EXHIBIT 4.1
PALOMAR ENTERPRISES, INC.
EMPLOYEE STOCK INCENTIVE PLAN FOR THE YEAR 2004 NO. 3
1. General
Provisions.
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1.1 Purpose.
This Stock Incentive Plan (the "Plan") is intended to
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allow designated officers and employees
(all of whom are sometimes collectively
referred to herein as the "Employees," or individually
as the "Employee") of
Palomar Enterprises, Inc., a Nevada corporation (the "Company") and its
Subsidiaries (as that term is defined below) which they
may have from time to
time (the Company and such Subsidiaries are
referred to herein as the "Company")
to receive certain options (the "Stock
Options") to purchase common stock of the
Company, par value $0.001 per share (the
"Common Stock"), and to receive grants
of the Common Stock subject to
certain restrictions (the "Awards"). As used in
this Plan, the term "Subsidiary" shall mean each corporation which is a
"subsidiary corporation" of the Company within
the meaning of Section 424(f) of
the Internal Revenue Code of 1986, as
amended (the "Code").
The purpose of this
Plan is to provide the Employees, who make significant and extraordinary
contributions to the long-term growth and performance of the Company,
with
equity-based compensation incentives, and to attract and
retain the Employees.
1.2
Administration.
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1.2.1
The
Plan shall be administered by the Compensation Committee (the
"Committee") of, or appointed by, the Board of Directors of the
Company (the
"Board"). The Committee shall select one of its members as
Chairman and shall
act by vote of a majority of a quorum, or by unanimous
written consent. A
majority of its members shall constitute a quorum. The Committee shall be
governed by the provisions of the Company's
Bylaws and of Nevada law applicable
to the Board, except as otherwise provided
herein or determined by the Board.
1.2.2
The
Committee shall have full and complete authority, in its
discretion, but subject to the express provisions of this
Plan (a) to approve
the Employees nominated by the management
of the Company to be granted Awards or
Stock Options; (b) to determine the number of Awards or Stock
Options to be
granted to an Employee; (c) to determine the
time or times at which Awards or
Stock Options shall be granted; (d) to establish
the terms and conditions upon
which Awards or Stock Options may be exercised; (e) to remove or
adjust any
restrictions and conditions upon Awards or
Stock Options; (f) to specify, at the
time of grant, provisions relating to exercisability of
Stock Options and to
accelerate or otherwise modify the
exercisability of any Stock Options; and (g)
to adopt such rules and regulations
and to make all other determinations deemed
necessary or desirable for the
administration of this Plan. All interpretations
and constructions of this Plan by the Committee, and all of its actions
hereunder, shall be binding and conclusive on all persons for all
purposes.
1.2.3
The
Company hereby agrees to indemnify and hold harmless
each
Committee member and each Employee, and the estate
and heirs of such Committee
member or Employee, against all claims, liabilities, expenses, penalties,
damages or other pecuniary losses, including legal
fees, which such Committee
member or Employee, his estate or heirs may suffer as a result of his
responsibilities, obligations or duties in connection with this Plan, to
the
extent that insurance, if any, does not cover the payment of
such items. No
member of the Committee or the Board shall be liable for any action or
determination made in good faith with
respect to this Plan or any Award or Stock
Option granted pursuant to this Plan.
1.3 Eligibility
and Participation. The Employees eligible under
this
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Plan shall be approved by the Committee
from those Employees who, in the opinion
of the management of the Company, are in positions
which enable them to make
significant contributions to the long-term performance and growth of the
Company. In selecting the Employees to whom Award or Stock Options may be
granted, consideration shall be given to factors such as
employment position,
duties and responsibilities, ability,
productivity, length of service, morale,
interest in the Company and recommendations of supervisors.
1.4 Shares
Subject to this Plan. The maximum number of shares of
the
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Common Stock that may be issued pursuant to this Plan shall be
750,000,000
subject to adjustment pursuant to the
provisions of Paragraph 4.1. If shares of
the Common Stock awarded or issued under
this Plan are reacquired by the Company
due to a forfeiture
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or for any other reason, such shares shall be
cancelled and thereafter shall
again be available for purposes of this Plan. If a Stock Option expires,
terminates or is cancelled for any reason
without having been exercised in full,
the shares of the Common Stock not
purchased thereunder shall again be available
for purposes of this Plan. In the event that any
outstanding Stock Option or
Award under this Plan for any reason expires or is
terminated, the shares of
Common Stock allocable to the unexercised
portion of the Stock Option or Award
shall be available for issuance under the Palomar Enterprises, Inc.'s
Non-Employee Directors and Consultants
Retainer Stock Plan for the Year 2004 No.
3. The Compensation Committee may, in its discretion, increase
the number of
shares available for issuance under this
Plan, while correspondingly decreasing
the number of shares available for issuance
under Palomar Enterprises, Inc.'s
Non-Employee Directors and Consultants
Retainer Stock Plan for the Year 2004 No.
3.
2. Provisions
Relating to Stock Options.
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2.1 Grants
of Stock Options.
The Committee may
grant Stock Options in
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such amounts, at such times, and to the
Employees nominated by the management of
the Company as the Committee, in its
discretion, may determine. Stock Options
granted under this Plan shall constitute "incentive
stock options" within the
meaning of Section 422 of the Code, if so designated by
the Committee on the
date of grant. The Committee shall also have the discretion to grant
Stock
Options which do not constitute incentive stock options, and any
such Stock
Options shall be designated non-statutory
stock options by the Committee on the
date of grant. The aggregate Fair Market Value
(determined as of the time an
incentive stock option is granted) of the Common Stock with
respect to which
incentive stock options are exercisable for the first time by any Employee
during any one calendar year (under all plans
of the Company and any parent or
subsidiary of the Company) may not exceed the maximum amount
permitted under
Section 422 of the Code (currently,
$100,000.00).
Non-statutory stock options
shall not be subject to the limitations relating to
incentive stock options
contained in the preceding sentence.
Each Stock Option
shall be evidenced by a
written agreement (the "Option Agreement")
in a form approved by the Committee,
which shall be executed on behalf of the
Company and by the Employee to whom the
Stock Option is granted, and which shall
be subject to the terms and conditions
of this Plan. In the discretion of the Committee, Stock
Options may include
provisions (which need not be uniform), authorized by the Committee in
its
discretion, that accelerate an Employee's rights to exercise Stock Options
following a "Change in Control," upon
termination of the Employee's employment
by the Company without "Cause" or by the Employee for
"Good Reason," as such
terms are defined in Paragraph 3.1 hereof.
The holder of a Stock
Option shall
not be entitled to the privileges of stock ownership
as to any shares of the
Common Stock not actually issued to such holder.
2.2 Purchase
Price. The purchase price (the "Exercise Price") of
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shares of the Common Stock subject to each Stock
Option (the "Option Shares")
shall not be less than 85 percent of the
Fair Market Value of the Common Stock
on the date of the grant of the option.
For an Employee
holding greater than 10
percent of the total voting power of all
stock of the Company, either Common or
Preferred, the Exercise Price of an
incentive stock option shall be at least 110
percent of the Fair Market Value of the
Common Stock on the date of the grant of
the option. As used herein, "Fair Market Value" means the mean
between the
highest and lowest reported sales prices of the Common Stock
on the New York
Stock Exchange Composite Tape or, if not listed
on such exchange, on any other
national securities exchange on which the Common Stock is listed or on
The
Nasdaq Stock Market, or, if not so listed on any other national
securities
exchange or The Nasdaq Stock Market, then the
average of the bid price of the
Common Stock during the last five trading days on the OTC Bulletin Board
immediately preceding the last trading day prior to the date with
respect to
which the Fair Market Value is to be determined.
If the Common Stock is
not
then publicly traded, then the Fair Market Value of the
Common Stock shall be
the book value of the Company per
share as determined on the last day of March,
June, September, or December in any year closest to the date when the
determination is to be made. For the purpose of determining book value
hereunder, book value shall be determined by adding as
of the applicable date
called for herein the capital, surplus, and
undivided profits of the Company,
and after having deducted any reserves
theretofore established; the sum of these
items shall be divided by the number of shares
of the Common Stock outstanding
as of said date, and the quotient thus
obtained shall represent the book value
of each share of the Common Stock of the Company.
2.3 Option Period.
The Stock Option
period (the "Term") shall commence
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on the date of grant of the Stock Option
and shall be 10 years or such shorter
period as is determined by the Committee.
Each Stock Option
shall provide that
it is exercisable over its term in such
periodic installments as the Committee
may determine, subject to the provisions of
Paragraph 2.4.1.
Section 16(b) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") exempts
persons normally subject to the reporting
requirements of Section 16(a) of the
Exchange
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Act (the "Section 16 Reporting
Persons") pursuant to a qualified employee stock
option plan from the normal requirement of
not selling until at least six months
and one day from the date the Stock Option is granted.
2.4 Exercise
of Options.
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2.4.1
Each
Stock Option may be exercised in whole
or in part (but not
as to fractional shares) by delivering it for
surrender or endorsement to the
Company, attention of the Corporate Secretary, at the
principal office of the
Company, together with payment of the
Exercise Price and an executed Notice and
Agreement of Exercise in the form
prescribed by Paragraph 2.4.2. Payment may be
made (a) in cash, (b) by cashier's or certified check, (c)
by surrender of
previously owned shares of the Common Stock
valued pursuant to Paragraph 2.2 (if
the Committee authorizes payment in stock
in its discretion), (d) by withholding
from the Option Shares which would otherwise be
issuable upon the exercise of
the Stock Option that number of Option
Shares equal to the exercise price of the
Stock Option, if such withholding is authorized by the Committee in its
discretion, or (e) in the discretion of the
Committee, by the delivery to the
Company of the optionee's promissory note
secured by the Option Shares, bearing
interest at a rate sufficient to prevent the imputation of interest
under
Sections 483 or 1274 of the Code, and
having such other terms and conditions as
may be satisfactory to the Committee. Subject to the provisions of this
Paragraph 2.4 and Paragraph 2.5, the Employee
has the right to exercise his or
her Stock Options at the rate of at least 20 percent
per year over five years
from the date the Stock Option is granted.
2.4.2
Exercise of
each Stock Option is
conditioned upon the agreement
of the Employee to the terms and conditions of this Plan and of
such Stock
Option as evidenced by the Employee's execution and
delivery of a Notice and
Agreement of Exercise in a form to be determined by the Committee in
its
discretion. Such Notice and Agreement of
Exercise shall set forth the agreement
of the Employee that (a) no Option
Shares will be sold or otherwise distributed
in violation of the Securities Act of 1933,
as amended (the "Securities Act") or
any other applicable federal or state securities laws, (b) each
Option Share
certificate may be imprinted with legends
reflecting any applicable federal and
state securities law restrictions and conditions, (c) the Company
may comply
with said securities law restrictions
and issue "stop transfer" instructions to
its Transfer Agent and Registrar without liability, (d)
if the Employee is a
Section 16 Reporting Person, the Employee
will furnish to the Company a copy of
each Form 4 or Form 5 filed by said Employee
and will timely file all reports
required under federal securities laws, and (e) the Employee will
report all
sales of Option Shares to the Company in writing on a
form prescribed by the
Company.
2.4.3
No
Stock Option shall be exercisable unless and until any
applicable registration or qualification requirements of federal and state
securities laws, and all other legal requirements, have been
fully complied
with. At no time shall the total number
of securities issuable upon exercise of
all outstanding options under this Plan, and the total number of
securities
provided for under any bonus or similar
plan or agreement of the Company exceed
a number of securities which is equal to 30 percent of the then
outstanding
securities of the Company, unless a percentage higher than 30 percent is
approved by at least two-thirds of the
outstanding securities entitled to vote.
The Company will use reasonable efforts to maintain the effectiveness of
a
Registration Statement under the Securities Act for the issuance of Stock
Options and shares acquired thereunder, but there may be times when no
such
Registration Statement will be currently effective. The exercise of Stock
Options may be temporarily suspended without liability to the
Company during
times when no such Registration Statement is currently effective,
or during
times when, in the reasonable opinion of the Committee, such suspension
is
necessary to preclude violation of any requirements of applicable law or
regulatory bodies having jurisdiction over the Company. If any Stock Option
would expire for any reason except the end
of its term during such a suspension,
then if exercise of such Stock Option is duly
tendered before its expiration,
such Stock Option shall be exercisable and exercised (unless the
attempted
exercise is withdrawn) as of the first day after the end of
such suspension.
The Company shall have no obligation to
file any Registration Statement covering
resales of Option Shares.
2.5 Continuous
Employment.
Except as provided in
Paragraph 2.7 below,
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an Employee may not exercise a Stock Option
unless from the date of grant to the
date of exercise the Employee remains
continuously in the employ of the Company.
For purposes of this Paragraph 2.5, the period of
continuous employment of an
Employee with the Company shall be deemed
to include (without extending the term
of the Stock Option) any period during
which the Employee is on leave of absence
with the consent of the Company, provided
that such leave of absence shall not
exceed three months and that the Employee
returns to the employ of the Company
at the expiration of such leave of
absence. If the
Employee fails to return to
the employ of the Company at the expiration
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of such leave of absence, the Employee's
employment with the Company shall be
deemed terminated as of the date such leave
of absence commenced. The continuous
employment of an Employee with the Company shall
also be deemed to include any
period during which the Employee is a m
