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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.          )

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HERITAGE COMMERCE CORP

August 16, 2010

Dear Shareholder:

        You are cordially invited to attend a Special Meeting of Shareholders, which will be held at 10:00 A.M., Pacific time on September 15, 2010, at 100 W. San Fernando Street, Suite 340, San Jose, California, 95113.

        On June 21, 2010, we announced that we had raised $75 million in a private placement to a limited number of institutional investors. With the proceeds of the offering, we strengthened our regulatory capital position. In the offering, we sold 53,996 shares of Series B Mandatorily Convertible Cumulative Perpetual Preferred Stock and 21,004 shares of Series C Convertible Perpetual Preferred Stock.

        At the Special Meeting, shareholders will be asked to consider and vote on proposals to approve the conversion of the Series B Preferred Stock and Series C Preferred Stock into common stock. Our Board of Directors has approved these proposals and recommends that our shareholders vote for the proposals. Unless shareholder approval is received at this Special Meeting, or unless our shareholders approve similar proposals at a subsequent meeting, the Series B Preferred Stock and the Series C Preferred Stock will remain outstanding and will not convert into common stock. As we discuss in the accompanying proxy statement, the failure to approve the proposals will have adverse consequences on the Company and existing holders of our common stock.

        Please read the attached proxy statement carefully for information about the matters you are being asked to consider and vote upon. Your vote is very important to us. On behalf of the Board of Directors, we urge you to sign, date and return the enclosed proxy as soon as possible, even if you currently plan to attend the Special Meeting. This will not prevent you from voting in person, but will assure that your vote is counted if you are unable to attend the Special Meeting.

        If you are a shareholder of record (that is, if your stock is registered with us in your own name), then you may vote by telephone, or electronically via the Internet, by following the instructions included in the proxy statement and with your proxy card. If your shares are registered in the name of a broker or other nominee, your nominee may be participating in a program provided through Broadridge Financial Solutions, Inc. that allows you to vote by telephone or via the Internet. If so, the voting form that your nominee sends you will provide telephone and Internet voting instructions.

        We look forward to seeing you at the Special Meeting. If you attend the meeting and prefer to vote in person, you may do so.

Sincerely,

Jack W. Conner		Walter T. Kaczmarek
Chairman of the Board		President and Chief Executive Officer

150 Almaden Boulevard, San Jose, California 95113    •    Telephone (408) 947-6900    •    Fax (408) 947-6910

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HERITAGE COMMERCE CORP
150 Almaden Boulevard
San Jose, California 95113

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

        Our Board of Directors recommends that shareholders vote "For" each of Proposals 1, 2, 3 and 4.

        In the Investment Agreements, each of the holders of the Series B Preferred Stock and the Series C Preferred Stock, separately for themselves, agreed with the Company to vote their respective shares of Series B Preferred Stock and Series C Preferred Stock for Proposals 2 and 3.

By Order of the Board of Directors,



Debbie Reuter
Corporate Secretary

August 16, 2010
San Jose, California

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PROXY STATEMENT FOR HERITAGE COMMERCE CORP
SPECIAL MEETING OF SHAREHOLDERS
INFORMATION ABOUT THE SPECIAL MEETING AND VOTING

Why did you send me this proxy statement?

        We have raised an aggregate of $75 million through a private placement to 30 separate institutional investors (whom we refer to as the "investors") of newly issued preferred stock (we refer to this as the "private placement"). In order for the private placement to be fully accomplished, our common shareholders must approve the issuance of common stock to the investors upon the conversion of the preferred stock in accordance with NASDAQ Listing Rule 5635. In addition, California law requires that we obtain the vote of the holders of the Series B Preferred Stock to approve the conversion of the Series B Preferred Stock into common stock, and the vote of the holders of the Series C Preferred Stock to approve the conversion of the Series C Preferred Stock into common stock, as contemplated by the Investment Agreements and as further discussed in this proxy statement.

        In order to obtain the requisite shareholder approvals, we are calling a Special Meeting of our shareholders, to be held on September 15, 2010. We sent you this proxy statement and the enclosed proxy cards because our Board of Directors is soliciting your proxy to vote at the Special Meeting. This proxy statement summarizes the information you need to know to cast an informed vote at the Special Meeting. However, you do not need to attend the Special Meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy cards. Holders of common stock should return the WHITE proxy card. Holders of Series B Preferred Stock should return the BLUE proxy card, and holders of the Series C Preferred Stock should return the GREEN proxy card. We refer to these as the "proxy cards." You may also vote electronically by telephone or the Internet by following the instructions on the proxy cards.

        According to the Company Bylaws, business to be conducted at a special meeting of shareholders may only be brought before the meeting by means of the Company's notice of meeting. Accordingly, no other matters, except those described in this proxy statement, will be presented for action at the Special Meeting or at any adjournment or postponement of the Special Meeting.

        Heritage Commerce Corp is referred to in this proxy statement as the "Company."

What am I voting on?

        You are voting on the following matters:

•

Holders of common stock are voting on a proposal to approve the issuance of shares of our common stock in connection with the conversion of the Series B Preferred Stock and Series C Preferred Stock into our common stock for purposes of NASDAQ Listing Rule 5635 (Proposal 1);



•

Holders of Series B Preferred Stock (voting as a separate class) are voting on a proposal to approve the issuance of shares of our common stock in connection with the conversion of the Series B Preferred Stock into our common stock for purposes of California law (Proposal 2);



•

Holders of Series C Preferred Stock (voting as a separate class) are voting on a proposal to approve the issuance of shares of our common stock in connection with the conversion of the Series C Preferred Stock into our common stock for purposes of California law (Proposal 3); and



•

Holders of common stock, Series B Preferred Stock and Series C Preferred Stock are voting on a proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to adopt Proposals 1 through 3.

        In the Investment Agreements, each of the holders of the Series B Preferred Stock, separately for themselves, agreed with the Company to vote their respective shares of Series B Preferred Stock for

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Proposal 2, and each of the holders of Series C Preferred Stock, separately for themselves, agreed with the Company to vote their respective shares of Series C Preferred Stock for Proposal 3.

        In this proxy statement, we sometime refer to Proposals 1, 2 and 3, together as the "Proposals."

        We also sometimes refer to requisite approval of Proposal 1, 2 and 3 as the "Shareholder Approvals." The Proposals must be approved by our shareholders for the private placement to be fully completed as intended by the Company and the investors, and as contemplated by the Investment Agreements.

What securities did the Company issue to the investors in the private placement?

        In the private placement, the Company issued:

•

An aggregate of 53,996 shares of Series B Mandatorily Convertible Cumulative Perpetual Preferred Stock (we refer to this as "Series B Preferred Stock"), which will automatically convert into an aggregate of 14,399,000 shares of our common stock, at a per common share conversion price of $3.75, upon receipt of the Shareholder Approvals, subject to adjustment in accordance with the terms of the Series B Preferred Stock; and



•

An aggregate of 21,004 shares of Series C Convertible Perpetual Preferred Stock (we refer to this as "Series C Preferred Stock"), which will automatically convert into an aggregate of 5,601,000 shares of our common stock, at a per common share conversion price of $3.75 following (i) the receipt of the Shareholder Approvals and, thereafter (ii) the subsequent transfer of the Series C Preferred Stock to a transferee not affiliated with the holder in a widely dispersed offering (defined below), subject to adjustment in accordance with the terms of the Series C Preferred Stock.

How will the conversion of the Series B Preferred Stock and Series C Preferred Stock occur?

        We and the investors intended that the issuance of the Series B Preferred Stock and Series C Preferred Stock ultimately be included in our common equity and thereby enhance our Tier 1 capital ratio. Because of the need to obtain the Shareholder Approvals in order to issue the amount of our common stock implied by the size of the private placement, we initially issued the nonvoting Series B Preferred Stock to the investors and intend that it will automatically convert into shares of our common stock on the first business day following the receipt of the Shareholder Approvals. At that time, each outstanding share of Series B Preferred Stock will automatically convert into a number of shares of common stock determined by dividing (i) $1,000 (the purchase price per share of the Series B Preferred Stock) by (ii) the conversion price of the Series B Preferred Stock then in effect, subject to any applicable adjustment described under "Description of the Preferred Stock—Series B Preferred Stock Terms and Provisions—Anti-Dilution Provisions." The initial conversion price of the Series B Preferred Stock is $3.75 per share.

        In addition, certain of the investors acquired shares of nonvoting Series C Preferred Stock in the private placement as a result of bank regulatory ownership restrictions. The Series C Preferred Stock will convert automatically into our common stock following both (i) the receipt of the Shareholder Approvals and, thereafter (ii) the subsequent transfer of the Series C Preferred Stock to a transferee not affiliated with the holder in a widely dispersed offering (defined below). At the time of conversion, the applicable shares of Series C Preferred Stock will automatically convert into a number of shares of common stock determined by dividing (i) $1,000 (the purchase price per share of the Series C Preferred Stock) by (ii) the conversion price of the Series C Preferred Stock then in effect, subject to any applicable adjustment described under "Description of Preferred Stock—Series C Preferred Stock Terms and Provisions—Anti-Dilution Provisions." The initial conversion price of the Series C Preferred Stock is $3.75 per share. Following the receipt of the Shareholder Approvals, the Series C Preferred Stock will be included as Tier 1 capital prior to its conversion into common stock.

        For purposes of the Series C Preferred Stock we refer to a "widely dispersed offering" as a (i) widespread public distribution, including pursuant to a registration statement filed with and declared

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effective by the Securities and Exchange Commission (which we refer to as the "SEC") or Rule 144 under the Securities Act of 1933, as amended (which we refer to as the "Securities Act"), (ii) a transfer in which no transferee (or group of associated transferees) after giving effect to the transfer, would own more than 2% of any class of voting securities of the Company or (iii) a transfer to a transferee that controls or is acquiring control of more than 50% of the voting securities.

Why is the Company seeking shareholder approval for the issuance of our common stock?

        Because our common stock is listed on the NASDAQ Global Select Market, we are subject to NASDAQ rules and regulations. NASDAQ Listing Rule 5635 requires common shareholder approval prior to the issuance of common stock, or securities convertible into or exercisable for common stock, equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book value or market value of the stock. The proposed conversion of the Series B Preferred Stock and Series C Preferred Stock for shares of our common stock falls under this rule because the common stock issuable upon conversion of the preferred stock will exceed 20% of both the voting power and number of shares of our common stock outstanding before the issuance, and the negotiated price per share of common stock on an as-converted basis was below the higher of the book value or market value of our common stock at the time of the private placement.

        In addition, because we are incorporated in California, we are subject to the corporate laws of California. Under the California General Corporation Law, when a series of preferred stock provides for conversion into common stock, unless other steps are taken not applicable to the private placement, the conversion of the preferred stock must be approved by the affirmative vote of a majority of the outstanding shares of the class or series of preferred stock affected. The proposed conversion of the involved Series B Preferred Stock and the Series C Preferred Stock into shares of our common stock falls under these requirements.

How does the Company's Board of Directors recommend that I vote?

        Our Board approved the private placement and the entry by the Company into the Investment Agreements, and shareholder approval of the Proposals is necessary for the private placement to be completed in its intended form. Accordingly, our Board recommends that you vote "FOR" the proposal to approve for purposes of Rule 5635 of the NASDAQ Listing Rules the issuance of shares of common stock in connection with the conversion of the preferred stock into our common stock (Proposal 1), "FOR" the proposal to approve for purposes of California law the conversion of the Series B Preferred Stock (Proposal 2), "FOR" the proposal to approve for purposes of California law the conversion of the Series C Preferred Stock (Proposal 3) and "FOR" the proposal to adjourn the Special Meeting to solicit additional proxies, if necessary and appropriate (Proposal 4).

Do shareholders have an opportunity to purchase the Company's common stock at the same implied price offered to the institutional investors in the private placement?

        Under the terms of the Investment Agreements and the Series B Preferred Stock and the Series C Preferred Stock, the Company may and intends to (depending on market conditions) commence a rights offering after the Special Meeting (we refer to this as the "Rights Offering"). The Company may offer up to 1,800,000 shares of common stock to our common shareholders who are record holders of our common stock before the Special Meeting. Investors in the private placement will not be able to participate in the Rights Offering by virtue of their ownership of the Series B Preferred Stock or Series C Preferred Stock, but they may participate to the extent they are holders of common stock. Our directors and officers who are holders of common stock may also participate in the Rights Offering. In the Rights Offering each shareholder will be offered the right to purchase their pro rata share of the common stock offered at a price of $3.75, the initial conversion price of the Series B Preferred Stock and Series C Preferred Stock. The Rights Offering must be completed by December 21, 2010.

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What happens if the Shareholder Approvals are received before December 21, 2010, and what are the resulting effects on shares of common stock held by existing shareholders?

        If the Shareholder Approvals are received before December 21, 2010, we will issue to the investors a total of 14,399,000 shares of our common stock upon automatic conversion of all of the shares of the Series B Preferred Stock, which, based on the number of shares of our common stock outstanding on the record date, will represent, in the aggregate, approximately 54.92% of the total number of shares of common stock outstanding immediately after giving effect to such conversion.

        Upon completion of the conversion, all rights with respect to such shares of Series B Preferred Stock will terminate, such shares of Series B Preferred Stock will be cancelled and no further dividends will accrue on such shares. In addition, the restrictions under the terms of the Series B Preferred Stock on our redeeming, purchasing or acquiring any shares of common stock or other junior securities, and from paying dividends on any shares of our common stock or other junior securities, would cease to apply.

        If the Shareholder Approvals are received before December 21, 2010, the Series C Preferred Stock will be convertible into 5,601,000 shares of our common stock. Following the Shareholder Approvals and prior to the transfer of the Series C Preferred Stock to a transferee not affiliated with the holder in a widely dispersed offering, the Series C Preferred Stock will remain outstanding and will otherwise be treated the same as common stock, except it will be nonvoting and will have a liquidation preference. The Series C Preferred Stock on a as-converted basis and the shares of common stock held by the investors immediately following the conversion of the Series B Preferred Stock as described above will represent approximately 62.85% of the total number of shares of common stock outstanding. If the Shareholder Approvals are received, there will be immediate and substantial dilution to the existing holders of common stock. For information on the effect of dilution to existing shareholders see "Pro Forma Financial Information" on page 28 of this proxy statement.

        Although the Series C Preferred Stock will remain outstanding following the Shareholder Approvals, until a transfer by the holder to a transferee not affiliated with the holder in a widely dispersed offering, no further dividends will accrue on such shares, except to the extent if and only when dividends are payable on our common stock. Also, the liquidation preference for the Series C Preferred Stock will be limited to $1,000 per share (the purchase price for the Series C Preferred Stock), plus any accrued and unpaid dividends. Further, the restrictions under the Series C Preferred Stock on our redeeming, purchasing or acquiring any shares of common stock or junior securities, and from paying dividends on any shares of common stock or other junior securities, would cease to apply.

        If we receive the Shareholder Approvals at the Special Meeting, or if similar proposals are approved by the shareholders before December 21, 2010, subject to market conditions, we will commence and complete the Rights Offering sometime after the Shareholder Approvals, but before December 21, 2010.

What happens if the Shareholder Approvals are not received before December 21, 2010 and, thereafter, what happens until the shareholders approve the conversion of the preferred stock?

        If the Shareholder Approvals are not obtained at the Special Meeting or any subsequent meeting of our shareholders prior to December 21, 2010, on and after December 21, 2010 and until the shareholders approve the conversion of the Series B Preferred Stock and the Series C Preferred Stock the following consequences will result:

•

The initial conversion price of the Series B Preferred Stock of $3.75 per share will be reduced by 10% if we fail to obtain the Shareholder Approvals before December 21, 2010 (six months after issuance of the Series B Preferred Stock).



•

The initial conversion price of the Series C Preferred Stock of $3.75 per share will be reduced by 10% if we fail to obtain the Shareholder Approvals before December 21, 2010 (six months after issuance of the Series C Preferred Stock).

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•

The shares of Series B Preferred Stock will remain outstanding and, for so long as such shares remain outstanding, we will be required to pay dividends on the Series B Preferred Stock, at a rate of 20% per annum. Dividends will not be payable on the Series B Preferred Stock if the Shareholder Approvals are obtained before December 21, 2010.



•

We will be required to pay dividends on the Series C Preferred Stock, at a rate of 20% per annum. Dividends will not be payable on the Series C Preferred Stock at the rate of 20% per annum if we obtain the Shareholder Approvals before December 21, 2010. After we obtain the Shareholder Approvals, the Series C Preferred Stock will remain outstanding, but will receive dividends on an as-converted basis if and only to the extent payable on our common stock.



•

The dividends on the Series B Preferred Stock and Series C Preferred Stock will be cumulative, which means that the dividends will accrue regardless of whether the Board declares a dividend with respect to the preferred stock for any dividend period, and will accrue until such time as the shareholders approve the conversion of the Series B Preferred Stock and Series C Preferred Stock.



•

If the Shareholder Approvals are not obtained at the Special Meeting, we have agreed to hold subsequent meetings of the shareholders, until the shareholders approve the conversion of the Series B Preferred Stock and Series C Preferred Stock, which will require the Company to incur additional costs and expenses.



•

We will be prohibited from paying any dividends on our common stock and from redeeming, purchasing or acquiring any shares of our common stock until the shareholders approve the conversion of the Series B Preferred Stock and Series C Preferred Stock.



•

The Series B Preferred Stock will have a liquidation preference over the common stock equal to the amount paid for the Series B Preferred Stock, plus any accrued and unpaid dividends and, thereafter, a pro rata distribution (on an as-converted basis) of any liquidation amount paid to holders of common stock.



•

The Series C Preferred Stock will have a liquidation preference over the common stock equal to the amount paid for the Series C Preferred Stock, plus any accrued and unpaid dividends and, thereafter, a pro rata distribution (on an as-converted basis) of any liquidation amount paid to holders of common stock.



•

We will not have enhanced our Tier 1 capital as we intended in entering into the Investment Agreements.



•

We will not commence the Rights Offering if we have not obtained shareholder approval of the Proposals at the Special Meeting, or at a subsequent meeting before December 21, 2010.

Who should I call if I have questions or need assistance voting my shares?

        Please call our proxy solicitor, Advantage Proxy, toll free at (877) 870-8565. Banks and brokers should also call (877) 870-8565.

Who is entitled to vote?

        We will begin sending this proxy statement, the attached Notice of Special Meeting and the enclosed proxy cards on or about August 16, 2010 to all shareholders entitled to vote. Shareholders who were the record owners of the Company's common stock, Series B Preferred Stock and Series C Preferred Stock at the close of business on August 2, 2010 are entitled to vote. On this record date, there were 11,820,509 shares of common stock outstanding, 53,996 shares of Series B Preferred Stock outstanding, and 21,004 shares of Series C Preferred Stock outstanding.

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What constitutes a quorum?

        To constitute a quorum for the meeting, a majority of the outstanding shares of the common stock, a majority of the Series B Preferred Stock and a majority of the Series C Preferred Stock entitled to vote at the Special Meeting must be present, in person or by proxy. We can only conduct the business of the Special Meeting if a quorum has been established. We will include proxies marked as abstentions and broker non-votes in determining the number of shares present at the Special Meeting.

How many votes do I have?

        Each share of common stock, each share of Series B Preferred Stock and each share of Series C Preferred Stock entitles you to one vote in person or by proxy, for each share of stock outstanding in your name on the books of the Company as of August 2, 2010, the record date for the Special Meeting. The proxy cards indicate the number of votes that you have as of the record date.

How do I vote by proxy?

        You may vote by granting a proxy or, for shares held in street name, by submitting voting instructions to your broker or other nominee. If your shares are held by a broker or other nominee, you will receive instructions that you must follow to have your shares voted. If you hold your shares as a shareholder of record, you may vote by completing, signing and dating the enclosed WHITE proxy card (common shareholders), the BLUE proxy card (holders of Series B Preferred Stock) or the GREEN proxy card (holders of Series C Preferred Stock) and returning it promptly in the envelope provided. You may also vote electronically by telephone or over the Internet (see below). Returning the proxy card will not affect your right to attend the Special Meeting and vote.

        If you properly fill in your proxy card(s) and send it to us in time to vote, your "proxy" (one of the individuals named on your proxy card) will vote your shares as you have directed. If you sign the proxy card(s) but do not make specific choices, your proxy will vote your shares as recommended by the Board of Directors as follows:

•

"FOR" the conversion of the Series B Preferred Stock and the Series C Preferred Stock for purposes of NASDAQ Listing Rule 5635;



•

"FOR" the conversion of the Series B Preferred Stock for purposes of California law (if you own Series B Preferred Stock);



•

"FOR" the conversion of the Series C Preferred Stock for purposes of California law (if you own Series C Preferred Stock); and



•

"FOR" the adjournment of the Special Meeting, if necessary and appropriate.

What do I have to do to vote my shares if they are held in the name of my broker?

        If your shares are held by your broker, sometimes called "street name" shares, you must vote your shares through your broker. You should receive a form from your broker asking how you want to vote your shares. Follow the instructions on that form to give voting instructions to your broker. Under the rules that govern brokers who are voting with respect to shares held in street name, brokers have the discretion to vote such shares on routine, but not on non-routine matters. A "broker non-vote" occurs when your broker does not vote on a particular proposal because the broker does not receive instructions from the beneficial owner and does not have discretionary authority. We believe each of the Proposals will be considered non-routine under the rules of the New York Stock Exchange (which apply to brokers), and therefore, there may be broker non-votes on each of the Proposals.

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How do I vote in person?

        If you plan to attend the Special Meeting and desire to vote in person, we will give you a ballot form when you arrive. However, if your shares are held in the name of your broker, bank or other nominee, you must bring a power of attorney from your nominee in order to vote at the Special Meeting.

May I vote electronically over the Internet or by telephone?

        Shareholders whose shares are registered in their own names may vote either over the Internet or by telephone. Special instructions for voting over the Internet or by telephone are set forth on the enclosed proxy cards. The Internet and telephone voting procedures are designed to authenticate the shareholder's identity and to allow shareholders to vote their shares and confirm that their voting instructions have been properly recorded.

        If your shares are registered in the name of a bank or brokerage firm you may be eligible to vote your shares electronically by telephone or over the Internet. Most U.S. banks and brokerage firms are clients of Broadridge Financial Solutions ("Broadridge"). As such, shareholders who receive either a paper copy of their proxy statement or electronic delivery notification have the opportunity to vote by telephone or over the Internet. If your bank or brokerage firm is a Broadridge client, your proxy card or Voting Instruction Form ("VIF") will provide the instructions. If your proxy card or VIF does not provide instructions for Internet and telephone voting, please complete and return the appropriate WHITE, BLUE or GREEN proxy card in the self-addressed, postage-paid envelope provided.

May I change my vote after I return my proxy?

        If you fill out and return an enclosed proxy card, or vote by telephone or over the Internet, you may change your vote at any time before the vote is conducted at the Special Meeting. You may change your vote in any one of four ways:

•

You may send to the Company's Corporate Secretary another completed proxy card with a later date.



•

You may notify the Company's Corporate Secretary in writing before the Special Meeting that you have revoked your proxy.



•

You may attend the Special Meeting and vote in person.



•

If you have voted your shares by telephone or over the Internet, you can revoke your prior telephone or Internet vote by recording a different vote, or by signing and returning a proxy card dated as of a date that is later than your last telephone or Internet vote.

What vote is required to approve each proposal?

        Approval of Proposal 1 requires a vote that satisfies two criteria: (i) the affirmative vote must constitute a majority of the common shares present or represented or by proxy and voting on the proposal at the Special Meeting and (ii) the affirmative vote must constitute a majority of the common shares required to constitute the quorum. For purposes of Proposal 1, abstentions and broker non-votes will not affect the outcome under clause (i), which recognizes only actual votes cast. However, abstentions and broker non-votes will affect the outcome under clause (ii) if the number of affirmative votes, though a majority of the votes represented and cast, does not constitute a majority of the voting power required to constitute a quorum.

        Approval of Proposal 2 requires the affirmative vote of a majority of the issued and outstanding shares of Series B Preferred Stock. Approval of Proposal 3 requires the affirmative vote of a majority of the issued and outstanding shares of Series C Preferred Stock. Abstentions and broker non-votes on Proposal 2 or 3 will have the same effect as a negative vote. In the Investment Agreements, each of the holders of

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the Series B Preferred Stock, separately for themselves, agreed with the Company to vote their respective shares for Proposal 2. Also in the Investment Agreements, each of the holders of the Series C Preferred Stock, separately for themselves, agreed with the Company to vote their respective shares of Series C Preferred Stock for Proposal 3.

        Approval of Proposal 4 requires the affirmative vote of a majority of the shares present or represented by proxy at the Special Meeting.

How will voting on any other business be conducted?

        Your proxy card confers discretionary authority to your proxy to vote your shares on the matters which may properly be presented for action at the Special Meeting, and may include action with respect to procedural matters pertaining to the conduct of the Special Meeting.

What are the costs of soliciting these proxies?

        We will pay all the costs of soliciting these proxies. In addition to mailing proxy soliciting material, our directors, officers and employees also may solicit proxies in person, by telephone or by other electronic means of communication for which they will receive no compensation. We will ask banks, brokers and other institutions, nominees and fiduciaries to forward the proxy materials to their principals and to obtain authority to execute proxies. We will then reimburse them for their reasonable expenses. We have hired Advantage Proxy to seek the proxies of custodians, such as brokers, which hold shares which belong to other people. This service will cost the Company approximately $3,500, plus reasonable out-of-pocket expenses.

Where can I find more information about the Company?

        You can also find out more information about us at our website www.heritagecommercecorp.com. Our website is available for information purposes only and should not be relied upon for investment purposes, nor is it incorporated by reference into this proxy statement. On our website you can access electronically filed copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 filings, and amendments to those reports and filings, free of charge. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding SEC registrants, including the Company. For information on the documents incorporated by reference and the documents provided with this proxy statement see "Incorporation By Reference" on page 33 of this proxy statement.

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BACKGROUND TO THE PROPOSALS

        Over the past eighteen months, our Board of Directors and management have considered a range of alternative strategies to continue to maintain our capital ratios at levels above those required to be considered "well capitalized" for regulatory purposes in light of the credit quality and loan loss challenges resulting from the disruptions in the credit and real estate markets due to the weakening economy. During the second quarter of 2009, in an effort to preserve capital we suspended the quarterly cash dividend on our shares of common stock. Also during and following this time, management actively sought to enhance capital and liquidity levels, by undertaking expense reduction initiatives, reducing its risk weighted assets, and reducing exposure to residential land and construction loans and non-owner occupied term commercial real estate loans.

        Throughout 2009, the Board of Directors and management discussed alternative strategies for enhancing the Company's capital base. During these discussions the Board considered and weighed the feasibility of different capital raising strategies in the context of the volatile capital markets, including, in particular, the availability of capital for California community banks. The Board understood that because of the amounts of capital being considered and the Company's common stock price any transaction would most likely result in significant dilution to the Company's existing shareholders. The Board instructed management to comprehensively review these potential strategies. At its regular board meetings, management provided updates on its informal discussions with several different investment banking firms that focus on the community bank industry and their view of available strategies and the continual volatility in the capital markets for California community banks. These strategies included review of both public and private capital raise transactions of common stock and preferred stock.

        In August 2009, the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions commenced a concurrent safety and soundness examination of Heritage Bank of Commerce which was completed in September 2009. Thereafter, on October 22, 2009, the Company announced that primarily due to losses in 2009 and higher provisions for loan losses because of credit quality deterioration, the Company and Heritage Bank of Commerce expected to enter into a written agreement with the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions (discussed below). From the results of the examination and informal discussions with regulators about the proposed written agreement, management and the Board concluded that capital ratios should be maintained well above the minimum to be considered "well capitalized" for regulatory purposes because of the risk profile of the Company and Heritage Bank of Commerce.

        In November 2009, the Company gave notice of an election to exercise its right to defer the payment of interest on the Company trust preferred securities and to suspend the payment of dividends on its outstanding Series A Fixed Rate Cumulative Preferred Stock (which we refer to as the "Series A Preferred Stock") issued to the U.S. Treasury.

        During the latter part of the third quarter and into the fourth quarter of 2009, the Board of Directors and management continued to review and consider alternatives for raising capital. However, during this period the Company's common stock experienced a significant decline in its stock price. Management believed that some of the selling pressure resulted from its third quarter financial results and the uncertainty surrounding the definitive terms of its announced expected written agreement with the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions. Management and the Board of Directors also took note that in November and December 2009, there was a decline in interest for community bank public offerings with several community banks cancelling announced public offerings.

        During the first quarter of 2010, although the Board of Directors and management continued to review the need to raise capital, the Board concluded that no further action should take place until the completion and announcement of results for the first quarter and the finalization of the terms of the previously announced expected written agreement with the Federal Reserve Bank of San Francisco and the

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California Department of Financial Institutions. The Board also decided that the number of authorized shares of the Company's common stock should be increased to permit flexibility in moving forward with any future capital raise.

        On February 17, 2010, the Company and Heritage Bank of Commerce entered into a written agreement with the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions (we refer to this as the "Written Agreement"). Among other matters, the Written Agreement provides that the Company and Heritage Bank of Commerce shall submit to the Federal Reserve Bank of San Francisco and California Department of Financial Institutions their plans to (i) enhance lending and credit administration functions, (ii) maintain policies and procedures for the maintenance of an adequate allocation for loan losses, (iii) improve earnings and (iv) update its capital plan in order to maintain capital at or above sufficient levels based on the risk profile of the Company and Heritage Bank of Commerce. Also, without the prior approval of the Federal Reserve Bank of San Francisco and the Director of the Banking Supervision and Regulation of the Board of Governors of the Federal Reserve System, the Written Agreement prohibits the (i) payment of dividends and any payments on trust preferred securities and the Company's common stock and preferred stock and (ii) any reduction in capital or the purchase or redemption of common stock. This description of the Written Agreement is a summary and does not purport to be a complete description of all of the terms of the Written Agreement and is qualified in its entirety by reference to the copy of the Written Agreement filed as an exhibit to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission on February 23, 2010.

        After entering into the Written Agreement with the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions, management had informal discussions with Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") about the alternatives for raising capital. In April 2010, Sandler O'Neill was formally engaged to advise the Company on alternatives and capital structures for raising capital in the public and private capital markets. Thereafter, with Sandler O'Neill's assistance, the Board of Directors and management continued discussions about the volatile capital markets, and the availability of capital for California community banks, including alternative strategies for enhancing the Company's capital base. The Board of Directors concluded that a public offering during this period of time was less likely to be successful than a private placement and, therefore, the Company and its management should focus instead on a potential private placement primarily to institutional investors. This decision was based on the Board's judgment of the (i) size and terms for a potential capital raise, (ii) conditions prevailing in the public trading markets generally and with regard to community bank holding companies in particular, (iii) the Company's market capitalization and (iv) challenges the Company would face in pursuing a public offering while subject to a bank regulatory agreement.

        At the outset, the Company and Sandler O'Neill understood that it would be necessary and desirable to identify one or more so-called "lead" investors to facilitate due diligence and the determination of investment terms and pricing. While undertaking this role, in mid-April 2010, representatives of Sandler O'Neill spoke with representatives of Castle Creek Capital Partners LP IV ("Castle Creek"), which expressed an interest in being a "lead" investor.

        Sandler O'Neill and Castle Creek (which had entered into a confidentiality agreement with the Company) began to discuss the potential private placement and how the terms of such an investment could be structured in view of regulatory control requirements, NASDAQ listing standards and necessary shareholder approvals. Castle Creek also began its due diligence on the Company. During this time, the Company also directed Sandler O'Neill to contact other potential investors on the Company's behalf to assess their general level of interest in a private placement of equity securities, and representatives of Sandler O'Neill spoke with representatives of potential institutional investors on this subject.

        After finalizing the basic terms of the private placement with Castle Creek, representatives of Sandler O'Neill began discussions separately with certain other potential institutional investors (all of whom had entered into a confidentiality agreement with the Company) regarding the terms of the private placement.

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Each of these potential institutional investors also conducted due diligence on the Company. The Company's President and Chief Executive Officer and Executive Vice President and Chief Financial Officer met with certain of these potential institutional investors regarding a private placement transaction and reported back to the Board on the outcome of these meetings.

        The Company and the potential investors agreed at the outset that the structure of the investment should emphasize common equity, reflecting the increased market and regulatory focus on Tier 1 common equity. During June 2010, discussions continued with a view to refining the terms of an investment and addressing structuring issues. The parties understood that, as a result of the proposed size of the private placement and their intent that the investment ultimately be in the form of common equity securities qualifying as Tier 1 capital, the approval of the Company's shareholders would be required. In addition, the Company recognized that in order to incentivize each of the investors to fully fund its investment prior to the receipt of such approval, it would be reasonable for the securities issued to include elements to compensate the investors in a reasonable manner in the event such approval was not received. Throughout this period, the Company's senior management, Sandler O'Neill, and the Company's outside legal counsel updated the Board regarding the progress of discussions and the potential terms of the private placement. Discussions between the Company and the individual investors continued and terms for the private placement, as well as a governance and investment structure that was believed to be acceptable to the Federal Reserve, were finalized in mid-June 2010.

        Also during this time discussions were held with representatives of the Federal Reserve Bank of San Francisco and the Board of Governors of the Federal Reserve System, the primary regulator of our holding company, regarding the structure of the securities to be issued in the proposed private placement, the treatment of the securities under its capital adequacy rules, and the permissibility of the investment under the Federal Reserve's practice and policies relating to non-controlling investments in bank holding companies. Management of the Company maintained regular contact with representatives of the Federal Reserve Bank of San Francisco and the Board of Governors of the Federal Reserve System. In discussions about the proposed private placement, representatives of the Board of Governors of the Federal Reserve System expressed interest in reviewing a list of the investors proposing to purchase shares of the Company's preferred stock equivalent to more than 5% of the outstanding shares of the common stock (on an as-converted basis), relative to compliance with the Change in Bank Control Act, the Bank Holding Company Act and Regulation Y. The Company provided such information along with confirmation that no proposed investor was expected to purchase a number of shares of the Series B Preferred Stock (which the regulators viewed as voting stock) that would result in such purchaser becoming, directly or indirectly, the beneficial owner of more than 9.9% of the number of shares of common stock issued and outstanding. Following its review of the investor list, the Board of Governors of the Federal Reserve System requested written commitments from three of the proposed institutional investors, containing assurances regarding the level of ownership proposed to be acquired by each such institutional investor. Those commitments were delivered to the Board of Governors of the Federal Reserve System. On June 18, 2010, the Board of Governors of the Federal Reserve System advised the Company that it had no objections to the investors proposing to purchase shares of the Company's preferred stock.

        On June 17, 2010, the Company's Board of Directors authorized and approved the terms of the private placement transaction. On June 17, 2010, Certificates of Determinations for the Series B Preferred Stock and the Series C Preferred Stock were filed with the California Secretary of State. The Company entered into a Securities Purchase Agreement, dated as of June 18, 2010, with the institutional investors and the private placement transaction closed on June 21, 2010. In exchange for gross aggregate proceeds of $75 million, the Company issued a total of 53,996 shares of Series B Preferred Stock, convertible into an aggregate of 14,399,000 shares of common stock (based on a stated conversion price of $3.75 per share) and 21,004 shares of Series C Preferred Stock convertible into an aggregate of 5,601,000 shares of common stock (based on a stated conversion price of $3.75 per share).

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        All of the shares of Series B Preferred Stock are mandatorily convertible into shares of common stock upon receipt of the necessary shareholder approvals. The shares of Series C Preferred Stock are mandatorily convertible into shares of common stock (i) following receipt of the necessary shareholder approvals and, thereafter (ii) a subsequent transfer of the Series C Preferred Stock to a transferee not affiliated with the holder in a widely dispersed offering. The investors agreed that if we obtain the necessary shareholder approvals within six months of the issuance of the Series B Preferred Stock and Series C Preferred Stock, no dividends will be payable on the Series B Preferred Stock or Series C Preferred Stock (except for dividends payable to holders of the Series C Preferred Stock on a as-converted basis if and only to the extent dividends are paid to holders of common stock). Cumulative dividends will be owed at a rate of 20% per annum for the Series B Preferred Stock and Series C Preferred Stock, until the necessary shareholder approvals are obtained. In addition, if the necessary shareholder approvals are not obtained before December 21, 2010, the Series B Preferred Stock and Series C Preferred Stock conversion price of $3.75 will be reduced by 10% to $3.375.

        In order for the Company to avoid the cost of dividends on the Series B Preferred Stock and the Series C Preferred Stock and to avoid a reduction in the conversion price and to assure favorable regulatory capital treatment for the net proceeds received in the private placement, holders of common stock must approve Proposal 1, holders of the Series B Preferred Stock must approve Proposal 2, and the holders of the Series C Preferred Stock must approve Proposal 3.

        THE BOARD OF DIRECTORS RECOMMENDS SHAREHOLDERS VOTE "FOR" PROPOSALS 1, 2, 3 AND 4 AT THE SPECIAL MEETING.

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PROPOSAL 1

APPROVAL BY THE HOLDERS OF COMMON STOCK OF THE
ISSUANCE OF SHARES OF COMMON STOCK PURSUANT TO THE CONVERSION
OF THE SERIES B PREFERRED STOCK AND THE SERIES C PREFERRED STOCK

        On June 21, 2010, we raised $75 million in gross proceeds in a private placement of 53,996 shares of our newly authorized Series B Mandatorily Convertible Cumulative Perpetual Preferred Stock and 21,004 shares of our newly authorized Series C Convertible Perpetual Preferred Stock to 30 separate institutional investors. The private placement was an element of the Company's capital plan submitted to the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions in accordance with the Written Agreement. The net proceeds of approximately $70 million are being used to support the capital needs of the Company and Heritage Bank of Commerce and to fund the operations and growth of Heritage Bank of Commerce.

        Our Board adopted a resolution recommending that holders of our common stock approve the issuance of our common stock upon the conversion of the Series B Preferred Stock and the Series C Preferred Stock for purposes of NASDAQ Listing Rule 5635.

        Because our common stock is listed on the NASDAQ Global Select Market, we are subject to NASDAQ Listing Rule 5635, which requires shareholder approval prior to the issuance of securities in connection with a transaction, other than a public offering, involving the sale, issuance or potential issuance by a company's common stock (or securities convertible into or exercisable for common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.

        The proposed conversion of the Series B Preferred Stock and Series C Preferred Stock for shares of our common stock falls under this NASDAQ rule because the shares of common stock issuable upon conversion of the Series B Preferred Stock and Series C Preferred Stock will exceed 20% of both the voting power and number of shares of our common stock outstanding before the issuance, and the negotiated price per share of our common stock on an as-converted basis was below the greater of our book value and market value of our common stock. The conversion price for both the Series B Preferred Stock and Series C Preferred Stock is $3.75 per share of our common stock, subject to certain potential adjustments, resulting in the issuance of additional shares of common stock upon conversion of the preferred stock.

        The consequences of the approval of Proposal 1 at the Special Meeting are described elsewhere in this proxy statement, including under "The Consequences if the Proposals Are Approved" on page 17.

        A failure to approve Proposal 1 at the Special Meeting would have potentially adverse consequences for the Company and its shareholders as described elsewhere in this proxy statement, including under "The Consequences if the Proposals Are Not Approved" on page 18.

        THE BOARD OF DIRECTORS RECOMMENDS THAT HOLDERS OF COMMON STOCK VOTE "FOR" THE PROPOSED ISSUANCE OF SHARES OF COMMON STOCK PURSUANT TO THE CONVERSION OF THE SERIES B PREFERRED STOCK AND SERIES C PREFERRED STOCK.

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PROPOSAL 2

APPROVAL BY THE HOLDERS OF THE SERIES B PREFERRED STOCK
OF THE ISSUANCE OF SHARES OF COMMON STOCK PURSUANT TO
THE CONVERSION OF THE SERIES B PREFERRED STOCK

        Our Board adopted a resolution recommending that holders of our Series B Preferred Stock approve the issuance of our common stock upon the conversion of the Series B Preferred Stock for purposes of California corporate law.

        Because we are a corporation incorporated in California, we are subject to the corporate laws of the State of California. Under the California General Corporation Law, when a series of preferred stock provides for conversion into common stock, unless other steps are taken, not applicable to the private placement, the conversion of the preferred stock must be approved by the affirmative vote of a majority of the outstanding shares of the class or series of preferred stock affected. The proposed conversion of the Series B Preferred Stock into shares of our common stock falls within these requirements.

        The consequences of the approval at the Special Meeting of Proposal 2 are described elsewhere in this proxy statement, including under "The Consequences if the Proposals Are Approved" on page 17.

        A failure to approve Proposal 2 at the Special Meeting would have potentially adverse consequences for the Company and its shareholders described elsewhere in this proxy statement, including under "The Consequences if the Proposals Are Not Approved" on page 18.

        In the Investment Agreement, each of the holders of the Series B Preferred Stock, separately for themselves, agreed with the Company to vote their respective shares of Series B Preferred Stock for Proposal 2.

        THE BOARD OF DIRECTORS RECOMMENDS THAT HOLDERS OF SERIES B PREFERRED STOCK VOTE "FOR" THE PROPOSED ISSUANCE OF SHARES OF COMMON STOCK PURSUANT TO THE CONVERSION OF THE SERIES B PREFERRED STOCK.

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PROPOSAL 3

APPROVAL BY THE HOLDERS OF THE SERIES C PREFERRED STOCK
OF THE ISSUANCE OF SHARES OF COMMON STOCK PURSUANT
TO THE CONVERSION OF THE SERIES C PREFERRED STOCK

        Our Board adopted a resolution recommending that holders of our Series C Preferred Stock approve the issuance of our common stock upon the conversion of the Series C Preferred Stock for purposes of California corporate law.

        As discussed above, because we are a corporation incorporated in California, we are subject to the corporate laws of the State of California. Under California General Corporation Law, when a series of preferred stock provides for conversion into common stock, unless other steps are taken not applicable to the private placement, the conversion of the preferred must be approved by the affirmative vote of a majority of the outstanding shares of the class or series of preferred stock affected. The proposed conversion of the Series C Preferred Stock into shares of our common stock falls within these requirements.

        The consequences of the approval at the Special Meeting of Proposal 3 are described elsewhere in this proxy statement, including under "The Consequences if the Proposals Are Approved" on page 17.

        A failure to approve Proposal 3 at the Special Meeting would have potentially adverse consequences for the Company and its shareholders described elsewhere in this proxy statement, including under "The Consequences if the Proposals Are Not Approved" on page 18.

        In the Investment Agreement, each of the holders of the Series C Preferred Stock, separately for themselves, agreed with the Company to vote their respective shares of Series C Preferred Stock for Proposal 3.

        THE BOARD OF DIRECTORS RECOMMENDS THAT HOLDERS OF SERIES C PREFERRED STOCK VOTE "FOR" THE PROPOSED ISSUANCE OF SHARES OF COMMON STOCK PURSUANT TO THE CONVERSION OF THE SERIES C PREFERRED STOCK.

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PROPOSAL 4

ADJOURNMENT OF MEETING

        As provided in the Bylaws of the Company, the presence at the Special Meeting, either in person or by a properly executed proxy, of the persons entitled to vote a majority of the shares of common stock, Series B Preferred Stock and Series C Preferred Stock, will constitute a quorum for the transaction of business at the Special Meeting. If a sufficient number of votes to constitute a quorum are not present at the Special Meeting, we could postpone the Special Meeting to a later date when a quorum would be present. However, we do not anticipate the lack of a quorum at the Special Meeting and we currently do not intend to postpone the date of the Special Meeting.

        Despite the presence of a quorum at the Special Meeting, we may propose to adjourn the Special Meeting if we have not received a sufficient number of votes to approve Proposals 1 through 3. The purpose of an adjournment would be to solicit additional proxies in favor of Proposals 1 through 3, as necessary and appropriate. Shareholder approval of Proposals 1 through 3 is a requirement of the Investment Agreements, dated June 18, 2010, between the Company and the purchasers of the Series B Preferred Stock and Series C Preferred Stock. In the event that approval of any or all of Proposals 1 through 3 are not obtained at the Special Meeting, the Company has agreed to include a proposal to approve (and the Board of Directors will recommend approval of) any or all of Proposals 1 through 3 at a subsequent special meeting of the shareholders to be held no later than 90 days from the date of the Special Meeting and, if necessary, at additional special meetings held no less than once in each subsequent six month period until approval of Proposals 1 through 3 has been obtained.

        Notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than 45 days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting must be given to each shareholder of record entitled to vote at the meeting.

        The Board of Directors believes that it would be in the best interests of the Company and the shareholders to provide for the possibility that a vote to adjourn the Special Meeting may become necessary. Therefore, the Board of Directors requests shareholder approval to adjourn the Special Meeting (as may be proposed at the Special Meeting).

        THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO ADJOURN THE SPECIAL MEETING, IF NECESSARY AND APPROPRIATE.

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THE CONSEQUENCES IF THE PROPOSALS ARE APPROVED

        Shareholder approval of the Proposals will result in the following consequences:

Conversion of Series B Preferred Stock into Common Stock at the Initial Conversion Price

        Each share of Series B Preferred Stock will be automatically converted into shares of common stock on the first business day following receipt of the Shareholder Approvals. Assuming the Shareholder Approvals are obtained at the Special Meeting, the conversion will be at the initial conversion price of $3.75 per share. This means that each outstanding share of Series B Preferred Stock will automatically be converted into such number of shares of common stock determined by dividing $1,000 (the purchase price per share of the Series B Preferred Stock) by $3.75. If the conversion is not approved at the Special Meeting, or a subsequent meeting of shareholders held before December 21, 2010, the conversion price will be reduced by 10%.

Elimination of Preferred Dividend and Liquidation Rights of Holders of Series B Preferred Stock

        If the Shareholder Approvals are received, all shares of Series B Preferred Stock will be cancelled. As a result, approval of the conversion of Series B Preferred Stock will result in the elimination of the 20% per annum dividend rights and "participating" liquidation preference existing in favor of the Series B Preferred Stock. For more information regarding such dividend rights and liquidation preference, see "Description of the Preferred Stock—Series B Preferred Stock Terms and Provisions" in this proxy statement.

Conversion of Series C Preferred Stock into Common Stock at the Initial Conversion Price Upon a Subsequent Transfer

        Each share of Series C Preferred Stock will be automatically converted into shares of common stock following both (i) receipt of the Shareholder Approvals and (ii) a subsequent transfer thereafter of the Series C Preferred Stock to a transferee not affiliated with the holder in a widely dispersed offering. Assuming the Shareholder Approvals are obtained at the Special Meeting, the conversion price will be at the initial conversion price of $3.75 per share. This means that each outstanding share of Series C Preferred Stock will be converted upon a subsequent transfer by the holder into such number of shares of common stock determined by dividing $1,000 (the purchase price per share of the Series C Preferred Stock) by $3.75. If the conversion is not approved at the Special Meeting, or a subsequent meeting of shareholders held before December 21, 2010, the conversion price will be reduced by 10%.

Elimination of Preferred Dividend and Liquidation Rights of Holders of Series C Preferred Stock

        If the Shareholder Approvals are received, all shares of Series C Preferred Stock will remain outstanding until such time as the holder transfers the Series C Preferred Stock to a transferee not affiliated with the holder in a widely dispersed offering. However, shareholder approval of the conversion of Series C Preferred Stock will result in the elimination of the 20% per annum preferred dividend rights and "participating" liquidation preferences existing in favor of the Series C Preferred Stock. For more information regarding such dividend rights and liquidation preference, see "Description of the Preferred Stock—Series C Preferred Stock Terms and Provisions" in this proxy statement.

Rights of Investors

        The rights and privileges associated with the common stock issued upon conversion of the Series B Preferred Stock and Series C Preferred Stock will be identical to the rights and privileges associated with the common stock held by our existing common shareholders, including voting rights.

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Market Effects

        Despite the existence of certain restrictions on transfer, the issuance of shares of our common stock upon conversion of the Series B Preferred Stock and Series C Preferred Stock may impact trading patterns and adversely affect the market price of our common stock. If significant quantities of our common stock issued upon conversion of the Series B Preferred Stock and Series C Preferred Stock are sold (or if it is perceived that they may be sold) into the public market, the trading price of our common stock could be materially adversely affected.

Dilution

        We will issue through the conversion of the Series B Preferred Stock 14,399,000 shares of common stock (in addition to the 11,820,509 shares of common stock currently outstanding). In addition, the Series C Preferred Stock will remain outstanding and will be convertible into 5,601,000 shares of common stock if and when it is transferred by a holder to a transferee not affiliated with the holder in a widely dispersed offering. As a result, there will be an immediate and substantial dilutive effect on both the earnings per share of our common stock and the book value per share of our common stock. In addition, our existing shareholders will incur substantial dilution to their voting interests and will own a smaller percentage of our outstanding capital stock. For additional information regarding the dilutive effect of the private placement, please see "Pro Forma Financial Information" on page 28 of this proxy statement.

THE CONSEQUENCES IF THE PROPOSALS ARE NOT APPROVED

        If the Proposals are not approved at the Special Meeting, or if similar proposals are not approved at a subsequent meeting by the shareholders, the following consequences will result:

Series B Preferred Stock and Series C Preferred Stock Will Remain Outstanding

        The Series B Preferred Stock and Series C Preferred Stock will remain outstanding in accordance with their respective terms.

Adjustment of Conversion Price for the Series B Preferred Stock and Series C Preferred Stock

        The initial conversion price of the Series B Preferred Stock and the Series C Preferred Stock of $3.75 per share will be decreased by 10% if we fail to obtain shareholder approval by December 21, 2010 (six months after issuance of the Series B Preferred Stock and Series C Preferred Stock).

Continued Dividend Payments for the Series B Preferred Stock and Potential Market Effects

        The shares of Series B Preferred Stock will remain outstanding and, for so long as such shares remain outstanding, we will be required to pay dividends on the Series B Preferred Stock, on a cumulative basis, at a rate of 20% per annum. If we obtain shareholder approval by December 21, 2010, no dividends will be payable with respect to the Series B Preferred Stock. The ability of the Company to pay dividends is restricted by the terms of the Written Agreement. The Company's ability to pay dividends on the Series B Preferred Stock is also limited by the terms of its outstanding trust preferred securities and its Series A Preferred Stock. Accordingly, there is no assurance that we will be able to pay such dividends in the near future. If we are unable to pay such dividends as scheduled, the market perception could have a serious adverse impact on the price of our common stock.

Continued Dividend Payments for the Series C Preferred Stock and Potential Market Effects

        If shareholder approval is not obtained, we will be required to pay dividends on the Series C Preferred Stock, on a cumulative basis, at a rate of 20% per annum. The ability of the Company to pay dividends is restricted by the terms of the Written Agreement. The Company's ability to pay dividends on the Series C

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Preferred Stock is also limited by the terms of its outstanding trust preferred securities and its Series A Preferred Stock. Accordingly, there is no assurance that we will be able to pay such dividends in the near future. If we are unable to pay such dividends as scheduled, the market perception could have a serious adverse impact on the price of our common stock. If we obtain shareholder approval before December 21, 2010, cumulative dividends at a rate of 20% per annum will not be payable with respect to the Series C Preferred Stock and, thereafter, the only dividends payable on the Series C Preferred Stock will be dividends paid on a as-converted basis if and only to the extent dividends are paid on our common stock.

Additional Shareholder Meetings

        If shareholder approval is not obtained at the Special Meeting, when and as adjourned, we will be required to call additional shareholder meetings and recommend approval of proposals similar to the Proposals within 90 days of the Special Meeting and, thereafter, every six months if necessary, until shareholder approval is obtained. We must bear the costs of soliciting the approval of our shareholders in connection with these meetings.

Restriction on Payment of Dividends

        If accrued dividends payable on all outstanding shares of the Series B Preferred Stock and Series C Preferred Stock have not been declared and paid, or declared and funds set aside therefor, we will not be permitted to declare or pay dividends with respect to, or redeem, purchase, or acquire our common stock or any of our junior securities, or redeem, purchase or acquire any parity securities, subject to limited exceptions.

Series B Preferred Stock Liquidation Preference

        For as long as the Series B Preferred Stock remains outstanding, in the event the Company voluntarily or involuntarily liquidates, dissolves or winds up, the holders of the Series B Preferred shall be entitled to receive, for each share of the Series B Preferred Stock, liquidating distributions equal to (i) the liquidation preference of $1,000 per share, plus any accrued but unpaid dividends thereon to and including the date of such liquidation and (ii) participation on a pro rata basis in all liquidating distributions made to the Company's holders of common stock based upon the number of shares of common stock issuable upon conversion of the Series B Preferred Stock.

Series C Preferred Stock Liquidation Preference

        Until shareholder approval, in the event the Company voluntarily or involuntarily liquidates, dissolves or winds up, the holders of the Series C Preferred Stock shall be entitled to receive, for each share of the Series C Preferred Stock, liquidating distributions equal to (i) the liquidation preference of $1,000 per share, plus any accrued but unpaid dividends thereon to and including the date of such liquidation and (ii) participation on a pro rata basis in all liquidating distributions made to the Company's holders of common stock based upon the number of shares of common stock issuable upon conversion of the Series C Preferred Stock.

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DESCRIPTION OF THE PREFERRED STOCK

        The following is a summary of the material terms and provisions of the preferences, limitations, voting powers and relative rights of the Series B Preferred Stock and Series C Preferred Stock as contained in the Certificates of Determination relating to the Series B Preferred Stock and Series C Preferred Stock, which are attached to this document as Annex A and Annex B, respectively, which we incorporate by reference into this proxy statement. Shareholders are urged to read the Series B Preferred Stock Certificate of Determination and the Series C Preferred Stock Certificate of Determination in their entirety. While the Company believes this summary covers the material terms and provisions of the Series B Preferred Stock Certificate of Determination and the Series C Preferred Stock Certificate of Determination , it may not contain all of the information that is important to you and is qualified in its entirety by reference to Annex A and Annex B.

Series B Preferred Stock Terms and Provisions

        Authorized Shares.    We have designated 54,050 shares of preferred stock as "Series B Mandatorily Convertible Cumulative Perpetual Preferred Stock" which has no par value, of which 53,996 shares are issued and outstanding.

        Mandatory Conversion.    The Series B Preferred Stock will convert into shares of the Company's common stock on the first business day following the approval by the holders of our common stock of the conversion of the Series B Preferred Stock into our common stock as required by the applicable NASDAQ rules and approval by the holders of the Series B Preferred Stock of the conversion as required by California corporate law. Assuming shareholder approval of Proposal 1 and Proposal 2 at the Special Meeting, the number of shares of our common stock into which each share of Series B Preferred Stock shall be converted will be determined by dividing the $1,000 per share (the purchase price for the Series B Preferred Stock) by the initial conversion price of $3.75 per share. If the conversion is not approved at the Special Meeting, or at a subsequent meeting of the shareholders held before December 21, 2010, the conversion price will be reduced by 10%. In addition, the conversion price of the Series B Preferred Stock is subject to customary anti-dilution adjustments.

        Dividends.    The Series B Preferred Stock accrues a cumulative cash dividend at a rate of 20% per annum. The dividends will not be paid if the shareholders approve the conversion of the Series B Preferred Stock at the Special Meeting, or at a subsequent meeting of the shareholders held before December 21, 2010. Beginning on December 21, 2010, if shareholders have not approved the conversion of the Series B Preferred Stock, dividends will be payable semi-annually. To the extent the Board of Directors does not declare and pay dividends on the Series B Preferred Stock for a dividend period, in full or otherwise, such unpaid dividends shall accrue and cumulate from the relevant dividend payment date, shall compound on each subsequent dividend payment date and shall be payable semi-annually in arrears on each subsequent dividend payment date. In addition, if we declare any dividends on our common stock or make any other distribution to our common stock shareholders, the holders of the Series B Preferred Stock will be able to participate in such distribution on an as-converted basis. If all dividends payable on the Series B Preferred Stock have not been declared and paid for an applicable dividend period, the Company shall not declare or pay any dividends on any stock which ranks junior to the Series B Preferred Stock, or redeem, purchase or acquire any stock which ranks on a parity or junior to the Series B Preferred Stock, subject to customary exceptions. If all dividends payable on the Series B Preferred Stock have not been paid in full, any dividend declared on stock which ranks on a parity to the Series B Preferred Stock shall be declared and paid pro rata with respect to the Series B Preferred Stock and such parity stock.

        Participation in Dividends on Common Stock.    So long as any shares of Series B Preferred Stock are outstanding, if we declare any dividends on our common stock or make any other distribution to our common shareholders, the holders of the Series B Preferred Stock will be entitled to participate in such distribution on an as-converted basis.

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        Ranking.    The Series B Preferred Stock ranks senior to all of the Company's common stock, and each other class or series of capital stock of the Company outstanding or established in the future by the Company, the terms of which do not expressly provide that it ranks on a parity with or senior to the Series B Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Company. The Series B Preferred Stock ranks on parity with the Company's Series A Preferred Stock and Series C Preferred Stock.

        Voting Rights.    Shares of Series B Preferred Stock generally have no voting rights other than as required by law, except that the approval of the holders of two-thirds of the Series B Preferred Stock, voting as a single class, will be required with respect to certain matters, including (i) charter amendments adversely affecting the rights, preferences or privileges of the Series B Preferred Stock and (ii) the creation of any series of senior equity securities. Under California law, a majority of the outstanding shares of Series B Preferred must approve the conversion of the Series B Preferred Stock.

        Liquidation Preference.    In the event the Company voluntarily or involuntarily liquidates, dissolves or winds up, the holders of the Series B Preferred shall be entitled to receive, for each share of the Series B Preferred Stock, liquidating distributions equal to (i) the liquidation preference of $1,000 per share, plus any accrued but unpaid dividends thereon and authorized and declared but unpaid dividends to and including the date of such liquidation and (ii) participation on a pro rata basis in all liquidating distributions made to the Company's holders of common stock based upon the number of shares of common stock issuable upon conversion of the Series B Preferred Stock.

        Redemption.    The Series B Preferred Stock is not redeemable by the Company at any time, and the holders of the Series B Preferred Stock have no right to require redemption of any shares of Series B Preferred Stock.

        Anti-dilution Provisions.    The conversion price of the Series B Preferred Stock is also subject to customary anti-dilution adjustments, which will be made (subject to certain exceptions, including an exception for the Rights Offering) in the event that the Company:

•

pays dividends or other distributions on the common stock in shares of common stock;



•

subdivides, splits or combines the shares of common stock;



•

issues to holders of its common stock rights or warrants entitling them to purchase common stock at less than the then-current market price;



•

distributes to holders of its common stock indebtedness, shares of capital stock, securities, cash or other assets (other than cash dividends and certain other transactions);



•

makes a cash distribution to holders of common stock, other than (i) cash dividends to the extent a corresponding dividend is paid on the Series B Preferred Stock, (ii) cash distributed in a reorganization event or spin-off, (iii) upon liquidation, dissolution or winding-up and (iv) in connection with a tender or exchange offer by the Company;



•

completes a tender or exchange offer for the common stock where the consideration exceeds the closing price per share of the common stock on the trading day immediately succeeding the expiration of the tender offer or exchange offer;



•

has a shareholder rights plan in effect with respect to the common stock on the date of conversion of the Series B Preferred Stock and the rights have separated from the common stock prior to such conversion date; and



•

issues any common stock without consideration or for a consideration per share less than the conversion price then in effect for the Series B Preferred Stock.

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        Preemptive Rights.    Holders of the Series B Preferred Stock have no preemptive rights, except as discussed under the terms of the Securities Purchase Agreement. See "Investment Agreements—The Securities Purchase Agreement—Preemptive Rights."

        Fundamental Change.    A "Reorganization Event" occurs if the Company enters into a transaction constituting a consolidation or merger of the Company or similar transaction, any sale or other transfer of all or substantially all of the consolidated assets of the Company and its subsidiaries or, any statutory exchange of outstanding shares of common stock (in each case pursuant to which its common stock will be converted into cash, securities or other property) or for certain reclassifications or exchanges of its common stock. If a Reorganization Event occurs then holders of the Series B Preferred Stock shall have the option to convert the Series B Preferred Stock in the kind of securities, cash and other property receivable in such event of that number of shares of common stock into which the shares of Series B Preferred Stock would then be convertible plus cash equal to any accrued and unpaid dividends, or be entitled to receive a liquidating distribution in accordance with the holder's liquidation preference.

Series C Preferred Stock Terms and Provisions

        Authorized Shares.    We have designated 21,050 shares of preferred stock as "Series C Convertible Perpetual Preferred Stock" which have no par value, of which 21,004 shares are issued and outstanding.

        Conversion.    The Series C Preferred Stock will be automatically converted following both (i) the approval by the holders of our common stock of the conversion of the Series C Preferred Stock into our common stock as required by the applicable NASDAQ rules, and approval by the holders of the Series C Preferred Stock of the conversion as required by California corporate law and, thereafter (ii) the subsequent transfer of the Series C Preferred Stock to a transferee not affiliated with the holder in a widely dispersed offering. Assuming shareholder approval of Proposal 1 and Proposal 3 at the Special Meeting, the number of shares of our common stock into which each share of Series C Preferred Stock shall be converted will be determined by dividing the $1,000 per share (the purchase price for the Series C Preferred Stock) by the initial conversion price of $3.75 per share. If the conversion is not approved at the Special Meeting, or at a subsequent meeting of the shareholders held before December 21, 2010, the conversion price will be reduced by 10%. In addition, the conversion price of the Series C Preferred Stock is subject to customary anti-dilution adjustments.

        For purposes of the Series C Preferred Stock we refer to a "widely dispersed offering" as a (i) widespread public distribution, including pursuant to a registration statement filed with and declared effective by the SEC or Rule 144 under the Securities Act, (ii) a transfer in which no transferee (or group of associated transferees) after giving effect to the transfer, would own more than 2% of any class of voting securities of the Company or (iii) a transfer to a transferee that controls or is acquiring control of more than 50% of the voting securities.

        Dividends Prior to Shareholder Approval.    The Series C Preferred Stock accrues a cumulative cash dividend at a rate of 20% per annum until shareholders approve the conversion of the Series C Preferred Stock. The dividends will not be paid if shareholders approve the conversion of the Series C Preferred Stock at the Special Meeting, or at a subsequent meeting of the shareholders held before December 21, 2010. Beginning on December 21, 2010, if shareholders have not approved the conversion of the Series C Preferred Stock, dividends will be payable semi-annually in arrears. To the extent the Board of Directors does not declare and pay dividends on the Series C Preferred Stock for a dividend period, in full or otherwise, such unpaid dividends shall accrue and cumulate from the relevant dividend payment date, shall compound on each subsequent dividend payment date and shall be payable semi-annually in arrears on each subsequent dividend payment date. In addition, if we declare any dividends on our common stock or make any other distribution to our common stock shareholders, the holders of the Series C Preferred Stock will be able to participate in such distribution on an as-converted basis. If all dividends payable on the Series C Preferred Stock have not been declared and paid for an applicable dividend period, the Company

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shall not declare or pay any dividends on any stock which ranks junior to the Series C Preferred Stock, or redeem, purchase or acquire any stock which ranks on a parity or junior to the Series C Preferred Stock, subject to customary exceptions. If all dividends payable on the Series C Preferred Stock have not been paid in full, any dividend declared on stock which ranks on a parity to the Series C Preferred Stock shall be declared and paid pro rata with respect to the Series C Preferred Stock and such parity stock.

        Dividends after Shareholder Approval.    After the shareholders approve the conversion of the Series C Preferred, dividends will be payable to the holders of the Series C Preferred Stock if and only to the extent payable to holders of common stock.

        Ranking.    The Series C Preferred Stock ranks senior to all of the Company's common stock, and each other class or series of capital stock of the Company outstanding or established in future by the Company, the terms of which do not expressly provide that it ranks on a parity with or senior to the Series C Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Company. The Series C Preferred Stock ranks on parity with the Company's Series A Preferred Stock and Series B Preferred Stock.

        Voting Rights.    Shares of Series C Preferred Stock generally have no voting rights other than as required by law, except that the approval of the holders of two-thirds of the Series C Preferred Stock, voting as a single class, will be required with respect to certain matters, including charter amendments adversely affecting the rights, preferences or privileges of the Series C Preferred Stock. Under California law, a majority of the outstanding shares of Series C Preferred must approve the conversion of the Series C Preferred Stock.

        Liquidation Preference Prior to Shareholder Approval of the Series C Preferred Stock.    Prior to shareholder approval of the conversion of the Series C Preferred Stock, in the event the Company voluntarily or involuntarily liquidates, dissolves or winds up, the holders of the Series C Preferred shall be entitled to receive, for each share of the Series C Preferred Stock, liquidating distributions equal to (i) the liquidation preference of $1,000 per share, plus any accrued but unpaid dividends thereon and authorized and declared but unpaid dividends to and including the date of such liquidation and (ii) participation on a pro rata basis in all liquidating distributions made to the Company's holders of common stock based upon the number of shares of common stock issuable upon conversion of the Series C Preferred Stock.

        Liquidation Preference After Shareholder Approval.    After shareholder approval of the conversion of the Series C Preferred Stock, if the Company voluntarily or involuntarily liquidates, dissolves or winds up, the holders of the Series C Preferred Stock shall be entitled, for each share of Series C Preferred Stock held, to a liquidation preference of $1,000 per share, plus any declared and unpaid dividends.

        Redemption.    The Series C Preferred Stock is not redeemable by the Company at any time, and the holders of the Series C Preferred Stock have no right to require redemption of any shares of Series C Preferred Stock.

        Anti-dilution Provisions.    Prior to shareholder approval of the conversion of the Series C Preferred Stock, the conversion price of the Series C Preferred Stock is also subject to customary anti-dilution adjustments, which will be made (subject to certain exceptions, including an exception for the Rights Offering) in the event that the Company:

•

pays dividends or other distributions on the common stock in shares of common stock;



•

subdivides, splits or combines the shares of common stock;



•

issues to holders of its common stock rights or warrants entitling them to purchase common stock at less than the then-current market price;

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•

distributes to holders of its common stock indebtedness, shares of capital stock, securities, cash or other assets (other than cash dividends and certain other transactions);



•

makes a cash distribution to holders of common stock, other than (i) cash dividends to the extent a corresponding dividend is paid on the Series C Preferred Stock, (ii) cash distributed in a reorganization event or spin-off, (iii) upon liquidation, dissolution or winding-up and (iv) in connection with a tender or exchange offer by the Company;



•

completes a tender or exchange offer for the common stock where the consideration exceeds the closing price per share of the common stock on the trading day immediately succeeding the expiration of the tender offer or exchange offer;



•

has a shareholder rights plan in effect with respect to the common stock on the date of conversion of the Series C Preferred Stock and the rights have separated from the common stock prior to such conversion date; and



•

issues any common stock without consideration or for a consideration per share less than the conversion price then in effect for the Series C Preferred Stock.

        After shareholder approval of the conversion of the Series C Preferred Stock, if the Company (i) subdivides its outstanding shares of common stock into a greater number of shares, or (ii) combines its outstanding shares of common stock into a smaller number of shares of common stock, then the Company shall similarly subdivide or combine its outstanding shares of Series C Preferred Stock, as applicable.

        Preemptive Rights.    Holders of the Series C Preferred Stock have no preemptive rights, except as discussed below under the terms of the Securities Purchase Agreement. See "Investment Agreements—The Securities Purchase Agreement—Preemptive Rights."

        Fundamental Change.    A "Reorganization Event" occurs if the Company enters into a transaction constituting a consolidation or merger of the Company or similar transaction, any sale or other transfer of all or substantially all of the consolidated assets of the Company and its subsidiaries or, any statutory exchange of outstanding shares of common stock (in each case pursuant to which its common stock will be converted into cash, securities or other property) or for certain reclassifications or exchanges of its common stock. If a Reorganization Event occurs then holders of the Series C Preferred Stock shall have the option to convert the Series C Preferred Stock in the kind of securities, cash and other property receivable in such event of that number of shares of common stock into which the shares of Series C Preferred Stock would then be convertible plus cash equal to any accrued and unpaid dividends, or be entitled to receive a liquidating distribution in accordance with the holder's liquidation preference.

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DESCRIPTION OF THE INVESTMENT AGREEMENTS

        The Company entered into a Securities Purchase Agreement and a Registration Rights Agreement with the investors to complete the private placement. We refer to these agreements as the "Investment Agreements." The following is a summary of material terms of the Investment Agreements. A copy of the form of the Securities Purchase Agreement is attached to this document as Annex C and is incorporated by reference into this proxy statement. A copy of the form of the Registration Rights Agreement is attached to this document as Annex D and is incorporated by reference into this proxy statement. Shareholders are urged to read the form of the Securities Purchase Agreement attached as Annex C and the form of the Registration Rights Agreement attached as Annex D in their entirety. While the Company believes this summary covers the material terms and provisions of the Securities Purchase Agreement and the Registration Rights Agreement, it may not contain all of the information that is important to you and is qualified in its entirety by reference to Annex C and Annex D.

Securities Purchase Agreement

        Purchase and Sale of Stock.    Pursuant to the Securities Purchase Agreement, we agreed to issue and sell 53,996 shares of the Series B Preferred Stock and 21,004 shares of Series C Preferred Stock, in the aggregate, to the investors.

        Representations and Warranties.    We made customary representations and warranties to the investors relating to us, our business and our capital stock, including with respect to the shares of Series B Preferred Stock and Series C Preferred Stock to be issued to the investors pursuant to the Securities Purchase Agreement. The representations and warranties in the Securities Purchase Agreement were made for purposes of the Securities Purchase Agreement and are subject to qualifications and limitations agreed to by the respective parties in connection with negotiating the terms of the Securities Purchase Agreement, including being qualified by confidential disclosures made for the purposes of allocating contractual risk. In addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from what might be viewed as material to shareholders, or may have been used for purposes of allocating risk between the respective parties rather than establishing such matters as facts. The representations and warranties and other provisions of the Securities Purchase Agreement should not be read alone, but instead should only be read together with the information provided elsewhere in this document and the periodic and current reports and statements that we file with the SEC.

        Agreement to Seek Shareholder Approval.    We agreed to call and hold a meeting of the shareholders as promptly as reasonably practicable but in no event later than November 30, 2010, and to recommend and seek shareholder approval of the Proposals. In addition, we agreed to prepare and file this proxy statement with the SEC and to cause the proxy statement to be mailed to shareholders within specified timeframes, as well as, subject to the fiduciary duties of the Board of Directors, to use reasonable best efforts to solicit proxies for the shareholder approval of the Proposals. If shareholder approval is not obtained by November 30, 2010, we will call additional meetings and recommend approval of similar Proposals to the shareholders within 90 days and every six months thereafter until shareholder approval has been obtained.

        Other Covenants.    We agreed to a number of customary covenants, including covenants with respect to the reservation and listing on NASDAQ of the common stock to be issued upon conversion of the Series B Preferred Stock and Series C Preferred Stock.

        Indemnity.    We have agreed to customary indemnification provisions for the benefit of the investors to certain losses suffered by the investors arising from material breaches of our representations, warranties and covenants in the Securities Purchase Agreement or relating to certain losses arising from actions, suits or claims relating to the Securities Purchase Agreement or the transactions contemplated thereby.

        Board Representation.    In connection with the private placement, the following investors, Patriot Financial Partners, L.P., Patriot Financial Partners Parallel, L.P. (collectively referred to herein as

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"Patriot") and Castle Creek Capital Partners IV, LP ("Castle Creek") obtained the right to representation on our Board of Directors and on our Board of Directors of Heritage Bank of Commerce (one for Patriot, collectively, and one for Castle Creek). Specifically, these two investors are each entitled to nominate one person to be elected or appointed to our Board (and the Board of Directors of Heritage Bank of Commerce) subject to receipt of applicable regulatory approvals, satisfaction of all legal and governance requirements regarding service as a director of the Company and Heritage Bank of Commerce and the reasonable approval of the Governance and Nominating Committee of our Board. So long as each of these investors (along with their affiliate funds) holds at least 4.9% of all outstanding shares of our common stock (counting for such purposes all shares of common stock into which or for which shares of any preferred stock owned by such investor are directly or indirectly convertible or exercisable and excluding as shares owned and outstanding shares of common stock issued by the Company after the closing date, other than as contemplated by the Securities Purchase Agreement), the Company will be required to recommend to its shareholders the election of the investor's board representative at the Company's annual meeting, subject to satisfaction of all legal and governance requirements regarding service as a director of the Company and to the reasonable approval of the Governance and Nominating Committee and the Board. Each of the board representatives may serve on any of the board committees, except the Audit Committee, so long as the board representative qualifies to serve on such committees under applicable rules of NASDAQ and the Company's corporate governance guidelines and the charters of such committees. For so long as Castle Creek and Patriot are entitled to a board representative but do not have a board representative serving on the Board, these investors will be entitled to designate one board observer subject to applicable legal requirements. The rights to a Board representative and board observer privileges are personal to the specific investor and such rights are not transferable.

        Preemptive Rights.    The Securities Purchase Agreement provides investors with preemptive rights, generally applicable for so long as such investors and their affiliates hold at least 4% of all outstanding shares of common stock (counting for such purposes all shares of common stock into which or for which shares of any preferred stock owned by such investor are directly or indirectly convertible or exercisable) in order to enable them to maintain their proportionate ownership of our common stock. At any time that such investors with preemptive rights meet this ownership threshold and the Company makes any offering or sale of any equity, or any securities convertible or exchangeable into equity or that includes an equity component, such investor may acquire at the same price and on the same terms, subject to certain limitations, that number of the securities being offered necessary to maintain its proportionate common stock-equivalent interest in the Company. However, the investors may not exercise the foregoing right in connection with (i) any common stock or other securities issuable upon the exercise or conversion of any securities of the Company issued or agreed or contemplated to be issued as of June 21, 2010, (ii) pursuant to the granting or exercise of employee stock options, restricted stock or other stock incentives pursuant to the Company's stock incentive plans approved by the Board of Directors or the issuance of stock pursuant to the Company's employee stock purchase plan approved by the Board of Directors or similar plan where stock is being issued or offered to a trust, other entity or otherwise, for the benefit of any employees, officers or directors of the Company, in each case in the ordinary course of providing incentive compensation, (iii) issuances of capital stock as full or partial consideration for a merger, acquisition, joint venture, strategic alliance, license agreement or other similar nonfinancing transaction, (iv) issuance of common stock upon exercise of warrants outstanding as of the date hereof or (v) the Rights Offering.

        Transfer Restrictions.    The Series B Preferred Stock and the Series C Preferred Stock issued in the private placement, and the common stock issuable pursuant to those securities, have not been registered under the Securities Act, or under the securities laws of any state or other jurisdiction, and unless so registered may not be offered or sold in the United States or to U.S. persons except pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws.

        Voting Agreement.    Subject to any applicable law or regulation to the contrary, each of the investors, severally and solely for its own behalf, and as further consideration to the Company for its agreement to

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sell the preferred stock to the investors, agreed to vote all of the shares of Series B Preferred Stock and all the shares of Series C Preferred Stock held by such investor (and to cause any affiliate to vote) in favor of the Proposals at the Special Meeting, or any subsequent meeting held to approve similar proposals, if required. Each of the investors also agreed that as a condition of transfer of shares of the Series B Preferred Stock or the shares of Series C Preferred Stock, whether by operation of law or otherwise, the investor must require the transferee of such preferred shares to agree to vote in favor of the Proposals 2 and 3, as applicable, at the Special Meeting, or any subsequent meeting held to approve similar proposals, if required.

        Venture Capital Operating Company Agreement.    Pursuant to the Security Purchase Agreement, the Company and Patriot and the Company and Castle Creek entered into separate venture capital operating company agreements (collectively, the "VCOC Agreement"), pursuant to which, at any time that the Patriot or Castle Creek, respectively do not have a board representative, each will be entitled to visit and inspect offices and properties of the Company; will be provided financial statements of the Company as soon as available within 45 days after the end of each quarter or 120 days after year end (except to the extent such financial statements are filed with the SEC); will consult with appropriate officers and directors of the Company periodically, but not more frequently than once per quarter, with respect to matters relating the business and affairs of the Company; and, to the extent consistent with applicable law (and with events which require public disclosure, only following the Company's public disclosure thereof), the Company will inform Patriot and Castle Creek in advance with respect to any significant corporate actions, and to provide each of them separately with the right to consult with the Company in advance with respect to such actions, as long as they beneficially own any shares of common stock or other securities convertible into common stock. These rights are intended to satisfy the requirements of management rights for purposes of qualifying the Patriot and Castle Creek investments in the Company as venture capital investments for purposes of the Department of Labor "plan assets" regulations.

        Fees and Expenses.    We reimbursed and compensated Castle Creek and Patriot for their respective expenses incurred in connection with due diligence, the negotiation and preparation of the transaction documents and consummating the private placement, in an amount of $60,000 and $50,000, respectively. Sandler O'Neill & Partners, L.P. served as placement agent and received a placement agent fee of $4,125,000.

Registration Rights Agreement

        We also entered into a Registration Rights Agreement, dated June 18, 2010, with the investors pursuant to which we agreed to (i) file a registration statement with the SEC within 30 calendar days of the closing date, to register the Series B Preferred Stock, the Series C Preferred Stock and the underlying shares of common stock to be issued upon conversion of the Series B Preferred Stock and Series C Preferred Stock, for resale under the Securities Act, (ii) use commercially reasonable efforts to cause such registration statement to be declared effective within 90 calendar days of closing (or 120 calendar days in the event of an SEC review), subject to specified exceptions and (iii) continue to take certain steps to maintain effectiveness of the registration statement and facilitate certain other matters. Failure to meet these deadlines and certain other events may result in the Company's payment to the investors of liquidated damages in the amount of 0.5% of the purchase price per month. The Company will bear all expenses incident to performing its obligations under the Registration Rights Agreement regardless of whether any securities are sold pursuant to a relevant registration statement, including registration and filing fees, printing expenses, legal fees, and other incidental expenses. The Company shall not be responsible for any underwriting discounts, broker or similar fees or commissions, or legal fees, of any holder. The Registration Rights Agreement also provides for customary reciprocal indemnification provisions relating to certain losses suffered by either party arising from any untrue or alleged untrue statement of a material fact, or material omission, in any relevant registration statement or prospectus.

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PRO FORMA FINANCIAL INFORMATION

Basis of Presentation

        The unaudited pro forma consolidated balance sheet tables and pro forma earnings per share tables presented below have been prepared by our management to illustrate the impact of the Company's private placement. The Company entered into a Securities Purchase Agreement, dated June 18, 2010, with 30 separate investors pursuant to which the investors acquired an aggregate of $75 million of newly issued preferred stock of the Company, described as follows:

•

A total of 53,996 shares of Series B Mandatorily Convertible Cumulative Perpetual Preferred Stock, no par value ("Series B Preferred Stock") which will automatically convert into an aggregate of 14,399,000 shares of common stock at a per common share conversion price of $3.75 per share (subject to certain adjustments) upon receipt of the approval of the shareholders.



•

A total of 21,004 shares of Series C Convertible Perpetual Preferred Stock, no par value ("Series C Preferred Stock") which will automatically convert into an aggregate of 5,601,000 shares of common stock at a per common share conversion price of $3.75 per share (subject to certain adjustments) upon receipt of the approval of the shareholders, and a subsequent transfer of the Series C Preferred Stock to a transferee not affiliated with the holder in a widely dispersed offering.

        In the event the shareholders do not approve the conversion of the Series B Preferred Stock and Series C Preferred Stock at the Special Meeting or a subsequent shareholder meeting held before December 21, 2010, holders of shares of Series B Preferred Stock and Series C Preferred Stock will be entitled to cumulative dividends that will accrue and be payable whether or not declared by our Board of Directors at the rate of 20% per annum.

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Balance Sheet

        The following tables present the Company's unaudited pro forma condensed consolidated balance sheet adjusted for the pro forma impact of the private placement for the period shown. The pro forma consolidated balance sheet as of June 30, 2010 assumes the conversion of the Series B Preferred Stock and the Series C Preferred Stock into common stock occurred on June 30, 2010.

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Earnings Per Share

        The following table presents the Company's unaudited consolidated pro forma earnings per share adjusted for the pro forma impacts of the private placement for the period shown. The unaudited pro forma basic loss per share and unaudited pro forma diluted loss per share assumes the Company completed the private placement, and the Series B Preferred Stock and Series C Preferred Stock were fully converted into common stock, at the beginning of 2010. A total of 53,996 shares of Series B Preferred Stock were assumed to convert into 14,399,000 shares of common stock, and a total of 21,004 shares of Series C Preferred Stock were assumed to convert into 5,601,000 shares of common stock.

(1)

Assumes that no dividends would be accrued and paid on the Series B Preferred Stock and Series C Preferred Stock because of the conversion at the beginning of 2010.

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BENEFICIAL OWNERSHIP OF COMMON STOCK

        The following table sets forth information as of June 30, 2010, pertaining to beneficial ownership of the Company's common stock by persons known to the Company to own five percent or more of the Company's common stock, current directors of the Company, our named executive officers (as set forth in our Annual Meeting proxy statement on file with the SEC), and all directors and executive officers of the Company, as a group. This information has been obtained from the Company's records, or from information furnished directly by the individual or entity to the Company. The following table does not include any common stock issuable upon conversion of the Series B Preferred Stock or Series C Preferred Stock.

        For purposes of the following table, shares issuable pursuant to stock options which may be exercised within 60 days of June 30, 2010 are deemed to be issued and outstanding and have been treated as outstanding in determining the amount and nature of beneficial ownership and in calculating the percentage of ownership of those individuals possessing such interest, but not for any other individuals.

*

Less than one percent (1%).

1.

Except as otherwise noted, the address for all persons is c/o Heritage Commerce Corp, 150 Almaden Boulevard, San Jose, California, 95113.

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2.

Subject to applicable community property laws and shared voting and investment power with a spouse, the persons listed have sole voting and investment power with respect to such shares unless otherwise noted. Listed amounts reflect all previous stock splits and stock dividends.

3.

Includes shares beneficially owned (including options exercisable within 60 days of June 30, 2010, as shown in the "Exercisable Options" column), both directly and indirectly, together with associates.

4.

Includes 93,237 shares as one of two trustees of the Bisceglia Family Trust, and 11,000 shares held by Mr. Bisceglia in a personal Individual Retirement Account.

5.

Includes 300 shares held in a trust account, and 6,700 shares held by Mr. Conner's spouse.

6.

Includes 77,949 shares held in a personal Individual Retirement Account, 49,000 shares held as one of two trustees of the Del Biaggio Family Trust, and 5,716 shares held in the name of his spouse.

7.

Includes 3,000 shares in a trust account held by Ms. Ford.

8.

Includes 12,750 restricted shares held by Mr. Kaczmarek and 41,000 shares held in a personal Individual Retirement Account. Mr. Kaczmarek individually owns 38,850 shares. Mr. Kaczmarek was awarded 51,000 restricted shares of the Company common stock pursuant to the terms of a Restricted Stock Agreement, dated March 17, 2005. Under the terms of the Restricted Stock Agreement, the restricted shares vest 25% per year at the end of years three, four, five and six, provided Mr. Kaczmarek is still employed with the Company, subject to accelerated vesting upon termination without cause, change of control, termination by Mr. Kaczmarek for good reason (each as defined in his employment agreement), death or disability. Mr. Kaczmarek has the right to vote the shares prior to the time they vest.

9.

Includes 5,726 shares held by Mr. Lefanowicz individually and 28,679 shares held by Mr. Lefanowicz in a personal Individual Retirement Account.

10.

Mr. Mayer retired from the Company on May 1, 2009. He was a named executive officer in the Company's 2010 Annual Meeting proxy statement.

11.

Includes 4,980 shares held for Mr. McGovern in a personal Individual Retirement Account.

12.

Includes 18,295 shares held by Mr. Moles' spouse.

13.

Includes 12,765 shares held by Mr. Polanen in a personal Individual Retirement Account and 1,623 shares held by his spouse.

14.

Includes 150 shares held by Mr. Toeniskoetter's spouse, and 12,250 shares held by the Toeniskoetter & Breeding, Inc. Profit Sharing Plan.

15.

Dimensional Fund Advisors LP ("Dimensional"), an investment advisor, furnishes investment advice to four investment companies and serves as investment manager to certain other commingled trusts and separate accounts. These investment companies, trusts and accounts are referred to as the "Funds." In its role as investment advisor or manager, Dimensional possesses investment and/or voting power over the securities of the shares held by the Funds. However, all securities reported in this table are owned by the Funds and Dimensional disclaims beneficial ownership to the shares owned by the Funds. The address for Dimensional is 6300 Bee Cave Road, Austin, Texas 78746. All of the foregoing information has been obtained from the Schedule 13/G filed with the SEC on February 8, 2010.

16.

The Company's Employee Stock Ownership Plan owns 142,000 shares of our common stock all of which have been allocated. These include shares held for the account of the following named executive officers and included in the table for: Mr. Kaczmarek 1,454 shares, Mr. McGovern 4,723 shares, Mr. Del Biaggio, Jr. 2,302 shares, Mr. Parker 1,193 shares, Mr. Mayer 165 shares, and zero shares for Mr. Ong. Mr. Kaczmarek and Mr. McGovern are two of the three trustees of the Employee

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Stock Ownership Plan. As trustees, they have the power to vote any unallocated shares of the Employee Stock Ownership Plan (currently no shares are unallocated) and allocated shares for which voting instructions are not otherwise provided.

OTHER BUSINESS

        If any matters not referred to in this proxy statement come before the Special Meeting incident to conducting the meeting, the proxy holders will vote the shares represented by proxies in accordance with their best judgment. According to the Company Bylaws, business to be conducted at a special meeting of shareholders may only be brought before the meeting by means of the Company's notice of meeting. Accordingly, no other matters, except those described in this proxy statement, will be presented for action at the Special Meeting or at any adjournment or postponement of the Special Meeting.

SHAREHOLDER PROPOSALS

        Under certain circumstances, shareholders are entitled to present proposals at shareholders' meetings, provided that the proposal is presented in a timely manner and in a form that complies with applicable regulations. Any shareholder proposals intended to be presented for consideration at the 2011 Annual Meeting of Shareholders, and to be included in the Company's proxy statement for that meeting under SEC Rule 14a-8, must be received by the Company for inclusion in the proxy statement and form of proxy for that meeting no later than December 21, 2010 in a form that complies with applicable regulations. If the date of next year's Annual Meeting is moved more than 30 days before or after the anniversary of the 2010 Annual Meeting, the deadline for inclusion is instead a reasonable time before the Company begins to print and mail its proxy materials.

        For a shareholder proposal to be presented at the 2011 Annual Meeting that is not intended to be included in the Company's 2011 Annual Meeting proxy statement under SEC Rule 14a-8, the proposal must be submitted at least 45 days before the date the proxy statement and form of proxy for the 2010 Annual Meeting was first mailed to shareholders. If the date of next year's Annual Meeting is more than 30 days before or after the anniversary of this year's Annual Meeting, the deadline for submitting a proposal is instead a reasonable time before the Company begins to print and mail its proxy materials.

INCORPORATION BY REFERENCE

        The SEC allows us to "incorporate by reference" into this document documents we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this document. We incorporate by reference Items 7, 7A, 8 and 9 from the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and Items 1, 2 and 3 of Part I of the Company's Quarterly Report on Form 10-Q for the six months ended June 30, 2010 and any other items in that Quarterly Report expressly updating the above referenced items from our Annual Report on Form 10-K.

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        A copy of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and of our Form 10-Q for the six months ended June 30, 2010 are enclosed. You can also obtain the documents incorporated by reference in this document through our website, www.heritagecommercecorp.com, and from the SEC at its website, www.sec.gov, or by request to the Company by telephone at (408) 947-6900. To receive timely delivery of the documents in advance of the Special Meeting, you should make your request no later than August 31, 2010.

		HERITAGE COMMERCE CORP
		Debbie Reuter Corporate Secretary

August 16, 2010
San Jose, California

34

ANNEX A

CERTIFICATE OF DETERMINATION
OF
SERIES B MANDATORILY CONVERTIBLE CUMULATIVE
PERPETUAL PREFERRED STOCK
OF
HERITAGE COMMERCE CORP

        Pursuant to Section 401 of the Corporations Code of the State of California:

        We, Lawrence McGovern, Executive Vice-President and Chief Financial Officer, and Debbie Reuter, Secretary, of Heritage Commerce Corp, a corporation organized under the laws of the State of California (hereinafter called the "Corporation"), do hereby certify as follows:

        1.     On June 17, 2010, the Board of Directors of the Corporation adopted a resolution designating 54,050 shares of preferred stock as Series B Mandatorily Convertible Cumulative Perpetual Preferred Stock.

        2.     No shares of Series B Mandatorily Convertible Cumulative Perpetual Preferred Stock have been issued.

        3.     Pursuant to the authority conferred upon the Board of Directors by the Articles of Incorporation of the Corporation, as amended, the following resolution was duly adopted by the Board of Directors on June 17, 2010, creating the series of preferred stock designated as Series B Mandatorily Convertible Cumulative Perpetual Preferred Stock:

        RESOLVED, that pursuant to the provisions of the Articles of Incorporation of the Corporation, as amended, and applicable law, a series of preferred stock of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series are as follows:

        Section 1.    Designation.    There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the "Series B Mandatorily Convertible Cumulative Perpetual Preferred Stock" (the "Series B Preferred Stock"). The number of shares constituting such series shall be 54,050. The Series B Preferred Stock shall have no par value per share.

        Section 2.    Ranking.    The Series B Preferred Stock will, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank (i) on a parity with the Corporation's Series A Fixed Rate Cumulative Perpetual Stock issued on November 21, 2008 (the "Series A Preferred Stock"), the Corporation's Series C Convertible Perpetual Preferred Stock (the "Series C Preferred Stock"), and with each class or series of equity securities of the Corporation the terms of which do not expressly provide that such class or series will rank senior or junior to the Series B Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Parity Securities"), and (ii) senior to the Corporation's common stock, no par value per share (the "Common Stock"), and each other class or series of capital stock of the Corporation outstanding or established on or after the Effective Date by the Corporation the terms of which do not expressly provide that it ranks on a parity with or senior to the Series B Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Junior Securities"). The Corporation has the power to authorize and/or issue additional shares or classes or series of Junior Securities or Parity Securities without the approval of the Holders; provided, however, that for as long as the Series B Preferred Stock remains outstanding, no preferred stock of the Corporation that would rank senior to the Series B Preferred Stock may be issued without, in each case, the express approval of the

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Holders of at least two-thirds of the issued and outstanding shares of Series B Preferred Stock voting as a single class.

        Section 3.    Definitions.    The following initially capitalized terms shall have the following meanings, whether used in the singular or the plural:

        (a)   "Additional Stock" has the meaning set forth in Section 10(a)(viii)(F).

        (b)   "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

        (c)   "Applicable Conversion Price" means the Conversion Price in effect at any given time.

        (d)   "Business Day" means any day that is not Saturday or Sunday and that, in the City of New York and in the State of California, is not a day on which banking institutions generally are authorized or obligated by law or executive order to be closed.

        (e)   "Certificate of Determination" means this Certificate of Determination of Heritage Commerce Corp, dated June 17, 2010.

        (f)    "Closing Price" of the Common Stock (or other relevant capital stock or equity interest) on any date of determination means the closing sale price or, if no closing sale price is reported, the last reported sale price of the shares of the Common Stock (or other relevant capital stock or equity interest) on the NASDAQ Global Select Market on such date. If the Common Stock (or other relevant capital stock or equity interest) is not traded on the NASDAQ Global Select Market on any date of determination, the Closing Price of the Common Stock (or other relevant capital stock or equity interest) on such date of determination means the closing sale price as reported in the composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock (or other relevant capital stock or equity interest) is so listed or quoted, or, if no closing sale price is reported, the last reported sale price on the principal U.S. national or regional securities exchange on which the Common Stock is so listed or quoted, or if the Common Stock (or other relevant capital stock or equity interest) is not so listed or quoted on a U.S. national or regional securities exchange, the last quoted bid price for the Common Stock (or other relevant capital stock or equity interest) in the over-the-counter market as reported by Pink OTC Markets Inc. or similar organization, or, if that bid price is not available, the market price of the Common Stock (or other relevant capital stock or equity interest) on that date as determined by a nationally recognized independent investment banking firm retained by the Corporation for this purpose, subject to the joint approval of the Board of Directors of the Corporation and the Holders. The Corporation shall cause at its expense the investment bank to perform the determinations and notify the Corporation and the Holders of the results no later than ten Business Days from the time it receives the engagement. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

        For purposes of this Certificate of Determination, all references herein to the "Closing Price" and "last reported sale price" of the Common Stock (or other relevant capital stock or equity interest) on the NASDAQ Global Select Market shall be such closing sale price and last reported sale price as reflected on the website of the NASDAQ Global Select Market (www.nasdaq.com) and as reported by Bloomberg Professional Service; provided that in the event that there is a discrepancy between the closing price and the last reported sale price as reflected on the website of the NASDAQ Stock Market and as reported by Bloomberg Professional Service, the closing sale price and the last reported sale price on the website of the NASDAQ Stock Market shall govern.

        (g)   "Common Stock" has the meaning set forth in Section 2.

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        (h)   "Common Stock Equivalents" means securities representing rights convertible into or exchangeable for, or entitling the holder thereof to purchase or receive directly or indirectly, shares of Common Stock.

        (i)    "Conversion Date" means, as applicable, the Mandatory Conversion Date or the Section 15 Conversion Date.

        (j)    "Conversion Price" means for each share of Series B Preferred Stock, $3.75; provided that if the Shareholder Approval is not obtained by the six month anniversary of the Effective Date, the Conversion Price shall be reduced by ten percent (10%) (subject to further adjustment or limitation from time to time in a manner consistent with the provisions of Section 10).

        (k)   "Corporation" means Heritage Commerce Corp, a California corporation.

        (l)    "Current Market Price" means, on any date, the average of the daily Closing Price per share of the Common Stock on each of the five consecutive Trading Days preceding the earlier of the day before the date in question and the day before the Ex-Date with respect to the issuance or distribution giving rise to an adjustment to the Conversion Price pursuant to Section 10.

        (m)  "Distributed Property" has the meaning set forth in Section 10(a)(iv).

        (n)   "Distribution" has the meaning set forth in Section 4(g).

        (o)   "Dividend Rate" means for purposes of Section 4(b) an annual rate equal to twenty percent (20%) per annum.

        (p)   "Effective Date" means the date on which shares of the Series B Preferred Stock are first issued.

        (q)   "Exchange Property" has the meaning set forth in Section 11(a).

        (r)   "Ex-Date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades without the right to receive the issuance or distribution giving rise to an adjustment to the Conversion Price pursuant to Section 10.

        (s)   "Filing Date" has the meaning set forth in Section 10(a)(viii)(A).

        (t)    "First Dilutive Issuance" has the meaning set forth in Section 10(a)(viii)(A).

        (u)   "Holder" means the Person in whose name the shares of the Series B Preferred Stock are registered, which may be treated by the Corporation as the absolute owner of the shares of Series B Preferred Stock for the purpose of making payment and settling the related conversions and for all other purposes.

        (v)   "Junior Securities" has the meaning set forth in Section 2.

        (w)  "Liquidation Preference" means, as to the Series B Preferred Stock, $1,000 per share (as adjusted for any split, subdivision, combination, consolidation, recapitalization or similar event with respect to the Series B Preferred Stock).

        (x)   "Mandatory Conversion Date" means, with respect to the shares of Series B Preferred Stock of any Holder, the first Business Day after the date on which the Corporation receives the Shareholder Approval (or if a Reorganization Event has theretofore been consummated, the date of consummation of such Reorganization Event), provided, however, that if a Mandatory Conversion Date would otherwise occur on or after an Ex-Date for an issuance or distribution that results in an adjustment of the Conversion Price pursuant to Section 10 and on or before the Record Date for such issuance or distribution, such Mandatory Conversion Date shall instead occur on the first calendar day after the Record Date for such issuance or distribution.

        (y)   "Notice of Mandatory Conversion" has the meaning set forth in Section 9(a).

        (z)   "Parity Securities" has the meaning set forth in Section 2.

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        (aa) "Permitted Rights Offering" means an offering of up to $10 million of aggregate offering price of Common Stock pursuant to subscription rights distributed pro rata to the then existing holders of record of Common Stock at a price per share of Common Stock of not less than $3.75, and the associated declaration, issuance and exercise of the subscription rights with respect to such offering and shares of Common Stock issuable in connection with the exercise of any such rights pursuant to the terms of the Securities Purchase Agreement.

        (bb) "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company or trust.

        (cc) "Series A Preferred Stock" has the meaning set forth in Section 2.

        (dd) "Series B Preferred Stock" has the meaning set forth in Section 1.

        (ee) "Series C Preferred Stock" has the meaning set forth in Section 2.

        (ff)  "Record Date" has the meaning set forth in Section 4(d).

        (gg) "Reorganization Event" has the meaning set forth in Section 11(a).

        (hh) "Section 4 Dividend Payment Date" has the meaning set forth in Section 4(b).

         (ii)  "Section 4 Dividend Period" has the meaning set forth in Section 4(c).

        (jj)   "Section 15 Conversion Date" has the meaning set forth in Section 15.

        (kk) "Securities Purchase Agreement" means the agreement by and among the Corporation and the purchasers named therein dated June 18, 2010.

        (ll)   "Shareholder Approval" means the vote of a majority of the Common Stock present and voting and vote of at least a majority of the outstanding shares of the Series B Preferred Stock to approve the issuance of Common Stock upon conversion of the Series B Preferred Stock for purposes of Rule 5635 of the NASDAQ Stock Market Rules.

        (mm)  "Subsequent Dilutive Issuance" has the meaning set forth in Section 10(a)(viii)(A).

        (nn) "Trading Day" means a day on which the shares of Common Stock:

          (i)  are not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business; and

         (ii)  have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock.

        (oo) "Trading Market" means whichever of the New York Stock Exchange, the NYSE Amex, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

        Section 4.    Dividends.    

        (a)   From and after the Effective Date, the Holders shall be entitled to receive, only if, when and as declared by the Board of Directors or a duly authorized committee of the Board of Directors, out of funds legally available therefor, cumulative dividends of the type and in the amounts determined as set forth in this Section 4, and no more, provided, however, notwithstanding any other provision in this Section 4 other than Section 4(g), if the Mandatory Conversion Date occurs before the six month anniversary of the Effective Date, then no accrued dividends shall be payable.

        (b)   Subject to Section 4(a), commencing on the Effective Date, dividends shall accrue and be payable semi-annually in arrears, with the first such dividend payable on the six month anniversary of the Effective Date and continuing on each six (6) month anniversary thereafter (each, a "Section 4 Dividend Payment Date") or, if any such day is not a Business Day, the next Business Day, if, when and as declared by the

A-4

Board of Directors or a duly authorized committee of the Board of Directors. Dividends payable pursuant to this Section 4, if, when and as declared by the Board of Directors or a duly authorized committee of the Board of Directors, will be, for each outstanding share of Series B Preferred Stock, payable in cash at an annual rate equal to the Dividend Rate multiplied by the sum of (A) the Liquidation Preference plus (B) all accrued and unpaid dividends for any prior Section 4 Dividend Period that are payable on such share of Series B Preferred Stock, payable in cash.

        (c)   Dividends payable pursuant to Section 4 will be computed on the basis of a 360-day year of twelve 30-day months and, for any Section 4 Dividend Period greater or less than a full Section 4 Dividend Period, will be computed on the basis of the actual number of days elapsed in the period divided by 360. Each period from and including a Section 4 Dividend Payment Date to but excluding the following Section 4 Dividend Payment Date is herein referred to as a "Section 4 Dividend Period".

        (d)   Each dividend will be payable to Holders of record as they appear in the records of the Corporation on the applicable record date (each, a "Record Date"), which with respect to dividends payable pursuant to this Section 4, shall be on the fifteenth day of the month immediately prior to the month in which the relevant Section 4 Dividend Payment Date occurs.

        (e)   Dividends on the Series B Preferred Stock are cumulative. To the extent that the Board of Directors does not declare or pay dividends on the Series B Preferred Stock for a Section 4 Dividend Period prior to the related Section 4 Dividend Payment Date, in full or otherwise, such unpaid dividend shall accrue and shall cumulate from such scheduled Section 4 Dividend Payment Date, shall compound on each subsequent Section 4 Dividend Payment Date and shall be payable semi-annually in arrears on each subsequent Section 4 Dividend Payment Date. As used herein, the term "accrued" includes both accrued and accumulated dividends.

        (f)    So long as any shares of Series B Preferred Stock remain outstanding, if all dividends on all outstanding shares of the Series B Preferred Stock for any Section 4 Dividend Period have not been declared and paid, or declared and funds set aside therefor, the Corporation shall not (x) declare or pay dividends with respect to, or make any distributions on, or, directly or indirectly, redeem, purchase or acquire any of its Junior Securities or (y) directly or indirectly, redeem, purchase or acquire any of its Parity Securities, other than, in each case, (i) redemptions, purchases or other acquisitions of Junior Securities or Parity Securities in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more employees, officers, directors or consultants or in connection with a dividend reinvestment plan, (ii) any declaration of a dividend in connection with any shareholders' rights plan, or the issuance of rights, stock or other property under any shareholders' rights plan, or the redemption or repurchase of rights pursuant thereto, (iii) conversions or exchanges of Junior Securities or Parity Securities for Junior Securities or Parity Securities, respectively, and (iv) any purchase of fractional interests in shares of the Corporation's capital stock pursuant to the conversion or exchange provisions of such capital stock or the securities being converted or exchanged. If dividends payable pursuant to Section 4 for any Section 4 Dividend Payment Date are not paid in full, or declared and funds set aside therefor on the shares of the Series B Preferred Stock and there are issued and outstanding shares of Parity Securities with the same Section 4 Dividend Payment Date (or, in the case of Parity Securities having dividend payment dates different from the Section 4 Dividend Payment Dates, on a dividend payment date falling within a Section 4 Dividend Period applicable to such Section 4 Dividend Payment Date), then all dividends declared on shares of the Series B Preferred Stock and such Parity Securities on such date or dates, as the case may be, shall be declared pro rata so that the respective amounts of such dividends shall bear the same ratio to each other as full semi-annual dividends per share payable on the shares of the Series B Preferred Stock pursuant to Section 4 and all such Parity Securities otherwise payable on such Section 4 Dividend Payment Date (or, in the case of Parity Securities having dividend payment dates different from the Section 4 Dividend Payment Dates, on a dividend payment date falling within a Section 4 Dividend Period applicable to such Section 4 Dividend Payment Date) (subject to such dividends on such Parity Securities having been declared by the Board of Directors out of legally

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available funds and including, in the case of any such Parity Securities that bear cumulative dividends, all accrued and unpaid dividends) bear to each other.

        (g)   Subject to the limitations in Section 4(f), if applicable, so long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not declare, pay or set apart for payment any dividend or make any Distribution on any Common Stock, unless at the time of such dividend or Distribution the Corporation simultaneously pays a dividend or makes a Distribution on each outstanding share of Series B Preferred Stock in the same form of consideration as received by the holders of Common Stock in an amount equal to the product of (i) the dividend payable or Distribution to be made on each share of Common Stock and (ii) the number of shares of Common Stock issuable upon conversion of a share of Series B Preferred Stock (assuming receipt of the Shareholder Approval and, if necessary, regulatory approvals), calculated on the record date for determination of holders entitled to receive such dividend or Distribution. For purposes hereof, "Distribution" shall mean the transfer of cash, securities or other assets or property, including, without limitation, evidences of indebtedness, shares of capital stock or securities (including, without limitation, any dividend or distribution of (i) shares of capital stock of any class or series, or similar equity interests, of or relating to a subsidiary or other business unit in a "spin-off" transaction or (ii) rights or warrants to purchase shares of Common Stock (other than rights issued pursuant to a shareholders' rights plan, a dividend reinvestment plan, other similar plans or a Permitted Rights Offering), without consideration, whether by way of dividend or otherwise.

        (h)   If a Conversion Date with respect to any share of Series B Preferred Stock occurs on or prior to the Record Date for any declared dividend applicable to any Section 4 Dividend Period, the Holder of such share of Series B Preferred Stock will have the right to receive accrued dividends on the Series B Preferred Stock prior to the Conversion Date with respect to such Section 4 Dividend Period, and this shall not affect any rights to receive any accrued and unpaid dividends on the Series B Preferred Stock attributable to any Section 4 Dividend Period completed prior to such Record Date. If a Conversion Date is after the Record Date for any declared dividend applicable to any Section 4 Dividend Period and prior to the relevant Section 4 Dividend Payment Date, such Holder shall receive that dividend on the relevant Section 4 Dividend Payment Date if such Holder was the Holder of record on the Record Date for that dividend.

        Section 5.    Liquidation.    

        (a)   In the event the Corporation voluntarily or involuntarily liquidates, dissolves or winds up, the Holders at the time shall be entitled to receive, for each share of the Series B Preferred Stock, the sum of (i) liquidating distributions in an amount equal to the Liquidation Preference, plus any accrued but unpaid dividends thereon to and including the date of such liquidation, out of assets legally available for distribution to the Corporation's shareholders, before any distribution of assets is made to the holders of the Common Stock or any other Junior Securities and (ii) after all distributions have been made to Holders pursuant to clause (i) of this sentence, liquidating distributions, as determined by the Corporation (or the trustee or other Person or Persons administering its liquidation, dissolution or winding-up in accordance with applicable law) as of a date that is at least ten (10) Business Days before the first liquidating distribution is made on Series B Preferred Stock, that would be made on the number of shares of Common Stock equal to the Liquidation Preference divided by the Applicable Conversion Price as if all of the outstanding shares of Series B Preferred Stock and Series C Preferred Stock had been converted into Common Stock on such date of determination, out of assets legally available for distribution to the Corporation's shareholders, simultaneous with any distribution of assets made to the holders of the Common Stock.

        (b)   In the event the assets of the Corporation available for distribution to shareholders upon any liquidation, dissolution or winding-up of the affairs of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full the amounts payable with respect to all outstanding shares of the Series B Preferred Stock and the corresponding amounts payable on any Parity Securities, the Holders and the holders of such Parity Securities shall share ratably in any distribution of assets of the Corporation in

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proportion to the full respective liquidating distributions to which they would otherwise be respectively entitled.

        (c)   Except as provided in Section 11, the Corporation's consolidation or merger with or into any other entity, the consolidation or merger of any other entity with or into the Corporation, or the sale of all or substantially all of the Corporation's property or business will not constitute its liquidation, dissolution or winding up.

        Section 6.    Maturity.    The Series B Preferred Stock shall be perpetual unless converted in accordance with this Certificate of Determination.

        Section 7.    Redemptions.    

        (a)    Redemption by the Holder.    Holders of Series B Preferred Stock will have no right to require redemption of any shares of Series B Preferred Stock.

        (b)    No Redemption by the Corporation.    The Series B Preferred Stock shall not be redeemable by the Corporation at any time. The Series B Preferred Stock shall not be subject to any sinking fund or other obligation to redeem, repurchase or retire the Series B Preferred Stock.

        Section 8.    Mandatory Conversion.    Effective as of the close of business on the Mandatory Conversion Date with respect to the shares of Series B Preferred Stock of a Holder, all such Holder's shares of Series B Preferred Stock shall, subject to the provisions of Section 15, automatically convert into shares of Common Stock as set forth below. The number of shares of Common Stock into which a share of Series B Preferred Stock shall be convertible shall be determined by dividing (i) the Liquidation Preference, plus the aggregate sum of all accrued and unpaid dividends by (ii) the Applicable Conversion Price (subject to the conversion procedures of Section 9 hereof). Upon conversion, Holders shall receive cash in lieu of fractional shares in accordance with Section 13 hereof.

        Section 9.    Conversion Procedures.    

        (a)   Upon receipt by the Corporation of the Shareholder Approval, the Corporation shall provide, within two Business Days thereafter, notice of mandatory conversion to such Holder (such notice a "Notice of Mandatory Conversion"). In addition to any information required by applicable law or regulation, the Notice of Mandatory Conversion with respect to such Holder shall state, as appropriate:

          (i)  the Mandatory Conversion Date;

         (ii)  after giving effect to the provisions of Section 15, the number of shares of Series B Preferred Stock held of record by such Holder (x) subject to conversion on the Mandatory Conversion Date and (y) that will remain outstanding pursuant to the provisions of Section 15, if any;

        (iii)  the Conversion Price and the resulting number of shares of Common Stock to be issued upon conversion of each share of Series B Preferred Stock subject to mandatory conversion; and

        (iv)  if certificates are to be issued, the place or places where certificates for shares of Series B Preferred Stock held of record by such Holder and subject to mandatory conversion are to be surrendered for issuance of certificates representing shares of Common Stock.

        (b)   Effective immediately prior to the close of business on a Conversion Date, with respect to any shares of Series B Preferred Stock to be converted on such Conversion Date, dividends shall no longer be declared on any such shares of Series B Preferred Stock and such shares of Series B Preferred Stock shall cease to be outstanding, in each case, subject to the right of the Holder to receive (i) shares of Common Stock issuable upon such mandatory conversion, (ii) any accrued and unpaid dividends on such shares to the extent provided in Section 4 and (iii) any other payments to which such Holder is otherwise entitled pursuant to Section 8, Section 11 or Section 13 hereof, as applicable.

        (c)   Prior to the close of business on a Conversion Date, with respect to any share of Series B Preferred Stock to be converted on such Conversion Date, the shares of Common Stock issuable upon

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conversion thereof or other securities issuable upon conversion of such share of Series B Preferred Stock shall not be deemed outstanding for any purpose, and the Holder thereof shall have no rights with respect to such shares of Common Stock or other securities issuable upon conversion (including voting rights, rights to respond to tender offers for the Common Stock or other securities issuable upon conversion and rights to receive any dividends or other distributions on the Common Stock or other securities issuable upon conversion) by virtue of holding such share of Series B Preferred Stock, except to the extent provided in Section 4(g).

        (d)   Shares of Series B Preferred Stock duly converted in accordance with this Certificate of Determination, or otherwise reacquired by the Corporation, will resume the status of authorized and unissued preferred stock, undesignated as to series and available for future issuance. The Corporation may from time to time take such appropriate action as may be necessary to reduce the authorized number of shares of Series B Preferred Stock; provided, however, that the Corporation shall not take any such action if such action would reduce the authorized number of shares of Series B Preferred Stock below the number of shares of Series B Preferred Stock then outstanding.

        (e)   The Person or Persons entitled to receive the Common Stock and/or cash, securities or other property issuable upon conversion of Series B Preferred Stock shall be treated for all purposes as the record holder(s) of such shares of Common Stock and/or securities as of the close of business on the relevant Conversion Date with respect thereto. In the event that a Holder shall not by written notice designate the name in which shares of Common Stock and/or cash, securities or other property (including payments of cash in lieu of fractional shares) to be issued or paid upon conversion of shares of Series B Preferred Stock should be registered or paid or the manner in which such shares should be delivered, the Corporation shall be entitled to register and deliver such shares, and make such payment, in the name of the Holder and in the manner shown on the records of the Corporation.

        (f)    On a Conversion Date with respect to any share of Series B Preferred Stock, certificates representing shares of Common Stock shall be issued and delivered to the Holder thereof or such Holder's designee (or, at the Corporation's option such shares shall be registered in book-entry form) upon presentation and surrender of the certificate evidencing the Series B Preferred Stock to the Corporation and, if required, the furnishing of appropriate endorsements and transfer documents and the payment of all transfer and similar taxes.

        Section 10.    Anti-Dilution Adjustments.    

        (a)   The Conversion Price shall be subject to the following adjustments:

        (i)    Stock Dividends and Distributions.    If the Corporation pays dividends or other distributions on the Common Stock in shares of Common Stock, then the Conversion Price in effect immediately prior to the Ex-Date for such dividend or distribution will be multiplied by the following fraction:

•

the numerator is the number of shares of Common Stock outstanding immediately prior to the Ex-Date for such dividend or distribution, and



•

the denominator is the sum of (1) the number of shares of Common Stock outstanding immediately prior to the Ex-Date for such dividend or distribution plus (2) the total number of shares of Common Stock constituting such dividend or distribution.

        For the purposes of this Section 10(a)(i), the number of shares of Common Stock at the time outstanding shall not include shares acquired by the Corporation. If any dividend or distribution described in this Section 10(a)(i) is declared but not so paid or made, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to make such dividend or distribution, to such Conversion Price that would be in effect if such dividend or distribution had not been declared (but giving effect to any intervening adjustments that may have been made with respect to the Series B Preferred Stock).

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        (ii)    Subdivisions, Splits and Combinations of the Common Stock.    If the Corporation subdivides, splits or combines the shares of Common Stock, then the Conversion Price in effect immediately prior to the effective date of such share subdivision, split or combination will be multiplied by the following fraction:

•

the numerator is the number of shares of Common Stock outstanding immediately prior to the effective date of such share subdivision, split or combination, and



•

the denominator is the number of shares of Common Stock outstanding immediately after the opening of business on the effective date of such share subdivision, split or combination.

        For the purposes of this Section 10(a)(ii), the number of shares of Common Stock at the time outstanding shall not include shares acquired by the Corporation. If any subdivision, split or combination described in this Section 10(a)(ii) is announced but the outstanding shares of Common Stock are not subdivided, split or combined, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to subdivide, split or combine the outstanding shares of Common Stock, to such Conversion Price that would be in effect if such subdivision, split or combination had not been announced (but giving effect to any intervening adjustments that may have been made with respect to the Series B Preferred Stock).

        (iii)    Issuance of Stock Purchase Rights.    If the Corporation issues to all or substantially all holders of the shares of Common Stock rights or warrants (other than rights or warrants issued pursuant to a dividend reinvestment plan or share purchase plan or other similar plans) entitling them to subscribe for or purchase the shares of Common Stock at less than the Current Market Price on the date fixed for the determination of shareholders entitled to receive such rights or warrants, then the Conversion Price in effect immediately prior to the Ex-Date for such distribution will be multiplied by the following fraction:

•

the numerator is sum of (1) the number of shares of Common Stock outstanding immediately prior to the Ex-Date for such dividend or distribution plus (2) the number of shares of Common Stock equal to the aggregate price payable to exercise such rights or warrants divided by the Current Market Price on the date fixed for the determination of shareholders entitled to receive such rights or warrants, and



•

the denominator is the sum of (1) the number of shares of Common Stock outstanding immediately prior to the Ex-Date for such dividend or distribution plus (2) the total number of shares of Common Stock issuable pursuant to such rights or warrants.

        For the purposes of this Section 10(a)(iii), the number of shares of Common Stock at the time outstanding shall not include shares acquired by the Corporation. The Corporation shall not issue any such rights or warrants in respect of shares of the Common Stock acquired by the Corporation. In the event that such rights or warrants described in this Section 10(a)(iii) are not so issued, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to issue such rights or warrants, to the Conversion Price that would then be in effect if such issuance had not been declared (but giving effect to any intervening adjustments that may have been made with respect to the Series B Preferred Stock). To the extent that such rights or warrants are not exercised prior to their expiration or shares of Common Stock are otherwise not delivered pursuant to such rights or warrants upon the exercise of such rights or warrants, the Conversion Price shall be readjusted to such Conversion Price that would then be in effect had the adjustment made upon the issuance of such rights or warrants been made on the basis of the delivery of only the number of shares of Common Stock actually delivered (but giving effect to any intervening adjustments that may have been made with respect to the Series B Preferred Stock). In determining the aggregate offering price payable for such shares of Common Stock, there shall be taken into account any

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consideration received for such rights or warrants and the value of such consideration (if other than cash, to be determined in good faith by the Board of Directors). If an adjustment to the Conversion Price is required under this Section 10(a)(iii), delivery of any additional shares of Common Stock that may be deliverable upon conversion as a result of an adjustment required under this Section 10(a)(iii) shall be delayed to the extent necessary in order to complete the calculations provided in this Section 10(a)(iii).

        (iv)    Debt or Asset Distributions.    If the Corporation distributes to all or substantially all holders of shares of Common Stock evidences of indebtedness, shares of capital stock, securities, cash or other assets (excluding any dividend or distribution referred to in Section 10(a)(i), any rights or warrants referred to in Section 10(a)(iii), any dividend or distribution paid exclusively in cash, any consideration payable in connection with a tender or exchange offer made by the Corporation or any of its subsidiaries, and any dividend of shares of capital stock of any class or series, or similar equity interests, of or relating to a subsidiary or other business unit in the case of certain spin-off transactions as described below) (such evidences of indebtedness, shares of capital stock, securities, cash or other assets, the "Distributed Property"), then the Conversion Price in effect immediately prior to the Ex-Date for such distribution will be multiplied by the following fraction:

•

the numerator is the Current Market Price per share of Common Stock on such date minus the fair market value of the portion of the distribution applicable to one share of Common Stock on such date as determined in good faith by the Board of Directors, and



•

the denominator is the Current Market Price per share of Common Stock on such date;

provided that, if the fair market value of the portion of the distribution applicable to one share of Common Stock on such date as determined in good faith by the Board of Directors is equal to or greater than the Current Market Price per share of Common Stock on such date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall receive on the date on which the Distributed Property is distributed to holders of Common Stock, for each share of Series B Preferred Stock, the amount of Distributed Property such Holder would have received had such Holder's Series B Preferred Stock been converted into such number of shares of Common Stock that such Holder's shares of Series B Preferred Stock would then be convertible on the Ex-Date for such distribution.

        In a "spin-off," where the Corporation makes a distribution to all or substantially all holders of shares of Common Stock consisting of capital stock of any class or series, or similar equity interests of, or relating to, a subsidiary or other business unit, the Conversion Price will not be adjusted, but in lieu of such adjustment each Holder shall receive the same distribution as a holder of Common Stock would as though such Holder's shares of Series B Preferred Stock had been converted into such number of shares of Common Stock that such Holder's shares of Series B Preferred Stock would then be convertible.

        In the event that such distribution described in this Section 10(a)(iv) is not so paid or made, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay or make such dividend or distribution, to the Conversion Price that would then be in effect if such dividend or distribution had not been declared (but giving effect to any intervening adjustments that may have been made with respect to the Series B Preferred Stock). If an adjustment to the Conversion Price is required under this Section 10(a)(iv), delivery of any additional shares of Common Stock that may be deliverable upon conversion as a result of an adjustment required under this Section 10(a)(iv) shall be delayed to the extent necessary in order to complete the calculations provided for in this Section 10(a)(iv).

        (v)    Cash Distributions.    If the Corporation makes a distribution consisting exclusively of cash to all holders of the Common Stock, excluding (a) any cash dividend or distribution on the Common

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Stock to the extent a corresponding cash dividend or distribution pursuant to Section 4 is paid on the Series B Preferred Stock, (b) any dividend or distribution in connection with the Corporation's liquidation, dissolution or winding up, and (c) any consideration payable in connection with a tender or exchange offer made by the Corporation or any of its subsidiaries, then in each event, the Conversion Price in effect immediately prior to the Ex-Date for such distribution will be multiplied by the following fraction:

•

the numerator is the Closing Price per share of Common Stock on the Trading Day immediately preceding the Ex-Date minus the amount per share of Common Stock of the cash distribution, as determined pursuant to the introduction to this Section 10(a)(v), and



•

the denominator is the Closing Price per share of Common Stock on the Trading Day immediately preceding the Ex-Date.

        In the event that any distribution described in this Section 10(a)(v) is not so made, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay such distribution, to the Conversion Price which would then be in effect if such distribution had not been declared (but giving effect to any intervening adjustments that may have been made with respect to the Series B Preferred Stock).

        Notwithstanding the foregoing, if the amount per share of Common Stock of the cash distribution, as determined pursuant to the introduction to this Section 10(a)(v), is equal to or greater than the Closing Price per share of Common Stock on the Trading Day immediately preceding the Ex-Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive on the date on which the relevant cash dividend or distribution is distributed to holders of Common Stock, for each share of Series B Preferred Stock, the amount of cash such Holder would have received had such Holder's Series B Preferred Stock been converted into such number of shares of Common Stock that such Holder's shares of Series B Preferred Stock would then be convertible on the Ex-Date for such distribution.

        (vi)    Self Tender Offers and Exchange Offers.    If the Corporation or any of its subsidiaries successfully completes a tender or exchange offer for the Common Stock where the cash and the value of any other consideration included in the payment per share of the Common Stock exceeds the Closing Price per share of the Common Stock on the Trading Day immediately succeeding the expiration of the tender or exchange offer, then the Conversion Price in effect at the close of business on such immediately succeeding Trading Day will be multiplied by the following fraction:

            OS-l × SP            
AC + (SP × OS-2)

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        In the event that the Corporation, or one of its subsidiaries, is obligated to purchase shares of Common Stock pursuant to any such tender offer or exchange offer, but the Corporation, or such subsidiary, is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then the Conversion Price shall be readjusted to be such Conversion Price that would then be in effect if such tender offer or exchange offer had not been made (but giving effect to any intervening adjustments that may have been made with respect to the Series B Preferred Stock). Except as set forth in the preceding sentence, if the application of this Section 10(a)(vi) to any tender offer or exchange offer would result in a decrease in the Conversion Price, no adjustment shall be made for such tender offer or exchange offer under this Section 10(a)(vi).

        (vii)    Rights Plans.    To the extent that the Corporation has a shareholders' rights plan in effect with respect to the Common Stock on the Conversion Date, upon conversion of any shares of the Series B Preferred Stock, Holders will receive, in addition to the shares of Common Stock, the rights under the rights plan, unless, prior to such Conversion Date, the rights have separated from the shares of Common Stock, in which case the Conversion Price will be adjusted at the time of separation as if the Corporation had made a distribution to all holders of the Common Stock as described in Section 10(a)(iv) above, subject to readjustment in the event of the expiration, termination or redemption of such rights.

        (viii)    Other Issuances of Additional Stock.    

        (A)  For so long as any shares of Series B Preferred Stock remain outstanding, if the Corporation shall issue (or be deemed to have issued), after the date of filing of this Certificate of Determination (the "Filing Date"), any Additional Stock (as defined below in Section 10(a)(viii)(F)) without consideration or for a consideration per share less than the Conversion Price for the Series B Preferred Stock in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for such series in effect immediately prior to each such issuance of Additional Stock shall forthwith (except as otherwise provided in this Section 10(a)(viii)) be adjusted to a price equal to (calculated to the nearest cent) the product obtained by multiplying the Conversion Price for the Series B Preferred Stock in effect immediately prior to such issuance of Additional Stock by a fraction, the numerator of which is equal to the sum of (x) the total number of shares of Common Stock outstanding (including any shares of Common Stock previously deemed to have been issued pursuant to Section 10(a)(viii)(E)(l) or Section 10(a)(viii)(E)(2) (to the extent not actually issued)) immediately prior to such issuance of Additional Stock plus (y) the number of shares of Common Stock that the aggregate consideration received by this Corporation for such issuance of Additional Stock would purchase at the Conversion Price for Series B Preferred Stock in effect immediately prior to such issuance of Additional Stock, and the denominator of which is equal to the sum of (x) the total number of shares of Common Stock outstanding (including any shares of Common Stock previously deemed to have been issued pursuant to Section 10(a)(viii)(E)(l) or Section 10(a)(viii)(E)(2) (to the extent not actually issued)) immediately prior to such issuance of Additional Stock plus (y) the number of shares of Additional Stock issued. In the event that the Corporation issues or sells, or is deemed to have issued or sold, Additional Stock (the "First Dilutive Issuance"), then in the event that the Corporation issues or sells, or is deemed to have issued or sold, Additional Stock other than the First Dilutive Issuance as a part of the same transaction or series of related transactions as the First Dilutive Issuance (a "Subsequent Dilutive Issuance"), then and in each such case upon a Subsequent Dilutive Issuance, the Conversion Price shall be reduced to the Conversion Price that would have been in effect had the First Dilutive Issuance and each Subsequent Dilutive Issuance all occurred on the closing date of the First Dilutive Issuance.

        (B)  Except to the limited extent provided for in Section 10(a)(viii)(E)(3) or Section 10(a)(viii)(E)(4), no adjustment of the Conversion Price for Series B Preferred Stock

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pursuant to this subsection (viii) shall have the effect of increasing any such Conversion Price above the Conversion Price in effect immediately prior to such adjustment.

        (C)  In the case of the issuance of Additional Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof.

        (D)  In the case of the issuance of Additional Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined in good faith by the Corporation's Board of Directors irrespective of any accounting treatment.

        (E)  In the case of the issuance after the Filing Date of (i) options to purchase or rights to subscribe for Common Stock, (ii) securities by their terms convertible into or exchangeable for Common Stock or (iii) options to purchase or rights to subscribe for securities by their terms convertible into or exchangeable for Common Stock, the following provisions shall apply for all purposes of this Section 10(a)(viii):

        (1)   The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in Section 10(a)(viii)(C) and Section 10(a)(viii)(D)) if any, received by the Corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential anti-dilution adjustments) for the Common Stock covered thereby.

        (2)   The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation (without taking into account potential anti-dilution adjustments) upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in Section 10(a)(viii)(C) and Section 10(a)(viii)(D)).

        (3)   In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to this Corporation upon exercise of such options or rights or upon conversion of or exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Conversion Price for the Series B Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities.

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        (4)   Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price for the Series B Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities that remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities (but giving effect to any intervening adjustments that may have been made with respect to the Series B Preferred Stock).

        (5)   The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Section 10(a)(viii)(E)(l) or Section 10(a)(viii)(E)(2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 10(a)(viii)(E)(3) or Section 10(a)(viii)(E)(4).

        (F)  "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to Section 10(a)(viii)(E)) by this Corporation after the Filing Date for so long as any shares of Series B Preferred Stock remain outstanding, other than:

        (1)   shares of Common Stock or Common Stock Equivalents issued pursuant to an event or transaction described in Section 10(a)(i) or Section 10(a)(ii);

        (2)   shares of Common Stock issued pursuant to an event or transaction described in Section 10(c)(iii);

        (3)   shares of Common Stock issued or issuable upon conversion of shares of Series B Preferred Stock;

        (4)   shares of Common Stock issued (or deemed to have been issued pursuant to Section 10(a)(viii)(E)) in connection with a Reorganization Event;

        (5)   shares of Common Stock issued or issuable upon conversion of shares of Series C Preferred Stock.

        (b)   The Corporation may make such decreases in the Conversion Price, in addition to any other decreases required by this Section 10, if the Board of Directors deems it advisable to avoid or diminish any income tax to holders of the Common Stock resulting from any dividend or distribution of shares of Common Stock (or issuance of rights or warrants to acquire shares of Common Stock) or from any event treated as such for income tax purposes or for any other reason.

        (c)   (i) All adjustments to the Conversion Price shall be calculated to the nearest ¹/10 of a cent. No adjustment in the Conversion Price shall be required if such adjustment would be less than $0.01; provided, that any adjustments which by reason of this subparagraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided further that on the applicable Conversion Date adjustments to the Conversion Price will be made with respect to any such adjustment carried forward and which has not been taken into account before such date.

         (ii)  No adjustment to the Conversion Price shall be made if Holders may participate in the transaction that would otherwise give rise to an adjustment, as a result of holding the Series B Preferred Stock (including, without limitation, pursuant to Section 4 hereof), without having to convert the Series B Preferred Stock, as if they held the full number of shares of Common Stock into which a share of the Series B Preferred Stock may then be converted.

        (iii)  The Conversion Price shall not be adjusted:

        (A)  with respect to a Permitted Rights Offering;

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        (B)  upon the issuance of any shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on the Corporation's securities and the investment of additional optional amounts in shares of Common Stock under any such plan;

        (C)  upon the issuance of any shares of Common Stock or rights, options or warrants to purchase those shares pursuant to any present or future employee, director or consultant benefit plan, compensation plan or program of or assumed by the Corporation or any of its subsidiaries (including the Corporation's 1994 Tandem Stock Option Plan and Amended and Restated 2004 Equity Plan);

        (D)  upon the issuance of any shares of Common Stock pursuant to any option, warrant (including the warrant issued to the U.S. Treasury on November 21, 2008) and any anti-dilution adjustments required hereunder, right or exercisable, exchangeable or convertible security outstanding as of the date shares of the Series B Preferred Stock were first issued and not substantially amended thereafter;

        (E)  for accrued and unpaid dividends on the Series A Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock.

        (d)   Whenever the Conversion Price is to be adjusted in accordance with Section 10(a) or Section 10(b), the Corporation shall: (i) compute the Conversion Price in accordance with Section 10(a) or Section 10(b), taking into account the $0.01 threshold set forth in Section 10(c) hereof; (ii) as soon as practicable following the occurrence of an event that requires an adjustment to the Conversion Price pursuant to Section 10(a) or Section 10(b), taking into account the $0.01 threshold set forth in Section 10(c) hereof (or if the Corporation is not aware of such occurrence, as soon as practicable after becoming so aware), provide, or cause to be provided, a written notice to the Holders of the occurrence of such event; and (iii) as soon as practicable following the determination of the revised Conversion Price in accordance with Section 10(a) or Section 10(b) hereof, provide, or cause to be provided, a written notice to the Holders setting forth in reasonable detail the method by which the adjustment to the Conversion Price was determined and setting forth the revised Conversion Price.

        Section 11.    Reorganization Events.    

        (a)   In the event that, for so long as any shares of Series B Preferred Stock remain outstanding, there occurs:

          (i)  any consolidation, merger or other similar business combination of the Corporation with or into another Person, in each case pursuant to which the Common Stock will be converted into cash, securities or other property of the Corporation or another Person;

         (ii)  any sale, transfer, lease or conveyance to another Person of all or substantially all of the property and assets of the Corporation, in each case pursuant to which the Common Stock will be converted into cash, securities or other property of the Corporation or another Person;

        (iii)  any reclassification of the Common Stock into securities including securities other than the Common Stock; or

        (iv)  any statutory exchange of the outstanding shares of Common Stock for securities of another Person (other than in connection with a merger or acquisition);

(any such event specified in this Section 11(a), a "Reorganization Event"), then each share of Series B Preferred Stock outstanding immediately prior to such Reorganization Event shall, at the option of the Holders, either convert into (the kind of securities, cash and other property receivable in such Reorganization Event by the Holder (excluding the counterparty to the Reorganization Event or an Affiliate of such counterparty) of that number of shares of Common Stock into which the share of

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Series B Preferred Stock would then be convertible (such securities, cash and other property, the "Exchange Property") plus an amount in cash equal to any accrued and unpaid dividends on such Series B Preferred Stock, or be entitled to receive liquidating distributions in accordance with Section 5 as if such Reorganization Event were a liquidation of the Corporation.

        (b)   In the event that holders of the shares of Common Stock have the opportunity to elect the form of consideration to be received in such transaction, the Holders shall likewise be allowed to make such an election.

        (c)   The above provisions of this Section 11 shall similarly apply to successive Reorganization Events and the provisions of Section 10, if applicable, shall apply to any shares of capital stock of the Corporation (or any successor) received by the holders of the Common Stock in any such Reorganization Event.

        (d)   The Corporation (or any successor) shall, within seven (7) days of the consummation of any Reorganization Event, provide written notice to the Holders of such consummation of such event and of the kind and amount of the cash, securities or other property that constitutes the Exchange Property. Failure to deliver such notice shall not affect the operation of this Section 11.

        (e)   The Corporation shall not enter into any agreement for a transaction constituting a Reorganization Event unless such agreement does not interfere with or prevent (as applicable) (i) conversion of the Series B Preferred Stock into the Exchange Property or (ii) the ability of Holders to receive, at their option, a liquidating distribution in accordance with Section 5, in each case, in a manner that is consistent with and gives effect to this Section 11.

        Section 12.    Voting Rights.    

        (a)   Holders shall not have any voting rights (including no right to elect any directors) except (i) as required by applicable law, and (ii) as provided in Section 12(b).

        (b)    Voting Rights.    

          (i)  So long as any shares of Series B Preferred Stock are outstanding, in addition to any other vote or written consent of shareholders required by law or by the Articles of Incorporation, the vote or written consent of the Holders of at least two-thirds of the then outstanding shares of Series B Preferred Stock (subject to the last paragraph of this Section 12(b)(i)) at the time outstanding and entitled to vote thereon, voting together as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating the following actions whether or not such approval is required by California law:

        (A)    Authorization of Senior Stock.    Any amendment or alteration (including by means of a merger, consolidation or otherwise) of the Corporation's Articles of Incorporation (including this Certificate of Determination) to authorize, or create, or increase the authorized amount of, any shares of, or any securities convertible into shares of any class or series of the Corporation's capital stock ranking senior to the Series B Preferred Stock in the payment of dividends or in the distribution of assets on any liquidation, dissolution or winding up of the Corporation; or

        (B)    Amendment of Series B Preferred Stock.    Any amendment, alteration or repeal (including by means of a merger, consolidation or otherwise) of any provision of the Corporation's Articles of Incorporation (including this Certificate of Determination) or the Corporation's Bylaws that would significantly and adversely affects the rights or preferences of the Series B Preferred Stock;

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provided, however, that for all purposes of this Section 12(b), (1) any increase in the amount of the Corporation's authorized but unissued shares of preferred stock, (2) any increase in the amount of the Corporation's authorized or issued Series B Preferred Stock, and (3) to the extent allowed by California law, the creation and issuance, or an increase in the authorized or issued amount, of other series of preferred stock of the Corporation ranking equally with or junior to the Series B Preferred Stock, either or both with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and/or the distribution of assets upon the liquidation, dissolution or winding up of the Corporation, will not, in and of itself, be deemed to materially and adversely affect the rights, preferences, privileges or voting powers of the Series B Preferred Stock and except as otherwise provided under California law, Holders will have no right to vote solely by such an increase, creation or issuance.

         (ii)  So long as any shares of Series B Preferred Stock are outstanding a Holder shall be entitled to vote, with a number of votes equal to that number of shares of Common Stock into which such Holder's shares of Series B Preferred Stock would then be convertible, together with the holders of Common Stock acting as a single class, in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, for effecting or validating any consummation of any Reorganization Event, as defined in Section 11 above;

        (iii)  Notwithstanding the foregoing, Holders shall not have any voting rights if, at or prior to the effective time of the act with respect to which such vote would otherwise be required, all outstanding shares of Series B Preferred Stock shall have been converted into shares of Common Stock.

        (c)   If the Board of Governors of the Federal Reserve System determines that the Series B Preferred Stock is classified as "voting stock" for the purposes of the Bank Holding Company Act of 1956, as amended, the Holders and the Corporation will make such reasonable modifications to the voting rights in this Section 12 so that the Series B Preferred Stock is no longer considered "voting stock."

        (d)    Change for Clarification.    Without the vote or written consent of the holders of the Series B Preferred Stock, so long as such action does not adversely affect the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of the Series B Preferred Stock, the Corporation may amend, alter, supplement or repeal any terms of the Series B Preferred Stock:

          (i)  to cure any ambiguity, or to cure, correct or supplement any provision contained in this Certificate of Determination that may be ambiguous, defective or inconsistent; or

         (ii)  to make any provision with respect to matters or questions relating to the Series B Preferred Stock that is not inconsistent with the provisions of this Certificate of Determination.

        (e)    Procedures for Voting and Written Consents.    The rules and procedures for calling and conducting any meeting of the holders of Series B Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such written consents shall be governed by the requirements of the Articles of Incorporation, the Bylaws, applicable law and the Trading Market or other trading facility, if any, on which the Series B Preferred Stock or Common Stock is listed or traded at the time.

        Section 13.    Fractional Shares.    

        (a)   No fractional shares of Common Stock will be issued as a result of any conversion of shares of Series B Preferred Stock.

        (b)   In lieu of any fractional share of Common Stock otherwise issuable in respect of any mandatory conversion pursuant to Section 8 hereof, the Corporation shall pay an amount in cash (computed to the nearest cent) equal to the fair value of such fraction, which fair value shall be determined based upon the

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same fraction of the Closing Price of the Common Stock determined as of the second Trading Day immediately preceding the applicable Conversion Date.

        (c)   If more than one share of the Series B Preferred Stock is surrendered for conversion at one time by or for the same Holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Series B Preferred Stock so surrendered.

        Section 14.    Reservation of Common Stock.    

        (a)   The Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock solely for issuance upon the conversion of shares of Series B Preferred Stock as provided in this Certificate of Determination free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of Series B Preferred Stock (assuming receipt of the Shareholder Approval and, if necessary, regulatory approvals), then outstanding, based on the Applicable Conversion Price. For purposes of this Section 14(a), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Series B Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single Holder and there was no regulatory impediment to such conversion.

        (b)   All shares of Common Stock delivered upon conversion of the Series B Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, security interests and other encumbrances.

        (c)   Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Series B Preferred Stock, the Corporation shall use its reasonable best efforts to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority.

        (d)   The Corporation hereby covenants and agrees that it will list and keep listed on the Trading Market, so long as the Common Stock shall be so listed on the Trading Market, all the Common Stock issuable upon conversion of the Series B Preferred Stock.

        Section 15.    Limitations on Beneficial Ownership.    Notwithstanding anything to the contrary contained herein, if the number of shares to be issued to a Holder of Series B Preferred Stock upon a conversion to Common Stock would cause the Holder, together with any holdings of Common Stock already held directly or indirectly by the Holder, or by any other Person whose Common Stock would be aggregated with such Holder's Common Stock for purposes of any bank regulation, to (i) require prior approval of any banking regulator to acquire those shares, (ii) violate any bank regulation, or (iii) collectively be deemed to own, control or have the power to vote securities which (assuming, for this purpose only, full conversion and/or exercise of such securities by the Holder) would represent more than 9.9% of the voting securities of the Corporation outstanding at such time (each, a "Violation"), the Corporation will not issue shares of Common Stock to the extent, and only to the extent, such issuance would result in a Violation until the shares of Common Stock may be issued without causing a Violation (the third Business Day following the date such shares may be issued without causing a Violation, the "Section 15 Conversion Date"), and then only in accordance with the terms and conditions of any required approvals. Any issuance of shares of Common Stock that would result in a Violation shall be void ab initio. By accepting ownership of the Series B Preferred Stock, and as a condition to the Corporation's obligation to issue Common Stock upon conversion or to pay any further dividends to such Holder, each Holder agrees (i) to provide the Corporation all such customary and necessary information and documents as the Corporation may reasonably require in order for the Corporation to determine the status of compliance with any potential banking regulatory approval requirements; provided, that such Holder shall not be obligated to provide any information, the disclosure of which either (x) is prohibited by applicable law or

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contract (and such Holder shall not be obligated to seek the consent of any person to such disclosure) or (y) in the reasonable judgment of such Holder's investment adviser, would be adverse to the interests of such Holder or such investment adviser or their respective partners or clients, and (ii) that the Holder shall be solely responsible at the Holder's sole expense for obtaining any such approvals, but shall keep the Corporation fully informed as to the status of the Holder's efforts to obtain approvals and the resolution of any applications for approval. To the extent such approvals are not obtained, the shares of Series B Preferred Stock that are not convertible shall remain outstanding and accrue dividends in accordance with the provisions of Section 4. Notwithstanding any other provision of this Certificate of Determination (as it may hereafter be amended) or of the Series B Preferred Stock, during any period of delay beyond the Mandatory Conversion Date because of the need for a regulatory approval as described in this Section 15, the Corporation shall not be obligated to pay any damages for delay in issuance and delivery of the Common Stock.

        Section 16.    Replacement Certificates.    

        (a)   The Corporation shall replace any mutilated certificate at the Holder's expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the Holder's expense upon delivery to the Corporation of satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be required by the Corporation.

        (b)   The Corporation shall not be required to issue any certificates representing the Series B Preferred Stock on or after the Mandatory Conversion Date. In place of the delivery of a replacement certificate following the Mandatory Conversion Date, the Corporation, upon delivery of the evidence and indemnity described in clause (a) above, shall deliver the shares of Common Stock pursuant to the terms of the Series B Preferred Stock formerly evidenced by the certificate.

        Section 17.    Miscellaneous.    

        (a)   All notices referred to herein shall be in writing, and, unless otherwise specified herein, all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or five (5) Business Days after the mailing thereof if sent by registered or certified mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Certificate of Determination) with postage prepaid, addressed: (i) if to the Corporation, to its office at 150 Almaden Boulevard, San Jose, California 95113, Attention: President and Chief Executive Officer, with a copy to the Corporation's Corporate Secretary, or (ii) if to any Holder, to such Holder at the address of such Holder as listed in the stock record books of the Corporation, or (iii) to such other address as the Corporation or any such Holder, as the case may be, shall have designated by notice similarly given.

        (b)   The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Series B Preferred Stock or shares of Common Stock or other securities issued on account of Series B Preferred Stock pursuant hereto or certificates representing such shares or securities. The Corporation shall not, however, be required to pay any such tax that may be payable in respect of any transfer involved in the issuance or delivery of shares of Series B Preferred Stock or Common Stock or other securities in a name other than that in which the shares of Series B Preferred Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any Person other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the Person otherwise entitled to such issuance, delivery or payment has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid or is not payable.

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        (c)   All payments on the shares of Series B Preferred Stock shall be subject to withholding and backup withholding of tax to the extent required by applicable law, subject to applicable exemptions, and amounts withheld, if any, shall be treated as received by the holders thereof.

        (d)   No share of Series B Preferred Stock shall have any rights of preemption whatsoever under this Certificate of Determination as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated issued or granted.

        (e)   The shares of Series B Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Corporation's Articles of Incorporation or as provided by applicable law.

        (f)    The Corporation covenants not to treat the Series B Preferred Stock as preferred stock for purposes of Section 305 of the Internal Revenue Code of 1986, as amended, except as otherwise required by applicable law.

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        We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.

Date: June 17, 2010.

Certificate of Determination—Series B
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ANNEX B

CERTIFICATE OF DETERMINATION
OF
SERIES C CONVERTIBLE
PERPETUAL PREFERRED STOCK
OF
HERITAGE COMMERCE CORP

        Pursuant to Section 401 of the Corporations Code of the State of California:

        We, Lawrence McGovern, Executive Vice-President, and Debbie Reuter, Secretary, of Heritage Commerce Corp, a corporation organized under the laws of the State of California (hereinafter called the "Corporation"), do hereby certify as follows:

        1.     On June 17, 2010, the Board of Directors of the Corporation adopted a resolution designating 21,050 shares of preferred stock as Series C Convertible Perpetual Preferred Stock.

        2.     No shares of Series C Convertible Perpetual Preferred Stock have been issued.

        3.     Pursuant to the authority conferred upon the Board of Directors by the Articles of Incorporation of the Corporation, as amended, the following resolution was duly adopted by the Board of Directors on June 17, 2010, creating the series of preferred stock designated as Series C Convertible Perpetual Preferred Stock:

        RESOLVED, that pursuant to the provisions of the Articles of Incorporation of the Corporation, as amended, and applicable law, a series of preferred stock of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series are as follows:

        Section 1.    Designation.    There is hereby created out of the authorized and unissued shares of preferred stock of the Corporation a series of preferred stock designated as the "Series C Convertible Perpetual Preferred Stock" (the "Series C Preferred Stock"). The number of shares constituting such series shall be 21,050. The Series C Preferred Stock shall have no par value per share.

        Section 2.    Ranking.    The Series C Preferred Stock will, with respect to dividend rights and rights on liquidation, winding up and dissolution, rank (i) on a parity with the Corporation's Series A Fixed Rate Cumulative Perpetual Stock issued on November 21, 2008 ("Series A Preferred Stock"), and Series B Mandatory Convertible Cumulative Perpetual Preferred Stock ("Series B Preferred Stock"), and with each class or series of equity securities of the Corporation the terms of which do not expressly provide that such class or series will rank senior or junior to the Series C Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Parity Securities"), and (ii) senior to the Corporation's common stock, no par value per share (the "Common Stock"), and each other class or series of capital stock of the Corporation outstanding or established on or after the Effective Date by the Corporation the terms of which do not expressly provide that it ranks on a parity with or senior to the Series C Preferred Stock as to dividend rights and rights on liquidation, winding-up and dissolution of the Corporation (collectively referred to as "Junior Securities"). The Corporation has the power to authorize and/or issue additional shares or classes or series of Junior Securities or Parity Securities without the approval of the Holders; provided, however, that for as long as the Series C Preferred Stock remains outstanding, no preferred stock of the Corporation that would rank senior to the Series C Preferred Stock may be issued without, in each case, the express approval of the Holders of at least two-thirds of the issued and outstanding shares of Series C Preferred Stock voting as a single class.

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        Section 3.    Definitions.    The following initially capitalized terms shall have the following meanings, whether used in the singular or the plural:

        (a)   "Additional Stock" has the meaning set forth in Section 10(a)(viii)(F).

        (b)   "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.

        (c)   "Applicable Conversion Price" means the Conversion Price in effect at any given time.

        (d)   "Business Day" means any day that is not Saturday or Sunday and that, in the City of New York and in the State of California, is not a day on which banking institutions generally are authorized or obligated by law or executive order to be closed.

        (e)   "Certificate of Determination" means this Certificate of Determination of Heritage Commerce Corp, dated June 17, 2010.

        (f)    "Closing Price" of the Common Stock (or other relevant capital stock or equity interest) on any date of determination means the closing sale price or, if no closing sale price is reported, the last reported sale price of the shares of the Common Stock (or other relevant capital stock or equity interest) on the NASDAQ Global Select Market on such date. If the Common Stock (or other relevant capital stock or equity interest) is not traded on the NASDAQ Global Select Market on any date of determination, the Closing Price of the Common Stock (or other relevant capital stock or equity interest) on such date of determination means the closing sale price as reported in the composite transactions for the principal U.S. national or regional securities exchange on which the Common Stock (or other relevant capital stock or equity interest) is so listed or quoted, or, if no closing sale price is reported, the last reported sale price on the principal U.S. national or regional securities exchange on which the Common Stock is so listed or quoted, or if the Common Stock (or other relevant capital stock or equity interest) is not so listed or quoted on a U.S. national or regional securities exchange, the last quoted bid price for the Common Stock (or other relevant capital stock or equity interest) in the over-the-counter market as reported by Pink OTC Markets Inc. or similar organization, or, if that bid price is not available, the market price of the Common Stock (or other relevant capital stock or equity interest) on that date as determined by a nationally recognized independent investment banking firm retained by the Corporation for this purpose, subject to the joint approval of the Board of Directors of the Corporation and the Holders. The Corporation shall cause at its expense the investment bank to perform the determinations and notify the Corporation and the Holders of the results no later than ten Business Days from the time it receives the engagement. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

For purposes of this Certificate of Determination, all references herein to the "Closing Price" and "last reported sale price" of the Common Stock (or other relevant capital stock or equity interest) on the NASDAQ Global Select Market shall be such closing sale price and last reported sale price as reflected on the website of the NASDAQ Global Select Market (www.nasdaq.com) and as reported by Bloomberg Professional Service; provided that in the event that there is a discrepancy between the closing price and the last reported sale price as reflected on the website of the NASDAQ Stock Market and as reported by Bloomberg Professional Service, the closing sale price and the last reported sale price on the website of the NASDAQ Stock Market shall govern.

        (g)   "Common Stock" has the meaning set forth in Section 2.

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        (h)   "Common Stock Equivalents" means securities representing rights convertible into or exchangeable for, or entitling the holder thereof to purchase or receive directly or indirectly, shares of Common Stock.

        (i)    "Conversion Price" means for each share of Series C Preferred Stock, $3.75; provided that if the Shareholder Approval are not obtained by the six month anniversary of the Effective Date, the Conversion Price shall be reduced by ten percent (10%) (subject to further adjustment or limitation from time to time in a manner consistent with the provisions of Section 10).

        (j)    "Corporation" means Heritage Commerce Corp, a California corporation.

        (k)   "Current Market Price" means, on any date, the average of the daily Closing Price per share of the Common Stock on each of the five consecutive Trading Days preceding the earlier of the day before the date in question and the day before the Ex-Date with respect to the issuance or distribution giving rise to an adjustment to the Conversion Price pursuant to Section 10.

        (l)    "Distributed Property" has the meaning set forth in Section 10(a)(iv).

        (m)  "Distribution" has the meaning set forth in Section 4(c).

        (n)   "Dividend Rate" means for purposes of Section 4(b) an annual rate equal to twenty percent (20%) per annum.

        (o)   "Effective Date" means the date on which shares of the Series C Preferred Stock are first issued.

        (p)   "Exchange Property" has the meaning set forth in Section 11(a).

        (q)   "Ex-Date", when used with respect to any issuance or distribution, means the first date on which the Common Stock trades without the right to receive the issuance or distribution giving rise to an adjustment to the Conversion Price pursuant to Section 10.

        (r)   "Filing Date" has the meaning set forth in Section 10(a)(viii)(A).

        (s)   "First Dilutive Issuance" has the meaning set forth in Section 10(a)(viii)(A).

        (t)    "Holder" means the Person in whose name the shares of the Series C Preferred Stock are registered, which may be treated by the Corporation as the absolute owner of the shares of Series C Preferred Stock for the purpose of making payment and settling the related conversions and for all other purposes.

        (u)   "Junior Securities" has the meaning set forth in Section 2.

        (v)   "Liquidation Preference" means, as to the Series C Preferred Stock, $1,000 per share (as adjusted for any split, subdivision, combination, consolidation, recapitalization or similar event with respect to the Series C Preferred Stock).

        (w)  "Mandatory Conversion Date" means, with respect to shares of Series C Preferred Stock of any Holder, at any time following receipt of the Shareholder Approval and the date of the consummation of the transfer by such Holder of shares of Series C Preferred Stock to a non-affiliate in a Widely Dispersed Offering.

        (x)   "Notice of Mandatory Conversion" has the meaning set forth in Section 9(a).

        (y)   "Parity Securities" has the meaning set forth in Section 2.

        (z)   "Permitted Rights Offering" means an offering of up to $10 million of aggregate offering price of Common Stock pursuant to subscription rights distributed pro rata to the then existing holders of record of Common Stock at a price per share of Common Stock not less than $3.75, and the associated declaration, issuance and exercise of the subscription rights with respect to such offering and shares of Common Stock issuable in connection with the exercise of any such rights pursuant to the terms of the Securities Purchase Agreement.

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        (aa) "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company or trust.

        (bb) "Series A Preferred Stock" has the meaning set forth in Section 2.

        (cc) "Series B Preferred Stock" has the meaning set forth in Section 2.

        (dd) "Series C Preferred Stock" has the meaning set forth in Section 1.

        (ee) "Record Date" has the meaning set forth in Section 4(a)(iii).

        (ff)  "Reorganization Event" has the meaning set forth in Section 11(a).

        (gg) "Section 4(b) Dividend Payment Date" has the meaning set forth in Section 4(b)(i).

        (hh) "Section 4(b) Dividend Period" has the meaning set forth in Section 4(b)(ii).

         (ii)  "Securities Purchase Agreement" means the agreement by and among the Corporation and the purchasers named therein dated June 18, 2010.

        (jj)   "Shareholder Approval" means the vote of a majority of the Common Stock present and voting and the vote of at least a majority of the outstanding shares of the Series C Preferred Stock to approve the issuance of Common Stock upon conversion of the Series C Preferred Stock for purposes of Rule 5635 of the NASDAQ Stock Market Rules.

        (kk) "Subsequent Dilutive Issuance" has the meaning set forth in Section 10(a)(viii)(A).

        (ll)   "Trading Day" means a day on which the shares of Common Stock:

          (i)  are not suspended from trading on any national or regional securities exchange or association or over-the-counter market at the close of business; and

         (ii)  have traded at least once on the national or regional securities exchange or association or over-the-counter market that is the primary market for the trading of the Common Stock.

        (mm)  "Trading Market" means whichever of the New York Stock Exchange, the NYSE Amex, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

        (nn) "Voting Securities" means, at any time, shares of any class of capital stock of this Corporation that are entitled to vote generally in the election of directors.

        (oo) "Widely Dispersed Offering" means (a) a widespread public distribution, including pursuant to a registration statement filed with and declared effective by the SEC or pursuant to Rule 144 under the Securities Act, (b) a transfer in which no transferee (or group of associated transferees) after giving effect to such transfer, would own more than 2% of any class of Voting Securities or (c) a transfer to a transferee that controls or is acquiring control of more than 50% of the Voting Securities.

        Section 4.    Dividends.    

        (a)   From and after the Effective Date, and when as declared by the Board of Directors or a duly authorized committee of the Board of Directors, out of funds legally available thereafter, the Corporation pays dividends in cash or shares of Common Stock (other than a Permitted Rights Offering), then the Corporation shall pay a similar dividend in cash or shares of Common Stock or make a similar distribution of shares of Common Stock based on the number of shares of Common Stock that the shares of Series C Preferred Stock are then convertible on the applicable record date for such distribution in accordance with Section 4(a), provided, however, that prior to the Shareholder Approval, Holders shall be entitled to cumulative dividends of the type and in the amounts determined as set forth in Section 4(b).

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        (b)   From and after the Effective Date and prior to the Shareholder Approval, the Holders shall be entitled to receive, only if, when and as declared by the Board of Directors or a duly authorized committee of the Board of Directors, out of funds legally available therefor, cumulative dividends of the type and in the amounts determined as set forth in this Section 4(b), and no more, provided, however, that notwithstanding any other provision in this Section 4 other than Section 4(c), if the Shareholder Approval occurs before the six month anniversary of the Effective Date, then no accrued dividends shall be payable under this Section 4(b).

          (i)  Commencing on the Effective Date, dividends shall accrue and be payable semi-annually in arrears with the first such dividend payable on the six month anniversary of the Effective Date and continuing on each six (6) month anniversary thereafter (each, a "Section 4(b) Dividend Payment Date") or, if any such day is not a Business Day, the next Business Day, if, when and as declared by the Board of Directors or a duly authorized committee of the Board of Directors. Dividends payable pursuant to this Section 4(b), if, when and as declared by the Board of Directors or a duly authorized committee of the Board of Directors, will be, for each outstanding share of Series C Preferred Stock, payable in cash at an annual rate equal to the Dividend Rate multiplied by the sum of (A) the Liquidation Preference plus (B) all accrued and unpaid dividends for any prior Section 4(b) Dividend Period that are payable on such share of Series C Preferred Stock, payable in cash.

         (ii)  Dividends payable pursuant to this Section 4(b) will be computed on the basis of a 360-day year of twelve 30-day months and, for any Section 4(b) Dividend Period greater or less than a full Section 4(b) Dividend Period, will be computed on the basis of the actual number of days elapsed in the period divided by 360. Each period from and including a Section 4(b) Dividend Payment Date to but excluding the following Section 4(b) Dividend Payment Date is herein referred to as a "Section 4(b) Dividend Period".

        (iii)  Each dividend will be payable to Holders of record as they appear in the records of the Corporation on the applicable record date (each, a "Record Date"), which with respect to dividends payable pursuant to this Section 4(b), shall be on the fifteenth day of the month immediately prior to the month in which the relevant Section 4(b) Dividend Payment Date occurs.

        (iv)  Dividends on the Series C Preferred Stock pursuant to this Section 4(b) are cumulative. To the extent that the Board of Directors does not declare and pay dividends on the Series C Preferred Stock for a Section 4(b) Dividend Period prior to the related Section 4(b) Dividend Payment Date, in full or otherwise, such unpaid dividend shall accrue and shall cumulate from such scheduled Section 4(b) Dividend Payment Date, shall compound on each subsequent Section 4(b) Dividend Payment Date and shall be payable semi-annually in arrears on each subsequent Section 4(b) Dividend Payment Date. As used herein, the term "accrued" includes both accrued and accumulated dividends.

         (v)  So long as any shares of Series C Preferred Stock remain outstanding, if all dividends on all outstanding shares of the Series C Preferred Stock for any Section 4(b) Dividend Period have not been declared and paid, or declared and funds set aside therefor, the Corporation shall not (x) declare or pay dividends with respect to, or make any distributions on, or, directly or indirectly, redeem, purchase or acquire any of its Junior Securities or (y) directly or indirectly, redeem, purchase or acquire any of its Parity Securities, other than, in each case, (i) redemptions, purchases or other acquisitions of Junior Securities or Parity Securities in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more employees, officers, directors or consultants or in connection with a dividend reinvestment plan, (ii) any declaration of a dividend in connection with any shareholders' rights plan, or the issuance of rights, stock or other property under any shareholders' rights plan, or the redemption or repurchase of rights pursuant thereto, (iii) conversions or exchanges of Junior Securities or Parity Securities for Junior Securities or Parity Securities, respectively, and (iv) any purchase of fractional interests in shares of

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the Corporation's capital stock pursuant to the conversion or exchange provisions of such capital stock or the securities being converted or exchanged. If dividends payable pursuant to Section 4(b) for any Section 4(b) Dividend Payment Date are not paid in full, or declared and funds set aside therefor on the shares of the Series C Preferred Stock and there are issued and outstanding shares of Parity Securities with the same Section 4(b) Dividend Payment Date (or, in the case of Parity Securities having dividend payment dates different from the Section 4(b) Dividend Payment Dates, on a dividend payment date falling within a Section 4(b) Dividend Period applicable to such Section 4(b) Dividend Payment Date), then all dividends declared on shares of the Series C Preferred Stock and such Parity Securities on such date or dates, as the case may be, shall be declared pro rata so that the respective amounts of such dividends shall bear the same ratio to each other as full semi-annual dividends per share payable on the shares of the Series C Preferred Stock pursuant to this Section 4(b) and all such Parity Securities otherwise payable on such Section 4(b) Dividend Payment Date (or, in the case of Parity Securities having dividend payment dates different from the Section 4(b) Dividend Payment Dates, on a dividend payment date falling within a Section 4(b) Dividend Period applicable to such Section 4(b) Dividend Payment Date) (subject to such dividends on such Parity Securities having been declared by the Board of Directors out of legally available funds and including, in the case of any such Parity Securities that bear cumulative dividends, all accrued and unpaid dividends) bear to each other.

        (vi)  If the Shareholder Approval are obtained by the Corporation on or prior to the Record Date for any declared dividend applicable to any Section 4(b) Dividend Period, the Holder of such share of Series C Preferred Stock will have the right to receive accrued dividends on the Series C Preferred Stock prior to the Shareholder Approval with respect to such Section 4(b) Dividend Period, and this shall not affect any rights to receive any accrued and unpaid dividends on the Series C Preferred Stock attributable to any Section 4(b) Dividend Period completed prior to such Record Date. If after the Record Date for any declared dividend applicable to any Section 4(b) Dividend Period and prior to the relevant Section 4(b) Dividend Payment Date, such Holder shall receive that dividend on the relevant Section 4(b) Dividend Payment Date if such Holder was the Holder of record on the Record Date for that dividend.

       (vii)  Notwithstanding anything contained in this Section 4(b) to the contrary, if the Shareholder Approval are obtained by the Corporation before the six month anniversary the Effective Date then no accrued dividends payable under the terms of this Section 4(b) shall be payable.

        (c)   Subject to the limitations of Section 4(b)(v), if applicable, so long as any shares of Series C Preferred Stock are outstanding, the Corporation shall not declare, pay or set apart for payment any dividend or make any Distribution on any Common Stock, unless at the time of such dividend or Distribution the Corporation simultaneously pays a dividend or makes a Distribution on each outstanding share of Series C Preferred Stock in the same form of consideration as received by the holders of the Common Stock in an amount equal to the product of (i) the dividend payable or Distribution to be made on each share of Common Stock and (ii) the number of shares of Common Stock issuable upon conversion of a share of Series C Preferred Stock (assuming receipt of the Shareholder Approval and, if necessary, regulatory approvals), calculated on the record date for determination of holders entitled to receive such dividend or Distribution. For purposes hereof, "Distribution" shall mean the transfer of cash, securities or other assets or property, including, without limitation, evidences of indebtedness, shares of capital stock or securities (including, without limitation, any dividend or distribution of (i) shares of capital stock of any class or series, or similar equity interests, of or relating to a subsidiary or other business unit in a "spin-off" transaction or (ii) rights or warrants to purchase shares of Common Stock (other than rights issued pursuant to a shareholders' rights plan, a dividend reinvestment plan, other similar plans or a Permitted Rights Offering), without consideration, whether by way of dividend or otherwise.

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        Section 5.    Liquidation.    

        (a)   Subject to Section 5(b), in the event the Corporation voluntarily or involuntarily liquidates, dissolves or winds up, the Holders at the time shall be entitled to receive liquidating distributions per share of Series C Preferred Stock in an amount equal to the Liquidation Preference, plus an amount equal to (i) any accrued and unpaid dividends (regardless of whether any dividends are actually declared) and (ii) any authorized and declared but unpaid dividends thereon, to and including the date of such liquidation, out of assets legally available for distribution to the Corporation's shareholders, before any distribution of assets is made to the holders of the Common Stock. After payment of the full amount of such liquidation distribution, the Holders shall not be entitled to any further participation in any distribution of assets by the Corporation.

        (b)   In the event the Corporation voluntarily or involuntarily liquidates, dissolves or winds up before the Shareholder Approval, the Holders at the time shall be entitled to receive, for each share of the Series C Preferred Stock, the sum of (i) liquidating distributions in an amount equal to the Liquidation Preference, plus any accrued but unpaid dividends thereon to and including the date of such liquidation, out of assets legally available for distribution to the Corporation's shareholders, before any distribution of assets is made to the holders of the Common Stock or any other Junior Securities and (ii) after all distributions have been made to Holders pursuant to clause (i) of this sentence, liquidating distributions, as determined by the Corporation (or the trustee or other Person or Persons administering its liquidation, dissolution or winding-up in accordance with applicable law) as of a date that is at least ten (10) Business Days before the first liquidating distribution is made on Series C Preferred Stock, that would be made on the number of shares of Common Stock equal to the Liquidation Preference divided by the Applicable Conversion Price as if all of the outstanding shares of Series C Preferred Stock and Series B Preferred Stock had been converted into Common Stock on such date of determination, out of assets legally available for distribution to the Corporation's shareholders, simultaneous with any distribution of assets made to the holders of the Common Stock.

        (c)   In the event the assets of the Corporation available for distribution to shareholders upon any liquidation, dissolution or winding-up of the affairs of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full the amounts payable with respect to all outstanding shares of the Series C Preferred Stock and the corresponding amounts payable on any Parity Securities, the Holders and the holders of such Parity Securities shall share ratably in any distribution of assets of the Corporation in proportion to the full respective liquidating distributions to which they would otherwise be respectively entitled.

        (d)   Except as provided in Section 11, the Corporation's consolidation or merger with or into any other entity, the consolidation or merger of any other entity with or into the Corporation, or the sale of all or substantially all of the Corporation's property or business will not constitute its liquidation, dissolution or winding up.

        Section 6.    Maturity.    The Series C Preferred Stock shall be perpetual unless converted in accordance with this Certificate of Determination.

        Section 7.    Redemptions.    

        (a)   Redemption by the Holder. Holders of Series C Preferred Stock will have no right to require redemption of any shares of Series C Preferred Stock.

        (b)   No Redemption by the Corporation. The Series C Preferred Stock shall not be redeemable by the Corporation at any time. The Series C Preferred Stock shall not be subject to any sinking fund or other obligation to redeem, repurchase or retire the Series C Preferred Stock.

        Section 8.    Mandatory Conversion.    Effective as of the close of business on the Mandatory Conversion Date with respect to the shares of Series C Preferred Stock of a Holder, all such Holder's

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shares of Series C Preferred Stock shall automatically convert into shares of Common Stock held by the transferee in a Widely Dispersed Public Offering. The number of shares of Common Stock into which a share of Series C Preferred Stock shall be convertible shall be determined by dividing (i) the Liquidation Preference, plus the aggregate sum of all accrued and unpaid dividends by (ii) the Applicable Conversion Price (subject to the conversion procedures of Section 9 hereof). Upon conversion, the transferee shall receive cash in lieu of fractional shares in accordance with Section 13 hereof.

        Section 9.    Conversion Procedures.    

        (a)   Each Holder shall promptly provide written notice to the Corporation within three Business Days of its intent to transfer its Series C Preferred Stock in a Widely Dispersed Offering and, promptly upon receipt of each required regulatory approval applicable to the transferee, if any, such transferee shall provide written notice to the Corporation of such receipt. Upon occurrence of the Mandatory Conversion Date with respect to shares of Series C Preferred Stock of any Holder, the Corporation shall provide notice of such conversion to the Holder (such notice a "Notice of Mandatory Conversion"). In addition to any information required by applicable law or regulation, the Notice of Mandatory Conversion with respect to such Holder shall state, as appropriate:

          (i)  the Mandatory Conversion Date applicable to such Holder;

         (ii)  the number of shares of Common Stock to be issued upon conversion of each share of Series C Preferred Stock held of record by such Holder and subject to such mandatory conversion;

        (iii)  the place or places where certificates for shares of Series C Preferred Stock held of record by such Holder are to be surrendered for issuance to the transferee of certificates representing shares of Common Stock; and

        (iv)  information concerning the proposed transferee sufficient to allow the Corporation's transfer agent to effect issuance of shares of Common Stock to such transferee.

        (b)   Effective immediately prior to the close of business on a Mandatory Conversion Date, with respect to any shares of Series C Preferred Stock to be converted on such Mandatory Conversion Date, dividends shall no longer be declared on any such shares of Series C Preferred Stock and such shares of Series C Preferred Stock shall cease to be outstanding, in each case, subject to the right of the Holder to receive (i) any accrued and unpaid dividends on such shares to the extent provided in Section 4 and (ii) any other payments to which such Holder is otherwise entitled pursuant to Section 11 or Section 13 hereof, as applicable.

        (c)   Prior to the close of business on a Mandatory Conversion Date, with respect to any share of Series C Preferred Stock to be converted on such Mandatory Conversion Date, the shares of Common Stock issuable upon conversion thereof or other securities issuable upon conversion of such share of Series C Preferred Stock shall not be deemed outstanding for any purpose, and the Holder thereof shall have no rights with respect to such shares of Common Stock or other securities issuable upon conversion (including voting rights, rights to respond to tender offers for the Common Stock or other securities issuable upon conversion and rights to receive any dividends or other distributions on the Common Stock or other securities issuable upon conversion) by virtue of holding such share of Series C Preferred Stock, except to the extent provided in Section 4(c).

        (d)   Shares of Series C Preferred Stock duly converted in accordance with this Certificate of Determination, or otherwise reacquired by the Corporation, will resume the status of authorized and unissued preferred stock, undesignated as to series and available for future issuance. The Corporation may from time to time take such appropriate action as may be necessary to reduce the authorized number of shares of Series C Preferred Stock; provided, however, that the Corporation shall not take any such action if such action would reduce the authorized number of shares of Series C Preferred Stock below the number of shares of Series C Preferred Stock then outstanding.

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        (e)   The Person or Persons entitled to receive the Common Stock and/or cash, securities or other property issuable upon conversion of Series C Preferred Stock shall be treated for all purposes as the record holder(s) of such shares of Common Stock and/or securities as of the close of business on the relevant Mandatory Conversion Date with respect thereto. In the event that a Holder shall not by written notice designate the name in which shares of Common Stock and/or cash, securities or other property (including payments of cash in lieu of fractional shares) to be issued or paid upon conversion of shares of Series C Preferred Stock should be registered or paid or the manner in which such shares should be delivered, the Corporation shall be entitled to withhold issuance of the Common Stock until some time as the Holder provides the requested information.

        Section 10.    Anti-Dilution Adjustments.    

        (a)   Prior to the Corporation obtaining the Shareholder Approval, the Conversion Price shall be subject to the following adjustments:

        (i)    Stock Dividends and Distributions.    If the Corporation pays dividends or other distributions on the Common Stock in shares of Common Stock, then the Conversion Price in effect immediately prior to the Ex-Date for such dividend or distribution will be multiplied by the following fraction:

•

the numerator is the number of shares of Common Stock outstanding immediately prior to the Ex-Date for such dividend or distribution, and



•

the denominator is the sum of (1) the number of shares of Common Stock outstanding immediately prior to the Ex-Date for such dividend or distribution plus (2) the total number of shares of Common Stock constituting such dividend or distribution.

        For the purposes of this Section 10(a)(i), the number of shares of Common Stock at the time outstanding shall not include shares acquired by the Corporation. If any dividend or distribution described in this Section 10(a)(i) is declared but not so paid or made, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to make such dividend or distribution, to such Conversion Price that would be in effect if such dividend or distribution had not been declared (but giving effect to any intervening adjustments that may have been made with respect to the Series C Preferred Stock).

        (ii)    Subdivisions, Splits and Combinations of the Common Stock.    If the Corporation subdivides, splits or combines the shares of Common Stock, then the Conversion Price in effect immediately prior to the effective date of such share subdivision, split or combination will be multiplied by the following fraction:

•

the numerator is the number of shares of Common Stock outstanding immediately prior to the effective date of such share subdivision, split or combination, and



•

the denominator is the number of shares of Common Stock outstanding immediately after the opening of business on the effective date of such share subdivision, split or combination.

        For the purposes of this Section 10(a)(ii), the number of shares of Common Stock at the time outstanding shall not include shares acquired by the Corporation. If any subdivision, split or combination described in this Section 10(a)(ii) is announced but the outstanding shares of Common Stock are not subdivided, split or combined, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to subdivide, split or combine the outstanding shares of Common Stock, to such Conversion Price that would be in effect if such subdivision, split or combination had not been announced (but giving effect to any intervening adjustments that may have been made with respect to the Series C Preferred Stock).

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        (iii)    Issuance of Stock Purchase Rights.    If the Corporation issues to all or substantially all holders of the shares of Common Stock rights or warrants (other than rights or warrants issued pursuant to a dividend reinvestment plan or share purchase plan or other similar plans) entitling them to subscribe for or purchase the shares of Common Stock at less than the Current Market Price on the date fixed for the determination of shareholders entitled to receive such rights or warrants, then the Conversion Price in effect immediately prior to the Ex-Date for such distribution will be multiplied by the following fraction:

•

the numerator is the sum of (1) the number of shares of Common Stock outstanding immediately prior to the Ex-Date for such dividend or distribution plus (2) the number of shares of Common Stock equal to the aggregate price payable to exercise such rights or warrants divided by the Current Market Price on the date fixed for the determination of shareholders entitled to receive such rights or warrants, and



•

the denominator is the sum of (1) the number of shares of Common Stock outstanding immediately prior to the Ex-Date for such dividend or distribution plus (2) the total number of shares of Common Stock issuable pursuant to such rights or warrants.

        For the purposes of this Section 10(a)(iii), the number of shares of Common Stock at the time outstanding shall not include shares acquired by the Corporation. The Corporation shall not issue any such rights or warrants in respect of shares of the Common Stock acquired by the Corporation. In the event that such rights or warrants described in this Section 10(a)(iii) are not so issued, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to issue such rights or warrants, to the Conversion Price that would then be in effect if such issuance had not been declared (but giving effect to any intervening adjustments that may have been made with respect to the Series C Preferred Stock). To the extent that such rights or warrants are not exercised prior to their expiration or shares of Common Stock are otherwise not delivered pursuant to such rights or warrants upon the exercise of such rights or warrants, the Conversion Price shall be readjusted to such Conversion Price that would then be in effect had the adjustment made upon the issuance of such rights or warrants been made on the basis of the delivery of only the number of shares of Common Stock actually delivered (but giving effect to any intervening adjustments that may have been made with respect to the Series C Preferred Stock). In determining the aggregate offering price payable for such shares of Common Stock, there shall be taken into account any consideration received for such rights or warrants and the value of such consideration (if other than cash, to be determined in good faith by the Board of Directors). If an adjustment to the Conversion Price is required under this Section 10(a)(iii), delivery of any additional shares of Common Stock that may be deliverable upon conversion as a result of an adjustment required under this Section 10(a)(iii) shall be delayed to the extent necessary in order to complete the calculations provided in this Section 10(a)(iii).

        (iv)    Debt or Asset Distributions.    If the Corporation distributes to all or substantially all holders of shares of Common Stock evidences of indebtedness, shares of capital stock, securities, cash or other assets (excluding any dividend or distribution referred to in Section 10(a)(i), any rights or warrants referred to in Section 10(a)(iii), any dividend or distribution paid exclusively in cash, any consideration payable in connection with a tender or exchange offer made by the Corporation or any of its subsidiaries, and any dividend of shares of capital stock of any class or series, or similar equity interests, of or relating to a subsidiary or other business unit in the case of certain spin-off transactions as described below) (such evidences of indebtedness, shares of capital stock, securities, cash or other assets, the "Distributed Property"), then the Conversion Price in effect immediately prior to the Ex-Date for such distribution will be multiplied by the following fraction:

•

the numerator is the Current Market Price per share of Common Stock on such date minus the fair market value of the portion of the distribution applicable to one share of Common Stock on such date as determined in good faith by the Board of Directors, and

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•

the denominator is the Current Market Price per share of Common Stock on such date;

provided that, if the fair market value of the portion of the distribution applicable to one share of Common Stock on such date as determined in good faith by the Board of Directors is equal to or greater than the Current Market Price per share of Common Stock on such date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall receive on the date on which the Distributed Property is distributed to holders of Common Stock, for each share of Series C Preferred Stock, the amount of Distributed Property such Holder would have received had such Holder's Series C Preferred Stock been converted into such number of shares of Common Stock that such Holder's shares of Series C Preferred Stock would then be convertible on the Ex-Date for such distribution.

        In a "spin-off," where the Corporation makes a distribution to all or substantially all holders of shares of Common Stock consisting of capital stock of any class or series, or similar equity interests of, or relating to, a subsidiary or other business unit, the Conversion Price will not be adjusted, but in lieu of such adjustment each Holder shall receive the same distribution as a holder of Common Stock would as though such Holder's shares of Series C Preferred Stock had been converted into such number of shares of Common Stock that such Holder's shares of Series C Preferred Stock would then be convertible.

        In the event that such distribution described in this Section 10(a)(iv) is not so paid or made, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay or make such dividend or distribution, to the Conversion Price that would then be in effect if such dividend or distribution had not been declared (but giving effect to any intervening adjustments that may have been made with respect to the Series C Preferred Stock). If an adjustment to the Conversion Price is required under this Section 10(a)(iv), delivery of any additional shares of Common Stock that may be deliverable upon conversion as a result of an adjustment required under this Section 10(a)(iv) shall be delayed to the extent necessary in order to complete the calculations provided for in this Section 10(a)(iv).

        (v)    Cash Distributions.    If the Corporation makes a distribution consisting exclusively of cash to all holders of the Common Stock, excluding (a) any cash dividend or distribution on the Common Stock to the extent a corresponding cash dividend or distribution pursuant to Section 4 is paid on the Series C Preferred Stock, (b) any dividend or distribution in connection with the Corporation's liquidation, dissolution or winding up, and (c) any consideration payable in connection with a tender or exchange offer made by the Corporation or any of its subsidiaries, then in each event, the Conversion Price in effect immediately prior to the Ex-Date for such distribution will be multiplied by the following fraction:

•

the numerator is the Closing Price per share of Common Stock on the Trading Day immediately preceding the Ex-Date minus the amount per share of Common Stock of the cash distribution, as determined pursuant to the introduction to this Section 10(a)(v), and



•

the denominator is the Closing Price per share of Common Stock on the Trading Day immediately preceding the Ex-Date.

        In the event that any distribution described in this Section 10(a)(v) is not so made, the Conversion Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay such distribution, to the Conversion Price which would then be in effect if such distribution had not been declared (but giving effect to any intervening adjustments that may have been made with respect to the Series C Preferred Stock).

        Notwithstanding the foregoing, if the amount per share of Common Stock of the cash distribution, as determined pursuant to the introduction to this Section 10(a)(v), is equal to or greater than the Closing Price per share of Common Stock on the Trading Day immediately preceding the Ex-Date, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder shall have the right to receive on the date on which the relevant cash dividend or distribution is distributed to holders of Common Stock,

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for each share of Series C Preferred Stock, the amount of cash such Holder would have received had such Holder's Series C Preferred Stock been converted into such number of shares of Common Stock that such Holder's shares of Series C Preferred Stock would then be convertible on the Ex-Date for such distribution.

        (vi)    Self Tender Offers and Exchange Offers.    If the Corporation or any of its subsidiaries successfully completes a tender or exchange offer for the Common Stock where the cash and the value of any other consideration included in the payment per share of the Common Stock exceeds the Closing Price per share of the Common Stock on the Trading Day immediately succeeding the expiration of the tender or exchange offer, then the Conversion Price in effect at the close of business on such immediately succeeding Trading Day will be multiplied by the following fraction:

            OS-l × SP            
AC + (SP × OS-2)

        where,

        In the event that the Corporation, or one of its subsidiaries, is obligated to purchase shares of Common Stock pursuant to any such tender offer or exchange offer, but the Corporation, or such subsidiary, is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then the Conversion Price shall be readjusted to be such Conversion Price that would then be in effect if such tender offer or exchange offer had not been made (but giving effect to any intervening adjustments that may have been made with respect to the Series C Preferred Stock). Except as set forth in the preceding sentence, if the application of this Section 10(a)(vi) to any tender offer or exchange offer would result in a decrease in the Conversion Price, no adjustment shall be made for such tender offer or exchange offer under this Section 10(a)(vi).

        (vii)    Rights Plans.    To the extent that the Corporation has a shareholders' rights plan in effect with respect to the Common Stock on a Mandatory Conversion Date, upon conversion of any shares of the Series C Preferred Stock, the transferee will receive, in addition to the shares of Common Stock, the rights under the rights plan, unless, prior to such Mandatory Conversion Date, the rights have separated from the shares of Common Stock, in which case the Conversion Price will be adjusted at the time of separation as if the Corporation had made a distribution to all holders of the Common Stock as described in Section 10(a)(iv) above, subject to readjustment in the event of the expiration, termination or redemption of such rights.

        (viii)    Other Issuances of Additional Stock.    

        (A)  If the Corporation shall issue (or be deemed to have issued), after the date of filing of this Certificate of Determination (the "Filing Date"), any Additional Stock (as defined below in

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Section 10(a)(viii)(F)) without consideration or for a consideration per share less than the Conversion Price for the Series C Preferred Stock in effect immediately prior to the issuance of such Additional Stock, the Conversion Price for such series in effect immediately prior to each such issuance of Additional Stock shall forthwith (except as otherwise provided in this Section 10(a)(viii)) be adjusted to a price equal to (calculated to the nearest cent) the product obtained by multiplying the Conversion Price for the Series C Preferred Stock in effect immediately prior to such issuance of Additional Stock by a fraction, the numerator of which is equal to the sum of (x) the total number of shares of Common Stock outstanding (including any shares of Common Stock previously deemed to have been issued pursuant to Section 10(a)(viii)(E)(l) or Section 10(a)(viii)(E)(2) (to the extent not actually issued)) immediately prior to such issuance of Additional Stock plus (y) the number of shares of Common Stock that the aggregate consideration received by this Corporation for such issuance of Additional Stock would purchase at the Conversion Price for Series C Preferred Stock in effect immediately prior to such issuance of Additional Stock, and the denominator of which is equal to the sum of (x) the total number of shares of Common Stock outstanding (including any shares of Common Stock previously deemed to have been issued pursuant to Section 10(a)(viii)(E)(l) or Section 10(a)(viii)(E)(2) (to the extent not actually issued)) immediately prior to such issuance of Additional Stock plus (y) the number of shares of Additional Stock issued. In the event that the Corporation issues or sells, or is deemed to have issued or sold, Additional Stock (the "First Dilutive Issuance"), then in the event that the Corporation issues or sells, or is deemed to have issued or sold, Additional Stock other than the First Dilutive Issuance as a part of the same transaction or series of related transactions as the First Dilutive Issuance (a "Subsequent Dilutive Issuance"), then and in each such case upon a Subsequent Dilutive Issuance, the Conversion Price shall be reduced to the Conversion Price that would have been in effect had the First Dilutive Issuance and each Subsequent Dilutive Issuance all occurred on the closing date of the First Dilutive Issuance.

        (B)  Except to the limited extent provided for in Section 10(a)(viii)(E)(3) or Section 10(a)(viii)(E)(4), no adjustment of the Conversion Price for Series C Preferred Stock pursuant to this subsection (viii) shall have the effect of increasing any such Conversion Price above the Conversion Price in effect immediately prior to such adjustment.

        (C)  In the case of the issuance of Additional Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor before deducting any discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with the issuance and sale thereof.

        (D)  In the case of the issuance of Additional Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair value thereof as determined in good faith by the Corporation's Board of Directors irrespective of any accounting treatment.

        (E)  In the case of the issuance after the Filing Date of (i) options to purchase or rights to subscribe for Common Stock, (ii) securities by their terms convertible into or exchangeable for Common Stock or (iii) options to purchase or rights to subscribe for securities by their terms convertible into or exchangeable for Common Stock, the following provisions shall apply for all purposes of this Section 10(a)(viii):

        (1)   The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in Section 10(a)(viii)(C) and Section 10(a)(viii)(D)) if any, received by the Corporation upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential anti-dilution adjustments) for the Common Stock covered thereby.

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        (2)   The aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange (assuming the satisfaction of any conditions to convertibility or exchangeability, including without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation (without taking into account potential anti-dilution adjustments) upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in Section 10(a)(viii)(C) and Section 10(a)(viii)(D)).

        (3)   In the event of any change in the number of shares of Common Stock deliverable or in the consideration payable to this Corporation upon exercise of such options or rights or upon conversion of or exchange for such convertible or exchangeable securities, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Conversion Price for the Series C Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities, shall be recomputed to reflect such change, but no further adjustment shall be made for the actual issuance of Common Stock or any payment of such consideration upon the exercise of any such options or rights or the conversion or exchange of such securities.

        (4)   Upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price for the Series C Preferred Stock, to the extent in any way affected by or computed using such options, rights or securities or options or rights related to such securities, shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and convertible or exchangeable securities that remain in effect) actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities (but giving effect to any intervening adjustments that may have been made with respect to the Series C Preferred Stock).

        (5)   The number of shares of Common Stock deemed issued and the consideration deemed paid therefor pursuant to Section 10(a)(viii)(E)(l) or Section 10(a)(viii)(E)(2) shall be appropriately adjusted to reflect any change, termination or expiration of the type described in either Section 10(a)(viii)(E)(3) or Section 10(a)(viii)(E)(4).

        (F)  "Additional Stock" shall mean any shares of Common Stock issued (or deemed to have been issued pursuant to Section 10(a)(viii)(E)) by this Corporation after the Filing Date, other than:

        (1)   shares of Common Stock or Common Stock Equivalents issued pursuant to an event or transaction described in Section 10(a)(i) or Section 10(a)(ii);

        (2)   shares of Common Stock issued pursuant to an event or transaction described in Section 10(c)(iii);

        (3)   shares of Common Stock issued or issuable upon conversion of shares of Series C Preferred Stock;

        (4)   shares of Common Stock issued (or deemed to have been issued pursuant to Section 10(a)(viii)(E)) in connection with a Reorganization Event; and

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        (5)   shares of Common Stock issued or issuable upon conversion of shares of Series B Preferred Stock.

        (b)   The Corporation may make such decreases in the Conversion Price, in addition to any other decreases required by this Section 10, if the Board of Directors deems it advisable to avoid or diminish any income tax to holders of the Common Stock resulting from any dividend or distribution of shares of Common Stock (or issuance of rights or warrants to acquire shares of Common Stock) or from any event treated as such for income tax purposes or for any other reason.

        (c)   (i) All adjustments to the Conversion Price shall be calculated to the nearest 1/10 of a cent. No adjustment in the Conversion Price shall be required if such adjustment would be less than $0.01; provided, that any adjustments which by reason of this subparagraph are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided further that on the applicable Mandatory Conversion Date adjustments to the Conversion Price will be made with respect to any such adjustment carried forward and which has not been taken into account before such date.

         (ii)  No adjustment to the Conversion Price shall be made if Holders may participate in the transaction that would otherwise give rise to an adjustment, as a result of holding the Series C Preferred Stock (including, without limitation, pursuant to Section 4 hereof), without having to convert the Series C Preferred Stock, as if they held the full number of shares of Common Stock into which a share of the Series C Preferred Stock may then be converted.

        (iii)  The Conversion Price shall not be adjusted:

        (A)  with respect to a Permitted Rights Offering;

        (B)  upon the issuance of any shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on the Corporation's securities and the investment of additional optional amounts in shares of Common Stock under any such plan;

        (C)  upon the issuance of any shares of Common Stock or rights, options or warrants to purchase those shares pursuant to any present or future employee, director or consultant benefit plan, compensation plan or program of or assumed by the Corporation or any of its subsidiaries (including the Corporation's 1994 Tandem Stock Option Plan and Amended and Restated 2004 Equity Plan);

        (D)  upon the issuance of any shares of Common Stock pursuant to any option, warrant (including the Warrant issued to the U.S. Treasury on November 21, 2008) and any anti-dilution adjustments required thereunder, right or exercisable, exchangeable or convertible security outstanding as of the date shares of the Series C Preferred Stock were first issued and not substantially amended thereafter;

        (E)  for accrued and unpaid dividends on the Series A Preferred Stock, the Series B Preferred Stock or the Series C Preferred Stock.

        (d)   Whenever the Conversion Price is to be adjusted in accordance with Section 10(a) or Section 10(b), the Corporation shall: (i) compute the Conversion Price in accordance with Section 10(a) or Section 10(b), taking into account the $0.01 threshold set forth in Section 10(c) hereof; (ii) as soon as practicable following the occurrence of an event that requires an adjustment to the Conversion Price pursuant to Section 10(a) or Section 10(b), taking into account the $0.01 threshold set forth in Section 10(c) hereof (or if the Corporation is not aware of such occurrence, as soon as practicable after becoming so aware), provide, or cause to be provided, a written notice to the Holders of the occurrence of such event; and (iii) as soon as practicable following the determination of the revised Conversion Price in accordance with Section 10(a) or Section 10(b) hereof, provide, or cause to be provided, a written notice to

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the Holders setting forth in reasonable detail the method by which the adjustment to the Conversion Price was determined and setting forth the revised Conversion Price.

        (e)   Notwithstanding anything contained in this Section 10 to the contrary, from and after the date Corporation obtains the Shareholder Approval, the Corporation shall not have any obligation to adjust the Conversion Price under the terms of this Section 10, provided, however, that if the Corporation shall (i)) subdivide its outstanding shares of Common Stock into a greater number of shares, then the Corporation shall similarly subdivide its outstanding shares of Series C Preferred Stock; (ii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, then the Corporation shall similarly combine its outstanding shares of Series C Preferred Stock (except for a Permitted Rights Offering).

        Section 11.    Reorganization Events.    

        (a)   In the event that, for so long as any shares of Series C Preferred Stock remain outstanding, there occurs:

          (i)  any consolidation, merger or other similar business combination of the Corporation with or into another Person, in each case pursuant to which the Common Stock will be converted into cash, securities or other property of the Corporation or another Person;

         (ii)  any sale, transfer, lease or conveyance to another Person of all or substantially all of the property and assets of the Corporation, in each case pursuant to which the Common Stock will be converted into cash, securities or other property of the Corporation or another Person;

        (iii)  any reclassification of the Common Stock into securities including securities other than the Common Stock; or

        (iv)  any statutory exchange of the outstanding shares of Common Stock for securities of another Person (other than in connection with a merger or acquisition);

(any such event specified in this Section 11(a), a "Reorganization Event"), then each share of Series C Preferred Stock outstanding immediately prior to such Reorganization Event shall, at the option of the Holders, either convert into the kind of securities, cash and other property receivable in such Reorganization Event by the holder (excluding the counterparty to the Reorganization Event or an Affiliate of such counterparty) of that number of shares of Common Stock into which the share of Series C Preferred Stock would then be convertible (such securities, cash and other property, the "Exchange Property") plus an amount in cash equal to any accrued and unpaid dividends on such Series C Preferred Stock, or be entitled to receive liquidating distributions in accordance with Section 5 as if such Reorganization Event were a liquidation of the Corporation.

        (b)   In the event that holders of the shares of Common Stock have the opportunity to elect the form of consideration to be received in such transaction, the Holders shall likewise be allowed to make such an election.

        (c)   The above provisions of this Section 11 shall similarly apply to successive Reorganization Events and the provisions of Section 10, if applicable, shall apply to any shares of capital stock of the Corporation (or any successor) received by the holders of the Common Stock in any such Reorganization Event.

        (d)   The Corporation (or any successor) shall, within seven (7) days of the consummation of any Reorganization Event, provide written notice to the Holders of such consummation of such event and of the kind and amount of the cash, securities or other property that constitutes the Exchange Property. Failure to deliver such notice shall not affect the operation of this Section 11.

        (e)   The Corporation shall not enter into any agreement for a transaction constituting a Reorganization Event unless such agreement does not interfere with or prevent (as applicable) (i) conversion of the Series C Preferred Stock into the Exchange Property or (ii) the ability of Holders to

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receive, at their option, a liquidating distribution in accordance with Section 5, in each case, in a manner that is consistent with and gives effect to this Section 11.

        Section 12.    Voting Rights.    

        (a)   Holders will not have any voting rights (including no right to elect any directors), except (i) voting rights, if any, required by law and (ii) voting rights described in Section 12(b).

        (b)   So long as any shares of Series C Preferred Stock are outstanding, in addition to any other vote or written consent of shareholders required by law or by the Articles of Incorporation, the vote or written consent of the Holders of at least two-thirds of the then outstanding shares of shares of Series C Preferred Stock at the time outstanding and entitled to vote thereon, voting as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, will be necessary for effecting or validating any of the following actions, whether or not such approval is required by California law:

          (i)  Any amendment, alteration or repeal (including by means of a merger, consolidation or otherwise) of any provision of the Corporation's Articles of Incorporation (including this Certificate of Determination) or the Corporation's Bylaws that would significantly and adversely affects the rights or preferences of the Series C Preferred Stock; provided, however, that for all purposes of this Section 12(b)(i), (1) any increase in the amount of the Corporation's authorized but unissued shares of preferred stock, (2) any increase in the amount of the Corporation's authorized or issued Series C Preferred Stock, and (3) to the extent allowed by California law, the creation and issuance, or an increase in the authorized or issued amount, of other series of preferred stock of the Corporation ranking equally with or junior to the Series C Preferred Stock, either or both with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and/or the distribution of assets upon the liquidation, dissolution or winding up of the Corporation, will not, in and of itself, be deemed to materially and adversely affect the rights, preferences, privileges or voting powers of the Series C Preferred Stock and except as otherwise provided under California law, Holders will have no right to vote solely by such an increase, creation or issuance; or

         (ii)  So long as any shares of Series C Preferred Stock are outstanding, the Holder shall be entitled to vote, with a number of votes equal to that number of shares of Common Stock into which such Holder's shares of Series C Preferred Stock would then be convertible, together with the holders of Common Stock acting as a single class, in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, for effecting or validating any consummation of any Reorganization Event, as defined in Section 11 above.

        (c)   Notwithstanding the foregoing, Holders shall not have any voting rights if, at or prior to the effective time of the act with respect to which such vote would otherwise be required, all outstanding shares of Series C Preferred Stock shall have been converted into shares of Common Stock.

        (d)   If the Board of Governors of the Federal Reserve System determines that the Series C Preferred Stock is classified as "voting stock" for the purposes of the Bank Holding Company Act of 1956, as amended, the Holders and the Corporation will make such reasonable modifications to the voting rights in this Section 12 so that the Series C Preferred Stock is no longer considered "voting stock."

        (e)   Without the vote or written consent of the holders of the Series C Preferred Stock, so long as such action does not adversely affect the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of the Series C Preferred Stock, the Corporation may amend, alter, supplement or repeal any terms of the Series C Preferred Stock:

          (i)  to cure any ambiguity, or to cure, correct or supplement any provision contained in this Certificate of Determination that may be ambiguous, defective or inconsistent; or

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         (ii)  to make any provision with respect to matters or questions relating to the Series C Preferred Stock that is not inconsistent with the provisions of this Certificate of Determination.

        (f)    The rules and procedures for calling and conducting any meeting of the holders of Series C Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such written consents shall be governed by the requirements of the Articles of Incorporation, the Bylaws, applicable law and any national securities exchange or other trading facility, if any, on which the Series C Preferred Stock or Common Stock is listed or traded at the time.

        Section 13.    Fractional Shares.    

        (a)   No fractional shares of Common Stock will be issued as a result of any conversion of shares of Series C Preferred Stock.

        (b)   In lieu of any fractional share of Common Stock otherwise issuable in respect of any mandatory conversion pursuant to Section 8 hereof, the Corporation shall pay an amount in cash to the transferee (computed to the nearest cent) equal to the fair value of a fraction, which fair value shall be determined based upon the same fraction of the Closing Price of the Common Stock determined as of the second Trading Day immediately preceding the applicable Mandatory Conversion Date.

        (c)   If more than one share of the Series C Preferred Stock is surrendered for conversion at one time by or for the same transferee, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Series C Preferred Stock so surrendered.

        Section 14.    Reservation of Common Stock.    

        (a)   The Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock solely for issuance upon the conversion of shares of Series C Preferred Stock as provided in this Certificate of Determination free from any preemptive or other similar rights, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all the shares of Series C Preferred Stock (assuming receipt of the Shareholder Approval and, if necessary, regulatory approvals), then outstanding, based on the Applicable Conversion Price. For purposes of this Section 14(a), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Series C Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single Holder and there was no regulatory impediment to such conversion.

        (b)   All shares of Common Stock delivered upon conversion of the Series C Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, security interests and other encumbrances.

        (c)   Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Series C Preferred Stock, the Corporation shall use its reasonable best efforts to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority.

        (d)   The Corporation hereby covenants and agrees that it will list and keep listed on the Trading Market, so long as the Common Stock shall be so listed on the Trading Market, all the Common Stock issuable upon conversion of the Series C Preferred Stock.

        Section 15.    Replacement Certificates.    The Corporation shall replace any mutilated certificate at the Holder's expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the Holder's expense upon delivery to the Corporation

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of satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be required by the Corporation.

        Section 16.    Miscellaneous.    

        (a)   All notices referred to herein shall be in writing, and, unless otherwise specified herein, all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or five (5) Business Days after the mailing thereof if sent by registered or certified mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Certificate of Determination) with postage prepaid, addressed: (i) if to the Corporation, to its office at 150 Almaden Boulevard, San Jose, California 95113, Attention: President and Chief Executive Officer, with a copy to the Corporation's Corporate Secretary, or (ii) if to any Holder, to such Holder at the address of such Holder as listed in the stock record books of the Corporation, or (iii) to such other address as the Corporation or any such Holder, as the case may be, shall have designated by notice similarly given.

        (b)   The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Series C Preferred Stock or shares of Common Stock or other securities issued on account of Series C Preferred Stock pursuant hereto or certificates representing such shares or securities. The Corporation shall not, however, be required to pay any such tax that may be payable in respect of any transfer involved in the issuance or delivery of shares of Series C Preferred Stock or Common Stock or other securities in a name other than that in which the shares of Series C Preferred Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any Person other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the Person otherwise entitled to such issuance, delivery or payment has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid or is not payable.

        (c)   All payments on the shares of Series C Preferred Stock shall be subject to withholding and backup withholding of tax to the extent required by applicable law, subject to applicable exemptions, and amounts withheld, if any, shall be treated as received by the holders thereof.

        (d)   No share of Series C Preferred Stock shall have any rights of preemption whatsoever under this Certificate of Determination as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated issued or granted.

        (e)   The shares of Series C Preferred Stock shall not have any voting powers, preferences or relative, participating, optional or other rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Corporation's Articles of Incorporation or as provided by applicable law.

        (f)    The Corporation covenants not to treat the Series C Preferred Stock as preferred stock for purposes of Section 305 of the Internal Revenue Code of 1986, as amended, except as otherwise required by applicable law.

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        We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.

Date: June 17, 2010.

Certificate of Determination—Series C
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ANNEX C

SECURITIES PURCHASE AGREEMENT

        This Securities Purchase Agreement (this "Agreement") is dated as of June 18, 2010, by and among Heritage Commerce Corp, a California corporation (the "Company"), and each purchaser identified on the signature pages hereto (each, including its successors and assigns, a "Purchaser" and collectively, the "Purchasers").

RECITALS

        A.    The Company and each Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"), and Rule 506 of Regulation D ("Regulation D") as promulgated by the United States Securities and Exchange Commission (the "Commission") under the Securities Act.

        B.    Each Purchaser, severally and not jointly, wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, that aggregate number of shares of the Company's Series B mandatorily convertible cumulative perpetual preferred stock, $1,000 liquidation preference per share (the "Series B Preferred Shares"), set forth below such Purchaser's name on the signature page of this Agreement. When purchased, the Series B Preferred Shares will have the terms set forth in a certificate of determination for the Series B Preferred Shares in the form attached as Exhibit A hereto (the "Series B Certificate of Determination") made a part of the Company's Articles of Incorporation, as amended, by the filing of the Series B Certificate of Determination with the California Secretary of State (the "California Secretary"). Except as otherwise provided herein, the Series B Preferred Shares will convert into shares (the "Underlying Shares" and, together with the Series B Preferred Shares and the Series C Preferred Shares, the "Securities") of the common stock, no par value per share, of the Company (the "Common Stock"), subject to and in accordance with the terms and conditions of the Series B Certificate of Determination.

        C.    Castle Creek Capital Partners IV, LP ("Castle Creek") is purchasing 4,815 shares of the Series B Preferred Shares and 12,960 shares of the Company's Series C convertible perpetual preferred stock, $1,000 liquidation preference per share ("Series C Preferred Shares"). The Series C Preferred Shares will convert into Common Stock as provided in the Series C Certificate of Determination (as defined below), only upon a subsequent transfer to a non-affiliate of Castle Creek, and such shares of Common Stock shall be included herein as "Underlying Shares." When purchased, the Series C Preferred Shares will have the terms set forth in a certificate of determination for the Series C Preferred Shares in the form attached as Exhibit B hereto (the "Series C Certificate of Determination") made a part of the Company's Articles of Incorporation, as amended, by the filing of the Series C Certificate of Determination with the California Secretary. The Series B Preferred Shares and the Series C Preferred Shares are collectively referred to as the "Preferred Shares."

        D.    Patriot Financial Partners, L.P. and Patriot Financial Partners Parallel, L.P. (collectively "Patriot") are purchasing in the aggregate 9,731.25 shares of the Series B Preferred Shares and 8,043.75 shares of the Company's Series C Preferred Shares. The Series C Preferred Shares will convert into Common Stock as provided in the Series C Certificate of Determination only upon a subsequent transfer to a non-affiliate of Patriot and such shares of Common Stock shall be included herein as "Underlying Shares."

        E.    The amount raised from the Series B Preferred Shares and the Series C Preferred Stock shall aggregate at least $75 million.

        F.     Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement, in the form attached hereto as Exhibit C (the

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"Registration Rights Agreement"), pursuant to which, among other things, the Company will agree to provide certain registration rights with respect to the Securities under the Securities Act and the rules and regulations promulgated thereunder and applicable state securities laws.

        G.    The Company has engaged Sandler O'Neill & Partners, L.P. as its exclusive placement agents (the "Placement Agent") for the offering of the Preferred Shares.

        NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Purchasers hereby agree as follows:

ARTICLE I
DEFINITIONS

        1.1    Definitions.    In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Article I:

        "Action" means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition) or investigation pending or, to the Company's Knowledge, threatened in writing against the Company, any Subsidiary or any of their respective properties or any officer, director or employee of the Company or any Subsidiary acting in his or her capacity as an officer, director or employee before or by any federal, state, county, local or foreign court, arbitrator, governmental or administrative agency, regulatory authority, stock market, stock exchange or trading facility.

        "Affiliate" means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, Controls, is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act.

        "Agency" has the meaning set forth in Section 3.1(oo).

        "Agreement" shall have the meaning ascribed to such term in the Preamble.

        "Articles of Incorporation" means the Articles of Incorporation of the Company and all amendments and certificates of determination thereto, as the same may be amended from time to time.

        "Bank" means the Company's wholly owned subsidiary, Heritage Bank of Commerce, a California banking corporation.

        "Bank Board" has the meaning set forth in Section 4.15.

        "Bank Board Observer" has the meaning set forth in Section 4.15.

        "Bank Board Representative" has the meaning set forth in Section 4.15.

        "BHC Act" means the Bank Holding Company Act of 1956, as amended.

        "Board of Directors" has the meaning set forth in Section 2.2(v).

        "Business Day" means a day, other than a Saturday or Sunday, on which banks in New York City and California are open for the general transaction of business.

        "Buy-In" has the meaning set forth in Section 4.1(e).

        "Buy-In Price" has the meaning set forth in Section 4.1(e).

        "California Courts" means the state and federal courts sitting in the State of California.

        "California Secretary" has the meaning set forth in the Recitals.

        "Castle Creek" has the meaning set forth in the Recitals.

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        "CIBCA" means the Change in Bank Control Act.

        "Closing" means the initial closing of the purchase and sale of the Preferred Shares pursuant to this Agreement.

        "Closing Bid Price" means, for any security as of any date, the last closing price for such security on the Principal Trading Market, as reported by Bloomberg, or, if the Principal Trading Market begins to operate on an extended hours basis and does not designate the closing bid price then the last bid price of such security prior to 4:00 p.m., New York City Time, as reported by Bloomberg, or, if the Principal Trading Market is not the principal securities exchange or trading market for such security, the last closing price of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price is reported for such security by Bloomberg, the average of the bid prices of any market makers for such security as reported in the "pink sheets" by Pink Sheets LLC (formerly the National Quotation Bureau, Inc.). If the Closing Bid Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price of such security on such date shall be the fair market value as mutually determined by the Company and the holder. If the Company and the holder are unable to agree upon the fair market value of such security, then the Company shall, within two Business Days submit via facsimile (a) the disputed determination to an independent, reputable investment bank selected by the Company and approved by the holder or (b) the disputed arithmetic calculation to the Company's independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the holder of the results no later than ten Business Days from the time it receives the disputed determinations or calculations. Such investment bank's or accountant's determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.

        "Closing Date" means the Trading Day when all of the Transaction Documents have been executed and delivered by the applicable parties thereto, and all of the conditions set forth in Sections 2.1, 2.2, 5.1 and 5.2 hereof are satisfied, or such other date as the parties may mutually agree.

        "Code" has the meaning set forth in Section 3.1(qq).

        "Controlled Group" has the meaning set forth in Section 3.1(qq).

        "Commission" has the meaning set forth in the Recitals.

        "Common Stock" has the meaning set forth in the Recitals, and also includes any securities into which the Common Stock may hereafter be reclassified or changed.

        "Company Counsel" means Buchalter Nemer, a professional corporation.

        "Company Deliverables" has the meaning set forth in Section 2.2(a).

        "Company Reports" has the meaning set forth in Section 3.1(kk).

        "Company's Knowledge" means with respect to any statement made to the knowledge of the Company, that the statement is based upon the actual knowledge of the executive officers of the Company having responsibility for the matter or matters that are the subject of the statement after reasonable investigation.

        "Control" (including the terms "controlling", "controlled by" or "under common control with") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

        "Deadline Date" has the meaning set forth in Section 4.1(e).

C-3

        "DFI" means the California Department of Financial Institutions.

        "Disclosure Materials" has the meaning set forth in Section 3.1(h).

        "DTC" means The Depository Trust Company.

        "Effective Date" means the date on which the initial Registration Statement required by the terms hereof is first declared effective by the Commission.

        "Environmental Laws" has the meaning set forth in Section 3.1(l).

        "ERISA" has the meaning set forth in Section 3.1(qq).

        "ERISA Entity" has the meaning set forth in Section 3.2(p)(ii).

        "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

        "Expedited Insurance" has the meaning set forth in Section 4.20(e).

        "FDIC" means the Federal Deposit Insurance Corporation.

        "Federal Reserve" has the meaning set forth in Section 3.1(kk).

        "Follow-up Special Meeting" has the meaning set forth in Section 4.11(b).

        "GAAP" means U.S. generally accepted accounting principles, as applied by the Company.

        "Indemnified Person" has the meaning set forth in Section 4.8(b).

        "Institutional Inventor" has the meaning set forth in Section 4.15.

        "Insurer" has the meaning set forth in Section 3.1(oo).

        "Intellectual Property" has the meaning set forth in Section 3.1(r).

        "Legend Removal Date" has the meaning set forth in Section 4.1(c).

        "Lien" means any lien, charge, claim, encumbrance, security interest, right of first refusal, preemptive right or other restrictions of any kind.

        "Loan Investor" has the meaning set forth in Section 3.1(oo).

        "Material Adverse Effect" means any circumstance, effect, event, change or development that individually or in the aggregate that has, or is reasonably expected to have, (i) a material and adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) any material and adverse effect on the results of operations, assets, properties, business, or financial condition, of the Company and its Subsidiaries, taken as a whole, or (iii) any adverse impairment to the Company's ability to perform its obligations under any Transaction Document; provided, however, in determining whether a Material Adverse Effect has occurred, there shall be excluded any effect to the extent resulting from the following: (A) changes, after the date hereof, in generally accepted accounting principles or regulatory accounting requirements applicable to financial institutions or their holding companies, except to the extent such change has a disproportionate adverse effect on the Company and its Subsidiaries, taken as a whole, (B) changes, after the date hereof, in laws of general applicability or interpretations thereof by courts or governmental authorities, except to the extent such change has a disproportionate adverse effect on the Company and its Subsidiaries, taken as a whole, (C) actions or omissions by any party taken with the prior written permission of the other party or required under this Agreement, (D) changes in the market price or trading volumes of the Common Stock (but not the underlying causes of such changes), (E) the imposition and announcement of any regulatory enforcement action by the FDIC or DFI as to the Bank and by the Federal Reserve as to the Company to the extent such matters were as disclosed on Schedule 3.1(mm) as of the date of this Agreement, (F) the public disclosure of this Agreement or the

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transactions contemplated hereby, or (G) changes, after the date hereof, in global or national or regional political conditions (including the outbreak of war or acts of terrorism) or in general or regional economic or market conditions affecting financial institutions or their holding companies generally except to the extent that any such changes in general or regional economic or market conditions have a disproportionate adverse effect the Company and its Subsidiaries, taken as a whole.

        "Material Contract" means any contract of the Company that was filed as an exhibit to the SEC Reports on file as of the date of this Agreement pursuant to Item 601 of Regulation S-K.

        "Material Permits" has the meaning set forth in Section 3.1(p).

        "Money Laundering Laws" has the meaning set forth in Section 3.1(ii).

        "New Security" has the meaning set forth in Section 4.20(a).

        "Non-Public Information" has the meaning set forth in Section 4.6.

        "Observer" has the meaning set forth in Section 4.15.

        "OFAC" has the meaning set forth in Section 3.1(hh).

        "Outside Date" means the thirtieth day following the date of this Agreement; provided that if such day is not a Business Day, the first day following such day that is a Business Day.

        "Pension Plan" has the meaning set forth in Section 3.1(qq).

        "Permitted Rights Offering" means an offering of up to $10 million of aggregate offering price of Common Stock pursuant to subscription rights distributed pro rata to the then existing holders of record of Common Stock at a price per share of Common Stock of not less than $3.75, and the associated declaration, issuance and exercise of the subscription rights with respect to such offering and shares of Common Stock issuable in connection with the exercise of any such rights.

        "Person" means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

        "Placement Agent" has the meaning set forth in the Recitals.

        "Preferred Shares" has the meaning set forth in the Recitals.

        "Press Release" has the meaning set forth in Section 4.6.

        "Principal Trading Market" means the Trading Market on which the Common Stock is primarily listed on and quoted for trading, which, as of the date of this Agreement and the Closing Date, shall be the NASDAQ Global Select Market.

        "Proceeding" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

        "Prospectus" means the prospectus included in any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement or any other amendments and supplements to such prospectus, including without limitation any preliminary prospectus, any pre-effective or post-effective amendment and all material incorporated by reference in any prospectus.

        "Public Offering" has the meaning set forth in Section 4.20(b).

        "Purchase Price" means $1,000.00 per Preferred Share.

        "Purchaser Deliverables" has the meaning set forth in Section 2.2(b).

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        "Purchaser Party" has the meaning set forth in Section 4.8(a).

        "Registration Rights Agreement" has the meaning set forth in the Recitals.

        "Registration Statement" means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by the Purchasers of the Registrable Securities (as defined in the Registration Rights Agreement).

        "Regulation D" has the meaning set forth in the Recitals.

        "Regulatory Agreement" has the meaning set forth in Section 3.1(mm).

        "Required Approvals" has the meaning set forth in Section 3.1(e).

        "Reserve Bank" means the Federal Reserve Bank of San Francisco.

        "Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.

        "SBA" has the meaning set forth in Section 3.1(yy).

        "SBA Act" has the meaning set forth in Section 3.1(yy).

        "SBA Standard Operating Procedures and Official Notices" means Public Law 85-536, as amended; those Rules and Regulations, as defined in 13 C.F.R. Part 120, "Business Loans" and 13 C.F.R. Part 121, "Size Standards"; Standard Operating Procedures, (SOP) 50-10 for loan processing, 50-50 for loan liquidation as may be published and or amended from time to time by the SBA.

        "Schedules" means the schedules to this Agreement.

        "SEC Reports" has the meaning set forth in Section 3.1(h).

        "Secretary's Certificate" has the meaning set forth in Section 2.2(a)(iv).

        "Securities" has the meaning set forth in the Recitals.

        "Securities Act" has the meaning set forth in the Recitals.

        "Series B Certificate of Determination" has the meaning set forth in the Recitals.

        "Series B Preferred Shares" has the meaning set forth in the Recitals.

        "Series C Certificate of Determination" has the meaning set forth in the Recitals.

        "Series C Preferred Shares" has the meaning set forth in the Recitals.

        "Shareholder Approval" has the meaning set forth in Section 4.11.

        "Stock Certificates" has the meaning set forth in Section 2.2(a)(ii).

        "Shareholder Approval" has the meaning set forth in Section 4.11.

        "Shareholder Proposals" has the meaning set forth in Section 4.11.

        "Subscription Amount" means with respect to each Purchaser, the aggregate amount to be paid for the Preferred Shares purchased hereunder as indicated on such Purchaser's signature page to this Agreement next to the heading "Aggregate Purchase Price (Subscription Amount)".

        "Subsidiary" means any entity in which the Company, directly or indirectly, owns sufficient capital stock or holds a sufficient equity or similar interest such that it is consolidated with the Company in the financial statements of the Company.

        "Trading Day" means (i) a day on which the Common Stock is listed or quoted and traded on its Principal Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed

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on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported in the "pink sheets" by Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided , that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

        "Trading Market" means whichever of the New York Stock Exchange, the NYSE Amex, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or the OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

        "Transaction Documents" means this Agreement, the Schedules and Exhibits attached hereto, the Registration Rights Agreement, the Series B Certificate of Determination, the Series C Certificate of Determination and any other documents or agreements executed in connection with the transactions contemplated hereunder.

        "Transfer Agent" means Wells Fargo Shareholder Services, or any successor transfer agent for the Company.

        "Underlying Shares" has the meaning set forth in the Recitals.

        "U.S. Sanctions Laws" has the meaning set forth in Section 3.2(t).

        "VCOC Agreement" has the meaning set forth in Section 4.19.

        "Written Agreement" means that certain Written Agreement, dated February 17, 2010, by and among the Company, the Bank, the Reserve Bank and the DFI.

ARTICLE II
PURCHASE AND SALE

        2.1    Closing.    

        (a)    Purchase of Preferred Shares.    Subject to the terms and conditions set forth in this Agreement, at the Closing the Company shall issue and sell to each Purchaser, and each Purchaser shall, severally and not jointly, purchase from the Company, the number of Preferred Shares set forth below such Purchaser's name on the signature page of this Agreement at a per Preferred Share price equal to the Purchase Price.

        (b)    Closing.    The Closing of the purchase and sale of the Preferred Shares shall take place at the offices of the Company, 150 Almaden Boulevard, San Jose, CA 95113, on the Closing Date or at such other locations or remotely by facsimile transmission or other electronic means as the parties may mutually agree and shall occur no later than the fifth Business Day following the date on which the conditions to closing set forth in Article V are satisfied (other than those conditions that by their nature are to be satisfied at Closing but subject to the fulfillment or waiver of those conditions).

        (c)    Delivery and Payment.    At the Closing, the Company shall deliver to each of the respective Purchasers a certificate or certificates, in such reasonable denominations as the Purchaser may have designated in writing not less than two Business Days before the Closing, and registered in the name of the Purchaser (or its designee or nominee), representing the number of Preferred Shares the Purchaser is acquiring in the transaction. At the Closing, the Purchaser shall deliver the purchase

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price of his respective Subscription Amount in immediately available funds by wire transfer to the Escrow Account: