DIRECTOR INDEXED COMPENSATION BENEFITS AGREEMENT
This Agreement is made and entered into effective as of June 19, 1997 by
and between Heritage Bank of Commerce, a bank chartered under the laws of the
State of California (the "Bank"), and ______________, an individual residing
in the State of California (the "Director").
R E C I T A L S
WHEREAS, the Director is a member of the Board of Directors of the Bank
and has served in such capacity since June 8, 1994, the approximate date of the
Bank's organization;
WHEREAS, the Bank desires to establish a compensation benefit for
directors who are not also officers or employees of the Bank in order to attract
and retain individuals with extensive and valuable experience as directors; and
WHEREAS, the Director and the Bank wish to specify in writing the terms
and conditions upon which this additional compensatory incentive will be
provided to the Director, or to the Director's spouse or designated
beneficiaries, as the case may be.
NOW, THEREFORE, in consideration of the services to be performed by the
Director in the future, as well as the mutual promises and covenants contained
herein, the Director and the Bank agree as follows:
A G R E E M E N T
1. TERMS AND DEFINITIONS.
1.1. ADMINISTRATOR. The Bank shall be the "Administrator" and,
solely for the purposes of ERISA as defined in subparagraph 1.9 below, the
"fiduciary" of this Agreement where a fiduciary is required by ERISA.
1.2. APPLICABLE PERCENTAGE. The term "Applicable Percentage"
shall mean that percentage adjacent to a calendar period listed on Schedule "A"
attached hereto, which percentage shall remain in effect until an adjustment
occurs on each succeeding calendar period during the term of service as a member
of the Board of Directors of the Bank. Notwithstanding the foregoing or the
percentages set forth on Schedule "A," but subject to all other terms and
conditions set forth herein, the "Applicable Percentage" shall be: (i) provided
payments have not yet begun hereunder, one hundred percent (100%) upon
termination of service described in
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subparagraph 5.4 pursuant to a "Change in Control" as defined in subparagraph
1.4 below, or the Director's death, or Disability as defined in subparagraph 1.6
below, which death or Disability occurs prior to termination of service; and
(ii) notwithstanding subclause (i) of this subparagraph 1.2, zero percent (0%)
in the event the Director takes any intentional action which prevents the Bank
from collecting the proceeds of any life insurance policy which the Bank may
happen to own at the time of the Director's death and of which the Bank is the
designated beneficiary. Furthermore, notwithstanding the foregoing, or anything
contained in this Agreement to the contrary, in the event the Director takes any
intentional action which prevents the Bank from collecting the proceeds of any
life insurance policy which the Bank may happen to own at the time of the
Director's death and of which the Bank is the designated beneficiary: (1) the
Director's estate or designated beneficiary shall no longer be entitled to
receive any of the amounts payable under the terms of this Agreement, and (2)
the Bank shall have the right to recover from the Director's estate all of the
amounts paid to the Director's estate (with respect to amounts paid prior to the
Director's death or paid to the Director's estate) or designated beneficiary
(with respect to amounts paid to the designated beneficiary) pursuant to the
terms of this Agreement prior to and after the Director's death.
1.3. BENEFICIARY. The term "beneficiary" or "designated
beneficiary" shall mean the person or persons whom the Director shall designate
in a valid Beneficiary Designation, a copy of which is attached hereto as
Schedule "C," to receive the benefits provided hereunder. A Beneficiary
Designation shall be valid only if it is in the form attached hereto and made a
part hereof, completed and signed by the Director and is received by the
Administrator prior to the Director's death.
1.4. CHANGE IN CONTROL. The term "Change in Control" shall mean
the occurrence of any of the following events with respect to the Bank (with the
term "Bank" being defined for purposes of determining whether a "Change in
Control" has occurred to include any parent bank holding company organized at
the direction of the Bank to own 100% of the Bank's outstanding common stock):
(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 Bank or any stock exchange on which the
Bank's shares are listed which requires the reporting of a change in control;
(ii) any merger, consolidation or reorganization of the Bank in which the Bank
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 Bank having an aggregate fair market value of fifty percent (50%) of the
total value of the assets of the Bank, reflected in the most recent balance
sheet of the Bank; (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 Bank representing twenty-five percent (25%) or more of the combined
voting power of the Bank's then
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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 Bank cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election by the Bank'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 shall not be a "Change of Control" for
purposes of this 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 Bank solely to form a parent bank holding company which owns
100% of the Bank's common stock following the reorganization, or (ii) an
Employee Stock Ownership Plan sponsored by the Bank or its parent holding
company which is the party that acquires "control" or is the principal
participant in the transaction constituting a "Change in Control," as described
above.
1.5. THE CODE. The "Code" shall mean the Internal Revenue Code
of 1986, as amended (the "Code").
1.6. DISABILITY/DISABLED. The term "Disability" or "Disabled"
shall mean bodily injury or disease (mental or physical) which wholly and
continuously prevents the performance of duty for at least three months
including, without limitation, the total irrecoverable loss of the sight in both
eyes or the loss by severance of both hands at or above the wrist or of both
feet at or above the ankle or of one hand at or above the wrist and one foot at
or above the ankle.
1.7. EARLY RETIREMENT DATE. The term "Early Retirement Date"
shall mean the Retirement, as defined below, of the Director on a date which
occurs prior to the Director attaining sixty-two (62) years of age, but after
the Director has attained fifty-five (55) years of age.
1.8. EFFECTIVE DATE. The term "Effective Date" shall mean the
date first written above.
1.9. ERISA. The term "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended.
1.10. DIRECTOR BENEFITS. The term "Director Benefits" shall mean
the benefits determined in accordance with Schedule "B", and reduced to the
extent: (i) required under the other provisions of this Agreement, including,
but not limited to, Paragraphs 5, 6 and 7 hereof; (ii) required by reason of the
lawful order of any regulatory agency or body having jurisdiction over the Bank;
or (iii) required in order for the Bank to properly comply with any
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and all applicable state and federal laws, including, but not limited to,
income, employment and disability income tax laws (e.g., FICA, FUTA, SDI).
1.11. PLAN YEAR. The term "Plan Year" shall mean the Bank's
fiscal year.
1.12. RETIREMENT. The term "Retirement" or "Retires" shall refer
to the date which the Director acknowledges in writing to the Bank to be the
last day of service as a member of the Board of Directors of the Bank.
1.13. SURVIVING SPOUSE. The term "Surviving Spouse" shall mean
the person, if any, who shall be legally married to the Director on the date of
the Director's death.
1.14. REMOVAL FOR CAUSE. The term "removal for cause" shall mean
termination of a Director's service as a member of the Board of Directors of the
Bank by reason of any of the following:
(a) The willful breach or habitual neglect by the
Director of his responsibilities and duties;
(b) The Director's deliberate violation of (i) any
state or federal banking or securities laws, or of the Bylaws, rules, policies
or resolutions of the Bank, or (ii) the rules or regulations of the California
Commissioner of Financial Institutions, the Federal Deposit Insurance
Corporation or any other regulatory agency or governmental authority having
jurisdiction over the Bank, which has a material adverse effect upon the Bank;
(c) The determination by a state or federal court,
banking agency or other governmental authority having jurisdiction over the
Bank, that the Director (i) is of unsound mind, or (ii) has committed a gross
abuse of authority or discretion with reference to the Bank, or (iii) otherwise
is not suitable to continue to serve as a member of the Board of Directors of
the Bank;
(d) The Director's conviction of any felony or a crime
involving moral turpitude or a fraudulent or dishonest act; or
(e) The Director's disclosure without authority of any
secret or confidential information not otherwise publicly available concerning
the Bank or taking any action which the Bank's Board of Directors determines, in
its sole discretion and subject to good faith, fair dealing and reasonableness,
constitutes unfair competition with or inducement of any customer to breach any
contract with the Bank.
2. SCOPE, PURPOSE AND EFFECT.
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2.1. CONTRACT OF EMPLOYMENT. Although this Agreement is intended
to provide the Director with an additional incentive to continue to serve as a
member of the Board of Directors of the Bank, this Agreement shall not be deemed
to constitute a contract of employment between the Director and the Bank nor
shall any provision of this Agreement restrict the right of the Bank to remove
or cause the removal of the Director including, without limitation, by (i)
refusal to nominate the Director for election for any successive term of office
as a member of the Board of Directors of the Bank, or (ii) complying with an
order or other directive from a court of competent jurisdiction or any
regulatory authority having jurisdiction over the Bank which requires the Bank
to take action to remove the Director.
2.2. FRINGE BENEFIT. The benefits provided by this Agreement are
granted by the Bank as a fringe benefit to the Director and are not a part of
any salary reduction plan or any arrangement deferring a bonus or a salary
increase. The Director has no option to take any current payments or bonus in
lieu of the benefits provided by this Agreement.
3. PAYMENTS UPON EARLY RETIREMENT OR RETIREMENT AND AFTER
RETIREMENT.
3.1. PAYMENTS UPON EARLY RETIREMENT. The Director shall have the
right to Retire from the Board of Directors on a date which constitutes an Early
Retirement Date as defined in subparagraph 1.7 above. In the event the Director
elects to Retire on a date which constitutes an Early Retirement Date, the
Director shall be entitled to be paid the Applicable Percentage of the Director
Benefits, in substantially equal monthly installments on the first day of each
month, beginning with the month following the month in which the Early
Retirement Date occurs or upon such later date as may be mutually agreed upon by
the Director and the Bank in advance of said Early Retirement Date, payable (i)
for the period designated in Schedule "D" in the case of the balance in the
Benefit Account and (ii) until the Director's death in the case of the Index
Benefit defined in Schedule "B".
3.2. PAYMENTS UPON RETIREMENT. If the Director shall continue to
serve as a member of the Board of Directors until attaining sixty-two (62) years
of age, the Director shall be entitled to be paid the Applicable Percentage of
the Director Benefits, in substantially equal monthly installments on the first
day of each month, beginning with the month following the month in which the
Director Retires or upon such later date as may be mutually agreed upon by the
Director and the Employer in advance of said Retirement date, payable (i) for
the period designated in Schedule "D" in the case of the balance in the Benefit
Account and (ii) until the Director's death in the case of the Index Benefit
defined in Schedule "B". At the Bank's sole and absolute discretion, the Bank
may increase the Director Benefits as and when the Bank determines the same to
be appropriate.
3.3. PAYMENTS IN THE EVENT OF DEATH AFTER RETIREMENT. The Bank
agrees that if the Director Retires, but shall die before receiving all of the
Director Benefits Payments
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specified in Schedule "B", the Bank agrees to pay the Applicable Percentage of
the Director Benefits to the Director's designated beneficiary in lump sum. If a
valid Beneficiary Designation is not in effect, then the remaining amounts due
to the Director under the terms of this Agreement shall be paid to the
Director's Surviving Spouse. If the Director leaves no Surviving Spouse, the
remaining amounts due to the Director under the terms of this Agreement shall be
paid to the duly qualified personal representative, executor or administrator of
the Director's estate.
4. PAYMENTS IN THE EVENT DEATH OR DISABILITY OCCURS PRIOR TO
RETIREMENT.
4.1. PAYMENTS IN THE EVENT OF DEATH PRIOR TO RETIREMENT. If the
Director dies at any time after the Effective Date of this Agreement, but prior
to Retirement, the Bank agrees to pay the Applicable Percentage of the Director
Benefits to the Director's designated beneficiary in lump sum. If a valid
Beneficiary Designation is not in effect, then the remaining amounts due to the
Director under the terms of this Agreement shall be paid to the Director's
Surviving Spouse. If the Director leaves no Surviving Spouse, the remaining
amounts due to the Director under the terms of this Agreement shall be paid to
the duly qualified personal representative, executor or administrator of the
Director's estate.
4.2. PAYMENTS IN THE EVENT OF DISABILITY PRIOR TO RETIREMENT. In
the event the Director becomes Disabled at any time after the Effective Date of
this Agreement, but prior to Retirement, the Director shall be entitled to the
Applicable Percentage of the Director Benefits, in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Director becomes Disabled, payable (i) for the period
designated in Schedule "D" in the case of the balance in the Benefit Account and
(ii) until the Director's death in the case of the Index Benefit defined in
Schedule "B".
5. PAYMENTS IN THE EVENT EMPLOYMENT IS TERMINATED PRIOR TO RETIREMENT. As
indicated in subparagraph 2.1 above, the Bank reserves the right to remove or
cause the removal of the Director under certain circumstances, at any time prior
to the Director's Retirement. In the event that the service of the Director
shall be terminated, other than by reason of death, Disability or Retirement,
prior to the Director's attaining sixty-two (62) years of age, then this
Agreement shall terminate upon the date of such termination; provided, however,
that the Director shall be entitled to the following benefits as may be
applicable depending upon the circumstances surrounding the Director's
termination:
5.1. TERMINATION WITHOUT CAUSE. If the Director's service as a
member of the Board of Directors of the Bank is terminated for reasons other
than as specified in paragraph 5.3 below, and such termination is not subject to
the provisions of subparagraph 5.4 below, the Director shall be entitled to be
paid the Applicable Percentage of the Director Benefits, in substantially equal
monthly installments on the first day of each month, beginning with the
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month following the month in which the Director attains fifty-five (55) years of
age or any month thereafter, as requested in writing by the Director and
delivered to the Employer or its successor thirty (30) days prior to the
commencement of installment payments; provided, however, that in the event the
Director does not request a commencement date as specified, such installments
shall be paid on the first day of each month, beginning with the month following
the month in which the Director attains sixty-two (62) years of age. The
installments shall be payable (i) for the period designated in Schedule "D" in
the case of the balance in the Benefit Account and (ii) until the Director's
death in the case of the Index Benefit defined in Schedule "B".
5.2. VOLUNTARY TERMINATION BY THE DIRECTOR. If the Director's
service as a member of the Board of Directors of the Bank is terminated by
voluntary resignation, and such resignation is not subject to the provisions of
subparagraphs 5.3 or 5.4 below, the Director shall be entitled to be paid the
Applicable Percentage of the Director Benefits, in substantially equal monthly
installments on the first day of each month, beginning with the month following
the month in which the Director attains fifty-five (55) years of age or any
month thereafter, as requested in writing by the Director and delivered to the
Employer or its successor thirty (30) days prior to the commencement of
installment payments; provided, however, that in the event the Director does not
request a commencement date as specified, such installments shall be paid on the
first day of each month, beginning with the month following the month in which
the Director attains sixty-two (62) years of age. The installments shall be
payable (i) for the period designated in Schedule "D" in the case of the balance
in the Benefit Account and (ii) until the Director's death in the case of the
Index Benefit defined in Schedule "B".
5.3. TERMINATION BY REMOVAL FOR CAUSE. The Director agrees that
if the Director's service as a member of the Board of Directors of the Bank is
terminated by "removal for cause," as defined in subparagraph 1.14 of this
Agreement, the Director shall forfeit any and all rights and benefits the
Director may have under the terms of this Agreement and shall have no right to
be paid any of the amounts which would otherwise be due or paid to the Director
by the Bank pursuant to the terms of this Agreement.
5.4. TERMINATION BY THE BANK ON ACCOUNT OF OR AFTER A CHANGE IN
CONTROL. In the event that the Director's service as a member of the Board of
Directors of the Bank is terminated in conjunction with, or by reason of, a
"Change in Control", the Director shall be entitled to be paid the Applicable
Percentage of the Director Benefits, in substantially equal monthly installments
on the first day of each month, beginning with the month following the month in
which the Director attains fifty-five (55) years of age or any month thereafter,
as requested in writing by the Director and delivered to the Employer or its
successor thirty (30) days prior to the commencement of installment payments;
provided, however, that in the event the Director does not request a
commencement date as specified, such installments shall be paid on the first day
of each month, beginning with the month following the month in which the
Director attains sixty-two (62) years of age. The installments shall be payable
(i) for the period
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designated in Schedule "D" in the case of the balance in the Benefit Account and
(ii) until the Director's death in the case of the Index Benefit defined in
Schedule "B".
6. SECTION 280G BENEFITS REDUCTION. The Director acknowledges and agrees
that the parties have entered into this Agreement based upon certain financial
and tax accounting assumptions. Accordingly, with full knowledge of the
potential consequences the Director agrees that, notwithstanding anything
contained herein to the contrary, in the event that any payment or benefit
received or to be received by the Director, whether payable pursuant to the
terms of this Agreement or any other plan, arrangement or agreement with the
Bank (together with the Director Benefits, the "Total Payments"), will not be
deductible (in whole or in part) as a result of Code Section 280G or other
applicable provisions of the Code, the Total Payments shall be reduced until no
portion of the Total Payments is nondeductible as a result of Section 280G or
such other applicable provisions of the Code. For purposes of this limitation:
(a) No portion of the Total Payments, the receipt or
enjoyment of which the Director shall have effectively waived in writing prior
to the date of payment of any future Director Benefits payments, shall be taken
into account;
(b) No portion of the Total Payments shall be taken
into account, which in the opinion of the tax counsel selected by the Bank and
acceptable to the Director, does not constitute a "parachute payment" within the
meaning of Section 280G of the Code;
(c) Any reduction of the Total Payments shall be
applied to reduce any payment or benefit received or to be received by the
Director pursuant to the terms of this Agreement and any other plan, arrangement
or agreement with the Bank in the order determined by mutual agreement of the
Bank and the Director;
(d) Future payments shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in clauses
(a) or (b) above in their entirety) constitute reasonable compensation for
services actually rendered within the meaning of Section 280G of the Code, in
the opinion of tax counsel referred to in clause (b) above; and
(e) The value of any non-cash benefit or any deferred
payment or benefit included in the Total Payments shall be determined by
independent auditors selected by the Bank and acceptable to the Director in
accordance with the principles of Section 280G of the Code.
7. RIGHT TO DETERMINE FUNDING METHODS. The Bank reserves the right to
determine, in its sole and absolute discretion, whether, to what extent and by
what method, if any, to provide for the payment of the amounts which may be
payable to the Director, the Director's spouse or the Director's beneficiaries
under the terms of this Agreement. In the event
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that the Bank elects to fund this Agreement, in whole or in part, through the
use of life insurance or annuities, or both, the Bank shall determine the
ownership and beneficial interests of any such policy of life insurance or
annuity. The Bank further reserves the right, in its sole and absolute
discretion, to terminate any such policy, and any other device used to fund its
obligations under this Agreement, at any time, in whole or in part. Consistent
with Paragraph 9 below, neither the Director, the Director's spouse nor the
Director's beneficiaries shall have any right, title or interest in or to any
funding source or amount utilized by the Bank pursuant to this Agreement, and
any such funding source or amount shall not constitute security for the
performance of the Bank's obligations pursuant to this Agreement. In connection
with the foregoing, the Director agrees to execute such documents and undergo
such medical examinations or tests which the Bank may request and which may be
reasonably necessary to facilitate any funding for this Agreement including,
without limitation, the Bank's acquisition of any policy of insurance or
annuity. Furthermore, a refusal by the Director to consent to, participate in
and undergo any such medical examinations or tests shall result in the immediate
termination of this Agreement and the immediate forfeiture by the Director, the
Director's spouse and the Director's beneficiaries of any and all rights to
payment hereunder.
8. CLAIMS PROCEDURE. The Bank shall, but only to the extent necessary to
comply with ERISA, be designated as the named fiduciary under this Agreement and
shall have authority to control and manage the operation and administration of
this Agreement. Consistent therewith, the Bank shall make all determinations as
to the rights to benefits under this Agreement. Any decision by the Bank denying
a claim by the Director, the Director's spouse, or the Director's beneficiary
for benefits under this Agreement shall be stated in writing and delivered or
mailed, via registered or certified mail, to the Director, the Director's spouse
or the Director's beneficiary, as the case may be. Such decision shall set forth
the specific reasons for the denial of a claim. In addition, the Bank shall
provide the Director, the Director's spouse or the Director's beneficiary with a
reasonable opportunity for a full and fair review of the decision denying such
claim.
9. STATUS AS AN UNSECURED GENERAL CREDITOR. Notwithstanding anything
contained herein to the contrary: (i) neither the Director, the Director's
spouse or the Director's designated beneficiaries shall have any legal or
equitable rights, interests or claims in or to any specific property or assets
of the Bank as a result of this Agreement; (ii) none of the Bank's assets shall
be held in or under any trust for the benefit of the Director, the Director's
spouse or the Director's designated beneficiaries or held in any way as security
for the fulfillment of the obligations of the Bank under this Agreement; (iii)
all of the Bank's assets shall be and remain the general unpledged and
unrestricted assets of the Bank; (iv) the Bank's obligation under this Agreement
shall be that of an unfunded and unsecured promise by the Bank to pay money in
the future; and (v) the Director, the Director's spouse and the Director's
designated beneficiaries shall be unsecured general creditors with respect to
any benefits which may be payable under the terms of this Agreement.
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Notwithstanding subparagraphs (i) through (v) above, the Bank
and the Director acknowledge and agree that upon request of the Director at any
time during the term of this Agreement, a Rabbi Trust (the "Trust") shall be
established upon such terms and conditions as may be mutually agreeable between
the Bank and the Director and that it is the intention of the Bank to make
contributions and/or transfer assets to the Trust in order to discharge its
obligations pursuant to this Agreement. The principal of the Trust and any
earnings thereon shall be held separate and apart from other funds of the Bank
to be used exclusively for discharge of the Bank's obligations pursuant to this
Agreement and shall continue to be subject to the claims of the Bank's general
creditors until paid to the Director or its beneficiaries in such manner and at
such times as specified in this Agreement.
10. DISCRETION OF BOARD TO ACCELERATE PAYOUT. Notwithstanding any of the
other provisions of this Agreement, the Board of Directors of the Bank may, if
determined in its sole and absolute discretion to be appropriate, accelerate the
payment of the amounts due under the terms of this Agreement, provided that
Director (or Director's spouse or designated beneficiaries): (i) consents to the
revised payout terms determined appropriate by the Bank's Board of Directors;
and (ii) does not negotiate or in anyway influence the terms of proposed
altered/accelerated payout (said decision to be made solely by the Bank's Board
of Directors and offered to the Director [or Director's spouse or designated
beneficiaries] on a "take it or leave it basis").
11. MISCELLANEOUS.
11.1. OPPORTUNITY TO CONSULT WITH INDEPENDENT ADVISORS. The
Director acknowledges that he has been afforded the opportunity to consult with
independent advisors of his choosing including, without limitation, accountants
or tax advisors and counsel regarding both the benefits granted to him under the
terms of this Agreement and the (i) terms and conditions which may affect the
Director's right to these benefits and (ii) personal tax effects of such
benefits including, without limitation, the effects of any federal or state
taxes, Section 280G of the Code, and any other taxes, costs, expenses or
liabilities whatsoever related to such benefits, which in any of the foregoing
instances the Director acknowledges and agrees shall be the sole responsibility
of the Director notwithstanding any other term or provision of this Agreement.
The Director further acknowledges and agrees that the Bank shall have no
liability whatsoever related to any such personal tax effects or other personal
costs, expenses, or liabilities applicable to the Director and further
specifically waives any right for himself or herself, and his or her heirs,
beneficiaries, legal representatives, agents, successors and assigns to claim or
assert liability on the part of the Bank related to the matters described above
in this subparagraph 11.1. The Director further acknowledges that he has read,
understands and consents to all of the terms and conditions of this Agreement,
and that he enters into this Agreement with a full understanding of its terms
and conditions.
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11.2. ARBITRATION OF DISPUTES. All claims, disputes and other
matters in question arising out of or relating to this Agreement or the breach
or interpretation thereof, other than those matters which are to be determined
by the Bank in its sole and absolute discretion, shall be resolved by binding
arbitration before a representative member, selected by the mutual agreement of
the parties, of the Judicial Arbitration and Mediation Services, Inc. ("JAMS"),
located in San Francisco, California. In the event JAMS is unable or unwilling
to conduct the arbitration provided for under the terms of this Paragraph, or
has discontinued its business, the parties agree that a representative member,
selected by the mutual agreement of the parties, of the American Arbitration
Association ("AAA"), located in San Francisco, California, shall conduct the
binding arbitration referred to in this Paragraph. Notice of the demand for
arbitration shall be filed in writing with the other party to this Agreement and
with JAMS (or AAA, if necessary). In no event shall the demand for arbitration
be made after the date when institution of legal or equitable proceedings based
on such claim, dispute or other matter in question would be barred by the
applicable statute of limitations. The arbitration shall be subject to such
rules of procedure used or established by JAMS, or if there are none, the rules
of procedure used or established by AAA. Any award rendered by JAMS or AAA shall
be final and binding upon the parties, and as applicable, their respective
heirs, beneficiaries, legal representatives, agents, successors and assigns, and
may be entered in any court having jurisdiction thereof. The obligation of the
parties to arbitrate pursuant to this clause shall be specifically enforceable
in accordance with, and shall be conducted consistently with, the provisions of
Title 9 of Part 3 of the California Code of Civil Procedure. Any arbitration
hereunder shall be conducted in San Jose, California, unless otherwise agreed to
by the parties.
11.3. ATTORNEYS' FEES. In the event of any arbitration or
litigation concerning any controversy, claim or dispute between the parties
hereto, arising out of or relating to this Agreement or the breach hereof, or
the interpretation hereof, the prevailing party shall be entitled to recover
from the non-prevailing party reasonable expenses, attorneys' fees and costs
incurred in connection therewith or in the enforcement or collection of any
judgment or award rendered therein. The "prevailing party" means the party
determined by the arbitrator(s) or court, as the case may be, to have most
nearly prevailed, even if such party did not prevail in all matters, not
necessarily the one in whose favor a judgment is rendered.
11.4. NOTICE. Any notice required or permitted of either the
Director or the Bank under this Agreement shall be deemed to have been duly
given, if by personal delivery, upon the date received by the party or its
authorized representative; if by facsimile, upon transmission to a telephone
number previously provided by the party to whom the facsimile is
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transmitted as reflected in the records of the party transmitting the facsimile
and upon reasonable confirmation of such transmission; and if by mail, on the
third day after mailing via U.S. first class mail, registered or certified,
postage prepaid and return receipt requested, and addressed to the party at the
address given below for the receipt of notices, or such changed address as may
be requested in writing by a party.
If to the Bank: Heritage Bank of Commerce
150 Almaden Boulevard
San Jose, California 95113
Attn: Chairman of the Board
If to the Director: _____________________________
_____________________________
_____________________________
11.5. ASSIGNMENT. Neither the Director, the Director's spouse,
nor any other beneficiary under this Agreement shall have any power or right to
transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part
or all of the amounts payable hereunder, nor, prior to payment in accordance
with the terms of this Agreement, shall any portion of such amounts be: (i)
subject to seizure by any creditor of any such beneficiary, by a proceeding at
law or in equity, for the payment of any debts, judgments, alimony or separate
maintenance obligations which may be owed by the Director, the Director's
spouse, or any designated beneficiary; or (ii) transferable by operation of law
in the event of bankruptcy, insolvency or otherwise. Any such attempted
assignment or transfer shall be void and unenforceable without the prior written
consent of the Bank. The Bank's consent, if any, to one or more assignments or
transfers shall not obligate the Bank to consent to or be construed as the
Bank's consent to any other or subsequent assignment or transfer.
11.6. BINDING EFFECT/MERGER OR REORGANIZATION. This Agreement
shall be binding upon and inure to the benefit of the Director and the Bank and,
as applicable, their respective heirs, beneficiaries, legal representatives,
agents, successors and assigns. Accordingly, the Bank shall not merge or
consolidate into or with another corporation, or
-12-
reorganize or sell substantially all of its assets to another corporation, firm
or person, unless and until such succeeding or continuing corporation, firm or
person agrees to assume and discharge the obligations of the Bank under this
Agreement. Upon the occurrence of such event, the term "Bank" as used in this
Agreement shall be deemed to refer to such surviving or successor firm, person,
entity or corporation.
11.7. NONWAIVER. The failure of either party to enforce at any
time or for any period of time any one or more of the terms or conditions of
this Agreement shall not be a waiver of such term(s) or condition(s) or of that
party's right thereafter to enforce each and every term and condition of this
Agreement.
11.8. PARTIAL INVALIDITY. If any term, provision, covenant, or
condition of this Agreement is determined by an arbitrator or a court, as the
case may be, to be invalid, void, or unenforceable, such determination shall not
render any other term, provision, covenant or condition invalid, void or
unenforceable, and the Agreement shall remain in full force and effect
notwithstanding such partial invalidity.
11.9. ENTIRE AGREEMENT. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties with respect to
the subject matter of this Agreement and contains all of the covenants and
agreements between the parties with respect thereto. Each party to this
Agreement acknowledges that no other representations, inducements, promises, or
agreements, oral or otherwise, have been made by any party, or anyone acting on
behalf of any party, which are not set forth herein, and that no other
agreement, statement, or promise not contained in this Agreement shall be valid
or binding on either party.
11.10. MODIFICATIONS. Any modification of this Agreement shall
be effective only if it is in writing and signed by each party or such party's
authorized representative.
11.11. PARAGRAPH HEADINGS. The paragraph headings used in this
Agreement are included solely for the convenience of the parties and shall not
affect or be used in connection with the interpretation of this Agreement.
11.12. NO STRICT CONSTRUCTION. The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction will be applied
against any person.
11.13. GOVERNING LAW. The laws of the State of California, other
than those laws denominated choice of law rules, and, where applicable, the
rules and regulations of the California Commissioner of Financial Institutions
and the Federal Deposit Insurance Corporation, shall govern the validity,
interpretation, construction and effect of this Agreement.
-13-
IN WITNESS WHEREOF, the Bank and the Director have executed this
Agreement on the date first above-written in the City of San Jose, Santa Clara
County, California.
BANK DIRECTOR
Heritage Bank of Commerce
By:________________________________ ___________________________________
William J. Del Biaggio, Jr.
Chairman of the Board
of Directors
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SCHEDULE A
CALENDAR PERIOD APPLICABLE PERCENTAGE
--------------- ---------------------
June 8, 1994 to June 7, 1997..................... 0.00%
June 8, 1997 to June 7, 1998..................... 36.00%
June 8, 1998 to June 7, 1999..................... 48.00%
June 8, 1999 to June 7, 2000..................... 60.00%
June 8, 2000 to June 7, 2001..................... 72.00%
June 8, 2001 to June 7, 2002..................... 84.00%
June 8, 2002 and Thereafter...................... 100.00%
See subparagraph 1.2 of the Agreement for a definition and discussion of the
Applicable Percentage.
SCHEDULE B
DIRECTOR BENEFITS
1. Director Benefits Determination.
The Director Benefits shall be determined based upon the following:
a. Benefit Account:
A Benefit Account shall be established as a liability reserve
account on the books of the Bank for the benefit of the
Director. Prior to the date on which the Director becomes
eligible to receive payments under the Agreement, such Benefit
Account shall be increased or decreased each Plan Year
(including the Plan Year in which the Director ceases to serve
as a member of the Board of Directors of the Bank) by an amount
equal to the annual earnings or loss for that Plan Year
determined by the Index (described in subparagraph c below),
less the Opportunity Cost (described in subparagraph d below)
for that Plan Year.
b. Index Benefit:
After the date on which the Director becomes eligible to receive
payments under the Agreement, the Index Benefit for the Director
for any Plan Year shall be determined by subtracting the
Opportunity Cost for that Plan Year from the earnings, if any,
established by the Index.
c. Index:
The Index for any Plan Year shall be the aggregate annual
after-tax income from the life insurance contracts described
hereinafter as defined by FASB Technical Bulletin 85-4. This
Index shall be applied as if such insurance contracts were
purchased on the Effective Date.
Insurance Company: American General Life Insurance
Company/CM0000765L Canada Life Assurance Company/US2650641
If such contracts of life insurance are actually purchased by
the Bank, then the actual policies as of the dates purchased
shall be used in calculations to determine the Index and
Opportunity Cost. If such contracts of life insurance are
-1-
not purchased or are subsequently surrendered or lapsed, then
the Bank shall receive and use annual policy illustrations that
assume the above described policies were purchased from the
above named insurance company(ies) on the Effective Date to
calculate the amount of the Index and Opportunity Cost.
d. Opportunity Cost:
The Opportunity Cost for any Plan Year shall be calculated by
multiplying (a) the sum of (i) the total amount of premiums set
forth in the insurance policies described above, (ii) the amount
of any Index Benefit (described at subparagraph b above), and
(iii) the amount of all previous years after-tax Opportunity
Costs; by (b) the average annualized after-tax cost of funds
calculated using a one-year U.S. Treasury Bill as published in
the Wall Street Journal. The applicable tax rate used to
calculate the Opportunity Cost shall be the Bank's marginal tax
rate until the Director's Retirement, or other termination of
service (including a Change in Control). Thereafter, the
Opportunity Cost shall be calculated with the assumption of a
marginal forty-two percent (42%) corporate tax rate each year
regardless of whether the actual marginal tax rate of the Bank
is higher or lower.
- --------------------------------------------------------------------------------
EXAMPLE
INDEX BENEFITS
- --------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
[n] [A] [B] [C] [D]
END OF CASH SURRENDER INDEX OPPORTUNITY COST ANNUAL CUMULATIVE
YEAR VALUE OF LIFE [Annual A(0) = premium BENEFIT BENEFIT
INSURANCE POLICY Policy A(0)+C(n-1)x.05x B-C D+D(n-1)
Income] (1-42%)
A(n)-A(n-1)
- -----------------------------------------------------------------------------------------------
0 $1, 000,000 -- -- -- --
- -----------------------------------------------------------------------------------------------
1 $1,050,000 $50,000 $29,000 $21,000 $21,000
- -----------------------------------------------------------------------------------------------
2 $1,102,500 $52,500 $29,841 $22,659 $43,659
- -----------------------------------------------------------------------------------------------
3 $1,157,625 $55,125 $30,706 $24,419 $68,078
- -----------------------------------------------------------------------------------------------
.
.
.
- -----------------------------------------------------------------------------------------------
Assumptions: Initial Insurance = $1,000,000
-2-
Effective Tax Rate = 42%
One Year US Treasury Yield = 5%
2. Director Benefits Payments.
The Director shall be entitled to payment of the Applicable Percentage of
(i) the balance in the Benefit Account in installments upon the terms as
specified in the Agreement, and (ii) the Index Benefit for each Plan Year
payable in installments until the Director's death.
-3-
SCHEDULE C
BENEFICIARY DESIGNATION
To the Administrator of the Heritage Bank of Commerce Director Indexed
Compensation Benefits Agreement:
Pursuant to the Provisions of my Director Indexed Compensation Benefits
Agreement with Heritage Bank of Commerce, permitting the designation of a
beneficiary or beneficiaries by a participant, I hereby designate the following
persons and entities as primary and secondary beneficiaries of any benefit under
said Agreement payable by reason of my death:
PRIMARY BENEFICIARY:
_______________________ _________________________ ___________________________
Name Address Relationship
SECONDARY (CONTINGENT) BENEFICIARY:
_______________________ _________________________ ___________________________
Name Address Relationship
THE RIGHT TO REVOKE OR CHANGE ANY BENEFICIARY DESIGNATION IS HEREBY RESERVED.
ALL PRIOR DESIGNATIONS, IF ANY, OF PRIMARY BENEFICIARIES AND SECONDARY
BENEFICIARIES ARE HEREBY REVOKED.
The Administrator shall pay all sums payable under the Agreement by reason of my
death to the Primary Beneficiary, if he or she survives me, and if no Primary
Beneficiary shall survive me, then to the Secondary Beneficiary, and if no named
beneficiary survives me, then the Administrator shall pay all amounts in
accordance with the terms of my Director Indexed Compensation Benefits
Agreement. In the event that a named beneficiary survives me and dies prior to
receiving the entire benefit payable under said Agreement, then and in that
event, the
-1-
remaining unpaid benefit payable according to the terms of my Director Indexed
Compensation Benefits Agreement shall be payable to the personal representatives
of the estate of said beneficiary who survived me but died prior to receiving
the total benefit provided by my Director Indexed Compensation Benefits
Agreement.
Dated: June _____, 1997 ___________________________________
CONSENT OF THE DIRECTOR'S SPOUSE
TO THE ABOVE BENEFICIARY DESIGNATION:
I, __________________, being the spouse of ______________, after
being afforded the opportunity to consult with independent counsel of my
choosing, do hereby acknowledge that I have read, agree and consent to the
foregoing Beneficiary Designation which relates to the Director Indexed
Compensation Benefits Agreement entered into by my spouse effective as of June
19, 1997. I understand that the above Beneficiary Designation may affect certain
rights which I may have in the benefits provided for under the terms of the
Director Indexed Compensation Benefits Agreement and in which I may have a
marital property interest.
Dated: June _____, 1997.
__________________________________________
__________________________________________
Type/Print Name
-2-
SCHEDULE D
DISTRIBUTION ELECTION
Pursuant to the Provisions of my Director Indexed Compensation Benefits
Agreement with Heritage Bank of Commerce, I hereby elect to have any
distribution of the balance in my Benefit Account paid to me in installments as
designated below:
____ thirty-six (36) monthly installments with the amount of
each installment determined as of each installment date
by dividing the entire amount in my Benefit Account by
the number of installments then remaining to be paid,
with the final installment to be the entire remaining
balance in the Benefit Account.
____ sixty (60) monthly installments with the amount of each
installment determined as of each installment date by
dividing the entire amount in my Benefit Account by the
number of installments then remaining to be paid, with
the final installment to be the entire remaining
balance in the Benefit Account.
____ one hundred twenty (120) monthly installments with the
amount of each installment determined as of each
installment date by dividing the entire amount in my
Benefit Account by the number of installments then
remaining to be paid, with the final installment to be
the entire remaining balance in the Benefit Account.
____ one hundred eighty (180) monthly installments with the
amount of each installment determined as of each
installment date by dividing the entire amount in my
Benefit Account by the number of installments then
remaining to be paid, with the final installment to be
the entire remaining balance in the Benefit Account.
Dated: June _____, 1997
Signed: _________________________________
LIFE INSURANCE
ENDORSEMENT METHOD SPLIT DOLLAR PLAN
AGREEMENT
Insurer/Policy Number:
Bank: Heritage Bank of Commerce
Insured:
Relationship of Insured to Bank: Director
Date: _____________, 19__
The respective rights and duties of the Bank and the Insured in the above
policy(ies) (the "Policy") shall be as follows:
I. DEFINITIONS
Refer to the Policy provisions for the definition of all terms in this
Agreement.
II. POLICY TITLE AND OWNERSHIP
Title and ownership shall reside in the Bank for its use and for the use
of the Insured all in accordance with this Agreement. The Bank alone
may, to the extent of its interest, exercise the right to borrow or
withdraw the Policy cash values. Where the Bank and the Insured (or
beneficiary[ies] or assignee[s], with the consent of the Insured)
mutually agree to exercise the right to increase the coverage under the
subject split dollar Policy, then, in such event, the rights, duties and
benefits of the parties to such increased coverage shall continue to be
subject to the terms of this Agreement.
III. BENEFICIARY DESIGNATION RIGHTS
The Insured (or beneficiary[ies] or assignee[s]) shall have the right
and power to designate a beneficiary or beneficiaries to receive his
share of the proceeds payable upon the death of the Insured, and to
elect and change a payment option for such beneficiary, subject to any
right or interest the Bank may have in such proceeds, as provided in
this Agreement.
IV. PREMIUM PAYMENT METHOD
The Bank shall pay an amount equal to the planned premiums and any other
premium payments that might become necessary to maintain the Policy in
force.
V. TAXABLE BENEFIT
Annually the Insured will receive a taxable benefit equal to the assumed
cost of insurance as required by the Internal Revenue Service. The Bank
(or its administrator) will report to the Insured the amount of imputed
income received each year on Form W-2 or its equivalent.
VI. DIVISION OF DEATH PROCEEDS
Subject to Paragraph VII herein, the division of the death proceeds of
the Policy is as follows:
1. The Insured's beneficiary(ies), designated in accordance with
Paragraph III, shall be entitled to an amount equal to eighty
percent (80%) of the net at risk insurance portion of the
proceeds. The net at risk insurance portion is the total proceeds
less the cash value of the Policy.
2. The Bank shall be entitled to the remainder of such proceeds.
3. The Bank and the Insured (or beneficiary[ies] or assignee[s])
shall share in any interest due on the death proceeds on a pro
rata basis in the ratio that the proceeds due the Bank and the
Insured, respectively, bears to the total proceeds, excluding any
such interest.
VII. DIVISION OF CASH SURRENDER VALUE
The Bank shall at all times be entitled to an amount equal to the
Policy's cash value, as that term is defined in the Policy, less any
Policy loans and unpaid interest or cash withdrawals previously incurred
by the Bank and any applicable Policy surrender charges. Such cash value
shall be determined as of the date of surrender of the Policy or death
of the Insured as the case may be.
VIII. PREMIUM WAIVER
If the Policy contains a premium waiver provision, any such waived
amounts shall be considered for all purposes of this Agreement as having
been paid by the Bank.
IX. RIGHTS OF PARTIES WHERE POLICY ENDOWMENT OR ANNUITY ELECTION EXISTS
In the event the Policy involves an endowment or annuity element, the
Bank's right and interest in any endowment proceeds or annuity benefits
shall be determined under the provisions of this Agreement by regarding
such endowment proceeds or the commuted value
of such annuity benefits as the Policy's cash value. Such endowment
proceeds or annuity benefits shall be treated like death proceeds for
the purposes of division under this Agreement.
X. TERMINATION OF AGREEMENT
This Agreement shall terminate at the option of the Bank following
thirty (30) days written notice to the Insured upon the happening of any
one of the following:
1. The Insured's right to receive benefits under that certain
Director Indexed Compensation Benefits Agreement effective as of
____________, 19___ shall terminate for any reason other than the
Insured's death, or
2. The Insured shall be discharged from service with the Bank for
cause. The term "for cause" shall mean:
a. The willful breach or habitual neglect by the Insured of his
responsibilities and duties;
b. The Insured's deliberate violation of (i) any state or federal
banking or securities laws, or of the Bylaws, rules, policies or
resolutions of the Bank, or (ii) of the rules or regulations of
the California Commissioner of Financial Institutions, the
Federal Deposit Insurance Corporation or any other regulatory
agency or governmental authority having jurisdiction over the
Bank, which has a material adverse effect upon the Bank;
c. The determination by a state or federal court, banking agency
or other governmental authority having jurisdiction over the Bank
that the Insured (i) is of unsound mind, or (ii) has committed a
gross abuse of authority or discretion with reference to the
Bank, or (iii) otherwise is not suitable to continue to serve as
a member of the Board of Directors of the Bank;
d. The Insured's conviction of any felony or a crime involving
moral turpitude or a fraudulent or dishonest act; or
e. The Insured's disclosure without authority of any secret or
confidential information not otherwise publicly available
concerning the Bank or taking any action which the Bank's Board
of Directors determines, in its sole discretion and subject to
good faith, fair dealing and reasonableness, constitutes unfair
competition with or inducement of any customer to breach any
contract with the Bank.
-3-
Upon such termination, the Insured (or beneficiary[ies] or assignee[s])
shall have a ninety (90) day option to receive from the Bank an absolute
assignment of the Policy in consideration of a cash payment to the Bank,
whereupon this Agreement shall terminate. Such cash payment shall be the
greater of:
1. The Bank's share of the cash value of the Policy on the date of
such assignment, as defined in this Agreement.
2. The amount of the premiums which have been paid by the Bank prior
to the date of such assignment.
Should the Insured (or beneficiary[ies] or assignee[s]) fail to exercise
this option within the prescribed ninety (90) day period, the Insured
(or beneficiary[ies] or assignee[s]) agrees that all of his or her
rights, interest and claims in the Policy shall terminate as of the date
of the termination of this Agreement.
Except as provided above, this Agreement shall terminate upon
distribution of the death benefit proceeds in accordance with Paragraph
VI above.
XI. INSURED'S OR ASSIGNEE'S ASSIGNMENT RIGHTS
The Insured may not, without the prior written consent of the Bank,
assign to any individual, trust or other organization, any right, title
or interest in the Policy nor any rights, options, privileges or duties
created under this Agreement.
XII. AGREEMENT BINDING UPON THE PARTIES
This Agreement shall be binding upon the Insured and the Bank, and their
respective heirs, successors, personal representatives and assigns, as
applicable.
XIII. NAMED FIDUCIARY AND PLAN ADMINISTRATOR
The Bank is hereby designated the "Named Fiduciary" until resignation or
removal by its Board of Directors. As Named Fiduciary, the Bank shall be
responsible for the management, control, and administration of this
Agreement as established herein. The Named Fiduciary may allocate to
others certain aspects of the management and operations responsibilities
of this Agreement, including the employment of advisors and the
delegation of any ministerial duties to qualified individuals.
XIV. FUNDING POLICY
-4-
The funding Policy for this Agreement shall be to maintain the Policy in
force by paying, when due, all premiums required.
XV. CLAIM PROCEDURES
Claim forms or claim information as to the subject Policy can be
obtained by contacting The Benefit Marketing Group, Inc. (770-952-1529).
When the Named Fiduciary has a claim which may be covered under the
provisions described in the Policy, it should contact the office named
above, and they will either complete a claim form and forward it to an
authorized representative of the Insurer or advise the named Fiduciary
what further requirements are necessary. The Insurer will evaluate and
make a decision as to payment. If the claim is payable, a benefit check
will be issued to the Named Fiduciary.
In the event that a claim is not eligible under the Policy, the Insurer
will notify the Named Fiduciary of the denial pursuant to the
requirements under the terms of the Policy. If the Named Fiduciary is
dissatisfied with the denial of the claim and wishes to contest such
claim denial, it should contact the office named above and they will
assist in making inquiry to the Insurer. All objections to the Insurer's
actions should be in writing and submitted to the office named above for
transmittal to the Insurer.
XVI. GENDER
Whenever in this Agreement words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine
or neuter gender, whenever they should so apply.
XVII. INSURANCE COMPANY NOT A PARTY TO THIS AGREEMENT
The Insurer shall not be deemed a party to this Agreement, but will
respect the rights of the parties as set forth herein upon receiving an
executed copy of this Agreement. Payment or other performance in
accordance with the Policy provisions shall fully discharge the Insurer
from any and all liability.
-5-
IN WITNESS WHEREOF, the Insured and a duly authorized Bank officer have signed
this Agreement as of the above written date.
HERITAGE BANK OF COMMERCE INSURED
___________________________________ ___________________________________
-6-
BENEFICIARY DESIGNATION FORM
PRIMARY DESIGNATION:
NAME RELATIONSHIP
---- ------------
_____________________________ _______________________________________
_____________________________ _______________________________________
_____________________________ _______________________________________
CONTINGENT DESIGNATION:
_____________________________ _______________________________________
_____________________________ _______________________________________
_____________________________ _______________________________________
_____________________________ _____________, 19___