Description of the 2004 Stock Incentive Plan

      Shares Subject to Plan

      The 2004 Incentive Plan authorizes the issuance of an amount of our common stock equal to the sum of:

 

 

 

 

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2,500,000 shares, plus

 

 

 

 

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the number of shares remaining available for future grants under our existing stock option plans as of the effective date of the 2004 Incentive Plan, plus

 

 

 

 

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the number of shares subject to any stock option granted pursuant to our existing stock option plans that expires, is forfeited, cancelled or reacquired by Lightbridge, or otherwise terminates (other than by exercise) after the effective date of the 2004 Incentive Plan.

Notwithstanding the foregoing, the maximum cumulative number of shares of our common stock that may be issued pursuant to restricted stock awards, unrestricted stock awards and restricted units granted under the 2004 Incentive Plan is 2,500,000 and the maximum cumulative number of shares of our common stock that may be issued pursuant to the Plan is 7,500,000. For purposes of each of the foregoing limitations, the

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shares of common stock underlying any awards which are forfeited, cancelled, reacquired by Lightbridge or otherwise terminated (other than by exercise), shares that are tendered in payment of the exercise price of any award and shares that are tendered or withheld for tax withholding obligations shall be added back to the shares of common stock with respect to which awards may be granted under the 2004 Incentive Plan. To the extent that an award is settled in cash or a form other than shares of common stock, the shares that would have been delivered had there been no such cash or other settlement are not counted against the shares available for issuance under the plan. The number of shares issuable under the 2004 Incentive Plan is subject to adjustment in the event of stock splits, stock dividends, recapitalizations and the like. No participant may receive awards with respect to more than 500,000 shares of common stock in any calendar year.

      Following the effective date of the 2004 Incentive Plan, we will not have the power to grant any further stock options pursuant to our prior stock option plans, but options previously granted under those plans will continue in effect in accordance with their terms.

 

 

 

 

Plan Administration

      The 2004 Incentive Plan is administered by the Compensation Committee of the Board of Directors. The Compensation Committee selects the individuals to whom awards will be granted and determines the exercise price and other terms of each award, subject to the provisions of the 2004 Incentive Plan. Under certain circumstances, the Compensation Committee may authorize our chief executive officer or another executive officer to grant awards to eligible persons who are not our executive officers or Directors. Our officers, directors, employees, consultants and advisors are eligible to receive awards under the 2004 Incentive Plan, but incentive stock options may only be granted to our employees and employees of our affiliates within the meaning of the Internal Revenue Code. As of the date hereof, we have not granted any options or other awards under the 2004 Incentive Plan.

 

 

 

 

Types of Awards

      The 2004 Incentive Plan provides for grants of stock options, restricted stock, unrestricted stock, restricted units and stock appreciation rights.

 

 

 

 

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Stock options grant the holder the right to purchase shares of our common stock in the future at a pre-established price, and include options that are intended to qualify as incentive stock options, as defined in Section 422 of the Internal Revenue Code, and options that do not so qualify. The exercise price of any option granted under the 2004 Incentive Plan must be at least equal to the fair market value of our common stock on the date of grant. The exercise price of incentive options granted to an optionee who owns stock possessing more than 10% of the voting power of our outstanding capital stock must be at least equal to 110% of the fair market value of the common stock on the date of grant. Incentive options granted to this type of optionee must have a term of no more than five years from the date of grant, while other incentive options must have a term of no more than ten years from the date of grant. Stock options may vest based on continued employment or achievement of pre-established performance goals and objectives.

 

 

 

 

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Restricted stock awards entitle the recipient to acquire, for such purchase price, if any, as may be determined by the Compensation Committee, shares of our common stock subject to such restrictions and conditions as the Compensation Committee may determine at the time of grant, including continued employment or achievement of pre-established performance goals and objectives.

 

 

 

 

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Unrestricted stock awards are shares of our common stock free of any vesting restrictions or conditions under the Plan, and may be issued at a purchase price determined by the Compensation Committee. Unrestricted stock may be issued for cash, past services or other valid consideration.

 

 

 

 

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Restricted units entitle the recipient to acquire in the future shares of our common stock, an equivalent amount of cash or a combination of stock and cash, in the discretion of the

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Compensation Committee. Restricted units are subject to such restrictions and conditions as the Committee may determine at the time of grant, including continued employment or achievement of pre-established performance goals and objectives.

 

 

 

 

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Stock appreciation rights entitle the participant to receive, upon exercise, a number of shares of our common stock (with or without restrictions, as determined by the Compensation Committee), an amount of cash, or any combination of stock and cash having an aggregate fair market value equal to the product of (a) the excess of fair market value, on the date of exercise, over the exercise price per share specified in the stock appreciation right (which exercise price shall be at least equal to the fair market value of our common stock on the date of grant), multiplied by (b) the number of shares for which the stock appreciation right is exercised. The Compensation Committee may specify at the time of grant of any stock appreciation right that the stock appreciation right may be exercisable solely for cash and not for stock. Stock appreciation rights may become exercisable based on continued employment or achievement of pre-established performance goals and objectives.

 

 

 

 

Effect of Change of Control

      The 2004 Incentive Plan provides that, upon a change of control of Lightbridge:

 

 

 

 

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each holder of an outstanding award shall be entitled, upon exercise of such award, to receive, in lieu of shares of our common stock, shares of such stock or other securities, cash or property as the holders of our common stock received in connection with the change of control;

 

 

 

 

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the Compensation Committee may accelerate the time for exercise of all unexercised and unexpired awards; or

 

 

 

 

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all outstanding awards may be cancelled by the Compensation Committee as of the effective date of any such transaction, provided that notice of such cancellation shall be given to each holder of such an award and that each holder of such an award shall have the right to exercise such award to the extent that the same is then exercisable or, if the Compensation Committee shall have accelerated the time for exercise of all unexercised and unexpired awards, in full, during the 30-day period preceding the effective date of such a transaction.

      For these purposes, a “change of control” means the occurrence of any of the following:

 

 

 

 

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any person becomes a beneficial owner of securities representing at least 50% of the combined voting power of our then outstanding securities;

 

 

 

 

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we engage in a merger or consolidation under circumstances in which our stockholders immediately prior to such merger or consolidation do not own after such merger or consolidation shares representing at least 50% of the combined voting power of the surviving or resulting corporation; or

 

 

 

 

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we approve a complete liquidation or sell or otherwise dispose of all or substantially all of our assets.

 

 

 

 

Registration of Shares

      We intend to file, as soon as practicable, a registration statement covering the shares of common stock that will be issuable under the 2004 Incentive Plan if it is approved by our stockholders. Except in the case of shares issued to our affiliates, as defined in the Securities Act of 1933, the shares of common stock issued under the 2004 Incentive Plan will be freely tradable in the public market if they are issued while a registration statement is effective.

      The foregoing discussion is only a summary of some of the provisions of our 2004 Stock Incentive Plan. A full copy of the 2004 Incentive Plan is attached as Appendix A to this proxy statement.

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New Plan Benefits

      Because the grant of awards under the 2004 Incentive Plan will be made in the future at the discretion of the Compensation Committee, we are unable to determine the dollar value and number of shares or amounts that will be received by or allocated to any person, including any executive officer, director or employee under the 2004 Incentive Plan if it is approved. If the 2004 Incentive Plan had been in effect during 2003, it would not have affected the number of options received by or allocated to participants in 2003.

Future Amendments to the 2004 Stock Incentive Plan; Limitation on Repricing

      Our Board of Directors may, in its discretion, terminate or amend the 2004 Incentive Plan at any time, except that no such termination may affect options previously granted, nor may any amendment make a change in any award previously granted which would adversely affect the rights of an award holder under the 2004 Incentive Plan. The exercise prices of options or stock appreciation rights outstanding under the 2004 Incentive Plan may not be decreased (whether through amendment, cancellation and regrant, exchange or other means) without the approval of our stockholders, except in the event of a stock split, stock dividend, recapitalization or the like.

Federal Income Tax Information With Respect to the 2004 Stock Incentive Plan

      The following is a summary of the material United States federal income tax consequences of the 2004 Incentive Plan generally applicable to participants and to Lightbridge. Individual participants should contact their own tax advisors with respect to the federal, state and local tax consequences applicable to them based upon their particular circumstances.

 

 

 

 

Incentive Stock Options

      The grantee of an incentive stock option recognizes no income for federal income tax purposes on the grant thereof. Except as provided below with respect to the alternative minimum tax, there is also no tax upon exercise of an incentive option. If the shares acquired upon exercise of an incentive option are not disposed of by the option holder within two years from the date of the grant of the incentive option or within one year after exercise of the incentive option, any gain realized by the option holder on the subsequent sale of such shares is treated as long-term capital gain for federal income tax purposes. If the shares are sold prior to the expiration of such two-year and one-year periods, which is known as a “disqualifying disposition,” the difference between the lesser of the value of the shares at the date of exercise or at the date of sale and the exercise price of the incentive option is treated as compensation to the option holder taxable as ordinary income and the excess gain, if any, is treated as capital gain (which will be long-term capital gain if the shares are held for more than one year). The excess of the fair market value of the underlying shares over the option price at the time of exercise of an incentive option will constitute an item of tax preference for purposes of the alternative minimum tax. Taxpayers who incur the alternative minimum tax are allowed a credit which may be carried forward indefinitely to be used as a credit against the taxpayer’s regular tax liability in a later year; however, the alternative minimum tax credit cannot reduce the regular tax below the alternative minimum tax for that carryover year.

 

 

 

 

Non-Statutory Stock Options

      The grantee of a non-statutory stock option recognizes no income for federal income tax purposes on the grant thereof. On the exercise of a non-statutory option, the difference between the fair market value of the underlying shares of common stock on the exercise date and the option exercise price is treated as compensation to the holder of the option taxable as ordinary income in the year of exercise, and such fair market value becomes the basis for the underlying shares which will be used in computing any capital gain or loss upon disposition of such shares.

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Restricted Stock Awards

      The grantee of a restricted stock award recognizes no income for federal income tax purposes on the grant thereof. Furthermore, a grantee of a restricted stock award recognizes no income for federal income tax purposes upon the receipt of common stock pursuant to that award, unless, as described below, he or she otherwise elects. Instead, the grantee will recognize ordinary income in an amount equal to the fair market value of the common stock acquired pursuant to the restricted stock award on the date that it is no longer subject to a substantial risk of forfeiture less the amount, if any, the grantee paid for the stock. Such fair market value becomes the basis for the underlying shares and will be used in computing any capital gain or loss upon the disposition of the shares. The capital gain will be long-term capital gain if the grantee held the common stock acquired pursuant to the restricted stock award for more than one year after the date on which the shares are no longer subject to a substantial risk of forfeiture, and short-term capital gain if the recipient held the common stock acquired pursuant to the restricted stock award for one year or less after the date on which the shares are no longer subject to a substantial risk of forfeiture.

      Alternatively, the grantee of a restricted stock award may elect, pursuant to Section 83(b) of the Internal Revenue Code, within 30 days of the acquisition of common stock pursuant to the restricted stock award, to include in gross income as ordinary income for the year in which the common stock is received, the fair market value of the common stock on the date it is received less the amount, if any, the grantee paid for such stock, determined without regard to any restriction other than a restriction which by its terms will never lapse. Such fair market value will become the basis for the shares and will be used in determining any capital gain or loss upon the disposition of such shares. The proceeds of a disposition of common stock acquired pursuant to a restricted stock award will be taxable as capital gain to the extent that the proceeds exceed the grantee’s basis in such shares. This capital gain will be long-term capital gain if the disposition is more than one year after the date the common stock is received, and short-term capital gain if the disposition is one year or less after the date of receipt. In the event that the common stock acquired pursuant to a restricted stock award is forfeited after the grantee has made an election pursuant to Section 83(b), the grantee will not be entitled to a deduction. Grantees of restricted stock awards who wish to make an election pursuant to Section 83(b) of the Internal Revenue Code are advised to consult their own tax advisors.

 

 

 

 

Unrestricted Stock Awards

      The grantee of an unrestricted stock award will recognize as ordinary income the difference between the fair market value of the common stock granted pursuant to an unrestricted stock award less the amount, if any, the grantee paid for such stock in the taxable year the grantee receives the common stock. The grantee’s basis in any common stock received pursuant to the grant of an unrestricted stock award will be equal to the fair market value of the common stock on the date of receipt of the common stock. Any gain realized by the grantee of an unrestricted stock award upon a subsequent disposition of such common stock will be treated as long-term capital gain if the recipient held the shares for more than one year, and short-term capital gain if the recipient held the shares for one year or less.

 

 

 

 

Restricted Units

      The grantee of a restricted unit recognizes no income for federal income tax purposes on the grant thereof. Upon the attainment of the performance goal or other condition or restriction upon which the right to receive the restricted unit is based, the grantee shall recognize compensation income equal to any cash received and/or the fair market of any shares of common stock received. The grantee’s basis in any shares of common stock received, which will be used in computing any capital gain or loss upon disposition of those shares, will be equal to the fair market value of those shares on the date of receipt. Any gain recognized by the grantee upon the subsequent disposition of such shares is treated as long-term capital gain if the grantee held such shares for more than one year, and short-term capital gain if the grantee held the shares for one year or less.

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Stock Appreciation Rights

      The grantee of a stock appreciation right recognizes no income for federal income tax purposes on the grant thereof. On the exercise of a stock appreciation right, the difference between the fair market value of our common stock on the date of exercise and the exercise price of the stock appreciation right, multiplied by the number of shares of common stock subject to the stock appreciation right, is treated as compensation to the grantee and is taxable as ordinary income in the year of exercise. If the grantee of a stock appreciation right does not exercise the right, the excess of the fair market value of our common stock on the last day of the term of the stock appreciation right over the exercise price of the stock appreciation right, if any, multiplied by the number of shares of common stock subject to the stock appreciation right, is treated as compensation to the grantee and is taxable as ordinary income in the year the stock appreciation right lapses.

      If upon the exercise of a stock appreciation right or upon the lapse of a stock appreciation right the grantee receives common stock, the grantee’s basis in those shares which will be used in computing any capital gain or loss upon disposition of such shares will be equal to the fair market value of those shares on the date of exercise or lapse. Any gain recognized by the recipient upon a subsequent disposition of such shares is treated as long-term capital gain if the recipient held such shares for more one year, and short-term capital gain if the recipient held the shares for one year or less.

 

 

 

 

Taxation of Lightbridge

      Generally, subject to certain limitations, Lightbridge may deduct on its corporate income tax return, in the year in which a 2004 Incentive Plan participant recognizes ordinary income upon the occurrence of any of the following events, an amount equal to the amount recognized by the grantee as ordinary income upon the occurrence of these events: (i) the exercise of a non-statutory stock option, (ii) a disqualifying disposition of an incentive option, (iii) a lapse of a substantial risk of forfeiture of a restricted stock award, (iv) a grantee’s election to include in income the fair market value of common stock received in connection with a restricted stock award, (v) the grant of an unrestricted stock award, (vi) the exercise or lapse of a stock appreciation right, and (vii) the receipt of cash or shares of common stock in connection with a restricted unit.

      The 2004 Incentive Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974, nor is the 2004 Incentive Plan qualified under Section 401(a) of the Internal Revenue Code.

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