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TERRA SYSTEMS, INC STOCK OPTION
AGREEMENT ("Agreement")
THIS AGREEMENT dated as of May 1, 2007 between Terra Systems Inc., a Utah
Corporation ("Corporation") and _____________________("Optionee").
RECITALS
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Optionee -- Optionee is an employee, officer, consultant, advisor or director of
the Corporation.
Approval-- The Corporation's Board of Directors (the "Board") has approved this
Agreement providing Optionee the right to purchase shares of the Corporation's
$0.01 par value common stock ("Stock").
TERMS
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In consideration of benefits rendered by Optionee to the Corporation, including
but not limited to: provide access to key financial and investment markets,
locate and secure capital, refine strategic direction and focus operations, and
of the mutual covenants and agreements hereinafter set forth, subject to all the
terms and conditions hereof, the parties hereto hereby mutually covenant and
agree as follows:
1. Grant of Option
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The Corporation hereby grants to Optionee the right (the right being
herein referred to as the "Option") exercisable and conditioned upon the
provisions set out herein during the period commencing on the date hereof
and ending on May 1, 2014, (the "Expiration Date") to Purchase from the
Corporation stock outlined as follows:
The Option will be a total of three (3) million shares. Of the
three (3) million shares, the first one (l) million shares will
have an exercise price of the fair-market-value ("FMV") at the
date of Agreement and would vest immediately as of the date of the
Agreement. FMV shall be the closing price of the Corporation stock
as of the date of Agreement. The remaining two (2) million shares
will vest one (l) million shares each year on the anniversary date
of this Agreement over the next succeeding two years, each of
these years a "Vesting Period". The exercise price on these shares
would be ten percent (10%) higher than the original exercise price
on the first anniversary date and twenty percent (20%) higher on
the second anniversary date, but in no event will the exercise
price for the succeeding years exceed five cents (5(cent)) per
share more than the initial FMV price per share. The exercise
price of the Option initially and at each anniversary date, is
referred to herein as the "Option Price".
If the Conditions (as defined and set out below) have not been fully
satisfied by the Expiration Date, the Option shall expire and be of no
further effect and, should the Option not have been exercised by the
Expiration Date, notwithstanding the fact that all of the Conditions have
been satisfied and fulfilled, the Option shall expire and be of no further
effect.
2. Conditions to and Exercise of Option
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a. The Option may be exercised in whole or in part (but not
for fractional shares) by delivery to the Corporation of
written notice, signed by Optionee which states that
Optionee desires to exercise the Option, together with
cash, certified check or bank draft payable to the order of
Corporation or other form of payment acceptable to the
Board for an amount of United States dollars equal to the
Option Price of such shares.
b. The written notice by which Optionee exercises the Option
shall include a representation and warranty in writing to
Corporation that the Stock purchase is being acquired for
investment and not with a view to distribute or resale.
Optionee acknowledges that the Stock Purchase will be
restricted and Optionee agrees that the certificate
representing the shares acquired upon such exercised may be
endorsed as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. NO OFFER, SALE, TRANSFER, PLEDGE OR OTHER
DISPOSITION OF THE SECURITIES MAY BE EFFECED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
c. Except as provided below, promptly after exercise of the
Option by Optionee, Corporation shall deliver to Optionee a
certificate or certificates for the number of shares of
stock with respect to which such Option was so exercised,
registered in Optionee's name.
d. The written notice of exercise must be accompanied by the
amount required, if any, under all applicable federal,
state and local income tax withholding laws or regulation.
3. Non- Transferability
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a. Option and all rights and privileges conferred thereby
shall not be transferable by Optionee otherwise than will
or the laws of descent and distribution, and shall be
exercisable during the Optionee's lifetime only by Optionee
or Optionee's guardian or legal representative. The Option
and all rights and privileges conferred thereby shall not
be assigned, pledged or hypothecated in any way, whether
voluntarily, involuntarily, or by operation of law or
otherwise, except by will or the laws of descent and
distribution and shall not be subjected to execution,
attachment, or similar process. Upon any attempt to
transfer, assign, pledge, hypothecate, or otherwise dispose
of any Option or any right or privileges conferred thereby
or upon levy, attachment or similar process upon an Option
or any rights and privileges conferred thereby, the Option
and the rights and privileges conferred thereby shall
immediately terminate and become null and void.
b. When the word "Optionee" is used in any provision in the
Agreement under circumstances where the provision should
logically be construed to apply to Optionee's guardian,
legal representative, executor, administrator, or the
person or persons to whom the Option may transfer by will
or by the laws of descent and distribution, it shall be
deemed to include such person or persons.
4. No Rights as Shareholder Prior to Exercise
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Optionee shall not be deemed for any purpose to be a shareholder of
Corporation with respect to any shares subject to the Option under this
Agreement as to which the Option shall not be exercised.
5. Adjustments
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a. The existence of an Option shall not affect in any way the
right or power of Corporation or its shareholders to make
or authorize any adjustments, reorganizations, or any other
changes in Corporation's capital structure or its business,
or any merger or consolidation of Corporation, or any issue
of bonds, debentures, preferred or preference stock ahead
of or affecting the Stock, or the dissolution or
liquidation of Corporation, or any sale or transfer of all
or any part of its assets or business, or any other
corporation act or proceeding, whether of a similar
business, or any other corporation act or proceeding,
whether of a similar character or otherwise.
b. The shares with respect to which the Option is granted are
shares of Stock as constituted on the date of this
Agreement, but in the event of any stock split or payment
of a dividend on Stock payable in share of Stock, the
shares of Stock, subject to the Option, shall be increased
(or decreased in the event of a reverse stock split)
proportionately without any change in the aggregate Option
Price. In the event all the outstanding shares of Stock
shall be changed into or exchanged for a different number
or class of share of Corporation, or of another corporation
whether through reorganization, recapitalization, stock
split, combination of share, merger or consolidation, or
otherwise, then there shall be substituted for each share
of Stock that is subject to the Option the number and class
of shares into which each outstanding share of stock shall
be exchanged, all without any change in the aggregate
Option Price for the shares then subject to the Option. In
connection with any adjustment under this Section 5
resulting in a fractional share interest, such interest
shall be rounded down to the nearest whole share.
6. Compliance with Securities Laws
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If the Board at any time determines that registration or qualification of
the Stock or Option under state or federal law or that the consent or
approval of any governmental regulatory body is necessary or desirable,
the Option may not be exercised in whole or part, until such registration,
qualification, consent, or approval shall have been effected or obtained
free of any conditions not acceptable to the Board. The Corporation shall
have no obligation to so register or qualify the shares. Optionee
understands and agrees that at any time of proposed exercise of this
Option he or she is not an accredited investor as that term is defined in
Regulation D as promulgated pursuant to the Securities Act of 1933, the
Company may disallow any exercise of this Option.
7. Vesting Upon Change of Control
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If a Change of Control occurs, then all unvested Options shall vest
immediately. A "Change in Control" shall mean a change in control of a
nature that would be required to be reported in response to Item 6( e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended, or if Item 6( e) is no longer in effect, any
regulations issued by the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, as amended, which serve similar
purposes; provided further that, without limitation, a Change in Control
shall be deemed to have occurred if and when:
(a) TENDER OFFER. A tender offer or exchange offer is made
whereby the effect of such offer is to take over and
control the Company, and such offer is consummated for the
equity securities of the Company representing twenty- five
percent (25%) or more of the combined voting power of the
Company's then outstanding voting securities;
(b) MERGER OR CONSOLIDATION. The stockholders of the Company
shall approve a merger, consolidation, recapitalization, or
reorganization of the Company, a reverse stock split of
outstanding voting securities, or consummation of any such
transaction if stockholder approval is not obtained, other
than any such transaction that would result in at least 75%
of the total voting power represented by the voting
securities of the surviving entity outstanding immediately
after such transaction being beneficially owned by the
holders of outstanding voting securities of the Company
immediately prior to the transaction, with the voting power
of each such continuing holder relative to other such
continuing holders not substantially altered in the
transaction;
(c) LIQUIDATION OR SALE OF ASSETS. The stockholders of the
Company shall approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the
Company of all or a substantial portion of the Company's
assets to another person, which is not a wholly owned
subsidiary of the Company (i.e., 50% or more of the total
assets of the Company); or
(d) STOCKHOLDINGS. Any "person" (as that term is used in
Section 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under that act), directly or
indirectly of more than twenty percent (20%) of the total
voting power represented by the Company's then outstanding
voting Securities.
8. Net Issuance Right of Optionee
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Optionee may elect to exercise its Option on a net exercise basis where
Corporation shall issue to Optionee Stock in exchange for the surrender of
the right to purchase a number of shares subject to the Option. An
Optionee who elects to receive Stock without payment of additional cash
consideration shall execute and deliver a net issue election notice to
Corporation's principal office. The notice shall state the number of
option shares to be surrendered by vesting period and the estimated shares
to be issued to the Optionee in exchange for the surrender. Thereupon
Corporation shall issue to such Optionee such number of fully paid and
nonassessable shares as is computed, by Vesting Period, using the
following formula:
X= Y(A-B)
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A
where: X = the number of shares to be issued to the Optionee
Y = the number of shares for the Vesting Period in respect of
which the net issue election is being made
A = the Trading Value (defined below) of one share of
Stock, as determined at the time the net issue
election is made
B = the Option Price in effect for the Vesting Period and
for the related shares
"Trading Value" of a share as of the date that the net issue
election is made (the "Determination Date") shall mean:
(i) If the net issue election is made in connection with and
contingent upon the closing of the sale of Corporation's common stock to the
public in a public offering pursuant to a Registration Statement under the 1933
Act (a "Public Offering"), and if Corporation's registration statement relating
to such Public Offering ("Registration Statement") has been declared effective
by the Securities and Exchange Commission, then the initial "Price to Public"
specified in the final prospectus with respect to such offering.
(ii) If the net issue election is not made in connection with
and contingent upon a Public Offering, then as follows:
(a) If traded on a securities exchange or the Nasdaq
National Market, the Trading Value shall be deemed to be the average of the
closing or last reported sale prices of the common stock on such exchange or
market over the last five trading days prior to the Determination Date;
(b) If otherwise traded in an over-the-counter
market, the Trading Value shall be deemed to be the average of the closing ask
prices of the common stock over the last five trading days prior to the
Determination Date; and
(c) If there is no public market for the common
stock, then Trading Value shall be determined in good faith by Corporation's
Board of Directors.
It is the intent of the parties that this Section 8 not cause any detrimental
tax consequence to the Optionee. If such a detrimental tax consequence is deemed
to exist, this Section 8 shall be null and void.
9. Miscellaneous
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a. Any provision of this Agreement to the contrary notwithstanding,
the Option shall not be exercisable at any time, in whole or in
part, if issuance and delivery of the shares of Stock subject
thereto would be in violation of any applicable laws or
regulations.
b. Optionee, for himself and any other person who acquires any rights
hereunder, agrees that any dispute or disagreement which shall
arise or as result of or pursuant to this Agreement or any
question as to the interpretation of any provision of this
Agreement may be determined by the Board in its absolute and
uncontrolled discretion, and that any such determination shall be
final, binding, and conclusive on all persons affected thereby.
c. Any party who breaches this Agreement shall pay reasonable
attorney fees and costs to the prevailing party for the
enforcement of the Agreement, whether or not legal process is
commenced on any appeal therefrom.
d. Nothing contained in this Agreement shall be construed as giving
Optionee any right to be retained in any position, as an employee
of Corporation.
e. Any notice which either party hereto may be required or permitted
to give to the other shall be in writing, and may be delivered
personally or by certified or registered mail, postage prepaid,
addressed as follows:
If to Corporation:
Claytono Xxxxxxx
Terra Systems, Inc
0000 Xxxxx 000 Xxxx, Xxxxx 000
Xxxxxxx, XX 00000
Or, if to Optionee
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Or, at such other address as Corporation or Optionee, by
notice to the other, may designate in writing from time to time.
f. The invalidity or unenforceability of any provision if this
Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, and each other provision of the
Agreement shall be severable and enforceable to the extent
permitted by law.
g. This Agreement may be amended or modified only by a written
instrument executed by both Corporation and Optionee.
h. Except as the Board of Directors may otherwise determine in
accordance with paragraph 7(b) above, this Agreement shall be
construed, interpreted and enforced in accordance with the laws of
the State of Utah.
1. This Agreement is not intended to constitute an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended.
J. This agreement constitutes the entire Agreement between the
parties hereto, and supersedes all prior agreements and
understanding relating to the subject matter of this Agreement.
Optionee agrees that notwithstanding any other Term of this Agreement he or she
may exercise the Option, in whole or part, only when and at such time as the
Corporation has sufficient authorized, but unissued shares to issue shares of
Stock upon exercise of the Option. Further Optionee agrees that in the event
that the exercise of the Option to purchase shares of Stock would decrease the
number of authorized but unissued shares to a number which would be insufficient
for the exercise of other similar Options or would prevent the use of the
Company's authorized but unissued shares for other corporate purpose, the
exercise of the Option shall be postponed until sufficient authorized but
unissued shares are available. IN WITNESS WHEREOF, Corporation has caused the
Agreement to be executed by its duly authorized officer, and Optionee has
executed this agreement as of the date first above written.
CORPORATION: . Terra Systems, Inc
By: ________________________
Its: _______________________________
OPTIONEE
By: __________________________________________________
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