Document:

Trade Finance Credit Agreement

  
 EXHIBIT 10.21 
  
 TRADE FINANCE CREDIT AGREEMENT 
  
 This
Trade Finance Credit Agreement (the “Agreement”) is made and entered into as of March 31, 2002 , by and between UNITED CALIFORNIA BANK (the “Bank”) and VARIFLEX, INC. (the “Borrower”). 
  
 SECTION 1 
  
 DEFINITIONS 
  
 1.1  Certain Defined Terms:    Unless
elsewhere defined in this Agreement, the following terms shall have the following meanings (such meanings to be generally applicable to the singular and plural forms of the terms defined): 
  
 1.1.1  “Account”:    shall mean, individually and collectively as the context so requires, any and all
accounts, chattel paper and general intangibles owed or owing to Borrower by Account Debtors, whether now owned or hereafter acquired by Borrower, or in which the Borrower may now have or hereafter acquire any interest. 
  
 1.1.2  “Account Debtor”:    shall mean the person or entity obligated to
the Borrower upon an Account. 
  
 1.1.3  “Advance”:    shall mean an advance to the Borrower under the credit facility (ies) described in Section 2. 
  
 1.1.4  “Business Day”:    shall mean a day, other than a Saturday or Sunday, on which commercial banks are
open for business in California. 
  
 1.1.5  “Collateral”:    shall mean the property described in Section 3, together with any other personal or real property in which the Bank may be granted a lien or security interest to
secure payment of the Obligations. 
  
 1.1.6  “Credit
Limit”:    shall mean the lesser of $9,000,000.00 or the sum of 50% of the Borrower’s Accounts and 50% of the Borrower’s Liquid Assets. 
  
 1.1.7  “Effective Tangible Net Worth”:    shall mean the Borrower’s stated net worth plus Subordinated
Debt but less all intangible assets of the Borrower (i.e., goodwill, trademarks, patents, copyrights, organization expense, leasehold improvements and similar intangible items including, but not limited to, investments in and all amounts due from
affiliates, officers or employees). 
  
 1.1.8  “Environmental
Claims”:    shall mean all claims, however asserted, by any governmental authority or other person alleging potential liability or responsibility for violation of any 

 Environmental Law or for Discharge or injury to the environment or threat to public health, personal injury (including
sickness, disease or death), property damage, natural resources damage, or otherwise alleging liability or responsibility for damages (punitive or otherwise), cleanup, removal, remedial or response costs, restitution, civil or criminal penalties,
injunctive relief, or other type of relief, resulting from or based upon (a) the presence, placement, discharge, emission or release (including intentional and unintentional, negligent and non-negligent, sudden or non-sudden, accidental or
non-accidental placement, spills, leaks, Discharges, emissions or releases) of any Hazardous Material at, in, or from property, whether or not owned by the Borrower, or (b) any other circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law. 
  
 1.1.9  “Environmental
Laws”:    shall mean all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any governmental authorities, in each case relating to environmental, health, safety and land use matters; including the Comprehensive Environmental Response, Compensation and Liability Act of 1980
(“CERCLA”), the Clean Air Act, the Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency Planning and Community
Right-to-Know Act, the California Hazardous Waste Control Law, the California Solid Waste Management, Resource, Recovery and Recycling Act, the California Water Code and the California Health and Safety Code. 
  
 1.1.10  “Environmental Permits”:    shall have the meaning provided
in Section 5.11 hereof. 
  
 1.1.11  “Equipment”:    shall mean equipment as defined in the California Uniform Commercial Code. 
  
 1.1.12  “ERISA”:    shall mean the Employee Retirement Income Security Act of 1974, as amended from time to
time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder. 
  
 1.1.13  “Event of Default”:    shall have the meaning set forth in Section 7. 
  
 1.1.14  “Expiration Date”:    shall mean May 1, 2003, or the date of termination of the Bank’s
commitment to lend under this Agreement pursuant to Section 8, whichever shall occur first. 
  
 1.1.15  “Extension of Credit”:    shall mean the Bank’s issuance of a Letter of Credit, or making an Advance. 
  
 1.1.16  “Hazardous Materials”:    shall mean all those substances which are regulated by, or which may
form the basis of liability under, any Environmental Law, including all substances identified under any Environmental Law as a pollutant, contaminant, hazardous waste, hazardous constituent, special waste, hazardous substance, hazardous material, or
toxic substance, or petroleum or petroleum derived substance or waste. 
  
 1.1.17  “Indebtedness”:    shall mean, with respect to the Borrower, (i) all indebtedness for borrowed money or for the deferred purchase price of property or services in respect
of which the Borrower is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss and (ii) obligations under leases which shall have been or should be, in
accordance with generally accepted accounting principles, reported as capital leases in respect of which the Borrower is liable, contingently or otherwise, or in respect of which the Borrower otherwise assures a creditor against loss. 

 
 2 

  
 1.1.18  “Inventory”:    shall mean the inventory described in Section 3. 
  
 1.1.19  “Letter of Credit”:    shall mean a letter of credit issued by Bank pursuant to Section 2. 
  
 1.1.20  “Letter of Credit Obligations”:    shall mean, at any time,
the aggregate obligations of the Borrower then outstanding, or which may thereafter arise in respect of Letters of Credit then issued by Bank, to reimburse the amount paid by the Bank with respect to a past, present or future Drawing under Letters
of Credit. 
  
 1.1.21  “Liquid Assets”:    shall mean
all of the Borrower’s cash and cash equivalents, including but not limited to certificates of deposit, money market funds, government bond funds and commercial paper rated A1/P1. 
  
 1.1.22  “Loan Document”:    means this Agreement, each Schedule and Exhibit hereto, the Guarantee(s)
and the Subordination Agreement(s) if any, and the other security agreements, financing statements and other agreements between the Borrower and the Bank relating to the Obligations. 
  
 1.1.23  “LIBOR Advance”:    shall have the respective meaning as it is defined for each facility under
Section 2, hereof. 
  
 1.1.24  “LIBOR Interest
Period”:    shall have the respective meaning as it is defined for each facility under Section 2, hereof. 
  
 1.1.25  “LIBOR Rate”:    shall have the respective meaning as it is defined for each facility under Section 2, hereof. 
  
 1.1.26  “Obligations”:    shall mean all amounts owing by the
Borrower to the Bank pursuant to this Agreement including, but not limited to, the amount of all outstanding Shipside Bonds and the Letter of Credit Obligations. 
  
 1.1.27  “Ordinary Course of Business”:    shall mean, with respect to any transaction involving the
Borrower or any of its subsidiaries or affiliates, the ordinary course of the Borrower’s business, as conducted by the Borrower in accordance with past practice and undertaken by the Borrower in good faith and not for the purpose of evading any
covenant or restriction in this Agreement or in any other document, instrument or agreement executed in connection herewith. 
  
 1.1.28  “Permitted Liens”:    shall mean: (i) liens and security interests securing indebtedness owed by the Borrower to the Bank; (ii) liens for
taxes, assessments or similar charges not yet due; (iii) liens of materialmen, mechanics, warehousemen, or carriers or other like liens arising in the Ordinary Course of Business and securing obligations which are not yet delinquent; (iv) purchase
money liens or purchase money security interests upon or in any property acquired or held by the Borrower in the Ordinary Course of Business to secure Indebtedness outstanding on the date hereof or permitted to be incurred herein; (v) liens and
security interests which, as of the date hereof, have been disclosed to and approved by the Bank in writing; and (vi) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect
to the net value of the Borrower’s assets. 
  
 1.1.29  “Reference
Rate”:    shall mean an index for a variable interest rate which is quoted, published or announced by Bank as its reference rate and as to which loans may be made by Bank at, above or below such rate.

 
 3 

  
 1.1.30  “Shipside
Bond”:    means an undertaking addressed to a carrier indemnifying the carrier against losses that might be incurred by virtue of the carrier’s delivery of goods to the Borrower without receipt of a document
of title and includes an air release. 
  
 1.1.31  “Sight
Credit”:    means a Letter of Credit, the terms of which require the Bank to make payment upon presentation of conforming documents. 
  
 1.1.32  “Standby Credit”:    means a Letter of Credit designed to be payable in the event of default
or other nonperformance by party obligated to the beneficiary, such event to be evidenced by the presentation of documents. 
  
 1.1.33  “Subordinated Debt”:    shall mean such liabilities of the Borrower which have been subordinated to those owed to the Bank in a manner
acceptable to the Bank. 
  
 1.1.34  “Trade
Advance”:    means an Advance to pay for a Drawing under a Letter of Credit or to pay a Documentary Collection, if any. 
  
 1.1.35  “Usance Credit”:    means a Letter of Credit, the terms of which require the Bank to make
payment at a specified date or time not more than 90 days after presentation of conforming documents. 
  
 1.1.36  “Variable Rate Advance”:    shall have the respective meaning as it is defined for each facility under Section 2, hereof. 
  
 1.1.37  “Variable Rate”:    shall have the respective meaning as it
is defined for each facility under Section 2, hereof. 
  
 1.1.38  “Working Capital
Advance”:    shall mean an Advance under the Line of Credit made for the purpose described in Section 2. 
  
 1.1.39  Accounting Terms:    All references to financial statements, assets, liabilities, and similar accounting items not specifically defined herein shall
mean such financial statements or such items prepared or determined in accordance with generally accepted accounting principles consistently applied and, except where otherwise specified, all financial data submitted pursuant to this Agreement shall
be prepared in accordance with such principles. 
  
 1.2  Other
Terms:    Other terms not otherwise defined shall have the meanings attributed to such terms in the California Uniform Commercial Code as in effect on July 1, 2001 and from time to time thereafter. 

 
 4 

  
 SECTION 2 
  
 CREDIT FACILITIES 
  
 2.1  LETTERS OF CREDIT 
  
 2.1.1  Issuance of
Credits.    Subject to Section 2.4, the Bank hereby agrees to issue Sight Credits, Usance Credits and Standby Credits. Sight Credits, Usance Credits and Standby Credits may be issued for the purpose of purchasing inventory
consisting of action sports products including in-line skates, skateboards and scooters; outdoor products including instant canopies and trampolines; and protective products including wrist guards, elbow/knee pads and helmets. 

 
 2.1.2  Letter of Credit General Conditions.    As a condition precedent to
Bank’s obligation to issue any Letter of Credit hereunder, the Borrower shall pay to the Bank issuance fees as described in the attached Exhibit “A” and shall promptly pay, upon request, such other fees, commissions, costs and any
out-of-pocket expenses charged or incurred by the Bank with respect to any Letter of Credit. 
  
 (i)  The commitment by the Bank to issue Letters of Credit under this Section 2 shall, unless earlier terminated in accordance with the terms of the Agreement, automatically terminate on the Expiration Date and no Letter of
Credit shall expire, and no draft under a Letter of Credit shall be payable on a date which is more than 120 days after the Expiration Date. 
  
 (ii)  Each Letter of Credit shall be in form and substance satisfactory to the Bank, shall require as a condition of payment the presentment of non-negotiable bills of lading in favor of the
Bank if an airway bill or negotiable bills of lading payable to the order of the Bank or to order of the Borrower if an ocean bill or multimodal transport document, and shall be in favor of beneficiaries satisfactory to the Bank, provided that the
Bank may refuse to issue a Letter of Credit (1) due to the nature of the transaction or its terms or in connection with any transaction where the Bank, due to the beneficiary or the nationality or residence of the beneficiary, would be prohibited by
any applicable law, regulation or order from issuing such Letter of Credit or (2) if the beneficiary is an affiliate of the Borrower. 
  
 (iii)  Prior to the issuance of each Letter of Credit, but in no event later than 10:00 a.m. (California time) on the day such Letter of Credit is to be issued (which shall be a Business
Day), the Borrower shall deliver to the Bank the Bank’s standard form of application for issuance of a letter of credit with proper insertions, duly executed by Borrower. 
  
 2.1.3  Drawings:    Upon receipt from any beneficiary under a Letter of Credit of a demand for payment under
such Letter of Credit (each a “Drawing”), the Bank shall promptly notify the Borrower. Each Drawing shall be payable in full by the borrower on the date thereof, without demand or notice of any kind. On the same day as any drawing under
any Letter of Credit, Borrower hereby instructs Bank to pay such drawing by debiting account number 1067-16109 maintained with Bank’s Newport Beach Branch. If the borrower desires to repay a Drawing from the proceeds of an Advance, the Borrower
may request an Advance in accordance with the terms and conditions of this Agreement and, if disbursed or created on the date of such Drawing, shall be applied in payment of such obligation by the Borrower. If any Drawing shall not be paid when due
in accordance with the terms of this Agreement, the Borrower shall reimburse the Bank for each Drawing together with interest thereon until paid at the rate set forth under Default Interest Rate, below. The obligation of the Borrower to reimburse
the Bank for Drawings shall be absolute, irrevocable, and unconditional under any and all circumstances whatsoever and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or have had against the Bank (except
such as may arise out of the Bank’s gross negligence or willful misconduct) or any other person, including, without limitation, and set-off, counterclaim or defense based upon or arising out of: 
  
 (i)  any lack of validity or enforceability of this Agreement or any of the other Loan Documents; 

 
 (ii)  any amendment or waiver of or consent to departure from the terms of any Letter of Credit;

  
 (iii)  the existence of any claim, set-off, defense or other right which the Borrower
or any 

 
 5 

 other person may have at any time against any beneficiary or any transferee of any Letter of Credit (or any person for
whom any such beneficiary or any such transferee may be acting); or 
  
 (iv)  any
allegation that any demand, statement or any other document presented under any Letter of Credit is forged, fraudulent, invalid or insufficient in any respect, or any statement therein being untrue or inaccurate in any respect whatsoever or any
variations in punctuation, capitalization, spelling or format of the drafts or any statements presented in connection with any Drawing. 
  
 2.2  THE LINE OF CREDIT 
  
 2.2.1  The Line of
Credit:    On terms and conditions as set forth herein, the Bank agrees to make Advances to the Borrower from time to time from the date hereof to the Expiration Date. The Borrower may borrow, partially or wholly
prepay, and re-borrow under the Line of Credit. 
  
 2.2.2  Purpose/Payment:    Advances may be made only for and shall be repaid: 
  
 (i)  To pay for Drawings under Sight Credits providing such Advances shall be repaid within 1 day from the date of such Advance. 

 
 (ii)  To pay for Drawings under Usance Credits providing such Advances shall be repaid within 1 day
from the date the documents accompanying the draft on the respective Usance Credit were made available to the Borrower. 
  
 (iii)  For purposes other than described than described above (each a “Working Capital Advance”) and provided all Working Capital Advances shall be repaid on or before the Expiration Date.

  
 2.2.3  Making Line Advances:    Each Advance shall be
conclusively deemed to have been made at the request of and for the benefit of the Borrower (i) when credited to any deposit account of the Borrower maintained with the Bank or (ii) when paid in accordance with the Borrower’s written
instructions. Subject to the requirements of Section 4 and provided such request is made in a timely manner as provided in Section 2.2.5 below, Advances shall be made by the Bank under the Line of Credit. 
  
 2.2.4  Interest on Advances:    Interest shall accrue from the date of each
Advance under the Line of Credit at one of the following rates, as quoted by the Bank and as elected by the Borrower below: 
  
 (i)  Variable Rate Advances:    A variable rate per annum equivalent to the Reference Rate (the “Variable Rate”). Interest shall be adjusted concurrently
with any change in the Reference Rate. An Advance based upon the Variable Rate is hereinafter referred to as a “Variable Rate Advance”. 
  
 (ii)  LIBOR Advances:    A fixed rate quoted by the Bank for 1, 2, 3, 4, 5 or 6 months or for such other period of time that the Bank may quote and offer (provided
that any such period of time does not extend beyond the Expiration Date (the “LIBOR Interest Period”) for Advances in the minimum amount of $500,000.00. Such interest rate shall be a percentage approximately equivalent to 2.00% in excess
of the Bank’s LIBOR Rate which is that rate determined by the Bank’s Treasury Desk as being the arithmetic mean (rounded upwards, if necessary, to the nearest whole multiple of one-sixteenth of one percent (1/16%)) of the U. S. dollar
London Interbank Offered Rates for such period appearing on page 3750 (or such other page as may replace page 3750) of the Telerate screen at or about 11:00 a.m. 

 
 6 

 (London time) on the second Business Day prior to the first days of such period (adjusted for any and all assessments,
surcharges and reserve requirements) (the “LIBOR Rate”). An Advance based upon the LIBOR Rate is hereinafter referred to as a “LIBOR Advance”. 
  
 Interest on any Advance shall be computed on the basis of 360 days per year, but charged on the actual number of days elapsed. 
  
 The Borrower hereby promises and agrees to pay interest in arrears on Variable Rate Advances and LIBOR Advances on the last day of each
month commencing April 30, 2001. 
  
 If interest is not paid as and when it is due, it shall be added to the
principal, become and be treated as a part thereof, and shall thereafter bear like interest. 
  
 2.2.5  Notice of Borrowing:    Upon written or telephonic notice which shall be received by the Bank at or before 2:00 p.m. (California time) on a Business Day, the Borrower may borrow under the
Line of Credit by requesting: 
  
 (i)  A Variable Rate Advance.    A
Variable Rate Advance may be made on the day notice is received by the Bank; provided, however, that if the Bank shall not have received notice at or before 2:00 p.m. on the day such Advance is requested to be made, such Variable Rate Advance may,
at the Bank’s option, be made on the next Business Day. 
  
 (ii)  A LIBOR
Advance.    Notice of any LIBOR Advance shall be received by the Bank no later than two Business Days prior to the day (which shall be a Business Day) on which the Borrower requests such LIBOR Advance to be made. 

 
 2.2.6  Notice of Election to Adjust Interest Rate:    The Borrower may
elect: 
  
 (i)  That interest on a Variable Rate Advance shall be adjusted to accrue at the
LIBOR Rate; provided, however, that such notice shall be received by the Bank no later than two Business Days prior to the day (which shall be a Business Day) on which the Borrower requests that interest be adjusted to accrue at the LIBOR Rate.

  
 (ii)  That interest on a LIBOR Advance shall continue to accrue at a newly quoted LIBOR
Rate or shall be adjusted to commence to accrue at the Variable Rate; provided, however, that such notice shall be received by the Bank no later than two Business Days prior to the last day of the LIBOR Interest Period pertaining to such LIBOR
Advance. If the Bank shall not have received notice (as prescribed herein) of the Borrower’s election that interest on any LIBOR Advance shall continue to accrue at the newly quoted LIBOR Rate, the Borrower shall be deemed to have elected that
interest thereon shall be adjusted to accrue at the Variable Rate upon the expiration of the LIBOR Interest Period pertaining to such Advance. 
  
 2.2.7  Prepayment:    The Borrower may prepay any Advance in whole or in part, at any time and without penalty, provided, however, that: (i) any partial
prepayment shall first be applied, at the Bank’s option, to accrued and unpaid interest and next to the outstanding principal balance; and (ii) during any period of time in which interest is accruing on any Advance on the basis of the LIBOR
Rate, no prepayment shall be made except on a day which is the last day of the LIBOR Interest Period pertaining thereto. If the whole or any part of any LIBOR Advance is prepaid by reason of acceleration or otherwise, the Borrower shall, upon the
Bank’s request, promptly pay to and indemnify the Bank for all costs, expenses and any loss (including loss of future interest income) actually incurred by the Bank and any loss 

 
 7 

 (including loss of future interest income) actually incurred by the Bank and any loss (including loss of profit resulting
from the re-employment of funds) deemed sustained by the Bank as a consequence of such prepayment. 
  
 The Bank shall be entitled to fund all or any portion of its Advances in any manner it may determine in its sole discretion, but all calculations and transactions hereunder shall be conducted as though the Bank actually funded all
Advances through the purchase of dollar deposits bearing interest at the same rate as U.S. Treasury securities in the amount of the relevant Advance and in maturities corresponding to the date of such purchase to the Expiration Date hereunder.

  
 2.2.8  Indemnification for LIBOR Rate Costs:    During any
period of time in which interest on any Advance is accruing on the basis of the LIBOR Rate, the Borrower shall, upon the Bank’s request, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of
any future assessment, reserve, deposit or similar requirement or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank’s compliance with any directive or requirement of any regulatory authority pertaining or relating to
funds used by the Bank in quoting and determining the LIBOR Rate. 
  
 2.2.9  Conversion
from LIBOR Rate to Variable Rate:    In the event that the Bank shall at any time determine that the accrual of interest on the basis of the LIBOR Rate (i) is infeasible because the Bank is unable to determine the LIBOR Rate
due to the unavailability of U.S. dollar deposits, contracts or certificates of deposit in an amount approximately equal to the amount of the relevant Advance and for a period of time approximately equal to relevant LIBOR Interest Period or (ii) is
or has become unlawful or infeasible by reason of the Bank’s compliance with any new law, rule, regulation, guideline or order, or any new interpretation of any present law, rule, regulation, guideline or order, then the Bank shall give
telephonic notice thereof (confirmed in writing) to the Borrower, in which event any Advance bearing interest at the LIBOR Rate shall be deemed to be a Variable Rate Advance and interest shall thereupon immediately accrue at the Variable Rate.

  
 2.3  Line Account:    The Bank shall maintain on its books a record of
account in which the Bank shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the Line of Credit (the “Line Account”). The Bank shall provide the Borrower with a statement of the
Borrower’s Line Account, which statement shall be considered to be correct and conclusively binding on the Borrower unless the Borrower notifies the Bank to the contrary within 90 days after the Borrower’s receipt of any such statement
which it deems to be incorrect. 
  
 2.4  CREDIT AMOUNT 
  
 2.4.1  The Credit Amount.    The Bank shall not be obligated to make any
Extension of Credit hereunder if, after giving effect to such Extension of Credit: 
  
 (i)  The aggregate amount of all Obligations would exceed the Credit Limit, 
  
 (ii)  The aggregate amount of the Letter of Credit Obligations would exceed the Credit Limit. 
  
 (iii)  The aggregate amount of all Trade Advances would exceed the Credit Limit. 
  
 (iv)  The aggregate amount of Working Capital Advances would exceed $2,000,000.00. 
  
 2.4.2  Mandatory Repayments: 
  
 (i)  If at any time the aggregate amount of the Obligations exceed the amount(s) enumerated in Section 2.4 above, Borrower shall immediately upon written or telephonic notice from the Bank, and hereby promises and agrees
to, pay to the Bank, first instance as a principal reduction in the amount of outstanding Advances, and second, as an advance payment of expected Drawings or maturing Acceptances, an amount equal to the Amount by which such Obligations exceed the
respective amount enumerated in Section 2.4. 
  
 (ii)  On the Expiration Date, the Borrower
hereby promises and agrees to pay to the Bank in full the aggregate unpaid principal amount of all Advances and Acceptances then outstanding, together with all accrued and unpaid interest thereon. 
  
 2.4.3  Shipside Bond.    The Bank may, from time to time, at the request of
the Borrower, issue one or more Shipside Bond(s). In such event, each such Shipside Bond shall be considered an Obligation under this Agreement for purposes of Section 2.4 and shall reduce the amount available to the Borrower for the issuance
of Letters of Credit by the amount of such Shipside Bonds. Nothing contained in this Agreement nor any past or future action on the part of the Bank shall be construed as creating any obligation on the part of the Bank to issue a Shipside Bond.

 
 8 

  
 SECTION 3 
  
 COLLATERAL 
  
 3.1  The Collateral:    To secure payment and performance of all the Borrower’s Obligations under this Agreement and all other liabilities, loans, guarantees, covenants
and duties owed by the Borrower to the Bank, whether or not evidenced by this or by any other agreement, absolute or contingent, due or to become due, now existing or hereafter and howsoever created, the Borrower hereby grants the Bank a security
interest in and to all of the following property (“Collateral”): 
  
 (i)  Equipment.    All goods now owned or hereafter acquired by the Borrower or in which the Borrower now has or may hereafter acquire any interest, including, but not limited to, all machinery,
equipment, furniture, furnishings, fixtures, tools, supplies and motor vehicles of every kind and description, and all additions, accessions, improvements, replacements and substitutions thereto and thereof (the “Equipment”). 

 
 (ii)  Inventory.    All inventory now owned or hereafter acquired by the
Borrower, including, but not limited to, all raw materials, work in process, finished goods, inventory leased to others or held for lease, merchandise, parts and supplies of every kind and description, including inventory temporarily out of the
Borrower’s custody or possession, together with all returns on accounts (the “Inventory”). 
  
 (iii)  Accounts.    All accounts, letter of credit rights, commercial tort claims, contract rights and general intangibles, including software and payment intangibles, now owned or hereafter
created or acquired by the Borrower, including, but not limited to, all receivables, including as-extracted receivables, credit card receivables, health care receivables, insurance receivables, software receivables and license fees, goodwill,
trademarks, trademark applications, trade styles, trade names, patents, patent applications, copyrights and copyright applications, customer lists, business records and computer programs, tapes, disks and related data processing software that at any
time evidence or contain information relating to any of the Collateral. 
  
 (iv)  Documents.    All documents, instruments and chattel paper, whether electronic or tangible, now owned or hereafter acquired by the Borrower, including, but not limited to,
warehouse and other receipts, bills of sale, promissory notes and bills of lading. 
  
 (v)  Monies.    All monies, deposit accounts, certificates of deposit, investment property and securities of the Borrower now or hereafter in the Bank’s or its agents’ possession.

  
 (vi)  Deposit Accounts.    Account No(s). 1062-16381
maintained with United California Bank and all substitutions thereof, together with all interest accruing thereunder and therefrom. 
  
 The Bank’s security interest in the Collateral shall be a continuing lien and shall include the proceeds and products of the Collateral including, but not limited to, the proceeds of any insurance thereon. 

 
 Borrower hereby consents to and instructs Bank to file financing statements in all locations deemed appropriate by the Bank
from time to time. 
  
 The security interest granted to Bank in the Collateral shall not secure or be deemed to
secure any Indebtedness of the Borrower to the Bank which is, at the time of its creation, subject to the provisions of any state or federal consumer credit or truth-in-lending disclosure statutes. 

 
 9 

  
 SECTION 4 
  
 CONDITIONS PRECEDENT 
  
 4.1  Conditions Precedent to the Initial Extension of Credit:    The obligation of the Bank to make the initial Advance or the first extension of credit to or on account of the Borrower hereunder
is subject to the conditions precedent that the Bank shall have received before the date of such initial Advance or such first extension of credit all of the following, in form and substance satisfactory to the Bank: 
  
 (i)  Authority to Borrow.    Evidence that the execution, delivery and performance by
the Borrower of this Agreement and any document, instrument or agreement required hereunder have been duly authorized. 
  
 (ii)  Financing Statements.     UCC-1 financing statement(s) describing the Collateral, which have been filed with the Secretary of State or the county recorder as a lien of first
priority. 
  
 (iii)  Miscellaneous.    Such other
evidence as the Bank may request to establish the consummation of the transaction contemplated hereunder and compliance with the conditions of this Agreement. 
  
 4.2  Conditions Precedent to All Extensions of Credit:    The obligation of the Bank to make each Advance or each other extension of credit, as the case may be, to
or on account of the Borrower (including the initial Advance or the first extension of credit) shall be subject to the further conditions precedent that, on the date of each Advance or each extension of credit and after the making of such Advance or
extension of credit: 
  
 (i)  Reporting Requirements.    The
Bank shall have received the documents set forth in Section 6.1. 
  
 (ii)  Subsequent
Approvals.    The Bank shall have received such supplemental approvals, opinions or documents as the Bank may reasonably request. 
  
 (iii)  Representations and Warranties.    The representations contained in Section 5 and in any other document,
instrument or certificate delivered to the Bank hereunder are true, correct and complete. 
  
 (iv)  Event of Default.    No event has occurred and is continuing which constitutes, or with the lapse of time or giving of notice or both, would constitute an Event of Default. 

 
 (v)  Collateral.    The security interest in the Collateral has been duly
authorized, created and perfected with first priority and is in full force and effect. 
  
 The Borrower’s
acceptance of the proceeds of any loan, Advance or extension of credit, or the Borrower’s applying for any Letter of Credit, or the Borrower’s execution of any document or instrument evidencing or creating any Obligation hereunder shall be
deemed to constitute the Borrower’s representation and warranty that all of the above statements are true and correct. 

 
 10 

  
 SECTION 5 
  
 REPRESENTATIONS AND WARRANTIES 
  
 The
Borrower hereby makes the following representations and warranties to the Bank, which representations and warranties are continuing: 
  
 5.1  Status:    The Borrower’s correct legal name is as stated in this Agreement and the Borrower is a corporation duly organized and validly existing under
the laws of the state of Delaware and with its chief executive office in the state of California and is properly licensed and is qualified to do business and in good standing in, and, where necessary to maintain the Borrower’s rights and
privileges, has complied with the fictitious name statute of every jurisdiction in which the Borrower is doing business. 
  
 5.2  Authority:    The execution, delivery and performance by the Borrower of this Agreement and any instrument, document or agreement required hereunder have been duly authorized and do
not and will not: (i) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having application to the Borrower; (ii) result in a breach of or constitute a default
under any material indenture or loan or credit agreement or other material agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; or (iii) require any consent or approval of its
stockholders or violate any provision of its articles of incorporation or by-laws. 
  
 5.3  Legal Effect:    This Agreement constitutes, and any instrument, document or agreement required hereunder when delivered hereunder will constitute, legal, valid and binding obligations of the
Borrower enforceable against the Borrower in accordance with their respective terms. 
  
 5.3  Fictitious Trade Styles:    There are no fictitious trade styles used by the Borrower in connection with its business operations. The Borrower shall notify the Bank not less than 30 days
prior to effecting any change in the matters described herein or prior to using any other fictitious trade style at any future date, indicating the trade style and state(s) of its use. 
  
 5.5  Financial Statements:    All financial statements, information and other data which may have been or which may
hereafter be submitted by the Borrower to the Bank are true, accurate and correct and have been or will be prepared in accordance with generally accepted accounting principles 

 
 11 

 consistently applied and accurately represent the financial condition or, as applicable, the other information disclosed
therein. Since the most recent submission of such financial information or data to the Bank, the Borrower represents and warrants that no material adverse change in the Borrower’s financial condition or operations has occurred which has not
been fully disclosed to the Bank in writing. 
  
 5.6  Litigation:    Except as have been disclosed to the Bank in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting
the Borrower or the Borrower’s properties before any court or administrative agency which, if determined adversely to the Borrower, would have a material adverse effect on the Borrower’s financial condition or operations or on the
Collateral. 
  
 5.7  Title to Assets:    The Borrower has good
and marketable title to all of its assets (including, but not limited to, the Collateral) and the same are not subject to any security interest, encumbrance, lien or claim of any third person except for Permitted Liens. 
  
 5.8  ERISA:    If the Borrower has a pension, profit sharing or retirement plan
subject to ERISA, such plan has been and will continue to be funded in accordance with its terms and otherwise complies with and continues to comply with the requirements of ERISA. 
  
 5.9  Taxes:    The Borrower has filed all tax returns required to be filed and paid all taxes shown thereon to be due,
including interest and penalties, other than such taxes which are currently payable without penalty or interest or those which are being duly contested in good faith. 
  
 5.10  Margin Stock.    The proceeds of any loan or advance hereunder will not be used to purchase or carry margin stock
as such term is defined under Regulation U of the Board of Governors of the Federal Reserve System. 
  
 5.11  Environmental Compliance.    The operations of the Borrower comply, and during the term of this Agreement will at all times comply, in all respects with all Environmental Laws; the Borrower
has obtained all licenses, permits, authorizations and registrations required under any Environmental Law (“Environmental Permits”) and necessary for its ordinary course operations, all such Environmental Permits are in good
standing, and the Borrower is in compliance with all material terms and conditions of such Environmental Permits; neither the Borrower nor any of its present property or operations is subject to any outstanding written order from or agreement with
any governmental authority nor subject to any judicial or docketed administrative proceeding, respecting any Environmental Law, Environmental Claim or Hazardous Material; there are no Hazardous Materials or other conditions or circumstances
existing, or arising from operations prior to the date of this Agreement, with respect to any property of the Borrower that would reasonably be expected to give rise to Environmental Claims; provided, however, that with respect to property
leased from an unrelated third party, the foregoing representation is made to the best knowledge of the Borrower. In addition, (i) the Borrower does not have any underground storage tanks that are not properly registered or permitted under
applicable Environmental Laws, or that are leaking or disposing of Hazardous Materials off-site, and (ii) the Borrower has notified all of their employees of the existence, if any, of any health hazard arising from the conditions of their employment
and have met all notification requirements under Title III of CERCLA and all other Environmental Laws. 
  
 5.12  Inventory: 
  
 (i)  The Borrower keeps correct and
accurate records. (itemizing and describing the kind, type, quality and quantity of inventory, the Borrower’s cost therefor and selling price thereof, and the daily withdrawals therefrom and additions thereto). 
  
 (ii)  All inventory is of good and merchantable quality, free from defects, except inventory which in the
aggregate constitutes an immaterial and insignificant monetary amount. 
  
 (iii)  The
inventory is not stored with a bailee, warehouseman or similar party. 

 
 12 

  
 SECTION 6 
  
 COVENANTS 
  
 The Borrower covenants and
agrees that, during the term of this Agreement, and so long thereafter as the Borrower is indebted to the Bank under this Agreement, the Borrower will, unless the Bank shall otherwise consent in writing: 
  
 6.1  Reporting and Certification Requirements:    Deliver or cause to be delivered to
the Bank in form and detail satisfactory to the Bank: 
  
 (i)  Not later than 90 days after
the end of each of the Borrower’s fiscal years, a copy of the annual audited consolidated financial report of the Borrower for such year, prepared by a firm of certified public accountants acceptable to Bank and accompanied by an unqualified
opinion of such firm and a copy of the annual consolidating financial report of the Borrower for such year. 
  
 (ii)  Not later than 30 days after filing with the appropriate Federal agency, a copy of the Borrower’s federal income tax returns. 
  
 (iii)  Not later than 45 days after the end of each month, a copy of the Borrower’s financial statement as of the end of such period.

  
 (iv)  Concurrently with the delivery of the financial reports required hereunder, a
compliance certificate stating that the Borrower is in compliance with all covenants contained herein and that no Event of Default or potential Event of Default has occurred or is continuing, and certified to by the chief financial officer of the
Borrower. 
  
 (v)  Not later than 30 days after the end of each month, an aging of accounts
payable and accounts receivable. 
  
 (vi)  Not later than 15 days after filing with the
Securities Exchange Commission (“SEC”), a copy of the Borrower’s annual 10K report. 
  
 (vii)  Not later than 15 days after filing with the SEC, a copy of the Borrower’s quarterly 10Q report. 
  
 (viii)  Not later than 30 days after the end of each month, a copy of the Borrower’s brokerage and bank statements for the month, if Liquid Assets maintained with the Bank are less than
$7,000,000.00. 
  
 (ix)  Not later than 30 days after the end of each month, a borrowing
base certificate in the form attached hereto as Exhibit “B” (“Borrowing Base Certificate”), executed by the Borrower and certifying the amount of the Credit Limit available as of the last day of the preceding month. 

 
 13 

 (x)  Promptly upon the Bank’s request, such other information pertaining to the Borrower,
the Collateral or any guarantor hereunder as the Bank may reasonably request. 
  
 6.2  Financial Condition:    The Borrower promises and agrees, during the term of this Agreement and until payment in full of all of the Borrower’s Obligations, the Borrower will maintain at
all times: 
  
 (i)  Liquid Assets of not less than $7,000,000.00 
  
 (ii)  A minimum Effective Tangible Net Worth of at least $25,000,000.00. 
  
 6.3  Preservation of Existence; Compliance with Applicable Laws:    Maintain and
preserve its existence and all rights and privileges now enjoyed; and conduct its business and operations in accordance with all applicable laws, rules and regulations. 
  
 6.4  Merge or Consolidate:    Not liquidate or dissolve, merge or consolidate with or into, or acquire any other
business organization. 
  
 6.5  Maintenance of Collateral and Other
Properties:    Except for Permitted Liens, keep and maintain the Collateral free and clear of all levies, liens, encumbrances and security interests (including, but not limited to, any lien of attachment, judgment or
execution) and defend the Collateral against any such levy, lien, encumbrance or security interest; comply with all laws, statutes and regulations pertaining to the Collateral and its use and operation; execute, file and record such statements,
notices and agreements, take such actions and obtain such certificates and other documents as necessary to perfect, evidence and continue the Bank’s security interest in the Collateral and the priority thereof; maintain accurate and complete
records of the Collateral which show all sales, claims and allowances; and properly care for, house, store and maintain the Collateral in good condition, free of misuse, abuse and deterioration, other than normal wear and tear. The Borrower shall
also maintain and preserve all its properties in good working order and condition in accordance with the general practice of other businesses of similar character and size, ordinary wear and tear excepted. 
  
 6.6  Payment of Obligations and Taxes:    Make timely payment of all assessments and
taxes and all of its liabilities and obligations including, but not limited to, trade payables, unless the same are being contested in good faith by appropriate proceedings with the appropriate court or regulatory agency. For purposes hereof, the
Borrower’s issuance of a check, draft or similar instrument without delivery to the intended payee shall not constitute payment. 
  
 6.7  Depository Relationships:    Maintain its primary business depository relationship with Bank, including general, operating and administrative deposit accounts
and cash management services. 
  
 6.8  Inspection Rights and Accounting
Records:    The Borrower will maintain adequate books and records in accordance with generally accepted accounting principles consistently applied and in a manner otherwise acceptable to Bank, and, at any reasonable time and
from time to time, permit the Bank or any representative thereof to examine and make copies of the records and visit the properties of the Borrower and discuss the business and operations of the Borrower with any employee or representative thereof.
If the Borrower shall maintain any records (including, but not limited to, computer generated records or computer programs for the generation of such records) in the possession of a third party, the Borrower hereby agrees to notify such third party
to permit the Bank free access to such records at all reasonable times and to provide the Bank with copies of any records which it may request, all at the Borrower’s expense, the amount of which shall be payable immediately upon demand.

 
 14 

 6.9  Transfer Assets:    Not, after the date hereof, sell,
contract for sale, convey, transfer, assign, lease or sublet, any of its assets (including, but not limited to, the Collateral) except in the Ordinary Course of Business and, then, only for full, fair and reasonable consideration. 

 
 6.10  Compensation of Employees:    Compensate its employees for
services rendered at an hourly rate at least equal to the minimum hourly rate prescribed by any applicable federal or state law or regulation. 
  
 6.11  Notice:    Give the Bank prompt written notice of any and all (i) Events of Default; (ii) litigation, arbitration or administrative proceedings to
which the Borrower is a party and in which the claim or liability exceeds $500,000.00 or which affects the Collateral; (iii) other matters which have resulted in, or might result in a material adverse change in the Collateral or the financial
condition or business operations of the Borrower, and (iv) any enforcement, cleanup, removal or other governmental or regulatory actions instituted, completed or threatened against the Borrower or any of its properties. 
  
 6.12  Inventory: 
  
 (i)  Except as provided herein below and except inventory in transit, the Borrower’s inventory shall, at all times, be in the Borrower’s
physical possession, shall not be held by others on consignment, sale on approval, or sale or return and shall be kept only at: 5152 N. Commerce Ave., Moorpark, CA; 5156 N. Commerce Ave. and 2141 Eastman Ave. Oxnard, CA 
  
 (ii)  The Borrower shall keep correct and accurate records. 
  
 (iii)  All inventory shall be of good and merchantable quality, free from defects. 
  
 (iv)  The inventory shall not at any time or times hereafter be stored with a bailee, warehouseman or similar
party without the Bank’s prior written consent and, in such event, the Borrower will concurrently therewith cause any such bailee, warehouseman or similar party to issue and deliver to the Bank, in form acceptable to the Bank, warehouse
receipts in the Bank’s name evidencing the storage of inventory. 
  
 (v)  At any
reasonable time and from time to time, allow Bank to have the right, upon demand, to inspect and examine inventory and to check and test the same as to quality, quantity, value and condition. 
  

6.13  Location and Maintenance of Equipment: 
  
 (i)  The Equipment shall at all times be in the Borrower’s physical possession, shall not be held for sale or lease, and shall be kept only
at the following location(s): 5152 N. Commerce Ave., Moorpark, CA; 5156 N. Commerce Ave. and 2141 Eastman Ave., Oxnard, CA. 
  
 The Borrower shall not secrete, abandon or remove, or permit the removal of, the Equipment, or any part thereof, from the location(s) shown above or remove or permit to be removed any accessories now
or hereafter placed upon the Equipment. 
  
 (ii)  Upon the Bank’s demand, the Borrower
shall immediately provide the Bank with a complete and accurate description of the Equipment including, as applicable, the make, model, identification number and serial number of each item of Equipment. In addition, the Borrower shall immediately
notify the Bank of the acquisition of any new or additional Equipment or the replacement of any existing Equipment and shall supply the Bank with a complete description of any such additional or replacement Equipment. 
  
 (iii)  The Borrower shall, at the Borrower’s sole cost and expense, keep and maintain the Equipment in a
good state of repair and shall not destroy, misuse, abuse, illegally use or be negligent in the care of the Equipment or any part thereof. The Borrower shall not remove, destroy, obliterate, change, cover, paint, deface or alter the name plates,
serial numbers, labels or other distinguishing numbers or identification marks placed upon the Equipment or any part thereof by or on behalf of the manufacturer, any dealer or rebuilder thereof, or the Bank. The Borrower shall not be released from
any liability to the Bank hereunder because of any injury to or loss or destruction of the Equipment. The Borrower shall allow the Bank and its representatives free access to and the right to inspect the Equipment at all times and shall comply with
the terms and conditions of any leases covering the real property on which the Equipment is located and any orders, ordinances, laws, regulations or rules of any federal, state or municipal agency or authority having jurisdiction of such real
property or the conduct of the business of the persons having control or possession of the Equipment. 
  
 (iv)  The Equipment is not now and shall not at any time hereafter be so affixed to the real property on which it is located as to become a fixture or a part thereof. The Equipment is now and shall at all times hereafter be
and remain personal property of the Borrower. 
  
             6.14  Value of Collateral:    The Borrower additionally covenants and agrees that so long as all or any part of the
indebtedness under this Agreement shall remain outstanding, the value of the Collateral pledged in the form of a Market Value Savings Account shall at all times not be less than $2,000,000.00. 

 
 15 

  
 SECTION 7 
  
 EVENTS OF DEFAULT 
  
 Any one or more of
the following described events shall constitute an event of default (an “Event of Default”) under this Agreement: 
  
 7.1  Non-Payment:    Any Borrower shall fail to pay the principal amount of any Obligations when due or interest on the Obligations within 5 days of when
due. 
  
 7.2  Performance Under This Agreement:    The
Borrowers shall fail in any material respect to perform or observe any term, covenant or agreement contained in this Agreement or in any document, instrument or agreement relating to this Agreement or any other document or agreement executed by the
Borrowers with or in favor of Bank and any such failure shall continue unremedied for more than 30 days after the occurrence thereof. 
  
 7.3  Representations and Warranties; Financial Statements:    Any representation or warranty made by the Borrower under or in connection with this Agreement
or any financial statement given by the Borrower or any guarantor shall prove to have been incorrect in any material respect when made or given or when deemed to have been made or given. 
  
 7.4  Other Agreements:    If there is a default under any agreement to which Borrower is a party with Bank or
with a third party or parties resulting in a right by the Bank or by such third party or parties, (excluding Borrower’s accounts payable) whether or not exercised, to accelerate the maturity of any Indebtedness. 
  
 7.5  Insolvency:    The Borrower or any guarantor shall: (i) become insolvent
or be unable to pay its debts as they mature; (ii) make an assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its properties and assets; (iii) file a voluntary petition in bankruptcy or seeking
reorganization or to effect a plan or other arrangement with creditors; (iv) file an answer admitting the material allegations of an involuntary petition relating to bankruptcy or reorganization or join in any such petition; (v) become or be
adjudicated a bankrupt; (vi) apply for or consent to the appointment of, or consent that an order be made, appointing any receiver, custodian or trustee, for itself or any of its properties, assets or businesses; or (vii) in an involuntary
proceeding, any receiver, custodian or trustee shall have been appointed for all or substantial part of the Borrower’s or guarantor’s properties, assets or businesses and shall not be discharged within 30 days after the date of such
appointment. 
  
 7.6  Execution:    Any writ of
execution or attachment or any judgment lien shall be issued against any property of the Borrower and shall not be discharged or bonded against or released within 30 days after the issuance or attachment of such writ or lien. 

 
 7.7  Suspension:    The Borrower shall voluntarily suspend the
transaction of business or allow to be suspended, terminated, revoked or expired any permit, license or approval of any governmental body necessary to conduct the Borrower’s business as now conducted. 
  
 7.8  Material Adverse Change:    If there occurs a material adverse change in
the Borrower’s business or financial condition, or if there is a material impairment of the prospect of repayment of any portion of the Obligations or there is a material impairment of the value or priority of the Bank’s security interest
in the Collateral, or if a Borrower who is a natural person shall die. 
  
 7.9  Impairment of Collateral:    There shall occur injury or damage to a material part of the Collateral or a material part of the Collateral shall be lost, stolen or destroyed.

 
 16 

  
 SECTION 8 
  
 REMEDIES ON DEFAULT 
  
 Upon the
occurrence of any Event of Default, the Bank may, at its sole and absolute election, without demand and only upon such notice as may be required by law: 
  
 8.1  Acceleration:    Declare any or all of the Borrower’s indebtedness owing to the Bank, whether under this
Agreement or any other document, instrument or agreement, immediately due and payable, whether or not otherwise due and payable. 
  
 8.2  Cease Extending Credit:    Cease making Advances or otherwise extending credit to or for the account of the Borrower under this Agreement or under any other
agreement now existing or hereafter entered into between the Borrower and the Bank. 
  
 8.3  Termination:    Terminate this Agreement as to any future obligation of the Bank without affecting the Borrower’s obligations to the Bank or the Bank’s rights and remedies under
this Agreement or under any other document, instrument or agreement. 
  
 8.4  Letters of
Credit:    Require the Borrower to pay immediately to the Bank, for application against drawings under any outstanding Letters of Credit, the outstanding principal amount of any such Letters of Credit which have not expired.
Any portion of the amount so paid to the Bank which is not 

 
 17 

 applied to satisfy draws under any such Letters of Credit or any other obligations of the Borrower to the Bank shall be
repaid to the Borrower without interest. 
  
 8.5  Protection of Security
Interest:    Make such payments and do such acts as the Bank, in its sole judgment, considers necessary and reasonable to protect its security interest or lien in the Collateral. The Borrower hereby irrevocably authorizes the
Bank to pay, purchase, contest or compromise any encumbrance, lien or claim which the Bank, in its sole judgment, deems to be prior or superior to its security interest. Further, the Borrower hereby agrees to pay to the Bank, upon demand therefor,
all expenses and expenditures (including attorneys’ fees) incurred in connection with the foregoing. 
  
 8.6  Foreclosure:    Enforce any security interest or lien given or provided for under this Agreement or under any security agreement, mortgage, deed of trust or other document, in such manner and
such order, as to all or any part of the properties subject to such security interest or lien, as the Bank, in its sole judgment, deems to be necessary or appropriate and the Borrower hereby waives any and all rights, obligations or defenses now or
hereafter established by law relating to the foregoing. In the enforcement of its security interest or lien, the Bank is authorized to enter upon the premises where any Collateral is located and take possession of the Collateral or any part thereof,
together with the Borrower’s records pertaining thereto, or the Bank may require the Borrower to assemble the Collateral and records pertaining thereto and make such Collateral and records available to the Bank at a place designated by the
Bank. The Bank may sell the Collateral or any portions thereof, together with all additions, accessions and accessories thereto, giving only such notices and following only such procedures as are required by law, at either a public or private sale,
or both, with or without having the Collateral present at the time of the sale, which sale shall be on such terms and conditions and conducted in such manner as the Bank determines in its sole judgment to be commercially reasonable. The Collateral
may be disposed of in its then condition without any preparation or processing. In connection with any disposition of the Collateral, the Bank may disclaim any warranty relating to title, possession or quiet enjoyment. Any deficiency which exists
after the disposition or liquidation of the Collateral shall be a continuing liability of the Borrower to the Bank and shall be immediately paid by the Borrower to the Bank. 
  
 8.7  Non-Exclusivity of Remedies:    Exercise one or more of the Bank’s rights set forth herein or seek such other
rights or pursue such other remedies as may be provided by law, in equity or in any other agreement now existing or hereafter entered into between the Borrower and the Bank, or otherwise. 
  
 8.8  Application of Proceeds:    All amounts received by the Bank as proceeds from the disposition or liquidation of
the Collateral shall be applied to the Borrower’s indebtedness to the Bank as follows: first, to the costs and expenses of collection, enforcement, protection and preservation of the Bank’s lien in the Collateral, including court costs and
reasonable attorneys’ fees, whether or not suit is commenced by the Bank; next, to those costs and expenses incurred by the Bank in protecting, preserving, enforcing, collecting, liquidating, selling or disposing of the Collateral; next, to the
payment of accrued and unpaid interest on all of the Obligations; next, to the payment of the outstanding principal balance of the Obligations; and last, to the payment of any other indebtedness owed by the Borrower to the Bank. Any excess
Collateral or excess proceeds existing after the disposition or liquidation of the Collateral will be returned or paid by the Bank to the Borrower. 
  
 If any non-cash proceeds are received in connection with any sale of Collateral, the Bank shall not apply such non-cash proceeds to the Obligations unless
and until such proceeds are converted to such; provided, however, that if such non-cash proceeds are not expected on the date of receipt thereof to be converted to cash within one year after such date, the Bank shall use commercially reasonable
efforts to convert such non-cash proceeds to cash within such one year period. 

 
 18 

  
 SECTION 9 
  
 MISCELLANEOUS 
  
 9.1  Amounts Payable on Demand:    If the Borrower shall fail to pay on demand any amount so payable under this Agreement, the Bank may, at its option and without any obligation to do so and
without waiving any default occasioned by the Borrower having so failed to pay such amount, create an Advance under this Agreement in an amount equal to the amount so payable, which Advance shall thereafter bear interest as provided hereunder.

  
 9.2  Default Interest Rate:    If an Event of Default, or an
event which, with notice or passage of time could become an Event of Default, has occurred or is continuing, the Borrower shall pay to the Bank interest on any Indebtedness or amount payable under this Agreement at a rate which is 3% in excess of
the rate or rates then in effect under this Agreement. 
  
 9.3  Reliance and Further
Assurances:    Each warranty, representation, covenant, obligation and agreement contained in this Agreement shall be conclusively presumed to have been relied upon by the Bank regardless of any investigation made or
information possessed by the Bank and shall be cumulative and in addition to any other warranties, representations, covenants and agreements which the Borrower now or hereafter shall give, or cause to be given, to the Bank. Borrower agrees to
execute all documents and instruments and to perform such acts as the Bank may reasonably deem necessary to confirm and secure to the Bank all rights and remedies conferred upon the Bank by this agreement and all other documents related thereto.

  
 9.4  Costs:    Borrower shall, upon Bank’s request,
promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future assessment, reserve, deposit or similar requirements or any surcharge, tax or fee imposed upon the Bank or as a result of the
Bank’s compliance with any directive or requirement of any regulatory authority pertaining or relating to any import Letter of Credit. 
  
 9.5  Nature and Place of Payments:    All payments made on account of the Obligations shall be made without setoff or counterclaim in lawful money of the United
States of America in either immediately available or next day available funds, free and clear of and without deduction for any taxes, fees or other charges of any nature whatsoever imposed by any taxing authority (other than California and United
States income tax payable by the Bank), and must be received by Bank by 2:00 p.m. (California time) on the day of payment, it being expressly agreed and understood that if payment is received by the Bank after 2:00 p.m. (California time), such
payment will be considered to have been made been made on the next succeeding Business Day and interest thereon shall be payable at the then applicable rate during such extension. If any payment required to be made by the Borrower hereunder becomes
due and payable on a day other than a Business Day, the due date thereof shall be extended to the next succeeding Business Day and interest thereon shall be payable at the then applicable rate during such extension. All payments required to be made
hereunder shall be made to the office of the Bank designated for the receipt of notices in Section 9.7 or such other office as Bank shall from time to time designate. 
  
 9.6  Attorneys’ Fees:    Borrower shall pay to the Bank all costs and expenses, including but not limited to
reasonable attorneys fees, incurred by Bank in connection with the administration, enforcement, including any bankruptcy, appeal or the enforcement of any judgment or any refinancing or restructuring of this Agreement or any document, instrument or
agreement executed with respect to, evidencing or securing the indebtedness hereunder. 
  
 9.7  Notices:    All notices, payments, requests, information and demands which either party hereto may desire, or may be required to give or make to the other party hereto, shall be given or made
to such 

 
 19 

 party by hand delivery or through deposit in the United States mail, postage prepaid, or by facsimile delivery, or to such other address as may
be specified from time to time in writing by either party to the other. 
  
 
	 
	 To the Borrower:
 	 	 To the Bank:
 
	 
	 VARIFLEX, INC.
 5152 N. Commerce Ave.
 Moorpark, CA 93021
 Attn:    Petar Katurich
             CFO
 FAX: (805) 523-7384
 	 	 UNITED CALIFORNIA BANK
 Newport Beach Office (CBC)
 4400 MacArthur Boulevard, Suite 150
 Newport Beach, CA 92660
 Attn:    Stephen Popovich
             Vice President
 FAX: (949) 797-1959
 

 
  
 9.8  Waiver:    Neither the failure nor delay by the Bank in exercising any right hereunder or under any document, instrument or agreement mentioned herein shall operate as a waiver
thereof, nor shall any single or partial exercise of any right hereunder or under any other document, instrument or agreement mentioned herein preclude other or further exercise thereof or the exercise of any other right; nor shall any waiver of any
right or default hereunder, or under any other document, instrument or agreement mentioned herein, constitute a waiver of any other right or default or constitute a waiver of any other default of the same or any other term or provision.

  
 9.9  Conflicting Provisions:    To the extent the
provisions contained in this Agreement are inconsistent with those contained in any other document, instrument or agreement executed pursuant hereto, the terms and provisions contained herein shall control. Otherwise, such provisions shall be
considered cumulative. 
  
 9.10  Binding Effect;
Assignment:    This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the Bank. The Bank may sell, assign or grant participation in all or any portion of its rights and benefits hereunder. The Borrower agrees that, in connection with any such sale,
grant or assignment, the Bank may deliver to the prospective buyer, participant or assignee financial statements and other relevant information relating to the Borrower and any guarantor. 
  
 9.11  Jurisdiction:    This Agreement, any notes issued hereunder, the rights of the parties hereunder to and
concerning the Collateral, and any documents, instruments or agreements mentioned or referred to herein shall be governed by and construed according to the laws of the State of California without regard to conflict of law principles, to the
jurisdiction of whose courts the parties hereby submit. 
  
 9.12  Waiver of Jury
Trial:    THE BORROWER AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER
AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, 

 
 20 

 SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 
  
 9.13  Counterparts:    This Agreement may be executed in any number of counterparts
and all such counterparts taken together shall be deemed to constitute one and the same instrument. 
  
 9.14  Headings:    The headings herein set forth are solely for the purpose of identification and have no legal significance. 
  
 9.15  Entire Agreement and Amendments:    This Agreement and all documents, instruments and agreements mentioned herein
constitute the entire and complete understanding of the parties with respect to the transactions contemplated hereunder. All previous conversations, memoranda and writings between the parties pertaining to the transactions contemplated hereunder not
incorporated or referenced in this Agreement or in such documents, instruments and agreements are superseded hereby. This Agreement may be amended only by an instrument in writing signed by the Borrower and the Bank. 
  
 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first hereinabove written. 

 
 
	 BANK:
  
 UNITED CALIFORNIA BANK 
 	 	  	 	 BORROWER:
  
 VARIFLEX, INC.
 
	 
	 By:
 	 	 
	 	  	 	 By:
 	 	 

	 Name
 	 	 Barbara Snyder, Vice President
 	 	  	 	 Name
 	 	 Petar Katurich/CFO
 

 
  
  

 
 21 

  
 EXHIBIT “A” 
  
 SCHEDULE OF ISSUANCE FEES 
  
 Pursuant to
Section 2.1.2 of that certain TRADE FINANCE CREDIT AGREEMENT dated as of March 31, 2002 between UNITED CALIFORNIA BANK (the “Bank”) and VARIFLEX, INC. (“Borrower”) Borrower agrees to pay to Bank in connection with each Letter of
Credit, Documentary Collection, Shipside Bond and Air Release, including Miscellaneous Fees, standard pricing based on the Bank published “International Services – Schedule of Fees and Charges” (Form ID-1) as published from
time to time, with the following pricing “exceptions” as shown below: 
  
 IMPORT LETTERS OF CREDIT 
  
 
	  	  	 Rate
 
	  	 Flat Fee or Minimum
 

	 Issuance Fee
 	  	 1/12th
 	  	 $
 	 90
 
	 Amendment Fee: Increase Amount/Extension
 	  	 1/12th
 	  	 $
 	 70
 
	 Document Examination/Payment Fee
 	  	 N/A
 	  	 $
 	 80
 

 

 
 22 

  
 EXHIBIT “B” 
  
 COVENANT COMPLIANCE CERTIFICATE 
 VARIFLEX, INC. 
  
 FOR THE PERIOD ENDING:
                         
  
 To: UNITED CALIFORNIA BANK, as Lender under that certain Credit Agreement dated as of March 31, 2002 (the “Credit Agreement”) and Amendments, if any, with VARIFLEX, INC.
(“Borrower”). All items used herein and not otherwise defined are used with the same meaning as set forth in the Credit Agreement. Please refer to the above-mentioned Credit Agreement for additional covenants, events of default,
representations and warranties not made a part hereof. The undersigned, the Chief Financial Officer of the Borrower, hereby certifies on behalf of the Borrower that, as of the date of this certificate: 
  
 1.  The financial statements of the Borrower for the          month
period ending                         , 200     delivered to the Lender concurrently herewith have been
prepared and are delivered in accordance with Section 6.1 of the Credit Agreement. 
  
 2.  The Borrower has maintained liquid assets of
$                                 (as defined under Section 1.1.21). Covenant requires
not less than $7,000,000 at all times per Section 6.2 (i). 
  
 3.  The Borrower has an
Effective Tangible Net Worth of $                                 (as defined under
Section 1.1.7). Covenant requires not less than $25,000,000 per Section 6.2 (ii). 
  
 IN WITNESS WHEREOF, the
undersigned has executed and delivered this COVENANT COMPLIANCE CERTIFICATE to the Lender this          day of
                        , 200    . 
  
 
	 
	 VARIFLEX, INC.
 
	 
	 By:
 	 	 

	  	 	 Petar Katurich
 Chief Financial
Officer
 

 

 
 23 

  
 CERTIFIED CORPORATE RESOLUTION TO BORROW 
  
 WHEREAS, VARIFLEX, INC. (the “Corporation”) has made application to UNITED CALIFORNIA BANK (the “Bank”) for credit
accommodations which may consist of but shall in no way be limited to the following: the renewal, continuation or extension of an existing obligation; the extension of a new loan, line of credit or commitment; the issuance of letters of credit or
banker’s acceptances; or the purchase or sale through Bank of foreign currencies. 
  
 RESOLVED, that: any one of
the following officers: PETAR KATURICH, as the CHIEF FINANCIAL OFFICER of the Corporation, or RAYMOND LOSI, II, as the CHIEF EXECUTIVE OFFICER of the Corporation, are authorized, in the name of and on behalf of the Corporation to: 

 
 (a)  Borrow money from the Bank in such amounts and upon such terms and conditions as are agreed upon
by the officers of the Corporation and the Bank; and execute and deliver or endorse such evidences of indebtedness or renewals thereof or agreements therefor as may be required by the Bank, all in such form and content as the officers of the
Corporation executing such documents shall approve (which approval shall be evidenced by the execution and delivery of such documents); provided, however, that the maximum amount of such indebtedness shall not exceed the principal sum of
$9,000,000.00 exclusive of any interest, fees, attorneys’ fees and other costs and expenses related to the indebtedness. 
  
 (b)  Execute such evidences of indebtedness, agreements, security instruments and other documents and to take such other actions as are herein authorized. 
  
 (c)  Sell to or discount or re-discount with the Bank any and all negotiable instruments, contracts or
instruments or evidences of indebtedness at any time held by the Corporation; and endorse, transfer and deliver the same, together with guaranties of payment or repurchase thereof, to the Bank (for which the Bank is hereby authorized and directed to
pay the proceeds of such sale, discount or re-discount as directed by such endorsement without inquiring into the circumstances of its issue or endorsement or the disposition of such proceeds). 
  

(d)  Withdraw, receive and execute receipts for deposits and withdrawals on accounts of the Corporation maintained with the Bank.

  
 (e)  Grant security interests and liens in any real, personal or other property
belonging to or under the control of the Corporation as security for any indebtedness of the Corporation to the Bank; and execute and deliver to the Bank any and all security agreements, pledges, mortgages, deeds of trust and other security
instruments and any other documents to effectuate the grant of such security interests and liens, which security instruments and other documents shall be in such form and content as the officers of the Corporation executing such security instruments
and other documents shall approve and which approval shall be evidenced by the execution and delivery of such security instruments and other documents. 
  
 (f)  Apply for letters of credit or seek the issuance of banker’s acceptances under which the Corporation shall be liable to the Bank for
repayment. 
  
 (g)  Purchase and sell foreign currencies, on behalf of the Corporation,
whether for immediate or future delivery, in such amounts and upon such terms and conditions as the officer(s) authorized herein may deem appropriate, and give any instructions for transfers or deposits of monies by check, drafts, cable, letter or
otherwise for any purpose incidental to the foregoing, and authorize or direct charges to the depository account or accounts of the Corporation for the cost of any foreign currencies so purchased through the Bank. 

 
 24 

  
 (h)  To designate in writing to the Bank in accordance
with the terms of any agreement or other document executed by the above-named individuals one or more individuals who shall have the authority to as provided herein, to: 
  
 (1)  request advances under lines of credit extended by the Bank to the Corporation; 
  
 (2)  apply for letters of credit or seek the issuance of banker’s acceptances under which the Corporation shall be liable to the Bank for
repayment; 
  
 (3)  make deposits and receive and execute receipts for deposits on accounts
of the Corporation maintained with the Bank; 
  
 (4)  make withdrawals and receive and
execute receipts for withdrawals on account of the Corporation maintained with the Bank; 
  
 (5)  purchase and sell foreign currencies. 
  
 (i)  Enter into
derivative transactions, including but not limited to, interest rate swaps, caps, floors, collars, swaptions, and forwards. 
  
 (j)  Transact any other business with the Bank incidental to the powers hereinabove stated. 
  
 RESOLVED FURTHER, that all such evidences of indebtedness, agreements, security instruments and other documents executed in the name of and on behalf of the Corporation and all such actions taken on
behalf of the Corporation in connection with the matters described herein are hereby ratified and approved. 
  
 RESOLVED FURTHER, that the Bank is authorized to act upon these resolutions until written notice of their revocation is delivered to the Bank. 
  
 RESOLVED FURTHER, that any resolution set forth herein is in addition to and does not supersede any resolutions previously given by the Corporation to the Bank. 
  
 RESOLVED FURTHER, that the Secretary of the Corporation be, and hereby is, authorized and directed to prepare, execute and deliver to the
Bank a certified copy of the foregoing resolutions. 
  
 I do hereby certify that I am Mark Siegel, the Secretary of
VARIFLEX, INC., a Delaware corporation, and I do hereby further certify that the foregoing is a true copy of the resolutions of the Board of Directors of the Corporation adopted and approved by unanimous written consent. 
  
 I hereby further certify that such resolutions are presently in full force and effect and have not been amended or revoked. I do further
certify that the following persons have been duly elected and qualified as and, this day are, officers of the Corporation, holding their respective offices appearing below their names, and that the signatures appearing opposite their names are the
genuine signatures of such persons. 
  
 
	 
	 NAME OF OFFICER:  PETAR KATURICH
 	 	 
(SIGNATURE)
 
	 
	 TITLE:  CHIEF FINANCIAL OFFICER
 	 	  
	 
	 NAME OF OFFICER:  RAYMOND LOSI, II
 	 	 
(SIGNATURE)
 
	 
	 TITLE:  CHIEF EXECUTIVE OFFICER
 	 	  

 

 
 25 

  
 IN WITNESS WHEREOF, this document is executed as of March 31, 2002. 

 
 
	  	 	 NAME OF CORPORATION:
 
	 
	  	 	 VARIFLEX, INC.
 
	 
	  	 	 By:
 	 	 

	  	 	  	 	 Mark Siegel
 Secretary
 

 
  

 
 26 

  
 [GRAPHIC REMOVED HERE] 
  
 LOAN DISBURSEMENT INSTRUCTIONS 
  
 Line of
Credit 
  
 Date:  March 31, 2002 
  

The undersigned hereby instructs UNITED CALIFORNIA BANK to disburse the proceeds of this loan as shown below: 
  

	 DISBURSEMENT
 
	  	 AMOUNT
 

	 Credited to the following account:  Any and all Advances shall be deposited into checking account
#                             upon the request of the Borrower
 	  	 $
 	                 
 
	  	  	 
	 

	 TOTAL:
 	  	 $
 	  
 
	  	  	 
	 

 
  
 (Authorizing signatures appear on attached page entitled 
 “AUTHORIZING SIGNATURES FOR LOAN DISBURSEMENT INSTRUCTIONS”) 

 
 27 

  
 AUTHORIZING SIGNATURES FOR LOAN DISBURSEMENT INSTRUCTIONS 
  
 The following signature(s) authorize disbursement of loan proceeds as set forth in the preceding instructions consisting of 1

 page(s). 
  
 
	 
	 BORROWER:
 
	 
	 VARIFLEX, INC.
 
	 
	 By:
 	 	 

	  	 	 Petar Katurich
 CFO
 

 

 
 28<PAGE>

                                                                     EXHIBIT 4.2

                         PARADIGM BANCORPORATION, INC.

                           1999 STOCK INCENTIVE PLAN

                                  I.  PURPOSE

     The purpose of the PARADIGM BANCORPORATION, INC. 1999 STOCK INCENTIVE PLAN
(the "Plan") is to provide a means through which PARADIGM BANCORPORATION, INC.,
a Texas corporation (the "Company") and its subsidiaries, may attract able
persons to enter the employ of the Company and to provide a means whereby those
employees upon whom the responsibilities of the successful administration and
management of the Company rest, and whose present and potential contributions to
the welfare of the Company are of importance, can acquire and maintain stock
ownership, thereby strengthening their concern for the welfare of the Company
and their desire to remain in its employ. A further purpose of the Plan is to
provide employees, directors and other individuals with additional incentive and
reward opportunities designed to enhance the profitable growth of the Company.
Accordingly, the Plan provides for granting Incentive Stock Options,
Nonqualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards,
Performance Awards, Phantom Stock Awards, or any combination of the foregoing,
as is best suited to the circumstances of the particular Holder as provided
herein.

                                 II.  DEFINITIONS

     The following definitions shall be applicable throughout the Plan unless
specifically modified by any paragraph:

     (a) "Affiliates" means any "parent corporation" of the Company and any
"subsidiary" of the Company within the meaning of Code Sections 424(e) and (f),
respectively.

     (b) "Award" means, individually or collectively, any Option, Restricted
Stock Award, Phantom Stock Award, Performance Award or Stock Appreciation Right.

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

     (d) "Change of Control" means the occurrence of any of the following
events: (i) the Company shall not be the surviving entity in any merger,
consolidation or other reorganization (or survives only as a subsidiary of an
entity other than a previously wholly-owned subsidiary of the Company), (ii) the
Company's subsidiary bank is merged or consolidated into, or otherwise acquired
by, an entity other than a wholly-owned subsidiary of the Company; (iii) the
Company sells, leases or exchanges all or substantially all of its assets to any
other person or entity (other than a

<PAGE>

wholly-owned subsidiary of the Company), (iv) the Company is to be dissolved and
liquidated, (v) any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote or control the voting) of more
than 50% of the outstanding shares of the Company's voting stock (based upon
voting power), or (vi) as a result of or in connection with a contested election
of directors, the persons who were directors of the Company before such election
shall cease to constitute a majority of the Board.

     (e) "Change of Control Value" shall mean (i) the per share price offered to
shareholders of the Company in any such merger, consolidation, reorganization,
sale of assets or dissolution transaction, (ii) the price per share offered to
shareholders of the Company in any tender offer or exchange offer whereby a
Change of Control takes place, or (iii) if such Change of Control occurs other
than pursuant to a tender or exchange offer, the Fair Market Value per share of
the shares into which Awards are exercisable, as determined by the Committee,
whichever is applicable. In the event that the consideration offered to
shareholders of the Company consists of anything other than cash, the Committee
shall determine the fair cash equivalent of the portion of the consideration
offered which is other than cash.

     (f) "Code" means the Internal Revenue Code of 1986, as amended. Reference
in the Plan to any section of the Code shall be deemed to include any amendments
or successor provisions to any section and any regulations under such section.

     (g) "Committee" means the Board or a committee appointed by the Board to
administer the Plan. The Board in its capacity as the administrator of the Plan
or any committee appointed by the Board to administer the Plan shall both be
referred to herein as the "Committee".

     (h) "Company" means Paradigm Bancorporation, Inc. and any of its
Affiliates.

     (i) "Director" means an individual elected to the Board by the shareholders
of the Company or by the Board under applicable corporate law who is serving on
the Board on the date the Plan is adopted by the Board or is elected to the
Board after such date.

     (j) An "employee" means any person (including an officer or a Director) in
an employment relationship with the Company or any parent or subsidiary
corporation (as defined in section 424 of the Code).

     (k) "1934 Act" means the Securities Exchange Act of 1934, as amended.

                                       2

<PAGE>

     (l) "Fair Market Value" means, as of any specified date, the mean of the
high and low sales prices of the Stock (i) reported by the any interdealer
quotation system on which the Stock is quoted on that date or (ii) if the Stock
is listed on a national stock exchange, reported on the stock exchange composite
tape on that date; or, in either case, if no prices are reported on that date,
on the last preceding date on which such prices of the Stock are so reported. If
the Stock is traded over the counter at the time a determination of its fair
market value is required to be made hereunder, its fair market value shall be
deemed to be equal to the average between the reported high and low or closing
bid and asked prices of Stock on the most recent date on which Stock was
publicly traded. In the event Stock is not publicly traded at the time a
determination of its value is required to be made hereunder, the determination
of its fair market value shall be made by the Committee in such manner as it
deems appropriate.

     (m) "Holder" means an employee, director or other individual who has been
granted an Award.

     (n) "Incentive Stock Option" means an incentive stock option within the
meaning of section 422(b) of the Code, commonly known as "qualified" stock
options.

     (o) "Nonqualified Stock Option" means an option granted under Paragraph VII
of the Plan to purchase Stock which does not constitute an Incentive Stock
Option.

     (p) "Option" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Stock and Nonqualified Stock
Options to purchase Stock.

     (q) "Option Agreement" means a written agreement between the Company and a
Holder with respect to an Option.

     (r) "Performance Award" means an Award granted under Paragraph X of the
Plan.

     (s) "Performance Award Agreement" means a written agreement between the
Company and a Holder with respect to a Performance Award.

     (t) "Phantom Stock Award" means an Award granted under Paragraph XI of the
Plan.

     (u) "Phantom Stock Award Agreement" means a written agreement between the
Company and a Holder with respect to a Phantom Stock Award.

     (v) "Plan" means the Paradigm Bancorporation, Inc. 1999 Stock Incentive
Plan, as amended from time to time.

                                       3

<PAGE>

     (w) "Restricted Stock Agreement" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.

     (x) "Restricted Stock Award" means an Award granted under Paragraph IX of
the Plan.

     (y) "Spread" means, in the case of a Stock Appreciation Right, an amount
equal to the excess, if any, of the Fair Market Value of a share of Stock on the
date such right is exercised over the exercise price of such Stock Appreciation
Right.

     (z) "Stock" means the common stock, $1.00 par value per share, of the
Company.

     (aa) "Stock Appreciation Right" means an Award granted under Paragraph VIII
of the Plan.

     (bb) "Stock Appreciation Rights Agreement" means a written agreement
between the Company and a Holder with respect to an Award of Stock Appreciation
Rights.

                 III.  EFFECTIVE DATE AND DURATION OF THE PLAN

     The Plan shall be effective upon the date of its adoption by the Board,
provided that the Plan is approved by the shareholders of the Company within
twelve months thereafter. No further Awards may be granted under the Plan after
the expiration of ten years from the date of its adoption by the Board. The Plan
shall remain in effect until all Awards granted under the Plan have been
satisfied or expired.

                              IV.  ADMINISTRATION

     (a) Committee.  The Plan shall be administered by the Committee.

     (b) Powers. Subject to the provisions of the Plan, the Committee shall have
sole authority, in its discretion, to recommend to the Board of Directors of the
Company which employees, directors or other individuals shall receive an Award,
the time or times when such Award shall be made, whether an Incentive Stock
Option, Nonqualified Option or Stock Appreciation Right shall be granted, the
number of shares of Stock which may be issued under each Option, Stock
Appreciation Right or Restricted Stock Award, and the value of each Performance
Award and Phantom Stock Award. In making such recommendations the Committee may
take into account the nature of the services rendered by the respective
employees, directors or other individuals, their present and potential
contributions to the Company's success and such other factors as the

                                       4

<PAGE>

Committee in its discretion shall deem relevant. All final decisions regarding
the granting of Awards shall be made by the Board of Directors of the Company.

     (c) Additional Powers. The Committee shall have such additional powers as
are delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan, the Committee is authorized to construe the Plan and the
respective agreements executed thereunder, to prescribe such rules and
regulations relating to the Plan as it may deem advisable to carry out the Plan,
and to determine the terms, restrictions and provisions of each Award, including
such terms, restrictions and provisions as shall be requisite in the judgment of
the Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in any agreement relating to an Award in the manner
and to the extent it shall deem expedient to carry it into effect. All final
determinations on the matters referred to in this Article IV shall be made by
the Board of Directors of the Company.

               V.  GRANT OF OPTIONS, STOCK APPRECIATION RIGHTS,
                  RESTRICTED STOCK AWARDS, PERFORMANCE AWARDS
             AND PHANTOM STOCK AWARDS; SHARES SUBJECT TO THE PLAN

     (a) Stock Grant and Award Limits. The Committee may from time to time grant
Awards to one or more employees, directors or other individuals determined by it
to be eligible for participation in the Plan in accordance with the provisions
of Paragraph VI. Subject to Paragraph XII, the aggregate number of shares of
Stock that may be issued under the Plan shall not exceed 200,000 shares. Shares
of Stock shall be deemed to have been issued under the Plan only to the extent
actually issued and delivered pursuant to an Award. To the extent that an Award
lapses or the rights of its Holder terminate or the Award is paid in cash, any
shares of Stock subject to such Award shall again be available for the grant of
an Award. To the extent that an Award lapses or the rights of its Holder
terminate, any shares of Stock subject to such Award shall again be available
for the grant of an Award. Separate stock certificates shall be issued by the
Company for those shares acquired pursuant the exercise of an Incentive Stock
Option and for those shares acquired pursuant to the exercise of a Nonqualified
Stock Option.

     (b) Stock Offered. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Stock or Stock previously issued and
outstanding and reacquired by the Company.

                                       5

<PAGE>

                               VI.  ELIGIBILITY

     Awards may be granted to employees of the Company, directors of the Company
or other individuals whose contributions to the welfare of the Company are of
importance. An Award may be granted on more than one occasion to the same
person, and, subject to the limitations set forth in the Plan, such Award may
include an Incentive Stock Option or a Nonqualified Stock Option, a Stock
Appreciation Right, a Restricted Stock Award, a Performance Award, a Phantom
Stock Award or any combination thereof.

                              VII.  STOCK OPTIONS

     (a) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant, provided that an Incentive Stock Option by its
terms shall not be exercisable after the expiration of ten years from the date
of grant.

     (b) Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times as determined by the Committee.

     (c) Special Limitations on Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Stock with respect to which Incentive Stock Options
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be
treated as Nonqualified Stock Options as determined by the Committee. The
Committee shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of an
optionee's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the optionee of such determination
as soon as practicable after such determination. No Incentive Stock Option shall
be granted to an individual if, at the time the Option is granted, such
individual owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of its parent or subsidiary
corporation, within the meaning of section 422(b)(6) of the Code, unless (i) at
the time such Option is granted the option price is at least 110% of the Fair
Market Value of the Stock subject to the Option and (ii) such Option by its
terms is not exercisable after the expiration of five years from the date of
grant.

     (d) Option Agreement. Each Option shall be evidenced by an Option Agreement
in such form and containing such provisions not inconsistent with the provisions
of the Plan as the Committee from time to time shall approve, including, without
limitation, provisions to qualify an Incentive Stock Option under section 422 of
the Code. An Option Agreement may provide for the

                                       6

<PAGE>

payment of the option price, in whole or in part, by the delivery of a number of
shares of Stock (plus cash if necessary) having a Fair Market Value equal to
such option price. Each Option Agreement shall provide that the Option may not
be exercised earlier than six months from the date of grant and shall specify
the effect of termination of employment on the exercisability of the Option.
Moreover, an Option Agreement may provide for a "cashless exercise" of the
Option by establishing procedures whereby the Holder, by a properly-executed
written notice, directs (i) an immediate market sale or margin loan respecting
all or a part of the shares of Stock to which he is entitled upon exercise
pursuant to an extension of credit by the Company to the Holder of the option
price, (ii) the delivery of the shares of Stock from the Company directly to a
brokerage firm and (iii) the delivery of the option price from the sale or
margin loan proceeds from the brokerage firm directly to the Company. Such
Option Agreement may also include, without limitation, provisions relating to
(i) vesting of Options, subject to the provisions hereof accelerating such
vesting on a Change of Control, (ii) tax matters (including provisions (y)
permitting the delivery of additional shares of Stock or the withholding of
shares of Stock from those acquired upon exercise to satisfy federal or state
income tax withholding requirements and (z) dealing with any other applicable
employee wage withholding requirements), and (iii) any other matters not
inconsistent with the terms and provisions of this Plan that the Committee shall
in its sole discretion determine. The terms and conditions of the respective
Option Agreements need not be identical.

     (e) Option Price and Payment. The price at which a share of Stock may be
purchased upon exercise of an Option shall be determined by the Committee, but
(i) such purchase price shall not be less than the Fair Market Value of Stock
subject to an Incentive Stock Option on the date the Incentive Stock Option is
granted and (ii) such purchase price shall be subject to adjustment as provided
in Paragraph XII. The Option or portion thereof may be exercised by delivery of
an irrevocable notice of exercise to the Company. The purchase price of the
Option or portion thereof shall be paid in full in the manner prescribed by the
Committee.

     (f) Shareholder Rights and Privileges. The Holder shall be entitled to all
the privileges and rights of a shareholder only with respect to such shares of
Stock as have been purchased under the Option and for which certificates of
stock have been registered in the Holder's name.

     (g) Options and Rights in Substitution for Stock Options Granted by Other
Corporations. Options and Stock Appreciation Rights may be granted under the
Plan from time to time in substitution for stock options held by individuals
employed by corporations who become employees as a result of a merger or
consolidation of the employing corporation with the Company or any subsidiary,
or the acquisition by the Company or a subsidiary of the assets of the employing
corporation, or the acquisition by the Company or a subsidiary of stock of the
employing corporation with the result that such employing corporation becomes a
subsidiary.

                                       7

<PAGE>

                       VIII.  STOCK APPRECIATION RIGHTS

     (a) Stock Appreciation Rights. A Stock Appreciation Right is the right to
receive an amount equal to the Spread with respect to a share of Stock upon the
exercise of such Stock Appreciation Right. Stock Appreciation Rights may be
granted in connection with the grant of an Option, in which case the Option
Agreement will provide that exercise of Stock Appreciation Rights will result in
the surrender of the right to purchase the shares under the Option as to which
the Stock Appreciation Rights were exercised. Alternatively, Stock Appreciation
Rights may be granted independently of Options in which case each Award of Stock
Appreciation Rights shall be evidenced by a Stock Appreciation Rights Agreement
which shall contain such terms and conditions as may be approved by the
Committee. The Spread with respect to a Stock Appreciation Right may be payable
either in cash, shares of Stock with a Fair Market Value equal to the Spread or
in a combination of cash and shares of Stock. With respect to Stock Appreciation
Rights that are subject to Section 16 of the 1934 Act, however, the Committee
shall, except as provided in Paragraph XII(c), retain sole discretion (i) to
determine the form in which payment of the Stock Appreciation Right will be made
(i.e., cash, securities or any combination thereof) or (ii) to approve an
election by a Holder to receive cash in full or partial settlement of Stock
Appreciation Rights. Each Stock Appreciation Rights Agreement shall provide that
the Stock Appreciation Rights may not be exercised earlier than six months from
the date of grant and shall specify the effect of termination of employment on
the exercisability of the Stock Appreciation Rights.

     (b) Other Terms and Conditions. At the time of such Award, the Committee,
may in its sole discretion, prescribe additional terms, conditions or
restrictions relating to Stock Appreciation Rights, including, but not limited
to rules pertaining to termination of employment (by retirement, disability,
death or otherwise) of a Holder prior to the expiration of such Stock
Appreciation Rights. Such additional terms, conditions or restrictions shall be
set forth in the Stock Appreciation Rights Agreement made in conjunction with
the Award. Such Stock Appreciation Rights Agreements may also include, without
limitation, provisions relating to (i) vesting of Awards, subject to the
provisions hereof accelerating vesting on a Change of Control,(ii) tax matters
(including provisions covering applicable wage withholding requirements), and
(iii) any other matters not inconsistent with the terms and provisions of this
Plan, that the Committee shall in its sole discretion determine. The terms and
conditions of the respective Stock Appreciation Rights Agreements need not be
identical.

     (c) Exercise Price. The exercise price of each Stock Appreciation Right
shall be determined by the Committee, but such exercise price (i) shall not be
less than the Fair Market Value of a share of Stock on the date the Stock
Appreciation Right is granted (or such greater exercise price as may be required
if such Stock Appreciation Right is granted in connection with an Incentive
Stock Option that must have an exercise price equal to 110% of the Fair Market
Value of the Stock on the

                                       8

<PAGE>

date of grant pursuant to Paragraph VII(c)), and (ii) shall be subject to
adjustment as provided in Paragraph XII.

     (d) Exercise Period. The term of each Stock Appreciation Right shall be as
specified by the Committee at the date of grant.

     (e) Limitations on Exercise of Stock Appreciation Right. A Stock
Appreciation Right shall be exercisable in whole or in such installments and at
such times as determined by the Committee.

                         IX.  RESTRICTED STOCK AWARDS

     (a) Forfeiture Restrictions to be Established by the Committee. Shares of
Stock that are the subject of a Restricted Stock Award shall be subject to
restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under certain circumstances (the
"Forfeiture Restrictions"). The Forfeiture Restrictions shall be determined by
the Committee in its sole discretion, and the Committee may provide that the
Forfeiture Restrictions shall lapse upon (i) the attainment of targets
established by the Committee that are based on (1) the price of a share of
Stock, (2) the Company's earnings per share, (3) the Company's revenue, (4) the
revenue of a business unit of the Company designated by the Committee, (5) the
return on shareholders' equity achieved by the Company, or (6) the Company's
pre-tax cash flow from operations, (ii) the Holder's continued employment with
the Company for a specified period of time, or (iii) a combination of any two or
more of the factors listed in clauses (i) and (ii) of this sentence. Each
Restricted Stock Award may have different Forfeiture Restrictions, in the
discretion of the Committee. The Forfeiture Restrictions applicable to a
particular Restricted Stock Award shall not be changed except as permitted by
Paragraph IX(b) or Paragraph XII.

     (b) Other Terms and Conditions. Stock awarded pursuant to a Restricted
Stock Award shall be represented by a stock certificate registered in the name
of the Holder of such Restricted Stock Award. The Holder shall have the right to
receive dividends with respect to Stock subject to a Restricted Stock Award, to
vote Stock subject thereto and to enjoy all other shareholder rights, except
that (i) the Holder shall not be entitled to delivery of the stock certificate
until the Forfeiture Restrictions shall have expired, (ii) the Company shall
retain custody of the Stock until the Forfeiture Restrictions shall have
expired, (iii) the Holder may not sell, transfer, pledge, exchange, hypothecate
or otherwise dispose of the Stock until the Forfeiture Restrictions shall have
expired, and (iv) a breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Agreement, shall cause a forfeiture
of the Restricted Stock Award. At the time of such Award, the Committee may, in
its sole discretion, prescribe additional terms, conditions or restrictions
relating to Restricted Stock Awards, including, but not limited to, rules
pertaining to the termination of

                                       9

<PAGE>

employment (by retirement, disability, death or otherwise) of a Holder prior to
expiration of the Forfeiture Restrictions. Such additional terms, conditions or
restrictions shall be set forth in a Restricted Stock Agreement made in
conjunction with the Award. Such Restricted Stock Agreement may also include,
without limitation, provisions relating to (i) subject to the provisions hereof
accelerating vesting on a Change of Control, vesting of Awards, (ii) tax matters
(including provisions (y) covering any applicable employee wage withholding
requirements and (z) prohibiting an election by the Holder under Section 83(b)
of the Code), and (iii) any other matters not inconsistent with the terms and
provisions of this Plan that the Committee shall in its sole discretion
determine. The terms and conditions of the respective Restricted Stock
Agreements need not be identical.

     (c) Payment for Restricted Stock. The Committee shall determine the amount
and form of any payment for Stock received pursuant to a Restricted Stock Award,
provided that in the absence of such a determination, a Holder shall not be
required to make any payment for Stock received pursuant to a Restricted Stock
Award, except to the extent otherwise required by law.

     (d) Agreements. At the time any Award is made under this Paragraph IX, the
Company and the Holder shall enter into a Restricted Stock Agreement setting
forth each of the matters as the Committee may determine to be appropriate. The
terms and provisions of the respective Restricted Stock Agreements need not be
identical.

                            X.  PERFORMANCE AWARDS

     (a) Performance Period. The Committee shall establish, with respect to and
at the time of each Performance Award, a performance period over which the
performance of the Holder shall be measured.

     (b) Performance Awards. Each Performance Award shall have a maximum value
established by the Committee at the time of such Award.

     (c) Performance Measures. A Performance Award shall be awarded to an
employee, director or other individual contingent upon future performance of the
employee, director or other individual, the Company or any subsidiary, division
or department thereof by or in which is he employed during the performance
period. The Committee shall establish the performance measures applicable to
such performance prior to the beginning of the performance period but subject to
such later revisions as the Committee shall deem appropriate to reflect
significant, unforeseen events or changes.

                                       10

<PAGE>

     (d) Awards Criteria. In determining the value of Performance Awards, the
Committee shall take into account a Holder's responsibility level,
contributions, performance, potential, other Awards and such other
considerations as it deems appropriate.

     (e) Payment. Following the end of the performance period, the Holder of a
Performance Award shall be entitled to receive payment of an amount, not
exceeding the maximum value of the Performance Award, based on the achievement
of the performance measures for such performance period, as determined by the
Committee. Payment of a Performance Award may be made in cash, Stock or a
combination thereof, as determined by the Committee. Payment shall be made in a
lump sum or in installments as prescribed by the Committee. Any payment to be
made in Stock shall be based on the Fair Market Value of the Stock on the
payment date. If a payment of cash is to be made on a deferred basis, the
Committee shall establish whether interest shall be credited, the rate thereof
and any other terms and conditions applicable thereto.

     (f) Termination of Employment. A Performance Award shall terminate if the
Holder does not remain continuously in the employ of the Company at all times
during the applicable performance period, except as may be determined by the
Committee or as may otherwise be provided in the Award at the time granted.

     (g) Agreements. At the time any Award is made under this Paragraph X, the
Company and the Holder shall enter into a Performance Award Agreement setting
forth each of the matters contemplated hereby, and, in addition such matters as
are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.

                           XI.  PHANTOM STOCK AWARDS

     (a) Phantom Stock Awards. Phantom Stock Awards are rights to receive shares
of Stock (or cash in an amount equal to the Fair Market Value thereof), or
rights to receive an amount equal to any appreciation in the Fair Market Value
of Stock (or portion thereof) over a specified period of time, which vest over a
period of time or upon the occurrence of an event (including without limitation
a Change of Control) as established by the Committee, without payment of any
amounts by the Holder thereof (except to the extent otherwise required by law)
or satisfaction of any performance criteria or objectives. Each Phantom Stock
Award shall have a maximum value established by the Committee at the time of
such Award.

     (b) Award Period. The Committee shall establish, with respect to and at the
time of each Phantom Stock Award, a period over which or the event upon which
the Award shall vest with respect to the Holder.

                                       11

<PAGE>

     (c) Awards Criteria. In determining the value of Phantom Stock Awards, the
Committee shall take into account a Holder's responsibility level,
contributions, performance, potential, other Awards and such other
considerations as it deems appropriate.

     (d) Payment. Following the end of the vesting period for a Phantom Stock
Award, the Holder of a Phantom Stock Award shall be entitled to receive payment
of an amount, not exceeding the maximum value of the Phantom Stock Award, based
on the then vested value of the Award. Payment of a Phantom Stock Award may be
made in cash, Stock or a combination thereof as determine by the Committee.
Payment shall be made in a lump sum or in installments as prescribed by the
Committee in its sole discretion. Any payment to be made in Stock shall be based
on the Fair Market Value of the Stock on the payment date. Cash dividend
equivalents may be paid during or after the vesting period with respect to a
Phantom Stock Award, as determined by the Committee. If a payment of cash is to
be made on a deferred basis, the Committee shall establish whether interest
shall be credited, the rate thereof and any other terms and conditions
applicable thereto.

     (e) Termination of Employment. A Phantom Stock Award shall terminate if the
Holder does not remain continuously in the employ of the Company at all times
during the applicable vesting period, except as may be otherwise determined by
the Committee or as set forth in the Award at the time of grant.

     (f) Agreements. At the time any Award is made under this Paragraph XI, the
Company and the Holder shall enter into a Phantom Stock Award Agreement setting
forth each of the matters contemplated hereby and, in addition such matters as
are set forth in Paragraph IX(b) as the Committee may determine to be
appropriate. The terms and provisions of the respective agreements need not be
identical.

                   XII.  RECAPITALIZATION OR REORGANIZATION

     (a) The shares with respect to which Awards may be granted are shares of
Stock as presently constituted, but if, and whenever, prior to the expiration of
an Award theretofore granted, the Company shall effect a subdivision or
consolidation by the Company, the number of shares of Stock with respect to
which such Award may thereafter be exercised or satisfied, as applicable, (i) in
the event of an increase in the number of outstanding shares shall be
proportionately increased, and the purchase price per share shall be
proportionately reduced, and (ii) in the event of a reduction in the number of
outstanding shares shall be proportionately reduced, and the purchase price per
share shall be proportionately increased.

     (b) If the Company recapitalizes or otherwise changes its capital
structure, thereafter upon any exercise or satisfaction, as applicable, of an
Award theretofore granted the Holder shall be

                                       12

<PAGE>

entitled to (or entitled to purchase, if applicable) under such Award, in lieu
of the number of shares of Stock then covered by such Award, the number and
class of shares of stock and securities to which the Holder would have been
entitled pursuant to the terms of the recapitalization if, immediately prior to
such recapitalization, the Holder had been the holder of record of the number of
shares of Stock then covered by such Award.

     (c) In the event of a Change of Control, all outstanding Awards shall
immediately vest and become exercisable or satisfiable, as applicable. The
Committee, in its discretion, may determine that upon the occurrence of a Change
of Control, each Award other than an Option outstanding hereunder shall
terminate within a specified number of days after notice to the Holder, and such
Holder shall receive, with respect to each share of Stock subject to such Award,
cash in an amount equal to the excess, if any, of the Change of Control Value.
Further, in the event of a Change of Control, the Committee, in its discretion
shall act to effect one or more of the following alternatives with respect to
outstanding Options, which may vary among individual Holders and which may vary
among Options held by any individual Holder: (i) determine a limited period of
time on or before a specified date (before or after such Change of Control)
after which specified date all unexercised Options and all rights of Holders
thereunder shall terminate; (ii) require the mandatory surrender to the Company
by selected Holders of some or all of the outstanding Options held by such
Holders (irrespective of whether such Options are then exercisable under the
provisions of the Plan) as of a date, before or after such Change of Control,
specified by the Committee, in which event the Committee shall thereupon cancel
such Options and the Company shall pay to each Holder an amount of cash per
share equal to the excess, if any, of the Change of Control Value of the shares
subject to such Option over the exercise price(s) under such Options for such
shares; (iii) make such adjustments to Options then outstanding as the Committee
deems appropriate to reflect such Change of Control (provided, however, that the
Committee may determine in its sole discretion that no adjustment is necessary
to Options then outstanding); or (iv) provide that thereafter upon any exercise
of an Option theretofore granted the Holder shall be entitled to purchase under
such Option, in lieu of the number of shares of Stock then covered by such
Option the number and class of shares of stock or other securities or property
(including, without limitation, cash) to which the Holder would have been
entitled pursuant to the terms of the agreement of merger, consolidation or sale
of assets and dissolution if, immediately prior to such merger, consolidation or
sale of assets and dissolution the Holder has been the holder of record of the
number of shares of Stock then covered by such Option. The provisions contained
in this paragraph shall be inapplicable to an Award granted within six (6)
months before the occurrence of a Change of Control if the Holder of such Award
is subject to the reporting requirements of Section 16(a) of the 1934 Act. The
provisions contained in this paragraph shall not terminate any rights of the
Holder to further payments pursuant to any other agreement with the Company
following a Change of Control.

                                       13

<PAGE>

     (d) In the event of changes in the outstanding Stock by reason of
recapitalization, reorganizations, mergers, consolidations, combinations,
exchanges or other relevant changes in capitalization occurring after the date
of the grant of any Award and not otherwise provided for by this Paragraph XII,
any outstanding Awards and any agreements evidencing such Awards shall be
subject to adjustment by the Committee at its discretion as to the number and
price of shares of Stock or other consideration subject to such Awards. In the
event of any such change in the outstanding Stock, the aggregate number of
shares available under the Plan may be appropriately adjusted by the Committee,
whose determination shall be conclusive.

     (e) The existence of the Plan and the Awards granted hereunder shall not
affect in any way the right or power of the Board or the shareholders of the
Company to make or authorize any adjustment, recapitalization, reorganization or
other change in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of debt or equity securities ahead of or
affecting Stock or the rights thereof, the dissolution or liquidation of the
Company or any sale, lease, exchange or other disposition of all or any part of
its assets or business or any other corporate act or proceeding.

     (f) Any adjustment provided for in Subparagraphs (a), (b), (c) or (d) above
shall be subject to any required shareholder action.

     (g) Except as hereinbefore expressly provided, the issuance by the Company
of shares of stock of any class or securities convertible into shares of stock
of any class, for cash, property, labor or services, upon direct sale, upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares of obligations of the Company convertible into such shares or other
securities, and in any case whether or not for fair value, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number of
shares of Stock subject to Awards theretofore granted or the purchase price per
share, if applicable.

                 XIII.  AMENDMENT AND TERMINATION OF THE PLAN

     The Board in its discretion may terminate the Plan at any time with respect
to any shares for which Awards have not theretofore been granted. The Board
shall have the right to alter or amend the Plan or any part thereof from time to
time; provided that no change in any Award theretofore granted may be made which
would impair the rights of the Holder without the consent of the Holder (unless
such change is required in order to cause the benefits under the Plan to qualify
as performance-based compensation within the meaning of section 162(m) of the
Code and applicable interpretive authority thereunder), and provided, further,
that the Board may not, without approval of the shareholders, amend the Plan:

                                       14

<PAGE>

     (a) to increase the maximum number of shares which may be issued on
exercise or surrender of an Award, except as provided in Paragraph XII;

     (b)  to change the Option price;

     (c) to change the employees, directors or other individuals eligible to
receive Awards or materially increase the benefits accruing to employees under
the Plan;

     (d) to extend the maximum period during which Awards may be granted under
the Plan;

     (e) to modify materially the requirements as to eligibility for
participation in the Plan; or

     (f) to withdraw the administration of the Plan from the Committee.

                              XIV.  MISCELLANEOUS

     (a) No Right to An Award. Neither the adoption of the Plan by the Company
nor any action of the Board or the Committee shall be deemed to give an
employee, director or any other individual any right to be granted an Award to
purchase Stock, a right to a Stock Appreciation Right, a Restricted Stock Award,
a Performance Award or a Phantom Stock Award or any of the rights hereunder
except as may be evidenced by an Award or by an Option Agreement, Stock
Appreciation Rights Agreement, Restricted Stock Agreement, Performance Award
Agreement or Phantom Stock Award Agreement on behalf of the Company, and then
only to the extent and on the terms and conditions expressly set forth therein.
The Plan shall be unfunded. The Company shall not be required to establish any
special or separate fund or to make any other segregation of funds or assets to
assure the payment of any Award.

     (b) No Employment Rights Conferred. Nothing contained in the Plan shall (i)
confer upon any employee, director or any other individual any right with
respect to continuation of employment with the Company or any subsidiary or (ii)
interfere in any way with the right of the Company or any subsidiary to
terminate his or her employment at any time.

     (c) Compliance With Other Laws; Withholding. The Plan, the grant and
exercise of Awards thereunder, and the obligation of the Company to sell and
deliver shares under such Awards, shall be subject to all applicable federal and
state laws, rules and regulations and to such approvals by any governmental or
regulatory agency as may be required. The Company shall not be obligated to
issue any Stock pursuant to any Award granted under the Plan at any time when
the shares covered by such Award have not been registered under any state and
federal laws, rules or

                                       15

<PAGE>

regulations as the Company or the Committee deems applicable and, in the opinion
of legal counsel for the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance and
sale of such shares. No fractional shares of Stock shall be delivered, nor shall
any cash in lieu of fractional shares be paid. The Company shall have the right
to deduct in connection with all Awards any taxes required by law to be withheld
and to require any payments required to enable it to satisfy its withholding
obligations.

     (d) No Restriction on Corporate Action. Nothing contained in the Plan shall
be construed to prevent the Company or any subsidiary from taking any corporate
action which is deemed by the Company or such subsidiary to be appropriate or in
its best interest, whether or not such action would have an adverse effect on
the Plan or any Award made under the Plan. No employee, director, beneficiary or
other person shall have any claim against the Company or any subsidiary as a
result of any such action.

     (e) Restrictions on Transfer. An Award shall not be transferable otherwise
than by will or the laws of descent and distribution or pursuant to a "qualified
domestic relations order" as defined by the Code or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder, and
shall be exercisable during the Holder's lifetime only by such Holder or the
Holder's guardian or legal representative.

     (f) Section 162(m). If the Plan is subject to 162(m) of the Code, it is
intended that the Plan comply fully with and meet all the requirements of
Section 162(m) of the Code so that Options and Stock Appreciation Rights granted
hereunder and, if determined by the Committee, Restricted Stock Awards, shall
constitute "performance-based" compensation within the meaning of such section.
If any provision of the Plan would disqualify the Plan or would not otherwise
permit the Plan to comply with Section 162(m) as so intended, such provision
shall be construed or deemed amended to conform to the requirements or
provisions of Section 162(m); provided that no such construction or amendment
shall have an adverse effect on the economic value to a Holder of any Award
previously granted hereunder.

     (g) Governing Law. This Plan shall be construed in accordance with the laws
of the State of Texas.

                                       16

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00044-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00044-of-00352.parquet"}]]