Exhibit 10.4

 
INCENTIVE STOCK OPTION AGREEMENT
 
THIS INCENTIVE STOCK OPTION AGREEMENT (the “Agreement”) is made as of the XX day
of <DATE>, XXXX, between STANDARD DRILLING, INC., a Delaware corporation (the
“Company”), and <NAME>(“Executive”).
 
To carry out the purposes of the STANDARD DRILLING, INC. 2006 STOCK
INCENTIVE PLAN (the “Plan”), by affording Executive the opportunity to purchase
shares of the common stock of the Company, par value $0.001 per share (“Stock”),
and in consideration of the mutual agreements and other matters set forth herein
and in the Plan, the Company and Executive hereby agree as follows:
 
1. Grant of Option. The Company hereby irrevocably grants to Executive the right
and option (“Option”) to purchase all or any part of an aggregate of <NUMBER>
shares of Stock on the terms and conditions set forth herein and in the Plan,
which Plan is incorporated herein by reference as a part of this Agreement. In
the event of any conflict between the terms of this Agreement and the Plan, the
Plan shall control. Capitalized terms used but not defined in this Agreement
shall have the meaning attributed to such terms under the Plan, unless the
context requires otherwise. This Option is intended to constitute an incentive
stock option, within the meaning of section 422(b) of the Code, to the maximum
extent permitted under the Code. Executive acknowledges that only a portion of
this Option may qualify as such an incentive stock option due to the limitation
set forth in section 422(d) of the Code.
 
2. Purchase Price. The purchase price of Stock purchased pursuant to the
exercise of this Option shall be <PRICE> per share, which has been determined to
be not less than the Fair Market Value of the Stock at the date of grant of this
Option. For all purposes of this Agreement, Fair Market Value of Stock shall be
determined in accordance with the provisions of the Plan.
 
3. Exercise of Option. Subject to the earlier expiration of this Option as
herein provided, this Option may be exercised, by written notice to the Company
at its principal executive office addressed to the attention of its Corporate
Secretary (or such other officer or Executive of the Company as the Company may
designate from time to time), at any time and from time to time after the date
of grant hereof, but, except as otherwise provided below, this Option shall not
be exercisable for more than a percentage of the aggregate number of shares
offered by this Option determined by the number of full years from the date of
grant hereof to the date of such exercise, in accordance with the following
schedule:
 

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Number of Full Years
Percentage of Shares
That May Be Purchased

 
Less than
1 year
0%
 
1 year
25%
 
2 years
50%
 
3 years
75%
 
4 years or more
100%

 
Notwithstanding the exercise schedule above or any provision in the Plan to the
contrary, if Executive is employed by the Company immediately prior to the
consummation of any Corporate Change (as defined below), this Option shall be
exercisable for the entire number of shares set forth in Paragraph 1 hereof upon
the consummation of such Corporate Change. For purposes of the preceding
sentence, the term “Corporate Change” shall have the same meaning as is assigned
to such term in the Plan; provided, however, that the term “Corporate Change”
shall not include any reorganization, merger, consolidation, or similar
transaction or series of transactions pursuant to which the record holders of
the outstanding shares of the Company’s stock immediately prior to such
transaction or series of transactions continue to hold immediately following
such transaction or series of transactions 50% or more of the outstanding voting
securities (based upon voting power) of (a) any entity which owns (directly or
indirectly) the stock of the Company, (b) any entity with which the Company has
merged, or (c) any entity that owns an entity with which the Company has merged.
In addition, in no event shall a recapitalization of the Company, a
reclassification of the Company’s capital stock, or other change in the
Company’s capital structure (a “recapitalization”), or an underwritten initial
public offering of stock made by the Company pursuant to an effective
registration statement filed under the Securities Act of 1933, as amended (the
“Securities Act”), constitute a Corporate Change, and the exercise of this
Option shall not be accelerated upon the occurrence of any such recapitalization
or initial public offering.
 
This Option may be exercised only while Executive remains an Executive of the
Company and will terminate and cease to be exercisable upon Executive’s
termination of employment with the Company, except that:
 
(a)If Executive’s employment with the Company terminates by reason of disability
(within the meaning of section 22(e)(3) of the Code), this Option may be
exercised by Executive (or Executive’s estate or the person who acquires this
Option by will or the laws of descent and distribution or otherwise by reason of
the death of Executive) at any time during the period of one year following such
termination, but only as to the number of shares Executive was entitled to
purchase hereunder as of the date Executive’s employment so terminates.
 
(b)If Executive dies while in the employ of the Company, Executive’s estate, or
the person who acquires this Option by will or the laws of descent and
distribution or otherwise by reason of the death of Executive, may exercise this
Option at any time during the period of one year following the date of
Executive’s death, but only as to the number of shares Executive was entitled to
purchase hereunder as of the date of Executive’s death.
 
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(c)If Executive’s employment with the Company terminates for any reason other
than as described in (a) or (b) above, unless such employment is terminated for
cause, this Option may be exercised by Executive at any time during the period
of three months following such termination, or by Executive’s estate (or the
person who acquires this Option by will or the laws of descent and distribution
or otherwise by reason of the death of Executive) during a period of one year
following Executive’s death if Executive dies during such three month period,
but in each case only as to the number of shares Executive was entitled to
purchase hereunder as of the date Executive’s employment so terminates. As used
in this paragraph, the term “cause” shall mean Executive (i) has been convicted
of a misdemeanor involving moral turpitude or of a felony, (ii) has engaged in
gross negligence or willful misconduct in the performance of the duties of
Executive’s employment, or (iii) has materially breached any material provision
of any written agreement between Executive and the Company or any of its
Affiliates.
 
This Option shall not be exercisable in any event after the expiration of 10
years from the date of grant hereof.
 
Except as provided in Paragraph 4, the purchase price of shares as to which this
Option is exercised shall be paid in full at the time of exercise (a) in cash
(including check, bank draft or money order payable to the order of the
Company), (b) by delivering or constructively tendering to the Company shares of
Stock having a Fair Market Value equal to the purchase price (provided such
shares used for this purpose must have been held by Executive for such minimum
period of time as may be established from time to time by the Committee), (c) if
the Stock is readily tradable on a national securities market, through a
“cashless exercise” in accordance with a Company established policy or program
for the same, or (d) any combination of the foregoing. No fraction of a share of
Stock shall be issued by the Company upon exercise of an Option or accepted by
the Company in payment of the exercise price thereof; rather, Executive shall
provide a cash payment for such amount as is necessary to effect the issuance
and acceptance of only whole shares of Stock. Unless and until a certificate or
certificates representing such shares shall have been issued by the Company to
Executive, Executive (or the person permitted to exercise this Option in the
event of Executive’s death) shall not be or have any of the rights or privileges
of a shareholder of the Company with respect to shares acquirable upon an
exercise of this Option.
 
4. Stock Appreciation Right. Upon an exercise of this Option, Executive (or the
person exercising this Option in the event of Executive’s death) may request the
Company to compute an amount (the “Appreciation Amount”) equal to the excess of
the aggregate Fair Market Value of any number of the shares of Stock with
respect to which this Option is exercised over the aggregate purchase price of
such number of shares. Moreover, Executive (or such person) may elect (subject
to the consent or disapproval of the Committee of any election to receive cash)
to have the Company distribute to Executive (or such person), in lieu of
Executive’s purchasing such number of shares, an amount of cash and/or a whole
number of shares of Stock (in any combination thereof as Executive or such
person may elect) in Fair Market Value equal to the Appreciation Amount.
Notwithstanding anything to the contrary herein, if Executive is then an
officer, director or affiliate of the Company who is subject to section 16 of
the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”),
this Option may not be exercised prior to the expiration of six months from the
date of grant hereof (except in the event of the death or disability of
Executive prior to the expiration of such six month period); thereafter, any
exercise of this Option or election pursuant to this Paragraph 4 wherein
Executive would receive any portion of the Appreciation Amount in cash (other
than cash in lieu of a fractional share) may be made only during a period
beginning on the third business day and ending on the twelfth business day
following the date of release by the Company for publication of quarterly and
annual summary statements of sales and earnings. Should Executive elect pursuant
to this Paragraph 4 to receive the Appreciation Amount solely in shares of
Stock, the number of shares of Stock distributable to Executive shall be the
highest whole number of shares whose value does not exceed the Appreciation
Amount, and any fractional share shall be paid in cash.
 
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5. Withholding of Tax. To the extent that the exercise of this Option or the
disposition of shares of Stock acquired by exercise of this Option results in
compensation income or wages to Executive for federal, state or local tax
purposes, Executive shall deliver to the Company at the time of such exercise or
disposition such amount of money as the Company may require to meet its minimum
obligation under applicable tax laws or regulations. Executive may elect with
respect to this Option to surrender or authorize the Company to withhold shares
of Stock (valued at their Fair Market Value on the date of surrender or
withholding of such shares) to satisfy any tax required to be withheld upon
exercise of this Option. An election pursuant to the preceding sentence shall be
referred to herein as a “Stock Withholding Election.” All Stock Withholding
Elections shall be made by written notice to the Company’s Corporate Secretary
(or such other officer or Executive of the Company as the Company may designate
from time to time). If Executive is not a Section 16 Person (as hereinafter
defined), Executive may revoke such election by delivering to the Company’s
Corporate Secretary (or such other designated officer or Executive) written
notice of such revocation prior to the date such election is implemented through
actual surrender or withholding of shares of Stock (the “Withholding Date”). If
Executive is a Section 16 Person, the Stock Withholding Election must:
 
(a) be irrevocable and made six months prior to the Withholding Date; or
 
(b) (i) be approved by the Committee either before or after such election is
made, (ii) be made, and the Withholding Date occur, during a period beginning on
the third business day following the date of release by the Company for
publication of quarterly and annual summary statements of sales and earnings and
ending on the twelfth business day following such date, and (iii) be made more
than six months after the date of the grant of this Option to Executive; or
 
(c) be made in connection with (i) a delivery to the Company of shares of Stock
owned by Executive prior to the exercise of this Option to satisfy the portion
of the tax required to be withheld with respect to those shares of Stock
received by Executive upon exercise of this Option for which payment of the
purchase price was made to the Company in shares of Stock owned by Executive
prior to the exercise of this Option pursuant to Paragraph 3 hereof and (ii) the
exercise of this Option more than six months after the date of grant hereof.
 
If Executive fails to pay the required amount to the Company or fails to make a
Stock Withholding Election, the Company is authorized to withhold from any cash
remuneration (or, if Executive is not a Section 16 Person, Stock remuneration,
including withholding any shares of Stock distributable to Executive upon
exercise of this Option) then or thereafter payable to Executive any tax
required to be withheld by reason of the exercise of this Option or the
disposition of shares of Stock acquired by exercise of this Option. For purposes
of this Agreement, the term “Section 16 Person” means an officer, director or
affiliate of the Company or a former officer, director or affiliate of the
Company who is subject to Section 16 of the Securities Exchange Act.
 
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6. Certain Restrictions. Shares of Stock purchased pursuant to the exercise of
this Option shall be subject to the following restrictions (until such time as
such restrictions terminate as provided below):
 
(a) such shares of Stock may not be sold, assigned, pledged, exchanged,
hypothecated or otherwise transferred, encumbered or disposed of by Executive;
and
 
(b) if Executive’s employment with the Company is terminated for “cause,” as
defined in Paragraph 3(c) hereof, the Company (or any subsidiary of the Company
designated by it) shall have the option for 60 days after such termination of
employment to purchase for cash all or any part of such shares of Stock at the
purchase price paid therefor upon exercise of this Option.
 
The restrictions imposed on such shares of Stock under this Paragraph shall
terminate on the earliest to occur of the following:
 
(a) the 90th day after the date on which shares of Stock are first listed or
admitted to unlisted trading privileges on a national stock exchange or on the
National Market System of NASDAQ or have sales or bid and offer quotations
reported in the automated quotation system operated by the National Association
of Securities Dealers, Inc.;
 
(b) the 10th anniversary of the date of grant of this Option;
 
(c) as to any shares of Stock for which the Company’s (or a subsidiary’s) 60 day
option to purchase upon termination of Executive’s employment with the Company
shall have become exercisable but shall have expired without having been
exercised, on the first business day of the calendar month next following the
expiration of such 60 day option period;
 
(d) the first business day of the calendar month next following the termination
of Executive’s employment with the Company because of Executive’s death, normal
or early retirement in accordance with his employer’s established employment
policies or practices, or disability (within the meaning of section 22(e)(3) of
the Code); or
 
(e) the date of the termination of this Option due to an adjustment being made
to this Option pursuant to Paragraph IX of the Plan.
 
7. Lock-up Provision. Executive hereby agrees that in the event of any
underwritten public offering of stock, including an initial public offering of
stock, made by the Company pursuant to an effective registration statement filed
under the Securities Act, Executive shall not offer, sell, contract to sell,
pledge, hypothecate, grant any option to purchase or make any short sale of, or
otherwise dispose of any shares of stock of the Company or any rights to acquire
stock of the Company for such period of time from and after the effective date
of such registration statement as may be established by the underwriter for such
public offering; provided, however, that such period of time shall not exceed
180 days from the effective date of the registration statement to be filed in
connection with such public offering. The foregoing limitation shall not apply
to shares registered in the public offering under the Securities Act. Executive
shall be subject to this Paragraph provided and only if the officers and
directors of the Company are also subject to similar arrangements.
 
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8. Status of Stock. Executive understands that at the time of the execution of
this Agreement the shares of Stock to be issued upon exercise of this Option
have not been registered under the Securities Act, or any state securities law,
and that the Company does not currently intend to effect any such registration.
Until the shares of Stock acquirable upon the exercise of the Option have been
registered for issuance under the Securities Act, the Company will not issue
such shares unless the holder of the Option provides the Company with a written
opinion of legal counsel, who shall be satisfactory to the Company, addressed to
the Company and satisfactory in form and substance to the Company’s counsel, to
the effect that the proposed issuance of such shares to such Option holder may
be made without registration under the Securities Act. In the event exemption
from registration under the Securities Act is available upon an exercise of this
Option, Executive (or the person permitted to exercise this Option in the event
of Executive’s death or incapacity), if requested by the Company to do so, will
execute and deliver to the Company in writing an agreement containing such
provisions as the Company may require to assure compliance with applicable
securities laws.
 
Executive agrees that the shares of Stock which Executive may acquire by
exercising this Option shall be acquired for investment without a view to
distribution, within the meaning of the Securities Act, and shall not be sold,
transferred, assigned, pledged or hypothecated in the absence of an effective
registration statement for the shares under the Securities Act and applicable
state securities laws or an applicable exemption from the registration
requirements of the Securities Act and any applicable state securities laws.
Executive also agrees that the shares of Stock which Executive may acquire by
exercising this Option will not be sold or otherwise disposed of in any manner
which would constitute a violation of any applicable federal or state securities
laws.
 
In addition, Executive agrees that (i) the certificates representing the shares
of Stock purchased under this Option may bear such legend or legends as the
Committee deems appropriate in order to assure compliance with Paragraph 6,
Paragraph 7, and applicable securities laws, (ii) the Company may refuse to
register the transfer of the shares of Stock purchased under this Option on the
stock transfer records of the Company if such proposed transfer would in the
opinion of counsel satisfactory to the Company constitute a violation of
Paragraph 6, Paragraph 7, or any applicable securities law, and (iii) the
Company may give related instructions to its transfer agent, if any, to stop
registration of the transfer of the shares of Stock purchased under this Option.
 
9. Employment Relationship. For purposes of this Agreement, Executive shall be
considered to be in the employment of the Company as long as Executive remains
an Executive of either the Company, an Affiliate, or a corporation or a parent
or subsidiary of such corporation assuming or substituting a new option for this
Option. Without limiting the scope of the preceding sentence, it is expressly
provided that Executive shall be considered to have terminated employment with
the Company at the time of the termination of the “Affiliate” status under the
Plan of the entity or other organization that employs Executive. Any question as
to whether and when there has been a termination of such employment, and the
cause of such termination, shall be determined by the Committee and its
determination shall be final.
 
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10. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of any successors to the Company and all persons lawfully claiming under
Executive.
 
11. Entire Agreement. This Agreement constitutes the entire agreement of the
parties with regard to the subject matter hereof, and contains all the
covenants, promises, representations, warranties and agreements between the
parties with respect to the Option granted hereby. Without limiting the scope of
the preceding sentence, all prior understandings and agreements, if any, among
the parties hereto relating to the subject matter hereof are hereby null and
void and of no further force and effect. Any modification of this Agreement
shall be effective only if it is in writing and signed by both Executive and an
authorized officer of the Company.
 
12. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without regard to conflicts
of laws principles thereof.
 
13. Jurisdiction.Each of the Company and Executive hereby irrevocably (i)
submits and consents to the personal jurisdiction of the state and federal
courts sitting in Harris County, Texas with respect to any suit, action, or
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby and (ii) waives the right to contend in any such action that
venue is improperly laid in any such court or that it is an improper or
inconvenient forum or lacks personal jurisdiction. If Executive now or hereafter
resides outside the State of Texas, Executive hereby irrevocably appoints the
General Counsel of the Company as Executive’s authorized agent upon whom process
may be served at such General Counsel’s Company office for notices under this
Agreement in any suit, action, or proceeding arising out of or based upon this
Agreement or the transactions contemplated hereby that may be instituted in any
state or federal court in the State of Texas by the Company, and Executive
hereby agrees to so act. Executive agrees to take any and all action, including
the filing of any and all documents and instruments, that may be necessary to
continue such appointment in full force and effect as aforesaid. Service of
process upon the authorized agent of Executive and written notice of such
service to Executive shall be deemed, in every respect, effective service of
process as to Executive for purposes of any such suit, action, or proceeding
instituted in any state or federal court in the State of Texas.
 
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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed by
its officer thereunto duly authorized, and Executive has executed this
Agreement, all as of the day and year first above written.
 
 

 
STANDARD DRILLING, INC.
 
 
 By: 
     
Prentis B. Tomlinson, Jr., CEO
           (DIRECTOR / EXECUTIVE)          
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