Exhibit 10.38


 


PROMISSORY NOTE


 


	
  Principal

  	
   

  	
  Loan Date

  	
   

  	
  Maturity

  	
   

  	
  Loan No.

  	
   

  	
  Call / Coll

  	
   

  	
  Account

  	
   

  	
  Officer

  	
   

  	
  Initials

  	
   

  
	
  $

  	
  3,500,000.00

  	
   

  	
  10-01-2003

  	
   

  	
  10-01-2013

  	
   

  	
  7002125

  	
   

  	
  Stock

  	
   

  	
   

  	
   

  	
  ***

  	
   

  	
  /s/ [ILLEGIBLE]

  	
   

  
																	



 


References in the shaded area are for
Lender’s use only and do not limit the applicability of this document to any
particular loan or item. Any item above containing “***” has been omitted due
to text length limitations.


 


	
  Borrower:

  	
  Heritage Oaks Bancorp

  545 12th Street

  Paso Robles, CA  93446

  	
   

  	
  Lender:

  	
  PACIFIC COAST BANKERS’ BANK

  340 PINE STREET, SUITE 401

  SAN FRANCISCO, CA  94104

  



 


	
  Principal Amount:   
  $3,500,000.00

  	
  Initial Rate:  4.000%

  	
  Date of Note:  October 1, 2003

  



 


PROMISE TO PAY.  Heritage Oaks Bancorp (“Borrower”) promises to pay to PACIFIC
COAST BANKERS’ BANK (“Lender”), or order, in lawful money of the United States
of America, the principal amount of Three Million Five Hundred Thousand &
00/100 Dollars ($3,500,000.00) or so much as may be outstanding, together with
interest on the unpaid outstanding principal balance of each advance.  Interest shall be calculated from the date
of each advance until repayment of each advance.


 


PAYMENT. 
Borrower will pay this loan in accordance with the following payment
schedule:


 


Two years Revolving Line of Credit – 8
quarterly consecutive interest payments, beginning January 1, 2004, with
interest calculated on the unpaid principal balances at interest rate based on
the Prime Rate as published in the Western Edition of the Wall Street Journal
(currently 4.000%), resulting in an initial interest rate of 4.000%.  The Line of Credit will mature October 1,
2005 and then amortized over 8–years term loan.


 


Eight years Term Loan – 31 quarterly
consecutive principal and interest payments in the initial amount of
$128,635.23 each, beginning January 1, 2006, with interest calculated on the
unpaid balances at an interest rate based on the Prime Rate as published in the
Western Edition of the Wall Street Journal (currently 4.000%), resulting in an
initial interest rate of 4.000%; and one principal and interest payment of
$128,635.27 on October 1, 2013, with interest calculated on the unpaid
principal balances at an initial rate based on the Prime Rate as published in
the Western Edition of the Wall Street Journal (currently 4.000%), resulting in
an initial interest rate of 4.000%. 
This estimated final payment is based on the assumption that all
payments will be made exactly as scheduled and that the Index does not change;
the actual final payment will be for all principal and accrued interest not yet
paid, together with any other unpaid amounts under this Note


 


Unless otherwise agreed or required by
applicable law, payments will be applied first to any unpaid collection costs
and any late charges, then to any unpaid interest, and any remaining amount to
principal.  The annual interest rate for
this Note is computed on a 365/360 basis; that is, by applying the ratio of the
annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal
balance is outstanding.  Borrower will
pay Lender at Lender’s address shown above or at such other place as Lender may
designate in writing.


 


VARIABLE INTEREST RATE.  The interest rate on this Note is subject to
change from time to time based on changes in an independent index which is the
Prime Rate as published in the Western Edition of the Wall Street Journal (the
“Index”).  The Index is not necessarily
the lowest rate charged by Lender on its loans.  If the Index becomes unavailable during the term of this loan,
Lender may designate a substitute index after notice to Borrower. Lender will
tell Borrower the current index rate upon Borrower’s request. The interest rate
change will not occur more often than each Day. Borrower understands that
Lender may make loans based on other rates as well.  The Index currently is
4.000%.  The interest rate to be applied
to the unpaid principal balance of this Note will be at a rate equal to the
Index, resulting in an initial rate of 4.000%.  NOTICE: 
Under no circumstances will the interest rate on this Note be more than
the maximum rate allowed by applicable law.


 


PREPAYMENT.  Borrower agrees that all loan fees and other
prepaid finance charges are earned fully as of the date of the loan and will
not be subject to refund upon early payment (whether voluntary or as a result
of default), except as otherwise required by law.  Except for the foregoing, Borrower may pay without penalty all or
a portion of the amount owed earlier than it is due.  Early payments will not, unless agreed to by Lender in writing,
relieve Borrower of Borrower’s obligation to continue to make payments of
accrued unpaid interest.  Rather, early
payments will reduce the principal balance due.  Borrower agrees not to send Lender payments marked “paid in
full”, “without recourse”, or similar language.  If Borrower sends such a payment, Lender may accept it without
losing any of Lender’s rights under this Note, and Borrower will remain
obligated to pay any further amount owed to Lender.  All written communications concerning disputed amounts, including
any check or other payment instrument that indicates that the payment
constitutes “payment in full” of the amount owed or that is tendered with other
conditions or limitations or as full satisfaction of a disputed amount must be
mailed or delivered to:  PACIFIC COAST
BANKERS’ BANK, 340 PINE STREET, SUITE 401, SAN FRANCISCO, CA  94104.


 


LATE CHARGE.  If a payment is 10 days or more late,
Borrower will be charged 5.000% of the regularly
scheduled payment.


 


INTEREST AFTER DEFAULT.  Upon Borrower’s failure to pay all amounts
declared due pursuant to this section, including failure to pay upon final
maturity, Lender, at its option, may, if permitted under applicable law,
increase the variable interest rate on this Note to 5.000 percentage points
over the Index.


 


DEFAULT. Each of the
following shall constitute an event of default (“Event of Default”) under this
Note:


 


Payment Default.  Borrower fails to make any payment when due
under this Note.


 


Other Defaults.  Borrower fails to comply with or to perform
any other term, obligation, covenant or condition contained in this Note or in
any of the related documents or to comply with or to perform any term,
obligation, covenant or condition contained in any other agreement between
Lender and Borrower.


 


False Statements.  Any warranty, representation or statement
made or furnished to Lender by Borrower or on Borrower’s behalf under this Note
or the related documents is false or misleading in any material respect, either
now or at the time made or furnished or becomes false or misleading at any time
thereafter.


 


Insolvency.  The dissolution or termination of Borrower’s
existence as a going business, the insolvency of Borrower, the appointment of a
receiver for any part of Borrower’s property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any proceeding
under any bankruptcy of insolvency laws by or against Borrower.


 


Creditor or Forfeiture Proceedings.  Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self–help, repossession or any
other method, by any creditor of Borrower or by any governmental agency against
any collateral securing the loan.  This
includes a garnishment of any of Borrower’s accounts, including deposit
accounts, with Lender.  However, this
Event of Default shall not apply if there is a good faith dispute by Borrower
as to the validity or reasonableness of the claim which is the basis of the
creditor or forfeiture proceeding and if Borrower gives Lender written notice
of the creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount determined
by Lender, in its sole discretion, as being an adequate reserve or bond for the
dispute.


 

















 


Loan No: 7001967


 


Events Affecting Guarantor.  Any of the preceding events occurs with
respect to any guarantor, endorser, surety, or accommodation party of any of
the indebtedness or any guarantor, endorser, surety, or accommodation party
dies or becomes incompetent, or revokes or disputes the validity of, or
liability under, any guaranty of the indebtedness evidenced by this Note.  In the event of a death, Lender, at its
option, may, but shall not be required to, permit the guarantor’s estate to
assume unconditionally the obligations arising under the guaranty in a manner
satisfactory to Lender, and, in doing so, cure any Event of Default.


 


Change in Ownership.  Any change in ownership of twenty–five
percent (25%) or more of the common stock of Borrower.


 


Adverse Change.  A material adverse change occurs in
Borrower’s financial condition, or Lender believes the prospect of payment or
performance of this Note is impaired.


 


Cure Provisions.  If any default, other than a default in
payment or failure to satisfy Lender’s requirement in the Insufficient Market
Value of Securities section is curable and if Borrower has not been given a
notice of breach of the same provision of this Note within the preceding twelve
(12) months, it may be cured (and no event of default will have occurred) if
Borrower, after receiving written notice from Lender demanding cure of such
default:  (1) cures the default within
fifteen (15) days; or (2) if the cure requires more than fifteen (15) days,
immediately initiates steps which Lender deems in Lender’s sole discretion to
be sufficient to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as soon as
reasonable practical.


 


LENDER’S RIGHTS.  Upon default, Lender may declare the entire
unpaid principal balance on this Note and all accrued unpaid interest
immediately due, and then Borrower will pay that amount.


 


ATTORNEYS’ FEES; EXPENSES.  Lender may hire or
pay someone else to help collect this Note if Borrower does not pay.  Borrower will pay Lender that amount.  This includes, subject to any limits under
applicable law, Lender’s attorneys’ fees and Lender’s legal expenses, whether
or not there is a lawsuit, including attorneys’ fees, expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay or
injunction), and appeals.  Borrower also
will pay any court costs, in addition to all other sums provided by law.


 


GOVERNING LAW.  This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of California.  This Note has been accepted by Lender in the
State of California.


 


CHOICE OF VENUE.  If there is a lawsuit, Borrower agrees
upon Lender’s request to submit to the jurisdiction of the courts of SAN
FRANCISCO  County, State of
California.


 


RIGHT OF SETOFF.  To the extent permitted by applicable
law, Lender reserves a right of setoff in all Borrower’s accounts with Lender (whether
checking, savings, or some other account). 
This includes all accounts Borrower holds jointly with someone else and
all accounts Borrower may open in the future. 
However, this does not include any IRA or Keogh accounts, or any trust
accounts for which setoff would be prohibited by law.  Borrower authorizes Lender, to the extent permitted by applicable
law, to charge or setoff all sums owing on the indebtedness against any and all
such accounts.


 


COLLATERAL. 
Borrower acknowledges this Note is secured by
339,332 Shares of Heritage Oaks Bank Stock.


 


LINE OF CREDIT.  This Note evidences a revolving line of
credit.  Advances under this Note, as
well as directions for payment from Borrower’s accounts, may be requested
orally or in writing by Borrower or by an authorized person.  Lender may, but need not, require that all
oral requests be confirmed in writing. Borrower agrees to be liable for all
sums either: (A) advanced in accordance with the instructions of an authorized
person or (B) credited to any of Borrower’s accounts with Lender.  The unpaid principal balance owing on this
Note at any time may be evidenced by endorsements on this Note or by Lender’s
internal records, including daily computer print–outs.  Lender will have no obligation to advance funds
under this Note if: (A) Borrower or any guarantor is in default under the terms
of this Note or any agreement that Borrower or any guarantor has with Lender,
including any agreement made in connection with the signing of this Note; (B)
Borrower or any guarantor ceases doing business or is insolvent; (C) any
guarantor seeks, claims or otherwise attempts to limit, modify or revoke such
guarantor’s guarantee of this Note or any other loan with Lender; or (D)
Borrower has applied funds provided pursuant to this Note for purposes other
than those authorized by Lender.


 


OTHER
CONDITIONS. 1.               Approval
is contingent upon PCBB participating out $1,500,000 of the facility to other
banks.


2.       Loan to collateral value
not to exceed 50% during the term of the credit facility.  Collateral value based on the Tier 1 Capital
of Heritage Oaks Bank.


3.       PCBB to hold 51% of the
stock of Heritage Oaks Bank.


4.       PCBB to be provided with
a copy of minutes from the Board of Directors of Heritage Oaks Bank stating
that dividends will be declared in an amount necessary to service this debt.


5.       PCBB to be provided with
a copy of the minutes from the Board of Directors of Heritage Oaks Bancorp
authorizing the debt of $3.5MM with PCBB.


6.       Heritage
Oaks Bancorp will inform PCBB of any declaration of cash dividends.


7.       Cash flow of Heritage
Oaks Bank must be sufficient to service the proposed debt at a Debt Service
Ratio not less than 1.50X as calculated by PCBB.


8.       Heritage Oaks Bancorp
will not incur any additional debt over $2MM exclusive of inter–company debt
and existing debt (existing debt includes lines of credit, trust preferred,
etc.) without the prior written consent of PCBB which will not be unreasonably
withheld.


9.       Heritage Oaks Bancorp to
provide PCBB with immediate notification of any Regulatory Action relative to
Heritage Oaks Bank or any financial institution acquired by Heritage Oaks
Bancorp within compliance of regulatory requirements.


10.     Heritage Oaks Bank must be
“well” capitalized on an on–going basis as defined by Regulators.


11.     Heritage Oaks Bancorp to
provide PCBB with their Annual Report within 90 days of fiscal year end and
quarterly call reports within 30 days of each quarter.


12.     Heritage Oaks Bank to
provide PCBB with Call Reports, including all schedules (including past due
loans, OREO and non–accrual) within 30 days of each quarter end.


13.     Pacific Coast Bankers’
Bank reserves the right to conduct a review of the subsidiary bank(s) loan
portfolio.


 


SUCCESSOR INTERESTS.  The terms of this
Note shall be binding upon Borrower, and upon Borrower’s heirs, personal
representatives, successors and assigns, and shall inure to the benefit of
Lender and its successors and assigns.


 


NOTIFY US OF INACCURATE INFORMATION WE REPORT
TO CONSUMER REPORTING AGENCIES. Please notify us if we
report any inaccurate information about your account(s) to a consumer reporting
agency. Your written notice describing the specific inaccuracy(ies) should be
sent to us at the following address: PACIFIC COAST BANKERS’ BANK 340 PINE
STREET, SUITE 401 SAN FRANCISCO, CA 94104


 


GENERAL PROVISIONS.  Lender may delay or forgo enforcing any
of its rights or remedies under this Note without losing them. Borrower and any
other person who signs, guarantees or endorses this Note, to the extent allowed
by law, waive any applicable statute of limitations, presentment, demand for
payment, and notice of dishonor.  Upon
any change in the terms of this Note, and unless otherwise expressly stated in
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability.  All such parties agree that Lender may renew
or extend (repeatedly and for any length of time) this loan or release any
party or guarantor or collateral; or impair, fail to realize upon or perfect
Lender’s security interest in the collateral; and take any other action deemed
necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.  The obligations under this Note are joint
and several.


 


2

















 


PRIOR TO SIGNING THIS NOTE, BORROWER READ AND
UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST
RATE PROVISIONS.  BORROWER AGREES TO THE
TERMS OF THE NOTE.


 


BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THIS PROMISSORY NOTE.


 


BORROWER:


 


 


HERITAGE OAKS BANCORP


 


 


	
  By:

  	
  /s/ 
  Lawrence Ward      10-3-03

  	
   

  	
  By:

  	
  /s/ 
  Margaret Torres

  	
   

  
	
   

  	
  Lawrence Ward, President/CEO of Heritage Oaks Bancorp

  	
   

  	
   

  	
  Margaret Torres, Executive Vice President
  of Heritage Oaks Bancorp

  	
   

  



 


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