2004 Omnibus Stock Option and Incentive Plan Arete Industries, Inc.
                             ARETE INDUSTRIES, INC.
                  2004 OMNIBUS STOCK OPTION AND INCENTIVE PLAN

1. PURPOSE.

The Plan is intended to provide incentive to key employees and directors of, and
key consultants,  vendors, customers, and others expected to provide significant
services  to  the  Corporation,   to  encourage   proprietary  interest  in  the
Corporation,  to  encourage  such key  employees  to remain in the employ of the
Corporation  and its  Subsidiaries,  to attract new employees  with  outstanding
qualifications,  and to afford  additional  incentive to  consultants,  vendors,
customers,  and  others to  increase  their  efforts  in  providing  significant
beneficial services to the Corporation.

2. DEFINITIONS.

2.1  "Award"  shall mean an Option which may be  designated  an Incentive  Stock
     Option  or  a  Non-statutory  Stock  Option,  a  Purchase  Right,  a  Stock
     Appreciation Right or a Stock Payment,  in each case as granted pursuant to
     the Plan.

2.2  "Award  Agreement"  shall mean a Stock Option  Agreement,  Restricted Stock
     Agreement or a Purchase Right Agreement.

2.3  "Beneficiary" shall mean the person,  persons,  trust or trusts entitled by
     will or the laws of  descent  and  distribution  to  receive  the  benefits
     specified under the Plan in the event of a Participant's death.

2.4  "Board" shall mean the Board of Directors of the Corporation.

2.5  "Code" shall mean the Internal Revenue Code of 1986, as amended.

2.6  "Committee"  shall mean the  committee,  if any,  appointed by the Board in
     accordance with Section 4 of the Plan.

2.7  "Common Stock" shall mean the Common Stock of the Corporation.

2.8  "Corporation" shall mean Arete Industries, Inc. and its Subsidiaries.

2.9  "Disability" shall mean the condition of a Participant who is unable to (i)
     perform his or her  substantial  and  material  job duties due to injury or
     sickness or such other condition as the Board or Committee may determine in
     its sole discretion; and/or (ii) engage in any substantial gainful activity
     by reason of any medically determinable physical or mental impairment which
     can be  expected  to result in death or which has lasted or can be expected
     to last for a  continuous  period of not less than twelve (12)  months,  or
     such other meaning ascribed in Section 22(e)(3) or any successor  provision
     of the Code. If the recipient has a disability  insurance policy,  the term
     "Disability" shall be as defined therein;  provided that said definition is
     not inconsistent with the meaning ascribed in Section 22(e)(3) of the Code.

2.10 "Discount"  shall  mean,  with  respect to the  Purchase  Price of Purchase
     Rights,  the discount from the Fair Market Value of a Share as set forth in
     Section 8.3.

2.11 "Dividend Equivalent" shall mean a right to receive a number of Shares or a
     cash amount,  determined as provided in Article 12 hereof.

2.12 "Eligible  Employee"  shall mean an individual who is employed  (within the
     meaning  of Code  Section  3401  and  the  regulations  thereunder)  by the
     Corporation.

2.13 "Event" shall mean any of the following:

     (a)  Any person or entity (or group of affiliated  persons or entities) who
          acquired  in one or more  transactions,  whether  before  or after the
          Effective Date of the Plan, ownership of more than fifty percent (50%)
          of the outstanding Shares of stock entitled to vote in the election of
          directors of the Corporation; or

     (b)  The dissolution or liquidation of the Corporation or a reorganization,
          merger or  consolidation of the Corporation with one or more entities,
          as a result of which the Corporation is not the surviving entity, or a
          sale of all or  substantially  all of the assets of the Corporation as
          an entirety to another entity.

          For purposes of this definition, ownership does not include ownership:
          (i) by a person  owning such Shares merely of record (such as a member
          of  a  securities  exchange,  a  nominee  or a  securities  depository
          system),  (ii) by a person who is a bona fide  pledgee of Shares prior
          to a default and  determination  to exercise powers as an owner of the
          Shares,  (iii) by a person who is not  required to file a statement on
          Schedule 13D by virtue of Rule 13d-1(b) of the Securities and Exchange
          Commission  under the  Exchange  Act,  or (iv) by a person who owns or
          holds  Shares  as  an  underwriter  acquired  in  connection  with  an
          underwritten offering pending and for purposes of resale.

2.14 "Exchange Act" shall mean the  Securities  Exchange Act of 1934, as amended
     from time to time.

2.15 "Exercise Price" shall mean the price per Share of Common Stock, determined
     by the Board or the Committee, at which an Award may be exercised.

2.16 "Fair Market  Value" shall mean the value of one (1) Share of Common Stock,
     determined as follows:

     (i)  if the Shares are traded on a national  securities  exchange or on the
          Nasdaq National Market System, the price at which Shares traded at the
          close of business on the date of  valuation,  or if the  quotation for
          the last sale  reported is not  available,  the  closing  price of the
          Shares as reported by Nasdaq; or

     (ii) if the Shares are traded  over-the-counter  on the NASDAQ System,  the
          closing bid price if one is available, or the mean between the bid and
          asked  prices on said  system at the close of  business on the date of
          valuation; or

     (iii) if neither  (i) nor (ii)  above  applies,  the Fair  Market  Value as
          determined  by  the  Board  or  the  Committee  in  good  faith.  Such
          determination shall be conclusive and binding on all persons.

     (iv) Fair  Market  Value  shall  be  determined   without   regard  to  any
          restriction  other than a restriction  which, by its terms, will never
          lapse.  In the  case  of  Bonuses  and/or  Options  granted  with  the
          corresponding  shares of  common  stock not  covered  by an  effective
          registration  statement,  Fair Market Value may be  determined  by the
          Committee at a reasonable discount to reflect the restricted nature of
          the shares to be issued and the  inability  of the  Recipient  to sell
          those shares  promptly.

2.17 "Incentive  Stock Option" shall mean an option described in Section 422A(b)
     of the Code.

2.18 "Nonstatutory  Stock  Option" shall mean an option not described in Section
     422(b), 422A(b), 423(b) or 424(b) of the Code.

2.19 "Option"  shall mean either an  Incentive  Stock  Option or a  Nonstatutory
     Stock Option granted pursuant to the Plan.

2.20 "Participant"  shall mean an Eligible  Employee or any other person who has
     been granted an Award under the Plan.

2.21 "Performance  Award"  shall  mean  a  cash  bonus,  stock  bonus  or  other
     performance or incentive award that is paid in cash, stock or a combination
     of both.

2.22 "Plan" shall mean this 2004 Omnibus Stock Option and Incentive  Plan, as it
     may be amended from time to time.

2.23 "Purchase  Price" shall mean the Exercise  Price times the number of Shares
     with respect to which an Award is exercised.

2.24 "Purchase  Right"  shall  mean the  grant to an  Employee  of the  right to
     purchase Shares under the Plan.

2.25 "Restricted  Stock" shall mean those Shares issued pursuant to a Restricted
     Stock Award that are not free of the  restrictions set forth in the related
     Restricted Stock Agreement.

2.26 "Restricted  Stock  Award"  shall mean an award of a fixed number of shares
     subject to  payment  of such  consideration,  if any,  and such  forfeiture
     provisions, as are set forth in the related Restricted Stock Agreement.

2.27 "Retirement"  shall mean the  voluntary  termination  of  employment  by an
     Employee upon the attainment of age  sixty-five  (65) and the completion of
     not less than  twenty  (20)  years of  service  with the  Corporation  or a
     Subsidiary.

2.28 "Share"  shall mean one (1) share of Common  Stock,  adjusted in accordance
     with Section 15.3 of the Plan (if applicable).

2.29 "Securities  Act" shall mean the  Securities  Act of 1933,  as amended from
     time to time.

2.30 "Stock  Appreciation  Right"  shall  mean the right to  receive a number of
     Shares or a cash amount,  or a combination  of Shares and cash,  based upon
     the Fair Market Value, book value or other measure  determined by the Board
     or the Committee, as the case may be, pursuant to Section 9 of the Plan.

2.31 "Stock  Payment" shall mean a payment in the form of Shares,  or a Purchase
     Right, as part of a deferred  compensation  arrangement made in lieu of all
     or any  portion  of the  compensation,  including  without  limitation  the
     salary, bonuses or commissions, that would otherwise become payable in cash
     to an Eligible Employee or Participant.

2.32 "Subsidiary"  shall mean any  corporation  at least thirty percent (30%) of
     the total combined  voting power of which is owned by the Corporation or by
     another subsidiary.  Subsidiary shall also include any partnership, limited
     liability  company  or other  independent  business  entity  in  which  the
     Corporation has a controlling or majority interest.

2.33 "Tax Date" shall have the meaning set forth in Section 15.3 hereof.

3.   TERM AND EFFECTIVE DATE.

     The Plan was  proposed by the Board of  Directors  on August 4, 2004 and is
     proposed to be adopted by the Corporation's shareholders at the next annual
     meeting of shareholders.  The Effective Date of the Plan shall be August 4,
     2004 (the "Effective Date").

     Options and Bonuses may be granted  under this Plan from time to time until
     August 4, 2007,  which is three years from the date the Plan was originally
     adopted by the Board.

4.   ADMINISTRATION.

4.1  The Plan shall be  administered  by the Board in compliance with Rule 16b-3
     of the Exchange Act ("Rule 16b-3") if applicable to the Corporation at such
     time, or by a Committee  appointed by the Board,  which  Committee shall be
     constituted  to permit  the Plan to  comply  with  Rule  16b-3,  applicable
     provisions  of the Code and which shall  consist of not less than three (3)
     members.  The Board shall appoint one (1) of the members of the  Committee,
     if there be one, as Chairman of the Committee, who may, but is not required
     to be a "Disinterested Director" as defined in the Code or Rule 16b-3. If a
     Committee has been  appointed,  the  Committee  shall hold meetings at such
     times and places as it may  determine.  Acts of a majority of the Committee
     at which a quorum is present,  or acts reduced to or approved in writing by
     a  majority  of the  members  of the  Committee  shall be valid acts of the
     Committee. The Board, or the Committee, if there be one, shall from time to
     time at its discretion select the Eligible Employees, consultants and other
     Participants  who are to be granted Awards,  determine the number of Shares
     or cash, or the combination  thereof,  to be applicable to such Award,  and
     designate  any Options as Incentive  Stock  Options or  Nonstatutory  Stock
     Options,  except  that  no  Incentive  Stock  Option  may be  granted  to a
     non-employee director or a non-employee  consultant.  A member of the Board
     or Committee  member  shall in no event  participate  in any  determination
     relating  to Awards  held by or to be granted  to such  Board or  Committee
     member;  however,  a member of the  Board or a  Committee  member  shall be
     entitled to receive Awards approved by the  shareholders in accordance with
     the provisions of Rule 16b-3.  The  interpretation  and construction by the
     Board,  or by the Committee,  if there be one, of any provision of the Plan
     or of any Award granted  thereunder  shall be final. No member of the Board
     or the Committee  shall be liable for any action or  determination  made in
     good faith with  respect to the Plan or any Award  granted  thereunder.  In
     addition  to any  right of  indemnification  provided  by the  Articles  of
     Incorporation  or  Bylaws  of  the   Corporation,   such  person  shall  be
     indemnified  and held  harmless  by the  Corporation  from any loss,  cost,
     liability or expense that may be imposed upon or reasonably incurred by him
     in connection with any claim, suit, action or proceeding to which he may be
     a party by reason of any action or omission under the Plan.

4.2  Options,  Bonuses or other Award  granted under the Plan shall be evidenced
     by duly adopted resolutions of the Committee included in the minutes of the
     meeting at which they are adopted or in a unanimous written consent.

4.3  By resolution, the Committee may delegate to one or more executive officers
     the power to grant options or stock bonuses to  employees,  consultants  or
     advisors of the Corporation; provided, however, that grants to directors or
     executive  officers  of the  Corporation,  or any other  person  subject to
     Section 16 of the Exchange Act may not be made  pursuant to such  delegated
     authority.  With  respect to persons  subject to Section 16 of the Exchange
     Act,  transactions  under  this  Plan  are  intended  to  comply  with  all
     applicable  conditions of Rule 16b-3 or any successor  regulation under the
     Exchange  Act.  To the extent any  provision  of this Plan or action by the
     Committee  fails to so  comply,  it shall be deemed  null and void,  to the
     extent permitted by law and deemed advisable by the Committee.  Any Option,
     Bonus or other Award granted  hereunder which would subject or subjects the
     Participant to liability under Section 16(b) of the Exchange Act is void AB
     INITIO as if it had never been granted.

4.4  No member of the Committee or the Board, nor any agent, shall be liable for
     any action  taken or  determination  made in good faith with respect to the
     Plan or any Option or Bonus granted hereunder.

4.5  The  Committee may delegate to one or more of its members or to one or more
     agents  such  administrative  duties  as it may  deem  advisable,  and  the
     Committee or any person to whom it has  delegated  duties as aforesaid  may
     employ  one  or  more  persons  to  render   advice  with  respect  to  any
     responsibility the Committee or such person may have under the Plan.

5.   PARTICIPATION.

5.1  Eligibility.  Subject to the terms and conditions of Section 5.2 below, the
     Participants  shall be such persons as the  shareholders  may approve or as
     the Board or  Committee  may  select  from among the  following  classes of
     persons:  (i) Employees of the  Corporation or of a Subsidiary  (who may be
     officers,  whether  or  not  they  are  directors)  and  directors  of  the
     Corporation or of a Subsidiary; and (ii) Consultants,  vendors,  customers,
     and others expected to provide significant services to the Corporation or a
     Subsidiary.  In determining the persons to whom Awards shall be granted and
     the  number of shares to be covered  by each such  Award,  the Board or the
     Committee  as the case may be,  shall take into  account  the duties of the
     respective  persons,  their  present  and  potential  contributions  to the
     success  of the  Corporation  and such  other  factors  as the Board or the
     Committee,  as the case may be,  shall  deem  relevant  to  accomplish  the
     purposes of the Plan.

     For purposes of this Plan, an Eligible  Employee,  or other Participant who
     is a  director  or an  officer,  consultant,  vendor,  customer,  or  other
     provider of significant  services to the Corporation or a Subsidiary  shall
     be deemed to be an  Eligible  Employee  or  Participant,  and service as an
     officer,  director,  consultant,  vendor,  customer,  or other  provider of
     significant  services to the Corporation or a Subsidiary shall be deemed to
     be  employment,  except that no Incentive  Stock Option may be granted to a
     non-employee  director or non-employee  consultant,  vendor,  customer,  or
     other provider of significant  services to the Corporation or a Subsidiary,
     and  except  that  no  Nonstatutory  Stock  Option  may  be  granted  to  a
     non-employee  director or non-employee  consultant,  vendor,  customer,  or
     other provider of significant  services to the  Corporation or a Subsidiary
     other  than upon a vote of a majority  of  disinterested  directors  and/or
     Committee members, if there shall be a Committee, finding that the value of
     the services  rendered or to be rendered to the Corporation or a Subsidiary
     by such non-employee director or non-employee consultant, vendor, customer,
     or other  provider of services is at least equal to the value of the Awards
     granted.

5.2  Ten-Percent Shareholders. An Eligible Employee or Participant who owns more
     than ten percent (10%) of the total combined voting power of all classes of
     outstanding stock of the Corporation, its parent or any of its Subsidiaries
     shall not be eligible  to receive an Award for an  Incentive  Stock  Option
     unless (i) the  Exercise  Price of the  Shares  subject to such Award is at
     least one  hundred  ten  percent  (110%) of the Fair  Market  Value of such
     Shares  on the date of  grant:  and  (ii)  such  Award by its  terms is not
     exercisable  after the expiration of five (5) years from the date of grant.


5.3  Stock  Ownership.  For purposes of Section 5.2 above, in determining  stock
     ownership,  an Eligible  Employee or  Participant  shall be  considered  as
     owning the stock owned,  directly or  indirectly,  by or for a corporation,
     partnership,   estate  or  trust  shall  be   considered   as  being  owned
     proportionately  by or for its  shareholders,  partners  or  beneficiaries.
     Stock with respect to which such Eligible  Employee or Participant holds an
     Award shall not be counted.

5.4  Outstanding Stock. For purposes of Section 5.2 above,  "Outstanding  stock"
     shall include all stock actually issued and outstanding  immediately  after
     the grant of the Award to the  Participant.  "Outstanding  stock" shall not
     include shares authorized for issue under  outstanding  Options or Purchase
     Rights held by the Participant or by any other person.

6. STOCK SUBJECT TO THE PLAN.

     The stock  subject to Awards  granted under the Plan shall be Shares of the
     Corporation's  authorized  but unissued or  reacquired  Common  Stock.  The
     aggregate number of Shares that may be issued as Awards or upon exercise of
     Awards under the Plan shall not exceed Fifty  Million  (50,000,000)  common
     shares.  The  number  of  Shares  subject  to  unexercised  Options,  Stock
     Appreciation   Rights  or  Purchase  Rights  (plus  the  number  of  Shares
     previously  issued  under the Plan) shall not at any time exceed the number
     of Shares  available  for  issuance  under the Plan.  In the event that any
     unexercised  Option,  Stock  Appreciation  Right or Purchase  Right, or any
     portion thereof, for any reason expires or is terminated,  or if any Shares
     subject to a Restricted  Stock Award do not vest or are not delivered,  the
     unexercised or unvested Shares allocable to such Option, Stock Appreciation
     Right,  Purchase Right or Restricted  Stock Award may again be made subject
     to any Award.  Any Shares withheld by the  Corporation  pursuant to Section
     15.3 shall not be deemed to be issued.  The number of withheld Shares shall
     be deducted from the applicable Award and shall not entitle the Participant
     to receive additional Shares. The limitations established by this Article 6
     shall be  subject to  adjustment  in the manner  provided  in Section  14.5
     hereof upon the occurrence of an event specified therein.

7.   OPTIONS.

7.1  Stock Option Agreements. Options shall be evidenced by written stock option
     agreements  in such form as the Board or the  Committee,  if there shall be
     one, shall from time to time determine.  Such agreements  shall comply with
     and be subject to the terms and  conditions  set forth below.  In the event
     that a written  common  stock  option  shall not have been  delivered to an
     eligible Participant prior to their notice of intent to exercise, the terms
     of the stock  option  shall be deemed the same as the form of stock  option
     agreement  attached  hereto  as  an  exhibit  and  incorporated  herein  by
     reference  with the specific terms and provisions as set forth in the board
     minutes granting such option or award.

7.2  Number of Shares.  Each Option shall state the number of Shares to which it
     pertains and shall provide for the  adjustment  thereof in accordance  with
     the provisions of Section 14.5 hereof.

7.3  Exercise  Price.  Each Option shall state the Exercise Price  thereof.  The
     Exercise Price in the case of any Incentive  Stock Option shall not be less
     than the Fair  Market  Value on the date of grant  and,  in the case of any
     Option granted to an Optionee described in Section 5.2 hereof, shall not be
     less than one hundred ten  percent  (110%) of the Fair Market  Value on the
     date of grant.  The Exercise  Price in the case of any  Nonstatutory  Stock
     Option shall not be less than eighty-five  percent (85%) of the Fair Market
     Value on the date of grant.  The  Exercise  Price for any  Option  shall be
     subject to  adjustment in  accordance  with the  provisions of Section 14.5
     hereof.

7.4  Medium and Time of Payment.  The Purchase Price shall be payable in full in
     United States dollars upon the exercise of the Option;  provided,  however,
     that if the  applicable  Stock  Option  Agreement  so provides the Purchase
     Price  may the  paid  (i) by the  surrender  of  Shares  in good  form  for
     transfer,  owned by the  Participant  and having a Fair Market Value on the
     date of exercise equal to the Purchase Price, or in any combination of cash
     and  Shares,  as long as the sum of the cash so paid  and the  Fair  Market
     Value of the Shares so  surrendered  equals  the  Purchase  Price,  (ii) by
     cancellation  of indebtedness  owed by the Corporation to the  Participant,
     (iii) with a full recourse promissory note executed by the Participant,  or
     (iv) any  combination of the  foregoing.  The interest rate and other terms
     and  conditions  of such note shall be  determined  by the  Committee.  The
     Committee may require that the Participant  pledge his or her Shares to the
     Corporation  for the  purpose of securing  the payment of such note.  In no
     event shall the stock  certificate(s)  representing such Shares be released
     to the Participant until such note shall be paid in full.

7.5  Term and Non-Transferability of Options.

     7.5.1The date on which the Board or Committee adopts a resolution expressly
          granting an Option shall be considered the day on which such Option is
          granted,  unless  a  future  date is  specified  in  such  resolution;
          provided  however that no Participant  shall have any rights under the
          Grant until he/she have executed an Option  Agreement  with respect to
          such  Option.  Each option  shall state the time or times which all or
          part thereof becomes exercisable. No Option shall be exercisable after
          the expiration of ten (10) years from the date it was granted,  and no
          Option granted to a Participant  described in Section 5.2 hereof shall
          be exercisable after the expiration of five (5) years from the date it
          was granted. During the lifetime of the Participant,  the Option shall
          be exercisable  only by the Participant and shall not be assignable or
          transferable.  In the event of the  Participant's  death,  the  Option
          shall not be transferable by the Participant other than by will or the
          laws of descent and distribution.

     7.5.2 Nothing in the Plan or in any Option granted  hereunder  shall confer
          upon a  Participant  any  right to  continue  in the  employ  of or to
          continue any other  relationship with the Corporation nor interfere in
          any way with the right of the Corporation to terminate such employment
          or other relationship between a Participant and the Corporation.

     7.5.3 Transferability Restriction

          7.5.3.1 Options granted under the Plan shall not be transferable other
               than by  will  or by the  laws of  descent  and  distribution  or
               pursuant to a qualified  domestic  relations  order as defined by
               the Code or Title I of the Employee  Retirement  Income  Security
               Act of 1974,  or the rules  thereunder.  Options may be exercised
               during the lifetime of the Participant  only by the  Participant,
               and  thereafter  only by his legal  representative  or  permitted
               assignee.

          7.5.3.2 Any attempted sale, pledge, assignment, hypothecation or other
               transfer of an Option  contrary to the provisions  hereof and the
               levy of any  execution,  attachment  or similar  process  upon an
               Option  shall be null and void and  without  force or effect  and
               shall result in a termination of the Option.

7.6  Modification,  Extension and Renewal of Option.  Within the  limitations of
     the Plan, the Committee may modify,  extend or renew outstanding Options or
     accept  the  cancellation  of  outstanding   Options  (to  the  extent  not
     previously  exercised)  for the  granting  of new  Options in  substitution
     therefore,  in its sole  discretion  as it deems  appropriate.  No exercise
     period may be extended to increase the term of the Option  beyond ten years
     from the date of the grant,  or five years in the case of  Incentive  Stock
     Options  granted  to  persons  owning  more than ten  percent  of the total
     combined voting power of the Common Stock of the Corporation. The foregoing
     notwithstanding,  no modifications of an Option shall,  without the consent
     of the  Participant,  alter or impair any rights or  obligations  under any
     Option previously granted.

7.7  Limitation on Grant of Incentive  Stock  Options.  In the case of Incentive
     Stock  Options   granted   hereunder,   the  aggregate  Fair  Market  Value
     (determined as of the date of the grant thereof) of the Shares with respect
     to which Incentive Stock Options become  exercisable by any Participant for
     the first time  during any  calendar  year  (under  this Plan and all other
     plans maintained by the Corporation,  its parent or it Subsidiaries)  shall
     not exceed One Hundred Thousand Dollars ($100,000).  The Board or Committee
     may, however,  with the Participant's consent authorize an amendment to the
     incentive Stock Option, which renders it a Nonstatutory Stock Option.

7.8  Other Provisions. The Stock Option Agreements authorized under the Plan may
     contain such other provisions not  inconsistent  with the terms of the Plan
     (including,  without  limitation,  restrictions  upon the  exercise  of the
     Option) as the Committee shall deem advisable.

7.9  Specific  Awards Approved by the  Shareholders.  Subject to the approval by
     the vote of the  shareholders  at the next Annual or Special Meeting of the
     Shareholders,  the individuals whose names are set forth in Schedule "A", a
     copy of which is attached hereto and incorporated herein by this reference,
     shall be deemed granted Awards in the amounts and  denominations  specified
     thereon,  in the  amounts  and  for the  amount  indicated  opposite  their
     respective  names,  and in accordance  with the vesting  schedule set forth
     herein,  all in accordance  with the provisions set forth in this Article 7
     of the  Plan,  effective  as of the date  granted  or the  Effective  Date,
     whichever is specified in  resolutions  of the Board of Directors  granting
     such awards. The provisions of this Section 7.9 and following Section 7.10,
     shall not be  amended  more than once every six (6)  months,  other than to
     comport with changes in the Internal Revenue Code, the Employee  Retirement
     Income  Security  Act,  or the  rules  thereunder,  and/or  intended  to be
     construed in accordance with the provisions  pertaining to "formula awards"
     under  Paragraph  (c) (2) (ii) of Rule  16b-3.

7.10 Awards from the 2003 Plan. In addition to the formula  grants  described in
     the preceding paragraph, the stock options listed in "Schedule B", attached
     hereto   consisting  of  unexercised   stock  options  remaining  from  the
     Corporation's  2003 Omnibus Incentive Stock Option and Incentive Plan shall
     be  deemed  included  and  made  subject  to  this  Plan  also  subject  to
     shareholder approval.

8.   RESTRICTED/REGISTERED STOCK PURCHASE RIGHTS

8.1  Stock Purchase  Agreements.  Purchase  Rights shall be evidenced by written
     Stock Purchase  Agreements in such form as the Committee shall from time to
     time  determine.  Such  agreements  shall comply with and be subject to the
     terms and conditions set forth below.

8.2  Number of Shares.  Each Purchase  Right shall state the number of Shares to
     which  it  pertains  and  shall  provide  for  the  adjustment  thereof  in
     accordance with the provisions of Section 14.5 hereof.

8.3  Purchase  Price.  Each Stock  Purchase  Agreement  shall state the Purchase
     Price per Share at which the Purchase Right may be exercised which,  unless
     the Board or  Committee  otherwise  determines,  shall not be less than the
     Fair Market Value of a Share as of the date on which the Purchase  Right is
     granted,   less  a  discount  (the  "Discount")  equal  to  not  more  than
     seventy-five  percent (75%) of such value. In the event that shares subject
     to a  Purchase  right  are  to be  registered  pursuant  to a  registration
     statement under the '33 Act, the Purchase Price per share shall not be less
     than  the  Fair  Market  Value of the  Shares  as of the date on which  the
     Purchase Right is granted.

8.4  Exercisability and Non -Transferability of Purchase Rights. Purchase Rights
     granted to a  Participant  pursuant  to the Plan must be  exercised  within
     sixty (60) days after the later to occur of (i) Board approval of the grant
     of the Purchase  Right or (ii)  delivery of notice of such grant.  Purchase
     Rights may not be sold,  pledged,  assigned,  hypothecated,  transferred or
     disposed of in any manner and shall  expire  immediately  upon the death of
     the  Participant or the termination of such  Participant's  employment with
     the Corporation.

8.5  Medium and Time of Payment.  The Purchase Price shall be payable in full in
     United States dollars upon exercise of the Purchase Right; provided however
     that if the applicable  Stock  Purchase  Agreement so provides the Purchase
     Price may be paid (i) by the  surrender of Shares in good form for transfer
     owned by the person  exercising the Purchase Right and having a Fair Market
     Value  on the  date of  exercise  equal  to the  Purchase  Price  or in any
     combination  of cash and  Shares as long as the sum of the cash so paid and
     the Fair Market Value of the Shares so surrendered equal the Purchase Price
     or (iii) with a full recourse  promissory note executed by the Participant.
     The  interest  rate and other  terms and  conditions  of such note shall be
     determined by the Committee. The Committee may require that the Participant
     pledge his or her Shares to the Corporation for the purpose of securing the
     payment  of  such  note.  In  no  event  shall  the  stock   certificate(s)
     representing  such Shares be released to Participant  until such note shall
     be paid  in  full.  In the  event  the  Corporation  determines  that it is
     required  to  withhold  state or  federal  income  tax as a  result  of the
     exercise of a Purchase  Right,  as a condition to the exercise  thereof,  a
     Participant  may be  required  to  make  arrangements  satisfactory  to the
     Corporation for it to satisfy such withholding  requirements.  In addition,
     the Participant shall agree to immediately  notify the Corporation if he or
     she files an election pursuant to Section 83(b) of the Code with respect to
     receipt of the Shares.

8.6  Consent of Spouse.  Each  Participant  who is married must cause his or her
     spouse to sign and deliver the Stock Purchase Agreement to the Corporation,
     in the place provided for such signature on the Stock Purchase Agreement.

8.7  Modification,   Extension  and  Renewal  of  Purchase  Rights.  Within  the
     limitations of the Plan,  the Board or the Committee may modify,  extend or
     renew outstanding Purchase Rights or accept the cancellation of outstanding
     Purchase  Rights (to the extent not previously  exercised) for the granting
     of  new  Purchase   Rights  in   substitution   therefor.   The   foregoing
     notwithstanding,  no  modification  of a Purchase Right shall,  without the
     consent of the Employee,  alter or impair any rights or  obligations  under
     any Purchase Right previously granted.

8.8  Repurchase Option as to Unvested Shares.

     8.8.1 Termination  of  Employment.   In  the  event  of  the  voluntary  or
          involuntary  termination  or cessation of employment or association of
          the Participant  with the Corporation or any Subsidiary for any reason
          whatsoever, with or without cause (including death or disability), the
          Corporation  shall,  upon  the  date  of  such  termination,  have  an
          irrevocable,  exclusive option to repurchase (the "Repurchase Option")
          all or any portion of the Shares held by the Employee that are subject
          to the  Repurchase  Option  as of such date at the  original  Purchase
          Price.

     8.8.2 Vesting. Initially,  all  of  the  Shares  shall  be  subject  to the
          Repurchase Option.  Thereafter,  the Repurchase Option shall lapse and
          expire,  or  "vest",  as  to a  specified  number  of  the  Shares  in
          accordance  with a  schedule  to be  determined  by the  Board  or the
          Committee,  as the case may be,  which  shall be attached to the Stock
          Purchase  Agreement to be entered into between the Participant and the
          Corporation  as  provided  in  Section  8.1 above.  All  Shares  which
          continue  to  be  subject  to  the  Repurchase  Option  are  sometimes
          hereinafter referred to as "Unvested Shares."

     8.8.3 Notice.  Within   ninety  (90)  days   following   the  date  of  the
          Participant's  termination  of  employment  by  the  Corporation,  the
          Corporation  shall  notify  the  Employee  as to  whether it wishes to
          repurchase  the  Unvested  Shares  pursuant  to  the  exercise  of the
          Repurchase  Option.  If the  Corporation  elects  to  repurchase  said
          Unvested  Shares,  it  shall  set  a  date  for  the  closing  of  the
          transaction  at the Executive  Offices of the  Corporation,  not later
          than thirty (30) days from the date of such notice.

     8.8.4Transfers.  Except for  transfers  to  Participant's  descendants  and
          spouses,  the  Participant  shall not  transfer  by sale,  assignment,
          hypothecation, donation or otherwise any of the Shares or any interest
          therein  prior to the  release  of such  Shares  from  the  Repurchase
          Option.

     8.8.5 Assignment.  The Corporation's  Repurchase  Option may be assigned in
          whole or in part to any stockholder or stockholders of the Corporation
          or other persons or organizations.

8.9  Corporation's  Right of First Refusal to Purchase Vested Shares. Each Stock
     Purchase  Agreement  entered into as provided  herein  shall  provide for a
     right  of first  refusal  and  option  on the  part of the  Corporation  to
     purchase all or any part of any Shares  which are no longer  subject to the
     Repurchase  Option  which the  Participant  purposes  to sell,  transfer or
     otherwise dispose of (except for transfers to Participant's descendants and
     spouses) on the following terms and conditions.

     8.9.1The Participant must notify the Corporation in writing of any proposed
          sale,  transfer or other disposition of any of the Shares,  specifying
          the  proposed  transferee,   the  number  of  Shares  proposed  to  be
          transferred,  and the  price  at  which  such  Shares  are to be sold,
          transferred or otherwise disposed.  8.9.2 The Corporation shall have a
          period of thirty  (30) days from  receipt of such notice to notify the
          Participant in writing as to whether or not the Corporation  elects to
          purchase all or a specified portion of such Shares at the lower of: i)
          price per share set forth in the notice given by the  Participant,  or
          ii) the Fair  Market  Value  for a share of the  Corporation's  Common
          Stock, without restrictions,  on the date on which the notice is given
          by Participant to the  Corporation  (determined as provided in Section
          2.13 above),  less in either case an amount equal to the Discount.  If
          the Corporation  elects not to purchase all of the Shares specified in
          the notice, the Participant may sell, transfer or otherwise dispose of
          the remaining Shares in strict  accordance with the terms specified in
          the notice within  ninety (90) days  following the date of the notice.
          It is understood  and agreed that any transferee of any of such Shares
          (other than the Corporation)  will take and acquire all of such Shares
          subject to the  continuing  right of first  refusal  and option on the
          part of the  Corporation to purchase all or any portion of such Shares
          from the transferee on all of the same terms and conditions as are set
          forth in the Stock Purchase  Agreement,  unless the Participant  shall
          have paid to the  Corporation,  out of the  proceeds  from the sale of
          such  Shares or  otherwise,  an amount  equal to the lesser of (i) the
          Discount,  or (ii) the  amount  by which the Fair  Market  Value for a
          share of the Corporation's Common Stock, without restrictions,  on the
          date on which the notice is given by  Participant  to the  Corporation
          (determined  as provided in Section 2.13 above)  exceeds the price per
          Share paid by the Participant for such Shares.

8.9  Other Provisions. The Stock Purchase Agreements authorized may contain such
     other provisions not  inconsistent  with the terms of the Plan as the Board
     or the Committee shall deem advisable.

8.10 Special  Incentive  Stock Purchase Plan. The Board has reserved  10,000,000
     Shares  under  this  Plan as a special  award of  Special  Incentive  Stock
     Purchase  Rights to present and future  officers,  directors  employees and
     consultants  individually or as a group, providing that individuals who are
     or  may  become  officers,  directors,  employees  or  consultants  of  the
     Corporation during the term of the Plan may purchase a designated number of
     Shares  at the  market  price  for the  Shares  as of the date of the Plan,
     August 4, 2004, or $0.007 per share.  The Board or  Committee,  as the case
     may be, have been authorized to establish  standards and  requirements  for
     eligibility,  terms and conditions for exercise of Special  Incentive Stock
     Purchase Rights including,  without  limitation,  vesting rights,  exercise
     periods,  and any  restrictions on resale of Shares  purchased  pursuant to
     such Awards, in their sole and complete discretion.  The Board or Committee
     as the case may be may make  individual  or  blanket  Awards  to all or any
     class  or  sub-classification  of  Participant,  subject  to the  following
     general  provisions:

          8.11.1  Participants  must be employed for a minimum of 45 days before
               Awards are granted or become  exercisable.  Awards granted before
               such time expire if employment  terminates  before  expiration of
               such 45 day  period.  Accordingly,  no  exercise  may be accepted
               until such time.


          8.11.2 Awards must be exercised on or before 10 days after termination
               of the Participant's qualified employment,  unless terminated for
               cause,  in which case they will  expire on such  termination  for
               cause.

          8.11.3 Shares issued  pursuant to exercise of Special  Incentive Stock
               Purchase  Rights,  are to be  issued  in  unrestricted  and  free
               trading  form,  provided  that  (a)  sufficient  shares  under an
               effective Registration Statement are reserved for their issuance;
               and (b) no other  restriction is otherwise  applicable under Rule
               144 under the Act;

          8.11.4 Awards of  Special  Incentive  Stock  Purchase  Rights  are not
               effective in any event unless  represented  by a written  Special
               Incentive  Stock  Purchase  Right  Agreement,  setting  forth the
               material  terms and conditions of the specific  Award,  signed by
               the Chairman and one committee member;

          8.11.5 Any  provision  of this  Plan,  not  specifically  modified  or
               expressly  excluded from the provisions of this Section 8.11, may
               be applied to specific  Special  Incentive Stock Purchase Awards,
               in the discretion of the Board or Committee,  as the case may be.
               This subsection is subject to the general terms,  definitions and
               provisions including Sections 14 and 15 hereof.


9.   STOCK APPRECIATION RIGHTS.

9.1  Grant. Stock  Appreciation  Rights related or unrelated to Options or other
     Awards may be granted to Participants:  (i) at any time, if unrelated to an
     Award, or if related to an Award other than an Incentive  Stock Option;  or
     (ii)  only at the time of grant of an Option if  related  thereto.  A Stock
     Appreciation  Right may extend to all or a portion of the Shares covered by
     a related Award.

9.2  Exercise of Stock  Appreciation  Rights. A Stock Appreciation Right granted
     in  connection  with an Award  shall be  exercisable  only at such  time or
     times,  and to the  extent  that a related  Award is  exercisable.  A Stock
     Appreciation  Right granted in connection with an Option may be exercisable
     only when the Fair Market Value of the stock subject to the Option  exceeds
     the Exercise Price of the Incentive Stock Option.

9.3  Payment.

     (a)  Upon the exercise of a Stock  Appreciation  Right,  and, if such Stock
          Appreciation Right is related to an Award, surrender of an exercisable
          portion of a related  Award,  the  Participant  shall be  entitled  to
          receive  payment  of an  amount  determined  by  multiplying:  (i) the
          difference  obtained by  subtracting  the purchase price of a share of
          Common  Stock  specified  in  the  related  Award,  or if  such  Stock
          Appreciation  Right is  unrelated  to an Award,  from the Fair  Market
          Value,  book  value or other  measure  specified  in the Award of such
          Stock  Appreciation  Right of a share of  Common  Stock on the date of
          exercise  of such  Stock  Appreciation  Right,  by (ii) the  number of
          Shares as to which such Stock Appreciation Right has been exercised.

     (b)  The  Board  or the  Committee,  as  the  case  may  be,  in  its  sole
          discretion,  may require  settlement  of the amount  determined  under
          paragraph  (a) above solely in cash,  solely in Shares of Common Stock
          (valued at Fair Market Value on the business  day next  preceding  the
          date of exercise of such Stock Appreciation  Right), or partly in such
          Shares and partly in cash.

9.4  Maximum Stock  Appreciation  Right Term. Each Stock  Appreciation Right and
     all rights and obligations thereunder shall expire on such date as shall be
     determined  by the Board or the Committed but not later than ten (10) years
     after  the date of the  Award  thereof,  and shall be  subject  to  earlier
     termination  as provided in the related Award  Agreement and Sections 14.6,
     14.7, 14.8, 14.9 and 15.1.

10.  PERFORMANCE AWARDS.

     One or more Performance Awards may be granted to any eligible  Participant.
     The value of such Awards may be linked to the market  value,  book value or
     other  measure  of  the  value  of  the  Common  Stock  or  other  specific
     performance criteria determined  appropriate by the Board or the Committee,
     in each case on a specified date or over any period determined by the Board
     or the  Committee,  or may be based  upon the  appreciation  in the  market
     value,  book value or other  measure of the value of a specified  number of
     Shares of Common Stock over a fixed period  determined  by the Board or the
     Committee.  In making such  determinations,  the Board or the Committee may
     consider  (among  such other  factors as it deems  relevant in light of the
     specific  type of  award)  the  contributions,  responsibilities  and other
     compensation of the Participant.

11.  DIVIDEND EQUIVALENTS.

     A  Participant  may also be  granted  "Dividend  Equivalents"  based on the
     dividends  declared  on the Common  Stock,  to be  credited  as of dividend
     payment  dates,  during the period between the Award Date and the date such
     Award is  exercised,  vests or  expires as  determined  by the Board or the
     Committee.  Such  Dividend  Equivalents  shall  be  converted  to  cash  or
     additional  Shares of  Common  Stock by such  formula  and at such time and
     subject  to such  limitations  as may be  determined  by the  Board  or the
     Committee.

12.  STOCK PAYMENTS.

     The Board or the Committee may approve Stock Payments to Eligible Employees
     or other  Participants  who elect to receive  such  payments  in the manner
     determined  from time to time by the Board or the Committee.  The number of
     Shares shall be  determined  by the Board or the Committee and may be based
     upon the Fair  Market  Value,  book value or other  measure of the value of
     such Shares on the Award Date or on any date thereafter.

13.  LOANS.

     The Corporation may, with the Board's or the Committee's  approval,  extend
     one or more  loans to  Participants  in  connection  with the  exercise  or
     receipt of  outstanding  Awards  granted under the Plan;  provided any such
     loan shall be subject to the following terms and conditions;

     (i)  The  principal of the loan shall not exceed the amount  required to be
          paid to the  Corporation  upon the  exercise or receipt of one or more
          Awards under the Plan less the aggregate Par Value of any Common Stock
          deliverable  on  such  event,  and the  loan  proceeds  shall  be paid
          directly  to the  Corporation  in  consideration  of such  exercise or
          receipt.

     (ii) The initial term of the loan shall be  determined  by the Board or the
          Committee;  provided that the term of the loan, including  extensions,
          shall not exceed a period of ten (10) years.

     (iii) The loan shall be with full  recourse  to the  Participant,  shall be
          evidenced by the Participant's promissory note and shall bear interest
          at a rate  determined  by the Board or the Committee but not less than
          the Corporation's average cost of funds as of a date within thirty-one
          (31)  days of the date of such  loan,  as  determined  by the Board or
          Committee.

     (iv) in the event a  Participant  terminates  his or her  employment at the
          request of the Corporation,  the unpaid principal  balance of the note
          shall  become due and payable on the tenth  (10th)  business day after
          such  termination;  provided,  however,  that if a sale of such Shares
          would cause such Participant to incur liability under Section 16(b) of
          the Exchange  Act, the unpaid  balance shall become due and payable on
          the tenth  (10th)  business day after the first day on which a sale of
          such Shares  could have been made  without  incurring  such  liability
          assuming for these  purposes that there are no other  transactions  by
          the  Participant  subsequent  to  such  termination.  In the  event  a
          Participant  terminates  employment  other than at the  request of the
          Corporation, the unpaid principal balance of the note shall become due
          and payable six (6) months after the date of such termination.

14.  RIGHTS OF ELIGIBLE EMPLOYEES, PARTICIPANTS AND BENEFICIARIES.

14.1 Employee Status.  Status as an Eligible Employee or other Participant shall
     not be construed as a commitment that any Award will be made under the Plan
     to an Eligible  Employee,  Participant  or to Eligible  Employees  or other
     Participants generally.

14.2 No  Employment  Contract.  Nothing  contained  in the Plan (or in the Award
     Agreements  or in any other  documents  related  to the Plan or to  Awards)
     shall  confer  upon any  Eligible  Employee  or  Participant  any  right to
     continue in the employ of the  Corporation  or  constitute  any contract or
     agreement  of  employment,  or  interfere  in any way with the right of the
     Corporation  to reduce  such  person's  compensation  or to  terminate  the
     employment of such Eligible Employee or Participant, with or without cause,
     but nothing  contained in the Plan or any document  related  thereto  shall
     affect any other contractual right of any Eligible employee or Participant.
     Nothing  contained in the Plan (or in the Award  Agreements or in any other
     documents related to the Plan or the Awards) shall confer upon any director
     of the Corporation any right to continue as a director of the Corporation.

14.3 No Transferability. Awards may be exercised only by, and amounts payable or
     Shares issued pursuant to an Award shall be paid only to or registered only
     in the name of,  the  Participant  or,  in the  event of the  Participant's
     death,  to  the   Participant's   Beneficiary  or,  in  the  event  of  the
     Participant's  Disability, to the participant's Personal Representative or,
     if there is none,  to the  Participant.  Other  than by will or the laws of
     descent and distribution,  no right or benefit under the Plan or any Award,
     including, without limitation, any Option or share of Restricted Stock that
     has not vested, shall be subject in any manner to anticipation, alienation,
     sale,  transfer,  assignment,  pledge,  encumbrance  or charge and any such
     attempted  action  shall be void and no such right or benefit  shall be, in
     any  manner,  liable  for, or subject  to,  debts,  contract,  liabilities,
     engagements, or torts of any Eligible Employee, Participant or Beneficiary,
     in any case except as may  otherwise  by expressly  required by  applicable
     law. The Board or the  Committee  shall  disregard any attempt at transfer;
     assignment or other  alienation  prohibited  by the preceding  sentence and
     shall pay or deliver such cash or Shares of Common Stock in accordance with
     the provisions of the Plan. Notwithstanding the foregoing, the Board or the
     Committee  may  authorize  exercise by or  transfers or payments to a third
     party in a specific case or more generally; provided, however, with respect
     to any option or similar right  (including  any Stock  Appreciation  Right)
     such discretion may only be exercised to the extent that  applicable  rules
     under Section 16 of the Exchange Act would so permit without  disqualifying
     the Plan from certain benefits thereunder.

14.4 Plan Not Funded. No Participant, Beneficiary or other person shall have any
     right,  title or interest in any fund or in any specific  asset  (including
     Shares of Common Stock) of the  Corporation  by reason of any Award granted
     hereunder.  There  shall be no  funding  of any  benefits  which may become
     payable  hereunder.  Neither the provision of the Plan (or of any documents
     related  hereto,  nor the creation or adoption of the Plan,  nor any action
     taken pursuant to the provisions of the Plan shall create,  or be construed
     to create,  a trust of any kind or a  fiduciary  relationship  between  the
     Corporation  and any  Participant  or  Beneficiary.  To the  extent  that a
     Participant,  a Beneficiary or other person  acquires a right to receive an
     Award  hereunder,  such  right  shall be no  greater  than the right of any
     unsecured  general  creditor of the  Corporation.  Awards payable under the
     Plan shall be paid in Shares of Common Stock or from the general  assets of
     the  Corporation,  and no special  or  separate  fund or  deposit  shall be
     established  and no segregation of assets or Shares shall be made to assure
     payment of such Awards.

14.5 Adjustment Upon  Recapitalization and Corporate Changes. If the outstanding
     Shares  of  Common  Stock  are  changed  into or  exchanged  for  cash or a
     different number or kind of Shares or securities of the Corporation,  or if
     the  outstanding  Shares  of the  Common  Stock are  increased,  decreased,
     exchanged  for, or otherwise  changed,  or if  additional  Shares or new or
     different  shares  or  securities  are  distributed  with  respect  to  the
     outstanding Shares of the Common Stock,  through a reorganization or merger
     in which the Corporation is the surviving  entity or through a combination,
     consolidation,  recapitalization,   reclassification,  stock  split,  stock
     dividend,  reverse stock split, stock consolidation or other capital change
     or adjustment,  an appropriate  adjustment  shall be made in the number and
     kind  of  shares  or  other  consideration  that  is  subject  to or may be
     distributed   under  the  Plan  and  pursuant  to  outstanding   Awards.  A
     corresponding  adjustment  to the  consideration  payable  with  respect to
     Awards  granted  prior to any such  change and to the price,  if any, to be
     paid in  connection  with  Restricted  Stock  Awards  shall also be made as
     appropriate.  Corresponding adjustments shall be made with respect to Stock
     Appreciation  Rights  related  to Options  to which  they are  related.  In
     addition,  the Board or the Committee may grant such  additional  rights in
     the foregoing  circumstances  as the Board or the Committee  deems to be in
     the  best  interest  of any  Participant  and the  Corporation  in order to
     preserve for the Participant the benefits of an Award.

14.6 Termination of Employment Except by Death,  Disability or Retirement.  If a
     Participant  ceases to be an Employee  for any reason other than his or her
     death,  disability or retirement,  such  Participant  shall have the right,
     subject to the restrictions of Section 14.3 above, to exercise any Award at
     any time within three (3) months after termination of employment,  but only
     to  the  extent  that,  at the  date  of  termination  of  employment,  the
     Participant's  right to  exercise  such Award had  accrued  pursuant to the
     terms of the applicable  agreement and had not previously  been  exercised;
     provided,  however,  that if the  Participant  was terminated for cause (as
     defined in the applicable  agreement) any Award not exercised in full prior
     to such  termination  shall be canceled.  For this purpose,  the employment
     relationship shall be treated as continuing intact while the Participant is
     on  military  leave,  sick leave or other bona fide leave of absence (to be
     determined  in the sole  discretion  of the  Board or the  Committee).  The
     foregoing  notwithstanding,  in the  case  of an  Incentive  Stock  Option,
     employment  shall not be deemed to continue beyond the ninetieth (90th) day
     after the Participant's  re-employment  rights are guaranteed by statute or
     by contract.

14.7 Death of  Participant.  If a Participant  dies while an Employee,  or after
     ceasing to be an Employee  but during the period while he or she could have
     exercised  the Award under this Section 14.7,  and has not fully  exercised
     the  Award,  then the Award  may be  exercised  in full at any time  within
     twelve (12) months after the Participant's death but no later than the date
     of  termination  (fixed in the applicable  agreement),  by the executors or
     administrators  of his or her estate or by any  person or persons  who have
     acquired the Award directly from the Participant by bequest or inheritance,
     but only to the extent that, at the date of death, the Participant's  right
     to exercise such Award had accrued and had not been  forfeited  pursuant to
     the  terms  of  the  applicable  agreement  and  had  not  previously  been
     exercised.

14.8 Disability of  Participant.  If a  Participant  ceases to be an Employee by
     reason of Disability, such Participant shall have the right to exercise the
     Award at any time within twelve (12) months after termination of employment
     (but  not  later  than  the  termination   date  fixed  in  the  applicable
     agreements)  but  only to the  extent  that at the date of  termination  of
     employment,  the  Participant's  right to  exercise  such Award had accrued
     pursuant to the terms of the  applicable  agreement and had not  previously
     been exercised.

14.9 Retirement of  Participant.  If a  Participant  ceases to be an Employee by
     reason of Retirement, such Participant shall have the right to exercise the
     Award at any time within three (3) months after  termination  of employment
     (but  not  later  than  the  termination   date  fixed  in  the  applicable
     agreements)  but only to the extent  that,  at the date of  termination  of
     employment,  the  Participant's  right to  exercise  such Award had accrued
     pursuant to the terms of the  applicable  agreement and had not  previously
     been exercised.

14.10 Rights as a Stockholder. A Participant,  or a transferee of a Participant,
     shall have no rights as a stockholder with respect to any Shares covered by
     his or her Award until the date of the issuance of a stock  certificate for
     such  Shares.  No  adjustment  shall be made  for  dividends  (ordinary  or
     extraordinary,   whether   in  cash,   securities   or   other   property),
     distributions  or other  rights for which the  record  date is prior to the
     date such stock  certificate is issued,  except as provided in Section 14.5
     hereof.

14.11Deferral of Payments.  The Board or the  Committee may approve the deferral
     of any payments that may become due under the Plan. Such deferrals shall be
     subject to any conditions, restrictions or requirements as the Board or the
     Committee may determine.

14.12 Acceleration  of Awards. Immediately  prior to the occurrence of an Event,
     (i) each Option and Stock  Appreciation  Right under the Plan shall  become
     exercisable in full; (ii)  Restricted  Stock delivered under the Plan shall
     immediately   vest  free  of  restriction;   and  (iii)  each  other  Award
     outstanding  under the Plan  shall be fully  vested or  exercisable  unless
     prior to the Event,  the Board or the Committee  otherwise  determines that
     there  shall be no such  acceleration  or vesting of an Award or  otherwise
     determines  those  Awards which shall be  accelerated  or vested and to the
     extent to which they shall be accelerated or vested, or that an Award shall
     terminate,  or unless in connection  with such Event the Board provides (a)
     for the  assumption  of such  Awards  theretofore  granted;  or (b) for the
     substitution  for  such  Awards  of  new  awards  covering   securities  or
     obligations (or any combination thereof) of a successor  corporation,  or a
     parent or subsidiary thereof, with appropriate adjustments as to number and
     kind of shares and prices;  or (c) for the payment of the Fair Market Value
     of the then outstanding Awards. In addition, the Board or the Committee may
     grant such additional rights in the foregoing circumstances as the Board or
     the Committee  deems to be in the best interest of the  Participant and the
     Corporation  in order to preserve  for the  Participant  the benefits of an
     Award.  For purposes of this Section 14.12 only, Board shall mean the Board
     of Directors of the  Corporation  as constituted  immediately  prior to the
     Event.  In addition,  the Board may in its sole  discretion  accelerate the
     exercisability  or vesting of any or all Awards  outstanding under the Plan
     in  circumstances  under which the Board or the Committee  determines  such
     acceleration appropriate.

14.13 Conditions to Transfer of Shares.  (A) As a condition  to the  transfer of
     any shares of Common Stock issued upon  exercise of an Award  granted under
     this Plan, the Corporation may require an opinion of counsel,  satisfactory
     to the  Corporation,  to the  effect  that  such  transfer  will  not be in
     violation of the Securities Act or any other applicable  securities laws or
     that such transfer has been registered  under federal,  state and all other
     applicable   securities  laws.  (B)  Further,   the  Corporation  shall  be
     authorized  to refrain from  delivering  or  transferring  shares of Common
     Stock  issued  under this Plan  until the  Committee  determines  that such
     delivery or transfer will not violate  applicable  securities  laws and the
     Participant has tendered to the Corporation any federal, state or local tax
     owed by the  Participant as a result of exercising an Option or other Award
     or disposing of any Common Stock when the Corporation has a legal liability
     to satisfy  such tax. (C) The  Corporation  shall not be liable for damages
     due to delay in the delivery or issuance of any stock  certificate  for any
     reason whatsoever, including, but not limited to, a delay caused by listing
     requirements  of any  securities  exchange or the National  Association  of
     Securities Dealers,  or any registration  requirements under the Securities
     Act,  the Exchange  Act, or under any other state or federal  law,  rule or
     regulation.  (D) The  Corporation is under no obligation to take any action
     or incur any  expense in order to  register  or  qualify  the  delivery  or
     transfer of shares of Common Stock under  applicable  securities laws or to
     perfect  any  exemption  from  such  registration  or  qualification.   (E)
     Furthermore,  the  Corporation  will not be liable to any  Participant  for
     failure to deliver or transfer  shares of Common  Stock if such  failure is
     based upon the provisions of this paragraph.

15.  MISCELLANEOUS

15.1 Termination,  Suspension and Amendment.  The Board or the Committee may, at
     any time suspend, amend, modify of terminate the Plan (or any part thereof)
     and may, with the consent of a Participant, authorize such modifications of
     the terms  and  conditions  of such  Participant's  Award as it shall  deem
     advisable;  provided  that,  except as  permitted  under the  provision  of
     Section  14.5  hereof,  no  amendment  or  modification  of the Plan may be
     adopted  without  approval by a majority of the Shares of the Common  Stock
     (represented in person or by proxy) at a meeting of stockholders at which a
     quorum is present  and  entitled  to vote  thereat,  if such  amendment  or
     modification would:

     (i)  materially  increase the benefits  accruing to Participants  under the
          Plan within the meaning of Rule 16b-3  under the  Exchange  Act or any
          successor provision;

     ii)  materially  increase  the  aggregate  number  of  Shares  which may be
          delivered pursuant to Awards granted under the Plan; or

     iii) materially  modify the requirements of eligibility for either adoption
          of the Plan.

     Neither  adoption  of the Plan nor the  provisions  hereof  shall limit the
     authority of the Board to adopt other Plans or to authorize  other  payment
     of compensation and benefits under applicable law. No Awards under the Plan
     may be granted or amended  during any  suspension  of the Plan or after its
     termination.  The  amendment,  suspension or  termination of the Plan shall
     not, without the consent of the Participant,  alter or impair any rights or
     obligations  pertaining to any Awards  granted under the Plan prior to such
     amendment, suspension or termination.

15.2 No Fractional Shares. No Award or installment  thereof shall be exercisable
     except in respect to whole Shares,  and fractional  share interest shall be
     disregarded.

15.3 Tax  Withholding  and Tax Bonuses.  As required by law,  federal,  state or
     local taxes that are subject to the  withholding of tax at the source shall
     be withheld by the  Corporation  as necessary to satisfy such  requirement.
     The  Corporation is entitled to require  deduction from other  compensation
     payable to such Participant or, in the alternative;  i) the Corporation may
     require the Participant to advance such sums: or ii) if Participant elects,
     the  Corporation  may withhold (or require the return of) Shares having the
     Fair  Market  Value  equal  to the sums  required  to be  withheld.  If the
     Participant  elects to advance such sums  directly,  written notice of that
     election shall be delivered prior to such exercise and, whether pursuant to
     such  election  or pursuant to a  requirement  imposed by the  Corporation,
     payment  in cash or by check  of such  sums for  taxes  shall be  delivered
     within ten (10) days after the Exercise Date. If the Participant  elects to
     have the  Corporation  withhold  Shares  (or be  entitled  to the return of
     Shares)  having  a Fair  Market  Value  equal to the  sums  required  to be
     withheld,  the value of the Shares to be  withheld  (or  returned)  will be
     equal to the Fair Market  Value on the day the amount of tax to be withheld
     (or subject to return) is to be determined (the "Tax Date").

15.4 Restriction on Elections Made by Participants. Elections by Participants to
     have  Shares  withheld  (or  subject to return)  for this  purpose  will be
     subject to the following  restrictions:  i) the election must be made prior
     to the Tax Date;  ii) the election must be  irrevocable;  iii) the election
     will be subject to the Board's disapproval;  and (iv) if the Participant is
     an  "officer"  within the meaning of Section 16 of the  Exchange  Act,  the
     election shall be subject to such  additional  restrictions as the Board or
     the  Committee  may  impose  in an effort to  secure  the  benefits  of any
     regulations thereunder.

15.5 Limitations on the Corporation's Obligations.  The Corporation shall not be
     obligated to issue Shares and/or  distribute cash to the  Participant  upon
     any Award exercise until such payment has been received or Shares have been
     withheld,  (unless  withholding for offset against a cash payment) as of or
     prior to the Exercise Date,  sufficient to cover all such sums due or which
     may be due with respect to such  exercise.  In  addition,  the Board or the
     Committee may grant to a Participant a cash bonus in any amount required by
     federal, state, or local tax law to be withheld with respect to an Award.

15.6 Compliance  with Laws. The Plan, the granting of Awards under the Plan, the
     Stock Option  Agreements and Stock Purchase  Agreements and the delivery of
     Options,  Shares and Awards  (and/or the payment of money or Common  Stock)
     pursuant  thereto and the  extension of any loans  hereunder are subject to
     such  additional  requirements  as the Board or the Committee may impose to
     assure or facilitate compliance with all applicable federal and state laws,
     rules and regulations (including,  without limitation,  securities laws and
     margin   requirements)   and  to  such   approvals  by  any  regulatory  or
     governmental  agency which may be  necessary  or  advisable  in  connection
     therewith.  In connection with the  administration of the Plan or the grant
     of  any  Award,  the  Board  or  the  Committee  may  impose  such  further
     limitations or conditions as in its opinion may be required or advisable to
     satisfy,  or secure the benefits  of,  applicable  regulatory  requirements
     (including those rules  promulgated under Section 16 of the Exchange Act or
     those  rules  that  facilitate   exemption  from  or  compliance  with  the
     Securities Act or the Exchange Act), the requirements of any stock exchange
     upon which such Shares or shares of the same class are then listed, and any
     Blue Sky or other securities laws applicable to such Shares.

15.7 Governing  Laws.  The Plan and all  Awards  granted  under the Plan and the
     documents  evidencing  Awards  shall  be  governed  by,  and  construed  in
     accordance with, the laws of the State of Colorado.

15.8 Securities Law Requirements.

     a)   Legality of issuance.  The issuance of any Shares upon the exercise of
          any Option or other  Award and the grant of any Option or other  Award
          shall be contingent upon the following:

          i)   the Corporation and the Participant  shall have taken all actions
               required to register the Shares under the Securities  Act, and to
               qualify  the Option and the Shares  under any and all  applicable
               state securities or "Blue Sky" laws or regulations, or to perfect
               an exemption from the respective  registration and  qualification
               requirements thereof;

          ii)  any applicable listing requirement of any stock exchange on which
               the Common Stock is listed shall have been satisfied; and

          iii) any other  applicable  provision  of federal  law shall have been
               satisfied.

     b)   Restrictions  on Transfer.  In addition to the express  provisions  of
          this Plan,  and  regardless of whether the offering and sale of Shares
          under the Plan has been  registered  under the  Securities  Act or has
          been  registered or qualified  under the securities laws of any state,
          the Corporation may impose  restrictions on the sale,  pledge or other
          transfer  of such  Shares  (including  the  placement  of  appropriate
          legends on stock  certificates) if, in the judgment of the Corporation
          and its counsel, such restrictions are necessary or desirable in order
          to achieve  compliance  with the provision of the Securities  Act, the
          securities  laws of any state or any other law.  In the event that the
          sale of Shares under the Plan is not  registered  under the Securities
          Act  but an  exemption  is  available  which  required  an  investment
          representation  or other  representation,  each  Participant  shall be
          required  to  represent  that  such  Shares  are  being  acquired  for
          investment,  and not with a view to the sale or distribution  thereof,
          and to make such  other  representations  as are deemed  necessary  or
          appropriate by the Corporation and its counsel.  Any  determination by
          the  Corporation  and its counsel in connection with any of the matter
          set forth in this Section  15.8(b) shall be conclusive  and binding on
          all persons.  Stock certificates  evidencing Shares acquired under the
          Plan pursuant to an unregistered  transaction shall bear the following
          restrictive legend and such other restrictive  legends as are required
          or deemed advisable under the provisions of any applicable law:

          THE SALE OF THE SECURITIES  REPRESENTED HEREBY HAS NOT BEEN REGISTERED
          UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES  ACT"). ANY TRANSFER
          OF SUCH  SECURITIES  WILL BE INVALID UNLESS A  REGISTRATION  STATEMENT
          UNDER THE  SECURITIES  ACT IS IN EFFECT AS TO SUCH  TRANSFER OR IN THE
          OPINION OF COUNSEL FOR THE ISSUER SUCH  REGISTRATION IS UNNECESSARY IN
          ORDER FOR SUCH TRANSFER TO COMPLY WITH THE SECURITIES ACT.

     c)   Registration or Qualification of Securities.  The Corporation may, but
          shall not be  obligated  to register or qualify the issuance of Awards
          and/or  the sale of  Shares  under  the  Securities  Act or any  other
          applicable  law.  The  Corporation  shall not be obligated to take any
          affirmative  action  in order to cause the  issuance  of Awards or the
          sale of Shares under the Plan to comply with any law.

     d)   Exchange of  Certificates.  If, in the opinion of the  Corporation and
          its counsel,  any legend placed on a certificate  representing  Shares
          issued  under  that Plan is no  longer  required,  the  holder of such
          certificate  shall be  entitled  to exchange  such  certificate  for a
          certificate  representing  the same number of Shares but lacking  such
          legend.

15.9 Shareholder  Approval.  If this Plan is not approved by the shareholders of
     the Company  within 12 months  following  the date the Plan was approved by
     the Board as required by Section  422(b)(1) of the Code,  this Plan and the
     Awards of Options granted  hereunder shall be and remain  effective for all
     Recipients,  but the reference to Incentive  Stock Options  herein shall be
     deleted and all options  granted  hereunder  shall be  Non-qualified  Stock
     Options pursuant to Section 7 hereof.

15.10 Execution. To record the  adoption of the Plan in the form set forth above
     by the Board  effective as of August 4, 2004,  the  Corporation  has caused
     this Plan to be executed in the name and on behalf of the Corporation where
     provided below by an officer of the Corporation thereunto duly authorized.


ARETE INDUSTRIES, INC.


By:___________________________
     Chief Executive Officer


Attest:

------------------------------
    Secretary



<PAGE>

                                   SCHEDULE A
                            Section 7.9 of 2004 Plan


                      New Designated Grants under 2004 Plan
--------------------------------------------------------------------------------
Thomas P. Raabe            5,000,000    Granted August 4, 2004 exercisable
                                        through 7/31//2006 at $0.0075 per share.

William W. Stewart         2,000,000    Granted August 4, 2004 vesting 500,000
                                        shares on the last day of each fiscal
                                        quarter commencing 9/30/04, exercisable
                                        two years thereafter at $0.0075 per
                                        share.*

Donald W. Prosser          2,000,000    Granted August 4, 2004 vesting 500,000
                                        shares on the last day of each fiscal
                                        quarter commencing 9/30/04, exercisable
                                        two years thereafter at $0.0075 per
                                        share*.

Charles Gamber             2,000,000    Granted August 4, 2004 vesting 500,000
                                        shares on the last day of each fiscal
                                        quarter commencing 9/30/04, exercisable
                                        two years thereafter at $0.0075 per
                                        share*.

John Herzog                2,000,000    Granted August 4, 2004 vesting 500,000
                                        shares on the last day of each fiscal
                                        quarter commencing 9/30/04, exercisable
                                        two years thereafter at $0.0075 per
                                        share*.

William Bolch              2,000,000    Granted August 4, 2004 vesting 500,000
                                        shares on the last day of each fiscal
                                        quarter commencing 9/30/04, exercisable
                                        two years thereafter at $0.0075 per
                                        share*.

Employees and Management  10,000,000    Stock Purchase Rights Granted August 4,
                                        2004 priced at $0.0075, exercisable by
                                        qualified and eligible employees,
                                        officers and directors, and advisors and
                                        consultants, as determined by the
                                        compensation committee pursuant to the
                                        2004 Plan.
--------------------------------------------------------------------------------


*    Provided  that such  individual  is at the time of  vesting a member of the
     board of directors and/or an employee or consultant of the Company,  or any
     of its subsidiaries.

<PAGE>

                                   SCHEDULE B
                            Section 7.10 of 2004 Plan


                     Number of
Name                 Shares     Description
-----------------  -----------  ------------------------------------------------
--------------------------------------------------------------------------------
Outstanding Grants/New Issue/2002-2003 Plan remainders
--------------------------------------------------------------------------------

Thomas P. Raabe    3,000,000    Granted in August 21, 2003, exercisable at $0.01
                                per share.through August 21, 2005

Thomas P. Raabe    1,000,000    Granted Jan. 29, 2003 exercisable through
                                3/31/2005 at $0.0165 per share.

Thomas P. Raabe    1,000,000    Granted 4/1/2003 exercisable through 4/1/2005 at
                                $0.0155 per share.

Charles Gamber       125,000    Granted Dec. 12, 2003 exercisable 1/1/04 to
                                12/31/05 at $0.022 per share

Charles Gamber       250,000    Granted April 1, 2004 exercisable 4/1/04 to
                                3/31/06

Charles Gamber       500,000    Granted June 30, 2004 exercisable 6/30/04 to
                                6/29/06

Donald W. Prosser    125,000    Granted Dec. 12, 2003 exercisable 1/1/04 to
                                12/31/05 at $0.022 per share

Donald W. Prosser    250,000    Granted April 1, 2004 exercisable 4/1/04 to
                                3/31/06

Donald W. Prosser    500,000    Granted June 30, 2004 exercisable 6/30/04 to
                                6/29/06

John Herzog          250,000    Granted Dec. 12, 2003 exercisable 1/1/04 to
                                12/31/05 at $0.022 per share

John Herzog          250,000    Granted April 1, 2004 exercisable 4/1/04 to
                                3/31/06

John Herzog          500,000    Granted June 30, 2004 exercisable 6/30/04 to
                                6/29/06

W. Stewart           250,000    Granted April 1, 2004 exercisable 4/1/04 to
                                3/31/06

W. Stewart           500,000    Granted June 30, 2004 exercisable 6/30/04 to
                                6/29/06