EXHIBIT 10.5

FORM OF NON-STATUTORY STOCK OPTION AGREEMENT

          This STOCK OPTION AGREEMENT (“Agreement”) dated [________], (“Grant
Date”) is between INTERNATIONAL FUEL TECHNOLOGY, INC. (the “Company”), a Nevada
corporation, and [Optionee], a(n) [employee and/or (non-employee) Director or
non-employee Consultant] of the Company (the “Optionee”).

          In consideration of the foregoing and of the mutual undertakings set
forth in this Agreement, the Company and the Optionee agree as follows:

SECTION 1. Grant of Option

          The Company hereby grants (the “Grant”) to the Optionee an option to
purchase purchase [___________] shares of Common Stock of the Company at a
purchase price per share according to the below schedule (herein called
“Option”).

          The underlying shares of Common Stock to be issued pursuant to this
Agreement have not been registered under the Securities Act of 1933, as amended
(the “Securities Act”), or any state securities laws, and may not be sold or
transferred or offered for sale or transfer unless a registration statement
under the Securities Act and other applicable securities laws with respect to
such securities is then in effect, or in the opinion of counsel, such
registration under the Securities Act and other applicable securities laws is
not required.

          The Optionee and the Company agree that in order for the Option Grant
to be legally binding, both the Optionee and the Company must sign this
Agreement.

          Exercisability:

          1.1 The Option shall vest and become exercisable as follows:

 

 

 

[__________] shares at an exercise price of $[_________] with [vesting criteria
and/or vesting date].

          1.2 The Option may be partially exercised from time to time within the
limitations on exercisability set forth in Section 2.

          1.3 The Option shall expire and cease to be exercisable after
[expiration date].

SECTION 2. Method of Exercise

          The Option or any part thereof may be exercised by (i) Optionee giving
written notice to the Company, which notice shall state the election to exercise
the Option and the number of whole shares of Common Stock with respect to which
the Option is being exercised and (ii) Optionee providing the Company with full
payment for the aggregate exercise price for the shares being purchased. The
Optionee may also exercise any part of the Option in a cashless transaction with
a registered broker-dealer acting on behalf of the Optionee.

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SECTION 3. Termination of Option

          3.1 Unvested Options. If the Optionee ceases to be an Employee or
Consultant of the Company due to termination by the Company For Cause or
termination by the Optionee without Good Reason, all non-vested Options will
automatically expire. If termination of employment by the Company is not For
Cause or termination by Optionee is for Good Reason (other than Optionee’s
Disability or death), all Options vest immediately. Such vested Options will
then expire according to the provisions set forth in Section 3.2 below. Upon the
Optionee’s death or Disability, all non-vested Options shall terminate.

          3.2 Vested Options. In the event the Optionee of a Non-statutory Stock
Option ceases to be an Employee, Consultant or Director of the Company for any
reason, the Optionee (or in the event of the Optionee’s death, a legal
representative of the Optionee) may exercise all vested Options (to the extent
that the Optionee was entitled to exercise such Options as of the date of
termination) within the expiration of the term of the Options as set forth in
the Option Agreement. If, after termination, the Optionee does not exercise the
Options within the time specified herein, the Options shall terminate.

          3.3 References herein to an individual’s “Employment” shall include
any and all periods during which such individual (i) is a common law employee of
the Company, or (ii) serves as an officer or director of or consultant to the
Company, but is not otherwise a common law employee of the Company. The Optionee
shall be deemed to have terminated employment when the Optionee completely
ceases to be employed (within the meaning of the preceding sentence) by the
Company. The Board of Directors (“Board”) of the Company may in its discretion
determine (i) whether any leave of absence constitutes a termination of
employment within the meaning of this Agreement, and (ii) the impact, if any, of
any such leave of absence on the Option granted under this Agreement.

          3.4 “Disability” means that (i) the Optionee has been unable, for a
period of one hundred and eighty (180) days to perform his duties, as a result
of physical or mental illness or injury, and (ii) a physician selected by the
Company or its insurers, and acceptable to the Optionee or the Optionee’s
guardian or legal representative, has determined that the Optionee’s incapacity
is total and permanent.

          3.5 Termination of employment by the Company “For Cause” shall mean:

 

 

 

 

A.

any fraud, embezzlement or other dishonesty of the Optionee that materially and
adversely affects the Company’s business or reputation; or

 

 

 

 

B.

disclosure to any party outside the Company any of the Confidential Information
as hereinafter defined; or

 

 

 

 

C.

the refusal by Optionee to perform his material duties and obligations
hereunder; or Optionee’s willful and intentional misconduct in the performance
of his material duties and obligations.

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          3.6 Termination of “employment” by the Optionee for “Good Reason”
means:

 

 

 

 

A.

the assignment to the Employee of any duties inconsistent in any respect with
employment agreements and/or consulting agreements (if applicable), other than
actions that are not taken in bad faith and are remedied by the Company within
fifteen (15) days after receipt of notice thereof from the Optionee;

 

 

 

 

B.

any failure by the Company to comply with any provision of with employment
agreements and/or consulting agreements (if applicable), other than failures
that are not taken in bad faith and are remedied by the Company within fifteen
(15) days after receipt of notice thereof from the Optionee; or

 

 

 

 

C.

the occurrence of a Change in Control of the Company.

SECTION 4. Non-assignability

          No right granted to the Optionee under this Agreement shall be
assignable or transferable without the prior written consent of the Company. The
Company shall not unreasonably withhold such consent.

SECTION 5. Withholding Taxes

          Whenever shares of Common Stock are to be delivered upon exercise of
the Option, the Company shall be entitled to require as a condition of delivery
that the Optionee remit an amount sufficient to satisfy all federal, state and
other governmental withholding tax requirements related thereto.

SECTION 6. Adjustments on Changes in Capitalization

          In the event of any increase or decrease, after the date of this
Agreement, in the number of issued shares of Common Stock resulting from the
subdivision or combination of shares of Common Stock or other capital
adjustments, or the payment of a stock dividend, or other increase or decrease
in such shares affected without receipt of consideration by the Company, the
number of shares subject to the Option and the purchase price set forth in
Section 1.1 shall be proportionately adjusted, provided, however, that any
Option to purchase fractional shares resulting from any such adjustment shall be
eliminated.

SECTION 7. Change of Control

          In the event that the Company undergoes a Change of Control, then all
outstanding Options will vest immediately and be exercisable for a period of one
year from the date upon which the Change of Control occurs.

          “Change of Control” shall mean (i) a merger or consolidation of the
Company with or into another entity, or the exchange of securities (other than a
merger or consolidation) by the holders of the voting securities of the Company
and the holders of voting securities of any other entity, in which the
shareholders of the Company immediately before the transaction do not own

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50% or more of the combined voting power of the voting securities of the
surviving entity or its parent immediately after the transaction; (ii) a
dissolution of the Company; (iii) a transfer of all or substantially all of the
assets of the Company in one transaction or a series of transactions occurring
within a twelve month period to a “Person” or “Group” (as defined below); (iv) a
transaction or a series of transactions occurring in which a Person or Group
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing more than 50% of the combined voting power of the Company’s
then outstanding securities; or (v) a majority of the members of the Company’s
Board is replaced during any twelve month period by directors whose appointment
or election is not endorsed by a majority of the Company’s Board prior to the
date of the appointment or election; provided, however, that a “Change of
Control” shall not be deemed to have occurred if the ownership of 50% or more of
the combined voting power of the surviving corporation, asset transferee, or
Company (as the case may be), after giving effect to the transaction or series
of transactions, is directly or indirectly held by (A) a trustee or other
fiduciary under an employee benefit plan maintained by the Company or any
Subsidiary, (B) one or more of the “executive officers” of the Company that held
such positions prior to the transaction or series of transactions, or any
entity, Person or Group under their control, or (C) one or more members of
“senior management” as designated by the Chief Executive Officer from time to
time, that held such positions prior to the transaction or series of
transactions, or any entity, Person or Group under their control. As used
herein, “Person” and “Group” shall have the meanings set forth in Sections
13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(“1934 Act”), and “executive officer” shall have the meaning set forth in Rule
3b-7 promulgated under the 1934 Act. “Group” shall further be determined by the
Plan Administrator to constitute “more than one person acting as a group.”

SECTION 8. Right of Discharge Reserved

          Nothing in this Agreement shall confer upon the Optionee the right to
continue in the employment, or service of the Company, or affect any right which
the Company may have to terminate the employment or service of the Optionee.

SECTION 9. Piggyback Registration Rights

          If the Company at any time proposes to register any of its equity
securities under the Securities Act, and the registration form to be used may be
used for the registration of any registrable securities (“Registrable
Securities”), it will at such time give notice to all holders of Registrable
Securities of its intention to do so and, upon the written request of any holder
of Registrable Securities given to the Company within 5 days after the Company
has given any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such holder and the intended method of
disposition thereof), the Company will use commercially reasonable efforts to
effect the registration under the Securities Act of all Registrable Securities
that the Company has been so requested to register by the holders thereof, to
the extent required to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Securities so to be registered,
provided that:

 

 

 

 

•

If, at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company’s Board of Directors (the
“Board”) shall determine, in its reasonable discretion, not to register such
securities, the Company may, at its

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election, give notice of such determination to each holder of Registrable
Securities that was previously notified of such registration and, thereupon,
shall not register any Registrable Securities in connection with such
registration; and

 

 

 

 

•

If the Company shall be advised in writing by the managing underwriters (or, in
connection with an offering which is not underwritten, by an investment banker)
that in their or its opinion the number of securities requested to be included
in such registration exceeds the largest number that can be sold in an orderly
manner in such offering without adversely affecting the price range of such
offering, the Company shall include in such registration statement to the extent
of the number which the Company is so advised can be sold in such offering
without material adverse effect, first, the securities, if any, being sold by
the Company, and second, the Registrable Securities, on a pro rata basis (based
on the number of shares of Registrable Securities requested to be so included in
such registration.

SECTION 10. No Rights as a Stockholder

          The Optionee shall not have any rights as a stockholder with respect
to any shares subject to the Option until the date of the issuance of a stock
certificate to Optionee for such shares. Except for adjustments made pursuant to
Section 6, no adjustment shall be made for dividends, distributions or other
rights (whether ordinary or extraordinary, and whether in cash, securities or
other property) for which the record date is prior to the date such stock
certificate is issued.

SECTION 11. Definition of Common Stock

          The term “Common Stock” as used in this Agreement means the shares of
voting common stock of the Company, par value $.01 per share, as constituted on
the date of this Agreement and any other shares into which such common stock
shall thereafter be changed by reason of recapitalization, merger,
consolidation, split-up, combination, exchange of shares or the like.

SECTION 12. Section Headings

          The section headings contained herein are for the purpose of
convenience only and are not intended to define or limit the contents of said
sections.

SECTION 13. Notices

          Any notice to be given to the Company or the Committee hereunder shall
be in writing and shall be addressed to the Company at 7777 Bonhomme Avenue,
Suite 1920, St. Louis, Missouri 63105, or at such other address as the Company
may hereafter designate to the Optionee by notice as provided herein. Any notice
to be given to the Optionee hereunder shall be addressed to the Optionee at the
address set forth beneath Optionee’s signature hereto, or at such other address
as the Optionee may hereafter designate to the Company by notice as provided
herein. Notices hereunder shall be deemed to have been duly given when
personally delivered or mailed by registered or certified mail to the party
entitled to receive the same.

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SECTION 14. Successors and Assigns

          This Agreement shall be binding upon and inure to the benefit of the
parties hereto and the successors and assigns of the Company, the heirs and
personal representatives of the Optionee.

SECTION 15. Modification Of Agreement

          At any time and from time to time the Company may modify, extend or
renew the Option; provided that no such modification, extension or renewal may
(i) impair the Optionee’s rights under the Option in any respect (without the
Optionee’s consent) or (ii) conflict with applicable rules under the Securities
Act of 1934.

SECTION 16. Governing Law

          This Agreement shall be governed in all respects, including as to
validity, interpretation and effects, by the laws of the State of Missouri,
without giving effect to its principles or rules of conflict of laws to the
extent such principles or rules would require or permit the application of the
laws of another jurisdiction. The parties hereto hereby irrevocably submit to
the exclusive jurisdiction of the federal courts of the United States of
America, in each case located in the State of Missouri, City and County of Saint
Louis, solely in respect to any dispute or lawsuit arising out of the
interpretation and enforcement of the provisions of this Agreement and any and
all documents referred to in this Agreement, and hereby waive, and agree not to
assert, as a defense in any action, suit or proceeding for the interpretation or
enforcement hereof, that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in such courts or that the
venue thereof may not be appropriate or that this Agreement may not be enforced
in or by such courts, and the parties hereto irrevocably agree that all claims
with respect to such action or proceeding shall be heard and determined in such
a Missouri federal court.

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          IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.

 

 

 

INTERNATIONAL FUEL TECHNOLOGY, INC.

 

 

 

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Date:

 

 

 

OPTIONEE

 

 

 

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[Optionee Name]

 

Address:

 

 

 

Date:

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