Form of Stock Option Agreement

 

Incentive Stock Options

X

Non Qualified Stock Options

(a)  

“Common Stock” means the shares of common stock of the Company;

(b)  

“Exercise Price” means $0._____ per share;

(c)  

“Expiry Date” means ____________, 201____;

(d)  

“Notice of Exercise” means a notice in writing addressed to the Company at its address first recited hereto (or such other address of which the Company may from time to time notify the Optionee in writing), substantially in the form attached as Schedule “D” hereto, which notice shall specify therein the number of Optioned Shares in respect of which the Options are being exercised;

(e)  

“Options” means the irrevocable right and option to purchase, from time to time, all, or any part of the Optioned Shares granted to the Optionee by the Company pursuant to Section 2.1 of this Agreement;

(f)  

“Optioned Shares” means the shares of Common Stock that are issued pursuant to the exercise of the Options;

(g)  

“Securities” means, collectively, the Options and the Optioned Shares;

(h)  

“Shareholders” means holders of record of the shares of Common Stock;

(i)  

“U.S. Person” shall have the meaning ascribed thereto in Regulation S under the 1933 Act, and for the purpose of the Agreement includes any person in the United States; and

(j)  

“Vested Options” means the Options that have vested in accordance with Section 2.2 of this Agreement.

 

Y =

the number of Optioned Shares covered by this Agreement for which the Options shall have been exercised pursuant to this section.

 

A =

the Fair Market Value (defined below) of one Optioned Share, as determined at the time the Options shall have been exercised pursuant to this section.

 

B =

the Exercise Price per Optioned Share in effect under the Options at the time the Options shall have been exercised pursuant to this section.

(a)  

the terms and conditions on which the Options are granted; and,

(b)  

a consolidation or subdivision of the Company’s share capital or an amalgamation or merger;

(a)  

an executed copy of this Agreement; and

(b)  

one of two questionnaires in the forms attached hereto as Schedule “B” and Schedule “C”, whichever applies.

the Securities have not been registered under the 1933 Act or under any state securities or “blue sky” laws of any state of the United States, and are being offered only in a transaction not involving any public offering within the meaning of the 1933 Act, and, unless so registered, may not be offered or sold in the United States or to U.S. Persons, except pursuant to an effective registration statement under the 1933 Act, or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the 1933 Act, and in each case only in accordance with applicable state securities laws;

the Company will refuse to register any transfer of the Securities not made in accordance with the provisions of Regulation S, pursuant to an effective registration statement under the 1933 Act or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the 1933 Act;

the decision to execute this Agreement and acquire the Securities hereunder has not been based upon any oral or written representation as to fact or otherwise made by or on behalf of the Company and such decision is based solely upon a review of publicly available information regarding the Company that is available on the website of the United States Securities and Exchange Commission (the “SEC”) at www.sec.gov (the “Company Information”);

there are risks associated with an investment in the Securities;

the Optionee and the Optionee’s advisor(s) (if applicable) have had a reasonable opportunity to ask questions of and receive answers from the Company in connection with the distribution of the Securities hereunder, and to obtain additional information, to the extent possessed or obtainable without unreasonable effort or expense, necessary to verify the accuracy of the information about the Company;

the books and records of the Company were available upon reasonable notice for inspection, subject to certain confidentiality restrictions, by the Optionee during reasonable business hours at its principal place of business, and all documents, records and books in connection with the distribution of the Securities hereunder have been made available for inspection by the Optionee, the Optionee’s attorney and/or advisor(s) (if applicable);

the Company and others are entitled to rely upon the truth and accuracy of the acknowledgements, representations, warranties, statements, answers, covenants and agreements contained in this Agreement and agrees that if any of such acknowledgements, representations, warranties, statements, answers, covenants, and agreements are no longer accurate or have been breached, the Optionee shall promptly notify the Company, and the Optionee will hold harmless the Company from any loss or damage it may suffer as a result of the Optionee’s failure to correctly complete this Agreement;

the Optionee has been advised to consult its own legal, tax and other advisors with respect to the merits and risks regarding the exercise of the Options and the issuance of the Optioned Shares and with respect to applicable resale restrictions and it is solely responsible (and the Company is in not any way responsible) for compliance with applicable resale restrictions;

the Optionee will indemnify and hold harmless the Company and, where applicable, its directors, officers, employees, agents, advisors and shareholders, from and against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) arising out of or based upon any representation or warranty of the Optionee contained herein or in any document furnished by the Optionee to the Company in connection herewith being untrue in any material respect or any breach or failure by the Optionee to comply with any covenant or agreement made by the Optionee to the Company in connection therewith;

the Securities are not listed on any stock exchange or automated dealer quotation system and no representation has been made to the Optionee that any of the Securities will become listed on any stock exchange or automated dealer quotation system, except that currently certain market makers make market in the shares of the Company’s common stock on the OTC Bulletin Board;

neither the SEC nor any other securities commission or similar regulatory authority has reviewed or passed on the merits of the Securities;

no documents in connection with this Agreement have been reviewed by the SEC or any state securities administrators;

there is no government or other insurance covering any of the Securities; and

this Agreement is not enforceable by the Optionee unless it has been accepted by the Company.

the Optionee is a director, officer, employee or consultant of the Company or subsidiary of the Company;

if the Optionee is an employee or consultant of the Company or subsidiary of the Company, the Optionee is a bona fide employee or consultant of the Company or subsidiary of the Company;

the Optionee is a U.S. Person;

the Optionee has received and carefully read this Agreement and the Company Information (especially, the Company’s annual report on Form 10-K filed with the SEC on May 13, 2010 (the “Form 10-K”) and any reports or documents filed by the Company under sections 13(a), 14(a), 14(c), and 15(d) of the Securities Exchange Act of 1934 since the filing of the Form 10-K) and any material changes in the Company’s affairs that are not disclosed in the Company Information;

the Optionee has received a brief description of the Securities and the use of proceeds from the distribution of the Securities;

the Optionee has duly executed and delivered this Agreement and it constitutes a valid and binding agreement of the Optionee enforceable against the Optionee in accordance with its terms;

the Optionee has concurrently executed and delivered the questionnaire in the form attached as Schedule “B” or Schedule “C” and the representations and warranties contained in such questionnaire are true and correct;

the Optionee has the legal capacity and competence to enter into and execute this Agreement and to take all actions required pursuant hereto and, if the Optionee is a corporation, it is duly incorporated and validly subsisting under the laws of its jurisdiction of incorporation and all necessary approvals by its directors, shareholders and others have been obtained to authorize execution and performance of this Agreement on behalf of the Optionee;

the Optionee:

has adequate net worth and means of providing for its current financial needs and possible personal contingencies,

has no need for liquidity in this investment, and

is able to bear the economic risks of an investment in the Securities for an indefinite period of time, and can afford the complete loss of such investment;

the Optionee has the requisite knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment in the Securities and the Company, and the Optionee is providing evidence of such knowledge and experience in these matters through the information requested in this Agreement;

the Optionee is aware that an investment in the Company is speculative and involves certain risks, including the possible loss of the investment, and the Optionee has carefully read and considered the matters set forth under the caption “Risk Factors” appearing in the Company’s various disclosure documents, filed with the SEC;

the entering into of this Agreement and the transactions contemplated hereby do not result in the violation of any of the terms and provisions of any law applicable to, or, if applicable, the constating documents of, the Optionee, or of any agreement, written or oral, to which the Optionee may be a party or by which the Optionee is or may be bound;

the Optionee is purchasing the Securities for its own account for investment purposes only and not for the account of any other person and not for distribution, assignment or resale to others, and no other person has a direct or indirect beneficial interest is such Securities, and the Optionee has not subdivided his interest in the Securities with any other person;

the Optionee is not an underwriter of, or dealer in, the shares of the Company’s common stock, nor is the Optionee participating, pursuant to a contractual agreement or otherwise, in the distribution of the Securities;

the Optionee understands and agrees that the Company and others will rely upon the truth and accuracy of the acknowledgements, representations, statements, answers and agreements contained in this Agreement, and agrees that if any of such acknowledgements, representations, statements, answers and agreements are no longer accurate or have been breached, the Optionee shall promptly notify the Company;

the Optionee has made an independent examination and investigation of an investment in the Securities and the Company and has depended on the advice of its legal and financial advisors and agrees that the Company will not be responsible in anyway whatsoever for the Optionee’s decision to acquire the Securities;

if the Optionee is acquiring the Securities as a fiduciary or agent for one or more investor accounts, the Optionee has sole investment discretion with respect to each such account, and the Optionee has full power to make the foregoing acknowledgements, representations and agreements on behalf of such account;

the Optionee is not aware of any advertisement of any of the Securities and is not acquiring the Securities as a result of any form of general solicitation or general advertising including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising; and,

no person has made to the Optionee any written or oral representations:

that any person will resell or repurchase any of the Securities,

that any person will refund the purchase price of any of the Securities,

as to the future price or value of any of the Securities, or

that any of the Securities will be listed and posted for trading on any stock exchange or automated dealer quotation system or that application has been made to list and post any of the Securities of the Company on any stock exchange or automated dealer quotation system, except that currently certain market makers make market in the shares of the Company’s common stock on the OTC Bulletin Board.

WITNESSED BY:  _______________________________________________

 

Name   _______________________________________________

 

Address   _______________________________________________

 

Occupation   _______________________________________________

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Date of Grant

One year anniversary of date of grant

Two year anniversary of date of grant

  __________

  Category 1

An organization described in Section 501(c)(3) of the United States Internal Revenue Code, a corporation, a Massachusetts or similar business trust or partnership, not formed for the specific purpose of acquiring the Securities, with total assets in excess of US $5,000,000;

  __________

  Category 2

A natural person whose individual net worth, or joint net worth with that person’s spouse, on the date of grant or exercise exceeds US $1,000,000 excluding the value of the primary residence of such person(s) and the related amount of indebtedness secured by the primary residence up to its fair market value.

  __________

  Category 3

A natural person who had an individual income in excess of US $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of US $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

  __________

  Category 4

A “bank” as defined under Section (3)(a)(2) of the Securities Act or savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act acting in its individual or fiduciary capacity; a broker dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934 (United States); an insurance company as defined in Section 2(13) of the Securities Act; an investment company registered under the Investment Company Act of 1940 (United States) or a business development company as defined in Section 2(a)(48) of such Act; a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958 (United States); a plan with total assets in excess of US $5,000,000 established and maintained by a state, a political subdivision thereof, or an agency or instrumentality of a state or a political subdivision thereof, for the benefit of its employees; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 (United States) whose investment decisions are made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company or registered investment adviser, or if the employee benefit plan has total assets in excess of US $5,000,000, or, if a self-directed plan, whose investment decisions are made solely by persons that are accredited investors;

  __________

  Category 5

A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940 (United States);

  __________

  Category 6

A director or executive officer of the Company;

  ___________

  Category 7

A trust with total assets in excess of US $5,000,000, not formed for the specific purpose of acquiring the Securities, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) under the Securities Act;

  ___________

  Category 8

An entity in which all of the equity owners satisfy the requirements of one or more of the foregoing categories;

_____

ALTERNATIVE ONE:  The Optionee covenants, represents and warrants to the Company that he or she has such knowledge and experience in financial and business matters that he or she is capable of evaluating the relative merits and risks of an investment in the Securities and Company and is not utilizing a purchaser representative in connection with evaluating such merits and risks.  The Optionee is providing evidence of its knowledge and experience in these matters through the information requested below in this Questionnaire.

_____

ALTERNATIVE TWO:  The Optionee covenants, represents and warrants to the Company that he or she has chosen to use the services of a purchaser representative acceptable to the Optionee in connection with the Optionee’s acquisition of the Securities. The Optionee hereby acknowledges that the person named below is his or her purchaser representative who will assist and advise the Optionee in evaluating the merits and risks of an investment in the Securities and the Company and affirms that such purchaser representative has previously disclosed in writing any material relationship that exists between the purchaser representative (or its affiliates) and the Company (or its affiliates) that is mutually understood to be contemplated, or that has existed at any time during the previous two years, and any compensation received or to be received as a result of such relationship.

1.

Name:

2.

Residential Address & Telephone Number:

3.

Length of Residence in State of Residence:

4.

U.S. Citizen:

_____

Yes

_____

No

5.

Social Security Number:

6.

Business Address & Telephone Number:

7.

Preferred Mailing Address:

_____

Residence

_____

Business

8.

Date of Birth:

9.

Employer and Position:

10.

Name of Business:

11.

Business or Professional Education and Degrees:

12.

Prior Employment (last 5 years):

13.

Relationship to the Company, if any:

14.

Is the Optionee an officer of director of a publicly-held company?

15.

Does the Optionee beneficially own 10% or more of the voting securities of a publicly-held company?

16.

Within the last 5 years, has the Optionee personally invested in investments sold by means of private placements in reliance on exemptions from registration under the Securities Act and state securities laws?

17.

Prior investments by the Optionee which were purchased in reliance on exemptions from registration under the Securities Act and State securities laws (initial the highest number applicable):

 

Amount (Cumulative)

Real Estate:

Up to

$50,000 to

Over

None: _____

$50,000

_____

$250,000 _____

$250,000 _____

Securities:

Up to

$50,000 to

Over

None: _____

$50,000

_____

$250,000 _____

$250,000 _____

Other:

Up to

$50,000 to

Over

None: _____

$50,000

_____

$250,000 _____

$250,000 _____

18.

Does the Optionee consider itself to be an experienced and sophisticated investor?

19.

Does the Optionee, or any person authorized to execute this Questionnaire, consider itself to have such knowledge of the Company and its business and such experience in financial and business matters to enable it to evaluate the merits and risks of an investment in the Securities and the Company, should the Optionee be given an opportunity to so invest?

20.

If the Optionee is an individual, please indicate the Optionee’s and his/her spouse’s combined gross income during the preceding two years (initial the highest number applicable):

21.

If the Optionee is an individual, please indicate the Optionee’s and his/her spouse’s combined estimated net worth (exclusive of home, home furnishings and personal automobiles) (initial the highest number applicable):

22.

Regardless of the amount of the proposed investment:

(a)

Will the Optionee’s proposed investment exceed 10% of its individual net worth, or the Optionee’s joint net worth with its spouse as determined in paragraph 22 above?

(b)

Will the Optionee be able to bear the economic risk of its investment in this transaction?

23.

Please provide answers to the following questions.

(a)

State total assets of the Optionee, including cash, stocks and bonds, automobiles, real estate, and any other assets:

(b)

State total liabilities of the Optionee including real estate indebtedness, accounts payable, taxes payable and any other liabilities:

(c)

State annual income of the Optionee including salary, securities income, rental income and any other income:

(d)

State annual expenses of the Optionee, excluding ordinary living expenses, including real estate payments, rent, property taxes and other expenses:

$

(e)

Does the Optionee expect the amount of its assets, liabilities, income and expenses, as stated above, to be subject to significant change in the future:

X

Signature

Print or Type Name

Social Security/Tax I.D. No.

Name to appear on certificates

Name

Address

Address

City, State, and Zip Code

Telephone Number

Signature

(Name and, if applicable, Office)

(Address)

(City, State, and Zip Code)

Fax Number or E-mail Address

Social Security/Tax I.D. No.