Document:

EX-10.1

Exhibit 10.1

 

AVALON PHARMACEUTICALS, INC.

2005 OMNIBUS LONG-TERM INCENTIVE PLAN

 

TABLE OF CONTENTS

 

             

      Page

 

1. PURPOSE 1

2. DEFINITIONS   1

3. ADMINISTRATION OF THE PLAN   3

	 	 	 	 	 
	3.1. Board  

3.2. Committee

3.3. Terms of Awards 

3.4. Deferral Arrangement

3.5. No Liability

3.6. Book Entry

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4. STOCK SUBJECT TO THE PLAN   5

5. EFFECTIVE DATE, DURATION AND AMENDMENTS  5

	 	 	 
	5.1. Effective Date

5.2. Term  

5.3. Amendment and Termination of the Plan

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6. AWARD ELIGIBILITY AND LIMITATIONS 6

	 	 	 	 	 
	6.1. Service Providers and Other Persons

6.2. Successive Awards and Substitute Awards

6.3. Limitation on Shares of Stock Subject to Awards and Cash Awards

	 	 

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7. AWARD AGREEMENT   6

	 	 	 
	8. TERMS AND CONDITIONS OF OPTIONS

8.1. Option Price

8.2. Vesting  

8.3. Term  

8.4. Termination of Service

8.5. Limitations on Exercise of Option

8.6. Method of Exercise

8.7. Rights of Holders of Options

8.8. Delivery of Stock Certificates

8.9. Transferability of Options

8.10. Family Transfers

8.11. Limitations on Incentive Stock Options

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9. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS   8

9.1. Right to Payment and Grant Price  8

9.2. Other Terms   8

10. TERMS AND CONDITIONS OF RESTRICTED STOCK AND STOCK UNITS   9

	 	 	 	 	 
	 

	 	10.1. Grant of Restricted Stock or Stock Units

10.2. Restrictions

10.3. Restricted Stock Certificates

10.4. Rights of Holders of Restricted Stock

10.5. Rights of Holders of Stock Units

10.5.1. Voting and Dividend Rights 

10.5.2. Creditor’s Rights

10.6. Termination of Service

10.7. Purchase of Restricted Stock

10.8. Delivery of Stock 
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11.  TERMS AND CONDITIONS OF UNRESTRICTED STOCK AWARDS   10

12.  FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK   10

12.1. General Rule  10 12.2. Surrender of Stock   10

	 	 	 
	12.3. Cashless Exercise

12.4. Other Forms of Payment

13.  TERMS AND CONDITIONS OF DIVIDEND EQUIVALENT RIGHTS

13.1. Dividend Equivalent Rights

13.2. Termination of Service

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14. TERMS AND CONDITIONS OF PERFORMANCE AND ANNUAL INCENTIVE AWARDS   11

14.1. Performance Conditions   11

14.2. Performance or Annual Incentive Awards Granted to Designated Covered Employees 11    
14.2.1.  Performance Goals Generally   11

  14.2.2.  Business Criteria   12 14.2.3.  Timing For Establishing Performance Goals   12
14.2.4.  Settlement of Performance or Annual Incentive Awards; Other Terms   12 14.3. Written
Determinations   12 14.4. Status of Section 14.2 Awards Under Code Section 162(m) 12

15. PARACHUTE LIMITATIONS   13

16. REQUIREMENTS OF LAW   13

	 	 	 
	16.1.General

16.2. Rule 16b-3

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  14

17.  EFFECT OF CHANGES IN CAPITALIZATION   14

17.1. Changes in Stock   14

17.2. Reorganization in Which the Company Is the Surviving Entity Which does not Constitute a
Corporate Transaction   14

	 	 	 
	17.3. Corporate Transaction

17.4. Adjustments

17.5. No Limitations on Company

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18. GENERAL PROVISIONS   16

	 	 	 
	18.1. Disclaimer of Rights

18.2. Nonexclusivity of the Plan

18.3. Withholding Taxes

18.4. Captions

18.5. Other Provisions

18.6. Number and Gender

18.7. Severability

18.8. Governing Law

18.9. Section 409A of the Code

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AVALON PHARMACEUTICALS, INC.

 

2005 OMNIBUS LONG-TERM INCENTIVE PLAN

 

Avalon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), sets forth herein the
terms of its 2005 Omnibus Long-Term Incentive Plan (the “Plan”), as follows:

 

1.  PURPOSE

 

The Plan is intended to enhance the Company’s and its Affiliates’ (as defined herein) ability
to attract and retain highly qualified officers, directors, key employees, and other persons, and
to motivate persons to serve the Company and its Affiliates and to expend maximum effort to improve
the business results and earnings of the Company, by providing to such persons an opportunity to
acquire or increase a direct proprietary interest in the operations and future success of the
Company. To this end, the Plan provides for the grant of stock options, stock appreciation rights,
restricted stock, stock units, unrestricted stock, dividend equivalent rights and cash awards. Any
of these awards may, but need not, be made as performance incentives to reward attainment of annual
or long-term performance goals in accordance with the terms hereof. Stock options granted under the
Plan may be non-qualified stock options or incentive stock options, as provided herein.

 

2.  DEFINITIONS

 

For purposes of interpreting the Plan and related documents (including Award Agreements), the
following definitions shall apply:

 

2.1. “Affiliate” means, with respect to the Company, any company or other trade or business
that controls, is controlled by or is under common control with the Company within the meaning of
Rule 405 of Regulation C under the Securities Act, including, without limitation, any Subsidiary.

 

2.2. “Annual Incentive Award” means an Award made subject to attainment of performance goals
(as described in Section 14) over a performance period of up to one year (the fiscal year, unless
otherwise specified by the Committee).

 

2.3. “Award” means a grant of an Option, Stock Appreciation Right, Restricted Stock,
Unrestricted Stock, Stock Unit, Dividend Equivalent Rights, or cash award under the Plan.

 

2.4. “Award Agreement” means the written agreement between the Company and a Grantee that
evidences and sets out the terms and conditions of an Award.

 

2.5. “Benefit Arrangement” shall have the meaning set forth in Section 15 hereof.

 

2.6. “Board” means the Board of Directors of the Company.

 

2.7. “Cause” means, as determined by the Board and unless otherwise provided in an applicable
agreement with the Company or an Affiliate, (i) gross negligence or willful misconduct in
connection with the performance of duties; (ii) conviction of a criminal offense (other than minor
traffic offenses); or (iii) material breach of any term of any employment, consulting or other
services, confidentiality, intellectual property or non-competition agreements, if any, between the
Service Provider and the Company or an Affiliate.

 

2.8. “Code” means the Internal Revenue Code of 1986, as now in effect or as hereafter amended.

 

2.9. “Committee” means a committee of, and designated from time to time by resolution of, the
Board, which shall be constituted as provided in Section 3.2.

 

2.10. “Company” means Avalon Pharmaceuticals Inc.

 

2.11. “Corporate Transaction” means (i) the dissolution or liquidation of the Company or a
merger, consolidation, or reorganization of the Company with one or more other entities in which
the Company is not the surviving entity, (ii) a sale of substantially all of the assets of the
Company to another person or entity, or (iii) any transaction (including without limitation a
merger or reorganization in which the Company is the surviving entity) which results in any person
or entity (other than persons who are stockholders or Affiliates immediately prior to the
transaction) owning 50% or more of the combined voting power of all classes of stock of the
Company.

 

2.12. “Covered Employee” means a Grantee who is a Covered Employee within the meaning of
Section 162(m)(3) of the Code.

 

2.13. “Disability” means the Grantee is unable to perform each of the essential duties of such
Grantee’s position by reason of a medically determinable physical or mental impairment which is
potentially permanent in character or which can be expected to last for a continuous period of not
less than 12 months; provided, however, that, with respect to rules regarding expiration of an
Incentive Stock Option following termination of the Grantee’s Service, Disability shall mean the
Grantee is unable to engage in any substantial gainful activity by reason of a medically
determinable physical or mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than 12 months.

 

2.14. “Dividend Equivalent Right” means a right, granted to a Grantee under Section 13 hereof,
to receive cash, Stock, other Awards or other property equal in value to dividends paid with
respect to a specified number of shares of Stock, or other periodic payments.

 

2.15. “Effective Date” means the date of the closing of the IPO.

 

2.16. “Exchange Act” means the Securities Exchange Act of 1934, as now in effect or as
hereafter amended.

 

2.17. “Fair Market Value” means the value of a share of Stock, determined as follows: if on
the Grant Date or other determination date the Stock is listed on an established national or
regional stock exchange, is admitted to quotation on The Nasdaq Stock Market, Inc. or is publicly
traded on an established securities market, the Fair Market Value of a share of Stock shall be the
closing price of the Stock on such exchange or in such market (if there is more than one such
exchange or market the Board shall determine the appropriate exchange or market) on the Grant Date
or such other determination date (or if there is no such reported closing price, the Fair Market
Value shall be the mean between the highest bid and lowest asked prices or between the high and low
sale prices on such trading day) or, if no sale of Stock is reported for such trading day, on the
next preceding day on which any sale shall have been reported. If the Stock is not listed on such
an exchange, quoted on such system or traded on such a market, Fair Market Value shall be the value
of the Stock as determined by the Board in good faith.

 

2.18. “Family Member” means a person who is a spouse, former spouse, child, stepchild,
grandchild, parent, stepparent, grandparent, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother, sister, brother-in-law, or sister-in-law, including adoptive
relationships, of the Grantee, any person sharing the Grantee’s household (other than a tenant or
employee), a trust in which any one or more of these persons have more than fifty percent of the
beneficial interest, a foundation in which any one or more of these persons (or the Grantee)
control the management of assets, and any other entity in which one or more of these persons (or
the Grantee) own more than fifty percent of the voting interests.

 

2.19. “Grant Date” means, as determined by the Board, the latest to occur of (i) the date as
of which the Board approves an Award, (ii) the date on which the recipient of an Award first
becomes eligible to receive an Award under Section 6 hereof, or (iii) such other date as may be
specified by the Board.

 

2.20. “Grantee” means a person who receives or holds an Award under the Plan.

 

2.21. “Incentive Stock Option” means an “incentive stock option” within the meaning of
Section 422 of the Code, or the corresponding provision of any subsequently enacted tax statute, as
amended from time to time.

2.22. “IPO” means the Company’s first underwritten offering of its Stock to the public
pursuant to an effective registration statement under the Securities Act.

 

2.23. “Non-qualified Stock Option” means an Option that is not an Incentive Stock Option.

 

2.24. “Option” means an option to purchase one or more shares of Stock pursuant to the Plan.

 

2.25. “Option Price” means the exercise price for each share of Stock subject to an Option.

 

2.26. “Other Agreement” shall have the meaning set forth in Section 15 hereof.

2.27. “Outside Director” means a member of the Board who is not an officer or employee of the
Company.

 

2.28. “Performance Award” means an Award made subject to the attainment of performance goals
(as described in Section 14) over a performance period of up to ten (10) years.

 

2.29. “Plan” means this Avalon Pharmaceuticals Inc. 2005 Omnibus Long-Term Incentive Plan.

 

2.30. “Purchase Price” means the purchase price for each share of Stock pursuant to a grant of
Restricted Stock or Unrestricted Stock.

 

2.31. “Reporting Person” means a person who is required to file reports under Section 16(a) of
the Exchange Act.

 

2.32. “Restricted Stock” means shares of Stock, awarded to a Grantee pursuant to Section 10
hereof.

 

2.33. “SAR Exercise Price” means the per share exercise price of an SAR granted to a Grantee
under Section 9 hereof.

 

2.34. “Securities Act” means the Securities Act of 1933, as now in effect or as hereafter
amended.

 

2.35. “Service” means service as a Service Provider to the Company or an Affiliate. Unless
otherwise stated in the applicable Award Agreement, a Grantee’s change in position or duties shall
not result in interrupted or terminated Service, so long as such Grantee continues to be a Service
Provider to the Company or an Affiliate. Subject to the preceding sentence, whether a termination
of Service shall have occurred for purposes of the Plan shall be determined by the Board, which
determination shall be final, binding and conclusive.

 

2.36. “Service Provider” means an employee, officer or director of the Company or an
Affiliate, or a consultant or adviser currently providing services to the Company or an Affiliate.

 

2.37. “Stock” means the common stock, par value $.01 per share, of the Company.

 

2.38. “Stock Appreciation Right” or “SAR” means a right granted to a Grantee under Section 9
hereof.

 

2.39. “Stock Unit” means a bookkeeping entry representing the equivalent of one or more shares
of Stock (as indicated in the Award Agreement) awarded to a Grantee pursuant to Section 10 hereof.

 

2.40. “Subsidiary” means any “subsidiary corporation” of the Company within the meaning of
Section 424(f) of the Code.

 

2.41. “Substitute Awards” means Awards granted upon assumption of, or in substitution for,
outstanding awards previously granted by a company or other entity acquired by the Company or any
Affiliate or with which the Company or any Affiliate combines.

 

2.42. “Termination Date” means the date upon which an Option shall terminate or expire, as set
forth in Section 8.3 hereof.

 

2.43. “Ten Percent Stockholder” means an individual who owns more than ten percent (10%) of
the total combined voting power of all classes of outstanding stock of the Company, its parent or
any of its Subsidiaries. In determining stock ownership, the attribution rules of Section 424(d) of
the Code shall be applied.

 

2.44. “Unrestricted Stock” means an Award pursuant to Section 11 hereof.

 

3.  ADMINISTRATION OF THE PLAN

 

3.1. Board.

 

The Board shall have such powers and authorities related to the administration of the Plan as
are consistent with the Company’s certificate of incorporation and by-laws and applicable law. The
Board shall have full power and authority to take all actions and to make all determinations
required or provided for under the Plan, any Award or any Award Agreement, and shall have full
power and authority to take all such other actions and make all such other determinations not
inconsistent with the specific terms and provisions of the Plan that the Board deems to be
necessary or appropriate to the administration of the Plan, any Award or any Award Agreement. All
such actions and determinations shall be by the affirmative vote of a majority of the members of
the Board present at a meeting or by unanimous consent of the Board executed in writing in
accordance with the Company’s certificate of incorporation and by-laws and applicable law. The
interpretation and construction by the Board of any provision of the Plan, any Award or any Award
Agreement shall be final, binding and conclusive.

 

3.2. Committee.

 

The Board from time to time may delegate to the Committee such powers and authorities related
to the administration and implementation of the Plan, as set forth in Section 3.1 above and other
applicable provisions, as the Board shall determine, consistent with the certificate of
incorporation and by-laws of the Company and applicable law.

 

(i) Except as provided in Subsection (ii) and except as the Board may otherwise determine, the
Committee, if any, appointed by the Board to administer the Plan shall be the Compensation
Committee.

 

(ii) The Board may also appoint one or more separate committees of the Board, each composed of
one or more directors of the Company who need not be Outside Directors, who may administer the Plan
with respect to employees or other Service Providers who are not officers or directors of the
Company, may grant Awards under the Plan to such employees or other Service Providers, and may
determine all terms of such Awards.

 

In the event that the Plan, any Award or any Award Agreement entered into hereunder provides
for any action to be taken by or determination to be made by the Board, such action may be taken or
such determination may be made by the Committee if the power and authority to do so has been
delegated to the Committee by the Board as provided for in this Section. Unless otherwise expressly
determined by the Board, any such action or determination by the Committee shall be final, binding
and conclusive. To the extent permitted by law, the Committee may delegate its authority under the
Plan to a member of the Board.

 

3.3. Terms of Awards.

 

Subject to the other terms and conditions of the Plan, the Board shall have full and final
authority to:

 

(i) designate Grantees,

 

(ii) determine the type or types of Awards to be made to a Grantee,

 

(iii) determine the number of shares of Stock to be subject to an Award,

 

(iv) establish the terms and conditions of each Award (including, but not limited to, the
exercise price of any Option, the nature and duration of any restriction or condition (or provision
for lapse thereof) relating to the vesting, exercise, transfer, or forfeiture of an Award or the
shares of Stock subject thereto, and any terms or conditions that may be necessary to qualify
Options as Incentive Stock Options),

 

(v) prescribe the form of each Award Agreement evidencing an Award, and

 

(vi) amend, modify, or supplement the terms of any outstanding Award. Such authority
specifically includes the authority, in order to effectuate the purposes of the Plan but without
amending the Plan, to modify Awards to eligible individuals who are foreign nationals or are
individuals who are employed outside the United States to recognize differences in local law, tax
policy, or custom. Notwithstanding the foregoing, no amendment, modification or supplement of any
Award shall, without the consent of the Grantee, impair the Grantee’s rights under such Award.

 

The Company may retain the right in an Award Agreement to cause a forfeiture of the gain
realized by a Grantee on account of actions taken by the Grantee in violation or breach of or in
conflict with any employment agreement, non-competition agreement, any agreement prohibiting
solicitation of employees or clients of the Company or any Affiliate thereof or any confidentiality
obligation with respect to the Company or any Affiliate thereof or otherwise in competition with
the Company or any Affiliate thereof, to the extent specified in such Award Agreement applicable to
the Grantee. Furthermore, the Company may annul an Award if the Grantee is an employee of the
Company or an Affiliate thereof and is terminated for Cause as defined in the applicable Award
Agreement or the Plan, as applicable. Notwithstanding the foregoing, no amendment or modification
may be made to an outstanding Option or SAR which reduces the Option Price or SAR Exercise Price,
either by lowering the Option Price or SAR Exercise Price or by canceling the outstanding Option or
SAR and granting a replacement Option or SAR with a lower exercise price without the approval of
the stockholders of the Company, provided, that, appropriate adjustments may be made to outstanding
Options and SARs pursuant to Section 17. The grant of any Award shall be contingent upon the
Grantee executing the appropriate Award Agreement.

 

3.4. Deferral Arrangement.

 

The Board may permit or require the deferral of any award payment into a deferred compensation
arrangement, subject to such rules and procedures as it may establish, which may include provisions
for the payment or crediting of interest or dividend equivalents, including converting such credits
into deferred Stock equivalents and restricting deferrals to comply with hardship distribution
rules affecting 401(k) plans.

 

3.5. No Liability.

 

No member of the Board or of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Award or Award Agreement.

 

3.6. Book Entry.

 

Notwithstanding any other provision of this Plan to the contrary, the Company may elect to
satisfy any requirement under this Plan for the delivery of stock certificates through the use of
book-entry.

 

4.   STOCK SUBJECT TO THE PLAN

 

Subject to adjustment as provided in Section 17 hereof, the number of shares of Stock
available for issuance under the Plan shall be 2,381,582 shares and any shares which become
available under the Company’s Amended and Restated 1999 Stock Plan due to forfeitures of
outstanding awards under that plan after the Effective Date. Stock issued or to be issued under the
Plan shall be authorized but unissued shares; or, to the extent permitted by applicable law, issued
shares that have been reacquired by the Company. If any shares covered by an Award are not
purchased or are forfeited, or if an Award otherwise terminates without delivery of any Stock
subject thereto, then the number of shares of Stock counted against the aggregate number of shares
available under the Plan with respect to such Award shall, to the extent of any such forfeiture or
termination, again be available for making Awards under the Plan. If the Option Price of any Option
granted under the Plan, or if pursuant to Section 18.3 the withholding obligation of any Grantee
with respect to an Option or other Award, is satisfied by tendering shares of Stock to the Company
(by either actual delivery or by attestation) or by withholding shares of Stock, the number of
shares of Stock issued net of the shares of Stock tendered or withheld shall be deemed delivered
for purposes of determining the maximum number of shares of Stock available for delivery under the
Plan.

 

The Board shall have the right to substitute or assume Awards in connection with mergers,
reorganizations, separations, or other transactions to which Section 424(a) of the Code applies.
The number of shares of Stock reserved pursuant to Section 4 may be increased by the corresponding
number of Awards assumed and, in the case of a substitution, by the net increase in the number of
shares of Stock subject to Awards before and after the substitution. The last two sentences of the
first paragraph of this Section 4 shall not apply to the additional shares of Stock reserved for
the substituted or assumed Awards, unless such increase was approved by the stockholders of the
Company.

 5.   EFFECTIVE DATE, DURATION AND AMENDMENTS

 

5.1. Effective Date.

 

The Plan shall be effective as of the Effective Date, subject to approval of the Plan by the
Company’s stockholders within one year before or after the Effective Date. Upon approval of the
Plan by the stockholders of the Company as set forth above, all Awards made under the Plan on or
after the Effective Date shall be fully effective as if the stockholders of the Company had
approved the Plan on the Effective Date. If the stockholders fail to approve the Plan within one
year before or after the Effective Date, any Awards made hereunder shall be null and void and of no
effect.

 

5.2. Term.

 

The Plan shall terminate automatically ten (10) years after its adoption by the Board and may
be terminated on any earlier date as provided in Section 5.3.

 

5.3. Amendment and Termination of the Plan.

 

The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to
any shares of Stock as to which Awards have not been made. An amendment shall be contingent on
approval of the Company’s stockholders to the extent stated by the Board, required by applicable
law or required by applicable stock exchange listing requirements. No Awards shall be made after
termination of the Plan. No amendment, suspension, or termination of the Plan shall, without the
consent of the Grantee, impair rights or obligations under any Award theretofore awarded under the
Plan.

 

6.  AWARD ELIGIBILITY AND LIMITATIONS

 

6.1. Service Providers and Other Persons.

 

Subject to this Section 6, Awards may be made under the Plan to: (i) any Service Provider to
the Company or of any Affiliate, including any Service Provider who is an officer or director of
the Company, or of any Affiliate, as the Board shall determine and designate from time to time,
(ii) any Outside Director, and (iii) any other individual whose participation in the Plan is
determined to be in the best interests of the Company by the Board.

 

6.2. Successive Awards and Substitute Awards.

 

An eligible person may receive more than one Award, subject to such restrictions as are
provided herein. Notwithstanding Sections 8.1 and 9.1, the Option Price of an Option or the grant
price of an SAR that is a Substitute Award may be less than 100% of the Fair Market Value of a
share of Common Stock on the original date of grant provided that the Option Price or grant price
in determined in accordance with the principles of Code Section 424 and the regulations thereunder.

 

6.3. Limitation on Shares of Stock Subject to Awards and Cash Awards.

 

During any time when the Company has a class of equity security registered under Section 12 of
the Exchange Act:

 

(i) the maximum number of shares of Stock subject to Options or SARs that can be awarded under
the Plan to any person eligible for an Award under Section 6 hereof is eight hundred twenty-five
thousand shares (825,000) per calendar year;

 

(ii) the maximum number of shares that can be awarded under the Plan, other than pursuant to
an Option or SARs, to any person eligible for an Award under Section 6 hereof is eight hundred and
twenty-five thousand (825,000)per calendar year; and

 

(iii) the maximum amount that may be earned as an Annual Incentive Award or other cash Award
in any calendar year by any one Grantee shall be $3,000,000 and the maximum amount that may be
earned as a Performance Award or other cash Award in respect of a performance period by any one
Grantee shall be $5,000,000.

 

The preceding limitations in this Section 6.3 are subject to adjustment as provided in
Section 17 hereof.

7.  AWARD AGREEMENT

 

Each Award granted pursuant to the Plan shall be evidenced by an Award Agreement, in such form
or forms as the Board shall from time to time determine. Award Agreements granted from time to time
or at the same time need not contain similar provisions but shall be consistent with the terms of
the Plan. Each Award Agreement evidencing an Award of Options shall specify whether such Options
are intended to be Non-qualified Stock Options or Incentive Stock Options, and in the absence of
such specification such options shall be deemed Non-qualified Stock Options.

8.  TERMS AND CONDITIONS OF OPTIONS

 

8.1. Option Price.

 

The Option Price of each Option shall be fixed by the Board and stated in the Award Agreement
evidencing such Option. The Option Price of each Option shall be at least the Fair Market Value on
the Grant Date of a share of Stock; provided, however, that in the event that a
Grantee is a Ten Percent Stockholder, the Option Price of an Option granted to such Grantee that is
intended to be an Incentive Stock Option shall be not less than 110 percent of the Fair Market
Value of a share of Stock on the Grant Date. In no case shall the Option Price of any Option be
less than the par value of a share of Stock.

 

8.2. Vesting.

 

Subject to Sections 8.3 and 17.3 hereof, each Option granted under the Plan shall become
exercisable at such times and under such conditions as shall be determined by the Board and stated
in the Award Agreement. For purposes of this Section 8.2, fractional numbers of shares of Stock
subject to an Option shall be rounded down to the next nearest whole number. No Option shall be
exercisable in whole or in part prior to the date the Plan is approved by the Stockholders of the
Company as provided in Section 5.1 hereof.

 

8.3. Term.

 

Each Option granted under the Plan shall terminate, and all rights to purchase shares of Stock
thereunder shall cease, upon the expiration of ten years from the date such Option is granted, or
under such circumstances and on such date prior thereto as is set forth in the Plan or as may be
fixed by the Board and stated in the Award Agreement relating to such Option (the “Termination
Date”); provided, however, that in the event that the Grantee is a Ten Percent
Stockholder, an Option granted to such Grantee that is intended to be an Incentive Stock Option
shall not be exercisable after the expiration of five years from its Grant Date.

 

8.4. Termination of Service.

 

Each Award Agreement shall set forth the extent to which the Grantee shall have the right to
exercise the Option following termination of the Grantee’s Service. Such provisions shall be
determined in the sole discretion of the Board, need not be uniform among all Options issued
pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service.

 

8.5. Limitations on Exercise of Option.

 

Notwithstanding any other provision of the Plan, in no event may any Option be exercised, in
whole or in part, prior to the date the Plan is approved by the stockholders of the Company as
provided herein or after the occurrence of an event referred to in Section 17 hereof which results
in termination of the Option.

 

8.6. Method of Exercise.

 

An Option that is exercisable may be exercised by the Grantee’s delivery to the Company of
written notice of exercise on any business day, at the Company’s principal office, on the form
specified by the Company. Such notice shall specify the number of shares of Stock with respect to
which the Option is being exercised and shall be accompanied by payment in full of the Option Price
of the shares for which the Option is being exercised plus the amount (if any) of federal and/or
other taxes which the Company may, in its judgment, be required to withhold with respect to an
Award. The minimum number of shares of Stock with respect to which an Option may be exercised, in
whole or in part, at any time shall be the lesser of (i) 100 shares or such lesser number set forth
in the applicable Award Agreement and (ii) the maximum number of shares available for purchase
under the Option at the time of exercise.

 

8.7. Rights of Holders of Options.

 

Unless otherwise stated in the applicable Award Agreement, an individual holding or exercising
an Option shall have none of the rights of a stockholder (for example, the right to receive cash or
dividend payments or distributions attributable to the subject shares of Stock or to direct the
voting of the subject shares of Stock ) until the shares of Stock covered thereby are fully paid
and issued to him. Except as provided in Section 17 hereof, no adjustment shall be made for
dividends, distributions or other rights for which the record date is prior to the date of such
issuance.

 

8.8. Delivery of Stock Certificates.

 

Promptly after the exercise of an Option by a Grantee and the payment in full of the Option
Price, such Grantee shall be entitled to the issuance of a stock certificate or certificates
evidencing his or her ownership of the shares of Stock subject to the Option.

 

8.9. Transferability of Options.

 

Except as provided in Section 8.10, during the lifetime of a Grantee, only the Grantee (or, in
the event of legal incapacity or incompetency, the Grantee’s guardian or legal representative) may
exercise an Option. Except as provided in Section 8.10, no Option shall be assignable or
transferable by the Grantee to whom it is granted, other than by will or the laws of descent and
distribution.

 

8.10. Family Transfers.

 

If authorized in the applicable Award Agreement, a Grantee may transfer, not for value, all or
part of an Option which is not an Incentive Stock Option to any Family Member. For the purpose of
this Section 8.10, a “not for value” transfer is a transfer which is (i) a gift, (ii) a transfer
under a domestic relations order in settlement of marital property rights; or (iii) a transfer to
an entity in which more than fifty percent of the voting interests are owned by Family Members (or
the Grantee) in exchange for an interest in that entity. Following a transfer under this
Section 8.10, any such Option shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer. Subsequent transfers of transferred Options are
prohibited except to Family Members of the original Grantee in accordance with this Section 8.10 or
by will or the laws of descent and distribution. The events of termination of Service of
Section 8.4 hereof shall continue to be applied with respect to the original Grantee, following
which the Option shall be exercisable by the transferee only to the extent, and for the periods
specified, in Section 8.4.

 

8.11. Limitations on Incentive Stock Options.

 

An Option shall constitute an Incentive Stock Option only (i) if the Grantee of such Option is
an employee of the Company or any Subsidiary of the Company; (ii) to the extent specifically
provided in the related Award Agreement; and (iii) to the extent that the aggregate Fair Market
Value (determined at the time the Option is granted) of the shares of Stock with respect to which
all Incentive Stock Options held by such Grantee become exercisable for the first time during any
calendar year (under the Plan and all other plans of the Grantee’s employer and its Affiliates)
does not exceed $100,000. This limitation shall be applied by taking Options into account in the
order in which they were granted.

 

9.   TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS

 

9.1. Right to Payment and Grant Price.

 

An SAR shall confer on the Grantee to whom it is granted a right to receive, upon exercise
thereof, the excess of (A) the Fair Market Value of one share of Stock on the date of exercise over
(B) the grant price of the SAR as determined by the Board. The Award Agreement for an SAR shall
specify the grant price of the SAR, which shall be at least the Fair Market Value of a share of
Stock on the date of grant. SARs may be granted in conjunction with all or part of an Option
granted under the Plan or at any subsequent time during the term of such Option, in conjunction
with all or part of any other Award or without regard to any Option or other Award. An SAR granted
in tandem with an outstanding Option following the Grant Date of such Option may have a grant price
that is equal to the Option Price, even if such grant price is less than the Fair Market Value of a
share of Stock on the grant date of the SAR.

 

9.2. Other Terms.

 

The Board shall determine at the date of grant or thereafter, the time or times at which and
the circumstances under which an SAR may be exercised in whole or in part (including based on
achievement of performance goals and/or future service requirements), the time or times at which
SARs shall cease to be or become exercisable following termination of Service or upon other
conditions, the method of exercise, method of settlement, form of consideration payable in
settlement, method by or forms in which Stock will be delivered or deemed to be delivered to
Grantees, whether or not an SAR shall be in tandem or in combination with any other Award, and any
other terms and conditions of any SAR.

 

10.  TERMS AND CONDITIONS OF RESTRICTED STOCK AND STOCK UNITS

 

10.1. Grant of Restricted Stock or Stock Units.

 

Awards of Restricted Stock or Stock Units may be made for no consideration (other than par
value of the shares which is deemed paid by Services already rendered). Stock Units may also be
referred to as performance shares. If so indicated in the Award Agreement at the time of grant, a
Grantee may vest in more than 100% of the number of Stock Units awarded to the Grantee.

 

10.2. Restrictions.

 

At the time a grant of Restricted Stock or Stock Units is made, the Board may, in its sole
discretion, establish a period of time (a “restricted period”) applicable to such Restricted Stock
or Stock Units. Each Award of Restricted Stock or Stock Units may be subject to a different
restricted period. The Board may, in its sole discretion, at the time a grant of Restricted Stock
or Stock Units is made, prescribe restrictions in addition to or other than the expiration of the
restricted period, including the satisfaction of corporate or individual performance objectives,
which may be applicable to all or any portion of the Restricted Stock or Stock Units in accordance
with Section 14.1 and 14.2.  Neither Restricted Stock nor Stock Units may be sold, transferred,
assigned, pledged or otherwise encumbered or disposed of during the restricted period or prior to
the satisfaction of any other restrictions prescribed by the Board with respect to such Restricted
Stock or Stock Units.

 

10.3. Restricted Stock Certificates.

 

The Company shall issue, in the name of each Grantee to whom Restricted Stock has been
granted, stock certificates representing the total number of shares of Restricted Stock granted to
the Grantee, as soon as reasonably practicable after the Grant Date. The Board may provide in an
Award Agreement that either (i) the Secretary of the Company shall hold such certificates for the
Grantee’s benefit until such time as the Restricted Stock is forfeited to the Company or the
restrictions lapse, or (ii) such certificates shall be delivered to the Grantee, provided,
however, that such certificates shall bear a legend or legends that comply with the
applicable securities laws and regulations and makes appropriate reference to the restrictions
imposed under the Plan and the Award Agreement.

 

10.4. Rights of Holders of Restricted Stock.

 

Unless the Board otherwise provides in an Award Agreement, holders of Restricted Stock shall
have the right to vote such Stock and the right to receive any dividends declared or paid with
respect to such Stock. The Board may provide that any dividends paid on Restricted Stock must be
reinvested in shares of Stock, which may or may not be subject to the same vesting conditions and
restrictions applicable to such Restricted Stock. All distributions, if any, received by a Grantee
with respect to Restricted Stock as a result of any stock split, stock dividend, combination of
shares, or other similar transaction shall be subject to the restrictions applicable to the
original Grant.

 

10.5. Rights of Holders of Stock Units.

 

10.5.1. Voting and Dividend Rights.

 

Unless the Board otherwise provides in an Award Agreement, holders of Stock Units shall have
no rights as stockholders of the Company. The Board may provide in an Award Agreement evidencing a
grant of Stock Units that the holder of such Stock Units shall be entitled to receive, upon the
Company’s payment of a cash dividend on its outstanding Stock, a cash payment for each Stock Unit
held equal to the per-share dividend paid on the Stock. Such Award Agreement may also provide that
such cash payment will be deemed reinvested in additional Stock Units at a price per unit equal to
the Fair Market Value of a share of Stock on the date that such dividend is paid.

 

10.5.2. Creditor’s Rights.

 

A holder of Stock Units shall have no rights other than those of a general creditor of the
Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the
terms and conditions of the applicable Award Agreement.

 

10.6. Termination of Service.

 

Unless the Board otherwise provides in an Award Agreement or in writing after the Award
Agreement is issued, upon the termination of a Grantee’s Service, any Restricted Stock or Stock
Units held by such Grantee that have not vested, or with respect to which all applicable
restrictions and conditions have not lapsed, shall immediately be deemed forfeited. Upon forfeiture
of Restricted Stock or Stock Units, the Grantee shall have no further rights with respect to such
Award, including but not limited to any right to vote Restricted Stock or any right to receive
dividends with respect to shares of Restricted Stock or Stock Units.

 

10.7. Purchase of Restricted Stock.

 

The Grantee shall be required, to the extent required by applicable law, to purchase the
Restricted Stock from the Company at a Purchase Price equal to the greater of (i) the aggregate par
value of the shares of Stock represented by such Restricted Stock or (ii) the Purchase Price, if
any, specified in the Award Agreement relating to such Restricted Stock. The Purchase Price shall
be payable in a form described in Section 12 or, in the discretion of the Board, in consideration
for past Services rendered to the Company or an Affiliate.

 

10.8. Delivery of Stock.

 

Upon the expiration or termination of any restricted period and the satisfaction of any other
conditions prescribed by the Board, the restrictions applicable to shares of Restricted Stock or
Stock Units settled in Stock shall lapse, and, unless otherwise provided in the Award Agreement, a
stock certificate for such shares shall be delivered, free of all such restrictions, to the Grantee
or the Grantee’s beneficiary or estate, as the case may be.

 

11.  TERMS AND CONDITIONS OF UNRESTRICTED STOCK AWARDS

 

The Board may, in its sole discretion, grant (or sell at par value or such other higher
purchase price determined by the Board) an Unrestricted Stock Award to any Grantee pursuant to
which such Grantee may receive shares of Stock free of any restrictions (“Unrestricted Stock”)
under the Plan. Unrestricted Stock Awards may be granted or sold as described in the preceding
sentence in respect of past services and other valid consideration, or in lieu of, or in addition
to, any cash compensation due to such Grantee.

 

12.  FORM OF PAYMENT FOR OPTIONS AND RESTRICTED STOCK

 

12.1. General Rule.

 

Payment of the Option Price for the shares purchased pursuant to the exercise of an Option or
the Purchase Price for Restricted Stock shall be made in cash or in cash equivalents acceptable to
the Company.

 

12.2. Surrender of Stock.

 

To the extent the Award Agreement so provides, payment of the Option Price for shares
purchased pursuant to the exercise of an Option or the Purchase Price for Restricted Stock may be
made all or in part through the tender to the Company of shares of Stock, which shares, if acquired
from the Company and if so required by the Company, shall have been held for at least six months at
the time of tender and which shall be valued, for purposes of determining the extent to which the
Option Price or Purchase Price has been paid thereby, at their Fair Market Value on the date of
exercise or surrender.

 

12.3. Cashless Exercise.

 

With respect to an Option only (and not with respect to Restricted Stock), to the extent
permitted by law and to the extent the Award Agreement so provides, payment of the Option Price for
shares purchased pursuant to the exercise of an Option may be made all or in part by delivery (on a
form acceptable to the Board) of an irrevocable direction to a licensed securities broker
acceptable to the Company to sell shares of Stock and to deliver all or part of the sales proceeds
to the Company in payment of the Option Price and any withholding taxes described in Section 18.3.

 

12.4. Other Forms of Payment.

 

To the extent the Award Agreement so provides, payment of the Option Price for shares
purchased pursuant to exercise of an Option or the Purchase Price for Restricted Stock may be made
in any other form that is consistent with applicable laws, regulations and rules.

 

13.  TERMS AND CONDITIONS OF DIVIDEND EQUIVALENT RIGHTS

 

13.1. Dividend Equivalent Rights.

 

A Dividend Equivalent Right is an Award entitling the recipient to receive credits based on
cash distributions that would have been paid on the shares of Stock specified in the Dividend
Equivalent Right (or other award to which it relates) if such shares had been issued to and held by
the recipient. A Dividend Equivalent Right may be granted hereunder to any Grantee as a component
of another Award or as a freestanding award. The terms and conditions of Dividend Equivalent Rights
shall be specified in the grant. Dividend equivalents credited to the holder of a Dividend
Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of
Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair
Market Value on the date of reinvestment. Dividend Equivalent Rights may be settled in cash or
Stock or a combination thereof, in a single installment or installments, all determined in the sole
discretion of the Board. A Dividend Equivalent Right granted as a component of another Award may
provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment
of, or lapse of restrictions on, such other award, and that such Dividend Equivalent Right shall
expire or be forfeited or annulled under the same conditions as such other award. A Dividend
Equivalent Right granted as a component of another Award may also contain terms and conditions
different from such other award.

 

13.2. Termination of Service.

 

Except as may otherwise be provided by the Board either in the Award Agreement or in writing
after the Award Agreement is issued, a Grantee’s rights in all Dividend Equivalent Rights or
interest equivalents shall automatically terminate upon the Grantee’s termination of Service for
any reason.

 

14.  TERMS AND CONDITIONS OF PERFORMANCE AND ANNUAL INCENTIVE AWARDS

 

14.1. Performance Conditions.

 

The right of a Grantee to exercise or receive a grant or settlement of any Award, and the
timing thereof, may be subject to such performance conditions as may be specified by the Board. The
Board may use such business criteria and other measures of performance as it may deem appropriate
in establishing any performance conditions, and may exercise its discretion to reduce the amounts
payable under any Award subject to performance conditions, except as limited under Sections 14.2
hereof in the case of a Performance Award or Annual Incentive Award intended to qualify under Code
Section 162(m). If and to the extent required under Code Section 162(m), any power or authority
relating to a Performance Award or Annual Incentive Award intended to qualify under Code
Section 162(m), shall be exercised by the Committee and not the Board.

 

14.2. Performance or Annual Incentive Awards Granted to Designated Covered Employees.

 

If and to the extent that the Committee determines that a Performance or Annual Incentive
Award to be granted to a Grantee who is designated by the Committee as likely to be a Covered
Employee should qualify as “performance-based compensation” for purposes of Code Section 162(m),
the grant, exercise and/or settlement of such Performance or Annual Incentive Award shall be
contingent upon achievement of pre-established performance goals and other terms set forth in this
Section 14.2.

 

14.2.1. Performance Goals Generally.

 

The performance goals for such Performance or Annual Incentive Awards shall consist of one or
more business criteria and a targeted level or levels of performance with respect to each of such
criteria, as specified by the Committee consistent with this Section 14.2. Performance goals shall
be objective and shall otherwise meet the requirements of Code Section 162(m) and regulations
thereunder including the requirement that the level or levels of performance targeted by the
Committee result in the achievement of performance goals being “substantially uncertain.” The
Committee may determine that such Performance or Annual Incentive Awards shall be granted,
exercised and/or settled upon achievement of any one performance goal or that two or more of the
performance goals must be achieved as a condition to grant, exercise and/or settlement of such
Performance or Annual Incentive Awards. Performance goals may differ for Performance or Annual
Incentive Awards granted to any one Grantee or to different Grantees.

 

14.2.2. Business Criteria.

 

One or more of the following business criteria for the Company, on a consolidated basis,
and/or specified subsidiaries or business units of the Company (except with respect to the total
stockholder return and earnings per share criteria), shall be used exclusively by the Committee in
establishing performance goals for such Performance or Annual Incentive Awards: (1) total
stockholder return; (2) such total stockholder return as compared to total return (on a comparable
basis) of a publicly available index such as, but not limited to, the Standard & Poor’s 500 Stock
Index; (3) net income; (4) pretax earnings; (5) earnings before interest expense, taxes,
depreciation and amortization; (6) pretax operating earnings after interest expense and before
bonuses, service fees, and extraordinary or special items; (7) operating margin; (8) earnings per
share; (9) return on equity; (10) return on capital; (11) return on investment; (12) operating
earnings; (13) working capital; (14) ratio of debt to stockholders’ equity, (15) revenue,
(16) licensing, partnership or other strategic transactions, and (17) product development
milestones. Business criteria may be measured on an absolute basis or on a relative basis (i.e.,
performance relative to peer companies) and on a GAAP or non-GAAP basis.

 

14.2.3. Timing For Establishing Performance Goals.

 

Performance goals shall be established not later than 90 days after the beginning of any
performance period applicable to such Performance or Annual Incentive Awards, or at such other date
as may be required or permitted for “performance-based compensation” under Code Section 162(m).

 

14.2.4. Settlement of Performance or Annual Incentive Awards; Other Terms.

 

Settlement of such Performance or Annual Incentive Awards shall be in cash, Stock, other
Awards or other property, in the discretion of the Committee. The Committee may, in its discretion,
reduce the amount of a settlement otherwise to be made in connection with such Performance or
Annual Incentive Awards. The Committee shall specify the circumstances in which such Performance or
Annual Incentive Awards shall be paid or forfeited in the event of termination of Service by the
Grantee prior to the end of a performance period or settlement of Performance Awards.

 

14.3. Written Determinations.

 

All determinations by the Committee as to the establishment of performance goals, the amount
of any Performance Award pool or potential individual Performance Awards and as to the achievement
of performance goals relating to Performance Awards, and the amount of any Annual Incentive Award
pool or potential individual Annual Incentive Awards and the amount of final Annual Incentive
Awards, shall be made in writing in the case of any Award intended to qualify under Code
Section 162(m). To the extent required to comply with Code Section 162(m), the Committee may
delegate any responsibility relating to such Performance Awards or Annual Incentive Awards.

 

14.4. Status of Section 14.2 Awards Under Code Section 162(m).

 

It is the intent of the Company that Performance Awards and Annual Incentive Awards under
Section 14.2 hereof granted to persons who are designated by the Committee as likely to be Covered
Employees within the meaning of Code Section 162(m) and regulations thereunder shall, if so
designated by the Committee, constitute “qualified performance-based compensation” within the
meaning of Code Section 162(m) and regulations thereunder. Accordingly, the terms of Section 14.2,
including the definitions of Covered Employee and other terms used therein, shall be interpreted in
a manner consistent with Code Section 162(m) and regulations thereunder. The foregoing
notwithstanding, because the Committee cannot determine with certainty whether a given Grantee will
be a Covered Employee with respect to a fiscal year that has not yet been completed, the term
Covered Employee as used herein shall mean only a person designated by the Committee, at the time
of grant of Performance Awards or an Annual Incentive Award, as likely to be a Covered Employee
with respect to that fiscal year. If any provision of the Plan or any agreement relating to such
Performance Awards or Annual Incentive Awards does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or
deemed amended to the extent necessary to conform to such requirements.

 

15.  PARACHUTE LIMITATIONS

 

Notwithstanding any other provision of this Plan or of any other agreement, contract, or
understanding heretofore or hereafter entered into by a Grantee with the Company or any Affiliate,
except an agreement, contract, or understanding hereafter entered into that expressly modifies or
excludes application of this paragraph (an “Other Agreement”), and notwithstanding any formal or
informal plan or other arrangement for the direct or indirect provision of compensation to the
Grantee (including groups or classes of Grantees or beneficiaries of which the Grantee is a
member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit
to or for the Grantee (a “Benefit Arrangement”), if the Grantee is a “disqualified individual,” as
defined in Section 280G(c) of the Code, any Option, Restricted Stock or Stock Unit held by that
Grantee and any right to receive any payment or other benefit under this Plan shall not become
exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit,
taking into account all other rights, payments, or benefits to or for the Grantee under this Plan,
all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the
Grantee under this Plan to be considered a “parachute payment” within the meaning of
Section 280G(b)(2) of the Code as then in effect (a “Parachute Payment”) and (ii) if, as a
result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Grantee
from the Company under this Plan, all Other Agreements, and all Benefit Arrangements would be less
than the maximum after-tax amount that could be received by the Grantee without causing any such
payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such
right to exercise, vesting, payment, or benefit under this Plan, in conjunction with all other
rights, payments, or benefits to or for the Grantee under any Other Agreement or any Benefit
Arrangement would cause the Grantee to be considered to have received a Parachute Payment under
this Plan that would have the effect of decreasing the after-tax amount received by the Grantee as
described in clause (ii) of the preceding sentence, then the Grantee shall have the right, in the
Grantee’s sole discretion, to designate those rights, payments, or benefits under this Plan, any
Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid
having the payment or benefit to the Grantee under this Plan be deemed to be a Parachute Payment.

 

16.  REQUIREMENTS OF LAW

 

16.1. General.

 

The Company shall not be required to sell or issue any shares of Stock under any Award if the
sale or issuance of such shares would constitute a violation by the Grantee, any other individual
exercising an Option, or the Company of any provision of any law or regulation of any governmental
authority, including without limitation any federal or state securities laws or regulations. If at
any time the Company shall determine, in its discretion, that the listing, registration or
qualification of any shares subject to an Award upon any securities exchange or under any
governmental regulatory body is necessary or desirable as a condition of, or in connection with,
the issuance or purchase of shares hereunder, no shares of Stock may be issued or sold to the
Grantee or any other individual exercising an Option pursuant to such Award unless such listing,
registration, qualification, consent or approval shall have been effected or obtained free of any
conditions not acceptable to the Company, and any delay caused thereby shall in no way affect the
date of termination of the Award. Specifically, in connection with the Securities Act, upon the
exercise of any Option or the delivery of any shares of Stock underlying an Award, unless a
registration statement under such Act is in effect with respect to the shares of Stock covered by
such Award, the Company shall not be required to sell or issue such shares unless the Board has
received evidence satisfactory to it that the Grantee or any other individual exercising an Option
may acquire such shares pursuant to an exemption from registration under the Securities Act. Any
determination in this connection by the Board shall be final, binding, and conclusive. The Company
may, but shall in no event be obligated to, register any securities covered hereby pursuant to the
Securities Act. The Company shall not be obligated to take any affirmative action in order to cause
the exercise of an Option or the issuance of shares of Stock pursuant to the Plan to comply with
any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes
the requirement that an Option shall not be exercisable until the shares of Stock covered by such
Option are registered or are exempt from registration, the exercise of such Option (under
circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the
effectiveness of such registration or the availability of such an exemption.

 

16.2. Rule 16b-3.

 

During any time when the Company has a class of equity security registered under Section 12 of
the Exchange Act, it is the intent of the Company that Awards pursuant to the Plan and the exercise
of Options granted hereunder will qualify for the exemption provided by Rule 16b-3 under the
Exchange Act. To the extent that any provision of the Plan or action by the Board does not comply
with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law
and deemed advisable by the Board, and shall not affect the validity of the Plan. In the event that
Rule 16b-3 is revised or replaced, the Board may exercise its discretion to modify this Plan in any
respect necessary to satisfy the requirements of, or to take advantage of any features of, the
revised exemption or its replacement.

 

17.  EFFECT OF CHANGES IN CAPITALIZATION

 

17.1. Changes in Stock.

 

If the number of outstanding shares of Stock is increased or decreased or the shares of Stock
are changed into or exchanged for a different number or kind of shares or other securities of the
Company on account of any recapitalization, reclassification, stock split, reverse split,
combination of shares, exchange of shares, stock dividend or other distribution payable in capital
stock, or other increase or decrease in such shares effected without receipt of consideration by
the Company occurring after the Effective Date, the number and kinds of shares for which grants of
Options and other Awards may be made under the Plan shall be adjusted proportionately and
accordingly by the Company. In addition, the number and kind of shares for which Awards are
outstanding shall be adjusted proportionately and accordingly so that the proportionate interest of
the Grantee immediately following such event shall, to the extent practicable, be the same as
immediately before such event. Any such adjustment in outstanding Options or SARs shall not change
the aggregate Option Price or SAR Exercise Price payable with respect to shares that are subject to
the unexercised portion of an outstanding Option or SAR, as applicable, but shall include a
corresponding proportionate adjustment in the Option Price or SAR Exercise Price per share. The
conversion of any convertible securities of the Company shall not be treated as an increase in
shares effected without receipt of consideration. Notwithstanding the foregoing, in the event of
any distribution to the Company’s stockholders of securities of any other entity or other assets
(including an extraordinary cash dividend but excluding a non-extraordinary dividend payable in
cash or in stock of the Company) without receipt of consideration by the Company, the Company may,
in such manner as the Company deems appropriate, adjust (i) the number and kind of shares subject
to outstanding Awards and/or (ii) the exercise price of outstanding Options and Stock Appreciation
Rights to reflect such distribution.

 

  17.2.  Reorganization in Which the Company Is the Surviving Entity Which does not Constitute
a Corporate Transaction.

 

Subject to Section 17.3 hereof, if the Company shall be the surviving entity in any
reorganization, merger, or consolidation of the Company with one or more other entities which does
not constitute a Corporate Transaction, any Option or SAR theretofore granted pursuant to the Plan
shall pertain to and apply to the securities to which a holder of the number of shares of Stock
subject to such Option or SAR would have been entitled immediately following such reorganization,
merger, or consolidation, with a corresponding proportionate adjustment of the Option Price or SAR
Exercise Price per share so that the aggregate Option Price or SAR Exercise Price thereafter shall
be the same as the aggregate Option Price or SAR Exercise Price of the shares remaining subject to
the Option or SAR immediately prior to such reorganization, merger, or consolidation. Subject to
any contrary language in an Award Agreement evidencing an Award, any restrictions applicable to
such Award shall apply as well to any replacement shares received by the Grantee as a result of the
reorganization, merger or consolidation. In the event of a transaction described in this
Section 17.2, Stock Units shall be adjusted so as to apply to the securities that a holder of the
number of shares of Stock subject to the Stock Units would have been entitled to receive
immediately following such transaction.

 

17.3. Corporate Transaction.

 

Subject to the exceptions set forth in the last sentence of this Section 17.3 and the last
sentence of Section 17.4:

 

(i) upon the occurrence of a Corporate Transaction, all outstanding shares of Restricted Stock
shall be deemed to have vested, and all Stock Units shall be deemed to have vested and the shares
of Stock subject thereto shall be delivered, immediately prior to the occurrence of such Corporate
Transaction, and

 

(ii) either of the following two actions shall be taken:

 

(A) fifteen days prior to the scheduled consummation of a Corporate Transaction, all Options
and SARs outstanding hereunder shall become immediately exercisable and shall remain exercisable
for a period of fifteen days, or

 

(B) the Board may elect, in its sole discretion, to cancel any outstanding Awards of Options,
Restricted Stock, Stock Units, and/or SARs and pay or deliver, or cause to be paid or delivered, to
the holder thereof an amount in cash or securities having a value (as determined by the Board
acting in good faith), in the case of Restricted Stock or Stock Units, equal to the formula or
fixed price per share paid to holders of shares of Stock and, in the case of Options or SARs, equal
to the product of the number of shares of Stock subject to the Option or SAR (the “Award Shares”)
multiplied by the amount, if any, by which (I) the formula or fixed price per share paid to holders
of shares of Stock pursuant to such transaction exceeds (II) the Option Price or SAR Exercise Price
applicable to such Award Shares.

 

With respect to the Company’s establishment of an exercise window, (i) any exercise of an
Option or SAR during such fifteen-day period shall be conditioned upon the consummation of the
event and shall be effective only immediately before the consummation of the event, and (ii) upon
consummation of any Corporate Transaction the Plan, and all outstanding but unexercised Options and
SARs shall terminate. The Board shall send written notice of an event that will result in such a
termination to all individuals who hold Options and SARs not later than the time at which the
Company gives notice thereof to its stockholders. This Section 17.3 shall not apply to any
Corporate Transaction to the extent that provision is made in writing in connection with such
Corporate Transaction for the assumption or continuation of the Options, SARs, Stock Units and
Restricted Stock theretofore granted, or for the substitution for such Options, SARs, Stock Units
and Restricted Stock for new common stock options and stock appreciation rights and new common
stock units and restricted stock relating to the stock of a successor entity, or a parent or
subsidiary thereof, with appropriate adjustments as to the number of shares (disregarding any
consideration that is not common stock) and option and stock appreciation right exercise prices, in
which event the Plan, Options, SARs, Stock Units and Restricted Stock theretofore granted shall
continue in the manner and under the terms so provided.

 

17.4. Adjustments.

 

Adjustments under this Section 17 related to shares of Stock or securities of the Company
shall be made by the Board, whose determination in that respect shall be final, binding and
conclusive. No fractional shares or other securities shall be issued pursuant to any such
adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case
by rounding downward to the nearest whole share. The Board shall determine the effect of a
Corporate Transaction upon Awards other than Options, SARs, Stock Units and Restricted Stock, and
such effect shall be set forth in the appropriate Award Agreement. The Board may provide in the
Award Agreements at the time of grant, or any time thereafter with the consent of the Grantee, for
different provisions to apply to an Award in place of those described in Sections 17.1, 17.2 and
17.3.

 

17.5. No Limitations on Company.

 

The making of Awards pursuant to the Plan shall not affect or limit in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations, or changes of its
capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or
transfer all or any part of its business or assets.

18.  GENERAL PROVISIONS

 

18.1. Disclaimer of Rights.

 

No provision in the Plan or in any Award or Award Agreement shall be construed to confer upon
any individual the right to remain in the employ or service of the Company or any Affiliate, or to
interfere in any way with any contractual or other right or authority of the Company either to
increase or decrease the compensation or other payments to any individual at any time, or to
terminate any employment or other relationship between any individual and the Company. In addition,
notwithstanding anything contained in the Plan to the contrary, unless otherwise stated in the
applicable Award Agreement, no Award granted under the Plan shall be affected by any change of
duties or position of the Grantee, so long as such Grantee continues to be a director, officer,
consultant or employee of the Company or an Affiliate. The obligation of the Company to pay any
benefits pursuant to this Plan shall be interpreted as a contractual obligation to pay only those
amounts described herein, in the manner and under the conditions prescribed herein. The Plan shall
in no way be interpreted to require the Company to transfer any amounts to a third party trustee or
otherwise hold any amounts in trust or escrow for payment to any Grantee or beneficiary under the
terms of the Plan.

 

18.2. Nonexclusivity of the Plan.

 

Neither the adoption of the Plan nor the submission of the Plan to the stockholders of the
Company for approval shall be construed as creating any limitations upon the right and authority of
the Board to adopt such other incentive compensation arrangements (which arrangements may be
applicable either generally to a class or classes of individuals or specifically to a particular
individual or particular individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options otherwise than under the Plan.

 

18.3. Withholding Taxes.

 

The Company or an Affiliate, as the case may be, shall have the right to deduct from payments
of any kind otherwise due to a Grantee any federal, state, or local taxes of any kind required by
law to be withheld with respect to the vesting of or other lapse of restrictions applicable to an
Award or upon the issuance of any shares of Stock upon the exercise of an Option or pursuant to an
Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay to the Company or the
Affiliate, as the case may be, any amount that the Company or the Affiliate may reasonably
determine to be necessary to satisfy such withholding obligation. Subject to the prior approval of
the Company or the Affiliate, which may be withheld by the Company or the Affiliate, as the case
may be, in its sole discretion, the Grantee may elect to satisfy such obligations, in whole or in
part, (i) by causing the Company or the Affiliate to withhold shares of Stock otherwise issuable to
the Grantee or (ii) by delivering to the Company or the Affiliate shares of Stock already owned by
the Grantee. The shares of Stock so delivered or withheld shall have an aggregate Fair Market Value
equal to such withholding obligations. The Fair Market Value of the shares of Stock used to satisfy
such withholding obligation shall be determined by the Company or the Affiliate as of the date that
the amount of tax to be withheld is to be determined. A Grantee who has made an election pursuant
to this Section 18.3 may satisfy his or her withholding obligation only with shares of Stock that
are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements.

 

18.4. Captions.

 

The use of captions in this Plan or any Award Agreement is for the convenience of reference
only and shall not affect the meaning of any provision of the Plan or such Award Agreement.

 

18.5. Other Provisions.

 

Each Award granted under the Plan may contain such other terms and conditions not inconsistent
with the Plan as may be determined by the Board, in its sole discretion.

 

18.6. Number and Gender.

 

With respect to words used in this Plan, the singular form shall include the plural form, the
masculine gender shall include the feminine gender, etc., as the context requires.

18.7. Severability.

 

If any provision of the Plan or any Award Agreement shall be determined to be illegal or
unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof
shall be severable and enforceable in accordance with their terms, and all provisions shall remain
enforceable in any other jurisdiction.

 

18.8. Governing Law.

 

The validity and construction of this Plan and the instruments evidencing the Awards hereunder
shall be governed by the laws of the State of Delaware, other than any conflicts or choice of law
rule or principle that might otherwise refer construction or interpretation of this Plan and the
instruments evidencing the Awards granted hereunder to the substantive laws of any other
jurisdiction.

 

18.9. Section 409A of the Code.

 

To the extent that the Board determines that a Grantee would be subject to the additional 20%
tax imposed on certain deferred compensation arrangements pursuant to Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”), as a result of any provision of any Award granted
under this Plan, such provision shall be deemed amended to the minimum extent necessary to avoid
application of such additional tax. The nature of any such amendment shall be determined by the
Board.

 

* * *$324,408.00 term note between Champion Industries, Inc. and First Bank of Charleston,
      Inc. dated as of March 23, 2007

     

    EXHIBIT
      10.1

     

    

      PROMISSORY
        NOTE 

      

        
          	
                  Principal

                	
                  Loan
                    Date

                	
                  Maturity

                	
                  Loan
                    No. 

                	
                  Call/Coll

                	
                  Account

                	
                  Officer

                	
                  Initials

                
	
                  $324,408.00

                	
                  03-23-2007

                	
                  04-05-2011

                	
                  318206

                	 	 	
                  022

                	 

        

      

      References
        in the shaded area are for Lender's use only and do not limit the applicability
        of this document to any particular loan or item. Any item above containing
        "***"
        has been omitted due to text length limitations.

      

      

      

      Borrower: CHAMPION
        INDUSTRIES, INC. 

      (TIN:
        55-0717455)

      POST
        OFFICE BOX 2968

      HUNTINGTON,
        WV 25728 

      

      Lender: FIRST
        BANK OF CHARLESTON, INC.

      201
        PENNSYLVANIA AVENUE 

      CHARLESTON.
        WV 25302

      (304)
        340-3000

      

      Principal
        Amount: $324,408.00 Interest
        Rate: 8.250% Date
        of Note: March 23, 2007

       

      PROMISE
        TO PAY. CHAMPION INDUSTRIES INC ("Borrower") promises to pay to FIRST BANK
        OF
        CHARLESTON. INC. ("Lender"), or order, In lawful money of the United States
        of
        America. the principal amount of Three Hundred Twenty-four Thousand Eight
&
00/100 Dollars ($324,408.00), together with interest at the rate of 8.250%
        per
        annum on the unpaid principal balance from March 23, 2007, until paid in
        full.

       

      PAYMENT.
        Borrower will pay this loan in 48 payments of $8,001.19 each payment. Borrower's
        first payment is due May 5, 2007, and all subsequent payments are due on
        the
        same day of each month after that. Borrower's final payment will be due on
        April
        5, 2011, and will be for all principal and all accrued interest not yet paid.
        Payments include principal and interest. Unless otherwise agreed or required
        by
        applicable law. payments will be applied first to any accrued unpaid interest;
        then to principal; then to any unpaid collection costs; and then to any late
        charges, The annual Interest rate for this Note Is computed on a 365/360
        basis;
        that is, by applying the ratio of the annual interest rate over a year of
        360
        days, multiplied by the outstanding principal balance, multiplied by the
        actual
        number of days the principal balance Is outstanding. Borrower will pay Lender
        at
        Lender's address shown above or at such other place as Lender may designate
        in
        writing.

       

      VARIABLE
        INTEREST RATE. The
        interest rate on this Note is subject to change from time to time based on
        changes in an independent index which is The Wall Street Journal Prime Rate
        (the
“Index”). The Index is not necessarily the lowest rate charged by the Lender on
        its loans. If the index becomes unavailable during the term of this loan,
        Lender
        may designate a substitute index after notifying Borrower. Lender may designate
        a substitute index after notifying Borrower. Lender will tell Borrower the
        current index rate upon Borrower’s request. The interest rate change will not
        occur more often than each day. Borrower understands that Lender may make
        loans
        based on other rates as well. The
        index currently is 8.250% per annum. The
        interest rate to be applied to the unpaid principal balance during this Note
        will be at a rate equal to the Index, resulting in an initial rate of 8.250%
        per
        annum. NOTICE: Under no circumstances will the interest rate on this Note
        be
        more than the maximum rate allowed by applicable law. Whenever increases
        occur
        in the interest rate, Lender, at its option, may do one or more of the
        following: (A) increase Borrower’s payments to ensure Borrower’s loan will pay
        off by its original final maturity date, (B) increase Borrower’s payments to
        cover accruing interest, (C) increase the number of Borrower’s payments, and (D)
        continue Borrower’s payments at the same amount and increase Borrower’s final
        payment. 

       

      PREPAYMENT;
        MINIMUM INTEREST CHARGE.
        In any
        event, even upon full prepayment of this Note, Borrower understands that
        Lender
        is entitled to a minimum
        interest charge of $7.50.
        Other
        than Borrower's obligation to pay any minimum interest charge, Borrower may
        pay
        without penalty all or a portion of the amount owed earlier than it is due.
        Early payments will not, unless agreed to by Lender in writing, relieve Borrower
        of Borrower's obligation to continue to make payments under the payment
        schedule. Rather, early payments will reduce the principal balance due and
        may
        result in Borrower's making fewer payments. Borrower agrees not to send Lender
        payments marked "paid in full", "without recourse", or similar language.
        If
        Borrower sends such a payment, Lender may accept it without losing any of
        Lender's rights under this Note, and Borrower will remain obligated to pay
        any
        further amount owed to Lender. All written communications concerning disputed
        amounts including any check or other payment instrument that indicates that
        the
        payment constitutes "payment in full" of the amount owed or that is tendered
        with other conditions or limitations or as full satisfaction of a disputed
        amount must be mailed or delivered to: FIRST BANK OF CHARLESTON, INC.; 201
        Pennsylvania Avenue; Charleston, WV 25302.

       

      LATE
        CHARGE.
        If a
        payment is 10 days or more late, Borrower will be charged 5.000%
        of the unpaid portion of the regularly scheduled payment or $50.00, whichever
        is
        greater.

       

      INTEREST
        AFTER DEFAULT.
        Upon
        default, including failure to pay upon final maturity, Lender, at its option,
        may, if permitted under applicable law, increase the interest rate on this
        Note
        to 18.000% per annum. The interest rate will not exceed the maximum rate
        permitted by applicable law.

      DEFAULT.
        Each of
        the following shall constitute an event of default ("Event of Default") under
        this Note:

      Payment
        Default. Borrower
        fails to make any payment when due under this Note.

       

      Other
        Defaults.
        Borrower
        fails to comply with or to perform any other term, obligation, covenant or
        condition contained in this Note or in any of the related documents or to
        comply
        with or to perform any term, obligation, covenant or condition contained
        in any
        other agreement between Lender and Borrower.

       

      Default
        in Favor of Third Parties.
        Borrower
        or any Grantor defaults under any loan, extension of credit. security agreement,
        purchase or sales agreement, or any other agreement, in favor of any other
        creditor or person that may materially affect any of Borrower's property
        or
        Borrower's ability to repay this Note or perform Borrower's obligations under
        this Note or any of the related documents.

       

      False
        Statements.
        Any
        warranty, representation or statement made or furnished to Lender by Borrower
        or
        on Borrower's behalf under this Note or the related documents is false or
        misleading in any material respect, either now or at the time made or furnished
        or becomes false or misleading at any time thereafter.

       

      Insolvency.
        The
        dissolution or termination of Borrower's existence as a going business, the
        insolvency of Borrower, the appointment of a receiver for any part of Borrower's
        property, any assignment for the benefit of creditors. any type of creditor
        workout, or the commencement of any proceeding under any bankruptcy or
        insolvency laws by or against Borrower.

       

      Creditor
        or Forfeiture Proceedings.
        Commencement of foreclosure or forfeiture proceedings, whether by judicial
        proceeding, self-help, repossession or any other method, by any creditor
        of
        Borrower or by any governmental agency against any collateral securing the
        loan.
        This includes a garnishment of any of Borrower's accounts, including deposit
        accounts, with Lender. However, this Event of Default shall not apply if
        there
        is a good faith dispute by Borrower as to the validity or reasonableness
        of the
        claim which is the basis of the creditor or forfeiture proceeding and if
        Borrower gives Lender written notice of the creditor or forfeiture proceeding
        and deposits with Lender monies or a surety bond for the creditor or forfeiture
        proceeding, in an amount determined by Lender, in its sole discretion, as
        being
        an adequate reserve or bond for the dispute.

       

      Events
        Affecting Guarantor.
        Any of
        the preceding events occurs with respect to any guarantor, endorser, surety,
        or
        accommodation party of any of the indebtedness or any guarantor, endorser,
        surety, or accommodation party dies or becomes incompetent. or revokes or
        disputes the validity of, or liability under, any guaranty of the indebtedness
        evidenced by this Note. In the event of a death, Lender, at its option, may,
        but
        shall not be required to, permit the guarantor's estate to assume
        unconditionally the obligations arising under the guaranty in a manner
        satisfactory to Lender, and, in doing so, cure any Event of
        Default.

       

      Change
        In Ownership. Any
        change in ownership of twenty-five percent (25%) or more of the common stock
        of
        Borrower.

       

      Adverse
        Change.
        A
        material adverse change occurs in Borrower's financial condition, or Lender
        believes the prospect of payment or performance of this Note is
        impaired.

      Insecurity.
        Lender
        in good faith believes itself insecure.

       

      Cure
        Provisions.
        If any
        default, other than a default in payment is curable and if Borrower has not
        been
        given a notice of a breach of the same provision of this Note within the
        preceding twelve (12) months, it may be cured if Borrower, after receiving
        written notice from Lender demanding cure of such default: (1) cures the
        default
        within ten (10) days; or (2) if the cure requires more than ten (10) days,
        immediately initiates steps which Lender deems in Lender's sole discretion
        to be
        sufficient to cure the default and thereafter continues and completes all
        reasonable and necessary steps sufficient to produce compliance as soon as
        reasonably practical.

       

      LENDER'S
        RIGHTS.
        Upon
        default, Lender may declare the entire unpaid principal balance on this Note
        and
        all accrued unpaid interest immediately due, and then Borrower will pay that
        amount.

       

      ATTORNEYS'
        FEES; EXPENSES. Lender
        may hire or pay someone else to help collect this Note if Borrower does not
        pay.
        Borrower will pay Lender that amount. This includes, subject to any limits
        under
        applicable law, Lender's attorneys' fees and Lender's legal expenses, whether
        or
        not there is a lawsuit, including attorneys' fees, expenses for bankruptcy
        proceedings (including efforts to modify or vacate any automatic stay or
        injunction), and appeals. If not prohibited by applicable law. Borrower also
        will pay any court costs, in addition to all other sums provided by
        law.

       

      JURY
        WAIVER. Lender
        and Borrower hereby waive the right to any jury trial in any action, proceeding,
        or counterclaim brought by either Lender or Borrower against the
        other.

       

      GOVERNING
        LAW.
        This
        Note will be governed by federal law applicable to Lender and, to the extent
        not
        preempted by federal law, the laws of the State of West Virginia without
        regard
        to its conflicts of law provisions. This Note has been accepted by Lender
        in the
        State of West Virginia.

       

      DISHONORED
        ITEM FEE.
        Borrower
        will pay a fee to Lender of $7.00 if Borrower makes a payment on Borrower's
        loan
        and the check or pre authorized charge with which Borrower pays is later
        dishonored.

       

      RIGHT
        OF SETOFF.
        To the
        extent permitted by applicable law. Lender reserves a right of setoff in
        all
        Borrower's accounts with Lender (whether checking. savings, or some other
        account). This includes all accounts Borrower holds jointly with someone
        else
        and all accounts Borrower may open in the future. However, this does not
        include
        any IRA or Keogh accounts, or any trust accounts for which setoff would be
        prohibited by law. Borrower authorizes Lender, to the extent permitted by
        applicable law, to charge or setoff all sums owing on the indebtedness against
        any and all such accounts, and, at Lender's option, to administratively freeze
        all such accounts to allow Lender to protect Lender's charge and setoff rights
        provided in this paragraph.

       

      COLLATERAL.
        Borrower
        acknowledges this Note is secured by the following collateral described in
        the
        security instrument listed herein: collateral described in a Commercial Security
        Agreement dated March 23, 2007.

       

      SUCCESSOR
        INTERESTS. The
        terms
        of this Note shall be binding upon Borrower, and upon Borrower's heirs, personal
        representatives, successors and assigns, and shall inure to the benefit of
        Lender and its successors and assigns.

       

      NOTIFY
        US OF INACCURATE INFORMATION WE REPORT TO CONSUMER REPORTING
        AGENCIES.
        Please
        notify us if we report any inaccurate information about your account(s) to
        a
        consumer reporting agency. Your written notice describing the specific
        inaccuracy(ies) should be sent to us at the following address: FIRST BANK
        OF
        CHARLESTON PO Box 6907 Charleston, WV 25362.

       

      GENERAL
        PROVISIONS. If
        any
        part of this Note cannot be enforced, this fact will not affect the rest
        of the
        Note. Lender may delay or forgo enforcing any of its rights or remedies under
        this Note without losing them. Borrower and any other person who signs,
        guarantees or endorses this Note, to the extent allowed by law, waive
        presentment, demand for payment, and notice of dishonor. Upon any change
        in the
        terms of this Note, and unless otherwise expressly stated in writing, no
        party
        who signs this Note, whether as maker, guarantor, accommodation maker or
        endorser, shall be released from liability. All such parties agree that Lender
        may renew or extend (repeatedly and for any length of time) this loan or
        release
        any party or guarantor or collateral; or impair, fail to realize upon or
        perfect
        Lender's security interest in the collateral; and take any other action deemed
        necessary by Lender without the consent of or notice to anyone. All such
        parties
        also agree that Lender may modify this loan without the consent of or notice
        to
        anyone other than the party with whom the modification is made. The obligations
        under this Note are joint and several.

       

      WEST
        VIRGINIA INSURANCE NOTICE. Unless
        Borrower provides lender with evidence of the insurance coverage required
        by
        Borrower's agreement with Lender, Lender may purchase insurance at Borrower's
        expense to protect Lender's interests in the collateral. This insurance may,
        but
        need not, protect Borrower's interests. The coverage that lender purchases
        may
        not pay any claim that Borrower makes or any claim that is made against Borrower
        in connection with the collateral. Borrower may later cancel any insurance
        purchased by lender, but only after providing lender with evidence that Borrower
        has obtained insurance as required by their agreement. If lender purchases
        insurance for the collateral. Borrower will be responsible for the costs
        of that
        Insurance, including Interest and any other charges lender may impose in
        connection with the placement of the insurance, until the effective date
        of the
        cancellation or expiration of the Insurance. The costs of the insurance may
        be
        added to Borrower's total outstanding balance or obligation. The costs of
        the
        insurance may be more than the cost of insurance Borrower may be able to
        obtain
        on Borrower's own.

      

      PRIOR
        TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD All THE PROVISIONS OF
        THIS
        NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE.

      BORROWER
        ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY
        NOTE.

      

      BORROWER:

      

      

      CHAMPION
        INDUSTRIES INC

      

      

      

      By:
        ________________________________

      TONEY
        K ADKINS. President of
        CHAMPION INDUSTRIES INC

      

      By:
        ___________________________

      WALTER
        SANSOM, Secretary of CHAMPION INDUSTRIES INC

      

      

      LASER
        PRO Lending, Var. 5.30.00.004 Copr. Harland Financial Solutions, Inc. 1997,
        2006. All Rights Reserved - WV M:\LASPERPRO\CFI\LPL\D20,FC TR-1868
        PR-8

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      

      COMMERCIAL
        SECURITY AGREEMENT

      
        
          	
                  Principal

                	
                  Loan
                    Date

                	
                  Maturity

                	
                  Loan
                    No. 

                	
                  Call/Coll

                	
                  Account

                	
                  Officer

                	
                  Initials

                
	
                  $324,408.00

                	
                  03-23-2007

                	
                  04-05-2011

                	
                  318206

                	 	 	
                  022

                	 

        

        References
          in the shaded area are for Lender's use only and do not limit the applicability
          of this document to any particular loan or item. Any item above containing
          "***"
          has been omitted due to text length limitations.

      

      Grantor: CHAMPION
        INDUSTRIES, INC. 

      (TIN:
        55-0717455)

      POST
        OFFICE BOX 2968

      HUNTINGTON.
        WV 25728 

      

      Lender:
        FIRST
        BANK OF CHARLESTON, INC.

      201
        PENNSYLVANIA AVENUE 

      CHARLESTON.
        WV 25302

      (304)
        340-3000

      

      THIS
        COMMERCIAL SECURITY AGREEMENT dated March 23, 2007, is made and executed
        between
        CHAMPION INDUSTRIES INC ("Grantor") and FIRST BANK OF CHARLESTON. INC.
        ("Lender").

       

      GRANT
        OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender
        a
        security interest in the Collateral to secure the Indebtedness and agrees
        that
        Lender shall have the rights stated in this Agreement with respect to the
        Collateral, in addition to all other rights which Lender may have by
        law.

       

      COLLATERAL
        DESCRIPTION.
        The word
        "Collateral" as used in this Agreement means the following described property,
        whether now owned or hereafter acquired. whether now existing or hereafter
        arising, and wherever located, in which Grantor is giving to Lender a security
        interest for the payment of the Indebtedness and performance of all other
        obligations under the Note and this Agreement:

       

      Purchase
        Money Security Interest in all printing related equipment including but not
        limited to hardware, software, attachments and accessories on the attached
        invoices and made part of this agreement.

       

      In
        addition, the word "Collateral" also includes all the following, whether
        now
        owned or hereafter acquired, whether now existing or hereafter arising, and
        wherever located:

       

      (A)
        All
        accessions, attachments, accessories, replacements of and additions to any
        of
        the collateral described herein, whether added now or later.

      (B)
        All
        products and produce of any of the property described in this Collateral
        section.

       

      (C)
        All
        accounts, general intangibles, instruments, rents, monies. payments, and
        all
        other rights. arising out of a sale, lease, consignment or other disposition
        of
        any of the property described in this Collateral section.

       

      (D)
        All
        proceeds (including insurance proceeds) from the sale, destruction, loss,
        or
        other disposition of any of the property described in this Collateral section,
        and sums due from a third party who has damaged or destroyed the Collateral
        or
        from that party's insurer, whether due to judgment, settlement or other
        process.

       

      (E)
        All
        records and data relating to any of the property described in this Collateral
        section, whether in the form of a writing, photograph, microfilm, microfiche,
        or
        electronic media, together with all of Grantor's right, title, and interest
        in
        and to all computer software required to utilize, create, maintain, and process
        any such records or data on electronic media.

      

      RIGHT
        OF SETOFF.
        To the
        extent permitted by applicable law. Lender reserves a right of setoff in
        all
        Grantor's accounts with Lender (whether checking. savings. or some other
        account). This includes all accounts Grantor holds jointly with someone else
        and
        all accounts Grantor may open in the future. However, this does not include
        any
        IRA or Keogh accounts, or any trust accounts for which setoff would be
        prohibited by law. Grantor authorizes Lender, to the extent permitted by
        applicable law, to charge or setoff all sums owing on the Indebtedness against
        any and all such accounts, and at Lender's option, to administratively freeze
        all such accounts to allow Lender to protect Lender's charge and setoff rights
        provided in this paragraph.

       

      GRANTOR'S
        REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE
        COLLATERAL.
        With
        respect to the Collateral, Grantor represents and promises to Lender
        that:

       

      Perfection
        of Security Interest.
        Grantor
        agrees to take whatever actions are requested by Lender to perfect and continue
        Lender's security interest in the Collateral. Upon request of Lender, Grantor
        will deliver to Lender any and all of the documents evidencing or constituting
        the Collateral, and Grantor will note Lender's interest upon any and all
        chattel
        paper and instruments if not delivered to Lender for possession by
        Lender.

       

      Notices
        to Lender.
        Grantor
        will promptly notify Lender in writing at Lender's address shown above (or
        such
        other addresses as Lender may designate from time to time) prior to any (1)
        change in Grantor's name; (2) change in Grantor's assumed business name(s);
        (3)
        change in the management of the Corporation Grantor; (4) change in the
        authorized signer(s); (5) change in Grantor's principal office address; (6)
        change in Grantor's state of organization; (7) conversion of Grantor to a
        new or
        different type of business entity; or (8) change in any other aspect of Grantor
        that directly or indirectly relates to any agreements between Grantor and
        Lender. No change in Grantor's name or state of organization will take effect
        until after Lender has received notice.

       

      No
        Violation.
        The
        execution and delivery of this Agreement will not violate any law or agreement
        governing Grantor or to which Grantor is a party, and its certificate or
        articles of incorporation and bylaws do not prohibit any term or condition
        of
        this Agreement.

       

      Enforceability
        of Collateral.
        To the
        extent the Collateral consists of accounts, chattel paper, or general
        intangibles, as defined by the Uniform Commercial Code, the Collateral is
        enforceable in accordance with its terms, is genuine, and fully complies
        with
        all applicable laws and regulations concerning form, content and manner of
        preparation and 

       

      execution,
        and all persons appearing to be obligated on the Collateral have authority
        and
        capacity to contract and are in fact obligated as they appear to be on the
        Collateral. There shall be no setoffs or counterclaims against any of the
        Collateral, and no agreement shall have been made under which any deductions
        or
        discounts may be claimed concerning the Collateral except those disclosed
        to
        Lender in writing.

       

      Location
        of the Collateral.
        Except
        in the ordinary course of Grantor's business, Grantor agrees to keep the
        Collateral at Grantor's address shown above or at such other locations as
        are
        acceptable to Lender. Upon Lender's request, Grantor will deliver to Lender
        in
        form satisfactory to Lender a schedule of real properties and Collateral
        locations relating to Grantor's operations, including without limitation
        the
        following: (1) all real property Grantor owns or is purchasing; (2) all real
        property Grantor is renting or leasing; (3) all storage facilities Grantor
        owns,
        rents, leases, or uses; and (4) all other properties where Collateral is
        or may
        be located.

       

      Removal
        of the Collateral. Except
        in
        the ordinary course of Grantor's business, Grantor shall not remove the
        Collateral from its existing location without Lender's prior written consent.
        Grantor shall, whenever requested, advise Lender of the exact location of
        the
        Collateral.

       

      Transactions
        Involving Collateral.
        Except
        for inventory sold or accounts collected in the ordinary course of Grantor's
        business, or as otherwise provided for in this Agreement, Grantor shall not
        sell, offer to sell, or otherwise transfer or dispose of the Collateral.
        Grantor
        shall not pledge, mortgage, encumber or otherwise permit the Collateral to
        be
        subject to any lien, security interest, encumbrance, or charge, other than
        the
        security interest provided for in this Agreement, without the prior written
        consent of Lender. This includes security interests even if junior in right
        to
        the security interests granted under this Agreement. Unless waived by Lender,
        all proceeds from any disposition of the Collateral (for whatever reason)
        shall
        be held in trust for Lender and shall not be commingled with any other funds;
        provided however, this requirement shall not constitute consent by Lender
        to any
        sale or other disposition. Upon receipt, Grantor shall immediately deliver
        any
        such proceeds to Lender.

       

      Title.
        Grantor
        represents and warrants to Lender that Grantor holds good and marketable
        title
        to the Collateral, free and clear of all liens and encumbrances except for
        the
        lien of this Agreement. No financing statement covering any of the Collateral
        is
        on file in any public office other than those which reflect the security
        interest created by this Agreement or to which Lender has specifically
        consented. Grantor shall defend Lender's rights in the Collateral against
        the
        claims and demands of all other persons.

       

      Repairs
        and Maintenance.
        Grantor
        agrees to keep and maintain, and to cause others to keep and maintain, the
        Collateral in good order, repair and condition at all times while this Agreement
        remains in effect. Grantor further agrees to pay when due all claims for
        work
        done on, or services rendered or material furnished in connection with the
        Collateral so that no lien or encumbrance may ever attach to or be filed
        against
        the Collateral.

      

      Inspection
        of Collateral.
        Lender
        and Lender's designated representatives and agents shall have the right at
        all
        reasonable times to examine and inspect the Collateral wherever
        located.

      

      Taxes,
        Assessments and Liens.
        Grantor
        will pay when due all taxes, assessments and liens upon the Collateral, its
        use
        or operation, upon this Agreement, upon any promissory note or notes evidencing
        the Indebtedness, or upon any of the other Related Documents. Grantor may
        withhold any such payment or may elect to contest any lien if Grantor is
        in good
        faith conducting an appropriate proceeding to contest the obligation to pay
        and
        so long as Lender's interest in the Collateral is not jeopardized in Lender's
        sole opinion. If the Collateral is subjected to a lien which is not discharged
        within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient
        corporate surety bond or other security satisfactory to Lender in an amount
        adequate to provide for the discharge of the lien plus any interest, costs,
        attorneys' fees or other charges that could accrue as a result of foreclosure
        or
        sale of the Collateral. In any contest Grantor shall defend itself and Lender
        and shall satisfy any final adverse judgment before enforcement against the
        Collateral. Grantor shall name Lender as an additional obligee under any
        surety
        bond furnished in the contest proceedings. Grantor further agrees to furnish
        Lender with evidence that such taxes, assessments, and governmental and other
        charges have been paid in full and in a timely manner. Grantor may withhold
        any
        such payment or may elect to contest any lien if Grantor is in good faith
        conducting an appropriate proceeding to contest the obligation to pay and
        so
        long as Lender's interest in the Collateral is not jeopardized.

       

      Compliance
        with Governmental Requirements.
        Grantor
        shall comply promptly with all laws, ordinances, rules and regulations of
        all
        governmental authorities, now or hereafter in effect, applicable to the
        ownership, production, disposition, or use of the Collateral, including all
        laws
        or regulations relating to the undue erosion of highly-erodible land or relating
        to the conversion of wetlands for the production of an agricultural product
        or
        commodity. Grantor may contest in good faith any such law, ordinance or
        regulation and withhold compliance during any proceeding, including appropriate
        appeals, so long as Lender's interest in the Collateral, in Lender's opinion,
        is
        not jeopardized.

       

      Hazardous
        Substances.
        Grantor
        represents and warrants that the Collateral never has been, and never will
        be so
        long as this Agreement remains a lien on the Collateral, used in violation
        of
        any Environmental Laws or for the generation, manufacture, storage,
        transportation, treatment, disposal, release or threatened release of any
        Hazardous Substance. The representations and warranties contained herein
        are
        based on Grantor's due diligence in investigating the Collateral for Hazardous
        Substances. Grantor hereby (1) releases and waives any future claims against
        Lender for indemnity or contribution in the event Grantor becomes liable
        for
        cleanup or other costs under any Environmental Laws, and (2) agrees to indemnify
        and hold harmless Lender against any and all claims and losses resulting
        from a
        breach of this provision of this Agreement. This obligation to indemnify
        shall
        survive the payment of the Indebtedness and the satisfaction of this
        Agreement.

       

      Maintenance
        of Casualty Insurance.
        Grantor
        shall procure and maintain all risks insurance, including without limitation
        fire, theft and liability coverage together with such other insurance as
        Lender
        may require with respect to the Collateral, in form, amounts, coverages and
        basis reasonably acceptable to Lender and issued by a company or companies
        reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver
        to Lender from time to time the policies or certificates of insurance in
        form
        satisfactory to Lender, including stipulations that coverages will not be
        cancelled or diminished without at least thirty (30) days' prior written
        notice
        to Lender and not including any disclaimer of the insurer's liability for
        failure to give such a notice. Each insurance policy also shall include an
        endorsement providing that coverage in favor of Lender will not be impaired
        in
        any way by any act, omission or default of Grantor or any other person. In
        connection with all policies covering assets in which Lender holds or is
        offered
        a security interest, Grantor will provide Lender with such loss payable or
        other
        endorsements as Lender may require. If Grantor at any time fails to obtain
        or
        maintain any insurance as required under this Agreement, Lender may (but
        shall
        not be obligated to) obtain such insurance as Lender deems appropriate,
        including if Lender so chooses "single interest insurance," which will cover
        only Lender's interest in the Collateral.

       

      Application
        of Insurance Proceeds.
        Grantor
        shall promptly notify Lender of any loss or damage to the Collateral if the
        estimated cost of repair or replacement exceeds $ $250.00, whether or not
        such
        casualty or loss is covered by insurance. Lender may make proof of loss if
        Grantor fails to do so within fifteen (15) days of the casualty. All proceeds
        of
        any insurance on the Collateral, including accrued proceeds thereon, shall
        be
        held by Lender as part of the Collateral. If Lender consents to repair or
        replacement of the damaged or destroyed Collateral, Lender shall, upon
        satisfactory proof of expenditure, payor reimburse Grantor from the proceeds
        for
        the reasonable cost of repair or restoration. If Lender does not consent
        to
        repair or replacement of the Collateral, Lender shall retain a sufficient
        amount
        of the proceeds to pay all of the Indebtedness, and shall pay the balance
        to
        Grantor. Any proceeds which have not been disbursed within six (6) months
        after
        their receipt and which Grantor has not committed to the repair or restoration
        of the Collateral shall be used to prepay the Indebtedness.

       

      Insurance
        Reserves.
        Lender
        may require Grantor to maintain with Lender reserves for payment of insurance
        premiums, which reserves shall be created by monthly payments from Grantor
        of a
        sum estimated by Lender to be sufficient to produce, at least fifteen (15)
        days
        before the premium due date, amounts at least equal to the insurance premiums
        to
        be paid. If fifteen (15) days before payment is due, the reserve funds are
        insufficient, Grantor shall upon demand pay any deficiency to Lender. The
        reserve funds shall be held by Lender as a general deposit and shall constitute
        a non-interest-bearing account which Lender may satisfy by payment of the
        insurance premiums required to be paid by Grantor as they become due. Lender
        does not hold the reserve funds in trust for Grantor, and Lender is not the
        agent of Grantor for payment of the insurance premiums required to be paid
        by
        Grantor. The responsibility for the payment of premiums shall remain Grantor's
        sole responsibility.

       

      Insurance
        Reports.
        Grantor,
        upon request of Lender, shall furnish to Lender reports on each existing
        policy
        of insurance showing such information as Lender may reasonably request including
        the following: (1) the name of the insurer; (2) the risks insured; (3) the
        amount of the policy; (4) the property insured; (5) the then current value
        on
        the basis of which insurance has been obtained and the manner of determining
        that value; and (6) the expiration date of the policy. In addition, Grantor
        shall upon request by Lender (however not more often than annually) have
        an
        independent appraiser satisfactory to Lender determine, as applicable, the
        cash
        value or replacement cost of the Collateral.

       

      Financing
        Statements.
        Grantor
        authorizes Lender to file a UCC financing statement, or alternatively, a
        copy of
        this Agreement to perfect Lender's security interest. At Lender's request,
        Grantor additionally agrees to sign all other documents that are necessary
        to
        perfect, protect, and continue Lender's security interest in the Property.
        Grantor will pay all filing fees, title transfer fees, and other fees and
        costs
        involved unless prohibited by law or unless Lender is required by law to
        pay
        such fees and costs. Grantor irrevocably appoints Lender to execute documents
        necessary to transfer title if there is a default. Lender may file a copy
        of
        this Agreement as a financing statement. If Grantor changes Grantor's name
        or
        address, or the name or address of any person granting a security interest
        under
        this Agreement changes, Grantor will promptly notify the Lender of such
        change.

       

      GRANTOR'S
        RIGHT TO POSSESSION. Until
        default, Grantor may have possession of the tangible personal property and
        beneficial use of all the Collateral and may use it in any lawful manner
        not
        inconsistent with this Agreement or the Related Documents, provided that
        Grantor's right to possession and beneficial use shall not apply to any
        Collateral where possession of the Collateral by Lender is required by law
        to
        perfect Lender's security interest in such Collateral. If Lender at any time
        has
        possession of any Collateral, whether before or after an Event of Default,
        Lender shall be deemed to have exercised reasonable care in the custody and
        preservation of the Collateral if Lender takes such action for that purpose
        as
        Grantor shall request or as Lender, in Lender's sole discretion, shall deem
        appropriate under the circumstances, but failure to honor any request by
        Grantor
        shall not of itself be deemed to be a failure to exercise reasonable care.
        Lender shall not be required to take any steps necessary to preserve any
        rights
        in the Collateral against prior parties, nor to protect, preserve or maintain
        any security interest given to secure the Indebtedness.

       

      LENDER'S
        EXPENDITURES.
        If any
        action or proceeding is commenced that would materially affect Lender's interest
        in the Collateral or if Grantor fails to comply with any provision of this
        Agreement or any Related Documents, including but not limited to Grantor's
        failure to discharge or pay when due any amounts Grantor is required to
        discharge or pay under this Agreement or any Related Documents, Lender on
        Grantor's behalf may (but shall not be obligated to) take any action that
        Lender
        deems appropriate, including but not limited to discharging or paying all
        taxes,
        liens, security interests, encumbrances and other claims, at any time levied
        or
        placed on the Collateral and paying all costs for insuring, maintaining and
        preserving the Collateral. All such expenditures incurred or paid by Lender
        for
        such purposes will then bear interest at the rate charged under the Note
        from
        the date incurred or paid by Lender to the date of repayment by Grantor.
        All
        such expenses will become a part of the Indebtedness and, at Lender's option,
        will (A) be payable on demand; (B) be added to the balance of the Note and
        be
        apportioned among and be payable with any installment payments to become
        due
        during either (1) the term of any applicable insurance policy; or (2) the
        remaining term of the Note; or (C) be treated as a balloon payment which
        will be
        due and payable at the Note's maturity. The Agreement also will secure payment
        of these amounts. Such right shall be in addition to all other rights and
        remedies to which Lender may be entitled upon Default.

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      DEFAULT.
        Each
        of
        the following shall constitute an Event of Default under this
        Agreement:

      

      Payment
        Default. Grantor
        fails to make any payment when due under the Indebtedness.

       

      

       

      Other
        Defaults.
        Grantor
        fails to comply with or to perform any other term, obligation, covenant or
        condition contained in this Agreement or in any of the Related Documents
        or to
        comply with or to perform any term, obligation, covenant or condition contained
        in any other agreement between Lender and Grantor.

       

      Default
        in Favor of Third Parties.
        Should
        Borrower or any Grantor default under any loan, extension of credit, security
        agreement, purchase or sales agreement, or any other agreement, in favor
        of any
        other creditor or person that may materially affect any of Grantor's property
        or
        Grantor's or any Grantor's ability to repay the Indebtedness or perform their
        respective obligations under this Agreement or any of the Related
        Documents.

       

      False
        Statements.
        Any
        warranty, representation or statement made or furnished to Lender by Grantor
        or
        on Grantor's behalf under this Agreement or the Related Documents is false
        or
        misleading in any material respect, either now or at the time made or furnished
        or becomes false or misleading at any time thereafter.

      

      Defective
        Collateralization.
        This
        Agreement or any of the Related Documents ceases to be in full force and
        effect
        (including failure of any collateral document to create a valid and perfected
        security interest or lien) at any time and for any reason.

       

      Insolvency.
        The
        dissolution or termination of Grantor's existence as a going business, the
        insolvency of Grantor, the appointment of a receiver for any part of Grantor's
        property, any assignment for the benefit of creditors, any type of creditor
        workout, or the commencement of any proceeding under any bankruptcy or
        insolvency laws by or against Grantor.

       

      Creditor
        or Forfeiture Proceedings.
        Commencement of foreclosure or forfeiture proceedings, whether by judicial
        proceeding, self-help, repossession or any other method, by any creditor
        of
        Grantor or by any governmental agency against any collateral securing the
        Indebtedness. This includes a garnishment of any of Grantor's accounts,
        including deposit accounts, with Lender. However, this Event of Default shall
        not apply if there is a good faith dispute by Grantor as to the validity
        or
        reasonableness of the claim which is the basis of the creditor or forfeiture
        proceeding and if Grantor gives Lender written notice of the creditor or
        forfeiture proceeding and deposits with Lender monies or a surety bond for
        the
        creditor or forfeiture proceeding, in an amount determined by Lender, in
        its
        sole discretion, as being an adequate reserve or bond for the
        dispute.

       

      Events
        Affecting Guarantor.
        Any of
        the preceding events occurs with respect to any guarantor, endorser, surety,
        or
        accommodation party of any of the Indebtedness or guarantor, endorser, surety,
        or accommodation party dies or becomes incompetent or revokes or disputes
        the
        validity of, or liability under, any Guaranty of the Indebtedness.

       

      Adverse
        Change.
        A
        material adverse change occurs in Grantor's financial condition, or Lender
        believes the prospect of payment or performance of the Indebtedness is
        impaired.

      Insecurity.
        Lender
        in good faith believes itself insecure.

       

      Cure
        Provisions.
        If any
        default, other than a default in payment is curable and if Grantor has not
        been
        given a notice of a breach of the same provision of this Agreement within
        the
        preceding twelve (12) months, it may be cured if Grantor, after receiving
        written notice from Lender demanding cure of such default: (1) cures the
        default
        within ten (10) days; or (2) if the cure requires more than ten (10) days,
        immediately initiates steps which Lender deems in Lender's sole discretion
        to be
        sufficient to cure the default and thereafter continues and completes all
        reasonable and necessary steps sufficient to produce compliance as soon as
        reasonably practical.

       

      RIGHTS
        AND REMEDIES ON DEFAULT.
        If an
        Event of Default occurs under this Agreement, at any time thereafter, Lender
        shall have all the rights of a secured party under the West Virginia Uniform
        Commercial Code. In addition and without limitation, Lender may exercise
        anyone
        or

      more
        of
        the following rights and remedies:

       

      Accelerate
        Indebtedness.
        Lender
        may declare the entire Indebtedness, including any prepayment penalty which
        Grantor would be required to pay, immediately due and payable, without notice
        of
        any kind to Grantor.

       

      Assemble
        Collateral.
        Lender
        may require Grantor to deliver to Lender all or any portion of the Collateral
        and any and all certificates of title and other documents relating to the
        Collateral. Lender may require Grantor to assemble the Collateral and make
        it
        available to Lender at a place to be designated by Lender. Lender also shall
        have full power to enter upon the property of Grantor to take possession
        of and
        remove the Collateral. If the Collateral contains other goods not covered
        by
        this Agreement at the time of repossession, Grantor agrees Lender may take
        such
        other goods, provided that Lender makes reasonable efforts to return them
        to
        Grantor after repossession.

       

      Sell
        the Collateral.
        Lender
        shall have full power to sell, lease, transfer, or otherwise deal with the
        Collateral or proceeds thereof in Lender's own name or that of Grantor. Lender
        may sell the Collateral at public auction or private sale. Unless the Collateral
        threatens to decline speedily in value or is of a type customarily sold on
        a
        recognized market, Lender will give Grantor, and other persons as required
        by
        law, reasonable notice of the time and place of any public sale, or the time
        after which any private sale or any other disposition of the Collateral is
        to be
        made. However, no notice need be provided to any person who, after Event
        of
        Default occurs, enters into and authenticates an agreement waiving that person's
        right to notification of sale. The requirements of reasonable notice shall
        be
        met if such notice is given at least ten (10) days before the time of the
        sale
        or disposition. All expenses relating to the disposition of the Collateral,
        including without limitation the expenses of retaking, holding, insuring,
        preparing for sale and selling the Collateral, shall become a part of the
        Indebtedness secured by this Agreement and shall be payable on demand, with
        interest at the Note rate from date of expenditure until repaid.

       

      Appoint
        Receiver.
        Lender
        shall have the right to have a receiver appointed to take possession of all
        or
        any part of the Collateral, with the power to protect and preserve the
        Collateral, to operate the Collateral preceding foreclosure or sale, and
        to
        collect the Rents from the Collateral and apply the proceeds, over and above
        the
        cost of the receivership, against the Indebtedness. The receiver may serve
        without bond if permitted by law. Lender's right to the appointment of a
        receiver shall exist whether or not the apparent value of the Collateral
        exceeds
        the Indebtedness by a substantial amount. Employment by Lender shall not
        disqualify a person from serving as a receiver.

       

      Collect
        Revenues, Apply Accounts.
        Lender,
        either itself or through a receiver, may collect the payments, rents, income,
        and revenues from the Collateral. Lender may at any time in Lender's discretion
        transfer any Collateral into Lender's own name or that of Lender's nominee
        and
        receive the payments, rents, income, and revenues therefrom and hold the
        same as
        security for the Indebtedness or apply it to payment of the Indebtedness
        in such
        order of preference as Lender may determine. Insofar as the Collateral consists
        of accounts, general intangibles, insurance policies, instruments, chattel
        paper, choses in action, or similar property, Lender may demand, collect,
        receipt for, settle, compromise, adjust, sue for, foreclose, or realize on
        the
        Collateral as Lender may determine, whether or not Indebtedness or Collateral
        is
        then due. For these purposes, Lender may, on behalf of and in the name of
        Grantor, receive, open and dispose of mail addressed to Grantor; change any
        address to which mail and payments are to be sent; and endorse notes, checks,
        drafts, money orders, documents of title, instruments and items pertaining
        to
        payment, shipment, or storage of any Collateral. To facilitate collection,
        Lender may notify account debtors and obligors on any Collateral to make
        payments directly to Lender.

       

      Obtain
        Deficiency.
        If
        Lender chooses to sell any or all of the Collateral, Lender may obtain a
        judgment against Grantor for any deficiency remaining on the Indebtedness
        due to
        Lender after application of all amounts received from the exercise of the
        rights
        provided in this Agreement. Grantor shall be liable for a deficiency even
        if the
        transaction described in this subsection is a sale of accounts or chattel
        paper.

       

      Other
        Rights and Remedies.
        Lender
        shall have all the rights and remedies of a secured creditor under the
        provisions of the Uniform Commercial Code, as may be amended from time to
        time.
        In addition, Lender shall have and may exercise any or all other rights and
        remedies it may have available at law, in equity, or otherwise.

       

      Election
        of Remedies.
        Except
        as may be prohibited by applicable law, all of Lender's rights and remedies,
        whether evidenced by this Agreement, the Related Documents, or by any other
        writing, shall be cumulative and may be exercised singularly or concurrently.
        Election by Lender to pursue any remedy shall not exclude pursuit of any
        other
        remedy, and an election to make expenditures or to take action to perform
        an
        obligation of Grantor under this Agreement, after Grantor's failure to perform,
        shall not affect Lender's right to declare a default and exercise its
        remedies.

      MISCELLANEOUS
        PROVISIONS.
        The
        following miscellaneous provisions are a part of this Agreement:

       

      Amendments.
        This
        Agreement, together with any Related Documents, constitutes the entire
        understanding and agreement of the parties as to the matters set forth in
        this
        Agreement. No alteration of or amendment to this Agreement shall be effective
        unless given in writing and signed by the party or parties sought to be charged
        or bound by the alteration or amendment.

       

      Attorneys'
        Fees; Expenses.
        Grantor
        agrees to pay upon demand all of Lender's costs and expenses, including Lender's
        attorneys' fees and Lender's legal expenses, incurred in connection with
        the
        enforcement of this Agreement. Lender may hire or pay someone else to help
        enforce this Agreement, and Grantor shall pay the costs and expenses of such
        enforcement. Costs and expenses include Lender's attorneys' fees and legal
        expenses whether or not there is a lawsuit, including attorneys' fees and
        legal
        expenses for bankruptcy proceedings (including efforts to modify or vacate
        any
        automatic stay or injunction), appeals, and any anticipated post-judgment
        collection services. Grantor also shall pay all court costs and such additional
        fees as may be directed by the court.

       

      Caption
        Headings. Caption
        headings in this Agreement are for convenience purposes only and are not
        to be
        used to interpret or define the provisions of this Agreement.

       

      Governing
        Law.
        This Agreement will be governed by federal law applicable to Lender and,
        to the
        extent not preempted by federal law, the laws of the State of West Virginia
        without regard to its conflicts of law provisions.
        This Agreement has
        been accepted by Lender in the State of West Virginia.

       

      No
        Waiver by Lender.
        Lender
        shall not be deemed to have waived any rights under this Agreement unless
        such
        waiver is given in writing and signed by Lender. No delay or omission on
        the
        part of Lender in exercising any right shall operate as a waiver of such
        right
        or any other right. A waiver by Lender of a provision of this Agreement shall
        not prejudice or constitute a waiver of Lender's right otherwise to demand
        strict compliance with that provision or any other provision of this Agreement.
        No prior waiver by Lender, nor any course of dealing between Lender and Grantor,
        shall constitute a waiver of any of Lender's rights or of any of Grantor's
        obligations as to any future transactions. Whenever the consent of Lender
        is
        required under this Agreement, the granting of such consent by Lender in
        any
        instance shall not constitute continuing consent to subsequent instances
        where
        such consent is required and in all cases such consent may be granted or
        withheld in the sole discretion of Lender.

      

      Notices.
        Any
        notice required to be given under this Agreement shall be given in writing,
        and
        shall be effective when actually delivered, when actually received by
        telefacsimile (unless otherwise required by law), when deposited with a
        nationally recognized overnight courier, or, if mailed, when deposited in
        the
        United States mail, as first class, certified or registered mail postage
        prepaid, directed to the addresses shown near the beginning of this Agreement.
        Any party may change its address for notices under this Agreement by giving
        formal written notice to the other parties, specifying that the purpose of
        the
        notice is to change the party's address. For notice purposes, Grantor agrees
        to
        keep Lender informed at all times of Grantor's current address. Unless otherwise
        provided or required by law, if there is more than one Grantor, any notice
        given
        by Lender to any Grantor is deemed to be notice given to all
        Grantors.

       

      Power
        of Attorney.
        Grantor
        hereby appoints Lender as Grantor's irrevocable attorney-in-fact for the
        purpose
        of executing any documents necessary to perfect, amend, or to continue the
        security interest granted in this Agreement or to demand termination of filings
        of other secured parties. Lender may at any time, and without further
        authorization from Grantor, file a carbon, photographic or other reproduction
        of
        any financing statement or of this Agreement for use as a financing statement.
        Grantor will reimburse Lender for all expenses for the perfection and the
        continuation of the perfection of Lender's security interest in the
        Collateral.

       

      Severability.
        If a
        court of competent jurisdiction finds any provision of this Agreement to
        be
        illegal, invalid, or unenforceable as to any circumstance, that finding shall
        not make the offending provision illegal, invalid, or unenforceable as to
        any
        other circumstance. If feasible, the offending provision shall be considered
        modified so that it becomes legal, valid and enforceable. If the offending
        provision cannot be so modified, it shall be considered deleted from this
        Agreement. Unless otherwise required by law, the illegality, invalidity,
        or
        unenforceability of any provision of this Agreement shall not affect the
        legality, validity or enforceability of any other provision of this
        Agreement.

       

      Successors
        and Assigns.
        Subject
        to any limitations stated in this Agreement on transfer of Grantor's interest,
        this Agreement shall be binding upon and inure to the benefit of the parties,
        their successors and assigns. If ownership of the Collateral becomes vested
        in a
        person other than Grantor, Lender, without notice to Grantor, may deal with
        Grantor's successors with reference to this Agreement and the Indebtedness
        by
        way of forbearance or extension without releasing Grantor from the obligations
        of this Agreement or liability under the Indebtedness.

       

      Survival
        of Representations and Warranties.
        All
        representations, warranties, and agreements made by Grantor in this Agreement
        shall survive the execution and delivery of this Agreement, shall be continuing
        in nature, and shall remain in full force and effect until such time as
        Grantor's Indebtedness shall be paid in full.

       

      Time
        is of the Essence.
        Time is
        of the essence in the performance of this Agreement.

       

      Waive
        Jury.
        All
        parties to this Agreement hereby waive the right to any jury trial in any
        action, proceeding, or counterclaim brought by any party against any other
        party.

      DEFINITIONS.
        The
        following capitalized words and terms shall have the following meanings when
        used in this Agreement. Unless specifically stated to the contrary, all
        references to dollar amounts shall mean amounts in lawful money of the United
        States of America. Words and terms used in the singular shall include the
        plural, and the plural shall include the singular, as the context may require.
        Words and terms not otherwise defined in this Agreement shall have the meanings
        attributed to such terms in the Uniform Commercial Code:

       

      Agreement.
        The
        word
        "Agreement" means this Commercial Security Agreement, as this Commercial
        Security Agreement may be amended or modified from time to time, together
        with
        all exhibits and schedules attached to this Commercial Security Agreement
        from
        time to time.

       

      Borrower.
        The
        word
        "Borrower" means CHAMPION INDUSTRIES INC and includes all co-signers and
        co-makers signing the Note and all their successors and assigns.

       

      Collateral.
        The word
        "Collateral" means all of Grantor's right, title and interest in and to all
        the
        Collateral as described in the Collateral Description section of this
        Agreement.

      Default.
        The
        word
        "Default" means the Default set forth in this Agreement in the section titled
        "Default".

       

      Environmental
        Laws. The
        words
        "Environmental Laws" mean any and all state, federal and local statutes,
        regulations and ordinances relating to the protection of human health or
        the
        environment, including without limitation the Comprehensive Environmental
        Response. Compensation, and Liability Act of 1980, as amended, 42 U.S.C.
        Section
        9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act
        of
        1986, Pub. L. No. 99-499 ("SARA"). the Hazardous Materials Transportation
        Act,
        49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act,
        42
        U.S.C. Section 6901, et seq., or other applicable state or federal laws,
        rules
        or regulations adopted pursuant thereto.

       

      Event
        of Default. The
        words
        "Event of Default" mean any of the events of default set forth in this Agreement
        in the default section of this Agreement.

      Grantor.
        The word
        "Grantor" means CHAMPION INDUSTRIES INC.

       

      Guaranty.
        The word
        "Guaranty" means the guaranty from guarantor, endorser, surety, or accommodation
        party to lender, including without limitation a guaranty of all or part of
        the
        Note.

       

      Hazardous
        Substances.
        The
        words "Hazardous Substances" mean materials that. because of their quantity,
        concentration or 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 words "Hazardous Substances" are used
        in
        their very broadest sense and include without limitation any and all hazardous
        or toxic substances, materials or waste as defined by or listed under the
        Environmental laws. The term "Hazardous Substances" also includes, without
        limitation, petroleum and petroleum by-products or any fraction thereof and
        asbestos.

       

      Indebtedness.
        The word
        "Indebtedness" means the indebtedness evidenced by the Note or Related
        Documents, including all principal and interest together with all other
        indebtedness and costs and expenses for which Grantor is responsible under
        this
        Agreement or under any of the Related Documents.

       

      Lender.
        The word
        "Lender" means FIRST BANK OF CHARLESTON, INC., its successors and
        assigns.

       

      Note.
        The word
        "Note" means the Note executed by CHAMPION INDUSTRIES INC in the principal
        amount of $324,408.00 dated March 23, 2007, together with all renewals of
        extensions of, modifications of, refinancings of, consolidations of, and
        substitutions for the note or credit agreement.

       

      Property.
        The word
        "Property" means all of Grantor's right, title and interest in and to all
        the
        Property as described in the "Collateral Description" section of this
        Agreement.

       

      Related
        Documents. The
        words
        "Related Documents" mean all promissory notes, credit agreements, loan
        agreements, environmental agreements, guaranties, security agreements,
        mortgages, deeds of trust, security deeds, collateral mortgages, and all
        other
        instruments, agreements and documents, whether now or hereafter existing,
        executed in connection with the Indebtedness.

       

      GRANTOR
        HAS READ AND UNDERSTOOD All THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT
        AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED MARCH 23,
        2007.

      GRANTOR:

      

      

      

      CHAMPION
        INDUSTRIES, INC.

      

      

      By:
        /s/
        Toney K. Adkins________________

      TONEY
        K. ADKINS, President of CHAMPION INDUSTRIES, INC.

      

      

      By:
        /s/
        Walter Sansom________________

      WALTER
        SANSOM, Secretary of CHAMPION INDUSTRIES, INC.

      

      

      

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

      BUSINESS
        LOAN AGREEMENT

       

      
        
          	
                  Principal

                	
                  Loan
                    Date

                	
                  Maturity

                	
                  Loan
                    No. 

                	
                  Call/Coll

                	
                  Account

                	
                  Officer

                	
                  Initials

                
	
                  $324,408.00

                	
                  03-23-2007

                	
                  04-05-2011

                	
                  318206

                	 	 	
                  022

                	 

        

        References
          in the shaded area are for Lender's use only and do not limit the applicability
          of this document to any particular loan or item. Any item above containing
          "***"
          has been omitted due to text length limitations.

      

      Borrower: CHAMPION
        INDUSTRIES, INC. 

      (TIN:
        55-0717455)

      POST
        OFFICE BOX 2968

      HUNTINGTON.
        WV 25728 

      

      Lender: FIRST
        BANK OF CHARLESTON, INC.

      201
        PENNSYLVANIA AVENUE 

      CHARLESTON.
        WV 25302

      (304)
        340-3000

      

      THIS
        BUSINESS LOAN AGREEMENT dated March 23, 2007, is made and executed between
        CHAMPION INDUSTRIES INC ("Borrower") and FIRST BANK OF CHARLESTON, INC.
        ("Lender") on the following terms and conditions. Borrower has received prior
        commercial Loans from Lender or has applied to Lender for a commercial Loan
        or
        Loans or other financial accommodations, including those which may be described
        on any exhibit or schedule attached to this Agreement ("Loan"). Borrower
        understands and agrees that: (A) in granting, renewing. or extending any
        Loan,
        Lender is relying upon Borrower's representations, warranties, and agreements
        as
        set forth in this Agreement; (B) the granting, renewing, or extending of
        any
        Loan by Lender at all times shall be subject to Lender's sole judgment and
        discretion; and (C) all such Loans shall be and remain subject to the terms
        and
        conditions of this Agreement.

       

      TERM.
        This
        Agreement shall be effective as of March 23,2007, and shall continue in full
        force and effect until such time as all of Borrower's Loans in favor of Lender
        have been paid in full, including principal, interest, costs, expenses,
        attorneys' fees, and other fees and charges, or until April 5,
        2011.

       

      CONDITIONS
        PRECEDENT TO EACH ADVANCE.
        Lender's obligation to make the initial Advance and each subsequent Advance
        under this Agreement shall be subject to the fulfillment to Lender's
        satisfaction of all of the conditions set forth in this Agreement and in
        the
        Related Documents.

       

      Loan
        Documents.
        Borrower shall provide to Lender the following documents for the Loan: (1)
        the
        Note; (2) Security Agreements granting to Lender security interests in the
        Collateral; (3) financing statements and all other documents perfecting Lender's
        Security Interests; (4) evidence of insurance as required below; (5) together
        with all such Related Documents as Lender may require for the Loan; all in
        form
        and substance satisfactory to Lender and Lender's counsel.

       

      Borrower's
        Authorization.
        Borrower shall have provided in form and substance satisfactory to Lender
        properly certified resolutions, duly authorizing the execution and delivery
        of
        this Agreement, the Note and the Related Documents. In addition, Borrower
        shall
        have provided such other resolutions, authorizations, documents and instruments
        as Lender or its counsel, may require.

       

      Payment
        of Fees and Expenses.
        Borrower shall have paid to Lender all fees, charges, and other expenses
        which
        are then due and payable as specified in this Agreement or any Related
        Document.

       

      Representations
        and Warranties.
        The
        representations and warranties set forth in this Agreement, in the Related
        Documents, and in any document or certificate delivered to Lender under this
        Agreement are true and correct.

       

      No
        Event of Default.
        There
        shall not exist at the time of any Advance a condition which would constitute
        an
        Event of Default under this Agreement or under any Related
        Document.

       

      REPRESENTATIONS
        AND WARRANTIES.
        Borrower represents and warrants to Lender, as of the date of this Agreement,
        as
        of the date of each disbursement of Loan proceeds, as of the date of any
        renewal, extension or modification of any Loan and at all times any Indebtedness
        exists:

       

      Organization.
        Borrower
        is a corporation for profit which is, and at all times shall be, duly organized,
        validly existing, and in good standing under and by virtue of the laws of
        the
        State of West Virginia. Borrower is duly authorized to transact business
        in all
        other states in which Borrower is doing business, having obtained all necessary
        filings, governmental licenses and approvals for each state in which Borrower
        is
        doing business. Specifically, Borrower is, and at all times shall be, duly
        qualified as a foreign corporation in all states in which the failure to
        so
        qualify would have a material adverse effect on its business or financial
        condition. Borrower has the full power and authority to own its properties
        and
        to transact the business in which it is presently engaged or presently proposes
        to engage. Borrower maintains its principal office at 2450-90 FIRST AVENUE,
        HUNTINGTON, WV 25703. Unless Borrower has designated otherwise in writing,
        this
        is the principal office at which Borrower keeps its books and records including
        its records concerning the Collateral. Borrower will notify Lender prior
        to any
        change in the location of Borrower's state of organization or any change
        in
        Borrower's name. Borrower shall do all things necessary to preserve and to
        keep
        in full force and effect its existence, rights and privileges, and shall
        comply
        with all regulations, rules, ordinances, statutes, orders and decrees of
        any
        governmental or quasi-governmental authority or court applicable to Borrower
        and
        Borrower's business activities.

       

      Assumed
        Business Names.
        Borrower has filed or recorded all documents or filings required by law relating
        to all assumed business names used by Borrower. Excluding the name of Borrower,
        the following is a complete list of all assumed business names under which
        Borrower does business:

      

      Authorization.
        Borrower's execution, delivery, and performance of this Agreement and all
        the
        Related Documents have been duly authorized by all necessary action by Borrower
        and do not conflict with, result in a violation of, or constitute a default
        under (1) any provision of (a) Borrower's articles of incorporation or
        organization, or bylaws, or (b) any agreement or other instrument binding
        upon
        Borrower or (2) any law, governmental regulation, court decree, or order
        applicable to Borrower or to Borrower's properties.

       

      Financial
        Information.
        Each of
        Borrower's financial statements supplied to Lender truly and completely
        disclosed Borrower's financial condition as of the date of the statement,
        and
        there has been no material adverse change in Borrower's financial condition
        subsequent to the date of the most recent financial statement supplied to
        Lender. Borrower has no material contingent obligations except as disclosed
        in
        such financial statements.

       

      Legal
        Effect.
        This
        Agreement constitutes, and any instrument or agreement Borrower is required
        to
        give under this Agreement when delivered will constitute legal, valid, and
        binding obligations of Borrower enforceable against Borrower in accordance
        with
        their respective terms.

       

      Properties.
        Except
        as contemplated by this Agreement or as previously disclosed in Borrower's
        financial statements or in writing to Lender and as accepted by Lender, and
        except for property tax liens for taxes not presently due and payable, Borrower
        owns and has good title to all of Borrower's properties free and clear of
        all
        Security Interests, and has not executed any security documents or financing
        statements relating to such properties. All of Borrower's properties are
        titled
        in Borrower's legal name, and Borrower has not used or filed a financing
        statement under any other name for at least the last five (5)
        years.

       

      Hazardous
        Substances.
        Except
        as disclosed to and acknowledged by Lender in writing, Borrower represents
        and
        warrants that: (1) During the period of Borrower's ownership of the Collateral,
        there has been no use, generation, manufacture, storage, treatment, disposal,
        release or threatened release of any Hazardous Substance by any person on,
        under, about or from any of the Collateral. (2) Borrower has no knowledge
        of, or
        reason to believe that there has been (a) any breach or violation of any
        Environmental laws; (b) any use, generation, manufacture, storage, treatment,
        disposal, release or threatened release of any Hazardous Substance on, under,
        about or from the Collateral by any prior owners or occupants of any of the
        Collateral; or (c) any actual or threatened litigation or claims of any kind
        by
        any person relating to such matters. (3) Neither Borrower nor any tenant,
        contractor, agent or other authorized user of any of the Collateral shall
        use,
        generate, manufacture, store, treat, dispose of or release any Hazardous
        Substance on, under, about or from any of the Collateral; and any such activity
        shall be conducted in compliance with all applicable federal, state, and
        local
        laws, regulations, and ordinances, including without limitation all
        Environmental laws. Borrower authorizes Lender and its agents to enter upon
        the
        Collateral to make such inspections and tests as Lender may deem appropriate
        to
        determine compliance of the Collateral with this section of the Agreement.
        Any
        inspections or tests made by Lender shall be at Borrower's expense and for
        Lender's purposes only and shall not be construed to create any responsibility
        or liability on the part of Lender to Borrower or to any other person. The
        representations and warranties contained herein are based on Borrower's due
        diligence in investigating the Collateral for hazardous waste and Hazardous
        Substances. Borrower hereby (1) releases and waives any future claims against
        Lender for indemnity or contribution in the event Borrower becomes liable
        for
        cleanup or other costs under any such laws, and (2) agrees to indemnify and
        hold
        harmless Lender against any and all claims, losses, liabilities, damages,
        penalties, and expenses which Lender may directly or indirectly sustain or
        suffer resulting from a breach of this section of the Agreement or as a
        consequence of any use, generation, manufacture, storage, disposal, release
        or
        threatened release of a hazardous waste or substance on the Collateral. The
        provisions of this section of the Agreement, including the obligation to
        indemnify, shall survive the payment of the Indebtedness and the termination,
        expiration or satisfaction of this Agreement and shall not be affected by
        Lender's acquisition of any interest in any of the Collateral, whether by
        foreclosure or otherwise.

      Litigation
        and Claims.
        No
        litigation, claim, investigation, administrative proceeding or similar action
        (including those for unpaid taxes) against Borrower is pending or threatened,
        and no other event has occurred which may materially adversely affect Borrower's
        financial condition or properties, other than litigation, claims, or other
        events, if any, that have been disclosed to and acknowledged by Lender in
        writing.

       

      Taxes.
        To the
        best of Borrower's knowledge, all of Borrower's tax returns and reports that
        are
        or were required to be filed, have been filed, and all taxes, assessments
        and
        other governmental charges have been paid in full, except those presently
        being
        or to be contested by Borrower in good faith in the ordinary course of business
        and for which adequate reserves have been provided.

       

      Lien
        Priority.
        Unless
        otherwise previously disclosed to Lender in writing, Borrower has not entered
        into or granted any Security Agreements, or permitted the filing or attachment
        of any Security Interests on or affecting any of the Collateral directly
        or
        indirectly securing repayment of Borrower's Loan and Note, that would be
        prior
        or that may in any way be superior to Lender's Security Interests and rights
        in
        and to such Collateral.

       

      Binding
        Effect.
        This
        Agreement, the Note, all Security Agreements (if any), and all Related Documents
        are binding upon the signers thereof, as well as upon their successors,
        representatives and assigns, and are legally enforceable in accordance with
        their respective terms.

      AFFIRMATIVE
        COVENANTS.
        Borrower covenants and agrees with Lender that, so long as this Agreement
        remains in effect, Borrower will:

       

      Notices
        of Claims and Litigation.
        Promptly inform Lender in writing of (1) all material adverse changes in
        Borrower's financial condition, and (2) all existing and all threatened
        litigation, claims, investigations, administrative proceedings or similar
        actions affecting Borrower or any Guarantor which could materially affect
        the
        financial condition of Borrower or the financial condition of any
        Guarantor.

       

      Financial
        Records.
        Maintain its books and records in accordance with GAAP, applied on a consistent
        basis, and permit Lender to examine and audit Borrower's books and records
        at
        all reasonable times.

      Financial
        Statements.
        Furnish
        Lender with the following:

       

      Annual
        Statements.
        As soon
        as available, but in no event later than thirty (30) days after the end of
        each
        fiscal year, Borrower's balance sheet and income statement for the year ended,
        compiled by a certified public accountant satisfactory to Lender.

       

      Tax
        Returns.
        As soon
        as available, but in no event later than thirty (30) days after the applicable
        filing date for the tax reporting period

      ended,
        Federal and other governmental tax returns, prepared by a certified public
        accountant satisfactory to  Lender.

       

      All
        financial reports required to be provided under this Agreement shall be prepared
        in accordance with GAAP, applied on a consistent basis, and certified by
        Borrower as being true and correct.

      Additional
        Information.
        Furnish
        such additional information and statements, as Lender may request from time
        to
        time.

       

      Insurance.
        Maintain fire and other risk insurance, public liability insurance, and such
        other insurance as Lender may require with respect to Borrower's properties
        and
        operations, in form, amounts, coverages and with insurance companies acceptable
        to Lender. Borrower, upon request of Lender, will deliver to Lender from
        time to
        time the policies or certificates of insurance in form satisfactory to Lender,
        including stipulations that coverages will not be cancelled or diminished
        without at least thirty (30) days prior written notice to Lender. Each insurance
        policy also shall include an endorsement providing that coverage in favor
        of
        Lender will not be impaired in any way by any act, omission or default of
        Borrower or any other person. In connection with all policies covering assets
        in
        which Lender holds or is offered a security interest for the Loans, Borrower
        will provide Lender with such Lender's loss payable or other endorsements
        as
        Lender may require.

       

      Insurance
        Reports.
        Furnish
        to Lender, upon request of Lender, reports on each existing insurance policy
        showing such information as Lender may reasonably request, including without
        limitation the following: (1) the name of the insurer; (2) the risks insured;
        (3) the amount of the policy; (4) the properties insured; (5) the then current
        property values on the basis of which insurance has been obtained, and the
        manner of determining those values; and (6) the expiration date of the policy.
        In addition, upon request of Lender (however not more often than annually).
        Borrower will have an independent appraiser satisfactory to Lender determine,
        as
        applicable, the actual cash value or replacement cost of any Collateral.
        The
        cost of such appraisal shall be paid by Borrower.

       

      Other
        Agreements.
        Comply
        with all terms and conditions of all other agreements, whether now or hereafter
        existing, between Borrower and any other party and notify Lender immediately
        in
        writing of any default in connection with any other such
        agreements.

       

      Loan
        Proceeds.
        Use all
        Loan proceeds solely for Borrower's business operations, unless specifically
        consented to the contrary by Lender in writing.

       

      Taxes,
        Charges and Liens.
        Pay and
        discharge when due all of its indebtedness and obligations, including without
        limitation all assessments, taxes, governmental charges, levies and liens,
        of
        every kind and nature, imposed upon Borrower or its properties, income, or
        profits, prior to the date on which penalties would attach, and all lawful
        claims that, if unpaid, might become a lien or charge upon any of Borrower's
        properties, income, or profits.

       

      Performance.
        Perform
        and comply, in a timely manner, with all terms, conditions, and provisions
        set
        forth in this Agreement, in the Related Documents, and in all other instruments
        and agreements between Borrower and Lender. Borrower shall notify Lender
        immediately in writing of any default in connection with any
        agreement.

       

      Operations.
        Maintain executive and management personnel with substantially the same
        qualifications and experience as the present executive and management personnel;
        provide written notice to Lender of any change in executive and management
        personnel; conduct its business affairs in a reasonable and prudent
        manner.

       

      Environmental
        Studies.
        Promptly conduct and complete, at Borrower's expense, all such investigations,
        studies, samplings and testings as may be requested by Lender or any
        governmental authority relative to any substance, or any waste or by-product
        of
        any substance defined as toxic or a hazardous substance under applicable
        federal, state, or local law, rule, regulation, order or directive, at or
        affecting any property or any facility owned, leased or used by
        Borrower.

       

      Compliance
        with Governmental Requirements.
        Comply
        with all laws, ordinances, and regulations, now or hereafter in effect, of
        all
        governmental authorities applicable to the conduct of Borrower's properties,
        businesses and operations, and to the use or occupancy of the Collateral,
        including without limitation, the Americans With Disabilities Act. Borrower
        may
        contest in good faith any such law, ordinance, or regulation and withhold
        compliance during any proceeding, including appropriate appeals, so long
        as
        Borrower has notified Lender in writing prior to doing so and so long as,
        in
        Lender's sole opinion, Lender's interests in the Collateral are not jeopardized.
        Lender may require Borrower to post adequate security or a surety bond,
        reasonably satisfactory to Lender, to protect Lender's interest.

       

      Inspection.
        Permit
        employees or agents of Lender at any reasonable time to inspect any and all
        Collateral for the Loan or Loans and Borrower's other properties and to examine
        or audit Borrower's books, accounts, and records and to make copies and
        memoranda of Borrower's books, accounts, and records. If Borrower now or
        at any
        time hereafter maintains any records (including without limitation computer
        generated records and computer software programs for the generation of such
        records) in the possession of a third party, Borrower, upon request of Lender,
        shall notify such party to permit Lender free access to such records at all
        reasonable times and to provide Lender with copies of any records it may
        request, all at Borrower's expense.

       

      Environmental
        Compliance and Reports.
        Borrower shall comply in all respects with any and all Environmental laws;
        not
        cause or permit to exist, as a result of an intentional or unintentional
        action
        or omission on Borrower's part or on the part of any third party, on property
        owned and/or occupied by Borrower, any environmental activity where damage
        may
        result to the environment, unless such environmental activity is pursuant
        to and
        in compliance with the conditions of a permit issued by the appropriate federal,
        state or local governmental authorities; shall furnish to Lender promptly
        and in
        any event within thirty (30) days after receipt thereof a copy of any notice,
        summons, lien, citation, directive, letter or other communication from any
        governmental agency or instrumentality concerning any intentional or
        unintentional action or omission on Borrower's part in connection with any
        environmental activity whether or not there is damage to the environment
        and/or
        other natural resources.

       

      Additional
        Assurances.
        Make,
        execute and deliver to Lender such promissory notes, mortgages, deeds of
        trust,
        security agreements, assignments, financing statements, instruments, documents
        and other agreements as Lender or its attorneys may reasonably request to
        evidence and secure the Loans and to perfect all Security
        Interests.

       

      LENDER'S
        EXPENDITURES.
        If any
        action or proceeding is commenced that would materially affect Lender's interest
        in the Collateral or if Borrower fails to comply with any provision of this
        Agreement or any Related Documents, including but not limited to Borrower's
        failure to discharge or pay when due any amounts Borrower is required to
        discharge or pay under this Agreement or any Related Documents, Lender on
        Borrower's behalf may (but shall not be obligated to) take any action that
        Lender deems appropriate, including but not limited to discharging or paying
        all
        taxes, liens, security interests, encumbrances and other claims, at any time
        levied or placed on any Collateral and paying all costs for insuring,
        maintaining and preserving any Collateral. All such expenditures incurred
        or
        paid by Lender for such purposes will then bear interest at the rate charged
        under the Note from the date incurred or paid by Lender to the date of repayment
        by Borrower. All such expenses will become a part of the indebtedness and,
        at
        Lender's option, will (A) be payable on demand; (B) be added to the balance
        of
        the Note and be apportioned among and be payable with any installment payments
        to become due during either (1) the term of any applicable insurance policy;
        or
        (2) the remaining term of the Note; or (C) be treated as a balloon payment
        which
        will be due and payable at the Note's maturity.

      

       

      CESSATION
        OF ADVANCES.
        If
        Lender has made any commitment to make any Loan to Borrower, whether under
        this
        Agreement or under any other agreement, Lender shall have no obligation to
        make
        Loan Advances or to disburse Loan proceeds if: (A) Borrower or any Guarantor
        is
        in default under the terms of this Agreement or any of the Related Documents
        or
        any other agreement that Borrower or any Guarantor has with Lender; (B) Borrower
        or any Guarantor dies, becomes incompetent or becomes insolvent, files a
        petition in bankruptcy or similar proceedings, or is adjudged a bankrupt;
        (C)
        there occurs a material adverse change in Borrower's financial condition,
        in the
        financial condition of any Guarantor, or in the value of any Collateral securing
        any Loan; or (DI any Guarantor seeks, claims or otherwise attempts to limit,
        modify or revoke such Guarantor's guaranty of the Loan or any other Loan
        with
        Lender; or (E) Lender in good faith deems itself insecure, even though no
        Event
        of Default shall have occurred.

      

      RIGHT
        OF SETOFF.
        To the
        extent permitted by applicable law, Lender reserves a right of setoff in
        all
        Borrower's accounts with Lender (whether checking, savings, or some other
        account). This includes all accounts Borrower holds jointly with someone
        else
        and all accounts Borrower may open in the future. However, this does not
        include
        any IRA or Keogh accounts, or any trust accounts for which setoff would be
        prohibited by law. Borrower authorizes Lender, to the extent permitted by
        applicable law, to charge or setoff all sums owing on the Indebtedness against
        any and all such accounts, and, at Lender's option, to administratively freeze
        all such accounts to allow Lender to protect Lender's charge and setoff rights
        provided in this paragraph.

      

      DEFAULT.
        Each of
        the following shall constitute an Event of Default under this
        Agreement:

      

      Payment
        Default.
        Borrower fails to make any payment when due under the Loan.

       

      

       

      Other
        Defaults.
        Borrower fails to comply with or to perform any other term, obligation, covenant
        or condition contained in this Agreement or in any of the Related Documents
        or
        to comply with or to perform any term, obligation, covenant or condition
        contained in any other agreement between Lender and Borrower.

      

      Default
        in Favor of Third Parties.
        Borrower or any Grantor defaults under any Loan, extension of credit, security
        agreement, purchase or sales agreement, or any other agreement, in favor
        of any
        other creditor or person that may materially affect any of Borrower's or
        any
        Grantor's property or Borrower's or any Grantor's ability to repay the Loans
        or
        perform their respective obligations under this Agreement or any of the Related
        Documents.

      

      False
        Statements.
        Any
        warranty, representation or statement made or furnished to Lender by Borrower
        or
        on Borrower's behalf under this Agreement or the Related Documents is false
        or
        misleading in any material respect, either now or at the time made or furnished
        or becomes false or misleading at any time thereafter.

      

      Insolvency.
        The
        dissolution or termination of Borrower's existence as a going business, the
        insolvency of Borrower, the appointment of a receiver for any part of Borrower's
        property, any assignment for the benefit of creditors, any type of creditor
        workout, or the commencement of any proceeding under any bankruptcy or
        insolvency laws by or against Borrower.

      

      Defective
        Collateralization.
        This
        Agreement or any of the Related Documents ceases to be in full force and
        effect
        (including failure of any collateral document to create a valid and perfected
        security interest or lien) at any time and for any reason.

      

      Creditor
        or Forfeiture Proceedings.
        Commencement of foreclosure or forfeiture proceedings, whether by judicial
        proceeding, self-help, repossession or any other method, by any creditor
        of
        Borrower or by any governmental agency against any collateral securing the
        Loan.
        This includes a garnishment of any of Borrower's accounts, including deposit
        accounts, with Lender. However, this Event of Default shall not apply if there
        is a good faith dispute by Borrower as to the validity or reasonableness
        of the
        claim which is the basis of the creditor or forfeiture proceeding and if
        Borrower gives Lender written notice of the creditor or forfeiture proceeding
        and deposits with Lender monies or a surety bond for the creditor or forfeiture
        proceeding, in an amount determined by Lender, in its sole discretion, as
        being
        an adequate reserve or bond for the dispute.

      

      Events
        Affecting Guarantor.
        Any of
        the preceding events occurs with respect to any Guarantor of any of the
        Indebtedness or any Guarantor dies or becomes incompetent, or revokes or
        disputes the validity of, or liability under, any Guaranty of the Indebtedness.
        In the event of a death, Lender, at its option, may, but shall not be required
        to, permit the Guarantor's estate to assume unconditionally the obligations
        arising under the guaranty in a manner satisfactory to Lender, and, in doing
        so,
        cure any Event of Default.

      

      Change
        in Ownership.
        Any
        change in ownership of twenty-five percent (25%) or more of the common stock
        of
        Borrower.

      

      Adverse
        Change.
        A
        material adverse change occurs in Borrower's financial condition, or Lender
        believes the prospect of payment or performance of the Loan is
        impaired.

      

      Insecurity.
        Lender
        in good faith believes itself insecure.

      

      Right
        to Cure.
        If any
        default, other than a default on Indebtedness, is curable and if Borrower
        or
        Grantor, as the case may be, has not been given a notice of a similar default
        within the preceding twelve (12) months, it may be cured if Borrower or Grantor,
        as the case may be, after receiving written notice from Lender demanding
        cure of
        such default: (1) cure the default within ten (10) days; or (2) if the cure
        requires more than ten (10) days, immediately initiate steps which Lender
        deems
        in Lender's sole discretion to be sufficient to cure the default and thereafter
        continue and complete all reasonable and necessary steps sufficient to produce
        compliance as soon as reasonably practical.

      

      EFFECT
        OF AN EVENT OF DEFAULT.
        If any
        Event of Default shall occur, except where otherwise provided in this Agreement
        or the Related Documents, all commitments and obligations of Lender under
        this
        Agreement or the Related Documents or any other agreement immediately will
        terminate (including any obligation to make further Loan Advances or
        disbursements), and, at Lender's option, all Indebtedness immediately will
        become due and payable, all without notice of any kind to Borrower, except
        that
        in the case of an Event of Default of the type described in the "Insolvency"
        subsection above, such acceleration shall be automatic and not optional.
        In
        addition, Lender shall have all the rights and remedies provided in the Related
        Documents or available at law, in equity, or otherwise. Except as may be
        prohibited by applicable law, all of Lender's rights and remedies shall be
        cumulative and may be exercised singularly or concurrently. Election by Lender
        to pursue any remedy shall not exclude pursuit of any other remedy, and an
        election to make expenditures or to take action to perform an obligation
        of
        Borrower or of any Grantor shall not affect Lender's right to declare a default
        and to exercise its rights and remedies.

      

      MISCELLANEOUS
        PROVISIONS.
        The
        following miscellaneous provisions are a part of this Agreement:

      

      Amendments.
        This
        Agreement, together with any Related Documents, constitutes the entire
        understanding and agreement of the parties as to the matters set forth in
        this
        Agreement. No alteration of or amendment to this Agreement shall be effective
        unless given in writing and signed by the party or parties sought to be charged
        or bound by the alteration or amendment.

      

      Attorneys'
        Fees; Expenses.
        Borrower agrees to pay upon demand all of Lender's costs and expenses, including
        Lender's attorneys' fees and Lender's legal expenses, incurred in connection
        with the enforcement of this Agreement. Lender may hire or pay someone else
        to
        help enforce this Agreement, and Borrower shall pay the costs and expenses
        of
        such enforcement. Costs and expenses include Lender's attorneys' fees and
        legal
        expenses whether or not there is a lawsuit, including attorneys' fees and
        legal
        expenses for bankruptcy proceedings (including efforts to modify or vacate
        any
        automatic stay or injunction), appeals, and any anticipated post-judgment
        collection services. Borrower also shall pay all court costs and such additional
        fees as may be directed by the court.

      

      Caption
        Headings.
        Caption
        headings in this Agreement are for convenience purposes only and are not
        to be
        used to interpret or define the provisions of this Agreement.

      

      Consent
        to Loan Participation.
        Borrower agrees and consents to Lender's sale or transfer, whether now or
        later,
        of one or more participation interests in the Loan to one or more purchasers,
        whether related or unrelated to Lender. Lender may provide, without any
        limitation whatsoever, to anyone or more purchasers, or potential purchasers,
        any information or knowledge Lender may have about Borrower or about any
        other
        matter relating to the Loan, and Borrower hereby waives any rights to privacy
        Borrower may have with respect to such matters. Borrower additionally waives
        any
        and all notices of sale of participation interests, as well as all notices
        of
        any repurchase of such participation interests. Borrower also agrees that
        the
        purchasers of any such participation interests will be considered as the
        absolute owners of such interests in the Loan and will have all the rights
        granted under the participation agreement or agreements governing the sale
        of
        such participation interests. Borrower further waives all rights of offset
        or
        counterclaim that it may have now or later against Lender or against any
        purchaser of such a participation interest and unconditionally agrees that
        either Lender or such purchaser may enforce Borrower's obligation under the
        Loan
        irrespective of the failure or insolvency of any holder of any interest in
        the
        Loan. Borrower further agrees that the purchaser of any such participation
        interests may enforce its interests irrespective of any personal claims or
        defenses that Borrower may have against Lender.

      

      Governing
        Law.
        This
        Agreement will be governed by federal law applicable to Lender and, to the
        extent not preempted by federal law, the laws of the State of West Virginia
        without regard to its conflicts of law provisions. This Agreement has been
        accepted by Lender in the State of West Virginia.

      

      No
        Waiver by Lender.
        Lender
        shall not be deemed to have waived any rights under this Agreement unless
        such
        waiver is given in writing and signed by Lender. No delay or omission on
        the
        part of Lender in exercising any right shall operate as a waiver of such
        right
        or any other right. A waiver by Lender of a provision of this Agreement shall
        not prejudice or constitute a waiver of Lender's right otherwise to demand
        strict compliance with that provision or any other provision of this Agreement.
        No prior waiver by Lender, nor any course of dealing between Lender and
        Borrower. or between Lender and any Grantor, shall constitute a waiver of
        any of
        Lender's rights or of any of Borrower's or any Grantor's obligations as to
        any
        future transactions. Whenever the consent of Lender is required under this
        Agreement, the granting of such consent by Lender in any instance shall not
        constitute continuing consent to subsequent instances where such consent
        is
        required and in all cases such consent may be granted or withheld in the
        sole
        discretion of Lender.

       

      Notices.
        Any
        notice required to be given under this Agreement shall be given in writing,
        and
        shall be effective when actually delivered, when actually received by
        telefacsimile (unless otherwise required by law), when deposited with a
        nationally recognized overnight courier, or, if mailed, when deposited in
        the
        United States mail, as first class, certified or registered mail postage
        prepaid, directed to the addresses shown near the beginning of this Agreement.
        Any party may change its address for notices under this Agreement by giving
        formal written notice to the other parties, specifying that the purpose of
        the
        notice is to change the party's address. For notice purposes, Borrower agrees
        to
        keep Lender informed at all times of Borrower's current address. Unless
        otherwise provided or required by law, if there is more than one Borrower,
        any
        notice given by Lender to any Borrower is deemed to be notice given to all
        Borrowers.

       

      Severability.
        If a
        court of competent jurisdiction finds any provision of this Agreement to
        be
        illegal, invalid, or unenforceable as to any circumstance, that finding shall
        not make the offending provision illegal, invalid, or unenforceable as to
        any
        other circumstance. If feasible, the offending provision shall be considered
        modified so that it becomes legal, valid and enforceable. If the offending
        provision cannot be so modified, it shall be considered deleted from this
        Agreement. Unless otherwise required by law, the illegality, invalidity,
        or
        unenforceability of any provision of this Agreement shall not affect the
        legality, validity or enforceability of any other provision of this
        Agreement.

       

      Subsidiaries
        and Affiliates of Borrower.
        To the
        extent the context of any provisions of this Agreement makes it appropriate,
        including without limitation any representation, warranty or covenant, the
        word
        "Borrower" as used in this Agreement shall include all of Borrower's
        subsidiaries and affiliates. Notwithstanding the foregoing however, under
        no
        circumstances shall this Agreement be construed to require Lender to make
        any
        Loan or other financial accommodation to any of Borrower's subsidiaries or
        affiliates.

       

      Successors
        and Assigns.
        All
        covenants and agreements by or on behalf of Borrower contained in this Agreement
        or any Related Documents shall bind Borrower's successors and assigns and
        shall
        inure to the benefit of Lender and its successors and assigns. Borrower shall
        not, however, have the right to assign Borrower's rights under this Agreement
        or
        any interest therein, without the prior written consent of Lender.

       

      Survival
        of Representations and Warranties.
        Borrower understands and agrees that in making the Loan, Lender is relying
        on
        all representations, warranties, and covenants made by Borrower in this
        Agreement or in any certificate or other instrument delivered by Borrower
        to
        Lender under this Agreement or the Related Documents. Borrower further agrees
        that regardless of any investigation made by Lender. all such representations,
        warranties and covenants will survive the making of the Loan and delivery
        to
        Lender of the Related Documents, shall be continuing in nature, and shall
        remain
        in full force and effect until such time as Borrower's Indebtedness shall
        be
        paid in full, or until this Agreement shall be terminated in the manner provided
        above, whichever is the last to occur.

      

      Time
        is of the Essence.
        Time is
        of the essence in the performance of this Agreement. 

      

      Waive
        Jury. All parties to this Agreement hereby waive the rig to any jury trial
        in
        any action, proceeding, or counterclaim brought by any party against any
        other
        party.

      

      DEFINITIONS.
        The
        following capitalized words and terms shall have the following meanings when
        used in this Agreement. Unless specifically stated to the contrary, all
        references to dollar amounts shall mean amounts in lawful money of the United
        States of America. Words and terms used in the singular shall include the
        plural, and the plural shall include the singular, as the context may require.
        Words and terms not otherwise defined in this Agreement shall have the meanings
        attributed to such terms in the Uniform Commercial Code. Accounting words
        and
        terms not otherwise defined in this Agreement shall have the meanings assigned
        to them in accordance with generally accepted accounting principles as in
        effect
        on the date of this Agreement: 

      Advance.
        The
        word "Advance" means a disbursement of Loan funds made, or to be made, to
        Borrower or on Borrower's behalf on a line of credit or multiple advance
        basis
        under the terms and conditions of this Agreement.

      Agreement.
        The
        word" Agreement" means this Business Loan Agreement, as this Business Loan
        Agreement may be amended or modified from time to time, together with all
        exhibits and schedules attached to this Business Loan Agreement from time
        to
        time.

      Borrower.
        The word
        "Borrower" means CHAMPION INDUSTRIES INC and includes all co-signers and
        co-makers signing the Note and all their successors and assigns.

      Collateral.
        The word
        "Collateral" means all property and assets granted as collateral security
        for a
        Loan, whether real or personal property, whether granted directly or indirectly,
        whether granted now or in the future, and whether granted in the form of
        a
        security interest, mortgage, collateral mortgage, deed of trust, assignment,
        pledge, crop pledge, chattel mortgage, collateral chattel mortgage, chattel
        trust, factor's lien, equipment trust, conditional sale, trust receipt, lien,
        charge, lien or title retention contract, lease or consignment intended as
        a
        security device, or any other security or lien interest whatsoever, whether
        created by law, contract, or otherwise.

      Environmental
        Laws.
        The
        words "Environmental Laws" mean any and all state, federal and local statutes,
        regulations and ordinances relating to the protection of human health or
        the
        environment, including without limitation the Comprehensive Environmental
        Response, Compensation, and Liability Act of 1980, as amended. 42 U.S.C.
        Section
        9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act
        of
        1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation
        Act.
        49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act,
        42
        U.S.C. Section 6901, et seq., or other applicable state or federal law, rules,
        or regulations adopted pursuant thereto.

      Event
        of Default.
        The
        words "Event of Default" mean any of the events of default set forth in this
        Agreement in the default section of this Agreement.

      GAAP.
        The word
        "GAAP" means generally accepted accounting principles.

      Grantor.
        The
        word "Grantor" means each and all of the persons or entities granting a Security
        Interest in any Collateral for the Loan, including without limitation all
        Borrowers granting such a Security Interest.

      Guarantor.
        The
        word "Guarantor" means any guarantor, surety, or accommodation party of any
        or
        all of the Loan.

      Guaranty.
        The
        word "Guaranty" means the guaranty from Guarantor to Lender, including without
        limitation a guaranty of all or part of the Note.

      Hazardous
        Substances.
        The
        words "Hazardous Substances" mean materials that, because of their quantity,
        concentration or 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 words "Hazardous Substances" are used
        in
        their very broadest sense and include without limitation any and all hazardous
        or toxic substances, materials or waste as defined by or listed under the
        Environmental Laws. The term "Hazardous Substances" also includes, without
        limitation, petroleum and petroleum by-products or any fraction thereof and
        asbestos.

      Indebtedness.
        The
        word "Indebtedness" means the indebtedness evidenced by the Note or Related
        Documents, including all principal and interest together with all other
        indebtedness and costs and expenses for which Borrower is responsible under
        this
        Agreement or under any of the Related Documents.

      Lender.
        The
        word "Lender" means FIRST BANK OF CHARLESTON, INC. its successors and
        assigns.

      Loan.
        The word
        "Loan" means any and all Loans and financial accommodations from Lender to
        Borrower whether now or hereafter existing, and however evidenced, including
        without limitation those Loans and financial accommodations described herein
        or
        described on any exhibit or schedule attached to this Agreement from time
        to
        time.

      Note.
        The word
        "Note" means the Note executed by CHAMPION INDUSTRIES INC in the principal
        amount of $324,408.00 dated March 23, 2007, together with all renewals of,
        extensions of, modifications of, refinancings of, consolidations of, and
        substitutions for the note or credit agreement.

      Related
        Documents.
        The
        words "Related Documents" mean all promissory notes, credit agreements, Loan
        agreements, environmental agreements, guaranties, security agreements,
        mortgages, deeds of trust, security deeds, collateral mortgages, and all
        other
        instruments, agreements and documents, whether now or hereafter existing,
        executed in connection with the Loan.

      Security
        Agreement.
        The
        words "Security Agreement" mean and include without limitation any agreements,
        promises, covenants, arrangements, understandings or other agreements, whether
        created by law, contract, or otherwise, evidencing, governing, representing,
        or
        creating a. Security Interest.

      Security
        Interest.
        The
        words "Security Interest" mean, without limitation, any and all types of
        collateral security, present and future, whether in the form of a lien, charge,
        encumbrance, mortgage, deed of trust, security deed, assignment, pledge,
        crop
        pledge, chattel mortgage, collateral chattel mortgage, chattel trust, factor's
        lien, equipment trust, conditional sale, trust receipt, lien or title retention
        contract, lease or consignment intended as a security device, or any other
        security or lien interest whatsoever whether created by law, contract, or
        otherwise.

       

      BORROWER
        ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT
        AND
        BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS DATED MARCH
        23,
        2007.

      

      BORROWER:

      

      

      

      CHAMPION
        INDUSTRIES, INC.

      

      

      By:

      TONEY
        K ADKINS. President of
        CHAMPION INDUSTRIES INC

      

      

      By:

      WALTER
        SANSOM, Secretary of CHAMPION INDUSTRIES INC

      

      LENDER:

      

      FIRST
        BANK OF CHARLESTON, INC.

      

      

      By:_______________________________

      Authorized
        Signer

      

      LASER
        PRO Lending, Var. 5.30.00.004 Copr. Harland Financial Solutions, Inc. 1997,
        2006. All Rights Reserved - WV M:\LASPERPRO\CFI\LPL\D20,FC TR-1868
        PR-8

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