HERITAGE COMMERCE CORP, DEF 14A, 1999-04-15

HERITAGE COMMERCE CORP
DEF 14A, 1999-04-15
STATE COMMERCIAL BANKS

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<PAGE> 1
SCHEDULE 14A - INFORMATION REQUIRED IN PROXY STATEMENT

Schedule 14A Information

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Premliminary Proxy Statement
[ ] Confidential, for use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to "240.14a-11(c) or "240.14a-12

Heritage Commerce Corp
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11

(1) Title of each class of securities to which transaction applies:

------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:

------------------------------------------------------------------------
(3) Per unit price or other underlying value of transactions computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):

------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:

------------------------------------------------------------------------
(5) Total fee paid:

------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:

------------------------------------------------------------------------
(3) Filing Party:

------------------------------------------------------------------------
(4) Date Filed:

------------------------------------------------------------------------
(Amended by Sec Act Rel No. 7331; Exch Act Rel No. 37692, eff. 10/7/96.)

<PAGE> 2

HERITAGE
COMMERCE CORP
150 ALMADEN BOULEVARD
SAN JOSE, CALIFORNIA 95113
TELEPHONE (408) 947-6900 - FAX (408) 947-6910

April 15, 1999

Dear Shareholder:

We are pleased to enclose our 1998 Annual Report, Notice of 1999 Annual
Meeting, Proxy Statement and Form of Proxy.

You are cordially invited to attend the 1999 Annual Meeting of
Shareholders, which will be held at 3:30 p.m. on Thursday, May 27, 1999 at
Heritage Commerce Corp's offices, located at 150 Almaden Boulevard, San Jose,
California 95113.

The accompanying Notice of Annual Meeting and Proxy Statement provide
information pertaining to the matters to be considered and acted upon at the
Meeting.

Your continued support is appreciated and we hope you will attend the
Annual Meeting. Whether or not you are personally present, it is very important
that your shares be represented at the Meeting. Accordingly, please sign, date,
and mail the enclosed Proxy promptly. If you wish to vote in accordance with the
Board of Directors' recommendations, it is not necessary to specify your
choices. You may simply sign, date and return the enclosed proxy card.

Sincerely,
/s/ BRAD L. SMITH /s/ JOHN E. ROSSELL III
Brad L. Smith John E. Rossell III
Chairman of the Board President and Chief Executive Officer
<PAGE> 3

HERITAGE
COMMERCE CORP
------------------------

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

The Annual Meeting of Shareholders of Heritage Commerce Corp ("Commerce
Corp") will be held at Commerce Corp's offices, located at 150 Almaden
Boulevard, San Jose, California 95113 on May 27, 1999, at 3:30 p.m. for the
following purposes:

1. To elect the following nominees to serve as directors of Commerce Corp
until the next Annual Meeting of Shareholders and until their successors
shall be elected and qualified:

<TABLE>
<S> <C> <C>
Frank G. Bisceglia P. Michael Hunt
James R. Blair John W. Larsen
Arthur C. Carmichael, Jr. Louis ("Lon") O. Normandin
Richard L. Conniff Jack L. Peckham
William J. Del Biaggio, Jr. Robert W. Peters
Anneke Dury Humphrey P. Polanen
Tracey A. Enfantino John E. Rossell III
Glenn A. George Kirk M. Rossmann
Robert P. Gionfriddo Brad L. Smith
</TABLE>

2. To increase the number of shares available under the Heritage Commerce
Corp Restated 1994 Tandem Stock Option Plan for grants of options to
directors and key employees of Commerce Corp and its subsidiary banks.

3. To ratify the Board of Directors' selection of Deloitte & Touche LLP,
independent certified public accountants, to serve as Commerce Corp's
auditors for the fiscal year ending December 31, 1999.

4. To consider and transact such other business as may properly be brought
before the meeting.

Shareholders of record at the close of business on April 8, 1999 are
entitled to notice of and to vote at the meeting.

Provisions of the Bylaws of Commerce Corp govern nominations for election
of members of the Board of Directors, as follows:

Nomination for election of members of the Board of Directors may be made by
the Board of Directors or by any shareholder of Commerce Corp entitled to vote
for the election of directors. Notice of intention to make any nominations shall
be made in writing and shall be delivered or mailed to the President of Commerce
Corp not less than 21 days nor more than 60 days prior to any meeting of
shareholders called for the election of directors; provided, however, that if
less than 21 days' notice of the meeting is given to shareholders, such notice
of intention to nominate shall be mailed or delivered to the President of
Commerce Corp not later than the close of business on the tenth day following
the day on which the notice of the meeting was mailed. Such notification shall
contain the following information to the extent known to the notifying
shareholder: (i) the name and address of each proposed nominee; (ii) the
principal occupation of each proposed nominee; (iii) the number of shares of
capital stock of the Company owned by each proposed nominee; (iv) the name and
residence address of the notifying shareholder; and (v) the number of shares of
capital stock of the Company owned by the notifying shareholder. Nominations not
made in accordance herewith may, in the discretion of the Chairman of the
meeting, be disregarded and upon the Chairman's instructions, the inspector[s]
of election can disregard all votes cast for each such nominee. A copy of this
paragraph shall be set forth in a notice to shareholders of any meeting at which
Directors are to be elected.

All shareholders are cordially invited to attend the meeting in person. To
ensure your representation at the meeting, you are requested to date, execute
and return the enclosed proxy card, without delay, in the enclosed postage-paid
envelope whether or not you plan to attend the meeting. Any shareholder present
at the
<PAGE> 4

meeting may vote personally on all matters brought before the meeting. If you
elect to vote personally at the meeting, your proxy will not be used.

BY ORDER OF THE BOARD OF DIRECTORS
/s/ REBECCA A. LEVY
Rebecca A. Levey
Corporate Secretary

April 15, 1999
San Jose, California

WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING,
PLEASE SIGN AND RETURN THE ENCLOSED PROXY
AS PROMPTLY AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
<PAGE> 5

PROXY STATEMENT
OF

HERITAGE COMMERCE CORP

150 ALMADEN BOULEVARD - SAN JOSE, CALIFORNIA 95113
TELEPHONE (408) 947-6900 - FAX (408) 947-6910

This statement is furnished in connection with the solicitation of proxies
to be used by the Board of Directors of Heritage Commerce Corp ("Commerce Corp")
at the Annual Meeting of Shareholders of the Company to be held at the Company's
offices, 150 Almaden Boulevard, San Jose, California, on May 27, 1999, at 3:30
p.m., and at any adjournments or postponements thereof ("Meeting").

This Proxy Statement and the accompanying form of proxy are being mailed to
shareholders on or about April 15, 1999.

A form of proxy for voting your shares at the Meeting is enclosed. Any
shareholder who executes and delivers a proxy has the right to revoke it at any
time before it is voted by filing with the Corporate Secretary of Commerce Corp,
an instrument revoking said proxy or a duly executed proxy bearing a later date.
In addition, the powers of the proxyholders will be revoked if the person
executing the proxy is present at the Meeting and advises the Chairman of his or
her election to vote in person. Unless revoked, all shares represented by a
properly executed proxy, received prior to the Meeting will be voted as
specified by each shareholder in the proxy. If no specifications are given by a
shareholder, then the proxy will be voted in favor of election of nominees
specified, the approval of amendment of the Restated 1994 Tandem Stock Option
Plan, the ratification of the Board's selection of independent accountants, and
in favor of such other business as may properly come before the Meeting as
described below.

The proxy also confers discretionary authority to vote the shares
represented thereby on any matter that was not known at the time this Proxy
Statement was mailed which may properly be presented for action at the Meeting
and may include: action with respect to procedural matters pertaining to the
conduct of the Meeting and election of any person to any office for which a bona
fide nominee is named herein, if such nominee is unable to serve or for good
cause will not serve.

The enclosed proxy is being solicited by Commerce Corp's Board of Directors
and the cost of the solicitation is being borne by Commerce Corp. The principal
solicitation of proxies is being made by mail, although additional solicitation
may be made by telephone, telegraph, facsimile or personal visits by directors,
officers and employees of Commerce Corp and its subsidiary banks.

PURPOSE OF THE MEETING

The Meeting is being held for the following purposes:

1. To elect 18 directors (the entire Board of Directors) to serve until the
next annual meeting of shareholders and until their successors shall be
elected and qualified.

3. To ratify the Board of Directors' selection of Deloitte & Touche LLP,
independent certified public accountants, to serve as the Company's
auditors for the fiscal year ending December 31, 1999.

4. To consider and transact such other business as may properly be brought
before the meeting.

VOTING SECURITIES

Shareholders of record as of the close of business on April 8, 1999
("Record Date") will be entitled to notice of and to vote at the Meeting. As of
such date, the Company had 5,561,656 shares of common stock

1
<PAGE> 6

outstanding. Unless otherwise noted, all per share information has been adjusted
to reflect a 10 percent stock dividend paid to shareholders of record as of
February 5, 1996, a 5 percent stock dividend paid to shareholders of record as
of February 5, 1997, a 3 for 2 stock split paid to shareholders of record as of
August 1, 1997, and a 3 for 2 stock split paid to shareholders of record as of
February 5, 1999.

Each shareholder of record is entitled to one vote, in person or by proxy,
for each share held on all matters to come before the meeting, except that
shareholders may have cumulative voting rights with respect to the election of
directors.

Cumulative voting allows the shareholder to cast a number of votes equal to
the number of directors to be elected, 18, multiplied by the number of votes
held by the shareholder on the Record Date. This total number of votes may be
cast for one nominee or may be distributed among as many candidates as the
shareholder desires.

Pursuant to California law, no shareholder may cumulate votes for a
candidate unless such candidate or candidates' names have been placed in
nomination prior to the voting and the shareholder has given notice at the
Meeting prior to the voting of the shareholder's intention to cumulate the
shareholder's votes. If any shareholder has given such notice, all the
shareholders may cumulate their votes for the candidates who have been
nominated.

The Board of Directors does not, at this time, intend to give such notice
or to cumulate the votes it may hold pursuant to the proxies solicited herein
unless the required notice by a shareholder is given. In the event such notice
is provided, the votes represented by proxies delivered pursuant to this Proxy
Statement may be cumulated in the discretion of proxyholders, in accordance with
the recommendations of the Board of Directors. Therefore, discretionary
authority to cumulate votes in such event is solicited in this Proxy Statement.

In the election of directors, the 18 candidates receiving the highest
number of votes will be elected. The increase in the number of shares available
for grants of stock options under Commerce Corp's Restated 1994 Tandem Stock
Option Plan (the "Stock Option Plan") must be approved by a majority of all
shares represented and voting at the Meeting. Ratification of the selection of
Deloitte & Touche as the Company's auditors also requires the affirmative vote
of a majority of all shares represented and voting at the Meeting. Broker
non-votes (i.e., shares held by brokers or nominees which are represented at the
meeting but with respect to which the broker or nominee is not authorized to
vote on a particular proposal) and abstentions will not be counted, except for
quorum purposes, and will have no effect on the election of directors. In
determining whether the requisite shareholder approval has been received for the
increase in the number of shares available under the Stock Option Plan and for
ratification of the selection of auditors, abstentions will have the same effect
as a vote against the matter and broker non-votes will be disregarded and have
no effect on the outcome of the vote.

2
<PAGE> 7

PROPOSAL 1

ELECTION OF DIRECTORS

The Bylaws of Commerce Corp provide that the number of directors shall not
be less than 11 nor more than 21. By resolution, the Board of Directors has
fixed the number of directors at 18.

The Bylaws of Commerce Corp provide the procedure for nomination and
election of the Board of Directors. This procedure is printed in full in the
Notice of Annual Meeting of Shareholders accompanying this Proxy Statement.
Nominations not made in accordance with the procedures may be disregarded by the
Chairman of the Meeting, and upon his instructions, the Inspector of Election
shall disregard all votes cast for such nominees.

Votes will be cast in such a way as to effect the election of all nominees
or as many as possible under the rules of cumulative voting. If any nominee
should become unable or unwilling to serve as a director, either (i) the proxies
will be voted for such substitute nominees as shall be designated by the Board
of Directors, or (ii) the number of nominees may be reduced. The Board of
Directors presently has no knowledge that any of the nominees will be unable or
unwilling to serve. The 18 nominees receiving the highest number of votes at the
Meeting shall be elected.

NOMINEES FOR DIRECTOR

The persons named below have been nominated by the current Board of
Directors for election as directors to serve until the next Annual Meeting and
until their successors are duly elected and qualified. For information
pertaining to stock ownership of each of the nominees, reference can be made to
the "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" section of
this Proxy Statement.

3
<PAGE> 8

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
POSITION WITH DIRECTOR DURING PAST FIVE YEARS
NAME AGE COMMERCE CORP SINCE AND OTHER INFORMATION
---- --- ---------------- -------- -----------------------------------------
<S> <C> <C> <C> <C>
William J. Del Biaggio, Jr.... 58 Director 1994 Chairman of MED-COR Health Information
Systems, Inc., a release of information
and staff outsourcing company, since
1996; and President of Heritage Beverage
Company, a beverage importer-brokerage
firm, since 1994.
Anneke Dury................... 54 Director 1994 Independent Financial Consultant for
various Santa Clara County technology
companies.
Tracey Enfantino.............. 38 Director 1994 General Manager of Environmental Systems,
Inc., a mechanical contracting company.
Glenn A. George............... 68 Director 1994 Chairman of the Board of Joseph George
Distributor, a wine distribution firm.
Robert P. Gionfriddo.......... 53 Executive Vice 1994 Executive Vice President, Heritage Bank
President and of Commerce since 1994; from 1990 to
Director 1993, Executive Vice President at Silicon
Valley Bank; and from 1981 to 1990,
Executive Vice President at Plaza Bank of
Commerce.
P. Michael Hunt............... 55 Director 1994 President, Hunt & Associates Insurance
Service, Inc., an employee benefits, life
insurance and retirement planning firm.
John W. Larsen................ 64 Director 1998 Vice President of Loan Supervision for
U.S. Bank from 1996 to 1997, Executive
Vice President and Chief Credit Officer
of California Bancshares from 1988
through 1996.
Louis ["Lon"] O. Normandin.... 64 Director 1994 Owner and President of Normandin
Chrysler-Plymouth Jeep.
Jack L. Peckham............... 57 Director 1994 President and CEO of Lightspeed
Semiconductor since January 1998; Vice
President/General Manager of Atmel
Corporation, a semiconductor
manufacturing company from 1985 to 1998.
Robert W. Peters.............. 59 Director 1994 Private investor in technology companies
since 1990; and from 1988 to 1990, Vice
President of Cisco Systems, a networking
firm.
Humphrey P. Polanen........... 49 Director 1994 President and CEO, Trustworks Systems, an
internet security company, since February
1998; General Manager, Network Security
Products Group, Sun Microsystems, a
computer systems company, 1997 to
February 1998; General Manager, Internet
Commerce Group, Sun Microsystems, from
1995 to 1997; and from 1981 to 1995,
Director of Worldwide Business
Development at Tandem Computers.
</TABLE>

4
<PAGE> 9

There are no family relationships among any of Commerce Corp's Executive
Officers, Directors or Director nominees.

No director or nominee chosen by the Board of Directors is a director of
any other company with a class of securities registered pursuant to Section 12
of the Securities Exchange Act of 1934, or subject to the requirements of
Section 15(d) of such Act or of any company registered as an investment company
under the Investment Company Act of 1940.

EXECUTIVE OFFICERS OF COMMERCE CORP

Set forth below is certain information with respect to the Executive
Officers of Commerce Corp.

<TABLE>
<CAPTION>
NAME AGE POSITION OFFICER SINCE
---- --- -------- -------------
<S> <C> <C> <C>
John E. Rossell III.... 51 President and Chief Executive Officer 1994
Robert P. Gionfriddo... 53 Executive Vice President and Chief Business 1994
Development Officer
Kenneth A. Corsello.... 48 Executive Vice President and Chief Credit 1994
Officer
Kenneth B. Silveira.... 54 Executive Vice President/Operations and 1994
Administration
Lawrence D. McGovern... 44 Executive Vice President/Chief Financial Officer 1998
</TABLE>

For each officer who became an officer of Heritage Bank of Commerce before
the inception of the Company in 1997, the date shown is the officer's
commencement date as an officer of Heritage Bank of Commerce. A brief summary of
the background and business experience of the Executive Officers of the Company
who have not previously been described is set forth below:

Kenneth A. Corsello has served as an Executive Vice President since 1996
and as Chief Credit Officer of Heritage Bank of Commerce since 1995, and of
Heritage Commerce Corp since 1998. From 1994 to 1995, Mr. Corsello served as
Senior Vice President/Credit Administrator with Cupertino National Bank, and
from 1990 to 1994, as a Department Head with the Federal Deposit Insurance
Corporation.

Kenneth B. Silveira served as Senior Vice President/Operations and
Administration of Heritage Bank of Commerce from 1994 to 1997. He has served as
Executive Vice President of Operations and Administration since December 1997
and of Heritage Commerce Corp since 1998. From 1965 to 1993 Mr. Silveira served
as Vice President and Branch Manager, as Secretary of the Corporate Pricing
Committee, and as Division Controller at Bank of America.

Lawrence D. McGovern has served as Executive Vice President/Chief Financial
Officer of Heritage Commerce Corp since July 1998. From August 1997 to June
1998, Mr. McGovern served as an independent

5
<PAGE> 10

financial analyst for several companies. From 1995 to 1997, Mr. McGovern served
as Chief Financial Officer of Business & Professional Bank and from 1994 to
1995, as Chief Financial Officer of Capitol Bank.

SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of the Record Date pertaining
to beneficial ownership of Commerce Corp's common stock (the sole class of stock
outstanding) by persons known to Commerce Corp to own five percent or more of
Commerce Corp's common stock, current directors of Commerce Corp, nominees to be
elected to the Board of Directors, and all directors and officers(1)of Commerce
Corp as a group. This information has been obtained from Commerce Corp's
records, or from information furnished directly by the individual or entity to
Commerce Corp.

For purposes of the following table, shares issuable pursuant to stock
options which may be exercised within 60 days of the Record Date, are deemed to
be issued and outstanding and have been treated as outstanding in determining
the amount and nature of beneficial ownership and in calculating the percentage
of ownership of those individuals possessing such interest, but not for any
other individuals. Thus, the total number of shares considered to be outstanding
for the purposes of this table may vary depending upon the individual's
particular circumstance.

<TABLE>
<CAPTION>
SHARES
RELATIONSHIP WITH BENEFICIALLY EXERCISABLE PERCENT OF
NAME OF BENEFICIAL OWNER(1) COMMERCE CORP OWNED(2)(3) OPTIONS CLASS(3)
--------------------------- ------------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Frank G. Bisceglia.............. Director 95,913(4) 28,692 1.7%
James R. Blair.................. Director 44,317(5) 23,494 0.8
Arthur C. Carmichael, Jr........ Director 65,791(6) 23,494 1.2
Richard L. Conniff.............. Director 16,087(7) 11,250 0.3
William J. Del Biaggio, Jr...... Director 147,438(8) 28,692 2.7
Anneke Dury..................... Director 34,209(9) 28,692 0.6
Tracey A. Enfantino............. Director 40,650(10) 23,494 0.7
Glenn A. George................. Director 108,080(11) 10,500 1.9
Robert P. Gionfriddo............ Executive Vice 207,467(12) 140,437 3.7
President &
Director
P. Michael Hunt................. Director 74,393(13) 23,494 1.3
John W. Larsen.................. Director 7,583(14) 1,583 0.1
Louis ("Lon") O. Normandin...... Director 115,406(15) 23,494 2.1
Jack L. Peckham................. Director 179,419(16) 23,494 3.2
Robert W. Peters................ Director 147,052(17) 28,692 2.6
Humphrey P. Polanen............. Director 59,358(18) 28,692 1.1
John E. Rossell III............. President, Chief 146,772(19) 140,437 2.6
Executive Officer &
Director
Kirk M. Rossmann................ Director 66,370(20) 23,494 1.2
Brad L. Smith................... Chairman & Director 9,375 9,375 0.2
All directors and executive 1,654,780 707,532 29.8
officers as a group (21 in
number*)......................
</TABLE>

- ---------------
* Included in the total, but not individually listed, are three executive
officers, whose combined beneficial ownership totals 89,100 shares and
exercisable options (which equals approximately 1.6 percent of class).

- ---------------

(1) As used throughout this Proxy Statement, the terms "Officer" and
"Executive Officer" refer to the President and Chief Executive Officer; the
Executive Vice President and Chief Business Development Officer; the Executive
Vice President and Chief Credit Officer; the Executive Vice President/Operations
and Administration; and the Executive Vice President and Chief Financial
Officer. 6
<PAGE> 11

(1) The address for all persons is c/o Heritage Commerce Corp, 150 Almaden
Boulevard, San Jose, California, 95113.

(2) Subject to applicable community property laws and shared voting and
investment power with a spouse, the persons listed have sole voting and
investment power with respect to such shares unless otherwise noted. Listed
amounts reflect (i) a 10 percent stock dividend which was paid on February
26, 1996 to shareholders of record as of February 5, 1996, (ii) a 5 percent
stock dividend which was paid on February 26, 1997 to shareholders of
record as of February 5, 1997, (iii) a 3 for 2 stock split which was paid
on August 15, 1997 to shareholders of record as of August 1, 1997 and (iv)
a 3 for 2 stock split which was paid on February 19, 1999 to shareholders
of record as of February 5, 1999.

(3) Includes shares beneficially owned (including options exercisable within 60
days of the Record Date, as shown in the "Exercisable Options" column),
both directly and indirectly together with associates.

(4) Includes 3,897 shares held as trustee of the Edith Lico Simoni Trust, 5,811
shares as custodian for Thomas J. Bisceglia and 5,811 shares as custodian
for Laura M. Bisceglia under the Uniform Gift to Minors Act, 45,477 shares
as one of two trustees of the Bisceglia Family Trust, and 6,225 shares held
in a personal Individual Retirement Account.

(5) Includes 12,048 shares held in a personal Individual Retirement Account and
8,775 shares held as trustee for the Blair Family Trust.

(6) Includes 34,905 shares held in a personal Individual Retirement Account,
5,032 shares held as trustee of the Arthur and Jean Carmichael Living
Trust, 1,180 shares held as trustee for Jennifer M. Carmichael, and 1,180
shares held as trustee for Arthur C. Carmichael, III.

(7) Includes 3,967 shares held in a personal individual retirement account.

(8) Includes 59,062 shares held in a personal Individual Retirement Account,
54,337 shares as one of two trustees of the Del Biaggio Family Trust, 5,197
shares held in the name of Helen N. Del Biaggio, his wife, and 150 shares
held as custodian for William Del Biaggio IV, his grandson.

(9) Includes 5,517 shares held in a personal Individual Retirement Account.

(10) Includes 15,859 shares held in the Environmental Systems, Inc. of
California Profit Sharing Plan, of which she is one of three trustees.

(11) Includes 77,960 shares held as one of two trustees for the George and
Noelle Trust, 18,675 shares held in personal Individual Retirement
Accounts, and 945 shares held by Joseph George Distributor, Inc., of which
he is Chairman of the Board.

(12) Includes 51,975 shares held in a personal Individual Retirement Account and
2,835 shares held in the Heritage Commerce Corp 401K Plan.

(13) Includes 26,812 shares held by the Hunt and Associates Insurance Service,
Inc. Profit Sharing Plan, 1,297 shares held in the name of Allison L. Hunt,
1,297 shares held in the name of Jason M. Hunt, 1,297 shares held in the
name of Michelle Keswick, and 20,196 shares held in the Hunt Family Trust.

(14) Includes 6,000 shares held as one of two trustees for the Larsen Family
Trust.

(15) Includes 91,912 shares as trustee of the Louis and Margaret Normandin
Trust.

(16) Includes 155,925 shares as one of two trustees for the Peckham Revocable
Trust.

(17) Includes 118,360 shares as one of two trustees for the Robert and Carolyn
Peters Trust.

(18) Includes 10,347 shares held in a personal Individual Retirement Account,
and 567 shares held by Azieb Nicodimos, his wife.

(19) Includes 5,749 shares held in a personal Individual Retirement Account.

(20) Includes 25,986 shares held in a personal Individual Retirement Account,
and 3,897 shares held as custodian for Ty Rossmann under the Uniform Gift
to Minors Act.

7
<PAGE> 12

INDEBTEDNESS OF MANAGEMENT

Some of Commerce Corp's directors and executive officers, as well as their
immediate family and associates, are customers of, and have had banking
transactions with, the subsidiaries of Commerce Corp, Heritage Bank of Commerce
and Heritage Bank East Bay (the "Banks"), in the ordinary course of business,
and the Banks expect to have such ordinary banking transactions with these
persons in the future. In the opinion of management of Commerce Corp and the
Banks, all loans and commitments to lend included in such transactions were made
in the ordinary course of business on the same terms, including interest rates
and collateral, as those prevailing for comparable transactions with other
persons of similar creditworthiness, and do not involve more than the normal
risk of collectability or present other unfavorable features. Loans to
individual directors and officers must comply with their lending policies and
statutory lending limits. In addition, prior approval of the Board of Directors
is required for all such loans.

COMMITTEES OF THE BOARD OF DIRECTORS
OF HERITAGE COMMERCE CORP

AUDIT COMMITTEE

The members of the Audit Committee are Humphrey P. Polanen, Committee
Chairman, Tracey A. Enfantino, P. Michael Hunt, John W. Larsen, Louis ("Lon") O.
Normandin, Jack L. Peckham and Robert W. Peters.

The principal duties of the Audit Committee are the following: (i)
recommend the firm of independent certified public accountants for appointment
by the Board; (ii) meet with the independent certified public accountants to
review and approve the scope of their audit engagement and the fees related to
such work; (iii) meet with Commerce Corp's financial management, internal audit
management and independent certified public accountants to review matters
relating to internal accounting controls, the internal audit program, accounting
practices and procedures and other matters relating to the financial condition
of Commerce Corp and its subsidiaries; and (iv) periodically report to the Board
any conclusions or recommendations that the Audit Committee may have with
respect to such matters. The Audit Committee met four times during 1998.

PERSONNEL AND PLANNING COMMITTEE

The members of the Personnel and Planning Committee are Robert W. Peters,
Committee Chairman, Frank G. Bisceglia, Arthur C. Carmichael, Jr., Richard L.
Conniff, Tracey A. Enfantino, P. Michael Hunt, Jack L. Peckham, Humphrey P.
Polanen and John E. Rossell III.

The principal duties of the Personnel and Planning Committee are (i) the
selection, recruitment and performance evaluation of executive personnel; (ii)
making recommendations to the Board regarding the salary, benefits and incentive
compensation to be paid to executive officers of the Company and its subsidiary
banks; (iii) the development of corporate-wide compensation and benefits
policies; (iv) the development of the Company's personnel policies; (v) the
Company's compliance with laws and regulations pertaining to personnel,
compensation and employment matters; (vi) the development and presentation to
the Board for approval of the Company's mission statement and strategic plan;
(vii) the development of employee training and internal communications programs;
and (viii) in cooperation with the Company's Loan Committee, the development of
social responsibility programs and policies, including, but not limited to,
policies designed to ensure the Company's compliance with all state and federal
laws and regulations pertaining to equal employment opportunity, equal credit
opportunity and the Company's efforts to meet the credit needs of the
communities in which the Company and its subsidiaries do business. The Personnel
and Planning Committee met six times during 1998.

8
<PAGE> 13

LOAN COMMITTEE

The members of the Loan Committee are Frank G. Bisceglia, Committee
Chairman, James R. Blair, Arthur C. Carmichael, Jr., Richard L. Conniff, William
J. Del Biaggio, Jr., Glenn A. George, Robert P. Gionfriddo, Louis O. ("Lon")
Normandin, Robert W. Peters, John E. Rossell III, Kirk M. Rossmann and Brad L.
Smith.

The Loan Committee is responsible for the approval and supervision of loans
and the development of the Company's loan policies and procedures. The Loan
Committee met forty-four times during 1998.

FINANCE AND INVESTMENT COMMITTEE

The members of the Finance and Investment Committee are Anneke Dury,
Committee Chairwoman, Frank G. Bisceglia, James R. Blair, Richard L. Conniff,
William J. Del Biaggio, Jr., Robert W. Peters and John E. Rossell, III.

The Finance and Investment Committee is responsible for the development of
policies and procedures related to liquidity and asset-liability management,
supervision of the Company's investments and preparation of the Company's annual
budget. The Finance and Investment Committee met twelve times during 1998.

The Company and its subsidiary Banks do not have executive or nominating
committees. The Board of Directors performs the functions of these committees.

During 1998, the Company's Board of Directors held twelve regular meetings.
Except for James R. Blair, Arthur C. Carmichael, Jr., Humphrey P. Polanen, and
Kirk M. Rossmann, each director attended at least 75 percent of the aggregate
of: (1) the total number of meetings of the Board of Directors; and (2) the
total number of meetings of board committees on which that director served.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires Commerce
Corp's directors and executive officers, and persons who own more than ten
percent of a registered class of Commerce Corp's equity securities, to file with
the Securities and Exchange Commission initial reports of ownership and reports
of changes in ownership of common stock and other equity securities of Commerce
Corp. Officers, directors and greater than ten percent shareholders are required
by SEC regulations to furnish Commerce Corp with copies of all Section 16(a)
forms they file.

To Commerce Corp's knowledge, based solely on review of the copies of such
reports furnished to Commerce Corp and written representations that no other
reports were required, during the year ended December 31, 1998, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.

TRANSACTIONS WITH MANAGEMENT AND OTHERS

During 1998 Commerce Corp paid one director, William J. Del Biaggio, Jr.,
$65,000 in connection with the terms of a consulting agreement pursuant to which
Mr. Del Biaggio assisted in the development of Commerce Corp's strategy of
organizing de novo banks in Fremont and South Valley. There are no other
existing or proposed material transactions between Commerce Corp and any of
Commerce Corp's directors, executive officers, nominees for election as a
director, or the immediate family or associates of any of the foregoing persons.

CHANGE IN CONTROL

Management is not aware of any arrangements, including the pledge by any
person of shares of Commerce Corp, the operation of which may at a subsequent
date, result in a change in control of Commerce Corp.
9
<PAGE> 14

EXECUTIVE COMPENSATION

The following information is furnished with respect to each executive
officer of the Company whose aggregate cash compensation during 1998 exceeded
$100,000.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ---------------------- -------
----------------------------------------- RESTRICTED
NAME AND PRINCIPAL OTHER ANNUAL STOCK OPTIONS / LTIP
POSITION YEAR SALARY(1) BONUS(1) COMPENSATION(2) AWARDS SARS PAYOUTS
------------------ ---- ---------- --------- ---------------- ---------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
John E. Rossell............... 1998 $162,500 $44,000 $11,287 -- 6,000 --
President and CEO 1997 150,000 42,000 8,550 -- 4,500 --
1996 150,000 30,000 8,174 -- -- --
Robert P. Gionfriddo.......... 1998 $135,000 $42,900 $11,576 -- 6,000 --
Executive Vice President 1997 127,500 41,850 9,042 -- 4,500 --
1996 125,000 30,000 9,821 -- -- --
Kenneth A. Corsello........... 1998 $100,000 $14,000 $ 7,623 -- -- --
Executive Vice President/ 1997 95,229 23,257 7,469 -- -- --
Chief Credit Officer 1996 86,833 17,060 4,875 -- 4,725 --

NAME AND PRINCIPAL ALL OTHER
POSITION COMPENSATION(3)
------------------ ----------------
<S> <C>
John E. Rossell............... --
President and CEO --
--
Robert P. Gionfriddo.......... $20,000
Executive Vice President 20,000
20,000
Kenneth A. Corsello........... --
Executive Vice President/ --
Chief Credit Officer --
</TABLE>

- ---------------
(1) Amounts shown include cash and non-cash compensation earned and received by
executive officers.

(2) Amounts include an automobile allowance pursuant to the terms of each
executive officer's employment and payments for unused vacation.

(3) Amounts shown are earnings on LTIP compensation for an amount payable in
1999 if Mr. Gionfriddo is terminated without cause.

Commerce Corp pays the cost of premiums on life insurance policies insuring
all employees, including executive officers, in amounts approximately two times
their annual salaries. The policies are payable to the officer's designated
beneficiary(ies). In addition, Commerce Corp provides certain incidental
personal benefits to executive officers. The incremental cost to Commerce Corp
of providing such benefits to the executive officers named above did not, for
the fiscal year ended December 31, 1998, exceed 10 percent of the compensation
to such officers.

STOCK OPTION PLAN

In 1994, the Board of Directors adopted the Heritage Bank of Commerce 1994
Tandem Stock Option Plan ("Plan") in order to promote the long-term success of
the Bank and the creation of shareholder value. In 1998 the Plan was restated
and adopted by Commerce Corp as the successor corporation to Heritage Bank of
Commerce. The Plan authorizes Commerce Corp to grant stock options to officers,
employees and directors of Commerce Corp and its affiliates. The Plan is
described in greater detail in Proposal 2 of this Proxy Statement.

Directors also participate in the Plan and have received grants of options
totaling between 23,493 and 75,000 shares depending on each director's length of
service on the Board and whether the director has served as Chairman of the
Board or of a committee of the Board. During 1997 each of the Company's
directors received options to purchase 4,500 shares, and during 1998 each
director received options to purchase an additional 6,000 shares. Also during
1998, each director of Heritage Bank East Bay who is not also a director of the
Company received options to purchase between 7,200 and 10,800 shares, depending
on whether the director serves as Chairman of the Board or as Chairman of a
committee of the Board.

10
<PAGE> 15

The following table shows options granted in 1998 to executive officers
named in the Summary Compensation Table. The grant date present value dollar
amount was computed in accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation."

OPTION GRANTS IN LAST FISCAL YEAR

INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
GRANTED TO
EMPLOYEES IN EXERCISE GRANT DATE
OPTIONS FISCAL OR BASE EXPIRATION PRESENT
NAME GRANTED YEAR PRICE ($/SH) DATE VALUE $
---- ------- ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
John E. Rossell........................... 6,000 1.4 $12.33 09/16/08 $31,563
President and CEO
Robert P. Gionfriddo...................... 6,000 1.4 $12.33 09/16/08 $31,563
Executive Vice President
</TABLE>

The following table delineates options exercised by executive officers
named in the Summary Compensation Table and the values of unexercised options at
December 31, 1998:

AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT YEAR END OPTIONS AT YEAR END
------------------- -------------------
SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------------ ------------------ ------------------- -------------------
<S> <C> <C> <C> <C>
Rossell.............. -- -- 112,950/27,487 $1,102,000/264,000
Gionfriddo........... -- -- 112,950/27,487 $1,102,000/264,000
Corsello............. -- -- 32,298/11,407 $ 313,000/109,000
</TABLE>

401(k) PLAN

The Board of Directors has established an employee benefit plan under
Section 401(k) of the Internal Revenue Code of 1986. The purpose of the employee
plan is to encourage employees to save for retirement. Eligible employees may
make contributions to the plan subject to the limitations of Section 401(k) of
the Internal Revenue Code of 1986. Commerce Corp does not presently provide any
matching contributions to the Plan. The Plan trustees administer the Plan.

EMPLOYEE STOCK OWNERSHIP PLAN

In 1997, Heritage Bank of Commerce initiated an employee stock ownership
plan (Stock Ownership Plan). The Stock Ownership Plan was subsequently adopted
by Commerce Corp as the successor corporation. The Stock Ownership Plan allows
Commerce Corp, at its option, to purchase shares of Commerce Corp Common Stock
on the open market and award those shares to certain employees in lieu of paying
cash bonuses. To be eligible to receive an award of shares under the Stock
Ownership Plan, an employee must have worked at least 1,000 hours during the
year and must be employed by the Bank on December 31. Awards under the Stock
Ownership Plan generally vest over four years. During 1998, Commerce Corp
contributed $200,000 to the Stock Ownership Plan, with contributions to John E.
Rossell III, Robert P. Gionfriddo, and Kenneth A. Corsello, totaling $6,500,
$5,400, and $4,000, respectively. These amounts are included in the Summary
Compensation Table in the column entitled "Bonus."

11
<PAGE> 16

EMPLOYMENT CONTRACTS

John E. Rossell III, Commerce Corp's President and CEO, is employed under
the terms of a written three-year employment contract dated January 1, 1999
which, among other terms, provides for the following: combined wages, including
deferred compensation, of $175,000 per year, including an annual review for
salary increase; bonuses based upon the performance of the Company, awarded in
the sole discretion of the Board of Directors; a car allowance; insurance; and
severance compensation and benefits in the event Commerce Corp terminates Mr.
Rossell's employment without cause. Pursuant to the terms of Mr. Rossell's
original employment agreement, dated June 8, 1994, the Board granted Mr. Rossell
options to purchase 129,937 shares at $3.85 per share. In 1997 the Board granted
Mr. Rossell options to purchase an additional 4,500 shares at $5.78 per share,
and in 1998 the Board granted Mr. Rossell 6,000 additional options at a price of
$12.33 per share.

Robert P. Gionfriddo, Commerce Corp's Executive Vice President and Chief
Business Development officer, is employed under the terms of a written
three-year employment contract dated June 8, 1994, amended June 8, 1997, and
expiring June 8, 2000 which, among other terms, provides for the following as of
December 31, 1998: combined wages, including deferred compensation, averaging
$155,000 per year; bonuses based upon the performance of Commerce Corp, awarded
in the sole discretion of the Board of Directors; a car allowance; insurance;
the beneficial use of a proprietary membership in a local country club; and
severance compensation and benefits in the event Commerce Corp terminates Mr.
Gionfriddo's employment without cause. Under this agreement, in 1994, the Board
granted Mr. Gionfriddo options to purchase 129,937 shares at $3.85 per share. In
1997, the Board granted Mr. Gionfriddo options to purchase an additional 4,500
shares at $5.78 per share, and in 1998, the Board granted Mr. Gionfriddo 6,000
additional options at a price of $12.33 per share.

SUPPLEMENTARY RETIREMENT PLAN FOR DIRECTORS,
INCLUDING EXECUTIVE OFFICERS

In June of 1997, Heritage Bank of Commerce provided each of its directors,
including two executive officers who are also directors, with a non-qualified,
defined contribution retirement and death benefit plan. These plans were
subsequently adopted by Commerce Corp as the successor corporation to Heritage
Bank of Commerce. The amount of each respective potential annual retirement
benefit is indexed to the financial performance of life insurance policies that
are owned by Commerce Corp and its affiliates and which insure the lives of the
directors. Commerce Corp and its affiliates record as income any earnings on the
policies up to an amount which is equal to the amount of earnings which would
have been earned had a one year Treasury Bill been purchased instead of the
insurance policy. The "excess earnings" of each insurance policy (that is, the
amount of earnings in excess of the amount that would have been earned on a one
year Treasury Bill) is credited to a liability reserve account for the benefit
of the director. Each plan participant earns a vested interest in the balance of
his or her respective liability reserve account, at the rate of 12% per annum,
beginning with that individual's first year of service and cumulating for as
long as the director remains in the service of Commerce Corp or its affiliates,
or until the director achieves 100% vesting. The death benefit for each of the
directors is an endorsement to the executive's beneficiary of 80% of the
net-at-risk insurance (death benefit in excess of cash value), together with any
remaining balance in the related liability reserve account.

As the policies did not perform at a rate in excess of the hurdle rate in
1998 or 1997, no credit was made to the participant liability reserve accounts
for the year, nor was any obligation incurred on the part of Commerce Corp or
its affiliates for future retirement payments.

DIRECTOR FEES AND DIRECTOR FEE DEFERRAL PLAN

During 1998, Commerce Corp paid $1,250 per month each to two directors for
their services during 1998, for a total of $30,000. In June 1997, the Board
approved a director compensation program, effective July 1, 1997, that extended
the previous plan to include all non-executive officer directors. The plan
allocates fees

12
<PAGE> 17

among participating directors, based on the extent and nature of each director's
committee memberships and/ or that director's chairmanship of one of the various
committees of the Board. The total annual cost of the program for 1998 was
approximately $130,000.

An option of the director compensation program is the deferral of fees
("Deferral Plan"). Under the Deferral Plan, a participating director may defer
up to 100% of their board fees into the Deferral Plan for up to ten years from
the date of the first deferral. Amounts deferred earn interest at the rate of 8%
per annum. The director may elect a distribution schedule of up to ten years,
with interest accruing (at the same 8%) on the declining balance. A
participating director is eligible to begin receiving benefits upon retirement.

Commerce Corp has purchased life insurance policies on the lives of
directors who have agreed to participate in the Deferral Plan. It is expected
that the earnings on these policies will offset the cost of the program. In
addition, Commerce Corp will receive death benefit payments upon the death of
the director. The proceeds will permit Commerce Corp to "complete" the Deferral
Plan as the director originally intended if the director dies prior to the
completion of the Deferral Plan. The disbursement of deferred fees is
accelerated at death and commences one month after the director dies.

In the event of the director's disability prior to attainment of his
benefit eligibility date, the director may request that the Board permit him to
receive an immediate disability benefit equal to the annualized value of the
director's deferral account.

To date, all but two of the directors have elected to defer their fees. For
the years 1997 and 1998, Commerce Corp accrued expenses of $70,000 and $134,000,
respectively, to account for its obligation to pay deferred fees.

COMPENSATION COMMITTEE REPORT

The Personnel and Planning Committee, acting as a compensation committee in
accordance with applicable requirements, has provided the following report to
the Board of Directors of Commerce Corp.

REPORT ON SENIOR EXECUTIVE COMPENSATION
BY THE PERSONNEL AND PLANNING COMMITTEE OF THE BOARD OF DIRECTORS

The Report of the Personnel and Planning Committee shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under the Securities Act of 1933 or under
the Securities Exchange Act of 1934, except to the extent that Commerce Corp
specifically incorporates the information contained in the report by reference,
and shall not otherwise be deemed filed under such acts.

Commerce Corp's general compensation strategy for senior executive officers
is to pay annual and long term compensation which is competitive with executives
in similar positions at peer group companies, taking into appropriate account
Commerce Corp's forward progress, its overall financial condition and its
performance relative to companies in similar circumstances. In determining
compensation levels, Commerce Corp obtains salary survey information regarding
executive salary levels for comparable companies through many sources, including
banking industry associates and independent compensation consultants.
Additionally, Commerce Corp ties incentive compensation levels to financial
performance goals of Commerce Corp.

The compensation policy of Commerce Corp is designed to attract and retain
highly qualified personnel and to provide meaningful incentives for measurable
performance. The components of executive compensation include base salary, an
incentive bonus plan, non-plan bonuses, stock options and a supplemental
executive retirement plan.

Commerce Corp's senior executive compensation is determined by the
Personnel and Planning Committee of the Board of Directors and by the Board
itself. The Committee meets a minimum of three times per year. Salaries and
other compensation are reviewed annually. Any significant increases or other
changes to compensation or benefits are approved by the Board of Directors.
Incentive bonus awards are determined by the Committee in January or February
and recommended to the full Board for immediate action. Stock
13
<PAGE> 18

options are generally awarded in June or July. Compensation for a newly hired
executive may be established by the Committee at a special meeting.

In its discretion, Commerce Corp pays annual incentive bonuses to its
senior executives after receiving a recommendation to do so by the Personnel and
Planning Committee of the Board. The decision to pay, and the amount of payment,
is based upon an assessment of the institution's performance in the context of
the plan and with reference to the executive's base wages, as well as to peer
group patterns.

Incentive bonuses were paid to senior executives of Commerce Corp and its
subsidiary banks in 1998, based on overall performance of Commerce Corp relative
to plan. Those bonuses averaged 22% of base wages in 1998.

Executive officers are permitted to participate in other Company employee
benefit plans, including Commerce Corp's 401(k) Savings Plan.

Long term incentive awards consisting of stock options are considered to be
a substantial portion of the compensation package of the executive officers and
provide incentive to increase shareholder value. In 1998, Mr. Rossell and Mr.
Gionfriddo were awarded stock options as recognition for their contributions to
the Company. Also in 1998, as part of Commerce Corp's Employee Stock Ownership
Plan, Commerce Corp contributed $6,500 and $5,400 to John E. Rossell III and
Robert P. Gionfriddo, respectively. These amounts are included in the Summary
Compensation Table in the column entitled "Bonus."

In addition to their employment contracts, Mr. Rossell and Mr. Gionfriddo
are both covered by a Supplementary Retirement Plan. The plan provides for
periodic payments when each executive retires.

HERITAGE COMMERCE CORP DIRECTORS PERSONNEL AND PLANNING COMMITTEE

/s/ Frank Bisceglia
Arthur C. Carmichael, Jr.
Richard L. Conniff
Tracey Enfantino
P. Michael Hunt
Jack Peckham
Robert Peters, Chairman
Humphrey Polanen
John E. Rossell, III

14
<PAGE> 19

PERFORMANCE GRAPH

The following graph compares the stock performance of Heritage Bank of
Commerce from June 6, 1994 to January 31, 1998 and of Commerce Corp from
February 1, 1998 to December 31, 1998, to the performance of several specific
industry indices. For the Company's 1998 proxy statement, the performance of the
S&P 500 and S&P Regional Bank indices were used as comparisons to the Company's
stock performance. Subsequent to the 1998 Annual Meeting of Shareholders, the
Company listed its common stock on the Nasdaq National Market. Management
believes that a performance comparison to the Nasdaq Stock Index and the Nasdaq
Bank Stocks provide more meaningful information than do comparisons to the S&P
indices, and management has therefore included those comparisons in the
following graph.

HERITAGE COMMERCE CORP STOCK PRICE PERFORMANCE*

<TABLE>
<CAPTION>
NASDAQ STOCK NASDAQ BANK HERITAGE
MARKET STOCKS COMMERCE CORP S&P 500 S&P BANK PROXY
------------ ----------- ------------- ------- --------------
<S> <C> <C> <C> <C> <C>
6/30/94 100.00 100.00 100.00 100.00 100.00
12/31/94 107.05 93.43 100.00 104.87 88.76
12/31/95 151.40 139.15 108.67 144.28 139.77
12/31/96 186.18 183.71 137.44 177.41 190.98
12/31/97 228.41 307.60 285.96 236.60 287.16
12/31/98 321.08 304.67 363.95 304.21 317.27
</TABLE>

* Results shown on the graph are not necessarily indicative of future
performance

SIGNIFICANT LITIGATION

To the best of the Company's knowledge, there are no pending or threatened
legal proceedings to which the Company is a party, which may have a materially
adverse effect on the Company's financial condition, results of operations or
cash flows.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS INTENDS TO VOTE ALL PROXIES HELD BY IT IN FAVOR OF
ELECTION OF EACH OF THE NOMINEES. YOU ARE URGED TO VOTE FOR PROPOSAL 1: TO ELECT
THE EIGHTEEN NOMINEES SET FORTH HEREIN TO SERVE UNTIL THE NEXT ANNUAL MEETING OF
THE SHAREHOLDERS AND UNTIL THEIR RESPECTIVE SUCCESSORS SHALL BE ELECTED AND
QUALIFIED: FRANK G. BISCEGLIA, JAMES R. BLAIR, ARTHUR C. CARMICHAEL, JR.,
RICHARD L. CONNIFF, WILLIAM J. DEL BIAGGIO, JR., ANNEKE DURY, TRACEY A.
ENFANTINO, GLENN A. GEORGE, ROBERT P. GIONFRIDDO, P. MICHAEL HUNT, JOHN W.
LARSEN, LOUIS ("LON") O. NORMANDIN, JACK L. PECKHAM, ROBERT W. PETERS, HUMPHREY
P. POLANEN, JOHN E. ROSSELL III, KIRK M. ROSSMANN AND BRAD L. SMITH. IF NO
INSTRUCTION IS GIVEN, THE BOARD OF DIRECTORS INTENDS TO VOTE FOR EACH NOMINEE
LISTED.

15
<PAGE> 20

PROPOSAL 2

INCREASE IN THE NUMBER OF SHARES
AVAILABLE FOR GRANTS OF STOCK OPTIONS

At present, Commerce Corp has reserved 1,657,346 shares of common stock for
issuance under its 1994 Tandem Stock Option Plan (the "Plan"). This number
includes shares issued upon exercise of options. Proposal 2 provides for an
increase of 162,576 shares reserved under the Plan, so that the total number of
shares reserved, including shares previously issued upon exercise of options,
will be 1,819,922.

The purpose of the Plan is to promote the long-term success of Commerce
Corp and the creation of shareholder value. The Plan authorizes Commerce Corp to
grant options that qualify as incentive stock options ("ISOs") under the
Internal Revenue Code of 1986 and nonqualified stock options ("NSOs") to key
employees of Commerce Corp and its affiliated companies. Nonemployee directors
are only eligible to receive NSOs.

The Plan sets aside authorized, but unissued, shares of Commerce Corp's
Common Stock for grant at not less than the greater of $3.85 per share or an
amount per share that approximates the fair market value of Commerce Corp's
Common Stock on the date each option is granted. As of March 31, 1999, the last
bid price for Commerce Corp's Common Stock as reported by the Nasdaq National
Market was $20.25 per share. In addition, if an ISO is granted to an officer or
key employee of Commerce Corp who, at the time of the grant, owns more than 10
percent of Commerce Corp's Common Stock, the exercise price of the options must
be not less than the greater of $4.24 per share or 110 percent, of the fair
market value of Commerce Corp's Common Stock at the time the option is granted.
All options granted expire not later than ten years from the date of grant. To
the extent that the aggregate fair market value of stock with respect to which
ISOs are exercisable for the first time by any individual during any calendar
year exceeds $100,000, such options will be treated as NSOs. The Personnel and
Planning Committee, a committee appointed by the Board, administers the Plan.

Neither the optionee nor Commerce Corp will incur any federal tax
consequences as a result of the grant of an option. The optionee will have no
taxable income upon exercising an ISO (except that the alternative minimum tax
may apply), and Commerce Corp will receive no deduction when an ISO is
exercised. Upon exercising an NSO, the optionee generally must recognize
ordinary income equal to the "spread" between the exercise price and the fair
market value of Commerce Corp's Common Stock on the date of exercise, and
Commerce Corp will be entitled to a business expense deduction for the same
amount. In the case of an employee, the option spread at the time an NSO is
exercised is subject to income tax withholding, but the optionee generally may
elect to satisfy the withholding tax obligation by having shares of Common Stock
withheld from those purchased under the NSO. The tax treatment of a disposition
of option shares acquired under the Plan depends on how long the shares have
been held and on whether such shares were acquired by exercising an ISO or by
exercising an NSO. Commerce Corp will not be entitled to a deduction in
connection with a disposition of option shares, except in the case of a
disposition of shares acquired under an ISO before the applicable ISO holding
period has been satisfied.

As of the date of this Proxy Statement, options to purchase 1,364,809
shares have been granted by the Board of Directors and are outstanding, and
options to purchase an additional 83,344 shares have been exercised by option
holders, leaving 209,193 shares of the 1,657,346 shares previously authorized,
currently available for further grants of options.

During 1998, Commerce Corp organized Heritage Bank East Bay, a new
subsidiary bank located in Fremont, California. The funds that were needed to
capitalize the new bank were raised through a public offering of Commerce Corp's
shares. The organization of Heritage Bank East Bay required that Commerce Corp
appoint a board of directors and hire executive officers and staff for the new
bank. Commerce Corp's Board believed that the availability of stock options for
employees and directors would be a key factor in the ability of Commerce Corp to
attract qualified individuals to fill positions at the new bank. Accordingly, at
Commerce Corp's 1998 annual meeting of shareholders, the Board sought and
received shareholder approval for an amendment to the Plan which increased the
number of shares available for grants of options under the Plan by 178,093
shares to make additional option shares available for grant to new employees and
directors.

16
<PAGE> 21

Management and the Board of Directors anticipate that Commerce Corp will
continue to expand its activities through the organization of subsidiary banks,
and that Commerce Corp and its subsidiaries need to continue to attract
qualified officers and employees to facilitate that expansion. Currently
Commerce Corp's plans include the formation of a proposed new commercial bank in
Morgan Hill, California. The organization of a new bank in Morgan Hill, if
successful, will require that Commerce Corp appoint a board of directors and
hire executive officers and staff for the new bank. The Board of Directors
believes that the availability of stock options for employees and directors of
the new bank will be a key factor in the ability of Commerce Corp to attract
qualified individuals to fill these positions. The Board also believes that
additional options will be needed to attract qualified individuals to other
positions that are expected to be created as Commerce Corp and its subsidiary
banks expand the scope of their business and activities.

Commerce Corp anticipates that during 1999, it may issue additional
securities to raise the funds needed to capitalize the new bank in Morgan Hill.
Except for the preparation of draft copies of regulatory applications, Commerce
Corp has not yet taken any steps in connection with the organization of the new
bank and has not filed a registration statement with the Securities and Exchange
Commission in connection with any public offering of its securities.

Accordingly, the Board of Directors is seeking shareholder approval to
increase the number of options authorized under the Plan in order to ensure that
sufficient options will be available to adequately compensate Commerce Corp's
employees and directors as Commerce Corp expands its business and adds
additional employees, including individuals who will be employed in connection
with the proposed new bank in Morgan Hill.

The 1,657,346 shares now reserved under the Plan (including shares issued
upon exercise of options) is approximately 30% of the number of shares of
Commerce Corp's common stock issued and outstanding. If Proposal 2 is adopted,
the 1,819,922 shares reserved for issuance (including shares issued upon
exercise of options) will equal approximately 33% of the shares of issued and
outstanding Commerce Corp stock, while the actual number of shares for which
additional options could be granted (371,769), would be approximately 7% of the
number of issued and outstanding shares. However, as a guideline, the Board of
Directors of Commerce Corp does not expect the cumulative number of options
granted at any time to exceed 30% of the number of shares issued and
outstanding. Under this guideline, the Board of Directors does not currently
intend to grant options for more than the 209,193 shares currently available for
grants of options unless the number of outstanding shares of common stock
increases through the issuance of additional shares outside the Plan. By making
this Proposal 2, Commerce Corp does not intend to provide any assurance that it
will be able to issue additional shares of common stock outside the Plan.

The Board of Directors has not designated the persons to whom options will
be granted or determined the number of options that will be granted to any
individual or group of individuals in the event this Proposal 2 is approved by
Commerce Corp's shareholders.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS INTENDS TO VOTE ALL PROXIES HELD BY IT IN FAVOR OF
INCREASING THE NUMBER OF SHARES AVAILABLE FOR GRANTS OF OPTIONS UNDER THE PLAN.
YOU ARE URGED TO VOTE FOR PROPOSAL 2: TO APPROVE THE INCREASE IN THE NUMBER OF
SHARES AVAILABLE FOR GRANTS OF OPTIONS UNDER THE HERITAGE COMMERCE CORP RESTATED
1994 TANDEM STOCK OPTION PLAN.

PROPOSAL 3

RATIFICATION OF SELECTION OF INDEPENDENT
PUBLIC ACCOUNTANTS

On December 1, 1997, the Company notified KPMG Peat Marwick LLP (KPMG) that
the Company was terminating its engagement with KPMG as the Company's
independent certified public accountants. The

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termination was effective on that date. Also on December 1, 1997, the Company
engaged Deloitte & Touche LLP as independent certified public accountants for
the Company.

At no time during the engagement of KPMG by the Company, was there any
disagreement on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of KPMG, would have caused it to make reference in
connection with its report to the subject matter of the disagreement. The
preceding sentence includes disagreements, whether resolved or not resolved to
the satisfaction of KPMG, at the decision-making levels of the Company and KPMG.
No report of KPMG on the financial statements of the Company for any of the past
three years contained an adverse opinion or a disclaimer of opinion, or was
qualified as to uncertainty, audit scope, or accounting principles.

The Company's decision to change accountants was recommended by the
Company's Audit Committee and approved by the Company's Board of Directors.

At the 1999 Annual Meeting of Shareholders, the following resolution will
be subject to ratification by a simple majority vote of the shares represented
at the meeting:

RESOLVED, that the selection of Deloitte & Touche LLP as the independent
certified public accountants of Heritage Commerce Corp for the fiscal
year ending December 31, 1999 is hereby ratified.

If ratification is not achieved, the selection of an independent certified
public accountant will be reconsidered and made by the Board of Directors. Even
if the selection is ratified, the Board of Directors reserves the right and, in
its discretion, may direct the appointment of any other independent certified
public accounting firm at any time if the Board decides that such a change would
be in the best interests of the Company and its shareholders.

The services provided by Deloitte & Touche LLP include the examination and
reporting of the financial status of Commerce Corp. These services have been
furnished at customary rates and terms. There are no existing direct or indirect
agreements or understandings that fix a limit on current or future fees for
these audit services.

A representative of Deloitte & Touche LLP is expected to attend the 1999
Annual Meeting of Shareholders. The representative will have the opportunity to
make a statement, if desired, and is expected to be available to respond to
shareholder inquiries.

RECOMMENDATION OF THE BOARD OF DIRECTORS

THE BOARD OF DIRECTORS INTENDS TO VOTE ALL PROXIES HELD BY IT IN FAVOR OF
APPROVING THE RATIFICATION OF THE SELECTION OF DELOITTE & TOUCHE LLP AS COMMERCE
CORP'S AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999 (UNLESS THE
SHAREHOLDERS DIRECT OTHERWISE). YOU ARE URGED TO VOTE FOR PROPOSAL 3: TO RATIFY
THE BOARD'S SELECTION OF DELOITTE & TOUCHE LLP TO SERVE AS COMMERCE CORP'S
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.

OTHER BUSINESS

If any matters not referred to in this Proxy Statement come before the
meeting, including matters incident to the conduct of the meeting, the proxy
holders will vote the shares represented by proxies in accordance with their
best judgment. Management is not aware of any other business to come before the
meeting and, as of the date of the preparation of this Proxy Statement, no
shareholder has submitted to management any proposal to be acted upon at the
meeting.

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SHAREHOLDER PROPOSALS

Under certain circumstances, shareholders are entitled to present proposals
at shareholders' meetings, provided that the proposal is presented in a timely
manner and in a form that complies with applicable regulations. Any shareholder
proposals intended to be presented for consideration at the 2000 Annual Meeting
of Shareholders, and to be included in Commerce Corp's Proxy Statement for that
meeting, must be received by Commerce Corp no later than December 17, 1999 in a
form that complies with applicable regulations. Shareholder proposals may not be
included in the Proxy Statement for the 2000 Annual Meeting or presented at the
shareholder meeting unless certain conditions are met. Shareholder proposals are
subject to regulation under Federal securities laws.

HERITAGE COMMERCE CORP
/s/ REBECCA A. LEVEY

Rebecca A. Levey
Corporate Secretary

San Jose, California
April 15, 1999

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REVOCABLE PROXY - HERITAGE COMMERCE CORP

SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF SHAREHOLDERS

The undersigned shareholder of Heritage Commerce Corp ("Commerce Corp") hereby
nominates, constitutes and appoints Brad L. Smith, John E. Rossell III and
William J. Del Biaggio, Jr. and each of them, the attorney, agent and proxy of
the undersigned, with full power of substitution, to vote at the Annual Meeting
of Shareholders of the Company to be held at the Company's offices, 150 Almaden
Boulevard, San Jose, California, on May 27, 1999 at 3:30 p.m. and any
adjournment thereof, as fully and with the same force and effect as the
undersigned might or could do if present, as follows:

1. To elect as directors the nominees set forth below:

[ ] FOR all nominees listed (except as marked to the contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.

Instruction: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name below:

Frank G. Bisceglia
James R. Blair
Arthur C. Carmichael, Jr.
Richard L. Conniff
William J. Del Biaggio, Jr.
Anneke Dury
Tracey A. Enfantino
Glenn A. George
Robert P. Gionfriddo
P. Michael Hunt
John W. Larsen
Louis O. ("Lon") Normandin
Jack L. Peckham
Robert W. Peters
Humphrey P. Polanen
John E. Rossell III
Kirk M. Rossmann
Brad L. Smith

2. To approve an amendment to the Heritage Commerce Corp Restated 1994 Tandem
Stock Option Plan increasing the number of shares available for grants of stock
options to directors and key employees of Heritage Commerce Corp and its
affiliated companies.

[ ] FOR approval of the amendment to the Heritage Commerce Corp Restated
1994 Tandem Stock Option Plan.

[ ] AGAINST approval of the amendment to the Heritage Commerce Corp Restated
1994 Tandem Stock Option Plan.

[ ] ABSTAIN

3. To ratify the Board of Directors' selection of Deloitte & Touche LLP
independent certified public accountants, to serve as the Company's
auditors for the fiscal year ending December 31, 1999.

[ ] FOR ratification of Deloitte & Touche LLP as the Company's auditors.
[ ] AGAINST ratification of Deloitte & Touche LLP as the Company's auditors.

<PAGE> 25

[ ] ABSTAIN

4. To consider and transact such other business as may properly be brought
before the meeting.

This Proxy will be voted as directed by the Shareholder or, if no
instructions are given by the Shareholder, the Proxy Holders will vote "FOR"
each of the foregoing proposals.

If any other business is presented at said meeting, this Proxy shall be
voted in accordance with the recommendations of the Board of Directors.

When signing as attorney, executor, officer, administrator, trustee or
guardian, please give full title. If more than one trustee, all should sign. All
joint owners must sign.

I / we do [ ] do not [ ] expect to attend this meeting.

______________________________
NUMBER OF SHARES

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE LISTED PROPOSALS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE.