Document:

GUARANTY

     

    This
      GUARANTY
      (as
      amended, restated, supplemented, or otherwise modified and in effect from time
      to time, this “Guaranty”)
      is
      made as of this 13th day of November, 2008, jointly and severally, by
NORTH
      TEXAS DRILLING SERVICES, INC.,
      a Texas
      corporation (“North
      Texas”),
      SONTERRA
      OPERATING, INC.,
      a
      Delaware corporation (“Operating”),
      VELOCITY
      ENERGY LIMITED LLC,
      a Texas
      limited liability company (“Limited”),
      VELOCITY
      ENERGY INC., a
      Delaware corporation (“Velocity”),
      VELOCITY
      ENERGY OFFSHORE LP, a
      Delaware limited partnership (“Offshore”),
      VELOCITY
      ENERGY PARTNERS LP,
      a
      Delaware limited partnership (“Onshore”;
      North
      Texas, Operating, Limited, Velocity, Offshore and Onshore, together with each
      other person or entity who becomes a party to this Guaranty by execution of
      a
      joinder in the form of Exhibit
      A
      attached
      hereto, is referred to individually as a “Guarantor”
and
      collectively as the “Guarantors”;
      provided, that the parties hereto agree that, as of the date hereof, North
      Texas, Operating, Limited, Velocity, Offshore and Onshore are the only
      Guarantors) in favor of SUMMERLINE
      ASSET MANAGEMENT, LLC,
      a
      Delaware limited liability company in its capacity as collateral agent (together
      with its successors and assigns in such capacity, the “Collateral
      Agent”)
      for
      the benefit of the entities identified on the Schedule of Buyers attached to
      the
      Purchase Agreement defined below (together with their successors and assigns,
      the “Buyers”).

     

    WITNESSETH:

     

    WHEREAS,
      as of
      the date hereof, Buyers have made loans and certain other financial
      accommodations (collectively, the “Loans”)
      to
SONTERRA
      RESOURCES, INC., a
      Delaware corporation (the “Company”),
      as
      evidenced by those certain senior secured notes of even date herewith in an
      original aggregate principal amount of $8,875,000 (such
      notes, together with any promissory notes or other securities issued in exchange
      or substitution therefor or replacement thereof, and as any of the same may
      be
      amended, supplemented, restated or modified and in effect from time to time,
      the
“Notes”);

     

    WHEREAS,
      the
      Notes are being acquired by Buyers pursuant to a Securities Purchase Agreement
      dated as of even date herewith among the Buyers and the Company (as the same
      may
      be amended, restated, supplemented or otherwise modified from time to time,
      the
“Purchase
      Agreement”);

     

    WHEREAS,
      pursuant to a Pledge Agreement of even date herewith by the Company in favor
      of
      the Collateral Agent, the Company has pledged a lien on and security interest
      in
      all of the issued and outstanding Capital Stock of North Texas, Limited,
      Velocity, Onshore, Offshore and Operating owned by the Company;

     

    WHEREAS,
      pursuant to a Pledge Agreement of even date herewith by Limited in favor of
      the
      Collateral Agent, Limited has pledged a lien on and security interest in all
      of
      the issued and outstanding Capital Stock of Onshore and Offshore owned by
      Limited;

     

    
      
        
        

      

      
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    WHEREAS,
      pursuant to a Security Agreement of even date herewith (as the same may be
      amended, restated, supplemented or otherwise modified and in effect from time
      to
      time, the “Security
      Agreement”)
      by the
“Debtors” (as defined therein) in favor of the Collateral Agent, such Debtors
      have granted the Collateral Agent, for its benefit and the benefit of the
      Buyers, a first priority security interest in, lien upon and pledge of each
      of
      their rights in the Collateral (as defined in the Security Agreement);
      and

     

    WHEREAS,
      the
      Guarantors are direct or indirect subsidiaries of the Company and, as such,
      will
      derive substantial benefit and advantage from the Loans and other financial
      accommodations available to the Company set forth in the Purchase Agreement,
      the
      Notes and the other Transaction Documents, and it will be to each Guarantor’s
      direct interest and economic benefit to assist the Company in procuring said
      Loans and other financial accommodations from Buyers.

     

    NOW,
      THEREFORE,
      for and
      in consideration of the premises and in order to induce Buyers to make the
      Loans, and for other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, each Guarantor hereby jointly
      and
      severally agrees as follows:

     

    1. Definitions:
      Capitalized
      terms used herein without definition and defined in the Purchase Agreement
      are
      used herein as defined therein. In addition, as used herein:

     

    “Bankruptcy
      Code”
shall
      mean
      the
      Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et
      seq.),
      as
      amended and in effect from time to time thereunder.

     

    “Obligations”
      shall
      mean (i) all obligations, liabilities and indebtedness of every nature of the
      Company from time to time owed or owing to the Buyers and Collateral Agent,
      including, without limitation, all obligations, liabilities and indebtedness
      of
      every nature of the Company under the Security Documents, the Purchase
      Agreement, the Notes, the Loans, the Warrants, and the other Transaction
      Documents, including, without limitation, the principal amount of all debts,
      claims and indebtedness, accrued and unpaid interest and all fees, taxes,
      indemnities, costs and expenses, whether primary, secondary, direct, contingent,
      fixed or otherwise, heretofore, now and/or from time to time hereafter owing,
      due or payable, whether before or after the filing of a bankruptcy, insolvency
      or similar proceeding under applicable federal, state, foreign or other law
      and
      whether or not an allowed claim in any such proceeding, and (ii) all
      obligations, liabilities and indebtedness of every nature of any subsequent
      Guarantor from time to time owed or owing to the Buyers and/or Collateral Agent,
      including, without limitation, all obligations, liabilities and indebtedness
      of
      every nature of the Guarantors under or in respect of this Guaranty, the Pledge
      Agreement, the Security Agreement, the Purchase Agreement, the Notes, the Loans,
      the Warrants, the other Security Documents and the other Transaction Documents,
      as the case may be, including, without limitation, the principal amount of
      all
      debts, claims and indebtedness, accrued and unpaid interest and all fees, taxes,
      indemnities, costs and expenses, whether primary, secondary, direct, contingent,
      fixed or otherwise, heretofore, now and/or from time to time hereafter owing,
      due or payable, whether before or after the filing of a bankruptcy, insolvency
      or similar proceeding under applicable federal, state, foreign or other law
      and
      whether or not an allowed claim in any such proceeding.

     

    
      
        
        

      

      
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    2. Guaranty
      of Payment.

     

    (a) Each
      Guarantor, jointly and severally, hereby unconditionally and irrevocably
      guarantees the full and prompt payment and performance to Buyers and Collateral
      Agent, on behalf of itself and in its capacity as agent for the benefit of
      Buyers, when due, upon demand, at maturity or by reason of acceleration or
      otherwise and at all times thereafter, of any and all of the
      Obligations.

     

    (b) Each
      Guarantor acknowledges that valuable consideration supports this Guaranty,
      including, without limitation, the consideration set forth in the recitals
      above, as well as any commitment to lend, extension of credit or other financial
      accommodation, whether heretofore or hereafter made by Buyers to the Company;
      any extension, renewal or replacement of any of the Obligations; any forbearance
      with respect to any of the Obligations or otherwise; any cancellation of an
      existing guaranty; any purchase of any of the Company’s assets by any Buyer or
      Collateral Agent; or any other valuable consideration.

     

    (c) Each
      Guarantor agrees that all payments under this Guaranty shall be made in United
      States currency and in the same manner as provided for the
      Obligations.

     

    (d) Notwithstanding
      any provision of this Guaranty to the contrary, it is intended that this
      Guaranty, and any interests, liens and security interests granted by Guarantors
      as security for this Guaranty, not constitute a “Fraudulent Conveyance” (as
      defined below) in the event that this Guaranty or such interest is subject
      to
      the Bankruptcy Code or any applicable fraudulent conveyance or fraudulent
      transfer law or similar law of any state. Consequently, Guarantors, Collateral
      Agent and Buyers agree that if this Guaranty, or any such interests, liens
      or
      security interests securing this Guaranty, would, but for the application of
      this sentence, constitute a Fraudulent Conveyance, this Guaranty and each such
      lien and security interest shall be valid and enforceable only to the maximum
      extent that would not cause this Guaranty or such interest, lien or security
      interest to constitute a Fraudulent Conveyance, and this Guaranty shall
      automatically be deemed to have been amended accordingly at all relevant times.
      For purposes hereof, “Fraudulent
      Conveyance”
means
      a
      fraudulent conveyance under Section 548 of the Bankruptcy Code or a fraudulent
      conveyance or fraudulent transfer under the provisions of any applicable
      fraudulent conveyance or fraudulent transfer law or similar law of any state,
      as
      in effect from time to time.

     

    3. Costs
      and Expenses. Each
      Guarantor, jointly and severally, agrees to pay on demand, all costs and
      expenses of every kind incurred by any Buyer or Collateral Agent: (a) in
      enforcing this Guaranty, (b) in collecting any of the Obligations from the
      Company or any Guarantor, (c) in realizing upon or protecting or preserving
      any
      collateral for this Guaranty or for payment of any of the Obligations, and
      (d)
      in connection with any amendment of, modification to, waiver or forbearance
      granted under, or enforcement or administration of any Transaction Document
      or
      for any other purpose in connection with any Transaction Document, in each
      case,
      to the extent Buyer or Collateral Agent may take such action pursuant to the
      terms and conditions of this Agreement. “Costs
      and expenses”
as
      used
      in the preceding sentence shall include, without limitation, reasonable
      attorneys’ fees incurred by any Buyer or Collateral Agent in retaining legal
      counsel for advice, suit, appeal, any insolvency or other proceedings under
      the
      Bankruptcy Code or otherwise, or for any purpose specified in the preceding
      sentence.

     

    
      
        
        

      

      
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    4. Nature
      of Guaranty: Continuing, Absolute and Unconditional.

     

    (a) This
      Guaranty is and is intended to be a continuing guaranty of payment of the
      Obligations, and not of collectibility, and is intended to be independent of
      and
      in addition to any other guaranty, endorsement, collateral or other agreement
      held by Buyers or Collateral Agent therefor or with respect thereto, whether
      or
      not furnished by a Guarantor. None of Buyers and Collateral Agent shall be
      required to prosecute collection, enforcement or other remedies against Company,
      any other Guarantor or guarantor of the Obligations or any other person or
      entity, or to enforce or resort to any of the Collateral or other rights or
      remedies pertaining thereto, before calling on a Guarantor for payment. The
      obligations of each Guarantor to repay the Obligations hereunder shall be
      unconditional. Guarantor shall have no right to exercise any right of
      subrogation, reimbursement, indemnity, exoneration, contribution or any other
      claim which it may now or hereafter have against the Company in connection
      with
      this Guaranty until the termination of this Guaranty in accordance with
Section
      8
      below,
      and hereby waives any benefit of, and any right to participate in, any security
      or collateral given to Buyers to secure payment of the Obligations, and each
      Guarantor agrees that it will not take any action to enforce any obligations
      of
      the Company to such Guarantor prior to the Obligations being finally paid in
      full in cash, provided
      that, in
      the event of the bankruptcy or insolvency of the Company, to the extent the
      Obligations have not been finally paid in full in cash, Collateral Agent, for
      the benefit of itself and Buyers, and Buyers shall be entitled notwithstanding
      the foregoing, to file in the name of any Guarantor or in its own name a claim
      for any and all indebtedness owing to a Guarantor by the Company (exclusive
      of
      this Guaranty), vote such claim and to apply the proceeds of any such claim
      to
      the Obligations.

     

    (b) For
      the
      further security of Buyers and without in any way diminishing the liability
      of
      the Guarantors, following the occurrence of an Event of Default, all debts
      and
      liabilities, present or future of the Company to the Guarantors and all monies
      received from the Company or for its account by the Guarantors in respect
      thereof shall be received in trust for Buyers and Collateral Agent and promptly
      following receipt shall be paid over to Collateral Agent, for its benefit and
      in
      its capacity as collateral agent for the benefit of Buyers, until all of the
      Obligations have been paid in full in cash.

     

    (c) This
      Guaranty shall not be changed or affected by any representation, oral agreement,
      act or thing whatsoever, except as herein provided. This Guaranty is intended
      by
      the Guarantors to be the final, complete and exclusive expression of the
      guaranty agreement between the Guarantors and Buyers. No modification or
      amendment of any provision of this Guaranty shall be effective against any
      party
      hereto unless in writing and signed by a duly authorized officer of such party.
      This Agreement, together with the other Transaction Documents, supersedes all
      other prior oral or written agreements between each Buyer, the Guarantors,
      the
      Collateral Agent, the Subsidiaries, their Affiliates and Persons acting on
      their
      behalf with respect to the matters discussed herein, and this Agreement,
      together with the other Transaction Documents and the other instruments
      referenced herein and therein, contain the entire understanding of the parties
      with respect to the matters covered herein and therein and, except as
      specifically set forth herein or therein, neither any Guarantor, the Collateral
      Agent nor any Buyer makes any representation, warranty, covenant or undertaking
      with respect to such matters. As of the date of this Agreement, there are no
      unwritten agreement between the parties with respect to the matters discussed
      herein. No provision of this Agreement may be amended, modified or supplemented
      other than by an instrument in writing signed by the parties
      hereto.

     

    
      
        
        

      

      
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    (d) Each
      Guarantor hereby releases the Company from all, and agrees not to assert or
      enforce (whether by or in a legal or equitable proceeding or otherwise) any
      “claims” (as defined in Section 101(5) of the Bankruptcy Code), whether arising
      under any law, ordinance, rule, regulation, order, policy or other requirement
      of any domestic or foreign government or any instrumentality or agency thereof,
      having jurisdiction over the conduct of its business or assets or otherwise,
      to
      which the Guarantors are or would at any time be entitled by virtue of its
      obligations hereunder, any payment made pursuant hereto or the exercise by
      any
      Buyer or Collateral Agent of its rights with respect to the Collateral,
      including any such claims to which such Guarantors may be entitled as a result
      of any right of subrogation, exoneration or reimbursement.

     

    5. Certain
      Rights and Obligations.

     

    (a) Each
      Guarantor acknowledges and agrees that Buyers and Collateral Agent, for its
      benefit and as collateral agent for the benefit of Buyers, may, without notice,
      demand or any reservation of rights against such Guarantor and without affecting
      such Guarantor’s obligations hereunder, from time to time:

     

    (i) renew,
      extend, increase, accelerate or otherwise change the time for payment of, the
      terms of or the interest on the Obligations or any part thereof or grant other
      indulgences to the Company or others;

     

    (ii) accept
      from any person or entity and hold collateral for the payment of the Obligations
      or any part thereof, and modify, exchange, enforce or refrain from enforcing,
      or
      release, compromise, settle, waive, subordinate or surrender, with or without
      consideration, such collateral or any part thereof;

     

    (iii) accept
      and hold any endorsement or guaranty of payment of the Obligations or any part
      thereof, and discharge, release or substitute any such obligation of any such
      endorser or guarantor, or discharge, release or compromise any Guarantor, or
      any
      other person or entity who has given any security interest in any collateral
      as
      security for the payment of the Obligations or any part thereof, or any other
      person or entity in any way obligated to pay the Obligations or any part
      thereof, and enforce or refrain from enforcing, or compromise or modify, the
      terms of any obligation of any such endorser, guarantor, or person or
      entity;

     

    (iv) dispose
      of any and all collateral securing the Obligations in any commercially
      reasonable manner (to the extent required under applicable law) as the
      Collateral Agent, in its reasonable discretion, may consider appropriate, and
      direct the order or manner of such disposition and the enforcement of any and
      all endorsements and guaranties relating to the Obligations or any part thereof
      as Collateral Agent in its sole discretion may determine;

     

    (v) subject
      to the terms of the Notes, determine the manner, amount and time of application
      of payments and credits, if any, to be made on all or any part of any component
      or components of the Obligations (whether principal, interest, fees, costs,
      and
      expenses, or otherwise), including, without limitation, the application of
      payments received from any source to the payment of indebtedness other than
      the
      Obligations even though Buyers might lawfully have elected to apply such
      payments to the Obligations or to amounts which are not covered by this
      Guaranty; and

     

    
      
        
        

      

      
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    (vi) take
      advantage or refrain from taking advantage of any security or accept or make
      or
      refrain from accepting or making any compositions or arrangements when and
      in
      such manner as Collateral Agent, in its sole discretion, may deem
      appropriate;

     

    and
      generally do or refrain from doing any act or thing which might otherwise,
      at
      law or in equity, release the liability of such Guarantor as a guarantor or
      surety in whole or in part, and in no case shall Buyers or Collateral Agent
      be
      responsible or shall any Guarantor be released either in whole or in part for
      any act or omission in connection with Buyers or Collateral Agent having sold
      any security at less than its value; provided any such sale was conducted in
      a
      commercially reasonable manner (to the extent required under applicable
      law).

     

    (b) Following
      the occurrence and during the continuance of an Event of Default, and upon
      demand by Collateral Agent, each Guarantor, jointly and severally, hereby agrees
      to pay the Obligations to the extent hereinafter provided and to the extent
      unpaid:

     

    (i) without
      deduction by reason of any setoff, defense (other than payment) or counterclaim
      of the Company or any other Guarantor;

     

    (ii) without
      requiring presentment, protest or notice of nonpayment or notice of default
      to
      any Guarantor, to the Company or to any other person or entity;

     

    (iii) without
      demand for payment or proof of such demand or filing of claims with a court
      in
      the event of receivership, bankruptcy or reorganization of the Company or any
      other Guarantor;

     

    (iv) without
      requiring Buyers or Collateral Agent to resort first to the Company (this being
      a guaranty of payment and not of collection), to any other Guarantor, or to
      any
      other guaranty or any collateral which Buyers or Collateral Agent may
      hold;

     

    (v) without
      requiring notice of acceptance hereof or assent hereto by any Buyer or
      Collateral Agent; and

     

    (vi) without
      requiring notice that any of the Obligations has been incurred, extended or
      continued or of the reliance by any Buyer or Collateral Agent upon this
      Guaranty;

     

    all
      of
      which each Guarantor hereby waives.

     

    (c) Each
      Guarantor’s obligation hereunder shall not be affected by any of the following,
      all of which such Guarantor hereby waives:

     

    (i) any
      failure to perfect or continue the perfection of any security interest in or
      other lien on any collateral securing payment of any of the Obligations or
      any
      Guarantor’s obligation hereunder;

     

    
      
        
        

      

      
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    (ii) the
      invalidity, unenforceability, propriety of manner of enforcement of, or loss
      or
      change in priority of any document or any such security interest or other lien
      or guaranty of the Obligations;

     

    (iii) any
      failure to protect, preserve or insure any such collateral;

     

    (iv) failure
      of a Guarantor to receive notice of any intended disposition of such
      collateral;

     

    (v) any
      defense arising by reason of the cessation from any cause whatsoever of
      liability of the Company including, without limitation, any failure, negligence
      or omission by any Buyer or Collateral Agent in enforcing its claims against
      the
      Company;

     

    (vi) any
      release, settlement or compromise of any obligation of the Company, any other
      Guarantor or any other guarantor of the Obligations;

     

    (vii) the
      invalidity or unenforceability of any of the Obligations;

     

    (viii) any
      change of ownership of the Company, any other Guarantor or any other guarantor
      of the Obligations or the insolvency, bankruptcy or any other change in the
      legal status of the Company, any other Guarantor or any other guarantor of
      the
      Obligations;

     

    (ix) any
      change in, or the imposition of, any law, decree, regulation or other
      governmental act which does or might impair, delay or in any way affect the
      validity, enforceability or the payment when due of the
      Obligations;

     

    (x) the
      existence of any claim, setoff or other rights which the Guarantor, Company,
      any
      other Guarantor or guarantor of the Obligations or any other person or entity
      may have at any time against any Buyer, Collateral Agent or the Company in
      connection herewith or any unrelated transaction;

     

    (xi) any
      Buyer’s or Collateral Agent’s election in any case instituted under chapter 11
      of the Bankruptcy Code, of the application of section 1111(b)(2) of the
      Bankruptcy Code;

     

    (xii) any
      use
      of cash collateral, or grant of a security interest by the Company, as debtor
      in
      possession, under sections 363 or 364 of the Bankruptcy Code;

     

    (xiii) the
      disallowance of all or any portion of any of any Buyer’s or Collateral Agent’s
      claims for repayment of the Obligations under sections 502 or 506 of the
      Bankruptcy Code;

     

    (xiv) any
      stay
      or extension of time for payment by the Company or any other Guarantor resulting
      from any proceeding under the Bankruptcy Code or any similar law; or

     

    (xv) any
      other
      fact or circumstance which might otherwise constitute grounds at law or equity
      for the discharge or release of a Guarantor from its obligations hereunder,
      all
      whether or not such Guarantor shall have had notice or knowledge of any act
      or
      omission referred to in the foregoing clauses (i) through (xiv) of this
Section
      5(c).

     

    
      
        
        

      

      
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    6. Representations
      and Warranties. Each
      Guarantor further represents and warrants to Buyers and Collateral Agent that:
      (a) such Guarantor is a corporation or other entity duly incorporated or
      organized, as applicable, validly existing and in good standing under the laws
      of the jurisdiction of its incorporation or formation, as applicable, and has
      full power, authority and legal right to own its property and assets and to
      transact the business in which it is presently engaged; (b) such Guarantor
      has
      full power, authority and legal right to execute and deliver, and to perform
      its
      obligations under, this Guaranty, and has taken all necessary action to
      authorize the guarantee hereunder on the terms and conditions of this Guaranty
      and to authorize the execution, delivery and performance of this Guaranty;
      (c)
      this Guaranty has been duly executed and delivered by such Guarantor and
      constitutes a legal, valid and binding obligation of such Guarantor enforceable
      against such Guarantor in accordance with its terms, except to the extent that
      such enforceability is subject to applicable bankruptcy, insolvency,
      reorganization, fraudulent conveyance and moratorium laws and other laws of
      general application affecting enforcement of creditors’ rights generally, or the
      availability of equitable remedies, which are subject to the discretion of
      the
      court before which an action may be brought; and (d) the execution, delivery
      and
      performance by each Guarantor of this Guaranty do not require any action by
      or
      in respect of, or filing with, any governmental body, agency or official and
      do
      not violate, conflict with or cause a breach or a default under any provision
      of
      (i) applicable law or regulation, (ii) the organizational documents of any
      Guarantor, (iii) any judgment, injunction, order, decree or other instrument
      binding upon it, or (iv) any agreement binding upon it, to the extent, solely
      with respect to this clause (iv), such violation could not reasonably be
      expected to have a Material Adverse Effect.

     

    7. Negative
      Covenants. Each
      Guarantor covenants with Buyers and Collateral Agent that such Guarantor shall
      not grant any security interest in or permit any lien, claim or encumbrance
      upon
      any of its assets in favor of any person or entity other than liens and security
      interests in favor of Buyers and Collateral Agent and Permitted Liens.

     

    8. Termination. This
      Guaranty shall not terminate until such
      time, if any, as (i) all Indebtedness under the Notes secured hereby shall
      be
      finally paid in full in cash, (ii) no Notes shall remain outstanding, (iii)
      all
      commitments to lend under the Purchase Agreement shall have terminated and
      (iv)
      there shall exist no other outstanding payment or reimbursement obligations
      (other than contingent indemnification obligations for which no claims shall
      have been asserted) of the Borrower or the Guarantors to the Collateral Agent
      under any of the Transaction Documents. Thereafter, but subject to the
      following, Collateral Agent, on its behalf and as agent for Buyers, shall take
      such action and execute such documents as the Guarantors may request (and at
      the
      Guarantors’ cost and expense) in order to evidence the termination of this
      Guaranty. Each Guarantor further agrees that, to the extent that the Company
      makes a payment or payments to Buyers or Collateral Agent on the Obligations,
      or
      Buyers or Collateral Agent receive any proceeds of collateral securing the
      Obligations or any other payments with respect to the Obligations, which payment
      or receipt of proceeds or any part thereof is subsequently invalidated, declared
      to be fraudulent or preferential, set aside or required to be returned or repaid
      to the Company, its estate, trustee, receiver, debtor in possession or any
      other
      person or entity, including, without limitation, the Guarantors, under any
      insolvency or bankruptcy law, state or federal law, common law or equitable
      cause, then to the extent of such payment, return or repayment, the obligation
      or part thereof which has been paid, reduced or satisfied by such amount shall
      be reinstated and continued in full force and effect as of the date when such
      initial payment, reduction or satisfaction occurred, and this Guaranty shall
      continue in full force notwithstanding any contrary action which may have been
      taken by any Buyer or Collateral Agent in reliance upon such payment, and any
      such contrary action so taken shall be without prejudice to any Buyer’s or
      Collateral Agent’s rights under this Guaranty and shall be deemed to have been
      conditioned upon such payment having become final.

     

    
      
        
        

      

      
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    9. Guaranty
      of Performance. Each
      Guarantor also guarantees the full, prompt and unconditional performance of
      all
      obligations and agreements of every kind owed or hereafter to be owed by the
      Company to Buyers and Collateral Agent under the Purchase Agreement,
      Registration Rights Agreement, the Warrants, Security Documents and the Notes.
      Every provision for the benefit of Buyers and Collateral Agent contained in
      this
      Guaranty shall apply to the guaranty of performance given in this
      paragraph.

     

    10. Assumption
      of Liens and Obligations.
      To the
      extent that a Guarantor has received or shall hereafter receive distributions
      or
      transfers from the Company of property or cash that are subject, at the time
      of
      such contribution, to liens and security interests in favor of Buyers and/or
      the
      Collateral Agent in accordance with the Notes, the Security Agreement or any
      other Security Document, such Guarantor hereby expressly agrees that (i) it
      shall hold such assets subject to such liens and security interests, and (ii)
      it
      shall be liable for the payment of the Obligations secured thereby. Each
      Guarantor’s obligations under this Section
      10
      shall be
      in addition to its obligations as set forth in other sections of this Guaranty
      and not in substitution therefor or in lieu thereof.

     

    11. Miscellaneous.

     

    (a) The
      terms
“Company” and “Guarantor” as used in this Guaranty shall include: (i) any
      successor individual or individuals, association, partnership, limited liability
      company or corporation to which all or substantially all of the business or
      assets of the Company or such Guarantor shall have been transferred and (ii)
      any
      other association, partnership, limited liability company, corporation or entity
      into or with which the Company or such Guarantor shall have been merged,
      consolidated, reorganized, or absorbed.

     

    (b) Without
      limiting any other right of any Buyer or Collateral Agent, whenever any Buyer
      or
      Collateral Agent has the right to declare any of the Obligations to be
      immediately due and payable (whether or not it has been so declared), Collateral
      Agent, on its behalf and in its capacity as agent for the benefit of Buyers,
      at
      its sole election without notice to the undersigned may appropriate and set
      off
      against the Obligations:

     

    (i) any
      and
      all indebtedness or other moneys due or to become due to any Guarantor by any
      Buyer or Collateral Agent in any capacity; and

     

    (ii) any
      credits or other property belonging to any Guarantor (including all account
      balances, whether provisional or final and whether or not collected or
      available) at any time held by or coming into the possession of any Buyer or
      Collateral Agent, or any affiliate of any Buyer or Collateral Agent, whether
      for
      deposit or otherwise;

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    whether
      or not the Obligations or the obligation to pay such moneys owed by any Buyer
      or
      Collateral Agent is then due, and the applicable Buyer or Collateral Agent
      shall
      be deemed to have exercised such right of set off immediately at the time of
      such election even though any charge therefor is made or entered on such Buyer’s
      or Collateral Agent’s records subsequent thereto. Collateral Agent agrees to
      notify such Guarantor in a reasonably practicable time of any such set-off;
      however, failure to so notify such Guarantor shall not affect the validity
      of
      any set-off.

     

    (c) No
      course
      of dealing between the Company or any Guarantor and Buyers or Collateral Agent
      and no act, delay or omission by Buyers or Collateral Agent in exercising any
      right or remedy hereunder or with respect to any of the Obligations shall
      operate as a waiver thereof or of any other right or remedy, and no single
      or
      partial exercise thereof shall preclude any other or further exercise thereof
      or
      the exercise of any other right or remedy. Any Buyer or Collateral Agent may
      remedy any default by the Company under any agreement with the Company or with
      respect to any of the Obligations in any reasonable manner without waiving
      the
      default remedied and without waiving any other prior or subsequent default
      by
      the Company. All rights and remedies of Buyers and Collateral Agent hereunder
      are cumulative.

     

    (d) This
      Guaranty shall inure to the benefit of the parties hereto and their respective
      successors and assigns.

     

    (e) Collateral
      Agent may assign its rights hereunder without the consent of Guarantors, in
      which event such assignee shall be deemed to be Collateral Agent hereunder
      with
      respect to such assigned rights; provided such assignment shall not relieve
      the
      Collateral Agent of any liability it may have to the Guarantor.

     

    (f) Captions
      of the sections of this Guaranty are solely for the convenience of the parties
      hereto, and are not an aid in the interpretation of this Guaranty and do not
      constitute part of the agreement of the parties set forth herein.

     

    (g) If
      any
      provision of this Guaranty is unenforceable in whole or in part for any reason,
      the remaining provisions shall continue to be effective.

     

    (h) All
      questions concerning the construction, validity, enforcement and interpretation
      of this Guaranty shall be governed by the internal laws of the State of New
      York, without giving effect to any choice of law or conflict of law provision
      or
      rule (whether of the State of New York or any other jurisdiction) that would
      cause the application of the laws of any jurisdiction other than the State
      of
      New York. Each Guarantor hereby irrevocably submits to the exclusive
      jurisdiction of the state and federal courts sitting in the City of New York,
      borough of Manhattan, for the adjudication of any dispute hereunder or in
      connection herewith or with any transaction contemplated hereby or discussed
      herein, and hereby irrevocably waives, and agrees not to assert in any suit,
      action or proceeding, any claim that it is not personally subject to the
      jurisdiction of any such court, that such suit, action or proceeding is brought
      in an inconvenient forum or that the venue of such suit, action or proceeding
      is
      improper. Each Guarantor hereby irrevocably waives personal service of process
      and consents to process being served in any such suit, action or proceeding
      by
      mailing a copy thereof to such party at the address for such notices to it
      under
      this Agreement and agrees that such service shall constitute good and sufficient
      service of process and notice thereof. Nothing contained herein shall be deemed
      to limit in any way any right to serve process in any manner permitted by law.
      The parties hereto acknowledge that each of the Buyers has executed each of
      the
      Transaction Documents to be executed by it in the State of New York.

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    (i) Notices.
      All
      notices, approvals, requests, demands and other communications hereunder shall
      be delivered or made in the manner set forth in, and shall be effective in
      accordance with the terms of, the Purchase Agreement or, in the case of
      communications to the Collateral Agent, directed to the notice address set
      forth
      in the Security Agreement; provided, that any communication shall be effective
      as to any Guarantor if made or sent to the Company in accordance with the
      foregoing.

     

    12. WAIVERS.

     

    (a) EACH
      GUARANTOR WAIVES THE BENEFIT OF ALL VALUATION, APPRAISAL AND EXEMPTION
      LAWS.

     

    (b) UPON
      THE OCCURRENCE OF A DEFAULT OR EVENT OF DEFAULT, EACH GUARANTOR HEREBY WAIVES
      ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE BY ANY BUYER
      OR COLLATERAL AGENT, ON ITS BEHALF AND IN ITS CAPACITY AS AGENT FOR THE BENEFIT
      OF BUYERS, OF ITS RIGHTS TO REPOSSESS THE COLLATERAL WITHOUT JUDICIAL PROCESS
      OR
      TO REPLEVY, ATTACH OR LEVY UPON THE COLLATERAL WITHOUT PRIOR NOTICE OR HEARING.
      EACH GUARANTOR ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE
      WITH RESPECT TO THIS TRANSACTION AND THIS GUARANTY.

     

    (c) EACH
      GUARANTOR WAIVES ITS RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
      BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY, OR THE TRANSACTIONS
      CONTEMPLATED HEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE
      BROUGHT BY ANY BUYER OR COLLATERAL AGENT. EACH GUARANTOR AGREES THAT ANY SUCH
      CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
      LIMITING THE FOREGOING, EACH GUARANTOR FURTHER AGREES THAT ITS 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 GUARANTY OR ANY PROVISION HEREOF. THIS WAIVER SHALL
      APPLY
      TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
      GUARANTY.

     

    13. Collateral
      Agent.
      The
      terms and provisions of Section 5.11 of the Security Agreement which set forth
      the appointment of the Collateral Agent and the indemnifications to which the
      Collateral Agent is entitled are hereby incorporated by reference herein as
      if
      fully set forth therein.

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    14. Payments
      Free of Taxes.

     

    (a) Definitions.
      In this
Section
      14:

     

    (i) “Excluded
      Taxes”
means,
      with respect to the Collateral Agent or the Buyers, or any other recipient
      of
      any payment to be made by or on account of any obligations of any Guarantor
      under this Guaranty, or under any other Security Document, income or franchise
      taxes imposed on (or measured by) its net income by the United States of America
      or such other jurisdiction under the laws of which such recipient is organized
      or in which its principal office is located.

     

    (ii) “Governmental
      Authority”
means
      the government of the United States of America or any other nation, or any
      political subdivision thereof, whether state or local, or any agency, authority,
      instrumentality, regulatory body, court, central bank or other entity exercising
      executive, legislative, judicial, taxing, regulatory or administrative powers
      or
      functions of or pertaining to government over the Company or any of its
      Subsidiaries, or any of their respective properties, assets or
      undertakings.

     

    (iii) “Indemnified
      Taxes”
means
      Taxes other than Excluded Taxes.

     

    (iv) “Taxes”
means
      any and all present or future taxes, levies, imposts, duties, deductions,
      charges or withholdings imposed by any Governmental Authority.

     

    (b) Any
      and
      all payments by or on account of any obligation of any of the Guarantors under
      this Guaranty or any other Security Document shall be made without any set-off,
      counterclaim or deduction and free and clear of and without deduction for any
      Indemnified Taxes; provided that if any Guarantor shall be required to deduct
      any Indemnified Taxes from such payments, then (i) the sum payable shall be
      increased as necessary so that after making all required deductions (including
      deductions applicable to additional sums payable under this Section
      14(b)),
      the
      Collateral Agent or Buyers, as applicable, receives an amount equal to the
      sum
      it would have received had no such deductions been made, (ii) such Guarantor
      shall make such deductions and (iii) such Guarantor shall pay the full amount
      deducted to the relevant Governmental Authority in accordance with applicable
      law.

     

    (c) Indemnification
      by the Guarantors.
      Each
      Guarantor shall indemnify the Collateral Agent and the Buyers, within ten (10)
      days after written demand therefor, for the full amount of any Indemnified
      Taxes
      paid by the Collateral Agent or Buyers, as applicable, on or with respect to
      any
      payment by or on account of any obligation of such Guarantor under this Guaranty
      and the other Security Documents (including Indemnified Taxes or imposed or
      asserted on or attributable to amounts payable under this Section
      14)
      and any
      penalties, interest and reasonable expenses arising therefrom or with respect
      thereto, whether or not such Indemnified Taxes were correctly or legally imposed
      or asserted by the relevant Governmental Authority. A certificate of the
      Collateral Agent or any Buyer as to the amount of such payment or liability
      under this Section
      14
      shall be
      delivered to such Guarantor and shall be conclusive absent manifest
      error.

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    15. Counterparts;
      Headings.
      This
      Guaranty may be executed in two or more identical counterparts, all of which
      together shall be considered one and the same agreement and shall become
      effective when counterparts have been signed by each party and delivered to
      each
      other party; provided that a facsimile, .pdf or similar electronically
      transmitted signature shall be considered due execution and shall be binding
      upon the signatory thereto with the same force and effect as if the signature
      were an original signature. The headings in this Guaranty are for convenience
      of
      reference only and shall not alter or otherwise affect the meaning
      hereof.

     

    16. Rights
      of Contribution.
      The
      Guarantors hereby agree as among themselves that, if any Guarantor shall make
      an
      Excess Payment (as defined below), such Guarantor shall have a right of
      contribution from each other Guarantor in an amount equal to such other
      Guarantor’s Contribution Share (as defined below) of such Excess Payment. The
      payment obligations of any Guarantor under this Section
      16
      shall be
      subordinate and subject in right of payment to the Obligations until such time
      as the Obligations have been paid in full in cash and all commitments to lend
      under the Purchase Agreement have expired or terminated, and none of the
      Guarantors shall exercise any right or remedy under this Section
      16
      against
      any other Guarantor until such Obligations have been paid in full in cash and
      all commitments to lend under the Purchase Agreement have expired or terminated.
      For purposes of this Section
      16,
      (a)
“Excess
      Payment”
shall
      mean the amount paid by any Guarantor in excess of its Ratable Share of any
      Obligations; (b) “Ratable
      Share”
shall
      mean, for any Guarantor in respect of any payment of Obligations, the ratio
      (expressed as a percentage) as of the date of such payment of Obligations of
      (i)
      the amount by which the aggregate present fair salable value of all of its
      assets and properties exceeds the amount of all debts and liabilities of such
      Guarantor (including contingent, subordinated, unmatured, and unliquidated
      liabilities, but excluding the obligations of such Guarantor hereunder) to
      (ii)
      the amount by which the aggregate present fair salable value of all assets
      and
      other properties of Company and Guarantors exceeds the amount of all of the
      debts and liabilities (including contingent, subordinated, unmatured, and
      unliquidated liabilities, but excluding the obligations of the Guarantors
      hereunder) of the Company and Guarantors, provided, however, that, for purposes
      of calculating the Ratable Shares of the Guarantors in respect of any payment
      of
      Obligations, any Guarantor that became a Guarantor subsequent to the date of
      any
      such payment shall be deemed to have been a Guarantor on the date of such
      payment and the financial information for such Guarantor as of the date such
      Guarantor became a Guarantor shall be utilized for such Guarantor in connection
      with such payment; and (c) “Contribution
      Share”
shall
      mean, for any Guarantor in respect of any Excess Payment made by any other
      Guarantor, the ratio (expressed as a percentage) as of the date of such Excess
      Payment of (i) the amount by which the aggregate present fair salable value
      of
      all of its assets and properties exceeds the amount of all debts and liabilities
      of such Guarantor (including contingent, subordinated, unmatured, and
      unliquidated liabilities, but excluding the obligations of the Loan Parties)
      of
      Company and Guarantors other than the maker of such Excess Payment; provided,
      however, that, for purposes of calculating the Contribution Shares of the
      Guarantors in respect of any Excess Payment, any Guarantor that became a
      Guarantor subsequent to the date of any such Excess Payment shall be deemed
      to
      have been a Guarantor on the date of such Excess Payment and the financial
      information for such Guarantor as of the date such Guarantor became a Guarantor
      shall be utilized for such Guarantor in connection with such Excess Payment.
      This Section
      16
      shall
      not be deemed to affect any right of subrogation, indemnity, reimbursement
      or
      contribution that any Guarantor may have under law against the Company in
      respect of any payment of Obligations.

     

    [rest
      of
      page intentionally left blank; signature page follows]

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, Guarantors have executed this Guaranty as of the date first
      written above.

     

    GUARANTORS:

    

    NORTH
      TEXAS DRILLING SERVICES,
      a

    Texas
      corporation

    

    By:_______________________________

    Name: ____________________________

    Title: ____________________________

    

     

    SONTERRA
      OPERATING, INC.,
      a
      Delaware

    corporation

    

    By:_______________________________

    Name: ____________________________

    Title: ____________________________

    

     

    VELOCITY
      ENERGY LIMITED LLC,
      a
      Texas

    limited
      liability company

    

    By:_______________________________

    Name: ____________________________

    Title: ____________________________

    

     

    VELOCITY
      ENERGY INC.,
      a
      Delaware

    corporation

    

    By:_______________________________

    Name: ____________________________

    Title: ____________________________

    

     

    VELOCITY
      ENERGY OFFSHORE LP,
      a

    Delaware
      limited partnership

    

    By:_______________________________

    Name: ____________________________

    Title: ____________________________

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    VELOCITY
      ENERGY PARTNERS LP,
      a

    Delaware
      limited partnership

    

    By:_______________________________

    Name: ____________________________

    Title: ____________________________

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    VELOCITY
      ENERGY INC.,
      a
      Delaware

    corporation

    

    By:_______________________________

    Name: ____________________________

    Title: ____________________________

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      A

    

    Form
      of Joinder

    Joinder
      to Guaranty

    

    This
      Joinder Agreement is made between the undersigned, [__________] a [__________],
      (the “New
      Subsidiary”)
      and
      SUMMERLINE ASSET MANAGEMENT, LLC, a Delaware limited liability company, as
      collateral agent under that certain Guaranty dated as of November 13, 2008
      among
      NORTH TEXAS DRILLING SERVICES, INC., a Texas corporation, SONTERRA OPERATING,
      INC., a Delaware corporation, VELOCITY ENERGY LIMITED LLC, a Texas limited
      liability company, VELOCITY ENERGY INC., a Delaware corporation, VELOCITY ENERGY
      OFFSHORE LP, a Delaware limited partnership, VELOCITY ENERGY PARTNERS LP, a
      Delaware limited partnership, and each other person or entity that becomes
      a
      Guarantor thereunder after the date and pursuant to the terms thereof, to and
      in
      favor of SUMMERLINE ASSET MANAGEMENT, LLC as amended, restated, supplemented
      or
      otherwise modified from time to time (the “Guaranty”).
      Capitalized terms herein and not otherwise defined herein shall have the
      meanings assigned to such terms in the Guaranty.

     

    1. The
      New
      Subsidiary hereby acknowledges, agrees and confirms that, by its execution
      of
      this Agreement, the New Subsidiary will be deemed to be a party to the Guaranty
      and a “Guarantor” for all purposes of the Guaranty, and shall have all of the
      obligations of a Guarantor thereunder as if it had executed the Guaranty. The
      New Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound
      by, all of the terms, provisions and conditions applicable to the Guarantors
      contained in the Guaranty. Without limiting the generality of the foregoing
      terms of this paragraph 1, the New Subsidiary hereby jointly and severally
      together with the other Guarantors, guarantees to Summerline Asset Management,
      LLC, as provided in the Guaranty, the prompt payment and performance of the
      obligations in full when due (whether at stated maturity, as a mandatory
      prepayment, by acceleration or otherwise) strictly in accordance with the terms
      thereof.

     

    2. The
      New
      Subsidiary represents and warrants that the representations and warranties
      set
      forth in Section 6 of the Guaranty are, with respect to the undersigned, true
      and correct as of the date hereof.

     

    3. From
      and
      after the date hereof, each reference to a Guarantor in the Guaranty shall
      be
      deemed to include the undersigned.

     

    4. This
      Agreement may be executed in multiple counterparts, each of which shall
      constitute an original but all of which when taken together shall constitute
      one
      contract.

     

    5. THIS
      AGREEMENT SHALL BE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
      YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION
      OR
      RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD
      CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE
      OF
      NEW YORK.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    In
      Witness Whereof, the undersigned has executed this Joinder this ___ day of
      _________, 200_.

     

    ___________________________Unassociated Document

    Exhibit
      4.1

     

    DEFENSE
      SOLUTIONS HOLDING, INC.

     

    EQUITY
      INCENTIVE PLAN

     

    Section
      1. Purpose;
      Definitions.
      The
      purposes of the Defense Solutions Holding, Inc. Equity Incentive Plan (the
      “Plan”)
      are
      to: (a) enable Defense Solutions Holding, Inc. (the “Company”)
      and
      its respective affiliated companies to recruit and retain highly qualified
      personnel; (b) provide those employees, directors and consultants of the Company
      with an incentive for productivity; and (c) provide those personnel with an
      opportunity to share in the growth and value of the Company.

     

    For
      purposes of the Plan, the following initially capitalized words and phrases
      will
      be defined as set forth below, unless the context clearly requires a different
      meaning:

     

    (a) “Affiliate”
means,
      with respect to a Person, a Person that directly or indirectly controls, or
      is
      controlled by, or is under common control with such Person.

     

    (b) “Award”
means
      a
      grant of Options or Restricted Stock pursuant to the provisions of the
      Plan.

     

    (c) “Award
      Agreement”
means,
      with respect to any particular Award, the written document that sets forth
      the
      terms of that particular Award.

     

    (d) “Board”
means
      the Board of Directors of the Company, as constituted from time to time;
provided,
      however,
      that if
      the Board appoints a Committee to perform some or all of the Board’s
      administrative functions hereunder pursuant to Section
      2,
      references in the Plan to the “Board” will be deemed to also refer to that
      Committee in connection with matters to be performed by that
      Committee.

     

    (e) “Cause”
means
      (i) conviction of, or the entry of a plea of guilty or no contest to, a felony
      or any other crime that causes the Company or its Affiliates public disgrace
      or
      disrepute, or adversely affects the Company’s or its Affiliates’ operations or
      financial performance or the relationship the Company has with its Affiliates;
      (ii) gross negligence or willful misconduct with respect to the Company or
      any
      of its Affiliates, including, without limitation fraud, embezzlement, theft
      or
      proven dishonesty in the course of his employment; (iii) alcohol abuse or use
      of
      controlled drugs other than in accordance with a physician’s prescription; (iv)
      refusal, failure or inability to perform any material obligation or fulfill
      any
      duty (other than any duty or obligation of the type described in clause (vi)
      below) to the Company (other than due to a Disability), which failure, refusal
      or inability is not cured within 10 days after delivery of notice thereof;
      (v)
      material breach of any agreement with or duty owed to the Company or any of
      its
      Affiliates; or (vi) any breach of any obligation or duty to the Company or
      any
      of its Affiliates (whether arising by statute, common law, contract or
      otherwise) relating to confidentiality, noncompetition, nonsolicitation or
      proprietary rights. Notwithstanding the foregoing, if a Participant and the
      Company (or any of its Affiliates have entered into an employment agreement,
      consulting agreement or other similar agreement that specifically defines
“cause,” then with respect to such Participant, “Cause” shall have the meaning
      defined in that employment agreement, consulting agreement or other
      agreement.

     

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

     

    (f) “Change
      in Control”
means,
      with respect to any entity: (i) the sale, transfer, assignment or other
      disposition (including by merger or consolidation, but excluding any sales
      by
      shareholders or other equity holders made as part of an underwritten public
      offering of the common stock of the entity) by shareholders of the entity,
      in
      one transaction or a series of related transactions, of more than 50% of the
      voting power represented by the then outstanding capital stock or other equity
      interests of the entity to one or more Persons, (ii) the sale of substantially
      all the assets of the entity (other than a transfer of financial assets made
      in
      the ordinary course of business for the purpose of securitization), or (iii)
      the
      liquidation or dissolution of the entity.

     

    (g) “Code”
means
      the Internal Revenue Code of 1986, as amended from time to time, and any
      successor thereto.

     

    (h) “Committee”
means
      a
      committee appointed by the Board in accordance with Section
      2
      of the
      Plan.

     

    (i) “Director”
means
      a
      member of the Board. 

     

    (j) “Disability”
means
      a
      condition rendering a Participant Disabled.

     

    (k) “Disabled”
will
      have the same meaning as set forth in Section 22(e)(3) of the Code.

     

    (l) “Exchange
      Act”
means
      the Securities Exchange Act of 1934, as amended.

     

    (m) “Fair
      Market Value”
means,
      with respect to a Share, as of any date: (i) in the case of any determination
      thereof other than in connection with a Change in Control (x) if the Shares
      are
      not publicly traded, the value of such Shares on that date, as determined by
      the
      Board after using a valuation method that complies with regulations for
      determining fair market value as promulgated by the Internal Revenue Service;
      or
      (y) if the Shares are publicly traded, the last sale price of a Share on the
      trading day immediately prior to the date of determination of fair market value
      or, if no sale is publicly reported on such trading day, the last sale price
      of
      a Share prior to the date of determination of fair market value; and (ii) in
      the
      case of any determination thereof in connection with a Change in Control, the
      value of a Share attributable to such Shares in the transaction giving rise
      to
      the such Change in Control or, if no such value is so attributable, the value
      as
      determined by the Board after using a valuation method that complies with
      regulations for determining fair market value as promulgated by the Internal
      Revenue Service.

     

    (n) “Incentive
      Stock Option”
means
      any Option intended to be and designated as an “Incentive Stock Option” within
      the meaning of Section 422 of the Code.

     

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

     

    (o) “Non-Employee
      Director”
will
      have the meaning set forth in Rule 16b-3(b)(3)(i) promulgated by the Securities
      and Exchange Commission under the Exchange Act, or any successor definition
      adopted by the Securities and Exchange Commission; provided,
      however,
      that
      the Board or the Committee may, to the extent that it deems necessary to comply
      with Section 162(m) of the Code or regulations thereunder, require that each
      “Non-Employee Director” also be an “outside director” as that term is defined in
      regulations under Section 162(m).

     

    (p) “Non-Qualified
      Stock Option”
means
      any Option that is not an Incentive Stock Option.

     

    (q) “Option”
means
      any option to purchase Shares (including Restricted Stock, if the Board so
      determines) granted pursuant to Section
      5
      hereof.

     

    (r) “Participant”
means
      an employee, consultant, Director, or other service provider of or to the
      Company or any of its respective Affiliates to whom an Award is
      granted.

     

    (s) “Person”
means
      an individual, partnership, corporation, limited liability company, trust,
      joint
      venture, unincorporated association, or other entity or
      association.

     

    (t) “Restricted
      Stock”
means
      Shares that are subject to restrictions pursuant to Section
      7
      hereof.

     

    (u) “Shares”
means
      shares of the Company’s common stock, par value $0.001 per share, subject to
      substitution or adjustment as provided in Section
      3(c)
      hereof.

     

    (v) “Shareholders
      Agreement”
means
      any Shareholders Agreement, Voting Agreement or Right of First Refusal and
      Bring
      Along Agreement to be executed and delivered by a Participant at the time of
      any
      event of an Award or upon the exercise of any Options subject to an Award,
      as
      determined by the Board, and in such form from time to time prescribed by the
      Board, as amended from time to time.

     

    (w) “Subsidiary”
means,
      in respect of the Company, a subsidiary company, whether now or hereafter
      existing, as defined in Sections 424(f) and (g) of the Code.

     

    Section
      2. Administration.
      The
      Plan
      will be administered by the Board; provided,
      however,
      that
      the Board may at any time appoint a Committee to perform some or all of the
      Board’s administrative functions hereunder; and
      provided further,
      that
      the authority of any Committee appointed pursuant to this Section
      2
      will be
      subject to such terms and conditions as the Board may prescribe and will be
      coextensive with, and not in lieu of, the authority of the Board
      hereunder.

     

    Subject
      to the requirements of the Company’s by-laws and certificate of incorporation
      and any other agreement that governs the appointment of Board committees, any
      Committee established under this Section
      2
      will be
      composed of not fewer than two members, each of whom will serve for such period
      of time as the Board determines; provided, however, that if the Company has
      a
      class of securities required to be registered under Section 12 of the Exchange
      Act, all members of any Committee established pursuant to this Section
      2
      will be
      Non-Employee Directors. From time to time the Board may increase the size of
      the
      Committee and appoint additional members thereto, remove members (with or
      without cause) and appoint new members in substitution therefor, fill vacancies
      however caused, or remove all members of the Committee and thereafter directly
      administer the Plan.

     

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

     

    Directors
      who are eligible for Awards or have received Awards may vote on any matters
      affecting the administration of the Plan or the grant of Awards, except that
      no
      such member will act upon the grant of an Award to himself or herself, but
      any
      such member may be counted in determining the existence of a quorum at any
      meeting of the Board during which action is taken with respect to the grant
      of
      Awards to himself or herself.

     

    The
      Board
      will have full authority to grant Awards under this Plan. In particular, subject
      to the terms of the Plan, the Board will have the authority:

     

    (a) to
      select
      the persons to whom Awards may from time to time be granted hereunder
      (consistent with the eligibility conditions set forth in Section
      4);

     

    (b) to
      determine the type of Award to be granted to any person hereunder;

     

    (c) to
      determine the number and type of Shares, if any, to be covered by each Award
      (consistent with the provisions of Section
      3
      regarding the maximum number of Shares subject to the Plan);

     

    (d) to
      establish the terms and conditions of each Award Agreement;

     

    (e) to
      determine whether and under what circumstances an Option may be exercised
      without a payment of cash under Section
      5(d);
      and

     

    (f) to
      require execution of a Shareholders Agreement which may include, among other
      things, restrictions on resale of Shares, a requirement to sell Shares in
      connection with a Change in Control or other similar transactions, and may
      impose a limitation on marketability in connection with a public offering of
      the
      Company’s stock.

     

    The
      Board
      will have the authority to adopt, alter and repeal such administrative rules,
      guidelines and practices governing the Plan as it, from time to time, deems
      advisable; to establish the terms of each Award Agreement; to interpret the
      terms and provisions of the Plan and any Award issued under the Plan (and any
      Award Agreement); and to otherwise supervise the administration of the Plan.
      The
      Board may correct any defect, supply any omission or reconcile any inconsistency
      in the Plan or in any Award in the manner and to the extent it deems necessary
      to carry out the intent of the Plan.

     

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

     

    All
      decisions made by the Board pursuant to the provisions of the Plan will be
      final
      and binding on all persons, including the Company and Participants. No Director
      will be liable for any good faith determination, act or omission in connection
      with the Plan or any Award.

     

    Section
      3. Shares
      Subject to the Plan.

     

    (a) Shares
      Subject to the Plan.
      The
      Shares to be subject to Options or Restricted Stock under the Plan will be
      authorized and unissued Shares of the Company, whether or not previously issued
      and subsequently acquired by the Company. The maximum number of Shares that
      may
      be subject to Options or Restricted Stock under the Plan is 13,800,000. The
      Company will reserve for the purposes of the Plan, out of its authorized and
      unissued Shares, such number of Shares.

     

    (b) Effect
      of the Expiration or Termination of Awards.
      If and
      to the extent that an Option expires, terminates or is canceled or forfeited
      for
      any reason without having been exercised in full, the Shares associated with
      that Option will again become available for grant under the Plan. Similarly,
      if
      any Restricted Share is canceled, forfeited or repurchased for any reason,
      or if
      any Share is withheld pursuant to Section
      9(d)
      in
      settlement of a tax withholding obligation associated with an Award, that Share
      will again become available for grant under the Plan. If any Share is received
      in satisfaction of the exercise price payable upon exercise of an Option, that
      Share will become available for grant under the Plan.

     

    (c) Other
      Adjustment.
      In the
      event of any recapitalization, stock split or combination, stock dividend or
      other similar event or transaction affecting the Shares, equitable substitutions
      or adjustments may be made by the Board, in its sole and absolute discretion,
      to
      the aggregate number, type and issuer of the securities reserved for issuance
      under the Plan, to the number, type and issuer of Shares subject to outstanding
      Options, to the exercise price of outstanding Options, and to the number, type
      and issuer of Restricted Stock.

     

    (d) Change
      in Control.
      Notwithstanding anything to the contrary set forth in the Plan, upon or in
      anticipation of any Change in Control of the Company or any of its Affiliates,
      the Board may, in its sole and absolute discretion and without the need for
      the
      consent of any Participant, take one or more of the following actions contingent
      upon the occurrence of that Change in Control: (i) cause any or all outstanding
      Options to become vested and immediately exercisable, in whole or in part;
      (ii)
      cause any or all outstanding Restricted Stock to become non-forfeitable, in
      whole or in part; (iii) cancel any Option in exchange for an option to purchase
      common stock of any successor corporation or its parent in a manner consistent
      with the requirements of Treas. Reg. § 1.424-1 (a)(4)(i) (notwithstanding the
      fact that the original Option may never have been intended to satisfy the
      requirements for treatment as an Incentive Stock Option), (iv) cancel any
      Restricted Stock in exchange for restricted shares of the common stock of any
      successor corporation, (v) redeem any Restricted Stock for cash and/or other
      substitute consideration with a value equal to the Fair Market Value of an
      unrestricted Share on the date of the Change in Control; or (vi) cancel any
      Option held by a Participant affected by the Change in Control in exchange
      for
      cash and/or other substitute consideration with a value equal to (A) the number
      of Shares subject to that Option, multiplied by (B) the difference, if any,
      between the Fair Market Value per Share on the date of the Change in Control
      and
      the exercise price of that Option; provided, that if the Fair Market Value
      per
      Share on the date of the Change in Control does not exceed the exercise price
      of
      any such Option, the Board may cancel that Option without any payment of
      consideration therefor.

     

    
      
         

      

      
        5

        
          

        

      

      
         

      

    

     

    For
      purposes of paragraph (d)(iii) above, the exchange of an Option issued under
      this Plan for an option to purchase common stock of any successor corporation
      or
      its parent shall be permitted only to the extent that the ratio of the exercise
      price to the fair market value of the shares subject to the Option immediately
      after the substitution or assumption is not greater than the ratio of the
      exercise price to the fair market value of the shares subject to the Option
      immediately before the substitution or assumption. 

     

    Section
      4. Eligibility.
      Employees,
      Directors, consultants, and other individuals who provide services to the
      Company or its Affiliates are eligible to be granted Awards under the Plan.
      Persons who are not employees of the Company or a Subsidiary are not eligible
      to
      be granted Incentive Stock Options but are eligible to be granted other types
      of
      Awards.

     

    Section
      5. Options.
      Options
      granted under the Plan may be of two types: (i) Incentive Stock Options or
      (ii)
      Non-Qualified Stock Options. Any Option granted under the Plan will be in such
      form as the Board may at the time of such grant approve. Without limiting the
      generality of Section
      3(a),
      any
      number of the maximum number of Shares provided for in Section
      3(a)
      may be
      subject to Incentive Stock Options or Non-Qualified Stock Options, or any
      combination thereof.

     

    The
      Award
      Agreement evidencing any Option will incorporate the following terms and
      conditions and will contain such additional terms and conditions, not
      inconsistent with the terms of the Plan, as the Board deems appropriate in
      its
      sole and absolute discretion:

     

    (a) Option
      Price.
      The
      exercise price per Share purchasable under an Incentive Stock Option or a
      Non-Qualified Stock Option will be not less than 100% of the Fair Market Value
      of the Share on the date of the grant. However, any Incentive Stock Option
      granted to any Participant who, at the time the Option is granted, owns more
      than 10% of the voting power of all classes of shares of the Company or of
      a
      Subsidiary will have an exercise price per Share of not less than 110% of Fair
      Market Value per Share on the date of the grant.

     

    (b) Option
      Term.
      The
      term of each Option will be fixed by the Board, but no Incentive Stock Option
      will be exercisable more than 10 years after the date the Option is granted.
      However, any Incentive Stock Option granted to any Participant who, at the
      time
      such Option is granted, owns more than 10% of the voting power of all classes
      of
      shares of the Company or of a Subsidiary may not have a term of more than five
      years. No Option may be exercised by any person after expiration of the term
      of
      the Option.

     

    (c) Exercisability.
      Options
      will vest and be exercisable at such time or times and subject to such terms
      and
      conditions as determined by the Board at the time of grant. If the Board
      provides, in its discretion, that any Option is exercisable only in
      installments, the Board may waive such installment exercise provisions at any
      time at or after grant, in whole or in part, based on such factors as the Board
      determines, in its sole and absolute discretion.

     

    
      
         

      

      
        6

        
          

        

      

      
         

      

    

     

    (d) Method
      of Exercise.
      Subject
      to the exercisability provisions of Section
      5(c)
      and the
      termination provisions set forth in Section
      6,
      Options
      may be exercised in whole or in part at any time and from time to time during
      the term of the Option, by the delivery of written notice of exercise by the
      Participant to the Company specifying the number of Shares to be purchased.
      Such
      notice will be accompanied by payment in full of the purchase price, either
      by
      certified or bank check, or such other means as the Board may accept. As
      determined by the Board, in its sole discretion, at or after grant, payment
      in
      full or in part of the exercise price of an Option may be made in the form
      of
      previously acquired Shares based on the Fair Market Value of the Shares on
      the
      date the Option is exercised; provided,
      however,
      that, in
      the case of an Incentive Stock Option, the right to make a payment in the form
      of previously acquired Shares may be authorized only at the time the Option
      is
      granted.

     

    No
      Shares
      will be issued upon exercise of an Option until full payment therefor has been
      made. A Participant will not have the right to distributions or dividends or
      any
      other rights of a shareholder with respect to Shares subject to the Option
      until
      the Participant has given written notice of exercise, has paid in full for
      such
      Shares, and, if requested, has given the representation described in
Section
      9(a)
      hereof.

     

    (e) Incentive
      Stock Option Limitations.
      In the
      case of an Incentive Stock Option, the aggregate Fair Market Value (determined
      as of the time of grant) of the Shares with respect to which Incentive Stock
      Options are exercisable for the first time by the Participant during any
      calendar year under the Plan and/or any other plan of the Company or any
      Subsidiary will not exceed $100,000. For purposes of applying the foregoing
      limitation, Incentive Stock Options will be taken into account in the order
      granted. To the extent any Option does not meet such limitation, that Option
      will be treated for all purposes as a Non-Qualified Stock Option.

     

    (f) Termination
      of Service.
      Unless
      otherwise specified in the Award Agreement, Options will be subject to the
      terms
      of Section
      6
      with
      respect to exercise upon or following termination of employment or other
      service.

     

    (g) Transferability
      of Options.
      Except
      as may otherwise be specifically determined by the Board with respect to a
      particular Option, no Option will be transferable by the Participant other
      than
      by will or by the laws of descent and distribution, and all Options will be
      exercisable, during the Participant’s lifetime, only by the Participant or, in
      the event of his Disability, by his personal representative.

     

    Section
      6. Termination
      of Service.
      Unless
      otherwise specified with respect to a particular Option in the applicable Award
      Agreement, all Options will remain exercisable after termination of employment
      only to the extent specified in this Section
      6.

     

    
      
         

      

      
        7

        
          

        

      

      
         

      

    

     

    (a) Termination
      by Reason of Death.
      If a
      Participant’s service with the Company or any Affiliate terminates by reason of
      death, any Option held by such Participant may thereafter be exercised, to
      the
      extent then exercisable or on such accelerated basis as the Board may determine,
      at or after grant, by the legal representative of the estate or by the legatee
      of the Participant under the will of the Participant, for a period expiring
      on
      the earlier of (i) such time as may be specified by the Board at or after the
      time of grant, or (ii) if not specified by the Board, then 12 months from the
      date of death, or (iii) if sooner than the applicable period specified under
      (i)
      or (ii) above, then upon the expiration of the stated term of such
      Option.

     

    (b) Termination
      by Reason of Disability.
      If a
      Participant’s service with the Company or any Affiliate terminates by reason of
      Disability, any Option held by such Participant may thereafter be exercised
      by
      the Participant or his personal representative, to the extent it was exercisable
      at the time of termination, or on such accelerated basis as the Board may
      determine at or after grant, for a period expiring at the earlier of (i) such
      time as may be specified by the Board at or after the time of grant, or (ii)
      if
      not specified by the Board, then 12 months from the date of termination of
      service, or (iii) if sooner than the applicable period specified under (i)
      or
      (ii) above, then upon the expiration of the stated term of such
      Option.

     

    (c) Cause.
      If a
      Participant’s service with the Company or any Affiliate is terminated for Cause:
      (1) any Option not already exercised will be immediately and automatically
      forfeited as of the date of such termination, and (ii) any Shares for which
      the
      Company has not yet delivered share certificates will be immediately and
      automatically forfeited and the Company will refund to the Participant the
      Option exercise price paid for such Shares, if any.

     

    (d) Other
      Termination.
      If a
      Participant’s service with the Company or any Affiliate terminates for any
      reason other than death, Disability or Cause, any Option held by such
      Participant may thereafter be exercised by the Participant, to the extent it
      was
      exercisable at the time of such termination, or on such accelerated basis as
      the
      Board may determine at or after grant, for a period expiring at the earlier
      of
      (i) such time as may be specified by the Board at or after the time of grant,
      or
      (ii) if not specified by the Board, then 90 days from the date of termination
      of
      service, or (iii) if sooner than the applicable period specified under (i)
      or
      (ii) above, then upon the expiration of the stated term of such
      Option.

     

    Section
      7. Restricted
      Stock.

     

    (a) Issuance.
      Restricted Stock may be issued either alone or in conjunction with other Awards.
      The Board will determine the time or times within which Restricted Stock may
      be
      subject to forfeiture, and all other conditions of such Awards.

     

    (b) Awards
      and Certificates.
      The
      Award Agreement evidencing the grant of any Restricted Stock will contain such
      terms and conditions, not inconsistent with the terms of the Plan, as the Board
      deems appropriate in its sole and absolute discretion. The prospective recipient
      of an Award of Restricted Stock will not have any rights with respect to such
      Award, unless and until such recipient has delivered to the Company an executed
      Award Agreement and has otherwise complied with the applicable terms and
      conditions of such Award. The purchase price for Restricted Stock may, but
      need
      not, be zero.

     

    
      
         

      

      
        8

        
          

        

      

      
         

      

    

     

    A
      share
      certificate will be issued in connection with each Award of Restricted Stock.
      Such certificate will be registered in the name of the Participant receiving
      the
      Award, and will bear the following legend and/or any other legend required
      by
      this Plan, the Award Agreement, a Shareholders Agreement, or by applicable
      law:

     

    THE
      TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE
      SUBJECT TO THE TERMS AND CONDITIONS OF THE DEFENSE SOLUTIONS HOLDING, INC.
      EQUITY INCENTIVE PLAN AND AN AGREEMENT ENTERED INTO BETWEEN [THE PARTICIPANT]
      AND DEFENSE SOLUTIONS HOLDING, INC. (WHICH TERMS AND CONDITIONS MAY INCLUDE,
      WITHOUT LIMITATION, CERTAIN TRANSFER RESTRICTIONS, REPURCHASE RIGHTS AND
      FORFEITURE CONDITIONS). COPIES OF THAT PLAN AND AGREEMENT ARE ON FILE IN THE
      PRINCIPAL OFFICES OF DEFENSE SOLUTIONS HOLDING, INC. AND WILL BE MADE AVAILABLE
      TO THE HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON REQUEST TO THE SECRETARY
      OF THE COMPANY.

     

    Share
      certificates evidencing Restricted Stock will be held in custody by the Company
      or in escrow by an escrow agent until the restrictions thereon have lapsed.
      As a
      condition to any Restricted Stock award, the Participant may be required to
      deliver to the Company a share power, endorsed in blank, relating to the Shares
      covered by such Award.

     

    (c) Restrictions
      and Conditions.
      The
      Restricted Stock awarded pursuant to this Section
      7
      will be
      subject to the following restrictions and conditions, and any other restrictions
      and conditions set forth in the Award Agreement.

     

    (i) During
      a
      period commencing with the date of an Award of Restricted Stock and ending
      at
      such time or times as specified by the Board (the “Restriction Period
      ”),
      the
      Participant will not be permitted to sell, transfer, pledge, assign or otherwise
      encumber Restricted Stock awarded under the Plan. The Board may condition the
      lapse of restrictions on Restricted Stock upon the continued employment or
      service of the recipient, the attainment of specified individual or corporate
      performance goals, or such other factors as the Board may determine, in its
      sole
      and absolute discretion.

     

    (ii) Except
      as
      provided in this Paragraph (ii) or Section
      7(c)(i),
      once the
      Participant has been issued a certificate or certificates for Restricted Stock,
      the Participant will have, with respect to the Restricted Stock, all of the
      rights of a shareholder of the Company, including the right to vote the Shares,
      and the right to receive any cash distributions or dividends. Any distributions
      or dividends paid in the form of securities with respect to Restricted Stock
      will be subject to the same terms and conditions as the Restricted Stock with
      respect to which they were paid, including, without limitation, the same
      Restriction Period.

     

    
      
         

      

      
        9

        
          

        

      

      
         

      

    

     

    (iii) Subject
      to the applicable provisions of the Award Agreement, if a Participant’s service
      with the Company and its Affiliates terminates prior to the expiration of the
      Restriction Period, all of that Participant’s Restricted Stock which then remain
      subject to forfeiture will then be forfeited automatically.

     

    (iv) If
      and
      when the Restriction Period expires without a prior forfeiture of the Restricted
      Stock subject to such Restriction Period (or if and when the restrictions
      applicable to Restricted Stock lapse pursuant to Sections
      3(d)),
      the
      certificates for such Shares will be replaced with new certificates, without
      the
      restrictive legends described in Section
      7(b)
      applicable to such lapsed restrictions, and such new certificates will be
      promptly delivered to the Participant, the Participant’s representative (if the
      Participant has suffered a Disability), or the Participant’s estate or heir (if
      the Participant has died).

     

    Section
      8. Amendments
      and Termination.
      The
      Board
      may amend, alter or discontinue the Plan at any time, but, except as otherwise
      provided in Section
      3(d)
      of the
      Plan, no amendment, alteration or discontinuation will be made which would
      impair the rights of a Participant with respect to an Award, without that
      Participant’s consent, or which, without the approval of such amendment within
      one year (365 days) of its adoption by the Board, by the Company’s shareholders
      in a manner consistent with Section 1.422-5 of the Treasury Regulations, would:
      (i) increase the total number of Shares reserved for the purposes of the Plan
      (except as otherwise provided in Section
      3(c)),
      or
      (ii) change the persons or class of persons eligible to receive
      Awards.

     

    Section
      9. General
      Provisions.

     

    (a) The
      Board
      may require each Participant to represent to and agree with the Company in
      writing that the Participant is acquiring securities of the Company for
      investment purposes and without a view to distribution thereof and as to such
      other matters as the Board believes are appropriate. The certificate evidencing
      any Award and any securities issued pursuant thereto may include any legend
      which the Board deems appropriate to reflect any restrictions on transfer and
      compliance with applicable securities laws.

     

    (b) All
      certificates for Shares or other securities delivered under the Plan will be
      subject to such share-transfer orders and other restrictions as the Board may
      deem advisable under the rules, regulations, and other requirements of the
      Securities Act of 1933, as amended, the Exchange Act, any stock exchange upon
      which the Shares are then listed, and any other applicable federal or state
      securities laws, and the Board may cause a legend or legends to be put on any
      such certificates to make appropriate reference to such
      restrictions.

     

    
      
         

      

      
        10

        
          

        

      

      
         

      

    

     

    (c) Nothing
      contained in the Plan will prevent the Board from adopting other or additional
      compensation arrangements, subject to shareholder approval if such approval
      is
      required; and such arrangements may be either generally applicable or applicable
      only in specific cases.

     

    (d) Neither
      the adoption of the Plan nor the execution of any document in connection with
      the Plan will (i) confer upon any employee of the Company or an Affiliate any
      right to continued employment or engagement with the Company or such Affiliate,
      or (ii) interfere in any way with the right of the Company or such Affiliate
      to
      terminate the employment of any of its employees at any time.

     

    (e) No
      later
      than the date as of which an amount first becomes includible in the gross income
      of the Participant for federal income tax purposes with respect to any Award
      under the Plan, the Participant will pay to the Company, or make arrangements
      satisfactory to the Board regarding the payment of, any federal, state or local
      taxes of any kind required by law to be withheld with respect to such amount.
      Unless otherwise determined by the Board, the minimum required withholding
      obligations may be settled with Shares, including Shares that are part of the
      Award that gives rise to the withholding requirement. However, any required
      withholding obligations may not be settled with Shares of Restricted Stock
      awarded under this Plan. 
      The
      obligations of the Company under the Plan will be conditioned on such payment
      or
      arrangements and the Company will, to the extent permitted by law, have the
      right to deduct any such Social Security contribution and taxes from any payment
      of any kind otherwise due to the Participant.

     

    Section
      10. Effective
      Date of Plan.
      Subject
      to the approval of the Plan by the Company’s shareholders within 12 months of
      the Plan’s adoption by the Board, the Plan will become effective on the date
      that it is adopted by the Board.

     

    Section
      11. Term
      of Plan.
      The
      Plan
      will continue in effect until terminated in accordance with Section
      8;
      provided,
      however,
      that no
      Incentive Stock Option will be granted hereunder on or after the 10th
      anniversary of the date of shareholder approval of the Plan (or, if the
      shareholders approve an amendment that increases the number of shares subject
      to
      the Plan, the 10th anniversary of the date of such approval); but
      provided further,
      that
      Incentive Stock Options granted prior to such 10th anniversary may extend beyond
      that date.

     

    Section
      12. Invalid
      Provisions.
      In
      the
      event that any provision of this Plan is found to be invalid or otherwise
      unenforceable under any applicable law, such invalidity or unenforceability
      will
      not be construed as rendering any other provisions contained herein as invalid
      or unenforceable, and all such other provisions will be given full force and
      effect to the same extent as though the invalid or unenforceable provision
      was
      not contained herein.

     

    Section
      13. Governing
      Law.
      The
      Plan
      and all Awards granted hereunder will be governed by and construed in accordance
      with the laws and judicial decisions of the State of Delaware, without regard
      to
      the application of the principles of conflicts of laws of Delaware or any other
      jurisdiction.

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

     

    Section
      14. Board
      Action.
      Notwithstanding
      anything to the contrary set forth in the Plan, any and all actions of the
      Board
      or Committee, as the case may be, taken under or in connection with the Plan
      and
      any agreements, instruments, documents, certificates or other writings entered
      into, executed, granted, issued and/or delivered pursuant to the terms hereof,
      will be subject to and limited by any and all votes, consents, approvals,
      waivers or other actions of all or certain shareholders of the Company or other
      persons required by:

     

    (a) the
      Company’s Certificate of Incorporation (as the same may be amended and/or
      restated from time to time);

     

    (b) the
      Company’s Bylaws (as the same may be amended and/or restated from time to time);
      and

     

    (c) any
      other
      agreement, instrument, document or writing now or hereafter existing, between
      or
      among the Company and its shareholders or other persons (as the same may be
      amended from time to time).

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

     

    Section
      15. Notices.
      Any
      notice to be given to the Company pursuant to the provisions of the Plan shall
      be given by registered or certified mail, postage prepaid, and, addressed,
      if to
      the Company to its principal executive office to the attention of its Chief
      Executive Officer (or such other person as the Company may designate in writing
      from time to time), and, if to a Participant, to the address given beneath
      his
      or her signature on his or her Award Agreement, or at such other address as
      such
      Participant may hereafter designate in writing to the Company. Any such notice
      shall he deemed given or delivered three days after the date of
      mailing.

     

         

    
      
         

      

      
        13

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