Document:

Exhibit 10.39

 

February 1, 2004

 

Employment Agreement between
Heritage Oaks Bank and Lawrence P. Ward

 

1.               Three year agreement calling for
continued employment as President and CEO of Heritage Oaks Bank and Heritage
Oaks Bancorp through 1-31-2007.  This agreement
will automatically renew each year from the anniversary date unless either
party gives written notice to the contrary no less than 60 days from the
Anniversary date.

 

2.               Annual base salary for year 2004,
$230,000.00.  Bonus for 2003 to be paid
in 2004 is $102,500.

 

3.               Continued participation in the
performance based bonus plan, approved annually by the Board of Directors.

 

4.               Continued participation in the bank
sponsored 401-K plan.

 

5.               Continued participation in the executive
salary continuation plan, which was established in 1994 and as increased in
year 2001.

 

6.               Payment of life insurance policy
premiums of $121.90 per month on $100,000. Policy as is currently being done.

 

7.               Auto to be provided by the bank with
bank covering all associated costs to operate. 
In the event of a change of control, see auto section as outlined in #9
below.

 

8.               Continued participation in any other
compensation program established by the bank or its parent holding company that
is offered to any other employee of the organization.

 

9.               The Board may terminate this agreement
at any time with or without cause, provided that if terminated without cause,
Mr. Ward would be entitled to severance pay equal to one year annual base
salary in effect at the date of termination, plus an additional amount
sufficient to pay for insurance coverage and automobile expenses for a period
of one year.  In the event of
termination during or after a merger or change in control, Mr. Ward would be
entitled to severance pay equal to two years base salary in effect at the date
of termination, plus an additional amount sufficient to pay for insurance
coverage for a period of one year from the date of termination, and the auto
provided by the bank to Mr. Ward be transferred into his name at the time of
termination.  The sales tax calculation
for the transfer of the auto would be based on the depreciated value of the
auto as it then appears on the bank’s books. 
In the event of a change of control where Mr. Ward is offered subsequent
employment, Mr. Ward would be entitled to severance pay equal to 2 years annual
base salary if he is terminated or quits for good cause.  Events that are considered good cause
include but are not limited to, reduction in title, compensation, demotion,
expanded traveling, etc.

 

10.         Grant an additional 20,000 shares of Heritage
Oaks Bancorp stock options out of the 1997 stock option plan with a strike
price based on the current market price on the date of grant.

 

 

	
  Approved by
  the Board of Directors

  	
  Accepted

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Dr. B. R. Bryant

  	
  Lawrence P.
  Ward

  
	
   

  	
  Chairman

  	
   

  	
  President, CEO

  
	
  Date

  	
   

  	
   

  	
  DateExhibit 10.40

 

HACIENDA OAKS BANK

SALARY CONTINUATION AGREEMENT

 

THIS
AGREEMENT is adopted this 1st day of November 2003, by and between HACIENDA
BANK, a state-chartered commercial bank located in Santa Maria, California (the
“Bank”), and DAVID DUARTE (the “Executive”).

 

INTRODUCTION

 

To
encourage the Executive to remain an employee of the Bank, the Bank is willing
to provide salary continuation benefits to the Executive.  The Bank will pay the benefits from its
general assets.

 

AGREEMENT

 

The
Bank and the Executive agree as follows:

 

Article 1

 

Definitions

 

Whenever
used in this Agreement, the following words and phrases shall have the meanings
specified:

 

1.1                       “Change
of Control” means:

 

(a)                        A change in the ownership of the capital
stock of the Company, whereby another corporation, person, or group acting in
concert (hereinafter this Agreement shall collectively refer to any combination
of these three [another corporation, person, or group acting in concert] as a
“Person”) as described in 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 a number of shares of capital stock of the Company which constitutes
fifty percent (50%) or more of the combined voting power of the Company’s then
outstanding capital stock then entitled to vote generally in the election of
directors; or

 

(b)                       The persons who were members of the Board of
Directors of the Company immediately prior to a tender offer, exchange offer,
contested election or any combination of the foregoing, cease to constitute a
majority of the Board of Directors; or

 

(c)                        The adoption by the Board of Directors of the
Company of a merger, consolidation or reorganization plan involving the Company
in which the Company is not the surviving entity, or a sale of all or
substantially all of the assets of the Company.  For purposes of this Agreement, a sale of all or substantially
all of the assets of the Company shall be deemed to occur if any Person
acquires (or during the 12-month period ending on the date of the most recent
acquisition by such Person, has acquired) gross assets of the Company that have
an aggregate fair market value equal to fifty percent (50%) or more of the fair
market value of all of the respective gross assets of the Company immediately
prior to such acquisition or acquisitions; or

 

(d)                       A tender offer or exchange offer is made by
any Person which results in such Person beneficially owning (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) either fifty percent (50%) or
more of the Company’s outstanding shares of Common Stock or shares of capital
stock having fifty percent

 

 

(50%) or more the combined voting power of the Company’s then
outstanding capital stock (other than an offer made by the Company), and
sufficient shares are acquired under the offer to cause such person to own
fifty percent (50%) or more of the voting power; or

 

(e)                        Any other transactions or series of related
transactions occurring which have substantially the same effect as the
transactions specified in any of the preceding clauses of this Section 1.1.

 

Notwithstanding
the above, certain transfers are permitted within Section 318 of the Code and
such transfers shall not be deemed a Change of Control under this Section 1.2.

 

1.2.
“Code”
means the Internal Revenue Code of 1986, as amended.

 

1.1                       “Company”
means Heritage Oaks Bancorp

 

1.2                       “Bank” means Heritage Oaks Bank

 

1.3                      “Disability” means the Executive’s suffering a sickness,
accident or injury which has been determined by the carrier of any individual
or group disability insurance policy covering the Executive, or by the Social
Security Administration, to be a disability rendering the Executive totally and
permanently disabled.  The Executive
must submit proof to the Bank of the carrier’s or Social Security
Administration’s determination upon the request of the Bank.

 

1.4                       “Early
Termination” means the
Termination of Employment before Normal Retirement Age for reasons other than
death, Disability, Termination for Cause or following a Change of Control.

 

1.5                       “Early
Termination Date” means
the month, day and year in which Early Termination occurs.

 

1.6                       “Effective
Date” means November 1, 2003.

 

1.7                       “Normal
Retirement Age” means the
Executive’s 65th birthday.

 

1.8                       “Normal
Retirement Date” means the later of
the Normal Retirement Age or Termination of Employment.

 

1.9                       “Plan Year” means each 12-month period from the
Effective Date.

 

1.10                 “Termination for Cause” See Article 5.

 

1.11                “Termination
of Employment” means that
the Executive ceases to be employed by the Bank for any reason, voluntary or
involuntary, other than by reason of a leave of absence approved by the Bank.

 

Article 2

Lifetime Benefits

 

2.1                       Normal
Retirement Benefit.  Upon Termination of Employment on or after
the Normal Retirement Age  for reasons other than death, the Bank shall
pay to the Executive the benefit described in this Section 2.1 in lieu of any
other benefit under this Agreement.

 

2.1.1                                  Amount
of Benefit.  The annual benefit under this Section 2.1 is
$30,000 (Thirty Thousand Dollars).  The
Bank’s Board of Directors, in its sole discretion, may increase the annual
benefit under

 

 

this
Section 2.1.1; however, an increase shall require the recalculation of Schedule
A.

 

2.1.2                        Payment
of Benefit.  The Bank shall pay the annual benefit to the
Executive in 12 equal monthly installments commencing with the month following
the Executive’s Normal Retirement Date, paying the annual benefit to the
Executive for a period of 15 years.

 

2.2                                 Early
Termination Benefit.  Upon Early Termination, the Bank shall pay
to the Executive the benefit described in this Section 2.2 in lieu of any other
benefit under this Agreement.

 

2.2.1                        Amount
of Benefit.  The benefit under this Section 2.2 is the
Early Termination Lump Sum set forth on Schedule A for the Plan Year ending
immediately prior to the Early Termination Date, determined by vesting the
Executive in 10 percent of the Accrual Balance set forth on Schedule A for the
first Plan Year and an additional 10 percent of said amount for each succeeding
year thereafter until the Executive becomes 100 percent vested in the Accrual
Balance.

 

2.2.2                        Payment
of Benefit.  The Bank shall pay the benefit to the
Executive in a lump sum amount pursuant to Schedule A, within 90 days following
the Early Termination date.

 

2.3                                 Disability
Benefit.  If the Executive terminates employment due
to Disability prior to Normal Retirement Age, the Bank shall pay to the
Executive the benefit described in this Section 2.3 in lieu of any other
benefit under this Agreement.

 

2.3.1                        Amount
of Benefit.  The benefit under this Section 2.3 is the
Disability Annual Benefit set forth on Schedule A for the Plan Year ending
immediately prior to the date in which the Termination of Employment occurs
(except during the first Plan Year, the benefit is the amount set forth for
Plan Year 1), determined by vesting the Executive in 100 percent of the Accrual
Balance.

 

2.3.2                        Payment
of Benefit.  The Bank shall pay the annual benefit to the
Executive in 12 equal monthly installments commencing with the month following
the Normal Retirement Age, paying the annual benefit to the Executive for a
period of 15 years.

 

2.4                                 Change
of Control Benefit.  Upon a Change of Control, the Bank shall pay
to the Executive the benefit described in this Section 2.4 in lieu of any other
benefit under this Agreement.

 

2.4.1                        Amount
of Benefit.  The benefit under this Section 2.4 is the
Change of Control Annual Benefit set forth on Schedule A for the Plan Year
ending immediately prior to the date in which Termination of Employment occurs
(except during the first Plan Year, the benefit is the amount set forth for
Plan Year 1), determined by vesting the Executive in the Normal Retirement
Benefit described in Section 2.1.1.

 

2.4.2                        Payment
of Benefit.   The
Bank shall pay the annual benefit to the Executive in 12 equal monthly
installments commencing with the month following the Normal Retirement Age,
paying the annual benefit to the Executive for a period of 15 years.

 

2.4.3                        Excess
Parachute Payment.  Notwithstanding any provision of this
Agreement to the contrary, the Bank shall not pay any benefit under this
Agreement to the extent the benefit would create an excise tax under the excess
parachute rules of Section 280G of the Code.

 

Article 3

Death Benefits

 

3.1                                 Death
During Active Service.  If the Executive dies while in the active
service of the Bank, the Bank shall pay to the Executive’s beneficiary the
benefit described in this Section 3.1. 
This benefit 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 Retirement Benefit amount described in Section 2.1.1.

 

3.1.2                        Payment
of Benefit.  The Bank shall pay the annual benefit to the
Executive’s beneficiary in 12 equal monthly installments commencing with the
month following the Executive’s death, paying the annual benefit to the
Executive’s beneficiary for a period of 15 years.

 

3.2                                 Death
During Payment of a Lifetime Benefit.  If the Executive dies after
any Lifetime Benefit payments have commenced under this Agreement but before
receiving all such payments, the Bank shall pay the remaining benefits to the
Executive’s beneficiary at the same time and in the same amounts they would
have been paid to the Executive had the Executive survived.

 

3.3                                 Death
After Termination of Employment But Before Payment of a Lifetime Benefit
Commences.  If the Executive is entitled to a Lifetime
Benefit under this Agreement, but dies prior to the commencement of said
benefit payments, the Bank shall pay the same benefit payments to the
Executive’s beneficiary that the Executive was entitled to prior to death
except that the benefit payments shall commence on the first day of the month
following the date of the Executive’s death.

 

Article 4

Beneficiaries

 

4.1                                 Beneficiary
Designations.  The Executive shall designate a beneficiary
by filing a written designation with the Bank. 
The Executive may revoke or modify the designation at any time by filing
a new designation.  However,
designations will only be effective if signed by the Executive and received by
the Bank during the Executive’s lifetime. 
The Executive’s beneficiary designation shall be deemed automatically
revoked if the beneficiary predeceases the Executive, or if the Executive names
a spouse as beneficiary and the marriage is subsequently dissolved.  If the Executive dies without a valid
beneficiary designation, all payments shall be made to the Executive’s estate.

 

4.2                                 Facility
of Payment.  If a benefit is payable to a minor, to a
person declared incompetent, or to a person incapable of handling the
disposition of his or her property, the Bank may pay such benefit to the
guardian, legal representative or person having the care or custody of such
minor, incompetent person or incapable person. 
The Bank may require proof of incompetence, minority or guardianship as
it may deem appropriate prior to distribution of the benefit.  Such distribution shall completely discharge
the Bank from all liability with respect to such benefit.

 

Article 5

General Limitations

 

5.1                                 Termination
for Cause.  Notwithstanding any provision of this
Agreement to the contrary, the Bank shall not pay any benefit under this
Agreement if the Bank terminates the Executive’s employment for:

 

(a)          Gross
negligence or gross neglect of duties;

 

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

 

(c)          Fraud, disloyalty, dishonesty or willful
violation of any law or significant Bank policy committed in connection with
the Executive’s employment and resulting in an adverse effect on the Bank.

 

5.2                                 Suicide
or Misstatement.  The Bank shall not pay any benefit under
this Agreement if the Executive commits suicide within three years after the
date of this Agreement.  In addition,
the Bank shall not pay any benefit under this Agreement if the Executive has
made any material misstatement of fact on an employment application or resume
provided to the Bank, or on any application for any benefits provided by the

 

 

Bank to the Executive.

 

Article 6

Claims and Review Procedure

 

6.1                                 Claims
Procedure.  Any person or entity (“claimant”) who has
not received benefits under the Agreement that he or she believes should be
paid shall make a claim for such benefits as follows:

 

6.1.1                        Initiation
– Written Claim.  The claimant initiates a claim by submitting
to the Bank a written claim for the benefits.

 

6.1.2                        Timing
of Bank Response.  The Bank shall respond to such claimant
within 90 days after receiving the claim. 
If the Bank determines that special circumstances require additional
time for processing the claim, the Bank can extend the response period by an
additional 90 days by notifying the claimant in writing, prior to the end of
the initial 90-day period, that an additional period is required.  The notice of extension must set forth the
special circumstances and the date by which the Bank expects to render its
decision.

 

6.1.3                        Notice
of Decision.  If the Bank denies part or all of the claim,
the Bank shall notify the claimant in writing of such denial.  The Bank shall write the notification in a
manner calculated to be understood by the claimant.  The notification shall set forth:

 

(a)          The specific reasons for the denial;

 

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

 

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

 

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

 

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

 

6.2                                 Review
Procedure.  If the Bank denies part or all of the claim,
the claimant shall have the opportunity for a full and fair review by the Bank
of the denial, as follows:

 

6.2.1                        Initiation
– Written Request.  To initiate the review, the claimant, within
60 days after receiving the Bank’s notice of denial, must file with the Bank a
written 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
Bank shall also provide the claimant, upon request and free of charge,
reasonable access to, and copies of, all documents, records and other
information relevant (as defined in applicable ERISA regulations) to the
claimant’s claim for benefits.

 

6.2.3                        Considerations
on Review.  In considering the review, the Bank shall
take into account all materials and information the claimant submits relating
to the claim, without regard to whether such information was submitted or
considered in the initial benefit determination.

 

6.2.4                        Timing
of Bank Response.  The Bank shall respond in writing to such
claimant within 60 days after receiving the request for review.  If the Bank determines that special
circumstances require additional time for processing the claim, the Bank can
extend the response period by an additional 60 days by notifying the claimant
in writing, prior to the end of the initial 60-day period, that an additional

 

period is required.  The notice of extension must set forth the
special circumstances and the date by which the Bank expects to render its
decision.

 

6.2.5                        Notice
of Decision.  The Bank shall notify the claimant in
writing of its decision on review.  The
Bank shall write the notification in a manner calculated to be understood by
the claimant.  The notification shall
set forth:

 

(a)          The specific reasons for the denial;

 

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

 

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

 

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

 

Article 7

Amendments and Termination

 

This
Agreement may be amended or terminated only by a written agreement signed by
the Bank and the Executive.

 

Article 8

Miscellaneous

 

8.1                                 Binding
Effect.  This Agreement shall bind the Executive and
the Bank, and their beneficiaries, survivors, executors, successors,
administrators and transferees.

 

8.2                                 No
Guarantee of Employment.  This Agreement is not an employment policy
or contract.  It does not give the
Executive the right to remain an employee of the Bank, nor does it interfere
with the Bank’s right to discharge the Executive.  It also does not require the Executive to remain an employee nor
interfere with the Executive’s right to terminate employment at any time.

 

8.3                                 Non-Transferability. Benefits under this Agreement cannot be
sold, transferred, assigned, pledged, attached or encumbered in any manner.

 

8.4                                 Reorganization.  The Bank shall not merge or consolidate into or with another Bank, or
reorganize, or sell substantially all of its assets to another Bank, firm, or
person unless such succeeding or continuing Bank, firm, or person agrees to
assume and discharge the obligations of the Bank under this Agreement.  Upon the occurrence of such event, the term
“Bank” as used in this Agreement shall be deemed to refer to the successor or
survivor Bank.

 

8.5                                 Tax
Withholding.  The Bank shall withhold any taxes that are
required to be withheld from the benefits provided under this Agreement.

 

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

 

8.7                                 Unfunded
Arrangement.  The Executive and beneficiary are general
unsecured creditors of the Bank for the payment of benefits under this
Agreement.  The benefits represent the
mere promise by the Bank to pay such benefits. 
The rights to benefits are not subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors.  Any insurance
on the

 

 

Executive’s life is a
general asset of the Bank to which the Executive and beneficiary have no
preferred or secured claim.

 

8.8                                 Entire
Agreement.  This Agreement constitutes the entire
agreement between the Bank and the Executive as to the subject matter
hereof.  No rights are granted to the
Executive by virtue of this Agreement other than those specifically set forth
herein.

 

8.9                                 Administration.  The Bank shall have powers which are necessary to administer this
Agreement, including but not limited to:

 

(a)          Establishing and revising the method of accounting for the Agreement;

 

(b)         Maintaining a record of benefit payments;

 

(c)          Establishing rules and prescribing any forms necessary or desirable to
administer the Agreement; and

 

8.10                           Named
Fiduciary. The Bank shall be
the named fiduciary and plan administrator under this Agreement.  It may delegate to others certain aspects of
the management and operational responsibilities including the employment of
advisors and the delegation of ministerial duties to qualified individuals.

 

IN
WITNESS WHEREOF, the Executive and the Bank have signed this Agreement.

 

	
  EXECUTIVE:

  	
  BANK:

  
	
   

  	
  HACIENDA BANK

  
	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   

  	
   

  
	
  David Duarte

  	
   

  
	
   

  	
  Title: CEO/Chairman

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