SECOND AMENDMENT TO EMPLOYMENT AGREEMENT

This Second Amendment to  Employment Agreement (the “Second Amendment”) is made
and is effective as of August 26, 2009, by and between Heritage Oaks Bank, a
California state chartered bank (“Bank”) and Lawrence P. Ward (“Executive”).

RECITALS

This Second Amendment is made with regard to the following facts:

B.    
Executive is currently employed by the Bank pursuant to that certain Employment
Agreement dated as of January 1, 2005 by and between the Bank and the Executive
(the “Agreement”).

C.    
Heritage Oaks Bancorp (the “Company”), the Bank’s holding company, closed a
transaction with the United States Department of Treasury (the “Treasury”) and
as a result, became a participant in the Capital Purchase Program (“CPP”), as
authorized under the Troubled Asset Relief Program (“TARP”).

D.    
As a result of the Company’s participation in the CPP, the Company and its
subsidiaries, including the Bank, are subject to executive compensation and
other restrictions as set forth in the CPP, as modified by the American Recovery
and Reinvestment Act of 2009 (“ARRA”) and the Interim Final Rule on TARP
Standards for Compensation and Corporate Governance published in the Federal
Register on June 15, 2009 (the “Interim Final Rule”).

E.    
Executive and Bank desire to amend the terms of the Agreement in the manner set
forth herein for the purpose of complying with TARP.

TERMS

In consideration of the premises and the respective covenants and agreements of
the parties herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:

6.    
Section 6(b) of the Agreement is amended and restated as follows:

 
(b)
Bonuses.   Executive may receive certain annual bonus compensation during the
Term of this Agreement as follows:

(i)    
1997 Bonus Plan.  During each year of the Term, Executive shall be eligible to
participate in the 1997 Bonus Plan and to receive a bonus from such bonus plan
in an amount to be determined by the Board’s compensation committee.

(ii)    
Discretionary Bonus.  Executive may also, in the discretion of the Board,
receive an additional bonus based on individual merit and performance.  The
amount of this bonus, if any, in any such year shall be determined by the Board,
in its sole discretion.
 
If the Company is subject to the executive compensation limitations under the
United States Treasury Department’s Troubled Asset Relief Program (“TARP”,) the
payment of any such discretionary bonus shall be subject to those restrictions
set forth under TARP.  Such restrictions specifically include the requirement
that any and all such bonuses and/or portions thereof shall be subject to
forfeiture and/or repayment by the Executive to the Company if the payment of
such bonus was based on materially inaccurate financial statements or any other
materially inaccurate performance metric criteria.

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7.    
Section 8(h) of the Agreement is hereby removed in its entirety and amended to
read as follows:

 
(h)
Reduction of Payment; Compliance with Laws; IRC Section 409A Compliance.

(i)    
Notwithstanding anything in the foregoing to the contrary, if the payments made
to Executive following a Termination Without Cause or Resignation For Good
Reason or any of the other payments provided for in this Agreement, together
with any other payments which Executive has the right to receive from the Bank
or Bancorp would constitute a "parachute payment" (as defined in Section 280G of
the Code), the payments pursuant to this Agreement shall be reduced to the
largest amount as will result in no portion of such payments being subject to
the excise tax imposed by Section 4999 of the Code; provided, however, that (A)
the parties acknowledge that the foregoing payment is for services to be
rendered in the event of a Change in Control over and above those normally and
reasonably expected of the Executive, and (B) the determination as to whether
any reduction in the payments under this Agreement pursuant to this proviso is
necessary shall be made in good faith by the Bank’s and Bancorp’s independent
auditors or if such firm is no longer providing tax services to Bank or Bancorp
to such other tax advisor as shall be mutually acceptable to Bank, Bancorp and
Executive, and such determination shall be conclusive and binding on the Bank,
Bancorp and Executive with respect to the treatment of the payment for tax
reporting purposes.

(ii)    
This Agreement, and any payments or benefits hereunder, are made expressly
subject to and conditioned upon compliance with all federal and state law,
regulations and policies relating to the subject matter of this Agreement,
including but not limited to the provisions of law codified at 12 U.S.C. Section
1828(k), the regulations of the FDIC codified as 12 C.F.R. Part 359, and any
successor or similar federal or state law or regulation applicable to the Bank
or Bancorp.  Employee acknowledges that he understands the sections of law and
regulations cited above and that Bank’s and Bancorp’s obligations to make
payments hereunder are expressly relieved if such payments violate any federal
or state law or regulation applicable to the Bank or Bancorp.

(iii)    
If the Company is subject to the executive compensation limitations under TARP
at the time the Executive receives payment(s) under sections 8(d) and/or 8(e)
and any such payment(s), together with any other payments which Executive has
the right to receive from the Company, exceed the limits allowed for Executive
established under TARP, then the aggregate payments pursuant to this Agreement,
and any other agreement with Executive, shall be reduced to the largest amount
as will result in no portion of such payments violating the executive
compensation limitations under TARP.

(iv)    
Notwithstanding any provision existing in this Agreement or any amendment
thereto, it is the intent of the Bank and Executive that any payment or benefit
provided pursuant to this Agreement shall be made and paid in a manner, at a
time and in a form which complies with the applicable requirements of IRC
Section 409A, in order to avoid any unfavorable tax consequences resulting from
any such failure to comply. Furthermore, for the purposes of this Agreement, IRC
Section 409A shall be read to include any related or relevant IRS Notices
(including but not limited to Notice 2007-86).  In the event of any ambiguity in
terms, or in the event further clarification of any term or provision is
necessary, all interpretations and payouts of benefits based thereon shall be in
accordance with IRC 409A and any related notices or guidance thereon.

8.    
Capitalized terms used herein and not otherwise defined shall have the same
meaning as set forth in the Agreement.

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9.    
This Second Amendment may be entered into in one or more counterparts, all of
which shall be considered one and the same instrument, and it shall become
effective when one or more counterparts have been signed by each of the Parties
and delivered to the other Parties, it being understood that all Parties need
not sign the same counterpart.

10.    
Except as herein amended, the Agreement shall remain in full force and effect.

11.    
This Second Amendment shall be governed by and construed in accordance with the
laws of the State of California.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
 
 

ATTEST:      HERITAGE OAKS BANK  
/s/ Lorraine R. Williams
    /s/ Michael Morris  
 
    Its:
Chairman of the Board
 

 
    Print name:
Michael Morris
 

 
 

      THE EXECUTIVE               /s/ Lorraine R. Williams                /s/
Lawrence P. Ward                                
Witness
    (Named Executive)  

 

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