Document:

Exhibit 10.4

 

Nathaniel
Energy Corporation

2005 Equity Participation
Plan

(as amended through July 19, 2005)

 

1.                                       Purpose of the Plan.  The Nathaniel Energy Corporation 2005 Equity
Participation Plan (the “Plan”) is intended to advance the interests of Nathaniel
Energy Corporation (the “Company”) by inducing individuals or entities of
outstanding ability and potential to join and remain with, or provide
consulting or advisory services to, the Company, by encouraging and enabling
eligible employees, non-employee Directors, consultants and advisors to acquire
proprietary interests in the Company, and by providing the participating
employees, non-employee Directors, consultants and advisors with an additional
incentive to promote the success of the Company.  This is accomplished by providing for the
granting of “Options,” which term as used herein includes both “Incentive Stock
Options” and “Nonstatutory Stock Options, as later defined, and “Restricted
Stock,” to employees, non-employee Directors, consultants and advisors.

 

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

 

2.                                       Administration.  The Plan shall be administered by the Board
of Directors of the Company (the “Board” or “Board of Directors”) or by a
committee (the “Committee”) consisting of at least two (2) persons chosen
by the Board of Directors.  Except as
herein specifically provided, the interpretation and construction by the Board
of Directors or the

 

 

Committee of any provision of the Plan or of any Option, or with
respect to any Restricted Stock, granted under it shall be final and
conclusive.  The receipt of Options or
Restricted Stock by Directors, or any members of the Committee, shall not
preclude their vote on any matters in connection with the administration or
interpretation of the Plan.

 

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

 

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4.                                       Participation.  The class of individuals that shall be
eligible to receive Options (“Optionees”) and Restricted Stock (“Grantees”)
under the Plan shall be (a) with respect to Incentive Stock Options
described in Section 6 hereof, all employees of either the Company or any
parent or subsidiary corporation of the Company, and (b) with respect to
Nonstatutory Stock Options described in Section 7 hereof and Restricted
Stock described in Section 17 hereof, all employees, and non-employee
Directors of, or consultants and advisors to, either the Company or any parent
or subsidiary corporation of the Company; provided, however, neither
Nonstatutory Stock Options nor Restricted Stock shall be granted to any such
consultant or advisor unless (i) the consultant or advisor is a natural
person (or an entity wholly-owned by the consultant or advisor), (ii) bona
fide services have been or are to be rendered by such consultant or
advisor and (iii) such services are not in connection with the offer or
sale of securities in a capital raising transaction and do not directly or
indirectly promote or maintain a market for the Company’s securities.  The Board of Directors or the Committee, in
its sole discretion, but subject to the provisions of the Plan, shall determine
the employees and non-employee Directors of, and the consultants and advisors
to, the Company and its parent and subsidiary corporations to whom Options and
Restricted Stock shall be granted, and the number of shares to be covered by
each Option and each Restricted Stock grant, taking into account the nature of
the employment or services rendered by the individuals or entities being
considered, their annual compensation, their present and potential
contributions to the success of the Company, and such other factors as the
Board of Directors or the Committee may deem relevant.  For purposes hereof, a non-employee to whom
an offer of employment has been extended shall be considered an employee,
provided that the Options granted to such individual shall not be exercisable,
and the Restricted Stock granted shall not vest, in whole or in part, for a
period of at least one year

 

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from the date of grant and in the event the individual does not
commence employment with the Company, the Options and/or Restricted Stock
granted shall be considered null and void.

 

5.                                       Stock Option Agreement.  Each Option granted under the Plan shall be
authorized by the Board of Directors or the Committee, and shall be evidenced
by a Stock Option Agreement which shall be executed by the Company and by the
individual or entity to whom such Option is granted.  The Stock Option Agreement shall specify the
number of shares of common stock as to which any Option is granted, the period
during which the Option is exercisable, and the option price per share thereof,
and such other terms and provisions as the Board of Directors or the Committee
may deem necessary or appropriate.

 

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

 

(a)                                  No
Incentive Stock Option shall be granted to individuals other than employees of
the Company or of a parent or subsidiary corporation of the Company.

 

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

 

(c)                                  The
option price of the shares subject to any Incentive Stock Option shall not be
less than the fair market value (as defined in subsection (f) of this
Section 6) of the common stock at the time such Incentive Stock Option is
granted; provided, however, if an

 

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

 

(d)                                 No
Incentive Stock Option granted under the Plan shall be exercisable after the
expiration of ten (10) years from the date of its grant.  However, if an Incentive Stock Option is
granted to a 10% Stockholder, such Incentive Stock Option shall not be
exercisable after the expiration of five (5) years from the date of its
grant.  Every Incentive Stock Option
granted under the Plan shall be subject to earlier termination as expressly
provided in Section 12 hereof.

 

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

 

(f)                                    For
purposes of the Plan, fair market value shall be determined by the Board of
Directors or the Committee. If the common stock is listed on a national
securities exchange or The NASDAQ Stock Market (“NASDAQ”) or traded on the
Over-the-Counter market, fair market value shall be the closing selling price
or, if not available, the closing bid price or, if not available, the high bid
price of the common stock quoted on such exchange or NASDAQ, or on the
Over-the-Counter market, as reported by the exchange, NASDAQ or the National
Association of Securities Dealers OTC Electronic Bulletin Board, or if the
common stock is not so reported, then by the Pink Sheets, LLC, as the case may
be, on the day immediately preceding the day on which the Option is granted
(or, if granted after the close of

 

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

 

7.                                       Nonstatutory Stock Options.  The Board of Directors or the Committee may
grant Options under the Plan which are not intended to meet the requirements of
Section 422 of the Code, as well as Options which are intended to meet the
requirements of Section 422 of the Code but the terms of which provide
that they will not be treated as Incentive Stock Options (referred to herein as
a “Nonstatutory Stock Option”). 
Nonstatutory Stock Options shall be subject to the following terms and
conditions:

 

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

 

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

 

(c)                                  A
Nonstatutory Stock Option granted under the Plan may be of such duration as
shall be determined by the Board of Directors or the Committee (subject to
earlier termination as expressly provided in Section 12 hereof).

 

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

 

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

 

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

 

10.                                 Alternate Stock Appreciation Rights.

 

(a)  Concurrently with, or subsequent
to, the award of any Option to purchase one or more shares of Common Stock, the
Board of Directors or the Committee may, in its sole discretion, subject to the
provisions of the Plan and such other terms and conditions as the Board of
Directors or the Committee may prescribe, award to the Optionee with respect to
each share of Common Stock covered by an Option (“Related Option”), a related
alternate stock appreciation right (“SAR”), permitting the Optionee to be paid
the appreciation on the Related Option in lieu of exercising the Related
Option.  An SAR granted with respect to
an Incentive Stock Option must be granted together with the Related
Option.  An SAR granted with respect to a
Nonstatutory Stock Option may be granted together with, or subsequent to, the
grant of such Related Option.

 

(b)  Each SAR granted under the Plan
shall be authorized by the Board of Directors or the Committee, and shall be
evidenced by an SAR Agreement which shall be executed by the Company and by the
individual or entity to whom such SAR is granted.  The SAR Agreement shall specify the period
during which the SAR is exercisable, and such other terms and provisions not
inconsistent with the Plan.

 

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

 

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written notice of the number of shares with respect to which it is
being exercised.  Such notice shall be
accompanied by the agreements evidencing the SAR and the Related Option.  In the event the SAR shall not be exercised
in full, the Secretary of the Company shall endorse or cause to be endorsed on
the SAR Agreement and the Related Option Agreement the number of shares which
have been exercised thereunder and the number of shares that remain exercisable
under the SAR and the Related Option and return such SAR and Related Option to
the holder thereof.

 

(d) The amount of payment to which an
Optionee shall be entitled upon the exercise of each SAR shall be equal to one
hundred percent (100%) of the amount, if any, by which the fair market value of
a share of Common Stock on the exercise date exceeds the exercise price per
share of the Related Option; provided, however, the Company may, in its sole
discretion, withhold from any such cash payment any amount necessary to satisfy
the Company’s obligation for withholding taxes with respect to such payment.

 

(e)  The amount payable by the Company
to an Optionee upon exercise of a SAR may, in the sole determination of the
Company, be paid in shares of Common Stock, cash or a combination thereof, as
set forth in the SAR Agreement.  In the
case of a payment in shares, the number of shares of Common Stock to be paid to
an Optionee upon such Optionee’s exercise of an SAR shall be determined by
dividing the amount of payment determined pursuant to Section 10(d) hereof
by the fair market value of a share of Common Stock on the exercise date of
such SAR.  For purposes of the Plan, the
exercise date of an SAR shall be the date the Company receives written
notification from the Optionee of the exercise of the SAR in accordance with
the provisions of Section 10(c) hereof.  As soon as practicable after exercise, the
Company shall either deliver to the Optionee the amount of cash due such
Optionee or a certificate or certificates

 

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

 

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

 

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

 

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

 

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

 

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

 

11.                                 Transferability of Options.

 

(a)                                  No
Option granted under the Plan shall be transferable by the individual or entity
to whom it was granted other than by will or the laws of descent and
distribution, and, during the lifetime of an individual, shall not be
exercisable by any other person, but only by him.

 

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

 

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

 

12.                                 Effect of Termination of Employment or Death on
Options.

 

(a)                                  Unless
otherwise provided in the Stock Option Agreement, if the employment of an
employee by, or the services of a non-employee Director for, or consultant or
advisor to, the Company or a parent or subsidiary corporation of the Company
shall be terminated for Cause (as hereinafter defined) or voluntarily by the
employee, non-employee Director, consultant or advisor, then his Option shall
expire forthwith.  Unless otherwise
provided in the Stock Option Agreement, and except as provided in subsections (b) and
(c) of this Section 12, if such employment or services shall
terminate for any other reason, then such Option may be exercised at any time
within three (3) months after such termination, subject to the provisions
of subsection (d) of this Section 12.  For purposes hereof, “Cause” shall include,
without limitation, (i) conviction of, or a plea of nolo contendere
to, a felony or other serious crime; (ii) commission of any act involving
moral turpitude; (iii) commission of any act of dishonesty involving the
Company or the performance of the Optionee=s duties; (iv) breach of any
fiduciary duty to the Company; (v) any alcohol or substance abuse on the
part of the Optionee; (vi) the Optionee’s commission of any illegal
business practices in connection with the Company’s business; (vii) any
embezzlement or misappropriation of assets; (viii) any excessive unexcused
absences from employment or service; (ix) continued and habitual neglect
to perform

 

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

 

(b)                                 Unless
otherwise provided in the Stock Option Agreement, if the holder of an Option
under the Plan dies (i) while employed by, or while serving as a
non-employee Director for or a consultant or advisor to, the Company or a
parent or subsidiary corporation of the Company, or (ii) within three (3) months
after the termination of his employment or services other than voluntarily or
for Cause, then such Option may, subject to the provisions of subsection (d) of
this Section 12, be exercised by the estate of the employee or
non-employee Director, consultant or advisor, or by a person who acquired the
right to exercise such

 

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

 

(c)                                  Unless
otherwise provided in the Stock Option Agreement, if the holder of an Option
under the Plan ceases employment or services because of permanent and total
disability (within the meaning of Section 22(e)(3) of the Code) (“Permanent
Disability”) while employed by, or while serving as a non-employee Director for
or consultant or advisor to, the Company or a parent or subsidiary corporation
of the Company, then such Option may, subject to the provisions of subsection (d) of
this Section 12, be exercised at any time within one (1) year after
his termination of employment, termination of Directorship or termination of
consulting or advisory services, as the case may be, due to the disability.

 

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

 

(e)                                  For
purposes of this Section 12, the employment relationship of an employee of
the Company or of a parent or subsidiary corporation of the Company will be
treated as continuing intact while he is on military or sick leave or other
bona fide leave of absence (such as temporary employment by the Government) if
such leave does not exceed ninety (90) days, or, if longer, so long as his
right to reemployment is guaranteed either by statute or by contract.

 

13.                                 Exercise of Options.

 

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

 

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time, prior to expiration.  The
Board of Directors or the Committee, in its absolute discretion, may provide in
any Stock Option Agreement that the exercise of any Options granted under the
Plan shall be subject (i) to such condition or conditions as it may
impose, including, but not limited to, a condition that the holder thereof
remain in the employ or service of, or continue to provide consulting or
advisory services to, the Company or a parent or subsidiary corporation of the
Company for such period or periods from the date of grant of the Option as the
Board of Directors or the Committee, in its absolute discretion, shall
determine; and (ii) to such limitations as it may impose, including, but
not limited to, a limitation that the aggregate fair market value (determined
at the time the Option is granted) of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any employee
during any calendar year (under all plans of the Company and its parent and
subsidiary corporations) shall not exceed one hundred thousand dollars
($100,000).  In addition, in the event
that under any Stock Option Agreement the aggregate fair market value
(determined at the time the Option is granted) of the Common Stock with respect
to which Incentive Stock Options are exercisable for the first time by any
employee during any calendar year (under all plans of the Company and its
parent and subsidiary corporations) exceeds one hundred thousand dollars
($100,000), the Board of Directors or the Committee may, when shares are
transferred upon exercise of such Options, designate those shares which shall
be treated as transferred upon exercise of an Incentive Stock Option and those
shares which shall be treated as transferred upon exercise of a Nonstatutory
Stock Option.

 

(b)                                 An
Option granted under the Plan shall be exercised by the delivery by the holder
thereof to the Company at its principal office (attention of the Secretary) of
written notice of the number of shares with respect to which the Option is
being exercised.

 

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

 

14.                                 Adjustment Upon Change in Capitalization.

 

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

 

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Section 19 hereof, the holder of an Option shall be entitled to
receive upon the exercise of his Option the same number and kind of shares of
stock or the same amount of property, cash or securities as he would have been
entitled to receive upon the happening of any such corporate event as if he had
been, immediately prior to such event, the holder of the number of shares
covered by his Option; provided, however, that in such event the Board of
Directors or the Committee shall have the discretionary power to take any
action necessary or appropriate to prevent any Incentive Stock Option granted
hereunder which is intended to be an “incentive stock option” from being
disqualified as such under the then existing provisions of the Code or any law
amendatory thereof or supplemental thereto; and provided, further, however,
that in such event the Board of Directors or the Committee shall have the
discretionary power to take any action necessary or appropriate to prevent such
adjustment from being deemed or considered as the adoption of a new plan
requiring shareholder approval under Section 422 of the Code and the
regulations promulgated thereunder.

 

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

 

15.                                 Further Conditions of Exercise of Options.

 

(a)                                  Unless
prior to the exercise of the Option the shares issuable upon such exercise have
been registered with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, the notice of exercise shall be accompanied
by a representation or agreement of the person or estate exercising the Option
to the Company to the effect that such shares are being acquired for investment
purposes and not with a view to the

 

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distribution thereof, and such other documentation as may be required
by the Company, unless in the opinion of counsel to the Company such
representation, agreement or documentation is not necessary to comply with such
Act.

 

(b)                                 If
the Common Stock is listed on any securities exchange, including, without
limitation, NASDAQ, the Company shall not be obligated to deliver any Common
Stock pursuant to this Plan until it has been listed on each such exchange. In
addition, the Company shall not be obligated to deliver any Common Stock
pursuant to this Plan until there has been qualification under or compliance
with such federal or state laws, rules or regulations as the Company may
deem applicable.  The Company shall use
reasonable efforts to obtain such listing, qualification and compliance.

 

16.                                 Restricted Stock Grant Agreement.  Each Restricted Stock grant under the Plan
shall be authorized by the Board of Directors or the Committee, and shall be
evidenced by a Restricted Stock Grant Agreement which shall be executed by the
Company and by the individual or entity to whom such Restricted Stock is
granted.  The Restricted Stock Grant
Agreement shall specify the number of shares of Restricted Stock granted, the
vesting periods and such other terms and provisions as the Board of Directors
or the Committee may deem necessary or appropriate.

 

17.                                 Restricted Stock Grants.

 

(a)                                  The
Board of Directors or the Committee may grant Restricted Stock under the Plan
to any individual or entity eligible to receive Restricted Stock pursuant to
clause (b) of Section 4 hereof.

 

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

 

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

 

(i)                                     No
shares granted pursuant to a grant of Restricted Stock may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated until,
and to the extent that, such shares are vested.

 

(ii)                                  Shares
granted pursuant to a grant of Restricted Stock shall vest as determined by the
Board or the Committee, as provided for in the Restricted Stock Grant
Agreement.  The foregoing notwithstanding
(but subject to the provisions of (iii) hereof and subject to the
discretion of the Board or the Committee), a Grantee shall forfeit all shares
not previously vested, if any, at such time as the Grantee is no longer
employed by, or serving as a Director of, or rendering consulting or advisory
services to, the Company or a parent or subsidiary corporation of the
Company.  All forfeited shares shall be
returned to the Company.

 

(iii)                               Notwithstanding
the provisions of (ii) hereof, non-vested Restricted Stock shall
automatically vest as provided for in Section 19 hereof.

 

(c)                                  In
determining the vesting requirements with respect to a grant of Restricted
Stock, the Board or the Committee may impose such restrictions on any shares
granted as it may deem advisable including, without limitation, restrictions
relating to length of service, corporate performance, attainment of individual
or group performance objectives, and federal or state securities laws, and may
legend the certificates representing Restricted Stock to give appropriate
notice of such restrictions.  Any such
restrictions shall be specifically set forth in the Restricted Stock Grant
Agreement.

 

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

 

18

 

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

 

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

 

(f)                                    Each
Grantee making an election pursuant to Section 83(b) of the Code
shall, upon making such election, promptly provide a copy thereof to the
Company.

 

(g)                                 If
the Company shall be reorganized, consolidated, or merged with another
corporation or entity, subject to the provisions of Section 19 hereof, the
shares of stock or the property, cash or securities which the holder of
Restricted Stock shall be entitled to receive upon the happening of any such
corporate event in respect of his Restricted Stock, shall be subject to the
same restrictions to which such Restricted Stock was subject pursuant to the
terms of the Restricted Stock Grant Agreement relating to such Restricted
Stock, and in such event the Board of Directors or the Committee shall have the
discretionary power to take any action

 

19

 

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

 

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

 

18.                                 Restrictions Upon Shares; Right of First Refusal.

 

(a)                                  No
Optionee or Grantee (collectively, “Participant”) shall, for value or
otherwise, sell, assign, transfer or otherwise dispose of all or any part of
the shares issued pursuant to the exercise of an Option or received as
Restricted Stock (collectively, the “Shares”), or of any beneficial interest
therein (collectively a “Disposition”), except as permitted by and in accordance
with the provisions of the Plan.  The
Company shall not recognize as valid or give effect to any Disposition of any
Shares or interest therein upon the books of the Company unless and until the
Participant desiring to make such Disposition shall have complied with the
provisions of the Plan.

 

(b)                                 No
Participant shall, without the written consent of the Company, pledge,
encumber, create a security interest in or lien on, or in any way attempt to
otherwise impose or suffer to exist any lien, attachment, levy, execution or
encumbrance on the Shares.

 

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

 

20

 

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

 

(d)                                 If
the Company desires to purchase all of the Offered Shares, it must send a
written notice to such effect to the Participant within thirty (30) days
following receipt of the Notice of Intent to Sell.

 

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

 

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

 

(g)                                 All
certificates representing the Shares shall bear on the face or reverse side
thereof the following legend:

 

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

 

(h)                                 The
provisions of this Section 18 shall terminate and be of no further force
or effect at such time, if ever, that the Company becomes subject to the
reporting

 

21

 

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

 

19.                                 Liquidation, Merger or Consolidation.
Notwithstanding Section 14(a) hereof, if the Board of Directors
approves a plan of complete liquidation or a merger or consolidation (other
than a merger or consolidation that would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities
of the surviving entity), at least fifty percent (50%) of the combined voting
power of the voting securities of the Company (or such surviving entity)
outstanding immediately after such merger or consolidation), the Board of
Directors or the Committee may, in its sole discretion, upon written notice to
the holder of an Option, provide that the Option must be exercised within
twenty (20) days following the date of such notice or it will be
terminated.  In the event such notice is
given, the Option shall become immediately exercisable in full.

 

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

 

22

 

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

 

21.                                 Termination, Modification and Amendment.

 

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

 

(b)                                 The
Plan may from time to time be terminated, modified, or amended if Stockholder
Approval of the termination, modification or amendment is obtained.

 

(c)                                  The
Board of Directors may at any time, on or before the termination date referred
to in Section 21(a) hereof, without Stockholder Approval, terminate
the Plan, or from time to time make such modifications or amendments to the
Plan as it may deem advisable; provided, however, that the Board of Directors
shall not, without Stockholder Approval, (i) increase (except as otherwise
provided by Section 14 hereof) the maximum number of shares as to which
Incentive Stock Options may be granted hereunder, change the designation of the
employees or class of employees eligible to receive Incentive Stock Options, or
make any other change which would prevent any Incentive Stock Option granted
hereunder which is intended to be an “incentive stock option” from qualifying
as such under the then existing provisions of the Code or any law amendatory
thereof or supplemental thereto or (ii) make any other modifications or
amendments that require Stockholder Approval pursuant to applicable law,
regulation or exchange requirements.  In
the event Stockholder Approval is not received within one (1) year of
adoption by the Board of Directors of the change provided for in (i) or (ii)

 

23

 

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

 

(d)                                 No
termination, modification, or amendment of the Plan may, without the consent of
the individual or entity to whom any Option or Restricted Stock shall have been
granted, adversely affect the rights conferred by such Option or Restricted
Stock grant.

 

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

 

23.                                 Use of Proceeds.  The proceeds from the sale of shares pursuant
to Options or Restricted Stock granted under the Plan shall constitute general
funds of the Company.

 

24.                                 Indemnification of Board of Directors or Committee.  In addition to such other rights of
indemnification as they may have, the members of the Board of Directors or the
Committee, as the case may be, shall be indemnified by the Company to the
extent permitted under applicable law against all costs and expenses reasonably
incurred by them in connection with any action, suit, or proceeding to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any rights granted thereunder and
against all amounts paid by them in settlement thereof or paid by them in
satisfaction of a judgment of any such action, suit or proceeding, except a
judgment based upon a

 

24

 

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

 

25.                                 Captions.  The use of captions in the Plan is for
convenience.  The captions are not intended
to provide substantive rights.

 

26.                                 Disqualifying Dispositions.  If Common Stock acquired upon exercise of an
Incentive Stock Option granted under the Plan is disposed of within two years
following the date of grant of the Incentive Stock Option or one year following
the issuance of the Common Stock to the Optionee, or is otherwise disposed of
in a manner that results in the Optionee being required to recognize ordinary
income, rather than capital gain, from the disposition (a “Disqualifying
Disposition”), the holder of the Common Stock shall, immediately prior to such
Disqualifying Disposition, notify the Company in writing of the date and terms
of such Disqualifying Disposition and provide such other information regarding
the Disqualifying Disposition as the Company may reasonably require.

 

27.                                 Withholding Taxes.

 

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

 

25

 

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

 

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

 

(i)                                     The
election to have the Company withhold, from the shares of Common Stock
otherwise issuable upon the exercise of such Nonstatutory Stock Option or
otherwise deliverable as a result of the vesting of Restricted Stock, a portion
of those shares with an aggregate fair market value equal to the percentage of
the withholding taxes (not to exceed one hundred percent (100%)) designated by
the holder.

 

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

 

28.                                 Other Provisions.  Each Option granted, and each Restricted
Stock grant, under the Plan may contain such other terms and conditions not
inconsistent with the Plan as may be determined by the Board or the Committee,
in its sole discretion.  Notwithstanding
the foregoing, each Incentive Stock Option granted under the Plan shall include
those terms and

 

26

 

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

 

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

 

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

 

27Exhibit 10.5

 

MUTUAL RELEASE AND SETTLEMENT
AGREEMENT

 

This MUTUAL RELEASE AND
SETTLEMENT AGREEMENT (“Agreement”), dated and effective August 3, 2005, is
made by and between Nathaniel Energy Corporation, a Delaware corporation (“Nathaniel”)
and Merrick & Company, a Colorado corporation (“Merrick”).  The parties to this Agreement are
collectively referred to as the “Parties.”

 

RECITALS

 

A.           On or about October 16, 2003, the
parties entered into a Client Agreement for Professional Services Short Form Contract
(“Contract”) pursuant to which Nathaniel engaged Merrick to perform certain
engineering and related services (“Services”), and to provide certain
deliverables on a time-and-material basis (“Deliverables”), in connection with
the project described in the Contract (“Project”);

 

B.             Merrick issued to Nathaniel a number of
invoices, billing statements, and/or demands for payment arising from or
relating to the Contract, Services, Deliverables, and/or Project (collectively “Invoices”).

 

C.             On or about August 1, 2004, to evidence
Invoices, Nathaniel executed a Promissory Note in favor of Merrick in the
principal amount of $126,153.30 (“$126,153.30 Note”);

 

D.            On or about September 8, 2004, to
evidence Invoices, Nathaniel executed a Promissory Note in favor of Merrick in
the principal amount of $199,626.96 (“$199,626.96 Note”);

 

E.              On or about December 21, 2004, to
evidence Invoices, Nathaniel executed a Promissory Note in favor of Merrick in
the principal amount of $461,135.35 (“$461,135.35 Note”);

 

F.              On or about December, 21, 2004, Nathaniel
executed a Promissory Note in favor of Merrick in the principal amount of
$325,780.26 (“$325,780.26 Note”), which superceded, replaced, and extinguished
the $126,153.30 Note and $199,626.96 Note;

 

G.             A number of significant disputes have arisen
between the Parties; and

 

H.            On the terms set forth in this Agreement,
Nathaniel and Merrick hereby desire and intend to settle and resolve all
disputes, issues, and claims between them through the effective date of this
Agreement, including but not limited to all claims arising from or relating to
the Contract, Services, Deliverables, Project, $126,153.30 Note, $199,626.96
Note, $461,135.35 Note, and $325,780.26 Note, as well as all claims, known or
unknown, that could have been asserted by Nathaniel or Merrick against the
other in any judicial, administrative, or like action or proceeding.

 

NOW THEREFORE, for and in
consideration of the foregoing recitals, the mutual promises and covenants
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:

 

1.             Settlement Payment
To Merrick.  Nathaniel shall pay
Merrick the principal sum of Seven
Hundred Twenty Eight Thousand Six Hundred Thirty Seven and No/100ths Dollars
($728,637.00), with interest on the unpaid principal balance from July 15,
2005, until paid, at the rate of eight percent (8%) per annum, in accordance
with the Promissory Note attached hereto as

 

 

Exhibit “A”
(“Note”).  Principal and interest shall
be payable at P.O. Box 22026, Denver, Colorado 80222, or such other place
as Merrick may designate in writing, with a one-time payment of Sixty Five
Thousand and No/100ths Dollars ($65,000.00) upon execution of this Agreement,
the balance payable without demand or offset, abatement, or deduction, in
twenty four (24) equal monthly payments of Thirty Thousand Fourteen and
50/100ths Dollars ($30,014.50) in accordance with the schedule of payments
attached to the Note as Exhibit “A-1,” due on the fifteenth day of each
month, commencing August 15, 2005. 
Such payments shall continue until the entire indebtedness evidenced by
the Note is fully paid; provided, however, if not sooner paid, the entire
principal amount outstanding and accrued interest thereon, shall be due and
payable on July 16, 2007.  Pursuant
to the Note, Nathaniel shall have the right to prepay and satisfy all
its obligations hereunder by paying Merrick in good funds, before 5:00 p.m.
Mountain Time on September 15, 2005, the amount of Five Hundred Thousand
and No/100ths Dollars ($500,000.00), which amount shall be in addition to
amounts previously paid under the Note.

 

2.             Right To Prepay
Without Penalty/Sole Indebtedness. 
Nathaniel shall at all times have the right to prepay the amount due
under the Note without penalty.  It is
expressly understood and agreed that, notwithstanding any other term or
provision in this Agreement, the Note shall constitute the sole and exclusive
indebtedness from Nathaniel to Merrick following the effective date of this
Agreement, and that a breach by Nathaniel of this Agreement shall not give rise
to any independent liability, of any kind or nature, from Nathaniel to Merrick.

 

3.             Payment Default
(Nathaniel).  If any payment required
under the Note is not paid when due, Merrick may at any time thereafter declare
a default thereunder.  Such default must
be declared by written notice, state the payment(s) that were not timely made,
and be delivered by hand delivery or nationally recognized overnight carrier as
follows:  (a) to Nathaniel,
attention George Cretecos, 8001 S. InterPort Boulevard, Suite 260,
Englewood, Colorado 80112; and (b) to Nathaniel’s counsel, Foster, Graham &
Calisher, LLP, attention Daniel K. Calisher, 1226 Bannock Street, Denver,
Colorado 80204.

 

4.             Right To Cure
(Nathaniel).  Nathaniel shall have a
cure period of 5 business days from the date a notice of default is delivered
to Nathaniel and their counsel as specified above.  Nathaniel may cure any such default, without
penalty, within such 5 business day period by paying Merrick the payment(s)
specified in the notice.  If Nathaniel
fails to timely cure such a default, then it shall no longer be curable (“Irrevocable
Default”).  It is expressly understood
and agreed that, notwithstanding any other term or provision in this Agreement,
performance of this Agreement shall constitute the sole and exclusive duty from
Nathaniel to Merrick following the effective date of this Agreement.

 

5.             Irrevocable
Default/Judgment (Against Nathaniel). 
If Nathaniel commits an Irrevocable Default, Merrick may, according to
the terms of the Note, accelerate the remaining debt under the Note, causing
the total amount then owed to be immediately due and payable.  In that event, Merrick’s sole remedy shall be
specific performance of this Agreement and the Note including, without
limitation, seeking the entry of judgment against Nathaniel, and only
Nathaniel, in an action filed in the District Court for Arapahoe County,
Colorado (“Action”).  The Parties hereby
consent to jurisdiction and venue in the Action.  The amount of such a judgment shall be
calculated exclusively as follows: the entire principal amount outstanding and
accrued interest on the Note, plus all
reasonable costs and expenses of collection and or suit incurred by Merrick in
connection with the Note, including, but not limited to attorney’s and

 

 

expert’s
fees. Nathaniel hereby waives all defenses and setoffs which would
otherwise be available to it in the Action, with the following exceptions:  (a) payment to Merrick in accordance
with the Note; and (b) Merrick’s breach of this Agreement (collectively “Defenses”).  In the event there are no Defenses available
to it, Nathaniel shall file an Answer in the Action consenting to the entry of
judgment on a forthwith basis according to the terms of this Agreement.  Service of process in the action may be
effectuated on Nathaniel or its counsel (identified herein).

 

6.             Satisfaction Of
Prior Promissory Notes & Invoices. 
Upon execution of this Agreement, the Invoices, $126,153.30 Note,
$199,626.96 Note, $461,135.35 Note, and $325,780.26 Note, as well as other
amounts owed by Nathaniel to Merrick, except as provided herein, shall be
deemed completely released, satisfied, and discharged.  Upon execution of this Agreement, Merrick
shall clearly and indelibly mark the original $126,153.30 Note, $199,626.96
Note, $461,135.35 Note, and $325,780.26 Note “Canceled” and “Paid In Full,” and
shall deliver the same to Nathaniel.

 

7.             Deliverables By
Merrick.  Upon Nathaniel making
payments on the Note such that less than Five Hundred Thousand and No/100ths
Dollars ($500,000.00) is owed thereunder, Merrick shall deliver to Nathaniel,
at no charge to Nathaniel, the Deliverables identified on Exhibit “B”
hereto.  Delivery in accordance with Exhibit “B” shall satisfy all of Merrick’s obligations
in connection with the Deliverables, Merrick being under no duty or obligation
to perform any additional services or work whatsoever in connection therewith.

 

8.             Default/Right To
Cure (Merrick).  If anything required
under this Agreement is not performed by Merrick when due, Nathaniel may at any
time thereafter declare a default hereunder. 
Such default must be declared by written notice, stating in detail the
default alleged, and be delivered by hand delivery or nationally recognized
overnight carrier as follows:  (a) to
Merrick, attention Ralph W. Christie, Jr., 2450 South Peoria St., Aurora,
Colorado 80014; and (b) to Merrick’s counsel, Philip A. Rouse, Jr.,
303 E. 17th Ave, Suite 800, Denver, Colorado 80203-1299.  Merrick shall have a cure period of 5
business days from the date a notice of default is delivered to Merrick and its
counsel as specified above.  Merrick may
cure any such default, without penalty, within such 5 business day period
specified in the notice.  If Merrick
fails to timely cure such a default, then it shall no longer be curable (“Irrevocable
Default”).  It is expressly understood
and agreed that, notwithstanding any other term or provision in this Agreement,
performance of this Agreement shall constitute the sole and exclusive duty from
Merrick to Nathaniel following the effective date of this Agreement.

 

9.             Irrevocable
Default/Judgment (Against Merrick). 
If Merrick commits an Irrevocable Default, Nathaniel’s sole remedy shall
be specific performance of this Agreement. 
In that event, Nathaniel shall be entitled to immediate specific
performance of this Agreement including, without limitation, injunctive relief against
Merrick in an action filed in the District Court for Arapahoe County, Colorado
(“Action”).  The Parties hereby consent
to jurisdiction and venue in the Action. 
In addition to an order for specific performance and/or injunctive
relief, Nathaniel shall be awarded all
reasonable costs and expenses of obtaining such relief, including but not
limited to attorney’s and expert’s fees. 
Merrick hereby waives all defenses which would otherwise be
available to it in the Action, with the following exceptions:  (a) complete and timely turnover to
Nathaniel of the deliverables identified in Exhibit “B”
hereto; and (b) Nathaniel’s breach of this Agreement (collectively “Merrick
Defenses”).  In the event there are no Merrick
Defenses available to it, Merrick shall file an Answer in the Action consenting
to the immediate

 

 

entry of an order for
specific performance against Merrick including, without limitation, injunctive
relief.  Service of process in the Action
may be effectuated on Merrick or its counsel (identified herein).

 

10.           Release By Nathaniel.  Nathaniel, on behalf of itself and its predecessors, successors, insurers,
affiliates, and assigns, hereby releases Merrick (as well as its
officers, directors, shareholders, managers, members, partners, principals,
affiliates, subsidiaries, related entities, contractors, attorneys,
predecessors, successors, assigns, insurers, associates, agents,
representatives, employers, and employees) (collectively “Merrick Released
Parties”) from all actions, claims, damages, obligations, and liabilities (of
any kind or nature, without regard to amount, known or unknown, accrued or
unaccrued) through the effective date this Agreement, including but not limited
to all claims arising from or relating to the Contract, Services, Deliverables, Project, $126,153.30 Note,
$199,626.96 Note, $461,135.35 Note, and $325,780.26 Note (collectively “Merrick
Released Claims”).

 

11.           Release By Merrick.  Merrick, on behalf of itself and its predecessors, successors, insurers,
affiliates, and assigns, hereby releases Nathaniel (as well as its
officers, directors, shareholders, managers, members, partners, principals,
affiliates, subsidiaries, related entities, contractors, attorneys,
predecessors, successors, assigns, insurers, associates, agents,
representatives, employers, and employees) (collectively “Nathaniel Released
Parties”) from all actions, claims, damages, obligations, and liabilities (of
any kind or nature, without regard to amount, known or unknown, accrued or
unaccrued) through the effective date this Agreement, including but not limited
to all claims arising from or relating to the Contract, Services, Deliverables, Project, $126,153.30 Note,
$199,626.96 Note, $461,135.35 Note, and $325,780.26 Note (collectively “Nathaniel
Released Claims”).

 

12.           Separateness Of
Releases.  The releases given above
each represents and contains a separate release running from the releasor to
the releasee, as applicable, and from each of the persons and entities for whom
the releasor acts to each of the persons and entities released thereby.  Each party covenants that none of the claims,
rights, or interests which it has released or has caused to be released under
this Agreement has been assigned or transferred, in whole or in part, to any
person or entity, and each party agrees to indemnify, defend, and hold the other
party harmless from and against any breach of this covenant.

 

13.           Covenants Not To Sue.  Except as otherwise provided herein, each
party hereby covenants, on its own behalf as well as for those persons and
entities whom each acts and represents for purposes of Sections 10 and 11
above, not to sue upon, or otherwise assert in any judicial, administrative, or
like action or proceeding, any of the claims released herein, and each party
agrees to indemnify, defend, and to hold the other party harmless from damages,
liabilities, or costs, including attorney’s and expert’s fees, arising out of
or in any way connected with its breach
of this covenant.

 

14.           No Release For
Breach Of This Agreement.  Nothing
contained herein shall release any party hereto from any claims, rights, or
causes of action arising from or relating to a breach of this Agreement.

 

15.           Releases Valid Even
If Additional Or Different Facts. 
The Parties acknowledge they may discover facts which are additional to
or different from those which they now know or believe to be true regarding the
subject matter of this Agreement. 
Nonetheless, except as

 

 

otherwise provided
herein, it is the parties’ intent to fully and finally compromise and settle
all claims which exist or may exist between them through the effective date of
this Agreement, including but not limited to all claims arising from or
relating to the Contract,
Services, Deliverables, Project, $126,153.30 Note, $199,626.96 Note,
$461,135.35 Note, $325,780.26 Note, Merrick Released Claims, and Nathaniel
Released Claims.  To effectuate that
intention, the releases given herein shall remain full and complete releases,
notwithstanding the discovery of any additional or different facts by any
party.

 

16.           No Representations:  The Parties acknowledge that no party, nor
agent, nor attorney of any party has made any promise or representation
whatsoever, express or implied, concerning the subject matter of this
Agreement, or to induce the execution of this Agreement, which is not expressly
set forth herein.  It is further
acknowledged that no party to this Agreement has relied upon any representation
made by any other party regarding any aspect of the other’s claims, including
but not limited to the nature, extent, or duration of any damages or injuries
suffered, nor the legal liability therefor.

 

17.           Contractual Nature.   The Parties hereby agree that the foregoing
provisions of release, indemnity, and the covenants not to sue are contractual
and are not mere recitals.

 

18.           Representations And Warranties.  Each
Party represents and warrants as follows:

 

(a)           Organization and
Good Standing.  It is a corporation
duly organized, validly existing and in good standing under the laws of the
State of its incorporation.

 

(b)           Authority and
Binding Effect. The execution and delivery of this Agreement by it, the
consummation of the transaction, and the performance by the party of its
obligations hereunder are within its power and authority, will not contravene
or constitute a material default under any provision of its organizational
documents, and will not result in any material breach of any term, condition or
provision of, or constitute a material default under, any note, mortgage,
indenture, contract, agreement, agency agreement, judgment or order and, to it’s
knowledge, will not contravene any provision of applicable law or
regulation.  All actions required by it’s
articles of incorporation, any applicable agreements, or by laws necessary to
authorize the execution, delivery and performance of this Agreement by it and
the consummation of the transaction have been duly and validly taken on or
prior to the effective date hereof.  The
Secretary’s Certificate certifying minutes of the board of directors
authorizing and directing execution of this Agreement is attached hereto as Exhibit “C.”

 

(c)           Good
Faith Intent.  This transaction has
been undertaken in good faith, considering the obligations to the other party
hereto, whether or not the right(s) are reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured, or unsecured, and each party has undertaken this
transaction without any intent to hinder, delay, or defraud any party.

 

(d)           Adequacy
Of Consideration and Negotiations. 
Each of party hereto acknowledges that the consideration it has given or
received hereunder is fair and adequate consideration for the covenants,
undertakings, forbearances, and promises contained herein, and that this
Agreement has been negotiated in good faith and at arm’s length.  Specifically, without limitation, in return
for the execution of this Agreement, each party hereto is waiving and foregoing
one or more legal rights or remedies they have or may have against the other.

 

 

19.           Notices.  Except as otherwise specified herein, all
notices, requests, demands, and other communications under this Agreement shall
be in writing and shall be deemed to have been duly given on the date of
service if served personally on the party to whom notice is to be given, or on
the third day after mailing if mailed to the Party to whom notice is to be
given, by registered or certified, return receipt requested, postage prepaid,
and addressed as follows:

 

	
  Nathaniel:

  	
   

  	
  Nathaniel Energy
  Corporation

  
	
   

  	
   

  	
  Attn: George Cretecos, COO

  
	
   

  	
   

  	
  8001 South InterPort
  Blvd., Suite 260

  
	
   

  	
   

  	
  Englewood, Colorado 80112

  
	
   

  	
   

  	
  (303) 690-8300

  
	
   

  	
   

  	
  (303) 539-0741 Facsimile

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Foster, Graham &
  Calisher, LLP

  
	
  (which shall not

  	
   

  	
  Daniel K. Calisher

  
	
  constitute notice)

  	
   

  	
  1226 Bannock St.

  
	
   

  	
   

  	
  Denver, Colorado 80204

  
	
   

  	
   

  	
  (303) 333-9810

  
	
   

  	
   

  	
  (303) 333-9786 Facsimile

  
	
   

  	
   

  	
   

  
	
  Merrick:

  	
   

  	
  Merrick & Company

  
	
   

  	
   

  	
  Attn: Ralph W.
  Christie, Jr., President

  
	
   

  	
   

  	
  2450 S. Peoria Street

  
	
   

  	
   

  	
  Aurora, Colorado 80014

  
	
   

  	
   

  	
  (303) 751-0741

  
	
   

  	
   

  	
  (303) 751-7967 Facsimile

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Philip A. Rouse, Jr.

  
	
  (which shall not

  	
   

  	
  303 E. 17th Ave.,
  Suite 800

  
	
  constitute notice)

  	
   

  	
  Denver, Colorado
  80203-1299

  
	
   

  	
   

  	
  (303) 813-9333

  
	
   

  	
   

  	
  (303)830-6708

  

 

Any party may change its address for purposes
of this Section by giving the other party written notice of the new address
in the manner set forth above.

 

20.           Severability.   If
any provision of this Agreement is held or deemed to be invalid or
unenforceable to any extent when applied to any person or circumstance, the
remaining provisions hereof and the enforcement of such provision to other
persons or circumstances, or to another extent, shall not be affected thereby
and each provision hereof shall be enforced to the fullest extent allowed by
law. This Agreement shall be construed evenly, and not for or against any Party
in the event of an ambiguity.

 

21.           Superceding
Agreement.  This Agreement supercedes
all prior undertakings, negotiations, and agreements between the Parties
including, without limitation, the Contract, $126,153.30 Note, $199,626.96 Note, $461,135.35 Note, and $325,780.26
Note, and each party hereto stipulates that this Agreement constitutes
the entirety of their mutual and joint understanding with respect to the
subject matters hereof.  No modification
of this Agreement shall be effective unless in writing and signed by all
Parties.

 

22.           No Third Party
Beneficiaries.  There are no third
party beneficiaries to this Agreement including, without limitation, the
clients and creditors of a party. 
Nothing in this Agreement, whether express or implied is intended to
confer any rights or remedies under or by reason of this Agreement on any
persons other than the Parties, their respective predecessors,

 

 

successors, and assigns,
and the persons and entities for whom releasors and releasees have specifically
acted, nor is anything in this Agreement intended to relieve or discharge the
obligation or liability of any third person to any party to this Agreement, nor
shall any provision give any third persons any right to subrogation or action
against any party to this Agreement.

 

23.           Governing
Law/Successors/Attorney Fees.   This
Agreement shall be governed by the laws of the State of Colorado, without
application of its choice or conflict of law principles, and shall be binding
upon and shall inure to the benefit of all persons and entities deemed to be
releasors and releasees hereunder, and insurers, and reinsurers of each
party.  In the event of litigation
arising from or relating to this Agreement, the prevailing party in such
litigation shall be entitled to an award (from the non-prevailing party) of all
reasonable attorneys’ fees and costs incurred therein.

 

24.           Pronouns and Terms.  In this Agreement, the singular shall include
the plural, the plural the singular, and the use of any gender shall include
all genders.

 

25.           Headings.  The subject headings herein are included only
for the purposes of convenience, and shall not affect the construction or
interpretation of any of its provisions.

 

26.           Acknowledgment and
Authority.   Each of the parties
acknowledges that, through its authorized representative or agent, it has read
and understands all of the terms and provisions herein, and has consulted legal
counsel in connection herewith, and each person, by his signature below,
warrants and represents that the party for whom he is acting has the authority
to execute this Agreement and to bind itself to the terms and provisions
herein.

 

27.           Multiple
Counterparts.   This Agreement may be
executed in multiple, original or facsimile counterparts, each constituting and
serving as an original hereof.

 

28.           Parties To Bear
Their Own Fees And Costs.  Except as
otherwise and specifically provided herein, the parties shall each be
responsible for and pay all of their own fees and costs arising from or
relating to relating to the Contract,
Services, Deliverables, Project, $126,153.30 Note, $199,626.96 Note,
$461,135.35 Note, $325,780.26 Note, and this Agreement, including but
not limited to all attorneys’ fees.

 

29.           Denial Of Wrongdoing
Or Liability.  This Agreement is
entered into solely for purpose of effectuating a compromise, settlement, and
release.  Accordingly, each party
acknowledges that the other has admitted no fault, wrongdoing, liability, or
obligation.  In fact, each party
expressly denies such fault, wrongdoing, liability, or obligation.

 

30.           No Drafting Party:  No party shall be deemed the “drafting party”
of this Agreement.  Consequently, this
Agreement shall be construed as a whole, according to its fair meaning and
intent, and not strictly for or against any party hereto.

 

 

IN WITNESS WHEREOF, the Parties execute this Agreement as of the
effective the date set forth above.

 

 

	
  Nathaniel Energy
  Corporation, Inc.

  
	
   

  
	
   

  
	
  /s/ George A. Cretecos

  	
   

  
	
  By: George Cretecos, Chief
  Operating Officer

  
	
   

  
	
   

  
	
  Merrick & Company

  
	
   

  
	
   

  
	
  /s/ Ralph W. Christie

  	
   

  
	
  By: Ralph W.
  Christie, Jr., President

  
	
   

  
	
  /s/ illegible Sr. VP

  	
   

  
	
  /s/ illegible

  	
   

  
	
   

  
	
  APPROVED AS TO FORM:

  
	
   

  
	
   

  
	
   

  	
   

  
	
  Foster, Graham &
  Calisher, LLP

  
	
  Daniel K. Calisher

  
	
  1226 Bannock St.

  
	
  Denver, Colorado 80204

  
	
   

  
	
   

  
	
   

  	
   

  
	
  Philip A.
  Rouse, Jr., Esq.

  
	
  303 E. 17th Ave.,
  Suite 800

  
	
  Denver, Colorado
  80203-1299

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