek future advisory votes on the compensation of our named executive officers as disclosed in accordance with the compensation disclosure rules of the SEC. By voting with respect to this Proposal 3, shareholders may indicate whether they would prefer that we conduct future advisory votes on executive compensation every year, every two years, or every three years. Shareholders also may, if they wish, abstain from casting a vote on this proposal.
The Board of Directors believes that a vote every three years is appropriate to evaluate our overall executive compensation program. In determining to recommend that shareholders vote for a frequency of once every three years, the Board of Directors considered how an advisory vote at this frequency will provide our shareholders with sufficient time to evaluate the effectiveness of our overall compensation philosophy, policies and practices in the context of our long-term business results for the corresponding period, while avoiding overemphasis on short term variations in compensation and business results. We also believe a three-year period will provide us with adequate time to engage shareholders and respond to "Say on Pay" vote results.
The vote is advisory and therefore not binding on the Company or the Board of Directors. However, the Board of Directors value the opinions of our shareholders and will take into account the outcome of the vote, along with other relevant factors, when considering the frequency of future advisory votes on executive compensation. The Board of Directors may decide that it is in the best interests of our shareholders and the Company to hold an advisory vote on executive compensation more or less frequently than the frequency receiving the most votes cast by our shareholders. Your advisory vote shall not be construed as overruling a decision by the Company or the Board of Directors nor to create or imply any additional fiduciary duties for the Board of Directors or the Compensation Committee or restrict or limit the ability of shareholders to make proposals for inclusion in proxy materials related to executive compensation.
The proxy card provides shareholders with the opportunity to choose among four options (holding the vote every year, every two years or every three years, or abstaining) and, therefore, shareholders will not be voting to approve or disapprove the recommendation of the Board of Directors.
Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR the option of every three years as the preferred frequency for advisory votes on executive compensation. The proxy holders intend to vote all proxies in favor of the option of every three years as the frequency for advisory votes on executive compensation.
Table of Contents
PROPOSAL 4—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| | | | | |
| | | | | | | The Board of Directors recommends a vote FOR the Advisory Proposal on 2022 Executive Compensation. The proxy holders intend to vote all proxies they hold in favor of this proposal. If no instruction is given, the proxy holders intend to vote FOR the proposal. | | |
| | | | | |
70 Heritage Commerce Corp • 2023 Proxy Statement
| | | Proposal 4—Ratification of Independent Registered Public Accounting Firm | |
The Board, upon the recommendation of its Audit Committee, has ratified the selection of Crowe Horwath LLP to serve as our independent registered public accounting firm for 2018,2023, subject to ratification by our shareholders. A representative of Crowe Horwath LLP will be present at the Annual Meeting to answer questions and will have the opportunity to make a statement if so desired. We are asking our shareholders to ratify the selection of Crowe Horwath LLP as our independent registered public accounting firm. Although ratification is not required by our Bylaws, the SEC or the Nasdaq Stock Market, the Board is submitting the selection of Crowe Horwath LLP to our shareholders for ratification because we value our shareholders'shareholders’ views on the Company'sCompany’s independent registered public accounting firm and as a matter of good corporate practice. In the event that our shareholders fail to ratify the selection of Crowe Horwath LLP, however, we reserve the discretion to retain Crowe Horwath LLP as our independent registered public accounting firm for 2018.2023. Even if the selection is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our shareholders.
In accordance with its written charter adopted by the Company'sCompany’s Board, of Directors, the Audit Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing, and financial reporting practices of the Company. During 2017,2022, the Audit Committee met 1110 times. The Audit Committee discussed the interim financial information contained in each quarterly earnings announcement with the Chief Financial Officer prior to public release. The Audit Committee also discussed the interim financial statements with the Chief Financial Officer and the independent auditors prior, with and without management present, to the filing of each quarterly Form 10-Q and the annual report on Form 10-K. In discharging its oversight responsibility as to the audit process, the Audit Committee obtained from the independent auditors a formal written statement describing all relationships between the auditors and the Company that might bear on the auditors'auditors’ independence, discussed with the auditors any relationships that may impact their objectivity and independence and satisfied itself as to the auditors'auditors’ independence. The Audit Committee reviewed with both the independent auditors and the internal auditor'sauditor’s audit plans, scope, and results. The Audit Committee discussed and reviewed with the independent auditor all communications required by the standards of the Public Company Accounting Oversights Board ("PCAOB"(“PCAOB”), including those described in Auditing Standard No. 1301,Communication with Audit Committees,, and discussed and reviewed the results of the independent auditor'sauditor’s audit of the consolidated financial statements. The Audit Committee also reviewed and discussed the results of the internal audit examinations. The
Audit Committee reviewed the audited financial statements of the Company as of and for the year ended December 31,
2017,2022, with management and the independent auditors. The
Audit Committee has also reviewed
"Management's“Management’s Assessment over Financial
Reporting"Reporting” and the independent registered public accounting
firm'sfirm’s opinion on the effectiveness of the
Company'sCompany’s internal control over financial reporting, and discussed these reports and opinions with management and the independent registered public accounting firm prior to the
Company'sCompany’s filing of its Annual Report on Form 10-K for the year ended December 31,
2017.2022.
Heritage Commerce Corp • 2023 Proxy Statement 71
| | Proposal 4—Ratification of Independent Registered Public Accounting Firm | |
Based on the above mentioned review and discussion with management and the independent auditors, the Audit Committee recommended to the Board of Directors that the Company'sCompany’s audited financial statements
Table of Contents
be included in its Annual Report on Form 10-K for the year ended December 31, 2017,2022, for filing with the SEC.
Heritage Commerce Corp
Audit Committee | | |
| | Heritage Commerce Corp
Audit Committee |
|
|
Steven L. Hallgrimson, Chairman
Julianne M. Biagini-Komas
Laura Roden |
Julianne M. Biagini-Komas, Chair
Kamran F. Husain
Laura Roden
Marina H. Park SuttonThe Audit Committee report shall not be deemed incorporated by reference by any general statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 or the Securities Act of 1934, and shall not otherwise be deemed filed under these Acts.
Table of Contents
Independent Registered Public Accounting Firm Fees
The following table summarizes the aggregate fees billed to the Company by its independent auditor:
| | Category of Services | | | Fiscal Year
2022 | | | Fiscal Year
2021 | |
| | Audit fees(1) | | | | $ | 625,000 | | | | | $ | 604,610 | | |
| | Audit related fees(2) | | | | | 65,000 | | | | | | 38,000 | | |
| | Tax fees(3) | | | | | 104,500 | | | | | | 119,275 | | |
| | All other fees(4) | | | | | 10,000 | | | | | | 10,000 | | |
| | Total accounting fees | | | | $ | 804,500 | | | | | $ | 771,885 | | |
(1)
| | | | | | | |
Category of Services | | Fiscal Year
2017 | | Fiscal Year
2016 | |
|---|
Audit fees(1) | | $ | 412,500 | | $ | 385,000 | |
Audit-related fees(2) | | | 173,100 | | | 72,100 | |
Tax fees(3) | | | 134,600 | | | 127,350 | |
All other fees | | | 134,700 | | | 40,000 | |
| | | | | | | | |
Total accounting fees | | $ | 854,900 | | $ | 624,450 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(1)- Fees for audit services for
20172022 and 20162021 consisted of the audit of the Company'sCompany’s annual financial statements, review of the consolidated financial statements included in the Company'sCompany’s Quarterly Reports on Form 10-Q, and the audit of the Company'sCompany’s internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002.
(2)
Fees for audit related services for 20172022 and 20162021 consisted of financial accounting and reporting consultations, consents and other services related to SEC matters, and audits of the consolidated financial statements of the Company'sCompany’s employee benefit plans.
(3)
Fees for tax services for 20172022 and 20162021 consisted of tax compliance and tax planning and advice.
•
Fees for tax compliance services totaled $68,800$64,500 and $69,350$68,075 in 20172022 and 2016,2021, respectively. Tax compliance services are those rendered based upon facts already in existence or transactions that have already occurred to document, compute, and obtain government approval for amounts to be included in tax filings. Such services consisted primarily of preparation of the Company'sCompany’s consolidated federal and state income tax returns, trust preferred returns and a limited liability company tax return for a subsidiary entity.
•
Tax planning and advice services are those rendered with respect to proposed transactions, assistance regarding the Internal Revenue Code Section 280(G) "excise“excise tax gross-up"gross up” disclosures in the proxy statement for hypothetical events, and consultation with management regarding various internal control and accounting matters. Tax planning and advice services totaled $65,800$40,000 in 2022 and $58,000$51,200 in 2017 and 2016,2021, respectively.
(4)
All other fees consisted primarily of consulting services for the Company'sCompany’s strategic objectives merger and acquisitions, and other discussions.
The ratio of tax planning and advice fees and all other fees to audit fees, audit-relatedaudit related fees and tax compliance fees was 30.64%6.63% for 20172022 and 18.62%8.61% for 2016.2021.
In considering the nature of the services provided by the independent registered public accounting firm, the Audit Committee determined that such services are compatible with the provision of independent audit services. The Audit Committee discussed these services with the independent registered public accounting firm and Company management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC and the Public Company Accounting Oversight Board.
72 Heritage Commerce Corp • 2023 Proxy Statement
| | Proposal 4—Ratification of Independent Registered Public Accounting Firm | |
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accounting Firm
Under applicable SEC rules, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent registered public accountants in order to ensure that they do not impair the
auditors'auditors’ independence. The
SEC'sSEC’s rules specify the types of non-audit services that the independent registered public accountants may not provide to its audit client and establish the Audit
Committee'sCommittee’s responsibility for administration of the engagement of the independent registered public accountants.
Consistent with the SEC'sSEC’s rules, the Audit Committee Charter requires that the Audit Committee review and pre-approve all audit services and permitted non-audit services provided by the independent registered public accountants to the Company or any of its subsidiaries. The Audit Committee may delegate pre-approval authority to the Chair of the Audit Committee and if it does, the decisions of that member must be presented to the full Audit Committee at its next scheduled meeting.
Recommendation of the Audit Committee and the Board of Directors
| | | | | |
| | | | | | | The Audit Committee of the Board of Directors and the Board of Directors recommends approval of the ratification of the appointment of Crowe LLP as the Company’s independent registered public accounting firm for the year ending December 31, 2023. The proxy holders intend to vote all proxies they hold in favor of the proposal. If no instruction is given, the proxy holders intend to vote FOR approval of the proposal. | | |
| | | | | |
Heritage Commerce Corp • 2023 Proxy Statement 73
| | | 2023 Annual Meeting Information About the 2023 Annual Meeting of Shareholders Questions & Answers | |
Why did you send me this proxy statement?
We sent you this proxy statement and the enclosed proxy card because our Board is soliciting your proxy to vote at the 2023 Annual Meeting of Shareholders (“Annual Meeting”). This proxy statement summarizes the information you need to know to cast an informed vote at the Annual Meeting. Heritage Commerce Corp is referred to in this proxy statement as the “Company.” Along with this proxy statement, we are also sending you the Heritage Commerce Corp 2022 Annual Report on Form 10-K, which includes our consolidated financial statements.
How will our Annual Meeting be held?
The Annual Meeting will be held in a virtual-only meeting format, via live video webcast that will provide shareholders with the ability to participate in the Annual Meeting, vote their shares and ask questions. We are implementing a virtual-only meeting format in order to leverage technology to enhance shareholder access to the Annual Meeting by enabling attendance and participation from any location around the world. We believe that the virtual-only meeting format will give shareholders the opportunity to exercise the same rights as if they had attended an in-person meeting and believe that these measures will enhance shareholder access and encourage participation and communication with our Board and management.
We believe a virtual-only meeting format facilitates shareholder attendance and participation by enabling all shareholders to participate fully and equally, and without cost, using an Internet-connected device from any location. In addition, the virtual-only meeting format increases our ability to engage with all shareholders, regardless of size, resources or physical location.
Shareholders of record and beneficial owners at the close of the business day on March 27, 2023, the record date, will have the ability to submit questions and vote electronically at the Annual Meeting via the virtual-only meeting platform.
Only shareholders of record and beneficial owners of shares of our common stock as of the close of the business day on March 27, 2023, the record date, may attend and participate in the Annual Meeting, including voting and asking questions electronically before and during the virtual Annual Meeting via the virtual-only meeting platform. You will not be able to attend the Annual Meeting in person.
In order to attend the Annual Meeting, you must register at register.proxypush.com/HTBK. Upon completing your registration, you will receive further instructions via email, including a unique link that will allow you access to the Annual Meeting and to vote and submit questions before and during the Annual Meeting via the virtual-only meeting platform.
As part of the registration process, you must enter the control number located on your proxy card or voting instruction form. If you are a beneficial owner of shares registered in the name of a broker, bank or other nominee, you will also need to provide the registered name on your account and the name of your broker, bank or other nominee as part of the registration process.
On the day of the Annual Meeting, May 25, 2023, shareholders may begin to log in to the virtual-only Annual Meeting 15 minutes prior to the Annual Meeting. The Annual Meeting will begin promptly at 1:00 p.m., Pacific Daylight Time.
We will have technicians ready to assist you with any technical difficulties you may have accessing the Annual Meeting. If you encounter any difficulties accessing the virtual-only Annual Meeting platform, including any difficulties voting or submitting questions, you may call the technical support number that will be posted in your instructional email.
74 Heritage Commerce Corp • 2023 Proxy Statement
| | 2023 Annual Meeting Information About the 2023 Annual Meeting of Shareholders Questions & Answers | |
Our virtual Annual Meeting will allow shareholders to submit questions before and during the Annual Meeting. During a designated question and answer period at the Annual Meeting, we will respond to appropriate questions submitted by shareholders.
We will answer as many shareholder-submitted questions as time permits, and any questions that we are unable to address during the Annual Meeting will be answered following the meeting, with the exception of any questions that are irrelevant to the purpose of the Annual Meeting or our business or that contain inappropriate or derogatory references. If we receive substantially similar questions, we will group such questions together and provide a single response to avoid repetition.
Who is entitled to vote?
We will begin sending this proxy statement, the attached Notice of Annual Meeting and the enclosed proxy card on or about April 13, 2023, to all shareholders entitled to vote. Shareholders who were the record owners of the Company’s common stock at the close of the business day on March 27, 2023, are entitled to vote. On this record date, there were 60,947,875 shares of common stock outstanding.
What constitutes a quorum?
A majority of the outstanding shares of the common stock entitled to vote at the Annual Meeting must be present, in person or by proxy, in order to constitute a quorum. We can only conduct the business of the Annual Meeting if a quorum has been established. We will include proxies marked as abstentions and broker non-votes in determining the number of shares present at the Annual Meeting.
How many votes do I have?
Each share of common stock entitles you to one vote in person or by proxy, for each share of common stock outstanding in your name on the books of the Company as of March 27, 2023, the record date for the Annual Meeting on any matter submitted to a vote of the shareholders, except that in connection with the election of directors (Proposal 1), you may cumulate your shares (see “What is cumulative voting and how do I cumulate my shares?” on page 76). The proxy card indicates the number of votes that you have as of the record date. Is voting confidential?
We have a confidential voting policy to protect the privacy of our shareholders’ votes. Under this policy, ballots, proxy cards and voting instructions returned to banks, brokers and other nominees are kept confidential. Only the proxy tabulator and the Inspector of Election have access to the ballots, proxy cards and voting instructions.
How do I vote by proxy?
You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions to your broker or other nominee. If your shares are held by a broker or other nominee, you will receive instructions that you must follow to have your shares voted. If you hold your shares as a shareholder of record, you may vote by completing, signing and dating the enclosed proxy card and returning it promptly in the envelope provided. You may also vote by telephone or over the Internet (see page 3). Returning the proxy card will not affect your right to participate on line at the virtual the Annual Meeting and vote.
If you properly fill in your proxy card and send it to us in time to vote, your “proxy” (one of the individuals named on your proxy card) will vote your shares as you have directed. If you sign the proxy card but do not make specific choices, your proxy will vote your shares as recommended by the Board as follows:
•
“FOR” the election of all 10 nominees for director;
•
“FOR” the approval of the Heritage Commerce Corp 2023 Equity Incentive Plan;
•
“FOR” the approval of the advisory proposal on the Company’s 2022 executive compensation; and
•
“FOR” the ratification of the appointmentselection of Crowe Horwath LLP as the Company'sour independent registered public accounting firm for 2023.
For the year ending December 31, 2018. Theelection of directors (Proposal 1), a shareholder may withhold authority for the proxy holders intendto vote for any one or more of the nominees by marking the enclosed proxy card in the manner instructed on the proxy card. Unless authority to vote for the nominees is withheld, the proxy holders will vote the proxies received by them for the election of the nominees listed on the proxy card as directors of the Company. Your proxy does not have an obligation to vote for nominees not identified on the preprinted proxy card (that is, write in candidates). Should any shareholder attempt to “write in” a vote for a nominee not identified on the preprinted card (and described in these proxy materials), your proxy will NOT vote the shares represented by your proxy card for any such write in
Heritage Commerce Corp • 2023 Proxy Statement 75
| | 2023 Annual Meeting Information About the 2023 Annual Meeting of Shareholders Questions & Answers | |
candidate, but will instead vote the shares for any and all other indicated candidates. If any of the nominees should be unable or decline to serve, which is not now anticipated, your proxy will have discretionary authority to vote for a substitute who shall be designated by the present Board to fill the vacancy. In the event that additional persons are nominated for election as directors, your proxy intends to vote all proxies they hold in favor of the proposal. If no instruction is given,proxies in such a manner, in accordance with the cumulative voting, as will assure the election of as many of the nominees identified on the proxy card as possible. In such event, the specific nominees to be voted for will be determined by the proxy holders, in their sole discretion.
What do I have to do to vote my shares if they are held in the name of my broker?
If your shares are held by your broker, sometimes called “street name” shares, you must vote your shares through your broker. You should receive a form from your broker asking how you want to vote your shares. Follow the instructions on that form to give voting instructions to your broker. Under the rules that govern brokers who are voting with respect to shares held in street name, brokers have the discretion to vote such shares on routine, but not on non-routine matters. A “broker non vote” occurs when your broker does not vote on a particular proposal because the broker does not receive instructions from the beneficial owner and does not have discretionary authority. Proposal 1 (election of directors), Proposal 2 (approval of the 2023 Equity Incentive Plan) and Proposal 3 (advisory proposal on the 2022 executive compensation) are non-routine items on which a broker may vote only if the beneficial owner has provided voting instructions. Proposal 4 (ratification of independent registered public accounting firm for 2023) is a routine item.
How do I vote at the virtual meeting?
If you plan to attend the virtual Annual Meeting and desire to vote at the meeting you will have the opportunity to do so, but we recommend you send in a proxy card to vote. However, if your shares are held in the name of your broker, bank or other nominee, you must provide the proper codes as set forth in the proxy card.
May I vote over the Internet or by telephone?
Shareholders whose shares are registered in their own names may vote either over the Internet or by telephone. Special instructions for voting over the Internet or by telephone are set forth on the enclosed proxy card. The Internet and telephone voting procedures are designed to authenticate the shareholder’s identity and to allow shareholders to vote their shares and confirm that their voting instructions have been properly recorded.
If your shares are registered in the name of a bank or brokerage firm, you may be eligible to vote your shares by telephone or over the Internet. Most U.S. banks and brokerage firms are clients of Broadridge Financial Solutions (“Broadridge”). As such, shareholders who receive either a paper copy of their proxy statement or electronic delivery notification have the opportunity to vote by telephone or over the Internet. If your bank or brokerage firm is a Broadridge client, your proxy card or Voting Instruction Form (“VIF”) will provide the instructions. If your proxy card or VIF does not provide instructions for Internet and telephone voting, please complete and return the proxy card in the self-addressed, postage paid envelope provided.
What is cumulative voting and how do I cumulate my shares?
For the election of directors (Proposal 1), California law provides that a shareholder of a California corporation, or his/her proxy, may cumulate votes in the election of directors. That is, each shareholder may cast that number of votes equal to the number of shares owned by the shareholder, multiplied by the number of directors to be elected, and he/she may cumulate such votes for a single candidate or distribute such votes among as many candidates as he/she deems appropriate.
Certain affirmative steps must be taken by you in order to be entitled to vote your shares cumulatively for the election of directors. At the shareholders’ meeting at which directors are to be elected, no shareholder is entitled to cumulate votes (i.e., cast for any one or more candidates a number of votes greater than the number of the shareholder’s shares) unless the candidates’ names have been placed in nomination at the meeting and prior to the commencement of the voting and at least one shareholder has given notice at the meeting and prior to commencement of the voting of the shareholder’s intention to cumulate votes. If any shareholder has given such notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder’s shares are entitled, or distribute the shareholder’s votes on the same principle among any or all of the candidates, as the shareholder thinks appropriate. The candidates receiving the highest number of votes, up to the number of directors to be elected, will be elected.
The proxies designated on your proxy card do not, at this time, intend to vote FOR approvalcumulate votes, to the extent they have the shareholder’s discretionary authority to do so, pursuant to the proxies solicited in this proxy statement unless another shareholder gives notice to
76 Heritage Commerce Corp • 2023 Proxy Statement
| | 2023 Annual Meeting Information About the 2023 Annual Meeting of Shareholders Questions & Answers | |
cumulate, in which case your proxy may cumulate votes in accordance with the recommendations of the proposal.Board. Therefore, discretionary authority to cumulate votes in such an event is solicited in this proxy statement.
May I change my vote after I return my proxy?
TableIf you fill out and return the enclosed proxy card, or vote by telephone or over the Internet, you may change your vote at any time before the vote is conducted at the Annual Meeting. You may change your vote in any one of Contentsfour ways:
•
You may send to the Company’s Corporate Secretary another completed proxy card with a later date.
•
You may notify the Company’s Corporate Secretary in writing before the Annual Meeting that you have revoked your proxy.
•
You may virtually attend the Annual Meeting and vote on line.
•
If you have voted your shares by telephone or over the Internet, you can revoke your prior telephone or Internet vote by recording a different vote, or by signing and returning a proxy card dated as of a date that is later than your last telephone or Internet vote.
What if I receive multiple proxy cards?
If you receive multiple proxy cards, your shares are probably registered differently or are in more than one account. Vote all proxy cards received to ensure that all your shares are voted. Unless you need multiple accounts for specific purposes, we recommend that you consolidate as many of your accounts as possible under the same name and address. If the shares are registered in your name, contact our transfer agent, EQ Shareowner Services, 1-866-883-3382; otherwise, contact your bank, broker or other nominee.
What vote is required to approve each proposal?
Approval of Proposal 1 (election of directors) requires a plurality of votes cast for each nominee. This means that the 10 nominees who receive the most votes will be elected. So, if you do not vote for a particular nominee, or you indicate “WITHHOLD AUTHORITY” to vote for a particular nominee on your proxy card, your vote will not count either “for” or “against” the nominee. Abstentions will not have any effect on the outcome of the vote. You may cumulate your votes in the election of directors as described under “What is cumulative voting and how do I cumulate my shares?” on page 76. Broker non-votes will not count as a vote on the proposal and will not affect the outcome of the vote. Approval of Proposal 2 (approval of 2023 Equity Incentive Plan), Proposal 3 (approval of the advisory proposal on the 2022 executive compensation) and Proposal 4 (ratification of independent registered public accounting firm for 2023) each requires a vote that satisfies two criteria: (i) the affirmative vote for the proposal must constitute a majority of the common shares present or represented by proxy and voting on the proposal at the Annual Meeting and (ii) the affirmative vote for the proposal must constitute a majority of the common shares required to constitute the quorum. For purposes of Proposal 2, 3 and 4, abstentions and broker non-votes will not affect the outcome under clause (i), which recognizes only actual votes cast. However, abstentions and broker non-votes will affect the outcome under clause (ii) if the number of affirmative votes, though a majority of the votes represented, does not constitute a majority of the voting power required to constitute a quorum. The ratification of the appointment of the independent registered public accounting firm for 2023 is a matter on which a broker or other nominee is generally empowered to vote and, therefore, no broker non-votes are expected to exist with respect to Proposal 4.
How will voting on any other business be conducted?
Your proxy card confers discretionary authority to your proxy to vote your shares on the matters which may properly be presented for action at the Annual Meeting, and may include action with respect to procedural matters pertaining to the conduct of the Annual Meeting.
What are the costs of soliciting these proxies?
We will pay all the costs of soliciting these proxies. In addition to mailing proxy soliciting material, our directors, officers and employees also may solicit proxies in person, by telephone or by other electronic means of communication for which they will receive no compensation. We will ask banks, brokers and other institutions, nominees and fiduciaries to forward the proxy materials to their principals and to obtain authority to execute proxies. We will then reimburse them for their reasonable expenses. We have hired Advantage Proxy to seek the proxies of custodians, such as brokers, which hold shares which belong to other people. This service will cost the Company approximately $5,000 plus expenses.
Heritage Commerce Corp • 2023 Proxy Statement 77
| | 2023 Annual Meeting Information About the 2023 Annual Meeting of Shareholders Questions & Answers | |
How do I obtain an Annual Report on Form 10-K?
A copy of our 2022 Annual Report on Form 10-K accompanies this proxy statement. If you would like another copy of this report, we will send you one without charge. The Annual Report on Form 10-K includes a list of exhibits filed with the Securities and Exchange Commission (“SEC”), but does not include the exhibits. If you wish to receive copies of the exhibits, we will send them to you. Please write to:
Heritage Commerce Corp
224 Airport Parkway
San Jose, California 95110
Attention: Executive Vice President and Corporate Secretary
You can also find out more information about us at our website www.heritagecommercecorp.com. Our website is available for information purposes only and should not be relied upon for investment purposes, nor is it incorporated by reference into this proxy statement. On our website you can access electronically filed copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 filings, and amendments to those reports and filings, free of charge. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including the Company.
78 Heritage Commerce Corp • 2023 Proxy Statement
If any matters not referred to in this proxy statement come before the meeting, including matters incident to conducting the meeting, the proxy holders will vote the shares represented by proxies in accordance with their best judgment. Management is not aware of any other business to come before the meeting and, as of the date of the preparation of this proxy statement, no shareholder has submitted to management any proposal to be acted upon at the meeting.
Heritage Commerce Corp • 2023 Proxy Statement 79
TABLE OF CONTENTSSHAREHOLDER PROPOSALS
Any shareholder that intends to propose business to be considered at the 2019 Annual Meeting must comply with the Company's Bylaws including providing the required notice to the Company's Corporate Secretary not later than the close of business on February 25, 2019 nor earlier than January 24, 2019. If
| | | Shareholder Proposals for 2024 Meeting | |
For a shareholder gives notice of such a proposal before or after these deadlines, proxy holders will be allowed to use their discretionary voting authority to vote against the shareholder proposal without discussion when and if the proposal is raised at the 2019 Annual Meeting of Shareholders. Proposals of shareholders intended to be presented for consideration at the 2019 Annual Meeting of Shareholders, and to be included in the Company's proxy statement for that meeting underthe 2024 Annual Meeting, it must comply with SEC Rule 14a-8 and be received by the Secretary of the Company at the address below no later than December 15, 2023.
A shareholder who intends to present a proposal at the Company’s 2024 Annual Meeting other than pursuant to Rule 14a-8 must comply with our Bylaws, which provide that the notice of such intention must be received by the Secretary of the Company for inclusion inat the proxy statementaddress set forth below no earlier than January 26, 2024 and form of proxy for that meeting no later than December 17, 2018,February 25, 2024, and such proposal must be a proper matter for shareholder action under California law. Any such notice must meet the other requirements in our Bylaws.
Shareholders who intend to solicit proxies in reliance on the SEC’s universal proxy rule for director nominees submitted under the advance notice requirements of our Bylaws must comply with the additional requirements of SEC Rule 14a-19(b).
Notices of intention to present proposals or nominate directors at the 2024 Annual Meeting, and all supporting materials required by our Bylaws, must be submitted by mail to Corporate Secretary, Heritage Commerce Corp, 224 Airport Parkway, San Jose, California, 95110
The Company reserves the right to reject, rule out of order, or take other appropriate action with respect to any proposal or nomination that does not comply with these and other applicable requirements. The submission of a shareholder proposal or proxy access or other director nomination does not guarantee that it will be included in our proxy statement.
HERITAGE COMMERCE CORP
Deborah K. Reuter
Executive Vice President, Chief Risk Officer and Corporate Secretary
April 13, 2023
San Jose, California
80 Heritage Commerce Corp • 2023 Proxy Statement
| | | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
1. Purpose. The purpose of the Plan is to assist the Company in attracting, retaining, motivating and rewarding certain employees, officers, directors, and consultants of the Company to promote the success of the Company’s business. The Plan authorizes the award of Stock-based incentives to Eligible Persons.
2. Definitions. For purposes of the Plan, the following terms shall be defined as set forth below:
(a) “Affiliate” means, with respect to a Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person.
(b) “Award” means any Option, award of Restricted Stock, Restricted Stock Unit, Stock Appreciation Right, or other Stock-based award granted under the Plan.
(c) “Award Agreement” means an Option Agreement, a Restricted Stock Agreement, an RSU Agreement, a SAR Agreement, or an agreement governing the grant of any other Award granted under the Plan.
(d) “Bank” means Heritage Bank of Commerce, a California banking corporation, and its successors by operation of law.
(e) “Board” means the Board of Directors of the Company.
(f) “Cause” means, with respect to a Participant and in the absence of an Award Agreement or Participant Agreement otherwise defining Cause, means (i) the Participant willfully breaches or habitually neglects the duties which the Participant is required to perform under his or her employment agreement; (ii) the Participant commits an intentional act of moral turpitude that has a material detrimental effect on the reputation or business of the Service Recipient or the Bank; (iii) the Participant is convicted of a felony or commits any material and actionable act of dishonesty, fraud, or intentional material misrepresentation in the performance of the Participant’s duties; (iv) the Participant engages in an unauthorized disclosure or use of inside information, trade secrets or other confidential information; or (v) the Participant willfully breaches a fiduciary duty, or violates any law, rule or regulation, which breach or violation results in a formmaterial adverse effect on the Service Recipient and the Bank (taken as a whole). If, subsequent to the Termination of a Participant for any or no reason (other than a Termination by the Service Recipient for Cause), it is discovered that grounds to terminate the Participant’s employment or service for Cause existed, such Participant’s employment or service shall, at the discretion of the Committee, be deemed to have been terminated by the Service Recipient for Cause for all purposes under the Plan, and the Participant shall be required to repay or return to the Company all amounts and benefits received by him or her in respect of any Award following such Termination that would have been forfeited under the Plan had such Termination been by the Service Recipient for Cause. In the event that there is an Award Agreement or Participant Agreement defining Cause, “Cause” shall have the meaning provided in such agreement, and a Termination by the Service Recipient for Cause hereunder shall not be deemed to have occurred unless all applicable notice and cure periods in such Award Agreement or Participant Agreement are complied with.
(g) “Change in Control” means, subject to the limitations of Section 409A of the Code, the earliest occurrence of one of the following events:
(i) 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 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 (i), the following acquisitions shall not constitute a Change of Control: (a) any acquisition directly from the Company, (b) any acquisition by the Company that reduces the number of shares issued and
Heritage Commerce Corp • 2023 Proxy Statement A-1
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
outstanding through a stock repurchase program or otherwise, (c) 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 (d) any acquisition by any corporation pursuant to a transaction which complies with applicable regulations.clauses (a), (b) and (c) of subsection (iii) of this Section 2(g); or
(ii) individuals who, as of the Effective Date, constitute the Board 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 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; or
(iii) 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 Heritage Bank of Commerce’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, of 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 at the time of the execution of the initial agreement, or of the action of the Company’s Board, providing for such Business Combination; or
(iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, and with respect to the payment of any amount that constitutes a deferral of compensation subject to Section 409A of the Code payable upon a Change in Control, a Change in Control shall not be deemed to have occurred, unless the Change in Control constitutes a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company under Section 409A(a)(2)(A)(v) of the Code.
(h) “Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time, including the rules and regulations thereunder and any successor provisions, rules, and regulations thereto. Any reference in the Plan to any section of the Code shall be deemed to include reference to any rules, regulations, or other interpretative guidance under such section, and any amendments or successor provisions to such section, rules, regulations, or guidance.
(i) “Committee” means the Board, the Personnel and Compensation Committee of the Board, or such other committee consisting of two or more individuals appointed by the Board to administer the Plan and each other individual or committee of individuals designated to exercise authority under the Plan.
(j) “Company” means Heritage Commerce Corp, a California corporation, and its successors by operation of law.
(k) “Corporate Event” has the meaning set forth in Section 11(b) hereof.
(l) “Data” has the meaning set forth in Section 21(h) hereof.
A-2 Heritage Commerce Corp • 2023 Proxy Statement
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
| | HERITAGE COMMERCE CORP |
|
|
|
| | Deborah Reuter
Executive Vice President
and Corporate Secretary
|
April
(m) “Disability” means, in the absence of an Award Agreement or Participant Agreement otherwise defining Disability, the permanent and total disability of such Participant within the meaning of Section 22(e)(3) of the Code. In the event that there is an Award Agreement or Participant Agreement defining Disability, “Disability” shall have the meaning provided in such Award Agreement or Participant Agreement.
(n) “Disqualifying Disposition” means any disposition (including any sale) of Stock acquired upon the exercise of an Incentive Stock Option made within the period that ends either (i) two (2) years after the date on which the Participant was granted the Incentive Stock Option or (ii) one (1) year after the date upon which the Participant acquired the Stock.
(o) “Effective Date” means May 25, 2023, which is the date on which the Plan was approved by the shareholders of the Company.
(p) “Eligible Person” means (i) each employee and officer of the Company or any of its Affiliates; (ii) each non-employee director of the Company or any of its Affiliates; (iii) each other natural Person who provides substantial services to the Company or any of its Affiliates as a consultant or advisor (or a wholly owned alter ego entity of the natural Person providing such services of which such Person is an employee, shareholder, or partner) and who is designated as eligible by the Committee; and (iv) each natural Person who has been offered employment by the Company or any of its Affiliates; provided that such prospective employee may not receive any payment or exercise any right relating to an Award until such Person has commenced employment or service with the Company or its Affiliates; provided, further, however, that (A) with respect to any Award that is intended to qualify as a “stock right” that does not provide for a “deferral of compensation” within the meaning of Section 409A of the Code, the term “Affiliate” as used in this Section 2(p) shall include only those corporations or other entities in the unbroken chain of corporations or other entities beginning with the Company where each of the corporations or other entities in the unbroken chain, other than the last corporation or other entity, owns stock possessing at least 50% or more of the total combined voting power of all classes of stock in one of the other corporations or other entities in the chain, and (B) with respect to any Award that is intended to be an Incentive Stock Option, the term “Affiliate” as used in this Section 2(p) shall include only those entities that qualify as a “subsidiary corporation” with respect to the Company within the meaning of Section 424(f) of the Code. An employee on an approved leave of absence may be considered as still in the employ of the Company or any of its Affiliates for purposes of eligibility for participation in the Plan.
(q) “Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended from time to time, including the rules and regulations thereunder and any successor provisions, rules, and regulations thereto.
(r) “Expiration Date” means, with respect to an Option, the date on which the term of such Option or Stock Appreciation Right expires, as determined under Section 5(b) or 8(b) hereof, as applicable.
(s) “Fair Market Value” means, as of any date when the Stock is listed on one or more national securities exchange(s), the closing price reported on the principal national securities exchange on which such Stock is listed and traded on the date of determination or, if the closing price is not reported on such date of determination, the closing price reported on the most recent date prior to the date of determination. If the Stock is not listed on a national securities exchange, “Fair Market Value” shall mean the amount determined by the Board in good faith, and in a manner consistent with Section 409A of the Code, to be the fair market value per share of Stock.
(t) “GAAP” means the U.S. Generally Accepted Accounting Principles, as in effect from time to time.
(u) “Incentive Stock Option” means an Option intended to qualify as an “incentive stock option” within the meaning of Section 422 of the Code.
(v) “Nonqualified Stock Option” means an Option not intended to be an Incentive Stock Option.
(w) “Option” means a conditional right, granted to a Participant under Section 5 hereof, to purchase Stock at a specified price during a specified time period.
(x) “Option Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Option Award.
(y) “Participant” means an Eligible Person who has been granted an Award under the Plan or, if applicable, such other Person who holds an Award.
Heritage Commerce Corp • 2023 Proxy Statement A-3
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
(z) “Participant Agreement” means an employment or other services agreement between a Participant and the Service Recipient that describes the terms and conditions of such Participant’s employment or service with the Service Recipient and is effective as of the date of determination.
(aa) “Performance Goals” means the performance goals established by the Committee in connection with any Award based on criteria that must be met in order for payment to be made or vesting to occur with respect to such Award.
(bb) “Performance Period” means the period established by the Committee for measuring whether and to what extent any Performance Goals established in connection with an Award have been met.
(cc) “Person” means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, unincorporated organization, or other entity.
(dd) “Plan” means this Heritage Commerce Corp 2023 Equity Incentive Plan, as amended from time to time.
(ee) “Qualified Member” means a member of the Committee who is a “Non-Employee Director” within the meaning of Rule 16b-3 under the Exchange Act and an “independent director” as defined under, as applicable, the NASDAQ Listing Rules, the NYSE Listed Company Manual, or other applicable stock exchange rules.
(ff) “Qualifying Committee” has the meaning set forth in Section 3(b) hereof.
(gg) “Restricted Stock” means Stock granted to a Participant under Section 6 hereof that is subject to certain restrictions and to a risk of forfeiture.
(hh) “Restricted Stock Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Restricted Stock Award.
(ii) “Restricted Stock Unit” means a notional unit representing the right to receive one share of Stock (or the cash value of one share of Stock, if so determined by the Committee) on a specified settlement date.
(jj) “RSU Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Award of Restricted Stock Units.
(kk) “SAR Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Award of Stock Appreciation Rights.
(ll) “Securities Act” means the U.S. Securities Act of 1933, as amended from time to time, including the rules and regulations thereunder and any successor provisions, rules, and regulations thereto.
(mm) “Service Recipient” means, with respect to a Participant holding an Award, either the Company or an Affiliate of the Company by which the original recipient of such Award is, or following a Termination was most recently, principally employed or to which such original recipient provides, or following a Termination was most recently providing, services, as applicable.
(nn) “Stock” means the common stock, no par value, of the Company, and such other securities as may be substituted for such stock pursuant to Section 11 hereof.
(oo) “Stock Appreciation Right” means a conditional right to receive an amount equal to the value of the appreciation in the Stock over a specified period. Except in the event of extraordinary circumstances, as determined in the sole discretion of the Committee, or pursuant to Section 11(b) hereof, Stock Appreciation Rights shall be settled in Stock.
(pp) “Termination” means the termination of a Participant’s employment or service, as applicable, with the Service Recipient; provided, however, that, if so determined by the Committee at the time of any change in status in relation to the Service Recipient (e.g., a Participant ceases to be an employee and begins providing services as a consultant, or vice versa), such change in status will not be deemed a Termination hereunder. Unless otherwise determined by the Committee, in the event that the Service Recipient ceases to be an Affiliate of the Company (by reason of sale, divestiture, spin-off, or other similar transaction), unless a Participant’s employment or service is transferred to another entity that would constitute the Service Recipient immediately following such transaction, such Participant shall be deemed to have suffered a Termination hereunder as of the date of the consummation of such transaction. Notwithstanding anything herein to the contrary, a Participant’s change in status in relation to the Service Recipient (for example, a change from employee to consultant) shall not be deemed a Termination hereunder with respect to any Awards constituting “nonqualified deferred compensation” subject to Section 409A
A-4 Heritage Commerce Corp • 2023 Proxy Statement
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
of the Code that are payable upon a Termination, unless such change in status constitutes a “separation from service” within the meaning of Section 409A of the Code. Any payments in respect of an Award constituting nonqualified deferred compensation subject to Section 409A of the Code that are payable upon a Termination shall be delayed for such period as may be necessary to meet the requirements of Section 409A(a)(2)(B)(i) of the Code. On the first (1st) business day following the expiration of such period, the Participant shall be paid, in a single lump sum without interest, an amount equal to the aggregate amount of all payments delayed pursuant to the preceding sentence, and any remaining payments not so delayed shall continue to be paid pursuant to the payment schedule applicable to such Award.
3.
Administration.
(a) Authority of the Committee. Except as otherwise provided below, the Plan shall be administered by the Committee. The Committee shall have full and final authority, in each case, subject to and consistent with the provisions of the Plan, to (i) select Eligible Persons to become Participants; (ii) grant Awards; (iii) determine the type, number, and type of shares of Stock subject to, other terms and conditions of, and all other matters relating to, Awards; (iv) prescribe Award Agreements (which need not be identical for each Participant) and rules and regulations for the administration of the Plan; (v) construe and interpret the Plan and Award Agreements and correct defects, supply omissions, and reconcile inconsistencies therein; (vi) suspend the right to exercise Awards during any period that the Committee deems appropriate to comply with applicable securities laws, and thereafter extend the exercise period of an Award by an equivalent period of time or such shorter period required by, or necessary to comply with, applicable law; and (vii) make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan. Any action of the Committee shall be final, conclusive, and binding on all Persons, including, without limitation, the Company, its shareholders and Affiliates, Eligible Persons, Participants, and beneficiaries of Participants. Notwithstanding anything in the Plan to the contrary, the Committee shall have the ability to accelerate the vesting of any outstanding Award at any time and for any reason, including upon a Corporate Event, subject to Section 11(b), or in the event of a Participant’s Termination by the Service Recipient other than for Cause, or due to the Participant’s death, Disability, or retirement (as such term may be defined in an applicable Award Agreement or Participant Agreement or, if no such definition exists, in accordance with the Company’s then-current employment policies and guidelines). For the avoidance of doubt, the Board shall have the authority to take all actions under the Plan that the Committee is permitted to take.
(b) Manner of Exercise of Committee Authority. At any time that a member of the Committee is not a Qualified Member, any action of the Committee relating to an Award granted or to be granted to a Participant who is then subject to Section 16 2018
San Jose,of the Exchange Act in respect of the Company must be taken by the remaining members of the Committee or a subcommittee, designated by the Committee or the Board, composed solely of two or more Qualified Members (a “Qualifying Committee”). Any action authorized by such a Qualifying Committee shall be deemed the action of the Committee for purposes of the Plan. The express grant of any specific power to a Qualifying Committee, and the taking of any action by such a Qualifying Committee, shall not be construed as limiting any power or authority of the Committee.
(c) Delegation. To the extent permitted by applicable law, the Committee may delegate to officers or employees of the Company or any of its Affiliates, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform such functions under the Plan, including, but not limited to, administrative functions, as the Committee may determine appropriate. The Committee may appoint agents to assist it in administering the Plan. Any actions taken by an officer or employee delegated authority pursuant to this Section 3(c) within the scope of such delegation shall, for all purposes under the Plan, be deemed to be an action taken by the Committee. Notwithstanding the foregoing or any other provision of the Plan to the contrary, any Award granted under the Plan to any Eligible Person who is not an employee of the Company or any of its Affiliates (including any non-employee director of the Company or any Affiliate) or to any Eligible Person who is subject to Section 16 of the Exchange Act must be expressly approved by the Committee or Qualifying Committee in accordance with Section 3(b) above.
(d) Sections 409A and 457A. The Committee shall take into account compliance with Sections 409A and 457A of the Code in connection with any grant of an Award under the Plan, to the extent applicable. While the Awards granted hereunder are intended to be structured in a manner to avoid the imposition of any penalty taxes under Sections 409A and 457A of the Code, in no event whatsoever shall the Company or any of its Affiliates be liable for any additional tax, interest, or penalties that may be imposed on a Participant as a result of Section 409A or Section 457A of the Code or any damages for failing to comply with Section 409A or Section 457A of the Code or any similar state or local laws (other than for withholding obligations or other obligations applicable to employers, if any, under Section 409A or Section 457A of the Code).
Heritage Commerce Corp • 2023 Proxy Statement A-5
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
4.
Shares Available Under the Plan; Other Limitations.
(a) Number of Shares Available for Delivery. Subject to adjustment as provided in Section 11 hereof, the total number of shares of Stock reserved and available for delivery in connection with Awards under the Plan shall equal 600,000, plus the number of Shares available for issuance under the Heritage Commerce Corp 2013 Incentive Equity Plan that had not been made subject to outstanding awards as of the Effective Date are reserved for issuance under this Plan (“Share Reserve”).
(b) Share Counting Rules. The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double-counting, and make adjustments if the number of shares of Stock actually delivered differs from the number of shares previously counted in connection with an Award. To the extent that an Award expires or is canceled, forfeited, settled in cash, or otherwise terminated without delivery to the Participant of the full number of shares of Stock to which the Award related, the undelivered shares of Stock shall not be deemed to again be available for delivery under the Plan. Shares of Stock withheld or surrendered in payment of taxes or the exercise price relating to an Award shall be deemed to constitute shares delivered to the Participant and shall not be deemed to again be available for delivery under the Plan.
(c) Incentive Stock Options. No more than 1,590,594 shares of Stock (subject to adjustment as provided in Section 11 hereof) reserved for issuance hereunder may be issued or transferred upon exercise or settlement of Incentive Stock Options.
(d) Limitation on Non-Employee Director Awards. Subject to Section 4(a) and Section 11 hereof, the maximum grant date value of Awards granted to a non-employee Director, and the maximum amount of cash paid to such Director, shall not exceed (i) in the case of such non-employee Director who is serving as the chairman of the Board, $500,000 and (ii) in the case of any other such Director, $400,000, in each case, in any calendar year in respect of such Director’s service to the Company as a non-employee Director.
5.
Options.
(a) General. Certain Options granted under the Plan may be intended to be Incentive Stock Options; however, no Incentive Stock Options may be granted hereunder following the tenth (10th) anniversary of the date the shareholders of the Company approve the Plan. Options may be granted to Eligible Persons in such form and having such terms and conditions as the Committee shall deem appropriate; provided, however, that Incentive Stock Options may be granted only to Eligible Persons who are employees of the Company or an Affiliate (as such definition is limited pursuant to Section 2(p) hereof) of the Company. The provisions of separate Options shall be set forth in separate Option Agreements, which agreements need not be identical. No dividends or dividend equivalents shall be paid on Options.
(b) Term. The term of each Option shall be set by the Committee at the time of grant; provided, however, that no Option granted hereunder shall be exercisable after, and each Option shall expire on the tenth (10th) anniversary of the date it was granted.
(c) Exercise Price. The exercise price per share of Stock for each Option shall be set by the Committee at the time of grant and shall not be less than the Fair Market Value on the date of grant, subject to Section 5(g) hereof in the case of any Incentive Stock Option.
(d) Payment for Stock. Payment for shares of Stock acquired pursuant to an Option granted hereunder shall be made in full upon exercise of the Option in a manner approved by the Committee, which may include any of the following payment methods: (i) in immediately available funds in U.S. dollars, or by certified or bank cashier’s check; (ii) by delivery of shares of Stock having a value equal to the exercise price; (iii) by a broker-assisted cashless exercise in accordance with procedures approved by the Committee, whereby payment of the Option exercise price or tax withholding obligations may be satisfied, in whole or in part, with shares of Stock subject to the Option by delivery of an irrevocable direction to a securities broker (on a form prescribed by the Committee) to sell shares of Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate exercise price and, if applicable, the amount necessary to satisfy the Company’s withholding obligations; or (iv) by any other means approved by the Committee (including, by delivery of a notice of “net exercise” to the Company, pursuant to which the Participant shall receive (A) the number of shares of Stock underlying the Option so exercised, reduced by (B) the number of shares of Stock equal to (I) the aggregate exercise price of the Option divided by (II) the Fair Market Value on the date of exercise). Notwithstanding anything herein to the contrary, if the Committee determines that any form of payment available hereunder would be in violation of Section 402 of the Sarbanes-Oxley Act of 2002, such form of payment shall not be available.
A-6 Heritage Commerce Corp • 2023 Proxy Statement
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
(e) Vesting. Options shall vest and become exercisable in such manner, on such date or dates, or upon the achievement of performance or other conditions, in each case, as may be determined by the Committee and set forth in an Option Agreement; provided, however, that notwithstanding any such vesting dates, the Committee may in its sole discretion accelerate the vesting of any Option at any time and for any reason. Unless otherwise specifically determined by the Committee, the vesting of an Option shall occur only while the Participant is employed by or rendering services to the Service Recipient, and all vesting shall cease upon a Participant’s Termination for any or no reason. To the extent permitted by applicable law and unless otherwise determined by the Committee, vesting may be suspended during the period of any approved unpaid leave of absence by a Participant following which the Participant has a right to reinstatement and shall resume upon such Participant’s return to active employment. If an Option is exercisable in installments, such installments or portions thereof that become exercisable shall remain exercisable until the Option expires, is canceled, or otherwise terminates.
(f) Termination of Employment or Service. Except as provided by the Committee in an Option Agreement, Participant Agreement, or otherwise:
(i) In the event of a Participant’s Termination prior to the applicable Expiration Date for any reason other than (A) by the Service Recipient for Cause, or (B) by reason of the Participant’s death or Disability, (I) all vesting with respect to such Participant’s Options outstanding shall cease; (II) all of such Participant’s unvested Options outstanding shall terminate and be forfeited for no consideration as of the date of such Termination; and (III) all of such Participant’s vested Options outstanding shall terminate and be forfeited for no consideration on the earlier of (x) the applicable Expiration Date, and (y) the date that is ninety (90) days after the date of such Termination.
(ii) In the event of a Participant’s Termination prior to the applicable Expiration Date by reason of such Participant’s death or Disability, (A) all vesting with respect to such Participant’s Options outstanding shall cease; (B) all of such Participant’s unvested Options outstanding shall terminate and be forfeited for no consideration as of the date of such Termination; and (C) all of such Participant’s vested Options outstanding shall terminate and be forfeited for no consideration on the earlier of (I) the applicable Expiration Date, and (II) the date that is twelve (12) months after the date of such Termination.
(iii) In the event of a Participant’s Termination prior to the applicable Expiration Date by the Service Recipient for Cause, all of such Participant’s Options outstanding (whether or not vested) shall immediately terminate and be forfeited for no consideration as of the date of such Termination.
(iv) For the avoidance of doubt, the Committee may provide in an Option Agreement, Participant Agreement, or otherwise for accelerated vesting in the event of a Participant’s Termination following a Change in Control.
(g) Special Provisions Applicable to Incentive Stock Options.
(i) No Incentive Stock Option may be granted to any Eligible Person who, at the time the Option is granted, owns directly, or indirectly within the meaning of Section 424(d) of the Code, Stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary thereof, unless such Incentive Stock Option (A) has an exercise price of at least 110% of the Fair Market Value on the date of the grant of such Option, and (B) cannot be exercised more than five (5) years after the date it is granted.
(ii) To the extent that the aggregate Fair Market Value (determined as of the date of grant) of Stock for which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company and its Affiliates) exceeds $100,000, such excess Incentive Stock Options shall be treated as Nonqualified Stock Options.
(iii) Each Participant who receives an Incentive Stock Option must agree to notify the Company in writing immediately after the Participant makes a Disqualifying Disposition of any Stock acquired pursuant to the exercise of an Incentive Stock Option.
6.
Restricted Stock.
(a) General. Restricted Stock may be granted to Eligible Persons in such form and having such terms and conditions as the Committee shall deem appropriate. The provisions of separate Awards of Restricted Stock shall be set forth in separate Restricted Stock Agreements, which Restricted Stock Agreements need not be identical. Subject to the restrictions set forth in Section 6(b) hereof, and except as otherwise set forth in the applicable Restricted Stock Agreement, the Participant shall generally have the rights and privileges of a shareholder as to such Restricted Stock, including the right to vote such Restricted Stock. Unless
Heritage Commerce Corp • 2023 Proxy Statement A-7
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
otherwise set forth in a Participant’s Restricted Stock Agreement, cash dividends and stock dividends, if any, with respect to the Restricted Stock shall be withheld by the Company for the Participant’s account, and shall be subject to forfeiture to the same degree as the shares of Restricted Stock to which such dividends relate. Except as otherwise determined by the Committee, no interest will accrue or be paid on the amount of any cash dividends withheld.
(b) Vesting and Restrictions on Transfer. Restricted Stock shall vest in such manner, on such date or dates, or upon the achievement of performance or other conditions, in each case, as may be determined by the Committee and set forth in a Restricted Stock Agreement; provided, however, that notwithstanding any such vesting dates, the Committee may in its sole discretion accelerate the vesting of any Award of Restricted Stock at any time and for any reason. Unless otherwise specifically determined by the Committee in accordance with its authority described in Section 3(a), the vesting of an Award of Restricted Stock shall occur only while the Participant is employed by or rendering services to the Service Recipient, and all vesting shall cease upon a Participant’s Termination for any or no reason. To the extent permitted by applicable law and unless otherwise determined by the Committee, vesting shall be suspended during the period of any approved unpaid leave of absence by a Participant following which the Participant has a right to reinstatement and shall resume upon such Participant’s return to active employment. In addition to any other restrictions set forth in a Participant’s Restricted Stock Agreement, the Participant shall not be permitted to sell, transfer, pledge, or otherwise encumber the Restricted Stock prior to the time the Restricted Stock has vested pursuant to the terms of the Restricted Stock Agreement.
(c) Termination of Employment or Service. Except as provided by the Committee in a Restricted Stock Agreement, Participant Agreement, or otherwise, in the event of a Participant’s Termination for any or no reason prior to the time that such Participant’s Restricted Stock has vested, (i) all vesting with respect to such Participant’s Restricted Stock outstanding shall cease; and (ii) unvested shares of Restricted Stock shall be forfeited to the Company by the Participant for no consideration as of the date of such Termination. For the avoidance of doubt, the Committee may provide in a Restricted Stock Agreement, Participant Agreement, or otherwise for accelerated vesting in the event of a Participant’s Termination following a Change in Control.
7.
Restricted Stock Units.
(a) General. Restricted Stock Units may be granted to Eligible Persons in such form and having such terms and conditions as the Committee shall deem appropriate. The provisions of separate Restricted Stock Units shall be set forth in separate RSU Agreements, which RSU Agreements need not be identical.
(b) Vesting. Restricted Stock Units shall vest in such manner, on such date or dates, or upon the achievement of performance or other conditions, in each case, as may be determined by the Committee and set forth in an RSU Agreement; provided, however, that notwithstanding any such vesting dates, the Committee may in its sole discretion, subject to Section 3(a), accelerate the vesting of any Restricted Stock Unit at any time and for any reason. Unless otherwise specifically determined by the Committee, the vesting of a Restricted Stock Unit shall occur only while the Participant is employed by or rendering services to the Service Recipient, and all vesting shall cease upon a Participant’s Termination for any or no reason. To the extent permitted by applicable law and unless otherwise determined by the Committee, vesting shall be suspended during the period of any approved unpaid leave of absence by a Participant following which the Participant has a right to reinstatement and shall resume upon such Participant’s return to active employment.
(c) Settlement. Restricted Stock Units shall be settled in Stock, cash, or property, as determined by the Committee, in its sole discretion, on the date or dates determined by the Committee and set forth in an RSU Agreement. Unless otherwise set forth in a Participant’s RSU Agreement, a Participant shall not be entitled to dividends, if any, or dividend equivalents with respect to Restricted Stock Units prior to settlement.
(d) Termination of Employment or Service. Except as provided by the Committee in an RSU Agreement, Participant Agreement, or otherwise, in the event of a Participant’s Termination for any or no reason prior to the time that such Participant’s Restricted Stock Units have been settled, (i) all vesting with respect to such Participant’s Restricted Stock Units outstanding shall cease, (ii) all of such Participant’s unvested Restricted Stock Units outstanding shall be forfeited for no consideration as of the date of such Termination, and (iii) any shares remaining undelivered with respect to vested Restricted Stock Units then held by such Participant shall be delivered on the delivery date or dates specified in the RSU Agreement. For the avoidance of doubt, the Committee may provide in an RSU Agreement, Participant Agreement, or otherwise for accelerated vesting in the event of a Participant’s Termination following a Change in Control.
A-8 Heritage Commerce Corp • 2023 Proxy Statement
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
8.
Stock Appreciation Rights
(a) General. Stock Appreciation Rights may be granted to Eligible Persons in such form and having such terms and conditions as the Committee shall deem appropriate. The provisions of separate Stock Appreciation Rights shall be set forth in separate SAR Agreements, which agreements need not be identical. No dividends or dividend equivalents shall be paid on Stock Appreciation Rights.
(b) Term. The term of each Stock Appreciation Right shall be set by the Committee at the time of grant; provided, however, that no Stock Appreciation Right granted hereunder shall be exercisable after, and each Stock Appreciation Right shall expire, ten (10) years from the date it was granted.
(c) Base Price. The base price per share of Stock for each Stock Appreciation Right shall be set by the Committee at the time of grant and shall not be less than the Fair Market Value on the date of grant.
(d) Vesting. Stock Appreciation Rights shall vest and become exercisable in such manner, on such date or dates, or upon the achievement of performance or other conditions, in each case as may be determined by the Committee and set forth in a SAR Agreement; provided, however, that notwithstanding any such vesting dates, the Committee may in its sole discretion accelerate the vesting of any Stock Appreciation Right at any time and for any reason. Unless otherwise specifically determined by the Committee, the vesting of a Stock Appreciation Right shall occur only while the Participant is employed by or rendering services to the Service Recipient, and all vesting shall cease upon a Participant’s Termination for any reason. To the extent permitted by applicable law and unless otherwise determined by the Committee, vesting shall be suspended during the period of any approved unpaid leave of absence by a Participant following which the Participant has a right to reinstatement and shall resume upon such Participant’s return to active employment. If a Stock Appreciation Right is exercisable in installments, such installments or portions thereof that become exercisable shall remain exercisable until the Stock Appreciation Right expires, is canceled or otherwise terminates.
(e) Payment Upon Exercise. Payment upon exercise of a Stock Appreciation Right may be made in cash, Stock, or property as specified in the SAR Agreement or determined by the Committee, in each case having a value in respect of each share of Stock underlying the portion of the Stock Appreciation Right so exercised, equal to the difference between the base price of such Stock Appreciation Right and the Fair Market Value of one (1) share of Stock on the exercise date. For purposes of clarity, each share of Stock to be issued in settlement of a Stock Appreciation Right is deemed to have a value equal to the Fair Market Value of one (1) share of Stock on the exercise date. In no event shall fractional shares be issuable upon the exercise of a Stock Appreciation Right, and in the event that fractional shares would otherwise be issuable, the number of shares issuable will be rounded down to the next lower whole number of shares, and the Participant will be entitled to receive a cash payment equal to the value of such fractional share.
(f) Termination of Employment or Service. Except as provided by the Committee in a SAR Agreement, Participant Agreement or otherwise:
(i) In the event of a Participant’s Termination prior to the applicable Expiration Date for any reason other than (A) by the Service Recipient for Cause, or (B) by reason of the Participant’s death or Disability, (I) all vesting with respect to such Participant’s Stock Appreciation Rights outstanding shall cease, (II) all of such Participant’s unvested Stock Appreciation Rights outstanding shall terminate and be forfeited for no consideration as of the date of such Termination, and (III) all of such Participant’s vested Stock Appreciation Rights outstanding shall terminate and be forfeited for no consideration on the earlier of (x) the applicable Expiration Date and (y) the date that is ninety (90) days after the date of such Termination.
(ii) In the event of a Participant’s Termination prior to the applicable Expiration Date by reason of such Participant’s death or Disability, (A) all vesting with respect to such Participant’s Stock Appreciation Rights outstanding shall cease, (B) all of such Participant’s unvested Stock Appreciation Rights outstanding shall terminate and be forfeited for no consideration as of the date of such Termination, and (C) all of such Participant’s vested Stock Appreciation Rights outstanding shall terminate and be forfeited for no consideration on the earlier of (x) the applicable Expiration Date and (y) the date that is twelve (12) months after the date of such Termination. In the event of a Participant’s death, such Participant’s Stock Appreciation Rights shall remain exercisable by the Person or Persons to whom such Participant’s rights under the Stock Appreciation Rights pass by will or by the applicable laws of descent and distribution until the applicable Expiration Date, but only to the extent that the Stock Appreciation Rights were vested at the time of such Termination.
(iii) In the event of a Participant’s Termination prior to the applicable Expiration Date by the Service Recipient for Cause, all of such Participant’s Stock Appreciation Rights outstanding (whether or not vested) shall immediately terminate and be forfeited for no consideration as of the date of such Termination.
Heritage Commerce Corp • 2023 Proxy Statement A-9
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
(iv) For the avoidance of doubt, the Committee may provide in a SAR Agreement, Participant Agreement, or otherwise for accelerated vesting in the event of a Participant’s Termination following a Change in Control.
9. Other Stock-Based Awards. The Committee is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based upon or related to Stock, as deemed by the Committee to be consistent with the purposes of the Plan. The Committee may also grant Stock as a bonus (whether or not subject to any vesting requirements or other restrictions on transfer), and may grant other Awards in lieu of obligations of the Company or an Affiliate to pay cash or deliver other property under the Plan or under other plans or compensatory arrangements, subject to such terms as shall be determined by the Committee. The terms and conditions applicable to such Awards shall be determined by the Committee and evidenced by Award Agreements, which agreements need not be identical.
10. Performance Shares and Units. Notwithstanding the foregoing, the Committee may, in its sole discretion, grant any Award under the Plan conditional upon the satisfaction of Performance Goals during a Performance Period. Where applicable, the Performance Goals may be expressed in terms of attaining a specified level of the particular criteria or the attainment of a percentage increase or decrease in the particular criteria, and the Performance Goals may be fixed by the Committee for the Company as a whole or for a subsidiary, division, Affiliate, business segment, or business unit, or may be applied to the performance of the Company relative to a market index, a group of other companies or a combination thereof, depending on the Committee’s judgment as to what is appropriate. The Performance Goals may include a threshold level of performance below which no payment shall be made (or no vesting shall occur), levels of performance at which specified payments shall be made (or specified vesting shall occur), and a maximum level of performance above which no additional payment shall be made (or at which full vesting shall occur). The Performance Goals with respect to a Performance Period need not be the same for all Participants. Performance measures and Performance Goals may differ from Participant to Participant and from Award to Award. The Committee shall have the authority to make equitable adjustments to the Performance Goals as may be determined by the Committee, in its sole discretion.
11. Adjustment for Recapitalization, Merger, etc.
(a) Capitalization Adjustments. The aggregate and numerical number of shares of Stock that may be delivered in connection with Awards (as set forth in Section 4 hereof), the number of shares of Stock covered by each outstanding Award, the price per share of Stock underlying each such Award and the applicable performance goal(s) with respect to an Award shall be equitably and proportionally adjusted or substituted, as determined by the Committee, in its sole discretion, as to the number, price, or kind of a share of Stock or other consideration subject to such Awards, (i) in the event of changes in the outstanding Stock or in the capital structure of the Company by reason of stock dividends, extraordinary cash dividends, stock splits, reverse stock splits, recapitalizations, reorganizations, mergers, amalgamations, consolidations, combinations, exchanges, or other relevant changes in capitalization occurring after the date of grant of any such Award (including any Corporate Event); (ii) in connection with any extraordinary dividend declared and paid in respect of shares of Stock, whether payable in the form of cash, stock, or any other form of consideration; or (iii) in the event of any change in applicable laws or circumstances that results in or could result in, in either case, as determined by the Committee in its sole discretion, any substantial dilution or enlargement of the rights intended to be granted to, or available for, Participants in the Plan. In lieu of or in addition to any adjustment pursuant to this Section 11, if deemed appropriate, the Committee may provide that an adjustment take the form of a cash payment to the holder of an outstanding Award with respect to all or part of an outstanding Award, which payment shall be subject to such terms and conditions (including timing of payment(s), vesting, and forfeiture conditions) as the Committee may determine in its sole discretion. The Committee will make such adjustments, substitutions, or payment, and its determination will be final, binding, and conclusive. The Committee need not take the same action or actions with respect to all Awards or portions thereof or with respect to all Participants. The Committee may take different actions with respect to the vested and unvested portions of an Award.
(b) Corporate Events. Notwithstanding the foregoing, except as provided by the Committee in an Award Agreement, Participant Agreement, or otherwise, in connection with (1) a merger, amalgamation, or consolidation involving the Company in which the Company is not the surviving corporation; (2) a merger, amalgamation, or consolidation involving the Company in which the Company is the surviving corporation but the holders of shares of Stock receive securities of another corporation or other property or cash; (3) a Change in Control; or (4) the reorganization, dissolution, or liquidation of the Company (each, a “Corporate Event”), all Awards outstanding on the effective date of such Corporate Event shall be treated in the manner described in the definitive transaction agreement (or, in the event that the Corporate Event does not entail a definitive agreement to which the Company is party, in the manner determined by the Committee in its sole discretion), which agreement may provide, without limitation, for one or more of the following:
A-10 Heritage Commerce Corp • 2023 Proxy Statement
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
(i) The assumption or substitution of any or all Awards in connection with such Corporate Event, in which case the Awards shall be subject to the adjustment set forth in Section 11(a) hereof, and to the extent that such Awards vest subject to the achievement of performance criteria, such objectives or criteria shall be adjusted appropriately to reflect the Corporate Event;
(ii) The acceleration of vesting of any or all Awards not assumed or substituted in connection with such Corporate Event, subject to the consummation of such Corporate Event; provided that unless otherwise set forth in an Award Agreement, any Awards that vest subject to the achievement of performance criteria will be deemed earned at target level (or if no target is specified, the maximum level), provided, further, that a Participant has not experienced a Termination prior to such Corporate Event;
(iii) The cancellation of any or all Awards not assumed or substituted in connection with such Corporate Event (whether vested or unvested) as of the consummation of such Corporate Event, together with the payment to the Participants holding vested Awards (including any Awards that would vest upon the Corporate Event but for such cancellation) so canceled of an amount in respect of cancellation equal to an amount based upon the per-share consideration being paid for the Stock in connection with such Corporate Event, less, in the case of Options and other Awards subject to exercise, the applicable exercise or base price (such amounts to be paid on substantially the same schedule and subject to substantially the same terms and conditions as the consideration payable for the Stock in connection with the Corporate Event, unless otherwise determined by the Committee); provided, however, that holders of Options and other Awards subject to exercise shall be entitled to consideration in respect of cancellation of such Awards only if the per-share consideration less the applicable exercise price is greater than zero dollars ($0), and to the extent that the per-share consideration is less than or equal to the applicable exercise or base price, such Awards shall be canceled for no consideration;
(iv) The cancellation of any or all Options and other Awards subject to exercise not assumed or substituted in connection with such Corporate Event (whether vested or unvested) as of the consummation of such Corporate Event; provided, that, all Options and other Awards to be so cancelled pursuant to this paragraph (iv) shall first become exercisable for a period of at least ten (10) days prior to such Corporate Event, with any exercise during such period of any unvested Options or other Awards to be (A) contingent upon and subject to the occurrence of the Corporate Event, and (B) effectuated by such means as are approved by the Committee; and
(v) The replacement of any or all Awards with a cash incentive program that preserves the value of the Awards so replaced (determined as of the consummation of the Corporate Event), with subsequent payment of cash incentives subject to the same vesting conditions as applicable to the Awards so replaced and payment to be made within thirty (30) days of the applicable vesting date (or such later date on which the applicable consideration is payable for the Stock in connection with the Corporate Event, unless otherwise determined by the Committee).
Payments to holders pursuant to subsection 11(b)(iii) above shall be made in cash or, in the sole discretion of the Committee, and in the form of such other consideration necessary for a Participant to receive property, cash, or securities (or a combination thereof) as such Participant would have been entitled to receive upon the occurrence of the transaction if the Participant had been, immediately prior to such transaction, the holder of the number of shares of Stock covered by the Award at such time (less any applicable exercise price). In addition, in connection with any Corporate Event, prior to any payment or adjustment contemplated under this Section 11(b), the Committee may require a Participant to (A) represent and warrant as to the unencumbered title to his or her Awards; (B) bear such Participant’s pro-rata share of any post-closing indemnity obligations, and be subject to the same post-closing purchase price adjustments, escrow terms, offset rights, holdback terms, and similar conditions as the other holders of Stock; and (C) deliver customary transfer documentation as reasonably determined by the Committee. The Committee need not take the same action or actions with respect to all Awards or portions thereof or with respect to all Participants. The Committee may take different actions with respect to the vested and unvested portions of an Award.
(c) Fractional Shares. Any adjustment provided under this Section 11 may, in the Committee’s discretion, provide for the elimination of any fractional share that might otherwise become subject to an Award. No cash settlements shall be made with respect to fractional shares so eliminated.
12. Use of Proceeds. The proceeds received from the sale of Stock pursuant to the Plan shall be used for general corporate purposes.
13. Rights and Privileges as a Shareholder. Except as otherwise specifically provided in the Plan, no Person shall be entitled to the rights and privileges of Stock ownership in respect of shares of Stock that are subject to Awards hereunder until such shares have been issued to that Person.
Heritage Commerce Corp • 2023 Proxy Statement A-11
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
14. Transferability of Awards. Awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the applicable laws of descent and distribution, and to the extent subject to exercise, Awards may not be exercised during the lifetime of the grantee other than by the grantee. Notwithstanding the foregoing, except with respect to Incentive Stock Options, Awards and a Participant’s rights under the Plan shall be transferable for no value to the extent provided in an Award Agreement or otherwise determined at any time by the Committee.
15. Employment or Service Rights. No individual shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for the grant of any other Award. Neither the Plan nor any action taken hereunder shall be construed as giving any individual any right to be retained in the employ or service of the Company or an Affiliate of the Company.
16. Compliance with Laws. The obligation of the Company to deliver Stock upon issuance, vesting, exercise, or settlement of any Award shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling, any shares of Stock pursuant to an Award, unless such shares have been properly registered for sale with the U.S. Securities and Exchange Commission pursuant to the Securities Act (or with a similar non-U.S. regulatory agency pursuant to a similar law or regulation), or unless the Company has received an opinion of counsel, satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale or resale under the Securities Act any of the shares of Stock to be offered or sold under the Plan or any shares of Stock to be issued upon exercise or settlement of Awards. If the shares of Stock offered for sale or sold under the Plan are offered or sold pursuant to an exemption from registration under the Securities Act, the Company may restrict the transfer of such shares and may legend the Stock certificates representing such shares in such manner as it deems advisable to ensure the availability of any such exemption.
17. Withholding Obligations. As a condition to the issuance, vesting, exercise, or settlement of any Award (or upon the making of an election under Section 83(b) of the Code), the Committee may require that a Participant satisfy, through deduction or withholding from any payment of any kind otherwise due to the Participant, or through such other arrangements as are satisfactory to the Committee, the amount of all federal, state, and local income and other taxes of any kind required or permitted to be withheld in connection with such issuance, vesting, exercise, or settlement (or election). The Committee, in its discretion, may permit shares of Stock to be used to satisfy tax withholding requirements, and such shares shall be valued at their Fair Market Value as of the issuance, vesting, exercise, or settlement date of the Award, as applicable. Depending on the withholding method, the Company may withhold by considering the applicable minimum statutorily required withholding rates or other applicable withholding rates in the applicable Participant’s jurisdiction, including maximum applicable rates that may be utilized without creating adverse accounting treatment under Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor pronouncement thereto) and is permitted under applicable withholding rules promulgated by the Internal Revenue Service or another applicable governmental entity.
18. Amendment of the Plan or Awards.
(a) Amendment of Plan. The Board or the Committee may amend the Plan at any time and from time to time.
(b) Amendment of Awards. The Board or the Committee may amend the terms of any one or more Awards at any time and from time to time.
(c) Shareholder Approval; No Material Impairment. Notwithstanding anything herein to the contrary, no amendment to the Plan or any Award shall be effective without shareholder approval to the extent that such approval is required pursuant to applicable law or the applicable rules of each national securities exchange on which the Stock is listed. Additionally, no amendment to the Plan or any Award shall materially impair a Participant’s rights under any Award unless the Participant consents in writing (it being understood that no action taken by the Board or the Committee that is expressly permitted under the Plan, including, without limitation, any actions described in Section 11 hereof, shall constitute an amendment to the Plan or an Award for such purpose). Notwithstanding the foregoing, subject to the limitations of applicable law, if any, and without an affected Participant’s consent, the Board or the Committee may amend the terms of the Plan or any one or more Awards from time to time as necessary to bring such Awards into compliance with applicable law, including, without limitation, Section 409A of the Code.
(d) No Repricing of Awards Without Shareholder Approval. Notwithstanding Sections 18(a) or 18(b) above, or any other provision of the Plan, the repricing of Awards shall not be permitted without shareholder approval. For this purpose, a “repricing”
A-12 Heritage Commerce Corp • 2023 Proxy Statement
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of an Award to lower its exercise or base price (other than on account of capital adjustments resulting from share splits, etc., as described in Section 11(a) hereof); (ii) any other action that is treated as a repricing under GAAP; and (iii) repurchasing for cash or canceling an Award in exchange for another Award at a time when its exercise or base price is greater than the Fair Market Value of the underlying Stock, unless the cancellation and exchange occurs in connection with an event set forth in Section 11(b) hereof.
19. Termination or Suspension of the Plan. The Board or the Committee may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the shareholders of the Company approve the Plan. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated; provided, however, that following any suspension or termination of the Plan, the Plan shall remain in effect for the purpose of governing all Awards then outstanding hereunder until such time as all Awards under the Plan have been terminated, forfeited, or otherwise canceled, or earned, exercised, settled, or otherwise paid out, in accordance with their terms.
20. Effective Date of the Plan. The Plan is effective as of the Effective Date, subject to shareholder approval.
21. Miscellaneous.
(a) Treatment of Dividends and Dividend Equivalents on Unvested Awards. Notwithstanding any other provision of the Plan to the contrary, with respect to any Award that provides for or includes a right to dividends or dividend equivalents, if dividends are declared during the period that an equity Award is outstanding, such dividends (or dividend equivalents) shall either (i) not be paid or credited with respect to such Award, or (ii) be accumulated but remain subject to the vesting requirement(s) applicable to the underlying Award, and to the same extent as the underlying Award, and shall only be paid at the time or times that the vesting requirement(s) applicable to the underlying Award are satisfied. Except as otherwise determined by the Committee, no interest will accrue or be paid on the amount of any cash dividends withheld. No dividends or dividend equivalents shall be paid on Options.
(b) Minimum Vesting. Any Awards that settle in shares of Stock (other than such Awards representing a maximum of five percent (5%) of the shares of Stock reserved for issuance under the Plan, as adjusted pursuant to Paragraph 11) shall be granted subject to a minimum time-vesting period of at least twelve (12) months, such that no such Awards shall vest prior to the first anniversary of the applicable grant date.
(c) Certificates. Stock acquired pursuant to Awards granted under the Plan may be evidenced in such a manner as the Committee shall determine. If certificates representing Stock are registered in the name of the Participant, the Committee may require that (i) such certificates bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Stock; (ii) the Company retain physical possession of the certificates; and (iii) the Participant deliver a stock power to the Company, endorsed in blank, relating to the Stock. Notwithstanding the foregoing, the Committee may determine, in its sole discretion, that the Stock shall be held in book-entry form rather than delivered to the Participant pending the release of any applicable restrictions.
(d) Other Benefits. No Award granted or paid out under the Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or its Affiliates nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation.
(e) Corporate Action Constituting Grant of Awards. Corporate action constituting a grant by the Company of an Award to any Participant will be deemed completed as of the date of such corporate action, unless otherwise determined by the Committee, regardless of when the instrument, certificate, or letter evidencing the Award is communicated to, or actually received or accepted by, the Participant. In the event that the corporate records (e.g., Committee consents, resolutions, or minutes) documenting the corporate action constituting the grant contain terms (e.g., exercise price, vesting schedule, or number of shares of Stock) that are inconsistent with those in the Award Agreement as a result of a clerical error in connection with the preparation of the Award Agreement, the corporate records will control, and the Participant will have no legally binding right to the incorrect term in the Award Agreement.
(f) Clawback/Recoupment Policy. Notwithstanding anything contained herein to the contrary, all Awards granted under the Plan shall be and remain subject to any incentive compensation clawback or recoupment policy currently in effect or as may be adopted by the Board (or a committee or subcommittee of the Board) and, in each case, as may be amended from time to time. No such policy adoption or amendment shall in any event require the prior consent of any Participant. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for “good reason” or “constructive
Heritage Commerce Corp • 2023 Proxy Statement A-13
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
termination” (or similar term) under any agreement with the Company or any of its Affiliates. In the event that an Award is subject to more than one such policy, the policy with the most restrictive clawback or recoupment provisions shall govern such Award, subject to applicable law.
(g) Non-Exempt Employees. If an Option is granted to an employee of the Company or any of its Affiliates in the United States who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, the Option will not be first exercisable for any shares of Stock until at least six (6) months following the date of grant of the Option (although the Option may vest prior to such date). Consistent with the provisions of the Worker Economic Opportunity Act, (i) if such employee dies or suffers a Disability; (ii) upon a Corporate Event in which such Option is not assumed, continued, or substituted; (iii) upon a Change in Control; or (iv) upon the Participant’s retirement (as such term may be defined in the applicable Award Agreement or a Participant Agreement or, if no such definition exists, in accordance with the Company’s then current employment policies and guidelines), the vested portion of any Options held by such employee may be exercised earlier than six months following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option will be exempt from his or her regular rate of pay. To the extent permitted and/or required for compliance with the Worker Economic Opportunity Act to ensure that any income derived by a non-exempt employee in connection with the exercise, vesting, or issuance of any shares under any other Award will be exempt from such employee’s regular rate of pay, the provisions of this Section 21(g) will apply to all Awards.
(h) Data Privacy. As a condition of receipt of any Award, each Participant explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of personal data as described in this Section 21(h) by and among, as applicable, the Company and its Affiliates, for the exclusive purpose of implementing, administering, and managing the Plan and Awards and the Participant’s participation in the Plan. In furtherance of such implementation, administration, and management, the Company and its Affiliates may hold certain personal information about a Participant, including, but not limited to, the Participant’s name, home address, telephone number, date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), information regarding any securities of the Company or any of its Affiliates, and details of all Awards (the “Data”). In addition to transferring the Data amongst themselves as necessary for the purpose of implementation, administration, and management of the Plan and Awards and the Participant’s participation in the Plan, the Company and its Affiliates may each transfer the Data to any third parties assisting the Company in the implementation, administration, and management of the Plan and Awards and the Participant’s participation in the Plan. Recipients of the Data may be located in the Participant’s country or elsewhere, and the Participant’s country and any given recipient’s country may have different data privacy laws and protections. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purposes of assisting the Company in the implementation, administration, and management of the Plan and Awards and the Participant’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Company or the Participant may elect to deposit any shares of Stock. The Data related to a Participant will be held only as long as is necessary to implement, administer, and manage the Plan and Awards and the Participant’s participation in the Plan. A Participant may, at any time, view the Data held by the Company with respect to such Participant, request additional information about the storage and processing of the Data with respect to such Participant, recommend any necessary corrections to the Data with respect to the Participant, or refuse or withdraw the consents herein in writing, in any case without cost, by contacting his or her local human resources representative. The Company may cancel the Participant’s eligibility to participate in the Plan, and in the Committee’s discretion, the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents described herein. For more information on the consequences of refusal to consent or withdrawal of consent, Participants may contact their local human resources representative.
(i) Change in Time Commitment. In the event a Participant’s regular level of time commitment in the performance of his or her services for the Company or any of its Affiliates is reduced (for example, and without limitation, if the Participant is an employee of the Company and the employee has a change in status from a full-time employee to a part-time employee) after the date of grant of any Award to the Participant, the Committee has the right in its sole discretion to (i) make a corresponding reduction in the number of shares of Stock subject to any portion of such Award that is scheduled to vest or become payable after the date of such change in time commitment, and (ii) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award that is so reduced or extended.
(j) No Liability of Committee Members. Neither any member of the Committee nor any of the Committee’s permitted delegates shall be liable personally by reason of any contract or other instrument executed by such member or on his or her behalf in his or her capacity as a member of the Committee or for any mistake of judgment made in good faith, and the Company
A-14 Heritage Commerce Corp • 2023 Proxy Statement
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
shall indemnify and hold harmless each member of the Committee and each other employee, officer, or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against all costs and expenses (including counsel fees) and liabilities (including sums paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan, unless arising out of such Person’s own fraud or willful misconduct; provided, however, that approval of the Board shall be required for the payment of any amount in settlement of a claim against any such Person. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such Persons may be entitled under the Company’s certificate or articles of incorporation or by-laws, each as may be amended from time to time, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
(k) Payments Following Accidents or Illness. If the Committee shall find that any Person to whom any amount is payable under the Plan is unable to care for his or her affairs because of illness or accident, or is a minor, or has died, then any payment due to such Person or his or her estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his or her spouse, child, relative, an institution maintaining or having custody of such Person, or any other Person deemed by the Committee to be a proper recipient on behalf of such Person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.
(l) Governing Law. The Plan shall be governed by and construed in accordance with the laws of State of California,
without reference to the principles of conflicts of laws thereof.
(m) Electronic Delivery. Any reference herein to a “written” agreement or document or “writing” will include any agreement or document delivered electronically or posted on the Company’s intranet (or other shared electronic medium controlled or authorized by the Company to which the Participant has access) to the extent permitted by applicable law. (n) Arbitration. All disputes and claims of any nature that a Participant (or such Participant’s transferee or estate) may have against the Company arising out of or in any way related to the Plan or any Award Agreement shall be submitted to and resolved exclusively by binding arbitration conducted in the State of California (or such other location as the parties thereto may agree) in accordance with the applicable rules of the American Arbitration Association then in effect, and the arbitration shall be heard and determined by a panel of three arbitrators in accordance with such rules (except that in the event of any inconsistency between such rules and this Section 21(n), the provisions of this Section 21(n) shall control). The arbitration panel may not modify the arbitration rules specified above without the prior written approval of all parties to the arbitration. Within ten (10) business days after the receipt of a written demand, each party shall designate one arbitrator, each of whom shall have experience involving complex business or legal matters, but shall not have any prior, existing, or potential material business relationship with any party to the arbitration. The two arbitrators so designated shall select a third arbitrator, who shall preside over the arbitration, shall be similarly qualified as the two arbitrators, and shall have no prior, existing or potential material business relationship with any party to the arbitration; provided, that, if the two arbitrators are unable to agree upon the selection of such third arbitrator, such third arbitrator shall be designated in accordance with the arbitration rules referred to above. The arbitrators will decide the dispute by majority decision, and the decision shall be rendered in writing and shall bear the signatures of the arbitrators and the party or parties who shall be charged therewith, or the allocation of the expenses among the parties in the discretion of the panel. The arbitration decision shall be rendered as soon as possible, but in any event not later than one hundred twenty (120) days after the constitution of the arbitration panel. The arbitration decision shall be final and binding upon all parties to the arbitration. To the maximum extent permitted by law, the parties hereby irrevocably waive any right of appeal from any judgment rendered upon any such arbitration award in any such court. Notwithstanding the foregoing, any party may seek injunctive relief in any such court.
(o) Statute of Limitations. A Participant or any other person filing a claim for benefits under the Plan must file the claim within one (1) year of the date the Participant or other person knew or should have known of the facts giving rise to the claim. This one (1)-year statute of limitations will apply in any forum where a Participant or any other person may file a claim and, unless the Company waives the time limits set forth above in its sole discretion, any claim not brought within the time periods specified shall be waived and forever barred.
(p) Funding. No provision of the Plan shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company be required to maintain separate bank accounts, books, records, or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights
EQ Heritage Commerce Corp • 2023 Proxy Statement A-15
| | Appendix A—Heritage Commerce Corp 2023 Equity Incentive Plan | |
under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees and service providers under general law.
(q) Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in relying, acting, or failing to act, and shall not be liable for having so relied, acted, or failed to act in good faith, upon any report made by the independent public accountant of the Company and its Affiliates and upon any other information furnished in connection with the Plan by any Person or Persons other than such member.
(r) Titles and Headings. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
ADOPTED BY THE BOARD OF DIRECTORS: March 23, 2023
APPROVED BY THE SHAREHOLDERS:
TERMINATION DATE: May 25, 2033
A-16 Heritage Commerce Corp • 2023 Proxy Statement
![[MISSING IMAGE: px_01page-bw.jpg]](/files/DEF 14A/0001104659-23-045018/px_01page-bw.jpg)
Shareowner Services P.O.ServicesP.O. Box 64945 St.64945St. Paul, MN 55164-0945 Vote55164-0945Vote by Internet, Telephone, or Mail 24 Hours a Day, 7 Days a Week YourWeekYour phone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. : INTERNET/card.INTERNET / MOBILE – www.proxypush.com/htbkHTBK Use the Internet to vote your proxy until 11:59 p.m. (CT) on May 23, 2018. (proxy. PHONE – 1-866-883-3382 Use1-866-883-3382Use a touch-tone telephone to vote your proxy until 11:59 p.m. (CT) on May 23, 2018. * MAILproxy.MAIL – Mark, sign, and date your proxy card and return it in the postage-paid envelope provided. Ifprovided in time to be received by May 24, 2023.If you vote your proxy by Internet or by Telephone, you do NOT need to mail back your Proxy Card. o Please detach here o TheoThe Board of Directors Recommends a Vote FOR all nominees listed in ProposalItem 1 and FOR ProposalItems 2, FOR 3 years for Proposal 3 and FOR Proposal 4 1. Election4.1.Election of Directors: 01 Julianne M. Biagini-Komas 05 Steven L. Hallgrimson 09Stephen G. Heitel09 Marina H. Park Sutton02 Bruce H. Cabral06 Kamran F. Husain10 Ranson W. Webster 02 Frank G. BiscegliaWebsterVote FORVote WITHHELD 03 Jack W. Conner 04 J. Philip DiNapoli 06 Walter T. Kaczmarek 07 Robert T. Moles 08Conner07 Robertson Clay Jonesall nomineesfrom all nominees04 Jason DiNapoli08 Laura Roden Vote FOR all nominees (exceptRoden(except as marked) Vote WITHHELD from all nominees (Instructions:(Instructions: To withhold authority to vote for any indicated nominee, write the number(s) of the nominee(s) in the following box.) 2. Advisory2.Approval of the Heritage Commerce Corp 2023 Equity Incentive Plan.3.Approval of the advisory proposal on 2022 executive compensation. For Against Abstain 3. Advisory proposal on frequency of votes on executive compensation. 1 Year 2 Years 3 Years Abstain 4. Ratificationcompensation.4.Ratification of selection of independent registered public accounting firm for the year ending December 31, 2018.2023. For ForFor Against AgainstAgainst Abstain AbstainAbstain THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR all nominees listed in Proposal 1, FOR Proposal 2, FOR 3 years for Proposal 3 and FOR Proposal 4. ThisAS THE BOARD RECOMMENDS.This proxy card contains discretionary authority to your proxy to vote your shares on any other matter of which may be properly presented for action at the Annual Meeting. Date: Address Change?change? Mark Box Signbox, sign and Indicateindicate changes below: Date: Signature(s) in Box PleaseBoxPlease sign exactly as your name(s) appears on the Proxy. If held in joint tenancy, all persons should sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the Proxy.
![[MISSING IMAGE: px_02page-bw.jpg]](/files/DEF 14A/0001104659-23-045018/px_02page-bw.jpg)
HERITAGE COMMERCE CORP ANNUALCORPANNUAL MEETING OF SHAREHOLDERS MAY 24, 2018 1:SHAREHOLDERSThursday, May 25, 20231:00 P.M. PDT 150 Almaden Boulevard SanPDTTo register for the virtual meeting, please follow the instructions below:•Visit register.proxypush.com/HTBK on your smartphone, tablet or computer.•As a shareholder, you will then be required to enter your control number which is located in the upper right hand corner on the reverse side of this proxy card.•After registering, you will receive a confirmation e-mail and an e-mail approximately 1 hour prior to the start of the meeting to the e-mail address you provided during registration with a unique link to the virtual meeting.Heritage Commerce Corp 224 Airport ParkwaySan Jose, CA 95113 Heritage Commerce Corp 150 Almaden Boulevard San Jose, CA 95113 proxy This95110This proxy is solicited by the Board of Directors for use at the Annual Meeting on May 24, 2018. The25, 2023.The shares of stock you hold in your account will be voted as you specify on the reverse side. Ifside.If no choice is specified, the proxy will be voted FOR“FOR” all nominees listed in ProposalItem 1 FOR Proposaland “FOR” Items 2, FOR 3 years for Proposal 3 and FOR Proposal 4. By4.By signing the Proxy,proxy, you revoke all prior proxies and appoint Walter T. KaczmarekRobertson Clay Jones and Jack W. Conner, and each of them the attorney, agent and proxy of the undersigned, with full power of substitution, to vote your shares on the matters shown on the reverse side and any other mattermatters which may come before the Annual Meeting and all adjournments thereof. Seeadjournments.See reverse for voting instructions. /XXX
HERITAGE![[MISSING IMAGE: px_votepg-bwlr.jpg]](/files/DEF 14A/0001104659-23-045018/px_votepg-bwlr.jpg)
BROADRIDGE FINANCIAL SOLUTIONS, INC.BROADRIDGE CORPORA TE ISSUER SOLUTIONSPO BOX 1342T., SUITE 1300BRENTWOOD, NY 11717BROADRIDGEFINANCIAL SOLUTIONS, INC.ATTENTION:TEST PRINT51 MERCEDES WAYEDGEWOOD, NY11717VOTING INSTRUCTIONS~As the record holder for your sha re s, we will vote your shares based on yourinstructions.Please provide us with your voting instructions be fore the meeting. If you donot provide us with your vot ing inst ructi ons, we will not vote your sha res .If you sign and return this form, we will vo te any unmarked items based onthe boa rd 's recommendations.I I I 111HER IT AGE COMMERCE CORP ANNUAL MEETING TO BE HELD ON 85/24/18 ATCORPTHIS IS A VOTING INSTRUCTION FORM.You are receiving th is voting instruction form because you hold shares in theabove security. You have the right to vote on proposals being presented at theupcoming Annual Meeting to be held on 05/25/23 at 01:00 P.M. PDT HERITAGEPDTMake your vote count.Vote must be received by 05/24/2023 to be counted..... la798 2258 1376 2169 ImVisitwww.ProxyVote.com □ [8JCall1-800-454-8683Return this formin the enclosedpostage-paidl!I~l!I envelope~ .Attend andvote at themeeting.!1!~I1al. Scan to view materials and vote via smartphone.Voting on www.ProxyVote.com is easy and fast!Go to www.ProxyVote.com, enter thecontrol number above and vote!The following proxy material for the meeting is available atwww.ProxyVote.com:10-K REPORTTHIS VOTING INSTRUCTION FORM IS VALID ONLY WHEN SIGNED AND DATED. PLEASE USE BLUE OR BLACK INK AND RETURN ONLY THE BOTTOM PORTION.XHERITAGE COMMERCE CORP 85/24/18 AT 01:80 P.M. PDT Z ICORPWithhold For AllPlease check this box if you plan to attend the Meeting andvote your shares in person.To withhold authority to vote for any individual nominee(s), mark "For AllExcept" and write the number(s) of the nominee(s) on the line below.0 7 The Board recommends you vote FOR HOLDERS AS OF 03/26/18 ISSUER CONFIRMATION COPY - INFO ONLY M -s 1 1-0001 426927109the followingdirector nominee(s) :1 through 101. Election of DirectorsNominees01 J . M. Biagini -Kamas02 Bruce H. Cabral03 Jack W. Conner04 Jason Di Napoli05 Stephen G. Heit el06 Karn ran F. Husain07 Robertson Clay Jones08 Laura Roden09 Marina H. Park Sutton10 Ranson W. WebsterForAll0All Except0 0The Board recommends you vote FOR ALL NOMINEES DIRECTORS RECOMMEND: A VOTE FOR ELECTION OF THE FOLLOWING NOMINEES 1. - 01-J.M.Biagini-Komas, 02-Frank G. Bisceglia, 03-Jack w. Conner, 8010100 WITHHOLD ALL NOMINEES WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE. WRITE NUMBER(S) OF NOMINEE(S) BELOW. 04-J. Philip DiNapoli, 05-Steven L. Hallgrimson, 06-Walter T. Kaczaarek, 07-Robert T. Molas, 08-Laura Roden, 09-Ranson W. Webster 0 - - USE NUMBER ONLY FOR 0 AGN 0 ABS 0 Z.-Advisorythe following proposal(s):2, 3 and 42. Approval of the Heritage Commerce Corp 2023 Equity In centive Plan.3. Approval of the advisory proposal on 2022 executive compensation. -FOR 0019900 2. X 3 - 0 426927109 2YR 0 ABS 0 2YR 03.-Advisory proposal on frequency of votes on executive Compensation. 3YR-0029414 '• 00 N PLACE "X" HERE IF YOU PLAN TO ATTEND AND VOTE YOUR SHARES AT THE MEETING 1"1 N AGN 0 ABS 0 FOR 0 Broadridge-.. N 4.compen sation.4. Ratification of selection of independent registered public accounting firm for the year ending December 31 2018. FOR 0010200 041 272328 51 MERCEDES WAY EDGEWOOD NY 11717 , 2023.•NOTE • Such other business as BYmay properly come before the meeting or any adjournment thereof. - IMPORTANT NOTICE REGARDING DELIVERY OF SECURITY HOLDER DOCUMENT (HH) HERITAGE COMMERCE CORP 150 ALMADEN BLVD. SAN JOSE, CA 95113 ATTN: DEBBIE K. REUTER FORthereof.Signature [PLEASE SIGN WITHIN BOX] Date1 ••• 11.1 •• 1.1.1.11 •••••• 111.1 •• 18798 2258 1376 2169 05/25/23 123,456,789,012.00000426927109 llllllllllACCOUNT P91915-01S GS2For Against Abstain0 0 AGN00 0 PAGE 1 OF 2 Mark "FOR" to enroll this account to receive certain future shareholder communications in a single package per household. Mark "AGAINST" if you do not want to participate. To change your election in the future, call 1-866-540-7095. See accompanying page for more information about this election. (HH) PAGE 2 I THIS FORM IS PROVIDED FOR INFORMATION Al PURPOSES ONLY. VIF11H PLEASE DO NOT USE IT FOR VOTING PURPOSES.
00 0 0
0001053352 4 2022-01-01 2022-12-31
![[MISSING IMAGE: sg_jackwconner-bw.jpg]](/files/DEF 14A/0001104659-23-045018/sg_jackwconner-bw.jpg)
![[MISSING IMAGE: sg_robertsonclayjones-bw.jpg]](/files/DEF 14A/0001104659-23-045018/sg_robertsonclayjones-bw.jpg)
![[MISSING IMAGE: ic_date-pn.gif]](/files/DEF 14A/0001104659-23-045018/ic_date-pn.gif)
![[MISSING IMAGE: ic_time-pn.gif]](/files/DEF 14A/0001104659-23-045018/ic_time-pn.gif)
![[MISSING IMAGE: ic_location-pn.gif]](/files/DEF 14A/0001104659-23-045018/ic_location-pn.gif)
![[MISSING IMAGE: sg_deborahkreuter-bw.jpg]](/files/DEF 14A/0001104659-23-045018/sg_deborahkreuter-bw.jpg)
![[MISSING IMAGE: ic_tick-pn.gif]](/files/DEF 14A/0001104659-23-045018/ic_tick-pn.gif)
![[MISSING IMAGE: org_boardref-pn.jpg]](/files/DEF 14A/0001104659-23-045018/org_boardref-pn.jpg)
![[MISSING IMAGE: tb_sharehold-pn.jpg]](/files/DEF 14A/0001104659-23-045018/tb_sharehold-pn.jpg)
![[MISSING IMAGE: fc_environ-pn.jpg]](/files/DEF 14A/0001104659-23-045018/fc_environ-pn.jpg)
![[MISSING IMAGE: ic_enviro-pn.jpg]](/files/DEF 14A/0001104659-23-045018/ic_enviro-pn.jpg)
![[MISSING IMAGE: ic_people-pn.jpg]](/files/DEF 14A/0001104659-23-045018/ic_people-pn.jpg)
![[MISSING IMAGE: ic_communi-pn.jpg]](/files/DEF 14A/0001104659-23-045018/ic_communi-pn.jpg)
![[MISSING IMAGE: ic_govem-pn.jpg]](/files/DEF 14A/0001104659-23-045018/ic_govem-pn.jpg)
![[MISSING IMAGE: bc_compen-pn.jpg]](/files/DEF 14A/0001104659-23-045018/bc_compen-pn.jpg)
![[MISSING IMAGE: lc_tsr-pn.jpg]](/files/DEF 14A/0001104659-23-045018/lc_tsr-pn.jpg)
![[MISSING IMAGE: bc_netincome-pn.jpg]](/files/DEF 14A/0001104659-23-045018/bc_netincome-pn.jpg)
![[MISSING IMAGE: bc_taxnet-pn.jpg]](/files/DEF 14A/0001104659-23-045018/bc_taxnet-pn.jpg)
![[MISSING IMAGE: ic_tickwhite-bw.gif]](/files/DEF 14A/0001104659-23-045018/ic_tickwhite-bw.gif)