THE EQUITYINCENTIVE PLAN OF QNECTIVE,INC. ARTICLEI PURPOSESOF PLAN

Qnective, Inc., a Nevada corporation (the “Company”), has adopted The Qnective Equity Incentive Plan (the “Plan”), effective as of April 1, 2009.  The purpose of the Plan is to enable Qnective and its subsidiaries to attract, retain, and reward Key Persons (as hereinafter defined) by offering them an opportunity to have a greater proprietary interest in, and closer identity with, the Company and with its financial success.  An option granted under the Plan to a Key Person to purchase Shares (as hereinafter defined) of common stock of the Company, may be an Incentive Stock Option or a Non-Qualified Option as defined by the Code (as hereinafter defined) (collectively referred to as “Options”).  An Option that is not an Incentive Stock Option shall be a Non-Qualified Option.  Proceeds received by the Company from the sale of the Shares pursuant to Options granted under this Plan, shall be used for general corporate purposes.  The Company may also grant Stock Rights (as hereinafter defined) to Key Persons.  This Plan shall expire on March 31, 2019 (the “Expiration Date”).

As used in this Plan, the terms set forth below shall be defined as follows:

“Beneficiary” means the person, persons, trust, or trusts entitled by will or the laws of descent and distribution to receive a Key Person’s benefits under this Plan in the event of such Key Person’s death.

“Board” or “Board of Directors” means the Board of Directors of the Company as elected by the Shareholders.

“Code” means the U.S. Internal Revenue Code of 1986 and regulations issued thereunder as they may be amended from time to time.

“Commission” means the U.S. Securities and Exchange Commission.

"Company" means Qnective, Inc.

“Date of Grant” means the date, as determined by the Board in its sole discretion, upon which an Option is awarded or Stock Right is granted.

“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended.

"Expiration Date" means March 31, 2019.

“Fair Market Price Value” means, as of the Date of Grant, such value as the Board of Directors in good faith shall determine for purposes of granting Options under the Plan.

“Incentive Stock Option” means a stock option which meets the requirements of §422 of the Code.  If any option designated as an Incentive Stock Option does not meet the requirements of §422 of the Code, such Option shall be treated as a Non-Qualified Option for all purposes under the provisions of the Plan.

“Key Person” means officers, directors, consultants, professional advisors and any employees of the Company who are deemed by the Board to be eligible for grants of Options or Stock Rights because of their existing or potential contributions to the welfare of the Company.

“Non-Qualified Option” means a stock option which does not meet the requirements of §422 of the Code with respect to Incentive Stock Options.

“Option” or “Options” means both an Incentive Stock Options and a Non-Qualified Options granted under the Plan.

 “Option Agreement” means an agreement between the Company and a Key Person setting forth the terms and conditions upon which an Option is granted to a Key Person.  Such agreement, at the discretion of the Board, may incorporate by reference the terms and conditions of the Plan.

“Personal Representative” means the person or persons who, upon the death, disability or incompetence of a Key Person, shall have acquired on behalf of the Key Person by legal proceeding or otherwise the power to exercise the rights and receive the benefits of such Key Person under this Plan or a trustee in bankruptcy.

“Securities Act” means the U.S. Securities Act of 1933, as amended.

“Shares” means $.001, par value shares of the common stock of the Company.

"Shareholder" means a beneficial owner of Shares.

“Stock Right” means the right to receive Shares.

"Stock Right Agreement" means an agreement between the Company and a Key Person setting forth the terms and conditions upon which Stock Rights are granted to a Key Person.  Such agreement, at the discretion of the Board, may incorporate by reference the terms and conditions of the Plan.

“Subsidiary” means a present or future subsidiary of the Company as is defined in §424(f) of the Code.  For purposes of the Plan, an eligible Key Person of the Company shall include Key Persons of any Subsidiary.

“Wrongful Activities” means the commission of, conspiracy to commit, or attempt to commit, any criminal act in any manner relating to the Company or a Key Person’s willful or grossly negligent action which is demonstrably inimical to the interests, business, or reputation of the Company or any Subsidiary.

The Plan shall become effective as of April 1, 2009, and shall remain in effect through the Expiration Date of the Plan, except as may otherwise be provided herein.

A.           The Plan shall be administered by the Board of Directors.

B.           The Board is authorized to administer and interpret the Plan, to adopt, amend, and rescind from time to time such rules and regulations for carrying out the Plan as it may deem advisable, and to make all other determinations and take such steps as it may deem necessary or advisable for the administration of the Plan, subject to the terms, conditions, and limitations of the Plan.  The Board shall have the sole authority:

1.           to select the Key Persons to whom Options or Stock Rights will be granted under the Plan;

2.           to designate the type of Option to be granted under the Plan as an Incentive Stock Option or a Non-Qualified Option;

3.           to determine the number of Shares to be covered by Options granted under the Plan, and the option price thereof subject to Article VII hereof;

4.           to determine the number of Shares to be granted pursuant to Stock Rights;

5.           to determine the time or times when Stock Rights will be granted and when Options shall be granted and the period during which they will be exercisable;

6.           to determine the form of any Stock Rights Agreement or Option Agreements;

7.           to impose such conditions on the issuance of Stock Rights or the grant or exercise of an Option as it determines are appropriate;

8.           to determine any question as to the termination of service of a Key Person with or for the Company, and the duration and purposes of leaves of absence which may be granted to Key Persons without constituting a termination of employment or termination of services for purposes of the Plan; and

9.           to determine what events, if any, will result in the acceleration of a Stock Right or the exercisability of all or any portion of an Option.

The determination of the Board, in any of the foregoing respects shall be final, conclusive, and binding as to all concerned.

C.           The Board may request the recommendations of the officers of the Company with respect to participation under the Plan of all Key Persons.

D.           A majority of the Board shall constitute a quorum and make all determinations, take all actions, and conduct business in respect of the Plan. Any Board action may be taken or determined without a meeting if all members thereof shall consent in writing to such action or determination.  In the event action by the Board is taken by written consent, the action shall be deemed to have been taken at the time specified in the consent or, if none is specified, at the time of the last signature.  The Board may delegate administrative functions in respect of the Plan to individuals who are officers or employees of the Company.  All determinations or interpretations made by the Board shall be final and conclusive.  No members of the Board shall be liable for any action, determination, interpretation or omission taken or made in good faith with respect to the Plan or any Options or Stock Rights granted hereunder.

E.           All costs and expenses incurred in connection with the administration of the Plan, including any stock transfer taxes, shall be borne by the Company.

A.           Subject to the provisions of Article XII hereof, an aggregate of 750,000 Shares shall be reserved for issuance upon the grant of Stock Rights or the exercise of Options granted under the Plan.

B.           The Shares issued pursuant to Stock Rights and the Options to be granted under the Plan shall be made available either from authorized but unissued Shares or from Shares reacquired by the Company, including, if applicable, Shares purchased in the open market.

 

C.           If prior to the Expiration Date any Stock Rights or Options granted under the Plan expire because of non-exercise, or are terminated prior to exercise pursuant to the provisions of the Plan, the Shares subject to such Stock Rights or Options shall again become available for the grant of Stock Rights or Options under the Plan (unless in the meantime the Plan has been terminated).

Stock Rights and Options may be granted under the Plan only to persons who are designated as Key Persons of the Company or its Subsidiaries by the Board whether or not such persons are salaried employees of the Company.  However, Key Persons who are not also employees of the Company are not eligible to receive qualified Incentive Stock Options.

The option price for any Option granted under the Plan shall be the Fair Market Value of the Shares at the day of grant.  Vesting shall be as set forth in the Option Agreement or Stock Rights Agreement.

A.           The Board may at any time prior to the Expiration Date grant to Key Persons Stock Rights and Options to purchase Shares under the Plan.

B.           Each grant of an Option under the Plan shall be evidenced by an Option Agreement between the Key Person and the Corporation which clearly identifies the type of Option granted (Incentive Stock Option or Non-Qualified Option) and shall contain provisions not inconsistent with the Plan.  Each Option grant shall be approved by the Board. Key Persons may be granted Incentive Stock Options or Non-Qualified Options.  The terms and conditions of such Option Agreements need not be the same in each case and may be changed from time to time by the Board.  Anything in this agreement to the contrary notwithstanding, with respect to Incentive Stock Options granted pursuant to the Plan, the aggregate Fair Market Value (determined as of the Date of Grant of such Option) of the Shares which are exercisable for the first time by a Key Person during any calendar year under the Plan (or any other plan adopted by the Company) shall not exceed $100,000.

C.  Each grant of Stock Rights under the Plan shall be evidenced by a Stock Rights Agreement between the Key Person and the Corporation which clearly identifies the terms and conditions of the Stock Right and shall contain provisions not inconsistent with the Plan.  Each Stock Right granted shall be approved by the Board.  The terms and conditions of such Stock Rights Agreements need not be the same in each case and may be changed from time to time by the Board.

 

A.           The Board shall determine the time or times Stock Rights will be granted and when Options shall be exercisable and conditions that need to be satisfied in order for an Option to be exercised or stock to be issued pursuant to Stock Rights.

B.           An outstanding Option or Stock Right may, in the sole discretion of the Board, be modified or amended with respect to the time or times when such Stock Right or Option becomes exercisable, provided such Stock Right or Option as so modified is not less favorable to the Key Person.

C.           Options shall terminate upon the first to occur of the following events:

2.           Termination of the Option as provided in Articles X and XI; or

3.           Expiration of or earlier termination of the Plan.

D.           Stock Rights shall terminate in accordance with the terms and conditions of the Stock Rights Agreement but in no event later than the Expiration Date.

E.           Notwithstanding any other provision of this Plan, the Board may impose, by rule, resolution or Agreement, such conditions upon the exercise of Options or grant of Stock Rights (including, without limitation, conditions limiting the time of exercise to specified periods) as may be required to satisfy applicable regulatory requirements, including, without limitation, Rule 16b-3 (or any successor rule) promulgated by the Commission pursuant to the Exchange Act.

All grants of Stock Rights and Options shall be subject to the following provisions:

A.           The Company’s right to terminate the employment or engagement of the Key Person for any reason, with or without cause, and without liability to the Key Person with respect to any Stock Rights or Options shall be unrestricted.

B.           Upon each exercise of an Option, the purchase price for the Shares being purchased shall be payable in full to the Company, in cash, or by certified check or wire transfer.

C.           Notwithstanding the foregoing, the Board may, in its sole discretion, permit the issuance of Shares pursuant to an Option upon such other payment terms as the Board deems reasonable.

D.           Shares issued shall be represented by a separate stock certificate issued by the Company.

E.           No fractional Shares shall be issued.

F.           No Option or Stock Right to receive Shares shall be transferable by the Key Person other than by will or by the laws of descent and distribution.  Stock Rights or Options may be exercised only by the Key Person, or by his, her, or its Personal Representative.

G           No person shall have the right and privileges of a Shareholder of the Company with respect to Shares subject to, purchased, or received under an Option or a Stock Right until the date of issue of such Shares.

H           No Shares may be issued unless, and until any applicable requirements of the Commission and any other regulatory agencies having jurisdiction shall have been fully met.  As a condition precedent to the issuance of Shares, the Company may require the Key Person to take any reasonable action to meet such requirements, including representing to or otherwise satisfying the Company that (i) the Key Person understands that the Company has no obligation to register under the Securities Act or any state securities laws any of the Shares issuable upon exercise of Options or issuance of Shares pursuant to Stock Rights and that such Shares may have to be held indefinitely until so registered or unless an exemption from such registration is available; (ii) the Key Person is receiving or purchasing the Shares as an investment and not with a view to, or for sale in connection with, the distribution of any of them; and (iii) the Key Person will not dispose of such Shares absent compliance with any such requirements or receipt by the Company of a written opinion of its counsel that the circumstances of such proposed sale do not require such compliance; provided, however, that with respect to any Shares issued hereunder that have been registered with the Commission, no investment representation by the Key Person shall be required by the Company; and, provided further, that in the event that the Shares issued to the Key Person pursuant to Options or Stock Rights hereunder are subsequently registered with the Commission, any investment representation theretofore furnished to the Company as to such Shares will be inoperative.  The Company may endorse certificates representing Shares with a legend indicating any restrictions on the transfer thereof resulting from applicable securities laws or otherwise.

 

I.           1.           Whenever the Company proposes or is required to issue Shares to a Key Person under the Plan, the Company shall have the right to require the Key Person to 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 such Shares.  If such certificates have been delivered prior to the time a withholding obligation arises, the Company shall have the right to require the Key Person to remit to the Company an amount sufficient to satisfy all federal, state, or local withholding tax requirements at the time such obligation arises and to withhold from other amounts payable to the Key Person, as compensation or otherwise, as necessary.  Whenever payments under the Plan are to be made to a Key Person in cash, such payments shall be net of any amounts sufficient to satisfy all federal, state, and local withholding tax obligation.

2.           In connection with the issuance of Shares a Key Person may elect to satisfy his, her, or its tax withholding obligation incurred with respect to the issuance of Shares by (a) directing the Company to withhold a portion of the Shares otherwise distributable to the Key Person, or (b) by transferring to the Company a certain number of Shares owned, such Shares being valued at the Fair Market Value thereof on the taxable date.  Notwithstanding any provisions of the Plan to the contrary, a Key Person’s election pursuant to the preceding sentence (a) must be made on or prior to the taxable date with respect to such issuance of Shares, and (b) must be irrevocable.  In lieu of a separate election on each taxable date of an issuance of Shares, a Key Person may make a blanket election with the Board that shall govern all future taxable dates until revoked by the Key Person.

3.           If the holder of Shares purchased in connection with the exercise of an Incentive Stock Option disposes of such Shares within two years of the date such Incentive Stock Option was granted or within one year of such exercise, he, she, or it shall notify the Company of such disposition and remit an amount necessary to satisfy applicable withholding requirements including those arising under federal income tax laws.  If such holder does not remit such amount, the Company may withhold all or a portion of any salary or other compensation then or in the future owed to such holder as necessary to satisfy such requirements. Taxable date means the date a Key Person recognized income under the Code or any applicable federal, state, or other  income tax law with respect to an issuance of Shares.

J.           1.           If at any time any Shareholder desires to sell, encumber, or otherwise dispose of Shares distributed to him, her, or it under this Plan other than if the Shares have been registered with the Commission, the Shareholder shall first offer the Shares to the Company by giving the Company written notice disclosing: (a) the name of the proposed transferee of the Shares; (b) the certificate number and number of Shares proposed to be transferred or encumbered; (c) the proposed price; (d) all other terms of the proposed transfer; and (e) a written copy of the proposed offer.  Within thirty (30) days after receipt of such notice, the Company shall have the option to purchase all or part of such Shares at the same price and on the same terms as contained in such notice.

2.           If the Company (or a Shareholder, as described below) does not exercise the option to purchase Shares, as provided in J.1 above, the person shall have the right to sell, encumber, or otherwise dispose of his, her, or its Shares on the same terms of transfer as set forth in the written notice to the Company, provided such transfer is effective within thirty (30) days after the expiration of the Company's option to purchase period.  If the transfer is not effected within such period, the Company must again be given an option to purchase, as provided above.

3.           The Board of Directors, in its sole discretion, may waive the Company’s right of first refusal pursuant to this Section and the Company’s repurchase right pursuant to Section K below.  If the Company’s right of first refusal or repurchase right is so waived, the Board of Directors may, in its sole discretion, pass through such right to the remaining Shareholders of the Company in the same proportion that each Shareholders’ share ownership bears to the Share ownership of all the Shareholders of the Company, as determined by the Board of Directors. To the extent that a Shareholder has been given such right and does not purchase his, her, or its allotment, the other Shareholders shall have the right to purchase such allotment on the same basis.

K.           1.           If (i) the Key Person’s employment or service with the Company is terminated as a result of the Key Person’s Wrongful Activities, or (ii) the Board determines in good faith that the Key Person has materially breached any non-compete, non-solicitation, or confidentiality agreement with the Company during or after termination of his, her, or its services with the Company as an employee, consultant, advisor, or member of the Board of Directors, then the Company shall have the right to repurchase all Shares issued to the Key Person at a price equal to the exercise price paid by the Key Person and terminate all Options granted but not yet exercised and all Stock Rights.   Any repurchase shall be made in accordance with accounting rules to avoid adverse accounting treatment.  All unexercised Options shall terminate.  The determination by the Board that any such Wrongful Activity has occurred, whether proven or not, shall be final, conclusive, and binding upon such Key Person.

2.           The Company’s right to repurchase shall be exercisable at any time within one year after the date of Key Person’s termination of employment or performance of services by the delivery of written notice by the Company to such effect to the Key Person or his, her, or its Personal Representative; provided, that, in the case of Shares purchased through the exercise of an Incentive Stock Option (i) such date shall be extended to the date that is 30 days after a Key Person can sell his or her Shares without causing the Incentive Stock Options to not qualify as Incentive Stock Options and (ii) the Company shall not have the right to repurchase the Shares if it would result in the Shares purchased through the exercise of Incentive Stock Options as not qualifying as Incentive Stock Options.  Within thirty (30) days after receipt of such notice, the Key Person or his, her, or its Personal Representative shall deliver a certificate or certificates for the Shares being sold, together with appropriate duly signed stock powers transferring such Shares to the Company, and the Company shall deliver to the Key Person, or his, her, or its Personal Representative an amount equal to the purchase price for the Shares being sold.

3.           This Article K shall not apply to any Key Person from and after the date of an underwritten initial public offering of the Company’s Common Stock.

A.           If the employment or engagement by a Key Person by the Company shall terminate as a result of such Key Person’s retirement, total and permanent disability, or death, such Stock Rights or Options may be exercised by such Key Person or such Key Person’s Personal Representative or beneficiaries, to the extent that such Key Person shall have been entitled to do so on the date of such event.  Notwithstanding the foregoing, the Board may, in its sole discretion, permit such Option or Stock Rights to be issued or to be exercised to an extent greater than would otherwise be provided under this paragraph.

Options may be exercised to the extent set forth above no later than the first to occur of the following:

1.           the expiration of three (3) months after termination of employment if such termination is due to retirement, or total and permanent disability; provided if such Key Person shall die during such three (3) month period, then one (1) year after the date of death; or

2.           the expiration of one (1) year after termination of employment if such termination is due to such Key Person’s death; or

3.           the expiration date of such Incentive Stock Option.

B.           If the employment or service of a Key Person shall terminate for any reason other than retirement, total and permanent disability, death or Wrongful Activities of the Key Person, any Incentive Stock Option held by the Key Person may be exercised only within three (3) months after such termination unless by its terms the Incentive Stock Option expired sooner and only to the extent that the Key Person would have been entitled to do so on the date of such termination.

A.           Notwithstanding anything to the contrary in this Plan, in the event of any recapitalization, stock dividend, stock split, reverse stock split, stock dividend, combination, reclassification or exchange affecting the Shares subject to this Plan, or any merger, consolidation, or reorganization as a result of which the Company is the surviving corporation, the aggregate number of Shares subject to the Plan and outstanding Options both as to number of Shares and the option price, and Stock Rights may be appropriately adjusted as determined by the Board, whose determination shall be final, binding, and conclusive.

Notwithstanding anything to the contrary in this Plan, in the event of dissolution or liquidation of the Company, or in the event of reorganization, merger, reorganization, or consolidation of the Company with one or more corporations in which the Company is not the surviving corporation or the Company becomes a wholly owned subsidiary of another corporation as a result of one of the events described in this paragraph or a sale of the Company, the Plan shall terminate, and any Option or Stock Rights then outstanding hereunder shall terminate on the effective date of such transaction unless the surviving corporation, or if applicable the corporation purchasing all of the Shares of the Company (or its affiliates) agrees to assume such Option or obligation to issue Shares pursuant to Stock Rights or elects to issue substitute options or rights in place thereof; provided, however, that all outstanding Options or Stock Rights not being assumed by the surviving or purchasing corporation shall become exercisable in part or in full, at the election of the Key Person, during the five (5) business days immediately preceding the effective date of such transaction.

B.           In addition to such other rights of indemnification as they may have as members of the Board of Directors, the Company shall indemnify to the full extent permitted by law, each member of the Board (and his or her respective heirs, executors, and administrators) made, or threatened to be made, a party to any action, suit or proceeding (whether civil, criminal, administrative, or investigative) by reason of any action taken or failure to act under, or in connection with, the Plan or any Option or Stock Rights granted thereunder.

C.           The Board of Directors shall have the power, in its discretion, to amend, suspend, or terminate the Plan in whole or in part at any time; provided no amendment or termination shall in any manner affect an Option or Stock Right theretofore granted without the consent of the Key Person.

D.           Nothing contained in this Plan, or in Option Agreements, Stock Rights Agreements or in any other documents related to this Plan or to Options or Stock Rights shall confer upon any Key Person any right to continue in the employ of, or be engaged by, the Company, as an employee or otherwise, constitute any contract or agreement of employment, or engagement, or interfere in any way with the right of the Company to reduce such person’s fees, compensation, or benefits or to terminate the employment or engagement of such Key Person, with or without cause, but nothing contained in this Plan or any document related thereto shall affect any other contractual right of any Key Person.

E.           No Key Person, Beneficiary, or other person shall have any right, title, or interest in any fund or in any specific asset of the Company by reason of any Option or Stock Rights granted hereunder.  Neither the provisions of this Plan (or of any documents related hereto), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between the Company and any Key Person, Beneficiary, or other person.  To the extent that a Key Person, Beneficiary, or other person acquires a right to receive an Option or Stock Rights hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company.

 

F.           Any notice required herein to be given by a Key Person to the Company shall be deemed to have been given on delivery of such notice in writing to the Company at such addresses the Company designates in writing to the Key Person at the Date of Grant, or at such other address as the Company may thereafter designate in writing to such Key Person.  Any notice required herein to be given by the Company to any Key Person shall be deemed to have been given on mailing of such notice in writing addressed to the last known address of such Key Person as shown on the records of the Company.

G.           The provisions of the Plan shall be binding upon all Personal Representatives and Beneficiaries of the Key Person.

H.  This Plan shall be construed, administered, and governed in all respects by the laws of the State of New York without regard to conflicts of laws thereof and is a plan maintained outside the United States primarily for the benefit of non-resident aliens of the United States; and, therefore, the U.S. Employment Retirement Income Security Act of 1974, as amended shall not apply.