Document:

exv10w3

 

Exhibit 10.3

NONQUALIFIED STOCK OPTION AGREEMENT

CRAFTMADE INTERNATIONAL, INC.

2006 LONG-TERM INCENTIVE PLAN

     1. Grant of Option. Pursuant to the 2006 Long-Term Incentive Plan (the “Plan”) of
Craftmade International, Inc., a Delaware corporation (the “Company”), the Company grants to

_________________________

(the “Participant”),

an option to purchase shares of Common Stock (“Common Stock”) of the Company as follows:

On the date hereof, the Company grants to the Participant an option (the “Option” or
“Stock Option”) to purchase                      (                    ) full shares (the
“Optioned Shares”) of Common Stock at an Option Price equal to $                     per share
(the “Option Price”). The Date of Grant of this Stock Option is                     ,
2006.

The “Option Period” shall commence on the Date of Grant and shall expire on                     , 2016,
unless terminated earlier in accordance with Section 4 below. The Stock Option is a
Nonqualified Stock Option. This Stock Option is intended to comply with the provisions governing
nonqualified stock options under Internal Revenue Service Notice 2005-1 and the proposed Treasury
Regulations issued on September 29, 2005, in order to exempt this Stock Option from application of
Section 409A of the Code.

     2. Subject to Plan. The Stock Option and its exercise are subject to the terms and
conditions of the Plan, and the terms of the Plan shall control to the extent not otherwise
inconsistent with the provisions of this Agreement. To the extent the terms of the Plan are
inconsistent with the provisions of this Agreement, this Agreement shall control. The capitalized
terms used herein that are defined in the Plan shall have the same meanings assigned to them in the
Plan. The Stock Option is subject to any rules promulgated pursuant to the Plan by the Board or
the Committee and communicated to the Participant in writing.

     3. Vesting; Time of Exercise. Except as specifically provided in this Agreement and
subject to certain restrictions and conditions set forth in the Plan, the Optioned Shares shall be
vested and the Stock Option shall be exercisable as follows:

     a.                      percent (___%) of the total Optioned Shares shall vest and that portion
of the Stock Option shall be exercisable on the first anniversary of the Date of Grant,
provided the Participant is employed by (or, if the Participant is a Consultant or an
Outside Director, is providing services to) the Company or a Subsidiary on that date.

     b. An additional                      percent (___%) of the total Optioned Shares shall vest
and that portion of the Stock Option shall become exercisable on the second anniversary of
the Date of Grant, provided the Participant is employed by (or, if the Participant is a
Consultant or an Outside Director, is providing services to) the Company or a Subsidiary on
that date.

 

 

     c. An additional                      percent (___%) of the total Optioned Shares shall vest
and that portion of the Stock Option shall become exercisable on the third anniversary of
the Date of Grant, provided the Participant is employed by (or, if the Participant is a
Consultant or an Outside Director, is providing services to) the Company or a Subsidiary on
that date.

     d. The remaining                      percent (___%) of the total Optioned Shares shall vest
and that portion of the Stock Option shall become exercisable on the fourth anniversary of
the Date of Grant, provided the Participant is employed by (or, if the Participant is a
Consultant or an Outside Director, is providing services to) the Company or a Subsidiary on
that date.

Notwithstanding the foregoing, one hundred percent (100%) of any unvested Optioned Shares shall
vest and that portion of the Stock Option shall become exercisable immediately prior to the
effective date of a Change in Control.

     4. Term; Forfeiture.

     a. Except as otherwise provided in this Agreement, to the extent the unexercised
portion of the Stock Option relates to Optioned Shares which are not vested on the date of
the Participant’s Termination of Service, the Stock Option will be terminated on that date.
The unexercised portion of the Stock Option that relates to Optioned Shares which are vested
will terminate at the first of the following to occur:

     i. 5 p.m. on the date the Option Period terminates;

     ii. 5 p.m. on the date which is twelve (12) months following the date of the
Participant’s Termination of Service due to death or Total and Permanent Disability;

     iii. 5 p.m. on the date of the Participant’s Termination of Service by the
Company for cause (as defined herein);

     iv. 5 p.m. on the date which is ninety (90) days following the date of the
Participant’s Termination of Service for any reason not otherwise specified in this
Section 4.a.;

     v. 5 p.m. on the date the Company causes any portion of the Option to be
forfeited pursuant to Section 7 hereof.

     b. For purposes hereof, “cause” shall mean the Participant’s Termination of Service
upon the occurrence of any of the following events: (i) any act of fraud, misappropriation
or embezzlement by the Participant with respect to any aspect of the Company’s business;
(ii) the material breach by the Participant of any provisions in his or her employment
agreement, which, if curable, the Participant fails to cure in all material respects within
thirty (30) days after written notice thereof from the Board or its designee; (iii) the
conviction of the Participant by a court of competent jurisdiction of a felony or a crime
involving moral turpitude; (iv) the intentional failure by the Participant to perform in all
material respects his or her duties and responsibilities (other than as a result of death or
Total and Permanent Disability) and the failure of the Participant to cure the same in all
material respects within thirty (30) days after written notice thereof from the Board or its
designee; or (v) the illegal use of drugs by the Participant during the term of his or her
employment that, in the determination of the Board, substantially interferes with the
Participant’s performance of his or her duties.

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     5. Who May Exercise. Subject to the terms and conditions set forth in Sections 3
and 4 above, during the lifetime of the Participant, the Stock Option may be exercised only by
the Participant, or by the Participant’s guardian or personal or legal representative. If the
Participant’s Termination of Service is due to his or her death prior to the termination dates
specified in Section 4 hereof, and the Participant has not exercised the Stock Option as to
the maximum number of vested Optioned Shares as set forth in Section 3 hereof as of the
date of death, the following persons may exercise the exercisable portion of the Stock Option on
behalf of the Participant at any time prior to the earliest of the dates specified in Section
4 hereof: the personal representative of his or her estate, or the person who acquired the
right to exercise the Stock Option by bequest or inheritance or by reason of the death of the
Participant; provided that the Stock Option shall remain subject to the other terms of this
Agreement, the Plan, and applicable laws, rules, and regulations.

     6. No Fractional Shares. The Stock Option may be exercised only with respect to full
shares, and no fractional share of stock shall be issued.

     7. Manner of Exercise. Subject to such administrative regulations as the Committee
may from time to time adopt, the Stock Option may be exercised by the delivery of written notice to
the Committee setting forth the number of shares of Common Stock with respect to which the Stock
Option is to be exercised, the date of exercise thereof (the “Exercise Date”), which shall be at
least three (3) days after giving such notice unless an earlier time shall have been mutually
agreed upon. On the Exercise Date, the Participant shall deliver to the Company consideration with
a value equal to the total Option Price of the shares to be purchased, payable as follows: (a) cash
or check, bank draft, or money order payable to the order of the Company; (b) Common Stock
(including Restricted Stock) owned by the Participant on the Exercise Date, valued at its Fair
Market Value on the Exercise Date, and which the Participant has not acquired from the Company
within six (6) months prior to the Exercise Date; (c) by delivery (including by FAX) to the Company
or its designated agent of an executed irrevocable option exercise form together with irrevocable
instructions from the Participant to a broker or dealer, reasonably acceptable to the Company, to
sell certain of the shares of Common Stock purchased upon exercise of the Stock Option or to pledge
such shares as collateral for a loan and promptly deliver to the Company the amount of sale or loan
proceeds necessary to pay such purchase price; and/or (d) in any other form of valid consideration
that is acceptable to the Committee in its sole discretion. In the event that shares of Restricted
Stock are tendered as consideration for the exercise of this Stock Option, a number of shares of
Common Stock issued upon the exercise of this Stock Option equal to the number of shares of
Restricted Stock used as consideration therefor shall be subject to the same restrictions and
provisions as the Restricted Stock so tendered.

     Upon payment of all amounts due from the Participant, the Company shall cause certificates for
the Optioned Shares then being purchased to be delivered to the Participant (or the person
exercising the Participant’s Stock Option in the event of his or her death) at its principal
business office promptly after the Exercise Date. The obligation of the Company to deliver shares
of Common Stock shall, however, be subject to the condition that if at any time the Company shall
determine in its discretion that the listing, registration, or qualification of the Stock Option or
the Optioned Shares upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental regulatory body, is necessary as a condition of, or in connection
with, the Stock Option or the issuance or purchase of shares of Common Stock thereunder, then the
Stock Option may not be exercised in whole or in part unless such listing, registration,
qualification, consent, or approval shall have been effected or obtained free of any conditions not
reasonably acceptable to the Committee.

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     If the Participant fails to pay for any of the Optioned Shares specified in such notice or
fails to accept delivery thereof, then the Company may, in its sole discretion, cause the
Participant to forfeit the Stock Option, and right to purchase such Optioned Shares.

     8. Nonassignability. The Stock Option is not assignable or transferable by the
Participant except by will or by the laws of descent and distribution.

     9. Rights as Stockholder. The Participant will have no rights as a stockholder with
respect to any shares covered by the Stock Option until the issuance of a certificate or
certificates to the Participant for the Optioned Shares. The Optioned Shares shall be subject to
the terms and conditions of this Agreement regarding such Optioned Shares. The Participant, by his
or her execution of this Agreement, agrees to execute any documents requested by the Company in
connection with the issuance of a certificate or certificates for the Optioned Shares. Except as
otherwise provided in Section 10 hereof, no adjustment shall be made for dividends or other
rights for which the record date is prior to the issuance of such certificate or certificates.

     10. Adjustment of Number of Optioned Shares and Related Matters. The number of shares
of Common Stock covered by the Stock Option, and the Option Prices thereof, shall be subject to
adjustment in accordance with Articles 11 — 13 of the Plan.

     11. Nonqualified Stock Option. The Stock Option shall not be treated as an Incentive
Stock Option.

     12. Voting. The Participant, as record holder of some or all of the Optioned Shares
following exercise of this Stock Option, has the exclusive right to vote, or consent with respect
to, such Optioned Shares until such time as the Optioned Shares are transferred in accordance with
this Agreement; provided, however, that this Section 12 shall not create
any voting right where the holders of such Optioned Shares otherwise have no such right.

     13. Simultaneous Death. If the Participant and his or her spouse both suffer a common
accident or casualty which results in their respective deaths within 60 days of each other, it
shall be conclusively presumed, for the purpose of this Agreement, that the Participant died first
and the spouse died thereafter.

     14. Specific Performance. The parties acknowledge that remedies at law will be
inadequate remedies for breach of this Agreement and consequently agree that this Agreement shall
be enforceable by specific performance. The remedy of specific performance shall be cumulative of
all of the rights and remedies at law or in equity of the parties under this Agreement.

     15. Participant’s Representations. Notwithstanding any of the provisions hereof, the
Participant hereby agrees that he or she will not exercise the Stock Option granted hereby, and
that the Company will not be obligated to issue any shares to the Participant hereunder, if the
exercise thereof or the issuance of such shares shall constitute a violation by the Participant or
the Company of any provision of any law or regulation of any governmental authority. Any
determination in this connection by the Company shall be final, binding, and conclusive. The
obligations of the Company and the rights of the Participant are subject to all applicable laws,
rules, and regulations.

     16. Investment Representation. Unless the Common Stock is issued to him or her in a
transaction registered under applicable federal and state securities laws, by his or her execution
hereof, the Participant represents and warrants to the Company that all Common Stock which may be
purchased

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hereunder will be acquired by the Participant for investment purposes for his or her own
account and not with any intent for resale or distribution in violation of federal or state
securities laws. Unless the Common Stock is issued to him or her in a transaction registered under
the applicable federal and state securities laws, all certificates issued with respect to the
Common Stock shall bear an appropriate restrictive investment legend and shall be held
indefinitely, unless they are subsequently registered under the applicable federal and state
securities laws or the Participant obtains an opinion of counsel, in form and substance
satisfactory to the Company and its counsel, that such registration is not required.

     17. Participant’s Acknowledgments. The Participant acknowledges that a copy of the
Plan has been made available for his or her review by the Company, and represents that he or she is
familiar with the terms and provisions thereof, and hereby accepts this Option subject to all the
terms and provisions thereof. The Participant hereby agrees to accept as binding, conclusive, and
final all decisions or interpretations of the Committee or the Board, as appropriate, upon any
questions arising under the Plan or this Agreement.

     18. Law Governing. This Agreement shall be governed by, construed, and enforced in
accordance with the laws of the State of Delaware (excluding any conflict of laws rule or principle
of Delaware law that might refer the governance, construction, or interpretation of this agreement
to the laws of another state).

     19. No Right to Continue Service or Employment. Nothing herein shall be construed to
confer upon the Participant the right to continue in the employ or to provide services to the
Company or any Subsidiary, whether as an Employee or as a Consultant or as an Outside Director, or
interfere with or restrict in any way the right of the Company or any Subsidiary to discharge the
Participant as an Employee, Consultant or Outside Director at any time.

     20. Legal Construction. In the event that any one or more of the terms, provisions,
or agreements that are contained in this Agreement shall be held by a court of competent
jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, the invalid,
illegal, or unenforceable term, provision, or agreement shall not affect any other term, provision,
or agreement that is contained in this Agreement and this Agreement shall be construed in all
respects as if the invalid, illegal, or unenforceable term, provision, or agreement had never been
contained herein.

     21. Covenants and Agreements as Independent Agreements. Each of the covenants and
agreements that are set forth in this Agreement shall be construed as a covenant and agreement
independent of any other provision of this Agreement. The existence of any claim or cause of
action of the Participant against the Company, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by the Company of the covenants and agreements
that are set forth in this Agreement.

     22. Entire Agreement. This Agreement together with the Plan supersede any and all
other prior understandings and agreements, either oral or in writing, between the parties with
respect to the subject matter hereof and constitute the sole and only agreements between the
parties with respect to the said subject matter. All prior negotiations and agreements between the
parties with respect to the subject matter hereof are merged into this Agreement. Each party to
this Agreement acknowledges that no representations, inducements, promises, or agreements, orally
or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not
embodied in this Agreement or the Plan and that any agreement, statement or promise that is not
contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.

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     23. Parties Bound. The terms, provisions, and agreements that are contained in this
Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their
respective heirs, executors, administrators, legal representatives, and permitted successors and
assigns, subject to the limitation on assignment expressly set forth herein.

     24. Modification. No change or modification of this Agreement shall be valid or
binding upon the parties unless the change or modification is in writing and signed by the parties;
provided, however, that the Company may change or modify this Agreement without the Participant’s
consent or signature if the Company determines, in its sole discretion, that such change or
modification is necessary for purposes of compliance with or exemption from the requirements of
Section 409A of the Code or any regulations or other guidance issued thereunder. Notwithstanding
the preceding sentence, the Company may amend the Plan to the extent permitted by the Plan.

     25. Headings. The headings that are used in this Agreement are used for reference and
convenience purposes only and do not constitute substantive matters to be considered in construing
the terms and provisions of this Agreement.

     26. Gender and Number. Words of any gender used in this Agreement shall be held and
construed to include any other gender, and words in the singular number shall be held to include
the plural, and vice versa, unless the context requires otherwise.

     27. Notice. Any notice required or permitted to be delivered hereunder shall be
deemed to be delivered only when actually received by the Company or by the Participant, as the
case may be, at the addresses set forth below, or at such other addresses as they have theretofore
specified by written notice delivered in accordance herewith:

     a. Notice to the Company shall be addressed and delivered as follows:

Craftmade International, Inc.

                                                            

                                                            

Attn:                                                  

Facsimile: (____)                            

     b. Notice to the Participant shall be addressed and delivered as set forth on the
signature page.

     28. Tax Requirements. The Participant is hereby advised to consult immediately with
his or her own tax advisor regarding the tax consequences of this Agreement. The Company or, if
applicable, any Subsidiary (for purposes of this Section 28, the term “Company” shall be
deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid
hereunder in cash or other form, any Federal, state, local, or other taxes required by law to be
withheld in connection with this Award. The Company may, in its sole discretion, also require the
Participant receiving shares of Common Stock issued under the Plan to pay the Company the amount of
any taxes that the Company is required to withhold in connection with the Participant’s income
arising with respect to the Award. Such payments shall be required to be made when requested by
Company and may be required to be made prior to the delivery of any certificate representing shares
of Common Stock. Such payment may be made (i) by the delivery of cash to the Company in an amount
that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required
tax withholding obligations of the Company; (ii) if the Company, in its sole discretion, so
consents in writing, the actual delivery by the exercising Participant to

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the Company of shares of Common Stock that the Participant has not acquired from the Company
within six (6) months prior to the date of exercise, which shares so delivered have an aggregate
Fair Market Value that equals or exceeds (to avoid the issuance of fractional shares under (iii)
below) the required tax withholding payment; (iii) if the Company, in its sole discretion, so
consents in writing, the Company’s withholding of a number of shares to be delivered upon the
exercise of this Stock Option, which shares so withheld have an aggregate Fair Market Value that
equals (but does not exceed) the required tax withholding payment; or (iv) any combination of (i),
(ii), or (iii). The Company may, in its sole discretion, withhold any such taxes from any other
cash remuneration otherwise paid by the Company to the Participant.

**********************

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     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly
authorized officer, and the Participant, to evidence his or her consent and approval of all the
terms hereof, has duly executed this Agreement, as of the date specified in Section 1
hereof.

	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 
	 	 	CRAFTMADE INTERNATIONAL, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	PARTICIPANT:	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Signature	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	 	 	 

8exv10w4

 

Exhibit 10.4

STOCK APPRECIATION RIGHTS AGREEMENT

CRAFTMADE INTERNATIONAL, INC.

2006 LONG-TERM INCENTIVE PLAN

     1. Grant of Stock Appreciation Rights. Pursuant to the 2006 Long-Term Incentive Plan
(the “Plan”) of Craftmade International, Inc., a Delaware corporation (the “Company”), the Company
hereby grants to

 

(the “Participant”)

Stock
Appreciation Rights relating to the appreciation in                      shares of Common Stock of the
Company (the “Stock Appreciation Rights” or “SARs”) at an exercise price (the “SAR Price”) of
$                     per share (which is equal to or greater than the Fair Market Value of a share of
Common Stock as of the Date of Grant), all upon and subject to the terms and conditions set forth
in this Agreement. This SAR Agreement is intended to comply with the provisions governing stock
appreciation rights under Internal Revenue Service Notice 2005-1 and the proposed Treasury
Regulations issued on September 29, 2005, in order to exempt the SARs from application of Section
409A of the Code.

     2. Date of Grant. The Date of Grant of the Stock Appreciation Rights is
                    , 2006.

     3. Subject to Plan. This Agreement and its exercise are subject to the terms and
conditions of the Plan, and the terms of the Plan shall control to the extent not otherwise
inconsistent with the provisions of this Agreement. To the extent the terms of the Plan are
inconsistent with the provisions of this Agreement, this Agreement shall control. The capitalized
terms used herein that are defined in the Plan shall have the same meanings assigned to them in the
Plan. The SARs are subject to any rules promulgated pursuant to the Plan by the Board or the
Committee and communicated to the Participant in writing.

     4. Vesting; Time of Exercise. Except as specifically provided in this Agreement and
subject to certain restrictions and conditions set forth in the Plan, the SARs shall be vested and
become exercisable as follows:

     a.                      percent (___%) of the total SARs shall vest and become exercisable on
the first anniversary of the Date of Grant, provided the Participant is employed by (or, if
the Participant is a Consultant or an Outside Director, is providing services to) the
Company or a Subsidiary on that date.

     b. An additional                      percent (___%) of the total SARs shall vest and become
exercisable on the second anniversary of the Date of Grant, provided the Participant is
employed by (or, if the Participant is a Consultant or an Outside Director, is providing
services to) the Company or a Subsidiary on that date.

     c.
An additional ___ percent (___%) of the total SARs shall vest and become
exercisable on the third anniversary of the Date of Grant, provided the Participant is
employed by (or, if the Participant is a Consultant or an Outside Director, is providing
services to) the Company or a Subsidiary on that date.

     d. The remaining                      percent (___%) of the total SARs shall vest and become
exercisable on the fourth anniversary of the Date of Grant, provided the Participant is

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employed by (or, if the Participant is a Consultant or an Outside Director, is
providing services to) the Company or a Subsidiary on that date.

Notwithstanding the foregoing, one hundred percent (100%) of any unvested SARs shall vest and
become exercisable immediately prior to the effective date of a Change in Control.

     5. Term; Forfeiture.

     a. Except as otherwise provided in this Agreement, unexercised SARs which are not vested on
the date of the Participant’s Termination of Service will be terminated on that date. Unexercised
SARs which are vested will terminate at the first of the following to occur:

     i
5 p.m. on                     , 20___, (the period of time extending from the date of this
Agreement to such date being referred to herein as the “SARs Period”);

     ii 5 p.m. on the date which is twelve (12) months following the date of the
Participant’s Termination of Service due to death or Total and Permanent Disability;

     iii 5 p.m. on the date of the Participant’s Termination of Service by the Company for
cause (as defined herein); and

     iv. 5 p.m. on the date which is ninety (90) days following the date of the
Participant’s Termination of Service for any reason not otherwise specified in this
Section 5.

     b. For purposes hereof, “cause” shall mean the Participant’s Termination of Service upon the
occurrence of any of the following events: (i) any act of fraud, misappropriation or embezzlement
by the Participant with respect to any aspect of the Company’s business; (ii) the material breach
by the Participant of any provisions in his or her employment agreement, which, if curable, the
Participant fails to cure in all material respects within thirty (30) days after written notice
thereof from the Board or its designee; (iii) the conviction of the Participant by a court of
competent jurisdiction of a felony or a crime involving moral turpitude; (iv) the intentional
failure by the Participant to perform in all material respects his or her duties and
responsibilities (other than as a result of death or Total and Permanent Disability) and the
failure of the Participant to cure the same in all material respects within thirty (30) days after
written notice thereof from the Board or its designee; or (v) the illegal use of drugs by the
Participant during the term of his or her employment that, in the determination of the Board,
substantially interferes with the Participant’s performance of his or her duties.

     6. Who May Exercise. Subject to the terms and conditions set forth in Sections 4
and 5 above, during the lifetime of the Participant, SARs may be exercised only by the
Participant, or by the Participant’s guardian or personal or legal representative. If the
Participant’s Termination of Service is due to his or her death prior to the termination dates
specified in Section 5 hereof, and the Participant has not exercised all of his or her
then-vested SARs as of the date of death, the following persons may exercise the exercisable
portion of the SARs on behalf of the Participant at any time prior to the earliest of the dates
specified in Section 5 hereof: the personal representative of his or her estate, or the
person who acquired the right to exercise the SARs by bequest or inheritance or by reason of the
death of the Participant; provided that the SARs shall remain subject to the other terms of this
Agreement, the Plan, and all applicable laws, rules, and regulations.

     7. No Fractional Shares. SARs may be exercised only with respect to full shares, and
no fractional share of stock shall be issued.

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     8. Manner of Exercise and Payment. The Participant may exercise vested SARs at any
time prior to the termination of the SARs in accordance with Section 5 above by the
delivery (including by FAX) of written notice to the Committee setting forth the number of SARs to
be exercised and the date of exercise thereof (the “Exercise Date”) which shall be at least (3)
days after giving such notice, unless an earlier time shall have been mutually agreed upon. Only
if permissible under Section 409A of the Code and the regulations or other guidance issued
thereunder, on the Exercise Date (or, if not so permissible, at such time as permitted by Section
409A of the Code and the regulations or other guidance issued thereunder), the Company shall
deliver to the Participant that number of shares of Common Stock having an aggregate Fair Market
Value, as of the Exercise Date, equal to the excess (if any) of the Fair Market Value as of the
Exercise Date per share of Common Stock over the SAR Price per share specified in this Agreement,
multiplied by the total number of shares of SARs being exercised.

     9. Nonassignability. The SARs granted under this Agreement are not assignable or
transferable by the Participant except by will or by the laws of descent and distribution.

     10. No Rights as Stockholder. The Participant will have no rights as a stockholder of
the Company with respect to any SARs until the issuance of a certificate or certificates to the
Participant for the SARs following exercise of the SARs. The Participant, by his or her execution
of this Agreement, agrees to execute any documents requested by the Company in connection with the
issuance of a certificate or certificates following exercise of the SARs. Except as otherwise
provided in Section 11 hereof, no adjustment shall be made for dividends or other rights
for which the record date is prior to the issuance of such certificate or certificates.

     11. Adjustment of Number of Shares and Related Matters. The number of shares of
Common Stock covered by the SARs, and the SAR Price thereof, shall be subject to adjustment in
accordance with Articles 11 — 13 of the Plan.

     12. Representations, Etc. Each spouse individually is bound by, and such spouse’s
interest, if any, in any Awarded Shares is subject to, the terms of this Agreement. Nothing in
this Agreement shall create a community property interest where none otherwise exists.

     13. Simultaneous Death. If the Participant and his or her spouse both suffer a common
accident or casualty which results in their respective deaths within 60 days of each other, it
shall be conclusively presumed, for the purpose of this Agreement, that the Participant died first
and the spouse died thereafter.

     14. Specific Performance. The parties acknowledge that remedies at law will be
inadequate remedies for breach of this Agreement and consequently agree that this Agreement shall
be enforceable by specific performance. The remedy of specific performance shall be cumulative of
all of the rights and remedies at law or in equity of the parties under this Agreement.

     15. Participant’s Representations. Notwithstanding any of the provisions hereof, the
Participant hereby agrees that he or she will not exercise the SARs granted hereby, and that the
Company will not be obligated to issue any shares to the Participant hereunder, if the exercise
thereof or the issuance of such shares shall constitute a violation by the Participant or the
Company of any provision of any law or regulation of any governmental authority. Any determination
in this connection by the Company shall be final, binding, and conclusive. The obligations of the
Company and the rights of the Participant are subject to all applicable laws, rules, and
regulations.

     16. Investment Representation. Unless the Common Stock is issued to him or her in a
transaction registered under applicable federal and state securities laws, by his or her execution
hereof, the Participant represents and warrants to the Company that all Common Stock which may be
purchased

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hereunder will be acquired by the Participant for investment purposes for his or her own
account and not with any intent for resale or distribution in violation of federal or state
securities laws. Unless the Common Stock is issued to him or her in a transaction registered under
the applicable federal and state securities laws, all certificates issued with respect to the
Common Stock shall bear an appropriate restrictive investment legend and shall be held
indefinitely, unless they are subsequently registered under the applicable federal and state
securities laws or the Participant obtains an opinion of counsel, in form and substance
satisfactory to the Company and its counsel, that such registration is not required.

     17. Participant’s Acknowledgments. The Participant acknowledges that a copy of the
Plan has been made available for his or her review by the Company, and represents that he or she is
familiar with the terms and provisions thereof, and hereby accepts the SARs subject to all the
terms and provisions thereof. The Participant hereby agrees to accept as binding, conclusive, and
final all decisions or interpretations of the Committee or the Board, as appropriate, upon any
questions arising under the Plan or this Agreement.

     18. Law Governing. This Agreement shall be governed by, construed, and enforced in
accordance with the laws of the State of Delaware (excluding any conflict of laws rule or principle
of Delaware law that might refer the governance, construction, or interpretation of this agreement
to the laws of another state).

     19. No Right to Continue Service or Employment. Nothing herein shall be construed to
confer upon the Participant the right to continue in the employ or to provide services to the
Company or any Subsidiary, whether as an Employee or as a Consultant or as an Outside Director, or
interfere with or restrict in any way the right of the Company or any Subsidiary to discharge the
Participant as an Employee, Consultant or Outside Director at any time.

     20. Legal Construction. In the event that any one or more of the terms, provisions,
or agreements that are contained in this Agreement shall be held by a court of competent
jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, the invalid,
illegal, or unenforceable term, provision, or agreement shall not affect any other term, provision,
or agreement that is contained in this Agreement and this Agreement shall be construed in all
respects as if the invalid, illegal, or unenforceable term, provision, or agreement had never been
contained herein.

     21. Covenants and Agreements as Independent Agreements. Each of the covenants and
agreements that are set forth in this Agreement shall be construed as a covenant and agreement
independent of any other provision of this Agreement. The existence of any claim or cause of
action of the Participant against the Company, whether predicated on this Agreement or otherwise,
shall not constitute a defense to the enforcement by the Company of the covenants and agreements
that are set forth in this Agreement.

     22. Entire Agreement. This Agreement together with the Plan supersede any and all
other prior understandings and agreements, either oral or in writing, between the parties with
respect to the subject matter hereof and constitute the sole and only agreements between the
parties with respect to the said subject matter. All prior negotiations and agreements between the
parties with respect to the subject matter hereof are merged into this Agreement. Each party to
this Agreement acknowledges that no representations, inducements, promises, or agreements, orally
or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not
embodied in this Agreement or the Plan and that any agreement, statement or promise that is not
contained in this Agreement or the Plan shall not be valid or binding or of any force or effect.

     23. Parties Bound. The terms, provisions, and agreements that are contained in this
Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their
respective

4

 

heirs, executors, administrators, legal representatives, and permitted successors and assigns,
subject to the limitation on assignment expressly set forth herein.

     24. Modification. No change or modification of this Agreement shall be valid or
binding upon the parties unless the change or modification is in writing and signed by the parties;
provided, however, that the Company may change or modify the terms of this Agreement, including,
without limitation, the SAR Price, without the Participant’s consent or signature if the Company
determines, in its sole discretion, that such change or modification is necessary for purposes of
compliance with or exemption from the requirements of Section 409A of the Code or any regulations
or other guidance issued thereunder. Notwithstanding the preceding sentence, the Company may amend
the Plan to the extent permitted by the Plan.

     25. Headings. The headings that are used in this Agreement are used for reference and
convenience purposes only and do not constitute substantive matters to be considered in construing
the terms and provisions of this Agreement.

     26. Gender and Number. Words of any gender used in this Agreement shall be held and
construed to include any other gender, and words in the singular number shall be held to include
the plural, and vice versa, unless the context requires otherwise.

     27. Notice. Any notice required or permitted to be delivered hereunder shall be
deemed to be delivered only when actually received by the Company or by the Participant, as the
case may be, at the addresses set forth below, or at such other addresses as they have theretofore
specified by written notice delivered in accordance herewith:

          a. Notice to the Company shall be addressed and delivered as follows:

Craftmade International, Inc.

                                                        

                                                        

Attn:                                               

Facsimile:                                       

     b. Notice to the Participant shall be addressed and delivered as set forth on the
signature page.

     28. Tax Requirements. The Participant is hereby advised to consult immediately with
his or her own tax advisor regarding the tax consequences of this Agreement. The Company or, if
applicable, any Subsidiary (for purposes of this Section 28, the term “Company” shall be
deemed to include any applicable Subsidiary), shall have the right to deduct from all amounts paid
hereunder in cash or other form, any Federal, state, local, or other taxes required by law to be
withheld in connection with this Award. The Company may, in its sole discretion, also require the
Participant receiving shares of Common Stock issued under the Plan to pay the Company the amount of
any taxes that the Company is required to withhold in connection with the Participant’s income
arising with respect to the Award. Such payments shall be required to be made when requested by
Company and may be required to be made prior to the delivery of any certificate representing shares
of Common Stock. Such payment may be made (i) by the delivery of cash to the Company in an amount
that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required
tax withholding obligations of the Company; (ii) if the Company, in its sole discretion, so
consents in writing, the actual delivery by the exercising Participant to the Company of shares of
Common Stock that the Participant has not acquired from the Company within six (6) months prior to
the date of exercise, which shares so delivered have an aggregate Fair Market

5

 

Value that equals or exceeds (to avoid the issuance of fractional shares under (iii) below)
the required tax withholding payment; (iii) if the Company, in its sole discretion, so consents in
writing, the Company’s withholding of a number of shares to be delivered upon the exercise of this
Agreement, which shares so withheld have an aggregate Fair Market Value that equals (but does not
exceed) the required tax withholding payment; or (iv) any combination of (i), (ii), or (iii). The
Company may, in its sole discretion, withhold any such taxes from any other cash remuneration
otherwise paid by the Company to the Participant.

****************

6

 

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed as of
                    , 2006, by its Chief Executive Officer and Secretary pursuant to prior action by
the Board.

	 	 	 	 	 	 	 
	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 
	 	 	CRAFTMADE INTERNATIONAL, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 

	 	PARTICIPANT:
	 	 
	 
	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Signature	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Address:	 	 	 	 
	 

	 	 	 	 

	 	 

7

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