AMENDMENT NO. 1 TO DIRECTOR INDEXED COMPENSATION BENEFITS AGREEMENT
Exhibit 10.28
AMENDMENT NO. 1
TO
This
Amendment, made and entered into by and between Heritage Bank of Commerce, a
bank chartered under the laws of the State of California (the “Bank”), and Xxxx
X. Xxxxxxx, an individual residing in the State of California (the “Director”),
amends certain provisions of the Director Indexed Compensation Benefits
Agreement dated June 19, 1997 between the Bank and the Director (the Agreement)
for the purposes set forth hereinafter.
RECITALS
WHEREAS,
the Bank’s accountants, Deloitte & Touche LLP, have notified the Bank of a
change in the accounting treatment accorded to the Index Benefits under the
Agreement, which increases the benefits expense to the Bank;
WHEREAS,
the Bank and the Director have agreed to delete the Index Benefits and
substitute a defined benefit payable during the Directors life in order to (a)
reduce the benefit expense increase caused by the change in accounting
treatment, and (b) maintain, to the extent feasible, a benefit entitlement which
is substantially equivalent, but mot in excess of the projected Index Benefits
under the Agreement; and
WHEREAS,
it is the intent of the Bank and the Director that this Amendment be effective
as of October 21, 1999, and except as amended herein, the terms and conditions
of the Agreement shall remain in full force and effect.
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
Bank and the Director agree as follows:
AGREEMENT
1. The
Agreement is hereby amended as follows:
a. The terms
“Index”, “Indexed” and “Index Benefit”, whether plural or singular, and all
references to payments related thereto as set forth in the Agreement and
Schedules thereto, are hereby deleted.
b. All
provisions in the Agreement which refer in any manner to payment or distribution
of Director Benefits following the Directors death to a “beneficiary” or
“designated beneficiary”, “Surviving Spouse' or “spouse”, “qualified personal
representative”, “executor”, “administrator”, or “Director's estate”, along with
any definitions of such terms, and Schedule C, are hereby deleted.
c. The
portion of subparagraphs 3.1, 3.2, and 4.2 which reads as follows: “...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”, is hereby deleted from each such subparagraph
and a period inserted in lieu of the comma at the end of the text remaining
after such deletions.
d. The term
“Employer” used in subparagraphs 3.2, 5.1, 5.2 and 5.4 is amended to read
“Bank”.
e. The last
sentence of subparagraphs 5.1, 5,2, and 5.4 which reads as follows: “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 Executive's
death in the case of the Index Benefit defined in Schedule “B”, is hereby
deleted from each such subparagraph.
f. Subparagraphs
3.3 and 4.1 are hereby deleted and subparagraph 4.2 is substituted in lieu of
Paragraph 4.
g. An
amended Schedule B in the form attached hereto as Exhibit 1 and incorporated
herein by this reference replaces and supersedes the prior Schedule B in the
Agreement.
h. Schedule
D is hereby deleted.
i. All
references to provisions of the Agreement which have been amended hereby are
themselves hereby amended to conform to such amended provisions.
j. Except as
amended hereby, the Agreement remains in full force and effect as of the date
thereof.
BANK DIRECTOR
HERITAGE
BANK OF
COMMERCE
By:____________________________
____________________________
Xxxx X.
Xxxxxxx III Xxxx
X. Xxxxxxx
President and CEO
Dated: _____________, 2003 Dated: _______________, 2003
SPOUSAL
CONSENT
I,
Xxxxxxx X. Xxxxxxx, being the spouse of Xxxx X. Xxxxxxx, 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 Amendment No. I
to the Director Indexed Compensation Benefits Agreement between the Bank and my
spouse. I understand that Amendment No. I to the Agreement may affect certain
rights which I may have in the benefits provided for under the terms of the
Agreement and in which I may have a marital property interest.
Dated: ______________, 2000 _______________________________
Xxxxxxx X.
Xxxxxxx
SCHEDULE
B
DIRECTOR
BENEFITS
a. A
benefit account shall be established as a liability reserve account on the books
of the Bank for the benefit of the Director. The Director Benefits shall be
credited to the benefit account in an amount equal to One Thousand Dollars
($1,000.00) per year for each year of service as a member of the Board of
Directors of the Bank. The amount of Director Benefits payable under the
Agreement shall be increased at the rate of two percent (2%) each year from the
date of commencement of payments of the Director Benefits until the death of the
Director.
b. If
the Director elects Early Retirement, the Applicable Percentage of the Director
Benefits shall be decreased by a percentage calculated by subtracting the
Director's age at Early Retirement from the normal Retirement age of 62, and
multiplying the result by a factor of five, For example, assuming the Applicable
Percentage is 100%, a 35% reduction of the Director Benefits would occur if the
Director's Early Retirement age is 55, based on the following calculation:
62-55=7x5=35%.
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 Xxxx X. Xxxxxxx, 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 Banks
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 1.10 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
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 Surrogate’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 Surrogate’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 Surrogate’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
Surrogates 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 I 4A 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 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 Loan 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 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 and all applicable state and federal laws,
including, but not limited to, income, employment and disability income tax laws
(e.g., RCA, FUTA, SDI).
1.8 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.
1.9 Effective Date. The
term ‘Effective Date” shall mean the date first written above.
1.10 ERISA. The term
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended.
1.11 Plan Year. The term
“Plan Year” shall mean the Bank’s fiscal year.
1.12 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 (1) 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.
1.13 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.
1.14 Surrogate. The term
“Surrogate” shall mean the individual selected as a substitute insured for
purposes related to any insurance policy applicable to this
Agreement.
1.15 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.
2. Scope, Purpose and
Effect.
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 tem 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 1.8 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 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 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 Alter Retirement.
(a) The Bank
agrees that if the Director Retires, but shall die before receiving all of the
Director Benefits Payments to which he may be entitled specified in Schedule
“B”, and provided that the Surrogate is alive at the date of the Director’s
death, the Bank will pay to the Director’s designated beneficiary the balance,
if any, of the Benefit Account and up to fifteen (15) Index Benefit installment
payments in the amounts which would otherwise be paid to the Director if still
alive, minus the number of Index Benefit installment payments made to the
Director after Retirement and prior to his death. Upon the death of the
Surrogate, such installment payments shall cease whether or not any unpaid
portion of the fifteen (15) installment payments shall remain
unpaid.
(b) If a
valid Beneficiary Designation is not in effect, then all payments described
above in subparagraph 3.3 (a) 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.
(a) The Bank
agrees that if the Director shall die before Retirement and provided that the
Surrogate is alive at the date of the Director’s death, the Bank will pay to the
Director’s designated beneficiary the balance, if any, of the Benefit Account
and up to fifteen (15) Index Benefit installment payments in the amounts which
would otherwise be paid to the Director if alive following Retirement. Upon the
death of the Surrogate, such installment payments shall cease whether or not any
unpaid, portion of such fifteen (15) installment payments shall remain
unpaid.
(b) If a
valid Beneficiary Designation is not in effect, then all payments described
above in subparagraph 4.1(a) 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 earlier of
the death of the Surrogate or the Director 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 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 ‘V” in the case of the balance in the
Benefit Account and (ii) until 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 death in
the case of the Index Benefit defined in Schedule “B”.
5.3 Termination by Removal for
Cause. The Director agrees that if his service as a member of the Board
of Directors of the Bank is terminated by “removal for cause,” as defined in
subparagraph 1.12 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 designated in Schedule
“0” in the case f the balance in the Benefit Account and (ii) until 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 that the Bank elects to fluid 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
fluid 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 finding 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 ease 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 hill 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.
Notwithstanding
subparagraphs (i) through (v) above, the Bank and the Director acknowledge and
agree that upon request of the Director at anytime 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 2800 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 tent 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 tents and conditions.
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, pr 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, theft 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 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
Commerce Corp
000 Xxxxxxx
Xxxxxxxxx
Xxx Xxxx,
Xxxxxxxxxx 00000
Attn: President
If to the
Director: ____________________
___________________
___________________
11.5 Assignment. Neither
the Director, the Directors 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 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 ±1111 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.
11.14 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.
11.15 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.
IN
WITNESS WHEREOF, the Bank and the Director have executed this Agreement on the
date first above-written in the City of San Xxxx, Santa Xxxxx County,
California.
BANK DIRECTOR
Heritage Bank Of Commerce
By: ____________________________ _____________________________
Xxxxxxx X. Del Xxxxxxx, Jr. Xxxx X. Xxxxxxx
Chairman of the Board of
Directors
SCHEDULE
A
|
CALENDAR
YEAR
|
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/CM0000769L
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 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 xxxxx calculated using a
one-year U.S. Treasury Xxxx 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
Year
|
Cash
Surrender
Value
of Life
Insurance
Policy
|
Index
[Annual
Policy
A
“-A”]
|
Opportunity
Cost
A◦=premium
A◦+Cn1x.05x
(1-42%)
|
Annual
Benefit
B-C
|
Cumulative
Benefit
D+Dn-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
|
|||||
|
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 tents as specified in
the Agreement, and (ii) the Index Benefit for each Plan Year payable in
installments until the Director’s death or as applicable, the Surrogate’s death,
as specified in the Agreement.
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 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
______________________________
Xxxx X. Xxxxxxx
CONSENT
OF THE DIRECTOR’S SPOUSE
TO THE ABOVE BENEFICIARY
DESIGNATION:
I,
____________________, being the spouse of Xxxx X. Xxxxxxx, 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
|
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: _________________________
Xxxx X. Xxxxxxx
