**Exhibit 10.4**

 

**NathanielEnergy Corporation****2005 Equity ParticipationPlan****(as amended through July 19, 2005)**

 

1.                                       **Purpose of the Plan**.  The Nathaniel Energy Corporation 2005 EquityParticipation Plan (the “Plan”) is intended to advance the interests of NathanielEnergy Corporation (the “Company”) by inducing individuals or entities ofoutstanding ability and potential to join and remain with, or provideconsulting or advisory services to, the Company, by encouraging and enablingeligible employees, non-employee Directors, consultants and advisors to acquireproprietary interests in the Company, and by providing the participatingemployees, non-employee Directors, consultants and advisors with an additionalincentive to promote the success of the Company.  This is accomplished by providing for thegranting of “Options,” which term as used herein includes both “Incentive StockOptions” and “Nonstatutory Stock Options, as later defined, and “RestrictedStock,” to employees, non-employee Directors, consultants and advisors.

 

The Plan wasadopted by the Board of Directors on March 1, 2005.  The Plan was amended by the Board ofDirectors as of July 19, 2005 to decrease the maximum number of shares ofCommon Stock which may be issued pursuant to Options and as Restricted Stockgranted under the Plan from 40,000,000 to 20,000,000 shares.

 

2.                                       **Administration**.  The Plan shall be administered by the Boardof Directors of the Company (the “Board” or “Board of Directors”) or by acommittee (the “Committee”) consisting of at least two (2) persons chosenby the Board of Directors.  Except asherein specifically provided, the interpretation and construction by the Boardof Directors or the

 

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Committee of any provision of the Plan or of any Option, or withrespect to any Restricted Stock, granted under it shall be final andconclusive.  The receipt of Options orRestricted Stock by Directors, or any members of the Committee, shall notpreclude their vote on any matters in connection with the administration orinterpretation of the Plan.

 

3.                                       **Shares Subject to the Plan**.  The shares subject to Options granted underthe Plan, and shares granted as Restricted Stock under the Plan, shall beshares of the Company’s common stock, par value $.001 per share (the “CommonStock”), whether authorized but unissued or held in the Company’s treasury, orshares purchased from stockholders expressly for use under the Plan.  The maximum number of shares of common stockwhich may be issued pursuant to Options or as Restricted Stock granted underthe Plan shall not exceed in the aggregate twenty million (20,000,000)shares.  No shares of common stock may beissued unless there are a sufficient number of shares of common stockauthorized and reserved for such issuance. Subject to the foregoing sentence, the Company shall at all times whilethe Plan is in force reserve such number of shares of common stock as will besufficient to satisfy the requirements of all outstanding Options granted underthe Plan. In the event any Option granted under the Plan shall expire orterminate for any reason without having been exercised in full or shall ceasefor any reason to be exercisable in whole or in part, the unpurchased sharessubject thereto shall again be available for Options and grants of RestrictedStock under the Plan.  In the event anyshares of Restricted Stock are forfeited for any reason, the shares forfeitedshall again be available for Options and grants of Restricted Stock under thePlan.  In the event shares of commonstock are delivered to, or withheld by, the Company pursuant to Sections 13(b) or27 hereof, only the net number of shares issued, i.e., net of the shares sodelivered or withheld, shall be considered to have been issued pursuant to thePlan.

 

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4.                                       **Participation**.  The class of individuals that shall beeligible to receive Options (“Optionees”) and Restricted Stock (“Grantees”)under the Plan shall be (a) with respect to Incentive Stock Optionsdescribed in Section 6 hereof, all employees of either the Company or anyparent or subsidiary corporation of the Company, and (b) with respect toNonstatutory Stock Options described in Section 7 hereof and RestrictedStock described in Section 17 hereof, all employees, and non-employeeDirectors of, or consultants and advisors to, either the Company or any parentor subsidiary corporation of the Company; provided, however, neitherNonstatutory Stock Options nor Restricted Stock shall be granted to any suchconsultant or advisor unless (i) the consultant or advisor is a naturalperson (or an entity wholly-owned by the consultant or advisor), (ii) bonafide services have been or are to be rendered by such consultant oradvisor and (iii) such services are not in connection with the offer orsale of securities in a capital raising transaction and do not directly orindirectly promote or maintain a market for the Company’s securities.  The Board of Directors or the Committee, inits sole discretion, but subject to the provisions of the Plan, shall determinethe employees and non-employee Directors of, and the consultants and advisorsto, the Company and its parent and subsidiary corporations to whom Options andRestricted Stock shall be granted, and the number of shares to be covered byeach Option and each Restricted Stock grant, taking into account the nature ofthe employment or services rendered by the individuals or entities beingconsidered, their annual compensation, their present and potentialcontributions to the success of the Company, and such other factors as theBoard of Directors or the Committee may deem relevant.  For purposes hereof, a non-employee to whoman offer of employment has been extended shall be considered an employee,provided that the Options granted to such individual shall not be exercisable,and the Restricted Stock granted shall not vest, in whole or in part, for aperiod of at least one year

 

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from the date of grant and in the event the individual does notcommence employment with the Company, the Options and/or Restricted Stockgranted shall be considered null and void.

 

5.                                       **Stock Option Agreement**.  Each Option granted under the Plan shall beauthorized by the Board of Directors or the Committee, and shall be evidencedby a Stock Option Agreement which shall be executed by the Company and by theindividual or entity to whom such Option is granted.  The Stock Option Agreement shall specify thenumber of shares of common stock as to which any Option is granted, the periodduring which the Option is exercisable, and the option price per share thereof,and such other terms and provisions as the Board of Directors or the Committeemay deem necessary or appropriate.

 

6.                                       **Incentive Stock Options**.  The Board of Directors or the Committee maygrant Options under the Plan which are intended to meet the requirements of Section 422of the Internal Revenue Code of 1986, as amended (the “Code”), with respect to “incentivestock options,” and which are subject to the following terms and conditions andany other terms and conditions as may at any time be required by Section 422of the Code (referred to herein as an “Incentive Stock Option”):

 

(a)                                  NoIncentive Stock Option shall be granted to individuals other than employees ofthe Company or of a parent or subsidiary corporation of the Company.

 

(b)                                 EachIncentive Stock Option under the Plan must be granted prior to March 1,2015, which is within ten (10) years from the date the Plan was adopted bythe Board of Directors.

 

(c)                                  Theoption price of the shares subject to any Incentive Stock Option shall not beless than the fair market value (as defined in subsection (f) of thisSection 6) of the common stock at the time such Incentive Stock Option isgranted; provided, however, if an

 

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Incentive Stock Option is granted to an individual who owns, at thetime the Incentive Stock Option is granted, more than ten percent (10%) of thetotal combined voting power of all classes of stock of the Company or of aparent or subsidiary corporation of the Company (a “10% Stockholder”), theoption price of the shares subject to the Incentive Stock Option shall be atleast one hundred ten percent (110%) of the fair market value of the commonstock at the time such Incentive Stock Option is granted.

 

(d)                                 NoIncentive Stock Option granted under the Plan shall be exercisable after theexpiration of ten (10) years from the date of its grant.  However, if an Incentive Stock Option isgranted to a 10% Stockholder, such Incentive Stock Option shall not beexercisable after the expiration of five (5) years from the date of itsgrant.  Every Incentive Stock Optiongranted under the Plan shall be subject to earlier termination as expresslyprovided in Section 12 hereof.

 

(e)                                  Forpurposes of determining stock ownership under this Section 6, theattribution rules of Section 424(d) of the Code shall apply.

 

(f)                                    Forpurposes of the Plan, fair market value shall be determined by the Board ofDirectors or the Committee. If the common stock is listed on a nationalsecurities exchange or The NASDAQ Stock Market (“NASDAQ”) or traded on theOver-the-Counter market, fair market value shall be the closing selling priceor, if not available, the closing bid price or, if not available, the high bidprice of the common stock quoted on such exchange or NASDAQ, or on theOver-the-Counter market, as reported by the exchange, NASDAQ or the NationalAssociation of Securities Dealers OTC Electronic Bulletin Board, or if thecommon stock is not so reported, then by the Pink Sheets, LLC, as the case maybe, on the day immediately preceding the day on which the Option is granted(or, if granted after the close of

 

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business for trading, then on the day on which the Option is granted),or, if there is no selling or bid price on that day, the closing selling price,closing bid price or high bid price, as the case may be, on the most recent daywhich precedes that day and for which such prices are available.  If there is no selling or bid price for theninety (90) day period preceding the date of grant of an Option hereunder, fairmarket value shall be determined in good faith by the Board of Directors or theCommittee.

 

7.                                       **Nonstatutory Stock Options**.  The Board of Directors or the Committee maygrant Options under the Plan which are not intended to meet the requirements ofSection 422 of the Code, as well as Options which are intended to meet therequirements of Section 422 of the Code but the terms of which providethat they will not be treated as Incentive Stock Options (referred to herein asa “Nonstatutory Stock Option”). Nonstatutory Stock Options shall be subject to the following terms andconditions:

 

(a)                                  ANonstatutory Stock Option may be granted to any individual or entity eligibleto receive an Option under the Plan pursuant to clause (b) of Section 4hereof.

 

(b)                                 Theoption price of the shares subject to a Nonstatutory Stock Option shall bedetermined by the Board of Directors or the Committee, in its sole discretion,at the time of the grant of the Nonstatutory Stock Option.

 

(c)                                  ANonstatutory Stock Option granted under the Plan may be of such duration asshall be determined by the Board of Directors or the Committee (subject toearlier termination as expressly provided in Section 12 hereof).

 

8.                                       **Reload Options**. The Board of Directorsor the Committee may grant Options with a reload feature.  A reload feature shall only apply when theoption price is paid by delivery of common stock (as set forth in Section 13(b)(ii))or by having the Company reduce the

 

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number of shares otherwise issuable to an Optionee (as provided for inthe last sentence of Section 13(b)) (a “Net Exercise”).  The Stock Option Agreement for the Optionscontaining the reload feature shall provide that the Option holder shallreceive, contemporaneously with the payment of the option price in shares ofcommon stock or in the event of a Net Exercise, a reload stock option (the “ReloadOption”) to purchase that number of shares of common stock equal to the sum of (i) thenumber of shares of common stock used to exercise the Option (or not issued inthe case of a Net Exercise), and (ii) with respect to Nonstatutory StockOptions, the number of shares of common stock used to satisfy any taxwithholding requirement incident to the exercise of such Nonstatutory StockOption.  The terms of the Plan applicableto the Option shall be equally applicable to the Reload Option with thefollowing exceptions: (i) the option price per share of common stockdeliverable upon the exercise of the Reload Option, (A) in the case of aReload Option which is an Incentive Stock Option being granted to a 10%Stockholder, shall be one hundred ten percent (110%) of the fair market valueof a share of common stock on the date of grant of the Reload Option and (B) inthe case of a Reload Option which is an Incentive Stock Option being granted toa person other than a 10% Stockholder or is a Nonstatutory Stock Option, shallbe the fair market value of a share of common stock on the date of grant of theReload Option; and (ii) the term of the Reload Option shall be equal tothe remaining option term of the Option (including a Reload Option) which gaverise to the Reload Option.  The ReloadOption shall be evidenced by an appropriate amendment to the Stock OptionAgreement for the Option which gave rise to the Reload Option.  In the event the exercise price of an Optioncontaining a reload feature is paid by check and not in shares of Common Stock,the reload feature shall have no application with respect to such exercise.

 

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9.                                       **Rights of Option Holders**.  The holder of an Option granted under thePlan shall have none of the rights of a stockholder with respect to the stockcovered by his Option until such stock shall be transferred to him upon theexercise of his Option.

 

10.                                 **Alternate Stock Appreciation Rights**.

 

(a)  Concurrently with, or subsequentto, the award of any Option to purchase one or more shares of Common Stock, theBoard of Directors or the Committee may, in its sole discretion, subject to theprovisions of the Plan and such other terms and conditions as the Board ofDirectors or the Committee may prescribe, award to the Optionee with respect toeach share of Common Stock covered by an Option (“Related Option”), a relatedalternate stock appreciation right (“SAR”), permitting the Optionee to be paidthe appreciation on the Related Option in lieu of exercising the RelatedOption.  An SAR granted with respect toan Incentive Stock Option must be granted together with the RelatedOption.  An SAR granted with respect to aNonstatutory Stock Option may be granted together with, or subsequent to, thegrant of such Related Option.

 

(b)  Each SAR granted under the Planshall be authorized by the Board of Directors or the Committee, and shall beevidenced by an SAR Agreement which shall be executed by the Company and by theindividual or entity to whom such SAR is granted.  The SAR Agreement shall specify the periodduring which the SAR is exercisable, and such other terms and provisions notinconsistent with the Plan.

 

(c)  An SAR may be exercised only if andto the extent that its Related Option is eligible to be exercised on the dateof exercise of the SAR.  To the extentthat a holder of an SAR has a current right to exercise, the SAR may beexercised from time to time by delivery by the holder thereof to the Company atits principal office (attention: Secretary) of a

 

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written notice of the number of shares with respect to which it isbeing exercised.  Such notice shall beaccompanied by the agreements evidencing the SAR and the Related Option.  In the event the SAR shall not be exercisedin full, the Secretary of the Company shall endorse or cause to be endorsed onthe SAR Agreement and the Related Option Agreement the number of shares whichhave been exercised thereunder and the number of shares that remain exercisableunder the SAR and the Related Option and return such SAR and Related Option tothe holder thereof.

 

(d) The amount of payment to which anOptionee shall be entitled upon the exercise of each SAR shall be equal to onehundred percent (100%) of the amount, if any, by which the fair market value ofa share of Common Stock on the exercise date exceeds the exercise price pershare of the Related Option; provided, however, the Company may, in its solediscretion, withhold from any such cash payment any amount necessary to satisfythe Company’s obligation for withholding taxes with respect to such payment.

 

(e)  The amount payable by the Companyto an Optionee upon exercise of a SAR may, in the sole determination of theCompany, be paid in shares of Common Stock, cash or a combination thereof, asset forth in the SAR Agreement.  In thecase of a payment in shares, the number of shares of Common Stock to be paid toan Optionee upon such Optionee’s exercise of an SAR shall be determined bydividing the amount of payment determined pursuant to Section 10(d) hereofby the fair market value of a share of Common Stock on the exercise date ofsuch SAR.  For purposes of the Plan, theexercise date of an SAR shall be the date the Company receives writtennotification from the Optionee of the exercise of the SAR in accordance withthe provisions of Section 10(c) hereof.  As soon as practicable after exercise, theCompany shall either deliver to the Optionee the amount of cash due suchOptionee or a certificate or certificates

 

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for such shares of Common Stock. All such shares shall be issued with the rights and restrictionsspecified herein.

 

(f)  SARs shall terminate or expire uponthe same conditions and in the same manner as the Related Options, and as setforth in Section 12 hereof.

 

(g)  The exercise of any SAR shallcancel and terminate the right to purchase an equal number of shares covered bythe Related Option.

 

(h) Upon the exercise or termination ofany Related Option, the SAR with respect to such Related Option shall terminateto the extent of the number of shares of Common Stock as to which the RelatedOption was exercised or terminated.

 

(i) An SAR granted pursuant to the Planshall be transferable to the same extent as the Related Option.

 

(j) All references in this Plan to “Options” shall be deemed to include “SARs”where applicable.

 

11.                                 **Transferability of Options**.

 

(a)                                  NoOption granted under the Plan shall be transferable by the individual or entityto whom it was granted other than by will or the laws of descent anddistribution, and, during the lifetime of an individual, shall not beexercisable by any other person, but only by him.

 

(b)                                 NotwithstandingSection 11(a) above, a Nonstatutory Stock Option granted under the Planmay be transferred in whole or in part during an Optionee’s lifetime, upon theapproval of the Board of Directors or the Committee, to an Optionee’s “familymembers” (as such term is defined in Rule 701(c)(3) of the SecuritiesAct of 1933, as amended, and General Instruction A(1)(a)(5) to Form S-8)through a gift or domestic relations order. The transferred

 

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portion of a Nonstatutory Stock Option may only be exercised by theperson or entity who acquires a proprietary interest in such option pursuant tothe transfer.  The terms applicable tothe transferred portion shall be the same as those in effect for the Optionimmediately prior to such transfer and shall be set forth in such documentsissued to the transferee as the Board of Directors or the Committee may deemappropriate.  As used in this Plan theterms “Optionee” and “holder of an Option” shall refer to the grantee of theOption and not any transferee thereof.

 

12.                                 **Effect of Termination of Employment or Death onOptions**.

 

(a)                                  Unlessotherwise provided in the Stock Option Agreement, if the employment of anemployee by, or the services of a non-employee Director for, or consultant oradvisor to, the Company or a parent or subsidiary corporation of the Companyshall be terminated for Cause (as hereinafter defined) or voluntarily by theemployee, non-employee Director, consultant or advisor, then his Option shallexpire forthwith.  Unless otherwiseprovided in the Stock Option Agreement, and except as provided in subsections (b) and(c) of this Section 12, if such employment or services shallterminate for any other reason, then such Option may be exercised at any timewithin three (3) months after such termination, subject to the provisionsof subsection (d) of this Section 12.  For purposes hereof, “Cause” shall include,without limitation, (i) conviction of, or a plea of nolo contendereto, a felony or other serious crime; (ii) commission of any act involvingmoral turpitude; (iii) commission of any act of dishonesty involving theCompany or the performance of the Optionee=s duties; (iv) breach of anyfiduciary duty to the Company; (v) any alcohol or substance abuse on thepart of the Optionee; (vi) the Optionee’s commission of any illegalbusiness practices in connection with the Company’s business; (vii) anyembezzlement or misappropriation of assets; (viii) any excessive unexcusedabsences from employment or service; (ix) continued and habitual neglectto perform

 

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material stated duties; (x) material breach of any provision of anyemployment, consulting or advisory agreement between the Optionee and theCompany; (xi) engagement in any other misconduct that is materially injuriousto the Company; or (xii) if the Employee is party to an agreement with theCompany, anything which constitutes “Cause” thereunder as it relates totermination of employment or services. All references in the above definition of “Cause” to the Company shallbe deemed to include any parent or subsidiary thereof.  For purposes of the Plan, the retirement ofan individual either pursuant to a pension or retirement plan adopted by theCompany or at the normal retirement date prescribed from time to time by theCompany shall be deemed to be termination of such individual=s employment otherthan voluntarily or for cause.  Forpurposes of this subsection (a), an employee, non-employee Director,consultant or advisor who leaves the employ or services of the Company tobecome an employee or non-employee Director of, or a consultant or advisor to,a parent or subsidiary corporation of the Company or a corporation (orsubsidiary or parent corporation of the corporation) which has assumed theOption of the Company as a result of a corporate reorganization or like eventshall not be considered to have terminated his employment or services.

 

(b)                                 Unlessotherwise provided in the Stock Option Agreement, if the holder of an Optionunder the Plan dies (i) while employed by, or while serving as anon-employee Director for or a consultant or advisor to, the Company or aparent or subsidiary corporation of the Company, or (ii) within three (3) monthsafter the termination of his employment or services other than voluntarily orfor Cause, then such Option may, subject to the provisions of subsection (d) ofthis Section 12, be exercised by the estate of the employee ornon-employee Director, consultant or advisor, or by a person who acquired theright to exercise such

 

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Option by bequest or inheritance or by reason of the death of suchemployee or non-employee Director, consultant or advisor, at any time withinone (1) year after such death.

 

(c)                                  Unlessotherwise provided in the Stock Option Agreement, if the holder of an Optionunder the Plan ceases employment or services because of permanent and totaldisability (within the meaning of Section 22(e)(3) of the Code) (“PermanentDisability”) while employed by, or while serving as a non-employee Director foror consultant or advisor to, the Company or a parent or subsidiary corporationof the Company, then such Option may, subject to the provisions of subsection (d) ofthis Section 12, be exercised at any time within one (1) year afterhis termination of employment, termination of Directorship or termination ofconsulting or advisory services, as the case may be, due to the disability.

 

(d)                                 AnOption may not be exercised pursuant to this Section 12 except to theextent that the holder was entitled to exercise the Option at the time oftermination of employment, termination of Directorship, termination ofconsulting or advisory services, or death, and in any event may not beexercised after the expiration of the Option.

 

(e)                                  Forpurposes of this Section 12, the employment relationship of an employee ofthe Company or of a parent or subsidiary corporation of the Company will betreated as continuing intact while he is on military or sick leave or otherbona fide leave of absence (such as temporary employment by the Government) ifsuch leave does not exceed ninety (90) days, or, if longer, so long as hisright to reemployment is guaranteed either by statute or by contract.

 

13.                                 **Exercise of Options**.

 

(a)                                  Unlessotherwise provided in the Stock Option Agreement, any Option granted under thePlan shall be exercisable in whole at any time, or in part from time to

 

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time, prior to expiration.  TheBoard of Directors or the Committee, in its absolute discretion, may provide inany Stock Option Agreement that the exercise of any Options granted under thePlan shall be subject (i) to such condition or conditions as it mayimpose, including, but not limited to, a condition that the holder thereofremain in the employ or service of, or continue to provide consulting oradvisory services to, the Company or a parent or subsidiary corporation of theCompany for such period or periods from the date of grant of the Option as theBoard of Directors or the Committee, in its absolute discretion, shalldetermine; and (ii) to such limitations as it may impose, including, butnot limited to, a limitation that the aggregate fair market value (determinedat the time the Option is granted) of the Common Stock with respect to whichIncentive Stock Options are exercisable for the first time by any employeeduring any calendar year (under all plans of the Company and its parent andsubsidiary corporations) shall not exceed one hundred thousand dollars($100,000).  In addition, in the eventthat under any Stock Option Agreement the aggregate fair market value(determined at the time the Option is granted) of the Common Stock with respectto which Incentive Stock Options are exercisable for the first time by anyemployee during any calendar year (under all plans of the Company and itsparent and subsidiary corporations) exceeds one hundred thousand dollars($100,000), the Board of Directors or the Committee may, when shares aretransferred upon exercise of such Options, designate those shares which shallbe treated as transferred upon exercise of an Incentive Stock Option and thoseshares which shall be treated as transferred upon exercise of a NonstatutoryStock Option.

 

(b)                                 AnOption granted under the Plan shall be exercised by the delivery by the holderthereof to the Company at its principal office (attention of the Secretary) ofwritten notice of the number of shares with respect to which the Option isbeing exercised.

 

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Such notice shall be accompanied, or followed within ten (10) daysof delivery thereof, by payment of the full option price of such shares, andpayment of such option price shall be made by the holder’s delivery of (i) hischeck payable to the order of the Company, or (ii) previously acquiredCommon Stock, the fair market value of which shall be determined as of the dateof exercise (provided that the shares delivered pursuant hereto are acceptableto the Board of Directors or the Committee in its sole discretion) or (iii) ifprovided for in the Stock Option Agreement, his check payable to the order ofthe Company in an amount at least equal to the par value of the Common Stockbeing acquired, together with a promissory note, in form and upon such terms asare acceptable to the Board or the Committee, made payable to the order of theCompany in an amount equal to the balance of the exercise price, or (iv) bythe holder’s delivery of any combination of the foregoing (i), (ii) and(iii).  Alternatively, if provided for inthe Stock Option Agreement, the holder may elect to have the Company reduce thenumber of shares otherwise issuable by a number of shares having a fair marketvalue equal to the exercise price of the Option being exercised.

 

14.                                 **Adjustment Upon Change in Capitalization**.

 

(a)                                  Inthe event that the outstanding Common Stock is hereafter changed by reason ofreorganization, merger, consolidation, recapitalization, reclassification,stock split-up, combination of shares, reverse split, stock dividend or thelike, an appropriate adjustment shall be made by the Board of Directors or theCommittee in the aggregate number of shares available under the Plan, in thenumber of shares and option price per share subject to outstanding Options, andin any limitation on exerciseability referred to in Section 13(a)(ii) hereofwhich is set forth in outstanding Incentive Stock Options.  If the Company shall be reorganized,consolidated, or merged with another corporation, subject to the provisions of

 

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Section 19 hereof, the holder of an Option shall be entitled toreceive upon the exercise of his Option the same number and kind of shares ofstock or the same amount of property, cash or securities as he would have beenentitled to receive upon the happening of any such corporate event as if he hadbeen, immediately prior to such event, the holder of the number of sharescovered by his Option; provided, however, that in such event the Board ofDirectors or the Committee shall have the discretionary power to take anyaction necessary or appropriate to prevent any Incentive Stock Option grantedhereunder which is intended to be an “incentive stock option” from beingdisqualified as such under the then existing provisions of the Code or any lawamendatory thereof or supplemental thereto; and provided, further, however,that in such event the Board of Directors or the Committee shall have thediscretionary power to take any action necessary or appropriate to prevent suchadjustment from being deemed or considered as the adoption of a new planrequiring shareholder approval under Section 422 of the Code and theregulations promulgated thereunder.

 

(b)                                 Anyadjustment in the number of shares shall apply proportionately to only theunexercised portion of the Option granted hereunder.  If fractions of a share would result from anysuch adjustment, the adjustment shall be revised to the next lower whole numberof shares.

 

15.                                 **Further Conditions of Exercise of Options**.

 

(a)                                  Unlessprior to the exercise of the Option the shares issuable upon such exercise havebeen registered with the Securities and Exchange Commission pursuant to theSecurities Act of 1933, as amended, the notice of exercise shall be accompaniedby a representation or agreement of the person or estate exercising the Optionto the Company to the effect that such shares are being acquired for investmentpurposes and not with a view to the

 

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distribution thereof, and such other documentation as may be requiredby the Company, unless in the opinion of counsel to the Company suchrepresentation, agreement or documentation is not necessary to comply with suchAct.

 

(b)                                 Ifthe Common Stock is listed on any securities exchange, including, withoutlimitation, NASDAQ, the Company shall not be obligated to deliver any CommonStock pursuant to this Plan until it has been listed on each such exchange. Inaddition, the Company shall not be obligated to deliver any Common Stockpursuant to this Plan until there has been qualification under or compliancewith such federal or state laws, rules or regulations as the Company maydeem applicable.  The Company shall usereasonable efforts to obtain such listing, qualification and compliance.

 

16.                                 **Restricted Stock Grant Agreement**.  Each Restricted Stock grant under the Planshall be authorized by the Board of Directors or the Committee, and shall beevidenced by a Restricted Stock Grant Agreement which shall be executed by theCompany and by the individual or entity to whom such Restricted Stock isgranted.  The Restricted Stock GrantAgreement shall specify the number of shares of Restricted Stock granted, thevesting periods and such other terms and provisions as the Board of Directorsor the Committee may deem necessary or appropriate.

 

17.                                 **Restricted Stock Grants**.

 

(a)                                  TheBoard of Directors or the Committee may grant Restricted Stock under the Planto any individual or entity eligible to receive Restricted Stock pursuant toclause (b) of Section 4 hereof.

 

(b)                                 Inaddition to any other applicable provisions hereof and except as may otherwisebe specifically provided in a Restricted Stock Grant Agreement, the following

 

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restrictions in this Section 17(b) shall apply to grants ofRestricted Stock made by the Board or the Committee:

 

(i)                                     Noshares granted pursuant to a grant of Restricted Stock may be sold,transferred, pledged, assigned or otherwise alienated or hypothecated until,and to the extent that, such shares are vested.

 

(ii)                                  Sharesgranted pursuant to a grant of Restricted Stock shall vest as determined by theBoard or the Committee, as provided for in the Restricted Stock GrantAgreement.  The foregoing notwithstanding(but subject to the provisions of (iii) hereof and subject to thediscretion of the Board or the Committee), a Grantee shall forfeit all sharesnot previously vested, if any, at such time as the Grantee is no longeremployed by, or serving as a Director of, or rendering consulting or advisoryservices to, the Company or a parent or subsidiary corporation of theCompany.  All forfeited shares shall bereturned to the Company.

 

(iii)                               Notwithstandingthe provisions of (ii) hereof, non-vested Restricted Stock shallautomatically vest as provided for in Section 19 hereof.

 

(c)                                  Indetermining the vesting requirements with respect to a grant of RestrictedStock, the Board or the Committee may impose such restrictions on any sharesgranted as it may deem advisable including, without limitation, restrictionsrelating to length of service, corporate performance, attainment of individualor group performance objectives, and federal or state securities laws, and maylegend the certificates representing Restricted Stock to give appropriatenotice of such restrictions.  Any suchrestrictions shall be specifically set forth in the Restricted Stock GrantAgreement.

 

(d)                                 Certificatesrepresenting shares granted that are subject to restrictions shall be held bythe Company or, if the Board or the Committee so specifies,

 

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deposited with a third-party custodian or trustee until lapse of allrestrictions on the shares.  After suchlapse, certificates for such shares (or the vested percentage of such shares)shall be delivered by the Company to the Grantee; provided, however, that theCompany need not issue fractional shares.

 

(e)                                  Duringany applicable period of restriction, the Grantee shall be the record owner ofthe Restricted Stock and shall be entitled to vote such shares and receive alldividends and other distributions paid with respect to such shares while theyare so restricted.  However, if any suchdividends or distributions are paid in shares of Company stock or cash or otherproperty during an applicable period of restriction, the shares, cash and/orother property deliverable shall be held by the Company or third partycustodian or trustee and be subject to the same restrictions as the shares withrespect to which they were issued. Moreover, the Board or the Committee may provide in each grant suchother restrictions, terms and conditions as it may deem advisable with respectto the treatment and holding of any stock, cash or property that is received inexchange for Restricted Stock granted pursuant to the Plan.

 

(f)                                    EachGrantee making an election pursuant to Section 83(b) of the Codeshall, upon making such election, promptly provide a copy thereof to theCompany.

 

(g)                                 Ifthe Company shall be reorganized, consolidated, or merged with anothercorporation or entity, subject to the provisions of Section 19 hereof, theshares of stock or the property, cash or securities which the holder ofRestricted Stock shall be entitled to receive upon the happening of any suchcorporate event in respect of his Restricted Stock, shall be subject to thesame restrictions to which such Restricted Stock was subject pursuant to theterms of the Restricted Stock Grant Agreement relating to such RestrictedStock, and in such event the Board of Directors or the Committee shall have thediscretionary power to take any action

 

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necessary or appropriate to preserve the “restricted stock” nature ofthe Restricted Stock so converted or exchanged, or to prevent such RestrictedStock so converted or exchanged from being disqualified as such under the thenexisting provisions of the Code or any law amendatory thereof or supplementalthereto.

 

(h)                                 Iffractions of a share of Restricted Stock would result from any such adjustment,the adjustment shall be treated in the same manner as Common Stock in suchcorporate event.

 

18.                                 **Restrictions Upon Shares; Right of First Refusal**.

 

(a)                                  NoOptionee or Grantee (collectively, “Participant”) shall, for value orotherwise, sell, assign, transfer or otherwise dispose of all or any part ofthe shares issued pursuant to the exercise of an Option or received asRestricted Stock (collectively, the “Shares”), or of any beneficial interesttherein (collectively a “Disposition”), except as permitted by and in accordancewith the provisions of the Plan.  TheCompany shall not recognize as valid or give effect to any Disposition of anyShares or interest therein upon the books of the Company unless and until theParticipant desiring to make such Disposition shall have complied with theprovisions of the Plan.

 

(b)                                 NoParticipant shall, without the written consent of the Company, pledge,encumber, create a security interest in or lien on, or in any way attempt tootherwise impose or suffer to exist any lien, attachment, levy, execution orencumbrance on the Shares.

 

(c)                                  If,at any time, a Participant desires to make a Disposition of any of the Shares(the “Offered Shares”) to any third-party individual or entity pursuant to abona fide offer (the “Offer”), he shall give written notice of his intention todo so (“Notice of Intent to Sell”) to the Company, which notice shall specifythe name(s) of the offeror(s) (the “Proposed

 

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Offeror(s)”), the price per share offered for the Offered Shares andall other terms and conditions of the proposed transaction.  Thereupon, the Company shall have the optionto purchase from the Participant all, but not less than all, the Offered Sharesupon the same terms and conditions as set forth in the Offer.

 

(d)                                 Ifthe Company desires to purchase all of the Offered Shares, it must send awritten notice to such effect to the Participant within thirty (30) daysfollowing receipt of the Notice of Intent to Sell.

 

(e)                                  Theclosing of any purchase and sale of the Offered Shares shall take place sixty(60) days following receipt by the Company of the Notice of Intent to Sell.

 

(f)                                    Ifthe Company does not elect to purchase all of the Offered Shares within theperiod set forth in paragraph (d) hereof, no Shares may be purchased bythe Company, and the Participant shall thereupon be free to dispose of suchShares to the Proposed Offeror(s) strictly in accordance with the terms of theOffer.  If the Offered Shares are notdisposed of strictly in accordance with the terms of the Offer within a periodof one hundred twenty (120) days after the Participant gives a Notice of Intentto Sell, such Shares may not thereafter be sold without compliance with theprovisions hereof.

 

(g)                                 Allcertificates representing the Shares shall bear on the face or reverse sidethereof the following legend:

 

“The shares represented by this certificateare subject to the provisions of the Nathaniel Energy Corporation 2005 EquityParticipation Plan, a copy of which is on file at the offices of the Company.”

 

(h)                                 Theprovisions of this Section 18 shall terminate and be of no further forceor effect at such time, if ever, that the Company becomes subject to thereporting

 

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requirements of the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), pursuant to Section 13 or 15(d) thereof.

 

19.                                 **Liquidation, Merger or Consolidation**.Notwithstanding Section 14(a) hereof, if the Board of Directorsapproves a plan of complete liquidation or a merger or consolidation (otherthan a merger or consolidation that would result in the voting securities ofthe Company outstanding immediately prior thereto continuing to represent(either by remaining outstanding or by being converted into voting securitiesof the surviving entity), at least fifty percent (50%) of the combined votingpower of the voting securities of the Company (or such surviving entity)outstanding immediately after such merger or consolidation), the Board ofDirectors or the Committee may, in its sole discretion, upon written notice tothe holder of an Option, provide that the Option must be exercised withintwenty (20) days following the date of such notice or it will beterminated.  In the event such notice isgiven, the Option shall become immediately exercisable in full.

 

20.                                 **Effectiveness of the Plan**.  The Plan was adopted by the Board ofDirectors on March 1, 2005.  ThePlan shall be subject to approval on or before February 28, 2006, which iswithin one (1) year of adoption of the Plan by the Board of Directors, bythe affirmative vote of the holders of a majority of the votes of theoutstanding shares of capital stock of the Company present in person orrepresented by proxy at a meeting of stockholders and entitled to vote thereon(or in the case of action by written consent in lieu of a meeting ofstockholders, the number of votes required by applicable law to act in lieu ofa meeting) (“Stockholder Approval”).  Inthe event such Stockholder Approval is withheld or otherwise not received on orbefore the latter date, the Plan and, unless otherwise provided in the StockOption

 

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Agreement and/or the Restricted Stock Grant Agreement, all Options andRestricted Stock that may have been granted hereunder shall become null andvoid.

 

21.                                 **Termination, Modification and Amendment**.

 

(a)                                  ThePlan (but not Options previously granted under the Plan) shall terminate on February 28,2015, which is within ten (10) years from the date of its adoption by theBoard of Directors, or sooner as hereinafter provided, and no Option orRestricted Stock shall be granted after termination of the Plan.  The foregoing shall not be deemed to limitthe vesting period for Restricted Stock granted pursuant to the Plan.

 

(b)                                 ThePlan may from time to time be terminated, modified, or amended if StockholderApproval of the termination, modification or amendment is obtained.

 

(c)                                  TheBoard of Directors may at any time, on or before the termination date referredto in Section 21(a) hereof, without Stockholder Approval, terminatethe Plan, or from time to time make such modifications or amendments to thePlan as it may deem advisable; provided, however, that the Board of Directorsshall not, without Stockholder Approval, (i) increase (except as otherwiseprovided by Section 14 hereof) the maximum number of shares as to whichIncentive Stock Options may be granted hereunder, change the designation of theemployees or class of employees eligible to receive Incentive Stock Options, ormake any other change which would prevent any Incentive Stock Option grantedhereunder which is intended to be an “incentive stock option” from qualifyingas such under the then existing provisions of the Code or any law amendatorythereof or supplemental thereto or (ii) make any other modifications oramendments that require Stockholder Approval pursuant to applicable law,regulation or exchange requirements.  Inthe event Stockholder Approval is not received within one (1) year ofadoption by the Board of Directors of the change provided for in (i) or (ii)

 

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above, then, unless otherwise provided in the Stock Option Agreementand/or Restricted Stock Grant Agreement (but subject to applicable law), thechange and all Options, SARs and Restricted Stock that may have been grantedpursuant thereto shall be null and void.

 

(d)                                 Notermination, modification, or amendment of the Plan may, without the consent ofthe individual or entity to whom any Option or Restricted Stock shall have beengranted, adversely affect the rights conferred by such Option or RestrictedStock grant.

 

22.                                 **Not a Contract of Employment**.  Nothing contained in the Plan or in any StockOption Agreement or Restricted Stock Grant Agreement executed pursuant heretoshall be deemed to confer upon any individual or entity to whom an Option orRestricted Stock is or may be granted hereunder any right to remain in theemploy or service of the Company or a parent or subsidiary corporation of theCompany or any entitlement to any remuneration or other benefit pursuant to anyconsulting or advisory arrangement.

 

23.                                 **Use of Proceeds**.  The proceeds from the sale of shares pursuantto Options or Restricted Stock granted under the Plan shall constitute generalfunds of the Company.

 

24.                                 **Indemnification of Board of Directors or Committee**.  In addition to such other rights ofindemnification as they may have, the members of the Board of Directors or theCommittee, as the case may be, shall be indemnified by the Company to theextent permitted under applicable law against all costs and expenses reasonablyincurred by them in connection with any action, suit, or proceeding to whichthey or any of them may be a party by reason of any action taken or failure toact under or in connection with the Plan or any rights granted thereunder andagainst all amounts paid by them in settlement thereof or paid by them insatisfaction of a judgment of any such action, suit or proceeding, except ajudgment based upon a

 

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finding of bad faith.  Upon theinstitution of any such action, suit, or proceeding, the member or members ofthe Board of Directors or the Committee, as the case may be, shall notify theCompany in writing, giving the Company an opportunity at its own cost to defendthe same before such member or members undertake to defend the same on his ortheir own behalf.

 

25.                                 **Captions**.  The use of captions in the Plan is forconvenience.  The captions are not intendedto provide substantive rights.

 

26.                                 **Disqualifying Dispositions**.  If Common Stock acquired upon exercise of anIncentive Stock Option granted under the Plan is disposed of within two yearsfollowing the date of grant of the Incentive Stock Option or one year followingthe issuance of the Common Stock to the Optionee, or is otherwise disposed ofin a manner that results in the Optionee being required to recognize ordinaryincome, rather than capital gain, from the disposition (a “DisqualifyingDisposition”), the holder of the Common Stock shall, immediately prior to suchDisqualifying Disposition, notify the Company in writing of the date and termsof such Disqualifying Disposition and provide such other information regardingthe Disqualifying Disposition as the Company may reasonably require.

 

27.                                 **Withholding Taxes**.

 

(a)                                  Wheneverunder the Plan shares of Common Stock are to be delivered to an Optionee uponexercise of a Nonstatutory Stock Option or to a Grantee of Restricted Stock,the Company shall be entitled to require as a condition of delivery that theOptionee or Grantee remit or, at the discretion of the Board or the Committee,agree to remit when due, an amount sufficient to satisfy all current orestimated future Federal, state and local income tax withholding requirements,including, without limitation, the employee=s portion of any employment taxrequirements relating thereto.  At thetime of a Disqualifying Disposition,

 

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the Optionee shall remit to the Company in cash the amount of anyapplicable Federal, state and local income tax withholding and the employee’sportion of any employment taxes.

 

(b)                                 TheBoard of Directors or the Committee may, in its discretion, provide any or allholders of Nonstatutory Stock Options or Grantees of Restricted Stock with theright to use shares of Common Stock in satisfaction of all or part of thewithholding taxes to which such holders may become subject in connection withthe exercise of their Options or their receipt of Restricted Stock.  Such right may be provided to any such holderin either or both of the following formats:

 

(i)                                     Theelection to have the Company withhold, from the shares of Common Stockotherwise issuable upon the exercise of such Nonstatutory Stock Option orotherwise deliverable as a result of the vesting of Restricted Stock, a portionof those shares with an aggregate fair market value equal to the percentage ofthe withholding taxes (not to exceed one hundred percent (100%)) designated bythe holder.

 

(ii)                                  Theelection to deliver to the Company, at the time the Nonstatutory Stock Optionis exercised or Restricted Stock is granted or vested, one or more shares ofCommon Stock previously acquired by such holder (other than in connection withthe option exercise or Restricted Stock grant triggering the withholding taxes)with an aggregate fair market value equal to the percentage of the withholdingtaxes (not to exceed one hundred percent (100%)) designated by the holder.

 

28.                                 **Other Provisions**.  Each Option granted, and each RestrictedStock grant, under the Plan may contain such other terms and conditions notinconsistent with the Plan as may be determined by the Board or the Committee,in its sole discretion.  Notwithstandingthe foregoing, each Incentive Stock Option granted under the Plan shall includethose terms and

 

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conditions which are necessary to qualify theIncentive Stock Option as an “incentive stock option” within the meaning of Section 422of the Code and the regulations thereunder and shall not include any terms andconditions which are inconsistent therewith.

 

29.                                 **Definitions**.  For purposes of the Plan, the terms “parentcorporation” and “subsidiary corporation” shall have the meanings set forth inSections 424(e) and 424(f) of the Code, respectively, and themasculine shall include the feminine and the neuter as the context requires.

 

30.                                 **Governing Law**.  The Plan shall be governed by, and allquestions arising hereunder shall be determined in accordance with, the laws ofthe State of Delaware, excluding choice of law principles thereof.

 

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