EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is entered into as of January 1,
1999, (the "Effective Date"), by and between Heritage Commerce Corp ("HCC")
and its wholly owned subsidiary, Heritage Bank of Commerce ("HBC") a
California banking corporation and Mr. Brad L. Smith on the following terms
and conditions:
1. Position.
Mr. Smith has been duly elected to the Board of Directors of HCC ("HCC Board")
and has been duly elected to be Chairman of the HCC Board. During the term
of this Agreement, the HCC Board will continue to present Mr. Smith on the
HCC slate of individuals nominated for election by shareholders to the post
of Director.
As employed hereunder, the term "Bank" is intended to mean HCC and/or any of
its subsidiaries, as applicable. The term "Management" is intended to mean
the CEO of HCC and/or, as applicable, those duly appointed management
committees vested with decision-making authority. The term "Board" will,
unless more narrowly defined in the context of its immediate usage, mean any
and all boards of directors with purview over the matter at hand.
It is the Bank's intention to organize a subsidiary bank, Heritage Bank South
Valley ("South Valley"). Subject to appropriate regulatory approvals and
subject to the legal constitution of South Valley, Mr. Smith will be the
President and Chief Executive Officer of South Valley, and a member of South
Valley's Board of Directors. In the interim, Mr. Smith will direct the
Bank's South Valley efforts.
With respect to his responsibility to direct the Bank's South Valley efforts
and his future role as President and CEO of Heritage Bank South Valley, Mr.
Smith will be subject to the direction of the CEO of HCC and, by extension,
the HCC Board. Notwithstanding the foregoing reporting responsibility, Mr.
Smith will also be responsible to the Board of Directors of South Valley.
Mr. Smith will set a high standard of conduct, courtesy and concern, of
professional and personal discretion, responsibility, forthrightness and hard
work. In light of his role with the Bank and of the Bank's position in the
industry, Mr. Smith will serve as a model for all employees of the Bank and
will strive at all times to develop and enhance the Bank's reputation in the
community. Mr. Smith will devote his productive business time, attention
and energy to the business of the Bank.
Mr. Smith will comply with all pertinent regulatory standards as may affect
the Bank.
Mr. Smith will at all times keep the Board and appropriate members of the
Bank's management informed of the performance of all units under his
supervision and of his activities undertaken in the context of his role,
including his civic activities.
In addition to the above, Mr. Smith will:
(a) be responsible for the operation of the Bank, its properties and
related interests in accordance with the directives of management and
in accordance with the objectives and policies of the Board;
(b) exercise diligence with respect to the control of the costs of
operation and other expenses directly or indirectly involving
interests of the Bank;
(c) be responsible for achieving the broad objectives of the Bank for
profitability and business development;
(d) be responsible for the quality of the loan portfolio; and
(e) be responsible for overseeing those administrative functions which are
in his purview and for forming and developing his staff in a manner
consistent with the Bank's immediate needs and strategic goals.
2. Term.
Subject to paragraph 12 below, the Term of this Agreement will be three years
from the Effective Date hereof. At maturity, and annually thereafter, unless
otherwise amended or terminated, this Agreement will automatically renew for
a term of one year. Upon the termination of Mr. Smith's employment, neither
he nor the Bank will have any further obligation to the other, except as set
forth in Paragraphs 5, 9, 12, 13, 14, 15, 17, 18, and 24 herein.
3. Base Salary.
For the Term of this Agreement while he is an employee, the Bank will pay Mr.
Smith $175,000 per year ("Base Salary"), (CEO position $135,000; Chairman
position $40,000) in accordance with the Bank's normal payroll procedures,
less appropriate withholdings, taxes and similar deductions. The Base Salary
will be reviewed annually by the Personnel and Planning Committee of the HCC
Board and is subject to alteration only at the direction of that Committee.
4. Performance Bonuses.
From time to time, but not less than annually, subject to the discretion of
the Board, the Bank will undertake, in good faith, to pay performance bonuses
during the Term of this Agreement. The Bank will not be obligated to pay any
specific amount pursuant to this Paragraph. Mr. Smith will be eligible for
Performance Bonuses and the Bank will, in good faith, pay Performance Bonuses
in amounts that it deems reasonable. If Performance Bonuses are paid, the
amounts of such generally will be comparable to those for similarly placed
executives at similarly situated financial institutions, and will be based on
Mr. Smith's overall performance and that of the Bank, including such factors
as growth, profitability, loan quality, adequacy of the loan loss reserve and
the satisfactory nature of regulatory examinations.
5. Incentive Stock Options.
The Board of HCC has granted to Mr. Smith incentive stock options to acquire
50,000 shares of HCC's common stock, pursuant to the Heritage Commerce Corp
1994 Tandem Stock Option Plan and to those two certain stock option
agreements by and between HCC and Mr. Smith, dated 11-24-98. The Board, in
its discretion, may grant such additional options, as it deems appropriate in
order to recognize performance for the preceding year and in order to provide
Mr. Smith with the incentive to sustain and enhance the operational
performance of the Bank for the future.
6. Automobile Allowance.
During the Term of this Agreement, the Bank will pay Mr. Smith a $500 monthly
auto allowance plus gas reimbursement.
7. Medical Insurance.
The Bank will provide medical insurance to Mr. Smith and his family with
options and coverage consistent with those of the Bank's group medical plan
as in effect from time to time.
8. Life Insurance, Disability Insurance and Supplemental Retirement Plan.
The Bank will provide Mr. Smith life insurance and disability insurance to
the same extent the Bank provides such insurance to its executive officers.
Mr. Smith will be entitled to designate the beneficiary of the life insurance
provided by this Paragraph.
The Bank will provide Mr. Smith with a Supplemental Executive Retirement Plan
(SERP), according to the terms of a separate agreement, by and between Mr.
Smith and the Bank.
The Board, in its discretion, may from time to time grant to Mr. Smith
additional life insurance, disability insurance, and/or SERP benefits as it
deems appropriate to his position and/or performance.
9. Indemnification by the Bank.
The Bank will indemnify and hold Mr. Smith harmless pursuant to those certain
Indemnification Agreements dated January 4, 1999 and executed by Mr. Smith
and HCC and also to the extent provided for in the Bank's bylaws as to
officers and/or directors of the Bank and HCC.
10. Monthly Expense Account.
Subject to the Bank's Expense Reimbursement Policy, the Bank will reimburse
Mr. Smith for his reasonable and necessary business expenses incurred in
furthering the Bank's interests.
11. Vacation.
During the period of this Agreement, Mr. Smith will accrue vacation
consistent with the personnel policy of the Bank, but in no event at a rate
of less than four weeks per year. In the event that while he is an employee,
he receives any compensation in lieu of accrued vacation, such payment will
not be included in severance calculations called for in Paragraph 12.1,
Termination without Cause, or in Paragraph 12.2, Change of Control,
hereunder.
12. Termination and Severance.
Each party has the right to terminate Mr. Smith's employment with the Bank
prior to the end of the Term specified in Paragraph 2 with or without cause
at any time. For purposes of this Agreement, cause will arise if (i) he
willfully breaches or habitually neglects the duties which he is required to
perform under this Agreement, (ii) he commits an intentional act that has a
material detrimental effect on the reputation or business of the Bank, or
(iii) he is convicted of a felony or commits any material and actionable act
of dishonesty, fraud, or intentional material misrepresentation in the
performance of his duties under this Agreement. If the Bank decides to
terminate Mr. Smith's employment for cause, the Bank will provide him with
notice specifying the grounds for termination, accompanied by a brief written
statement stating the relevant facts supporting such grounds. Upon
termination of his employment for cause, Mr. Smith will not be entitled to
any further amounts under this Agreement, except for the Base Salary accrued
and unpaid vacation pay and any rights under the stock option plan earned
through his last day of employment.
12.1 Termination Without Cause.
If the Bank terminates Mr. Smith's employment without cause, the Bank will
provide him the following, as his full and final severance: (i) a lump sum
payment within 10 days after termination date, equal to his annual Base
Salary, annual auto allowance and Average Annual Performance Bonus paid
(as defined below), if any, less withholding deductions, and (ii) if he is
covered under the Bank's standard group medical and dental plan at the time
of his termination, the Bank will continue to provide equivalent coverage to
Mr. Smith, through C.O.B.R.A., for up to 12 months, as needed, after the date
of his termination, at no cost to Mr. Smith; and (iii) with regard to any
group life insurance and/or any group disability benefits enjoyed by Mr.
Smith immediately prior to his severance, except as provided hereunder, the
Bank will continue to provide such benefits for 12 months at no cost to Mr.
Smith; and (iv) except as provided hereunder, the Bank will continue to pay
for 12 months the premiums on any discreet supplemental life insurance and/or
disability insurance policies carried by the Bank for Mr. Smith's benefit,
in amounts and with coverage equivalent to coverage provided immediately
prior to Mr. Smith's last day of employment, at no cost to Mr. Smith
(thereafter, the Bank will freely assign such policies to Mr. Smith, and he
will be responsible for all premium payments, if he so chooses); (v) the Bank
will reimburse Mr. Smith for bona fide, professional out-placement services,
not to exceed $5,000.
For purposes of this Agreement, a termination resulting from Mr. Smith's
death or disability (as defined hereunder) will be considered Termination
Without Cause. Disability will be effective hereunder if it causes Mr.
Smith's absence from work for 90 days out of any consecutive 6 month period.
12.2 Change of Control.
If Mr. Smith's employment is terminated without cause or terminates at Mr.
Smith's election as a result of a material change in his compensation,
benefits, title, responsibility or location, and such termination occurs
within 60 days before, or 12 months following, a Change of Control (as
hereafter defined), Mr. Smith will be entitled to the following benefits and
compensation: (i) a lump sum payment within 10 days after termination date,
equal to twice the aggregate of his annual Base Salary, annual auto allowance
and Average Annual Performance Bonus paid (as defined below), if any, less
withholding deductions, and (ii) if he is covered under the Bank's standard
group medical and dental plan at the time of his termination, the Bank will
continue to provide equivalent coverage to Mr. Smith, through C.O.B.R.A., for
up to 18 months, as needed, after the date of his termination, at no cost to
Mr. Smith; and (iii) except as provided hereunder, with regard to any group
life insurance and/or any group disability benefits enjoyed by Mr. Smith
immediately prior to his severance, the Bank will continue to provide such
benefits for 18 months at no cost to Mr. Smith; and (iv) except as provided
hereunder, the Bank will continue to pay for 18 months the premiums on any
discrete supplemental life insurance and/or disability insurance policies
carried by the Bank for Mr. Smith's benefit, in amounts and with coverage
equivalent to coverage provided immediately prior to Mr. Smith's last
day of employment, at no cost to Mr. Smith (thereafter, the Bank will freely
assign such policies to Mr. Smith, and he will be responsible for all premium
payments, if he so chooses); (v) the Bank will reimburse Mr. Smith for
bona-fide, professional out-placement services, not to exceed $5,000.
The term "Change of Control" will mean the occurrence of any of the following
events with respect to the Employer (with the term "Employer" being defined
for purposes of determining whether a "Change of Control" has occurred to
mean HCC, HBC or any parent bank holding company organized at the direction
of HCC or HBC to own 100% of the outstanding common stock of HCC or HBC): (i)
a change in control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or in
response to any other form or report to the regulatory agencies or
governmental authorities having jurisdiction over the Employer or any stock
exchange on which the Employer's shares are listed which requires the
reporting of a change in control; (ii) any merger, consolidation or
reorganization of the Employer in which the Employer does not survive; (iii)
any sale, lease, exchange, mortgage, pledge, transfer or other disposition
(in one transaction or a series of transactions) of any assets of the Employer
having an aggregate fair market value of fifty percent (50%) of the total
value of the assets of the Employer, reflected in the most recent balance
sheet of the Employer; (iv) a transaction whereby any "person" (as such term
is used in the Exchange Act) or any individual, corporation, partnership,
trust or any other entity becomes the beneficial owner, directly or
indirectly, of securities of the Employer representing twenty-five (25%) or
more of the combined voting power of the Employer's then outstanding
securities; or (v) a situation where, in any one-year period, individuals who
at the beginning of such period constitute the Board of Directors of the
Employer cease for any reason to constitute at least a majority thereof,
unless the election, or the nomination for election by the Employer's
shareholders, of each new director is approved by a vote of at least
three-quarters (3/4) of the directors then still in office who were directors
at the beginning of the period. Notwithstanding the foregoing or anything
else contained herein to the contrary, there will not be a "Change of Control"
for purposes of the Agreement if the event which would otherwise come within
the meaning of the term: "Change of Control" involves (i) a reorganization at
the direction of the Employer solely to form a parent bank holding company
which owns 100% of the Employer's common stock following the reorganization,
or (ii) an Employee Stock Ownership Plan sponsored by the Employer or its
parent holding company which is the party that acquires "control," as
described above.
12.3 Voluntary Termination.
If Mr. Smith decides of his own volition to terminate his employment under
this Agreement prior to the end of the Term he will provide the Bank with one
month's prior written notice; provided however, upon receiving such notice,
the Bank may terminate his employment immediately. Upon voluntary termination
of his employment, Mr. Smith will not be entitled to any further amounts
under this Agreement, except for the Base Salary accrued and unpaid vacation
pay and any rights under the stock option plan earned through his last day of
employment.
12.4 Other Termination Matters.
As to the Bank's obligations under Paragraph 12, the term "as needed" refers
to Mr. Smith's continuing respective status as otherwise uninsured. Should
he become employed, and become so insured as a result of his employment, the
Bank would, from that moment forward, be released from its related insurance
or insurance premium reimbursement obligations.
As to the Bank's obligations under 12.1 (iii), the Bank may, in the
alternative, in its sole discretion, elect to pay to Mr. Smith in 12
consecutive monthly installments, as needed by Mr. Smith, a monthly amount
equal to the Bank's monthly cost of providing such respective coverage during
Mr. Smith's employment.
As to the Bank's obligations under 12.1 (iv), the Bank may, in the
alternative, in its sole discretion, elect to pay to Mr. Smith in 12
consecutive monthly installments a monthly amount equal to the Bank's monthly
cost of providing such respective coverage during Mr. Smith's employment.
Under no circumstances will the Bank be under obligation to assign to Mr.
Smith policies, which it does not possess, or which are otherwise
non-assignable.
As to the Bank's obligations under 12.2 (iii), the Bank may, in the
alternative, in its sole discretion, elect to pay to Mr. Smith in 18
consecutive monthly installments, as needed by Mr. Smith, a monthly amount
equal to the Bank's monthly cost of providing such respective coverage during
Mr. Smith's employment.
As to the Bank's obligations under 12.2 (iv), the Bank may, in the
alternative, in its sole discretion, elect to pay to Mr. Smith in 18
consecutive monthly installments a monthly amount equal to the Bank's monthly
cost of providing such respective coverage during Mr. Smith's employment.
Under no circumstances will the Bank be under obligation to assign to Mr.
Smith policies, which it does not possess, or which are otherwise
non-assignable.
The term "Average Annual Performance Bonus," as used herein, will be
calculated as of Mr. Smith's last date of employment and will mean the higher
of (i) Mr. Smith's annual performance bonuses averaged from the date of this
Agreement, or (ii) the average of his three most recent annual performance
bonuses.
13. Confidential and Proprietary Information.
Mr. Smith agrees that all Bank information, including but not limited to that
which is directly or indirectly related to the Bank's financial status,
profitability, deposit base, portfolio size and quality as well as its
customers and prospective customers is confidential and proprietary to the
Bank and that he will maintain such information as confidential at all times
during and after his employment. Mr. Smith agrees that as a condition of
employment, he will execute such form of confidentiality agreement as the
Board may adopt from time to time for senior officers of the Bank, which
agreement must be consistent with and not exceed the provisions of this
Paragraph.
14. No Conflicting Agreements.
Mr. Smith represents that his performance of all of the terms of this
Agreement and any service to be rendered as an employee of the Bank does not
and will not breach any fiduciary or other duty or any covenant, agreement or
understanding, including without limitation, any agreement relating to any
proprietary information, knowledge or data acquired by him in confidence,
trust or otherwise, prior to his employment by the Bank to which he is a
party or by the terms of which he may be bound. Mr. Smith covenants and
agrees that he will not disclose to the Bank, or induce the Bank to use, any
proprietary information, knowledge or data, belonging to any previous
employer or others and that he will disclose to the Bank the term and subject
of any prior confidentiality agreement or agreements he has entered into.
Mr. Smith further covenants and agrees not to enter into any agreement or
understanding, either written or oral, in conflict with the provisions of
this Agreement. Further, Mr. Smith agrees that for a period of one year
after termination pursuant to Paragraph 12.0, Termination and Severance, and
also for a period of one year after payment of full and final severance,
pursuant either to Paragraph 12.1 (Termination Without Cause) or Paragraph
12.2 (Change of Control), he will not (i) directly or indirectly solicit the
services of any employee of the Bank or directly or indirectly encourage any
employee to discontinue his or her employment with the Bank, or (ii) directly
or indirectly solicit or encourage any customer of the Bank to curtail in any
way the business that customer does with the Bank.
15. Successors and Assigns.
This Agreement will inure to the benefit of and be binding upon the Bank and
any of its successors and assigns. In view of the personal nature of the
services to be performed under this Agreement by Mr. Smith, he will not have
the right to assign or transfer any of his rights, obligations or benefits
under this Agreement, except as otherwise noted herein.
16. Governing Law.
This Agreement will at all times and in all respects be governed by the laws
of the State of California applicable to transactions wholly performed in
California between California residents.
17. Mediation.
Prior to engaging in any legal or equitable litigation or other dispute
resolution process, regarding any of the terms and conditions of this
agreement between the parties, or concerning the subject matter of the
agreement between the parties, each party specifically agrees to engage, in
good faith, in a mediation process at the expense of the Bank, complying with
the procedures provided for under California Evidence Code, Sections 1115
through and including 1125 as then currently in effect. Using a mediator
selected by both parties, the parties further and specifically agree to use
their best efforts to reach a mutually agreeable resolution of the matter at
such mediation. The parties understand and specifically agree that should
any party(ies) to this Agreement refuse to participate in mediation for any
reason, the other party(ies) will be entitled to seek a court order to
enforce this provision in any court of appropriate jurisdiction requiring the
dissenting party to attend, participate, and to make a good faith effort in
the mediation process to reach a mutually agreeable resolution of the matter.
18. Arbitration
In the event of any dispute or claim relating to or arising out of Mr. Smith's
employment with the Bank (or any of its subsidiaries), this Agreement, or any
termination of Mr. Smith's employment (including, but not limited to, any
claims of breach of contract, wrongful termination, or age, disability or
other discrimination or harassment), which dispute cannot be resolved by
mediation pursuant to Paragraph 17, Mr. Smith and the Bank agree that all
such disputes will be resolved exclusively by binding arbitration conducted
by the American Arbitration Association in Santa Clara County, California.
Mr. Smith and the Bank hereby knowingly and willingly waive their respective
rights to have such disputes tried to a judge or jury. This arbitration
provision will not apply to a claim for injunctive relief by either party to
this Agreement.
19. Advice to Seek Counsel.
Mr. Smith acknowledges that the Bank has advised him that this Agreement
imposes legal obligations upon him and that he should consult with legal
counsel with regard to this Agreement. The Bank will bear the cost of such
legal review up to a maximum of $1,500.
20. Notices.
Any notice required to be given hereunder will be sufficient if in writing
and sent by certified or registered mail, return receipt requested, first
class postage paid. The applicable address for the Bank is at its principal
office in San Jose, attention to the CEO. Mr. Smith's address will be as
shown on the Bank's records. Notices will be deemed given when actually
received, or three days after mailing, whichever is earlier.
21. Entire Agreement.
Except as provided in Paragraphs 5, 8, 9 and 13, this Agreement and any
attachments hereto contain the entire agreement and understanding by and
between the Bank and Mr. Smith. With respect to the subject matter herein,
no representation, promise, agreement or understanding, written or oral, not
herein contained will be of any force or effect. No modification hereof will
be valid or binding unless in writing and signed by the party intended to be
bound. No waiver of any provision of this Agreement will be valid unless in
writing and signed by the party against whom such waiver is sought to be
enforced. No valid waiver of any provision of this Agreement at any time
will be deemed a waiver of any other provision of this Agreement, or will be
deemed a valid waiver of any of such provision at any other time.
If any provision of this Agreement is held by a court of competent
jurisdiction or an arbitration body to be invalid, void or unenforceable, the
remaining provisions of this Agreement will, nonetheless, continue in full
force without being impaired or invalidated in any way.
22. Headings.
The headings and other captions in this Agreement are for convenience and
reference only and will not be used in interpreting, construing or enforcing
any of the provisions of this Agreement.
23. Regulatory Approval.
In the event that any regulatory authority with jurisdiction over the Bank
will disapprove any provision of this Agreement, then the parties hereto will
use their best efforts, acting in good faith, to amend the Agreement in a
manner that will be acceptable to the parties and to the regulatory
authorities.
24. Other Attorney's Fees Clause.
If any legal action or any arbitration or other proceeding is brought for the
enforcement of this agreement or because of any dispute or alleged breach,
the successful or prevailing party will be entitled to recover reasonable
attorney fees and other costs incurred in that action or proceeding, in
addition to any other relief which they may be entitled to.
In witness hereof, the Bank and Mr. Smith have duly executed this Agreement
and it is effective as of the day and year first set forth above.
HERITAGE BANK OF COMMERCE
By: /S/ Robert W. Peters Date: MARCH 18, 1999
Title:DIRECTOR OF THE BOARD & AUTHORIZED SIGNATORY
HERITAGE COMMERCE CORP
By: /S/ Robert W. Peters Date: MARCH 18, 1999
Title: CHAIRMAN, PERSONNEL & PLANNING
COMMITTEE & AUTHORIZED SIGNATORY
ACCEPTED BY:
/S/ Brad L. Smith Date: MARCH 23, 1999
Brad L. Smith