Document:

Exhibit 10.2

 

IMAGEWARE
SYSTEMS, INC.

 

EMPLOYMENT
AGREEMENT

 

This Employment Agreement
(the “Agreement”) is made and entered into effective as of                       ,
2005 (the “Effective Date”), by and between Mr. Wayne Wetherell
(the “Executive”) and ImageWare Systems, Inc., a California
corporation (the “Company”).

 

R E C I T A L S

 

A.            WHEREAS, Executive is currently employed by
the Company as its Senior Vice President Administration, Chief Financial
Officer and Corporate Secretary and has made and is expected to continue to
make major contributions to the short- and long-term profitability, growth and
financial strength of the Company;

 

B.            WHEREAS, the Company wishes to provide this
Agreement in recognition of the unique and extraordinary past contributions of
Executive and as additional inducement for the Executive to remain in the
ongoing employ of the Company;

 

C.            WHEREAS, the Board believes that it is in
the best interests of the Company and its shareholders to provide the Executive
with an incentive to continue his employment and to maximize the value of the
Company in the future for the benefit of its shareholders; and

 

D.            WHEREAS, in order to provide the Executive
with enhanced financial security and sufficient encouragement to remain with
the Company, the Board believes that it is imperative to provide the Executive
with certain employment terms and severance benefits.

 

AGREEMENT

 

In consideration of the
mutual covenants herein contained and the continued employment of Executive by
the Company, the parties agree as follows:

 

1.          Definition of Terms.  The
following terms referred to in this Agreement shall have the following
meanings:

 

(a)   Base Salary.  “Base Salary” shall have the meaning set
forth in Exhibit A.

 

(b)   Cal-COBRA.  “Cal-COBRA” means the California Continuation
Benefits Replacement Act. 

 

(c)   Cause.  “Cause” shall mean any of the following: (i) the
commission of an act of fraud, embezzlement or material dishonesty which is
intended to result in substantial personal enrichment of the Executive in
connection with Executive’s employment with the Company; (ii) Executive’s
conviction of, or plea of nolo contendere
to a crime constituting a felony (other than traffic-related offenses); (iii) Executive’s
gross negligence that is materially injurious to the

 

 

Company; (iv) a
willful material breach of the Executive’s proprietary information agreement
that is materially injurious to the Company; (v) Executive’s (1) willful
and material failure to perform his duties as an officer or employee of the
Company, and (2) failure to “cure” any such failure within thirty (30)
days after receipt of written notice from the Company delineating the specific
acts that constituted such failure and the specific actions necessary, if any,
to “cure” such failure; or (vi) a willful violation of a material Company
policy, including insider trading that is materially injurious to the Company.

 

(d)   Change of
Control.  “Change of Control” shall
mean the occurrence of any of the following events:

 

(i)    the date on which
any “person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”))
obtains “beneficial ownership” (as defined in Rule 13d-3 of the Exchange
Act) or a pecuniary interest in fifty percent (50%) or more of the combined
voting power of the Company’s then outstanding securities (“Voting Stock”);

 

(ii)   the consummation
of a merger, consolidation, reorganization, or similar transaction other than a
transaction: (1) in which substantially all of the holders of the Company’s
Voting Stock hold or receive directly or indirectly fifty percent (50%) or more
of the voting stock of the resulting entity or a parent company thereof, in
substantially the same proportions as their ownership of the Company immediately
prior to the transaction; or (2) in which the holders of the Company’s
capital stock immediately before such transaction will, immediately after such
transaction, hold as a group on a fully diluted basis the ability to elect at
least a majority of the directors of the surviving corporation (or a parent
company);

 

(iii)  there
is consummated a sale, lease, exclusive license, or other disposition of all or
substantially all of the consolidated assets of the Company and its
Subsidiaries, other than a sale, lease, license, or other disposition of all or
substantially all of the consolidated assets of the Company and its
Subsidiaries to an entity, fifty percent (50%) or more of the combined voting
power of the voting securities of which are owned by stockholders of the
Company in substantially the same proportions as their ownership of the Company
immediately prior to such sale, lease, license, or other disposition; or

 

(iv)  individuals who, on
the date this Plan is adopted by the Board, are Directors (the “Incumbent
Board”) cease for any reason to constitute at least a majority of the
Directors; provided, however, that if the appointment or election
(or nomination for election) of any new Director was approved or recommended by
a majority vote of the members of the Incumbent Board then still in office,
such new member shall, for purposes of this Plan, be considered as a member of
the Incumbent Board.

 

(e)   COBRA.  “COBRA” means the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.

 

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

 

2

 

(g)   Disability.
“Disability” means a physical or mental condition of Executive that, in the
good faith judgment of the Board of Directors of the Company, based upon
certification by a licensed physician reasonably acceptable to Executive, or
Executive’s representative, and the Company, (i) prevents Executive from
being able to substantially perform services required by his or her position
with the Company, (ii) has continued for a period of at least six (6) months
during any period of twelve (12) consecutive months, and (iii) is expected
to continue.

 

(h)   Involuntary
Termination.  “Involuntary
Termination” shall mean without the Executive’s express written consent any of
the following, (i) a significant reduction of the Executive’s duties,
position or responsibilities relative to the Executive’s duties, position or
responsibilities in effect immediately prior to such reduction, or the removal
of the Executive from such position, duties and responsibilities; (ii) a
substantial reduction of the facilities and perquisites (including, but not
limited to, office space and location) available to the Executive immediately
prior to such reduction, excluding similar reductions applicable to the entire
executive staff; (iii) a reduction by the Company of the Executive’s base
salary as in effect immediately prior to such reduction; (iv) a material
reduction by the Company in the kind or level of employee benefits to which the
Executive is entitled immediately prior to such reduction with the result that
the Executive’s overall benefits package is significantly reduced; (v) without
Executive’s written consent, the relocation of the Executive to a facility or a
location more than twenty-five (25) miles from the Company’s then current
location; (vi) a material breach by the Company of this Agreement or any
other material agreement of the Company that is not corrected within fifteen
(15) days after written notice from the Executive; (vii) any termination
of the Executive by the Company which is not effected for Cause or any
purported termination of the Executive by the Company which is effected for
Cause but for which the grounds relied upon are not valid; or (viii) the
failure of the Company to obtain the assumption of this Agreement by any
successors contemplated in Section 7 below.

 

(i)    Severance
Benefits.  “Severance Benefits” shall
mean those benefits which Executive is entitled to receive upon the Involuntary
Termination of Executive’s employment with the Company as set forth under Section 5.

 

(j)    Termination
Date.  “Termination Date” shall mean
the effective date of any notice of termination delivered by one party to the
other hereunder.

 

2.          Term of Agreement.  The term
of this Agreement (the “Term”) shall commence on the Effective Date and
shall continue until the third anniversary of the Effective Date; provided,
however, that (i) if the payment of Severance Benefits has been triggered
pursuant to this Agreement, the Term shall expire on the date that all
obligations of the parties hereto under this Agreement have been satisfied; (ii) if
a Change of Control has occurred, the Term shall not expire until the later of (A) the
third anniversary of the Effective Date, or (B) the last day of the
thirteenth (13th) month following the close of a Change of Control
(unless Severance Benefits are triggered prior to such time) or (iii) if
Executive’s employment with the Company is terminated by the Company for Cause
or Executive voluntarily terminates employment and such termination

 

3

 

does
not qualify as an Involuntary Termination, then the Term shall expire as of the
date of such termination.

 

3.          At-Will Employment.  Nothing
in this Agreement alters the at-will nature of Executive’s employment.  Either the Company or the Executive can
terminate the employment relationship at any time, with or without cause and
with or without advance notice.  This
at-will employment relationship can only be modified in a writing signed by
Executive and a duly authorized Company representative.

 

4.          Employment
Compensation and Benefits.  During
the term of this Agreement, Executive shall receive the benefits set forth in Exhibit A,
attached hereto and incorporated by reference herein.

 

5.          Severance Benefits.

 

(a)   Involuntary
Termination of Employment.  Subject
to Section 5(b) below, and in exchange for executing the standard
Company release attached hereto as Exhibit B (and specifically excluding
claims for contractual or statutory indemnification to the fullest extent
allowable by law or contract), in the event of the Executive’s Involuntary
Termination at any time while this Agreement is in effect, then Executive shall
be entitled to the following Severance Benefits:

 

(i)    twelve (12) months of Executive’s Base Salary in effect as of the day
of such termination, less applicable withholding, payable in a lump sum within
ten (10) days of the Involuntary Termination;

 

(ii)   50% of all stock
options and restricted stock, taken collectively, granted by the Company to the
Executive prior to the Involuntary Termination that are then unexercisable or
unvested shall become fully vested and, if applicable, exercisable as of the
date of the Involuntary Termination. For purposes of calculating the 50%
threshold set forth above, the following order shall be adhered to (i) restricted
shares shall vest (i.e., any Company right of repurchase shall lapse) first,
until the 50% collective threshold has been met, and (ii) options shall
vest and become exercisable second, starting with the earliest granted options,
until the 50% collective threshold has been met;

 

(iii)  for
a period of three (3) years following the date of the Executive’s
termination with the Company, the Company shall maintain the same level of
health (i.e., medical, vision and dental) coverage as in effect for the
Executive and Executive’s dependents on the day immediately preceding the day
of the Executive’s termination of employment.; and

 

(iv)  for
a period of three (3) years following the date of Executive’s termination,
the Company shall provide continuation of the following benefits: (a) Insurance.   Major
disability insurance which shall provide not less than two-thirds (2/3rds) of
Executive’s Base Salary as of the date of his termination in disability
payments commencing three (3) months after permanent or partial disability
occurs and group life or term life insurance in an amount 

 

4

 

equal to
two (2) times Executive’s Base Salary as of the date of his termination. (b) Employee Benefit Plans. 
Participation in any other employee benefit plan then in existence as of
Executive’s termination date, subject to applicable laws and the generally
applicable terms and conditions of such plans.

 

(b)   Involuntary
Termination of Employment in the Context of a Change of Control.  In the event of Executive’s Involuntary
Termination at any time within six (6) months prior to or within thirteen
(13) months after, the consummation of a Change of Control, and in exchange for
executing the standard Company release attached hereto as Exhibit B (and
specifically excluding claims for contractual or statutory indemnification to
the fullest extent allowable by law or contract), then Executive shall be
entitled to the following Severance Benefits:

 

(i)    twelve
(12) months of Executive’s Base Salary in
effect as of the day of such termination, less applicable withholding, payable
in a lump sum within ten (10) days of the Involuntary Termination;

 

(ii)   100%
of all stock options and restricted stock, taken collectively, granted by the
Company to the Executive prior to the Involuntary Termination that are then
unexercisable or unvested shall become fully vested and, if applicable, exercisable
as of the date of the Involuntary Termination.;

 

(iii)  for
a period of three (3) years following the date of the Executive’s
termination with the Company, the Company shall maintain the same level of
health (i.e., medical, vision and dental) coverage as in effect for the
Executive and Executive’s dependents on the day immediately preceding the day
of the Executive’s termination of employment.; and

 

(iv)  for
a period of three (3) years following the date of Executive’s termination,
the Company shall provide continuation of the following benefits: (a) Insurance.  Major
disability insurance which shall provide not less than two-thirds (2/3rds) of
Executive’s Base Salary as of the date of his termination in disability
payments commencing three (3) months after permanent or partial disability
occurs and group life or term life insurance in an amount equal to two (2) times
Executive’s Base Salary as of the date of his termination. (b) Employee Benefit Plans. 
Participation in any other employee benefit plan then in existence as of
Executive’s termination date, subject to applicable law and the generally
applicable terms and conditions of such plans.

 

(c)   Termination
Other than as a Result of an Involuntary Termination.  If the Executive’s employment with the
Company terminates other than as a result of an Involuntary Termination, then
the Executive shall not be entitled to receive Severance Benefits, but shall
receive the payments pursuant to Section 5(d) and may be eligible for
those benefits (if any) as may then be established under the Company’s then
existing severance and benefits plans and policies at the time of such
termination.

 

5

 

(d)   Accrued Wages
and Vacation; Expenses.  Without
regard to the reason for, or the timing of, Executive’s termination of
employment:  (i) the Company shall
pay the Executive any unpaid base salary due for periods prior to the
Termination Date; (ii) the Company shall pay the Executive all of the
Executive’s accrued and unused vacation through the Termination Date; and (iii) following
submission of proper expense reports by the Executive, the Company shall
reimburse the Executive for all expenses reasonably and necessarily incurred by
the Executive in connection with the business of the Company prior to the
Termination Date.  These payments shall
be made promptly upon termination and within the period of time mandated by
law.

 

(e)   Termination on
Account of Death.  In no event shall
a termination on account of Executive’s death entitle Executive or any of his
or her heirs or beneficiaries to any benefits under this Agreement, other than
those benefits set forth in clause (d) immediately above.

 

(f)    COBRA.  No provision of this Agreement shall affect
the continuation coverage rules under COBRA or Cal-COBRA, except that the
Company’s payment of any applicable insurance premiums shall be credited as a
payment by Executive for purposes of Executive’s payment required under COBRA
or Cal-COBRA.  Therefore, the period
during which Executive may elect to continue the Company’s group medical
coverage at Company’s expense under COBRA or Cal-COBRA, the length of time
during which COBRA or Cal-COBRA coverage will be made available to Executive,
and all other rights and obligations of Executive under COBRA or Cal-COBRA
(except the obligation to pay insurance premiums that the Company pays during
the period set forth in this Agreement) shall be applied in the same manner
that such rules would apply in the absence of this Agreement.  For purposes of this Section, to the extent
applicable, applicable premiums that will be paid by the Company shall not
include any amounts payable by Executive under a Code Section 125 flexible
spending arrangement, which amounts, if any, are the sole responsibility of Executive.

 

(g)   Non-Duplication
of Benefits.  Executive is not
eligible to receive benefits under this Agreement more than one time.

 

6.          Limitation on Payments.

 

(a)   In the event that
the severance and other benefits provided for in this Agreement or otherwise
payable to the Executive (i) constitute “parachute payments” within the
meaning of Section 280G of the Code, and (ii) would be subject to the
excise tax imposed by Section 4999 of the Code (the “Excise Tax”),
then, Executive shall have the sole authority to elect  (by delivering of written notice to the
Company within ten (10) days of any termination) whether Executive’s
benefits under this Agreement shall be either:

 

(i)    delivered
in full, or

 

(ii)   delivered
as to such lesser extent which would result in no portion of such benefits
being subject to the Excise Tax.

 

6

 

(b)   Unless the Company
and Executive otherwise agree in writing, any determination required under this
Section shall be made in writing by a mutually agreed independent public
accountanting firm or other independent third party (the “Accountants”),
whose determination shall be conclusive and binding upon the Executive and the
Company for all purposes.  For purposes
of making the calculations required by this Section, the Accountants may make
reasonable assumptions and approximations concerning applicable taxes and may
rely on reasonable, good faith interpretations concerning the application of
Sections 280G and 4999 of the Code.  The
Company and Executive shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make a
determination under this Section.  The
Company shall bear all costs the Accountants may reasonably incur in connection
with any calculations contemplated by this Section.

 

7.          Successors.

 

(a)   Company’s
Successors.  Any successor to the
Company (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company’s business and/or assets shall assume the Company’s obligations under
this Agreement and agree expressly to perform the Company’s obligations under
this Agreement in the same manner and to the same extent as the Company would
be required to perform such obligations in the absence of a succession.  For all purposes under this Agreement, the
term “Company” shall include any successor to the Company’s business and/or
assets (including any parent company to the Company) which executes and delivers
the assumption agreement described in this subsection (a) or which
becomes bound by the terms of this Agreement by operation of law.

 

(b)   Executive’s
Successors.  Without the written
consent of the Company, Executive shall not assign or transfer this Agreement
or any right or obligation under this Agreement to any other person or entity.
Notwithstanding the foregoing, the terms of this Agreement and all rights of
Executive hereunder shall inure to the benefit of, and be enforceable by,
Executive’s personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

 

8.          Notices.

 

(a)   General.  Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered (if to the Company, addressed to its
Secretary at the Company’s principal place of business on a non-holiday weekday
between the hours of 9 a.m. and 5 p.m.; if to Executive, via personal
service to his last known residence) or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid.

 

(b)   Notice of
Termination.  Any termination by the
Company for Cause or by the Executive as a result of a voluntary resignation or
an Involuntary Termination shall be communicated by a notice of termination to
the other party hereto given in accordance with this Section.  Such notice shall indicate the specific
termination provision in this Agreement relied

 

7

 

upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the Termination
Date (which shall be not more than 30 days after the giving of such
notice).  The failure by the Executive to
include in the notice any fact or circumstance which contributes to a showing
of Involuntary Termination shall not waive any right of the Executive hereunder
or preclude the Executive from asserting such fact or circumstance in enforcing
his rights hereunder.

 

9.          Code
Section 409A.  The parties agree to amend this Agreement to
the extent necessary to avoid imposition of any additional tax or income
recognition prior to actual payment to Executive under Code Section 409A
and any temporary or final Treasury Regulations and IRS guidance thereunder.

 

10.        Miscellaneous Provisions.

 

(a)   No Duty to
Mitigate, Legal Fees.  Executive
shall not be required to mitigate damages or the amount of any payment provided
under this Agreement by seeking other employment or otherwise, nor shall the
amount of any payment provided for under this Agreement be reduced by any
compensation earned by Executive as a result of employment by another employer
or by any retirement benefits received by Executive after the Termination Date
where Executive’s termination.  The
Company’s obligations to make the payments provided for in this Agreement and
otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive or others. Following a Change
of Control, the Company agrees to pay as incurred, to the full extent permitted
by law, all legal fees and expenses which the Executive may reasonably incur as
a result of any contest (regardless of the outcome thereof) by the Company, the
Executive or others as to the validity or unenforceability of, or liability or
entitlement under, any provision of this Agreement or any guarantee of
performance thereof (whether such contest is between the Company and the
Executive or between either of them and any third party, and including as a
result of any contest by the Executive about the amount of any payment pursuant
to this Agreement) plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of
Code.

 

(b)   Waiver.  No provision of this Agreement may be
modified, waived or discharged unless the modification, waiver or discharge is
agreed to in writing and signed by the Executive and by an authorized officer
of the Company (other than the Executive). 
No waiver by either party of any breach of, or of compliance with, any
condition or provision of this Agreement by the other party shall be considered
a waiver of any other condition or provision or of the same condition or
provision at another time.

 

(c)   Integration.  This Agreement and any outstanding stock
option agreements and restricted stock purchase agreements represent the entire
agreement and understanding between the parties as to the subject matter herein
and supersede all prior or contemporaneous agreements, whether written or oral,
with respect to any conflict between this Agreement and any stock option
agreement or restricted stock purchase agreement this Agreement shall prevail.

 

8

 

(d)   Choice of Law.  The validity, interpretation, construction
and performance of this Agreement shall be governed by the internal substantive
laws, but not the conflicts of law rules, of the State of California.

 

(e)   Severability.  The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.

 

(f)    Employment
Taxes.  All payments made pursuant to
this Agreement shall be subject to withholding of applicable income and
employment taxes.

 

(g)   Counterparts.  This Agreement may be executed in separate counterparts,
any one of which need not contain signatures of more than one party, and may be
delivered by facsimile or other electronic means, but all of which shall be
deemed originals and taken together will constitute one and the same Agreement.

 

(h)   Headings.  The headings of the Articles and Sections
hereof are inserted for convenience only and shall not be deemed to constitute
a part hereof nor to affect the meaning thereof.

 

(i)    Construction
of Agreement.  In the event of a
conflict between the text of the Agreement and any summary, description or
other information regarding the Agreement, the text of the Agreement shall
control.

 

***

 

9

 

IN WITNESS WHEREOF, each
of the parties has executed this Agreement, in the case of the Company by its
duly authorized officer, as of the day and year first above written.

 

 

	
  COMPANY:

  	
  IMAGEWARE SYSTEMS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  EMPLOYEE:

  	
   

  	
   

  
	
   

  	
  Wayne Wetherell

  
					

 

 

EXHIBIT A

BENEFITS

 

I.              Compensation and Benefits.  Executive’s compensation and other benefits
under this Agreement shall be as follows:

 

A.            Base
Salary.  The Company shall pay to
Executive a minimum base salary (the “Base Salary”) of $174,100. per year from October 1,
2005 through September 30, 2008.  In
addition, each year during the term of this Agreement, Executive shall be
reviewed for purposes of determining the appropriateness of increasing his
salary hereunder, provided that in any event, Executive shall receive a
cost-of-living increase equal to the percentage by which the Consumer Price
Index applicable to the San Diego area increased during the prior fiscal
year.  Such Base Salary, as adjusted,
shall be payable in semi-monthly installments in accordance with the regular
employee payment practices of the Company. 
All payments shall be subject to the deduction of payroll taxes and
similar assessments as required by law. 
For purposes of the Agreement, the term “Base Salary” as of any point in
time shall refer to the Base Salary as adjusted pursuant to this paragraph A.

 

B.            Bonus.  In addition to his Base Salary, Executive
shall be eligible to participate in any Company Bonus Plan, adopted from time
to time by the Board of Directors.

 

C.            Stock Options.  Commencing on January 1,
2006, and on each anniversay thereafter for so long as this Agreement remains
in effect, the Board shall consider in good faith, additional equity grants (in
the form of options and/or Restricted Shares and/or other means) to Executive
in an amount to be determined, in good faith, based on market conditions and
the performance of the Company during the preceding year.  The
Option and/or Restricted Shares shall be subject to the terms, definitions and
provisions of the ImageWare Systems, Inc. Amended and Restated 1999 Stock
Option Plan (or any successor to that plan) and an applicable option agreement
between the Company and Executive, which documents are incorporated herein by
reference.  

 

D.            Expenses and Benefits. 
Executive is authorized to incur reasonable expenses in connection with
the business of the Company, including expenses for entertainment, travel and
similar matters.  The Company will
reimburse Executive for such expenses upon presentation by Executive of such
accounts and records as the Company shall from time to time reasonably require.  The Company also agrees to provide Executive
with the following benefits.

 

E.             Insurance.  Major medical health insurance and
disability insurance which shall provide not less than two-thirds of Executive’s
then current Base Salary in disability payments commencing three months after
permanent or partial disability
occurs and life group or term life insurance in an amount equal to two (2) times
Executive’s then current Base Salary.

 

F.             Employee Benefit Plans. 
Participation in any other employee benefit plans now existing or
hereafter adopted by the Company
for its employees.

 

 

G.            Vacations.  Executive shall be entitled to a
paid vacation for a period in each calendar year of not less than four weeks,
to be taken at such times as mutually agreed with the Company.  

 

II.            Disability.  In the
event that Executive suffers from Disability during the term of this Agreement,
then Executive shall continue in the employ of the Company, but his compensation hereunder shall be limited to the
amount of his Base Salary then in effect, which compensation shall be reduced
by any amounts which Executive receives from worker’s compensation, social
security, state disability programs or the disability insurance provided by the
Company to Executive.  In such event,
Executive’s employment hereunder shall continue after his Disability and until
the first to occur of (a) the expiration of the term specified in Section 2,
(b) the death of Executive, or (c) one year from the date he is
determined to have a Disability; and during such period of time, Executive
shall not be entitled to payment of expenses or benefits specified in Section I
above, except that the Company shall continue to provide Executive the
insurance benefits set forth in Section I.E. above.

 

III.           Indemnification.  The
Company shall indemnify the Executive as an officer of the Company to the
maximum extent allowed under the laws of California to the extent that they are
not inconsistent with the Company’s Articles of Incorporation or Bylaws with
respect to such subject matter.

 

2Exhibit
4.01

 

APOLLO RESOURCES
INTERNATIONAL, INC.

FOURTH AMENDED
2005 STOCK OPTION AND AWARD PLAN

 

APOLLO RESOURCES
INTERNATIONAL, INC. (formerly Powerball International, Inc.), a Utah
corporation (the “Company”), hereby adopts this Fourth Amended 2005 Stock
Option and Award Plan (the “Plan”), effective as of the 27th day of September 2005,
under which options to acquire stock of the Company or bonus stock may be
granted from time to time to employees, including of officers and directors of
the Company and/or its subsidiaries. In addition, at the discretion of the
board of directors or other administrator of this Plan, options to acquire
stock of the Company or bonus stock may from time to time be granted under this
Plan to other individuals who contribute to the success of the Company or its
subsidiaries but who are not employees of the Company, all on the terms and
conditions set forth herein.

 

1.             Purpose
of the Plan. The Plan is intended to aid the Company in maintaining and
developing a management team, attracting qualified officers and employees
capable of assisting in the future success of the Company, and rewarding those
individuals who have contributed to the success of the Company. It is designed
to aid the Company in retaining the services of executives and employees and in
attracting new personnel when needed for future operations and growth and to
provide such personnel with an incentive to remain employees of the Company, to
use their best efforts to promote the success of the Company’s business, and to
provide them with an opportunity to obtain or increase a proprietary interest
in the Company. It is also designed to permit the Company to reward those
individuals who are not employees of the Company but who are perceived by
management as having contributed to the success of the Company or who are
important to the continued business and operations of the Company. The above
aims will be effectuated through the granting of options (“Options”) to
purchase shares of common stock of the Company, par value $0.001 per share (the
“Stock”), or the granting of awards of bonus stock (“Stock Awards”), all
subject to the terms and conditions of this Plan. It is intended that the
Options issued pursuant to this Plan include, when designated as such at the
time of grant, options which qualify as Incentive Stock Options (“Incentive
Options”) within the meaning of section 422 of the Internal Revenue Code
of 1986, as amended (the “Code”), or any amendment or successor provision of
like tenor. If the Company has a class of securities registered under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), it is
intended that Options or Stock Awards granted pursuant to this Plan qualify for
the exemption provided for in Rule 16b-3 (“Rule 16b-3”) promulgated under
the Exchange Act or any amendment or successor rule of like tenor when
granted in accordance with the provisions of such rule.

 

2.             Shareholder
Approval. The Plan shall become effective immediately on adoption by the
board of directors of the Company (the “Board”) and awards under the Plan can
be made at that time or at any subsequent time. The Plan shall be submitted to
the Company’s shareholders in the manner set forth below:

 

(a)           Within
twelve months after the Plan has been adopted by the Board, the Plan shall be
submitted for approval by those shareholders of the Company who are entitled to
vote on such matters at a duly held shareholders’ meeting or approved by the
unanimous written consent of the holders of the issued and outstanding Stock of
the Company. If the Plan is presented at a shareholders’ meeting, it shall be
approved by the affirmative vote of the holders of a majority of the issued and
outstanding Stock in attendance, in person or by proxy, at such meeting.
Notwithstanding the foregoing, the Plan may be approved by the shareholders in
any other manner not inconsistent with the Company’s articles of incorporation
and bylaws, the applicable provisions of state corporate laws, and the
applicable provisions of the Code and regulations adopted thereunder.

 

(b)           In
the event the Plan is so approved, the secretary of the Company shall, as soon
as practicable following the date of final approval, prepare and attach to this
Plan certified copies of all relevant resolutions adopted by the shareholders
and the Board.

 

(c)           Failure
to obtain shareholder approval on or before the date that is twelve months
subsequent to the adoption of this Plan by the Board shall not affect awards
previously granted under the Plan; provided
that, none of the Options issued under this Plan will qualify as
Incentive Options.

 

1

 

3.             Administration
of the Plan. Administration of the Plan shall be determined by the Board.
Subject to compliance with applicable provisions of the governing law, the
Board may delegate administration of the Plan or specific administrative duties
with respect to the Plan, on such terms and to such committees of the Board as
it deems proper. Any Option or Stock Award approved by the Board shall be approved
by a majority vote of those members of the Board in attendance at a meeting at
which a quorum is present. Any Option or Stock Award approved by a committee
designated by the Board shall be approved as specified by the Board at the time
of delegation. The interpretation and construction of the terms of the Plan by
the Board or a duly authorized committee shall be final and binding on all
participants in the Plan absent a showing of demonstrable error. No member of
the Board or duly authorized committee shall be liable for any action taken or
determination made in good faith with respect to the Plan.

 

The Board’s or duly
authorized committee’s determination under the Plan (including without
limitation determinations of the persons to receive Options or Stock Awards,
the form, amount, and timing of such Options or Stock Awards, the terms and
provisions of such Options or Stock Awards, and the agreements evidencing same)
need not be uniform and may be made by the Board or duly authorized committee
selectively among persons who receive, or are eligible to receive, Options or
Stock Awards under the Plan, whether or not such persons are similarly
situated.

 

4.             Shares
of Stock Subject to the Plan.  A
total of 18,282,000 shares of Stock may be subject to, or issued pursuant to,
Options or Stock Awards granted under the terms of this Plan. Any shares
subject to an Option or Stock Award under the Plan, which Option or Stock Award
for any reason expires or is forfeited terminated, or surrendered unexercised
as to such shares, shall be added back to the total number of shares reserved
for issuance under the terms of this Plan. If any right to acquire Stock
granted under the Plan is exercised by the delivery of shares of Stock or the
relinquishment of rights to shares of Stock, only the net shares of Stock
issued (the shares of Stock issued less the shares of Stock surrendered) shall
count against the total number of shares reserved for issuance under the terms
of this Plan.  The number of shares of
Stock subject to the Plan is subject to adjustment as set forth in Section 16
hereof.

 

5.             Reservation
of Stock on Granting of Option.  At
the time of granting any Option under the terms of this Plan, there will be
reserved for issuance on the exercise of the Option the number of shares of
Stock of the Company subject to such Option. The Company may reserve either
authorized but unissued shares or issued shares that have been reacquired by
the Company.

 

6.             Eligibility.
Options or Stock Awards under the Plan may be granted to employees, including
officers and directors, of the Company or its subsidiaries, as may be existing
from time to time, and to other individuals who are not employees of the
Company as may be deemed in the best interest of the Company by the Board or a
duly authorized committee. Such Options or Stock Awards shall be in the
amounts, and shall have the rights and be subject to the restrictions, as may
be determined by the Board or a duly authorized committee at the time of grant,
all as may be within the general provisions of this Plan.

 

7.             Term
of Options and Certain Limitations on Right to Exercise.

 

(a)           Each
Option shall have the term established by the Board or duly authorized
committee at the time the Option is granted but in no event may an Option have
a term in excess of five years.

 

(b)           The
term of the Option, once it is granted, may be reduced only as provided for in
this Plan or under the written provisions of the Option.

 

2

 

(c)           Unless
otherwise specifically provided by the written provisions of the Option, no
holder or his or her legal representative, legatee, or distributee will be, or
shall be deemed to be, a holder of any shares subject to an Option unless and
until the holder exercises his or her right to acquire all or a portion of the
Stock subject to the Option and delivers the required consideration to the
Company in accordance with the terms of this Plan and the Option and then only
to the extent of the number of shares of Stock acquired. Except as specifically
provided in this Plan or as otherwise specifically provided by the written
provisions of the Option, no adjustment to the exercise price or the number of
shares of Stock subject to the Option shall be made for dividends or other
rights for which the record date is prior to the date the Stock subject to the
Option is acquired by the holder.

 

(d)           Options
under the Plan shall vest and become exercisable at such time or times and on
such terms as the Board or a duly authorized committee may determine at the
time of the grant of the Option.

 

(e)           Options
granted under the Plan shall contain such other provisions, including, without
limitation, further restrictions on the vesting and exercise of the Option, as
the Board or a duly authorized committee shall deem advisable.

 

(f)            In
no event may an Option be exercised after the expiration of its term.

 

(g)           Unless
otherwise specifically provided by the written provisions of an Option granted
pursuant to this Plan, upon receipt of:

 

(i) any request that
the exercise of the Option or the resale of any shares of Stock issued or to be
issued on exercise of such Option will be registered under the Securities Act;
or

 

(ii) any notice of
exercise of such Option pursuant to its terms, in lieu of any obligation to
effect any registration with respect to the Options or shares of Common Stock
issuable on such Option or in lieu of delivering shares of Common Stock on the
exercise of the Option;

 

the Company may, within
five business days of receipt of such request to register or notice of
exercise, purchase, in whole or in part, such Options from the Optionee at an
amount in cash equal to the difference between the then current fair market
value (as defined below) of the Common Stock on the day of such repurchase and
the exercise price in effect on such day.

 

In order to exercise such
right, the Company must provide written notice to the optionee at least five
days prior to the date that the Company proposes to repurchase such Options.
For purposes of this section. the fair market value of the Common Stock shall
be determined by the Board or a duly authorized committee based on the closing
price for the Stock as quoted on a registered national securities exchange or,
if not listed on a national exchange, the Nasdaq Stock Market (“Nasdaq”), on
the trading day immediately preceding the date that the Company’s provides
notice of its intent to repurchase the Options, or, if not listed on such an
exchange or included on Nasdaq, the closing price for the Stock as determined
by the Board or a duly authorized committee through any other reliable means of
determination available on the close of business on the trading day last
preceding the date of providing the notice.

 

8.             Exercise
Price. The exercise price of each Option issued under the Plan shall be
determined by the Board or a duly authorized committee on the date of grant.

 

3

 

9.             Payment
of Exercise Price. The exercise of any Option shall be contingent on
receipt by the Company of cash, certified bank check to its order, or other
consideration acceptable to the Company; provided
that, at the discretion of the Board or a duly authorized committee,
the written provisions of the Option may provide that payment can be made in
whole or in part in shares of Stock of the Company that have been owned by the
optionee for more than six months or by the surrender of Options to acquire
Stock from the Company that have been held for more than six months, which
Stock or Options shall be valued at their then fair market value as determined
by the Board or a duly authorized committee. Any consideration approved by the
Board or a duly authorized committee that calls for the payment of the exercise
price over a period of more than one year shall provide for interest, which
shall not be included as part of the exercise price, that is equal to or
exceeds the imputed interest provided for in section 483 of the Code or
any amendment or successor section of like tenor.

 

10.           Withholding.
If the grant of a Stock Award or the grant or exercise of an Option pursuant to
this Plan, or any other event in connection with any such grant or exercise,
creates an obligation to withhold income and employment taxes pursuant to the
Code or applicable state or local laws, such obligation may, at the discretion
of the Board or a duly authorized committee at the time of the grant of the
Option or Stock Award and to the extent permitted by the terms of the Option or
Stock Award and the then governing provisions of the Code and the Exchange Act,
be satisfied (i) by the holder of the Option or Stock Award delivering to
the Company an amount of cash equal to such withholding obligation; (ii) by
the Company withholding from any compensation or other amount owing to the
holder of the Option or Stock Award the amount (in cash, Stock, or other
property as the Company may determine) of the withholding obligation; (iii) by
the Company withholding shares of Stock subject to the Option or Stock Award
with a fair market value equal to such obligation; or (iv) by the holder
of the Option or Stock Award either delivering shares of Stock that have been
owned by the holder for more than six months or canceling Options or other
rights to acquire Stock from the Company that have been held for more than six
months with a fair market value equal to such requirements. In all events,
delivery of shares of Stock issuable on exercise of the Option or on grant of
the Stock Award shall be conditioned upon and subject to the satisfaction or
making provision for the satisfaction of the withholding obligation of the
Company resulting from the grant or exercise of the Option, grant of the Stock
Award, or any other event. The Company shall be further authorized to take such
other action as may be necessary, in the opinion of the Company, to satisfy all
obligations for the payment of such taxes.

 

11.           Incentive
Options - Additional Provisions. In addition to the other restrictions and
provisions of this Plan, any Option granted hereunder that is intended to be an
Incentive Option shall meet the following further requirements:

 

(a)           The
exercise price of an Incentive Option shall not be less than the fair market
value of the Stock on the date of grant of the Incentive Option as determined
by the Board or a duly authorized committee based on the closing price for the
Stock as quoted on a registered national securities exchange or, if not listed
on a national exchange or Nasdaq, over the five-day trading period immediately
prior to the date of grant of such Incentive Option, or, if not listed on such
an exchange or included on Nasdaq, the closing price for the Stock as
determined by the Board or a duly authorized committee through any other
reliable means of determination available on the close of business on the
trading day last preceding the date of grant of such Incentive Option and
permitted by the applicable provisions of the Code.

 

(b)           No
Incentive Option may be granted under the Plan to any individual that owns
(either of record or beneficially) Stock possessing more than 10% of the
combined voting power of the Company or any parent or subsidiary corporation
unless both the exercise price is at least 110% of the fair market value of the
Stock on the date the Option is granted and the Incentive Option by its terms
is not exercisable more than five years after the date it is granted.

 

(c)           Incentive
Options may be granted only to employees of the Company or its subsidiaries and
only in connection with that employee’s employment by the Company or the
subsidiary. Notwithstanding the above, directors and other individuals who have
contributed to the success of the Company or its subsidiaries may be granted
Incentive Options under the Plan, subject to, and to the extent permitted by,
applicable provisions of the Code and regulations promulgated thereunder, as
they may be amended from time to time.

 

4

 

(d)           The
aggregate fair market value (determined as of the date the Incentive Option is
granted) of the shares of Stock with respect to which Incentive Options are
exercisable for the first time by any individual during any calendar year under
the Plan (and all other plans of the Company and its subsidiaries) may not
exceed $100,000.

 

(e)           No
Incentive Option shall be transferable other than by will or the laws of
descent and distribution and shall be exercisable, during the lifetime of the
optionee, only by the optionee to whom the Incentive Option is granted.

 

(f)            No
individual acquiring shares of Stock pursuant to any Incentive Option granted
under this Plan shall sell, transfer, or otherwise convey the Stock until after
the date that is both two years after the date the Incentive Option was granted
and one year after the date the Stock was acquired pursuant to the exercise of
the Incentive Option. If any individual makes a disqualifying disposition, he
or she shall notify the Company within 30 days of such transaction.

 

(g)           No
Incentive Option may be exercised unless the holder was, within three months of
such exercise, and had been since the date the Incentive Option was granted, an
eligible employee of the Company as specified in the applicable provisions of
the Code, unless the employment was terminated as a result of the death or
disability (as defined in the Code and the regulations promulgated thereunder
as they may be amended from time to time) of the employee or the employee dies
within three months of the termination. In the event of termination as a result
of disability, the holder shall have a one year period following termination in
which to exercise the Incentive Option. In the event of death of the holder,
the Incentive Option must be exercised within six months after the issuance of
letters testamentary or administration or the appointment of an administrator,
executor, or personal representative, but not later than one year after the
date of termination of employment. An authorized absence or leave approved by
the Board or a duly authorized committee for a period of 90 days or less shall
not be considered an interruption of employment for any purpose under the Plan.

 

(h)           All
Incentive Options shall be deemed to contain such other limitations and
restrictions as are necessary to conform the Incentive Option to the
requirements for “incentive stock options” as defined in section 422 of
the Code, or any amendment or successor statute of like tenor.

 

All of the foregoing
restrictions and limitations are based on the governing provisions of the Code
as of the date of adoption of this Plan. If at any time the Code is amended to
permit the qualification of an Option as an incentive stock option without one
or more of the foregoing restrictions or limitations or the terms of such
restrictions or limitations are modified, the Board or a duly authorized
committee may grant Incentive Options, and may modify outstanding Incentive
Options in accordance with such changes, all to the extent that such action by
the Board or duly authorized committee does not disqualify the Options from
treatment as incentive stock options under the provisions of the Code as may be
amended from time to time.

 

12.           Awards
to Directors and Officers. To the extent the Company has a class of
securities registered under the Exchange Act, Options or Stock Awards granted
under the Plan to directors and officers (as used in Rule 16b-3
promulgated under the Exchange Act or any amendment or successor rule of
like tenor) intended to qualify for the exemption from section 16(b) of
the Exchange Act provided in Rule 16b-3 shall, in addition to being
subject to the other restrictions and limitations set forth in this Plan, be
made as follows:

 

(a)           A
transaction whereby there is a grant of an Option or Stock Award pursuant to
this Plan must satisfy one of the following:

 

(i)            The
transaction must be approved by the Board or a duly authorized committee
composed solely of two or more non-employee directors of the Company (as
defined in Rule 16b-3);

 

5

 

(ii)           The
transaction must be approved or ratified, in compliance with section 14 of
the Exchange Act, by either: the affirmative vote of the holders of a majority
of the securities of the Company present or represented and entitled to vote at
a meeting of the shareholders of the Company held in accordance with the
applicable laws of the state of incorporation of the Company; or, if allowed by
applicable state law, the written consent of the holders of a majority, or such
greater percentage as may be required by applicable laws of the state of
incorporation of the Company, of the securities of the Company entitled to
vote. If the transaction is ratified by the shareholders, such ratification
must occur no later than the date of the next annual meeting of shareholders;
or

 

(iii)          The
Stock acquired must be held by the officer or director for a period of six
months subsequent to the date of the grant; provided
that, if the transaction involves a derivative security (as defined
in section 16 of the Exchange Act), this condition shall be satisfied if
at least six months elapse from the date of acquisition of the derivative
security to the date of disposition of the derivative security (other than on
exercise or conversion) or its underlying equity security.

 

(b)           Any
transaction involving the disposition to the Company of its securities in
connection with Options or Stock Awards granted pursuant to this Plan shall:

 

(i)            be
approved by the Board or a duly authorized committee composed solely of two or
more non-employee directors; or

 

(ii)           be
approved or ratified, in compliance with section 14 of the Exchange Act,
by either: the affirmative vote of the holders of a majority of the securities
of the Company present, or represented, and entitled to vote at a meeting duly
held in accordance with the applicable laws of the state of incorporation of
the Company or, if allowed by applicable state law, the written consent of the
holders of a majority, or such greater percentage as may be required by
applicable laws of the state of incorporation of the Company, of the securities
of the Company entitled to vote; provided
that, such ratification occurs no later than the date of the next
annual meeting of shareholders.

 

All of the foregoing
restrictions and limitations are based on the governing provisions of the
Exchange Act and the rules and regulations promulgated thereunder as of
the date of adoption of this Plan. If at any time the governing provisions are
amended to permit an Option to be granted or exercised or Stock Award to be
granted pursuant to Rule 16b-3 or any amendment or successor rule of
like tenor without one or more of the foregoing restrictions or limitations, or
the terms of such restrictions or limitations are modified, the Board or a duly
authorized committee may award Options or Stock Awards to directors and of
dicers, and may modify outstanding Options or Stock Awards, in accordance with
such changes, all to the extent that such action by the Board or a duly
authorized committee does not disqualify the Options or Stock Awards from
exemption under the provisions of Rule 16b-3 or any amendment or successor
rule of similar tenor.

 

13.           Stock
Awards. The Board or a duly authorized committee may grant Stock Awards to
individuals eligible to participate in this Plan, in the amount, and subject to
the provisions determined by the Board or a duly authorized committee. The
Board or a duly authorized committee shall notify in writing each person
selected to receive a Stock Award hereunder as soon as practicable after he or
she has been so selected and shall inform such person of the number of shares
he or she is entitled to receive, the approximate date on which such shares
will be issued, and the Forfeiture Restrictions applicable to such shares. (For
purposes hereof, the term “Forfeiture Restrictions” shall mean any prohibitions
against sale or other transfer of shares of Stock granted under the Plan and
the obligation of the holder to forfeit his or her ownership of or right to
such shares and to surrender such shares to the Company on the occurrence of
certain conditions.) The Board or a duly authorized committee may, at its
discretion, require the payment in cash to the Company by the award recipient
of the par value of the Stock. The shares of Stock issued pursuant to a Stock
Award shall not be sold, exchanged, transferred, pledged, hypothecated, or
otherwise disposed of during such period or periods of time which the Board or
a duly authorized committee shall establish at the time of the grant of the
Stock Award. If a Stock Award is made to an employee of the Company or its
subsidiaries, the employee shall be obligated for no consideration other than
the amount, if any, of the par value paid in cash for such shares, to forfeit
and surrender such shares as he or shall have received under the Plan which are
then subject to

 

6

 

Forfeiture Restrictions
to the Company if he or she is no longer an employee of the Company or its
subsidiaries for any reason; provided that, in
the event of termination of the employee’s employment by reason of death or
total and permanent disability, the Board or duly authorized committee, in its
sole discretion, may cancel the Forfeiture Restrictions. Certificates
representing shares subject to Forfeiture Restrictions shall be appropriately
legend as determined by the Board or a duly authorized committee to reflect the
Forfeiture Restrictions, and the Forfeiture Restrictions shall be binding on
any transferee of the shares.

 

14.           Assignment.
At the time of grant of an Option or Stock Award, the Board or duly authorized
Committee, in its sole discretion, may impose restrictions on the
transferability of such Option or Stock Award and provide that such Option
shall not be transferable other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code and that, except as permitted by the foregoing, such Options or Stock
Awards, granted under the Plan and the rights and privileges thereby conferred
shall not be transferred, assigned, pledged, or hypothecated in any way
(whether by operation of law or otherwise), and shall not be subject to
execution, attachment, or similar process. On any attempt to transfer, assign,
pledge, hypothecate, or otherwise dispose of the Option or Stock Award, or of
any right or privilege conferred thereby, contrary to the provisions thereof,
or on the levy of any attachment or similar process on such rights and
privileges, the Option or Stock Award and such rights and privileges shall
immediately become null and void.

 

15.           Additional
Terms and Provisions of Awards. The Board or duly authorized committee
shall have the right to impose additional limitations on individual awards
under the Plan. For example, and without limiting the authority of the Board or
a duly authorized committee, an individual award may be conditioned on
continued employment for a specified period or may be voided based on the award
holder’s gross negligence in the performance of his or her duties, substantial
failure to meet written standards established by the Company for the performance
of his or her duties, criminal misconduct, or willful or gross misconduct in
the performance of his or her duties. In addition, the Board or a duly
authorized committee may establish additional rights in the holders of
individual awards at the time of grant. For example, and without limiting the
authority of the Board or a duly authorized committee, an individual award may
include the right to immediate payment of the value inherent in the award on
the occurrence of certain events such as a change in control of the Company,
all on the terms and conditions set forth in the award at the time of grant.
The Board or a duly authorized committee may. at the time of the grant of the
Option or Stock Award, establish any other terms, restrictions, or provisions on
the exercise of an Option or the holding of Stock subject to the Stock Award as
it deems appropriate. All such terms, restrictions, and provisions must be set
forth in writing at the time of grant in order to be effective.

 

16.           Dilution
or Other Adjustment. In the event that the number of shares of Stock of the
Company from time to time issued and outstanding is increased pursuant to a
stock split or a stock dividend, the number of shares of Stock then covered by
each outstanding Option granted hereunder shall be increased proportionately,
with no increase in the total purchase price of the shares then so covered, and
the number of shares of Stock subject to the Plan shall be increased by the
same proportion. Shares awarded under the terms of a Stock Award shall be
entitled to the same rights as other issued and outstanding shares of Stock,
whether or not then subject to Forfeiture Restrictions, although any additional
shares of Stock issued to the holder of a Stock Award shall be subject to the
same Forfeiture Restrictions as the Stock Award. In the event that the number
of shares of Stock of the Company from time to time issued and outstanding is
reduced by a combination or consolidation of shares, the number of shares of
Stock then covered by each outstanding Option granted hereunder shall be
reduced proportionately, with no reduction in the total purchase price of the
shares then so covered, and the number of shares of Stock subject to the Plan
shall be reduced by the same proportion. Shares awarded under a Stock Award
shall be treated as other issued and outstanding shares of Stock, whether or
not then subject to Forfeiture Restrictions. In the event that the Company
should transfer assets to another corporation and distribute the stock of such
other corporation without the surrender of Stock of the Company, and if such
distribution is not taxable as a dividend and no gain or loss is recognized by
reason of section 355 of the Code or any amendment or successor statute of
like tenor, then the total purchase price of the Stock then covered by each
outstanding Option shall be reduced by an amount that bears the same ratio to
the total purchase price then in effect as the market value of the stock
distributed in respect of a share of the Stock of the Company, immediately
following the distribution, bears to the aggregate of the market value at such
time of a share of the Stock of the Company plus the stock distributed in
respect thereof. Shares issued under a Stock Award shall be treated as issued
and outstanding whether or not subject to Forfeiture Restrictions, although any
stock of the other corporation to be distributed with respect to the shares
awarded under the Stock Award shall be subject to the Forfeiture Restrictions

 

7

 

then applicable to such
shares and may be held by the Company or otherwise subject to restrictions on
transfer until the expiration of the Forfeiture Restrictions. In the event that
the Company distributes the stock of a subsidiary to its shareholders, makes a
distribution of a major portion of its assets, or otherwise distributes a
significant portion of the value of its issued and outstanding Stock to its
shareholders, the number of shares then subject to each outstanding Option and
the Plan, or the exercise price of each outstanding Option, may be adjusted in
the reasonable discretion of the Board or a duly authorized committee. Shares
awarded under a Stock Award shall be treated as issued and outstanding, whether
or not subject to Forfeiture Restrictions, although any Stock, assets, or other
rights distributed shall be subject to the Forfeiture Restrictions governing
the shares awarded under the Stock Award and, at the discretion of the Board or
a duly authorized committee, may be held by the Company or otherwise subject to
restrictions on transfer by the Company until the expiration of such Forfeiture
Restrictions. All such adjustments shall be made by the Board or duly
authorized committee, whose determination upon the same, absent demonstrable
error, shall be final and binding on all participants under the Plan. No
fractional shares shall be issued, and any fractional shares resulting from the
computations pursuant to this section shall be eliminated from the
respective Option or Stock Award. No adjustment shall be made for cash
dividends, for the issuance of additional shares of Stock for consideration
approved by the Board, or for the issuance to stockholders of rights to
subscribe for additional Stock or other securities.

 

17.           Options
or Stock Awards to Foreign Nationals. The Board or a duly authorized
committee may, in order to fulfill the purposes of this Plan and without
amending the Plan, grant Options or Stock Awards to foreign nationals or
individuals residing in foreign countries that contain provisions,
restrictions, and limitations different from those set forth in this Plan and
the Options or Stock Awards made to United States residents in order to
recognize differences among the countries in law, tax policy, and custom. Such grants
shall be made in an attempt to provide such individuals with essentially the
same benefits as contemplated by a grant to United States residents under the
terms of this Plan.

 

18.           Listing
and Registration of Shares. Unless otherwise expressly provided on the
granting of an award under this Plan, the Company shall have no obligation to
register any securities issued pursuant to this Plan or issuable on the
exercise of Options granted hereunder. Each award shall be subject to the
requirement that if at any time the Board or a duly authorized committee shall
determine, in its sole discretion, that it is necessary or desirable to list,
register, or qualify the shares covered thereby on any securities exchange or
under any state or federal law, or obtain the consent or approval of any
governmental agency or regulatory body as a condition of, or in connection
with, the granting of such award or the issuance or purchase of shares
thereunder, such award may not be made or exercised in whole or in part unless
and until such listing. registration, consent, or approval shall have been
effected or obtained free of any conditions not acceptable to the Board or a
duly authorized committee.

 

19.           Expiration
and Termination of the Plan. The Plan may be abandoned or terminated at any
time by the Board or a duly authorized committee except with respect to any
Options or Stock Awards then outstanding under the Plan. The Plan shall
otherwise terminate on the earlier of the date that is: (i) ten years
after the date the Plan is adopted by the Board; or (ii) ten years after
the date the Plan is approved by the shareholders of the Company.

 

20.           Form of
Awards. Awards granted under the Plan shall be represented by a written
agreement which shall be executed by the Company and which shall contain such
terms and conditions as may be determined by the Board or a duly authorized
committee and permitted under the terms of this Plan. Option agreements
evidencing Incentive Options shall contain such terms and conditions, among
others, as may be necessary in the opinion of the Board or a duly authorized
committee to qualify them as incentive stock options under section 422 of
the Code or any amendment or successor statute of like tenor.

 

21.           No
Right of Employment. Nothing contained in this Plan or any Option or Stock
Award shall be construed as conferring on a director, officer, or employee any
right to continue or remain as a director, officer, or employee of the Company
or its subsidiaries.

 

8

 

22.           Leaves
of Absence. The Board or duly authorized committee shall be entitled to
make such rules, regulations, and determinations as the Board or duly
authorized committee deems appropriate under the Plan in respect of any leave
of absence taken by the recipient of any Option or Stock Award. Without
limiting the generality of the foregoing, the Board or duly authorized
committee shall be entitled to determine (a) whether or not any such leave
of absence shall constitute a termination of employment within the meaning of
the Plan, and (b) the impact, if any, of any such leave of absence on any
Option or Stock Award under the Plan theretofore made to any recipient who
takes such leave of absence.

 

23.           Amendment
of the Plan. The Board or a duly authorized committee may modify and amend
the Plan in any respect; provided, however, that to the extent such amendment
or modification would cause the Plan to no longer comply with the applicable
provisions of the Code with respect to Incentive Options, such amendment or
modification shall also be approved by the shareholders of the Company. Subject
to the foregoing and, if the Company is subject to the provisions of 16(b) of
the Exchange Act, the limitations of Rule 16b-3 promulgated under the
Exchange Act or any amendment or successor rule of like tenor, the Plan
shall be deemed to be automatically amended as is necessary (i) with
respect to the issuance of Incentive Options, to maintain the Plan in
compliance with the provisions of section 422 of the Code, and regulations
promulgated thereunder from time to time, or any amendment or successor statute
thereto, and (ii) with respect to Options or Stock Awards granted to
officers and directors of the Company, to maintain the awards made under the
Plan in compliance with the provisions of Rule 16b-3 promulgated under the
Exchange Act or any amendment or successor rule of like tenor.

 

	
  DATE:
  September 27, 2005

  	
  ATTEST:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Christopher
  Chambers

  	
   

  
	
   

  	
   Christopher Chambers, Secretary

  

 

9

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00091-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00091-of-00352.parquet"}]]