Exhibit 10.23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PRB ENERGY, INC.
2007 EQUITY INCENTIVE PLAN

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PRB ENERGY, INC.
2007 EQUITY INCENTIVE PLAN

ARTICLE I
INTRODUCTION

1.1           Establishment.  PRB Energy, Inc., a Nevada corporation, hereby
establishes the 2007 Equity Incentive Plan for certain key employees of the
Company and certain directors and consultants to the Company.  The Plan permits
the grant of non-qualified stock options, restricted stock awards, stock bonuses
and other stock grants to certain key employees of the Company, and to certain
directors and consultants to the Company.

1.2           Purposes.  The purposes of the Plan are to provide those who are
selected for participation in the Plan with added incentives to continue in the
long-term service of the Company and to create in such persons a more direct
interest in the future success of the operations of the Company by relating
incentive compensation to increases in shareholder value, so that the income of
those participating in the Plan is more closely aligned with the income of the
Company’s shareholders.  The Plan is also designed to provide a financial
incentive that will help the Company attract, retain and motivate the most
qualified employees, directors and consultants.

ARTICLE II
DEFINITIONS

2.1           “Affiliated Corporation” means any corporation or other entity
that is affiliated with the Plan Sponsor through stock ownership or otherwise
and is designated as an “Affiliated Corporation” by the Board.

2.2           “Award” means an Option, a Restricted Stock Award or grants of
Stock issued under the Plan.

2.3           “Board” means the Board of Directors of the Plan Sponsor.

2.4           “Change of Control” shall be deemed to have occurred:

(1)           At such time as a third person, including a “group” as defined in
Section 13(d)(3) of the Exchange Act, becomes the beneficial owner of securities
of the Plan Sponsor having 25% or more of the total number of votes that may be
cast for the election of directors of the Plan Sponsor; or

(2)           On the date on which the shareholders of the Plan Sponsor approve
(i) any agreement for a merger or consolidation of the Plan Sponsor with another
corporation, provided that there shall be no Change of Control if the persons
and entities who were the shareholders of the Plan Sponsor immediately before
such merger or consolidation continue to own, directly or indirectly, more than
two-thirds of the outstanding voting securities of the

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corporation resulting from such merger or consolidation in substantially the
same proportion as their ownership of the voting securities of the Plan Sponsor
outstanding immediately before such merger or consolidation or (ii) any sale,
exchange or other disposition of all or substantially all of the Plan Sponsor’s
assets; or

(3)           on the effective date of any sale, exchange or other disposition
of greater than 50% in fair market value of the Plan Sponsor’s assets, other
than in the ordinary course of business, whether in a single transaction or a
series of related transactions.

In determining whether clause (1) of the preceding sentence has been satisfied,
the third person owning Shares must be someone other than a person or an
Affiliated Corporation of a person that, as of the Effective Date, was both (A)
the beneficial owner of securities of the Plan Sponsor having 10% or more of the
total number of votes that may be cast for the election of directors of the Plan
Sponsor and (B) a director or executive officer of the Company.  The Committee’s
reasonable determination as to whether such an event has occurred shall be final
and conclusive.

2.5           “Code” means the Internal Revenue Code of 1986, as it may be
amended from time to time.

2.6           “Committee” means a committee established under Article VII of the
Plan which is empowered to take actions with respect to the administration of
the Plan.

2.7           “Company” means the Plan Sponsor and the Affiliated Corporations.

2.8            “Disabled” or “Disability” shall have the meaning given to such
terms in Code § 22(e)(3).

2.9           “Effective Date” means the effective date of the Plan which is May
31, 2007.

2.10         “Eligible Consultants” means those consultants to the Company and
non-employee directors of the Company who are determined by the Committee to be
individuals whose services are important to the Company.

2.11         “Eligible Employees” means those key employees (including, without
limitation, officers and directors who are also employees) of the Company, upon
whose judgment, initiative and efforts the Company is, or will become, largely
dependent for the successful conduct of its business.  For purposes of the Plan,
an employee is an individual whose wages are subject to the withholding of
federal income tax under Code § 3401.

2.12         “Exchange Act” means the Securities Exchange Act of 1934, as
amended.

2.13         “Fair Market Value” means the closing price of the Stock on the
American Stock Exchange, the principal stock exchange or other market on which
the stock is traded on the date in which Fair Market Value is determined.  If
the Stock is not reported on any securities exchange, the Fair Market Value of
Stock on a particular date shall be as determined by the Committee in good

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faith by applying any reasonable valuation method permitted under Code § 409A to
determine fair market value in accordance with Code § 409A.

2.14         “Incentive Option” means an Option designated as an incentive stock
option and granted in accordance with Code § 422.

2.15         “Non-Qualified Option” means any Option other than an Incentive
Option.

2.16         “Option” means a right to purchase Stock at a stated or formula
price for a specified period of time.  Options granted under the Plan shall be
Non-Qualified Options.

2.17         “Option Agreement” shall have the meaning given to it in Section
4.2.

2.18         “Option Holder” means a Participant who has been granted one or
more Options under the Plan.

2.19         “Option Price” means the price at which each share of Stock subject
to an Option may be purchased, determined in accordance with Subsection 4.2(b).

2.20         “Participant” means an Eligible Employee or Eligible Consultant
designated by the Committee during the term of the Plan to receive one or more
Awards under the Plan.

2.21         “Performance Award” means a pre-established, performance-based
grant under the Plan pursuant to Article III.

2.22         “Performance Award Agreement” means the agreement specified in
Article III.

2.23         “Plan” means the PRB Energy, Inc. 2007 Equity Incentive Plan.

2.24         “Plan Sponsor” means PRB Energy, Inc. and any successor thereto.

2.25         “Restricted Stock” means Stock granted to a Participant that is
subject to certain restrictions.

2.26         “Section” or “Subsection” means a reference to a section or
subsection of the Plan, unless another reference specifically applies.

2.27         “Share” means a share of Stock.

2.28         “Stock” means the common stock of the Plan Sponsor.

2.29         “Stock Bonus” means either an outright grant of Stock or a grant of
Stock subject to and conditioned upon certain employment or performance related
goals.

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ARTICLE III
PARTICIPATION AND PERFORMANCE-BASED AWARDS

3.1           Participation.  Participants in the Plan shall be those Eligible
Employees who, in the judgment of the Committee, are performing, or during the
term of their incentive arrangement will perform, vital services in the
management, operation and development of the Company, and significantly
contribute, or are expected to significantly contribute, to the achievement of
long-term corporate economic objectives.  Eligible Consultants shall be selected
from those non-employee consultants to the Company and directors of the Company
who are performing services important to the operation and growth of the
Company.  Participants may be granted from time to time one or more Awards.

3.2           Performance-Based Awards.  The Company intends that Performance
Awards to certain employees will satisfy the performance-based compensation
requirements of Code § 162(m) so that the Company may deduct any compensation
paid under the Plan for federal income tax purposes without limitation under
Code § 162(m).  If any provision of this Plan or any Performance Award Agreement
would otherwise frustrate or conflict with such intent, that provision, to the
extent possible, shall be interpreted and deemed amended so as to avoid such
conflict.

3.3           Grants of Performance-Based Awards.  The Committee may grant
Performance Awards that grant a specific number of Options or shares of
Restricted Stock that vest in whole or in part upon satisfaction of specified
performance goals.  The Committee may also grant Performance Awards that require
the Committee to grant a specific number of shares of Stock, Options or shares
of Restricted Stock upon satisfaction of specified performance goals.  The
Committee shall, in its sole discretion, determine the type of Performance
Awards to be made, the time at which Performance Awards are to be made and the
time at which the Performance Awards vest or Shares are granted under
Performance Awards, actual performance against targets for purposes of
Performance Award vesting or granting of Awards, specific weighing of the
components of Performance Award vesting or grants, and establish such other
terms under the Plan as the Committee may deem necessary or desirable and
consistent with the terms of the Plan.  The Committee shall have the full and
exclusive right to grant and determine terms and conditions of all Performance
Awards granted under the Plan.  The performance goal or goals for a Performance
Award shall be established in writing at the time the Performance Award is
granted.  The Committee shall have no power to increase a Performance Award that
has been granted, but shall have the power to decrease a Performance Award.

3.4           Award Agreements.  Performance Award Agreements that are intended
to comply with Code § 162(m) shall specify the target number of Shares or units
for the Participant.  The maximum vesting for a Performance Award shall be 100%
of the Award.  No Performance Award shall entitle the Participant to receive
more than 1,700,000 Shares or units in any calendar year.  Performance Awards to
all Participants for any calendar year shall not exceed 1,700,000 Shares.

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3.5           Preestablished Performance Goals.  The performance criteria for
any Performance Award that is intended to satisfy the requirements for
“performance-based compensation” under Section 162(m) of the Code shall be a
measure based on one or more Qualifying Performance Criteria selected by the
Committee and specified at the time the Performance Award is granted.  For
purposes of this Plan, the term “Qualifying Performance Criteria” shall mean any
one or more of the following performance criteria, either individually or in any
combination, applied to the Company, an Affiliated Corporation or a business
unit of the Company or Affiliated Corporation, either individually or in any
combination, and measured either annually or cumulatively over a period of
years, on an absolute basis or relative to a pre-established target, to previous
years’ results or to a designated comparison group, in each case as specified by
the Committee in the Performance Award: (a) cash flow, (b) earnings per share,
(c) earnings before interest, taxes, depreciation and amortization, (d) return
on equity, (e) total shareholder return, (f) share price performance, (g) return
on capital, (h) return on assets or net assets, (i) total revenue, revenue or
net revenue, (j) income or net income, (k) operating income or net operating
income, (l) operating profit or net operating profit, (m) operating margin or
profit margin and (n) return on invested capital.  The Committee may
appropriately adjust any evaluation of performance under a Qualifying
Performance Criteria to exclude any of the following events that occurs during a
performance period:  (i) asset write-downs, (ii) litigation or claim judgments
or settlements, (iii) the effect of changes in tax law, accounting principles or
other such laws or provisions affecting reported results, (iv) accruals for
reorganization and restructuring programs and (v) any extraordinary
non-recurring items described in the Company’s Exchange Act filings.

3.6           Committee Certification.  Notwithstanding satisfaction of any
Qualifying Performance Criteria, the number of Shares or Stock Options under a
Performance Award to be granted or vested on account of satisfaction of such
Qualifying Performance Criteria may be reduced by the Committee on the basis of
such further considerations as the Committee in its sole discretion shall
determine.  Except as otherwise provided in this Plan or any Performance Award
Agreement, the Participant shall not be entitled to vest in or be granted any
portion of a Performance Award until the Committee certifies in writing that the
Participant has met his or her specific performance goals and determines the
portion of the Performance Award which is to be vested or granted.

ARTICLE IV
OPTIONS

4.1           Grant of Options.  A Participant may be granted one or more
Options.  Options shall be granted as of the date specified in the Option
Agreement.  In no event shall the exercise of one Option affect the right to
exercise any other Option or affect the number of Shares for which any other
Option may be exercised.  The grant of each Option shall be separately approved
by the Committee, and the receipt of one Option shall not result in automatic
receipt of any other Option.  Upon determination by the Committee to grant an
Option to a Participant, the Committee shall enter into a Option Agreement with
the Participant.

4.2           Stock Option Agreements.  Each Option granted under the Plan shall
be evidenced by a written stock option certificate or agreement (an “Option
Agreement”).  An Option Agreement

 

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shall be issued by the Plan Sponsor in the name of the Participant to whom the
Option is granted (the “Option Holder”) and in such form as may be approved by
the Committee.  The Option Agreement shall incorporate and conform to the
conditions in the Plan as well as any other terms and conditions that are not
inconsistent as the Committee may consider appropriate.  In the event of any
inconsistency between the provisions of the Plan and any Option Agreement, the
provisions of the Plan shall govern.

(a)                                  Number of Shares.  Each Option Agreement
shall state that it covers a specified number of shares of Stock, as determined
by the Committee.

(b)                                 Price.  The price at which each share of
Stock covered by an Option may be purchased shall be determined in each case by
the Committee but shall not be less than 100% of the Fair Market Value of the
Stock on the date the Option is granted.

(c)                                  Duration of Options.  Each Option Agreement
shall state the period of time, determined by the Committee, within which the
Option may be exercised by the Option Holder (the “Option Period”).  The Option
Period must end not more than ten years from the date the Option is granted.

(d)                                 Restrictions on Exercise.  The Option
Agreement shall also set forth any restrictions on Option exercise during the
Option Period, if any, as may be determined by the Committee.  Each Option shall
become exercisable (vest) over such period of time, if any, or upon such events,
as determined by the Committee.

(e)                                  Termination of Services, Death or
Disability.  The Committee may specify the period, if any, after which an Option
may be exercised following termination of the Option Holder’s services in the
Option Agreement.   If the Option Agreement does not specify the period of time
following termination of service during which Options may be exercised or vest,
the time periods or vesting provisions in this Subsection shall apply.

(i)                                     Termination for Cause.  If the services
of the Option Holder are terminated within the Option Period for “cause,” as
determined by the Company, the Option shall thereafter be void for all
purposes.  “Cause” shall have the meaning assigned to it by the Option Holder’s
employment agreement, if the Company has entered into an employment agreement
with the Option Holder; otherwise termination for “cause” shall mean termination
of employment as a result of a violation of any Company policy, procedure or
guideline, or engaging in any of the following forms of misconduct:  conviction
of any felony or of any misdemeanor involving dishonesty or moral turpitude;
theft or misuse of the Company’s property or time; use of alcohol or controlled
substances on the Company’s premises or appearing on such premises while
intoxicated or under the influence of drugs not prescribed by a physician, or
after having abused prescribed medications; illegal use of any controlled
substance; illegal gambling on the Company’s premises; discriminatory or

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                                                harassing behavior, whether or
not illegal under federal, state or local law; willful misconduct; or falsifying
any document or making any false or misleading statement  relating to employment
by the Company; or injures the economic or ethical welfare of the Company by
misconduct or inattention to duties and responsibilities; or fails to meet the
Company’s performance expectations, as determined by the Company in its sole
discretion.

(ii)                                  Disability.  If the Option Holder becomes
Disabled, the Option may be exercised by the Option Holder within one year
following the Option Holder’s termination of services on account of Disability
(provided that such exercise must occur within the Option Period), but not
thereafter.  In this event, the Option may be exercised with respect to all of
the Shares covered by the Option.

(iii)                               Death.   If the Option Holder dies during
the Option Period while still performing services for the Company or within the
one year period referred to in (ii) above or the three-month period referred to
in (iv) below, the Option may be exercised by those entitled to do so under the
Option Holder’s will or by the laws of descent and distribution within one year
following the Option Holder’s death (provided that such exercise must occur
within the Option Period), but not thereafter.  In this event, the Option may be
exercised with respect to all of the Shares covered by the Option.

(iv)                              Termination for Reasons Other than Cause,
Disability or Death.  If the Option Holder is no longer employed by the Company
or performing services for the Company for any reason other than Cause,
Disability or the Option Holder’s death, the Option may be exercised by the
Option Holder within three months following the date of termination (provided
that the exercise must occur within the Option Period), but not thereafter.  The
Option may be exercised only with respect to the Shares as to which the Option
had become exercisable on or before the date of termination of services.

4.3           Transferability.  Each Option shall not be transferable by the
Option Holder except by will or pursuant to the laws of descent and
distribution.  Each Option is exercisable during the Option Holder’s lifetime
only by him or her, or in the event of Disability or incapacity, by his or her
guardian, conservator or legal representative.  The Committee may provide at the
time of grant or thereafter that the Option Holder may transfer an Option to a
member of the Option Holder’s immediate family, a trust of which members of the
Option Holder’s immediate family are the only beneficiaries, or a partnership of
which members of the Option Holder’s immediate family or trusts for the sole
benefit of the Option Holder’s immediate family are the only partners, or in
other circumstances at the Committee’s sole discretion.  Immediate family means
the Option Holder’s spouse, issue (by birth or adoption), parents, grandparents
and siblings (including half brothers and sisters and adopted siblings).

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4.4           Manner of Exercise.   The method for exercising each Option
granted hereunder shall be by delivery to the Plan Sponsor of (1) written notice
specifying the number of Shares with respect to which such Option is exercised
and (2) payment in full of the exercise price and any liability the Company may
have for withholding of federal, state or local income or other taxes incurred
by reason of the exercise of the Option.  The purchase of such Shares shall take
place at the principal offices of the Plan Sponsor within thirty days following
delivery of such notice, at which time the Option Price of the Shares shall be
paid in full.  If the Option Price is paid by means of a broker’s loan
transaction, in whole or in part, the closing of the purchase of the Stock under
the Option shall take place (and the Option shall be treated as exercised) on
the date on which, and only if, the sale of Stock upon which the broker’s loan
was based has been closed and settled, unless the Option Holder makes an
irrevocable written election, at the time of exercise of the Option, to have the
exercise treated as fully effective for all purposes upon receipt of the Option
Price by the Plan Sponsor regardless of whether or not the sale of the Stock by
the broker is closed and settled.  A properly executed certificate or
certificates representing the Shares shall be delivered to the Option Holder
upon payment.  If Options on less than all Shares evidenced by an Option
Agreement are exercised, the Plan Sponsor shall deliver a new Option Agreement
evidencing the Option on the remaining Shares upon delivery of the Option
Agreement for the Option being exercised.

4.5           Payment of the Exercise Price.  The exercise price shall be paid
by any of the following methods or any combination of the following methods at
the election of the Option Holder, or by any other method approved by the
Committee upon the request of the Option Holder:

(a)           in cash.

(b)                                 by certified check, cashier’s check or other
check acceptable to the Plan Sponsor, payable to the order of the Plan Sponsor.

(c)                                  by delivery to the Plan Sponsor of
certificates representing the number of Shares then owned by the Option Holder,
the Fair Market Value of which equals the purchase price of the Stock purchased
pursuant to the Option, properly endorsed for transfer to the Plan Sponsor.  No
Option may be exercised by delivery to the Plan Sponsor of certificates
representing Stock, unless such Stock has been held by the Option Holder for
more than six months.  The Fair Market Value of any shares of Stock delivered in
payment of the purchase price upon exercise of the Option under the Plan shall
be the Fair Market Value as of the exercise date.  The exercise date shall be
the day of delivery of the certificates for the Stock used as payment of the
Option Price.

(d)                                 by delivery to the Plan Sponsor of a
properly executed notice of exercise together with irrevocable instructions to a
broker to deliver to the Plan Sponsor promptly the amount of the proceeds of the
sale of all or a portion of the Stock or of a loan from the broker to the Option
Holder required to pay the Option Price.

4.6           Withholding Requirement.  The Plan Sponsor’s obligations to
deliver shares of Stock upon the exercise of any Option shall be subject to the
Participant’s satisfaction of all applicable federal, state and local income and
other tax withholding requirements.  Upon exercise of an Option,

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the Option Holder shall make appropriate arrangements with the Company to
provide for the amount of additional withholding required by Code §§ 3102 and
3402 and applicable state income tax laws, including payment of such taxes
through delivery of shares of Stock or by withholding Stock to be issued under
the Option.

4.7           Withholding With Stock.  The Committee may, in its sole
discretion, grant the Participant an election to pay all such amounts of tax
withholding, or any part thereof, by electing to transfer to the Plan Sponsor,
or to have the Plan Sponsor withhold from Shares otherwise issuable to the
Participant, shares of Stock having a value equal to the amount required to be
withheld or such lesser amount as may be elected by the Participant.  All
elections shall be subject to the approval or disapproval of the Committee.  The
value of shares of Stock to be withheld shall be based on the Fair Market Value
of the Stock on the date that the amount of tax to be withheld is to be
determined (the “Tax Date”).  Any such elections by Participants to have shares
of Stock withheld for this purpose will be subject to the following
restrictions:

(a)           All elections must be made prior to the Tax Date.

(b)           All elections shall be irrevocable.

(c)           If the Participant is an officer or director of the Plan Sponsor
within the meaning of Section 16 of the Exchange Act (“Section 16”), the
Participant must satisfy the requirements of Section 16 and any applicable Rules
thereunder with respect to the use of Stock to satisfy such tax withholding
obligation.

4.8           Shareholder Privileges.  No Option Holder shall have any rights as
a shareholder with respect to any shares of Stock covered by an Option until the
Option Holder becomes the holder of record of such Stock, and no adjustments
shall be made for dividends or other distributions or other rights as to which
there is a record date preceding the date such Option Holder becomes the holder
of record of such Stock, except as provided in the Plan.

ARTICLE V
RESTRICTED STOCK

5.1           Grant of Restricted Stock Awards.  The Committee may grant a
Participant one or more Restricted Stock Awards consisting of Shares of Stock. 
The number of Shares granted as a Restricted Stock Award shall be determined by
the Committee.

5.2           Restrictions.  A Participant’s right to retain a Restricted Stock
Award granted to the Participant under this Article shall be subject to such
restrictions, including but not limited to the Participant’s continuous
employment by or performance of services for the Company for a restriction
period specified by the Committee or the attainment of specified performance
goals and objectives, as may be established by the Committee with respect to
such Award.  The Committee may, in its sole discretion, require different
periods of service or different performance goals and objectives with respect to
different Participants, to different Restricted Stock Awards or to separate,
designated portions of the Shares constituting a Restricted Stock Award.  In the
event of the death or Disability

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of a Participant, or the retirement of a Participant in accordance with the
Company’s established retirement policy, all required periods of service and
other restrictions applicable to Restricted Stock Awards then held by the
Participant shall lapse, and the Award shall become fully nonforfeitable. 
Except as otherwise determined by the Committee, if a Participant’s employment
or consulting services terminate for any other reason, any Restricted Stock
Awards as to which the period for which services are required or other
restrictions have not been satisfied (or waived or accelerated) shall be
forfeited, and all shares of Stock related thereto shall be immediately returned
to the Company.

5.3           Privileges of a Stockholder; Transferability.  Unless otherwise
provided in the Restricted Stock Award, a Participant shall have all voting,
dividend, liquidation and other rights with respect to Stock in accordance with
its terms received by the Participant as a Restricted Stock Award under this
Article upon the Participant’s becoming the holder of record of such Stock,
except the Participant’s right to sell, encumber or otherwise transfer such
Stock.

5.4           Enforcement of Restrictions.  The Committee shall cause a legend
to be placed on the Stock certificates issued pursuant to each Restricted Stock
Award referring to the restrictions of this Article and, in addition, may in its
sole discretion require one or more of the following methods of enforcing the
restrictions of this Article:

(a)                                  Requiring the Participant to keep the Stock
certificates, duly endorsed, in the custody of the Company while the
restrictions remain in effect; or

(b)                                 Requiring that the Stock certificates, duly
endorsed, be held in the custody of a third party while the restrictions remain
in effect.

ARTICLE VI
STOCK BONUSES

The Committee may award Stock Bonuses to such Participants, subject to such
conditions and restrictions, as it determines in its sole discretion.  Stock
Bonuses may be either outright grants of Stock, or may be grants of Stock
subject to and conditioned upon certain employment or performance related goals.

From time to time during the duration of this Plan, the Board may, in its sole
discretion, adopt one or more incentive compensation arrangements for
Participants pursuant to which the Participants may acquire shares of Stock,
whether by purchase, outright grant or otherwise.  Any such arrangements shall
be subject to the general provisions of this Plan and all shares of Stock issued
pursuant to such arrangements shall be issued under this Plan.

 

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ARTICLE VII
PLAN ADMINISTRATION

7.1           Committee.  The Plan shall be administered by a Committee
appointed by and serving at the pleasure of the Board of Directors, consisting
of not less than two Directors (the “Committee”) and consisting solely of
outside Directors (within the meaning of Code § 162(m)(4)(C)(i)). The Board of
Directors may from time to time remove members from or add members to the
Committee, and vacancies on the Committee, howsoever caused, shall be filled by
the Board of Directors.  The Committee shall be so constituted at all times as
to permit the Plan to comply with Rule 16b-3 or any successor rule promulgated
under the Exchange Act and to permit Awards to comply with the performance based
compensation exception of Code § 162(m).  Members of the Committee and any
subcommittee or special committee shall be appointed from time to time by the
Board, shall serve at the pleasure of the Board and may resign at any time upon
written notice to the Board.

7.2           Committee Meetings and Actions.  The Committee shall hold meetings
at such times and places as it may determine.  A majority of the members of the
Committee shall constitute a quorum, and the acts of the majority of the members
present at a meeting or a consent in writing signed by all members of the
Committee shall be the acts of the Committee and shall be final, binding and
conclusive upon all persons, including the Company, its shareholders and all
persons having any interest in Awards that may be or have been granted pursuant
to the Plan.

7.3           Powers of Committee.   In accordance with the provisions of the
Plan, the Committee shall, in its sole discretion, select the Participants from
among the Eligible Employees and Eligible Consultants, determine the Awards to
be made pursuant to the Plan, and the time at which such Awards are to be made,
fix the Option Price, period and manner in which an Option becomes exercisable,
the vesting period and other restrictions on Restricted Stock, and establish
such other terms of Awards under the Plan as the Committee may deem necessary or
desirable and consistent with the terms of the Plan.  The Committee shall
determine the form or forms of the agreements with Participants that shall
evidence the particular provisions, terms, conditions, rights and duties of the
Plan Sponsor and the Participants with respect to Awards granted pursuant to the
Plan, which provisions need not be identical except as may be provided herein. 
The Committee shall have the full and exclusive right to grant and determine
terms and conditions of all Options granted under the Plan.  In granting
Options, the Committee shall take into consideration the contribution the Option
Holder has made or may make to the success of the Company or its subsidiaries
and such other factors as the Committee shall determine.  The Committee may from
time to time adopt such rules and regulations for carrying out the purposes of
the Plan as it may deem proper and in the best interests of the Company.  The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any agreement entered into hereunder in the
manner and to the extent it shall deem expedient and it shall be the sole and
final judge of such expediency.  No member of the Committee shall be liable for
any action or determination made in good faith.  The determinations,
interpretations and other actions of the Committee pursuant to the provisions of
the Plan shall be binding and conclusive for all purposes and on all persons.

7.4           Interpretation of Plan.  The determination of the Committee as to
any disputed question arising under the Plan, including questions of
construction and interpretation, shall be final,

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binding and conclusive upon all persons, including the Company, its shareholders
and all persons having any interest in Awards that may be or have been granted
pursuant to the Plan.

7.5           Indemnification.  Each person who is or shall have been a member
of the Committee or of the Board of Directors shall be indemnified and held
harmless by the Plan Sponsor against and from any loss, cost, liability or
expense that may be imposed upon or reasonably incurred in connection with or
resulting from any claim, action, suit or proceeding to which such person may be
a party or in which such person may be involved by reason of any action taken or
failure to act under the Plan and against and from any and all amounts paid in
settlement thereof, with the Company’s approval, or paid in satisfaction of a
judgment in any such action, suit or proceeding against him, provided such
person shall give the Company an opportunity, at its own expense, to handle and
defend the same before undertaking to handle and defend it on such person’s own
behalf.  The foregoing right of indemnification shall not be exclusive of, and
is in addition to, any other rights of indemnification to which any person may
be entitled under the Plan Sponsor’s Articles of Incorporation or Bylaws, as a
matter of law, or otherwise, or any power that the Company may have to indemnify
them or hold them harmless.

ARTICLE VIII
STOCK SUBJECT TO THE PLAN

8.1           Number of Shares.  The number of Shares that are authorized for
issuance under the Plan in accordance with the provisions of the Plan and
subject to such restrictions or other provisions as the Committee may from time
to time deem necessary shall not exceed 20% of the issued and outstanding Shares
as of the date of the grant or award, subject to the adjustment provisions in
this Article.  The Shares may be either authorized and unissued Shares or
previously issued Shares acquired by the Plan Sponsor.  This authorization may
be increased from time to time by approval of the Board and by the shareholders
of the Plan Sponsor if, in the opinion of counsel for the Plan Sponsor,
shareholder approval is required.  Shares of Stock that may be issued upon
exercise of Options under the Plan shall be applied to reduce the maximum number
of Shares remaining available for use under the Plan.  The Plan Sponsor shall at
all times during the term of the Plan and while any Options are outstanding
retain as authorized and unissued Stock at least the number of Shares from time
to time required under the provisions of the Plan, or otherwise assure itself of
its ability to perform its obligations hereunder.

8.2           Unused Stock.  Any shares of Stock that are subject to an Award
that expires or for any reason is terminated unexercised and any shares of Stock
withheld for the payment of taxes or received by the Plan Sponsor as payment of
the exercise price of an Option or otherwise as contemplated by the Plan shall
automatically become available for use under the Plan.

8.3           Adjustments for Stock Splits and Stock Dividends.  If the Plan
Sponsor shall at any time increase or decrease the number of its outstanding
Shares or change in any way the rights and privileges of such Shares by means of
the payment of a stock dividend or any other distribution upon such shares
payable in Stock, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Stock, then in
relation to the Stock that is affected by one or more of the above events, the
numbers, rights and privileges of the following shall be

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increased, decreased or changed in like manner as if they had been issued and
outstanding, fully paid and nonassessable at the time of such occurrence:  (i)
the Shares as to which Awards may be granted under the Plan and (ii) the Shares
then included in each outstanding Award granted hereunder.

8.4           General Adjustment Rules.  No adjustment or substitution provided
for in this Article shall require the Plan Sponsor to sell a fractional share of
Stock under any Option, or otherwise issue a fractional share of Stock, and the
total substitution or adjustment with respect to each Option and other Award
shall be limited by deleting any fractional share.  In the case of any such
substitution or adjustment, the aggregate Option Price for the total number of
shares of Stock then subject to an Option shall remain unchanged but the Option
Price per share under each such Option shall be equitably adjusted by the
Committee to reflect the greater or lesser number of shares of Stock or other
securities into which the Stock subject to the Option may have been changed, and
appropriate adjustments shall be made to other Awards to reflect any such
substitution or adjustment.

8.5           Determination by the Committee.  Adjustments under this Article
shall be made by the Committee, whose determinations shall be final and binding
upon all parties.

ARTICLE IX
GENERAL RESTRICTIONS

9.1           Compliance with Securities Laws.  Each Award grant shall be
subject to the requirement that, if at any time counsel to the Plan Sponsor
shall determine that the listing, registration or qualification of the Shares
subject to such Award grant upon any securities exchange or under any state or
federal law, or the consent or approval of any governmental or regulatory body,
is necessary as a condition of, or in connection with, the issuance or purchase
of Shares thereunder, such Award grant may not be accepted or exercised in whole
or in part unless such listing, registration, qualification, consent or approval
shall have been effected or obtained on conditions acceptable to the Committee. 
Nothing herein shall be deemed to require the Plan Sponsor to apply for or to
obtain such listing, registration or qualification.

9.2           Changes in Accounting Rules.  Except as provided otherwise at the
time an Award is granted, notwithstanding any other provision of the Plan to the
contrary, if, during the term of the Plan, any changes in the financial or tax
accounting rules applicable to Options or other Awards shall occur which, in the
sole judgment of the Committee, may have a material adverse effect on the
reported earnings, assets or liabilities of the Plan Sponsor, the Committee
shall have the right and power to modify as necessary, any then outstanding and
unexercised Options or other Awards as to which the applicable services or other
restrictions have not been satisfied.

ARTICLE X
REQUIREMENTS OF LAW

10.1         Requirements of Law.  The issuance of Stock and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.

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10.2         Federal Securities Law Requirements.  If a Participant is an
officer or director of the Plan Sponsor within the meaning of Section 16 of the
Exchange Act, Awards granted hereunder shall be subject to all conditions
required under Rule 16b-3, or any successor rule promulgated under the Exchange
Act, to qualify the Award for any exception from the provisions of Section 16(b)
of the Exchange Act available under that Rule.  Such conditions shall be set
forth in the agreement with the Participant which describes the Award or other
document evidencing or accompanying the Award.

10.3         Governing Law.  The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Colorado.

ARTICLE XI
DURATION OF THE PLAN

Unless sooner terminated by the Board of Directors, the Plan shall terminate at
the close of business on May 30, 2017, and no Award shall be granted after such
termination.  Awards outstanding at the time of the Plan termination may
continue to be exercised, or become free of restrictions, in accordance with
their terms.

ARTICLE XII
PLAN AMENDMENT, MODIFICATION AND TERMINATION

The Board may at any time terminate, and from time to time may amend or modify
the Plan, provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the shareholders
if shareholder approval is required to enable the Plan to satisfy any applicable
statutory or regulatory requirements, or if the Plan Sponsor, on the advice of
counsel, determines that shareholder approval is otherwise necessary or
desirable.

No amendment, modification or termination of the Plan shall in any manner
adversely affect any Award previously granted under the Plan, without the
consent of the Participant holding such Award.

ARTICLE XIII
CHANGE OF CONTROL

Notwithstanding any exercise dates or vesting provisions stated in any agreement
pertaining to any Award, upon the occurrence of a Change of Control all exercise
dates of any outstanding Award shall accelerate and all outstanding Awards shall
vest.

ARTICLE XIV
MISCELLANEOUS

14.1         Gender and Number.  Except when otherwise indicated by the context,
the masculine gender shall also include the feminine gender, and the definition
of any term herein in the singular shall also include the plural.

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14.2         No Right to Continued Employment.  Nothing contained in the Plan or
in any Award granted under the Plan shall confer upon any Participant any right
with respect to the continuation of his employment by, or consulting
relationship with, the Company, or interfere in any way with the right of the
Company, subject to the terms of any separate employment agreement or other
contract to the contrary, at any time to terminate such services or to increase
or decrease the compensation of the Participant from the rate in existence at
the time of the grant of an Award.  Nothing in this Plan shall limit or impair
the Company’s right to terminate the employment of any employee, to terminate
the consulting services of any consultant or to terminate the services of any
director.  Whether an authorized leave of absence, or absence in military or
government service, shall constitute a termination of service shall be
determined by the Committee at the time in its sole discretion.

14.3         Nontransferability.  Except as provided otherwise in the Plan or
determined by the Committee, no right or interest of any Participant in an Award
granted pursuant to the Plan shall be assignable or transferable during the
lifetime of the Participant, either voluntarily or involuntarily, or subjected
to any lien, directly or indirectly, by operation of law, or otherwise,
including execution, levy, garnishment, attachment, pledge or bankruptcy.  In
the event of a Participant’s death, a Participant’s rights and interests in
Awards shall, to the extent provided in the Plan, be transferable by will or the
laws of descent and distribution, and payment of any amounts due under the Plan
shall be made to, and exercise of any Awards may be made by, the Participant’s
legal representatives, heirs or legatees.  If, in the opinion of the Committee,
a person entitled to payments or to exercise rights with respect to the Plan is
disabled from caring for his affairs because of mental condition, physical
condition or age, payment due such person may be made to, and such rights shall
be exercised by, such person’s guardian, conservator or other legal personal
representative upon furnishing the Committee with evidence satisfactory to the
Committee of such status.

14.4         No Plan Funding.  Obligations to Participants under the Plan will
not be funded, trusteed, insured or secured in any manner.  The Participants
under the Plan shall have no security interest in any assets of the Company, and
shall be only general creditors of the Company.

14.5         Other Employee Benefits.  The amount of any compensation deemed to
be received by a Participant as a result of the exercise of an Option or receipt
of any other Award or the sale of Shares received upon such exercise or Award
shall not constitute “earnings” or “compensation” with respect to which any
other employee benefits of such employee are determined, including without
limitation benefits under any pension, profit sharing, 401(k), life insurance or
salary continuation plan.

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IN WITNESS WHEREOF, the Plan Sponsor has caused this Plan to be duly executed,
effective as of the Effective Date.

PRB ENERGY, INC.

 

Plan Sponsor

 

 

 

 

By:

/s/ Robert W. Wright

 

 

 

 

Title:

Chairman and CEO

 

 

 

 

Date:

May 31, 2007

 

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