Document:

Prepared by R.R. Donnelley Financial -- Eight Amendment to Credit Facility

  
 EXHIBIT 10.3.2 
  
 EIGHTH AMENDMENT 
  
 THIS EIGHTH AMENDMENT (this “Amendment”) is made and entered
into as of March 31, 2002, by and among KNOLOGY BROADBAND, INC. (formerly known as KNOLOGY HOLDINGS, INC.), a Delaware corporation, as guarantor (the “Guarantor”), certain Subsidiaries of the Guarantor identified on the signature pages
hereto (excluding KNOLOGY of Georgia, Inc.), as borrowers (collectively, the “Borrowers”), the Lenders referred to in the Credit Agreement defined below, and WACHOVIA BANK, NATIONAL ASSOCIATION (formerly known as First Union National
Bank), as Administrative Agent for the Lenders. 
  
 Statement of Purpose 
  
 The Lenders agreed to extend certain credit facilities to the Borrowers pursuant to the Credit Agreement dated as of December 22, 1998 (as amended, restated, supplemented or otherwise
modified prior to the date hereof, the “Credit Agreement”) by and among the Borrowers, the Guarantor, the Lenders and the Administrative Agent. All capitalized terms used and not defined in this Amendment shall have the meanings assigned
thereto in the Credit Agreement. 
  
 The Borrowers have requested certain amendments to the financial covenants contained in the
Credit Agreement as set forth more fully below. 
  
 Subject to the terms and conditions hereof, the Administrative Agent and the
Lenders are willing to agree to such amendments. 
  
 NOW THEREFORE, for good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree as follows: 
  
 1.    Amendments to Article IX.

  

	 	a.
	 
	Section 9.4(a) is hereby amended by (i) deleting the number “280,000” opposite the date 3/31/02 in the table set forth therein and inserting the number
“210,000” in lieu thereof; and 
 

  

	 	b.
	 
	Section 9.4(b) is hereby amended by (i) deleting the number “44.87” opposite the date 3/31/02 in the table set forth therein and inserting the number
“41.00” in lieu thereof. 
 

  
 2.    Conditions.    The
effectiveness of this Amendment shall be conditioned upon (i) the delivery to the Administrative Agent of this Amendment executed by the Administrative Agent, the Borrowers, the Guarantor and the Required Lenders and (ii) the payment of any other
fees and expenses of the Administrative Agent or their counsel incurred through the effective date of this Amendment. 
  
 3.    Effect of Amendment.    Except as expressly amended hereby, the Credit Agreement and Loan Documents shall be and remain in full force and effect. The amendments granted in this

 

 Amendment are specific and limited and shall not constitute any further amendment of the Credit Agreement or a modification, acceptance or waiver of any other
provision of or default under the Credit Agreement or any other document or instrument entered into in connection therewith or a future modification, acceptance or waiver of the provisions set forth therein. 
  
 4.    Representations and Warranties/No Default.    By its execution hereof, the Borrowers hereby certify
that each of the representations and warranties set forth in the Credit Agreement and the other Loan Documents is true and correct as of the date hereof as if fully set forth herein (other than representations and warranties which speak as of a
specific date pursuant to the Credit Agreement or any other Loan Document, which representations and warranties shall have been true and correct as of such specific dates) and that as of the date hereof (and after giving effect hereto) no Default or
Event of Default has occurred and is continuing. 
  
 5.    Expenses.    The
Borrowers shall pay all reasonable out-of-pocket expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Amendment, including without limitation, the reasonable fees and disbursements of counsel for
the Administrative Agent. 
  
 6.    Governing Law.    This Amendment shall be
governed by and construed in accordance with the laws of the State of North Carolina, without reference to the conflicts or choice of law provisions thereof. 
  
 7.    Counterparts.    This Amendment may be executed in separate counterparts, each of which when executed and delivered is an original but all of which taken together
constitute one and the same instrument. 
  
 [Signature Pages Follow] 
 

 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed under seal by their duly authorized officers, all as
of the day and year first written above. 
  
  
 [CORPORATE
SEAL]                                       
                 
 
	 KNOLOGY OF COLUMBUS, INC., as Borrower
 
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 [CORPORATE
SEAL]                                       
           
 
	 KNOLOGY OF MONTGOMERY, INC., as Borrower
 
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 [CORPORATE
SEAL]                                       
            
 
	 KNOLOGY OF PANAMA CITY, INC., as Borrower
 
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 [CORPORATE
SEAL]                                       
                    
 
	 KNOLOGY OF AUGUSTA, INC., as Borrower
 
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 [Signature Pages Continue] 
 

  
 [CORPORATE SEAL]  
 
	 KNOLOGY OF CHARLESTON, INC., as Borrower
 
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 [CORPORATE SEAL] 
 
	 KNOLOGY OF SOUTH CAROLINA, INC., as Borrower
 
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 [CORPORATE SEAL] 
 
	 KNOLOGY OF ALABAMA, INC., as Borrower
 
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 [CORPORATE SEAL]  
 
	 KNOLOGY OF FLORIDA, INC., as Borrower
 
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 [CORPORATE SEAL] 
 
	 KNOLOGY OF HUNTSVILLE, INC., as Borrower
 
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 [Signature Pages Continue] 
 

  
 [CORPORATE
SEAL]                                       
                  
 
	 KNOLOGY OF TENNESSEE, INC., as Borrower
 
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 [CORPORATE
SEAL]                                       
                                        
                  
 
	 TTE, INC., as Borrower
 
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 
	  
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 [Signature Pages Continue] 
 

  

	[CORPORATE
	 
	SEAL]                                      
                               
 

 
	 KNOLOGY  BROADBAND,  INC.  (formerly

 known  as  KNOLOGY  HOLDINGS,  INC.),  as  Guarantor
 
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 [Signature Pages Continue] 
 

  
 The undersigned hereby executes this Amendment solely to acknowledge and agree to be bound by
the amended provisions of Article IX, but in no way by becoming a signatory hereto shall the undersigned become obligated for the repayment of the Loans, Obligations or the payment of any other sum referred to herein or in any Loan Document or incur
any liability as a Borrower or Guarantor hereunder or under any Loan Document or have any Obligation to pledge any of its assets pursuant to the Loan Documents. Notwithstanding the foregoing, the parties hereto agree that the occurrence of any event
with regard to KNOLOGY of Georgia, Inc. that would constitute a Default or Event of Default if such event occurred with respect to any other Loan Party shall constitute a Default or Event of Default, if applicable. 
  
 [CORPORATE
SEAL]                                       
                                         
KNOLOGY OF GEORGIA, INC. 
  
 
	  
	 
	 By:
 	 	 /s/    ROBERT K. MILLS      
 

	  	 	 Name: Robert K. Mills
 Title: CFO
 

 
  
 [Signature Pages Continue] 
 

  

	 	WACHOVIA
	 
	BANK, NATIONAL ASSOCIATION (formerly known 
 

	 	as First Union National Bank), as Administrative Agent and Lender 
 

  
 
	  	  	  
  
 By:
                                        
                      
 Name:    
 Title:<PAGE>

                                                                    EXHIBIT 10.1

                               THE BANK OF HEMET
                             1994 STOCK OPTION PLAN

1.      PURPOSE

        The purpose of The Bank of Hemet 1994 Stock Option Plan (the "Plan") is
to strengthen The Bank of Hemet (the "Bank") and those corporations which are or
hereafter become subsidiary corporations of the Bank by providing an additional
means of attracting and retaining competent directors, officers and key
employees and by providing to participating directors, officers and key
employees added incentive for high levels of performance. The Plan seeks to
accomplish these purposes and achieve these results by providing a means whereby
such directors, officers and key employees may purchase shares of the common
stock of the Bank pursuant to options granted in accordance with this Plan.

        Options granted pursuant to this Plan are intended to be either
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended from time to time (the "Code"), or
"nonqualified stock options", as shall be determined and designated upon the
grant of each option hereunder.

2.      ADMINISTRATION

        This Plan shall be administered by the Board of Directors (the "Board").
The Board in its sole discretion may from time to time appoint a committee (the
"Stock Option Committee") to administer the Plan and exercise all of the powers,
authority and discretion of the Board under this Plan. The Board may from time
to time remove members from, or add members to, the Stock Option Committee, and
vacancies on the Stock Option Committee shall be filled by the Board. The Board
may abolish the Stock Option Committee at any time and/or revest in the Board
the administration of the Plan.

        Any action of the Board, or the Stock Option Committee, if applicable,
with respect to the administration of the Plan shall be taken pursuant to a
majority vote, or

<PAGE>

the unanimous written consent, of its members. Subject to the express provisions
of the Plan, the Board, or the Stock Option Committee, if applicable, shall have
the authority to construe and interpret the Plan, define the terms used therein,
prescribe, amend and rescind, the rules and regulations relating to
administration of the Plan, and make all other determinations necessary or
advisable for administration of the Plan.

        All decisions, determinations, interpretations or other actions by the
Board, or the Stock Option Committee, if applicable, shall be final, conclusive
and binding on all persons, optionees, grantees, subsidiary corporations of the
Bank and any successors-in-interest to such parties.

        With regard to the granting of a stock option to a member of the Board,
or the Stock Option Committee, if applicable, such member must abstain from
voting.

3.      INCENTIVE STOCK OPTIONS

        All options granted which are designated at the time of grant as an
"incentive stock option" shall be deemed an incentive stock option.

        (a) Incentive stock options granted under this Plan are intended to be
qualified under Section 422 of the Code.

        (b) Full-time salaried officers and key employees of the Bank or a
subsidiary corporation (as that term is defined in Section 424(f) of the Code),
shall be eligible for selection to participate in the incentive stock option
portion of the Plan. No director of the Bank who is not also a full-time
salaried officer or employee of the Bank or a subsidiary corporation, may be
granted an incentive stock option hereunder. Subject to the express provisions
of the Plan, the Board, or the Stock Option Committee, if applicable, shall (i)
select from the eligible class of employees to whom incentive stock options
shall be granted and make recommendations to the Board concerning the
individuals to whom incentive stock options shall be granted, (ii) determine the
terms and provisions of the respective incentive stock option agreements (which
need not be identical), (iii) determine the times at which such incentive stock
options shall be

                                       2
<PAGE>

granted, and (iv) determine the number of shares subject to each incentive stock
option. An individual who has been granted an incentive stock option may, if he
or she is otherwise eligible under the Plan, be granted additional incentive
stock options if the Board shall so determine.

        (c) The Board shall determine the individuals who shall receive
incentive stock options and the terms and provisions of the incentive stock
options, and shall grant such incentive stock options to such individuals.
Notwithstanding the above sentence, however, the Board may delegate to the Stock
Option Committee the power to determine the individuals who shall receive
incentive stock options and the terms and provisions of such incentive stock
options, and the power to grant incentive stock options to such individuals.

        (d) Except as described in subsection (f) below, the Board or the Stock
Option Committee, if applicable, shall not grant an incentive stock option to
purchase shares of the Bank's common stock to any individual who, at the time of
the grant, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Bank or a subsidiary corporation. The
attribution rules of Section 424(d) of the Code shall apply in the determination
of ownership of stock for these purposes.

        (e) The aggregate fair market value (determined as of the time the
incentive stock option is granted) of stock with respect to which incentive
stock options are exercisable for the first time by an individual during any
calendar year (under all plans of the Bank and its subsidiary corporations, if
any) shall not exceed $100,000, plus any greater amount as may be permitted
under subsequent amendments to the Code.

        (f) The purchase price of stock subject to each incentive stock option
shall be determined by the Board, or the Stock Option Committee, if applicable,
but shall not be less than one hundred percent (100%) of the fair market value
of such stock at the time such option is granted, except, in the case of
optionees who at the time of the grant own more than ten percent (10%) of the
total combined voting power of all classes of stock of the Bank or a subsidiary
corporation (as defined in Section 422 of the Code), in which

                                       3
<PAGE>

case the purchase price of the stock shall not be less than one hundred ten
percent (110%) of the fair market value of such stock at the time such option is
granted and the term of such option shall be for no more than five (5) years.
The fair market value of such stock shall be determined in accordance with any
reasonable valuation method, including the valuation methods described in
Treasury Regulation Section 20.2031-2.

        (g) No incentive stock option pursuant to this Plan shall be granted to
any eligible individual, if such option grant along with all other outstanding
stock options of such individual would result in such individual having options
to acquire a number of shares of the Bank that would be in excess of ten percent
(10%) of the total outstanding shares of the same class and series of the Bank.

4.      NONQUALIFIED STOCK OPTIONS

        (a) All options granted which are (i) in excess of the aggregate fair
market value limitations set forth in Section 3(e) hereof, (ii) designated at
the time of the grant as "nonqualified", or (iii) intended to be incentive stock
options but do not meet the requirements of incentive stock options, shall be
deemed nonqualified stock options. Nonqualified stock options granted hereunder
shall be so designated in the nonqualified stock option agreement entered into
between the Bank and the optionee.

        (b) Directors, full-time salaried officers (including full-time salaried
officers who are also directors) and key employees of the Bank or a subsidiary
corporation shall be eligible for selection to participate in the nonqualified
stock option portion of the Plan. Subject to the express provisions of the Plan,
the Board, or the Stock Option Committee, if applicable, shall (i) select from
the eligible class of individuals to whom nonqualified stock options shall be
granted and make recommendations to the Board concerning the individuals to whom
nonqualified stock options shall be granted, (ii) determine the discretionary
terms and provisions of the respective nonqualified stock option agreements
(which need not be identical), (iii) determine the times at which such
nonqualified stock options shall be granted, and (iv) determine the number of
shares

                                       4
<PAGE>

subject to each nonqualified stock option. An individual who has been granted a
nonqualified stock option may, if he or she is otherwise eligible under the
Plan, be granted additional nonqualified stock options if the Board shall so
determine.

        (c) The Board shall determine the individuals who shall receive
nonqualified stock options and the terms and provisions of the nonqualified
stock options, and shall grant such nonqualified stock options to such
individuals. Notwithstanding the above sentence, however, the Board may delegate
to the Stock Option Committee the power to determine the individuals who shall
receive nonqualified stock options and the terms and provisions of such
nonqualified stock options, and the power to grant nonqualified stock options to
such individuals.

        (d) The purchase price of stock subject to each nonqualified stock
option shall be determined by the Board, or the Stock Option Committee, if
applicable, but shall not be less than one hundred percent (100%) of the fair
market value of such stock at the time such option is granted. The fair market
value of such stock shall be determined in accordance with any reasonable
valuation method, including the valuation methods described in Treasury
Regulation 20.2031-2.

        (e) No nonqualified stock option pursuant to this Plan shall be granted
to any eligible individual, if such option grant along with all other
outstanding stock options of such individual would result in such individual
having options to acquire a number of shares of the Bank that would be in excess
of ten percent (10%) of the total outstanding shares of the same series and
class of the Bank.

5.      STOCK SUBJECT TO THE PLAN

        Subject to adjustments as provided in Section 12, hereof, the stock to
be offered under the Plan shall be shares of the Bank's authorized but unissued
common stock (hereinafter called "stock") and the aggregate amount of stock to
be delivered upon exercise of all options granted under this Plan shall not
exceed 75,000 shares. If any option shall be cancelled, surrendered or expire
for any reason without having been

                                       5
<PAGE>

exercised in full, the underlying shares subject thereto shall again be
available for purposes of this Plan.

6.      CONTINUATION OF EMPLOYMENT

        Nothing contained in the Plan (or in any option agreement) shall
obligate the Bank or any subsidiary corporation to employ any optionee for any
period or interfere in any way with the right of the Bank or a subsidiary
corporation to reduce the optionee's compensation. However, the Bank may not
reduce the terms of any option without the approval of the optionee.

7.      EXERCISE OF OPTIONS

        No option shall be exercisable until all necessary regulatory and
shareholder approvals for this Plan are obtained. Except as otherwise provided
in this section, each option shall be exercisable in such installments, which
need not be equal, and upon such contingencies as the Board, or the Stock Option
Committee, if applicable, shall determine; provided, however, that if an
optionee shall not in any given installment period purchase all of the shares
which the optionee is entitled to purchase in such installment period, the
optionee's right to purchase any shares not purchased in such installment period
shall continue until expiration or termination of such option. Fractional share
interests shall be disregarded, except that they may be accumulated. Not less
than ten (10) shares may be purchased at any one time unless the number of
shares purchased is the total number of shares which is exercisable at such
time. Options may be exercised by written notice delivered to the Bank stating
the number of shares with respect to which the option is being exercised,
together with the full purchase price for such shares. Payment of the option
price in full, for the number of shares to be delivered, must be made in cash.
If the option is being exercised by any person other than the optionee, said
notice shall be accompanied by proof, satisfactory to counsel for the Bank, of
the right of such person to exercise the option. Optionees

                                       6
<PAGE>

will have no rights as shareholders with respect to stock of the Bank subject to
their stock option agreements until the date of issuance of the stock
certificate to them.

8.      NONTRANSFERABILITY OF OPTIONS

        Each option shall, by its terms, be nontransferable by the optionee
other than by will or the laws of descent and distribution, and shall be
exercisable during his or her lifetime only by the optionee.

9.      CESSATION OF DIRECTORSHIP OR EMPLOYMENT

        Except as provided in Sections 10 and 20 hereof, if an optionee ceases
to be a director or an employee of the Bank or a subsidiary corporation for any
reason other than his or her disability (as defined in Section 22(e)(3) of the
Code) or death, the optionee's option shall expire three (3) months after the
date of termination of such directorship or employment. During the period after
cessation of directorship or employment, such option shall be exercisable only
as to those installments, if any, which have accrued and/or vested as of the
date on which the optionee ceased to be a director or employee of the Bank or a
subsidiary corporation.

10.     TERMINATION OF EMPLOYMENT FOR CAUSE

        If the stock option agreement so provides and if an optionee's
employment by the Bank or a subsidiary corporation is terminated for cause, the
optionee's option shall expire immediately, provided, however, the Board may, in
its sole discretion, within thirty (30) days of such termination, reinstate the
option by giving written notice of such reinstatement to the optionee at the
optionee's last known address. In the event of reinstatement, the optionee may
exercise the option only to such extent, for such time, and upon such terms and
conditions as if he or she had ceased to be employed by the Bank or a subsidiary
corporation upon the date of such termination for a reason other than cause,
disability or death. Termination for cause shall include, but not be limited

                                       7
<PAGE>

to, termination for malfeasance or gross misfeasance in the performance of
duties or conviction of illegal activity in connection therewith or any conduct
detrimental to the interests of the Bank or a subsidiary corporation, and, in
any event, the determination of the Board with respect thereto shall be final
and conclusive.

11.     DISABILITY OR DEATH OF OPTIONEE

        If any optionee dies while serving as a director or employee of the Bank
or a subsidiary corporation, the option shall expire one (1) year after the date
of such death, except as provided in Section 20 hereof. After such death but
before such expiration, the persons to whom the optionee's rights under the
option shall have passed by will or by the applicable laws of descent and
distribution or the executor or administrator of optionee's estate shall have
the right to exercise such option to the extent that installments, if any, had
accrued and/or vested as of the date on which the optionee ceased to be director
or employee of the Bank or a subsidiary corporation.

        If the optionee shall terminate his or her directorship or employment
because of disability (as defined in Section 22(e)(3) of the Code), the optionee
may exercise this option to the extent he or she is entitled to do so at the
date of termination, at any time within one (1) year of the date of termination,
except as provided in Section 20 hereof.

        If any optionee dies during the three (3) month period referred to in
Section 9 hereof, the option shall expire one (1) year after the date of such
death, except as provided in Section 20 hereof.

12.     ADJUSTMENT UPON CHANGES IN CAPITALIZATION

        If the outstanding shares of the stock of the Bank are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Bank through reorganization, merger, recapitalization,
reclassification, stock split, stock dividend, stock consolidation or otherwise,
without consideration to the Bank, an

                                       8
<PAGE>

appropriate and proportionate adjustment shall be made in the number and kind of
shares as to which options may be granted. A corresponding adjustment changing
the number or kind of shares and the exercise price per share allocated to
unexercised options or portions thereof, which shall have been granted prior to
any such change shall likewise be made. Any such adjustment, however, in an
outstanding option shall be made without change in the total price applicable to
the unexercised portion of the option, but with a corresponding adjustment in
the price for each share subject to the option. Any adjustment under this
Section 12 shall be made by the Board, whose determination as to what
adjustments shall be made, and the extent thereof, shall be final and
conclusive. No fractional shares of stock shall be issued or made available
under the Plan on account of any such adjustment, and fractional share-interests
shall be disregarded, except that they may be accumulated.

13.     TERMINATING EVENTS

        A Terminating Event shall be defined as any one of the following events:
(i) a dissolution or liquidation of the Bank; (ii) a reorganization, merger or
consolidation of the Bank with one or more corporations, the result of which (A)
the Bank is not the surviving corporation, or (B) the Bank becomes a subsidiary
of another corporation (which shall be deemed to have occurred if another
corporation shall own directly or indirectly, over 80% of the aggregate voting
power of all outstanding equity securities of the Bank); (iii) a sale of
substantially all the assets of the Bank to another corporation; or (iv) a sale
of the equity securities of the Bank representing more than 80% of the aggregate
voting power of all outstanding equity securities of the Bank to any person or
entity, or any group of persons and/or entities acting in concert. When the Bank
knows that a Terminating Event will occur (i) the Bank shall deliver to each
optionee no less than thirty (30) days prior to the Terminating Event, written
notification of the Terminating Event and the optionee's right to exercise all
options granted pursuant to this Plan, whether or not vested under this Plan or
applicable stock option agreement, and (ii) all

                                       9
<PAGE>

outstanding options granted pursuant to this Plan shall completely vest and
become immediately exercisable as to all shares granted pursuant to the option
immediately prior to such Terminating Event. This right of exercise shall be
conditional upon execution of a final plan of dissolution or liquidation or a
definitive agreement of consolidation or merger. Upon the occurrence of the
Terminating Event all outstanding options and the Plan shall terminate;
provided, however, that any outstanding options not exercised as of the
occurrence of the Terminating Event shall not terminate if there is a successor
corporation which assumes the outstanding options or substitutes for such
options, new options covering the stock of the successor corporation with
appropriate adjustments as to the number and kind of shares and prices.

14.     AMENDMENT AND TERMINATION

        The Board may at any time suspend, amend or terminate the Plan and may,
with the consent of the optionee, make such modification of the terms and
conditions of the option as it shall deem advisable; provided that, except as
permitted under the provisions of Sections 12 and 13 hereof, no amendment or
modification which would:

        (a)    increase the maximum number of shares which may be purchased
               pursuant to options granted under the Plan either in the
               aggregate or by an individual;

        (b)    change the minimum option price;

        (c)    increase the maximum term of options provided for
               herein; or

        (d)    permit options to be granted to anyone other than directors,
               full-time salaried officers (including a full-time salaried
               officer who is also a director) or key employees of the Bank or a
               subsidiary corporation;

may be adopted without the Bank having first obtained any necessary regulatory
and shareholder approvals required by law. No option may be granted during any
suspension or after termination of the Plan. Amendment, suspension or
termination of the Plan shall not (except as otherwise provided in Section 12
hereof), without the

                                       10
<PAGE>

consent of the optionee, alter or impair any rights or obligations under any
option theretofore granted.

15.     TIME OF GRANTING OPTIONS

        The time an option is granted, sometimes referred to as the date of
grant, shall be the day of the action of the Board, or the Stock Option
Committee, if applicable, described in Sections 3(c) and 4(c) hereof; provided,
however, that if appropriate resolutions of the Board, or the Stock Option
Committee, if applicable, indicate that an option is granted as of and on some
future date, the time such option is granted shall be such future date. If
action by the Board, or the Stock Option Committee, if applicable, is taken by
unanimous written consent of its members, the action of the Board, or the Stock
Option Committee, if applicable shall be deemed to be at the time the last
Board, or Stock Option Committee, if applicable, member signs the consent.

16.     PRIVILEGES OF STOCK OWNERSHIP;
        SECURITIES LAW COMPLIANCE; NOTICE OF SALE

        No optionee shall be entitled to the privileges of stock ownership as to
any shares of stock not actually issued. No shares shall be purchased upon the
exercise of any option unless and until the Bank has fully complied with all
applicable requirements of any regulatory agency having jurisdiction over the
Bank and all applicable requirements of any exchange upon which stock of the
Bank may be listed. The optionee shall give the Bank notice of any sale or
disposition of any such shares not more than five (5) days after such sale or
disposition.

17.     EFFECTIVE DATE OF THE PLAN

        The Plan shall be deemed adopted by the Board as of April 20, 1994 and
shall be effective immediately subject to approval by the shareholders of the
Bank by vote of a majority of the outstanding shares represented and voting at a
meeting of

                                       11
<PAGE>

shareholders and by a majority of the disinterested shares represented and
voting at the meeting of shareholders, and the approval of the California State
Banking Department.

18.     TERMINATION

        Unless previously terminated by the Board, the Plan shall terminate at
the close of business on a date ten (10) years from the earlier of the date of
approval by the Bank's outstanding shares or the date of adoption of this Plan
by the Board. No options shall be granted under the Plan thereafter, but such
termination shall not affect any option theretofore granted.

19.     OPTION AGREEMENT

        Each option shall be evidenced by a written stock option agreement
executed by the Bank and the optionee and shall contain each of the provisions
and agreements herein specifically required to be contained therein, and such
other terms and conditions as are deemed desirable and are not inconsistent with
the Plan. Each incentive stock option agreement shall contain such terms and
provisions as the Board, or the Stock Option Committee, if applicable, may
determine to be necessary in order to qualify such option as an incentive stock
option within the meaning of Section 422 of the Code.

20.     OPTION PERIOD

        Each option and all rights and obligations thereunder shall expire on
such date as the Board, or the Stock Option Committee, if applicable, may
determine, but not later than ten (10) years from the date such option is
granted, and shall be subject to earlier termination as provided elsewhere in
the Plan.

21.     EXCULPATION AND INDEMNIFICATION

                                       12
<PAGE>

        To the extent permitted by applicable law in effect from time to time,
no member of the Board or the Stock Option Committee shall be liable for any act
or omission of any other member of the Board or the Stock Option Committee nor
for any act or omission on the member's own part, except the member's own
willful misconduct or gross negligence. The Bank and its subsidiary corporations
shall pay expenses incurred by, and satisfy a judgment or fine rendered or
levied against, a present or former member of the Board or the Stock Option
Committee in any action brought by a third party against such person (whether or
not the Bank is joined as a party defendant) to impose a liability or penalty on
such person while a member of the Board or the Stock Option Committee arising
with respect to the Plan or administration thereof or out of membership on the
Board or the Stock Option Committee, or all or any combination of the preceding;
provided, the Board determines in good faith that such member of the Board or
the Stock Option Committee was acting in good faith, within what such member of
the Board or the Stock Option Committee reasonably believed to be the scope of
his or her employment or authority, and for a purpose which he or she reasonably
believed to be in the best interests of the Bank or its shareholders. Payments
authorized hereunder include amounts paid and expenses incurred in settling any
such action or threatened action. This Section 21 does not apply to any action
instituted or maintained in the right of the Bank by a shareholder or holder of
a voting trust certificate representing shares of the Bank or any subsidiary
corporation thereof. The provisions of this Section 21 shall apply to the
estate, executor, administrator, heirs, legatees or devisees of a member of the
Board or the Stock Option Committee, and the term "person" as used in this
Section 21 shall include the estate, executor, administrator, heirs, legatees or
devisees of such person.
                                            THE BANK OF HEMET

                                            By
                                              ----------------------------------

                                            By
                                              ----------------------------------

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