Director Compensation Benefits Agreement

Exhibit 10.16


FIRST AMENDED AND RESTATED


DIRECTOR COMPENSATION BENEFITS AGREEMENT


This First Amended and Restated Director Compensation Benefits Agreement (hereinafter “Agreement”) is made and entered into effective as of December 29, 2008 by and between HERITAGE BANK OF COMMERCE, a bank organized and existing under the laws of the state of California (hereinafter the “Bank”) and, Ranson W. Webster, a Director of the Company (hereinafter “Director” or “Participant”);


WHEREAS it is the parties’ intent to comply with the final regulations under Internal Revenue Code Section 409A, issued on April 10, 2007 by the Internal Revenue Service (IRS) and the Treasury Department;


WHEREFORE, the Company and Director hereby agree to amend and restate the prior Director Compensation Benefits Agreement, effective as of May 27, 2004 (hereinafter “Original Agreement”, and as amended), and further agree that this Heritage Bank of Commerce First Amended and Restated Director Compensation Benefits Agreement shall amend, supersede and replace the Original Agreement in its entirety;


WHEREAS, to encourage the Director to remain a member of the Company’s Board of Directors, the Company is willing to provide the Director with a deferred fee opportunity.


WHEREAS, it is the intent of the parties hereto that this plan (evidenced by this Agreement) be considered an unfunded arrangement maintained primarily to provide supplemental retirement benefits for the Director, and be considered a non-qualified benefit plan for the purposes of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); and


NOW, THEREFORE, in consideration of the past service and 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 Company 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, the Named Fiduciary of this Agreement where a fiduciary is required by ERISA.


1.2 Applicable Percentage. The term “Applicable Percentage” shall mean that percentage which corresponds with number of “Years of Service” completed as of the date the Director Separates from Service, or it shall be One Hundred Percent (100%), as stipulated herein for certain described events, including but not limited to: (i) a Termination Pursuant to a


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Change in Control (as defined herein), provided payments have not yet begun hereunder or (ii) upon the Director becoming Disabled while serving on the Board.


The Applicable Percentage shall remain in effect until an adjustment occurs upon the completion of each Year of Service (as defined herein), and until Director has reached the maximum Applicable Percentage of One-Hundred Percent (100%) after Nine (9) Years of Service. Subject to the forgoing, the Applicable Percentage shall be determined in accordance with the following:


Completed Years of Service Applicable Percentage Less Than One 10% One 20% Two 30% Three 40% Four 50% Five 60% Six 70% Seven 80% Eight 90% Nine 100%


1.3 Board of Directors. The term “Board of Directors” or “Board” shall mean the Board of Directors of Heritage Bank of Commerce.


1.4 Change in Control. A Change in Control shall be deemed to have occurred upon any of the following events (as such terms are defined in Section 409A):


A. A Change in the Ownership of a Corporation. A change in the ownership of a corporation occurs on the date that any one person or persons acting as a group (as defined in Section 409A), acquires ownership of stock of the corporation that, together with stock held by such person or group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of such corporation. The acquisition of additional stock by the same person or group is not considered to cause a change in the ownership of the corporation.


B. Change in the Effective Control of a Corporation. A change in the effective control of the corporation shall be deemed to occur on either of the following dates:


(i) The date any one person, or persons acting as a group acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or group) ownership of stock of the corporation possessing thirty percent (30%) or more of the total voting power of the stock of such corporation; or


(ii) The date a majority of members of the corporation’s board of directors is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the corporation’s board of directors before the date of the appointment or election.


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C. Change in the Ownership of a Substantial Portion of a Corporation’s Assets. A change in the ownership of a substantial portion of a corporation’s assets shall be deemed to occur on the date that any one person or group acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the corporation that have a total gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all of the assets of the corporation immediately before such acquisition or acquisitions. No Change in Control shall result if the assets are transferred to certain entities controlled directly or indirectly by the shareholders of the transferring corporation.


1.5 The Code. The “Code” shall mean the Internal Revenue Code of 1986, as amended (the “Code”).


1.6 Director Benefit. The term “Director Benefit” shall mean the annual benefit paid out to Director pursuant to this Agreement. Unless specified otherwise by the terms of this Agreement and according to the circumstances giving rise to the Separation from Service, the Director Benefit shall be calculated by multiplying the following: (Director’s Years of Service) X (One Thousand Dollars) X (Applicable Percentage of 100%). The Director Benefit shall continue to increase with each Year of Service. In addition, the annual amount of Director Benefits payable under this Agreement shall be increased at the rate of two percent (2%) each year from the date of commencement of payments until the death of the Director.


As previously stated, the actual amount of the Director Benefit to be paid shall be determined at the time Director Separates from Service and shall be reduced to the extent: (i) required under the other provisions of this Agreement; (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., FICA, FUTA, SDI).


1.7 Disability/Disabled. For the purposes of this Agreement, the term “Disability” shall be interpreted in accordance with IRC 409A. Pursuant to IRC 409A, a Participant will be considered Disabled if:


A. He is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months; or


B. He is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of participant’s employer.


The determination of whether a Participant is Disabled shall be determined by a physician mutually agreed upon by the Company and the Participant (and shall be in accordance with the


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provisions of IRC 409A).


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 Normal Retirement Date and Normal Retirement Age. The terms “Normal Retirement” and/or “Normal Retirement Date” shall refer to the date which the Director Separates from Service for any reason other than a Removal for Cause, and a date on or after which Director has attained the age of Sixty-Two (62) (the “Normal Retirement Age”).


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” or “Removed for Cause” shall mean termination of the Director’s service as a member of the Board of Directors of the Bank by reason of any of the following:


(A) The willful, intentional and material breach or the habitual and continued neglect by the Director of his duties;


(B) The Director’s willful and intentional violation of (i) any State or Federal banking or securities laws, or of the Bylaws, rules, policies or resolutions of Bank, or the rules or regulations of the California Commissioner of Financial Institutions, Board of Governors or the Federal Reserve System, Federal Deposit Insurance Corporation, or other regulatory agency or governmental authority having jurisdiction over the Bank, which has a material adverse effect upon the Bank;


(C) The Director’s conviction of (i) any felony or (ii) a crime involving moral turpitude, or the Director’s willful and intentional commission a fraudulent or dishonest act; or


(D) The Director’s willful and intentional disclosure, without authority, of any secret or confidential information concerning 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 induces any customer to breach any contract with the Bank.


1.13 Separates From Service or Termination of Service. The term “Separation from Service” or “Termination of Service” shall be read and interpreted consistent with Code Section 409A and any future notices or guidance related thereto. As the term applies herein to individuals who are serving on the Board of Directors, but who are not also acting as employees of the Bank, the term “Separation from Service” shall means the expiration of all


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contracts or terms of service under which the Director is performing services as a member of the Board of Directors, and where expiration constitutes a good faith and complete termination of the service relationship.


If an individual provides services both as an employee of a service recipient and a member of the board of directors of a corporate service recipient (or an analogous position with respect to a non-corporate service recipient), the services provided as an employee are not taken into account in determining whether the service provider has a separation from service as a director for purposes of a nonqualified deferred compensation plan in which the service provider participates as a director that is not aggregated with any plan in which the service provider participates as an employee under paragraph (c)(2)(ii) of Code section 409A.


1.14 Years of Service. The term “Years of Service” shall mean the twelve (12) consecutive month period beginning on the date on which Director becomes a member of the Board of Directors of the Bank, and any twelve (12) month anniversary thereof, during which time Director has consecutively served on the Board. Director shall receive credit for a full Year of Service for any partial year of service after Director has completed one full Year of Service.


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, 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 ...