Exhibit 10.1
 
THIS STOCK OPTION SHALL BE VOID AFTER 5:00 P.M. EASTERN TIME (U.S.) ON THE
SEVENTH ANNIVERSARY OF THE DATE HEREOF (the “EXPIRATION DATE”).

STOCK OPTION TO PURCHASE 1,450,000 SHARES OF
COMMON STOCK, PAR VALUE $0.001 PER SHARE OF
TRACEGUARD TECHNOLOGIES, INC.

For VALUE RECEIVED, TraceGuard Technologies, Inc., a Nevada corporation
(“Company”), is entitled to purchase, subject to the provisions of this Stock
Option, from Dr. Fredy Ornath (“Ornath”), at any time not later than 5:00 P.M.,
Eastern time (U.S.), on the Expiration Date (as defined above) but subject to
the vesting schedule described below, at an exercise price per share equal to US
$0.35 (the exercise price in effect being herein called the “Option Price”),
1,450,000 shares (“Option Shares”) of the common stock, par value $0.001 per
share (“Common Stock”) of the Company. The number of Option Shares purchasable
upon exercise of this Stock Option and the Option Price shall be subject to
adjustment from time to time as described herein.

Section 1. Transfers. This Stock Option may not be transferred or assigned by
the Company.
 
Section 2. Exercise of Stock Option. (a) Subject to the provisions hereof, the
Company may exercise this Stock Option at any time prior to its expiration upon
surrender of this Stock Option, together with delivery of the duly executed
Stock Option exercise form attached hereto as Appendix A (the “Exercise
Agreement”) and payment by cash, certified check or wire transfer of funds, for
the aggregate Option Price for that number of Option Shares then being
purchased, to Ornath during normal business hours on any business day.
Certificates representing the Option Shares together with duly executed stock
powers with respect to the Option Shares, shall be delivered by Ornath to the
Company to be held in escrow, within thirty (30) days of the date hereof.

(b) This Option shall be exercisable in accordance with the following vesting
schedule: (i) at any time on or after September 1, 2007, up to 290,000 Option
Shares; (ii) at any time on or after April 1, 2008, up to an additional 300,000
Option Shares; (iii) at any time on or after July 1, 2008, up to an additional
135,000 Option Shares; and (iv) at any time on or after April 1, 2009, up to an
additional 725,000 Option Shares; provided, however, that this Stock Option may
only be exercised if, and to the extent that, that certain stock option between
the Company and Ganani (the “Ganani Option”), dated as of the date hereof, is
exercised by Ganani; and further, provided, that this Stock Option shall
terminate immediately upon termination of the Ganani Option with respect to the
Option Shares which remain subject to vesting as set forth in this Section 2(b).

(c) The vesting provisions of this Section 2 shall apply to any securities
received in replacement of the Option Shares, as a stock dividend or as a result
of any stock split, recapitalization, merger, reorganization, exchange or the
like and all new, substituted or additional securities or property distributed
to Ornath by reason of Ornath’s ownership of the Option Shares (such securities
or property shall be included in the definition of Option Shares for the
purposes hereof).

Section 3. Payment of Taxes. Each of Ornath and the Company shall be responsible
for their respective tax obligations arising out of the transactions
contemplated by this Stock Option.
 

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Section 4. Mutilated or Missing Stock Option. In case this Stock Option shall be
mutilated, lost, stolen, or destroyed, Ornath shall issue in exchange and
substitution of and upon cancellation of the mutilated Stock Option, or in lieu
of and substitution for the Stock Option lost, stolen or destroyed, a new Stock
Option of like tenor and for the purchase of a like number of Option Shares, but
only upon receipt of evidence reasonably satisfactory to Ornath of such loss,
theft or destruction of the Stock Option, and with respect to a lost, stolen or
destroyed Stock Option, reasonable indemnity or bond with respect thereto, if
requested by Ornath.

Section 5. Representations of Ornath. Ornath represents to the Company that (i)
he is the sole record and beneficial owners of the Option Shares and has good
and marketable title to the Option Shares, (ii) except expressly provided
herein, the Option Shares are not, and will not be, subject to any mortgage,
pledge, lien, charge, security interest, encumbrance, restrictive lease,
license, easement, liability or adverse claim of any nature whatsoever, direct
or indirect, whether accrued, absolute, contingent or otherwise, and (iii) all
Option Shares have been, and will be, at the time of the exercise of this Stock
Option, duly authorized, validly issued, fully paid and non-assessable shares of
Common Stock of the Company.

Section 6. Adjustments. Subject and pursuant to the provisions of this Section
6, the Option Price and number of Option Shares subject to this Stock Option
shall be subject to adjustment from time to time as set forth hereinafter.

(a) If the Company shall, at any time or from time to time while this Stock
Option is outstanding, pay a dividend or make a distribution on its Common Stock
in shares of Common Stock, subdivide its outstanding shares of Common Stock into
a greater number of shares or combine its outstanding shares of Common Stock
into a smaller number of shares, then the number of Option Shares purchasable
upon exercise of the Stock Option immediately prior to the date upon which such
change shall become effective, shall be adjusted so that the Company thereafter
exercising the Stock Option shall be entitled to receive the number of shares of
Common Stock which, if the Stock Option had been exercised immediately prior to
such event, (i) the Company would have owned upon such exercise and been
entitled to receive by virtue of such dividend, distribution or subdivision, or
(ii) in the case of a combination, such number of shares into which the number
of shares the Company would have owned upon such exercise would have been
reduced to as a result of such combination. Whenever the number of shares of
Common Stock purchasable upon exercise of this Stock Option is adjusted as
provided in this Section 6(a), then the Option Price shall also be adjusted by
multiplying the Option Price in effect immediately prior to such adjustment, by
a fraction, the numerator of which shall equal to the number of shares subject
to this Stock Option immediately prior to such adjustment, and the denominator
of which shall equal to the number of shares subject to this Stock Option
immediately after such adjustment. Such adjustments shall be made successively
whenever any event listed above shall occur.

(b) Subject to Section 6(c) below, in case the Company shall reorganize its
capital, reclassify its capital stock (other than as provided in Section 6(a)),
recapitalize, consolidate with, or merge with or into, another corporation, and
pursuant to the terms of such reorganization, reclassification,
recapitalization, merger, or consolidation, stock, securities, property or other
assets is to be received by or distributed to the holders of Common Stock in
lieu of or with respect to shares of Common Stock, then in each such case, the
Company, upon exercise of this Stock Option, shall be entitled to receive in
lieu of the Option Shares or other securities and property receivable upon
exercise of this Stock Option prior to the consummation of such reorganization,
reclassification, recapitalization, consolidation or merger, or if the Common
Stock is not changed, exchanged or extinguished in such transaction then in
addition to the rights specified herein, the stock or other securities, property
or assets to which the Company would have been entitled to had it exercised this
Stock Option immediately prior to such consumation, by a holder of the number of
shares of Common Stock for which this Stock Option is exercisable immediately
prior to such event. Subject to Section 6(c) below the foregoing provisions of
this Section 6(b) shall similarly apply to successive reorganizations,
reclassifications, recapitalizations, mergers or consolidations.
 

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(c) In the event of (i) a proposed dissolution or liquidation of the Company, or
(ii) a proposed sale of all or substantially all of the assets or outstanding
equity of the Company, or (iii) the merger or consolidation of the Company with
or into another entity or any other corporate reorganization if persons who were
not shareholders of the Company immediately prior to such merger, consolidation
or other reorganization own immediately after such merger, consolidation or
other reorganization fifty percent (50%) or more of the voting power of the
outstanding securities of each of (A) the continuing or surviving entity and
(B) any direct or indirect parent corporation of such continuing or surviving
entity, Company must, if at all, exercise this Stock Option at least 5 days
prior to the consummation of such event, but only to the extent that Ganani
exercises or has exercised the Ganani Option, which exercise may be conditioned
upon the consummation of such event, and this Stock Option shall terminate upon
consummation of such event. In such an event, the vesting of this Stock Option
shall accelerate and the entire Stock Option shall be exercisable in full
immediately prior to the consummation of such event, but conditioned upon the
event occurring.

(d) An adjustment to the Option Price or the number or type of securities
issuable upon exercise of this Stock Option shall become effective immediately
after the payment date in the case of each dividend or distribution and
immediately after the effective date of each other event which requires an
adjustment.

(e) In the event that, as a result of an adjustment made pursuant to this
Section 6, the Company shall become entitled to receive any shares of capital
stock of the Company other than shares of Common Stock, the number of such other
shares so receivable upon exercise of this Stock Option shall be subject
thereafter to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Option Shares
contained in this Stock Option.

(f) In the event of an adjustment made pursuant to this Section 6, Ornath shall
cause the appropriate certificates, stock, securities, property or assets to be
delivered to the Company, together with any required instruments of transfer, to
be held in escrow in the same manner as the Option Shares.

Section 7. Benefits. Nothing in this Stock Option shall be construed to give any
person, firm or corporation (other than the Company and Ornath) any legal or
equitable right, remedy or claim, it being agreed that this Stock Option shall
be for the sole and exclusive benefit of the Company and Ornath.

Section 8. Notices to Ornath. Upon the happening of any event requiring an
adjustment of the Option Price, the Company shall promptly give written notice
thereof to Ornath at the address set forth herein, stating the adjusted Option
Price and the adjusted number of Option Shares resulting from such event and
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based. Failure to give such notice or any defect
therein shall not affect the legality or validity of the event giving rise to,
or the, subject adjustment.

Section 9. Securities Act of 1933. Ornath and the Company acknowledge and agree
that the issuance of this Stock Option and the purchase, if any, of the Option
Shares, upon exercise, is exempt from registration under the Securities Act of
1933, as amended by virtue of Section 4(1) of such Act.
 
Section 10. Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Section prior to 6:30 p.m. (New York City time) on a business
day, (b) the next business day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number specified in
this Section on a day that is not a business day or later than 6:30 p.m. (New
York City time) on any business day, (c) the business day following the date of
mailing, if sent by U.S. nationally recognized overnight courier service, or
(d) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as follows:
 

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If to the Company:
TraceGuard Technologies, Inc.
 
#6 Ravnitzki Street
 
Petach Tikva 49277 Israel
 
Fax No.: 011-972-3-542-3710
 
Attn: David Ben-Yair, CFO
   
With a copy to:
Moses & Singer LLP
 
The Chrysler Building
 
405 Lexington Avenue
 
New York, NY 10174-1299
 
Fax No.: 917-206-4381
 
Attn: Allan Grauberd, Esq.

 
If to Ornath: 
 
or such other address or facsimile number as may be designated in writing
hereafter, in the same manner, by such Person.
 
Section 11. Successors. All the covenants and provisions hereof by or for the
benefit of the Optionholder shall bind and inure to the benefit of its
respective successors and assigns hereunder.

Section 12. Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Stock Option shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Nevada, without regard to the principles of conflicts of law thereof to the
extent such principles would require the application of the laws of another
jurisdiction.

Section 13. Amendment; Waiver. Any term of this Stock Option may be amended or
waived upon the written consent of the Company and Ornath.

Section 14. Section Headings. The section headings in this Stock Option are for
the convenience of the Company and Ornath and in no way alter, modify, amend,
limit or restrict the provisions hereof.
 

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IN WITNESS WHEREOF, Ornath has caused this Stock Option to be duly executed, as
of the 29th day of May, 2007.

       
   
   
  By:   /s/ Dr. Fredy Ornath  

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Name: Dr. Fredy Ornath

 
The Company hereby accepts and agrees to the terms and conditions of this Stock
Option Agreement.
 

        TRACEGUARD TECHNOLOGIES, INC.  
   
   
  Date: May 29, 2007 By:   /s/ Dr. Ehud Ganani  

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Name: Dr. Ehud Ganini   Title: Chief Executive Officer

 

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APPENDIX A
STOCK OPTION EXERCISE FORM

TO: Dr. Fredy Ornath:

The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Stock Option (“Stock Option”) for, and to purchase
thereunder by the payment of the Option Price and surrender of the Stock Option,
                         shares of Common Stock (“Option Shares”) provided for
therein.

and, if the number of Option Shares shall not be all the Option Shares
purchasable upon exercise of the Stock Option, that a new Stock Option for the
balance of the Option Shares purchasable upon exercise of this Stock Option be
registered in the name of TraceGuard Technologies, Inc. (the “Company”) and
delivered to the address stated below.
 

      Dated: ___________________, ____ TRACEGUARD TECHNOLOGIES, INC.  
   
   
  By:    

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Name (please print)          

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Address

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