Exhibit 10.4
STOCK APPRECIATION RIGHTS AGREEMENT
CRAFTMADE INTERNATIONAL, INC.
2006 LONG-TERM INCENTIVE PLAN
     1. Grant of Stock Appreciation Rights. Pursuant to the 2006 Long-Term
Incentive Plan (the “Plan”) of Craftmade International, Inc., a Delaware
corporation (the “Company”), the Company hereby grants to
 
(the “Participant”)
Stock Appreciation Rights relating to the appreciation in                     
shares of Common Stock of the Company (the “Stock Appreciation Rights” or
“SARs”) at an exercise price (the “SAR Price”) of $                     per
share (which is equal to or greater than the Fair Market Value of a share of
Common Stock as of the Date of Grant), all upon and subject to the terms and
conditions set forth in this Agreement. This SAR Agreement is intended to comply
with the provisions governing stock appreciation rights under Internal Revenue
Service Notice 2005-1 and the proposed Treasury Regulations issued on
September 29, 2005, in order to exempt the SARs from application of Section 409A
of the Code.
     2. Date of Grant. The Date of Grant of the Stock Appreciation Rights is
                    , 2006.
     3. Subject to Plan. This Agreement and its exercise are subject to the
terms and conditions of the Plan, and the terms of the Plan shall control to the
extent not otherwise inconsistent with the provisions of this Agreement. To the
extent the terms of the Plan are inconsistent with the provisions of this
Agreement, this Agreement shall control. The capitalized terms used herein that
are defined in the Plan shall have the same meanings assigned to them in the
Plan. The SARs are subject to any rules promulgated pursuant to the Plan by the
Board or the Committee and communicated to the Participant in writing.
     4. Vesting; Time of Exercise. Except as specifically provided in this
Agreement and subject to certain restrictions and conditions set forth in the
Plan, the SARs shall be vested and become exercisable as follows:
     a.                      percent (___%) of the total SARs shall vest and
become exercisable on the first anniversary of the Date of Grant, provided the
Participant is employed by (or, if the Participant is a Consultant or an Outside
Director, is providing services to) the Company or a Subsidiary on that date.
     b. An additional                      percent (___%) of the total SARs
shall vest and become exercisable on the second anniversary of the Date of
Grant, provided the Participant is employed by (or, if the Participant is a
Consultant or an Outside Director, is providing services to) the Company or a
Subsidiary on that date.
     c. An additional ___ percent (___%) of the total SARs shall vest and become
exercisable on the third anniversary of the Date of Grant, provided the
Participant is employed by (or, if the Participant is a Consultant or an Outside
Director, is providing services to) the Company or a Subsidiary on that date.
     d. The remaining                      percent (___%) of the total SARs
shall vest and become exercisable on the fourth anniversary of the Date of
Grant, provided the Participant is

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employed by (or, if the Participant is a Consultant or an Outside Director, is
providing services to) the Company or a Subsidiary on that date.
Notwithstanding the foregoing, one hundred percent (100%) of any unvested SARs
shall vest and become exercisable immediately prior to the effective date of a
Change in Control.
     5. Term; Forfeiture.
     a. Except as otherwise provided in this Agreement, unexercised SARs which
are not vested on the date of the Participant’s Termination of Service will be
terminated on that date. Unexercised SARs which are vested will terminate at the
first of the following to occur:
     i 5 p.m. on                     , 20___, (the period of time extending from
the date of this Agreement to such date being referred to herein as the “SARs
Period”);
     ii 5 p.m. on the date which is twelve (12) months following the date of the
Participant’s Termination of Service due to death or Total and Permanent
Disability;
     iii 5 p.m. on the date of the Participant’s Termination of Service by the
Company for cause (as defined herein); and
     iv. 5 p.m. on the date which is ninety (90) days following the date of the
Participant’s Termination of Service for any reason not otherwise specified in
this Section 5.
     b. For purposes hereof, “cause” shall mean the Participant’s Termination of
Service upon the occurrence of any of the following events: (i) any act of
fraud, misappropriation or embezzlement by the Participant with respect to any
aspect of the Company’s business; (ii) the material breach by the Participant of
any provisions in his or her employment agreement, which, if curable, the
Participant fails to cure in all material respects within thirty (30) days after
written notice thereof from the Board or its designee; (iii) the conviction of
the Participant by a court of competent jurisdiction of a felony or a crime
involving moral turpitude; (iv) the intentional failure by the Participant to
perform in all material respects his or her duties and responsibilities (other
than as a result of death or Total and Permanent Disability) and the failure of
the Participant to cure the same in all material respects within thirty
(30) days after written notice thereof from the Board or its designee; or
(v) the illegal use of drugs by the Participant during the term of his or her
employment that, in the determination of the Board, substantially interferes
with the Participant’s performance of his or her duties.
     6. Who May Exercise. Subject to the terms and conditions set forth in
Sections 4 and 5 above, during the lifetime of the Participant, SARs may be
exercised only by the Participant, or by the Participant’s guardian or personal
or legal representative. If the Participant’s Termination of Service is due to
his or her death prior to the termination dates specified in Section 5 hereof,
and the Participant has not exercised all of his or her then-vested SARs as of
the date of death, the following persons may exercise the exercisable portion of
the SARs on behalf of the Participant at any time prior to the earliest of the
dates specified in Section 5 hereof: the personal representative of his or her
estate, or the person who acquired the right to exercise the SARs by bequest or
inheritance or by reason of the death of the Participant; provided that the SARs
shall remain subject to the other terms of this Agreement, the Plan, and all
applicable laws, rules, and regulations.
     7. No Fractional Shares. SARs may be exercised only with respect to full
shares, and no fractional share of stock shall be issued.

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     8. Manner of Exercise and Payment. The Participant may exercise vested SARs
at any time prior to the termination of the SARs in accordance with Section 5
above by the delivery (including by FAX) of written notice to the Committee
setting forth the number of SARs to be exercised and the date of exercise
thereof (the “Exercise Date”) which shall be at least (3) days after giving such
notice, unless an earlier time shall have been mutually agreed upon. Only if
permissible under Section 409A of the Code and the regulations or other guidance
issued thereunder, on the Exercise Date (or, if not so permissible, at such time
as permitted by Section 409A of the Code and the regulations or other guidance
issued thereunder), the Company shall deliver to the Participant that number of
shares of Common Stock having an aggregate Fair Market Value, as of the Exercise
Date, equal to the excess (if any) of the Fair Market Value as of the Exercise
Date per share of Common Stock over the SAR Price per share specified in this
Agreement, multiplied by the total number of shares of SARs being exercised.
     9. Nonassignability. The SARs granted under this Agreement are not
assignable or transferable by the Participant except by will or by the laws of
descent and distribution.
     10. No Rights as Stockholder. The Participant will have no rights as a
stockholder of the Company with respect to any SARs until the issuance of a
certificate or certificates to the Participant for the SARs following exercise
of the SARs. The Participant, by his or her execution of this Agreement, agrees
to execute any documents requested by the Company in connection with the
issuance of a certificate or certificates following exercise of the SARs. Except
as otherwise provided in Section 11 hereof, no adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.
     11. Adjustment of Number of Shares and Related Matters. The number of
shares of Common Stock covered by the SARs, and the SAR Price thereof, shall be
subject to adjustment in accordance with Articles 11 — 13 of the Plan.
     12. Representations, Etc. Each spouse individually is bound by, and such
spouse’s interest, if any, in any Awarded Shares is subject to, the terms of
this Agreement. Nothing in this Agreement shall create a community property
interest where none otherwise exists.
     13. Simultaneous Death. If the Participant and his or her spouse both
suffer a common accident or casualty which results in their respective deaths
within 60 days of each other, it shall be conclusively presumed, for the purpose
of this Agreement, that the Participant died first and the spouse died
thereafter.
     14. Specific Performance. The parties acknowledge that remedies at law will
be inadequate remedies for breach of this Agreement and consequently agree that
this Agreement shall be enforceable by specific performance. The remedy of
specific performance shall be cumulative of all of the rights and remedies at
law or in equity of the parties under this Agreement.
     15. Participant’s Representations. Notwithstanding any of the provisions
hereof, the Participant hereby agrees that he or she will not exercise the SARs
granted hereby, and that the Company will not be obligated to issue any shares
to the Participant hereunder, if the exercise thereof or the issuance of such
shares shall constitute a violation by the Participant or the Company of any
provision of any law or regulation of any governmental authority. Any
determination in this connection by the Company shall be final, binding, and
conclusive. The obligations of the Company and the rights of the Participant are
subject to all applicable laws, rules, and regulations.
     16. Investment Representation. Unless the Common Stock is issued to him or
her in a transaction registered under applicable federal and state securities
laws, by his or her execution hereof, the Participant represents and warrants to
the Company that all Common Stock which may be purchased

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hereunder will be acquired by the Participant for investment purposes for his or
her own account and not with any intent for resale or distribution in violation
of federal or state securities laws. Unless the Common Stock is issued to him or
her in a transaction registered under the applicable federal and state
securities laws, all certificates issued with respect to the Common Stock shall
bear an appropriate restrictive investment legend and shall be held
indefinitely, unless they are subsequently registered under the applicable
federal and state securities laws or the Participant obtains an opinion of
counsel, in form and substance satisfactory to the Company and its counsel, that
such registration is not required.
     17. Participant’s Acknowledgments. The Participant acknowledges that a copy
of the Plan has been made available for his or her review by the Company, and
represents that he or she is familiar with the terms and provisions thereof, and
hereby accepts the SARs subject to all the terms and provisions thereof. The
Participant hereby agrees to accept as binding, conclusive, and final all
decisions or interpretations of the Committee or the Board, as appropriate, upon
any questions arising under the Plan or this Agreement.
     18. Law Governing. This Agreement shall be governed by, construed, and
enforced in accordance with the laws of the State of Delaware (excluding any
conflict of laws rule or principle of Delaware law that might refer the
governance, construction, or interpretation of this agreement to the laws of
another state).
     19. No Right to Continue Service or Employment. Nothing herein shall be
construed to confer upon the Participant the right to continue in the employ or
to provide services to the Company or any Subsidiary, whether as an Employee or
as a Consultant or as an Outside Director, or interfere with or restrict in any
way the right of the Company or any Subsidiary to discharge the Participant as
an Employee, Consultant or Outside Director at any time.
     20. Legal Construction. In the event that any one or more of the terms,
provisions, or agreements that are contained in this Agreement shall be held by
a court of competent jurisdiction to be invalid, illegal, or unenforceable in
any respect for any reason, the invalid, illegal, or unenforceable term,
provision, or agreement shall not affect any other term, provision, or agreement
that is contained in this Agreement and this Agreement shall be construed in all
respects as if the invalid, illegal, or unenforceable term, provision, or
agreement had never been contained herein.
     21. Covenants and Agreements as Independent Agreements. Each of the
covenants and agreements that are set forth in this Agreement shall be construed
as a covenant and agreement independent of any other provision of this
Agreement. The existence of any claim or cause of action of the Participant
against the Company, whether predicated on this Agreement or otherwise, shall
not constitute a defense to the enforcement by the Company of the covenants and
agreements that are set forth in this Agreement.
     22. Entire Agreement. This Agreement together with the Plan supersede any
and all other prior understandings and agreements, either oral or in writing,
between the parties with respect to the subject matter hereof and constitute the
sole and only agreements between the parties with respect to the said subject
matter. All prior negotiations and agreements between the parties with respect
to the subject matter hereof are merged into this Agreement. Each party to this
Agreement acknowledges that no representations, inducements, promises, or
agreements, orally or otherwise, have been made by any party or by anyone acting
on behalf of any party, which are not embodied in this Agreement or the Plan and
that any agreement, statement or promise that is not contained in this Agreement
or the Plan shall not be valid or binding or of any force or effect.
     23. Parties Bound. The terms, provisions, and agreements that are contained
in this Agreement shall apply to, be binding upon, and inure to the benefit of
the parties and their respective

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heirs, executors, administrators, legal representatives, and permitted
successors and assigns, subject to the limitation on assignment expressly set
forth herein.
     24. Modification. No change or modification of this Agreement shall be
valid or binding upon the parties unless the change or modification is in
writing and signed by the parties; provided, however, that the Company may
change or modify the terms of this Agreement, including, without limitation, the
SAR Price, without the Participant’s consent or signature if the Company
determines, in its sole discretion, that such change or modification is
necessary for purposes of compliance with or exemption from the requirements of
Section 409A of the Code or any regulations or other guidance issued thereunder.
Notwithstanding the preceding sentence, the Company may amend the Plan to the
extent permitted by the Plan.
     25. Headings. The headings that are used in this Agreement are used for
reference and convenience purposes only and do not constitute substantive
matters to be considered in construing the terms and provisions of this
Agreement.
     26. Gender and Number. Words of any gender used in this Agreement shall be
held and construed to include any other gender, and words in the singular number
shall be held to include the plural, and vice versa, unless the context requires
otherwise.
     27. Notice. Any notice required or permitted to be delivered hereunder
shall be deemed to be delivered only when actually received by the Company or by
the Participant, as the case may be, at the addresses set forth below, or at
such other addresses as they have theretofore specified by written notice
delivered in accordance herewith:
          a. Notice to the Company shall be addressed and delivered as follows:
Craftmade International, Inc.
                                                        
                                                        
Attn:                                               
Facsimile:                                       
     b. Notice to the Participant shall be addressed and delivered as set forth
on the signature page.
     28. Tax Requirements. The Participant is hereby advised to consult
immediately with his or her own tax advisor regarding the tax consequences of
this Agreement. The Company or, if applicable, any Subsidiary (for purposes of
this Section 28, the term “Company” shall be deemed to include any applicable
Subsidiary), shall have the right to deduct from all amounts paid hereunder in
cash or other form, any Federal, state, local, or other taxes required by law to
be withheld in connection with this Award. The Company may, in its sole
discretion, also require the Participant receiving shares of Common Stock issued
under the Plan to pay the Company the amount of any taxes that the Company is
required to withhold in connection with the Participant’s income arising with
respect to the Award. Such payments shall be required to be made when requested
by Company and may be required to be made prior to the delivery of any
certificate representing shares of Common Stock. Such payment may be made (i) by
the delivery of cash to the Company in an amount that equals or exceeds (to
avoid the issuance of fractional shares under (iii) below) the required tax
withholding obligations of the Company; (ii) if the Company, in its sole
discretion, so consents in writing, the actual delivery by the exercising
Participant to the Company of shares of Common Stock that the Participant has
not acquired from the Company within six (6) months prior to the date of
exercise, which shares so delivered have an aggregate Fair Market

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Value that equals or exceeds (to avoid the issuance of fractional shares under
(iii) below) the required tax withholding payment; (iii) if the Company, in its
sole discretion, so consents in writing, the Company’s withholding of a number
of shares to be delivered upon the exercise of this Agreement, which shares so
withheld have an aggregate Fair Market Value that equals (but does not exceed)
the required tax withholding payment; or (iv) any combination of (i), (ii), or
(iii). The Company may, in its sole discretion, withhold any such taxes from any
other cash remuneration otherwise paid by the Company to the Participant.
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     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed as
of                     , 2006, by its Chief Executive Officer and Secretary
pursuant to prior action by the Board.

                  COMPANY:    
 
                CRAFTMADE INTERNATIONAL, INC.    
 
           
 
  By:        
 
     
 
   
 
  Name:        
 
     
 
   
 
  Title:        
 
     
 
   
 
           
 
  PARTICIPANT:    
 
                     
 
  Signature        
 
           
 
  Name:        
 
     
 
   
 
  Address:        
 
     
 
   

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