EXHIBIT 10.7

 

TOREADOR ROYALTY CORPORATION

 

1994 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN

 

ARTICLE I

 

PURPOSE

 

It is the purpose of the Plan to promote the interests of the Company and its
stockholders by attracting and retaining qualified Nonemployee Directors by
giving them the opportunity to acquire a proprietary interest in the Company and
an increased personal interest in its continued success and progress. The
Options granted hereunder shall not be qualified as “incentive stock options”
within the meaning of Section 422(b) of the Code.

 

ARTICLE II

 

DEFINITIONS

 

As used herein the following terms have the following meanings:

 

(a)

“Board” means the Board of Directors of the Company.

 

(b)

“Code” means the Internal Revenue Code of 1986, as amended.

 

(c)

“Common Stock” means the $.15625 par value Common Stock of the Company.

 

(d)

“Company” means Toreador Royalty Corporation, a Delaware corporation.

 

(e)

“Effective Date” means September 8, 1994, which shall be the date on which the
Plan shall be effective.

 

(f) “Effective Date Options” means those options granted automatically as of the
Effective Date to each Nonemployee Director who is serving the Company as a
director on such date.

 

(g) “Fair Market Value” means, with respect to Effective Date Options, the
closing sales price on the Effective Date of a share of Common Stock as reported
on the NASDAQ National Market System. With respect to Options subsequently
granted, “Fair Market Value” means the closing sales price on the date in
question (or, if there was no reported sale on such date, on the last preceding
day on which any reported sale occurred) of a share of Common Stock as reported
on the principal national stock exchange on which the Common Stock is then
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national stock exchange but is listed as a national market
security on the National Association of Securities Dealers, Inc. Automated
Quotations System (“NASDAQ”), as reported on NASDAQ; or, if the Common Stock is
not listed or admitted to trading on any such exchange and is not listed as a
national market security on NASDAQ, but is quoted on NASDAQ or any similar
system then in use, “Fair Market Value” shall mean the average of the closing
high bid and low asked quotations on such system for the Common Stock on the
date in question (or, if no such quotations are available on such date, on the
last preceding day on which such quotations were available).

 

(h)

“Holder” means a Nonemployee Director to whom an Option has been granted under
the Plan.

 

(i) “Nonemployee Director” means an individual who (i) is on the Effective Date,
or thereafter becomes, a member of the Board, (ii) is not an employee of the
Company or any direct or indirect majority-owned subsidiary of the Company and
(iii) has not elected to decline to participate in the Plan pursuant to the
following sentence. A director otherwise eligible to participate in the Plan may
make an irrevocable, one-time election, by written notice to the Company within
ten days after his or her initial election to the Board, or, in the case of the
directors in office on the Effective Date, within ten days prior to the
Effective Date, to decline to participate in the Plan. For purposes of the Plan,
“employee” shall mean an individual whose wages are subject to the withholding
of federal income tax under Section 3402 of the Code.

 

 

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(j) “Option” means any option to purchase shares of Common Stock granted
pursuant to the provisions of the Plan, including Effective Date Options,
Initial Options and Subsequent Options.

 

(k)

“Plan” means this Toreador Royalty Corporation 1994 Nonemployee Director Stock
Option Plan.

 

(l) “Subsequent Options” means those options granted automatically to each
Nonemployee Director who becomes a member of the Board after the Effective Date
on the date that is ten days after his or her initial election as a director of
the Company.

 

ARTICLE III

 

ADMINISTRATION

 

The Plan shall be administered by the Board. The Board shall have no authority,
discretion or power to select the participants who will receive Options, to set
the number of shares to be covered by any Option, to set the exercise price of
any Option or to set the period within which Options may be exercised, or to
alter any other terms or conditions specified herein, except in the sense of
administering the Plan subject to the express provisions of the Plan and except
in accordance with Section 6.02 hereof. Subject to the foregoing limitations,
the Board shall have authority and power to adopt such rules and regulations and
to take such action as it shall consider necessary or advisable for the
administration of the Plan, and to construe, interpret and administer the Plan.
The decisions of the Board relating to the Plan shall be final and binding upon
the Company, the Holders and all other persons. No member of the Board shall
incur any liability by reason of any action or determination made in good faith
with respect to the Plan or any stock option agreement entered into pursuant to
the Plan.

 

ARTICLE IV

 

OPTIONS

 

4.01 Participation. Each Nonemployee Director who does not elect to decline to
participate in the Plan pursuant to paragraph (i) of Article II hereof shall be
granted an Option to purchase Common Stock under the Plan on the terms and
conditions herein described.

 

4.02 Terms and Conditions of Options; Stock Option Agreements. Each Option
granted under the Plan shall be evidenced by a written stock option agreement
entered into by the Company and the Holder to whom the Option is granted, which
agreement shall include, incorporate or conform to the following terms and
conditions, and such other terms and conditions not inconsistent therewith or
with the terms and conditions of the Plan as the Board considers appropriate in
each case:

 

(a) Option Grant Dates. An Option shall be granted automatically as of the
Effective Date to each Nonemployee Director who is serving the Company as a
director on such date (an “Effective Date Option”), provided that such person
has not elected to decline to participate in the Plan pursuant to paragraph (i)
of Article II hereof. Thereafter, an Option shall be granted (i) automatically
to each Nonemployee Director who becomes a member of the Board after the
Effective Date on the date that is ten days after his or her initial election as
a director of the Company (a “Subsequent Option”), provided that such person has
not elected to decline to participate in the Plan pursuant to paragraph (i) of
Article II hereof. The date of grant of an Option pursuant to the Plan shall be
referred to hereinafter as the “Grant Date” of such Option.

 

(b) Number of Shares. Each Effective Date Option and each Subsequent Option
shall entitle the Holder to purchase, in accordance with the terms of such
Option and the Plan, 10,000 shares of Common Stock, subject to adjustment in
accordance with Section 5.02 hereof. If, on the Grant Date of any Option, fewer
shares of Common Stock remain available for grant than are necessary to permit
the grant of Options to each person entitled to receive an Option on such date
in accordance with the provisions of this Section 4.02, then an Option covering
an equal number of whole shares of Common Stock, up to 10,000 shares, shall be
granted on such date to each Nonemployee Director who has not previously been
granted an Option.

 

(c) Price. The price at which each share of Common Stock covered by an Option
may be purchased pursuant to the Plan shall be the Fair Market Value of a share
of Common Stock on the Grant Date of the Option.

 

 

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(d) Option Period. Each Option shall become exercisable in three equal annual
installments on each of the first three anniversaries of such Option’s Grant
Date. The period within which each Option may be exercised shall expire on the
tenth anniversary of such Grant Date (the “Option Period”), unless terminated
sooner pursuant to Section 4.02(e) hereof.

 

(e) Termination of Service, Death, Etc. The following provisions shall apply
with respect to the exercise of an Option granted hereunder in the event that
the Holder thereof ceases to be a director of the Company for the reasons
described in this Section 4.02(e);

 

(i) If the directorship of the Holder is terminated within the Option Period on
account of any act of (a) fraud or intentional misrepresentation or (b)
embezzlement, misappropriation or conversion of assets or opportunities of the
Company or any direct or indirect majority-owned subsidiary of the Company, the
Option shall automatically terminate as of the date of such termination;

 

(ii) If the Holder dies during the Option Period while such Holder is a director
of the Company (or during the additional three-month period provided by
paragraph (iii) of this Section 4.02(e)), the Option may be exercised, to the
extent that the Holder was entitled to exercise it at the date of the Holder’s
death, within one year after such death (if within the Option Period), but not
thereafter, by the executor or administrator of the estate of the Holder, or by
the person or persons who shall have acquired the Option directly from the
Holder by bequest or inheritance; or

 

(iii) If the directorship of the Holder is terminated for any reason (other than
the circumstances specified in paragraphs (i) and (ii) of this Section 4.02(e))
within the Option Period, including a failure by the stockholders of the Company
to reelect the Holder as a director, the Option may be exercised, to the extent
the Holder was entitled to do so at the date of termination of the directorship,
within three months after such termination (if within the Option Period), but
not thereafter.

 

(f) Transferability. An Option granted under the Plan shall not be transferable
by the Holder, otherwise than by will or pursuant to the laws of descent and
distribution, and during the lifetime of the Holder the Option shall be
exercisable only by the Holder or his or her guardian or legal representative.

 

(g) Requirement of Directorship. Except as provided in Section 4.02(e) hereof,
an Option may not be exercised unless the Holder is at the time of exercise
serving as a director of the Company, and, except as provided in Section 4.02(e)
hereof, such Option shall terminate upon termination of the Holder’s service as
a director of the Company.

 

(h) Exercise, Payments, Etc. Each Option granted hereunder may be exercised, in
whole or in part, by the Holder thereof at any time or (with respect to partial
exercises) from time to time during the Option Period, subject to the provisions
of the Plan and the stock option agreement evidencing such Option, and the
method for exercising an Option shall be by the personal delivery to the
Secretary of the Company of, or by the sending by United States registered or
certified mail, postage prepaid, addressed to the Company (to the attention of
its Secretary), of, written notice signed by the Holder specifying the number of
shares of Common Stock with respect to which such Option is being exercised.
Such notice shall be accompanied by the full amount of the purchase price of
such shares, in cash and/or by delivery of shares of Common Stock already owned
by the Holder having an aggregate Fair Market Value (determined as of the date
of exercise) equal to the purchase price, including an actual or deemed multiple
series of exchanges of such shares. Any such notice shall be deemed to have been
given on the date of receipt thereof (in the case of personal delivery as
above-stated) or on the date on which the same was deposited in a regularly
maintained receptacle for the deposit of United States mail, addressed and sent
as above-stated. In addition to the foregoing, promptly after demand by the
Company, the exercising Holder shall pay to the Company an amount equal to
applicable withholding taxes, if any, due in connection with such exercise. No
shares of Common Stock shall be issued upon exercise of an Option until full
payment therefor and for all applicable withholding taxes has been made, and a
Holder shall have none of the rights of a stockholder until shares of Common
Stock are issued to such Holder.

 

ARTICLE V

 

AUTHORIZED COMMON STOCK

 

5.01 Common Stock. The total number of shares as to which Options may be granted
pursuant to the Plan shall be 200,000 shares of Common Stock, in the aggregate,
except as such number of shares shall be adjusted from and after the Effective
Date in accordance with the provisions of Section 5.02 hereof. If any
outstanding Option under the Plan shall expire or be terminated for any reason,
the shares of Common Stock allocable to the unexercised portion of such Option
shall again be available for grant under the Plan.

 

 

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5.02 Adjustments Upon Changes in Capitalization, Merger, Etc. In the event the
Company shall effect a split of the Common Stock or a dividend payable in Common
Stock, or in the event the outstanding Common Stock shall be combined into a
smaller number of shares, the maximum number of shares as to which Options may
be granted under the Plan shall be decreased or increased proportionately. In
the event that, before delivery by the Company of all of the shares of Common
Stock for which any Option has been granted under the Plan, the Company shall
have effected such a split, dividend or combination, the shares still subject to
such Option shall be increased or decreased proportionately and the purchase
price per share shall be decreased or increased proportionately so that the
aggregate purchase price for all of the shares then subject to such Option shall
remain the same as immediately prior to such split, dividend or combination.

 

In the event of a reclassification of Common Stock not covered by the foregoing,
or in the event of a liquidation or reorganization (including a merger,
consolidation or sale of assets) of the Company, the Board shall make such
adjustments, if any, as it may deem appropriate in the number, purchase price
and kind of shares covered by the unexercised portions of Options theretofore
granted under the Plan. The provisions of this Section shall only be applicable
if, and only to the extent that, the application thereof does not conflict with
any valid governmental statute, regulation or rule.

 

Subject to Article VI, Sections 6.01 and 6.02 of the Plan, and notwithstanding
any indication to the contrary in the preceding paragraphs of this Section 5.02,
upon the occurrence of a “Change in Control” (as hereinafter defined) of the
Company, the maturity of all Options then outstanding under the Plan shall be
accelerated automatically, so that all such Options shall become exercisable in
full with respect to all shares as to which they shall not have previously been
exercised or become exercisable; provided, however, that no such acceleration
shall occur with respect to Options held by optionees whose employment with the
Company or an Affiliate shall have terminated prior to the occurrence of such
Change in Control.

 

For purposes of the Plan, a “Change in Control” of the Company shall be deemed
to have occurred if:

 

(a)

the stockholders of the Company shall approve:

 

(i) any merger, consolidation or reorganization of the Company (a “Transaction”)
in which the stockholders of the Company immediately prior to the Transaction
would not, immediately after the Transaction, beneficially own, directly or
indirectly, shares representing in the aggregate more than 50% of all votes to
which all stockholders of the corporation issuing cash or securities in the
Transaction (or of its ultimate parent corporation, if any) would be entitled
under ordinary circumstances in the election of directors, or in which the
members of the Company’s Board immediately prior to the Transaction would not,
immediately after the Transaction, constitute a majority of the board of
directors of the corporation issuing cash or securities in the Transaction (or
of its ultimate parent corporation, if any),

 

(ii) any sale, lease, exchange or other transfer (in one transaction or a series
of related transactions contemplated or arranged by any party as a single plan)
of all or substantially all of the Company’s assets, or

 

(iii)

any plan or proposal for the liquidation or dissolution of the Company;

 

(b) individuals who constitute the Company’s Board as of the date of adoption of
the Plan by the Board (the “Incumbent Directors”) cease for any reason to
constitute at least a majority of the Board; provided, however, that for
purposes of this subparagraph (b), any individual who becomes a Director of the
Company subsequent to the date of adoption of the Plan by the Board, and whose
election, or nomination for election by the Company’s stockholders, is approved
by a vote of at least a majority of the Incumbent Directors who are Directors at
the time of such vote, shall be considered an Incumbent Director; or

 

(c) any “person,” as that term is defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) (other than the Company,
any of its subsidiaries, any employee benefit plan of the Company or any of its
subsidiaries, or any entity organized, appointed or established by the Company
for or pursuant to the terms of such plan), together with all “affiliates” and
“associates” (as such terms are defined in Rule 12b-2 under the Exchange Act) of
such person (as well as any “person” or “group” as those terms are used in
Sections 13(d) and 14(d) of the Exchange Act), shall become the “beneficial
owner” or “beneficial owners” (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act), directly or indirectly, of securities of the Company representing
in the aggregate 20% or more of either (i) the then outstanding shares of Common
Stock or (ii) the combined voting power of all then outstanding securities of
the Company having the right under ordinary circumstances to vote in an election
of the Company’s Board (“Voting Securities”), in either such case other than as
a result of acquisitions of such securities directly from the Company.

 

 

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Notwithstanding the foregoing, a “Change in Control” of the Company shall not be
deemed to have occurred for purposes of subparagraph (c) of this Section 5.02
solely as the result of an acquisition of securities by the Company which, by
reducing the number of shares of Common Stock or other Voting Securities
outstanding, increases (i) the proportionate number of shares of Common Stock
beneficially owned by any person to 20% or more of the shares of Common Stock
then outstanding or (ii) the proportionate voting power represented by the
Voting Securities beneficially owned by any person to 20% or more of the
combined voting power of all then outstanding Voting Securities; provided,
however, that if any person referred to in clause (i) or (ii) of this sentence
shall thereafter become the beneficial owner of any additional shares of Common
Stock or other Voting Securities (other than as a result of a stock split, stock
dividend or similar transaction), then a “Change in Control” of the Company
shall be deemed to have occurred for purposes of subparagraph (c) of this
Section 5.02.

 

ARTICLE VI

 

GENERAL PROVISIONS

 

6.01 Termination of Plan. The Plan shall terminate whenever (whether before or
after the Effective Date) the Board adopts a resolution to that effect. If not
sooner terminated in accordance with the preceding sentence, the Plan shall
wholly cease and expire on the tenth anniversary of the Effective Date. After
termination of the Plan, no Options shall be granted under the Plan, but the
Company shall continue to recognize, and perform its obligations with respect
to, any Options previously granted.

 

6.02 Amendment of Plan. The Board may from time to time (whether before, on or
after the Effective Date) amend, modify or suspend the Plan. Nevertheless, (a)
no such amendment, modification or suspension shall impair any Options
theretofore granted under the Plan or deprive any Holder of any shares of Common
Stock which such Holder might have acquired through or as a result of the Plan,
and (b) after the stockholders of the Company have approved and adopted the Plan
in accordance with Section 6.04 hereof, no such amendment or modification shall
be made without the approval of the holders of the outstanding shares of capital
stock of the Company entitled to vote in the election of directors generally
where such amendment or modification would (i) increase the total number of
shares of Common Stock as to which Options may be granted under the Plan or
decrease the exercise price at which Options may be granted under the Plan
(other than as provided in Section 5.02 hereof), (ii) materially alter the class
of persons eligible to be granted Options under the Plan, (iii) materially
increase the benefits accruing to Holders under the Plan or (iv) extend the term
of the Plan or the Option Period specified in Section 4.02(d) hereof.

 

Notwithstanding the foregoing, the provisions of the Plan relating to (a) the
number of shares of Common Stock covered by, and the exercise price of, Options
granted under the Plan, (b) the timing of grants of Options under the Plan and
(c) the class of persons eligible to be granted Options under the Plan shall not
be amended more than once every six months, other than to comport with changes
in the Code, the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder.

 

6.03 Treatment of Proceeds. Proceeds from the sale of Common Stock pursuant to
Options granted under the Plan shall constitute general funds of the Company.

 

6.04 Effectiveness. The Plan shall become effective as of the Effective Date,
subject to and upon the receipt of stockholder approval by the affirmative votes
of the holders of a majority of the outstanding shares of Common Stock present,
or represented, and entitled to vote at a meeting of stockholders duly held in
accordance with the applicable laws of the State of Delaware.

 

6.05 Section Headings. The section headings included herein are only for
convenience, and they shall have no effect on the interpretation of the Plan.

 

 

 

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