BOCH Bank of Commerce Holdings

DIRECTOR INDEPENDENCE, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Director Independence

The Nominating and Corporate Governance Committee has reviewed the applicable legal standards for Board and Board committee member independence and the criteria applied to determine audit committee financial expert status. The Board has analyzed the independence of each director and nominee and has determined which nominees and members of the Board meet the standards regarding independence required by applicable law, NASDAQ listing standards, and SEC regulations, and whether or not each such director nominee is free of relationships that would interfere with the individual exercise of independent judgment. In determining the independence of each director, the Board considered many factors, including any loans to the directors, each of which (i) were made in the ordinary course of business; (ii) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to the Company or Redding Bank of Commerce; and (iii) did not involve more than the normal risk of collectability or present other unfavorable features. Such arrangements are discussed in detail in the section entitled “ Certain Relationships and Related Transactions .”

Based on these standards, the Board has determined that each of the following non-employee directors and director nominees is independent:

Randall S. Eslick, who serves as President and Chief Executive Officer of the Company, is not independent because he is currently an executive officer of the Company.

All of the members of the Audit Committee, Executive Compensation Committee, and Nominating and Corporate Governance Committee are independent.

Directors’ Access to Officers, Employees and Independent Advisors

Directors are encouraged to keep themselves informed with regard to the Company and its operations. Directors have full and free access to Company officers and employees. Any meetings or contacts that a director wishes to initiate may be arranged through the Chief Executive Officer, Chief Financial Officer or directly by the director. Directors will use their judgment to ensure that any such contact is not disruptive to the Company’s business operations and will, to the extent that it is appropriate, copy the Chief Executive Officer on any written communications between a director and a Company officer or employee.

Communications with the Board of Directors

Shareholders may contact an individual director, the Board as a group, or a specified committee or group by sending a written communication to Bank of Commerce Holdings, Attention: Corporate Secretary, 1901 Churn Creek Road, Redding, California 96002. Each communication should specify the applicable addressee(s) to be contacted as well as the general topic of the communication.

The Company will receive and process communications before forwarding them to the addressee(s). The Company generally will not forward to the directors a shareholder communication that it determines to be primarily commercial in nature, that relates to an improper or irrelevant topic, or that requests general information about the Company.

Certain Relationships and Related Transactions

Policy and Procedures on Related Person Transactions

The Company adopted its Code of Conduct to promote a “tone at the top” of the highest ethical standards within the Company. The Code of Conduct requires all Company personnel to immediately disclose situations that might create a conflict of interest, or the perception of a conflict of interest, which include transactions involving entities with which such personnel are associated. The Board recognizes that related person transactions present a heightened risk of conflicts of interest and/or improper valuation, or the perception thereof. Such transactions, after full disclosure of the material terms to the Board, must be approved by a majority of the members of the Board who are not parties to the specific transaction. The Board will determine whether or not the transactions are just and reasonable to the Company at the time of such approval, with those members of the Board, if any, who have an interest in the transaction abstaining. Such procedures are consistent with the terms of California corporate law. The Company has a Regulation O Policy that it follows relating to loans to its executive officers, directors and principal shareholders.

Lending and Other Ordinary Business Transactions

Redding Bank of Commerce has had and expects to have banking transactions in the ordinary course of business with some of the directors and named executive officers, as well as some of their family members and/or affiliated entities. All transactions were on substantially the same terms, including interest rates, collateral and repayment, as those available at the time for similar transactions with unrelated parties. None of the loans or credit transactions involved more than the normal risk of collectability or presented other unfavorable features.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board has established, among others, a standing Audit Committee, Executive Compensation Committee, and Nominating and Corporate Governance Committee. All members of these three committees meet the standards of independence defined by applicable law, NASDAQ listing standards and SEC regulations. In addition, the members of the Executive Compensation Committee meet the applicable standards of independence defined by IRS regulations.

You may access the current charters of the Audit Committee, Executive Compensation Committee, and Nominating and Corporate Governance Committee, as well as the articles and bylaws, by visiting the Company’s corporate website at www.bankofcommerceholdings.com or by writing to Bank of Commerce Holdings, Attention: Corporate Secretary, 1901 Churn Creek Road, Redding, California 96002.

Information about each of these three committees of the Board, its members who served during 2018, the committee’s purpose and the number of meetings held in 2018 follows.

¹  Mr. Silberstein assumed the duties of Audit Committee Chairman upon the retirement of Mr. Scott on March 20, 2018.

DIRECTOR QUALIFICATIONS AND NOMINATIONS FOR DIRECTOR

The Nominating and Corporate Governance Committee of the Board has been delegated the responsibility to identify, evaluate and recommend for nomination candidates for election as directors. Each of the members of the Nominating and Corporate Governance Committee has been determined to be independent as defined by applicable law, NASDAQ listing standards and SEC regulations.

The goal of the Nominating and Corporate Governance Committee’s nominating process is to assist the Company in attracting competent individuals with the requisite management, financial and other expertise who will serve as directors and act in the best interests of the Company and its shareholders. The Nominating and Corporate Governance Committee consults with other Board members, the Company’s Chief Executive Officer and other Company personnel in this process. The Nominating and Corporate Governance Committee will consider an individual recommended by a shareholder for nomination as a director provided that the shareholder making the recommendation follows the procedures for submitting a proposed nominee’s name and provides the required information described below.

Director Qualifications and the Nomination Process

The Nominating and Corporate Governance Committee regularly reviews the composition of the Board in light of its understanding of the backgrounds, industry, professional experience and the various communities, both geographic and demographic, represented by the current members. It also monitors the expected service dates of Board members, any planned retirement dates and other anticipated events that may affect a director’s continued ability to serve. The Nominating and Corporate Governance Committee periodically reviews Board self-evaluations and information with respect to the business and professional expertise represented by current directors in order to identify any specific skills desirable for future Board members.

The Board has approved certain minimum standards for first-time director candidates, and the Nominating and Corporate Governance Committee has developed a process for identifying and evaluating first-time nominees in light of these standards and other such factors as deemed appropriate. These standards and the evaluation process apply to all first-time director nominees, including those nominees recommended by shareholders. This process is based on the Nominating and Corporate Governance Committee’s familiarity with the composition of the current Board, its awareness of anticipated openings and its assessments of desirable skills or expertise.

The Board has approved the following minimum qualifications for first-time nominees for director, including nominees recommended by shareholders, for election to the Company’s Board: (i) a demonstrated breadth and depth of management and/or leadership experience, preferably in a senior leadership role (i.e., chief executive officer, managing partner, president, chief financial officer, etc.); (ii) financial literacy or other professional or business experience relevant to an understanding of the Company and its business; and (iii) a demonstrated ability to think and act independently and work constructively in a group environment. The Nominating and Corporate Governance Committee will determine, in its sole discretion, whether or not a nominee meets these minimum qualifications. The Nominating and Corporate Governance Committee does not assign specific weights to particular criteria, and, aside from the minimum qualifications, no particular criterion is necessarily applicable to all prospective nominees. The Company believes that the backgrounds and qualifications of the directors, considered as a group, should provide a significant and diverse composite mix of experience, knowledge and abilities that will allow the Board to fulfill its responsibilities.

The Nominating and Corporate Governance Committee also will consider if such candidate meets the independence standards defined by NASDAQ listing standards, SEC regulations and any additional requirements imposed by law or regulation on the members of the Audit Committee, Executive Compensation Committee, and the Nominating and Corporate Governance Committee of the Board.

Following the initial review, the Nominating and Corporate Governance Committee’s designee arranges an introductory meeting with the candidate, the Company’s Chief Executive Officer and the Chairman of the Board (and in some cases with additional directors) to determine the candidate’s interest in serving on the Board.

The Nominating and Corporate Governance Committee, together with the Chief Executive Officer, then conducts a comprehensive interview with the candidate. The candidate will be asked to provide the information required to be disclosed in the Company’s proxy statement.

Assuming a satisfactory conclusion to the process, the Nominating and Corporate Governance Committee will then recommend to the Board that it interview the candidate. After the Board-level interview, the Board will proceed in accordance with the Company’s bylaws and committee charters.

Director Nominations by Shareholders

A shareholder who wishes to submit an individual’s name for consideration by the Nominating and Corporate Governance Committee for nomination for election as a director of the Company at the 2020 annual meeting should deliver such recommendation to the Company’s Corporate Secretary no later than December 6, 2019 and provide (i) the shareholder’s name, address and the number of shares of Common Stock beneficially owned by the shareholder; (ii) the name of the proposed nominee and the number of shares of Common Stock beneficially owned by the nominee; (iii) sufficient information about the nominee’s experience and qualifications for the Nominating and Corporate Governance Committee to make a determination about whether or not the individual would meet the minimum qualifications for director nominees; and (iv) such individual’s written consent to serve as a director of the Company, if elected. The Nominating and Corporate Governance Committee has the right to request, and the shareholder will be required to provide, such additional information with respect to the shareholder nominee as the Nominating and Corporate Governance Committee may deem appropriate or desirable to evaluate the proposed nominee in accordance with the nomination process, including the information about the proposed nominee that is required to be disclosed by the Company in its proxy statement under Regulation 14A of the Exchange Act. See also the section entitled “ SHAREHOLDER PROPOSALS AT THE 2020 ANNUAL MEETING .”

EXECUTIVE COMPENSATION – COMPENSATION DISCUSSION AND ANALYSIS

This Compensation Discussion and Analysis describes the Company’s executive compensation philosophy and objectives. The tables that follow present the compensation for 2018 to the Company’s named executive officers. In 2018, the Company had only four named executive officers because there are only four executive officers who perform a policy-making function for the Company.

Randall S. Eslick has served as President and Chief Executive Officer of the Company since November 2013. Immediately prior, he served as Regional President of Roseville Bank of Commerce (now known as Sacramento Bank of Commerce, a division of Redding Bank of Commerce) from December 2005 to November 2013. From 2002 until December 2005, Mr. Eslick served as Senior Vice President and Regional Manager of Roseville Bank of Commerce. Mr. Eslick joined the Company in March 2001 as Senior Vice President and Commercial Loan Officer. Mr. Eslick was appointed to the Board of the Company and to the board of directors of Redding Bank of Commerce in November 2013 when he assumed the role of President and Chief Executive Officer of the Company. As the Chief Executive Officer and a director, Mr. Eslick serves as the primary liaison between the Board and management and as the executive officer with overall responsibility for executing the Company’s strategic plan.

James A. Sundquist has served as Executive Vice President, Chief Financial Officer and Principal Accounting Officer of the Company since December 2014. Prior to joining the Company, Mr. Sundquist had been retired since 2008. Mr. Sundquist has worked at several California independent financial institutions over the course of his career. From 1998-2007 he served as Executive Vice President and Chief Financial Officer, from 1996-1998 he served as Executive Vice President and Chief Operating Officer, from 1984-1995 he served as Senior Vice President and Chief Financial Officer, and from 1979-1983 he served as Vice President and Controller. Prior to his bank service, Mr. Sundquist was employed as a certified public accountant at an international public accounting firm from 1977-1979.

Samuel D. Jimenez has served as Executive Vice President and Chief Operating Officer of the Company since December 2013. Mr. Jimenez has served the Company in multiple capacities since 2003. He served as the Chief Financial Officer and Principal Accounting Officer of the Company from May 2009 to December 2014. He was promoted from Senior Vice President to Executive Vice President in March 2011. Prior to becoming Chief Financial Officer, he served as Vice President and Director of Risk Management of Redding Bank of Commerce beginning in September 2003 and was promoted from Vice President to Senior Vice President in February 2006. Mr. Jimenez was a Federal Deposit Insurance Corporation Examiner from 1992 to 2003. Mr. Jimenez is a certified public accountant. He also serves as Assistant Corporate Secretary of the Company.

Robert H. Muttera has served as Executive Vice President and Chief Credit Officer of the Company since January 2014, and he served as Executive Vice President and Chief Credit Officer of American River Bankshares from 2012-2013. Mr. Muttera served as Senior Vice President at a commercial real estate advisory firm from 2006-2012, as Executive Vice President and Chief Credit Officer of two California independent financial institutions from 1983-2005, and as Vice President and Senior Commercial Loan Officer of a California independent financial institution from 1979-1983. From 1975-1979, he was a senior accountant and certified public accountant at an international public accounting firm.

Named Executive Officer Compensation

Strategic Role of Executive Compensation Committee

In 2013, on an advisory basis, the Company’s shareholders voted to take advisory votes on named executive officer compensation on an annual basis. The Company has followed the guidance of its shareholders and annually requests the approval on a non-binding advisory basis of the compensation of named executive officers.

The Executive Compensation Committee evaluates the Company’s executive compensation programs in light of market conditions, shareholder views, and governance considerations and makes changes as appropriate. As required by the Dodd-Frank Wall Street Reform and Consumer Protection Act and under Section 14A of the Exchange Act, the Company held an advisory vote on the compensation of its named executive officers (the “say-on-pay proposal”) at its 2018 annual meeting. The Company’s shareholders approved the compensation of named executive officers with ninety-eight percent of shareholder votes cast in favor of the say-on-pay proposal. As the Executive Compensation Committee evaluated the Company’s compensation programs in 2018, it took into account the shareholders’ vote of confidence in the named executive officer compensation program as described below to continue the link of pay to performance.

The Board of the Company strives to ensure that its compensation programs and practices are consistent with the strategic goals and objectives of the Company and that they maintain the Company’s high standards of effective corporate governance. The Board has appointed the Executive Compensation Committee to play a central role in formulating the Company’s compensation philosophy and programs and in making pay decisions for named executive officers. The compensation programs include elements that are designed specifically for the named executive officers.

The Company’s executive compensation philosophy and programs play an important role in achieving long-term growth in shareholder value. As a guiding principle, the Company designs its compensation programs to reward its named executive officers for recent performance and to motivate them to achieve strong future performance for the Company and long-term value for shareholders.

In keeping with the long-term Company goals and efforts to increase shareholder value and align named executive officer compensation with performance, the Executive Compensation Committee has taken certain actions over the years including:

It is the responsibility of the Executive Compensation Committee to:

Risk Assessment of Named Executive Officer Incentive Compensation Programs

In 2018, the Executive Compensation Committee reviewed with the Company's Chief Risk Officer the Company's incentive compensation programs to which the Company's named executive officers were a party in order to:

After considering these items, it was the Executive Compensation Committee’s view that the Company’s compensation policies and practices did not create risks that were reasonably likely to have a material adverse effect on its business or operations.

Named Executive Officer Compensation Objectives

Based on the Company’s philosophy to link compensation to Company, business, and individual performance, the compensation programs for the named executive officers are built upon three objectives:

Overview of Compensation and Process 

Base salaries for named executive officers generally are reviewed and set on an annual basis by the Executive Compensation Committee.

The Executive Compensation Committee reviews and recommends the Short-Term Program and Long-Term Program for the new fiscal year to the Board for approval, reviews and approves awards granted under such programs and reports approved awards to the Board.

It is the practice of the Executive Compensation Committee to periodically review the history of all the elements of each named executive officer’s total compensation over previous years and compare the compensation of the named executive officer with that of the executive officers in an appropriate market place and peer group.

In September 2016, the Executive Compensation Committee engaged McLagan to review compensation for its named executive officers relative to that of similar financial institutions. McLagan presented the Executive Compensation Committee with an analysis of salaries, cash compensation (salary plus cash bonuses), direct compensation (salary plus cash bonuses plus equity/long-term compensation) and total compensation (direct compensation plus retirement benefits plus other compensation). Such analysis included a review of compensation relative to that of comparable financial institutions. In November 2017, McLagan provided the Executive Compensation Committee with a compensation review update that did not revise the peer group, but which updated information as to the asset size of the peer group members and provided updated market compensation information. A summary of the findings from the McLagan November 2017 report comparing the compensation of the Company’s named executive officers to estimated 2018 target compensation for the market indicated that the salaries, cash compensation and direct compensation at target performance for the Company’s named executive officers were within a market competitive range. The following financial services companies located in California, Oregon and Washington represented the peer group (the “Peer Group”) selected by the Executive Compensation Committee with McLagan’s assistance in September 2016 and utilized for the November 2017 study. The primary criteria for the Peer Group included total assets, geographic locations, performance and business model. The compensation of this Peer Group’s executives was used to establish the Company’s 2018 named executive officer salaries and awards under the Company’s 2017 Long-Term Program.

In February 2018, the Executive Compensation Committee, with the assistance of McLagan, updated the Peer Group to reflect recent merger and acquisition activity and to broaden geographic location criteria while maintaining focus on the Western United States. This updated Peer Group was utilized for peer group comparisons under the 2018 Short-Term Program (payouts under which are set forth below) and the 2018 Long-Term Program (payouts under which will be included in the Company’s proxy statement for the 2020 annual meeting).

Compensation Objectives 

The Company’s executive compensation programs are designed (i) to attract and retain well-qualified executive officers, (ii) to link executive officer compensation to the Company’s financial performance, and (iii) to reward executive officers for creating shareholder value. The Company believes its executive compensation programs achieve these objectives.

In order to set competitive benchmarks for 2018 salaries and long-term compensation for the named executive officers, the Executive Compensation Committee reviewed data compiled in the compensation report prepared by McLagan in November 2017. This data presented Peer Group annual cash, long-term incentive and total compensation amounts as reported in the annual filings for those companies’ executive officers whose positions and responsibilities most closely matched those of the Company’s named executive officers. For each of the Company’s named executive officers, this compensation data was examined relative to Peer Group median compensation. The Executive Compensation Committee used this information to help determine competitive benchmarks for 2018 base salary and long-term compensation awards, payable in 2018 based on 2017 Company performance, for the named executive officers. As noted, the updated Peer Group established in February 2018 was utilized for purposes of the 2018 Short-Term Program and 2018 Long-Term Program.

The Executive Compensation Committee solicits input from the entire Board to review, establish and approve corporate goals and objectives relevant to the Chief Executive Officer’s compensation. At a meeting at which the Chief Executive Officer is not present, the Executive Compensation Committee evaluates the Chief Executive Officer’s performance in light of these corporate goals and objectives and determines the Chief Executive Officer’s compensation based on the evaluation. Typically, the Chief Executive Officer makes compensation recommendations to the Executive Compensation Committee with respect to the executive officers who report to him. Such executive officers are not present at the time of these deliberations.

Review of Executive Performance 

The Executive Compensation Committee annually reviews each compensation element for named executive officers. The Executive Compensation Committee takes into account the role and responsibilities, expertise, skills and years of experience of each named executive officer in comparison to competitive salary levels.

The Executive Compensation Committee may, in its sole discretion, determine that a named executive officer shall not be granted all or any portion of an incentive compensation award, regardless of having achieved the applicable performance goal, if the Executive Compensation Committee determines that the named executive officer has failed to comply with the Company’s Code of Ethics, Code of Conduct or another Company policy, or for any other lawful reason as determined by the Executive Compensation Committee.

Named Executive Officer Compensation 

The components of executive compensation are intended to work together to compensate the named executive officer fairly for services, reward him based upon the Company’s overall performance and reward his own performance during the year. In assessing the named executive officer’s total rewards, the Executive Compensation Committee reviews each component of his compensation and considers and evaluates pay mix, the competitive market, and the value of total pay, benefits and perquisites. The Executive Compensation Committee further takes into consideration the shareholder voting results on named executive officer compensation, which historically have indicated a high level of support.

Base Salary 

Base salary generally is established by the Executive Compensation Committee based on the named executive officer’s performance, experience, competent and effective execution of strategic objectives, and level of responsibilities, with total compensation targeted at or near the 50th percentile of the comparable Peer Group for targeted or budgeted performance. In setting the base salaries of the named executive officers for 2018, the Executive Compensation Committee considered the compensation packages of executives in the Company’s Peer Group, the growth and increased complexity of the Company and the Company’s level of success in its short- and long-term goals in relation to:

The Executive Compensation Committee increased Mr. Sundquist’s base salary to a comparable level to that of his peers over the last two years after considering his extensive experience of over twenty-five years as a chief financial officer, his high level of performance and competence, and his contributions to the Company, all of which supported a market competitive compensation level.

The Executive Compensation Committee increased Mr. Muttera’s base salary for 2018 after considering his extensive experience of over twenty-five years as a chief credit officer, his high level of performance and job competencies, and his additional job responsibilities, all of which supported a market competitive compensation level.

Short-Term Program 

The Short-Term Program adopted in 2018 provided for cash incentive awards and was designed to reward the Company’s named executive officers for achieving short-term financial goals, including loan and deposit growth, net income, earnings performance versus peers, and satisfactory asset quality.

The Executive Compensation Committee approved a threshold, target and maximum payout as a percentage of the base salary earned during the incentive period for each named executive officer. These targets were based on competitive market practices for each comparable position.

The table below reflects the payout opportunities that were approved for 2018:

The Short-Term Program established a set of financial metrics which were intended to drive performance. Each metric had a weight assigned within the Short-Term Program. These metrics included (i) performing loan growth, (ii) core deposit growth, (iii) net income available to common shareholders, (iv) return on average assets (“ROAA”), and (v) classified ratio.

An initial threshold of ROAA equal to 0.95 percent was required in order for any award to be paid out under the Short-Term Program. In addition, laddered ROAA thresholds in a range up to 1.06 percent were established to cap the maximum aggregate award earned and paid out under the Short-Term Program based on the level of ROAA performance achieved. The laddered ROAA thresholds were prorated and designed to ensure that an appropriate relationship existed between Company earnings and named executive officer incentives.

The table below summarizes the weighting, performance levels established for threshold, target and maximum, and actual performance achieved in 2018 for each metric.

¹  Gross loans, less nonaccrual loans.

²  All non-maturing deposits.

³ Actual net income available to common shareholders reflects one-time adjustments for an uncertain tax position, tangible property review and cost segregation study, and acquisition expenses.

⁴ In 2018, the Company achieved ROAA of 1.19 percent; the median ROAA of the Peer Group was 1.28 percent.

⁵ Adversely classified assets divided by total capital.

The amount of incentive award paid to each named executive officer under the Short-Term Program was based on how well the Company met its targeted goals. Each metric had different thresholds and ranges and was calculated independently of other metrics to determine the total award. All awards under the Short-Term Program were subject to the discretion of the Executive Compensation Committee and the Board.

GAAP net income reported for 2018 included (i) the tax benefit from the reversal of an uncertain tax position, the details of which are discussed in the Company’s Form 10-K; (ii) benefits from accelerated tax deductions on the Company’s 2017 tax return supported by a tangible property review and a cost segregation study; (iii) the cost in 2018 of preparing the tangible property review and the cost segregation study; and (iv) various expenses incurred during 2018 associated with the acquisition of Merchants. The Executive Compensation Committee deemed that these four items should be excluded from the determination of the achievement of the 2018 performance target because (i) management should not benefit from reversal of an uncertain tax position associated with tax years prior to 2018; (ii) management should not benefit from accelerated tax deductions for tax year 2017; (iii) management should not be penalized for the cost to support accelerated tax deductions for tax year 2017; and (iv) management should not be penalized for the current period costs of pursuing a strategic objective (the acquisition of Merchants and its subsidiary, The Merchants National Bank of Sacramento) that was in the long-term best interests of the Company.

Long-Term Program 

The Executive Compensation Committee has determined that restricted stock awards are the most effective form of equity-based compensation to reward named executive officers for their contributions to the Company’s long-term performance. Equity awards which increase in value as the Company’s stock price increases directly align named executive officers’ interests with shareholders’ interests to increase stock value over the long term. Equity-based awards under the Long-Term Program were made under the Company’s 2010 Equity Plan.

In 2017, the Executive Compensation Committee designed and adopted an updated Long-Term Program that went into effect beginning with the equity awards granted in January 2018 based on 2017 Company results. The updated Long-Term Program performance metrics eliminated overlap with the performance components in the Short-Term Program. Such performance components are summarized below.

The Long-Term Program was designed to reward the Company’s named executive officers for achieving financial and strategic goals that supported the long-term success and growth of the Company and that delivered shareholder value.

The Executive Compensation Committee approved a threshold, target and maximum payout as a percentage of the base salary earned during the incentive period for each named executive officer. These targets were based on competitive practices for each comparable position. The incentive target percentage represented the named executive officer’s incentive opportunity if the annual performance goals were achieved.

The table below reflects the approved award amounts that could have been earned by each eligible named executive officer (for 2017 Company performance and granted in 2018) under the Long-Term Program.

The Long-Term Program established a set of financial and non-financial metrics which were intended to drive performance. Each metric had a weight assigned within the Long-Term Program. These metrics and their weightings included (i) return on average equity (“ROAE”) at twenty-five percent; (ii) efficiency ratio at thirty-five percent; (iii) corporate governance at twenty percent; and (iv) other strategic objectives and initiatives at twenty percent.

The performance components for ROAE and efficiency ratio were measured against both the Company’s targeted metrics and the Company’s performance relative to the Peer Group. The Company’s ROAE performance had to be no less than the 40 ^th percentile of the Peer Group, and the Company’s efficiency ratio performance had to be no less than the 20 ^th percentile of the Peer Group. Performance below the specified Peer Group percentiles, depending on the specific circumstances, could have resulted in an award at less than target, including zero percent, and was at the Executive Compensation Committee’s discretion.

The performance component for corporate governance was measured by the implementation and functionality of the Company’s Enterprise Risk Management (“ERM”) model. The Executive Compensation Committee evaluated the performance of a “fully functional ERM framework” based on factors including risk appetite, risk statements, key risk indicators, and the information contained in monthly and quarterly summary reports to the Company’s Board.

The performance component for other strategic objectives and initiatives was measured by progress on, and completion of, quantitative and qualitative goals including, but not limited to, loan and core deposit growth, specified valuation metrics related to the Company’s stock, capital management, internal and external communication, strategic branding, and regulatory compliance and corporate governance.

The Long-Term Program structure allowed the Executive Compensation Committee to evaluate the named executive officers’ performance outside of the four performance metrics and either adjust the final equity award by increasing or decreasing the calculated award up to twenty percent or leave the calculated award unchanged. The Executive Compensation Committee utilized this multiplier component to exercise its judgement and discretion in determining potential payouts at, above, or below targeted levels. The Executive Compensation Committee had full discretion and authority to assess and determine performance at levels below eighty percent, to include a zero percent payout.

The equity incentive awards granted in 2018 to each named executive officer under the Long-Term Program were based on how well the Company met its targeted goals for 2017 performance. As indicated, each metric had weightings, thresholds and ranges and was calculated independently of other metrics to determine the total award. All awards under the Long-Term Program were subject to the discretion of the Executive Compensation Committee and the Board.

In 2017, the Company achieved an ROAE of 8.05 percent, which fell short of targeted performance of 8.33 percent and the 40 ^th percentile of the Peer Group, which was 9.42 percent. Excluding the Company’s May 2017 capital raise, the Company would have achieved an ROAE of 9.47 percent, which would have exceeded both targeted performance and the 40 ^th percentile of the Peer Group. The Executive Compensation Committee recognized that the capital raise would have a significant long-term positive effect on the Company’s future performance and that this reality warranted exercising discretion even though the capital raise had a negative effect on the Company’s ROAE during 2017. The Peer Group used as a comparison decreased from nineteen institutions when originally approved by the Executive Compensation Committee to fifteen institutions at the time of evaluation of 2017 performance as a result of mergers and acquisitions. For these reasons, the Executive Compensation Committee determined that the ROAE metric was achieved at target.

In 2017, the Company achieved an efficiency ratio of 67.78 percent, which exceeded targeted performance of 71.21 percent as well as the 20 ^th percentile of the Peer Group, which was 69.81 percent. As a result, the Executive Compensating Committee determined that this metric was achieved at target.

The calculations for both ROAE and the efficiency ratio excluded a one-time adjustment to actual net income available to common shareholders for the payout of a death benefit under a Bank-Owned Life Insurance policy. The calculation of ROAE also included a one-time adjustment to actual net income available to common shareholders for the revaluation of deferred tax assets following the signing of the Tax Cuts and Job Act into law in December 2017.

The Executive Compensation Committee evaluated the metrics of corporate governance and other strategic objectives and initiatives and determined that targeted performance was achieved. The ERM framework was deemed to be fully functional based on satisfactory elements reported in quarterly reports to the Board. Other strategic objectives and initiatives were evaluated as follows: (i) loan and core deposit growth objectives were exceeded; (ii) progress was made on two-year targets of valuation metrics as compared to peer; (iii) a capital raise was successfully completed in May 2017; (iv) continual improvements were made to internal communication; and (v) regulatory ratings were satisfactory.

The Executive Compensation Committee evaluated overall performance of long-term objectives and chose not to utilize the multiplier component as all metrics were achieved at targeted expectations. The table below summarizes the actual awards granted to the named executive officers under the 2017 Long-Term Program.

The 2018 restricted stock grants, based on 2017 performance and granted in January 2018, vest in three equal annual installments beginning on the first anniversary of the date of grant (the amounts of which are reflected in the section entitled “ Grants of Plan-Based Awards ”) .

Perquisites and Other Benefits 

The Executive Compensation Committee believes that offering certain perquisites helps in the operation of the business, as well as assisting the Company to recruit and retain key executive officers. In some cases, benefits including a club membership, an automobile allowance or the use of a bank-owned automobile are offered to named executive officers. The Company’s named executive officers may participate in the same benefit programs available to all employees. These programs include health, life and disability insurance and participation in a 401(k) plan.

Post-Retirement Arrangements 

The Company has entered into employment agreements with its named executive officers which contain a change-in-control provision providing for certain payments following termination of employment. Redding Bank of Commerce has entered into individual Salary Continuation Agreements (commonly referred to as a Supplemental Executive Retirement Plan or “SERP”) with certain of its named executive officers which provide for payments that are fixed pursuant to the individual SERP and do not depend on years of credited service.

The terms of the respective employment agreement and SERP with each of the named executive officers are described in the section entitled “ Post-Employment and Termination Benefits .”

Role and Relationship of the Compensation Consultant 

The Executive Compensation Committee has the sole authority to retain and terminate a compensation consultant and to approve the consultant’s fees and all other terms of the engagement. The Executive Compensation Committee has direct access to outside advisors and consultants throughout the year.

The Executive Compensation Committee has utilized the services of McLagan as an independent outside compensation consultant periodically since 2012. In September 2016, McLagan provided the Executive Compensation Committee with reports regarding market analyses of compensation of named executive officers and assisted the Executive Compensation Committee with establishing the Company’s Peer Group. In November 2017, McLagan provided the Executive Compensation Committee with a compensation review update that did not revise the Peer Group, but which updated information as to the asset size of the Peer Group members and provided updated market compensation information. In February 2018, McLagan assisted the Executive Compensation Committee in updating the Peer Group to reflect recent merger and acquisition activity and to broaden geographic location criteria while maintaining focus on the Western United States. This updated Peer Group was considered by the Executive Compensation Committee for awards made under the Company’s 2018 Short-Term and Long-Term Programs. During 2018, McLagan assisted the Executive Compensation Committee in connection with general compensation questions and issues.

McLagan’s services include conducting peer group analysis and benchmarking studies, establishing compensation guidelines, assisting with the design of incentive programs, and providing insight on emerging regulations and best practices. McLagan was engaged directly by and reports directly to the Executive Compensation Committee.

The Executive Compensation Committee considered the independence of McLagan in light of NASDAQ listing standards and SEC regulations. The Executive Compensation Committee requested and received a report from McLagan addressing the independence of McLagan and the senior advisors involved in the engagement, which considered the following factors: (i) other services provided to the Company by McLagan; (ii) fees paid by the Company as a percentage of Aon’s total revenue; (iii) policies or procedures maintained by McLagan that are designed to prevent a conflict of interest; (iv) any business or personal relationships between the senior advisors and a member of the Executive Compensation Committee; (v) any Company stock owned by the senior advisors; and (vi) any business or personal relationships between the Company’s executive officers and the senior advisors. The Executive Compensation Committee discussed these considerations and concluded that the work performed by McLagan and the senior advisors involved in the engagement did not raise any conflict of interest.

Commitment to Quality Governance 

The Executive Compensation Committee has adopted the following procedures intended to ensure quality governance of the Company’s “pay for performance” philosophy:

Clawback Policy

The Board has adopted a Clawback Policy providing for the recovery of incentive compensation in certain circumstances. Under the Clawback Policy, if the Company is required to prepare an accounting restatement due to the Company’s material noncompliance with any financial reporting requirement under applicable securities laws, and the Board determines that the misconduct of any person who was an executive officer at the time of the misconduct contributed to the requirement to restate the Company’s financial statements, the Company will recover compensation from any such current or former executive officer who received incentive compensation (including equity-based compensation) during the one-year period preceding the date of the restatement, in excess of what would have been paid to the executive absent the erroneous data.

Anti-Hedging Policy

The Board has adopted an Anti-Hedging Policy that prohibits the Company’s directors, officers and employees from engaging in a “hedging transaction,” which is generally a transaction that would have the economic effect of establishing a downside price protection in connection with Common Stock owned by such person. This type of transaction may create the appearance that the person’s interests generally are not aligned with those of the Company’s shareholders, to the extent that it is designed to hedge or offset against any decrease in the market value of Common Stock.

Anti-Pledging and Margin Account Policy

The Board has adopted an Anti-Pledging and Margin Account Policy that prohibits the Company’s directors and executive officers from pledging Common Stock as collateral or from holding Common Stock in a margin account. Securities held in a margin account may be sold by the broker without the customer’s consent if the customer fails to make a margin call, and any such margin sale may occur at a time when the pledgor is aware of material nonpublic information. None of the Company’s directors or executive officers pledge the Company’s Common Stock or hold the Company’s Common Stock in a margin account.

Stock Ownership and Retention Guidelines

The Board has approved stock ownership and retention guidelines for its directors and executive officers which are intended to help closely align the financial interests of such persons with those of the Company’s shareholders. Within five years after appointment or election to the Board or five years from December 20, 2016, the date the policy was adopted, whichever is later, each director is expected to acquire and retain shares of Common Stock having a market value of at least five times his or her annual cash retainer (as defined in the policy and exclusive of chairperson retainers and committee per-meeting fees). All directors have met the guideline.

Similarly, executive officers who are required to file reports pursuant to Section 16 of the Exchange Act are expected, within five years of appointment or five years from December 20, 2016, the date the policy was adopted, whichever is later, to acquire and retain Common Stock having a market value equal to at least two times his or her annual base salary. All executive officers have met the guideline or are on track to meet the guideline within the required timeframe.

Unless a director or executive officer has achieved the applicable guideline level of share ownership, he or she is required to retain an amount equal to fifty percent of the net shares received as a result of the exercise, vesting or payment of any Company equity awards granted to him or her. A director or executive officer must continue to retain such shares for as long as the director or executive officer is subject to the guidelines.

Summary Compensation Table

SEC regulations require disclosure of all plan and non-plan compensation awarded to, earned by, or paid to the named executive officers for each of the Company’s last three completed fiscal years. The following table sets forth such summary information for the Company’s principal executive officer, principal financial officer and the Company’s other two executive officers. The Company has only four executive officers who perform a policy-making function for the Company.

Details of “All Other Compensation” in the Summary Compensation Table

Equity Incentive Plan

The 2010 Equity Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock and restricted stock units. All eligible employees and directors may participate in the 2010 Equity Plan. As of December 31, 2018, 97,400 stock options were outstanding, 66,768 unvested restricted shares were outstanding, and 151,699 shares remained available for future awards.

¹  Base salaries include 401(k) contributions made by the named executive officers in the aggregate of $97,500 during 2018. Mr. Eslick contributed $24,000 to his 401(k) plan account. Each of Messrs. Sundquist, Jimenez and Muttera contributed $24,500 to his respective 401(k) plan account.

²  Amounts represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 of equity incentive compensation earned under the Company’s Long-Term Program for performance during the prior year. The material terms of the Long-Term Program are described in the section entitled “ Long-Term Program .” The stock underlying such awards was issued in January of the respective year.

³ Amounts represent cash incentive compensation earned under the Company’s Short-Term Program, the material terms of which are described in the section entitled “ Short-Term Program ,” for the respective years and paid in January of the following year.

⁴ Amounts represent contributions by the Company and interest earned on segregated accounts under the named executive officer’s SERP, the material terms of which are described in the section entitled “ Post-Employment and Termination Benefits .”

⁵ Amounts are detailed in the table captioned “ Details of “All Other Compensation” in the Summary Compensation Table .”

⁶ Represents an automobile allowance or an automobile for business use. The officers may have derived some personal benefit from the use of such automobiles.

⁷ Represents club membership fees and expenses to entertain customers. The officers may have derived some personal benefit from the use of such membership.

¹  Potential cash payouts in 2019 under the Short-Term Program based on performance in 2018. Actual payouts are shown under “Non-Equity Incentive Plan Compensation” in the section entitled “ Summary Compensation Table .”

² Restricted shares awarded in January 2018 under the Long-Term Program based on performance in 2017. Restricted shares vest in three equal annual installments over a three-year period beginning January 25, 2019 with shares becoming fully vested on January 25, 2021.

³ Represents the unvested portion of the restricted stock awards granted January 26, 2017, which shares vest in three equal annual installments over a three-year period beginning January 26, 2018 with shares becoming fully vested on January 26, 2020.

⁴ Represents the unvested portion of the restricted stock awards granted January 25, 2018, which shares vest in three equal annual installments over a three-year period beginning January 25, 2019 with shares becoming fully vested on January 25, 2021.

⁵ Options vest twenty percent annually beginning January 15, 2015 with shares becoming fully vested January 15, 2019. Vested options subject to this award were exercised on January 15, 2019.

Option Exercises and Stock Vested

The following table presents certain information concerning the exercise of options by and the vesting of restricted stock held by each named executive officer during the fiscal year ended December 31, 2018, including the value realized on exercise and the value of the stock awards on the vesting date.

Pension Benefits

The following table illustrates the approximate annual retirement income that may become payable to a named executive officer assuming benefits commence at age sixty-five for both of Messrs. Eslick and Jimenez and age sixty-seven for Mr. Muttera. The benefits for Messrs. Eslick, Jimenez and Muttera are payable over a period of ten years. Mr. Sundquist does not have a separate agreement providing retirement benefits.

Nonqualified Deferred Compensation

As noted in the section entitled “ DIRECTOR COMPENSATION ,” directors may participate in the 2013 Directors DCP; however, no such plan or benefit exists for named executive officers.

Post-Employment and Termination Benefits

The post-employment and termination arrangements currently in place for the named executive officers are described below. The amounts are based on the maximum amounts that could be paid under these arrangements.

Salary Continuation Agreements (Supplemental Executive Retirement Plan or SERP) 

The Redding Bank of Commerce board of directors has approved a SERP for certain named executive officers. In general, the SERPs provide a nonqualified benefit to named executive officers, and through the SERPs, the Company agrees to provide specified benefits in the future to named executive officers who meet certain criteria and contribute materially to the continued growth, development and business success of Redding Bank of Commerce.

The terms and payments under the SERP are determined by individual agreements with the named executive officers and are not based on years of credited service. In order to receive the benefits under his SERP, each named executive officer must meet the applicable criteria. Benefits under the SERP generally include income payable commencing upon a qualifying termination of employment and a death benefit for the participants’ designated beneficiaries.

¹ The terms of the SERP are described in the section entitled “ Salary Continuation Agreements (Supplemental Executive Retirement Plan or SERP) .”

The SERPs provide for five general classes of benefits for the named executive officers, and the Executive Compensation Committee acts as administrator of the plan. Mr. Sundquist does not have a SERP and therefore is not included in the discussion below.

Potential Payments upon Termination or Change in Control

The following table shows the maximum amounts that would have been payable to each named executive officer in 2018 under his respective agreement(s). The information is based on each named executive officer’s compensation at December 31, 2018 and assumes the triggering event occurred on December 31, 2018.

¹  Reflects with respect to accelerated options the difference between the option exercise price and the fair market value of the underlying shares of Common Stock.

2018 Named Executive Officer Employment Agreements

The Company has entered into separate employment agreements with each of its named executive officers. A summary of the agreements is set forth below.

Randall S. Eslick Employment Agreement. Mr. Eslick serves as President and Chief Executive Officer. His employment agreement, effective January 6, 2017, is for a term of three years and automatically extends for a one-year period, subject to prior termination as provided within the agreement. The employment agreement provides that in the event of termination for specified reasons, Mr. Eslick will receive an amount equal to one quarter of his then-current total compensation package (defined as current annual base salary plus the average of the annual bonus paid to Mr. Eslick during the preceding three calendar years) plus any accrued incentive awards and accrued but unused vacation as of the date of termination, all calculated as of the date of his termination, payable in one lump sum. If Mr. Eslick is terminated other than for those specified reasons, he will receive an amount equal to one times his then-current total compensation package plus any accrued incentive awards and accrued but unused vacation as of the date of termination, all calculated as of the date of his termination, payable in one lump sum. In either case, Mr. Eslick will receive a lump-sum payment in an amount equal to the amount necessary to pay Mr. Eslick’s COBRA premiums for continuation of group health insurance coverage for eighteen months. The employment agreement also provides that in the event of a change in control (as defined therein) pursuant to which Mr. Eslick’s employment is terminated, Mr. Eslick is entitled to severance pay equal to two times his total compensation package. In the event of termination, other than a change in control, Mr. Eslick is prohibited from soliciting Redding Bank of Commerce’s customers or clients for a period of one year.

James A. Sundquist Employment Agreement. Mr. Sundquist serves as Executive Vice President and Chief Financial Officer. The material terms of Mr. Sundquist’s employment agreement are identical to those of Mr. Eslick except for termination benefits related to a change in control (as defined in Mr. Sundquist’s employment agreement). In the event of a change in control pursuant to which Mr. Sundquist’s employment is terminated, Mr. Sundquist is entitled to severance pay equal to two years’ salary at the rate being paid to Mr. Sundquist as of the date of his termination plus an amount equal to one times the average of the annual bonus paid to Mr. Sundquist for the preceding three calendar years.

Samuel D. Jimenez Employment Agreement. Mr. Jimenez serves as Executive Vice President and Chief Operating Officer. The material terms of Mr. Jimenez’s employment agreement are identical to those of Mr. Sundquist.

Robert H. Muttera Employment Agreement. Mr. Muttera serves as Executive Vice President and Chief Credit Officer. The material terms of Mr. Muttera’s employment agreement are identical to those of Mr. Sundquist.

Compensation Pay Ratio

As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of Regulation S-K, the Company is providing the following information for 2018:

Based on this information, the ratio for 2018 of the annual total compensation of the Company’s Chief Executive Officer to the median of the annual total compensation of all employees is 16 to 1.

The Company completed the following steps to identify the median of the annual total compensation of all Company employees (other than the Chief Executive Officer) and to determine the annual total compensation of the Company’s median employee and Chief Executive Officer:

With respect to the annual total compensation of the Company’s Chief Executive Officer, the Company used the amount reported in the “Total” column of the 2018 Summary Compensation Table, which is also in accordance with the requirements of Item 402(c)(2)(x).

SHAREHOLDER PROPOSALS AT THE 2020 ANNUAL MEETING

 

Proposals by shareholders to transact business at the Company’s 2020 annual meeting must be delivered in writing to the Company at its principal administrative office located at 1901 Churn Creek Road, Redding, California 96002 no later than December 6, 2019 in order to be considered for inclusion in the proxy statement and proxy card. Such proposals must comply with the provisions of the Company’s bylaws and the SEC’s regulations regarding the inclusion of shareholder proposals in the Company’s sponsored proxy materials. If a proposal is presented at the 2020 annual meeting in compliance with this paragraph, your proxy holder will vote in accordance with the recommendation of the Board or, if no recommendation is given, in accordance with his or her best judgment.

 

Notice of any business item proposed to be brought from the floor by a shareholder at the Company’s 2020 annual meeting, including the nomination of directors, must be received in writing by the Corporate Secretary of the Company no earlier than January 22, 2020 and no later than February 21, 2020, must include a brief description of the business desired to be brought before the meeting, and must comply with the provisions of the Company’s bylaws. If the Company does not receive timely notice, such proposal will not be considered a business item at the annual meeting, and the Chairman of the meeting will refuse to acknowledge any proposal not made in compliance with the foregoing procedures.

 

OTHER BUSINESS

 

The Company knows of no other business that will be presented at the Annual Meeting. If any other business is properly brought before the Annual Meeting, the proxy holder will vote in accordance with the recommendation of the Board or, if no recommendation is given, in accordance with his or her best judgment. Whether or not you intend to be present at the Annual Meeting, please vote promptly.

 

By Order of the Board of Directors,

 

/s/ Andrea M. Newburn

 

Andrea M. Newburn

Corporate Secretary

 

Sacramento, California

April 4, 2019

 

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APPENDIX A

 

Bank of Commerce Holdings 2019 Equity Incentive Plan

 

ARTICLE 1

ESTABLISHMENT AND PURPOSE

 

1.1      Establishment . Bank of Commerce Holdings, a California corporation (the "Company"), hereby establishes the Bank of Commerce Holdings 2019 Equity Incentive Plan (the "Plan"), effective as of ___________, 2019 (the "Effective Date").

 

1.2      Purpose . The purpose of the Plan is to promote and advance the interests of the Company and its shareholders by enabling the Company to attract, retain, and reward employees and directors of the Company and its subsidiaries. It is also intended to strengthen the mutuality of interests between such employees and directors and the Company's shareholders. The Plan is designed to serve these purposes by offering stock options and other equity based incentive awards, thereby providing a proprietary interest in pursuing the long term growth, profitability, and financial success of the Company.

 

ARTICLE 2

DEFINITIONS

 

2.1      Defined Terms . For purposes of the Plan, the following terms have the meanings set forth below:

 

" Affiliate " means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.

 

" Award " means an award or grant made to a Participant of Options, Stock Appreciation Rights, or Restricted Awards pursuant to the Plan.

 

" Award Agreement " means an agreement as described in Section 5.4.

 

" Bank " means Redding Bank of Commerce.

 

" Board " means the Board of Directors of the Company.

 

" Cause " will have the meaning specified in the employment agreement between a Participant and the Company, if any, and otherwise means any of the following: (a) dishonesty in performing one's duties to the Company; (b) willful misconduct, or a willful failure to act, with the intent of injuring, or having the effect of injuring, the reputation, business, or business relationship of the Company or an Affiliate, or any of their officers, directors, or employees; (c) conviction of a felony or of any crime involving moral turpitude or that reflects unfavorably on the Company or an Affiliate; or (d) willful or prolonged absence from work or failure for any reason to perform duties as an employee or Non-Employee Director, unless excused by the Company or an Affiliate.

 

" Change in Control " means a change in the ownership or effective control or in the ownership of a substantial portion of the assets of the Bank or Company, within the meaning of Section 409A of the Code; provided, however that (i) an internal reorganization of the Bank or (ii) the placement of the Bank into receivership or conservatorship by the Federal Deposit Insurance Corporation ("FDIC") shall not constitute a "Change in Control."

 

" Change in Control Date " means the date a Change in Control actually occurs.

 

" Code " means the Internal Revenue Code of 1986, as amended and in effect from time to time, or any successor statute, together with rules, regulations, and interpretations promulgated thereunder.

 

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" Committee " means the committee appointed by the Board, if any, to administer the Plan as provided in Article 3 of the Plan. If no separate committee has been appointed to administer the Plan, the term "Committee" will refer to the full Board as administrator of the Plan.

 

" Common Stoc k" means the common stock of the Company.

 

" Company " means Bank of Commerce Holdings, a California corporation, or any successor corporation.

 

" Continuing Restriction " means a Restriction contained in Sections 5.5(d), 5.5(g), 11.4, 11.6, and 11.7 of the Plan and any other Restrictions expressly designated by the Committee in an Award Agreement as a Continuing Restriction.

 

" Continuous Service " means that the Participant's service with the Company or an Affiliate, whether as an employee or Non-Employee Director, is not interrupted or terminated. The Committee may in its sole discretion determine whether Continuous Service shall be considered interrupted in the case of (a) any leave of absence approved by the Company, including sick leave, maternity leave, military leave or any other personal leave, or (b) a change in the capacity in which the Participant renders services to the Company or an Affiliate.

 

" Disability " means the condition of being "disabled" within the meaning of Section 22(e)(3) of the Code.

 

" Exchange Act " means the Securities Exchange Act of 1934, as amended and in effect from time to time, or any successor statute, together with rules and interpretations promulgated thereunder.

 

" Fair Market Value " means, on any given day, the value per share of the Common Stock determined as follows:

 

(a)     If the Common Stock is listed on any established stock exchange or a national market system, including without limitation The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid price, if no sales were reported) as quoted on such exchange or system for such date (or, if such pricing information is not published for such date, the last date prior to such date for which pricing information is published), as reported in The Wall Street Journal or such other source as the Committee deems reliable; or

 

(b)     If the Common Stock is regularly quoted by recognized securities dealers but selling prices are not reported, its Fair Market Value shall be the mean of the closing bid and asked prices for such stock on such date, as reported in The Wall Street Journal or such other source as the Committee deems reliable; or

 

(c)     In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Committee and by taking into account such criteria and information as is required to comply with Code Section 409A.

 

" Incentive Stock Option " or " ISO " means any Option intended to be an "incentive stock option" within the meaning of Section 422 of the Code.

 

" Non-Employee Director " means a member of the Board, or of the board of directors of the Bank, who is not an employee of the Company or any Affiliate.

 

" Nonqualified Option " or " NQO " means any Option granted pursuant to the Plan that is not an ISO.

 

" Option " means an ISO or an NQO.

 

" Participant " means an employee of the Company or an Affiliate or a Non-Employee Director who is granted an Award under the Plan.

 

" Performance Goals " means goals approved by the Committee pursuant to Section 5.6.

 

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" Performance Period " means a period of time over which performance is measured.

 

" Plan " means this Bank of Commerce Holdings 2019 Equity Incentive Plan, as set forth herein and as it may be amended from time to time.

 

" Reporting Person " means a Participant who is subject to the reporting requirements of Section 16(a) of the Exchange Act.

 

" Restricted Award " means a Restricted Share or a Restricted Unit granted pursuant to Article 8 of the Plan.

 

" Restricted Share " means an Award described in Section 8.1(a) of the Plan.

 

" Restricted Unit " means an Award of units representing Shares described in Section 8.1(b) of the Plan.

 

" Restriction " means a provision in the Plan or in an Award Agreement which limits the exercisability or transferability, or which governs the forfeiture or required sale, of an Award or Shares, cash, or other property payable pursuant to an Award.

 

" Restriction Period " shall have the meaning set forth in Section 8.3.

 

" Share " means a share of Common Stock.

 

" Stock Appreciation Right " or " SAR " means an Award to benefit from the appreciation of Common Stock granted pursuant to the provisions of Article 7 of the Plan.

 

" Vest ," " Vesting ," or " Vested " means:

 

(a)     In the case of an Award that requires exercise, to be or to become immediately and fully exercisable and free of all Restrictions (other than Continuing Restrictions);

 

(b)     In the case of an Award that is subject to forfeiture, to be or to become nonforfeitable, freely transferable, and free of all Restrictions (other than Continuing Restrictions);

 

(c)     In the case of an Award that is required to be earned by attaining specified Performance Goals, to be or to become earned and nonforfeitable, freely transferable, and free of all Restrictions (other than Continuing Restrictions); or

 

(d)     In the case of any other Award as to which payment is not dependent solely upon the exercise of a right, election, or option, to be or to become immediately payable and free of all Restrictions (except Continuing Restrictions).

 

2.2      Number . Except where otherwise indicated by the context, the definition of any term in Section 2.1 in the singular also includes the plural, and vice versa.

 

ARTICLE 3

ADMINISTRATION

 

3.1      Administration by Board . The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in Section 3.2. The body administering the plan from time to time is referred to herein as the "Committee."

 

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3.2      Delegation to Committee . The Board may delegate administration of the Plan to a Committee. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. Members of the Committee shall be selected by the Board and shall consist of two or more Non-Employee Directors who are Board members, each of whom shall satisfy applicable independence criteria of the stock exchange or quotation system on which the Common Stock may then be listed or quoted and be a "non-employee director" within the meaning of Rule 16b-3 promulgated under the Exchange Act. If the Committee does not exist or the Board, for any reason determined by it, desires to directly administer the Plan, then the Board may take any action under the Plan that would otherwise be the responsibility of the Committee. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. The Board may abolish the Committee at any time and re-vest in the Board the administration of the Plan.

 

3.3      Authority of the Committee . The Committee has full power and authority (subject to such orders or resolutions as may be issued or adopted from time to time by the Board) to administer the Plan in its sole discretion, including the authority to:

 

(a)     Construe and interpret the Plan and any Award Agreement;

 

(b)     Promulgate, amend, and rescind rules and procedures relating to the implementation of the Plan;

 

(c)     Select the employees and Non-Employee Directors who will be granted Awards;

 

(d)     Determine the number and types of Awards to be granted to each Participant;

 

(e)     Determine the number of Shares, or Share equivalents, to be subject to each Award;

 

(f)     Determine the Fair Market Value of Shares if no public market exists for such Shares;

 

(g)     Determine the option exercise price, purchase price, base price, or similar feature for any Award;

 

(h)     Waive any Restrictions or conditions to Vesting; provided that in no event may an Award become partially or fully Vested before the one-year anniversary of the grant date other than as a result of the death or Disability of a Participant or as provided in Section 9.4; and

 

(i)     Determine all the terms and conditions of all Award Agreements, consistent with the requirements of the Plan.

 

Decisions of the Committee will be final, conclusive, and binding on all Participants.

 

3.4      Action by the Committee . A majority of the authorized number of members of the Committee will constitute a quorum for the transaction of business. Action approved by a majority of the members present at any meeting at which a quorum is present, or action in writing by all of the members of the Committee, will be the valid acts of the Committee.

 

3.5      Further Delegation . Notwithstanding the foregoing, the Committee may delegate to the Chief Executive Officer of the Company the authority to determine the Participants, types, amounts, and terms of Awards granted to Participants who are not Reporting Persons.

 

ARTICLE 4

DURATION; SHARES SUBJECT TO THE PLAN; ELIGIBILITY

 

4.1      Duration of the Plan . The Plan is effective as of the Effective Date. The Plan will terminate five years after the Effective Date or, if earlier, when Awards have been granted covering all available Shares or the Plan is otherwise terminated by the Board. Termination of the Plan will not affect outstanding Awards.

 

4.2      Prior Plan . The Plan is separate from the Bank of Commerce Holdings Amended and Restated 2010 Equity Incentive Plan (the "Prior Plan"). The adoption of the Plan neither affects nor is affected by the continued existence of the Prior Plan except that no further Awards will be granted under the Prior Plan after the Effective Date.

 

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4.3      Shares Subject to the Plan . The Shares which may be made subject to Awards under the Plan are Shares of Common Stock, which may be either authorized and unissued Shares or reacquired Shares. Subject to adjustment pursuant to Article 9, the maximum number of Shares for which Awards may be granted under the Plan is 500,000. If an Award under the Plan is canceled or expires for any reason prior to having been fully Vested or exercised by a Participant, is exchanged for other Awards, or is otherwise forfeited, all Shares covered by such Awards will be added back into the number of Shares available for future Awards under the Plan. In no event will any of the following Shares again become available for other Awards: (a) Shares tendered or withheld in respect of taxes; (b) Shares tendered or withheld to pay the exercise price of Options, and (c) Shares repurchased by the Company from the Participant with the Proceeds from the exercise of Options. In addition, the exercise or settlement of SARs reduces the number of Shares available under the Plan by the total number of Shares to which the exercise or settlement of the SARs relate, not just the net number of Shares actually issued upon exercise or settlement. Awards payable or settled solely in cash shall not reduce the number of Shares available for issuance under the Plan. Shares issued in connection with awards that are assumed, converted, or substituted pursuant to a merger, acquisition, or similar transaction entered into by the Company shall not reduce the number of Shares available for issuance under the Plan.

 

4.4      Reservation of Shares . The Company, during the term of the Plan and any outstanding Awards, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

 

4.5      Eligibility . Employees of the Company and any Affiliate (including employees who may also be directors of the Company or an Affiliate) and Non-Employee Directors are eligible to receive Awards under the Plan.

 

ARTICLE 5

AWARDS

 

5.1      Types of Awards . The types of Awards that may be granted under the Plan are:

 

(a)     Options governed by Article 6 of the Plan;

 

(b)     Stock Appreciation Rights governed by Article 7 of the Plan; and

 

(c)     Restricted Awards governed by Article 8 of the Plan.

 

In the discretion of the Committee, any Award may be granted alone, in addition to, or in tandem with other Awards under the Plan.

 

5.2      General . Subject to the limitations of the Plan, the Committee may cause the Company to grant Awards to such Participants, at such times, of such types, in such amounts, for such periods, with such option prices, purchase prices, or base prices, and subject to such terms, conditions, limitations, and restrictions as the Committee, in its discretion, deems appropriate. Awards may be granted as additional compensation to a Participant or in lieu of other compensation to such Participant. A Participant may receive more than one Award and more than one type of Award under the Plan.

 

5.3      Nonuniform Determinations . The Committee's determinations under the Plan or under one or more Award Agreements, including, without limitation, (a) the selection of Participants to receive Awards, (b) the type, form, amount, and timing of Awards, (c) the terms of specific Award Agreements, and (d) elections and determinations made by the Committee with respect to exercise or payments of Awards, need not be uniform and may be made by the Committee selectively among Participants and Awards, whether or not Participants are similarly situated.

 

5.4      Award Agreements . Each Award will be evidenced by a written (or electronic) agreement (an "Award Agreement") between the Company and the Participant. Award Agreements may, subject to the provisions of the Plan, contain any provision approved by the Committee.

 

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5.5      Provisions Governing All Awards . All Awards are subject to the following provisions:

 

(a)      Alternative Awards . If any Awards are designated in their Award Agreements as alternative to each other, the exercise of all or part of one Award will automatically cause an immediate equal (or pro rata) corresponding termination of the other alternative Award or Awards.

 

(b)      Rights as Shareholders . Except as provided in Section 8.6 below, no Participant will have any rights of a shareholder with respect to Shares subject to an Award until such Shares are issued in the name of the Participant, including the right to receive cash dividends or dividend equivalents.

 

(c)      Employment Rights . Neither the adoption of the Plan nor the granting of any Award confers on any person the right to continued employment with the Company or any Affiliate or the right to remain as a director of the Company or any Affiliate, as the case may be, nor does it interfere in any way with the right of the Company or an Affiliate to terminate such person's employment or to remove such person as a director at any time for any reason, with or without cause.

 

(d)      Restriction on Transfer . Unless otherwise expressly provided in an individual Award Agreement with respect to a transfer for no consideration, each Award (other than Restricted Shares after they Vest) will not be transferable other than by will or the laws of descent and distribution and will be exercisable (if exercise is required), during the lifetime of the Participant, only by the Participant or, in the event the Participant becomes legally incompetent, by the Participant's guardian or legal representative. Notwithstanding the foregoing, any Award may be surrendered to the Company pursuant to Section 5.5(f) in connection with the payment of the purchase or option exercise price of another Award or the payment of the Participant's federal, state, or local tax withholding obligation with respect to the exercise or payment of another Award (in an amount equal to no more than the maximum statutory withholding that would be imposed with regard to such transaction).

 

(e)      Termination of Employment . The terms and conditions under which an Award may be exercised, if at all, after a Participant's termination of employment or service as a Non-Employee Director will be determined by the Committee and specified in the applicable Award Agreement.

 

(f)      Payment of Purchase Price and Withholding . The Committee, in its discretion, may include in any Award Agreement a provision permitting the Participant to pay the purchase or option exercise price, if any, for Shares or other property issuable pursuant to the Award, or the Participant's federal, state or local tax withholding obligations with respect to such issuance, in whole or in part, by any one or more of the following methods; provided, however, that the availability of any one or more methods of payment may be suspended from time to time if the Committee determines that the use of such payment method would result in adverse financial accounting treatment for the Company or a violation of laws or regulations applicable to the Company:

 

(i)      By delivering cash or a check;

 

(ii)     By delivering previously owned Shares;

 

(iii)    By reducing the number of Shares or other property otherwise Vested and issuable pursuant to the Award;

 

(iv)     In the event Shares are publicly traded, by delivery (in a form approved by the Committee) of an irrevocable direction to a securities broker acceptable to the Committee (subject to any applicable statute or rule); or

 

(v)     In any combination of the foregoing or in any other form approved by the Committee.

 

Any Shares withheld or surrendered with respect to a Reporting Person will be subject to such additional conditions and limitations as the Committee may impose to comply with the requirements of the Exchange Act.

 

(g)      Service Periods . At the time of granting an Award, the Committee may specify, by resolution or in the Award Agreement, the period or periods of service performed or to be performed by the Participant in connection with the grant of the Award.

 

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(h)      Minimum Vesting Period . Except as provided in Sections 3.3(h) and 9.4, no Award may Vest in whole or in part before the one-year anniversary of the grant date.

 

(i)      Clawback/Recovery . All compensation pursuant to Awards granted under the Plan will be subject to recoupment (i) if the Company is required to prepare an accounting restatement due to the Company's material noncompliance with any financial reporting requirement under applicable securities laws, and the Board determines that the misconduct of any person who was an executive officer at the time of the misconduct contributed to the requirement to restate the Company's financial statements and the compensation was received during the one-year period preceding the date of the restatement, to the extent such compensation exceeds the amount that would have been received by the Participant absent the erroneous data, (ii) as required in accordance with any clawback policy that the Company is required to adopt pursuant to the listing standards of any national securities exchange or association on which the Company's securities are listed or as is otherwise required by the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law, or (iii) as otherwise required by law. In addition, the Committee may impose such other clawback, recovery or recoupment provisions in an Award Agreement as the Committee determines necessary or appropriate, including without limitation in the event the Participant accepts employment with a competitor of the Company or otherwise competes with the Company. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for "good reason" or "constructive termination" (or similar term) under any agreement with the Company or an Affiliate.

 

5.6      Performance Goals . In the event an Award is intended to be performance-based, the Committee will establish Performance Goals for each Performance Period on the basis of such criteria and to accomplish such objectives as the Committee may from time to time select. Performance Goals may be based on (a) performance criteria for the Company, a subsidiary, or an operating group, (b) a Participant's individual performance, or (c) a combination of both. Performance Goals may include objective and subjective criteria. During any Performance Period, the Committee may adjust the Performance Goals for such Performance Period as it deems equitable in recognition of unusual or nonrecurring events affecting the Company, changes in applicable tax laws or accounting principles, or such other factors as the Committee may determine.

 

ARTICLE 6

OPTIONS

 

6.1      Types of Options . Options granted under the Plan may be in the form of ISOs or NQOs. The grant of each Option and the Award Agreement governing each Option will identify the Option as an ISO or an NQO. In the event the Code is amended to provide for tax favored forms of stock options other than or in addition to ISOs, the Committee may grant Options under the Plan meeting the requirements of such forms of options. ISOs may not be awarded unless the Plan is approved by shareholders within 12 months of adoption of the Plan.

 

6.2      General . All Options will be subject to the terms and conditions set forth in Article 5 and this Article 6 and Award Agreements governing Options may contain such additional terms and conditions, not inconsistent with the express provisions of the Plan, as the Committee deems desirable.

 

6.3      Option Exercise Price . Each Award Agreement for Options will state the option exercise price per Share of Common Stock purchasable under the Option, which may not be less than 100 percent of the Fair Market Value of a Share on the date of grant for all Options.

 

6.4      Option Term . The Award Agreement for each Option will specify the term of each Option, which may not be longer than ten years from the date such Option is granted.

 

6.5      Time of Exercise . The Award Agreement for each Option will specify, as determined by the Committee:

 

(a)     The time or times when the Option becomes exercisable and whether the Option becomes exercisable in full or in graduated amounts based on: (i) continuation of employment over a period specified in the Award Agreement, (ii) satisfaction of Performance Goals or other criteria specified in the Award Agreement, or (iii) a combination of continuation of employment and satisfaction of Performance Goals or other criteria;

 

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(b)     Such other terms, conditions, and restrictions as to when the Option may be exercised as determined by the Committee; and

 

(c)     The extent, if any, to which the Option will remain exercisable after the Participant ceases to be an employee or director of the Company or an Affiliate.

 

An Award Agreement for an Option may, in the discretion of the Committee, provide whether, and to what extent, the time when an Option becomes exercisable may be accelerated or otherwise modified in the event of the death or Disability of the Participant.

 

6.6      Special Rules for Incentive Stock Options . In the case of an Option designated as an ISO, the terms of the Option and the Award Agreement will conform to the statutory and regulatory requirements specified pursuant to Section 422 of the Code, as in effect on the date such ISO is granted. ISOs may be granted only to employees of the Company or an Affiliate. Subject to the overall limit specified in Section 4.3, the maximum number of Shares as to which ISOs may be granted under the Plan is 300,000.

 

6.7      Limitation on Number of Shares Subject to Options . In no event may Options for more than 50,000 Shares be granted to any individual under the Plan during any calendar year.

 

ARTICLE 7

STOCK APPRECIATION RIGHTS

 

7.1      General . Stock Appreciation Rights are subject to the terms and conditions set forth in Article 5 and this Article 7 and Award Agreements governing Stock Appreciation Rights may contain such additional terms and conditions, not inconsistent with the express terms of the Plan, as the Committee deems desirable.

 

7.2      Nature of Stock Appreciation Right . A Stock Appreciation Right is an Award entitling a Participant to receive an amount equal to the excess (or, if the Committee determines at the time of grant, a portion of the excess) of the Fair Market Value of a Share of Common Stock on the date of exercise of the SAR over the base price, as described below, on the date of grant of the SAR, multiplied by the number of Shares with respect to which the SAR is being exercised. The base price will be designated by the Committee in the Award Agreement for the SAR and may be the Fair Market Value of a Share on the grant date of the SAR or such other higher price as the Committee determines. The base price may not be less than the Fair Market Value of a Share on the grant date of the SAR. The term of the SAR shall expire no later than ten years after the date of grant.

 

7.3      Exercise . A Stock Appreciation Right may be exercised by a Participant in accordance with procedures established by the Committee. The Committee may also provide that a SAR will be automatically exercised on one or more specified dates or upon the satisfaction of one or more specified conditions.

 

7.4      Form of Payment . Payment upon exercise of a Stock Appreciation Right, if any, may be made in cash, in Shares, or in any combination of the foregoing, or in any other form as the Committee may determine.

 

7.5      Limitation on Number of Stock Appreciation Rights . The maximum number of Shares with respect to which Stock Appreciation Rights may be granted to any individual under the Plan during any calendar year is 50,000.

 

ARTICLE 8

RESTRICTED AWARDS

 

8.1      Types of Restricted Awards . Restricted Awards granted under the Plan may be in the form of either Restricted Shares or Restricted Units.

 

(a)      Restricted Shares . A Restricted Share is an Award of Shares to a Participant subject to such terms and conditions as the Committee deems appropriate, including, without limitation, a requirement that the Participant forfeit such Restricted Shares back to the Company upon termination of Participant's employment (or service as a Non-Employee Director) for specified reasons within a specified period of time or upon other conditions, including failure to achieve Performance Goals, as set forth in the Shares will be registered in the name of such Participant in the Company's book entry direct registration program with a notation that such Shares may not be transferred until all applicable Restrictions have lapsed.

 

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(b)      Restricted Units . A Restricted Unit is an Award of units (with each unit having a value equivalent to one Share) granted to a Participant subject to such terms and conditions as the Committee deems appropriate, and may include a requirement that the Participant forfeit such Restricted Units upon termination of Participant's employment (or service as a Non-Employee Director) for specified reasons within a specified period of time or upon other conditions, including failure to achieve Performance Goals, as set forth in the Award Agreement for such Restricted Units. The Committee will set the terms and conditions of the Award Agreement so that the Restricted Unit Award will comply with or be exempt from Code Section 409A.

 

8.2      General . Restricted Awards are subject to the terms and conditions of Article 5 and this Article 8 and Award Agreements governing Restricted Awards may contain such additional terms and conditions, not inconsistent with the express provisions of the Plan, as the Committee deems desirable.

 

8.3      Restriction Period . Award Agreements for Restricted Awards will provide that Restricted Awards, and the Shares subject to Restricted Awards, may not be transferred, and may provide that, in order for a Participant to Vest in such Restricted Awards, the Participant must remain in the employment (or remain as a Non-Employee Director) of the Company or its Affiliates, subject to relief for reasons specified in the Award Agreement, for a period commencing on the grant date of the Award and ending on such later date or dates as the Committee may designate at the time of the Award (the "Restriction Period"). During the Restriction Period, a Participant may not sell, assign, transfer, pledge, encumber, or otherwise dispose of Shares received under or governed by a Restricted Award grant. The Committee, in its sole discretion, may provide for the lapse of Restrictions in installments during the Restriction Period; provided that in no event will Shares subject to a Restricted Award Vest in less than one year except as otherwise provided in the Plan.

 

8.4      Forfeiture . If a Participant ceases to be an employee (or Non-Employee Director) of the Company or an Affiliate during the Restriction Period for any reason other than reasons which may be specified in an Award Agreement, the Award Agreement may require that all non-Vested Restricted Awards previously granted to the Participant be forfeited and returned to the Company.

 

8.5      Settlement of Restricted Awards .

 

(a)      Restricted Shares . Upon Vesting of a Restricted Share Award, the Restrictions will be removed and the Shares will no longer be Restricted Shares.

 

(b)      Restricted Units . Upon Vesting of a Restricted Unit Award, a Participant is entitled to receive payment for Restricted Units in an amount equal to the aggregate Fair Market Value of the Shares covered by such Restricted Units at the expiration of the applicable Restriction Period. Payment in settlement of a Restricted Unit will be made as soon as practicable following the conclusion of the applicable Restriction Period in cash, in installments, or in unrestricted Shares equal to the number of Restricted Units or in any other manner or combination as the Committee, in its sole discretion, determines.

 

8.6      Rights as a Shareholder . A Participant will not have the right to receive cash dividends or to vote with respect to Restricted Shares that have not Vested. Stock dividends issued with respect to Restricted Shares will be treated as additional Shares covered by the grant of Restricted Shares and will be subject to the same Restrictions. A Participant will have no rights as a shareholder with respect to a Restricted Unit Award until Shares are issued to the Participant in settlement of the Award.

 

8.7      Limitation in Number of Restricted Awards . Subject to the overall limit specified in Section 4.3, the maximum number of Shares with respect to which Restricted Awards may be granted under the Plan during any calendar year is 100,000, and the maximum number which may be awarded to a single Participant in a single calendar year is 50,000.

 

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ARTICLE 9

ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC.

 

9.1      Plan Does Not Restrict the Company . The existence of the Plan and the Awards granted under the Plan will not affect or restrict in any way the right or power of the Board or the shareholders of the Company to make or authorize any adjustment, recapitalization, reorganization, or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting the Company's capital stock or the rights thereof, the dissolution or liquidation of the Company or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding.

 

9.2      Mandatory Adjustment . In the event of any stock dividend, stock split, reverse stock split, recapitalization, reclassification, or other distribution of the Company's securities without the receipt of consideration by the Company, of or on the Common Stock, the Committee shall make proportionate adjustments or substitution to the aggregate number and type of Shares for which Awards may be granted under the Plan, the maximum number and type of Shares which may be sold or awarded to any Participant, the number and type of Shares covered by each outstanding Award, and the exercise price, base price or purchase price per Share in respect of outstanding Awards.

 

9.3      Adjustments by the Committee . In the event of any change in capitalization affecting the Common Stock of the Company not described in Section 9.2 above, such proportionate adjustments, if any, as the Committee, in its sole discretion, may deem appropriate to reflect such change, will be made with respect to the aggregate number of Shares for which Awards in respect thereof may be granted under the Plan, the maximum number of Shares which may be sold or awarded to any Participant, the number of Shares covered by each outstanding Award, and the base price or purchase price per Share in respect of outstanding Awards. The Committee may also make such adjustments in the number of Shares covered by, and price or other value of, any outstanding Awards in the event of a spin off or other distribution (other than normal cash dividends), of Company assets to shareholders.

 

9.4      Change in Control . Except as otherwise provided in the Award Agreement, in the event of a Change in Control, all Awards shall Vest effective as of the earliest date on which (i) any such event occurs or is consummated or (ii) the Company becomes aware that such event has occurred or been consummated; provided that, with respect to Awards that are contingent on the attainment of specified Performance Goals, such Awards will be deemed to have been earned at the actual performance level as of the date of the Change in Control (as determined by the Committee) with respect to all open Performance Periods and will be forfeited to the extent not earned; and provided further that the Committee may determine that Vesting shall take effect immediately prior to the occurrence or consummation of such Change in Control to the extent necessary to give effect to this provision. Notwithstanding the immediately preceding sentence, if the surviving, successor or acquiring corporation in the transaction (or its parent), if any, agrees to replace Awards with rights to its shares that confer substantially the same benefits as those represented by the Awards, as determined by the Committee, then the Awards shall not Vest but shall be so replaced. The Committee shall notify each Participant in writing of any action to Vest or replace Awards hereunder not less than twenty (20) days prior to the expected closing date of the transaction or event that prompts such action, if applicable.

 

ARTICLE 10

AMENDMENT AND TERMINATION

 

10.1      Amendment of Plan . The Board at any time, and from time to time, may amend or terminate the Plan. However, no amendment shall be effective unless approved by the shareholders of the Company to the extent shareholder approval is necessary to satisfy any applicable law or securities exchange listing requirements. At the time of such amendment, the Board shall determine, upon advice from counsel, whether such amendment will be contingent on shareholder approval.

 

10.2      Shareholder Approval . The Board may, in its sole discretion, submit any other amendment to the Plan for shareholder approval.

 

10.3      Contemplated Amendments . It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide Participants with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to ISOs or to the nonqualified deferred compensation provisions of Code Section 409A or to bring the Plan or Awards granted under it into compliance therewith.

 

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10.4      No Impairment of Rights . Rights under any Award granted before amendment of the Plan shall not be materially impaired by any amendment of the Plan unless (a) the Company requests the consent of the Participant and (b) the Participant consents in writing. However, an amendment of the Plan that results in a cancellation of an Award where the Participant receives a payment equal in value to the fair market value of the Vested Award or, in the case of Vested Options, the difference between the Fair Market Value of the Shares subject to the Option and the exercise price for all Shares subject to the Option, shall not be an impairment of the Participant's rights that requires consent of the Participant.

 

10.5      Amendment of Awards . Subject to Section 10.6, the Committee at any time, and from time to time, may amend the terms of any one or more Awards; provided, however, that if any such amendment materially impairs a Participant's rights or increases a Participant's obligations under his or her Award or creates or increases a Participant's federal income tax liability with respect to an Award (other than the automatic conversion of an ISO to a NQO under the terms and conditions of the Code), such amendment shall also be subject to the Participant's consent (provided, however, a cancellation of an Award where the Participant receives a payment equal in value to the fair market value of the Vested Award or, in the case of Vested Options, the difference between the Fair Market Value of the Shares subject to an Option and the exercise price, shall not constitute an impairment of the Participant's rights that requires consent).

 

10.6      No Repricings or Underwater Buyouts . Notwithstanding the foregoing provisions of this Article 10, except for adjustments made pursuant to Article 9, without the prior approval of the Company’s shareholders, no Option or SAR granted under the Plan may:

 

(a)     be amended to decrease the exercise price (in the case of an Option) or base price (in the case of a SAR),

 

(b)     be cancelled in exchange for the grant of any new Option or SAR with a lower exercise or base price or any other new Award, or

 

(c)     otherwise be subject to any action that would be treated under accounting rules or otherwise as a "repricing" of such Option or SAR (including a cash buyout or voluntary surrender/subsequent regrant of an underwater Option or SAR).

 

ARTICLE 11

MISCELLANEOUS

 

11.1      Tax Withholding . The Company has the right to deduct from any settlement of any Award under the Plan, including the delivery or Vesting of Shares or Awards, any federal, state, or local taxes of any kind required by law to be withheld with respect to such payments or to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes. The recipient of any payment or distribution under the Plan has the obligation to make arrangements satisfactory to the Company for the satisfaction of any such tax withholding obligations. The Company will not be required to make any such payment or distribution under the Plan until such obligations are satisfied.

 

11.2      Unfunded Plan . The Plan will be unfunded and the Company will not be required to segregate any assets that may at any time be represented by Awards under the Plan. Any liability of the Company to any person with respect to any Award under the Plan will be based solely upon any contractual obligations that may be effected pursuant to the Plan. No such obligation of the Company will be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company.

 

11.3      Fractional Shares . No fractional Shares of Common Stock will be issued or delivered under the Plan or any Option and Options granted under the Plan will not be exercisable with respect to fractional Shares. In lieu of such fractional Shares, the Company will round the number of Shares to be issued to the nearest whole number of Shares.

 

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11.4      Annulment of Awards . Any Award Agreement may provide that the grant of an Award payable in cash is revocable until cash is paid in settlement thereof or that grant of an Award payable in Shares is revocable until the Participant becomes entitled to the certificate in settlement thereof. In the event a Participant's employment (or services as a Non-Employee Director) terminates for Cause, any Award which is revocable will be annulled as of the date of such termination for Cause.

 

11.5      Other Company Benefit and Compensation Programs . Payments and other benefits received by a Participant under an Award made pursuant to the Plan are not to be deemed a part of a Participant's regular, recurring compensation for purposes of the termination indemnity or severance pay law of any state and will not be included in, or have any effect on, the determination of benefits under any other employee benefit plan or similar arrangement provided by the Company or an Affiliate unless expressly so provided by such other plan or arrangements, or except where the Committee expressly determines that an Award or portion of an Award should be included to accurately reflect competitive compensation practices or to recognize that an Award has been made in lieu of a portion of cash compensation. Awards under the Plan may be made in combination with or in tandem with, or as alternatives to, grants, awards, or payments under any other Company or Affiliate plans, arrangements, or programs. The Plan notwithstanding, the Company or any Affiliate may adopt such other compensation programs and additional compensation arrangements as it deems necessary to attract, retain, and reward employees and directors for their service with the Company and its Affiliates.

 

11.6      Securities Law Restrictions . No Shares may be issued under the Plan unless counsel for the Company is satisfied that such issuance will be in compliance with applicable federal and state securities laws. Certificates for Shares delivered under the Plan may be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange or registered securities association upon which the Common Stock is then listed or quoted, and any applicable federal or state securities laws. The Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

 

11.7      Continuing Restriction Agreement . Each Participant will, if requested by the Company and as a condition to issuance of Shares under the Plan upon an Award or exercise of an Award granted under the Plan that results in the issuance of Shares, become a party to and be bound by a stock restriction or other agreement with the Company containing restrictions on transfer of Shares, including a right of first refusal for the benefit of the Company, a market stand-off provision, and such other terms as the Company may reasonably require.

 

11.8      Code Section 409A . Anything under the Plan or an Award Agreement to the contrary notwithstanding, to the extent applicable, it is intended that any Awards under the Plan that provide for a "deferral of compensation" subject to Section 409A of the Code and rules, regulations, and guidance issued thereunder (collectively, Code Section 409A) shall comply with the provisions of Code Section 409A and the Plan and all applicable Awards shall be construed and applied in a manner consistent with this intent. In furtherance thereof, any amount constituting a "deferral of compensation" under Treasury Regulation Section 1.409A-1(b) that is payable to a Participant upon a Separation from Service of the Participant (within the meaning of Treasury Regulation Section 1.409A-1(h)) (other than due to the Participant's death), occurring while the Participant shall be a "specific employee" (within the meaning of Treasury Regulation Section 1.409A-1(i)) of the Company or applicable subsidiary, shall not be paid until the earlier of (a) the date that is six months following such Separation from Service or (b) the date of the Participant's death following such Separation from Service.

 

11.9      Governing Law . Except with respect to references to the Code or federal securities laws, the Plan and all actions taken thereunder will be governed by and construed in accordance with the laws of the state of California, without regard to principles of conflict of laws.

 

As approved by the shareholders of Bank of Commerce Holdings on __________, 2019.

 

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