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** **

**EXHIBIT10.17**

**EXECUTIVESALARY CONTINUATION AGREEMENT**

 

 

This Agreement is made and entered into this       day of             , 1997, by and between Heritage Oaks Bank, a bankchartered under the laws of the State of California (the “Employer”), and PaulA. Tognazzini, an individual residing in the State of California (hereinafterreferred to as the “Executive”).

 

**RECITALS**

 

WHEREAS, the Executive is an employee of the Employerand is serving as its Executive Vice President — Senior Loan Officer.

 

WHEREAS, the Executive’s experience and knowledge ofthe affairs of the Employer and the banking industry are extensive andvaluable;

 

WHEREAS, it is deemed to be in the best interest ofthe Employer to provide the Executive with certain salary continuationbenefits, on the terms and conditions set forth herein, in order to reasonablyinduce the Executive to remain in the Employer’s employment;

and

 

WHEREAS, the Executive and the Employer wish tospecify in writing the terms and conditions upon which this additionalcompensatory incentive will be provided to the Executive, or to the Executive’sspouse or the Executive’s designated beneficiaries, as the case may be;

 

NOW, THEREFORE, in consideration of the services to beperformed in the future, as well as the mutual promises and covenants containedherein, the Executive and the Employer agree as follows:

 

**AGREEMENT**

 

**1.**             **Terms and Definitions.**

 

**1.1****                              ****Administrator.** The Employer shall be the “Administrator” and, solely for the purposesof ERISA, the “Fiduciary” of this Agreement where a fiduciary is required byERISA.

 

**1.2.****                           ****Annual Benefit.** The term “Annual Benefit” shall mean the amount determined byfirst multiplying the sum of Thirty Thousand Dollars

 

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                                                ($30,000) by the Applicable Percentage(defined below), and by then subtracting from that amount those additionalamounts as may be: (I) required under the other provisions of this Agreement,including, but not limited to, Paragraphs 5 and 6 hereof; (ii) required byreason of the lawful order of any regulatory agency or body having jurisdictionover the Employer; and (iii) required in order for the Employer to properlycomply with any and all applicable state and federal laws, including, but notlimited to, income, employment and disability income tax laws (e.g., FICA,FUTA, SDI).

 

**1.3****                              ****Applicable Percentage.** The term “Applicable Percentage” shall mean that percentage listed onSchedule “A” attached hereto which is adjacent to the number of complete years(with a “year” being the performance of personal services for or on behalf ofhe Employer for a period of 365 days) which have elapsed starting from theEffective date of this Agreement and ending on the date payments are to firstbegin under the terms of this Agreement. Notwithstanding the foregoing or the percentages set forth on Schedule“A”, but subject to all other terms and conditions set forth herein, the“Applicable Percentage” shall be: (i) subject to clause (ii) of this Paragraph1.3, one hundred percent (100%) in the event the Executive dies prior toRetirement as defined in subparagraph 1.11 below; and (ii) notwithstanding thesubclause (i) of this Paragraph 1.3, zero percent (0%) in the event theExecutive takes any action which prevents the Employer from collecting theproceeds of any life insurance policy which the Employer may happen to own atthe time of the Executive’s death and of which the Employer is the designatedbeneficiary.

 

**1.4****                              ****Beneficiary.** Excepting the reference made at the end of Paragraphs 1.3 and 1.10hereof, the term “beneficiary” or “designated beneficiary “ shall mean theperson or persons whom the Executive shall designate in a valid BeneficiaryDesignation, a copy of which is attached hereto as Exhibit “B”, to receive thebenefits provided hereunder.  ABeneficiary Designate shall be valid only if it is in the form attached heretoand made a part hereof and is received by the Administrator prior to theExecutive’s death.

 

**1.5****                              ****Change in Control.** The term “ Change in Control” shallmean, with respect to the Employer or any corporation formed to act as a parentor holding company of the Employer or its stock: (I) a change in control of anature that would be required to be reported in response to Item 6(e) ofSchedule 14A of Regulation 14A promulgated under the Securities Exchange Act of1934, as amended (the “Exchange Act”), or in response to any other form orreport to the regulatory agencies or governmental authorities havingjurisdiction over the Employer or any stock exchange on 

 

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                                                which the Employer’s shares are listedwhich requires the reporting of a change in control; (ii) any merger,consolidation or reorganization of the Employer in which the Employer does notsurvive; (iii) any sale, lease, exchange, mortgage, pledge, transfer or otherdisposition (in fair market value of fifty percent (50%) of the total value ofthe assets of the Employer, reflected in the most recent balance sheet of theEmployer; (iv) a transaction whereby any “person” (as such term is used in theExchange Act or any individual, corporation, partnership, trust or any otherentity becomes the beneficial owner, directly or indirectly, or securities ofthe Employer representing twenty-five (25%) or more of the combined votingpower of the Employer’s then outstanding securities; or (v) a situation where,in any one-year period, individuals who at the beginning of such periodconstitute the Board of Directors of the Employer cease for any reason to constituteat least a majority thereof, unless the election, or the nomination forelection by the Employer’s shareholders, of each new director is approved by avote of at least three-quarters (3/4) of the directors then still in office whowere directors at the beginning of the period.

 

**1.6****                              ****The Code.** The “Code” shall mean the Internal Revenue Code of 1986, as amended (the“Code”).

 

**1.7****                              ****Disability/Disabled.** The term “Disability” or “Disabled” shall have the same meaning givensuch term in the principal disability insurance policy covering the Executive,which is incorporated herein by reference to the limited extent thereof.  In the event the Executive is not covered bya disability policy containing a definition of “Disability” or “Disabled,”these terms shall mean an illness or incapacity which, having continued for aperiod of one hundred and eighty (180) consecutive days, thereafter preventsthe Executive from adequately performing the Executive’s regular employmentduties.  The determination of whether theExecutive is Disabled shall be made by an independent physician selected bymutual agreement of the parties.

 

**1.8****                              ****Effective Date.** The term “Effective Date” shall mean the date upon which this Agreementwas entered into by the parties, as first written above.

 

**1.9****                              ****ERISA.**  The term “ERISA” shall mean the Employee Retirement Income Security Actof 1974, as amended

 

**1.10.****                    ****Lump Sum Payout Amount.** The term “Lump Sum Payout Amount” (also referred to herein as the“LSPA”) shall mean that dollar amount 

 

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                                                determined by: (a) multiplying (i) the“Designated Dollar Amount” listed on Schedule “C” corresponding to the year inwhich an event occurs requiring payment of the LSPA to the Executive occursunder this Agreement, by (ii) the “LSPA Percentage” listed on Schedule “D”corresponding to the year in which the event occurs requiring payment of theLSPA to the Executive under this Agreement; and (b) reducing this resultingamount as may be: (i) required under the other provisions of this Agreement,including, but not limited to Paragraph 4.2 (i.e., to take into account anyprevious Disability payment which may have been paid under the terms of thisAgreement), Paragraph 5 and Paragraph 6 hereof; (ii) required by reason of thelawful order of any regulatory agency or body having jurisdiction over theEmployer; and (iii) required in order for the Employer to properly comply withany and all applicable state and federal laws, including, but not limited to,income, employment and disability income tax laws (e.g., FICA, FUTA, SDI),partnership, trust or any other entity) becomes the beneficial owner, directlyor indirectly, of securities of the Employer representing twenty–fivepercent (25%) or more of the combined voting power of the Employer’s thenoutstanding securities; or (v) a situation where, in any one–year period,individuals who at the beginning of such period constitute the Board ofDirectors of the Employer cease for any reason to constitute at least a majoritythereof, unless the election, or the nomination for election by the Employer’sshareholders, of each new director is approved by a vote of at least threequarters (3/4) of the directors then still in office who were directors at thebeginning of the period.

 

Notwithstanding theforegoing or the percentages set forth on Schedule “D,” but subject to allother terms and conditions set forth herein, the “LSPA Percentage” shall bezero percent (04b) in the event the Executive takes any action which preventsthe Employer from collecting the proceeds of any life insurance policy whichthe Employer may happen to own at the time of the Executive’s death and ofwhich the Employer is the designated beneficiary.

 

**1.11.****                    ****Retirement.**The term “Retirement” or “Retires” shall refer to thedate on which, after the Executive attains sixty two (62) years of age, theExecutive acknowledges in writing to Employer to be the last day he willprovide any significant .personal services, whether as an employee orindependent consultant or contractor, to Employer or to, for, or on behalf of,any other business entity conducting, performing or making available to anyperson or entity banking or other financial services of any kind. For purposesof this Agreement, the phrase “significant personal services” shall mean morethan ten (10) hours of personal services rendered to one or more individuals orentitles in any thirty (30) day period.

 

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**1.12****                       ****Surviving Spouse.** The term “Surviving Spouse” shall meanthe person, if any, who shall be legally married to the Executive on the dateof the Executive’s death.

 

**1.3****                              ****Termination for Cause.** The term “Termination for Cause”shallmean termination of the employment of the Executive by reason of any of thefollowing:

 

**(a)** A termination “for cause” as this termmay be defined in any written employment agreement entered into by and betweenthe Employer and the Executive;

 

**(b)**The willful breach of duty by theExecutive in the course of his employment;

 

**(c)**The habitual neglect by the Executive ofhis employment responsibilities and duties;

 

 

**(d)**The Executive’s deliberate violation ofany state or federal banking or securities laws, or of the Bylaws, rules,policies or resolutions of the Employer, or of the rules or regulations of the:(i) The California Institute of Banking (ii) Federal Deposit Insurance Corporation; (iii) Securities andExchange Commission; or (iv) any other regulatory agency or governmental authorityhaving jurisdiction over the Employer;

 

**(e)**The determination by a state or federalbanking agency or other governmental authority having jurisdiction over theEmployer that the Executive is not suitable to act in the capacity for whichshe is employed by the Employer;

 

**(f)** The Executive is convicted of any felonyor a crime involving moral turpitude or a fraudulent or dishonest act; or

 

**(g)** The Executive discloses withoutauthority any secret or confidential information not otherwise publiclyavailable concerning the Employer or takes any action which the Employer’sBoard of Directors determines, in its sole discretion and subject to goodfaith, fair dealing and reasonableness, constitutes unfair competition with orinduces any customer to breach any contract with the Employer.

 

**2.****                                  ****Scope, Purpose andEffect.**

 

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**2.1.Contract of Employment**. Although this Agreement is intended to provide the Executive with anadditional incentive to remain in the employ of the Employer, this Agreementshall not be deemed to constitute a contract of employment between theExecutive and the Employer nor shall any provision of this Agreement restrictor expand the right of the Employer to terminate the Executive’s employment.This Agreement shall have no impact or effect upon any separate writtenEmployment Agreement which the Executive may have with the Employer, it beingthe parties’ intention and agreement that unless this Agreement is specificallyreferenced in said Employment Agreement (or any modification thereto), thisAgreement (and the Employer’s obligations hereunder) shall stand separate andapart and shall have no effect upon, nor be affected by, the terms andprovisions of said Employment Agreement.

 

**2.2.Fringe Benefit.**The benefits provided by this Agreement are granted by the Employer as a fringebenefit to the Executive and are not a part of any salary reduction plan or anyarrangement deferring a bonus or a salary increase. The Executive has no optionto take any current payments or bonus in lieu of the benefits provided by thisAgreement.

 

 

3.                                       PaymentsUpon or After Retirement.

 

**3.1.****                        ****Payments Upon Retirement**. If the Executive shall remain in the continuousemployment of the Employer until attaining sixty-two (62) of age, the Executiveshall be entitled to be paid the Annual Benefit, as defined above, for a periodof fifteen (15) years, with each Annual Benefit amount to be paid in twelve(12) equal monthly installments (paid on the first day of each month),beginning with the month following the month in which the Executive Retires orupon such later date as may be mutually agreed upon by the Executive and theEmployer in advance of said Retirement date. At the Employer’s sole andabsolute discretion. the Employer may increase the Annual Benefit as and whenthe Employer determines the same to be appropriate in order to reflectsubstantial change in the cost of living. Notwithstanding anything containedherein to the contrary, the Employer shall have no obligation hereunder to makeany such cost–of–living adjustment.

 

**3.2.****                        ****Payments in the Event ofDeath After Retirement.** The Employer agrees that if the Executive Retires, but shall diebefore receiving all of the monthly payments to which he is entitled hereunder,the Employer will continue to make such monthly payments to the Executive’sdesignated beneficiary for the remaining period.  If a valid Beneficiary Designation is 

 

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                                                not in effect, then the remaining amountsdue to the Executive under the term of this Agreement shall be paid to theExecutive’s Surviving spouse. If the Executive leaves no Surviving Spouse, theremaining amounts due to the Executive under the terms of this Agreement shallbe paid to the duly qualified personal representative, executor oradministrator of the Executive’s estate.

 

**4. Paymentsin the Event Death or Disability Occurs Prior to Retirement.**

 

**4.1.Payments in the Event of Death Prior to Retirement.**In the event the Executive should diewhile actively employed by the Employer at any time after the Effective Date ofthis Agreement, but prior to attaining sixty two (62) years of age or if theExecutive chooses to work after attaining sixty two (62) years of age, but diesbefore Retirement, the Employer agrees to pay the Annual Benefit to theExecutive’s designated beneficiary for a period of fifteen (15) years, witheach Annual Benefit amount to be paid in twelve (12) equal monthly installments(paid on the first day of each month), beginning with the month following the monthin which the Executive’s death occurs. If a valid Beneficiary designation isnot in effect, then the remaining amounts due to the Executive under the termsof this Agreement shall be paid to the Executive’s Surviving Spouse in the samemanner. If the Executive leaves no Surviving Spouse, the remaining amounts dueto the Executive under the terms of this Agreement shall be paid to the dulyqualified personal representative, executor or administrator of the Executive’sestate.

 

**4.2. Paymentsin the Event of Permanent Disability Prior to Retirement**. In the event the Executive becomes Disabled whileactively employed by The Employer at any time after the date of this Agreementbut prior to Retirement, the Executive shall be entitled to be paid the AnnualBenefit, as defined above, for a period of fifteen (15)years, with each AnnualBenefit amount to be paid in twelve (12) equal monthly installments paid on thefirst day of each month), beginning with the month following the earlier of (1)the month in which the Executive formally retires after reaching sixty two (62)years of age, or (2) the date upon which the Executive is no longer entitled toreceive Disability benefits under the Executive’s principal DisabilityInsurance policy (or the date of the Disability if no Disability policyexists), provided that the Executive remains unable to return to and thereafterfulfill the responsibilities associated with the employment position held withThe Employer prior to becoming Disabled by reason of such Disability continuing.However, in the event the Executive’s Disability should cease and Executive isable to return to and thereafter fulfill the responsibilities associated withthe employment position held with the Employer prior to becoming Disabled, theEmployer’s obligation to make additional payments under this Paragraph shall besuspended until such time as Executive next becomes eligible to receivepayments under the terms of this Agreement. In the event the 

 

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Employer’s obligation tomake additional payments under this Paragraph is suspended as aforesaid, andthe Executive then becomes entitled to receive payments under the terms of thisAgreement, the aggregate amount paid prior to suspension shall be treated,notwithstanding anything contained in this Agreement to the contrary, as havingsatisfied the Employer’s payment obligations with respect to that number ofinitial monthly payments as is equal to the aggregate amount previously paidout under the terms of this Paragraph; provided, however, that the Employerpromptly begin making the remaining monthly payments required under thisAgreement to the Executive for as long as such payments would otherwise berequired after proper adjustment has been made for the amounts previously paidto the Executive under this Paragraph. For example, if the Executive receives$10,000 during a period of Disability, and the Executive returns to work (suchthat future payments are suspended) and then becomes eligible for the Retirement payout option described above(and is entitled to receive $10,000 over the first twelve payments under suchoption), the Employer shall be entitled to credit the prior payments as havingsatisfied its obligation to make the first twelve payments due to the Executiveprovided the Employer pays to the Executive, on the first day of eachsuccessive month following the month in which the Retirement occurs (asprovided for above), the next monthly payment amount required with respect tothe payout option selected, i.e., in this example, the amount to be paid as thefirst monthly payment under the Retirement option would equal the amountpayable under the Retirement option for the thirteenth month (with the secondpayment equaling the amount payable with respect to the fourteenth month and soon), until such time as the Executive, etc., has received the 168 remainingpayments due after making the adjustment for payments made prior to suspension.In the event a Lump Sum Payment Amount is to be paid under Paragraph 5, the SPAshall be reduced as provided for in Paragraph 1.10 above by the aggregateamounts previously distributed to the Executive under the terms of thisParagraph.

 

**5. Paymentsin the Event Employment Is Terminated Prior to Retirement.**As indicated in Paragraph 2 above, the Employerreserves the right to terminate the Executive’s employment, with or withoutcause but subject to any written employment agreement which may then exist, atany time prior to the Executive’s Retirement. In the event that the employmentof the Executive shall be terminated, other than by reason of Disability, Deathor Retirement, prior to the Executive’s attaining sixty-two (62) years of age,then this Agreement shall terminate upon the date of such termination of employment;provided, however, that the Executive shall be entitled to the followingbenefits, which shall  be paid in lieuof any other payout options contained herein, depending upon the circumstancessurrounding the Executive’s termination:

 

**5.1. TerminationWithout Cause**. If the Executive’s employment isterminated by the Employer without cause, the Executive shall be entitled to bepaid the 

 

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Lump Sum Payment Amount,as defined above, within ninety (90) days after the effective date of theExecutive’s termination, or upon such later date as may be mutually agreed uponby the Executive and the Employer in advance of the effective date of theExecutive’s termination .

 

**5.2.Voluntary Termination by the Executive.**If the Executive’s employment is voluntarilyterminated by the Executive, the Executive shall be entitled to be paid theLump Sum Payment Amount, as defined above, within ninety (90) days after theeffective date of the Executive’s termination, or upon such later date as maybe mutually agreed upon by the Executive and the Employer in advance of theeffective date of the Executive’s termination.

 

**5.3. Terminationfor Cause.**The Executive agrees that his employment with the Employer is terminated “forcause,” as defined in subparagraph 1.13 of this Agreement, he forfeit any andall rights and benefits he may have under the toughens of this Agreement andshall have no right to be paid any of the amounts which would otherwise be dueor paid to the Executive by the Employer pursuant to the terms of thisAgreement.

 

**5.4. Terminationby the Employer on Account of or After a Change in Control.** In the event: (i) the executive’semployment with the Employer is terminated by the Employer in conjunction with,or by reason of, a “change in control” (as defined in subparagraph 1.5 above);or (ii) by reason of the Employer’s actions any adverse and material changeoccurs in the scope of the Executive’s position, responsibilities, duties,salary, benefits, or location of employment after a “change in control” (asdefined in subparagraph 1.5) occurs or (iii) the Employer causes an event tooccur which reasonably constitutes or results in a demotion, a significantdiminution of responsibilities or authority, or a constructive termination byforcing a resignation or otherwise) of the Executive’s employment after a“change in control” (as defined in subparagraph 1.5) occurs, then the Executiveshall be entitled to be paid the Annual Benefit, as defined above, for a periodof fifteen (15) years, with each Annual Benefit amount to be paid in twelve(12) equal monthly installments paid on the first day of each month), beginningwith the month following the month in which the Executive is terminated or theaction referred to above occurs.

 

**6.Additional Limitations on the Amount of the Annual Benefit**. The Executive acknowledges and agrees that the partieshave entered into this Agreement based Upon the certain financial and tax accounting assumptions. Accordingly,with full knowledge of the potential consequences the Executive agrees that,notwithstanding anything contained herein to the contrary: (i) the amount ofthe Annual Benefit or the SPA, as the case may be, shall be Limited to thatamount of the Annual Benefit or the SPA (determined without regard to thisParagraph 6) which will be deductible by the Employer under the Code in 

 

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the year in which paymentis to be made to the Executive; (ii) the Annual Benefit or the SPA amount shallbe deemed to be the last payment made to the Executive and the first for whichan income tax deduction, if any, has been disallowed; and (iii) anycompensatory amounts for which a deduction is denied to the Employer shall, atthe Employers’s election, serve to first reduce the Employer’s obligation topay the monthly Annual Benefit payments or the SPA to the Executive under theterms of this Agreement. The Executive recognizes that, in this regard,limitations on deductibility may be imposed under, but not limited to, CodeSection 280G. Consistent with the foregoing, and in the event that any paymentor benefit received or to be received by the Executive, whether payablepursuant to the terms of this Agreement or any other plan, arrangement or agreementwith the Employer (together with the Annual Benefit or the SPA, the “TotalPayments”), will not be deductible (in whole or in part) as a result of CodeSection 280G, the Annual Benefit or the SPA, as the case may be, shall bereduced until no portion of the Total Payments is nondeductible as a result ofSection 280G of the Code (or the Annual Benefit or SPA is reduced to zero (O)).For purposes of this limitation:

 

(a) No portion of theTotal Payments, the receipt or enjoyment of which the Executive shall haveeffectively waived in writing prior to the date of payment of a SPA or anyfuture Annual Benefit payments, shall be taken into account;

 

(b) No portion of theTotal Payments which, in the opinion of the tax counsel selected by theEmployer and acceptable to the Executive, does not constitute a “parachutepayment” within the meaning of Section 280G of the Code shall be takeninto  account;

 

(c) Future Annual Benefitpayments, or the SPA as the case may be, shall be reduced only to the extentnecessary so that the Total Payments (other than those referred to in clauses(a) or  above in their entirety)constitute reasonable compensation for services actually rendered within themeaning of Section 280G of the Code, in the opinion of tax counsel refined toin clause (b) above; and

 

(d) The value of anynoncash benefit or any deferred payment or benefit included in the TotalPayments shall be determined by the Employers’s independent auditors inaccordance with the principles of Section 280G of the Code.

 

**7. RightTo Determine Funding Methods**. The Employer reserves the right to determine, in itssole and absolute discretion, whether, to what extent and by what method, ifany, to provide for the payment of the amounts which may be payable to theExecutive, the Executive’s spouse or the Executive’s beneficiaries under theterms of this Agreement. In the event that the Employer elects to fund thisAgreement, in whole or in part, through the use of life insurance or annuities,or both, the Employer shall determine the ownership and beneficial interests ofany such policy of life insurance or annuity. The Employer further reserves theright, in its sole and absolute discretion, to terminate any such policy, andany other device used to fund its obligations under this Agreement, at 

 

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any lime, in whole or, inpart. Consistent with Paragraph 9 below, neither the Executive, the Executive’sspouse nor the Executive’s beneficiaries shall have any right, title or interestin or to any funding source or amount utilized by the Employer pursuant to thisAgreement, and any such funding source or amount shall not constitute securityfor the performance of the Employer’s obligations pursuant to this Agreement.In connection with the foregoing, the Executive agrees to execute suchdocuments and undergo such medical examinations or tests which the Employer mayrequest and which may be reasonably necessary to facilitate any funding forthis Agreement including, without limitation, the Employer’s acquisition of anypolicy of insurance or annuity. Furthermore, a refusal by the Executive toconsent to, participate in and undergo any such medical examinations or testsshall result in the immediate termination of this Agreement and the immediateforfeiture by the Executive, the Executive’s spouse and the Executive’sbeneficiaries of any and all rights to payment hereunder. Notwithstandinganything contained herein to the contrary, no interest shall accrue or bepayable with respect to any of the amounts payable under the terms of thisAgreement.

 

**8. ClaimsProcedure**. The Employer shall, but only to theextent necessary to comply with ERISA, be designated as the named fiduciaryunder this Agreement and shall have authority to control and manage theoperation and administration of this Agreement. Consistent therewith, theEmployer shall make ail determinations as to the rights to benefits under thisAgreement. Any decision by the Employer denying a claim by the Executive, theExecutive’s spouse, or the Executive’s beneficiary for benefits under thisAgreement shall be stated in writing and delivered or mailed, via registered orcertified mail, to the Executive, the Executive’s spouse or the Executive’sbeneficiary, as the case may be. Such decision shall set forth the specificreasons for the denial of a claim. In addition, the Employer shall provide theExecutive, the Executive’s spouse or the Executive’s beneficiary with areasonable opportunity for a full and fair review of the decision denying suchclaim.

 

**9. Statusas an Unsecured General Creditor.** Notwithstanding anything contained herein to thecontrary: (i) neither the Executive, the Executive’s spouse or the Executive’sbeneficiary shall have any legal or equitable rights, interests or claims in orto any specific property or assets of the Employer; (ii) none of the Employer’sassets shall be held in or under any trust for the benefit of the Executive,the Executive’s spouse or the Executive’s beneficiaries or held in any way as securityfor the fulfillment of the obligations of the Employer under this Agreement; (iii) all of the Employer’s assetsshall be and remain the general unpledged and unrestricted assets of theEmployer; (iv) the Employer’s obligation under this Agreement shall be that ofan unfunded and unsecured promise by the Employers to pay money in the future;and (v) the Executive, the Executive’s spouse and the Executive’s beneficiariesshall be unsecured general creditors with respect to any benefits which may bepayable under the terms of this Agreement.

 

**10.Miscellaneous.**

 

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**10.1Opportunity To Consult With Independent Counsel**. The Executive acknowledges that he has been affordedthe opportunity to consult with independent counsel of his choosing regardingboth the benefits granted to him under the terms of this Agreement and theterms and conditions which may affect the Executive’s right to these benefits.The Executive further acknowledges that he has read, understands and  consents to all of the terms and conditionsof this Agreement, and that he enters into this Agreement with a fullunderstanding of its terms and conditions.

 

**10.2. Arbitrationof Disputes**. All claims, disputes and other mattersin question arising out of or relating to this Agreement or the breach orinterpretation thereof, other than those matters which are to be determined bythe Employer in its sole and absolute discretion, shall be resolved by bindingarbitration before a representative member, selected by the mutual agreement ofthe parties, of the Judicial Arbitration and Mediation Services, Inc. (“JAMS”),presently located at 111 Pine Suite, Suite 710, in San Francisco, California.In the event JAMS is unable or unwilling to conduct the arbitration providedfor under the terms of this Paragraph, or has discontinued its business, theparties agree that a representative member, selected by the mutual agreement ofthe parties, of the American Arbitration Association (“AAA”), presently locatedat 417 Montgomery Street, in San Francisco, California, shall conduct thebinding Arbitration referred to in this Paragraph. Notice of the demand forarbitration shall be filed in writing with the other party to this Agreementand with JAMS (or AAA, if necessary). In no event shall the demand forarbitration be made after the date when institution of legal or equitableproceedings based on such claim, dispute or other matter in question would bebarred by the applicable statute of limitations. The arbitration shall besubject to such rules of procedure used or established by JAMS, or if there arenone, the rules of procedure used or established by AAA. Any award rendered byJAMS or AAA shall be final and binding upon the parties, and as applicable,their respective heirs, beneficiaries, legal representatives, agents,successors and assigns, and may be entered in any court having jurisdictionthereof. The obligation of the parties to arbitrate pursuant to this clauseshall be specifically enforceable in accordance with, and shall be conductedconsistently with, the provisions of Title 9 of Part 3 of the California Codeof Civil Procedure. Any arbitration hereunder shall be conducted in SanFrancisco, California, unless otherwise agreed to by the parties.

 

**10.3. Attorneys’Fees.** In theevent of any arbitration or litigation concerning any controversy, claim ordispute between the parties hereto, arising out of or relating to thisAgreement or the breach hereof, or the interpretation hereof, the prevailingparty shall be entitled to recover from the losing party reasonable expenses,Attorneys’ fees and costs incurred in connection therewith or in theenforcement 

 

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or collection of anyjudgment or award rendered therein. The “prevailing party” means the partydetermined by the arbitrator(s) or court, as the case may be, to have mostnearly prevailed, even if such party did not prevail in all matters, notnecessarily the one in whose favor a judgment is rendered.

 

**10.4. Notice.** Any notice required or permitted ofeither the Executive or the Employer under this Agreement shall be deemed tohave been duly given, if by personal delivery, upon the date received by theparty or its authorized representation; if by facsimile, upon transmission to atelephone number previously provided by the party to whom the facsimile istransmitted as reflected in the records of the party transmitting the facsimileand upon reasonable confirmation of such transmission; and if by mail, on thethird day after mailing via U.S. first class mail, registered or certified,postage prepaid and return receipt requested, and addressed to the party at theaddress given below for the receipt of notices, or such changed address as maybe requested in writing by a party.

 

If to the Employer:               Heritage Oaks Bank

545 Twelfth Street

Paso Robles, CA 93446

 

Attn: Corporate Secretary

 

If to theExecutive:                                             Mr. Paul A. Tognazzini

250 Frontier Way .

Templeton, CA 93465

 

 

**10.5. Assignment.** Neither the Executive, the Executive’sspouse, nor any other beneficiary under this Agreement shall have any power orright to transfer, assign, anticipate, hypothecate, modify or otherwiseencumber any part or all of the amounts payable hereunder, nor, prior topayment in accordance with the terms of this Agreement, shall any portion ofsuch amounts be: (i) subject to seizure by any creditor of any suchbeneficiary, by a proceeding at law or in equity, for the payment of any debts,judgments, alimony or separate maintenance obligations which may be owed by theExecutive, the Executive’s spouse, or any designated beneficiary; or (ii)transferable by operation of law in the event of bankruptcy, insolvency orotherwise. Any such attempted assignment or transfer shall be void and shall terminatethis Agreement, and the Employer shall thereupon have no further liabilityhereunder.

 

**10.6. BindingEffect/Merger or Reorganization.** This Agreement shall be binding upon and inure to thebenefit of the Executive and the Employers and, as applicable, their respectiveheirs, beneficiaries, legal representatives, agents, 

 

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successors and assigns.Accordingly, the Employer shall not merge or consolidate into or with anothercorporation, or reorganize or sell substantially all of its assets to anothercorporation, firm or person, unless and until such succeeding or continuingcorporation, firm or person agrees to assume and discharge the obligations ofthe Employer under this Agreement. Upon the occurrence of such event, the term“Employer” as used in this Agreement shall be deemed to  refer to such surviving or successor firm,person, entity of corporation.

 

**10.7. Nonwaiver**. The failure of either party to enforce at any time orfor any period of time any one or more of the terms or conditions of thisAgreement shall not be a waiver of such term(s) or condition(s) or of thatparty’s right thereafter to enforce each and every term and condition of thisAgreement.

 

**10.8. PartialInvalidity.**If any term, provision, covenant, or condition of this Agreement is determinedby an arbitrator or a court, as the case may be, to  be invalid, void, or unenforceable, such determination shall notrender any other term, provision, covenant or condition invalid, void orunenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial invalidity.

 

**10.9. EntireAgreement.**ThisAgreement supersedes any and all other agreements, either oral or in writing,between the parties with respect to the subject matter of this Agreement andcontains all of the covenants and agreements between the parties with respectthereto. Each party to this Agreement acknowledges that no otherrepresentations, inducements, promises, or agreements, oral or otherwise, havebeen made by any party, or anyone acting on behalf of any party, which are notset forth herein, and that no other agreement, statement, or promise notcontained in this Agreement shall be valid or binding on either party.

 

**10.10. Modifications**. Any modification of this Agreement shall be effectiveonly if it is in writing and signed by each party or such party’s authorizedrepresentative.

 

 

**10.11 ParagraphHeadings.**The paragraph headings used in thisAgreement are included solely for the convenience of the parties and shall notaffect or be used in connection with the interpretation of this Agreement.

 

**10.12. NoStrict Construction.** The language used in this Agreement shall be deemed to be the languagechosen by the parties hereto to express their mutual intent, and no rule ofstrict construction will be applied against any person.

 

**10.13.GoverningLaw.**  The laws of the State of California, otherthan those laws 

 

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denominated choice of lawrules, and, where applicable, the rules and regulations of the: (i) Office ofthe California Superintendent of Banks; (ii) Federal Deposit InsuranceCorporation; and (iii) Securities and Exchange Commission shall govern thevalidity, interpretation, construction and effect of this Agreement.

 

IN WITNESS WHEREOF, theEmployer and the Executive have executed this Agreement on the date firstabove-written in the City of Paso Robles, San Luis Obispo County, California.

 
| THE EMPLOYER:      |                      | THE EXECUTIVE: |
|--------------------|---------------------------|----------------|
|               |                      |           |
| HERITAGE OAKS BANK |                      |           |
|               |                      |           |
| By:                |                      |           |   |   |
|               | Dr. B.R. Bryant, Chairman |           | Paul A. Tognazzini |   |
|                    |                           |                |  |  |  |

 

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**SCHEDULE“A”**

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| **NUMBER OF COMPLETE YEARS** |   |                      |   |
|------------------------------|--------|---------------------------|--------|
| **WHICH HAVE ELAPSED**       |   | **APPLICABLE PERCENTAGE** |   |
|                         |   |                      |   |
| 1                            |   |                      |   | 6.6 | % |
| 2                            |   |                      |   | 13.3 | % |
| 3                            |   |                      |   | 20.0 | % |
| 4                            |   |                      |   | 26.6 | % |
| 5                            |   |                      |   | 33.3 | % |
| 6                            |   |                      |   | 40.0 | % |
| 7                            |   |                      |   | 46.6 | % |
| 8                            |   |                      |   | 53.3 | % |
| 9                            |   |                      |   | 60.0 | % |
| 10                           |   |                      |   | 66.6 | % |
| 11                           |   |                      |   | 73.3 | % |
| 12                           |   |                      |   | 80.0 | % |
| 13                           |   |                      |   | 86.6 | % |
| 14                           |   |                      |   | 93.3 | % |
| 15                           |   |                      |   | 100.0 | % |

 

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