Document:

LEASE AGREEMENT

     THIS LEASE AGREEMENT, made in duplicate originals at Roseburg, Oregon, on
this 5th day of November  1998,  by and between G & I  INVESTMENTS,  an Oregon
Partnership,  hereinafter  designated  as  "LANDLORD",  and SOUTH UMPQUA BANK,
hereinafter designated as "TENANT".

                             W I T N E S S E T H:

     Landlord  is   constructing  a  building   (Building)  and  related  site
improvements  on a parcel of  property  located at the corner of Pine and Cass
Streets,  Roseburg,  Oregon.  Tenant  desires  to lease a portion of the first
floor of the building,  which will consist of approximately  4,828 square feet
of usable  space,  which area is depicted on attached  Exhibits  "A". The area
leased to Tenant  under this  agreement  is  referred to herein as the "Leased
Premises." In  consideration  of the covenants,  agreements  and  stipulations
herein  contained  on the part of the  Landlord  and Tenant to be observed and
faithfully performed, and in consideration of the rentals to be paid as herein
provided,  Landlord  hereby  leases to Tenant,  and Tenant  hereby  rents from
Landlord the leased premises.

     (1)  Occupancy:

          a. Bui1ding and Tenant  Improvements:  Landlord shall  construct the
     Building  and related  site  improvements  and all  improvements  for the
     Leased Premises (on a build-to-suit,  turn-key basis,  except as provided
     below) in  accordance  with plans and  specifications  to be  approved by
     Landlord  and  Tenant.  Plans and  specifications  for the  Building  and
     leasehold  improvements shall be consistent with schematic plans prepared
     by Dallas W. Horn,  architect,  dated October 8, 1998, subject to changes
     thereto agreed by Landlord and Tenant.  Landlord will be constructing the
     Building and leasehold  improvements on a "fast track" basis. Final plans
     and  specifications/working  drawings for each phase of the project shall
     be submitted by Landlord to Tenant for approval.  Such approval shall not
     be  unreasonably  withheld  as  long as such  plans  and  specifications/
     working drawings conform  substantially to the approved  schematics.  The
     Building  and  Tenant  improvements  shall be  constructed  with  quality
     materials in a good and workmanlike manner.  Landlord shall construct and
     install all leasehold improvements for the Leased Premises including, but
     not limited to (except as noted below), the following:

     (i)  All ceilings, light fixtures, floor coverings, and wall finishes, of
          good quality and as reasonably approved by Tenant;

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     (ii) All restrooms, fully fixtured;

     (iii)All built-in  counters shown on the  schematics,  with counter areas
          in conference  rooms and the meeting room on the first floor plumbed
          and fixtured, with sink;

     (iv) All conduits for fiber optics, phone, and computer lines;

     (v)  Designated circuits to the computer room;

     Excluded  from  Landlord's  responsibility  are any  modular  units to be
     installed by Tenant,  any cabinetry behind the reception area, other than
     built-in counters/cabinets to be provided by Landlord, appliances (except
     as specified above).  Landlord shall be responsible for pulling all fiber
     optic, phone and computer lines.  Landlord shall provide access to Tenant
     for  completion  of  Tenant's  work so that the  space  will be ready for
     occupancy when Landlord's work is completed. Any change orders made after
     approval  of any  phase  of the  project  will be paid  for by the  party
     requesting the change order.

          b.  Completion  Date:  Landlord  shall  substantially  complete  the
     Building and leasehold improvements for the Leased Premises by January 1,
     1999. As used herein,  "substantial  completion"  means that the Building
     and leasehold  improvements  have been completed in accordance with plans
     and specifications,  as certified by Landlord's architect and accepted by
     Tenant,  that a  certificate  of occupancy has been issued and the Leased
     Premises  are ready for  occupancy  and use by  Tenant,  with only  minor
     details of construction  (punch list items) remaining to be done which do
     not  interfere  with  Tenant's  occupancy  or use. If  Landlord  requires
     additional  time and Tenant  approves,  the  substantial  completion date
     shall be  modified  to a date that is  acceptable  to both  Landlord  and
     Tenant.  If Landlord  fails to  substantially  complete  the Building and
     leasehold improvements by the substantial completion date specified above
     or as mutually modified,  Landlord shall be responsible to Tenant for any
     additional  costs,  expenses or losses that Tenant incurs because of such
     failure.

          c. Outside Completion Date:  Notwithstanding any other provisions of
     this Lease to the contrary,  if the Building and  leasehold  improvements
     have not been  substantially  completed by January 31, 1999, Tenant shall
     have the right to terminate the Lease.

          d. Tenant's  Work:  Tenant shall have access to the Leased  Premises
     prior to substantial  completion of Landlord's  work, to permit Tenant to

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     install  its wiring for phone and  computer  hookups  and to install  its
     modular units in the Leased Premises.

          e. Original  Term: The original term of this Lease shall be a period
     of 5  years,  commencing  10  days  following  the  date  of  substantial
     completion (as determined under Paragraph 1) but not sooner than February
     1, 1999.

          f. Addendum: Leased Premises shall be measured to determine the area
     and the parties shall sign an instrument  which  establishes  the area of
     the Leased Premises,  the commencement  date, and the termination date of
     this Lease.

          g.  Renewal  Terms:  Tenant  shall have the option of renewing  this
     Lease for two  successive  terms of five years each.  Each  renewal  term
     shall commence on the day following the expiration of the preceding term.
     The option may be exercised by written  notice to Landlord not later than
     90 days  prior  to the last  day of the  expiring  term.  The  terms  and
     conditions of the Lease for each renewal term shall be identical with the
     original  term except for rent and except  Tenant shall no longer have an
     option to renew this lease  that has been  exercised.  Basic rent for the
     renewal term shall be an increase of the amount of basic for the original
     term in a percentage  equal to the  increase in the consumer  price index
     published by the United States Labor Statistics, subject to the Preferred
     Tenant Status Clause herein.

     (2) Basic Rent: The Tenant shall pay to Landlord as rental for the above
described property the sum of:

          a. $1.15 per square  foot,  which shall be payable on the 1st day of
     each month,  in advance at such place as may be  designated  by Landlord,
     except that the rental for the first month of the term hereby created has
     been paid upon the execution of this lease,  together with the rental for
     the last month of the term  hereby  created,  and  Landlord  acknowledges
     receipt of said sum.  If rent has not been  received  by Landlord by 5:00
     p.m. on the 7th of the month, Tenant shall pay to the Landlord a late fee
     in the amount of $500.00.

          b. Rent for the first and last  months of this  lease  term shall be
     prorated  on a daily  basis if the lease  commences  (by  reason of prior
     rental payments) on a day other than the first day of the month.

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          c. Preferred  Tenant Status:  Landlord  hereby agrees to give Tenant
     preferred  Tenant  Status and further  agrees that Landlord will not rent
     any space in the building,  a portion of which is occupied by Tenant, for
     less rent per square foot than what Landlord is renting to Tenant.

     (3) Charges.  Each party shall  promptly pay all charges which  hereafter
may be lawfully levied or imposed upon said premises and chargeable to either.
All sums which either party is required to pay to protect its interest in said
property  shall,  at its election,  and after notice to the other, be added or
subtracted   (whichever  is  appropriate)   to  unpaid  rental,   or,  in  the
alternative,  shall be billed to the other and shall accrue 9% interest.  Such
remedy shall not be deemed exclusive.

     (4) Additional Rent: All utility charges and personal property taxes that
Tenant is  required  to pay by this  Lease,  and any other sum that  Tenant is
required to pay to Landlord  (such as its prorata share of taxes and insurance
under Paragraph (6) below) or to third parties shall be additional rent.

     (5) Tenant sha11 a1so pay:

          a. All  taxes  upon  Tenant's  personal  property  on the  Premises,
     including trade fixtures owned by Tenant;

          b. All charges for heat, light, power, water, internal security, and
     other services or utilities  separately  metered to and used by Tenant in
     the Leased Premises;

          c. All janitorial services for the Leased Premises;

          d. Expenses for interior maintenance of the Leased Premises;

          e. Tenant shall also pay a prorata share of (i) janitorial costs for
     the  common  restrooms  on the  first  floor of the  Building,  (ii) real
     property  taxes and  assessments,  general and  special,  levied upon the
     Building, parking areas and common areas by the City of Roseburg, Douglas
     County,  or the State of Oregon,  and (iii) casualty  insurance  premiums
     paid by Landlord for the Building.  (iv) Costs of ordinary maintenance of
     the exterior of the Building,  excluding the roof,  costs of  maintaining
     the  courtyard  and  landscaping  and other common areas of the Building.
     Tenant's  prorata share shall be a percentage equal to the ratio that the
     usable area of the Leased  Premises  bears to the total leasable space in
     the Building;

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          f.  Tenant  shall bear the  expense of any  insurance  insuring  the
     property of Tenant on the  Premises on risks but shall not be required to
     insure;

          g. All amounts  which Tenant is required to  reimburse  Landlord for
     expenses incurred by Landlord in discharging Tenant's obligations; and

          h.  All  amounts  which  Tenant  is  required  to pay  by any  other
     provision of this Lease.

          i. Tenant  shall also  reimburse  Landlord a prorata  portion of any
     repairs  for the HVAC which are other  than  ordinary  maintenance.  Such
     prorata share shall be  determined  by the number of months  remaining on
     the then current term of the lease, with Tenant's  responsibility being a
     percentage  determined by dividing the number of months  remaining on the
     then  current term of the lease by the total number of the months of that
     term.

     (6) Permitted Use: The premises shall be used for general office use.

     (7)  Restrictions  on Use: In  connection  with the use of the  premises,
Tenant shall:

          a.  Conform to all  applicable  laws and  regulations  of any public
     authority affecting the premises and the use, and correct at Tenant's own
     expense any failure of compliance  created  through  Tenant's fault or by
     reason of Tenant's  use.  Tenant shall not  otherwise be required to make
     expenditures  to  comply  with any  laws or  regulations,  including  the
     Americans with Disabilities Act, and in no event shall Tenant be required
     to make any structural changes to effect such compliance. Notwithstanding
     the foregoing,  Tenant warrants that the Building and the Leased Premises
     will fully comply at all times with the Americans with  Disabilities  Act
     now in effect or as hereafter amended.

          b.  Refrain  from any  activity  which would make it  impossible  to
     insure the premises against  casualty,  would increase the insurance rate
     or would  prevent  Landlord  from taking  advantage  of any ruling of the
     Oregon Insurance Rating Bureau,  or its successor,  allowing  Landlord to
     obtain  reduced  premium rates for  long-term  fire  insurance  policies,
     unless  the  Tenant  pays  the  additional  cost  of the  insurance,  and
     affirmatively  takes  such  precautions  as shall be  recommended  by the
     Landlord.

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     (8) Land1ord's Obligations:  The following shall be the responsibility of
the Landlord up to the point of entry to the premises:

          a.  Maintenance  and  repair  of the  roof and  foundations  and any
     repairs  necessitated by disrepair or defect of the roof and foundations,
     exterior  maintenance  (including  periodic painting) of the Building and
     maintenance  and  repair of all  common  areas of the  Building,  parking
     areas,  courtyard  and  landscaping,   and  repair  of  the  heating  and
     ventilation  system in the Premises  other than ordinary  maintenance  or
     repairs due to misuse,  abuse of the system by Tenant or Tenant's failure
     to properly  maintain the system.  Landlord shall also be responsible for
     maintenance and repair of the elevator.

          b. All repairs or restoration  made necessary by fire or other peril
     which  could be covered  by a  standard  fire  insurance  policy  with an
     extended coverage  endorsement,  or by reason of war, or by earthquake or
     other natural casualty.

     (9) Tenant's  Obligations:  The following shall be the  responsibility of
the Tenant:

          a. Any interior decorating.

          b. Any repairs  necessitated by the negligence of Tenant or Tenant's
     agents, employees or contractors, except for damage covered by Landlord's
     insurance required under paragraph (15).

          c. Ordinary  maintenance of the heating and air conditioning systems
     and  repairs  necessary  because  of  misuse  or abuse of the  system  or
     improper maintenance.

          d. Any repairs or alterations  required under Tenant's obligation to
     comply with laws and regulations as set forth in paragraph 7 above.

          e. All other  repairs to the  premises  necessary to Tenant's use of
     the premises  which  Landlord is not  required to make under  paragraph 9
     above.

     (10)  Land1ord's  Interference  with Tenant:  Any repairs,  replacements,
alterations  or other  work  performed  on or around  the  leased  premise  by
Landlord  shall be done in such a way as to interfere as little as  reasonably
possible with use of the  premises;  and work shall be done so as to result in
no significant  reduction in Tenant's usable area. Tenant shall have the right
to an abatement of rent for any claim against  Landlord for any  inconvenience
or disturbance  resulting from Landlord's  activities performed in conformance
with the requirements of this provision.

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     (11) Reimbursement for Repairs Assumed:  If either party fails or refuses
to make repairs which are required by this lease, the other party may make the
repairs  and  charge the actual  costs of  repairs  to the first  party.  Such
expenditures by the Landlord shall bear 9% interest per annum from the date of
expenditure by the Landlord.  Such  expenditures by the Tenant may be deducted
from  rent and  other  payments  subsequently  becoming  due,  or at  Tenant's
election,  collected  directly  from  the  Landlord.  Except  in an  emergency
creating an  immediate  risk of personal  injury or property  damage,  neither
party may  perform  repairs  which are the  obligation  of the other party and
charge the other party for the resulting  expenses unless at least thirty (30)
days before work is commenced the defaulting  party is given notice in writing
outlining with reasonable  particularity the repairs required,  and such party
fails within that time to initiate such repairs in good faith.

     (12) Inspection of Premises: Landlord shall have the right to inspect the
premises at any  reasonable  time or times  during  normal  business  hours to
determine the necessity of repair. Whether or not such inspection is made, the
duty of the Landlord to make repairs as outlined above in any area of Tenant's
possession and control shall not mature until a reasonable time after Landlord
has received from Tenant notice in writing of the repairs that are required.

     (13) Alterations:

          a.  Tenant  may make such  alterations  or  improvements,  including
     signage,  to the leased  premises as  required  by  Tenant's  use of said
     premises  except  that all  alterations  and  improvements  so made shall
     comply  with all  applicable  federal,  local and state  laws,  rules and
     regulations.

     (14)  Insurance  Required:  Landlord  shall keep the  Building  and other
improvements,  including  the Leased  Premises,  insured  against all risks of
direct physical loss or damage of the type normally covered by a standard fire
insurance policy with endorsements for extended and special extended coverage,
including  coverage for  additional  costs  resulting  from debris removal and
reasonable  coverage  for  enforcement  of any  ordinance  or  law  regulating
reconstruction or replacement of any damaged portions of the building required
to be demolished or removed by reason of enforcement of any building,  zoning,
safety or land use laws as a result of a covered loss, for  replacement  value
and containing a waiver of subrogation  and inflation  guard  protection.  The
cost of such  insurance  shall be subject to  reimbursement  by Tenants of the
Building on a prorata basis, as provided in Paragraph (6) above.  Tenant shall
bear the  expense of any  insurance  insuring  the  property  of Tenant on the
premises  against  such  risks,  but shall  not be  required  to  insure  said
property,  whether or not said property be personal or an  improvement to said
premises.

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     (15)  Waiver  of  Subrogation:   The  parties  shall  obtain  from  their
respective  insurance carriers waivers of subrogation against the other party,
agents,  employees  and, as to the Tenant,  invitees.  Neither  party shall be
liable to the other for any loss or damage  caused by fire or any of the risks
enumerated  in a standard  fire  insurance  policy with an  extended  coverage
endorsement  if such  insurance  was  obtainable  at the time of such  loss or
damage.  The  party  benefiting  from a waiver  of  subrogation  clause  in an
insurance  policy shall pay any additional  premium  required to obtain such a
clause  within  10 days  after  being  notified  by the  other  party  of such
additional  cost,  unless  the  benefiting  party can  obtain  such  insurance
satisfactory to the first party.

     (16)  Partial  Damage:  If the leased  premises  are partly  damaged  and
paragraph 17 below does not apply, the property shall be repaired as follows:

          If the Leased  Premises are partly  damaged and Paragraph  (17)
          does not  apply,  the  Leased  Premises  shall be  repaired  by
          Landlord at Landlord's  expense.  Repairs shall be accomplished
          with all  reasonable  dispatch,  subject to  interruptions  and
          delays from labor  disputes  and matters  beyond the control of
          Landlord.  Rent  shall  be  abated  to the  extent  the  Leased
          Premises is  untenantable  subsequent  to the damage and during
          the period of repair.

     (17) Destruction: If the Building or the Leased Premises are destroyed or
damaged such that the cost of repair exceeds fifty per cent (50%) of the value
before the damage, the parties shall proceed as follows:

          a. Either  Landlord or Tenant may elect to terminate the lease as of
     the date of damage or  destruction  by notice given to the other party in
     writing not more than 45 days following the date of damage. In such event
     all rights and  obligations  of the parties shall cease as of the date of
     termination,  and Tenant  shall be entitled to the  reimbursement  of any
     prepaid  rent or other  amounts  paid by Tenant and  attributable  to the
     anticipated term subsequent to the termination date.

          b. In the absence of an  election  under (a) above,  Landlord  shall
     proceed to restore the leased premises to substantially  the same form as
     prior to the damage or destruction so as to provide for the Tenant usable
     space  equivalent  in quantity  and  character to that before the damage.
     Work shall be commenced as soon as reasonably  possible,  and  thereafter
     shall proceed without interruption except

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     for work  stoppages  on account of labor  disputes  and matters not under
     control of the  Landlord.  Rent  shall be abated  from the date of damage
     until the premises are tenantable.

          c. In either  event,  rent  shall be abated  from the date of damage
     except when the damage occurs solely because of the fault of the Tenant.

     (18) Damage Late in Term: If damage or destruction to which the paragraph
immediately above would apply occurs within six (6) months prior to the end of
the then-current lease term, Tenant may elect to terminate the lease by notice
in writing to  Landlord  given  within  thirty (30) days after the date of the
damage.  Such  termination  shall have the same effect as  termination  by the
Landlord under paragraph 17(a) above.

     (19) Partial Taking: If a portion of the leased premises is condemned and
paragraph 20 does not apply, the lease shall continue on the following terms:

          a. The proceeds of condemnation  shall be divided between Tenant and
     Landlord in  accordance  with the  allocation of said damages made by the
     condemning authority.

          b. Landlord  shall  proceed as soon as  reasonably  possible to make
     such repairs and  alterations to the premises as are necessary to restore
     the  remaining  premises  to a  condition  as  comparable  as  reasonably
     practicable  to  Landlord  may,  but shall not be  required  to,  perform
     alterations  prior to the actual taking after the portion to be taken has
     been finally determined.  Rent shall be abated to the extent the premises
     are untenantable during the period of alterations and repair.

          c. After the date on which title vests in the condemning  authority,
     or an earlier  date on which  alterations  or repairs  are  commenced  by
     Landlord  to restore  the  balance of the  property  in  anticipation  of
     taking,  the rent shall be reduced  commensurately  with the reduction in
     value of the  leased  premises  as an  economic  unit on  account  of the
     partial taking. If the parties are unable to agree upon the amount of the
     reduction of rent,  the amount shall be determined by  arbitration in the
     same manner as is  provided  for  determination  of rent during a renewal
     period.

          d. If a portion  of the  Landlord's  property  not  included  in the
     leased premises is taken and severance  damages are awarded on account of
     the leased premises as a result of change of grade of adjacent streets or
     other  activity by a public body not  involving a physical  taking of any
     portion of the land, this shall be regarded

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     as a partial  condemnation  to which  paragraphs  (a) and (c) next  above
     apply, and the rent shall be reduced to the extent of diminution of value
     of the premises as though a portion had been physically taken.

     (20) Total  Taking:  If a  condemning  authority  takes all of the leased
premises or a portion sufficient to render the remaining  premises  reasonably
unsuitable for the use which Tenant was then making of the premises, the lease
shall  terminate  as of the date title  vests in the  condemning  authorities.
Shall the parties not agree  whether the premises are  reasonably  unsuitable,
they  shall  select an  agreeable  arbitrator  to decide if the  premises  are
reasonably  unsuitable.  The decision of the arbitrator  shall be binding upon
the  parties.  Such  termination  shall have the same effect as a  termination
under  paragraph 17(a) above.  The proceeds of  condemnation  shall be divided
between Tenant and Landlord in accordance  with the allegation of said damages
made by the condemning  authority,  or as their intent may equitably appear if
such allocation is not made.

     (21)  Sale  in Lieu of  Condemnation:  Sale of all or part of the  leased
premises  to a  purchaser  with the power of  eminent  domain in the face of a
threat or  probability  of the  exercise of the power shall be treated for the
purposes of this lease as a taking by condemnation.

     (22) Liens:

          a.  Except  with  respect  to  activities   for  which  Landlord  is
     responsible,  the Tenant shall pay as due all claims for work done on and
     for services  rendered or materials  furnished to the leased premises and
     shall keep the premises  free from any liens.  If Tenant fails to pay any
     such claims or to discharge any lien,  Landlord may do so and collect the
     cost as additional  rent.  Any amount so added shall bear interest at the
     rate of 9% per annum  from the date  expended  by  Landlord  and shall be
     payable on demand.  Such action by Landlord shall not constitute a waiver
     of any right or remedy  which  Landlord  may have on account of  Tenant's
     default.

          b. Tenant may  withhold  payment of any claim in  connection  with a
     good-faith  dispute  over the  obligation  to pay, so long as  Landlord's
     property interests are not jeopardized. If a lien is filed as a result of
     nonpayment,  Tenant  shall  within ten (10) days after  knowledge  of the
     filing, secure the discharge of the lien or deposit with Landlord cash or
     a sufficient  corporate  surety bond or other  security  satisfactory  to
     Landlord in an amount  sufficient  to discharge  the lien plus any costs,
     attorney fees and other charges

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     that could accrue as a result of a foreclosure or sale under the lien.

          (23)  Indemnification:  Tenant shall  indemnify and defend  Landlord
     from any  claim,  loss or  liability  arising  out of or  related  to any
     activity of Tenant on the leased  premises,  or any condition  created by
     Tenant including the presence of hazardous substances on, in or about the
     premises placed there by Tenant, of the leased premises in the possession
     or under the  control  of  Tenant,  or  failure  to effect  any repair or
     maintenance required by this lease.  Tenant's duty to indemnify shall not
     apply to or prevent any claim by Tenant  against  Landlord  for injury or
     damage to Tenant or Tenant's  property for which  Landlord may be liable.
     Landlord  shall  indemnify  and defend  Tenant  from any  claim,  loss or
     liability  arising out of or relating to any  activity of Landlord on the
     property,  or any  condition  of the  Building,  other  than a  condition
     created  by Tenant and  arising  out of or  related  to the  presence  of
     hazardous substances, on, in or about the property unless placed there by
     Tenant.

          (24)  Liability  Insurance:  Before  going  into  possession  of the
     premises,  Tenant shall procure,  and thereafter  during the term of this
     lease shall continue to carry, the following insurance at Tenant's cost:

          a. Public  liability and property  damage  insurance in a reasonable
     company  with limits of not less than  $500,000 for injury to one person,
     $1,000,000  for  injury to two or more  persons  in one  occurrence,  and
     $500,000 for damage to  property.  Such  insurance  shall cover all risks
     arising  directly or  indirectly  out of Tenant's  activities  on, or any
     condition of, the leased premises. Certificates evidencing such insurance
     and  bearing  endorsements  requiring  ten (10)  days  written  notice to
     Landlord  prior to any  change  or  cancellation  shall be  furnished  to
     Landlord prior to Tenant's occupancy of the property.

          b. Worker's  Compensation from the State Accident  Insurance fund or
     from a responsible  private carrier.  Private insurance shall provide the
     schedule  of  employee   benefits  required  by  law  and  shall  provide
     employer's  liability  coverage  with limits as  required by law.  Tenant
     shall supply  Landlord with  satisfactory  evidence of public coverage or
     with  certificates of private coverage in the same form as required above
     for Tenant's general liability insurance.

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     (25) Landlord's  Warranty:  Landlord warrants that it is the owner of the
leased  premises  free of all  encumbrances  except the balance  owed upon any
loans to pay the purchase price and has the right to lease them. Landlord will
defend Tenant's right to quiet enjoyment of the lease premises from the lawful
claims and demands of all persons during the lease term.

     Landlord has complied with all Environmental Laws at its premises and the
business of Landlord  has been  conducted  there so as not to give rise to any
claim,  whether  directly or  indirectly,  from the use,  treatment,  storage,
disposal, release, spill, generation, manufacture,  transportation or handling
of hazardous  substances.  As used in this Lease,  "Environmental  Laws" shall
mean any federal,  state or local law, statute,  regulation or ordinance which
lists, defines, regulates, controls or proscribes the use, treatment, storage,
disposal,  generation,  manufacture,  transportation or handling of "hazardous
substances".  As  used  in  this  Lease,  "hazardous  substances"  shall  mean
materials that, because of their quantity, concentration of physical, chemical
or infectious characteristics, may cause or pose a present or potential hazard
to human health or the environment  when  improperly  used,  treated,  stored,
disposed of, generated,  manufactured,  transported or otherwise handled.  The
term  includes,  without  limitation,  petroleum  products or crude oil or any
fraction thereof and any and all hazardous or toxic  substances,  materials or
wastes as defined or listed under any Environmental Laws.

     (26)  Assignment  and  Sublease:  No part of the leased  property  may be
assigned,  mortgaged  or  otherwise  subleased,  nor may a right of use of any
portion of the leased  property be  conferred on any third  person,  except as
provided  hereinabove,  without the prior  written  consent of Landlord.  This
provision  shall apply to all  transfers by operation of law and executors and
legatees.  No  consent in one  instance  shall  prevent  this  provision  from
applying to a subsequent instance. The Landlord shall consent to a transaction
where  Landlord's  consent is required by this provision when withholding such
consent would be unreasonable in the circumstances.

     (27) Default: The following shall be events of default:

          a. Failure of Tenant to comply with any term or condition or fulfill
     any obligation of this lease, including payment,  within thirty (30) days
     after  written  notice by Landlord  specifying  the nature of the default
     with reasonable particularity.

          b. Insolvency of Tenant;  an assignment by Tenant for the benefit of
     creditors; the filing by Tenant of a voluntary petition in bankruptcy; an
     adjudication  that Tenant is bankrupt or the appointment of a receiver of
     the properties of Tenant; the filing of

                                   12
<PAGE>

     an  involuntary  petition of bankruptcy and failure of Tenant to secure a
     dismissal  of  the  petition   within  thirty  (30)  days  after  filing;
     attachment of or the levying of execution on the  leasehold  interest and
     failure of Tenant to secure discharge of the attachment or release of the
     levy of execution within ten (10) days.

     (28) Termination:  In the event of a default, the lease may be terminated
at the option of the  Landlord by notice in writing to Tenant.  The notice may
be given  before or within  thirty  (30) days  after the  running of the grace
period for default  and may be  included in a notice of failure of  compliance
given under  paragraph  28(b) and (c) above.  If the  property is abandoned by
Tenant in  connection  with a  default,  termination  shall be  automatic  and
without notice.

     (29) Damages  Without  Termination:  If this lease is not  terminated  by
election  of  Landlord  or  otherwise,  Landlord  shall be entitled to recover
damages from Tenant.

     (30) Re-entry After Termination:  If the lease is terminated for Tenant's
defaults,  Tenant's  liability  to Landlord  for damages  shall  survive  such
termination,  and the  rights  and  obligations  of the  parties  shall  be as
follows:

          a. Tenant shall vacate the property immediately, remove any property
     of Tenant  including  any fixtures  which Tenant is required to remove at
     the end of the lease  term,  perform any clean up,  alterations  or other
     work required to leave the property in the condition  required at the end
     of the term, and deliver all keys to Landlord.

          b. Landlord may re-enter, take possession of the premises and remove
     any personal  property by legal action or by self-help  with the use of a
     reasonable force and without liability for damages.

     (31) Reletting:  Following  re-entry or abandonment,  Landlord shall make
all reasonable efforts to relet the premises and in that connection may:

          a. Make any suitable alterations or refurbish the premises, or both,
     or change the character or use of the premises.

          b. Relet the premises for a term longer or shorter than that term of
     this lease upon reasonable terms and conditions.

     (32) Damages:  In the event of termination on default,  Landlord shall be
entitled to recover immediately, without waiting until the due date of

                                   13
<PAGE>

any future rent or until the date fixed for  expiration of the lease term, the
following amounts as damages:

          a. Any excess of: (i) the value of all of Tenant's obligations under
     this  lease,  including  the  obligation  to pay  rent,  from the date of
     default until the end of the term, over (ii) the reasonable  rental value
     of the  property  for the same period  figured as of the date of default,
     the net result to be discounted to the date of default at 121 per annum.

          b. The reasonable costs of re-entry and reletting, including without
     limitation  the  cost of clean  up,  removal  of  Tenant's  property  and
     fixtures, or any other expense occasioned by Tenant's failure to quit the
     premises upon  termination  and to leave them in the required  condition,
     attorney fees, court costs, broker commissions and advertising costs.

          c. Remedies Cumulative.  The foregoing remedies shall be in addition
     to and shall not exclude any other  remedy  available  to Landlord  under
     applicable law.

     (33) Condition of Premises:  Upon expiration of the lease term or earlier
termination on account of default or termination without default, Tenant shall
deliver all keys to the Landlord  and  surrender  the leased  premises in good
condition,  reasonable  wear and tear  excepted.  Alterations  constructed  by
Tenant shall not be removed by Tenant unless such  alterations  can be removed
without  damage to the  remaining  premises,  or such damage to the  remaining
premises as is  occasioned  by the removal of said  alterations  is  repaired.
Depreciation and wear from ordinary use for the purpose for which the premises
were let need not be restored to original condition,  but all repair for which
Tenant is  responsible  shall be completed  before the latest  practical  date
prior to such surrender.

     (34) Fixtures:

          a. All fixtures  placed upon the leased  premises during the term by
     Tenant shall be the Tenant's  property  provided Tenant shall remove said
     fixtures  prior to the latest  practical  date prior to  surrender of the
     leasehold.  All other  personal  property  shall  remain the  property of
     Tenant if placed on the lease premises by Tenant.

          b. The time for removal of any property or fixtures which the Tenant
     has the right to remove  and wishes to remove  from the  leased  premises
     upon termination shall be as follows:

                                   14
<PAGE>

                    (i)  On or  before  the  date  the  lease  terminates
               because of expiration  of the original or any renewal,  or
               because of default.

                    (ii) Within  thirty  (30) days after  notice from the
               Landlord  requiring  such removal where the property to be
               removed  is a  fixture  which  Tenant is not  required  to
               remove.

     (35) Holdover

          a. At the  expiration  of the lease  term,  Tenant may  continue  to
     occupy said  premises as a  month-to-month  tenant  subject to Landlord's
     right to  terminate  such  tenancy  upon thirty (30) days'  notice.  Such
     occupancy  shall be subject to all of the  provisions of the lease except
     the  provisions  for  term and  renewal.  Failure  of  Tenant  to  remove
     fixtures, furniture,  furnishings, or trade fixtures which the Tenant may
     remove  under this lease  shall  constitute  a failure to vacate to which
     this  paragraph  shall apply if the  property  not removed  substantially
     interferes  with the occupancy of the premises by another  Tenant or with
     occupancy by Landlord for any purpose.

          b. If a  month-to-month  tenancy  results from a holdover by Tenant,
     the tenancy shall be terminable upon thirty (30) days' written notice.

     (36)  Nonwaiver:  Waiver by either  party of  strict  performance  of any
provision  of this lease  shall not be a waiver of or  prejudice  the  party's
right to require strict performance of the same provision in the future, or of
any other provision.

     (37) Attorney's  Fees: If a civil action is instituted in connection with
any  controversy  arising out of this  lease,  the  prevailing  party shall be
entitled  to recover in  addition  to costs such sum as the Court may  adjudge
reasonable as attorney fees at trial or by any appellate court upon appeal.

     (38) Context: The covenants herein shall be binding upon the benefits and
advantages  shall  inure  to  the  respective  heirs,  legal  representatives,
successors and assigns of the parties  hereto.  Whenever used,  "Landlord" and
"Tenant" shall include their successors in interest,  the singular the plural,
the plural the singular,  and the use of any gender shall be applicable to all
genders.

     (39) Notices:  Any notice required or permitted under this lease shall be
given when  actually  delivered or when  deposited in the United  States mail,
addressed as follows:

                                   15
<PAGE>

             Landlord:     G & I Investments
                           P.O. Box 909
                           Roseburg, OR 97470

             Tenant:       South Umpqua Bank
                           Registered Agent:
                           445 SE Main Street
                           Roseburg, OR 97470

or to such other  address as may be  specified  from time to time by either of
the parties in writing.

     (40) Parking:  Landlord shall provide Tenant with not less than 8 spaces,
marked and  designated  for the  exclusive  use of Tenant  and its  customers,
located on the north side of the building,  and an additional  nine (9) spaces
for employee  parking in the lot on the south side of the building  closest to
Mosher Street.

     (41) Taxes:  Landlord shall pay all real property  taxes and  assessments
levied on the building and the land upon which it is situated,  including  the
parking  areas for the Building,  subject to Tenant's  obligation to reimburse
Landlord for Tenant's  prorata  share of such taxes,  as provided in Paragraph
6e. If the land upon which the Building and the parking areas for the Building
are situated consists of more than one tax lot or if the tax lots on which the
Building  and parking for the  Building are situated are used by others or for
purposes in addition to the Building and its Tenants, in calculating the taxes
which are subject to reimbursement on a prorata basis, the amount of taxes for
the land shall be only that  portion  of the land  taxes  that are  reasonably
attributable  to the Building and parking for the Building,  including  common
areas, as determined by Landlord and as reasonably approved by Tenant.

     (42) Signage:  Tenant shall have the  exclusive  right to place a sign on
the north side of the building.  The sign shall be secured flat on the wall of
the building and shall be no larger than _____ feet by _______ feet.  Landlord
agrees  that it  shall  not  allow  any  other  tenant  to place a sign on the
exterior of the building  without first  obtaining  the written  permission of
South  Umpqua Bank,  which shall not be  unreasonably  withheld.  In addition,
Tenant  shall  have the right to place a pilon  sign in the  landscaping  area
around the building,  the specific  site to be mutually  agreed on between the
Landlord and Tenant.

                                   16
<PAGE>

     IN WITNESS  WHEREOF,  the parties hereto have set their hands the day and
year first above written.

LANDLORD:

G & I INVESTMENTS

By:  /s/ David Gilbert
     ----------------------------
     David Gilbert

TENANT:

SOUTH UMPQUA BANK

By:  /s/ Raymond P. Davis
     ----------------------------
      Raymond P. Davis
      Registered Agent  11/5/98STATE FINANCIAL SERVICES CORPORATION

                            1998 STOCK INCENTIVE PLAN
                                   As Amended

                      Article I. Establishment and Purpose

          1.1  Establishment.  State Financial Services Corporation, a Wisconsin
corporation  (the  "Company"),  hereby  establishes  a stock plan for  officers,
directors and others  providing  services to the Company,  as described  herein,
which  shall be known as the State  Financial  Services  Corporation  1998 Stock
Incentive  Plan,  as amended (the  "Plan").  It is intended  that certain of the
options  issued  pursuant to the Plan may  constitute  incentive  stock  options
within the meaning of section 422 of the Internal  Revenue Code,  and that other
options issued pursuant to the Plan shall constitute nonstatutory options.

          1.2  Purpose.  The  purpose  of the Plan is to provide a means for the
Company  to  attract  and  retain   competent   personnel   and  to  provide  to
participating directors,  officers and Consultants long term incentives for high
levels of  performance  by providing  them with a means to acquire a proprietary
interest in the Company's success.

                            Article II. Definitions

          2.1  Definitions. For purposes of this Plan, the following terms shall
be defined as follows:

               (a)  "Board" means the Board of Directors of the Company.

               (b)  "Cause"  means  the  definition  of Cause  in  Participant's
employment agreement,  if any, with the Company. If no such employment agreement
or definition in such agreement exists, Cause means (i) breach by Participant of
any covenant not to compete or confidentiality  agreement with the Company, (ii)
failure by  Participant  to  substantially  perform his duties to the reasonable
satisfaction  of the Board,  (iii) serious  misconduct by  Participant  which is
demonstrably  and  substantially   injurious  to  the  Company,  (iv)  fraud  or
dishonesty   by   Participant   with  respect  to  the  Company,   (v)  material
misrepresentation  by Participant to a stockholder or director of the Company or
(vi) acts of negligence by Participant in  performance of  Participant's  duties
that are  substantially  injurious to the Company.  The Board, by majority vote,
shall make the determination of whether Cause exists.

               (c)  "Code" means the internal  Revenue Code of 1986,  as amended
from time to time, and any successor thereto.

               (d)  "Commission" means the Securities and Exchange Commission or
any successor agency.

               (e)  "Committee"  means the committee  provided for by Article IV
hereof, which may be created at the discretion of the Board.

<PAGE>

               (f)  "Company"  means State  Financial  Services  Corporation,  a
Wisconsin corporation.  When applicable in the context, "the Company" also means
each direct and indirect subsidiary of State Financial Services Corporation.

               (g)  "Consultant"  means  any  person  or  entity   who  provides
services to the Company (other than as an employee).

               (h)  "Date of  Exercise"  means  the date  the  Company  receives
notice,  by a Participant,  of the exercise of an Option pursuant to section 8.1
of this  Plan.  Such  notice  shall  indicate  the number of shares of Stock the
Participant intends to purchase upon exercise of an Option.

               (i)  "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.

               (j)  "Fair Market Value" means the fair market value of Stock, as
determined  by the  Committee.  If the Stock is  traded  on an  over-the-counter
securities  market or national  securities  exchange,  "Fair Market Value" shall
mean an amount  equal to the average of the highest  and lowest  reported  sales
prices of the Stock  reported on such  over-the-counter  market or such national
securities  exchange on the  applicable  date or, if no sales of Stock have been
reported  for  that  date,  on the next  preceding  date for  which  sales  were
reported.

               (k)  "Incentive  Stock Option" means an Option granted under this
Plan which is  intended to qualify as an  `incentive  stock  option"  within the
meaning of section 422 of the Code.

               (l)  "IRS" means the Internal Revenue  Service,  or any successor
agency.

               (m)  "Nonstatutory  Option"  means an  Option  granted under this
Plan which is not  intended to qualify as an incentive  stock option  within the
meaning of section 422 of the Code.  Nonstatutory Options may be granted at such
times and  subject to such  restrictions  as the Board shall  determine  without
conforming  to the  statutory  rules of section  422 of the Code  applicable  to
incentive stock options.

               (n)  "Option"  means the  right,  granted  under  this  Plan,  to
purchase  Stock of the  Company at the option  price for a  specified  period of
time. For purposes of this Plan, an Option may be an Incentive Stock Option or a
Nonstatutory Option.

               (o)  "Parent  Corporation"  shall have the  meaning  set forth in
section  424(e) of the Code  with the  Company  being  treated  as the  employer
corporation for purposes of this definition.

               (p)  "Participant"  means any officer,  director or Consultant of
the Company or any direct or indirect subsidiary of the Company to whom an award
has been granted hereunder.

               (q)  "Qualified  Director"  means a  director  who is both  (i) a
"Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act,
or any  successor  definition  adopted by the  Commission,  and (ii) an "Outside
Director"  under  section  162(m)  of the Code and the  regulations  promulgated
thereunder, or any successor definition adopted by the IRS.

                                      -2-
<PAGE>

               (r)  "Restricted Stock" means an award under Article XI.

               (s)  "Rule  16b-3"  means  Rule  16b-3,  as  promulgated  by  the
Commission  under  Section  16(b) of the  Exchange  Act, as amended from time to
time.

               (t)  "Significant  Stockholder"  means  an individual who, within
the meaning of section  422(b)(6) of the Code,  owns stock  possessing more than
ten percent of the total  combined  voting  power of all classes of stock of the
Company. In determining whether an individual is a Significant  Stockholder,  an
individual  shall be treated as owning  stock owned by certain  relatives of the
individual and certain stock owned by  corporations in which the individual is a
partner, and estates or trusts of which the individual is a beneficiary,  all as
provided in section 424(d) of the Code.

               (u)  "Stock" means the Common Stock, par value $.10 per share, of
the Company.

          2.2  Gender  and  Number.  Except  when  otherwise  indicated  by  the
context, any masculine terminology when used in this Plan also shall include the
feminine gender and the definition of any term herein in the singular shall also
include the plural.

                   Article III. Eligibility and Participation

          3.1  Eligibility and  Participation. All officers and directors (other
than  Qualified  Directors) are eligible to participate in this Plan and receive
Incentive  Stock Options,  Nonstatutory  Options and/or  Restricted  Stock.  All
Consultants and Qualified Directors are eligible to participate in this Plan and
receive Nonstatutory Options hereunder.  Subject to section 4.1, Participants in
the  Plan  shall  be  selected  by  the  Committee  from  among  those  eligible
individuals  who,  in  the  opinion  of the  Committee,  are  in a  position  to
contribute  materially to the Company's  continued growth and development and to
its long-term financial success.

                           Article IV. Administration

          4.1  Administration.  The Plan shall be  administered by the Committee
selected by the Board,  consisting  of two or more  members of the Board who are
Qualified  Directors.  The members of the  Committee  may be  directors  who are
eligible to receive  Options under the Plan,  but Options may be granted to such
persons only by action of the full Board and not by action of the Committee.  In
the event that the full Board  grants  Options to a director,  the Plan shall be
administered  by the Board  with  respect  to such  Options.  If at any time the
Committee shall not be in existence, the Board shall administer the Plan. To the
extent that the Board  administers  the Plan,  all  references  to the Committee
herein shall include the Board.  To the extent  permitted by applicable law, the
Board may  delegate to another  committee  of the Board or to one or more senior
officers of the Company any or all of the  authority and  responsibility  of the
Committee with respect to the Plan,  other than with respect to Participants who
are

                                      -3-
<PAGE>

subject to  Section 16 of the  Exchange  Act.  To the extent  that the Board has
delegated to such other  committee or one or more  officers  the  authority  and
responsibility  of the Committee,  all references to the Committee  herein shall
include such other committee or one or more officers.

               Subject to the  express  provisions  of the Plan,  the  Committee
shall have complete  authority to interpret  the Plan,  to prescribe,  amend and
rescind rules and  regulations  relating to the Plan, to provide for  conditions
and  assurances  deemed  necessary or advisable to protect the  interests of the
Company,  and to make all other  determinations  necessary or advisable  for the
administration of the Plan.  Subject to the express  provisions of the Plan, the
Committee shall also have complete  authority to select eligible  individuals to
receive awards hereunder, determine the types of awards and the number of shares
covered  by the  awards  and  the  terms,  conditions,  restrictions  and  other
provisions of such awards. Determinations, interpretations or other actions made
or taken by the Committee pursuant to the provisions of the Plan shall be final,
binding and conclusive for all purposes and upon all persons.

               To the  extent  that the Board  administers  the Plan,  the Board
shall have all of the enumerated powers of the Committee. No member of the Board
or the Committee  shall be liable for any action or  determination  made in good
faith with respect to the Plan or any Option or  Restricted  Stock granted under
it.

               The Board  may from  time to time  remove  members  from,  or add
members to, the  Committee.  The Board may  terminate the Committee at any time.
Vacancies on the Committee,  howsoever caused, shall be filled by the Board. The
Committee shall select one of its members as Chairman and shall hold meetings at
such times and places as the Chairman may determine. A majority of the Committee
at which a quorum is present,  or acts  reduced to or approved in writing by all
of the members of the  Committee,  shall be the valid acts of the  Committee.  A
quorum shall consist of two-thirds (2/3) of the members of the Committee.

          4.2  Special  Provisions  for Grants to Officers  or  Directors.  Rule
16b-3  provides that the grant of a stock option or share of stock to a director
or officer  of a company  subject to the  Exchange  Act will be exempt  from the
provisions of Section 16(b) of the Exchange Act if the  conditions  set forth in
Rule 16b-3 are satisfied. Unless otherwise specified by the Committee, grants of
Options or  Restricted  Stock  hereunder  to  individuals  who are  officers  or
directors of the Company for purposes of Section 16(b) of the Exchange Act shall
be made in a manner that satisfies the conditions of Rule 16b-3.

                      Article V. Stock Subject to the Plan

          5.1  Number. The total number of shares of Stock hereby made available
and  reserved for  issuance  under the Plan shall be 750,000,  of which not more
than 750,000  shares of Stock may be issued as Options  intended to be Incentive
Stock  Options.  The  maximum  number of shares of Stock  that may be covered by
Options granted to any one Participant under the Plan shall be 75,000 during any
single fiscal year. The aggregate number of shares of Stock available under this
Plan shall be subject to adjustment as provided in section 5.3. The total number
of shares  of Stock may be  authorized  but  unissued  shares of Stock or shares

                                      -4-
<PAGE>

acquired  by purchase  as  directed  by the  Committee  from time to time in its
discretion,  to be used for  issuance as  Restricted  Stock or upon  exercise of
Options granted hereunder.

          5.2  Unused Stock;  Payment  with Stock.  If an Option shall expire or
terminate for any reason without having been exercised in full, the  unpurchased
shares of Stock subject  thereto  shall (unless the Plan shall have  terminated)
become  available  for other  Options  under the Plan and if any shares of Stock
that are subject to any Restricted Stock award are forfeited,  such shares again
shall be available for  distribution  in connection with awards under this Plan.
In  addition,  upon the  full or  partial  payment  of any  option  price by the
transfer  to the  Company  of shares of Stock  pursuant  to  section  7.7,  upon
satisfaction  of tax  withholding  obligations  with shares of Stock pursuant to
section 15.1 or any other  payment made or benefit  realized  under this Plan by
the transfer or relinquishment of shares of Stock, only the net number of shares
of Stock actually  issued or transferred by the Company,  after  subtracting the
number  of shares  of Stock so  transferred  or  relinquished,  will be  charged
against the maximum share limitation set forth in section 5.1 above.

          5.3  Adjustment in  Capitalization.  In the event of any change in the
outstanding   shares  of  Stock  by  reason  of  a  stock   dividend  or  split,
recapitalization,  reclassification  or  other  similar  corporate  change,  the
aggregate  number  of  shares  of  Stock  set  forth  in  section  5.1  shall be
appropriately adjusted by the Committee whose determination shall be conclusive;
provided,  however, that fractional shares shall be rounded to the nearest whole
share.  In any such case,  the number and kind of shares that are subject to any
Option  (including any Option  outstanding  after termination of employment) and
the Option price per share shall be proportionately  and appropriately  adjusted
without  any  change in the  aggregate  Option  price to be paid  therefor  upon
exercise of the Option.

                        Article VI. Duration of the Plan

          6.1  Duration  of the Plan.  The Plan shall be in effect for ten years
from the date of its  approval  by the  Company's  stockholders.  Any Options or
Restricted Stock outstanding at the end of such period shall remain in effect in
accordance  with their terms.  The Plan shall  terminate  before the end of such
period if all  Stock  subject  to the Plan has been  purchased  pursuant  to the
exercise  of Options  granted  under the Plan or issued as shares of  Restricted
Stock no longer subject to risk of forfeiture.

                      Article VII. Terms of Stock Options

          7.1  Grant of Options. Subject to sections 3.1 and 5.1, Options may be
granted to eligible  individuals at any time and from time to time as determined
by the Committee;  provided,  however,  that Consultants and Qualified Directors
may  receive  only  Nonstatutory  Options and may not  receive  Incentive  Stock
Options.  The Committee shall have complete discretion in determining the number
of Options  granted to each  Participant.  In making  such  determinations,  the
Committee may take into account the nature of services rendered by such eligible
individual,  their present and potential  contributions to the Company, and such
other  factors as the  Committee  in its  discretion  shall deem  relevant.  The
Committee  shall also  determine  whether an Option is to be an Incentive  Stock
Option or a Nonstatutory Option.

                                      -5-
<PAGE>

               In the cases of Incentive  Stock  Options,  the total Fair Market
Value (determined at the date of grant) of shares of Stock with respect to which
Incentive  Stock Options are  exercisable  for the first time by the Participant
during any calendar  year under all plans of the Company  under which  incentive
stock options may be granted (and all such plans of any Parent  Corporation  and
any  subsidiary   corporations  of  the  Company)  shall  not  exceed  $100,000.
(Hereinafter,  this  requirement  is  sometimes  referred  to as  the  "$100,000
Limitation.").

               Nothing  in this  Article  VII of the  Plan  shall be  deemed  to
prevent  the grant of  Options  permitting  exercise  in excess of the  maximums
established by the preceding  paragraph where such excess amount is treated as a
Nonstatutory Option.

          7.2  No Tandem  Options.  Where an Option  granted  under this Plan is
intended to be an Incentive  Stock  Option,  the Option shall not contain  terms
pursuant to which the  exercise  of the Option  would  affect the  Participant's
right to exercise another Option,  or vice versa,  such that the Option intended
to be an Incentive Stock Option would be deemed a tandem stock option within the
meaning of the regulations  under section 422 of the Code. If an Incentive Stock
Option at any time would be deemed a tandem stock option with the meaning of the
regulations  under section 422 of the Code, the Incentive  Stock Option shall be
treated as a Nonstatutory Option.

          7.3  Option  Agreement; Terms and Conditions to Apply Unless Otherwise
Specified.  As  determined  by the  Committee on the date of grant,  each Option
shall be evidenced by an Option agreement (the "Option Agreement") that includes
the nontransferability provisions required by section 10.2 hereof and specifies:
whether the Option is an Incentive  Stock Option or a Nonstatutory  Option;  the
Option price; the duration of the Option; the number of shares of Stock to which
the  Option  applies;  any  vesting  or  exercisability  restrictions  which the
Committee  may impose;  in the case of an Incentive  Stock  Option,  a provision
implementing  the $100,000  Limitation;  and any other terms and  conditions  as
shall be determined by the Committee at the time of grant of the Option.

               All Option  Agreements  shall  incorporate the provisions of this
Plan by reference,  with certain  provisions to apply depending upon whether the
Option  Agreement  applies to an  Incentive  Stock  Option or to a  Nonstatutory
Option.

          7.4  Option Price. No Incentive Stock Option granted  pursuant to this
Plan shall have an Option price that is less than the Fair Market Value of Stock
on  the  date  the  Option  is  granted.  Incentive  Stock  Options  granted  to
Significant Stockholders shall have an Option price of not less than 110 percent
of the Fair  Market  Value of Stock on the date of grant.  The Option  price for
Nonstatutory Options shall be established by the Committee.

          7.5  Term of Options.  Each  Option  shall  expire at such time as the
Committee shall determine when it is granted, provided,  however, that no Option
shall  be  exercisable  later  than the  tenth  anniversary  date of its  grant.
Incentive Stock Options granted to Significant  Stockholders will be exercisable
over not more than five years after the date of grant, unless otherwise provided
by the Code.

                                      -6-
<PAGE>

          7.6  Exercise of  Options.  Options  granted  under this Plan shall be
exercisable at such times and be subject to such  restrictions and conditions as
the Committee shall in each instance approve, which need not be the same for all
Participants.

          7.7  Payment.

               (a)  Payment  for all  shares of Stock  shall be made at the time
that an Option, or any part thereof, is exercised, and no shares shall be issued
until  full  payment  therefor  has been made  (except  that,  in the case of an
exercise  described  in  Section  7.7  (b),  payment  may be  made  as  soon  as
practicable after the exercise).  Such payment may be made in cash,  outstanding
shares  of Stock,  in  combinations  thereof,  or any  other  method of  payment
approved  by the  Committee;  provided,  however,  that (i) the  deposit  of any
withholding  tax shall be made in accordance  with  applicable law and (ii) that
such  shares  of Stock  used to pay the  exercise  price  have  been held by the
Participant  for at least six months  prior to the exercise  date.  If shares of
Stock are being used in part or full payment for the shares to be acquired  upon
exercise  of the  Option,  such  shares  shall be valued for the purpose of such
exchange as of the date of  exercise  of the Option at the Fair Market  Value of
the shares. Any certificates evidencing shares of Stock used to pay the purchase
price  shall  be  accompanied  by stock  powers  duly  endorsed  in blank by the
registered holder of the certificate (with signatures  thereon  guaranteed).  In
the event the  certificates  tendered by the holder in such  payment  cover more
shares  than are  required  for such  payment,  the  certificate  shall  also be
accompanied by instructions from the holder to the Company's transfer agent with
regard to the disposition of the balance of the shares covered thereby.

               (b) The Committee  may permit a  Participant  to pay the exercise
price of an Option by  authorizing  a third  party to sell shares of Stock (or a
sufficient portion of the shares) acquired upon exercise of the Option and remit
to the  Company a  sufficient  portion of the sales  proceeds  to pay the entire
exercise price and any tax withholding resulting from such exercise.

                   Article VIII.  Written Notice, Issuance of
                   Stock Certificates, Stockholder Privilege

          8.1  Written Notice. A Participant wishing to exercise an Option shall
give written  notice to the Company,  in the form and manner  prescribed  by the
Committee. Full payment for the Options exercised, except as provided in section
7.7 above, must accompany the written notice.

          8.2  Issuance of Stock Certificate.  As soon as practicable  after the
receipt  of  written  notice  and  payment,  the  Company  shall  deliver to the
Participant or to a nominee of the Participant a certificate or certificates for
the requisite number of shares of Stock.

          8.3  Privileges of a  Stockholder.  A Participant  or any other person
entitled  to  exercise  an Option  under  this Plan  shall not have  stockholder
privileges  with  respect to any Stock  covered by the Option  until the date of
issuance of a stock certificate for such Stock.

                                      -7-
<PAGE>

               Article IX. Termination of Employment or Services

               Except as otherwise expressly specified by the Board, all Options
granted  under  this  Plan  shall  be  subject  to  the  following   termination
provisions.

          9.1  Death.  If a Participant's  employment  or  provision of services
terminates  by reason of death,  the Option may  thereafter  be exercised at any
time prior to the  expiration  date of the Option or within 12 months  after the
date of such death,  whichever  period is the shorter,  by the person or persons
entitled to do so under the Participant's will or, if the Participant shall fail
to make a  testamentary  disposition  of an Option or shall die  intestate,  the
Participant's  legal  representative  or  representatives.  The Option  shall be
exercisable  only to the extent that such Option was  exercisable as of the date
of death.

          9.2  Termination Other Than for Cause or Due to Death. In the event of
a  Participant's  termination  of employment or  termination of the provision of
services,  other  than for  Cause or by reason of  death,  the  Participant  may
exercise  such  portion of his Option as was  exercisable  by him at the date of
such termination (the "Termination Date") at any time within three months of the
Termination Date; provided,  however, that where the Participant is an employee,
and is terminated due to disability  within the meaning of Code section 22(e)(3)
or any  successor  provision,  he may exercise such portion of his Option as was
exercisable by him on his  Termination  Date within one year of his  Termination
Date. In any event,  the Option cannot be exercised  after the expiration of the
original term of the Option.  Options not exercised within the applicable period
specified above shall terminate.

               In the case of an employee, a change of duties or position within
the Company,  if any,  shall not be considered a termination  of employment  for
purposes of this Plan. The Option  Agreements may contain such provisions as the
Committee shall approve with respect to the effect of approved leaves of absence
upon termination of employment.

          9.3  Termination   for  Cause.  In   the   event  of  a  Participant's
termination  of employment or  termination  of the provision of services,  which
termination is by the Company for Cause, any Option or Options held by him under
the Plan, to the extent not exercised before such  termination,  shall forthwith
terminate.

                       Article X. Rights of Participants

          10.1 Service.  Nothing in this Plan shall  interfere  with or limit in
any way the right of the Company to terminate  any  individual's  employment  or
services at any time,  nor confer upon any employee any right to continue in the
employ of the Company,  or upon any Consultant or director any right to continue
to provide services to the Company.

          10.2 Nontransferability.  Options  granted  under  this  Plan shall be
nontransferable  by the  Participant,  other than by will or the laws of descent
and distribution,  and shall be exercisable  during the  Participant's  lifetime
only by the Participant.

                                      -8-
<PAGE>

                          Article XI. Restricted Stock

          11.1 Administration.  Shares  of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan.  Subject to section
3.1, the Committee shall determine the eligible individuals to whom and the time
or times at which grants of Restricted  Stock will be made, the number of shares
to be  awarded,  the time or times  within  which such  awards may be subject to
forfeiture  and any other terms and  conditions  of the  awards,  in addition to
those contained in Section 11.3.

               The Committee  may  condition the grant of Restricted  Stock upon
the attainment of specified  performance goals or such other factors or criteria
as the Committee shall determine. The provisions of Restricted Stock awards need
not be the same with respect to each recipient.

          11.2 Awards and Certificates.  Each Participant receiving a Restricted
Stock  award  shall  be  issued a  certificate  in  respect  of such  shares  of
Restricted  Stock.  Such  certificate  shall be  registered  in the name of such
Participant  and  shall  bear an  appropriate  legend  referring  to the  terms,
conditions,  and  restrictions  applicable to such award,  substantially  in the
following form:

               "The  transferability of this certificate and the shares of stock
represented   hereby  are  subject  to  the  terms  and  conditions   (including
forfeiture) of the State  Financial  Services  Corporation  1998 Stock Incentive
Plan,  as amended.  Copies of such Plan and Agreement are on file at the offices
of State  Financial  Services  Corporation,  10708 West Janesville  Road,  Hales
Corners, Wisconsin 53130."

               The Committee may require that the  certificates  evidencing such
shares be held in custody by the Company  until the  restrictions  thereon shall
have  lapsed  and that,  as a  condition  of any  Restricted  Stock  award,  the
Participant shall have delivered a stock power,  endorsed in blank,  relating to
the Stock covered by such award.

          11.3 Terms and Conditions. Shares of Restricted Stock shall be subject
to the following terms and, conditions:

               (a)  Subject  to the  provisions  of the Plan and the  Restricted
Stock  Agreement  referred  to in  Section  11.3(f),  during a period set by the
Committee,  commencing with the date of such award (the  "Restriction  Period"),
the  Participant  shall not be permitted to sell,  assign,  transfer,  pledge or
otherwise  encumber  shares  of  Restricted  Stock.  Within  these  limits,  the
Committee may provide for the lapse of such restrictions in installments and may
accelerate or waive such  restrictions,  in whole or in part,  based on service,
performance and such other factors or criteria as the Committee may determine.

               (b)  Except  as  provided  in this  paragraph  (b),  and  Section
11.3(a),  the  Participant  shall have, with respect to the shares of Restricted
Stock, all of the rights of a stockholder of the Company, including the right to
vote the  shares  and the  right to  receive  any  dividends,  unless  otherwise
determined by the Committee and other  distributions  made with respect to those
shares while they are so held. If any such dividends or  distributions  are paid
in shares of

                                      -9-
<PAGE>

Stock, the shares will be subject to the same restrictions on transferability as
the shares of Restricted Stock with respect to which they were paid.

               (c)  Except to the extent otherwise  provided  in the  applicable
Restricted  Stock Agreement and Sections  11.3(a) and (d), upon termination of a
Participant's  employment  for any reason  during the  Restriction  Period,  all
shares still subject to restriction shall be forfeited by the Participant.

               (d)  In the event of hardship or other special circumstances of a
Participant whose employment is involuntarily terminated (other than for Cause),
the Committee  may waive in whole or in part any or all  remaining  restrictions
with respect to such Participant's shares of Restricted Stock.

               (e)  If and when the  Restriction Period expires  without a prior
forfeiture  of  the  Restricted  Stock  subject  to  such  Restriction   Period,
unlegended certificates for such shares shall be delivered to the Participant.

               (f)  Each  award  shall  be  confirmed  by, and be subject to the
terms of, a Restricted Stock Agreement.

        Article XII. Amendment, Modification and Termination of the Plan

          12.1 Amendment,  Modification,  and Termination of the Plan. The Board
may at any time  amend,  alter,  suspend,  discontinue  or  terminate  the Plan;
provided,  however, that stockholder approval of any amendment of the Plan shall
be  obtained  if  otherwise  required  by (a) the Code or any rules  promulgated
thereunder  (in order to allow  incentive  stock options to be granted under the
Plan or the enable the Company to comply with the  provisions  of ss.  162(m) of
the Code so that the Company can deduct  compensation  in excess of  limitations
set forth therein),  or (b) the listing requirements of the principal securities
exchange or market on which the Stock is then  traded (in order to maintain  the
listing  or  quotation  of the  Stock  thereon).  To  the  extent  permitted  by
applicable  law, the Committee  may also amend the Plan,  provided that any such
amendments shall be reported to the Board.

               No amendment,  modification  or  termination of the Plan shall in
any manner adversely affect any outstanding  Option or share of Restricted Stock
under the Plan  without  the  consent of the  Participant  holding the Option or
share of Restricted Stock.

          12.2 Waiver of  Conditions.  The  Committee  may, in whole or in part,
waive any  conditions  or other  restrictions  with respect to any award granted
under the Plan.

               Article XIII. Acquisition, Merger and Liquidation

          13.1 Acquisition.  Notwithstanding anything herein to contrary, in the
event that an Acquisition (as defined below) occurs with respect to the Company,
the Company shall have the option,  but not the  obligation,  to cancel  Options
outstanding as of the effective date of Acquisition, whether or not such Options
are then exercisable,  in return for payment to the Participants for each Option
of  an  amount  equal  to  a  reasonable,  good  faith  estimate  of  an

                                      -10-
<PAGE>

amount (hereinafter the "Spread") equal to the difference between the net amount
per share payable in the Acquisition,  or as a result of the  Acquisition,  less
the  exercise  price  per  share  of  the  Option.  In  estimating  the  Spread,
appropriate  adjustments to give effect to the existence of the Options shall be
made,  such as deeming  the  Options to have been  exercised,  with the  Company
receiving  the  exercise  price  payable  thereunder,  and  treating  the shares
receivable upon exercise of the Options as being  outstanding in determining the
net amount per share. For purposes of this section,  an "Acquisition" shall mean
any transaction in which  substantially all of the Company's assets are acquired
or in  which a  controlling  amount  of the  Company's  outstanding  shares  are
acquired,  in each case by a single person or entity or an  affiliated  group of
persons and/or entities. For purposes of this section a controlling amount shall
mean more than 50% of the issued and outstanding shares of stock of the Company.
The  Company  shall have such an option  regardless  of how the  Acquisition  is
effectuated,  whether by direct purchase,  through a merger or similar corporate
transaction,  or  otherwise.  In cases  where the  acquisition  consists  of the
acquisition  of  assets  of the  Company,  the net  amount  per  share  shall be
calculated on the basis of the net amount receivable with respect to shares upon
a  distribution  and  liquidation by the Company after giving effect to expenses
and charges,  including but not limited to taxes,  payable by the Company before
the liquidation can be completed.

               Where the Company does not exercise its option under this section
13.1, the remaining  provisions of this Article XIII shall apply,  to the extent
applicable.

          13.2 Merger or  Consolidation.  Subject  to  section  13.1 and  to any
required  action by the  stockholders,  if the  Company  shall be the  surviving
corporation in any merger or  consolidation,  any Option granted hereunder shall
pertain to and apply to the securities to which a holder of the number of shares
of Stock  subject  to the  Option  would have been  entitled  in such  merger or
consolidation.

          13.3 Other  Transactions.  Subject to section 13.1,  dissolution  or a
liquidation of the Company or a merger and consolidation in which the Company is
not the surviving  corporation shall cause every Option outstanding hereunder to
terminate as of the effective date of the  dissolution,  liquidation,  merger or
consolidation.  However,  the  Participant  either  (a) shall be  offered a firm
commitment  whereby  the  resulting  or  surviving  corporation  in a merger  or
consolidation will tender to the Participant an option (the "Substitute Option")
to purchase its shares on terms and  conditions  both as to number of shares and
otherwise,  which will substantially  preserve to the Participant the rights and
benefits of the Option  outstanding  hereunder  granted by the  Company,  or (b)
shall have the right immediately prior to such dissolution, liquidation, merger,
or  consolidation  to  exercise  any  unexercised  Options  whether  or not then
exercisable,  subject to the provisions of this Plan.  The Committee  shall have
absolute and  uncontrolled  discretion to determine  whether the Participant has
been offered a firm commitment and whether the tendered  Substitute  Option will
substantially  preserve to the Participant the rights and benefits of the Option
outstanding  hereunder.  In any event,  any  Substitute  Option for an Incentive
Stock Option shall comply with the requirements of the Code.

                                      -11-
<PAGE>

                      Article XIV. Securities Registration

          14.1 Securities Registration. In the event that the Company shall deem
it  necessary  or desirable to register  under the  Securities  Act of 1933,  as
amended, or any other applicable statute,  any Options or any Stock with respect
to which an Option may be or shall have been granted or exercised, or to qualify
any such Options or Stock under the Securities  Act of 1933, as amended,  or any
other statute,  then the  Participant  shall cooperate with the Company and take
such action as is  necessary to permit  registration  or  qualification  of such
Options or Stock.

               Unless   the   Company   has   determined   that  the   following
representation  is unnecessary,  each person exercising an Option under the Plan
or receiving  shares of  Restricted  Stock may be required by the Company,  as a
condition to the issuance of the shares of Restricted  Stock or shares  pursuant
to exercise  of the Option,  to make a  representation  in writing  that he will
comply with all securities  laws  applicable to the sale of such shares and such
other  restrictions  as the Company may deem  appropriate.  The Company may also
require  that  the  certificates   representing   such  shares  contain  legends
reflecting the foregoing.

                          Article XV. Tax Withholding

          15.1 Tax  Withholding.  Whenever  shares  of Stock are to be issued in
satisfaction  of Options  exercised  under  this Plan,  or upon the lapse of the
Restriction Period with respect to shares of Restricted Stock, the Company shall
have the power to require the  recipient of the Stock to remit to the Company an
amount   sufficient  to  satisfy  federal,   state  and  local  withholding  tax
requirements.  Unless otherwise determined by the Board, withholding obligations
may be settled with Stock,  including Stock that is part of the award that gives
rise to the  withholding  requirement.  The obligations of the Company under the
Plan shall be conditional on such payment or arrangements,  and the Company, its
subsidiaries  and  affiliates  shall,  to the extent  permitted by law, have the
right  to  deduct  any  such  taxes  from  any  payment  otherwise  due  to  the
participant.

                          Article XVI. Indemnification

          16.1 Indemnification.  To the extent permitted by law, each person who
is or shall have been a member of the Board or  Committee  shall be  indemnified
and held harmless by the Company against and from any loss, cost, liability,  or
expense that may be imposed  upon or  reasonably  incurred by him in  connection
with or resulting from any claim, action, suit, or proceeding to which he may be
a party or in which he may be involved by reason of any action  taken or failure
to act under the Plan and against  and from any and all  amounts  paid by him in
settlement thereof,  with the Company's approval, or paid by him in satisfaction
of judgment in any such action,  suit or  proceeding  against  him,  provided he
shall give the Company an opportunity,  at its own expense, to handle and defend
it on his own  behalf.  The  foregoing  right of  indemnification  shall  not be
exclusive  of any other rights of  indemnification  to which such persons may be
entitled under the Company's articles of incorporation or bylaws, as a matter of
law, or otherwise,  or any power that the Company may have to indemnify  them or
hold them harmless.

                                      -12-
<PAGE>

                       Article XVII. Requirements of Law

          17.1 Requirements of Law. The granting of Restricted Stock and Options
and the  issuance  of shares of Stock upon the  exercise  of an Option  shall be
subject to all applicable laws, rules, and regulations, and to such approvals by
any governmental agencies or national securities exchanges as may be required.

          17.2 Governing Law.  The Plan and all  agreements  hereunder  shall be
construed in accordance with and governed by the laws of the state of Wisconsin.

                      Article XVIII. Compliance with Code

          18.1 Compliance with Code.  Incentive Stock Options granted  hereunder
are intended to qualify as "incentive  stock options" under Code section 422. If
any provision of this Plan is susceptible to more than one interpretation,  such
interpretation  shall be given thereto as is  consistent  with  Incentive  Stock
Options  granted under this Plan being treated as incentive  stock options under
the Code.  Options granted  hereunder to any person who is a "covered  employee"
under  Code  section  162(m) at any time when the  Company  is  subject  to Code
section 162(m) are intended to qualify as performance-based  compensation within
the  meaning of Code  section  162(m)(4)(C).  If any  provision  of this Plan is
susceptible to more than one interpretation,  such interpretation shall be given
thereto as is consistent  with Options  granted under this Plan to such "covered
Participants" being treated as performance-based compensation under Code section
162(m).

                                      -13-

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