Document:

exv4w2

 

Exhibit 4.2

NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE OR EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
OF SUCH ACT.

PACIFIC ASIA PETROLEUM, INC.

WARRANT TO PURCHASE COMMON STOCK

	 	 	 
	Warrant Holder:

	 	                                         or its assigns
	 
	 	 
	Warrant Shares:

	 	Shares of the Company’s Common Stock
	 
	 	 
	Number of Shares:

	 	___ Thousand (___,000), subject to adjustment as provided herein
	 
	 	 
	Warrant Exercise Price:

	 	___ Dollars ($___.00) per share of Common Stock, subject to
adjustment as provided herein
	 
	 	 
	Issue Date:

	 	May 7, 2007
	 
	 	 
	Expiration Date:

	 	May 7, 2012

     THIS WARRANT CERTIFIES THAT, for value received, the receipt and adequacy of which is hereby
acknowledged,                                          or its assignees (the “Holder”), is entitled to
subscribe for and purchase, subject to the provisions and upon the terms and conditions hereinafter
set forth, the number of fully paid and nonassessable shares of Common Stock, $0.001 par value
(subject to adjustments from time to time as specified in Section 4 hereof, the “Warrant
Stock”) of Pacific Asia Petroleum, Inc., a Delaware corporation (the “Company”), at the
initial exercise price per share of Warrant Stock (subject to adjustments from time to time, as
specified in Section 4 hereof) (the “Warrant Exercise Price”) all as set forth above.

     1. Term and Expiration. The purchase right represented by this Warrant is
exercisable, in whole or in part, at any time and from time to time from the Issue Date through the
Expiration Date.

     2. Method of Exercise; Cash Payment; Issuance of New Warrant. Subject to Section 1,
the purchase right represented by this Warrant may be exercised by the Holder hereof, in whole or
in part and from time to time, at the election of the Holder hereof, by:

          (a) the surrender of this Warrant (with the notice of exercise substantially in the form
attached hereto as Exhibit A (the “Notice of Exercise”) duly completed and executed) at
the principal executive offices of the Company and accompanied by payment to the Company, by (i)
certified or bank check acceptable to the Company, or (ii) by wire transfer to an account designated by the
Company, or any

 

 

combination of (i) and (ii), of an amount equal to the then applicable Warrant
Exercise Price multiplied by the number of shares of Warrant Stock then being purchased,

          (b) or exercise of the right provided for in Section 10 hereof, together with the surrender of
this Warrant (with the Notice of Exercise duly completed and executed) at the principal executive
offices of the Company.

          (c) The Warrant Stock so purchased shall be deemed to be issued to the Holder as of the close
of business on the date on which this Warrant shall have been surrendered (or evidence of loss,
theft or destruction thereof and security or indemnity satisfactory to the Company), the Warrant
Exercise Price shall have been paid and the completed Notice of Exercise shall have been delivered.
At such time the person or persons in whose name or names any certificate for Warrant Stock shall
be issuable upon such exercise shall be deemed to have become the Holder or holders or record
thereof. In the event of any exercise of the rights represented by this Warrant, certificates for
the shares of Warrant Stock so purchased shall be delivered to the Holder hereof (or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may direct) as soon as possible and
in any event within ten (10) business days after such exercise and, unless this Warrant has been
fully exercised or expired, a new warrant having the same terms as this Warrant and representing
the remaining portion of such shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be issued to the Holder hereof (or as such Holder (upon payment by
such Holder of any applicable transfer taxes) may direct) as soon as possible and in any event
within such 10-day period.

          (d) Each share of Warrant Stock issuable upon exercise of this Warrant shall, upon payment of
the Warrant Exercise Price therefor, be duly authorized, validly issued, fully paid and
nonassessable and free from all liens and charges with respect to the issuance thereof.

          (e) The Company shall not close its books against the transfer of this Warrant or of any share
of Warrant Stock issued or issuable upon the exercise of this Warrant in any manner which
interferes with the timely exercise of this Warrant.

          (f) The Company shall take all such actions as may be reasonably necessary to insure that all
such shares of Warrant Stock may be so issued without violation of any applicable law or
governmental regulation.

     3. Reservation of Shares. During the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have authorized, and reserved for the
purpose of the issuance upon exercise of the purchase rights evidenced by this Warrant a sufficient
number of shares of its capital stock to provide for the exercise of the rights represented by this
Warrant. If the shares of Warrant Stock issuable by reason of exercise of this Warrant are
convertible into or exchangeable for any other stock or securities of the Company, the Company
shall, at the Holder’s option and upon surrender of this Warrant by such holder as provided above,
together with any notice, statement or payment required to effect such conversion or exchange of
Warrant Stock, deliver to such holder (or such other Person specified by such holder) a certificate
or certificates representing the stock or securities into which the shares of Warrant Stock
issuable by reason of such conversion are convertible or exchangeable, registered in such name or
names and in such denomination or denominations as such holder has specified.

     4. Adjustment of Warrant Exercise Price and Warrant Stock. The number and kind of
securities purchasable upon the exercise of this Warrant and the Warrant Exercise Price shall be
subject to adjustment to

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the nearest whole share (one-half and greater being rounded upward) and
nearest cent (one-half cent and greater being rounded upward) from time to time upon the occurrence
of certain events, as follows. Each of the adjustments provided by the subsections below shall be
deemed separate adjustments and any adjustment of this Warrant pursuant to one subsection of this
Section 4 shall preclude additional adjustments for the same event or transaction by the remaining
subsections.

          (a) Reorganization, Consolidation, Merger, Etc. In case at any time or from time to
time, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other
person or (c) transfer all or substantially all of its properties or assets to any other person
under any plan or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and adequate provision shall
be made by the Company whereby the Holder of this Warrant, on the exercise hereof, at any time
after the consummation of such reorganization, consolidation or merger or the effective date of
such dissolution, as the case may be, shall receive, in lieu of the Warrant Stock issuable on such
exercise prior to such consummation or such effective date, the stock and other securities and
property (including cash) to which such Holder would have been entitled upon such consummation or
in connection with such dissolution, as the case may be, if such Holder had so exercised this
Warrant, immediately prior thereto, all subject to further adjustment thereafter as provided in
this Section 4.

          (b) Reclassification. In case of any reclassification or change of securities of the
class issuable upon exercise of this Warrant (other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a subdivision or combination)
into the same or a different number or class of securities, the Company shall duly execute and
deliver to the holder of this Warrant a new warrant (in form and substance reasonably satisfactory
to the Holder of this Warrant), so that the Holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, at a total purchase price not to exceed that payable upon
the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Warrant Stock
theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other
securities, money and property receivable upon such reclassification or change by a holder of the
number of shares then purchasable under this Warrant. The Company or the surviving entity shall
deliver such new warrant as soon as possible and in any event within ten (10) business days after
such reclassification or change. Such new warrant shall provide for adjustments that shall be as
nearly equivalent as may be practicable to the adjustments provided for in this Section 4. The
provisions of this subparagraph (a) shall similarly apply to successive reclassifications or
changes.

          (c) Stock Splits or Combination of Shares. If the Company at any time while this
Warrant remains outstanding and unexpired shall subdivide (by stock split) or combine (by reverse
stock split) its outstanding shares of capital stock into which this Warrant is then exercisable,
the Warrant Exercise Price shall be proportionately adjusted in the case of a subdivision or a
combination, effective at the close of business on the date the subdivision or combination becomes
effective and the number of shares of Warrant Stock issuable upon exercise of this Warrant shall be
proportionately adjusted in the case of a subdivision or a combination, and in each case to the
nearest whole share, effective at the close of business on the date the subdivision or combination
becomes effective. The provisions of this subparagraph (b) shall similarly apply to successive
subdivisions or combinations of outstanding shares of capital stock into which this Warrant is
exercisable.

          (d) Stock Dividends and Other Distributions. If the Company at any time while this
Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Warrant Stock payable
in Warrant Stock, then (A) the Warrant Exercise Price shall be adjusted, from and after the date of
determination of stockholders

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entitled to receive such dividend or distribution (the “Record
Date”), to that price determined by multiplying the Warrant Exercise Price in effect immediately
prior to such date of determination by a fraction (1) the numerator of which shall be the total
number of shares of Warrant Stock outstanding immediately prior to such dividend or distribution,
and (2) the denominator of which shall be the total number of shares of Warrant Stock outstanding
immediately after such dividend or distribution and (B) the number of shares of Warrant Stock
issuable upon exercise of this Warrant shall be proportionately adjusted, to the nearest whole
share, from and after the Record Date by multiplying the number of shares of Warrant Stock
purchasable hereunder immediately prior to such Record Date by a fraction (1) the numerator of
which shall be the total number of shares of Warrant Stock outstanding immediately after such
dividend or distribution, and (2) the denominator of which shall be the total number of shares of
Warrant Stock outstanding immediately prior to such dividend or distribution; or (ii) make any
other dividend or distribution with respect to Warrant Stock (except any distribution specifically
provided for in Sections 4(a) and 4(b) above), then, in each such case, provision shall to this
Warrant be made by the Company such that the Holder of this Warrant shall receive upon exercise of
this Warrant (in addition to the number of shares of stock receivable upon exercise of this
Warrant) a proportionate share of any such dividend or distribution (without payment of any
additional consideration therefor) as though it were the holder of all share of Warrant Stock
remaining issuable upon exercise of this Warrant as of the Record Date fixed for the determination
of the stockholders of the Company entitled to receive such dividend or distribution. The
provisions of this subparagraph (c) shall similarly apply to successive stock dividends and other
distributions by the Company. If the Company shall take a record of the holders of its Warrant
Stock for the purpose of entitling them to receive a dividend or other distribution (which results
in an adjustment to the shares of Warrant Stock under the terms of this Warrant) and shall,
thereafter, and before such dividend or distribution is paid or delivered to shareholders entitled
thereto, legally abandon its plan to pay or deliver such dividend or distribution, then any
adjustment made to the shares of Warrant Stock by reason of the taking of such record shall be
reversed, and any subsequent adjustments, based thereon, shall be recomputed.

          (e) Sale of Property, Liquidation, Etc. If the Company at any time while this Warrant
remains outstanding and unexpired shall sell all or substantially all of its property or dissolve,
liquidate, or wind up its affairs, lawful provision shall be made as part of the terms of any such
sale, dissolution, liquidation or winding up, so that the holder of this Warrant may thereafter
receive upon exercise hereof in lieu of each Warrant Share that it would have been entitled to
receive, the same kind and amount of any securities or assets as may be issuable, distributable or
payable upon any such sale, dissolution, liquidation or winding up with respect to each share of
Common Stock of the Company.

          (f) Number of Warrant Shares. Simultaneously with any adjustment to the Warrant Price
pursuant to this Section 4, the number of Warrant Shares that may be purchased upon exercise of
this Warrant shall be increased or decreased proportionately, so that after such adjustment the
aggregate Warrant Price payable hereunder for the adjusted number of Warrant Shares shall be the
same as the aggregate Warrant Price in effect immediately prior to such adjustment.

     5. No Impairment. The Company will not, by amendment of its articles of incorporation
or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of the Holder
against impairment. Without limiting the generality of the foregoing, the Company (a) shall not
permit the par value of any shares of stock receivable upon the exercise of this Warrant to exceed
the amount payable therefor upon such

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exercise, (b) will take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue fully paid and nonassessable
shares of stock, free from all taxes, liens, security interests, encumbrances, preemptive rights
and charges on the exercise of the Warrants from time to time outstanding, other than any
restrictions on transfer contained in this Warrant and under applicable state and federal
securities laws, (c) will not take any action which results in any adjustment of the number of
Warrant Shares if the total number of shares of Warrant Stock or other securities issuable after
the action upon the exercise of all of the Warrants would exceed the total number of shares of
Warrant Stock or other securities then authorized by the Company’s articles of incorporation and
available for the purpose of issue upon such exercise and (d) will at all times in good faith
assist in the carrying out of all the provisions herein and in the taking of all such action as may
be necessary or appropriate in order to protect the adjustment rights of the Holder against
impairment.

     6. Notice of Adjustments. Whenever the Warrant Exercise Price or the number of shares
of Warrant Stock purchasable hereunder shall be adjusted pursuant to Section 4 above, the Company
shall issue a certificate signed by its Chief Financial Officer, setting forth, in reasonable
detail, the event requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated, and the Warrant Exercise Price and the number and kind of shares of
Warrant Stock purchasable hereunder after giving effect to such adjustment, and shall cause copies
of such certificate to be delivered to the Holder of this Warrant within five (5) business days
after the occurrence of the event resulting in such adjustment at such Holder’s last known address
in accordance with Section 12 hereof.

     7. Fractional Shares. No fractional shares will be issued in connection with any
exercise hereunder, but in lieu of such fractional shares the Company shall pay the Holder in cash
or by check the amount determined by multiplying such fractional share by the fair market value of
one share of Warrant Stock as determined in accordance with Section 10(c) below.

     8. Ownership; Transfer of Warrant or Warrant Stock.

          (a) Register; Registered Holder. The Company shall maintain at its principal
executive offices (or such other office or agency of the Company as it may designate by notice to
the holder hereof), a register for this Warrant, in which the Company shall record the name and
address of the person in whose name this Warrant has been issued, as well as the name and address
of each transferee. The Company may treat the person in whose name any Warrant is registered on
the register as the owner and holder thereof for all purposes, notwithstanding any notice to the
contrary, but in all events recognizing any transfers made in accordance with the terms of this
Warrant.

          (b) Compliance with Securities Act of 1933. The Holder of this Warrant, by acceptance
hereof, agrees that this Warrant, and the shares of Warrant Stock to be issued upon exercise hereof
are being acquired for investment and that such holder will not offer, sell, transfer or otherwise
dispose of this Warrant, or any such shares except under circumstances which will not result in a
violation of the Securities Act and any applicable state securities laws. Upon exercise of this
Warrant, unless the shares being acquired are registered under the Securities Act and any
applicable state securities laws or an exemption from such registration is available, the Holder
hereof shall confirm in writing that the shares so purchased are being acquired for investment and
not with a view toward distribution or resale in violation of the Securities Act and
shall confirm such other matters related thereto as may be reasonably requested by the
Company. The shares of Warrant Stock issued upon exercise of this Warrant (unless registered under
the Securities Act and any

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applicable state securities laws) shall be stamped or imprinted with a
legend in substantially the following form:

“NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE OR EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.”

     Said legend shall be removed by the Company, upon the request of a Holder, at such time as the
restrictions on the transfer of the applicable security shall have terminated.

          (c) Transferability of the Warrant. Subject to compliance with applicable federal and
states securities laws, this Warrant and the shares of Warrant Stock issuable upon exercise of this
Warrant may be transferred by the Holder hereof to accredited investors only (as defined under Rule
501 of Regulation D of the Securities Act”), in whole or in part and from time to time.

          (d) Method of Transfer. With respect to any offer, sale, transfer or other
disposition of this Warrant or any shares of Warrant Stock acquired pursuant to the exercise of
this Warrant prior to registration of such Warrant or shares, the Holder hereof shall prior to such
offer, sale, transfer or other disposition:

               (i) surrender this Warrant at the principal executive offices of the Company or provide
evidence reasonably satisfactory to the Company of the loss, theft or destruction of this Warrant
and an indemnity agreement reasonable satisfactory to the Company,

               (ii) pay any applicable transfer taxes or establishing to the satisfaction of the Company that
such taxes have been paid,

               (iii) deliver a written assignment to the Company in substantially the form attached hereto as
Exhibit B duly completed and executed prior to transfer, describing briefly the manner
thereof, and

               (iv) deliver a written opinion of such Holder’s legal counsel, and/or other evidence, each in
a form satisfactory to the Company, to the effect that such offer, sale, transfer or other
disposition may be effected without registration or qualification to an accredited investor (under
the Securities Act as then in effect and any applicable state securities law then in effect) of
this Warrant or the shares of Warrant Stock.

               Promptly as practicable and no later than five (5) days after receiving the items set forth
above, the Company shall notify the Holder that it may sell, transfer or otherwise dispose of this
Warrant or such shares, all in accordance with the terms of the notice delivered to the
Company. Notwithstanding the foregoing, this Warrant or such shares may, as to such federal laws,
be offered, sold or

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otherwise disposed of in accordance with Rule 144 under the Securities Act,
provided that the Holder shall furnish such information as the Company may reasonably request to
provide a reasonable assurance that the provisions of Rule 144 have been satisfied. Each
certificate representing this Warrant or such shares thus transferred (except a transfer pursuant
to Rule 144 or an effective registration statement) shall bear a legend as to the applicable
restrictions on transferability in order to ensure compliance with applicable federal and state
securities laws, unless in the aforesaid opinion of counsel for the Holder, such legend is not
required in order to ensure compliance with such laws. Upon any partial transfer of this Warrant,
the Company will issue and deliver to such new holder a new warrant (in form and substance similar
to this Warrant) with respect to the portion transferred and will issue and deliver to the Holder a
new warrant (in form and substance similar to this Warrant) with respect to the portion not
transferred as soon as possible and in any event within ten (10) business days after such transfer.

     9. No Rights as Shareholders; Information. No holder of this Warrant, as such, prior
to exercise hereof shall be entitled to vote or receive dividends or be deemed the holder of
shares, nor shall anything contained herein be construed to confer upon the Holder of this Warrant,
as such, any of the rights of a shareholder of the Company or any right to vote, give or withhold
consent for any corporate action. for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise until this Warrant shall have been exercised and the shares of
Warrant Stock purchasable upon the exercise hereof shall have become deliverable, as provided
herein. In addition, nothing contained in this Warrant shall be construed as imposing any
liabilities on such holder to purchase any securities or as a stockholder of the Company, whether
such liabilities are asserted by the Company or by creditors of the Company.

     10. Right to Convert Warrant into Stock; Non-Cash Net Exercise.

          (a) Right to Convert. In addition to and without limiting the rights of the Holder
under the terms of this Warrant, the Holder shall have the right to convert this Warrant or any
portion thereof, (the “Net Exercise Right”) into shares of Warrant Stock as provided in this
Section 10 at any time or from time to time during the term of this Warrant. Upon exercise of the
Net Exercise Right with respect to a particular number of shares of Warrant Stock subject to this
Warrant (the “Converted Warrant Shares”), the Company shall deliver to the Holder (without
payment by the Holder of any exercise price or any cash or other consideration) (X) that number of
fully paid and nonassessable shares of Warrant Stock equal to the (Y) Converted Warrant Shares
multiplied by the quotient obtained by dividing the result of (B) fair market value of one share of
Warrant Stock less (A) the Warrant Exercise Price per share by (B) the fair market value of one
share of Warrant Stock all on the Conversion Date (as herein defined).

     Expressed as a formula such conversion shall be computed as follows:

	 	 	 	 	 	 	 
	 	X  
	=  
	(	B - A
 
B	) 	Y

	 	 	 	 	 	 	 
	 

	Where: X
	 	 =
	 	the number of shares of Warrant Stock that may
be issued to holder	 

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	Y 	 
	 = 	 
	the number of shares of
Warrant Stock that are being surrendered pursuant
to this Net Exercise Right (i.e., the Converted
Warrant Shares)	 
	 
	 

	A	 
	 = 	 
	the Warrant Exercise Price per share 	 
	 
	 

	B	 
	 = 	 
	the fair market value of one share of Warrant Stock 	 

     No fractional shares shall be issuable upon exercise of the Net Exercise Right, and, if the
number of shares of Warrant Stock issued or to be issued determined in accordance with the
foregoing formula is other than a whole number, the Company shall pay to the Holder an amount in
cash equal to the fair market value of the resulting fractional share on the Conversion Date (as
hereinafter defined). For purposes of this Section 10, shares issued pursuant to the Net Exercise
Right shall be treated as if they were issued upon the exercise of this Warrant.

          (b) Method of Exercise. The Net Exercise Right may be exercised by the Holder by the
surrender of this Warrant at the principal office of the Company together with the notice of
exercise substantially in the form attached hereto as Exhibit A duly completed and executed,
specifying that the Holder thereby intends to exercise the Net Exercise Right and indicating the
number of shares subject to this Warrant which are being surrendered (referred to in Section 10(a)
hereof as the Converted Warrant Shares) in exercise of the Net Exercise Right. Such conversion
shall be effective upon receipt by the Company of this Warrant together with the aforesaid written
statement, or on such later date as is specified therein (the “Conversion Date”).

          (c) Determination of Fair Market Value. For purposes of this Section 10, “fair
market value” of one share of Warrant Stock shall be: (i) if the Common Stock is then listed on a
national stock exchange, the closing sale price of one share of Common Stock on such exchange on
the last trading day prior to the Conversion Date; (ii) if the Common Stock is then quoted on The
Nasdaq Stock Market, Inc. (“Nasdaq”), the National Association of Securities Dealers, Inc. OTC
Bulletin Board (the “Bulletin Board”) or such similar exchange or association, the closing sale
price of one share of Common Stock on Nasdaq, the Bulletin Board or such other exchange or
association on the last trading day prior to the Conversion Date or, if no such closing sale price
is available, the average of the high bid and the low asked price quoted thereon on the last
trading day prior to the Conversion Date; or (c) if the Common Stock is not then listed on a
national stock exchange or quoted on Nasdaq, the Bulletin Board or such other exchange or
association, the fair market value of one share of Common Stock as of the Conversion Date, shall be
determined in good faith by the Board of Directors of the Company and the Holder. If the Common
Stock is not then listed on a national securities exchange, the Bulletin Board or such other
exchange or association, the Board of Directors of the Company shall respond promptly, in writing,
to an inquiry by the Holder prior to the exercise hereunder as to the fair market value of a share
of Common Stock as determined by the Board of Directors of the Company. In the event that the Board
of Directors of the Company and the Holder are unable to agree upon the fair market value in
respect of subpart (c) hereof, the Company and the Holder shall jointly select an appraiser, who is
experienced in such matters. The decision of such appraiser shall be final and conclusive, and the
cost of such appraiser shall be borne by the Company.

     11. Modification and Waiver; Effect of Amendment or Waiver. This Warrant and any
provision hereof may be modified, amended, waived, discharged or terminated only by an instrument
in writing, designated as an amendment to this Warrant and executed by a duly authorized officer of
the Company and

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the Holder of this Warrant. Any waiver or amendment effected in accordance with this Section
11 shall be binding upon the Holder, each future holder of this Warrant or of any shares purchased
under this Warrant (including securities into which such shares have been converted) and the
Company.

     12. Notices. Any notice, request, communication or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall be delivered by
personal delivery, or shall be sent by certified United States mail, first-class postage prepaid or
by overnight delivery using a nationally recognized courier service, to each such holder at its
address as shown on the books of the Company or to the Company at the address indicated on the
signature page of this Warrant. All such notices, request, communications or other documents shall
be deemed to have been received by the recipient (i) in the case of personal delivery, on the date
of such delivery, (ii) in the case of delivery by a nationally recognized courier service, on the
next business day subsequent to deposit with the courier and (iii) in the case of mailing, on the
fourth business day following the date of deposit in the United States mails, first-class postage
prepaid.

     13. Successors. The obligations of the Company relating to the shares of Warrant Stock
issuable upon the exercise of this Warrant shall inure to the benefit of the successors and assigns
of the Holder hereof and shall be binding upon any successor entity whether upon a Change of
Control or sale of all or substantially all of the assets of the Company. Upon such event, the
successor entity shall assume the obligations of this Warrant, and this Warrant (or any substitute
warrant as provided hereinbefore) shall be exercisable for the securities, cash and property of the
successor entity on the terms provided herein. As used in this Warrant, “Change of Control”
shall mean a merger or consolidation of the Company with or into any other corporation or business
entity, other than in the case of a merger or consolidation, where the holders of the Company’s
voting securities as constituted immediately prior thereto continue to hold after such merger or
consolidation at least fifty percent (50%) of the voting securities of the Company or surviving
entity, as applicable, immediately after such merger or consolidation, including the public company
merger.

     14. Lost Warrants or Stock Certificates. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant or any
stock certificate and, in the case of any such loss, theft or destruction, upon receipt of a
security or an indemnity agreement satisfactory to the Company, or in the case of any such
mutilation upon surrender and cancellation of such mutilated Warrant or stock certificate, the
Company will issue and deliver a new warrant (containing the same terms as this Warrant) or stock
certificate, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate.

     15. Descriptive Headings. The descriptive headings of the several paragraphs of this
Warrant are inserted for convenience only and do not constitute a part of this Warrant. The
language in this Warrant shall be construed as to its fair meaning without regard to which party
drafted this Warrant.

     16. Governing Law. This Warrant shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the laws of the State of California, without
reference to principles governing choice or conflicts of laws.

     17. Severability. In the event that any one or more of the provisions contained in
this Warrant shall for any reason be held to be invalid, illegal or unenforceable in any respect,
such provision(s) shall be ineffective only to the extent of such invalidity, illegality or
unenforceability, without invalidating the remainder of such provision or the remaining provisions
of this Warrant and such invalidity, illegality or unenforceability shall not affect any other
provision of this Warrant, which shall remain in full force and effect.

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     18. Counterparts. This Warrant may be executed in two or more counterparts, each of
which shall be an original, and all of which together shall constitute one instrument.

     19. Attorney’s Fees. If any action at law or in equity is necessary to enforce or
interpret the terms of this Warrant, the prevailing party in such dispute shall be entitled to
collect its reasonable attorneys’ fees, costs and disbursements in addition to any other relief to
which it may be entitled.

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     IN WITNESS WHEREOF, the parties hereto have caused this Warrant to be duly executed as of the
issue date of this Warrant by its duly authorized officers.

	 	 	 	 	 
	 	PACIFIC ASIA PETROLEUM, INC.

A Delaware corporation

 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	 	Address:  	 	 
	 

Accepted and Agreed:

	 	 	 	 	 
	[INVESTOR]

 	 	 	 
	By:  	
 	 	 
	 	Name:  	 	 	 
	 	Title:  	 	 	 
	 	Address:  	 	 	 

11

 

	 	 	 	 	 

EXHIBIT A

NOTICE OF EXERCISE

To: Pacific Asia Petroleum, Inc. (the “Company”)

     1. The undersigned hereby:

	 	o 	 	 elects to purchase _________ shares of Warrant Stock (as defined in the
Warrant) of the Company pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in full; or
	 
	 	o 	 	 elects to exercise its net issuance rights pursuant to Section 11 of the
attached Warrant with respect to _________ shares Warrant Stock.

     2. Please issue a certificate or certificates representing said shares in the name of the
undersigned or in such other name or names as are specified below:

	 	 	 	 	 
	  

	 	 

(Name)
	 	  
	 
	 	 	 	 
	  

	 	 

(Name)
	 	  
	 
	 	 	 	 
	  

	 	 

(City, State)
	 	  

     3. The undersigned represents that the aforesaid shares being acquired for the account of the
undersigned for investment and not with a view to, or for resale in connection with, the
distribution thereof and that the undersigned has no present intention of distributing or reselling
such shares, all except as in compliance with applicable securities laws.

	 	 	 
	 

(Date)

	 	 

	 	 	 	 	 
	 	 	 
	 	
 
	 	(Signature) 
	 
	 	Signature must be guaranteed by a commercial
bank or trust company or a member firm of a
major stock exchange if shares of Warrant
Stock are to be issued, or securities are to
be delivered, other than to or in the name
of the registered holder of this Warrant. 
	 

NOTICE: Signature must correspond in all respects with the name as written upon the face of the
Warrant in every particular without alteration or any change whatever.

12

 

EXHIBIT B

FORM OF ASSIGNMENT

     FOR VALUE RECEIVED, the undersigned holder of the attached Warrant hereby sells, assigns and
transfers unto __________________ whose address is ______________________________ and whose
taxpayer identification number is __________________ the undersigned’s right, title and interest in
and to the Warrant issued by Pacific Asia Petroleum, Inc., a Delaware corporation (the
“Company”) to purchase ____________ shares of the Company’s stock, and does hereby irrevocably
constitute and appoint _________________________________ attorney to transfer said Warrant on the books of
the Company with full power of substitution in the premises.

     In connection with such sale, assignment, transfer or other disposition of this Warrant, the
undersigned hereby confirms that:

	 	 	 	o	 	such sale, transfer or other disposition may be effected without registration
or qualification (under the Securities Act of 1933 as then in effect and any
applicable state securities law then in effect) of this Warrant or the
securities issuable thereunder and has attached hereto a written opinion of
such Holder’s counsel to that effect; or
	 
	 	 	 	o	 	such sale, transfer or other disposition has been registered under the
Securities Act of 1933, as amended, and registered and/or qualified under all
applicable state securities laws.

	 	 	 
	 

(Date)

	 	 

	 	 	 	 	 
	 	 	 
	 	
 
	 	(Signature) 
	 
	 	Signature must correspond in all respects with
the name as written upon the face of the
Warrant in every particular without alteration
or any change whatever.exv10w1

 

Exhibit 10.1

PACIFIC ASIA PETROLEUM, INC.

2007 STOCK PLAN

     1. PURPOSE

     The Plan is intended to provide incentives to key Employees, Directors and Consultants of the
Corporation and its Subsidiaries, to encourage them to acquire a proprietary interest in the
Corporation and remain in the service of the Corporation and its Subsidiaries, and to attract new
Employees, Directors and Consultants with outstanding qualifications. The Plan provides both for
the direct award or sale of Shares and for the grant of options to purchase Shares, as well as for
the grant of SARs.

     2. DEFINITIONS

     Unless otherwise defined herein or the context otherwise requires, the capitalized terms used
herein shall have the following meanings:

          (a) “Acquisition Price” shall mean the price per Share of Common Stock, determined by
the Administrator, at which a Share may be acquired under the Plan (other than upon exercise of an
Option).

          (b) “Act” shall mean the Securities Act of 1933, as amended.

          (c) “Administrator” shall mean the Board or the Committee, whichever shall be
administering the Plan from time to time in the discretion of the Board, as described in Section 4
of the Plan.

          (d) “Board” shall mean the Board of Directors of the Corporation.

          (e) “Code” shall mean the Internal Revenue Code of 1986, as amended.

          (f) “Committee” shall mean the committee appointed by the Board in accordance with
Section 4 of the Plan.

          (g) “Common Stock” shall mean the $0.001 par value Common Stock of the Corporation and
any class of shares into which such Common Stock hereafter may be converted or reclassified.

          (h) “Consultant” shall mean a person who performs bona fide services for the
Corporation, a Parent or a Subsidiary as a consultant or advisor, excluding Employees and outside
Directors.

          (i) “Corporation” shall mean PACIFIC ASIA PETROLEUM, INC., a Delaware corporation.

          (j) “Director” shall mean a member of the Board of the Corporation or a member of the
board of directors of a Subsidiary.

 

 

          (k) “Disability” shall mean a medically determinable physical or mental impairment
which has made an individual incapable of engaging in any substantial gainful activity. A
condition shall be considered a Disability only if (i) it can be expected to result in death or has
lasted or it can be expected to last for a continuous period of not less than twelve (12) months,
and (ii) the Administrator, based upon medical evidence, has expressly determined that Disability
exists.

          (l) “Employee” shall mean an individual who is employed (within the meaning of Section
3401 of the Code and the regulations thereunder) by the Corporation or a Subsidiary.

          (m) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

          (n) “Exercise Price” shall mean the price per Share of Common Stock, determined by the
Administrator, at which an Option may be exercised.

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

               (i) If the Shares are traded on an exchange or over-the-counter on the National Market System
(the “NMS”) of the National Association of Securities Dealers, Inc. Automated Quotation
System (“NASDAQ”), (A) if listed on an exchange, the closing price as reported for
composite transactions on the business day immediately prior to the date of valuation or, if no
sale occurred on that date, then the mean between the closing bid and asked prices on such exchange
on such date, and (B) if traded on the NMS, the last sales price on the business day immediately
prior to the date of valuation or, if no sale occurred on such date, then the mean between the
highest bid and the lowest asked prices as of the close of business on the business day immediately
prior to the date of valuation, as reported in the NASDAQ system;

               (ii) If the Shares are not traded on an exchange or the NMS but are otherwise traded
over-the-counter, the mean between the highest bid and lowest asked prices quoted in the NASDAQ
system as of the close of business on the business day immediately prior to the date of valuation
or, if on such day such security is not quoted in the NASDAQ system, the mean between the
representative bid and asked prices on such date in the domestic over-the-counter market as
reported by the National Quotation Bureau, Inc., or any similar successor organization; and

               (iii) If neither clause (i) nor (ii) above applies, the fair market value as determined by the
Administrator in good faith. Such determination shall be conclusive and binding on all persons.

          (p) “Immediate Family” shall mean any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law and shall include adoptive relationships.

          (q) “Incentive Stock Option” shall mean an option described in Section 422(b) of the
Code.

2

 

          (r) “Nonstatutory Stock Option” shall mean an option not described in Section 422(b)
of the Code.

          (s) “Option” shall mean any stock option granted pursuant to the Plan. An Option
shall be granted on the date the Administrator takes the necessary action to approve the grant.
However, if the minutes or appropriate resolutions of the Administrator provide that an Option is
to be granted as of a date in the future, the date of grant shall be that future date.

          (t) “Option Agreement” shall mean a written stock option agreement evidencing a
particular Option between an Optionee and the Corporation.

          (u) “Optionee” shall mean a Participant who has received an Option.

          (v) “Option Purchase Price” shall mean the Exercise Price multiplied by the number of
Shares with respect to which an Option is exercised.

          (w) “Parent” shall mean any corporation (other than the Corporation) in an unbroken
chain of corporations ending with the Corporation, if each of the corporations other than the
Corporation owns stock possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such
date.

          (x) “Participant” shall have the meaning assigned to it in Section 5(a) hereof.

          (y) “Plan” shall mean this PACIFIC ASIA PETROLEUM, INC. 2007 Stock Plan, as it may be
amended from time to time.

          (z) “Purchaser” shall mean a person to whom the Board has offered the right to acquire
Shares under the Plan (other than upon exercise of an Option).

          (aa) “Retirement” shall mean (i) with respect to an Employee, the voluntary cessation
of employment upon either (x) the attainment of age sixty-five (65) and the completion of not less
than ten (10) years of service with the Corporation or a Subsidiary or (y) the completion of not
less than twenty (20) years of service with the Corporation or a Subsidiary and (ii) with respect
to a Director, the voluntary election not to stand for re-election as Director upon the attainment
of age sixty-five (65) and the completion of not less than five (5) years of service as a Director.

          (bb) “SAR” shall mean any stock appreciation right granted pursuant to the Plan. An
SAR shall be granted on the date the Administrator takes the necessary action to approve the grant.
However, if the minutes or appropriate resolutions of the Administrator provide that an SAR is to
be granted as of a date in the future, the date of grant shall be that future date.

          (cc) “SAR Recipient” shall mean a Participant who has been granted an SAR.

3

 

          (dd) “Share” shall mean one share of Common Stock, adjusted in accordance with Section
14 of the Plan (if applicable).

          (ee) “Share Acquisition Price” shall mean the Acquisition Price multiplied by the
number of Shares which are acquired pursuant to a Stock Purchase Agreement.

          (ff) “Stock Purchase Agreement” shall mean a written agreement between the Corporation
and a Purchaser who acquires Shares under the Plan.

          (gg) “Subsidiary” shall mean any subsidiary corporation of the Corporation as defined
in Section 424(f) of the Code.

     3. EFFECTIVE DATE

     The Plan was adopted by the Board effective May 7, 2007, subject to the approval of the
Corporation’s stockholders pursuant to Section 20 hereof.

     4. ADMINISTRATION

     The Plan shall be administered, in the discretion of the Board from time to time, by the Board
or by a Committee which shall be appointed by the Board. The Board may from time to time remove
members from, or add members to, the Committee. Vacancies on the Committee, however caused, shall
be filed by the Board. The Committee shall be composed of disinterested Directors, i.e., Directors
who have not, during the one year prior to service as an administrator of the Plan, been granted or
awarded equity securities pursuant to the Plan or any other plan of the Corporation or any of its
affiliates, other than a plan which would not negate such director’s status as “disinterested”
pursuant to Rule 16b-3 promulgated under the Exchange Act. There shall be at least two Directors
serving on the Committee at any time. The Board shall appoint one of the members of the Committee
as Chairman. The Administrator shall hold meetings at such times and places as it may determine.
Acts of a majority of the Administrator at which a quorum is present, or acts reduced to or
approved in writing by the unanimous consent of the members of the Administrator, shall be the
valid acts of the Administrator.

     The Administrator shall from time to time at its discretion select the Employees, Consultants
and Directors who are to be granted Options, direct awards or sales of Shares and SARs, determine
the number of Shares to be subject to Options and to be issued to Purchasers and the other rights
to be granted to each Optionee, Purchaser and SAR Recipient, and, with respect to Options,
designate such Options as Incentive Stock Options or Nonstatutory Stock Options, except that no
Incentive Stock Option may be granted to a non-Employee director or Consultant. A Committee or
Board member shall in no event participate in any determination relating to Options, SARs or any
other rights held by or to be granted to such Committee or Board member. The interpretation and
construction by the Administrator of any provision of the Plan or of any Option, SAR, or other
right, Option Agreement or Stock Purchase Agreement shall be final. No member of the Administrator
shall be liable for any action or determination made in good faith with respect to the Plan or any
Option, SAR, or other right granted hereunder.

4

 

     5. PARTICIPATION

          (a) Eligibility

     Optionees, Purchasers and SAR Recipients shall be such persons (collectively, “Participants”;
individually a “Participant”) as the Administrator may select from among the following classes of
persons, subject to the terms and conditions of Section 5(b) below:

               (i) Employees (who may be officers, whether or not they are Directors);

               (ii) Directors; and

               (iii) Consultants.

     Notwithstanding provisions of the first paragraph of this Section 5(a), the Administrator may
at any time or from time to time designate one or more Directors as being ineligible for selection
as Participants in the Plan for any period or periods of time.

          (b) Ten-Percent Stockholders

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

          (c) Stock Ownership

     For purposes of Section 5(b) above, in determining stock ownership, a Participant shall be
considered as owning the stock owned, directly or indirectly, by or for his or her brothers and
sisters, spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for
a corporation, partnership, estate or trust shall be considered as being owned proportionately by
or for its shareholders, partners or beneficiaries. Stock with respect to which such Participant
holds an Option shall not be counted.

          (d) “Outstanding stock”

     For purposes of Section 5(b) above, “outstanding stock” shall include all stock actually
issued and outstanding immediately after the grant of the Option to the Optionee. “Outstanding
stock” shall not include shares authorized for issuance under outstanding Options held by the
Optionee or by any other person.

     6. STOCK

     The stock issued to Purchasers or subject to Options granted under the Plan shall be shares of
the Corporation’s authorized but unissued or reacquired Common Stock. The

5

 

aggregate number of Shares which may be issued under the Plan shall not exceed 4,000,000
Shares. The number of Shares subject to Options or other rights outstanding at any time shall not
exceed the number of Shares remaining available for issuance under the Plan. In the event that any
outstanding Option or other right for any reason expires or is terminated, the Shares allocable to
the unexercised portion of such Option or other right may again be made subject to an Option or
other right. No eligible person shall be granted Options or other rights during any 12-month
period covering more than 500,000 Shares. The limitations established by this Section 6 shall be
subject to adjustment in the manner provided in Section 14 hereof upon the occurrence of an event
specified in that Section.

     7. TERMS AND CONDITIONS OF OPTIONS

          (a) Option Agreement

     Each grant of an Option under the Plan shall be evidenced by an Option Agreement in such form
as the Administrator shall from time to time determine. Such Option shall be subject to all
applicable terms and conditions of the Plan and may be subject to any other terms and conditions
which are not inconsistent with the Plan and which the Administrator deems appropriate for
inclusion in an Option Agreement. The provisions of the various Option Agreements entered into
under the Plan need not be identical.

          (b) Nature of Option

     Each Option shall state whether it is an Incentive Stock Option or a Nonstatutory Stock
Option.

          (c) Number of Shares

     Each Option shall state the number of Shares to which it pertains and shall provide for the
adjustment thereof in accordance with the provisions of Section 14 hereof.

          (d) Exercise Price

     Each Option shall state the Exercise Price. The Exercise Price in the case of any Incentive
Stock Option shall not be less than the Fair Market Value on the date of grant and, in the case of
an Incentive Stock Option granted to an Optionee described in Section 5(b) hereof, shall not be
less than one hundred ten percent (110%) of the Fair Market Value on the date of grant. The
Exercise Price in the case of any Nonstatutory Stock Option shall not be less than eighty-five
percent (85%) of the Fair Market Value on the date of grant. Subject to the preceding two
sentences, the Exercise Price under an Option shall be determined by the Administrator in its sole
discretion.

          (e) Term and Non-Transferability of Options

     Each Option shall state the time or times when all or part thereof becomes exercisable. No
Option shall be exercisable after the expiration of ten (10) years from the date it was granted,
and in the case of Incentive Stock Options a shorter term may be required by Section 5(b). Subject
to the preceding sentence, the Administrator in its sole discretion shall determine when

6

 

an Option is to expire. During the lifetime of the Optionee, the Option shall be exercisable
only by the Optionee or the Optionee’s guardian or legal representative and shall not be assignable
or transferable, except as provided in the next sentence. If the applicable Option Agreement so
provides, a Nonstatutory Stock Option shall also be transferable by the Optionee by (i) a gift to a
member of the Optionee’s Immediate Family or (ii) a gift to an inter vivos or testamentary trust in
which members of the Optionee’s Immediate Family have a beneficial interest of more than 50% and
which provides that such Nonstatutory Stock Option is to be transferred to the beneficiaries upon
the Optionee’s death. In the event of the Optionee’s death, the Option shall not be transferable
other than by will or the laws of descent and distribution. Any other attempted alienation,
assignment, pledge, hypothecation, attachment, execution or similar process, whether voluntary or
involuntary, with respect to all or any part of any Option or right thereunder, shall be null and
void and, at the Corporation’s option shall cause all of the Optionee’s rights under the Option to
terminate.

          (f) No Rights as a Stockholder

     No one shall have rights as a stockholder with respect to any Shares covered by an Option
until the date of the issuance of a stock certificate for such Shares. No adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the date such stock certificate
is issued, except as expressly provided in Section 14 hereof.

          (g) Modification, Extension and Renewal of Options

     Within the limitations of the Plan, the Administrator may modify an Option, accelerate the
rate at which an Option may be exercised (including, without limitation, permitting an Option to be
exercised in full without regard to the installment or vesting provisions of the applicable Option
Agreement or whether the Option is at the time exercisable, to the extent it has not previously
been exercised), extend or renew outstanding Options or accept the cancellation of outstanding
Options (to the extent not previously exercised) for the granting of new Options in substitution
therefor. The foregoing notwithstanding, no modification of an Option shall, without the consent
of the Optionee, alter or impair any rights or obligations under any Option previously granted.

          (h) Notice of Sale

     Until the later of the second anniversary of the grant of any Incentive Stock Option and the
first anniversary of the issuance of any stock (“incentive stock”) pursuant to the exercise of an
Incentive Stock Option, the stock transfer records of the Corporation (whether maintained by it or
by a transfer agent of the Common Stock) shall reflect that any certificates issued or to be issued
representing incentive stock in connection with such exercise must be registered in the name of the
beneficial holder (and not in any “street name”) until transferred to a third party, and that the
transfer agent shall notify the Corporation in a case of any requested transfer of such incentive
stock during that period. In addition, the certificate or certificates registered in the name of
the beneficial holder representing the incentive stock issued upon such exercise will bear the
following legend during such period:

7

 

“Solely to assist the issuer of the shares represented by this certificate,
until the later of the second anniversary of the date of grant of the Option
under which this certificate was originally issued or one year from the date
of original issuance of the shares represented by this certificate, the
Transfer Agent will notify the issuer of the shares represented hereby of
any requested transfer by the original registered holder.”

          (i) Withholding Taxes

     As a condition to the exercise of an Option, the Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with such exercise. The Optionee shall also make such
arrangements as the Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the disposition of Shares
acquired by exercising an Option.

          (j) Other Provisions

     An Option Agreement authorized under the Plan may contain such other provisions not
inconsistent with the terms of the Plan (including, without limitation, restrictions upon the
exercise of the Option) as the Administrator shall deem advisable.

          (k) Substitution of Options

     Notwithstanding any inconsistent provisions or limits under the Plan, in the event the
Corporation acquires (whether by purchase, merger or otherwise) all or substantially all of the
outstanding capital stock or assets of another corporation or in the event of any reorganization or
other transaction qualifying under Section 424 of the Code the Administrator may, in accordance
with the provisions of that Section, substitute Options under the Plan for options of the acquired
company provided (i) the excess of the aggregate fair market value of the shares subject to an
option immediately after the substitution over the aggregate option price of such shares is not
more than the similar excess immediately before such substitution and (ii) the new option does not
give persons additional benefits, including any extension of the exercise period.

     8. TERMS AND CONDITIONS OF AWARDS OR SALES

          (a) Stock Purchase Agreement

     Each award or sale of Shares under the Plan (other than upon exercise of an Option) shall be
evidenced by a Stock Purchase Agreement in such form as the Administrator shall from time to time
determine. Such award or sale shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent with the Plan and
which the Administrator deems appropriate for inclusion in a Stock Purchase Agreement. The
provisions of the various Stock Purchase Agreements entered into under the Plan need not be
identical.

8

 

          (b) Duration of Offers and Nontransferability of Rights

     Any right to acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Purchaser within 30 days after the grant of such right was communicated to
the Purchaser by the Corporation. Such right shall not be transferable and shall be exercisable
only by the Purchaser to whom such right was granted.

          (c) Purchase Price

     The Purchase Price of Shares to be offered under the Plan, if newly issued, shall not be less
than the par value of such Shares. Subject to the preceding sentence, the Administrator shall
determine the Purchase Price in its sole discretion. The Purchase Price shall be payable in a form
described in Section 10.

          (d) Withholding Taxes

     As a condition to the purchase of Shares, the Purchaser shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or foreign withholding
tax obligations that may arise in connection with such purchase.

          (e) Restrictions on Transfer of Shares

     Any Shares awarded or sold under the Plan shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the
Administrator may determine. Such restrictions shall be set forth in the applicable Stock Purchase
Agreement and shall apply in addition to any restrictions that may apply to holders of Shares
generally. A Stock Purchase Agreement may provide for accelerated vesting in the event of the
Purchaser’s death, disability or retirement or other events.

          (f) Other Provisions

     A Stock Purchase Agreement authorized under the Plan may contain such other provisions not
inconsistent with the terms of the Plan as the Administrator shall deem advisable.

     9. STOCK APPRECIATION RIGHTS

          (a) Grant

     SARs may be granted under the Plan by the Administrator, subject to such rules, terms, and
conditions as the Administrator prescribes. Each SAR shall be evidenced by a written agreement
between the Corporation and the SAR Recipient in such form as the Administrator shall from time to
time determine. Such SAR shall be subject to all applicable terms and conditions of the Plan and
may be subject to any other terms and conditions which are not inconsistent with the Plan and which
the Administrator deems appropriate for inclusion in an SAR agreement. The provisions of the
various SAR agreements entered into under the Plan need not be identical.

9

 

          (b) Exercise

               (i) Each SAR shall entitle the holder, upon exercise, to receive from the Corporation in
exchange therefor an amount equal to the value of the excess of the Fair Market Value on the date
of exercise of one Share over its Fair Market Value on the date of grant (or, in the case of an SAR
granted in connection with an Option, the excess of the Fair Market Value of one Share over the
Option price per share under the Option to which the SAR relates), multiplied by the number of
Shares covered by the SAR or the Option, or portion thereof, that is surrendered. No SAR shall be
exercisable at a time that the amount determined under this subparagraph is negative. Payment by
the Corporation upon exercise of an SAR may be made in shares of Common Stock valued at Fair Market
Value, in cash, or partly in shares of Common Stock and partly in cash, all as determined by the
Administrator.

               (ii) An SAR shall be exercisable only at the time or times established by the Administrator.
If an SAR is granted in connection with an Option, the following rules shall apply: (1) the SAR
shall be exercisable only to the extent and on the same conditions that the related Option could be
exercised; (2) upon exercise of the SAR, the Option or portion thereof to which the SAR relates
terminates; and (3) upon exercise of the Option, the related SAR or portion thereof terminates.

               (iii) The Administrator may withdraw any SAR granted under the Plan at any time and may impose
any conditions upon the exercise of an SAR or adopt rules and regulations from time to time
affecting the rights of SAR Recipients. Such rules and regulations may govern the right to
exercise SARs granted prior to adoption or amendment of such rules and regulations as well as SARs
granted thereafter.

               (iv) For purposes of this Section 9, Fair Market Value shall be determined as of the date the
SAR is exercised.

               (v) Upon the exercise of an SAR for shares of Common Stock, the number of shares reserved for
issuance under the Plan shall be reduced by the number of shares issued. Cash payments made upon
the exercise of SARs shall not reduce the number of Shares reserved for issuance under the Plan.

          (c) Withholding

     As a condition to the exercise of an SAR, the SAR Recipient shall make such arrangements as
the Administrator may require for the satisfaction of any federal, state, local or foreign
withholding tax obligations that may arise in connection with such exercise.

     10. PAYMENT FOR SHARES

          (a) General Rule. The entire Share Acquisition Price or Option Purchase Price of
Shares issued under the Plan shall be payable in cash or cash equivalents at the time when such
Shares are purchased, except as otherwise provided in this Section 10.

          (b) Surrender of Stock. To the extent that an Option Agreement so provides, all or
any part of the Option Purchase Price may be paid by surrendering, or attesting to the

10

 

ownership of, Shares that are already owned by the Optionee. Such Shares shall be surrendered
to the Corporation in good form for transfer and shall be valued at their Fair Market Value on the
date when the Option is exercised.

          (c) Services Rendered. At the discretion of the Administrator, Shares may be awarded
under the Plan in consideration of services rendered prior to the award to the Corporation, a
Parent or a Subsidiary.

          (d) Promissory Note. To the extent that an Option Agreement or Stock Purchase
Agreement so provides, all or a portion of the Option Purchase Price or Share Acquisition Price (as
the case may be) of Shares issued under the Plan may be paid with a full-recourse promissory note.
However, the par value of the Shares, if newly issued, shall be paid in cash or cash equivalents.
The Shares shall be pledged as security for payment of the principal amount of the promissory note
and interest thereon. The interest rate payable under the terms of the promissory note shall not
be less than the minimum rate (if any) required to avoid the imputation of additional interest
under the Code. Subject to the foregoing, the Administrator (in its sole discretion) shall specify
the term, interest rate, amortization requirements (if any) and other provisions of such note.

          (e) Exercise/Sale. To the extent that an Option Agreement so provides, and if Common
Stock is publicly traded, payment of the Option Purchase Price with respect to an Option may be
made all or in part by the delivery (on a form prescribed by the Corporation) of an irrevocable
direction to a securities broker approved by the Corporation to sell Shares and to deliver all or
part of the sales proceeds to the Corporation in payment of all or part of the Option Purchase
Price and any withholding taxes.

          (f) Exercise/Pledge. To the extent that an Option Agreement so provides, and if
Common Stock is publicly traded, payment of the Option Purchase Price with respect to an Option may
be made all or in part by the delivery (on a form prescribed by the Corporation) of an irrevocable
direction to pledge Shares to a securities broker or lender approved by the Corporation, as
security for a loan, and to deliver all or part of the loan proceeds to the Corporation in payment
of all or part of the Option Purchase Price and any withholding taxes.

     11. CESSATION OF EMPLOYMENT

          (a) Cessation for Any Reason (other than Death, Disability or Retirement)

     If an Optionee or SAR Recipient ceases to be an Employee or to serve as a Director or
Consultant of the Corporation for any reason other than his or her death, or, with respect to an
Employee or Director, his or her Disability or Retirement, such Optionee or SAR Recipient shall
have the right, subject to the restrictions referred to elsewhere in the Plan, to exercise his
Option or SAR, as applicable, at any time within ninety (90) days after cessation of employment or
the date he ceases serving as a Director or Consultant (or such other date as determined by the
Administrator), provided that the foregoing shall not extend any Option or SAR beyond its term,
but, except as otherwise provided in the applicable Option Agreement or SAR agreement, only to the
extent that, at the date of cessation of employment or serving as a Director or Consultant, the
Optionee’s or SAR Recipient’s right to exercise such Option or SAR, as applicable, had accrued

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pursuant to the terms of the applicable Option Agreement or SAR agreement and had not
previously been exercised. Notwithstanding the foregoing, each Option or SAR shall cease to be
exercisable on the date of such cessation if such cessation arises by reason of the Optionee’s or
SAR Recipient’s misconduct. An Optionee or SAR Recipient shall be considered to have been
terminated for misconduct if (i) he resigns or is discharged or otherwise terminated on account of
conviction of a felony or any crime of moral turpitude, misappropriation of the assets of the
Corporation or any Subsidiaries or any Affiliate, continued or repeated insobriety or illegal drug
use, continued or repeated absence from service during the usual working hours of the Optionee’s or
SAR Recipient’s position for reasons other than Disability or sickness, or refusal to carry out a
reasonable direction of the Board or of the Chief Executive Officer of the Corporation or of any
other person designated by such Chief Executive Officer or (ii) he is discharged for cause as
defined in any employment agreement to which he is a party.

     For purposes of this Section 11(a), the employment relationship shall be treated as continuing
intact while the Optionee or SAR Recipient is on military leave, sick leave or other bona fide
leave of absence (to be determined in the sole discretion of the Administrator). The foregoing
notwithstanding, in the case of an Incentive Stock Option, employment shall not be deemed to
continue beyond the thirtieth (30th) day after the Optionee ceased active employment, unless the
Optionee’s reemployment rights are guaranteed by statute or by contract.

          (b) Death of Optionee or SAR Recipient

     If an Optionee or SAR Recipient dies while a Participant, or after ceasing to be a Participant
but during the period in which he or she could have exercised his Option or SAR, and has not fully
exercised his Option or SAR, then his Option or SAR may be exercised in full, subject to the
restrictions referred to elsewhere in the Plan, at any time within twelve (12) months after the
Optionee’s or SAR Recipient’s death (or such other date as determined by the Administrator)
(provided that the foregoing shall not extend any Option or SAR beyond its term), by the executor
or administrator of his estate or by any person or persons who have acquired the Option or SAR
directly from the Optionee or SAR Recipient by bequest or inheritance, but, except as otherwise
provided in the applicable Option Agreement or SAR agreement, only to the extent that, at the date
of death, the Optionee’s or SAR Recipient’s right to exercise such Option or SAR had accrued and
had not been forfeited pursuant to the terms of the applicable Option Agreement or SAR agreement
and had not previously been exercised.

          (c) Disability of Optionee or SAR Recipient

     If an Optionee or SAR Recipient ceases to be an Employee or Director by reason of Disability,
such Optionee shall have the right, subject to the restrictions referred to elsewhere in the Plan,
to exercise his Option or SAR at any time within twelve (12) months after such cessation of
employment (or such other date as determined by the Administrator) (provided that the foregoing
shall not extend any Option or SAR beyond its term), but, except as provided in the applicable
Option Agreement or SAR agreement, only to the extent that, at the date of such cessation of
employment or service as a Director, the Optionee’s or SAR Recipient’s right to exercise such
Option or SAR had accrued pursuant to the terms of the applicable Option Agreement or SAR agreement
and had not previously been exercised.

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          (d) Retirement of Optionee or SAR Recipient

     If an Optionee or SAR Recipient ceases to be an Employee or Director by reason of Retirement
(and not on account of misconduct as determined in Section 11(a)), such Optionee or SAR Recipient
shall have the right, subject to the restrictions referred to elsewhere in the Plan, to exercise
his Option or SAR at any time within twelve (12) months after cessation of employment (or such
other date as determined by the Administrator) (provided that the foregoing shall not extend any
Option or SAR beyond its term), but only to the extent that, at the date of cessation of employment
or service as a Director, the Optionee’s or SAR Recipient’s right to exercise such Option or SAR
had accrued pursuant to the terms of the applicable Option Agreement or SAR agreement and had not
previously been exercised.

     12. LIMITATION OF ANNUAL AWARDS

     The aggregate Fair Market Value (determined as of the date an Option is granted) of the Shares
with respect to which Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year under the Plan and all other plans maintained by the Corporation, its
Parent or its Subsidiaries, shall not exceed $100,000.

     13. TERM OF PLAN

     Subject to the limitations in Section 6, Options, SARs and other awards or sales of Shares may
be granted pursuant to the Plan until the date ten years after the effective date referred to in
Section 3.

     14. EFFECT OF CERTAIN EVENTS

          (a) Stock Splits and Dividends

     Subject to any required action by stockholders, the number of Shares covered by the Plan as
provided in Section 6 hereof, and the number of Shares covered by each outstanding Option and SAR
and the exercise prices thereof shall be proportionately adjusted for any increase or decrease in
the number of issued Shares resulting from a subdivision or consolidation of Shares or the payment
of a stock dividend (but only if paid in Common Stock) or any other increase or decrease in the
number of issued Shares effected without receipt of consideration by the Corporation.

          (b) Merger, Sale of Assets, Liquidation

     Subject to any required action by stockholders, if the Corporation shall merge with another
corporation and the Corporation is the surviving corporation in such merger and under the terms of
such merger the shares of Common Stock outstanding immediately prior to the merger remain
outstanding and unchanged, each outstanding Option and SAR shall continue to apply to the Shares
subject thereto and shall also pertain and apply to any additional securities and other property,
if any, to which a holder of the number of Shares subject to the Option or SAR would have been
entitled as a result of the merger. If the Corporation sells all, or substantially all, of its
assets or the Corporation merges (other than a merger of the type described in the immediately
preceding sentence) or consolidates with another corporation, this

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Plan and each Option and SAR shall terminate, but only after each Optionee and SAR Recipient
(or the successor in interest) has been given the right to exercise the vested portion of any
unexpired Option or SAR in full or in part. This right shall be exercisable for the period of
twenty (20) days ending five (5) days before the effective date of the sale, merger, or
consolidation (or such longer period as the Administrator may specify), provided that the foregoing
shall not extend any Option or SAR beyond its term. Alternatively, in its sole and absolute
discretion, the surviving or acquiring corporation (or the parent company of the surviving or
acquiring corporation) may tender to any Optionee or SAR Recipient (or successor in interest) a
substitute option or options or stock appreciation right to purchase shares of, or with respect to
the shares of, the surviving or acquiring corporation (or the parent corporation of the surviving
or acquiring corporation). The substitute option or stock appreciation right shall contain all
terms and provisions required substantially to preserve the rights and benefits of all Options and
SARs then held by the Optionee or SAR Recipient (or successor in interest) receiving the substitute
option or stock appreciation right. Any other dissolution or liquidation of the Corporation shall
cause each Option or SAR to terminate.

     At the discretion of the Administrator, an Option or SAR exercised in contemplation of the
consummation of the sale of all or substantially all of the assets of the Corporation or a merger
(other than a merger of the type described in the first sentence of the immediately preceding
paragraph) or consolidation of the Corporation with another corporation, may be conditioned upon
such sale, merger or consolidation becoming effective.

          (c) Adjustment Determination

     To the extent that the foregoing adjustments relate to securities of the Corporation, such
adjustments shall be made by the Administrator, whose determination shall be conclusive and binding
on all persons.

          (d) Limitation on Rights

     Except as expressly provided in this Section 14, an Optionee or SAR Recipient shall have no
rights by reason of any subdivision or consolidation of shares of stock of any class, the payment
of any stock dividend or any other increase or decrease in the number of shares of stock of any
class or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets
or stock of another corporation, and any issue by the Corporation of shares of stock of any class,
or securities convertible into shares of stock of any class, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number or exercise price of Shares subject to an
Option or SAR. The grant of an Option or SAR pursuant to the Plan shall not affect in any way the
right or power of the Corporation to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate,
sell or transfer all or any part of its business or assets.

          (e) Change in Control

     In the event of a pending or threatened takeover bid, tender offer or exchange offer for
twenty percent (20%) or more of the outstanding Common Stock or any other class of stock or
securities of the Corporation (other than a tender offer or exchange offer made by the

14

 

Corporation or any Subsidiary), whether or not deemed a tender offer under applicable Federal
or state law, or in the event that any person makes any filing under Section 13(d) or 14(d) of the
Exchange Act with respect to the Corporation, other than a filing on Form 13G or Form 13D, the
Administrator may in its sole discretion, without obtaining stockholder approval, take one or more
of the following actions to the extent not inconsistent with other provisions of the Plan:

               (a) Accelerate the exercise dates of any outstanding Option or SAR, or make the Option or SAR
fully vested and exercisable;

               (b) Pay cash to any or all holders of Options or SARs in exchange for the cancellation of
their outstanding Options or SARs; or

               (c) Make any other adjustments or amendments to the Plan and outstanding Options or SARs and
substitute new Options or SARs for outstanding Options or SARs.

     15. SECURITIES LAW REQUIREMENTS

          (a) Legality of Issuance

     No Shares shall be issued under the Plan unless and until the Corporation has determined that:

               (i) it and the Optionee or Purchaser have taken all actions required to register the offer and
sale of the Shares under the Act, or to perfect an exemption from the registration requirements
thereof;

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

               (iii) any other applicable provision of state or Federal law has been satisfied.

          (b) Restrictions on Transfer; Representations of Optionee and Purchaser; Legends

     Regardless of whether the offering and sale of Shares under the Plan has been registered under
the Act or has been registered or qualified under the securities laws of any state, the Corporation
may impose restrictions upon the sale, pledge or other transfer of such Shares (including the
placement of appropriate legends on stock certificates) if, in the judgment of the Corporation and
its counsel, such restrictions are necessary or desirable in order to achieve compliance with the
provisions of the Act, the securities laws of any state or any other law. In the event that the
sale of Shares under the Plan is not registered under the Act but an exemption is available which
requires an investment representation or other representation, each Optionee and Purchaser shall be
required to represent that such Shares are being acquired for investment, and not with a view to
the sale or distribution thereof, and to make such other representations as are deemed necessary or
appropriate by the Corporation and its counsel. Stock certificates evidencing Shares acquired
under the Plan pursuant to an unregistered transaction shall bear the

15

 

following restrictive legend and such other restrictive legends as are required or deemed
advisable under the provisions of any applicable law:

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

     Any determination by the Corporation and its counsel in connection with any of the matters set
forth in this Section 15 shall be conclusive and binding on all persons.

          (c) Registration or Qualification of Securities.

     The Corporation may, but shall not be obligated to, register or qualify the sale of Shares
under the Act or any other applicable law. The Corporation shall not be obligated to take any
affirmative action in order to cause the sale of Shares under the Plan to comply with any law.

          (d) Exchange of Certificates

     If, in the opinion of the Corporation and its counsel, any legend placed on a stock
certificate representing Shares sold under the Plan is no longer required, the holder of such
certificate shall be entitled to exchange such certificate for a certificate representing the same
number of Shares but without such legend.

     16. AMENDMENT OF THE PLAN

     The Board may from time to time, with respect to any Shares at the time not subject to
Options, suspend or discontinue the Plan or revise or amend it in any respect whatsoever except
that, without the approval of the Corporation’s stockholders, no such revision or amendment shall:

          (a) Materially increase the benefits accruing to Participants under the Plan;

          (b) Increase the number of Shares which may be issued under the Plan;

          (c) Change the designation in Section 5 hereof with respect to the classes of persons eligible
to receive Incentive Stock Options; or

          (d) Amend this Section 16 to defeat its purpose.

     17. EXCHANGE ACT

     If the Common Stock is registered under the Exchange Act, the Plan shall be amended by the
Board from time to time to the extent necessary or advisable, in the judgment of the Board

16

 

after having consulted with Corporation’s counsel, to enable Participants who are officers or
Directors of the Corporation and who are generally subject to the duties established by Section
16(a) or 16(b) of the Exchange Act (“Section 16 Requirements”) with respect to purchases
and sales of equity securities of the Corporation, to obtain the benefits of such exclusions or
exemptions from the Section 16 Requirements as may be established by the Securities and Exchange
Commission from time to time by rule, regulation, administrative order or interpretation (whether
such interpretation is made by such Commission or staff) with respect to (i) the receipt of
Options, (ii) the exercise, modification, extension, cancellation, exchange, termination or
expiration of Options, (iii) the purchase of Common Stock upon the exercise of Options or otherwise
pursuant to the Plan, and (iv) the sale of Common Stock received upon the exercise of Options or
otherwise pursuant to the Plan. Anything in the Plan to the contrary notwithstanding, such
amendments may be made without approval of the Corporation’s stockholders unless and to the extent
that, in the judgment of the Board after consulting with the Corporation’s counsel, stockholder
approval of such an amendment is a prerequisite to effectuating a desired exclusion or exemption
from the Section 16 Requirements.

     18. APPLICATION OF FUNDS

     The proceeds received by the Corporation from the sale of Common Stock pursuant to the Plan
will be used for general corporate purposes.

     19. NO RETENTION OF RIGHTS

     Nothing in the Plan or in any Option, SAR or other right granted under the Plan shall confer
upon the Optionee, SAR Recipient or Purchaser any right to continue in service with the Corporation
for any period of specific duration or interfere with or otherwise restrict in any way the rights
of the Corporation (or any Parent or Subsidiary employing or retaining the Optionee, SAR Recipient
or Purchaser) or of the Optionee, SAR Recipient or Purchaser, which rights are hereby expressly
reserved by each, to terminate his service with the Corporation at any time and for any reason,
with or without cause.

     20. APPROVAL OF STOCKHOLDERS

     The Plan shall be subject to approval by the affirmative vote of a majority of the shares
represented and voting at a duly held meeting at which a quorum is present or by an action by
written consent no later than May 7, 2007. Prior to such approval, Options and SARs may be granted
but shall not be exercisable.

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     21. EXECUTION

     To record the adoption of the Plan by the Board on May 7, 2007 the Corporation has caused an
authorized officer to affix the Corporate name hereto.

	 	 	 	 	 
	 	PACIFIC ASIA PETROLEUM, INC.

 	 
	 	By:  	/s/ Frank C. Ingrisellil
 	 
	 	 	Name:  	Frank C. Ingriselli, CEO and President 	 
	 	 	 	 
	 

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