Document:

EXHIBIT 10.5

 

EXHIBIT 10.5

AMENDMENT NO. 3

TO

CREDIT AGREEMENT

BY AND AMONG

CRICKET COMMUNICATIONS, INC.

(AS LENDER)

AND

ALASKA NATIVE BROADBAND 1 LICENSE, LLC

(AS BORROWER)

AND

ALASKA NATIVE BROADBAND 1, LLC

(AS GUARANTOR)

August 26, 2005

 

 

AMENDMENT NO. 3 TO CREDIT AGREEMENT

     This Amendment No. 3 to Credit Agreement is entered into as of August 26, 2005, by and among
Cricket Communications, Inc., a Delaware corporation (“Lender”), Alaska Native Broadband 1 License,
LLC, a Delaware limited liability company (“Borrower”), and Alaska Native Broadband 1, LLC, a
Delaware limited liability company (“Guarantor,” and together with Borrower, the “Loan Parties”).

RECITALS

     WHEREAS, Lender and each of the Loan Parties entered into that certain Credit Agreement dated
as of December 22, 2004, as amended by Amendment No. 1 to Credit Agreement dated as of January 26,
2005, as amended by Amendment No. 2 to Credit Agreement dated June 24, 2005 (as amended, the
“Credit Agreement”); and

     WHEREAS, Lender and each of the Loan Parties desire to amend the Credit Agreement as set forth
herein.

AGREEMENT

     NOW THEREFORE, in consideration of the mutual covenants contained herein, the parties hereto
agree as follows:

     Section 1. Section 2.3(e) of the Credit Agreement shall be deleted in its
entirety. and replaced with the following:

     “e. Intentionally omitted;”

     Section 2. Section 6.9(b) of the Credit Agreement shall be deleted in its
entirety and replaced with the following:

“b. purchase money financing of telecommunications equipment incurred by Borrower of
up to $4.0 million in the aggregate if the terms of such financing are more
favorable to Borrower than the terms of the Loans.”

     Section 3. Section 6.11 of the Credit Agreement shall be amended by inserting
the phrase “(other than with respect to Section 6.11(j))” after the word “given” in the
fourth line of the first paragraph of such Section. Section 6.11(i) of the Credit
Agreement shall be deleted in its entirety and replaced with the phrase “i. Intentionally
omitted.” Section 6.11(j) of the Credit Agreement shall be deleted in its entirety and
replaced with the following:

     “j. Amend or modify its certificate of formation or limited liability company agreement,
including the LLC Agreement, in any manner that materially affects Lender as a secured lender to
any of the Loan Parties.”

     Section 4. The following section shall be added as Section 6.15 to the Credit
Agreement:

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     6.15. Build-Out and Operation of the Licenses

a. The Loan Parties shall diligently pursue the Build-Out and operation of the ANB-1
License System with respect to each License.

b. In the event of a termination of the Management Agreement or any replacement
thereof, on or prior to the expiration of the applicable notice period for such
termination, and provided that, if Lender is the terminated manager, it has complied
with the transition provisions of Section 10.4 of the Management Agreement, Borrower
shall enter into a management agreement for the ANB-1 License Systems with another
Person who is capable of providing a quality of service substantially similar to
that provided by Lender under the Management Agreement.”

     Section 5. The following section shall be added as Section 6.16 to the Credit
Agreement:

6.16. Dividends, Distributions or Return of Capital

a. Each Loan Party agrees that it shall not, without the prior approval of Lender,
which approval may be withheld in Lender’s sole and absolute discretion, make any
dividend, distribution or return of capital, except that (i) Borrower may make
distributions to Guarantor (and Guarantor to ANB) to the extent that Section 8.5(d)
of the LLC Agreement provides for payments to ANB, (ii) Borrower may make
distributions to Guarantor (and Guarantor to its members) for tax distributions,
(iii) Borrower may make distributions to Guarantor for the payment of Guarantor’s
expenses to the extent consistent with Guarantor’s annual business plan and budget
under the LLC Agreement, and (iv) so long as no default shall have occurred and be
continuing or would result therefrom, Borrower may make distributions or returns of
capital to Guarantor (and Guarantor to its members), in each case if after giving
effect to such proposed distribution or return of capital (x) the aggregate amount
of all such distributions and returns of capital paid or made in any fiscal year
(without duplication) would be less than 50% of the Consolidated Net Income for the
fiscal year immediately preceding the fiscal year in which such distribution or
return of capital is paid or made and (y) the Consolidated Leverage Ratio would be
less than or equal to 2.00:1.00.”

b. For purposes of this Section 6.16, the following terms shall have the
following meanings:

     (i) “Consolidated Leverage Ratio” means, as of any date of determination, the
ratio of (a) Guarantor’s and Borrower’s consolidated indebtedness as of such date,
to (b) Guarantor’s and Borrower’s Consolidated EBITDA for the most recently
completed fiscal year.

     (ii) “Consolidated Net Income” means, at any date of determination, the net
income of Guarantor and Borrower (without giving effect to extraordinary

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gains or extraordinary losses) on a consolidated basis for the most recently
completed fiscal year.

     (iii) “Consolidated EBITDA” means, for any fiscal year, an amount equal to the
Consolidated Net Income of Guarantor and Borrower for such fiscal year plus (a) the
following to the extent deducted in calculating such Consolidated Net Income (without
duplication): (1) consolidated interest charges (including capitalized interest) for such
period, (2) all Federal, state, local and foreign income tax expense deducted in arriving at
Consolidated Net Income, (3) depreciation and amortization expense, (4) non-cash impairment
of assets (tangible and intangible) and related non-cash charges, (5) non-cash charges and
expenses related to equity-based compensation awards made by Guarantor or Borrower, and (6)
other non-recurring expenses reducing such Consolidated Net Income which do not represent a
cash item in such period or any future period and minus (b) the following to the
extent included in calculating such Consolidated Net Income (without duplication): (1)
Federal, state, local and foreign income tax credits of Guarantor or Borrower for such
period, (2) all non-cash gains arising in relation to any FCC licenses and (3) all non-cash
items increasing Consolidated Net Income for such period.

     Section 6. Section 7.1(h) of the Credit Agreement shall be deleted in its
entirety and replaced with the following:

“h. Intentionally omitted;”

     Section 7. Except as expressly amended hereby, the Credit Agreement remains in full
force and effect in accordance with its terms.

[Signatures Follow on Next Page]

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     IN WITNESS WHEREOF, the parties hereto have signed this Amendment No. 3 to Credit Agreement,
or have caused this Amendment No. 3 to Credit Agreement to be signed in their respective names by
an officer, hereunto duly authorized, on the date first written above.

	 	 	 
	CRICKET COMMUNICATIONS, INC.

	 	ALASKA NATIVE BROADBAND 1
	 

	 	LICENSE, LLC
	 
	 	 
	 

	 	By Alaska Native Broadband 1, LLC
	By:
/s/ Robert J. Irving, Jr.

	 	   Its sole member
	Name: Robert J. Irving, Jr.

	 	 
	Title: Secretary

	 	By Alaska Native Broadband, LLC
	 

	 	   Its Manager
	 
	 	 
	 

	 	By ASRC Wireless Services, Inc.,
	 

	 	   Its Manager
	 
	 	 
	 

	 	By: /s/ Conrad Bagne               
	 

	 	Name: Conrad Bagne
	 

	 	Title: President
	 
	 	 
	 

	 	ALASKA NATIVE BROADBAND 1, LLC
	 
	 	 
	 

	 	By Alaska Native Broadband, LLC
	 

	 	   Its Manager
	 
	 	 
	 

	 	By ASRC Wireless Services, Inc.,
	 

	 	   Its Manager
	 
	 	 
	 

	 	By:/s/ Conrad Bagne               
	 

	 	Name: Conrad Bagne
	 

	 	Title: President

4exv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     This
Employment Agreement (this “Agreementt”) is made this  7th  day of
November, 2005 (the “Effective Date”), between SOUTHWEST COMMUNITY BANK, a California banking
corporation (the “Bank”), having a principal place of business at 5810 El Camino Road, Carlsbad,
California 92024, and FRANK J. MERCARDANTE (“Executive”), whose residence address is 1657
Independence Way, Vista, California 92084, with reference to the following:

R E C I T A L S

     WHEREAS, the Bank is a banking corporation duly organized, validly existing, and in good
standing under the laws of the State of California, with power to own property and carry on its
business as it is now being conducted;

     WHEREAS, the Bank desires to continue to avail itself of the skill, knowledge, and experience
of Executive in order to insure the successful management of its business;

     WHEREAS, the Bank and Executive entered into that certain Employment Agreement dated January
29, 1998 (the “Original Agreement”), which Original Agreement has been amended by mutual agreement
of the parties through the Effective Date;

     WHEREAS, the parties hereto desire to specify the terms of Executive’s continued employment by
the Bank as controlling Executive’s continued employment with the Bank; and

     WHEREAS, the parties wish to enter into this Agreement to reflect the Original Agreement as
amended by the parties through the Effective Date and to supersede the Original Agreement;

     NOW, THEREFORE, in consideration of the mutual covenants hereinafter set forth, and intending
to be legally bound, it is agreed that from and after the Effective Date, the following terms and
conditions shall apply to Executive’s said employment:

A G R E E M E N T

     A. TERM OF EMPLOYMENT

          1. Term. The Bank hereby employs Executive and Executive hereby accepts employment
with the Bank for the period commencing on the Effective Date and terminating on January 1, 2009,
unless terminated earlier as provided for in this Agreement (the “Term”).

     B. DUTIES OF EXECUTIVE

          1. Duties. Executive shall perform the duties of Chief Executive Officer of the Bank,
subject to the powers by law vested in the Board of Directors of the Bank and in the Bank’s
shareholder(s). During the Term, Executive shall perform exclusively the services

 

 

herein contemplated to be performed by Executive faithfully, diligently, and to the best of
Executive’s ability, consistent with the highest and best standards of the banking industry and in
compliance with all applicable laws and the Bank’s Articles of Incorporation, Bylaws, and internal
written policies.

          2. Conflicts of Interest. Except as permitted by the prior written consent of the
Board of Directors of the Bank, Executive shall devote Executive’s entire productive time, ability,
and attention to the business of the Bank during the Term, and Executive shall not directly or
indirectly render any services of a business, commercial, or professional nature, to any other
person, firm, or corporation, whether for compensation or otherwise, which are in conflict with the
Bank’s interest. Notwithstanding the foregoing, Executive may make investments of a passive nature
in any business or venture, provided, however, that neither such business or venture is in
competition, directly or indirectly, in any manner with the Bank.

               (a) Nothing provided in this Section shall prevent the Executive from purchasing or otherwise
beneficially owning, without restriction on amount, any securities issued by the Bank or the Bank’s
corporate parent, Southwest Community Bancorp (the “Company”).

               (b) During the term of this Agreement, Executive shall not directly or indirectly engage in
competition with, or own any interest in any business which competes with, any business of the Bank
or the Company or any of their subsidiaries; provided, however, that the provisions of this Section
2 shall not prohibit his ownership of not more than 5% of the voting stock of any publicly held
corporation, or prohibit ownership of not more than 5% of any mutual fund.

     C. COMPENSATION

          1. Salary. For Executive’s services hereunder, commencing with the Effective Date,
the Bank shall pay or cause to be paid as annual base salary to Executive the sum of Three Hundred
Twenty Thousand Dollars ($320,000) for each year (i.e., 12-month period) of the Term (the “Base
Salary”). Said salary shall be payable in equal installments in conformity with Bank’s normal
payroll periods. Annual adjustments commencing January 1, 2006, may be made in the discretion of
the Board of Directors.

          2. Bonuses. During the Term, Executive shall be entitled to receive as an incentive,
a bonus as determined and payable in accordance with the Bank’s Senior Executive Officer Bonus Plan
as set forth on Exhibit “A” hereto as it may be amended from time to time by mutual agreement of
the Board of Directors and Executive, together with such other bonus as the Board of Directors
shall determine from time to time in its sole and absolute discretion (collectively, the “Incentive
Bonus”).

     D. EXECUTIVE BENEFITS

          1. Vacation. From and after the Effective Date, Executive shall be entitled to six
(6) weeks vacation during each year of the Term; provided, however, that for each year of the Term,
Executive is required to and shall take at least two (2) weeks of said vacation (the “Mandatory
Vacation”), which shall be taken consecutively. Executive shall be entitled to carry forward to
the immediately succeeding year of the Term (the “Carry Forward Period”) up to two (2) weeks of
unused vacation time for each year of the Term

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(the “Unused Vacation”). Should any portion of the Unused Vacation remain unused by Executive at
the end of the Carry Forward Period, Bank shall pay Executive an amount equal to the product
resulting from multiplying (i) the number of days of the Unused Vacation that remain unused at the
end of the Carry Forward Period, by (ii) the dollar amount resulting from Executive’s Base Salary
then in effect divided by 260. Upon payment of same, Bank shall owe Executive no further benefit
on account of the Unused Vacation. Executive shall receive compensation for any vacation in excess
of the Unused Vacation not used by Executive in any one year of the Term, calculated in the same
manner as set forth in the previous sentence.

          2. Automobile. During the Term hereunder, the Bank shall provide Executive, for
Executive’s sole use, a suitable full sized automobile, the specific make and model of such
automobile to be determined by Executive, which automobile shall at no time be older than three (3)
years. The Bank shall pay all operating expenses of any nature whatsoever with regard to such
automobile, provided Executive furnishes to the Bank adequate records and other documentary
evidence required by federal and state statutes and regulations issued by the appropriate taxing
authorities for the substantiation of such payments as deductible business expenses of the Bank and
not as deductible compensation to Executive. The Bank shall also procure and maintain in force an
automobile liability insurance policy on such automobile, containing all reasonable and necessary
coverage.

          3. Group Medical and Life Insurance Benefits. At such time as Executive shall request
in writing during the Term (the “Request Date”), the Bank shall provide for Executive and
Executive’s spouse, at Bank’s expense, participation in the Bank’s existing medical, dental,
accident and health insurance benefits in accordance with benefits provided to Bank employees
generally, but at a level commensurate for an employee of Executive’s salary level (the “Insurance
Coverage”). Said Insurance Coverage shall be in effect as of the Request Date (or as soon
thereafter as the Bank’s policies for the Insurance Coverage will permit) and shall continue
throughout the Term. Except in the event of Executive’s termination pursuant to Paragraphs F.1 or
F.3, or in the event Executive terminates this Agreement pursuant to Paragraph F.5, Bank shall
continue to provide or pay the premiums for the Insurance Coverage with substantially similar
benefits, deductibles, co-pays and coverage limits as the Bank is providing for Executive as of
the end of the Term, at the Bank’s expense, for Executive and Executive’s spouse from and after the
end of the Term throughout the remainder of Executive’s and Executive’s spouse’s natural lives.
The Bank’s liability to Executive or Executive’s spouse for any breach of this Paragraph D.3 shall
be limited to the amount of premiums required hereunder to be payable by the Bank to obtain or
maintain, as applicable, the coverage’s contemplated herein.

          4. Stock Options. All options to purchase shares of the Company’s authorized but
unissued Common Stock heretofore granted to Executive shall remain in full force and effect subject
to the terms and conditions of those options as so granted. The Bank and Executive acknowledge
and agree that as of the Effective Date Executive has been granted options which remain unexercised
to purchase those shares of Company Common Stock as listed on Exhibit “B” hereto.

          5.
SERP. The Bank shall provide for Executive’s participation in the Bank’s
Supplemental Executive Retirement Plan as evidenced by that certain Executive Supplement
Compensation Agreement by and between Bank and Executive dated October 17, 2001.

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           6. 401(k) Program. During the Term, the Bank shall provide for Executive’s
participation in the Bank’s 401(k) retirement plan in accordance with the benefits provided to Bank
employees generally.

          7. Other Benefits. Except as provided herein, during the term of his employment under
this Agreement, Executive shall be entitled to participate in employee benefit programs and fringe
benefits in accordance with the plans, practices, programs, and policies of the Bank in effect for
which executives of the Bank are eligible pursuant to the terms of such plans, practices, programs,
and policies, including sick leave; provided, however, Executive shall not participate in such
plans that are applicable only for Bank’s employees, such as Bank’s employee bonus program.

     E. REIMBURSEMENT FOR BUSINESS EXPENSES

          Executive shall be entitled to reimbursement by the Bank for any ordinary and necessary
business expenses incurred by Executive in the performance of Executive’s duties and in acting for
the Bank during the Term, which types of expenditures shall be determined by the Board of
Directors, provided that:

          1. Each such expenditure is of a nature qualifying it as a proper deduction on the federal and
state income tax returns of the Bank as a business expense (without regard to limitations such as
meals) and not as a deductible compensation to Executive; and

          2. Executive furnishes to the Bank adequate records and other documentary evidence required by
federal and state statutes and regulations issued by the appropriate taxing authorities for the
substantiation of such expenditures as business expenses of the Bank and not as deductible
compensation to Executive.

     F. TERMINATION

          1. Termination for Cause. The Bank may terminate this Agreement at any time by action
of the Board of Directors for “cause” only if: (a) Executive fails to perform or habitually
neglects the duties which he is required to perform hereunder; (b) if Executive engages in illegal
activity which materially adversely affects the Bank’s reputation in the community or which
evidences the lack of Executive’s fitness or ability to perform Executive’s duties as reasonably
determined by the Board of Directors, in good faith; (c) Executive commits any act which would
cause termination of coverage under the Bank’s Banker’s Blanket Bond as to Executive (as
distinguished from termination of coverage as to the Bank as a whole); and (d) any regulatory
authority having supervisory authority over Bank exercises its cease and desist powers to remove
Executive from office or advises Bank that Executive should be removed from office. Such
termination shall not prejudice any remedy which the Bank may have at law, in equity, or under this
Agreement.

          2. Death or Disability. In the event of Executive’s death, or if Executive is found
to be physically or mentally disabled (as hereinafter defined) by the Board of Directors in good
faith, this Agreement shall terminate.

     For purposes of this Agreement only, physical or mental disability shall be defined as
Executive being unable to fully perform under this Agreement for a continuous period of ninety (90)
days or a cumulative period of one hundred twenty (120) days in any calendar year. If there should
be a dispute between the Bank and Executive as to Executive’s physical

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or mental disability for purposes of this Agreement, the question shall be settled by the opinion
of an impartial reputable physician or psychiatrist agreed upon by the parties or their
representatives, or if the parties cannot agree within ten (10) days after a request for
designation of such party, then by a physician or psychiatrist designated by the San Diego County
Medical Association. The certification of such physician or psychiatrist as to the question in
dispute shall be final and binding upon the parties hereto.

          3. Action by Supervisory Authority. If the Bank is closed by or taken over by the
California Department of Financial Institutions or other supervisory authority, including the
Federal Deposit Insurance Corporation, such bank supervisory authority may immediately terminate
this Agreement.

          4. Change in Control Event. In the event of a “Change of Control” Executive’s
employment with the Bank may be terminated by Executive or by the surviving entity. A Change of
Control shall be deemed to have occurred if:

               (a) there shall be consummated (1) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation, or pursuant to which shares of the
Company’s Common Stock would be converted in whole or in part into cash, securities, or other
property, other than a merger of the Company in which the holders of the Company’s Common Stock
immediately prior to the merger have substantially the same proportionate ownership of common stock
of the surviving corporation immediately after the merger, or (2) any sale, lease, exchange or
transfer (in one transaction or a series of related transactions) of all or substantially all the
assets of the Company, or

               (b) the shareholders of the Company shall approve any plan or proposal for the liquidation or
dissolution of the Company, or

               (c) any “person” [as such term is used in Sections 13(d)(3) and 14(d)(2) of the Securities
Exchange Act of 1934 (the “Exchange Act”)], other than the Company or a subsidiary thereof or a
corporation owned, directly or indirectly, by the shareholder of the Company, shall become the
beneficial owner [within the meaning of Rule 13(d)(3) under the Exchange Act] of securities of the
Company representing 25% or more of the combined voting power of the Company’s or the
Bank’s then outstanding securities ordinarily (and apart from rights accruing in special
circumstances) having the right to vote in the election of directors, as a result of a tender or
exchange offer, open market purchases, privately negotiated purchases or otherwise, or

               (d) at any time during a period of two (2) consecutive years, individuals who, at the
beginning of such period, constituted the Board of Directors of the Company shall cease for any
reason to constitute at least a majority thereof, unless the election or the nomination for
election by the Company’s shareholders of each new director during such two-year period was
approved by a vote of at least two-thirds of the directors then still in office who were directors
at the beginning of such two-year period, or

               (e) any other event shall occur that would be required to be reported in response to Item 6(e)
(or any successor provision) of Schedule 14A of Regulation 14A promulgated under the Exchange Act,
whether or not such filing is required because the Company is not registered under the Exchange
Act.

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          5. Termination Without Cause. Notwithstanding anything to the contrary contained
herein, it is agreed by the parties hereto that either the Bank or Executive may at any time elect
to terminate this Agreement and Executive’s employment by the Bank for any reason. Such
termination shall be effective thirty (30) days following proper delivery of notice of termination
to the non-terminating party in accordance with the notice provisions set forth herein.

          6. Constructive Discharge. The Bank shall be considered under this Agreement to
terminate employment of Executive without “cause” as defined in this Agreement if Executive
terminates employment as a result of a constructive discharge or for a material breach of this
Agreement by Bank. For purposes of this Agreement, “constructive discharge” is the resignation or
termination of employment by Executive as a result of Bank either intentionally creating or
knowingly permitting working conditions that are so intolerable or aggravated that a reasonable
employer would realize that a reasonable person in Executive’s position would be compelled to
resign.

          7. Expiration of Term Without Renewal. If the Bank is unwilling, for any reason
whatsoever, to enter into a new employment agreement with Executive at the expiration of the full
Term, or the Executive and Bank are unable to reach a mutually agreeable contract prior to the
expiration of the full Term, or Executive decides to retire or to take employment elsewhere at the
expiration of the full Term, then Executive’s employment with Bank shall terminate at the end of
the full Term.

          8. Effect of Termination.

               (a) In the event Executive’s employment with Bank is terminated for any of the reasons
specified in Paragraphs F.1, F.3, or F.5 (solely as a result of Executive’s election to
terminate) of this Agreement, Executive shall be entitled to (i) the Base Salary and Incentive
Bonus earned by Executive prior to the date of termination, computed pro rata up to and including
that date, and (ii) accrued but unused vacation time, but Executive shall be entitled to no further
compensation or benefits otherwise provided for or contemplated under this Agreement.

               (b) In the event Executive’s employment with Bank is terminated by either Executive or Bank
pursuant to Paragraph F.2 hereof, Executive shall be entitled to (i) the Base Salary and Incentive
Bonus earned by Executive prior to the date of termination, computed pro rata up to and including
that date, (ii) accrued but unused vacation time, plus (iii) the continuation of Insurance Coverage
as provided in Paragraph D.3 hereof, as applicable.

               (c) In the event Executive’s employment with Bank is terminated pursuant to Paragraph F.4
hereof, Executive shall be entitled to the following benefits: (i) the Base Salary and Incentive
Bonus earned by Executive prior to the date of termination, computed up to and including that date,
(ii) accrued but unused vacation time, (iii) the continuation of Insurance Coverage as provided in
Paragraph D.3 hereof, as applicable, and (iv) an amount equal to three (3) years of Executive’s
Base Salary in effect immediately prior to the date of termination which shall become due and
payable only upon the passage of six (6) months following the date of termination.

               (d) In the event Executive’s employment with Bank is terminated pursuant to Paragraphs F.5
(solely as a result of Bank’s election to terminate) or F.6 of this

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Agreement, Executive shall be entitled to (i) the Base Salary and Incentive Bonus earned by
Executive prior to the termination, computed pro rata up to and including that date, (ii) accrued
but unused vacation time, (iii) the continuation of the Insurance Coverage as provided in Paragraph
D.3 hereof, as applicable, and (iv) an amount equal to six (6) months of Executive’s Base Salary in
effect immediately prior to the date of termination.

               (e) Payment of the benefits required by this Paragraph 8 shall be made by the Bank in equal
installments in accordance with the Bank’s normal payroll periods. The payment of such benefits
shall discharge Bank from any further liability to Executive under this Agreement, but shall not
discharge Bank from any liability pursuant to any indemnification obligation or tort cause of
action.

               (f) If the Term of this Agreement is not renewed under Paragraph F.7 for any reason,
Executive shall be entitled to (i) accrued but unused vacation time, plus (ii) the continuation of
Insurance Coverage as provided in Paragraph D.3 hereof, as applicable.

               (g) If any portion of the amounts payable to Executive under this Agreement, either alone, or
together with other payments which the Executive has the right to receive from the Bank, constitute
“excess parachute payments” within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the “Code”), that are subject to the excise tax imposed by Section 4999 of the
Code (or similar tax and/or assessment), the Bank and Executive shall cooperate with each other and
use all reasonable efforts to minimize to the fullest extent possible the amount of excise tax
imposed by Section 4999 of the Code (or similar tax and/or assessment). In the event that there is
any amount of excise tax imposed by Section 4999 of the Code (or similar tax and/or assessment),
the Executive shall bear the responsibility for its payment and the Bank shall bear the
responsibility of any loss of deductibility related thereto. If, at a later date, it is determined
(pursuant to final regulations or published rulings of the Internal Revenue Service, final judgment
of a court of competent jurisdiction, or otherwise) that the amount of excise taxes payable by the
Executive is greater than the amount initially so determined, then Executive shall pay an amount
equal to the sum of such additional excise taxes and any interest, fines and penalties resulting
from such underpayment, and Bank shall bear the responsibility of any loss of deductibility and any
interest, fines and penalties resulting therefrom. The determination of the amount of any such
excise taxes shall be made by the independent accounting firm employed by the Bank immediately
prior to the Change of Control.

               (h) In the event Executive’s employment with Bank is terminated pursuant to Paragraph F of
this Agreement, the provisions of Paragraph G hereof, except as otherwise provided in Paragraph
G.2, shall survive said termination and shall inure to the benefit of and be binding upon the
parties hereto and their respective executors, administrators, successors and assigns.

               (i) In the event Executive’s employment with Bank is terminated in accordance with this
Agreement (whether by Executive or Bank) and at such time Executive is a member of the Board of
Directors of Company, Bank or any subsidiary thereof, or holds any other office thereof, Executive
shall, and hereby agrees to, tender Executive’s resignation from the Board of
Directors of the Company, Bank and all subsidiaries thereof and any committees thereof and all
other offices of the Company, Bank and all subsidiaries thereof then held by Executive effective on
the date of termination. If such resignation is not received by the Bank within three (3) days
after the date of

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termination, Executive hereby authorizes and directs the Board of Directors of all such entities to
consider the failure to so act as Executive’s resignation from all said positions effective as of
the date of termination.

     G. GENERAL PROVISIONS

          1. Trade Secrets. During the Term, Executive will have access to and become
acquainted with what Executive and Bank acknowledge are trade secrets; to wit, knowledge or data
concerning the Bank, including its operations and methods of doing business, and the identity of
customers of the Bank, including knowledge of their financial condition and their financial needs.
Executive shall not disclose any of the aforesaid trade secrets, directly or indirectly, or use
them in any way, either during the Term or for a period of 3 years after the termination of this
Agreement (or such longer period as may be required by law or regulation), except as required in
the course of Executive’s employment with the Bank. The unauthorized use or disclosure of any such
confidential information and/or trade secrets shall constitute unfair competition.

          2. Covenant Not to Interfere. The Executive hereby covenants and agrees that
Executive will not now, nor for the period during which Executive receives any compensation from
Bank, plus an additional period of 2 years, in violation of California law disrupt, damage, impair
or interfere with the business of the Bank, whether by way of interfering with or raiding its
employees, disrupting its relationships with customers and their agents, representatives or
vendors, or otherwise.

          3. Indemnification. To the extent permitted by law, applicable statutes and the
Bylaws or resolutions of the Bank in effect from time to time, the Bank shall indemnify Executive
against liability or loss arising out of Executive’s duties or out of any actual or asserted
misfeasance or nonfeasance in the performance of Executive’s duties or out of any actual or
asserted wrongful act against, or by, the Bank, including but not limited to judgments, fines,
settlements, and expenses incurred in the defense of actions, proceedings, and appeals therefrom.
However, the Bank shall have no duty to indemnify Executive with respect to any claim, issue, or
matter as to which Executive has been adjudged to be liable to the Bank in the performance of his
duties, unless and only to the extent that the court in which such action was brought shall
determine upon application that, in view of all of the circumstances of the case, Executive is
fairly and reasonably entitled to indemnification for the expenses which such court shall
determine. The Bank shall endeavor to apply for and obtain Directors and Officers Liability
Insurance to indemnify and insure the Bank and Executive from and against the aforesaid
liabilities. The provisions of this Paragraph G.3 shall apply to the estate, executor,
administrator, heirs, legatees, or devisees of Executive.

          4. Return of Documents. Executive expressly agrees that all manuals, documents,
files, reports, studies, instruments, or other materials used and/or developed by Executive during
the Term are solely the property of the Bank, and that Executive has no right, title, or interest
therein. Upon termination of this Agreement, Executive or Executive’s representative shall
promptly deliver possession of all of said property to the Bank in good condition.

          5. Notices. All notices, demands, or other communications hereunder shall be in
writing and shall be delivered in person (professional courier acceptable); or by United States
mail, certified or registered, postage prepaid, with return receipt requested; or by facsimile
transmission; or otherwise actually delivered, to the addresses for the parties

8

 

appearing at the inception of this Agreement. The person or addresses to which mailings or
deliveries shall be made may change from time to time by notice given pursuant to the provisions of
this Paragraph G.5. Any notice, demand, or other communication given pursuant to this Agreement
shall be deemed to have been given on the date actually delivered, if delivered in person, three
(3) days following the date mailed, if delivered by U.S. mail, or upon written confirmation of
transmission, if delivered by facsimile.

          6. Review by Counsel. Executive represents and warrants to the Bank that he has had
this Agreement reviewed by independent legal counsel of his choice, or if he has not, that he has
had the opportunity to do so, and hereby waives any claim, objection, or defense on the grounds
that this Agreement has not been reviewed by legal counsel of his choice.

          7. California Law. This Agreement is to be governed by and construed in accordance
with the laws of the State of California.

          8. Captions and Paragraph Headings. Captions and paragraph headings used herein are
for convenience only and are not a part of this Agreement and shall not be used in construing this
Agreement.

          9. Invalid Provisions. Should any provision of this Agreement for any reason, be
declared invalid, void, or unenforceable by a court of competent jurisdiction, the validity and
binding effect of any remaining portion shall not be affected, and the remaining portions of this
Agreement shall remain in full force and effect as if this Agreement had been executed with said
provisions eliminated.

          10. Entire Agreement. This Agreement and the other agreements, plans or documents
specifically referred to herein contain the entire agreement of the parties. It supersedes any and
all other agreements, either oral or in writing, between the parties here with respect to the
employment of Executive by the Bank. Each party to this Agreement acknowledges that no
representation, inducements, promises, or agreements, oral or otherwise, have been made by any
party, or anyone acting on behalf of any party, which are not embodied herein, and that no other
agreement, statement, or premise not contained in this Agreement shall be valid or binding. This
Agreement may not be modified or amended by oral agreement but only by an agreement in writing
signed by both the Bank and Executive.

          11. Arbitration. Any controversy or claim arising out of, or related to, this
Agreement shall be submitted to binding arbitration to J.A.M.S., Inc. (“JAMS”), of San Diego,
California, in accordance with this Agreement and the rules and procedures of the California
Arbitrations Act. Any party may request arbitration of a dispute by means of written demand on all
other parties. If JAMS is no longer in existence, and if the parties cannot agree on a single
arbitrator, then one shall be appointed by the California Superior Court having jurisdiction over
this Agreement and the parties, upon application by any party. The only arbitrator permitted to
serve under this Section 11 shall be a former superior court judge of a California Superior Court.
A final judgment confirming the award rendered by the arbitrator may be entered in any court having
jurisdiction, and shall be binding, final and non-appealable. Each party to the arbitration shall
share equally the arbitrator’s initial fees in connection with any such arbitration proceeding;
however, the arbitrator shall award to the prevailing party reimbursement of attorney fees, costs,
and expenses incurred in connection with the arbitration. The arbitrator shall have the power to
award any and all remedies and relief whatsoever that is deemed appropriate under the
circumstances, including, but not

9

 

limited to, money damages and injunctive relief. This arbitration provision shall be deemed to be
self-executing and shall remain in full force and effect after the expiration or termination of
this Agreement. In the event any party fails to appear at any arbitration proceeding, an award may
be entered against such party by default or otherwise notwithstanding said failure to appear. The
arbitrator shall award attorney fees and costs to the prevailing party.

          12. Attorneys’ Fees: If any party to this Agreement shall bring any action for arbitration or
any action for any relief against any other party, declaratory or otherwise, arising out of this
Agreement, the losing party shall pay to the prevailing party all costs plus a reasonable sum for
attorney fees incurred in bringing such suit, enforcing any judgment granted therein, or both, all
of which shall be deemed to have accrued upon the commencement of such action and shall be paid
whether or not such action is prosecuted to judgment. Any judgment or order entered in such action
shall contain a specific provision providing for the recovery of attorney fees and costs incurred
in enforcing such judgment. For purposes of this Agreement, attorney fees shall include, without
limitation, fees incurred in the following: (i) post-judgment motions; (ii) contempt proceedings;
(iii) garnishment, levy, and debtor and third-party examinations; (vi) discovery; (v) bankruptcy
litigation; and (vi) appeals.

          13. Receipt of Agreement. Each of the parties hereto acknowledge that he has read
this Agreement in its entirety and does hereby acknowledge receipt of a fully executed copy
thereof. A fully executed copy shall be an original for all purposes, and a duplicate original.

          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.

	 	 	 	 	 	 	 
	 	 	SOUTHWEST COMMUNITY BANK	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Howard B. Levenson
 

	 	 
	 

	 	Its:
	 	Chairman
	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Frank J. Mercardante	 	 
	 	 	 	 	 
	 	 	FRANK J. MERCARDANTE	 	 

10

 

EXHIBIT “A”

SENIOR EXECUTIVE OFFICER BONUS PLAN

Executive will receive a Bonus for 2005 based upon the percentage of improvement in earnings, as
adjusted for nonrecurring events and Bonus accrual, in excess of 16% over 2004 net earnings.
Executive shall receive 50% of a Bonus Pool which will be determined based upon a minimum of 30% of
the combined annual salaries of all executive officers included in the Executive Bonus Plan as
determined by the Board of Directors. Bonus Payment in subsequent years will be negotiated between
Bank and Executive prior to the beginning of the new calendar year. For 2005, the following
schedule:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Projected Earnings	 	 	 	 	 	 	 	 	 	 	 	 	 
	Earnings Increase	 	(Net of Bonus	 	 	% Of Combined Base	 	 	Executive Officer	 	 	Bonus Pool as a %	 	 	Executive Bonus @	 
	over 2004	 	Accrual)	 	 	Salaries	 	 	Bonus Pool	 	 	of Net	 	 	50.00%	 
	116%
	 	$	5,504,200	 	 	 	30.00	%	 	$	238,250	 	 	 	4.33	%	 	$	119,125	 
	118%
	 	 	5,599,100	 	 	 	32.00	%	 	 	254,133	 	 	 	4.54	%	 	 	127,067	 
	120%
	 	 	5,694,000	 	 	 	34.00	%	 	 	270,017	 	 	 	4.74	%	 	 	135,008	 
	122%
	 	 	5,788,900	 	 	 	36.00	%	 	 	285,900	 	 	 	4.94	%	 	 	142,950	 
	124%
	 	 	5,883,800	 	 	 	38.00	%	 	 	301,783	 	 	 	5.13	%	 	 	150,892	 
	126%
	 	 	5,978,700	 	 	 	40.00	%	 	 	317,667	 	 	 	5.31	%	 	 	158,833	 
	128%
	 	 	6,073,600	 	 	 	42.00	%	 	 	333,550	 	 	 	5.49	%	 	 	166,775	 
	130%
	 	 	6,168,500	 	 	 	44.00	%	 	 	349,433	 	 	 	5.66	%	 	 	174,717	 
	132%
	 	 	6,263,400	 	 	 	46.25	%	 	 	367,302	 	 	 	5.86	%	 	 	183,651	 
	134%
	 	 	6,358,300	 	 	 	48.50	%	 	 	385,171	 	 	 	6.06	%	 	 	192,585	 
	136%
	 	 	6,453,200	 	 	 	50.75	%	 	 	403,040	 	 	 	6.25	%	 	 	201,520	 
	138%
	 	 	6,548,100	 	 	 	53.00	%	 	 	420,908	 	 	 	6.43	%	 	 	210,454	 
	140%
	 	 	6,643,000	 	 	 	56.00	%	 	 	444,733	 	 	 	6.69	%	 	 	222,367	 
	142%
	 	 	6,737,900	 	 	 	59.25	%	 	 	470,544	 	 	 	6.98	%	 	 	235,272	 
	144%
	 	 	6,832,800	 	 	 	62.50	%	 	 	496,354	 	 	 	7.26	%	 	 	248,177	 
	146%
	 	 	6,927,700	 	 	 	65.75	%	 	 	522,165	 	 	 	7.54	%	 	 	261,082	 
	148%
	 	 	7,022,600	 	 	 	69.00	%	 	 	547,975	 	 	 	7.80	%	 	 	273,988	 
	150%
	 	 	7,117,500	 	 	 	72.50	%	 	 	575,771	 	 	 	8.09	%	 	 	287,885	 
	152%
	 	 	7,212,400	 	 	 	76.00	%	 	 	603,567	 	 	 	8.37	%	 	 	301,783	 
	154%
	 	 	7,307,300	 	 	 	79.50	%	 	 	631,363	 	 	 	8.64	%	 	 	315,681	 
	156%
	 	 	7,402,200	 	 	 	83.00	%	 	 	659,158	 	 	 	8.90	%	 	 	329,579	 
	158%
	 	 	7,497,100	 	 	 	86.50	%	 	 	686,954	 	 	 	9.16	%	 	 	343,477	 
	160%
	 	 	7,592,000	 	 	 	90.50	%	 	 	718,721	 	 	 	9.47	%	 	 	359,360	 
	162%
	 	 	7,686,900	 	 	 	94.50	%	 	 	750,488	 	 	 	9.76	%	 	 	375,244	 
	164%
	 	 	7,781,800	 	 	 	98.50	%	 	 	782,254	 	 	 	10.05	%	 	 	391,127	 
	166%
	 	 	7,876,700	 	 	 	102.50	%	 	 	814,021	 	 	 	10.33	%	 	 	407,010	 
	168%
	 	 	7,971,600	 	 	 	106.50	%	 	 	845,788	 	 	 	10.61	%	 	 	422,894	 
	170%
	 	 	8,066,500	 	 	 	111.50	%	 	 	885,496	 	 	 	10.98	%	 	 	442,748	 
	172%
	 	 	8,161,400	 	 	 	116.50	%	 	 	925,204	 	 	 	11.34	%	 	 	462,602	 
	174%
	 	 	8,256,300	 	 	 	121.50	%	 	 	964,913	 	 	 	11.69	%	 	 	482,456	 
	176%
	 	 	8,351,200	 	 	 	126.50	%	 	 	1,004,621	 	 	 	12.03	%	 	 	502,310	 
	178%
	 	 	8,446,100	 	 	 	131.50	%	 	 	1,044,329	 	 	 	12.36	%	 	 	522,165	 
	180%
	 	 	8,541,000	 	 	 	136.50	%	 	 	1,084,038	 	 	 	12.69	%	 	 	542,019	 
	182%
	 	 	8,635,900	 	 	 	141.50	%	 	 	1,123,746	 	 	 	13.01	%	 	 	561,873	 
	184%
	 	 	8,730,800	 	 	 	146.50	%	 	 	1,163,454	 	 	 	13.33	%	 	 	581,727	 

 

 

EXHIBIT “A”

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	Projected Earnings	 	 	 	 	 	 	 	 	 	 	 	 	 
	Earnings Increase	 	(Net of Bonus	 	 	% Of Combined Base	 	 	Executive Officer	 	 	Bonus Pool as a %	 	 	Executive Bonus @	 
	over 2004	 	Accrual)	 	 	Salaries	 	 	Bonus Pool	 	 	of Net	 	 	50.00%	 
	186%
	 	 	8,825,700	 	 	 	151.50	%	 	 	1,203,163	 	 	 	13.63	%	 	 	601,581	 
	188%
	 	 	8,920,600	 	 	 	156.50	%	 	 	1,242,871	 	 	 	13.93	%	 	 	621,435	 
	190%
	 	 	9,015,500	 	 	 	161.50	%	 	 	1,282,579	 	 	 	14.23	%	 	 	641,290	 

2

 

EXHIBIT “B”

STOCK OPTIONS

As of September 1, 2005

	 	 	 	 	 	 	 	 	 	 	 	 	 
	       Date	 	*Option	 	 	*Option	 	 	*Price	 
	    of Grant	 	Shares Granted	 	 	Shares Unexercised	 	 	Per Share	 
	3/18/1998
	 	 	79,734.38	 	 	 	55,125.00	 	 	 	3.7249	 
	1/17/2001
	 	 	7,875.00	 	 	 	7,875.00	 	 	 	6.6032	 
	8/15/2001
	 	 	53,998.88	 	 	 	53,998.88	 	 	 	7.2381	 
	6/19/2002
	 	 	31,500.00	 	 	 	31,500.00	 	 	 	8.2540	 
	11/19/2003
	 	 	15,750.00	 	 	 	15,750.00	 	 	 	18.4127	 
	10/23/2004
	 	 	13,125.00	 	 	 	13,125.00	 	 	 	27.8571	 
	8/17/2005
	 	 	20,000.00	 	 	 	20,000.00	 	 	 	33.2500	 
	 
	 
	 	 	 	 	 	 	 	 	 	 
	Totals
	 	 	221,983.26	 	 	 	197,373.88	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 

 

			
	*	 	as adjusted for stock splits and stock dividends

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