Exhibit 10.4


FORM OF INCENTIVE STOCK OPTION
AGREEMENT
METHES ENERGIES
INTERNATIONAL LTD.


INCENTIVE
STOCK OPTION AGREEMENT


          This
Agreement is between Methes Energies International Ltd., a Nevada corporation
(the “Company”), and __________________________ (the “Optionee”), pursuant to
the Company’s Amended and Restated 2008 Directors, Officers and Employees Stock
Option Plan (the “Plan”). The Company and the Optionee agree as follows:


          1.
Option
Grant. The Company grants to the Optionee on the terms and
conditions of this Agreement the right and the option (the “Option”) to
purchase all or any part of _______ shares of the Company’s Common Stock at a
purchase price of $______ per share. The terms and conditions of the Option
grant set forth in attached Exhibit A are incorporated into and made a part of
this Agreement. The Option is intended to be an Incentive Stock Option as
defined in Section 422 of the Internal Revenue Code of 1986, as amended.


          2.
Grant
Date; Expiration Date. The Grant Date for this Option is
_____________. The Option shall continue in effect until the tenth anniversary
of the Grant Date (the “Expiration Date”) unless earlier terminated as provided
in Sections 2, 7 or 8 of Exhibit A. The Option shall not be exercisable on or
after the Expiration Date.


          3.
Exercise
of Option. The Vesting Reference Date of this Option is
____________. The Option will become exercisable in accordance with Section 1
of Exhibit A.


          The
parties have executed this Agreement in duplicate as of the Grant Date.


	
  

 	
  

 	
  

 	
  

 
	
 Methes Energies International Ltd.

 	
  

 	
 Optionee

 
	
  

 	
  

 	
  

 
	
 By:

 	
  

 	
  

 	
  

 
	
  

 	

 


 	
  

 	

 


 
	
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 [print name]

 
	
  

 	
  

 	
  

 
	

 


 	
  

 	

 


 
	
 [address]

 	
  

 	
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Methes
Energies International Ltd.


Exhibit A
to
Stock
Option Agreement


          1.
Time of
Exercise of Option.


                    1.1
Vesting
Schedule. Until it expires or is terminated as provided in Sections
2, 7 or 8 of this Exhibit A, this Option may be exercised from time to time to
purchase whole shares up to the following limits:


	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
 Months
 After Vesting

 Reference Date

 	
  

 	
 Percentage
 Exercisable

 	
  

 
	
  

 	

 


 	
  

 	

 


 	
  

 
	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 	
  

 
	
  

 	
  

 	
 Less than 3

 	
  

 	
 0%

 	
  

 	
  

 
	
  

 	
  

 	
 3

 	
  

 	
 12.5%

 	
  

 	
  

 
	
  

 	
  

 	
 6

 	
  

 	
 25%

 	
  

 	
  

 
	
  

 	
  

 	
 9

 	
  

 	
 37.5%

 	
  

 	
  

 
	
  

 	
  

 	
 12

 	
  

 	
 50%

 	
  

 	
  

 
	
  

 	
  

 	
 15

 	
  

 	
 62.5%

 	
  

 	
  

 
	
  

 	
  

 	
 18

 	
  

 	
 75%

 	
  

 	
  

 
	
  

 	
  

 	
 21

 	
  

 	
 87.5%

 	
  

 	
  

 
	
  

 	
  

 	
 24 or more

 	
  

 	
 100%

 	
  

 	
  

 



                    1.2
Special
Acceleration Of Option.


                    (a)
This option, to the extent outstanding at the time of a Corporate Transaction
but not otherwise fully exercisable, shall automatically accelerate so that
this option shall, immediately prior to the effective date of such Corporate
Transaction, become exercisable for all of the Option shares at the time
subject to this option and may be exercised for any or all of those Option
shares as fully vested shares of Common Stock. No such acceleration of this
option shall occur, however, if and to the extent: (i) this option is, in
connection with the Corporate Transaction, to be assumed by the successor
company (or parent thereof) or (ii) this option is to be replaced with a cash
incentive program of the successor company which preserves the spread existing
at the time of the Corporate Transaction on the Option shares for which this
option is not otherwise at that time exercisable (the excess of the Fair Market
Value of those Option shares over the aggregate Exercise Price payable for such
shares) and provides for subsequent payout in accordance with the same option
exercise/vesting schedule set forth in this Agreement.


                    (b)
Immediately following the Corporate Transaction, this option shall terminate
and cease to be outstanding, except to the extent assumed by the successor
company (or parent thereof) in connection with the Corporate Transaction.


                    (c)
If this option is assumed in connection with a Corporate Transaction, then this
option shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to Optionee in consummation of such Corporate Transaction had the
option been exercised immediately prior to such Corporate Transaction, and
appropriate adjustments shall also be made to the Exercise Price, PROVIDED the
aggregate Exercise Price shall remain the same. (d) This Agreement shall not in
any way affect the right of the Company to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.





                    (d)
Certain Definitions.


                    (i)
“Corporate Transaction” shall mean either of the following stockholder-approved
transactions to which the Company is a party: (i) a merger or consolidation in
which securities possessing more than fifty percent (50%) of the total combined
voting power of the Company’s outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or (ii) the sale, transfer or other
disposition of all or substantially all of the Company’s assets in complete
liquidation or dissolution of the Company.


                    (ii)
“Exercise Price” shall mean the exercise price per Option Share as specified in
this Agreement.


                    (iii)
“Fair Market Value” per share of Common Stock on any relevant date shall be the
closing price of the Common Stock last reported before the time in question if
the Common Stock is publicly traded, or another value of the Common Stock as
specified by the Board of Directors.


                    (iv)
“Option Shares” shall mean the number of shares of Common Stock subject to the
option as specified in this Agreement.


          2.
Termination
of Employment or Service.


                    2.1
General
Rule. Except as provided in this Section 2, the Option may not be
exercised unless at the time of exercise the Optionee is employed by or in the
service of the Company and shall have been so employed or provided such service
continuously since the Grant Date. For purposes of this Exhibit A, the Optionee
is considered to be employed by or in the service of the Company if the
Optionee is employed by or in the service of the Company or any parent or
subsidiary of the Company (an “Employer”).


                    2.2
Termination
Generally. If the Optionee’s employment or service with the Company
terminates for any reason other than because of total disability or death as
provided in Sections 2.3 or 2.4, the Option may be exercised at any time before
the Expiration Date or the expiration of 90 days after the date of
termination, whichever is the shorter period, but only if and to the extent the
Optionee was entitled to exercise the Option at the date of termination,
provided however, if the Optionee’s is terminated for Misconduct, then this
option shall terminate immediately and cease to remain outstanding on the date
of termination. “Misconduct” shall mean the commission of any act of fraud,
embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by
Optionee of confidential information or trade secrets of the Company (or any
parent or subsidiary), or any other intentional misconduct by Optionee
adversely affecting the business or affairs of the Company (or any parent or
subsidiary) in a material manner. The foregoing definition shall not be deemed
to be inclusive of all the acts or omissions which the Company (or any parent
or subsidiary) may consider as grounds for the dismissal or discharge of
Optionee or any other individual in the service of the Company (or any parent
or subsidiary).


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                    2.3
Termination
Because of Total Disability. If the Optionee’s employment or service
with the Company terminates because of total disability, the Option may be
exercised at any time before the Expiration Date or before the date 12 months
after the date of termination, whichever is the shorter period, but only if and
to the extent the Optionee was entitled to exercise the Option at the date of
termination. The term “total disability” means a medically determinable
mental or physical impairment that is expected to result in death or has lasted
or is expected to last for a continuous period of 12 months or more and
that, in the opinion of the Company and two independent physicians, causes the
Optionee to be unable to perform duties as an employee, director, officer or
consultant of the Employer and unable to be engaged in any substantial gainful
activity. Total disability shall be deemed to have occurred on the first day
after the two independent physicians have furnished their written opinion of
total disability to the Company and the Company has reached an opinion of total
disability.


                    2.4
Termination
Because of Death. If the Optionee dies while employed by or in the
service of the Company, the Option may be exercised at any time before the
Expiration Date or before the date 12 months after the date of death,
whichever is the shorter period, but only if and to the extent the Optionee was
entitled to exercise the Option at the date of death and only by the person or
persons to whom the Optionee’s rights under the Option shall pass by the
Optionee’s will or by the laws of descent and distribution of the state or
country of domicile at the time of death.


                    2.5
Leave of
Absence. Absence on leave approved by the Employer or on account of
illness or disability shall not be deemed a termination or interruption of
employment or service. Vesting of the Option shall continue during a medical,
family or military leave of absence, whether paid or unpaid, and vesting of the
Option shall be suspended during any other unpaid leave of absence.


                    2.6
Failure
to Exercise Option. To the extent that following termination of
employment or service, the Option is not exercised within the applicable
periods described above, all further rights to purchase shares pursuant to the
Option shall cease and terminate.


          3.
Method of
Exercise of Option. The Option may be exercised only by notice in
writing from the Optionee to the Company of the Optionee’s binding commitment
to purchase shares, specifying the number of shares the Optionee desires to
purchase under the Option and the date on which the Optionee agrees to complete
the transaction, which may not be more than 30 days after delivery of the
notice, and, if required to comply with the Securities Act of 1933, containing
a representation that it is the Optionee’s intention to acquire the shares for
investment and not with a view to distribution. On or before the date specified
for completion of the purchase, the Optionee must pay the Company the full
purchase price of those shares in cash or by check, or in whole or in part in
Common Stock of the Company valued at fair market value provided such Common
Stock has been previously acquired and held by the Optionee for at least six
months. The fair market value of Common Stock provided in payment of the
purchase price shall be the closing price of the Common Stock last reported
before the time payment in Common Stock is made or, if earlier, committed to be
made, if the Common Stock is publicly traded, or another value of the Common
Stock as specified by the Company. No shares shall be issued until full
payment for the shares has been made, including all amounts owed for tax
withholding. The Optionee shall, immediately upon notification of the amount
due, if any, pay to the Company in cash or by check amounts necessary to
satisfy any applicable federal, state and local tax withholding requirements.
If additional withholding is or becomes required (as a result of exercise
of the Option or as a result of disposition of shares acquired pursuant to
exercise of the Option) beyond any amount deposited before delivery of the
certificates, the Optionee shall pay such amount to the Company, in cash or by
check, on demand. If the Optionee fails to pay the amount demanded, the Company
or the Employer may withhold that amount from other amounts payable to the
Optionee, including salary, subject to applicable law.


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          4.
Disqualifying
Disposition. If the Option is an Incentive Stock Option and if
within two years after the Grant Date or within 12 months after the
exercise of the Option, the Optionee sells or otherwise disposes of Common
Stock acquired on exercise of the Option, the Optionee shall within
30 days of the sale or disposition notify the Company in writing of
(i) the date of the sale or disposition, (ii) the amount realized on
the sale or disposition and (iii) the nature of the disposition (e.g.,
sale, gift, etc.).


          5.
Nontransferability.
The Option is nonassignable and nontransferable by the Optionee, either
voluntarily or by operation of law, except by will or by the laws of descent
and distribution of the state or country of the Optionee’s domicile at the time
of death, and during the Optionee’s lifetime, the Option is exercisable only by
the Optionee.


          6.
Stock
Splits, Stock Dividends. If the outstanding Common Stock of the
Company is hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company by reason
of any stock split, combination of shares, dividend payable in shares,
recapitalization or reclassification, appropriate adjustment shall be made by
the Company in (i) the number and kind of shares subject to the Option, or the
unexercised portion thereof, and (ii) the Option price per share, so that the
Optionee’s proportionate interest before and after the occurrence of the event
is maintained. Notwithstanding the foregoing, the Company shall have no
obligation to effect any adjustment that would or might result in the issuance
of fractional shares, and any fractional shares resulting from any adjustment
may be disregarded or provided for in any manner determined by the Company.
Any such adjustments made by the Company shall be conclusive.


          7.
Mergers,
Reorganizations, Etc. In the event of a merger, consolidation, plan
of exchange, acquisition of property or stock, split-up, split-off, spin-off,
reorganization or liquidation to which the Company is a party or any sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company (each,
a “Transaction”), the Company shall, in its sole discretion and to the extent
possible under the structure of the Transaction, select one of the following
alternatives for treating the Option:


                    7.1
The Option shall remain in effect in accordance with its terms.


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                    7.2
The Option shall be converted into an option to purchase stock in one or more
of the corporations, including the Company, that are the surviving or acquiring
corporations in the Transaction. The amount, type of securities subject thereto
and exercise price of the converted Options shall be determined by the Company,
taking into account the relative values of the companies involved in the
Transaction and the exchange rate, if any, used in determining shares of the
surviving corporation(s) to be held by holders of shares of the Company
following the Transaction. The converted Option shall be vested only to the
extent that the vesting requirements relating to the Option have been
satisfied.


                    7.3
The Company shall provide a period of 30 days or less before the
completion of the Transaction during which the Option may be exercised to the
extent then exercisable, and upon the expiration of that period, the Option
shall immediately terminate. The Company may, in its sole discretion,
accelerate the exercisability of the Option so that the Option is exercisable
in full during that period.


          8.
Dissolution.
In the event of the dissolution of the Company, the Company shall provide a
period of 30 days or less before the dissolution of the Company during
which the Option may be exercised to the extent then exercisable, and upon the
expiration of that period, the Option shall immediately terminate. The Company
may, in its sole discretion, accelerate the exercisability of the Option so
that the Option is exercisable in full during that period.


          9.
Conditions
on Obligations. The Company shall not be obligated to issue shares
of Common Stock upon exercise of the Option if the Company is advised by its
legal counsel that such issuance would violate applicable state or federal
laws, including securities laws. The Company will use its best efforts to take
steps required by state or federal law or applicable regulations in connection
with issuance of shares upon exercise of the Option.


          10.
No Right
to Employment or Service. Nothing in the Plan or this Agreement
shall (i) confer upon the Optionee any right to be continued in the employment
of an Employer or interfere in any way with the Employer’s right to terminate
the Optionee’s employment at will at any time, for any reason, with or without
cause, or to decrease the Optionee’s compensation or benefits, or
(ii) confer upon the Optionee any right to be retained or employed by the
Employer or to the continuation, extension, renewal or modification of any
compensation, contract or arrangement with or by the Employer.


          11.
Successors
of Company. This Agreement shall be binding upon and shall inure to
the benefit of any successor of the Company but, except as provided herein, the
Option may not be assigned or otherwise transferred by the Optionee.


          12.
Notices.
Any notices under this Agreement must be in writing and will be effective when
actually delivered or, if mailed, three days after deposit into the United
States mail by registered or certified mail, postage prepaid. Mail shall be
directed to the addresses stated on the face page of this Agreement or to
such address as a party may certify by notice to the other party.


          13.
Rights as
a Shareholder. The
Optionee shall have no rights as a shareholder with respect to any shares of
Common Stock until the date the Optionee becomes the holder or record of those
shares. No adjustment shall be made for dividends or other rights for which the
record date occurs before the date the Optionee becomes the holder of record.


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          14.
Amendments.
The Company may at any time amend this Agreement if the amendment does not
adversely affect the Optionee. Otherwise, this Agreement may not be amended
without the written consent of the Optionee and the Company.


          15.
Governing
Law. This Agreement shall be governed by the laws of the state of
Nevada.


          16.
Complete
Agreement. This Agreement constitutes the entire agreement between
the Optionee and the Company, both oral and written concerning the matters addressed
herein, and all prior agreements or representations concerning the matters
addressed herein, whether written or oral, express or implied, are terminated
and of no further effect.


          17.
Tax
Treatment. The Optionee is encouraged to consult with his or her
attorney to determine the tax treatment of the Options granted to him or her.
The Company has no responsibility whatsoever of any nature for any treatment
the IRS or any state tax authority may apply to the Options. The Company makes
no representations, warranties or covenants regarding the tax status of the
Options granted to the Optionee.


          18.
No
Modification of Grant. The Options that are the subject of this
Agreement were granted to the Optionee on December 5, 2007. The parties to this
Agreement intend this Agreement to memorialize and not to amend or alter the
Agreement with respect to the Options. In the event that a provision of this
Agreement or the Plan would be deemed to be a “modification” in the terms of
the options as defined under Section 424(h) of the Internal Revenue Code of
1986, as amended, such provision shall have effect only to the extent it does
not trigger such “modification” of the terms of the Option.


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