-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DhSBM96686zax2q/C9pRTCyJ96aTEKUOkSS2YGxqqUud/0dQ2sQD7p+DqyjRH4uP baYUQEAn40hvrpXx26P16g== 0001047469-99-020559.txt : 19990517 0001047469-99-020559.hdr.sgml : 19990517 ACCESSION NUMBER: 0001047469-99-020559 CONFORMED SUBMISSION TYPE: 10-12G PUBLIC DOCUMENT COUNT: 19 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCRIPPS FINANCIAL CORP CENTRAL INDEX KEY: 0001086370 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-12G SEC ACT: SEC FILE NUMBER: 000-26081 FILM NUMBER: 99623288 BUSINESS ADDRESS: STREET 1: 7817 IVANHOE AVENUE CITY: LAJOLLA STATE: CA ZIP: 92037 BUSINESS PHONE: 6194562265 MAIL ADDRESS: STREET 1: C/O GRAY GARY STREET 2: 4365 EXECUTIVE DRIVE - SUITE 1600 CITY: SAN DIEGO STATE: CA ZIP: 92121 10-12G 1 10-12G As filed with the Securities and Exchange Commission on May 14, 1999 Registration No. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------- SCRIPPS FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) ---------------- CALIFORNIA 33-0855985 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7817 IVANHOE AVENUE LA JOLLA, CALIFORNIA 92037 (Address of principal executive offices; zip code) (619) 456-2265 (Telephone number, including area code) ---------------- Securities to be registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which to be so Registered Each Class is to be Registered ------------------- ------------------------------ NONE NOT APPLICABLE Securities to be registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE (Title of class) ITEM 1. BUSINESS. The following discussion contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "will," "expect," "anticipate," "believe," "estimate," "project" and "continue" or similar words. You should read statements that contain these words carefully because they: (1) discuss our future expectations; (2) contain projections of our future results of operations or of our financial condition; or (3) state other "forward-looking" information. We believe it is important to communicate our expectations; however, there may be events in the future that we are not able to predict accurately or over which we have no control. Our actual results may differ materially from the expectations we describe in forward-looking statements. Factors that could cause actual results to differ materially from those we describe include, but are not limited to, local economic conditions in Southern California and particularly in San Diego, the ability to manage growth of Scripps Financial Corporation ("SFC") and Scripps Bank ("Scripps"), business conditions and interest rate fluctuation, competition, a decline in real estate prices, new product development, federal and state regulation and Year 2000 issues. Forward-looking statements below should be read in light of these factors. GENERAL SCRIPPS FINANCIAL CORPORATION. SFC is a California corporation to be formed in the spring of 1999 as a federally regulated bank holding company. Upon the receipt of approvals by the Federal Deposit Insurance Corporation, Federal Reserve Board, California Department of Financial Institutions ("DFI") and shareholders and board of directors of Scripps, a subsidiary of SFC will merge with and into Scripps. Prior to the merger SFC will have no operations and hold no assets other than stock in the subsidiary used to effect the merger. In the merger each shareholder of Scripps will receive a number of shares of SFC equal to the number of shares such shareholder holds in Scripps immediately prior to the merger. After the merger the former shareholders of Scripps will hold shares of SFC in the same percentages that they held shares of Scripps immediately prior to the merger; SFC will own all of the stock of Scripps. The purpose of the merger is to create a holding company structure for Scripps. Information regarding Scripps is provided below to provide a better understanding of the primary asset of SFC, which will be its ownership of Scripps. SCRIPPS BANK. Scripps, a California banking corporation, is a federally insured bank with its headquarters and main office in La Jolla and additional full-service offices in downtown San Diego, El Cajon, Escondido, Kearny Mesa, Encinitas, Point Loma and Chula Vista. Scripps commenced operations on January 16, 1984. Scripps is licensed and regulated by the DFI, and its deposits are insured up to the maximum legal limits by the FDIC. OPERATIONS OF SFC Management of SFC will include existing officers of Scripps. Six former directors of Scripps will become directors of SFC. Management of Scripps will not change due to the merger; the board of directors is expected to retain many of the same directors as the bank has immediately prior to the merger. -1- SFC is committed to enhancing shareholder value by building a solid future for its customers, employees and the communities it serves. While SFC may ultimately hold other entities besides Scripps, either due to separating existing divisions of Scripps into different corporations or due to forming new entities to achieve strategic objectives, there are no immediate plans to use SFC as other than a holding company for Scripps. The purpose of the merger is to provide regulatory flexibility, because banking holding companies have certain business opportunities not available to state-regulated banks. To accomplish the objectives of SFC for Scripps, management has identified the following specific strategic objectives for Scripps: SERVICE OF UNPARALLELED QUALITY. Management emphasizes the importance of full-time customer contact personnel. Management believes that full-time employees over the long term provide more value to Scripps and its customers from the training they receive, their familiarity with customers and their overall job satisfaction. Scripps uses employee and customer surveys as an ongoing means of assessing its products and services and the quality of delivery. In addition, management has implemented several new bank products and services including alternative investment products and telephone/computer banking to increase the range of financial services offered as well as customer convenience. INSTITUTIONAL EFFICIENCY. Management recognizes the need to improve the efficiency through the use of new technologies, staff utilization and training. QUALITY OF RELATIONSHIP WITH REGULATORY AUTHORITIES. Scripps recognizes the importance of maintaining a high quality relationship with the DFI and the FDIC. Accordingly, management has identified specific steps with which to achieve this goal involving asset quality, earnings, liquidity management, capital and regulatory compliance, among others. ENHANCEMENTS OF FINANCIAL CONDITION AND PERFORMANCE. Maintaining high standards for financial condition and operating performance is instrumental to Scripps' success. Such standards, as identified by management, involve Scripps' capital levels, loan growth and composition, earning asset mix, deposit composition, net interest margin, noninterest costs and additional sources of non-asset based income, among others. MANAGEMENT OF GROWTH. Management believes that maintaining quality of service, administrative control and compliance with applicable regulatory requirements, while improving profitability, are critical success factors of Scripps. Further, this strategic objective stresses management's desire to grow only as long as Scripps can deliver high quality services while contributing to shareholder value over the long term. COMPENSATION PROGRAM. Management believes that hiring and retaining high quality employees is a cornerstone of its success. Management also believes that enhancing shareholder value requires the use of incentive compensation and other benefit plans that help the Bank achieve its strategic plan. To this end, Scripps currently offers an incentive compensation program based on targeted goals, and other employee benefit plans, such as -2- a 401(k) Plan, Employee Stock Ownership Plan, Stock Option Agreements and an Employee Stock Purchase Plan. At the time of the merger,these programs will be assumed by SFC. BANKING SERVICES Scripps targets businesses, professionals and individuals interested in personalized relationship-oriented financial services in its geographical markets of San Diego County currently comprising La Jolla, downtown San Diego, El Cajon, Escondido, Kearny Mesa, Encinitas, Point Loma and Chula Vista. The bank offers a broad range of banking products and services including but not limited to: - Business loans and lines of credit - Consumer loans and lines of credit - Real estate construction loans - Corporate lending - SBA guaranteed lending (PLP lenders) - Equipment leasing - Residential lending brokerage services - International department services - Cash management services for businesses - Credit and debit cards through affiliated institutions - Customized depository services, including demand, savings, money market, money fund, certificates of deposit, US Savings Bonds and individual retirement accounts - On-line home banking with bill pay service - Automated teller machines - 24 hour telephone banking - Customer courier services - Safe deposit boxes Scripps holds no patents, registered trademarks, licenses (other than licenses obtained from regulatory agencies), franchises or concessions. Scripps has not spent material amounts on -3- research and development of new products or services or improvements to existing products or services. TRUST SERVICES AND INVESTMENT MANAGEMENT SERVICES The Scripps Trust Department is committed to providing San Diego County with high quality personalized trust and investment management services. The Trust Department offers a full range of personal trust services to individuals, including the administration of: - living trusts - testamentary trusts - custodial agencies - investment agencies - executorships - conservatorships All standard employee benefit trust services are available, including trust administration and asset management. The Trust Department also assists individuals who wish to establish an IRA rollover for qualified retirement plan distributions. The Trust Department strives to attain a personalized approach to trust services by custom tailoring products and services to meet the customer's needs. The Trust Department utilizes an independent registered investment advisor to provide investment advice to the Trust Investment Committee in an attempt to provide individualized asset management programs for each trust account. The Trust Department also offers "no load" mutual funds for some accounts to achieve proper diversification of assets. COMMITMENTS AND CONTINGENT LIABILITIES In the course of normal business, Scripps enters into various types of transactions that include commitments to extend credit that are not reflected on its statements of financial condition. Scripps applies the same credit standards to these commitments as it uses in all its lending activities and has included these commitments in its lending risk evaluations. Scripps' exposure to loss under commitments to extend credit is represented by the total amount of these commitments. See "Notes to Financial Statements." COMPETITION The banking business in California generally, and in the San Diego market area specifically, is highly competitive with numerous competitors both making loans and accepting deposits. The trust and investment management services business in Scripps' market area is also highly competitive, with eight major banks and various credit unions and savings and loans -4- serving the area. Scripps competes for loans, deposits and trust services with other commercial banks, savings and loan associations, finance companies, money market funds, credit unions, brokerage firms and other financial institutions, including a number of institutions that have significantly greater financial resources than Scripps. Scripps also competes for business with unregulated lenders. There has been increased competition for deposit and loan business over the past several years as a result of deregulation, and with the advent of interstate banking, bank holding companies headquartered outside of California may also enter the California market in greater numbers and provide further competition for Scripps. Many of the major commercial banks operating in Scripps' market area offer some services which Scripps does not offer directly but can provide through a correspondent bank or through a strategic alliance with a financial service provider. Additionally, banks with larger capitalization have larger lending limits and are thereby better able to serve the higher dollar needs of larger customers. SFC believes that the customer service orientation, active involvement of its board of directors, management and employees in community affairs, and commitment to the community of SFC, Scripps and their employees will enable Scripps to continue to compete effectively. With nine locations, Scripps is the second largest locally owned and managed bank in San Diego County. Scripps holds 1.55% of the deposit market share countywide. Scripps intends to continue to compete actively for customers who prefer to bank with a relationship-oriented community bank. However, there can be no assurance that Scripps and any other businesses of SFC will be successful in efforts to compete in the future. EMPLOYEES As of March 31, 1999, Scripps had a full time equivalent staff of 234 persons on a full-time and part-time basis. SFC had no employees. RECENT TRANSACTIONS On August 31, 1998, Pacific Commerce Bank ("PCB") merged with and into Scripps. This merger provided Scripps with its Chula Vista and South Bay locations. The merger was approved by the Federal Deposit Insurance Corporation, the California Department of Financial Institutions and the shareholders and directors of Scripps and PCB. Operations and management of PCB have since been integrated into Scripps. The merger was accounted for as a pooling-of-interests, therefore, the financial statements of Scripps report the combined results of operations of the two banks retroactively. -5- ITEM 2. FINANCIAL INFORMATION. SFC had not been formed as of December 31, 1998 and therefore had no assets, liabilities or capital. SFC management contemplates that SFC will perform a transaction in which SFC will issue one share in exchange for each outstanding share of Scripps, making Scripps a wholly owned subsidiary of SFC. The transaction will be accounted for by SFC at book value in a manner comparable to a pooling of interests. SELECTED FINANCIAL DATA OF SCRIPPS (Dollar amounts in thousands, except per share data) The following data has been derived from financial statements audited by PricewaterhouseCoopers LLP, independent accountants, unless otherwise noted. The statements of financial condition at December 31, 1998 and 1997 and the related statements of income, of changes in stockholders' equity and of cash flows for the three years ended December 31, 1998 and notes thereto appear elsewhere in this registration statement.
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- INCOME STATEMENT DATA: Net interest income............. $ 28,396 $ 23,218 $ 18,099 $ 15,958 $ 13,673 Provision for possible loan losses....................... (1,805) (1,452) (922) (1,263) (907) Noninterest income.............. 6,095 5,390 4,230 3,554 3,060 Noninterest expense............. (22,823) (20,168) (15,746) (13,792) (12,828) Provision for income taxes...... (3,995) (2,758) (2,259) (1,835) (1,234) ----------- ------------ ---------- ---------- ---------- Net income...................... $ 5,868 $ 4,230 $ 3,402 $ 2,622 $ 1,764 ----------- ------------ ---------- ---------- ---------- ----------- ------------ ---------- ---------- ---------- PER COMMON SHARE DATA: (1) Net income (basic).............. $ 0.87 $ 0.63 $ 0.56 $ 0.52 $ 0.37 Net income (diluted)............ 0.84 0.61 0.55 0.52 0.37 Cash dividends declared......... 0.16 0.34 0.31 0.36 0.30 Period-end book value........... 6.44 5.66 5.12 4.11 3.74 SHARES OUTSTANDING: Weighted average common shares outstanding (basic)... 6,754,000 6,726,000 6,026,000 5,064,000 4,730,000 Weighted average common shares outstanding (diluted). 6,974,000 6,987,000 6,213,000 5,090,000 4,736,000 Common shares outstanding at period end................... 6,797,000 6,708,000 6,772,000 5,570,000 4,746,000 -6- FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------------------------------- 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- AVERAGE FINANCIAL CONDITION DATA: (2)(3) Investment securities (4)....... $ 127,003 $ 99,318 $ 86,899 $ 55,319 $ 42,108 Loans........................... 307,061 243,895 183,176 161,083 137,593 Assets.......................... 508,871 404,605 324,825 263,732 213,681 Deposits........................ 463,829 364,927 293,795 240,661 194,447 Shareholders' equity............ 41,095 36,117 28,542 20,930 17,311 ASSET QUALITY RATIOS: (2) Net charge-offs to average loans 0.22% 0.27% 0.36% 0.56% 0.50% Nonperforming loans to total loans (5) (10).............. 0.40% 0.35% 0.62% 2.09% 0.32% Nonperforming assets to total assets (10)................. 0.23% 0.31% 0.50% 1.20% 1.00% Allowance for loan losses to total loans (10).................. 1.40% 1.28% 1.32% 1.58% 1.46% Allowance for loan losses to nonperforming loans (10).... 352.07% 368.29% 213.31% 75.56% 451.53% PERFORMANCE RATIOS: (2) Return on average assets........ 1.15% 1.05% 1.05% 0.99% 0.83% Return on average equity........ 14.28% 11.71% 11.92% 12.53% 10.19% Net interest margin (6)......... 6.02% 6.31% 6.16% 6.67% 7.00% Efficiency ratio (7)............ 66.12% 70.36% 70.32% 70.49% 70.74% REGULATORY CAPITAL RATIOS: (8) (10) Leverage ratio (9).............. 7.63% 8.30% 9.63% 7.83% 8.09% Tier 1 risk-based capital....... 10.19% 11.10% 13.93% 16.21% 16.38% Total risk-based capital........ 11.32% 12.20% 15.08% 17.24% 17.60%
- ---------------- (1) Per share data have been retroactively adjusted to reflect a 10% stock dividend in 1996, a 10% stock dividend in 1997 and a two for one split in 1997 for all periods presented. (2) Amounts have not been derived from Scripps' financial statements. (3) Average balance sheet data has been derived from quarterly balances for 1994 through 1995, otherwise from year-to-date daily balances. (4) Amounts are derived from average balances based upon book value. (5) Nonperforming loans represent nonaccrual loans and loans still accruing interest and contractually past due 90 days or more. (6) Net interest income divided by average interest-earning assets. (7) Efficiency ratio is defined as the ratio of noninterest expenses, less costs related to real estate owned, to the sum of net interest income and noninterest income exclusive of securities gains/(losses). (8) Computed in accordance with 1992 Federal guidelines, which were initially effective January 1, 1990. (9) Leverage ratio is defined as the ratio of Tier 1 capital to average assets for the most recent quarter. (10) Data is as of period end. -7- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Scripps, with $583 million in total assets at December 31, 1998, derives substantially all of its revenues and income by providing a full range of commercial banking, consumer banking and trust services primarily to small and middle market businesses and individuals in San Diego County, California. The revenues of Scripps are derived principally from interest earned on loans and investment securities, from trust and residential lending service fees, and from other loan and deposit account-related fees and service charges. The operations of Scripps are influenced significantly by general economic conditions and by policies of its primary regulators, the FDIC and the DFI. Return on average equity ("ROE") is determined by dividing annual net income by average shareholders' equity and indicates the effectiveness of an institution in generating net income from the capital invested by its shareholders. For the year ended December 31, 1998, Scripps' ROE was 14% compared to 12% for 1997 and 12% for 1996. Return on average assets ("ROA") measures net income in relation to total average assets and generally indicates an institution's ability to use its assets profitably. For the year ended December 31, 1998, Scripps' ROA was 1.2% compared to 1.1% for both 1997 and 1996. ROE for 1998 increased by 2% over 1997 primarily as a result of growth of net income. In 1998 PCB merged with and into Scripps, resulting in two new offices for Scripps. Management believes the continued growth of market share in existing and new markets, enhanced internal efficiency, the continued resolution of its nonperforming assets, and a general economic recovery of Southern California will have a positive effect upon future operations, although there can be no assurance these developments will occur. There are many factors that could adversely affect the future operations of Scripps, including any decline in the San Diego County economy at a time when Scripps is incurring costs of expansion. RECENT DEVELOPMENTS The following data are highlights of first quarter 1999 unaudited results for Scripps. Net income was $1.5 million or $.22 in diluted earnings per share, compared to $1.4 million or $.20 in diluted earnings per share as of March 31, 1998. Scripps ended the quarter with total assets of $591 million, net loans of $350 million, and total deposits of $542 million. This represents growth of 27 percent in total assets, 20 percent in net loans and 28 percent in deposits when compared to first quarter 1998. Nonperforming assets of $3.0 million or 0.51 percent of total assets at March 31, 1999 compares to $1.1 million or 0.24 percent of total assets for the same date in 1998. The allowance for possible loan losses at March 31, 1999 was $3.9 million or 1.10 percent of gross loans, compared to $4.0 million or 1.36 percent of gross loans at March 31, 1998. -8- INSTITUTIONAL GROWTH Scripps began to experience significant growth in 1995 as the local economy improved and following the failure or merger of several larger San Diego headquartered financial institutions. The decision was made to increase the bank's capital and to take advantage of the opportunity to increase market share. Prior to 1996, the bank had established offices in La Jolla, El Cajon, downtown San Diego, and Escondido. In 1996, the bank obtained an additional $9.5 million through the sale of Scripps Common Stock and received regulatory approval to open three new offices in Kearny Mesa, Encinitas, and Point Loma. Those offices were opened during 1997, and all have experienced satisfactory growth in loans and deposits. In 1998 Scripps expanded into Chula Vista and the South Bay area of San Diego County, adding two offices, through its merger with PCB. The bank's long term plan includes establishing a total of eleven to twelve offices strategically located throughout San Diego County and considering further expansion into Orange County. Through the merger of PCB and Scripps, the resulting institution has nine offices serving much of San Diego County. Although there can be no assurances that it will prove to be correct, Scripps management believes that significant growth and market opportunity will occur in the near future in the South Bay area, and that it is therefore very important for the bank to be represented in that area. It is anticipated that in the future, one or two additional offices may be opened in North County, possibly one additional office in East County, and at least one office in Orange County. -9- Growth has and will enable Scripps to expand its deposit gathering and loan delivery systems geographically within San Diego County and Orange County. Increases in average interest-earning assets and average interest-bearing liabilities contributed to increases in total interest income, interest expense and net interest income. Expansion has also contributed to the gathering of additional noninterest-bearing deposits which effectively lowers Scripps' internal cost of funds and increases net interest income. Growth has also caused, and can be expected to continue to cause, increases in noninterest expense. Scripps' growth during the period from 1994 through the end of 1998 facilitated increases in income per share. As Scripps' growth continues and as noninterest expense continues to rise, income per share may decline. Scripps believes that even if additional investment in growth comes at the cost of lower income per share for several quarters, Scripps' profitability will be enhanced over the long term, although there can be no assurance that this will in fact be the case. ANNUAL COMPARISON The following discussion is intended to provide information to facilitate the understanding and assessment of significant changes and trends related to the results of operations and the financial condition of Scripps. This discussion and analysis should be read in conjunction with Scripps' audited financial statements, including notes thereto, located elsewhere in this registration statement. NET EARNINGS Net earnings were $6 million ($.87 per share basic; $.84 per share diluted) for the year ended December 31, 1998, compared with $4 million ($.63 per share basic; $.61 per share diluted) for 1997, an increase of $2 million or 39%. Net earnings for 1997 reflect an increase of $1 million or 24% over net earnings of $3 million ($.56 per share basic; $.55 per share diluted) for the year ended December 31, 1996. Scripps' improved performance between 1998 and 1997 resulted primarily from an increase in average interest-earning assets, primarily in loans and investment securities. Scripps' improved performance between 1997 and 1996 was primarily due to higher net interest income resulting from increased volumes of interest-earning assets. The increase in the amount of interest-earning assets during 1997 and 1996 was primarily in commercial loans and real estate loans. The higher levels of net interest income in 1998 and 1997 were partially offset by the costs and additional salary expense associated with the PCB merger in 1998. NET INTEREST INCOME Net interest income, which constitutes one of the principal sources of income for Scripps, represents the difference between interest income on interest-earning assets and interest expense on interest-bearing liabilities. The net yield on total interest-earning assets, also referred to as interest rate margin or net interest margin, represents net interest income divided by average interest-earning assets. Scripps' principal interest-earning assets are loans, investment securities and Federal funds sold, while its principal interest-bearing liabilities are interest-bearing demand accounts, savings deposits and time deposits. -10- Net interest income was $28 million for fiscal 1998, an increase of $5 million or 22% compared with net interest income of $23 million for 1997, which represented an increase of $5 million or 28% compared to net interest income of $18 million for 1996. Comparing 1998 to 1997, Scripps' average interest-earning assets increased to $475 million in 1998 from $368 million in 1997, representing an increase of 29% which resulted from increases in all interest-earning asset categories but primarily in loans (26%) and investments (28%). Average interest-bearing deposits increased to $328 million in 1998 from $258 million in 1997, representing an increase of 27%, while average noninterest-bearing demand deposits also increased $29 million or 27%. The net interest margin of 6.02% for 1998 reflects a decrease of 29 basis points from that of 1997. This decrease in net interest margin resulted primarily from both the decrease in the prime rate from an average of 8.4% in 1997 to 8.3% in 1998, (since a majority of Scripps' loans are tied to the prime rate, a decrease in the rate immediately affects net interest income) and continued competitive pressure in pricing loans. Comparing 1997 to 1996, Scripps' average interest-earning assets increased to $368 million in 1997 from $294 million in 1996, representing an increase of 25% which resulted from increases in all interest-earning asset categories. Average interest-bearing deposits increased to $258 million in 1997 from $213 million in 1996, representing an increase of 21%, while noninterest-bearing demand deposits also increased $26 million or 32%. The net interest margin of 6.31% for 1997 reflects an increase of 15 basis points from that of 1996. This increase in net interest margin resulted primarily from a larger increase in volume of earning assets than interest paying deposits. Scripps' net interest income is affected by changes in the amount and mix of interest-earning assets and interest-bearing liabilities, referred to as a "volume change." It is also affected by changes in yields earned on interest-earning assets and rates paid on interest-bearing liabilities, referred to as a "rate change." The following table sets forth the categories of interest-earning assets and interest-bearing liabilities, the average amounts outstanding, the interest earned or paid on such amounts, and the average rate earned or paid for the periods indicated. The table also sets forth the average rate earned on all interest-earning assets, the average rate paid on all interest-bearing liabilities, and the net yields earned by Scripps for the same periods. -11-
AVERAGE BALANCES AND INTEREST RATES (Dollars in thousands) YEARS ENDED DECEMBER 31, ------------------------------- ----------------------------- ------------------------------ 1998 1997 1996 ------------------------------- ----------------------------- ------------------------------ INTEREST INTEREST INTEREST AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE AVERAGE INCOME/ AVERAGE BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE -------- -------- ------- -------- -------- ------- ------- -------- ------- Interest-earning assets: Loans, net (1) . . . . . $307,061 $32,151 10.47% $243,895 $26,214 10.75% $183,176 $19,672 10.74% Investment securities. . 132,740 7,830 5.90% 104,335 6,372 6.11% 93,549 5,632 6.02% Federal funds. . . . . . 31,982 1,730 5.41% 19,851 1,085 5.47% 17,112 906 5.29% -------- ------- -------- ------- -------- ------- Total interest-earning assets. . . . . . . . 471,783 41,711 8.84% 368,081 33,671 9.15% 293,837 26,210 8.92% Other assets . . . . . . 37,088 36,524 30,988 -------- -------- -------- Total assets . . . . . . $508,871 $404,605 $324,825 -------- -------- -------- -------- -------- -------- Interest-bearing liabilities: Deposits: Interest-bearing demand deposits . . . $219,223 $8,387 3.83% $164,110 $6,155 3.75% $131,808 $4,651 3.53% Savings deposits . . . . 24,596 623 2.53% 22,768 594 2.61% 23,670 609 2.57% Time deposits. . . . . . 84,056 4,305 5.12% 70,936 3,705 5.22% 57,132 2,851 4.99% -------- ------- -------- ------- -------- ------- Total interest-bearing deposits. . . . . . . 327,875 13,315 4.06% 257,814 10,454 4.05% 212,610 8,111 3.81% Noninterest-bearing liabilities: Noninterest-bearing deposits. . . . . . . 135,954 107,113 81,185 Other liabilities. . . . 3,947 3,449 2,390 Stockholders' equity . . 41,095 36,229 28,640 -------- -------- -------- Total liabilities and stockholders' equity. . . . . . . . $508,871 $404,605 $324,825 -------- -------- -------- -------- -------- -------- Net interest income. . . $28,396 $23,217 $18,099 ------- ------- ------- ------- ------- ------- Net interest spread(2) . 4.78% 5.09% 5.10% Net interest margin(3) . 6.02% 6.31% 6.16%
- --------------------- (1) Nonaccrual loans are included in the average balances used in this table. (2) Net interest spread is the difference between the average rate on total interest-earning assets and interest-bearing liabilities. (3) Net interest margin is net interest income divided by average interest-earning assets. -12- The following table illustrates the changes in Scripps' net interest income due to changes in volume (change in volume multiplied by initial rate) and changes in interest rate (change in rate multiplied by initial volume) for the periods indicated. Changes attributable to the combined effect of volume and interest rate have been allocated proportionately to the changes in volume and the changes in interest rate.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME (Dollars in thousands) 1998 1997 COMPARED WITH COMPARED WITH 1997 1996 ------------------------------ ------------------------------- INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO ------------------------------ ------------------------------- VOLUME RATE CHANGES VOLUME RATE CHANGES ------- ------- ------- ------- ------- ------- Interest income on: Loans, net (1) .............. $ 6,595 $ (658) $ 5,937 $ 6,526 $ 16 $ 6,542 Investment securities ....... 1,667 (209) 1,458 658 82 740 Federal funds ............... 656 (11) 645 149 30 179 ------- ------- ------- ------- ------- ------- Total interest income .......... 8,918 (878) 8,040 7,333 128 7,461 ------- ------- ------- ------- ------- ------- Interest paid on: Interest-bearing demand deposits ................... 2,106 126 2,232 1,197 307 1,504 Savings deposits ............ 46 (17) (24) 9 (15) Time deposits ............... 670 (70) 600 716 138 854 ------- ------- ------- ------- ------- ------- Total interest expense ......... 2,822 39 2,861 1,889 454 2,343 ------- ------- ------- ------- ------- ------- Net interest income ............ $ 6,096 $ (917) $ 5,179 $ 5,444 $ (326) $ 5,118 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
- --------------------- (1) Nonaccrual loans are included in the average balances used in calculating this table. PROVISION FOR POSSIBLE LOAN LOSSES Provisions for possible loan losses are charged to earnings to bring the total allowance for possible loan losses to a level deemed appropriate by management based upon such factors as historical loss experience, the volume and type of lending conducted by Scripps, the amounts of classified and nonperforming assets, regulatory policies and examination results, concentrations, general economic and business conditions, credit quality trends, and other factors related to the collectability of loans in Scripps' portfolio. The provision for possible loan losses was $1.8 million for 1998, an increase of $.3 million or 24% compared to the provision for possible loan losses of $1.5 million for 1997, which in turn represented an increase of $.5 million or 57% compared to the provision for possible loan losses of $.9 million for 1996. -13- NONINTEREST INCOME Noninterest income was $6 million for the year ended December 31, 1998, an increase of $1 million or 13% compared with noninterest income of $5 million for 1997, which represented an increase of $1 million or 27% compared with noninterest income of $4 million for 1996. The primary reasons for the increases in noninterest income over the years presented are growth in trust assets under administration of 75% to $867 million over the two year period ended December 31, 1998 and growth in deposits of 62% to $531 million over the two year period ended December 31, 1998. However, there can be no assurance that trust assets under administration and deposit service charges will continue to increase. There continues to be high levels of competition in the deposit services and trust services arena. The following table sets forth the various categories of noninterest income for the years ended December 31, 1998, 1997 and 1996. NONINTEREST INCOME DATA (Dollars in thousands)
YEARS ENDED DECEMBER 31, ---------------------------------------------- 1998 % CHANGE 1997 % CHANGE 1996 ------- -------- ------- -------- ------- Customer service charges .............. $2,269 24% $1,833 35% $1,362 Trust fees............ 2,140 15% 1,862 30% 1,432 Gain on sale of securities............ 0 -100% 44 -73% 164 Other non-interest income................ 387 74% 222 -36% 346 Other fees............ 1,299 -9% 1,429 54% 926 ------- ------ ------- ----- ------- Total................. $6,095 13% $5,390 27% $4,230 ------- ------- ------- ------- ------- -------
NONINTEREST EXPENSE Noninterest expense was $23 million for 1998, an increase of $3 million or 13% compared with noninterest expense of $20 million for 1997, which represented an increase of $4 million or 28% compared with noninterest expense of $16 million for 1996. Personnel expense was $12 million for 1998, an increase of $1 million or 10% compared with personnel expense of $11 million for 1997, which represented an increase of $2 million or 24% compared with personnel expense of $9 million for 1996. Occupancy expense was $2.5 million for 1998, an increase of $.4 million or 15% compared with occupancy expense of $2.1 million for 1997, which represented an increase of $.7 million or 57% compared with occupancy expense of $1.4 million for 1996. The aggregate increases over the three-year period principally reflect the additional costs associated with opening three offices in 1997 as part of Scripps' long-term growth strategy. In 1997, such increased costs were partially offset by cost decreases associated -14- with real estate owned. In 1998, noninterest expense also included merger expenses associated with the PCB merger. Data processing expense was $.8 million for 1998, an increase of $.1 million or 23% compared with data processing expense of $.6 million for 1997, which represented an increase of 13% compared with data processing expense of $.5 million for 1996. The increase in data processing expense over the three-year period resulted principally from the increase in volumes processed due to loan and deposit growth, offset in part by enhanced technical functionality from equipment acquired in 1996. The following table sets forth the amount of each of the various categories of noninterest expense for the periods indicated.
NONINTEREST EXPENSE DATA (Dollars in thousands) YEARS ENDED DECEMBER 31, --------------------------------------------------------- 1998 % CHANGE 1997 % CHANGE 1996 ------- -------- ------- -------- ------- Salaries and employee benefits....... $12,023 10% $10,884 24% $8,775 Occupancy and equipment.............. 2,528 19% 2,130 57% 1,358 Data processing...................... 756 23% 615 13% 546 Depreciation and amortization........ 1,527 18% 1,295 59% 817 Other real estate owned.............. 19 -51% 39 -13% 45 Professional services................ 1,628 67% 973 59% 613 Other general and administrative..... 4,342 3% 4,232 18% 3,592 ------- ----- ------- ---- ------- Total................................ $22,823 13% $20,168 28% $15,746 ------- ------- ------- ------- ------- -------
INCOME TAXES The provision for income taxes was $4 million, $3 million and $2 million for the years ended December 31, 1998, 1997 and 1996, respectively. Effective tax rates, the percentage of earnings set aside for federal and state income taxes were 41%, 39% and 40% for the years ended December 31, 1998, 1997 and 1996, respectively. The increase in effective rates reflects lower levels of tax exempt income in 1998, as compared to 1997, while 1997 experienced a decline in the effective rates due to higher levels of tax exempt income over 1996. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Scripps' balance sheet consists of interest-earning assets, primarily loans and investment securities, which are principally funded by interest-bearing liabilities, primarily deposits. These financial instruments have varying levels of sensitivity to changes in market interest rates resulting in market risk. In evaluating the exposure of Scripps to market risk, management relies on gap analysis and rate shock analysis. Gap analysis provides information on the timing and repricing differences between rate sensitive assets and rate sensitive liabilities. Rate shock analysis provides management with estimates of the impact of immediate changes in interest rates both in terms of the change in net interest income and the change in fair market value of these instruments. There are certain shortcomings inherent in these methods and the following -15- table that must be considered in evaluating market risk. Although certain assets may have similar maturities or periods to reprice, they may react in different degrees to changes in interest rates or they may precede or lag behind changes in market interest rates. In addition, certain interest rate sensitive assets may have contractual limitations to changes in interest rates. Scripps considers these various factors and their anticipated effects in managing the bank's exposure to interest rate risk. Management seeks to maintain a reasonably balanced interest rate risk position over one year to protect its financial condition and net interest margin from market fluctuations in interest rates. Overall management strategies to reduce Scripps' interest rate risk consist of: (i) maintaining a majority of its loan assets and deposit liabilities on an adjustable rate basis, (ii) limiting the volume of its loans with terms-to-maturity in excess of five years and (iii) maintaining a portion of its investment securities with varied terms to maturity. Additionally, Scripps maintains a Management Asset/Liability Committee and a Directors Asset/Liability Committee, both of which review on a regular and periodic basis such matters as earnings, asset quality, asset and liability mix, liquidity and funding sources, investment resources, capital, interest rate risk, and economic events and trends, among other matters. Both Committees review bank compliance with a set of Board-approved directives with which Scripps should comply to meet its asset and liability management objectives. The following table sets forth the interest-rate sensitive assets and liabilities of Scripps at December 31, 1998, which are expected to mature or are subject to repricing in each of the time periods indicated.
INTEREST RATE SENSITIVE ASSETS AND LIABILITIES (Dollars in thousands) TERM TO REPRICING AT DECEMBER 31, 1998 ----------------------------------------------------------------------- WITHIN THREE TO THREE TWELVE ONE TO FIVE MORE THAN MONTHS MONTHS YEARS FIVE YEARS TOTAL ---------- --------- -------- -------- ---------- Interest-earning assets: Federal funds sold............. $ 42,790 $ 42,790 Investment securities(1)...... 34,176 $30,762 $ 70,838 $ 25,135 160,911 Due from other institutions... 1,089 2,574 689 4,352 Loans, net(2): Variable rate............... 242,084 - - 7,419 249,503 Fixed rate.................. 6,326 9,292 47,910 26,533 90,061 ---------- --------- -------- -------- ---------- Total interest earning assets.... $326,465 $42,628 $119,437 $ 59,087 $547,617 ---------- --------- -------- -------- ---------- ---------- --------- -------- -------- ---------- Interest-bearing liabilities: Savings & NOW accounts........ $ 60,548 $ 60,548 Money market accounts......... 228,323 228,323 Time deposits................. 52,105 34,293 3,008 89,406 Other......................... 76 76 ---------- --------- -------- -------- ---------- Total interest bearing liabilities $340,976 $34,293 $ 3,084 $ 0 $378,353 ---------- --------- -------- -------- ---------- ---------- --------- -------- -------- ---------- Interest sensitivity gap......... (14,511) 8,335 116,353 59,087 169,264 ---------- --------- -------- ---------- --------- Gap to total assets.............. (2.49%) 1.43% 19.97% 10.14% Cumulative gap................... (14,511) (6,176) 110,177 169,264 ---------- ------------ --------- ---------- -16- Cumulative gap to total assets... (2.49%) (1.06%) 18.91% 29.05%
- ---------------------------------------- (1) Amounts include amortization of principal. (2) Amounts do not include amortization of principal, which would increase asset sensitivity. Nonaccrual loans and leases have been excluded from the balances used in calculating this table. At December 31, 1998 Scripps' one-year cumulative interest rate sensitivity gap was a negative 1.06%. This negative gap is primarily due to Scripps' core deposits, which reprice currently and are therefore classified as repricing within three months. Although Scripps attempts to actively manage interest rate risk, there can be no assurance that movements in interest rates will not have a material adverse effect upon the financial condition and results of operations of Scripps. The following table presents additional information about Scripps' financial instruments that are sensitive to changes in interest rates. Cash flows in this presentation are grouped by maturity dates rather than repricing dates. Consideration is given to prepayment assumptions for mortgage-backed securities (MBS), including collateralized mortgage obligations (CMO's). The cash flows from mortgage-backed securities are influenced by prepayments, which are dependent on a number of factors, including the current interest rate and the interest rate on the security, the availability of refinancing of the underlying mortgages at attractive terms, as well as geographic specific factors which affect the sales and price levels of residential property. Scripps management uses average prepayment speeds provided by Wall Street dealers to calculate principal repayments and estimated maturity dates for these securities. The cash flows for other securities are based on the actual maturity dates of the instruments, except for equity securities. Equity securities, for which there is no contractual maturity, consist of a variable rate government fund, which is included in the year 2000 column, and Federal Home Loan Bank stock, which is included in the "thereafter" column. Fair values for investment securities are based on quoted market prices or dealer quotes. Loans are distinguished by variable or fixed rates. Because variable rate loans are repricable immediately as market rates change, the fair value is assumed to be equal to the carrying value. The fair value of fixed rate loans is estimated using a discounted cash flow calculation. Non-maturing deposits consist of interest-bearing demand, savings, and money market accounts and have no maturity dates. Cash flow amortizations for these deposits are included in the year 1999 column. The fair value of non-maturing deposits is estimated to be the carrying value, which is the amount payable on demand. Time deposits are grouped according to contractual maturity dates. The fair value of time deposits is estimated using a discounted cash flow calculation. Average interest rates represent the weighted average yield in each category. -17- INTEREST-SENSITIVE FINANCIAL INSTRUMENTS (Dollars in thousands)
EXPECTED MATURITY DATE ------------------------------------------------------------------------------------------------ ----------- ---------- ----------- ---------- ---------- ------------- ----------- ------------- 1999 2000 2001 2002 2003 Thereafter Total Fair Value ----------- ---------- ----------- ---------- ---------- ------------- ----------- ------------- Financial Assets: Loans: Variable rate........ $159,080 $12,467 $11,603 $11,078 $11,419 $37,863 $243,510 $243,510 Average interest rate 9.16% 9.18% 9.82% 9.22% 8.95% 9.67% 9.21% Fixed rate........... 16,763 10,587 12,186 13,161 10,333 34,235 97,265 98,845 Average interest rate 9.10% 9.08% 8.98% 9.56% 8.97% 9.22% 9.14% Investment securities: CMO's................ 13,006 9,619 7,500 5,461 1,789 1,043 38,418 38,507 Average interest rate 6.48% 6.37% 5.99% 5.88% 6.15% 6.94% 6.39% MBS.................. 7,827 6,741 5,853 4,584 3,778 14,148 42,931 43,230 Average interest rate 7.13% 7.12% 7.08% 7.16% 6.96% 7.04% 7.10% SBA's................ 205 3,495 4,261 7,961 7,964 Average interest rate 9.48% 5.13% 6.01% 5.71% U.S. Treasury and Agency .......... 23,489 8,004 2,250 10,485 4,977 2,489 51,694 51,943 Average interest rate 5.68% 5.94% 8.35% 6.80% 5.40% 6.78% 6.09% States and political subdivisions..... 39 17,197 17,236 18,128 Average interest rate 8.10% 5.30% 5.31% Equity............... 1,461 1,210 2,671 2,545 Average interest rate 4.41% 5.83% 5.08% Interest bearing due from banks.......... 3,663 689 4,352 4,352 Average interest rate 5.89% 5.98% 5.91% Federal funds sold..... 42,790 42,790 42,790 Average interest rate 4.60% 4.60% Financial Liabilities: Interest bearing deposits: Non-maturing deposits.......... 288,928 288,928 288,928 Average interest rate 3.51% 3.51% Time deposits........ 86,341 2,932 29 11 36 89,349 89,495 Average interest rate 4.75% 5.33% 5.24% 5.25% 5.22% 4.79% Guarantee of loan to ESOP Trust.......... 34,719 38,269 3,012 76,000 76,000 Average interest rate 7.75% 7.75% 7.75% 7.75%
-18- LOANS AND ASSET QUALITY Net loans (gross loans less unearned income and allowance for loan losses) were $336 million at December 31, 1998, an increase of $56 million or 20% from loans of $280 million at December 31, 1997. This increase followed loan growth of $68 million or 32% from loans of $212 million at the end of 1996. The rate of loan growth for these periods increased due to an overall improvement in the Southern California economy. Management expects loan growth to be moderate in 1999 with the expectation that the economy will remain strong, but that the overall competition for loans will be a factor to contend with. There can be no assurance that the economy will remain strong or that loan growth will occur. Scripps' lending activities are guided by the basic lending policy established by its Board of Directors. The Scripps Board of Directors has established loan approval limits for the officers. Under regulations governing California state-chartered banks, Scripps may lend up to 15% of its total capital on an unsecured basis and 25% of its total capital on a secured basis to any one borrower, up to a limit of 25% of total capital for all direct and indirect loans to any one borrower. Additionally, loan concentrations are defined as amounts loaned to a number of borrowers engaged in similar activities or resident in the same geographic region, which would cause them to be similarly affected by economic or other conditions. Scripps, on a regular and periodic basis, evaluates these concentrations for the purposes of making corrections in its lending practices in consideration of economic conditions, industry trends and a variety of other factors. As a result of Scripps' market focus, Scripps has a concentration of its customers and assets in San Diego County. The following table sets forth the composition of Scripps' loan portfolio by type of loan on the dates indicated in terms of amount and as a percentage of the total loan portfolio.
LOAN PORTFOLIO ANALYSIS (Dollars in thousands) DECEMBER 31, --------------------------------------------------------- 1998 1997 1996 ---- ---- ---- Loans and leases:................. Commercial and other........... $156,236 $134,960 $105,229 Real estate (1)................ 131,613 104,026 71,445 Consumer....................... 48,375 42,390 35,718 Lease financing................ 6,199 3,212 3,608 Less: Unearned income and fees.... 1,648 941 901 ----------- ------------ ------------ Total $340,775 $283,647 $215,099 ----------- ------------ ------------ ----------- ------------ ------------ Loans and leases: Commercial and other........... 46% 48% 49% Real estate.................... 39% 37% 33% Consumer....................... 14% 15% 17% Lease financing................ 2% 1% 2% Less: Unearned income and discount.............. 1% 1% 1% -- -- -- Total 100% 100% 100% ---- ---- ---- ---- ---- ----
-19- - ----------------------------- (1) The calculation of real estate loans for financial statement purposes differs from the calculation of loans secured by real estate as reported in Scripps' regulatory call reports. At December 31, 1998, for instance, total loans secured by real estate as reported in Scripps' call report were $176 million or 52%. COMMERCIAL. Loans in this category include loans to small and middle market businesses, individuals and professionals located primarily in Scripps' market areas. Scripps provides secured and unsecured loans and lines of credit for the operation and expansion needs of businesses, ranging from inventory and accounts receivable financing to equipment financing. Scripps typically looks to the cash flow generated by a borrower as the principal source of repayment. Scripps may also take personal property and/or a first or second deed of trust on real estate as an additional form of collateral. REAL ESTATE. Scripps makes short-term real estate loans to borrowers who have a defined short-term repayment source. This category also includes interim construction loans for single family dwellings, and small or medium size commercial and multi-family buildings and lots to be developed. Periodically, Scripps makes longer term real estate loans on commercial properties in conjunction with the SBA guaranteed lending program as well as relationship-based loans for Scripps customers. The SBA guarantees second trust deed secured debentures, which are junior liens to Scripps' loans, to enable business owners to acquire commercial facilities for their businesses. Lending institutions in certain other areas of the country have experienced problems with real estate loan portfolios. Scripps has observed that economic downturns may adversely affect the value of real estate. Scripps monitors economic conditions to assess its risk. There can be no assurances that the current positive real estate market trend will continue. A sharp and significant decline in real estate prices would potentially have a material adverse affect on Scripps' lending activities and on the quality of Scripps' real estate loan portfolio. CONSUMER. Consumer loans are primarily automobile secured loans, home improvement loans, and equity lines of credit, generally secured by second trust deeds on personal residences, loans secured by various personal property and unsecured lines of credit. Fixed rate consumer loans, which comprise approximately 33% of the consumer portfolio are generally made as amortizing loans over terms in excess of one year. The variable rate portion of consumer loans are primarily equity lines of credit secured by lien positions on real property or unsecured revolving credit facilities to qualified individuals. LEASES. A major portion of Scripps' lease assets are comprised of leases for electronic equipment, such as computers and data processing equipment. The remaining balance of the lease portfolio includes leases on a variety of other equipment. Scripps recently formed a leasing division in early 1998 and it is anticipated that lease assets will increase over current levels. NONPERFORMING ASSETS Generally, Scripps' policy is to discontinue accrual of interest on loans which are delinquent for 90 days or more unless management determines that a loan is adequately collateralized or other circumstances justify treating a loan as fully collectable. When a loan is placed on nonaccrual status, income is not recognized until payment has actually been received -20- and future payments of principal and interest appear certain. Interest income which has been accrued up to the point a loan is placed on nonaccrual status is reversed if management determines that the collectability of the accrued interest is doubtful. Real estate acquired by Scripps as a result of foreclosure or by deed in lieu of foreclosure is classified as real estate owned. Such loans are reclassified to real estate owned at the lower of cost or fair value less estimated selling costs, and any estimated loss upon reclassification is charged to allowance for losses at that time. Further increases to the allowance for losses on real estate owned are recorded as charges to noninterest expense at the time such costs are incurred or management believes additional deterioration in value has occurred. Management regularly reviews and monitors the loan portfolio to identify borrowers experiencing financial difficulties. Management believes that as of December 31, 1998, all problem loans to date had been identified and included in the nonaccrual or 90 days past due totals reflected below. Management, as part of the responsibilities of Credit Administration and Regulatory Risk Management, is particularly focused upon the objective of reducing its nonperforming and classified assets to a lower level. In fact, management has noted an increase in nonperforming loans in the first quarter of 1999 and is closely monitoring the adequacy of the loan loss reserve in light of this increase. There can be no assurance that management will achieve the objective of reducing nonperforming and classified assets. The following table sets forth certain information with respect to Scripps' nonaccrual loans, accruing loans for which payments of principal and interest are contractually past due 90 days or more, and real estate owned for the periods indicated.
NONPERFORMING ASSETS (Dollars in thousands) DECEMBER 31, -------------------------------------- 1998 1997 1996 -------- -------- -------- Nonaccrual loans............................ $ 1,211 $ 872 $ 661 Accruing loans past due 90 days or more..................................... 143 112 669 -------- -------- -------- Total nonperforming loans................... 1,354 984 1,330 Real estate owned........................... 0 428 488 -------- -------- -------- Total nonperforming assets.................. $ 1,354 $ 1,412 $ 1,818 -------- -------- -------- -------- -------- -------- Total nonperforming assets to total assets................................... .23% .31% .50%
Reductions in real estate owned over the years presented have resulted principally from Scripps' efforts to dispose of, and keep to a minimum, holdings of such non-earning assets. Scripps has a Special Assets Department with the primary responsibilities of regular internal loan quality reviews and the monitoring and disposition of nonperforming and classified assets. However, there can be no assurance that reductions in the balance and percent of nonperforming assets will occur in the future. -21- RESERVE FOR POSSIBLE LOAN LOSSES In originating loans, Scripps recognizes that credit losses will be experienced and that the risk of loss will vary with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the quality of the collateral for such loan. Management maintains a reserve for possible loan losses at a level considered adequate to absorb known and inherent risks in the loan portfolio. Management's evaluation of the adequacy of the reserve is ongoing and comprehensive. Management has and will continue to actively monitor Scripps' asset quality, to charge off loans against the reserve for possible loan losses when appropriate and to provide for specific losses when necessary. Although management believes it uses the best information available to make determinations with respect to the reserve for possible loan losses, future adjustments may be necessary if economic conditions differ from the assumptions used in making the initial determinations. There can be no assurance that economic conditions which may adversely affect Scripps' market area or other circumstances will not result in increased loan losses in Scripps' loan portfolio. The following table sets forth an analysis of Scripps' reserve for possible loan losses for the periods indicated. -22- RESERVE FOR POSSIBLE LOAN LOSSES DATA (Dollars in thousands)
DECEMBER 31, ----------------------------------------------- 1998 1997 1996 ---------- ----------- ---------- Beginning balance of reserve for possible loan losses ......................... $ 3,624 $ 2,837 $ 2,575 -------- -------- -------- Loans charged off: Real estate .................................... 88 0 169 Commercial and other ........................... 394 664 619 Consumer ....................................... 241 123 116 Lease financing ................................ 12 2 25 -------- -------- -------- Total loans charged off .......................... 735 789 929 -------- -------- -------- Recovery of loans previously charged off: Real estate .................................... 1 1 63 Commercial and other ........................... 30 114 190 Consumer ....................................... 13 9 8 Lease financing ................................ 29 0 8 -------- -------- -------- Total recoveries ................................. 73 124 269 -------- -------- -------- Net loans charged off ............................ 662 665 660 Provision for possible loan losses ............... 1,805 1,452 922 -------- -------- -------- Ending balance of reserve for possible loan losses .......................... $ 4,767 $ 3,624 $ 2,837 -------- -------- -------- -------- -------- -------- Average net loans outstanding during the period .................................... $307,061 $243,895 $183,176 -------- -------- -------- -------- -------- -------- Total net loans outstanding at period-end .................................... $340,775 $283,647 $215,099 -------- -------- -------- -------- -------- -------- Net loans charged off to average net loans.............................. .22% .27% .36% Reserve for possible loan losses as a percentage of nonperforming loans.............. 352.07% 368.29% 213.31% Reserve for possible loan losses as a percentage of total net loans outstanding at period-end...................... 1.40% 1.28% 1.32%
INVESTMENT ACTIVITIES Scripps' investment portfolio is used primarily for liquidity purposes and secondarily for investment income. Investment securities classified as available for sale ("AFS") are stated at their current market value with stockholders' equity being adjusted for the after-tax unrecognized gain (loss) on said securities. Investment securities classified as held to maturity ("HTM") are stated at cost, decreased by amortization of premium and increased by accretion of discount, over the period to maturity of the related securities. During 1998, Scripps classified its entire -23- investment portfolio as available for sale. Management attempts to maintain investment securities in its portfolio that offer a stable total return profile over a wide range of interest rate environments, as well as securities with varied maturities (a "laddered" portfolio) so that, under normal conditions, there should be no need to sell securities prior to maturity dates, thereby minimizing the impact of interest rate fluctuations on net interest income. However, there can be no assurance that Scripps' investment securities will continue to reflect a stable total return profile over time or that Scripps would not sell any investment securities during a rising interest rate environment and recognize a loss. Scripps current investment policy enables management to invest primarily in United States Treasury and Government Agency obligations, United States Government-sponsored agency securities, mortgage-backed securities, collateralized mortgage obligations and obligations of states and political subdivisions with a maximum aggregate portfolio duration not to exceed four years. In 1997, Scripps entered into an investment advisory agreement with Sefton Capital Management. Scripps retains control of all investment decisions. In 1997, Scripps became a member of the Federal Home Loan Bank of San Francisco (FHLB). As a member of FHLB, Scripps is required to purchase FHLB stock. Equity Securities are comprised of FHLB stock and mutual fund shares in a variable rate government bond fund, which was acquired through the merger with PCB. The following table sets forth an analysis of Scripps' investment portfolio as of the dates indicated.
INVESTMENT PORTFOLIO COMPOSITION (Dollars in thousands) DECEMBER 31, ------------------------------------------ 1998 1997 1996 ----------- ----------- ---------- AVAILABLE FOR SALE: U.S. Treasury and U.S. Government Corporation & Agency securities................ $59,907 $36,517 $47,077 Mortgage-backed securities: U.S. Government Agency........... 38,260 13,530 5,549 U.S. Government-Sponsored Agency Securities................ 4,970 4,684 6,687 Collateralized Mortgage Obligations...................... 38,507 39,792 19,994 States and political subdivisions..................... 18,128 17,903 6,953 Equity Securities................... 2,545 2,361 1,632 ----------- ----------- ---------- Total available for sale............ 162,317 114,787 87,892
-24-
INVESTMENT PORTFOLIO COMPOSITION (Dollars in thousands) DECEMBER 31, ------------------------------------------ 1998 1997 1996 ----------- ----------- ---------- HELD TO MATURITY: U.S. Treasury and U.S. Government Corporation & Agency Securities................. 0 3,798 4,499 Mortgage-backed: U.S. Government Agency............ 0 102 108 U.S. Government-sponsored Agency Securities................. 0 45 54 Collateralized Mortgage............. 0 970 970 ----------- ----------- ---------- Total held to maturity.............. 0 4,915 5,631 ----------- ----------- ---------- Total investment securities......... $162,317 $119,702 $93,523 ----------- ----------- ---------- ----------- ----------- ----------
The following table sets forth the maturity distribution and weighted average yield of the investment portfolio as of December 31, 1998.
INVESTMENT PORTFOLIO MATURITY DISTRIBUTION AND YIELDS (Dollars in thousands) ----------------------------------------------------------------------------------------- DUE FROM DUE FROM ONE FIVE YEARS MORTGAGE-BACKED DUE IN ONE YEAR THROUGH THROUGH TEN DUE AFTER AND SBA LOAN YEAR OR LESS FIVE YEARS YEARS TEN YEARS POOLS TOTAL --------------- -------------- ------------- ----------- ----------------- ----------- Available for Sale: U.S. Treasury and U.S. Government Corporation & Agency securities............... $23,560 $25,835 $2,548 $ 0 $7,964 $59,907 Weighted average yield.......... 5.65% 6.40% 6.78% 5.72% 6.04% Mortgage-backed securities: U.S. Government Agency.......... 38,260 38,260 Weighted average yield.......... 7.01% 7.01% U.S. Government-sponsored Agency Securities............. 4,970 4,970 Weighted average yield.......... 7.83% 7.83% Collateralized Mortgage Obligations...................... 38,507 38,507 Weighted average yield.......... 6.39% 6.39% States and political subdivisions.. 39 7,355 10,734 18,128 Weighted average yield.......... 8.10% 5.02% 5.62% 5.31% Equity Securities.................. 1,335 1,210 2,545 Weighted average yield........... 4.41% 5.83% 5.08% --------- --------- --------- --------- --------- --------- Percentage of total................ 14% 18% 8% 6% 54% 100%
-25- DEPOSIT ACTIVITIES Scripps attracts deposits through the offering of a broad variety of deposit instruments for both the consumer and business customer including checking accounts, money market accounts, negotiable orders of withdrawal ("NOW") accounts, savings accounts, term certificates of deposit (including "jumbo" certificates in denominations of $100,000 or more), and retirement savings plans. Scripps' average balance of total deposits was approximately $464 million for the year ended December 31, 1998, an increase of $99 million or 27% compared with the average balance of total deposits for 1997. Scripps' average balance of total deposits was approximately $365 million for the year ended December 31, 1997, an increase of $71 million or 24% compared with the average balance of total deposits of approximately $294 million for 1996. The following table sets forth the average balances and weighted average rates for Scripps' categories of deposits for the periods indicated.
AVERAGE DEPOSITS (Dollars in thousands) DECEMBER 31, --------------------------------------------------------------------------------- 1998 1997 1996 ------------------------- -------------------------- ------------------------ % OF % OF % OF AVERAGE TOTAL AVERAGE TOTAL AVERAGE TOTAL BALANCE DEPOSITS BALANCE DEPOSITS BALANCE DEPOSITS ------------- ---------- ------------- ---------- ---------- ---------- Noninterest bearing demand deposits.............. $ 135,954 29% $ 107,113 29% $ 81,185 22% Interest-bearing demand deposits (Money Market and NOW accounts)............ 219,223 47% 164,110 45% 131,808 36% Savings deposits................ 24,596 5% 22,768 5% 23,670 6% Time deposits................... 84,056 18% 70,936 15% 57,132 16% Weighted average rate........... 4.06% 4.05% 3.81%
The following table sets forth the amount of Scripps' certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 1998. TIME DEPOSITS OF $100,000 OR MORE (Dollars in thousands)
DECEMBER 31, 1998 ---------------------------- BALANCE % OF TOTAL ----------- ------------- Three months or less..................... $ 37,585 66% Over three months through twelve months............................ 18,029 32%
-26- Over one year through five years......... 1,410 2% Over five years.......................... 0 0% ----------- ------------ Total.................................... $ 57,024 100% ----------- ------------ ----------- ------------
LIQUIDITY The objective of liquidity management is to maintain a balance between sources and uses of funds in such a way that the cash requirements of customers for loans and deposit withdrawals are met in the most economical manner. Management monitors its liquidity position continuously in relation to trends of loans and deposits for short term as well as long term requirements. Liquid resources are monitored on a daily basis to assure maximum availability. Management also manages its liquidity requirements by maintaining an adequate level of readily marketable assets (primarily Federal funds and investment securities available for sale) and access to short term funding sources. Currently, Scripps also has a line of credit of $15.0 million from a non-affiliated financial institution which enables it to borrow Federal funds on an unsecured basis. Scripps also has a secured discount window borrowing facility with the Federal Reserve Bank of $2.3 million and a secured borrowing facility with the Federal Home Loan Bank of approximately $16 million. At December 31, 1998, Scripps had no amounts outstanding in connection with any of its borrowing facilities. Management uses several tools and processes to monitor liquid resources: semi-monthly liquidity projection reports, liquidity and volatile deposit dependency ratios, deposit product trends, weekly deposit rate management, and daily large balance fluctuation reports, among others. Management uses a Bank liquidity ratio, defined as the sum of unpledged marketable securities, Federal funds sold, and cash and balances due from banks divided by total deposits, as a measurement tool indicating the volume of liquid resources. This ratio will increase or decrease in response to general economic conditions, loan demand, the phases of the interest rate cycle, and deposit growth/contraction, among other things, and was approximately 42%, 39% and 44% at December 31, 1998, 1997 and 1996, respectively. The decrease in the liquidity ratio from 1996 to 1997 actually reflects a more desirable level of liquidity that is well within Scripps' policy guidelines. There can be no assurance that Scripps' liquidity will continue to be maintained at a level comparable to that in 1998. Additionally, Scripps closely monitors its loan-to-deposit ratio. This ratio (calculated as gross loans divided by total deposits) was 64%, 68% and 66% at December 31, 1998, 1997 and 1996, respectively. This ratio decreased between 1998 and 1997, primarily as a result of deposit growth outpacing loan growth. Management expects this ratio to increase in 1999 with the expanding local economy, however, there can be no assurances that the economy will continue to expand or that loans will outpace deposit growth. Scripps' ratio of core deposits (defined as customers' deposits less time certificates of deposit of $100,000 or more) to total deposits has increased to 89% at December 31, 1998, compared with 87% at December 31, 1997 and 79% at year end 1996. While total time deposits as a percent of total deposits has been 17%, 20% and 19% for December 31, 1998, December 31, 1997, and December 31, 1996, respectively, the percent of time deposits greater than $100,000 -27- has decreased, thereby increasing the core deposit ratio. A significant portion of Scripps' core deposits is concentrated in the Scripps Money Fund, a higher interest-bearing demand deposit product which comprised $195 million or 37% of total deposits at December 31, 1998. The Money Fund balance at December 31, 1998 represented an increase of $78 million or 67% from the balance of $117 million or 33% of deposits at December 31, 1997. Comparing 1997 and 1996, the Money Fund increased $35 million or 42% from the balance of $82 million or 30% of deposits at year end 1996. Another significant portion of Scripps' core deposits are non-interest bearing demand deposits. These deposits increased to $136 million or 29% of deposits at December 31, 1998, from $107 million or 29% at December 31, 1997. Comparing 1997 and 1996, non-interest bearing demand deposits increased $26 million or 32% from the balance of $81 million or 22% of deposits at year end 1996. Management attempts to actively monitor its liquidity position and deposit composition; however, there can be no assurance that Scripps' overall liquidity position and deposit base will continue to be satisfactory in the future. CAPITAL RESOURCES Total stockholders' equity was $44 million at December 31, 1998, an increase of $6 million or 15% compared with stockholders' equity of $38 million as of December 31, 1997. This increase is attributable primarily to earnings of $6 million for 1998 and new share issuances of $.6 million, partially offset by dividends declared of $.8 million. Total stockholders' equity of $38 million at December 31, 1997, reflects an increase of $3 million or 9% compared with stockholders' equity of $35 million as of December 31, 1996. This increase is primarily the result of the earnings of $4 million for 1997, partially offset by dividends declared of approximately $.9 million. Management seeks to maintain capital adequate to support anticipated asset growth and credit risks and to ensure that Scripps is within established regulatory guidelines and industry standards. The 1992 risk-based capital guidelines adopted by the FRB and FDIC require Scripps to maintain certain minimum ratios of capital to risk-weighted assets. In addition, the FRB and FDIC have adopted a leverage ratio that requires a minimum ratio of Tier 1 capital to total assets. Higher minimum requirements for an institution may be established if, for example, a bank has previously received special attention or has a higher susceptibility to interest rate risk. These risk-based capital guidelines require state banks to have a ratio of Tier 1 capital to total risk-weighted assets of four percent and a ratio of total capital to total risk-weighted assets of eight percent. As depicted in the following table, the capital ratios of Scripps have continuously exceeded the federal minimum regulatory requirements for a well capitalized institution. -28- The following table sets forth the actual capital ratios of Scripps as of the dates indicated. CAPITAL RATIOS
DECEMBER 31, --------------------------------------- WELL MINIMUM CAPITALIZED CAPITAL CAPITAL RATIOS(1): 1998 1997 1996 RATIOS RATIOS -------- -------- --------- --------------- ------------ Leverage (2).......................... 7.63% 8.30% 9.63% 5.0% 4.0% Tier 1 risk-based..................... 10.19% 11.10% 13.93% 6.0% 4.0% Total risk-based...................... 11.32% 12.20% 15.08% 10.0% 8.0%
________________________________________ (1) Computed in accordance with 1992 Federal guidelines, which were initially effective January 1, 1990. (2) Leverage ratio is defined as the ratio of Tier 1 capital to the most recent quarterly average assets. IMPACT OF INFLATION, CHANGING PRICES AND MONETARY POLICIES The financial statements and related financial data concerning Scripps presented in this registration statement have been prepared in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation in accordance with generally accepted accounting principles. The primary effect of inflation on the operations of Scripps is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates have a more significant effect on the performance of a financial institution than do the effects of changes in the general rate of inflation and changes in prices. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Interest rates are highly sensitive to many factors which are beyond the control of Scripps, including the influence of domestic and foreign economic conditions and the monetary and fiscal policies of the United States government and federal agencies, particularly the FRB. The FRB implements national monetary policy such as seeking to curb inflation and combat recession by its open market operations in United States government securities, control of the discount rate applicable to borrowing by banks and the establishment of reserve requirements against bank deposits. The actions of the FRB in these areas influence the growth of bank loans, investments and deposits, and affect the interest rates charged on loans and paid on deposits. The nature, timing and impact of any future changes in federal monetary and fiscal policies on Scripps and its results of operations are not predictable. YEAR 2000 READINESS DISCLOSURE The Year 2000 issue (Y2K) exists because many computer programs use only two-digit dates to reference years. Some computer systems infer the century 1900, rather than 2000. -29- Unless they are changed, interpreting the 00 as 1900 will result in miscalculations when processing critical dates. To the extent that the problem is not successfully addressed, consequences, the extent of which are unknown, could impact Scripps' business, operations, customers and vendors. In 1997 Scripps formed a task force to supervise all issues associated with the century date change. The Scripps board of directors has given this project top priority and has dedicated resources, both staffing and financial, to support the efforts necessary to provide Year 2000 readiness. A comprehensive plan has been established to ensure compliance with regulations regarding preparation of computer systems for the year 2000 and its status is reported to the Scripps board on a monthly basis. Scripps completed the Awareness and Assessment phases in 1998. Scripps substantially completed testing of mission critical systems and processes during the first quarter of 1999 and is in the process of replacing or renovating non-compliant systems. All new software and hardware is expected to be certified Year 2000 ready and tested by Scripps prior to implementation. New releases of existing software will be tested before being brought on line. Contingency plans have been developed to contend with a wide array of situations from a single process failure, to a power outage at a regional office, to a liquidity crisis due to substantial customer withdrawals. The internal auditor has reviewed the plans and a testing schedule is planned for June, with re-testing in September and November 1999. Vendors have been contacted to ascertain their level of readiness and those identified as critical to the day-to-day operation of the Bank are monitored. The Bank has taken measures to work together with our customers to ensure their own Year 2000 readiness and has a program in place for risk analysis and monitoring of significant borrowers and depositors. To date, significant borrowers have been assessed and none have been identified as having a significant Y2K risk that would materially impact the operations of the Bank. The assessment of significant depositors is scheduled to be completed by June 30, 1999. The related costs of Y2K, which are expensed as incurred or capitalized, if appropriate, are primarily included in professional services, equipment repairs or depreciation and salary expense. Y2K expenses incurred through the end of 1998 amounted to approximately $147,000 and the remaining costs of the project are estimated to be $638,000. Scripps holds a directors' and officers' liability policy, which contains no exclusions for Y2K claims; however, there can be no assurances that any Y2K claims will be covered by insurance or that the insurance coverage will be adequate. Scripps does not believe that the costs associated with the Y2K issue will have a material effect on the results of its operations. ITEM 3. PROPERTIES. Scripps' headquarters are located at 7817 Ivanhoe Avenue, La Jolla, California, 92037. Because Scripps is outgrowing this facility, it is moving its headquarters to a nearby building located at 7733 Girard in the same city and zip code. The Ivanhoe location will continue to house Scripps' Trust and Financial Services, the Real Estate Lending department and the administrative offices. The following table sets forth certain information regarding Scripps' property, net of accumulated depreciation, at December 31, 1998:
SQUARE DATE NET BOOK VALUE OF FEET LOCATION OPENED PREMISES & EQUIPMENT ---- -------- ------ -------------------- 20,200 La Jolla Main Office and Headquarters, La Jolla 1984 $ 608,000 -- Trust Department, La Jolla 1990 299,000
-30- 5,500 East County Regional Office, El Cajon 1992 130,000 5,400 San Diego Regional Office, downtown San Diego 1993 181,000 5,600 North County Coastal Regional Office, Escondido 1994 183,000 5,200 Kearny Mesa Regional and Corporate Lending 1997 391,000 4,800 Encinitas 1997 673,000 6,700 Chula Vista Center City * 1995 325,000 7,000 South Bay Regional * 1984 241,000 4,100 Point Loma 1997 298,000 9,300 Service Center 1995 1,656,000 6,900 Girard Office, La Jolla (new main office) 1999 0 TOTAL $4,985,000
* former PCB facility ________________ These facilities are held under lease agreements which expire at various times from 2000 through 2026. The lease agreements have option periods to extend their terms at rates equivalent to the then market rates. Annual minimum lease commitments for Scripps as a whole approximate $1.4 million on average through the year 2003. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information, as of April 15, 1999, with respect to the beneficial ownership of Scripps Common Stock by (i) all persons known by SFC to be the beneficial owners of more than five percent of the outstanding Scripps Common Stock, (ii) each director of SFC, (iii) each executive officer of SFC or Scripps named in the Summary Compensation Table and (iv) all executive officers of Scripps and directors of SFC as a group. -31-
SHARES THAT MAY BE ACQUIRED WITHIN 60 NAME AND ADDRESS OF PERCENTAGE DAYS OF APRIL BENEFICIAL OWNERS (1) SHARES OWNED OF CLASS (2) 15, 1999 - --------------------------------------------- ------------ ------------ ------------- Linda Ahlswede Cox (3)....................... 15,201 * 600 Ronald J. Carlson (3)........................ 34,003 * 11,680 Douglas H. Evans (3)......................... 41,066 * 6,082 Thomas D. Michelli (3)....................... 118,968 1.73% 22,585 Richard J. Roncaglia (3)..................... 25,336 * 5,882 M. Catherine Wright (3)...................... 275 * 0 Christopher C. Calkins (3)................... 55,113 * 0 Christopher S. McKellar (3)(4)(5)............ 284,581 4.14% 7,260 William E. Nelson (3)(6)..................... 575,237 8.38% 2,904 Alfred B. Salganick, M.D. (3) 490,717 7.15% 0 William T. Stephens (3)...................... 15,089 * 0 Thomas W. Sefton Trust (7) .................. 703,330 10.25% 0 Executive Officers and Directors as a group (14 persons) .......................... 2,363,794 34.15% 34.15%
*Less than 1% _____________________________ (1) Except as indicated in the footnotes to this table, (a) the address of the persons named in this table is 7817 Ivanhoe Avenue, La Jolla, California 92037 and (b) the persons named in the table have sole voting and investment power with respect to all shares of Scripps Common Stock shown as beneficially owned by them, subject to community property laws, where applicable. (2) Calculated on the basis of 6,864,011 shares of Scripps Common Stock outstanding. Shares of Scripps Common Stock underlying options exercisable within 60 days of April 15, 1999 are deemed to be outstanding for purposes of calculating the beneficial ownership of securities of the holders of such options. (3) Includes shares beneficially owned as a participant in Scripps Restated Stock Purchase Plan for employees, officers and directors of Scripps. (4) Christopher S. McKellar is the son of James A. McKellar, who is on the Scripps Bank board of directors. (5) Includes 3,526 shares held in trust for which Christopher S. McKellar is trustee, 56,332 shares held as custodian for the benefit of his children, and 57,474 shares held as a general partner and 114,460 shares held in the name of Axiom Inc. (6) Includes 140,588 shares owned by Nelson Management, Inc., of which Mr. Nelson is President and 395,086 shares held in trust for which Mr. Nelson is co-trustee. (7) The address of the Thomas W. Sefton Trust is 2550 Fifth Avenue, Suite 808, San Diego, California 92103-6624. -32- ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
NAME AND ADDRESS OF BENEFICIAL OWNERS AGE POSITION(S) - -------------------------------- --- ------------------------------------ Linda Ahlswede Cox.............. 46 Senior Vice President of Scripps, Credit Administration, Regulatory Risk Ronald J. Carlson............... 64 President, Chief Executive Officer and Director of Scripps and SFC Douglas H. Evans................ 51 Executive Vice President of Scripps Banking Division Thomas D. Michelli.............. 59 Senior Vice President and Regional Administrator of Scripps, Chula Vista Richard J. Roncaglia............ 49 Executive Vice President of Scripps, Trust & Financial Services Division M. Catherine Wright............. 48 Secretary and Chief Financial Officer of SFC, Secretary and Vice President of Scripps Christopher C. Calkins.......... 53 Director Christopher S. McKellar......... 49 Director William E. Nelson............... 72 Chairman of the Board Alfred B. Salganick, M.D........ 61 Director William T. Stephens ............ 60 Director
CHRISTOPHER C. CALKINS is a director of SFC, Vice Chairman of the Board of Scripps, President of Carltas Management, Manager of Carltas Company, a real estate holding company, and general counsel of the Paul Ecke Ranch, a floricultural production company. He has been a director of Scripps since 1984. He is a Director of the Thomas C. Ackerman Foundation and President of the Charles H. and Anna S. Stern Foundation. Mr. Calkins is a former partner of the law firm of Gray Cary Ames & Frye (now Gray Cary Ware & Freidenrich). RONALD J. CARLSON is President and a director of SFC. He assumed the position of President and Chief Operating Officer of Scripps Bank (in organization) on July 1, 1983, and was named President and Chief Executive Officer of Scripps Bank on December 20, 1984. Prior to joining Scripps Bank, Mr. Carlson served as President and Chief Executive Officer of the Bank of Rancho Bernardo from 1981 to 1983, and President and Chief Operating Officer and Executive Vice President of La Jolla Bank & Trust Company from 1973 to 1980. Prior to his -33- employment with La Jolla Bank & Trust Company, he was employed by California First Bank (now Union Bank of California) for 10 years in various assignments including Manager of the Main Office and Regional Vice President. Mr. Carlson has a B.S. degree from the University of Colorado. He is a Regent of California Lutheran University, Director of the Greater San Diego Division of the American Heart Association and Advisory Director of the Salvation Army. CHRISTOPHER S. MCKELLAR was a director of Scripps from 1984 until the 1999 annual meeting and is a director of SFC. He is Chief Executive Officer of California Traditions, Inc. Mr. McKellar has been involved in more than $1 billion of commercial, industrial and residential development in Southern California and Utah. Mr. McKellar serves as Chairman of the Board of the Medical Biology Institute. Formerly, he served on the boards of the Scripps Memorial Hospital Foundation, Chancellor's Advisory Board of University of California, San Diego, and the Mayor's Housing Committee. WILLIAM E. NELSON has been Chairman of the Board of Scripps Bank since 1984 and is Chairman of the Board of SFC. He is an attorney and real estate developer. He served as President and Chief Executive Officer of Scripps Institution of Medicine and Science from 1993 to 1996. He has been the prime developer of several commercial buildings in Southern California. He has also authored books and articles on real estate finance and served as a lecturer on finance at the University of Southern California. He currently lectures on Economics and Ethics of Health Care at University of California, San Diego. He is currently President and a Director of the San Diego Blood Bank, a Director of the San Diego Dialogue, which he also founded, and is involved with other community activities such as the San Diego Opera. ALFRED B. SALGANICK, M.D. is on the board of SFC. He retired from his practice as a family practice physician in 1997. He received his pre-medical education in New York and completed medical school in Chicago. Dr. Salganick served in the U.S. Navy from 1965 through 1967 and then practiced medicine in Chula Vista, California from 1967 through 1997. He was a founder and Chairman of the Board of Pacific Commerce Bank ("PCB") in Chula Vista, which merged with Scripps in 1998. Immediately after the PCB merger, Dr. Salganick joined the Scripps Board. Dr. Salganick has been a member of the New York Stock Exchange since 1978. WILLIAM T. STEPHENS is a director of SFC, director of Scripps since 1996 and President of Kennebec Financial Corporation, a company providing trustee and investment services to private trusts. Mr. Stephens has been in banking for over 35 years and served on the board of directors of San Diego Trust and Saving Bank until its sale in 1994. He currently is a Director of the J.W. Sefton Foundation and serves on the Board of Directors of the San Diego County Tax Payers Association and is an active member of the San Diego Downtown Rotary Club. He has served as an officer and director for many local philanthropic organization including having served as President and a Director of the local American Cancer Society. Mr. Stephens is a Staff Commodore of the San Diego Yacht Club and a member of the De Anza Country Club. LINDA AHLSWEDE COX assumed the position of Senior Vice President/Credit Administration and Regulatory Risk Management Division Manager of Scripps in December, 1996. Ms. Ahlswede-Cox has been with Scripps since October, 1991 serving in various -34- capacities including Senior Vice President, Credit Administration and Real Estate Services and Senior Vice President/Manager of the La Jolla Main Office. Prior to joining Scripps she served as Vice President and Manager of Grossmont Bank's El Cajon Office and was previously associated with La Jolla Bank & Trust Company for 10 years. Ms. Ahlswede-Cox is a graduate of the California Banking School and Pacific Coast Banking School at the University of Washington. She is a corporate representative to the San Diego Chapter of the National Association of Women Business Owners and is past President of the Board of Directors of the Boys and Girls Clubs of East County. DOUGLAS H. EVANS assumed the position of Executive Vice President/Banking Division Manager of Scripps in December 1996. Mr. Evans has been with Scripps since 1990 serving as Executive Vice President/Administrative Officer and Senior Vice President/Senior Loan Officer. Prior to joining Scripps, he was Senior Vice President/Corporate Banking at the former La Jolla Bank & Trust Company where he served nine years. Prior to that, he was employed by California First Bank (now Union Bank of California). Mr. Evans graduated from the University of Southern California with a B.S. degree in Finance and is a graduate of Pacific Coast Banking School at the University of Washington. He is Chairman of the Board of the La Jolla YMCA, a member of the Rotary Club of La Jolla and on the Advisory Board of Bishops School. THOMAS MICHELLI was a founding director of PCB in 1983 and held the position of President and Chief Executive Officer of PCB from that date until the merger of PCB with and into Scripps. Since the merger, Mr. Michelli has been a Senior Vice President and Regional Administrator of Scripps. Mr. Michelli received a Bachelor of Science Degree from the University of Colorado. His previous banking experience includes positions with First National Bank of San Diego County during the years 1976 through 1982 and the position of Division Manager for its successor, Mitsubishi Bank of California. RICHARD J. RONCAGLIA assumed the position of Executive Vice President/Trust & Financial Service Division Manager of Scripps in December 1996. Mr. Roncaglia has been with Scripps since 1990 serving as Executive Vice President/Sr. Trust Officer and Sr. Vice President/Sr. Trust Officer. Prior to joining Scripps, he served as Vice President and Manager of ICA Financial Corporation from 1987 to 1990, Vice President and Trust Officer with California First Bank (now Union Bank of California) from 1980 to 1987 and Trust Officer with San Diego Trust & Savings Bank. Mr. Roncaglia has a B.A. degree in History from the University of San Diego and Juris Doctor degree from Western State University College of Law. He is a member of the California Bar Association, San Diego County Bar Association, San Diego Trust Officer's Association, San Diego Estates Planning Council, California Independent Trust Association, California Banking Association Trust and Investment Services Executive Committee and is a trustee for the Board of Trustees of San Diego Natural History Museum. Mr. Roncaglia also serves on the advisory development boards for the University of California, San Diego, the San Diego Natural History Museum, the Scripps Foundation and the Timken Museum of Art. He is Chairman of the La Jolla Probate Section. M. CATHERINE WRIGHT assumed the position of Senior Vice President/Chief Financial Officer/Finance & Administration Division Manager of Scripps in December 1997 and will be -35- Secretary and Chief Financial Officer of SFC. Ms. Wright has over 25 years of banking experience which include serving as Senior Vice President/Cashier at First National Bank, Vice President/Cashier at Bank of Commerce and in various capacities in the areas of lending and operations at Bank of America. She has a B.S. in Accountancy from National University, San Diego and is a graduate of Pacific Coast Banking School at the University of Washington and the ABA National School of Bank Investments and Financial Management. Ms. Wright is a member of Financial Women International. DIRECTORS' COMPENSATION Scripps pays fees to all non-management directors for their attendance at board meetings and committee meetings, including $750 for attendance at board meetings and $200 for attendance at all committee meetings. Because of the additional time commitment, the Chairman of Scripps receives $1,500 per month for attendance at board meetings. No director has received reimbursement for travel expenses incurred in traveling to meetings. In 1998, as a group, non-management directors received compensation totaling $216,225 for services in their capacity as directors. This amount does not include approximately $34,275 contributed on their behalf by the bank pursuant to the Scripps Bank Restated Stock Purchase Plan. In addition, under the 1998 Outside Directors Stock Option Plan, each non-employee director was granted an option to purchase 1,000 shares of Common Stock of Scripps after the last annual meeting and will receive an option to purchase an additional 1,000 shares upon re-election. As of December 31, 1998 there were outstanding stock options for the purchase of 14,000 shares of Common Stock with a weighted average exercise price of $20.00. As of that date, there were 86,000 shares available for grant. The compensation of SFC is anticipated to be comparable to that of Scripps for attendance at each meeting but less in the aggregate due to a board of directors of six members as opposed to the sixteen member board Scripps had in 1998. ITEM 6. EXECUTIVE COMPENSATION. The following table summarizes the compensation paid to or earned by the Chief Executive Officer of SFC and Scripps and the next four most highly compensated executive officers of Scripps (the "Named Executive Officers") who were paid more than $100,000 for services rendered to the Bank in all capacities during the fiscal year ended December 31, 1998 (rounded to nearest thousand): -36- SUMMARY COMPENSATION TABLE
LONG TERM 1998 ANNUAL COMPENSATION COMPENSATION AWARDS ------------ -------- SECURITIES UNDERLYING OTHER NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION (1) - --------------------------- ------ ----- ------- ---------------- Ronald J. Carlson.................. $205,000 $28,169 5,000 $152,580(2)(4) President and Chief Executive Officer Douglas H. Evans................... 115,011 17,630 -- 8,316(2) Executive Vice President and Banking Division Manager Richard J. Roncaglia............... 110,385 19,444 -- 12,254 Executive Vice President and Trust & Financial Services Division Manager Linda Ahlswede-Cox................. 91,718 8,348 -- 11,431(2) Senior Vice President and Credit Administration/Risk Management Manager Thomas D. Michelli................. 132,415 120,757 -- 64,083(5) Senior Vice President and Regional Administrator (3)
__________________________________ (1) Includes taxable auto allowance or lease value, club dues, term life insurance in excess of $50,000, and the bank's contribution to the Stock Purchase Plan, the Stock Ownership Plan and the 401(k) Plan. (2) Includes payment for accrued vacation in excess of maximum carryover hours. (3) Thomas D. Michelli was President and Chief Executive Officer of Pacific Commerce Bank until the merger of PCB with and into Scripps effective August 31, 1998. At that time Mr. Michelli became Senior Vice President of Scripps. (4) Includes accruals toward supplemental retirement plans. (5) Includes accruals toward deferred compensation plan and salary continuation plan. The following table provides information concerning grants of options to purchase Scripps Common Stock made during the fiscal year ended December 31, 1998 to the Named Executive Officers. -37-
OPTION GRANTS IN LAST FISCAL YEAR POTENTIAL REALIZABLE VALUE AT NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM (3) OPTIONS EMPLOYEES IN PRICE PER EXPIRATION --------------- NAME GRANTED (1) 1998 SHARE (2) DATE 5% 10% - ---- ----------- ---- --------- ---- -- --- Ronald J. Carlson............ 5,000 12.20% $16.75 12/16/08 52,700 133,500
___________________________ (1) The above options, which are subject to the terms of the Scripps 1995 Stock Option Plan (the "1995 Plan"), are exercisable only as they vest. The options granted to each officer vest and become exercisable in equal annual increments over a five-year period provided the optionee continues to be employed by Scripps. (2) All options were granted at an exercise price equal to the fair market value of Scripps Common Stock as determined by the Scripps Board of Directors on the date of grant. (3) Potential realizable values are net of exercise price, but before taxes associated with exercise. These amounts represent certain assumed rates of appreciation only. Actual realizable values, if any, on stock option exercises are dependent on the future performance of Scripps Common Stock, overall market conditions and the optionholders' continued employment through the vesting period. The following table provides the specified information concerning option exercises during fiscal year 1998 and the exercisable and unexercisable options held as of December 31, 1998, by the Named Executive Officers.
OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES NUMBER OF SECURITIES VALUE OF UNEXERCISED SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS ACQUIRED OPTIONS AT DECEMBER 31, 1998(3) AT DECEMBER 31, 1998 (2) ON VALUE ------------------------------- ------------------------ NAME EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ---- -------- ------------ ----------- ------------- ----------- ------------- Ronald J. Carlson......... ___ ___ 21,360 17,840 $363,120 $303,280 Douglas H. Evans.......... 9,680 136,391 6,082 7,388 103,394 125,596 Richard J. Roncaglia...... 7,260 101,386 5,882 6,588 99,994 111,996 Linda Ahlswede-Cox........ 3,993 60,334 600 2,400 10,200 40,800 Thomas D. Michelli........ 7,844 85,242 25,585 0 434,945 --
___________________________ (1) Difference between fair market value of shares acquired and cost of shares pursuant to exercise of option. (2) Based on the closing sale price of Scripps Common Stock as of December 31, 1998 as reported by brokers in the over-the-counter market ($17.00). (3) The number of unexercised stock options have been restated to reflect the effect of all prior stock dividends and a two for one stock split declared in November 1997. -38- SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS SUPPLEMENTAL RETIREMENT PLAN Scripps has entered into a Supplemental Retirement Plan (the "Retirement Plan") with Mr. Carlson. Under the Retirement Plan, if Mr. Carlson remains in the employment of Scripps until he attains age 67, he will be entitled to a monthly annuity payment in the base amount of $4,167. The amount of the monthly payment will adjust annually by a three percent increase as a cost-of-living adjustment. If Mr. Carlson terminates employment with Scripps prior to age 67, he may elect early commencement of a reduced monthly payment, as determined actuarially. However, if Mr. Carlson terminates employment prior to age 67 due to total disability, he will be entitled to the full amount of the monthly annuity payment beginning on the first day of the month following such termination of service. If Mr. Carlson dies and is survived by Barbara Ann Carlson, then she will be entitled for life to monthly payments equivalent to those Mr. Carlson would have received if he were alive. Scripps has established a grantor trust to which it may make contributions to help satisfy its obligations under the Retirement Plan. All assets held in the trust are subject to the claims of general creditors of Scripps. PRESIDENT'S UNFUNDED DEFERRED COMPENSATION AGREEMENTS Scripps has entered into two Unfunded Deferred Compensation Agreements (the "Deferred Compensation Agreements") with Mr. Carlson. Under one Deferred Compensation Agreement, an annual benefit of $20,000 per year is to be paid to Mr. Carlson following the latter of the dates at which he attains age 65 or the date he separates from service with Scripps. Payments are to be made each year beginning with the year in which Mr. Carlson attains age 66. The amount of this payment is adjusted on each annual anniversary date to take into effect any cost of living increases from the date in which he attains the age of 65. If Mr. Carlson dies, is impaired by a disability, or otherwise separates from service prior to attaining age 65, then he, or Barbara Ann Carlson if he is deceased, receives a reduced annual benefit. Under the other Deferred Compensation Agreement, an annual benefit of $25,000 per year, increased by 3% as a cost of living adjustment, is to be paid to Mr. Carlson commencing upon his retirement if he remains in the employment of Scripps until the earlier of October 1, 2002 or total and permanent disability. If Scripps terminates Mr. Carlson's employment prior to October 1, 2002 for reasons other than cause, he is entitled to receive the retirement benefit. If Mr. Carlson's employment is terminated by Scripps for cause at any time, no payments will be made under this Deferred Compensation Agreement. This Deferred Compensation Agreement does not include death benefits or benefits payable to anyone other than Mr. Carlson. The obligations of Scripps under the Deferred Compensation Agreements are unfunded. Scripps accrues a liability for its obligations each year, but does not set aside a separate fund to be held in trust for Mr. Carlson's benefit. -39- EMPLOYMENT AGREEMENTS Scripps has entered into employment agreements ("Employment Agreements") with Ms. Ahlswede-Cox, Mr. Carlson, Mr. Evans, Mr. Michelli and Mr. Roncaglia which provide for base annual salaries which adjust annually. As of December 31, 1998, the base salaries of such employees were $94,469, $230,000, $118,461, $136,387 and $118,112, respectively. In addition, the Employment Agreements provide for an automobile use allowance. The respective terms of the Employment Agreements expire January 2000, October 2002, August 2000, November 2000 and August 2000. Mr. Michelli's Employment Agreement, as amended, also includes a $50,000 payment made January 1999 and a $50,000 payment to be made January 2000. BENEFIT PLANS The benefit plans pursuant to which directors, officers or employees of Scripps may acquire securities of Scripps will be assumed by SFC. After this assumption, the benefit plans will provide securities of SFC in lieu of securities of Scripps. SCRIPPS BANK 1992 AND 1995 STOCK OPTION PLANS Scripps adopted Stock Option Plans in 1992 (the "1992 Plan") and 1995 (the "1995 Plan"). The purpose of the Stock Option Plans is to attract, retain and reward persons providing services to Scripps and to motivate such persons to contribute to the growth and profits of Scripps. Options may be granted to directors and full-time salaried employees, including officers and directors who are also employees. As of December 31, 1998, there were outstanding stock options for the purchase of 238,373 shares of Common Stock under the 1995 Plan with a weighted average exercise price of $11.87 per share. As of that date, there were 278,716 shares of Common Stock available for grant under the 1995 Plan. As of December 31, 1998, there were outstanding stock options for the purchase of 136,474 shares of Scripps Common Stock under the 1992 Plan, with weighted average exercise price of $4.31 per share. No shares of Scripps Common Stock remain available for grant under the 1992 Plan. SCRIPPS RESTATED STOCK PURCHASE PLAN Scripps adopted the Scripps Bank Stock Purchase Plan in February 1987 and restated the Stock Purchase Plan (the "Restated Purchase Plan") in November 1989. The purpose of the Restated Purchase Plan is to promote the growth and profitability of Scripps by providing an incentive by which Scripps can attract and retain highly talented persons in its employ. Furthermore, the Restated Purchase Plan is intended to provide additional incentive through a more widespread ownership of Scripps Common Stock, thereby stimulating the personal interest of the employees and directors in the Bank's development and success. The Restated Purchase Plan provides all full-time employees, officers and directors of Scripps with the opportunity to purchase Scripps Common Stock. Officers and other employees -40- of Scripps may have up to five percent of their monthly compensation from Scripps applied towards the purchase of Scripps Common Stock. Directors who are not also employees of Scripps may have up to the entire amount of their respective monthly director's fees applied to the purchase of Scripps Common Stock. Scripps contributes an amount equal to 25% of the amount contributed to the Restated Purchase Plan by any participant. Employee, officer or director contributions are combined with Scripps' contribution and placed into an account for each individual participant. When sufficient funds are held in participants' accounts to permit the purchase of not less than 100 shares of Scripps Common Stock, the custodian of the Restated Purchase Plan applies the funds to purchase Scripps Common Stock on the over-the-counter market at prevailing market prices. In the event that shares of the Scripps Common Stock are not available on the over-the-counter market, the custodian is authorized to purchase Scripps Common Stock from existing shareholders at a price "no less favorable to participants than would be paid in the public market if shares were available for purchase through brokers." The Restated Purchase Plan is administered by the Scripps Board of Directors. As of April 15, 1999 approximately 145 employees, officers and directors participated in the Restated Purchase Plan. SCRIPPS BANK EMPLOYEE STOCK OWNERSHIP PLAN The board adopted the Scripps Bank Employee Stock Ownership Plan in January 1991 (the "Stock Ownership Plan"). The purpose of the Stock Ownership Plan is to enable employees of Scripps to share in its growth and prosperity, to provide employees with an opportunity to accumulate funds for their future economic security and to enable employees to acquire beneficial stock ownership interest in Scripps without requiring any cash outlay. The Stock Ownership Plan obtains loans from third party lenders to acquire shares of Scripps Common Stock which are then held as security for the loan. The loans are guaranteed by Scripps. As contributions are made to the Stock Ownership Plan by Scripps to repay the loan, a portion of the Scripps Common Stock acquired is released from collateral for the loan and is allocated to each participant's individual account according to the terms of the Stock Ownership Plan. All contributions under the Stock Ownership Plan are made by the Bank. Scripps is responsible for the administration and management of the Stock Ownership Plan. Amounts contributed to the Stock Ownership Plan will be invested primarily in the Scripps Common Stock. Scripps, as trustee, may also invest a portion of the contributions in other investments and/or cash. All purchases of Scripps Common Stock by the trustee are made at a price that does not exceed the fair market value of such stock. All common law employees of Scripps (except for employees covered by a collective bargaining agreement) are eligible to participate in the Stock Ownership Plan on January 1 or July 1 coinciding with or after (i) attainment of age 21 and (ii) completion of 12 consecutive months of employment during which at least 1,000 hours of service are performed for Scripps. Allocations of the Scripps Common Stock under the Stock Ownership Plan are made to each eligible participant in a ratio that such participant's compensation bears to the total compensation -41- of all eligible participants. A participant is eligible to receive an allocation of the Scripps Common Stock for a plan year if the participant is employed on December 31 and has completed at least 1,000 hours of service with Scripps during such year. Participants vest in the Scripps Common Stock allocated to their accounts under the Stock Ownership Plan at the rate of 20% for each year of service completed (i.e., participants are 100% vested upon completion of five or more years of service). Full vesting also occurs if employment terminates as a result of death or total disability (provided such participant is still employed by Scripps at such age). The Stock Ownership Plan is a "stock bonus plan" as defined under the Code and the Employee Retirement Income Security Act. As of December 31, 1998 the Stock Ownership Plan held a total of 145,000 shares of Scripps Common Stock, which includes shares of Scripps replacing shares held in the former Pacific Commerce Bank Stock Ownership Plan. All shares have vested or will vest pursuant to the terms described above. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Scripps from time to time has outstanding extensions of credit to individual Scripps officers, directors, principal security holders or their associates. Extensions of credit to such persons were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present other unfavorable features. The aggregate extensions of credit by Scripps to its directors, executive officers, principal shareholders, employees and their associates as of December 31, 1998 totaled approximately $1,594,646. Scripps has entered into indemnification agreements in a form originally approved by its shareholders with each director and various executive officers containing provisions which may require it, among other things, to indemnify its officers and directors against liabilities that may arise by reasons of their status or service as officers or directors and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. Scripps and SFC intend to execute these agreements with their future directors and executive officers. Richard B. Huntington, a director of Scripps, and his wife own shares of a corporation that is the general partner of the lessor of Scripps' Point Loma branch. Together, Mr. Huntington and his wife own one-third of the real estate partnership. The ten year lease of Scripps for this office space began in 1997. Scripps paid for tenant improvements, which are amortized over the lease term, and monthly rent, which increases by 4% annually; 1999 rental and improvement expenses are expected to be approximately $150,000. In 1997 Sefton Capital Management began providing advisory services for the securities portfolio of Scripps. This agreement was approved by the Scripps Board of Directors. In 1998 an independent committee of the Scripps board of directors approved the Scripps trust department entering into a contract with Sefton Capital Management for the management of trust investment vehicles for which investment was not otherwise designated. The fees for these -42- services were based upon the bank's understanding of the market rate for such services. In 1998, aggregate fees paid to Sefton Capital Management were approximately $290,000. In the first quarter of 1999, the Trust Department reviewed the services it could obtain elsewhere and determined to terminate the agreement with Sefton Capital Management effective May 1999. Harley K. Sefton, a director of Scripps, is an officer, principal and shareholder of Sefton Capital Management. The husband of Susan Whiteley, the Senior Vice President/Services and Support Division Manager of Scripps, is the Chief Operating Officer of Advanced Network, Inc. ANI provides Scripps with information technology consulting, automated teller machine processing and servicing and merchant deposit processing services. The fee arrangements with ANI were based in part on competitive bids and were approved by the board of directors of Scripps. Scripps paid ANI an aggregate of approximately $340,000 in 1998. When PCB merged with and into Scripps in 1998, Dr. Salganick, the former Chairman of PCB, became a director of Scripps and began to receive compensation and stock options at the same level as the other outside directors of Scripps. Pursuant to the terms of the merger agreement, each of the directors of PCB who was party to an ongoing deferred compensation agreement elected, effective as of the effective date of the PCB merger, either (i) to have all deferred compensation drawn and paid within ten years of the "normal retirement date" or "expiration date," or (ii) to reduce the accrual under such deferred compensation agreement to five percent per year following the Closing. Mr. Michelli agreed to the termination of profit sharing under his employment agreement, pursuant to which he was paid a portion of the profits of PCB, in return for a cash payment of $100,000 payable over two years. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Compensation and Nominations Committee review and recommend to the full Scripps board of directors the salaries and other terms of employment of executive officers of Scripps. The Scripps Compensation and Nominations Committee, comprised of Scripps directors F. Seth Brown, Christopher C. Calkins, Ronald J. Carlson, Martin C. Dickinson, James A. McKellar, William F. Miller, Jr., Gail K. Naughton, William E. Nelson and William T. Stephens held nine meetings in 1998. Except for Mr. Carlson, none of these individuals was at any time during 1998 an officer or employee of Scripps. Martin Dickinson was formerly a senior vice president of Scripps but retired in 1996. The Compensation and Nomination Committee considers and sets, by recommendation to the full board, the individuals to be nominated for election to the board as well as the compensation, titles, and other aspects of the powers and names of individuals acting as, or being considered for, executive officers. Further, the Committee considers and acts, by similar recommendation, the general levels of compensation for all employees by class, not individually, and it reviews and acts by recommendation, any and all bonus, incentive plans, or other special awards and payments. In its consideration of individual executive officers, weight is given to the recommendations of the Chief Executive Officer, however, supporting data such as industry comparisons and individual performance outcomes are reviewed. -43- With respect to the CEO, his performance standards are established and agreed to in writing at the start of each year. The Chairman of the Board (who is not an officer or employee) reviews with the CEO the objective achievements towards those agreed upon standards each quarter. This review is documented as a signed report kept in the appropriate file. The CEO's compensation is discussed and decided by the board when he is not present. The degree of difficulty of the agreed performance standards, the actual accomplishments, any special achievements, and the local industry trends are all issues bearing on the ultimate compensation. Since the CEO's age at the commencement of his employment was significantly different than the ages of other executive officers, it was clear that the standard retirement program would seriously disadvantage him. Therefore, with the concurrence of the full board (except the CEO who was not present) special supplementary retirement programs were designed by a consultant and adopted by the board. With respect to all compensation and benefits, the performance of Scripps, objectively measured by Return on Equity, Return on Assets and other criteria approved by the Board, is a primary factor; however, subjective factors such as "shopping reports", customer comments, and growth also have weight. ITEM 8. LEGAL PROCEEDINGS. Scripps is at times subject to pending and threatened legal actions which arise out of the normal course of business. Management has reviewed these matters with legal counsel and, in the opinion of management, the ultimate disposition of all pending or threatened litigation will not have a material effect on the financial condition or results of operations of Scripps. However, there can be no assurance that the ultimate disposition of any of such litigation will not materially adversely impact Scripps. No litigation against SFC is known by its board of directors to be pending or threatened. ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. SFC COMMON STOCK PRICE RANGE AND DIVIDEND POLICY SFC is contemplating applying to Nasdaq or the American Stock Exchange to have its Common Stock quoted after the formation of the holding company structure. Until the merger, no SFC Common Stock will be issued and outstanding. The SFC Common Stock is expected to trade at substantially the same frequency as the Scripps Common Stock before the merger, although, if effected, the listing may increase the liquidity of the SFC Common Stock and therefore the frequency of trading. SCRIPPS COMMON STOCK PRICE RANGE AND DIVIDEND POLICY The Scripps Common Stock is currently traded in the over-the-counter market. The Scripps Common Stock is not listed on any securities exchanges or quoted on the Nasdaq -44- System. Accordingly, a limited trading market for the Scripps Common Stock exists. The average trading volume of the Scripps Common Stock during the quarter ended March 31, 1999 is estimated at approximately 8,546 shares per week, based on reports provided by brokerage firms who handle trades in Scripps Common Stock. This volume includes transactions which do not represent actual stock sales (including gifts and changes in record ownership). The price information contained in the following table sets forth the high and low closing prices per share of Scripps Common Stock as reported by the composite closing price table published by the Bloomberg pricing service. The high and low bid prices of Scripps Common Stock do not include retail markups, markdowns or commissions and may not represent actual transactions.
HIGH LOW ---------- --------- 1997 First Quarter.......... $ 10.00 $ 8.64 Second Quarter......... 10.34 9.43 Third Quarter.......... 15.25 10.68 Fourth Quarter......... 21.00 15.75 1998 First Quarter.......... 21.38 17.38 Second Quarter......... 20.50 17.00 Third Quarter.......... 20.38 16.63 Fourth Quarter......... 17.50 15.25 -------------------------
On April 15, 1999, the last sales price of the Scripps Common Stock, according to the composite closing price table published by the Bloomberg pricing service was $15.00 per share. There were approximately 477 holders of Common Stock of Scripps as of April 15, 1999. As a state-chartered bank, the ability of Scripps to pay dividends or make distributions to its shareholders is subject to restrictions set forth in the California Financial Code. The California Financial Code provides that neither a bank nor any majority-owned subsidiary of a bank may make a distribution to its shareholders in an amount which exceeds the lesser of (i) the bank's retained earnings, or (ii) the bank's net income for its last three fiscal years, less the amount of any distributions made by the bank or by any majority-owned subsidiary of the bank to the shareholders of the bank during such period. However, a bank or a majority-owned subsidiary of a bank may, with the prior approval of the Commissioner of the DFI, make a distribution to the shareholders of the bank in an amount not exceeding the greatest of (i) the bank's retained earnings, (ii) the bank's net income for its last fiscal year, or (iii) the bank's net income for its current fiscal year. In the event that the Commissioner of the DFI determines that the stockholders' equity of a bank is inadequate or that the making of a distribution by a bank would be unsafe or unsound, the Commissioner may order the bank to refrain from making a proposed distribution. As of December 31, 1998 Scripps had approximately $8.9 million legally available for the payment of dividends. -45- Scripps paid cash dividends on the Scripps Common Stock of $0.16 during 1998, and aggregate dividends of $0.34 and $0.31 per share in 1997 and 1996, respectively. These rates take into account dividends declared by PCB. In November, 1997 the Scripps Board of Directors declared a 10% stock dividend for stockholders of record as of August 7, 1997. Also in November, 1997, the Scripps Board of Directors declared a two for one stock split for stockholders of record as of December 26, 1997. Payment of future dividends will be subject to the discretion of the Scripps Board of Directors and will depend upon the earnings of Scripps, its financial condition, its capital requirements, its need for funds, applicable governmental policies and regulations and such other matters as the Board deems appropriate. The Scripps Board of directors periodically reviews whether to pay dividends based on the foregoing factors. At present, Scripps desires to continue paying cash dividends on a periodic basis in the future. However, the ability of Scripps to make such payments and the rate at which such payments may be made will depend on the factors discussed above. There can be no assurance that Scripps will continue to pay dividends in the future. ITEM 10. SALES OF UNREGISTERED SECURITIES. SFC has not issued securities as of the date hereof. All previous issuances of securities by Scripps were made pursuant to the exemption provided by Section 3(a)(2) of the Securities Act of 1933, as amended. The issuance of shares by SFC to the shareholders of Scripps will be exempt pursuant to Section 3(a)(12) of the Securities Act. ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED. DESCRIPTION OF SFC CAPITAL STOCK The following description contains a summary of all of the material features of the capital stock of SFC but does not purport to be complete and is subject to and qualified in its entirety by reference to the SFC Articles, incorporated herein by reference. The articles of incorporation of SFC are intended to be equivalent to the articles of incorporation of Scripps. SFC's total authorized capital stock currently consists of 20,000,000 shares of Common Stock, no par value and 10,000,000 shares of Preferred Stock, no par value. Prior to SFC becoming a holding company of Scripps, no shares of SFC will be issued and outstanding. However, after that transaction, the capitalization of SFC will equal the capitalization of Scripps immediately prior to the transaction. As of April 15, 1999, 6,864,011 shares of Scripps Common Stock were issued and outstanding. No shares of Scripps Preferred Stock are currently outstanding. Holders of SFC Common Stock will be entitled to one vote for each share held of record in the shareholder's name on the books of SFC on any matter submitted to the vote of the shareholders, except that in connection with the election of directors, the shares may be voted cumulatively. Each share of SFC Common Stock has the same rights, privileges and preferences as every other share and will -46- share equally in the net assets of SFC upon liquidation or dissolution. The stock has no preemptive, conversion or redemption rights or sinking fund provisions and all the shares of SFC Common Stock after the merger will be fully paid and non-assessable. The Board of Directors of SFC is authorized, without further shareholder approval, to issue up to 10,000,000 shares of preferred stock in one or more series, to fix the rights, preferences, privileges and restrictions granted or imposed upon any unissued shares of preferred stock and to fix the number of shares constituting any series and the designations of such shares. The issuance of preferred stock may have the effect of delaying or preventing a change in control of SFC. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of SFC Common Stock or could adversely effect the rights and powers, including voting rights, of the holders of SFC Common Stock. In certain circumstances, such issuance could have the effect of decreasing the market price of the SFC Common Stock. No shares of preferred stock are currently outstanding and SFC currently has no plans to issue any shares of preferred stock. Provisions of the articles of incorporation of SFC may have the effect of limiting changes of control to SFC and Scripps. The articles of incorporation of SFC provide that, in general mergers, acquisitions and other specified business combinations of SFC or a subsidiary to which a substantial holder of stock of SFC is a party must be approved by: - the board of directors of SFC before the shareholder in question became a substantial shareholder - 80% of the board in the case of a shareholder whose acquisition of shares in SFC was previously approved by the board - 90% of the board, or - 95% of the shareholders. The above approval requirements do not apply if the business combination is approved by two-thirds of the shareholders and if specified conditions are met, including a test requiring defined minimum per share amounts to be received by the shareholders in the business combination. The registrar and transfer agent for the SFC Common Stock is expected to be Norwest Bank, Minnesota, N.A., the registrar and transfer agent for Scripps. ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The amended articles of incorporation of SFC and Scripps permit such entities to indemnify their officers, directors and agents by bylaw, agreement or otherwise to the fullest extent allowed by California law. The bylaws of SFC and Scripps provide that such entities shall indemnify directors to the fullest extent explicitly permitted by Section 317 of the California -47- Corporations Code. However, Section 204 of the California Corporations Code allows corporations to contract for even broader indemnification than that provided by Section 317, subject to limitations for situations including breach of duty to the corporation and its shareholders. Scripps has contractually agreed with its directors and various senior executive officers through indemnification agreements to provide for indemnification of such persons to the maximum extent permitted by California law. SFC will enter into agreements with its directors and officers using the same form of indemnification agreement as the shareholders of Scripps approved in 1988. The indemnification agreements cover any and all expenses (including attorneys' fees and all other costs and obligations), judgments, fines, penalties and amounts paid in settlement (including all interest assessments and other charges paid or payable in connection therewith) incurred in connection with investigating, defending, being a witness or participating in (including on appeal), or preparing to defend, be a witness in or participate in, any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation, whether civil, criminal, administrative or otherwise, related to the fact that the person to be indemnified is or was a director, officer, employee, agent or fiduciary of Scripps or is or was serving at the request of Scripps as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by such director, officer, employee, agent or fiduciary, in any such capacity. Indemnification is not available under the indemnification agreements if a person or body appointed by the bank's board of directors who is not a party to the proceeding for which indemnification is sought and who may be or consist of one or more members of the board of directors (or, under certain circumstances discussed below, independent legal counsel) determines that such indemnification is not permitted under applicable law and such determination is not successfully challenged before a court. In addition, no officer, director or agent is entitled to indemnification under the indemnification agreements in connection with a proceeding initiated by such person, unless such proceeding was authorized or consented to by the board of directors. The indemnification agreements provide for the prompt advancement of all expenses incurred in connection with any proceeding and obligate the indemnified person to reimburse the corporation for all amounts so advanced if it is subsequently determined, as provided in the indemnification agreements, that the indemnified person is not entitled to indemnification. Neither Scripps nor SFC is aware of any pending or threatened claim against their directors or officers for which indemnification may be sought. ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. After the transaction in which shares of SFC will be exchanged for shares of Scripps, making Scripps a wholly-owned subsidiary of SFC, the historical results of SFC and Scripps will be identical. The financial statements of Scripps are set forth beginning on page F-1. ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. -48- Not applicable. ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS. INDEX TO FINANCIAL STATEMENTS OF SCRIPPS Report of Independent Public Accountants F-1 Statement of Financial Condition F-2 Statement of Income F-3 Statement of Changes in Stockholders' Equity F-4 Statement of Cash Flows F-5 Notes to Financial Statements F-6
EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT -------- ----------------------- 3.1 Articles of Incorporation of SFC. 3.2 By-laws of SFC. 4.1 Specimen Common Stock Certificate of SFC. 10.1 Form of Indemnification Agreement for directors and executive officers. 10.2 1995 Stock Option Plan, and forms of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement thereunder 10.3 1992 Stock Option Plan, and forms of Incentive Stock Option Agreement and Nonstatutory Stock Option Agreement thereunder. 10.4 1998 Outside Directors Stock Option Plan 10.5 Agreement and Plan of Merger between Scripps and PCB. 10.6 Form of Employment Agreement for executive officers. 10.7 Employment Agreement dated October 1, 1995, between Thomas D. Michelli and Pacific Commerce Bank, as amended. 10.8 Lease, dated September 1, 1983, between Scripps and Oklahoma City Investment Group, as amended. 10.9 Lease, dated April 25, 1995, between Scripps and Kearny Villa Center East. 10.10 Sublease, dated March 1, 1999, between Scripps and Wells Fargo Bank, N.A. 10.11 Supplemental Retirement Plan between Scripps and Ronald J. Carlson. 10.12 1992 Unfunded Deferred Compensation Agreement between Scripps and Ronald J. Carlson. 10.13 1999 Unfunded Deferred Compensation Agreement between Scripps and Ronald J. Carlson. 21.1 List of SFC Subsidiaries. 27.1 Financial Data Schedule.
-49- SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. SCRIPPS FINANCIAL CORPORATION Date May 14, 1999 By: /s/ Ronald J. Carlson ------------------------- ---------------------------------- Name: Ronald J. Carlson Title: President -50- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Scripps Bank In our opinion, the accompanying statements of financial condition and the related statements of income, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Scripps Bank at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Bank's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP San Diego, California February 10, 1999 F-1 SCRIPPS BANK STATEMENT OF FINANCIAL CONDITION - -------------------------------------------------------------------------------
DECEMBER 31, 1998 1997 ASSETS Cash and amounts due from banks $ 24,330,000 $ 25,599,000 Federal funds sold 42,790,000 18,900,000 ------------ ------------ Cash and cash equivalents 67,120,000 44,499,000 Interest bearing due from banks 4,352,000 5,737,000 Investment securities 162,317,000 119,702,000 Loans and leases, (net of reserve for possible loan losses of $4,767,000 and $3,624,000 for December 31, 1998 and 1997, respectively) 336,008,000 280,023,000 Premises and equipment, net 4,985,000 4,861,000 Other assets and accrued interest receivable 7,848,000 7,176,000 ------------ ------------ $582,630,000 $461,998,000 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand, non-interest bearing $152,697,000 $122,848,000 Money market, NOW and savings accounts 290,113,000 215,138,000 Time certificates: Under $100,000 31,861,000 27,991,000 $100,000 or greater 56,303,000 54,700,000 ------------ ------------ Total deposits 530,974,000 420,677,000 Guarantee of loan to ESOP Trust 76,000 107,000 Other liabilities and accrued interest expense 7,825,000 3,257,000 ------------ ------------ Total liabilities 538,875,000 424,041,000 ------------ ------------ Commitments and contingencies (Notes 10 and 11) Stockholders' equity: Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 6,797,000 shares (1997: 6,708,000 shares) 34,092,000 33,502,000 Retained earnings 8,896,000 3,804,000 Guarantee of loan to ESOP Trust (76,000) (107,000) Accumulated other comprehensive income 843,000 758,000 ------------ ------------ Total stockholders' equity 43,755,000 37,957,000 ------------ ------------ $582,630,000 $461,998,000 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements. F-2 SCRIPPS BANK STATEMENT OF INCOME - -------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1998 1997 1996 Interest income: Loans and leases, including fees earned $ 32,151,000 $ 26,215,000 $ 19,672,000 Investment securities: Taxable 6,473,000 5,311,000 4,920,000 Exempt from federal income taxes 920,000 651,000 321,000 Dividends 93,000 106,000 - Federal funds sold 1,730,000 1,085,000 906,000 Balances due from banks 344,000 304,000 391,000 ------------ ------------ ------------ Total interest income 41,711,000 33,672,000 26,210,000 Interest expense on deposits (13,315,000) (10,454,000) (8,111,000) ------------ ------------ ------------ Net interest income 28,396,000 23,218,000 18,099,000 Provision for possible loan losses (1,805,000) (1,452,000) (922,000) ------------ ------------ ------------ Net interest income after provision for possible loan losses 26,591,000 21,766,000 17,177,000 Non-interest income 6,095,000 5,390,000 4,230,000 Non-interest expense (22,823,000) (20,168,000) (15,746,000) ------------ ------------ ------------ Income before provision for income taxes 9,863,000 6,988,000 5,661,000 Provision for income taxes (3,995,000) (2,758,000) (2,259,000) ------------ ------------ ------------ Net income $ 5,868,000 $ 4,230,000 $ 3,402,000 ------------ ------------ ------------ ------------ ------------ ------------ Basic net income per share $ 0.87 $ 0.63 $ 0.56 ------------ ------------ ------------ ------------ ------------ ------------ Diluted net income per share $ 0.84 $ 0.61 $ 0.55 ------------ ------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements. F-3 SCRIPPS BANK STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------
ACCUMULATED COMMON STOCK GUARANTEE OTHER TOTAL -------------------- RETAINED OF LOAN TO COMPREHENSIVE STOCKHOLDERS' SHARES AMOUNT EARNINGS ESOP TRUST INCOME EQUITY BALANCE AT DECEMBER 31, 1995 3,239,000 $17,282,000 $5,268,000 $ (95,000) $ 457,000 $22,912,000 Comprehensive income: Net income 3,402,000 3,402,000 Unrealized holding gain on available-for-sale securities, net of tax of $293,000 (393,000) (393,000) ---------- Total comprehensive income 3,009,000 Net principal increase of loan to ESOP Trust (48,000) (48,000) Stock options exercised 25,000 149,000 149,000 Cash dividends declared (837,000) (837,000) Stock dividend declared (2.3%) 87,000 418,000 (418,000) - Issuance of stock, net of cost 680,000 9,503,000 9,503,000 --------- ---------- --------- -------- ------- ---------- BALANCE AT DECEMBER 31, 1996 4,031,000 27,352,000 7,415,000 (143,000) 64,000 34,688,000 Comprehensive income: Net income 4,230,000 4,230,000 Unrealized holding gain on available-for-sale securities, net of tax of $463,000 694,000 694,000 ---------- Total comprehensive income 4,924,000 Net principal decrease of loan to ESOP Trust 36,000 36,000 Stock options exercised 52,000 346,000 346,000 Cash dividends declared (917,000) (917,000) Stock dividend declared (10%) 223,000 5,516,000 (5,516,000) - Stock dividend declared (2.3%) 85,000 668,000 (668,000) - Repurchase and retirement of common stock (149,000) (380,000) (740,000) (1,120,000) Stock split (2 for 1, in the form of a 100% stock dividend) 2,466,000 --------- ---------- --------- -------- ------- ---------- BALANCE AT DECEMBER 31, 1997 6,708,000 33,502,000 3,804,000 (107,000) 758,000 37,957,000 Comprehensive income: Net income 5,868,000 5,868,000 Unrealized holding gain on available-for-sale securities, net of tax of $70,000 85,000 85,000 ---------- Total comprehensive income 5,953,000 Net principal decrease of loan to ESOP Trust 31,000 31,000 Stock options exercised 74,000 280,000 280,000 Stock issued for services 12,000 250,000 250,000 Cash dividends declared (776,000) (776,000) Stock issued for dividends reinvested 3,000 60,000 60,000 --------- ---------- --------- -------- -------- ---------- BALANCE AT DECEMBER 31, 1998 6,797,000 $34,092,000 $8,896,000 $ (76,000) $ 843,000 $43,755,000 --------- ---------- --------- -------- -------- ---------- --------- ---------- --------- -------- -------- ----------
The accompanying notes are an integral part of these financial statements. F-4 SCRIPPS BANK STATEMENT OF CASH FLOWS - ------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, ------------------------------------------ 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,868,000 $ 4,230,000 $ 3,402,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,527,000 1,235,000 817,000 Provision for possible loan losses 1,805,000 1,411,000 829,000 Amortization of loan discounts and fees and investment securities premiums and discounts (808,000) (805,000) (545,000) Gain on sale of real estate owned (10,000) (26,000) (76,000) Increase in other assets and accrued interest receivable (1,164,000) (1,025,000) (1,773,000) Increase in other liabilities and accrued interest expense 4,459,000 559,000 751,000 ------------ ------------ ------------ Net cash provided by operating activities 11,677,000 5,579,000 3,405,000 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from maturities and principal payments received from investment securities 106,782,000 17,009,000 16,437,000 Proceeds from sale of investment securities - 29,421,000 25,709,000 Proceeds from sale of furniture, fixtures & equipment 169,000 10,000 - Proceeds from sale of real estate owned 438,000 487,000 1,264,000 Maturities/(purchases) of investment certificate of deposit 1,385,000 (89,000) 783,000 Purchases of investment securities (149,266,000) (72,159,000) (58,875,000) Net funding of loans (56,957,000) (69,024,000) (52,530,000) Purchases of premises and equipment, net (1,820,000) (2,765,000) (1,154,000) ------------ ------------ ------------ Net cash used in investing activities (99,269,000) (97,110,000) (68,366,000) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in demand deposits, NOW accounts and savings accounts 104,824,000 72,609,000 53,239,000 Net increase in certificates of deposit 5,473,000 20,980,000 12,319,000 Proceeds from exercise of stock options 590,000 345,000 47,000 Repurchase and retirement of common stock - (1,119,000) - Net proceeds from issuance of common stock 9,605,000 Dividends paid (674,000) (833,000) (757,000) ------------ ------------ ------------ Net cash provided by financing activities 110,213,000 91,982,000 74,453,000 ------------ ------------ ------------ Net increase in cash and cash equivalents 22,621,000 451,000 9,492,000 Cash and cash equivalents at beginning of year 44,499,000 44,048,000 34,556,000 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 67,120,000 $ 44,499,000 $ 44,048,000 ------------ ------------ ------------ ------------ ------------ ------------
The accompanying notes are an integral part of these financial statements. F-5 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Scripps Bank (the Bank) is a publicly-owned California State Banking Corporation organized in 1983, whose primary business is commercial banking. The accounting and reporting policies of the Bank are in accordance with generally accepted accounting principles and conform to practices within the banking industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. A summary of the significant accounting policies used in the preparation of these financial statements follows. BASIS OF PRESENTATION AND BUSINESS COMBINATION The accompanying consolidated financial statements include the merger in August 1998 with Pacific Commerce Bank, as described in Note 13, which was accounted for as a pooling-of-interests. Under this method of accounting, the assets, liabilities and shareholders' equity of Pacific Commerce Bank were carried forward at their historical amounts and its results of operations were combined with the Bank's results of operations, retroactively for all periods. No adjustments to conform accounting methods of the merged company to the Bank were required. Certain amounts have been reclassified with regard to presentation of the financial information of the merged banks. INVESTMENT SECURITIES Investment securities are required to be classified into three categories for financial reporting purposes: held-to-maturity, available-for-sale, or trading. Held-to-maturity securities are presented at amortized cost. Available-for-sale securities are recorded at estimated market value with the unrealized aggregate gain or loss being reflected in other comprehensive income as a component of stockholders' equity. Trading securities are recorded at market value with the unrealized aggregate gain or loss being reflected in earnings. The Bank has classified its entire securities portfolio as available-for-sale at December 31, 1998. The 1997 held-to-maturity securities acquired through the merger with Pacific Commerce Bank were transferred to the available-for-sale account at the merger date, resulting in a decrease in unrealized gain of $19,000, net of tax of $13,000. The amortized cost of these securities at the date of the merger was $3,860,000. Gains and losses realized upon sale of securities are determined using the specific identification method. LOANS AND LEASES Loans are reported at their outstanding principal amount, net of unearned discounts and fees. Unearned discounts and interest on loans and other interest earning assets are accrued monthly as earned. The accrual of interest on loans is discontinued when, in management's judgement, the interest will not be paid in accordance with contractual terms of the loan agreement. Loan origination fees, net of direct costs, are amortized to interest income as an adjustment of yield over the term of the loan. The Bank considers a loan to be impaired when, based on current information and events, it is probable that the Bank may not collect amounts due according to the original contractual terms of, and as scheduled in, the original loan agreement. Impaired loans are measured by the Bank using one of the following methods: (i) the present value of expected cash flows discounted at the loan's effective interest rate; (ii) the observable value of the loan's market price; or (iii) the fair value of the collateral if the loan is collateral dependent. Cash receipts for impaired loans placed on non-accrual status are first applied to reduce principal. Direct financing lease agreements are recorded at the aggregate of lease payments receivable and the estimated residual values, net of unearned income. Lease income is recognized to yield a level rate of return on the net investment in leases outstanding. F-6 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ OTHER REAL ESTATE OWNED Real estate acquired in satisfaction of loan obligations is recorded at the lower of the loan balance at the date of acquisition, the present value of expected cash flows or the fair value less expected selling costs. Subsequent operating expenses or income, reductions in estimated value, and gains or losses upon sale are charged to earnings as incurred. RESERVE FOR POSSIBLE LOAN LOSSES The reserve for possible loan losses is maintained at a level considered adequate by the Bank to provide for known and inherent risks in the loan and lease portfolio. The reserve is increased by provisions charged to expense and reduced by charge-offs net of recoveries. Management's evaluation of the adequacy of the reserve includes internal evaluation of the loan and lease portfolio, prior loan and lease loss experience, and prevailing and anticipated economic conditions. PREMISES AND EQUIPMENT Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets (3 to 25 years). Leasehold improvements are capitalized and amortized over the term of the lease or the estimated useful life of the improvement, whichever is shorter. Maintenance and repair costs are expensed as incurred, while renewals and betterments are capitalized. INCOME TAXES The Bank provides for income taxes using the liability method of accounting. Under this method, a deferred tax asset and/or liability is computed for both the expected future impact of differences between the financial statement and tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. This method also requires the establishment of a valuation allowance, if necessary, to reflect the likelihood of realization of deferred tax assets. The effect of tax rate changes are reflected in income in the period such changes are enacted. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) The guaranteed borrowing by the Bank's ESOP Trust is reflected in the accompanying financial statements as both a liability and a reduction of stockholders' equity. The debt service requirements of the plan are funded by contributions from the Bank. Such contributions are included in non-interest expense for the period in which the contributions are made. DIVIDEND REINVESTMENT PLAN The Bank has a Dividend Reinvestment Plan (the "Plan"). The Plan allows shareholders to automatically reinvest all or a portion of cash dividends paid on their shares of Common Stock in newly issued shares without payment of any brokerage commissions or service charges. EARNINGS PER SHARE Basic EPS represents net income divided by the weighted average common shares outstanding during the period excluding any potential dilutive effects. The weighted average number of shares used for the computation of basic EPS was 6,754,000, 6,726,000, and 6,026,000 shares in 1998, 1997 and 1996, respectively. Diluted EPS gives effect to all potential issuances of common stock that would have caused basic EPS to be lower as if the issuance had already occurred. Accordingly, diluted EPS reflects an increase in the weighted average shares outstanding of 220,000, 261,000 and 187,000 for 1998, 1997 and 1996 respectively, due to the assumed exercise of stock options. F-7 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ STATEMENT OF CASH FLOWS For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and Federal funds sold. Total interest paid on deposits in 1998, 1997 and 1996 aggregated approximately $13,991,000, $10,778,000 and $8,096,000, respectively. Income taxes paid in 1998, 1997 and 1996 total approximately $4,294,000, $3,280,000 and $1,607,000, respectively. Dividends declared, not yet paid in 1998, 1997 and 1996 were $408,000, $300,000, and $221,000, respectively. TRUST DEPARTMENT In accordance with the usual practice of financial institutions, the assets and liabilities of individual trusts, agencies, and fiduciary funds are not included in the accompanying financial statements. Trust assets total approximately $867,312,000 and $669,293,000 at December 31, 1998 and 1997, respectively. NOTE 2 - INVESTMENT SECURITIES The components of investment securities, which management has classified entirely as available-for-sale at December 31, 1998, are as follows:
DECEMBER 31, 1998 ------------------------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE US Treasury and US Government Corporation & Agency securities $ 59,655,000 $ 323,000 $ (71,000) $ 59,907,000 Mortgage-backed securities: US Government Agency 38,009,000 314,000 (63,000) 38,260,000 US Government-sponsored Agency securities 4,922,000 64,000 (16,000) 4,970,000 Collateralized mortgage obligations 38,418,000 171,000 (82,000) 38,507,000 States and political subdivisions 17,236,000 892,000 18,128,000 Equity securities 2,671,000 (126,000) 2,545,000 ---------------- ---------------- -------------- -------------- $ 160,911,000 $ 1,764,000 $ (358,000) $ 162,317,000 ---------------- ---------------- -------------- -------------- ---------------- ---------------- -------------- --------------
The collateralized mortgage obligations owned by the Bank at December 31, 1998 are issued or guaranteed by a US Government Agency (GNMA) or US Government-sponsored Agencies (FNMA and FHLMC) or are collateralized by mortgage-backed securities issued or guaranteed by the same agencies. These securities have weighted average lives estimated at less than five years, although actual terms to maturity may differ due to the variability of principal repayments. Equity securities are comprised of Federal Home Loan Bank of San Francisco stock and Mutual fund shares in a variable rate government bond fund, which was acquired through the merger with Pacific Commerce Bank. F-8 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------
DECEMBER 31, 1997 ------------------------------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE AVAILABLE-FOR-SALE US Treasury and US Government Corporation & Agency securities $ 36,306,000 $ 240,000 $ (29,000) $ 36,517,000 Mortgage-backed securities: US Government Agency 13,312,000 218,000 13,530,000 US Government-sponsored Agency securities 4,622,000 62,000 4,684,000 Collateralized mortgage obligations 39,597,000 214,000 (18,000) 39,793,000 States and political subdivisions 17,235,000 668,000 17,903,000 Equity securities 2,466,000 (105,000) 2,361,000 HELD-TO-MATURITY US Treasury and US Government Agency securities 3,798,000 (75,000) 3,723,000 Mortgage-backed securities: US Government Agency 102,000 102,000 US Government-sponsored Agency securities 45,000 45,000 Collateralized mortgage obligations 970,000 (50,000) 920,000 ---------------- ---------------- -------------- -------------- $ 118,453,000 $ 1,402,000 $ (277,000) $ 119,578,000 ---------------- ---------------- -------------- -------------- ---------------- ---------------- -------------- --------------
The maturity distribution of available-for-sale investment securities at December 31, 1998 is as follows:
ESTIMATED AMORTIZED MARKET VALUE COST Due in one year or less $ 23,489,000 $ 23,560,000 Due from one year through five years 25,755,000 25,874,000 Due from five years through ten years 9,473,000 9,903,000 Due after ten years 10,213,000 10,734,000 Mortgage-backed and guaranteed Small Business Administration loan-backed securities 89,310,000 89,701,000 Equity securities 2,671,000 2,545,0000 -------------- -------------- $ 160,911,000 $ 162,317,000 -------------- -------------- -------------- --------------
The maturities of mortgage-backed securities, collateralized mortgage obligations, and Small Business Administration (a US Government Agency) loan-backed securities will differ from contractually-stated maturities because the mortgages or loans underlying the securities amortize regularly and may also prepay without penalty; in addition, equity securities and mutual funds have no stated maturity date. Accordingly, these securities are listed separately in the above maturity distribution. Securities with a fair value of $14,867,000 and $24,865,000 at December 31, 1998 and 1997, respectively, were pledged to secure certain deposits and other borrowings as required or permitted by law. Realized net gains from the sale of securities during 1998, 1997 and 1996 were $0, $44,000 and $164,000, respectively. F-9 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ NOTE 3 - LOANS AND LEASES, AND RESERVE FOR POSSIBLE LOAN LOSSES Loans and leases comprise the following:
DECEMBER 31, 1998 1997 LOANS AND LEASES: Commercial $ 156,236,000 $ 134,960,000 Real estate construction 37,932,000 29,510,000 Real estate mortgage 93,681,000 74,516,000 Consumer 48,375,000 42,390,000 Lease financing 6,199,000 3,212,000 --------------- ---------------- 342,423,000 284,588,000 LESS: Unearned income and fees 1,648,000 941,000 Reserve for possible loan losses 4,767,000 3,624,000 --------------- ---------------- Total $ 336,008,000 $ 280,023,000 --------------- ---------------- --------------- ----------------
At December 31, 1998, minimum lease payments to be received on direct financing leases for each of the succeeding years ending December 31 are estimated as follows: $2,952,000 in 1999, $1,518,000 in 2000, $938,000 in 2001, $586,000 in 2002 and $183,000 in 2003. The Bank has made loans to various directors and officers. The loans, which were made in accordance with the Bank's general lending policies, aggregate $1,363,000 and $2,603,000 at December 31, 1998 and 1997, respectively. During 1998, new loans (including drawdowns on revolving lines of credit and advances) aggregated $788,000 and repayments aggregated $510,000. Loans placed on non-accrual status aggregate $1,211,000 and $872,000 at December 31, 1998 and 1997, respectively. The Bank's investment in impaired loans was $549,000 and $643,000 at December 31, 1998 and 1997, respectively, for which it had established reserves for potential losses of $97,000 and $153,000. The average recorded investment in impaired loans during 1998 and 1997 was $552,000 and $647,000, respectively. Interest income on impaired loans of $40,000, $41,000 and $0 was recognized for cash payments received in 1998, 1997 and 1996, respectively. F-10 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Activity in the reserve for possible loan losses follows:
YEAR ENDED DECEMBER 31 -------------------------------------------------------- 1998 1997 1996 BALANCE AT BEGINNING OF YEAR $ 3,624,000 $ 2,837,000 $ 2,575,000 Provision charged to expense 1,805,000 1,452,000 922,000 Loans charged off (735,000) (789,000) (929,000) Recoveries 73,000 124,000 269,000 ---------------- --------------- ---------------- Balance at end of year $ 4,767,000 $ 3,624,000 $ 2,837,000 ---------------- --------------- ---------------- ---------------- --------------- ----------------
NOTE 4 - PREMISES AND EQUIPMENT Premises and equipment consist of:
DECEMBER 31, 1998 1997 Furniture, fixtures and equipment $ 8,337,000 $ 6,882,000 Leasehold improvements 3,083,000 3,061,000 Premises 89,000 86,000 --------------- ---------------- 11,509,000 10,029,000 Less: Accumulated depreciation and amortization 6,524,000 5,168,000 --------------- ---------------- Premises and equipment, net $ 4,985,000 $ 4,861,000 --------------- ---------------- --------------- ----------------
The Bank leases its facilities under non-cancelable operating leases which expire at various times beginning in the years 2000 through 2020. The Bank leases one of its offices from a partnership in which a director of the Bank is the general partner under a lease expiring on September 24, 2006. In the opinion of management, the terms of the lease are comparable to the terms of other leases that could be obtained if the Bank leased similar space from an unrelated party. The lease agreements have option periods to extend at rates equivalent to the then market rates. The future minimum rental commitments at December 31, 1998 are as follows: 1999 $ 1,284,000 2000 1,291,000 2001 1,301,000 2002 1,229,000 2003 1,105,000 Thereafter 4,340,000 --------------- Total minimum lease payments $ 10,550,000 --------------- ---------------
The total rental expense was $1,350,000, $1,102,000 and $888,000 for the years ended December 31, 1998, 1997 and 1996, respectively. F-11 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ NOTE 5 - NON-INTEREST INCOME AND EXPENSE Non-interest income consists of:
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1998 1997 1996 Customer service charges $ 2,269,000 $ 1,833,000 $ 1,362,000 Trust income 2,140,000 1,862,000 1,432,000 Other fees 1,299,000 1,429,000 926,000 Other non-interest income 387,000 266,000 510,000 --------------- --------------- ---------------- $ 6,095,000 $ 5,390,000 $ 4,230,000 --------------- --------------- ---------------- --------------- --------------- ---------------- Non-interest expense consists of: Salaries and employee benefits $ 12,023,000 $ 10,884,000 $ 8,775,000 Occupancy & equipment 2,528,000 2,130,000 1,358,000 Depreciation and amortization 1,527,000 1,295,000 817,000 Data processing 756,000 615,000 546,000 Professional services 1,628,000 973,000 613,000 Other general and administrative 4,361,000 4,271,000 3,637,000 --------------- --------------- ---------------- $ 22,823,000 $ 20,168,000 $ 15,746,000 --------------- --------------- ---------------- --------------- --------------- ----------------
NOTE 6 - INCOME TAXES The provision for income taxes includes the following components:
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1998 1997 1996 CURRENT: Federal $ 3,460,000 $ 2,210,000 $ 1,709,000 State 1,157,000 892,000 642,000 --------------- --------------- ---------------- 4,617,000 3,102,000 2,351,000 DEFERRED: Federal (574,000) (245,000) (79,000) State (48,000) (99,000) (13,000) --------------- --------------- ---------------- (622,000) (344,000) (92,000) --------------- --------------- ---------------- $ 3,995,000 $ 2,758,000 $ 2,259,000 --------------- --------------- ---------------- --------------- --------------- ----------------
The Bank has deferred tax assets and liabilities which represent the expected future income tax impact of the differences between tax basis and financial statement basis of assets and liabilities. The Bank's primary deferred tax items relate to the reserve for possible loan losses, direct financing leases, premises and equipment, and unrealized gains on available-for-sale investment securities. F-12 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ The components of net deferred tax assets at December 31, 1998 and 1997 were as follows:
DECEMBER 31, 1998 1997 Loan loss provision $ 1,273,000 $ 732,000 Deferred loan fees 332,000 248,000 Leases (236,000) 99,000 Deferred compensation 460,000 302,000 Fixed assets 335,000 219,000 Unrealized gain on AFS securities (599,000) (471,000) Other 217,000 12,000 --------------- ---------------- $ 1,782,000 $ 1,141,000 --------------- ---------------- --------------- ----------------
Based on the Bank's earnings history and projections, management considers the Bank's net deferred tax asset to be realizable. Accordingly, no valuation allowance has been established. The reconciliation between the statutory Federal income tax rate and the effective rate follows:
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1998 1997 1996 Federal statutory rate 34% 34% 34% Tax exempt income (8) (4) (2) State tax, net of Federal tax effect 11 8 7 Other 4 1 1 --------------- -------------- ---------------- Effective tax rate 41% 39% 40% --------------- -------------- ---------------- --------------- -------------- ----------------
NOTE 7 - 401 (K), ESOP, STOCK PURCHASE, AND RETIREMENT PLANS The Bank has a 401(K) plan covering substantially all employees who meet certain age and service requirements. Employer contributions are determined by the Board of Directors and are based on net profits. During 1998, 1997 and 1996 the amounts of $240,000, $226,000 and $156,000, respectively, were expensed as contributions to the plan. In 1998 the Scripps Bank Board of Directors changed the plan to a matching contribution, effective January 1999. The Bank will contribute an amount equal to 50% of the employee's contribution, up to 6% of the employee's salary. In June 1996, the ESOP obtained a new $162,000 loan to purchase 12,014 shares of the Bank's common stock, which are held by a third party lender as security for the loan. The loan was guaranteed by the Bank as to payment of principal and interest. The outstanding loan balances at December 31, 1998 and 1997 were $76,000 and $107,000, respectively. The Bank's contributions to the ESOP during 1998, 1997 and 1996 were approximately $80,000, $75,000 and $140,000 respectively. At December 31, 1998, approximately 134,000 shares owned by the ESOP had been allocated to the ESOP participants. The Bank has a stock purchase plan in which all employees and directors may participate. The Bank contributes an amount equal to 25% of the participants' contributions; these contributions are then used to purchase common stock of the Bank. During 1998, 1997 and 1996, the Bank contributed $60,000, $46,000 and $50,000, respectively, to the plan. The plan held approximately 122,300 and 114,800 shares of common stock at December 31, 1998 and 1997, respectively. F-13 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ During 1997 Scripps Bank adopted a supplemental retirement plan to provide additional retirement benefits for its president. The present value of the estimated future obligation is being accrued and funded over the vesting period. NOTE 8 - CAPITAL STOCK AND STOCK OPTION EMPLOYEE STOCK OPTION PLANS The Bank has granted incentive stock options and non-qualified stock options to certain officers, employees and directors to purchase common stock. The purpose of these Plans are to advance the interest of the Bank and its shareholders by providing officers, director and key employees with an incentive to serve and to continue service with the Bank. The Bank currently has options outstanding under three option plans, the 1998 Outside Director Plan ("1998 Plan"), the 1995 Stock Option Plan ("1995 Plan"), and the 1992 Stock Option Plan ("1992 Plan"). In 1998 the Board approved and the shareholders adopted the 1998 Plan, which allows for annual grants of 1,000 shares to each Outside Director of the Bank. The 1995 Plan was originally adopted by the Bank in 1995. In 1998 the Board approved and the shareholders adopted an amendment to increase the number of shares reserved for grant under the 1995 Plan. As of December 31, 1998, no shares of Scripps Common Stock remain available for grant under the 1992 Plan. The stock options under these plans vest at various rates up to five years and expire over a period of up to ten years. No compensation cost has been recognized for its employee stock option grants, which are fixed in nature, as the options have been granted at a price equal to the market value of the Company's common stock at the date of grant. Had compensation cost for the Company's stock based compensation plans been determined based on the estimated fair value at the grant date rather than market value during the year ended December 31, 1998, the Bank's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, ------------------------------------------------------- 1998 1997 1996 NET INCOME: As reported $ 5,868,000 $ 4,230,000 $ 3,402,000 Pro forma $ 5,697,000 $ 4,143,000 $ 3,365,000 BASIC EARNINGS PER SHARE: As reported $.87 $.63 $.56 Pro forma $.84 $.62 $.56 DILUTED EARNINGS PER SHARE: As reported $.84 $.61 $.55 Pro forma $.82 $.59 $.54
The fair value of each option grant has been estimated on the date of grant using the following assumptions: for 1998: an expected option life of three to eight years, a constant dividend yield of 1%, a risk-free interest rate of 4.80%, and a volatility factor of 34%; for 1997: an expected option life of eight years, a constant dividend yield of 1%, a risk-free interest rate of 5.60%, and a volatility factor of 27%; for 1996: an expected option life of eight years, a constant dividend yield of 1%, a risk free interest rate of 6.60%, and a volatility factor of 10%. F-14 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Employee transactions during the years ended December 31, 1998, 1997 and 1996 are summarized as follows:
YEAR ENDED DECEMBER 31, ----------------------------------------------------------------------- 1998 1997 1996 -------------------- ---------------------- ---------------------- NUMBER WEIGHTED NUMBER WEIGHTED NUMBER WEIGHTED OF AVERAGE OF AVERAGE OF AVERAGE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE EMPLOYEE STOCK OPTIONS Options outstanding at beginning of year 417,095 $7.31 421,904 $4.67 413,381 $4.29 Granted 55,000 18.34 92,194 16.51 34,100 7.83 Exercised 74,438 3.95 94,825 3.63 24,367 3.38 Forfeited 8,810 7.00 2,178 5.70 1,210 5.99 ------- -------- -------- Options outstanding at end of year 388,847 9.51 417,095 7.31 421,904 4.67 ------- -------- -------- ------- -------- -------- Options exercisable at end of year 204,045 5.48 199,885 4.09 238,863 3.86 Weighted average fair value per share of options granted during the year $7.37 $6.88 $7.76
The following table summarizes information about stock options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ---------------------------------------------------------- -------------------------------- WEIGHTED- NUMBER AVERAGE WEIGHTED- RANGE OF OUTSTANDING AT REMAINING AVERAGE WEIGHTED- EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE NUMBER OF AVERAGE PRICES 1998 LIFE PRICE OPTIONS PRICE $3 to $9 266,747 4.1 yrs. $ 5.22 190,625 4.51 $10 to $20 122,100 8.7 yrs. $ 18.90 13,420 19.36
Options for approximately 365,000 shares of common stock were available for future grant under the Pan at December 31, 1998. NOTE 9 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS In accordance with disclosure requirements, management has estimated the fair value of the Bank's financial instruments. In cases where quoted market prices are not available, fair value estimates are based on the present value of expected future cash flows, or other valuation techniques, all of which are significantly affected by the assumptions used therein. Accordingly, most fair value estimates cannot be substantiated by comparison to independent market quotes and could not be realized from offering for sale the Bank's entire holdings of a particular financial instrument at one time. Furthermore, management does not intend to dispose of significant portions of all of its financial instruments and, thus, any aggregate unrealized gain or loss should not be interpreted as a forecast of future earnings and cash flows. Certain financial instruments such as equity investments in consolidated subsidiaries, obligations for pension and other postretirement benefits and deferred compensation arrangements, among others, are generally excluded from fair value disclosure requirements. In addition, the fair value estimates do not attempt to include the value of anticipated future business, such as trust and core deposit relationships, and the value of assets and liabilities that are not considered financial instruments such as deferred tax assets, intangibles, and premises and equipment. The fair values of financial instruments are derived using numerous subjective assumptions and may not be necessarily indicative of the net realizable or liquidation value of these instruments. These fair value estimates involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. The F-15 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ fair values are also influenced by the estimation methods, including discount rates and cash flow assumptions, chosen from acceptable alternatives. Comparisons of fair value information among companies are limited by variability in estimations and judgments. The following methods and assumptions were used to estimate the fair value of each material class of financial instruments at a specific point in time: CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD The carrying amount of these financial instruments reasonably approximates fair value. INVESTMENT SECURITIES The fair value of investment securities is based upon independently quoted market prices. LOANS AND LEASES The fair value of loans and leases is based upon the aggregate estimated fair values of each product type, giving effect to credit quality and time to maturity. The fair value of fixed rate loans and leases is estimated by discounting expected future cash flows, using risk-free rates adjusted by estimated credit risk. The carrying amount of variable rate loans reasonably approximates fair value. DEPOSITS The fair value of demand, money market, NOW and savings deposits is the amount payable on demand at the reporting date. The carrying amount for variable rate time deposit accounts reasonably approximates fair value. The fair value of fixed rate time deposits is estimated using a discounted cash flow calculation. The discount rate on such deposits is based upon rates offered as of the reporting date for deposits with similar remaining maturities. GUARANTEE OF LOAN TO ESOP TRUST The carrying amount of this financial instrument reasonably approximates fair value. COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT The fair value of commitments to extend credit and letters of credit is estimated to be the cost to terminate or otherwise settle such obligations with counterparties. The fair value of such items at the reporting date is not considered to be material in relation to the financial statements taken as a whole (Note 11). F-16 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ The carrying amount and fair value of the Bank's financial instruments at December 31, 1998 and 1997 are as follows:
DECEMBER 31, 1998 DECEMBER 31, 1997 -------------------------------- ------------------------------- CARRY FAIR CARRY FAIR AMOUNT VALUE AMOUNT VALUE FINANCIAL ASSETS: Cash and due from banks $ 24,330,000 $ 24,330,000 $ 25,599,000 $ 25,599,000 Federal funds sold 42,790,000 42,790,000 18,900,000 18,900,000 Investment securities, available-for-sale 162,317,000 162,317,000 119,578,000 119,578,000 Loans and leases, net 336,008,000 337,588,000 279,672,000 280,560,000 FINANCIAL LIABILITIES: Deposits 530,974,000 531,120,000 420,677,000 420,136,000 Guarantee of loan to ESOP trust 76,000 76,000 107,000 107,000
NOTE 10- FINANCIAL INSTITUTION RISK In the normal course of its business, the Bank encounters two significant types of risk: economic and regulatory. Economic risk is comprised of three components - - interest rate risk, credit risk, and market risk. The Bank is subject to interest rate risk to the degree that its interest-bearing liabilities mature and reprice at different speeds, or on a different basis, than its interest-bearing assets. Credit risk is the risk of default on the Bank's loan portfolio that results from the borrower's inability or unwillingness to make contractually required payments. Market risk results from changes in the value of assets and liabilities which may impact, favorably or unfavorably, the realizability of those assets and liabilities. Additionally, the Bank is subject to regulations of various governmental agencies. These regulations can and do change significantly from period to period. The Bank also undergoes periodic examinations by the regulatory agencies, which may subject it to further changes with respect to asset valuations, amounts of required loss allowances and operating restrictions resulting from the regulators' judgments based on information available to them at the time of their examination. The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include loan commitments and standby letters of credit. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the contractual amount of those instruments. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management's credit evaluation of the counter party. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and other income-producing commercial properties. The Bank's lending activities are concentrated in San Diego County, California. The Bank's commercial loan portfolio is diverse as to the industries represented. The real estate portion of the loan portfolio includes credits to many different borrowers for a variety of projects and for residential real estate. F-17 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ NOTE 11 - COMMITMENTS AND CONTINGENT LIABILITIES Undisbursed loan commitments amount to approximately $157,757,000 and $127,803,000 at December 31, 1998 and 1997, respectively. Standby letters of credit total approximately $4,447,000 and $4,237,000 at December 31, 1998 and 1997, respectively. International letters of credit total approximately $477,000 and $71,000 at December 31, 1998 and 1997, respectively. The Bank is subject to pending and threatened legal actions which arise out of the normal course of business. Management has reviewed these matters with legal counsel and, in the opinion of management, the ultimate disposition of all pending or threatened litigation will not have a material effect on the financial condition or results of operations of the Bank. The Bank has a line of credit available to purchase federal funds from a non-affiliated financial institution at the prevailing market rate. The line is subject to the availability of funds at the lending institution. The Bank also has borrowing lines with Federal Reserve Bank (FRB) and Federal Home Loan Bank (FHLB). Borrowing at FRB would be at the discount rate as set by FRB. Borrowing at FHLB would be at the prevailing rate offered by FHLB. No amounts were outstanding on any line at December 31, 1998 and 1997. NOTE 12 - REGULATORY CAPITAL REQUIREMENTS Risk-based capital guidelines issued by bank regulatory authorities incorporate into the determination of capital adequacy an institution's asset risk profile and off-balance sheet exposures, such as unused loan commitments and standby letters of credit. The guidelines for an adequately capitalized institution require a total capital to risk-weighted assets ratio of at least 8.0% and a tier 1 capital to risk-weighted assets ratio of at least 4.0%. The risk-based capital rules have been further supplemented by a leverage ratio, defined as tier 1 capital divided by average total assets of the most recent quarter. A minimum leverage ratio of 4.0% is required for most banking institutions. As of December 31, 1998, the most recent notification from the FDIC categorized the bank as "well capitalized" under the regulatory framework for prompt corrective action. Management is not aware of any conditions or events subsequent to December 31, 1998, which would have caused a change in the Bank's category. The following table summarizes the Bank's regulatory capital ratios at December 31, 1998 and 1997:
ACTUAL DECEMBER 31, WELL --------------------------------- CAPITALIZED REGULATORY 1998 1997 THRESHOLD MINIMUM Total risk-based capital ratio 11.3% 12.2% 10.0% 8.0% Tier 1 risk-based capital ratio 10.2% 11.1% 6.0% 4.0% Leverage ratio 7.6% 8.3% 5.0% 4.0%
NOTE 13 - MERGER On August 31, 1998, Pacific Commerce Bank was merged with and into Scripps Bank. Pursuant to the Agreement and Plan of Merger, dated April 22, 1998, each share of Pacific Commerce Bank was exchanged for 2.1789 shares of Scripps Bank common stock, resulting in approximately 1.8 million shares being issued. At the date of merger, Pacific Commerce Bank had total assets of $72.3 million, including $43.5 in loans and $22.3 million in investment securities, and $65.0 million in liabilities, including $64.2 million in deposits. The merger was accounted for as a pooling-of-interests and, accordingly, financial results for 1998 and prior periods include the combined financial results of both entities. F-18 SCRIPPS BANK NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ Merger costs totaling $821,000 were recorded during 1998 in connection with the Pacific Commerce Bank transaction. Such costs related primarily to professional, legal and other support activities. The following table presents income statement data for each of the entities prior to the merger and on a combined basis.
EIGHT MONTHS ENDED YEAR ENDED AUGUST 31, DECEMBER 31, 1998 1997 (unaudited) NET INTEREST INCOME: Scripps Bank $ 15,654,000 $ 19,105,000 Pacific Commerce Bank 2,584,000 4,113,000 --------------- ---------------- Combined $ 18,238,000 $ 23,218,000 --------------- ---------------- --------------- ---------------- NET INCOME: Scripps Bank $ 3,064,000 $ 3,224,000 Pacific Commerce Bank 702,000 1,006,000 --------------- ---------------- Combined $ 3,766,000 $ 4,230,000 --------------- ---------------- --------------- ----------------
F-19 EX-3.1 2 EXHIBIT 3.1 ARTICLES OF INCORPORATION OF SCRIPPS FINANCIAL CORPORATION ARTICLE I The name of the Corporation is Scripps Financial Corporation. ARTICLE II The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE III The name and address in the State of California of the Corporation's initial agent for service of process are: Ronald J. Carlson 7817 Ivanhoe Avenue La Jolla, CA 92037 ARTICLE IV This Corporation is authorized to issue two classes of shares designated respectively "Common Shares" and "Preferred Shares." The number of shares of Common Shares is 20,000,000 and the number of shares of Preferred Shares is 10,000,000. ARTICLE V The Preferred Shares may be issued from time to time in one or more series. The Board of Directors is authorized to fix the number of shares of any series of Preferred Shares and to determine the designation of any such series. The Board of Directors is authorized to determine or alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Shares and, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. ARTICLE VI The liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. The Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaw provisions, agreements with agents, vote of shareholders or disinterested directors or otherwise, to the fullest extent permissible under California law. Any amendment, repeal or modification of any provision of this Article VI shall not adversely affect any right or protection of an agent of the Corporation existing at the time of such amendment, repeal or modification. ARTICLE VII SECTION 1. DEFINITIONS. For the purposes of this Article VII: A. The term "Beneficial Owner" and correlative terms shall have the meaning as set forth in Rule 13d-3 under the Securities Exchange Act of 1934, as amended, or any similar successor Rule. Without limitation and in addition to the foregoing, any voting shares of this Corporation which any Major Shareholder (as defined below) has the right to vote or to acquire (i) pursuant to any agreement, (ii) by reason of tenders of shares by shareholders of the Corporation in connection with or pursuant to a tender offer made by such Major Shareholder (whether or not any tenders have been accepted, but excluding tenders which have been rejected), or (iii) upon the exercise of conversion rights, warrants, options or otherwise, shall be deemed "beneficially owned" by such Major Shareholder. B. The term "Business Combination shall mean: 1. Any merger or consolidation (whether in a single transaction or a series of related transactions, including a series of separate transactions with a Major Shareholder, any Affiliate or Associate thereof or any Person acting in concert therewith) of this Corporation or any Subsidiary with or into a Major Shareholder or 2 of a Major Shareholder with or into this Corporation or a Subsidiary; 2. Any sale, lease, exchange, transfer, distribution to shareholders or other disposition, including without limitation, a mortgage, pledge or any other security device, to or with a Major Shareholder by the Corporation or any of its Subsidiaries (in a single transaction or a series of related transactions) of all, substantially all or any Substantial Part of the assets of this Corporation or a Subsidiary (including, without, limitation, any securities of a Subsidiary); 3. The purchase, exchange, lease or other acquisition by the Corporation or any of its Subsidiaries (in a single transaction or a series of related transactions) of all, substantially all or any Substantial Part of the assets or business of a Major Shareholder; 4. The issuance of any securities, or of any rights, warrants or options to acquire any securities, of this Corporation or a Subsidiary, eighty percent (80%) or more of which are issued to a Major Shareholder, or the acquisition by the Corporation or a Subsidiary of any securities, or of any rights, warrants or options to acquire any securities, of a Major Shareholder; 5. Any reclassification of Voting Stock, recapitalization or other transaction (other than a redemption in accordance with the terms of the security redeemed) which has the effect, directly or indirectly, of increasing the proportionate amount of Voting Stock of the Corporation or any Subsidiary thereof which is beneficially owned by a Major Shareholder, or any partial liquidation, spin off, split off or split up of the Corporation or any Subsidiary thereof; provided, however, that this Section 1B5 shall not relate to any transaction of the types specified herein that has been approved by eighty percent (80%) of the Board of Directors; and 6. Any agreement, contract or other arrangement providing for any of the transactions described herein. C. The term "Major Shareholder" shall mean any Person which, together with its "Affiliates" and "Associates" (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or any similar successor Rule) and any Person acting in concert therewith, is the beneficial owner of shares possessing ten percent (10%) or more of the voting power of the Voting Stock of this Corporation, and any Affiliate or Associate of a Major Shareholder, including a Person acting in concert therewith. The 3 term "Major Shareholder" shall not include a Subsidiary of this Corporation. D. The term "other consideration to be received" shall include, without limitation, Voting Stock of this Corporation retained by its existing shareholders in the event of a Business Combination which is a merger or consolidation in which this Corporation is the surviving corporation. E. The term "Person" shall mean any individual, corporation, partnership or other person, group or entity (other than the Corporation, any Subsidiary of the Corporation or a trustee holding stock for the benefit of employees of the Corporation or its Subsidiaries, or any one of them, pursuant to one or more employee benefit plans or arrangements). When two or more Persons act as a partnership, limited partnership, syndicate, association or other group for the purpose of acquiring, holding or disposing of shares of stock, such partnership, syndicate, association or group will be deemed a "Person." F. The term "Subsidiary" shall mean any business entity fifty percent (50%) or more of which is beneficially owned by the Corporation. G. The term "Substantial Part," as used in reference to the assets of the Corporation, of any Subsidiary or of any Major Shareholder means assets having a value of more than five percent (5%) of the total consolidated assets of the Corporation and its Subsidiaries as of the end of the Corporation's most recent fiscal year ending prior to the time the determination is made. H. The term "Voting Stock" shall mean stock or other securities entitled to vote upon any action to be taken in connection with any Business Combination or entitled to vote generally in the election of directors, and shall also include stock or other securities convertible into Voting Stock. SECTION 2. Notwithstanding any other provisions of these Articles of Incorporation and except as set forth in Section 3 of this Article VII, neither the Corporation nor any Subsidiary shall be party to a Business Combination unless: A. The Business Combination was approved by the Board of Directors of the Corporation prior to the Major Shareholder involved in the Business Combination becoming such; or B. The Major Shareholder involved in the Business Combination sought and obtained the unanimous prior approval of the Board of Directors to become a Major Shareholder and the Business Combination 4 was approved by not less than eighty percent (80%) of the Board of Directors; or C. The Business Combination was approved by not less than ninety percent (90%) of the Board of Directors of the Corporation; or D. The Business Combination was approved by at least a 95% vote of the outstanding Voting Stock of this Corporation. SECTION 3. The approval requirements of Section 2 shall not apply if the Business Combination is approved by the vote of at least two-thirds (2/3) of the shares of the Voting Stock of this Corporation and all of the following conditions are satisfied: A. The aggregate of the cash and the fair market value of other consideration to be received per share (as adjusted for stock splits, stock dividends, reclassification of shares into a lesser number of similar events) by holders of the common stock of this Corporation in the Business Combination is not less than the higher of (i) the highest per share price (including brokerage commissions, soliciting dealers' fees, dealer-management compensation, and other expenses, including, but not limited to, costs of newspaper advertisements, printing expenses and attorneys' fees) paid by the Major Shareholder in acquiring any of this Corporation's common stock; or (ii) an amount which bears the same or a greater percentage relationship to the market price of this Corporation's common stock immediately prior to the announcement of such Business Combination as the highest per share price of this Corporation's common stock immediately prior to the commencement of acquisition of this Corporation's common stock by such Major Shareholder; B. The consideration to be received in such Business Combination by holders of the common stock of this Corporation shall be, except to the extent that a shareholder agrees otherwise as to all or a part of his or her shares, in the same form and of the same kind as paid by the Major Shareholder in acquiring this Voting Stock of the Corporation; C. After becoming a Major Shareholder and prior to the consummation of such Business Combination, (i) such Major Shareholder shall not have acquired any newly-issued shares of capital stock, directly or indirectly, from this Corporation or a Subsidiary (except upon conversion of convertible securities acquired by it prior to becoming a Major Shareholder or upon compliance with the provisions of this Article VII or as a result of a pro rata share dividend or share split) and (ii) such Major Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or tax credits 5 provided by this Corporation or a Subsidiary, or made any major changes in this Corporation's business or equity capital structure; and D. A proxy statement responsive to the requirements of the Securities Exchange Act of 1934 and rules promulgated thereunder, whether or not this Corporation is then subject to such requirements, shall be mailed to all shareholders of this Corporation for the purpose of soliciting shareholder approval of such Business Combination and shall contain at the front thereof, in a prominent place, (i) any recommendations as to the advisability (or inadvisability) of the Business Combination which any one or more members of Board of Directors may choose to state, and (ii) the opinion or a reputable national investment banking firm as to the fairness (or lack thereof) of the terms of such Business Combination, from the point of view of the remaining shareholders of this Corporation (such investment banking firm to be engaged solely on behalf of the remaining shareholders, to be paid a reasonable fee for their services by this Corporation upon receipt of such opinion, to be one of the so-called major bracket investment banking firms which has not previously been associated with such Major Shareholder and to be selected by the Board of Directors). SECTION 4. The affirmative vote required by this Article VII is in addition to the vote of the holders of any class or series of stock of the Corporation otherwise required by law, these Articles of Incorporation, or any resolution which has been adopted by the Board of Directors providing for the issuance of a class or series of stock. SECTION 5. Any amendment, change or repeal of this Article VII or any other amendment of these Articles of Incorporation which would have the effect of modifying or permitting circumvention of the provisions of this Article VII shall require approval by at least an eighty-five percent (85%) vote of the Voting Stock of the Corporation. In addition to the foregoing, Section 2D of this Article VII may not be repealed or amended in any respect unless such action is approved by at least a 95% vote of the outstanding Voting Stock. ARTICLE VIII No action shall be taken by the shareholders of the Corporation except in an annual or special meeting of the shareholders. This Article VIII may be amended or repealed only upon the affirmative vote of eighty percent (80%) of the shares entitled to vote. 6 IN WITNESS WHEREOF, the undersigned incorporator has executed these Articles of Incorporation on May 3, 1999. /s/ Anne H. West ---------------------------------------- Anne H. West, Incorporator 7 EX-3.2 3 EXHIBIT 3.2 Bylaws for the Regulation, Except As Otherwise Provided by Statute or Its Articles of Incorporation of SCRIPPS FINANCIAL CORPORATION (a California corporation) ARTICLE I OFFICES Section 1. THE HEAD OFFICE. The principal executive office of the Corporation (the "Head Office") is hereby fixed and located at 7817 Ivanhoe Avenue, La Jolla, California 92037. The Board of Directors is hereby granted full power and authority to change, subject to all necessary regulating approvals, the Head Office from one location to another. Any such change of location may be noted on the Bylaws by the Secretary opposite this section or this section may be amended to state the new location. Section 2. OTHER OFFICES. Branch or subordinate offices of other places of business may at any time be established by the Board of Directors at any place or places where the Corporation is qualified to do business, subject to all necessary regulatory approvals. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. PLACE OF MEETINGS. All meetings of shareholders shall be held at the Head Office of the Corporation, at the place specified in the notice of the meeting, or any other place within the State of California designated by the Board of Directors pursuant to authority hereby granted or by the written consent of all shareholders entitled to vote thereat and not present at the meeting, given either before or after the meeting and filed with the Secretary of the Corporation. Section 2. ANNUAL MEETINGS. The annual meetings of shareholders shall be held on the last Tuesday of April of each year at 10:00 a.m. of said day, or such other date or time as may be fixed by the Board of Directors; provided, however, that should said day fall on a legal holiday, then any such annual meeting of shareholders shall be held at the same time and place on the next day thereafter ensuing which is a full business day. At annual meetings of shareholders, Directors shall be elected, reports on the affairs of the Corporation shall be considered and any other business may be transacted which is within the powers of the shareholders. Section 3. SPECIAL MEETINGS. Special meetings of shareholders may be called for the purpose of taking any action permitted by shareholders under the California General Corporation Law and the Articles of Incorporation of this Corporation at any time by the Chairman of the Board, the Vice-Chairman of the Board, the President, the Board of Directors, or by one or more shareholders holding not less than ten percent (10%) of the shares entitled to vote at the meeting. Upon receipt of a request in writing that a special meeting of the shareholders be called for any proper purpose, directed to the Chairman of the Board, the Vice-Chairman of the Board, President, Vice-President or Secretary by any person or persons (other than the Board of Directors) entitled to call a special meeting of the shareholders, the recipient officer shall forthwith cause notice to be given to shareholders entitled to vote at the meeting as set forth in Article II, Section 5 hereinbelow. In the event such notice has not been given within twenty (20) days after receipt of the request, the person or persons entitled to call the meeting may give the notice as set forth in Article II, Section 5 hereinbelow or may apply to the Superior Court for an order requiring the giving of such notice as provided in the General Corporation Law. No business other than that described in the notice of the meeting may be transacted at a special meeting of shareholders. Section 4. ADJOURNED MEETINGS. Any meeting of shareholders, whether or not a quorum is present or has been established, may be adjourned from time to time by the vote of a majority of the shares the holders of which are either present in person or represented by proxy. When any meeting of shareholders is adjourned for forty-five (45) days or more, or a new record date for the adjourned meeting is fixed, notice of the adjourned meeting shall be given as in the case of an original meeting as specified in Article II, Section 5 hereinbelow. If a meeting of shareholders is adjourned for a total of less than forty-five (45) days, notice of time and place of the adjourned meeting or the business to be transacted need not be given in the event the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. Section 5. NOTICE AND WAIVER. Written notice of every meeting of shareholders shall be given to each shareholder entitled to vote at such meeting, either personally or by mail or other means of written communication, charges prepaid, addressed to such shareholder at his address appearing on the books of the Corporation or given by him to the Corporation for the purpose of notice. In the event any notice or report addressed to a shareholder at the address of such shareholder appearing on the books of the Corporation is returned to the Corporation by United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available for the shareholder upon written demand of the shareholder at the Head Office of the Corporation for a period of one year from the date of the giving of the notice or report to all other shareholders. If no address appears on the books of the Corporation and a shareholder gives no address, notices shall be deemed to have been given to such shareholder if sent by mail or other means of written communication addressed to the place where the Head Office of the Corporation is located, or if published at least once in a newspaper of general circulation in the county in which the Head Office of the Corporation is located. All notices shall be personally delivered, deposited in the mail, or sent by other means of written communication to each shareholder entitled thereto not less than ten (10) (or if sent by third class mail, thirty-five (35)), nor more than sixty (60) days before such meeting. An affidavit of mailing of any such notice in accordance with the foregoing provisions, executed by the Secretary, assistant secretary or any transfer agent of the Corporation shall be -2- PRIMA FACIE evidence of the giving of the notice and shall be filed and maintained in the minute book of the Corporation. Except in special cases where other express provision is made by statute, notice of meetings shall contain the following information: (i) The place, the date, and the hour of the meeting; (ii) The general nature of the business to be transacted or proposed, if any, including but not limited to actions with respect to the approval of (a) a contract or other transaction with an interested Director, (b) the amendment of the Articles of Incorporation, (c) a merger, exchange or sale-of-assets reorganization as defined in Section 181 of the California General Corporation Law, (d) the voluntary dissolution of the Corporation, or (e) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, if any; (iii) If Directors are to be elected, the names of nominees intended at the time of the notice to be presented by management for election, if any, and the requirements for nomination of candidates for election of members of the Board of Directors by shareholders as specified in Article II, Section 10 of these Bylaws hereinbelow; and (iv) In the case of an annual meeting, those matters which the Board, at the time of the mailing of the notice intends to present for action by the shareholders. Section 6. VALIDATION OF MEETINGS HELD WITHOUT PROPER CALL OR NOTICE. The transactions of any meeting of shareholders, however called and noticed, and wherever held, shall be valid as though had at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote and not present in person or by proxy, or who though present has at the beginning of the meeting objected to the transaction of any business because the meeting was not lawfully called or convened or had objected to the consideration of particular matters of business required to have been included in the notice of the meeting but not so included, signs a written waiver of notice, a consent to the holding of the meeting, or an approval of the minutes thereof. The waiver of notice or consent to the holding of a meeting need not specify either the business to be transacted or the purpose of any meeting of shareholders, except that if action is taken or proposed to be taken for approval if (i) a contract or other transaction with an interested Director, (ii) the amendment of the Articles of Incorporation, (iii) a merger, exchange or sale of assets reorganization as defined in Section 181 of the California General Corporation Law, (iv) the voluntary dissolution of the Corporation, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, if any, the waiver of notice or consent to holding of the meeting shall state the general nature of the proposal. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 7. QUORUM. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting of shareholders shall constitute a quorum for the transaction of business. Those shareholders present at a duly called or held meeting at -3- which a quorum is present may continue to transact business until adjournment, notwithstanding a withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. Except as provided in the foregoing sentence, the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number of voting by classes is required by the California General Corporation Law or other applicable law. Section 8. ACTION WITHOUT A MEETING. Except with respect to the election of Directors as hereinafter provided, any action which may be taken at a meeting of the shareholders may be taken without a meeting and without prior notice except as hereinafter set forth, if a consent or consents in writing, setting forth the action so taken, is signed by the holders of shares having not less than the minimum number of votes that would be necessary to authorize such action at a meeting at which all shareholders entitled to vote thereon were present and voted. In the event the consents of all shareholders entitled to vote have not been solicited in writing, notice shall be given in the manner as provided in Section 5 of Article II of these Bylaws as follows: (a) At least ten (10) days before consummation of the action authorized by shareholder approval, notice shall be given of shareholder approval of (i) a contract or other transaction with an interested Director, (ii) indemnification of an agent of the Corporation, (iii) a merger, exchange or sale of assets reorganization as defined in Section 181 of the California General Corporation Law, or (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, if any; and (b) Promptly with respect to any other corporate action approved by shareholders without a meeting by less than unanimous written consent, to those shareholders entitled to vote who have not consented in writing. In the event the Board of Directors has not fixed a record date as provided in Section 1 of Article V of these Bylaws, for the determination of shareholders entitled to give such written consent, the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such action, whichever is later, and in the event no prior action by the Board has been taken the day on which the first written consent is given. All such written consents shall be filed with the Secretary of the Corporation. Directors may be elected without a meeting by unanimous written consent of the persons who would be entitled to vote for the election of Directors; provided that in the event a vacancy on the Board of Directors exists and has not been filled by the Directors, a Director may be elected at any time without prior notice by the written consent of persons holding a majority of the outstanding shares entitled to vote for the election of Directors. -4- Section 9. PROXIES. Every person entitled to vote shares shall have the right to do so in person or by one or more agents authorized by a written proxy executed by such person or his duly authorized agent and filed with the Secretary of the Corporation. Any proxy duly executed is not revoked and continues in full force and effect until (i) a written instrument revoking it or a subsequent proxy executed by the person executing the prior proxy and presented to a meeting prior to the vote pursuant thereto, (ii) as to any meeting, the person executing the proxy attends the meeting and votes in person; or (iii) written notice of the death or incapacity of the maker of the proxy is received by the Corporation before the vote pursuant thereto is counted; provided, however, no proxy shall be valid after the expiration of eleven (11) months from the date of its execution unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. All proxies solicited on behalf of the management of the Corporation shall comply with all applicable regulations, if any, of the appropriate bank holding company regulatory authorities. Section 10. ELECTIONS OF DIRECTORS. In any election of Directors, the candidates receiving the highest number of votes of the shares entitled to be voted for them, up to the number of Directors to be elected by such shares, shall be elected. Elections for Directors need not be by ballot unless a shareholder demands election by ballot at the meeting and before the voting begins. Subject to the requirements contained below in this Section, every shareholder entitled to vote at any election of Directors may cumulate such shareholder's votes and give one candidate a number of votes equal to the number of Directors to be elected multiplied by the number of votes to which the shareholder's shares are normally entitled, or, distribute the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit; provided, however, that no shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a number of votes greater than the number of votes which such shareholder normally is entitled to cast) unless the name of the candidate or candidates for whom such votes would be cast has been placed in nomination in accordance with the provisions of this Section stated hereinbelow and any shareholder has given notice at the meeting prior to the voting of such shareholder's intent to cumulate such shareholder's votes. Nominations for election of members of the Board of Directors may be made by the Board of Directors or by any shareholder of the Corporation entitled to vote for the election of Directors. Notice of intention to make any nomination, other than by the Board of Directors, must be made in writing and received by the Secretary of the Corporation not more than sixty (60) days prior to any meeting of shareholders called for the election of Directors and not more than ten (10) days after the date notice of such meeting is sent to shareholders pursuant to Article II, Section 5 of these Bylaws hereinabove; provided, however, that if ten (10) days' notice of the meeting has been given to shareholders, such notice of intention to nominate must be received by the Secretary of the Corporation not later than the time fixed in the notice of the meeting for the opening of the meeting. The notice shall contain the following information to the extent known to the notifying shareholder: (i) the name and address of each proposed nominee; (ii) the principal occupation of each proposed nominee; (iii) the number of shares entitled to vote for the election of Directors of the Corporation owned by each proposed nominee; (iv) the name -5- and residence address of the notifying shareholder; and (v) the number of shares entitled to vote for the election of Directors of the Corporation owned by the notifying shareholder. Nominations not made in accordance herewith shall be disregarded by the Chairman of the meeting, and the inspectors of election shall disregard all votes cast for any such purported nominee (unless otherwise duly nominated). Section 11. INSPECTORS OF ELECTION. In advance of any meeting of shareholders the Board may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any person so appointed fails to appear or refuses to act, the chairman of any meeting of shareholders may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail or refuse) at the meeting. The number of inspectors shall either be one (1) or three (3). If appointed at a meeting on the request of one or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one (1) or three (3) inspectors are to be appointed. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum and the authenticity, validity and effectiveness of proxies, received votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholder. In the determination of the validity and effect of proxies, the dates contained on the forms of proxy shall presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is PRIMA FACIE evidence of the facts stated therein. ARTICLE III DIRECTORS Section 1. POWERS. Subject to the limitations of the Articles of Incorporation and of the California General Corporation Law as to action to be authorized or approved by the shareholders, the business and affairs of the Corporation shall be managed and all the corporate powers shall be exercised by or under the direction of the Board of Directors. Without prejudice to such general powers, but subject to the same limitations, the Directors shall have the following powers: -6- FIRST: To select and remove all the officers, agents and employees of the Corporation; prescribe such powers and duties for them as may not be inconsistent with law, with the Articles of Incorporation or these Bylaws; fix their compensation; and require from them security for faithful service. SECOND: To conduct, manage and control the affairs and business of the Corporation, and to make such rules and regulations therefor not inconsistent with law, or the Articles of Incorporation of these Bylaws, as they may deem best. THIRD: To change the Head Office of the Corporation from one location to another as provided in Article I, Section 1 hereof; to fix and locate from time to time one or more branch offices or other places of business of the Corporation as provided in Article I, Section 2 hereof; to designate any place within the State of California for the holding of any meeting or meetings of shareholders; to adopt, make and use the corporate seal and to prescribe the forms of certificates of shares and to alter the form of such seal and certificates from time to time as in their judgment they deem best, provided such seal and such certificates shall at all times comply with the provisions of law. FOURTH: To authorize issuance of shares of the Corporation from time to time upon such terms as may be lawful. FIFTH: To borrow money and incur indebtedness for the purposes of the Corporation, and to cause to be executed and delivered therefor in the corporate name promissory notes, bonds, debentures, capital notes, deeds of trust, mortgages, pledges, hypothecations or other evidence of debt and securities therefor, to the extent permitted by law. SIXTH: By resolution adopted by a majority of the authorized number of Directors, to designate an executive committee, or other committees, each consisting of two (2) or more Directors, to serve at the pleasure of the Board. Unless the Board of Directors shall otherwise prescribe the manner of proceedings of any such committee, meetings of such committee (other than the executive committee whose proceedings shall be governed by Section 18 of this Article III of these Bylaws) may be regularly scheduled in advance and may be called at any time by any two (2) members thereof; otherwise, the provisions of these Bylaws with respect to notice and conduct of the meetings of the Board shall govern. Any such committee, to the extent provided in a resolution of the Board, shall have all the authority of the Board, except with respect to: (i) The approval of any action for which the California General Corporation Law or the Articles of Incorporation also require shareholder approval; (ii) The filling of vacancies on the Board of Directors or on any committee; (iii) The fixing of compensation of the Directors for serving on the Board or on any committee; -7- (iv) the adoption, amendment or repeal of Bylaws; (v) The amendment or repeal of any resolution of the Board which by its express terms is not so amendable or repealable; (vi) the declaration of a dividend, or the authorization or ratification of the repurchase or redemption of shares, except at a rate or in a periodic amount or within a price range determined by the Board of Directors; (vii) The appointment of other committees of the Board or the members thereof; and (viii) The authorization or approval of any action for which the Articles of Incorporation of this Corporation or the California Financial Code requires the approval of a greater number of Directors. Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The number of Directors of the Corporation shall not be less than five (5) nor more than nine (9) until changed by bylaw amending this Article III, Section 2 duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote. The exact number of Directors shall be fixed from time to time within the limits specified in this Article III, Section 2, by a Bylaw or amendment thereof or by a resolution duly adopted by shareholders or by the Board of Directors. Subject to the foregoing provisions for changing the number of Directors, the exact number of Directors of this Corporation shall be six (6). Section 3. ELECTION AND TERM OF OFFICE. The Directors shall be elected at each annual meeting, but if any such annual meeting is not held or the Directors are not elected thereat, the Directors may be elected at any special meeting of shareholders held for that purpose. All Directors shall hold office until the next annual meeting of shareholders and until their respective successors have been elected and qualified, subject to the California General Corporation Law and the provisions of these Bylaws with respect to vacancies on the Board of Directors. Section 4. DIRECTOR'S OATH. [Intentionally omitted]. Section 5. VACANCIES. A vacancy in the Board of Directors shall be deemed to exist in the event of the death, resignation or removal of any Director, an increase of the authorized number of Directors, or the failure of the shareholders at any annual or special meeting of shareholders at which any Director or Directors are to be elected to elect the full authorized number of Directors to be voted for at that meeting. The Board of Directors may declare vacant the office of a Director who has been declared of unsound mind by an order of court or convicted of a felony. -8- A vacancy or vacancies in the Board of Directors, except for a vacancy created by the removal of a Director, may be filled by a majority of the remaining Directors, though less than a quorum, or by a sole remaining Director, and each Director so elected shall hold office until his successor is elected at an annual or special meeting of shareholders called for that purpose. A vacancy in the Board of Directors created by the removal of a Director may be filled only by the vote of the majority of the share entitled to vote represented at a duly held meeting at which a quorum is present, or by the unanimous written consent of the outstanding shares. The shareholders may elect a Director or Directors at any time to fill any vacancy or vacancies not filled by the Directors. Any such election by written consent shall require the consent of holders of a majority of the outstanding shares entitled to vote. Any Director may resign effective upon giving written notice to the Chairman of the Board, the Vice Chairman of the Board, the President, the Secretary or the Board of Directors of the Corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. No reduction of the authorized number of Directors shall have the effect of removing any Director prior to the expiration of his term of office. Section 6. PLACE OF MEETINGS. All meetings of the Board of Directors shall be held at any place within California which has been designated by resolution of the Board or by written consent of all members of the Board. In the absence of such designation, meetings shall be held at the Head Office of the Corporation. Section 7. TELEPHONIC MEETINGS. The members of the Board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in the meeting can hear one another. Participation in a meeting as permitted in the preceding sentence constitutes presence in person at such meeting. Section 8. ORGANIZATION MEETING. Immediately following each annual meeting of shareholders, the Board of Directors shall hold a regular meeting at the place of the annual meeting of shareholders or at such other place as shall be fixed by the Board of Directors, for the purpose of organization, election of officers, and the transaction of other business. Section 9. OTHER REGULAR MEETINGS. Other regular meetings of the Board of Directors shall be held without call at least once each calendar month at 10:00 a.m. on the third Tuesday of each month or such other day and hour of each calendar month as shall be from time to time fixed by the Board of Directors by resolution. Should any said day fall on a legal holiday, then the meeting shall be held at the same time on the next day thereafter ensuing which is a full business day. Section 10. SPECIAL MEETINGS. Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board, the Vice-Chairman of the Board, the President, the Executive Vice-President, the Secretary or any two (2) Directors. -9- Section 11. NOTICE OF DIRECTORS' MEETINGS. Call and notice of the annual organization meeting and other regular meetings of the Board of Directors are hereby dispensed with. Notice of the time and place of special meetings shall be personally delivered to each Director or communicated to each Director by telephone, telegraph or mail, charges prepaid, addressed to him at his address as is shown upon the records of the Corporation, or if it is not so shown on such records or is not readily ascertainable, at the place at which the meetings of Directors are regularly held. In case notice is mailed, it shall be deposited in the United States mail at least four (4) days prior to the time of the holding of the meeting. In the event notice is delivered personally or communicated by telephone or telegraph, it shall be so delivered or communicated at least forty-eight (48) hours prior to the time of the holding of the meeting. Notice of a meeting need not be given to any Director who signs a waiver of notice, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such Director. A notice need not specify the purpose of any regular or special meeting of the Board of Directors. Whenever any Director has been absent from any meeting of the Board of Directors for which notice has not been dispensed with, an entry in the minutes to the effect that notice has been duly given shall be PRIMA FACIE evidence that due notice of such meeting was given to such Director. Section 12. QUORUM. The presence at a meeting of the Board of Directors of a majority of the members of the Board of Directors shall constitute a quorum for the transaction of business; provided that such quorum shall at no time be less than one-third (1/3) of the authorized number of Directors. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of enough Directors to leave less than a quorum, provided than any action taken is approved by at least a majority of the required quorum for such meeting. Section 13. VOTING. Every act or decision done or made by a majority of the Directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board of Directors, unless a greater number, or the same number after disqualifying one or more Directors from voting, is required by law, by the Articles of Incorporation or by these Bylaws. Section 14. VALIDATION OF MEETINGS HELD WITHOUT PROPER CALL OR NOTICE. The transactions of any meeting of the Board of Directors, however called and noticed or wherever held, shall be valid as though had at a meeting duly held after regular call and notice, if a quorum is initially present, and if, either before or after the meeting, each of the Directors not present or who though present has prior to the meeting or at its commencement protested the lack of proper notice to him signs a written waiver of notice, a consent to holding of such meeting or an approval of the minutes thereof. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 15. ADJOURNMENT. A majority of the Directors present, whether or not a quorum is present, may adjourn any Directors' meeting to meet again at another time or place. -10- In the event a meeting of the Board of Directors is adjourned for more than twenty-four (24) hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the Directors who were not present at the time of the adjournment. Otherwise, notice of the time and place of holding an adjourned meeting need not be given to absent Directors if the time and place is fixed and announced at the meeting so adjourned. Section 16. UNANIMOUS WRITTEN CONSENT TO ACTIONS TAKEN. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting if all the members of the Board of Directors shall individually or collectively consent in writing to such action. Such consent or consents shall be filed with the minutes of the proceedings of the Board of Directors and shall have the same force and effect as a unanimous vote of the Directors. Section 17. FEES AND COMPENSATION. Directors and members of committees may receive such compensation, if any, for their services and such reimbursement for expenses as may be fixed or determined by resolution of the Board of Directors. Nothing herein shall be considered to preclude any Director from serving the Corporation in any other capacity, including as an officer, agent, employee or otherwise, and receiving compensation therefor. Section 18. EXECUTIVE COMMITTEE. In the event the Board of Directors shall appoint an Executive Committee and shall not provide otherwise, regular meetings of the Executive Committee shall be held at such times as are determined by the Board or by such committee as appointed, and notice of such regular meetings is hereby dispensed with. Meetings of the Executive Committee shall be held at the place in California designated in the notice of the meeting, or if not stated in the notice or if there is no notice, at any place in California which has been designated from time to time by resolution of the Executive Committee or by written consent of all the members thereof, or in the absence of such designation, at the Head Office of the Corporation. Special meetings of the Executive Committee may be called by the Chairman of the Board, the Vice-Chairman of the Board, the President, any Vice-President who is a member of the Executive Committee, or any two (2) members thereof, upon written notice to the members of the Executive Committee of the time and place of such special meeting given in the manner and within the time provided for giving of notice to members of the Board of Directors of the time and place of special meetings thereof. Minutes shall be recorded of each meeting of the Executive Committee and kept in the book of minutes of the Corporation. Vacancies in the membership of the Executive Committee may be filled only by the Board of Directors. Only members of the Board of Directors shall serve as members of the Executive Committee. A majority of the authorized number of members of the Executive Committee shall constitute a quorum for the transaction of business. The provisions of this Article III of these Bylaws also apply to the Executive Committee and action by the Executive Committee, MUTATIS MUTANDIS. The Board of Directors may designate one or more Directors as alternate members of the Executive Committee, who may replace and act in the stead of any absent members at any meeting at such committee. Section 19. EMERGENCY EXECUTIVE COMMITTEE. Anything in these Bylaws to the contrary notwithstanding, in the event that three (3) or more Directors of the Corporation determine that a state of disaster of sufficient severity to prevent the conduct and management of -11- the affairs and business of the Corporation exists and such state of disaster is caused by war, warlike damage, or act of God, then such members of the Board of Directors as can be contacted by telephone or in person and are available for meeting shall constitute the Emergency Executive Committee of the Board of Directors. The Emergency Executive Committee may exercise all corporate powers, subject to the limitations of the Articles of Incorporation and the restrictions placed upon the delegation of the Directors' duties as provided in the California General Corporation Law, and shall conduct and manage the affairs and business of the Corporation. Three (3) members of the Board of Directors shall constitute a quorum for the transaction of business of the Emergency Executive Committee. Every act or decision done or made by a majority of the Directors present at a meeting of the Emergency Executive Committee duly held at which a quorum is present shall be regarded as the act of such committee. At such time as the Emergency Executive Committee shall determine either (i) that the state of disaster pursuant to which it was appointed has ceased, or (ii) that it shall otherwise be to the advantage of the Corporation for the Board of Directors to resume the conduct and management of the Corporation, the Emergency Executive Committee shall terminate. ARTICLE IV OFFICERS Section 1. OFFICERS. The officers of the Corporation shall be a President, Executive Vice-President, a Secretary and a Chief Financial Officer. The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, one or more Vice-Presidents, one or more assistant secretaries, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article IV. Any number of offices may be held by the same person. Section 2. ELECTION. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 3 of this Article IV, shall be chosen by the Board of Directors, and each shall hold his office until he shall resign or shall be removed by the Board of Directors or otherwise disqualified to serve, or his successor shall be elected and qualified. Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint, and may empower the Chairman of the Board, the Vice-Chairman of the Board, or the President to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority and perform such duties as the appointing authority may designate, subject to any limitations imposed by resolution of the Board of Directors. Section 4. REMOVAL. Any officer may be removed, either with or without cause, by the Board of Directors, at any regular or special meeting thereof, or except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may -12- be conferred by the Board of Directors (subject, in each case, to the rights, if any, of an officer under any contract of employment). Section 5. RESIGNATION. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary of the Corporation, without prejudice, however, to the rights, if any, of the Corporation under any contract to which such officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 6. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to such office. Section 7. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors and shareholders and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these Bylaws. Section 8. VICE-CHAIRMAN OF THE BOARD. Subject to such powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the Vice-Chairman of the Board shall be the Chief Executive Officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Corporation. In the absence of the Chairman of the Board, or if there be none, he shall preside at all meetings of the shareholders and the Board of Directors. He shall have the power and authority to promote and develop the business of the Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. Section 9. PRESIDENT. In the absence or disability of the Chairman of the Board and the Vice-Chairman of the Board, if there be such officers, the President shall be the Chief Executive Officer of the Corporation and shall perform all the duties of the Vice-Chairman of the Board, and when so acting shall have all the powers of, and be subject to, all the restrictions upon, the Vice-Chairman of the Board. In the absence of the Chairman of the Board and the Vice-Chairman of the Board, or if there be none, as the case may be, the President shall preside at all meetings of the shareholders and the Board of Directors. Subject to such powers, if any, as may be given by the Board of Directors to the Chairman and Vice-Chairman of the Board, if there be such officers, the President shall be the Chief Operating Officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control over the day-to-day operations of the Corporation. He shall have the general powers and duties of management usually vested in the office of President of the Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. Section 10. VICE-PRESIDENTS. In the absence or disability of the President, the Vice-Presidents, if there be any, in order of their rank as fixed by the Board of Directors or, if not ranked, the Vice-President designated by the Board of Directors, shall perform all the duties of -13- the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice-Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or these Bylaws. Section 11. SECRETARY. The Secretary shall record, or cause to be recorded, and shall keep or cause to be kept, at the Head Office of the Corporation and such other place or places as the Board of Directors may order, a book of minutes of actions taken at all meetings of Directors, committees and shareholders, with the time and place of holding, whether regular or special, and, if special, how authorized, the notice thereof given, the names of those present at Directors' and committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the Head Office or at the office of the Corporation's transfer agent, a share register, or a duplicate share register, showing the names of the shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall keep at the Head Office the original or a copy of these Bylaws as amended to date. The Secretary shall give, or cause to be given, notice of all the meetings of the shareholders and the Board of Directors required by these Bylaws or by law to be given, and he shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. Section 12. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, income, losses, changes in financial position, contributed capital and retained earnings. The Chief Financial Officer shall deposit or cause to be deposited all monies and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He shall disburse or cause to be disbursed the funds of the Corporation as may be ordered by the Board of Directors, shall render to the President and the Directors, whenever they request it, an account of all his transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws. Section 13. OFFICER SUCCESSION IN A STATE OF DISASTER. In the event that an Emergency Executive Committee has been established and the Vice-Chairman of the Board cannot be located or is unable to perform the duties specified in Section 8 of this Article IV, then the authority and duties of the Vice-Chairman of the Board shall be automatically vested in the highest ranking officer of the following offices in the order designated: -14- 1. President. 2. Executive Vice-President. 3. The remaining Vice-Presidents in the order of their seniority. Any such officer who assumes the authority and duties of the Vice-Chairman of the Board or President, or both of them, pursuant to this Section shall serve as the Acting Chief Executive Officer until he resigns or until the Chief Executive Officer or a high ranking officer listed above gives notice that such other officer shall assume or reassume such authorities and duties. ARTICLE V MISCELLANEOUS Section 1. RECORD DATE. The Board of Directors may fix a time in the future as a record date for the determination of the shareholders entitled to notice of and to vote at any meeting of shareholders, give consent to corporate action in writing without a meeting receive any report, receive any dividend or other distribution or any allotment of rights, or exercise rights in respect to any change, conversion or exchange of shares. The record date so fixed shall not be more than sixty (60) days nor less than ten (10) days prior to the date of any meeting, nor more than sixty (60) days prior to any other event for the purposes of which it is fixed. In the event the Board of Directors does not fix a record date, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the business day next preceding the day on which notice is given, or if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and the record date for determining shareholders for any other purpose shall be the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. Only shareholders of record on the record date are entitled to notice of and to vote at any such meeting give consent without a meeting, receive any report, receive a dividend, distribution or allotment of rights, or exercise the rights, as the case may be, notwithstanding any transfer of shares on the books of the Corporation after the record date, except as otherwise provided in the Articles of Incorporation or these Bylaws. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting. In the event such a meeting is adjourned for more than forty-five (45) days from the date set for the original meeting, the Board of Directors shall fix a new record date. Section 2. DIRECTOR INSPECTION OF CORPORATE RECORDS. Every Director shall have the absolute right at any reasonable time to inspect all books of account, records and documents of every kind and to inspect the physical properties of the Corporation and all of its subsidiaries, both domestic and foreign. Inspection by a Director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. -15- Section 3. SHAREHOLDER INSPECTION OF CORPORATE RECORDS. The accounting books and records and minutes of proceedings of the shareholders and the Board of Directors and committees of the Board of this Corporation and all of its subsidiaries shall be open to inspection upon the written demand on the Corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours for a purpose reasonably related to such holder's interest as a shareholder or as a holder of such voting trust certificate. Inspection by a shareholder or a holder of a voting trust certificate may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts. A shareholder or shareholders who hold at least five percent (5%) in the aggregate of the outstanding voting shares of the Corporation shall have the absolute right, exercisable in person or by agent or attorney, to (i) inspect and copy the record of shareholders' names and addresses and shareholders during usual business hours upon five (5) business days' prior written demand upon the Corporation; and (ii) obtain from the transfer agent for the Corporation, upon written demand and upon the tender of its usual charges, a list of the shareholders' names and addresses, who are entitled to vote for the election of Directors, and their shareholders, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five (5) business days after the demand is received or the date specified therein as the date as of which the list is to be compiled. Every shareholder shall have the absolute right to inspect at all reasonable times during office hours the original or a copy of these Bylaws, as amended to date, at the Corporation's Head Office. Section 4. ANNUAL AND FINANCIAL REPORTS. For so long as the Corporation has fewer than one hundred (100) shareholders of record of its shares, the mandatory requirement of an annual report is hereby expressly waived. The Board of Directors of the Corporation shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year of the Corporation, and at least fifteen (15) (if sent by third-class mail, thirty-five (35) days) prior to the annual meeting of the shareholders to be held during the next fiscal year. Such annual report shall contain a balance sheet as of the end of the fiscal year, and an income statement and statement of changes in financial condition for such fiscal year, accompanied by any report thereon of independent accountants, or in the event there is no such report, the certificate of the Chief Financial Officer or other officer authorized by the Board of Directors that such statements were prepared without audit from the books and records of the Corporation. A shareholder or shareholders holding in the aggregate at least five percent (5%) of the outstanding shares of any class of the Corporation may make a written request to the Corporation for an income statement of the Corporation for the three (3) month, six (6) month, or nine (9) month period of the current fiscal year ended not less than thirty (30) days prior to the date of the request and a balance sheet of the Corporation as of the end of such period, and in addition, if no annual report for the last fiscal year has been sent to shareholders, the annual report for the last fiscal year. The income statement, balance sheet, and if applicable the annual -16- report, shall be delivered to the person making the request within thirty (30) days thereafter. In addition, the Corporation shall, upon a written request of any shareholder, mail to the shareholder a copy of the last annual, semiannual or quarterly income statement which it has prepared and a balance sheet as of the end of the period. The annual report, quarterly income statements and the balance sheets and other financial statements referred to in this Section shall be accompanied by the report thereof, if any, of any independent accountants engaged by the Corporation, or the certificate of the Chief Financial Officer or any other officer authorized by the Board of Directors that such financial statements were prepared without audit from the books and records of the Corporation. A copy of such statements and reports shall be kept on file in the principal executive office of the Corporation for twelve (12) months and they shall be exhibited at all reasonable times to any shareholder demanding an examination of them or a copy shall be mailed to such shareholder. Section 5. SHARE CERTIFICATES. Every holder of shares in the Corporation shall be entitled to have a certificate signed in the name of the Corporation by the Chairman, Vice-Chairman, the President or any Vice-President and by the Chief Financial Officer or the Secretary or any assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any of the signatures on the certificate may be a facsimile, provided that in such event at least one signature, including that of any of the aforementioned officers or the Corporation's registrar or transfer agent, if any, shall be manually signed. In the event any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate, shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, the certificate may be issued by the Corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. There shall appear on certificates for shares of the Corporation the following facts if, and to the extent, applicable: (i) The shares are subject to restrictions upon transfer, including those imposed by federal or state law applicable to bank holding corporations, the federal securities laws, any agreement between the Corporation and the issuee thereof, the Articles of Incorporation, these Bylaws or otherwise; (ii) The shares are assessable; (iii) The shares are subject to restrictions upon voting rights contractually imposed by the Corporation; (iv) The shares are redeemable; (v) The shares are convertible and the period for conversion; and (vi) The shares are classified or a class of the shares has two (2) or more series, and a statement setting forth the officer or agency of the Corporation from which shareholders may obtain, upon request and without charge, a copy of a statement of the rights, -17- preferences, privileges and restrictions granted to or imposed upon each class or series of shares authorized to be issued and upon the holders thereof. No new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and cancelled at the same time; provided, however, that the Board of Directors or the President may authorize the issuance of a new share certificate in the place of any certificate theretofore issued by the Corporation and alleged to be lost, stolen or destroyed in the event that: (i) the request for the issuance of the new certificate is made within a reasonable time after the holder of the old certificate has notice of its loss, destruction or theft and prior to the receipt of notice by the Corporation that the old certificate has been acquired by a bona fide purchaser or holder in due course; and (ii) the holder of the old certificate files a sufficient indemnity bond with or provides other adequate indemnification to the Corporation and satisfies any other reasonable requirements imposed by the Board or the President. In the event of the issuance of a new certificate, the rights and liabilities of the Corporation and the holders of the old and new certificates shall be governed by the provisions of Sections 8l04 and 8405 of the California Commercial Code. Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of the Board, the Vice-Chairman of the Board, the President or any Vice-President, or the Chief Financial Officer, and the Secretary or any assistant secretary of this Corporation are authorized to vote, represent and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority herein granted to said officers to vote or represent on behalf of this Corporation any and all shares held by this Corporation in any other corporation or corporations may be exercised either by such officers in person or by any other person authorized to do so by proxy or power of attorney duly executed by any of said officers. Section 7. REGISTRARS AND TRANSFER AGENTS. The Board of Directors may appoint one or more registrars of transfers, which shall be incorporated banks or trust companies, either domestic or foreign, and one or more transfer agents or transfer clerks, who shall be appointed at such times and places as the Board of Directors shall determine. Section 8. CHECKS, DRAFTS AND OTHER INSTRUMENTS. All checks, drafts, or other orders for payment of money, notes or other evidences of indebtedness, issued in the name of or payable to the Corporation, shall be signed or endorsed by such person or persons and in such manner as from time to time shall be determined by resolution of the Board of Directors. Section 9. EXECUTION OF CONTRACTS AND INSTRUMENTS. The Board of Directors, except as these Bylaws may otherwise provide, may authorize one or more officers or agents of the Corporation to enter into any contract or execute any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. Any instrument may also be executed on behalf of and in the name of the Corporation by the Chairman of the Board, the Vice-Chairman of the Board, the President, or any Vice-President, and the Secretary or any assistant secretary, Chief Financial Officer or any assistant financial officer. -18- Section 10. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the California General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of the foregoing, the masculine gender includes the feminine and neuter, the singular number includes the plural and the plural number includes the singular, and the term "person" includes a corporation, partnership and trust, as well as a natural person. Section 11. INDEMNIFICATION BY CORPORATION. (a) This Corporation shall indemnify any director (including any director who is also an officer of this Corporation) who was or is a party or is threatened to be made a party to any proceeding by reason of the fact that such director is or was an agent of this corporation, against expenses, judgments, fines, settlements and other amounts incurred in connection with such proceeding to the fullest extent expressly permitted under Section 317 of the California corporations Code. Further, pursuant to provisions in this Corporation's Articles of Incorporation, and all amendments thereto, this Corporation may provide indemnification in excess of that expressly permitted by Section 317 for any agents (as defined in Section 317 of the California Corporations Code) of the Corporation for breach of duty to the corporation or its shareholders to the fullest extent permissible under California law, as such law exists from time to time. (b) Expenses incurred by any agent of this Corporation in defending any proceeding may be advanced by this Corporation prior to the final disposition of such proceeding upon receipt of an undertaking by or on behalf of the agent to repay such amount if it shall be determined ultimately that the agent is not entitled to be indemnified. (c) The Board of Directors nay authorize the purchase and maintenance of insurance on behalf of any agent of this Corporation against any liability asserted against or incurred by the agent in such capacity or arising out of the agent's status as such whether or not this Corporation would have the power to indemnify the agent against such liability under the provisions of California and federal law. Section 12. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Section 11 of this Article V is not paid in full by the corporation within ninety (90) days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the California General Corporation Law for the corporation to indemnify the claimant for the amount -19- claimed. Neither the failure of the corporation (including its board of directors, independent legal counsel, or it shareholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the California General Corporation Law, nor an actual determination by the corporation (including its board of directors, independent legal counsel, or its shareholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. Section 13. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and to the advancement of expenses to any employee or agent of the corporation to the fullest extent of the provisions of this Article with respect to the indemnification of and advancement of expenses to directors and officers of the corporation. Section 14. RIGHTS NOT EXCLUSIVE. The rights conferred on any person by this Article V above shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, Bylaw, agreement, vote of shareholders or disinterested directors or otherwise. Section 15. INDEMNITY AGREEMENTS. The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the corporation, or any person who is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, or any person who was a director, officer, employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this Article V. Section 16. INSURANCE. The corporation may purchase and maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation (including a predecessor corporation), partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the California General Corporation Law. Section 17. AMENDMENT, REPEAL OR MODIFICATION. Any amendment, repeal or modification of any provision of this Article V by the -20- shareholders or the Directors of the corporation shall not adversely affect any right or protection of a Director or officer of the corporation existing at the time of such amendment, repeal or modification. ARTICLE VI AMENDMENTS Section 1. POWER OF SHAREHOLDERS. New Bylaws may be adopted or these Bylaws may be amended or repealed by the affirmative vote of a majority of the shares entitled to vote, except as otherwise provided by law or the Articles of Incorporation. Section 2. POWER OF DIRECTORS. Subject to the right of shareholders as provided in Section 1 of this Article VI to adopt, amend or repeal Bylaws, the Board of Directors may adopt, amend or repeal these Bylaws; provided, however, that the Board of Directors may adopt a Bylaw or amendment thereof changing the authorized number of Directors only for the purpose of fixing the exact number of Directors within the limits specified in Section 2 of Article III of these Bylaws. -21- CERTIFICATE OF SECRETARY The undersigned does hereby certify that: 1. I am the Secretary of SCRIPPS FINANCIAL CORPORATION; and 2. The foregoing Bylaws constitute the Bylaws of the Corporation as duly adopted by the Board of Directors on this day. DATED: May 14, 1999 ----------------------------- /s/ M. Catherine Wright ------------------------------------- M. Catherine Wright Secretary -22- EX-4.1 4 EXHIBIT 4.1 EXHIBIT 4.1 NUMBER SHARES SCRIPPS FINANCIAL CORPORATION INCORPORATED UNDER THE LAWS SEE REVERSE FOR OF THE STATE OF CALIFORNIA CERTAIN DEFINITIONS CUSIP This Certifies that SPECIMEN is the record holder of FULLY PAID SHARES OF THE COMMON STOCK OF NO PAR VALUE OF SCRIPPS FINANCIAL CORPORATION CERTIFICATE OF STOCK hereinafter referred to as the Corporation, transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned by the Transfer Agent. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: SCRIPPS FINANCIAL CORPORATION INCORPORATED CALIFORNIA /s/ [ILLEGIBLE] President and Chief Executive Officer The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM --as tenants in common UNIF GIFT MIN ACT-- .............Custodian............. TEN ENT --as tenants by the entireties (Cust) (Minor) JT TEN --as joint tenants with right under Uniform Gifts to Minors of survivorship and not as Act................................ tenants in common (State) COM PROP--as community property UNIF TRF MIN ACT-- ........Custodian (until age........) (Cust) .............under Uniform Transfers (Minor) to Minors Act....................... (State)
Additional abbreviations may also be used though not in the above list. For Value Received, _________________________ hereby sell(s), assign(s) and transfer(s) unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ------------------------------------ - ------------------------------------ _______________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) _______________________________________________________________________________ _______________________________________________________________________________ _________________________________________________________________________shares of the stock represented by the within Certificate, and do hereby irrevocably constitute and appoint _______________________________________________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated________________________ __________________________________________ __________________________________________ NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. Signature(s) Guaranteed: ____________________________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION, (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-10.1 5 EXHIBIT 10.1 INDEMNIFICATION AGREEMENT THIS AGREEMENT, effective as of April 15, 1999, is between SCRIPPS FINANCIAL CORPORATION, a California corporation (the "Company"), and (the "Indemnitee"). - -------------- A. It is essential to the Company to attract and retain as directors and officers the most capable persons available; B. Indemnitee is a director or officer of the Company; C. Both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of public companies in today's environment; D. Basic protection against undue risk of personal liability of directors and officers heretofore has been provided through insurance coverage providing reasonable protection at reasonable cost, and Indemnitee has relied on the availability of such coverage, but as a result of substantial changes in the marketplace for such insurance it has become increasingly difficult to obtain such insurance on terms providing reasonable protection at reasonable cost; E. The Charter documents of the Company permit the Company to indemnify and advance expenses to its directors and officers to the full extent permitted by law and the Indemnitee has been serving and continues to serve as a director or officer of the Company in part in reliance on such Bylaws; F. In recognition of Indemnitee's need for substantial protection against personal liability in order to enhance Indemnitee's continued service to the Company in an effective manner, the increasing difficulty in obtaining satisfactory director and officer liability insurance coverage, and Indemnitee's reliance on the aforesaid Bylaws, and in part to provide Indemnitee with specific contractual assurance that the protection promised by such Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of such Bylaws or any change in the composition of the Company's Board of Directors), the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement, and, to the extent insurance is maintained, for the continued coverage of Indemnitee under the Company's directors' and officers' liability insurance policies; NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows: 1. CERTAIN DEFINITIONS. a. CHANGE IN CONTROL: shall be deemed to have occurred if (i) any "person" (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, becomes after the date hereof the 'beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing twenty percent or more of the total voting power represented by the Company's then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80 percent of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company's assets. b. CLAIM: any threatened, pending or completed action, suit or proceeding, or any inquiry or investigation, whether instituted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit or proceeding, whether civil, criminal, administrative, investigative or other. c. EXPENSES: include attorneys' fees and all other costs, expenses and obligations paid or incurred in connection with investigating, defending, being a witness in or participating in (including on appeal), or preparing to defend, be a witness in or participate in any Claim relating to any Indemnifiable Event. d. INDEMNIFIABLE EVENT: any event or occurrence related to the fact that Indemnitee is or was a director, officer, employee, agent or fiduciary of the Company, or is or was serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity. e. INDEPENDENT LEGAL COUNSEL: an attorney or firm of attorneys, selected in accordance with the provisions of Section 3, who shall not have otherwise performed services for the Company or Indemnitee within the last three years (other than with respect to matters concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements). f. REVIEWING PARTY: any appropriate person or body consisting of a member or members of the Company's Board of Directors or any other person or body appointed by the Board who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or Independent Legal Counsel. g. VOTING SECURITIES: any securities of the Company which vote generally in the election of directors. 2. BASIC INDEMNIFICATION ARRANGEMENT. a. In the event Indemnitee was, is or becomes a party to or witness or other participant in, or -2- is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by law as soon as practicable but in any event no later than thirty days after written demand is presented to the Company, against any and all Expenses, judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines, penalties or amounts paid in settlement) of such Claim. If so requested by Indemnitee, the Company shall advance (within two business days of such request) any and all Expenses to Indemnitee (an 'Expense Advance"). Notwithstanding anything in this Agreement to the contrary, prior to a Change in Control Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Claim initiated by Indemnitee unless the Board of Directors has authorized or consented to the initiation of such Claim. b. Notwithstanding the foregoing, (i) the obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written opinion, in any case in which the Independent Legal Counsel referred to in Section 3 hereof is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an Expense Advance pursuant to Section 2(a) shall be subject to the condition that, if, when and to the extent that the Reviewing Party determines that the Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control), the Reviewing Party shall be the Independent Legal Counsel referred to in Section 3 hereof. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the State of California having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual basis therefor, and the Company thereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee. 3. CHANGE IN CONTROL. The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by a majority of the Company's Board of Directors who were directors immediately prior to such Change in Control) then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or -3- Company Bylaw now or hereafter in effect relating to Claims for Indemnifiable Events, the Company shall seek legal advice only from Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the Independent Legal Counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys' fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto. 4. INDEMNIFICATION FOR ADDITIONAL EXPENSES. The Company shall indemnify Indemnitee against any and all expenses (including attorneys' fees) and, if requested by Indemnitee, shall (within two business days of such request) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or Company Bylaw now or hereafter in effect relating to Claims for Indemnifiable Events and/or (ii) recovery under any directors' and officers' liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. 5. PARTIAL INDEMNITY, ETC. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 6. BURDEN OF PROOF. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proof shall be on the Company to establish that Indemnitee is not so entitled. 7. NO PRESUMPTIONS. For purposes of this Agreement, the termination of any claim, action, suit or proceeding, by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contenders, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial determination that Indemnitee should be indemnified under applicable law shall be a defense to Indemnitee's claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief. 8. NONEXCLUSIVITY, ETC. The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company's Bylaws or the California Corporations -4- Code or otherwise. To the extent that a change in the California Corporations Code (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company's Bylaws, Articles of Incorporation, and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. 9. LIABILITY INSURANCE. To the extent the Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer. 10. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern. 11. AMENDMENTS, ETC. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. 12. SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. 13. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, Bylaw or otherwise) of the amounts otherwise Indemnifiable hereunder. 14. BINDING EFFECT, ETC. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, executors and personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer or director of the Company or of any other enterprise at the Company's request. 15. SEVERABILITY. The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable in any respect, and the validity and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired and shall remain enforceable to the fullest extent permitted by law. -5- 16. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws. -6- IN WITNESS WHEREOF, the parties hereto have executed this Agreement this day of April, 1999. --- SCRIPPS FINANCIAL CORPORATION By: ------------------------ Name: Title: --------------------------- (Indemnitee) -7- EX-10.2 6 EXHIBIT 10.2 Exhibit 10.2 SCRIPPS BANK 1995 STOCK OPTION PLAN 1. PURPOSE. The Scripps Bank 1995 Stock Option Plan (the "PLAN") is established to attract, retain and reward persons providing services to Scripps Bank and any successor corporation thereto (collectively referred to as the "BANK"), and any present or future parent and/or subsidiary corporations of such corporation (all of whom along with the Bank being individually referred to as a "PARTICIPATING BANK" and collectively referred to as the "PARTICIPATING BANK GROUP"), and to motivate such persons to contribute to the growth and profits of the Participating Bank Group in the future. For purposes of the Plan, a parent corporation and a subsidiary corporation shall be as defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended (the "CODE"). 2. ADMINISTRATION. (a) GENERAL. The Plan shall be administered by the Board of Directors of the Bank (the "BOARD") and/or by a duly appointed committee of the Board having such powers as shall be specified by the Board. Any subsequent references herein to the Board shall also mean the committee if such committee has been appointed and, unless the powers of the committee have been specifically limited, the committee shall have all of the powers of the Board granted herein, including, without limitation, the power to terminate or amend the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. All questions of interpretation of the Plan or of any options granted under the Plan (an "OPTION") shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan and/or any Option. (b) OPTIONS AUTHORIZED. Options may be either incentive stock options as defined in Section 422 of the Code ("INCENTIVE STOCK OPTIONS") or nonstatutory stock options. (c) AUTHORITY OF OFFICERS. Any officer of a Participating Bank shall have the authority to act on behalf of the Bank with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Bank herein, provided the officer has apparent authority with respect to such matter, right, obligation, or election. (d) DISINTERESTED ADMINISTRATION. With respect to the participation in the Plan of employees who are also officers or directors of the Bank subject to Section 16 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), the Plan shall be administered by the Board in compliance with the "disinterested administration" requirement of Rule 16b-3, as promulgated under the Exchange Act and amended from time to time or any successor rule or regulation ("RULE 16b-3"). 3. ELIGIBILITY. (a) ELIGIBLE PERSONS. Options may be granted only to directors and full-time salaried employees (including officers and directors who are also employees) of the Participating Bank Group. The Board shall, in its sole discretion, determine which persons shall be granted Options (an "OPTIONEE"). Eligible persons may be granted more than one (1) Option. (b) DIRECTORS SERVING ON COMMITTEE. If a committee of the Board has been established to administer the Plan in compliance with the "disinterested administration" requirement of Rule 16b-3, no member of such committee, while a member, shall be eligible to be granted an Option. (c) RESTRICTIONS ON OPTION GRANTS. A director of the Bank may be granted only a nonstatutory stock option unless the director is also an employee of the Bank. No Optionee may be granted options under this Plan which in the aggregate would exceed ten percent (10%) of the total number of outstanding shares of Common Stock of the Bank. 4. SHARES SUBJECT TO OPTION. Options shall be for the purchase of shares of the authorized but unissued common stock of the Bank (the "STOCK"), subject to adjustment as provided in paragraph 10 below. The maximum number of shares of Stock which may be issued under the Plan shall be one hundred thousand (100,000) shares. In the event that any outstanding Option for any reason expires or is terminated or canceled and/or shares of Stock subject to repurchase are repurchased by the Bank, the shares allocable to the unexercised portion of such Option, or such repurchased shares, may again be subject to an Option grant. 5. TIME FOR GRANTING OPTIONS. All Options shall be granted, if at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the shareholders of the Bank. 6. TERMS, CONDITIONS AND FORM OF OPTIONS. Subject to the provisions of the Plan, the Board shall determine for each Option (which need not be identical) the number of shares of Stock for which the Option shall be granted, the exercise price of the Option, the timing and terms of exercisability and vesting of the Option, the time of expiration of the option, the effect of Optionee's termination of employment or service, whether the Option is to be treated as an Incentive Stock Option or as a nonstatutory stock option, the method for satisfaction of any tax withholding obligation arising in connection with an Option, including by withholding or delivery of shares of stock, and all other terms and conditions of the Option not inconsistent with the Plan. Options granted pursuant to the Plan shall be evidenced by written agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish, which agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: (a) EXERCISE PRICE. The exercise price for each Option shall be established in the sole discretion of the Board; provided, however, that (i) the exercise price per share shall be not less than the fair market value, as determined by the Board, of a share of Stock on the date of the granting of the Option, and (ii) no Option granted to an Optionee who at the time the Option is granted owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Bank within the meaning of Section 422(b)(6) of the Code (a "TEN PERCENT OWNER OPTIONEE") shall have an exercise price per share less than one hundred ten percent (110%) of the fair market value, as determined by the Board, of a share of Stock on the date of the granting of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a nonstatutory stock option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying with the provisions of Section 424(a) of the Code. (b) EXERCISE PERIOD OF OPTIONS. The Board shall have the power to set, including by amendment of an Option, the time or times within which each Option shall be exercisable or the event or events upon the occurrence of which all or a portion of each Option shall be exercisable and the term of each Option; provided, however, that (i) no Option shall be exercisable after the expiration of ten (10) years after the date such Option is granted, and (ii) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after the expiration of five (5) years after the date such Option is granted. Subject to the foregoing, an Option shall terminate upon the termination of the Optionee's employment by the Participating Bank Group or service as a director thereof as follows: (i) if Optionee's service is terminated due to death or disability within the meaning of Section 422(c) of the Code, the Option shall terminate between six (6) and twelve (12) months after Optionee's service is terminated, with the exact period to be determined by the Board, (ii) if Optionee's service is terminated "for cause," as defined below, the Option shall terminate immediately upon termination of Optionee's service, and (iii) if Optionee's service is terminated other than due to death or disability or for cause, the Option shall terminate between 30 and 90 days after Optionee's service is terminated, with the exact period to be determined by the Board. Notwithstanding the foregoing, in the event an Optionee's exercise of the Option (i) is prevented by law or (ii) would result in Optionee being subject to a suit under Section 16(b) of the Exchange Act, the Option exercise date shall be extended for a period, as determined by the Board, which would reasonably allow the Optionee to exercise the Option. Termination "for cause" shall mean discharge for (i) conviction of a felony, (ii) any material act of fraud, dishonesty or malfeasance, or (iii) willful improper disclosure of confidential information regarding a Participating Company. (c) PAYMENT OF EXERCISE PRICE. (i) FORMS OF PAYMENT AUTHORIZED. Payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (1) in cash, by check, or cash equivalent, (2) by the assignment of the proceeds of a sale of some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System), or (3) by any combination thereof. The Board may at any time or from time to time grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price and/or which otherwise restrict one (1) or more forms of consideration. (ii) ASSIGNMENT OF PROCEEDS OF SALE. The Bank reserves, at any and all times, the right, in the Bank's sole and absolute discretion, to establish, decline to approve and/or terminate any program and/or procedures for the exercise of Options by means of an assignment of the proceeds of a sale of some or all of the shares of Stock to be acquired upon such exercise. 7. STANDARD FORMS OF STOCK OPTION AGREEMENT. (a) INCENTIVE STOCK OPTIONS. Unless otherwise provided for by the Board at the time an Option is granted, an Option designated as an "Incentive Stock Option" shall comply with and be subject to the terms and conditions set forth in the form of incentive stock option agreement attached hereto as EXHIBIT A and incorporated herein by reference. (b) NONSTATUTORY STOCK OPTIONS. Unless otherwise provided for by the Board at the time an Option is granted, an Option designated as a "Nonstatutory Stock Option" shall comply with and be subject to the terms and conditions set forth in the forms of nonstatutory stock option agreement attached hereto as EXHIBIT B and incorporated herein by reference. (c) STANDARD TERM FOR OPTIONS. Except as provided in paragraph 6(b) or otherwise provided for by the Board in the grant of an Option, any Option granted hereunder shall be exercisable for a term of ten (10) years. 8. AUTHORITY TO VARY TERMS. The Board shall have the authority from time to time to vary the terms of either of the standard forms of stock option agreement described in paragraph 7 above either in connection with the grant or amendment of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of such revised or amended standard form or forms of stock option agreement shall be in accordance with the terms of the Plan. 9. FAIR MARKET VALUE LIMITATION. To the extent that the aggregate fair market value (determined at the time the Option is granted) of stock with respect to which Incentive Stock Options are exercisable by an Optionee for the first time during any calendar year (under all stock option plans of the Participating Bank Group, including the Plan) exceeds one hundred thousand dollars ($100,000), such options shall be treated as nonstatutory stock options. This paragraph shall be applied by taking Incentive Stock Options into account in the order in which they were granted. 10. EFFECT OF CHANGE IN STOCK SUBJECT TO PLAN. Appropriate adjustments shall be made in the number and class of shares of Stock subject to the Plan and to any outstanding Options and in the exercise price of any outstanding Options in the event of a stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or like change in the capital structure of the Bank. In the event a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to a Transfer of Control (as defined below)) shares of another corporation (the "NEW SHARES"), the Bank may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares. In the event of any such amendment, the number of shares and the exercise price of the outstanding Options shall be adjusted in a fair and equitable manner. 11. TRANSFER OF CONTROL. A "TRANSFER OF CONTROL" shall be deemed to have occurred in the event any of the following occurs with respect to the Bank. (a) the direct or indirect sale or exchange by the shareholders of the Bank of all or substantially all of the stock of the Bank where the shareholders of the Bank before such sale or exchange do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the Bank after such sale or exchange; (b) a merger or consolidation where the shareholders of the Bank before such merger or consolidation do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the Bank after such merger or consolidation; (c) the sale, exchange, or transfer of all or substantially all of the assets of the Bank (other than a sale, exchange, or transfer to one (1) or more subsidiary corporations (as defined in paragraph 1 above) of the Bank); or (d) a liquidation or dissolution of the Bank. In the event of a Transfer of Control, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), shall either assume the Bank's rights and obligations under outstanding Options or substitute options for the Acquiring Corporation's stock for such outstanding Options. In the event that the Acquiring Corporation elects not to assume or substitute for any outstanding Option in connection with the Transfer of Control, any unexercisable and/or unvested portion of such outstanding Option shall be immediately exercisable and fully vested as of the date thirty (30) days prior to the Transfer of Control. The exercise and/or vesting of any Option that is permissible solely by reason of this paragraph 11 shall be conditioned upon the consummation of the Transfer of Control. Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control shall terminate and cease to be outstanding effective as of the date of the Transfer of Control. 12. PROVISION OF INFORMATION. Each Optionee shall be given access to information concerning the Bank equivalent to that information generally made available to the Bank's common shareholders. 13. OPTIONS NON-TRANSFERABLE. During the lifetime of the Optionee, the Option shall be exercisable only by the Optionee. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. 14. TERMINATION OR AMENDMENT OF PLAN OR OPTIONS. The Board, including any duly appointed committee of the Board, may terminate or amend the Plan or any Option at any time; provided, however, that without the approval of the Bank's shareholders and the California Superintendent of Banks, there shall be (a) no increase in the total number of shares of Stock covered by the Plan (except by operation of the provisions of paragraph 10 above), (b) no change in the class of persons eligible to receive Incentive Stock Options and (c) no expansion in the class of persons eligible to receive nonstatutory stock options. In addition to the foregoing, the approval of the Bank's shareholders shall be sought for any amendment to the Plan for which the Board deems shareholder approval necessary in order to comply with Rule 16b-3. In any event, no amendment may adversely affect any then outstanding Option or any unexercised portion thereof, without the consent of the Optionee, unless such amendment is required to enable an Option designated as an Incentive Stock Option to qualify as an Incentive Stock Option. IN WITNESS WHEREOF, the undersigned Secretary of the Bank certifies that the foregoing Scripps Bank 1995 Stock Option Plan was duly adopted by the Board of Directors of the Bank on the 18th day of January, 1995. /s/ Robert L. Grandell --------------------------- Secretary EXHIBIT A STANDARD FORM OF SCRIPPS BANK INCENTIVE STOCK OPTION AGREEMENT SCRIPPS BANK INCENTIVE STOCK OPTION AGREEMENT Scripps Bank granted to the individual named below an option to purchase certain shares of common stock of the Company in the manner and subject to the provisions of this Option Agreement. 1. DEFINITIONS: (a) "Optionee" shall mean _________________________. (b) "Date of Option Grant" shall mean __________________. (c) "Number of Option Shares" shall mean _____________________ shares of common stock of the Company as adjusted from time to time pursuant to paragraph 9 below. (d) "Exercise Price" shall mean $_____________ per share as adjusted from time to time pursuant to paragraph 9 below. (e) "Initial Exercise Date" shall be the Initial Vesting Date. (f) "Initial Vesting Date" shall be the date occurring one (1) year after (check one): _____ the Date of Option Grant. _____ _____________________ (specify other date). (g) Determination of "Vested Ratio":
Vested Ratio ------------ Prior to Initial Vesting Date 0 On Initial Vesting Date, 1/5 provided the Optionee is continuously employed by a Participating Company from the Date of Option Grant until the Initial Vesting Date Plus ---- For each full year 1/5 of the Optionee's continuous employment by a Participating Company from the Initial Vesting Date In no event shall the Vested Ratio exceed 1/1.
(h) "Option Term Date" shall mean the date ten (10) years after the Date of Option Grant. (i) "Code" shall mean the Internal Revenue Code of 1986, as amended. (j) "Company" shall mean Scripps Bank, a California corporation, and any successor corporation thereto. (k) "Participating Company" shall mean (i) the Company and (ii) any present or future parent and/or subsidiary corporation of the Company while such corporation is a parent or subsidiary of the Company. For purposes of this Option Agreement, a parent corporation and a subsidiary corporation shall be as defined in sections 424(e) and 424(f) of the Code, respectively. (l) "Participating Company Group" shall mean at any point in time all corporations collectively which are then a Participating Company. (m) "Plan" shall mean the Scripps Bank 1995 Stock Option Plan. 2. STATUS OF THE OPTION. This Option is intended to be an incentive stock option as described in section 422 of the Code, but the Company does not represent or warrant that this Option qualifies as such. The Optionee should consult with the Optionee's own tax advisors regarding the tax effects of this Option and the requirements necessary to obtain favorable income tax treatment under section 422 of the Code, including, but not limited to, holding period requirements. (NOTE: If the aggregate Exercise Price of the Option (that is, the Exercise Price multiplied by the Number of Option Shares) plus the aggregate exercise price of any other incentive stock options held by the Optionee (whether granted pursuant to the Plan or any other stock option plan of the Participating Company Group) is greater than $100,000, the Optionee should contact the Chief Financial Officer of the Company to ascertain whether the entire Option qualifies as an incentive stock option.) 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board of Directors of the Company (the "Board") and/or by a duly appointed committee of the Board having such powers as shall be specified by the Board. Any subsequent references herein to the Board shall also mean the committee if such committee has been appointed and, unless the powers of the committee have been specifically limited, the committee shall have all of the powers of the Board granted in the Plan, including, without limitation, the power to terminate or amend the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, or election. 4. EXERCISE OF THE OPTION. (a) RIGHT TO EXERCISE. Except as provided in paragraph 4(f) below, the Option shall first become exercisable on the Initial Exercise Date. The Option shall be exercisable on and after the Initial Exercise Date and prior to the termination of the Option in the amount equal to the Number of Option Shares multiplied by the Vested Ratio as set forth in paragraph 1 above less the number of shares previously acquired upon exercise of the Option. In no event shall the Option be exercisable for more shares than the Number of Option Shares. In addition to the foregoing, in the event that the adoption of the Plan or any amendment of the Plan is subject to the approval of the Company's shareholders in order for the Option to comply with the requirements of Rule 16b-3, promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Option shall not be exercisable prior to such shareholder approval if the Optionee is subject to Section 16(b) of the Exchange Act, unless the Board, in its sole discretion, approves the exercise of the Option prior to such shareholder approval. (b) METHOD OF EXERCISE. The Option may be exercised by written notice to the Company which must state the election to exercise the Option, the number of shares for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered in person, by certified or registered mail, return receipt requested, or by facsimile transmission to the Chief Financial Officer of the Company, or other authorized representative of the Participating Company Group, prior to the termination of the Option as set forth in paragraph 6 below, accompanied by full payment of the Exercise Price for the number of shares being purchased. (c) PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price for the number of shares for which the Option is being exercised shall be made (i) in cash, by check, or cash equivalent, (ii) by Immediate Sales Proceeds, as defined below, or (iii) by any combination of the foregoing. "Immediate Sales Proceeds" shall mean the assignment in form acceptable to the Company of the proceeds of a sale of some or all of the shares acquired upon the exercise of the Option pursuant to a program and/or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to decline to approve any such program and/or procedure. (d) TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes payroll withholding and otherwise agrees to make adequate provision for foreign, federal and state tax withholding obligations of the Company, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired on exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired on exercise of the Option. (e) CERTIFICATE REGISTRATION. The certificate or certificates for the shares as to which the Option shall be exercised shall be registered in the name of the Optionee, or, if applicable, the heirs of the Optionee. (f) RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of the shares upon exercise of the Option shall be subject to compliance with all applicable requirements of federal or state law with respect to such securities. The Option may not be exercised if the issuance of shares upon such exercise would constitute a violation of any applicable federal or state securities laws or other law or regulations. In addition, no Option may be exercised unless (i) a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should be directed to the Chief Financial Officer of the Company. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. (g) FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option. 5. NON-TRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent unexercised and exercisable by the Optionee on the date of death, may be exercised by the Optionee's legal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Term Date as defined above, (b) the last date for exercising the Option following termination of employment as described in paragraph 7 below, or (c) upon a Transfer of Control to the extent provided in paragraph 8 below. 7. TERMINATION OF EMPLOYMENT. (a) TERMINATION OF THE OPTION. Except as provided in this paragraph 7(a), the Option shall terminate and may not be exercised after the Optionee ceases to be an employee or director of the Participating Company Group. (i) DEATH OR DISABILITY. If the Optionee ceases to be an employee or director of the Participating Company Group by reason of the Optionee's death or disability within the meaning of section 422(c) of the Code, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee ceased to be an employee or director, may be exercised by the Optionee (or the Optionee's legal representative) at any time prior to the expiration of twelve (12) months from the date on which the Optionee's employment or service as a director terminated, but in any event no later than the Option Term Date. The Optionee's employment or service as a director shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee's termination of employment or service as a director. (ii) TERMINATION FOR CAUSE. If the Optionee ceases to be an employee or director of the Participating Company Group by reason of termination for cause, the Option shall terminate and cease to be exercisable on the effective date of such termination. "Termination for cause" shall mean discharge for (1) conviction of a felony, (2) any material act of fraud, dishonesty or other malfeasance, or (3) willful, improper disclosure of confidential information regarding a Participating Company. (iii) OTHER TERMINATION. If the Optionee ceases to be an employee or director of the Participating Company Group for any reason except death, disability within the meaning of section 422(c) of the Code or termination for cause, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee ceased to be an employee or director, may be exercised by the Optionee within ninety (90) days after the date on which the Optionee's employment or service as a director terminated, but in any event no later than the Option Term Date. (b) EMPLOYEE AND TERMINATION OF EMPLOYMENT DEFINED. For purposes of this paragraph 7, the term "employee" shall mean any person, including officers and directors, employed by a Participating Company whether as an employee or director. For purposes of this paragraph 7, the Optionee's employment shall be deemed to have terminated either upon an actual termination of employment or upon the Optionee's employer ceasing to be a Participating Company. The Optionee's employment shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee serves as an employee, provided that there is no interruption or termination of the Optionee's service as an employee. (THE OPTIONEE IS CAUTIONED THAT IF THE OPTION IS EXERCISED MORE THAN THREE (3) MONTHS AFTER THE DATE ON WHICH THE OPTIONEE'S EMPLOYMENT (OTHER THAN AS A DIRECTOR) IS TERMINATED, THE OPTION MAY CEASE TO BE AN INCENTIVE STOCK OPTION. THE OPTIONEE SHOULD CONSULT WITH THE OPTIONEE'S OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES OF ANY SUCH DELAYED EXERCISE.) (c) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth above is prevented by the provisions of paragraph 4(f) above, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Term Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisors as to the tax consequences to the Optionee of any such delayed exercise. (d) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth above would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of employment, or (iii) the Option Term Date. The Company makes no representation as to the tax consequences of any such delayed exercise. The Optionee should consult with the Optionee's own tax advisors as to the tax consequences to the Optionee of any such delayed exercise. (e) LEAVE OF ABSENCE. For purposes hereof, the Optionee's employment with the Participating Company Group shall not be deemed to terminate if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company of ninety (90) days or less. In the event of a leave in excess of ninety (90) days, the Optionee's employment shall be deemed to terminate on the ninety-first (91st) day of the leave unless the Optionee's right to reemployment with the Participating Company Group remains guaranteed by statute or contract. Notwithstanding the foregoing, however, a leave of absence shall be treated as employment for purposes of determining the Optionee's Vested Ratio if and only if the leave of absence is designated by the Company as (or required by law to be) a leave for which vesting credit is given. 8. OWNERSHIP CHANGE AND TRANSFER OF CONTROL. An "Ownership Change" shall be deemed to have occurred in the event any of the following occurs with respect to the Company: (a) the direct or indirect sale or exchange by the shareholders of the Company of all or substantially all of the stock of the Company; (b) a merger or consolidation in which the Company is a party; (c) the sale, exchange, or transfer of all or substantially all of the assets of the Company (other than a sale, exchange, or transfer to one (1) or more subsidiary corporations (as defined in paragraph 1(k) above) of the Company); or (d) a liquidation or dissolution of the Company. A "Transfer of Control" shall mean an Ownership Change described in (a) or (b) above in which the shareholders of the Company before such Ownership Change do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the Company after such transaction or in which the Company is not the surviving corporation or any Ownership Change described in (c) or (d) above. In the event of a Transfer of Control, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "Acquiring Corporation"), shall either assume the Company's rights and obligations under this Option Agreement or substitute an option for the Acquiring Corporation's stock for the Option. In the event the Acquiring Corporation elects not to assume the Company's rights and obligations under this Option Agreement or substitute for the Option in connection with the Transfer of Control, any unexercisable and/or unvested portion of the Option shall be immediately exercisable and vested as of the date thirty (30) days prior to the date of the Transfer of Control. The exercise and/or vesting of any portion of the Option that was permissible solely by reason of this paragraph 8 shall be conditioned upon the consummation of the Transfer of Control. The Option shall terminate and cease to be outstanding effective as of the date of the Transfer of Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control. 9. EFFECT OF CHANGE IN STOCK SUBJECT TO THE OPTION. Appropriate adjustments shall be made in the number, exercise price and class of shares of stock subject to the Option in the event of a stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or like change in the capital structure of the Company. In the event a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change) shares of another corporation (the "New Shares"), the Company may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the number of shares and the exercise price shall be adjusted in a fair and equitable manner. 10. RIGHTS AS A SHAREHOLDER OR EMPLOYEE. The Optionee shall have no rights as a shareholder with respect to any shares covered by the Option until the date of the issuance of a certificate or certificates for the shares for which the Option has been exercised. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such certificate or certificates are issued, except as provided in paragraph 9 above. Nothing in the Option shall confer upon the Optionee any right to continue in the employ of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Optionee's employment at any time. 11. NOTICE OF SALES UPON DISQUALIFYING DISPOSITION. The Optionee shall dispose of the shares acquired pursuant to the Option only in accordance with the provisions of this Option Agreement. In addition, the Optionee shall promptly notify the Chief Financial Officer of the Company if the Optionee disposes of any of the shares acquired pursuant to the Option within one (1) year from the date the Optionee exercises all or part of the Option or within two (2) years of the date of grant of the Option. Until such time as the Optionee disposes of such shares in a manner consistent with the provisions of this Option Agreement, the Optionee shall hold all shares acquired pursuant to the Option in the Optionee's name (and not in the name of any nominee) for the one-year period immediately after exercise of the Option and the two-year period immediately after grant of the Option. At any time during the one-year or two-year periods set forth above, the Company may place a legend or legends on any certificate or certificates representing shares acquired pursuant to the Option requesting the transfer agent for the Company's stock to notify the Company of any such transfers. The obligation of the Optionee to notify the Company of any such transfer shall continue notwithstanding that a legend has been placed on the certificate or certificates pursuant to the preceding sentence. 12. BINDING EFFECT. This Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 13. TERMINATION OR AMENDMENT. The Board, including any duly appointed committee of the Board, may terminate or amend the Plan and/or the Option at any time; provided, however, that no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee unless such amendment is required to enable the Option to qualify as an Incentive Stock Option. 14. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations, or warranties among the Optionee and the Company other than those as set forth or provided for herein. To the extent contemplated herein, the provisions of this Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. 15. APPLICABLE LAW. This Option Agreement shall be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within the State of California. SCRIPPS BANK By: Title: The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement and hereby accepts the Option subject to all of the terms and provisions thereof. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Option Agreement. Date: ------------------------------- ------------------------------- - ------------------------------- EXHIBIT B STANDARD FORM OF SCRIPPS BANK NONSTATUTORY STOCK OPTION AGREEMENT SCRIPPS BANK NONSTATUTORY STOCK OPTION AGREEMENT Scripps Bank granted to the individual named below an option to purchase certain shares of common stock of the Company, in the manner and subject to the provisions of this Option Agreement. 1. DEFINITIONS: (a) "Optionee" shall mean __________________________. (b) "Date of Option Grant" shall mean __________________________. (c) "Number of Option Shares" shall mean ____________ shares of common stock of the Company as adjusted from time to time pursuant to paragraph 9 below. (d) "Exercise Price" shall mean $___________ per share as adjusted from time to time pursuant to paragraph 9 below. (e) "Initial Exercise Date" shall be the Initial Vesting Date. (f) "Initial Vesting Date" shall be the date occurring one (1) year after (check one): _______ the Date of Option Grant. _______ _________________ (specify other date). (g) Determination of "Vested Ratio":
Vested Ratio ------------ Prior to Initial Vesting Date 0 On Initial Vesting Date, 1/5 provided the Optionee is continuously employed by a Participating Company from the Date of Option Grant until the Initial Vesting Date Plus ---- For each full year 1/5 of the Optionee's continuous employment by a Participating Company from the Initial Vesting Date In no event shall the Vested Ratio exceed 1/1.
(h) "Option Term Date" shall mean the date ten (10) years after the Date of Option Grant. (i) "Code" shall mean the Internal Revenue Code of 1986, as amended. (j) "Company" shall mean Scripps Bank, a California corporation, and any successor corporation thereto. (k) "Participating Company" shall mean (i) the Company and (ii) any present or future parent and/or subsidiary corporation of the Company while such corporation is a parent or subsidiary of the Company. For purposes of this Option Agreement, a parent corporation and a subsidiary corporation shall be as defined in sections 424(e) and 424(f) of the Code, respectively. (l) "Participating Company Group" shall mean at any point in time all corporations collectively which are then a Participating Company. (m) "Plan" shall mean the Scripps Bank 1995 Stock Option Plan. 2. STATUS OF THE OPTION. This Option is intended to be a nonstatutory stock option and shall not be treated as an incentive stock option as described in section 422(b) of the Code. 3. ADMINISTRATION. All questions of interpretation concerning this Option Agreement shall be determined by the Board of Directors of the Company (the "Board") and/or by a duly appointed committee of the Board having such powers as shall be specified by the Board. Any subsequent references herein to the Board shall also mean the committee if such committee has been appointed and, unless the powers of the committee have been specifically limited, the committee shall have all of the powers of the Board granted in the Plan, including, without limitation, the power to terminate or amend the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. All determinations by the Board shall be final and binding upon all persons having an interest in the Option. Any officer of a Participating Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, or election which is the responsibility of or which is allocated to the Company herein, provided the officer has apparent authority with respect to such matter, right, obligation, or election. 4. EXERCISE OF THE OPTION. (a) RIGHT TO EXERCISE. Except as provided in paragraph 4(f) below, the Option shall first become exercisable on the Initial Exercise Date. The Option shall be exercisable on and after the Initial Exercise Date and prior to the termination of the Option in the amount equal to the Number of Option Shares multiplied by the Vested Ratio as set forth in paragraph 1 above less the number of shares previously acquired upon exercise of the Option. In no event shall the Option be exercisable for more shares than the Number of Option Shares. In addition to the foregoing, in the event that the adoption of the Plan or any amendment of the Plan is subject to the approval of the Company's shareholders in order for the Option to comply with the requirements of Rule 16b-3, promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Option shall not be exercisable prior to such shareholder approval if the Optionee is subject to Section 16(b) of the Exchange Act, unless the Board, in its sole discretion, approves the exercise of the Option prior to such shareholder approval. (b) METHOD OF EXERCISE. The Option may be exercised by written notice to the Company which must state the election to exercise the Option, the number of shares for which the Option is being exercised and such other representations and agreements as to the Optionee's investment intent with respect to such shares as may be required pursuant to the provisions of this Option Agreement. The written notice must be signed by the Optionee and must be delivered in person, by certified or registered mail, return receipt requested, or by facsimile transmission to the Chief Financial Officer of the Company, or other authorized representative of the Participating Company Group, prior to the termination of the Option as set forth in paragraph 6 below, accompanied by full payment of the Exercise Price for the number of shares being purchased. (c) PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price for the number of shares for which the Option is being exercised shall be made (i) in cash, by check, or cash equivalent, (ii) by Immediate Sales Proceeds, as defined below, or (iii) by any combination of the foregoing. "Immediate Sales Proceeds" shall mean the assignment in form acceptable to the Company of the proceeds of a sale of some or all of the shares acquired upon the exercise of the Option pursuant to a program and/or procedure approved by the Company (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System). The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to decline to approve any such program and/or procedure. (d) TAX WITHHOLDING. At the time the Option is exercised, in whole or in part, or at any time thereafter as requested by the Company, the Optionee hereby authorizes payroll withholding and otherwise agrees to make adequate provision for foreign, federal and state tax withholding obligations of the Company, if any, which arise in connection with the Option, including, without limitation, obligations arising upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in whole or in part, of any shares acquired on exercise of the Option, (iii) the operation of any law or regulation providing for the imputation of interest, or (iv) the lapsing of any restriction with respect to any shares acquired on exercise of the Option. (e) CERTIFICATE REGISTRATION. The certificate or certificates for the shares as to which the Option shall be exercised shall be registered in the name of the Optionee, or, if applicable, the heirs of the Optionee. (f) RESTRICTIONS ON GRANT OF THE OPTION AND ISSUANCE OF SHARES. The grant of the Option and the issuance of the shares upon exercise of the Option shall be subject to compliance with all applicable requirements of federal or state law with respect to such securities. The Option may not be exercised if the issuance of shares upon such exercise would constitute a violation of any applicable federal or state securities laws or other law or regulations. In addition, no Option may be exercised unless (i) a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (ii) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISABLE UNLESS THE FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions concerning this restriction should be directed to the Chief Financial Officer of the Company. As a condition to the exercise of the Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. (g) FRACTIONAL SHARES. The Company shall not be required to issue fractional shares upon the exercise of the Option. 5. NON-TRANSFERABILITY OF THE OPTION. The Option may be exercised during the lifetime of the Optionee only by the Optionee and may not be assigned or transferred in any manner except by will or by the laws of descent and distribution. Following the death of the Optionee, the Option, to the extent unexercised and exercisable by the Optionee on the date of death, may be exercised by the Optionee's legal representative or by any person empowered to do so under the deceased Optionee's will or under the then applicable laws of descent and distribution. 6. TERMINATION OF THE OPTION. The Option shall terminate and may no longer be exercised on the first to occur of (a) the Option Term Date as defined above, (b) the last date for exercising the Option following termination of employment as described in paragraph 7 below, or (c) upon a Transfer of Control to the extent provided in paragraph 8 below. 7. TERMINATION OF EMPLOYMENT. (a) TERMINATION OF THE OPTION. Except as provided in this paragraph 7(a), the Option shall terminate and may not be exercised after the Optionee ceases to be an employee or director of the Participating Company Group. (i) DEATH OR DISABILITY. If the Optionee ceases to be an employee or director of the Participating Company Group by reason of the Optionee's death or disability within the meaning of section 422(c) of the Code, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee ceased to be an employee or director, may be exercised by the Optionee (or the Optionee's legal representative) at any time prior to the expiration of twelve (12) months from the date on which the Optionee's employment or service as a director terminated, but in any event no later than the Option Term Date. The Optionee's employment or service as a director shall be deemed to have terminated on account of death if the Optionee dies within three (3) months after the Optionee's termination of employment or service as a director. (ii) TERMINATION FOR CAUSE. If the Optionee ceases to be an employee or director of the Participating Company Group by reason of termination for cause, the Option shall terminate and cease to be exercisable on the effective date of such termination. "Termination for cause" shall mean discharge for (1) conviction of a felony, (2) any material act of fraud, dishonesty or other malfeasance, or (3) willful, improper disclosure of confidential information regarding a Participating Company. (iii) OTHER TERMINATION. If the Optionee ceases to be an employee or director of the Participating Company Group for any reason except death, disability within the meaning of section 422(c) of the Code or termination for cause, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee ceased to be an employee or director, may be exercised by the Optionee within ninety (90) days after the date on which the Optionee's employment or service as a director terminated, but in any event no later than the Option Term Date. (b) EMPLOYEE AND TERMINATION OF EMPLOYMENT DEFINED. For purposes of this paragraph 7, the term "employee" shall mean any person, including officers and directors, employed by a Participating Company whether as an employee or director. For purposes of this paragraph 7, the Optionee's employment shall be deemed to have terminated either upon an actual termination of employment or service, or upon the Optionee's employer ceasing to be a Participating Company. The Optionee's employment shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee serves as an employee, provided that there is no interruption or termination of the Optionee's service as an employee. (c) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth above is prevented by the provisions of paragraph 4(f) above, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Term Date. (d) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if the exercise of the Option within the applicable time periods set forth above would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of employment, or (iii) the Option Term Date. (e) LEAVE OF ABSENCE. For purposes hereof, the Optionee's employment with the Participating Company Group shall not be deemed to terminate if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company of ninety (90) days or less. In the event of a leave in excess of ninety (90) days, the Optionee's employment shall be deemed to terminate on the ninety-first (91st) day of the leave unless the Optionee's right to reemployment with the Participating Company Group remains guaranteed by statute or contract. Notwithstanding the foregoing, however, a leave of absence shall be treated as employment for purposes of determining the Optionee's Vested Ratio if and only if the leave of absence is designated by the Company as (or required by law to be) a leave for which vesting credit is given. 8. OWNERSHIP CHANGE AND TRANSFER OF CONTROL. An "Ownership Change" shall be deemed to have occurred in the event any of the following occurs with respect to the Company: (a) the direct or indirect sale or exchange by the shareholders of the Company of all or substantially all of the stock of the Company; (b) a merger or consolidation in which the Company is a party; (c) the sale, exchange, or transfer of all or substantially all of the assets of the Company (other than a sale, exchange, or transfer to one (1) or more subsidiary corporations (as defined in paragraph 1(k) above) of the Company); or (d) a liquidation or dissolution of the Company. A "Transfer of Control" shall mean an Ownership Change described in (a) or (b) above in which the shareholders of the Company before such Ownership Change do not retain, directly or indirectly, at least a majority of the beneficial interest in the voting stock of the Company after such transaction or in which the Company is not the surviving corporation or any Ownership Change described in (c) or (d) above. In the event of a Transfer of Control, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "Acquiring Corporation"), shall either assume the Company's rights and obligations under this Option Agreement or substitute an option for the Acquiring Corporation's stock for the Option. In the event the Acquiring Corporation elects not to assume the Company's rights and obligations under this Option Agreement or substitute for the Option in connection with the Transfer of Control, any unexercisable and/or unvested portion of the Option shall be immediately exercisable and vested as of the date thirty (30) days prior to the date of the Transfer of Control. The exercise and/or vesting of any portion of the Option that was permissible solely by reason of this paragraph 8 shall be conditioned upon the consummation of the Transfer of Control. The Option shall terminate and cease to be outstanding effective as of the date of the Transfer of Control to the extent that the Option is neither assumed or substituted for by the Acquiring Corporation in connection with the Transfer of Control nor exercised as of the date of the Transfer of Control. 9. EFFECT OF CHANGE IN STOCK SUBJECT TO THE OPTION. Appropriate adjustments shall be made in the number, exercise price and class of shares of stock subject to the Option in the event of a stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification, or like change in the capital structure of the Company. In the event a majority of the shares which are of the same class as the shares that are subject to the Option are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change) shares of another corporation (the "New Shares"), the Company may unilaterally amend the Option to provide that the Option is exercisable for New Shares. In the event of any such amendment, the number of shares and the exercise price shall be adjusted in a fair and equitable manner. 10. RIGHTS AS A SHAREHOLDER OR EMPLOYEE. The Optionee shall have no rights as a shareholder with respect to any shares covered by the Option until the date of the issuance of a certificate or certificates for the shares for which the Option has been exercised. No adjustment shall be made for dividends or distributions or other rights for which the record date is prior to the date such certificate or certificates are issued, except as provided in paragraph 9 above. Nothing in the Option shall confer upon the Optionee any right to continue in the employ of a Participating Company or interfere in any way with any right of the Participating Company Group to terminate the Optionee's employment at any time. 11. LEGENDS. The Company may at any time place legends referencing any applicable federal, state or foreign securities law restrictions on all certificates representing shares of stock subject to the provisions of this Option Agreement. The Optionee shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to the Option in the possession of the Optionee in order to carry out the provisions of this paragraph. 12. BINDING EFFECT. This Option Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns. 13. TERMINATION OR AMENDMENT. The Board, including any duly appointed committee of the Board, may terminate or amend the Plan and/or the Option at any time; provided, however, that no such termination or amendment may adversely affect the Option or any unexercised portion hereof without the consent of the Optionee. 14. INTEGRATED AGREEMENT. This Option Agreement constitutes the entire understanding and agreement of the Optionee and the Participating Company Group with respect to the subject matter contained herein, and there are no agreements, understandings, restrictions, representations, or warranties among the Optionee and the Company other than those as set forth or provided for herein. To the extent contemplated herein, the provisions of this Option Agreement shall survive any exercise of the Option and shall remain in full force and effect. 15. APPLICABLE LAW. This Option Agreement shall be governed by the laws of the State of California as such laws are applied to agreements between California residents entered into and to be performed entirely within the State of California. SCRIPPS BANK By: ------------------------------- Title: ------------------------------- ------------------------------- ------------------------------- The Optionee represents that the Optionee is familiar with the terms and provisions of this Option Agreement and hereby accepts the Option subject to all of the terms and provisions thereof. The Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Board upon any questions arising under this Option Agreement. Date: ------------------------------- ------------------------------- EX-10.3 7 EXHIBIT 10.3 SCRIPPS BANK 1992 STOCK OPTION PLAN A Stock Option Plan is hereby adopted for the benefit of officers, directors and key employees of Scripps Bank. 1. PURPOSE. The purpose of the Plan is to advance the growth and prosperity of the Bank and its shareholders by providing to officers, directors and key employees an incentive to serve the Bank. By encouraging and enabling such persons to become owners of capital stock of the Bank, the Bank seeks to attract and retain persons of training, experience and ability and to furnish additional incentives to those persons upon whose judgement, initiative and efforts the successful conduct of the Bank's business depends. It is the intention of the Bank that this objective will be accomplished through the granting of incentive stock options and nonqualified stock options to certain officers, directors and key employees of the Bank. 2. DEFINITIONS. As used herein, the following terms shall have the corresponding meanings. 2.1 "Committee" shall mean the Scripps Bank Stock Option Committee, to be appointed by the Board of Directors of the Bank. If no such Committee is appointed, the entire Board of Directors of the Bank shall be deemed to constitute the Committee. 2.2 "Bank" shall mean Scripps Bank and/or its parent or subsidiaries, if any, as the context requires. The terms "parent" and "subsidiary" shall mean any existing or future corporation which would be a parent or subsidiary corporation of the Bank, as those terms are defined in Section 424 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder (the "Code"). 2.3 "Date of Grant" shall mean the date of grant of a Stock Option granted hereunder as set forth in the Stock Option Agreement. In the event of a grant conditioned, among other things, upon shareholder ratification of this Plan, the date of such conditional grant shall be the Date of Grant for purposes of this Plan. 2.4 "Employee" shall mean any full-time employee of the Bank. 2.5 "Fair Market Value" shall mean the mean between the closing bid and asked price of a Share on the business day immediately preceding the day for which the determination of fair market value is being made. If Shares are not publicly traded on an active market of substantial depth on -1- the business day immediately preceding the day for which the determination is being made, Fair Market Value shall mean the fair market value of the Shares as determined by the Committee in good faith and with reference to the normal factors that would be considered by a willing buyer and by the Bank, neither being under a compulsion to buy nor to sell, with respect to an outright sale of the Shares by the Bank to such willing buyer as of the date for which the determination is being made, but without regard to any restriction other than a restriction which by its terms will never lapse. The factors which shall be considered in determining fair market value include the price at which securities of reasonably comparable banks are being traded, subject to appropriate adjustments for the dissimilarities between the banks compared and the earning history, book value and prospects of the Bank in light of market conditions generally. 2.6 "Holder" shall mean any person entitled to exercise a Stock Option pursuant to the terms of the Plan. 2.7 "Plan" shall mean the Scripps Bank 1992 Stock Option Plan, as herein adopted and as may be amended from time to time. 2.8 "Purchase Price" shall mean the price paid for Shares upon the exercise of a Stock Option granted hereunder. 2.9 "Shares" shall mean those shares of Common Stock of the Bank which are available for issuance pursuant to the terms of the Plan. 2.10 "Stock Option" shall mean a stock option giving a Holder the right to purchase Shares. A Stock Option may be an Incentive Stock Option or a Nonqualified Stock Option. An "Incentive Stock Option" is a Stock Option which is intended to qualify for tax treatment as an incentive stock option under Section 422 of the Code. An Incentive Stock Option may only be granted to an Employee. A "Nonqualified Stock Option" is a Stock Option which is intended not to qualify for tax treatment as an incentive stock option under Section 422 of the Code and may be issued to any officer, director or Employee of the Bank. 3. TERM AND EFFECTIVE DATE OF PLAN. The Plan shall be effective on the date of the approval of the Plan by the Board of Directors of the Bank, provided that the Plan is approved by the shareholders of the Bank within one year thereafter. No Stock Options shall be granted after ten (10) years from the effective date of the Plan. 4. SHARES OF STOCK SUBJECT TO THE PLAN. Subject to the adjustments set forth in the Plan, the shares which may be issued pursuant to the Plan shall not exceed in the aggregate 100,000 shares of the Bank's Common Stock, no par value. Such Shares shall be authorized and unissued shares. Any Shares -2- subject to a Stock Option granted under this Plan which for any reason expires or is terminated unexercised shall again be subject to and be available for issuance pursuant to the terms of this Plan. 5. ADMINISTRATION OF THE PLAN. Within the limitations described herein, the Committee shall administer the Plan, select the officers, directors and Employees to whom Stock Options shall be granted, determine the number of Shares to be optioned in each grant, determine all other terms of Stock Options granted hereunder and interpret, construe and implement the provisions of the Plan. The Committee, if appointed, shall consist of two (2) or more Directors, who shall serve at the pleasure of the Board of Directors of the Bank. Vacancies on the Committee shall be filled by the Board of Directors of the Bank. The Committee shall select one of its members as its Chair and shall hold its meetings at such times and places as it determines, or it may act by written consent or telephonic meeting. A majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present or acts reduced to and approved in writing by a majority of the members of the Committee shall be the valid acts of the Committee. All decisions and acts of the Committee shall be recorded in writing. Decisions of the Committee shall be binding on the Bank and on all Employees and Holders. To the extent necessary to secure the benefits of Rule 16b-3 (or any successor rule or regulation) of the Securities and Exchange Commission, the selection of any executive officer or director to be a recipient of any Stock Option and the number, type and terms of such Stock Option are subject to approval by a committee of two (2) or more disinterested directors. For purposes of this Plan, "disinterested" means a person, who, since the time of becoming a Committee Member and for twelve months prior thereto has not been granted or awarded discretionary stock awards (except as permitted in Rule 16b-3) pursuant to this Plan or any other plan of the Bank or any affiliate entitling participants therein to acquire stock appreciation rights, stock or stock options of the Bank or of any affiliate. Notwithstanding the above, the Committee, in its sole discretion, may delegate its powers hereunder to grant Stock Options to persons who are not subject to Section 16b of the Securities Exchange Act of 1934 to certain officers of the Bank. Any such delegation shall be in writing and shall clearly describe any limitations to which such delegation of authority is subject. 6. INDEMNIFICATION. In addition to such other rights of indemnification as they may have, members of the Board of Directors of the Bank, members of the Committee and any officers to whom authority to act for the Committee is delegated shall be indemnified by the Bank against all reasonable expenses, indemnified by the Bank against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in -3- connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Bank) or paid by them in satisfaction of a judgment in any such action, suit or proceeding. Indemnification shall not apply to matters as to which it shall be adjudged in the action, suit or proceeding that such person is liable for negligence or misconduct in duties. In addition, indemnification shall not be available unless within sixty (60) days after the institution of an action, suit or proceeding, such person shall offer to the Bank, in writing, the opportunity at its own expense to handle and defend the same. 7. STOCK OPTIONS. The granting of a Stock Option shall be evidenced by a stock option agreement ("Stock Option Agreement"), in such form and not inconsistent with this Plan, as the Committee shall approve from time to time and subject to State Banking Department approval. The terms of the Stock Option Agreements need not be identical for each grant. Each Stock Option Agreement shall contain in substance the following terms and conditions: 7.1 PRICE. The Stock Option Agreement shall specify the Purchase Price per Share. The Purchase Price per Share deliverable upon the exercise of a Stock Option shall not be less than the Fair Market Value of a Share on the Date of Grant of the Stock Option. In the case of a grant of an Incentive Stock Option to an Employee who, at the Date of Grant, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Bank, or of any parent or subsidiary corporation, the Purchase Price per Share deliverable upon the exercise of the Incentive Stock Option shall not be less than one hundred ten percent (110%) of the Fair Market Value of such Share on the Date of Grant of the Incentive Stock Option. 7.2 NUMBER OF SHARES. The Stock Option Agreement shall specify the number of Shares subject to the Stock Option. 7.3 EXERCISABILITY OF STOCK OPTION. A Stock Option may be exercisable, in part or in full, at any time and from time to time during an exercise period, and subject to such conditions and restrictions as determined by the Committee on a case by case basis for each Stock Option, and as set forth in the Stock Option Agreement. In no event shall the exercise period of any Incentive Stock Option granted hereunder exceed ten (10) years from its Date of Grant; provided, however, that in the case of a grant of an Incentive Stock Option to an Employee, who, at the Date of Grant, owns stock possessing more than ten percent (10%) of the total combined voting stock of the Bank, or of any parent or subsidiary corporation, such Incentive Stock Option -4- shall not be exercisable after the expiration of five (5) years from its Date of Grant. If the exercisability of any Stock Option is subject to a vesting schedule, the Committee may accelerate the times at which such Stock Option may be exercised. In the event that the aggregate Fair Market Value (determined as of the Date of Grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by an Employee during any calendar year (under all stock option plans of the Bank and its parent or subsidiary corporations) exceeds $100,000, the excess shall be treated as a Nonqualified Stock Option. In the event that more than one (1) Incentive Stock Option has been granted, the excess shall be deemed attributable to the latest granted Incentive Stock Option. If a Stock Option is treated in part as an Incentive Stock Option and in part as a Nonqualified Stock Option by reason of the limitation discussed herein, separate certificates shall be issued upon exercise of the Stock Option identifying the Shares attributable to each portion of the Stock Option. 7.4 EXERCISE OF STOCK OPTION AND TIME AND METHOD OF PAYMENT. Each Holder exercising a Stock Option shall notify the Secretary of the Bank (or such other officer as designated by the Committee) of the exercise thereof, in writing, and shall pay to the Bank, in cash or by cashier's check, at the time of delivery of such notice, the total Purchase Price for the number of Shares to be purchased under the Stock Option. Each Holder may pay, and the Bank shall accept, full or partial payment of the Purchase Price by delivery from the Holder of shares of Common Stock of the Bank previously acquired by the Holder. Such shares shall be valued at their Fair Market Value on the date of exercise of the Stock Option. If payment of the Purchase Price is made by delivery of previously acquired shares of Common Stock of the Bank, the certificate(s) representing such shares shall be duly executed in blank by the Holder or shall be accompanied by a stock power for the purpose of transferring such shares duly executed in blank by the Holder. Fractional shares of Common Stock of the Bank shall not be accepted in payment of the Purchase Price. The Bank shall issue and deliver to the Holder, as soon as practical after receipt of notice of exercise of the Stock Option together with payment of the applicable Purchase Price and compliance with all other terms and conditions of exercise as set forth in the Stock Option Agreement, a certificate or certificates in the name of, or for the account of, the Holder for the Shares covered by the exercised portion of the Stock Option. No fractional Shares will be issued in -5- connection with the exercise of any Stock Option granted hereunder. 7.5 TERMINATION OF STOCK OPTIONS. Any Stock Option not exercised within the exercise period set forth in the Stock Option Agreement under which the Stock Option is granted shall automatically terminate and be canceled. If the employment or engagement of a Holder terminates within the applicable exercise period specified in the Stock Option Agreement but prior to exercise of the Stock Option, the Stock Option will terminate at the time employment or engagement is terminated. Notwithstanding the preceding sentence, a Stock Option Agreement may permit a Holder to exercise the Stock Option after termination of employment or engagement for a specified period of time not to exceed the following with respect to Incentive Stock Options: three (3) months after the date of termination of employment if such termination is for reasons other than death or disability and twelve (12) months after the date of termination if such termination is due to death or disability. In each case of exercise after termination of employment or engagement, the Stock Option must be exercisable on the date of termination of employment or engagement and, unless expressly stated to the contrary in the Stock Option Agreement, vesting of the Stock Option shall cease on the date of such termination. In no event, shall the exercise of a Stock Option occur after the applicable exercise period specified in the Stock Option Agreement. With respect to an Incentive Stock Option, an Employee is disabled if unable to engage in any substantial gainful activity with the Bank by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than twelve (12) months. Disability shall be determined by a physician selected by the Committee. With respect to an Incentive Stock Option, employment shall be determined in accordance with the provisions of Section 1.421-7(h) of the Income Tax Regulations (or any successor regulation). If an Incentive Stock Option is assumed or if a new Incentive Stock Option is substituted for an Incentive Stock Option granted hereunder in a transaction to which Section 424 of the Code applies, employment by the corporation assuming the Incentive Stock Option or substituting a new Incentive Stock Option (or by a parent or subsidiary thereof) shall be considered to be employment with the Bank. With respect to a Nonqualified Stock Option, the Committee shall determine when a Holder incurs a termination of employment or engagement. 8. RECAPITALIZATION. In the event that dividends are payable in shares of Common Stock of the Bank or in the event that there are splits, subdivisions or combinations of shares of the Common Stock of the Bank, the number of Shares available under the Plan and under any unexercised but granted Stock Option, whether or not fully vested, shall be increased or decreased proportionately, as the case may be, without change in -6- the aggregate Purchase Price. In the event of a distribution of assets to shareholders of the Bank which significantly affects the Fair Market Value of Shares, the Purchase Price per Share shall be decreased to reflect the distribution of assets. No such decrease shall result in a modification of any outstanding Incentive Stock Option within the meaning of Section 424 of the Code unless the Holder consents to the modification. 9. REORGANIZATION. In the event that the Bank and/or its shareholders enter into an agreement to dispose of all or substantially all of the assets of the Bank or an amount of the outstanding stock of the Bank sufficient to constitute effective control of the Bank by means of a sale, merger, reorganization, separation, liquidation or any other transaction, the Committee may, in its discretion, accelerate the exercise date of any outstanding Stock Option. The Committee shall provide each Holder with at least ten (10) days' advance written notice prior to consummation of any such pending sale, merger, reorganization, separation, liquidation or other transaction to enable the Holder to exercise any then vested Stock Option prior to consummation of the transaction. Upon consummation of any sale, merger, reorganization, separation, liquidation or other transaction in which the Bank does not survive, all outstanding Stock Options, whether or not accelerated, shall terminate and cease to be exercisable unless assumed pursuant to a written agreement by the successor corporation or parent or subsidiary thereof. 10. INVESTMENT REPRESENTATIONS. The Committee may require a Holder to whom a Stock Option is granted, as a condition of receipt and/or exercise of the Stock Option, to give written assurances in substance and form satisfactory to the Committee to the effect that Holder is acquiring the Stock Option, Shares or other rights granted hereunder, as applicable, for Holder's own account and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Committee deems necessary or appropriate in order to comply with federal and applicable state securities laws. Appropriate legends may be placed on any Stock Option or Shares issued under the Plan evidencing such representations. 11. COMPLIANCE WITH SECURITIES LAWS. Each Stock Option shall be subject to the requirement that, if at any time the Committee, in its discretion, shall determine that the listing, registration or qualification of the Shares subject to such Stock Option upon any securities exchange or under any state or federal law, or the consent or approval of any government or regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Stock Option or the issue or purchase of Shares, such Stock Option may not be granted or exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. Nothing in the Plan or related Stock Option -7- Agreements shall be deemed to require the Bank to apply for or obtain such listing, registration or qualification. 12. RIGHTS AS A SHAREHOLDER. A Holder shall have no rights as a shareholder of the Bank with respect to any Shares covered by a Stock Option until said Holder tenders an effective and unconditional notice of exercise of the Stock Option to the Bank, complies with all other terms and conditions of exercise and pays the Purchase Price. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date is prior to the date on which the Holder tenders notice of exercise, complies with all other terms and conditions of exercise, and pays any applicable Purchase Price. The Committee shall use its best efforts to secure prompt issuance of stock certificates following full performance of exercise by any Holder. 13. NON-ASSIGNABILITY OF OPTIONS. No Incentive Stock Option shall be assignable or transferable by the Holder except by will or by the laws of descent and distribution. During the life of the Holder, an Incentive Stock Option shall be exercisable only by the Holder or by the duly appointed legal representative of an incompetent Holder. The transferability of a Nonqualified Stock Option or other award granted hereunder shall be set forth in the Stock Option Agreement or other Agreement evidencing the grant of the right. 14. WITHHOLDING TAXES. The Bank shall have the right to deduct from amounts otherwise due an Employee under a Stock Option or from any wages or other compensation to be paid to an Employee any sums required by federal, state and local tax law to be withheld with respect to the exercise of any Stock Option or with respect to the disposition of Shares issued hereunder or, in the alternative, to require the Employee to pay such sums to the Bank. The Bank may, in its discretion and upon request by the Employee, withhold from the Shares to be issued to Holder under this Plan a number of Shares (based on the Fair Market Value of the Shares on the date of exercise of the Stock Option) necessary to satisfy any tax withholding requirements. 15. AMENDMENT OF THE PLAN. The Plan may, at any time or from time to time, be terminated, modified or amended by the Committee, subject to State Banking Department approval; except that, without shareholder approval, the Committee may not increase the number of Shares which may be issued under the Plan (other than increases due to changes in capitalization), modify the requirements as to eligibility for participation in the Plan, or materially increase the benefits accruing to participants under the Plan, including, but not limited to, reducing the minimum purchase price of options or maximum term of options. The termination, modification or amendment of the Plan shall not, without the consent of a Holder, affect the Holder's rights under any previously granted Stock Option. With the consent of each -8- Holder affected, the Board may amend outstanding Stock Option Agreements in a manner not inconsistent with the Plan. 16. NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in this Plan or in any Stock Option shall confer upon any Holder any right with respect to continued employment or engagement with the Bank or interfere in any way with the right of the Bank, subject to the terms of any separate agreement with the Holder to the contrary, at any time to terminate such employment or engagement or to increase or decrease the compensation or other benefits paid to the Holder. 17. GOVERNING LAW. This Plan and any Stock Options or other rights issued hereunder shall be governed by and construed in accordance with the laws of the State of California. Approved by the Board of Directors on ----------------------------------. Approved by the Shareholders on ----------------------------------------. By: ----------------------- Its: ---------------------- -9- SCRIPPS BANK 1992 STOCK OPTION PLAN ----------------------------------- INCENTIVE STOCK OPTION AGREEMENT -------------------------------- THIS AGREEMENT, dated as of ________________, 19___, is entered into by and between Scripps Bank, a California state- chartered bank ("Bank"), and _____________________________________ ("Employee"). WITNESSETH ---------- WHEREAS, pursuant to the Scripps Bank 1992 Stock Option Plan ("Plan"), the Bank hereby grants to Employee, effective as of ____________, 19___ ("Date of Grant"), an incentive stock option ("Option") to purchase shares of common stock of the Bank ("Shares"), for the term and upon the terms and conditions set forth below: Number of Shares _________ Price per Share ("Price") $_________ Expiration Date ("Expiration Date") _________ (5PM-PST) NOW, THEREFORE, in consideration of the mutual promises and covenants made herein and the mutual benefits to be derived herefrom, the parties hereto agree as follows: 1. GRANT OF OPTION. The Bank hereby grants to Employee as a matter of separate inducement and agreement in connection with Employee's employment, and not in lieu of any salary or other compensation for services, the right and option to purchase, in accordance with the Plan and on the terms and conditions hereinafter set forth, all or any part of an aggregate of _______________ (______) authorized but unissued Shares at the Price, exercisable from time to time as set forth herein prior to the Expiration Date. The Price shall not be less than the Fair Market Value of a Share on the Date of Grant, determined without regard to any restriction other than a restriction which, by its terms, will never lapse. However, if Employee owns, at the Date of Grant, stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Bank or of its parent or subsidiary, the Price shall not be less than one hundred ten percent (110%) of the Fair Market Value of a Share on the Date of Grant, determined without regard to any restriction other than a restriction which, by its terms, will never lapse. Fair Market Value shall be determined by the Committee in accordance with the terms of the Plan. In the event dividends are payable in common stock of the Bank or in the event that there are splits, subdivisions, or combination of shares of common stock, the number of Shares subject to the Option shall be increased or decreased -1- proportionately, as the case may be, without change in the total Price of all Shares initially available under the Option. The Option granted hereunder is intended to be an incentive stock option as defined in Section 422 of the Internal Revenue Code ("Code"). Upon and as a condition to the grant of the Option, Employee shall, if married on the Date of Grant, furnish the Bank with a fully executed Consent of Spouse in the form attached hereto as Exhibit "A." 2. EXERCISABILITY OF OPTION. The Option shall become exercisable on the anniversaries of the Date of Grant to the extent of the percent of the total number of Shares represented by the Option, as follows: Anniversary Percent of Total Shares ----------- ----------------------- First 20% Second 40% Third 60% Fourth 80% Fifth 100% Provided, however, that if Employee owns, at the Date of Grant, stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Bank or of its parent or subsidiary, the Option shall become exercisable in full one (1) month prior to the fifth anniversary of the Date of Grant. To the extent that Employee does not exercise the Option with respect to all of the Shares to which Employee is entitled, Employee has the right cumulatively thereafter to exercise the Option with respect to the remaining exercisable Shares and such right shall continue until the Option terminates. The Option may be exercised only as to whole Shares. Fractional Share interests shall be disregarded except that they may be accumulated from year to year. Except as provided in Section 4 of this Agreement, the Option may not be exercised at any time unless Employee shall have been in the continuous employment of the Bank or any of its parent or subsidiary corporations from the Date of Grant to the date of exercise of the Option. Employment shall be defined in accordance with provisions of Section 1.421-7(h) of the Income Tax Regulations (or any successor regulation). If the Option is assumed or if a new incentive stock option is substituted for the Option in a transaction to which Section 424(a) of the Code applies, employment with the corporation assuming the Option or substituting a new incentive stock option for the Option (or by a parent of subsidiary thereof) shall be considered to be employment with the Bank. -2- This Agreement and the Option shall terminate on the Expiration Date unless terminated at an earlier date in accordance with the provisions hereof and of the Plan. 3. METHOD OF EXERCISE AND PAYMENT. Each exercise of the Option shall be by means of a written notice of exercise (substantially in the form attached hereto as Exhibit "B") delivered to the Secretary of the Bank (or other designated officer) and specifying the number of whole Shares with respect to which the Option is being exercised, together with tender to the Bank of the full Price attributable to the Shares to be purchased in cash or by a cashier's check. The Committee may, in its sole discretion, elect to permit Employee to exercise the Option by paying any part of the Price by issuing a fully recourse promissory note containing such terms and subject to such security as the Committee determines to be fair and reasonable; provided, however, that in no event shall the interest rate on any such promissory note tendered in full or partial payment of the Price be less than the lowest applicable federal rate, as defined in Section 1274(d) of the Code, in effect on the date of exercise of the Option (or such other rate established under the Code as necessary to avoid the imputation of interest on exercise of the Option). The Committee may, in its sole discretion, permit Employee to exercise the Option by paying any part of the Price by delivery to the Bank of shares of common stock of the Bank then owned by Employee having a Fair Market Value on the date of exercise of the Option equal to the total Price of the Shares being purchased (or such portion of the total Price that Employee intends to pay by delivery of previously acquired shares). If payment is made by delivery of previously acquired shares, the certificate(s) representing such Shares shall be duly executed in blank by Employee or shall be accompanied by a stock power, duly executed in blank, for the purpose of transferring such shares to the Bank. Fractional shares will not be accepted as payment of any portion of the Price. Fair Market Value shall be determined by the Committee in accordance with the terms of the Plan. The Committee may, in its sole discretion, permit the Holder to exercise the Option by delivery to the Bank of a written notice of exercise instructing the Committee to deliver the Shares to a designated broker for sale contingent upon immediate transfer to the Bank of cash proceeds equal to the Price. In the event that the Option is to be exercised by any person other than Employee, notice of exercise shall be accompanied by appropriate proof of the right of such person to exercise the Option. 4. TERMINATION OF OPTION. Any Option which has not been exercised by the Expiration Date shall automatically -3- terminate and be canceled. If the employment of Employee terminates for cause prior to the Expiration Date, the Option will terminate at the time employment is terminated. If Employee's termination of employment is without cause, Employee shall have three (3) months after the date of such termination to exercise the Option. If such termination is due to the disability of Employee, Employee or Employee's legal representative shall have twelve (12) months from the date of such termination of employment to exercise the Option. If termination is due to death, or if Employee dies within three (3) months after termination of employment and such termination was without cause, Employee's transferees by will or under the laws of descent and distribution shall have until the Expiration Date to exercise the Option. In no event shall the Option be exercised after the Expiration Date. In each case of exercise after termination of employment, the Option must be exercisable on the date of Employee's termination of employment and vesting of the Option shall cease as of the date of termination of employment. "Cause" shall be determined by the Committee and shall include, but not be limited to, willful misconduct in connection with the Employee's employment or willful failure to perform employment duties and responsibilities in the best interests of the Bank. Employee shall be deemed disabled if unable to engage in any substantial gainful activity with the Bank by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than twelve (12) months. Disability shall be determined by a physician selected by the Committee. Any Option not exercised prior to the disposition of all or substantially all of the assets of the Bank or an amount of the outstanding capital stock of the Bank sufficient to constitute effective control of the Bank by means of a sale, merger, reorganization, separation, liquidation, or any other transaction in which the Bank does not survive shall terminate and cease to be exercisable upon the consummation of such transaction unless the Option is expressly assumed in writing by the successor to the Bank or the successor's parent or subsidiary. The Committee shall provide Employee with at least ten (10) days' advance written notice prior to the consummation of any such pending sale, merger, reorganization, separation, liquidation or other transaction to enable Employee to exercise any then vested Options prior to consummation of the transaction. Any Option not exercised in a timely manner as set forth herein shall automatically terminate and be canceled. 5. RESTRICTIONS ON TRANSFER OF SHARES. Shares issued under the Option shall not be subject to any conditions or restrictions on transfer except as may be necessary to comply with applicable federal and state securities laws. -4- 6. NONASSIGNABILITY OF OPTION. Except as provided below, the Option and the rights and privileges conferred hereby are not transferrable or assignable, and shall not be pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment, garnishment, levy or similar process. The Option may be exercised during the lifetime of Employee only by Employee (or Employee's duly appointed legal representative if Employee becomes incompetent) or, in the event of Employee's death, Employee's transferees by will or under the laws of descent and distribution and not otherwise, regardless of any community property or other interest therein of the spouse of Employee or such spouse's successor-in-interest. In the event that the spouse of Employee acquires a community property interest in the Option, Employee, or Employee's transferees, may exercise the Option on behalf of the spouse of Employee or such spouse's successor-in-interest. Any person other than Employee who is entitled to exercise the Option shall be subject to the provisions of this Agreement as if such person were the Employee. 7. EMPLOYEE NOT A SHAREHOLDER. Employee shall have no rights as a shareholder of the Bank with respect to the Shares covered by the Option until Employee tenders to the Bank notice of exercise of the Option, pays to the Bank the Price and complies with all other terms and conditions of exercise as set forth in this Agreement. No adjustment will be made for dividends or other rights for which the record date is prior to the date on which such notice of exercise was delivered, the Price tendered and Employee complied with all other terms and conditions of exercise as set forth in this Agreement. 8. NOTICES. Any notice to be given under the terms hereof shall be hand delivered to the Secretary of the Bank (or such other officer as designated by the Committee) or sent by certified mail, return receipt requested, to Scripps Bank, 7817 Ivanhoe Avenue, La Jolla, California 92037, and any notice to be given to the Employee shall be addressed to the Employee at the address given beneath the Employee's signature hereto, or at such other address as a party may hereafter designate in writing to the other party. Notice shall have been deemed duly given when enclosed in a properly sealed envelope, addressed as aforesaid, certified mail, and deposited (postage prepaid) in a post office or branch post office regularly maintained by the United States Government or, if notice is not given through the mail, when such notice is actually received by the person to whom notice is being given. 9. APPLICATION OF SECURITIES LAWS. No Shares may be acquired pursuant to exercise of the Option unless and until any then applicable federal and state securities law and banking law requirements, requirements of any other regulatory agency having jurisdiction over the Shares, and requirements of any exchanges upon which the Shares may be listed shall have been fully complied with. At the time of exercise of the Option, Employee -5- agrees to furnish the Bank with such written representations as the Committee deems necessary or appropriate in order to comply with applicable federal and state securities laws. Appropriate legends shall be placed on Shares issued under this Option to reflect any restrictions imposed by federal or state securities laws. 10. PLAN. The Option contained in this Agreement is granted pursuant to the Scripps Bank 1992 Stock Option Plan. The terms of the Plan are hereby incorporated into this Agreement. 11. TAX WITHHOLDING. The Bank shall have the right to deduct from Employee's regular wages any sums required by federal, state or local tax law to be withheld with respect to the exercise of the Option or disposition of Shares acquired hereunder, or, in the alternative, to require Employee to pay such sums to the Bank. 12. CONTINUANCE OF EMPLOYMENT. Nothing contained in this Agreement or in the Plan shall confer upon Employee any right with respect to continued employment by the Bank or its parent or subsidiary corporations, if any, or interfere in any way with the right of the Bank (or other entity) at any time to terminate such employment or to increase or decrease the compensation received by Employee, but nothing contained herein shall affect any otherwise existing contractual rights of Employee. 13. LAWS APPLICABLE TO CONSTRUCTION. The interpretation, performance and enforcement of the Option and this Agreement shall be governed by the laws of the State of California. 14. ACKNOWLEDGMENT. It is intended that the Option be an "incentive stock option," as that term is defined in Section 422(b) of the Code, and that other conditions may be imposed in order for the Option to so qualify and to continue to so qualify. Notwithstanding the foregoing, Employee agrees and acknowledges that neither the Bank nor anyone acting on its behalf in connection with the administration of the plan shall be liable to Employee or any successor-in-interest of Employee for any loss or damage suffered as a result of the Option failing to be an incentive stock option under the Code. Employee further agrees and acknowledges that in the event that the aggregate Fair Market Value (determined as of the Date of Grant) of stock with respect to which incentive stock options are exercisable for the first time by Employee during any calendar year (under all plans of the Bank and its parent or subsidiary corporations) exceeds $100,000, the portion of the latest granted incentive stock option(s) equal to such excess shall be treated as a nonqualified stock option rather than an incentive stock option. In addition, Employee acknowledges that the disposition of Shares purchased pursuant to the Option occurring within (i) two years from the Date of Grant or (ii) one year from the date of exercise of the Option will -6- result in any gain recognized on the disposition being rated as taxable compensation income in the year of the disposition. Employee further acknowledges that the difference between the aggregate Price and the Fair Market Value of the Shares on the date of exercise of the Option is an item of tax preference for purposes of the alternate minimum tax. 15. NOTICE OF DISPOSITION; PROOF OF CONTINUED OWNERSHIP. Employee agrees to notify the Bank of any disposition of Shares acquired pursuant to the Option occurring within (i) two years from the Date of Grant or (ii) one year from date of exercise of the Option. In addition, Employee agrees to provide such proof of continued ownership of Shares as the Bank may reasonably require to assess properly any tax deductions associated with the disposition of Shares acquired through exercise of the Option. IN WITNESS WHEREOF, Bank and Employee execute this Agreement as of the day and year first above written. SCRIPPS BANK By ______________________________ ______________________________ Title: ___________________ Employee ______________________________ Address ______________________________ City State Zip Code -7- Exhibit "A" CONSENT OF SPOUSE In consideration of the execution of the foregoing Incentive Stock Option Agreement by Scripps Bank, I, the spouse of Employee therein named, do hereby join with my spouse in executing the foregoing Incentive Stock Option Agreement and do hereby agree to be bound by all of the terms and provisions thereof, including Section 6 thereof. Date ________________________ _________________________ (Signature of Spouse) _________________________ (Name of Spouse) -8- SCRIPPS BANK 1992 STOCK OPTION PLAN ---------------------------------- NONQUALIFIED STOCK OPTION AGREEMENT ----------------------------------- THIS AGREEMENT, dated as of __________, 19__, is entered into by and between Scripps Bank, a California state-chartered bank ("Bank"), and __________________________________ ("Holder"). WITNESSETH ---------- WHEREAS, pursuant to the Scripps Bank 1992 Stock Option Plan ("Plan"), the Bank hereby grants to the Holder, effective as of __________, 19__ ("Date of Grant"), a nonqualified stock option ("Option") to purchase shares of common stock of the Bank ("Shares"), for the term and upon the terms and conditions set forth below: Number of Shares __________ Price per Share ("Price") $__________ Expiration Date ("Expiration Date") __________ (5PM-PST) NOW, THEREFORE, in consideration of the mutual promises and covenants made herein and the mutual benefits to be derived herefrom, the parties hereto agree as follows: 1. GRANT OF OPTION. The Bank hereby grants to Holder as a matter of separate inducement and agreement in connection with Holder's employment or engagement, and not in lieu of any salary or other compensation for services, the right and option to purchase, in accordance with the Plan and on the terms and conditions hereinafter set forth, all or any part of an aggregate of ____________ (_____) authorized but unissued Shares at the Price, exercisable from time to time as set forth herein prior to the Expiration Date. The Price shall not be less than the Fair Market Value of a Share on the Date of Grant. Fair Market Value shall be determined by the Committee in accordance with the terms of the Plan. In the event dividends are payable in common stock of the Bank, or in the event that there are splits, subdivisions, or combination of shares of common stock, the number of Shares subject to this Option shall be increased or decreased proportionately, as the case may be, without change in the total Price of all Shares initially available under the Option. The Option granted hereunder is intended not to be an incentive stock option as defined in Section 422 of the Internal Revenue Code ("Code"). Upon, and as a condition to, the grant of the Option, Holder shall, if married on the Date of Grant, furnish the Bank with a fully executed Consent of Spouse in the form attached hereto as Exhibit "A." -1- 2. EXERCISABILITY OF OPTION. The Option shall become exercisable on the anniversaries of the Date of Grant to the extent of the percent of the total number of Shares represented by the Option, as follows:
Anniversary Percent of Total Shares ----------- ----------------------- First 20% Second 40% Third 60% Fourth 80% Fifth 100%
To the extent that Holder does not exercise the Option with respect to all of the Shares to which Holder is entitled, Holder has the right cumulatively thereafter to exercise the Option with respect to the remaining exercisable Shares and such right shall continue until the Option terminates. The Option may be exercised only as to whole Shares. Fractional Share interests shall be disregarded except that they may be accumulated from year to year. This Agreement and the Option shall terminate on the Expiration Date unless terminated at an earlier date in accordance with the provisions hereof and of the Plan. 3. METHOD OF EXERCISE AND PAYMENT. Each exercise of the Option shall be by means of a written notice of exercise (substantially in the form attached hereto as Exhibit "B") delivered to the Secretary of the Bank (or other designated officer) and specifying the number of whole Shares with respect to which the Option is being exercised, together with tender to the Bank of the full Price attributable to the Shares to be purchased in cash or by a cashier's check. Holder may exercise the Option by paying any part of the Price by delivery to the Bank of shares of common stock of the Bank then owned by Holder having a Fair Market Value on the date of exercise of the Option equal to the total Price of the Shares being purchased (or such portion of the total Price that Holder intends to pay by delivery of previously acquired shares). If payment is made by delivery of previously acquired shares, the certificate(s) representing such Shares shall be duly executed in blank by Holder or shall be accompanied by a stock power, duly executed in blank, for the purpose of transferring such shares to the Bank. Fractional shares will not be accepted as payment of any portion of the Price. Fair Market Value shall be determined by the Committee in accordance with the terms of the Plan. -2- In the event that the Option is to be exercised by any person other than Holder, notice of exercise shall be accompanied by appropriate proof of the right of such person to exercise the Option. 4. TERMINATION OF OPTION. Any Option which has not been exercised by the Expiration Date shall automatically terminate and be canceled. If the employment or engagement of Holder terminates for cause prior to the Expiration Date, the Option will terminate at the time employment or engagement is terminated. If Holder's termination of employment or engagement is without cause, Holder shall have three (3) months after the date of such termination to exercise the Option. If such termination is due to the death or disability of Holder, Holder or Holder's legal representative shall have twelve (12) months from the date of such termination to exercise the Option. In no event shall the Option be exercised after termination of employment or engagement. In each case of exercise after termination of employment or engagement, the Option must be exercisable on the date of Holder's termination of employment or engagement and vesting of the Option shall cease as of the date of termination of employment or engagement. The Committee shall determine when Holder incurs a termination of employment or engagement. "Cause" shall be determined by the Committee and shall include, but not be limited to, willful misconduct in connection with Holder's employment or engagement or willful failure to perform employment or engagement duties and responsibilities in the best interests of the Bank. The Committee shall determine whether a Holder's termination of employment or engagement is due to disability. Any Option not exercised prior to the disposition of all or substantially all of the assets of the Bank or an amount of the outstanding capital stock of the Bank sufficient to constitute effective control of the Bank by means of a sale, merger, reorganization, separation, liquidation, or any other transaction in which the Bank does not survive, shall terminate and cease to be exercisable upon the consummation of such transaction unless the Option is expressly assumed in writing by the successor to the Bank or the successor's parent or subsidiary. The Committee shall provide Holder with at least ten (10) days' advance written notice prior to consummation of any such pending sale, merger, reorganization, separation, liquidation or other transaction to enable Holder to exercise any then vested Options prior to consummation of the transaction. Any Option not exercised in a timely manner as set forth herein shall automatically terminate and be canceled. 5. RESTRICTIONS ON TRANSFER OF SHARES. Shares issued under the Option shall not be subject to any conditions or restrictions on transfer except as may be necessary to comply with applicable federal and state securities laws. -3- 6. NONASSIGNABILITY OF OPTION. Except as provided below, the Option and the rights and privileges conferred hereby are not transferable or assignable, and shall not be pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment, garnishment, levy or similar process. The Option may be exercised during the lifetime of Holder only by Holder (or Holder's duly appointed legal representative if Holder becomes incompetent) or, in the event of Holder's death by Holder's transferees by will or under the laws of descent and distribution and not otherwise, regardless of any community property or other interest therein of the spouse of Holder or such spouse's successor-in-interest. In the event that Holder's spouse acquires a community property interest in the Option, Holder, or Holder's transferees, may exercise it on behalf of the spouse or such spouse's successor-in-interest. Any person other than Holder who is entitled to exercise the Option shall be subject to the provisions of this Agreement as if such person were Holder. 7. HOLDER NOT A SHAREHOLDER. Holder shall have no rights as a shareholder of the Bank with respect to the Shares covered by the Option until Holder tenders to the Bank notice of exercise of the Option, pays to the Bank the Price and complies with all other terms and conditions of exercise as set forth in this Agreement. No adjustment will be made for dividends or other rights for which the record date is prior to the date on which such notice of exercise was delivered, the Price tendered and Holder complied with all other terms and conditions of exercise as set forth in this Agreement. 8. NOTICES. Any notice to be given under the terms hereof shall be hand delivered to the Secretary of the Bank (or such other officer as designated by the Committee) or sent by certified mail, return receipt requested, to Scripps Bank, 7817 Ivanhoe Avenue, La Jolla, California 92037, and any notice to be given to Holder shall be addressed to Holder at the address given beneath Holder's signature hereto, or at such other address as a party may hereafter designate in writing to the other party. Notice shall have been deemed duly given when enclosed in a properly sealed envelope, addressed as aforesaid, certified mail, and deposited (postage prepaid) in a post office or branch post office regularly maintained by the United States Government or, if notice is not given through the mail, when such notice is actually received by the person to whom notice is being given. 9. APPLICATION OF SECURITIES LAWS. No shares may be acquired pursuant to exercise of the Option unless and until any then applicable federal and state securities law and banking law requirements, requirements of any other regulatory agency having jurisdiction over the Shares, and requirements of any exchanges upon which the Shares may be listed shall have been fully complied with. At the time of exercise of the Option, Holder agrees to furnish the Bank with such written representation as the Committee deems necessary or appropriate in -4- order to comply with applicable federal and state securities laws. Appropriate legends shall be placed on Shares issued under this Option to reflect any restrictions imposed by federal or state securities laws. 10. PLAN. The Option contained in this Agreement is granted pursuant to the Scripps Bank 1992 Stock Option Plan. The terms of the Plan are hereby incorporated into this Agreement. 11. TAX WITHHOLDING. The Bank shall have the right to deduct from any amounts payable to Holder any sums required by federal, state or local tax law to be withheld with respect to the exercise of the Option or disposition of Shares acquired pursuant to exercise of the Option, or, in the alternative, to require Holder to pay such sums to the Bank. Upon request by Holder and subject to approval of the Committee, the Bank may withhold from the Shares to be issued to Holder hereunder a number of Shares (based on the Fair Market Value of the Shares on the date of exercise of the Option) necessary to satisfy any tax withholding requirements. 12. CONTINUANCE OF ENGAGEMENT. Nothing contained in this Agreement or in the Plan shall confer upon Holder any right with respect to continued employment or engagement by the Bank or its parent or subsidiary corporation, if any, or interfere in any way with the right of the Bank (or other entity) at any time to terminate such employment or engagement or to increase or decrease the compensation received by Holder, but nothing contained herein shall affect any otherwise existing contractual rights of Holder. -5- 13. LAWS APPLICABLE TO CONSTRUCTION. The interpretation, performance and enforcement of the Option and this Agreement shall be governed by the laws of the State of California. IN WITNESS WHEREOF, the Bank and Holder execute this Agreement as of the day and year first above written. SCRIPPS BANK By: ________________________ Title: _________________ __________________________________ Holder __________________________________ Address __________________________________ City State Zip Code -6- Exhibit "A" CONSENT OF SPOUSE In consideration of the execution of the foregoing Nonqualified Stock Option Agreement by Scripps Bank, I, the spouse of Holder therein named, do hereby join with my spouse in executing the foregoing Nonqualified Stock Option Agreement and do hereby agree to be bound by all of the terms and provisions thereof, including Section 6 thereof. Date __________________________ _______________________ (Signature of Spouse) _______________________ (Name of Spouse) -7- EX-10.4 8 EXHIBIT 10.4 SCRIPPS BANK 1998 OUTSIDE DIRECTORS STOCK OPTION PLAN 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. 1.1 ESTABLISHMENT. The Scripps Bank 1998 Outside Directors Stock Option Plan (the "PLAN") is hereby established effective as of July 28, 1998 (the "EFFECTIVE DATE"). 1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Participating Company Group (as defined below) and its shareholders by providing an incentive to attract and retain highly qualified persons to serve as Outside Directors (as defined below) of the Bank (as defined below) and by creating additional incentive for Outside Directors to promote the growth and profitability of the Participating Company Group. 1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board (as defined below) or the date on which all of the shares of Stock (as defined below) available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options (as defined below) granted under the Plan have lapsed. 2. DEFINITIONS AND CONSTRUCTION. 2.1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "BANK" means Scripps Bank, a California banking corporation, or any successor corporation thereto. (b) "BOARD" means the Board of Directors of the Bank. If one or more Committees have been appointed by the Board to administer the Plan, "Board" also means such Committee(s). (c) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (d) "COMMITTEE" means a committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (e) "CONSULTANT" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director. 1 (f) "DIRECTOR" means a member of the Board or the board of directors of any other Participating Company. (g) "EMPLOYEE" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan. (h) "FAIR MARKET VALUE" means, as of any date, the value of a share of Stock or other property as determined by the Board, in its sole discretion, or by the Bank, in its sole discretion, if such determination is expressly allocated to the Bank herein, subject to the following: (i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share of Stock shall be the closing sale price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq Stock Market, the over-the-counter market or such national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the WALL STREET JOURNAL or such other source as the Bank deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion. (ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse. (i) "OPTION" means a right to purchase Stock (subject to adjustment as provided in Section 4.2) pursuant to the terms and conditions of the Plan. (j) "OPTIONEE" means a person who has been granted one or more Options. (k) "OPTION AGREEMENT" means a written agreement between the Bank and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee. (l) "OUTSIDE DIRECTOR" means a Director of the Bank who is not an Employee. (m) "PARENT CORPORATION" means any present or future "parent corporation" of the Bank, as defined in Section 424(e) of the Code. (n) "PARTICIPATING COMPANY" means the Bank or any Parent Corporation or Subsidiary Corporation. 2 (o) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. (p) "SERVICE" means the Optionee's service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. The Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. (q) "STOCK" means the common stock of the Bank, as adjusted from time to time in accordance with Section 4.2. (r) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Bank, as defined in Section 424(f) of the Code. 2.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural, the plural shall include the singular, and use of the term "or" shall include the conjunctive as well as the disjunctive. 3. ADMINISTRATION. The Plan shall be administered by the Board. All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option. Any officer of a Participating Company shall have the authority to act on behalf of the Bank with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Bank herein, provided the officer has apparent authority with respect to such matter, right, obligation, determination or election. 4. SHARES SUBJECT TO PLAN. 4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be one hundred thousand (100,000) and shall consist of authorized but unissued shares or reacquired shares of Stock or any combination thereof. If an outstanding Option for any reason expires or is terminated or canceled or shares of Stock acquired, subject to repurchase, upon the exercise of an Option are repurchased by the Bank, the shares of Stock allocable to the unexercised portion of such Option, or such repurchased shares of Stock, shall again be available for issuance under the Plan. 4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Bank, appropriate adjustments shall be made in the number and class of shares subject to the Plan, to the "Initial Option" and "Annual Option" (as defined in 3 Section 6.1), and to any outstanding Options, and in the exercise price of any outstanding Options. If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an "Ownership Change Event" as defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise price of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest whole number, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. 5. ELIGIBILITY AND TYPE OF OPTIONS. 5.1 PERSONS ELIGIBLE FOR OPTIONS. An Option shall be granted only to a person who, at the time of grant, is an Outside Director. 5.2 OPTIONS AUTHORIZED. Options shall be nonstatutory stock options; that is, options which are not treated as incentive stock options within the meaning of Section 422(b) of the Code. 6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: 6.1 GRANT OF OPTIONS. Subject to execution by an Outside Director of the appropriate Option Agreement, Options shall be granted without further action of the Board, as follows: (a) INITIAL OPTION. Each person who is (i) serving as an Outside Director on the Effective Date, or (ii) first elected or appointed as an Outside Director after the Effective Date shall be granted an Option to purchase one thousand (1,000) shares of Stock on the Effective Date or the date of such initial election or appointment, respectively (an "INITIAL OPTION"). Notwithstanding anything herein to the contrary, an Initial Option shall not be granted to a Director of the Bank who previously did not qualify as an Outside Director but subsequently becomes an Outside Director as a result of the termination of his or her status as an Employee. (b) ANNUAL OPTION. Beginning on January 1, 1999, each Outside Director (including any Director who previously did not qualify as an Outside Director but who subsequently becomes an Outside Director) shall be granted an Option to purchase one thousand (1,000) shares of Stock on the date of the "Shareholders' Meeting", provided such person remains an Outside Director after the Shareholders' Meeting (an "ANNUAL OPTION"). The Shareholders' Meeting for an Outside Director who was serving on the Board on the Effective 4 Date shall be the annual meeting of shareholders of the Participating Company following the Effective Date and successive annual meetings of the shareholders thereafter. The Shareholders' Meeting for an Outside Director who is elected or appointed to the Board after the Effective Date shall be the annual meeting of shareholders of the Participating Company following such election or appointment and successive annual meetings of the shareholders thereafter. (c) RIGHT TO DECLINE OPTION. Notwithstanding the foregoing, any person may elect not to receive an Option by delivering written notice of such election to the Board no later than the day prior to the date such Option would otherwise be granted. A person so declining an Option shall receive no payment or other consideration in lieu of such declined Option. A person who has declined an Option may revoke such election by delivering written notice of such revocation to the Board no later than the day prior to the date such Option would be granted pursuant to Section 6.1(a) or (b), as the case may be. 6.2 EXERCISE PRICE. The exercise price per share of Stock subject to an Option shall be the Fair Market Value of a share of Stock on the date the Option is granted. 6.3 EXERCISE PERIOD. Each Option shall terminate and cease to be exercisable on the date five years after the date of grant of the Option unless earlier terminated pursuant to the terms of the Plan or the Option Agreement. 6.4 RIGHT TO EXERCISE OPTIONS. (a) INITIAL OPTIONS. Except as otherwise provided in the Plan or in the Option Agreement, an Initial Option shall be exercisable on and from the date which is one year after the date on which the Initial Option was granted (the "Initial Option Vesting Date") until the termination thereof. (b) ANNUAL OPTIONS. Except as otherwise provided in the Plan or in the Option Agreement, an Annual Option shall be exercisable on and from the date which is one year after the date on which the Annual Option was granted (the "Annual Option Vesting Date") until the termination thereof. 6.5 PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by the assignment of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), or (iii) by any combination thereof. 5 (b) CASHLESS EXERCISE. The Bank reserves, at any and all times, the right, in the Bank's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. 6.6 TAX WITHHOLDING. The Bank shall have the right, but not the obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of whole shares of Stock having a Fair Market Value equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Option or the shares acquired upon exercise thereof. Alternatively or in addition, in its sole discretion, the Bank shall have the right to require the Optionee to make adequate provision for any such tax withholding obligations of the Participating Company Group arising in connection with the Option or the shares acquired upon exercise thereof. The Bank shall have no obligation to deliver shares of Stock until the Participating Company Group's tax withholding obligations have been satisfied. 7. STANDARD FORM OF OPTION AGREEMENT. 7.1 GENERAL. Each Option shall comply with and be subject to the terms and conditions set forth in the appropriate form of Nonstatutory Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time. 7.2 AUTHORITY TO VARY TERMS. The Board shall have the authority from time to time to vary the terms of any of the standard forms of Option Agreement described in this Section 7 either in connection with the grant or amendment of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Option Agreement are not inconsistent with the terms of the Plan. 8. CHANGE IN CONTROL. 8.1 DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Bank: (i) the direct or indirect sale or exchange in a single or series of related transactions by the shareholders of the Bank of more than fifty percent (50%) of the voting stock of the Bank; (ii) a merger or consolidation in which the Bank is a party; (iii) the sale, exchange, or change in all or substantially all of the assets of the Bank; or (iv) a liquidation or dissolution of the Bank. 6 (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "TRANSACTION") wherein the shareholders of the Bank immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Bank's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Bank or the corporation or corporations to which the assets or the stock of the Bank were transferred (the "TRANSFEREE CORPORATION(S)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Bank or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Bank or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of a Change in Control, any unexercisable or unvested portion of the outstanding Options shall be immediately exercisable and vested in full as of the date ten days prior to the date of the Change in Control. The exercise or vesting of any Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Change in Control. In addition, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"), may either assume the Bank's rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall be deemed assumed if, following the Change in Control, the Option confers the right to purchase in accordance with its terms and conditions, for each share of Stock subject to the Option immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control shall terminate and cease to be outstanding effective as of the date of the Change in Control. Notwithstanding the foregoing, shares acquired upon exercise of an Option prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Options immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the outstanding Options shall not terminate. 7 9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee's guardian or legal representative. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. 10. INDEMNIFICATION. In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board is delegated shall be indemnified by the Bank against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Bank) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Bank, in writing, the opportunity at its own expense to handle and defend the same. 11. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the Plan at any time. However, subject to changes in applicable law, regulations or rules that would permit otherwise, without the approval of the Bank's shareholders, there shall be (a) no increase in the total number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), and (b) no other amendment of the Plan that would require approval of the Bank's shareholders under any applicable law, regulation or rule. In any event, no termination or amendment of the Plan may adversely affect any then outstanding Option, or any unexercised portion thereof, without the consent of the Optionee, unless such termination or amendment is necessary to comply with any applicable law, regulation or rule. IN WITNESS WHEREOF, the undersigned Secretary of the Bank certifies that the foregoing Scripps Bank 1998 Outside Directors Stock Option Plan was duly adopted by the Board on April 15, 1998. -------------------------------------- M. Catherine Wright, Secretary 8 PLAN HISTORY April 15, 1998 Board adopts Plan, with an initial reserve of 100,000 shares. July 28, 1998 Shareholders approve Plan, with an initial reserve of 100,000 shares. 9 EX-10.5 9 EXHIBIT 10.5 --------------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER dated as of April 22, 1998 between Scripps Bank and Pacific Commerce Bank --------------------------------------------------------------------------- AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER, is entered into as of April 22, 1998 (this "AGREEMENT"), by and between Scripps Bank, a California banking corporation ("Scripps"), and Pacific Commerce Bank, a California banking corporation ("PCB"), with reference to the following facts: WHEREAS, the Boards of Directors of Scripps and PCB have approved, and deem it advisable and in the best interests of their respective companies and their shareholders to consummate, the business combination transaction provided for herein in which PCB will, subject to the terms and conditions set forth herein, merge with and into Scripps (the "MERGER"), all as pursuant to and as set forth in the Agreement of Merger (the "MERGER AGREEMENT"), the form of which is attached hereto as EXHIBIT A; WHEREAS, Scripps and PCB desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe various conditions to the Merger. WHEREAS, for Federal income tax purposes, it is intended that the Merger shall qualify as a reorganization under the provisions of Section 368 of the Internal Revenue Code of 1986, as amended (the "CODE"); and WHEREAS, for accounting purposes, it is intended that the Merger shall be accounted for as a "pooling of interests." NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I THE MERGER 1.1 EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this Agreement, the Merger Agreement (as amended, if necessary to conform to any requirements of any governmental agency or authority having jurisdiction over any of the transactions contemplated herein, as long as such requirements are not materially in contravention of any of the substantive terms hereof) shall be executed by the parties thereto. The Merger Agreement, together with all requisite certificates as required by applicable law, shall be submitted for filing to the Secretary of State of the State of California, as provided in the California General Corporation Law (the "CGCL") and the California Financial Code (the "CFC"), as soon as practicable on or after the 1 Closing Date (as defined in Section 1.2). The Merger shall become effective upon the filing of the Merger Agreement and said requisite certificates with the Secretary of State of the State of California or at such time thereafter as Scripps and PCB may agree in writing to provide in the Merger Agreement (the "EFFECTIVE TIME"). 1.2 CLOSING. Subject to the terms and conditions hereof, the closing of the Merger (the "CLOSING") will take place at 10:00 a.m. on a date to be specified by the parties, which shall be on the fifth (5th) business day following the Valuation Date (as defined in Section 2.1(c)) subject to the satisfaction or waiver (subject to applicable law) of the conditions set forth in Sections 6.1, 6.2 and 6.3 hereof (the "CLOSING DATE"), at the offices of Gray Cary Ware & Freidenrich LLP, 4365 Executive Drive, Suite 1600, San Diego, California, unless another time, date or place is agreed to in writing by the parties hereto. 1.3 EFFECTS OF THE MERGER. (a) At the Effective Time, the separate corporate existence of PCB shall cease and PCB shall be merged with and into Scripps, which shall be the surviving corporation. As used in this Agreement, the term "CONSTITUENT CORPORATIONS" shall mean Scripps and PCB. (b) At the Effective Time, the Articles of Incorporation, Bylaws and banking charter (as issued by the California Department of Financial Institutions ("CDFI")) of Scripps, as in effect immediately prior to the Effective Time, shall be and remain the Articles of Incorporation, Bylaws and banking charter of Scripps following the Effective Time until altered, or amended as provided by law. Likewise, the insurance of deposits coverage by the Federal Deposit Insurance Corporation ("FDIC") as maintained by Scripps prior to the Effective Time, shall be and remain the deposit insurance of Scripps following the Effective Time. (c) At and after the Effective Time, the Merger will have the effects set forth in Section 1107 of the CGCL. At the Effective Time, Scripps shall succeed to the properties, rights, privileges, powers, immunities, franchises and interests of PCB, and shall succeed to and be liable for all of the debts, liabilities and other obligations, known or unknown, contingent or otherwise, of PCB of any nature whatsoever. All rights of creditors and all liens upon the property of PCB shall be preserved unimpaired. All savings and demand accounts of PCB, including without limitation, passbook accounts, fixed term accounts, money market deposit accounts and negotiable order of withdrawal accounts, as of the Effective Time, shall be and become accounts of Scripps without change in the terms and conditions thereof. (d) The directors and officers of Scripps in office prior to the Effective Time shall remain in office after the Effective Time. 2 ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE CERTIFICATES 2.1 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of PCB stock or Scripps stock: (a) DISSENTERS' RIGHTS. The shares of Scripps Common Stock issued and outstanding at the Effective Time shall not be changed or converted as a result of the Merger, but shall remain outstanding as shares of Scripps Common Stock. (b) CONVERSION OF PCB COMMON STOCK. Subject to Section 2.2(e), each issued and outstanding share of PCB Common Stock (other than shares to which dissenters' rights are exercised in accordance with Section 2.3) shall be converted into that number of validly issued, fully paid and nonassessable shares of Scripps Common Stock equal to the CONVERSION NUMBER, which shall be determined as follows: The "Conversion Number" shall be the ratio, carried to the fourth decimal place (rounded upward or downward, as applicable) of: (i) the Final PCBDABVPS, as defined below in Section 2.1(c), multiplied by a factor of five and divided by (ii) Twenty Dollars ($20.00) per share. All such shares of PCB Common Stock shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each certificate (each a "CERTIFICATE") previously representing any such shares shall thereafter represent (i) the whole shares of Scripps Common Stock and (ii) the right to receive cash in lieu of fractional shares into which such Scripps Common Stock has been converted pursuant to this Section 2.1(b). Certificates previously representing shares of PCB Common Stock shall be exchanged for certificates representing whole shares of Scripps Common Stock and cash in lieu of fractional shares issued in consideration therefor upon the surrender of such Certificates in accordance with Section 2.2, without any interest thereon. In the event that, subsequent to the date of this Agreement but prior to the Effective Time, the outstanding shares of Scripps Common Stock shall have been increased, decreased, changed into or exchange for a different number or kind of shares or securities through a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, or other similar change in Scripps's capitalization, then an appropriate and proportionate adjustment shall be made to the Conversion Number. (c) DETERMINATION OF CONVERSION NUMBER. As used herein, the term "FINAL PCBDABVPS" shall mean PCB's Diluted Adjusted Book Value Per Share (as defined below), calculated as of the last business day of the month preceding the Closing Date (the "VALUATION DATE") using PCB's unaudited financial statements as of that month end. As used herein, the term "DILUTED ADJUSTED BOOK VALUE PER SHARE" shall mean, as of the Valuation Date, the 3 Adjusted Book Value (as defined below) per share of PCB Common Stock assuming full exercise or conversion of all rights to acquire PCB Common Stock, whether or not currently exercisable or convertible. As used herein, the term "ADJUSTED BOOK VALUE" shall mean, as of the Valuation Date, the book value of PCB, determined in accordance with generally accepted accounting principles consistently applied, including incorporation of any reserves or adjustments recommended by Regulatory Agencies (as defined in Section 3.1) and any costs related to the Merger or the transactions contemplated herein, as decreased (or increased) by the Adjustment Factors (as defined below). As used herein, the term "ADJUSTMENT FACTORS" shall mean, the Profit Sharing Termination Factor (as defined below) and the Finder's Fee Factor (as defined below). As used herein, "PROFIT SHARING TERMINATION FACTOR" means a decrease in the book value of PCB of $25,000 to account for one-half of the discounted after-tax value of certain payments made to terminate the existing profit sharing arrangements of PCB. As used herein, "FINDER'S FEE FACTOR" means a deduction from the book value of PCB to account for a finder's fee liability incurred by PCB in connection with this transaction, which shall be deemed to have a value equal to Twenty Thousand Dollars ($20,000). 2.2 EXCHANGE OF CERTIFICATES. (a) EXCHANGE AGENT. As of the Effective Time, Scripps shall deposit, or shall cause to be deposited, with Norwest Bank Minnesota, N.A. or such other bank or trust company acceptable to the parties (the "EXCHANGE AGENT"), for the benefit of the holders of shares of PCB Common Stock, for exchange in accordance with this Article II, certificates representing the shares of Scripps Common Stock and the cash in lieu of fractional shares (such cash and certificates for shares of PCB Common Stock, together with any dividends or distributions with respect thereto, being hereinafter referred to as the "EXCHANGE FUND") to be issued pursuant to Section 2.1 and paid pursuant to Section 2.2 in exchange for outstanding shares of PCB Common Stock. (b) EXCHANGE PROCEDURES. Promptly after the Effective Time, Scripps shall cause the Exchange Agent to mail to each holder of record of a Certificate or Certificates (i) a letter of transmittal which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Scripps and PCB may reasonably specify and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Scripps Common Stock and cash in lieu of fractional shares. Upon surrender of a duly executed Certificate for cancellation to the Exchange Agent together with such letter of transmittal, the holder of such Certificate shall be entitled to receive in exchange therefor (x) a certificate representing that number of whole shares of Scripps Common Stock and (y) a check representing the amount of cash in lieu of fractional shares, if any, and unpaid dividends and distributions, if any, which such holder has the right to receive in respect of the Certificate surrendered pursuant to the provisions of this Article II, and the Certificate so surrendered shall forthwith be canceled. No interest will be paid or accrued on the cash in lieu of fractional shares and unpaid dividends and distributions, if any, payable to holders of Certificates. In the event of a transfer of ownership of PCB Common Stock which is not registered in the transfer records of PCB, a certificate representing the proper number of shares of 4 Scripps Common Stock, together with a check for the cash to be paid in lieu of fractional shares, may be issued to such a transferee if the Certificate representing such PCB Common Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid. (c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES; VOTING. Whenever a dividend or other distribution is declared by Scripps on the Scripps Common Stock, the record date for which is at or after the Effective Time, the declaration shall include dividends or other distributions on all shares issuable pursuant to this Agreement, PROVIDED that no dividends or other distributions declared or made with respect to the Scripps Common Stock with a record date that is six months or more after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Scripps Common Stock represented thereby until the holder of such Certificate shall surrender such certificate in accordance with this Article II. Subject to the effect of applicable laws, following surrender of any such Certificate, there shall be paid to the holder of the certificates representing whole shares of Scripps Common Stock issued in exchange therefor, without interest, (i) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore payable with respect to such whole shares of Scripps Common Stock and not paid, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Scripps Common Stock. Holders of unsurrendered Certificates shall be entitled to vote after the Effective Time at any meeting of Scripps shareholders the number of whole shares of Scripps Common Stock represented by such Certificates, regardless of whether such holders have exchanged their Certificates. (d) TRANSFERS. After the Effective Time, there shall be no transfers on the stock transfer books of PCB of the shares of PCB Common Stock which were outstanding immediately prior to the Effective Time. If after the Effective Time, Certificates are presented to Scripps, they shall be canceled and exchanged for the shares of Scripps Common Stock and cash in lieu of fractional shares, if any, deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Article II. Certificates surrendered for exchange by any person constituting an "affiliate" of PCB under the Securities Act of 1933, as amended (the "SECURITIES ACT"), shall not be exchanged until PCB has received a written agreement from such person as provided in Section 5.5. (e) FRACTIONAL SHARES. No fractional shares of Scripps Common Stock shall be issued pursuant hereto. In lieu of the issuance of any fractional share of Scripps Common Stock pursuant to Section 2.1(b), cash adjustments will be paid to holders in respect of any fractional share of Scripps Common Stock that would otherwise be issuable, and the amount of such cash adjustment shall be equal to such fractional proportion of the deemed value of $20.00 of a share of Scripps Common Stock. (f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund (including the proceeds of any investments thereof and any Scripps Common Stock) that remains unclaimed by the shareholders of PCB for six months after the Effective Time shall be paid to 5 Scripps. Any shareholders of PCB who have not theretofore complied with this Article II shall thereafter look to Scripps for payment of their shares of Scripps Common Stock, cash in lieu of fractional shares and unpaid dividends and distributions on the Scripps Common Stock deliverable in respect of each share of PCB Common Stock such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon. Notwithstanding the foregoing, none of Scripps, the Exchange Agent or any other person shall be liable to any former holder of shares of PCB Common Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. (g) NO LIABILITY. In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Scripps, the posting by such person of a bond in such amount as Scripps may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the shares of Scripps Common Stock and cash in lieu of fractional shares deliverable in respect thereof pursuant to this Agreement. 2.3 RIGHTS OF DISSENTING PCB SHAREHOLDERS. Any shareholder of PCB who shall have lawfully dissented from the Merger in accordance with the applicable statutes of the State of California, and who shall have timely demanded payment of the value of his shares of PCB Common Stock and submitted such shares for endorsement as provided in Section 1302 of the CGCL, shall thereafter have only such rights as are provided a dissenting shareholder in accordance with said statutes and shall have no other rights under this Agreement. Said shareholders shall be referred to herein as "DISSENTING PCB SHAREHOLDERS." ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 REPRESENTATIONS AND WARRANTIES OF PCB. Each representation and warranty of PCB set forth in this Agreement shall be deemed to be made on and as of the date hereof, the Closing Date and the Effective Time. No representation or warranty is inaccurate, incomplete or incorrect in any material respect as of the date furnished or contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary to make such representation, warranty or statement not misleading to Scripps. PCB represents and warrants to Scripps as follows: (a) ORGANIZATION, STANDING AND POWER. PCB is a banking corporation duly organized, validly existing and in good standing under the laws of the State of California, has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary other than in such jurisdictions where the failure to so qualify would not have a material adverse effect on PCB. As used in this Agreement, (i) any reference to any event, change or effect being "MATERIAL" with respect to any entity means an event, change or 6 effect which is material in relation to the condition (financial or otherwise), properties, assets, liabilities, businesses or operations of such entity taken as a whole and (ii) the term "MATERIAL ADVERSE EFFECT" means, with respect to PCB or Scripps, as the case may be, a material adverse effect on the business, assets, results of operations or financial condition of such party or on the ability of such party to perform its obligations hereunder or to consummate the transactions contemplated hereby, it being understood that a material adverse effect on any party shall not include a change with respect to such party resulting from any change in law, rule or regulation or generally accepted accounting principles which impairs both PCB and Scripps in a substantially similar manner. (b) CAPITAL STRUCTURE. (i) As of the date hereof, the authorized capital stock of PCB consists of 10,000,000 shares of PCB Common Stock. As of the close of business on April 21, 1998, (A) 815,470 shares of PCB Common Stock were issued and outstanding, (B) options to purchase 23,102 shares of PCB Common Stock were issued and outstanding, and (C) options to purchase 68,868 shares were available for issuance pursuant to the Pacific Commerce Bank 1995 Stock Option Plan (the "PCB STOCK OPTION PLAN"). Except as set forth in the preceding sentence, PCB has no other instrument or agreement outstanding permitting the holder to acquire shares of capital stock of PCB. All outstanding shares of PCB Common Stock are validly issued, fully paid and nonassessable, are not subject to any preemptive rights and have been issued in compliance with all applicable securities laws. All outstanding options of PCB were issued, and upon exercise in accordance with the terms of the outstanding options said shares shall be issued, in compliance with all applicable laws. The shares of PCB Common Stock are not registered pursuant to Section 12 or Section 15 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"). (ii) As of the date hereof, PCB does not have outstanding any bonds, debentures, notes or other indebtedness or other instruments the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) ("VOTING DEBT") with the shareholders of PCB on any matter. (iii) As of the date of this Agreement, except as set forth on Section 3.1(b)(iii) of the disclosure schedule of PCB (the "PCB DISCLOSURE SCHEDULE") delivered to Scripps prior to the execution of this Agreement which contains a list of all of the PCB stock options outstanding, indicating for each (a) the grant date; (b) whether vested or unvested; (c) exercise price; and (d) a vesting schedule by plan year, and except for this Agreement and the PCB Stock Plans, PCB does not have outstanding any options, warrants, calls, rights, commitments or agreements of any character to which PCB is a party or is bound obligating PCB to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or any Voting Debt of PCB or obligating PCB to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. Except as collateral for outstanding loans held in its loan portfolio, PCB does not, directly or indirectly, own any equity interest in any bank, corporation or other entity. From and after the Effective Time, there will be no option, warrant, call, right or agreement obligating PCB to issue, deliver or sell, or cause to be issued, delivered 7 or sold, any shares of capital stock or any Voting Debt of PCB, or obligating PCB to grant, extend or enter into any such option, warrant, call, right or agreement. As of the date hereof, except as set forth on Section 3.1(b)(iii) of the PCB Disclosure Schedule, there are no outstanding contractual obligations of PCB to repurchase, redeem or otherwise acquire any shares of capital stock of PCB. (iv) Except as set forth on Section 3.1(b)(iv) of the PCB Disclosure Schedule, since January 1, 1996, PCB has not (A) issued or permitted to be issued any shares of capital stock, or securities exercisable for or convertible into shares of capital stock of PCB, other than pursuant to and as required by the terms of the PCB Stock Plans (and stock options granted thereunder); (B) repurchased, redeemed or otherwise acquired, directly or indirectly, any shares of capital stock of PCB (other than the acquisition of trust account shares) except in connection with internal reorganizations, consolidations, liquidations or mergers and in connection with the items set forth on Section 3.1(b)(iv) of the PCB Disclosure Schedule; or (C) declared, set aside, made or paid to the shareholders of PCB dividends or other distributions on the outstanding shares of capital stock of PCB other than regular semiannual cash dividends on the PCB Common Stock at a rate not in excess of the regular semiannual cash dividends most recently declared by PCB prior to the date of this Agreement. (c) AUTHORITY. (i) PCB has all requisite corporate power and authority to enter into this Agreement and, subject to approval of this Agreement by the shareholders of PCB, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of PCB, subject to the approval by the shareholders of PCB. This Agreement has been duly executed and delivered by PCB and constitutes a valid and binding obligation of PCB enforceable in accordance with its terms. (ii) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not conflict with, give rise to or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or the loss of a material benefit under, or the creation of a lien, pledge, security interest, charge or other encumbrance on assets (any such conflict, violation, default, right, loss or creation being referred to herein as a "VIOLATION") pursuant to any provision of the Articles of Incorporation, as amended (the "PCB ARTICLES"), or Bylaws of PCB, except as disclosed on Section 3.1(c) of the PCB Disclosure Schedule and subject to obtaining or making the consents, approvals, orders, authorizations, registrations, declarations and filings referred to in paragraph (iii) below or, be, give rise to or result in any Violation pursuant to any loan or credit agreement, note, mortgage, indenture, lease, Benefit Plan (as defined in Section 3.1(n)) or other agreement, obligation, instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to PCB, or its properties or assets, which Violations would in the aggregate have a material adverse effect on PCB. 8 (iii) No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign (each a "GOVERNMENTAL ENTITY") is required by or with respect to PCB in connection with the execution and delivery of this Agreement by PCB, or the consummation by PCB of the transaction contemplated hereby, the failure of which to obtain or make would in the aggregate have a material adverse effect on PCB or on its ability to perform its obligations hereunder, except for (A) the filing of applications and notices with the FDIC under applicable provisions of federal banking law and approval of same, (B) the filing with the CDFI of applications relating to the transactions contemplated hereby (the "CDFI APPLICATION"), and (C) the filing of the Merger Agreement with the Secretary of State of the State of California and appropriate documents with the relevant authorities of other states in which PCB is qualified to do business. (d) PCB FILINGS. PCB has made available to Scripps a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed by PCB with the CDFI and the FDIC (the "REGULATORY AGENCIES") since January 1, 1995 (such documents, as amended since the time of their filing, being referred to herein as the "PCB FILINGS"), which are all the documents that PCB was required to file with the Regulatory Agencies since such date. As of their respective dates, the PCB Filings complied in all material respects with the requirements of the Applicable Laws (as defined in Section 3.1(g)) and none of the PCB Filings contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of PCB included in the PCB Filings filed since January 1, 1995 comply in all material respects with applicable accounting requirements and with the published rules and regulations of the CDFI with respect thereto. To the extent required by such rules and regulations, such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present (subject, in the case of unaudited statements, to recurring audit adjustments normal in nature and amount) the consolidated financial position of PCB as at the dates thereof and the consolidated results of its operations and cash flows or changes in financial position for the periods then ended. (e) ARTICLES, BYLAWS, BOOKS AND RECORDS. The copies of the PCB Articles and Bylaws of PCB, heretofore delivered to Scripps are complete and accurate copies thereof as in effect on the date hereof. The minute book of PCB made available to Scripps contains a complete and accurate record of all meetings of PCB's Board of Directors (and committees thereof) and shareholders. The corporate books and records (including financial statements) of PCB fairly reflect the material transactions to which PCB is a party or by which its properties are subject or bound, and such books and records have been properly kept and maintained. (f) INFORMATION SUPPLIED. The information supplied or to be supplied by PCB for inclusion or incorporation by reference in the CDFI Application to be filed with the CDFI by Scripps and PCB in connection with obtaining approval from the CDFI to consummate the transactions contemplated herein, including the issuance of shares of Scripps Common Stock in the Merger, will not, at the time the Merger becomes effective under the CGCL, contain any 9 untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) COMPLIANCE WITH APPLICABLE LAWS. PCB holds all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities which are necessary for the operation of the business of PCB (the "PCB PERMITS"), except for PCB Permits the failure of which to hold would not, individually or in the aggregate, have a material adverse effect on PCB. PCB is in compliance in all material respects with the terms of the PCB Permits and all applicable laws and regulations, except for possible violations which, individually or in the aggregate, would not have a material adverse effect on PCB. Except as set forth on Section 3.1(g) of the PCB Disclosure Schedule, the business of PCB is not being conducted in violation of any law, ordinance, regulation, order, writ, rule or decree of any Governmental Entity, including but not limited to all federal and state laws (including but not limited to the Bank Secrecy Act), rules and regulations relating to the offer, sale or issuance of securities, and the operation of a commercial bank (the "APPLICABLE LAWS"), except for possible violations which individually or in the aggregate would not have a material adverse effect on PCB. As of the date of this Agreement, no investigation by any Governmental Entity with respect to PCB is pending or threatened, other than, in each case, those the outcome of which, as far as reasonably can be foreseen, will not have a material adverse effect on PCB. PCB has not failed to file with the proper federal, state, local or other authorities any material report or other document required to be filed by it. PCB has filed all material documents and reports required to be filed by it with the Regulatory Agencies and any other Governmental Entity having jurisdiction over its business or any of its assets or properties. All such reports conform in all material respects with the requirements promulgated by such Governmental Entities and Regulatory Agencies. All compliance or corrective action relating to PCB required by all Governmental Entities and Regulatory Agencies has been taken. PCB has not received any notification, formally or informally, from any Governmental Entity or Regulatory Agency or the staff thereof (A) asserting that it is not in compliance with any of the Applicable Laws, or (B) threatening to revoke any license, franchise, permit or governmental authorization. PCB has paid all assessments made or imposed by any Governmental Entity. (h) LITIGATION. Except as set forth on Section 3.1(h) of the PCB Disclosure Schedule, there is no suit, action or proceeding pending or, to the knowledge of PCB, threatened, against or affecting PCB nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against PCB. To PCB's knowledge, there is no reasonable basis for any legal action or other proceeding or investigation before any court, any arbitrator of any kind or any government agency, and PCB is not subject to any potential adverse claim, the outcome of which could involve the payment or receipt by PCB of any amount in excess of $50,000, unless an insurer of PCB has agreed to defend against and pay the amount of any resulting liability without reservation, or, if any such legal action, proceeding, investigation or claim will not involve the payment by PCB of a monetary amount, which could materially adversely affect PCB or its business or property or the transactions contemplated hereby. PCB has no knowledge of any pending or threatened claims or charges under any Applicable Laws, including but not limited to, the Community Reinvestment Act, before the Equal Employment 10 Opportunity Commission, the California Department of Fair Housing & Economic Development, the California Unemployment Appeals Board, or any federal or state human relations commission or agency. There is no labor dispute, strike, slow-down or stoppage pending or, to the best of the knowledge of PCB, threatened against PCB. (i) TAXES. PCB has filed all material tax returns required to be filed by it, which tax returns are true, correct and complete in all material respects, and has paid all taxes required to be paid as shown on such returns. Except as set forth on Section 3.1(i) of the PCB Disclosure Schedule, no material deficiencies for any taxes have been proposed, asserted or assessed against PCB. Except with respect to claims for refund, the Federal income tax returns of PCB have been examined by and settled with the United States Internal Revenue Service (the "IRS"), or the statute of limitations has expired (and no waiver extending the statute of limitations has been requested or granted), for all taxable years ending on or before December 31, 1990. The Federal income tax returns of PCB are not currently under examination by the IRS. For the purpose of this Agreement, (x) the term "TAX" (including, with correlative meaning, the terms "TAXES" and "TAXABLE") includes all Federal, state, local and foreign income, profits, franchise, gross receipts, payroll, sales, employment, use, property, withholding, excise, occupancy and other taxes, duties or assessments of any nature whatsoever, together with all interest, penalties and additions imposed with respect to such amounts; and (y) the term "TAX RETURN" includes all returns and reports (including elections, declarations, disclosures, schedules, estimates and information returns) required to be supplied to a tax authority relating to taxes. PCB has delivered to Scripps copies of all of its tax returns with respect to taxes payable to the United States of America and the State of California for the fiscal years ended December 31, 1996, 1995, 1994 and 1993. No consent has been filed relating to PCB pursuant to Section 341(f) of the Code. (j) PROPERTIES AND LEASES. (i) PCB has good and marketable title, free and clear of all liens and encumbrances and the right of possession, subject to existing leaseholds, to all real properties and good title to all other property and assets, tangible and intangible, reflected in the PCB balance sheet as of March 31, 1998 (except property held as lessee under leases disclosed in writing prior to the date hereof and except personal property sold or otherwise disposed of since March 31, 1998, in the Ordinary Course of Business, as defined in Section 4.1(a) below), except (a) liens for taxes or assessments not delinquent, (b) such other liens and encumbrances and imperfections of title as do not materially affect the value of such property as reflected in the PCB balance sheet as of March 31, 1998, or as currently shown on the books and records of PCB and which do not interfere with or impair its present and continued use, or (c) exceptions disclosed in title reports and preliminary title reports, copies of which have been provided to Scripps. All tangible properties of PCB conform in all material respects with all applicable ordinances, regulations and zoning laws. All tangible properties of PCB are in a good state of maintenance and repair and are adequate for the current business of PCB. No properties of PCB, and, to the best of PCB's knowledge, no properties in which it holds a collateral or contingent interest or purchase option, are the subject of any pending or threatened investigation, claim or proceeding relating to the use, storage or disposal on such property of or contamination of such property by any toxic or 11 hazardous waste material or substance. PCB does not own, possess or have a collateral or contingent interest or purchase option in any properties or other assets which contain or have located within or thereon any hazardous or toxic waste material or substance unless the location of such hazardous or toxic waste material or other substance or its use thereon conforms in all material respects with all federal, state and local laws, rules, regulations or other provisions regulating the discharge of materials into the environment. As to any asset not owned or leased by PCB, PCB has not controlled, directed or participated in the operation or management of any such asset or any facilities or enterprise conducted thereon, such that it has become an owner or operator of such asset under applicable environmental laws. (ii) All properties held by PCB under leases are held by it under valid, binding and enforceable leases, with such exceptions as are not material and do not interfere with the conduct of the business of PCB, and PCB enjoys quiet and peaceful possession of such leased property. PCB is not in material default in any respect under any material lease, agreement or obligation regarding its properties to which it is a party or by which it is bound. (iii) Except as set forth on Section 3.1(j) of the PCB Disclosure Schedule, no third party consents are required under the leases referred to in Section 3.1(j)(ii) in order to consummate the transactions contemplated by this Agreement and the Merger Agreement. Where required, PCB shall obtain, prior to the Effective Date, the necessary consents of such parties. (k) CLASSIFIED LOANS. Except as set forth on Section 3.1(k) of the PCB Disclosure Schedule, there are no loans presently owned by PCB that have been classified by PCB management or PCB internal policy or procedure, any outside review examiner, accountant or any bank regulatory agency as "Other Loans Specially Mentioned," "Special Mention," "Substandard," "Doubtful," or "Loss" or classified using categories or words with similar import and all loans or portions thereof classified "Loss" have been charged off. Notwithstanding the above, PCB shall be under no obligation to disclose to Scripps any such classification by any bank examiner where such disclosure would violate any obligation of confidentiality of PCB imposed by the CDFI or the FDIC. PCB regularly reviews and appropriately classifies its loans in accordance with all applicable legal and regulatory requirements and generally accepted banking practices. All loans and investments of PCB are legal, valid and binding obligations enforceable in accordance with their respective terms and are not subject to any setoffs, counterclaims or disputes (subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general applicability), except as disclosed to Scripps in writing or reserved for in the unaudited balance sheet of PCB as of March 31, 1998, and were duly authorized under and made in compliance with Applicable Laws. PCB does not have any extensions of credit, investments, guarantees, indemnification agreements or commitments for the same (including without limitation commitments to issue letters of credit, to create acceptances, or to repurchase securities, federal funds or other assets) other than those documented on the books and records of PCB. 12 (l) CERTAIN AGREEMENTS. Except as disclosed in the PCB Filings or as set forth on Section 3.1(l) of the PCB Disclosure Schedule or as set forth in the PCB Stock Plans and except for this Agreement, as of the date of this Agreement, PCB is not a party to any oral or written (i) consulting agreement (other than data processing, software programming and licensing contracts entered into in the Ordinary Course of Business) not terminable on 60 days or less notice involving the payment of more than $10,000 per annum, in the case of any such agreement with an individual, or $25,000 per annum, in the case of any other such agreement, or any union, guild or collective bargaining agreement, (ii) agreement with any executive officer or other key employee of PCB the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving PCB or of the nature contemplated by this Agreement, (iii) agreement with respect to any executive officer of PCB providing any term of employment or compensation guarantee, or (iv) agreement or plan, including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. (m) RESTRICTIONS ON INVESTMENTS. Except for pledges to secure public and trust deposits and repurchase agreements in the Ordinary Course of Business, none of the investments reflected in the PCB balance sheet as of March 31, 1998, and none of the investments made by PCB since December 31, 1997, are subject to any restriction, whether contractual or statutory, which materially impairs the ability of PCB freely to dispose of such investment at any time. (n) BENEFIT PLANS. (i) With respect to each employee benefit plan (including, without limitation, any "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (all the foregoing being herein called "BENEFIT PLANS"), maintained or contributed to by PCB (the "PCB BENEFIT PLANS"), PCB has made available to Scripps a true and correct copy of (A) the most recent annual report (Form 5500) filed with the IRS, (B) such PCB Benefit Plan, (C) each trust agreement relating to such PCB Benefit Plan, (D) the most recent summary plan description for each PCB Benefit Plan for which a summary plan description is required, (E) the most recent actuarial report or valuation relating to a PCB Benefit Plan subject to title IV of ERISA, and (F) the most recent determination letter issued by the IRS with respect to any PCB Benefit Plan qualified under Section 401(a) of the Code. (ii) The current value of the assets of each of the PCB Benefit Plans subject to title IV of ERISA exceeds that plan's "Benefit Liabilities" as that term is defined in Section 4001(a)(16) of ERISA, when determined under actuarial factors that would apply if that plan terminated in accordance with all applicable legal requirements. (iii) Except as set forth in Section 3.1(n)of the PCB Disclosure Schedule, to the best knowledge of PCB, each of the PCB Benefit Plans has been administered in 13 compliance with its terms in all material respects and is in compliance in all material respects with the applicable provisions of ERISA (including, but not limited to, the funding and prohibited transactions provisions thereof), the Code and other applicable laws. (iv) There has been no reportable event within the meaning of Section 4043(b) of ERISA (for which a waiver did not apply) or any accumulated funding deficiency (whether or not waived) within the meaning of Section 412 of the Code with respect to any PCB Benefit Plan. (v) All contributions to the PCB Benefit Plans required thereunder have been made or provided for. (vi) No contributions have been made by PCB, to any "Multiemployer Plan," as such term is defined in Section 3(37) of ERISA. (vii) To the best knowledge of PCB, each of the PCB Benefit Plans which is intended to be a qualified plan within the meaning of Section 401(a) of the Code is so qualified, and PCB is not aware of any fact or circumstance which would adversely affect the qualified status of any such plan. (viii) With respect to the PCB Benefit Plans, individually and in the aggregate, no event has occurred and, to the knowledge of PCB there exists no condition or set of circumstances in connection with which PCB could be subject to any liability that is reasonably likely to have a material adverse effect on PCB (except liability for benefits claims and funding obligations payable in the ordinary course) under ERISA, the Code or any other applicable law. (ix) True and complete copies of the PCB Stock Plans as in effect on the date hereof have been provided to Scripps. (o) SUBSIDIARIES. Section 3.1(o) of the PCB Disclosure Schedule sets forth all of the Subsidiaries of PCB as of the date of this Agreement and indicates for each such Subsidiary, as of such date, the jurisdiction of organization. As used in this Agreement, the word "SUBSIDIARY" when used with respect to any party means any corporation or other organization, whether incorporated or unincorporated, of which such party directly or indirectly owns or controls at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization, or any organization of which such party is a general partner (excluding partnerships, the general partnership interests of which held by such party or any Subsidiary of such party do not have a majority of the voting interests in such partnership). (p) AGREEMENTS WITH REGULATORY AGENCIES. PCB holds a currently valid license issued by the CDFI to engage in the commercial banking business in California at the locations at which it currently conducts business. Neither the scope of the business of PCB nor the location of its properties requires it to be licensed to do business in any jurisdiction other than the State of California. PCB's deposits are insured by the FDIC to the maximum extent 14 permitted by applicable law and regulation. PCB is not a party to any written agreement or memorandum of understanding with, or a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of, any Regulatory Agency, nor has PCB been advised by any Regulatory Agency that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, directive, written agreement, memorandum of understanding, extraordinary supervisory letter, commitment letter, board resolution or similar undertaking. (q) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the PCB Filings filed prior to the date of this Agreement, since December 31, 1997, PCB has not incurred any material liability, except in the Ordinary Course of Business consistent with its past practices, nor has there been any change, or any event involving a prospective change, in the business, financial condition or results of operations of PCB which has had, or is reasonably likely to have, a material adverse effect on PCB (other than as a result of changes in banking laws or regulations of general applicability or interpretations thereof). (r) NO UNDISCLOSED LIABILITIES. Except for items for which reserves have been established in the unaudited balance sheets of PCB as of March 31, 1998, PCB has not incurred or discharged, and is not legally obligated with respect to, any indebtedness, liability (including, without limitation, a liability arising out of an indemnification, guarantee, hold harmless or similar arrangement) or obligation (accrued or contingent, whether due or to become due, and whether or not subordinated to the claims of its general creditors), other than as a result of operations in the Ordinary Course of Business after such date. No agreement pursuant to which any loans or other assets have been or will be sold by PCB entitled the buyer of such loans or other assets, unless there is material breach of a representation or covenant by PCB, to cause PCB to repurchase such loan or other asset or the buyer to pursue any other form of recourse against PCB. PCB has not knowingly made and shall not make any representations or covenants in any such agreement that contained or shall contain any untrue statement of a material fact or omitted or shall omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which such representations and/or covenants were made or shall be made, not misleading. Except as set forth in Section 3.1(r) of the PCB Disclosure Schedule, no cash, stock or other dividend or any distribution with respect to the PCB shares has been declared, set aside or paid, nor have any of the PCB shares been purchased, redeemed or otherwise acquired, directly or indirectly, by PCB since December 31, 1995. (s) ACCOUNTING MATTERS. Based upon consultation with its independent accountants, neither PCB nor any of its directors, officers or, to its knowledge, shareholders has taken or agreed to take any action that would prevent Scripps from accounting for the business combination to be effected by the Merger as a "pooling of interests." (t) ENVIRONMENTAL MATTERS. Each of the representations contained in the following subparagraphs (i)-(v) of this Section 3.1(t) is qualified in its entirety by the information set forth in Section 3.1(t) of the PCB Disclosure Schedule. 15 (i) To the knowledge of PCB, the Participation Facilities, and the Loan Properties (each as hereinafter defined) are, and have been, in compliance with all applicable laws, rules, regulations, standards and requirements of the United States Environmental Protection Agency ("EPA") and of state and local agencies with jurisdiction over pollution or protection of the environment, except for violations which, either individually or in the aggregate, do not or would not result in a material adverse effect on PCB. (ii) To the knowledge of PCB, there is no suit, claim, action or proceeding pending or threatened, before any court, governmental agency or board or other forum in which PCB or any Participation Facility has been or, with respect to threatened proceedings, may be, named as a defendant (x) for alleged noncompliance (including by any predecessor), with any environmental law, rule or regulation or (y) relating to the release into the environment of any Hazardous Material (as hereinafter defined) or oil whether or not occurring at or on a site owned, leased or operated by PCB or any Participation Facility except as would not, either individually or in the aggregate, result in a material adverse effect on PCB. (iii) To the knowledge of PCB, there is no suit, claim, action or proceeding pending or threatened, before any court, governmental agency or board or other forum in which any Loan Property has been or, with respect to threatened proceedings, may be, named as a defendant (x) for alleged noncompliance (including by any predecessor) with any environmental law, rule or regulation or (y) relating to the release into the environment of any Hazardous Material or oil whether or not occurring at or on a site owned, leased or operated by a Loan Property, except where such noncompliance or release does not or would not result, either individually or in the aggregate, in a material adverse effect on PCB. (iv) To the knowledge of PCB, there is no reasonable basis for any suit, claim, action or proceeding as described in subsection (ii) or (iii) of this Section 3.1(t), except as would not, individually or in the aggregate, have a material adverse effect on PCB. (v) During the period of (x) PCB's ownership or operation of any of its respective current properties, (y) PCB's participation in the management of any Participation Facility, or (z) PCB's holding of a security interest in a Loan Property, to the knowledge of PCB, there has been no release of Hazardous Material or oil in, on, under or affecting such properties, except where such release does not or would not result, either individually or in the aggregate, in a material adverse effect on PCB. Prior to the period of (x) PCB's ownership or operation of any of their respective current properties, (y) PCB's participation in the management of any Participation Facility, or (z) PCB's holding of a security interest in a Loan Property, to the knowledge of PCB, there was no release of Hazardous Material or oil in, on, under or affecting any such property, Participation Facility or Loan Property, except where such release does not or would not result, either individually or in the aggregate, in a material adverse effect on PCB. (vi) The following definitions apply for purposes of this Section 3.1(t): (x) "LOAN PROPERTY" means any property in which PCB holds a security interest for an amount greater than $25,000 and, where required by the context, said term means the owner or operator of such property; (y) "PARTICIPATION FACILITY" means any facility in which PCB participates in the 16 management and, where required by the context, said term means the owner or operator of such property; and (z) "HAZARDOUS MATERIAL" means any pollutant, contaminant, or hazardous substance under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. 9601 et seq., or any similar state law. (u) OWNERSHIP OF SCRIPPS COMMON STOCK. As of the date hereof, PCB does not beneficially own, directly or indirectly, nor is it a party to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of, any of the outstanding shares of capital stock of Scripps entitled to vote generally in the election of directors (other than trust account shares). PCB does not "beneficially own" any shares of Scripps Common Stock. (v) APPROVALS. PCB knows of no reason why all Consents (as defined in Section 6.1(b)), should not be obtained without the imposition of any condition or restriction of the type referred to in Section 6.1(f) or why the accountants' letter referred to in Section 6.1(e) cannot be obtained. (w) BROKERS AND FINDERS. Except as set forth on Section 3.1(w) of the PCB Disclosure Schedule, neither PCB nor any of its directors, officers or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or similar payments in connection with the transactions contemplated by this Agreement. Any liabilities to any such broker or finder shall be reflected in the financial statements of PCB as of the Valuation Date. (x) LABOR MATTERS. Except as set forth on Section 3.1(x) of the PCB Disclosure Schedule, PCB is not a party to, or bound by, any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is it the subject of any material proceeding asserting that it has committed an unfair labor practice or seeking to compel it to bargain with any labor organization as to wages or conditions of employment nor is there any strike or other labor dispute involving it pending or, to its knowledge, threatened. (y) TRADEMARKS AND TRADE NAMES. PCB (i) owns and has the exclusive right to use all trademarks, trade names, patents, copyrights, service marks, trade secrets, or other intellectual property rights (collectively, "INTELLECTUAL PROPERTY RIGHTS") used in or necessary for the conduct of their businesses as now or heretofore conducted; and (ii) is not infringing upon the Intellectual Property Rights of any person or entity. No claim is pending or threatened by any person or entity against or otherwise affecting the use by PCB of any Intellectual Property Rights and there is no valid basis for any such claim. (z) COMPENSATION OF OFFICERS AND EMPLOYEES. Except as set forth on Section 3.1(z) of the PCB Disclosure Schedule, (i) no officer or employee of PCB is receiving aggregate direct remuneration at a rate exceeding $60,000 per annum, and (ii) the consummation of the transactions contemplated by this Agreement and the Merger Agreement will not (either alone or upon the occurrence of any additional or further acts or events) result in any payment 17 (whether of severance pay or otherwise) becoming due from PCB or Scripps to any employee of PCB. (aa) INSURANCE. PCB is and continuously since its inception has been, insured with reputable insurers against all risks normally insured against by banks, and all of the insurance policies and bonds maintained by PCB are in full force and effect, PCB is not in default thereunder and all material claims thereunder have been filed in due and timely fashion. In the best judgment of the management of PCB, such insurance coverage is adequate for PCB. Since December 31, 1997 there has not been any damage to, destruction of, or loss of any assets of PCB not covered by insurance that could materially adversely affect the business, financial condition, properties, assets or results of operations of PCB. (bb) LOAN LOSS RESERVES. The allowance for loan losses in the PCB balance sheets dated December 31, 1997, March 31, 1998, and as of the Valuation Date are and will be adequate in all material respects under the requirements of all applicable state and federal laws and regulations to provide for possible loan losses on outstanding loans, net of recoveries. PCB has disclosed to Scripps in writing prior to the date hereof, and will promptly inform Scripps of the amounts of all loans, leases, other extensions of credit or commitments, or other interest-bearing assets of PCB, that have been classified as of the date hereof or hereafter by PCB management or PCB internal policy or procedure, any outside review examiner, accountant or any bank regulatory agency as "Other Loans Specially Mentioned," "Special Mention," "Substandard," "Doubtful," or "Loss" or classified using categories or words with similar import in the case of loans (or that would have been so classified, in the case of other interest-bearing assets, had they been loans). Notwithstanding the above, PCB shall be under no obligation to disclose to Scripps any such classification by any bank regulatory agency where such disclosure would violate any obligation of confidentiality of PCB imposed by such bank regulatory agency. PCB has furnished and will continue to furnish to Scripps true and accurate information concerning the loan portfolio of PCB, and no material information with respect to the loan portfolio has been or will be withheld from Scripps. (cc) TRANSACTIONS WITH AFFILIATES. Except as may arise in the Ordinary Course of Business, PCB has not extended credit, committed itself to extend credit, or transferred any asset to or assumed or guaranteed any liability of the employees or directors of PCB, or any spouse or child of any of them, or to any of their "affiliates" or "associates" as such terms are defined in Rule 405 under the Securities Act. PCB has not entered into any other transactions with the employees or directors of PCB or any spouse or child of any of them, or any of their affiliates or associates, except as disclosed in writing to Scripps. Any such transactions have been on terms no less favorable to PCB than those which would prevail in an arms-length transaction with an independent third party. PCB has not violated the applicable rules of the Regulatory Agencies in connection with any such transactions described in this subsection. (dd) INFORMATION IN SCRIPPS APPLICATIONS. The information pertaining to PCB which has been or will be furnished to Scripps for or on behalf of PCB for inclusion in the applications to be filed to obtain government approvals, including the CDFI Application (the "APPLICATIONS") or that will be contained in the Joint Proxy Statement, does not and will not 18 contain any untrue statement of any material fact and does not omit and will not omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that information of a later date shall be deemed to modify information as of an earlier date. All financial statements of PCB included in the Applications or the Joint Proxy Statement, will present fairly the financial condition and results of operations of PCB at the dates and for the periods covered by such statements in accordance with generally accepted accounting principles consistently applied throughout the periods covered by such statements. PCB shall promptly advise Scripps in writing if prior to the Effective Time, PCB shall obtain knowledge of any facts that would make it necessary to amend or supplement the Applications or the Joint Proxy Statement in order to make the statements therein not misleading or to comply with applicable law or regulation. 3.2 REPRESENTATIONS AND WARRANTIES OF SCRIPPS. Each representation and warranty of Scripps set forth in this Agreement shall be deemed to be made on and as of the date hereof, the Closing Date and the Effective Time. No representation or warranty is inaccurate, incomplete or incorrect in any material respect as of the date furnished or contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary to make such representation, warranty or statement not misleading to PCB. Scripps represents and warrants to PCB as follows: (a) ORGANIZATION, STANDING AND POWER. Scripps is a banking corporation duly organized, validly existing and in good standing under the laws of California, has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted and is duly qualified and in good standing to do business in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification necessary other than in such jurisdictions where the failure to so qualify would not have a material adverse effect on Scripps. (b) CAPITAL STRUCTURE. (i) As of the date hereof, the authorized capital stock of Scripps consists of 10,000,000 shares of Scripps Common Stock. As of the close of business on April 21, 1998, (A) 4,943,715 shares of Scripps Common Stock were outstanding, (B) 337,946 shares of Scripps Common Stock were issuable upon exercise of outstanding stock options and warrants, and (C) 162,906 shares of Scripps Common Stock were reserved for issuance pursuant to the Employee Stock Purchase Plan, Employee Stock Ownership Plan, Dividend Reinvestment Plan and various Stock Option Plans (collectively referred to as the "SCRIPPS STOCK PLANS"). Except as set forth in the preceding sentence and except as set fourth in Section 3.2 (b)(i) of the disclosure schedule of Scripps (the "SCRIPPS DISCLOSURE SCHEDULE") delivered to PCB prior to the execution of this Agreement, Scripps has no other instrument or agreement outstanding permitting the holder to acquire shares of capital stock of Scripps. All outstanding shares of Scripps Common Stock are, and the shares of Scripps Common Stock to be issued pursuant to or as specifically contemplated by this Agreement, will be, duly authorized, validly issued, fully paid and nonassessable and not subject to any 19 preemptive rights and have been issued in compliance with all applicable securities laws. All outstanding options of Scripps were issued and, upon issuance in accordance with the terms of the outstanding options said shares shall be validly issued, fully paid and nonassessable and issued in compliance with all applicable securities laws. The shares of Scripps Common Stock are not registered pursuant to Section 12 or Section 15 of the Exchange Act. (ii) As of the date hereof, Scripps does not have outstanding any Voting Debt. (iii) As of the date of this Agreement, except as set forth on Section 3.2(b)(iii) of the Scripps Disclosure Schedule, and except for this Agreement and the Scripps Stock Plans, Scripps does not have outstanding any options, warrants, calls, rights, commitments or agreements of any character to which Scripps is bound obligating Scripps to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or any Voting Debt or obligating Scripps to grant, extend or enter into any such option, warrant, call, right, commitment or agreement. Except as collateral for outstanding loans held in its loan portfolio, Scripps does not, directly or indirectly, own any equity interest in any bank, corporation or other entity. From and after the Effective Time, there will be no option, warrant, call, right or agreement obligating Scripps to issue, deliver or sell, or cause to be issued, delivered or sold, any shares of capital stock or any Voting Debt of Scripps, or obligating Scripps to grant, extend or enter into any such option, warrant, call, right or agreement. As of the date hereof, except as set forth on Section 3.1(b)(iii) of the Scripps Disclosure Schedule, there are no outstanding contractual obligations of Scripps to repurchase, redeem or otherwise acquire any shares of capital stock of Scripps. (iv) Except as set forth on Section 3.2(b)(iv) of the Scripps Disclosure Schedule, since January 1, 1996, Scripps has not (A) issued or permitted to be issued any shares of capital stock, or securities exercisable for or convertible into shares of capital stock of Scripps, other than pursuant to and as required by the terms of the Scripps Stock Plans (and stock options granted thereunder); (B) repurchased, redeemed or otherwise acquired, directly or indirectly, any shares of capital stock of Scripps (other than the acquisition of trust account shares) except in connection with internal reorganizations, consolidations, liquidations or mergers and in connection with the items set forth on Section 3.2(b)(iv) of the Scripps Disclosure Schedule; or (C) declared, set aside, made or paid to the shareholders of Scripps dividends or other distributions on the outstanding shares of capital stock of Scripps other than regular semiannual cash dividends on the Scripps Common Stock at a rate not in excess of the regular semiannual cash dividends most recently declared by Scripps prior to the date of this Agreement. (c) AUTHORITY. (i) Scripps has all requisite corporate power and authority to enter into this Agreement and, subject to approval by the shareholders of Scripps of this Agreement, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Scripps. This Agreement has been 20 duly executed and delivered by Scripps and constitutes a valid and binding obligation of Scripps, enforceable in accordance with its terms. (ii) The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby will not be, give rise to or result in any Violation pursuant to any provision of the Articles of Incorporation or Bylaws of Scripps, subject to obtaining or making the consents, approvals, orders, authorizations, registrations, declarations and filings referred to in paragraph (iii) below or, be, give rise to or result in any Violation pursuant to any loan or credit agreement, note, mortgage, indenture, lease, Benefit Plan or other agreement, obligation, instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Scripps or its properties or assets, which Violations would in the aggregate have a material adverse effect on Scripps. (iii) No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to Scripps in connection with the execution and delivery of this Agreement by Scripps or the consummation by Scripps of the transactions contemplated hereby, the failure of which to obtain or make would in the aggregate have a material adverse effect on Scripps or on its ability to perform its obligations hereunder, except for (A) the filing of applications and notices with the CDFI and approval of same, (B) such filings and approvals as are required to be made or obtained under the securities or "Blue Sky" laws of various states in connection with the issuance of Scripps Common Stock contemplated by this Agreement, (C) the filing of the Merger Agreement with the Secretary of State of the State of California and appropriate documents with the relevant authorities of other states in which Scripps is qualified to do business, (D) consents, authorizations, approvals, filings or exemptions in connection with compliance with the applicable provisions of Federal securities laws relating to the regulation of investment advisors and broker-dealers and of any applicable industry self-regulatory organization, or which are required under consumer finance, mortgage banking and other similar laws, and (F) such filings, notifications and approvals as may be required under the Small Business Investment Act of 1958 and the rules and regulations thereunder. (d) SCRIPPS FILINGS. Scripps has made available to PCB a true and complete copy of each report, schedule, registration statement and definitive proxy statement filed by Scripps with the Regulatory Agencies since January 1, 1995 (such documents, as amended since the time of their filing, being referred to herein as the "SCRIPPS FILINGS"), which are all the documents that Scripps was required to file with the Regulatory Agencies since such date. As of their respective dates, the Scripps Filings complied in all material respects with the requirements of the Applicable Laws and none of the Scripps Filings contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of Scripps included in the Scripps Filings filed since January 1, 1995 comply in all material respects with applicable accounting requirements and with the published rules and regulations of the CDFI with respect thereto. To the extent required by such rules and regulations, such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be 21 indicated in the notes thereto) and fairly present (subject, in the case of the unaudited statements, to recurring audit adjustments normal in nature and amount) the financial position of Scripps as at the dates thereof and the results of its operations and cash flows or changes in financial position for the periods then ended. (e) ARTICLES, BYLAWS, BOOKS AND RECORDS. The copies of the Articles of Incorporation and Bylaws of Scripps, delivered to PCB are complete and accurate copies thereof as in effect on the date hereof. The minute book of Scripps made available to PCB contains a complete and accurate record of all meetings of Scripps's Board of Directors (and committees thereof) and shareholders. The corporate books and records (including financial statements) of Scripps fairly reflect the material transactions to which Scripps is a party or by which its properties are subject or bound, and such books and records have been properly kept and maintained. (f) INFORMATION SUPPLIED. No representation or warranty of Scripps contained in this Agreement or any statement, schedule, exhibit or certificate given or to be given by or on behalf of Scripps to PCB in connection herewith and none of the information supplied or to be supplied by Scripps to PCB under this Agreement contains or will contain any untrue statement of material fact or admit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. (g) COMPLIANCE WITH APPLICABLE LAWS. Scripps holds all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities which are necessary for the operation of the business of Scripps (the "SCRIPPS PERMITS"), except for Scripps Permits the failure of which to hold would not, individually or in the aggregate, have a material adverse effect on Scripps. Scripps is in compliance in all material respects with the terms of the Scripps Permits and all applicable laws and regulations, except for possible violations which, individually or in the aggregate, would not have a material adverse effect on Scripps. Except as disclosed in the Scripps Filings filed prior to the date of this Agreement, the business of Scripps is not being conducted in violation of any Applicable Laws, except for violations which individually or in the aggregate would not, have a material adverse effect on Scripps. No investigation or review by any Governmental Entity with respect to Scripps is pending or, to the knowledge of Scripps, threatened, nor has any Governmental Entity indicated to Scripps and intention to conduct the same, other than which individually or in the aggregate, will not have a material adverse effect on Scripps. Scripps has not failed to file with the proper federal, state, local or other authorities any material report or other document required to be filed by it. Scripps has filed all material documents and reports required to be filed by it with the Regulatory Agencies and any other Governmental Entity having jurisdiction over its business or any of its assets or properties. All such reports conform in all material respects with the requirements promulgated by such Governmental Entities and Regulatory Agencies. All compliance or corrective action relating to Scripps required by all Governmental Entities and Regulatory Agencies has been taken. Scripps has not received any notification, formally or informally, from any Governmental Entity or Regulatory Agency or the staff thereof (A) asserting that it is not in compliance with any of the Applicable Laws, or (B) threatening to revoke any license, franchise, 22 permit or governmental authorization. Scripps has paid all assessments made or imposed by any Governmental Entity. (h) LITIGATION. Except as set forth on Section 3.2(h) of the Scripps Disclosure Schedule, there is no suit, action or proceeding pending or, to the knowledge of Scripps, threatened, against or affecting Scripps which, if adversely determined, would have a material adverse effect on Scripps; nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against Scripps, having, or which, insofar as reasonably can be foreseen, in the future would have, any such effect. To Scripps's knowledge, there is no reasonable basis for any legal action or other proceeding or investigation before any court, any arbitrator of any kind or any government agency, and Scripps is not subject to any potential adverse claim, the outcome of which could involve the payment or receipt by Scripps of any amount in excess of $150,000, unless an insurer of Scripps has agreed to defend against and pay the amount of any resulting liability without reservation, or, if any such legal action, proceeding, investigation or claim will not involve the payment by Scripps of a monetary amount, which could materially adversely affect Scripps or its business or property or the transactions contemplated hereby. Scripps has no knowledge of any pending or threatened claims or charges under any Applicable Laws, including but not limited to, the Community Reinvestment Act, before the Equal Employment Opportunity Commission, the California Department of Fair Housing & Economic Development, the California Unemployment Appeals Board, or any federal or state human relations commission or agency. There is no labor dispute, strike, slow-down or stoppage pending or, to the best of the knowledge of Scripps, threatened against Scripps. (i) TAXES. Scripps has filed all material tax returns required to be filed by it, which tax returns are true, correct and complete in all material respects, and has paid all taxes required to be paid as shown on such returns. No material deficiencies for any taxes have been proposed, asserted or assessed against Scripps. Except with respect to claims for refund, the Federal income tax returns of Scripps have been examined by and settled with the IRS, or the statute of limitations has expired (and no waiver extending the statute of limitations has been requested or granted), for all taxable years ending on or before December 31, 1990. The Federal income tax returns of Scripps are not currently under examination by the IRS. (j) PROPERTIES AND LEASES. (i) Scripps has good and marketable title, free and clear of all liens and encumbrances and the right of possession, subject to existing leaseholds, to all real properties and good title to all other property and assets, tangible and intangible, reflected in the Scripps balance sheet as of March 31, 1998 (except property held as lessee under leases disclosed in writing prior to the date hereof and except personal property sold or otherwise disposed of since March 31, 1998, in the Ordinary Course of Business), except (a) liens for taxes or assessments not delinquent, (b) such other liens and encumbrances and imperfections of title as do not materially affect the value of such property as reflected in the Scripps balance sheet as of March 31, 1998, or as currently shown on the books and records of Scripps and which do not interfere with or impair its present and continued use, or (c) exceptions disclosed in title reports 23 and preliminary title reports, copies of which have been provided to Scripps. All tangible properties of Scripps conform in all material respects with all applicable ordinances, regulations and zoning laws. All tangible properties of Scripps are in a good state of maintenance and repair and are adequate for the current business of Scripps. No properties of Scripps, and, to the best of Scripps's knowledge, no properties in which it holds a collateral or contingent interest or purchase option, are the subject of any pending or threatened investigation, claim or proceeding relating to the use, storage or disposal on such property of or contamination of such property by any toxic or hazardous waste material or substance. Scripps does not own, possess or have a collateral or contingent interest or purchase option in any properties or other assets which contain or have located within or thereon any hazardous or toxic waste material or substance unless the location of such hazardous or toxic waste material or other substance or its use thereon conforms in all material respects with all federal, state and local laws, rules, regulations or other provisions regulating the discharge of materials into the environment. As to any asset not owned or leased by Scripps, Scripps has not controlled, directed or participated in the operation or management of any such asset or any facilities or enterprise conducted thereon, such that it has become an owner or operator of such asset under applicable environmental laws. (ii) All properties held by Scripps under leases are held by it under valid, binding and enforceable leases, with such exceptions as are not material and do not interfere with the conduct of the business of Scripps, and Scripps enjoys quiet and peaceful possession of such leased property. Scripps is not in material default in any respect under any material lease, agreement or obligation regarding its properties to which it is a party or by which it is bound. (iii) Except as set forth on Section 3.2(j) of the Scripps Disclosure Schedule, no third party consents are required under the leases referred to in Section 3.2(j) in order to consummate the transactions contemplated by this Agreement and the Merger Agreement. Where required, Scripps shall obtain, prior to the Effective Date, the necessary consents of such parties. (k) SUBSIDIARIES. Scripps does not have any Subsidiaries. (l) AGREEMENTS WITH REGULATORY AUTHORITIES. Scripps holds a currently valid license issued by the CDFI to engage in the commercial banking and trust business in California at the locations at which it currently conducts business. Neither the scope of the business of Scripps nor the location of its properties requires it to be licensed to do business in any jurisdiction other than the State of California. Scripps's deposits are insured by the FDIC to the maximum extent permitted by applicable law and regulation. Scripps is not a party to any written agreement or memorandum of understanding with, or a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of, any Regulatory Agency, nor has Scripps been advised by any Regulatory Authority that it is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting) any such order, directive, written agreement, memorandum of understanding, extraordinary supervisory letter, commitment letter, board resolutions or similar undertaking. 24 (m) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Scripps Filings filed prior to the date of this Agreement, since December 31, 1997, Scripps has not incurred any material liability, except in the Ordinary Course of Business consistent with its past practices, nor has there been any change, or any event involving a prospective change, in the business, financial condition or results of operations of Scripps which has had, or is reasonably likely to have, a material adverse effect on Scripps (other than as a result of changes in banking laws or regulations of general applicability or interpretations thereof). (n) NO UNDISCLOSED LIABILITIES. Except for items for which reserves have been established in the unaudited balance sheet of Scripps as of March 31, 1998, Scripps has not incurred or discharged, and is not legally obligated with respect to, any indebtedness, liability (including, without limitation, a liability arising out of an indemnification, guarantee, hold harmless or similar arrangement) or obligation (accrued or contingent, whether due or to become due, and whether or not subordinated to the claims of its general creditors), other than as a result of operations in the Ordinary Course of Business after such date. Except as set forth in Section 3.2(n) of the Scripps Disclosure Schedule, no cash, stock or other dividend or any distribution with respect to the Scripps shares has been declared, set aside or paid, nor have any of the PCB shares been purchased, redeemed or otherwise acquired, directly or indirectly, by PCB since December 31, 1995. (o) ACCOUNTING MATTERS. Based upon consultation with its independent accountants, neither Scripps nor any of its directors, officers or, to its knowledge, shareholders has taken or agreed to take any action that would prevent Scripps from accounting for the business combination to be effected by the Merger as a "pooling of interests." (p) CAPITAL STOCK. At the Effective Time, the Scripps Common Stock issued pursuant to the Merger will be duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. (q) APPROVALS. Scripps knows of no reason why all Consents should not be obtained without the imposition of any condition or restriction of the type referred to in Section 6.1(f) or why the accountants' letter referred to in Section 6.1(e) cannot be obtained. (r) BROKERS AND FINDERS. Except as set forth on Section 3.2(r) of the Scripps Disclosure Schedule, neither Scripps nor any of its respective directors, officers or employees has employed any broker or finder or incurred any liability for any financial advisory fees, brokerage fees, commissions or similar payments in connection with the transactions contemplated by this Agreement. (s) BENEFIT PLANS. (i) With respect to each Benefit Plan maintained or contributed to by Scripps (the "Scripps Benefit Plans"), Scripps has made available to PCB a true and correct copy of (A) the most recent annual report (Form 5500) filed with the IRS, (B) such Scripps Benefit Plan, (C) each trust agreement relating to such Scripps Benefit Plan, (D) the most recent summary plan description for each Scripps Benefit Plan for which a summary plan description is 25 required, (E) the most recent actuarial report or valuation relating to a Scripps Benefit Plan subject to title IV of ERISA, and (F) the most recent determination letter issued by the IRS with respect to any Scripps Benefit Plan qualified under Section 401(a) of the Code. (ii) The current value of the assets of each of the Scripps Benefit Plans subject to title IV of ERISA exceeds that plan's "Benefit Liabilities" as that term is defined in Section 4001(a)(16) of ERISA, when determined under actuarial factors that would apply if that plan terminated in accordance with all applicable legal requirements. (iii) Except as set forth in Section 3.2(s) of the Scripps Disclosure Schedule, to the best knowledge of Scripps, each of the Scripps Benefit Plans has been administered in compliance with its terms in all material respects and is in compliance in all material respects with the applicable provisions of ERISA (including, but not limited to, the funding and prohibited transactions provisions thereof), the Code and other applicable laws. (iv) There has been no reportable event within the meaning of Section 4043(b) of ERISA (for which a waiver did not apply) or any accumulated funding deficiency (whether or not waived) within the meaning of Section 412 of the Code with respect to any Scripps Benefit Plan. (v) All contributions to the Scripps Benefit Plans required thereunder have been made or provided for. (vi) No contributions have been made by Scripps, to any "Multiemployer Plan," as such term is defined in Section 3(37) of ERISA. (vii) To the best knowledge of Scripps, each of the Scripps Benefit Plans which is intended to be a qualified plan within the meaning of Section 401(a) of the Code is so qualified, and Scripps is not aware of any fact or circumstance which would adversely affect the qualified status of any such plan. (viii) With respect to the Scripps Benefit Plans, individually and in the aggregate, no event has occurred and, to the knowledge of Scripps there exists no condition or set of circumstances in connection with which Scripps could be subject to any liability that is reasonably likely to have a material adverse effect on Scripps (except liability for benefits claims and funding obligations payable in the ordinary course) under ERISA, the Code or any other applicable law. (ix) True and complete copies of the Scripps Stock Plans as in effect on the date hereof have been provided to PCB. (t) ENVIRONMENTAL MATTERS. Each of the representations contained in the following subparagraphs (i)-(v) of this Section 3.2(t) is qualified in its entirety by the information set forth in Section 3.2(t) of the Scripps Disclosure Schedule. 26 (i) To the knowledge of Scripps, the Scripps Participation Facilities, and the Scripps Loan Properties (each as hereinafter defined) are, and have been, in compliance with all applicable laws, rules, regulations, standards and requirements of the EPA and of state and local agencies with jurisdiction over pollution or protection of the environment, except for violations which, either individually or in the aggregate, do not or would not result in a material adverse effect on Scripps. (ii) To the knowledge of Scripps, there is no suit, claim, action or proceeding pending or threatened, before any court, governmental agency or board or other forum in which Scripps or any Scripps Participation Facility has been or, with respect to threatened proceedings, may be, named as a defendant (x) for alleged noncompliance (including by any predecessor), with any environmental law, rule or regulation or (y) relating to the release into the environment of any Hazardous Material (as hereinafter defined) or oil whether or not occurring at or on a site owned, leased or operated by Scripps or any Scripps Participation Facility except as would not, either individually or in the aggregate, result in a material adverse effect on Scripps. (iii) To the knowledge of Scripps, there is no suit, claim, action or proceeding pending or threatened, before any court, governmental agency or board or other forum in which any Scripps Loan Property has been or, with respect to threatened proceedings, may be, named as a defendant (x) for alleged noncompliance (including by any predecessor) with any environmental law, rule or regulation or (y) relating to the release into the environment of any Hazardous Material or oil whether or not occurring at or on a site owned, leased or operated by a Scripps Loan Property, except where such noncompliance or release does not or would not result, either individually or in the aggregate, in a material adverse effect on Scripps. (iv) To the knowledge of Scripps, there is no reasonable basis for any suit, claim, action or proceeding as described in subsection (ii) or (iii) of this Section 3.2(t), except as would not, individually or in the aggregate, have a material adverse effect on Scripps. (v) During the period of (x) Scripps's ownership or operation of any of its respective current properties, (y) Scripps's participation in the management of any Scripps Participation Facility, or (z) Scripps's holding of a security interest in a Scripps Loan Property, to the knowledge of Scripps, there has been no release of Hazardous Material or oil in, on, under or affecting such properties, except where such release does not or would not result, either individually or in the aggregate, in a material adverse effect on Scripps. Prior to the period of (x) Scripps's ownership or operation of any of their respective current properties, (y) Scripps's participation in the management of any Scripps Participation Facility, or (z) Scripps's holding of a security interest in a Scripps Loan Property, to the knowledge of Scripps, there was no release of Hazardous Material or oil in, on, under or affecting any such property, Scripps Participation Facility or Scripps Loan Property, except where such release does not or would not result, either individually or in the aggregate, in a material adverse effect on Scripps. (vi) The following definitions apply for purposes of this Section 3.2(t): (x) "Scripps Loan Property" means any property in which Scripps holds a security interest for an 27 amount greater than $25,000 and, where required by the context, said term means the owner or operator of such property; (y) "Scripps Participation Facility" means any facility in which Scripps participates in the management and, where required by the context, said term means the owner or operator of such property; and (z) "Hazardous Material" means any pollutant, contaminant, or hazardous substance under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. 9601 et seq., or any similar state law. (u) INSURANCE. Scripps is and continuously since its inception has been, insured with reputable insurers against all risks normally insured against by banks, and all of the insurance policies and bonds maintained by Scripps are in full force and effect, Scripps is not in default thereunder and all material claims thereunder have been filed in due and timely fashion. In the best judgment of the management of Scripps, such insurance coverage is adequate for Scripps. Since December 31, 1997 there has not been any damage to, destruction of, or loss of any assets of Scripps not covered by insurance that could materially adversely affect the business, financial condition, properties, assets or results of operations of Scripps. (v) LOAN LOSS RESERVES. The allowance for loan losses in the Scripps balance sheets dated December 31, 1997, March 31, 1998, and as of the Valuation Date are and will be adequate in all material respects under the requirements of all applicable state and federal laws and regulations to provide for possible loan losses on outstanding loans, net of recoveries. Scripps has disclosed to PCB in writing prior to the date hereof, and will promptly inform Scripps of the amounts of all loans, leases, other extensions of credit or commitments, or other interest-bearing assets of Scripps, that have been classified as of the date hereof or hereafter by Scripps management or Scripps internal policy or procedure, any outside review examiner, accountant or any bank regulatory agency as "Other Loans Specially Mentioned," "Special Mention," "Substandard," "Doubtful," or "Loss" or classified using categories or words with similar import in the case of loans (or that would have been so classified, in the case of other interest-bearing assets, had they been loans). Notwithstanding the above, Scripps shall be under no obligation to disclose to PCB any such classification by any bank regulatory agency where such disclosure would violate any obligation of confidentiality of Scripps imposed by such bank regulatory agency. Scripps has furnished and will continue to furnish to PCB true and accurate information concerning the loan portfolio of Scripps, and no material information with respect to the loan portfolio has been or will be withheld from PCB. (w) TRANSACTIONS WITH AFFILIATES. Except as may arise in the Ordinary Course of Business, Scripps has not extended credit, committed itself to extend credit, or transferred any asset to or assumed or guaranteed any liability of the employees or directors of Scripps, or any spouse or child of any of them, or to any of their "affiliates" or "associates" as such terms are defined in Rule 405 under the Securities Act. Scripps has not entered into any other transactions with the employees or directors of Scripps or any spouse or child of any of them, or any of their affiliates or associates, except as disclosed in writing to PCB. Any such transactions have been on terms no less favorable to Scripps than those which would prevail in an arms-length transaction with an independent third party. Scripps has not violated the applicable rules of the Regulatory Agencies in connection with any such transactions described in this subsection. 28 (x) STATUS OF TRUST ASSETS. As used in this Agreement, the term "Trust Assets" shall mean and include: (a) all right, title and interest of Scripps in and to and under any and all trusts, wills, agency agreements, decedent's estates and other representative or fiduciary appointments in favor of, or services by, Scripps and all other trust, wills, agency agreements and the like similar to the foregoing under which Scripps has been named as of the Closing Date in some representative or fiduciary capacity to take effect at some time in the future; and (b) all properties, rights, documents, instruments, interests and other tangible and intangible assets owned by, governed or administered under, arising under or with respect to or pertaining to any of the foregoing. (i) With respect to the Trust Assets: (i) no notice has been received by Scripps questioning the validity or enforceability of any of the agreements, contracts or other commitments to which Scripps is a party comprising a part of the Trust Assets; (ii) to Scripps's knowledge, none of the parties to any such agreement, contract or other commitment is in default of any material obligation under, or in the performance of, any material term, condition or other provision of any such agreement, contract or other commitment; (iii) the rights of Scripps to receive fees in connection with Trust Assets are free and clear of all pledges, security interests and liens of any kind whatsoever; (iv) in the management, operation and servicing of the Trust Assets, Scripps has complied, in all material respects, with all applicable federal, state and local laws, rules, regulations, ordinances, rulings, orders awards, judgments and decrees; and (v) in the management, operation and servicing of the Trust Assets, Scripps has complied with all material terms of all instruments governing the Trust Assets. (ii) Except as set forth on Section 3.2(x) of the Scripps Disclosure Schedule, to Scripps's knowledge (without conducting any site investigation or other analysis for the purpose of making this representation), neither the use nor current condition of any real property relating to the Trust Assets is or has been such during the time the Trust Assets were owned, operated or managed by Scripps, in violation of any Applicable Law under circumstances where the violation would have a Material Adverse Effect on the real property in question. Scripps has adhered to and followed in all material respects all environmental policies of Scripps with respect to the Trust Assets. (y) INFORMATION PERTAINING TO SCRIPPS. The information pertaining to Scripps which has been or will be furnished for or on behalf of Scripps for inclusion in the Applications and that will be contained in the Joint Proxy Statement, does not and will not contain any untrue statement of any material fact and does not omit and will not omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; provided, however, that information of a later date shall be deemed to modify information as of an earlier date. All financial statements of Scripps included in each Application and in the Joint Proxy Statement will present fairly the financial condition and results of operations of Scripps at the dates and for the periods covered by such statements in accordance with generally accepted accounting principles consistently applied throughout the periods covered by such statements. Scripps shall promptly advise PCB in writing if prior to the Effective Time Scripps shall obtain knowledge of any facts that would make it necessary to amend or supplement any Application or the Joint Proxy 29 Statement in order to make the statements therein not misleading or to comply with applicable law or regulation. ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS 4.1 COVENANTS OF PCB. During the period from the date of this Agreement and continuing until the Effective Time, PCB agrees that, except as expressly contemplated or permitted by this Agreement, or to the extent that Scripps shall otherwise consent in writing: (a) ORDINARY COURSE. PCB shall carry on its business in, and only in, the usual, regular and ordinary course in substantially the same manner as heretofore conducted. For purposes of this Agreement, the "Ordinary Course of Business" of either party shall consist of the banking and related businesses as presently conducted by it in compliance with customary safe and sound banking practices and applicable banking laws and regulations. PCB shall use all reasonable efforts to preserve intact its present business organizations, maintain its rights and franchises and preserve its relationships with customers, suppliers and others having business dealings with them to the end that its goodwill and ongoing businesses shall not be impaired in any material respect. (i) Specifically, and not by way of limitation, PCB shall cause its officers to: (A) comply with all Applicable Laws; (B) use their best efforts to keep in force, at not less than the present limits, all policies of insurance (including deposit insurance of the FDIC) to the extent reasonably practicable in light of the prevailing market conditions in the insurance industry; (C) use their best efforts to keep available to Scripps the services of its present officers and employees (it being understood that PCB shall have the right to terminate the employment of any of its officers or employees in accordance with its established employment procedures); (D) comply with all orders, agreements and memoranda of understanding with respect to it made by or with the Regulatory Agencies or any other regulatory authority of competent jurisdiction, and promptly forward to the Scripps all communications received from any such authority that are not prohibited by such authority from being so disclosed and inform Scripps of any material restrictions imposed by any governmental authority on its business; (E) with respect to any extension of credit in excess of $50,000, not waive or release any right or collateral or cancel or compromise any debt or claim, except in the Ordinary Course of Business; 30 (F) not make, re-negotiate, renew, increase, extend or purchase any loans, advances or loan commitments, in each case to any of its officers, directors or any affiliated or related persons of such directors or officers except in the Ordinary Course of Business consistent with its established loan procedures and in compliance with applicable rules of the Regulatory Agencies; (G) not take any action to create, relocate or terminate the operations of any banking office or branch, or to form any new subsidiary or affiliated entity; and (H) not settle or otherwise take any action to release or reduce any of its rights with respect to any litigation involving a claim of more than $25,000 in which PCB is a party. (ii) PCB shall not: (A) enter into any new material line of business; (B) change its lending, investment, liability management and other material banking policies in any material respect; (C) incur or commit to any capital expenditures or any obligations or liabilities in connection therewith other than capital expenditures and obligations or liabilities which are not in excess or $25,000 and which are incurred or committed to in the Ordinary Course of Business consistent with past practice and the items shown on Section 4.1(a) of the PCB Disclosure Schedule; (D) commit itself to any loan with a principal amount in excess of $400,000, provided that Scripps consent shall be deemed given unless it objects and states the basis of its objection in writing, or verbally with prompt written confirmation, within two business days after receipt of written notice directed to authorized personnel of Scripps, together with sufficient supporting information to allow Scripps to make an informed judgment, and Scripps shall not unreasonably withhold its consent; provided, further, that any consent given by Scripps shall be binding only if given by authorized personnel of Scripps; or (E) purchase any investment security with a maturity in excess of two years. (iii) PCB shall promptly notify Scripps in writing upon the occurrence by it of any of the following: (A) the classification of any loan as substandard, doubtful or loss; (B) the filing or commencement of any legal action or other proceeding or investigation against it; or 31 (C) its pre-tax earnings in any month are less than Fifty Thousand Dollars ($50,000). (b) DIVIDENDS; CHANGES IN STOCK. PCB shall not and shall not propose to, (i) declare or pay any dividends on or make other distributions in respect of any of its capital stock; (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock; or (iii) repurchase, redeem or otherwise acquire (other than as agent for shareholders reinvesting dividends pursuant to such party's dividend reinvestment plan and except for the acquisition of trust account shares), any shares of its capital stock. (c) ISSUANCE OF SECURITIES. PCB shall not issue, deliver, sell, pledge, assign or otherwise encumber or authorize or propose the issuance, delivery, sale, pledge, assignment or other encumbrance of, any shares of its capital stock of any class, any Voting Debt or any securities convertible into or exercisable for, or any rights, warrants or options to acquire, any such shares or Voting Debt, or enter into any agreement with respect to any of the foregoing, other than the issuance of PCB Common Stock pursuant to outstanding employee stock options or similar rights to acquire PCB Common Stock granted pursuant to the PCB Stock Option Plan, in each case as in effect on the date of this Agreement and in each case in accordance with their present terms. Notwithstanding the foregoing, nothing herein shall prohibit the issuance of stock options under PCB's Stock Option Plan in the Ordinary Course of Business and consistent with past practice. (d) GOVERNING DOCUMENTS. PCB shall not amend or propose publicly to amend the PCB Articles, Bylaws or its other governing documents. (e) NO SOLICITATIONS. PCB shall not and shall not authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative or agent retained by it, to solicit or encourage (including by way of furnishing nonpublic information), or take any other action to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any takeover proposal (as defined below), or, subject to the fiduciary duties of the Board of Directors of PCB, in each case as determined after consultation with counsel, agree or endorse any takeover proposal, or participate in any discussions or negotiations, or provide third parties with any nonpublic information, relating to any such inquiry or proposal. PCB shall promptly advise Scripps orally and in writing of any such inquiries or proposals, including all of the material terms thereof. As used in this Agreement, "TAKEOVER PROPOSAL" shall mean any tender or exchange offer, proposal for a merger, consolidation or other business combination involving PCB or any proposal or offer to acquire in any manner a substantial equity interest in, or a substantial portion of the assets of PCB, other than the transactions contemplated or permitted by this Agreement. (f) NO ACQUISITIONS. Other than acquisitions described on Section 4.1(f) of the PCB Disclosure Schedule, PCB shall not acquire or agree to acquire, by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the 32 assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets in each case which are material, individually or in the aggregate, to PCB; PROVIDED, HOWEVER, that the foregoing shall not prohibit (i) foreclosures and other acquisitions related to previously contracted debt, in each case in the Ordinary Course of Business and so long as PCB gives notice to and consults with Scripps if the foreclosure relates to real property as to which PCB has notice of possible environmental liabilities associated with ownership of such property, or, (ii) investments made by small business investment corporations, acquisitions of financial assets and merchant banking activities, in each case in the Ordinary Course of Business. (g) NO DISPOSITIONS. Other than (i) dispositions referred to in the PCB Filings filed prior to the date of this Agreement or described on Section 4.1(g) of the PCB Disclosure Schedule, (ii) as may be required to consummate the transactions contemplated hereby, (iii) securitization activities in the Ordinary Course of Business and (iv) other activities in the Ordinary Course of Business consistent with prior practice, PCB shall not sell, lease, encumber or otherwise dispose of, or agree to sell, lease, encumber or otherwise dispose of, any of its assets. (h) INDEBTEDNESS. Other than in the Ordinary Course of Business consistent with past practice, PCB shall not incur any indebtedness for borrowed money (other than short-term indebtedness incurred to refinance short-term indebtedness and other indebtedness of PCB; it being understood and agreed that incurrence of indebtedness in the Ordinary Course of Business shall include, without limitation, the creation of deposit liabilities, purchases of federal funds, sales of certificates of deposit and entering into repurchase agreements), assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other individual, corporation or other entity, or make any loan or advance other than in the Ordinary Course of Business consistent with past practice. (i) OTHER ACTIONS. PCB shall not take any action that is intended to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect, or in any of the conditions to the Merger set forth in Article VI not being satisfied or in a violation of any provision of this Agreement, or (unless such action is required by applicable law or sound banking practice) which would adversely affect the ability of PCB to obtain any of the Consents without imposition of a condition or restriction of the type referred to in Section 6.1(f) hereof except, in every case, as may be required by applicable law. (j) ADVICE OF CHANGES; GOVERNMENT FILINGS. PCB shall promptly advise Scripps orally and in writing of any change or event having, or which, insofar as can reasonably be foreseen, could have, a material adverse effect on PCB or which would cause or constitute a material breach of any of the representations, warranties or covenants of PCB contained herein. PCB shall file all reports required to be filed by it with the CDFI between the date of this Agreement and the Effective Time and shall deliver to Scripps copies of all such reports promptly after the same are filed. PCB shall file all call reports with the appropriate Regulatory Authorities and all other reports, applications and other documents required to be filed with the appropriate Regulatory Authorities between the date hereof and the Effective Time and shall 33 make available to Scripps copies of all such reports promptly after the same are filed. PCB shall file in a timely manner (taking into account any extensions duly obtained) all other reports, tax returns and other documents required to be filed with federal, state, local and other authorities. (k) ACCOUNTING METHODS. PCB shall not change its methods of accounting in effect at December 31, 1997, except as required by changes in generally accepted accounting principles as concurred to by PCB's independent auditors. PCB will not change its fiscal year. (l) POOLING AND TAX-FREE REORGANIZATION TREATMENT. PCB shall not take or cause to be taken any action, whether before or after the Effective Time, which would disqualify the Merger as a "pooling of interests" for accounting purposes or the Merger as a "reorganization" within the meaning of Section 368(a) of the Code. (m) BENEFIT PLANS. Except as set forth on Section 4.1(m) of the PCB Disclosure Schedule or as provided for in Section 5.7 hereof, PCB agrees that it will not, without the prior written consent of Scripps, (i) enter into, adopt, amend (except as may be required by law) or terminate any PCB Benefit Plan, or any other employee benefit plan or any agreement, arrangement, plan or policy between PCB and one or more of its directors or officers, (ii) except for normal increases in the Ordinary Course of Business consistent with past practice that in the aggregate do not result in a material increase in benefits or compensation expense to PCB, increase in any manner the compensation or fringe benefits of any director, officer or employee or pay any benefit not required by any plan and arrangement as in effect as of the date hereof (including, without limitation, the granting of stock options, stock appreciation rights, restricted stock, restricted stock units or performance units or shares (or enter into any contract, agreement, commitment or arrangement to do any of the foregoing) or (iii) enter into or renew any contract, agreement, commitment or arrangement providing for the payment to any director, officer or employee of PCB of compensation or benefits contingent, or the terms of which are materially altered, upon the occurrence of any of the transactions contemplated by this Agreement. 4.2 COVENANTS OF SCRIPPS. During the period from the date of this Agreement and continuing until the Effective Time, Scripps agrees that, except as expressly contemplated or permitted by this Agreement, or to the extent that PCB shall otherwise consent in writing: (a) ORDINARY COURSE. Scripps shall carry on its business in, and only in, the usual, regular and ordinary course in substantially the same manner as heretofore conducted. Scripps shall use all reasonable efforts to preserve intact its present business organizations, maintain its rights and franchises and preserve its relationships with customers, suppliers and others having business dealings with them to the end that its goodwill and ongoing businesses shall not be impaired in any material respect. (i) Specifically, and not by way of limitation, Scripps shall cause its officers to: (A) comply with all Applicable Laws; 34 (B) use their best efforts to keep in force, at not less than the present limits, all policies of insurance (including deposit insurance of the FDIC) to the extent reasonably practicable in light of the prevailing market conditions in the insurance industry; (C) use their best efforts to keep available the services of its present officers and employees (it being understood that Scripps shall have the right to terminate the employment of any of its officers or employees in accordance with its established employment procedures); (D) comply with all orders, agreements and memoranda of understanding with respect to it made by or with the Regulatory Agencies or any other regulatory authority of competent jurisdiction, and promptly forward to PCB all communications received from any such authority that are not prohibited by such authority from being so disclosed and inform PCB of any material restrictions imposed by any governmental authority on its business; (E) not take any action to terminate the operations of any banking office or branch, or to form any new subsidiary; or (F) not settle or otherwise take any action to release or reduce any of its rights with respect to any litigation involving a claim of more than $100,000 in which Scripps is a party. (ii) Scripps shall not: (A) enter into any new material line of business; (B) change its lending, investment, liabilities, management and other material banking policies in any material respect; (C) Incur or commit to any capital expenditures or any obligations or liabilities in connection therewith other than capital expenditures and obligations or liabilities which are not in excess of $100,000 and which are incurred or committed to in the Ordinary Course of Business consistent with past practice and the items shown on Section 4.2(a) of the Scripps Disclosure Schedule; (iii) Scripps shall promptly notify Scripps in writing upon the occurrence by it of any of the following: (A) the classification of any loan as substandard, doubtful or loss; (B) the filing or commencement of any legal action or other proceeding or investigation against it; or (C) its pre-tax earnings in any month are less than One Hundred Thousand Dollars ($100,000). 35 (b) ISSUANCE OF SECURITIES. Scripps shall not issue, deliver, sell, pledge, assign or otherwise encumber or propose the issuance, delivery, sale, pledge, assignment or other encumbrance of, any shares of its capital stock of any class, any Voting Debt or any securities convertible into or exercisable for, or any rights, warrants or options to acquire, any such shares or Voting Debt, or enter into any agreement with respect to any of the foregoing, other than the issuance of Scripps Common Stock pursuant to outstanding employee stock options or similar rights to acquire Scripps Common Stock granted pursuant to the Scripps Stock Plans, in each case as in effect on the date of this Agreement and in each case in accordance with their present terms. Notwithstanding the foregoing, nothing herein shall prohibit the issuance of stock options under Scripps's Stock Option Plans in the Ordinary Course of Business and consistent with past practice. (c) GOVERNING DOCUMENTS. Scripps shall not amend or propose publicly to amend the Scripps Articles, Bylaws or its other governing documents, except for changes in the size of its board of directors or increases in authorized capitalization. (d) NO SOLICITATIONS. Scripps shall not and shall not authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative or agent retained by it, to solicit or encourage (including by way of furnishing nonpublic information), or take any other action to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any takeover proposal (as defined below), or, subject to the fiduciary duties of the Board of Directors of Scripps, in each case as determined after consultation with counsel, agree or endorse any takeover proposal, or participate in any discussions or negotiations, or provide third parties with any nonpublic information, relating to any such inquiry or proposal. Scripps shall promptly advise PCB orally and in writing of any such inquiries or proposals, including all of the material terms thereof. As used in this Agreement, "takeover proposal" shall mean any tender or exchange offer, proposal for a merger, consolidation or other business combination involving Scripps or any proposal or offer to acquire in any manner a substantial equity interest in, or a substantial portion of the assets of Scripps, other than the transactions contemplated or permitted by this Agreement. (e) NO ACQUISITIONS. Other than acquisitions described on Section 4.2(e) of the Scripps Disclosure Schedule, Scripps shall not acquire or agree to acquire, by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets in each case which are material, individually or in the aggregate, to Scripps; PROVIDED, HOWEVER, that the foregoing shall not prohibit (i) foreclosures and other acquisitions related to previously contracted debt, in each case in the Ordinary Course of Business and so long as Scripps gives notice to and consults with PCB if the foreclosure relates to real property as to which Scripps has notice of possible environmental liabilities associated with ownership of such property, or, (ii) investments made by small business investment corporations, acquisitions of financial assets and merchant banking activities, in each case in the Ordinary Course of Business. 36 (f) NO DISPOSITIONS. Other than (i) dispositions referred to in the Scripps Filings filed prior to the date of this Agreement or described on Section 4.2(f) of the Scripps Disclosure Schedule, (ii) as may be required to consummate the transactions contemplated hereby, (iii) securitization activities in the Ordinary Course of Business and (iv) other activities in the Ordinary Course of Business consistent with prior practice, Scripps shall not sell, lease, encumber or otherwise dispose of, or agree to sell, lease, encumber or otherwise dispose of, any of its assets. (g) INDEBTEDNESS. Other than in the Ordinary Course of Business consistent with past practice, Scripps shall not incur any indebtedness for borrowed money (other than short-term indebtedness incurred to refinance short-term indebtedness and other indebtedness of Scripps; it being understood and agreed that incurrence of indebtedness in the Ordinary Course of Business shall include, without limitation, the creation of deposit liabilities, purchases of federal funds, sales of certificates of deposit and entering into repurchase agreements), assume, guarantee, endorse or otherwise as an accommodation become responsible for the obligations of any other individual, corporation or other entity, or make any loan or advance other than in the Ordinary Course of Business consistent with past practice. (h) OTHER ACTIONS. Scripps shall not take any action that is intended to result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect, or in any of the conditions to the Merger set forth in Article VI not being satisfied or in a violation of any provision of this Agreement, or (unless such action is required by applicable law or sound banking practice) which would adversely affect the ability of Scripps to obtain any consents required by it without imposition of a condition or restriction of the type referred to in Section 6.1(f) hereof except, in every case, as may be required by applicable law. (i) ADVICE OF CHANGES; GOVERNMENT FILINGS. Scripps shall promptly advise PCB orally and in writing of any change or event having, or which, insofar as can reasonably be foreseen, could have, a material adverse effect on Scripps or which would cause or constitute a material breach of any of the representations, warranties or covenants of Scripps contained herein. Scripps shall file all reports required to be filed by it with the CDFI between the date of this Agreement and the Effective Time and shall deliver to PCB copies of all such reports promptly after the same are filed. Scripps shall file all call reports with the appropriate Regulatory Authorities and all other reports, applications and other documents required to be filed with the appropriate Regulatory Authorities between the date hereof and the Effective Time and shall make available to PCB copies of all such reports promptly after the same are filed. Scripps shall file in a timely manner (taking into account any extensions duly obtained) all other reports, tax returns and other documents required to be filed with federal, state, local and other authorities. (j) POOLING AND TAX-FREE REORGANIZATION TREATMENT. Scripps shall not take or cause to be taken any action, whether before or after the Effective Time, which would disqualify the Merger as a "pooling of interests" for accounting purposes or the Merger as a "reorganization" within the meaning of Section 368(a) of the Code. 37 ARTICLE V ADDITIONAL AGREEMENTS 5.1 REGULATORY MATTERS. (a) Scripps and PCB shall promptly prepare and file with the CDFI the CDFI Application and all other Applications with the appropriate Governmental Authorities. Each of Scripps and PCB shall use all reasonable efforts to have the CDFI Application declared effective under applicable law as promptly as practicable after such filing. Scripps shall also use its best efforts to obtain all necessary state securities law or "Blue Sky" permits and approvals required to carry out the transactions contemplated by this Agreement, and PCB shall furnish all information concerning PCB and the holders of PCB Common Stock as may be reasonably requested in connection with any such action. (b) The parties hereto shall cooperate with each other and use their best efforts to promptly prepare and file all necessary documentation, to effect all necessary applications, notices, petitions, filings and other documents, and subject to the proviso set forth in Section 5.4 hereof, to obtain as promptly as practicable all necessary permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the transactions contemplated by this Agreement. PCB and Scripps shall have the right to review in advance, and to the extent practicable each will consult the other on, in each case subject to applicable laws relating to the exchange of information, all the information relating to PCB or Scripps, as the case may be, which appear in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties hereto shall act reasonably and as promptly as practicable. The parties hereto agree that they will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the transactions contemplated by this Agreement and each party will keep the other apprised of the status of matters relating to completion of the transactions contemplated herein. (c) PCB and Scripps shall, upon request, furnish each other with all information concerning themselves, their directors, officers and shareholders and such other matters as may be reasonably necessary or advisable in connection with the CDFI Application or any other statement, filing, notice or application made by or on behalf of PCB or Scripps to any Governmental Entity in connection with the Merger and the other transactions contemplated by this Agreement. (d) PCB and Scripps shall promptly furnish each other with copies of written communications received by PCB or Scripps, as the case may be, or any of their respective affiliates or associates (as such terms are defined in Rule 405 under the Securities Act as in effect on the date hereof) from, or delivered by any of the foregoing to, any Governmental Entity in respect of the transactions contemplated hereby. 38 5.2 ACCESS TO INFORMATION. (a) Upon reasonable notice and subject to applicable laws relating to the exchange of information, Scripps and PCB shall each afford to the officers, employees, accountants, counsel and other representatives of the other, access, during normal business hours during the period prior to the Effective Time, to all its properties, books, contracts, commitments and records, including but not limited to shareholder and Common Stock records, and, during such period, each of Scripps and PCB shall make available to the other (a) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of Federal or state banking laws (other than reports or documents which such party is not permitted to disclose under applicable law) and (b) all other information concerning its business, properties and personnel as such other party may reasonably request. Each party shall also use its best efforts to cause its independent accountant to make available to the other party, its accountants, counsel and other agents, and to the extent reasonably requested in connection with such review, such independent accountant's work papers and documentation relating to its work papers and its audits of the books and records of each party. The parties will hold all such information in confidence to the extent required by, and in accordance with, the provisions of the Confidentiality Agreement dated February 20, 1998, between Scripps and PCB. No investigation by either Scripps or PCB shall affect the representations and warranties of the other set forth herein. (b) Not later than ten working days after the end of each month (beginning for the month of April, 1998) until the Effective Date, PCB will provide to Scripps the following reports for each such month; (i) past due reports by loan; (ii) non-accrual report by loan; (iii) loss reports by loan; (iv) restructured loans; and (v) any quarterly call reports submitted to regulators during such month. (c) Prior to the Effective Date, PCB will submit to the chief executive officer of Scripps for review a loan approval/credit write-up document for any loan that is all of the following: (i) a new loan or a renewal of an existing loan, and (ii) in a commitment amount over $400,000, or when the aggregate debt of the borrower and its affiliates will exceed $400,000. 5.3 SHAREHOLDER MEETINGS. As promptly as practicable after the execution of this Agreement, Scripps and PCB shall prepare and file as part of the CDFI Application (and with any other Applications required) a preliminary Joint Proxy Statement and, after consultation with each other, shall respond to any comments received from any Governmental Entity with respect to the preliminary Joint Proxy Statement and cause the definitive Joint Proxy Statement to be 39 mailed to the shareholders of each of PCB and Scripps. If any event occurs which should be set forth in an amendment or a supplement to the Joint Proxy Statement or in any filing required to be made with any Governmental Entity, each party inform the other and will cooperate in filing with the Governmental Entity and/or mailing to the shareholders such amendment or supplement. The Joint Proxy Statement, and all amendments or supplements thereto, shall comply in all material respects with applicable law and be in form and substance satisfactory to both Scripps and PCB. Scripps and PCB each shall take all steps necessary to duly call, give notice of, convene and hold a meeting of their respective shareholders to be held as soon as is reasonably practicable after the date on which the CDFI Application becomes effective for the purpose of voting upon the approval of this Agreement and the consummation of the transactions contemplated herein. Scripps and PCB will, through their respective Boards of Directors, subject to their respective fiduciary obligations as determined by the respective Boards of Directors after consultation with outside counsel, recommend to their respective shareholders approval of such matters. Scripps and PCB shall coordinate and cooperate with respect to the timing of such meetings and shall use their best efforts to hold such meetings on the same day. 5.4 LEGAL CONDITIONS TO MERGER. Each of Scripps and PCB shall use their best efforts (i) to take, or cause to be taken, all actions necessary to comply promptly with all legal requirements which may be imposed on such party with respect to the Merger, subject to the conditions set forth in Article VI hereof, to consummate the transactions contemplated by this Agreement and (ii) to obtain (and to cooperate with the other party to obtain) any consent, authorization, order or approval of, or any exemption by, any Government Entity and any other public or private third party which is required to be obtained or made by such party in connection with the Merger and the transactions contemplated by this Agreement; PROVIDED, HOWEVER, that a party shall not be obligated to take any action pursuant to the foregoing if the taking of such action or such compliance or the obtaining or such consent, authorization, order, approval or exemption is likely, in the reasonable opinion of such party's Board of Directors, to result in the imposition of a condition or restriction on such party of the type referred to in Section 6.1(f) hereof. Each of Scripps and PCB will promptly cooperate with and furnish information to the other in connection with any such condition or restriction suffered by, or requirement imposed upon, any of them in connection with the foregoing. 5.5 AFFILIATES. Each of PCB and Scripps shall use its best efforts to cause each director, executive officer and other person who is an "affiliate" (for purposes of qualifying for "pooling-of-interests" treatment as described below) of such party to deliver to the other party hereto, as soon as practicable after the date hereof, and prior to the date of the shareholders meetings called to approve this Agreement and the consummation of the transactions contemplated herein, a written agreement (an "Affiliates Agreement") substantially in the form attached hereto as EXHIBIT B, providing that such person will not sell, pledge, transfer or otherwise dispose of any shares of PCB Common Stock or Scripps Common Stock held by such "affiliate" and in the case of the "affiliates" of PCB, the shares of Scripps Common Stock to be received by such "affiliate" in the Merger during the period commencing 30 days prior to the Merger and ending at the time of the publication of financial results covering at least 30 days of combined operations of PCB and Scripps. Securities representing shares of Scripps Common 40 Stock issued to affiliates of PCB (as determined by counsel to Scripps and PCB) may be subject to stop transfer orders to enforce such written agreements. 5.6 PRESS RELEASES. Neither party shall issue any press release or written statement for general circulation relating to the Merger, this Agreement or the Merger Agreement unless previously provided to the other party for review and approval (which approval will not be unreasonably withheld or delayed) and shall cooperate with the other party in the development and distribution of all news releases and other public information disclosures with respect to the Merger, this Agreement or the Merger Agreement; provided that either party may, without the consent of the other party, make any disclosure with regard to the Merger, this Agreement or the Merger Agreement that it determines with advice of counsel is required under any applicable law or regulation. 5.7 EMPLOYEE BENEFIT PLANS. (a) Scripps and PCB agree that, unless otherwise agreed in writing, the Scripps Benefits Plans in effect at the date of this Agreement shall remain in effect after the Effective Time with respect to employees covered by such plans at the Effective Time, and PCB employees formerly covered by, to the extent available, PCB Benefit Plans shall be covered by, to the extent available, similar Scripps Benefit Plans after the Effective Time. (b) In the case of PCB Benefits Plans under which the employees' interests are based upon PCB Common Stock, Scripps and PCB agree that such interests shall, following the Effective Date, be based on Scripps Common Stock in accordance with the terms of the Scripps Benefits Plans and in an equitable manner. 5.8 STOCK OPTIONS AND RESTRICTED STOCK. (a) Scripps and PCB acknowledge that the Merger shall constitute, for purposes of the PCB Stock Option Plan, a merger in which PCB is not the surviving corporation. At the Effective Time, all outstanding rights with respect to PCB Common Stock pursuant to stock options under the PCB Stock Option Plan (the "PCB STOCK OPTIONS"), whether or not then exercisable, shall be converted into and become rights with respect to Scripps Common Stock, and Scripps shall assume each PCB Stock Option in accordance with the terms of the PCB Stock Option Plan under which it was issued and the stock option agreement by which it is evidenced. From and after the Effective Time, (i) each PCB Stock Option assumed by Scripps may be exercised solely for shares of Scripps Common Stock, (ii) the number of shares of Scripps Common Stock subject to each PCB Stock Option shall be equal to the number of full shares of Scripps Common Stock as the holder of such PCB Stock Option would have been entitled to receive pursuant to the Merger had such holder exercised such option in full immediately prior to the Effective Time (the "DEEMED SCRIPPS SHARES") and (iii) the per share exercise price for each such PCB Stock Option shall be equal to (y) the aggregate exercise price for the shares of PCB Common Stock otherwise purchasable pursuant to such PCB Stock Option divided by (z) the Deemed Scripps Shares; provided, however, that in the case of any option to which Section 421 of the Code applies by reason of its qualification under Section 422 of the Code ("INCENTIVE STOCK OPTIONS"), the option price, the number of shares purchasable pursuant to such option and the 41 terms and conditions of exercise of such option shall be determined in order to comply with Section 424(a) of the Code. At or prior to the Effective Time, PCB shall use its best efforts to make all necessary arrangements with respect to the PCB Stock Option Plan to permit the assumption of the unexercised PCB Stock Options by Scripps pursuant to this Section 5.8. (b) Scripps shall use reasonable efforts to (i) comply with the terms of the PCB Stock Option Plans and (ii) ensure, to the extent required by, and subject to the provisions of, such Plans, that PCB Stock Options which qualified as incentive stock options prior to the Effective Time qualify as incentive stock options of Scripps after the Effective Time. (c) At or prior to the Effective Time, Scripps shall take all corporate action necessary to reserve for issuance a sufficient number of shares of Scripps Common Stock for delivery upon exercise of PCB Stock Options assumed by it in accordance with this Section 5.8. As soon as possible after the Effective Time, Scripps shall file a request for permit or exemption, as the case may be, with the CDFI with respect to the shares of Scripps Common Stock subject to such options. 5.9 EXPENSES. Whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense. All such expenses shall be accrued by the respective parties or otherwise reflected in the financial statements as of the Valuation Date. 5.10 GOVERNANCE. Scripps's Board of Directors shall take all action necessary to cause the directors comprising the full Board of Directors of Scripps at the Effective Time to be adjusted to accommodate the appointment of Dr. Salganick and the remainder such directors shall be the then current members of the Scripps Board of Directors. If, prior to the Effective Time, Dr. Salganick shall decline or be unable to serve as a director, PCB shall designate another person to serve in such person's stead, which person shall be reasonably acceptable to Scripps. 5.11 ADDITIONAL AGREEMENTS; BEST EFFORTS. Subject to the terms and conditions of this Agreement, including, without limitation, the proviso of Section 5.4, each of the parties hereto agrees to use its best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including, without limitation, cooperating fully with the other party hereto, providing the other party hereto with any appropriate information and making all necessary filings in connection with the Consents. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, or to vest Scripps with full title to all properties, assets, approvals, immunities and franchises of PCB, the proper officers and directors of each party to this Agreement shall take all such necessary action. 5.12 DISSENTING SHAREHOLDERS. Both PCB and Scripps agree that they will not settle with any dissenting shareholders for a fair market value in excess of the value set forth in the Notice of Approval sent pursuant to Section 1301 of the CGCL, unless pursuant to the prior written approval of the other or pursuant to a judicial or regulatory proceeding. 42 5.13 NASDAQ LISTING. Prior to December 31, 1998, Scripps shall file materials with the Securities and Exchange Commission to register its shares of Common Stock under Section 12(g) of the Exchange Act. In connection with such registration, Scripps shall use its reasonable efforts to cause the shares of Scripps Common Stock to be quoted on the Nasdaq National Market or the Nasdaq SmallCap Market; provided, however, that PCB acknowledges that satisfaction of the listing criteria for either the National Market or SmallCap Market is subject to certain contingencies beyond the control of Scripps (including, without limitation, satisfaction of Nasdaq's requirements for a minimum number of "round lot" holders and the required number of Nasdaq members willing to act as market makers). 5.14 RELEASE OF INTERIM FINANCIAL STATEMENTS. Within three weeks following the end of the second month after the Valuation Date, Scripps shall release unaudited interim financial statements that cover at least 30 days of combined operations of PCB and Scripps and that otherwise satisfy the requirements applicable to "pooling of interests" accounting treatment to permit affiliates of Scripps and former affiliates of PCB to purchase or sell shares of Scripps Common Stock. 5.15 INSURANCE. For a period of three years after the Effective Time, Scripps shall maintain, with respect to claims arising from facts or events which occurred before the Effective Time, officers' and directors' liability insurance covering the officers and directors of PCB who are currently covered (in their capacities as officers and directors) by PCB's existing officers' and director' liability insurance policies, on terms substantially no less advantageous to such officers and directors than such existing insurance. ARTICLE VI CONDITIONS PRECEDENT 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligation of each party to effect the Merger shall be subject to the satisfaction prior to the Effective Time of the following conditions: (a) SHAREHOLDER APPROVAL. This Agreement and the consummation of the transactions contemplated herein shall have been approved and adopted by the affirmative vote of the holders of a majority of the outstanding shares of PCB and Scripps Common Stock entitled to vote thereon. Shareholders holding not more than 1.6% of the outstanding shares of PCB Common Stock shall be dissenting shareholders under California law. (b) OTHER APPROVALS. Other than the filing provided for by Section 1.1, all authorizations, consents, orders or approvals of, or declarations or filings with, and all expirations of waiting periods imposed by, any Governmental Entity (collectively, the "CONSENTS") which are prescribed by law as necessary for the consummation of the Merger and the other transactions contemplated hereby, other than immaterial Consents the failure to obtain which would have no material adverse effect on the consummation of the Merger or the other transactions contemplated hereby, or on Scripps as the surviving corporation, shall have been 43 filed, occurred or been obtained, as the case may be, and all such Consents shall be in full force and effect. (c) PERMITS. The CDFI Application shall have become effective under the Applicable Laws and no stop order suspending the effectiveness of the CDFI Application shall have been issued and no proceedings for that purpose shall have been initiated or threatened by the CDFI. The FDIC shall have approved the transactions contemplated herein, and no proceedings suspending such approval shall have been initiated or threatened by the FDIC. (d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition (an "INJUNCTION") preventing the consummation of the Merger or any of the transactions contemplated hereby, shall be in effect, nor shall any proceeding by any Governmental Entity seeking any such Injunction be pending. No statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Entity which prohibits, restricts or makes illegal consummation of the Merger. (e) POOLING OF INTERESTS. Scripps shall have received a letter, dated the Closing Date, addressed to Scripps from Price Waterhouse, LLP, in response to a letter from Scripps summarizing the relevant facts and in form and substance reasonably satisfactory to Scripps, a copy of which shall be provided to PCB, to the effect that the Merger qualifies for "pooling of interests" treatment for financial reporting purposes and that such accounting treatment is in accordance with generally accepted accounting principles. Price Waterhouse LLP and Scripps shall also have received from each of J.H. Cohn LLP and PCB a letter in form and substance satisfactory to Price Waterhouse LLP and Scripps to the effect that J.H. Cohn LLP and PCB is not aware of any fact concerning PCB or any of its affiliates that would preclude Scripps from accounting for the Merger by the "pooling of interests" method for financial reporting purposes. (f) NO BURDENSOME CONDITION. There shall not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the merger or any of the transactions contemplated hereby, by any Federal or state Governmental Entity which, in connection with the grant of a Consent, imposes any condition or restriction upon PCB or Scripps which would so materially adversely impact the economic or business benefits of the transactions contemplated by this Agreement as to render inadvisable, in the reasonable judgment of the Board of Directors of either Scripps or PCB, the consummation of the Merger. 6.2 CONDITIONS TO OBLIGATIONS OF SCRIPPS. The obligation of Scripps to effect the Merger is also subject to the satisfaction or waiver by Scripps prior to the Effective Time of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of PCB set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, except as otherwise contemplated by this Agreement, and Scripps shall have received a certificate signed on behalf of PCB by the President and by the Chief Financial Officer of PCB to such effect, 44 provided, however, that notwithstanding anything herein to the contrary, this Section 6.2(a) shall be deemed to have been satisfied even if such representations or warranties are not true and correct unless the failure of any of the representations or warranties to be so true and correct, in the reasonable opinion of Scripps, would have or would be reasonably likely to have, individually or in the aggregate, a material adverse effect on PCB or upon the consummation of the transactions contemplated hereby. (b) PERFORMANCE OF OBLIGATIONS OF PCB. PCB shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and Scripps shall have received a certificate signed on behalf of PCB by the President and by the Chief Financial Officer of PCB to such effect. (c) CONSENTS UNDER AGREEMENTS. PCB shall have obtained the consent or approval of each person whose consent or approval shall be required in order to permit the succession by Scripps pursuant to the Merger to any obligation, right or interest of PCB under any loan or credit agreement, note, mortgage, indenture, lease, license or other agreement or instrument, except those for which failure to obtain such consents and approvals would not, in the reasonable opinion of Scripps, individually or in the aggregate, have a material adverse effect on PCB or upon the consummation of the transactions contemplated hereby. (d) TAX MATTERS. Scripps shall have received such advice as it desires from Gray Cary Ware & Freidenrich LLP, counsel to Scripps, dated the Closing Date, to the effect that the Merger will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code, and that Scripps and PCB will each be a party to that reorganization within the meaning of Section 368(b) of the Code. (e) LEGAL OPINION. Scripps shall have received the opinion of Higgs, Fletcher and Mack, LLP, counsel to PCB, dated the Closing Date, in substantially the form attached hereto as EXHIBIT C. (f) MATERIAL ADVERSE CHANGE. No materially adverse change shall have occurred since March 31, 1998, in the business, financial condition, results of operations or assets of PCB, taken as a whole, and PCB is not a party to or, threatened with, and to the best of PCB's knowledge there is no reasonable basis for, any legal action or other proceeding before any court, any arbitrator of any kind or any government agency, which legal action or proceeding in the reasonable judgment of Scripps, could materially adversely affect PCB or its business, financial condition, results of operations or assets. (g) ABSENCE OF LEGAL IMPEDIMENT. No legal impediment to the Merger shall have arisen in the reasonable opinion of Scripps and its counsel, and no litigation, proceeding or investigation shall be pending or threatened before any court or government agency relating to the transactions contemplated by this Agreement and the Merger Agreement which affords a material basis in the reasonable opinion of Scripps and its counsel, for a determination that it would be inadvisable or inexpedient to continue to carry out the terms of, or to attempt to consummate the transactions contemplated by, this Agreement or the Merger Agreement. 45 (h) UNAUDITED FINANCIALS. Not later than two business days prior to the Effective Date, PCB shall have furnished Scripps a copy of its most recently prepared unaudited year-to-date consolidated financial statements, including a balance sheet and year-to-date statement of income and statement of cash flows of PCB. (i) AFFILIATE AGREEMENTS. Scripps shall have received at least thirty (30) days prior to the Effective Date from each person who, in the opinion of Scripps's counsel and PCB's counsel, might be deemed to be an affiliate of PCB or Scripps, a signed Affiliates Agreement. (j) CLOSING DOCUMENTS. Scripps shall have received such certificates and other closing documents as counsel for Scripps shall reasonably request. (k) OPINION OF COMPLIANCE AUDITOR. Scripps shall have reviewed the actions taken to respond to recommendations made in connection with the most recent compliance examination of PCB by the FDIC, which actions shall be reasonably acceptable to Scripps's compliance officer. (l) APPROVAL OF OPTION PLAN. Any required permits, approvals of shareholders and regulatory authorities, effectiveness of registration statements, or other requirements (or waivers thereof) applicable to amendment of the Scripps Stock Option Plans to facilitate the assumption of PCB Options shall have been obtained or occurred to the reasonable satisfaction of Scripps. (m) PERFORMANCE TESTS. As of the Valuation Date, Closing Date and the Effective Date, the financial statements of PCB shall (A) report amounts that equal or exceed (i) total shareholders' equity of $6,800,000, (ii) leverage, tier 1 and total risk-based capital ratios of 9.20%, 12.35% and 13.25%, respectively, (iii) total deposits of $60,000,000, including "core deposits" (defined as all deposits other than brokered deposits), (iv) total reserves for losses on OREO and the outstanding loans and leases, net of recoveries, of $525,000 and 1.2% of outstanding loans and leases, and (B) have less than $2,100,000 total nonperforming and classified loans, including nonaccrual, past due, restructured and loans classified by PCB management or PCB internal policy or procedure, any outside review examiner, accountant or any bank regulatory agency as "Other Loans Specially Mentioned," "Special Mention," "Substandard," "Doubtful," or "Loss" or classified using categories or words with similar import. (n) TERMINATION OF CERTAIN AGREEMENTS AND ARRANGEMENTS. PCB shall have obtained the agreement of Thomas Michelli to terminate his profit sharing arrangement as currently in effect, pursuant to the terms of an agreement approved by Scripps. PCB shall have given notice to effect the termination by October 31, 1998 of the Data Processing Service Agreement entered into with First National Bank, and any payments (including liquidated damages) required to be paid to First National Bank pursuant to such termination shall have been accrued or otherwise reflected in the financial statements of PCB as of the Valuation Date. PCB shall have obtained the agreement of each party with which PCB maintains a deferred compensation arrangement to restructure such relationship so that either (i) all deferred compensation will be drawn and paid to the beneficiary within ten years of the "normal 46 retirement date" or "expiration date" specified in such agreement, or (ii) the accrual under such deferred compensation arrangement would be reduced to 5% per year following the Closing. 6.3 CONDITIONS TO OBLIGATIONS OF PCB. The obligation of PCB to effect the Merger is also subject to the satisfaction or waiver by PCB prior to the Effective Time of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Scripps set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, except as otherwise contemplated by this Agreement, and PCB shall have received a certificate signed on behalf of Scripps by the President and by the Chief Financial Officer of Scripps to such effect, provided, however, that notwithstanding anything herein to the contrary, this Section 6.3(a) shall be deemed to have been satisfied even if such representations or warranties are not true and correct unless the failure of any of the representations or warranties to be so true and correct, in the reasonable opinion of PCB, would have or would be reasonably likely to have, individually or in the aggregate, a material adverse effect on Scripps or upon the consummation of the transactions contemplated hereby. (b) PERFORMANCE OF OBLIGATIONS OF SCRIPPS. Scripps shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing Date, and PCB shall have received a certificate signed on behalf of Scripps by the President and by the Chief Financial Officer of Scripps to such effect. (c) CONSENTS UNDER AGREEMENTS. Scripps shall have obtained the consent or approval of each person whose consent or approval shall be required in connection with the transactions contemplated hereby, except those for which failure to obtain such consents and approvals would not, in the reasonable opinion of PCB, individually or in the aggregate, have a material adverse effect on Scripps or upon the consummation of the transactions contemplated hereby. (d) TAX MATTERS. PCB shall have received such advice as it desires from Higgs, Fletcher and Mack LLP, counsel to PCB, or from the accountants of PCB, dated the Closing Date, to the effect that the Merger will be treated for Federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code, and that PCB and Scripps will each be a party to that reorganization within the meaning of Section 368(b) of the Code. (e) LEGAL OPINION. PCB shall have received the opinion of Gray Cary Ware & Freidenrich LLP, counsel to Scripps, dated the Closing Date, in substantially the form of EXHIBIT D attached thereto. (f) MATERIAL ADVERSE CHANGE. No materially adverse change shall have occurred since March 31, 1998, in the business, financial condition, results of operations or assets of Scripps and Scripps is not a party to or, threatened with, and to the best of Scripps's knowledge there is no reasonable basis for, any legal action or other proceeding before any court, 47 any arbitrator of any kind or any government agency, which legal action or proceeding in the reasonable judgment of PCB, could materially adversely affect Scripps or its business, financial condition, results of operations or assets. (g) ABSENCE OF LEGAL IMPEDIMENT. No legal impediment to the Merger shall have arisen in the reasonable opinion of PCB and its counsel, and no litigation, proceeding or investigation shall be pending or threatened before any court or government agency relating to the transactions contemplated by this Agreement and the Merger Agreement which affords a material basis in the reasonable opinion of PCB and its counsel, for a determination that it would be inadvisable or inexpedient to continue to carry out the terms of, or to attempt to consummate the transactions contemplated by, this Agreement or the Merger Agreement. (h) UNAUDITED FINANCIALS. Not later than five business days prior to the Effective Date, Scripps shall have furnished PCB a copy of its most recently prepared unaudited year-to-date consolidated financial statements, including a balance sheet and year-to-date statement of income and statement of cash flows of Scripps. (i) AFFILIATE AGREEMENTS. PCB shall have received at least thirty (30) days prior to the Effective Date from each person who, in the opinion of PCB's counsel and Scripps's counsel, might be deemed to be an affiliate of Scripps or PCB, a signed Affiliates Agreement. (j) CLOSING DOCUMENTS. PCB shall have received such certificates and other closing documents as counsel for PCB shall reasonably request. (k) APPROVAL OF OPTION PLAN. Any required permits, approvals of shareholders and regulatory authorities, effectiveness of registration statements, or other requirements applicable to amendment of the Scripps Stock Option Plans to facilitate the issuance of Scripps Options upon cancellation of PCB Options shall have been obtained or occurred to the reasonable satisfaction of PCB. (l) PERFORMANCE TESTS. As of the Valuation Date, Closing Date and the Effective Date, the financial statement of Scripps shall (A) report amounts that equal or exceed (i) total shareholders' equity of $33,000,000, (ii) leverage, tier 1 and total risk-based capital ratios of 7.50%, 10.00% and 11.00%, respectively, (iii) total deposits of $350,000,000, including "core deposits" (defined as all deposits other than brokered deposits), (iv) total reserves for losses on OREO and the outstanding loans and leases, net of recoveries, of $3,000,000 and 1.20% of outstanding loans and leases, and (B) have less than $9,500,000 total nonperforming and classified loans, including nonaccrual, past due, restructured and loans classified by Scripps management or Scripps internal policy or procedure, any outside review examiner, accountant or any bank regulatory agency as "Other Loans Specially Mentioned," "Special Mention," "Substandard," "Doubtful," or "Loss" or classified using categories or words with similar import. (m) BOARD REPRESENTATION. Dr. Salganick shall have been elected to the Board of Directors of Scripps as of the Effective Date. 48 (n) FAIRNESS OPINION. PCB shall have received the opinion of Danielson & Associates dated as of the Closing Date in form and substance satisfactory to PCB to the effect that the consideration to be received from Scripps by PCB shareholders in exchange for their PCB Common Stock is fair from a financial point of view to the PCB shareholders. ARTICLE VII TERMINATION AND AMENDMENT 7.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of the matters presented in connection with the Merger by the shareholders of Scripps and PCB: (a) by mutual consent of Scripps and PCB in a written instrument, if the Board of Directors of each so determines by a vote of a majority of the members of its entire Board; (b) by either Scripps or PCB upon written notice to the other party if (i) any Consent shall have been denied or not received or (ii) any Governmental Entity of competent jurisdiction shall have issued a final nonappealable order enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Agreement; (c) by either Scripps or PCB if the Merger shall not have been consummated on or before October 10, 1998; (d) by either Scripps or PCB (provided that the terminating party is not in material breach of any of its obligations under Article V) if any approval of the shareholders of Scripps or of PCB required for the consummation of the Merger shall not have been obtained by reason of the failure to obtain the required vote at a duly held meeting of shareholders or at any adjournment or postponement thereof; (e) by either Scripps or PCB if there shall have been a material breach of any of the representations or warranties set forth in this Agreement on the part of the other party, which breach by its nature cannot be cured prior to the Closing and which breach would, in the reasonable opinion of the non-breaching party, individually or in the aggregate, have, or be reasonably likely to have, a material adverse effect on the breaching party or upon the consummation of the transactions contemplated hereby; (f) by either Scripps or PCB if there shall have been a material breach of any of the covenants or agreements set forth in this Agreement on the part of the other party, which breach shall not have been cured within twenty business days following receipt by the breaching party of written notice of such breach from the other party hereto; or (g) (i) by Scripps, if the Board of Directors of PCB does not recommend in the Proxy Statement that PCB's shareholders approve and adopt this Agreement, or if after recommending in the Proxy Statement that shareholders approve and adopt this Agreement, the 49 Board of Directors of PCB shall have withdrawn, modified or amended such recommendation in any respect materially adverse to Scripps or (ii) by PCB, if the Board of Directors of Scripps does not recommend in the Proxy Statement that Scripps's shareholders approve and adopt this Agreement, or if after recommending in the Proxy Statement that shareholders approve and adopt this Agreement, the Board of Directors of Scripps shall have withdrawn, modified or amended such recommendation in any respect materially adverse to PCB. 7.2 EFFECT OF TERMINATION. In the event of termination of this Agreement by either Scripps or PCB as provided in Section 7.1, this Agreement shall forthwith become void and have no effect except (i) with respect to Sections 5.6 and 7.2 and (ii) no party shall be relieved or released from any liabilities or damages arising out of the willful breach by the other party of any provision of this Agreement. The Confidentiality Agreement dated as of February 20, 1998 shall survive any termination of this Agreement. 7.3 AMENDMENT. This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with the Merger by the shareholders of Scripps or PCB, provided, however, that after any such approval, no amendment shall be made which by law requires further approval by such shareholders, without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. 7.4 EXTENSION; WAIVER. At any time prior to the Effective Time, the parties hereto, by action taken or authorized by their respective Board of Directors, may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of such party. 7.5 COMPENSATION TO SCRIPPS. Upon the occurrence of any of the following events, PCB shall promptly pay to Scripps, upon written request, One Hundred Thousand Dollars ($100,000), which the parties hereto agree and stipulate (i) is reasonable and full liquidated damages and reasonable compensation to Scripps for its involvement in the transactions contemplated by this Agreement to the date of such request, (ii) is not a penalty or forfeiture, and (iii) will not affect in any manner the provisions of Section 5.9, which provision shall remain in full force and effect after any termination of this Agreement, and PCB shall have no further obligations or liabilities of any kind under this Agreement, and by accepting such payment from PCB, Scripps shall have no further obligations of any kind under the Agreement: (a) at any time prior to a termination of this Agreement under Section 7.1 hereof, the Board of Directors of PCB approves a transaction, or PCB executes a letter of intent or other agreement or documents pursuant to which any person, corporation, partnership or other entity would acquire 10% or more of the outstanding shares of PCB Common Stock or if the 50 Board of Directors of PCB recommends the acceptance by the holders of PCB Common Stock of a tender offer having the same result; or (b) this Agreement is terminated by Scripps pursuant to Section 7.1(e) or Section 7.1(f) hereof, unless, at the time of such termination, Scripps is in material breach of any material condition, warranty, representation or agreement hereof; or (c) this Agreement is terminated pursuant to Section 7.1(d) hereof by reason of the failure of the PCB shareholders to approve the transactions contemplated hereby and, on or prior to one year thereafter, the Board of Directors of PCB approves a transaction, or PCB executes a letter of intent or other agreement or documents pursuant to which any person, corporation, partnership or other entity would acquire 10% or more of the outstanding shares of PCB Common Stock or if the Board of Directors of PCB recommends the acceptance by the holders of PCB Common Stock of a tender offer having the same result. 7.6 COMPENSATION TO PCB. Upon the occurrence of any of the following events, Scripps shall promptly pay to PCB, upon written request, One Hundred Thousand Dollars ($100,000), which the parties hereto agree and stipulate (i) is reasonable and full liquidated damages and reasonable compensation to PCB for its involvement in the transactions contemplated by this Agreement to the date of such request, (ii) is not a penalty or forfeiture, and (iii) will not affect in any manner the provisions of Section 5.9, which provision shall remain in full force and effect after any termination of this Agreement, and Scripps shall have no further obligations or liabilities of any kind under this Agreement and, by accepting such payment from Scripps, PCB shall have no further obligations of any kind under the Agreement: (a) at any time prior to a termination of this Agreement under Section 7.1 hereof, the Board of Directors of Scripps approves a transaction, or Scripps executes a letter of intent or other agreement or documents pursuant to which any person, corporation, partnership or other entity would acquire 10% or more of the outstanding shares of Scripps Common Stock or if the Board of Directors of Scripps recommends the acceptance by the holders of Scripps Common Stock of a tender offer having the same result; or (b) this Agreement is terminated by PCB pursuant to Section 7.1(e) or Section 7.1(f) hereof, unless, at the time of such termination, PCB is in material breach of any material condition, warranty, representation or agreement hereof; or (c) this Agreement is terminated pursuant to Section 7.1(d) hereof by reason of the failure of the Scripps shareholders to approve the transactions contemplated hereby and, on or prior to one year thereafter, the Board of Directors of Scripps approves a transaction, or Scripps executes a letter of intent or other agreement or documents pursuant to which any person, corporation, partnership or other entity would acquire 10% or more of the outstanding shares of Scripps Common Stock or if the Board of Directors of Scripps recommends the acceptance by the holders of Scripps Common Stock of a tender offer having the same result. 51 ARTICLE VIII GENERAL PROVISIONS 8.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the representations, warranties, covenants and agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time, except for those covenants and agreements contained herein and therein which by their terms apply in whole or in part after the Effective Time, including, without limitation, Sections 5.7, 5.8, 5.9, 5.10, 5.11, 5.12, 5.13, 5.14, 5.14 and 5.15. 8.2 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally, telecopied (with confirmation) or mailed by registered or certified mail (return receipt requested) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to Scripps, to: Scripps Bank 7817 Ivanhoe Avenue La Jolla, CA 92037 Telecopy No. (619) 551-6202 Attention: President with a copy to: Douglas J. Rein Gray Cary Ware & Freidenrich LLP 4365 Executive Drive, Suite 1600 San Diego, California 92121-2189 Telecopy No. (619) 677-1477 and (b) if to PCB, to: Pacific Commerce Bank 1196 Third Avenue Chula Vista, CA 91911 Telecopy No. (619) 425-9107 Attention: President 52 with a copy to: Kurt Kicklighter Higgs, Fletcher & Mack LLP 401 West A Street, #2000 San Diego, CA 92101-7913 Telecopy No. (619) 696-1410 8.3 INTERPRETATION. When a reference is made in this Agreement to Sections, Exhibits or Schedules, such reference shall be to a Section of or Exhibit or Schedule to this Agreement unless otherwise indicated. The table of contents and heading contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such information is to be made available. The phrases "the date of this Agreement," "the date hereof" and terms of similar import, unless the context otherwise requires, shall be deemed to refer to April 22, 1998. 8.4 COUNTERPARTS. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart. 8.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES; RIGHTS OF OWNERSHIP. This Agreement (including the documents and the instruments referred to herein) (a) constitutes the entire agreement and supersedes all prior agreements (except for the Confidentiality Agreement between Scripps and PCB dated February 20, 1998, which shall remain in full force and effect and survive the execution of this Agreement) and understandings, both written and oral, among the parties with respect to the subject matter hereof, and (b) except as provided in Section 5.10, is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder. The parties hereby acknowledge that, except as otherwise hereinafter agreed to in writing, no party shall have the right to acquire or shall be deemed to have acquired shares of common stock of the other party pursuant to the Merger until consummation thereof. 8.6 GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State of California, without regard to any applicable conflicts of law. 8.7 ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 53 8.8 SEVERABILITY. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. 8.9 PUBLICITY. Except as otherwise required by the Applicable Laws, so long as this Agreement is in effect, the publication of any press release or other public announcement with respect to the transactions contemplated by this Agreement shall be made jointly upon the mutual consent of the parties. 8.10 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. ATTORNEYS' FEES. If legal action or other proceeding is brought for enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party or parties shall be entitled to reasonable attorneys' fees and other costs incurred in that action or proceeding in addition to any other relief to which it or they may be entitled. 54 IN WITNESS WHEREOF, Scripps and PCB have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first above written. SCRIPPS BANK, a California corporation By: /s/ ---------------------------------- Name: William E. Nelson ----------------------------- Title: Chairman ---------------------------- PACIFIC COMMERCE BANK, a California corporation By: /s/ ---------------------------------- Name: Alfred Salganick, M.D. ----------------------------- Title: Chairman ---------------------------- 55 INDEX OF DEFINED TERMS For purposes of the Agreement (including this index): ADJUSTED BOOK VALUE. "Adjusted Book Value" shall have the meaning set forth in Section 2.1(c)of the Agreement. ADJUSTMENT FACTORS. "Adjustment Factors" shall have the meaning set forth in Section 2.1(c) of the Agreement. AFFILIATES AGREEMENT. "Affiliates Agreement" shall have the meaning set forth in Section 5.5. AGREEMENTS. "Agreements" shall have the meaning set forth in the first paragraph. APPLICABLE LAWS. "Applicable Laws" shall have the meaning set forth in Section 3.1(g) of the Agreement. APPLICATIONS. "Applications" shall have the meaning set forth in Section 3.1(dd) of the Agreement. BENEFIT PLANS. "Benefit Plans" shall have the meaning set forth in Section 3.1(n) of the Agreement. CDFI. "CDFI" shall have the meaning set forth in Section 1.3(b) of the Agreement. CDFI APPLICATION. "CDFI Application" shall have the meaning set forth in Section 3.1(c)(iii) of the Agreement. CERTIFICATE. "Certificate " shall have the meaning set forth in Section 2.1(b) of the Agreement. CFC. "CFC" shall have the meaning set forth in Section 1.1 of the Agreement. CGCL. "CGCL" shall have the meaning set forth in Section 1.1 of the Agreement. CLOSING. "Closing" shall have the meaning set forth in Section 1.2 of the Agreement. CLOSING DATE. "Closing Date" shall have the meaning set forth in Section 1.2 of the Agreement. CODE. "Code" shall have the meaning set forth in the Recitals. CONSENTS. "Consents" shall have the meaning set forth in Section 6.1(b) of the Agreement. CONSTITUENT CORPORATIONS. "Constituent Corporations" shall have the meaning set forth in Section 1.3(a) of the Agreement. i CONVERSION NUMBER. "Conversion Number" shall have the meaning set forth in Section 2.1(b) of the Agreement. DEEMED SCRIPPS SHARES. "Deemed Scripps Shares" shall have the meaning set forth in Section 5.8(a) of the Agreement. DILUTED ADJUSTED BOOK VALUE PER SHARE. "Diluted Adjusted Book Value Per Share" shall have the meaning set forth in Section 2.1(c) of the Agreement. DISSENTING PCB SHAREHOLDERS. "Dissenting PCB Shareholders" shall have the meaning set forth in Section 2.3 of the Agreement. EFFECTIVE DATE. The "Effective Date" shall be the date on which the Effective Time occurs. EFFECTIVE TIME. "Effective Time" shall have the meaning set forth in Section 1.1 of the Agreement. EPA. "EPA" shall have the meaning set forth in Section 3.1(t)(i) of the Agreement. ERISA. "ERISA" shall have the meaning set forth in Section 3.1(n) of the Agreement. EXCHANGE ACT. "Exchange Act" shall have the meaning set forth in Section 3.1(t)(i) of the Agreement. EXCHANGE AGENT. "Exchange Agent" shall have the meaning set forth in Section 2.2(a) of the Agreement. EXCHANGE FUND. "Exchange Fund" shall have the meaning set forth in Section 2.2(a) of the Agreement. FDIC. "FDIC" shall have the meaning set forth in Section 1.3(b) of the Agreement. FINAL PCBDABVPS. "Final PCBDABVPS" shall have the meaning set forth in Section 2.1(c) of the Agreement. GOVERNMENTAL ENTITY. "Governmental Entity" shall have the meaning set forth in Section 3.1(c)(iii) of the Agreement. HAZARDOUS MATERIAL. "Hazardous Material" shall have the meaning set forth in Section 3.1(c)(vi) of the Agreement. INCENTIVE STOCK OPTIONS. "incentive stock options" shall have the meaning set forth in Section 5.8(a) of the Agreement. INJUNCTION. "Injunction" shall have the meaning set forth in Section 6.1(d) of the Agreement. ii INTELLECTUAL PROPERTY RIGHTS. "Intellectual Property Rights" shall have the meaning set forth in Section 3.1(y) of the Agreement. IRS. "IRS" shall have the meaning set forth in Section 3.1(i) of the Agreement. LOAN PROPERTY. "Loan Property" shall have the meaning set forth in Section 3.1(t)(vi) of the Agreement. MADE AVAILABLE. "made available" shall have the meaning set forth in Section 8.3 of the Agreement. MATERIAL. "material" shall have the meaning set forth in Section 3.1(a) of the Agreement. MATERIAL ADVERSE EFFECT. "material adverse effect" shall have the meaning set forth in Section 3.1(a) of the Agreement. MERGER. "Merger" shall have the meaning set forth in the Recitals. MERGER AGREEMENT. "Merger Agreement" shall have the meaning set forth in the Recitals. ORDINARY COURSE OF BUSINESS. "Ordinary Course of Business" shall have the meaning as set forth in Section 4.1(a) of the Agreement. PCB. "PCB" shall have the meaning set forth in the first paragraph of the Agreement. PCB ARTICLES. "PCB Articles" shall have the meaning set forth in Section 3.1(c)(ii) of the Agreement. PCB BENEFIT PLANS. "PCB Benefit Plans" shall have the meaning set forth in Section 3.1(n) of the Agreement. PCB DISCLOSURE SCHEDULE. "PCB Disclosure Schedule" shall have the meaning set forth in Section 3.1(b)(iii) of the Agreement. PCB FILINGS. "PCB Filings" shall have the meaning set forth in Section 3.1(d) of the Agreement. PCB STOCK OPTION PLAN. "PCB Stock Option Plan" shall have the meaning set forth in Section 3.1(b)(i) of the Agreement. PCB STOCK OPTIONS. "PCB Stock Options" shall have the meaning set forth in Section 5.8(a) of the Agreement. PCB PERMITS. "PCB Permits" shall have the meaning set forth in Section 5.8(a) of the Agreement. iii PARTICIPATION FACILITY. "Participation Facility" shall have the meaning set forth in Section 3.1(c)(vi) of the Agreement. REGULATORY AGENCIES. "Regulatory Agencies" shall have the meaning set forth in Section 3.1(d) of the Agreement. SECURITIES ACT. "Securities Act" shall have the meaning set forth in Section 2.2(d) of the Agreement. SCRIPPS. "Scripps" shall have the meaning set forth in the first paragraph of the Agreement. SCRIPPS DISCLOSURE SCHEDULE. "Scripps Disclosure Schedule" shall have the meaning set forth in Section 3.2(b)(i) of the Agreement. SCRIPPS FILINGS. "Scripps Filings" shall have the meaning set forth in Section 3.2(d) of the Agreement. SCRIPPS STOCK PLANS. "Scripps Stock Plans" shall have the meaning set forth in Section 3.2(b)(i) of the Agreement. SUBSIDIARY. "Subsidiary" shall have the meaning set forth in Section 3.1(o) of the Agreement. TAKEOVER PROPOSAL. "takeover proposal" shall have the meaning set forth in Section 4.1(e) of the Agreement. TAX. "tax" shall have the meaning set forth in Section 3.1(i) of the Agreement. TAX RETURN. "tax return" shall have the meaning set forth in Section 3.1(i) of the Agreement. THE DATE HEREOF. "the date hereof" shall have the meaning set forth in Section 8.3 of the Agreement. THE DATE OF THIS AGREEMENT. "the date of this agreement" shall have the meaning set forth in Section 8.3 of the Agreement. UNFUNDED LIABILITIES FACTOR. "Unfunded Liabilities Factor" shall have the meaning set forth in Section 2.1(c) of the Agreement. VALUATION DATE. "Valuation Date" shall have the meaning set forth in Section 2.1(c) of the Agreement. VIOLATION. "Violation" shall have the meaning set forth in Section 3.1(c)(ii) of the Agreement. iv VOTING DEBT. "Voting Debt" shall have the meaning set forth in Section 3.1(b)(ii) of the Agreement. v EX-10.6 10 EXHIBIT 10.6 Exhibit 10.6 SCRIPPS BANK EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the "Agreement") is made between ______________ and SCRIPPS BANK, a California banking corporation (the "Bank"). In consideration of the mutual covenants and promises of the parties hereto, it is agreed that from and after the Commencement Date, as defined in Section 1.2 below, the Bank shall employ Employee, and Employee shall work for the Bank, on the following terms and conditions: 1. TERM OF EMPLOYMENT 1.1 TERM. The Bank hereby employs Employee and Employee hereby accepts employment with the Bank for a period of five (5) years, commencing on the Commencement Date, subject to such earlier termination as is hereinafter provided. 1.2 COMMENCEMENT DATE. The term of this Agreement shall commence on _______________ (the "Commencement Date"). 2. DUTIES OF EMPLOYEE. 2.1 DUTIES. Employee shall serve as ______________________ of the Bank and shall perform such duties and have such responsibilities as may be prescribed by the Board of Directors of the Bank. Such service shall be performed by the Employee faithfully, diligently and to the best of his ability and effort, consistent with the highest and best standards of the banking industry, and Employee shall devote his full time and effort to such employment. 2.2 CONFLICTS OF INTEREST. Except as permitted by the prior written consent of the Board of Directors of the Bank, Employee shall not during the term of this Agreement (i) directly or indirectly render any services of a business, commercial or professional nature, to any other person, firm or corporation, whether for compensation or otherwise, which is in conflict with the Bank's interests, (ii) engage in any activity which is directly or indirectly competitive with or adverse to the Bank's business or welfare, whether alone, as a partner, or as an officer, director or employee of another entity, or (iii) be more than a ten percent (10%) shareholder of any competitive entity. 3. COMPENSATION. In exchange for the services rendered by the Employee hereunder, the Bank shall pay or cause to be paid to the Employee as base salary ("Base Salary") the amount of _____________________________________________ _____________________________________________ per month during the term of this Agreement, beginning on the Commencement Date. Employee's Base Salary shall be paid in equal semi-monthly installments. In addition to the Base Salary, Employee may receive such bonus compensation as the Board of Directors, in its sole discretion, shall determine is appropriate. Compensation shall be reviewed and adjusted annually by the Board of Directors of the Bank in accordance with the Board's evaluation of performance of the Employee. 4. EMPLOYEE/EXECUTIVE BENEFITS. 4.1 EMPLOYEE/EXECUTIVE BENEFITS shall be in accordance with general policy of the Bank as published in the Scripps Bank Employee Handbook. Such policy may be modified from time to time in the sole discretion of the Bank. 4.2 GROUP MEDICAL INSURANCE BENEFITS. The Bank shall provide benefits to the Employee under group insurance programs in conformance with general bank policy, including participation in employee premium payment. 4.3 VACATION. Employee shall accrue on a pro rated basis providing for four (4) weeks paid vacation for each year during the term of this Agreement. The time for such vacation shall be determined by mutual agreement of Employee and the Bank. Accrued and earned vacation may accumulate until taken without forfeiture of benefit. 4.4 AUTOMOBILE. The Bank will provide to Employee the use of a Bank owned or leased automobile suitable for the conduct of Bank business at the level of responsibility assigned or an automobile lease allowance not less than $_____ per month. The Bank shall also provide insurance coverage on its primary insurance policy as determined appropriate by the Bank to supplement general liability coverage while using the vehicle for Bank business. Additionally, operating expenses of Bank owned or leased automobiles shall be paid by the Bank and reported as W-2 compensation of the Employee in compliance with IRS guidelines for reporting personal usage of the automobile. Operating expenses of Employee owned or leased vehicles shall be reimbursed at rates per mile in accordance with Bank policy. 4.5 SICK LEAVE. Employee shall be entitled to one (1) day of paid sick leave for each calendar month that Employee works during the first year of the term of this Agreement and thereafter to twelve (12) days of sick leave each year with a maximum accrual of 480 hours. Said sick leave shall accumulate according to general policy as published in the Scripps Bank Employee Handbook. 5. BUSINESS EXPENSES AND REIMBURSEMENTS. 5.1 BUSINESS EXPENSES. Employee shall be entitled to reimbursement by the Bank for any reasonable, ordinary and necessary business expenses incurred by Employee in the performance of Employee's duties on behalf of the Bank during the term of this Agreement, which types of expenditures shall be determined by the Bank, including without limitation memberships, or the payment of regular monthly dues (but not assessments) applicable to continued membership, in such clubs and civic groups as the Bank determines will assist in developing the business of the Bank, provided that: (a) Each such expenditure is of a nature such that it qualifies for deduction as a business expense on the federal and state income tax returns of the Bank and not as deductible compensation to Employee; and (b) Employee furnishes to the Bank adequate records and other documentary evidence as required by laws and regulations issued by the appropriate federal and state taxing authorities for the substantiation of such expenditures as deductible compensation to Employee. 5.2 CONFERENCE EXPENSES. Employee shall be entitled to reimbursement by the Bank for reasonable and ordinary expenses incurred by Employee and his or her spouse in attending banking conferences conducted by recognized banking groups such as Western Bank Association, Independent Bankers Association, and American Bankers Association; provided, however, that the prior approval of the Board of Directors of the Bank shall be necessary for reimbursement of the expenses of attending any conference outside the State of California. 6. TERMINATION. 6.1 WITHOUT CAUSE. Notwithstanding anything to the contrary herein, if during the term of this Agreement the Bank elects to discharge the Employee and terminate this Agreement without cause, and not in conjunction with an event as defined in Section 7 of this Agreement, the Bank shall pay the Employee an amount equal to the remaining compensation due the Employee under this Agreement or six (6) months' compensation, including Base Salary and awarded bonuses plus accrued but unused vacation pay, whichever is less, as termination pay. Such payment shall conform to the Bank's normal payroll schedule. 6.2 FOR CAUSE. The Bank may terminate this Agreement at any time without further obligation or liability to Employee if discharge or termination is by reason of any of the following: (a) Death of Employee; (b) The mental or physical disability of Employee continuing for a period exceeding nine months, which prevents Employee from performing a major portion of his duties; (c) For cause consisting of the commission by Employee of a criminal act related to the performance of his duties or the furnishing of proprietary confidential information of Bank to a competitor or potential competitor except in the bona fide belief that such action was for the benefit and best interests of Bank; (d) Habitual intoxication by alcohol or drugs during work hours; (e) Habitual neglect of duties as determined in the sole discretion of the Bank not corrected following written notice from Bank specifying the details thereof; (f) Required retirement of Employee at or after Bank's normal retirement age for senior executives, in accordance with established policies applied on a nondiscriminatory basis; (g) If the Bank is closed or taken over by the State Banking Department or other supervisory authority, including the Federal Deposit Insurance Corporation or if any such supervisory authority exercises its cease and desist powers to remove Employee from office; (h) For cause consisting of engaging in illegal activity which materially and adversely affects the Bank's reputation in the community or which evidences the lack of Employee's fitness or ability to perform Employee's duties, as reasonably determined in the sole discretion of the Board of Directors of the Bank. Breach of any of the provisions of Section 2.2 of this Agreement shall be deemed an illegal activity which materially and adversely affects the Bank's reputation in the community and therefore constitutes cause for termination pursuant to this Section 6.2 (i) Voluntary resignation by the Employee. 7. "TERMINATION IN CONJUNCTION WITH AN EVENT" DEFINED. The term "Termination in Conjunction with an Event" as used in this Section shall mean any one or a combination of the following: 7.1 The discharge of Employee by Bank or its successor in interest for any reason whatsoever, excepting only discharge for cause pursuant to Section 6.2 of this Agreement. 7.2 Resignation of Employee following the occurrence of any one of the following: (a) Relocation of the principal place at which Employee's duties are to be performed to a location outside a 50-mile radius around the main offices in La Jolla, California; (b) A reduction in Employee's compensation; (c) A substantial, adverse change in the benefits or perquisites provided to Employee; (d) A substantial, adverse change in Employee's responsibilities, authorities or functions; (e) A substantial, adverse change in Employee's work conditions. 7.3 COMPENSATION. In the event that a Termination, as clarified in this Section, occurs concurrently with or within sixty (60) days following the date of the occurrence of an Event (whether Event is not corrected by the Bank upon notification by Employee), as defined in this Section 7 of this Agreement, forthwith upon such Termination occurring, the Bank or its successor in interest shall provide to Employee the following items of compensation: (a) Payment of Employee's full base salary through the date of Termination, as clarified in this Section, at the rate in effect (i) at the date of Termination or (ii) immediately prior to the occurrence of an Event, whichever is the higher; (b) Payment of twenty-four (24) months' compensation at the rate in effect (i) at the date of Termination, as clarified in this Section, or (ii) immediately prior to the occurrence of an Event, whichever is higher. Such payment shall occur in conformance with the Bank's normal payroll schedule. In the event Employee obtains other employment during such twenty-four (24) month period, the amount of the payment shall be reduced by fifty (50%); (c) Payment of an amount equal to the value of Employee's accrued unused vacation through the date of Termination, as clarified in this Section, based on Employee's annual base salary at the rate in effect (i) at the date of Termination or (ii) immediately prior to the occurrence of an Event, whichever is higher; (d) Immediate vesting and exercisability of any stock options held by Employee which have not otherwise become vested as of the date of the occurrence of an Event; (e) Extension of the expiration date of the exercise period following Termination, as clarified in this Section, for any stock option held by Employee at the time of the occurrence of an Event to a date ninety (90) days following the date of Termination; PROVIDED, HOWEVER, that such extension shall be limited to less than ninety (90) days at the election of Employee if necessary to keep the option from being disqualified from treatment as an incentive stock option under the Internal Revenue Code. 7.4 TAXES. (a) Definitions: i. "Parachute Payment" shall have the meaning ascribed to it in Section 280G(b)(2)(A) of the Code, without regard to Section 280G(b)(2)(A)(ii) of the Code, and excluding any amount not treated as a Parachute Payment pursuant to Section 280G(b)(4)(A) or (6) of the Code. ii. "Present Value" shall be determined according to Section 280G(d)(4) of the Code. iii. "Base Amount" shall have the meaning ascribed to it in Section 280G(b)(3)(A) of the Code. iv. "Reasonable Compensation" shall have the meaning ascribed to it in Section 280G(b)(4) of the Code. v. "Illegal Parachute Payment" shall mean a payment described in Section 280G(b)(1)(B) of the Code. (b) Notwithstanding anything in this Section to the contrary, any Parachute Payments to be paid to or for the benefit of Employee, whether pursuant to this Section or otherwise, shall be modified to the extent necessary to satisfy the requirements of subparagraph (i) or (ii) below: i. The aggregate Present Value of all Parachute Payments payable to or for the benefit of Employee, whether pursuant to this Section or otherwise, shall be less than three times Employee's Base Amount; ii Each Parachute Payment payable to or for the benefit of Employee, whether pursuant to this Section or otherwise, shall be in an amount which does not exceed the amount of Reasonable Compensation allocable to such Parachute Payment. (c) In the event that the amount of any Parachute Payment which would be payable to or for the benefit of Employee without regard to this Section of the Agreement must be modified to comply with this Section, Employee shall direct which Parachute Payments are to be waived or modified; provided, however, that no change in the timing of the payments shall be made without the consent of Bank. (d) Payment of amounts pursuant to this Section shall not, unless directed by Employee, be delayed pending determination of the status of a payment as a Parachute Payment or Illegal Parachute Payment by the Internal Revenue Service, a court or a similar body of competent jurisdiction. (e) Any compensation derived from the accelerated vesting of Employee's employee stock options due to the occurrence of an Event or of Termination shall be valued in the manner described in Proposed Internal Revenue Regulation Section 1.280G-1 at A-24(c) and Example (8) of A-24(e), as proposed on May 5, 1989. (e) This Section shall be interpreted so as to avoid the imposition of excise taxes on Employee under Section 4999 of the Code or the disallowance of a deduction to Bank pursuant to Section 280G(a) of the Code. Notwithstanding any other provision of this Section to the contrary, no Illegal Parachute Payments shall be made to or for the benefit of Employee. 8. GENERAL PROVISIONS. 8.1 RETURN OF DOCUMENTS. Employee expressly agrees and acknowledges that all manuals, documents, files, reports, studies, instruments, customer lists (including any files, documents, computers files which identify customers, past or present, or potential customers), addresses and telephone lists, and other materials used and/or developed by Employee are solely the property of the Bank and that Employee has no right, title or interest therein. Upon termination of this Agreement, Employee or Employee's representative shall promptly deliver possession of all such property in good condition to the Bank. 8.2 NOTICES. Any notice, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing, when deposited in the United States mail, postage prepaid, or when communicated to a public telegraph company for transmittal, addressed to the other party at its address. Employee's address for purposes of this section shall be the last address provided by Bank by Employee. 8.3 APPLICABLE LAW. Except to the extent governed by the laws of the United States, this Agreement shall be governed and construed in accordance with the laws of the State of California. 8.4 INVALID PROVISIONS. Should any provisions of this Agreement be declared invalid, void or unenforceable by a court of competent jurisdiction for any reason, the validity and binding effect of any remaining portion shall not be affected, and the remaining provisions of this Agreement shall remain in full force and effect as if this Agreement had been executed without such invalid, void or unenforceable provisions. 8.5 CONFIDENTIALITY. Employee expressly recognizes that all persons dealing with the Bank expect that their confidence will be respected and that information with respect to such persons' affairs will not be improperly divulged. Further, Bank expects that matters concerning the Bank and its business will be kept in strict confidence regardless of the source or origin of information reaching Employee This obligation of confidentiality shall be continuing and shall survive any termination whether voluntary or involuntary. 8.6 ENTIRE AGREEMENT; MODIFICATION. This Agreement contains the entire agreement of the parties hereto and supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Employee by the Bank. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, oral or otherwise, have been made by either party, or anyone acting on behalf of either party, which are not embodied herein and that no agreement, statement or promise not contained or referenced in this Agreement shall be valid or binding on the parties hereto. This Agreement may be modified or amended only by an agreement in writing duly executed by the Bank and Employee. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. Dated: ___________________ SCRIPPS BANK, a California banking corporation By:___________________________________ Its: Dated: ___________________ Employee: _______________________________________ EX-10.7 11 EXHIBIT 10.7 EXHIBIT 10.7 PACIFIC COMMERCE BANK EMPLOYMENT AGREEMENT THIS AGREEMENT, is made by and between THOMAS D. MICHELLI (the "Executive") and PACIFIC COMMERCE BANK, a California banking corporation (the "Bank"). In consideration of the mutual covenants of the parties hereto, it is agreed that from and after the Commencement Date, the Bank shall employ the Executive, and the Executive shall work for the Bank, on the following terms and conditions: A. TERM OF EMPLOYMENT: 1. TERM. The Bank hereby employs the Executive and the Executive hereby accepts employment with the Bank for the period of five (5) years (the "Term"), commencing with the Commencement Date, subject, however, to prior termination of this Agreement, as hereinafter provided. Where used herein, "Term" shall refer to the entire period of employment of the Executive by the Bank hereunder, whether for the period provided above, or whether terminated earlier as hereinafter provided. 2. COMMENCEMENT DATE. The Term of this Agreement shall commence as of November 1, 1995 (the "Commencement Date"). B. DUTIES OF EXECUTIVE. 1. DUTIES. The Executive shall serve as President and Chief Executive Officer of the Bank. Such services shall be performed by the Executive faithfully, diligently and to the best of his ability and efforts consistent with the highest and best standards of the banking industry, and shall devote his full time and effort to such employment. As the President and Chief Executive Officer of the Bank, the Executive shall have, subject to policies established by the Board of Directors, the full power and authority to supervise all personnel, be responsible for all operations and lending activities, to supervise public relations and advertising, be responsible for reports to the Board of Directors and to all applicable regulatory authorities, and to manage and conduct all other business of the Bank. All such powers and authorities herein given to the Executive shall be subject to the law vested in the Board of Directors of the Bank and in the Bank's shareholders. 2. CONFLICTS OF INTEREST. Except as permitted by the prior written consent of the Board of Directors of the Bank, during the term of this Agreement, the Executive (i) shall devote the Executive's entire productive time, ability and attention to the business of the Bank, (ii) shall not directly or indirectly render any services of a business, commercial or professional nature, to any other person, firm or corporation, whether for compensation or otherwise, which is in conflict with the Bank's interests, (iii) shall not directly or indirectly engage in any activity competitive with or adverse to the Bank's business or welfare, whether alone, as a partner, or as an officer, director or employee, and (iv) shall not be more than a ten percent (10%) shareholder of any competitive entity. C. COMPENSATION. 1. BASE SALARY. For the Executive's services hereunder, the Bank shall pay or cause to be paid as a base salary ("Base Salary") to the Executive the amount of One Hundred Twenty Thousand Dollars ($120,000.00) per year during each of the years of the Term of this Agreement, beginning with the Commencement Date; provided, however, that such Base Salary shall be reviewed and adjusted annually by the Board of Directors of the Bank in accordance with the Board's evaluation of the performance of the Executive. 2. BONUS COMPENSATION. Commencing with the fiscal year of the Bank ending December 31, 1995, for each fiscal year in which this Agreement is in effect (prorated for any of such year for which the Agreement is in effect for only part of the year), the Executive shall be entitled to receive as an incentive bonus, four and one-half percent (4 1/2) of the Bank's net earnings before income and franchise taxes for such fiscal year, provided, however, that such Bonus Compensation shall be reviewed and adjusted annually by the Board of Directors of the Bank in accordance with the Board's evaluation of the performance of the Executive. The bonus herein shall be paid to the Executive within fifteen (15) days following the end of the fiscal year. Any amounts received by the Executive hereunder shall be subject to adjustment within thirty (30) days after issuance of the Bank's audited financial statements for any year in which a bonus is calculated, to the extent that the "net earnings" set forth therein vary from that which had been calculated and upon which such bonus was paid. D. EXECUTIVE BENEFITS: 1. VACATION. The Executive shall be entitled to a vacation each year during the Term, which vacation shall not be more than four (4) weeks per year. The time for such vacation shall be by mutual agreement to the Executive and the Bank; provided, however, that the Executive is required to and shall take at least two (2) weeks of said vacation, which shall be taken consecutively. It is further agreed that said vacation time shall not be accumulated from year to year. However, the Executive shall have until March 31 of the following year to use any vacation time not used during the immediately preceding year. 2 2. AUTOMOBILE. During the Term hereunder, the Bank shall provide the Executive, for the Executive's sole use, a full-size executive-class automobile, the type and make of which to be determined by the Bank. Except for expenses of fuel in connection with the Executive's personal use of such automobile (which expense shall be paid by the Executive), the Bank shall pay all operating expenses of any nature whatsoever with regard to such automobile provided the Executive furnishes to the Bank adequate records and other documentary evidence required by federal and state statutes and regulations issued by the appropriate taxing authorities for the substantiation of such payments as deductible business expenses of the Bank and not deductible compensation to the Executive. The Bank shall also procure and maintain in force throughout the duration of the Term a full coverage insurance policy on said automobile, with coverage, limits and terms to be determined by the Bank. 3. GROUP MEDICAL AND LIFE INSURANCE BENEFITS. The Bank shall provide for the Executive, his spouse and dependents, at the Bank's expense, participation in medical, accident, and health insurance benefits equivalent to the normal and customary benefits currently available under California Banker's Association Group Insurance Program for an employee of the Executive's salary level, and life insurance coverage for the Executive in the amount equal to three times the Executive's total compensation earned during the past year. Said coverage shall be in existence or take effect as of the Commencement Date hereof, shall continue throughout the Term and may continue thereafter in accordance with the terms of subparagraph F.2 and F.4 hereof. 4. SICK LEAVE. The Executive shall be entitled to one (1) day for each calendar month worked during the first year of this Agreement, and thereafter twelve (12) days of sick leave each year. Said sick leave shall not be accumulated from year to year. E. BUSINESS EXPENSES AND REIMBURSEMENTS. 1. BUSINESS EXPENSES. The Executive shall be entitled to reimbursement by the Bank for any reasonable, ordinary and necessary business expenses incurred by the Executive in the performance of the Executive's duties and in acting for the Bank during the Term, which types of expenditures shall be determined by the Board of Directors, which shall include memberships in such clubs and civil groups that will assist in developing the business of the Bank, provided that a. Each such expenditure is of a nature qualifying it as a proper deduction on the federal and state income tax returns of the Bank as a business expense and not as deductible compensation to the Executive; and 3 b. The Executive furnishes to the Bank adequate records and other documentary evidence required by federal and state statutes and regulations issued by the appropriate taxing authorities for the substantiation of such expenditures as deductible business expenses of the Bank and not as deductible compensation to the Executive. 2. CONFERENCE EXPENSES. The Executive shall be entitled to reimbursement by the Bank for his reasonable ordinary expenses incurred by the Executive and his spouse in attending banking conferences conducted by recognized banking groups such as the Western Bank Association, Independent Banker's Association, California Banker's Association, and American Banker's Association. It is expressly agreed and understood, however, that the Bank's Board of Directors' approval shall be necessary prior to the attendance by the Executive at any such conference. F. TERMINATION 1. FOR CAUSE OR DISABILITY. The Bank may terminate this Agreement at any time without further obligation or liability of the Bank to the Executive, by action of the Board of Directors, if the Executive fails to perform or habitually neglects the Executive's duties, if the Executive engages in illegal activities which materially adversely affect the Bank's reputation in the community or which evidence the lack of the Executive's fitness or ability to perform the Executive's duties as determined by the Board of Directors. This Agreement may also be terminated if the Executive is found by the Bank's Board of Directors to be physically or mentally disabled (as hereinafter defined). Such termination shall not prejudice any remedy which the Bank may have at law, in equity, or under this Agreement. For purposes of this Agreement only, physical or mental disability shall be defined as the Executive being unable to fully perform under this Agreement for a period of ninety (90) days out of any one hundred twenty (120) day period. If there should be a dispute between the Bank and the Executive as to the Executive's physical or mental disability for purposes of this Agreement, the question shall be settled by the opinion of an impartial reputable physician or psychiatrist agreed upon by the parties or their representatives, or if the parties cannot agree within ten (10) days after a request for designation of such party, then by a physician or psychiatrist designated by the San Diego County Medical Society. The certification of such physician or psychiatrist as to the question in dispute shall be final and binding upon the parties thereto. 2. WITHOUT CAUSE. Notwithstanding anything to the contrary contained herein, it is agreed by the parties hereto that the Bank may at any time elect to terminate this Agreement and Executive's employment by the Bank for any reason by action of its Board of Directors. Such termination shall be effective upon 30 days' notice to the Executive from the Bank, and all benefits provided by the Bank to the Executive hereunder shall thereupon cease, other than (A) the benefits 4 provided to the Executive as described in the succeeding paragraph of this subparagraph F.2 and (B) the insurance benefits provided to the Executive hereunder as follows: (i) all group health insurance maintained by the Bank to provide medical care (as defined in Section 213(d) of the Internal Revenue Code of 1986, as amended) for the Executive, his spouse and dependents shall be continued for eighteen (18) months following the effective date of such termination. The Executive shall notify the Bank or the Bank's group health plan administrator that he elects Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") continuation coverage within sixty (60) days of the later of (a) his date of termination or (b) the date he is given notice of his right to elect COBRA continuation coverage, in order to qualify for health insurance benefits during the eighteen (18) month period following the effective date of his termination. In the event of such notification by the Executive, the Bank shall pay all premiums to the Bank's group health plan on behalf of the Executive on the account of such COBRA continuation coverage; and (ii) the Bank shall pay all premiums on all other insurance benefits maintained by the Bank for the Executive, his spouse and dependents as delineated in subparagraph D.3 hereof for eighteen (18) months following the effective date of such termination. It is agreed that in the event of such Termination without cause, the Executive shall be paid a lump sum payment (net of taxes) equal to two times the Executive's Base Salary and shall also be paid an amount equal to his accrued but unpaid bonus plus accrued but unpaid vacation days (in accordance with subparagraph D.1 hereof) and accrued ESOP in lump sum upon the effective date of termination of this Agreement in accordance with this subparagraph F.2. 3. BY SUPERVISORY AUTHORITY. This Agreement shall terminate immediately without further liability or obligation of the Bank to the Executive (i) if the Bank is closed or taken over by the State Banking Department or other supervisory authority, including the FDIC, or (ii) if any such supervisory authority should exercise its cease and desist powers to remove Executive from office. 4. MERGER OR CORPORATE DISSOLUTION. In the event of: (i) a merger in which the Bank is not the surviving corporation, (ii) a consolidation, (iii) a transfer of all or substantially all of the assets of Bank, (iv) any other corporate reorganization where there is a change of ownership of at least twenty percent (20%), or in the event of a voluntary or involuntary dissolution of Bank, as a result of which Executive's employment with the Bank is terminated at any time within one (1) year from the effective date of such event, the Executive shall be entitled to receive a lump sum payment upon such termination an amount equal to three year's then current Base Salary, his accrued but unpaid bonus and any accrued but unpaid vacation days (in accordance with subparagraph D.1 hereof) and accrued ESOP; provided, however, that this subparagraph shall be inapplicable in the event Executive's employment is terminated during this one (1) year period for any of the reasons described in subparagraph F.1 hereof. In addition to the benefits described above in this subparagraph F.4, the Executive shall receive the insurance benefits provided hereunder as follows: (i) all group health insurance maintained by the Bank to 5 provide medical care (as defined in Section 213(d) of the Internal Revenue Code of 1986, as amended) for the Executive, his spouse and dependents shall be continued for eighteen (18) months following the effective date of such termination. The Executive shall notify the Bank or the Bank's group health plan administrator that he elects Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") continuation coverage within sixty (60) days of the later of (a) his date of termination or (b) the date he is given notice of his right to elect COBRA continuation coverage, in order to qualify for health insurance benefits during the eighteen (18) month period following the effective date of his termination. In the event of such notification by the Executive, the Bank shall pay all premiums to the Bank's group health plan on behalf of the Executive on account of such COBRA continuation coverage; and (ii) the Bank shall pay all premiums on all other insurance benefits maintained by the Bank for the Executive, his spouse and dependents as delineated in subparagraph D.3 hereof for eighteen (18) months following the effective date of such termination. 5. EFFECT OF TERMINATION. Notwithstanding any other provision of this paragraph F to the contrary, in the event of termination of this Agreement by any of the manners specified herein or by the Executive prior to the completion of the Term, the Executive shall be entitled to the salary earned by the Executive prior to the date of termination as provided for in this Agreement computed PRO RATA up to and including that date; however, the Executive shall be entitled to no further compensation for services rendered after the effective date of termination except as provided in subparagraph F.2 above regarding termination without cause and subparagraph F.4 above regarding merger or corporate dissolution. Executive further agrees that in the event of any such termination, he will resign from the Board of Directors of the Bank as of the effective date of termination of this Agreement. G. GENERAL PROVISIONS. 1. RETURN OF DOCUMENTS. The Executive expressly agrees that all manuals, documents, files, reports, studies, instruments or other materials used and/or developed by the Executive are solely the property of the Bank, and that the Executive has no right, title or interest therein. Upon termination of this Agreement, the Executive or the Executive's representative shall promptly deliver possession of all said property to the Bank in good condition. 2. NOTICES. Any notice, demand or other communication required or permitted hereunder shall be deemed to be properly given when personally served in writing, when deposited in the United States mail, postage prepaid, or when communicated to a public telegraph company for transmittal addressed to the party at his or its address. 3. APPLICABLE LAW. Except to the extent governed by the laws of the United States, this Agreement is to be governed by and construed in accordance with the laws of the State of California. 6 4. INVALID PROVISIONS. Should any provisions of this Agreement for any reason be declared invalid, void, or unenforceable by a court of competent jurisdiction, the validity and binding effect of any remaining portion shall not be affected, and the remaining portions of this Agreement shall remain in full force and effect as if this Agreement had been executed with said provisions eliminated. 5. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties. It supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of the Executive by the Bank. Each party to this Agreement acknowledges that no representation, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which are not embodied herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by an agreement in writing signed by the Bank and the Executive. 6. TAXES. All payments stipulated hereunder to be "lump sum" payments shall be reduced by the Bank as appropriate to meet all tax withholding requirements. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date set forth below. DATED: 11/1/95 PACIFIC COMMERCE BANK By: /s/ Alfred B. Salganick, M.D ---------------------------- Alfred B. Salganick, M.D. Chairman of the Board DATED: 11/1/95 /s/ THOMAS D. MITCHELLI ------------------------- THOMAS D. MITCHELLI FIRST AMENDMENT TO EMPLOYMENT AGREEMENT This First Amendment (the "Amendment") to Employment Agreement (the "Agreement") is made and entered into as of April 22, 1998 by and among Pacific Commerce Bank (the "Bank"), Scripps Bank, and Thomas D. Michelli (the "Executive") with regard to the following: A. As of the date of this Amendment the Bank is entering into an Agreement and Plan of Merger with Scripps Bank under which the Bank will merge (the "Merger") with and into Scripps Bank (the "Agreement and Plan of Merger"). B. Upon the closing of the transactions contemplated by the Agreement and Plan of Merger, Scripps Bank will assume all contractual obligations of the Bank as a result of the Merger. C. One of the contractual obligations of the Bank that would be assumed by Scripps Bank as a result of the Merger would be the Agreement, under which, among other things, the Executive is entitled to bonus compensation based on the profitability of the Bank. D. It is a condition to the obligation of Scripps Bank to effect the Merger that the Bank and the Executive enter into an agreement to be effective at the "Effective Time," as defined in the Agreement and Plan of Merger, modifying the terms of the Agreement to provide for payments in January of 1999 and January of 2000 of $50,000 each. The parties also desire to memorialize the change in title that the Executive will hold following the completion of the Merger. E. The Executive has consented to the change proposed. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. TITLE AND DUTIES. Paragraph B.1. of the Agreement is hereby deleted in its entirety and replaced by the following: The Executive shall serve as a Senior Vice President of Scripps Bank following the "Effective Time" (as that term is defined in that certain Agreement and Plan of Merger between the Bank and Scripps Bank) of the merger of the Bank and Scripps Bank pursuant to the Agreement and Plan of Merger between the Bank and Scripps Bank. The Executive shall have such duties and responsibilities as shall be assigned from time to time by the Chief Executive Officer of Scripps Bank or by the Board of Directors or any duly authorized committee thereof of Scripps Bank. The Executive shall perform his duties faithfully, diligently and to the best of his ability and efforts consistent with the highest and best standards of the banking industry, and he shall devote his full time and efforts to such employment. 2. BONUS COMPENSATION. Paragraph C.2. of the Agreement is hereby deleted in its entirety and replaced by the following: Scripps Bank will pay the Executive a cash bonus of $50,000 on January 15,1 1999 and a second cash bonus of $50,000 on January 15, 2000. These bonuses will be in addition to any other compensation to which the Executive may be entitled under this Agreement or which may otherwise be granted by Scripps Bank. 3. EFFECTIVENESS. This Amendment shall be effective only in the event that the Effective Time occurs under the Agreement and Plan of Merger. In the event of termination of the Agreement and Plan of Merger this Amendment shall be null and void and the Agreement shall remain in effect without reference to this Amendment. Notwithstanding any implication to the contrary in this Amendment, Scripps Bank shall have no obligations under this Amendment or the Agreement unless and until the Effective Time occurs. 4. ASSUMPTION OF OBLIGATIONS. Upon the Effective Time Scripps Bank shall assume all obligations of the Bank under the Agreement as amended by this Amendment. The Agreement, as amended by this Amendment continues in full force and effect from the date of the Amendment, and shall be binding on any successor to Scripps Bank. 5. ADVICE TO THE EXECUTIVE. The Executive represents to the other parties that he has received such advice from his own tax, financial and legal advisors as he has deemed appropriate. The Executive understands and agrees that none of the Bank, Scripps Bank or either of their counsel have provided tax advice or other advice for the benefit of the Executive in the course of preparation of this Agreement and none of such counsel represent or owe any particular duties to the Executive. The Executive agrees that he has relied and will rely only on his own tax, financial and legal advisors regarding the matters set forth in this Amendment. 6. DEFINITIONS. Each term not otherwise defined herein shall have the meaning assigned in the document referenced at the first usage of the term. 7. NOTICES. Unless otherwise specifically permitted by this Agreement, all notices or other communications required or permitted under this Agreement shall be in writing, and shall be personally delivered or sent by registered or certified mail, postage prepaid return receipt requested, or sent by telecopy, provided that the telecopy cover sheet contain a notation of the date and time of transmission, and shall be deemed received: (i) if personally delivered, upon the date of delivery to the address of the person to receive such notice, (ii) if mailed in accordance with the provisions of this paragraph, two (2) business days after the date placed in the United States mail, (iii) if mailed other than in accordance with the provisions of this paragraph or mailed from outside the United 2 States, upon the date of delivery to the address of the person to receive such notice, or (iv) if given by telecopy, when sent. Notices shall be given at the following addresses: If to the Corporation: Pacific Commerce Bank 1196 Third Avenue Chula Vista, CA 91911 Fax (619) 425-9107 If to Scripps Bank: Scripps Bank 7817 Ivanhoe Avenue, Suite 201 La Jolla, CA 92037 Attn: Chief Financial Officer Fax (619) 551-6209 If to the Executive: Thomas D. Michelli 1011 Vista Madera Lane El Cajon, CA 92019-3578 The address for delivery of notices may be changed by the relevant party by giving notice of such change in accordance with this paragraph. 8. COMPLETE AGREEMENT; MODIFICATIONS. The Agreement, as amended by this Amendment, (i) constitutes the parties' entire agreement, including all terms, conditions, definitions, warranties, representations, and covenants, with respect to the subject matter hereof, (ii) merges all prior discussions and negotiations between or among any or all of them as to the subject matter hereof, and (iii) supersede and replace all terms, conditions, definitions, warranties, representations, covenants, agreements, promises and understandings, whether oral or written, with respect to the subject matter hereof. This Amendment may not be amended, altered or modified except by a writing signed by the party to be bound. With regard to such amendments, alterations, or modifications, telecopied signatures shall be effective as original signatures. Any amendment, alteration, or modification requiring the signature of more than one party may be signed in counterparts. Following the Effective Time the Bank shall not be considered to be a party of its signature shall not be required on any amendment, alteration or modification. 9. FURTHER ACTIONS. Each party agrees to perform any further acts and execute and deliver any further documents reasonably necessary to carry out the provisions of the Agreement, as amended by this Amendment. 10. ASSIGNMENT. No party may assign its rights under the Agreement, as amended by this Amendment, without the prior written consent of the other parties hereto (excluding the Bank following the Effective Time). 3 11. SUCCESSORS AND ASSIGNS. The Agreement, as amended by this Amendment, shall be binding upon and inure to the benefit of the parties, their respective successors and permitted assigns. 12. SEVERABILITY. If any portion of this Agreement shall be held by a court of competent jurisdiction to be invalid, void, or otherwise unenforceable, the remaining provisions shall remain enforceable to the fullest extent permitted by law if enforcement would not frustrate the overall intent of the parties (as such intent is manifested by all provisions of the Agreement including such invalid, void, or otherwise unenforceable portion). 13. EXTENSION NOT A WAIVER. No delay or omission in the exercise of any power, remedy, or right herein provided or otherwise available to any party shall impair or affect the right of such party thereafter to exercise the same. Any extension of time or other indulgence granted to a party hereunder shall not otherwise alter or affect any power, remedy or right of any other party, or the obligations of the party to whom such extension or indulgence is granted except as specifically waived. 14. TIME OF ESSENCE. Time is of the essence of each and every term, condition, obligation and provision hereof. 15. NO THIRD PARTY BENEFICIARIES. The Agreement, as amended by this Amendment, and each and every provision thereof is for the exclusive benefit of the parties hereto and the designated beneficiaries of the Executive and not for the benefit of any third party. 16. ATTORNEYS' FEES. Should any litigation (including any proceedings in a bankruptcy court) be commenced between the parties hereto or their representatives concerning any provision of the Agreement, as amended by this Amendment, or the rights and duties of any person or entity thereunder, the party or parties prevailing in such litigation shall be entitled, in addition to such other relief as may be granted, to the attorney's fees and court costs incurred by reason of such litigation, including attorneys' and experts' fees incurred in preparation for or investigation of any matter relating to such litigation. 17. COUNTERPARTS. This Agreement may be signed in multiple counterparts with the same force and effect as if all original signatures appeared on one copy; and in the event this Agreement is signed in counterparts, each counterpart shall be deemed an original and all of the counterparts shall be deemed to be one agreement. 18. APPLICABLE LAW. This Agreement shall be construed in accordance with, and governed by, the laws of the State of California. 4 IN WITNESS WHEREOF, the parties have executed this Amendment as of the date set forth above. /s/ Thomas D. Michelli ----------------------- Thomas D. Michelli PACIFIC COMMERCE BANK By: /s/ [ILLEGIBLE] ------------------ Its: Chairman ------------------ SCRIPPS BANK By: /s/ [ILLEGIBLE] ------------------ Its: Chairman ------------------ 5 EX-10.8 12 EXHIBIT 10.8 Exhibit 10.7 OFFICE LEASE Between OKLAHOMA CITY INVESTMENT GROUP Landlord and SCRIPPS BANK (in organization) Tenant For Premises situated at: 7817 Ivanhoe Avenue La Jolla, California 92037 TABLE OF CONTENTS Date and Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Premises. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3. Rental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4. Security Deposit. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5. Utilities and Services. . . . . . . . . . . . . . . . . . . . . . . . 5 6. Possession and Use. . . . . . . . . . . . . . . . . . . . . . . . . . 6 7. Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . 6 8. Indemnity, Insurance and Waiver of Subrogation. . . . . . . . . . . . 7 9. Tenant's Right to Make Alterations. . . . . . . . . . . . . . . . . . 10 10. Mechanics' Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . 10 11. Fixtures and Personal Property. . . . . . . . . . . . . . . . . . . . 11 12. Assigning, Mortgaging, Subletting, Change in Corporate Ownership . . . . . . . . . . . . . . . . . . . 12 13. Repairs and Maintenance . . . . . . . . . . . . . . . . . . . . . . . 12 14. Reconstruction. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 15. Common Areas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 16. Other Rules and Regulations . . . . . . . . . . . . . . . . . . . . . 17 17. Entry by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . 17 18. Bankruptcy - Insolvency . . . . . . . . . . . . . . . . . . . . . . . 18 19. Default by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . 18 20. Default by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . 20 21. Eminent Domain. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 22. Attorneys' and Accountants' Fees. . . . . . . . . . . . . . . . . . . 21 23. Authority of Parties. . . . . . . . . . . . . . . . . . . . . . . . . 22 24. Sale of Premises by Landlord. . . . . . . . . . . . . . . . . . . . . 22 25. Subordination, Attornment . . . . . . . . . . . . . . . . . . . . . . 22 26. Quiet Possession and Relocation . . . . . . . . . . . . . . . . . . . 23 27. Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 28. Consent of Landlord and Tenant. . . . . . . . . . . . . . . . . . . . 23 29. Obligations of Successors . . . . . . . . . . . . . . . . . . . . . . 23 30. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 31. Captions and Terms. . . . . . . . . . . . . . . . . . . . . . . . . . 23 32. Intentionally Omitted . . . . . . . . . . . . . . . . . . . . . . . . 24 33. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Exhibit A. . . . . . . . Description of Premises Exhibit B. . . . . . . . Construction Standards Agreement Exhibit C. . . . . . . . Option to Renew Exhibit D. . . . . . . . Tenant's Use and Trade Name Exhibit E. . . . . . . . Common Area Rules Exhibit F. . . . . . . . Building Rules Exhibit G. . . . . . . . Parking Agreement Exhibit H. . . . . . . . Sign Criteria
OFFICE LEASE DATE: September 1, 1983 LANDLORD: OKLAHOMA CITY INVESTMENT GROUP, a California Partnership LANDLORD'S ADDRESS: 10951 Sorrento Valley Road, Suite II C San Diego, CA 92037 TENANT: SCRIPPS BANK (in organization), a California Banking Corporation TENANT'S ADDRESS: 7817 Ivanhoe Avenue La Jolla, California 92037 In consideration of the rents and covenants hereinafter set forth, the above-named Landlord hereby leases to the abovenamed Tenant, and Tenant hereby rents from Landlord, the following described premises (the "Premises") upon the following terms and conditions: 1. PREMISES. The Premises consists of that office space described on "Exhibit A" attached hereto and made a part hereof, to be constructed in accordance with the terms and provisions set forth on "Exhibit B" attached hereto and made a part hereof. 2. TERM. 2.1 The term of this Lease shall be for (10) years (the "lease term"), commencing February 1, 1984 and ending January 31, 1994. Landlord shall permit Tenant and Tenant's contractors to enter upon the Premises from and after the date of this Lease for the purpose of constructing Tenant's work in accordance with Exhibit B hereto; Tenant shall have exclusive possession of the Premises commencing October 15, 1983 (unless that date be postponed in accordance with Paragraph 3.1) for all purposes contemplated by this Lease, including opening for business. Early possession of the Premises by Tenant pursuant to this Paragraph 2.1 shall be subject to all terms and provisions of this Lease except payment of rent and liability for Direct Expenses as provided in Paragraph 3.3. 2.2 Exhibit C is attached to this Lease and grants to Tenant options to renew this Lease pursuant to the following provisions: (i) the option or options granted shall be to renew this Lease on all terms and provisions contained in this Lease except for monthly rent, which shall be as set forth on Exhibit C and subject to adjustment in accordance with the provisions of Paragraph 3.2; (ii) Tenant shall give to Landlord at least six (6) months but not more than twelve (12) months notice in writing of the exercise of any such option to renew; (iii) if Tenant is in default under this Lease on the date of giving Landlord notice of exercise of any such option to renew, or if Tenant is in default hereunder on the date any renewal or extended term is to commence, any such extended or renewal term shall not commence and this Lease shall expire at the end of the initial term or then renewal term. Wherever in this Lease the words "lease term" appear, that phrase shall include any renewal or extended term if the context so indicates. -1- 3. RENTAL. Tenant agrees to pay as rental for the use and occupancy of the Premises, at the time and in the manner hereinafter provided, the following sums of money: 3.1 MINIMUM MONTHLY RENT. Tenant shall pay to Landlord as the minimum monthly rent for the Premises, the sum of Twenty-three Thousand, Seven Hundred Seventeen and 20/100 Dollars ($23,717.20) per month. The monthly rent, as it may be adjusted pursuant to Paragraph 3.2, shall be paid by Tenant in advance on the first day of each and every calendar month during the lease term, without setoff or deduction, commencing on February 1, 1984, unless the Building shell has not been certified as complete by the City of San Diego Building Inspection Department by October 15, 1983. In that event the date upon which Tenant's obligation to pay rent under this Paragraph 3.1 shall be extended by the number of days following October 15, 1983 until so certified by the City of San Diego, except to the extent any such delay is caused by Tenant or Tenant's contractors. Should the rental payment period commence on a day of a month other than the first in accordance with the preceding sentence, then the monthly rent for the first fractional month shall be computed on a daily basis from the date of commencement through the end of the month at an amount equal to 1/30 of the monthly rent for each such day. 3.2 ADJUSTMENT OF MONTHLY RENT. 3.2.1 The minimum monthly rent provided for in Paragraph 3.1 shall be subject to adjustment either upward or downward at the commencement of the thirty-seventh (37th) month of the lease term and at the beginning of every thirty-sixth (36th) month period thereafter during the initial lease term ("the adjustment date") as follows: The base for computing the adjustment is the Consumer Price Index for All Urban Consumers for the San Diego Area (1967=100), published by the United States Department of Labor, Bureau of Labor Statistics ("Index") published for September 1983 ("Beginning Index"). The Index published for September preceding the adjustment date in question ("Extension Index") is to be used in determining the amount of the adjustment. The monthly rent for the following 36-month period commencing on the adjustment date shall be set by multiplying the minimum monthly rent set forth in Paragraph 3.1 by a fraction, the numerator of which is the Extension Index and the denominator of which is the Beginning Index. In no case shall the monthly rent be less than the minimum monthly rent set forth in Paragraph 3.1, nor shall the rent so calculated reflect more than a six (6) percent annual increase, noncompounded. On adjustment of the monthly rent as provided in this Lease, the parties shall immediately execute a writing or an amendment to this Lease stating the new monthly rent. If the Index is changed so that the base year differs from that in effect when the lease term commenced, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the lease term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. If not replaced, the parties shall select another similar index which reflects similar consumer price levels, and if the parties cannot agree on another such index it shall be determined by binding arbitration, the cost of which shall be borne equally by the parties. -2- 3.2.2 If Tenant exercises its right to extend this Lease as specified on Exhibit C, the monthly rent hereunder for each then beginning renewal term shall be fixed in accordance with the following formula: No later than fifteen (15) days after receipt of Tenant's notice of exercise of option to renew, Landlord shall notify Tenant the full amount of rent which would have been payable pursuant to the cost-of-living adjustment formula set forth in Paragraph 3.2.1 for the first year of the renewal term in question, had there been an adjustment for said year and had rent increases not been limited to six (6) percent annually, together with Landlord's statement as to the fair market rental rate for the Premises at that time. The Index figure to be used for such calculation shall be that published most recently prior to Landlord's receipt of Tenant's notice of exercise of option to renew. Rent for the then beginning renewal term shall be the lower of the fair market rental rate or the fully increased rent as set forth in Landlord's statement. If Tenant disagrees with Landlord's statement, Landlord and Tenant shall each appoint an MAI appraiser, and the two appraisers shall appoint a third. The third appraiser shall determine the prevailing market rent for comparable space, which shall be the initial rental rate for the then beginning renewal term unless the fully increased rent set forth on Landlord's statement is lower. The cost of the appraisal process shall be borne equally by the parties. 3.2.3 At the beginning of the 37th month during each renewal term the monthly rent so fixed in accordance with Paragraph 3.2.2 shall be adjusted to reflect changes in the Index during the renewal term using the formula specified in Paragraph 3.2.1, except that for the renewal term in question, the initial rent for that renewal term shall be multiplied by a fraction equal to the Extension Index divided by the Beginning Index. The Beginning Index for purposes of this Paragraph 3.2.2 shall be that for September preceding the commencement of that renewal term. In no event shall the rent as so adjusted be decreased below the rent payable during the first month of the renewal term then in effect, nor above a six (6) percent annual increase, noncompounded. 3.3 MAINTENANCE COSTS. In addition to the foregoing monthly rent, Tenant agrees to pay to Landlord a portion of Landlord's Direct Expenses of operation (hereinafter defined) as follows: 3.3.1 DEFINITION OF DIRECT EXPENSES. As used herein, the term "Direct Expenses" mans all direct costs of operation and maintenance of the building and appurtenances of which the Premises are a part (hereinafter referred to as the "Building"), as determined by standard accounting practices. Direct Expenses are composed of two categories. Category A Direct Expenses include real property taxes and assessments, rent taxes, gross receipt taxes (whether assessed against Landlord or assessed against Tenant and collected by Landlord, or both), as well as all other taxes which may now or in the future become due as a result of the existence or operation of the Building, excluding income taxes. Category B Direct Expenses include, by way of illustration only and not for purposes of limitation, common area water and sewer charges, insurance premiums, common area utilities, common area services, labor, costs incurred in the management of the Building including a management fee not to exceed fifteen (15) percent of Category A and B Direct Expenses, common area air-conditioning and heating costs and upkeep, repair, repainting or refurbishing of all parking, structures and common area. -3- Direct Expenses shall not include overhead or profit except as noted herein, depreciation of the Building or equipment therein, loan payments, executive salaries or real estate brokers' commissions. 3.3.2 PAYMENT OF DIRECT EXPENSES. Tenant shall pay twenty-nine and three-tenths percent (29.3%) of all Category A Direct Expenses, plus twenty-nine and three-tenths percent (29.3%) of the amount of increases over first year Category B Direct Expenses (as provided in Paragraph 3.3.3), such percentage representing the portion of the total rentable area of the Building occupied by the Premises. Landlord shall give to Tenant, as close to the date upon which monthly rent payments commence as is reasonably practical, a reasonably detailed statement of estimated Direct Expenses and Tenant's share of such direct Expenses, showing, in addition, how Tenant's share was computed. Tenant shall pay one-twelfth thereof concurrently with each monthly rent payment. If the statement is not rendered prior to commencement of rent payments, Tenant shall pay to Landlord an account equal to one such monthly installment multiplied by the number of months since commencement of monthly rent until the month of such payment, both months inclusive. 3.3.3 INCREASES IN DIRECT EXPENSES. Landlord shall endeavor to give to Tenant on or before March 1 of each subsequent year a statement of Direct Expenses payable by Tenant, giving Tenant credit for the estimated installment payments received from Tenant. Failure of Landlord to provide such statement by that date shall not constitute a waiver by Landlord of its right to require payment by Tenant of the sums show thereon to be due. Such statement shall be in reasonable detail and shall be certified by Landlord as correct. Landlord shall maintain all records relating to Direct Expenses for three (3) years. Tenant's liability for increases in Category B Direct Expenses shall be based on initial first year total Category B Expenses of Forty Thousand Dollars ($40,000) or Landlord's actual Category B Direct Expenses, whichever is greater. Tenant shall have no liability for increases in Category A Direct Expenses if any increase is the result of reassessment of the Building upon change of ownership as described in Sections 60 et. seq. of the California Revenue and Taxation Code. Tenant shall pay in full the total amount due for the preceding year, in excess of the installment payments made by Tenant, upon receipt of Landlord's statement. 3.3.4 PAYMENT OF INCREASES IN SUCCEEDING YEARS. Landlord's statement referred to in Paragraph 3.3.3 shall include Landlord's estimate of Tenant's liability for Direct Expenses for the current year divided into twelve (12) equal monthly installments. Such estimate shall be based upon the prior year's Direct Expenses and shall include reasonably anticipated increases or decreases in Direct Expenses. Tenant shall pay to Landlord, concurrently with the regular monthly rent payment next due following the receipt of such statement, an amount equal to one (1) such monthly installment multiplied by the number of months from January in the year in which said statement is submitted to the month of such payment, both months inclusive, less the amount of estimated installment payments received from Tenant. Installments for subsequent months shall be payable concurrently with the regular monthly rent payments and shall continue until the next year's statement is rendered. 3.3.5 DECREASES IN DIRECT EXPENSES. If in any year Tenant's share of Direct Expenses shall be less than the -4- sum of the estimated installment payments made by Tenant, then any overpayment made by Tenant on the monthly installments basis shall be paid to Tenant in cash. 3.3.6 PAYMENT OF DIRECT EXPENSES ON TERMINATION. Even though the lease term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant's share of Direct Expenses for the year in which this Lease terminates, upon notification by Landlord, Tenant shall immediately pay any increase due over the estimated installment payments made; and conversely, any overpayment made in the event said expenses decrease shall be credited toward any sums owing from Tenant to Landlord, or paid by Landlord to Tenant if no sums are owing. Landlord shall prorate Tenant's share of Direct Expenses to the date of termination, and shall provide Tenant with a calculation of how Tenant's share was determined. 3.3.7 TENANT'S RIGHT TO INSPECT RECORDS. Tenant shall have the right to examine Landlord's records relating to Direct Expenses at all reasonable times during regular business hours upon ten (10) days' advance notice in writing to Landlord. In the event Tenant discovers a discrepancy which caused Tenant to pay in excess of Tenant's actual percentage of Category A and B Direct Expenses, said overpayment shall be refunded to Tenant. If Tenant discovers a discrepancy which caused Tenant to pay less than its actual percentage then Tenant shall pay Landlord the balance due. If any above described excess payment by Tenant exceeds 2% of the amount originally charged to Tenant, then Landlord shall pay Tenant's out-of-pocket costs in conducting such examination. 4. SECURITY DEPOSIT. Tenant agrees that Tenant shall deposit with Landlord on the date Tenant opens for business from the Premises the sum of Twenty-three Thousand, Seven Hundred Seventeen and 20/100 Dollars ($23,717.20), to be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants and conditions of this Lease to be kept and performed by Tenant during the lease term. If Tenant defaults with respect to any provisions of this Lease, including, but not limited to payment of monthly rent or Direct Expenses, Landlord may (but shall not be required to) use, apply or retain all or any part of the security deposit for the payment of any amount which Landlord may spend or become obligated to spend by reason of Tenant's default, or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of Tenant's deposit is so used or applied, Tenant shall, within five (5) days after written demand therefor, deposit with Landlord cash in an amount sufficient to restore the security deposit to the original amount, and Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to maintain Tenant's security deposit separate from Landlord's general funds, and Tenant shall not be entitled to interest on such deposit. If Tenant shall fully and faithfully perform every provision of this Lease to be performed by Tenant, the security deposit or any balance thereof shall be returned to Tenant (or at Landlord's option, to the last assignee of Tenant's interest hereunder) at the expiration of the second year of the lease term. In the event of termination of Landlord's interest in this Lease, Landlord shall assign and transfer said deposit to Landlord's successor in interest hereunder, whereupon Landlord's obligations hereunder shall terminate. 5. UTILITIES AND SERVICES. Tenant agrees, at its own expense, to pay for all services and utilities used by Tenant on -5- the Premises from and after delivery of possession thereof by Landlord. If a separate meter is provided for Tenant for any such utilities, it shall be at Tenant's expense. Landlord agrees that initially, and only to the extent shown on "Exhibit B" hereto, Landlord shall cause utilities and services to be made available to Tenant. 6. POSSESSION AND USE. 6.1 Tenant shall use the Premises solely for the purposes specified in "Exhibit D" attached hereto. Tenant shall not use or permit the Premises to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord. Tenant shall not sell merchandise from vending machines or allow any coin-operated vending or gaming machines (other than for use by employees of Tenant) on the Premises without the prior written consent of Landlord. Tenant shall not use or permit any person or persons to use the Premises or any part thereof for conducting a second-hand store, auction, distress or fire sale or bankruptcy or going out-of-business sale, or for any use or purpose in violation of the laws of the United States of America, or the laws, ordinances, regulations and requirements of the State, County and City where the Premises are situated, or other lawful authorities. The Premises and every part thereof shall be kept by Tenant in a clean and wholesome condition, free of any objectionable noises, odors or nuisances; and that all health and police regulations shall, in all respects and at all times, shall be complied with by Tenant. Tenant shall not cause, maintain nor permit any nuisance in, on or about the Premises, the Building nor commit or suffer to be committed any waste in or upon the Premises. No aerial or antenna shall be erected on the roof or exterior walls of the Premises or the Building without first obtaining, in each instance, the written consent of Landlord. Any aerial or antenna so installed without such written consent shall be subject to removal without notice at any time. In addition, Tenant shall not solicit in any manner in any of the automobile parking and common areas of the Building. Tenant shall not close Tenant's office for five (5) or more consecutive days without first obtaining Landlord's written consent. Landlord reserves the right to regulate the activities of Tenant in regard to deliveries and servicing of the Premises, provided that the same shall not reasonably interfere with Tenant's business, and Tenant agrees to abide by such non-discriminatory regulations of Landlord. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants or occupants of the Building or injure or annoy them or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose. 6.2 Landlord shall deliver the Premises to Tenant in good condition and free of defects with respect to the structural engineering and construction of the shell of the Premises. Upon notification to Landlord of any defect in such structural engineering or construction Landlord shall promptly repair the same at Landlord's sole cost. 7. COMPLIANCE WITH LAW. Tenant shall, at Tenant's sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force, and with the requirements of any board of fire insurance underwriters or other similar bodies now or hereafter constituted, relating to, or affecting the condition, use or occupancy of the Premises, -6- excluding structural changes not related to or affected by Tenant's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against the Tenant, whether Landlord be a part thereto or not, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of the fact as between Landlord or Tenant. Landlord represents that this Lease and Tenant's planned use of the Premises will not be violative of any applicable governmental statute, ordinance or regulation, excluding governmental regulation of Tenant's banking operations and compliance by Tenant with respect to Tenant's improvements to the Premises, but including zoning ordinances. Tenant acknowledges that Landlord has not, as of the date of this Lease, received final approval of zoning modifications with respect to the Premises for Tenant's use. Notwithstanding the foregoing and without relieving Landlord of its obligation to pursue such final approval with due diligence, if Landlord and Tenant agree prior to October 15, 1983 that Landlord will be unable to obtain such final approval, then this Lease shall terminate upon such agreement and Landlord's liability to Tenant for breach of the representation herein that this Lease is not violative of zoning ordinances shall be limited to Tenant's out-of-pocket costs in connection with the negotiation of this Lease and preparation of the Premises for Tenant's use. In the event Landlord and Tenant agree after October 15, 1983, that such final approval will not be forthcoming, there shall be no limitation on Landlord's liability for Tenant's damages for breach of such representation. 8. INDEMNITY, INSURANCE AND WAIVER OF SUBROGATION: 8.1 Tenant covenants with Landlord that Landlord shall not be liable for any damage or liability of any kind or for any injury to or death of persons or damage to property of Tenant or any other person, from and after Tenant taking possession thereof pursuant to the provisions of Paragraph 2.1, from any cause whatsoever by reason of the use, occupancy and enjoyment of the Premises by Tenant or any person holding under Tenant, and that Tenant will indemnify and save harmless the Landlord from all liability whatsoever on account of any such real or claimed damage or injury and from all liens, claims and demands arising out of the use of the premises, by Tenant, its invitees, agents and employees or any person holding under Tenant, or in connection with any repairs or alterations which Tenant may make, except to the extent any such damage or claim results from the negligent or intentional act or omission of Landlord. This obligation to indemnify shall include reasonable attorneys' fees. 8.2 Landlord and Tenant hereby waive any rights each may have against the other on account of any loss or damage occasioned to Landlord or Tenant, as the case may be, their respective property, the Premises or contents (or if the Premises are part of a development to other portions of the Building), arising from any risk covered by fire and extended coverage insurance required to be carried by this Lease; and the parties each, on behalf of their respective insurance companies insuring the property of either Landlord or Tenant against any such loss, waive any right of subrogation that it may have against Landlord or Tenant, as the case may be. The foregoing waivers of subrogation shall be operative only so long as available in the State in which the Premises are situated. 8.3 Tenant further covenants and agrees that from and after Tenant taking possession of the Premises pursuant to the provisions of Paragraph 2.1, Tenant will carry and maintain, at -7- its sole cost and expense, the following types of insurance, in the amounts specified and in the form hereinafter provided for: 8.3.1 Bodily injury liability insurance with limits of not less than Five Hundred Thousand Dollars ($500,000) per person and One Million Dollars ($1,000,000) per occurrence insuring against any and all liability of the insured with respect to the Premises or arising out of the maintenance, use or occupancy thereof, and property damage liability insurance with a limit of not less than Two Hundred Thousand Dollars ($200,000) per accident or occurrence. All such bodily injury liability insurance and property damage liability insurance shall specifically insure the performance by Tenant of the indemnity agreement as to liability for injury to or death or persons and injury or damage to property in this Section 8 contained; and 8.3.2 Insurance covering Tenant's leasehold improvements, alterations, additions or improvements permitted under Section 9, trade fixtures, merchandise and personal property from time to time in, on or upon the Premises, in an amount not less than eighty percent (80%) of their full replacement cost from time to time during the lease-term, providing protection against any peril included within the classification "Fire and Extended Coverage", together with insurance against sprinkler damage, vandalism and malicious mischief. Any insurance proceeds shall be used for the repair or replacement of the property damaged or destroyed unless the Lease shall cease and terminate under the provisions of Section 14. 8.3.3 All policies of insurance provided for herein shall be issued by insurance companies with a Best rating of A or better and shall be issued in the names of Landlord and Tenant, which policies shall be for mutual and joint benefit and protection of Landlord and Tenant. Certificate of such insurance shall be delivered to Landlord within thirty (30) days after Tenant has entered upon the Premises pursuant to the provisions of Paragraph 2.1, and thereafter within thirty (30) days after renewal of each such policy. All comprehensive general liability policies shall contain a provision that Landlord, although named as an insured, shall nevertheless be entitled to recovery under said policies for any loss occasioned to Landlord, its servants, agents and employees by reason of the negligence of Tenant. As often as any such policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All certificates of insurance delivered to Landlord must contain a provision that the company writing said policy will give to the Landlord twenty (20) days' notice in writing in advance of any cancellation or lapse, or the effective date or any reduction in the amounts of insurance. All comprehensive general liability and other casualty policies shall be written as primary policies, not contributing with and not in excess of coverage which Landlord may carry. Tenant's deductible limits from time to time shall be commercially reasonable and be approved by Landlord, which approval shall not be unreasonably withheld; provided that Landlord's consent shall not be required to deductible limits of $10,000 or less. In the event of any loss covered by insurance required to be maintained by Tenant under this Lease, Tenant shall pay the deductible amount applicable to the party entitled thereto, and shall indemnify Landlord in connection therewith as required by Paragraph 8.1. -8- 8.4 Notwithstanding anything to the contrary contained within this Section 8, Tenant's obligation to carry the insurance provided for herein may be brought within the coverage of a so-called blanket policy or policies of insurance carried and maintained by Tenant; provided, however, that Landlord shall be named as an additional assured thereunder as its interests may appear and that the coverage afforded Landlord will not be reduced or diminished by reason of the use of such blanket policy of insurance; and provided further that the requirements set forth in this Section 8 are otherwise satisfied. 8.5 Tenant agrees that it will not at any time during the lease term carry any stock of goods or do anything in or about the Premises which will in any way tend to increase the insurance rates upon the Building. Tenant agrees to pay to Landlord forthwith upon demand the amount of any increase in premiums for insurance against loss by fire that may be charged during the lease term on the amount of insurance carried by Landlord on the Building resulting from the foregoing or from Tenant doing any act which does so increase the insurance rates, whether or not Landlord shall have consented to any such act on the part of Tenant. If Tenant installs upon the Premises any electrical equipment which constitutes an overload of the electrical lines of the Premises, Tenant shall at its own expense make whatever changes are necessary to comply with the requirements of the insurance underwriters and any governmental authority having jurisdiction thereover, but nothing herein contained shall be deemed to constitute Landlord's consent to such overloading. Tenant shall, at its own expense, comply with all requirements, including the installation of fire extinguishers or automatic dry chemical extinguishing system, of the insurance underwriters or any governmental authority having jurisdiction thereover, necessary for the maintenance of reasonable fire and extended coverage insurance for the Premises and portions of the Building which exclusively benefit Tenant. 8.6 Landlord, at its cost, shall maintain on the Building and other improvements in which the Premises are located a policy of standard fire and extended coverage insurance, with vandalism and malicious mischief endorsements, to the extent of at least ninety (90) percent of full replacement value. Tenant acknowledges that such casualty insurance does not cover Tenant, and that Tenant's property and improvements shall be insured by Tenant as required by Paragraph 8.3.2. Landlord shall also maintain in effect during the lease term liability insurance with respect to the common areas in such amounts and with deductible limits as Landlord deems prudent to protect the interests of Landlord and all tenants of the Building. Landlord shall provide to Tenant certificates of the insurance required to be carried by Landlord hereunder. All public liability and property damage policies shall contain a provision that Tenant, although named as an insured, shall nevertheless be entitled to recovery under said policies for any loss occasioned to Tenant, its servants, agents and employees, by reason of the negligence of Landlord, and shall contain a provision that the company writing said policy will give Tenant twenty (20) days' notice in writing in advance of the cancellation or lapse of such insurance. All such policies shall be written as primary policies, not contributing with or in excess of coverage which Tenant may carry. In the event of any loss covered by insurance required to be maintained by Landlord under this Lease, Landlord shall not pass on to Tenant, as a Direct Expense under Paragraph 3.1 or otherwise, all or any portion of the deductible amount payable as a result of any such loss. -9- 9. TENANT'S RIGHT TO MAKE ALTERATIONS. Landlord agrees that Tenant may, at its own expense but only after obtaining Landlord's written consent thereto, from time to time during the lease term, make alterations, additions and changes in and to the interior of the Premises (except those of a structural nature) as Tenant may find necessary or convenient for Tenant's purposes. In addition, no alterations, additions or changes shall be made to any portion of the Premises fronting on a common area, the exterior walls or roof of the Premises or the Building. In no event shall Tenant make or cause to be made any penetration through the roof of the Premises or the Building without the prior written approval of Landlord. Tenant shall be directly responsible for any and all of damages resulting from any violation of the provisions of this Section 9. All work with respect to any alterations, additions, and changes must be done in a good and workmanlike manner and diligently prosecuted to completion to the end that the Premises shall at all times be a complete unit except during the period of work. Upon completion of such work, Tenant shall file for record in the office of the County Recorder of the County in which the Premises are situated a Notice of Completion as permitted by law. All work by Tenant hereunder shall be performed and done strictly in accordance with the laws and ordinances relating thereto. Tenant shall have all such work performed in such a manner as not to obstruct the access to the Building by any other tenant of the Building. In the event that Tenant shall make any permitted alterations, additions or improvements to the Premises under the terms and provisions of this Section 9, Tenant agrees upon its part to carry insurance in form and amount satisfactory to Landlord, covering any such alteration, addition or improvement, it being expressly understood and agreed that none of such alterations, additions or improvements shall be insured by Landlord under such insurance as Landlord may carry upon the Building, nor shall Landlord be required under any provisions for reconstruction of the Premises to reinstall any such alterations, improvements or additions. Tenant shall request Landlord's written consent to any work under this Paragraph 9 at least ten (10) days' prior to the anticipated commencement thereof and shall, if required by Landlord, secure a completion and lien indemnity bond satisfactory to Landlord at Tenant's own cost and expense. All improvements made by Tenant to the Premises pursuant to this Paragraph 9 shall be the property of Tenant during the lease term. Upon termination of Tenant's leasehold estate such alterations, additions or changes shall be considered as improvements and shall belong to Landlord, except as provided in Paragraph 11. 10. MECHANIC'S LIENS. 10.1 Tenant agrees that it will pay or cause to be paid all costs for work done by Tenant or cause to be done by Tenant on the Premises, and the Tenant will keep the Premises free and clear of all mechanic's liens and other liens on account of work done for Tenant or persons claiming under Tenant. Tenant agrees to and shall indemnify, defend and save Landlord free and harmless against liability, loss, damage, costs, attorneys' fees, and all other expenses on account of claims of lien of laborers or materialmen or others for work performed or materials or supplies furnished for Tenant or persons claiming under Tenant. If Tenant shall desire to contest any claim of lien, Tenant shall furnish Landlord adequate security of the value or in the amount of the claim, plus estimated costs and interest, or a bond of a responsible corporate surety in such amount conditioned on the discharge of -10- the lien. If a final judgment establishing the validity or existence of a lien for any amount is entered, Tenant shall pay and satisfy the same at once. If Tenant shall be in default in paying any charge for which a mechanics' lien claim and suit to foreclose the lien have been filed, and shall not have given Landlord security to protect the property and Landlord against such claim of lien, Landlord may (but shall not be so required to) pay the said claim and any costs, upon five (5) days' notice to Tenant, and the amount so paid, together with reasonable attorneys' fees incurred in connection therewith, shall be immediately due and owing from Tenant to Landlord, and Tenant shall pay the same to Landlord with interest at the maximum lawful rate from the dates of Landlord's payments. Should any claims of lien be filed against the Premises or any action affecting the title to such property be commenced, the party receiving notice of such lien or action shall forthwith give the other party written notice thereof. 10.2 Landlord or its representatives shall have the right to go upon and inspect the Premises at all reasonable times and shall have the right to post and keep posted thereon notices of nonresponsibility, or such other notice which Landlord may deem to be proper for the protection of Landlord's interest in the Premises. After obtaining the written consent of Landlord thereto Tenant shall, before the commencement of any work which might result in any such lien, give to the Landlord written notice of its intention to do so in sufficient time to enable the posting of such notices. 11. FIXTURES AND PERSONAL PROPERTY. 11.1 Any equipment, trade fixtures, signs and other personal property of Tenant not permanently affixed to the Premises shall remain the property of Tenant, and Landlord agrees that Tenant shall have the right, at any time, and from time to time, to remove any and all of its equipment, trade fixtures, signs and other personal property which it may have stored or installed in the Premises. Tenant at its expense shall immediately repair any damage occasioned to the Premises or the Building by reason of the removal of any such equipment, trade fixtures, signs, and other personal property, and upon the last day of the lease term or a date of earlier termination of this Lease, shall leave the Premises in a neat and clean condition, free of debris. All improvements to the Premises by Tenant, including but not limited to heating, ventilating and/or air conditioning equipment, light fixtures, floor coverings and nonmovable, demountable ceiling height partitions (but excluding movable equipment, movable nondemountable partitions of less than ceiling height, trade fixtures and signs) shall become the property of Landlord upon expiration or earlier termination of this Lease; except that Tenant may at Tenant's option remove any improvements made by Tenant pursuant to Paragraph 9 herein provided. 11.2 Tenant shall pay before delinquency all taxes, assessments, license fees and public charges levied, assessed or imposed upon its business operation, as well as upon its trade fixtures, leasehold improvements, merchandise and other personal property in, on or upon the Premises. In the event any such items of property are assessed with property of Landlord, then, and in such event, Landlord shall divide such assessment between Landlord and Tenant and to the end that -11- Tenant shall pay only its equitable proportion of such assessment. Tenant shall remit the amount of any such divided assessment to Landlord within ten (10) business days after receipt from Landlord of a statement therefor reflecting such division. 12. ASSIGNING, MORTGAGING, SUBLETTING, CHANGE IN CORPORATE OWNERSHIP. 12.1 Tenant shall not transfer, assign, sublet, mortgage or hypothecate this Lease or Tenant's interest in the Premises without first procuring the written consent of Landlord, which consent shall not be unreasonably withheld. Tenant shall pay to Landlord the sum of $100.00 with each request for Landlord's consent, to cover Landlord's expenses in connection with processing each such request. Any such consent of Landlord shall not be construed as consent to any subsequent assignment, subletting or other such transfer. Any attempted transfer, assignment, subletting, mortgage or hypothecation without Landlord's written consent shall be void and confer no rights upon any third person; and Landlord reserves the right of immediate re-entry in the event of any such attempted transfer. Nothing herein contained shall relieve Tenant from its covenants and obligations for and during the lease term. Nothing in this Paragraph 12.1 shall be construed as to limit Tenant's right to enter into a license agreement whereby Tenant would do business from the Premises as the licensee of another financial institution. 12.2 Each transfer, assignment, subletting, mortgage and hypothecation to which there has been consent shall be by an instrument in writing, in form satisfactory to Landlord, and shall be executed by the transferor, assignor, sublessor, hypothecator or mortgagor and the transferee, assignee, sublessee, or mortgagee in each instance, as the case may be; and each transferee, assignee, sublessee, or mortgagee shall agree in writing for the benefit of the Landlord to assume, to be bound by, and to perform the terms, covenants and conditions of this Lease to be done, kept and performed by Tenant, including the payment of all amounts due or to become due under this Lease directly to the Landlord. 12.3 Intentionally omitted. 13. REPAIRS AND MAINTENANCE. 13.1 Tenant agrees at all times, from and after Tenant taking possession of the Premises pursuant to the provisions of Paragraph 2.1, and at Tenant's own cost and expense, to repair, replace and maintain in good and tenantable condition the Premises and every part thereof (except that portion of the Premises to be maintained by Landlord as hereinafter provided), and including without limitation all such items of repair, maintenance, alteration and improvement or reconstruction as may at any time or from time to time be required by a governmental agency having jurisdiction thereof. All glass, both exterior and interior, is the sole risk of Tenant, and any glass broken shall be promptly replaced by Tenant with glass of the same kind, size and quality. Subject to the foregoing provisions hereof, Landlord shall keep and maintain in good and tenantable condition and repair, the roof, exterior walls, structural parts of the Premises and structural floor, pipes and conduits outside the Premises for the furnishing to the Premises of various utilities (except to the extent that the same are the -12- obligation of the appropriate public utility company); provided, however, that Landlord shall not be required to make repairs necessitated by reason of the negligence of Tenant or anyone claiming under the Tenant, or by reason of the failure of the Tenant to perform or observe any covenants, conditions or agreements in this Lease contained, or caused by any alterations, additions or improvements made by Tenant or anyone claiming under Tenant. Anything to the contrary contained in this Lease notwithstanding, Landlord shall not in any way be liable to Tenant for failure to make repairs as herein specifically required of Landlord unless Tenant has previously notified Landlord, in writing, of the need for such repairs and Landlord has failed to commence and complete said repairs within a reasonable period of time following receipt of Tenant's written notification. It is understood and agreed that Landlord shall be under no obligation to make any repairs, alterations, renewals, replacements or improvements to and upon the Premises or the mechanical equipment exclusively serving the Premises at any time except as in this Lease expressly provided. As used in this Section 13 the expression "exterior walls" shall not be deemed to include plate glass, window cases or window frames, doors or door frames, security grilles or similar enclosures. 13.2 Upon any surrender of the Premises, Tenant shall redeliver the Premises to Landlord in good order, condition and state of repair, ordinary wear and tear and casualty damage excepted. 13.3 Tenant further covenants and agrees that Landlord may enter upon the Premises at all reasonable times after giving reasonable notice to Tenant, and make any necessary repairs to the Premises and perform any work therein (i) which may be necessary to comply with any laws, ordinances, rules or regulations of any public authority or of the Insurance Service Office or of any similar body if Tenant fails to perform such work or (ii) that Landlord may deem necessary to prevent waste or deterioration in connection with the Premises if Tenant does not make or cause such repairs to be made or performed promptly after receipt of written demand from Landlord or (iii) that Landlord may deem necessary to perform construction work incidental to any portion of the Building adjacent to, above, or below the Premises. Nothing herein contained shall imply any duty on the part of Landlord to do any such work which under any provision of this Lease Tenant may be required to do, nor shall it constitute a waiver of Tenant's default in failing to do the same. All entries by Landlord upon the Premises shall be in a reasonable manner, so as not to unreasonably interfere with or inconvenience Tenant in the conduct of its business. No exercise by Landlord of any rights herein reserved shall entitle Tenant to any damage for any injury or inconvenience occasioned thereby unless caused by the landlord's intentional or negligent act or omission nor to any abatement of rent. Tenant shall pay the cost of any work Landlord performs which is Tenant's responsibility, together with interest thereon at the maximum rate permitted by law, to Landlord as additional rent within five (5) days after receipt of a bill therefor. 13.4 Landlord or its agents shall not be liable for any damage to property entrusted to employees of the Building (if any), nor for loss or damage to any property by theft or otherwise, nor for any injury to or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water or rain which may leak from any part of the Building or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface or from any other place resulting from dampness or any other cause whatsoever, unless caused by or due to the negligence of Landlord, -13- its agents, servants, or employees. Landlord and Landlord's agents shall not be liable for interference with the light or other incorporeal hereditaments or for loss of business by Tenant. Tenant shall give prompt notice to Landlord in case of fire or accidents in the Premises or in the Building or of defects therein or in the fixtures or equipment. Tenant, as a material part of the consideration for this Lease, hereby assumes all risk or damage to property or injury to persons in, upon or about the Premises, from any cause other than Landlord's negligence, and Tenant hereby waives all claims in respect thereof against Landlord. 14. RECONSTRUCTION. 14.1 In the event the Premises be damaged by fire or other perils covered by Landlord's insurance to be carried hereunder, Landlord shall; (i) Within a period of ninety (90) days thereafter, complete repair, reconstruction and restoration of the Premises in which event this Lease shall continue in full force and effect; or (ii) In the event of a partial or total destruction of the Premium during the last six (6) months of the lease term Landlord shall have the option to terminate this Lease upon the giving of written notice to Tenant of exercise of such option within thirty (30) days after such destruction. For purposes of this subparagraph "partial destruction" shall be deemed a destruction to an extent of at least fifty (50%) of the full replacement cost of the Premises or the Building as of the date of destruction. 14.2 In the event the Premises or the Building shall be damaged as a result of any flood, earthquake, act of war, nuclear reaction, nuclear radiation or radioactive contamination, or from any other casualty not covered by Landlord's insurance to be carried hereunder, to any extent whatsoever, Landlord may within thirty (30) days following the date of such damage, commence repair, reconstruction or restoration of the Premises and prosecute the same diligently to completion, in which event this Lease shall continue in full force and effect if Landlord completes such repairs within ninety (90) days of such casualty, or within said thirty (30) day period Landlord may elect not to so repair, reconstruct or restore the Premises, in -14- which event this Lease shall cease and terminate. In either such event Landlord shall give Tenant written notice of its intention within said thirty (30) day period. Notwithstanding the foregoing, unless such uninsured casualty occurs during the last twenty-four (24) months of the lease term, Tenant shall have the right, at Tenant's sole cost and expense, to repair, reconstruct or rebuild the Building shell and appurtenances provided Tenant completes such repair and restoration within nine (9) months of the date of casualty. Tenant shall notify Landlord in writing of the exercise of such right within 15 days after the occurrence of such uninsured casualty, and thereafter commence such reconstruction within ninety (90) days following such damage and complete the work within the aforesaid nine (9) month period, in which case this Lease shall continue in full force and effect. Landlord shall not be liable for any expense whatsoever in connection with such work by Tenant unless Landlord requests any changes to the work of restoration and agrees in writing with Tenant to bear the cost and expense of such requested change. Tenant agrees that Tenant shall indemnify and hold Landlord harmless from any and all liability, cost and expense in connection with such repair or reconstruction by Tenant. 14.3 In the event of any reconstruction of the Premises under this Section 14, said reconstruction shall be in conformity with the plans and specifications prepared by Landlord's architect and Tenant's plans and specifications approved by Landlord. All reconstruction work shall be performed by Landlord's contractor unless Landlord shall otherwise agree in writing. Tenant, at its sole cost and expense, shall be responsible for the repair and replacement of its equipment, trade fixtures, furniture and furnishings. Tenant shall commence such installation of fixtures, equipment of the Premises and shall commence such installation of fixtures, equipment of the Premises and shall diligently prosecute such installation to completion upon substantial completion of any work by Landlord. 14.4 If there is a destruction to the Building and other improvements that exceeds fifty (50) percent of the then replacement value thereof from any risk, Landlord may elect to terminate this Lease whether or not the Premises are affected by such destruction, so long as Landlord terminates the leases of all tenants in the Building. 14.5 Upon any termination of the Lease under any of the provisions of this Section 14, the parties shall be released thereby without further obligations to the other party coincident with the surrender of possession of the Premises to Landlord, except for items which have theretofore accrued and be then unpaid. In the event of termination, all proceeds from Tenant's fire and extended coverage insurance covering Tenant's leasehold improvements (but excluding proceeds for equipment, trade fixtures, merchandise, signs and other personal property permitted to be removed by Tenant pursuant to Paragraph 11.1) shall be disbursed and paid to Landlord. 14.6 In the event of repair, reconstruction and restoration as herein provided, Tenant shall continue the operation of its business on the Premises to the extent reasonably practicable from the standpoint of prudent business management, and the obligation of Tenant hereunder to pay rental and Direct Expenses shall be equitably abated. Tenant shall not be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or the Building or for Tenant's personal property, or any inconvenience or -15- annoyance occasioned by such damage, repair, reconstruction or restoration. 14.7 Tenant hereby waives any statutory rights, of termination which may arise by reason of any partial or total destruction of the Premises or the Building which Landlord is obligated to restore or may restore under any of the provisions of this Lease. 15. COMMON AREAS. The Premises are part of a Building, and the following provisions shall govern common areas therein: 15.1 The term "common areas" refers to all areas within the exterior boundaries of the Building which are now or hereafter made available for general use, convenience and benefit of Landlord and other persons entitled to occupy floor area in the Building, including any lobbies or hallways, automobile parking areas, parking structures, if any, driveways, sidewalks, landscaped and planted areas, if any. Tenant and its invitees are, except as otherwise specifically provided in this Lease, authorized, empowered and privileged to use the common areas in common with other persons during the lease term. Landlord shall at all times have the right and privilege of determining the nature and extent of the common areas, whether the same shall be surface or underground, and of making such changes therein and thereto from time to time which in Landlord's opinion are deemed to be desirable and for the best interest of all persons using said common areas, including the location and relocation of doorways, driveways, entrances, exits, automobile parking spaces, if any, the direction and flow of traffic, installation of prohibited areas, landscaped areas, if any, and all other facilities thereof. Nothing contained therein shall be deemed to create any liability upon Landlord for any damage to motor vehicles of customers or employees or for loss of property within such motor vehicles, unless caused by the intentional or negligent act or omission of Landlord, its agents, servants or employees. 15.2 Landlord shall also have the right to establish, and from time to time change, alter or amend, and to enforce against Tenant and the other users of the common areas such reasonable rules and regulations (including the exclusion of employees' parking therefrom) as Landlord may deem necessary or advisable for the proper and efficient operation and maintenance of said common areas. The rules and regulations herein provided may include, without limitation, the hours during which the common areas shall be open for use. Landlord shall at all times during the term of this Lease have the sole and exclusive control of the common areas. The rights of Tenant hereunder in and to the common areas shall at all times by subject to the rights of Landlord and the other tenants of Landlord to use the same in common with Tenant. It shall be the duty of Tenant to keep all common areas free and clear of any obstructions created or permitted by Tenant or resulting from Tenant's operation and to permit the use of any common areas only for normal ingress and parking, if any is provided, by clients, customers, patrons and service suppliers to and from the Building occupied by Tenant and the other tenants of Landlord. It is understood that Tenant and employees of Tenant and the other tenants of Landlord within the Building shall not be permitted to park their automobiles in the automobile parking areas, if any, of the common areas which may from time to time be designated for patrons of the Building unless specifically authorized by Landlord in writing. Landlord shall at all times have the right to designate the particular parking area -16- to be used by any or all of Tenant's employees and any such designation may be changed from time to time. Tenant and its employees shall park their vehicles only in those portions of the parking areas, if any, designated for that purpose by Landlord. Tenant shall furnish Landlord with a list of Tenant's and Tenant's employees' vehicle license numbers from time to time at Landlord's request. If Tenant or its employees fail to park their cars in designated areas, or fail to abide by Landlord's Rules, Landlord may terminate such employees' parking privileges. Landlord's initial Rules under this Section 15 are attached hereto as Exhibit E. 15.3 Nothing in this Section 15 shall imply any obligation on the part of Landlord to establish any common areas other than those existing on the date of this Lease. 16. OTHER RULES AND REGULATIONS. In addition to the rules and regulations permitted to be promulgated by Landlord with respect to the common areas, Landlord may, from time to time, prescribe other reasonable rules and regulations regarding the general operation and functioning of the Building. Tenant shall faithfully observe and comply with such other rules and regulations as Landlord shall from time to time promulgate. Such rules and additions and modifications thereto shall be binding upon Tenant upon delivery of copies thereof to Tenant. Tenant acknowledges that Landlord shall not be responsible to Tenant for nonperformance of Landlord's rules by any other tenants or occupants, but Landlord shall make reasonable efforts to enforce such Rules upon written notice or request therefor from Tenant or after receipt of actual notice by Landlord of the nonperformance of such rules. Landlord's initial Rules under this Paragraph 16 are attached hereto as Exhibit F. Landlord shall not waive the observance of such Rules by other Tenants of the Building if, in Landlord's reasonable judgement, such waiver would have an adverse effect on Tenant in the conduct of its business. 17. ENTRY BY LANDLORD. Landlord shall have the right to enter the Premises (other than Tenant's vault, file room and other secured areas) to inspect the same, to submit the Premises to prospective purchasers or tenants, to post notices of nonresponsibility, to exercise Landlord's rights under Paragraph 13.3, or for the purpose of running conduits through the space between the dropped ceiling and the floor of the Building immediately above the Premises for Landlord's purposes in furnishing and maintaining services, utilities and the like to the Building (including but not limited to air-conditioning, electrical services, plumbing lines and sprinkler systems). If the Premises have no dropped ceilings, Landlord may install such conduits provided they shall not unreasonably detract from the character of the Premises and they shall be installed only above ten (10) feet from the floor level of the Premises. Tenant acknowledges that Landlord shall have such right to run conduits whether or not of direct benefit to the Premises. All such entries shall be at reasonable times, after giving reasonable notice to Tenant, and shall be performed in a reasonable manner. No such entry shall unreasonably interfere with Tenant's conduct of its business on the Premises or unreasonably inconvenience Tenant. Further, with respect to the running of conduits through the Premises, such conduits shall not interfere or conflict with Tenant's own conduits installed from time to time in the Premises. Landlord shall further be responsible for any damage to the Premises or to Tenant's property located there or to Tenant or its employees or visitors due to leaks, defective workmanship or otherwise resulting from any such -17- installation or location of such conduits in the Premises. Notwithstanding Landlord's right to enter, Landlord shall not have or retain a key to the Premises or to any portion thereof, and Landlord may use any and all proper and reasonable means to open doors to the Premises in an emergency in order to gain entry to the Premises without liability to Tenant except for any failure to exercise due care with regard to Tenant's property. 18. BANKRUPTCY-INSOLVENCY. Tenant agrees that, to the extent permitted by law, in the event all or substantially all of Tenant's assets be placed in the hands of a receiver or trustee and such receivership or trusteeship continues for a period of thirty (30) days, or should Tenant make an assignment for the benefit of creditors or be finally adjudicated a bankrupt, or should Tenant institute any proceeding under the Bankruptcy Act as the same now exists or under any amendment thereof which may hereafter be enacted, or under any other act relating to the subject of bankruptcy wherein Tenant seeks to be adjudicated a bankrupt, or to be discharged of its debts, or to effect a plan of liquidation, composition or reorganization or should any involuntary proceeding be filed against Tenant under any such bankruptcy laws and such proceeding not be removed within ninety (90) days thereafter, then this Lease or any interest of Tenant in and to the Premises shall not become an asset in any of such proceedings and, in any such events and in addition to any and all rights or remedies of Landlord hereunder or by law provided, it shall be lawful for Landlord to declare the term hereof ended and to reenter the Premises and take possession thereof and remove all persons therefrom, and Tenant shall have no further claim thereon or hereunder. The provisions of this Section 18 shall also apply to any guarantor of this Lease as if such guarantor were the Tenant. 19. DEFAULT BY TENANT. 19.1 Should Tenant at any time be in default hereunder with respect to any rental or Direct Expenses payments or other charges payable by Tenant hereunder, and should such default continue for a period of ten (10) business days after written notice from Landlord to Tenant; or should Tenant be in default in the prompt and full performance of any other of its promises, covenants or agreements herein contained and should such default or breach of performance continue for more than a reasonable time (not exceeding thirty (30) days) after written notice thereof from Landlord to Tenant specifying the particulars of such default or breach of performance; or should Tenant vacate or abandon the Premises; then Landlord may treat the occurrence of any one or more of the foregoing events as a breach of this Lease, and in addition to any or all other rights or remedies of Landlord hereunder and by the law provided, it shall be, at the option of Landlord, without further notice or demand of any kind to Tenant or any other person: (a) the right of Landlord to terminate this Lease and declare the lease term ended and to reenter the Premises and take possession thereof and remove all persons therefrom, and Tenant shall have no further claim thereon or thereunder; or (b) the right -18- of Landlord without declaring this Lease ended, to reenter the Premises and occupy the whole or any part thereof for and on account of Tenant and to collect said rent and any other rent that may thereafter become payable; and (c) the right of Landlord, even though Landlord may have reentered the Premises on account of Tenant, to thereafter elect to terminate this Lease and all of the rights of Tenant in or to the Premises. 19.2 Should Landlord have reentered the Premises under the provisions of subparagraph (b) of Paragraph 19.1, Landlord shall not be deemed to have terminated this Lease or the liability of Tenant to pay rent thereafter to accrue or Tenant's liability for damages under any of the provisions hereof, by any such reentry or by any action in unlawful detainer or otherwise, to obtain possession of the Premises, unless Landlord shall have notified Tenant in writing that Landlord has so elected to terminate this Lease. Tenant covenants that the service by Landlord of any notice pursuant to the unlawful detainer statutes of the state in which the Premises are located and the surrender of possession pursuant to such notice shall not be deemed to be a termination of this Lease (unless Landlord elects to the contrary at the time of or at any time subsequent to the serving of such notices and such election be evidenced by a written notice to Tenant). In the event of any entry or taking possession of the Premises as aforesaid, Landlord shall have the right, but not the obligation, to remove therefrom all or any part of the personal property located therein and may place the same in storage at a public warehouse at the expense and risk of the owner or owners thereof. 19.3 Should Landlord elect to terminate this Lease under the provisions of subparagraphs (a) or (c) of Paragraph 19.1, Landlord may recover from Tenant as damages: (i) the worth at the time of award of any unpaid rent which had been earned at the time of such termination; plus (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; plus (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to any costs or expenses incurred by Landlord in maintaining or preserving the Premises after such default, preparing the Premises for reletting to a new tenant, any repairs or alterations to the Premises for such reletting, leasing commissions, or any other costs necessary or appropriate to relet the Premises; and (v) at Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by the laws of the State of California. As used in clauses (i) and (ii) above, the "worth at the time of award" shall be computed by allowing interest at the rate of ten (10) percent per annum. As used in clause (iii) above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank situated nearest to the location of the Building at the time of award plus one percent (1%). 19.4 For all purposes of this Section 19, the term "rent" shall be deemed to be the monthly rental, Tenant's share of Direct Expenses, and all other sums required to be paid by -19- Tenant pursuant to the terms of this Lease. All such sums, other than the monthly rental, shall be computed on the basis of the average monthly amount thereof accruing during the immediately preceding twelve (12) month period, except that if it becomes necessary to compute such rental before such twelve (12) month period has occurred then on the basis of the average monthly amount thereof accruing during such shorter period. 19.5 In the event of default, all the Tenant's fixtures, equipment, improvements, additions, alterations and other personal property shall remain on the Premises and in that event, and continuing during the length of said default, Landlord shall have the right to take exclusion possession of same and to use same, rent or charge free, until all defaults are cured or, at Landlord's option, at any time during the term of this Lease, to require Tenant to forthwith remove the same. 19.6 Notwithstanding any other provisions of this Section 19, Landlord agrees that if the default complained of, other than for payment of money, is of such a nature that the same cannot be rectified or cured within the thirty (30) day period requiring such rectification or curing as specified in the written notice relating thereto, then such default shall be deemed to be rectified or cured if Tenant within such period of thirty (30) days shall have commenced the rectification and curing thereof and shall continue thereafter with all due diligence to cause such rectification and curing and does so complete the same with the use of such diligence. 19.7 The remedies given to Landlord in this Section 19 shall be in addition and supplemental to all other rights or remedies which Landlord may have under the laws then in force. The waiver by Landlord of any breach of any term, covenant or condition herein shall not be deemed to be a waiver of such term, covenant or condition. The subsequent acceptance of rent by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. No covenant, term, or condition of this Lease shall be deemed to have been waived by Landlord unless such waiver be in writing. 20. DEFAULT BY LANDLORD. If the Premises or any part thereof are at any time subject to a first mortgage or a first deed of trust and this Lease or the rentals due from Tenant hereunder are assigned to such mortgagee, trustee or beneficiary (called Assignee for purposes of this Section 20 only) and Tenant is given written notice thereof, including the post office address of such Assignee, then Tenant shall give written notice to such Assignee, specifying the default in reasonable detail, and affording such Assignee a reasonable opportunity to make performance for and on behalf of Landlord. If and when the said Assignee has made performance on behalf of Landlord, such default shall be deemed cured. Assignee shall effect such performance within thirty (30) days after receipt of notice thereof, unless the default complained of is of a nature that cannot be rectified or cured within 30 days; and in such event such default shall be deemed rectified or cured if Assignee commences such rectification or cure within the 30-day period and continues thereafter with due diligence to cause such rectification or cure and completes the same with the use of due diligence. -20- 21. EMINENT DOMAIN. 21.1 In the event the entire Premises shall be appropriated or taken under the power of eminent domain by any public or quasi-public authority, this Lease shall terminate and expire as of the date of such taking, and Tenant shall thereupon be released from any liability thereafter accruing hereunder. In the event more than twenty-five percent (25%) of the square footage of floor area of the Premises is taken under the power of eminent domain by any public or quasi-public authority, or if by reason of any appropriation or taking, regardless of the amount so taken, the remainder of the Premises is not one undivided parcel of property, either Landlord or Tenant shall have the right to terminate this Lease as of the date Tenant is required to vacate a portion of the Premises upon giving notice in writing of such election within thirty (30) days after receipt of written notice that the Premises have been so appropriated or taken. In the event more than 25% of the Building be taken under such power, Landlord shall have the option to terminate this Lease upon thirty (30) days' written notice to Tenant, provided that Landlord terminates all other leases of the Building. In the event of such termination, both Landlord and Tenant shall thereupon be released from any liability thereafter accruing hereunder. If this Lease is terminated as hereinabove provided, Landlord shall be entitled to the entire award or compensation in such proceedings, except as set forth in Paragraph 21.4, but the rent and other charges for the last month of Tenant's occupancy shall be prorated and Landlord agrees to refund to Tenant any rent or other charges paid in advance. Tenant's right to receive compensation or damages as set forth in Paragraph 21.4, shall not be affected in any manner by this Paragraph 21.1. 21.2 If both Landlord and Tenant elect not to so terminate this Lease, Tenant shall remain in that portion of the Premises which shall not have been appropriated or taken as herein provided, or in the event less than twenty-five percent (25%) of the square footage of floor area of the Premises shall be appropriated under the power of eminent domain by any public or quasi-public authority, and the remainder thereof is an undivided parcel of property, then in any such event Landlord agrees, at Landlord's cost and expense, as soon as reasonably possible to restore the Premises on the land remaining to a complete unit of like quality and character as existed prior to such appropriation or taking; and thereafter the monthly rental provided for in Section 3 shall be reduced by a notice in writing from Landlord to Tenant on an equitable basis; and Landlord shall be entitled to receive the total award or compensation in such proceedings except as set forth in Paragraph 21.4. 21.3 For the purpose of this Section 21, a voluntary sale or conveyance in lieu of condemnation, but under threat of condemnation, shall be deemed an appropriation or taking under the power of eminent domain. 21.4 In the event of any taking, Tenant shall be entitled to compensation for its property, any damages for severance or interruption of its business, moving expenses, bonus value of the remaining lease term, and any other compensation rightfully belonging to Tenant, except that Landlord shall have no obligation to pursue the same with any condemning authority. 22. ATTORNEYS' FEES. In the event that either Landlord or Tenant shall institute any action or proceeding against the other relating to the provisions of this Lease, or any default -21- hereunder, then, and in that event, the unsuccessful party in such action or proceeding agrees to reimburse the successful party for the reasonable expenses of attorney's fees incurred therein by the successful party. 23. AUTHORITY OF PARTIES. 23.1 CORPORATE AUTHORITY. If either party is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of said corporation, in accordance with a duly adopted resolution of the board of directors or in accordance with the by-laws of said corporation; that this Lease is binding upon said corporation in accordance with its terms; that said party is a duly qualified corporation and all steps have been taken prior to the date hereof to qualify said party to do business in the State in which the Premises are situated if said party is a foreign corporation; that all franchise and corporate taxes have been paid to date; and that all future forms, reports, fees and other documents necessary to comply with applicable laws will be filed when due. 24. SALE OF PREMISES BY LANDLORD. In the event of any sale or exchange of the Premises by Landlord and assignment by Landlord of this Lease, Landlord shall be and is hereby entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease arising out of any act, occurrence or omission relating to the Premises accruing after the consummation of such sale or exchange and assignment, provided such purchaser or assignee shall expressly assume said covenants and obligations of Landlord, Landlord may deliver the funds deposited hereunder by Tenant to the purchaser of Landlord's interest in the Premises in the event that such interest be sold and thereupon Landlord shall be discharged from any further liability with respect to such deposit. This provision shall also apply to any subsequent transferees. 25. SUBORDINATION AND ATTORNMENT. Upon request of Landlord or any mortgagee or beneficiary of Landlord, Tenant will in writing subordinate its rights hereunder to the lien of any mortgage or deed of trust now or hereafter in force against the land and Building and upon any buildings hereafter placed upon the land of which the Premises are a part, and to all advances made or hereafter to be made upon the security thereof. In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by Landlord covering the Premises, Tenant shall attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as Landlord under this Lease, provided that in no event shall Tenant's possession be disturbed if Tenant is not in default under this Lease, and any such written subordination shall so provide. Within ten (10) days after written request therefor by Landlord, or in the event that upon any sale, assignment or hypothecation of the Premises or the land thereunder by Landlord, an offset statement shall -22- be required from Tenant, Tenant agrees to deliver in recordable form a certificate in form satisfactory to Landlord addressed to any such proposed mortgagee or purchaser or to Landlord certifying, among other usual provisions, that this Lease is in full force and effect (if such be the case) and that there are no defenses or offsets thereto or stating those claimed by Tenant. 26. QUIET POSSESSION AND RELOCATION. 26.1 Landlord agrees that Tenant, upon paying the rent and performing the covenants and conditions of this Lease, may quietly have, hold and enjoy the Premises during the lease term. 26.2 Intentionally omitted. 27. HOLDING OVER. If Tenant remains in possession of the Premises or any part thereof after the expiration of the lease term, without the express written consent of Landlord, such occupancy shall be deemed a tenancy from month to month at a rental which is one-hundred twelve and 1/2 percent (112.5%) of the amount of the last monthly rental hereunder plus all other charges payable hereunder, during which Tenant covenants that Tenant will faithfully observe each and every other term and provision of this Lease. 28. CONSENT OF LANDLORD AND TENANT. Wherever in this Lease Landlord or Tenant is required to give its consent or approval to any action on the part of the other, such consent or approval shall not be unreasonably withheld or delayed. In the event of failure to give any such consent, the other party shall be entitled to specific performance at law and shall have such other remedies as are reserved to it under this Lease or at law. 29. OBLIGATIONS OF SUCCESSORS. The parties hereto agree that all the provisions of this Lease are to be construed as covenants and agreements as though the words imparting such covenants and agreements were used in each separate paragraph hereof, and, subject to the provisions of Section 12, that all of the provisions hereof shall bind and inure to the benefit of the parties hereto, and their respective heirs, legal representatives, successors and assigns. 30. NOTICES. Wherever in this Lease it shall be required or permitted that notice or demand be given or served by either party to this Lease to or on the other, such notice or demand shall be given or served, and shall not be deemed to have been duly given or served unless in writing and personally delivered to or forwarded by certified or registered mail, addressed to the addresses of the parties specified on page one of this Lease. Either party may change such address by written notice by certified or registered mail to the other. If a notice hereunder is mailed, service shall be deemed complete three (3) days after the date of mailing. 31. CAPTIONS AND TERMS. The captions of Sections and Paragraphs of this Lease are for convenience only, are not a part of this Lease and do not in any way limit or amplify the terms and provisions of this Lease. Except as otherwise specifically stated in this Lease, "the lease term" shall include the original term and any extension, renewal or holdover thereof. If more than one person or corporation is named as Landlord or Tenant in this Lease and executes the same as such, then and in such event, the words "Landlord" or "Tenant" wherever is used in this Lease are intended to refer to all such persons or corpor- -23- ations, and the liability of such persons or corporations for compliance with and performance of all the terms, covenants and provisions of this Lease shall be joint and several except as provided in Paragraph 23.2 hereof. The neuter pronoun used herein shall include the feminine and the masculine as the case may be, and the use of the singular shall include the plural. 32. Intentionally omitted 33. MISCELLANEOUS. 33.1 It is agreed that nothing contained in this Lease shall be deemed or construed as creating a partnership or joint venture between Landlord and Tenant or between Landlord and any other party, or cause Landlord to be responsible in any way for the debts or obligations of Tenant or any other party. 33.2 It is agreed that if any provision of this Lease shall be determined to be void or unenforceable by any court of competent jurisdiction, then such determination shall not affect any other provision of this Lease and all such other provisions shall remain in full force and effect. It is the intention of the parties hereto that if any provision of this Lease is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, then the provision shall have the meaning which renders it valid. 33.3 It is understood that there are no oral agreements between the parties affecting this Lease, and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease. This Lease cannot be amended or modified except by a written instrument. 33.4 Landlord reserves the absolute right to effect such other tenancies in the Building as Landlord, in the exercise of its sole business judgment, shall determine to best promote the interests of the Building. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or number of tenants shall occupy any space in the Building during the lease term. 33.5 The laws of the State in which the Premises are situated shall govern the validity, performance and enforcement of this Lease. Although the provisions of this Lease were drawn by Landlord, this Lease shall not be construed either for or against Landlord or Tenant, and shall be interpreted in -24- accordance with the general tenor of the language in an effort to reach an equitable result. 33.6 A waiver of any breach or default shall not be waiver of any other breach or default. Landlord's consent to, or approval of, any act by Tenant requiring Landlord's consent or approval shall not be deemed to waive or render unnecessary Landlord's consent to or approval of any subsequent similar act by Tenant. 33.7 Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, inability to obtain labor or materials or reasonable substitutes thereof, governmental restrictions, governmental regulations, governmental controls, judicial orders, enemy or hostile governmental action, civil commotion, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, shall excuse the performance by such party of a period equal to any such prevention, delay or stoppage, except the obligations imposed with regard to rental and other charges to be paid by Tenant pursuant to this Lease. 33.8 Tenant hereby acknowledges the late payment by Tenant to Landlord of rent or other sums due hereunder will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, clerical costs and late charges which may be imposed upon Landlord by terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or of any other sums due from Tenant shall not be received by Landlord or Landlord's designee within three (3) days after written notice that said amount is past due, then Tenant shall pay to Landlord a late charge equal to four percent (4%) of such overdue amount. The parties hereby agree that such late charges represent a fair and reasonable estimate of the cost that Landlord might incur by reason of the late payment preceding breach at the time of the acceptance of such rent. 33.9 Tenant hereby expressly waives any and all rights of redemption granted to or under any present or future laws in the event of Tenant being evicted or dispossessed from any cause, or in the event of Landlord obtaining possession of the Premises by reason of the violation by Tenant of any of the covenants and conditions of this Lease or otherwise. 33.10 Tenant shall not place any sign upon the Premises or Building without Landlord's prior written consent and approval. Tenant represents that it intends initially to use the name "Scripps Bank." The Building will be named "Scripps Bank Building," with exterior identification signs on the building parapets, above the garage entry, and at the main customer and tenant entries to the Building. Tenant shall have the right, in its absolute and unfettered discretion, from time to time to change the name under which it operates. The Building shall bear Tenant's name so long as Tenant is not in default hereunder and is operating from the Premises as a bank or savings and loan association or holding company thereof or any subsidiary of a holding company; and Tenant may use the Building name in connection with its promotion and advertising of its business so long as the Building bears Tenant's name. In the event of such name change by Tenant, Landlord shall cause all signs within Landlord's control located on or near the Building to be changed to reflect Tenant's new name, all at Tenant's cost and expense. Tenant shall further reimburse Landlord for all other costs reasonably incurred by Landlord in -25- connection with such name change. All said signs shall conform in all respects with all sign ordinances of the City of San Diego and with Landlord's Sign Criteria attached hereto as Exhibit H. Landlord shall not deviate from such Sign Criteria without Tenant's consent. 33.11 Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the prior written consent of the other party. 33.12 Tenant understands and acknowledges that Landlord does not have an office at the Building and that there will be no onsite manager of the Building. 33.13 The parties recognize that the brokers who negotiated this Lease are the brokers whose names are stated below. Landlord shall be solely responsible for the payment of brokerage commissions to said brokers and Tenant shall have no responsibility therefor. If Tenant has dealt with any other person or real estate broker in respect of leasing or renting space in the Building, Tenant shall be solely responsible for the payment of any fee due said person or firm, and Tenant shall hold Landlord free and harmless from any liability in respect thereto, including attorney's fees and costs. Brokers: William Donovan & Company and Coldwell Banker Commercial Real Estate Services. 33.14 Time is of the essence of this Lease and each and all of its provisions in which performance is a factor. 33.15 Submission of this instrument for examination or signature by Tenant does not constitute a reservation of or option for Lease, and it is not effective as a Lease or otherwise until execution by and delivery to both Landlord and Tenant. 33.16 Wherever provided in this Lease that Landlord or Tenant may, or shall, take any action of any nature, Landlord or Tenant, as the case may be, shall take only such action as is reasonable under the circumstances, which action shall be taken in a reasonable manner and at reasonable times. Further, to the extent such actions involve the imposition or rules and regulations affecting the use of the Premises, the Building or the common areas associated therewith, or otherwise affect Tenant's use of the Premises, such actions, including imposition or rules shall be uniform and nondiscriminatory and shall apply to all tenants of the Building. 33.17 Intentionally omitted. 33.18 Tenant shall have the right to install, at its expense, Automatic Teller Machines and Walk-Up Teller Windows. The location of said Automatic Teller Machines and Walk-Up Teller windows shall be subject to the mutual approval of Landlord and Tenant. 33.19 Landlord agrees to provide space and grants permission to Tenant to build storage areas and vaults in the Building garage under Landlord's supervision. Landlord shall have the right to designate the locations and size, in Landlord's sole discretion, of said vaults and storage areas. Landlord agrees to provide said space at no rental charge to Tenant; however, all costs of building and maintaining said vaults and storage areas shall be borne by Tenant. -26- 33.20 Tenant's obligations under this Lease (except those set forth on Exhibit B hereto) are conditioned upon (a) Tenant's receipt of all necessary governmental approvals of this Lease and with respect to Tenant's organization and qualification; and (b) Tenant's sale of $4 million of its securities through its initial sale of stock. These conditions shall not affect Tenant's right to enter upon the Premises as provided in Paragraph 2.1. Should Tenant's conditions herein not be satisfied or waived by Tenant on the date rental payments are to commence pursuant to Paragraph 3.1, Tenant shall nevertheless be liable for payment of rent and Direct Expenses, but may cancel this Lease within the following ninety (90) days by written notification to Landlord should either such condition not be met to Tenant's satisfaction. Upon the cancellation of this Lease by Tenant on failure of either such condition, Tenant shall immediately give up possession of the Premises to Landlord, together with all Tenant's plans and studies with respect to the Premises; and thereafter all improvements made by Tenant to the Premises to the date of cancellation, as well as Tenant's plans and studies, shall belong to Landlord (unless removed by Tenant), all without cost to Landlord, and this Lease shall thereupon be cancelled and of no further force or effect. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease on the day and year first above written. OKLAHOMA CITY INVESTMENT GROUP, A California Partnership. By: /s/ Willis E. Short ---------------------------- Willis E. Short, II, Partner SCRIPPS BANK (in organization), A California Banking Corporation By: /s/ [ILLEGIBLE] ---------------------------- Vice Chair By: /s/ Ronald J. Carlson ---------------------------- Ronald J. Carlson, President -27- EXHIBIT A DESCRIPTION OF PREMISES Approximately 9,122 square feet in the Building located at 7817 Ivanhoe Avenue, La Jolla, California, on the first floor as shown on the plan attached hereto as Exhibit A-1 and made a part of this "Exhibit A". The legal description of the property underlying the Building is as follows: Lots 12, 13 and 14 and that portion of Lot 15 in block 51 of La Jolla Park, City of San Diego, County of San Diego, State of California, according to Map thereof No. 352, filed in the Office of the County Recorder of said San Diego County March 22, 1887, described as follows: Beginning at the Easternly corner of said Lot 15: thence Westerly along the Northerly boundary line of said Lot 15, a distance of 32.50 feet; thence, South 41 degrees, 51 feet, 30 inches East to the Southwesterly line of said Lot 15; thence Northeasterly along said Southwesterly boundary line of said Lot 15 to point of beginning. All of Lot 15, Block 51 of La Jolla Park, according to Map thereof No. 352, filed in the office of the County Recorder of San Diego County on March 22, 1887. Excepting therefrom the following described portion thereof: Beginning at the Easterly corner of said Lot 15 at its intersection with the Northerly line of said Lot 15 a distance of 32.5 feet; thence South 41 degrees, 51 feet, 30 inches East a distance of approximately 17.75 feet to the Northerly line of said Silverado Street; thence along the Southwesterly line of said Lot 15 to the place of beginning. FIRST RIGHT OF REFUSAL Provided Tenant is not then in default, Landlord grants Tenant the right of first refusal to lease any unleased space on the third floor of the Building of which the Premises are a part, provided that the addition of such space to the Premises will not violate any local governmental ordinance then in effect. Tenant shall have the right to lease any such available space on the terms set forth in a written notice (a Lease Notice) given to Tenant by Landlord. Such right shall be exercised by Tenant's written notice to Landlord, accepting said terms within two (2) business days of Tenants receipt of Landlord's Lease Notice. If no written notice is received from Tenant within two (2) business days, the offered premises will have been deemed refused by Tenant. Landlord's obligation hereunder shall not be applicable or effective unless any contemplated lease or leases to others would leave less than 5,000 square feet of space then unleased. [ILLEGIBLE] [ILLEGIBLE] - -------------------- -------------------- TENANT INITIAL LANDLORD INITIAL EXHIBIT "A-1" TO OFFICE LEASE DATED SEPTEMBER 1, 1983, BY AND BETWEEN OKLAHOMA CITY INVESTMENT GROUP, LANDLORD AND SCRIPPS BANK (IN ORGANIZATION), TENANT [MAP] EXHIBIT B CONSTRUCTION STANDARDS AGREEMENT 1. LANDLORD'S WORK. Landlord shall complete construction of the Building and improvements located 7817 Ivanhoe Avenue, La Jolla, California, in accordance with final plans, specifications and working drawings prepared by Richards and Associates, dated January 11, 1983. The Premises shall be prepared by Landlord for Tenant as follows: 1.1 WATER AND SEWER. Water lines shall be available within the Premises. Sewer lines available beneath the floor of the Premises. 1.2 ELECTRIC. Electricity is available on Level P-1 of the Building's subterranean parking structure. 1.3 TELEPHONE. Telephone is available at the Building's main telephone backboard located on Level P-1 of the Building's subterranean parking structure. 1.4 CEILINGS. Exposed structural system. 1.5 FIRE SPRINKLER SYSTEM. Fire sprinkler installation per NFPA-13 Standards for shell building and as approved by City of San Diego Fire Department. 2. TENANT'S ACKNOWLEDGMENTS. Tenant acknowledges that such plans specify certain building finishes, including doors and door hardware, which were not installed on the Premises, and Tenant hereby approves the Premises with changes to such plans as constructed by Landlord. 3. TENANT'S WORK. 3.1 TENANT'S PLANS AND SPECIFICATIONS. Tenant shall deliver to Landlord on or before October 1, 1983, complete plans, specifications and construction documents respecting the construction of the interior of the Premises for use by Tenant, in sufficient detail to enable Landlord to determine precisely what Tenant's plans entail. Landlord shall have ten (10) business days within which to approve or disapprove Tenant's plans. If Landlord shall not have approved or disapproved Tenant's plans within the stated time period, Landlord's approval shall be deemed to have been given. Landlord's approval of such plans shall not be deemed to assure that the same are in conformity with applicable local ordinances and regulations; nor that the measurements stated in such plans are correct. Tenant shall be obligated to "field measure" the Premises for the purpose of ascertaining the accuracy of Tenant's plans. 3.2 Tenant shall construct all work shown on Tenant's approved plans at Tenant's sole cost and expense, and shall not deviate therefrom without Landlord's prior approval. Tenant shall pursue completion of its work expeditiously and with due diligence, and complete same prior to January 1, 1984. 4. TENANT'S IMPROVEMENT ALLOWANCE. Landlord shall pay to Tenant an improvement allowance of Three Hundred Forty-four Thousand and three and 20/100 Dollars ($344,003.20) at such time as the following have occurred: (a) Tenant has received all necessary governmental approvals of this Lease and with respect to Tenant's organization and qualification: (b) Tenant has sold $4 million of its securities through its initial sale of /s/ [illegible] /s/ [illegible] - -------------------- -------------------- TENANT INITIAL LANDLORD INITIAL stock; and (c) Tenant has opened for business from the Premises. Tenant shall not be entitled to any compensation for any improvements to the Premises if the conditions to Tenant's performance set forth in Paragraph 33.20 are not satisfied, or condition (b) of Paragraph 33.20 waived in writing by Tenant. OKLAHOMA CITY INVESTMENT GROUP, California Partnership, Landlord By: /s/ Willis E. Short II, Partner -------------------------------- Willis E. Short II, Partner SCRIPPS BANK (in organization), a California Banking Corporation, Tenant By: /s/ [illegible] -------------------------------- /s/ Ronald J. Carlson, President -------------------------------- /// /// /// /// /// /// /// /// /// /// /// /// /// /// /// /// /// /// /// /// Page 2 of EXHIBIT B EXHIBIT C OPTION TO RENEW Tenant shall, subject to the provisions of Paragraph 2.2, have the right and option to extend the term of this Lease for four (4) additional periods of five (5) years each. During each renewal term all terms and conditions of this Lease shall remain in full force and effect, except rental rate, which shall be determined in accordance with Paragraph 3.2.2. If Tenant disapproves of the rental rate so determined in accordance with Paragraph 3.2.2, in Tenant's sole discretion, Tenant may revoke its notice of exercise of its option to renew this Lease by written notice to Landlord within ten (10) business days after receipt by Tenant of Landlord's statement as to rent or notice that the third appraiser has determined the prevailing market rental rate pursuant to Paragraph 3.2.2; and the renewal term shall not commence and this Lease shall expire at the end of the initial term or then renewal term. EXHIBIT D TENANT'S USE Tenant shall use the Premises for general office use subject to Paragraph 12 and the other provisions of the Lease. Notwithstanding Landlord's Rules prohibiting signs visible from outside the Premises, Tenant may use within the Premises usual and normal signs relating to the conduct of the banking and savings and loan business. /// /// /// /// /// /// /// /// /// /// /// /// /// /// /// /s/ [illegible] /s/ [illegible] - -------------------- -------------------- TENANT INITIAL LANDLORD INITIAL EXHIBIT E COMMON AREA RULES AND REGULATIONS The following rules and regulations shall govern use of the common areas and parking facilities which are appurtenant to the Building where not inconsistent with the lease to which attached. 1. Tenant and its authorized representatives and invitees shall use any roadway, walkway, or mall (including any enclosed mall) only for ingress to or egress from the offices in the building. Use of the common areas shall be in an orderly manner in accordance with directional or other signs or guides. Roadways shall not be used at a speed in excess of 5 miles per hour and shall not be used for parking or stopping, except for the immediate loading or unloading of passengers. Walkways shall be used only for pedestrian travel. 2. Tenant and its authorized representatives and invitees shall not use the parking areas for anything but parking motor vehicles. All motor vehicles shall be parked in an orderly manner within the painted lines defining the individual parking places. 3. No person shall use any utility area, truck loading area, or other area reserved for use in conducting business, except for the specific purpose for which permission to use these areas had been given. 4. Tenant shall not park or permit the parking of any vehicle under its control in any parking areas designated by Landlord as areas for parking by visitors to the Building. Tenant shall not leave vehicles in the parking areas overnight nor park any vehicles in the parking areas other than automobiles, motorcycles, motor driven or non-motor driven bicycles or four-wheeled trucks. 5. No employee shall use any area for motor vehicle parking except the area specifically designated for employee parking for the particular period of time the use is to be made. No tenant shall designate an area for employee parking except the area designated in writing by Landlord. Parking stickers or any other device or form of identification supplied by Landlord, if any, as a condition of use of the parking facilities shall remain the property of Landlord. Such parking identification device must be displayed as requested and may not be mutilated in any manner. The serial number of the parking identification device may not be obliterated. Devices are not transferable and any device in the possession of an unauthorized holder will be void. 7. All directional signs and arrows must be observed. 8. Parking is prohibited: (a) in areas not striped for parking: (b) in aisles; (c) where "no parking" signs are posted; (d) on ramps; (e) in cross hatched areas; and (f) in such other areas as may be designated by Landlord. /s/ [illegible] /s/ [illegible] - ---------------- ---------------- TENANT INITIAL LANDLORD INITIAL 9. Every parker is required to park and lock his or her own vehicle. All responsibility for damage to vehicles is assumed by the parker. 10. Without the consent of Landlord, no person shall use any of the common areas for: (a) vending, peddling, or soliciting orders for sale or distributing of any merchandise, device, service, periodical, book, pamphlet, or other matter; (b) exhibiting any sign, placard, banner, notice, or other written material; (c) distributing any circular, booklet, handbill, placard, or other material, (d) soliciting membership in any organization, group, or association, or soliciting contributions for any purpose; (e) parading, patrolling, picketing, demonstrating, or engaging in conduct that might interfere with the use of the common areas or be detrimental to any of the business establishments in the office building; (f) using the common areas for any purpose when one of the business establishments in the office building are open for business; (g) discarding any paper, glass, or extraneous matter of any kind, except in designated receptacles; (h) using a soundmaking device of any kind or making or permitting any noise that is annoying, unpleasant, or distasteful; and (i) damaging any sign, light standard, or fixture, landscaping material, or other improvement or property within or about the office building. 11. Tenant shall acquaint all persons to whom Tenant assigns parking spaces of these Rules and Regulations. 12. Landlord reserves the right to refuse access to parking areas to those who willfully refuse to comply with these Rules and Regulations and all unposted City, State or Federal ordinances, laws or agreements. 13. Landlord reserves the right to modify and/or adopt such other reasonable and non-discriminatory rules and regulations for the parking facilities as Landlord deems necessary for the operation of the parking facilities. Landlord may refuse to permit any person who violates these rules to park in the parking facilities, and any violation of the rules shall subject the care to removal. The listing of specific prohibitions is not intended to be exclusive, but to indicate the manner in which the right to sue the common areas solely as a means of access and convenience in doing business at the business establishments in the office building is limited and controlled by Landlord. /// /// /// /// /// /// /// /// /// /s/ [illegible] /s/ [illegible] - ---------------- ---------------- TENANT INITIAL LANDLORD INITIAL PAGE 2 OF EXHIBIT E EXHIBIT F RULES AND REGULATIONS The following rules and regulations shall be observed by Tenant where not inconsistent with the Lease to which these Rules and Regulations are attached. 1. No sign, advertisement or notice shall be exhibited, painted or affixed by any Tenant on any part of the premises or the Building without the prior written consent of Landlord. In the event of the violation of the foregoing by any Tenant, Landlord may remove same without any liability, and may charge the expense incurred in such removal to the tenant violating this rule. Interior signs on doors and directory tablet, if any, shall be inscribed, painted or affixed for each Tenant by Landlord at the expense of landlord, and shall be of a size, color and style acceptable to the Landlord. The directory of the Building will be provided exclusively for the display of the name and location of tenants only and Landlord reserves the right to exclude any other names thereform. Nothing may be placed on the exterior of corridor walls or corridor doors other than Landlord's standard lettering. Landlord shall have the right to prohibit any advertising by Tenant which, in Landlord's reasonable opinion, tends to impair the reputation of the Building or its desirability as an office building, and upon written notice from Landlord, Tenant shall refrain from or discontinue such advertising. 2. All doors opening into Building corridors shall be kept closed, except when being used for ingress and egress. Tenant shall not obstruct any sidewalks, halls, passages, exits, entrances, elevators, escalators, or stairways of the Building. The halls, passages, exits, entrances, malls, elevators, escalators, and stairways are not open to the general public. No tenant and no employee or invitee of any tenant shall go upon the roof of the Building. 4. No awnings or other projection shall be attached to the outside walls of the Building. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord's standard window covering. All electric ceiling fixtures hung in offices or spaces along the perimeter of the Building /s/ [illegible] /s/ [illegible] - ---------------- ---------------- TENANT INITIAL LANDLORD INITIAL must be of a quality, type, design and bulb color approved by Landlord. Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the express written consent of Landlord. If the interior of Tenant's Premises is visible from any common area or public sidewalk, Tenant must keep such visible portion or portions of the Premises in a neat and orderly condition at all times. Tenant may not place any advertising or other similar signs within such visible portions of the Premises. 5. Landlord reserves the right to direct electricians as to where and how telephone and telegraph wires are to be introduced to the premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix any linoleum or other floor covering to the floor of the Premises in any manner except as approved by Landlord. Tenant shall repair any damage resulting from noncompliance with this rule. 6. The Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the permitted use of the Premises. Tenant shall not, without Landlord's prior written consent, occupy or permit any portion of the Premises to be occupied or used for the manufacture or sale of any product whatsoever. No Tenant shall advertise for laborers giving an address at the Premises. The Premises shall not be used for lodging or sleeping or for any immoral or illegal purposes. 7. Tenant shall not make, or permit to be made, any unseemly or disturbing noises, or disturb or interfere with occupants of the Building or neighboring buildings or premises or those having business with it by the use of any musical instrument, radio, phonographs or unusual noise, or in any other way. Neither Tenant nor its servants, employees, agents, visitors or licensees shall throw anything out of doors, windows or skylights or down the passageways. 8. No bicycles, vehicles, birds or animals of any kind shall be brought into or kept in or about Tenant's Premises. No cooking shall be done or permitted by Tenant in its Premises, except that microwave heating and the preparation of coffee, tea, hot chocolate and similar items for Tenant, its employees and visitors shall be permitted, provided such activities do not otherwise violate the Lease of which these Rules and Regulations are part, and provided power shall not exceed that amount which can be provided by a 30 amp circuit. Tenant shall not cause or permit any unusual or objectionable odors to be produced in or emanate from the Premises. 9. Tenant shall not use any method of heating or air conditioning other than that supplied as part of the heating, ventilating and air conditioning system of the Premises. 10. The toilet rooms, toilets, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein. The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it. /s/ [illegible] /s/ [illegible] - -------------------- -------------------- TENANT INITIAL LANDLORD INITIAL Page 2 of EXHIBIT F 11. All removals from, or the carrying in or out of, the Building of any safes, freight, furniture, heavy or bulky matter of any description, must take place only between the hours of 9:00 and 11:00 A.M., and 2:00 and 4:00 P.M. of days other than Saturdays, Sundays and holidays (no moving being permitted on Saturdays, Sundays or holidays without special advance permission from Landlord) and must be made upon previous written notice to Landlord and under its supervision. The persons employed by Tenant for such work must be acceptable to Landlord. Landlord will not be responsible for loss of, or damage to, any such equipment or other property from any cause, and all damage done to the building by maintaining or moving such equipment or other property shall be repaired at the expense of Tenant. Landlord reserves the right to inspect all safes or other heavy or bulky equipment or articles to be brought into the Building and to exclude from the Building all such heavy or bulky equipment or articles, the weight of which may exceed the floor load for which the Building is designed, or such equipment or articles as may violate any of the provisions of the Lease of which these Rules and Regulations are a part. Tenant shall not use any machinery or other bulky articles in the Premises, even though its installation may have been permitted, which may cause any noise, or jar, or tremor to the floors or walks, or which by its weight might injure the floor of the Building. 12. No Tenant nor any of Tenant's servants, employees, agents, visitors or licensees, shall at any time bring or keep upon the Premises any inflammable, noxious, combustible or explosive fluid, chemical or substance. 13. Tenant shall not sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises. Tenant shall not make any room-to- room solicitation of business from other Tenants in the Building. Tenant shall not use the Premises for any business or activity other than that specifically provided for in Tenant's Lease. No vending or coin operated machines shall be placed within the Premises without Landlord's prior written consent. 14. Tenant shall not waste electricity, wate or air conditioning and agrees to cooperate fully with Landlord to assure the most effective operation of the Building's heating and air conditioning and to comply with any governmental energy-saving rules, laws or regulations of which Tenant has actual notice, and shall refrain from attempting to adjust controls. Tenant shall keep corridor doors closed, and shall close window coverings at the end of each business day. 15. If Tenant requires telegraphic, telephonic, burglar alarm or similar services, it shall first obtain, and comply with, Landlord's instructions in their installation. 16. Tenant shall not install any radio or television antenna, loudspeaker or other devices on the roof or exterior walls of the Bulding. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or elsewhere. 17. Tenant shall store all its trash and garbage within its Premises until deposited in the Building's main trash dumpsters or other trash disposal receptacle. Tenant shall not place in any dumpster, trash box or receptacle any material which cannot be disposed of in the ordinary and customary /s/ [illegible] /s/ [illegible] - -------------------- -------------------- TENANT INITIAL LANDLORD INITIAL Page 3 of EXHIBIT F manner of trash and garbage disposal. All garbage and refuse disposal shall be made in accordance with directions issued from time to time by Landlord. 18. No person shall be employed by Tenant to do janitorial work in any part of said Building without Landlord's prior written consent. Any person employed by Tenant to do janitorial, maintenance or similar work with Landlord's consent shall, while in the Building, be subject to and under the control and direction of Landlord or its agent or representative (but not as an agent, employee or servant of Landlord) and Tenant shall be responsible for all acts of such persons. 19. Tenant shall not use in any space or in the public halls of the Building any hand truck except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. Tenant shall not bring any other vehicles of any kind into the building. 20. Landlord reserves the right to exclude or expel from the Building any person who, in Landlord's judgment, is intoxicated or under the influence of liquor or drugs or who is in violation of any of the rules and Regulations of the Building. 21. Tenant shall close and lock the doors of its Premises and entirely shut off any and all water faucets or other water apparatus, and electricity, gas or air outlets before tenant and its employees leave the Premises. Tenant shall be responsible for any damage or injuries sustained by other tenants or occupants of the Building, or by Landlord, for noncompliance with this rule. 22. Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 23. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 24. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 25. Landlord may waive any one or more of these Rules and Regulations for the benefit of Tenant or any other tenant, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of Tenant or any other tenant, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Building. 26. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of premises in the Building. 27. Landlord reserves the right to make such other and reasonable Rules and Regulations as, in its reasonable judgement, may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional rules and regulations which are adopted by Landlord of which Tenant is given reasonable notice. /s/ [illegible] /s/ [illegible] - -------------------- -------------------- TENANT INITIAL LANDLORD INITIAL Page 4 of EXHIBIT F EXHIBIT G PARKING Tenant shall have the right to rent up to ten (10) customer parking spaces on the uppermost level of the subterranean parking structure. Said spaces shall be designated as "Scripps Bank Customer Parking". Tenant may park its company vehicle or vehicles in such designated parking spaces overnight notwithstanding publication of Landlord's Rules to the contrary. Landlord shall provide Tenant on an "as needed" basis with parking validation stickers for said customer parking at a cost to Tenant of one-half the then current market rate. Tenant shall also have the right to rent an additional 26 unassigned parking spaces. The location of said parking spaces shall be designated by Landlord and may be changed by Landlord from time to time. The rental rate for said spaces shall be at then current monthly rates promulgated by Landlord for the subterranean parking facilities. Landlord agrees that parking rates shall not exceed the La Jolla Market rates for like kind parking and that parking rates shall not be increased more frequently than once every twelve months. /// /// /// /// /// /// /// /// /// /// /// /// /// /// /// /// /// /// /// [illegible] [illegible] - ----------------------- ----------------------- TENANT INITIAL LANDLORD INITIAL EXHIBIT H SCRIPPS BANK SIGNS: Two signs shall be located on the upper parapet of the Building and one sign shall be located on the exterior stairwell surface facing Silverado Street. No other Building tenant signing will be allowed in the aforementioned areas. Additional Scripps Bank identification signs shall be allowed over the Building entrace, the parking structure entrance, and within the parking structure. No other Building tenant identification signs will be permitted in those areas. The sign at the entrance to the parking structure shall read, "Scripps Bank Building Parking Entrance." All Scripps Bank signs shall be in accordance with the Scripps Bank sign design submittal dated 7/14/83. Signing for other Building tenants shall be restricted to the second and third floor parapets of the Building (but shall not be placed on the upper Building parapet), and shall not be larger than 75% of the size of Scripps Bank's upper parapet sign (except that Sutro signing may be as large as Tenant's upper parapet sign). No such other tenant sign shall set forth the name of any other bank or savings and loan association. Exterior signing shall be restricted to Building tenants who lease 3,500 square feet or more of space. Landlord may place two (2) additional tenant signs on the Building exterior in addition to Sutro signeage, which may be one or two exterior signs. All signs shall be tastefully placed and harmonious in material and quality. No other exterior signs shall be placed upon the Building without the consent of Scripps Bank, which consent shall not be unreasonably withheld. / / / / / / / / / / / / / / / / [illegible] [illegible] - ---------------------------- ---------------------------- TENANT INITIAL LANDLORD INITIAL FIRST AMENDMENT TO LEASE THIS AMENDMENT is made as of Oct. 4, 1983, by and between OKLAHOMA CITY INVESTMENT GROUP, a California partnership ("Landlord"), and SCRIPPS BANK (in organization), a California Banking Corporation ("Tenant"), with respect to that certain Office Lease by and betwen Landlord and Tenant dated September 1, 1983 (the "Lease"). Landlord and Tenant hereby amend the Lease as follows: 1. PARAGRAPH 19.2. The following is hereby added at the end of Paragraph 19.2 of the Lease: "Notwithstanding any other provisions of this Paragraph 19.2, Landlord shall not have the right to take possession of any of Tenant's business records, or any records or personal property of customers or any other third parties located on the Premises. Furthermore, any rights and remedies of Landlord under this Paragraph 19.2 are subject to the powers of the California Superintendent of Banks and other bank regulatory agencies to enter upon and assume control of the Premises and of any personal property thereon." 2. PARAGRAPH 19.5. The following is hereby added at the end of Paragraph 19.5 of the Lease: "Notwithstanding any other provisions of this Paragraph 19.5, Landlord shall not have the right to take possession of any of Tenant's business records, or any records or personal property of customers or any other third parties located on the Premises. Furthermore, any rights and remedies of Landlord under this Paragraph 19.5 are subject to the powers of the California Superintendent of Banks and other bank regulatory agencies to enter upon and assume control of the Premises and of any personal property thereon." 3. FULL FORCE AND EFFECT. Except as set forth herein, all terms of the Lease shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment on the day and year first written above. OKLAHOMA CITY INVESTMENT GROUP, a California partnership, By: /s/ Willis E. Short ----------------------------------- Willis E. Short, II, Partner SCRIPPS BANK (in organization), a California Banking Corporation, By: /s/ Ronald J. Carlson ----------------------------------- Its: President ---------------------------------- By: /s/ Roger C. Mann ----------------------------------- Its: Executive Vice President ---------------------------------- SECOND AMENDMENT TO LEASE This Amendment is made as of June 1, 1988, by and between LJI, Inc., a California Corporation ("Landlord") and Scripps Bank ("Tenant"), with respect to that certain Office Lease by and between Landlord and Tenant dated September 1, 1983 (the "Lease"). Landlord and Tenant hereby amend the Lease as follows: 1. Exhibit "A" is hereby modified with the addition of nine-hundred thirty-four (934) sq. ft. on the second floor. 2. Paragraph 2.1. The term for the second floor space will begin on June 1, 1988 and from that date will enjoin the original lease. 3. Paragraph 3.1. The following is added to the end of paragraph 3.1. The minimum monthly rent for the second floor, 934 sq. ft., is $2,054.80 ($2.20 each/square foot.). 4. Paragraph 3.2. The following is added to the end of paragraph 3.2. Beginning the nineteenth month, December 1, 1989, rent shall be increased to $2335 per month ($2.50 each/square foot) for the balance of the lease term. 5. Paragraph 9. Tenant has permission to erect partitions at his own expense. The remainder of paragraph 9 is to remain the same. 6. Direct expenses are as follows: Category B. CAM: 934 x .11 = 102.74 Category A. TAX: 934 x .14 = 130.76 ***************************** 233.50 /s/ Roger L. Mann --------------------------- /s/ John Allen /s/ Robert L. Grendell ----------------------------- --------------------------- SVP/CFO John Allen (6-8-88) Allen Real Property Services Scripps Bank (6-8-88) THIRD AMENDMENT TO LEASE This Amendment is made as of April 1, 1989, by and between LJI, Inc., a California Corporation ("Landlord") and Scripps Bank ("Tenant"), with respect to that certain Office Lease by and between Landlord and Tenant dated September 1, 1983 (the "Lease"). Landlord and Tenant hereby amend the Lease as follows: 1. Exhibit "A" is hereby modified with the addition of one-thousand three-hundred twenty-six sq. ft. on the second floor. 2. Paragraph 2.1. The term for the second floor space will begin on March 1, 1989 and from that date will enjoin the origional lease. 3. Paragraph 3.1. The following is added to the end of paragraph 3.1. The minimum monthly rent for the second floor, 1326 sq. ft., is $2,917.20 ($2.20 each/square foot). 4. Paragraph 3.2. The following is added to the end of paragraph 3.2. Beginning the eighteenth month, September 1, 1990, rent shall be increased to $3,315.00 per month ($2.50 each/square foot) for the balance of the lease term. 5. Paragraph 9. Tenant has permission to erect partitions at his own expense. The remainder of paragraph 9 is to remain the same. 6. Direct Expenses are as follows: Category B. CAM: 1326 x .11 = 145.86 Category A. TAX: 1326 x .14 = 185.64 ******************************* 331.50 /s/ Roger L. Mann EVP --------------------------- /s/ John Allen /s/ Robert L. Grendell, SVP/CFO -------------------------------- --------------------------------- John Allen ( ) Allen Real Property Services Scripps Bank ( ) FOURTH AMENDMENT TO LEASE This Amendment is made as of November 22, 1989, by and between LJI, Inc., a California Corporation ("Landlord") and Scripps Bank ("Tenant"), with respect to that certain Office Lease by and between Landlord and Tenant dated September 1, 1983 (the "Lease"). Landlord and Tenant hereby amend the Lease as follows: 1. Exhibit "A" is hereby modified with the addition of 1128/one thousand one hundred twenty-eight sq. ft. on the Third Floor. Hereby referred to as Suite 305. 2. Paragraph 2.1. The term for the Third Floor space will begin on December 1, 1989 and from that date will enjoin the original lease. 3. Paragraph 3.1. The following is added to the end of paragraph 3.1. The minimum monthly rent for the Third Floor, 1128 sq. ft., is $2,030.40 ($1.80 each/square foot). 4. Paragraph 3.2. The following is added to the end of paragraph 3.2. Beginning 13th month, DEC 01, 1990, rent increases to $2,256.00 ($2.00 sq. ft.) Beginning 25th month, DEC 01, 1991, rent increases to $2,538.00 ($2.25 sq. ft.) Beginning 37th month, DEC 01, 1992, rent increases to $2,820.00 ($2.50 sq. ft.) for balance of the lease term. 5. Paragraph 9. Landlord will provide one designated partition wall. Tenant has permission to modify, based on approved design, at his own expense. Landlord will recarpet Suite 305 prior to move in. The remainder of paragraph 9 is to remain the same. 6. Paragraph 3.3.3. The following is added to the end of paragraph 3.3.3. Full direct expenses are as follows:
CATEGORY A-TAX CATEGORY B-CAM -------------- -------------- $118,703.36 TOTAL LIABILITY $135,000.00 x3.62% PROPORTIONATE SHARE x3.62% ----------- ----------- $4,297.06 ANNUAL LIABILITY $4,887.00 %12 %12 ----------- ----------- $358.09 MONTHLY LIABILITY $407.25 =========== ===========
/s/ Roger L. Mann - --------------------------- --------------------------- Kurtis A. Kaster Roger L. Mann President, L.J.I. Executive Vice President /s/ Robert L. Grendell --------------------------- Robert L. Grendell SVP/CFO FIFTH AMENDMENT TO LEASE This Amendment is made as of June 25, 1990, by and between LJI, Inc., a California Corporation ("Landlord") and Scripps Bank ("Tenant"), with respect to that certain Office Lease by and between Landlord and Tenant dated September 1, 1983 (the "Lease"). Landlord and Tenant hereby amend the Lease as follows: 1. EXHIBIT "A" is hereby modified with the addition of 3706/three thousand seven hundred and six sq. ft. on the Third Floor. Hereby referred to as Suite 302. 2. PARAGRAPH 2.1. The term for the Third Floor space will begin on September 1, 1990 and from that date will enjoin the original lease. 3. PARAGRAPH 3.1. The following is added to the end of paragraph 3.1. The minimum monthly rent for the Third Floor, 3706 sq. ft., is $6,670.80 ($1.80 each/square foot). 4. PARAGRAPH 3.2. The following is added to the end of paragraph 3.2. Beginning DEC 01, 1990, rent increases to $7,412.00 ($2.00 sq. ft.) Beginning DEC 01, 1991, rent increases to $8,338.50 ($2.25 sq. ft.) Beginning DEC 01, 1992, rent increases to $9,265.00 ($2.50 sq. ft.) for balance of the lease term. 5. PARAGRAPH 9. Tenant has permission to modify, based on approved design, at his own expense. The remainder of paragraph 9 is to remain the same. 6. MODIFICATION. 4th Amendment to Master Lease dated November 22, 1989. Landlord and Tenant hereby agree Suite 305 Lease Amendment will be terminated as it relates to Tenant occupying Suite 302. 7. RIGHT OF REFUSAL. Tenant reserves a 15 day First Right of Refusal on any available Scripps Bank Building space. 8. PARAGRAPH 3.3.3. The following is added to the end of paragraph 3.3.3. Full direct expenses are as follows:
CATEGORY A-TAX CATEGORY B-CAM -------------- -------------- $118,703.36 TOTAL LIABILITY $148,000.00 x11,91% PROPORTIONATE SHARE x11.91% ----------- ----------- 14,137.57 ANNUAL LIABILITY 17,626.80 \12 \12 ----------- ----------- $1,178.13 MONTHLY LIABILITY $1,468.90 ----------- ----------- ----------- -----------
/s/ Kurtis A. Kaster /s/ Roger L. Mann /s/ Robert L. Grendell - -------------------- ------------------------ ---------------------- Kurtis A. Kaster Roger L. Mann Robert L. Grendell President, L.J.I. Executive Vice President SVP/CFO 6/25/90 Scripps Bank Scripps Bank
/s/ Kurtis A. Kaster 6/25/90 SIXTH AMENDMENT TO LEASE This Sixth Amendment To Lease is made as of April 24, 1992, by and between LJI, Inc., a California corporation ("Landlord") and Scripps Bank ("Tenant") with respect to that certain Office Lease dated September 1, 1983 and Amendments 1 through 5 thereto (the "Lease"). Landlord and Tenant hereby amend the Lease as follows: 1. PARAGRAPH 2.2. Tenant hereby exercises its options to renew this lease for two five (5) year terms, and Landlord hereby accepts the renewal term without further written notification as provided in Paragraph 2.2.(ii) with respect to the time of notification. The lease, as extended, shall expire on January 31, 2004, unless further extended under the terms hereof. 2. PARAGRAPH 3.1. The minimum monthly rent payable during this renewal period shall be $29,650.48, effective as of March 1, 1992. 3. PARAGRAPH 3.2. The minimum monthly rent provided for herein shall be subject to adjustment upward or downward at the commencement of the thirty-seventh (37th) month of this renewal term and every thirty-sixth month period thereafter during this renewal term (the "adjustment date") as follows: The base for computing the adjustment is the Consumer Price Index for All Urban Consumers for the San Diego Area (1967=100), published by the United States Department of Labor, Bureau of Labor Statistics ("Index") published for December, 1991 ("Beginning Index"). The Index published for December preceding the Adjustment Date in question ("Extension Index") is to be used in determining the amount of the adjustment. The monthly rent for the following 36 month period commencing on the adjustment date shall be set by multiplying the minimum monthly rent set forth in Paragraph 3.1 amended above by a fraction, the numerator of which is the Extension Index, and the denominator of which is the beginning index. In no case shall the monthly rent be less than the minimum monthly rent set forth above, nor shall the monthly rent so calculated reflect more than a four (4%) per cent annual increase, non-compounded. On adjustment of the monthly rent as provided herein, the Parties shall immediately execute a writing or amendment to this Lease stating the new monthly rent. If the Index is changed so that the base year differs from that which is in effect when the lease renewal commenced, the Index shall be converted in accordance with the conversion factor published by the United States Department of Labor, Bureau of Labor Statistics. If the Index is discontinued or revised during the lease renewal term, such other government index or computation with which it is replaced shall be used in order to obtain substantially the same result as would be obtained if the Index had not been discontinued or revised. If not replaced, the parties shall select another similar index which reflects similar consumer price levels, and if the parties cannot agree on another such index it shall be determined by binding arbitration, the cost of which shall be borne equally by the parties. 4. PARAGRAPH 3.4. In no event shall Tenant be responsible for Direct Expenses in excess of $.40 per month per square foot of leased space shown on Exhibit "A" to the lease. 5. SUITE 205. Tenant hereby leases Suite 205 (comprising 928 square feet of space) commencing July 1, 1992, and ending upon expiration of the term of this Lease, as amended. No rent will be payable until July 1, 1994. Thereafter, the minimum monthly rent payable hereunder shall be increased by $1,392.00 per month. Direct expenses shall be payable as provided in Paragraph 3.3 of the Lease, as amended hereby, commencing July 1, 1994. 6. Tenant is hereby granted the right to extend this Lease, as amended, for four periods of five (5) years each, each to be exercised as provided in Paragraph 2.2 of the Lease. 7. Tenant is granted twenty (20) monthly parking passes without charge each month. Tenant shall be allowed to purchase additional monthly parking passes at the usual current rate. 8. Exhibit "A" to the Lease is amended to include Suite 100 (all of the first floor, except the public corridor), Suite 201, Suite 204, 204A, 205 and Suite 302. The first right of refusal provided for in said Exhibit "A" is amended by deleting the words "on the third floor of", and substituting therefor "in", so that the first right of refusal extends to any unleased space in the Building. 9. Except as specifically amended hereby, the Lease remains in full force and effect. LANDLORD TENANT LJI, Inc. SCRIPPS BANK /s/ John R. Allen /s/ Ronald J. Carlson - ---------------------------- ------------------------------ John R. Allen, President Ronald J. Carlson, President /s/ James M. Allen /s/ Robert L. Grendell - ---------------------------- ------------------------------ James M. Allen, Secretary Robert L. Grendell, S.V.P./CFO SEVENTH AMENDMENT TO LEASE This Seventh Amendment To Lease is made as of APRIL 1, 1994 by and between LJI, Inc., a California Corporation ("Landlord") and Scripps Bank ("Tenant") with respect to that certain Office Lease dated September 1, 1983 and Amendments 1 through 6 thereto (the "Lease"). Landlord and Tenant hereby amend the Lease as follows: 1. PARAGRAPH 1. Exhibit "A" is hereby modified with the addition of 2660/two thousand six hundred sixty square feet on the Second Floor. Hereby referred to as Suite 200A. In addition, a storage room consisting of 152/one hundred fifty two square feet located inside Suite 200 & Suite 204 consisting of 384 square feet. 2. PARAGRAPH 2.1. The term for Suite 200A will commence April 1, 1994 and from that date will enjoin the original lease for the entire term. The term for the storage room will commence April 1, 1994 and will expire March 31, 1996. 3. PARAGRAPH 3.1. The following is added to the end of paragraph 3.1. The mininum monthly rent for Suite 200A is $3325.00 ($1.25 per square foot). The mininum monthly rent for the storage room is $190.00 ($1.25 per square foot) and the minimum monthly rent for Suite 204 is $480.00 ($1.25 per square foot). 4. PARAGRAPH 3.4. In no event shall Tenant be responsible for Direct Expenses in excess of $.40 per month per square foot of lease space shown on Exhibit "A". The electrical bill for the leased space will be billed monthly to Lessee, based on a percentage of use (i.e. 42% of total). The electrical billing is subject to review by Lessee and can be modified according to agreed upon terms. Scripps Bank to continue to pay electrical billing for Suite 204. 5. PARAGRAPH 9. Landlord agrees to install one door and one partition separating Suite 200A from remaining space in Suite 200. Tenant has permission to modify, based on approved design, at his own expense. 6. Except as specifically amended hereby, the Lease remains in full force and effect. LANDLORD TENANT LJI, INC. SCRIPPS BANK /s/ James M. Allen /s/ Ronald J. Carlson - ------------------------------ ------------------------------ President /s/ John R. Allen /s/ Robert L. Grendell - ------------------------------ ------------------------------ SVP/CFO EIGHTH AMENDMENT TO LEASE This Eighth Amendment To Lease is made as of February 1, 1997, by and between LJI, Inc., a California corporation ("Landlord") and Scripps Bank ("Tenant") with respect to that certain Office Lease dated September 1, 1983 and Amendments 1 through 7 thereto ("Lease"). Landlord and Tenant hereby amend the Lease as follows: 1. PARAGRAPH 1. Exhibit "A" is hereby modified with the addition of approximately 1,332.75 square feet on the Third Floor, consisting of approximately 970.75 square feet to be referred to hereafter as "Suite 301", as shown on Exhibit 1 attached hereto and approximately 362 square feet adjacent to Suites 300 and 302. 2. PARAGRAPH 2.1. The term for the space referred to above will commence February 1, 1997 and from that date will be added to the Lease for the remaining term thereof. 3. PARAGRAPH 3.1. The following is added to the end of Paragraph 3.1: The minimum monthly rental for the space described above is $1,865.85 ($1.40 per square foot). 4. PARAGRAPH 3.4. In no event shall Tenant be responsible for Direct Expenses in excess of $.40 per square foot of lease space described above. Tenant shall pay the sum of $75.00 monthly for electrical and utility charges for this space. 5. Except as hereby specifically amended, the Lease remains in full force and effect. LANDLORD: TENANT: LJI, INC. SCRIPPS BANK BY: /s/ [illegible] /s/ Richard [illegible] EVP - ------------------------------------- ---------------------------------- Authorized Officer Authorized Officer /s/ James M. Allen /s/ Mark E. [illegible] SVP/CFO - ------------------------------------- ---------------------------------- Authorized Officer Authorized Officer [LETTERHEAD] April 8, 1999 Linda Cox Scripps Bank 7817 Ivanhoe Avenue, Suite 201 La Jolla, California 92037 Re: Amendment to Scripps Bank lease re Suite 302 Dear Ms. Cox: I was pleased to learn that the Bank had decided to accept my proposal to change the wall between our Suite 300 and the Trust Department space in Suite 302 which will result in reducing the square footage of the Trust Department office by 16 square feet. LJI, Inc. will pay the entire cost of moving the wall and restoring the wall, and floor coverings in the affected area. Enclosed is a 9th Amendment to Lease dated as of April 8, 1999 to memorialize our agreement. I appreciate your cooperation and flexibility in this matter. Very truly yours /s/ James M. Allen, Sr. James M. Allen, Sr. Encl. NINTH AMENDMENT TO LEASE This NINTH AMENDMENT TO LEASE is made as of April 8, 1999 by and between LJI, Inc., a California corporation ("Landlord") and Scripps Bank ("Tenant") with respect to that certain Office Lease dated September 1, 1983 and Amendments 1 through 8 thereto (the "Lease"). Landlord and Tenant hereby further modify the Lease as follows: 1. PARAGRAPH 1. Exhibit "A" is hereby modified with the deletion of 16 square feet on the Third Floor between Suite 300 and Suite 302. 2. PARAGRAPH 2.1. The reduction in square footage shall be effective as of April 8, 1999. 3. PARAGRAPH 3.1. The following is added to the end of Paragraph 3.1: The minimum monthly rental for the space described above 4 is reduced by $1.80 per square foot, or a total of $28.80 per month, which includes a maximum of $.40 cents per square foot per month in Direct Expenses. 4. Except as specifically amended, the Lease remains in full force and effect. LANDLORD: TENANT: LJI, INC. SCRIPPS BANK [Illegible] /s/ M. Catherine Wright SVP - ----------------------------- ------------------------------- Authorized Officer Authorized Officer /s/ James M. Allen [Illegible] SVP - ----------------------------- ------------------------------- Authorized Officer Authorized Officer EXHIBIT "B" [FLOOR PLAN] Suite 301 1372.75 sq. ft. RECORDING REQUESTED BY: AFTER RECORDING RETURN TO: First Interstate Mortgage Company 123 Camino de la Reina, S-210 San Diego, California 92108 Attn: Judy Davis -- FIMC #270007 - ------------------------------------------------------------------------------- SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT is entered into as of _____________________________, 1984, between SCRIPPS BANK, a California banking corporation whose address is 7817 Ivanhoe Avenue, La Jolla, California ("Tenant"), and OLD STONE BANK, a Rhode Island banking corporation, whose address is 180 South Main Street, Providence, Rhode Island 02903 ("Lender") and OKLAHOMA CITY INVESTMENT GROUP, a general partnership, whose address is 3950 Sorrento Valley Blvd., San Diego, CA ("Borrower"), with reference to the following facts: A. Tenant is the lessee under that certain lease (the "Lease") dated SEPTEMBER 1, 1983 by and between Oklahoma City Investment Group as lessor, and Tenant, as lessee, covering a portion of the property commonly known as 7817 Ivanhoe Avenue, La Jolla, California 92037 and which premises are more fully described in the Lease (the "Premises"). B. Oklahoma City Investment Group, a general partnership, ("Borrower"), has requested Lender to make to Borrower a loan to be secured by a deed of trust from Borrower to Lender (the "Deed of Trust") covering certain property wherein the Premises covered by the Lease are located. C. Lender is willing to make the requested mortgage loan, provided the Tenant executes this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, and in order to induce Lender to make the requested mortgage loan, Tenant and Lender hereby agree and covenant as follows: 1. SUBORDINATION. The Lease and the lien thereof are, and shall at all times continue to be, subject and subordinate in all respects to the Deed of Trust and to all renewals, modifications and extensions thereof. 2. NONDISTURBANCE. Any of the foregoing notwithstanding, if the interests of Borrower in the Premises shall be acquired by Lender by reason of foreclosure of the Deed of Trust or other proceedings brought to enforce the rights of the beneficiary of the Deed of Trust, by deed in lieu of foreclosure or by any other method, or acquired by any other purchaser or purchasers pursuant to a foreclosure sale (Lender or such purchaser(s), as the case may be, being referred to as "Purchaser"), the Lease and the rights of Tenant thereunder -1- shall continue in full force and effect and shall not be terminated or disturbed except in accordance with the terms of the Lease; and Tenant shall be bound to Purchaser under all of the terms, covenants and conditions of the Lease, for the balance of the term thereof remaining, and any extensions or renewals thereof which may be effected in accordance with any option therefor contained in the Lease, with the same force and effect as if Purchaser were the lessor under the Lease provided: (a) Tenant is not in default under any provision of the Lease or this Agreement at the time Lender exercises any such right, remedy, or privilege; and (b) The Lease at that time is in force and effect according to its original terms, or with such amendments or modifications as Lender shall have approved, as provided below; and (c) Tenant thereafter continues to fully and punctually perform all of its obligations under the Lease without default thereunder; and (d) Tenant attorns to Purchaser as provided below. 3. ATTORNMENT. Tenant does hereby attorn to Purchaser as its lessor, said attornment to be effective and self-operative without the execution of any other instruments on the part of either party hereto immediately upon Purchaser's succeeding to the interest of Borrower under the Lease. Notwithstanding the foregoing, upon written notice to Tenant, Tenant shall execute any instrument required by Purchaser to evidence said attornment. Upon Purchaser's succeeding to the interest of Borrower in the Premises, the respective rights and obligations of Tenant and the Purchaser, to the extent of the then remaining balance of the term of the Lease and any extensions or renewals, shall be and are the same as now set forth in the Lease, it being the intention of the parties hereto for this purpose to incorporate the Lease into this Agreement by reference with the same force and effect as if set forth at length herein. Any of the foregoing notwithstanding, upon Purchaser's succeeding to the interest of Borrower in the Premises, Purchaser shall not be: (a) Liable for any act or omission of any prior landlord (including Borrower); or (b) Subject to any offsets or defenses which Tenant might have against any prior landlord (including Borrower); or (c) Bound by any rent or additional rent which Tenant might have paid for more than the then current month and/or the month immediately following the then current month to any prior Landlord (including Borrower); or (d) Bound by any agreement or modification of the Lease made without Lender's written consent; or (e) Bound by any notice given by Tenant to any prior landlord (including Borrower), whether or not such notice -2- is given pursuant to the terms of the Lease, unless a copy thereof was also given to Lender; or (f) Liable for any security deposit or other sums held by any prior landlord (including Borrower) unless the same was actually received by Lender. The person or entity to whom Tenant attorns shall be liable to Tenant under the Lease only during such person or entity's period of ownership, and such liability shall not continue or survive as to the transferor after a transfer by such person or entity of its interest in the Lease and the Premises. 4. CURE. Tenant shall mail to Lender or any assignee of Lender's interest under the Deed of Trust at the address set forth above for Lender, or at any other address specified in writing to Tenant, a copy of any notice of default which Tenant elects to serve upon Borrower as a result of any default by Borrower in the performance of Borrower's obligations under the Lease. Lender or any assignee of Lender's interest under the Deed of Trust shall have the right, but not the obligation, to cure any default by Borrower under the Lease within the same grace period as is given Borrower for remedying such default, plus, in each case, an additional period of thirty (30) days after the later of (i) the expiration of such grace period, or (ii) the date Tenant has served notice of such default upon Lender or any assignee of Lender's interest under the Deed of Trust. If Lender's cure of the default requires Lender to obtain possession of the Premises, the thirty day period specified above shall not commence until Lender acquires possession, so long as Lender proceeds promptly to acquire possession of the Premises with due diligence, by foreclosure of the Deed of Trust or otherwise. Nothing contained in this paragraph shall require Lender to commence or continue any foreclosure or other proceedings, or, if Lender acquires possession of the Premises, to continue such possession, if all defaults specified by Tenant in its notice are cured. Possession by a receiver, or other similar official appointed at the insistence, or with the consent, of Lender shall constitute possession by Lender for all purposes under this paragraph. 5. RENTS. Borrower and Tenant jointly and severally acknowledge that the Deed of Trust provide for the direct payment to Lender of all rents and other monies due and to become due to Borrower under the Lease upon the occurrence of certain conditions as set forth in the Deed of Trust without Lender's taking possession of the Premises or otherwise assuming Borrower's position or any of Borrower's obligations under the Lease. Upon receipt from Lender of written notice to pay all such rents and other monies to or at the direction of Lender, Borrower authorizes and directs Tenant thereafter to make all such payments to or at the direction of Lender, releases Tenant of any and all liability to Borrower or any and all payments so made, and shall defend, indemnify and hold Tenant harmless from and against any and all claims, demands, losses, or liabilities asserted by, through, or under Borrower (except by Lender) for any and all payments so made. Upon receipt of such notice, Tenant thereafter shall pay all monies -3- then due and becoming due from Tenant under the Lease to or at the direction of Lender, notwithstanding any provision of the Lease to the contrary. Tenant agrees that neither Lender's demanding or receiving any such payments, nor Lender's exercising any other right, remedy, privilege, power or immunity granted by the Deed of Trust, will operate to impose any liability upon Lender for performance of any obligation of Borrower under the Lease unless and until Lender elects otherwise in writing. Such payments shall continue until Lender directs Tenant otherwise in writing. Tenant agrees not to pay any rent under the Lease more than 30 days in advance without Lender's consent. The provisions of this Paragraph 5 will apply from time to time throughout the term of the Lease. 6. CASUALTY AND EMINENT DOMAIN. Borrower and Tenant jointly and severally agree that the Deed of Trust permits Lender, at its option, to apply to the indebtedness from time to time secured by the Deed of Trust any and all insurance proceeds payable with respect to any casualty loss at the Premises and any and all awards or other compensation that may be payable for the condemnation of all or any portion of the Premises, or any interest therein, or by way of negotiated settlement or conveyance in lieu of condemnation; and Borrower and Tenant jointly and severally consent to any such application by Lender. Notwithstanding the foregoing, Borrower and Lender agree that any and all insurance or condemnation proceeds payable with respect to Tenant's property or the interruption or relocation of Tenant's business (except for rental loss insurance proceeds) will be paid to Tenant, so long as they do not reduce the proceeds otherwise payable to Borrower or Lender, or both. 7. BINDING AGREEMENT. This Agreement may not be modified orally or in any other manner other than by an agreement in writing signed by the parties hereto, or their respective successors in interest. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. LENDER: OLD STONE BANK, a Rhode Island banking corporation By: ---------------------------------- By: ---------------------------------- -4- TENANT: SCRIPPS BANK, a California banking corporation By: /s/ Ronald J. Carlson ---------------------------------- By: /s/ Roger L. Mann ---------------------------------- BORROWER: OKLAHOMA CITY INVESTMENT GROUP, a general partnership By: ---------------------------------- Willis E. Short II By: ---------------------------------- Mary E. Short By: ---------------------------------- Lewis H. Silverberg By: ---------------------------------- William A. Donovan By: ---------------------------------- Kenneth Wayne Richards By: ---------------------------------- Donald C. Alford By: ---------------------------------- Patrick Marsch By: ---------------------------------- Judith A. Ingalls By: ---------------------------------- Kenneth E. Wheeler and its general partners STATE OF CALIFORNIA ) Subordination, nondisturbance & )SS attornment agreement COUNTY OF San Diego ) ON March 15, 1984, before me, the undersigned, [NOTARY SEAL] a Notary Public in and for said County and State, personally appeared **Ronald J. Carlson, President and Roger L. Mann Secretary** proved to me on the basis of satisfactory evidence to be the persons, who executed the within instrument on behalf of the Corporation therein named, and acknowledged to me that such Corporation executed the within instrument pursuant to its Bylaws or a Resolution of its Board of Directors. Notary's Signature /s/ K. T. Mayberry ------------------------- [Floor Plan] EXHIBIT "A" LEASED PREMISES EXHIBIT "A-1" [FLOOR PLAN] TENANT IMPROVEMENT - FIRST FLOOR THIS PARTIAL SURRENDER OF LEASEHOLD, made this 26th day of September, 1985 by and between SCRIPPS BANK (hereinafter referred to as "Sublessor") and SCIENCE APPLICATIONS INTERNATIONAL CORPORATION (hereinafter referred to as "Sublessee"), successor in interest to Science Applications, Inc., constitutes the agreement of the parties regarding the termination of a portion of that Sublease between the parties dated March 15, 1984 (hereinafter referred to as the "Sublease"). WHEREAS, Sublessor and Sublessee have heretofore entered into the Sublease under the terms of which Sublessee leases 1699.75 square feet of space from Sublessor on the first floor of that building (hereinafter referred to as the "Building") at 7817 Ivanhoe Avenue, La Jolla, California 92037 for a term of 34 months which commenced on March 28, 1984 and is scheduled to expire January 31, 1987; and WHEREAS, Sublessee desires to surrender a portion of the space under the Sublease described as Rooms 105, 107 and 108 in said Building consisting of approximately 420 square feet of space (hereinafter referred to as the "Space") and all rights to the possession of the Space and to release Sublessor from its obligations under the Sublease for the Space; and WHEREAS, Sublessor desires to accept said surrender and to release Sublessee from all obligations under the Sublease for the Space; and NOW THEREFORE, for mutual and valuable consideration, receipt of which is hereby acknowledged, the parties hereby agree as follows: a. Effective October 1, 1985, Sublessee shall surrender the Space and discharge and release the Sublessor from all obligations under the Sublease therefor. b. Effective October 1, 1985, Sublessor shall accept said surrender of the Space and discharge and release Sublessee from all obligations under the Sublease therefore. c. Effective October 1, 1985, the Sublease shall be amended in all respects to incorporate this Partial Surrender of Leasehold and is further amended as follows: 1. The area under sublease shall now consist of 1279.75 square feet of space within the Building, as indicated on the floor plan attached hereto as Exhibit "A-1" and incorporated hereby by reference (the "Premises"). 2. The base rental shall be $3,516.75 ($2.748 per square foot) per month. 3. Effective October 1, 1985, Sublessee shall be released from all charges incurred at, charged to, or in connection with the Space. 4. Effective October 1, 1985, Paragraph 6.1 is amended by adding the following sentence: "Effective October 1, 1985, Sublessee will pay for all electricity used by Sublessor in Rooms 105, 107 and 108 of the Building at 7817 Ivanhoe Avenue, La Jolla, California. 5. Effective October 1, 1985, Paragraph 7.1 is amended to change the percentage in the first sentence from "...five and two-tenths percent (5.2%)..." to "...four and one-tenth percent (4.1%)...". Except as modified and amended herein, all other terms and conditions of the Sublease shall remain unchanged and in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this PARTIAL SURRENDER OF LEASEHOLD on the day and the year first above written. SUBLESSEE: SUBLESSOR: SCIENCE APPLICATIONS SCRIPPS BANK INTERNATIONAL CORPORATION By: /s/ J.D. Heipt By: [ILLEGIBLE] -------------------------------- ------------------------------ J.D. HEIPT Title: Senior Vice President Title: Vice Chair ----------------------------- --------------------------- EX-10.9 13 EXHIBIT 10.9 STANDARD INDUSTRIAL GROSS LEASE CENTER NAME: KEARNY VILLA CENTER EAST ------------------------------------------ LANDLORD: KEARNY VILLA CENTER EAST ------------------------------------------ ------------------------------------------ TENANT: SCRIPPS BANK ------------------------------------------ ------------------------------------------ STANDARD INDUSTRIAL GROSS LEASE TABLE OF CONTENTS 1. BASIC LEASE TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Address for Notice. . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Description of Premises . . . . . . . . . . . . . . . . . . . . . 1 1.3 Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . 1 1.4 Lease Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.5 Minimum Monthly Rent. . . . . . . . . . . . . . . . . . . . . . . 1 1.6 Security Deposit. . . . . . . . . . . . . . . . . . . . . . . . . 1 1.7 Base Years. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.8 Permitted Use . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.9 Tenant's Guarantor. . . . . . . . . . . . . . . . . . . . . . . . 1 1.10 Tenant's Parking Spaces . . . . . . . . . . . . . . . . . . . . . 1 1.11 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.12 Additional Provisions . . . . . . . . . . . . . . . . . . . . . . 1 1.13 Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. LEASE OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3. LEASE TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.1 Commencement. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.2 Delay in Commencement . . . . . . . . . . . . . . . . . . . . . . 2 3.3 Early Occupancy . . . . . . . . . . . . . . . . . . . . . . . . . 2 4. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4.1 Minimum Monthly Rent. . . . . . . . . . . . . . . . . . . . . . . 2 4.2 Lease Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4.3 Cost-of-Living Increase . . . . . . . . . . . . . . . . . . . . . 2 4.4. Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . 2 4.5 Impounds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 5. SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6. COMMON FACILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 7. MAINTENANCE AND REPAIRS . . . . . . . . . . . . . . . . . . . . . . . . 3 7.1 Tenant's Obligations. . . . . . . . . . . . . . . . . . . . . . . 3 7.2 Landlord's Obligations. . . . . . . . . . . . . . . . . . . . . . 3 7.3 Performance By Landlord . . . . . . . . . . . . . . . . . . . . . 3 8. REAL PROPERTY TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8.1 Payment of Excess Real Property Taxes by Tenant . . . . . . . . . 3 8.2 Real Property Taxes Defined . . . . . . . . . . . . . . . . . . . 3 8.3 Personal Property Taxes . . . . . . . . . . . . . . . . . . . . . 3 9. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9.1 All Risk Coverage . . . . . . . . . . . . . . . . . . . . . . . . 3 9.2 Tenant's Personal Property and Fixtures . . . . . . . . . . . . . 4 9.3 Tenant's Liability Insurance. . . . . . . . . . . . . . . . . . . 4 9.4 Payment of Insurance Premium Increases and Deductibles. . . . . . 4 9.5 Waiver of Subrogation . . . . . . . . . . . . . . . . . . . . . . 4 9.6 Tenant's Use Not to Increase Premium. . . . . . . . . . . . . . . 4 9.7 Boiler and Machinery Insurance. . . . . . . . . . . . . . . . . . 4 10. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 11. USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 11.1 Permitted Use . . . . . . . . . . . . . . . . . . . . . . . . . . 4 11.2 Compliance with Law and Other Requirements. . . . . . . . . . . . 5 11.3 Waste, Quiet Conduct. . . . . . . . . . . . . . . . . . . . . . . 5 11.4 Rules and Regulations . . . . . . . . . . . . . . . . . . . . . . 5 11.5 Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 11.6 Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 11.7 Entry by Landlord . . . . . . . . . . . . . . . . . . . . . . . . 5 12. ACCEPTANCE OF PREMISES; NON-LIABILITY OF LANDLORD; DISCLAIMER . . . . . 5 12.1 Acceptance of Premises. . . . . . . . . . . . . . . . . . . . . . 5 12.2 Landlord's Exemption From Liability . . . . . . . . . . . . . . . 5 12.3 No Warranties or Representations. . . . . . . . . . . . . . . . . 5 13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 14. HAZARDOUS MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . 6 14.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 14.2 Use of Hazardous Materials. . . . . . . . . . . . . . . . . . . . 6 14.3 Compliance with Laws; Handling Hazardous Materials. . . . . . . . 6 14.4 Notice; Reporting . . . . . . . . . . . . . . . . . . . . . . . . 6 14.5 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 14.6 Entry and Inspection; Cure. . . . . . . . . . . . . . . . . . . . 7 14.7 Termination/Expiration. . . . . . . . . . . . . . . . . . . . . . 7 14.8 Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . 7 15. ALTERATIONS; LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . 7 15.1 Alterations by Tenant . . . . . . . . . . . . . . . . . . . . . . 7 15.2 Permits and Governmental Requirements . . . . . . . . . . . . . . 7 15.3 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 16. DAMAGE AND DESTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . 7 16.1 Partial Insured Damage. . . . . . . . . . . . . . . . . . . . . . 7 16.2 Insurance Deductible. . . . . . . . . . . . . . . . . . . . . . . 8 16.3 Uninsured Damage. . . . . . . . . . . . . . . . . . . . . . . . . 8 16.4 Total Destruction . . . . . . . . . . . . . . . . . . . . . . . . 8 16.5 Partial Destruction of Center . . . . . . . . . . . . . . . . . . 8 16.6 Tenant's Obligations. . . . . . . . . . . . . . . . . . . . . . . 8 16.7 Rent Abatement. . . . . . . . . . . . . . . . . . . . . . . . . . 8 16.8 Waiver of Inconsistent Statutes . . . . . . . . . . . . . . . . . 8 17. CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 17.1 Condemnation of Premises. . . . . . . . . . . . . . . . . . . . . 8 17.2 Condemnation of Parking Area. . . . . . . . . . . . . . . . . . . 8 17.3 Condemnation Award. . . . . . . . . . . . . . . . . . . . . . . . 8 18. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . 8 18.1 Landlord's Consent Required . . . . . . . . . . . . . . . . . . . 8 18.2 Landlord's Election . . . . . . . . . . . . . . . . . . . . . . . 8 18.3 Transfer Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . 9 18.4 Assumption; No Release of Tenant. . . . . . . . . . . . . . . . . 9 18.5 No Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 18.6 Reasonable Restriction. . . . . . . . . . . . . . . . . . . . . . 9 19. SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATE . . . . . . . . . . . . 9 19.1 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . 9 19.2 Attornment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 19.3 Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . 9 20. SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . 9 20.1 Condition of Premises . . . . . . . . . . . . . . . . . . . . . . 9 20.2 Removal of Certain Alterations, Fixtures and Equipment Prohibited . . . . . . . . . . . . . . 9 20.3 Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . . .10 21. DEFAULT BY TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . .10 22. REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 22.1 Termination of Lease. . . . . . . . . . . . . . . . . . . . . . .10 22.2 Continuation of Lease . . . . . . . . . . . . . . . . . . . . . .10 22.3 Performance By Landlord . . . . . . . . . . . . . . . . . . . . .11 22.4 Late Charge; Interest on Overdue Payments . . . . . . . . . . . .11 22.5 Landlord's Right to Require Advance Payment of Rent; Cashier's Checks. . . . . . . . . . . . . . . . . . . . . . .11 23. DEFAULT BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . .11 23.1 Notice to Landlord. . . . . . . . . . . . . . . . . . . . . . . .11 23.2 Notice to Mortgages . . . . . . . . . . . . . . . . . . . . . . .11 23.3 Limitations on Remedies Against Landlord. . . . . . . . . . . . .11 24. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .11 24.1 Action or Defense by Tenant . . . . . . . . . . . . . . . . . . .11 24.2 Arbitration and Mediation Waiver of Jury Trial. . . . . . . . . .11 24.3 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . .11 24.4 Authority of Tenant . . . . . . . . . . . . . . . . . . . . . . .12 24.5 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . .12 24.6 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 24.7 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . .12 24.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . .12 24.9 Covenants and Conditions. . . . . . . . . . . . . . . . . . . . .12 24.10 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . .12 24.11 Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 24.12 Financial Statements. . . . . . . . . . . . . . . . . . . . . . .12 24.13 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . .12 24.14 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . .12 24.15 Joint and Several Liability . . . . . . . . . . . . . . . . . . .12 24.16 Modification. . . . . . . . . . . . . . . . . . . . . . . . . . .12 24.17 Modification for Lender . . . . . . . . . . . . . . . . . . . . .12 24.18 Nondiscrimination . . . . . . . . . . . . . . . . . . . . . . . .12 24.19 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 24.20 Partial Invalidity. . . . . . . . . . . . . . . . . . . . . . . .12 24.21 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . .12 24.22 Recording . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 24.23 Relationship of the Parties . . . . . . . . . . . . . . . . . . .13 24.24 Relocation of Tenant. . . . . . . . . . . . . . . . . . . . . . .13 24.25 Rights of Redemption Waived . . . . . . . . . . . . . . . . . . .13 24.26 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . .13 24.27 Transfer of Landlord's Interest . . . . . . . . . . . . . . . . .13 24.28 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 Exhibit "A" - Description of Premises Exhibit "B" - Rules and Regulations Exhibit "C" - Sign Criteria STANDARD INDUSTRIAL GROSS LEASE This STANDARD INDUSTRIAL GROSS LEASE ("Lease") is entered into as of April 25, 1995, by and between KEARNY VILLA CENTER EAST, A California limited partnership ("Landlord"), and SCRIPPS BANK, a State-Chartered bank ("Tenant"). 1. BASIC LEASE TERMS. The basic terms of the Lease set forth in this Article 1 shall be read in conjunction with the other Articles of this Lease, which define and explain the basic terms. 1.1 ADDRESS FOR NOTICE (see Section 24.19): Landlord: 11750 Sorrento Valley Road, Suite 200 -------------------------------------------------- San Diego, CA 92121 -------------------------------------------------- Tenant: At the Premises, or Address for Tenant other than at the Premises (required): 7817 Ivanhoe Avenue -------------------------------------------------- La Jolla, CA 92037 -------------------------------------------------- 1.2 DESCRIPTION OF PREMISES: Center Name: KEARNY VILLA CENTER EAST --------------------------------------------- Address: 9265 Chesapeake Drive --------------------------------------------- San Diego, CA 92123 --------------------------------------------- Suite/Unit: Suites B, C, and D --------------------------------------------- Approximate Rentable Square Footage (see Exhibit "A"): 9,345 ------- 1.3 COMMENCEMENT DATE: August 1, 1995 1.4 LEASE TERM (SEE ARTICLE 3): Approximately Seven (7) years and no (0) months, beginning on the Commencement Date and ending on the last day of the calendar month of July, 2002 (the "Expiration Date"). 1.5 MINIMUM MONTHLY RENT: $6,542.00 per month for the first Lease Year, as provided in Article 4. The Minimum Monthly Rent shall be increased on the first day of the second Lease Year and each Lease Year thereafter to reflect changes in the cost of living pursuant to Section 4.3. 1.6 SECURITY DEPOSIT: $6,542.00 (see Article 5). 1.7 BASE YEARS: (a) Base Year for Real Property Taxes (paid by Landlord): Tax Year 1994 - 1995 (see Article 8). (b) Base Year for Insurance Premiums (paid by Landlord): 1995 (see Article 9). 1.8 PERMITTED USE (SEE ARTICLE 11): Data processing facility for financial institution and related office uses, including without limitation deposit gathering, note department, central operations support, and couriers, and for no other use. 1.9 TENANT'S GUARANTOR (If none, so state): none 1.10 TENANT'S PARKING SPACES (see Section 11.6): 14 unassigned and 13 exclusive spaces per Addendum. 1.11 LANDLORD'S BROKER (If none, so state): CB Commercial and Asset Management Group TENANT'S BROKER (If none, so state): Colliers Iliff thorne 1.12 ADDITIONAL PROVISIONS: The following additional provisions are attached to and made a part of this Lease (if none, so state): Addendum to Standard Industrial Gross Lease. 1.13 EXHIBITS: The following Exhibits are attached to and made a part of this Lease: Exhibit "A" - Description of Premises Exhibit "B" - Rules and Regulations Exhibit "C" - Sign Criteria Exhibit "D" - Tenant's Exclusive Spaces 2. LEASE OF PREMISES. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the premises (the "Premises") described in Section 1.2, which are indicated on the site/floor plan attached as Exhibit "A". The Premises are part of the office or industrial center identified in Section 1.2 (the "Center"). The approximate Rentable Square Footage identified in Section 1.2 is a 1 measurement of the net leasable floor area of the Premises as determined by Landlord and applied on a consistent basis throughout the Center. 3. LEASE TERM. 3:1 COMMENCEMENT. The term of this Lease (the "Lease Term") shall Commence on the Commencement Date stated in Section 1.3 and shall continue for the period stated in Section 1.4, unless sooner terminated pursuant to any provision of this Lease. 3.2 DELAY IN COMMENCEMENT. If Landlord cannot deliver possession of the Premises to Tenant on the Commencement Date specified in Section 1.3 for any reason, Landlord shall not be subject to any liability therefor. Such non-delivery shall not affect the validity of this Lease nor the obligations of Tenant hereunder. However: (a) Tenant shall not be obligated to pay rent until possession of the Premises is delivered to Tenant, (b) if possession of the Premises is not delivered to Tenant within thirty (30) days of the Commencement Date, the last day of the Lease Term shall be extended by the total number of days that possession is so delayed, plus the minimum number of additional days necessary to make the Expiration Date the last day of a calendar month, and (c) if Landlord has not delivered possession of the Premises within ninety (90) days after the Commencement Date, Tenant may elect to terminate this Lease by delivering written notice to Landlord within ten (10) days thereafter, in which event the parties shall be discharged from all further obligations hereunder. 3.3 EARLY OCCUPANCY. If Tenant occupies the Premises prior to the Commencement Date, such occupancy shall be subject to all provisions of this Lease. Such occupancy shall not advance the Expiration Date. Tenant shall pay Minimum Monthly Rent at the rate in effect for the first Lease Year, Additional Rent and all other charges required hereunder for such early occupancy period. 4. RENT. 4.1 MINIMUM MONTHLY RENT. Tenant shall pay minimum monthly rent ("Minimum Monthly Rent") in the initial amount stated in Section 1.5, which amount shall be subject to increase as provided in Sections 1.5 and 4.3. Tenant shall pay the Minimum Monthly Rent on or before the first day of each calendar month, in advance, at the office of Landlord or at such other place designated by Landlord, without deduction, offset or prior demand. If the Commencement Date is not the first day of a calendar month, the rent for the partial month at the beginning of the Lease Term shall be prorated on a per diem basis and shall be due on the first day of such partial month. 4.2 LEASE YEAR. As used in this Lease, the term "Lease Year" means (i) the first period of twelve full calendar months following the Commencement Date (including, if the Commencement Date is not the first day of a calendar month, the period between the Commencement Date and the next first day of the month), (ii) each period of twelve full calendar months thereafter, and (iii) any remaining period at the end of the Lease Term of less than twelve full calendar months. 4.3 COST-OF-LIVING INCREASE. The Minimum Monthly Rent provided in Section 4.1 shall be increased, effective on the first day of each Lease Year ("Adjustment Date"), beginning with the first day of the second (2nd) Lease Year, to reflect increases in the cost of living. The base for computing the adjustment is the Consumer Price Index for All Urban Consumers (1982-84 = 100) for the Los Angeles - Anaheim - Riverside Area (the "Index"), as published by the U.S. Department of Labor, Bureau of Labor Statistics. The Index published for the month three (3) months prior to the Adjustment Date shall be compared with the Index published for the same month in the preceding year, and the Minimum Monthly Rent shall be increased in accordance with the percentage increase (if any) between such Indexes. No adjustment shall decrease the Minimum Monthly Rent below the amount in effect immediately prior to the adjustment. Landlord may calculate and give notice of the adjustment after the effective date of the increase, since the appropriate Index may not be available as of the Adjustment Date. In such event, Tenant shall continue to pay Minimum Monthly Rent at the rate in effect prior to the Adjustment Date until Landlord gives notice of the adjustment. Within fifteen (15) days after receipt of such notice, Tenant shall pay in one lump sum the increase due from the Adjustment Date to the date of the notice. If the Index is discontinued or materially revised during the Lease Term, Landlord shall adopt a substitute governmental index or computation that reasonably reflects consumer prices for purposes of computing the cost-of-living adjustment. 4.4 ADDITIONAL RENT. All charges payable by Tenant in addition to Minimum Monthly Rent shall constitute Additional Rent to Landlord. All remedies available to Landlord for nonpayment of rent shall be available for nonpayment of any such Additional Rent. Unless this Lease provides otherwise, all Additional Rent shall be paid by Tenant, without limitation or offset, within fifteen (15) days after Tenant's receipt of a statement from Landlord. Additional Rent includes, without limitation, Maintenance and Repairs (see Article 7), excess Real Property Taxes (see Article 8), excess insurance costs (see Article 9), Utilities (see Article 10), and attorneys' fees and costs (see Article 24). If any Minimum Monthly Rent is abated or waived pursuant to another specific term of this Lease or in any separate agreement, it is understood that such abatement or waiver shall apply only to the Minimum Monthly Rent, and Tenant shall be obligated to pay all components of Additional Rent (including the applicable impounds thereof) during the periods of abatement or waiver of Minimum Monthly Rent and throughout the Lease Term. All Minimum Monthly Rent, Additional Rent, and all other charges and monetary amounts due Landlord from Tenant hereunder shall constitute rent. 4.5 IMPOUNDS. Landlord shall have the right, but not the obligation, to collect and impound, in advance, any or all components of Real Property Taxes and insurance costs based upon Landlord's reasonable estimate of Tenant's future liability for such amounts under this Lease. Landlord shall initially establish the monthly amount of such impound ("Monthly Impound Payments"), based upon its estimate of one-twelfth of Tenant's annual liability therefor. Landlord shall have the right, at any time during the Lease Term, to adjust the amount of the Monthly Impound Payment upon notice to Tenant. The Monthly Impound Payment shall be due and payable on the first day of each month throughout the Lease Term. Any failure to pay the Monthly Impound Payment when due shall be an Event of Default under this Lease and shall entitle Landlord to exercise any or all of its remedies available in the same manner as the failure to pay rent, including the imposition of late charges and interest, and the right of Landlord to require that future payment of the Monthly Impound Payments be made by cashier's check. Upon the occurrence of any Event of Default by Tenant hereunder, Landlord shall have the right to apply all unapplied amounts of Monthly Impound Payments to Tenant's default. Within ninety (90) days after the end of each calendar year, Landlord shall deliver to Tenant an accounting of Tenant's actual liability for Real Property Taxes and insurance costs and the estimated amounts paid by Tenant. Any overpayment by Tenant shall be credited against next Monthly Impound Payments due hereunder, or, at Landlord's option, shall be remitted to Tenant. Tenant shall pay the amount of any underpayment within fifteen 115) days after receipt of the accounting. Tenant acknowledges that the Monthly Impound Payments are estimates only and not a representation or the amount of Tenant's ultimate liability for Real Property Taxes and insurance costs. 5. SECURITY DEPOSIT. Upon execution of this Lease, Tenant shall deposit with Landlord the amount specified in Section 1.6 (the "Security Deposit"), to be held by Landlord, without liability for interest, as security for Tenant's performance of its obligations under this Lease. Landlord shall not be required to keep the Security Deposit separate from its other accounts. Landlord may apply all or a part of the Security Deposit to any unpaid rent or other monetary payments due from Tenant (including unpaid Additional Rent or Monthly Impound Payments) or to cure any other default of Tenant hereunder and to compensate Landlord for all damage and expense sustained as a result of such default. If all or any portion of the Security Deposit is so applied, Tenant shall deposit cash sufficient to restore the Security Deposit to its original amount within fifteen (15) days after receipt of Landlord's written demand. If Tenant fully and faithfully performs each of its obligations under this Lease, the Security Deposit or any balance thereof shall be returned to Tenant within 30 days of the later of the expiration or earlier termination of this Lease or the vacation of the 2 premises by Tenant. At Landlord's request, Tenant shall accompany Landlord, Landlord's representative on a "walk-through" of the Premises prior to Landlord's return of the Security Deposit. 6. COMMON FACILITIES. "Common Facilities" means all areas, facilities, utilities, equipment and services provided by Landlord for the common use or benefit of the occupants of the Center, and their employees, agents, customers and other invites, including without limitation: building lobbies, common corridors and hallways, restrooms, pedestrian walkways, driveways and access roads, access facilities for disabled persons (including elevators), truck serviceways, loading docks, garages, driveways, parking lots, landscaped areas, stairways, elevators, retaining walls, all areas required to be maintained under the conditions of governmental approvals for the Center, and other generally understood public or common areas. Landlord reserves the right to relocate, alter, improve, or adjust the size and location of any Common Facilities from time to time without liability to Tenant. 7. MAINTENANCE AND REPAIRS. 7.1 TENANT'S OBLIGATIONS. Except as provided in Section 7.2, Tenant shall keep the Premises in good order, condition and repair during the Lease Term, including without limitation: all nonstructural, interior, exterior, areas; all heating, ventilation and air conditioning systems and equipment; all glass, glazing, windows, window moldings, partitions, doors and door hardware; all interior painting; all fixtures and appurtenances in the Premises or exclusively serving the Premises including electrical, lighting and plumbing fixtures; and all other portions of the Premises seen or unseen. Tenant shall replace at its sole cost and expense any of the systems and other portions of the Premises for which it is responsible hereunder during the Lease Term, if necessary. Tenant shall promptly replace any portion of the Premises or system or equipment in the Premises which cannot be fully repaired, regardless of whether the benefit of such replacement extends beyond the Lease Term. It is the intention of Landlord and Tenant that Tenant shall maintain the Premises, at all times during the Lease Term, in an attractive, first-class and fully operative condition, at Tenant's expense. If any heating and air conditioning system or equipment exclusively serves the Premises, Tenant shall additionally obtain and keep in force a preventive maintenance contract providing for the regular (at least quarterly) inspection and maintenance of the heating and air conditioning system (including leaks around ducts, pipes, vents, and other parts of the air conditioning) by a reputable licensed heating and air conditioning contractor acceptable to Landlord. Prior to April 1 of each calendar year, Tenant shall deliver Landlord written confirmation from such contractor verifying that such a contract has been entered into and that the required service will be provided. Notwithstanding the foregoing, Landlord shall have the right, upon written notice to Tenant, to undertake the responsibility for preventive maintenance and repair of the heating and air conditioning system, at Tenant's sole cost and expense. See Addendum. 7.2 LANDLORD'S OBLIGATIONS. Landlord shall repair and maintain the facilities, and the roof, the foundations and structural portions of the Premises and any building of which the Premises are a part. Provided, however, that Tenant shall pay the (a) the full amount of any maintenance and repairs necessitated by any act, omission, conduct or activity of, or beach of this lease by, Tenant or any of Tenant's officers, agents, customers or invitees (plus ten percent (10%) of the cost thereof to reimburse Landlord for overhead), and (b) any maintenance and repairs necessitated by breaking and entering of the Premises. Tenant shall pay the cost of such required repairs, as Additional Rent, within fifteen (15) days after receipt of a statement from Landlord. There shall be no abatement of rent, and no liability of Landlord, by reason of any injury to or interference with Tenant's business arising from the making of any repairs, alterations, or improvements to any portion of the Premises or the Center. Except as provided in Article 16 (Damage and Destruction) and Article 17 (Condemnation), Landlord shall have absolutely no other responsibility to repair, maintain or replace any portion of the Premises at any time. Tenant waives the right to make repairs at Landlord's expense under California Civil Code Section 1942, or under any other law, statute or ordinance now or hereafter in effect. Landlord's obligations under this Section are not intended to alter or modify in any way the provisions of Article 12. See Addendum. 7.3 PERFORMANCE BY LANDLORD. If Tenant refuses or neglects to perform its maintenance obligations hereunder to the reasonable satisfaction of Landlord, Landlord shall have the right (but not the obligation), upon ten (10) days' prior notice to Tenant, to enter the Premises and perform such repairs and maintenance on behalf of Tenant. Landlord shall also have the right (but not the obligation), without prior notice to Tenant, to correct or remove any dangerous or hazardous condition or to repair the heating, ventilation, air-conditioning and plumbing systems and broken glass or glazing if Tenant fails to correct or repair the same within 24 hours after the need arises. Landlord shall not be liable to Tenant for any loss or damage to Tenant's merchandise, fixtures, or other property or to Tenant's business in connection with Landlord's performance hereunder, and Tenant shall pay Landlord's costs plus ten percent (10%) of such amount for overhead, upon presentation of a statement therefor, as Additional Rent. Tenant shall also pay interest at the rate provided in Section 22.4 from the date of completion of repairs by Landlord to the date paid by Tenant. 8. REAL PROPERTY TAXES. 8.1 PAYMENT OF EXCESS REAL PROPERTY TAXES BY TENANT. Tenant shall pay all Real Property Taxes applicable to the Premises during the Lease Term that exceed, during any tax year the Real Property Taxes for the Base Year identified in Section 1.7. If the Premises are not separately assessed, a share of the tax bill that includes the Premises shall be allocated to the Premises. Such share shall be equitably determined by Landlord based upon the Rentable Square Footage of the Premises compared to the total Rentable Square Footage covered by the tax bill, the respective valuations assigned in the assessor's worksheet, or other reasonably available information. Tenant shall pay such obligation for excess Real Property Taxes to Landlord, to the extent such obligation exceeds any amount thereof impounded under Section 4.5, within fifteen (15) days after receipt of a statement from Landlord. 8.2 REAL PROPERTY TAXES DEFINED. "Real Property Taxes" means all taxes, assessments, levies, fees and other governmental charges levied on or attributable to the Premises or any part thereof, including without limitation: (a) real property taxes and assessments levied with respect to all or a portion of the Premises, (b) assessments, charges and fees charged by governmental agencies or districts for services or facilities provided to the Premises, (c) transfer, transaction, rental, gross receipts, license or similar taxes or charges measured by rent received by Landlord, excluding any federal or state income, franchise, estate or inheritance taxes of Landlord, (d) taxes based upon a reassessment of the Premises due to a transfer or change of ownership, and (e) any assessment, charge or fee that is a substitute in whole or in part for any tax now or previously included within the definition of Real Property Taxes. If Landlord elects to contest an assessment of any Real Property Taxes, Landlord shall have the right to recover its actual costs of such contest (including attorneys' fees and costs) as part of Real Property Taxes, but only to the extent such contest has resulted in a reduction of Real Property Taxes. Tenant shall not be entitled to the benefit of any reduction, refund, rebate or credit accruing or payable to Landlord prior to the commencement of or after the expiration or other termination of the Lease Term. 8.3 PERSONAL PROPERTY TAXES. Tenant shall pay-prior to delinquency all taxes charged against trade fixtures, furnishings, equipment or any other personal property belonging to Tenant. Tenant shall attempt to have such personal property taxed separately from the Premises. If any such taxes on Tenant's personal property are levied against Landlord or the Premises, or if the assessed value of the Premises is increased by inclusion of a value placed upon such personal property of Tenant, then: a) after written notice to Tenant, shall have the right to pay the taxes levied against Landlord, or the taxes based upon such increased valuation, but under protest if so requested by Tenant in writing, and (b) Tenant shall pay to Landlord the taxes levied against Landlord, or the taxes resulting from such increased valuation, within fifteen (15) days after Tenant's receipt of a written statement from Landlord. 9. INSURANCE. 9.1 ALL RISK COVERAGE. During the Lease Term, Landlord shall maintain insurance covering loss or damage to the Premises (excluding Tenant's Alterations, fixtures, equipment and personal property), insuring against any or all risks of physical loss (and including, at Landlord's option, flood and earthquake coverage), with the scope and amounts of such coverage as determined by Landlord. Said insurance shall provide for payment of loss thereunder to Landlord or to the holder of a first 3 mortgage or deed or trust on Premises. Landlord may also maintain during the Lease Term, at Tenant's expense, a policy of rental income insurance covering a period of one year, with loss payable to Landlord. 9.2 TENANT'S PERSONAL PROPERTY AND FIXTURES. Tenant shall at all times maintain insurance against any or all risks of physical loss in an amount adequate to cover the cost of replacement of all of Tenant's Alterations, trade fixtures, equipment and personal property. Such policy shall be issued by an insurance company approved by Landlord, shall name Landlord and Landlord's lender as additional insureds, and shall provide that no cancellation or reduction in coverage shall be effective until thirty (30) days after written notice to Landlord and Landlord's lender. Tenant shall deliver a certificate evidencing such insurance to Landlord and a renewal or binder at least twenty (20) days prior to expiration. Tenant acknowledges that Landlord's insurance is not intended to cover Tenant's Alterations, trade fixtures, equipment, and personal property. Provided, however, that at Landlord's sole election, Landlord may obtain at Tenant's expense any or all of the insurance described in this Section. 9.3 TENANT'S LIABILITY INSURANCE. Tenant shall, at Tenant's sole cost and expense, provide comprehensive general liability insurance, fully covering and indemnifying Landlord and Landlord's officers, directors, shareholders, partners, principals, employees, agents, representatives, and other related entities and individuals (together with, at Landlord's election, Landlord's lender), as additional insureds, against any and all claims arising from personal injury, death, and/or property damage occurring in or about the Premises or the Center during the period of Tenant's possession (actual and/or constructive) at the Premises. The initial limits of such insurance shall be at least $2,000,000 combined single liability limit if the Rentable Square Footage of the Premises (as indicated in Section 1.2) exceeds 3,000 square feet, or $1,000,000 combined single liability limit if such Rentable Square Footage is 3,000 square feet or less. Such limits shall be subject to periodic increase, at Landlord's option, based upon inflation, increased liability awards, lender requirements, the recommendations of Landlord's professional insurance advisors, and other relevant factors. Such liability insurance limits shall be subject to periodic increase, at Landlord's election, based upon inflation, increased liability awards, lender requirements, the recommendations of Landlord's professional insurance advisors, and other relevant factors. Tenant shall also, at its sole cost and expense, obtain workers' compensation insurance for the protection of its employees such as will relieve Landlord of all liability to such employees for any and all accidents that may arise on or about the Premises or the Center. All insurance required to be carried by Tenant shall be primary and noncontributory to any insurance carried by Landlord, regardless of the absence of negligence or other fault of Tenant for alleged injury, death and/or property damage. Each policy of insurance required to be carried by Tenant hereunder shall: (a) contain cross-liability and contractual liability endorsements, (b) provide that no cancellation or reduction in coverage shall be effective until thirty (30) days after written notice to Landlord and Landlord's lender, (c) be issued by an insurer licensed in California and reasonably approved by Landlord, and (d) shall insure Tenant's performance of the indemnity provisions of Article 13, but the amount of such insurance shall not limit Tenant's liability nor relieve Tenant of any obligation hereunder. Prior to the Commencement Date, Tenant shall deliver a certificate evidencing all such insurance to Landlord. Tenant shall deliver a renewal or binder of such policy at least thirty (30) days prior to expiration thereof. Tenant shall, at Tenant's expense, maintain such other liability insurance as Tenant deems necessary to protect Tenant. Tenant shall be in material breach of this Lease if Tenant fails to obtain the insurance required under this Section, or if Tenant obtains insurance with terms, conditions and/or exclusions that are inconsistent with the requirements and terms of this Lease. 9.4 PAYMENT OF INSURANCE PREMIUM INCREASES AND DEDUCTIBLES. Tenant shall pay directly all premiums for its liability insurance required under Section 9.3, for its personal property insurance to be carried by Tenant as required under this Article, and for all other insurance Tenant elects to carry. Tenant shall pay the premiums for the insurance to be carried or obtained by Landlord as required under this Article in excess of the premiums payable during the Base Year described in Section 1.7(b), whether such increase is the result of lender requirements, increased valuation of the Premises, or general rate increases. If the Lease Term expires before the expiration of any such insurance policy, Tenant's liability for premiums shall be prorated on an annual basis. Tenant shall pay such obligation for excess insurance premiums to Landlord, to the extent such obligation exceeds any amount thereof impounded under Section 4.5, within fifteen (15) days after receipt of a statement from Landlord. If any insurance policy maintained by Landlord covers improvements or real property other than the Premises, Landlord shall reasonably determine the portion of the premiums applicable to the Premises, and Tenant shall pay such its share thereof of the excess thereof as provided in this Section. In addition, Tenant shall pay the full amount of any deductible amount under Landlord's insurance policies, or where applicable its share thereof as equitably determined by Landlord, within fifteen (15) days after receipt of a statement from Landlord. 9.5 WAIVER OF SUBROGATION. Each party waives all rights of recovery against the other party, and its officers, employees, agents and representatives for any claims for loss or damage to person or property caused by or resulting from fire or any other risks insured against under any insurance policy in force at the time of such loss or damage. Each party shall cause each insurance policy obtained by it to provide that the insurer waives all rights of recovery by way of subrogation against the other party in connection with any damage covered by such policy. 9.6 TENANT'S USE NOT TO INCREASE PREMIUM. Tenant shall not keep, use, manufacture, assemble, sell or offer for sale in or upon the Premises any article that may be prohibited by, or that might invalidate, in whole or in part, the coverage afforded by, a standard form of fire or all risk insurance policy. Tenant shall pay the entire amount of any increase in premiums that may be charged during the Lease Term for the insurance that may be maintained by Landlord on the Premises or the Center resulting from the type of materials or products stored, manufactured, assembled or sold by Tenant in the Premises, whether or not Landlord has consented to the same. In determining whether increased premiums are the result of Tenant's use of the Premises, a schedule issued by the entity making the insurance rate on the Premises showing the various components of such rate shall be conclusive evidence of the items and charges that make up the fire insurance rate on the Premises. 9.7 BOILER AND MACHINERY COVERAGE. At Landlord's option, Landlord may maintain, at Tenant's expense, boiler broad form insurance, if applicable, in the amount of One Hundred Fifty Thousand Dollars ($150,000) in the name of Landlord. Tenant shall pay the premium therefor, or its share thereof equitably determined by Landlord it the Premises are a part of a multi-tenant building. 10. UTILITIES. Tenant shall pay the cost of all water, gas, heat, light, power, sewer, telephone, refuse disposal, and all other utilities and services supplied to the Premises. Tenant shall make payments for all separately metered utilities, when due, directly to the appropriate supplier. Landlord shall have the right to require Tenant to install, at Tenant's sole expense, separate meters for any utility for which a separate meter is not installed as of the Commencement Date. If any utilities or services are not separately metered to the Premises, Landlord shall determine Tenant's equitable share thereof, based on rentable square footage, intensity of use of any Utility, hours of operation, and such other factors as Landlord deems relevant. Tenant shall pay its equitable share of such utilities to Landlord, to the extent such obligation exceeds any amount thereof impounded under Section 4.5, within fifteen (15) days after receipt of a statement from Landlord. Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility service, and no such failure or interruption shall entitle Tenant to terminate this Lease or abate the rent due hereunder. 11. USE. 11.1 PERMITTED USE. The Premises shelf be used and occupied only for the permitted uses specified in Section 1.8. The Premises shall not be used or occupied for any other purposes without the prior written consent of Landlord. Tenant shall provide such information about such proposed use as may be reasonably requested by Landlord. Landlord shall not unreasonably withhold its consent to any requested change of use, and shall have the right to impose reasonable restrictions on such other use. Factors that Landlord may take into account in granting or withholding its consent shall include, without limitation, whether the proposed use is compatible with the character and tenant mix of the Center, whether the proposed use poses any increased risk to Landlord or any other occupant of the Center, whether any proposed Alterations to accommodate such proposed use 4 might decrease the rental or sale value of the Premises or the Center, and whether Tenant has the requisite expertise and financial ability to successfully operate in the Premises with the proposed use. 11.2 COMPLIANCE WITH LAW AND OTHER REQUIREMENTS. Tenant shall not do or permit anything to be done in or about the Premises in conflict with all laws, ordinances, rules, regulations, orders, requirements, and recorded covenants and restrictions applicable to the Premises, whether now in force or hereafter in effect, including any requirement to make alterations or to install additional facilities required by Tenant's occupancy or the conduct of Tenant's business, and Tenant shall promptly comply with the same at its sole expense. 11.3 WASTE, QUIET CONDUCT. Tenant shall not use or permit the use of the Premises in any manner that tends to create waste or a nuisance, that will cause objectionable noise or odors, or that may disturb the quiet enjoyment of any other tenant in the Center. 11.4 RULES AND REGULATIONS. Tenant shall comply with the Rules and Regulations for the Center attached as Exhibit "B", as the same may be amended by Landlord from time to time, upon notice to Tenant. 11.5 SIGNS. Tenant agrees, at Tenant's sole cost, to install a sign in strict conformance with Landlord's sign criteria, attached hereto as Exhibit "C", within fifteen (15) days after first occupying the Premises. Tenant shall maintain all approved signs and other items described herein in good condition and repair at all times. All signs must be fabricated by a contractor selected by Landlord. Prior to construction of any such sign, a detailed drawing of the proposed sign shall be prepared by the Landlord's contractor, at the sole expense of Tenant, and submitted to Landlord and Tenant for written approval. No sign, placard, pennant, flag, awning, canopy, or advertising matter of any kind shall be placed or maintained on any exterior door, wall or window of the Premises or in any area outside the Premises, and no decoration, lettering or advertising matter shall be placed or maintained on the glass of any window or door, or that can be seen through the glass, of the Premises without first obtaining Landlord's written approval. All signs and sign cases shall be considered fixtures and improvements and shall become the property of Landlord upon expiration or termination of the Lease. If Tenant fails to comply with this Section and Landlord serves upon Tenant a Notice to Perform Covenant or Quit (or similar notice), any breach of the covenants of this Section occurring thereafter shall be deemed to be non-curable. Landlord shall have the right from time to time to revise the sign criteria, and within sixty (60) days after Tenant's receipt of written notice of any new sign criteria, Tenant shall, at Tenant's expense, remove all existing exterior signs and replace the same with new signs conforming to the new sign criteria. 11.6 PARKING. Tenant shall have the nonexclusive right, in common with others, to use the parking areas of the Center; provided, however, that Tenant shall not use more than the number of parking spaces designated in Section 1. bb, or if no number of such spaces is so indicated, Tenant shall not use more than its reasonable share of parking spaces, as Landlord shall determine. Landlord reserves the right, without liability to Tenant, to modify the parking areas, to designate the specific location of the parking for Tenant and Tenant's customers and employees, and to adopt reasonable rules and regulations for use of the parking areas. 11.7 ENTRY BY LANDLORD. Tenant shall permit Landlord and Landlord's agents to enter the Premises at all reasonable times for any of the following purposes: (a) to inspect the Premises, (b) to supply any services or to perform any maintenance obligations of Landlord, including the erection and maintenance of such scaffolding, canopies, fences, and props as may be required, (c) to make such improvements, replacements or additions to the Premises or the Center as Landlord deems necessary or desirable, (d) to post notices of non-responsibility, (e) to place any usual or ordinary "for sale" signs, or (e) within six (6) months prior to the expiration of this Lease, to place any usual or ordinary "for lease" signs. No such entry shall result in any rebate of rent or any liability to Tenant for any loss of occupation or quiet enjoyment of the Premises. Landlord shall give reasonable notice to Tenant prior to any entry except in an emergency or unless Tenant consents at the time of entry. If Tenant is not personally present to open and permit an entry into the Premises, at any time when for any reason an entry therein shall be necessary or permissible, Landlord or Landlord's agents may enter the same by a master key, or may forcibly enter the same without rendering Landlord or such agents liable therefor, and without in any manner affecting the obligations and covenants of this Lease. Nothing herein contained, however, shall be deemed or construed to impose upon Landlord any obligation, responsibility or liability whatsoever for the care, maintenance or repair of the Premises or any part thereof, except as otherwise specifically provided herein. 12. ACCEPTANCE OF PREMISES; NON-LIABILITY OF LANDLORD; DISCLAIMER. 12.1 ACCEPTANCE OF PREMISES. By taking possession hereunder, Tenant acknowledges that it has examined the Premises and accepts the condition thereof. Tenant acknowledges and agrees that Landlord has no obligation to improve the Premises other than as set forth specifically in this Lease, if at all. In particular, Tenant acknowledges that any additional improvements or alterations needed to accommodate Tenant's intended use shall be made solely at Tenant's sole cost and expense, and strictly in accordance with the requirements of this Lease (including the requirement to obtain Landlord's consent thereto), unless such improvements and alterations are specifically required of Landlord. Landlord shall have no responsibility to do any work required under any building codes or other governmental requirements not in effect or applicable at the time the Premises were constructed, including without limitation any requirements related to sprinkler retrofitting, seismic structural requirements, accommodation of disabled persons, or hazardous materials. Landlord shall be under no obligation to provide utility, telephone or other service or access beyond that which exists at the Premises as of the date of this Lease, unless Landlord specifically agrees in writing to provide the same. If it is anticipated that Tenant will be doing any Alterations or installations prior to taking occupancy, any delays encountered by Tenant in accomplishing such work or obtaining any required permits therefor shall not delay the Commencement Date or the date that Tenant becomes liable to pay rent, or the date that Landlord may effectively deliver possession of the Premises to Tenant. By taking possession hereunder, Tenant acknowledges that it accepts the square footage of the Premises as delivered and as stated in this Lease. No discovery or alleged discovery after such acceptance of any variance in such square footage as set forth in this Lease (or in any proposal, advertisement or other description thereof) shall be grounds for any adjustment in any element of the rent payable hereunder, unless such adjustment is initiated by and implemented by Landlord in writing. 12.2 LANDLORD'S EXEMPTION FROM LIABILITY. Landlord shall not be liable for injury to Tenant's business or loss of income therefrom, or for personal injury or property damage that may be sustained by Tenant or any subtenant of Tenant, or their respective employees, invitees, customers, agents or contractors or any other person in or about the Premises, caused by or resulting from fire, flood, earthquake or other natural disaster, or from steam, electricity, gas, water or rain, that may leak or flow from or into any part of the Premises, or from the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air-conditioning or lighting fixtures, whether such damage or injury results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources, and regardless of whether the cause of such damage or injury or the means of repairing the same is inaccessible to Tenant. Landlord shall not be liable for any damages to property or for personal injury or loss of life arising from any use, act or failure to act of any third parties (including other occupants of the Center) occurring in, or about the Premises or in or about the Center (including without limitation the criminal acts of any third parties). Landlord shall not be liable for any latent defect in the Premises or in the building of which the Premises are a part. All property of Tenant kept or stored on the Premises shall be so kept or stored at the risk of Tenant only, and Tenant shall indemnify, defend and hold Landlord harmless from and against any claims arising out of damage to the same, including subrogation claims by Tenant's insurance carriers. Provided, however, that the indemnifications and waivers of Tenant set forth in this Section shall not apply to damage and liability caused (i) by the gross negligence or wilful misconduct of Landlord, and (ii) through no fault of Tenant, its assignees or subtenants, or their respective agents, contractors, employees, customers, invitees or licensees. 12.3 NO WARRANTIES OR REPRESENTATIONS. (a) Neither Landlord nor Landlord's agents make any warranty or representation with respect to the suitability or fitness of the space for the conduct of Tenant's business, or for any other purpose. 5 (b) Neither Landlord nor Landlord's agents make any warranty or representation with respect to any other tenants or users that may or may not construct improvements, occupy space or conduct business within the Center, and Tenant hereby acknowledges and agrees that it is not relying on any warranty or representation relating thereto in entering into this Lease. (c) Landlord specifically disavows any oral representations made by or on behalf of its employees, agents and independent contractors, and Tenant hereby acknowledges and agrees that it is not relying and has not relied on any oral representations in entering into this Lease. (d) Landlord has not made any promises or representations, expressed or implied, that it will renew, extend or modify this Lease in favor of Tenant or any permitted transferee of Tenant, except as may be specifically set forth herein or in except in a written instrument signed by both parties amending this Lease in the future. (e) Notwithstanding that the rent payable to Landlord hereunder may at times include the cost of guard service or other security measures, it is specifically understood that Landlord does not represent, guarantee or assume responsibility that Tenant will be secure from any damage, injury or loss of life because of such guard service. Landlord shall have no obligation to hire, maintain or provide such services, which may be withdrawn or changed at any time with or without notice to Tenant or any other person and without liability to Landlord. To induce Landlord to provide such service if Landlord elects in its sole discretion to do so, Tenant agrees that (i) Landlord shall not be liable for any damage, injury or loss of life related to the provision or non-provision of such service, and (ii) Landlord shall have no responsibility to protect Tenant, or its employees, agents, from the acts of any third parties (including other occupants of the Center) occurring in, or about the Premises or in or about the Center (including without limitation the criminal acts of any third parties), whether or not the same could have been prevented by any such guard service or other security measures. 13. INDEMNIFICATION. Tenant shall indemnify, hold harmless and defend Landlord and Landlord's officers, directors, shareholders, partners, principals, employees, agents, representatives (collectively, "Landlord's Related Entities"), from and against any and all claims, actions, damages, liability, costs, and expenses, including attorneys' fees and costs, arising from personal injury, death, and/or property damage and arising from: (a) Tenant's use or occupation of the Premises or any work or activity allowed or permitted by Tenant in or about the Premises, (b) any activity, condition or occurrence in the Premises or other area under the control of Tenant, (c) any breach or failure to perform any obligation imposed on Tenant under this Lease; or (d) any other act or omission of Tenant or its assignees or subtenants or their respective agents, contractors, employees, customers, invitees or licensees. Tenant's obligation to defend and indemnify shall include, but not be limited to, claims based on duties, obligations, or liabilities imposed on Landlord or Landlord's Related Entities by statute, ordinance, regulation, or other law, such as claims based on theories of peculiar risk and non-delegable duty, and to any and all other claims based on the negligent act or omission of candford or Landlord's Related Entities. The parties intend that this provision be interpreted as the broadest indemnity allowed by law between a landlord and a tenant. Upon notice from Landlord, Tenant shall, at Tenant's sole expense and by counsel satisfactory to Landlord, defend any action or proceeding brought against Landlord or Landlord's Related Entities by reason of any such claim. If Landlord or any of Landlord's Related Entities is made a party to any litigation commenced by or against Tenant, then Tenant shall hold harmless and defend Landlord and Landlord's Related Entities and pay all costs, expenses and attorneys' fees and costs incurred or paid in connection with such litigation. Tenant, as a material part of the consideration to Landlord hereunder, assumes all risk of, and waives all claims against Landlord for, personal injury or property damage in, upon or about the Premises, from any cause whatsoever. Provided, however, that the indemnifications and waivers of Tenant set forth in this Section shall not apply to damage and liability caused (i) by the gross negligence or wilful misconduct of Landlord, and (ii) through no fault of Tenant, its assignees or subtenants, or their respective agents, contractors, employees, customers, invitees or licensees. See Addendum. 14. HAZARDOUS MATERIALS. 14.1 DEFINITIONS. "Hazardous Materials Laws" means any and all federal, state or local laws, ordinances, rules, decrees, orders, regulations or court decisions relating to hazardous substances, hazardous materials, hazardous waste, toxic substances, environmental conditions on, under or about the Premises, or soil and ground water conditions, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), as amended, 42 U.S.C. Section 9601, ET SEQ., the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901, ET SEQ., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, ET SEQ. the California Hazardous Waste Control Act, Cal. Health and Safety Code Section 25100, ET SEQ., the Carpenter-Presley-Tanner Hazardous Substances Account Act, Cal. Health and Safety Code Section 25300, ET SEQ., the Safe Drinking Water and Toxic Enforcement Act, Cal. Health and Safety Code 125249.5, et seq., the Porter-Cologne Water Quality Control Act, Cal. Water Code Section 13000, ET SEQ., any amendments to the foregoing, and any similar federal, state or local laws, ordinances, rules, decrees, orders or regulations. "Hazardous Materials" means any chemical, compound, material, substance or other matter that: (a) is defined as a hazardous substance, hazardous material, hazardous waste or toxic substance under any Hazardous Materials Law, (b) is controlled or governed by any Hazardous Materials Law or gives rise to any reporting, notice or publication requirements hereunder, or gives rise to any liability, responsibility or duty on the part of Tenant or Landlord with respect to any third person hereunder; or (c) is flammable or explosive material, oil, asbestos, urea formaldehyde, radioactive material, nuclear medicine material, drug, vaccine, bacteria, virus, hazardous waste, toxic substance, or related injurious or potentially injurious material (by itself or in combination with other materials). 14.2 USE OF HAZARDOUS MATERIALS. Tenant shall not allow any Hazardous Material to be used, generated, manufactured, released, stored or disposed of on, under or about, or transported from, the Premises, unless: (a) such use is specifically disclosed to and approved by Landlord in writing prior to such use, and (b) such use is conducted in compliance with the provisions of this Article. Landlord's consent may be withheld in Landlord's sole discretion and, if granted, may be revoked at any time. Landlord may approve such use subject to reasonable conditions to protect the Premises and Landlord's interests. Landlord may withhold approval if Landlord determines that such proposed use involves a material risk of a release or discharge of Hazardous Materials or a violation of any Hazardous Materials Laws or that Tenant has not provided reasonably sufficient assurances of its ability to remedy such a violation and fulfill its obligations under this Article. Notwithstanding the foregoing, Landlord hereby consents to Tenant's use, storage or disposal of products containing small quantities of Hazardous Materials, which products are of a type customarily found in offices and households (such as aerosol cans containing insecticides, toner for copies, paints, paint remover and the like), provided that Tenant shall handle, use, store and dispose of such Hazardous Materials in a safe and lawful manner and shall not allow such Hazardous Materials to contaminate the Premises. 14.3 COMPLIANCE WITH LAWS; HANDLING HAZARDOUS MATERIALS. Tenant shall strictly comply with, and shall maintain the Premises in compliance with, all Hazardous Materials Laws. Tenant shall obtain, maintain in effect and comply with the conditions of all permits, licenses and other governmental approvals required for Tenant's operations on the Premises under any Hazardous Materials Laws, including, but not limited to, the discharge of appropriately treated Hazardous Materials into or through any sanitary sewer serving the Premises. At Landlord's request, Tenant shall deliver copies of, or allow Landlord to inspect, all such permits, licenses and approvals. All Hazardous Materials removed from the Premises shall be removed and transported by duly licensed haulers to duly licensed disposal facilities, in compliance with all Hazardous Materials Laws. Tenant shall perform any monitoring, testing, investigation, clean-up, removal, detoxification, preparation of closure or other required plans and any other remedial work required by any governmental agency or lender, or recommended by Landlord's environmental consultants, as a result of any release or discharge or potential release or discharge of Hazardous Materials affecting the Premises or the Center or any violation or potential violation of Hazardous Materials Laws by Tenant or any assignee or subtenant of Tenant or their respective agents, contractors, employees, licensees or invitees (collectively, "Remedial Work"). Landlord shall have the right to intervene in any governmental action or proceeding involving any Remedial Work, and to approve performance of the 6 work, in order to protect Landlord's interests. Tenant shall not enter into any settlement agreement, consent decree or other compromise with respect to any claims relating to Hazardous Materials without notifying Landlord and providing ample opportunity for Landlord to intervene. Tenant shall additionally comply with the recommendations of Landlord's and Tenant's insurers based upon National Fire Protection Association standards or other applicable guidelines regarding the management and handling of Hazardous Materials. 14.4 NOTICE; REPORTING. Tenant shall notify Landlord, in writing, within three (3) days after any of the following: (a) Tenant has knowledge, or has reasonable cause to believe, that any Hazardous Material has been released, discharged or is located on, under or about the Premises, whether or not the release or discharge is in quantities that would otherwise be reportable to a public agency, (b) Tenant receives any order of a governmental agency requiring any Remedial Work pursuant to any Hazardous Materials Laws, (c) Tenant receives any warning, notice of inspection, notice of violation or alleged violation or Tenant receives notice or knowledge of any proceeding, investigation or enforcement action, pursuant to any Hazardous Materials Laws; or (d) Tenant receives notice or knowledge of any claims made or threatened by any third party against Tenant or the Premises relating to any loss or injury resulting from Hazardous Materials. If the potential risk of any of the foregoing events is material, Tenant shall deliver immediate verbal notice to Landlord, in addition to written notice as set forth above. Tenant shall deliver to Landlord copies of all test results, reports and business or management plans required to be filed with any governmental agency pursuant to any Hazardous Materials Laws. 14.5 INDEMNITY. Tenant shall indemnify, protect, defend and hold Landlord (and its partners and their respective officers, directors, employees and agents) harmless from and against any and all liabilities, claims, suits, judgments, actions, investigations, proceedings, costs and expenses (including attorneys' fees and costs) arising out of or in connection with any breach of any provisions of this Article or directly or indirectly arising out of the use, generation, storage, release, disposal or transportation of Hazardous Materials by Tenant, or any assignee or subtenant of Tenant, or their respective agents, contractors, employees, licensees, or invitees, on, under or about the Premises during the Lease Term or any other period of Tenant's actual or constructive occupancy of the Premises, including, but not limited to, all foreseeable and unforeseeable consequential damages and the cost of any Remedial Work. Any defense of Tenant pursuant to this Section shall be by counsel acceptable to Landlord. Neither the consent by Landlord to the use, generation, storage, release disposal or transportation of Hazardous Materials nor the strict compliance with all Hazardous Materials Laws shall excuse Tenant from Tenant's indemnification obligations pursuant to this Article. The foregoing indemnity shall be in addition to and not a limitation of the indemnification provisions of Article 13 of this Lease. Tenant's obligations pursuant to this Article shall survive the termination or expiration of this Lease. 14.6 ENTRY AND INSPECTION; CURE. Landlord, and its agents, employees and contractors, shall have the right, but not the obligation, to enter the Premises at all reasonable times to inspect the Premises and Tenant's compliance with the terms and conditions of this Article, or to conduct investigations and tests. No prior notice to Tenant shall be required in the event of an emergency, or if Landlord has reasonable cause to believe that violations of this Article have occurred, or if Tenant consents at the time of entry. In all other cases, Landlord shall give at least 24 hours' prior notice to Tenant. Landlord shall have the right, but not the obligation, to remedy any violation by Tenant of the provisions of this Article pursuant to Section 22.3 of this Lease or to perform any Remedial Work. Tenant shall pay, upon demand, all costs incurred by Landlord in investigating any such violations or potential violations or performing Remedial Work, plus interest thereon at the rate specified in this Lease from the date of demand until the date paid by Tenant. 14.7 TERMINATION/EXPIRATION. Upon termination or expiration of this Lease, Tenant shall, at Tenant's cost, remove any equipment, improvements or storage facilities utilized in connection with any Hazardous Materials and shall clean up, detoxify, repair and otherwise restore the Premises to a condition free of Hazardous Materials, to the extent such condition is caused by Tenant or any assignee or subtenant of Tenant or their respective agents, contractors, employees, licensees or invitees. 14.8 EVENT OF DEFAULT. The release or discharge of any Hazardous Material or the violation of any Hazardous Materials Law by Tenant or any assignee or subtenant of Tenant shall be a material Event of Default by Tenant under this Lease. In addition to or in lieu of the remedies available under this Lease as a result of such Event of Default, Landlord shall have the right, without terminating this Lease, to require Tenant to suspend its operations and activities on the Premises until Landlord is satisfied that appropriate Remedial Work has been or is being adequately performed; Landlord's election of this remedy shall not constitute a waiver of Landlord's right thereafter to declare an Event of Default and pursue other remedies set forth in this Lease. 15. ALTERATIONS; LIENS. 15.1 ALTERATIONS BY TENANT. Tenant shall not make any alterations, additions or improvements ("Alterations") to the Premises without Landlord's prior written consent, except for nonstructural Alterations that cost $5,000 or less and are not visible from the exterior of the Premises. All Alterations installed by Tenant shall be new or completely reconditioned. Landlord shall have the right to approve the contractor, the method of payment of the contractor, and the plans and specifications for all proposed Alterations. Tenant shall obtain Landlord's consent to all proposed alterations requiring Landlord's consent prior to the commencement of any such Alterations. Tenant's request for consent shall be accompanied by information identifying the contractor and method of payment and two (2) copies of the proposed plans and specifications. All Alterations of whatever kind and nature shall become at once a part of the realty and shall be surrendered with the Premises upon expiration or earlier termination of the Lease Term, unless Landlord requires Tenant to remove the same as provided in Article 20. During the Lease Term, Tenant agrees to provide, at Tenant's expense, a policy of insurance covering loss or damage to Alterations made by Tenant, in an amount adequate to repair or replace the same, naming Landlord as an additional insured. Provided, however, Tenant may install movable furniture, trade fixtures, machinery or equipment in conformance with applicable governmental rules or ordinances and remove the same upon expiration or earlier termination of this Lease as provided in Article 20. 15.2 PERMITS AND GOVERNMENTAL REQUIREMENTS. Tenant shall obtain, at Tenant's sole cost and expense, all building permits and other permits of every kind and nature required by any governmental agency having jurisdiction in connection with the Alterations. Tenant shall indemnify, hold harmless and defend Landlord and Landlord's officers, directors, shareholders, partners, principals, employees and agents, and their respective successors and assigns, from and against any and all claims, actions, damages, liability, costs, and expenses, including attorneys' fees and costs, arising out of any failure by Tenant or Tenant's contractor or agents to obtain all required permits, regardless of when such failure is discovered. Tenant shall do any and all additional construction, alterations, improvements and retrofittings required to be made to the Premises and/or the Center, or any other property of Landlord as a result of, or as may be may be triggered by, Tenant's Alterations. Landlord shall have the right to do such construction itself; but in all instances Tenant shall pay all costs directly or indirectly related to such work and shall indemnify, defend and hold Landlord and Landlord's officers, directors, shareholders, partners, principals, employees and agents, and their respective successors and assigns, harmless from and against any and all claims, actions, damages, liability, costs, and expenses, including attorneys' fees and costs, arising out of any such additionally required work. All payment and indemnification obligations under this Section shall survive the expiration or earlier termination of the Lease Term. 15.3 LIENS. Tenant shall pay when due all claims for any work performed, materials furnished or obligations incurred by or for Tenant, and Tenant shall keep the Premises free from any liens arising with respect thereto. If Tenant fails to cause any such lien to be released within fifteen (15) days after imposition, by payment or posting of a proper bond, Landlord shall have the right (but not the obligation) to cause such release by such means as Landlord deems proper. Tenant shall reimburse Landlord upon demand for all costs incurred by Landlord in connection therewith (including attorneys' fees and costs), with interest at the rate specified in Section 22.4 from the date of payment by Landlord to the date of payment by Tenant. Tenant will notify Landlord in writing thirty (30) days prior to commencing any alterations, additions, improvements or repairs in order to allow Landlord timely to file a notice of non-responsibility. 16. DAMAGE AND DESTRUCTION. 16.1 PARTIAL INSURED DAMAGE. If the Premises or any building in which the Premises are located are partially damaged or destroyed during the Lease Term, Landlord shall make the necessary repairs, provided such repairs can reasonably be 7 completed within sixty (60) days after the date of the damage or destruction in accordance with applicable laws and regulations and provided that Landlord receives sufficient insurance proceeds to pay the cost of such repairs. In such event, this Lease shall continue in full force and effect. If such repairs cannot reasonably be completed within sixty (60) days after the date of the damage or destruction or if Landlord does not receive sufficient insurance proceeds, then Landlord may, at its option, elect within 45 days of the date of the damage or destruction to proceed with the necessary repairs, in which event this Lease shall continue in full force and effect and Landlord shall complete the same within a reasonable time. If Landlord does not so elect to make such repairs or if such repairs cannot be made under applicable laws and regulations, this Lease may be terminated at the option of either party within 90 days of the occurrence of such damage or destruction. 16.2 INSURANCE DEDUCTIBLE. If Landlord elects to repair any damage caused by an insured casualty as provided in Section 16.1, Tenant shall, within fifteen (15) days after receipt of written notice from Landlord, pay the amount of any deductible (or its share thereof) under any insurance policy covering such damage or destruction, in accordance with Section 9.4 above. 16.3 UNINSURED DAMAGE. In the event of any damage or destruction of the Premises or any building in which the Premises are located by an uninsured casualty, Landlord shall have the right to elect either to repair such damage or to terminate this Lease. Such election shall be exercised by written notice to Tenant within forty-five (45) days of such damage or destruction. 16.4 TOTAL DESTRUCTION. A total destruction (including any destruction required by any authorized public authority) of either the Premises or any building in which the Premises are located shall terminate this Lease. 16.5 PARTIAL DESTRUCTION OF CENTER. If fifty percent (50%) or more of the rentable area of the Center is damaged or destroyed by fire or other cause, notwithstanding that the Premises may be unaffected, Landlord shall have the right, to be exercised by notice in writing delivered to Tenant within ninety (90) days after said occurrence, to elect to terminate this Lease. 16.6 TENANT'S OBLIGATIONS. Landlord shall not be required to repair any injury or damage by fire or other cause, or to make any restoration or replacement of any Alterations, trade fixtures, equipment or personal property placed or installed in the Premises by or on behalf of Tenant. Unless this Lease is terminated pursuant to this Article, Tenant shall promptly repair, restore or replace the same in the event of damage. Nothing contained in this Article shall be construed as a limitation on Tenant's liability for any damage or destruction if such liability otherwise exists. 16.7 RENT ABATEMENT. If Landlord repairs the Premises or the building after damage or destruction as described in this Article, Minimum Monthly Rent payable by Tenant hereunder from the date of damage until the repairs are completed shall be equitably reduced, based upon the extent to which such repairs interfere with the business carried on by Tenant in the Premises, but only to the extent Landlord receives proceeds from rental income insurance paid for by Tenant. Landlord agrees to take reasonable steps to make a claim for and collect any rental income insurance proceeds that might be available. 16.8 WAIVER OF INCONSISTENT STATUTES. The parties' rights and obligations in the event of damage or destruction shall be governed by the provisions of this Lease; accordingly, Tenant waives the provisions of California Civil Code Sections 1932(2) and 1933(4), and any other statute, code or judicial decisions that grants a tenant a right to terminate a lease in the event of damage or destruction of a leased premises. 17. CONDEMNATION. See Addendum. 17.1 CONDEMNATION OF PREMISES. If any portion of the Premises is taken or condemned for a public or quasi-public use ("Condemnation"), and a portion remains that is susceptible of occupation, then this Lease shall terminate as to the portion so taken as of the date title vests in the condemnor, but shall remain in full force and effect as to the remaining Premises. Landlord shall, within a reasonable period of time, restore the remaining Premises as nearly as practicable to the condition existing prior to the condemnation; provided, however, if Landlord receives insufficient funds from the condemnor for such purpose, Landlord may elect to terminate this Lease. If this Lease continues in effect, the Minimum Monthly Rent shall be equitably adjusted, based upon the value of the Premises remaining after the Condemnation compared to the value of the Premises prior to Condemnation. Provided, however, in the event of any such partial condemnation, Landlord shall have the option to terminate this Lease entirely as of the date title vests in the condemnor. If all the Premises are condemned, or such portion so that there does not remain a portion that is susceptible of occupation, or if such a substantial portion of the Center is condemned that it is no longer economically appropriate to lease the Premises on the terms and conditions of this Lease, as reasonably determined by Landlord, then at the election of Landlord this Lease shall terminate as of the date title vests in the condemnor. 17.2 CONDEMNATION OF PARKING AREA. If all or any portion of the parking area in the Center is condemned such that the ratio of the total square footage of parking and other Common Facilities compared to the total rentable building square footage of the Center is reduced to a ratio below two to one, then at the election of Landlord this Lease shall terminate as of the date title vests in the condemnor. 17.3 CONDEMNATION AWARD. All compensation awarded upon any such partial or total Condemnation shall be paid to Landlord and Tenant shall have no claim thereto, and Tenant hereby irrevocably assigns and transfers to Landlord any right to compensation or damages by reason of any such Condemnation. Provided, however, that Tenant shall have the right to claim and recover from the condemning authority, but not from Landlord, such compensation as may be separately awarded or recoverable by Tenant in Tenant's own right on account of any damage to Tenant's business by reason of the Condemnation and on account of any cost that Tenant may incur in removing Tenant's merchandise, furniture, fixtures, leasehold improvements and equipment. If this Lease is terminated, in whole or in part, in accordance with this Article as a result of a Condemnation, Tenant shall have no claim for the value of any unexpired term of this Lease. 18. ASSIGNMENT AND SUBLETTING. 18.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or involuntarily assign, sublease, mortgage, encumber, or otherwise transfer all or any portion of the Premises or its interest in this Lease (collectively, "Transfer") without Landlord's prior written consent, which consent Landlord shall not unreasonably withhold. Landlord may withhold its consent until Tenant has complied with the provisions of Sections 18.2 and 18.3. Any attempted Transfer without Landlord's written consent shall be void and shall constitute a non-curable Event of Default under this Lease. If Tenant is a corporation, any cumulative Transfer of more than twenty percent (20%) of the voting stock of such corporation shall constitute a Transfer requiring Landlord's consent hereunder; provided, however that this sentence shall not apply to any corporation whose stock is publicly traded. If Tenant is a partnership, limited liability company, trust or other entity, any cumulative Transfer of more than twenty percent (20%) of the partnership, membership, beneficial or other ownership interests therein shall constitute a Transfer requiring Landlord's consent hereunder. Tenant shall not have the right to consummate a Transfer or to request Landlord's consent to any Transfer if any Event of Default has occurred and is continuing or if Tenant or any affiliate of Tenant is in default under any lease of any other real property owned or managed (in whole or in part) by Landlord or any affiliate of Landlord. 18.2 LANDLORD'S ELECTION. Tenant's request for consent to any Transfer shall be accompanied by a written statement setting forth the details of the proposed Transfer, including the name, business and financial condition of the prospective Transferee, financial details of the proposed Transfer (e.g., the term and the rent and security deposit payable), and any other related information that Landlord may reasonably require. Landlord shall have the right: (a) to withhold consent to the Transfer, if reasonable, (b) to grant consent, (c) to terminate this Lease as to the portion of the Premises affected by any proposed Transfer, in which event Landlord may enter into a lease directly with the proposed Transferee, or (d) to consent on the condition that Landlord be paid, as Additional Rent hereunder, 50% of all subrent or other consideration to be paid to Tenant under the terms of the Transfer in excess of the total rent due hereunder (including, if such Transfer is an assignment or if such Transfer is to occur directly or indirectly in connection with the sale of any assets of Tenant, 50% of the amount of the consideration attributable to the Transfer of the Lease, as reasonably determined by Landlord). The grounds on which Landlord may reasonably withhold its consent to any requested Transfer include, without limitation, that: (i) the proposed Transferee's contemplated use of the Premises following the proposed Transfer is not reasonably similar to the use of the Premises permitted hereunder, (ii) in Landlord's reasonable business judgment, the proposed Transferee lacks sufficient business reputation or experience to operate 8 a successful business of the type and quality permitted under this Lease, (iii) Landlord's reasonable business judgment, the proposed Transferee lacks sufficient net worth, working capital, anticipated cash flow and other indications of financial strength to meet all of its obligations under this Lease, (iv) the proposed Transfer would breach any covenant of Landlord respecting a radius restriction, location, use or exclusivity in any other lease, financing agreement, or other agreement relating to the Center, and (v) in Landlord's reasonable business judgment, the possibility of a release of Hazardous Materials is materially increased as a result of the Transfer or if Landlord does not receive sufficient assurances that the proposed Transferee has the experience and financial ability to remedy a violation of Hazardous Materials and to fulfill its obligations under Articles 13 and 14. Landlord need only respond to any request by Tenant hereunder within a reasonable time of not less that ten (10) business days after receipt of all information and other submission required in connection with such request. 18.3 TRANSFER FEE. Tenant shall pay all attorneys' fees and costs incurred by Landlord and a fee of $350 to reimburse Landlord for costs and expenses incurred in connection with any request by Tenant for Landlord's consent to a Transfer. Such fee shall be delivered to Landlord concurrently with Tenant's request for consent. 18.4 ASSUMPTION; NO RELEASE OF TENANT. Any permitted transferee shall assume in writing all obligations of Tenant under this Lease, utilizing a form of assumption agreement provided or approved by Landlord, and an executed copy of such assumption agreement shall be delivered to Landlord within fifteen (15) days after the effective date of the Transfer. The taking of possession of all or any part of the Premises by any such permitted assignee or subtenant shall constitute an agreement by such person or entity to assume without limitation or qualification all of the obligations of Tenant under this Lease, notwithstanding any failure by such person to execute the assumption agreement required in the immediately preceding sentence. No permitted Transfer shall release or change Tenant's primary liability to pay the rent and to perform all other obligations of Tenant under this Lease. Landlord's acceptance of rent from any other person is not a waiver of any provision of this Article or a consent to Transfer. Consent to one Transfer shall not constitute a consent to any subsequent Transfer. If any transferee defaults under this Lease, Landlord may proceed directly against Tenant without pursuing remedies against the transferee. Landlord may consent to subsequent Transfers or modifications of this Lease by Tenant's transferee, without notifying Tenant or obtaining its consent, and such action shall not relieve Tenant of its liability under this Lease. 18.5 NO MERGER. No merger shall result from any Transfer pursuant to this Article, any surrender by Tenant of its interest under this Lease, or any termination hereof in any other manner. In any such event, Landlord may either terminate any or all subleases or succeed to the interest of Tenant thereunder. 18.6 REASONABLE RESTRICTION. Tenant acknowledges that the restrictions on Transfer contained herein are reasonable restrictions for purposes of Section 22.2 of this Lease and California Civil Code Section 1951.4. 19. SUBORDINATION; ATTORNMENT; ESTOPPEL CERTIFICATE. 19.1 SUBORDINATION. This Lease is junior and subordinate to all ground leases, mortgages, deeds of trust, and other security instruments now or hereafter affecting the real property of which the Premises are a part, and to all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. If any mortgagee, beneficiary under deed of trust or ground lessor shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, and gives written notice thereof to Tenant, this Lease shall be deemed prior thereto. Tenant agrees to execute any documents required to effectuate such subordination or to make this Lease prior to the lien of any such mortgage, deed of trust or ground lease, as the case may be, and if Tenant fails to do so within fifteen (15) days after written demand, Tenant does hereby make, constitute and irrevocably appoint Landlord as Tenant's attorney-in-fact and in Tenant's name, place and stead, to do so. 19.2 ATTORNMENT. If Landlord sells, transfers, or conveys its interest in the Premises or this Lease, or if the same is foreclosed judicially or nonjudicially, or is otherwise acquired, by a mortgagee, beneficiary under deed of trust or ground lessor, upon the request and at the sole election of Landlord's lawful successor, Tenant shall attorn to said successor, provided said successor accepts the Premises subject to this Lease. Tenant shall, upon request of Landlord or any such mortgagee, beneficiary under deed of trust or ground lessor, execute an attornment agreement confirming the same, in form and substance acceptable to Landlord. Such agreement shall provide, among other things, that said successor shall not be bound by (a) any prepayment of more than one (1) month's rent (except any Security Deposit) or (b) any material amendment of this Lease made after the later of the initial effective date of this Lease, or the date that such successor's lien or interest first arose, unless said successor shall have consented to such amendment. 19.3 ESTOPPEL CERTIFICATES. Within fifteen (15) days after written request from Landlord, Tenant at Tenant's sole cost shall execute, acknowledge and deliver to Landlord a written statement certifying: (a) that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modifications and certifying that this Lease is in full force and effect as so modified), (b) the amount of any rent paid in advance, and (c) that, to Tenant's knowledge, there are no uncured defaults on the part of Landlord, or specifying the nature of such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser of or lender on the Premises. If Tenant fails to deliver such statement within said 15-day period, Tenant shall be liable for the immediate payment of all foreseeable and unforeseeable damages, penalties and attorneys' fees and costs incurred by Landlord as a result of such failure. Tenant's failure to deliver such statement within said 15-day period shall constitute a conclusive acknowledgment by Tenant: (i), that this Lease is in full force and effect without modification except as may be represented by Landlord, (ii) that not more than one month's rent has been paid in advance, and (iii) that there are no uncured defaults in Landlord's performance. 20. SURRENDER OF PREMISES. See Addendum. 20.1 CONDITION OF PREMISES. Upon the expiration or earlier termination of this Lease, Tenant shall surrender the Premises to Landlord, broom clean and in the same condition and state of repair as at the commencement of the Lease Term, except for ordinary wear and tear that Tenant is not otherwise obligated to remedy under the provisions of this Lease. Tenant shall deliver all keys to the Premises and the building of which the Premises are a part to Landlord. Upon Tenant's vacation of the Premises, Tenant shall remove all portable furniture, trade fixtures, machinery, equipment, signs and other items of personal property (unless prohibited from doing the same under Section 20.2), and shall remove any Alterations (whether or not made with Landlord's consent) that Landlord may require Tenant to remove. Tenant shall repair all damage to the Premises caused by such removal, and shall restore the Premises to its prior condition, all at Tenant's expense. Such repairs shall be performed in a manner satisfactory to Landlord and shall include, but are not limited to, the following: capping all plumbing, capping all electrical wiring, repairing all holes in walls, restoring damaged floor and/or ceiling tiles, and thorough cleaning of the Premises. If Tenant fails to remove any items that Tenant has an obligation to remove under this Section when required by Landlord or otherwise, such items shall, at Landlord's option, become the property of Landlord and Landlord shall have the right to remove and retain or dispose of the same in any manner, without any obligation to account to Tenant for the proceeds thereof. Tenant waives all claims against Landlord for any damages to Tenant resulting from Landlord's retention or disposition of such Alterations or personal property. Tenant shall be liable to Landlord for Landlord's costs of removing, storing and disposing of such items. 20.2 REMOVAL OF CERTAIN ALTERATIONS, FIXTURES AND EQUIPMENT PROHIBITED. All Alterations, fixtures (whether or not trade fixtures), machinery, equipment, signs and other items of personal property that Landlord has not required Tenant to remove under Section 20.1 shall become Landlord's property and shall be surrendered to Landlord with the Premises, regardless of who paid for the same. In particular and without limiting the foregoing, Tenant shall not remove any of the following materials or equipment without Landlord's prior written consent, regardless of who paid for the same and regardless of whether the same are permanently attached to the Premises: any power wiring and power panels; any piping for industrial gasses or liquids; any laboratory benches, sinks, cabinets and casework; fume hoods or specialized air-handling and evacuation systems; any drains or other equipment for he handling of waste water or hazardous materials; computer, telephone, telecommunications wiring, panels and equipment; lighting and lighting fixtures; wall coverings; drapes, blinds and other window coverings; carpets and other 9 floor covering; heaters; air conditions and other heating or air conditioning equipment; fencing; security gates and systems; and other building operating equipment and decorations. 20.3 HOLDING OVER. Tenant shall vacate the Premises upon the expiration or earlier termination of this Lease, and Tenant shall indemnify Landlord against all liabilities, damages and expenses incurred by Landlord as a result of any delay by Tenant in vacating the Premises. If Tenant remains in possession of the Premises or any part thereof after the expiration of the Lease Term with Landlord's written permission, Tenant's occupancy shall be a tenancy from month-to-month only, and not a renewal or extension hereof. All provisions of this Lease (other than those relating to the term) shall apply to such month-to-month tenancy, except that the Minimum Monthly Rent shall be increased to 150% of the Minimum Monthly Rent in effect during the last month of the Lease Term. No acceptance of rent, negotiation of rent checks or other act or omission of Landlord or its agents shall extend the Expiration Date of this Lease other than a writing executed by Landlord giving Tenant permission to remain in occupancy beyond the Expiration Date under the terms of the immediately preceding sentence. 21. DEFAULT BY TENANT. The occurrence of any of the following shall constitute an "Event of Default" under this Lease by Tenant: (a) Failure to pay when due the rent or any other monetary sums required hereunder. (b) Failure to perform any other agreement or obligation of Tenant hereunder, if such failure continues for fifteen (15) days after written notice by Landlord to Tenant, except as to those Events of Default that are non-curable, in which case no such grace period shall apply. Landlord's notice described herein is intended to satisfy, and is not in addition to, any and all legal notices required prior to commencement of an unlawful detainer action, including without limitation the notice requirements of California Code of Civil Procedure Sections 1161 et seq. (c) Abandonment or vacation of the Premises by Tenant, or failure to occupy the Premises for a period of ten (10) consecutive days. (d) If any of the following occurs: (i) A petition is filed for an order of relief under the federal Bankruptcy Code or for an order or decree of insolvency or reorganization or rearrangement under any state or federal law, and such petition is not dismissed within thirty (30) days after the filing thereof; (ii) Tenant makes a general assignment for the benefit of creditors; (iii) a receiver or trustee is appointed to take possession of any substantial part of Tenant's assets, unless such appointment vacated within thirty (30) days after the date thereof; (d) Tenant consents to or suffers an attachment, execution or other judicial seizure of any substantial part of its assets or its interest under this Lease, unless such process is released or satisfied within thirty (30) days after the occurrence thereof; or (e) Tenant's net worth, determined in accordance with generally accepted accounting principles consistently applied, decreases, at any time during the Lease Term, below Tenant's net worth as of the date of execution of this Lease. If a court of competent jurisdiction determines that any of the foregoing events is not a default under this Lease, and a trustee is appointed to take possession (or if Tenant remains a debtor in possession), and such trustee or Tenant transfers Tenant's interest hereunder, then Landlord shall receive, as Additional Rent, the difference between the rent (or other consideration) paid in connection with such transfer and the rent payable by Tenant hereunder. Any assignee pursuant to the provisions of any bankruptcy law shall be deemed without further act to have assumed all of the obligations of the Tenant hereunder arising on or after the date of such assignment. Any such assignee shall upon demand execute and deliver to Landlord an instrument confirming such assumption. (d) The occurrence of any other event that is deemed to be an Event of Default under any other provision of this Lease. 22. REMEDIES. Upon the occurrence of any Event of Default by Tenant, Landlord shall have the following remedies, each of which shall be cumulative and in addition to any other remedies now or hereafter available at law or in equity. 22.1 TERMINATION OF LEASE. Landlord can terminate this Lease and Tenant's right to possession of the Premises by giving written notice of termination, and then re-enter the Premises and take possession thereof. No act by Landlord other than giving written notice to Tenant of such termination shall terminate this Lease. Upon termination, Landlord has the right to recover all damages incurred by Landlord as a result of Tenant's default, including: (a) The worth at the time of award of any unpaid rent that had been earned at the time of such termination; plus (b) The worth at the time of award of the amount by which the unpaid rent that would have been earned after the date of termination until the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; plus (c) The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus (d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's default, including, but not limited to expenses for cleaning, repairing or restoring the Premises, (ii) expenses for altering, remodeling or otherwise improving the Premises for the purpose of reletting, (iii) brokers' fees and commissions, advertising costs and other expenses of reletting the Premises, (iv) costs of carrying the Premises such as taxes, insurance premiums, utilities and security precautions, (v) expenses in retaking possession of the Premises, (vi) attorneys' fees and costs, (vii) any unearned brokerage commissions paid in connection with this Lease and (viii) reimbursement of any previously waived or abated Minimum Monthly Rent and/or Additional Rent; plus (e) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time under applicable California law. As used in paragraphs (a) and (b) above, the "worth at the time of award" shall be computed by allowing interest at the maximum permissible legal rate. As used in paragraph (c) above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). 22.2 CONTINUATION OF LEASE. Landlord has the remedy described in California Civil Code Section 1951.4 (Landlord may continue the Lease in effect after Tenant's breach and abandonment and recover rent as it becomes due, if Tenant has the right to sublet or assign, subject only to reasonable limitations), as follows: (a) Landlord can continue this Lease in full force and effect without terminating Tenant's right of possession, and Landlord shall have the right to collect rent and other monetary charges when due and to enforce all other obligations of Tenant hereunder. Landlord shall have the right to enter the Property to do acts of maintenance and preservation of the Property, to make alterations and repairs in order to re-let the Property, and/or to undertake other efforts to re-let the Property. Landlord may also remove personal property from the Property and store the same in a public warehouse at Tenant's expense and risk. No act by Landlord permitted under this paragraph shall terminate this Lease unless a written notice of termination is given by Landlord to Tenant or unless the termination is decreed by a court of competent jurisdiction. (b) In furtherance of the remedy set forth in this Section, Landlord may re-let the Property or any part thereof for Tenant's account, for such term (which may extend beyond the Lease Term), at such rent, and on such other terms and conditions as Landlord may deem advisable in its sole discretion. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Property. Any rents received by Landlord from such reletting shall be applied to the payment of: (i) any indebtedness other than rent due hereunder from Tenant to Landlord, (ii) the costs of such reletting, including brokerage and attorneys' fees and costs, and the cost of any alterations and repairs to the Property, and (iii) the payment of rent due and unpaid hereunder, including any previously waived or abated rent. Any remainder shall be held by Landlord and applied in payment of future amounts as the same become due and payable hereunder. In no event shall Tenant be entitled to any excess rent received by Landlord after an Event of Default by Tenant and the exercise of Landlord's remedies hereunder. If the rent from such reletting during any month is less than the rent payable hereunder, Tenant shall pay such deficiency to Landlord immediately upon demand. 10 (c) Landlord shall not, by any reentry or other act, be deemed to have accepted any surrender by Tenant of the Property or Tenant's interest therein, or be deemed to have terminated this Lease or Tenant's right to possession of the Property or the liability of Tenant to pay rent thereafter to accrue or Tenant's liability for damages under any of the provisions hereof, unless Landlord shall have given Tenant notice in writing that it has so elected to terminate this Lease. (d) Tenant acknowledges and agrees that the restrictions on the Transfer of the Lease set forth in Article 18 of this Lease constitute reasonable restrictions on such transfer for purposes of this Section and California Civil Code Section 1951.4. 22.3 PERFORMANCE BY LANDLORD. If Tenant fails to pay any sum of money or perform any other act to be performed by Tenant hereunder and such failure continues for fifteen (15) days after notice by Landlord, Landlord shall have the right (but not the obligation) to make such payment or perform such other act without waiving or releasing Tenant from its obligations. All sums so paid by Landlord and all necessary incidental costs, together with interest thereon at the rate specified in Section 22.4, shall be payable to Landlord on demand. Landlord shall have the same rights and remedies in the event of non-payment by Tenant as in the case of default by Tenant in the payment of the rent. 22.4 LATE CHARGE; INTEREST ON OVERDUE PAYMENTS. The parties acknowledge that late payment by Tenant of Minimum Monthly Rent or any Additional Rent will cause Landlord to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult and impractical to determine, including, but not limited to, processing and accounting charges, administrative expenses, and additional interest expenses or late charges that Landlord may be required to pay as a result of late payment on Landlord's obligations. Therefore, if any installment of Minimum Monthly Rent or Additional Rent is not received by Landlord within ten (10) days after Landlord has given Tenant notice of such late payment, and without regard to whether Landlord exercises any of its remedies upon an Event of Default, Tenant shall pay a late charge equal to the greater of six percent (6%) of the overdue amount or $100, as Additional Rent hereunder. The parties hereby agree that such late charge represents a fair and reasonable estimate of the damages Landlord will incur by reason of late payment by Tenant. In addition, any amount due from Tenant that is not paid when due shall bear interest at a rate equal to 2% over the then current Bank of America prime or reference rate, but a not to exceed the maximum permissible legal rate, from the date such payment is due until the date paid by Tenant. Landlord's acceptance of any interest or late charge shall not constitute a waiver of Tenant's default or prevent Landlord from exercising any other rights or remedies available to Landlord. 22.5 LANDLORD'S RIGHT TO REQUIRE ADVANCE PAYMENT OF RENT; CASHIER'S CHECKS. SEE ADDENDUM. If Tenant is late in paying any component of rent more than three (3) times during the Lease Term, Landlord shall have the right, upon notice to Tenant, to require that all rent be paid three (3) months in advance. Additionally, if any of Tenant's checks are returned for non-sufficient funds, or if Landlord at any time serves upon Tenant a Three Day Notice to Pay Rent or Quit (pursuant to California Civil Code Sections 1161 ET SEQ. or any successor or similar unlawful detainer statutes), Landlord may, at its option, require that all future rent (including any sums demanded in any subsequent three (3) day notice) be paid exclusively by money order or cashier's check. 23. DEFAULT BY LANDLORD. 23.1 NOTICE TO LANDLORD. Landlord shall not be in default under this Lease unless Landlord fails to perform an obligation required of Landlord within a reasonable time, but in no event later than thirty (30) days after written notice by Tenant to Landlord and to each Mortgagee as provided in Section 23.2, specifying the nature of the alleged default; provided, however, that if the nature of the obligation is such that more then thirty (30) business days are required for performance, then Landlord shall not be in default if Landlord commences performance within such 30-day period and thereafter diligently prosecutes the same to completion. 23.2 NOTICE TO MORTGAGEES. Tenant agrees to give each mortgagee or trust deed holder on the Premises or the Center ("Mortgagee"), by registered mail, a copy of any notice of default served upon Landlord, provided that Tenant has been previously notified in writing of the address of such Mortgagee. Tenant further agrees that if Landlord fails to cure such default within the time provided for in this Lease, then the Mortgagees shall have an additional thirty (30) days within which to cure such default, or if such default cannot reasonably be cured within that time, then such additional time as may be necessary if, within said 30-day period, any Mortgagee has commenced and is diligently pursuing the remedies necessary to cure the default (including but not limited to commencement of foreclosure proceedings if necessary to affect such cure), in which event this Lease shall not be terminated while such remedies are being so diligently pursued. 23.3 LIMITATIONS ON REMEDIES AGAINST LANDLORD. In the event Tenant has any claim or cause of action against Landlord: (a) Tenant's sole and exclusive remedy shall be against Landlord's interest in the building of which the Premises are a part, and neither Landlord nor any partner of Landlord nor any other property of Landlord shall be liable for any deficiency, (b) no partner of Landlord shall be sued or named as a party in any suit or action (except as may be necessary to secure jurisdiction over Landlord), (c) no service of process shall be made against any partner of Landlord (except as may be necessary to secure jurisdiction over the partnership), and no such partner shall be required to answer or otherwise plead to any service of process, (d) no judgment shall be taken against any partner of Landlord and any judgment taken against any partner of Landlord may be vacated and set aside at any time, and (e) no writ of execution will ever be levied against the assets of any partner of Landlord. The covenants and agreements set forth in this Section shall be enforceable by Landlord and/or by any partner of Landlord. If Landlord fails to give any consent that a court later holds Landlord was required to give under the terms of this Lease, Tenant shall be entitled solely to specific performance and such other remedies as may be specifically reserved to Tenant under this Lease, but in no event shall Landlord be responsible for monetary damages (including incidental and consequential damages) for such failure to give consent. 24. GENERAL PROVISIONS. 24.3 ATTORNEYS' FEES. If either party brings any legal action or proceeding, declaratory or otherwise, arising out of this Lease, including any suit by Landlord to recover rent or possession of the Premises or to otherwise enforce this Lease, the losing party shall pay the prevailing party's costs and attorneys' fees and costs incurred in such proceeding. If Landlord issues notice(s) to pay rent, notice(s) to perform covenant, notice(s) of abandonment or comparable documents as a result of Tenant's default under this Lease, and if Tenant cures such default, Tenant shall pay to Landlord the reasonable costs incurred by Landlord, including Landlord's attorneys' fees and costs, of preparation and delivery of same. 11 24.4 AUTHORITY OF TENANT. Tenant represents and warrants that it has full power and authority to execute and fully perform its obligations under this Lease pursuant to its governing instruments, without the need for any further action, and that the person(s) executing this Agreement on behalf of Tenant are the duly designated agents of Tenant and are authorized to do so. Prior to execution of this Lease, Tenant shall supply Landlord with such evidence as Landlord may request regarding the authority of Tenant to enter into this Lease. Any actual or constructive taking of possession of the Premises by Tenant shall constitute a ratification of this Lease by Tenant. 24.5 BINDING EFFECT. Subject to the provisions of Article 18 restricting transfers by Tenant and subject to Section 24.27 regarding transfer of Landlord's interest, all of the provisions of this Lease shall bind and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. 24.6 BROKERS. Tenant warrants that it has had no dealings with any real estate brokers or agents in connection with the negotiation of this transaction except only the broker whose name is set forth in the Basic Lease Provisions, and it knows of no other real estate broker or agents who is entitled to a commission in connection with this transaction. Tenant agrees to indemnify, hold harmless and defend the Landlord from and against any obligation or liability to pay any commission or compensation to any other party arising from the act or agreement of Tenant. 24.7 CONSTRUCTION. The headings and captions used in this Lease are for convenience only and are not a part of the terms and provisions of this Lease. In any provision relating to the conduct, acts or omissions of Tenant, the term "Tenant" shall include Tenant, its subtenants and assigns and their respective agents, employees, contractors, and invitees, and any others using the Premises with Tenant's express or implied permission. Any use in this Lease, or in any addendum, amendment or other document related hereto, of the terms "lessor" or "lessee" to refer to a party to this Lease shall be deemed to be references to Landlord and Tenant, respectively. 24.8 COUNTERPARTS. This Lease may be executed in multiple copies, each of which shall be deemed an original, but all of which shall constitute one Lease binding on all parties after all parties have signed such a counterpart. 24.9 COVENANTS AND CONDITIONS. Each provision to be performed by Tenant shall be deemed to be both a covenant and a condition. 24.10 ENTIRE AGREEMENT. This Lease, together with, constitutes the entire agreement between the parties with respect to the subject matter hereof. There are no oral or written agreements or representations between the parties hereto affecting this Lease, and this Lease supersedes, cancels, merges any and all previous verbal or written negotiations, arrangements, representations, brochures, displays, models, photographs, renderings, floor plans, elevations, projections, estimates, agreements and understandings if any, made by or between Landlord and Tenant and their agents, with respect to the subject matter, and none thereof shall be used to interpret, construe, supplement or contradict this Lease. This Lease and all amendments thereto is and shall be considered to be the only agreement between the parties hereto and their representatives and agents. There are no other representations or warranties between the parties, and all reliance with respect to representations is solely based upon the representations and agreements contained in this Lease. 24.11 EXHIBITS. All exhibits, addenda and riders attached or referred to herein are hereby incorporated herein by reference. 24.12 FINANCIAL STATEMENTS. Within ten (10) days after written request from Landlord, Tenant shall deliver to Landlord such financial statements as are reasonably requested by Landlord to verify the net worth of Tenant, or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall deliver to any proposed or actual lender or purchaser of the Premises designated by Landlord any financial statements required by such party to facilitate the sale, financing or refinancing of the Premises, including the past three years' financial statements. Tenant represents and warrants to Landlord that: (a) each such financial statement is a true and accurate statement as of the date of such statement; and (b) at all times during the Lease Term or any extension thereof, Tenant's net worth shall not be reduced below Tenant's net worth as of the date of execution of this Lease. All such financial statement shall be received in confidence and shall be used only for the purposes set forth herein. Tenant hereby irrevocably authorizes Landlord to do credit checks or other investigations into Tenant's financial affairs. 24.13 FORCE MAJEURE. It Landlord is delayed in performing any of its obligations hereunder due to strikes, labor problems, inability to procure utilities, materials, equipment or transportation, governmental regulations, weather conditions, riots, insurrection, war or other events beyond Landlord's control, then the time for performance of such obligation shall be extended to the extent reasonably necessary as a result of such event. 24.14 GOVERNING LAW. This Lease shall be governed, construed and enforced in accordance with the laws of the State of California. 24.15 JOINT AND SEVERAL LIABILITY. If more than one person or entity executes this Lease as Tenant, each of them is jointly and severally liable for all of the obligations of Tenant hereunder. 24.16 MODIFICATION. The provisions of this Lease may not be modified or amended, except by a written instrument signed by both parties. 24.17 MODIFICATION FOR LENDER. If, in connection with obtaining financing or refinancing for the Premises or the Center, Landlord's lender requests reasonable modifications to this Lease, Tenant will not unreasonably withhold or delay its consent thereto, provided that such modifications do not increase the obligations of Tenant hereunder or materially and adversely affect Tenant's rights hereunder. 24.18 NONDISCRIMINATION. Tenant for itself and its officers, directors, shareholders, partners, principals, employees, agents, representatives, and other related entities and individuals, agrees to comply fully with any and all laws and other requirements prohibiting discrimination against any person or group of persons on account of race, color, religion, creed, sex, marital status, sexual orientation, national origin, ancestry, age, physical handicap or medical condition, in the use occupancy or patronage of the Premises and/or of Tenant's business, Tenant shall indemnify and hold Landlord and its affiliates harmless from and against all damage and liability incurred by Landlord in the event of any violation of the foregoing covenant or because of any event of or practice of discrimination against any such persons or group of persons by Tenant or its officers, directors, shareholders, partners, principals, employees, agents, representatives, and other related entities and individuals in accordance with the indemnification provisions of Article 13. 24.19 NOTICE. Any and all notices to either party shall be personally delivered or sent by regular mail, postage prepaid, addressed to the party to be notified at the address specified in Section 1.1, or at such other address as such party may from time to time designate in writing. Notice shall be deemed delivered on the date of personal delivery or three (3) business days after deposit in the U.S. Mail, certified, return receipt requested. 24.20 PARTIAL INVALIDITY. If any provision of this Lease is determined by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Lease shall not be affected thereby. Each provision shall be valid and enforceable to the fullest extent permitted by law. 24.21 QUIET ENJOYMENT. Landlord agrees that Tenant, upon paying the rent and performing the terms, covenants and conditions of this Lease, may quietly have, hold and enjoy the Premises from and after Landlord's delivery of the Premises to Tenant and until the end of the Lease Term, subject, however, to the lien and provisions of any mortgage or deed of trust to which this Lease is or shall become subordinate. 24.22 RECORDING. Tenant shall not record this Lease or any memorandum hereof without Landlord's prior written consent. 12 24.23 RELATIONSHIP OF THE PARTIES. Nothing contained in this Lease shall be deemed or construed as creating a partnership, joint venture, principal-agent, or employer-employee relationship between Landlord and any other person or entity (including, without limitation, Tenant) or as causing Landlord to be responsible in any way for the debts or obligations of such other person or entity. 24.25 RIGHTS OF REDEMPTION WAIVED. Tenant hereby expressly waives any and all rights of redemption under any present or future laws in the event Tenant is evicted or dispossessed for any cause, or in the event Landlord obtains possession of the Premises by reason of Tenant's violation of any of the covenants and conditions of this Lease or otherwise. 24.26 TIME OF ESSENCE. Time is of the essence of each and every provision of this Lease. 24.27 TRANSFER OF LANDLORD'S INTEREST. In the event of a sale, assignment, exchange or other disposition of Landlord's interest in the Premises, other than a transfer for security purposes only, Landlord shall be relieved of all obligations and liabilities accruing hereunder after the effective date of said sale, assignment, exchange or other disposition, provided that any Security Deposit or other funds then held by Landlord in which Tenant has an interest are delivered to Landlord's successor. The obligations to be performed by Landlord hereunder shall be binding on Landlord's successors and assigns only during their respective periods of ownership. 24.28 WAIVER. No provision of this Lease or the breach thereof shall be deemed waived, except by written consent of the party against whom the waiver is claimed. A waiver of any such breach shall not be deemed a waiver of any preceding or succeeding breach of the same or any other provision. No delay or omission by Landlord in exercising any of its remedies shall impair or be construed as a waiver thereof, unless such waiver is expressly set forth in a writing signed by Landlord. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rent. THE SUBMISSION OF THIS LEASE FOR EXAMINATION AND/OR SIGNATURE BY TENANT IS NOT A COMMITMENT BY LANDLORD OR ITS AGENTS TO RESERVE THE PREMISES OR TO LEASE THE PREMISES TO TENANT. THIS LEASE SHALL BECOME EFFECTIVE AND LEGALLY BINDING UPON ONLY UPON FULL EXECUTION AND DELIVERY BY BOTH LANDLORD AND TENANT. UNTIL LANDLORD DELIVERS A FULLY EXECUTED COUNTERPART HEREOF TO TENANT, LANDLORD HAS THE RIGHT TO OFFER AND TO LEASE THE PREMISES TO ANY OTHER PERSON TO THE EXCLUSION OF TENANT. EXECUTED, by Landlord and Tenant as of the date first written above. TENANT: LANDLORD: SCRIPPS BANK, a State-Chartered bank KEARNY VILLA CENTER EAST, a California limited partnership By: /s/ [ILLEGIBLE] -------------------------- By: PROPERTIES INVESTMENT COMPANY, a California limited partnership, General Partner Title: SVP/CFO ------------------------ By: COLLINS DEVELOPMENT COMPANY a California By: /s/ Patricia MacLean Corporation, General Partner --------------------------- By /s/ [ILLEGIBLE] Title: VP/ Data Processing --------------------------------- ------------------------ Title: Tenant's EIN: 95-3875333 ----------------------------- ----------------- By: /s/ Robert C Petz -------------------------------- Title: ----------------------------- 13 ADDENDUM TO STANDARD INDUSTRIAL GROSS LEASE This ADDENDUM TO STANDARD INDUSTRIAL GROSS LEASE is attached to and made a part of that certain Standard Industrial Gross Lease dated April 25, 1995 (the "Lease") by between KEARNY VILLA CENTER EAST, a California limited partnership ("Landlord"), and SCRIPPS BANK, a State-Chartered bank ("Tenant"), for premises located at 9265 Chesapeake Drive, Suites B, C, and D, San Diego, California 92123 (the "Premises"). The following provisions are hereby attached to and made a part of the Lease: 25. RENTAL CONCESSIONS. (a) ABATED RENT. The entire Minimum Monthly Rent for the second (2nd), fourth (4th), sixth (6th) and eighth (8th) full calendar months for which the Minimum Monthly Rent is due shall be abated in the entirety, provided Tenant is not in default under any of the terms of this Lease. During such rental concession periods (i.e., the months during which the Minimum Month Rent is abated), Tenant shall pay its full share of Tenant's charges (other than Minimum Monthly Rent) in accordance with this Lease. (b) CONDITIONAL ABATEMENT. The abated rental described in subsection (a) above is referred to herein as the "rent concession." The rent concession is granted to Tenant on the condition that Tenant complete the term of this Lease, and perform all of its obligations throughout the entire term of this Lease, including timely payment of all rent and other charges due hereunder. The full amount of the rent concession (or so much thereof as Tenant may have received the benefit at the time) shall become immediately due and payable upon the occurrence of any Event of Default on the part of Tenant, or upon the occurrence of any event or condition that, with the passage of time or the giving of notice or both, would constitute an Event of Default on the part of Tenant. Upon the occurrence of any Event of Default on the part of Tenant, this Lease shall be enforced, and Landlord shall be entitled to all of its remedies under Article 22, as if the rent concession had not been granted. In addition to all other remedies of Landlord, Landlord shall have the right to include the full amount of the rent concession (or so much thereof as Tenant may have received the benefit at that time) in its demand in any Three-Day Notice to Pay Rent or Quit that Landlord may give Tenant hereunder. 26. OPTION TO EXTEND TERM. Provided that Tenant is not in default under the terms of this Lease, and provided further that no condition exists that, with the giving of notice or the passage of time or both would constitute a default under this Lease, Tenant shall have the option (the "Option") to extend the term of this Lease for two (2) additional period of five (5) years each upon all of the terms and conditions of this Lease, other than the Minimum Monthly Rent, which shall be determined as described below. The Option must be exercised, if at all, by Tenant giving Landlord written notice of the exercise thereof no more than eight (8) months and no less than six (6) months prior to the expiration of the Lease Term, as the same may have been 1 extended. Any failure of Tenant to give due notice of its exercise of the Option within such time shall constitute an irrevocable election on the part of Tenant not to exercise the Option. The Minimum Monthly Rent during the Option Term shall be the then "Fair Market Rental Value" of the Premises, as defined below; provided, however, that in no event shall the Minimum Monthly Rent for any portion of the Option Term be less than the Minimum Monthly Rent in effect for the last month of the Term immediately preceding the commencement of the Option Term, regardless of any determination of a Fair Market Rental Value pursuant to the other provisions of this Section that would result in a lower Minimum Monthly Rent. Upon exercise of the Option, Landlord and Tenant shall, in good faith, attempt to reach a mutually acceptable Fair Market Rental Value of the Premises and consequent Minimum Monthly Rent for the Option Term. If Landlord and Tenant cannot agree upon the Fair Market Rental Value within thirty (30) days of Tenant's exercise of the Option, then, within five (5) days thereafter, Landlord and Tenant shall each select and notify the other of the name of an "Evaluator," who, for purposes of this Lease, shall be a professional real estate appraiser having more than ten years' experience in the appraisal of fair market leasing rates for premises comparable to the Premises. Both such Evaluators shall, within twenty (20) days of their respective appointments, make an evaluation of the Fair Market Rental Value, and shall thereafter meet and attempt within the next ten (10) days to agree on a Fair Market Rental Value. If the two Evaluators cannot agree upon the Fair Market Rental Value within such ten (10) day period, then, within five (5) days thereafter, the two Evaluators shall promptly proceed to select a third Evaluator, who shall have the aforesaid qualifications of an Evaluator, and the first two Evaluators shall each submit to such third Evaluator their respective determinations of the Fair Market Rental Value of the Premises. Such third Evaluator shall choose which of the two Fair Market Rental Values submitted is the closest to such third Evaluator's own judgment as to the Fair Market Rental Value, and shall deliver to both Landlord and Tenant a copy of such determination within twenty (20) days after his or her appointment as the third Evaluator. The parties agree that the mutual determination of the first two Evaluators, or the determination of the third Evaluator, as the case may be, shall be considered the Fair Market Rental Value of the Premises and shall be conclusive and binding upon Landlord and Tenant. If the original two Evaluators shall fail to agree upon the selection of a third Evaluator, the same shall be designated by the president of the San Diego Board of Realtors, or any successor organization thereto. Landlord and Tenant shall each pay any fees of their own Evaluator and shall share equally the fees of the third Evaluator, if any. As used herein, the term "Fair Market Rental Value" shall mean the then-prevailing rental for space comparable to the Premises in the Kearny Mesa area of the City of San Diego, that a willing, comparable Tenant would pay to a willing Landlord, neither of whom is compelled to rent, at arms length during a 2 term as the case may be on all of the terms and conditions of this Lease (other than the minimum Monthly Rent, which is to be determined pursuant to this Section). The determination of Fair Market Rental Value shall also include any appropriate adjustments over the term of the Option Term in the Minimum Monthly Rent based on the cost of living or otherwise, including any minimums and maximums in the adjustment thereof. 27. RIGHT OF FIRST REFUSAL ON ADDITIONAL SPACE. Provided that no uncured Event of Default on the part of Tenant then exists under the terms of this Lease, and provided that no condition exists that with the giving of notice or the passage of time or both would constitute a default under this Lease, Landlord agrees that if during the term of this Lease Landlord enters into a bona fide letter of intent (binding or non-binding) or similar agreement to lease any unleased portion of Suite A of the Building, immediately adjacent to the Premises (the "Additional Space"), Landlord will offer to lease the Additional Space to Tenant on the same terms and conditions as set forth in such letter of intent. Landlord's notice of such offer shall contain a copy of the relevant letter of intent (provided that Landlord may omit the identities of the parties thereto). Tenant shall have ten (10) days after receipt of such offer to accept or reject the same. Tenant's failure to accept the same in writing unconditionally and without change within such 10-day period shall constitute a rejection of such offer. If Landlord's offer is rejected or deemed rejected, then Landlord shall be free to let the Additional Space to any person (whether or not a party to the letter of intent that triggered Landlord's offer to Tenant) on terms and conditions determined by Landlord (which may be more or less advantageous than those offered to Tenant). If Landlord does not enter into a letter of intent from a potential tenant that leads to the consummation of a lease for the Additional Space within four (4) months of the date Tenant rejects or is deemed to have rejected Landlord's offer, then Landlord shall not let the Additional Space without re-offering the same to Tenant pursuant to the terms of this Section. 28. NO VIOLATIONS OF LAW. Landlord represents and warrants that it has not received any written notice from any governmental board or body that the Premises are in violation of any law, rule or regulation applicable to the Premises. 29. DEMISING WALL. Prior to Landlord delivering possession of the Premises, Landlord shall install a standard demising wall in the Building between Suite "A" of the Building and the Premises. The side of such wall facing on the Premises shall be unfinished except for drywall mud and tape, ready for Tenant's application of paint or other wall covering. 30. TENANT IMPROVEMENTS. Tenant shall have the right to make improvements to the Premises. Landlord shall allow Tenant early occupancy of the Premises (see Section 3.3) for the purpose of such improvements after regaining possession of the Premises and completing the demising wall described in the preceding Section. All of Tenant's improvements and other Alterations shall be subject to and made in accordance with Article 15 of this Lease. However, the entry into the Premises 3 by Tenant, or Tenant's employees or contractors for the purpose of completing the installation of Tenant Improvements, equipment and fixtures shall not be defined as early occupancy requiring payment of Minimum Monthly Rent under Section 3.3; however all of the other terms and provision of this Lease shall apply during such early occupancy period and, upon such entry into the Premises, Tenant shall be responsible for the payment of all utilities serving the Premises. 31. EXCLUSIVE PARKING SPACES. Tenant shall have the right to designate the thirteen (13) parking spaces cross-hatched on the attached Exhibit "D" as its exclusive parking spaces ("Tenant's Exclusive Spaces"). Tenant shall have the right to mark or otherwise designate Tenant's Exclusive Spaces as exclusively for Tenant's use, to block off the parking lot between the parking berms that enclose the seven (7) Tenant's Exclusive Spaces directly to the south of suites D and C, and to enforce such exclusivity by giving warning notices and by towing vehicles improperly parked in Tenant's Exclusive Spaces. Landlord shall have no obligation whatsoever with respect to such enforcement, and all such enforcement shall be undertaken in full compliance with all applicable laws and regulations and at Tenant's sole cost, expense and liability. Tenant shall also have the right to use fourteen (14) additional spaces on an unassigned basis in accordance with Section 11.6 of this Lease. 32. SPECIAL DELETIONS FOR SCRIPPS BANK. The last sentence of Section 7.1 and all of Section 22.5 shall not apply during any time that all of the following apply: (i) Scripps Bank is the Tenant under this Lease, (ii) Scripps Bank has not assigned its interest in this Lease, and (iii) Scripps Bank has not sublet more than fifty percent (50%) of the floor area of the Premises. 33. LANDLORD'S REPAIR AND MAINTENANCE; SUBSTANTIAL INTERFERENCE WITH TENANT'S ACTIVITIES; ABATEMENT OF RENT. The following sentence is hereby added to Section 7.2: "In the event Landlord undertakes repair and maintenance activities pursuant to this Section 7.2 that substantially interfere with the operation of Tenant's business and activities in the entire Premises, minimum Monthly Rent and Additional Rent shall be abated on a per them basis during the period necessary to complete Landlord's repair and maintenance activities." 34. INDEMNIFICATION. The following sentence is hereby added to Section 13: "Provided, further, however, that the indemnifications and waivers of Tenant set forth in this Section 13 shall not apply to the duties, obligations or liabilities imposed on Landlord or Landlord's Related Entities by statute, ordinance, regulation or other law." 35. HAZARDOUS MATERIALS. The obligations of Tenant with respect to indemnification, payment of damages, and undertaking of Remedial Work under Sections 14.1 through 14.8 shall not apply in the case of Hazardous Materials or violations of Hazardous Materials Laws wherein the Hazardous Materials in question have been used, generated, manufactured, released, stored or disposed of on, under or about, or transported from, 4 the Premises (i) prior to the earlier of the Commencement Date or the date of entry into the Premises by Tenant, or Tenant's employees or contractors, or (ii) as a result of the conduct of Landlord, prior tenants, or their successors or assigns. 36. CONDEMNATION. The following sentence is hereby added to Section 17.1: "If so much of the Premises is condemned that it is economically inappropriate for Tenant's business operations at the Premises, Tenant shall have the right to terminate this Lease as of the date title vests in the condemnor, by Tenant giving Landlord notice of its intention to so terminate within thirty (30) days of Tenant's receipt of the notice of condemnation. 37. REMOVAL OF CERTAIN TRADE FIXTURES AND EQUIPMENT. With respect to Tenant's obligations under Sections 20.1 and 20.2, Landlord agrees that Tenant shall have the right to remove its removable trade fixtures, computers, telephones, telecommunications panels and related equipment, provided Tenant complies with its repair and other obligations under Section 20.1. Tenant agrees not to remove any internal wiring in the walls and ceilings of the Premises without Landlord's prior consent. 38. RULES AND REGULATIONS. The Rules And Regulations are hereby modified as Follows: (a) Landlord hereby gives Tenant permission, pursuant to Section 1 of the Rules and Regulations, to independently contract for janitorial services to clean the Premises, and Tenant shall not be required to employ the janitorial service used by Landlord in other portions of the Center. (b) The following sentence is hereby added to section 15 of the Rules and Regulations: "Notwithstanding the other provisions of this Section 15, due to the security requirements of Tenant's business, Landlord agrees that (i) it will not enter the Premises, or authorize its agents, contractors or other representatives to enter the Premises, without the prior consent of Tenant, (ii) it will not authorize copies of keys to the Premises to be made by any of its employees, agents or contractors without prior notification, and consent being obtained from, Tenant." 39. CONCRETE BLOCK STORAGE UNIT. Tenant shall have the right to use and occupy, and the Premises shall include, at all times during the term of this Lease, the concrete block storage unit immediately adjacent to Suite B and located in the Common Facilities area of the Center. Such use and occupancy shall not result in any additional Minimum Monthly Rent or Additional Rent pursuant to Sections 4.1 and 4.4 of this Lease. 5 40. NO OTHER CHANGE. Except as specifically set forth in this Addendum, all of the terms and conditions of the Lease shall remain unchanged and in full force and effect. "LANDLORD" KEARNY VILLA CENTER EAST, a California limited partnership By: PROPERTIES INVESTMENT COMPANY, a California limited partnership, General Partner By: COLLINS DEVELOPMENT COMPANY, a California corporation General Partner By: /s/ [ILLEGIBLE] -------------------------------- Title: ----------------------------- By: /s/ Robert C Petz -------------------------------- Title: ----------------------------- "TENANT" SCRIPPS BANK, a State-Chartered bank By: /s/ Robert L. [ILLEGIBLE] ------------------------------------------ Title: SVP/ CFO --------------------------------------- By: /s/ Patricia MacLean ------------------------------------------ Title: VP/ Data Processing --------------------------------------- 6 EXHIBIT "A" SITE/FLOOR PLAN OF PREMISES/ DESCRIPTION OF CENTER [FLOOR PLAN] EXHIBIT "B" RULES AND REGULATIONS (INDUSTRIAL CENTERS) The following Rules and Regulations shall apply to the Center. Tenant agrees to comply with the same and to require its agents, employees, contractors, customers and invitees to comply with the same. Landlord shall have the right from time to time to amend or supplement these Rules and Regulations, and Tenant agrees to comply, and to require its agents, employees, contractors, customers and invitees to comply, with such amended or supplemented Rules and Regulations, provided that (a) notice of such amended or supplemental Rules and Regulations is given to Tenant, and (b) such amended or supplemental Rules and Regulations apply uniformly to all tenants of the Center. If Tenant or its subtenants, employees, agents, or invitees violate any of these Rules and Regulations, resulting in any damage to the Center or increased costs of maintenance of the Center, or causing Landlord to incur expenses to enforce the Rules and Regulations, Tenant shall pay all such costs to Landlord as Additional Rent. In the event of any conflict between the Lease and these or any amended or supplemented Rules and Regulations, the provisions of the Lease shall control. 1. Tenant shall be responsible at its sole cost for the removal of all of Tenant's refuse or rubbish. All garbage and refuse shall be disposed of outside of the Premises, shall be placed in the kind of container specified by Landlord, and shall be prepared for collection in the manner and at the times and places specified by Landlord. If Landlord provides or designates a service for picking up refuse and garbage, Tenant shall use the same at Tenant's sole cost. Tenant shall not burn any trash or garbage of any kind in or about the Premises. if Landlord supplies janitorial services to the Premises, Tenant shall not, without Landlord's prior written consent, employ any person or persons other than Landlord's janitorial service to clean the Premises. See Addendum. 2. No aerial, satellite dish, transceiver, or other electronic communication equipment shall be erected on the roof or exterior walls of the Premises, or in any other part of the Center without Landlord's prior written consent. Any aerial, satellite dish, transceiver, or other electronic communication equipment so installed without Landlord's prior written consent shall be subject to removal by Landlord without notice at any time and without liability to Landlord. 3. No loudspeakers, televisions, phonographs, radios, or other devices shall be used in a manner so as to be heard or seen outside of the Premises without Landlord's prior written consent. Tenant shall conduct its business in a quiet and orderly manner so as not to create unnecessary or unreasonable noise. Tenant shall not cause or permit any obnoxious or foul odors that disturb the public or other occupants of the Center. If Tenant operates any machinery or mechanical equipment that causes noise or vibration that is transmitted to the structure of the building in which the Premises are located or to other parts of the Center to such a degree as to be objectionable to Landlord or to any other occupant of the Center, Tenant shall install and maintain, at Tenant's expense, such vibration eliminators or other devices sufficient to eliminate the objectionable noise or vibration. 4. Tenant shall keep the outside areas immediately adjoining the Premises clean and free from dirt, rubbish, pallets and other debris to the satisfaction of Landlord. If Tenant fails to cause such outside areas to be maintained as required within 12 hours after verbal notice that the same do not so comply, Tenant shall pay a fee equal to the greater of $50.00 or the costs incurred by Landlord to clean up such outside areas, 5. Tenant shall not store any merchandise, inventory, equipment, supplies, finished or semi-finished products, raw materials, or other articles of any nature outside the Premises (or the building constructed thereon if the Premises includes any outside areas) without Landlord's prior written consent. 6. Tenant and Tenant's subtenants, employees, agents, or invitees shall park only the number of cars allowed under the Lease and only in those portions of the parking area designated for that purpose by Landlord. Upon request by Landlord, Tenant shall provide the license plate numbers of the cars of Tenant and Tenant's employees in order to facilitate enforcement of this regulation. Tenant and Tenant's employees shall not store vehicles or equipment in the parking areas, or park in such a manner as to block any of the accessways serving the Center and its occupants. 7. The Premises shall not be used for lodging, sleeping, cooking, or for any immoral or illegal purposes, or for any purpose that will damage the Premises or the reputation thereof. Landlord reserves the right to expel from the Center any person who is intoxicated or under the influence of liquor or drugs or who shall act in violation of any of these Rules and Regulations. Tenant shall not conduct or permit any sale by auction on the Premises. No video, pinball, or similar electronic game machines of any description shall be installed, maintained or operated upon the Premises without the prior written consent of Landlord. 8. Neither Tenant nor Tenant's employees or agents shall not disturb, solicit, or canvas any occupant of the Center, and Tenant shall take reasonable steps to discourage others from doing the same. 9. Tenant shall not keep in, or allow to be brought into, the Premises or Center any pet, bird or other animal, other than "seeing-eye" dogs or other animals under the control of and specifically assisting any disabled person. 10. The plumbing facilities shall not be used for any other purpose than that for which they are constructed, and no foreign substance of any kind shall be disposed of therein. The expense of any breakage, stoppage, or Page 1 of 2 damage resulting from a violation of this provision shall be borne by Tenant. Tenant shall not waste or use any excessive or unusual amount of water. 11. Tenant shall use, at Tenant's cost, such pest extermination contractor as Landlord may direct and at such intervals as Landlord may require. 12. Tenant will protect the carpeting from undue wear by providing carpet protectors under chairs with casters, and by providing protective covering in carpeted areas where spillage or excessive wear may occur. 13. Tenant shall be responsible for repair of any damage caused by the moving of freight, furniture or other objects into, within, or out of the Premises or the Center. No heavy objects (such as safes, furniture, equipment, freight, etc.) shall be placed upon any floor without Landlord's prior written approval as to the adequacy of the allowable floor loading at the point where the objects are intended to be moved or stored. Landlord may specify the time of moving to minimize any inconvenience to other occupants of the Center. If the building in which the Premises are located is equipped with a freight elevator, all deliveries to and from the Premises shall be made using the freight elevator during the time periods specified by Landlord, subject to such reasonable scheduling as Landlord in its discretion shall deem appropriate. 14. Without Landlord's prior written consent, no drapes or sunscreens of any nature shall be installed in the Premises and the sash doors, sashes, windows, glass doors, lights and skylights that reflect or admit light into the building shall not be covered or obstructed. Landlord shall have the right to specify the type of window coverings that may be installed, at Tenant's expense. Waste and excessive or unusual use of water shall not be allowed. Tenant shall not mark, drive nails, screw or drill into, paint, or in any way deface any surface or part of the building. Notwithstanding the foregoing, Tenant may hang pictures, blackboards, or similar objects, provided Tenant repairs and repints any nail or screw holes, and otherwise returns the premises to the condition required under the Lease and the expiration or earlier termination of the Lease Term. The expense of repairing any breakage, stoppage, or damage resulting from a violation of this rule shall be borne by Tenant. 15. No locks on any of the doors to the Premises shall be changed, and no additional lock or locks shall be placed by Tenant on any door without Landlord's prior written consent. Two keys will be furnished by Landlord to Tenant. Tenant shall pay the cost of any additional keys required by Tenant. All keys to all locks on to the Premises shall be surrendered to Landlord upon termination or expiration of the Lease Term, See Addendum. 16. No electrical wiring, electrical apparatus, or additional electrical outlets shall be installed in the Premises without Landlord's prior written approval. Any such installation not so approved by Landlord may be removed by Landlord at Tenant's expense. Tenant may not alter any existing electrical outlets or overburden them beyond their designed capacity. Landlord reserves the right to enter the Premises, with reasonable notice to Tenant, for the purpose of installing additional electrical wiring and other utilities for the benefit of Tenant or adjoining tenants. Landlord will direct electricians as to where and how telephone and affixed wires are to be installed in the Premises. The location of telephones, call boxes, and other equipment affixed to the Premises shall be subject to the prior written approval of Landlord. 17. If Tenant's use of the Premises involves the sale and/or preparation of food, Tenant shall at all times maintain a health department rating of "A" (or such other highest health department or similar rating as is available), Any failure by Tenant to maintain such "A" rating twice in any twelve (12) month period shall, at the election of Landlord, constitute a non-curable Event of Default under the Lease. 18. Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency. 19. Tenant assumes any and all responsibility for protecting its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 20. If Tenant occupies any air-conditioned space, Tenant shall keep entry doors opening onto corridors, lobby or courtyard closed at all times. All truck and loading doors shall be closed at all times when not in use. 21. Tenant shall not paint any floor or the Premises without Landlord's prior Written consent. Prior to surrendering the Premises upon expiration or termination of the Lease, Tenant shall remove any paint or sealer therefrom (whether or not previously permitted by Landlord) and restore the floor to its original condition as of the Commencement Date, reasonable wear and tear excepted. Tenant shall not affix any floor covering to the floor of the Premises in any manner except as approved by Landlord. /s/ [ILLEGIBLE] -------------------------------- Tenant's Initials Page 2 of 2 EXHIBIT "C" TENANT SIGN CRITERIA KEARNY VILLA CENTER SIGN CRITERIA The purpose of the criteria is to establish sign standards necessary to insure maximum tenant identification within an overall harmony of design for the total center. The criteria has been designed to give tenants a considerable amount of flexibility in personalizing their own store and at the same time allow for maximum creativity in sign design. However, since deviations from the broad criteria would be an injustice to all other tenants who comply, conformance to the criteria will be strictly enforced. In the interest of the center, any installed non-conforming or unapproved signs shall be brought into conformance at the expense of the tenant. Signing at the above location within the limits of the criteria is important to your business future and that of your neighbors. Creative and effective efforts now will contribute to the overall attractiveness of the center. We look forward to working with everyone on this project. As an assistance to your planning, we offer the following: A. GENERAL The tenant shall pay for all lettering and their installation and maintenance. B. SIGNING CONTRACTOR In order to minimize the cost of signing to the tenant, a professional sign painter will letter your sign. Contact your leasing agent and he will refer a reputable craftsman. C. SIGN-TYPES Each tenant shall be provided a masonite panel which will fit on existing suite identification plaques installed over the doors. D. TYPE - LOGOS - COLORS The panel is painted cream. You may use your companies own type face and logo or have your sign contractor create your Logo. Copy colors are approved as follows: Black Brown Burnt Orange Rust Blue Any change should be approved by your leasing agent. [ILLEGIBLE] ------------- INITIAL EX-10.10 14 EXHIBIT 10.10 SUBLEASE (AU #90267) By and Between WELLS FARGO BANK, N.A. and SCRIPPS BANK, a California banking corporation Subleased Premises Known As 7733 Girard Avenue La Jolla, California 92037 Dated: February 17, 1999 TABLE OF CONTENTS
Page 1. Basic Sublease Provisions; Definitions. . . . . . . . . . . . . . . . . 2 1.1 Building. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.2 Subleased Premises. . . . . . . . . . . . . . . . . . . . . . . . 2 1.3 Area of Subleased Premises. . . . . . . . . . . . . . . . . . . . 2 1.4 Subtenant's Percentage Share. . . . . . . . . . . . . . . . . . . 2 1.5 Sublease Term . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.6 Rent Commencement Date. . . . . . . . . . . . . . . . . . . . . . 2 1.7 Basic Monthly Rent. . . . . . . . . . . . . . . . . . . . . . . . 2 1.8 Rental Adjustment(s). . . . . . . . . . . . . . . . . . . . . . . 2 1.9 Permitted Use . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.10 Late Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1.11 Acceptance of Subleased Premises. . . . . . . . . . . . . . . . . 3 1.12 Address for Payment of Rent and Notices . . . . . . . . . . . . . 4 1.13 Security Deposit. . . . . . . . . . . . . . . . . . . . . . . . . 4 1.14 Parking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.15 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.16 Tax ID Form . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1.17 Option(s) to Extend . . . . . . . . . . . . . . . . . . . . . . . 4 1.18 Tenant Improvement Allowance. . . . . . . . . . . . . . . . . . . 4 2. Demise; Conditions. . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.1 Demise. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 2.2 Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . 5 2.3 Failure of Conditions . . . . . . . . . . . . . . . . . . . . . . 6 2.4 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . 7 3. Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 3.1 Incorporation by Reference; Assumption. . . . . . . . . . . . . . 7 3.2 Assumption of Lease Obligations . . . . . . . . . . . . . . . . . 7 3.3 No Assumption by Sublandlord. . . . . . . . . . . . . . . . . . . 7 3.4 Performance Directly to Landlord. . . . . . . . . . . . . . . . . 8 3.5 Landlord Default; Consents. . . . . . . . . . . . . . . . . . . . 8 3.6 Termination of Lease. . . . . . . . . . . . . . . . . . . . . . . 8 4. Covenant of Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . 8 5. Hazardous Substances. . . . . . . . . . . . . . . . . . . . . . . . . . 8 5.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5.2 Compliance with Environmental Laws. . . . . . . . . . . . . . . . 9 5.3 Response to Environmental Claims. . . . . . . . . . . . . . . . . 9 5.4 Environmental Reports . . . . . . . . . . . . . . . . . . . . . . 9 5.5 Notification of Asbestos. . . . . . . . . . . . . . . . . . . . . 9 i 6. Artwork . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 7. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 8. Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 9. No Encumbrance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 10. Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . .11 10.1 Restriction on Assignment and Subletting. . . . . . . . . . . . .11 10.2 Determining Factors . . . . . . . . . . . . . . . . . . . . . . .12 10.3 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 10.4 Profit Sharing. . . . . . . . . . . . . . . . . . . . . . . . . .12 11. Alterations; Signs. . . . . . . . . . . . . . . . . . . . . . . . . . .13 11.1 Alterations and Improvements by Subtenant . . . . . . . . . . . .13 11.2 Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 11.3 Disposition on Termination. . . . . . . . . . . . . . . . . . . .13 12. Removal of Personal Property. . . . . . . . . . . . . . . . . . . . . .14 13. Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 14. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 15. Maintenance and Repairs . . . . . . . . . . . . . . . . . . . . . . . .14 16. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 16.1 Coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 16.2 Policies. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 16.3 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . .15 16.4 Primary Coverage. . . . . . . . . . . . . . . . . . . . . . . . .15 17. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . .15 18. Remedies of Sublandlord on Default. . . . . . . . . . . . . . . . . . .16 18.1 Termination of Sublease . . . . . . . . . . . . . . . . . . . . .16 18.2 Continue Sublease in Effect . . . . . . . . . . . . . . . . . . .17 18.3 Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . .17 19. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . .18 19.1 Obligation to Provide . . . . . . . . . . . . . . . . . . . . . .18 19.2 Failure to Provide. . . . . . . . . . . . . . . . . . . . . . . .18 19.3 Financial Information . . . . . . . . . . . . . . . . . . . . . .18 20. Real Estate Brokers . . . . . . . . . . . . . . . . . . . . . . . . . .18 21. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18 ii 21.1 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . .18 21.2 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . .18 21.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 21.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . .19 21.5 Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 21.6 Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . .19 21.7 Prohibition on Solicitation of Sublandlord's Customers. . . . . .19 21.8 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . .19
EXHIBITS EXHIBIT A LEASE EXHIBIT B DRAWING OF SUBLEASED PREMISES EXHIBIT C TAX ID FORM EXHIBIT D ENVIRONMENTAL REPORT EXHIBIT E SUBTENANT'S WORK iii SUBTENANT HAS NO RIGHTS OF ACCESS OR RIGHTS OF POSSESSION TO THE SUBLEASED PREMISES PRIOR TO THE COMMENCEMENT DATE OF MARCH 1, 1999. SUBLEASE (AU #90267) THIS SUBLEASE, dated as of February 17, 1999, is entered into by and between WELLS FARGO BANK, N.A., a national banking association ("Sublandlord") and SCRIPPS BANK, a California banking corporation ("Subtenant"). RECITALS A. John Rabusha, a married man, as his separate property, as predecessor in interest to the John Rabusha Trust created under the Will of John Rabusha, as predecessor in interest to the Harbushka Family Partnership following the death of Margaret M. Rabusha, income beneficiary of the John Rabusha Trust, as "Lessor", and Sublandlord, as successor in interest by merger to First Interstate Bank of California, a California corporation, as successor in interest by merger to San Diego Trust & Savings Bank, a California corporation, as "Lessee", entered into a written lease dated November 1, 1961, a copy of which is attached hereto as Exhibit A-1 ("Lease 1") covering premises described in Paragraph 1 of Lease 1. B. Earl Gerald Gildea and Thena Pearce Gildea, as "Lessors" and Sublandlord, as successor in interest by merger to First Interstate Bank of California, a California corporation, as successor in interest by merger to San Diego Trust & Savings Bank, a California corporation, as "Lessee", entered into a written lease dated November 1, 1961, a copy of which is attached hereto as Exhibit A-2 ("Lease 2") covering premises described in Paragraph 1 of Lease 2. C. Harold J. Gildea, as Trustee under the Trust Agreement dated December 28, 1966, as successor in interest to Harold J. Gildea and Marguerite E. Gildea, as "Lessors" and Sublandlord, as successor in interest by merger to First Interstate Bank of California, a California corporation, as successor in interest by merger to San Diego Trust & Savings Bank, a California corporation, as "Lessee", entered into a written lease dated October 23, 1961, a copy of which is attached hereto as Exhibit A-3 ("Lease 3"; Lease 1, Lease 2, and Lease 3 are collectively referred to herein as the "Lease") covering premises described in Paragraph 1 of Lease 3. D. The Lessor and Lessors described above shall collectively be referred to hereinafter as the "Landlord". E. Subtenant desires to sublet all the premises described in Paragraph 1 of the Lease from Sublandlord on the terms and conditions contained in this Sublease. NOW, THEREFORE, in consideration of the mutual covenants and conditions herein contained, Sublandlord and Subtenant agree as follows: 1. 1. BASIC SUBLEASE PROVISIONS; DEFINITIONS. 1.1 BUILDING: 7733 Girard Avenue La Jolla, California 92037 1.2 SUBLEASED PREMISES: The Subleased Premises is the entire premises, including the parking lot contained therein, leased to Sublandlord under the Lease as depicted on EXHIBIT B hereto. 1.3 AREA OF SUBLEASED PREMISES: Approximately six thousand nine hundred one (6,901) square feet; of which five thousand five hundred ninety-two (5,592) square feet are located on the first floor of the Building ("Ground Floor") and one thousand three hundred nine (1,309) square feet are located on the second floor of the Building ("Second Floor"). In the event of any discrepancy between the square footage set forth in the Lease and the square footage set forth herein, this SUBPARAGRAPH 1.3 shall govern. 1.4 SUBTENANT'S PERCENTAGE SHARE: Subtenant will pay one hundred percent (100%) of all operating expenses and taxes and assessments payable by Sublandlord under the Lease ("Operating Expenses and Taxes"). 1.5 SUBLEASE TERM: Twenty-Seven (27) years and eight (8) months commencing on March 1, 1999 ("Commencement Date") and ending, unless earlier terminated pursuant to the terms hereof, on October 31, 2026. 1.6 RENT COMMENCEMENT DATE: Ninety (90) days following the Commencement Date. 1.7 BASIC MONTHLY RENT: Subtenant covenants and agrees to pay Sublandlord Basic Monthly Rent in the amount of Thirteen Thousand Eight Hundred Ninety-one and No/100 Dollars ($13,891.00) comprised of Twelve Thousand Five Hundred Eighty-two and No/100 Dollars ($12,582.00) for the Ground Floor of the Subleased Premises and One Thousand Three Hundred Nine and No/100 Dollars ($1,309.00) for the Second Floor of the Subleased Premises, subject to adjustment in accordance with SUBPARAGRAPH 1.8 below. All rent must be paid without demand, deduction, set-off or counter claim, in advance, on the first day of each calendar month during the Sublease Term, and in the event of a partial rental month, rent will be prorated on the basis of a thirty (30) day month. 1.8 RENTAL ADJUSTMENT(S): On the first day of the thirtieth (30th) calendar month after the Commencement Date and on every thirty (30) month anniversary thereafter, the Basic Monthly Rent then in effect shall be increased by eight percent (8%). 1.9 PERMITTED USE: Subtenant shall use the Subleased Premises in accordance with the terms and conditions of the Lease and this Sublease. 1.10 LATE CHARGES: The parties agree that late payments by Subtenant to Sublandlord of rent will cause Sublandlord to incur costs not contemplated by this Sublease, the amount of which is extremely difficult to ascertain. Therefore, the parties agree that if any installment of Basic Monthly Rent or Operating Expenses and Taxes is not received by 2. Sublandlord within ten (10) days after the date due, Subtenant will pay to Sublandlord a late charge equal to five percent (5%) of the late payment. Interest on any amounts payable by Subtenant under this Sublease shall accrue at the rate of twelve percent (12%) per annum from the date delinquent until paid in full. 1.11 ACCEPTANCE OF SUBLEASED PREMISES: Subtenant agrees to accept the Subleased Premises in an "as is" condition. Without limiting the foregoing, Subtenant's rights in the Subleased Premises are subject to all local, state and federal laws, regulations and ordinances governing and regulating the use and occupancy of the Subleased Premises and subject to all matters now or hereafter of record. Subtenant acknowledges that neither Sublandlord nor Sublandlord's agent has made any representation or warranty as to: (i) the present or future suitability of the Subleased Premises for the conduct of Subtenant's business; (ii) the physical condition of the Subleased Premises; (iii) the expenses of operation of the Subleased Premises; (iv) the safety of the Subleased Premises, whether for the use of Subtenant or any other person, including Subtenant's employees, agents, invitees or customers; (v) the compliance of the Subleased Premises with any applicable laws, regulations or ordinances; or (vi) any other matter or thing affecting or related to the Subleased Premises Subtenant acknowledges that no rights, easements or licenses are acquired by Subtenant by implication or otherwise except as expressly set forth herein. Subtenant will, prior to delivery of possession of the Subleased Premises, inspect the Subleased Premises and become thoroughly acquainted with their condition. Subtenant acknowledges that the taking of possession of the Subleased Premises by Subtenant will be conclusive evidence that the Subleased Premises were in good and satisfactory condition at the time such possession was taken. Subtenant specifically agrees that, except as specifically provided by laws in force as of the date hereof, Sublandlord has no duty to make any disclosures concerning the condition of the Building and the Subleased Premises and/or the fitness of the Building and the Subleased Premises for Subtenant's intended use and Subtenant expressly waives any duty which Sublandlord might have to make any such disclosures. Subtenant further agrees that, in the event Subtenant subleases all or any portion of the Subleased Premises, Subtenant will indemnify and defend Sublandlord (in accordance with PARAGRAPH 7 hereof) for, from and against any matters which arise as a result of Subtenant's failure to disclose any relevant information about the Building or the Subleased Premises to any subtenant or assignee. Subtenant will comply with all laws and regulations relating to the use or occupancy of the Subleased Premises and to the common areas, including, without limitation, making structural alterations or providing auxiliary aids and services to the Subleased Premises as required by the Americans with Disabilities Act of 1990, 42 U.S.C. Section 12101 ET SEQ. (the "ADA"). Subtenant further agrees that all telephone and other communication installation and use requirements will be compatible with the Building and 3. that Subtenant will be solely responsible for all of its telephone and communication installation and usage costs. 1.12 ADDRESS FOR PAYMENT OF RENT AND NOTICES: Sublandlord: Wells Fargo Bank, N.A. Corporate Properties Group 333 So. Grand Avenue, Suite 700 Mac# 2064-072 Los Angeles, CA 90071 Attn: Asset Manager with a copy of all legal notices to: Wells Fargo Bank, N.A. Corporate Properties Group 333 S. Grand Avenue, Suite 700 Mac# 2064-079 Los Angeles, California 90071 Attn: Real Estate Manager Subtenant: Scripps Bank 7817 Ivanhoe Avenue La Jolla, California 92037 Attn: Ms. Linda Ahlswede-Cox 1.13 SECURITY DEPOSIT: None. 1.14 PARKING: Subtenant shall have all of the rights and obligations with respect to parking as Sublandlord has under the Lease, if any. 1.15 BROKERS: The "Sublandlord's Broker" is Retail Insite and the "Subtenant's Broker" is Capital Growth Properties, Inc. Sublandlord shall pay a brokers commission in connection with this Sublease in accordance with PARAGRAPH 20 hereof. Sublandlord's Broker and Subtenant's Broker are collectively referred to in this Sublease as "Brokers." 1.16 TAX ID FORM: Attached hereto as EXHIBIT C is a Tax ID form to be completed and executed by Subtenant concurrently herewith. 1.17 OPTION(S) TO EXTEND: None. 1.18 TENANT IMPROVEMENT ALLOWANCE: Sublandlord shall provide a tenant improvement allowance to Subtenant in the amount of One Hundred Three Thousand Five Hundred Fifteen and No/100 Dollars ($103,515.00) (the "Allowance"), which may be utilized for the purpose of constructing and installing Subtenant's improvements in the Subleased Premises and removing any asbestos disclosed in the Environmental Reports (as defined in SUBPARAGRAPH 5.4 below), which shall include, but not be limited to, the categories of work listed on EXHIBIT E attached hereto ("Subtenant's Work"). Subtenant's Work shall be completed in accordance with PARAGRAPH 11 of this Sublease and ARTICLE 5 of the Lease. Prior to the commencement of any of Subtenant's Work at the Subleased Premises, Subtenant shall submit to 4. Sublandlord plans and specifications for the improvements to be installed in the Subleased Premises which plans and specifications shall be subject to Sublandlord's approval, which approval shall not be unreasonably withheld or delayed, and to Landlord's approval pursuant to ARTICLE 5 of the Lease. Notwithstanding the foregoing, Sublandlord shall respond to Subtenant's request for approval of Subtenant's plans and specifications within fifteen (15) days of Sublandlord's receipt of Subtenant's complete plans and specifications. Sublandlord shall reimburse Subtenant for the cost of Subtenant's Work within thirty (30) days following Sublandlord's receipt of Subtenant's request therefor, up to the maximum amount of the Allowance; provided, however, Sublandlord also receives with such request: (a) copies of all invoices for the cost of constructing Subtenant's Work; and (b) mechanic's lien and stop notice claim releases in a form reasonably acceptable to Sublandlord (which shall be unconditional for prior requests and may be conditional for the current month's request). Subtenant shall make no more than three (3) requests to Sublandlord for disbursement of the Allowance. 2. DEMISE; CONDITIONS. 2.1 DEMISE. Sublandlord hereby subleases to Subtenant and Subtenant hereby hires from Sublandlord the Subleased Premises for the Sublease Term, subject to the terms, covenants and conditions set forth herein. Subtenant covenants that, as a material part of the consideration for this Sublease, it shall keep and perform each and all of such terms, covenants and conditions by it to be kept and performed, and that this Sublease is made upon the condition of such performance. Subtenant acknowledges that Sublandlord's obligation to perform services, provide utilities, make repairs and carry insurance shall be satisfied only to the extent that the Landlord under the Lease satisfies those same obligations. Subtenant assumes and agrees to perform the tenant's obligations under the Lease during the Sublease Term to the extent such obligations are applicable to the Subleased Premises, except to the extent specifically contradicted herein. Subtenant shall not commit or suffer any act or omission that will violate any of the provisions of the Lease. 2.2 CONDITIONS PRECEDENT. The parties' obligations hereunder are expressly conditioned upon the satisfaction of the following conditions precedent; provided, however, that if Subtenant has taken possession of the Subleased Premises prior to the satisfaction of such conditions, Subtenant shall be fully obligated under the terms and conditions of this Sublease, including, without limitation, the indemnity provisions set forth in PARAGRAPH 7 and the insurance provisions set forth in PARAGRAPH 16 during the period prior to the satisfaction of such conditions or if such conditions are not satisfied, to the date of failure of such conditions and termination of this Sublease: (a) LANDLORD'S WRITTEN CONSENT. Within thirty (30) days after the later of the dates this Sublease is executed by Sublandlord and Subtenant, Landlord's execution of a written consent to this Sublease, and satisfaction of any conditions Landlord may impose upon Subtenant as a condition to this Sublease. (b) SUBLANDLORD'S APPROVAL. Within thirty (30) days after the later of the dates this Sublease is executed by Sublandlord and Subtenant, approval of the terms and conditions of this Sublease by the appropriate officers in Sublandlord's corporate office, unless 5. waived in writing by Sublandlord; provided that if such approval is not obtained within such time period, the Sublease shall be deemed approved. (c) FINANCIAL INFORMATION. Within five (5) days after the later of the dates this Sublease is executed by Sublandlord and Subtenant, if not already delivered, delivery of Subtenant's following financial information as applicable: (i) copy of most recent annual report; (ii) audited or certified financial statements for the last two (2) years or federal and state tax returns for the last two (2) years; (iii) financial statements for the current year; (iv) a list of Subtenant's banking references; (v) social security numbers for the principals of Subtenant; (vi) Subtenant's Taxpayer Identification Number and (vii) any other information reasonably requested by Sublandlord; and within ten (10) days after receipt of the foregoing, Sublandlord's written approval thereof. (d) AUTHORITY. If requested by Sublandlord, within ten (10) days after execution of this Sublease by Sublandlord and Subtenant, delivery to Sublandlord of: (i) if Subtenant is a corporation, certified copies of Subtenant's Articles of Incorporation, Certificate of Good Standing and a resolution of Subtenant's Board of Directors, certified by the corporate secretary of Subtenant, authorizing or ratifying the execution of this Sublease by Subtenant; or (ii) if Subtenant is a partnership, such partnership documents as Sublandlord may reasonably request to review, including, but not limited to, Subtenant's partnership agreement and any state filings establishing the identity and qualification of the partnership to transact business in the location in which the Subleased Premises are located, and the identity and authority of the partners of the partnership, and Sublandlord's approval of such organizational documents; or (iii) if Subtenant is a limited liability company ("LLC"), such LLC documents as Sublandlord may reasonably request to review, including, but not limited to, Subtenant's operating agreement and any state filings establishing the identity and qualification of the LLC to transact business in the location in which the Subleased Premises are located, and the identity and authority of the members of the LLC, and Sublandlord's approval of such organizational documents. (e) PRIOR SUBLEASE TERMINATION. Within thirty (30) days after the later of the dates this Sublease is executed by Sublandlord and Subtenant, Sublandlord's termination of that certain sublease dated March 15, 1998, by and between Sublandlord, as "Sublandlord," and Jacques Gourmet, Inc., dba Champagne Bakery, as "Subtenant." (f) BANK APPROVAL. Within forty-five (45) days after the later of the dates this Sublease is executed by Sublandlord and Subtenant, Subtenant's receipt of approval of Subtenant's bank operation at the Subleased Premises from the Federal Deposit Insurance Corporation and State Banking Department. (g) OCCUPANCY PERMIT. Within thirty (30) days after the later of the dates this Sublease is executed by Sublandlord and Subtenant, Subtenant's receipt of an occupancy permit issued by the City of San Diego. 2.3 FAILURE OF CONDITIONS. The conditions precedent specified in PARAGRAPHS 2.2(b), (c), (d) and (e) run to the benefit of Sublandlord. The condition precedent specified in PARAGRAPH 2.2(a) runs to the benefit of both parties, unless waived by Sublandlord. The conditions precedent specified in PARAGRAPHS 2.2(f) and 2.2(g) run to the benefit of 6. Subtenant. If any condition precedent is not satisfied by the date specified in and in accordance with PARAGRAPH 2.2, and the time period for the satisfaction of the condition is not extended or waived in writing by the party or parties to whom the benefit of the condition runs, then the party or parties to whom the benefit of the condition runs, shall have the right to terminate this Sublease by written notice to the other party within fifteen (15) days following the end of such time period and, upon such termination, neither Sublandlord nor Subtenant shall have any further obligations hereunder (except for Subtenant's indemnity obligations hereunder). 2.4 COMPLIANCE WITH LAWS. At its own expense, Subtenant will procure, maintain in effect and comply with all conditions of any and all permits, licenses and other governmental and regulatory approvals required for Subtenant's use of the Subleased Premises. Subtenant, at Subtenant's sole cost and expense and at all times, shall also comply fully with all federal, state and local laws, including all zoning laws and ordinances and all regulations, codes, requirements, public and private land use restrictions, rules and orders (individually and collectively, "Regulations") that apply to the Subleased Premises or Subtenant's use or occupancy thereof. Subtenant shall neither store, use or sell any article in or about the Subleased Premises, nor permit any act, that would cause the premiums for insurance to increase or cause a cancellation of any policy upon the Subleased Premises the Building. Subtenant shall not occupy, suffer or permit the Subleased Premises or any part thereof to be used for any illegal, immoral or dangerous purpose or in any other way contrary to the Regulations. Subtenant shall not commit or suffer to be committed, any waste upon the Subleased Premises or any public or private nuisance or any other act or thing which may disturb the quiet enjoyment of any other tenants of the Building. 3. LEASE. 3.1 INCORPORATION BY REFERENCE; ASSUMPTION. All of the Paragraphs of the Lease are incorporated into this Sublease as if fully set forth in this Sublease except for the following: PARAGRAPH 2 (Term), PARAGRAPH 3 (Rent), PARAGRAPH 4 (First Refusal), PARAGRAPH 5 (Construction of Improvements), PARAGRAPH 7 (Liability Insurance, but only as it relates to liability limits) and PARAGRAPH 12 (Use of the Premises; Assignment and Subletting, as it relates to (i) the business of a bank and (ii) the right to sublet the premises without Lessor's consent). Subject to PARAGRAPH 3.3 and where applicable, references in the Lease to Lessor will mean Sublandlord and to Lessee will mean Subtenant; provided, however, if any provisions of this Sublease conflict in any manner with any provisions of the Lease which are incorporated herein, the terms of this Sublease will govern. 3.2 ASSUMPTION OF LEASE OBLIGATIONS. Subtenant will assume and perform to Sublandlord the tenant's obligations under the Lease during the Sublease Term to the extent such obligations are applicable to the Subleased Premises. Subtenant will pay to Sublandlord Subtenant's Percentage Share of Operating Expenses and Taxes and any other sums payable by Sublandlord under the Lease not later than ten (10) days prior to the date any such amounts are due and payable by Sublandlord. Subtenant will not commit or suffer any act or omission that will violate any of the provisions of the Lease. 3.3 NO ASSUMPTION BY SUBLANDLORD. Sublandlord does not assume the obligations of the Landlord under the Lease. Subtenant acknowledges that Sublandlord's 7. obligation to perform services, provide utilities, make repairs and carry insurance shall be satisfied only to the extent that the Landlord under the Lease satisfies those same obligations. With respect to the performance by Landlord of its obligations under the Lease, Sublandlord's sole obligation with respect thereto will be to request the same, on request in writing by Subtenant, and to use reasonable efforts to obtain the same from Landlord; provided, however, Sublandlord will have no obligation to institute legal action against Landlord. 3.4 PERFORMANCE DIRECTLY TO LANDLORD. At any time and on reasonable prior notice to Subtenant, Sublandlord can elect to require Subtenant to perform its obligations under this Sublease directly to Landlord, in which event Subtenant will send to Sublandlord from time to time copies of all notices and other communications it sends to and receives from Landlord. 3.5 LANDLORD DEFAULT; CONSENTS. Notwithstanding any provision of this Sublease to the contrary, (a) Sublandlord will not be liable or responsible in any way for any loss, damage, cost, expense, obligation or liability suffered by Subtenant by reason or as the result of any breach, default or failure to perform by the Landlord under the Lease, and (b) whenever the consent or approval of Sublandlord and Landlord is required for a particular act, event or transaction (i) any such consent or approval by Sublandlord will be subject to the consent or approval of Landlord, and (ii) should Landlord refuse to grant such consent or approval, under all circumstances, Sublandlord will be released from any obligation to grant its consent or approval. 3.6 TERMINATION OF LEASE. If the Lease terminates under the specific provisions under the Lease, this Sublease will terminate, unless the Landlord elects to accept this Sublease as a direct lease between Landlord and Subtenant, and the parties will be relieved from all liabilities and obligations under this Sublease excepting obligations which have accrued as of the date of termination; except that if this Sublease terminates as a result of a default of one (1) of the parties under this Sublease or by Sublandlord under the Lease, the defaulting party will be liable to the non-defaulting party for all damage suffered by the non-defaulting party as a result of the termination. 4. COVENANT OF QUIET ENJOYMENT. Sublandlord represents that the Lease is in full force and effect and that there are no defaults on Sublandlord's part under it as of the Commencement Date. Subject to this Sublease terminating in the event the Lease is terminated, if Subtenant performs all the provisions in this Sublease to be performed by Subtenant, Subtenant will have and enjoy throughout the Sublease Term the quiet and undisturbed possession of the Subleased Premises. Sublandlord will have the right to enter the Subleased Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Subleased Premises and for verifying compliance by Subtenant with this Sublease and the Lease and permitting Sublandlord to perform its obligations under this Sublease and the Lease. 5. HAZARDOUS SUBSTANCES. 5.1 DEFINITIONS. For the purposes of this Sublease, the following terms have the following meanings: 8. (a) "Environmental Laws" means any and all laws, statutes, ordinances or regulations pertaining to health, industrial hygiene or the environment including, without limitation, CERCLA (Comprehensive Environmental Response Compensation and Liability Act of 1980) and RCRA (Resources Conservation and Recovery Act of 1976). (b) "Hazardous Substances" means asbestos and any other substance, material or waste which is or becomes designated, classified or regulated as being "toxic" or "hazardous" or a "pollutant" or which is or becomes similarly designated, classified or regulated under any federal, state or local law, regulation or ordinance. 5.2 COMPLIANCE WITH ENVIRONMENTAL LAWS. Subtenant will, in all respects, handle, treat, deal with and manage any and all Hazardous Substances in, on, under or about the Subleased Premises in total conformity with all applicable Environmental Laws and prudent industry practices regarding management of such Hazardous Substances. Upon expiration or earlier termination of the Sublease Term, Subtenant will cause all Hazardous Substances placed in, on, under or about the Subleased Premises by Subtenant or at Subtenant's direction to be removed and transported for use, storage or disposal in accordance and compliance with all applicable Environmental Laws. 5.3 RESPONSE TO ENVIRONMENTAL CLAIMS. Subtenant will not take any remedial action in response to the presence of any Hazardous Substances in, on, under or about the Subleased Premises, nor enter into any settlement agreement, consent decree or other compromise in respect to any claims relating to any Hazardous Substances in any way connected with the Subleased Premises without first notifying Landlord and Sublandlord of Subtenant's intention to do so and affording Landlord and Sublandlord ample opportunity to appear, intervene or otherwise appropriately assert and protect Landlord's and Sublandlord's interests with respect thereto. 5.4 ENVIRONMENTAL REPORTS. The Term "Environmental Reports" means: (i) that certain Prioritization Asbestos Assessment Study prepared by Hall-Kimbrell Environmental Services, Report Number 0380226, dated February 10, 1989; (ii) that certain Asbestos Survey Report prepared by Diagnostics Engineering Inc., Project No. D/230990126-1 dated May 25, 1990; (iii) that certain dust, debris and air sample monitoring report prepared by The Szaras Companies, Project Number 378, dated June 20, 1992; (iv) that certain Limited Environmental Site Assessment prepared by P & D Technologies, Project Number 11118.00, dated October 19, 1993; and (v) that certain Asbestos Survey Report prepared by ACC Environmental Consultants, Project No. 1041-068.33, dated November 18, 1997. Attached hereto as EXHIBIT D are the Environmental Reports prepared for the Building which is being provided to Subtenant for informational purposes and without any representation or warranty as to the completeness or correctness thereof 5.5 NOTIFICATION OF ASBESTOS. (a) Notification of Asbestos. Sublandlord hereby notifies Subtenant, in accordance with the Occupational Safety and Health Administration asbestos rule (1995), 59 Fed. Reg. 40964, 29 CFR 1910.1001, 1926.1101, clarification 60 Fed. Reg. 33974 ("OSHA Asbestos Rule"), of the presence of asbestos-containing materials ("ACMs") and/or presumed 9. asbestos-containing materials ("PACMs")] (as such term is defined in the OSHA Asbestos Rule), in the locations described in the Environmental Reports attached hereto as EXHIBIT D. Subtenant acknowledges receipt of such notification and understands, after having consulted with its legal counsel, that the purpose of such notification is to make Subtenant, its agents, employees, and contractors aware of the presence of ACMs and/or PACMs in the Building in order to avoid or minimize any damage to or disturbance of such ACMs or PACMs. "SUBTENANT": SCRIPPS BANK, a California banking corporation By: /s/ Ronald J. Carlson ----------------------------- Name: Ronald J. Carlson Title: President Date: 2/23/99 ------------------------- By: /s/ M. Catherine Wright ----------------------------- Name: M. Catherine Wright Title: Secretary and Chief Financial Officer Date: 2/23/99 ------------------------ (b) Acknowledgment from Contractors/Employees. Subtenant shall deliver to Sublandlord a copy of a signed acknowledgment from any contractor, agent, or employee of Subtenant prior to the commencement of any of the following activities within or about the Subleased Premises: (i) Removal of thermal system insulation ("TSI") and surfacing ACMs and PACMs (i.e., sprayed-on or troweled-on material, e.g., textured ceiling paint or fireproofing materials); (ii) Removal of ACMs or PACMs that are not TSI or surfacing ACMs and PACMS; (iii) Repair and maintenance of operations that are likely to disturb ACMs and PACMs; and (iv) Custodial and housekeeping activities where even minimal contact with ACMs or PACMs may occur. 10. 6. ARTWORK. To assure compliance with California laws regarding rights of artists, Subtenant will not install any artwork of any nature in the Subleased Premises which cannot be removed without damage or destruction to the artwork. 7. INDEMNITY. Subtenant will indemnify, defend (by counsel acceptable to Sublandlord in its sole discretion), protect and hold Sublandlord harmless from and against any and all liabilities, claims, demands, losses, damages, costs and expenses (including attorneys' fees and litigation and court costs) arising out of or relating to: (i) the death of or injury to any person or damage to any property on or about the Subleased Premises that occurs after the execution of this Sublease (except to the extent the foregoing arise out of the gross negligence or willful misconduct of Sublandlord); (ii) Subtenant's use of the Subleased Premises and the Building; (iii) Subtenant's breach or default under this Sublease (including, without limitation, Subtenant's breach or default under Section 5 above) or, to the extent incorporated herein, the Lease; (iv) any legal action taken by Subtenant against Landlord; or (v) any claim or cause of action of any kind by any person or entity to the effect that Sublandlord is in any way responsible or liable for any act or omission by Subtenant, its agents, employees, contractors or subcontractors, whether on account of any theory of derivative liability or otherwise (except to the extent the foregoing arise out of the gross negligence or willful misconduct of Sublandlord). 8. ATTORNEYS' FEES. If there is any legal action or proceeding between Sublandlord and Subtenant to enforce any provision of this Sublease or to protect or establish any right or remedy of either Sublandlord or Subtenant hereunder, the non-prevailing party to such action or proceeding will pay to the prevailing party all costs and expenses, including reasonable attorneys' fees incurred by such prevailing party in such action or proceeding and in any appearance in connection therewith, and if the prevailing party recovers a judgment in any such action, proceeding or appeal, such costs, expenses and attorneys' fees will be determined by the court or arbitration panel handling the proceeding and will be included in and as a part of the judgment. 9. NO ENCUMBRANCE. Subtenant will not voluntarily, involuntarily or by operation of law mortgage or otherwise encumber all or any part of Subtenant's interest in the Sublease or the Subleased Premises. 10. ASSIGNMENT AND SUBLETTING. 10.1 RESTRICTION ON ASSIGNMENT AND SUBLETTING. Subtenant will not voluntarily, involuntarily or by operation of law assign this Sublease or any interest therein and will not sublet the Subleased Premises or any part thereof, or any right or privilege appurtenant thereto, without first obtaining the written consent of Sublandlord, which consent will not be unreasonably withheld. The transfer of more than a fifty percent (50%) partnership interest in Subtenant, if Subtenant is a partnership, or more than fifty percent (50%) of the stock of Subtenant, if Subtenant is a closely-held corporation, or more than a fifty percent (50%) membership interest in Subtenant, if Subtenant is a limited liability company, will be deemed to be an assignment for purposes of this PARAGRAPH 10.1. If Subtenant is a publicly-held corporation, the trading of Subtenant's stock on a national stock market shall not be deemed to be an assignment for purposes of this PARAGRAPH 10.1. 11. 10.2 DETERMINING FACTORS. In determining whether or not to consent to a proposed assignment or subletting, Sublandlord may consider the following factors, among others, all of which are deemed reasonable: (a) whether the proposed sublessee or assignee has a net worth sufficient to fulfill Subtenant's obligations hereunder; (b) whether the proposed use of the Subleased Premises by the proposed sublessee or assignee is consistent with the Permitted Use set forth in PARAGRAPH 1.9; (c) whether Sublandlord's consent will result in a breach of the Lease or any other lease or agreement to which Sublandlord is a party affecting the Building or Subleased Premises; and (d) whether the Landlord has consented in writing to the proposed assignment or subletting, if the Landlord's consent is required. 10.3 CONSENTS. Any attempted assignment or subletting, without Sublandlord's consent will be null and void and of no effect. No permitted assignment or subletting of Subtenant's interest in this Sublease, will relieve Subtenant of its obligations to pay the rent or other sum or charge due hereunder and to perform all the other obligations to be performed by Subtenant hereunder. The acceptance of rent by Sublandlord from any other person will not be deemed to be a waiver by Sublandlord of any provision of this Sublease or to be a consent to any subletting or assignment. Consent to one sublease or assignment will not be deemed to constitute consent to any subsequent attempted subletting or assignment. 10.4 PROFIT SHARING. (a) Within thirty (30) days following the date received by Subtenant from any assignee or sublessee, Subtenant will pay to Sublandlord as additional rent a percentage of any appreciated rent as follows: (i) if the rent payable by Subtenant to Sublandlord hereunder is less than the rent paid by Sublandlord to Landlord under the Lease, one hundred percent (100%) of the amount by which the rent payable by the assignee or sublessee to Subtenant exceeds the rent payable by Subtenant to Sublandlord under this Sublease until the rent paid by Subtenant to Sublandlord equals the amount paid by Sublandlord to Landlord under the Lease; and (ii) thereafter or if the rent payable by Subtenant hereunder is the same or greater than the rent paid by Sublandlord to Landlord under the Lease, fifty percent (50%) of the amount by which the rent payable by the assignee or sublessee to Subtenant throughout the Sublease Term exceeds the rent paid by Subtenant to Sublandlord under this Sublease. If the premises subleased is less than the entire Subleased Premises, the rent payable by Subtenant hereunder shall be prorated based upon the square footage of the premises subleased to the square footage of the entire Subleased Premises. If Subtenant receives a lump sum payment in connection with an assignment, the amount of the payment will be allocated between Subtenant and Sublandlord, in the same manner taking into account the total rents payable during the remaining terms of the Lease and Sublease. (b) Notwithstanding the provisions set forth in subparagraph (a) above, Subtenant will not be obligated to pay Sublandlord any portion of appreciated rents until 12. Subtenant has recovered any costs it has reasonably incurred in connection with the subletting of the Subleased Premises to any third party broker or for improvements to the Subleased Premises. Any costs to be deducted from appreciated rents will be submitted to Sublandlord and will be subject to Sublandlord's reasonable approval. (c) The profit-sharing provisions set forth in subparagraph (a) above is a freely negotiated agreement between Subtenant and Sublandlord respecting the allocation of appreciated rents. This covenant will survive the expiration of the Sublease Term. 11. ALTERATIONS; SIGNS. 11.1 ALTERATIONS AND IMPROVEMENTS BY SUBTENANT. Subtenant will not make any alterations, additions or improvements to the Subleased Premises ("Alterations") without obtaining the prior written consent of Sublandlord thereto (and, if required, by Landlord in accordance with the Lease), which Sublandlord may grant or withhold, and to which Sublandlord may impose any conditions, in Sublandlord's sole discretion. Notwithstanding the foregoing, Subtenant may make non-structural Alterations the total cost of which is less than Fifty Thousand and No/100 Dollars ($50,000.00) without obtaining the prior written consent of Sublandlord. The term "Alterations" includes any alterations, additions or improvements made by Subtenant to comply with the ADA as required by PARAGRAPH 1.11 above. All Alterations must be constructed (i) in a good and workmanlike manner using materials of a quality comparable to those on the Subleased Premises, (ii) in conformance with all relevant codes, regulations and ordinances and (iii) only after necessary permits, licenses and approvals have been obtained by Subtenant from appropriate governmental agencies. All Alterations will be made at Subtenant's sole cost (including all costs relating to the removal of asbestos, if any, in connection with the Alterations) and diligently prosecuted to completion. Any contractor or other person making any Alterations must first be approved in writing by Sublandlord, and Sublandlord may require that all work be performed under Sublandlord's supervision. 11.2 SIGNS. Subtenant shall not place on any portion of the Subleased Premises any sign, placard, lettering in or on windows, banners, displays or other advertising or communicative material which is visible from the exterior of the Subleased Premises without the prior written approval of Sublandlord, which consent shall not be unreasonably withheld or delayed, and, if required, from Landlord in accordance with the Lease. All such approved signs shall strictly conform to all legal requirements and shall be installed at Subtenant's sole expense. Subtenant shall maintain such signs in good condition and repair. Upon the expiration or earlier termination of this Sublease, Subtenant, at Subtenant's sole cost and expense, shall remove all such signs and repair any damage caused by such removal. If Subtenant fails to remove such signs upon the expiration or earlier termination of this Sublease, and repair any damage caused by such removal, Sublandlord may do so at Subtenant's expense, which expense, together with interest thereon at the rate for late payments set forth in PARAGRAPH 1.10 shall be paid by Subtenant to Sublandlord upon demand. 11.3 DISPOSITION ON TERMINATION. Upon the expiration of the Sublease Term or earlier termination of this Sublease, Sublandlord may elect to have Subtenant either: (i) surrender with the Subleased Premises any or all of the Alterations as Sublandlord may determine (except personal property as provided in PARAGRAPH 12 below), which Alterations will 13. become the property of Sublandlord; or (ii) promptly remove any or all of the Alterations if Subtenant elects to remove such Alteration, in which case Subtenant must, at Subtenant's sole cost, repair and restore the Subleased Premises to their condition as of the Commencement Date, reasonable wear and tear excepted. 12. REMOVAL OF PERSONAL PROPERTY. All articles of personal property, and all business and trade fixtures, machinery and equipment, cabinet work, furniture and movable partitions, if any, owned or installed by Subtenant at its expense in the Subleased Premises will be and remain the property of Subtenant and may be removed by Subtenant at any time, provided that Subtenant, at its expense, must repair any damage to the Subleased Premises caused by such removal or by the original installation. Sublandlord may elect to require Subtenant to remove all or any part of Subtenant's personal property at the expiration of the Sublease Term or sooner termination of this Sublease, in which event the removal will be done at Subtenant's expense and Subtenant, prior to the end of the Sublease Term or upon sooner termination of this Sublease, will repair any damage to the Subleased Premises caused by its removal. 13. HOLDING OVER. If Subtenant holds over after the expiration of the Sublease Term or earlier termination of this Sublease, with or without the express or implied consent of Sublandlord, then at the option of Sublandlord, Subtenant will become and be only a month-to-month tenant at a rent equal to one hundred twenty-five percent (125%) of the rent payable by Subtenant immediately prior to such expiration or termination, and otherwise upon the terms, covenants and conditions herein specified. Notwithstanding any provision to the contrary contained herein, (i) Sublandlord expressly reserves the right to require Subtenant to surrender possession of the Subleased Premises upon the expiration of Sublease Term or upon the earlier termination of this Sublease and the right to assert any remedy at law or in equity to evict Subtenant and/or collect damages in connection with any holding over, and (ii) Subtenant will indemnify, defend and hold Sublandlord harmless from and against any and all liabilities, claims, demands, actions, losses, damages, obligations, costs and expenses, including, without limitation, attorneys' fees (including the allocated costs of Sublandlord's in-house attorneys) incurred or suffered by Sublandlord by reason of Subtenant's failure to surrender the Subleased Premises on the expiration of the Sublease Term or earlier termination of this Sublease. 14. LIENS. Subtenant will keep the Subleased Premises and the Building free from any liens arising out of any work performed, materials furnished, or obligations incurred by Subtenant. If a lien is filed, Subtenant will discharge the lien or post a bond within ten (10) days after the date of filing. Sublandlord has the right to post and keep posted on the Subleased Premises any notices that may be provided by law or which Sublandlord may deem to be proper for the protection of Sublandlord, the Subleased Premises and the Building from such liens. 15. MAINTENANCE AND REPAIRS. At all times during the Sublease Term, Subtenant, at its sole cost, will maintain the Subleased Premises and every part thereof and all equipment, fixtures and improvements therein in good condition and repair. At the end of the Sublease Term, Subtenant will surrender the Subleased Premises in as good condition as when received, reasonable wear and tear excepted. Subtenant will be responsible for all repairs required to be performed by the Lessee under the Lease. 16. INSURANCE. 14. 16.1 COVERAGE. At all times during the Sublease Term, Subtenant will, at its sole cost, procure and maintain the following types and amounts of insurance coverage (but in no event less than the types and amounts of coverage required from time to time under the Lease): (a) Comprehensive general liability insurance against any and all damages and liability, including attorneys' fees on account or arising out of injuries to or the death of any person or damage to property, however occasioned, in, on or about the Subleased Premises with at least a single combined liability and property damage limit of $2,000,000. (b) Insurance on all plate or tempered glass in or enclosing the Subleased Premises, for the full replacement cost of such glass. (c) A policy or policies, including the basic form, broad form and special form of coverage, including vandalism and malicious mischief, theft, sprinkler leakage and water damage in an amount equal to the full replacement value, new without deduction for depreciation, of the building comprising the Subleased Premises and all trade fixtures, furniture and equipment in the Subleased Premises, and all alterations, additions and improvements to the Subleased Premises installed by or for Subtenant or provided to Subtenant. (d) Employer's liability insurance and workers' compensation insurance as required by applicable law. (e) Any other insurance required under the Lease to the extent not covered in subsections (a)-(d) above. 16.2 POLICIES. All insurance required to be carried by Subtenant must be in a form satisfactory to Sublandlord and carried with companies reasonably acceptable to Sublandlord. Subtenant must provide Sublandlord with a certificate of insurance showing Sublandlord and Landlord as additional insureds on all policies of insurance excluding the insurance required under PARAGRAPH 16.1(d). The certificate must provide for a thirty (30) day written notice to Sublandlord in the event of cancellation or material change of coverage. 16.3 SUBROGATION. Sublandlord and Subtenant will each obtain from their respective insurers under all policies of fire, theft, public liability and other insurance maintained by either of them at any time during the Sublease Term insuring or covering the Subleased Premises excluding the insurance required under PARAGRAPH 16.1(e), a waiver of all rights of subrogation which the insurer of one party might otherwise have, if at all, against the other party. 16.4 PRIMARY COVERAGE. All insurance to be maintained by Subtenant shall be primary, without right of contribution from any insurance maintained by Sublandlord. 17. EVENTS OF DEFAULT. If one or more of the following events ("Event of Default") occurs, such occurrence constitutes a breach of this Sublease by Subtenant: (a) Subtenant abandons or vacates the Subleased Premises; or (b) Subtenant fails to pay any installment of Basic Monthly Rent or Operating Expenses and Taxes, if applicable, as and when the same become due and payable, and such 15. failure continues for more than seven (7) days after Sublandlord gives written notice thereof to Subtenant; or (c) Subtenant fails to pay any other sum or charge payable by Subtenant hereunder as and when the same becomes due and payable, and such failure continues for more than five (5) days after Sublandlord gives written notice thereof to Subtenant; or (d) Subtenant fails to perform or observe any other agreement, covenant, condition or provision of this Sublease to be performed or observed by Subtenant as and when performance or observance is due, and such failure continues for more than five (5) days after Sublandlord gives written notice thereof to Subtenant, or if the default cannot be cured within said five (5) day period and Subtenant fails within said period to commence with due diligence and dispatch the curing of such default or, having so commenced, thereafter fails to prosecute or complete with due diligence and dispatch the curing of such default; or (e) Subtenant: (i) files or consents by answer or otherwise to the filing against it of a petition for relief or reorganization or arrangement or any other petition in bankruptcy or liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction; (ii) makes an assignment for the benefit of its creditors; (iii) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers of itself or of any substantial part of its property; or (iv) takes action for the purpose of any of the foregoing; or (f) A court or governmental authority of competent jurisdiction, without consent by Subtenant, enters an order appointing a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial portion of its property, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding up or liquidation of Subtenant, or if any such petition is filed against Subtenant and such petition is not dismissed within ninety (90) days; or (g) This Sublease or any estate of Subtenant hereunder is levied upon under any attachment or execution and such attachment or execution is not vacated within ninety (90) days. 18. REMEDIES OF SUBLANDLORD ON DEFAULT. 18.1 TERMINATION OF SUBLEASE. In the event of any breach of this Sublease by Subtenant, Sublandlord may, at its option, terminate the Sublease and recover from Subtenant: (a) the worth at the time of award of the unpaid rent which had been earned at the time of termination; plus (b) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of the award exceeds the amount of such rental loss that Subtenant proves could have been reasonably avoided; plus 16. (c) the worth at the time of award of the amount by which the unpaid rent for the balance of the Sublease Term after the time of award exceeds the amount of such rental loss that Subtenant proves could be reasonably avoided; plus (d) any other amount necessary to compensate Sublandlord for all detriment proximately caused by Subtenant's failure to perform its obligations under this Sublease or which in the ordinary course of things would be likely to result therefrom (specifically including, without limitation, the unamortized portion of any brokerage commissions paid by Sublandlord for this Sublease, brokerage commissions and advertising expenses incurred for a new sublease, expenses of remodelling the Subleased Premises or any portion thereof for a new subtenant, whether for the same or a different use, and any special concessions made to obtain a new subtenant); and (e) at Sublandlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time under the laws and judicial decisions of the State in which the Subleased Premises are located. The term "rent" as used in this PARAGRAPH 18.1 will be deemed to be and to mean all sums of every nature required to be paid by Subtenant pursuant to the terms of this Sublease, whether to Sublandlord or to others. As used in subparagraphs (a) and (b) above, the "worth at the time of the award" will be computed by allowing interest at the maximum annual interest rate allowed by law. As used in subparagraph (c) above, the "worth at the time of the award" will be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one percent (1%). If Sublandlord terminates this Sublease or Subtenant's right to possession, Sublandlord will use reasonable efforts to mitigate Sublandlord's damages, and Subtenant will be entitled to submit proof of Sublandlord's failure to mitigate as a defense to Sublandlord's claims hereunder, if mitigation of damages by Sublandlord is required by applicable law. 18.2 CONTINUE SUBLEASE IN EFFECT. Sublandlord will have the remedy described in California Civil Code Section 1951.4 (a lessor may continue a lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Sublandlord does not elect to terminate this Sublease on account of any default by Subtenant, Sublandlord may, from time to time, without terminating this Sublease, enforce all of its rights and remedies under this Sublease, including the right to recover all rent as it becomes due. If the default continues, Sublandlord may, at any time thereafter, elect to terminate the Sublease. Sublandlord will not be deemed to have terminated this Sublease or the liability of Subtenant to pay rent or any other amounts due hereunder by any reentry or by any action in unlawful detainer, unless Sublandlord has specifically notified Subtenant in writing that Sublandlord has elected to terminate this Sublease. 18.3 OTHER REMEDIES. Sublandlord will at all times have the rights and remedies (which will be cumulative with each other and cumulative and in addition to those rights and remedies available under PARAGRAPHS 18.1 and 18.2 above, or under any law or other provision of this Sublease), without prior demand or notice except as required by applicable law, 17. to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Sublease, or restrain or enjoin a violation or breach of any provision hereof. 19. ESTOPPEL CERTIFICATES. 19.1 OBLIGATION TO PROVIDE. Subtenant will at any time upon not less than ten (10) days' prior written notice from Sublandlord execute, acknowledge and deliver to Sublandlord a statement in writing: (i) certifying that this Sublease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Sublease, as so modified, is in full force and effect), the amount of any security deposit, and the date to which the rent and other charges are paid in advance, if any; and (ii) acknowledging that there are not, to Subtenant's knowledge, any uncured defaults on the part of Sublandlord hereunder or of Landlord under the Lease, or specifying such defaults if any are claimed. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Subleased Premises. 19.2 FAILURE TO PROVIDE. At Sublandlord's option, Subtenant's failure to deliver a statement within the time required by PARAGRAPH 19.1 above, will be conclusive upon Subtenant: (i) that this Sublease is in full force and effect, without modification except as may be represented by Sublandlord; (ii) that there are no uncured defaults in Sublandlord's performance hereunder or in Landlord's performance under the Lease; and (iii) that not more than one month's rent has been paid in advance, or such failure may be considered by Sublandlord as a material default by Subtenant under this Sublease. 19.3 FINANCIAL INFORMATION. If the Landlord desires to finance, refinance, or sell the Subleased Premises, or any part thereof, Subtenant hereby agrees to deliver to any lender or purchaser designated by Landlord such financial statements of Subtenant as may be reasonably required by such lender or purchaser including, without limitation, the past three years' financial statements of Subtenant. 20. REAL ESTATE BROKERS. Each party warrants to the other that there are no brokerage commissions or fees payable in connection with this Sublease except to the Brokers identified in PARAGRAPH 1.15. Each party further agrees to indemnify and hold the other party harmless, from any cost, liability and expense (including attorneys' fees and litigation and court costs) which the other party may incur as the result of any breach of this PARAGRAPH 20. 21. MISCELLANEOUS. 21.1. COUNTERPARTS. This Sublease may be executed in one (1) or more counterparts, and all of the counterparts shall constitute but one and the same agreement, notwithstanding that all parties hereto are not signatory to the same or original counterpart. 21.2 CONSTRUCTION. The parties acknowledge that each party and its counsel have reviewed and revised this Sublease and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Sublease or any amendment or exhibits hereto. 18. 21.3 NOTICES. All notices or other communications required or permitted hereunder must be in writing, and be personally delivered (including by means of professional messenger service) or sent by registered or certified mail, postage prepaid, return receipt requested to the addresses set forth in PARAGRAPH 1.12. All notices will be deemed received on the date sent. 21.4 GOVERNING LAW. This Sublease shall be governed by and construed in accordance with the laws of the State of California applicable to contracts entered into in California between parties residing in California. Subtenant hereby consents to the personal jurisdiction and venue of any California state court located in the County of Los Angeles and United States District Courts for the Central District of California, and any successor court, and the service of process by any means authorized by such court. 21.5 EXHIBITS. All exhibits and any schedules or riders attached to this Sublease are incorporated herein by this reference and made a part hereof, and any reference in the body of the Sublease or in the exhibits, schedules or riders to the Sublease shall mean this Sublease, together with all exhibits, schedules and riders. 21.6 WAIVER OF TRIAL BY JURY. Subtenant hereby waives any and all rights it may have under applicable law to trial by jury with respect to any dispute with Sublandlord arising directly or indirectly in connection with this Sublease, the Lease, or the Subleased Premises. 21.7 PROHIBITION ON SOLICITATION OF SUBLANDLORD'S CUSTOMERS. Subtenant hereby acknowledges that Sublandlord or First Interstate Bank operated a branch banking facility at the Subleased Premises ("Sublandlord's Branch Bank") prior to Sublandlord's decision to consolidate its bank business at the Subleased Premises into another location within the geographical proximity of the Subleased Premises and to market the Subleased Premises for sublease. As material consideration for Sublandlord entering into this Sublease, Subtenant covenants and agrees that neither Subtenant nor any potential sub-subtenant (or other user) of Subtenant shall use, at any time whether prior to or on or after the Commencement Date, the trade or service name, logo or marks of WFB, Wells Fargo, Wells Fargo Bank, Wells Fargo & Company, the Wells Fargo stagecoach, the stagecoach, First Interstate Bank, First Interstate, FIB or any combination of the foregoing at any time without Sublandlord's consent, which may be withheld in its sole discretion. The breach of the covenant set forth in this PARAGRAPH 21.7 by Subtenant or any potential sub-subtenant (or other user) of Subtenant shall be a non-curable Event of Default under this Sublease and, in addition to any other remedies available to Sublandlord at law or in equity, Sublandlord shall have the right to terminate this Sublease in accordance with PARAGRAPH 18.1 above. Sublandlord shall be entitled to recover attorneys' fees and litigation and court costs related to its enforcement of the terms of this PARAGRAPH 21.7. 21.8 CONFIDENTIALITY. Except for the disclosure to any agency of the City of San Diego of any information necessary to enable Subtenant to obtain any permits or approvals necessary for Subtenant's bank operation and Subtenant's Alterations, Subtenant expressly covenants and agrees to keep confidential and not publicly disclose, without first obtaining the prior written consent of Sublandlord, the existence and/or terms of this Sublease and the transaction contemplated hereby and all information and reports obtained from Sublandlord. The 19. provisions of this PARAGRAPH 21.8 shall survive the expiration or earlier termination of this Sublease. (Signature page follows) 20. IN WITNESS WHEREOF, Sublandlord and Subtenant have executed this Sublease as of the dates set forth below. "SUBLANDLORD": WELLS FARGO BANK, N.A., a national banking association By: ------------------------------------------ Name: ----------------------------------- Title: ---------------------------------- Date: February _, 1999 By: ------------------------------------------ Name: ----------------------------------- Title: ---------------------------------- Date: February _, 1999 "SUBTENANT": SCRIPPS BANK, a California banking corporation By: /s/ Ronald J. Carlson ------------------------------------------ Name: Ronald J. Carlson Title: President Date: February 23, 1999 By: /s/ M. Catherine Wright ------------------------------------------ Name: M. Catherine Wright Title: Secretary and Chief Financial Officer Date: February 23, 1999 21. CONSENT OF LANDLORD (Lots 8 and 9) Harbushka Family Limited Partnership, a California partnership ("HFLP"), as successor in interest to the John Rabusha Trust, as successor in interest to John Rabusha ("Landlord"), hereby consents to the foregoing Sublease and Subtenant's proposed use of the Subleased Premises and represents and warrants to Sublandlord and Subtenant that no other consents to the foregoing Sublease are required, including, without limitation, the consent of any lender on the Subleased Premises. HFLP further represents and warrants to Sublandlord and Subtenant that HFLP is the successor in interest to John Rabusha Trust, as successor in interest to John Rabusha. Date: _____, 1999 "LANDLORD": HARBUSHKA FAMILY LIMITED PARTNERSHIP, a California partnership By: Harbushka Management, Inc., a Nevada corporation, Its: General Partner By: ---------------------------------------- Its: ------------------------------------ By: ---------------------------------------- Its: ------------------------------------ CONSENT OF LANDLORD (Lot 13) John W. Lee, as Trustee of the Harold J. Gildea and Marguerite E. Gildea Trust under Trust Agreement dated December 28, 1966 (the "Trust"), as successor in interest to Harold J. Gildea and Marguerite E. Gildea ("Lessors"), hereby consents to the foregoing Sublease and Subtenant's proposed use of the Subleased Premises and represents and warrants to Sublandlord and Subtenant that no other consents to the foregoing Sublease re required, including, without limitation, the consent of any lender on the Subleased Premises. John W. Lee, as Trustee of the Trust, further represents and warrants to Sublandlord and Subtenant that the Trust is the successor in interest to Harold J. Gildea and Marguerite E. Gildea. Date: ____, 1999 "LANDLORD": THE HAROLD J. GILDEA AND MARGUERITE E. GILDEA TRUST under Trust Agreement dated December 28, 1966 By: ---------------------------------------- John W. Lee, its Trustee EXHIBIT A-1 (LEASE 1) EXHIBIT A-1 L E A S E THIS LEASE, made and entered into by and between JOHN RABUSHA, a married man, as his separate property, hereinafter referred to as Lessor, and SAN DIEGO TRUST & SAVINGS BANK, a California banking corporation, hereinafter referred to as Lessee. W I T N E S S E T H: WHEREAS, on July 13, 1961, Lessor granted to Lessee, for an in consideration of the sum of , an option to lease certain premises hereinafter described on the terms therein set forth; and WHEREAS, Lessee has heretofore exercised said option and the parties are desirous of entering into a lease of said premises on the terms set forth in said option and such other terms as are herein set forth; NOW, THEREFORE, IT IS MUTUALLY AGREED between the parties, as follows: 1. DESCRIPTION OF PREMISES. The Lessor hereby leases to the Lessee, and the Lessee hires from the Lessor, on the terms and conditions hereinafter set forth, those certain premises with the appurtenances, situated in the city of San Diego, county of San Diego, state of California, described as follows: That certain real property legally described as Lots 8 and 9, Block 29, La Jolla Park. 2. TERM. The term of this lease shall be for sixty-five (65) years, commencing November 1, 1961. Lessee is hereby granted an option to renew this lease for a further term -1- of thirty-four (34) years upon each and all of the same terms and conditions as herein contained. Written notice of Lessee's intention to renew this lease shall be given to Lessor at least thirty (30) days prior to the expiration of this lease. 3. RENT. Lessee shall pay to Lessor, in advance, on the first day of each and every month commencing November 1, 1961, the sum of as base rent. Said base rent shall be adjusted every three (3) years on the anniversary date hereof, upwards only in proportion that the then current U.S. Department of Labor Index of Consumer Commodity Prices (all commodities) in the Los Angeles area for the immediately preceding calendar quarter exceeds the U.S. Department of Labor Index of Consumer Commodity Prices (all commodities) in the Los Angeles area for the quarter immediately preceding the commencement of this lease. It is agreed that the sum of heretofore paid by Lessee to Lessor for the above described option shall be credited and applied on the rent due hereunder November 1, 1961, December 1, 1961, and January 1, 1962. Lessee agrees to pay to Lessor upon execution of this lease the sum of which sum shall apply as base rental for the last year of the term of this lease. 4. FIRST REFUSAL. In the event Lessor should desire to sell the leased premises during the term of this lease or any extended term, Lessor shall submit to Lessee in writing any bona fide offer received by Lessor, which writing shall name the offeror, the amount offered, and any other condition of the offer. Lessee shall thereafter have the right, for fifteen (15) days, in which to purchase the said premises upon the same terms and conditions as contained in said offer. In the -2- event Lessee should fail to exercise the right to purchase within said fifteen (15) days, Lessor shall then be free to sell said premises to said offeror, however, the said premises shall not be sold for a less amount or upon more favorable terms and conditions than contained in said offer submitted to Lessee without Lessor again offering the same to Lessee. The right and privilege contained in this paragraph for the purchase of the leased premises shall only apply to Lessee or a successor bank. 5. CONSTRUCTION OF IMPROVEMENTS. Upon execution and commencement of this lease, Lessee shall have the right at its sole cost and expense to demolish, raze, and/or remove any or all of the existing improvements now situate on the subject property, and in such event shall have the right and be obligated to construct or cause to be constructed such other improvements as Lessee may desire. The Lessor may remain in possession of the buildings situated on the property and retain the rents collected therefrom for ninety (90) days from the commencement date of this lease, and shall remove himself therefrom forthwith upon the expiration of said ninety (90) day period. Further, it is understood and agreed that in the event the Superintendent of BAnks for the State of California and the Federal Deposit Insurance Corporation fail to authorize Lessee to establish and maintain a branch of its bank upon the aforesaid described property, that Lessee shall have the right and option to cancel this lease upon the giving of ten (10) days' notice in writing, and in the event of such cancellation the last year's rent deposited hereunder by Lessee shall be returned to Lessee -3- by Lessor. It is understood in this connection that Lessee shall use its best efforts to secure such permits. In no event shall Lessee demolish, raze, and/or remove any or all of the existing improvements now situate on the subject property until such permits have been obtained. 6. TAXES AND UTILITIES. Lessee agrees to pay when due all charges for water, light, cleaning and the like used on the leased premises or any part thereof during the term of this lease, and Lessee further agrees to pay when due all license fees and any and all taxes on the land, improvements, and personal property that may be levied by any taxing authority upon the real and personal property located in or upon the said leased premises or upon the business conducted thereon, provided that the Lessee shall not be required to pay any income, estate, or inheritance tax of the Lessor that might be levied against said leased premises, which Lessor shall promptly pay. Lessee shall have the right to contest or protest any tax, assessment or charge against said property. All taxes to be paid by the Lessee on the leased premises shall be prorated as of the date of commencement of this lease. Within thirty (30) days after the receipt of any and all tax bills levied by any taxing authority against the leased premises, the Lessor shall mail such tax bills to the cashier of the San Diego Trust & Savings Bank, who shall pay such taxes on or before the date due and mail the receipted tax bills within thirty (30) days after payment to the Lessor, who shall retain such bills in his records. 7. LIABILITY INSURANCE. Lessee agrees to secure and maintain in force, at its own expense, during the term -4- of this lease, a policy of owner, landlord and tenant liability insurance, indemnifying and protecting Lessor against any and all claims for injuries or damages suffered or alleged to have been suffered by a person or persons while in or about the leased premises, with limits of liability of $100,000 for one person and $300,000 for any one accident involving more than one person, arising from any and all demands, loss or liability resulting at any time or times from the injury to or the death of any person or persons, or from damage to any and all property occurring from the negligence or other fault of Lessee in or about the leased premises or in connection with the use of the street or sidewalk adjoining said premises. The said insurance shall be carried in a company acceptable to Lessor, and a copy of said policy shall be delivered to Lessor. Lessee further agrees to carry property damage insurance in the amount of $10,000 indemnifying both Lessor and Lessee from any and all claims of property damage. Said policy shall be carried in a company acceptable to Lessor, and a copy of said policy shall be delivered to Lessor. 8. HOLDING OVER. Lessee agrees that should it hold over the leased premises or any part thereof after the expiration of the term, unless otherwise agreed in writing, such holdover shall constitute a tenancy from month to month only, and Lessee shall pay the then reasonable value of the use and occupation of the leased premises, which shall not be less than the rent herein reserved. 9. DEFAULT. Lessee agrees that should default be made in the payment of the rent herein reserved or -5- should Lessee fail to faithfully perform or observe any other covenant, condition or agreement herein contained on the part of the Lessee to be performed, and should such default continue for a period of ten (10) days after written notice thereof, or should the leased premises be vacated or abandoned, then Lessor may, at his option, either (1) enter upon and repossess the leased premises and terminate this lease and all rights of the Lessee herein in and to the leased premises, or (2) re-enter the leased premises and, as agent of the Lessee, rent the same or any part thereof for the remainder of the term, applying such rentals first to the payment of such expenses as the Lessor may have been put to in re-entering, repossessing and reletting the premises, including costs and attorneys' fees, and the balance to the payment of the rent and the fulfillment of each of the covenants, conditions and agreements herein contained, and Lessee agrees that such action on the part of the Lessor will not release Lessee from any liability which would otherwise attach or secure under the provisions of this lease, or for any loss, damage or liability which Lessor may suffer during the remainder of the term of this lease by reason of such breach, and the failure of Lessee to thereafter perform the covenants and conditions hereof, whether the premises remain vacant or be rented. In the event of any breach of this lease, Lessor may pursue either of the foregoing remedies, or Lessor may pursue or seek any other remedy or enforce any right to which he may be by law entitled. 10. LITIGATION. In the event of any litigation between the Lessee and Lessor to enforce any provision of this lease or any right of either party hereto, the unsuccessful -6- party to such litigation agrees to pay to the successful party all costs and expenses, including reasonable attorneys' fees, incurred thereby by the successful party, all of which shall be included in and as a part of the judgment rendered in such litigation. If either Lessor or Lessee, without fault on its part, is made a party to any litigation instituted by or against the other, such other party shall indemnify the Lessor or Lessee, as the case may be, who, without fault, has been made a party to such action, against and save it harmless from all costs and expenses, including reasonable attorneys' fees incurred by it in connection with such litigation except costs and expenses, if any, which are recoverable from other parties to the litigation. 11. REMOVAL OF FIXTURES. The Lessee may remove all trade fixtures and movable furniture, including but not limited to vault doors, safety deposit boxes, counters, signs, and banking fixtures installed on the demised premises by Lessee at any time during the term of this lease and at the expiration or termination of this lease or any renewal term hereof, provided that same may be removed without damage to the building, and if damage is caused by such removal, Lessee agrees to repair such damage at its own cost forthwith. 12. USE OF PREMISES; ASSIGNMENT AND SUBLETTING. The premises are leased to the Lessee for the purpose of conducting the business of a bank and/or such other businesses as are permitted under the existing zoning laws of other zone or zones as may be established from time to time. Lessee shall not assign this lease without the written consent of Lessor, but such consent -7- shall not be unreasonably withheld. In the event of such assignment, Lessee shall not be relieved of liability hereunder. Lessee shall have the right, however, without Lessor's consent to sublet all or any portion of the premises, and any such subleases of such premises shall have the right to use the premises for any lawful purposes. 13. CONDITION OF PREMISES. Lessee covenants and agrees that it has examined and knows the condition of the leased premises herein and accepts the same in their present condition and acknowledges that no statement or representation as to the condition or repair of said premises has been made by the Lessor or by any person for him prior to or contemporaneously with the execution of this lease. 14. WASTE; QUIET CONDUCT. Lessee shall not commit, or suffer to be committed, any waste upon the said premises, or any nuisance. 15. REPAIRS. Lessee shall, at its sole cost, keep and maintain said premises and appurtenances and every part thereof, including windows and skylights, sidewalks adjacent to said premises, any store front and the interior of the premises, in good and sanitary order, condition, and repair, hereby waiving all right to make repairs at the expense of Lessor as provided in Section 1942 of the Civil Code of the State of California, and all rights provided for by Section 1941 of said Civil Code. 16. ACCEPTANCE OF PREMISES AS IS; SURRENDER AT END OF TERM. By entry hereunder, Lessee accepts the premises as being in good and sanitary order, condition and repair -8- and agrees on the last day of said term, or sooner termination of this lease, to surrender unto Lessor all and singular said premises with said appurtenances in as good condition as when received, reasonable use and wear thereof and act of God or by the elements excepted, and to remove all of Lessee's signs from said premises, but shall not be required to restore the premises in any event. 17. COMPLIANCE WITH LAW. Lessee shall, at its sole cost and expense, comply with all of the requirements of all Municipal, State and Federal authorities now in force, or which may hereafter be in force, pertaining to the said premises, and shall faithfully observe in the use of the premises all Municipal ordinances and State and Federal statutes now in force or which may hereafter be in force. The judgment of any court of competent jurisdiction, or the admission of Lessee in any action or proceeding against Lessee, whether Lessor be a party thereto or not, that Lessee has violated any such ordinance or statute in the use of the premises shall be conclusive of that fact as between Lessor and Lessee. 18. NOTICES. Any notice or demand which Lessor may desire to give to Lessee shall be mailed or served at Lessee's main office, Sixth and Broadway, San Diego, California, attention of its cashier, or at such other address as Lessee may designate in writing; all notices which Lessee may desire to give to Lessor shall be served on Lessor or mailed to him at 3343 Sterne, San Diego, California. -9- 19. TIME OF ESSENCE. Time is of the essence of each and all of the terms and conditions of this lease. Except as otherwise herein expressly provided, all agreements and provisions herein contained are binding upon and shall inure to the benefit of the heirs, executors, administrators, successors and assigns of the parties hereto. 20. COMPLETE AGREEMENT. This lease contains a complete expression of the agreement between the parties hereto, and there are no promises, representations, agreements, warranties or inducements except such as are herein fully set forth. No alterations of any of the terms, covenants, provisions or conditions shall be binding unless reduced to writing and signed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have signed this lease this 1 day of November, 1961. /s/ John Rabusha ---------------------------------------- John Rabusha LESSOR SAN DIEGO TRUST & SAVINGS BANK, a California banking corporation /s/ [ILLEGIBLE] ---------------------------------------- Its Vice President and Comptroller /s/ [ILLEGIBLE] ---------------------------------------- Its Assistant Secretary LESSEE -10- EXHIBIT A-2 (LEASE 2) EXHIBIT A-2 L E A S E THIS LEASE, made and entered into by and between EARL GERALD GILDEA and THENA PEARCE GILDEA, hereinafter referred to as Lessors, and SAN DIEGO TRUST & SAVINGS BANK, a California banking corporation, hereinafter referred to as Lessee. W I T N E S S E T H: WHEREAS, on July 13, 1961, Lessors granted to Lessee, for and in consideration of the sum of , an option to lease certain premises hereinafter described on the terms therein set forth; and WHEREAS, Lessee has heretofore exercised said option and the parties are desirous of entering into a lease of said premises on the terms set forth in said option and such other terms as are herein set forth; NOW, THEREFORE, IT IS MUTUALLY AGREED between the parties, as follows: 1. DESCRIPTION OF PREMISES. The Lessors hereby lease to the Lessee, and the Lessee hires from the Lessors, on the terms and conditions hereinafter set forth, those certain premises with the appurtenances, situated in the city of San Diego, county of San Diego, state of California, described as follows: That certain real property legally described as Lots 10, 11 and 12, Block 29, La Jolla Park, 75' x 140' to 20' Alley. 2. TERM. The term of this lease shall be for sixty-five (65) years, commencing November 1, 1961. Lessee is hereby granted an option to renew this lease for a further term -1- of thirty-four (34) years upon each and all of the same terms and conditions as herein contained. Written notice of Lessee's intention to renew this lease shall be given to Lessors at least thirty (30) days prior to the expiration of this lease. 3. RENT. Lessee shall pay to Lessors, in advance, on the first day of each and every month commencing November 1, 1961, the sum of as base rent. Said base rent shall be adjusted every three (3) years on the anniversary date hereof, upwards only in proportion that the then current U. S. Department of Labor Index of Consumer Commodity Prices (all commodities) in the Los Angeles area for the immediately preceding calendar quarter exceeds the U. S. Department of Labor Index of Consumer Commodity Prices (all commodities) in the Los Angeles area for the quarter immediately preceding the commencement of this lease. It is agreed that the sum of heretofore paid by Lessee to Lessors for the above described option shall be credited and applied on the rent due hereunder November 1, 1961. Lessee agrees to pay to Lessors upon execution of this lessor the sum of which sum shall apply as base rental for the last year of the term of this lease. 4. FIRST REFUSAL. In the event Lessors should desire to sell the leased premises during the term of this lease or any extended term, Lessors shall submit to Lessee in writing any bona fide offer received by Lessors, which writing shall name the offeror, the amount offered, and any other condition of the offer. Lessee shall thereafter have the right, for fifteen (15) days, in which to purchase the said premises upon the same terms and conditions as contained in said offer. In the -2- event Lessee should fail to exercise the right to purchase within said fifteen (15) days, Lessors shall then be free to sell said premises to said offeror, however, the said premises shall not be sold for a less amount or upon more favorable terms and conditions than contained in said offer submitted to Lessee without Lessors again offering the same to Lessee. The right and privilege contained in this paragraph for the purchase of the leased premises shall only apply to Lessee or a successor bank. 5. CONSTRUCTION OF IMPROVEMENTS. Upon execution and commencement of this lease. Lessee shall have the right at its sole cost and expense to demolish, raze, and/or remove any or all of the existing improvements now situate on the subject property, and in such event shall have the right and be obligated to construct or cause to be constructed such other improvements as Lessee may desire. The Lessors may remain in possession of the buildings situated on the property and retain the rates collected therefrom for ninety (90) days from the commencement date of this lease, and shall remove themselves therefrom forthwith upon the expiration and said ninety (90) day period. Further, it is understood and agreed that in the event the Superintendent of Banks for the State of California and the Federal Deposit Insurance Corporation fail to authorize Lessee to establish and maintain a branch of its bank upon the aforesaid described property, that Lessee shall have the right and option to cancel this lease upon the giving of ten (10) days' notice in writing, and in the event of such cancellation the last year's rent deposited hereunder by Lessee shall be returned to Lessee -3- by Lessors. It is understood in this connection that Lessee shall use its best efforts to secure such permits. In no event shall Lessee demolish, raze, and/or remove any or all of the existing improvements now situate on the subject property until such permits have been obtained. 6. TAXES AND UTILITIES. Lessee agrees to pay when due all charges for water, light, cleaning and the like used on the leased premises or any part thereof during the term of this lease, and Lessee further agrees to pay when due all license fees and any and all taxes on the land, improvements, and personal property that may be levied by any taxing authority upon the real and personal property located in or upon the said leased premises or upon the business conducted thereon, provided that the Lessee shall not be required to pay any income, estate, or inheritance tax of the Lessors that might be levied against said leased premises, which Lessors shall promptly pay. Lessee shall have the right to contest or protest any tax, assessment or charge against said property. All taxes to be paid by the Lessee on the leased premises shall be prorated as of the date of commencement of this lease. Within thirty (30) days after the receipt of any and all tax bills levied by any taxing authority against the leased premises, the Lessors shall mail such tax bills to the cashier of the San Diego Trust & Savings Bank, who shall pay such taxes on or before the date due and mail the receipted tax bills within thirty (30) days after payment to the Lessors, who shall retain such bills in their records. 7. LIABILITY INSURANCE. Lessee agrees to secure and maintain in force, at its own expense, during the term -4- of this lease, a policy of owner, landlord and tenant liability insurance, indemnifying and protecting Lessors against any and all claims for injuries or damages suffered or alleged to have been suffered by a person or persons while in or about the leased premises, with limits of liability of $100,000 for one person and $300,000 for any one accident involving more than one person, arising from any and all demands, loss or liability resulting at any time or times from the injury to or the death of any person or persons, or from damage to any and all property occurring from the negligence or other fault of Lessee in or about the leased premises or in connection with the use of the street or sidewalk adjoining said premises. The said insurance shall be carried in a company acceptable to Lessors, and a copy of said policy shall be delivered to Lessors. Lessee further agrees to carry property damage insurance in the amount of $10,000 indemnifying both Lessors and Lessee from any and all claims of property damage. Said policy shall be carried in a company [ILLEGIBLE] to Lessors, and a copy of said policy shall be delivered to [ILLEGIBLE]. 8. HOLDING OVER. Lessee agrees that should it hold over the leased premises or any part thereof after the expiration of the term, unless otherwise agreed in writing, such holdover shall constitute a tenancy from month to month only, and Lessee shall pay the then reasonable value of the use and occupation of the leased premises, which shall not be less than the rent herein reserved. 9. DEFAULT. Lessee agrees that should default be made in the payment of the rent herein reserved or -5- should Lessee fail to faithfully perform or observe any other covenant, condition or agreement herein contained on the part of the Lessee to be performed, and should such default continue for a period of ten (10) days after written notice thereof, or should the leased premises be vacated or abandoned, then Lessors may, at their option, either (1) enter upon and repossess the leased premises and terminate this lease and all rights of the Lessee herein in and to the leased premises, or (2) re-enter the leased premises and, as agent of the Lessee, rent the same or any part thereof for the remainder of the term, applying such rentals first to the payment of such expenses as the Lessors may have been put to in re-entering, repossessing and reletting the premises, including costs and attorneys' fees, and the balance to the payment of the rent and the fulfillment of each of the covenants, conditions and agreements herein contained, and Lessee agrees that such action on the part of the Lessors will not release Lessee from any liability which would otherwise attach or [ILLEGIBLE] the provisions of this lease, or for any loss, damage or liability which Lessors may suffer during the remainder of the term of this lease by reason of such breach, and the failure of Lessee to thereafter perform the covenants and conditions hereof, whether the premises remain vacant or be rented. In the event of any breach of this lease. Lessors may pursue either of the foregoing remedies, or Lessors may pursue or seek any other remedy or enforce any right to which they may be by law entitled. 10. LITIGATION. In the event of any litigation between the Lessee and Lessors to enforce any provision of this lease or any right of either party hereto, the unsuccessful -6- party to such litigation agrees to pay to the successful party all costs and expenses, including reasonable attorneys' fees, incurred thereby by the successful party, all of which shall be included in and as a part of the judgment rendered in such litigation. If either Lessors or Lessee, without fault on its part, is made a party to any litigation instituted by or against the other, such other party shall indemnify the Lessors or Lessee, as the case may be, who, without fault, has been made a party to such action, against and save it harmless from all costs and expenses, including reasonable attorneys' fees incurred by it in connection with such litigation except costs and expenses, if any, which are recoverable from other parties to the litigation. 11. REMOVAL OF FIXTURES. The Lessee may remove all trade fixtures and movable furniture, including but not limited to vault doors, safety deposit boxes, counters, signs, and banking fixtures installed on the demised premises by Lessee at any time during the term of this lease and at the expiration or termination of this lease or any renewal term hereof, provided that same may be removed without damage to the building, and if damage is caused by such removal, Lessee agrees to repair such damage at its own cost forthwith. 12. USE OF PREMISES; ASSIGNMENT AND SUBLETTING. The premises are leased to the Lessee for the purpose of conducting the business of a bank and/or such other businesses as are permitted under the existing zoning laws or other zone or zones as may be established from time to time. Lessee shall not assign this lease without the written consent of Lessors, but such consent -7- shall not be unreasonable withheld. In the event of such assignment. Lessee shall not be relieved of liability hereunder. Lessee shall have the right, however, without Lessors' consent to sublet all or any portion of the premises, and any such sublessees of such premises shall have the right to use the premises for any lawful purposes. 13. CONDITION OF PREMISES. Lessee covenants and agrees that it has examined and knows the condition of the leased premises herein and accepts the same in their present condition and acknowledges that no statement or representation as to the condition or repair of said premises has been made by the Lessors or by any person for them prior to or contemporaneously with the execution of this lease. 14. WASTE; QUIET CONDUCT. Lessee shall not commit, or suffer to be committed, any waste upon the said premises, or any nuisance. 15. REPAIRS. Lessee shall, at its sole cost, keep and maintain said premises and appurtenances and every part thereof, including windows and skylights, sidewalks adjacent to said premises, any store front and the interior of the premises, in good and sanitary order, condition, and repair, hereby waiving all right to make repairs at the expense of Lessors as provided in Section 1942 of the Civil Code of the State of California, and all rights provided for by Section 1941 of said Civil Code. 16. ACCEPTANCE OF PREMISES AS IS; SURRENDER AT END OF TERM. By entry hereunder, Lessee accepts the premises as being in good and sanitary order, condition and repair -8- and agrees on the last day of said term, or sooner termination of this lease, to surrender unto Lessors all and singular said premises with said appurtenances in as good condition as when received, reasonable use and wear thereof and act of God or by the elements excepted, and to remove all of Lessee's signs from said premises, but shall not be required to restore the premises in any event. 17. COMPLIANCE WITH LAW. Lessee shall, at its sole cost and expense, comply with all of the requirements of all Municipal, State and Federal authorities now in force, or which may hereafter be in force, pertaining to the said premises, and shall faithfully observe in the use of the premises all Municipal ordinances and State and Federal statutes now in force or which may hereafter be in force. The judgment of any court of competent jurisdiction, or the admission of Lessee in any action or proceeding against Lessee, whether Lessors be parties thereto or not, that Lessee has violated any such ordinance or statute in the use of the premises shall be conclusive of that fact as between Lessors and Lessee. 18. NOTICES. Any notice or demand which Lessors may desire to give to Lessee shall be mailed or served at Lessee's main office, Sixth and Broadway, San Diego, California, attention of its cashier, or at such other address as Lessee may designate in writing; all notices which Lessee may desire to give to Lessors shall be served on Lessors or mailed to them at 7743 Girard, La Jolla, California - ------------------------------------------------------------------------------- -9- 19. TIME OF ESSENCE. Time is of the essence of each and all of the terms and conditions of this lease. Except as otherwise herein expressly provided, all agreements and provisions herein contained are binding upon and shall inure to the benefit of the heirs, executors, administrators, successors and assigns of the parties hereto. 20. COMPLETE AGREEMENT. This lease contains a complete expression of the agreement between the parties hereto, and there are no promises, representations, agreements, warranties or inducements except such as are herein fully set forth. No alterations of any of the terms, covenants, provisions or conditions shall be binding unless reduced to writing and signed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have signed this lease this 1 day of November, 1961. /s/ Earl Gerald Gildea --------------------------------- Earl Gerald Gildea /s/ Thena Pearce Gildea --------------------------------- Thena Pearce Gildea LESSORS SAN DIEGO TRUST & SAVINGS BANK. a California banking corporation By /s/ [ILLEGIBLE] ---------------------------------- Its VICE PRESIDENT AND COMPTROLLER By /s/ [ILLEGIBLE] ---------------------------------- Its ASSISTANT SECRETARY LESSEE -10- [STAMP ILLEGIBLE] L E A S E ----------- (Short Form) THIS LEASE, made and entered into as of the 31st day of October, 1961, by and between EARL GERALD and THENA PEARCE GILDEA, hereinafter referred to as Lessors, and SAN DIEGO TRUST & SAVINGS BANK, a California banking corporation, hereinafter referred to as Lessee. W I T N E S S E T H: 1. That, for the rents and upon the terms, covenants and provisions set forth in that certain lease of even date herewith (hereinafter called "said Lease"), between Lessors and Lessee, Lessors have demised, leased and let, and do hereby demise, lease and let unto Lessee for a term of sixty-five (65) years, commencing November 1, 1961, with [ILLEGIBLE] renew said lease for a further term of thirty-four (34) years, these certain premises with the appurtenances, situated in the city of San Diego, county of San Diego, state of California, described as follows: That certain real property legally described as Lots 10, 11, and 12. Block 29, La Jolla Park, 75' x 140' to 20' Alley. 2. That said Lease and each and all of the terms, covenants, and provisions thereof are by this reference hereby incorporated herein and made a part hereof, the same as though fully set forth herein. -1- IN WITNESS WHEREOF, Lessors and Lessee have caused their respective names and seals to be affixed hereunto as of the day and year first above written. /s/ Earl Gerald Gildea ------------------------------------ Earl Gerald Gildea /s/ Thena Pearce Gildea ------------------------------------ Thena Pearce Gildea Lessors SAN DIEGO TRUST & SAVINGS BANK. a California banking corporation By /s/ [ILLEGIBLE] ---------------------------------- Its Vice President and Comptroller By /s/ [ILLEGIBLE] ---------------------------------- Its Assistant Secretary Lessee -2- STATE OF CALIFORNIA | |SS COUNTY OF SAN DIEGO | On this 31st day of October, 1961, before me, the undersigned, a notary public in and for said county and state, personally appeared EARL GERALD GILDEA and , known to me to be the persons whose names are subscribed to the within instrument, and acknowledged that they executed the same. [SEAL] /s/ Catherine A. Bovee -------------------------------------- Notary Public in and for said County and State (Catherine A. Bovee) My Commission Expires May 18, 1983 STATE OF CALIFORNIA | |SS COUNTY OF SAN DIEGO | On this 8th day of November, 1961, before me, the undersigned, a notary public in and for said county and state, personally appeared A. L. ANDERSON and [ILLEGIBLE] OLSON, known to me to be the vice president and comptroller and the assistant secretary, respectively, of the corporation that executed the foregoing instrument on behalf of the corporation therein named, and acknowledged to me that such corporation executed the same pursuant to its bylaws or a resolution of its Board of Directors. WITNESS my hand and official seal. [SEAL] /s/ Leona M. Woods Leona M. Woods -------------------------------------- Notary Public in and for said County and State [ILLEGIBLE] -3- STATE OF CALIFORNIA ) ), ss COUNTY OF SAN FRANCISCO) On this 1st day of November, 1961, before me, the undersigned, a notary public in and for said county and state, personally appeared THENA PEARCE GILDEA, known to me to be the person whose name is subscribed to the within instrument, and acknowledged that she executed the same. [SEAL] /s/ [ILLEGIBLE] -------------------------------------- Notary Public in and for said County and State My Commission Expires 11/17/ -4- EXHIBIT A-3 (LEASE 3) EXHIBIT A-3 L E A S E --------- THIS LEASE, made and entered into by and between HAROLD J. GILDEA and MARGUERITE E. GILDEA, hereinafter referred to as Lessors, and SAN DIEGO TRUST & SAVINGS BANK, A California banking corporation, hereinafter referred to as Lessee, W I T N E S S E T H: WHEREAS, on July 13, 1961, Lessors granted to Lessee, for and in consideration of the sum of , an option to lease certain premises hereinafter described on the terms therein set forth; and WHEREAS, Lessee has heretofore exercised said option and the parties are desirous of entering into a lease of said premises on the terms set forth in said option and such other terms as are herein set forth: NOW, THEREFORE, IT IS MUTUALLY AGREED between the parties, as follows: 1. DESCRIPTION OF PREMISES. The Lessors hereby lease to the Lessee, and the Lessee hires from the Lessors, on the terms and conditions hereinafter set forth, those certain premises with the appurtenances, situated in the city of San Diego, county of San Diego, state of California, described as follows: That certain real property legally described as Lot 13, Block 29, La Jolla Park, 25' x 140' to 20" Alley. 2. TERM. The term of this lease shall be for sixty-five (65) years, commencing November 1, 1961. Lessee is hereby granted an option to renew this lease for a further term -1- of thirty-four (34) years upon each and all of the same terms and conditions as herein contained. Written notice of Lessee's intention to renew this lease shall be given to Lessors at least thirty (30) days prior to the expiration of this lease. 3. RENT. Lessee shall pay to Lessors, in advance, on the first day of each and every month commencing November 1, 1961, the sum of as base rent. Said base rent shall be adjusted every three (3) years on the anniversary date hereof, upwards only in proportion that the then current U. S. Department of Labor Index of Consumer Commodity Prices (all commodities) in the Los Angeles area for the immediately preceding calendar quarter exceeds the U. S. Department of Labor Index of Consumer Commodity Prices (all commodities) in the Los Angeles area for the quarter immediately preceding the commencement of this lease. It is agreed that the sum of heretofore paid by Lessee to Lessors for the above described option shall be credited and applied on the rent due hereunder November 1, 1961. Lessee agrees to pay to Lessors upon execution of this lease the sum of , which sum shall apply as base rental for the last year of the term of this lease. 4. FIRST REFUSAL. In the event Lessors should desire to sell the leased premises during the term of this lease or any extended term. Lessors shall submit to Lessee in writing any bona fide offer received by Lessors, which writing shall name the offeror, the amount offered, and any other condition of the offer. Lessee shall thereafter have the right, for fifteen (15) days, in which to purchase the said premises upon the same terms and conditions as contained in said offer. In the -2- event Lessee should fail to exercise the right to purchase within said fifteen (15) days, Lessors shall then be free to sell said premises to said offeror, however, the said premises shall not be sold for a less amount or upon more favorable terms and conditions than contained in said offer submitted to Lessee without Lessors again offering the same to Lessee. The right and privilege contained in this paragraph for the purchase of the leased premises shall only apply to Lessee or a successor bank. 5. CONSTRUCTION OF IMPROVEMENTS. Upon execution and commencement of this lease, Lessee shall have the right at its sole cost and expense to demolish, raze, and/or remove any or all of the existing improvements now situate on the subject property, and in such event shall have the right and be obligated to construct or cause to be constructed such other improvements as Lessee may desire. The Lessors may remain in possession of the buildings situated on the property and retain the rents collected therefrom for ninety (90) days from the commencement date of this lease, and shall remove themselves therefrom forthwith upon the expiration of said ninety (90) day period. Further, it is understood and agreed that in the event the Superintendent of Banks of the State of California and the Federal Deposit Insurance Corporation fail to authorize Lessee to establish and maintain a branch of its bank upon the aforesaid described property, that Lessee shall have the right and option to cancel this lease upon the giving of ten (10) days' notice in writing, and in the event of such cancellation the last year's rent deposited hereunder by Lessee shall be returned to Lessee -3- by Lessors. It is understood in this connection that Lessee shall use its best efforts to secure such permits. In no event shall Lessee demolish, raze, and/or remove any or all of the existing improvements now situate on the subject property until such permits have been obtained. 6. TAXES AND UTILITIES. Lessee agrees to pay when due all charges for water, light, cleaning and the like used on the leased premises or any part thereof during the term of this lease, and Lessee further agrees to pay when due all license fees and any and all taxes on the land, improvements, and personal property that may be levied by any taxing authority upon the real and personal property located in or upon the said leased premises or upon the business conducted thereon, provided that the Lessee shall not be required to pay any income, estate, or inheritance tax of the Lessors that might be levied against said leased premises, which Lessors shall promptly pay. Lessee shall have the right to contest or protest any tax, assessment or charge against said property. All taxes to be paid by the Lessee on the leased premises shall be prorated as of the date of commencement of this lease. Within thirty (30) days after the receipt of any and all tax bills levied by any taxing authority against the leased premises, the Lessors shall mail such tax bills to the cashier of the San Diego Trust & Savings Bank, who shall pay such taxes on or before the date due and mail the receipted tax bills within thirty (30) days after payment to the Lessors, who shall retain such bills in their records. 7. LIABILITY INSURANCE. Lessee agrees to secure and maintain in force, at its own expense, during the term -4- of this lease, a policy of owner, landlord and tenant liability insurance, indemnifying and protecting Lessors against any and all claims for injuries or damages suffered or alleged to have been suffered by a person or persons while in or about the leased premises, with limits of liability of $100,000 for one person and $300,000 for any one accident involving more than one person arising from any and all demands, loss or liability resulting at any time or times from the injury to or the death of any person or persons, or from damage to any and all property occurring from the negligence or other fault of Lessee in or about the leased premises or in connection with the use of the street or sidewalk adjoining said premises. The said insurance shall be carried in a company acceptable to Lessors, and a copy of said policy shall be delivered to Lessors. Lessee further agrees to carry property damage insurance in the amount of $10,000 indemnifying both Lessors and Lessee from any and all claims of property damage. Said policy shall be carried in a company acceptable to Lessors, and a copy of said policy shall be delivered to Lessors. 8. HOLDING OVER. Lessee agrees that should it hold over the leased premises or any part thereof after the expiration of the term, unless otherwise agreed in writing, such holdover shall constitute a tenancy from month to month only, and Lessee shall pay the then reasonable value of the use and occupation of the leased premises, which shall not be less than the rent herein reserved. 10. DEFAULT. Lessee agrees that should default be made in the payment of the rent herein reserved or -5- should Lessee fail to faithfully perform or observe any other covenant, condition or agreement herein contained on the part of the Lessee to be performed, and should such default continue for a period of ten (10) days after written notice thereof, or should the leased premises be vacated or abandoned, then Lessors may, at their option, either (1) enter upon and repossess the leased premises and terminate this lease and all rights of the Lessee herein in and to the leased premises, or (2) re-enter the leased premises and, as agent of the Lessee, rent the same or any part thereof for the remainder of the term, applying such rentals first to the payment of such expenses as the Lessors may have been put to in re-entering, repossessing and reletting the premises, including costs and attorneys' fees, and the balance to the payment of the rent and the fulfillment of each of the covenants, conditions and agreements herein contained, and Lessee agrees that such action on the part of the Lessors will not release Lessee from any liability which would otherwise attach or accrue under the provisions of this lease, or for any loss, damage or liability which Lessors may suffer during the remainder of the term of this lease by reason of such breach, and the failure of Lessee to thereafter perform the covenants and conditions hereof, whether the premises remain vacant or be rented. In the event of any breach of this lease, Lessors may pursue either of the foregoing remedies, or Lessors may pursue or seek any other remedy or enforce any right to which they may be by law entitled. 10. LITIGATION. In the event of any litigation between the Lessee and Lessors to enforce any provision of this lease or any right of either party hereto, the unsuccessful -6- party to such litigation agrees to pay to the successful party all costs and expenses, including reasonable attorneys' fees, incurred thereby by the successful party, all of which shall be included in and as a part of the judgment rendered in such litigation. If either Lessors or Lessee, without fault on its part, is made a party to any litigation instituted by or against the other, such other party shall indemnify the Lessors or Lessee, as the case may be, who, without fault, has been made a party to such action, against and save it harmless from all costs and expenses, including reasonable attorneys' fees incurred by it in connection with such litigation except costs and expenses, if any, which are recoverable from other parties to the litigation. 11. REMOVAL OF FIXTURES. The Lessee may remove all trade fixtures and movable furniture, including but not limited to vault doors, safety deposit boxes, counters, signs, and banking fixtures installed on the demised premises by Lessee at any time during the term of this lease and at the expiration or termination of this lease or any renewal term hereof, provided that same may be removed without damage to the building, and if damage is caused by such removal. Lessee agrees to repair such damage at its own cost forthwith. 12. USE OF PREMISES; ASSIGNMENT AND SUBLETTING. The premises are leased to the Lessee for the purpose of conducting the business of a bank and/or such other businesses as are permitted under the existing zoning laws or other zone or zones as may be established from time to time. Lessee shall not assign this lease without the written consent of Lessors, but such consent -7- shall not be unreasonably withhold. In the event of such assignment, Lessee shall not be relieved of liability hereunder. Lessee shall have the right, however, without Lessors' consent to sublet all or any portion of the premises, and any such sublessees of such premises shall have the right to use the premises for any lawful purposes. 13. CONDITION OF PREMISES. Lessee covenants and agrees that it has examined and knows the condition of the leased premises herein and accepts the same in their present condition and acknowledges that no statement or representation as to the condition or repair of said premises has been made by the Lessors or by any person for them prior to or contemporaneously with the execution of this lease. 14. WASTE; QUIET CONDUCT. Lessee shall not commit, or suffer to be committed, any waste upon the said premises, or any nuisance. 15. REPAIRS. Lessee shall, at its sole cost, keep and maintain said premises and appurtenances and every part thereof, including windows and skylights, sidewalks adjacent to said premises, any store front and the interior of the premises, in good and sanitary order, condition, and repair, hereby waiving all rights to make repairs at the expense of Lessors as provided in Section 1942 of the Civil Code of the State of California, and all rights provided for by Section 1941 of said Civil Code. 16. ACCEPTANCE OF PREMISES AS IS; SURRENDER AT END OF TERM. By entry hereunder, Lessee accepts the premises as being in good and sanitary order, condition and repair -8- and agrees on the last day of said term, or sooner termination of this lease, to surrender unto Lessors all and singular said premises with said appurtenances in as good condition as when received, reasonable use and wear thereof and act of God or by the elements excepted, and to remove all of Lessee's signs from said premises, but shall not be required to restore the premises in any event. 17. COMPLIANCE WITH LAW. Lessee shall, at its sole cost and expense, comply with all of the requirements of all Municipal, State and Federal authorities now in force, or which may hereafter be in force, pertaining to the said premises, and shall faithfully observe in the use of the premises all Municipal ordinances and State and Federal statutes now in force or which may hereafter be in force. The judgment of any court of competent jurisdiction, or the admission of Lessee in any action or proceeding against Lessee, whether Lessors be parties thereto or not, that Lessee has violated any such ordinance or statute in the use of the premises shall be conclusive of that fact as between Lessors and Lessee. 18. NOTICES. Any notice or demand which Lessors may desire to give Lessee shall be mailed or served at Lessee's main office, Sixth and Broadway, San Diego, California, attention of its cashier, or at such other address as Lessee may designate in writing; all notices which Lessee may desire to give to Lessors shall be served on Lessors or mailed to them at 3122 McKinley Street, San Diego 4, California - ------------------------------------------------------------------------------- -9- 19. TIME OF ESSENCE. Time is of the essence of each and all of the terms and conditions of this lease. Except as otherwise herein expressly provided, all agreements and provisions herein contained are binding upon and shall inure to the benefit of the heirs, executors, administrators, successors and assigns of the parties hereto. 20. COMPLETE AGREEMENT. This lease contains a complete expression of the agreement between the parties hereto, and there are no promises, representations, agreements, warranties or inducements except such as are herein fully set forth. No alterations of any of the terms, covenants, provisions or conditions shall be binding unless reduced to writing and signed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have signed this lease this 23 day of October, 1961. /s/ Harold J. Gildea ------------------------------------ Harold J. Gildea /s/ Marguerite E. Gildea ------------------------------------ Marguerite E. Gildea LESSORS SAN DIEGO TRUST & SAVINGS BANK. a California banking corporation By /s/ [ILLEGIBLE] ---------------------------------- Its VICE PRESIDENT AND COMPTROLLER By /s/ [ILLEGIBLE] ---------------------------------- Its ASSISTANT SECRETARY LESSEE -10- 19. TIME OF ESSENCE. Time is of the essence of each and all of the terms and conditions of this lease. Except as otherwise herein expressly provided, all agreements and provisions herein contained are binding upon and shall inure to the benefit of the heirs, executors, administrators, successors and assigns of the parties hereto. 20. COMPLETE AGREEMENT. This lease contains a complete expression of the agreement between the parties hereto, and there are no promises, representations, agreements, warranties or inducements except such as are herein fully set forth. No alterations of any of the terms, covenants, provisions or conditions shall be binding unless reduced to writing and signed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have signed this lease this 23 day of October, 1961. /s/ Harold J. Gildea -------------------- Harold J. Gildea STATE OF CALIFORNIA) ) ss COUNTY OF SAN DIEGO) [SEAL] ON THE 23RD DAY OF OCTOBER 1961 BEFORE ME, ALMA R. BOYER - ----------------------------------------------------------------------------- A NOTARY PUBLIC IN AND FOR SAID COUNTY AND STATE, PERSONALLY APPEARED HAROLD J. GILDEA AND MARGUERITE E. GILDEA - ----------------------------------------------------------------------------- KNOWN TO ME, - ---------------------------------------------------------------- - ----------------------------------------------------------------------------- TO BE THE PERSONS WHOSE NAMES ARE SUBSCRIBED TO THE WITHIN INSTRUMENT AND ACKNOWLEDGED TO ME THAT SHE EXECUTED THE SAME. IN WITNESS WHEREOF, I HAVE HEREUNTO SET MY HAND AND AFFIXED MY OFFICIAL SEAL THE DAY AND YEAR IN THIS CERTIFICATE FIRST ABOVE WRITTEN. /s/ Alma R. Boyer - ----------------------------------------------------------------------------- NOTARY PUBLIC IN AND FOR SAID COUNTY AND STATE. -10- S T A T E M E N T October 27, 1961 San Diego, California The undersigned state that the Lease executed at San Diego, California on April 7, 1960, between JOHN RABUSHA as lessor and CLIFF HANSEN as lessee, covering the property at 7745 Girard Street, La Jolla, California, said property being legally described as Lots 8 and 9 in Block 29 of La Jolla Park, in the City of San Diego State of California, was terminated on the 30th of April, 1961; that all of the construction work and alterations performed, furnished or used in or upon said property, as set forth in the Notice of Non-Responsibility filed by JOHN RABUSHA, was completed; that to the knowledge of the undersigned there are no liens against said property in connection with said work, construction or alterations. /s/ John Rabusha -------------------- John Rabusha /s/ Cliff Hansen -------------------- Cliff Hansen STATE OF CALIFORNIA) ) ss County of San Diego) On October 31, 1961, before me, the undersigned, a Notary Public in and for said County and State, personally appeared JOHN RABUSHA and CLIFF HANSEN, known to me to be the persons whose names are subscribed to the within instrument and acknowledged that they execute the same. WITNESS my hand and official seal. /s/ Myron Kaminar ------------------------------- Myron Kaminar, Notary Public in and for said County and State EX-10.11 15 EXHIBIT 10.11 EXHIBIT 10.10 SCRIPPS BANK SUPPLEMENTAL RETIREMENT PLAN SCRIPPS BANK SUPPLEMENTAL RETIREMENT PLAN TABLE OF CONTENTS PAGE ARTICLE I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Purpose of Plan. . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE III. BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3.1 Retirement Benefits. . . . . . . . . . . . . . . . . . . . . . . 1 a. Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 1 b. Inflation Adjustment. . . . . . . . . . . . . . . . . . . . 2 3.2 Disability Benefits. . . . . . . . . . . . . . . . . . . . . . . 2 3.3 Preretirement Termination of Employment. . . . . . . . . . . . . 2 3.4 Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.5 Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE IV. ADMINISTRATION OF PLAN. . . . . . . . . . . . . . . . . . . . 3 4.1 Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . 3 4.2 Reliance on Tables . . . . . . . . . . . . . . . . . . . . . . . 4 4.3 Indemnification of Administrator . . . . . . . . . . . . . . . . 4 ARTICLE V. AMENDMENT AND TERMINATION OF PLAN. . . . . . . . . . . . . . . 4 5.1 Amendment and Termination. . . . . . . . . . . . . . . . . . . . 4 ARTICLE VI. CLAIMS FOR BENEFITS . . . . . . . . . . . . . . . . . . . . . 4 6.1 Notice of Denial of Claim. . . . . . . . . . . . . . . . . . . . 4 6.2 Extension of Time. . . . . . . . . . . . . . . . . . . . . . . . 5 6.3 Review of Denial of Claim. . . . . . . . . . . . . . . . . . . . 5 VII. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 5 7.1 Information to be Furnished. . . . . . . . . . . . . . . . . . . 5 7.2 Limitation of Rights . . . . . . . . . . . . . . . . . . . . . . 5 7.3 Spendthrift Clause . . . . . . . . . . . . . . . . . . . . . . . 5 7.4 Plan Not Employment Contract . . . . . . . . . . . . . . . . . . 6 7.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.6 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 I. INTRODUCTION 1 PURPOSE OF PLAN. The purpose of this Plan is to provide Ronald Carlson, current President of the Company, with supplemental retirement benefits, disability benefits and preretirement death benefits to reward his past service with the Company and to provide an incentive for him to remain with the Company until retirement. II. DEFINITIONS 1 "Administrator" means the Compensation, Audit and Nominating Committee of the Board of Directors of the Company or such other person or committee as may be appointed from time to time by the Board of Directors of the Company to supervise the administration of the Plan. 2 "Company" means Scripps Bank, a corporation organized under the laws of California. 3 "Employee" means Ronald Carlson. 4 "Plan" means the Scripps Bank Supplemental Retirement Plan set forth herein, together with any and all amendments and supplements hereto. 5 "Plan Year" means the calendar year. III. BENEFITS 1 RETIREMENT BENEFITS. a. BENEFIT. If the Employee remains in the employment of the Company until such time as he attains age 67, ____________, 2002 (the "Retirement Date"), Employee shall be entitled to receive a monthly annuity payment from the Company in the amount of $4,167, commencing on the first day of the month that next follows his Retirement Date and continuing on the first day of each subsequent month until the month next following the date of Employee's death. In the event that Employee defers retirement beyond the Retirement Date, the monthly benefit shall be actuarially increased to reflect the delayed commencement of the benefit payments. In the event that Employee retires or terminates employment before the Retirement Date and wishes to commence benefits prior to the Retirement Date, the monthly benefit shall be actuarially decreased to reflect the early commencement of the benefit payments. Notwithstanding the preceding sentence, the Company in its sole and absolute discretion may, upon termination of the Plan, pay the Employee the lump sum present value of the then remaining retirement benefit payable under this Section 3.1. The determination of present value and any actuarial adjustments in the annuity payment to reflect an early or late commencement of -1- benefits hereunder shall be made by an actuary selected by the Company. Applicable income or other taxes shall be withheld from all payments made under this Section 3.1. b. INFLATION ADJUSTMENT. On each anniversary of the Retirement Date, the monthly benefit under this Section 3.1 shall be increased by three percent (3%) as a cost-of-living adjustment. 2 DISABILITY BENEFITS. If the Employee terminates employment with the Company prior to the Retirement Date as a result of total disability, Employee shall be entitled to receive the monthly benefit set forth in Section 3.1 above, without any actuarial reduction to reflect the early commencement of benefits, commencing on the first day of the month that next follows the date of the Employee's termination of employment due to total disability and continuing until the month next following the date of the Employee's death. For purposes of this Plan, total disability shall mean the inability of the Employee, because of a physical or mental impairment that is expected to be of long-term duration, to perform the usual duties of the Employee. Total disability shall be determined by a physician selected by the Company. 3 PRERETIREMENT TERMINATION OF EMPLOYMENT. If the employment of the Employee is terminated for cause, the Employee shall be entitled to no benefits under this Plan. For purposes of this Agreement, termination for cause shall mean termination for any of the following reasons: (i) theft or dishonesty; (ii) improper use or disclosure of Company confidential information; and (iii) failure or inability to carry out duties after written notice and opportunity to cure. 4 DEATH BENEFITS. If the Employee dies after payment of benefits under this Plan have commenced or prior to the commencement of benefits hereunder and Employee is survived by Barbara Ann Carlson ("Barbara"), Barbara shall receive a monthly annuity payment equal to one-hundred percent (100%) of the monthly annuity payable to Employee under Section 3.1 or 3.2 of this Plan (as applicable). The monthly annuity payment shall commence on the first day of the month next following the date the last payment was made to Employee under Section 3.1 or 3.2 (as applicable) (or the first day of the month following the date of Employee's death if payments to Employee had not commenced) and shall end on the first day of the month next following Barbara's death. The Company in its sole and absolute discretion shall be entitled to pay Barbara the lump sum present value of the survivor's annuity at any time. The determination of present value shall be made by an actuary selected by the Company. Applicable income and other taxes shall be withheld from all payments made under this Section 3.4. In the event that Barbara predeceases Employee, no survivor or death benefits shall be payable under this Agreement upon Employee's death. Except as provided in this Section 3.4, no person shall be entitled to a survivor or death benefit under this Agreement upon Employee's death. 5 FUNDING. In order to satisfy the Company's obligation under this Plan to pay benefits to Employee, the Company shall contribute certain amounts to a trust established for this purpose (the "Supplemental Retirement Trust"). The Company shall contribute to the Trust, from time to time, such amounts as are determined by an actuary to be necessary to fund the Company's obligation hereunder. All contributions shall be made in cash. The Company shall direct the investment of the Supplemental Retirement Trust as it determines appropriate in its sole and -2- absolute discretion. Notwithstanding the establishment of the Supplemental Retirement Trust and the contribution of funds thereto, title to and beneficial ownership of the Supplemental Retirement Trust shall at all times remain in the Company and be subject to the claims of the Company's general creditors, and neither Employee nor anyone claiming through or under Employee shall have any property interest whatsoever in such funds or in any specific assets of the Company. IV. ADMINISTRATION OF PLAN 1 PLAN ADMINISTRATOR. The administration of the Plan shall be under the supervision of the Administrator. It shall be a principal duty of the Administrator to see that the Plan is carried out, in accordance with its terms. The Administrator will have full power to administer the Plan in all of its details, subject to applicable requirements of law. For this purpose, the Administrator's powers will include, but will not be limited to, the following authority, in addition to all other powers provided by this Plan: (a) to make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan; (b) to exercise discretion in interpreting the Plan and in deciding all questions concerning the Plan, any interpretation thereof to be reviewed under the arbitrary and capricious standard; (c) to determine the amount to contribute to the Supplemental Retirement Trust to fund the benefits payable under this Plan and to invest any amounts set aside therein to fund the Company's obligations under the Plan; (d) to appoint such agents, counsel, accountants, consultants, and other persons as may be required to assist in administering the Plan; and (e) to allocate and delegate its responsibilities under the Plan and to designate other persons to carry out any of its responsibilities under the Plan, any such allocation, delegation, or designation to be in writing. -3- 2 RELIANCE ON TABLES. In administering the Plan, the Administrator shall be entitled to rely conclusively on all tables, valuations, certificates, opinions, and reports which are furnished by, or in accordance with the instructions of accountants, actuaries, counsel, or other experts employed or engaged by the Administrator. 3 INDEMNIFICATION OF ADMINISTRATOR. The Company agrees to indemnify and to defend to the fullest extent permitted by law any director, officer or employee of the Company assisting (or who formerly assisted) in the administration of the Plan against all liabilities, damages, costs and expenses (including attorneys' fees and amounts paid in settlement of any claims approved by the Company) occasioned by any act or omission to act in connection with the Plan, if such act or omission is in good faith. V. AMENDMENT AND TERMINATION OF PLAN 1 AMENDMENT AND TERMINATION. The Plan may be amended or terminated when in the sole opinion of the Company such amendment or termination is advisable. The Plan shall be terminated immediately in the event that Employee is terminated for cause, as defined in Section 3.3 prior to Retirement Date. In the event of a termination of the Plan prior to the payment of all benefits hereunder (other than a termination described in the preceding sentence), the Company shall pay to Employee in a lump sum payment (less applicable withholdings) the present value of the retirement and survivor benefits payable under Sections 3.1 and 3.4 hereof. Upon termination of the Plan any amounts held in the Supplemental Retirement Trust that are not used for the payment of benefits under the Plan shall be transferred out of the Supplemental Retirement Trust and to the general accounts of the Company, to be used as the Company determines in its sole discretion. Except as set forth above, the amendment or termination of the Plan shall not reduce the benefit payable to Employee under the Plan or otherwise restrict his right to such benefit unless the Employee consents in writing to such amendment. Any amendment or termination shall be made by a written instrument approved by the Board of Directors. VI. CLAIMS FOR BENEFITS 1 NOTICE OF DENIAL OF CLAIM. If a claim for benefits under this Plan is denied, the Administrator shall provide notice to the claimant in writing of the denial within 90 days after its submission. The notice shall be written in a manner calculated to be understood by the claimant and shall include: (a) the specific reason or reasons for the denial; (b) specific reference to the pertinent Plan provisions on which the denial is based; -4- (c) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and (d) an explanation of the Plan's claims review procedures. 2 EXTENSION OF TIME. If special circumstances require an extension of time for processing the initial claim, a written notice of the extension and the reason therefor shall be furnished to the claimant before the end of the initial 90-day period. In no event shall such extension exceed 90 days. 3 REVIEW OF DENIAL OF CLAIM. The decision on review shall be made within 60 days of receipt of the request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. If such an extension of time is required, written notice of the extension shall be furnished to the claimant before the end of the original 60-day period. The decision on review shall be made in writing, shall be written in a manner calculated to be understood by the claimant, and shall include specific references to the provisions of the Plan on which the denial is based. If the decision on review is not furnished within the time specified above, the claim shall be deemed denied on review. VII. MISCELLANEOUS PROVISIONS 1 INFORMATION TO BE FURNISHED. Employee and Barbara shall provide the Company and the Administrator with such information and evidence, and shall sign such documents, as may reasonably be requested from time to time for the purpose of administration of the Plan. 2 LIMITATION OF RIGHTS. Neither the establishment of the Plan nor any amendment thereof, nor the payment of any benefits, will be construed as giving Employee, spouse or any other person any legal or equitable right against the Company or Administrator, except as provided herein. 3 SPENDTHRIFT CLAUSE. Neither Employee nor Barbara shall have the right to transfer, assign, alienate, anticipate, pledge, or encumber any part of the benefits provided by this Plan, nor shall such benefits be subject to seizure by legal process by any creditor of the Employee or Barbara. Any attempt to effect such a diversion or seizure shall be deemed null and void for all purposes hereunder to the extent permitted by the Employee Retirement Income Security Act of 1974, as amended (ERISA) and the Code. -5- 4 PLAN NOT EMPLOYMENT CONTRACT. Employee shall not acquire any right to be retained in the Company's employ by virtue of the Plan, nor, upon his dismissal or upon his voluntary termination of employment, shall he have any right or interest in the Plan other than as specifically provided herein. 5 GOVERNING LAW. This Plan shall be construed, administered, and enforced according to the laws of California. 6 SUCCESSORS. This Plan shall not be terminated merely by reason of a transfer or sale of the assets of the Company or by the merger or consolidation of the Company into or with any other corporation or entity, but the Plan shall be continued in accordance with its terms after such sale, merger, or consolidation, and the transferee, purchaser, or successor entity shall be required as part of the sale, merger, or consolidation to agree to such continuation. IN WITNESS WHEREOF, the Company has caused this Plan to be executed in its name and behalf on this 22 day of December, 1997, by its officer thereunto duly authorized. SCRIPPS BANK By: /s/ ----------------------------- Its: Chairman of the Board ----------------------------- -6- EX-10.12 16 EXHIBIT 10.12 UNFUNDED DEFERRED COMPENSATION AGREEMENT This Agreement is made on August 21, 1992 between Scripps Bank, a California banking corporation ("Scripps") and Ronald J. Carlson, a California resident ("Carlson"), as follows: 1. RECITAL . This Agreement is made with reference to the following essential recitals of fact: 1.1. Carlson is the President of Scripps. 1.2. Scripps and Carlson wish to provide for certain deferred compensation payments to Carlson, as set forth in this Agreement. 2. DEFINITIONS. As used in this Agreement, the following terms shall have the meaning provided below: 2.1. "Annual Benefit" shall mean accrued portion of the sum of $20,000.00, as adjusted from time to time in accordance with paragraph 3 below, payable in equal monthly installments. 2.2. "Code" shall mean the Internal Revenue Code of 1986, as amended, and any successor statute. 2.3. "Disability" shall mean a physical or mental condition, other than death, resulting from bodily injury, disease or mental disorder which, in the written opinion of competent medical authority selected by Scripps, renders Carlson incapable of performing any gainful employment. 2.4. "Year of Service" shall mean a 12 month period, beginning on February 6 of each year, and ending on February 5 of the following year, commencing as of February 6, 1992, during all of which period Carlson is employed by Scripps. 3. AGREEMENT TO PROVIDE DEFERRED COMPENSATION. In consideration of the continued services of Carlson, Scripps agrees to pay Carlson deferred compensation as follows: 3.1. Scripps agrees to pay Carlson the accrued Annual Benefit, in equal monthly installments, commencing as of the date specified in paragraph 4.2 below, and continuing thereafter from year to year for so long as Carlson is alive. 3.2. If Carlson dies, is impaired by a Disability, or otherwise separates from service, prior to attaining age 65, then the accrued Annual Benefit shall be determined as provided in this paragraph. The Annual Benefit due to Carlson shall be accrued each year in the ratio that the number of completed Years of Service with Scripps bears to the total number of Years of Service Carlson would have assuming that he remained in employment with Scripps until attaining age 65. Carlson shall not be entitled to any credit for any Year of Service prior to 1 July 1, 1992 nor shall Carlson be entitled to any credit for any Year of Service if he is not employed by Scripps on the last day of such Year or Service. There shall be no credit for partial Years of Service. Upon Carlson's death, impairment by a Disability or other separation from service with Scripps, prior to attaining age 65, Carlson shall be entitled to such portion of the Annual Benefit accrued to that date. The following is an example of the operation of this paragraph: EXAMPLE Assume that Carlson separates from service with Scripps on December 31, 1998, and assume that his employment has been continuous from the effective date of this Agreement until such date of separation. Carlson would reach age 65 on February 6, 2000. As the date of separation, Carlson would then have 6 full Years of Service and he would have had 8 full Years of Service had he remained in employment with Scripps until reaching 65. Thus, the Annual Benefit would be $20,000.00 multiplied times 6/8ths to yield $15,000.00. 3.3. On February 6 of each year, beginning with the February 6 on which Carlson attains age 66, the accrued Annual Benefit for the ensuing 12 months shall be adjusted for any increases (not for any decreases) in the cost of living as provided below. If Carlson shall separate from service due to his impairment by a Disability, or if payments shall commence to Carlson's wife following his death prior to reaching age 65, then no cost of living adjustments shall be made to the accrued Annual Benefit until after February 6 of the year in which he attains or would have attained age 65. If Carlson shall remain employed by Scripps after reaching age 65, then the accrued Annual Benefit shall be increased by an amount computed under this paragraph as if Carlson had separated from service with Scripps upon attaining age 65. The method of computing such adjustment shall be as follows: 3.3.1. On each applicable anniversary date, the accrued Annual Benefit shall be multiplied times a traction, (a) the numerator of which is the Consumer Price Index, All Urban Items, San Diego MSA (the "Index"), in effect on the applicable anniversary date, and (b) the denominator of which is the Index which is in effect as of February 6 of the year in which Carlson attains 65, or if applicable, would have attained age 65. If the Index is revised or discontinued, then the parties shall use such other index which is created as its replacement (or if there is no replacement, then such other similar index) in order to obtain substantially the same adjustment to the Annual Benefit as would be made under the Index. In no event shall the Annual Benefit, as previously adjusted for cost of living increases, be reduced as a result of the application of such fraction. 2 3.4. The calculation of any increases, decreases or other adjustments to the Annual Benefit shall be made by enrolled actuarial company selected by Scripps, whose determination shall be final and conclusive. Scripps reserves the right, in its discretion, to increase the Annual Benefit from time to time and in such amounts as its Board of Directors may designate in writing. Any such optional increases to the Annual Benefit may be revoked by Scripps at any time by written notice to Carlson or Carlson's wife, if applicable. 4. FORM OF PAYMENT. The accrued Annual Benefit, as computed under paragraph 3 above, shall be paid to Carlson as follows: 4.1. All payments shall be in the form of a direct deposit or a check issued by Scripps to Carlson. Nothing contained in this Agreement shall be construed to require Scripps to purchase an annuity or other similar investment to provide benefits to Carlson. However, Scripps, in its discretion, may purchase an annuity from a licensed life insurance company in order to provide benefits to Carlson under this Agreement, and if Scripps elects to transfer ownership of such annuity to Carlson, then Scripps shall be discharged from any further obligations to Carlson under this Agreement, regardless of any subsequent default or other financial insolvency of such insurance company. 4.2. Payments to Carlson shall begin as of the first day of the first month after the later of (a) the date on which Carlson attains age 65, or (b) the date when Carlson separates from service with Scripps. If Carlson shall be impaired by a Disability which causes him to separate from service, then the accrued Annual Benefit shall commence to be paid to Carlson as of the first day of the first month after such Disability has been verified by Scripps in accordance with this Agreement. If Carlson shall separate from service due to his death, then payment of the accrued Annual Benefit to the wife of Carlson, if any, shall commence as of the first day of the first month after notice of such death has been delivered to Scripps. Subject to paragraph 4.3 below, if Carlson shall die before attaining age 65, then payment of the accrued Annual Benefit to the wife of Carlson, if any, shall commence as of the first day of the first month after the date on which Carlson would have attained age 65 had he lived to that date. 4.3. The accrued Annual Benefit payments shall be continued by Scripps, without reduction other than a reduction provided in paragraph 3 above or paragraph 6 below, to the wife of Carlson, as follows: 4.3.1. If Carlson shall die, then the accrued Annual Benefit shall be paid to the wife of Carlson, as determined under this paragraph 4, for so long as she may live. 4.3.2. If Carlson shall be impaired by a Disability, and if thereafter he shall begin to receive payment of the 3 accrued Annual Benefit, and if Carlson shall thereafter die, then the accrued Annual Benefit shall be paid to Carlson's wife for so long as she may live, as determined under this paragraph 4. 4.3.3. For the purposes of this Agreement, Carlson shall not be considered to have a wife if at the time of his death or other separation from service either Carlson or his wife have filed a petition for the dissolution of their marriage. In the case of Disability, Carlson would not be considered to have a wife if (a) prior to his death he was divorced after his separation from service and subsequently remarried, or (b) if prior to his death either Carlson or his wife (as of the time of separation from service) have filed a petition for the dissolution of their marriage. In no event shall any wife of Carlson who was not married to Carlson at the time of his separation from service, or any heir of such wife, be entitled to any portion of the Annual Benefit. 4.4. If Carlson or his wife, if applicable, shall die during a month, then the recipient shall be entitled to retain the entire payment of the portion of the Annual Benefit due for such month. If at any time under this Agreement after the death of Carlson it is determined that there is no wife of Carlson who is entitled to the accrued Annual Benefit, then Scripps shall have no liability to make any further payments of the Annual Benefit to any person. 4.5. Except as provided in paragraph 4.1 above, nothing contained in this Agreement shall be construed to give either party the right to accelerate the time for making payments to Carlson of the Annual Benefit or to pay Carlson a lump sum amount in lieu thereof. 5. UNFUNDED BENEFIT. Carlson agrees that there shall be no trust or other funding investment required to be used by Scripps in order to accumulate funds with which to pay the accrued Annual Benefit. Carlson further acknowledges that the payment of the accrued Annual Benefit shall be subject to the financial ability of Scripps to make such payments, in accordance with applicable insolvency, bankruptcy and banking laws. Nothing contained in this Agreement shall be construed as any guarantee that Carlson will receive all or any portion of the Annual Benefit. Scripps may, in its discretion, acquire investments to provide for payment of the Annual Benefit, and all such investments shall be sole and exclusive property of Scripps. Carlson shall have no interest in any such investments and shall have no right to direct how Scripps acquires or manages any such investments. 6. TAX WITHHOLDING AND OTHER DEDUCTIONS. Notwithstanding anything in this Agreement to the contrary, Scripps shall have the right to reduce any payment due to Carlson or his wife under this Agreement (a) by income tax withholding, FICA, SDI, SUI, or other applicable payroll withholdings required by law, and (b) any amounts owed by Carlson to Scripps for any reason, including 4 without limitation, amounts due to Scripps due to Carlson's breach of his duties as an employee of Scripps. 7. TERMINATION OF AGREEMENT. Scripps reserves the right to terminate this Agreement at any time. In the event of such termination, the following shall apply: 7.1. If such termination occurs prior to Carlson's separation from service, then Carlson shall be deemed to have separated from service as of such termination date and shall be entitled to his then accrued benefit, as computed under paragraph 3 above. 7.2. If such termination occurs after Carlson's separation from service, then Carlson shall continue to receive the accrued Annual Benefit as provided in paragraph 4 above. 8. AMENDMENT. Scripps shall have the right to amend this Agreement from time to time, provided, however, that any amendment which would reduce the accrued Annual Benefit shall be considered to be a termination of this Agreement and subject to the provisions of paragraph 7 above. 9. AFFILIATED EMPLOYERS. This Agreement may be adopted, in whole or in part, by any other entity which is affiliated with Scripps by means of a written instrument duly executed by such entity; provided, however, that such action shall not be construed to relieve Scripps of its obligations under this Agreement. 10. UNSECURED RIGHTS. The rights of Carlson and any wife of Carlson to receive any benefit under this Agreement shall be unsecured and shall be subject to the claims, if any, of the creditors of Scripps. 11. APPLICABLE LAW. This Agreement shall be construed in accordance with and governed by the laws of the State of California. 12. RESTRICTIONS ON ALIENATION OF BENEFITS. None of the payments, benefits or rights of Carlson or his wife shall be subject to any claim of any creditor, and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment, trustee's process or any other legal or equitable process available to any creditor of such Participant, spouse or beneficiary. Neither Carlson, nor his wife nor any other person shall have the right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments which he or she may expect to receive, contingently or otherwise, under this Agreement. 13. NO CONTRACT OF EMPLOYMENT. Nothing contained in this Agreement shall be construed as giving Carlson any right to be retained in the service of Scripps. 5 14. ERISA EXEMPTION. The parties intend that this Agreement shall be exempt from the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") as being an unfunded arrangement to pay deferred compensation to a select group of management or highly compensated employees of Scripps, as provided in section 201 of ERISA and Department of Labor Regulation section 2520.104-23. The provisions of this Agreement shall be construed in accordance with this intent. 15. INTERPRETATION OF AGREEMENT. The Directors Of Scripps shall have full authority to interpret, construe and administer the terms and provisions of this Agreement, in their sole discretion, and their decisions shall be final and conclusive. No director of Scripps shall be individually liable to Carlson with respect to any action taken or omitted to be taken by such director with respect to this Agreement unless attributable to the wilful misconduct of such director. 16. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and this Agreement shall be construed and enforced as if such provisions had not been included. 17. HEIRS, ASSIGNS AND PERSONAL REPRESENTATIVES. Subject to the restrictions on alienation in paragraph 12 above, this Agreement shall be binding upon the heirs, executors, administrators, successors and assigns of the parties. 18. HEADINGS AND CAPTIONS. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Agreement, and shall not be employed in the construction of the Agreement. 19. GENDER AND NUMBER. Except where otherwise clearly indicated by context, the masculine and the neuter shall include the feminine and the neuter, the singular shall include the plural, and vice-versa. 20. PRIOR UNDERSTANDINGS. This Agreement contains the entire agreement between the parties to this Agreement with respect to the subject matter of this Agreement and supersedes all prior understandings, agreements, representations and warranties, if any, with respect to such subject matter. 21. NOTICES. All notices or other communications required or permitted to be given to a party to this Agreement shall be in writing and shall be personally delivered, sent by registered or certified mail, postage prepaid, return receipt requested, or sent by an overnight express courier service that provides written confirmation of delivery, to such party at the following respective address: 6 To Scripps: 7817 Ivanhoe Avenue La Jolla, CA 92037 To Carlson: 6584 Avenida Manana La Jolla, CA 92037 Each such notice or other communication shall be deemed given, delivered and received upon its actual receipt, except that if it is mailed in accordance with this Paragraph, then it shall be deemed given, delivered and received on the delivery date or the date on which delivery is refused by the addressee, in either case, in accordance with the United States Postal Service's return receipt. Any party to this Agreement may give a notice of a change of its address to the other party(ies) to this Agreement. 22. WAIVER. No delay or omission in the exercise of any right or remedy shall impair such right or remedy or be construed as a waiver. A consent to or approval of any act shall not be deemed to waive or render unnecessary consent to or approval of any other or subsequent act. Any waiver of a default under this Agreement must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Agreement. 23. DRAFTING AMBIGUITIES. The parties to this Agreement acknowledge that each party to this Agreement and its counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or of any amendments or exhibits to this Agreement. Executed on August 21, 1992 at San Diego, California. Scripps Bank by: /s/ William E. Nelson -------------------------------------- William E. Nelson, Chairman /s/ Ronald J. Carlson - ----------------------------------------- Ronald J Carlson, Individually 7 MODIFICATION OF UNFUNDED DEFERRED COMPENSATION AGREEMENT In accordance with the provisions of Section 4.3 of the Unfunded Deferred Compensation Agreement dated August 21, 1992 by and between a California banking corporation ("Scripps Bank") and Ronald J. Carlson, a California resident, ("Carlson"), as amended, the agreement is hereby modified to include the following, as may be applicable to the original agreement: 3.4 Any such optional increases to the Annual Benefit may be revoked by Scripps at any time by written notice to Carlson or Barbara Ann Carlson, if applicable. 4.2 if Carlson shall separate from service due to his death, then payment of the accrued Annual Benefit to Barbara Ann Carlson, if any, shall commence as of the first day of the first month after notice of such death has been delivered to Scripps. Subject to paragraph 4.3 below, if Carlson. shall die before attaining age 65, then payment of the accrued Annual Benefit to Barbara Ann Carlson , if any, shall commence as of the first day of the first month after the date on which Carlson would have attained age 65 had he lived to that date. 4.3 For the purposes of this Agreement, the accrued Annual Benefit payments shall be continued by Scripps, without reduction other than a reduction provided in paragraph 3 above or paragraph 6 below to Barbara Ann Carlson, as follows: 4.3.1 If Carlson shall die, then the accrued Annual Benefit shall be paid to Barbara Ann Carlson, as determined under this paragraph 4, for so long as she may live. 4.3.2 If Carlson shall be impaired by a Disability, an if thereafter he shall begin to receive payment of the accrued Annual Benefit, and if Carlson shall thereafter die, then the accrued Annual Benefit shall be paid to Barbara Ann Carlson for so long as she may live, as determined under this paragraph 4 4.3.3 For the purpose of this agreement, this paragraph is null and void. 4.4 If Carlson or Barbara Ann Carlson, shall die during a month, then the recipient shall be entitled to retain the entire payment of the portion of the Annual Benefit due for such month. If at any time under this Agreement after the death of Carlson, Barbara Ann Carlson is entitled the accrued Annual Benefit. Scripps shalt have no liability to make any further payments of the Annual Benefit to any other person. IN WITNESS WHEREOF, the parties hereto have executed this agreement as a supplement to the Original Agreement SCRIPPS BANK /s/ Ronald J. Carlson - -------------------------- /s/ [ILLEGIBLE] Ronald J. Carlson ("Carlson") ---------------------------------- Chairman of the Board Date: 12/22/97 Date: 12/22/97 --------------------- ----------------------------- EX-10.13 17 EXHIBIT 10.13 EXHIBIT 10.12 SCRIPPS BANK UNFUNDED SUPPLEMENTAL RETIREMENT AGREEMENT 1. PURPOSE OF AGREEMENT. The purpose of this Agreement is to provide Ronald Carlson ("Employee"), current President of Scripps Bank, with supplemental retirement benefits contingent upon his remaining employment by Scripps Bank through October 1, 2002. 2. RETIREMENT BENEFIT. 2.1 BENEFIT. If the Employee remains in the employment of Scripps Bank until October 1, 2002 (the "Retirement Date") or retires prior to such date due to a total and permanent disability, Employee shall be entitled to receive a monthly annuity payment from Scripps Bank in the amount of $2,083.33, commencing on the first day of the month that next follows his Retirement Date (or such earlier date upon which he ceases employment with Scripps Bank due to total and permanent disability) and continuing on the first day of each subsequent month until the month next following the date of Employee's death. In the event that Employee defers retirement beyond the Retirement Date, the monthly benefit shall be actuarially increased to reflect the delayed commencement of the benefit payments. Notwithstanding the preceding sentences, Scripps Bank in its sole and absolute discretion may, at any time, pay the Employee the lump sum present value of the then remaining retirement benefit payable under this Section 2.1. The determination of present value and any actuarial adjustments in the annuity payment to reflect an late commencement of benefits hereunder shall be made by an actuary selected by Scripps Bank. For purposes of this Agreement, total disability shall mean the inability of the Employee, because of a physical or mental impairment that is expected to be of long-term duration, to perform the usual duties of the Employee. Total disability shall be determined by a physician selected by Scripps Bank. 2.2 INFLATION ADJUSTMENT. On each anniversary of the Retirement Date, the monthly benefit shall be increased by three percent (3%) as a cost-of-living adjustment. 2.3 PRERETIREMENT TERMINATION OF EMPLOYMENT. If the employment of the Employee is terminated for cause on or after the Retirement Date or if Employee voluntarily terminates employment prior to the Retirement Date, the Employee shall not be entitled to any benefits under this Agreement. For purposes of this Agreement, termination for cause shall mean termination for any of the following reasons: (i) theft or dishonesty; (ii) improper use or disclosure of confidential information of Scripps Bank; and (iii) failure or inability to carry out duties after written notice and opportunity to cure. If Scripps Bank terminates Employee's employment prior to the Retirement Date for reasons other than cause, Employee shall be deemed to be employed on the Retirement Date for purposes of entitlement to the supplemental retirement benefits under this Agreement. 2.4 WITHHOLDINGS. Applicable income and/or other taxes shall be withheld from all payments made under this Agreement. In addition, in the event that Employee is indebted to Scripps Bank for any reason at the time payments are made under this Agreement, Scripps Bank shall be authorized, but not required, to offset the payments due hereunder by the amount of such indebtedness. 3. UNFUNDED BENEFIT. Scripps Bank shall not be required to establish a trust or otherwise set aside funds to pay the supplemental retirement benefits due under this Agreement. Employee acknowledges that the payment of the benefits under this Agreement shall be subject to the financial ability of Scripps Bank to make such payments, in accordance with applicable insolvency, bankruptcy and banking laws. In the event that Scripps Bank sets aside any funds to assist it in meeting its obligations hereunder, such funds shall at all times remain the sole property of Scripps Bank and be subject to the claims of Scripps Bank's general creditors, and neither Employee nor anyone claiming through or under Employee shall have any property interest whatsoever in such funds or in any specific assets of Scripps Bank. 4. AMENDMENT AND TERMINATION. This Agreement may be amended or terminated when in the sole opinion of Scripps Bank such amendment or termination is advisable. The Agreement and all rights hereunder shall be terminated immediately in the event that Employee is terminated for cause, as defined in Section 2.3. In the event of a termination of the Agreement prior to the payment of all benefits hereunder (other than a termination described in the preceding sentence), Scripps Bank shall pay to Employee in a lump sum payment (less applicable withholdings) the present value of the retirement benefits payable under Section 2.1 of this Agreement. Except as set forth above, the amendment or termination of the Agreement shall not reduce the benefit payable to Employee under the Agreement or otherwise restrict his right to such benefit unless the Employee consents in writing to such amendment. Any amendment or termination of this Agreement shall be made by a written instrument approved by the Board of Directors. 5. MISCELLANEOUS PROVISIONS. 5.1 INFORMATION TO BE FURNISHED. Employee shall provide Scripps Bank with such information and evidence, and shall sign such documents, as may reasonably be requested from time to time for the purpose of determining entitlement to benefits under this Agreement. 5.2 SPENDTHRIFT CLAUSE. Employee shall have no right to transfer, assign, alienate, anticipate, pledge, or encumber any part of the benefits provided under this Agreement, nor shall such benefits be subject to seizure by legal process by any creditor of the Employee. Any attempt to effect such a diversion or seizure shall be deemed null and void for all purposes. 5.3 NO RIGHT TO EMPLOYMENT. Employee shall not acquire any right to be retained in Scripps Bank's employ by virtue of this Agreement, nor, upon his dismissal or upon his voluntary termination of employment, shall he have any right or interest in any retirement benefits or other payments other than as specifically provided herein or in any other written agreement between Employee and Scripps Bank. 5.4 GOVERNING LAW. This Agreement shall be construed, administered, and enforced according to the laws of California. 2 5.5 SUCCESSORS. This Agreement shall not be terminated merely by reason of a transfer or sale of the assets of Scripps Bank or by the merger or consolidation of Scripps Bank into or with any other corporation or entity, but the Agreement shall be continued in accordance with its terms after such sale, merger, or consolidation, and the transferee, purchaser, or successor entity shall be required as part of the sale, merger, or consolidation to agree to such continuation. 5.6 INTERPRETATION OF AGREEMENT. The Board of Directors of Scripps Bank shall have the full authority to interpret, construe and administer the terms and provisions of this Agreement, in their sole discretion, and their decisions shall be final and conclusive. No director or employee of Scripps Bank shall be individually liable to Employee for any action taken or omitted with respect to this Agreement, unless such action or omission constitutes willful misconduct. 5.7 NOTICES. All notices or other communications required or permitted to be given to a party to this Agreement shall be in writing and shall be personally delivered, sent by registered or certified mail, postage prepaid, return receipt requested, or sent by an overnight express courier service that provides written confirmation of delivery, to such party at the following respective address: To Scripps: 7817 Ivanhoe Avenue La Jolla, CA 92037 To Carlson: 2297 Caminito Cabula La Jolla, CA 92037 Each such notice or other communication shall be deemed given, delivered and received upon its actual receipt, except that if it is mailed in accordance with this Section, then it shall be deemed given, delivered and received on the delivery date or the date on which delivery is refused by the addressee, in either case, in accordance with the United States Postage Service's return receipt. Any party to this Agreement may give a notice of a change of its address to the other party(ies) to this Agreement. 5.8 WAIVER. No delay or omission in the exercise of any right or remedy shall impair such right or remedy or be construed as a waiver. A consent to or approval of any act shall not be deemed to waive or render unnecessary consent to or approval of any other or subsequent act. Any waiver of a default under this Agreement must be in writing and shall not be a waiver of any other default concerning the same or any other provision of this Agreement. 5.9 DRAFTING AMBIGUITIES. The parties to this Agreement acknowledge that each party to this Agreement and its counsel have had the opportunity to review and revise this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or of any amendments or exhibits to this Agreement. 3 Executed as of February 17, 1999 at La Jolla, California. SCRIPPS BANK By: /s/ WILLIAM E. NELSON ------------------------------- William E. Nelson, Chairman /s/ RONALD J. CARLSON ------------------------------- Ronald J. Carlson, Individually 4 EX-21.1 18 EXHIBIT 21.1 EXHIBIT 21.1 SCRIPPS FINANCIAL CORPORATION SUBSIDIARIES 1. Scripps Bank EX-27 19 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31, 1998 AND THE RELATED STATEMENTS OF INCOME OF CHANGES IN STOCKHOLDERS' EQUITY AND OF CASH FLOWS FOR YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 67,120 162,317 340,775 4,767 0 0 11,509 6,524 582,630 0 0 0 0 34,092 9,663 582,630 0 47,806 0 0 22,823 1,805 13,315 9,863 3,995 5,868 0 0 0 5,868 .87 .84
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