Document:

exv10w16

 

Exhibit 10.16

TASER INTERNATIONAL, INC.

2004 OUTSIDE DIRECTOR STOCK OPTION PLAN

(AS ADOPTED BY THE BOARD OF DIRECTORS ON JANUARY 30, 2004 AND APPROVED BY THE

STOCKHOLDERS AT THE APRIL 29, 2004 ANNUAL MEETING OF STOCKHOLDERS)

     1. Purposes of the Plan. The purposes of this 2004 Outside Director Stock Option Plan are to
attract and retain the best available personnel for service as Outside Directors (as defined
herein) of the Company, to provide additional incentive to the outside directors of the Company to
serve as Directors, and to encourage their continued service on the Board.

     All options granted hereunder shall be nonstatutory stock options.

     2. Definitions. As used herein, the following definitions shall apply:

          (a) “Board” means the Board of Directors of the Company.

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

          (c) “Common Stock” means the Common Stock of the Company.

          (d) “Company” means TASER International, Inc., a Delaware corporation.

          (e) “Director” means a member of the Board.

          (f) “Employee” means any person, including officers and Directors, employed by the Company or
any Parent or Subsidiary of the Company. The payment of a Director’s fee by the Company shall not
be sufficient in and of itself to constitute “employment” by the Company.

          (g) “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          (h) “Fair Market Value” means, as of any date, the value of Common Stock determined as
follows:

               (i) If the Common Stock is listed on any established stock exchange or a national market
system, including without limitation the NASDAQ National Market or The NASDAQ SmallCap Market of
The NASDAQ Stock Market, its Fair Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such exchange or system for the last
market trading day prior to the time of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;

               (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling
prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between
the high bid and low asked prices for the Common Stock on the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable, or;

               (iii) In the absence of an established market for the Common Stock, the Fair Market Value
thereof shall be determined in good faith by the Board.

          (i) “Inside Director” means a Director who is an Employee.

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          (j) “Option” means a stock option granted pursuant to the Plan.

          (k) “Optioned Stock” means the Common Stock subject to an Option.

          (l) “Optionee” means a Director who holds an Option.

          (m) “Outside Director” means a Director who is (i) not an Employee and (ii) not a partner nor
a member of any venture capital firm or institutional investor which owns securities of the Company
having more than five percent (5%) of the total voting power of the Company.

          (n) “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in
Section 424(e) of the Code.

          (o) “Plan” means this 2004 Director Stock Option Plan.

          (p) “Share” means a share of the Common Stock, as adjusted in accordance with Section 10 of
the Plan.

          (q) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as
defined in Section 424(f) of the Internal Revenue Code of 1986.

     3. Stock Subject to the Plan. Subject to the provisions of Section 10 of the Plan, the
maximum aggregate number of Shares which may be optioned and sold under the Plan is 200,000 Shares
of Common Stock (the “Pool”) on a post January 26, 2004 stock split basis. The Shares may be
authorized, but unissued, or reacquired Common Stock.

     If an Option expires or becomes unexercisable without having been exercised in full, the
unpurchased Shares which were subject thereto shall become available for future grant or sale under
the Plan (unless the Plan has terminated). Shares that have actually been issued under the Plan
shall not be returned to the Plan and shall not become available for future distribution under the
Plan.

     4. Administration and Grants of Options under the Plan.

          (a) Procedure for Grants. All grants of Options to Outside Directors under this Plan shall be
automatic and nondiscretionary and shall be made strictly in accordance with the following
provisions:

               (i) No person shall have any discretion to select which Outside Directors shall be granted
Options or to determine the number of Shares to be covered by Options granted to Outside Directors.

               (ii) Each new Outside Director shall be automatically granted an Option to purchase 15,000
Shares (the “First Option”) on the date on which the later of the following events occurs: (A) the
effective date of this Plan, as determined in accordance with Section 6 hereof, or (B) the date on
which such person first becomes an Outside Director, whether through election by the stockholders
of the Company or appointment by the Board to fill a vacancy; provided, however, that an Inside
Director who ceases to be an Inside Director but who remains a Director shall not receive a First
Option.

               (iii) Each Outside Director shall be automatically granted an Option to purchase 6,000 Shares
(a “Subsequent Option”) on the date of the annual meeting of stockholders of each year provided he
or she is then an Outside Director and if as of such date, he or she shall have served on the Board
for at least the preceding six (6) months.

               (iv) Notwithstanding the provisions of subsections (ii) and (iii) hereof, any exercise of an
Option granted before the Company has obtained shareholder approval of the Plan in accordance with
Section 16 hereof shall be conditioned upon obtaining such shareholder approval of the Plan in
accordance with Section 16 hereof.

               (v) The terms of a First Option granted hereunder shall be as follows:

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                    (A) the term of the First Option shall be ten (10) years.

                    (B) the First Option shall be exercisable only while the Outside Director remains a Director
of the Company, except as set forth in Sections 8 and 10 hereof.

                    (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date
of grant of the First Option. In the event that the date of grant of the First Option is not a
trading day, the exercise price per Share shall be the Fair Market Value on the next trading day
immediately following the date of grant of the First Option.

                    (D) subject to Section 10 hereof, the First Option shall become exercisable as to 1/4th of
the Shares subject to the First Option on the day before the annual meeting of stockholders of each
year or, if no such meeting is held, on each anniversary of the date of grant, provided that the
Optionee continues to serve as a Director on such dates.

               (vi) The terms of a Subsequent Option granted hereunder shall be as follows:

                    (A) the term of the Subsequent Option shall be ten (10) years.

                    (B) the Subsequent Option shall be exercisable only while the Outside Director remains a
Director of the Company, except as set forth in Sections 8 and 10 hereof.

                    (C) the exercise price per Share shall be 100% of the Fair Market Value per Share on the date
of grant of the Subsequent Option. In the event that the date of grant of the Subsequent Option is
not a trading day, the exercise price per Share shall be the Fair Market Value on the next trading
day immediately following the date of grant of the Subsequent Option.

                    (D) subject to Section 10 hereof, the Subsequent Option shall become exercisable as to 1/3 of
the Shares subject to the Subsequent Option on the day before the annual meeting of stockholders of
each year or, if no such meeting is held, on each anniversary of the date of grant, provided that
the Optionee continues to serve as a Director on such dates.

               (vii) In the event that any Option granted under the Plan would cause the number of Shares
subject to outstanding Options plus the number of Shares previously purchased under Options to
exceed the Pool, then the remaining Shares available for Option grant shall be granted under
Options to the Outside Directors on a pro rata basis. No further grants shall be made until such
time, if any, as additional Shares become available for grant under the Plan through action of the
Board or the stockholders to increase the number of Shares which may be issued under the Plan or
through cancellation or expiration of Options previously granted hereunder.

     5. Eligibility. Options may be granted only to Outside Directors. All Options shall be
automatically granted in accordance with the terms set forth in Section 4 hereof.

     The Plan shall not confer upon any Optionee any right with respect to continuation of service
as a Director or nomination to serve as a Director, nor shall it interfere in any way with any
rights which the Director or the Company may have to terminate the Director’s relationship with the
Company at any time.

     6. Term of Plan. The Plan shall become effective upon the earlier to occur of its adoption by
the Board or its approval by the stockholders of the Company as described in Section 16 of the
Plan. It shall continue in effect for a term of ten (10) years unless sooner terminated under
Section 11 of the Plan.

     7. Form of Consideration. The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall consist of (i) cash, (ii) check,
(iii) other shares which (x) in the case of Shares acquired upon exercise of an Option, have been
owned by the Optionee for more than six (6) months on the date of surrender, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to
which said

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Option shall be exercised, (iv) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan, or (v) any combination of
the foregoing methods of payment.

     8. Exercise of Option.

          (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be
exercisable at such times as are set forth in Section 4 hereof; provided, however, that no Options
shall be exercisable until shareholder approval of the Plan in accordance with Section 16 hereof
has been obtained.

     An Option may not be exercised for a fraction of a Share.

     An Option shall be deemed to be exercised when written notice of such exercise has been given
to the Company in accordance with the terms of the Option by the person entitled to exercise the
Option and full payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the appropriate entry
on the books of the Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the
Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee
as soon as practicable after exercise of the Option. No adjustment shall be made for a dividend or
other right for which the record date is prior to the date the stock certificate is issued, except
as provided in Section 10 of the Plan.

     Exercise of an Option in any manner shall result in a decrease in the number of Shares which
thereafter may be available, both for purposes of the Plan and for sale under the Option, by the
number of Shares as to which the Option is exercised.

          (b) Termination of Continuous Status as a Director. Subject to Section 10 hereof, in the
event an Optionee’s status as a Director terminates (other than upon the Optionee’s death or total
and permanent disability (as defined in Section 22(e)(3) of the Code)), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such termination, and
only to the extent that the Optionee was entitled to exercise it on the date of such termination
(but in no event later than the expiration of its ten (10) year term). To the extent that the
Optionee was not entitled to exercise an Option on the date of such termination, and to the extent
that the Optionee does not exercise such Option (to the extent otherwise so entitled) within the
time specified herein, the Option shall terminate.

          (c) Disability of Optionee. In the event Optionee’s status as a Director terminates as a
result of total and permanent disability (as defined in Section 22(e)(3) of the Code), the Optionee
may exercise his or her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise it on the date of
such termination (but in no event later than the expiration of its ten (10) year term). To the
extent that the Optionee was not entitled to exercise an Option on the date of termination, or if
he or she does not exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.

          (d) Death of Optionee. In the event of an Optionee’s death, the Optionee’s estate or a person
who acquired the right to exercise the Option by bequest or inheritance may exercise the Option,
but only within twelve (12) months following the date of death, and only to the extent that the
Optionee was entitled to exercise it on the date of death (but in no event later than the
expiration of its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of death, and to the extent that the Optionee’s estate or a person
who acquired the right to exercise such Option does not exercise such Option (to the extent
otherwise so entitled) within the time specified herein, the Option shall terminate.

     9. Non-Transferability of Options. Unless otherwise determined by the Board, the Option may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than
by will or by the laws of descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.

     10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

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          (a) Changes in Capitalization. Subject to any required action by the stockholders of the
Company, the number of Shares covered by each outstanding Option, the number of Shares which have
been authorized for issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan upon cancellation or expiration of an Option, as well as the
price per Share covered by each such outstanding Option, and the number of Shares issuable pursuant
to the automatic grant provisions of Section 4 hereof shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a stock split, reverse stock
split, stock dividend, combination or reclassification of the Common Stock, or any other increase
or decrease in the number of issued Shares effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities of the Company shall not
be deemed to have been “effected without receipt of consideration.” Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of Shares subject to an Option.

     (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of
the Company, to the extent that an Option has not been previously exercised, it shall terminate
immediately prior to the consummation of such proposed action.

     (c) Merger or Asset Sale. In the event of a merger of the Company with or into another
corporation or the sale of substantially all of the assets of the Company, outstanding Options may
be assumed or equivalent options may be substituted by the successor corporation or a Parent or
Subsidiary thereof (the “Successor Corporation”). If an Option is assumed or substituted for, the
Option or equivalent option shall continue to be exercisable as provided in Section 4 hereof for so
long as the Optionee serves as a Director or a director of the Successor Corporation. Following
such assumption or substitution, if the Optionee’s status as a Director or director of the
Successor Corporation, as applicable, is terminated other than upon a voluntary resignation by the
Optionee, the Option or option shall become fully exercisable, including as to Shares for which it
would not otherwise be exercisable. Thereafter, the Option or option shall remain exercisable in
accordance with Sections 8(b) through (d) above.

     If the Successor Corporation does not assume an outstanding Option or substitute for it an
equivalent option, the Option shall become fully vested and exercisable, including as to Shares for
which it would not otherwise be exercisable. In such event the Board shall notify the Optionee
that the Option shall be fully exercisable for a period of ninety (90) days from the date of such
notice, and upon the expiration of such period the Option shall terminate.

     For the purposes of this Section 10(c), an Option shall be considered assumed if, following
the merger or sale of assets, the Option confers the right to purchase or receive, for each Share
of Optioned Stock subject to the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in the merger or sale
of assets by holders of Common Stock for each Share held on the effective date of the transaction
(and if holders were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares). If such consideration received in the merger or
sale of assets is not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Option, for each Share of Optioned Stock subject to the
Option, to be solely common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the merger or sale of
assets.

     11. Amendment and Termination of the Plan.

          (a) Amendment and Termination. The Board may at any time amend, alter, suspend, or
discontinue the Plan, but no amendment, alteration, suspension, or discontinuation shall be made
which would impair the rights of any Optionee under any grant theretofore made, without his or her
consent. In addition, to the extent necessary and desirable to comply with any applicable law,
regulation or stock exchange rule, the Company shall obtain shareholder approval of any Plan
amendment in such a manner and to such a degree as required.

          (b) Effect of Amendment or Termination. Any such amendment or termination of the Plan shall
not affect Options already granted and such Options shall remain in full force and effect as if
this Plan had not been amended or terminated.

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     12. Time of Granting Options. The date of grant of an Option shall, for all purposes, be the
date determined in accordance with Section 4 hereof.

     13. Conditions Upon Issuance of Shares. Shares shall not be issued pursuant to the exercise
of an Option unless the exercise of such Option and the issuance and delivery of such Shares
pursuant thereto shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares
may then be listed, and shall be further subject to the approval of counsel for the Company with
respect to such compliance.

     As a condition to the exercise of an Option, the Company may require the person exercising
such Option to represent and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or distribute such Shares,
if, in the opinion of counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.

     Inability of the Company to obtain authority from any regulatory body having jurisdiction,
which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to
issue or sell such Shares as to which such requisite authority shall not have been obtained.

     14. Reservation of Shares. The Company, during the term of this Plan, will at all times
reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements
of the Plan.

     15. Option Agreement. Options shall be evidenced by written option agreements in such form as
the Board shall approve.

     16. Shareholder Approval. Continuance of the Plan shall be subject to approval by the
stockholders of the Company at or prior to the first annual meeting of stockholders held subsequent
to the granting of an Option hereunder. Such shareholder approval shall be obtained in the degree
and manner required under applicable state and federal law and any stock exchange rules.

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TASER INTERNATIONAL, INC.

2004 DIRECTOR STOCK OPTION PLAN

DIRECTOR OPTION AGREEMENT

     TASER International, Inc., a Delaware corporation (the “Company”), has granted to                     
(the “Optionee”), an option to purchase a total of [                     (     )] shares of the Company’s
Common Stock (the “Optioned Stock”), at the price determined as provided herein, and in all
respects subject to the terms, definitions and provisions of the Company’s 2004 Director Stock
Option Plan (the “Plan”) adopted by the Company which is incorporated herein by reference. The
terms defined in the Plan shall have the same defined meanings herein.

     1. Nature of the Option. This Option is a nonstatutory option and is not intended to qualify
for any special tax benefits to the Optionee.

     2. Exercise Price. The exercise price is $                     for each share of Common Stock.

     3. Exercise of Option. This Option shall be exercisable during its term in accordance with
the provisions of Section 8 of the Plan as follows:

          (a) Right to Exercise.

               (i) This Option shall become exercisable in installments cumulatively with respect to 1/4th of
the Shares subject to the Option on the day before the annual meeting of stockholders of each year
or, if no such meeting is held, on each anniversary of the date of grant, provided that the
Optionee continues to serve as a Director on such dates; provided, however, that in no event shall
any Option be exercisable prior to the date the stockholders of the Company approve the Plan.

               (ii) This Option may not be exercised for a fraction of a share.

               (iii) In the event of Optionee’s death, disability or other termination of service as a
Director, the exercisability of the Option is governed by Section 8 of the Plan.

          (b) Method of Exercise. This Option shall be exercisable by written notice which shall state
the election to exercise the Option and the number of Shares in respect of which the Option is
being exercised. Such written notice, in the form attached hereto as Exhibit A, shall be signed by
the Optionee and shall be delivered in person or by certified mail to the Secretary of the Company.
The written notice shall be accompanied by payment of the exercise price.

     4. Method of Payment. Payment of the exercise price shall be by any of the following, or a
combination thereof, at the election of the Optionee:

          (a) cash;

          (b) check;

          (c) surrender of other shares which (x) in the case of Shares acquired upon exercise of an
Option, have been owned by the Optionee for more than six (6) months on the date of surrender, and
(y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised; or

          (d) delivery of a properly executed exercise notice together with such other documentation as
the Company and the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the exercise price.

 

 

     5. Restrictions on Exercise. This Option may not be exercised if the issuance of such Shares
upon such exercise or the method of payment of consideration for such shares would constitute a
violation of any applicable federal or state securities or other law or regulations, or if such
issuance would not comply with the requirements of any stock exchange upon which the Shares may
then be listed. As a condition to the exercise of this Option, the Company may require Optionee to
make any representation and warranty to the Company as may be required by any applicable law or
regulation.

     6. Non-Transferability of Option. This Option may not be transferred in any manner otherwise
than by will or by the laws of descent or distribution and may be exercised during the lifetime of
Optionee only by the Optionee. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.

     7. Term of Option. This Option may not be exercised more than ten (10) years from the date of
grant of this Option, and may be exercised during such period only in accordance with the Plan and
the terms of this Option.

     8. Taxation Upon Exercise of Option. Optionee understands that, upon exercise of this Option,
he or she will recognize income for tax purposes in an amount equal to the excess of the then Fair
Market Value of the Shares purchased over the exercise price paid for such Shares. Since the
Optionee is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, under
certain limited circumstances the measurement and timing of such income (and the commencement of
any capital gain holding period) may be deferred, and the Optionee is advised to contact a tax
advisor concerning the application of Section 83 in general and the availability of a Section 83(b)
election in particular in connection with the exercise of the Option. Upon a resale of such Shares
by the Optionee, any difference between the sale price and the Fair Market Value of the Shares on
the date of exercise of the Option, to the extent not included in income as described above, will
be treated as capital gain or loss.

	 	 	 	 	 
	Date of Grant:                                         	TASER INTERNATIONAL, INC.,

a Delaware corporation

 	 
	 	By:  	
 	 
	 	 	 	 
	 	 	 	 
	 

     Optionee acknowledges receipt of a copy of the Plan, a copy of which is attached hereto, and
represents that he or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the Board upon any questions
arising under the Plan.

	 	 	 	 	 	 	 
	Dated:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	

	 	 	 	 	 	Optionee

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EXHIBIT A

DIRECTOR OPTION EXERCISE NOTICE

TASER International, Inc.

Attention: Corporate Secretary

     1. Exercise of Option. The undersigned (“Optionee”) hereby elects to exercise Optionee’s
option to purchase shares of the Common Stock (the “Shares”) of TASER International, Inc.
(the “Company”) under and pursuant to the Company’s 2004 Director Stock Option Plan and the
Director Option Agreement dated            (the “Agreement”).

     2. Representations of Optionee. Optionee acknowledges that Optionee has received, read and
understood the Agreement.

     3. Federal Restrictions on Transfer. Optionee understands that the Shares must be held
indefinitely unless they are registered under the Securities Act of 1933, as amended (the “1933
Act”), or unless an exemption from such registration is available, and that the certificate(s)
representing the Shares may bear a legend to that effect. Optionee understands that the Company is
under no obligation to register the Shares and that an exemption may not be available or may not
permit Optionee to transfer Shares in the amounts or at the times proposed by Optionee.

     4. Tax Consequences. Optionee understands that Optionee may suffer adverse tax consequences
as a result of Optionee’s purchase or disposition of the Shares. Optionee represents that Optionee
has consulted with any tax consultant(s) Optionee deems advisable in connection with the purchase
or disposition of the Shares and that Optionee is not relying on the Company for any tax advice.

     5. Delivery of Payment. Optionee herewith delivers to the Company the aggregate purchase
price for the Shares that Optionee has elected to purchase and has made provision for the payment
of any federal or state withholding taxes required to be paid or withheld by the Company.

     6. Entire Agreement. The Agreement is incorporated herein by reference. This Exercise Notice
and the Agreement constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Optionee with respect to the subject
matter hereof. This Exercise Notice and the Agreement are governed by Delaware law except for that
body of law pertaining to conflict of laws.

	 	 	 	 	 	 	 
	Submitted by:
	 	Accepted by:
	 
	 	 	 	 	 	 
	OPTIONEE:
	 	 	 	TASER INTERNATIONAL, INC.
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	

	 	 	 	By:	 	 
	

	 	 
	 	 	 	

	 
	 	 	 	 	 	 
	

	 	 	 	Its:	 	 
	

	 	 	 	 	 	

	 
	 	 	 	 	 	 
	

	 	 	 	Address:	 	 
	

	 	 	 	 	 	

	 
	 	 	 	 	 	 
	Dated:

	 	 	 	          Dated:	 	 
	

	 	

	 	 	 	

-3-Employment Agreement

Exhibit
10.12

 

EMPLOYMENT
AGREEMENT

LMI
AEROSPACE, INC., a
Missouri corporation (the "Corporation"), and
LAWRENCE E. DICKINSON ("Employee")
hereby agree as follows:

1. Employment. The
Corporation hereby employs Employee, and Employee accepts employment from the
Corporation, upon the terms and conditions hereinafter set forth. Any and all
employment agreements heretofore entered into between the Corporation and
Employee are hereby terminated and cancelled, and each of the parties hereto
mutually releases and discharges the other from any and all obligations and
liabilities heretofore or now existing under or by virtue of any such employment
agreements, it being the intention of the parties hereto that this Agreement,
effective immediately, shall supersede and be in lieu of any and all prior
employment agreements between them.

2. Term
of Employment. 

(A) The
initial term of Employee's employment under this Agreement shall commence on
January 1, 2004 and shall terminate on December 31, 2005; provided, however,
that this Agreement shall be automatically extended for additional terms of one
year each unless not later than October 31 of any year beginning in 2005, either
party has given written notice to the other party of its or his intention not to
extend the term of this Agreement; and provided, further, that the term of
employment may be terminated upon the earlier occurrence of any of the following
events:

(1) Upon the
termination of the business or corporate existence of the
Corporation;

 

(2) At the
Corporation’s option, in the event the Corporation determines that Employee is
not performing the duties required of him hereunder to the satisfaction of the
Corporation;

 

(3) Upon the
death of the Employee;

 

(4) At the
Corporation's option, if Employee shall suffer a permanent disability; (For the
purposes of this Agreement, "permanent disability" means any physical or mental
impairment that renders the Employee unable for a period of six (6) months or
more to perform the essential job functions of his position, even with
reasonable accommodation, as determined by a physician selected by the
Corporation. The Employee acknowledges and agrees that he shall voluntarily
submit to a medical or psychological examination for the purpose of determining
his continued fitness to perform the essential functions of his position
whenever requested to do so by the Corporation. If the Corporation elects to
terminate the employment relationship on this basis, the Corporation shall
notify the Employee or his representative in writing and the termination shall
become effective on the date that such notification is given;

 

(5) At the
Corporation's option, upon ten (10) calendar days’ written notice to Employee,
in the event of any breach or default by Employee of any of the terms of this
Agreement or of any of Employee's duties or obligations hereunder. In lieu of
providing ten (10) calendar days’ advance written notice, the Corporation, at
its sole option, may terminate the Employee’s services immediately and pay him
an amount that is equivalent to ten (10) calendar days of his salary, less any
deductions required by law;

 

(6) At the
Corporation’s option, without any advance notice, in the event that the Employee
engages in conduct which, in the opinion of the Corporation, (1) constitutes
dishonesty of any kind (including, but not limited to, any misrepresentation of
facts or falsification of records) in Employee’s relations, interactions or
dealings with the Corporation or its customers; (2) constitutes a felony; (3)
potentially may or will expose the Corporation to public disrepute or disgrace,
or potentially may or will cause harm to the customer relations, operations or
business prospects of the Corporation; (4) constitutes harassment or
discrimination towards any person associated with the Corporation, whether an
employee, agent or customer, based upon that person’s race, color, national
origin, sex, age, disability, religion, or other protected status; (5) reflects
disruptive or disorderly conduct, including but not limited to, acts of
violence, fighting, intimidation or threats of violence against any person
associated with the Corporation, whether an employee, agent or customer, or
possessing a weapon while on the Corporation’s premises or while acting on
behalf of the Corporation; (6) is indicative of abusive or illegal drug use
while on the Corporation’s premises or while acting on the Corporation’s behalf;
or (7) constitutes a willful violation of any governmental rules or regulations;
or

 

(7) At the
Employee’s option, after providing the Corporation with at least thirty (30)
calendar days advance written notice of his intention to terminate the
employment relationship.

 

If
employment is terminated for any of the reasons set forth in subparagraphs (3)
through (7) of this section 2(A), Employee shall be entitled to receive only the
Base Salary (as that term is hereinafter defined) accrued but unpaid as of the
date of the termination and shall be ineligible to receive any additional
compensation or severance pay. If, on the other hand, employment is terminated
by the Corporation during the term of this Agreement for any reason other than
those set forth in paragraphs (3) through (7) of this section 2(A), subject to
the conditions set forth in paragraphs 2(C) and (D) of this Agreement, the
Corporation shall provide severance pay to Employee in an amount based upon his
length of service with the Corporation. Specifically, the Corporation shall
provide Employee with six (6) months of Base Salary if he has less than five (5)
years of service with the Corporation as of the date of his termination and with
twelve (12) months of Base Salary if he has five (5) or more years of service
with the Corporation as of the date of his termination. Such severance pay shall
be paid in equal monthly installments, unless the Corporation, within its sole
discretion, elects to pay the present value of the severance pay in a lump sum
within thirty (30) calendar days of the termination.

 

(B) If
employment is terminated in conjunction with a change in the control of the
Corporation or in conjunction with the sale of substantially all of the
operating assets of the Corporation, the Corporation will provide Employee with
severance pay under the circumstances specified in subparagraphs (1) and (2) of
this paragraph (B), and the conditions set forth in paragraphs 2(C) and (D) of
this Agreement. For the purposes of this Agreement, a “change in control” is
defined as the sale of substantially all of the operating assets of the
Corporation or the acquisition of more than fifty percent (50%) of the stock of
the Corporation by a group of shareholders or an entity which acquires control
of the Corporation (a “Purchaser”). 

 

(1) If the
change in control or the sale results in the involuntary termination of Employee
or results in the Employee electing to terminate his employment for a good
reason as determined by the Corporation (such as the Purchaser refusing to offer
full time employment to Employee on terms comparable to those provided by the
Corporation prior to the acquisition or the Purchaser requiring Employee to move
to a new location), the Corporation shall provide Employee with severance pay in
an amount that is equal to two times his annual Base Salary and shall pay
Employee any reasonably anticipated Performance Bonus for the fiscal year in
which he was terminated on a prorated basis.

 

(2) If
Employee voluntarily terminates his employment without a good reason (as
determined by the Corporation) within ninety (90) days after the change in
control or the sale, the Corporation shall provide Employee with six (6) months
of Base Salary if he has less than five (5) years of service with the
Corporation as of the date of his termination and with twelve (12) months of
Base Salary if he has five (5) or more years of service with the Corporation as
of the date of his termination.

 

(3) For
purposes of this paragraph 2(B), in the event a change of control occurs after
April 1, 2005, Employee may take up to nine (9) months from the date of change
of control to claim severance pay, as provided in paragraph 2(B)(1) and
(2).

 

(C) The
severance pay provided for in section 2(A) of this Agreement shall be paid in
equal monthly installments, unless the Corporation, within its sole discretion,
elects to pay the present value of the severance pay in a lump sum within thirty
(30) calendar days of the termination. For purposes of calculating the present
value of the severance pay, the discount rate shall be the prime rate quoted in
the Wall
Street Journal on the
day the Corporation elects to pay the present value of the severance pay in a
lump sum.

 

(D) Notwithstanding
anything to the contrary, (i) the amount of severance pay provided under this
Agreement shall not under any circumstances exceed the limitations set forth in
§ 280G of the Code, and (ii) the Corporation’s obligation to pay the severance
pay provided for in this section 2 shall be conditioned on Employee’s execution
of a written release satisfactory to the Corporation.

 

3. Compensation.

(A) During
the period from January 1, 2004 to December 31, 2004, the Corporation shall
compensate Employee for Employee's services rendered hereunder by paying to
Employee an annual salary (the "Base Salary") of One Hundred Thirty Thousand
Dollars ($130,000.00), less any authorized or required payroll deductions.
Thereafter, as long as this Agreement remains in effect, the annual Base Salary
that the Corporation shall pay to the Employee for his services rendered
hereunder will be One Hundred Seventy-two Thousand, Five Hundred Dollars
($172,500.00), less any authorized or required payroll deductions. The annual
Base Salary of Employee shall be increased by Three Thousand Two Hundred
Seventy-nine Dollars ($3,279.00), representing the sum of (i) the annual payment
previously made by the Corporation for premiums on a certain life insurance
policy issued on Employee’s life in conjunction with an assignment of benefits
agreement with the Corporation, and (ii) the income tax attributable to the
payment described in the preceding clause (i) of this paragraph. Payment of this
salary will be made in accordance with the payroll policies of the Corporation
in effect from time to time.

 

(B) With
respect to each complete fiscal year of the Corporation during which (i) the
Employee is employed under the terms of this Agreement as of the last day of
such fiscal year, and (ii) the Corporation's "Annual Net Income" (as that term
is hereinafter defined) is more than One Million Dollars ($1,000,000.00), the
Corporation shall pay to Employee, in addition to the Base Salary, an annual
"Performance Bonus". The amount of the annual Performance Bonus (if any) shall
be equal to:

 

(1) seven
tenths of one percent (0.70%) of the Corporation’s Annual Net Income that is
between One Million Dollars ($1,000,000.00) and One Million, Nine Hundred
Ninety-Nine Thousand, Nine Hundred Ninety-Nine Dollars and Ninety-Nine Cents
($1,999,999.99); plus

 

(2) one
percent (1.00%) of the Corporation’s Net Income that is between Two Million
Dollars ($2,000,000.00) and Eight Million Dollars ($8,000,000.00),
inclusive.

 

In the
event the Corporation's Annual Net Income for any given fiscal year is less than
One Million Dollars ($1,000,000.00), the Employee shall not be entitled to a
Performance Bonus with respect to such fiscal year. Notwithstanding anything
contained herein to the contrary, in the event the sum of the Employee's
Performance Bonus with respect to a fiscal year plus the Employee's benefit
under all performance/production incentive programs of the Corporation in which
the Employee is entitled to a bonus ("Incentive Benefit") for such fiscal year
exceeds Sixty-seven Thousand Dollars ($67,000.00), the amount of the Employee's
Performance Bonus for such year shall be reduced so that the sum of the
Performance Bonus and the Incentive Benefit equals Sixty-seven Thousand Dollars
($67,000.00).

 

For
purposes of the calculation of the Performance Bonus, the Corporation's "Annual
Net Income" means the consolidated net profit of the Corporation and its
subsidiaries, for a given fiscal year, as determined by the firm of independent
certified public accountants providing auditing services to the Corporation,
using generally accepted accounting principles consistently applied, and
calculated without regard to (a) any bonus paid to the Corporation’s Chairman of
the Board and any formula bonuses paid pursuant to employment contracts, (b)
federal and state income tax, and (c) any income or loss attributable to any
other corporation or entity (including the assets of a corporation or entity
that constitute an operating business) acquired by or merged into the
Corporation subsequent to the effective date of this Agreement. The Corporation
shall pay to Employee any Performance Bonus due the Employee hereunder not later
than fifteen (15) days after the receipt by the Corporation of its annual
audited financial statements, which the Corporation expects to receive within
ninety (90) days after the end of each fiscal year of the
Corporation.

 

(C) In
addition to the Base salary and Performance Bonus (if any), Employee shall be
entitled to receive such bonus compensation as the Board of Directors of the
Corporation may authorize from time to time.

 

(D) The
Corporation retains the right to modify or adjust the manner in which the
Performance Bonus is calculated in the event that the Corporation either
acquires the assets of another entity, or any portion thereof, or sells its
assets, or any portion thereof, to another entity.

 

4. Duties
of Employee.

(A) Employee
shall serve as Chief Financial Officer of the Corporation or in such other
positions as may be determined by the Board of Directors of the Corporation, and
Employee shall perform such duties on behalf of the Corporation and its
subsidiaries by such means, at such locations, and in such manner as may be
specified from time to time by the officers or Board of Directors of the
Corporation.

 

(B) Employee
agrees to abide by and conform to all rules established by the Corporation
applicable to its employees.

 

(C) Employee
acknowledges that he is being employed as a full-time employee, and Employee
agrees to devote so much of Employee's entire time, attention and energies to
the business of the Corporation as is necessary for the successful operation of
the Corporation and shall endeavor at all times to improve the business of the
Corporation. Employee shall not accept any business commitments other than with
the Corporation without the advance written consent of the Corporation’s
President.

 

5. Expenses. During
the period of Employee's employment, except as otherwise specifically provided
in this Agreement, the Corporation will pay directly, or reimburse Employee for,
all items of reasonable and necessary business expenses approved in advance by
the Corporation if such expenses are incurred by Employee in the interest of the
business of the Corporation. The Corporation shall also reimburse Employee for
automobile expenses incurred by Employee in the performance of Employee's duties
hereunder. The amount of such reimbursement shall be in accordance with the
automobile expense reimbursement policy adopted (and as it may be modified from
time to time) by the Corporation's Board of Directors. All such expenses paid by
Employee will be reimbursed by the Corporation upon presentation by Employee,
from time to time (but not less than quarterly), of an itemized account of such
expenditures in accordance with the Corporation's policy for verifying such
expenditures.

 

6. Fringe
Benefits.

(A) Employee
shall be entitled to participate in any health, accident and life insurance
program and other benefits which have been or may be established by the
Corporation for salaried employees of the Corporation.

 

(B) Employee
shall be entitled to an annual vacation without loss of compensation for such
period as may be determined by the Board of Directors of the
Corporation.

 

(C) The
Corporation shall furnish to the Employee during the term of his employment an
automobile selected by the Corporation to aid the Employee in the performance of
his duties. Upon agreement of the Corporation and the Employee, the Corporation
may, in lieu of the automobile, provide the Employee with a Five Thousand Dollar
($5,000.00) annual automobile allowance.

 

7. Covenants
of Employee.

(A) During
the term of Employee's employment with the Corporation and for all time
thereafter Employee covenants and agrees that Employee will not in any manner
directly or indirectly, except as required in Employee's duties to the
Corporation, disclose or divulge to any person, entity, firm or company
whatsoever, or use for Employee's own benefit or the benefit of any other
person, entity, firm or company, directly or indirectly, any knowledge, devices,
information, techniques, customer lists, business plans or other data belonging
to the Corporation or developed by Employee on behalf of the Corporation during
his employment with the Corporation, without regard to whether all of the
foregoing matters will be deemed confidential, material or important, the
parties hereto stipulating, as between them, that the same are important,
material, confidential and the property of the Corporation, that disclosure of
the same to or use of the same by third parties would greatly affect the
effective and successful conduct of the business of the Corporation and the
goodwill of the Corporation, and that any breach of the terms of this
subparagraph (A) shall be a material breach of this Agreement.

 

(B) During
the term of Employee's employment with the Corporation and for a period of two
(2) years or one (1) year with respect to subparagraph (iv) below (the "Covenant
Term") after cessation for whatever reason of such employment (except as
hereinafter provided in subparagraph (C) of this paragraph 7), Employee
covenants and agrees that Employee will not in any manner directly or
indirectly:

 

(1) solicit,
divert, take away or interfere with any of the customers (or their respective
affiliates or successors) of the Corporation;

 

(2) engage
directly or indirectly, either personally or as an employee, partner, associate
partner, officer, manager, agent, advisor, consultant or otherwise, or by means
of any corporate or other entity or device, in any business which is competitive
with the business of the Corporation. For purposes of this covenant a business
will be deemed competitive if it is conducted in whole or in part within any
geographic area wherein the Corporation is engaged in marketing its products,
and if it involves the manufacture of component parts for the aerospace industry
or any other business which is in any manner competitive, as of the date of
cessation of Employee's employment, with any business then being conducted by
the Corporation or as to which the Corporation has then formulated definitive
plans to enter;

 

(3) induce
any salesman, distributor, supplier, manufacturer, representative, agent, jobber
or other person transacting business with the Corporation to terminate their
relationship with the Corporation, or to represent, distribute or sell products
in competition with products of the Corporation; or

 

(4) induce or
cause any employee of the Corporation to leave the employ of the
Corporation.

 

(C) The
parties agree that the Covenant Term provided for in the preceding subparagraph
(B) shall be:

 

(1) reduced
to six (6) months in the event all of the operating assets or all of the common
stock of the Corporation is sold to any entity or individuals unaffiliated with
the Corporation, its successors or assigns; or

 

(2) eliminated
if the business currently operated by the Corporation is terminated and the
assets of the Corporation are liquidated.

 

(D) All the
covenants of Employee contained in this paragraph 7 shall be construed as
agreements independent of any other provision of this Agreement, and the
existence of any claim or cause of action against the Corporation, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Corporation of these covenants.

 

(E) It is the
intention of the parties to restrict the activities of Employee under this
paragraph 7 only to the extent necessary for the protection of legitimate
business interests of the Corporation, and the parties specifically covenant and
agree that should any of the provisions set forth therein, under any set of
circumstances not now foreseen by the parties, be deemed too broad for such
purpose, said provisions will nevertheless be valid and enforceable to the
extent necessary for such protection.

 

8. Documents. Upon
cessation of Employee's employment with the Corporation, for whatever reason,
all documents, records (including without limitation, customer records),
notebooks, invoices, statements or correspondence, including copies thereof,
relating to the business of the Corporation then in Employee's possession,
whether prepared by Employee or others, will be delivered to and left with the
Corporation, and Employee agrees not to retain copies of the foregoing documents
without the written consent of the Corporation.

 

9. Remedies. In the
event of the breach by Employee of any of the terms of this Agreement,
notwithstanding anything to the contrary contained in this Agreement, the
Corporation may terminate the employment of Employee in accordance with the
provisions of paragraph 2 of this Agreement. It is further agreed that any
breach or evasion of any of the terms of this Agreement by Employee will result
in immediate and irreparable injury to the Corporation and will authorize
recourse to injunction and/or specific performance as well as to other legal or
equitable remedies to which the Corporation may be entitled. In addition to any
other remedies that it may have in law or equity, the Corporation also may
require an accounting and repayment of all profits, compensation, remuneration
or other benefits realized, directly or indirectly, as a result of such breaches
by the Employee or by a competitor’s business controlled, directly or
indirectly, by the Employee. No remedy conferred by any of the specific
provisions of this Agreement is intended to be exclusive of any other remedy and
each and every remedy given hereunder or now or hereafter existing at law or in
equity by statute or otherwise. The election of any one or more remedies by the
Corporation shall not constitute a waiver of the right to pursue other available
remedies. Employee expressly agrees to pay all reasonable costs and attorneys’
fees incurred by the Corporation in order to enforce the Employee’s obligations
under this Agreement, regardless of whether litigation is commenced or
prosecuted to a judgment.

 

10. Severability. All
agreements and covenants contained herein are severable, and in the event any of
them shall be held to be invalid by any court of competent jurisdiction, this
Agreement, subject to subparagraph 7(E) hereof, shall continue in full force and
effect and shall be interpreted as if such invalid agreements or covenants were
not contained herein.

 

11. Waiver
or Modification. No
waiver or modification of this Agreement or of any covenant, condition or
limitation herein shall be valid unless in writing and duly executed by the
party to be charged therewith, and no evidence of any waiver or modification
shall be offered or received in evidence in any proceeding, arbitration or
litigation between the parties hereto arising out of or affecting this
Agreement, or the rights or obligations of the parties hereunder, unless such
waiver or modification is in writing, duly executed as aforesaid, and the
parties further agree that the provisions of this Paragraph may not be waived
except as herein set forth. Failure of the Corporation to exercise or otherwise
act with respect to any of its rights hereunder in the event of a breach of any
of the terms or conditions hereof by Employee shall not be construed as a waiver
of such breach nor prevent the Corporation from thereafter enforcing strict
compliance with any and all of the terms and conditions hereof.

 

12. Assignability. This
Agreement may be assigned by the Corporation to another entity which purchases
substantially all of the assets of the Corporation or acquires a majority of the
stock of the Corporation. The services to be performed by Employee hereunder are
personal in nature and, therefore, Employee shall not assign Employee's rights
or delegate Employee's obligations under this Agreement, and any attempted or
purported assignment or delegation not herein permitted shall be null and
void.

 

13. Successors. Subject
to the provisions of paragraph 12, this Agreement shall be binding upon and
shall inure to the benefit of the Corporation and Employee and their respective
heirs, executors, administrators, legal administrators, successors and
assigns.

 

14. Notices. Any
notice or other communication required or permitted hereunder shall be in
writing and shall be deemed to have been given if delivered personally, by
over-night courier, or by certified or registered mail, return receipt
requested, if to the Corporation, to:

Ronald S.
Saks, President

LMI
AEROSPACE, INC.

P.O. Box
900

St.
Charles, MO 63302-0900

and, if
to Employee, to:

Lawrence
E. Dickinson

998
Whitmoor Drive

St.
Charles, MO 63304

or to
such other address as may be specified by either of the parties in the manner
provided under this paragraph 14.

15. Construction. This
Agreement shall be deemed for all purposes to have been made in the State of
Missouri and shall be governed by and construed in accordance with the laws of
the State of Missouri, notwithstanding either the place of execution hereof, nor
the performance of any acts in connection herewith or hereunder in any other
jurisdiction.

 

16. Venue. The
parties hereto agree that any suit filed arising out of or in connection with
this Agreement shall be brought only in the United States District Court for the
Eastern District of Missouri, unless that court lacks jurisdiction, in which
case such action shall be brought only in the Circuit Court for St. Louis
County, Missouri.

 

17. Disclosure
of Existence of Agreement. To
preserve the Corporation’s rights under this Agreement, the Corporation may
advise any third party of the existence of this Agreement and its terms, and the
Employee specifically releases and agrees to indemnify and hold the Corporation
harmless from any liability for doing so.

 

18. Opportunity
to Review. Employee
hereby represents and warrants that he has had an opportunity to review this
Agreement and ask the Corporation questions about the Agreement, and understands
the meaning and effect of each paragraph of this Agreement.

 

The
parties have executed this Agreement as of January 1, 2004.

	 	
      LMI
      AEROSPACE, INC.

	 	 
	 	
      (“Corporation”)

	 	 
	 	 
	 	
      By:
      
	 
	 	 	
      Ronald
      S. Saks, President

	 	 	 
	 	 	 
	 	 
	 	 	
      Lawrence
      E. Dickinson

	 	 	
      (“Employee”)

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