Document:

Exhibit
10.26

 

Loan Memorandum

 

 

Date:                       March
31, 2006

 

Subject:                  Dupont Loan to Company

 

1.               On January 23rd 2006, Mr. Douglas Smith made a
short-term loan to Mr. John J. Dupont in the amount of $100,000 (see attached).

 

2.             From January 1st 2006 thru March 27th 2006, Mr. John
J. Dupont had made a series of loans to the Company for various expenses
incurred by the Company (see attached) in the amount of $93,485.89,
of which the Company will also pay interest to Mr. Dupont, in the form of
cashless warrants in Utilicraft stock equal to 186,972 shares @ at price of $1
each for a period of 3 years.

 

3.             On March 29, 2006, Utilicraft made a payment of
$85,000 directly to Douglas Smith on behalf of Mr. Dupont as part of the above
mentioned loan to Mr. Dupont by Mr. Smith.

 

4.             Therefore, the Company owes a balance to Mr. Dupont as
follows:

 

	
  Loans made to Company by Mr. Dupont Jan 2006 thru March 2006

  	
   

  	
  $

  	
  93,485.89

  	
   

  
	
  Company payment to Mr.
  Smith on behalf of Dupont

  	
   

  	
  $

  	
  85,000.00

  	
   

  
	
  Balance owed to Mr. Dupont
  (plus warrants)

  	
   

  	
  $

  	
  8,485.89

  	
   

  

 

For the Utilicraft
Aerospace Industries Inc.

Board of Directors:

 

	
  /s/ Darby Boland

  	
   

  
	
  Darby Boland - Director

  	
   

  
	
   

  	
   

  
	
  /s/ F. Edward Eaton

  	
   

  
	
  F. Edward Eaton - Director

  	
   

  

 

 

 

 

	
  John J.
  Dupont

  
	
  Fax No: 505-212-0296

  	
  Phone No. (505) 699-7848

  
	
  Santa
  Fe, NM

  

 

Date: January 23, 2006

 

To: Douglas Smith

 

Ref:         $100,000
Loan Promissory Note

 

1. As per our
discussions this letter is to serve as a promissory note between John J. Dupont
and Douglas E. Smith.

 

2. Douglas E.
Smith agrees to loan Dupont $100,000.

 

3. Dupont agrees
to re-pay the loan in-full on or before March 15th, 2006.

 

 

	
  /s/ John J. Dupont

  	
   

  
	
  John J. Dupont

  	
   

  

 

 

 

 

 

	
  ChkRef

  	
   

  	
  Debit

  	
   

  	
  Date

  	
   

  	
  Payee

  	
   

  	
  For

  
	
  1005

  	
   

  	
  $

  	
  3,083.45

  	
   

  	
  1/3/2006

  	
   

  	
  Plaza II Executive
  Office

  	
   

  	
  Office Rent - santa Fe

  
	
   

  	
   

  	
  $

  	
  815.06

  	
   

  	
  1/4/2006

  	
   

  	
  VISA
  CINGULAR*0762319600105 01/04 800-331-0500 TN RF#600328007100

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
  $

  	
  710.63

  	
   

  	
  1/4/2006

  	
   

  	
  VISA
  CINGULAR*0761832300105 01/04 800-331-0500 TN RF#600323007100

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
  $

  	
  182.38

  	
   

  	
  1/4/2006

  	
   

  	
  VISA VZW WEB PAY VE
  01/04 800-9220204 NF RF#600327169160

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
  $

  	
  60.94

  	
   

  	
  1/4/2006

  	
   

  	
  VISA
  CINGULAR*0579500400105 01/04 800-331-0500 TN RF#600324007100

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
  $

  	
  36.90

  	
   

  	
  1/5/2006

  	
   

  	
  VISA DR
  *WWW.ELEMENT5.INFO 01/05 www.element5. MN RF#600527000367

  	
   

  	
  Virus Software

  
	
   

  	
   

  	
  $

  	
  709.24

  	
   

  	
  1/17/2006

  	
   

  	
  POS VZWRLS 255
  PARKSHORE DR 01/16 FOLSOM CA RF#601501604151

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
  $

  	
  505.88

  	
   

  	
  1/17/2006

  	
   

  	
  VISA VERISON WRLS 01/14
  800-9220204 NJ RF#601326169175

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
  $

  	
  82.92

  	
   

  	
  1/18/2006

  	
   

  	
  VISA BOSE CORPORATION
  01/18 800-9992673 MA RF#601723017132

  	
   

  	
  Computer Equipment

  
	
   

  	
   

  	
  $

  	
  43.08

  	
   

  	
  1/18/2006

  	
   

  	
  VISA POSTNET 01/18
  SANTA FE NM RF#601727118000

  	
   

  	
  Postage

  
	
   

  	
   

  	
  $

  	
  342.60

  	
   

  	
  1/19/2006

  	
   

  	
  VISA
  SOUTHWESTAIR526270092998401/19 DALLAS TX RF#6

  	
   

  	
  Travel

  
	
  1007

  	
   

  	
  $

  	
  1,824.71

  	
   

  	
  1/20/2006

  	
   

  	
  City of Lawrenceville -
  Utilities

  	
   

  	
  Utilities-GA

  
	
   

  	
   

  	
  $

  	
  187.49

  	
   

  	
  1/23/2006

  	
   

  	
  VISA HILTON PARK CITIES
  01/21 DALLAS TX RF#602023900010

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  148.35

  	
   

  	
  1/23/2006

  	
   

  	
  VISA HILTON PARK CITIES
  01/21 DALLAS TX RF#602021900010

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  12.00

  	
   

  	
  1/23/2006

  	
   

  	
  VISA CITY OF ALB
  AVIATION PKG 01/20 ALBUQUERQUE NM RF#602021118000

  	
   

  	
  Travel

  
	
  136

  	
   

  	
   

  	
   

  	
  1/24/2006

  	
   

  	
  WIRE IN T:1227
  FED#000136 DOUGLAS E SMITH LOAN to JD

  	
   

  	
  Loan to JD from Smith

  
	
   

  	
   

  	
  $

  	
  236.35

  	
   

  	
  1/24/2006

  	
   

  	
  VISA CAPITAL GRILLE 801
  01/24 DALLAS TX RF#602428148490

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  28.25

  	
   

  	
  1/24/2006

  	
   

  	
  VISA CAPITAL GRILLE 801
  01/24 DALLAS TX RF#602426148490

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  216.89

  	
   

  	
  1/25/2006

  	
   

  	
  VISA DOUBLETREE HOTELS
  CAMPBEL01/25 214-6918700 TX RF#602522525400

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  17.76

  	
   

  	
  1/25/2006

  	
   

  	
  VISA POTBELLY SANDWCH66
  Q86 01/25 DALLAS TX RF#602525509262

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  9.95

  	
   

  	
  1/25/2006

  	
   

  	
  VISA WAYPORT 01/25
  5125196115 TX RF#602425318018

  	
   

  	
  Travel

  
	
  184

  	
   

  	
   

  	
   

  	
  1/26/2006

  	
   

  	
  WIRE IN T:1221
  FED#000184 DOUGLAS E SMITH LOAN to JD

  	
   

  	
  Loan to JD from Smith

  
	
  244

  	
   

  	
  $

  	
  35,275.29

  	
   

  	
  1/26/2006

  	
   

  	
  WIRE OUT T:1326
  FED#000244 TURNER STONE & CO LP

  	
   

  	
  Accounting

  
	
   

  	
   

  	
  $

  	
  607.24

  	
   

  	
  1/26/2006

  	
   

  	
  VISA SIGNATURE FLIGHT
  SUPPO 01/26 DALLAS TX RF#602623144000

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  365.70

  	
   

  	
  1/26/2006

  	
   

  	
  VISA DOUBLETREE HOTELS
  CAMPBEL01/26 214-6918700 TX RF#602623525400

  	
   

  	
  Travel

  
	
  1008

  	
   

  	
  $

  	
  768.34

  	
   

  	
  1/26/2006

  	
   

  	
  CHECK Flight
  Technologies Corp - Bill Davies

  	
   

  	
  Engineering

  
	
  244

  	
   

  	
  $

  	
  15.00

  	
   

  	
  1/26/2006

  	
   

  	
  WIRE FEE T:1326 FED # 000244
  TURNER STONE & CO LP

  	
   

  	
  Accounting

  
	
  334

  	
   

  	
  $

  	
  1,500.00

  	
   

  	
  1/27/2006

  	
   

  	
  WIRE OUT T:1250 FED # 000334
  LISA VAN VALKENBURGH

  	
   

  	
  Payroll - Services

  
	
  1009

  	
   

  	
  $

  	
  2,994.92

  	
   

  	
  1/27/2006

  	
   

  	
  CHECK Santa Fe Office
  Rent

  	
   

  	
  Office Rent - santa Fe

  
	
  449

  	
   

  	
  $

  	
  1,500.00

  	
   

  	
  1/30/2006

  	
   

  	
  WIRE OUT T:1424 FED # 000449
  T DAPOGNY

  	
   

  	
  Payroll - Services

  
	
  448

  	
   

  	
  $

  	
  1,000.00

  	
   

  	
  1/30/2006

  	
   

  	
  WIRE OUT T:1423 FED # 000448
  JOHN LOW

  	
   

  	
  Payroll - Services

  
	
  1010

  	
   

  	
  $

  	
  676.66

  	
   

  	
  1/30/2006

  	
   

  	
  CHECK Soverign Bank -
  Truck Lease

  	
   

  	
  Truck Lease

  
	
   

  	
   

  	
  $

  	
  220.50

  	
   

  	
  2/1/2006

  	
   

  	
  VISA SEVEN BAR
  AVIA62858345 02/01 ALBUQUERQUE NM RF#603222671004

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  59.89

  	
   

  	
  2/1/2006

  	
   

  	
  VISA HARRYS ROADHOUSE
  01-31 SANTA FE NM RF#603121030000

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  56.13

  	
   

  	
  2/1/2006

  	
   

  	
  VISA SHELL OIL
  93002545079 01-31 SANTA FE NM RF#603128000611

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  27.20

  	
   

  	
  2/1/2006

  	
   

  	
  VISA ALBUQUERQUE INT’L
  AIRPORT02/01 ALBUQUERQUE NM RF#60312107200

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  249.98

  	
   

  	
  2/2/2006

  	
   

  	
  VISA A-CTI 02/02
  503-245-5572 OR RF#603321286099

  	
   

  	
  Answering Service

  
	
   

  	
   

  	
  $

  	
  64.20

  	
   

  	
  2/2/2006

  	
   

  	
  VISA SHELL OIL
  93002545033 02/01 SANTA FE NM RF#603225000702

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  1,590.77

  	
   

  	
  2/3/2006

  	
   

  	
  VISA AIR CENTER SANTA
  FE 02/03 000-0000000 NM RF#603321454824

  	
   

  	
  Travel

  

 

 

	
   

  	
   

  	
  $

  	
  79.09

  	
   

  	
  2/3/2006

  	
   

  	
  VISA SANTA FE BUDGET
  INN 02/02 SANTA FE NM RF#603327900603

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  399.00

  	
   

  	
  2/6/2006

  	
   

  	
  CHECK santa Fe Office
  Rent

  	
   

  	
  Office Rent - santa Fe

  
	
   

  	
   

  	
  $

  	
  1,000.00

  	
   

  	
  2/8/2006

  	
   

  	
  Wire to Utilicraft
  Checking

  	
   

  	
  Loan to Utilicraft

  
	
   

  	
   

  	
  $

  	
  54.10

  	
   

  	
  2/14/2006

  	
   

  	
  VISA OFFICE MAX
  00007369 02/14 SANTA FEE NM RF#604524188073

  	
   

  	
  Office Supplies

  
	
   

  	
   

  	
  $

  	
  384.55

  	
   

  	
  2/17/2006

  	
   

  	
  VISA VERIZON WIRELESS
  02/17 800-9220204 NJ RF#604728169192

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
  $

  	
  179.82

  	
   

  	
  2/17/2006

  	
   

  	
  VISA VERISON WRLS 02/17
  800-9220204 NJ RF#604722169192

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
  $

  	
  543.70

  	
   

  	
  2/21/2006

  	
   

  	
  POS VZWRLS 255
  PARKSHORE DR 02/18 800-9992673 MA RF#604821048131

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
  $

  	
  82.92

  	
   

  	
  2/21/2006

  	
   

  	
  VISA BOSE CORPORATION
  02/18 800-9992673 MA RF#604821048131

  	
   

  	
  Computer Equipment

  
	
   

  	
   

  	
  $

  	
  46.66

  	
   

  	
  2/21/2006

  	
   

  	
  VISA A-CTI 02/19
  5032455572 OR RF#604924286099

  	
   

  	
  Answering Serive

  
	
   

  	
   

  	
  $

  	
  342.60

  	
   

  	
  2/22/2006

  	
   

  	
  VISA
  SOUTHWESTAIR526270697150602/22 DALLAS TX RF#6

  	
   

  	
  Travel

  
	
  107

  	
   

  	
  $

  	
  1,200.00

  	
   

  	
  2/23/2006

  	
   

  	
  WIRE OUT T:0945 FED
  #000107LISA VAN VALKENBURGH

  	
   

  	
  Payroll - Services

  
	
  110

  	
   

  	
  $

  	
  1,000.00

  	
   

  	
  2/23/2006

  	
   

  	
  WIRE OUT T:0946 FED
  #000110 T DAPOGNY

  	
   

  	
  Payroll - Services

  
	
  153

  	
   

  	
  $

  	
  1,000.00

  	
   

  	
  2/23/2006

  	
   

  	
  WIRE OUT T:1049 FED
  #000153 SCOTT D JACOX

  	
   

  	
  Payroll - Services

  
	
   

  	
   

  	
  $

  	
  229.10

  	
   

  	
  2/23/2006

  	
   

  	
  VISA CAPITAL GRILLE 801
  02/23 DALLAS TX RF#605420148490

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  58.42

  	
   

  	
  2/23/2006

  	
   

  	
  VISA QUIK STOP #11
  00796144 02/23 SANTA FE NM RF#605326814863

  	
   

  	
  Travel

  
	
  442

  	
   

  	
  $

  	
  4,000.00

  	
   

  	
  2/24/2006

  	
   

  	
  WIRE OUT T:1314 FED
  #000442 TURNER STONE & CO LLP

  	
   

  	
  Accounting

  
	
   

  	
   

  	
  $

  	
  206.89

  	
   

  	
  2/27/2006

  	
   

  	
  VISA HILTON PARK CITIES
  02/25 DALLAS TX RF#605523900013

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  148.35

  	
   

  	
  2/27/2006

  	
   

  	
  VISA HILTON PARK CITIES
  02/25 DALLAS TX RF#605521900013

  	
   

  	
  Travel

  
	
  1016

  	
   

  	
  $

  	
  2,970.73

  	
   

  	
  2/28/2006

  	
   

  	
  CHECK santa Fe Office
  Rent

  	
   

  	
  Office Rent - santa Fe

  
	
  1017

  	
   

  	
  $

  	
  190.00

  	
   

  	
  2/28/2006

  	
   

  	
  CHECK santa Fe Office
  Rent

  	
   

  	
  Office Rent - santa Fe

  
	
  1015

  	
   

  	
  $

  	
  2,000.00

  	
   

  	
  3/1/2006

  	
   

  	
  CHECK Darby Boland -
  Expenses

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  4,000.00

  	
   

  	
  3/7/2006

  	
   

  	
  CHECK - Wire to
  Utilicraft Checking

  	
   

  	
  Loan to Utilicraft

  
	
   

  	
   

  	
  $

  	
  953.76

  	
   

  	
  3/9/2006

  	
   

  	
  VISA AIR CENTER SANTA
  FE 03/09 000-0000000 NM RF#606728454824

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  397.89

  	
   

  	
  3/9/2006

  	
   

  	
  POS VZWRLS 20 INDEPEND
  BLVD 03/09 WARREN NJ RF#606701404019

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
  $

  	
  213.97

  	
   

  	
  3/9/2006

  	
   

  	
  VISA A-CTI 03/08
  5032455572 OR RF#606722286099

  	
   

  	
  Andwering Serivce

  
	
   

  	
   

  	
  $

  	
  19.99

  	
   

  	
  3/9/2006

  	
   

  	
  VISA YAHOO *MAIL 03/08
  408-349-5151 CA RF#606729000795

  	
   

  	
  Software

  
	
  1019

  	
   

  	
  $

  	
  644.44

  	
   

  	
  3/10/2006

  	
   

  	
  CHECK - Soverign Bank -
  Truck Lease

  	
   

  	
  Truck Lease

  
	
   

  	
   

  	
  $

  	
  87.28

  	
   

  	
  3/13/2006

  	
   

  	
  VISA GWS*BLACKBERRY
  ACCY 03/11 207-866-6706 ME RF#607025000040

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
   

  	
   

  	
  3/15/2006

  	
   

  	
  CUSTOMER DEPOSIT

  	
   

  	
   

  
	
  80

  	
   

  	
  $

  	
  13,919.00

  	
   

  	
  3/15/2006

  	
   

  	
  WIRE OUT T:0908 FED
  #000080 MERRILL Stock Offering Exp

  	
   

  	
  Edgar For stock
  Offering

  
	
   

  	
   

  	
   

  	
   

  	
  3/16/2006

  	
   

  	
  CUSTOMER DEPOSIT

  	
   

  	
   

  
	
   

  	
   

  	
  $

  	
  500.44

  	
   

  	
  3/17/2006

  	
   

  	
  VISA VERIZON WRLS
  10390-01 03/17 TEMPE AZ RF#607520169158

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
  $

  	
  215.23

  	
   

  	
  3/17/2006

  	
   

  	
  VISA VERISON WRLS
  08253-01 03/17 FOLSUM GA RF#607521169156

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
  $

  	
  61.86

  	
   

  	
  3/17/2006

  	
   

  	
  VISA CHEVERON 00208040
  03/17 SANTA FE NM RF#607526460553

  	
   

  	
  Travel

  
	
   

  	
   

  	
  $

  	
  82.92

  	
   

  	
  3/20/2006

  	
   

  	
  VISA BOSE CORPORATION
  03/18 800-9992673 MA RF#607624076172

  	
   

  	
  Computer Equipment

  
	
   

  	
   

  	
   

  	
   

  	
  3/27/2006

  	
   

  	
  VISA VERISON WRLS
  4000-50 03/27 FORT WORTH TX RF#608571169170

  	
   

  	
  Cell Phones

  
	
   

  	
   

  	
  $

  	
  46.53

  	
   

  	
  3/27/2006

  	
   

  	
  VISA QUIK STOP #11
  00796144 03/25 SANTA FE NM RF#608329814309

  	
   

  	
  Travel

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Total

  	
   

  	
  $

  	
  93.485.89EHXIBIT
4.02

GERDAU
S.A.

CNPJ/MF No 33.611.500/0001-19

NIRE No 33300032266

A Publicly Listed Company

EXECUTIVE
STOCK OPTION PLAN TO BE DENOMINATED THE ‘LONG-TERM INCENTIVE

PROGRAM’ — FOR APPROVAL BY THE EXTRAORDINARY SHAREHOLDER’S MEETINGS TO BE

HELD ON APRIL 30, 2003.

1.
OBJECTIVES OF THE PROGRAM

1.1.
THE LONG-TERM INCENTIVE PROGRAM (hereafter the “PROGRAM”), which grants call
options for the purchase of shares of GERDAU S.A. (hereafter, “GERDAU”), has
the objectives of:

a —
Attracting and retaining strategic executives;

b —
Offering a long-term system of remuneration;

c —
Sharing the growth and success of GERDAU and its directly and indirectly
controlled subsidiaries;

d —
Strengthening the feeling of participation and collaboration in the company’s
business.

2.
ADMINISTRATION

2.1.
The administration of the PROGRAM shall be the responsibility of the
Compensation and Succession Committee (the “COMITTEE”).

2.2.
The COMMITTEE shall have full authority power regarding the organization,
execution and administration of the PROGRAM, in accordance with the terms and
basic conditions of this plan, the directives of the Board of Directors of
GERDAU and legislation.

2.3.
The COMMITTEE’s powers shall include the right to establish the rules relating
to the granting of stock options on a year-to-year basis.

2.4.
The COMMITTEE shall be responsible for the indication of individuals who
fulfill the requirements and are in the position to be selected as participants
of the PROGRAM, who will be receiving call options to purchase shares, as well
as the relevant number of shares forming the object of the options within the
time limits established herein.

2.5. In exercising
its attributions and its authority with regards to the PROGRAM, the COMMITTEE
shall be subject only to the limits established in item 2.2 above, not being
obliged by analogy or rule of isonomy to extend to other directors,
officers or employees in similar situations and conditions it understands are
applicable only to one or more specific beneficiaries.

3
— ELIGIBILITY

3.1. Individuals
eligible for the PROGRAM shall include directors, executive officers and
high-level employees of GERDAU and its directly or indirectly controlled
subsidiaries (which are included in the concept of the Company for the purposes
of this plan). The selection of directors, executive officers and employees
(hereafter, “EXECUTIVE” or “EXECUTIVES”) that may be entitled to stock options
shall be made exclusively by the COMMITTEE.

 

4 — ENTRY TO THE PROGRAM

 

4.1.
Admission to the PROGRAM by eligible EXECUTIVES, as defined in the preceding
item, shall, in general, take place during the month of December of each
year unless, exceptionally, the COMMITTEE decides otherwise.

4.2.
The COMMITTEE shall establish, in each case, the periods and conditions for the
right to exercise call options on the basis of the terms stated in the “Option
Contract for the Purchase of Shares under the terms of the Long-Term Incentive
Program for Executives of Gerdau” (The “OPTION CONTRACT”), to be signed by the
EXECUTIVE, in which the following points shall be defined:

a)
the number of shares object of each option and the purchase price per share;

b)
the periods and conditions for the exercise of the call options;

c)
other terms and conditions that the COMMITTEE considers to be relevant that
have not been specified herein.

4.3.
The contracts to which this item refers shall be executed under the
specification hereby determined and in accordance with the terms of Art. 118 of
Law No. 6,404/76 and shall be recorded in the Company’s registers.

5
— SHARES INCLUDED IN THE PROGRAM

5.1.
The granting of call options shall only apply to GERDAU preferred shares, in an
amount equivalent from 10% (ten per cent) to 20% (twenty per cent) per annum of
the basic annual salary of each of the EXECUTIVES selected to take part in the
PROGRAM. For this program, the basic annual salary of these EXECUTIVES shall be
defined as equal to 13 (thirteen) times the monthly salary paid by the company
in the month of December. In the case of directors, the strike price of the
call options may be equivalent to up to 100% (one hundred per cent) of their
annual compensation paid by the Company. The underlying shares of the option
shall be valued at the average market price on the date of the granting of the
option.

6
— ACQUISITION OF THE RIGHT TO EXERCISE OPTIONS

6.1.
As a general rule that may be altered by the COMMITTEE, in each case, the
acquisition of the right to exercise options shall take the following form and
refer to the following periods:

a)
After 5 (five) years elapsed from the first day of the month following the date
of granting of the call options, the EXECUTIVE may exercise his call options.
To this end, he/she shall pay, in accordance with the terms of Item 5.1, a
price per share equivalent to the average market price of the same shares on
the date of the granting of the option.

b)
The exercise of the call option must happen within a maximum period of 5 (five)
years, after which the EXECUTIVE shall no longer be entitled to the right to
this specific tranche of the option.

c)
In the event that GERDAU issues stock bonus during the period until the
effective exercise of the right to buy, the number of shares relating to the
right of exercise of the options shall be increased in proportion to the stock
bonus issues, diluting the price of exercise of the option in the same
proportion.

d)
During this first year of the PROGRAM, call options on company’s shares shall
be granted in the month of April, with the starting date for the grace period
set retroactively at January 1, 2003.

7
— EXERCISE OF THE OPTION

7.1.
The Option may be exercised by the EXECUTIVE in full or in part, in accordance
with the terms of Item 7.2. below.

 2
 

 

 

7.2.
In the event of the partial exercise of the option, the exercising EXECUTIVE
may exercise the remaining portion of his/her rights within the period and in
accordance with the conditions specified in the OPTION CONTRACT.

8
— CONDITIONS OF PAYMENT

8.1.
The price of the acquired shares shall be immediately due, in Brazilian
national currency, unless the COMMITTEE establishes provisions to the contrary,
as specified in the OPTION CONTRACT.

9
—  TAXES

9.1.
Operations to be effected as part of the PROGRAM shall be subject to taxation
in the form established in the law.

10
— EXPIRATION OF THE OPTION

10.1.
The option shall be considered to have expired for all intents and purposes:

a) as a result of its
exercise in full, as established in this PROGRAM;

b)
as a result of the expiration of the exercise period;

c)
as a result of the EXECUTIVE’s departure from the Company.

10.2.
In the event of the involuntary departure of the EXECUTIVE from the Company:

a)
when the EXECUTIVE is dismissed by decision of the Company with no due cause,
the EXECUTIVE that has already acquired the right to exercise as a result of
the ending of the grace period, shall retain this right of exercise for the
contractual period;

b)
when the EXECUTIVE is dismissed with due cause, the EXECUTIVE shall lose the
right to receive any amount relating to the PROGRAM, regardless of whether the
grace period has ended or not.

11
— RETIREMENT OF THE EXECUTIVE

11.1.
In the event of retirement of the EXECUTIVE, as part of the Company’s
retirement plan, the same EXECUTIVE shall be granted the right to exercise the
call options attributed to him/her immediately after the end of his/her work
contract.

12
— DECEASE OF THE EXECUTIVE

12.1.
In the event of the decease of the EXECUTIVE, his/her heirs/heiresses shall
immediately be granted the right to exercise the call options assigned to the
deceased individual, which must be exercised within 2 (two) years of the date
of passing away. In the event of option rights the grace period for which has
already ended in full on a date prior to his/her death, the corresponding
period for the exercise of the options shall be maintained.

13
— PERIOD OF VALIDITY

13.1.
The PROGRAM shall take effect after it is approved by Gerdau’s General
Shareholder’s Meeting, becoming retroactive to January 1, 2003. It may be
terminated at any time by decision of the Board of Directors, albeit honoring
the OPTION CONTRACTS that have already been signed.

 3
 

 

 

14
— ALTERATIONS OR TERMINATION OF THE PROGRAM

14.1.
By decision of the Board of Directors, alterations may be made to the PROGRAM,
in the event that the gains proposed under the Compensation Policy diverge
significantly from the objective established for Direct Remuneration.

14.2.
In the event that it is necessary to implement changes or to terminate the
PROGRAM, such events shall be announced to the EXECUTIVES in writing with at
least 30 (thirty) days’ prior notice, as of the date of modification or
termination.

14.3.
The modifications to or termination of the PROGRAM shall not affect OPTION
CONTRACTS that have already been signed.

14.4
In the event of modifications to or the termination of the PROGRAM:

a)
GERDAU shall not be under any obligation to reestablish the PROGRAM or
compensate the EXECUTIVES for expected future gains or losses;

b)
in the event that the PROGRAM is modified, any subsequent profit opportunity
may be implemented in accordance with terms that differ from those previously
established.

15
— GENERAL CONDITIONS

15.1.
In the event of a change in control of GERDAU, options attributed to EXECUTIVES
more than 12 months prior to the event shall be considered as free for
exercise, regardless of whether their respective grace period has ended.

15.2.
Whenever the EXECUTIVE decides to sell shares of his/her property, the Company
shall have priority in buying these shares at the market price of the day of
the operation. When the EXECUTIVE decides to divest his/her shares, he/she must
give 2 (two) business days prior notice to GERDAU, the Company having a
preferential right to purchase these shares until the immediately preceding
business day, with the Company undertaking to pay the EXECUTIVE the purchase
price within 2 (two) business days of the date of exercise of its preferential
right.

15.3.
EXECUTIVES who are beneficiaries of the PROGRAM shall be subject to restrictive
rules on the use of privileged information applying to publicly listed
companies in general, as well as to rules for the trading of securities of
publicly listed companies within the special segment of the São Paulo Stock
Exchange (“BOVESPA”) that apply to GERDAU.

15.4.
In the event of the granting and subsequent exercise of the call options object
of this PROGRAM, shareholders shall not enjoy preference rights in accordance
with the terms of Art. 171, §3 of Law 6,404/76.

 

 4

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