EXHIBIT 10.22

 

ASSIGNMENT AND ASSUMPTION OF GROUND LEASE AND

CONSENT OF LANDLORD

 

THIS ASSIGNMENT AND ASSUMPTION OF GROUND LEASE AND CONSENT OF LANDLORD
(“Assignment”) is made by and between CUYAMACA BANK, NATIONAL ASSOCIATION, a
national banking association, as Assignor, COMMUNITY NATIONAL BANK, a national
banking association, as Assignee, and MARY AND DARI GARMO, as Landlord, to that
certain Ground Lease dated August 1, 1988 between MAST/MISSION GORGE DEVELOPMENT
LIMITED, a California limited partnership, as amended by that certain SUPPLEMENT
TO GROUND LEASE DATED AUGUST 1, 1988, dated November 14, 1996 (the ground lease,
as amended, being referred to herein as the “Lease”), as of the Effective Time,
as defined below, with reference to the following facts:

 

A. Pursuant to the Lease, Landlord leased to Assignor and Assignor leased from
Landlord the improved real property at 7753 Mission Gorge Road, in the City of
Santee, County of San Diego, State of California, which Lease remains in full
force and effect.

 

B. Assignee, Community Bancorp, Inc., which is Assignee’s parent company, and
Assignor entered into that certain Agreement to Merge and Plan of Reorganization
(“Merger Agreement”), dated June 28, 2004, whereby Assignor will merge with and
into Assignee.

 

C. As a part of the merger of Assignor into Assignee, Assignor is to assign all
of its right, title and interest in the Lease and any amendments, extensions and
modifications thereof to Assignee, and Assignee is to assume performance of the
Lease.

 

D. Landlord has agreed to consent to the assignment of the Lease from Assignor
to Assignee on the conditions set forth in this Assignment.

 

NOW, THEREFORE, FOR VALUABLE CONSIDERATION the receipt of which is hereby
acknowledged it is agreed as follows:

 

1. Assignment: As of the Effective Time, Assignor, hereby assigns and transfers
to Assignee all of Assignor’s right, title, and interest in and to the Lease.

 

2. Assumption: Assignee hereby accepts the assignment and, as of the Effective
Time, assumes and agrees to be bound by and perform all of the terms and
conditions of the Lease.

 

3. Effective Time of Assignment: The “Effective Time” of this Assignment shall
be the “Effective Time” as defined in Section 2.2 of the Merger Agreement.
Assignor shall advise Landlord in writing of the Effective Time when it is
determined.

 

4. Landlord’s Consent: Without waiving any restriction concerning further
assignment and/or sublease contained in the Lease, Landlord hereby consent to
this Assignment.

 

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5. Notice: Any notice, demand, request, consent, approval or communication
Landlord or Assignee desires or is required to give to the other or any other
person shall be in writing and either served personally or sent by prepaid,
first-class mail to the following address:

 

If to Assignee:

 

Community National Bank

Michael J. Perdue

President

900 Canterbury Place, Suite 300

Escondido, CA 92025

 

If to Landlord:

 

Mary and Dari Garmo

1480 Hidden Mesa Trail

El Cajon, CA 92019

 

Any party may change its address by notifying the other party of the change of
address. Notice shall be deemed communicated within 48 hours from the date of
mailing if mailed as provided in this paragraph.

 

6. Counterparts: This Assignment may be executed in multiple counterparts, each
of which shall be deemed an original, and all of which together shall constitute
one and the same instrument. Execution and delivery of this Assignment by
exchange of facsimile copies bearing facsimile signatures of a Party shall
constitute a valid and binding execution and delivery of this Assignment. Such
facsimile copies shall constitute enforceable original documents.

 

LANDLORD:       ASSIGNOR:

MARY AND DARI GARMO

     

CUYAMACA BANK

          Date       Date By:            By:    /s/    BRUCE IVES        

Its:

         

Its:

  President & CEO         ASSIGNEE:        

COMMUNITY NATIONAL BANK

       

/s/    MICHAEL J. PERDUE                            8/6/04

        Date            

By:

  Michael J. Perdue            

Its:

  President & CEO

 

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GROUND LEASE

 

PREAMBLE

 

This ground lease is made on August 1, 1988 between Mast/Mission Gorge
Development Ltd., a California Limited Partnership, hereafter “Lessor” and
Cuyamaca Bank, a State Banking Corporation, hereafter referred to as “Lessee.”

 

Lessor leases to Lessee and Lessee hires from Lessor land in the County of San
Diego, City Santee, State of California, more particularly described in Exhibit
“A” attached hereto and made a part hereof.

 

ARTICLE 1

 

TERM

 

1.01. Initial Term. The term of the lease shall commence on July 1, 1988, and
shall continue for a period of 30 years.

 

1.02. Option to Renew. Lessee shall have the option to renew this lease,
provided they are not in default under the terms of the lease and have paid the
rent on a timely basis, for three (3) six (6) year terms upon written notice to
Lessor ninety (90) days prior to the completion of the then existing lease term.

 

ARTICLE 2

 

RENT

 

2.01. Basic Rent. Lessee agrees to pay to Lessor in equal monthly installments
on the first day of each month beginning July 1, 1988, the sum of $39,600.00 per
year.

 

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2.02. Rental Adjustment. The annual basic guaranteed rental described in Section
2.01 shall be adjusted upward on the third anniversary of the commencement date
of this lease and on the third anniversary of that date thereafter including
option terms, herein called the “adjustment dates,” according to the following
computation:

 

The base for computing the adjustment is the Consumer Price Index, All Urban
Consumers, for the County of San Diego, California, published by the United
States Department of Labor, Bureau of Labor Statistics (“Index”), which is in
effect on the date upon which the term of this Lease commences (“Beginning
Index”). The Index published most immediately preceding the adjustment date
(“Extension Index”) is to be used in determining the amount of the adjustment.
If the Extension Index has increased over the Beginning Index, the minimum
monthly rent for the following two years shall be set by multiplying the rent
then in effect 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 minimum
monthly rent be less than $3,300.00 per month. On adjustment of the minimum
monthly rent as provided in this Lease, the parties shall immediately execute an
amendment to this Lease stating the new minimum monthly rent.

 

If the Index is changed so that the base year differs from that in effect on the
date upon which their term of this Lease commences, the Index shall be converted
in accordance with the conversion factor published by the United States
Department of

 

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Labor, Bureau of Labor Statistics. If the Index is discontinued or revised
during the 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.

 

The new basic rent shall be for the period beginning on the adjustment date and
continuing until the next adjustment date. In no event shall the rent be less
than the rent charged for the period prior to the adjustment rate.

 

2.03. Place of Rent. All rent that becomes due and payable under this lease
shall be paid to Lessor at the office of Lessor at 3675 Ruffin Road, Suite 110,
San Diego, California 92123, or such other place or places as Lessor may from
time to time designate by written notice given to Lessee.

 

ARTICLE 3

 

USE OF PREMISES

 

3.01. Principal Use. The said premises may, during the term of this lease, be
used by Lessee for any lawful purpose; provided, however, that it is expressly
understood and agreed that Lessee is leasing said premises as vacant and
unimproved land with the express intention of developing said premises, either
alone or in conjunction with adjoining lands that may now or hereafter be
acquired by Lessee either in fee or in leasehold estate by constructing,
maintaining and operating thereon a commercial building.

 

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3.02. Only Lawful Uses Permitted. Lessee shall not use or permit said premises
or any portion of said premises to be improved, developed, used, or occupied in
any manner or for any purpose that is in any way in violation of any valid law,
ordinance, or regulation of any federal, state, county, or local governmental
agency, body, or entity. Furthermore, Lessee shall not maintain, commit, or
permit the maintenance or commission of any nuisance as now or hereafter defined
by any statutory or decisional law applicable to said premises on said premises
or any part of said premises.

 

3.03. Oil, Gas and Mineral Rights. All oil, gas and mineral rights are expressly
reserved from this lease.

 

ARTICLE 4

 

TAXES AND UTILITIES

 

4.01. Lessee to Pay Taxes. In addition to the rents required to be paid under
this lease, Lessee shall pay, and Lessee hereby agrees to pay, any and all
taxes, assessments, and other charges of any description levied or assessed
during the term of this lease by any governmental agency or entity on or against
said premises, any portion of said premises, any interest in said premises, or
any improvements or other property in or on said premises.

 

4.02. First and Last Years. Notwithstanding the provisions of Section 4.01 of
this lease, all taxes or assessments levied or assessed on or against said
premises during the tax years in which the term of this lease is to commence and
the term of this lease is to end shall be prorated between Lessor and Lessee as
of 12:01 A.M.

 

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on the date the term of this lease is to commence and on the date the term of
this lease is to end respectively on the basis of tax years that commence on
July 1 and end on June 30 of each year. Lessor shall pay the taxes for the year
in which this lease is to commence and Lessee shall promptly, on service of
written request by Lessor, reimburse Lessor for Lessee’s share of such taxes.
Lessee shall pay the taxes for the year in which this lease is to end; and
Lessor shall promptly, on service of written request by Lessee, reimburse Lessee
for his share of such taxes.

 

4.03. Separate Assessment of Leased Land. Should said premises be assessed and
taxed with or as part of other property owned by Lessor prior to commencement of
the term of this lease, Lessor agrees to arrange with the taxing authorities to
thereafter have said premises taxed and assessed as a separate parcel distinct
from any other real or personal property owned by Lessor. Should said premises
be assessed and taxed for the year in which this lease is to commence with or as
part of other property owned by Lessor, for purposes of determining pursuant to
Section 4.02 of this lease the share of such taxes for which Lessee is liable,
that portion of such taxes that bears the same ratio to the total of such taxes
as the ground area of said premises bears to the ground area of the total taxes
property shall be the taxes levied on and assessed against said premises.

 

4.04. Proof of Compliance. Lessee shall furnish at least 10 days before the date
when any tax, assessment, or charge would become delinquent, receipts or other
appropriate evidence

 

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establishing their payment. Lessee may comply with this requirement by retaining
a tax service to notify Lessor whether the taxes have been paid.

 

4.05. Taxes Payable in Installments. Should any special tax or assessment be
levied on or assessed against said premises that may be either paid in full
prior to a delinquency date within the term of this lease or paid in
installments over a period either within or extending beyond this lease, Lessee
shall have the option of paying such special tax or assessment in installments.
The fact the exercise of the option to pay the tax or assessment in installments
will cause said premises to be encumbered with bonds or will cause interest to
accrue on the tax or assessment is immaterial and shall not interfere with the
free exercise of the option by Lessee. Should Lessee exercise the option to pay
any such tax or assessment in installments, Lessee shall be liable to pay only
those installments becoming due during the term of this lease. Lessor shall
cooperate with Lessee and on written request of Lessee execute or join with
Lessee in executing any instruments required to permit any such special tax or
assessment to be paid in installments.

 

4.06. Contest of Tax. Lessee shall have the right to contest, oppose, or object
to the amount or validity of any tax, assessment, or other charge levied on or
assessed against said premises or any part of said premises; provided, however,
that the contest, opposition, or objection must be filed before the tax,
assessment, or other charge at which it is directed becomes

 

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delinquent and written notice of the contest, opposition, or objection must be
given to Lessor at least 10 days before the date the tax, assessment, or other
charge becomes delinquent. Lessor shall, on written request of Lessee, join in
any such contest, opposition, or objection if Lessee determines such joinder is
necessary or convenient for the proper prosecution of the proceedings but Lessor
shall not be liable for any costs or expenses incurred or awarded in the
proceeding. Furthermore, no such contest, opposition, or objection shall be
continued or maintained after the date the tax, assessment, or other charge at
which it is directed becomes delinquent unless Lessee has either:

 

(1) Paid such tax, assessment, or other charge under protest prior to its
becoming delinquent; or

 

(2) Obtained and maintained a stay of all proceedings for enforcement and
collection of the tax, assessment, or other charge by posting such bond or other
matter required by law for such a stay; or

 

(3) Delivered to Lessor a good and sufficient undertaking in an amount specified
by Lessor and issued by a bonding corporation authorized to issue undertakings
in California conditioned on the payment by Lessee of the tax, assessment, or
charge together with any fines, interest, penalties, costs, and expenses that
may have accrued or been imposed thereon within 30 days after final
determination of Lessee’s contest, opposition or objection to such tax,
assessment, or other charge.

 

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4.07. Tax Returns and Statements. Lessee shall, as between Lessor and Lessee,
have the duty of attending to, preparing, making, and filing any statement,
return, report, or other instrument required or permitted by law in connection
with the determination, equalization, reduction, or payment of any taxes,
assessments, or other charges that are or may be levied on or assessed against
said premises, any portion of said premises, any interest in said premises, or
any improvements or other property on said premises.

 

4.08. Tax Hold-Harmless Clause. Lessee shall indemnify and hold Lessor and the
property of Lessor, including said premises and any improvements now or
hereafter on said premises, free and harmless from any liability, loss, or
damage resulting from any taxes, assessments, or other charges required by this
Article to be paid by Lessee and from all interests, penalties, and other sums
imposed thereon and from any sales or other proceedings to enforce collection of
any such taxes, assessments, or other charges.

 

4.09. Utilities. Lessee shall pay or cause to be paid, and hold Lessor and the
property of Lessor including said premises free and harmless from, all charges
for the furnishings of gas, water, electricity, telephone service, and other
public utilities to said premises during the term of this lease and for the
removal of garbage and rubbish from said premises during the term of this lease.

 

4.10. Payment by Lessor. Should Lessee fail to pay within the time specified in
this Article any taxes, assessment, or other

 

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charges required by this Article to be paid by Lessee, Lessor may, without
notice to or demand on Lessee, pay, discharge, or adjust such tax, assessment,
or other charge for the benefit of Lessee. In such event, Lessee shall promptly
on written demand of Lessor reimburse Lessor for the full amount paid by Lessor
in paying, discharging, or adjusting such tax, assessment, or other charge
together with interest thereon at the maximum rate allowed under Article 15,
Section 1 of the California Constitution, or its subsequent amendment, from the
date of payment by Lessor until the date of repayment by Lessee. Where no time
within which any charge required by this Article to be paid by Lessee is
specified in this Article, such charge must be paid by Lessee before it becomes
delinquent.

 

ARTICLE 5

 

IMPROVEMENTS

 

5.01. Construction. Lessee shall, at Lessee’s sole cost and expense construct or
cause to be constructed on said premises a commercial development, herein called
“said building project” in the manner and in accordance to the terms and
conditions specified in this Article.

 

5.02. Lessor’s Approval of Plans Required. No structure or other improvement of
any kind shall be erected or maintained on said premises unless and until the
plans, specifications, and proposed location of such structure or improvement
have been approved in writing by Lessor. No structure or other improvement shall
be erected or maintained on said premises that does not

 

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comply with plans, specifications, and locations and approved in writing by
Lessor. Furthermore, no material additional to or structural alteration of any
structure or improvement now or hereafter on said premises shall be commenced
until and unless plans and specifications for such addition or alteration shall
be approved in writing by Lessor.

 

5.03. Preparation and Submission of Plans. Lessee shall, at Lessee’s own cost
and expense, engage a licensed architect or engineer to prepare plans and
specifications for said building project and shall submit to Lessor for
approval:

 

(1) Within 180 days after execution of this lease two copies of:

 

(a) drawings and materials in the form of plans, elevations, sections and
rendered perspectives sufficient to convey the architectural design of said
building project to Lessor; and

 

(b) a Statement of Probable Construction Costs of said building prepared by the
engaged architect or engineer.

 

(2) Within 30 days after approval by Lessor of the items specified in
subparagraph (1) of this section and the obtaining by Lessee of any variance
permits, use permits, or rezoning required for said building project, two copies
of:

 

(a) detailed working drawings, plans, and specifications for said building
project; and

 

(b) a revised Statement of Probable Construction Costs of said building project
prepared by the engaged architect or engineer.

 

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5.04. Lessor’s Approval of Plans. Within 30 days after receipt by Lessor of any
of the documents submitted to Lessor for approval pursuant to Section 5.03 of
this lease, Lessor shall either approve such documents by endorsing Lessor’s
approval on each such document and returning one set of the documents to Lessee,
or Lessor shall give written notice to Lessee of any objections Lessor may have
to such documents. Lessor’s failure to give written notice to Lessee within such
30 day period of any objections Lessor may have to the documents shall
constitute approval of the documents by Lessor. Within 30 days after service on
Lessee of the written notice of Lessor’s objections, Lessee may deliver
corrective amendments to the documents to Lessor and Lessor shall within 30 days
after receiving the corrective amendments serve written notice on Lessee of
Lessor’s approval or rejection of the documents as so amended. Failure of Lessor
to serve written notice on Lessee within such 30 day period after receipt of the
corrective amendments shall constitute approval by Lessor of the documents so
amended.

 

5.05. Change in Plans. After approval by Lessor of the documents pertaining to
said building project mentioned in sub- paragraph (2) of Section 5.03 of this
lease, any substantial changes in the plans or specifications for said building
project must be approved by Lessor. Lessor’s failure to give written notice to
Lessee of any objections by Lessor may have to any proposed changes within 15
days after a written statement of the proposed changes has been given to Lessor
by Lessee shall

 

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constitute Lessor’s approval of the changes. Minor changes in work or materials
not affecting the general character of said building project need not be
approved by Lessor but a copy of the altered plans and specifications reflecting
such changes must be given to Lessor.

 

5.06. No Construction Before Notice. No work of any kind shall be commenced on
and no building or other materials shall be delivered for said building project,
nor shall any other building or land development work be commenced or building
materials be delivered on said premises until at least 10 days after written
notice has been given by Lessee to Lessor of the commencement of such work or
the delivery of such materials. Lessor shall, at any and all times during the
term of this lease, have the right to post and maintain on said premises and to
record as required by law any notice or notices of nonresponsibility provided
for by the mechanic’s lien laws of the State of California. The work prohibited
by this section until 10 days’ written notice thereof has been given to Lessor
includes as well as actual construction work any site preparation work,
installation of utilities, street construction or improvement work, or any
grading or filling of said premises.

 

5.07. Written Contracts. All work required in the construction of said building
project, including any site preparation work, landscaping work, utility
installation work as well as actual construction work on said building project,
shall be performed only by competent contractors duly licensed as such under

 

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the laws of the State of California and shall be performed pursuant to written
contracts with such contractors. Each such contract shall provide that the final
payment under the contract due to the contractor shall be in an amount equalling
at least 10 percent of the full amount payable under the contract and shall not
be paid to contractor until, whichever last occurs, either:

 

(1) The expiration of 60 days from the date of recording by Lessee as owner of a
Notice of Completion of said building project, Lessee agreeing to record such
Notice of Completion promptly within the time specified by law for the recording
of such notice; or

 

(2) The settlement and discharge of all liens of record claimed by persons who
supplied either labor or materials for the construction of said building
project.

 

5.08. Compliance with Law. Said building project shall be constructed, and all
work performed on said premises an all buildings or other improvements erected
on said premises shall be in accordance with all valid laws, ordinances,
regulations, and orders of all federal, state, county, or local governmental
agencies or entities having jurisdiction over said premises; provided, however,
that any structure or other improvement erected on said premises, including said
building project, shall be deemed to have been constructed in full compliance
with all such valid laws, ordinances, regulation, and orders when a valid final
Certificate of Occupancy entitling Lessee and tenants of Lessee to occupy and
use of the structure or other improvement has been duly

 

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issued by proper governmental agencies or entities. All work performed on said
premises pursuant to this lease, or authorized by this lease, shall be done in a
good workmanlike manner and only with new materials of good quality and high
standard.

 

5.09. Time for Completion. Lessee shall cause construction of said building
project to be commenced no later than 90 days after approval by Lessor of the
documents described in subparagraph (2) of Section 5.03 of this lease and the
obtaining of necessary financing, shall cause construction of said project to
thereafter be diligently pursued without unnecessary interruption, and shall
cause said building project to be completed not later than 365 days after
commencement of its construction. Should Lessee fail to commence or complete
construction of said building project within the times specified in this
section, Lessor may, by giving 60 days’ written notice to Lessee, terminate this
lease or charge $750.00 per day for each day of delay as additional rent under
this lease; provided, however, that Lessee shall be excused for any delays in
construction or commencement of construction caused by the act of Lessor, the
act of any agent of Lessor, the act of any governmental authority, inability to
procure materials, acts of God, the elements, war, war defense conditions,
litigation, strikes, walkouts, or other causes beyond Lessee’s control. Lessee
shall, however, use reasonable diligence to avoid any such delay and to resume
construction as promptly as possible after the delay.

 

5.10. Mechanic’s Lien. At all times during the term of this lease, Lessee shall
keep said premises and all building and

 

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improvements now or hereafter located on said premises free and clear of all
liens and claims of liens for labor, services, materials, supplies, or equipment
performed on or furnished to said premises. Should Lessee fail to pay and
discharge or cause said premises to be released from any such lien or claim of
lien within 20 days after service on Lessee of written request from Lessor to do
so, Lessor may pay, adjust, compromise, and discharge any such lien or claim of
lien on such terms and manner as Lessor may deem appropriate. In such event,
Lessee shall, on or before the first day of the next calendar month following
any such payment by Lessor, reimburse Lessor for the full amount paid by Lessor
in paying, adjusting, compromising, and discharging such lien or claim of lien,
including any attorney’s fees or other costs expended by Lessor, together with
interest at the maximum rate allowed under California law from the date of
payment by Lessor to the date of repayment by Lessee.

 

5.11. Zoning and Use Permits. Should Lessee deem it necessary or appropriate to
obtain any use permit variance, or rezoning of said premises in order to
construct or operate said building project, Lessor agrees to execute such
documents, petitions, applications, and authorizations as may be necessary or
appropriate in obtaining the same and hereby appoints Lessee his attorney in
fact to execute in the name and on behalf of Lessor any such documents,
petitions, applications, or authorizations; provided, however, that any such
permits, variances, or rezoning shall be obtained at the sole cost and expense
of Lessee and Lessee

 

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agrees to protect and save Lessor and the property of Lessor, including said
premises, free and harmless from any such cost and expense.

 

5.12. Ownership of Building Project. Any and all buildings and improvements
placed or erected on said premises as part of said building project as well as
any and all other alterations, additions, improvements, and fixtures, except
furniture and trade fixtures, made or placed in or on said premises by Lessee or
any other person shall be considered part of the real property of said premises
and upon expiration or sooner termination of this lease shall be deemed to
remain on premises and become the property of Lessor.

 

ARTICLE 6

 

ENCUMBRANCE OF LEASEHOLD

 

6.01. Lessee’s Right to Mortgage Leasehold. Lessee shall have the right at any
time and from time to time to subject the leasehold estate to one mortgage as
security for a loan or loans or other obligations of Lessee and the right to
roll over said mortgages provided that:

 

(1) The mortgage and all rights acquired under it shall be subject to each and
all the covenants, conditions, and restrictions stated in this lease and to all
rights and interests of Lessor except as otherwise provided in this lease.

 

(2) Lessee shall give Lessor prior notice of any such mortgage, and shall
accompany the notice with a true copy of the note and mortgage.

 

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6.02. The note and mortgage shall conform substantially to the usual provisions
in the mortgagee’s loan documents for comparable projects unless specifically
provided otherwise in this agreement. Mortgagee may take an assignment in lieu
of foreclosure whether or not permitted by the note of mortgagee.

 

6.03. Request for Notice of Loan Default. Immediately after the recording of any
deed of trust or mortgage executed by Lessee pursuant to Section 6.01 of this
lease and containing a power of sale as defined by California law, Lessee shall
at Lessee’s own cost and expense record in the office of the County Recorder of
San Diego County, California, a written request executed and acknowledged by
Lessor for a copy of any notice of default and a copy of any notice of sale
under such deed of trust or mortgage to be mailed to Lessor at the address
specified in the request by Lessor.

 

6.04. Notice to and Service on Lender. Lessor shall mail to Lender, should
Lessee incur any encumbrance pursuant to Section 6.01 of this lease, a duplicate
copy of any and all notices Lessor may from time to time give to or serve on
Lessee pursuant to or relating to this lease. Lessee shall at all times keep
Lessor informed in writing of the name and mailing address of Lender and any
changes in Lender’s mailing address. Any notices or other communications
permitted by this or any other section of this lease or by law to be served on
or given to Lender by Lessor shall be deemed duly served on or given to Lender
when deposited in the United States mail, first-class postage prepaid, addressed
to

 

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Lender at the last mailing address for Lender furnished in writing to Lessor by
Lessee or Lender.

 

6.05. No Modification Without Lender’s Consent. Should Lessee incur any
encumbrance pursuant to Section 6.01 of this lease, Lessee and Lessor hereby
expressly stipulate and agree that they will not modify this lease in any way
nor cancel this lease by mutual agreement without the written consent of Lender
having such encumbrance.

 

6.06. Rights of Lender. Should Lessee incur any encumbrance pursuant to Section
6.01 of this lease, the Lender having such encumbrance shall have the right at
any time during the term of this lease and the existence of his encumbrance to:

 

(1) Do any act or thing required of Lessee under this lease, and any such act or
thing done and performed by Lender shall be as effective to prevent a forfeiture
of Lessee’s rights under this lease as if done by Lessee himself;

 

(2) Realize on the security afforded by the leasehold estate by exercising
foreclosure proceedings or power of sale or other remedy afforded in law or in
equity or by the security document, herein called the “Trust Deed,” and to:

 

(a) Transfer, convey, or assign the title of Lessee to the leasehold estate
created by this lease to any purchaser at any foreclosure sale, whether the
foreclosure sale be conducted pursuant to court order or pursuant to a power of
sale contained in the Trust Deed; and

 

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(b) Acquire and succeed to the interest of Lessee under this lease by virtue of
any foreclosure sale, whether the foreclosure sale be conducted pursuant to a
court order or pursuant to a power of sale contained in the Trust Deed.

 

6.07. Rights of Lender to Cure Defaults. Should Lessee incur an encumbrance
pursuant to Section 6.01 of this lease, before Lessor may terminate this lease
because of any default under or breach of this lease by Lessee, Lessor must give
written notice of the default or breach to Lender and afford Lender the
opportunity after service of the notice to:

 

(1) Cure the breach or default within 30 days where the default can be cured by
the payment of money to Lessor or some other person;

 

(2) Cure the breach or default within 30 days where the breach or default must
be cured by something other than the payment of money and can be cured within
that time; or

 

(3) Cure the breach or default in such reasonable time as may be required where
something other than money is required to cure the breach or default and cannot
be performed within 30 days provided that acts to cure the breach or default are
commenced within that time period after service of notice of default on Lender
by Lessor and are thereafter diligently continued by Lender.

 

6.08. Foreclosure. Notwithstanding any other provision of this lease, a Lender
under an encumbrance incurred by Lessee pursuant to Section 6.01 of this lease
may forestall termination of

 

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this lease by Lessee by commencing proceedings to foreclose his encumbrance on
the leasehold estate created by this lease. The proceedings so commenced may be
for foreclosure of the encumbrance by order of court or for foreclosure of the
encumbrance under a power of sale contained in the instrument creating the
encumbrance. The proceedings shall not, however, forestall termination of this
lease by Lessor for the default or breach by Lessee unless:

 

(1) They are commenced within 30 days after service on Lender of the notice
described in Section 6.10 of this lease;

 

(2) They are, after having been commenced, diligently pursued in the manner
required by law to completion; and

 

(3) Lender keeps and performs all of the terms, covenants, and conditions of
this lease requiring the payment or expenditure of money by Lessee until the
foreclosure proceedings are complete or are discharged by redemption,
satisfaction, payment, or conveyance of the leasehold estate to Lender.

 

6.09. Foreclosure - Assignment Without Consent. Provided that Lender under any
encumbrance incurred by Lessee pursuant to Section 6.01 of this lease gives
written notice of transfer to Lessor setting forth the name and address of the
transferee as well as the effective date of the transfer, the written consent of

 

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Lessor shall not be required for transfer of Lessee’s interest under this lease
to:

 

(1) A purchaser at a foreclosure sale of the encumbrance whether the foreclosure
sale be conducted pursuant to court order or pursuant to a power of sale in the
instrument creating the encumbrance; or

 

(2) A purchaser from Lender after foreclosure where Lender was the purchaser of
Lessee’s interest at the foreclosure sale of the encumbrance and Lender is an
established bank, savings and loan association, or insurance company.

 

6.10. New Lease with Lender. Notwithstanding any other provision of this lease,
should this lease terminate because of the insolvency or bankruptcy of Lessee or
because of any default under or breach of this lease by Lessee, Lessor will
execute a new lease for said premises to the Lender under an encumbrance
incurred by Lessee pursuant to Section 6.01 of this lease as Lessee, provided:

 

(1) A written request for the new lease is served on Lessor by Lender within 30
days after service on Lender of the notice described in Section 6.10 of this
lease.

 

(2) The new lease is for a term ending on the same date the term of this lease
would have ended had not this lease been terminated, provides for the payment of
rent at the same rate that would have been payable under this lease during the
remaining term of this lease had this lease not been terminated, and contains
the same terms, covenants, conditions, and provisions as are contained in this
lease.

 

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(3) Lender, on execution of the new lease by Lessor, shall pay any and all sums
that would at the time of the execution of the new lease be due under this lease
but for its termination and shall otherwise fully remedy, or agree in writing to
remedy, any other defaults under or breaches of this lease committed by Lessee
that can be remedied.

 

(4) Lender, on execution of the new lease, shall pay all reasonable costs and
expenses, including attorney’s fees and court costs, incurred in terminating
this lease, recovering possession of said premises from Lessee or the
representative of Lessee, and preparing the new lease.

 

(5) The new lease shall be subject to all existing subleases under which the
sublessees are not in default and shall be assignable by Lender but not by any
assignee of Lender without the consent of Lessor.

 

(6) The new lease shall:

 

(a) Extend the time for performance of any unperformed acts required by Article
5 of this lease for such period as is equal to the delay in performance of the
act caused by Lessee’s inability or failure to perform the act and the time
required to terminate this lease and execute a new lease to Lender; and

 

(b) Excuse the performance of any act required by Article 5 of this lease that
has already been performed but Lender, and Lender’s assignee as Lessee under the
new lease, shall be liable for payment of all costs and expenses incurred in

 

22

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the performance of any act required by Article 5 of this lease, whether
performed before or after execution of the new lease, that might be alleged or
claimed as a lien against said premises.

 

6.11. No Merger of Leasehold and Fee Estate. Should Lessee incur an encumbrance
pursuant to Section 6.01 of this lease then there shall thereafter, during the
existence of the encumbrance, be no merger without the consent of Lender under
such encumbrance of the leasehold estate created by this lease and the fee
estate in said premises merely because both estates have been acquired or become
vested in the same person or entity.

 

6.12. Lender as Assignee of Lease. No Lender under any encumbrance incurred by
Lessee pursuant to Section 6.01 of this lease shall be liable to Lessor as an
assignee of this lease unless and until such time as Lender acquires all rights
of Lessee under this lease through foreclosure or other proceedings in the
nature of foreclosure or as a result of some other action or remedy provided by
law or the instrument creating the encumbrance.

 

6.13. Lender – Definition. The term “Lender” as used in this lease shall mean
not only the person, persons, or entity that loaned money to Lessee and is named
as beneficiary, mortgagee, secured party, or security holder in the instrument
creating any encumbrance incurred by Lessee pursuant to Section 6.01 of this
lease but also all subsequent assignees and holders of the security interest
created by such instrument.

 

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ARTICLE 7

 

REPAIRS AND RESTORATION

 

7.01. Maintenance. At all times during the term of this lease Lessee shall, at
Lessee’s own cost and expense, keep and maintain said premises and all
improvements now or hereafter on said premises as well as all facilities now or
hereafter appurtenant to said premises in good order and repair and in a safe
and clean condition. Furthermore, Lessee shall, at Lessee’s own cost and
expense, maintain at all times during the term of this lease the whole of said
premises as well as any improvements, landscaping, or facilities thereon in a
clean, sanitary, neat, tidy, orderly, and attractive condition.

 

7.02. Compliance with Law. At all times during the term of this lease, Lessee,
at Lessee’s own cost and expense, shall:

 

(1) Make all alterations, additions, or repairs to said premises or the
improvements or facilities on said premises required by any valid law,
ordinance, statute, order, or regulation now or hereafter made or issued by any
federal, state, county, local, or other governmental agency or entity;

 

(2) Observe and comply with all valid laws, ordinances, statutes, orders, and
regulations now or hereafter made or issued respecting said premises or the
improvements or facilities on said premises by any federal, state, county,
local, or other governmental agency or entity;

 

(3) Contest if Lessee, in Lessee’s sole discretion, desires by appropriate legal
proceedings brought in

 

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good faith and diligently prosecuted in the name of Lessee, or in the names of
Lessee and Lessor where appropriate or required, the validity or applicability
to said premises of any law, ordinance, statute, order, or regulation now or
hereafter made or issued by any federal, state, county, local, or other
governmental agency or entity; provided, however, that any such contest or
proceeding, though maintained in the names of Lessee and Lessor, shall be
without cost to Lessor, and Lessee shall protect said premises and Lessor from
Lessee’s failure to observe or comply during the contest with the contested law,
ordinance, statute, order, or regulation;

 

(4) Indemnify and hold Lessor and the property of Lessor, including said
premises, free and harmless from any and all liability, loss, damages, fines,
penalties, claims, and actions resulting from Lessee’s failure to comply with
and perform the requirements of this section.

 

7.03. Duty to Restore. Should, at any time during the term of this lease, any
buildings or improvements now or hereafter on said premises be destroyed in
whole or in part by fire, theft, the elements or any other cause, this lease
shall continue in full force and effect and Lessee, at Lessee’s own cost and
expense, shall repair and restore the damaged or destroyed buildings and
improvements according to the original plan thereof or according to such
modified plans therefore as shall be approved in writing by Lessor. The work of
repair and restoration shall be commenced by Lessee within 120 days after the
damage or destruction occurs and

 

25

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shall be completed with due diligence not longer than 10 months after the work
is commenced. In all other respects, the work of repair and restoration shall be
done in accordance with the requirements for original construction work on said
premises set forth in Article 5 of this lease.

 

7.04. Option to Terminate. Notwithstanding the provision of 7.03 of this lease,
Lessee shall have the option of terminating this lease on the last calendar day
of any month by giving Lessor at least 90 days’ prior written notice of Lessee’s
intent to do so and by removing, at Lessee’s own cost and expense, all debris
and remains of the damaged improvements from said premises where:

 

(1) Any buildings or improvements now or hereafter on said premises are so
damaged or destroyed by fire, theft, the elements, or any cause not the fault of
Lessee or Lessor during the last 3 years of the term of this lease that they
cannot be repaired and restored as required by Section 7.03 of this lease at a
cost not exceeding 50% percent of the cost of replacing all buildings and
improvements if totally destroyed then, immediately preceding the calamity
damaging or destroying the damaged buildings or improvements, located on said
premises.

 

(2) Any buildings or improvements now or hereafter on said premises are so
damaged or destroyed by fire, theft, the elements, or any cause not the fault of
Lessee or Lessor during the last year of the term of this lease that they cannot
be repaired and restored as required by Section 7.03 of this lease at a cost not
exceeding 25 percent of the cost of replacing all buildings and

 

26

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improvements if totally destroyed then, immediately preceding the calamity
damaging or destroying the damaged or destroyed buildings or improvements
located on said premises.

 

7.05. Insurance Proceeds. Any and all fire or other insurance proceeds that
become payable at any time during the term of this lease because of damage to or
destruction of any buildings or improvements on said premises shall be paid to
Lessee and applied by Lessee toward the cost of repairing and restoring the
damaged or destroyed buildings or improvements in the manner required by Section
7.03 of this lease; provided, however, that should Lessee exercise the option
given Lessee by Section 7.04 of this lease to terminate this lease because of
damage to or destruction of buildings or improvements on said premises, then, in
that event, any and all fire or other insurance proceeds that become payable
because of such damage or destruction:

 

(1) Shall be applied first toward the reduction of the unpaid principal balance
of the obligation secured and discharging said premises from any then
outstanding encumbrance or encumbrances incurred by Lessee pursuant to Section
6.01 of this Lease; and

 

(2) Then the balance of the proceeds, if any, shall be paid to Lessor to
compensate Lessor, at least in part, for the loss to his fee estate of the
damaged or destroyed buildings or improvements.

 

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ARTICLE 8

 

INDEMNITY AND INSURANCE

 

8.01. Indemnity Agreement. Lessee shall indemnify and hold Lessor and the
property of Lessor, including said premises and any buildings or improvements
now or hereafter on said premises, free and harmless from any and all liability,
claims, loss, damages, or expenses resulting from Lessee’s occupation and use of
said premises, specifically including, without limitation, any liability, claim,
loss, damage, or expense arising by reason of:

 

(1) The death or injury of any person, including Lessee or any person who is an
employee or agent of Lessee, or by reason of the damage to or destruction of any
property, including property owned by Lessee or by any person who is an employee
or agent of Lessee, from any cause whatever while such person or property is in
or on said premises or in any way connected with said premises or with any of
the improvements or personal property on said premises;

 

(2) The death or injury of any person, including Lessee or any person who is an
employee or agent of Lessee, or by reason of the damage to or destruction of any
property, including property owned by Lessee or any person who is an employee or
agent of Lessee, caused or allegedly caused by either (a) the condition of said
premises or some building or improvement on said premises, or (b) some act or
omission on said premises of Lessee or any person in, on, or about said premises
with the permission and consent of Lessee;

 

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(3) Any work performed on said premises or materials furnished to said premises
at the instance or request of Lessee or any person or entity acting for or on
behalf of Lessee;

 

(4) Lessee’s failure to perform any provision of this lease or to comply with
any requirement of law or any requirement imposed on Lessee or said premises by
any duly authorized governmental agency or political subdivision; or

 

(5) The death or injury of any person or by reason of the damage to or
destruction of any property from any cause whatever while such person or
property is in or on said premises or in any way connected with said premises or
with any of the improvements or personal property on said premises.

 

8.02. Liability Insurance. Lessee shall, at Lessee’s own cost and expense,
secure promptly after execution of this lease and maintain during the entire
term of this lease a broad form comprehensive coverage policy of public
liability insurance issued by an insurance company acceptable to Lessor and
authorized to issue liability insurance in California insuring Lessee and Lessor
against loss or liability caused by or connected with Lessee’s occupation and
use of said premises under this lease in amounts not less than:

 

(1) $500,000.00 for injury to or death of one person and, subject to such
limitation for the injury or death of one person, of not less than $1,000,000.00
for injury to or death of two or more persons as a result of any one accident or
incident; and

 

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(2) $1,000,000.00 for damage to or destruction of any property of others.

 

8.03. Fire and Casualty Insurance. Lessee shall, at Lessee’s own cost and
expense, at all times during the term of this lease keep all buildings,
improvements, and other structures on said premises, as well as any and all
additions thereto, insured for their full insurable value by insurance companies
authorized to issue such insurance in California against loss or destruction by
fire and the perils commonly covered under the standard extended coverage
endorsement to fire insurance policies in the county where said premises is
located. Any loss payable under such insurance shall be payable to Lessee,
Lessor, and any Lender under an encumbrance incurred by Lessee pursuant to
Section 6.01 of this lease as their interests may appear. Any proceeds received
because of a loss covered by such insurance shall be used and applied in the
manner required by Section 7.05 of this lease.

 

8.04. Specific Perils. Notwithstanding anything to the contrary contained in
Section 8.03 of this lease, the insurance required by Section 8.03 of this lease
shall, whether or not included in the standard extended coverage endorsement
mentioned in Section 8.03, insure all buildings, improvements, and other
structures on said premises, as well as any and all additions thereto, against
loss or destruction by windstorm, earthquake, cyclone, tornado, hail, explosion,
riot, riot attending a strike, civil commotion, malicious mischief, vandalism,
aircraft, fire, smoke damage, and sprinkler leakage. Furthermore, the insurance

 

30

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required by Section 8.03 of this lease during the construction of any building
project if Lessee should choose to do so described in Article 5 shall have
course of construction, vandalism, and malicious mischief clauses attached
insuring said project during its construction and all materials delivered to the
site of said building project for their full insurable value.

 

8.05. Deposit of Insurance. Lessee shall within 10 days after the execution of
this lease and promptly thereafter when any such policy is replaced, rewritten,
or renewed deliver to Lessor a true and correct copy of each insurance policy
required by this Article of this lease or a certificate executed by the
insurance company or companies or their authorized agent evidencing such policy
or policies.

 

8.06. Notice of Cancellation. Each insurance policy required by this Article of
this lease shall contain a provision that it cannot be cancelled for any reason
unless 10 days’ prior written notice of the cancellation is given to Lessor in
the manner required by this lease for service of notices on Lessor by Lessee.

 

8.07. Payment before Due. Any and all insurance required to be obtained by
Lessee shall be paid by Lessee at least 10 days before such insurance becomes
due and receipt of payment shall be immediately given to Lessor.

 

8.08. Payment by Lessor. Should Lessee fail to pay within the time specified in
this Article any insurance premiums on insurance required by this Article to be
paid by Lessee, Lessor may pay such premiums for the benefit of Lessee. In such
event, Lessee

 

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shall promptly on written demand of Lessor reimburse Lessor for the full amount
paid by Lessor together with interest thereon at the maximum rate allowed under
Article 15, Section 1 of the California Constitution, or it subsequent
amendments from the date of payment by Lessor until the date of repayment.

 

ARTICLE 9

 

CONDEMNATION

 

9.01. Total Condemnation. Should, during the term of this lease, title and
possession of all of said premises be taken under the power of eminent domain by
any public or quasi-public agency or entity, this lease shall terminate as of
12:01 A.M. of, whichever first occurs, the date legal title of said premises is
taken by the agency or entity exercising the power of eminent domain and both
Lessor and Lessee shall thereafter be released from all obligations, except
those specified in Section 9.05 of this lease, under this lease.

 

9.02. Partial Taking – Parking Lot. Should, during the term of this lease, title
and possession of only a portion of said premises be taken under the power of
eminent domain by any public or quasi-public agency or entity, all compensation
and damages payable by reason of any parking facilities on said premises taken
by such exercise of the eminent domain power shall be available to and used, to
the extent reasonably needed, by Lessee in replacing the parking facilities so
taken to the extent reasonably practicable under then existing laws and
conditions with new parking facilities on the remaining portion of said
premises. Plans

 

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and specifications for the replacement parking facilities must be first approved
in writing by Lessor but may include, where practicable, deck parking facilities
to replace ground level parking facilities taken by eminent domain; provided,
however, that should the parking facilities taken by eminent domain result in a
net loss of 35 percent or more of the area of said premises that can, after
considering any replacement parking facilities that can be constructed on the
remaining portion of said premises by reasonable methods, be devoted to parking
facilities as compared with the area devoted to such facilities immediately
prior to the taking, Lessee may terminate this lease in the manner prescribed in
Section 9.04 of this lease.

 

9.03. Partial Taking – Rental Facilities. Should, during the term of this lease,
title and possession of only a portion of said premises be taken under the power
of eminent domain by any public or quasi-public agency or entity, all
compensation and damages payable by reason of any improvements other than
parking facilities taken by such exercise of the eminent domain power shall be
available to and used, to the extent reasonably needed, by Lessee to replace the
improvements so taken to the extent reasonably practicable under then existing
laws and conditions with improvements of the same type on the remaining portion
of said premises. Plans and specifications for the replacement improvements
must, however, be first approved by Lessor in writing; provided, however, that
should the improvements taken by eminent domain result in a net loss of 35
percent or more of the total

 

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rentable floor space of all buildings on said premises, after taking into
consideration additional floor space that could be reasonably constructed on the
remaining portion of said premises, immediately prior to the taking, Lessee may
terminate this lease in the manner prescribed by Section 9.04 of this lease.

 

9.04. Termination for Partial Taking. Lessee may terminate this lease for the
reasons stated in either, or both, Section 9.02 or Section 9.03 of this lease by
serving written notice of termination on Lessor within 90 days after Lessee has
been deprived of actual physical possession of the portion of said premises
taken by eminent domain. This lease shall terminate as of 12:01 A.M. of the
first day of the calendar month following the calendar month in which the notice
of termination described in this section is served on Lessor. On termination of
this lease pursuant to this section, all subleases and subtenancies in or on
said premises or any portion or portions of said premises created by Lessee
under this lease shall also terminate and said premises shall be delivered to
Lessor free and clear of all such subleases and subtenancies; provided, however,
that Lessor may, at Lessor’s option, by mailing written notice to a subtenant
allow any subtenant to attorn to Lessor and continue his or her occupancy on
said premises as a tenant of Lessor. On termination of this lease pursuant to
this section, however, both Lessor and Lessee shall be released from all
obligations, except those specified in Section 9.05 of this lease, under this
lease.

 

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9.05. Condemnation Award. Any compensation or damages awarded or payable because
of the taking of all or any portion of said premises by eminent domain shall be
distributed and disbursed between Lessor and Lessee as follows:

 

(1) All compensation or damages awarded or payable for the taking by eminent
domain of any land that is part of the said premises shall be paid to and be the
sole property of Lessor free and clear of any claim of Lessee or any person
claiming rights to said premises through or under Lessee.

 

(2) All compensation or damages awarded or payable because of any improvements
constructed or located on the portion of said premises taken by eminent domain
where only a portion of said premises is taken by eminent domain and Lessee is
not entitled to or does not terminate this lease shall be applied in the manner
specified in Section 9.02 or Section 9.03 toward the replacement of such
improvements with equivalent new improvements on the remaining portions of said
premises.

 

(3) All compensation or damages awarded or payable because of any improvements
constructed or located on the portion of said premises taken by eminent domain
where this lease is terminated because of the taking by eminent domain, whether
all or only a portion of said premises is taken by eminent domain, shall be
allocated between Lessee and Lessor as follows:

 

(a) That percentage of the compensation or damages awarded or payable because of
the improvements that equals the percentage of the full term of this lease that
has, at the time

 

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of the taking, not expired shall belong to and be the sole property of Lessee.

 

(b) That percentage of the compensation or damages awarded or payable because of
the improvements that equals the percentage of the full term of this lease that
has, at the time of the taking, expired shall belong to and be the sole property
of Lessor.

 

(c) The term “time of taking” as used in this subparagraph shall mean 12:01 A.M.
of, whichever shall first occur, the date title or the date physical possession
of the portion of said premises on which the improvements are located is taken
by the agency or entity exercising the eminent domain power.

 

(4) Any severance damages awarded or payable because only a portion of said
premises is taken by eminent domain shall be:

 

(a) The sole and separate property of Lessee during the first 10 years of the
term of the lease;

 

(b) Equally divided, except to the extent needed to replace any improvements
taken by eminent domain with equivalent improvements on the remaining portion of
said premises where Lessee cannot or does not terminate this lease, between
Lessor and Lessee during the 16 to 50 years of the term of this lease; and

 

(c) The sole and separate property of Lessor during the last 10 years of the
term of this lease.

 

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9.06. Rent Abatement for Partial Taking. Should, during the term of this lease,
title and possession of only a portion of said premises be taken under the power
of eminent domain by any public or quasi-public agency or entity and Lessee does
not or cannot under Section 9.02 or Section 9.03 terminate this lease, then this
lease shall terminate as to the portion of said premises taken under eminent
domain as of 12:01 A.M. of, whichever first occurs, the date title is taken or
the date actual physical possession of the portion taken by eminent domain is
taken by the agency or entity exercising the eminent domain power. Furthermore,
the rent payable under this lease shall, as of that time, be reduced in the same
proportion that the value of the portion of said premises taken by eminent
domain bears to the full value of said premises at that time; provided, however,
that Lessee shall, subject to the provisions of Section 9.02 and 9.03 of this
lease, replace any improvements or facilities with equivalent new facilities on
the remaining portion of said premises and do all other acts at Lessee’s own
cost and expense required by the eminent domain taking to make the remaining
portion of said premises fit for the uses specified in this lease.

 

9.07. Voluntary Conveyance. A voluntary conveyance by Lessor, with the consent
of Lessee, of title to all or a portion of said premises to a public or
quasi-public agency or entity in lieu of and under threat by such agency or
entity to take the same by eminent domain proceedings shall be considered a
taking of title to

 

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all or such portion of said premises under the power of eminent domain subject
to the provisions of this Article.

 

ARTICLE 10

 

ASSIGNMENT AND SUBLEASE

 

10.1. No Assignment Without Lessor’s Consent. Except as provided in Section
10.02 of this lease, Lessee shall not assign or otherwise transfer this lease,
any right or interest in this lease, or any right or interest in said premises
or any of the improvements that may now or hereafter be constructed or installed
on said premises without the express written consent of Lessor first had and
obtained. Any assignment or transfer by Lessee without the prior written consent
of Lessor, whether it be voluntary or involuntary, by operation of law or
otherwise, is void and shall, at the option of Lessor, terminate this lease. A
consent by Lessor to one assignment shall not be deemed to be a consent to any
subsequent assignment of this lease by Lessee. The consent of Lessor to any
assignment of Lessee’s interest in this lease, however, shall not be
unreasonably withheld.

 

10.2. Permitted Assignment. Notwithstanding the provisions of Section 10.01 of
this lease, Lessee may without the prior written consent of Lessor transfer and
assign all Lessee’s interest under this lease and the leasehold estate hereby
created in Lessee to:

 

(1) Any trustee named in a deed of trust, any mortgagee named in a mortgage, or
any person named in any other type of security instrument for the purpose of
incurring an encumbrance on

 

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such interest and such leasehold estate pursuant to Section 6.01 of this lease.

 

(2) A partnership now or hereafter organized in which Lessee owns a majority of
and is the General Partner.

 

10.03. Sublease. Lessee shall have the right to sublease all or any part or
parts of the premises or the improvements or both, and to assign, encumber,
extend, or renew any sublease, provided it first obtains the express written
consent of landlord which consent will not unreasonably be withheld.

 

ARTICLE 11

 

DEFAULT AND TERMINATION

 

11.01. Breach Without Termination. Even though Lessee has breached this lease
and abandoned the property, this lease continues in effect for so long as Lessor
does not terminate Lessee’s right to possession; and Lessor may enforce all his
rights and remedies under this lease, including the right to recover the rent as
it becomes due under this lease.

 

11.02. Nonterminating Actions. For the purposes of this article, the following
do not constitute a termination of Lessee’s right to possession:

 

(a) Acts of maintenance or preservation or efforts to relet the property;

 

(b) The appointment of a receiver on initiative of Lessor to protect his
interest under this lease.

 

11.03. Lessee’s Right to Sublet or Assign. Lessee may, at his option, transfer
his interest hereunder in the following manner

 

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so long as Lessor has not terminated Lessee’s right to possession for breach of
this lease an abandonment of the property: Sublet the property, assign his
interest in the lease, or both, with the consent of Lessor, which consent shall
not be withheld unreasonably.

 

11.04. Breach. All covenants and agreements contained in this lease are declared
to be conditions to this lease and to the term hereby demised to Lessee. Should
Lessee default in the performance of any covenant, condition, or agreement
contained in this lease and the default not be cured within 60 days after
written notice of the default is served on Lessee by Lessor, then Lessor may
terminate this lease and:

 

(1) Bring an action to recover from Lessee:

 

(a) The worth at the time of award of the unpaid rent which had been earned at
the time of termination of the lease;

 

(b) The worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination of the lease until the time of award
exceeds the amount of rental loss that Lessee proves could have been reasonably
avoided;

 

(c) 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 rental
loss that Lessee proves could be reasonably avoided; and

 

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(d) Any other amount necessary to compensate Lessor for all detriment
proximately caused by Lessee’s failure to perform his obligations under this
lease; and

 

(2) Bring an action, in addition to or in lieu of the action described in
subparagraph (1) of this section, to reenter and regain possession of said
premises in the manner provided by the laws of unlawful detainer of the State of
California then in effect.

 

11.05. Insolvency of Lessee. Should Lessee become insolvent as defined in this
section, Lessor may, by giving 60 days’ written notice to Lessee or to the
person appointed to manage Lessee’s affairs at the address for such person
appearing in the official records of the court that appointed him, terminate
this lease and forfeit Lessee’s interest in said premises and in any
improvements or facilities in, on or appertaining to said premises. For purposes
of this section, Lessee shall be conclusively presumed to have become insolvent
if Lessee:

 

(1) Has a receiver appointed to take possession of all or substantially all of
Lessee’s property because of insolvency;

 

(2) Makes a general assignment for the benefit of creditors; or

 

(3) Allows any judgment against Lessee to remain unsatisfied and unbonded for a
period of 30 days or longer.

 

11.06. Cumulative Remedies. The remedies given to Lessor in this Article shall
not be exclusive but shall be cumulative with

 

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and in addition to all remedies now or hereafter allowed by law and elsewhere
provided in this lease.

 

11.07. Waiver of Breach. The waiver by Lessor of any breach by Lessee of any of
the provisions of this lease shall not constitute a continuing waiver or a
waiver of any subsequent breach by Lessee either of the same or a different
provision of this lease.

 

11.08. Surrender of Premises. On expiration or sooner termination of this lease,
Lessee shall surrender said premises, all improvements in or on said premises,
and all facilities in any way appertaining to said premises, to Lessor in as
good, safe, and clean condition as practicable, reasonable wear and tear
excepted and casualty damage.

 

ARTICLE 12

 

MISCELLANEOUS

 

12.01. Force Majeure – Delays. Except as otherwise expressly provided in this
lease, should the performance of any act required by this lease to be performed
by either Lessor or Lessee be prevented or delayed by reason of any act of God,
strike, lockout, labor trouble, inability to secure materials, restrictive
governmental laws or regulations, or any other cause except financial inability
not the fault of the party required to perform the act, the time for performance
of the act will be extended for a period equivalent to the period of delay and
performance of the act during the period of delay will be excused; provided,
however, that

 

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nothing contained in this section shall excuse the prompt payment of rent by
Lessee as required by this lease or the performance of any act rendered
difficult or impossible solely because of the financial condition of the party,
Lessor or Lessee, required to perform the act.

 

12.02. Attorney’s Fees. Should any litigation be commenced between the parties
to this lease concerning said premises, this lease, or the rights and duties of
either in relation thereto, the party, Lessor or Lessee, prevailing in such
litigation shall be entitled, in addition to such other relief as may be granted
in the litigation, to a reasonable sum as and for his attorney’s fees in such
litigation which shall be determined by the court in such litigation or in a
separate action brought for that purpose.

 

12.03. Notices to Lessor. Except as otherwise expressly provided by law, any and
all notices or other communications required or permitted by this lease or by
law to be served on or given to Lessor by Lessee or any Lender described in
Article 6 of this lease shall be in writing and shall be deemed duly served and
given when personally delivered to Lessor, to any managing employee of Lessor,
or, in lieu of such personal service, when deposited in the United States mail,
first-class postage prepaid, addressed to Lessor at 3625 Ruffin Road, Suite 110,
San Diego, California 92123. Lessor may change Lessor’s address for the purpose
of this section by giving written notice of such change to Lessee in the manner
provided in Section 12.04 whereupon Lessee shall transmit a

 

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copy of such notice to any Lender described in Article 6 of this lease.

 

12.04. Notices to Lessee. Except as otherwise expressly provided by law, any and
all notices or other communications required or permitted by this lease or by
law to be served on or given to Lessee by Lessor shall be in writing and shall
be deemed duly served and given when personally delivered to Lessee, any
managing employee of Lessee, or, in lieu of such personal service, when
deposited in the United States mail, first-class postage prepaid, addressed to
Lessee at 9955 Mission Gorge Road, Santee, California 92071. Lessee may change
his address for the purpose of this section by giving written notice of such
change to Lessor in the manner provided in Section 12.03 of this lease.

 

12.05. Governing Law. This lease, and all matters relating to this lease, shall
be governed by the laws of the State of California in force at the time any need
for interpretation of this lease or any decision or holding concerning this
lease arises.

 

12.06. Binding on Heirs and Successors. This lease shall be binding on and shall
inure to the benefit of the heirs, executors, administrators, successors, and
assigns of the parties hereto, Lessor and Lessee, but nothing in this section
shall be construed as a consent by Lessor to any assignment of this lease or any
interest therein by Lessee except as provided in Article 10 of this lease.

 

12.07. Partial Invalidity. Should any provision of this lease be held by a court
of competent jurisdiction to be either

 

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invalid, void, or unenforceable, the remaining provisions of this lease shall
remain in full force and effect unimpaired by the holding.

 

12.08. Captions. The table of contents of this lease and the captions of the
various articles and paragraphs of this lease are for convenience and ease of
reference only and do not define, limit, augment, or describe the scope,
content, or intent of this lease or of any part or parts of this lease.

 

12.09. Gender. The neuter gender includes the feminine and masculine, the
masculine includes the feminine and neuter, and the feminine includes the
masculine and neuter, and each includes corporation, partnership, or other legal
entity when the context so requires.

 

12.10. Singular and Plural. The singular number includes the plural whenever the
context so requires.

 

12.11. Exhibits. All exhibits and addenda to which reference is made in this
lease are incorporated in the lease by the respective reference to them, whether
or not they are actually attached, provided they have been signed or initialed
by the parties. Reference to “this lease” includes matters incorporated by
reference.

 

12.12. Sole and Only Agreement. This instrument constitutes the sole and only
agreement between Lessor and Lessee respecting said premises, the leasing of
said premises to Lessee, the construction of the said building project described
in this lease on said premises, or the lease terms herein specified, and

 

45

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correctly sets forth the obligations of Lessor and Lessee to each other as of
its date. Any agreements or representations respecting said premises, their
leasing to Lessee by Lessor, or any other matter discussed in this lease not
expressly set forth in this instrument are null and void.

 

12.13. Time of Essence. Time is expressly declared to be the essence of this
lease.

 

12.14. Consent. Whenever consent is required of Lessor under this lease, that
consent shall not be unreasonably withheld.

 

12.15. Memorandum of Lease for Recording. Neither party, Lessor or Lessee, shall
record this lease without the written consent of the other. However, Lessor and
Lessee shall, at the request of either at any time during the term of this
lease, execute a memorandum or “short form” of this lease for purposes of, and
in a form suitable for, being recorded. The memorandum or

 

46

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“short form” of this lease shall describe the parties, Lessor and Lessee, set
forth a description of the leased premises, specify the term of this lease, and
shall incorporate this lease by reference.

 

EXECUTED on Oct 17, 1981, at San Diego County, California.

 

LESSOR

Mast/Mission Gorge Development Ltd., a California Limited Partnership

By KRD DEVELOPING RESOURCES, INC.,

a California Corporation

General Partners

By:   /s/    STEPHEN C. KERCH             Stephen C. Kerch By:    

LESSEE

Cuyamaca Bank, a State Banking Corporation By:   /s/    ALAN FARIAS         By:
   

 

47

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EXHIBIT “A”

 

LEASE PARCEL #1

 

BEGINNING AT THE NORTHWESTLY CORNER OF LOT 5 THENCE SOUTH 1O° 21’ 22” WEST 58.00
FEET ALONG THE WESTERLY LINE OF SAID LOT TO THE POINT OF BEGINNING; THENCE AT
RIGHT ANGLES SOUTH 79° 38’ 45” EAST ALONG THE NORTHERLY LINE OF SAID PARCEL,
141.00 FEET; THENCE AT RIGHT ANGLES, SOUTH 10° 21’ 22” WEST ALONG THE EASTERLY
LINE OF SAID PARCEL 91.25 FEET; THENCE AT RIGHT ANGLES, NORTH 79° 38’ 45” WEST
PARALLEL WITH SAID NORTHERLY LINE 141.00 FEET TO THE WESTERLY LINE OF SAID
PARCEL; THENCE NORTH 10° 21’ 22’ EAST ALONG SAID WESTERLY LINE 91.25 FEET TO THE
POINT OF BEGINNING.

 

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LOGO [g93730image001.jpg]

 

LEASE PARCEL #1 = CUYAMACA BANK

LEASE PARCEL #2 = CIRCLE K

LEASE PARCEL #3 = CAR WASH

 

EXHIBIT “A”

 

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SUPPLEMENT TO GROUND LEASE DATED AUGUST 1, 1988

 

MARY and DARI GARMO, hereinafter referred to “GARMO” or “LESSOR” and CUYAMACA
BANK, a State banking corporation, hereinafter referred to as “BANK” or
“LESSEE,” for valuable consideration receipt of which is hereby acknowledged,
agree to amend, modify and change that Ground Lease (“LEASE”) dated August 1,
1988 between Mast/Mission Gorge Development Limited, a California limited
partnership, prior Lessor and CUYAMACA BANK, a State banking commission, prior
and current LESSEE as follows:

 

1. The term of the Lease shall commence on January 1, 1997 and shall continue
for a period of ten (10) years.

 

2. LESSEE shall have the option to renew this Lease for three five (5) year
terms upon written notice to LESSOR ninety (90) days prior to the completion of
the then-existing Lease term.

 

3. LESSEE agrees to pay LESSOR in equal monthly installments on the first day of
each and every month, the sum of Three Thousand Two Hundred Fifty Dollars
($3,250) as and for the monthly rental and lease payments for said property.

 

4. It is specifically understood and agreed that there shall be no change in the
base rental amount at any time during the Lease nor any cost of living increases
during said ten year term. Thereafter, for each five year option exercised by
the Bank, Landlord shall have the right to impose a cost of living increase as
follows: as to the first five year option term, the cost of living increase
shall not exceed that fifteen (15%)

 

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percent, using the $3,250 as the base amount on which to calculate said cost of
living increase. The cost of living increase shall be applied to the entire term
period and shall not be adjusted year to year. For the remaining option terms,
if such are exercised by the Bank, the landlord shall be entitled to a cost of
living increase at a rate not to exceed two (2%) percent per year.

 

5. In all other respects, the original LEASE executed on August 1, 1988, not in
conflict with these above recited terms, shall remain in full force and effect.

 

Executed on 14 day Nov, 1996 at San Diego County California.

 

LESSOR:

  /s/    DARI GARMO             Dari Garmo     /s/    MARY GARMO            
Mary Garmo

 

LESSEE:

            Cuyamaca Bank, a State Banking Corporation     By:   /s/    ALAN
FARIAS        

 

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COMPROMISE AND MUTUAL RELEASE SETTLEMENT AGREEMENT

 

THIS COMPROMISE AND MUTUAL RELEASE SETTLEMENT AGREEMENT, hereinafter referred to
as “AGREEMENT” is made this                      day of                     ,
1996 by and between Cuyamaca Bank hereinafter referred to as “BANK” and Dari and
Mary Garmo collectively referred to as “GARMO”.

 

1. RECITALS

 

THIS AGREEMENT is made with reference to and contemplation of the following
facts:

 

(a) Dispute

 

A dispute has arisen and exists between BANK and GARMO with respect to a land
lease wherein GARMO alleges that BANK owes GARMO money for unpaid lease
payments, and it is further alleged by BANK that GARMO breached their
obligations under the terms of the lease.

 

(b) Purpose

 

The parties hereto understand, acknowledge, covenant and agree that the
execution of this AGREEMENT consummates a compromise of disputed claims and is
not to be construed as an admission of liability on the part of any party to
this AGREEMENT. It is the parties’ desire and intention to effect a final
settlement and resolution of all existing disputes and claims regardless of
their nature or basis.

 

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2. TERMS OF SETTLEMENT

 

The following terms and conditions of settlement are each mutually dependent
upon and conditioned upon performance of the other conditions:

 

(a) The current lease entitled “Ground Lease” (hereinafter “Lease”) executed on
or about August 1, 1988 originally between Mast/Mission Gorge Development
Limited, a California limited partnership predecessor Lessor to GARMO, the
current Lessor (“Lessor”) and Cuyamaca Bank (BANK), a State banking corporation
(“Lessee”), shall be amended to as follows:

 

(1) The term of said Lease shall be modified to be a 10-year lease beginning
January 1, 1997 with three 5-year options to renew and extend such Lease thereby
granting to BANK the possibility of a leasehold interest for a total of
twenty-five (25) years.

 

(2) BANK shall pay to GARMO as and for monthly lease payments the sum of Three
Thousand Dollars ($3,000) per month for the year 1995.

 

(3) BANK shall pay to GARMO as and for monthly lease payments the sum of Three
Thousand Dollars ($3,000) per month for the year 1996.

 

(4) Beginning January 1, 1997 and continuing each and every month thereafter
with no changes or cost of living increases during the first ten (10) year term,
BANK shall pay to GARMO a monthly lease payment in sum of Three Thousand Two
Hundred Fifty Dollars ($3,250) per month for each and every month

 

2

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until said Lease is terminated. Thereafter, if BANK exercises the options to
renew, the cost of living increase for the entire first five year term shall not
exceed fifteen (15%) percent using the $3,250 as the base amount in
determination of the cost of living increase, and, thereafter, as to the
remaining option terms, GARMO shall be entitled to a yearly cost of living
increase not to exceed two (2%) percent per year. (See Supplement to Ground
Lease Dated August 1, 1988 incorporated herein and to be signed herewith.)

 

(5) In all other respects, said Lease executed on or about August 1, 1988, not
in conflict with these terms and conditions recited above, shall remain in full
force and effect.

 

(b) BANK shall pay to GARMO, the sum of Ninety-one Thousand Five Hundred Dollars
($91,500) upon execution of this document, execution of the Supplement to Ground
Lease referenced above, and execution and receipt of GARMO’s dismissal with
prejudice (as referenced hereinbelow), said sum to be allocated as follows:
Thirty-Six Thousand Dollars ($36,000) shall be allocated to payment in full of
all lease obligations for the year 1995; Thirty-Six Thousand Dollars ($36,000)
shall be allocated to payment in full of all lease obligations for the year
1996; the balance of Nineteen Thousand Five Hundred Dollars ($19,500) shall be
allocated to and considered prepaid lease payments toward the year 1997, said
monthly lease payment as referenced above having been set at Three Thousand Two
Hundred Fifty Dollars ($3,250) per month. This Nineteen Thousand Five Hundred
Dollars ($19,500)

 

3

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represents prepaid rent(lease) in full for the period of January 1997 through
June 1997, inclusive.

 

(c) BANK shall continue to write down the building they occupy and own on said
premises which is subject to Lease referenced above in accordance with the
generally accepted Banking principles so that at the time BANK vacates the
building, if the BANK so vacates, at the expiration of the Lease, GARMO will
then have the responsibility for demolition of said building. The purpose of
such clause is to assist GARMO in establishing that the BANK’s remaining
building has no value to assist GARMO concerning tax issues. It is expressly
stated herein that neither BANK’s nor GARMO’s attorney are experts in or provide
any tax advice regarding this transaction and refer both BANK and GARMO to their
respective tax consultants and experts regarding the impact of this issue.

 

(d) The parties hereto acknowledge and agree that they will execute forthwith at
the time of the execution of this AGREEMENT the “Supplement to Ground Lease
Dated August 1, 1988” reciting the terms referenced above, which Supplement to
Ground Lease is to be attached to the existing Ground Lease which is the subject
matter of this settlement.

 

(e) The parties shall execute forthwith, with the signing of this Agreement, a
Dismissal with Prejudice of the entire action for delivery to BANK’s attorney
for filing.

 

(f) The entirety of this AGREEMENT is to be considered strictly confidential,
and shall not be disclosed to, revealed

 

4

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to, or reviewed by any party other than the parties herein named and their
respective attorneys. If either party breaches any term or condition of this
AGREEMENT, such party shall be liable for any and all damages caused by said
breach, including reimbursement for all costs paid herein and any other damages
or losses sustained.

 

3. RELEASE OF CLAIMS

 

(a) Release by BANK

 

Except as otherwise provided herein, BANK individually and on behalf of their
heirs, executors, administrators, officers, directors, shareholders, legal
representatives, successors, assigns, agents, employees, attorneys, partners,
and co-venturers, and each of them, hereby fully and forever release, acquit,
and discharge those parties designated as GARMO and its heirs, executors,
administrators, legal representatives, successors, assigns, agents, officers,
directors, shareholders, employees, attorneys, partners, and co-venturers, and
each of them, of and from any and all claims, demands, liability, actions,
causes of action, costs, expenses, attorneys fees, obligations, and rights
(contingent, accrued, enjoined or otherwise), known or unknown, which BANK may
have against any of them including, without limitation, any claim or demand
before any court, administrative body, public agency or any other party which
BANK may have against any or all of them arising out of any of the matters
referred to in subparagraph 1(a) above, or for any other matters.

 

5

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(b) Release by GARMO

 

Except as otherwise provided herein, GARMO individually and on behalf of her
heirs, executors, administrators, legal representatives, successors, assigns,
agents, employees, attorneys, partners, and co-venturers, and each of them,
hereby fully and forever release, acquit, and discharge those parties designated
as BANK and their respective, heirs, executors, administrators, legal
representatives, successors, assigns, agents, officers, directors, shareholders,
employees, attorneys, partners, and co-venturers, and each of them, of and from
any and all claims, demands, liability, actions, causes of action, costs,
expenses, attorneys fees, obligations, and rights (contingent, accrued, enjoined
or otherwise), known or unknown, which GARMO may have against any of them
including, without limitation, any claim or demand before any court,
administrative body, public agency or any other party which GARMO may have
against any or all of them arising out of any of the matters referred to in
subparagraph l(a) above, or for any other matters.

 

(c) Mutual Release

 

Except as otherwise provided herein, It is understood and agreed that all rights
under Section 1542 of the California Civil Code and hereby expressly waived.
Said section reads as follows:

 

“A general release does not extend to the claims which the creditor does not
Know or suspect to exist in his favor at the time of execution of the release,
which is known by him must have materially affected his settlement with the
debtor.”

 

This compromise settlement shall act as a release of future

 

6

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claims that may arise from the above-mentioned dispute whether such claims are
currently known, unknown, foreseen, or unforeseen.

 

4. FURTHER ASSURANCE

 

Each of the parties shall hereafter execute all documents and do all acts
necessary, convenient or desirable, to effect the provisions of this AGREEMENT.

 

5. SUCCESSORS

 

The provisions of this AGREEMENT shall be deemed to obligate, extent to, and
inure the benefits of the successors, heirs, assigns, transferees, grantees and
indemnitees of each of the parties.

 

6. INDEPENDENT COUNSEL

 

Each of the parties acknowledge and agree that he has been represented by
independent counsel of his own choosing in the negotiating of and execution of
this AGREEMENT and has been advised that it is in the best interest of all
parties that they should each secure representation by independent counsel so as
to ascertain the effect and impact of this AGREEMENT. The Parties acknowledge
that they may hereafter discover new or different information than that
currently possessed and this AGREEMENT shall be and remain effective in all
respects regardless of such information.

 

7. ATTORNEY’S FEES

 

In the event litigation is commenced to enforce any of the provisions of this
AGREEMENT, to recover damages for breach of

 

7

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the provisions of the AGREEMENT or to obtain declaratory relief in connection
with any of the provisions of this AGREEMENT, the prevailing party shall be
entitled to recover reasonable attorney’s fees and costs.

 

8. INTERPRETATION

 

Whenever the context requires the singular shall include the plural, the plural
shall include the singular, and the masculine gender shall include the feminine
and neuter genders.

 

9. CAPTIONS

 

The captions by which the paragraphs and subparagraphs of this AGREEMENT are
identified are for convenience only and shall have no effect whatsoever on its
interpretation.

 

10. SEVERANCE

 

If any provision of this AGREEMENT or any provisions of any exhibits attached
hereto is held to be illegal or invalid by a court of competent jurisdiction,
such provision shall be deemed severed and deleted and neither such provision
nor its severance and deletion shall effect the validity of the remaining
provisions.

 

11. INTEGRATION

 

This AGREEMENT (after full execution and delivery) memorializes and constitutes
the entire AGREEMENT and understanding of the parties and supersedes and
replaces all prior negotiations, proposed agreements whether written or
unwritten. Each party acknowledges that no other party nor any agent or attorney
of any other party has made any promise,

 

8

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representation or warranty whatsoever, express or implied, which is not
expressly contained in this AGREEMENT; and each party further acknowledges that
he or it has not executed this AGREEMENT in reliance upon any collateral
promise, representation or warranty. Any modification, addition or deletion of
the terms of this AGREEMENT must be set forth in writing signed by all PARTIES
hereto.

 

12. COUNTERPARTS

 

This AGREEMENT may be executed in two (2) or more counterparts, each of which
shall be deemed to be an original but all of which shall constitute one and the
same document.

 

13. UNDERSTANDING OF THE PARTIES

 

The parties certify that they have read the entirety of this AGREEMENT and that
they fully understand and comprehend all of the terms and conditions and
covenants and restrictions herein. Based upon such, all of the parties by their
execution do so intelligently, knowingly and voluntarily.

 

       

CUYAMACA BANK

DATED: 11/15/96

      By:   /s/    ALAN FARIAS                 MARY GARMO

DATED: 11/14/96

      By:   /s/    MARY GARMO                 DARI GARMO

DATED: 11/14/96

      By:   /s/    DARI GARMO        

 

9