Document:

exv10w24

 

Exhibit 10.24

SMITH & WESSON HOLDING CORPORATION

2004 INCENTIVE STOCK PLAN

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	 	 	 	 	 	 	 
	1.	 	Purpose	 	 	1	 
	2.	 	Administration	 	 	1	 
	 
	 	(a)	 	Authority of the Committee	 	 	1	 
	 
	 	(b)	 	Manner of Exercise of Committee Authority	 	 	1	 
	 
	 	(c)	 	Limitation of Liability	 	 	1	 
	3.	 	Stock Subject to Plan	 	 	2	 
	 
	 	(a)	 	Limitation on Overall Number of Shares Subject to Awards	 	 	2	 
	 
	 	(b)	 	Application of Limitations	 	 	2	 
	4.	 	Eligibility; Per-Person Award Limitations	 	 	2	 
	5.	 	Specific Terms of Awards	 	 	2	 
	 
	 	(a)	 	General	 	 	2	 
	 
	 	(b)	 	Options	 	 	2	 
	 
	 	(c)	 	Stock Appreciation Rights	 	 	3	 
	 
	 	(d)	 	Restricted Stock	 	 	4	 
	 
	 	(e)	 	Bonus Stock and Awards in Lieu of Obligations	 	 	5	 
	 
	 	(f)	 	Other Stock-Based Awards	 	 	5	 
	6.	 	Certain Provisions Applicable to Awards	 	 	5	 
	 
	 	(a)	 	Stand-Alone, Additional, Tandem, and Substitute Awards	 	 	5	 
	 
	 	(b)	 	Term of Awards	 	 	5	 
	 
	 	(c)	 	Form and Timing of Payment Under Awards; Deferrals	 	 	6	 
	 
	 	(d)	 	Exemptions from Section 16(b) Liability	 	 	6	 
	7.	 	Change in Control	 	 	6	 
	 
	 	(a)	 	Effect of “Change in Control.”	 	 	6	 
	 
	 	(b)	 	Definition of “Change in Control”	 	 	6	 
	 
	 	(c)	 	Definition of “Change in Control Price.”	 	 	7	 
	8.	 	Automatic Grant Program	 	 	7	 
	 
	 	(a)	 	Amount and Date of Grant	 	 	7	 
	 
	 	(b)	 	Exercise Price	 	 	8	 
	 
	 	(c)	 	Vesting	 	 	8	 
	 
	 	(d)	 	Term of Automatic Options	 	 	8	 
	 
	 	(e)	 	Other Terms	 	 	8	 
	9.	 	General Provisions	 	 	8	 
	 
	 	(a)	 	Compliance With Legal and Other Requirements	 	 	8	 
	 
	 	(b)	 	Limits on Transferability; Beneficiaries	 	 	9	 
	 
	 	(c)	 	Adjustments	 	 	9	 
	 
	 	(d)	 	Taxes	 	 	10	 
	 
	 	(e)	 	Changes to the Plan and Awards	 	 	10	 
	 
	 	(f)	 	Limitation on Rights Conferred Under Plan	 	 	10	 
	 
	 	(g)	 	Unfunded Status of Awards; Creation of Trusts	 	 	10	 
	 
	 	(h)	 	Nonexclusivity of the Plan	 	 	11	 
	 
	 	(i)	 	Payments in the Event of Forfeitures; Fractional Shares	 	 	11	 
	 
	 	(j)	 	Governing Law	 	 	11	 
	 
	 	(k)	 	Plan Effective Date and Stockholder Approval; Termination of Plan	 	 	11	 
	10.	 	Definitions	 	 	11	 
	 
	 	(a)	 	“Automatic Options” means as defined in Section 8(a)	 	 	11	 
	 
	 	(b)	 	“Award”	 	 	11	 
	 
	 	(c)	 	“Beneficiary”	 	 	11	 
	 
	 	(d)	 	“Beneficial Owner”, “Beneficially Owning” and “Beneficial Ownership”	 	 	11	 
	 
	 	(e)	 	“Board”	 	 	11	 
	 
	 	(f)	 	“Change in Control”	 	 	11	 
	 
	 	(g)	 	“Change in Control Price”	 	 	12	 
	 
	 	(h)	 	“Code”	 	 	12	 

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TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 
	 	 	 	 	 	 	 	 
	 
	 	(i)	 	“Committee”	 	 	12	 
	 
	 	(j)	 	“Consultant”	 	 	12	 
	 
	 	(k)	 	“Continuous Service”	 	 	12	 
	 
	 	(l)	 	“Corporate Transaction”	 	 	12	 
	 
	 	(m)	 	“Director”	 	 	12	 
	 
	 	(n)	 	“Effective Date”	 	 	12	 
	 
	 	(o)	 	“Eligible Person”	 	 	12	 
	 
	 	(p)	 	“Employee”	 	 	12	 
	 
	 	(q)	 	“Exchange Act”	 	 	12	 
	 
	 	(r)	 	“Executive Officer”	 	 	12	 
	 
	 	(s)	 	“Fair Market Value”	 	 	12	 
	 
	 	(t)	 	“Incentive Stock Option”	 	 	13	 
	 
	 	(u)	 	“Incumbent Board”	 	 	13	 
	 
	 	(v)	 	“Limited Stock Appreciation Right”	 	 	13	 
	 
	 	(w)	 	“Option”	 	 	13	 
	 
	 	(x)	 	“Optionee”	 	 	13	 
	 
	 	(y)	 	“Other Stock-Based Awards”	 	 	13	 
	 
	 	(z)	 	“Participant”	 	 	13	 
	 
	 	(aa)	 	“Person”	 	 	13	 
	 
	 	(bb)	 	“Related Entity”	 	 	13	 
	 
	 	(cc)	 	“Restricted Stock”	 	 	13	 
	 
	 	(dd)	 	“Rule 16b-3” and “Rule 16a-1(c)(3)”	 	 	13	 
	 
	 	(ee)	 	“Stock”	 	 	13	 
	 
	 	(ff)	 	“Stock Appreciation Right”	 	 	13	 
	 
	 	(gg)	 	“Subsidiary”	 	 	13	 

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SMITH & WESSON HOLDING CORPORATION

2004 INCENTIVE STOCK PLAN

     1. Purpose. The purpose of this 2004 Incentive Stock Plan (the “Plan”) is to assist Smith &
Wesson Holding Corporation, a Nevada corporation (the “Company”), and its Related Entities in
attracting, motivating, retaining, and rewarding high-quality executives and other Employees,
officers, Directors, and Consultants by enabling such persons to acquire or increase a proprietary
interest in the Company in order to strengthen the mutuality of interests between such persons and
the Company’s stockholders, and providing such persons with annual and long-term performance
incentives to expend their maximum efforts in the creation of stockholder value. The Plan is
intended to qualify certain compensation awarded under the Plan for tax deductibility under Section
162(m) of the Code to the extent deemed appropriate by the applicable Committee (or any successor
committee) of the Board of Directors of the Company. The Company adopted the Saf-T-Hammer
Corporation Stock Option Plan on May 31, 2001 (the “Former Plan”). The name of Saf-T-Hammer
Corporation was changed to Smith & Wesson Holding Corporation on
February 15, 2002. Upon the
adoption of the Plan by the shareholders of the Company, no further awards shall be made pursuant
to the Former Plan.

     2. Administration.

          (a) Authority of the Committee. The Plan shall be administered by the Committee; provided,
however, that except as otherwise expressly provided in this Plan or, during the period that the
Company is a publicly held corporation, in order to comply with Code Section 162(m) or Rule 16b-3
under the Exchange Act, the Board may exercise any power or authority granted to the Committee
under this Plan. The Committee or the Board shall have full and final authority, in each case
subject to and consistent with the provisions of the Plan, to select Eligible Persons to become
Participants, grant Awards, determine the type, number and other terms and conditions of, and all
other matters relating to, Awards, prescribe Award agreements (which need not be identical for each
Participant) and rules and regulations for the administration of the Plan, construe and interpret
the Plan and Award agreements and correct defects, supply omissions or reconcile inconsistencies
therein, and to make all other decisions and determinations as the Committee or the Board may deem
necessary or advisable for the administration of the Plan. In exercising any discretion granted to
the Committee or the Board under the Plan or pursuant to any Award, the Committee or the Board
shall not be required to follow past practices, act in a manner consistent with past practices, or
treat any Eligible Person in a manner consistent with the treatment of other Eligible Persons.

          (b) Manner of Exercise of Committee Authority. The Committee, and not the Board, shall
exercise sole and exclusive discretion on any matter relating to a Participant then subject to
Section 16 of the Exchange Act with respect to the Company to the extent necessary in order that
transactions by such Participant shall be exempt under Rule 16b-3 under the Exchange Act. Any
action of the Committee or the Board shall be final, conclusive, and binding on all persons,
including the Company, its Related Entities, Participants, Beneficiaries, transferees under Section
9(b) hereof, or other persons claiming rights from or through a Participant, and stockholders. The
express grant of any specific power to the Committee or the Board, and the taking of any action by
the Committee or the Board, shall not be construed as limiting any power or authority of the
Committee or the Board. The Committee or the Board may delegate to officers or managers of the
Company or any Related Entity, or committees thereof, the authority, subject to such terms as the
Committee or the Board shall determine, (i) to perform administrative functions, (ii) with respect
to Participants not subject to Section 16 of the Exchange Act, to perform such other functions as
the Committee or the Board may determine, and (iii) with respect to Participants subject to Section
16, to perform such other functions of the Committee or the Board as the Committee or the Board may
determine to the extent performance of such functions will not result in the loss of an exemption
under Rule 16b-3 otherwise available for transactions by such persons, in each case to the extent
permitted under applicable law. The Committee or the Board may appoint agents to assist it in
administering the Plan.

          (c) Limitation of Liability. The Committee and the Board, and each member thereof, shall be
entitled to, in good faith, rely or act upon any report or other information furnished to him or
her by any Executive Officer, other officer or Employee, the Company’s independent auditors,
Consultants or any other agents assisting in the administration of the Plan. Members of the
Committee and the Board, and any officer or Employee acting at the direction or on behalf of the
Committee or the Board, shall not be personally liable for any action or

 

 

determination taken or
made in good faith with respect to the Plan, and shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action or determination.

     3. Stock Subject to Plan

          (a) Limitation on Overall Number of Shares Subject to Awards. Subject to adjustment as
provided in Section 9(c) hereof, the total number of shares of Stock reserved and available for
delivery in connection with Awards under the Plan shall be the sum of (i) the lesser of (y) 15% of
the outstanding shares of Stock from time to time or (z) 10,000,000 shares of Stock, plus (ii) the
number of shares of Stock with respect to which any Awards previously granted under the Plan
terminated without being exercised, expire, are forfeited or canceled, do not vest, or are
surrendered in payment of any Awards or any tax withholding with regard thereto. Any shares of
Stock delivered under the Plan may consist, in whole or in part, of authorized and unissued shares
or treasury shares. Subject to adjustment as provided in Section 9(c) hereof, the number of shares
of Stock that may be issued pursuant to Incentive Stock Options shall not exceed 10,000,000 shares.

          (b) Application of Limitations. The limitation contained in Section 3(a) shall apply not only
to Awards that are settleable by the delivery of shares of Stock but also to Awards relating to
shares of Stock but settleable only in cash (such as cash-only Stock Appreciation Rights). The
Committee or the Board may adopt reasonable counting procedures to ensure appropriate counting,
avoid double counting (as, for example, in the case of tandem or substitute awards), and make
adjustments if the number of shares of Stock actually delivered differs from the number of shares
previously counted in connection with an Award.

     4. Eligibility; Per-Person Award Limitations. Awards may be granted under the Plan only to
Eligible Persons. In each fiscal year during any part of which the Plan is in effect, an Eligible
Person may not be granted Awards relating to more than 100,000 shares of Stock, subject to
adjustment as provided in Section 9(c), under each of Sections 5(b), 5(c), 5(d), 5(e), and 5(f).
Directors, who are not Employees, proposed directors, proposed employees, and independent
contractors shall be eligible to receive awards other than Incentive Stock Options.

     5. Specific Terms of Awards.

          (a) General. Awards may be granted on the terms and conditions set forth in this Section 5.
In addition, the Committee or the Board may impose on any Award or the exercise thereof, at the
date of grant or thereafter (subject to Section 9(e)), such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee or the Board shall determine,
including terms requiring forfeiture of Awards in the event of termination of Continuous Service by
the Participant and terms permitting a Participant to make elections relating to his or her Award.
The Committee or the Board shall retain full power and discretion to accelerate, waive, or modify,
at any time, any term or condition of an Award that is not mandatory under the Plan.

          (b) Options. The Committee and the Board each is authorized to grant Options to Participants
on the following terms and conditions:

     (i) Exercise Price. The exercise price per share of Stock purchasable under an
Option shall be determined by the Committee or the Board, provided that such
exercise price shall not, in the case of Incentive Stock Options, be less than 100%
of the Fair Market Value of the Stock on the date of grant of the Option and shall
not, in any event, be less than the par value of a share of Stock on the date of
grant of such Option. If an employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than 10% of the
combined voting power of all classes of stock of the Company or any Parent
Corporation or Subsidiary and an Incentive Stock Option is granted to such employee,
the option price of such Incentive Stock Option (to the extent required by the Code
at the time of grant) shall be no less than 110% of the Fair Market Value of the
Stock on the date such Incentive Stock Option is granted.

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     (ii) Time and Method of Exercise. The Committee or the Board shall determine the
time or times at which or the circumstances under which an Option may be exercised
in whole or in part (including based on achievement of performance goals and/or
future service requirements), the time or times at which Options shall cease to be
or become exercisable following termination of Continuous Service or upon other
conditions, the methods by which such exercise price may be paid or deemed to be
paid (including in the discretion of the Committee or the Board a cashless exercise
procedure), the form of such payment, including, without limitation, cash, Stock,
other Awards, or awards granted under other plans of the Company or a Related
Entity, or other property (including notes or other contractual obligations of
Participants to make payment on a deferred basis, provided that such deferred
payments are not in violation of the Sarbanes-Oxley Act of 2002, or any rule or
regulation adopted thereunder or any other applicable law), and the methods by or
forms in which Stock will be delivered or deemed to be delivered to Participants.

     (iii) Incentive Stock Options. The terms of any Incentive Stock Option granted
under the Plan shall comply in all respects with the provisions of Section 422 of
the Code. Anything in the Plan to the contrary notwithstanding, no term of the Plan
relating to Incentive Stock Options (including any Stock Appreciation Right in
tandem therewith) shall be interpreted, amended or altered, nor shall any discretion
or authority granted under the Plan be exercised, so as to disqualify either the
Plan or any Incentive Stock Option under Section 422 of the Code, unless the
Participant has first requested the change that will result in such
disqualification. Thus, if and to the extent required to comply with Section 422
of the Code, Options granted as Incentive Stock Options shall be subject to the
following special terms and conditions:

          (A) the Option shall not be exercisable more than ten years after the date such
Incentive Stock Option is granted; provided, however, that if a Participant owns or
is deemed to own (by reason of the attribution rules of Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the Company or
any Parent Corporation and the Incentive Stock Option is granted to such
Participant, the term of the Incentive Stock Option shall be (to the extent required
by the Code at the time of the grant) for no more than five years from the date of
grant; and

          (B) The aggregate Fair Market Value (determined as of the date the Incentive
Stock Option is granted) of the shares of Stock with respect to which Incentive
Stock Options granted under the Plan and all other option plans of the Company
during any calendar year exercisable for the first time by the Participant during
any calendar year shall not (to the extent required by the Code at the time of the
grant) exceed $100,000.

     (iv) Repurchase Rights. The Committee and the Board shall have the discretion to
grant Options that are exercisable for unvested shares of Stock. Should the
Optionee’s Continuous Service cease while holding such unvested shares, the Company
shall have the right to repurchase, at the exercise price paid per share, any or all
of those unvested shares. The terms upon which such repurchase right shall be
exercisable (including the period and procedure for exercise and the appropriate
vesting schedule for the purchased shares) shall be established by the Committee or
the Board and set forth in the document evidencing such repurchase right.

          (c) Stock Appreciation Rights. The Committee and the Board each is authorized to grant Stock
Appreciation Right’s to Participants on the following terms and conditions:

     (i) Right to Payment. A Stock Appreciation Right shall confer on the Participant to
whom it is granted a right to receive, upon exercise thereof, the excess of (A) the
Fair Market Value of one share of stock on the date of exercise (or, in the case of
a “Limited Stock Appreciation Right” that may be exercised only in the event of a
Change in Control, the Fair Market Value determined by reference to the Change in
Control Price, as defined under Section 7(c) hereof), over (B) the grant price of
the Stock Appreciation Right as determined by the

3

 

Committee or the Board. The grant
price of a Stock Appreciation Right shall not be less than the Fair Market Value of
a share of Stock on the date of grant except as provided under Section 6(a) hereof.

     (ii) Other Terms. The Committee or the Board shall determine at the date of grant
or thereafter, the time or times at which and the circumstances under which a Stock
Appreciation Right may be exercised in whole or in part (including based on
achievement of performance goals and/or future service requirements), the time or
times at which Stock Appreciation Rights shall cease to be or become exercisable
following termination of Continuous Service or upon other conditions, the method of
exercise, method of settlement, form of consideration payable in settlement, method
by or forms in which Stock will be delivered or deemed to be delivered to
Participants, whether or not a Stock Appreciation Right shall be in tandem or in
combination with any other Award, and any other terms and conditions of any Stock
Appreciation Right. Limited Stock Appreciation Rights that may only be exercised in
connection with a Change in Control or other event as specified by the
Committee or the Board, may be granted on such terms, not inconsistent with this
Section 5(c), as the Committee or the Board may determine. Stock Appreciation
Rights and Limited Stock Appreciation Rights may be either freestanding or in tandem
with other Awards.

          (d) Restricted Stock. The Committee and the Board each is authorized to grant Restricted
Stock to Participants on the following terms and conditions:

     (i) Grant and Restrictions. Restricted Stock shall be subject to such restrictions
on transferability, risk of forfeiture, and other restrictions, if any, as the
Committee or the Board may impose, or as otherwise provided in this Plan. The
restrictions may lapse separately or in combination at such times, under such
circumstances (including based on achievement of performance goals and/or future
service requirements), in such installments, or otherwise, as the Committee or the
Board may determine at the date of grant or thereafter. Except to the extent
restricted under the terms of the Plan and any Award agreement relating to the
Restricted Stock, a Participant granted Restricted Stock shall have all of the
rights of a stockholder, including the right to vote the Restricted Stock and the
right to receive dividends thereon (subject to any mandatory reinvestment or other
requirement imposed by the Committee or the Board). During the restricted period
applicable to the Restricted Stock, subject to Section 9(b) below, the Restricted
Stock may not be sold, transferred, pledged, hypothecated, margined, or otherwise
encumbered by the Participant.

     (ii) Forfeiture. Except as otherwise determined by the Committee or the Board at
the time of the Award, upon termination of a Participant’s Continuous Service during
the applicable restriction period, the Participant’s Restricted Stock that is at
that time subject to restrictions shall be forfeited and reacquired by the Company;
provided that the Committee or the Board may provide, by rule or regulation or in
any Award agreement, or may determine in any individual case, that restrictions or
forfeiture conditions relating to Restricted Stock shall be waived in whole or in
part in the event of terminations resulting from specified causes, and the Committee
or the Board may in other cases waive in whole or in part the forfeiture of
Restricted Stock.

     (iii) Certificates for Stock. Restricted Stock granted under the Plan may be
evidenced in such manner as the Committee or the Board shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, the Committee or the Board may require that such certificates bear an
appropriate legend referring to the terms, conditions, and restrictions applicable
to such Restricted Stock, that the Company retain physical possession of the
certificates, and that the Participant deliver a stock power to the Company,
endorsed in blank, relating to the Restricted Stock.

4

 

     (iv) Dividends and Splits. As a condition to the grant of an Award of Restricted
Stock, the Committee or the Board may require that any cash dividends paid on a
share of Restricted Stock be automatically reinvested in additional shares of
Restricted Stock or applied to the purchase of additional Awards under the Plan.
Unless otherwise determined by the Committee or the Board, Stock distributed in
connection with a Stock split or Stock dividend, and other property distributed as a
dividend, shall be subject to restrictions and a risk of forfeiture to the same
extent as the Restricted Stock with respect to which such Stock or other property
has been distributed.

          (e) Bonus Stock and Awards in Lieu of Obligations. The Committee and the Board each is authorized to grant Stock as a bonus, or to grant Stock
or other Awards in lieu of Company obligations to pay cash or deliver other property under the Plan
or under other plans or compensatory arrangements, provided that, in the case of Participants
subject to Section 16 of the Exchange Act, the amount of such grants remains within the discretion
of the Committee to the extent necessary to ensure that acquisitions of Stock or other Awards are
exempt from liability under Section 16(b) of the Exchange Act. Stock or Awards granted hereunder
shall be subject to such other terms as shall be determined by the Committee or the Board.

          (f) Other Stock-Based Awards. The Committee and the Board each is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or
related to, Stock, as deemed by the Committee or the Board to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt securities, other rights
convertible or exchangeable into Stock, purchase rights for Stock, Awards with value and payment
contingent upon performance of the Company or any other factors designated by the Committee or the
Board, and Awards valued by reference to the book value of Stock or the value of securities of or
the performance of specified Related Entities or business units. The Committee or the Board shall
determine the terms and conditions of such Awards. Stock delivered pursuant to an Award in the
nature of a purchase right granted under this Section 5(f) shall be purchased for such
consideration (including without limitation loans from the Company or a Related Entity), paid for
at such times, by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee or the Board shall determine. The Committee and
the Board shall have the discretion to grant such other Awards that are exercisable for unvested
shares of Stock. Should the Optionee’s Continuous Service cease while holding such unvested
shares, the Company shall have the right to repurchase, at the exercise price paid per share, any
or all of those unvested shares. The terms upon which such repurchase right shall be exercisable
(including the period and procedure for exercise and the appropriate vesting schedule for the
purchased shares) shall be established by the Committee or the Board and set forth in the document
evidencing such repurchase right. Cash awards, as an element of or supplement to any other Award
under the Plan, may also be granted pursuant to this Section 5(f).

     6. Certain Provisions Applicable to Awards.

          (a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted under the Plan
may, in the discretion of the Committee or the Board, be granted either alone or in addition to, in
tandem with, or in substitution or exchange for, any other Award or any award granted under another
plan of the Company, any Related Entity, or any business entity to be acquired by the Company or a
Related Entity, or any other right of a Participant to receive payment from the Company or any
Related Entity. Such additional, tandem, and substitute or exchange Awards may be granted at any
time. If an Award is granted in substitution or exchange for another Award or award, the Committee
or the Board shall require the surrender of such other Award or award in consideration for the
grant of the new Award. In addition, Awards may be granted in lieu of cash compensation, including
in lieu of cash amounts payable under other plans of the Company or any Related Entity, in which
the value of Stock subject to the Award is equivalent in value to the cash compensation (for
example, Restricted Stock), or in which the exercise price, grant price or purchase price of the
Award in the nature of a right that may be exercised is equal to the Fair Market Value of the
underlying Stock minus the value of the cash compensation surrendered (for example, Options granted
with an exercise price “discounted” by the amount of the cash compensation surrendered).

          (b) Term of Awards. The term of each Award shall be for such period as may be determined by
the Committee or the Board; provided that in no event shall the term of any Option or Stock

5

 

Appreciation Right exceed a period of ten years (or such shorter term as may be required in respect
of an Incentive Stock Option under Section 422 of the Code).

          (c) Form and Timing of Payment Under Awards; Deferrals. Subject to the terms of the Plan and
any applicable Award agreement, payments to be made to the Company or a Related Entity upon the
exercise of an Option or other Award or settlement of an Award may be made in such forms as the
Committee or the Board shall determine, including, without limitation, cash, other Awards or other
property, and may be made in a single payment or transfer, in installments, or on a deferred basis.
Any installment or deferral provided for in the preceding sentence shall, however, be subject to
the Company’s compliance with the provisions of the Sarbanes-Oxley Act of 2002, the rules and
regulations adopted by the Securities and Exchange Commission thereunder, and all applicable rules
of any national securities exchange on which the Company’s securities are listed for trading. The
settlement of any Award may be accelerated, and cash paid in lieu of Stock in connection with such
settlement, in the discretion of the Committee or the Board or upon occurrence of one or more
specified events (in addition to a Change in Control). Installment or deferred payments may be
required by the Committee or the Board (subject to Section 9(e) of the Plan) or permitted at the
election of the Participant on terms and conditions established by the Committee or the Board.
Payments may include, without limitation, provisions for the payment or crediting of a reasonable
interest rate on installment or deferred payments or the grant or crediting of other amounts in
respect of installment or deferred payments denominated in Stock.

          (d) Exemptions from Section 16(b) Liability. It is the intent of the Company that this Plan
comply in all respects with applicable provisions of Rule 16b-3 or Rule 16a-1(c)(3) to the extent
necessary to ensure that neither the grant of any Awards to nor other transaction by a Participant
who is subject to Section 16 of the Exchange Act is subject to liability under Section 16(b)
thereof (except for transactions acknowledged in writing to be non-exempt by such Participant).
Accordingly, if any provision of this Plan or any Award agreement does not comply with the
requirements of Rule 16b-3 or Rule 16a-1(c)(3) as then applicable to any such transaction, such
provision will be construed or deemed amended to the extent necessary to conform to the applicable
requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such Participant shall avoid liability under
Section 16(b). In addition, the purchase price of any Award conferring a right to purchase Stock
shall be not less than any specified percentage of the Fair Market Value of Stock at the date of
grant of the Award then required in order to comply with Rule 16b-3.

     7. Change in Control.

          (a) Effect of “Change in Control.” If and to the extent provided in the Award, in the event
of a “Change in Control,” as defined in Section 7(b):

     (i) The Committee may, within its discretion, accelerate the vesting and
exercisability of any Award carrying a right to exercise that was not previously
vested and exercisable as of the time of the Change in Control, subject to
applicable restrictions set forth in Section 8(a) hereof;

     (ii) The Committee may, within its discretion, accelerate the exercisability of
any limited Stock Appreciation Rights (and other Stock Appreciation Rights if so
provided by their terms) and provide for the settlement of such Stock Appreciation
Rights for amounts, in cash, determined by reference to the Change in Control Price;
and

     (iii) The Committee may, within its discretion, lapse the restrictions,
deferral of settlement, and forfeiture conditions applicable to any other Award
granted under the Plan and such Awards may be deemed fully vested as of the time of
the Change in Control, except to the extent of any waiver by the Participant and
subject to applicable restrictions set forth in Section 9(a) hereof.

          (b) Definition of “Change in Control. A “Change in Control” shall be deemed to have occurred upon:

6

 

     (i) Approval by the stockholders of the Company of a reorganization, merger,
consolidation, or other form of corporate transaction or series of transactions, in
each case, with respect to which persons who were the stockholders of the Company
immediately prior to such reorganization, merger, consolidation, or other
transaction do not, immediately thereafter, own more than 50% of the combined voting
power entitled to vote generally in the election of directors of the reorganized,
merged, or consolidated company’s then outstanding voting securities, or a
liquidation or dissolution of the Company or the sale of all or substantially all of
the assets of the Company (unless such reorganization, merger, consolidation or
other corporate transaction, liquidation, dissolution or sale (any such event being
referred to as a “Corporate Transaction”) is subsequently abandoned);

     (ii) Individuals who, as of the date on which the Award is granted, constitute
the Board (the “Incumbent Board”) cease for any reason to constitute at least a
majority of the Board, provided that any person becoming a director subsequent to
the date on which the Award was granted whose election, or nomination for election
by the Company’s stockholders, was approved by a vote of at least a majority of the
Directors then comprising the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection with an actual
or threatened election contest relating to the election of the Directors of the
Company) shall be, for purposes of this Agreement, considered as though such person
were a member of the Incumbent Board; or

     (iii) the acquisition (other than from the Company) by any person, entity, or
“group”, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act, of more than 50% of either the then outstanding shares of the
Company’s Stock or the combined voting power of the Company’s then outstanding
voting securities entitled to vote generally in the election of directors
(hereinafter referred to as the ownership of a “Controlling Interest”) excluding,
for this purpose, any acquisitions by (1) the Company or a Related Entity, (2) any
person, entity, or “group” that as of the date on which the Award is granted owns
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act) of a Controlling Interest or (3) any employee benefit plan
of the Company a Related Entity.

          (c) Definition of “Change in Control Price.” The “Change in Control Price” means an amount in
cash equal to the higher of (i) the amount of cash and fair market value of property that is the
highest price per share paid (including extraordinary dividends) in any Corporate Transaction
triggering the Change in Control under Section 7(b)(i) hereof or any liquidation of shares
following a sale of substantially all of the assets of the Company, or (ii) the highest Fair Market
Value per share at any time during the 60-day period preceding and the 60-day period following the
Change in Control.

     8. Automatic Grant Program

          (a) Amount and Date of Grant. During the term of the Plan, the Company shall make automatic
grants of Options (“Automatic Options”) to each Director who is not employed by the Company:

     (i) Annual Grants. Each year on the Annual Grant Date, an Automatic Option to
acquire 10,000 shares of Stock shall be granted to each Director for as long as
shares of Stock are available under Section 3(a) hereof. The “Annual Grant Date”
shall be the date of the Company’s annual stockholders meeting commencing as of the
first annual meeting occurring after the Effective Date. Any Director that was
granted an Automatic Option under Section 8(a)(ii) within 90 days of an Annual Grant
Date
shall be ineligible to receive an Automatic Option pursuant to this Section 8(a)(i)
on such Annual Grant Date.

     (ii) Initial New Director Grants. On the Initial Grant Date, every new member of
the Board, who is an Director and has not previously received an Automatic Option
under this Section 8(a)(ii) shall be granted an Automatic Option to acquire 25,000
shares of Stock for as long

7

 

as shares of Stock are available under Section 3(a)
hereof. The “Initial Grant Date” shall be the date that a Director is first
appointed or elected to the Board.

          (b) Exercise Price. The exercise price per share of Stock subject to each Automatic Option
granted under Section 8(a)(i) or (ii) shall be equal to 100 percent of the Fair Market Value per
share of the Stock on the date such Automatic Option was granted.

          (c) Vesting. Each Automatic Option granted pursuant to Section 8(a)(i) or (ii) shall vest and
become exercisable 1/12th per month after the date of grant. Each Automatic Option or
portion thereof shall vest and become exercisable only if the optionholder has not ceased serving
as a Board member as of such vesting date.

          (d) Term of Automatic Options. Each Automatic Option shall expire on the tenth anniversary
(the “Expiration Date”) of the date on which such Automatic Option was granted. Except as
determined by the Plan Administrator, should a Director’s service as a Board member cease prior to
the Expiration Date for any reason while an Automatic Option remains outstanding and unexercised,
the Automatic Option term shall immediately be modified and the Automatic Option shall terminate
and cease to be outstanding in accordance with the following provisions:

     (i) The Automatic Option shall immediately terminate and cease to be
outstanding with respect to any shares that were not vested at the time of the
optionholder’s cessation of Board service.

     (ii) Should an optionholder cease, for any reason other than death, to serve as
a member of the Board, then the optionholder shall have 90 days measured from the
date of such cessation of Board service in which to exercise his or her Automatic
Options that vested prior to the time of such cessation of Board service. In no
event, however, may any Automatic Option be exercised after the Expiration Date of
such Automatic Option.

     (iii) Should an optionholder die while serving as a Board member or within 90
days after cessation of Board service, then the personal representative of the
optionholder’s estate (or the person or persons to whom the Automatic Option is
transferred pursuant to the optionholder’s will or in accordance with the laws of
the descent and distribution) shall have a 90-day period measured from the date of
the optionholder’s cessation of Board service in which to exercise the Automatic
Options that vested prior to the time of such cessation of Board service. In no
event, however, may any Automatic Option be exercised after the Expiration Date of
such Automatic Option.

          (e) Other Terms. Except as expressly provided otherwise in this Section 8, an
Automatic Option shall be subject to all of the terms and conditions of the Plan. Directors shall
be entitled to receive other awards under the Plan or other plans of the Company in accordance with
the terms and conditions thereof.

     9. General Provisions.

          (a) Compliance With Legal and Other Requirements. The Company may, to the extent deemed
necessary or advisable by the Committee or the Board, postpone the issuance or delivery of Stock or
payment of other benefits under any Award until completion of such registration or qualification of
such Stock or other required action under any federal or state law, rule, or regulation, listing,
or other required action with respect to any stock exchange or automated quotation system upon
which the Stock or other Company securities are listed or quoted, or compliance with any other
obligation of the Company, as the Committee or the Board, may consider appropriate, and may require
any Participant to make such representations, furnish such information and comply with or be
subject to such other conditions as it may consider appropriate in connection with the issuance or
delivery of Stock or payment of other benefits in compliance with applicable laws, rules, and
regulations, listing requirements, or other obligations.

8

 

          (b) Limits on Transferability; Beneficiaries. No Award or other right or interest of a
Participant under the Plan, including any Award or right that constitutes a derivative security as
generally defined in Rule 16a-1(c) under the Exchange Act, shall be pledged, hypothecated, or
otherwise encumbered or subject to any lien, obligation, or liability of such Participant to any
party (other than the Company or a Subsidiary), or assigned or transferred by such Participant
otherwise than by will or the laws of descent and distribution or to a Beneficiary upon the death
of a Participant, and such Awards or rights that may be exercisable shall be exercised during the
lifetime of the Participant only by the Participant or his or her guardian or legal representative,
except that Awards and other rights (other than Incentive Stock Options and Stock Appreciation
Rights in tandem therewith) may be transferred to one or more Beneficiaries or other transferees
during the lifetime of the Participant, and may be exercised by such transferees in accordance with
the terms of such Award, but only if and to the extent such transfers and exercises are permitted
by the Committee or the Board pursuant to the express terms of an Award agreement (subject to any
terms and conditions which the Committee or the Board may impose thereon, and further subject to
any prohibitions or restrictions on such transfers pursuant to Rule 16b-3). A Beneficiary,
transferee, or other person claiming any rights under the Plan from or through any Participant
shall be subject to all terms and conditions of the Plan and any Award agreement applicable to such
Participant, except as otherwise determined by the Committee or the Board, and to any additional
terms and conditions deemed necessary or appropriate by the Committee or the Board.

          (c) Adjustments.

     (i) Adjustments to Awards. In the event that any dividend or other distribution
(whether in the form of cash, Stock, or other property), recapitalization, forward
or reverse split, reorganization, merger, consolidation, spin-off, combination,
repurchase, share exchange, liquidation, dissolution, or other similar corporate
transaction or event affects the Stock and/or such other securities of the Company
or any other issuer such that a substitution, exchange, or adjustment is determined
by the Committee or the Board to be appropriate, then the Committee or the Board
shall, in such manner as it may deem equitable, substitute, exchange, or adjust any
or all of (A) the number and kind of shares of Stock that may be delivered in
connection with Awards granted thereafter, (B) the number and kind of shares of
Stock by which annual per-person Award limitations are measured under Section 4
hereof, (C) the number and kind of shares of Stock subject to or deliverable in
respect of outstanding Awards, (D) the exercise price, grant price, or purchase
price relating to any Award and/or make provision for payment of cash or other
property in respect of any outstanding Award, and (E) any other aspect of any Award
that the Committee or Board determines to be appropriate.

     (ii) Adjustments in Case of Certain Corporate Transactions. In the event of a
proposed sale of all or substantially all of the Company’s assets or any
reorganization, merger, consolidation, or other form of corporate transaction in
which the
Company does not survive, or in which the shares of Stock are exchanged for or
converted into securities issued by another entity, then the successor or acquiring
entity or an affiliate thereof may, with the consent of the Committee or the Board,
assume each outstanding Option or substitute an equivalent option or right. If the
successor or acquiring entity or an affiliate thereof, does not cause such an
assumption or substitution, then each Option shall terminate upon the consummation
of sale, merger, consolidation, or other corporate transaction. The Committee or
the Board shall give written notice of any proposed transaction referred to in this
Section 9(c)(ii) a reasonable period of time prior to the closing date for such
transaction (which notice may be given either before or after the approval of such
transaction), in order that Optionees may have a reasonable period of time prior to
the closing date of such transaction within which to exercise any Options that are
then exercisable (including any Options that may become exercisable upon the closing
date of such transaction). An Optionee may condition his exercise of any Option
upon the consummation of the transaction.

     (iii) Other Adjustments. In addition, the Committee (and the Board if and only to
the extent such authority is not required to be exercised by the Committee to comply
with Code Section 162(m)) is authorized to make adjustments in the terms and
conditions of, and the criteria

9

 

included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, acquisitions and dispositions of
businesses and assets) affecting the Company, any Related Entity, or any business
unit, or the financial statements of the Company or any Related Entity, or in
response to changes in applicable laws, regulations, accounting principles, tax
rates and regulations, or business conditions or in view of the Committee’s
assessment of the business strategy of the Company, any Related Entity or business
unit thereof, performance of comparable organizations, economic and business
conditions, personal performance of a Participant, and any other circumstances
deemed relevant; provided that no such adjustment shall be authorized or made if and
to the extent that such authority or the making of such adjustment would cause
Options, or Stock Appreciation Rights hereof to Participants designated by the
Committee as Covered Employees and intended to qualify as “performance-based
compensation” under Code Section 162(m) and the regulations thereunder to otherwise
fail to qualify as “performance-based compensation” under Code Section 162(m) and
regulations thereunder.

          (d) Taxes. The Company and any Related Entity are authorized to withhold from any Award
granted, any payment relating to an Award under the Plan, including from a distribution of Stock,
or any payroll or other payment to a Participant, amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving an Award, and to take such other
action as the Committee or the Board may deem advisable to enable the Company and Participants to
satisfy obligations for the payment of withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or receive Stock or other property and
to make cash payments in respect thereof in satisfaction of a Participant’s tax obligations, either
on a mandatory or elective basis in the discretion of the Committee.

          (e) Changes to the Plan and Awards. The Board may amend, alter, suspend, discontinue, or
terminate the Plan, or the Committee’s authority to grant Awards under the Plan, without the
consent of stockholders or Participants, except that any amendment or alteration to the Plan shall
be subject to the approval of the Company’s stockholders not later than the annual meeting next
following such Board action if such stockholder approval is required by any federal or state law or
regulation (including, without limitation, Rule 16b-3 or Code Section 162(m)) or the rules of any
stock exchange or automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such changes to the Plan to
stockholders for approval; provided that, without the consent of an affected Participant, no such
Board action may materially and adversely affect the rights of such Participant under any
previously granted and outstanding Award. The Committee or the Board may waive any
conditions or rights under, or amend, alter, suspend, discontinue, or terminate any Award
theretofore granted and any Award agreement relating thereto, except as otherwise provided in the
Plan; provided that, without the consent of an affected Participant, no such Committee or the Board
action may materially and adversely affect the rights of such Participant under such Award.

          (f) Limitation on Rights Conferred Under Plan. Neither the Plan nor any action taken
hereunder shall be construed as (i) giving any Eligible Person or Participant the right to continue
as an Eligible Person or Participant or in the employ of the Company or a Related Entity; (ii)
interfering in any way with the right of the Company or a Related Entity to terminate any Eligible
Person’s or Participant’s Continuous Service at any time, (iii) giving an Eligible Person or
Participant any claim to be granted any Award under the Plan or to be treated uniformly with other
Participants and Employees, or (iv) conferring on a Participant any of the rights of a stockholder
of the Company unless and until the Participant is duly issued or transferred shares of Stock in
accordance with the terms of an Award.

          (g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to constitute an
“unfunded” plan for incentive and deferred compensation. With respect to any payments not yet made
to a Participant or obligation to deliver Stock pursuant to an Award, nothing contained in the Plan
or any Award shall give any such Participant any rights that are greater than those of a general
creditor of the Company; provided that the Committee may authorize the creation of trusts and
deposit therein cash, Stock, other Awards, or other property, or make other arrangements to meet
the Company’s obligations under the Plan. Such trusts or other arrangements shall be consistent
with the “unfunded” status of the Plan unless the Committee otherwise determines with the consent
of each affected Participant. The trustee of such trusts may be authorized to dispose of trust
assets and

10

 

reinvest the proceeds in alternative investments, subject to such terms and conditions
as the Committee or the Board may specify and in accordance with applicable law.

          (h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board nor its
submission to the stockholders of the Company for approval shall be construed as creating any
limitations on the power of the Board or a committee thereof to adopt such other incentive
arrangements as it may deem desirable including incentive arrangements and awards which do not
qualify under Code Section 162(m).

          (i) Payments in the Event of Forfeitures; Fractional Shares. Unless otherwise determined by
the Committee or the Board, in the event of a forfeiture of an Award with respect to which a
Participant paid cash or other consideration, the Participant shall be repaid the amount of such
cash or other consideration. No fractional shares of Stock shall be issued or delivered pursuant
to the Plan or any Award. The Committee or the Board shall determine whether cash, other Awards or
other property shall be issued or paid in lieu of such fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise eliminated.

          (j) Governing Law. The validity, construction and effect of the Plan, any rules and
regulations under the Plan, and any Award agreement shall be determined in accordance with the laws
of the state of Nevada without giving effect to principles of conflicts of laws, and applicable
federal law.

          (k) Plan Effective Date and Stockholder Approval; Termination of Plan. The Plan shall become
effective on the Effective Date, subject to subsequent approval within 12 months of its adoption by
the Board by stockholders of the Company eligible to vote in the election of directors, by a vote
sufficient to meet the requirements of Code Sections 162(m) (if applicable) and 422, Rule 16b-3
under the Exchange Act (if applicable), applicable Nasdaq requirements, and other laws,
regulations, and obligations of the
Company applicable to the Plan. Awards may be granted subject to stockholder approval, but
may not be exercised or otherwise settled in the event stockholder approval is not obtained except
with respect to Awards granted by the Company prior to the Company’s first shareholder meeting and
that are otherwise in compliance with Treasury Regulations Section 1.162-27(f)(4)(iii). The Plan
shall terminate at such time as no shares of Stock remain available for issuance under the Plan and
the Company has no further rights or obligations with respect to outstanding Awards under the Plan.

     10. Definitions. For purposes of the Plan, the following terms shall be defined as set forth
below, in addition to such terms defined in Section 1 hereof.

          (a) “Automatic Options” means as defined in Section 8(a).

          (b) “Award” means any Option, Stock Appreciation Right (including Limited Stock Appreciation
Right), Restricted Stock, Stock granted as a bonus or in lieu of another award, or Other
Stock-Based Award, together with any other right or interest, granted to a Participant under the
Plan.

          (c) “Beneficiary” means the person, persons, trust, or trusts that have been designated by a
Participant in his or her most recent written beneficiary designation filed with the Committee to
receive the benefits specified under the Plan upon such Participant’s death or to which Awards or
other rights are transferred if and to the extent permitted under Section 10(b) hereof. If, upon a
Participant’s death, there is no designated Beneficiary or surviving designated Beneficiary, then
the term Beneficiary means the person, persons, trust, or trusts entitled by will or the laws of
descent and distribution to receive such benefits.

          (d) “Beneficial Owner”, “Beneficially Owning” and “Beneficial Ownership” shall have the
meanings ascribed to such terms in Rule 13d-3 under the Exchange Act and any successor to such
Rule.

          (e) “Board” means the Company’s Board of Directors.

          (f) “Change in Control” means a Change in Control as defined with related terms in Section 8
of the Plan.

11

 

          (g) “Change in Control Price” means the amount calculated in accordance with Section 7(c) of
the Plan.

          (h) “Code” means the Internal Revenue Code of 1986, as amended from time to time, including
regulations thereunder and successor provisions and regulations thereto.

          (i) “Committee” means a committee designated by the Board to administer the Plan. The Board
may designate more than one committee to administer the Plan as to various categories of Eligible
Persons. The Committee shall
consist of at least two directors, and each member of which shall be (i) a “non-employee
director” within the meaning of Rule 16b-3 under the Exchange Act, unless administration of the
Plan by “non-employee directors” is not then required in order for exemptions under Rule 16b-3 to
apply to transactions under the Plan, and (ii) an “outside director” within the meaning of Section
162(m) of the Code, unless administration of the Plan by “outside directors” is not then required
in order to qualify for tax deductibility under Section 162(m) of the Code, provided, when
appropriate, a Committee shall satisfy the then requirements of any stock exchange or automated
quotation system upon which the Stock or other Company securities are listed or quoted.

          (j) “Consultant” means any person (other than an Employee or a Director, solely with respect
to rendering services in such person’s capacity as a director) who is engaged by the Company or any
Related Entity to render consulting or advisory services to the Company or such Related Entity.

          (k) “Continuous Service” means uninterrupted provision of services to the Company in any
capacity of Employee, Director, or Consultant. Continuous Service shall not be considered to be
interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any
Related Entities, or any successor entities, in any capacity of Employee Director, or Consultant,
or (iii) any change in status as long as the individual remains in the service of the Company or a
Related Entity in any capacity of Employee, Director, or Consultant (except as otherwise provided
in the Option Agreement). An approved leave of absence shall include sick leave, military leave,
or any other authorized personal leave.

          (l) “Corporate Transaction” means a Corporate Transaction as defined in Section 7(b)(i) of the
Plan.

          (m) “Director” means a member of the Board or the board of directors of any Related Entity.

          (n) “Effective Date” means the effective date of the Plan, which shall be the date the Plan is
adopted by the shareholders of the Company.

          (o) “Eligible Person” means each Executive Officer of the Company (as defined under the
Exchange Act) and other officers, Directors, and Employees of the Company or of any Related Entity,
and Consultants with the Company or any Related Entity. The foregoing notwithstanding, only
employees of the Company or any Subsidiary shall be Eligible Persons for purposes of receiving any
Incentive Stock Options. An Employee on leave of absence may be considered as still in the employ
of the Company or a Related Entity for purposes of eligibility for participation in the Plan.

          (p) “Employee” means any person, including an officer or Director, who is an employee of the
Company or any Related Entity. The Payment of a director’s fee by the Company or a Related Entity
shall not be sufficient to constitute “employment” by the Company.

          (q) “Exchange Act”
means the Securities Exchange Act of 1934, as amended from time to time, including rules
thereunder and successor provisions and rules thereto.

          (r) “Executive Officer” means an executive officer of the Company as defined under the
Exchange Act.

          (s) “Fair Market Value” means the fair market value of Stock, Awards, or other property as
determined by the Committee or the Board, or under procedures established by the Committee or the
Board. Unless

12

 

otherwise determined by the Committee or the Board, the Fair Market Value of Stock
as of any given date after which the Company is a Publicly Held Corporation shall be the closing
sale price per share reported on a consolidated basis for stock listed on the principal stock
exchange or market on which Stock is traded on the date as of which such value is being determined
or, if there is no sale on that date, then on the last previous day on which a sale was reported.

          (t) “Incentive Stock Option” means any Option intended to be designated as an incentive stock
option within the meaning of Section 422 of the Code or any successor provision thereto.

          (u) “Incumbent Board” means the Incumbent Board as defined in Section 7(b)(ii) of the Plan.

          (v) “Limited Stock Appreciation Right” means a right granted to a Participant under Section
6(c) hereof.

          (w) “Option” means a right granted to a Participant under Section 5(b) hereof, to purchase
Stock or other Awards at a specified price during specified time periods.

          (x) “Optionee” means a person to whom an Option or Incentive Stock Option is granted under
this Plan or any person who succeeds to the rights of such person under this Plan.

          (y) “Other Stock-Based Awards” means Awards granted to a Participant under Section 5(f)
hereof.

          (z) “Participant” means a person who has been granted an Award under the Plan which remains
outstanding, including a person who is no longer an Eligible Person.

          (aa) “Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange
Act and used in Sections 13(d) and 14(d) thereof, and shall include a “group” as defined in Section
13(d) thereof.

          (bb) “Related Entity”
means any entity that is directly or indirectly controlled by the Company or any entity in
which the Company has a significant equity interest, as determined by the Board or the Committee.

          (cc) “Restricted Stock” means Stock granted to a Participant under Section 5(d) hereof, that
is subject to certain restrictions and to a risk of forfeiture.

          (dd) “Rule 16b-3” and “Rule 16a-1(c)(3)” means Rule 16b-3 and Rule 16a-1(c)(3), as from time
to time in effect and applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.

          (ee) “Stock” means the Company’s Common Stock, and such other securities as may be substituted
(or resubstituted) for Stock pursuant to Section 10(c) hereof.

          (ff) “Stock Appreciation Right” means a right granted to a Participant under Section 6(c)
hereof.

          (gg) “Subsidiary” means a “subsidiary corporation” whether now or hereafter existing, as
defined in Section 424(f) of the Code.

13exv4wii

 

Exhibit 4(ii)

THE SECURITIES REPRESENTED BY THIS DOCUMENT HAVE NOT BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”),
AND ARE ‘RESTRICTED SECURITIES’ AS THAT TERM IS DEFINED IN RULE 144 UNDER THE 1933 ACT. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER THE 1933 ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY THROUGH REASONABLE MEANS AS DETERMINED BY THE COMPANY, INCLUDING AN OPINION OF SELLER’S
COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY.

AMERICAN OIL & GAS, INC.

COMMON STOCK PURCHASE WARRANT

     THIS COMMON STOCK WARRANT AGREEMENT (the “Agreement”) is made and entered into as of the 21st
day of September, 2005 by and between American Oil & Gas, Inc., a Nevada corporation (the
“Company”), and                                         (the “Holder”).

WITNESSETH:

     WHEREAS, pursuant to the Subscription and Registration Rights Agreement dated as of ___,
2005 between the Company and Holder (the “Subscription Agreement”), Holder agreed to purchase from
the Company, and the Company agreed to sell and issue to the Holder, a warrant to purchase shares
of the $0.001 par value common stock of the Company (the “Common Stock”), said warrant to be for
the number of shares, at the price per share and on the terms set forth in this Agreement; and

     WHEREAS, the Holder desires to receive a warrant on the terms and conditions set forth in this
Agreement.

     NOW, THEREFORE, the parties agree as follows:

     1. Grant of Warrant. The Company hereby grants to the Holder the right and warrant
(the “Warrant”) to purchase all or any part of an aggregate of ___shares of the
authorized and unissued $.001 par value common stock of the Company (the “Warrant Shares”) subject
to adjustment as provided in this Agreement, pursuant to the terms and conditions set forth in this
Agreement.

     2. Warrant Price. At any time when shares are to be purchased pursuant to this
Agreement, the purchase price for each Warrant Share shall be $6.00 (the “Warrant Price”), subject
to adjustment as provided in this Agreement.

     3. Exercise Period. The period for the exercise of the Warrant shall commence on the
date of this Agreement and shall terminate at 5:00 p.m., Denver, Colorado time on January 22, 2007,
unless terminated earlier as provided herein. If the average trading price for the Company’s
Common Stock on the American Stock Exchange or such other national security exchange or national
securities association on which the Company’s Common Stock is then trading, for 25 consecutive
trading days equals or exceeds $7.40 per share then the Company may, in its sole discretion and
with written notice to the Holder, require the Holder to exercise the Warrant to purchase all of
the Warrant Shares within 30 days from the date of such notice, and this Warrant shall not be
exercisable thereafter.

 

 

4. Exercise of Warrant.

     (a) The Warrant may be exercised in whole or in part by delivering to the President of
the Company at the address of the Company’s principal office (i) a Notice and Agreement of
Exercise of Warrant, substantially in the form attached hereto as Exhibit A,
specifying the number of Warrant Shares with respect to which the Warrant is exercised, and
(ii) full payment of an amount equal to the Warrant Price multiplied by the number of
Warrant Shares then being purchased (such aggregate amount of money, the “Purchase Price”).
Payment shall be made by certified check or cleared funds. The Warrant may not be exercised
in part unless the purchase price for the Warrant Shares purchased is at least $1,000 or
unless the entire remaining portion of the Warrant is being exercised.

     (b) Promptly upon receipt of the Notice and Agreement of Exercise of Warrant together
with the full payment of the Purchase Price, the Company shall deliver to the Holder a
properly executed certificate or certificates representing the Warrant Shares being
purchased.

     5. Warrant Adjustment. N/A

     6. Withholding Taxes. The Company may take such steps as it deems necessary or
appropriate for the withholding of any taxes which the Company is required by any law or regulation
or any governmental authority, whether federal, state or local, domestic or foreign, to withhold in
connection with the Warrant including, but not limited to, the withholding of all or any portion of
any payment owed by the Company to the Holder or the withholding of issuance of Warrant Shares to
be issued upon the exercise of the Warrant.

     7. Securities Laws Requirements. The issuance of the Warrant has not been registered
under the Securities Act of 1933, as amended (the “1933 Act”), in reliance upon an exemption from
registration. In addition, no Warrant Shares shall be issued unless and until, in the opinion of
the Company, there has been full compliance with, or an exemption from, any applicable registration
requirements of the 1933 Act, any applicable listing requirements of any securities exchange on
which stock of the same class has been listed, and any other requirements of law or any regulatory
bodies having jurisdiction over such issuance and delivery. The Holder hereby acknowledges,
represents, warrants and agrees as follows, and, pursuant to the terms of the Notice and Agreement
of Exercise of Warrant (Exhibit A) that shall be delivered to the Company upon each exercise of the
Warrant, the Holder shall acknowledge, represent, warrant and agree as follows:

     (a) Holder is acquiring the Warrant and the Warrant Shares for investment purposes only
and the Warrant and the Warrant Shares that Holder is acquiring will be held by Holder
without sale, transfer or other disposition for an indefinite period unless the transfer of
those securities is subsequently registered under the federal securities laws or unless
exemptions from registration are available;

     (b) Holder’s overall commitment to investments that are not readily marketable is not
disproportionate to Holder’s net worth, and Holder’s investment in the Warrant and the
Warrant Shares will not cause such overall commitments to become excessive;

     (c) Holder’s financial condition is such that Holder is under no present or
contemplated future need to dispose of any portion of the Warrant or the Warrant Shares to
satisfy any existing or contemplated undertaking, need or indebtedness;

 

 

     (d) Holder has sufficient knowledge and experience in business and financial matters to
evaluate, and Holder has evaluated, the merits and risks of an investment in the Warrant and
the Warrant Shares;

     (e) The address set forth on the signature page to this Agreement is Holder’s true and
correct residence, and Holder has no present intention of becoming a resident of any other
state or jurisdiction;

     (f) Holder confirms that all documents, records and books pertaining to an investment
in the Warrant and the Warrant Shares that have been requested by Holder have been made
available or delivered to the Holder. Holder has had the opportunity to discuss the
acquisition of the Warrant and the Warrant Shares with the Company. Holder also confirms
that it has obtained or been given access to all information concerning the Company that
Holder has requested;

     (g) Holder has had the opportunity to ask questions of, and receive the answers from,
the officers and directors of the Company concerning the terms of Holder’s investment in the
Warrant and the Warrant Shares and to receive additional information necessary to verify the
accuracy of the information delivered to Holder, to the extent that the Company possesses
such information or can acquire it without unreasonable effort or expense;

     (h) Holder understands that the Warrant has not been, and the Warrant Shares issuable
upon exercise of the Warrant will not be, registered under the 1933 Act or any state
securities laws in reliance on an exemption for private offerings, and no federal or state
agency has made any finding or determination as to the fairness of this investment or any
recommendation or endorsement of the issuance of the Warrant or the Warrant Shares;

     (i) The Warrant and the Warrant Shares that Holder is acquiring will be solely for
Holder’s own account, for investment, and are not being purchased with a view to or for the
resale, distribution, subdivision or fractionalization thereof. Holder has no agreement or
arrangement for any such resale, distribution, subdivision or fractionalization thereof;

     (j) Holder acknowledges and is aware of the following:

     (i) The Company has a history of losses. The Warrant and the Warrant Shares
constitute a speculative investment and involve a high degree of risk of loss by
Holder of Holder’s total investment in the Warrant and the Warrant Shares.

     (ii) There are substantial restrictions on the transferability of the Warrant
and the Warrant Shares. The Warrant is not transferable. The Warrant Shares cannot
be transferred, pledged, hypothecated, sold or otherwise disposed of unless they are
registered under the 1933 Act or an exemption from such registration is available
and established to the satisfaction of the Company; except as set forth in the
Subscription Agreement, investors in the Company have no rights to require that the
Warrant Shares be registered; there is no right of presentment of the Warrant Shares
and there is no obligation by the Company to repurchase any of the Warrant Shares;
and, accordingly, Holder may have to hold the Warrant Shares indefinitely and it may
not be possible for Holder to liquidate Holder’s investment in the Company;

 

 

     (iii) Each certificate issued representing the Warrant Shares shall be
imprinted with a legend that sets forth a description of the restrictions on
transferability of those securities, which legend will read substantially as
follows:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“1933 ACT”), AND ARE ‘RESTRICTED SECURITIES’ AS THAT TERM IS
DEFINED IN RULE 144 UNDER THE 1933 ACT. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
1933 ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE 1933 ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED
TO THE SATISFACTION OF THE COMPANY THROUGH REASONABLE MEANS
AS DETERMINED BY THE COMPANY, INCLUDING AN OPINION OF
SELLER’S COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY.”

     (k) The Holder shall report all sales of Warrant Shares to the Company in writing on a
form prescribed by the Company.

          The restrictions described above, or notice thereof, may be placed on the certificates
representing the Warrant Shares purchased pursuant to the Warrant, and the Company may refuse to
issue the certificates or to transfer the shares on its books unless it is satisfied that no
violation of such restrictions will occur.

     8. Adjustment by Stock Split, Stock Dividend, Etc. In addition to the adjustments
provided in Section 5, if at any time the Company increases or decreases the number of its
outstanding shares of common stock, or changes in any way the rights and privileges of such shares,
by means of the payment of a stock dividend or the making of any other distribution on such shares
payable in its common stock, or through a stock split or subdivision of shares, or a consolidation
or combination of shares, or through a reclassification or recapitalization involving its common
stock, the numbers, rights and privileges of the shares of common stock included in the Warrant
shall be increased, decreased or changed in like manner as if such shares had been issued and
outstanding, fully paid and nonassessable at the time of such occurrence, and the Warrant Price
shall be correspondingly decreased, increased or otherwise changed. Whenever the number or kind of
shares comprising the Warrant Shares or the Warrant Price is adjusted, the Company shall promptly
give written notice and a certificate of the Chief Financial Officer or Chief Executive Officer of
the Company to each Holder of record of the outstanding Warrant, stating that such an adjustment
has been effected and setting forth the number and kind of shares purchasable and the amount of the
then-current Warrant Price, and stating in reasonable detail the facts requiring such adjustment
and the calculation of such adjustment.

     9. Reorganization and Reclassification. In case of any capital reorganization or any
reclassification of the capital stock of the Company while the Warrant remains outstanding, the
Holder of the Warrant shall thereafter be entitled to purchase pursuant to the Warrant (in lieu of
the kind and number of shares of Common Stock comprising Warrant Shares that such Holder would have
been entitled to purchase or acquire immediately before such reorganization or reclassification)
the kind and number of

 

 

shares of stock of any class or classes or other securities or property for or into which such
shares of Common Stock would have been exchanged, converted, or reclassified if the Warrant Shares
had been purchased immediately before such reorganization or reclassification. In case of any such
reorganization or reclassification, appropriate provision (as determined by resolutions of the
Board of Directors of the Company) shall be made with respect to the rights and interest thereafter
of the Holder of the Warrant, to the end that all the provisions of this Agreement (including
adjustment provisions) shall thereafter be applicable, as nearly as reasonably practicable, in
relation to such stock or other securities or property.

     10. Common Stock to be Received upon Exercise. Holder understands that (a) the
Company is under no obligation to register the issuance of the Warrant Shares, (b) the Company’s
obligation to register the resale of the Warrant Shares under the 1933 Act is as set forth in
Section 3 of the Subscription and Registration Rights Agreement, and (c) in the absence of any such
registration, the Warrant Shares cannot be sold unless they are sold pursuant to an exemption from
registration under the 1933 Act. Holder also understands that with respect to Rule 144, routine
sales of securities made in reliance upon such Rule can be made only in limited amounts in
accordance with the terms and conditions of the Rule, and that in cases in which the Rule is
inapplicable, compliance with either Regulation A or another exemption under the 1933 Act will be
required. Thus, the Warrant Shares will have to be held indefinitely in the absence of
registration under the 1933 Act or an exemption from registration.

     Furthermore, the Holder fully understands that issuance of the Warrant Shares will not be
registered under the 1933 Act and that, because the issuance of the Warrant Shares will not be
registered, the Warrant Shares will be issued in reliance upon an exemption which is available only
if Holder acquires such shares for investment and not with a view to distribution. Holder is
familiar with the phrase “acquired for investment and not with a view to distribution” as it
relates to the 1933 Act and the special meaning given to such term in various releases of the
Securities and Exchange Commission.

     11. Privilege of Ownership. Holder shall not have any of the rights of a stockholder
with respect to the shares covered by the Warrant except to the extent that one or more
certificates for such shares shall be delivered to him or her upon exercise of the Warrant.

     12. Relationship to Engagement. Nothing contained in this Agreement (i) shall confer
upon the Holder any right with respect to continuance of Holder’s engagement by, or affiliation
with, or relationship to, the Company, or (ii) shall interfere in any way with the right of the
Company at any time to terminate the Holder’s engagement by, position or affiliation with, or
relationship to, the Company.

     13. Notices. All notices, requests, demands, directions and other communications
(“Notices”) concerning this Agreement shall be in writing and shall be mailed or delivered
personally or sent by telecopier or facsimile to the applicable party at the address of such party
set forth below in this Section 13. When mailed, each such Notice shall be sent by first class,
certified mail, return receipt requested, enclosed in a postage prepaid wrapper, and shall be
effective on the fifth business day after it has been deposited in the mail. When delivered
personally, each such Notice shall be effective when delivered to the address for the respective
party set forth in this Section 13, provided that it is delivered on a business day and further
provided that it is delivered prior to 5:00 p.m., local time of the party to whom the notice is
being delivered, on that business day; otherwise, each such Notice shall be effective on the first
business day occurring after the Notice is delivered. When sent by telecopier or facsimile, each
such Notice shall be effective on the day on which it is sent provided that it is sent on a
business day and further provided that it is sent prior to 5:00 p.m., local time of the party to
whom the Notice is being sent, on that business day; otherwise, each such Notice shall be effective
on the first business day occurring after the Notice is sent. Each such Notice shall be addressed
to the party to be notified as shown below:

 

 

	 	 	 	 	 
	(a)

	 	if to the Company:
	 	American Oil & Gas, Inc.
	 

	 	 	 	1050 17th Street, Suite 1850
	 

	 	 	 	Denver, Colorado 80265
	 

	 	 	 	Facsimile: (303) 595-0709
	 

	 	 	 	Attention: Andrew P. Calerich
	 
	 	 	 	 
	(b)

	 	if to the Holder:
	 	At the address set forth on the signature page
	 

	 	 	 	of this Agreement

     Either party may change its respective address for purposes of this Section 13 by giving the
other party Notice of the new address in the manner set forth above.

     14. General Provisions. This instrument (a) may not be amended nor may any rights
hereunder be waived except by an instrument in writing signed by the party sought to be charged
with such amendment or waiver, (b) shall be construed in accordance with and governed by the laws
of Colorado, and (c) shall be binding upon and shall inure to the benefit of the parties and their
respective personal representatives and assigns, except as above set forth. All pronouns contained
herein and any variations thereof shall be deemed to refer to the masculine, feminine or neuter,
singular or plural as the identity of the parties hereto may require.

     IN WITNESS WHEREOF, the parties have executed this Agreement on the dates set forth below.

	 	 	 	 	 	 
	 	 	AMERICAN OIL & GAS, INC.	 
	 
	 	 	 	 	
	 

	 	By:	 	 	
	 

	 	 	 	 	
	 

	 	 	 	Name: Andrew P. Calerich	
	 

	 	 	 	Title: President and Chief Financial Officer	
	 
	 	 	 	 	
	 

	 	HOLDER	
	 
	 	 	 	 	
	 	 	 	
	 	 	Printed Name of Holder	
	 
	 	 	 	 	
	 

	 	By:	 	 	
	 

	 	 	 	 	
	 

	 	 	 	Signature	
	 
	 	 	 	 	
	 	 	 	
	 

	 	 	 	Address	
	 
	 	 	 	 	
	 	 	 	
	 

	 	 	 	City, State and Zip Code	

 

 

EXHIBIT A

(To American Oil & Gas, Inc.

Common Stock Purchase Warrant)

AMERICAN OIL & GAS, INC.

NOTICE AND AGREEMENT OF EXERCISE OF COMMON STOCK PURCHASE WARRANT

     The undersigned hereby exercises its American Oil & Gas, Inc. Common Stock Purchase Warrant
dated as of ___, 2005 as to ___shares of the $.001 par value common stock (the “Warrant
Shares”) of American Oil & Gas, Inc. (the
“Company”) at a purchase price of $____ per share.
Enclosed is payment of the total exercise price for these Warrant Shares of $___.

     The undersigned understands that no Warrant Shares will be issued unless and until, in the
opinion of the Company, there has been full compliance with, or an exemption from, any applicable
registration requirements of the Securities Act of 1933, as amended (the “1933 Act”), any
applicable listing requirements of any securities exchange on which stock of the same class is then
listed, and any other requirements of law or any regulatory bodies having jurisdiction over such
issuance and delivery. The undersigned hereby acknowledges, represents, warrants and agrees, to
and with the Company as follows:

     (a) The undersigned (“Holder”) is acquiring the Warrant Shares for investment purposes only
and the Warrant Shares that Holder is acquiring will be held by Holder without sale, transfer or
other disposition for an indefinite period unless the transfer of those securities is subsequently
registered under the federal securities laws or unless an exemption from registration is available;

     (b) Holder’s overall commitment to investments that are not readily marketable is not
disproportionate to Holder’s net worth and Holder’s investment in the Warrant Shares will not cause
such overall commitments to become excessive;

     (c) Holder’s financial condition is such that Holder is under no present or contemplated
future need to dispose of any portion of the Warrant Shares to satisfy any existing or contemplated
undertaking, need or indebtedness;

     (d) Holder has sufficient knowledge and experience in business and financial matters to
evaluate, and Holder has evaluated, the merits and risks of an investment in the Warrant Shares;

     (e) The address set forth in this Agreement is Holder’s true and correct residence, and
Holder has no present intention of becoming a resident of any other state or jurisdiction;

     (f) Holder confirms that all documents, records and books pertaining to an investment in the
Warrant Shares that have been requested by the Holder have been made available or delivered to
Holder. Holder has obtained or been given access to all other information concerning the Company
that Holder has requested;

     (g) Holder has had the opportunity to discuss the acquisition of the Warrant Shares with the
Company, to ask questions of, and receive the answers from, the Company concerning the terms of the
investment in the Warrant Shares, and to receive additional information necessary to verify the
accuracy of any information delivered to Holder, to the extent that the Company possesses such
information or can acquire it without unreasonable effort or expense;

 

 

     (h) Holder understands that the issuance of the Warrant Shares upon the exercise of the
Warrant has not been registered under the 1933 Act or any state securities laws in reliance on an
exemption for private offerings, and no federal or state agency has made any finding or
determination as to the fairness of this investment or any recommendation or endorsement of the
sale of the Warrant Shares;

     (i) Holder is acquiring the Warrant Shares solely for Holder’s own account, for investment,
and not with a view to or for the resale, distribution, subdivision or fractionalization thereof.
Holder has no agreement or arrangement for any such resale, distribution, subdivision or
fractionalization thereof;

     (j) Holder acknowledges and is aware of the following:

     (i) The Company does not have a material amount of revenues from oil or gas production
or from any other source. Its operations have resulted in a history of losses. The Warrant
Shares constitute a speculative investment and involve a high degree of risk of loss by
Holder of Holder’s total investment in the Warrant Shares.

     (ii) There are substantial restrictions on the transferability of the Warrant Shares.
The Warrant Shares cannot be transferred, pledged, hypothecated, sold or otherwise disposed
of unless they are registered under the 1933 Act or an exemption from such registration is
available and established to the satisfaction of the Company. There is no right of
presentment of the Warrant Shares and there is no obligation by the Company to repurchase
any of the Warrant Shares. As a result, Holder may have to hold the Warrant Shares
indefinitely, and it may not be possible for Holder to liquidate Holder’s investment in the
Company.

     (iii) Each certificate issued representing the Warrant Shares shall be imprinted with a
legend that sets forth a description of the restrictions on transferability of those
securities, which legend will read substantially as follows:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933
ACT”), AND ARE ‘RESTRICTED SECURITIES’ AS THAT TERM IS DEFINED IN
RULE 144 UNDER THE 1933 ACT. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT, THE AVAILABILITY OF
WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY
THROUGH REASONABLE MEANS AS DETERMINED BY THE COMPANY, INCLUDING AN
OPINION OF SELLER’S COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY.”

 

 

     Warrant Shares in the amount specified above are to be issued in the name or names set forth
below in the left-hand column.

	 	 	 	 	 
	 	 	 
	 	 	Printed Name of Holder
	 
	 	 	 	 
	 

	 	By:	 	 
	 

	 	 	 
	 

	 	 	Signature
	 
	 	 	 	 
	 	 	 	 
	 

	 	 	Printed Name and Title
	 
	 	 	 	 
	 	 	 
	 

	 	 	Address
	 
	 	 	 	 
	 	 	 
	 

	 	 	City, State and Zip Code

* * * * *

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