Document:

Exhibit 10.6

 

FIRST AMENDMENT TO

 

OPTION TO ACQUIRE LEASES

 

Cook Inlet CBM Project

 

This First
Amendment to Option to Acquire Leases (this “Agreement”), effective as of this 20th
day of April, 2005 (the “Effective Date”), is by and between GeoPetro Resources
Company (“GeoPetro”) and Pioneer Oil Company, Inc. (“Pioneer”). This Agreement
completely supersedes and replaces in its entirety that Option to Acquire
Leases Cook Inlet CBM Project previously executed by GeoPetro and Pioneer. The
term “GeoPetro” shall also include any participant(s) of GeoPetro who desire to
acquire interest in the Subject Interests. Subject to the terms hereof,
GeoPetro is prepared to acquire Pioneer’s one hundred percent (100%) working
interest in the State of Alaska oil and gas leases to be issued to Pioneer in
the Cook Inlet Alaskan CBM Project (the “Subject Interests”) which are set
forth on Exhibit A attached hereto, and which cover approximately one hundred
sixteen thousand eight hundred six and twenty-nine hundredths (116,806.29)
acres. GeoPetro may, in its sole discretion, assign this Agreement and all of
its the rights and obligations hereunder to a wholly-owned entity and to
various third party participants. Any such assignee shall acquire its interest
in the Subject Interests subject to the terms and provisions of this Agreement,
and shall expressly assume its proportionate share of the rights and
obligations of GeoPetro hereunder.

 

GeoPetro shall
acquire Pioneer’s undivided one hundred percent (100%) working interest in and
to the Subject Interests, in accordance with the following terms and
conditions:

 

1.             Initial
Diligence; Deposit. GeoPetro has performed its preliminary due diligence.
Contemporaneously with the execution of this Agreement, GeoPetro shall deposit
into the law firm Trust Account of outside counsel designated by Pioneer the
amount of One Hundred Thousand U.S. Dollars (USD$100,000.00) (the “Deposit”).

 

2.             Option
Period; Additional Review. GeoPetro has elected to proceed with a detailed
title and technical review of the Subject Interests. For and in consideration
of the Deposit, GeoPetro shall have until 5:00 p.m. Central Daylight Time
Wednesday, August 17, 2005 (the “Option Period”) to perform a detailed title
and technical review of the information relating to the Subject Interests.
Subject only to the following sentence, the Deposit is the non-refundable
property of Pioneer. Notwithstanding the foregoing, if at any time Pioneer is
unable to deliver legal and beneficial title to the Subject Interests, the
Deposit payment held by Pioneer’s counsel shall be refunded promptly to
GeoPetro without offset or deduction.

 

3.             Exclusivity.
For and in consideration of the Deposit, and throughout the term of this
Agreement, Pioneer agrees that:

 

(i)            Pioneer
shall not market the Subject Interests to any other party, and shall not
seek, solicit, accept, or entertain any third party inquiries or offers with
respect to the Subject Interests;

 

 

(ii)           Pioneer
shall reasonably cooperate with GeoPetro to assist in the title and technical
diligence effort; and

 

(iii)          GeoPetro
shall have the exclusive right to acquire the Subject Interests, pursuant to
the terms and conditions contained herein.

 

4.             Access
to Data. Throughout the term of this Agreement, Pioneer shall make
available to GeoPetro all records, files, computer records, tapes, surveys,
maps, data, and interpretations in its possession or to which it has access
that relate to the Subject Interests, whether in written, film, microfiche,
digital, electronic or other format, including, but not limited to:

 

(i)            lease
data, division orders, contract and land files and title records, including
abstracts of title, title opinions, certificates of title, title curative,
title reports, and title policies, as well as all documentation from any
regulatory authorities relating to the acquisition of the Subject Interests by
Pioneer;

 

(ii)           subject to
third party confidentiality and use restrictions, copies of seismic and other
geological and geophysical data, including data, logs, cores, tapes, files,
maps, records and interpretations;

 

(iii)          copies
of operations, production, engineering and environmental records;

 

(iv)          copies of
facility and well records; and

 

(v)           copies of
any other files in the possession or control of Pioneer, which relate to the
Subject Interests.

 

5.             Closing;
Escrow Account; Initial Cash Payment. If GeoPetro elects to close the
transaction contemplated herein (the “Closing”), the Closing shall occur at a
mutually acceptable location on or before 5:00 p.m. Central Daylight Time
Wednesday, August 17, 2005, unless extended by the mutual agreement of GeoPetro
and Pioneer. At the Closing GeoPetro shall pay by wire transfer in immediately
available funds to an escrow account established with the Houston, Texas office
of either Wells Fargo Bank, National Association or JPMorgan Chase Bank, a New York State bank, as determined by
GeoPetro and Pioneer (the “Escrow Account”), the Initial Cash Payment of One
Million One Hundred Sixty-eight Thousand Sixty-two and 90/100s U.S. Dollars
(USD$1,168,062.90) less the One Hundred Thousand U.S. Dollars
(USD$100,000.00) Deposit previously tendered by GeoPetro under Paragraph 1
above. The Initial Cash Payment is subject to upward or downward adjustment, as
applicable, under Paragraph 7(i) below. The parties acknowledge that the oil
and gas leases comprising the Subject Interests are pending issuance to Pioneer
from the State of Alaska. If within ninety (90) days from the end of the Option
Period Pioneer has not received the Subject Interests, GeoPetro may, in its
sole discretion, either (i) require the escrow agent under the Escrow Account
to tender to GeoPetro the entire Initial Cash Payment of One Million
Sixty-eight Thousand Sixty-two and 90/100s U.S. Dollars (USD$1,068,062.90), and
Pioneer (or its outside counsel, as applicable) to tender to GeoPetro the
entire One Hundred Thousand U.S. Dollars (USD$100,000.00) payment previously
paid by GeoPetro under Paragraph 1 above, 

 

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without deduction
or offset, and terminate this Agreement, or (ii) extend this Agreement, (a) on
a month-to-month basis, up to one (1) year from the date ninety (90) days after
the end of the Option Period or (b ) until Pioneer has received and assigned
the Subject Interests to GeoPetro, whichever is earlier. If this Agreement is
still in force as provided by the preceding sentence, the Initial Cash Payment,
as adjusted in accordance with Paragraph 7(i) below, shall be disbursed to
Pioneer from the Escrow Account upon the occurrence of the following: (i)
Pioneer receives the oil and gas leases comprising the Subject Interests from
the State of Alaska, (ii) GeoPetro reasonably approves title to the Subject
Interests, and (iii) Pioneer delivers to GeoPetro assignments of the Subject
Interests on the form Assignments of Interests in Oil and Gas Leases
promulgated by the Department of Natural Resources, Division of Oil and Gas of
the State of Alaska and bearing special warranty of title by, through, or under
Pioneer, but not otherwise, of Pioneer’s one hundred percent (100%) leasehold
interest in and to the Subject Interests. GeoPetro shall approve or reject
title to the Subject Interests under 5(ii) above within thirty (30) days of
receipt of notice from Pioneer that it has received the oil and gas leases
comprising the Subject Interests from the State of Alaska and is prepared to
deliver assignments of same to GeoPetro.

 

6.             Termination
at End of Option Period. If GeoPetro does not pay into the Escrow Account
the Initial Cash Payment on or before the end of the Option Period hereof and
GeoPetro and Pioneer have not agreed to an extension, then Pioneer shall retain
the One Hundred Thousand U.S. Dollars (USD$100,000.00) held by Pioneer’s
counsel, this Agreement shall ipso facto
terminate, and Pioneer and GeoPetro shall have no further obligations
hereunder.

 

7.             Total
Purchase Price; Adjustment. The total consideration for GeoPetro to acquire
from Pioneer an undivided one hundred percent (100%) interest in and to the
Subject Leases is Two Million Three Hundred Thirty-six Thousand One Hundred
Twenty-five and 80/100s U.S. Dollars (USD$2,336,125.80) (the “Total Purchase
Price”), subject to upward or downward adjustment, as applicable, based upon
the actual number of acres comprising the Subject Interests, and to the
conditions and limitations hereinafter set forth. The Total Purchase Price
shall be payable as follows:

 

(i)            The
Initial Cash Payment (or such other adjusted amount as is determined by
multiplying the total number of acres comprising the Subject Interests by Ten
U.S. Dollars (USD$10.00)) shall be payable into the Escrow Account at Closing
(less the One Hundred Thousand U.S. Dollars (USD$100,000.00) Deposit under
Paragraph 1 above); and

 

(ii)           The Second
Cash Payment of One Million One Hundred Sixty-eight Thousand Sixty-two and
90/100s U.S. Dollars (USD$1,168,062.90) (or such other adjusted amount as is
determined by multiplying the total number of acres comprising the Subject
Interests by Ten U.S. Dollars (USD$10.00)) shall be payable to Pioneer upon the
satisfaction of the conditions stated in Paragraph 11 below.

 

8.             Assignments;
Reserved ORI. At Closing, GeoPetro shall receive assignments of the Subject
Interests on the form Assignments of Interests in Oil and Gas Leases 

 

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promulgated by the
Department of Natural Resources, Division of Oil and Gas of the State of Alaska
and bearing special warranty of title by, through, or under Pioneer, but not
otherwise, of all of Pioneer’s one hundred percent (100%) leasehold interest in
and to the Subject Interests referred to in Exhibit A attached hereto. In the
assignments, Pioneer shall reserve an overriding royalty interest equal to the
difference between nineteen percent (19%) and existing lease burdens. Each of
the oil and gas leases comprising the Subject Interests that Pioneer delivers
to GeoPetro hereunder shall have a net revenue interest of eighty-one percent
(81%). The assignments shall specifically provide that GeoPetro, and any
successors thereof, shall be subject to all of the terms and provisions of this
Agreement, and shall expressly assume all of the benefits and obligations
hereunder.

 

9.             Work
Program; Force Majeure. After Closing GeoPetro will commence a minimum work
program of Two Million Five Hundred Thousand U.S. Dollars (USD$2,500,000.00)
consisting of, but not limited to, a multiple test well drilling program (the “Work
Program”). The initiation, timing, and completion of the Work Program shall be
subject to customary events of Force Majeure.

 

(i)            If either
party hereto is unable, wholly or in part, by an event of Force Majeure to
carry out its obligations under this Agreement, other than to make payments due
hereunder, it is agreed that upon such party giving notice and full particulars
of such Force Majeure event in writing or by facsimile to the other party as
soon as possible after the occurrence of the cause relied on, then the
obligations of the party giving such notice, as far as they are affected by
such event of Force Majeure, shall be suspended from the commencement of and
during the continuance of any inability so caused but for no longer period, and
such cause shall as far as possible be remedied with all reasonable dispatch.

 

(ii)           The term “Force
Majeure,” as used herein, shall mean an act of God, act of the public enemy,
war, blockade, public riot, lightning, fire, storm, flood, earthquake, volcanic
eruption, explosion, and any other causes of the kind enumerated. “Force
Majeure” shall also include permitting and governmental delays provided that
GeoPetro has acted with reasonable diligence and dispatch to comply with
governmental requirements with respect to the Work Program.

 

10.           Notices. All notices and other communications required or desired to be
given hereunder must be in writing and sent (properly addressed as set forth
below) by: (a) U.S. mail with all postage and other charges fully prepaid, (b)
hand delivery, or (c) e-mail or electronic facsimile transmission. A notice
will be deemed effective on the date on which such notice is received by the
addressee, if by mail or hand delivery, or on the date sent, if by e-mail or
facsimile (as evidenced by telephonic or fax machine confirmation of receipt or
return confirming e-mail from the recipient); provided, however, if such date
is not a Business Day, the date of receipt will be on the next date that is a
Business Day. As used herein, “Business Day” means any day other than a
Saturday, Sunday, or legal holiday in the State of Texas, and on which banks
are open for business in Houston, Texas. Either Party may change its address by
notifying the other Party in writing of such address change.

 

4

 

	
  If to GeoPetro:

  	
  GeoPetro Resources
  Company

  
	
   

  	
  One Maritime Plaza,
  Suite 700

  
	
   

  	
  San Francisco, CA  94111

  
	
   

  	
  Attn:  Mr. Stuart J. Doshi

  
	
   

  	
  Telephone  (415) 
  398-8186

  
	
   

  	
  Facsimile:  (415) 
  398-9227

  
	
   

  	
  E-mail:
  sdoshi@geopetro.com

  
	
   

  	
   

  
	
  If to Pioneer:

  	
  Pioneer Oil Company,
  Inc.

  
	
   

  	
  RR 4, Box 142 B

  
	
   

  	
  Lawrenceville, IL  62439

  
	
   

  	
  Attn.: Mr. Donald E. Jones
  Jr.

  
	
   

  	
  Telephone  (618) 943-5314

  
	
   

  	
  Facsimile:  (618) 943-5523

  
	
   

  	
  E-mail:
  donjones@pioneeroil.net

  

 

11.           Completion
of Work Program. Subject only to events of Force Majeure, GeoPetro shall
complete the Work Program on or before three (3) years from the date that
Pioneer executes, acknowledges, and delivers to GeoPetro legally-sufficient
assignments of the Subject Interests. On or before three (3) years from the
date that Pioneer executes, acknowledges, and delivers to GeoPetro
legally-sufficient assignments of the Subject Interests, GeoPetro shall elect,
in its sole discretion, (i) to forfeit its entire interest in the Subject
Interests, in which event Pioneer shall retain as its sole property all monies
and other consideration paid to it by GeoPetro or any third party under this
Agreement, or (ii) to tender to Pioneer the Second Cash Payment, being
remaining balance of the Total Purchase Price (calculated by multiplying the
total number of acres comprising the Subject Interests by Ten U.S. Dollars
(USD$10.00))as specified in Paragraph 7(ii) above. If an election is made not
to pay to Pioneer the Second Cash Payment, being the remaining balance of the
Total Purchase Price, then GeoPetro will promptly reassign all of its right,
title, and interest in and to the Subject Interests by assignments of the
Subject Interests on the form Assignments of Interests in Oil and Gas Leases
promulgated by the Department of Natural Resources, Division of Oil and Gas of
the State of Alaska and bearing special warranty of title by, through, or under
GeoPetro, but not otherwise, to Pioneer, and all of the interest of GeoPetro
hereunder shall ipso facto
terminate.

 

12.           Delay
Rentals. GeoPetro agrees that from and after Closing and throughout the
term hereof until such time as GeoPetro either (i) forfeits its entire interest
in the Subject Interests, or (ii) remits the Second Cash Payment, being the
remaining balance of the Total Purchase Price to Pioneer, GeoPetro shall use
its reasonable commercial efforts to maintain the Subject Interests during
their primary term through the timely payment of delay rentals as such payments
become due. All such delay rentals shall be tendered at least sixty (60) days
before such payments are due, and proof of such payments shall be promptly furnished
to Pioneer. If Pioneer makes any delay rental payment for any of the Subject
Interests between the Effective Date hereof and the date of GeoPetro’s
forfeiture of its interests hereunder in accordance with Paragraph 11(i), or
tender to Pioneer of the Second Cash Payment, being the remaining balance of
the Total Purchase Price in accordance with Paragraph 11(ii), GeoPetro shall
promptly reimburse Pioneer for same. 

 

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GeoPetro’s failure
to timely remit delay rentals over the Subject Interests as set forth herein
shall create a claim for monetary damages in favor of Pioneer as set forth in
Paragraph 14 below.

 

13.           Default;
Sole Remedy. Pioneer agrees that if GeoPetro defaults under the terms
hereof with respect to any payment of the Total Purchase Price or the Work
Program commitments outlined above, and any such default is not cured as set
forth herein, its sole remedy shall be the forfeiture by GeoPetro of any rights
in and to the Subject Interests, including any and all consideration previously
paid or Work Program expenditures incurred. Upon the occurrence of any default
which is not cured within sixty (60) days of Pioneer’s notification to GeoPetro
of said event, or if GeoPetro elects to terminate its participation hereunder,
then GeoPetro shall reassign all of its right, title, and interest in and to
the Subject Interests to Pioneer by assignments of the Subject Interests on the
form Assignments of Interests in Oil and Gas Leases promulgated by the Department
of Natural Resources, Division of Oil and Gas of the State of Alaska and
bearing special warranty of title by, through, or under GeoPetro, but not
otherwise, and this Agreement shall terminate. Upon the termination hereof,
Pioneer and GeoPetro shall have no further obligations hereunder.

 

14.           Pioneer
Release. Except for the forfeiture remedy under this Agreement, which is
Pioneer’s sole remedy hereunder, and the limited damages remedy set forth in
the last sentence of this Paragraph 14, GeoPetro shall not be liable to Pioneer
for any monetary or performance default under this Agreement, and Pioneer shall
RELEASE, WAIVE and DISCHARGE GeoPetro from and against any and all claims,
defaults, liabilities, and losses arising out of, in connection with, or related
to this Agreement. Notwithstanding the foregoing, if GeoPetro fails to make any
required delay rental payment under Paragraph 12 above, or otherwise acts or
fails to act in a manner that causes any of the oil and gas leases comprising
the Subject Interests to terminate prior to the date of GeoPetro Group’s
forfeiture of its interests hereunder in accordance with Paragraph 11(i), or
tender to Pioneer of the Second Cash Payment, being the remaining balance of
the Total Purchase Price in accordance with Paragraph 11(ii), GeoPetro shall be
liable to Pioneer for monetary damages in such amount as mutually agreed by the
parties hereunder or determined through arbitration under Paragraph 16 below.

 

15.           No
Commission; Pioneer Indemnification. Pioneer agrees that there is no fee,
commission, payment, or other consideration due to any third party resulting
from this Agreement for which GeoPetro shall have any responsibility, and
Pioneer does hereby INDEMNIFY, PROTECT, and DEFEND GeoPetro from and against
any and all such third party claims.

 

16.           ARBITRATION. Any dispute arising out of
this Agreement, or its performance or breach, shall be resolved by binding
arbitration at Denver, Colorado under the Commercial Arbitration Rules (the “AAA
Rules”) of the American Arbitration Association (the “AAA”). This arbitration
provision is expressly made pursuant to and shall be governed by the Federal
Arbitration Act, 9 U.S.C. Section 1-14. The Parties agree that pursuant to
Section 9 of the Federal Arbitration Act, a judgment of a United States
District Court of competent jurisdiction shall be entered upon the award made 

 

6

 

pursuant to the
arbitration. Three (3) arbitrators, who shall have the authority to allocate
the costs of any arbitration initiated under this paragraph, shall be selected
according to the AAA Rules within ten (10) days of the submission to the AAA of
the response to the statement of claim or the date on which any such response
is due, whichever is earlier. The arbitrators shall be required to furnish to
the parties to the arbitration a preliminary statement of the arbitrators’
decision that includes the legal rationale for the arbitrators’ conclusion and
the calculations pertinent to any damage award being made by the arbitrator.
The arbitrators shall then furnish each of the parties to the arbitration the
opportunity to comment upon and/or contest the arbitrators’ preliminary
statement of decision either, in the discretion of the arbitrators, through
briefs or at a hearing. The arbitrators shall render a final decision following
any such briefing or hearing. The arbitrators shall conduct the arbitration in
accordance with the Federal Rules of Evidence. The arbitrators shall decide the
amount and extent of pre-hearing discovery which is appropriate. The
arbitrators shall have the power to enter any award of monetary and/or
injunctive relief (including the power to issue permanent injunctive relief and
also the power to reconsider any prior request for immediate injunctive relief
by any party and any order as to immediate injunctive relief previously granted
or denied by a court in response to a request therefor by any party), including
the power to render an award as provided in Rule 43 of the AAA Rules. Specifically,
the arbitrators shall have the power to order Pioneer or GeoPetro, as the case
may be, to specific performance of its assignment/reassignment obligations in
accordance with the terms of this Agreement. The arbitrators shall have the
power to award the prevailing party its costs and reasonable attorneys’ fees.
The arbitration award may be enforced in any court having jurisdiction over the
parties and the subject matter of the arbitration.

 

17.           Choice
of Law. This Agreement shall be governed by the laws of the State of
Alaska, without giving effect to conflicts of laws principles that would apply
the laws of another jurisdiction.

 

18.           Representations
and Warranties. As of the date hereof, each of GeoPetro and Pioneer
represents and warrants to the other as follows:

 

(i)            Each of
GeoPetro and Pioneer is a corporation duly formed, validly existing, and in
good standing under the laws of the state of its formation, and has the
requisite legal power to carry on its business as it is now being conducted.
Pioneer is duly qualified to do business, and is in good standing, in the State
of Alaska.

 

(ii)           Each of
GeoPetro and Pioneer has all requisite legal power and corporate authority to
execute and deliver this Agreement and to perform its obligations hereunder.
The execution, delivery, and performance of this Agreement and the transaction
contemplated hereby have been duly and validly authorized by all requisite
action on the part of each of GeoPetro and Pioneer.

 

(iii)          This
Agreement constitutes a valid and binding agreement of each of GeoPetro and
Pioneer enforceable against each party in accordance with its terms, subject to
(a) applicable bankruptcy, insolvency, reorganization, moratorium, and other
similar laws of general application with respect to creditors, (b) general
principles 

 

7

 

of equity, and (c)
the power of a court to deny enforcement of remedies generally based upon
public policy.

 

(iv)          Neither the
execution and delivery of this Agreement, nor the consummation of the
transaction and performance of the terms and conditions contemplated hereby by
either of GeoPetro or Pioneer, will (a) conflict with or result in any breach
of any provision of the governing documents of either of GeoPetro or Pioneer;
(b) conflict with or be rendered void or ineffective by or under the terms,
conditions, or provisions of any agreement, instrument, or obligation to which
either GeoPetro or Pioneer is a party or is subject or by which any of its
properties or assets are bound; (c) result in or give rise to (or with notice
or the passage of time or both could result in or give rise to) a default or
the creation or imposition of any lien, charge, penalty, restriction, security
interest, or encumbrance or any change in terms, termination, cancellation, or
acceleration under the terms, conditions, or provisions of any agreement,
instrument, or obligation; or (d) violate or be rendered void or ineffective
under any law.

 

(v)           No
consent, approval, authorization, or permit of, or filing with or notification
to, any person or entity is required (a) for or in connection with the
execution and delivery of this Agreement by either GeoPetro or Pioneer, or for
or in connection with the consummation of the transaction and performance of
the terms and conditions contemplated hereby by GeoPetro and Pioneer, (b) in
order to prevent any change in terms, termination, cancellation, default, or
acceleration (or any right thereof from arising) under the terms, conditions,
or provisions of any agreement, instrument, or obligation as a result of such
execution, delivery, consummation, or performance, or (c) in order to prevent
the creation or imposition of any lien, charge, penalty, restriction, security
interest, or encumbrance as a result of such execution, delivery, consummation,
or performance.

 

(vi)          There are
no actions, law suits, arbitration or mediation proceedings, or any other
judicial or administrative proceeding pending or, to the knowledge of either of
GeoPetro or Pioneer, threatened which relate to the transaction contemplated by
this Agreement, and there is no judgment or outstanding order, injunction,
decree, or award rendered by any governmental authority or arbitrator which
binds either of GeoPetro or Pioneer and relates to the transaction contemplated
by this Agreement.

 

(vii)         There
are no bankruptcy, reorganization, or arrangement proceedings pending against,
being contemplated by, or, to the knowledge of either of GeoPetro or Pioneer,
threatened against either of GeoPetro or Pioneer or any of their affiliates.

 

19.           Amendments
and Severability. No amendments or other modifications to this Agreement
will be effective or binding on either of the parties unless the same are in
writing, are designated as an amendment or modification, expressly reference
this Agreement, and are signed by each party. The invalidity of any one or more
provisions of this Agreement will 

 

8

 

not affect the
validity of this Agreement as a whole, and in case of any such invalidity, this
Agreement will be construed as if the invalid provision had not been included
herein.

 

20.           Successors
and Assigns. The terms, covenants and conditions contained in this
Agreement are binding upon and inure to the benefit of the parties hereto, and
their respective successors and assigns.

 

21.           No
Partnership Created. It is not the purpose or intention of this Agreement
to create (and it should not be construed as creating) a joint venture,
partnership or any type of association, and the parties are not authorized to
act as an agent or principal for each other with respect to any matter related
hereto. If, for federal income tax purposes, this Agreement and the operations
hereunder are regarded as a partnership, and if the parties have not otherwise
agreed to form a tax partnership, each party thereby affected elects to be
excluded from the application of all of the provisions of Subchapter “K,”
Chapter 1, Subtitle “A,” of the Internal Revenue Code of 1986, as amended (the “Code”),
as permitted and authorized by Section 761 of the Code and the regulations
promulgated thereunder. Either party is authorized and directed to execute on
behalf of the other party such evidence of this election as may be required by
the Secretary of the Treasury of the United States or the Federal Internal
Revenue Service, including specifically, but not by way of limitation, all of
the returns, statements, and the data required by Treasury Regulations §1.761.
Should there be any requirement that each party give further evidence of this
election, each party shall execute such documents and furnish such other
evidence as may be required by the Federal Internal Revenue Service or as may
be necessary to evidence this election. No party shall give any notices or take
any other action inconsistent with the election made hereby. If any present or
future income tax laws of the State of Alaska or any future income tax laws of
the United States contain provisions similar to those in Subchapter “K,”
Chapter 1, Subtitle “A,” of the Code, under which an election similar to that
provided by Section 761 of the Code is permitted, each party shall make such
election as may be permitted or required by such laws. In making the foregoing
election, each party states that the income derived by such party from
operations hereunder can be adequately determined without the computation of
partnership taxable income.

 

22.           Waiver
of Certain Remedies. Notwithstanding anything to the contrary in this
Agreement, in no event shall either party be entitled to receive or be liable
to the other party for (and each party hereby waives) any consequential,
special, indirect, or punitive damages arising out of this Agreement or the
transactions contemplated hereby, irrespective of whether the claim or alleged
claim arises as a result of breach of any provision of this Agreement, any tort
(including negligence and strict liability), or otherwise, including, without
limitation, any loss of profits, loss of income, loss of use, loss of revenue,
loss of contracts, or loss of fuel.

 

23.           No
Third Party Beneficiaries. Nothing contained in this Agreement will entitle
anyone other than the parties or their successors and permitted assigns to any
claim, cause of action, remedy, or right of any kind whatsoever.

 

9

 

24.           Construction.
THE PARTIES ACKNOWLEDGE THAT THEY HAVE HAD AN ADEQUATE OPPORTUNITY TO REVIEW
EACH AND EVERY PROVISION CONTAINED IN THIS AGREEMENT AND TO SUBMIT THE SAME TO
LEGAL COUNSEL FOR REVIEW AND COMMENT. BASED ON THE FOREGOING, THE PARTIES AGREE
THAT THE RULE OF CONSTRUCTION THAT A CONTRACT BE CONSTRUED AGAINST THE DRAFTER,
IF ANY, NOT BE APPLIED IN THE INTERPRETATION AND CONSTRUCTION OF THIS
AGREEMENT.

 

25.           Conflict
in Agreements. If any conflict exists between this Agreement and any other
prior agreement, then (as between the parties) the provisions of this Agreement
shall control.

 

26.           Entire
Agreement. This Agreement and the Exhibits attached hereto, which are
incorporated herein by reference, (i) supersede all prior and contemporaneous
negotiations, understandings, memoranda of understanding and agreements
(whether oral or written) between the parties with respect to the subject
matter hereof, and (ii) constitute the entire understanding and agreement
between the parties with respect to the matters hereof.

 

27.           Headings.
The headings contained herein are for reference only and shall not in any way
affect the meaning or interpretation of this Agreement.

 

28.           Area of
Mutual Interest. The parties hereby establish that Area of Mutual Interest
(the “AMI”), the terms and provisions of which are set forth on Exhibit B
attached hereto.

 

29.           Access
to Information and Operations. Pioneer or its designated representatives
shall, at their sole cost, risk, and expense, have reasonable access to all of
the of GeoPetro’s well locations on the Subject Interests to observe and
monitor drilling and completion activities thereon. GeoPetro will promptly
furnish Pioneer with all geophysical, geological, and other information
requested by Pioneer with respect to drilling and completion operations
conducted by GeoPetro hereunder, and Pioneer shall maintain all such
information in strictest confidence.

 

30.           Compliance
with Law. The parties to this Agreement shall comply, in all material respects,
with all present and future valid and applicable laws, orders, rules, and
regulations of any regulatory body, governmental entity, or agency having
jurisdiction with respect to the Subject Interests and the activities and
operations contemplated hereunder.

 

[Signature Page Follows]

 

10

 

Executed this 20th
day of April, 2005, to be effective as of the Effective Date.

 

	
   

  	
  GeoPetro Resources Company

  
	
   

  	
   

  
	
   

  	
  /s/ Stuart J. Doshi

  
	
   

  	
  Stuart J. Doshi

  
	
   

  	
  President and CEO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Pioneer
  Oil Company, Inc.

  
	
   

  	
   

  
	
   

  	
  /s/ Donald E.
  Jones Jr.

  	
   

  
	
   

  	
  Donald E. Jones
  Jr.

  	
   

  
	
   

  	
  President

  	
   

  

 

11

 

Exhibit A

 

Subject Interests

 

A-1

 

EXHIBIT A

ATTACHED TO AND MADE A PART OF
THAT OPTION AGREEMENT, COOK INLET CBM PROJECT

DATED APRIL 20, 2005 

BETWEEN GEOPETRO RESOURCES
COMPANY AND PIONEER OIL COMPANY, INC.

27 STATE OF ALASKA OIL AND GAS
LEASES TO BE ISSUED TO PIONEER OIL COMPANY, INC.

COVERING THE FOLLOWING 27 TRACTS
SOLD IN THE COOK INLET AREAWIDE 2004 SALE:

 

	
  ADL

  	
   

  	
  Tract Number

  	
   

  	
  Acreage

  	
   

  
	
  390558

  	
   

  	
  CIA2004-381

  	
   

  	
  5,760.00

  	
   

  
	
  390559

  	
   

  	
  CIA2004-382

  	
   

  	
  5,706.00

  	
   

  
	
  390561

  	
   

  	
  CIA2004-444

  	
   

  	
  4,560.00

  	
   

  
	
  390562

  	
   

  	
  CIA2004-445

  	
   

  	
  5,674.00

  	
   

  
	
  390563

  	
   

  	
  CIA2004-446

  	
   

  	
  5,690.00

  	
   

  
	
  390564

  	
   

  	
  CIA2004-448

  	
   

  	
  5,760.00

  	
   

  
	
  390565

  	
   

  	
  CIA2004-450

  	
   

  	
  5,690.00

  	
   

  
	
  390566

  	
   

  	
  CIA2004-451

  	
   

  	
  5,760.00

  	
   

  
	
  390569

  	
   

  	
  CIA2004-512

  	
   

  	
  3,739.00

  	
   

  
	
  390570

  	
   

  	
  CIA2004-517

  	
   

  	
  3,200.00

  	
   

  
	
  390573

  	
   

  	
  CIA2004-579

  	
   

  	
  5,234.40

  	
   

  
	
  390574

  	
   

  	
  CIA2004-580

  	
   

  	
  516.89

  	
   

  
	
  390575

  	
   

  	
  CIA2004-581

  	
   

  	
  1,612.37

  	
   

  
	
  390576

  	
   

  	
  CIA2004-582

  	
   

  	
  4700.53

  	
   

  
	
  390580

  	
   

  	
  CIA2004-621

  	
   

  	
  2.786.80

  	
   

  
	
  390581

  	
   

  	
  CIA2004-624

  	
   

  	
  4,583.68

  	
   

  
	
  390582

  	
   

  	
  CIA2004-625

  	
   

  	
  1,531.50

  	
   

  
	
  390583

  	
   

  	
  CIA2004-626

  	
   

  	
  771.32

  	
   

  
	
  390584

  	
   

  	
  CIA2004-627

  	
   

  	
  3,246.45

  	
   

  
	
  390587

  	
   

  	
  CIA2004-660

  	
   

  	
  4,188.31

  	
   

  
	
  390588

  	
   

  	
  CIA2004-661

  	
   

  	
  4,630.66

  	
   

  
	
  390589

  	
   

  	
  CIA2004-663

  	
   

  	
  5,389.95

  	
   

  
	
  390590

  	
   

  	
  CIA2004-664

  	
   

  	
  5,543.97

  	
   

  
	
  390591

  	
   

  	
  CIA2004-665

  	
   

  	
  5,616.55

  	
   

  
	
  390592

  	
   

  	
  C1A2004-666

  	
   

  	
  4,753.82

  	
   

  
	
  390593

  	
   

  	
  CIA2004-667

  	
   

  	
  4,400.09

  	
   

  
	
  390594

  	
   

  	
  CIA2004-670

  	
   

  	
  5,760.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  116,806.29

  	
   

  

 

 

Exhibit B

 

Area of Mutual Interest

 

Section 1.1. General.
The parties hereby designate the area described in Exhibit B-1 attached hereto
as the “Area of Mutual Interest” or “AMI,” as same may be expanded as set forth
below in the definition of “AMI Interests,” or by the mutual agreement of the
parties hereto. The AMI shall be in force and effect for a period of seven (7)
years from the date hereof, and for so long thereafter that GeoPetro, or its
successors and assigns, owns any interest in the AMI, unless earlier terminated
by the parties hereto (the “AMI Term”). In any case, this AMI shall terminate
no later than fifteen (15) years from the Effective Date hereof.

 

(a) From and after
the Effective Date and throughout the term of this AMI, if Pioneer or any
Affiliate acquires any AMI Interest, Pioneer shall promptly advise GeoPetro of
such acquisition, and shall, upon the request of GeoPetro, assign, or cause its
Affiliate to assign, such AMI Interest to GeoPetro by an instrument reasonably
satisfactory to GeoPetro (including, without limitation, the form Assignments
of Interests in Oil and Gas Leases promulgated by the Department of Natural
Resources, Division of Oil and Gas of the State of Alaska, if applicable) and
bearing special warranty of title by, through, or under Pioneer, but not
otherwise, of all of Pioneer’s (or its Affiliate’s, as applicable) leasehold
interest in and to the AMI Interest, reserving, however, an overriding royalty
interest equal to two percent of eight-eighths (2% of 8/8ths), proportionately
reduced if the AMI Interest does not cover the entire leasehold interest or if
Pioneer (or its Affiliate, as applicable) owns less than a full interest in the
AMI Interest. If the AMI Interest covers lands both within and without the AMI,
Pioneer, or its Affiliate, as applicable, shall offer to GeoPetro the entire
AMI Interest, and the lands lying outside the AMI shall become a part of the
AMI.

 

(b) From and after
the Effective Date and throughout the term of this AMI, if GeoPetro acquires any
AMI Interest, it shall promptly assign to Pioneer an overriding royalty
interest equal to two percent of eight-eighths (2% of 8/8ths), proportionately
reduced if the AMI Interest does not cover the entire leasehold interest or if
GeoPetro owns less than a full interest in the AMI Interest. If the AMI
Interest covers lands both within and without the AMI, the entire AMI Interest,
and the lands lying outside the AMI shall become a part of the AMI.

 

Section 1.2. Definitions.
The following terms shall have the meanings set forth below:

 

“Affiliate”
means any Person that, directly or indirectly, through one or more other
Persons, controls, is controlled by or is under common control with the Person
specified. With respect to any Person (i) the securities of which are not
publicly traded and (ii) that has no ultimate parent the securities of which
are publicly traded, the term “Affiliate” shall also include (a) any executive
officer, partner, manager, or director of the Person specified, (b) any Person
controlled by one or more executive officers, partners, managers, or directors
of the Person specified, or (c) any Person related (by blood or marriage) to
any executive officer, partner, manager, or director. For the purpose of this
definition of Affiliate, the term “control” means the power to direct or cause
the direction of the management of such Person, whether through the ownership
of voting securities, by contract or agency, or otherwise.

 

B-1

 

“AMI Interests”
means (a) oil, gas and other mineral leases, and any other real property
interests, leases, or contracts granting the right to explore for and produce
hydrocarbons, (b) any AMI Investment Opportunity, and (c) all interests in
units or wells, fee interests, subleases, mineral rights, back in interests,
joint venture interests, operating rights, royalties, overriding royalties,
production payments, net profits interests, carried interests, easements,
rights-of-way, surface leases, permits, licenses, and other interests, together
with all rights, titles, interests, tenements, hereditaments, appurtenances,
benefits and privileges attributable to each such interest, in each case (a),
(b), and (c) to the extent covering lands located within the AMI. If an interest
of the type described in (a), (b), or (c) is located partially within the AMI,
the AMI shall be deemed modified to cover and include all of such interest.

 

“AMI
Investment Opportunity” means any opportunity to participate in a transaction
that is intended to include the acquisition, directly or indirectly, of AMI
Interests, but does not in an of itself constitute an AMI Interest (e.g.,
opportunities to enter farmout agreements and purchase and sale agreements)

 

“Person” means
any governmental authority or any individual, firm, partnership, corporation,
joint venture, trust, unincorporated organization, or other entity or
organization.

 

B-2

 

EXHIBIT B-1

Area of
Mutual Interest (AMI)

Attached to and made a part of
that Option Agreement,

Cook Inlet CBM Project, dated APRIL 20, 2005, between

GeoPetro Resources Company and
Pioneer Oil Company, Inc.EXHIBIT 10.7

 

GEOPETRO RESOURCES COMPANY

2001 STOCK INCENTIVE PLAN

 

 

1.  Purpose of the Plan.  The purpose of this Plan is to attract,
motivate, reward and retain the best available personnel for positions of
substantial responsibility by providing additional incentives to the employees
and consultants of the Company and to promote the success of the Company’s
business.

 

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

 

2.1 
“Affiliate”  of the Company or a Person includes (i) any
Person directly or indirectly controlling, controlled by or under common
control with the Company or such Person, (ii) any Person owning or
controlling 10% or more of the outstanding

 

1

 

voting securities of such Person, (iii) any officer, director,
partner or member of such Person, and (iv) if such Person is an officer,
director, partner or member, any corporation, partnership, limited liability
company or other entity for which such Person acts in any such capacity. Such
term when used in connection with or in the context of an Incentive Stock
Option shall be limited to the Parent and any Subsidiary of the Company but
otherwise shall be broadly construed as provided in the preceding sentence when
used in connection with any other Award.

 

2.2 
“Award”  means an award by the Company of any
Restricted Stock, Options or Stock Appreciation Rights or any combination
thereof, whether alternative or cumulative, authorized by and granted under
this Plan.

 

2.3 
“Award Agreement”  means the written agreement entered into
between the Company and each Employee, Consultant or Employee of an Affiliate
receiving the Award of Restricted Stock or Stock Appreciation Rights under this
Plan setting forth the number of Shares awarded to such Person by the Company,
vesting rights, restrictions and other terms and provisions relating to such
Award as authorized by the Board or Committee, as the case may be.

 

2.4 
“Award Date”  means the date upon which the Board or the
Committee, as the case may be, grants an Award under this Plan or such other
date as designated as the Award Date by the Board or Committee at the time the
Award is made.

 

2.5 
“Board”  means the Board of Directors of the Company.

 

2.6 
“Code”  means the Internal Revenue Code of 1986, as
amended.

 

2.7 
“Common Stock”  means the no par value common stock of the
Company as a class and shall include any series of common stock of the Company
which is specifically designated in the Company’s Articles of Incorporation,
including any restatements or amendments thereto, as having voting rights,
preferences, limitations, restrictions and relative rights different from the
Common Stock and which is issued as part of an Award under this Plan.

 

2.8 
“Company”  means GeoPetro Resources Company, a
California corporation.

 

2.9 
“Committee”  means the Compensation Committee which may be
appointed by the Board, in its sole discretion, on or after the adoption of
this Plan in accordance with Section 4.1 of this Plan and shall refer to
the Board if at any time after the adoption of this Plan, the Compensation
Committee is no longer in existence or the Board has withdrawn authority and
power of such Committee to administer this Plan.

 

2.10 
“Commission”  shall mean the United States Securities and
Exchange Commission.

 

2.11 
“Consultant”  means any person who is engaged by the
Company or any Parent, Subsidiary or Affiliate to render consulting services,
and includes any director of the Company, whether compensated for such services
or not, who is not an officer or Employee of the Company.

 

2.12 
“Continuous Status as an Employee or
Consultant”  means
the absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of sick leave, military leave, or any other leave of
absence approved by the Board; provided that such leave is for a period of not
more than ninety (90) days or reemployment upon the expiration of such
leave is guaranteed by contract or statute.

 

2.13 
“Employee”  means any person employed by the Company or
any Parent, Subsidiary or other Affiliate of the Company. A director of the
Company or any Parent, Subsidiary or other Affiliate who is an officer or an
employee shall be treated for purposes of this Plan as an Employee. The payment
of a director’s fee by the Company shall not be sufficient to constitute “employment”
by the Company. An “Employee of an Affiliate” shall be limited to an Employee
of the Parent or any Subsidiary of the Company when referring to or used in the
context of an Incentive Stock Option but otherwise will be broadly construed to
mean any Affiliate of the Company when referring to or used in the context of
any other Award.

 

2.14 
“Exchange Act”  means the Securities Exchange Act of 1934, as
amended from time to time.

 

2.15 
“Fair Market Value”  means the fair market value of the Shares
awarded under a Restricted Stock Award or Stock Appreciation Rights Award or
the Shares underlying any Options granted as an Award under this Plan as
determined in accordance with Section 9.2.2 of this Plan.

 

2

 

2.16 
“Incentive Stock Option”  means an Option which is intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code
and the regulations adopted thereunder and which shall be clearly identified as
such in the written Stock Option Agreement provided by the Company to each
Optionee granted an Incentive Stock Option under this Plan.

 

2.17 
“Nonqualified Stock Option”  means an Option granted under this Plan which
does not qualify as an Incentive Stock Option. If the Award of an Option is
intended to be a Nonqualified Stock Option, such option shall be designated as
a Nonqualified Stock Option in the written Stock Option Agreement provided by
the Company to each Optionee granted an Option under this Plan. To the extent
that the aggregate Fair Market Value of Optioned Stock to which Incentive Stock
Options granted under Options to an Employee are exercisable for the first time
during any calendar year (under the Plan and all plans of the Company or any
Parent or Subsidiary) exceeds $100,000, such Options, to the extent of such
excess, shall be treated as Nonqualified Stock Options under this Plan. The
aggregate Fair Market Value of the Optioned Stock shall be determined as of the
date of grant of each Option and the determination of which Incentive Stock
Options shall be treated as qualified incentive stock options under Section 422
of the Code and the portion of any Incentive Stock Options exercisable by an
Optionee for the first time in a particular year in excess of the $100,000
limitation shall be treated as Nonqualified Stock Options based on the order in
which such Options were granted in accordance with Section 422(d) of
the Code. Furthermore, an Option granted and designated as an Incentive Stock
Option which is disposed of within two (2) years of the Award Date or
within one (1) year after the Option is exercised will be subsequently treated
for tax purposes as a Nonqualified Stock Option.

 

2.18 
“Option”  means an Incentive Stock Option, a
Nonqualified Stock Option or both as identified in a written Stock Option
Agreement representing such stock option granted pursuant to this Plan.

 

2.19 
“Optioned Stock”  means the Common Stock subject to an Option.

 

2.20 
“Optionee”  means an Employee or Consultant who receives
an Option, provided, however, that the term “Optionee” when referring to or
used in the context of an Incentive Stock Option shall be limited to an
Employee of the Company or a Parent or Subsidiary of the Company.

 

2.21 
“Parent”  means a “parent corporation,” whether now or
hereafter existing, as defined in Section 424(e) of the Code.

 

2.22 
“Person”  shall mean any individual Employee,
Consultant or Employee of an Affiliate depending on the context in which used
in this Plan.

 

2.23 
“Plan”  means this 2001 Stock Incentive Plan.

 

2.24 
“Restricted Stock”  means an Award of Shares to Employees,
Consultants or Employees of Affiliates of the Company by the Board or
Committee, as the case may be, under this Plan which is subject to the payment
of such consideration, if any, such vesting rights, such restrictions and
limitations on transferability of the Shares and other terms, provisions,
restrictions and limitations as are established under the Award Agreement
between the Company and such Person.

 

2.25 
“Securities Act”  means the Securities Act of 1933, as amended
from time to time.

 

2.26 
“Share”  means a share of the Common Stock of the
Company, as may be adjusted from time to time in accordance with Section 11
of this Plan.

 

2.27 
“Stock Appreciation Right”  means a right to receive cash or Shares, or a
combination thereof, the aggregate amount or value of which is determined by reference
to a change in the Fair Market Value of the Common Stock and is generally used
in tandem with an Option.

 

2.28 
“Stock Option Agreement”  means the agreement entered into between the
Company and each Optionee which shall set forth the terms and conditions of
each Option granted to each Optionee, including, without limitation, the number
of Shares of Optioned Stock underlying such Option, the exercise price, vesting
rights, exercise date and other terms and provisions of each Option granted to
such Optionee under such agreement.

 

2.29 
“Subsidiary”  means a “subsidiary corporation,” whether now
or hereafter existing, as defined in Section 424(f) of the Code.

 

3

 

3. 
Stock Subject to the Plan.

 

3.1 
Reservation of Shares.  Subject to any adjustments which may be made
under the provisions of Section 11 of the Plan, the maximum aggregate
number of Shares which may be awarded, optioned and sold under this Plan is
5,000,000 shares of Common Stock. The Shares may be authorized, but unissued,
or reacquired Common Stock.

 

3.2 
Return of Optioned Stock.  If Shares of Restricted Stock are repurchased
by the Company under the terms of an Award Agreement or an Option should expire
or become unexercisable for any reason without having been exercised in full,
the Shares repurchased by the Company or unpurchased Shares which were subject
to an expired or unexercisable Option, unless this Plan shall have been
terminated, shall become available for future grant of an Award under this
Plan.

 

4. 
Administration of the Plan.

 

4.1 
Procedure.  This Plan shall be administered by the
Committee. In administering this Plan, the following rules and procedures
shall apply:

 

4.1.1  Number of Committee Members.  The Committee shall consist of not less than
three (3) members of the Board to administer the Plan on behalf of the
Board, subject to such terms and conditions as the Board may have prescribed or
may in the future prescribe.

 

4.1.2 
Eligible Directors.  If
the Company registers any class of an equity security under Section 12 of
the Exchange Act, the Board may appoint two (2) or more directors to the
Committee on or after such registration persons who meet the requirements of a
non-employee director under Rule 16b-3(b)(3) as promulgated under the
Exchange Act.

 

4.1.3 
Awards by Committee.  If
the Company registers any class of any equity security pursuant to Section 12
of the Exchange Act, any grants of Awards under this Plan to Employees,
Consultants or Employees of Affiliates of the Company shall thereafter be made
by the Committee.

 

4.1.4 
Term, Additions and Succession of Members.  Once appointed, the Committee
shall continue to serve until otherwise directed by the Board. From time to
time, the Board may increase the size of the Committee and appoint additional
members thereof, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies however caused, or remove all members
of the Committee and thereafter directly administer the Plan.

 

4.1.5  Vote of
Members Entitled to Awards.  Members of the
Committee, who are either eligible for Awards or have been granted Awards may
vote on any matters affecting the adoption of this Plan, the administration of
this Plan or the grant of any Awards pursuant to this Plan, to the extent the
Board has delegated such authority to the Committee, and any such member may be
counted in determining the existence of a quorum at any meeting of the
Committee during which action is taken with respect to the granting of Awards
to such Committee member.

 

4.1.6 
Committee Chair and Quorum.  The
Committee shall select one of its members as chairman, and shall hold meetings
at such times and places as the chairman may determine. A majority vote of the
Committee at which a quorum is present, or acts consented to and approved in
writing by all members of the Committee, shall be the valid acts of the
Committee. A quorum shall consist of a majority of members of the Committee.

 

4.2  Powers of the Board or Committee.  Subject to the express provisions of this
Plan and any express limitations under the Company’s articles of incorporation
or bylaws or under applicable law, on the powers and authority delegated to a
committee of the Board, the Committee shall have the powers and authorities as
follows:

 

4.2.1  Granting of Awards.  To grant Awards of Restricted Stock, Stock
Appreciation Rights, Incentive Stock Options, in accordance with Section 422
of the Code or Nonqualified Stock Options or any combination thereof as
provided and designated in a separate written Award Agreement or Stock Option
Agreement to each Employee, Consultant or Employee of an Affiliate of the
Company granted an Award of Restricted Stock or each Employee or Consultant
granted an Option under this Plan and to approve the forms of Award Agreement
or Stock Option Agreements, which need not be identical either as to type of
Award or among Persons participating in such Awards; provided however, that in
no event shall an Incentive Stock Option and a Nonqualified Stock Option
granted to any Optionee under a single Stock Option Agreement be subject to a “tandem”
exercise arrangement such that the exercise of one such Option affects the
Optionee’s right to exercise the other Option granted under such Stock Option
Agreement;

 

4.2.2 
Valuation of Shares.  To
determine, upon review of relevant information and in accordance with Section 9.2.2
of this Plan, the Fair Market Value of the Restricted Stock and the Optioned
Stock;

 

4

 

4.2.3 
Exercise Price.  To
determine the exercise price per Share of Restricted Stock, Optioned Stock or
Stock Appreciation Rights to be granted, which exercise price shall be
determined in accordance with Section 9.2.1 of this Plan;

 

4.2.4 
Number of Shares.  To determine the Employees, Consultants or
Employees of Affiliates, and the time or times at which, Awards of Restricted
Stock, Options or Stock Appreciation Rights shall be granted an Award under
this Plan and the number of Shares to be represented by each such Award;

 

4.2.5 
Other Terms and Provisions.  To
determine the vesting schedule and first dates that the Award of
Restricted Stock or Optioned Stock underlying each Option may be exercised or
to determine that no delay in the exercisability or vesting will be required,
and to determine the duration of the Options granted under this Plan and all
terms and provisions, restrictions and limitations of each Award of Restricted
Stock, Option or Stock Appreciation Right granted (which need not be identical)
consistent with the terms, conditions, restrictions and limitations of this
Plan and, with the consent of the holder thereof, modify or amend each Award of
Restricted Stock, Option of Stock Appreciation Right and to execute, on the
Company’s behalf, the Award Agreement or Stock Option Agreement or any
amendment thereto setting forth in writing the terms and conditions of such
Award of Restricted Stock, Option or Stock Appreciation Right;

 

4.2.6 
Interpretation.  To interpret this
Plan and any Award or other agreements defining the rights and obligations of
the Company and the Persons participating in such an Award;

 

4.2.7 
Prescribe Rules.  To
prescribe, amend and rescind rules and regulations relating to this Plan;

 

4.2.8 
Change of Exercise Date.  To
extend, accelerate or defer (with the consent of the Optionee) the exercise
date of any Award of Restricted Stock, Option or Stock Appreciation Right,
consistent with the provisions of Section 7 of this Plan;

 

4.2.9 
Modification of Awards.  To
modify, cancel or waive the Company’s rights under, or modify, discontinue,
suspend or terminate any or all outstanding Awards, subject to receiving any
consents required under Section 13.2 of this Plan;

 

4.2.10 
Additional Documents.  To
authorize any person to execute on behalf of the Company any instrument
required to effectuate the grant of an Award previously granted by the Board or
Committee, as the case may be;

 

4.2.11 
Experts.  To seek,
obtain and rely on the advice of experts in making any determination or in
taking or refraining from taking any action under this Plan;

 

4.2.12 
Delegation.  To
delegate ministerial, non-discretionary functions to individuals who are
officers or employees of the Company; and

 

4.2.13 
General Authority.  To
make all other determinations deemed necessary to advisable for the
administration and the implementation of this Plan.

 

4.3  Effect of Decisions and Limitations on Liability.  All decisions, determinations and
interpretations of the Board or the Committee to the extent the Board has
delegated such authority and power to the Committee, shall be final and binding
on all Optionees and any other permissible holders of any Options granted under
this Plan. No director, officer or agent of the Company will be liable for any
action, omission or decision under this Plan taken, made or omitted in good
faith.

 

5. 
Eligibility.

 

5.1 
Persons Eligible.  Awards of Restricted Stock may be granted
only to Employees, Consultants and Employees of Affiliates whom the Committee
determines are Persons eligible to participate in this Plan. Incentive Stock
Options may be granted only to Employees. Nonqualified Stock Options may only
be granted to Employees and Consultants. An Employee, who is also a director of
the Company, its Parent or a Subsidiary, shall be treated as an Employee for
purposes of this Section 5. An Employee or Consultant who has been granted
Restricted Stock or an Option may, if he is otherwise eligible, be granted an
additional Award of Restricted Stock or Option or Options from time to time
under this Plan or any other restricted stock award or stock option plan
subsequently adopted by the Company.

 

5.2 
No Effect on Relationship.  This Plan shall not confer upon any Optionee
any right with respect to continuation of employment or consulting relationship
with the Company nor shall it interfere in any way with his right or the
Company’s right to terminate his employment or consulting relationship at any
time.

 

5

 

6. 
Term of Plan.  This Plan shall become effective on September 10,
2001. It shall continue in effect until September 10, 2011, unless sooner
terminated under Section 13.1 of this Plan.

 

7. 
Term of Awards.  The term of each Option and Stock
Appreciation Right shall be, and the rights granted under an Award of
Restricted Stock shall either vest or be forfeited not later than, ten (10) years
from the date of grant thereof or such shorter term as may be provided in the
Stock Option Agreement. However, in the case of an Incentive Award Agreement or
Stock Option granted to an Optionee who, at the time the Option is granted,
owns stock representing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of such Option shall be five (5) years from the date
of grant thereof or such shorter time as may be provided in the Stock Option
Agreement. Otherwise, if the Option granted to an Optionee, who, at the time
the Option is granted, owns stock representing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
Parent or Subsidiary, is a Nonqualified Stock Option or to the extent such
Option is issued as an Incentive Stock Option but becomes a Nonstatutory Stock
Option due to failure to satisfy the requirements under Section 422 of the
Code and the regulations thereunder, the term of such Option shall be for a
period of ten (10) years from the date of grant thereof or such shorter
term as may be provided in the Stock Option Agreement.

 

8. 
Restricted Stock Awards.

 

8.1 
Grant of Awards.  The Board or the Committee, as the case may
be, may, in its absolute discretion, grant Awards of Restricted Stock to any
Employee, Consultant and Employee of any of its Affiliates by entering into an
Award Agreement with each such Person receiving such an Award. The Award
Agreement shall specify:

 

8.1.1  Number of Shares.  The number of shares to be issued to such
Person;

 

8.1.2 
Consideration.  The
amount to be paid by such Person for the Shares which shall not be less than
the minimum consideration allowed under applicable state law;

 

8.1.3 
Shareholder’s Rights.  Rights
or limitations on rights of such Person to vote, to dividends or other
distributions or to other rights with respect to the Shares prior to the
vesting of such Shares under the terms of the Award Agreement; and

 

8.1.4 
Restrictions.  The
restrictions imposed on the transferability of such shares and the conditions
which must be satisfied for the release or lapse of such restrictions, which
may include, without limitation, restrictions which lapse at such time as (i) any
class of the Company’s equity securities is registered under the Securities Act
and the Exchange Act and are publicly traded, (ii) continued employment of
such Person for a prescribed period of time, (iii) the passage of time, (iv) the
attainment of performance goals or objectives, or (v) any combination
thereof. In no event shall such restrictions be for less than six (6) months
after the Award Date, except to the extent the Board or the Committee, as the
case may be, may provide for a shorter restrictive period.

 

8.2  Restrictions Prior to Vesting.  Except as provided in Section 11.2 of
this Plan, Awards of Restricted Stock may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of or encumbered, whether
voluntarily or involuntarily, until the restrictions set forth in the Award
Agreement as determined by the Committee have lapsed in accordance with the
terms and provisions thereof and the Shares relating to such Award have become
vested.

 

8.3 
Restrictive Stock Legend.  Each stock certificate representing the
Shares subject to an Award of Restricted Stock shall bear such restrictive
stock legends as the Committee shall determine to be appropriate by making
references to the restrictions imposed by the Committee and a restrictive
legend prohibiting the transfer of the Shares unless registered under the
Securities Act and applicable state securities laws or unless an exemption from
such Securities Act and state securities laws is available to the Company’s
satisfaction.

 

8.4 
Holding of Restricted Stock.  The Committee may require that until the
release or lapse of the restrictions on, and the vesting of, the Shares granted
as part of any Award of Restricted Stock, such Shares shall be held by the
Company or by an escrow agent or other third party designated by the Company.

 

8.5 
Dividend and Voting Rights.  Except as the Committee may otherwise provide
as permitted under Section 8.1.3 hereof, a Person receiving an Award of
Restricted Stock will be entitled to vote all Shares issued in his name and
receive cash dividends or other distributions relating to such Shares even
though they are not vested on the date such vote is made, or such cash
dividends are paid or other distributions are made. Such rights shall terminate
at such time as such Shares of Restricted Stock are forfeited in accordance
with the terms of the Award Agreement relating to such Shares of Restricted Stock.
Any stock

 

6

 

dividend declared by the Company with respect to the Shares of
Restricted Stock subject to an Award shall be issued in the name of the Person
receiving the Award but shall be subject to the same restrictions set forth in
the Award Agreement with respect to the Shares of Restricted Stock covered
under such agreement.

 

8.6 
Cash Payments.  The Award Agreement shall provide for the
return to the Company by the Person granted the Award of any cash dividend or
similar payment received by such Person on account of Shares of Restricted
Stock which are subsequently forfeited in accordance with such agreement.

 

8.7 
Termination of Employment.  The Award Agreement may provide for the
forfeiture and return of the stock certificates representing Shares of
Restricted Stock that are subject to restrictions or other conditions that have
not lapsed or been satisfied at the time that the Person receiving the Award is
terminated as either an Employee of the Company or an Employee of an Affiliate.
Unless the Committee expressly provides otherwise in the Award Agreement or in
the absence of any such provision in an Award Agreement, Shares of Restricted
Stock that remain subject to restrictions at the time of any such employment
termination or subject to other conditions of vesting which have not been
satisfied by the time specified in the particular Award Agreement will not vest
and will be returned to the Company in such manner and on such terms as the
Committee provides. In any event, if the Person receiving an Award is
terminated for “cause” as provided in Section 9.5 of this Plan, the Award
Agreement shall provide that the Shares of Restricted Stock shall be
repurchased by the Company for an amount equal to the amount such Person paid
for such Share on the Award Date.

 

9. 
Options.

 

9.1 
Grant of Options.  The Board or the Committee, as the case may
be, in its absolute discretion, may grant Nonqualified Stock Options to
Employees or Consultants and Incentive Stock Options to Employees only. Each
such Option so granted will be designated in a separate Stock Option Agreement
as either an Incentive Stock Option or a Nonqualified Stock Option. Such
Options shall be subject to the terms and provisions as set forth in this Section 9
and as relates to the type of Option granted.

 

9.2 
Exercise Price and Consideration.

 

9.2.1  Exercise Price.  The per Share exercise price for the Shares to
be issued pursuant to exercise of a Nonqualified Stock Option shall be such
price as is determined by the Committee. However, the per Share exercise price
under an Incentive Stock Option shall be subject to the following:

 

(a)           If granted to an
Employee who, at the time of the grant of such Incentive Stock Option, owns
stock representing more than ten percent (10%) of the voting power of all
classes of the capital stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall not be less than one hundred and ten percent
(110%) of the Fair Market Value per Share on the date of grant of such Option.

 

(b)           If granted to any
other Employee, the per Share exercise price shall not be less than one hundred
percent (100%) of the Fair Market Value per Share on the date of grant of such
Option.

 

The exercise price of a Nonqualified Stock Option shall in no event be
less than eighty-five percent (85%) of the Fair Market Value per Share on the
date of the grant of such Option.

 

9.2.2  Determination of Fair Market
Value.  The Fair Market
Value per Share on the date of grant of an Option shall be determined as
follows:

 

(a)           If the Common
Stock is listed on the New York Stock Exchange, the American Stock Exchange or
such other securities exchange designated by the Board, or admitted to unlisted
trading privileges on any such exchange, or if the Common Stock is quoted on a
National Association of Securities Dealers, Inc. system that reports
closing prices, the Fair Market Value shall be the closing price of the Common
Stock as reported by the Wall Street Journal, Western Edition, on the day the
Fair Market Value is to be determined, or if no such price is reported for such
day, then the determination of such closing price shall be as of the last
immediately preceding day on which the closing price is so reported;

 

(b)           If the Common
Stock is not so listed or admitted to unlisted trading privileges or so quoted
as provided in Section 9.2.2(a) above, the Fair Market Value shall be
the average of the last reported highest bid and the lowest asked prices quoted
on the National Association of Securities Dealers, Inc. Automated
Quotation System or, if not so quoted, then as reported by the National
Quotation Bureau, Inc. on the day the Fair Market Value is determined; or

 

7

 

(c)           If the Common
Stock is not so listed or admitted to unlisted trading privileges or so quoted,
and bid and asked prices are not reported, the Fair Market Value shall be
determined in such reasonable manner as may be prescribed by the Committee and
the good faith determination of such Fair Market Value shall be final and
conclusive.

 

9.2.3  Consideration and Method of Payment.  The consideration to be paid for the Optioned
Stock to be issued upon exercise of an Option, and the method of payment of
such Optioned Stock, shall be determined by the Committee. The method of
payment for the Optioned Stock may consist entirely of cash, electronically
transferred funds, certified or cashier’s check payable to the order of the
Company, the delivery of other shares of Common Stock then owned by the
Optionee having 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 other property having a Fair Market Value at the time of exercise
of such Option equal to the aggregate exercise price of the Shares as to which
such Option shall be exercised, or any combination of such methods of payment,
or such other consideration and method of payment for the issuance of Shares to
the extent permitted under applicable law, as amended from time to time.

 

9.3  Exercise of
Option.

 

9.3.1  Vesting of Options.  Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Committee, which may include, without limitation, (i) the effectiveness of
a registration of any class of the Company’s equity securities under the
Securities Act or the Exchange Act and the commencement of public trading in
such equity securities, (ii) continued employment of the Optionee for a
prescribed period of time, (iii) the passage of time, (iv) the
attainment of performance goals or objectives, or (v) any combination
thereof.

 

9.3.2 
No Exercise for Fractional Shares. 
An Option may not be exercised for a fraction of a Share.
The Committee shall determine, in its discretion whether cash shall be given in
lieu of fractional Shares or whether such fractional Shares shall be eliminated
by rounding up or down as appropriate.

 

9.3.3 
Notice of Exercise.  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 Stock Option
Agreement by the person entitled to exercise the Option and full payment for
the Optioned Stock with respect to which the Option is exercised has been received
by the Company. Full payment, as authorized by the Board, may consist of a
consideration and method of payment allowable under Section 9.2.3 of this
Plan.

 

9.3.4 
Shareholder Rights.  Until
the issuance (as evidenced by the appropriate entry on the books of the Company
or of the duly authorized transfer agent of the Company) of the stock
certificate evidencing such Optioned Stock, 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. No adjustment will
be made for a dividend or other right for which the record date thereof is
prior to the date the stock certificate is issued, except as provided in Section 11
of this Plan.

 

9.3.5 
Reduction of Shares of Optioned Stock Following Exercise. Exercise
of an Option in any manner shall result in a decrease in the number of Shares
which thereafter may be available for purchase by the Optionee under the Option
granted. The number of Shares granted under this Plan shall be reduced by the
number of Shares with respect to which the Option is exercised. However, the
Committee may, in its discretion, grant additional Options to such Optionee out
of the unissued Shares reserved under this Plan to replace the number of Shares
of Optioned Stock acquired by the Optionee as a result of the exercise of such
Option.

 

9.4  Termination of Status as an Employee or Consultant.  If any Employee, Consultant or Employee of an
Affiliate ceases to serve as an Employee, Consultant or Employee of an
Affiliate (as the case may be), except in the case of an Employee whose
employment (or a Consultant whose position or relationship with the Company) or
Employee of an Affiliate is terminated “for cause” as provided in Section 9.5
of this Plan, the Committee may permit such retiring or terminated Employee,
Consultant or Employee of an Affiliate to exercise the Option granted to him
for such time period as it shall provide in the Stock Option Agreement but in
the case of an Incentive Stock Option no more than three (3) months after
the date he ceases to be an Employee or Consultant (as the case may be) of the
Company, to the extent that he was entitled to exercise it at the date of such
termination. To the extent that such retiring or terminated Employee,
Consultant or Employee of an Affiliate was not entitled to exercise the Option
at the date of his termination or retirement as an Employee, Consultant or
Employee of an Affiliate, or if he does not exercise such Option (which he was
entitled to exercise) within the time specified herein, the Option shall
terminate.

 

9.5 
Termination of Employee or Consultant
for Cause.  If any
Employee’s employment, or Consultant’s relationship, with the Company, is
terminated “for cause”, such Employee’s or Consultant’s Option under this Plan
shall terminate immediately upon such termination. An Optionee, who is an
Employee of the Company or a Consultant who is engaged by the

 

8

 

Company, shall be deemed to be terminated “for cause” if the Board or
the Committee (to the extent such authority is delegated by the Board,
excluding the participation of such Person if he is a member of the Committee)
determines, based on reasonable belief and acting in good faith, that such
Optionee:

 

9.5.1  Criminal Act.  Has been convicted of a felony or has been
dishonest or committed or engaged in theft or embezzlement of funds or
properties, including, without limitation, trade secrets, confidential
information or other intellectual property, of the Company, any of its
Affiliates or any third party;

 

9.5.2 
Willful Misconduct.  Is
or has engaged in fraud or willful misconduct in the discharge or performance
of his duties;

 

9.5.3 
Failure to Carry Out Duties.  Has
been negligent in the discharge or performance of, or has failed to perform
discharge his duties assigned to him and such negligent acts or failure to
perform his duties have materially and adversely affected the business
activities and operations, the properties, the financial condition or prospects
of the Company;

 

9.5.4 
Disregard of Policy.  Has willfully refused to carry out reasonable
orders, policies, procedures and instructions of the Committee;

 

9.5.5 
Incompetency.  Is
incompetent or incapable (other than by reason of a disability or similar
condition) of performing the duties assigned to him;

 

9.5.6 
Breach or Unauthorized Use of Information.  Has breached any provision of
any agreement with the Company or an Affiliate of the Company or has disclosed
to third parties or used for his benefit or the benefit of third parties trade
secrets, inside information, trade names, logos, trademarks, or other
intellectual property of the Company or any of its Affiliates without
authorization by any such entity; or

 

9.5.7 
Competing Businesses.  Has
been employed by, has rendered services to, or has acquired a financial
interest (other than the ownership of stock or other ownership interest not
exceeding five percent (5%) of the issued and outstanding capital stock or
ownership interests in an entity) in, any entity which competes with the
Company or any of the Company’s Affiliates, or has influenced or attempted to
influence any vendors or customers of the Company or the Company’s Affiliates
from doing business with any such entity, or has influenced, solicited or
encouraged any employee of the Company or any Affiliate of the Company to
terminate his employment relationship with the Company or such other entity and
instead work for any individual or entity which competes with the Company or
any Affiliate of the Company.

 

For purposes of this Plan, a termination “for cause” shall occur on the
date the Company delivers written notice to the Employee, Consultant or
Employee of an Affiliate stating the Committee’s determination that such Person
has been terminated for “cause” and the basis for such determination.

 

9.6 
Disability of Optionee.  Notwithstanding the provisions of Section 9.4
above, in the event an Employee or Consultant is unable to continue his
employment or consulting relationship (as the case may be) with the Company as
a result of his total and permanent disability (as defined in Section 22(e)(3) of
the Code or in the case of an Award other than an Incentive Stock Option such
other disabilities or conditions as set forth in an Award Agreement or Stock
Option Agreement), he may, but only within such other period of time not
exceeding twelve (12) months as is determined by the Committee at the time
of grant of the Option from the date of termination, exercise his Option to the
extent he was entitled to exercise it at the date of such termination. To the
extent that he was not entitled to exercise the Option at the date of
termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.

 

9.7 
Death of Optionee.  In the event of the death of the Optionee
during the term of the Option, if the Optionee was at the time of his death an
Employee or Consultant of the Company and had been in Continuous Status as an
Employee or Consultant since the date of grant of the Option, the Option may be
exercised, at any time within twelve (12) months following the date of
death, by the Optionee’s estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had the Optionee continued living and
remained in Continuous Status as an Employee or Consultant twelve
(12) months after the date of death. If an Optionee’s employment or
involvement with the Company has terminated prior to his death, such Option may
not be exercised by the Optionee’s estate or other person as provided herein
unless permitted by the Committee under the Stock Option Agreement for such Optionee.

 

9.8 
Nontransferability of Options.  An Option may not be sold, pledged, assigned,
hypothecated, transferred, nor disposed of in any manner other than by will or
by the laws of descent and distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee. Any attempt to assignment,
transfer, pledge, hypothecation or other disposition of an

 

9

 

Option or levy of attachment or similar process upon an Option not
specifically permitted under this Plan shall be null and void and without
effect. An Option may be exercised only by an Employee or a Consultant during
his lifetime or pursuant to Section 9.7 hereof by his estate or by the
person who acquires the right to exercise such Option upon his death by bequest
or inheritance.

 

10. 
Stock Appreciation Rights.

 

10.1 
Grant of Stock Appreciation Rights.  The Committee, in its absolute discretion,
may grant Stock Appreciation Rights to Employees or Consultants either
concurrently with the grant of another Award or in connection with an Award
previously granted which is then in effect or independent of any other Award;
provided, however, that the terms and provisions of any Stock Appreciation
Right granted in conjunction with an Incentive Stock Option shall comply with
the requirement of Code § 422 and the regulations adopted thereunder.

 

10.2 
Exercise of Stock Appreciation Rights.  Except as otherwise provided in an Award
Agreement or Stock Option Agreement, a Stock Appreciation Right which is
granted in connection with, and relates to, another Award will be exercisable
at the same time and to the same extent as such other Award. If a Stock
Appreciation Right is granted independently of any other Award, it shall be
exercisable at the time provided in the Award Agreement granting such right but
in any event no earlier than six (6) months after the Award Date, except
in the event of death or disability (as defined in Section 9.6 of this
Plan).

 

10.3 
Effect on Related Award.  To the extent that a Stock Appreciation Right
involves the exercise of less than all the Shares subject to the related Award
and a portion of such Award remains exercisable and is thereafter exercised,
the number of Shares which remain unexercised under the Stock Appreciation
Right shall only be reduced if and to the extent that the remaining number of
Shares subject to the related Award is less than the remaining number of Shares
subject to such Stock Appreciation Right.

 

10.4 
Payment Upon Exercise of Stock
Appreciation Right. 
Except as otherwise provided in an Award Agreement, the Person receiving
a Stock Appreciation Right, upon the exercise thereof, will be paid an amount
equal to (A) the difference between (i) the exercise price for each
Share of the Common Stock under the Award to which such right relates (or the
initial Fair Market Value of a Share of Common Stock on the Award Date as
specified in the Award Agreement if such right is granted independent of, and
without reference to, any other Award) and (ii) the Fair Market Value of a
Share of Common Stock on the date that the Stock Appreciation Right is
exercised and (B) multiplying the resulting difference by the number of
Shares being exercised by such Person under such Award Agreement.

 

10.5 
Method of Payment.  The Company may pay the amount due to the
Person exercising his Stock Appreciation Right, as determined under Section 10.4
of this Plan, in cash, Shares, or a combination thereof, as determined by the
Board or the Committee (if the Board has delegated such authority to the
Committee) consistent with applicable law. However, the Award Agreement may
permit the Person granted such Stock Appreciation Right to elect to receive
cash, Shares or a combination thereof, subject to such conditions as the
Committee may impose thereunder. If Shares are used in payment of all or a
portion of the amount determined under Section 10.4, they shall be valued
at the Fair Market Value of the Shares on the date the Stock Appreciation Right
is exercised by the Person granted such right.

 

10.6 
Limited Rights.  The Committee may grant Stock Appreciation
Rights to a Person which may be:

 

10.6.1  Event of Exercise.  Exercisable upon the occurrence of a specified
event (including those events set forth in Section 11 hereof);

 

10.6.2  In Tandem with Awards.  Only exercisable in tandem or combination
with, or substitution for, Options, other Stock Appreciation Rights, other
Award or a combination thereof; and

 

10.6.3 
Payment.  Payable
in cash, Shares equal to the difference between the Fair Market Value of the
Shares on the Award Date of such Stock Appreciation Right and the Fair Market
Value of the Shares as determined during a specified period or at a specified
time within a specified period, whether prior to, on or after the date of the
occurrence of such specified event.

 

10.7  Reduction of Available Shares.  Only Shares actually delivered by the Company
in connection with the exercise of a Stock Appreciation Right will be counted
against the maximum number of Shares available to be awarded, as set forth in Section 3.1
of this Plan. The number of Shares subject to the portion of the Stock
Appreciation Rights which has not been exercised and any Optioned Stock or
other Award to which such Stock Appreciation Right relates will be reduced by
the actual number of Shares delivered by the Company in connection with the
exercise of such Stock Appreciation Right, except to the extent otherwise
provided in the Award Agreement.

 

10

 

11. 
Adjustments Upon Changes in
Capitalization or Merger.

 

11.1 
Adjustments Affecting Capitalizations.  Subject to any required action by the
shareholders of the Company, the number of Shares covered by each outstanding
Award, and the number of Shares which have been authorized for issuance under
this Plan but as to which no Awards have yet been granted or which have been
returned to this Plan upon cancellation or expiration of any Option or the
reacquisition of Shares of Restricted Stock, as well as the price per Share
covered by each such outstanding Option, shall automatically, without amendment
to this Plan or any Awards or Award Agreements or Stock Option Agreements
delivered to Optionees under this Plan, be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a
subdivision or combination of Shares, as a result of a reorganization,
recapitalization, forward stock split, split-up, spin-off, reverse stock split,
stock dividend, stock distribution or similar extraordinary dividend
distribution (collectively “spin off”) with respect to, or the reclassification
of, the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock 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.” Such adjustment shall be made by the Committee, including an
adjustment to (i) the number of shares of Common Stock or the number and
type of other securities which are subject to the Awards (including the maximum
number of Shares available to be awarded under Section 3.1 of this Plan), (ii) the
number, amount and type of Shares (or other securities or property subject to
any and all outstanding Awards), or (iii) the grant, purchase or exercise
price of any outstanding Awards. The Committee’s determination with respect to
such adjustments shall be final, binding and conclusive. 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 Award.

 

11.2 
Dissolution, Merger and Consolidation.  In the event of the proposed dissolution or
liquidation of the Company, all outstanding Awards shall vest immediately prior
to the consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in the exercise of its sole discretion in such
instances, declare that any Award shall terminate as of a date fixed by the
Committee and give each Optionee the right to exercise his Award as to all of
the Restricted Stock or Optioned Stock, as the case may be, including Shares as
to which such Award would not otherwise be vested or exercisable as of such
date. In the event of the proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation in which the Company is not the surviving corporation, each Award
shall vest immediately and be exercisable prior to the consummation of any such
transaction as provided herein or shall continue to be exercisable to the extent
assumed by the surviving corporation or parent or subsidiary of the corporation
purchasing the Company’s assets or to the extent an equivalent restricted stock
or option shall be substituted by such successor corporation or a parent or
subsidiary of such successor corporation. If the surviving corporation, the
purchasing corporation or any parent or subsidiary of any such corporation does
not either assume or grant an equivalent number of shares of restricted stock
or a substitute option exercisable for an equivalent number of underlying
shares of such corporation, the Committee shall give notice to each Employee or
Consultant previously granted an Award of his right to exercise such Award,
including the right to exercise the unvested portion of any such Option within
the time period prescribed in such notice. Each Award shall vest or shall
become fully exercisable in lieu of assumption or substitution by the surviving
corporation, purchasing corporation, or a parent or subsidiary of any such
corporation in the event of a merger, consolidation, or sale of substantially
all of the Company’s assets; the Committee shall notify each Employee or
Consultant granted an Award that his Award shall vest or shall be fully
exercisable for a period of thirty (30) days from the date of such notice;
and the Award will terminate upon the expiration of such period.

 

12. 
Time of Granting Awards.  The date of grant of an Award shall, for all
purposes, be the date on which the Committee makes the determination granting
such Award. Notice of the determination shall be given to each Employee or
Consultant to whom an Award is so granted within a reasonable time after the
date of such grant. Within a reasonable time after the date of the grant of an
Award, the Company shall enter into and deliver to each Employee or Consultant
granted such Award a written Award Agreement or Stock Option Agreement, as the
case may be, as provided in Sections 2.3 and 16 hereof, setting forth the terms
and conditions of such Award and in the case of an Award which is an Option
separately identifying the portion of the Option which is an Incentive Stock
Option and/or the portion of such Option which is a Nonqualified Stock Option.

 

13. 
Amendment and Termination of the Plan.

 

13.1 
Amendment and Termination.  The Committee may amend or terminate this
Plan from time to time in such respects as the Committee may deem advisable;
provided that the following revisions or amendments shall require approval of
the shareholders of the Company in the manner described in Section 17 of
this Plan:

 

13.1.1  Increase in Reserved Shares.  An increase in the number of Shares subject to
this Plan above 5,000,000 Shares, other than in connection with an adjustment
under Section 11 of the Plan; or

 

11

 

13.1.2  Designation of Eligible Participants.  Any change in the designation of the class of
Employees or Consultants eligible to be granted Options.

 

13.2  Shareholder Approval.  If any amendment of this Plan is submitted to
the shareholders for their approval under Section 13.1 of this Plan
subsequent to the first registration of any class of equity security by the
Company under Section 12 of the Exchange Act, such shareholder approval
shall be solicited as described in Section 17 of this Plan.

 

13.3 
Effect of Amendment or Termination.  Any such amendment or termination of the Plan
shall not affect Awards already granted and such Awards shall remain in full
force and effect as if the Plan had not been amended or terminated, unless the
Employee or Consultant or Employee of an Affiliate of the Company granted an
Award and the Committee otherwise mutually agree to such amendment or
termination, which agreement must be in writing and signed by the Company and
such Person.

 

14. 
Conditions Upon Issuance of Shares.  Shares of Restricted Stock or Shares of
Optioned Stock shall not be issued pursuant to the exercise of a grant of an
Award under this Plan unless the exercise of such Award 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 (“1933 Act”), the Exchange Act, the rules and regulations
promulgated thereunder, applicable 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 legal counsel for the Company with respect
to such compliance.

 

As a condition to the exercise of an Option, the Company may require the
person receiving Shares of Restricted Stock or exercising such Option as
granted under the Plan to represent and warrant at the time of receipt of such
Shares of Restricted Stock or at the time of any such exercise that such Shares
are being purchased only for investment and without any present intention to
sell or distribute such Shares and such other representations and warranties
which, in the opinion of legal counsel for the Company, are necessary or
appropriate to establish an exemption from the registration requirements under
applicable federal and state securities laws with respect to the acquisition of
such Shares.

 

15. 
Reservation of Shares.  Subject to the number of Shares which may be
under this Plan as provided in Section 3.1, 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 this Plan.

 

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

 

16. 
Award and Option Agreements.  Each Award of Restricted Stock and each
Option granted to an Employee or Consultant or Employee of an Affiliate of the
Company (in the case of an Award of Restricted Stock) shall be evidenced by a
written Award Agreement or Stock Option Agreement, as the case may be, in such
form as the Board shall approve.

 

17. 
Shareholder Approval.  Continuance of this Plan shall be subject to
approval by the shareholders of the Company on or before September 10,
2002.

 

17.1 
Approval if Company Reporting Company.  If the Company registers any class of any
equity security pursuant to Section 12 of the Exchange Act prior to
obtaining shareholder approval of this Plan, the approval of this Plan by such
shareholders of the Company shall be:

 

17.1.1  Proxy Solicitation Rules.  Solicited substantially in accordance with Section 14(a) of
the Exchange Act and the rules and regulations promulgated thereunder; and

 

17.1.2 
Meeting of Shareholders.  Obtained
at or prior to the first annual meeting of shareholders held subsequent to the
first registration of any class of equity securities of the Company under Section 12
of the Exchange Act.

 

17.2  Approval if
Company Note a Reporting Company.  If such shareholder approval is obtained
prior to the Company registering any class of any equity security pursuant to Section 12
of the Exchange Act and the rules and regulations promulgated thereunder
and the Company subsequently so registers any class of equity securities, the
Company shall furnish in writing to the holders entitled to vote at or prior to
the first annual meeting of shareholders held subsequent to the later of (i) first
registration of any class of equity securities of the Company under Section 12
of the Exchange Act or (ii) the acquisition of an

 

12

 

equity security of the Company for which an exemption is claimed under Section 16(b) of
the Exchange Act, substantially the same information concerning the Plan as
that which would be required by the rules and regulations in effect under Section 14(a) of
the Exchange Act at the time such information is furnished if proxies to be
voted with respect to the approval or disapproval of the Plan were then being
solicited.

 

17.3 
Consequences of Failure to Obtain
Timely Approval If such shareholder approval is not
obtained within such time period, all Options granted under this Plan shall
constitute Nonqualified Stock Options and the tax treatment of such outstanding
Options shall be determined under the provisions of the Code applicable to
Nonqualified Stock Options.

 

18. 
Compliance with Securities Laws.  No Person participating in this Plan shall
sell, pledge or otherwise transfer (collectively, “Disposition”) Shares of
Restricted Stock or Optioned Stock acquired pursuant to an Award or an interest
in such Shares except in accordance with the express terms of this Plan and the
applicable Award Agreement. Any violation of this Section 18 shall be void
and of no effect. No Person participating in this Plan undertakes or effects a
Disposition of such Shares, or any portion thereof, except in compliance with
applicable federal and state securities laws and unless and until:

 

18.1 
Registration Statement.  There is in effect an appropriate
registration statement under the Securities Act covering the proposed
Disposition and such Disposition is made in accordance with such registration
statement;

 

18.2 
Rule 144.  Such Disposition is made in accordance with Rule 144
as adopted under the Securities Act and amended from time to time;

 

18.3 
Exempt Transaction.  Such Person participating in this Plan
notifies the Company of the proposed Disposition and furnishes the Company with
a statement of the circumstances surrounding the proposed Disposition, and, if
requested by the Company, furnishes to the Company an opinion of counsel
acceptable to the Company’s counsel, that there is available with respect to
such Disposition an exemption from the registration requirements, and such
Disposition will not require registration, under the Securities Act and
applicable state securities laws.

 

Notwithstanding anything contained in this Plan to the contrary, the
Company has no obligation to register the Shares or to file any registration
statement under federal or state securities laws, nor does the Company make any
representation concerning the likelihood of a public offering of its
securities.

 

19. 
Information to Plan Participants.  The Company shall provide to each Employee,
Consultant or Employee of an Affiliate, during the period for which such Person
has one or more Awards outstanding, copies of all annual reports and other
information which are provided to all shareholders of the Company. The Company
shall not be required to provide such information if the issuance of Options
under this Plan is limited to key employees whose duties in connection with the
Company assure their access to equivalent information.

 

20. 
Withholding Taxes.  Upon granting of any Award or the exercise of
any Option which is not an Incentive Stock Option, the Company may require that
an Employee, Consultant or Employee of an Affiliate of the Company to:

 

20.1 
Pay Taxes.  Remit to the Company an amount sufficient to
satisfy all federal, state and local withholding tax requirements prior to the
delivery of any certificate or certificates for Shares;

 

20.2 
Deduct for Taxes.  Deduct such amount of cash payable to such
Person in connection with the payment of a Stock Appreciation Right or such
number of Shares subject to the Award valued at Fair Market Value sufficient to
satisfy such withholding requirements;

 

20.3 
Reduction of Shares.  Reduce the number of Shares to be delivered
by (or otherwise require) the appropriate number of Shares, valued at their
then Fair Market Value, to satisfy such withholding obligation; or

 

20.4 
Combination.  Resort to any combination of Sections 21.1
through 21.3 hereof.

 

21. 
No Right of Employment.  Nothing in this Plan shall interfere with or
limit in any way the right of the Company or any Affiliate of the Company to
terminate the employment of any Employee of the Company or any of its
Affiliates at any time, nor confer upon any such Person any right to continue
in the employ of the Company or any Affiliate of the Company.

 

22. 
Rights as a Shareholder.  No Optionee shall have any right as a
shareholder unless and until certificates for Shares acquired by him as a
result of the exercise of his Option have been issued to him.

 

13

 

23. 
Unfunded Status of Options.  This Plan is intended to be an “unfunded”
Plan to provide an incentive to the Employee, Consultant or Employee of an
Affiliate granted Awards under this Plan. With respect to any payments not made
to an Employee, Consultant or Employee of an Affiliate pursuant to an Award,
nothing contained in this Plan shall give such Person any rights that are
greater than those of a general creditor of the Company or any Affiliates of
the Company.

 

24. 
Indemnification.  To the extent allowable under applicable law,
each member of the Committee shall be indemnified and held harmless by the
Company from any loss, cost, liability, or expense that may be imposed upon or
reasonably incurred by each member in connection with, or resulting from, any
claim, action, suit, or proceeding which he may be a party or in which he may
be involved by reason of any action or failure to act under this Plan and
against and from any and all amounts paid by him in satisfaction of judgment in
such action, suit or proceeding against him provided he gives the Company an
opportunity, at its own expense, to handle and defend the same before he
undertakes to handle and defend such action on his own behalf. The foregoing
right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company’s
Articles of Incorporation or Bylaws (as such documents are restated and
amended), as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.

 

25. 
No Duty to Register Shares.  Nothing contained in this Plan shall obligate
the Company to register the Shares or its Common Stock under the Securities Act
or under any applicable states securities laws with respect to the Shares
acquired by Employees, Consultants or Employees of Affiliates of the Company
under this Plan. In the absence of any such registration, any Shares acquired
under this Plan shall be restricted as to transfer in such manner as the Board
determines to be advisable to insure the availability of an exemption from
registration under the Securities Act.

 

26. 
Relationship to Other Benefits.  No payment under this Plan shall be taken
into account in determining any benefits under any pension, retirement, savings,
profit sharing, group insurance, welfare or other benefit plan of the Company
or any Affiliates of the Company.

 

27. 
Expenses.  The expenses of administering this Plan shall
be borne by the Company, its subsidiaries or both, as shall be determined in the
discretion of the Board.

 

28. 
Titles.  Section headings and captions in this
Plan are for convenience and reference only and in the event of any conflict,
the text of this Plan, rather than such titles or headings, shall control.

 

29. 
CHOICE OF LAW.  ALL
QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS PLAN
AND THE INSTRUMENTS EVIDENCING OPTIONS WILL BE GOVERNED BY THE INTERNAL LAW,
AND NOT THE LAW OF CONFLICTS, OF THE STATE OF CALIFORNIA.

 

IN WITNESS WHEREOF,
the Company has caused its duly authorized officer to execute this Plan
effective as of the 10th day of September, 2001, even though this
document is being executed at a later date.

 

	
   

  	
  GEOPETRO RESOURCES COMPANY,

  
	
   

  	
  a California corporation

  
	
   

  	
  By:

  
	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
   

  
	
   

  	
  Title:

  

 

14

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