**Exhibit 10.35**

 

**HERITAGE OAKS BANK**

**SALARY CONTINUATION AGREEMENT**

 

THIS SALARY CONTINUATION AGREEMENT (the“Agreement”) is adopted this                 day of                             ,200   , by and between HERITAGE OAKS BANK, a state-charteredcommercial bank located in Paso Robles, California (the “Company”), and PAULDELINE (the “Executive”).

 

The purpose of this Agreement is to providespecified benefits to the Executive, a member of a select group of managementor highly compensated employees who contribute materially to the continuedgrowth, development and future business success of the Company.  This Agreement shall be unfunded for taxpurposes and for purposes of Title I of the Employee Retirement Income SecurityAct of 1974 (“ERISA”), as amended from time to time.  The Company will pay the benefits from its general assets.

 

**AGREEMENT**

 

The Company and the Executive agree asfollows:

 

**Article 1**

**Definitions**

 

**Whenever used in thisAgreement, the following words and phrases shall have the meanings specified:**

 

1.1                                 “Accrual Balance” means the amountaccrued by the Company as a liability for benefits under this Agreement, asshown on Schedule A.

 

1.2                                 “Beneficiary” means each designatedperson, or the estate of the deceased Executive, entitled to benefits, if any,upon the death of the Executive determined pursuant to Article 4.

 

1.3                                 “Beneficiary Designation Form” meansthe form established from time to time by the Company that the Executivecompletes, signs and returns to the Company to designate one or moreBeneficiaries.

 

1.4                                 “Change of Control” means:

 

(a)                                  Achange in the ownership of the capital stock of the Corporation, wherebyanother corporation, person, or group acting in concert (hereinafter thisAgreement shall collectively refer to any combination of these three [anothercorporation, person, or group acting in concert] as a “Person”) as describedin Section 14(d)(2) of the Securities Exchange Act of 1934, as amended(the “Exchange Act”), acquires, directly or indirectly, beneficial ownership(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of anumber of shares of capital stock of the Corporation which constitutes fiftypercent (50%) or more of the combined voting power of the Corporation’s thenoutstanding capital stock then entitled to vote generally in the election ofdirectors; or

 

(b)                                 Thepersons who were members of the Board of Directors of the Corporationimmediately prior to a tender offer, exchange offer, contested election or anycombination of the foregoing, cease to constitute a majority of the Board ofDirectors; or

 

(c)                                  Theadoption by the Board of Directors of the Corporation of a merger,consolidation or reorganization plan involving the Corporation in which theCorporation is not the surviving entity, or a sale of all or substantially allof the assets of the Corporation.  Forpurposes of this Agreement, a sale of all or substantially all of the assets ofthe Corporation shall be deemed to occur if any Person acquires (or during the12-month period ending on the date of the most recent acquisition by suchPerson, has acquired) gross assets of the Corporation that have an aggregatefair market value equal

 

1

----

 

to fifty percent (50%) or more of the fair market value of all of therespective gross assets of the Corporation immediately prior to suchacquisition or acquisitions; or

 

(d)                                 Atender offer or exchange offer is made by any Person which results in suchPerson beneficially owning (within the meaning of Rule 13d-3 promulgated underthe Exchange Act) either fifty percent (50%) or more of the Corporation’soutstanding shares of Common Stock or shares of capital stock having fiftypercent (50%) or more the combined voting power of the Corporation’s thenoutstanding capital stock (other than an offer made by the Corporation), andsufficient shares are acquired under the offer to cause such person to ownfifty percent (50%) or more of the voting power; or

 

(e)                                  Anyother transactions or series of related transactions occurring which havesubstantially the same effect as the transactions specified in any of thepreceding clauses of this Section 1.4.

 

Notwithstanding the above, certain transfers are permitted withinSection 318 of the Code and such transfers shall not be deemed a Change ofControl under this Section 1.4.

 

1.5                                 “Code”means the Internal Revenue Code of 1986, as amended.

 

1.6                                 “Corporation” means Heritage OaksBancorp.

 

1.7                                 “Disability”means the Executive’s suffering a sickness, accident or injury which has beendetermined by the carrier of any individual or group disability insurancepolicy covering the Executive, or by the Social Security Administration, to bea disability rendering the Executive totally and permanently disabled.  The Executive must submit proof to the PlanAdministrator of the carrier’s or Social Security Administration’sdetermination upon the request of the Plan Administrator.

 

1.8                                 “Discount Rate”means the rate used by the Company for determining the Accrual Balance underGenerally Accepted Accounting Principles (“GAAP”).  The initial rate is 7.5%, however, it may be adjusted by theCompany upon written guidance from the Company’s outside auditor that anadjustment in necessary to maintain the rate within reasonable standardsaccording to GAAP.

 

1.9                                 “EarlyTermination” means theTermination of Employment before Normal Retirement Age for reasons other thandeath, Disability, Termination for Cause or following a Change of Control.

 

1.10                           “EarlyTermination Date” means the month, day and year in which EarlyTermination occurs.

 

1.11                           “EffectiveDate” means                                                        .

 

1.12                           “NormalRetirement Age” means the Executive’s sixty-fifth (65th)birthday.

 

1.13                           “NormalRetirement Date” means the later of the Normal Retirement Age orTermination of Employment.

 

1.14                           “Plan Administrator” means the planadministrator described in Article 8.

 

1.15                           “PlanYear” means each twelve-month period commencing on the EffectiveDate.

 

1.16                           “Schedule A” means the schedule, asit exists from time to time, attached to this Agreement and made a part hereof,that shows benefits that may be payable under this Agreement.

 

1.17                           “Terminationfor Cause” has that meaningset forth in Article 5.

 

1.18                           “Terminationof Employment” means that the Executive ceases to be employed by theCompany for any reason, voluntary or involuntary, other than by reason of aleave of absence approved by the Company.

 

2

----

 

**Article 2**

**Benefits During Lifetime**

 

2.1                                 Normal RetirementBenefit.  Upon Termination of Employment on or afterthe Normal Retirement Age****for reasons other than death, the Companyshall pay to the Executive the benefit described in this Section 2.1 in lieu ofany other benefit under this Article.

 

2.1.1                        Amount of Benefit. The annual benefit under this Section 2.1 is EIGHTEEN THOUSAND DOLLARS($18,000).

 

2.1.2                        Payment ofBenefit.  The Company shall pay the annual benefit tothe Executive in twelve (12) equal monthly installments commencing on the firstday of the month following the Executive’s Normal Retirement Date.  The annual benefit shall be paid to theExecutive for fifteen (15) years.

 

2.2                                 Early TerminationBenefit.  Upon Early Termination, the Company shallpay to the Executive the benefit described in this Section 2.2 in lieu of anyother benefit under this Article.

 

2.2.1*                       *Amount of Benefit. The benefit under this Section 2.2 is the Early Termination Lump Sumbenefit set forth on Schedule A for the Plan Year ending immediately prior tothe Early Termination Date.  The EarlyTermination benefit is determined by vesting the Executive in ten percent (10%)of the Accrual Balance for the first Plan Year and an additional ten percent(10%) of said amount for each succeeding year thereafter until the Executivebecomes one hundred percent (100%) vested in the Accrual Balance.

 

2.2.2*                       *Payment ofBenefit.  The Company shall pay the benefit to theExecutive in a lump sum within ninety (90) days following the Early TerminationDate.

 

2.3*                                *DisabilityBenefit*.*  If the Executive terminates employment dueto Disability prior to Normal Retirement Age, the Company shall pay to theExecutive the benefit described in this Section 2.3 in lieu of any otherbenefit under this Article.

 

2.3.1*                       *Amount of Benefit*.*  The benefit under this Section 2.3 is theDisability Installment benefitset forth on Schedule A for the Plan Year ending immediately prior to theExecutive’s Termination of Employment (except during the first Plan Year, thebenefit is the amount set forth for Plan Year 1).  The Disability benefit is determined by vesting the Executive inone hundred percent (100%) of the Accrual Balance, and continuing to apply theDiscount Rate to the Accrual Balance for the duration of payments.

 

2.3.2*                       *Payment ofBenefit.  The Company shall pay the benefit to theExecutive in one hundred eighty (180) equal consecutive installments commencingwith the first of the month following Normal Retirement Age.

 

2.4*                                *Change of ControlBenefit.  Upon a Change of Control, the Company shallpay to the Executive the benefit described in this Section 2.4 in lieu of anyother benefit under this Article.

 

2.4.1*                       *Amount of Benefit*.*  The benefit under this Section 2.4 is theChange of Control Installment benefit set forth on Schedule A for the Plan Yearending immediately prior to the Executive’s Termination of Employment (exceptduring the first Plan Year, the benefit is the amount set forth for Plan Year1).  The Change of Control benefit isdetermined by vesting the Executive in one hundred percent (100%) of the NormalRetirement Benefit amount described in Section 2.1.1.

 

2.4.2                        Payment ofBenefit.**** The Company shall pay the annual benefit tothe Executive in twelve (12) equal monthly installments commencing with thefirst of the  month following Normal

 

3

----

 

RetirementAge.  The annual benefit shall be paidto the Executive for a period of fifteen (15) years.

 

**Article 3**

**Death Benefits**

 

3.1                                 Death DuringActive Service.  If the Executive dies while in the activeservice of the Company, the Company shall pay to the Beneficiary the benefitdescribed in this Section 3.1.  Thisbenefit shall be paid in lieu of the benefits under Article 2.

 

3.1.1                        Amount of Benefit. The annual benefit under this Section 3.1 is the Normal RetirementBenefit amount described in Section 2.1.1.

 

3.1.2                        Payment ofBenefit.  The Company shall pay the annual benefit tothe Beneficiary in twelve (12) equal monthly installments commencing with themonth following the Executive’s death. The annual benefit shall be paid to the Beneficiary for a period offifteen (15) years.

 

3.2                                 Death DuringPayment of a Benefit.  If the Executive dies after any benefitpayments have commenced under Article 2 of this Agreement but before receivingall such payments, the Company shall pay the remaining benefits to theBeneficiary at the same time and in the same amounts they would have been paidto the Executive had the Executive survived.

 

3.3                                 Death AfterTermination of Employment But Before Payment of a Benefit Commences*.*** **If theExecutive is entitled to any benefit payments under Article 2 of thisAgreement, but dies prior to the commencement of said benefit payments, theCompany shall pay the same benefit payments to the Beneficiary that theExecutive was entitled to prior to death except that the benefit payments shallcommence on the first day of the month following the date of the Executive’sdeath. 

 

**Article 4**

**Beneficiaries**

 

4.1                                 BeneficiaryDesignation.  The Executive shall have the right, at anytime, to designate a Beneficiary(ies) to receive any benefits payable underthis Agreement to a Beneficiary upon the death of the Executive.  The Beneficiary designated under thisAgreement may be the same as or different from the Beneficiary designation underany other plan of the Company in which the Executive participates.

 

4.2                                 Beneficiary Designation: Change. The Executive shall designate a Beneficiary by completing and signingthe Beneficiary Designation Form, and delivering it to the Plan Administratoror its designated agent.  TheExecutive’s Beneficiary designation shall be deemed automatically revoked ifthe Beneficiary predeceases the Executive or if the Executive names a spouse asBeneficiary and the marriage is subsequently dissolved.  The Executive shall have the right to changea Beneficiary by completing, signing and otherwise complying with the terms ofthe Beneficiary Designation Form and the Plan Administrator’s rules andprocedures, as in effect from time to time. Upon the acceptance by the Plan Administrator of a new BeneficiaryDesignation Form, all Beneficiary designations previously filed shall becancelled.  The Plan Administrator shallbe entitled to rely on the last Beneficiary Designation Form filed by theExecutive and accepted by the Plan Administrator prior to the Executive’sdeath.

 

4.3                                 Acknowledgment.  Nodesignation or change in designation of a Beneficiary shall be effective untilreceived, accepted and acknowledged in writing by the Plan Administrator or itsdesignated agent.

 

4.4                                 No Beneficiary Designation.  Ifthe Executive dies without a valid beneficiary designation, or if alldesignated Beneficiaries predecease the Executive, then the Executive’s spouseshall be the designated Beneficiary.  Ifthe Executive has no surviving spouse, the benefits shall be made to the 

 

4

----

 

personal representative of the Executive’s estate.

 

4.5                                 Facility ofPayment.  If the Plan Administrator determines in itsdiscretion that a benefit is to be paid to a minor, to a person declaredincompetent, or to a person incapable of handling the disposition of thatperson’s property, the Plan Administrator may direct payment of such benefit tothe guardian, legal representative or person having the care or custody of suchminor, incompetent person or incapable person. The Plan Administrator may require proof of incompetence, minority orguardianship as it may deem appropriate prior to distribution of the benefit.  Any payment of a benefit shall be a payment forthe account of the Executive and the Executive’s Beneficiary, as the case maybe, and shall be a complete discharge of any liability under the Agreement forsuch payment amount.

 

Article 5

**General Limitations**

 

5.1                                 Termination forCause.  Notwithstanding any provision of thisAgreement to the contrary, the Company shall not pay any benefit under thisAgreement if the Company’s Board of Directors terminates the Executive’semployment for:

 

(a)                                  Gross negligence or gross neglect of dutiesto the Company;

 

(b)                                 Commission of a felony or of a grossmisdemeanor involving moral turpitude; or

 

(c)                                  Fraud, disloyalty, dishonesty or willfulviolation of any law or significant Company policy committed in connection withthe Executive’s employment and resulting in a material adverse effect on theCompany.

 

5.2                                 Suicide orMisstatement.  The Company shall not pay any benefit underthis Agreement if the Executive commits suicide within three years after theEffective Date.  In addition, theCompany shall not pay any benefit under this Agreement if the Executive hasmade any material misstatement of fact on any application for life insuranceowned by the Company on the Executive’s life.

 

5.4                                 Excess ParachutePayment.  Notwithstanding any provision of thisAgreement to the contrary, to the extent any benefit would create an excise taxunder the excess parachute rules of Section 280G of the Code, the Company shallreduce the benefit paid under this Agreement to the extent it would not resultin any such excise tax.

 

**Article 6**

**Claims And Review Procedures**

 

6.1                                 Claims Procedure.  AnExecutive or Beneficiary (“claimant”) who has not received benefits under theAgreement that he or she believes should be paid shall make a claim for suchbenefits as follows:

 

6.1.1                        Initiation – Written Claim. The claimant initiates a claim by submitting to the Plan Administrator awritten claim for the benefits.

 

6.1.2                        Timing of Plan Administrator Response*.*  ThePlan Administrator shall respond to such claimant within 90 days afterreceiving the claim.  If the PlanAdministrator determines that special circumstances require additional time forprocessing the claim, the Plan Administrator can extend the response period byan additional 90 days by notifying the claimant in writing, prior to the end ofthe initial 90-day period, that an additional period is required.  The notice of extension must set forth thespecial circumstances and the date by which the Plan Administrator expects torender its decision.

 

6.1.3                        Notice of Decision.  Ifthe Plan Administrator denies part or all of the claim, the Plan Administratorshall notify the claimant in writing of such denial.  The Plan Administrator shall 

 

5

----

 

write the notification in a manner calculatedto be understood by the claimant.  Thenotification shall set forth:

 

(a)                                  The specific reasons for the denial;

(b)                                 A reference to the specific provisions ofthe Agreement on which the denial is based;

(c)                                  A description of any additional informationor material necessary for the claimant to perfect the claim and an explanationof why it is needed;

(d)                                 An explanation of the Agreement’s reviewprocedures and the time limits applicable to such procedures; and

(e)                                  A statement of the claimant’s right to bringa civil action under ERISA Section 502(a) following an adverse benefitdetermination on review.

 

6.2                                 Review Procedure.  Ifthe Plan Administrator denies part or all of the claim, the claimant shall havethe opportunity for a full and fair review by the Plan Administrator of thedenial, as follows:

 

6.2.1                        Initiation – Written Request.  Toinitiate the review, the claimant, within 60 days after receiving the PlanAdministrator’s notice of denial, must file with the Plan Administrator awritten request for review.

 

6.2.2                        Additional Submissions – Information Access. The claimant shall then have the opportunity to submit written comments,documents, records and other information relating to the claim.  The Plan Administrator shall also providethe claimant, upon request and free of charge, reasonable access to, and copiesof, all documents, records and other information relevant (as defined inapplicable ERISA regulations) to the claimant’s claim for benefits.

 

6.2.3                        Considerations on Review.  Inconsidering the review, the Plan Administrator shall take into account allmaterials and information the claimant submits relating to the claim, withoutregard to whether such information was submitted or considered in the initialbenefit determination.

 

6.2.4                        Timing of Plan Administrator Response. The Plan Administrator shall respond in writing to such claimant within60 days after receiving the request for review.  If the Plan Administrator determines that special circumstancesrequire additional time for processing the claim, the Plan Administrator canextend the response period by an additional 60 days by notifying the claimantin writing, prior to the end of the initial 60-day period, that an additionalperiod is required.  The notice of extensionmust set forth the special circumstances and the date by which the PlanAdministrator expects to render its decision.

 

6.2.5                        Notice of Decision. The Plan Administrator shall notify the claimant in writing of itsdecision on review.  The PlanAdministrator shall write the notification in a manner calculated to beunderstood by the claimant.  Thenotification shall set forth:

 

(a)                                  The specific reasons for the denial;

(b)                                 A reference to the specific provisions ofthe Agreement on which the denial is based;

(c)                                  A statement that the claimant is entitled toreceive, upon request and free of charge, reasonable access to, and copies of,all documents, records and other information relevant (as defined in applicableERISA regulations) to the claimant’s claim for benefits; and

(d)                                 A statement of the claimant’s right to bringa civil action under ERISA Section 502(a).

 

**Article 7**

**Amendments and Termination**

 

This Agreement may be amended or terminatedonly by a written agreement signed by the Company and the Executive.  Provided, however, if the Company’s Board ofDirectors determines that the Executive is no longer a member of a select groupof management or highly compensated employees for reasons other 

 

6

----

 

than death, Disability orretirement, the Company may amend or terminate this Agreement.  Upon such amendment or termination theCompany shall pay benefits to the Executive as if Early Termination occurred onthe date of such amendment or termination, regardless of whether EarlyTermination actually occurs.

 

**Article 8**

**Administrationof Agreement**

 

8.1                                 Plan AdministratorDuties.  This Agreement shall beadministered by a Plan Administrator which shall consist of the Board, or suchcommittee or person(s) as the Board shall appoint.  The Executive may be a member of the Plan Administrator.  The Plan Administrator shall also have thediscretion and authority to (i) make, amend, interpret and enforce allappropriate rules and regulations for the administra­tion of this Agreement and(ii) decide or resolve any and all ques­tions including interpretations of thisAgreement, as may arise in connection with the Agreement.

 

8.2                                 Agents.  In the administration of this Agreement, thePlan Administrator may employ agents and delegate to them such administrativeduties as it sees fit, (including acting through a duly appointedrepresentative), and may from time to time consult with counsel who may becounsel to the Company.

 

8.3                                 Binding Effect ofDecisions.  The decision or actionof the Plan Administrator with respect to any question arising out of or inconnection with the administration, interpretation and application of theAgreement and the rules and regulations promulgated hereunder shall be finaland conclusive and binding upon all persons having any interest in theAgreement.

 

8.4                                 Indemnity of PlanAdministrator.  The Company shallindemnify and hold harmless the members of the Plan Administrator against anyand all claims, losses, damages, expenses or liabilities arising from anyaction or failure to act with respect to this Agreement, except in the case ofwillful misconduct by the Plan Administrator or any of its members.

 

8.5                                 Company Information.  To enable the Plan Administrator to performits functions, the Company shall supply full and timely information to the PlanAdministrator on all matters relating to the Compensation of its Participants,the date and circum­stances of the retirement, Disability, death or Termina­tionof Employment of its Participants, and such other pertinent information as thePlan Administrator may reasonably require.

 

**Article 9**

**Miscellaneous**

 

9.1                                 Binding Effect. This Agreement shall bind the Executive and the Company, and theirbeneficiaries, survivors, executors, successors, administrators andtransferees.

 

9.2                                 No Guarantee ofEmployment.  This Agreement is not an employment policyor contract.  It does not give theExecutive the right to remain an employee of the Company, nor does it interferewith the Company’s right to discharge the Executive.  It also does not require the Executive to remain an employee norinterfere with the Executive’s right to terminate employment at any time.

 

9.3                                 Non-Transferability. Benefits under this Agreement cannot besold, transferred, assigned, pledged, attached or encumbered in any manner.

 

9.4                                 Tax Withholding. The Company shall withhold any taxes that are required to be withheldfrom the benefits provided under this Agreement.

 

9.5                                 Applicable Law. The Agreement and all rights hereunder shall be governed by the laws ofthe State of California, except to the extent preempted by the laws of theUnited States of America.

 

9.6                                 UnfundedArrangement.  The Executive and Beneficiary are generalunsecured creditors of the 

 

7

----

 

Company for the payment of benefits underthis Agreement.  The benefits representthe mere promise by the Company to pay such benefits.  The rights to benefits are not subject in any manner toanticipation, alienation, sale, transfer, assignment, pledge, encumbrance,attachment, or garnishment by creditors. Any insurance on the Executive’s life is a general asset of the Companyto which the Executive and Beneficiary have no preferred or secured claim.

 

9.7                                 Reorganization.* *TheCompany shall not merge or consolidate into or with another company, orreorganize, or sell substantially all of its assets to another company, firm,or person unless such succeeding or continuing company, firm, or person agreesto assume and discharge the obligations of the Company under this Agreement.  Upon the occurrence of such event, the term“Company” as used in this Agreement shall be deemed to refer to the successoror survivor company.

 

9.8                                 Entire Agreement.* *This Agreement constitutes the entireagreement between the Company and the Executive as to the subject matterhereof.  No rights are granted to theExecutive by virtue of this Agreement other than those specifically set forthherein.

 

9.9                                 Interpretation.  Wherever the fulfillment of the intent and purpose of this Agreementrequires, and the context will permit, the use of the masculine gender includesthe feminine and use of the singular includes the plural.

 

9.10                           AlternativeAction.  In the event it shall become impossible forthe Company or the Plan Administrator to perform any act required by thisAgreement, the Company or Plan Administrator may in its discretion perform suchalternative act as most nearly carries out the intent and purpose of thisAgreement and is in the best interests of the Company.

 

9.11                           Headings.  Article and section headings are for convenient reference only and shallnot control or affect the meaning or construction of any of its provisions.

 

9.12                           Validity.  In case any provision of thisAgreement shall be illegal or invalid for any reason, said illegality orinvalidity shall not affect the remaining parts hereof, but this Agreementshall be construed and enforced as if such illegal and invalid provision hasnever been inserted herein.

 

**9.13****                       ****Notice.  Any notice or filing required or permittedto be given to the Company under this Agreement shall be sufficient if inwriting and hand-delivered, or sent by registered or certified mail, to theaddress below:**

 
|   |
|--------|
|   |
|   |

 

**Such noticeshall be deemed given as of the date of delivery or, if delivery is made bymail, as of the date shown on the postmark on the receipt for registration orcertification.**

 

Any notice or filing required or permitted tobe given to the Executive under this Agreement shall be sufficient if inwriting and hand-delivered, or sent by mail, to the last known address of the Executive.

 

IN WITNESS WHEREOF, the Executive and a dulyauthorized representative of the Company have signed this Agreement.

 
| **EXECUTIVE:** | **COMPANY:**            |         |
|----------------|-------------------------|--------------|
|           |                    |         |
|           | **HERITAGE OAKS  BANK** |         |
|           |                    |         |
|           |                    | **By ** |   |   |
| Paul DeLine    | Title                   |         |   |   |
|                |                         |              |  |  |  |  |

 

8

----