UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HERITAGE COMMERCE CORP
(Exact name of registrant as specified in its charter)
California 77-0469558
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
150 Almaden Boulevard, San Jose, CA 95113
(Address of principal executive offices)
Heritage Commerce Corp Employee Stock Ownership Plan
Heritage Commerce Corp Amended and Restated 1994 Tandem Stock Option Plan
(Full title of plans)
John E. Rossell
Heritage Commerce Corp
150 Almaden Boulevard
San Jose, CA 95113
(408) 947-6900
(Name, address and telephone number of agent for service)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of
securities Amount to be Proposed maximum Proposed maximum Amount of
to be registered registered offering price per share aggregate offering price(1) registration fee
<S> <C> <C> <C> <C>
Heritage Commerce
Corp Employee Stock
Ownership Plan
(common stock and
related interests
in plan) 25,000 $15.50 $ 387,500 $ 114.31
Heritage Commerce
Corp Amended and
Restated 1994
Tandem Stock
Option Plan
(common stock and
related options) 1,106,169 $15.50 $17,145,620 $ 5,057.96
</TABLE>
(1) In accordance with Rule 457(h), based on the average of
the bid and ask price for Heritage Commerce Corp common stock as
of June 16, 1998.
This registration statement shall hereafter become effective
in accordance with Rule 462 promulgated under the Securities Act
of 1933, as amended.
Part II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
Heritage Commerce Corp (the "Company") hereby incorporates by reference in this
registration statement the following documents:
(a) The Company's annual report on Form 10-K for the
year ended December 31, 1997, as filed with the Securities and
Exchange Commission (the "Commission") on March 31, 1998;
(b) The Company's quarterly report on Form 10-Q for
the period ended March 31, 1998, as filed with the Commission on
May 15, 1998;
(c) The Company's current report on Form 8-K filed with the Commission
on May 5, 1998;
(d) The description of the Company's common stock
contained in the Company's Registration Statement on Form 8-A, as
filed with the Commission on March 5, 1998.
(e) All other reports filed pursuant to Section 13(a)
or 15(d) of the Exchange Act since the end of the fiscal year
covered by the registrant document referred to in (a) above.
All documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange
Act, prior to the filing of a post-effective amendment to this
registration statement which indicates that all securities
offered hereby have been sold or which deregisters all securities
remaining unsold, shall be deemed to be incorporated by reference
in this registration statement and to be a part hereof from the
date of filing of such documents.
Item 4. Description of Securities.
The class of securities to be offered is registered under Section 12 of the
Exchange Act.
Item 5. Interests of Named Experts and Counsel.
Not applicable.
Item 6. Indemnification of Officers and Directors.
Section 317 of the California General Corporations Law
(the "CGCL") authorizes a court to award, or a corporation's
board of directors to grant, indemnity to directors and officers
who are parties or are threatened to be made parties to any
proceeding (with certain exceptions) by reason of the fact that
the person is or was an agent of the corporation, against
expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with the
proceeding if that person acted in good faith and in a manner the
person reasonably believed to be in the best interests of the
corporation. Section 204 of the CGCL provides that this
limitation on liability has no effect on a director's liability
(i) for acts or omissions that involve intentional misconduct or
a knowing and culpable violation of law, (ii) for acts or
omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders or that involve
the absence of good faith on the part of the director, (iii) for
any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless
disregard for the director's duty to the corporation or its
shareholders in circumstances in which the director was aware, or
should have been aware, in the ordinary course of performing a
director's duties, of a risk of a serious injury to the
corporation or its shareholders, (v) for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the corporation or its
shareholders, (vi) under Section 310 of the CGCL (concerning
contracts or transactions between the corporation and a director)
or (vii) under Section 316 of the CGCL (directors' liability for
improper dividends, loans and guarantees).
In accordance with Section 317, the Company's Articles
of Incorporation (the "Articles"), limit the liability of a
directors, officers and employees to the Company or its
shareholders for monetary damages to the fullest extent
permissible under California law, and in excess of that
authorized under Section 317. The Articles and the Company's By-
Laws further provide for indemnification of corporate agents to
the maximum extent permitted by the CGCL.
The Company also maintains insurance policies which
insure its officers and directors against certain liabilities in
an annual aggregate maximum amount of $5,000,000.
The foregoing summaries are necessarily subject to the
complete text of the statute, the Articles, the By-Laws referred
to above and are qualified in their entirety by reference
thereto.
Item 7. Exemption from Registration Claimed.
Not applicable.
Item 8. Exhibits.
The following exhibits are filed as a part of this Registration Statement:
Exhibit Description
4.1 Heritage Commerce Corp Employee Stock Ownership Plan
4.2 Heritage Commerce Corp Amended and Restated 1994 Tandem Stock
Option Plan
5.1 Opinion of Counsel as to the legality of securities being
registered
23.1 Consent of Counsel (included in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP, Independent Auditors
23.3 Consent of KPMG Peat Marwick LLP, Independent Auditors
25 Power of Attorney (included in signature page of this
registration statement)
The Company has submitted the Heritage Commerce Corp Employee Stock Ownership
Plan and all amendments thereto to the Internal Revenue Service (the "IRS") in
a timely manner and hereby undertakes to make all changes required by the IRS
in order to qualify such Plan.
Item 9. Undertakings.
(a) Rule 415 Offering.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such
information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the registration statement is on Form
S-3 or Form S-8, and the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to Section 13
or Section 15(d) of the Exchange Act that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered which
remain unsold at the termination of the offering.
(b) Filings incorporating subsequent Exchange Act documents
by reference.
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(h) Request for acceleration of effective date of filing of
registration statement on Form S-8.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the registrant certifies it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
S-8 and has caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the
City of San Jose, State of California, on July 16, 1998.
HERITAGE COMMERCE CORP
(Registrant)
By /s/ John E. Rossell
John E. Rossell
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of
1933, this registration statement has been signed below by the
following persons on behalf of the registrant in the capacities
and on the dates indicated.
Signature Title Date
/s/ John E. Rossell President, Chief July 16, 1998
John E. Rossell Executive Officer
Director (Principal
Executive Officer)
/s/ Daniel A. Northway Executive Vice July 16, 1998
Daniel A. Northway President and Chief
Financial Officer
(Principal Financial
and Accounting
Officer)
/s/ Frank Bisceglia
Frank Bisceglia Director July 16, 1998
/s/ James Blair
James Blair Director July 16, 1998
/s/ Arthur Carmichael, Jr.
Arthur Carmichael, Jr. Director July 16, 1998
/s/ William Del Biaggio, Jr
William Del Biaggio, Jr. Director July 16, 1998
/s/ Anneke Dury
Anneke Dury Director July 16, 1998
/s/ Tracey Enfantino
Tracey Enfantino Director July 16, 1998
/s/ Glenn George
Glenn George Director July 16, 1998
/s/ Robert Gionfriddo
Robert Gionfriddo Director July 16, 1998
Signatures (Continued)
Signature Title Date
/s/ Lon Normandin
Lon Normandin Director July 16, 1998
/s/ Jack Peckham
Jack Peckham Director July 16, 1998
/s/ Robert Peters
Robert Peters Director July 16, 1998
POWER OF ATTORNEY
Know all men by these presents that each of the
undersigned does hereby make, constitute and appoint John E.
Rossell and Daniel A. Northway, or either of them, as the true
and lawful attorney-in-fact of the undersigned, with full power
of substitution and revocation, for and in the name, place and
stead of the undersigned, to execute and deliver the Registration
Statement on Form S-8, and any and all amendments thereto,
including without limitation pre-effective and post-effective
amendments thereto; such Form S-8 and each such amendment to be
in such form and to contain such terms and provisions as said
attorney or substitute shall deem necessary or desirable; giving
and granting unto said attorney, or to such person as in any case
may be appointed pursuant to the power of substitution herein
given, full power and authority to do and perform any and every
act and thing whatsoever requisite, necessary or, in the opinion
of said attorney or substitute, able to be done in such matter as
the undersigned might or could do if personally present, hereby
ratifying and confirming all that said attorney or such
substitute shall lawfully do or cause to be done by virtue
hereof.
In witness whereof, each of the undersigned has duly
executed this Power of Attorney.
/s/ James Blair
James Blair July 16, 1998
/s/ Arthur Carmichael, Jr.
Arthur Carmichael, Jr. July 16, 1998
/s/ William Del Biaggio, Jr
William Del Biaggio, Jr. July 16, 1998
/s/ Anneke Dury
Anneke Dury July 16, 1998
/s/ Frank Bisceglia
Frank Bisceglia July 16, 1998
/s/ Tracey Enfantino
Tracey Enfantino July 16, 1998
/s/ Glenn George
Glenn George July 16, 1998
/s/ Robert Gionfriddo
Robert Gionfriddo July 16, 1998
/s/ Lon Normandin
Lon Normandin July 16, 1998
/s/ Jack Peckham
Jack Peckham July 16, 1998
/s/ Robert Peters
Robert Peters July 16, 1998
EXHIBITS LIST
Sequentially
Exhibit Description Numbered Page
4.1 Heritage Commerce Corp Employee Stock Ownership Plan
4.2 Heritage Commerce Corp Amended and Restated 1994 Tandem
Stock Option Plan
5.1 Opinion of Counsel as to the legality of securities
being registered
23.1 Consent of Counsel (included in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP, Independent Auditors
23.3 Consent of KPMG Peat Marwick LLP, Independent Auditors
25 Power of Attorney (included in signature page of this
registration statement)
HERITAGE BANK OF COMMERCE
EMPLOYEE STOCK OWNERSHIP PLAN
Prepared: December 3, 1997
Menke & Associates, Inc.
All rights reserved.
<PAGE>
CONTENTS
Section Page
1. NATURE OF PLAN. 1
2. DEFINITIONS. 2
3. ELIGIBILITY. 16
4. PARTICIPATION IN ALLOCATION OF BENEFITS. 17
(a) Participation. 17
(b) Leave of Absence. 17
(c) Suspended Participation. 18
(d) Inactive Participation. 18
5. EMPLOYER CONTRIBUTIONS. 19
(a) Amount of Contribution. 19
(b) Time for Making Contribution. 19
(c) Form of Contribution. 19
6. INVESTMENT OF TRUST ASSETS. 20
(a) Authorized Investments. 20
(b) Duties of Committee. 20
(c) Plan Loans. 20
(d) Nonrecognition of Gain. 21
7. ALLOCATIONS TO ACCOUNTS. 23
(a) Individual Accounts. 23
(b) Company Stock Account. 23
(c) Other Investments Account. 25
8. EXPENSES OF THE PLAN AND TRUST. 26
9. VOTING COMPANY STOCK. 27
10. DISCLOSURE TO PARTICIPANTS. 28
(a) Summary Plan Description. 28
(b) Summary Annual Report. 28
(c) Annual Statement. 28
(d) Notice of Rollover Treatment. 29
(e) Additional Disclosure. 29
<PAGE>
11. ALLOCATION OF EMPLOYER CONTRIBUTIONS AND FORFEITURES. 30
(a) Allocation of Employer Contributions and Forfeitures. 30
(b) Allocation Limitations. 31
12. PLAN BENEFIT AT DEATH, DISABILITY OR RETIREMENT. 35
(a) Normal Retirement. 35
(b) Disability Retirement. 35
(c) Deferred Retirement. 35
13. OTHER TERMINATION OF SERVICE AND VESTING. 36
(a) Vesting Schedule. 36
(b) Vesting Upon Reemployment. 36
(c) Forfeitures. 37
(d) Cash-Out Distribution. 38
14. DISTRIBUTION OF PLAN BENEFIT. 40
(a) Death, Disability or Retirement. 40
(b) Other Termination of Participation. 40
(c) Death Prior to Distribution. 42
(d) Valuation Date. 42
(e) Limitations. 42
(f) Commencement of Benefits. 43
(g) Undistributed Accounts. 43
(h) Optional Direct Transfer of Eligible Rollover
Distributions. 44
(i) Lien on Distribution. 44
15. HOW PLAN BENEFIT WILL BE DISTRIBUTED. 45
(a) Form of Distribution. 45
(b) Beneficiaries. 45
16. RIGHTS AND OPTIONS ON DISTRIBUTED SHARES OF COMPANY
STOCK. 46
(a) "Put" Option. 46
(b) Right of First Refusal. 47
(c) Other Options. 48
17. SPECIAL PROVISIONS. 49
(a) Diversification of Investments. 49
(b) Cash Dividends. 49
18. ADMINISTRATION. 51
(a) Named Fiduciaries for Administration of Plan and
for Investment and Control of Plan Assets. 51
(b) Investment of Plan Assets. 53
(c) Funding Policy. 54
(d) Claims Procedures. 54
<PAGE>
(e) Qualified Domestic Relations Orders. 55
(f) General. 56
19. AMENDMENT AND TERMINATION. 58
(a) Amendment. 58
(b) Changes in the Code. 58
(c) Termination, Partial Termination or Complete
Discontinuance of Contributions. 58
(d) Determination by Internal Revenue Service. 59
(e) Return of Employer's Contribution. 59
20. MISCELLANEOUS. 61
(a) Participation by Affiliated Company. 61
(b) Limitation of Rights; Employment Relationship. 61
(c) Merger; Transfer of Assets. 61
(d) Prohibition Against Assignment. 61
(e) Applicable Law; Severability. 62
21. TOP HEAVY PROVISIONS. 63
(a) Definitions. 63
(b) Vesting Requirements. 65
(c) Minimum Benefits. 66
(d) Limitation on Annual Additions. 67
22. EXECUTION. 68
<PAGE>
HERITAGE BANK OF COMMERCE
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. NATURE OF PLAN.
(a) The purpose of this Plan is to enable participating
Employees of the Company and of any participating affiliates to
share in the growth and prosperity of the Company and to provide
Participants with an opportunity to accumulate capital for their
future economic security. A primary purpose of the Plan is to
enable Participants to acquire a proprietary interest in the
Company. Consequently, Employer Contributions made to the Trust
will be primarily invested in Employer Securities.
(b) This Plan, effective as of January 1, 1997, is intended
to qualify as an Employee Stock Ownership Plan, as defined in
Section 4975(e)(7) of the Internal Revenue Code (hereinafter
referred to as the "Code"), and as a stock bonus plan under
Section 401(a) of the Code. All assets acquired under this Plan
as a result of Employer Contributions, income and other additions
to the Trust will be administered, distributed, forfeited and
otherwise governed by the provisions of this Plan which is
administered by the Committee for the exclusive benefit of
Participants in the Plan and their Beneficiaries. It is intended
that all benefits, rights and features of this Plan be uniformly
available to all Participants.
<PAGE>
Section 2. DEFINITIONS.
In this Plan, whenever the context so indicates, the
singular or plural number shall each be deemed to include the
other, and the capitalized words shall have the following meanings:
ACCOUNT
One of several Accounts maintained to record the
interest of a Participant in the Plan.
AFFILIATED COMPANY
Any Company which is a member of a controlled group of
corporations (as defined in Section 414(b) of the Code)
which includes the Employer, any trade or business
(whether or not incorporated) which is under common
control (as defined in Section 414(c) of the Code) with
the Employer, any affiliated service group which
includes the Employer (as defined in Section 414(m) of
the Code), and any other entity required to be aggre-
gated with the Employer under Section 414(o) of the
Code.
ALTERNATE PAYEE
A spouse, former spouse, child or other dependent of a
Participant who is recognized by a Domestic Relations
Order as having a right to receive all or a portion of
the benefits otherwise payable to a Participant.
ANNIVERSARY DATE
The 31st day of December of each year.
ANNUAL ADDITIONS
The aggregate of amounts credited to a Participant's
Accounts each year from Employer Contributions, Forfei-
tures, and a Participant's voluntary contributions (if
any) under all defined contribution plans of an
Employer or Affiliated Company; provided, however, that
Employer Contributions applied to the payment of
interest on a Securities Acquisition Loan and
Forfeitures of Employer Securities purchased with the
proceeds of a Securities Acquisition Loan shall be
excluded if no more than one third (a) of the Employer
Contribution deductible under Section 404(a)(9) of the
Code for that year is allocated to the Accounts of
Highly Compensated Employees. Amounts allocated after
March 31, 1984 to an individual medical account (as
defined in Section 415(l)(2) of the Code) which is part
of a pension or annuity plan maintained by the Company
shall be treated as an Annual Addition. Any amounts
attributable to postretirement medical benefits
<PAGE>
allocated to the separate account of a Key Employee (as
defined in Section 419A(d)(3) of the Code) under any
Welfare Benefit Plan (as defined in Section 419(e) of
the Code) after December 31, 1985 shall be treated as
an Annual Addition. A restored Forfeiture, a transfer
from another qualified pension plan and a rollover
contribution (if any) shall not be counted as an Annual
Addition.
BENEFICIARY
The person or persons entitled to receive any benefits
under the Plan in the event of a Participant's death.
BOARD OF DIRECTORS
The board of directors of the Company.
BREAK IN SERVICE
A Plan Year during which a Participant has not
completed more than 500 Hours of Service; provided,
however, that for purposes of Section 3 of the Plan,
the Eligibility Computation Period will be used to
measure Breaks in Service.
CODE
The Internal Revenue Code of 1986, as amended from time
to time.
COMMITTEE
The Committee appointed by the Board of Directors to
administer the Plan and to give instructions to the
Trustee.
COMPANY
Heritage Bank of Commerce.
COMPANY STOCK
Shares of any class of stock, preferred or common,
voting or nonvoting, which are issued by the Company or
by any affiliate of the Company, as defined in Section
407(d) of ERISA, including Employer Securities and
Qualified Employer Securities.
COMPANY STOCK ACCOUNT
The Account of a Participant which is credited with the
shares of Company Stock purchased and paid for by the
Trust or contributed to the Trust.
<PAGE>
CONTRIBUTIONS
Employer contributions which are deductible by an
Employer under Section 404(a) of the Code.
COVERED COMPENSATION
The Total Compensation paid to a Participant by the
Employer for each Plan Year, including any salary
deferrals under Sections 401(k) and 125 of the Code,
but excluding bonuses, commission, overtime,
reimbursement or other expense allowances, fringe
benefits (cash and noncash), moving expenses, welfare
benefits, and deferred compensation except deferrals
under Sections 401(k) and 125 of the Code.
Notwithstanding the foregoing, Covered Compensation of
any Participant taken into account in any Plan Year
shall not exceed $150,000, as adjusted by the Commis-
sioner for increases in cost of living in accordance
with section 401(a)(17)(B) of the Code.
DEFERRED RETIREMENT
Termination of service subsequent to attainment of the
Normal Retirement Date.
DIRECT ROLLOVER
A payment by the Plan to the Eligible Retirement Plan
specified by the Distributee.
DISABILITY
If a Participant terminated employment because of a
total and permanent disability, the Participant will be
given a Disability Retirement without regard to age or
length of service, and the termination benefit shall be
one hundred percent (100%) of the amounts in all of the
Participant's Accounts. "Total and permanent dis-
ability" shall mean the Participant's entitlement to
Social Security disability benefits.
DISTRIBUTEE
Any Employee or former Employee. In addition, the
Employee's or former Employee's surviving spouse and
the Employee's or former Employee's spouse or former
spouse who is the Alternate Payee under a qualified
domestic relations order, as defined in section 414(p)
of the Code, are Distributees with regard to the
interest of the spouse or former spouse.
<PAGE>
DOMESTIC RELATIONS ORDER
Any judgment, decree, or order (including approval of a
property settlement agreement) which is made pursuant
to a State domestic relations law and which relates to
the provision of child support, alimony payments or
marital property rights to a spouse, former spouse,
child or other dependent of a Participant.
EFFECTIVE DATE
The Effective Date of this Plan is January 1, 1997.
ELIGIBILITY COMPUTATION PERIOD
To determine Years of Service and Breaks in Service for
purposes of eligibility, the initial 12-month period
shall commence on the date the Employee first performs
an Hour of Service for the Company. The second 12-
month period shall be the Plan Year which commences
prior to the end of the initial 12-month period,
regardless of whether the Employee is entitled to be
credited with 1,000 Hours of Service during the initial
eligibility computation period. An Employee who is
credited with 1,000 Hours of Service in both the
initial eligibility computation period and the first
Plan Year which commences prior to the first
anniversary of the Employee's initial eligibility
computation period will be credited with two Years of
Service for purposes of eligibility to participate.
All subsequent computation periods will continue to be
determined on the Plan Year.
ELIGIBLE RETIREMENT PLAN
An individual retirement account described in Section
408(a) of the Code, an individual retirement annuity
described in Section 408(b) of the Code, an annuity
plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the
Code, that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible
Rollover Distribution to the surviving spouse, an
Eligible Retirement Plan is an individual retirement
account or individual retirement annuity.
ELIGIBLE ROLLOVER DISTRIBUTION
Any distribution of all or any portion of the balance
to the credit of the Distributee, except that an
Eligible Rollover Distribution does not include: any
distribution that is one of a series of substantially
equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the
Distributee or the joint lives (or joint life
expectancies) of the Distributee and the Distributee's
designated Beneficiary, or for a specified period of
ten years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the
Code; and the portion of any distribution that is not
includible in gross income (determined without regard
<PAGE>
to the exclusion for net unrealized appreciation with
respect to Employer Securities).
EMPLOYEE
A person, employed by an Employer, any portion of whose
income is subject to withholding of income tax and/or
for whom Social Security contributions are made by an
Employer, as well as any other person qualifying as a
common law employee of an Employer. Employee shall
include Leased Employees unless: (i) such Employee is
covered by a money purchase pension plan providing:
(1) a nonintegrated Employer contribution rate of at
least ten percent (10%) of compensation, as defined in
Section 415(c)(3) of the Code, but including amounts
contributed pursuant to a salary reduction agreement
which are excludable from the Employee's gross income
under Section 125, Section 402(e)(3), Section 402(h) or
Section 403(b) of the Code; (2) immediate
participation; and (3) full and immediate vesting; and
(ii) Leased Employees do not constitute more than
twenty percent (20%) of the Company's nonhighly
compensated work force.
EMPLOYER
Heritage Bank of Commerce and any other affiliate of
the Company, as defined in Section 407(d) of the ERISA,
or any predecessor or successor corporation, which has
been designated by the Company as an Employer
participating in the Plan, and which has accepted such
designation and has agreed to be bound by the terms of
the Plan and Trust Agreement.
EMPLOYER SECURITIES
Common stock issued by the Company or by any affiliate
of the Company, as defined in Section 407(d) of ERISA,
having a combination of voting power and dividend
rights equal to (i) that class of common stock of the
Company having the greatest voting power and (ii) that
class of common stock of the Company having the
greatest dividend rights. Noncallable preferred stock
shall be treated as Employer Securities if such stock
is convertible at any time into common stock which
meets the above requirements, and if (as of the date of
acquisition by the Plan) the conversion price is
reasonable.
EMPLOYMENT COMMENCEMENT DATE
The date on which the Employee shall first perform an
Hour of Service for the Employer.
<PAGE>
ENTRY DATE
The first day of January of each year.
ERISA
The Employee Retirement Income Security Act of 1974, as
amended from time to time.
FISCAL YEAR
The annual accounting period adopted by the Company for
federal income tax purposes.
FORFEITURES
The portion of a Participant's Accounts which does not
become part of the Participant's Plan Benefit. See
Section 13 of the Plan.
HIGHLY COMPENSATED EMPLOYEE
The term Highly Compensated Employee includes highly
compensated active Employees and highly compensated
former Employees.
The term Highly Compensated active Employee includes
any Employee who performs service for the Employer
during the determination year and who, during the look-
back year, (i) received compensation from the Employer
in excess of $75,000 (as adjusted pursuant to Section
415(d) of the Code); (ii) received compensation from
the Employer in excess of $50,000 (as adjusted pursuant
to Section 415(d) of the Code) and was a member of the
top-paid group for such year; or (iii) was an officer
of the Employer and received compensation during such
year that is greater than fifty percent (50%) of the
dollar limitation in effect under Section 415(b)(1)(A)
of the Code.
The term Highly Compensated Employee also includes (i)
Employees who are both described in the preceding
sentence if the term "determination year" is
substituted for the term "look-back year," and the
Employee is one of the one hundred (100) Employees who
received the most compensation from the Employer during
the determination year; and (ii) Employees who are five
percent (5%) owners at any time during the look-back
year or determination year.
If no officer has satisfied the compensation
requirement of (iii) above during either a
determination year or look-back year, the highest paid
officer for such year shall be treated as a Highly
Compensated Employee.
<PAGE>
For this purpose, the determination year shall be the
Plan Year. The look-back year shall be the twelve-
month period immediately preceding the determination
year.
The term Highly Compensated former Employee includes
any Employee who separated from service (or was deemed
to have separated) prior to the determination year,
performed no service for the Employer during the
determination year, and was a highly compensated active
Employee for either the separation year or any
determination year ending on or after the Employee's
fifty-fifth (55th) birthday.
Notwithstanding the foregoing, effective for years
beginning after December 31, 1996, an Employee is
treated as highly compensated only if the Employee (1)
was a five percent (5%) owner of the Employer at any
time during the Plan Year or the preceding Plan Year or
(2) either: (a) had Total Compensation for the
preceding Plan Year in excess of $80,000 (indexed for
inflation); or (b) at the election of the Employer had
Total Compensation for the preceding Plan Year in
excess of $80,000 (indexed for inflation) and was in
the top twenty percent (20%) of the Employees by Total
Compensation for such Plan Year. In determining
whether an Employee is highly compensated during the
Plan Year beginning on or after January 1, 1997, the
provisions of this new definition are treated as
effective in the Plan Year beginning on or after
January 1, 1996. In determining whether someone was
highly compensated for the Plan Year beginning on or
after January 1, 1997, the family aggregation rules do
not apply in determining the Employee's Total
Compensation for the Plan Year beginning on or after
January 1, 1996.
HOUR OF SERVICE
(a) Each hour for which an Employee is paid, or en-
titled to payment, for the performance of duties for
the Employer or any Affiliated Company during the
applicable computation period.
(b) Each hour for which an Employee is paid, or en-
titled to payment, by the Employer or any Affiliated
Company on account of a period of time during which no
duties are performed (irrespective of whether the em-
ployment relationship has terminated) due to vacation,
holiday, illness, incapacity (including disability),
layoff, jury duty, military duty or leave of absence.
Notwithstanding the preceding sentence, (1) no more
than 501 Hours of Service will be credited under this
paragraph (b) to an Employee on account of any single
continuous period during which the Employee performs no
duties (whether or not such period occurs in a single
computation period); (2) an hour for which an Employee
is directly or indirectly paid, or entitled to payment,
during a period in which no duties are performed, will
not be credited to the Employee if such payment is made
or due under a plan maintained solely for the purpose
of complying with applicable workmen's compensation,
<PAGE>
unemployment compensation or disability insurance laws;
and (3) Hours of Service will not be credited for a
payment which solely reimburses an Employee for medical
or medically related expenses incurred by the Employee.
For purposes of this paragraph (b), a payment shall be
deemed to be made by or due from an Employer or an
Affiliated Company regardless of whether such payment
is made by or due from the Employer or an Affiliated
Company directly or indirectly through, among others, a
trust fund, or insurer, to which the Employer or an
Affiliated Company contributes or pays premiums and
regardless of whether contributions made or due to the
trust fund, insurer or other entity are for the benefit
of particular Employees or are on behalf of a group of
Employees in the aggregate.
(c) Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to
by the Employer or an Affiliated Company.
(d) The determination of Hours of Service for reasons
other than the performance of duties, and the crediting
of Hours of Service to computation periods, shall be in
accordance with U.S. Department of Labor Regulations
Section 2530.200b-2 (b) and (c). There shall be no
duplication of Hours of Service under any of the fore-
going provisions.
(e) In the case of a salaried Employee who is not paid
on an hourly basis, Hours of Service shall be based on
any available records which accurately reflect the
actual number of hours worked by such Employee. If
such records do not exist, such Employee shall be
credited with Hours of Service on the basis of 45 hours
for each week for which the Employee would be credited
with at least one Hour of Service.
(f) For purposes of determining whether a Participant
has incurred a one-year Break in Service, a Participant
will be credited with Hours of Service for certain
periods of absence from work by reason of the Partici-
pant's pregnancy, the birth of a Participant's child,
the adoption of a Participant's child, or caring for a
Participant's child during the period immediately
following the birth or adoption of such child. If the
Participant's normal work hours are known, such
Participant will be credited with the number of hours
that normally would have been credited for such
absence. If the Participant's normal work hours are
not known, such Participant will be credited with eight
Hours of Service for each normal workday during such
absence. Not more than 501 Hours of Service shall be
credited for such purposes in the Plan Year in which
such absence commences if the Participant would
otherwise incur a Break in Service in such Plan Year;
otherwise, such Hours of Service shall be credited in
the following Plan Year if such absence continues in
such Plan Year.
<PAGE>
INDEPENDENT APPRAISER
Any appraiser, appointed by the Trustee, who is
independent of the Company and who meets requirements
of the regulations prescribed under Section 170(a)(1)
of the Code.
LEASED EMPLOYEE
Any person (other than an Employee of the Company) who
pursuant to an agreement between the Company and any
other person ("leasing organization") has performed
services for the Company (or for the Company and
related persons determined in accordance with Section
414(n)(6) of the Code) on a substantially full-time
basis for a period of at least one year, and such
services are of a type historically performed by
employees in the business field of the Company.
Effective for all Plan Years beginning on or after
January 1, 1997, the "historically performed" test is
replaced with a new test under which an individual is
not considered a leased employee unless the
individual's services are performed under primary
direction or control by the service recipient.
Contributions or benefits provided a Leased Employee by
the leasing organization which are attributable to
services performed for the Company shall be treated as
provided by the Company.
LIMITATION YEAR
For purposes of the limitations on Contributions and
benefits imposed by Section 415 of the Code, the
Limitation Year shall be the Plan Year.
NORMAL RETIREMENT
Termination of service upon attainment of the Normal
Retirement Date.
NORMAL RETIREMENT DATE
The date on which a Participant attains age sixty-five
(65).
OTHER INVESTMENTS ACCOUNT
The Account of a Participant which is credited with a
share of the net income (or loss) of the Trust and
Employer Contributions and Forfeitures in other than
Company Stock and which is debited with payments made
to pay for Company Stock.
<PAGE>
PARTICIPANT
Any Employee who is participating in this Plan as
defined in Section 3 of the Plan or former Employee for
whom an Account is maintained. A Participant ceases to
be a Participant when such Participant's Account is
closed after all amounts have been distributed or
Forfeited.
PLAN
The Heritage Bank of Commerce Employee Stock Ownership
Plan, which includes the Plan and Trust Agreement.
PLAN BENEFIT
The vested amount, as defined in Sections 12 and 13 of
the Plan, of a Participant's Accounts.
PLAN YEAR
The twelve (12) month period ending on each Anniversary
Date.
QUALIFIED ELECTION PERIOD
The six (6) Plan Year period beginning with the first
Plan Year in which the Participant first became a
Qualified Participant.
QUALIFIED EMPLOYER SECURITIES
Employer Securities which are issued by a domestic
corporation that has no securities outstanding that are
readily tradable on an established securities market,
have been held for at least three years by the seller
and were not received by the seller in a distribution
from a Plan qualified under Section 401(a) or in a
transfer pursuant to an option or other right to
acquire stock under Section 83, 422, 422A, 423 or 424
of the Code.
QUALIFIED PARTICIPANT
Any Participant who has attained age fifty-five (55)
and has completed ten (10) years of participation under
the Plan.
QUALIFIED REPLACEMENT PROPERTY
Any stock, bond, debenture, note, or other evidence of
indebtedness issued by a domestic corporation (other
than the Employer corporation or any corporation which
is a member of a parent-subsidiary controlled group
which includes the Employer corporation) which does
<PAGE>
not, for the taxable year preceding the taxable year in
which such security is purchased, have passive
investment income exceeding twenty-five percent (25%)
of the gross receipts of such corporation for such
year.
RETIREMENT
Termination of service due to Normal Retirement,
Deferred Retirement, or Disability.
SEGREGATED INVESTMENTS ACCOUNT
The Account of a Participant which is credited with
amounts which may not be used to purchase shares of
Company Stock pursuant to the provisions of Rev. Proc.
87-22.
STOCK BONUS PLAN
The portion of the Plan which is designed to qualify as
such and is subject to the rules pertaining to a stock
bonus plan under Section 401(a) of the Code.
SUSPENSE ACCOUNT
The Suspense Account maintained by the Committee to
which shall be credited all shares of Employer Securi-
ties purchased with the proceeds of a Securities
Acquisition Loan.
TOTAL COMPENSATION
For purposes of Section 415 of the Code and the Top
Heavy provisions in Section 21 of this Plan,
(a) The term "Total Compensation" includes:
(1) The Employee's wages, salaries, fees for
professional services, and other amounts received
(without regard to whether or not an amount is paid in
cash) for personal services actually rendered in the
course of employment with the Employer maintaining the
Plan to the extent that the amounts are includible in
gross income (including, but not limited to,
commissions paid salesmen, compensation for services on
the basis of a percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe benefits, and
reimbursements or other expense allowances under a
nonaccountable plan (as described in Section 1.62-2(c)
of the regulations under Section 62 of the Code).
<PAGE>
(2) In the case of an Employee who is an employee
within the meaning of Section 401(c)(1) of the Code and
the regulations thereunder, the Employee's earned
income (as described in Section 401(c)(2) of the Code
and the regulations thereunder).
(3) Amounts described in Sections 104(a)(3), 105(a)
and 105(h) of the Code, but only to the extent that
these amounts are includable in the gross income of the
Employee.
(4) Amounts paid or reimbursed by the Employer for
moving expenses incurred by an Employee, but only to
the extent that at the time of the payment it is
reasonable to believe that these amounts are not
deductible by the Employee under Section 217 of the
Code.
(5) The value of a nonqualified stock option granted
to an Employee by the Employer, but only to the extent
that the value of the option is includable in the gross
income of the Employee for the taxable year in which
granted.
(6) The amount includable in the gross income of an
Employee upon making the election described in Section
83(b) of the Code.
(7) For purposes of subdivisions (1) and (2) of this
subparagraph, foreign earned income (as defined in
Section 911(b) of the Code), whether or not excludable
from gross income under Section 911 of the Code.
Compensation described in subdivision (1) of this
subparagraph is to be determined without regard to the
exclusions from gross income in Sections 931 and 933 of
the Code. Similar principles are to be applied with
respect to income subject to Sections 931 and 933 of
the Code in determining compensation described in sub-
division (2) of this subparagraph.
(b) The term "Total Compensation" does not include
items such as:
(1) Contributions made by the Employer to a plan of
deferred compensation to the extent that, before the
application of Code Section 415 limitations to that
plan, the contributions are not includable in the gross
income of the Employee for the taxable year in which
contributed. In addition, Employer contributions made
on behalf of an Employee to a simplified employee
pension plan described in Code Section 408(k) are not
considered as compensation for the taxable year in
which contributed. Additionally, any distributions
from a plan of deferred compensation are not considered
as compensation for Section 415 purposes, regardless of
whether such amounts are includable in the gross income
of the Employee when distributed. However, any amounts
received by an Employee pursuant to an unfunded
nonqualified plan may be considered as compensation for
Code Section 415 purposes in the year such amounts are
includable in the gross income of the Employee.
<PAGE>
(2) Amounts realized from the exercise of a nonqual-
ified stock option, or when restricted stock (or
property) held by an Employee either becomes freely
transferable or is no longer subject to a substantial
risk of forfeiture (under Section 83 of the Code).
(3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option.
(4) Other amounts which receive special tax benefits,
such as premiums for group term life insurance (but
only to the extent that the premiums are not includable
in the gross income of the Employee), or contributions
made by an Employer (whether or not under a salary
deferral agreement) towards the purchase of an annuity
contract described in Section 403(b) of the Code
(whether or not the contributions are excludable from
the gross income of the Employee).
TRUST
The Trust created by the Trust Agreement entered into
between the Company and the Trustee.
TRUST AGREEMENT
The Agreement between the Company and the Trustee or
any successor Trustee establishing the Trust and
specifying the duties of the Trustee.
TRUSTEE
The Trustee (or Trustees) designated by the Company's
Board of Directors (and any successor Trustee). The
Board of Directors may provide that any person or group
of persons may serve in more than one fiduciary
capacity with respect to the Plan (including service as
both Trustee and Committee member).
VALUATION DATE
The Anniversary Date coinciding with or immediately
preceding the date of actual distribution of Plan
Benefits. For purposes of the top heavy provisions of
this Plan, the Valuation Date is the most recent Anni-
versary Date within a twelve (12)-month period ending
on a Determination Date (as defined in Section 21).
YEAR OF SERVICE
For purposes of vesting under Section 13, all Plan
Years beginning on or after the Effective Date during
which an Employee has completed 1,000 or more Hours of
Service, including any Plan Year during which such
Participant has completed 1,000 or more Hours of
<PAGE>
Service but has not yet become eligible to participate
in the Plan.
In addition, for purposes of vesting, Years of Service
also include all years of employment with the Employer
prior to the Effective Date of the Plan in which the
Employee completed 1,000 or more Hours of Service
within the fiscal year of the Employer.
Section 3. ELIGIBILITY.
Each Employee shall become eligible to participate in the
Plan retroactively as of the first day of the Plan Year in which
the Employee first completes 90 days of employment with the
Employer measured from the Employee's Employment Commencement
Date.
An Employee whose terms of employment with the Employer are
covered by a collective bargaining agreement shall not be
eligible to participate in the Plan unless the terms of such col-
lective bargaining agreement specifically provide for participa-
tion in this Plan. Notwithstanding the foregoing, in the event
any such Employees cease to be subject to the collective bargain-
ing agreement, Years of Service for purposes of eligibility and
vesting shall include all Years of Service with the Employer.
An Employee who is a Leased Employee shall not be eligible
to participate in this Plan. Notwithstanding the foregoing, in
the event an Employee ceases to be a Leased Employee, Years of
Service for purposes of eligibility and vesting shall include all
Years of Service with the Employer.
<PAGE>
Section 4. PARTICIPATION IN ALLOCATION OF BENEFITS.
(a) Participation.
A Participant will share in the allocation of Employer
Contributions and Forfeitures only if the Participant has
accumulated 1,000 or more Hours of Service during the Plan Year.
In addition, Participants who separate from service for reasons
other than death, Disability or Retirement, will not share in the
allocation of Employer Contributions and Forfeitures unless such
Participant was employed on the last day of the Plan Year in
which the Participant separates from service.
A Participant reemployed following a Break in Service
shall again resume participation in the Plan as of the date of
reemployment for purposes of vesting under Section 13 and for
purposes of participating in Employer Contributions and
Forfeitures under Section 11 (subject to the requirements of this
Section 4 and Section 13 of the Plan). However, if the
Participant is reemployed after a Break in Service and has no
vested rights under the Plan and the number of consecutive one-
year Breaks in Service equals or exceeds five years or the number
of aggregate years of prebreak service, whichever is greater, the
Participant shall be treated as a new Employee for purposes of
participation.
(b) Leave of Absence.
A Participant's employment is not considered terminated
for purposes of the Plan if the Participant has been on leave of
absence with the consent of the Company, provided that the
Participant returns to the employ of the Company within thirty
(30) days after the leave (or within such longer period as may be
prescribed by law). Leave of absence shall mean a leave granted
by the Company, in accordance with rules uniformly applied to all
Participants, for reasons of health or public service or for
reasons determined by the Company to be in its best interests.
Solely for purposes of preventing a Break in Service, a
Participant on such leave of absence shall be credited with eight
(8) Hours of Service for each business day of the leave. A
Participant who does not return to the employ of the Company
within the prescribed time following the end of the leave of
absence shall be deemed to have terminated employment as of the
date when the leave began, unless such failure to return was the
result of death, Disability or Retirement.
<PAGE>
(c) Suspended Participation.
A Participant who ceases to be an eligible Employee by
becoming subject to a collective bargaining agreement shall
become a suspended Participant. During the period of suspension,
no amounts shall be credited to the Participant's Accounts which
are based on the Participant's Covered Compensation from and
after the date of suspension. However, amounts previously
credited to a Participant's Accounts shall continue to vest and
the Participant shall be entitled to benefits in accordance with
the provisions of Section 14(g) of this Plan throughout the
period during which the Participant is on suspended status.
(d) Inactive Participation.
A Participant who has more than 500 Hours of Service
but less than 1,000 Hours of Service in any Plan Year shall be an
inactive Participant for that Plan Year. No amounts shall be
credited to such Participant's Accounts which are based on the
Participant's Covered Compensation for that Plan Year.
<PAGE>
Section 5. EMPLOYER CONTRIBUTIONS.
(a) Amount of Contribution.
Employer Contributions shall be made to the Trust in
such amounts as may be determined by the Company's Board of
Directors, provided that such Contributions shall not exceed the
maximum amounts deductible under Sections 404(a)(3) and 404(a)(9)
of the Code. To the extent the Trust has not received cash in an
amount sufficient to meet the Trust's current obligations under a
Securities Acquisition Loan, Employer Contributions shall be made
in sufficient amounts to cover principal and interest on a
Securities Acquisition Loan. Notwithstanding the foregoing,
Employer Contributions may not be made in amounts which would
permit the limitation described in Section 11(b) to be exceeded.
(b) Time for Making Contribution.
Employer Contributions for each year must be
established by resolution of the Company's Board of Directors and
paid to the Trust not later than the due date for filing the
Company's federal income tax return for that year, including
extensions of such date.
(c) Form of Contribution.
Employer Contributions may be paid in cash, shares of
Company Stock or other property as the Company's Board of
Directors may from time to time determine. Shares of Company
Stock and other property will be valued at their then fair market
value.
<PAGE>
Section 6. INVESTMENT OF TRUST ASSETS.
(a) Authorized Investments.
Employer Contributions in cash received by the Trust
will be applied to pay any outstanding obligations of the Trust
incurred for the purchase of Employer Securities, or may be
applied to purchase additional shares of Company Stock from
current shareholders, treasury shares, or newly issued shares
from the Company. The Committee may also direct the Trustee to
invest funds under the Plan in savings accounts, certificates of
deposit, securities, or other equity stocks or bonds or in any
other kind of real or personal property, including interests in
oil or other depletable natural resources, options, puts, calls,
futures contracts and commodities; or such funds may be held in
non-interest-bearing bank accounts as necessary on a temporary
basis.
(b) Duties of Committee.
Except as otherwise provided in Section 18(b), all
investments will be made by the Trustee only upon the direction
of the Committee. Except in the case of a purchase from a Dis-
qualified Person (as defined in Section 16(a) of the Plan), all
purchases of Company Stock shall be made at no more than fair
market value, as determined by an Independent Appraiser as of the
most recent Anniversary Date. In the case of a purchase from a
Disqualified Person, all purchases of Company Stock shall be made
at prices which, in the judgment of the Independent Appraiser, do
not exceed the fair market value of such shares as of the date of
the transaction.
(c) Plan Loans.
(1) The Committee may direct the Trustee to incur Plan
loans from time to time to carry out the purposes of the Trust,
provided that if the loan is a Securities Acquisition Loan, the
terms of the loan must comply with the following requirements:
Any such loan shall be for a specified term, shall bear a
reasonable rate of interest, may not exceed fifteen (15) years in
duration, and may only be secured by a collateral pledge of the
Employer Securities so acquired. Any such loan shall be
primarily for the benefit of Plan Participants and their Bene-
ficiaries. No other Trust assets may be pledged as collateral by
the Trustee, and no lender shall have recourse against Trust
assets other than any shares of Employer Securities remaining
subject to pledge. Any pledge of Employer Securities must pro-
vide for the release of shares so pledged pursuant to either the
"General Rule" or the "Special Rule" set forth in Section 7.
Shares of Employer Securities released from the Suspense Account
shall be allocated to Participants' accounts in shares of stock
<PAGE>
or other nonmonetary units. Repayments of principal and interest
on any Securities Acquisition Loan shall be made by the Trustee
(as directed by the Committee) only from Employer Contributions
in cash to the Trust, from any cash dividends received by the
Trust on such Employer Securities or from any earnings
attributable to the investment of Employer Contributions made to
the Trust in cash to meet its obligations under the loan. Such
Contributions, dividends and earnings shall be accounted for
separately in the books of accounts of the Plan until the
Securities Acquisition Loan is repaid. The proceeds of a Securi-
ties Acquisition Loan may be used only to acquire Employer
Securities, to repay such loan or to repay a prior Securities
Acquisition Loan. The Plan may not obligate itself to acquire
securities from a particular security holder at an indefinite
time determined upon the happening of an event such as the death
of the holder. The protections and rights described in Section
16 are nonterminable. Should this Plan cease to be an Employee
Stock Ownership Plan, or should the Securities Acquisition Loan
be repaid, all Employer Securities will continue to be subject to
the provisions of Section 16. If securities acquired with the
proceeds of a Securities Acquisition Loan available for
distribution consist of more than one class, a Distributee must
receive substantially the same portion of each such class.
(2) In the event of default upon a Securities
Acquisition Loan, the value of Plan assets transferred in satis-
faction of the loan must not exceed the amount of default. If
the lender is a Disqualified Person, a loan must provide for a
transfer of Plan assets upon default only upon and to the extent
of the failure of the Plan to meet the payment schedule of the
loan. For purposes of this paragraph, the making of a guarantee
does not make a person a lender.
(d) Nonrecognition of Gain.
(1) There shall be no recognition of gain upon a sale
of Employer Securities to the Plan if (i) the seller has held
such Securities for at least three (3) years, (ii) after the
purchase the Plan owns at least thirty percent (30%) of each
class of outstanding stock of the Company (other than preferred
stock described in Section 1504(a)(4) of the Code), or thirty
percent (30%) of the total value of all outstanding stock of the
Company (other than preferred stock described in Section
1504(a)(4) of the Code), (iii) the seller purchases Qualified
Replacement Property within three (3) months prior to the sale or
within twelve (12) months after the sale, (iv) on or before the
time (including extension) for filing an income tax return, the
seller files with the IRS a written statement verified by the
<PAGE>
Company, regarding the terms of the sale, and (v) the Plan
complies with the allocation requirements set forth in Section
11(b)(5).
(2) If, during the three-year period after the Plan
acquires Qualified Employer Securities in a transaction in which
gain is not recognized, the Plan disposes of part or all of such
Qualified Employer Securities, the Company shall be liable for a
tax equal to ten percent (10%) of the amount realized upon the
disposition, unless such disposition is necessary to meet the
diversification requirements of Section 17(a) of the Plan, or
unless such disposition is made to a Participant (or the Partici-
pant's Beneficiary) by reason of death, Disability, Retirement
after age fifty-nine and one-half (592), or a separation from
service which results in a one-year Break in Service.
<PAGE>
Section 7. ALLOCATIONS TO ACCOUNTS.
(a) Individual Accounts.
The Committee shall establish and maintain individual
Accounts for each Participant in the Plan. Individual Accounts
shall also be maintained for all former Participants who still
have an interest in the Plan. Except as provided in Section
17(a), such individual Accounts shall not require a segregation
of the Trust assets and no Participant, former Participant or
Beneficiary shall acquire any right to or interest in any
specific asset of the Trust as a result of the allocation pro-
vided for in the Plan.
(b) Company Stock Account.
(1) The Company Stock Account of each Participant will
be credited as of each Anniversary Date with the Participant's
allocated share of Company Stock (including fractional shares)
purchased and paid for by the Trust or contributed in kind by the
Company, with Forfeitures of Company Stock and with stock
dividends on Company Stock held in the Participant's Company
Stock Account.
Employer Securities acquired by the Trust with the
proceeds of a Securities Acquisition Loan shall be credited to a
Suspense Account. For each Plan Year during the duration of the
loan, the number of shares of Employer Securities to be released
from said Suspense Account and allocated to the Company Stock
Accounts of Participants shall be determined pursuant to either
the "General Rule" or the "Special Rule" described below as
selected by the Committee for each Securities Acquisition Loan.
Once the Committee has selected either the General Rule or the
Special Rule, that Rule shall be used exclusively for the
allocation of shares of Employer Securities purchased with the
proceeds of a particular Securities Acquisition Loan.
(A) General Rule: For each Plan Year during the
duration of the loan, the Committee shall withdraw from the
Suspense Account a number of shares of Employer Securities equal
to the total number of such shares held in the Suspense Account
immediately prior to the withdrawal multiplied by a fraction:
(i) The numerator of which is the amount of
principal and interest paid for the Plan Year; and
<PAGE>
(ii) The denominator of which is the sum of
the numerator plus the principal and interest to be paid for all
future years.
(B) Special Rule:
(i) For each Plan Year, the Committee shall
withdraw from the Suspense Account a number of shares of Employer
Securities equal to the total number of such shares held in the
Suspense Account immediately prior to the withdrawal multiplied
by a fraction:
(aa) The numerator of which is the
amount of principal paid for the Plan Year; and
(bb) The denominator of which is the sum
of the numerator plus the principal to be paid for all future
Plan Years.
(ii) The Committee may select the Special Rule only if:
(aa) The Securities Acquisition Loan
provides for annual payments of principal and interest at a
cumulative rate which is not less rapid at any time than level
annual payments of such amounts for ten (10) years;
(bb) The interest included in any
payment is disregarded only to the extent that it would be deter-
mined to be interest under standard loan amortization tables; and
(cc) By reason of a renewal, extension
or refinancing, the sum of the expired duration of the original
loan, any renewal period, any extension period and the duration
of any new loan does not exceed 10 years.
(C) In determining the number of shares to be
released for any Plan Year under either the General Rule or the
Special Rule:
(i) The number of future years under the
Loan must be definitely ascertainable and must be determined
without taking into account any possible extensions or renewal
periods;
(ii) If the Loan provides for a variable
interest rate, the interest to be paid for all future Plan Years
must be computed by using the interest rate applicable as of the
end of the Plan Year for which the determination is being made;
and
<PAGE>
(iii) If the Employer Securities
allocated to the Suspense Account includes more than one class of
shares, the number of shares of each class to be withdrawn for a
Plan Year from the Suspense Account must be determined by apply-
ing the applicable fraction provided for above to each such
class.
(2) Allocations of Company Stock shall be reflected
separately for each class of such stock, and the Committee shall
maintain adequate records of the aggregate cost basis of Company
Stock allocated to each Participant's Company Stock Account.
(c) Other Investments Account.
The Other Investments Account of each Participant will
be credited (or debited) as of each Anniversary Date with the
Participant's share of the net income (or loss) of the Trust,
with cash dividends on Company Stock not distributed to Partici-
pants or used to pay a Securities Acquisition Loan and with
Employer Contributions and Forfeitures in other than Company
Stock. The Other Investments Account of each Participant will be
credited (or debited) as of each Anniversary Date with the
Participant's share of the unrealized appreciation (or deprecia-
tion) in the value of Trust assets other than Company Stock. It
will be debited for any payments for purchases of Company Stock
or for repayment of debt (including principal and interest)
incurred for the purchase of Employer Securities.
<PAGE>
Section 8. EXPENSES OF THE PLAN AND TRUST.
Normal brokerage charges which are included in the cost of
securities purchased (or charged to proceeds in the case of
sales) shall be paid by the Trust. The Company shall pay all
expenses in connection with the design, establishment, or termi-
nation of the Plan. The Trust shall pay all costs of adminis-
tering the Plan and Trust, unless such expenses are paid by the
Company.
<PAGE>
Section 9. VOTING COMPANY STOCK.
All Company Stock held by the Trust shall be voted by the
Trustee in accordance with instructions from the Committee.
Notwithstanding the foregoing, Participants and/or Beneficiaries
shall be entitled to direct the voting of any voting shares of
Company Stock allocated to their Company Stock Accounts with
respect to any vote required for the approval or disapproval of
any corporate merger or consolidation, recapitalization,
reclassification, liquidation, dissolution, sale of substantially
all the assets of a trade or business, or other similar
transactions prescribed by regulation. In accordance with
instructions from the Committee, the Trustee shall vote any
unallocated shares held by the Trust as well as any allocated
shares for which a Participant has failed to give timely voting
direction.
<PAGE>
Section 10. DISCLOSURE TO PARTICIPANTS.
(a) Summary Plan Description.
Within one hundred twenty (120) days after the receipt
of an initial favorable determination letter from the Internal
Revenue Service relating to the qualification of the Plan, and
thereafter within ninety (90) days after a Participant commences
participation (or after a Beneficiary first receives benefits
under the Plan), the Committee shall furnish such Participant (or
Beneficiary) with the summary plan description required by
Sections 102(a)(1) and 104(b)(1) of ERISA. Such summary plan
description shall be updated from time to time as required under
ERISA and the Department of Labor regulations thereunder.
(b) Summary Annual Report.
Within nine (9) months after each Anniversary Date, the
Committee shall furnish each Participant (and each Beneficiary
receiving benefits under the Plan) with the summary annual report
of the Plan required by Section 104(b)(3) of ERISA, in the form
required by regulations of the Department of Labor.
(c) Annual Statement.
As soon as possible after each Anniversary Date,
Participants will receive a written statement of their Accounts
showing as of that Anniversary Date:
(1) The balance in each of their Accounts as of the
preceding Anniversary Date.
(2) The amount of Employer Contributions and For-
feitures allocated to their Accounts for the year.
(3) The adjustments to their Accounts to reflect their
share of dividends and the income and expenses of the Trust for
the year.
(4) The new balances in each of their Accounts,
including the number of shares of Company Stock.
(5) The vested percentage of their Plan Benefit.
Upon the discovery of any error or miscalculation in an
Account, the Committee shall correct the same insofar as, in the
Committee's discretion, correction is feasible. Statements to
Participants are for reporting purposes only, and no allocation,
valuation or statement shall, by itself, vest any right or title
in any part of the Trust fund.
<PAGE>
(d) Notice of Rollover Treatment.
The Committee shall, when making any distribution which
qualifies as a qualifying rollover distribution under Section
402(c) or Section 401(a)(31) of the Code, provide a written
notice to the recipient which explains the provisions of Sections
402(c) and 401(a)(31) under which such distribution will not be
subject to current tax if transferred to an Eligible Retirement
Plan. In the case of a distribution under Section 402(c), such
notice shall be given not less than thirty (30) days nor more
than ninety (90) days before the distribution date. If the
distribution is one to which Sections 401(a)(11) and 417 of the
Internal Revenue Code do not apply, such distribution may
commence less than thirty (30) days after the notice required
under Section 1.411(a)11(c) of the Income Tax Regulations is
given, provided that:
(1) the Committee clearly informs the Participant that
the Participant has a right to a period of at least thirty (30)
days after receiving the notice to consider the decision of
whether or not to elect a distribution (and, if applicable, a
particular distribution option), and
(2) the Participant, after receiving the notice,
affirmatively elects a distribution.
(e) Additional Disclosure.
The Committee shall make available for examination by
any Participant (or Beneficiary) copies of the summary plan
description, the Plan, the Trust Agreement and the latest annual
report of the Plan filed with the Department of Labor. Upon
written request of any Participant (or Beneficiary), the Commit-
tee shall furnish copies of such documents and may make a reason-
able charge to cover the cost of furnishing such copies, as
provided in regulations of the Department of Labor.
<PAGE>
Section 11. ALLOCATION OF EMPLOYER CONTRIBUTIONS AND FORFEITURES.
(a) Allocation of Employer Contributions and Forfeitures.
The allocation will be made as follows:
(1) Employer Contributions.
Employer Contributions will be allocated as of
each Anniversary Date among the Accounts of Participants who meet
the requirements of Section 4 of the Plan, in the proportion that
each such Participant's Covered Compensation bears to the total
Covered Compensation of all such Participants for that year.
Shares of Employer Securities released from the Suspense Account
(as provided in Section 7(b)) by reason of the payment of
interest and principal on a Securities Acquisition Loan shall be
allocated as of each Anniversary Date among the Accounts of
Participants in the Plan who meet the requirements of Section 4
of the Plan, in the proportion that each such Participant's
Covered Compensation bears to the total Covered Compensation of
all such Participants for that year.
(2) Forfeitures.
Forfeitures shall be allocated in the same manner
as Employer Contributions are allocated.
(3) Net Income (or Loss) of the Trust.
The net income (or loss) of the Trust will be
determined annually as of each Anniversary Date. Any stock divi-
dends on shares of Company Stock held by the Trust shall be allo-
cated to each Participant's Company Stock Account in the ratio in
which the cumulative number of shares allocated to the Partici-
pant's Company Stock Account as of the preceding Anniversary Date
bears to the total cumulative number of shares of Company Stock
allocated to the Company Stock Accounts of all Participants as of
that date. Trust income attributable to any cash dividends paid
on shares of Company Stock (whether or not allocated) and not
used to make payments on a Securities Acquisition Loan shall be
allocated to each Participant's Other Investments Account in the
ratio in which the cumulative number of shares allocated to the
Participant's Company Stock Account as of the preceding
Anniversary Date bears to the total cumulative number of shares
of Company Stock allocated to the Company Stock Accounts of all
Participants as of that date. Trust income attributable to any
<PAGE>
gain from the sale of unallocated shares of Employer Securities
shall be allocated to each Participant's Other Investments
Account in the proportion that each such Participant's Covered
Compensation for the Plan Year bears to the total Covered
Compensation of all such Participants for that Plan Year. All
other net income (or loss) will be allocated to each
Participant's Other Investments Account in the ratio in which the
balance of the Participant's Other Investments Account on the
preceding Anniversary Date bears to the sum of the balances of
the Other Investments Accounts of all Participants on that date.
For this purpose, Account balances shall be reduced by amounts
distributed to Participants during the Plan Year.
The net income (or loss) includes the increases
(or decreases) in the fair market value of assets of the Trust,
interest, dividends, other income and expenses attributable to
assets in the Other Investments Accounts since the preceding
Anniversary Date. Net income (or loss) does not include the
interest paid under any installment contract for the purchase of
Company Stock by the Trust or on any loan obtained by the Trust
to purchase Company Stock. Notwithstanding the foregoing, no
income (or loss) shall be allocated to a terminated Participant's
Account for the Plan Year in which the Participant receives final
distribution of the Plan Benefit.
(b) Allocation Limitations.
(1) The total Annual Additions to a Participant's
Accounts for any Limitation Year shall not exceed the lesser of
(i) thirty thousand dollars ($30,000), or (ii) twenty-five
percent (25%) of the Participant's Total Compensation for the
Limitation Year.
A Participant's allocable share of Employer
Contributions applied to the payment of interest on a Securities
Acquisition Loan and Forfeitures of Employer Securities purchased
with the proceeds of a Securities Acquisition Loan shall not be
included as an Annual Addition, provided that no more than one
third (a) of the Employer Contribution for that year is allocated
to the Accounts of Highly Compensated Employees.
(2) If an Employer is contributing to another defined
contribution plan, as defined in Section 414(i) of the Code, for
Employees of the Company, some or all of whom may be Participants
in this Plan, then any such Participant's Annual Additions in
such other plan shall be aggregated with the Participant's Annual
Additions derived from this Plan for purposes of the limitation
in Paragraph (1) of this Subsection.
<PAGE>
(3) If a Participant in this Plan is also a Par-
ticipant in a defined benefit plan to which Contributions are
made by an Employer or Affiliated Company, then in addition to
the limitation contained in Paragraph (1) of this Subsection,
such Participant's allocations shall be limited, such that the
sum of the defined benefit plan fraction and the defined
contribution plan fraction for any Limitation Year shall not
exceed 1.0. For purposes of this Paragraph (3), the defined
benefit plan fraction is a fraction, the numerator of which is
the projected annual benefit of the Participant under all such
defined Plans determined as of the close of the Limitation Year,
and the denominator of which is the lesser of (i) the product of
1.25 multiplied by the dollar limitation in effect for such Plan
Year, or (ii) the product of 1.4 multiplied by one hundred
percent (100%) of the Participant's average Total Compensation
for the Participant's highest three Limitation Years. For pur-
poses of this Paragraph (3), the defined contribution plan frac-
tion for any Limitation Year is a fraction, the numerator of
which is the sum of the Annual Additions to the Participant's
Accounts as of the close of the Limitation Year, and the denomi-
nator of which is the sum of the lesser of the following amounts
determined for such year and for each prior Year of Service with
the Employer: (i) the product of 1.25 multiplied by the dollar
limitation in effect for such Limitation Year or (ii) the product
of 1.4 multiplied by twenty-five percent (25%) of the Partici-
pant's Total Compensation.
(4) If Company Stock is purchased from a shareholder
of the Company and if such shareholder is also a Participant in
this Plan, then notwithstanding anything to the contrary
contained in this Plan, the total Account balances of such Par-
ticipant's Accounts other than the Participant's Segregated
Investments Account, combined with the total Account balances of
the Accounts of such Participant's spouse, parents, grandparents,
children, and grandchildren under the Plan, shall not exceed
twenty percent (20%) of the total of all Account balances under
the Plan. However, if the total Account balances of such
Participant's Accounts exceed twenty percent (20%) of the total
of all Account balances, then the amounts in excess of said twen-
ty percent (20%) shall be credited to that Participant's Segre-
gated Investments Account and invested in investments other than
Company Stock.
(5) In the case of a sale in which a seller elects
nonrecognition of gain under Section 1042 of the Code, no portion
of such Qualified Employer Securities may be allocated to the
Account of (i) the seller (or the seller's family) during the
nonallocation period or (ii) any other person who owns (after
<PAGE>
application of the family attribution rules) more than twenty--
five percent (25%) of any class of outstanding Company Stock, or
more than twenty-five percent (25%) of the total value of any
class of outstanding Company Stock, at any time during the one
year period preceding the purchase of such Qualified Employer
Securities by the Plan, or on any subsequent date when such
Qualified Employer Securities are allocated to Participants in
the Plan. For purposes of this Paragraph, the seller's family
shall include the seller's spouse, ancestors, lineal descendants,
and brothers and sisters. Notwithstanding the foregoing, lineal
descendants of a seller shall be permitted to share in the allo-
cation of Qualified Employer Securities, provided that the aggre-
gate amount of such stock allocated for the benefit of all such
lineal descendants does not exceed more than five percent (5%) of
such stock purchased from the seller. For purposes of this Para-
graph (5), a person shall be considered to be a more than twenty-
five percent (25%) shareholder if the amount of Company Stock
which such person owns (whether outright or as a Plan
Participant), together with the amount of Company Stock owned by
such person's spouse, children, grandchildren and parents
(whether outright or as Plan Participants), exceeds twenty-five
percent (25%) of any class of outstanding Company Stock or
twenty-five percent (25%) of the total value of any class of
outstanding Company Stock. For purposes of this Paragraph (5),
the "nonallocation period" means the period beginning on the date
of the sale and ending on the later of (i) the date which is ten
(10) years after the date of sale, or (ii) the date of the Plan
allocation attributable to the final payment of the Securities
Acquisition Loan.
(6) If, due to forfeitures, reasonable error in
estimating compensation, or other limited facts and circumstances
as determined by the Commissioner, the Account balances or the
Annual Additions to a Participant's Accounts would exceed the
limitation described in Paragraphs (1), (2) or (3) of this Sub-
section, the aggregate of the Annual Additions to this Plan and
the Annual Additions to any other plan described in Paragraphs
(2) or (3) shall be reduced until the applicable limitation is
satisfied.
(7) The reduction shall be treated the same as
Forfeitures and shall be allocated in accordance with Section
11(a)(2) of the Plan to the Accounts of Participants who are not
affected by this limitation.
<PAGE>
(8) If any amount cannot be reallocated under the
foregoing provision, such amount shall be deposited in a suspense
account and allocated to the maximum extent possible under Sec-
tion 11(a)(2) of the Plan in succeeding years, provided that
(i) no Employer Contributions are made until Section 415 of the
Code will permit their allocation, (ii) no investment gains or
losses are allocated to such suspense account, and (iii) the
amounts in such suspense account are allocated at the earliest
possible date.
<PAGE>
Section 12. PLAN BENEFIT AT DEATH, DISABILITY OR RETIREMENT.
Participation in the allocation of Employer Contributions
and Forfeitures terminates as of the end of the Plan Year
coinciding with or following a Participant's death, Disability or
Retirement, provided the Participant completes 1,000 or more
Hours of Service during such Plan Year. A Participant's Plan
Benefit upon death, Disability or Retirement will be the total of
the Participant's Account balances as of the coinciding or
following Anniversary Date, provided the Participant completes
1,000 or more Hours of Service during such Plan Year.
A Participant who, while employed with the Company, dies or
attains any of the following Retirement dates will be one hundred
percent (100%) vested.
(a) Normal Retirement.
A Participant's Normal Retirement Date is the date the
Participant attains age sixty-five (65).
(b) Disability Retirement.
If a Participant terminated employment because of a
total and permanent disability, such Participant will be given a
Disability Retirement without regard to age or length of service,
and the termination benefit shall be one hundred percent (100%)
of the amounts in all of such Participant's Accounts. "Total and
permanent disability" shall mean the Participant's entitlement to
Social Security disability benefits.
(c) Deferred Retirement.
If a Participant continues in the service of the
Employer beyond the Normal Retirement Date, such Participant
shall continue to participate in the Plan during any period of
employment following the Normal Retirement Date.
Any amount credited to a Participant's Accounts with
respect to the Employer's Contribution for the Plan Year in which
such Participant dies, becomes Disabled or attains any of the
above Retirement dates shall also be completely vested at the
time of such contribution.
<PAGE>
Section 13. OTHER TERMINATION OF SERVICE AND VESTING.
(a) Vesting Schedule.
If a Participant has a Break in Service or the
Participant's employment is terminated for any reason other than
as described in Section 12, the vesting of such Participant's
Plan Benefit will be based upon Years of Service, as defined in
Section 2, in accordance with the following vesting schedule:
Years of Service Percentage of Accounts Vested
Less than One Year 0
One Year 25
Two Years 50
Three Years 75
Four Years or more 100
(b) Vesting Upon Reemployment.
If a Participant is reemployed by the Company following
a Break in Service, such Participant's Accounts shall be vested
as follows:
(1) Vesting of Prior Account Balances.
If a Participant has had five consecutive one-year
Breaks in Service, Years of Service after such five-year period
will not be taken into account for purposes of determining a
Participant's vested interest in the Participant's prebreak
Account balances and new Accounts will be established to record
the Participant's interest in the Plan for service after such
five-year period.
(2) Vesting of Subsequent Account Balances.
(A) In the case of a Participant who, at the time
of a Break in Service, does not have any vested right under
Paragraph (a) above, Years of Service before such Break in Ser-
vice shall not be taken into account unless such Participant
returns to work for the Employer and completes one (1) Year of
Service. Notwithstanding the foregoing, Years of Service before
such Break in Service shall not be taken into account for
purposes of determining a Participant's vested interest in the
Participant's postbreak Account balances if the number of
consecutive one-year Breaks in Service equals or exceeds five
years or the aggregate number of years of prebreak service,
whichever is greater.
<PAGE>
(B) If a Participant had any degree of vested
interest at the time of the Participant's Break in Service, such
Participant shall participate retroactively to the Participant's
reemployment date for purposes of determining a Participant's
vested interest in the Participant's postbreak Account balances.
Upon resuming participation, such Participant's Years of Service
shall include all Years of Service prior to the Break in Service.
(c) Forfeitures.
Forfeitures shall be first charged against a
Participant's Other Investments Account, with any balance charged
next against the Participant's Company Stock Account. If a
portion of a Participant's Account is to be forfeited and
interests in more than one class of Employer Securities have been
allocated to a Participant's Account, the Participant shall
forfeit the same percentage of each such class. The disposition
of such Forfeitures shall be as follows:
(1) If a Participant has incurred five consecutive
one-year Breaks in Service and has not received a "cash-out
distribution" (as defined below), the nonvested balance of the
Participant's Accounts shall be allocated as a Forfeiture as soon
as possible after the close of the Plan Year in which the Partic-
ipant incurs a five-year Break in Service.
(2) If a Participant who is not one hundred percent
(100%) vested receives a distribution of a Plan Benefit, which is
not a "cash-out distribution" (as defined below), prior to the
occurrence of a five-year Break in Service, and such Participant
returns to work for the Employer, the portion of the
Participant's Accounts which was not vested shall be maintained
separately (from any additional contributions to this Plan) until
such Participant becomes one hundred percent (100%) vested. Such
Participant's vested and nonforfeitable percentage in such
separate Accounts upon any subsequent termination of Service
shall be equal to:
X - Y
100% - Y
For purposes of applying this formula, X is the
vested percentage at the time of the subsequent termination, and
Y is the vested percentage at the time of the prior termination.
Separate Accounts shall share in the allocation of Trust income
or loss on every Anniversary Date prior to Forfeiture, but such
accounts shall not share in allocation of Trust income or loss on
the Anniversary Date on which they are forfeited.
<PAGE>
(3) If a Participant receives a "cash-out distri-
bution" (as defined below), the nonvested balance of the Partici-
pant's Accounts shall be allocated as a Forfeiture as of the
Anniversary Date coinciding with or following the date such
Participant incurred a one-year Break in Service or received the
cash-out distribution, whichever is later.
(d) Cash-Out Distribution.
If a partially vested Participant receives a cash-out
distribution, the cash-out distribution will result in a
forfeiture of the nonvested portion of the Participant's
Accounts. A "cash-out distribution" is a distribution of the
entire vested portion of a Participant"s Accounts that is made
before the Participant incurs five (5) consecutive one-year
Breaks in Service.
If any former Participant shall be reemployed by the
Employer before five (5) consecutive one-year Breaks in Service,
and such former Participant had received a cash-out distribution
prior to reemployment, the forfeited portion of such
Participant's Accounts shall be reinstated only if the Partici-
pant repays the full amount distributed to such Participant.
Such repayment must be made by the former Participant before the
Participant incurs five (5) consecutive one-year Breaks in
Service following the date of distribution and before the five--
year anniversary of his reemployment date. In the event the
former Participant does repay the full amount distributed to such
Participant, the undistributed portion of the Participant's
Accounts must be restored in full, unadjusted by any gains or
losses occurring subsequent to the Anniversary Date preceding the
Participant's termination. Restoration of a Participant's
Accounts shall include restoration of all Code Section 411(d)(6)
protected benefits with respect to such restored amounts.
If the Participant repays the amount distributed to
such Participant within the required time period, the Committee
shall restore the forfeited portion of the Participant's Accounts
as of the Anniversary Date coinciding with or following the
repayment. Such amount shall be restored, to the extent neces-
sary, in the following manner:
(A) first from current-year Forfeitures;
(B) second from current-year Trust earnings; and
(C) third from current-year Contributions.
To the extent the amounts described in clauses
(A), (B) and (C) are insufficient to enable the Committee to make
the required restoration, the Employer must contribute the
<PAGE>
additional amount necessary to enable the Committee to make the
required restoration.
A terminated Participant who is zero percent (0%)
vested shall be deemed to have received a cash-out distribution
as of the last day of the Plan Year in which the Participant
terminates. For purposes of applying the restoration provisions
of this Paragraph, the Committee will treat a zero percent (0%)
vested Participant as repaying the Participant's cash-out
distribution on the first day of reemployment with the Employer.
<PAGE>
Section 14. DISTRIBUTION OF PLAN BENEFIT.
(a) Death, Disability or Retirement.
In the event of death, Disability or Retirement,
subject to Subsection 14(e), a Participant's Plan Benefit shall -
be distributed as follows not later than one year after the close
of the Plan Year in which such event occurs.
(1) Company Stock Account and Other Investments Account (Exceeding $5,000).
If a Participant's Company Stock Account and Other
Investments Account balance exceed $5,000 as soon as
administratively feasible during the Plan Year following the
separation from service, a distribution in the amount of $5,000
shall be made. Thereafter, the balance of the Participant's
accounts shall be distributed in substantially equal annual
installments over a period of three years; provided, however,
that if the value of such Accounts exceeds five hundred thousand
dollars ($500,000), as indexed, the term of the distribution
shall be five years, plus one year (but not more than five (5)
additional years) for each one hundred thousand dollars
($100,000) (or fraction thereof), as indexed, by which the value
of such Accounts exceeds five hundred thousand dollars
($500,000), as indexed.
(2) Company Stock Account and Other Investments Account Small Amounts
($5,000 or Less).
Notwithstanding the foregoing, if the total vested
value of a Participant's Company Stock Account and Other
Investments Account is $5,000 or less, distribution shall be made
in a lump sum.
(b) Other Termination of Participation.
In the event a Participant terminates employment for
reasons other than death, Disability or Retirement, subject to
Subsection 14(e), the Participant's vested Plan Benefit will be
distributed as follows:
(1) Company Stock Account and Other Investments Account (Exceeding $5,000).
Distribution of the Participant's Company Stock
Account and Other Investments Account shall commence as soon as
possible after the Participant terminates employment. If a
Participant's vested Company Stock Account and Other Investments
Account balance exceeds $5,000, a distribution in the amount of
<PAGE>
$5,000 shall be made. Thereafter, the balance of the
Participant's accounts shall be distributed in substantially
equal annual installments over a period of three years; provided,
however that if the value of such Accounts exceeds five hundred
thousand dollars ($500,000), as indexed, the term of the
distribution shall be five years, plus one year (but not more
than five (5) additional years) for each one hundred thousand
dollars ($100,000) (or fraction thereof), as indexed, by which
the value of such Accounts exceeds five hundred thousand dollars
($500,000), as indexed.
Notwithstanding the foregoing provisions of
this Section 14(b), the Plan shall not be required to distribute
any Employer Securities acquired with the proceeds of a Securi-
ties Acquisition Loan until the close of the Plan Year in which
such Securities Acquisition Loan has been repaid in full.
Notwithstanding the foregoing provisions of this
Section 14(b), the Plan shall not be required to distribute any
Employer Securities to the extent that the Participants or
Beneficiaries have elected to have their Company Stock Account
diversified under the provisions of Section 17(a) hereof.
Notwithstanding anything in this Section 14 to the
contrary, in the event a Participant's employment is terminated
for reasons other than death, Disability or Retirement, subject
to Section 14(e), distribution of the Participant's Plan Benefit
shall commence no later than one (1) year after the close of the
Plan Year in which the earliest of the following events occurs:
(A) the Participant's Normal Retirement Date; or
(B) the Participant's death; or
(C) the Participant's Disability.
(2) Company Stock Account and Other Investments Account ($5,000 or Less).
Notwithstanding the foregoing, if the total vested
value of a Participant's Company Stock Account and Other
Investments Account is $5,000 or less, distribution shall be made
in a lump sum as soon as possible after the Participant
terminates employment.
<PAGE>
(c) Death Prior to Distribution.
If a Participant who has elected to defer distribution
dies before the distribution has commenced, such Participant's
entire Plan Benefit shall be distributed within five (5) years of
the date of the Participant's death; provided, however, that if
any portion of a Participant's Plan Benefit is payable to or for
the benefit of an individual who is the Participant's designated
Beneficiary, such portion may, at the election of such
Beneficiary, be distributed over a period not exceeding the life
expectancy of such Beneficiary, provided such distributions begin
not later than one year after the death of the Participant; and
provided further that if the designated Beneficiary is the spouse
of the Participant, at the election of the spouse, such distribu-
tion (over a period not exceeding the life expectancy of said
spouse) need not commence until the date the Participant would
have attained age seventy and one-half (702).
(d) Valuation Date.
All Accounts, including the Company Stock Account,
shall be valued by an Independent Appraiser as of the appropriate
Valuation Date. The Company or the Committee may require other
valuations from time to time as necessary. Any valuation of
Company Stock contributed to or purchased by the Plan shall be
determined by an Independent Appraiser.
(e) Limitations.
If a present value of a Participant's Plan Benefit
(determined in accordance with Section 411(a)(11)(B) of the Code)
has ever exceeded three thousand five hundred dollars ($3,500),
any distribution prior to the later of age sixty-two (62) or the
Participant's Normal Retirement Date may be made only with the
written consent of the Participant. The Committee shall provide
the Participant with a written notice which explains the
provision of Section 411(a)(11), not less than thirty (30) days
nor more than ninety (90) days before the distribution date. If
the distribution is one to which Sections 401(a)(11) and 417 of
the Internal Revenue Code do not apply, such distribution may
commence less than thirty (30) days after the notice required
under Section 1.411(a)-11(c) of the Income Tax Regulations is
given, provided that:
(1) the Committee clearly informs the Participant that
the Participant has a right to a period of at least thirty (30)
days after receiving the notice to consider the decision of
whether or not to elect a distribution (and, if applicable, a
particular distribution option), and
<PAGE>
(2) the Participant, after receiving the notice, affirmatively elects a
distribution.
Failure of a Participant to consent to an
immediate distribution within the applicable time limit is an
election to defer benefits to the later of age sixty-two (62) or
the Normal Retirement Date of the Participant.
(f) Commencement of Benefits.
Pursuant to Section 401(a)(9) of the Code as amended by
the Small Business Job Protection Act, distribution of a
Participant's Plan Benefits are required to begin by April 1 of
the Plan Year following the later of (1) the Plan Year in which
the Participant attains age seventy and one-half (702) or (2) the
Plan Year in which the Participant separates from service of the
Employer. However, in the case of a five-percent owner of the
Employer, distributions are required to begin no later than April
1 of the Plan Year following the Plan Year in which the five-
percent owner attains age seventy and one-half (702).
Notwithstanding anything in this Section 14 to the
contrary, payment of the Plan Benefit will commence, unless the
Participant otherwise elects, no later than the sixtieth (60th)
day after the close of the Plan Year (or if later, after the Plan
Benefit is determined) in which the latest of the following
events occurs:
(1) The attainment by the Participant of the Normal
Retirement Date;
(2) The Participant's actual retirement from the
employ of the Company;
(3) The tenth (10th) anniversary of the year in which
the Participant commenced participation in the Plan.
(g) Undistributed Accounts.
Any part of a Participant's Company Stock Account and
Other Investments Account which is retained in the Trust after
the Anniversary Date coinciding with or immediately following the
date on which the Participant terminates employment will continue
to be treated as a Company Stock Account or as an Other
Investments Account, as the case may be. Thus, the Other Invest-
ments Account of a terminated Participant will be debited (and
the Participant's Company Stock Account will be credited) with
such Participant's share of any repurchases of Company Stock from
other terminated Participants; provided, however, that a termi-
nated Participant's Other Investments Account shall not be
debited for any repurchases in the year in which such Participant
<PAGE>
incurs a one-year Break in Service. However, except in the case
of reemployment (as provided for in Section 4), none of the
Participant's Accounts will be credited with any further Employer
Contributions or Forfeitures.
(h) Optional Direct Transfer of Eligible Rollover Distributions.
Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a Distributee's election
under this Section, for all distributions made on or after
January 1, 1993, a Distributee may elect, at the time and in the
manner prescribed by the Plan Committee, to have any portion of
an Eligible Rollover Distribution paid directly to an Eligible
Retirement Plan specified by the Distributee in a Direct Roll-
over.
(i) Lien on Distribution.
Notwithstanding anything to the contrary herein, if, at
the time of distribution, a Participant is indebted to the Trust,
or has retained in his or her possession money or property which
properly belongs to the Trust, the Trust shall have a lien on
such distribution pending the resolution of such ownership
rights. The Trustee may exercise such lien either by directing
the Company secretary to withhold any stock transfer of title, or
by withholding distribution of any stock or the value of any
stock or other assets, pending resolution of such ownership
rights. Notwithstanding the foregoing, Plan Benefits under this
Plan may not be assigned or alienated except to the extent allow-
able under Code Sections 401(a)(13) and 414(p).
<PAGE>
Section 15. HOW PLAN BENEFIT WILL BE DISTRIBUTED.
(a) Form of Distribution.
(1) Company Stock Account and Other Investments Account.
Subject to a Participant's right to demand
distribution of such Participant's Company Stock Account and
Other Investments Account entirely in the form of Employer
Securities, the Trustee may distribute such Participant's Plan
Benefit entirely in cash or entirely in the form of Employer
Securities. Distributions made in the form of Employer
Securities shall be made in the form of whole shares of Employer
Securities with the value of any fractional shares paid in cash.
The Trustee will make distributions from the Trust in
accordance with instructions from the Committee.
(b) Beneficiaries.
(1) Designation.
Distribution will be made to the Participant if
living, and if not, to the Participant's Beneficiary. A
Participant may designate a Beneficiary upon becoming a Partici-
pant and may change such designation at any time by filing a
written designation with the Committee. Notwithstanding anything
in this Section 15 to the contrary, if a Participant is married,
a Participant shall not designate anyone other than the Partici-
pant's spouse as primary Beneficiary of the Participant's Plan
Benefit unless such spouse consents in writing to such designa-
tion, such spouse acknowledges the effect of such election, and
such writing is witnessed by a Plan representative or notary
public and filed with the Plan Committee.
(2) Absence of Valid Designation.
If, upon the death of a Participant, former
Participant or Beneficiary, there is no valid designation of a
Beneficiary on file with the Company or the benefit is not
claimed by any Beneficiary within a reasonable period of time
after the death of the Participant, the benefit shall be paid to
the Participant's surviving spouse. If the Participant is not
married or if the Participant's spouse does not survive the
Participant, the benefit shall be paid to the Participant's
estate.
<PAGE>
Section 16. RIGHTS AND OPTIONS ON DISTRIBUTED SHARES OF COMPANY STOCK.
(a) "Put" Option.
If the distribution of the Plan Benefit is made in the
form of shares of Company Stock, then the "Qualified Holder" (as
defined below) of such stock shall be granted, at the time that
such shares are distributed to the Qualified Holder, an option to
"put" the shares to the Company; provided, however, that all such
shares are so put; and provided, further, that the Trust shall
have the option to assume the rights and obligations of the
Company at the time the "put" option is exercised. The term
"Qualified Holder" shall mean the Participant or Beneficiary
receiving the distribution of such shares, any other party to
whom the shares are transferred by gift or by reason of death,
and also any trustee of an individual retirement account (as
defined under Code Section 408) to which all or any portion of
the distributed shares is transferred pursuant to a tax-free
rollover transaction satisfying the requirements of Sections 402
and 408 of the Code. A "put" option shall provide that, for a
period of sixty (60) days after such shares are distributed to a
Qualified Holder (as defined above) (and, if the "put" is not
exercised within such sixty (60) day period, for an additional
period of sixty (60) days in the following Plan Year), the
Qualified Holder would have the right to have the Company
purchase such shares at their fair market value, as defined
hereinabove in subsection (a). Such "put" option shall be
exercised by notifying the Company in writing.
In the case of a lump sum distribution of Company
Stock, the terms of payment for the purchase of such shares of
stock shall be as set forth in the "put" and may be paid either
in a lump sum or in up to five (5) equal annual installments
(with interest on the unpaid principal balance at a reasonable
rate of interest), as determined by the Committee. Payment for
the purchase of such shares must commence within thirty (30) days
after the "put" is exercised. The period during which the put
option is exercisable does not include any time during which the
distributee is unable to exercise it because the party bound by
the put option is prohibited from honoring it by applicable
federal or state law. If payment is made in installments,
adequate security and a reasonable rate of interest must be
provided. In the case of an installment distribution, payment
must be made within thirty (30) days after the put option is
exercised with respect to any installment distribution of Company
Stock.
<PAGE>
In the case of a purchase from a Disqualified Person,
all purchases of Company Stock shall be made at prices which, in
the judgment of an Independent Appraiser, do not exceed the fair
market value of such shares as of the date of the transaction.
The requirements of this Subsection 16(a) shall not
apply to the distribution of any portion of a Participant's Plan
Benefit which has been diversified, distributed or transferred to
another plan pursuant to the provisions of Subsection 17(a)
hereof.
(b) Right of First Refusal.
If the distribution of the Plan Benefit is made in the
form of shares of Company Stock, such shares of Company Stock
distributed by the Trustee may, as determined by the Company or
the Committee, be subject to a "right of first refusal," until
such time as such shares are publicly traded. Such a "right"
shall provide that prior to any subsequent transfer, the shares
must first be offered by written offer, to the Trust, and then,
if refused by the Trust, to the Company. In the event that the
proposed transfer constitutes a gift or other such transfer at
less than fair market value, the price per share shall be deter-
mined by an Independent Appraiser (appointed by the Board of
Directors) as of the Anniversary Date coinciding with or immedi-
ately preceding the date of exercise, except in the case of a
transfer to a Disqualified Person. The term "Disqualified
Person" shall mean a person who is a fiduciary with respect to
the Plan; a person providing services to the Plan; an Employer
any of whose employees are covered by the Plan; an employee
organization any of whose members are covered by the Plan; an
owner, directly or indirectly, of fifty percent (50%) or more of
(i) the total combined voting power of all classes of voting
stock or of the total value of all classes of the stock of a
corporation, (ii) the capital interest or the profits interest of
a partnership, or (iii) the beneficial interest of a trust or
unincorporated enterprise, which is an Employer or an employee
organization any of whose employees or members are covered by the
Plan; a member of the family of any Disqualified Person; a
corporation, partnership, trust or estate of which (or in which)
fifty percent (50%) or more of (i) the combined voting power of
all classes of stock entitled to vote or the total value of all
classes of stock of such corporation, (ii) the capital interest
or profits interest of such partnership, or (iii) the beneficial
interest of such trust or estate is owned, directly or indirect-
ly, or held by Disqualified Persons; an employee, officer,
director (or any individual having powers, similar powers and
responsibilities), a ten percent (10%) or more shareholder, or a
highly compensated employee (earning ten percent (10%) or more of
<PAGE>
the yearly wages of an employer) of a Disqualified Person; or a
ten percent (10%) or more (in capital or profits) partner or
joint venturer of a Disqualified Person.
In the event of a proposed purchase by a prospective
bona fide purchaser, the offer to the Trust and the Company shall
be at the greater of fair market value, as determined by an
Independent Appraiser as of the Anniversary Date coinciding with
or immediately preceding the date of exercise (except in the case
of a purchase by a Disqualified Person), or at the price offered
by the prospective bona fide purchaser. In addition, such offer
must equal or exceed the other terms of the offer made by the
prospective bona fide purchaser. In the case of a purchase by or
transfer to a Disqualified Person, fair market value shall be
determined as of the actual date of the transaction. Valuations
must be made in good faith and based on all relevant factors for
determining the fair market value of securities. The Trust may
accept the offer at any time during a period not exceeding
fourteen (14) days after receipt of such offer. In the event the
Trust does not accept such offer, the Company may accept such
offer at any time during said fourteen (14) day period.
In the case of a purchase from a Disqualified Person,
all purchases of Company Stock shall be made at prices which, in
the judgment of an Independent Appraiser, do not exceed the fair
market value of such shares as of the date of the transaction.
(c) Other Options.
Except as otherwise provided in this Section 16, no
security acquired with the proceeds of a Securities Acquisition
Loan may be subject to a put, call, buy-sell or similar arrange-
ment while held by or when distributed from the Plan.
<PAGE>
Section 17. SPECIAL PROVISIONS.
(a) Diversification of Investments.
Within ninety (90) days after the close of each Plan
Year in the Qualified Election Period, each Qualified Participant
shall be permitted to direct the Plan as to the investment of not
more than twenty-five percent (25%) of the value of the
Participant's Company Stock Account to the extent such value
exceeds the amount to which a prior election, if any, applies.
In the case of the sixth (6th) year of the Qualified Election
Period, the preceding sentence shall be applied by substituting
"fifty percent (50%)" for "twenty-five percent (25%)." The
Participant's direction shall be completed no later than ninety
(90) days after the close of the ninety (90) day election period.
The Plan Committee shall offer at least three
investment options (not inconsistent with regulations prescribed
by the Internal Revenue Service) to each Participant who makes an
election under this Subsection.
In lieu of offering such investment options, the Plan
Committee may direct that all amounts subject to Participant
elections under this Subsection be distributed to Qualified
Participants. All such distributions shall be distributed within
ninety (90) days after the close of the ninety (90) day election
period and shall be made in cash.
In lieu of receiving a distribution under this Sub-
section, a Qualified Participant may direct the Plan to transfer
the distribution to another qualified plan of the Company which
accepts such transfers, provided that such plan permits employee-
directed investments and does not invest in Employer Securities
to a substantial degree. Such transfer shall be made within
ninety (90) days after the close of the ninety (90) day election
period.
(b) Cash Dividends.
Cash dividends, if any, on shares of Company Stock
allocated to Participants' Accounts may be accumulated in the
Trust or may be paid to Participants currently as determined in
the sole discretion of the Committee, exercised in a uniform and
nondiscriminatory manner. Provided that the Plan is primarily
invested in Employer Securities, it is intended that the Company
shall be allowed a deduction with respect to any dividends paid
on allocated shares of Company Stock of any class held by the
Plan on the record date to the extent such dividends are paid in
cash directly to the Participants, or their Beneficiaries, or are
paid to the Plan and are distributed from the Plan to the Partic-
ipants or their Beneficiaries not later than ninety (90) days
<PAGE>
after the close of the Plan Year in which paid; provided, how-
ever, that the Company shall not be required to pay or distribute
any dividends with respect to the nonvested portion of the
Company Stock Account of a Participant who has terminated
employment prior to the date such dividends are paid directly to
Participants, or are distributed from the Plan to the Partici-
pants. Provided that the Plan is primarily invested in Employer
Securities, it is also intended that the Company shall be allowed
a deduction for any dividends used to make payments on a
Securities Acquisition Loan the proceeds of which were used to
acquire the Employer Securities (whether or not allocated) with
respect to which the dividend is paid, provided that in the case
of dividends paid on allocated shares, Employer Securities in an
amount equal to such dividends are allocated to such Participants
for the year in which such dividends would otherwise have been
allocated to such Participants. The Company shall be allowed a
deduction for dividends paid only in the taxable year of the
Company in which the dividend is either paid to a Participant or
Beneficiary or held to make payments on a Securities Acquisition
Loan.
Shares of Employer Securities released from the
suspense account (as provided in Section 7(b) of the Plan) by
reason of the payment of principal and interest on a Securities
Acquisition Loan with cash dividends paid to the Trust, shall be
allocated as of each Anniversary Date among the Accounts of
Participants who meet the requirements of Section 4 of the Plan,
in the proportion that each such Participant's Covered
Compensation bears to the total Covered Compensation of all such
Participants for that year.
<PAGE>
Section 18. ADMINISTRATION.
(a) Named Fiduciaries for Administration of Plan and for
Investment and Control of Plan Assets.
(1) Board of Directors.
The Board of Directors shall have the following
duties and responsibilities in connection with the administration
of the Plan:
(A) Making decisions with respect to amending or
terminating the Plan.
(B) Making decisions with respect to the
selection, retention or removal of the Trustee and the Committee.
(C) Periodically reviewing the performance of the
Trustee, the members of the Committee, persons to whom duties
have been allocated or delegated and any advisers appointed pur-
suant to paragraph (f)(1) below.
(D) Determining the form and amount of Employer
Contributions.
The Board of Directors may by written resolution
allocate its duties and responsibilities to one or more of its
members or delegate such duties and responsibilities to any other
persons; provided, however, that any such allocation or delega-
tion shall be terminable upon such notice as the Board of Direc-
tors deems reasonable and prudent under the circumstances.
(2) Plan Committee.
(A) General.
The Company shall administer the Plan and
is designated as the "Plan Administrator" within the meaning of
Section 3(16) of ERISA and Section 414(g) of the Code. The Com-
mittee and the Company shall each be a "named fiduciary" within
the meaning of Section 402 of ERISA, but each party's role as a
named fiduciary shall be limited solely to the exercise of its
own authority and discretion, as defined under this Plan, to
control and manage the operation and administration of this Plan.
A named fiduciary may designate other persons who are not named
fiduciaries to carry out its fiduciary duties hereunder, and any
such person shall become a fiduciary under the Plan with respect
to such delegated responsibilities. The members of the Committee
shall be appointed by the Board of Directors and shall serve,
without compensation, until such time as they resign, die or
<PAGE>
become incapable of exercising their duties or are removed by the
Board of Directors. All members of the Committee are designated
as agents of the Plan for purposes of service of legal process.
The Company shall certify to the Trustee the names and specimen
signatures of the members of the Committee. Any member may
resign at any time by submitting an appropriate written
instrument to the Company, and while any vacancy exists, the
remaining members of the Committee may perform any act which the
Committee is authorized to perform. Any vacancy on the Committee
shall be filled by appointment by the Board of Directors. All
decisions required to be made by the Committee involving the
interpretation, application and administration of the Plan shall
be resolved by action of the Committee either at a meeting or in
writing without a meeting.
(B) Duties and Responsibilities.
The Committee shall have the following duties
and responsibilities in connection with the administration of the Plan:
(i) Establishing and implementing a funding
policy as described in Paragraph (c) below.
(ii) Determining the eligibility of Employees
for participation in the Plan.
(iii) Determining the eligibility of
Employees for benefits provided by the Plan including such duties
and responsibilities as are necessary and appropriate under the
Plan's claims procedures.
(iv) Making recommendations to the Board of
Directors with respect to amendment or termination of the Plan,
including recommendations with respect to contributions under the
Plan.
(v) Assuring that bonding requirements imposed by ERISA are satisfied.
(vi) Authorizing, allocating and reviewing expenses incurred by the Plan.
(vii) Communicating with Participants and other persons.
(viii) Reviewing periodically any allocation or delegation of duties and
responsibilities and any appointment of advisers.
(ix) Investing and controlling the Plan assets.
<PAGE>
(x) Directing the Trustee with respect to voting shares of Company Stock,
in accordance with the provisions of Section 9.
(xi) Interpreting and construing the terms of the Plan and Trust Agreement.
The Committee may establish rules and regulations and may take any other
necessary or proper action to carry out its duties and responsibilities.
Notwithstanding the foregoing provisions, the Trustee shall have the primary
responsibility for the withholding of income taxes from Plan distributions,
for the payment of withheld income taxes on Plan distributions to the
Internal Revenue Service, and for notification to Participants of
their right to elect not to have income tax withheld from Plan
distributions. Compliance with record keeping and reporting
requirements of ERISA shall be the primary responsibility of the
Company.
(C) Allocation and Delegation of Responsibilities.
The Committee may, by written resolution, allocate its administrative
duties and responsibilities to one or more of its members or it may
delegate such duties and responsibilities to any other persons; provided,
however, that any such allocation or delegation shall be terminable upon
such notice as the Committee deems reasonable and prudent under the
circumstances.
(b) Investment of Plan Assets.
The Plan assets shall be invested and controlled by the
Committee; provided, however, that the actual management of Trust
investments, other than Company Stock, may be delegated to the
Trustee or may be delegated to one or more investment managers
appointed by the Committee. Any investment manager appointed
hereunder shall have the power to manage, acquire or dispose of
assets of the Plan and shall be either an investment adviser
registered under the Investment Advisers Act of 1940, or a bank,
as defined in that Act, or an insurance company qualified to
perform such services under the laws of one or more states. If
an investment manager has been appointed, the Trustee shall
neither be liable for acts or omissions of such investment mana-
ger nor be under any obligation to invest or otherwise manage any
asset of the Trust fund, nor shall the Committee be liable for
any act or omission of the investment manager in carrying out
such responsibility. The custody of Plan assets shall at all
times be retained by the Trustee, unless they consist of insur-
ance contracts or policies issued and held by an insurance
company authorized to conduct an insurance business in a state.
<PAGE>
In addition to appointment of investment managers, the Committee
shall have the following duties and responsibilities:
(1) Periodically reviewing the investment of Plan
assets and the performance of the Trustee and any investment
managers. With respect to the Trustee, the Committee shall
advise the Board of Directors of any matters which might be rele-
vant to the decision as to whether the services of the Trustee
should be retained. Based on its review, the Committee shall
determine the desirability of appointing or retaining investment
managers.
(2) Determining an investment policy to be followed
with respect to the Plan assets and communicating this policy to
the person or persons responsible for investing the Plan assets.
The Committee may by written resolution, allocate its
investment duties and responsibilities to one or more of its
members or delegate such duties and responsibilities to any other
persons; provided, however, that any such allocation or delega-
tion shall be terminable upon such notice as the Committee deems
reasonable and prudent under the circumstances.
(c) Funding Policy.
The funding policy of the Plan is to invest trust
assets primarily in Company Stock over the life of the Plan. The
Committee shall, from time to time, establish such investment
methods as may be necessary to accomplish this funding policy.
(d) Claims Procedures.
Any person whose claim for benefits under the Plan has
been denied in whole or in part shall receive a written notice
from the Committee setting forth the specific reasons for such
denial, specific references to the Plan provisions on which the
denial was based and an explanation of the procedure for review
of the denial. Such person, or a duly authorized representative,
may appeal to the Committee for a review of the denial by sending
to the Committee a written request for review within sixty (60)
days after receiving notice of the denial. The request for
review shall set forth all grounds on which it is based, together
with supporting facts and evidence which the claimant deems
pertinent, and the Committee shall give the claimant the
opportunity to review pertinent documents in preparing the
request. The Committee may require the claimant to submit such
additional facts, documents or other material as it deems
necessary or advisable in making its review. Within sixty (60)
days after the receipt of the request for review, the Committee
<PAGE>
shall communicate to the claimant in writing its decision, and if
the Committee confirms the denial, in whole or in part, the com-
munication shall set forth the reasons for the decision and
specific references to the Plan provisions on which the decision
is based. Such decisions of the Committee shall be final and
conclusive upon all parties.
(e) Qualified Domestic Relations Orders.
(1) In the case of any Domestic Relations Order
received by the Plan, the Committee shall promptly notify the
Participant and any other Alternate Payee of the receipt of such
order and of the Plan's procedures for determining the qualified
status of Domestic Relations Orders. Any Alternate Payee shall
be permitted to designate a representative for receipt of copies
of notices that are sent to the Alternate Payee with respect to
such order. The amount that would be payable to the Alternate
Payee shall be segregated in a segregated account as of the first
day of the Plan Year during which the Domestic Relations Order is
received by the Committee. Such segregated account shall
continue to be treated in the same manner as the affected
Accounts of the Participant, but will not be credited with any
further contributions or forfeitures. Notwithstanding the
foregoing, the Trustee may, in its sole discretion, exercised in
a uniform and nondiscriminatory manner, choose to physically
segregate the Account of the Alternate Payee and invest the
assets of such Account, pursuant to Section 7 of the Plan, in
assets other than Company Stock. If the order is determined to
be a qualified order within the eighteen (18) month period
described below, the segregated amount (including any interest or
earnings thereon) shall continue to be treated as a segregated
account in the name of the Alternate Payee. If the Committee
determines that the order is not qualified, or if the Committee
(or the appropriate court) is not able to resolve the issue
within the eighteen (18) month period, the segregated amount
(including any interest or earnings thereon) shall be restored to
the Participant. For purposes of this Paragraph, the "eighteen
(18) month period" shall mean the eighteen (18) month period
beginning with the date on which the first payment would be
required to be made under the Domestic Relations Order.
(2) In determining whether a Domestic Relations Order
is qualified, the Committee shall follow the procedures set forth
in Section 18(d) with respect to claims for Plan Benefits.
<PAGE>
(3) A Domestic Relations Order will constitute a
qualified Domestic Relations Order only if such order (i) does
not require the Plan to provide any type or form of benefit (or
any option) not otherwise provided under the Plan, (ii) does not
require the Plan to provide increased benefits, and (iii) does
not require the payment of benefits to an Alternate Payee which
are required to be paid to another Alternate Payee under another
order previously determined to be a qualified order. In addi-
tion, a Domestic Relations Order will constitute a qualified
order only if such order clearly specifies (i) the name and last
known mailing address of the Participant and of each Alternate
Payee covered by the order, (ii) the amount or the percentage of
a Participant's Plan Benefit that is to be paid to each Alternate
Payee, or the manner in which such amount or percentage is to be
determined, (iii) the number of payments or the period to which
such order applies, and (iv) each plan to which such order
applies.
(4) In the case of any payment to an Alternate Payee
before a Participant has separated from service, the Plan shall
not be required to make any payment to an Alternate Payee prior
to the date the Participant attains (or would have attained) the
Earliest Retirement Age. For purposes of this Paragraph, the
term "Earliest Retirement Age" means the earliest of (i) the date
on which the Participant is entitled to a distribution under the
Plan, or (ii) the later of the date the Participant attains age
fifty (50) or the earliest date on which the Participant could
begin receiving benefit if the Participant separated from
service.
(f) General.
(1) The Board of Directors, the Committee or any
person to whom duties and responsibilities have been allocated or
delegated, may employ other persons for advice in connection with
their respective responsibilities, including actuaries, plan con-
sultants, investment advisers, attorneys and accountants.
(2) Any person may serve in more than one capacity
with respect to the Plan.
(3) The Board of Directors, the Committee or any
person to whom duties and responsibilities have been allocated or
delegated shall be indemnified and held harmless by the Company
from any expense or liability hereunder unless due to or arising
from fraud, dishonesty, gross negligence, or misconduct of the
Board of Directors, the Committee, or such person, as the case
may be.
<PAGE>
(4) The Board of Directors, the Plan Administrator and
the Committee shall have complete control with respect to the
duties and responsibilities allocated to them under the terms of
the Plan, with all power and discretion necessary to carry out
any of their duties described herein.
The decisions of the Board of Directors, the Plan
Administrator and the Committee in matters within their
jurisdiction shall be final, binding and conclusive upon each
Employer, each Employee, beneficiary and every other interested
or concerned person or party.
<PAGE>
Section 19. AMENDMENT AND TERMINATION.
(a) Amendment.
To provide for contingencies which may require or make
advisable the clarification, modification or amendment of this
Agreement, the Company reserves the right to amend the Plan at
any time and from time to time, in whole or in part, including
without limitation, retroactive amendments necessary or advisable
to qualify the Plan and Trust under the provisions of Sections
401(a) and 4975(e)(7) of the Code or any successor or similar
statute hereafter enacted. Any such amendment to the Plan or
Trust must be adopted by resolution of the Company's Board of
Directors. However, no such amendment shall (1) cause any part
of the assets of the Plan and Trust to revert to or be recover-
able by the Company or be used for or diverted to purposes other
than the exclusive benefit of Participants, former Participants
and Beneficiaries, (2) deprive any Participant, former Partici-
pant or Beneficiary of any benefit already vested, except to the
extent that such amendment may be necessary to permit the Plan or
the Trust to qualify or continue to qualify as tax-exempt, (3)
terminate the protections and rights described in Section 16, (4)
alter, change or modify the duties, powers or liabilities of the
Trustee hereunder without its written consent, or (5) with
respect to any benefit previously accrued, eliminate or reduce
any early retirement benefit or retirement type subsidy, or
eliminate any optional form of benefit, except to the extent
permitted by Section 411(d)(6) of the Code.
(b) Changes in the Code.
Any other provision of this Plan to the contrary
notwithstanding, if any amendment to the Code requires that a
conforming plan amendment must be adopted effective as of a
stated effective date in order for this Plan to continue to be a
qualified plan, this Plan shall be operated in accordance with
the requirement of such amendment to that law until the date when
a conforming plan amendment is adopted, or the date when a clear
and unambiguous nonconforming plan amendment is adopted, which-
ever occurs first.
(c) Termination, Partial Termination or Complete
Discontinuance of Contributions.
Although the Company has established the Plan with the
bona fide intention and expectation that it will be able to make
contributions indefinitely, nevertheless, the Company shall not
be under any obligation or liability to continue its contri-
butions or to maintain the Plan for any given length of time.
The Company may in its sole discretion discontinue such contribu-
tions or terminate the Plan in whole or in part in accordance
<PAGE>
with its provisions at any time without any liability for such
discontinuance or termination. In the event of a termination or
complete discontinuance of contribution, if the Plan is not
replaced by a comparable plan qualified under Section 401(a) of
the Code, then the Accounts of all Participants affected by the
termination or discontinuance of contributions will become non-
forfeitable. In the event of a partial termination, the Accounts
of all Participants affected by the partial termination will
become nonforfeitable. After termination of the Plan, the
Committee and the Trust will continue until the Plan Benefit of
each Participant has been distributed. After termination of the
Plan, distribution of the Participants' Plan Benefits will be
completed not later than one (1) year after termination.
Distributions made due to termination of the Plan shall be in
accordance with the form of distribution provided in the Plan.
(d) Determination by Internal Revenue Service.
Notwithstanding any other provision of the Plan, if the
Internal Revenue Service shall fail or refuse to issue a
favorable written determination or ruling with respect to the
initial qualification of the Plan and exemption of the Trust from
tax under Section 501(a) of the Code, all Employer Contributions
under Section 401(a), together with any income received or
accrued thereon less any benefits or expenses paid shall, upon
the written direction of the Company, be returned to the Company
notwithstanding the provisions of the Trust, and the Trust shall
then terminate. Any such Contribution returned to the Employer
must be returned within one (1) year after the date the initial
qualification is denied, but only if the application for the
qualification is made by the time prescribed by law for filing
the Employer's return for the taxable year in which the Plan is
adopted.
(e) Return of Employer's Contribution.
Notwithstanding any other provision of the Plan, if a
Contribution is conditioned on its deductibility and the deduc-
tion is disallowed or if a Contribution is made due to a mistake
of fact, such Employer Contribution may be returned to the
Employer if such Contribution is returned within one (1) year
thereafter and if the amount returned does not exceed the excess
of the actual Contribution over the amount which would have been
contributed had there been no error in determining the deduction
or mistake of fact. Earnings of the Plan attributable to the
<PAGE>
excess Contribution may not be returned to the Employer, but any
losses attributable thereto must reduce the amount so returned.
<PAGE>
Section 20. MISCELLANEOUS.
(a) Participation by Affiliated Company.
(1) Any Affiliated Company presently existing or
hereafter acquired may, with the consent of the Company, adopt
the Plan and Trust and thereby enable its employees to partici-
pate herein.
(2) In the event any Participant is transferred to an
Affiliated Company which is a participating Employer, such
Participant shall continue to participate hereunder in the
allocation of Employer Contributions and the Participant's
Accounts shall continue to vest in accordance with Section 13.
Any Participant who is transferred to an Affiliated Company which
is not a participating Employer shall be treated as a suspended
Participant in accordance with Section 4(c).
(b) Limitation of Rights; Employment Relationship.
All Plan Benefits will be paid only from the Trust
assets and neither the Company nor any Employer nor the Committee
nor the Trustee shall have any duty or liability to furnish the
Trust with any funds, securities or other assets except as
expressly provided in the Plan. Nothing herein shall be
construed to obligate any Employer to continue to employ any
Employee.
(c) Merger; Transfer of Assets.
In no event shall this Plan be merged or consolidated
with any other employee benefit plan, nor shall there be any
transfer of assets or liabilities from this Plan to any other
such plan, unless immediately after such merger, consolidation or
transfer, each Participant's benefits, determined as if the plan
had terminated, are at least equal to or greater than the bene-
fits which the Participant would have been entitled to had this
Plan been terminated immediately before such merger,
consolidation or transfer.
(d) Prohibition Against Assignment.
The benefits provided by this Plan may not be assigned
or alienated; provided, however, that a qualified Domestic
Relations Order shall not be construed as an assignment or alie-
nation. Except for indebtedness to the Trust and orders to make
payments or assign benefits to a spouse, former spouse, child or
other dependent under a qualified Domestic Relations Order,
neither the Company nor the Trustee shall recognize any transfer,
mortgage, pledge, hypothecation, order or assignment by any
<PAGE>
Participants or Beneficiaries of all or part of their interest
hereunder, and such interest shall not be subject in any manner
to transfer by operation of law, and shall be exempt from the
claims of creditors or other claimants from all orders, decrees,
levies, garnishment and/or executions and other legal or equi-
table process or proceedings against such Participants or
Beneficiaries to the fullest extent which may be permitted by
law.
(e) Applicable Law; Severability.
The Plan hereby created shall be construed,
administered and governed in all respects in accordance with
ERISA and to the extent not superseded by federal law, in
accordance with the laws of the State of California; provided,
however, that if any provision is susceptible of more than one
interpretation, such interpretation shall be given thereto as is
consistent with the Plan being a qualified Employee Stock
Ownership Plan within the meaning of the Code. If any provision
of this instrument shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining
provisions hereof shall continue to be fully effective.
<PAGE>
Section 21. TOP HEAVY PROVISIONS.
(a) Definitions.
For purposes of this Section 21, the following
capitalized words shall have the following meanings:
AGGREGATION GROUP
(1) Required Aggregation Group: In determining a
Required Aggregation Group hereunder, each plan of the
Employer in which a Key Employee is a participant, and
each other plan of the Employer which enables any plan
in which a Key Employee participates to meet the
requirements of Code Sections 401(a)(4) or 410, will be
required to be aggregated. Such group shall be known
as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan
in the group will be considered a Top Heavy Plan if the
Required Aggregation Group is a Top Heavy Group. No
plan in the Required Aggregation Group will be consid-
ered a Top Heavy Plan if the Required Aggregation Group
is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may
also include any other plan not required to be included
in the Required Aggregation Group, provided the result-
ing group, taken as a whole, would continue to satisfy
the provisions of Code Sections 401(a)(4) and 410.
Such group shall be known as a Permissive Aggregation
Group.
In the case of a Permissive Aggregation Group, only a
plan that is part of the Required Aggregation Group
will be considered a Top Heavy Plan if the Permissive
Aggregation Group is a Top Heavy Group. No plan in the
Permissive Aggregation Group will be considered a Top
Heavy Plan if the Permissive Aggregation Group is not a
Top Heavy Group.
(3) Only those plans of the Employer in which the
Determination Dates fall within the same calendar year
shall be aggregated in order to determine whether such
plans are Top Heavy Plans.
(4) An Aggregation Group shall include any terminated
plan of the Employer if it was maintained within the
last five (5) years ending on the Determination Date.
DETERMINATION DATE
With respect to any Plan Year, the last day of the
preceding Plan Year, or in the case of the first Plan
Year of any Plan, the last day of such Plan Year.
<PAGE>
KEY EMPLOYEE
Any Employee, or former Employee, or Beneficiary of an
Employee or former Employee, who at any time during the
Plan Year containing the Determination Date or during
any of the four (4) preceding Plan Years is (or was)
(i) an officer (and employee) having an annual
compensation greater than fifty percent (50%) of the
amount in effect under Section 415(b)(1)(A) of the Code
for any such Plan Year, (ii) a shareholder (and
employee) who owns (excluding any stock held under the
Plan) both more than one half percent (.5%) ownership
interest in value and one of the ten (10) largest
interests in the Company (whether directly or through
constructive ownership rules) and having annual
compensation of more than the limitation in effect
under Section 415 (c)(1)(A) of the Code, (iii) a more
than five percent (5%) shareholder, or (iv) a more than
one percent (1%) shareholder if such shareholder
receives more than $150,000 of compensation from the
Company during the Plan Year. For purposes of (iii)
and (iv) above, the terms "five percent (5%)
shareholder" and "one percent (1%) shareholder" mean
any employee who owns (excluding any stock held under
the Plan) more than five percent (5%) (or more than one
percent (1%) of the outstanding stock of the corpora-
tion, or who owns stock possessing more than five
percent (5%) (or one percent (1%) of the total combined
voting power of all stock of the corporation
(determined without regard to the aggregation rules
under Section 414 of the Code). For purposes of (ii)
above, if two or more Employees have the same interest
in the Company, the Employee having the greater annual
compensation from the Company shall be treated as
having the larger interest. For purposes of (i) above,
the term "officers" means persons whose regular duties
include executive administrative duties; however, no
more than three (3) Employees or ten percent (10%) of
all Employees (up to a maximum of fifty (50)
Employees), whichever is greater, may be counted as
officers. If the number of officers of the Company
exceeds these limitations, those officers with the
highest compensation in the Plan Year containing the
Determination Date or any of the four preceding Plan
Years shall be treated as Key Employees.
NON-KEY EMPLOYEE
Any Employee who is not a Key Employee.
TOP HEAVY GROUP
Any Aggregation Group, if as of the Determination Date,
the sum of (1) the present value of the accrued
benefits for Key Employees under all defined benefit
plans included in such group and (2) the aggregate
Account balances of Key Employees under all defined
contribution plans included in such group, exceeds
sixty percent (60%) of a similar sum determined for all
Employees.
<PAGE>
TOP HEAVY PLAN
With respect to any Plan Year, of the Company or of any
Affiliated Company, any plan or Aggregation Group of
plans of the Company or of any Affiliated Company if,
as of the Determination Date, the aggregate Account
balances of Key Employees under the plan or plans
exceeds sixty percent (60%) of the aggregate Account
balances of all Employees under such plan or plans.
For purposes of this definition, the term, "Account
balances" shall include Account balances of
Participants attributable to Employer Contributions,
the Account balances attributable to Employees'
Nondeductible Contributions, and the amount of the
aggregate distributions, if any, made with respect to
any Participant during the five (5) year period ending
on the Determination Date, including any distributions
under a terminated plan which would have been required
to be included in an aggregation group had such plan
not been terminated. The Account balances of an
individual shall not be taken into account if such in-
dividual has not performed any services for the Company
at any time during the five year period ending on the
Determination Date. The Account balances of a non-key
employee with respect to any Plan Year shall not be
taken into account if such individual was formerly a
Key Employee for any prior Plan Year. Any rollover
contributions or transfers that are unrelated (i.e.,
both initiated by the Employee and made from a plan
maintained by one Employer to a plan maintained by
another Employer) shall not be taken into account for
purposes of determining whether a plan is a Top Heavy
Plan or whether any Aggregation Group is a Top Heavy
Group.
(b) Vesting Requirements.
With respect to any Plan Year, if as of the relevant
Determination Date, this Plan is deemed to be a Top Heavy Plan or
part of a Top Heavy Group, the vesting of Plan Benefits for such
Plan Year with respect to any Participant who completes one or
more Hours of Service after the Plan becomes a Top Heavy Plan or
part of a Top Heavy Group will be based upon Years of Service, as
defined in Section 2 in accordance with the following vesting
schedule, until such time as the Plan is no longer deemed to be
top heavy:
Years of Service Percentage of Accounts Vested
One Year 25
Two Years 50
Three Years 75
Four Years or more 100
<PAGE>
With respect to any Plan Year, if as of the relevant
Determination Date, this Plan ceases to be a Top Heavy Plan or
part of a Top Heavy Group, the vested percentage of a Partici-
pant's Account that was nonforfeitable before the Plan ceased to
be top heavy will remain nonforfeitable, and any Employee who was
a Participant during the Top Heavy Plan Year and who had three or
more Years of Service (including any Years of Service not yet
taken into account under the Plan) will automatically remain under
the top heavy vesting schedule.
(c) Minimum Benefits.
With respect to any Plan Year, if as of the relevant
Determination Date, this Plan is deemed to be a Top Heavy Plan or
part of a Top Heavy Group, Employer Contributions and Forfeitures
for such Plan Year for each Participant who is not a Key Employee
shall be not less than three percent (3%) of each Participant's
Total Compensation until such time as this Plan is no longer
deemed to be top heavy. Notwithstanding the foregoing, such
percentage for any such Plan Year shall not exceed the highest
percentage at which Contributions and Forfeitures are made for
such Plan Year for any Key Employee, as determined by dividing the
Contribution for such Key Employee by so much of such Key
Employee's Total Compensation (including any salary deferrals) for
the Plan Year as does not exceed $200,000 (or $150,000 for Plan
Years beginning on or after January 1, 1994). Elective
contributions on behalf of Key Employees are taken into account in
determining the minimum required contribution under Section
416(c)(2). However, elective contributions on behalf of Employees
other than Key Employees may not be treated as Employer
contributions for purposes of the minimum contribution or benefit
requirement of Section 416 of the Code.
Amounts paid by the Company under the Federal Insurance
Contributions Act or under the Social Security Act may not be
taken into account for purposes of providing the required minimum
benefits to Participants who are not Key Employees.
For purposes of this Subsection (c), the term
"Participant" shall refer to any Employee who has not separated
from service at the end of the Plan Year, including Employees who
have failed to complete 1,000 Hours of Service, and any Employees
who have been excluded because their compensation is less than a
stated amount but who must nevertheless be considered Participants
in order to satisfy the coverage requirements of Section 410(b) of
the Code.
<PAGE>
(d) Limitation on Annual Additions.
With respect to any Plan Year, if as of the relevant
Determination Date, this Plan is deemed to be a Top Heavy Plan or
part of a Top Heavy Group, the dollar limitation in the
denominator of the defined contribution plan fraction and the
defined benefit fraction shall be multiplied by 1.0 rather than by
1.25, for purposes of determining the aggregate limit on
Contributions and Forfeitures for a Key Employee for such Plan
Year, unless the sum of the Key Employees' benefits under all
defined contribution plans does not exceed ninety percent (90%) of
the total of all Participants' benefits for such Plan Year, and
the Employer provides a minimum contribution of not less than four
percent (4%) of each Participant's Total Compensation. The
minimum benefit otherwise required under this paragraph shall be
reduced to the extent a Participant who is not a Key Employee has
received a benefit under any other plan maintained by the Employer
and to the extent permitted by Section 416 of the Code and the
regulations thereunder dealing with nonduplication of minimum
benefits.
With respect to any Plan Year, if, as of the relevant
Determination Date, any Employee is covered by both a top heavy
defined contribution plan and a top heavy defined benefit plan,
the minimum benefit provided for each such Participant who is not
a Key Employee under the defined contribution plan shall be not
less than five percent (5%) of the Participant's Total
Compensation; provided, however, that if the Employer desires to
use a factor of 1.25 in computing the denominators of the defined
benefit fraction and in the denominator of defined contribution
fraction, the defined contribution minimum benefit shall be seven
and one-half percent (7.5%) of compensation.
Solely for the purpose of determining if the Plan, or
any other plan included in a required Aggregation Group of which
this Plan is a part, is a Top Heavy Plan, the accrued benefit of
an Employee (other than a Key Employee under a defined benefit
plan or target benefit plan) shall be determined under (i) the
method, if any, that uniformly applies for accrual purposes under
all plans maintained by the Affiliated Employers, or (ii) if there
is no such method, as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under the fractional
accrual rate of Section 411(b)(1)(C) of the Code.
<PAGE>
Section 22. EXECUTION.
To record the adoption of this Plan, the Company has caused
its appropriate officers to affix its corporate name and seal
hereto this 20th day of November, 1997.
HERITAGE BANK OF COMMERCE
(SEAL) By /s/ John Rossell
John E. Rossell, III, President
By /s/ Rebecca Levey
Rebecca A. Levey, Secretary
HERITAGE COMMERCE CORP
AMENDED AND RESTATED
1994 TANDEM STOCK OPTION PLAN
1. Purpose
The purpose of the Heritage Commerce Corp 1994
Tandem Stock Option Plan (the "Plan") is to strengthen the
Heritage Commerce Corp (the "Company") and those
corporations which are or hereafter become subsidiary
corporations of the Company by providing an additional means
of attracting and retaining competent directors and
personnel and by providing to participating directors,
officers and key employees added incentive for high levels
of performance. The Plan seeks to accomplish these purposes
and achieve these results by providing a means whereby such
directors, officers and key employees may purchase shares of
the common stock of the Company pursuant to options granted
in accordance with this Plan.
Options granted pursuant to this Plan are intended
to be "Incentive Stock Options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended
from time to time (the "Code"), or "Nonqualified Stock
Options", as shall be determined and designated upon the
grant of each option hereunder.
2. Administration
This Plan shall be administered by a committee
(the "Personnel and Planning Committee") consisting of
certain members of the Board of Directors (the "Board") who
from time to time shall be selected by the Board. Any
action of the Personnel and Planning Committee with respect
to the administration of the Plan shall be taken pursuant to
a majority vote, or the unanimous written consent, of its
members. If no Personnel and Planning Committee is
selected, the Board as a whole shall act as such Personnel
and Planning Committee. Vacancies occurring in the
membership of the Personnel and Planning Committee shall be
filled by appointment by the Board. With regard to the
granting of a stock option to a member of the Board such
member must abstain from voting.
Subject to the express provisions of the Plan, the
Personnel and Planning Committee (or the Board, if
applicable) shall have the authority to construe and
interpret the Plan, define the terms used therein,
prescribe, amend and rescind, rules and regulations relating
to administration of the Plan, and make all other
determinations necessary or advisable for administration of
the Plan. Determinations of the Personnel and Planning
Committee (or the Board, if applicable) on matters referred
to in this section shall be final and conclusive.
3. Incentive Stock Options
(a) Incentive stock options granted under this
Plan are intended to be qualified under Section 422 of the
Code. Each incentive stock option agreement shall contain
such terms and provisions as the Personnel and Planning
<PAGE>
Committee (or the Board, if applicable) may determine to be
necessary in order to qualify options granted thereunder as
incentive stock options within the meaning of Section 422 of
the Code.
(b) Full-time salaried officers and key employees
of the Company or of subsidiary corporations (as that term
is defined in Section 424(f) of the Code), shall be eligible
for selection to participate in the incentive stock option
portion of the Plan. No director of this Bank who is not
also a full-time salaried officer or employee of the Company
or a subsidiary corporation, may be granted an incentive
stock option hereunder. Subject to the express provisions
of the Plan, the Personnel and Planning Committee (or the
Board, if applicable) shall select from the eligible class
of employees and make recommendations to the Board
concerning the individuals to whom incentive stock options
shall be granted, the terms and provisions of the respective
incentive stock option agreements, the times at which such
incentive stock options shall be granted, and the number of
shares subject to each incentive option. An individual who
has been granted an incentive stock option hereunder may, if
he or she is otherwise eligible, be granted additional
incentive stock options if the Board shall so determine.
(c) The Board shall determine the individuals who
shall receive incentive stock options and the terms and
provisions of the incentive stock options, and shall grant
such incentive stock options to such individuals.
Notwithstanding the above, however, the Board may delegate
to the Personnel and Planning Committee the power to
determine the individuals who shall receive incentive stock
options and the terms and provisions of such incentive stock
options, and the power to grant incentive stock options to
such individuals.
(d) Except as described in subsection (f) below,
the Board or the Personnel and Planning Committee, if
authorized, shall not grant an incentive stock option to
purchase shares of the Company's common stock to any
individual who, at the time of the grant, owns stock
possessing more than 10% of the total combined voting power
or value of all classes of stock of the Company or a
subsidiary corporation. The attribution rules of Section
424(d) of the Code shall apply in the determination of
ownership of stock for these purposes.
(e) The aggregate fair market value (determined
as of the time the incentive stock option is granted) of
stock with respect to which incentive stock options are
exercisable for the first time by an individual during any
calendar year (under all plans of the Company and its
subsidiary corporations, if any) shall not exceed $100,000,
plus any greater amount as may be permitted under subsequent
amendments to the Code.
(f) The purchase price of stock subject to each
incentive stock option shall be determined by the Board (or
the Personnel and Planning Committee, if authorized), but
shall not be less than the greater of $8.66 per share or one
hundred percent (100%) of the fair market value of such
stock at the time such option is granted, except, in the
case of officers and key employees who at the time of the
grant own more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or a
subsidiary corporation (as defined in Section 422 of the
Code), in which case the purchase price of the stock shall
not be less than the greater of $9.53 per share or 110
percent (110%) of the fair market value of such stock at the
time such option is granted and the term of such option
<PAGE>
shall be for no more than five (5) years. The fair market
value of such stock shall be determined in accordance with
any reasonable valuation method, including the valuation
methods described in Treasury Regulation Section 20.2031-2.
(g) No incentive stock option pursuant to this
Plan shall be granted to any eligible individual, if such
option grant along with all other outstanding stock options
of such individual would result in such individual having
options to acquire a number of shares of the Company that
would in total be in excess of ten percent (10%) of the
outstanding shares of the Company.
4. Nonqualified Stock Options
(a) All options granted which are (i) in excess
of the aggregate fair market value limitations set forth in
Section 3(e) hereof, (ii) designated at the time of the
grant as "nonqualified", or (iii) intended to be incentive
stock options but do not meet the requirements of incentive
stock options, shall be deemed nonqualified stock options.
Nonqualified stock options granted hereunder shall be so
designated in the nonqualified stock option agreement
entered into between the Company and the optionee.
(b) Directors, full-time salaried officers
(including full-time salaried officers who are also
directors) and key employees of the Company or a subsidiary
corporation shall be eligible for selection to participate
in the nonqualified stock option portion of the Plan.
Subject to the express provisions of the Plan, the Personnel
and Planning Committee (or the Board, if applicable) shall
(i) select from the eligible class of individuals and make
recommendations to the Board concerning the individuals to
whom nonqualified stock options shall be granted,
(ii) determine the discretionary terms and provisions of the
respective nonqualified stock option agreements (which need
not be identical),
(iii) determine the times at which such nonqualified stock options shall be
granted, and
(iv) determine the number of shares subject to each nonqualified
stock option. An individual who has been granted a
nonqualified stock option may, if he or she is otherwise
eligible, be granted additional nonqualified stock options
if the Board shall so determine.
(c) The Board shall determine the individuals who
shall receive nonqualified stock options and the terms and
provisions of the nonqualified stock options, and shall
grant such nonqualified stock options to such individuals.
Notwithstanding the above, however, the Board may delegate
to the Personnel and Planning Committee the power to
determine the individuals who shall receive nonqualified
stock options, the terms and provisions of such nonqualified
stock options, and the power to grant nonqualified stock
options to such individuals.
(d) The purchase price of stock subject to each
nonqualified stock option shall be determined by the Board
(or the Personnel and Planning Committee, if authorized),
but shall not be less than the greater of $8.66 per share or
one hundred percent (100%) of the fair market value of such
stock at the time such option is granted. The fair market
value of such stock shall be determined in accordance with
any reasonable valuation method, including the valuation
methods described in Treasury Regulation 20.2031-2.
<PAGE>
(e) No nonqualified stock option pursuant to this
Plan shall be granted to any eligible individual, if such
option grant along with all other outstanding stock options
of such individual would result in such individual having
options to acquire a number of shares of the Company that
would in total be in excess of ten percent (10%) of the
outstanding shares of the Company.
5. Stock Subject to the Plan
Subject to adjustments as provided in Section 12,
hereof, the stock to be offered under the Plan shall be
shares of the Company's authorized but unissued common stock
(hereinafter called "stock") and the aggregate amount of
stock to be delivered upon exercise of all options granted
under this Plan shall not exceed 657,446 shares. If any
option shall be canceled, surrendered or expire for any
reason without having been exercised in full, the underlying
shares subject thereto shall again be available for purposes
of this Plan.
6. Continuation of Employment
Nothing contained in the Plan (or in any option
agreement) shall obligate the Company or any subsidiary
corporation to employ any optionee for any period or
interfere in any way with the right of the Company or a
subsidiary corporation to reduce the optionee's
compensation. However, except as otherwise permitted in the
Plan, the Company may not change the terms of any option
without the approval of the optionee.
7. Exercise of Options
(a) Procedure for Exercise of Options. No option
shall be exercisable until all necessary regulatory and
shareholder approvals for this Plan are obtained. Except as
otherwise provided in this section, each option shall be
exercisable in such installments, which need not be equal or
identical, and upon such contingencies as the Board (or the
Personnel and Planning Committee, if authorized) shall
determine; provided, however, that if an optionee shall not
in any given installment period purchase all of the shares
which the optionee is entitled to purchase in such
installment period, the optionee's right to purchase any
shares not purchased in such installment period shall
continue until expiration or termination of such option.
Fractional share interests shall be disregarded, except that
they may be accumulated. Not less than ten (10) shares may
be purchased at any one time unless the number of shares
purchased is the total number of shares which is exercisable
at such time. Options shall be exercised by written notice
delivered to the Company stating the number of shares with
respect to which the option is being exercised. Payment of
the exercise price shall be made either (i) in cash
(including check, bank draft or money order), or (ii) with
the consent of the Board (or the Personnel and Planning
Committee, if authorized) and subject to Section 7(b), by
delivering shares of common stock already owned by the
optionee, or (iii) by a combination of these forms of
payment. If the option is being exercised by any person
other than the optionee, said notice shall be accompanied by
proof, satisfactory to counsel for the Company, of the right
of such person to exercise the option. Optionees will have
no rights as shareholders with respect to stock of the
Company subject to their stock option agreements until the
date of issuance of the stock certificate to them.
<PAGE>
(b) Payment with Stock. With the consent of the
Board (or the Personnel and Planning Committee, if
authorized), the optionee may deliver common stock already
owned by the optionee, valued at fair market value as of the
closing date, in full or partial payment of the exercise
price of the shares of common stock subject to any option;
provided, however, that no common stock already owned by the
optionee which is "statutory option stock" as defined in
Section 424(c)(3) of the Code may be delivered in payment of
the exercise price if the applicable holding period
requirements for such common stock under Sections 422(a)(1)
or 423(a)(1) of the Code have not been met at the time of
exercise.
(c) Cashless Exercise. With the consent to the
Board (or the Personnel and Planning Committee, if
authorized) and subject to applicable holding periods after
grant of an option, an optionee may engage through a broker
in a "cashless exercise," pursuant to which the optionee
sells all or some of the shares acquired substantially
simultaneously with the exercise of the option and remits to
the Company net proceed of the sale equal to the exercise
price, and in such case the Company shall cooperate with the
optionee in this process; provided, the optionee shall bear
any costs of such process.
(d) Tax Withholding on Options Exercised by an
Employee. The Company will not deliver shares to an
employee/optionee upon the exercise of an option unless the
optionee has agreed to satisfactory arrangements for meeting
all applicable federal, state, and local tax withholding
requirements; provided, however, that the Board (or the
Personnel and Planning Committee, if authorized) may permit
an employee who exercises a non-qualified stock option to
satisfy all or part of his or her withholding tax
obligations by having the Company withhold a portion of the
shares that otherwise would be issued to him or her upon
exercise of the non-qualified stock options.
8. Nontransferability of Options
Each option shall, by its terms, be
nontransferable by the optionee other than by will or the
laws of descent and distribution, and shall be exercisable
during his or her lifetime only by the optionee; provided,
however, that any non-qualified option may be transferred by
the optionee to any member of the optionee's immediate
family, to a partnership the members of which are all
members of the optionee's immediate family, or to a family
trust the beneficiaries of which are all members of the
optionee's immediate family.
9. Cessation of Directorship or Employment
Except as provided in Sections 10 and 20 hereof,
if an optionee ceases to be a director or an employee of the
Company or a subsidiary corporation for any reason other
than his or her disability (as defined in Section 22(e)(3)
of the Code) or death, the optionee's option shall expire
ninety (90) days (or, in the case of a non-qualified option,
following such longer period as may be specified by the
Board or the Personnel and Planning Committee, if
authorized) after the date of termination of such
directorship or employment. During the period after
cessation of directorship or employment, such option shall
be exercisable only as to those installments, if any, which
have accrued and/or vested as of the date on which the
optionee ceased to be a director or employee of the Company
or a subsidiary corporation.
<PAGE>
10. Termination of Employment for Cause
If the stock option agreement so provides and if
an optionee's employment by the Company or a subsidiary
corporation is terminated for cause, the optionee's option
shall expire immediately, provided, however, the Board may,
in its sole discretion, within thirty (30) days of such
termination, reinstate the option by giving written notice
of such reinstatement to optionee at the optionee's last
known address. In the event of such reinstatement, the
optionee may exercise this option only to such extent, for
such time, and upon such terms and conditions as if he or
she had ceased to be employed by the Company or a subsidiary
corporation upon the date of such termination for a reason
other than cause, disability or death. Termination for
cause shall include, but not be limited to, termination for
malfeasance or gross misfeasance in the performance of
duties or conviction of illegal activity in connection
therewith.
11. Disability or Death of Optionee
If any optionee dies while serving as a director
or employee of the Company or a subsidiary corporation, the
option shall expire one (1) year after the date of such
death, except as provided in Section 20 hereof. After such
death but before such expiration, the persons to whom the
optionee's rights under this option shall have passed by
will or by the applicable laws of descent and distribution
or the executor or administrator of optionee's estate shall
have the right to exercise such option to the extent that
installments, if any, had accrued and/or vested as of the
date on which the optionee ceased to be director or employee
of the Company or a subsidiary corporation.
If the optionee shall terminate his or her
directorship or employment because of disability (as defined
in Section 22(e) (3) of the Code), the optionee may exercise
this option to the extent he or she is entitled to do so at
the date of termination at any time within one (1) year of
the date of termination, except as provided in Section 20
hereof.
If any optionee dies during the ninety (90) day
period referred to in Section 9 hereof, the option shall
expire one (1) year after the date of such death, except as
provided in Section 20 hereof .
12. Adjustment Upon Changes in Capitalization
If the outstanding shares of the stock of the
Company are increased, decreased, changed into or exchanged
for a different number or kind of shares or securities of
the Company through reorganization, merger,
recapitalization, reclassification, stock split, stock
dividend, stock consolidation or otherwise, without
consideration to the Company, an appropriate and
proportionate adjustment shall be made in the number and
kind of shares as to which options may be granted. A
corresponding adjustment changing the number or kind of
shares and the exercise price per share allocated to
unexercised options or portions thereof, which shall have
been granted prior to any such change shall likewise be
made. Any adjustment under this Section 12 shall be made by
the Board, whose determination as to what adjustments shall
be made, and the extent thereof, shall be final and
conclusive. No fractional shares of stock shall be issued
<PAGE>
or made available under the Plan on account of any such
adjustment, and fractional share-interests shall be
disregarded, except that they may be accumulated.
13. Effect of 1996 and 1997 Stock Dividends.
The references in Sections 3(f) and 4(d) of this
Plan to the per share exercise price of options and the
reference in Section 5 of this Plan to the number of shares
available under the Plan for grants of options have been
adjusted to reflect a 10 percent stock dividend paid to
shareholders of record as of February 5, 1996 and a 5
percent stock dividend paid to shareholders of record as of
February 5, 1997.
14. Terminating Events
A Terminating Event shall be defined as any one of
the following events: (i) a dissolution or liquidation of
the Company; (ii) a reorganization, merger or consolidation
of the Company with one or more corporations, the result of
which (A) the Company is not the surviving corporation or
(B) the Company becomes a subsidiary of another corporation
(which shall be deemed to have occurred if another
corporation shall own directly or indirectly, over 80% of
the aggregate voting power of all outstanding equity
securities of the Company); (iii) a sale of substantially
all the assets of the Company to another corporation; or
(iv) a sale of the equity securities of the Company
representing more than 80% of the aggregate voting power of
all outstanding equity securities of the Company to any
person or entity, or any group of persons and/or entities
acting in concert. Upon a Terminating Event (i) the Company
shall deliver to each optionee no less than thirty (30) days
prior to the Terminating Event, written notification of the
Terminating Event and the optionee's right to exercise all
options granted pursuant to this Plan, whether or not vested
under this Plan or applicable stock option agreement, and
(ii) all outstanding options granted pursuant to this Plan
shall completely vest and become immediately exercisable as
to all shares granted pursuant to the option immediately
prior to such Terminating Event. This right of exercise
shall be conditional upon execution of a final plan of
dissolution or liquidation or a definitive agreement of
consolidation or merger. Upon the occurrence of the
Terminating Event all then outstanding options and the Plan
shall terminate; provided, however, that any outstanding
options not exercised as of the occurrence of the
Terminating Event shall not terminate if there is a
successor corporation which assumes the outstanding options
or substitutes for such options, new options covering the
stock of the successor corporation with appropriate
adjustments as to the number and kind of shares and prices.
15. Amendment and Termination
The Board may at any time suspend, amend or
terminate the Plan and may, with the consent of the
optionee, make such modification of the terms and conditions
of the option as it shall deem advisable; provided that,
except as permitted under the provision of Section 12 and 13
hereof, no amendment or modification which would:
(a) increase the maximum number of shares which may be
purchased pursuant to options granted under the
Plan either in the aggregate or by an individual;
<PAGE>
(b) change the minimum option price;
(c) increase the maximum term of options provided for herein; or
(d) permit options to be granted to anyone other than
directors, full-time salaried officers (including
a full-time salaried officer who is also a
director) or key employees of the Company or a
subsidiary corporation;
may be adopted without the Company having first obtained any
necessary regulatory and shareholder approvals required by
law. No option may be granted during any suspension or
after termination of the Plan. Amendment, suspension or
termination of the Plan shall not (except as otherwise
provided in Section 12 hereof ), without the consent of the
optionee, alter or impair any rights or obligations under
any option theretofore granted.
16. Time of Granting Options
The time an option is granted, sometimes referred
to as the date of grant, shall be the day of the action of
the Board (or Personnel and Planning Committee, if
authorized) described in Sections 3(c) and 4(c) hereof;
provided, however, that if appropriate resolutions of the
Board (or the Personnel and Planning Committee, if
authorized) indicate that an option is granted as of and on
some future date, the time such option is granted shall be
such future date. If action by the Board (or the Personnel
and Planning Committee, if authorized) is taken by unanimous
written consent of its members, the action of the Board (or
the Personnel and Planning Committee) shall be deemed to be
at the time the last Board (or Personnel and Planning
Committee) member signs the consent.
17. Privileges of Stock Ownership: Securities Law Compliance
No optionee shall be entitled to the privileges of
stock ownership as to any shares of stock not actually
issued. No shares shall be purchased upon the exercise of
any option unless and until all applicable requirements of
any regulatory agency having jurisdiction over the Company
and all applicable requirements of any exchange upon which
stock of the Company may be listed, shall have been fully
complied with.
18. Effective Date of the Plan
The Plan shall be deemed adopted by the Board as
of June 6, 1994 and shall be effective immediately subject
to approval by the shareholders of the Company (within one
year after adoption by the Board) by vote of a majority of
the outstanding shares represented and voting at a meeting
of shareholders and by a majority of the disinterested
shares represented and voting at the meeting of the
shareholders, and the approval of the California State
Banking Department.
<PAGE>
19. Termination
Unless previously terminated by the Board, the
Plan shall terminate at the close of business on a date ten
(10) years from the earlier of the date of approval by the
Company's outstanding shares or the date of adoption of this
Plan by the Board. No options shall be granted under the
Plan thereafter, but such termination shall not affect any
option theretofore granted.
20. Option Agreement
Each option shall be evidenced by a written stock
option agreement executed by the Company and the optionee
and shall contain each of the provisions and agreements
herein specifically required to be contained therein, and
such other terms and conditions as are deemed desirable and
are not inconsistent with the Plan. A copy of the stock
option agreement and this Plan shall be furnished to each
optionee.
21. Option Period
Each option and all rights and obligations
thereunder shall expire on such date as the Board (or the
Personnel and Planning Committee if authorized) may
determine, but not later than ten (10) years from the date
such option is granted, and shall be subject to earlier
termination as provided elsewhere in the Plan.
HERITAGE BANK OF COMMERCE
Exhibit 5.1
[Letterhead of McCutchen, Doyle, Brown and Enersen LLP]
July 16, 1998 (415) 393-2000
Heritage Commerce Corp
150 Alamden Boulevard
San Jose, CA 95113
Registration Statement on Form S-8
Ladies and Gentlemen:
We have acted as counsel for Heritage Commerce
Corp, a California corporation, (the "Company"), in
connection with the Registration Statement on Form S-8 (the
"Registration Statement") filed by the Company with the
Securities and Exchange Commission under the Securities Act
of 1933, as amended, relating to the registration of
1,106,169 shares of the Company's common stock to be issued
under the Heritage Commerce Corp 1994 Tandem Stock Option Plan (the "Plan").
We are of the opinion that the securities to be
issued by the Company under the Plan and pursuant to the Registration
Statement have been duly authorized and, when sold pursuant to the
terms described in the Registration Statement, will be duly
and validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as
Exhibit 5.1 to the Registration Statement.
Very truly yours,
McCUTCHEN, DOYLE, BROWN & ENERSEN, LLP
By A Member of the Firm
EXHIBIT 23.2
[Letterhead of Deloitte & Touche LLP]
Suite 800 Telephone: (408) 998-4000
60 South Market Street
San Jose, California 95113-2303
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Heritage Commerce Corp on Form S-8 of our report dated January 23, 1998,
appearing in Annual Report on Form 10-K of Heritage Commerce Corp for the year
ended December 31, 1997, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
San Jose, California
July 13, 1998
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Heritage Bank of Commerce
We consent to the use of our report on the financial statements of Heritage
Bank of Commerce as of December 31, 1996, and for each of the years in the
two-year period ended December 31, 1996, incorporated herein by reference.
/s/ KPMG Peat Marwick LLP
Mountain View, California
July 13, 1998
