SECURITIES PURCHASE AGREEMENT
 
This Securities Purchase Agreement (this “Agreement”) is dated as of March 10,
2010, by and among Heritage Oaks Bancorp, 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 is executing and delivering this
Agreement in the same form as each other Purchaser, and 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 “Preferred Stock”), set forth below such Purchaser’s name on the
signature page of this Agreement (which aggregate amount for all Purchasers
together shall be not less than 52,088 shares of Preferred Stock (not taking
into account the Patriot Additional Shares or the Series C Preferred Shares, as
such terms are defined herein) and shall be collectively referred to herein,
including for such purposes the Patriot Additional Shares and the Series C
Preferred Shares, as the “Preferred Shares”).  When purchased, the Preferred
Stock will have the terms set forth in a certificate of determination for the
Preferred Stock in the form attached as Exhibit A hereto (the “Certificate of
Determination”) made a part of the Company’s Articles of Incorporation, as
amended, by the filing of the Certificate of Determination with the California
Secretary of State (the “California Secretary”).  Except as otherwise provided
herein, the Preferred Stock will convert into shares (the “Underlying Shares”
and, together with the 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 Certificate of Determination.
 
C.           Patriot Financial Partners, L.P. and Patriot Financial Parallel
Partners, L.P. (collectively referred to herein as “Patriot”) are initially
purchasing in the offering contemplated hereby 5,901 shares of the Preferred
Stock the (“Patriot Shares”). If certain conditions are satisfied as set forth
herein, the Company agrees to sell, and Patriot agrees to purchase, in each case
upon the terms and conditions stated in this Agreement, an additional 4,702
shares of Preferred Stock (the “Additional Patriot Shares”).  The sale of the
Additional Patriot Shares may occur as of the Closing Date or subsequent
thereto.

D.           Castle Creek Capital Partners IV, LP (“Castle Creek”) is purchasing
3,789 shares of the Preferred Stock (“Castle Creek Shares”) and 1,189,538 shares
of the Company’s Series C convertible perpetual preferred stock, $3.25
liquidation preference per share (“Series C Preferred Shares”).  When purchased,
the Series C Preferred Shares will have the terms set forth

 
 

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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 Castle Creek Certificate of Determination with the California Secretary.  

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

F.            The Company has engaged Sandler O’Neill & Partners, L.P., and FIG
Partners, L.L.C. as its exclusive placement agents (the “Placement Agents”) for
the offering of the Preferred Shares and Series C 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
 
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. With respect to a Purchaser,
any investment fund or managed account that is managed on a discretionary basis
by the same investment manager as such Purchaser will be deemed to be an
Affiliate of such Purchaser.
 
“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.

 
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“Bank” means the Company’s wholly owned subsidiary, Heritage Oaks Bank, a
California banking corporation.

“Bank Board” has the meaning set forth in Section 4.18.

“Bank Board Observer” has the meaning set forth in Section 4.18.

“Bank Board Representative” has the meaning set forth in Section 4.18.

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

“Board Representative” has the meaning set forth in Section 4.18.

“Burdensome Condition” has the meaning set forth in Section 5.1(i).

“Business Day” means a day, other than a Saturday or Sunday, on which banks in
New York City 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.

“Castle Creek Shares” has the meaning set forth in the Recitals.

“Certificate of Determination” has the meaning set forth in the Recitals.

“Closing” means the initial closing of the purchase and sale of the Preferred
Shares pursuant to this Agreement which may include the Additional Patriot
Shares if the conditions to the sale thereof have been satisfied prior to the
Closing Date.
 
“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.
 
“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.

 
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“Company Counsel” means Stuart | Moore.
 
“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).
 
“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).

“Escrow Agreement” has the meaning set forth in Section 2.1(d).
 
“Exchange Act” means the Securities Exchange Act of 1934, as amended, or any
successor statute, and the rules and regulations promulgated thereunder.
 
“FDIC” means the Federal Deposit Insurance Corporation.
 
“Federal Reserve” has the meaning set forth in Section 3.1(kk).
 
“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).

 
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“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.
 
“Material Adverse Effect” means, with respect to the Company, any change,
circumstance or effect, individually or in the aggregate, that (i) is, or is
reasonably expected to be materially adverse to the business, results of
operations, prospects, or condition (financial or otherwise), of the Company and
its Subsidiaries taken as a whole, or (ii) could materially impair the ability
of the Company to perform its obligation under this Agreement or to consummate
the Closing; 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 generally, except to the extent such change
disproportionately adversely affects 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, (C) actions or
omissions by any party taken with the prior written permission of the other
party or upon the recommendation of the other party or required under this
Agreement, (D)  the imposition and announcement of any regulatory enforcement
action by the FDIC and DFI as to Bank and by the Federal Reserve as to Company
to the extent such matters were as disclosed on Schedule 3.1(mm) as of the date
of this Agreement, or (E) 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 on such party.
 
“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 4.21(a).

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

“Non-Control Determination” has the meaning set forth in Section 4.15.

“Non-Voting Common Stock” has the meaning set forth in the Recitals.

“Observer” has the meaning set forth in Section 4.18.

 
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“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.
 
“Patriot” has the meaning set forth in the Recitals.

“Patriot Shares” has the meaning set forth in the Recitals.

“Patriot Additional Shares” has the meaning set forth in the Recitals.
 
“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 Agents” has the meaning set forth in the Recitals.
 
“Preferred Shares” has the meaning set forth in the Recitals.
 
“Preferred Stock” 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 Capital 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.

“Purchase Price” means $1,000.00 per Preferred Share and $3.25 per Series C
Preferred Share.
 
 “Purchaser Deliverables” has the meaning set forth in Section 2.2(b).
 
 “Purchaser Party” has the meaning set forth in Section 4.8(a).
 
 “Registration Rights Agreement” has the meaning set forth in the Recitals.

 
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 “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).
 
“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.
 
“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” means the Securities Act of 1933, as amended.

“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 Proposal” 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)”, provided, however, with respect to
Patriot, Subscription Amount means the purchase of the Patriot Shares as set
forth on Patriot’s signature page to this Agreement and shall only include the
Additional Patriot Shares to extent the condition precedent to their purchase
are ratified.
 
“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 on a Trading Market (other than the OTC
Bulletin Board), a day on

 
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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 Certificate of Determination and any other documents or
agreements executed in connection with the transactions contemplated hereunder.
 
“Transfer Agent” means American Stock Transfer & Trust Company, or any successor
transfer agent for the Company.
 
“Underlying Shares” has the meaning set forth in the Recitals.
 
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, and Castle Creek will purchase, in
addition, the 1,189,538 shares of Series C Preferred Stock.  With respect to
Patriot, unless the conditions set forth in Section 2.3 are satisfied, Patriot
shall only purchase the Patriot Shares at the Closing. If the conditions of
Section 2.3 are satisfied at or prior to the Closing Date, then Patriot shall
also purchase the Additional Patriot Shares as of the Closing Date.
 
(b)           Closing.  The Closing of the purchase and sale of the Preferred
Shares shall take place at the offices of the Company, 1222 Vine Street, Paso
Robles, CA  93446, 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

 
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Purchaser may have designated in writing not less than three 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
price of his respective Subscription Amount in immediately available funds by
wire transfer to:

ABA Routing Number:            122239982
Beneficiary:                                Heritage Oaks Bancorp
Acct #:                                        001 901 664
Attn:                                           Margaret Torres
 
(d)            Delivery into Escrow.  At the Closing, unless the conditions of
Section 2.3 have been satisfied prior thereto, Patriot shall place in escrow
pursuant to the terms of the escrow agreement attached hereto as Exhibit D (the
“Escrow Agreement”) an amount equal to the purchase price of the Additional
Patriot Shares. Patriot, the Company and the escrow agent will enter into the
Escrow Agreement as of the Closing Date to the extent the conditions precedent
to the purchase of the Additional Patriot Shares have not been satisfied as of
the Closing Date.

2.2           Closing Deliveries.
 
(a)            On or prior to the Closing, the Company shall issue, deliver or
cause to be delivered to each Purchaser the following (the “Company
Deliverables”):

(i)  
this Agreement, duly executed by the Company;

(ii)  
one or more stock certificates (if physical certificates are required by the
Purchaser to be held immediately prior to Closing; if not, then facsimile or
“.pdf” copies of such certificates shall suffice for purposes of Closing with
the original stock certificates to be delivered within three Business Days of
the Closing Date), evidencing the Preferred Shares subscribed for by Purchaser
hereunder, registered in the name of such Purchaser or as otherwise set forth on
the Investor Questionnaire included as Exhibit E, hereto, (the “Stock
Certificates”) (or, if the Company and such Purchaser agree, the Company shall
cause to be made a book-entry record through the facilities of DTC representing
the Preferred Shares registered in the name of such Purchaser or as otherwise
set forth on the Investor Questionnaire);

(iii)  
a legal opinion of Company Counsel, dated as of the Closing Date and in the form
attached hereto as Exhibit F, executed by such counsel and addressed to the
Purchasers; and

(iv)  
a certificate of the Secretary of the Company, in the form attached hereto as
Exhibit G (the “Secretary’s Certificate”), dated as of the Closing Date,
(a) certifying the resolutions adopted by the Board

 
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of Directors of the Company or a duly authorized committee thereof approving the
transactions contemplated by this Agreement and the other Transaction Documents
and the issuance of the Securities, (b) certifying the current versions of the
articles of incorporation, as amended, and by-laws, as amended, of the Company
and (c) certifying as to the signatures and authority of persons signing the
Transaction Documents and related documents on behalf of the Company;

(v)  
the Compliance Certificate referred to in Section 5.1(g);

(vi)  
The Company shall have delivered a certificate evidencing the formation and good
standing of each of the Company and Heritage Oaks Bank in its respective
jurisdiction of formation issued by the Secretary of State (or comparable
office) of such jurisdiction, as of a date within five (5) business days of the
Closing Date; and

(vii)  
the Escrow Agreement executed by the Company and the escrow agent (to the extent
the conditions of Section 2.3 are not satisfied prior to closing).

(b)           On or prior to the Closing, each Purchaser shall deliver or cause
to be delivered to the Company the following (the “Purchaser Deliverables”):

(i)  
this Agreement, duly executed by such Purchaser;

(ii)  
its Subscription Amount, in U.S. dollars and in immediately available funds, in
the amount indicated below such Purchaser’s name on the applicable signature
page hereto under the heading “Aggregate Purchase Price (Subscription Amount)”
by wire transfer in accordance with the Company’s written instructions;

(iii)  
a fully completed and duly executed Investor Questionnaire, reasonably
satisfactory to the Company in the form attached hereto as Exhibit E; and

(iv)  
with respect to Patriot, if the conditions of Section 2.3 have not been
satisfied as of the Closing Date, an executed copy of the Escrow Agreement and
the transfer to the escrow agent pursuant to said agreement of the purchase
price for the Additional Patriot Shares in U.S. dollars and in immediately
available funds.

 
2.3           Purchase of Additional Patriot Shares. In the event the conditions
precedent to Patriot being permitted to purchase the Additional Patriot Shares
set forth in Sections 5.1(i) and 5.3 hereof are satisfied, and if such
satisfaction occurs subsequent to the Closing Date, then within five Business
Days thereafter, pursuant to the terms of the Escrow Agreement, the

 
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purchase price of the Additional Patriot Shares will be released to the Company
and the Company will concurrently deliver to Patriot one or more Stock
Certificates evidencing the Additional Patriot Shares registered in the name of
Patriot as directed thereby.

ARTICLE III.
REPRESENTATIONS AND WARRANTIES
 
3.1           Representations and Warranties of the Company.  The Company hereby
represents and warrants as of the date hereof and the Closing Date (except for
the representations and warranties that speak as of a specific date, which shall
be made as of such date), to each of the Purchasers that:
 
(a)           Subsidiaries.  The Company has no direct or indirect Subsidiaries
other than those listed in Schedule 3.1(a) hereto. Except as disclosed in
Schedule 3.1(a) hereto, the Company owns, directly or indirectly, all of the
capital stock or comparable equity interests of each Subsidiary free and clear
of any and all Liens, and all the issued and outstanding shares of capital stock
or comparable equity interest of each Subsidiary are validly issued and are
fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.
 
(b)           Organization and Qualification.  The Company and each of its
“Significant Subsidiaries” (as defined in Rule 1-02 of Regulation S-X) is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own or lease and use
its properties and assets and to carry on its business as currently
conducted.   Neither the Company nor any Significant Subsidiary is in violation
of any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.  The Company
and each of its Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, would not have a Material Adverse Effect.  The
Company is duly registered as a bank holding company under the BHC Act.  The
Bank’s deposit accounts are insured up to applicable limits by the Federal
Deposit Insurance Corporation, and all premiums and assessments required to be
paid in connection therewith have been paid when due. The Company has conducted
its business in compliance with all applicable federal, state and foreign laws,
orders, judgments, decrees, rules, regulations and applicable stock exchange
requirements, including all laws and regulations restricting activities of bank
holding companies and banking organizations, except for any noncompliance that,
individually or in the aggregate, has not had and would not be reasonably
expected to have a Material Adverse Effect.
 
(c)           Authorization; Enforcement; Validity.  The Company has the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated by each of the Transaction Documents to which it is a
party and otherwise to carry out its obligations hereunder and thereunder,
including, without limitation, to issue the Preferred Shares, including the
Additional Patriot Shares, in accordance with the terms hereof and, subject

 
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to Shareholder Approval, to issue the Underlying Shares in accordance with the
Certificate of Determination. The Company’s execution and delivery of each of
the Transaction Documents to which it is a party and the consummation by it of
the transactions contemplated hereby and thereby (including, but not limited to,
the sale and delivery of the Preferred Shares and the Underlying Shares) have
been duly authorized by all necessary corporate action on the part of the
Company, and no further corporate action is required by the Company, its Board
of Directors or its stockholders in connection therewith other than in
connection with the Required Approvals. Each of the Transaction Documents to
which it is a party has been (or upon delivery will have been) duly executed by
the Company and is, or when delivered in accordance with the terms hereof, will
constitute the legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except (i) as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application, (ii) as limited by laws
relating to the availability of specific performance, injunctive relief or other
equitable remedies and (iii) insofar as indemnification and contribution
provisions may be limited by applicable law. Except for Material Contracts,
there are no stockholder agreements, voting agreements, or other similar
arrangements with respect to the Company’s capital stock to which the Company is
a party or, to the Company’s Knowledge, between or among any of the Company’s
stockholders.
 
(d)           No Conflicts.  The execution, delivery and performance by the
Company of the Transaction Documents to which it is a party and the consummation
by the Company of the transactions contemplated hereby or thereby (including,
without limitation, the issuance of the Preferred Shares and the Underlying
Shares) do not and will not (i) conflict with or violate any provisions of the
Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws
or otherwise result in a violation of the organizational documents of the
Company or any Subsidiary, (ii)  conflict with, or constitute a default (or an
event that with notice or lapse of time or both would result in a default)
under, result in the creation of any Lien upon any of the properties or assets
of the Company or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any Material Contract, or (iii) subject to the Required Approvals, conflict with
or result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including federal and state securities laws and
regulations and the rules and regulations, assuming the correctness of the
representations and warranties made by the Purchasers herein, of any
self-regulatory organization to which the Company or its securities are subject,
including all applicable Trading Markets), or by which any property or asset of
the Company is bound or affected, except in the case of clauses (ii) and
(iii) such as would not have or reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.
 
(e)           Filings, Consents and Approvals.  Neither the Company nor any of
its Subsidiaries is required to obtain any consent, waiver, authorization or
order of, give any notice to, or make any filing or registration with, any court
or other federal, state, local or other governmental authority or other Person
in connection with the execution, delivery and performance by the Company of the
Transaction Documents (including, without limitation, the issuance of the
Preferred Shares and the Underlying Shares), other than (i) obtaining
Shareholder

 
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Approval to issue the Underlying Shares in accordance with the terms of the
Certificate of Determination, (ii) the filing of the Certificate of
Determination with the California Secretary, (iii) the filing with the
Commission of one or more Registration Statements in accordance with the
requirements set forth herein, (iv) filings required by applicable state
securities laws, (v) the filing of a Notice of Sale of Securities on Form D with
the Commission under Regulation D of the Securities Act, (vi) the filing of any
requisite notices and/or application(s) to the Principal Trading Market for the
issuance and sale of the Underlying Shares and the listing of the Underlying
Shares for trading or quotation, as the case may be, thereon in the time and
manner required thereby, (vii) the filings required in accordance with
Section 4.6 of this Agreement and (viii) those that have been made or obtained
prior to the date of this Agreement (collectively, the “Required Approvals”).

(f)           Issuance of the Shares.  The issuance of the Preferred Shares has
been duly authorized and the Preferred Shares, when issued and paid for in
accordance with the terms of the Transaction Documents, will be duly and validly
issued, fully paid and non-assessable and free and clear of all Liens, other
than restrictions on transfer provided for in the Transaction Documents or
imposed by applicable securities laws, and shall not be subject to preemptive or
similar rights.  The issuance of the Underlying Shares has been duly authorized
and the Underlying Shares, when issued in accordance with the terms of the
Certificate of Determination, will be duly and validly issued, fully paid and
non-assessable and free and clear of all Liens, other than restrictions on
transfer provided for in the Transaction Documents or imposed by applicable
securities laws, and shall not be subject to preemptive or similar
rights.  Assuming the accuracy of the representations and warranties of the
Purchasers in this Agreement, the Securities will be issued in compliance with
all applicable federal and state securities laws.
 
(g)           Capitalization.  The number of shares and type of all authorized,
issued and outstanding capital stock, options and other securities of the
Company (whether or not presently convertible into or exercisable or
exchangeable for shares of capital stock of the Company) is set forth in
Schedule 3.1(g).  All of the outstanding shares of capital stock of the Company
are duly authorized, validly issued, fully paid and non-assessable, have been
issued in compliance in all material respects with all applicable federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase any capital stock of the Company. Except as set forth in Schedule
3.1(g): (i) no shares of the Company’s outstanding capital stock are subject to
preemptive rights or any other similar rights; (ii) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any shares of capital stock of the Company, or
contracts, commitments, understandings or arrangements by which the Company is
or may become bound to issue additional shares of capital stock of the Company
or options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, or
exercisable or exchangeable for, any shares of capital stock of the Company,
other than those issued or granted pursuant to Material Contracts or equity or
incentive plans or arrangements described in the SEC Reports as of the date of
this Agreement; (iii) there are no material outstanding debt securities, notes,
 credit agreements, credit facilities or other agreements, documents or
instruments evidencing indebtedness of the

 
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Company or by which the Company is bound; (iv) except for registration
obligations set forth herein, there are no agreements or arrangements under
which the Company is obligated to register the sale of any of its securities
under the Securities Act; (v) there are no outstanding securities or instruments
of the Company that contain any redemption or similar provisions, and there are
no contracts, commitments, understandings or arrangements by which the Company
is or may become bound to redeem a security of the Company; (vi) the Company
does not have any stock appreciation rights or “phantom stock” plans or
agreements or any similar plan or agreement; and (vii) the Company has no
liabilities or obligations required to be disclosed in the SEC Reports but not
so disclosed in the SEC Reports as of the date of this Agreement, which,
individually or in the aggregate, will have or would reasonably be expected to
have a Material Adverse Effect.  There are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Securities.

(h)           SEC Reports; Disclosure Materials.  The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by it under the Exchange Act, including pursuant to Section 13(a) or 15(d)
thereof, since December 31, 2008 (the foregoing materials, including the
exhibits thereto and documents incorporated by reference therein, being
collectively referred to herein as the “SEC Reports” and together with this
Agreement and the Schedules to this Agreement, the “Disclosure Materials”), on a
timely basis or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such extension. As of
their respective filing dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and the rules
and regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
 
(i)           Financial Statements.  The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with GAAP applied on a consistent basis during
the periods involved, except as may be otherwise specified in such financial
statements or the notes thereto and except that unaudited financial statements
may not contain all footnotes required by GAAP, and fairly present in all
material respects the balance sheet of the Company and its consolidated
subsidiaries taken as a whole as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, year-end audit adjustments, which would not be
material, either individually or in the aggregate.
 
(j)           Tax Matters.  The Company (i) has prepared and filed all foreign,
federal and state income and all other tax returns, reports and declarations
required by any jurisdiction to which it is subject, (ii) has paid all taxes and
other governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith, with respect to which adequate reserves have been
set aside on the books of the Company and (iii) has set aside on its books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns,

 
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reports or declarations apply, except, in the case of clauses (i) and
(ii) above, where the failure to so pay or file any such tax, assessment, charge
or return would not have or reasonably be expected to have a Material Adverse
Effect.
 
(k)           Material Changes.  Since the date of the latest audited financial
statements included within the SEC Reports filed prior to the date of this
Agreement, except as disclosed in subsequent SEC Reports filed prior to the date
of this Agreement, the businesses of the Company and its Significant
Subsidiaries have been conducted only in the ordinary course, in substantially
the same manner as theretofore conducted, and there has not occurred since
December 31, 2008, any event that has had a Material Adverse Effect.
 
(l)           Environmental Matters.  Neither the Company nor any of its
Subsidiaries (i) is in violation of any statute, rule, regulation, decision or
order of any governmental agency or body or any court, domestic or foreign,
relating to the use, disposal or release of hazardous or toxic substances or
relating to the protection or restoration of the environment or human exposure
to hazardous or toxic substances (collectively, “Environmental Laws”), (ii) owns
or operates any real property contaminated with any substance that is in
violation of any Environmental Laws, (iii) is liable for any off-site disposal
or contamination pursuant to any Environmental Laws, or (iv) is subject to any
claim relating to any Environmental Laws; in each case, which violation,
contamination, liability or claim has had or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect; and, to the
Company’s Knowledge, there is no pending or threatened investigation that might
lead to such a claim.
 
(m)           Litigation.  There is no Action which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Preferred Shares or the Underlying Shares or (ii) except as
disclosed in the SEC Reports as of the date of this Agreement, is reasonably
likely to have a Material Adverse Effect, individually or in the aggregate, if
there were an unfavorable decision. Neither the Company nor any Subsidiary, nor
any director or officer thereof, is or has been the subject of any Action
involving a claim of violation of or liability under federal or state securities
laws or a claim of breach of fiduciary duty.  There has not been, and to the
Company’s Knowledge there is not pending or contemplated, any investigation by
the Commission involving the Company or any current or former director or
officer of the Company.  The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or any of its Subsidiaries under the Exchange Act or the Securities Act.
 
(n)           Employment Matters.  No material labor dispute exists or, to the
Company’s Knowledge, is imminent with respect to any of the employees of the
Company which would have or reasonably be expected to have a Material Adverse
Effect. None of the Company’s employees is a member of a union that relates to
such employee’s relationship with the Company, and neither the Company nor any
of its Subsidiaries is a party to a collective bargaining agreement, and the
Company and each Subsidiary believes that its relationship with its employees is
good.  To the Company’s Knowledge, no executive officer is, or is now expected
to be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of a third party, and to the Company’s

 
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Knowledge, the continued employment of each such executive officer does not
subject the Company or any Subsidiary to any liability with respect to any of
the foregoing matters.  The Company is in compliance with all U.S. federal,
state, local and foreign laws and regulations relating to employment and
employment practices, terms and conditions of employment and wages and hours,
except where the failure to be in compliance would not have or reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
 
(o)           Compliance.  Neither the Company nor any of its Subsidiaries
(i) is in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would result in a
default by the Company or any of its Subsidiaries under), nor has the Company or
any of its Subsidiaries received written notice of a claim that it is in default
under or that it is in violation of, any Material Contract (whether or not such
default or violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body having jurisdiction over the Company or
its properties or assets, or (iii) is in violation of, or in receipt of written
notice that it is in violation of, any statute, rule, regulation, policy or
guidelines or order of any governmental authority applicable to the Company or
any of its Subsidiaries, or which would have the effect of revoking or limiting
FDIC deposit insurance, except in each case as would not have or reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
 
(p)           Regulatory Permits.  The Company and each of its Subsidiaries
possess or have applied for all certificates, authorizations and permits issued
by the appropriate federal, state, local or foreign regulatory authorities
necessary to conduct their respective businesses as conducted and as described
in the SEC Reports on file as of the date of this Agreement, except where the
failure to possess such permits, individually or in the aggregate, has not and
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect (“Material Permits”), and (i) neither the Company nor
any of its Subsidiaries has received any notice in writing of proceedings
relating to the revocation or material adverse modification of any such Material
Permits and (ii) the Company is unaware of any facts or circumstances that would
give rise to the revocation or material adverse modification of any Material
Permits.
 
(q)           Title to Assets.  The Company and its Subsidiaries have good and
marketable title to all real property and tangible personal property owned by
them which is material to the business of the Company and its Subsidiaries,
taken as a whole, in each case free and clear of all Liens except such as do not
materially affect the value of such property or do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.
 
(r)           Patents and Trademarks.  The Company and its Subsidiaries own,
possess, license or have other rights to use all foreign and domestic patents,
patent applications, trade and service marks, trade and service mark
registrations, trade names, copyrights, inventions, trade secrets, technology,
Internet domain names, know-how and other intellectual property (collectively,
the “Intellectual Property”) necessary for the conduct of their respective
businesses

 
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as now conducted or as proposed to be conducted as disclosed in the SEC Reports
on file as of the date of this Agreement except where the failure to own,
possess, license or have such rights would not have or reasonably be expected to
have a Material Adverse Effect.  Except as set forth in the SEC Reports on file
as of the date of this Agreement and except where such violations or
infringements would not have or reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect, (a) there are no
rights of third parties to any such Intellectual Property; (b) there is no
infringement by third parties of any such Intellectual Property; (c) there is no
pending or threatened action, suit, proceeding or claim by others challenging
the Company’s and its Subsidiaries’ rights in or to any such Intellectual
Property; (d) there is no pending or threatened action, suit, proceeding or
claim by others challenging the validity or scope of any such Intellectual
Property; and (e) there is no pending or threatened action, suit, proceeding or
claim by others that the Company and/or any Subsidiary infringes or otherwise
violates any patent, trademark, copyright, trade secret or other proprietary
rights of others.

(s)           Insurance.  The Company and each of the Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as the Company believes to be prudent and customary in the
businesses and locations in which the Company and the Subsidiaries are
engaged.  Neither the Company nor any of its Subsidiaries has received any
notice of cancellation of any such insurance, nor, to the Company’s Knowledge,
will it or any Subsidiary be unable to renew their respective existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
 
(t)           Transactions With Affiliates and Employees.  Except as set forth
in the SEC Reports on file as of the date of this Agreement and other than the
grant of stock options or other equity awards that are not individually or in
the aggregate material in amount, none of the officers or directors of the
Company and, to the Company’s Knowledge, none of the employees of the Company,
is presently a party to any transaction with the Company or to a presently
contemplated transaction (other than for services as employees, officers and
directors) that would be required to be disclosed pursuant to Item 404 of
Regulation S-K promulgated under the Securities Act.
 
(u)           Internal Control Over Financial Reporting.  Except as set forth in
the SEC Reports on file as of the date of this Agreement, the Company maintains
internal control over financial reporting (as such term is defined in
Rule 13a-15(f) under the Exchange Act) designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles and such internal control over financial reporting is
effective.
 
(v)           Sarbanes-Oxley; Disclosure Controls.  The Company is in compliance
in all material respects with all of the provisions of the Sarbanes-Oxley Act of
2002 which are applicable to it. Except as disclosed in the SEC Reports on file
as of the date hereof, the Company maintains disclosure controls and procedures
(as such term is defined in Rule 13a

 
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15(e) and 15d-15(e) under the Exchange Act), and such disclosure controls and
procedures are effective.
 
(w)           Certain Fees.  No person or entity will have, as a result of the
transactions contemplated by this Agreement, any valid right, interest or claim
against or upon the Company or a Purchaser for any commission, fee or other
compensation pursuant to any agreement, arrangement or understanding entered
into by or on behalf of the Company, other than the Placement Agents with
respect to the offer and sale of the Shares (which placement agent fees are
being paid by the Company). The Company shall indemnify, pay, and hold each
Purchaser harmless against, any liability, loss or expense (including, without
limitation, attorneys’ fees and out-of-pocket expenses) arising in connection
with any such right, interest or claim.
 
(x)           Private Placement.  Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2 of this Agreement and
the accuracy of the information disclosed in the Investor Questionnaires, no
registration under the Securities Act is required for the offer and sale of the
Preferred Shares by the Company to the Purchasers under the Transaction
Documents.  The issuance and sale of the Preferred Shares hereunder does not
contravene the rules and regulations of the Principal Trading Market and, upon
Shareholder Approval, the issuance of the Underlying Shares in accordance with
the Certificate of Determination will not contravene the rules and regulations
of the Principal Trading Market.
 
(y)           Registration Rights.  Other than each of the Purchasers, except as
set forth on Schedule 3.1(y), no Person has any right to cause the Company to
effect the registration under the Securities Act of any securities of the
Company other than those securities which are currently registered on an
effective registration statement on file with the Commission.
 
(z)           No Integrated Offering.  Assuming the accuracy of the Purchasers’
representations and warranties set forth in Section 3.2, none of the Company,
its Subsidiaries nor, to the Company’s  Knowledge, any of its Affiliates or any
Person acting on its behalf has, directly or indirectly, at any time within the
past six months, made any offers or sales of any Company security or solicited
any offers to buy any security under circumstances that would eliminate the
availability of the exemption from registration under Regulation D under the
Securities Act in connection with the offer and sale by the Company of the
Preferred Shares as contemplated hereby.
 
(aa)           Listing and Maintenance Requirements.  The Company’s Common Stock
is registered pursuant to Section 12(b) of the Exchange Act, and the Company has
taken no action designed to terminate the registration of the Common Stock under
the Exchange Act nor has the Company received any notification that the
Commission is contemplating terminating such registration. The Company has not,
in the 12 months preceding the date hereof, received written notice from any
Trading Market on which the Common Stock is listed or quoted to the effect that
the Company is not in compliance with the listing or maintenance requirements of
such Trading Market. The Company is, and has no reason  to believe that it will
not in the foreseeable future continue to be, in compliance in all material
respects with the listing and maintenance requirements for continued trading of
the Common Stock on the Principal Trading Market.

 
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(bb)           Investment Company.  Neither the Company nor any of its
Subsidiaries is required to be registered as, and is not an Affiliate of, and
immediately following the Closing will not be required to register as, an
“investment company” within the meaning of the Investment Company Act of 1940,
as amended.
 
(cc)           Questionable Payments.  Neither the Company nor any of its
Subsidiaries, nor any directors, officers, nor to the Company’s Knowledge,
employees, agents or other Persons acting at the direction of or on behalf of
the Company or any of its Subsidiaries has, in the course of its actions for, or
on behalf of, the Company: (a) directly or indirectly, used any corporate funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
relating to foreign or domestic political activity; (b) made any direct or
indirect unlawful payments to any foreign or domestic governmental officials or
employees or to any foreign or domestic political parties or campaigns from
corporate funds; (c) violated any provision of the Foreign Corrupt Practices Act
of 1977, as amended, or (d) made any other unlawful bribe, rebate, payoff,
influence payment, kickback or other material unlawful payment to any foreign or
domestic government official or employee.
 
(dd)           Application of Takeover Protections; Rights Agreements.  The
Company has not adopted any stockholder rights plan or similar arrangement
relating to accumulations of beneficial ownership of Common Stock or a change in
control of the Company.  
 
(ee)           Off Balance Sheet Arrangements.  There is no transaction,
arrangement, or other relationship between the Company (or any Subsidiary) and
an unconsolidated or other off balance sheet entity that is required to be
disclosed by the Company in its Exchange Act filings and is not so disclosed and
would have or reasonably be expected to have a Material Adverse Effect.
 
(ff)           Acknowledgment Regarding Purchasers’ Purchase of Preferred
Shares.  The Company acknowledges and agrees that each of the Purchasers is
acting solely in the capacity of an arm’s length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby.  The
Company further acknowledges that no Purchaser is acting as a financial advisor
or fiduciary of the Company (or in any similar capacity) with respect to the
Transaction Documents and the transactions contemplated thereby and any advice
given by any Purchaser or any of their respective representatives or agents in
connection with the Transaction Documents and the transactions contemplated
thereby is merely incidental to the Purchasers’ purchase of the Preferred
Shares.
 
(gg)           Absence of Manipulation.  The Company has not, and to the
Company’s Knowledge no one acting on its behalf has, taken, directly or
indirectly, any action designed to cause or to result in the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of any of the Securities.
 
(hh)           OFAC.  Neither the Company nor any Subsidiary nor, to the
Company’s Knowledge, any director, officer, agent, employee, Affiliate or Person
acting on behalf of the Company or any Subsidiary is currently subject to any
U.S. sanctions administered by the Office

 
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of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the
Company will not knowingly directly or indirectly use the proceeds of the sale
of the Preferred Shares, or lend, contribute or otherwise make available such
proceeds to any Subsidiary, joint venture partner or other Person or entity,
towards any sales or operations in Cuba, Iran, Syria, Sudan, Myanmar or any
other country sanctioned by OFAC or for the purpose of financing the activities
of any Person currently subject to any U.S. sanctions administered by OFAC.
 
(ii)           Money Laundering Laws.  The operations of each of the Company and
any Subsidiary are and have been conducted at all times in compliance with the
money laundering statutes of applicable jurisdictions, the rules and regulations
thereunder and any related or similar rules, regulations or guidelines, issued,
administered or enforced by any applicable governmental agency (collectively,
the “Money Laundering Laws”) and to the Company’s Knowledge, no action, suit or
proceeding by or before any court or governmental agency, authority or body or
any arbitrator involving the Company and/or any Subsidiary with respect to the
Money Laundering Laws is pending or threatened.
 
(jj)           No Additional Agreements.  The Company does not have any
agreement or understanding with any Purchaser with respect to the transactions
contemplated by the Transaction Documents other than as specified in the
Transaction Documents.
 
(kk)           Reports, Registrations and Statements.  Since January 1, 2008,
the Company and each Subsidiary have filed all material reports, registrations
and statements, together with any required amendments thereto, that it was
required to file with the Board of Governors of the Federal Reserve System (the
“Federal Reserve”), the FDIC, the DFI, and any other applicable federal or state
securities or banking authorities, except where the failure to file any such
report, registration or statement would not have or reasonably be expected to
have a Material Adverse Effect. All such reports and statements filed with any
such regulatory body or authority are collectively referred to herein as the
“Company Reports.” As of their respective dates, the Company Reports complied as
to form in all material respects with all the rules and regulations promulgated
by the Federal Reserve, the FDIC, the DFI and any other applicable foreign,
federal or state securities or banking authorities, as the case may be.
 
(ll)           Adequate Capitalization.  As of December 31, 2009, the Company’s
Subsidiary insured depository institution meets or exceeds the standards
necessary to be considered “well capitalized” under the Federal Deposit
Insurance Company’s regulatory framework for prompt corrective action.
 
(mm)           Agreements with Regulatory Agencies; Compliance with Certain
Banking Regulations.  Except as disclosed in Schedule 3.1(mm), neither the
Company nor any Subsidiary is subject to any cease-and-desist or other similar
order or enforcement action issued by, or is a party to any written agreement,
consent agreement or memorandum of understanding with, or is a party to any
commitment letter or similar undertaking to, or is subject to any capital
directive by, or since December 31, 2008, has adopted any board resolutions at
the request of, any governmental entity that currently restricts in any material
respect the conduct of its business or that in any material manner relates to
its capital adequacy, its liquidity and funding policies and practices, its
ability to pay dividends, its credit, risk management or compliance policies,
its

 
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internal controls, its management or its operations or business (each item in
this sentence, a “Regulatory Agreement”), nor has the Company or any Subsidiary
been advised since December 31, 2008 by any governmental entity that it is
considering issuing, initiating, ordering, or requesting any such Regulatory
Agreement.  With respect to any matters requiring Board action prior to the date
of this Agreement or Closing, as applicable, that were set forth in writing by
any of the Federal Reserve, the FDIC or the DFI, the Company and its
Subsidiaries have addressed such matters in all material respects.
 
The Company has no knowledge of any facts and circumstances, and has no reason
to believe that any facts or circumstances exist, that would cause the Bank: (i)
to be deemed not to be in satisfactory compliance with the Community
Reinvestment Act and the regulations promulgated thereunder or to be assigned a
CRA rating by federal or state banking regulators of lower than “satisfactory”;
(ii) to be deemed to be operating in violation, in any material respect, of the
Bank Secrecy Act, the Patriot Act, any order issued with respect to anti-money
laundering by the OFAC, or any other anti-money laundering statute, rule or
regulation; or (iii) to be deemed not to be in satisfactory compliance, in any
material respect, with all applicable privacy of customer information
requirements contained in any federal and state privacy laws and regulations as
well as the provisions of all information security programs adopted by the
Subsidiaries.
 
Except as would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, each of the Company and each Subsidiary
has properly administered all accounts for which it acts as a fiduciary,
including accounts for which it serves as a trustee, agent, custodian, personal
representative, guardian, conservator or investment advisor, in accordance with
the terms of the governing documents, applicable federal and state law and
regulation and common law.  None of the Company, any Subsidiary or any director,
officer or employee of the Company or any Subsidiary has committed any breach of
trust or fiduciary duty with respect to any such fiduciary account that would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect and, except as would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect, the accountings for
each such fiduciary account are true and correct and accurately reflect the
assets of such fiduciary account.
 
(nn)           No General Solicitation or General Advertising.  Neither the
Company nor any person acting on its behalf has engaged or will engage in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with any offer or sale of
the Preferred Shares.
 
(oo)           Mortgage Banking Business.  Except as has not had and would not
reasonably be expected to have a Material Adverse Effect:
 
(i)           The Company and each of its Subsidiaries has complied with, and
all documentation in connection with the origination, processing, underwriting
and credit approval of any mortgage loan originated, purchased or serviced by
the Company or any of its Subsidiaries satisfied, (A) all applicable federal,
state and local laws, rules and regulations with respect to the origination,
insuring, purchase, sale, pooling, servicing,

 
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subservicing, or filing of claims in connection with mortgage loans, including
all laws relating to real estate settlement procedures, consumer credit
protection, truth in lending laws, usury limitations, fair housing, transfers of
servicing, collection practices, equal credit opportunity and adjustable rate
mortgages, (B) the responsibilities and obligations relating to mortgage loans
set forth in any agreement between the Company or any of its Subsidiaries and
any Agency, Loan Investor or Insurer, (C) the applicable rules, regulations,
guidelines, handbooks and other requirements of any Agency, Loan Investor or
Insurer and (D) the terms and provisions of any mortgage or other collateral
documents and other loan documents with respect to each mortgage loan; and
 
(ii)           No Agency, Loan Investor or Insurer has (A) claimed in writing
that the Company or any of its Subsidiaries has violated or has not complied
with the applicable underwriting standards with respect to mortgage loans sold
by the Company or any of its Subsidiaries to a Loan Investor or Agency, or with
respect to any sale of mortgage servicing rights to a Loan Investor, (B) imposed
in writing restrictions on the activities (including commitment authority) of
the Company or any of its Subsidiaries or (C) indicated in writing to the
Company or any of its Subsidiaries that it has terminated or intends to
terminate its relationship with the Company or any of its Subsidiaries for poor
performance, poor loan quality or concern with respect to the Company’s or any
of its Subsidiaries’ compliance with laws,
 
For purposes of this Section 3(oo):  (A) “Agency” means the Federal Housing
Administration, the Federal Home Loan Mortgage Corporation, the Farmers Home
Administration (now known as Rural Housing and Community Development Services),
the Federal National Mortgage Association, the Federal National Mortgage
Association, the U.S. Department of Veterans’ Affairs, the Rural Housing Service
of the U.S. Department of Agriculture or any other federal or state agency with
authority to (i) determine any investment, origination, lending or servicing
requirements with regard to mortgage loans originated, purchased or serviced by
the Company or any of its Subsidiaries or (ii) originate, purchase, or service
mortgage loans, or otherwise promote mortgage lending, including state and local
housing finance authorities; (B) “Loan Investor” means any person (including an
Agency) having a beneficial interest in any mortgage loan originated, purchased
or serviced by the Company or any of its Subsidiaries or a security backed by or
representing an interest in any such mortgage loan; and (C) “Insurer” means a
person who insures or guarantees for the benefit of the mortgagee all or any
portion of the risk of loss upon borrower default on any of the mortgage loans
originated, purchased or serviced by the Company or any of its Subsidiaries,
including the Federal Housing Administration, the United States Department of
Veterans’ Affairs, the Rural Housing Service of the U.S. Department of
Agriculture and any private mortgage insurer, and providers of hazard, title or
other insurance with respect to such mortgage loans or the related collateral.
 
(pp)           Risk Management Instruments.  Except as has not had or would not
reasonably be expected to have a Material Adverse Effect, since January 1, 2008,
all material derivative instruments, including, swaps, caps, floors and option
agreements, whether entered into for the Company’s own account, or for the
account of one or more of the Company Subsidiaries, were entered into (1) only
in the ordinary course of business, (2) in accordance with
 
 
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prudent practices and in all material respects with all applicable laws, rules,
regulations and regulatory policies and (3) with counterparties believed to be
financially responsible at the time; and each of them constitutes the valid and
legally binding obligation of the Company or one of the Company Subsidiaries,
enforceable in accordance with its terms.  Neither the Company or the Company
Subsidiaries, nor, to the knowledge of the Company, any other party thereto, is
in breach of any of its material obligations under any such agreement or
arrangement.
 
(qq)           ERISA.  The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder (herein called “ERISA”); no “reportable event” (as
defined in ERISA) has occurred with respect to any “pension plan” (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any “pension plan”; or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including
the regulations and published interpretations thereunder (the “Code”); and each
“Pension Plan” for which the Company would have liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act, which
would cause the loss of such qualification.
 
(rr)           Shell Company Status.  The Company is not, and has never been, an
issuer identified in Rule 144(i)(1).
 
(ss)           Reservation of Underlying Shares.  The Company has reserved, and
will continue to reserve, free of any preemptive or similar rights of
stockholders of the Company, a number of unissued shares of Common Stock,
sufficient to issue and deliver the Underlying Shares into which the Preferred
Shares are convertible, assuming Shareholder Approval has been obtained.
 
(tt)           Regulatory Capital Levels.  At the Closing Date, taking into
account the proceeds of the capital raise contemplated as part of this
Transaction and assuming, (i) (with respect to the Company only) the conversion
of the Preferred Shares and (ii) the net proceeds this capital raise are
contributed by Company to Heritage Oaks Bank in accordance with Section 4.10,
the Company and Heritage Oaks Bank  will each have a leverage ratio of not less
than 10.0% and a total risk-based capital ratio of not less than 12.0%.
 
(uu)           Loan Loss Reserves.  As of the date hereof and as of the Closing
Date, the Company’s management has concluded that the loan loss reserves of
Heritage Oaks Bank are adequate.
 
(vv)           Change in Control.  Except as disclosed on Schedule 3.1(vv), the
issuance of the Preferred Shares and the Series C Preferred Shares to the
Purchasers as contemplated by this Agreement will not trigger any rights under
any “change of control” provision in any of the agreements to which the Company
or any of its Subsidiaries is a party, including any employment, “change in
control,” severance or other compensatory agreements and any benefit plan, which
results in payments to the counterparty or the acceleration of vesting of
benefits.

 
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3.2           Representations and Warranties of the Purchasers.  Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:
 
(a)           Organization; Authority.  If such Purchaser is an entity, it is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the applicable Transaction Documents and otherwise to carry out
its obligations hereunder and thereunder. If such Purchaser is an entity, the
execution, delivery and performance by such Purchaser of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate or, if such Purchaser is not a corporation, such partnership, limited
liability company or other applicable like action, on the part of such
Purchaser. If such Purchaser is an entity, this Agreement has been duly executed
by such Purchaser, and when delivered by such Purchaser in accordance with the
terms hereof, will constitute the valid and legally binding obligation of such
Purchaser, enforceable against it in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application.
 
(b)           No Conflicts.  The execution, delivery and performance by such
Purchaser of this Agreement and the consummation by such Purchaser of the
transactions contemplated hereby will not (i) result in a violation of the
organizational documents of such Purchaser (if such Purchaser is an entity),
(ii) conflict with, or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which such Purchaser is a party, or
(iii) result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws) applicable to such
Purchaser, except in the case of clauses (ii) and (iii) above, for such
conflicts, defaults, rights or violations which would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Purchaser to perform its obligations hereunder.
 
(c)           Investment Intent.  Such Purchaser understands that the Preferred
Shares are “restricted securities” and have not been registered under the
Securities Act or any applicable state securities law and is acquiring the
Preferred Shares as principal for its own account and not with a view to, or for
distributing or reselling such Preferred Shares or any part thereof in violation
of the Securities Act or any applicable state securities laws, provided,
however, that by making the representations herein, such Purchaser does not
agree to hold any of the Preferred Shares for any minimum period of time and
reserves the right at all times to sell or otherwise dispose of all or any part
of such  Preferred Shares pursuant to an effective registration statement under
the Securities Act or under an exemption from such registration and in
compliance with applicable federal and state securities laws, and, if
applicable, any regulations or policies of the Federal Reserve. Such Purchaser
is acquiring the Preferred Shares hereunder in the ordinary course of its
business. Such Purchaser does not presently have any agreement, plan or
understanding, directly or indirectly, with any Person to distribute or effect
any distribution of

 
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any of the Preferred Shares (or any securities which are derivatives thereof) to
or through any person or entity.
 
(d)           Purchaser Status.  At the time such Purchaser was offered the
Preferred Shares, it was, and at the date hereof it is, an “accredited investor”
as defined in Rule 501(a) under the Securities Act.
 
(e)           General Solicitation.  Such Purchaser is not purchasing the
Preferred Shares as a result of the registration statement on Form S-1 filed by
the Company on November 6, 2009, and withdrawn on January 15, 2010, any
advertisement, article, notice or other communication regarding the Preferred
Shares published in any newspaper, magazine or similar media or broadcast over
television or radio or presented at any seminar or any other general
advertisement.
 
(f)           Experience of Such Purchaser.  Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Preferred Shares, and
has so evaluated the merits and risks of such investment. Such Purchaser is able
to bear the economic risk of an investment in the Preferred Shares and, at the
present time, is able to afford a complete loss of such investment.
 
(g)           Access to Information.  Such Purchaser acknowledges that it has
received and reviewed the Disclosure Materials and has been afforded (i) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Preferred Shares and the merits and risks of investing in
the Preferred Shares; (ii) access to information about the Company and the
Subsidiaries and their respective financial condition, results of operations,
business, properties, management and prospects sufficient to enable it to
evaluate its investment; and (iii) the opportunity to obtain such additional
information that the Company possesses or can acquire without unreasonable
effort or expense that is necessary to make an informed investment decision with
respect to the investment. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives or counsel
shall modify, amend or affect such Purchaser’s right to rely on the truth,
accuracy and completeness of the Disclosure Materials and the Company’s
representations and warranties contained in the Transaction Documents. Such
Purchaser has sought such accounting, legal and tax advice as it has considered
necessary to make an informed decision with respect to its acquisition of the
Preferred Shares.
 
(h)           Brokers and Finders.  Other than the Placement Agents with respect
to the Company, no Person will have, as a result of the transactions
contemplated by this Agreement, any valid right, interest or claim against or
upon the Company or any Purchaser for any commission, fee or other compensation
pursuant to any agreement, arrangement or understanding entered into by or on
behalf of the Purchaser.  Purchaser acknowledges that it is purchasing the
Preferred Shares directly from the Company and not from the Placement Agents.

 
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(i)           Independent Investment Decision.  Such Purchaser has independently
evaluated the merits of its decision to purchase Preferred Shares pursuant to
the Transaction Documents, and such Purchaser confirms that it has not relied on
the advice of any other Purchaser’s business and/or legal counsel in making such
decision. Such Purchaser understands that nothing in this Agreement or any other
materials presented by or on behalf of the Company to the Purchaser in
connection with the purchase of the Preferred Shares constitutes legal, tax or
investment advice. Such Purchaser has consulted such legal, tax and investment
advisors as it, in its sole discretion, has deemed necessary or appropriate in
connection with its purchase of the Preferred Shares. Such Purchaser understands
that the Placement Agent has acted solely as the agent of the Company in this
placement of the Preferred Shares and such Purchaser has not relied on the
business or legal advice of the Placement Agent or any of its agents, counsel or
Affiliates in making its investment decision hereunder, and confirms that none
of such Persons has made any representations or warranties to such Purchaser in
connection with the transactions contemplated by the Transaction Documents.
 
(j)           Reliance on Exemptions.  Such Purchaser understands that the
Preferred Shares being offered and sold to it in reliance on specific exemptions
from the registration requirements of U.S. federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and such
Purchaser’s compliance with, the representations, warranties, agreements,
acknowledgements and understandings of such Purchaser set forth herein in order
to determine the availability of such exemptions and the eligibility of such
Purchaser to acquire the Preferred Shares.
 
(k)           No Governmental Review.  Such Purchaser understands that no U.S.
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Preferred Shares or
the fairness or suitability of the investment in the Preferred Shares nor have
such authorities passed upon or endorsed the merits of the offering of the
Preferred Shares.
 
(l)           Residency.  Such Purchaser’s residence (if an individual) or
office in which its investment decision with respect to the Preferred Shares was
made (if an entity) are located at the address immediately below such
Purchaser’s name on its signature page hereto.
 
(m)           Trading.  Purchaser acknowledges that there is no trading market
for the Preferred Stock, and no such market is expected to develop.
 
(n)           Knowledge as to Conditions.  As of the date of this Agreement,
Purchaser has no reasonable basis to believe why any regulatory approvals,
consents or statements of non-objection required or otherwise a condition to the
consummation by it of the transactions contemplated by this Agreement will not
be obtained.
 
The Company and each of the Purchasers acknowledge and agree that no party to
this Agreement has made or makes any representations or warranties with respect
to the transactions contemplated hereby other than those specifically set forth
in this Article III and the Transaction Documents.

 
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ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES
 
4.1           Transfer Restrictions.
 
(a)           Compliance with Laws.  Notwithstanding any other provision of this
Article IV, each Purchaser covenants that the Securities may be disposed of only
pursuant to an effective registration statement under, and in compliance with
the requirements of, the Securities Act, or pursuant to an available exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act, and in compliance with any applicable state, federal or foreign
securities laws.  In connection with any transfer of the Securities other than
(i) pursuant to an effective registration statement, (ii) to the Company or
(iii) pursuant to Rule 144 (provided that the transferor provides the Company
with reasonable assurances (in the form of seller and broker representation
letters) that such securities may be sold pursuant to such rule), the Company
may require the transferor thereof to provide to the Company and the Transfer
Agent, at the transferor’s expense, an opinion of counsel selected by the
transferor and reasonably acceptable to the Company and the Transfer Agent (it
being agreed that in-house counsel for Purchaser shall be reasonably acceptable
to Company), the form and substance of which opinion shall be reasonably
satisfactory to the Company and the Transfer Agent, to the effect that such
transfer does not require registration of such transferred Securities under the
Securities Act.  As a condition of transfer (other than pursuant to clauses (i),
(ii) or (iii) of the preceding sentence), any such transferee shall agree in
writing to be bound by the terms of this Agreement and shall have the rights of
a Purchaser under this Agreement with respect to such transferred
Securities.  In addition, Patriot, to the extent it receives written
confirmation from the Federal Reserve with respect to the Non-Control
Determination set forth in Section 4.15 hereof, may only sell, transfer, assign
or otherwise dispose of, in whole or in part, shares of Preferred Stock or the
Underlying Shares only in accordance with and as permitted by guidance and
policies established by the Federal Reserve as applicable and in effect at the
time of any such transfer.
 
(b)           Legends.  Certificates evidencing the Securities shall bear any
legend as required by the “blue sky” laws of any state and a restrictive legend
in substantially the following form (and, with respect to Securities held in
book-entry form, the Transfer Agent will record such a legend on the share
register), until such time as they are not required under Section 4.1(c) or
applicable law:
 
 
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES LAWS.  THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED
BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY

 
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TO THE COMPANY AND ITS TRANSFER AGENT OR (II) UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT (PROVIDED THAT THE TRANSFEROR PROVIDES THE COMPANY WITH
REASONABLE ASSURANCES (IN THE FORM OF SELLER AND BROKER REPRESENTATION LETTERS)
THAT THE SECURITIES MAY BE SOLD PURSUANT TO SUCH RULE).  NO REPRESENTATION IS
MADE BY THE ISSUER AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT FOR RESALES OF THESE SECURITIES.
 
(c)           Removal of Legends.  The restrictive legend set forth in Section
4.1(b) above shall be removed and the Company shall issue a certificate without
such restrictive legend or any other restrictive legend to the holder of the
applicable Securities upon which it is stamped or issue to such holder by
electronic delivery at the applicable balance account at DTC, if (i) such
Securities are registered for resale under the Securities Act, (ii) such
Securities are sold or transferred pursuant to Rule 144 (if the transferor is
not an Affiliate of the Company), or (iii) such Securities are eligible for sale
under Rule 144, without the requirement for the Company to be in compliance with
the current public information required under Rule 144(c)(1) (or Rule 144(i)(2),
if applicable) as to such securities and without volume or manner-of-sale
restrictions.  Following the earlier of (i) the Effective Date or (ii) Rule 144
becoming available for the resale of Securities, without the requirement for the
Company to be in compliance with the current public information required under
144(c)(1) (or Rule 144(i)(2), if applicable) as to the Securities and without
volume or manner-of-sale restrictions, the Company shall instruct the Transfer
Agent to remove the legend from the Securities and shall cause its counsel to
issue any legend removal opinion required by the Transfer Agent.
 
Any fees (with respect to the Transfer Agent, Company counsel or otherwise)
associated with the issuance of such opinion or the removal of such legend shall
be borne by the Company.  If a legend is no longer required pursuant to the
foregoing, the Company will no later than three (3) Trading Days following the
delivery by a Purchaser to the Company or the Transfer Agent (with notice to the
Company) of a legended certificate or instrument representing such Securities
(endorsed or with stock powers attached, signatures guaranteed, and otherwise in
form necessary to affect the reissuance and/or transfer) and a representation
letter to the extent required by Section 4.1(a), (such third Trading Day, the
“Legend Removal Date”) deliver or cause to be delivered to such Purchaser a
certificate or instrument (as the case may be) representing such Securities that
is free from all restrictive legends.  The Company may not make any notation on
its records or give instructions to the Transfer Agent that enlarge the
restrictions on transfer set forth in this Section 4.1(c).  Certificates for
Securities free from all restrictive legends may be transmitted by the Transfer
Agent to the Purchasers by crediting the account of the Purchaser’s prime broker
with DTC as directed by such Purchaser.
 
(d)           Acknowledgement.  Each Purchaser hereunder acknowledges its
primary responsibilities under the Securities Act and accordingly will not sell
or otherwise transfer the Securities or any interest therein without complying
with the requirements of the Securities Act. Except as otherwise provided below,
while the above-referenced registration statement remains effective, each
Purchaser hereunder may sell the Securities in accordance with the plan of
distribution contained in the registration statement and if it does so it will
comply therewith and

 
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with the related prospectus delivery requirements unless an exemption therefrom
is available or unless the Securities are sold pursuant to Rule 144.  Each
Purchaser, severally and not jointly with the other Purchasers, agrees that if
it is notified by the Company in writing at any time that the registration
statement registering the resale of the Securities is not effective or that the
prospectus included in such registration statement no longer complies with the
requirements of Section 10 of the Securities Act, the Purchaser will refrain
from selling such Securities until such time as the Purchaser is notified by the
Company that such registration statement is effective or such prospectus is
compliant with Section 10 of the Exchange Act, unless such Purchaser is able to,
and does, sell such Securities pursuant to an available exemption from the
registration requirements of Section 5 of the Securities Act.

(e)           Buy-In. If the Company shall fail for any reason or for no reason
to issue to a Purchaser unlegended certificates within three (3) Trading Days of
receipt of all documents necessary for the removal of the legend set forth above
(the “Deadline Date”), then, in addition to all other remedies available to such
Purchaser, if on or after the Trading Day immediately following such three
(3) Trading Day period, such Purchaser purchases (in an open market transaction
or otherwise) Securities (or a broker or trading counterparty through which the
Purchaser has agreed to sell shares makes such purchase) to deliver in
satisfaction of a sale by the holder of Securities that such Purchaser
anticipated receiving from the Company without any restrictive legend (a
“Buy-In”), then the Company shall, within three (3) Trading Days after such
Purchaser’s request and in such Purchaser’s sole discretion, either (i) pay cash
to the Purchaser in an amount equal to such Purchaser’s total purchase price
(including brokerage commissions, if any) for the Securities so purchased (the
“Buy-In Price”), at which point the Company’s obligation to deliver such
certificate (and to issue such Securities) shall terminate, or (ii) promptly
honor its obligation to deliver to such Purchaser a certificate or certificates
representing such Securities and pay cash to the Purchaser in an amount equal to
the excess (if any) of the Buy-In Price over the product of (a) such number of
Securities, times (b) the closing bid price of such security on the Deadline
Date.
  
4.2           Acknowledgment of Dilution.  The Company acknowledges that the
issuance of the Securities may result in dilution of the outstanding shares of
Common Stock.  The Company further acknowledges that its obligations under the
Transaction Documents, including without limitation its obligation to issue the
Securities pursuant to the Transaction Documents, are unconditional and absolute
and not subject to any right of set off, counterclaim, delay or reduction,
regardless of the effect of any such dilution or any claim the Company may have
against any Purchaser and regardless of the dilutive effect that such issuance
may have on the ownership of the other stockholders of the Company.
 
4.3           Furnishing of Information.  In order to enable the Purchasers to
sell the Securities under Rule 144 of the Securities Act, for a period of one
year from the Closing, the Company shall maintain the registration of the Common
Stock under Section 12(b) or 12(g) of the Exchange Act and to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to the Exchange Act.  During such one year period, if the Company is
not required to file reports pursuant to such laws, it will prepare and furnish
to the Purchasers and make publicly

 
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available the information described in Rule 144(c)(2), if the provision of such
information will allow resales of the Securities pursuant to Rule 144.
 
4.4           Form D and Blue Sky.  The Company agrees to timely file a Form D
with respect to the Preferred Shares as required under Regulation D.  The
Company, on or before the Closing Date, shall take such action as the Company
shall reasonably determine is necessary in order to obtain an exemption for or
to qualify the Preferred Shares for sale to the Purchasers at the Closing
pursuant to this Agreement under applicable securities or “Blue Sky” laws of the
states of the United States (or to obtain an exemption from such qualification).
The Company shall make all filings and reports relating to the offer and sale of
the Preferred Shares required under applicable securities or “Blue Sky” laws of
the states of the United States following the Closing Date.
 
4.5           No Integration.  The Company shall not, and shall use its
commercially reasonable efforts to ensure that no Affiliate of the Company
shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in Section 2 of the Securities Act) that
will be integrated with the offer or sale of the Preferred Shares in a manner
that would require the registration under the Securities Act of the sale of the
Preferred Shares to the Purchasers.
 
4.6           Securities Laws Disclosure; Publicity.  By 9:00 a.m., New York
City time, on the Closing Date, the Company shall issue one or more press
releases (collectively, the “Press Release”) reasonably acceptable to the
Purchasers disclosing all material terms of the transactions contemplated
hereby.  On or before 9:00 a.m., New York City time, on the fourth Trading Day
immediately following the execution of this Agreement, the Company will file a
Current Report on Form 8-K with the Commission describing the terms of the
Transaction Documents (and including as exhibits to such Current Report on Form
8-K the material Transaction Documents (including, without limitation, this
Agreement, the Registration Rights Agreement and the Certificate of
Determination)). To the extent not previously disclosed by the Company, in the
Company’s Annual Report on Form 10-K for the 2009 fiscal year the Company shall
disclose any material non-public information provided to any Purchaser (the
“Non-Public Information”).  From and after the filing of the Form 10-K, no
Purchaser shall be in possession of any material non-public information received
prior to the date of this Agreement from the Company, any Subsidiary or any of
their respective officers, directors or employees, that is not disclosed in the
Form 10-K. Notwithstanding the foregoing, the Company shall not publicly
disclose the name of any Purchaser or any Affiliate or investment adviser of any
Purchaser, or include the name of any Purchaser or any Affiliate or investment
adviser of any Purchaser in any press release or filing with the Commission
(other than the Registration Statement) or any regulatory agency or Trading
Market, without the prior written consent of such Purchaser, except (i) as
required by federal securities law in connection with (A) any registration
statement contemplated by the Registration Rights Agreement and (B) the filing
of final Transaction Documents with the Commission and (ii) to the extent such
disclosure is required by law, at the request of the staff of the Commission or
Trading Market regulations, in which case the Company shall provide the
Purchasers with prior written notice of such disclosure permitted under this
subclause (ii).  Each Purchaser, severally and not jointly with the other
Purchasers, covenants that until such time as the transactions contemplated by
this Agreement and the Non-

 
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Public Information are publicly disclosed by the Company, such Purchaser will
maintain the confidentiality of all disclosures made to it in connection with
this transaction (including the existence and terms of this transaction), except
to the extent that Patriot is required to disclose information regarding the
transactions contemplated hereby with respect to its filing with the Federal
Reserve with respect to the Non-Control Determination or with respect to its
filing with DFI requesting permission to acquire the Additional Patriot Shares.
 
4.7           Non-Public Information.  Except with the express written consent
of such Purchaser and unless prior thereto such Purchaser shall have executed a
written agreement regarding the confidentiality and use of such information, the
Company shall not, and shall cause each Subsidiary and each of their respective
officers, directors, employees and agents, not to, and each Purchaser shall not
directly solicit the Company, any of its Subsidiaries or any of their respective
officers, directors, employees or agents to provide any Purchaser with any
material, non-public information regarding the Company or any of its
Subsidiaries from and after the filing of the Press Release.

4.8           Indemnification.
 
(a)           Indemnification of Purchasers.  In addition to the indemnity
provided in the Registration Rights Agreement, the Company will indemnify and
hold each Purchaser and its directors, officers, stockholders, members,
partners, employees and agents (and any other Persons with a functionally
equivalent role of a Person holding such titles notwithstanding a lack of such
title or any other title), each Person who controls such Purchaser (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, stockholders, agents, members, partners or
employees (and any other Persons with a functionally equivalent role of a Person
holding such titles notwithstanding a lack of such title or any other title) of
such controlling person (each, a “Purchaser Party”) harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys’ fees and costs of investigation that any such Purchaser
Party may suffer or incur as a result of (i) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (ii) any action instituted
against a Purchaser Party in any capacity, or any of them or their respective
affiliates, by any stockholder of the Company who is not an affiliate of such
Purchaser Party, with respect to any of the transactions contemplated by this
Agreement.  The Company will not be liable to any Purchaser Party under this
Agreement to the extent, but only to the extent that a loss, claim, damage or
liability is attributable to any Purchaser Party’s breach of any of the
representations, warranties, covenants or agreements made by such Purchaser
Party in this Agreement or in the other Transaction Documents.
 
(b)           Conduct of Indemnification Proceedings.  Promptly after receipt by
any Person (the “Indemnified Person”) of notice of any demand, claim or
circumstances which would or might give rise to a claim or the commencement of
any action, proceeding or investigation in respect of which indemnity may be
sought pursuant to Section 4.8(a), such Indemnified Person shall promptly notify
the Company in writing and the Company shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to such Indemnified
Person, and

 
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shall assume the payment of all fees and expenses; provided, however , that the
failure of any Indemnified Person so to notify the Company shall not relieve the
Company of its obligations hereunder except to the extent that the Company is
actually and materially and adversely prejudiced by such failure to notify. In
any such proceeding, any Indemnified Person shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Person unless: (i) the Company and the Indemnified Person
shall have mutually agreed to the retention of such counsel; (ii)  the Company
shall have failed promptly to assume the defense of such proceeding and to
employ counsel reasonably satisfactory to such Indemnified Person in such
proceeding; or (iii) in the reasonable judgment of counsel to such Indemnified
Person, representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. The
Company shall not be liable for any settlement of any proceeding effected
without its written consent, which consent shall not be unreasonably withheld,
delayed or conditioned. Without the prior written consent of the Indemnified
Person, which consent shall not be unreasonably withheld, delayed or
conditioned, the Company shall not effect any settlement of any pending or
threatened proceeding in respect of which any Indemnified Person is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Person from all liability arising out of such proceeding.
 
4.9           Listing of Common Stock.  The Company will use its reasonable best
efforts to list the Underlying Shares for quotation on the NASDAQ Capital Market
and maintain the listing of the Common Stock on the NASDAQ Capital Market.
 
4.10           Use of Proceeds. Except for $7.0 million of the net proceeds
which will be retained by the Company, the remaining net proceeds of the capital
raised through the transactions contemplated by this Agreement shall be
contributed to Heritage Oaks Bank in the form of a cash contribution or purchase
of additional common equity.
 
4.11           Shareholders Meeting.  The Company shall call a meeting of its
shareholders, as promptly as practicable following the Closing, but in no event
later than September 30, 2010, to vote on a proposal (the “Shareholder
Proposal”) to approve (i) the conversion of the Preferred Shares and the Series
C Preferred Shares into Common Stock for purposes of Rule 5635 of the NASDAQ
Stock Market Rules, (ii) an increase in the number of authorized shares of
Common Stock to allow for the conversion of the Preferred Shares and Series C
Preferred Shares into Common Stock, and (iii) an amendment to the Company’s
bylaws increasing the range of the board of directors by at least one member
(such approval of the Shareholder Proposal, “Shareholder Approval”).  The Board
of Directors of the Company shall recommend to the Company’s shareholders that
such shareholders vote in favor of the Shareholder Proposal.  In connection with
such meeting, the Company shall promptly prepare and file (but in no event more
than thirty (30) days after the Closing Date) with the Commission a preliminary
proxy statement, shall use its reasonable best efforts to respond to any
comments of the Commission or its staff and to cause a definitive proxy
statement related to such shareholders’ meeting to be mailed to the Company’s
shareholders not more than fifteen (15) business days after clearance thereof by
the Commission, and shall use its reasonable best efforts to solicit proxies for
such Shareholder Approval, including, without limitation, engaging a nationally
recognized proxy

 
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solicitation firm to assist in obtaining Shareholder Approval.  The Company
shall notify Purchaser promptly of the receipt of any comments from the SEC or
its staff with respect to the proxy statement and of any request by the SEC or
its staff for amendments or supplements to such proxy statement or for
additional information (but the Company shall not provide any Purchaser with any
material, nonpublic information, unless requested by such Purchaser and pursuant
to a written agreement regarding the confidentiality and use of such
information).  If at any time prior to such shareholders’ meeting there shall
occur any event that is required to be set forth in an amendment or supplement
to the proxy statement, the Company shall as promptly as practicable prepare and
mail to its shareholders such an amendment or supplement.  In the event that
Shareholder Approval is not obtained at such shareholder meeting, the Company
shall include a proposal to approve (and the Board of Directors shall recommend
approval of) such proposal at a meeting of its shareholders to be held no less
than once in each subsequent six-month period beginning on the date of such
shareholder meeting until such approval is obtained.
 
4.12           Limitation on Beneficial Ownership.  Except as provided herein,
no Purchaser (and its Affiliates or any other Persons with which it is acting in
concert or whose holdings would otherwise be required to be aggregated for
purposes of the BHC Act or the Change in Bank Control Act) will be entitled to
purchase a number of Preferred Shares that would result in such Purchaser
becoming, directly or indirectly, the beneficial owner (as determined under Rule
13d-3 under the Exchange Act) of more than 9.9% of the number of shares of
Common Stock issued and outstanding (based on the number of outstanding shares
as of the Closing Date), if converted at the conversion rate equal to the
liquidation preference divided by $3.25. Notwithstanding the foregoing, if
Patriot receives the Non-Control Determination from the Federal Reserve and the
approval or non-objection of the DFI, its beneficial ownership may exceed 9.9%
as long as it does not exceed 14.9% of the then outstanding shares of Common
Stock of the Company giving effect to the conversion of the Preferred Stock
owned thereby based on the conversion rate applicable thereto.
 
4.13           No Change of Control.  The Company shall use reasonable best
efforts to obtain all necessary irrevocable waivers, adopt any required
amendments and make all appropriate determinations so that the issuance of the
Preferred Shares to the Purchasers will not trigger a “change of control” or
other similar provision in any of the agreements to which the Company or any of
its Subsidiaries is a party, including without limitation any employment,
“change in control,” severance or other agreements and any benefit plan, which
results in payments to the counterparty or the acceleration of vesting of
benefits.
 
4.14           No Additional Issuances.  Between the date of this Agreement and
the Closing Date, except for the issuance of shares of Common Stock issuable as
of the date hereof as set forth in Schedule 3.1(g) and the Preferred Shares and
Series C Preferred Shares being issued pursuant to this Agreement, the Company
shall not issue or agree to issue any additional shares of Common Stock or other
securities which provide the holder thereof the right to convert such securities
into shares of Common Stock.

4.15 Regulatory Approvals.  Patriot shall use its reasonable best efforts to
obtain, as promptly as practicable, all governmental, quasi-governmental, court
or regulatory approvals, consents or statements of non-objection necessary to
allow it to acquire the Additional Patriot

 
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Shares, including any approvals, consents or statements of non-objection
required by the DFI and the Federal Reserve. Patriot agrees (i) that it will
promptly, and in any event within ten calendar days of this Agreement submit to
the Federal Reserve, to the extent it has not done so already, a request for
determination that it shall not be deemed to “control” the Company or any
subsidiary of the Company for purposes of Sections 3 or 4 of the BHC Act by
reason of the purchase of the Additional Patriot Shares or any Underlying Shares
related thereto or the consummation of the other transactions contemplated by
this Agreement (a “Non-Control Determination”), and (ii) it will provide (and,
if and as required by the Federal Reserve, will cause any of its general
partners, managers, managing members or management companies or other
controlling entities, as applicable) customary passivity commitments required by
the Federal Reserve as of the date of this Agreement in connection with its
request to obtain such determination. In addition, to the extent it has not
already done so, Patriot will file with the DFI for permission to acquire the
Additional Patriot Shares.
 
4.16           Management Rights.

(a) On the date of this Agreement, the Company and Patriot and the Company and
Castle Creek are entering into a separate management rights agreements in the
form of Exhibit H attached to and made part of this Agreement.

(b) The rights provided by this Section 4.16 are personal to Patriot and Castle
Creek and in no event shall such rights be assignable.
           

4.17           Sale of Additional Patriot Shares. In the event that Patriot
shall have received written confirmation from the FRB of its Non-Control
Determination with respect to Patriot’s proposal to purchase the Additional
Patriot Shares as well as receiving all other regulatory approvals or
non-objections applicable to it including the approval or non-objection of the
DFI, then, subject to the terms and conditions set forth herein, Patriot agrees
to purchase and the Company agrees to sell Patriot the Additional Patriot
Shares.
 
4.18           Governance Matters
 
The Company covenants and agrees that, as provided in Section 4.11, it will
submit to its shareholders at the next annual meeting thereof subsequent to the
date hereof a proposal to increase the range of the size of the Board of
Directors by at least one member.  Within ten Business Days subsequent to the
Closing Date, the Company and the Bank will request the non-objection or
approval of the Federal Reserve, the FDIC, and the DFI, to the extent required,
for the appointment of the Patriot representative as provided in this Section
4.18.  The Company further covenants and agrees that within five days of receipt
of the latter to occur of such shareholder approval or receipt of the
non-objection or approval of the Federal Reserve, the FDIC and/or the DFI, the
Board of Directors shall cause one person nominated by Patriot (a “Board
Representative”) to be elected or appointed to the Board of Directors, subject
to satisfaction of the legal and governance requirements regarding service as a
director of the Company and to the reasonable approval of the Nominating and
Governance Committee of the Board of Directors (such approval not to be
unreasonably withheld or delayed).  After such appointment or election of a
Board Representative, so long as Patriot beneficially owns (as
 
 
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determined in accordance with Rule 13d-3 under the Exchange Act) 4.9% of the
outstanding shares of Common Stock whether acquired upon conversion of the
Preferred Stock or otherwise (and treating each share of Preferred Stock that is
not a share of Common Stock as if it had converted into Common Stock), the
Company will be required to recommend to its shareholders the election of the
Board Representative at the Company’s annual meeting, subject to satisfaction of
the legal and governance requirements regarding service as a director of the
Company and to the reasonable approval of the Nominating and Governance
Committee of the Board of Directors (such approval not to be unreasonably
withheld or delayed).  If Patriot no longer beneficially owns (as determined in
accordance with Rule 13d-3 under the Exchange Act) the minimum number of shares
of the Preferred Stock or the Common Stock specified in the prior sentence,
Patriot will have no further rights under this Section 4.18, and, at the written
request of the Board of Directors, shall use its reasonable best efforts to
cause its Board Representative to resign from the Board of Directors as promptly
as possible thereafter.
 
Any Board Representative (including any successor nominee) duly selected in
accordance with Section 4.18 shall, subject to applicable law, be the Company’s
and the Company’s Nominating and Governance Committee’s nominee to serve on the
Board of Directors.  The Company shall use all reasonable best efforts to have
the Board Representative elected as a director of the Company and the Company
shall solicit proxies for each such person to the same extent as it does for any
of its other nominees to the Board of Directors.
 
For only so long as Patriot has the right to nominate a Board Representative
pursuant to Section 4.18, Patriot shall have the power to designate the Board
Representative’s replacement upon the death, resignation, retirement,
disqualification or removal from office of such director.  The Board of
Directors will use its reasonable best efforts to take all action required to
fill the vacancy resulting therefrom with such person (including such person,
subject to applicable law, being the Company’s and the Nominating and Governance
Committee’s nominee to serve on the Board of Directors, using all reasonable
best efforts to have such person elected as director of the Company and the
Company soliciting proxies for such person to the same extent as it does for any
of its other nominees to the Board of Directors).
 
Any Board Representative shall be entitled to the same compensation and same
indemnification in connection with his or her role as a director as the other
members of the Board of Directors, and each Board Representative shall be
entitled to reimbursement for documented, reasonable out-of-pocket expenses
incurred in attending meetings of the Board of Directors or any committees
thereof, to the same extent as the other members of the Board of Directors.  The
Company shall notify each Board Representative of all regular and special
meetings of the Board of Directors and shall notify each Board Representative of
all regular and special meetings of any committee of the Board of Directors of
which the Board Representative is a member in accordance with the Company’s
bylaws as then in effect.  The Company shall provide each Board Representative
with copies of all notices, minutes, consents and other materials provided to
all other members of the Board of Directors concurrently as such materials are
provided to the other members.
 
At all times when Patriot has the right to a Board Representative as provided in
Section 4.18, upon the written request of Patriot and in lieu of such Patriot’s
nomination of a Board
 
 
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Representative, Patriot may appoint one individual to attend all meetings of the
Board of Directors and all committees thereof (the “Observer”) and pursuant to
this Section 4.18 hereof the board of directors of the Bank and all committees
thereof, which individual shall be reasonably acceptable to the Board of
Directors (such approval not to be unreasonably withheld or delayed); provided
that the appointment by Patriot of an Observer shall not prevent Patriot from
nominating a Board Representative in lieu of an Observer at a future time.  The
Observer shall not have any right to vote on any matter presented to the Board
of Directors or any committee thereof.  The Company shall give the Observer
written notice of each meeting thereof at the same time and in the same manner
as the members of the Board of Directors, shall provide the Observer with all
written materials and other information given to members of the Board of
Directors at the same time such materials and information are given to the
members of the Board of Directors and shall permit the Observer to attend as an
observer at all meetings thereof, and in the event the Company proposes to take
any action by written consent in lieu of a meeting, the Company shall give
written notice thereof to the Observer prior to the effective date of such
consent describing the nature and substance of such action and including the
proposed text of such written consents; provided, however, that (A) the Observer
may be excluded from executive sessions comprised solely of independent
directors by the lead or presiding independent director if, in his good faith
judgment, such exclusion is to facilitate candid discussion of particularly
sensitive matters (it being understood that it is not expected that the Observer
would be excluded from routine executive sessions), (B) the Company or the Board
of Directors shall have the right to withhold any information and to exclude the
Observer from any meeting or portion thereof (1) if doing so is, in the
reasonable good faith judgment of the Company, after consultation with counsel,
advisable or necessary to protect the attorney-client privilege between the
Company and counsel or (2) if the Board of Directors reasonably determines in
good faith, after consultation with counsel, that attendance by the Observer
would conflict with fiduciary requirements under applicable law and (C) Patriot
shall cause its Observer to agree to hold in confidence and trust and to act in
a fiduciary manner with respect to all information provided to such
Observer.  Patriot covenants and agrees to hold all such information obtained
from its Observer as provided in the prior sentence in confidence pursuant to
the Non-Disclosure Agreement entered into between the Company and Patriot dated
January 22, 2010.
 
So long as Patriot has the right to appoint a Board Representative pursuant to
this Section 4.18, Patriot shall have the right to either nominate one person
(the “Bank Board Representative”) to be elected or appointed as director to the
board of directors of the Bank (the “Bank Board”) or to appoint one person to
attend all meetings of the Bank Board and all committees thereof as an observer
(the “Bank Board Observer”); provided that the appointment by Patriot of a Bank
Board Observer shall not prevent Patriot from nominating a Bank Board
Representative in lieu of a Bank Board Observer at a future time.  The
obligations of the Company otherwise with respect to, and the conditions on the
appointment and, if applicable, directorship of, the Bank Board Representative
and the Bank Board Observer shall be substantially the same as those with
respect to or applicable to the Board Representative and Observer, respectively.
 
The rights provided by this Section 4.18 are personal to Patriot and in no event
shall such rights be assignable.

 

 
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4.19           No Rights Agreement.  The Company shall not enter into any poison
pill agreement, stockholders’ rights plan or similar agreement that shall limit
the rights of a Purchaser to acquire Common Stock unless such poison pill
agreement, stockholders’ rights plan or similar agreement grants an exemption or
waiver to the Purchaser immediately effective upon execution of such plan or
agreement that would allow the Purchaser to acquire such Common Stock.
 
4.20        Certain Transactions.  The Company will not merge or consolidate
into, or sell, transfer or lease all or substantially all of its property or
assets to, any other party unless the successor, transferee or lessee party, as
the case may be (if not the Company), expressly assumes the due and punctual
performance and observance of each and every covenant and condition of this
Agreement to be performed and observed by the Company.
 
4.21   Gross-Up Rights.

(a) Sale of New Securities.  For so long as a Purchaser, together with its
Affiliates, owns 4% or more of all of the outstanding shares of Common Stock
(counting for such purposes all shares of Common Stock into or for which any
securities owned by the Purchaser are directly or indirectly convertible or
exercisable and, for the avoidance of doubt, including as shares owned and
outstanding all shares of Common Stock issued by the Company after the Closing)
(before giving effect to any issuances triggering provisions of this Section),
if at any time after the date hereof the Company makes any public or nonpublic
offering or sale of Common Stock, or securities convertible into Common Stock
(any such security, a “New Security”) (other than (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 the date hereof;
(ii) pursuant to the granting or exercise of employee stock options 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; or (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), then the Purchaser shall be afforded the opportunity to acquire
from the Company for the same price (net of any underwriting discounts or sales
commissions) and on the same terms as such securities are proposed to be offered
to others, up to the amount of New Securities in the aggregate required to
enable it to maintain its proportionate Common Stock-equivalent interest in the
Company immediately prior to any such issuance of New Securities.  The amount of
New Securities that the Purchaser shall be entitled to purchase in the aggregate
shall be determined by multiplying (x) the total number or principal amount of
such offered New Securities by (y) a fraction, the numerator of which is the sum
of (i) the number of shares of Common Stock held by the Purchaser, if any, and
(ii) the number of shares of Common Stock represented by the Preferred Shares
and Series C Preferred Shares held by the Purchaser on an as-converted basis as
of such date, if any, and the denominator of which is the sum of (i) the number
of shares of Common Stock then outstanding, (ii) the number of shares of Common
Stock represented by the Preferred Shares and Series C Preferred Shares on an
as-converted basis as of such date.  Notwithstanding anything herein to

 
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the contrary, in no event shall the Purchaser have the right to purchase
securities hereunder to the extent such purchase would result in such Purchaser,
together with its Affiliates, owning a greater percentage interest in the
Company than such Purchaser held immediately prior to the issuance of the New
Securities (counting for such purposes all shares of Common Stock into or for
which any securities owned by the Purchaser are directly or indirectly
convertible or exercisable).

(b) Notice.  In the event the Company proposes to offer or sell New Securities
(the “Offering”), it shall give the Purchaser written notice of its intention,
describing the price (or range of prices), anticipated amount of securities,
timing, and other terms upon which the Company proposes to offer the same
(including, in the case of a registered public offering and to the extent
possible, a copy of the prospectus included in the registration statement filed
with respect to such offering), no later than ten Business Days, as the case may
be, after the initial filing of a registration statement with the SEC with
respect to an underwritten public offering, after the commencement of marketing
with respect to a Rule 144A offering or after the Company proposes to pursue any
other offering.  If the information contained in the notice constitutes material
non-public information (as defined under the applicable securities laws), the
Company shall deliver such notice only to the individuals identified on the
Purchaser’s signature page hereto, and shall not communicate the information to
anyone else acting on behalf of the Purchaser without the consent of one of the
designated individuals.  The Purchaser shall have ten Business Days from the
date of receipt of such a notice to notify the Company in writing that it
intends to exercise its rights provided in this Section 4.21 and as to the
amount of New Securities the Purchaser desires to purchase, up to the maximum
amount calculated pursuant to Section 4.21(a).  Such notice shall constitute a
nonbinding indication of interest of the Purchaser to purchase the amount of New
Securities so specified at the price and other terms set forth in the Company’s
notice to it.  The failure of the Purchaser to respond within such ten Business
Day period shall be deemed to be a waiver of such Purchaser’s rights under this
Section 4.21 only with respect to the Offering described in the applicable
notice.
 
(c) Purchase Mechanism.  If the Purchaser exercises its rights provided in this
Section 4.21, the closing of the purchase of the New Securities in connection
with the closing of the Offering with respect to which such right has been
exercised shall take place within 30 calendar days after the giving of notice of
such exercise, which period of time shall be extended for a maximum of 180 days
in order to comply with applicable laws and regulations (including receipt of
any applicable regulatory or stockholder approvals).  Notwithstanding anything
to the contrary herein, the closing of the purchase of the New Securities by the
Purchasers will occur no earlier than the closing of the Offering triggering the
right being exercised by the Purchaser.  Each of the Company and the Purchaser
agrees to use its commercially reasonable efforts to secure any regulatory or
stockholder approvals or other consents, and to comply with any law or
regulation necessary in connection with the offer, sale and purchase of, such
New Securities.
 
(d) Failure of Purchase.   In the event the Purchaser fails to exercise its
rights provided in this Section 4.21 within said 10 Business Day period or, if
so exercised, the Purchaser is unable to consummate such purchase within the
time period specified in Section 4.21(c) above because of its failure to obtain
any required regulatory or stockholder consent or approval, the Company shall
thereafter be entitled (during the period of 60 days
 
 
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following the conclusion of the applicable period) to sell or enter into an
agreement (pursuant to which the sale of the New Securities covered thereby
shall be consummated, if at all, within 90 days from the date of said agreement)
to sell the New Securities not elected to be purchased pursuant to this
Section 4.21 by the Purchaser or which the Purchaser is unable to purchase
because of such failure to obtain any such consent or approval, at a price and
upon terms no more favorable in the aggregate to the purchasers of such
securities than were specified in the Company’s notice to the Purchaser. 
Notwithstanding the foregoing, if such sale is subject to the receipt of any
regulatory or stockholder approval or consent or the expiration of any waiting
period, the time period during which such sale may be consummated shall be
extended until the expiration of five Business Days after all such approvals or
consents have been obtained or waiting periods expired, but in no event shall
such time period exceed 180 days from the date of the applicable agreement with
respect to such sale.  In the event the Company has not sold the New Securities
or entered into an agreement to sell the New Securities within said 60-day
period (or sold and issued New Securities in accordance with the foregoing
within 90 days from the date of said agreement (as such period may be extended
in the manner described above for a period not to exceed 180 days from the date
of said agreement)), the Company shall not thereafter offer, issue or sell such
New Securities without first offering such securities to the Purchaser in the
manner provided above.
 
(e) Non-Cash Consideration.  In the case of the offering of securities for a
consideration in whole or in part other than cash, including securities acquired
in exchange therefor (other than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors; provided, however, that such fair value as
determined by the Board of Directors shall not exceed the aggregate market price
of the securities being offered as of the date the Board of Directors authorizes
the offering of such securities.
 
(f) Termination.  Purchaser’s rights hereunder shall expire on the earlier of
the following: (i) three (3) years from the Closing; or (ii) at such time that
the Purchaser, together with its Affiliates, owns less than 4% of all of the
outstanding shares of Common Stock (counting for such purposes all shares of
Common Stock into or for which any securities owned by the Purchaser are
directly or indirectly convertible or exercisable and, for the avoidance of
doubt, including as shares owned and outstanding all Common Shares issued by the
Company after the Closing) (before giving effect to any issuances triggering
provisions of Section 4.21).

(g) Cooperation.  The Company and the Purchaser shall cooperate in good faith to
facilitate the exercise of the Purchaser’s rights under this Section 4.21,
including to secure any required approvals or consents.

(h) No Assignment of Rights.  The rights of a Purchaser described herein shall
be personal to Purchaser and the transfer, assignment and/or conveyance of said
rights from Purchaser to any other person and/or entity is prohibited and shall
be void and of no force or effect.

ARTICLE V.
CONDITIONS PRECEDENT TO CLOSING

 
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5.1           Conditions Precedent to the Obligations of the Purchasers to
Purchase Preferred Shares.  The obligation of each Purchaser to acquire
Preferred Shares at the Closing is subject to the fulfillment to such
Purchaser’s satisfaction, on or prior to the Closing Date, of each of the
following conditions, any of which may be waived by such Purchaser (as to itself
only):
 
(a)           Representations and Warranties.  The representations and
warranties of the Company contained herein shall be true and correct as of the
date when made and as of the Closing Date, as though made on and as of such
date, except for such representations and warranties that speak as of a specific
date.
 
(b)           Performance.  The Company shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by it at or prior to the Closing.
 
(c)           No Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.

(d)           Consents.  The Company shall have obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary for
consummation of the purchase and sale of the Preferred Shares (including all
Required Approvals), all of which shall be and remain so long as necessary in
full force and effect.
 
(e)           No Suspensions of Trading in Common Stock; Listing.  The Common
Stock (i) shall be designated for quotation or listed on the Principal Trading
Market and (ii) shall not have been suspended, as of the Closing Date, by the
Commission or the Principal Trading Market from trading on the Principal Trading
Market nor shall suspension by the Commission or the Principal Trading Market
have been threatened, as of the Closing Date, either (A) in writing by the
Commission or the Principal Trading Market or (B) by falling below the minimum
listing maintenance requirements of the Principal Trading Market.  The Company
shall have obtained approval of the Principal Trading Market to list the
Underlying Shares.
 
(f)           Company Deliverables.  The Company shall have delivered the
Company Deliverables in accordance with Section 2.2(a).
 
(g)           Compliance Certificate.  The Company shall have delivered to each
Purchaser a certificate, dated as of the Closing Date and signed by its Chief
Executive Officer or its Chief Financial Officer, dated as of the Closing Date,
certifying to the fulfillment of the conditions specified in Sections 5.1(a) and
(b) in the form attached hereto as Exhibit I.
 
(h)           Certificate of Determination.  The Company shall have filed the
Certificate of Determination with the California Secretary.

 
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(i) Regulatory Approvals.  In the case of Patriot with respect to the purchase
of the Additional Patriot Shares, Patriot shall have received written
confirmation from the (a) Federal Reserve of its Non-Control Determination as to
Patriot and (b) DFI its approval or non-objection; provided, however, that no
such regulatory approval or non-objection or Non-Control Determination shall (A)
impose any condition or requirement that would reasonably be expected to be
materially burdensome to Patriot (including any material constraints or
restrictions on the Patriot’s current business or investments but excluding any
customary passivity commitments required as contemplated by Section 4.15) or (B)
impose any restraint or condition on any limited partner of Patriot (including a
requirement to file any application or notice under the BHC Act, the Change in
Bank Control Act or any other federal or state banking law) (each a “Burdensome
Condition”); and provided, further that the imposition of a Burdensome Condition
in connection with a regulatory approval or Non-Control Determination shall
constitute a denial of such regulatory approval or Non-Control Determination and
such regulatory approval or Non-Control Determination shall be deemed not
received for all purposes in this Agreement, including but not limited to
Section 6.16 hereof.
 
(j) Minimum Gross Proceeds.  The Company shall simultaneously issue and deliver
at such Closing to the Purchasers hereunder in the aggregate at least sufficient
shares of the Preferred Stock and Series C Preferred Shares against payment of
an aggregate Purchase Price of at least $55.0 million (not taking into account
the Patriot Additional Shares).
 
(k)           Termination.  This Agreement shall not have been terminated as to
such Purchaser in accordance with Section 6.16 herein.
 
5.2           Conditions Precedent to the Obligations of the Company to sell
Preferred Shares.  The Company’s obligation to sell and issue the Preferred
Shares at the Closing is subject to the fulfillment to the satisfaction of the
Company on or prior to the Closing Date of the following conditions, any of
which may be waived by the Company:
 
(a)           Representations and Warranties.  The representations and
warranties made by the Purchaser in Section 3.2 hereof shall be true and correct
as of the date when made, and as of the Closing Date as though made on and as of
such date, except for representations and warranties that speak as of a specific
date.
 
(b)           Performance.  Such Purchaser shall have performed, satisfied and
complied in all material respects with all covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by such Purchaser at or prior to the Closing Date.
 
(c)           No Injunction.  No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.
 
(d)           Consents.  The Company shall have obtained in a timely fashion any
and all consents, permits, approvals, registrations and waivers necessary for
consummation of the
 
 
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purchase and sale of the Preferred Shares, all of which shall be and remain so
long as necessary in full force and effect.

(e)           Purchasers Deliverables.  Such Purchaser shall have delivered its
Purchaser Deliverables in accordance with Section 2.2(b).
 
(f) Regulatory Approvals.  With respect to the sale of the Additional Patriot
Shares, Patriot shall have received written confirmation from the Federal
Reserve of its Non-Control Determination and the approval or non-objection of
the DFI.
 
(g)           Termination.  This Agreement shall not have been terminated as to
such Purchaser in accordance with Section 6.16 herein.

5.3            Sale of the Additional Patriot Shares.  In the event that Patriot
has not received the written confirmation from the Federal Reserve of its
Non-Control Determination and the approval or non-objection of the DFI with
respect to the purchase of the Additional Patriot Shares prior to the Closing
Date, then such sale shall not occur until such approval and Non-Control
Determination are received.  Upon receipt of the Non-Control Determination and
the DFI approval or non-objection, then within five Business Days thereafter,
the funds previously deposited in the Escrow Agreement by Patriot shall be
released to the Company and the Company shall deliver to Patriot certificates
representing such Additional Patriot Shares, subject to the provisions of
Section 6.16.  Except as otherwise provided herein, in the event Patriot does
not receive by May 15, 2010, the necessary approvals or non-objection or
Non-Control Determination in order to be able to permit it to purchase the
Additional Patriot Shares, then Patriot or the Company, pursuant to the
provisions of Section 6.16 may terminate this portion of the Agreement.  Upon
termination of such obligation, the Escrow Agreement shall be terminated and the
funds held thereby returned to Patriot.  The terms and conditions of this
Section 5.3 shall have no effect whatsoever on the obligations of Patriot to
purchase the Patriot Shares.

In the event that by May 7, 2010, with respect to Patriot’s proposed purchase of
the Patriot Additional Shares Patriot has (i) not received the Non-Control
Determination from the Federal Reserve or has reason to believe that it will be
denied or that it will be requested to withdraw its submission thereto or (ii)
not received the approval or non-objection of the DFI, Patriot shall have the
option of purchasing instead 1,252,923 shares of Series C convertible perpetual
preferred stock (the “Series C Preferred”).  If Patriot determines to purchase
the Series C Preferred and provides written notice to the Company prior to May
15, 2010, the termination provisions with respect to the purchase of the
Additional Patriot Shares set forth in Section 6.16 will be null and void.

 
ARTICLE VI.
MISCELLANEOUS
 
6.1           Fees and Expenses.  The parties hereto shall be responsible for
the payment of all expenses incurred by them in connection with the preparation
and negotiation of the Transaction Documents and the consummation of the
transactions contemplated hereby.  The Company shall
 
 
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pay all amounts owed to the Placement Agent relating to or arising out of the
transactions contemplated hereby.  The Company shall pay all Transfer Agent
fees, stamp taxes and other taxes and duties levied in connection with the sale
and issuance of the Securities to the Purchasers.
 
6.2           Entire Agreement.  The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements,
understandings, discussions and representations, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules. At or after the Closing, and without further
consideration, the Company and the Purchasers will execute and deliver to the
other such further documents as may be reasonably requested in order to give
practical effect to the intention of the parties under the Transaction
Documents.
 
6.3           Notices.  Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile
(provided the sender receives a machine-generated confirmation of successful
transmission) at the facsimile number specified in this Section prior to 5:00
p.m., New York City time, on a Trading Day, (b) the next Trading Day after the
date of  transmission, if such notice or communication is delivered via
facsimile at the facsimile number specified in this Section on a day that is not
a Trading Day or later than 5:00 p.m., New York City time, on any Trading Day,
(c) the Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service with next day delivery specified, or
(d) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as follows:

If to the Company:               Heritage Oaks Bancorp
1222 Vine Street
Paso Robles, California 93446
Attention:  Lawrence P. Ward
Telephone: (805) 369-5260
Fax: (805) 369-5062

With a copy to:                     Stuart | Moore
641 Higuera, Suite 302
San Luis Obispo, California 93401
Attention: Kenneth E. Moore, Esq.
Telephone: (805) 545-8590
Fax: (805) 545-8599

If to Purchaser:                     At the address set forth on the signature
page hereto.

or such other address as may be designated in writing hereafter, in the same
manner, by such Person.

 
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6.4           Amendments; Waivers; No Additional Consideration.  No provision of
this Agreement may be waived or amended except in a written instrument signed,
in the case of an amendment, by the Company and each of the Purchasers affected
by such amendment or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. No waiver of any default with respect
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right. No consideration shall be offered or paid
to any Purchaser to amend or consent to a waiver or modification of any
provision of any Transaction Document unless the same consideration is also
offered to all Purchasers who then hold Preferred Shares.
 
            6.5           Construction.  The headings herein are for convenience
only, do not constitute a part of this Agreement and shall not be deemed to
limit or affect any of the provisions hereof.  The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party. This Agreement shall be construed as if drafted jointly by the
parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement or any of the Transaction Documents.
 
 
6.6           Successors and Assigns.  The provisions of this Agreement shall
inure to the benefit of and be binding upon the parties and their successors and
permitted assigns. This Agreement, or any rights or obligations hereunder, may
not be assigned by the Company without the prior written consent of the
Purchasers. Any Purchaser may assign its rights hereunder in whole or in part to
any Person to whom such Purchaser assigns or transfers any Securities in
compliance with the Transaction Documents and applicable law, provided such
transferee shall agree in writing to be bound, with respect to the transferred
Securities, by the terms and conditions of this Agreement that apply to the
“Purchasers”.
 
6.7           No Third-Party Beneficiaries.  This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, other than Indemnified Persons.
 
6.8           Governing Law.  All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
California, without regard to the principles of conflicts of law thereof. Each
party agrees that all Proceedings concerning the interpretations, enforcement
and defense of the transactions contemplated by this Agreement and any other
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, employees or agents) may be commenced on a non-exclusive basis in
the California Courts. Each party hereto hereby irrevocably submits to the
non-exclusive jurisdiction of the California Courts for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein (including with respect to the enforcement of any of
the Transaction Documents), and hereby irrevocably waives, and agrees not to
assert in

 
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any Proceeding, any claim that it is not personally subject to the jurisdiction
of any such California Court, or that such Proceeding has been commenced in an
improper or inconvenient forum. Each party hereto hereby irrevocably waives
personal service of process and consents to process being served in any such
Proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
 
6.9           Survival.  Subject to applicable statute of limitations, the
representations, warranties, agreements and covenants contained herein shall
survive the Closing and the delivery of the Preferred Shares.
 
6.10           Execution.  This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, or by e-mail delivery of a “.pdf” format
data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile signature page were an original thereof.
 
6.11           Severability.  If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
 
6.12           Replacement of Shares.  If any certificate or instrument
evidencing any Preferred Shares is mutilated, lost, stolen or destroyed, the
Company shall issue or cause to be issued in exchange and substitution for and
upon cancellation thereof, or in lieu of and substitution therefor, a new
certificate or instrument, but only upon receipt of evidence reasonably
satisfactory to the Company and the Transfer Agent of such loss, theft or
destruction and the execution by the holder thereof of a customary lost
certificate affidavit of that fact and an agreement to indemnify and hold
harmless the Company and the Transfer Agent for any losses in connection
therewith or, if required by the Transfer Agent, a bond in such form and amount
as is required by the Transfer Agent. The applicants for a new certificate or
instrument under such circumstances shall also pay any reasonable third-party
costs associated with the issuance of such replacement Shares. If a replacement
certificate or instrument evidencing any Preferred Shares is requested due to a
mutilation thereof, the Company may require delivery of such mutilated
certificate or instrument as a condition precedent to any issuance of a
replacement.

 
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6.13           Remedies.  In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agree to waive in any
action for specific performance of any such obligation (other than in connection
with any action for a temporary restraining order) the defense that a remedy at
law would be adequate.
 
6.14           Payment Set Aside.  To the extent that the Company makes a
payment or payments to any Purchaser pursuant to any Transaction Document or a
Purchaser enforces or exercises its rights thereunder, and such payment or
payments or the proceeds of such enforcement or exercise or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
recovered from, disgorged by or are required to be refunded, repaid or otherwise
restored to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
 
6.15           Independent Nature of Purchasers’ Obligations and Rights.  The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document.  The decision of each Purchaser to
purchase Preferred Shares pursuant to the Transaction Documents has been made by
such Purchaser independently of any other Purchaser and independently of any
information, materials, statements or opinions as to the business, affairs,
operations, assets, properties, liabilities, results of operations, condition
(financial or otherwise) or prospects of the Company or any Subsidiary which may
have been made or given by any other Purchaser or by any agent or employee of
any other Purchaser, and no Purchaser and any of its agents or employees shall
have any liability to any other Purchaser (or any other Person) relating to or
arising from any such information, materials, statement or opinions.  Nothing
contained herein or in any Transaction Document, and no action taken by any
Purchaser pursuant thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert or as
a group with respect to such obligations or the transactions contemplated by the
Transaction Documents.  Each Purchaser acknowledges that no other Purchaser has
acted as agent for such Purchaser in connection with making its investment
hereunder and that no Purchaser will be acting as agent of such Purchaser in
connection with monitoring its investment in the Preferred Shares or enforcing
its rights under the Transaction Documents.  Each Purchaser shall be entitled to
independently protect and enforce its rights, including without limitation the
rights arising out of this Agreement or out of the other Transaction Documents,
and it shall not be necessary for any other Purchaser to be joined as an
additional party in any proceeding for such purpose.
 
6.16           Termination.  Except with respect to the Patriot Additional
Shares, this Agreement may be terminated and the sale and purchase of the
Preferred Shares abandoned at any time prior to the Closing by either the
Company or any Purchaser (with respect to itself only)

 
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upon written notice to the other, if the Closing has not been consummated on or
prior to 5:00 p.m., New York City time, on the Outside Date; provided, however ,
that the right to terminate this Agreement under this Section 6.16 shall not be
available to any Person whose failure to comply with its obligations under this
Agreement has been the cause of or resulted in the failure of the Closing to
occur on or before such time; and provided, further, in the event this Agreement
is terminated by Patriot or the Company, with respect to Patriot, such
termination shall also terminate the obligations set forth in Sections 5.1(i)
and 5.3, hereof.  The Company shall give prompt notice of any such termination
to each other Purchaser, and, if necessary, work in good faith to restructure
the transaction to allow each Purchaser that does not exercise a termination
right to purchase the full number of securities set forth below such Purchaser’s
name on the signature page of this Agreement while remaining in compliance with
Section 4.12.  Subject to the provisions of Section 5.3, if (i) Patriot or any
of Patriot’s Affiliates receives written notice from or is otherwise advised by
the Federal Reserve that it will not grant a Non-Control Determination or by the
DFI that it will not approve or issue a non-objection to the purchase of the
Additional Patriot Shares or (ii) Patriot does not receive the Non-Control
Determination and the DFI approval or non-objection by May 15, 2010, then the
provisions of this Agreement as between the Company and Patriot requiring
Patriot to purchase and the Company to sell the Additional Patriot Shares set
forth in Sections 5.1(i) and 5.3 may be terminated by the Company or Patriot by
written notice to the other; provided, however, that the termination right
provided in this sentence shall not be available to any party who shall have
breached its obligations under this Agreement in any manner that shall have
proximately contributed to such DFI approval or non-objection or Federal Reserve
Non-Control Determination not to be obtained.  The termination of the provisions
of Section 5.1(i) and 5.3 in and of itself does not terminate the Company’s or
Patriot’s other obligations under the remaining terms of this
Agreement.  Nothing in this Section 6.16 shall be deemed to release any party
from any liability for any breach by such party of the terms and provisions of
this Agreement or the other Transaction Documents or to impair the right of any
party to compel specific performance by any other party of its obligations under
this Agreement or the other Transaction Documents. In the event of a termination
pursuant to this Section, the Company shall promptly notify all non-terminating
Purchasers. Upon a termination in accordance with this Section, the Company and
the terminating Purchaser(s) shall not have any further obligation or liability
(including arising from such termination) to the other, and no Purchaser will
have any liability to any other Purchaser under the Transaction Documents as a
result therefrom.
 
            6.17           Rescission and Withdrawal Right.  Notwithstanding
anything to the contrary contained in (and without limiting any similar
provisions of) the Transaction Documents, whenever any Purchaser exercises a
right, election, demand or option under a Transaction Document and the Company
does not timely perform its related obligations within the periods therein
provided, then such Purchaser may rescind or withdraw, in its sole discretion
from time to time upon written notice to the Company, any relevant notice,
demand or election in whole or in part without prejudice to its future actions
and rights.

6.18           Adjustments in Stock Numbers and Prices.  In the event of any
stock split, subdivision, dividend or distribution payable in shares of Common
Stock (or other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly shares of Common Stock), combination
or other similar recapitalization or event occurring after the date

 
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hereof and prior to Closing, each reference in any Transaction Document to a
number of shares or a price per share shall be deemed to be amended to
appropriately account for such event.

 
 

 
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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized signatories as of
the date first indicated above.
 
HERITAGE OAKS BANCORP

____________________________________
By:  Lawrence P. Ward
Its:  President and CEO

 
 

       

 
 
 
 
 
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGES FOR PURCHASERS FOLLOW]

 
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NAME OF
PURCHASER:                                   __________________________________

__________________________________
By:  ______________________________
Its:  ______________________________

Aggregate Purchase Price (Subscription Amount):     $_____________________

Number of Preferred Shares to be
Acquired:                  ______________________

Tax ID
No.:                                                                           ______________________

Address for
Notice:                                                            ______________________
   ______________________
   ______________________

Attention:                                                                           
______________________

Telephone
No.:                                                                   ______________________

Fax
No.:                                                                               
______________________

E-mail
Address:                                                                  ______________________

Delivery Instructions, if different from
above:              c/o  _______________________________ 

   Street:   ____________________________
  
   City/State/Zip: ______________________
 
   Attention: __________________________ 
 
   Telephone No.: ______________________ 

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