Document:

Search By Headlines.com Corp.: Exhibit 10.1 - Filed by newsfilecorp.com

ACQUISITION AGREEMENT

THIS AGREEMENT is made effective as of the 28th day of
February, 2012.

AMONG:

SEARCH BY HEADLINES.COM CORP.,
a company incorporated pursuant to the laws of the State of Nevada

("SBH")

AND:

SBH ACQUISITION CORP., a
company incorporated pursuant to the laws of the State of Nevada

("Subco")

AND:

NAKED BOXER BRIEF CLOTHING
INC., a company incorporated pursuant to the laws of Canada

("Naked")

WHEREAS:

A.          
SBH and Naked executed a non-binding letter of intent dated January 16, 2012
(the "Letter of Intent"), pursuant to which SBH and Naked agreed, among
other things, to enter into a business combination whereby SBH would acquire all
of the issued and outstanding securities of Naked;

B.          
SBH and Naked have determined that it would be advantageous to complete the
transactions contemplated in the Letter of Intent as and by way of a
three-cornered merger pursuant to which Subco will merge with and into Naked in
accordance with the provisions of this Agreement and the Nevada Revised
Statutes (the "NRS"), with Naked as the surviving corporation (the
"Merger");

C.          
On completion of the Merger: (i) Subco will cease to exist, (ii) the former
securityholders of Naked will receive securities of SBH, and (iii) Naked will
become a wholly-owned subsidiary of SBH;

D.          
In order to facilitate the completion of the Merger, Naked will continue from
the jurisdiction of Canada to the jurisdiction of the State of Nevada prior to,
and as a condition of, the completion of the Merger (the
"Continuance");

E.          
The board of directors of Naked has: (i) determined that the Merger and the
Continuance are in the best interests of its shareholders, and (ii) approved
this Agreement, the Continuance and the Merger; 

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F.          
The boards of directors of each of SBH and Subco have: (i) determined that the
Merger is in the best interests of their respective shareholders, and (ii)
approved this Agreement and the Merger; and

G.          
SBH, Naked and Subco seek to enter into this Agreement to set forth their
respective covenants, representations, warranties and obligations with respect
to the Merger and related transactions; 

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of
the mutual covenants and agreements herein contained and other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged),
the Parties covenant and agree as follows:

ARTICLE 1 
INTERPRETATION

1.1          
Definitions. In this Agreement, the following words and phrases
will have the following meanings:

	 	(a) 	
      "Affiliate" with respect to any specified Person
      at any time, means each Person directly or indirectly, through one or more
      intermediaries, controlling, controlled by or under direct or indirect
      common control with such specified Person at such time;

	 	 	 
	 	(b) 	
      "Agreement" means this Acquisition Agreement, and
      all of the schedules and other documents attached hereto, as the same may
      be amended or supplemented from time to time;

	 	 	 
	 	(c) 	
      "Applicable Laws" means, with respect to any
      Person, any domestic (whether federal, state, territorial, provincial,
      municipal or local) or foreign statute, law, ordinance, rule,
      administrative interpretation, regulation, Order, writ, injunction,
      directive, judgment, decree or other requirement, all as in effect as of
      the date of this Agreement and as of the date of the Closing, of any
      Governmental Body applicable to such Person or any of its Affiliates or
      any of their respective properties, assets, officers, directors,
      employees, consultants or agents (in connection with such officer's,
      director's, employee's, consultant's or agent's activities on behalf of
      such Person or any of its Affiliates), including all Applicable Securities
      Laws, but does not include International Securities Laws;

	 	 	 
	 	(d) 	
      "Applicable Securities Laws" means applicable
      securities laws in all jurisdictions relevant to the issuance of the SBH
      Shares and SBH Warrants to the Naked Shareholders and the Naked
      Warrantholders pursuant to the terms of this Agreement, including: (i) the
      Securities Act (British Columbia) and the regulations made under
      that enactment, (ii) the federal and state securities legislation of the
      United States, including the U.S. Securities Act, as applicable, and (iii)
      any other rules, regulations, instruments and policies adopted by the
      Securities Authorities, each as amended from time to time, but does not
      include International Securities Laws;

	 	 	 
	 	(e) 	
      "Articles of Merger" means the articles of merger
      satisfying the applicable requirements of the NRS to be duly executed by
      Subco and Naked and, as soon as practicable following the Closing, filed
      with the Secretary of State;

	 	 	 
	 	(f) 	
      "Bridge Loan" means the bridge loan in the amount
      of $50,000 provided by SBH to Naked pursuant to the terms of a loan
      agreement between SBH and Naked dated January 16, 2012 and includes any further bridge loans
  that may be provided by SBH to Naked prior to the Closing;

- 3 -

	 	(g) 	
      "Business Day" means a day other than a Saturday,
      Sunday or other day on which commercial banks in British Columbia, Canada
      or California, USA are authorized or required by law to close;

	 	 	 
	 	(h) 	
      "CBCA" means the Canada Business Corporations
      Act;

	 	 	 
	 	(i) 	
      "Charter Documents" means the articles, notice of
      articles, by-laws, articles of incorporation or other constating documents
      of a Party to this Agreement;

	 	 	 
	 	(j) 	
      "Closing" means the closing of the Transaction
      pursuant to the terms of this Agreement on the Closing Date;

	 	 	 
	 	(k) 	
      "Closing Date" means May 31, 2012, or such other
      date as SBH and Naked may mutually agree to in writing, which is intended
      to be same day as the Effective Date;

	 	 	 
	 	(l) 	
      "Continuance" has the meaning set forth in Recital
      D;

	 	 	 
	 	(m) 	
      "Copyrights" means all copyrights, copyrightable
      works and applications for registration thereof, including all rights of
      authorship, use, publication, reproduction, distribution, performance
      transformation, moral rights and rights of ownership of copyrightable
      works, and all rights to register and obtain renewals and extensions of
      registrations, together with all other interests accruing by reason of
      international copyright conventions;

	 	 	 
	 	(n) 	
      "Damages" means all demands, claims, actions,
      causes of action, assessments, Losses, damages, costs, expenses,
      Liabilities, judgments, awards, fines, sanctions, penalties, charges and
      amounts paid in settlement (net of insurance proceeds actually received),
      including: (i) reasonable interest on cash disbursements in respect of any
      of the foregoing, and (ii) reasonable costs, fees and expenses of
      attorneys, accountants and other agents of, or other Persons retained by,
      a Person;

	 	 	 
	 	(o) 	
      "Dissenting Shareholder" means a Naked Shareholder
      who validly exercises the right of dissent available to such Naked
      Shareholder under Part 92A of the NRS in respect of the resolution to be
      considered and passed by a majority of the Naked Shareholders, with
      respect to the Merger, provided such Naked Shareholder has not withdrawn
      or been deemed to have withdrawn such exercise of dissent
rights;

	 	 	 
	 	(p) 	
      "Effective Date" means the date on which the
      Effective Time occurs;

	 	 	 
	 	(q) 	
      "Effective Time" has the meaning set forth in
      Section 2.4;

	 	 	 
	 	(r) 	
      "Encumbrance" means any lien, claim, charge,
      pledge, hypothecation, security interest, mortgage, title retention
      agreement, option or encumbrance of any nature or kind whatsoever, other
      than: (i) statutory liens for Taxes not yet due and payable, and (ii) such
      imperfections of title, easements and encumbrances, if any, that will not
      result in a Material Adverse Effect;

- 4 -

	 	(s) 	
      "Exchange Ratio" means the number which is equal
      to 13,500,000 divided by the total number of Naked Shares issued and
      outstanding on the Closing Date;

	 	 	 
	 	(t) 	
      "GAAP" means United States generally accepted
      accounting principles, applied on a basis consistent with prior
    years;

	 	 	 
	 	(u) 	
      "Governmental Body" means any: (i) nation, state,
      county, city, town, village, district or other jurisdiction of any nature,
      (ii) federal, state, provincial, local, municipal, foreign or other
      government, (iii) governmental or quasi-governmental authority of any
      nature (including any governmental agency, branch, department, official,
      or entity and any court or other tribunal), (iv) multi-national
      organization or body, or (v) body exercising, or entitled to exercise, any
      administrative, executive, judicial, legislative, police, regulatory or
      taxing authority or power of any nature;

	 	 	 
	 	(v) 	
      "Indebtedness" means all obligations, contingent
      (to the extent required to be reflected in financial statements prepared
      in accordance with GAAP) and otherwise, which, in accordance with GAAP,
      should be classified on the obligor's balance sheet as Liabilities,
      including without limitation, in any event and whether or not so
      classified: (i) all debt and similar monetary obligations, whether direct
      or indirect, (ii) all Liabilities secured by any Encumbrance existing on
      property owned or acquired subject thereto, whether or not the Liability
      secured thereby will have been assumed, (iii) all agreements of guarantee,
      support, indemnification, assumption or endorsement and other contingent
      obligations, whether direct or indirect, in respect of Indebtedness or
      performance of others, including any obligation to supply funds to, or in
      any manner to invest in, directly or indirectly, the debtor, to purchase
      Indebtedness, or to assure the owner of Indebtedness against loss, through
      an agreement to purchase goods, supplies or services for the purpose of
      enabling the debtor to make payment of the Indebtedness held by such owner
      or otherwise, (iv) obligations to reimburse issuers of any letters of
      credit, and (v) capital leases;

	 	 	 
	 	(w) 	
      "Indemnified Party" has the meaning set forth in
      Section 11.3(a);

	 	 	 
	 	(x) 	
      "Indemnifying Party" has the meaning set forth in
      Section 11.3(a);

	 	 	 
	 	(y) 	
      "Intellectual Property" means collectively, all
      intellectual property and other similar proprietary rights in any
      jurisdiction throughout the world, whether owned, used, or held for use
      under license, whether registered or unregistered, including such rights
      in and to: (i) Trademarks, and the goodwill associated therewith, (ii)
      Patents and inventions, invention disclosures, discoveries and
      improvements, whether or not patentable, (iii) Trade Secrets, and
      confidential information and rights to limit the use or disclosure thereof
      by any Person, (iv) all works of authorship (whether copyrightable or
      not), Copyrights, and databases (or other collections of information, data
      works or other materials), (v) software, including data files, source
      code, object code, firmware, mask works, application programming
      interfaces, computerized databases and other software-related
      specifications and documentation, (vi) designs and industrial designs,
      (vii) Internet domain names, (viii) rights of publicity and other rights
      to use the names and likeness of individuals, (ix) moral rights, and (x)
      claims, causes of action, and defenses relating to the past, present, and
      future enforcement of any of the foregoing; in each case of (i) to (x)
      above, including any registrations of, applications to register, and
      renewals and extensions of, any of the foregoing with or by any
      Governmental Body in any jurisdiction;

- 5 -

	 	(z) 	
      "International Securities Laws" means, in respect
      of the issuance of the securities of SBH to the Naked Shareholders and the
      Naked Warrantholders, any securities laws having application to a Naked
      Shareholder or Naked Warrantholder other than the laws of Canada or the
      United States, and all regulatory notices, Orders, rules, regulations,
      policies and other instruments incidental thereto;

	 	 	 
	 	(aa) 	
      "Letter of Intent" has the meaning set forth in
      Recital A;

	 	 	 
	 	(bb) 	
      "Liabilities" means, with respect to any Person,
      any liability or obligation of such Person of any kind, character or
      description, whether known or unknown, absolute or contingent, accrued or
      unaccrued, liquidated or unliquidated, secured or unsecured, joint or
      several, due or to become due, vested or unvested, determined,
      determinable or otherwise, whether or not the same is required to be
      accrued on the financial statements of such Person;

	 	 	 
	 	(cc) 	
      "Losses" means any and all demands, claims,
      actions or causes of action, assessments, losses, Damages, Liabilities,
      costs and expenses, including, without limitation, interest, penalties,
      fines and reasonable attorneys, accountants and other professional fees
      and expenses, but excluding any indirect, consequential or punitive
      Damages suffered by SBH or Naked, including Damages for lost profits or
      lost business opportunities;

	 	 	 
	 	(dd) 	
      "Material Adverse Change" means, in respect of SBH
      or Naked, any one or more changes, events or occurrences which may have a
      Material Adverse Effect, and "Material Adverse Effect" means, in
      respect of SBH or Naked, any state of facts which, in any case, either
      individually or in the aggregate are, or would reasonably be expected to
      be, material and adverse to the business, assets or financial condition of
      SBH or Naked, or their respective subsidiaries, provided that a Material
      Adverse Change or Material Adverse Effect will not include any change or
      effect (whether alone or in combination with any other effect), directly
      or indirectly, arising out of, relating to, resulting from or reasonably
      attributable to: (i) the announcement of this Agreement or the pending
      completion of the Transaction, (ii) changes in GAAP, or (iii) any matter
      that has been disclosed to the public or the other Parties prior to the
      date of this Agreement;

	 	 	 
	 	(ee) 	
      "Material Interest" has the meaning set forth in
      Section 1.1(zz);

	 	 	 
	 	(ff) 	
      "Naked Assets" means the property and assets of
      Naked as a going concern of every kind and description and wheresoever
      situated, including, but not limited to, the Naked IP;

	 	 	 
	 	(gg) 	
      "Naked Disclosure Letter" means the disclosure
      letter of Naked to be signed and dated by Naked and delivered by Naked to
      SBH at the Closing;

	 	 	 
	 	(hh) 	
      "Naked Financial Statements" means the audited
      financial statements for Naked for the fiscal years ended January 31, 2012
      and 2011, together with related statements of income, cash flows, and
      changes in shareholders' equity for the fiscal years then ended, all
      prepared in accordance with GAAP and audited by an independent auditor
      registered with both the Canadian Public Accountability Board and the
      United Stated Public Company Accounting Oversight Board;

	 	 	 
	 	(ii) 	
      "Naked Information" has the meaning set forth in
      Section 7.3(a);

- 6 -

	 	(jj) 	
      "Naked IP" means all Intellectual Property owned,
      used, held for use or exploited by Naked;

	 	 	 
	 	(kk) 	
      "Naked Material Agreements" means the material
      agreements to which Naked is a party as set out in the Naked Disclosure
      Letter;

	 	 	 
	 	(ll) 	
      "Naked Information Statement" means the
      information statement to be delivered by Naked to the Naked Shareholders
      in connection with the meeting of the Naked Shareholders to be called in
      order to obtain the approval of the Naked Shareholders to the Continuance
      and the Merger;

	 	 	 
	 	(mm) 	
      "Naked Shareholders" means the holders of the
      Naked Shares;

	 	 	 
	 	(nn) 	
      "Naked Shares" means common shares in the capital
      of Naked;

	 	 	 
	 	(oo) 	
      "Naked Warrantholders" means holders of Naked
      Warrants;

	 	 	 
	 	(pp) 	
      "Naked Warrants" means warrants to acquire Naked
      Shares, of which 100,000 Naked Warrants are outstanding as of the date of
      this Agreement and will be outstanding immediately prior to the Effective
      Time;

	 	 	 
	 	(qq) 	
      "Non-U.S. Certificate" means the Certificate of
      Non-U.S. Securityholder, in the form attached hereto as Schedule "B", to
      be delivered to SBH by each Naked Shareholder or Naked Warrantholder, as
      applicable, concurrently with the surrender to SBH of the certificates
      representing the Naked Shares or Naked Warrants, as applicable, held by
      such Naked Shareholder or Naked Warrantholder prior to such Naked
      Shareholder or Naked Warrantholder being entitled to receive certificates
      representing SBH Shares or SBH Warrants, as applicable, in accordance with
      Section 2.9(a);

	 	 	 
	 	(rr) 	
      "NRS" has the meaning set forth in Recital
    B;

	 	 	 
	 	(ss) 	
      "Order" means any award, decision, injunction,
      judgment, order, ruling, subpoena or verdict entered, issued, made or
      rendered by any Governmental Body or by any arbitrator;

	 	 	 
	 	(tt) 	
      "Party" means a party to this Agreement and
      "Parties" means all parties to this Agreement;

	 	 	 
	 	(uu) 	
      "Patents" means, collectively: (i) all issued
      patents, re-issued or re-examined patents, revivals of patents, utility
      models, certificates of invention, registrations of patents and extensions
      thereof, regardless of country or formal name, issued by any Governmental
      Body, and (ii) all published or unpublished non-provisional and
      provisional patent applications, re-examination proceedings, invention
      disclosures and records of invention;

	 	 	 
	 	(vv) 	
      "Person" includes an individual, corporation, body
      corporate, partnership, joint venture, association, trust or
      unincorporated organization or any trustee, executor, administrator or
      other legal representative thereof;

- 7 -

	 	(ww) 	
      "Pooling Agreements" mean the pooling agreements
      to be entered into at or prior to Closing among SBH, the Naked
      Shareholders and an escrow agent to be determined by SBH;

	 	 	 
	 	(xx) 	
      "Proceeding" means any action, suit, litigation,
      arbitration, proceeding (including any civil, criminal, administrative,
      investigative or appellate proceeding), hearing, inquiry, audit,
      examination or investigation commenced, brought, conducted or heard by or
      before, or otherwise involving, any court or other Governmental Body or
      any arbitrator or arbitration panel;

	 	 	 
	 	(yy) 	
      "Proprietary Rights" means any: (i)(A) Patents,
      (B) Trademarks, fictitious business names and domain name registrations,
      (C) Copyrights, (D) Trade Secrets, and (E) all other ideas, inventions,
      designs, manufacturing and operating specifications, technical data and
      other intangible assets, intellectual properties and rights (whether or
      not appropriate steps have been taken to protect, under Applicable Laws,
      such other intangible assets, properties or rights); or (ii) any right to
      use or exploit any of the foregoing;

	 	 	 
	 	(zz) 	
      "Related Party" means, with respect to a
      particular individual:

	 	(i) 	
      each member of such individual's Family (as defined
      herein),

	 	 	 
	 	(ii) 	
      any Person that is directly or indirectly controlled by
      such individual or one or more members of such individual's
  Family,

	 	 	 
	 	(iii) 	
      any Person in which such individual or members of such
      individual's Family hold (individually or in the aggregate) a Material
      Interest (as defined herein), or

	 	 	 
	 	(iv) 	
      any Person with respect to which such individual or one
      or more members of such individual's Family serves as a director, officer,
      partner, executor or trustee (or in a similar capacity),
  and

with respect to a specified Person
other than an individual:

	 	(v) 	
      any Person that directly or indirectly controls, is
      directly or indirectly controlled by, or is directly or indirectly under
      common control with such specified Person,

	 	 	 
	 	(vi) 	
      any Person that holds a Material Interest in such
      specified Person,

	 	 	 
	 	(vii) 	
      each Person that serves as a director, officer, partner,
      executor or trustee of such specified Person (or in a similar
      capacity),

	 	 	 
	 	(viii) 	
      any Person in which such specified Person holds a
      Material Interest,

	 	 	 
	 	(ix) 	
      any Person with respect to which such specified Person
      serves as a general partner or a trustee (or in a similar capacity),
      and

	 	 	 
	 	(x) 	
      any Related Party of any individual described in clause
      (ii) or (iii).

For purposes of this definition: (a)
the "Family" of an individual includes (i) the individual, (ii) the
individual's spouse, (iii) any other natural person who is related to the individual or the individual's spouse within the second
      degree, and (iv) any other natural person who resides with such
      individual, and (b) "Material Interest" means direct or indirect
      beneficial ownership of voting securities or other voting interests
      representing at least twenty percent (20%) of the outstanding voting power
      of a Person or equity securities or other equity interests representing at
      least twenty percent (20%) of the outstanding equity securities or equity
interests in a Person; 

- 8 -

		(aaa) 	
      "SBH Assets" means all of the assets owned or used
      by SBH as of the date of this Agreement; 

	 	  	
       

		(bbb) 	
      "SBH Disclosure Letter" means the disclosure
      letter of SBH to be signed and dated by SBH and delivered by SBH to Naked
      at the Closing; 

	 	  	
       

		(ccc) 	
      "SBH Financial Statements" means the audited
      annual financial statements for SBH for the fiscal years ended July 31,
      2011 and 2010, and the unaudited interim financial statements for the
      three months ended October 31, 2011, and the comparative period ended
      October 30, 2010, all prepared in accordance with GAAP; 

	 	  	
       

	 	(ddd) 	
      "SBH Information" has the meaning set forth in
      Section 6.3(a); 

	 	  	
       

		(eee) 	
      "SBH Material Agreements" means the material
      agreements to which SBH is a party as set out in the SBH Disclosure
      Letter; 

	 	  	
       

		(fff) 	
      "SBH Private Placement" means, collectively, the
      one or more private placement financings to be completed by SBH for
      minimum aggregate gross proceeds of $650,000, of which at least $650,000,
      after payment of all outstanding SBH Liabilities, will be provided by SBH
      to Naked at Closing for working capital purposes; 

	 	  	
       

	 	(ggg) 	
      "SBH Shareholders" means the stockholders of SBH;      

	 	  	
       

	 	(hhh) 	
      "SBH Shares" means shares of common stock of SBH;      

	 	  	
       

	 	(iii) 	
      "SBH Warrants" means warrants to acquire SBH
      Shares; 

	 	  	
       

	 	(jjj) 	
      "SEC" means the United States Securities and
      Exchange Commission; 

	 	  	
       

	 	(kkk) 	
      "Secretary of State" means the Secretary of State
      of the State of Nevada; 

	 	  	
       

		(lll) 	
      "Securities Authorities" means the SEC, the
      British Columbia Securities Commission and all applicable state securities
      commissions; 

	 	  	
       

		(mmm) 	
      "Subco" means the direct, wholly-owned subsidiary
      of SBH incorporated and organized by SBH under the NRS for the sole
  purpose of effecting the Merger in connection with the Transaction;  

	 	  	
       

	 	(nnn) 	
      "Subco Shares" means common shares in the capital
      of Subco; 

	 	  	
       

	 	(ooo) 	
      "Surviving Corporation" has the meaning set forth
      in Section 2.2; 

	 	  	
       

		(ppp) 	
      "Taxes" means all taxes, assessments, charges,
      dues, duties, rates, fees, imposts, levies and similar charges of any
      kind, lawfully levied, assessed or imposed by any Governmental Body,
  including all income taxes (including any tax on or based upon  net income, gross income, income as specially defined,
      earnings, profits or selected items of income, earnings or profits) and
      all capital taxes, gross receipts taxes, sales taxes, use taxes, ad
      valorem taxes, value added taxes, transfer taxes (including, without
      limitation, taxes relating to the transfer of interests in real property
      or entities holding interests therein), franchise taxes, license taxes,
      withholding taxes, health taxes, payroll taxes, employment taxes, Canada
      or Quebec Pension Plan premiums, excise, severance, social security,
      workers' compensation, employment insurance or compensation taxes,
      mandatory pension and other social fund taxes or premiums, stamp taxes,
      occupation taxes, premium taxes, property taxes, windfall profits taxes,
      alternative or add-on minimum taxes, goods and services taxes, harmonized
      sales tax, customs duties or other taxes, fees, imports, assessments or
      charges of any kind whatsoever, and any instalments in respect thereof,
      together with any interest and any penalties or additional amounts imposed
      by any Governmental Body (domestic or foreign) on such entity, and any
      interest, penalties, additional taxes and additions to tax imposed with
  respect to the foregoing and whether disputed or not;

- 9 -

	 	(qqq) 	
      "Tax Returns" means all returns, schedules,
      elections, declarations, reports, information returns and statements
      required to be filed with any Governmental Body relating to
  Taxes;

	 	 	 
	 	(rrr) 	
      "Third-Party Claim" has the meaning set forth in
      Section 11.3(a);

	 	 	 
	 	(sss) 	
      "Trade Secrets" means all product specifications,
      data, know-how, formulae, compositions, processes, designs, sketches,
      photographs, graphs, drawings, samples, inventions and ideas, research and
      development, manufacturing or distribution methods and processes, customer
      lists, current and anticipated customer requirements, price lists, market
      studies, business plans, computer software and programs (including object
      code), computer software and database technologies, systems, structures
      and architectures (and related processes, formulae, composition,
      improvements, devices, know-how, inventions, discoveries, concepts, ideas,
      designs, methods and information), and any other information, however
      documented, that is a trade secret within the meaning of Applicable
      Laws;

	 	 	 
	 	(ttt) 	
      "Trademarks" means all: (i) trademarks, service
      marks, marks, logos, insignias, designs, names or other symbols, (ii)
      applications for registration of trademarks, service marks, marks, logos,
      insignias, designs, names or other symbols, and (c) trademarks, service
      marks, marks, logos, insignias, designs, names or other symbols for which
      registrations has been obtained;

	 	 	 
	 	(uuu) 	
      "Transaction" means the Continuance, the Merger,
      the acquisition by SBH of the Naked Shares and the Naked Warrants, and all
      related transactions incidental thereto as contemplated by this
      Agreement;

	 	 	 
	 	(vvv) 	
      "Transaction Documents" means this Agreement and
      any other documents required to be signed by SBH, Naked, Subco or the
      Naked Shareholders, as applicable, to perform their respective obligations
      hereunder and to consummate the Transaction;

	 	 	 
	 	(www) 	
      "U.S. Person" has the meaning set out in
      Regulation S promulgated under the U.S. Securities
Act;

- 10 -

	 	(xxx) 	
      "U.S. Securities Act" means the United States
      Securities Act of 1933, as amended, and the rules and regulations
      thereunder; and

	 	 	 
	 	(yyy) 	
      "Voting Agreements" means the voting agreements to
      be entered into at or prior to Closing among SBH and certain Naked
      Shareholders holding an aggregate minimum of 51% of the issued and
      outstanding Naked Shares, pursuant to which such Naked Shareholders will
      agree to vote in favour of the Continuance and the
  Merger.

1.2          
Schedules. The following is a schedule to this Agreement, which is
incorporated by reference herein and is deemed to be part hereof:

	Schedule A 	— 	Form of Articles of Merger 
	Schedule B 	— 	Form of Non-U.S. Certificate

1.3          
Interpretation. For the purposes of this Agreement, except as otherwise
expressly provided herein:

	 	(a) 	
      all references in this Agreement to a designated article,
      section, subsection, paragraph or other subdivision, or to a schedule, is
      to the designated article, section, subsection, paragraph or other
      subdivision of, or schedule to, this Agreement unless otherwise
      specifically stated;

	 	 	 
	 	(b) 	
      the words "herein", "hereof" and "hereunder" and other
      words of similar import refer to this Agreement as a whole and not to any
      particular article, clause, subclause or other subdivision or
    schedule;

	 	 	 
	 	(c) 	
      the singular of any term includes the plural and vice
      versa and the use of any term is equally applicable to any gender and
      where applicable to a body corporate;

	 	 	 
	 	(d) 	
      the word "or" is not exclusive and the word "including"
      is not limiting (whether or not non-limiting language such as "without
      limitation" or "but not limited to" or other words of similar import are
      used with reference thereto);

	 	 	 
	 	(e) 	
      all accounting terms not otherwise defined in this
      Agreement have the meanings assigned to them in accordance with
    GAAP;

	 	 	 
	 	(f) 	
      except as otherwise provided, any reference to a statute
      includes and is a reference to such statute and to the regulations made
      pursuant thereto with all amendments made thereto and in force from time
      to time, and to any statute or regulations that may be passed which have
      the effect of supplementing or superseding such statute or such
      regulations;

	 	 	 
	 	(g) 	
      where the phrase "to the best of the knowledge of" or
      phrases of similar import are used in this Agreement, it will be a
      requirement that the Person in respect of whom the phrase is used will
      have made such due enquiries as are reasonably necessary to enable such
      Person to make the statement or disclosure;

	 	 	 
	 	(h) 	
      the headings to the articles and sections of this
      Agreement are inserted for convenience of reference only and do not form a
      part of this Agreement and are not intended to interpret, define or limit
      the scope, extent or intent of this Agreement or any provision
    hereof;

- 11 -

	 	(i) 	
      any reference to a corporate entity includes and is also
      a reference to any corporate entity that is a successor to such
    entity;

	 	 	 
	 	(j) 	
      the Parties acknowledge that this Agreement is the
      product of arm's length negotiation between the Parties, each having
      obtained its own independent legal advice, and that this Agreement will be
      construed neither strictly for nor strictly against any Party irrespective
      of which Party was responsible for drafting this Agreement;

	 	 	 
	 	(k) 	
      the representations, warranties, covenants and agreements
      contained in this Agreement will not merge at the Closing and will
      continue in full force and effect from and after the Closing Date for the
      applicable period set out in this Agreement; and

	 	 	 
	 	(l) 	
      unless otherwise specifically noted, all references to
      "$" or sums of money that are referred to in this Agreement are expressed
      in the lawful money of the United States. If it is necessary to convert
      money from another currency to lawful money of the United States, such
      money will be converted using the Bank of Canada noon foreign exchange
      rate in effect at the date of payment.

ARTICLE 2
MERGER AND RELATED MATTERS

2.1          
General. The Merger and this Agreement are intended, subject to
their terms and conditions, to result in the business combination of Naked and
SBH through the Merger. To this end, each of SBH, Naked and Subco agree that
they will use commercial best efforts to satisfy each of the conditions
precedent to be satisfied by it as soon as practical and in any event before the
Effective Date, and to take, or cause to be taken, all other actions and to do,
or cause to be done, all other things necessary, proper or advisable to permit
the completion of the Transaction pursuant to the Merger in accordance with the
terms and conditions of this Agreement and Applicable Laws, and to cooperate
with each other in connection therewith.

2.2          
Merger of Subco into Naked. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time, Subco shall be
merged with and into Naked and the separate existence of Subco shall cease.
Following the Effective Time, Naked shall continue as the surviving corporation
of the Merger (the "Surviving Corporation").

2.3          
Effect of the Merger. The Merger shall have the effects set
forth in this Agreement and in the applicable provisions of the NRS.

2.4          
Closing; Effective Time. The Closing shall take place at the
offices of Clark Wilson LLP, counsel to SBH, at 10:00 a.m. Vancouver time on the
Closing Date, or such other time as mutually agreed to by the Parties. Subject
to the provisions of this Agreement, the Articles of Merger shall be duly
executed by Subco and Naked and, as soon as practicable following the Closing,
filed with the Secretary of State. The Merger shall become effective upon the
later of: (a) the date and time of the filing of the Articles of Merger with the
Secretary of State, or (b) such later date and time as may be specified in the
Articles of Merger as agreed to by the Parties. The date and time the Merger
becomes effective is referred to in this Agreement as the "Effective
Time".

- 12 -

2.5          
Certificate of Incorporation and Bylaws.

	 	(a) 	
      The Certificate of Incorporation of Naked as in effect
      immediately prior to the Effective Time shall be the certificate of
      incorporation of the Surviving Corporation until thereafter changed or
      amended as provided therein or by Applicable Laws.

	 	 	 
	 	(b) 	
      The bylaws of Subco as in effect immediately prior to the
      Effective Time shall be the bylaws of the Surviving Corporation until
      thereafter changed or amended as provided therein or by Applicable
      Laws.

2.6          
Directors. The board of directors of Naked immediately prior to
the Effective Time shall constitute the entire board of directors of the
Surviving Corporation until the earlier of their resignation or removal or until
their respective successors are duly elected and qualified, as the case may
be.

2.7          
Officers. The officers of Naked immediately prior to the
Effective Time shall constitute all of the officers of the Surviving Corporation
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.

2.8          
Treatment of Issued Capital. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time, by virtue of the
Merger and without any action on the part of Subco, Naked or the Naked
Shareholders:

	 	(i) 	
      each Naked Share held by a Naked Shareholder (other than
      Dissenting Shareholders) immediately prior to the Effective Time will be
      converted into the right to receive that number of fully paid and
      non-assessable SBH Shares equal to the product determined by multiplying
      the number of Naked Shares held by such Naked Shareholder by the Exchange
      Ratio, with the intention that an aggregate of 13,500,000 SBH Shares will
      be issued to the Naked Shareholders (with such adjustments as may be
      necessary as set out in Section 2.8(iv)). All such Naked Shares will no
      longer be outstanding and will automatically be cancelled and retired and
      shall cease to exist, and each certificate previously representing such
      Naked Shares will thereafter represent only the right to receive the SBH
      Shares,

	 	 	 
	 	(ii) 	
      each Naked Warrant held by a Naked Warrantholder will be
      converted into the right to receive that number of SBH Warrants equal to
      the product determined by multiplying the number of Naked Warrants held by
      such Naked Warrantholder by the Exchange Ratio. Each SBH Warrant issued to
      the Naked Warrantholders will be exercisable into one SBH Share for a
      period of two years from the Effective Date at a price of $0.75 per SBH
      Share. All such Naked Warrants will no longer be outstanding and will
      automatically be cancelled and retired and shall cease to exist, and each
      certificate previously representing such Naked Warrants will thereafter
      represent only the right to receive the SBH Warrants,

	 	 	 
	 	(iii) 	
      each Subco Share issued and outstanding immediately
      before the Effective Time will be converted into one share of common stock
      of the Surviving Corporation, and

	 	 	 
	 	(iv) 	
      no fractional SBH Shares will be issued to Naked
      Shareholders; in lieu of any fractional entitlement, the number of SBH
      Shares issued to each Naked  Shareholder will be rounded up to the
next greater whole number of Naked Shares if the fractional entitlement is equal
to or greater than 0.5 and will, without any additional compensation, be rounded
down to the next lesser whole number of Naked Shares if the fractional
entitlement is less than 0.5.

- 13 -

2.9          
Share and Warrant Certificates. On or after the Effective
Date:

	 	(a) 	
      upon surrender to SBH of the certificates representing
      the issued and outstanding Naked Shares and Naked Warrants and delivery of
      an executed Non-U.S. Certificate, the Naked Shareholders and Naked
      Warrantholders will be entitled to receive certificates representing SBH
      Shares or SBH Warrants, as applicable, from SBH as provided for in
      Sections 2.8(i) and 2.8(ii) on the later of:

	 	 	 	 
	 		(i) 	
      the Effective Date, and

	 	 	 	 
	 		(ii) 	
      the third Business Day following the date of receipt by
      SBH of the share or warrant certificates, as applicable, and the Non-US
      Certificate referred to above;

	 	 	 	 
	 	(b) 	
      the original share certificate of Subco registered in the
      name of SBH will be cancelled and SBH will be issued a share certificate
      for the number of shares of the Surviving Corporation to be issued to SBH
      as provided in Section 2.8(iii) hereof; and

	 	 	 	 
	 	(c) 	
      certificates representing the Naked Shares and Naked
      Warrants will cease to represent any claim upon or interest in Naked other
      than the right of the Naked Shareholder or Naked Warrantholder, as
      applicable, to receive, pursuant to the terms hereof, SBH Shares or SBH
      Warrants, as applicable, in accordance with Sections 2.8(i) and 2.8(ii)
      hereof.

2.10          
Tax Consequences. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. The Parties hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368 -2(g) and 1.368 -3(a) of
the United States Treasury Regulations.

2.11          
Further Action. If, at any time after the Effective Time, any
further action is determined by SBH to be necessary or desirable to carry out
the purposes of this Agreement or to vest the Surviving Corporation with full
right, title and possession of and to all rights and property of Subco and
Naked, the officers and directors of the Surviving Corporation and SBH will be
fully authorized (in the name of Subco, in the name of Naked and otherwise) to
take such action.

2.12          
No Liability. None of SBH, Subco or Naked will be liable to any Naked
Shareholder or Naked Warrantholder for any Naked Shares or Naked Warrants
delivered to a public official pursuant to any abandoned property, escheat or
similar law.

2.13          
Extinguishment of Rights. On the sixth anniversary of the
Effective Date, any and all such rights which have not been exercised by Naked
Shareholders who have not dissented in accordance with Section 2.17 will be
extinguished and the certificates representing the Naked Shares will be deemed
to be surrendered to SBH for no consideration.

- 14 -

2.14          
Shareholder Approval. Subject to the terms and conditions of
this Agreement:

	 	(a) 	
      Naked will distribute the Naked Information Statement
      and/or such other documents as may be necessary or desirable to permit the
      Naked Shareholders to consider, and if deemed appropriate, approve the
      Continuance and the Merger; and

	 	 	 
	 	(b) 	
      provided that: (i) the Continuance and the Merger are
      approved by a majority of the Naked Shareholders, as required by the
      provisions of the CBCA and the NRS, (ii) the Merger is approved by SBH as
      the sole shareholder of Subco, and (iii) the conditions set out in Article
      8 hereof have been satisfied or waived, as soon as reasonably practicable
      thereafter, SBH, Naked and Subco will take all actions required to effect
      the Merger.

2.15          
Naked Information Statement. Naked will prepare the Naked Information
Statement (including supplements or amendments thereto). SBH will provide such
information to Naked as is needed to provide complete and accurate disclosure in
the Naked Information Statement. Each of Naked and SBH will:

	 	(a) 	
      ensure that all information provided by it or on its
      behalf that is contained in the Naked Information Statement does not
      contain any misrepresentation or any untrue statement of a material fact
      or omit to state a material fact required to be stated in the Naked
      Information Statement and necessary to make any statement that it contains
      not misleading in light of the circumstances in which it is made;
    and

	 	 	 
	 	(b) 	
      promptly notify the other Party if, at any time before
      the Effective Time, it becomes aware that the Naked Information Statement
      contains a misrepresentation, an untrue statement of material fact, omits
      to state a material fact required to be stated to make any statement in
      the Naked Information Statement not misleading in light of the
      circumstances in which it is made or that otherwise requires an amendment
      or a supplement to the Naked Information
Statement.

2.16          
Public Announcement. Immediately after the execution of this Agreement,
SBH will issue a public announcement announcing the entering into of this
Agreement, which announcement will address all matters required by Applicable
Securities Laws and will be in form and substance acceptable to SBH and Naked,
acting in a commercially reasonable manner. No Party will issue any news release
or public statements inconsistent with such public announcement.

2.17          
Dissenting Shareholders. Notwithstanding anything in this
Agreement to the contrary, any issued and outstanding Naked Shares (the
"Dissent Shares") held by a Dissenting Shareholder who complies with all
the provisions of Section 92A.420 of the NRS concerning the right of Naked
Shareholders to dissent from the Merger and require appraisal of their Dissent
Shares shall not be converted as described in Section 2.8(i) but shall become
the right to receive such consideration as may be determined to be due to such
Dissenting Shareholder pursuant to Section 92A.460 of the NRS. If, after the
Effective Time, such Dissenting Shareholder withdraws his demand for appraisal
or fails to perfect or otherwise loses his right of appraisal, in any case
pursuant to the provisions of the NRS, his Dissent Shares shall be deemed to be
converted as of the Effective Time into the right to receive SBH Shares. Naked
shall give SBH prompt notice of any demands for appraisal of Dissent Shares
received by Naked.

- 15 -

ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SBH AND
SUBCO

As of the Closing Date, and except as set forth in the SBH
Disclosure Letter, or as otherwise provided for herein or in any certificate or
other instrument delivered pursuant to this Agreement, SBH and Subco hereby
jointly and severally make the following representations to Naked and
acknowledge and agree that Naked and the Naked Shareholders are relying upon
such representations and warranties, each of which is qualified in its entirety
by the matters described in the SBH Disclosure Letter, in connection with the
execution, delivery and performance of this Agreement:

3.1          
Incorporation.

	 	(a) 	
      SBH is a corporation duly continued and validly existing
      under the laws of the State of Nevada and is in good standing with respect
      to the filing of annual returns. SBH has the power, authority and capacity
      to conduct its business as such business is now being conducted. SBH is
      qualified to do business and is in good standing in each of the
      jurisdictions in which it owns property, does business, or is required to
      be so qualified.

	 	 	 
	 	(b) 	
      Subco is a corporation duly incorporated and validly
      existing under the laws of the State of Nevada and is in good standing
      with respect to the filing of annual returns. Subco has not, and will not,
      carry on any active business and was incorporated by SBH solely for the
      purposes of this Agreement.

3.2          
Corporate Power and Authority. SBH and Subco have all corporate
power and capacity to execute and deliver this Agreement and to consummate the
transactions and otherwise perform their respective obligations under this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
SBH and Subco and by SBH as the sole shareholder of Subco and no other corporate
proceedings or approvals on the part of SBH or Subco are necessary to authorize
this Agreement.

3.3          
Subsidiaries. SBH has no subsidiaries other than Subco and Subco has no
subsidiaries.

3.4          
Public Record. As of their respective dates, all information and
materials filed by SBH with the SEC and the British Columbia Securities
Commission (including all exhibits and schedules thereto and documents
incorporated by reference therein), did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and complied in all material respects with
all applicable legal and stock exchange requirements. 

3.5          
Share Capital. The authorized share capital of SBH consists of
100,000,000 SBH Shares, having a par value of $0.001 per SBH Share, and as of
the date of this Agreement, 9,010,000 SBH Shares are issued and outstanding as
fully paid and non-assessable SBH Shares.

3.6          
Additional Securities. No Persons have any agreement or option
or any right or privilege (whether by law, pre-emptive or contractual) capable
of becoming an agreement or option for the purchase, subscription or issuance of
any SBH Shares or other securities of SBH or Subco, or securities convertible
into, exchangeable for, or which carry the right to purchase SBH Shares or other
securities of SBH or Subco, except as contemplated in connection with the
Transaction or the SBH Private Placement.

- 16 -

3.7          
Board Approval. The acceptance, execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by the board of directors of each of SBH and Subco.

3.8          
Share and Warrant Issuance. Subject to Applicable Securities
Laws, SBH has the full and lawful right and authority to issue SBH Shares to the
Naked Shareholders and SBH Warrants to the Naked Warrantholders and, upon
completion of the Transaction, such SBH Shares will be validly issued as fully
paid and non-assessable and free and clear of all Encumbrances, and such SBH
Warrants will be validly issued and constitute binding obligations of SBH.

3.9          
No Breach Caused by the Agreement. Neither the execution and delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will conflict with or result in the breach of any of the terms or provisions of,
or constitute a default under, the Charter Documents, director or shareholder
minutes of SBH or Subco, or any agreement or instrument to which SBH or Subco is
a party or by which SBH or Subco or the SBH Assets are bound, or any Order,
decree, statute, regulation, covenant or restriction applicable to SBH or
Subco.

3.10          
Litigation. There are no actions, suits or Proceedings, judicial or
administrative (whether or not purportedly on behalf of SBH or Subco) pending
or, to the best knowledge of SBH, threatened by or against SBH or Subco, at law
or in equity, or before or by any Governmental Body, and SBH is not aware of any
existing ground on which any such action, suit or Proceeding might be commenced
with any reasonable likelihood of success. 

3.11          
No Default. To the best knowledge of SBH, SBH is not in default or
breach of its obligations under any material contracts to which it is a party
and, to the best knowledge of SBH, there exists no state of facts which, after
notice or lapse of time or both, would constitute such a default or breach, and
all such material contracts are now in good standing and in full force and
effect and SBH is entitled to all benefits thereunder. Further, there are no
outstanding material disputes under any such contracts and no consents,
releases, waivers or approvals are necessary under such contracts with regard to
the transactions described in this Agreement. SBH is not aware of any other
party having an intention to terminate, either by notice or breach, any material
contract made with SBH.

3.12          
Compliance.

          To the
best knowledge of SBH: 

	 	(a) 	
      each of SBH and Subco is in compliance with, is not in
      default or violation in any material respect under, and has not been
      charged with or received any notice at any time of any material violation
      of, any Applicable Laws applicable to the business or operations of SBH or
      Subco;

	 	 	 
	 	(b) 	
      neither SBH nor Subco is subject to any judgment, Order
      or decree entered in any lawsuit or Proceeding applicable to its business
      and operations that would constitute a Material Adverse Effect on SBH or
      Subco or the SBH Assets;

	 	 	 
	 	(c) 	
      each of SBH and Subco has duly filed all reports and
      returns required to be filed by it with any Governmental Body and has
      obtained all governmental permits and other governmental consents, except
      as may be required after the execution of this Agreement, necessary for
      the conduct of its business or operations or required in connection with
      this Agreement. All of such permits and consents are in full force and
      effect, and no Proceedings for the suspension or cancellation of any of
      them, and no investigation relating to any of them, is pending or, to
      the best knowledge of SBH, threatened, and none of them will be adversely
  affected by the consummation of the Transaction; and

- 17 -

	 	(d) 	
      each of SBH and Subco has operated in material compliance
      with Applicable Laws applicable to its business. None of such Parties has
      received any notice of any violation thereof, nor are any aware of any
      valid basis therefor.

3.13          
Consents. Other than the filing of any documents required with respect
to the filing of the Articles of Merger and in connection with the closing of
the SBH Private Placement, no authorization, approval, Order, license, permit or
consent of any Governmental Body, and no registration, declaration or filing by
SBH or Subco with any such Governmental Body, is required in order for SBH or
Subco to:

	 	(a) 	
      consummate the Transaction;

	 	 	 
	 	(b) 	
      execute and deliver all of the documents and instruments
      to be delivered by SBH and Subco under this Agreement;

	 	 	 
	 	(c) 	
      duly perform and observe the terms and provisions of this
      Agreement; or

	 	 	 
	 	(d) 	
      render this Agreement legal, valid, binding and
      enforceable.

3.14          
Material Contracts. Neither SBH nor Subco is a party to any material
contracts except the SBH Material Agreements. The SBH Material Agreements are
duly authorized, enforceable on their respective terms, and all covenants
required thereunder have been complied with in all material respects. The SBH
Material Agreements are in full force and effect, and there exists no material
breach or violation of or default by SBH or any other party to the SBH Material
Agreements, or any event that, with notice or the lapse of time, or both, will
create a material breach or violation thereof or default under any of the SBH
Material Agreements. The continuation, validity and effectiveness of each SBH
Material Agreement will in no way be affected by the consummation of the
transactions contemplated by this Agreement. There exists no actual or
threatened termination, cancellation, or limitation of, or any amendment,
modification or change to, any SBH Material Agreement.

3.15          
SBH Assets.

	 	(a) 	
      Neither SBH nor Subco owns any real property.

	 	 	 	 
	 	(b) 	
      All SBH Assets are owned legally and beneficially by SBH
      with good and marketable title thereto, free and clear of all Encumbrances
      whether contingent or absolute, except as set out in the SBH Material
      Agreements.

	 	 	 	 
	 	(c) 	
      Except as otherwise described in the SBH Material
      Agreements, no Person other than SBH has or will have any agreement,
      option, understanding or commitment, or any right or privilege (whether by
      law, pre-emptive or contractual) capable of becoming an agreement, option
      or commitment, for the acquisition of an interest in any of the SBH
      Assets.

	 	 	 	 
	 	(d) 	
      To the best knowledge of SBH:

	 	 	 	 
	 		(i) 	
      there is no basis for and there is no action, suit,
      judgment, claim, demand or proceeding outstanding or pending, or
      threatened against or affecting the SBH Assets that, if adversely resolved or determined, would
      have a Material Adverse Effect on the SBH Assets and there is no
      reasonable basis for any claim or action that, based upon the likelihood
      of its being asserted and its success if asserted, would have such a
  Material Adverse Effect;

- 18 -

	 		(ii) 	
      SBH holds all permits, licences, consents and authorities
      issued by any Governmental Body which are necessary in connection with its
      business or operations;

	 	 	 	 
	 		(iii) 	
      there are no outstanding agreements or options to acquire
      any of the SBH Assets;

	 	 	 	 
	 		(iv) 	
      SBH has duly filed all reports and returns required to be
      filed with all Governmental Bodies with respect to the SBH Assets and has
      obtained all governmental permits and other governmental consents with
      respect to the SBH Assets, except as may be required after the execution
      of this Agreement and all of such permits and consents are in full force
      and effect, and no proceedings for the suspension or cancellation of any
      of them, and no investigation relating to any of them, is pending or, to
      the best knowledge of SBH, threatened, and none of them will be adversely
      affected by the entry into this Agreement;

	 	 	 	 
	 		(v) 	
      there is no adverse claim or challenge against or to the
      ownership of or title to any of the SBH Assets and, to the best knowledge
      of SBH, there is no basis for such adverse claim or challenge which may
      affect the SBH Assets; and

	 	 	 	 
	 		(vi) 	
      SBH has provided Naked with copies of all of the material
      information relating to the SBH Assets.

	 	 	 	 
	 	(e) 	
      Subsequent to the entry into the SBH Material Agreements,
      SBH has not received any information from any Person that would modify or
      change the representations and warranties set out in Section
    3.15(d).

3.16          
Tax Matters. Each of SBH and Subco has filed with appropriate
federal, state, provincial and local taxation authorities, all returns, reports
and declarations which are required to be filed by it and no taxing authority is
asserting or has, to the best knowledge of SBH, threatened to assert, or has any
basis for asserting against SBH or Subco, any claim for additional Taxes or
interest thereon or penalty.

3.17          
Employees. Neither SBH nor Subco has any employees.

3.18          
Financial Statements. The financial statements of SBH that have been
filed with the SEC, including the SBH Financial Statements, are based on the
books and records of SBH and fairly present the financial condition of SBH at
the date thereof and the results of the operations for such periods. No
information has come to the attention of SBH since the dates that the SBH
Financial Statements were issued that would, or would reasonably be expected to,
require any restatement or revision of any such SBH Financial Statements. 

3.19          
Liabilities of SBH. Neither SBH nor Subco has any Indebtedness,
Liabilities or obligations, secured or unsecured (whether accrued, absolute,
contingent or otherwise), other than as set out in the SBH Disclosure Letter,
except for those incurred in connection with the transactions contemplated by
this Agreement or in the normal course of business.

- 19 -

3.20          
Valid and Binding Obligation. This Agreement, when executed and
delivered, will be duly executed and delivered by SBH and/or Subco, as the case
may be, and constitutes legal, valid and binding obligations of SBH and Subco,
enforceable against them in accordance with its terms subject only to:

	 	(a) 	
      any limitation under Applicable Laws relating to
      bankruptcy, insolvency, moratorium, reorganization and other similar laws
      relating to or affecting the enforcement of creditors' rights generally;
      and

	 	 	 
	 	(b) 	
      the fact that equitable remedies, including the remedies
      of specific performance and injunction, may only be granted in the
      discretion of a court.

3.21          
Material Adverse Change. There are no material facts or
material information which exist, and there has been no Material Adverse Change
in the capital, business, SBH Assets, Liabilities, obligations (absolute,
accrued, contingent or otherwise), operations, condition (financial or
otherwise), results of operations, financial position, capital or long-term
debt, affairs or prospects of SBH since July 31, 2011 which have not been
disclosed in the manner required by Applicable Securities Laws.

3.22          
Business of SBH. To the best knowledge of SBH, SBH has
conducted its activities in material compliance with all Applicable Laws.

3.23          
Guarantees. Neither SBH nor Subco is a party to, or bound by, any
agreement of guarantee, indemnification, assumption or endorsement, or any like
commitment, of the obligations, Liabilities (contingent or otherwise) or
Indebtedness of any other Person.

3.24          
Absence of Other Agreements. Other than as disclosed in the SBH
Disclosure Letter, neither SBH nor Subco is:

	 	(a) 	
      a party to any material contract;

	 	 	 
	 	(b) 	
      bound by any outstanding contract or commitment which
      requires prior approval of any change of control of SBH;

	 	 	 
	 	(c) 	
      bound by any outstanding contract or commitment except
      those entered into in the ordinary course of business; or

	 	 	 
	 	(d) 	
      in default under any material contract by which it is
      bound or under which it is entitled to the benefits of and advantages
      thereof.

3.25          
Dividends. Neither SBH nor Subco has, directly or indirectly,
declared or paid any dividend or declared or made any other distribution on any
of its shares or securities or, directly or indirectly, redeemed, purchased or
otherwise acquired any of its shares or securities or agreed to do any of the
foregoing.

3.26          
No Bankruptcy. No Proceedings have been taken, are pending or
authorized by SBH or Subco, or by any other Person, in respect of the
bankruptcy, insolvency, liquidation or winding up of SBH or Subco.

3.27          
Corporate Records. Other than as disclosed in the SBH
Disclosure Letter, the corporate records and minute books of SBH contain
complete and accurate minutes of all meetings of the directors and the SBH
Shareholders held since its incorporation, and signed copies of all resolutions
duly passed or confirmed by the directors or the SBH Shareholders other than
at a meeting. The share certificate books, register of security holders,
register of transfers and register of directors and any similar corporate
records of SBH are complete and accurate in all material respects.

- 20 -

3.28          
No Brokers. Except for any fees that may be paid to any broker or agent
who may be retained in regards to the SBH Private Placement, SBH has not entered
into any agreement which would entitle any Person to any valid claim against SBH
or Naked for a broker's commission, finder's fee or any like payment in respect
of the Transaction or any other matters contemplated by this Agreement.

3.29          
Restrictions on Doing Business. Neither SBH nor Subco is a
party to or bound by any agreement which would restrict or limit its respective
right to carry on any business or activity.

ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
NAKED

As of the Closing Date, and except as set forth in the Naked
Disclosure Letter, or as otherwise provided for in any certificate or other
instrument delivered pursuant to this Agreement, Naked makes the following
representations to SBH and acknowledges and agrees that SBH is relying upon such
representations and warranties, each of which is qualified in its entirety by
the matters described in the Naked Disclosure Letter, in connection with the
execution, delivery and performance of this Agreement:

4.1          
Incorporation. Naked is a corporation duly incorporated and
validly existing under the federal laws of Canada and is in good standing with
respect to the filing of annual returns, and has the power, authority and
capacity to enter into this Agreement, to carry out its terms, to own the Naked
Assets and to conduct its business as such business is now being conducted.
Naked is qualified to do business and is in good standing in each of the
jurisdictions in which it owns property, does business, or is required to be so
qualified.

4.2          
Corporate Power and Authority. Naked has all corporate power and
capacity to execute and deliver this Agreement and to consummate the
transactions and otherwise perform its obligations under this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby has been duly and validly authorized by Naked
and, except for receipt of Naked Shareholder approval of the Transaction prior
to the Closing Date, no other corporate proceedings or approvals on the part of
Naked or the Naked Shareholders is necessary to authorize this Agreement.

4.3          
Subsidiaries. Naked has no Subsidiaries.

4.4          
Share Capital. The authorized share capital of Naked is as set out in
the Naked Disclosure Letter. None of the outstanding Naked Shares are subject to
pre-emptive rights. All of the outstanding Naked Shares have been issued in full
compliance with the provisions of the CBCA, the Charter Documents of Naked and
Applicable Securities Laws.

4.5          
No U.S. Shareholders. None of the Naked Shareholders are U.S. Persons,
as that term is defined in Regulation S promulgated under the U.S. Securities
Act, as amended. Naked acknowledges that it is aware that the SBH Shares have
not been and will not be registered under the U.S. Securities Act or the
securities laws of any state and may not be offered or sold, directly or
indirectly, in the United States without registration under the U.S. Securities
Act and the Applicable Laws of all applicable states or an exemption from such
registration requirements, and Naked further acknowledges that SBH has no
present intention of filing a registration statement under the U.S. Securities
Act in respect of the SBH Shares.

- 21 -

4.6          
Additional Securities. Except as set out in the Naked
Disclosure Letter, there are not, and will not be at the Effective Time, any
outstanding warrants, options or other rights or other arrangements under which
Naked is bound or obligated to issue additional Naked Shares, warrants or
options, or other securities, options or rights to acquire Naked Shares. There
are no agreements or instruments purporting to restrict the transfer of the
Naked Shares, other than Applicable Securities Laws and the Charter Documents of
Naked, and there are no voting agreements, shareholders' agreements, voting
trusts, or other arrangements restricting or affecting the voting of the Naked
Shares, other than the Voting Agreement.

4.7          
Board Approval. The acceptance, execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by the board of directors of Naked.

4.8          
No Breach Caused by the Agreement. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will conflict with or result in any breach of any of the
terms or provisions of, or constitute a default under, the Charter Documents,
director or shareholder minutes of Naked, any agreement or instrument to which
Naked is a party or by which Naked or the Naked Assets are bound, or any Order,
decree, statute, regulation, covenant or restriction applicable to Naked.

4.9          
Litigation. There are no actions, suits or Proceedings,
judicial or administrative (whether or not purportedly on behalf of Naked)
pending or, to the best knowledge of Naked, threatened by or against Naked, or
affecting any of the Naked Assets at law or in equity, or before or by any
Governmental Body, and Naked is not aware of any existing ground on which any
such action, suit or Proceeding might be commenced with any reasonable
likelihood of success.

4.10          No Default. To the best knowledge of Naked, Naked is not in
default or breach of its obligations under any material contracts to which it is
a party and, to the best knowledge of Naked, there exists no state of facts
which, after notice or lapse of time or both, would constitute such a default or
breach, and all such material contracts are now in good standing and in full
force and effect without amendment thereto and Naked is entitled to all benefits
thereunder. Further, there are no outstanding material disputes under any such
contracts and no consents, releases, waivers or approvals are necessary under
such contracts with regard to the transactions described in this Agreement.
Naked is not aware of any other party having an intention to terminate, either
by notice or breach, any material contract made with Naked.

4.11          Material Contracts. Naked is not a party to any material
contracts except the Naked Material Agreements. The Naked Material Agreements
are duly authorized, enforceable on their respective terms, and all covenants
required thereunder have been complied with in all material respects. The Naked
Material Agreements are in full force and effect, and there exists no material
breach or violation of or default by Naked or any other party to the Naked
Material Agreements, or any event that with notice or the lapse of time, or
both, will create a material breach or violation thereof or default under any of
the Naked Material Agreements. The continuation, validity, and effectiveness of
each Naked Material Agreement will in no way be affected by the consummation of
the Merger contemplated by this Agreement. There exists no actual or threatened
termination, cancellation, or limitation of, or any amendment, modification, or
change to any Naked Material Agreement.

4.12          Naked IP.

	 	(a) 	
      The Naked Disclosure Letter contains a complete and
      correct list of all: (i) Patents owned by Naked, (ii) registered
      Trademarks and material unregistered
Trademarks owned by Naked, (iii) registered Copyrights and material
      unregistered Copyrights owned by Naked, and (iv) for each of the
      foregoing, any actions, annuities, maintenance fees, or proceedings that
      must be paid or undertaken within the first ninety days after the Closing
      Date in order to preserve, perfect, or maintain such Intellectual
  Property.

- 22 -

	 	(b) 	
      Except as set forth in the Naked Disclosure Letter, Naked
      owns all right, title, and interest in, or has the valid right to use, all
      of the Naked IP, free and clear of all Encumbrances, and there are no
      obligations or covenants to, or restrictions from any other Persons
      affecting the use, enforcement, transfer, or licensing of the Naked IP by
      Naked.

	 	 	 
	 	(c) 	
      Naked is the sole and exclusive beneficial owner, and,
      with respect to applications and registrations, record owner, of all the
      Naked IP.

	 	 	 
	 	(d) 	
      The Naked IP constitutes all the Intellectual Property
      necessary to conduct the businesses of Naked as currently conducted or as
      proposed to be conducted.

	 	 	 
	 	(e) 	
      The Naked IP is valid, subsisting and
  enforceable.

	 	 	 
	 	(f) 	
      No Naked IP is being licensed, enforced, or otherwise
      used in a manner that would result in the abandonment, cancellation, or
      unenforceability of such Naked IP.

	 	 	 
	 	(g) 	
      Use by Naked of any Naked IP, and the conduct of the
      Naked business, does not infringe, misappropriate, or otherwise violate
      any rights of any Person, and no proceeding is pending or, to the best
      knowledge of Naked, has been threatened or asserted against Naked with
      regard to the ownership, use, infringement, misappropriation, violation,
      validity, or enforceability of any Naked IP. To the best knowledge of
      Naked, there is no valid basis for any such claim.

	 	 	 
	 	(h) 	
      Naked has not infringed, misappropriated, or otherwise
      violated any Intellectual Property of any other Person.

	 	 	 
	 	(i) 	
      To the best knowledge of Naked, no Person is infringing,
      misappropriating, or otherwise violating any rights of Naked in or to any
      Naked IP. No Proceeding is pending or has been threatened or asserted by
      Naked against any Person with regard to the ownership, use, infringement,
      misappropriation, violation, validity or enforceability of any Naked
      IP.

	 	 	 
	 	(j) 	
      Naked has taken reasonable actions to protect the
      confidentiality of its Trade Secrets and other Naked IP and confidential
      information. Each Person presently or previously employed by Naked
      (including independent contractors and consultants, if any) who has or had
      access to confidential or proprietary information or any Trade Secret of
      Naked or Naked IP has executed a confidentiality and nondisclosure
      agreement.

	 	 	 
	 	(k) 	
      The consummation of the transactions contemplated by this
      Agreement, and compliance by Naked with the provisions of this Agreement,
      will not result in the termination, cancellation, loss, or impairment of,
      nor require the payment of additional amounts or the consent of any Person
      in respect of, or result in the creation of any Encumbrance in or upon,
      any Naked IP.

- 23 -

4.13          
Naked Assets.

	 	(a) 	
      Naked does not own any real property.

	 	 	 	 
	 	(b) 	
      All Naked Assets are owned legally and beneficially by
      Naked with good and marketable title thereto, free and clear of all
      Encumbrances whether contingent or absolute, except as set out in the
      Naked Material Agreements or as disclosed in the Naked Financial
      Statements.

	 	 	 	 
	 	(c) 	
      Except as otherwise described in the Naked Material
      Agreements, no Person other than Naked has or will have any agreement,
      option, understanding or commitment, or any right or privilege (whether by
      law, pre-emptive or contractual) capable of becoming an agreement, option
      or commitment, for the acquisition of an interest in any of the Naked
      Assets.

	 	 	 	 
	 	(d) 	
      To the best knowledge of Naked:

	 	 	 	 
	 		(i) 	
      there is no basis for and there is no action, suit,
      judgment, claim, demand or proceeding outstanding or pending, or
      threatened against or affecting the Naked Assets that, if adversely
      resolved or determined, would have a Material Adverse Effect on the Naked
      Assets and there is no reasonable basis for any claim or action that,
      based upon the likelihood of its being asserted and its success if
      asserted, would have such a Material Adverse Effect;

	 	 	 	 
	 		(ii) 	
      there are no outstanding agreements or options to acquire
      any of the Naked Assets, and, other than as set out in the Naked Material
      Agreements, no Person has any proprietary or possessory interest in any of
      the Naked Assets;

	 	 	 	 
	 		(iii) 	
      Naked has duly filed all reports and returns required to
      be filed with all Governmental Bodies with respect to the Naked Assets and
      has obtained all governmental permits and other governmental consents with
      respect to the Naked Assets, except as may be required after the execution
      of this Agreement and all of such permits and consents are in full force
      and effect, and no proceedings for the suspension or cancellation of any
      of them, and no investigation relating to any of them, is pending or, to
      the best knowledge of Naked, threatened, and none of them will be
      adversely affected by the entry into this Agreement;

	 	 	 	 
	 		(iv) 	
      there is no adverse claim or challenge against or to the
      ownership of or title to any of the Naked Assets and, to the best
      knowledge of Naked, there is no basis for such adverse claim or challenge
      which may affect the Naked Assets; and

	 	 	 	 
	 		(v) 	
      Naked has provided SBH with all of the material
      information relating to the Naked Assets.

	 	 	 	 
	 	(e) 	
      Subsequent to the entry into the Naked Material
      Agreements, Naked has not received any information from any Person that
      would modify or change the representations and warranties set out in
      Section 4.13(d).

- 24 -

4.14          
Compliance.

	 	(a) 	
      To the best knowledge of Naked, it is in compliance with,
      is not in default or violation in any material respect under, and has not
      been charged with or received any notice at any time of any material
      violation of, any Applicable Laws applicable to the business or operations
      of Naked.

	 	 	 
	 	(b) 	
      To the best knowledge of Naked, it is not subject to any
      judgment, Order or decree entered in any lawsuit or Proceeding applicable
      to its business and operations that would constitute a Material Adverse
      Effect on Naked or the Naked Assets, taken as a whole.

	 	 	 
	 	(c) 	
      Naked has duly filed all reports and returns required to
      be filed by it with all Governmental Bodies and has obtained all necessary
      permits and consents from such Governmental Bodies, except as may be
      required after the execution of this Agreement. All of such permits and
      consents are in full force and effect, and no Proceedings for the
      suspension or cancellation of any of them, and no investigation relating
      to any of them, is pending or, to the best knowledge of Naked, threatened,
      and Naked will not be adversely affected by the consummation of the
      Merger.

	 	 	 
	 	(d) 	
      To the best knowledge of Naked, it has operated in
      material compliance with all Applicable Laws. Naked has not received any
      notice of any violation thereof, nor is Naked aware of any valid basis
      therefor.

4.15          
Consents. Other than the filing of any documents with respect
to the Continuance and the filing of the Articles of Merger, no authorization,
approval, Order, license, permit or consent of any Governmental Body, and no
registration, declaration or filing by Naked with any such Governmental Body, is
required in order for Naked to:

	 	(a) 	
      consummate the Transaction;

	 	 	 
	 	(b) 	
      execute and deliver all of the documents and instruments
      to be delivered by Naked under this Agreement;

	 	 	 
	 	(c) 	
      duly perform and observe the terms and provisions of this
      Agreement; or

	 	 	 
	 	(d) 	
      render this Agreement legal, valid, binding and
      enforceable.

4.16          
Employees. Naked has four employees.

4.17          
Tax Matters. Naked has filed with appropriate federal, state,
provincial and local taxation authorities, all returns, reports and declarations
which are required to be filed by it and no taxing authority is asserting or
has, to the best knowledge of Naked, threatened to assert, or has any basis for
asserting against Naked any claim for additional Taxes or interest thereon or
penalty.

4.18          
Financial Statements. The Naked Financial Statements, when
completed, will be based on the books and records of Naked and will fairly
present the consolidated financial condition of Naked at the dates thereof and
the results of the operations for such periods.

4.19          
Liabilities of Naked. Naked has no Indebtedness, Liabilities or
obligations, secured or unsecured (whether accrued, absolute, contingent or
otherwise), which will not be disclosed in the Naked Financial Statements, except for those incurred in connection
with the transactions contemplated by this Agreement.

- 25 -

4.20          
Shareholder Loans. Except as disclosed in the Naked Disclosure Letter,
there are no loans or other Liabilities of Naked outstanding in favour of any of
the Naked Shareholders, any former shareholder of Naked, or any party related to
them, nor are there any loans outstanding or other amounts due to Naked from any
such Persons.

4.21          
Indebtedness to Officers and Directors. Except as disclosed in
the Naked Disclosure Letter, Naked has no Indebtedness to any director, officer,
employee or consultant of Naked.

4.22          
Valid and Binding Obligation. This Agreement, when executed and
delivered, will be duly executed and delivered by Naked and will constitute
legal, valid and binding obligations of Naked, enforceable against it in
accordance with its terms, subject only to:

	 	(a) 	
      any limitation under Applicable Laws relating to
      bankruptcy, insolvency, moratorium, reorganization and other similar laws
      relating to or affecting the enforcement of creditors' rights generally;
      and

	 	 	 
	 	(b) 	
      the fact that equitable remedies, including the remedies
      of specific performance and injunction, may only be granted in the
      discretion of a court.

4.23          
Guarantees. Naked is not a party to, or bound by, any agreement of
guarantee, indemnification, assumption or endorsement, or any like commitment,
of the obligations, Liabilities (contingent or otherwise) or Indebtedness of any
other Person.

4.24          
Absence of Other Agreements. Other than as disclosed herein or
in the Naked Disclosure Letter, Naked is not:

	 	(a) 	
      a party to any material contract;

	 	 	 
	 	(b) 	
      bound by any outstanding contract or commitment which
      requires prior approval of any change of control of Naked;

	 	 	 
	 	(c) 	
      bound by any outstanding contract or commitment except
      those entered into in the ordinary course of business; or

	 	 	 
	 	(d) 	
      in default under any material contract by which it is
      bound or under which it is entitled to the benefits of and advantages
      thereof.

4.25          
Corporate Records. Other than as disclosed in the Naked
Disclosure Letter, the corporate records and minute books of Naked contain
complete and accurate minutes of all meetings of the directors and the Naked
Shareholders held since its incorporation, and signed copies of all resolutions
duly passed or confirmed by the directors or the Naked Shareholders other than
at a meeting. The share certificate books, register of security holders,
register of transfers and register of directors and any similar corporate
records of Naked are complete and accurate in all material respects.

4.26          
No Brokers. Except for any fees that may be paid to any broker
or agent who may be retained in regards to the SBH Private Placement, Naked has
not entered into any agreement which would entitle any Person to any valid claim
against SBH or Naked for a broker's commission, finder's fee or any like payment
in respect of the Transaction or any other matters contemplated by this
Agreement.

- 26 -

4.27          
Dividends. Naked has not, directly or indirectly, declared or paid any
dividend or declared or made any other distribution on any of its shares or
securities or, directly or indirectly, redeemed, purchased or otherwise acquired
any of its shares or securities or agreed to do any of the foregoing.

4.28          
No Bankruptcy. No Proceedings have been taken, are pending or
authorized by Naked or by any other Person in respect of the bankruptcy,
insolvency, liquidation or winding up of Naked.

4.29          
Restrictions on Doing Business. Naked is not a party to or
bound by any agreement which would restrict or limit its right to carry on any
business or activity.

ARTICLE 5
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES

5.1          
Survival of Representations and Warranties. The representations
and warranties made by the Parties and contained in this Agreement will survive
the Closing for twelve months.

ARTICLE 6 
COVENANTS OF NAKED

Naked hereby covenants and agrees with SBH as follows, until
the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms:

6.1          
Investigations and Availability of Records. SBH and/or its
directors, officers, auditors, counsel and other authorized representatives will
be permitted to make such commercially reasonable investigations of the Naked
Assets and business of Naked and of its financial and legal condition as SBH
reasonably deems necessary or desirable, provided always that such
investigations will not unduly interfere with the operations of Naked. Naked
will provide copies of Naked's corporate records, including its minute books,
share ledgers and the records maintained in connection with the business of
Naked. Such investigations will not, however, affect or mitigate in any way the
representations and warranties contained in this Agreement, which
representations and warranties will continue in full force and effect for the
benefit of SBH.

6.2          
Necessary Consents. Naked will use its commercially reasonable efforts
to obtain from the Naked Shareholders and all appropriate Governmental Bodies
such approvals or consents as are required (if any) to complete the transactions
contemplated herein.

6.3          
Confidentiality.

	 	(a) 	
      Naked will keep confidential any confidential
      information, Trade Secrets or confidential financial or business documents
      (collectively the "SBH Information") received by it from SBH
      concerning SBH or its business and will not disclose such SBH Information
      to any third party, provided that any of such SBH Information may be
      disclosed to Naked's directors, officers, employees, representatives and
      professional advisors who need to know such SBH Information in connection
      with the transactions contemplated hereby (provided Naked will use
      commercially reasonable efforts to ensure that such directors, officers,
      employees, representatives and professional advisors keep confidential
      such SBH Information) and provided further that Naked will not be liable
      for disclosure of SBH Information upon occurrence of one or more of the
      following events:

- 27 -

	 		(i) 	
      SBH Information becoming generally known to the public
      other than through a breach of this Agreement;

	 	 	 	 
	 		(ii) 	
      SBH Information being lawfully obtained by Naked from a
      third party or parties without breach of this Agreement by Naked, as shown
      by documentation sufficient to establish the third party as a source of
      SBH Information;

	 	 	 	 
	 		(iii) 	
      SBH Information being known to Naked prior to disclosure
      by SBH, or its Affiliates, as shown by documentation sufficient to
      establish such knowledge; or

	 	 	 	 
	 		(iv) 	
      SBH having provided its prior written approval for such
      disclosure by Naked.

	 	 	 	 
	 	(b) 	
      In the event this Agreement is terminated in accordance
      with the provisions hereof, Naked will:

	 	 	 	 
	 		(i) 	
      use commercially reasonable efforts to ensure that all
      documents prepared or obtained in the course of its investigations of SBH
      or its business and all copies thereof are either destroyed or returned to
      SBH so as to ensure that, so far as possible, any SBH Information obtained
      during, and as a result of, such investigations by the directors,
      officers, employees, representatives and professional advisors of Naked is
      not disseminated beyond those individuals concerned with such
      investigations; and

	 	 	 	 
	 		(ii) 	
      not, directly or indirectly, use for its own purposes any
      SBH Information discovered or acquired by the directors, officers,
      employees, representatives and professional advisors of Naked as a result
      of SBH making available to them the SBH
Information.

6.4          
Status and Filings. Naked will maintain its corporate status and comply
with all applicable corporate and securities requirements, and any other
requirements of any Governmental Bodies, (including any applicable filing
requirements) prior to Closing.

6.5          
Material Change. Naked will provide prompt and full disclosure
to SBH of any material information, change or event in the business, operations,
financial condition or other affairs of Naked prior to Closing.

6.6          
Shareholder Approval. Naked will use its commercial best
efforts to obtain the approval of the Naked Shareholders for the Continuance and
the Merger. Additionally, the board of directors of Naked will recommend that
the Naked Shareholders vote in favour of and approve the Continuance and the
Merger.

6.7          
Voting Agreements. Naked will cause Naked Shareholders holding
a minimum of 51% of the issued and outstanding Naked Shares to execute and
deliver Voting Agreements pursuant to which such Naked Shareholders will
covenant to vote in favour of the Continuance and the Merger.

6.8          
Pooling Agreements. Naked will use commercial best efforts to
cause each of the Naked Shareholders to, at or prior to the Closing, enter into
a Pooling Agreement with an escrow agent to be determined by SBH (the
"Trustee"), pursuant to which such Naked Shareholders will deposit their
respective SBH Shares received in exchange for their respective Naked Shares as
a result of the Merger with the Trustee until such SBH Shares are released from
the Pooling Agreement in accordance with the terms thereof. Each Pooling
Agreement will provide, among other things, that 25% of the SBH Shares will be released 90 days after the one year anniversary of the
Closing Date and then 25% each 90 days thereafter. Each Pooling Agreement will
also provide that the holders of such SBH Shares that are subject to the Pooling
Agreement will not vote to effect a consolidation of the SBH Shares without the
consent of a special resolution of the holders of all outstanding SBH Shares,
except in the event of failure of the business of Naked or in the event that
Naked is unable to raise financing due to its capitalization structure, as
determined by a professional financier acting reasonably.

- 28 -

6.9          
Negative Covenants. Except as contemplated by this Agreement or
the Naked Material Agreements, Naked will not, without the prior written consent
of SBH, prior to the Closing Date:

	 	(a) 	
      issue any securities in itself;

	 	 	 
	 	(b) 	
      except in the ordinary course of business, sell,
      mortgage, pledge or dispose of any of the Naked Assets or subject any of
      the Naked Assets to any Encumbrance;

	 	 	 
	 	(c) 	
      acquire or agree to acquire (by merger, amalgamation,
      acquisition of securities or assets or otherwise) any Person or division
      or any assets or properties, other than in the ordinary course of
      business;

	 	 	 
	 	(d) 	
      terminate or default under any Naked Material
      Agreement;

	 	 	 
	 	(e) 	
      declare or pay any management or employee
  bonuses;

	 	 	 
	 	(f) 	
      declare or pay any dividends or distribute any of the
      Naked Assets to the Naked Shareholders or any other Persons;

	 	 	 
	 	(g) 	
      enter into any contracts, other than in the ordinary
      course of business;

	 	 	 
	 	(h) 	
      alter or amend the Charter Documents of Naked;

	 	 	 
	 	(i) 	
      make any cash payments or incur any debt outside the
      ordinary course of business;

	 	 	 
	 	(j) 	
      enter into any agreement resulting in a change of control
      of Naked;

	 	 	 
	 	(k) 	
      make any material change in accounting procedures or
      practices;

	 	 	 
	 	(l) 	
      settle any outstanding claim, dispute, litigation matter
      or tax dispute; or

	 	 	 
	 	(m) 	
      enter into any agreement or understanding to do any of
      the foregoing.

6.10          
Naked Financial Statements. Naked will prepare the Naked
Financial Statements and deliver the Naked Financial Statements to SBH prior to
the Effective Date.

6.11          
Conditions Precedent. Naked will use commercial best efforts to
cause each of the conditions precedent in Section 8.2 hereof to be complied
with.

6.12          
Standstill. From the date of execution of this Agreement until
completion of the transactions contemplated herein or the earlier termination
hereof, Naked will not, directly or indirectly, solicit, initiate, assist,
facilitate, promote or encourage proposals or offers from, entertain or enter
into discussions or negotiations with, or provide information relating to the
securities, business, operations, affairs or financial condition of Naked to,
any Person, entity or group in connection with the acquisition or distribution
of any securities of Naked, or any amalgamation, merger, consolidation,
arrangement, restructuring, refinancing, sale of any material assets or part
thereof, unless such action, matter or transaction is part of the transactions
contemplated in this Agreement or is satisfactory to, and is approved in writing
in advance by, the other Parties hereto (with such approval not being
unreasonably withheld or delayed) or is necessary to carry on the normal course
of business.

- 29 -

6.13          
All Other Action. Naked will use commercial best efforts to satisfy
each of the conditions precedent to be satisfied by it as soon as practical and
in any event before the Effective Date, and to take, or cause to be taken, all
other actions and to do, or cause to be done, all other things necessary, proper
or advisable that are commercially reasonable to permit the completion of the
Merger in accordance with the terms and conditions of this Agreement and
Applicable Laws.

ARTICLE 7
 COVENANTS OF SBH

SBH hereby covenants and agrees with Naked as follows, until
the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms:

7.1          
Investigations and Availability of Records. Naked and/or its directors,
officers, auditors, counsel and other authorized representatives will be
permitted to make such commercially reasonable investigations of the SBH Assets
and business of SBH, and of its financial and legal condition, as Naked
reasonably deems necessary or desirable, provided always that such
investigations will not unduly interfere with the operations of SBH. If
requested, SBH will provide copies of SBH's corporate records, including its
minute books, share ledgers and the records maintained in connection with the
business of SBH. Such investigations will not, however, affect or mitigate in
any way the representations and warranties contained in this Agreement, which
representations and warranties will continue in full force and effect for the
benefit of Naked.

7.2          
Necessary Consents. SBH will use its commercial best efforts to obtain
from all appropriate Governmental Bodies such approvals or consents as are
required (if any) to complete the transactions contemplated herein.

7.3          
Confidentiality.

	 	(a) 	
      SBH will keep confidential any confidential information,
      Trade Secrets or confidential financial or business documents
      (collectively the "Naked Information") received by it from Naked
      concerning Naked or its business and will not disclose such Naked
      Information to any third party, provided that any of such Naked
      Information may be disclosed to SBH's directors, officers, employees,
      representatives and professional advisors who need to know such Naked
      Information in connection with the transactions contemplated hereby
      (provided SBH will use commercially reasonable efforts to ensure that such
      directors, officers, employees, representatives and professional advisors
      keep confidential such Naked Information) and provided further that SBH
      will not be liable for disclosure of Naked Information upon the occurrence
      of one or more of the following events:

	 	 	 	 
	 		(i) 	
      Naked Information becoming generally known to the public
      other than through a breach of this Agreement;

	 	 	 	 
	 		(ii) 	
      Naked Information being lawfully obtained by SBH from a
      third party or parties without breach of this Agreement by SBH, as shown
      by documentation sufficient to establish the third party as a source of
      Naked Information;

- 30 -

	 		(iii) 	
      Naked Information being known to SBH prior to disclosure
      by Naked, or its Affiliates, as shown by documentation sufficient to
      establish such knowledge; or

	 	 	 	 
	 		(iv) 	
      Naked having provided its prior written approval for such
      disclosure by SBH.

	 	 	 	 
	 	(b) 	
      In the event this Agreement is terminated in accordance
      with the provisions hereof, SBH will:

	 	 	 	 
	 		(i) 	
      use commercially reasonable efforts to ensure that all
      documents prepared or obtained in the course of its investigations of
      Naked or its business and all copies thereof are either destroyed or
      returned to Naked so as to ensure that, so far as possible, any Naked
      Information obtained during, and as a result of, such investigations by
      the directors, officers, employees, representatives and professional
      advisors of SBH is not disseminated beyond those individuals concerned
      with such investigations; and

	 	 	 	 
	 		(ii) 	
      not, directly or indirectly, use for its own purposes,
      any Naked Information, discovered or acquired by the directors, officers,
      employees, representatives and professional advisors of SBH as a result of
      Naked making available to them the Naked
Information.

7.4          
Status and Filings. SBH will maintain its corporate status and
comply with all Applicable Securities Laws (including any applicable filing
requirements) prior to Closing.

7.5          
Material Change. SBH will provide prompt and full disclosure to
Naked of any material information, change or event in the business, operations,
financial condition or other affairs of SBH prior to Closing.

7.6          
SBH Directors. SBH will take all required action to make the
appointments of two new directors of SBH, each as nominated by Naked, which new
directors will be Joel Primus and one other director to be determined by Naked
and approved by SBH, acting reasonably, before Closing, and which appointments
will be effective on Closing or, if applicable, ten days after the filing of a
Schedule 14f-1 with the SEC in connection with the transactions contemplated by
this Agreement. Upon the effectiveness of the appointments described in this
Section 7.6, the board of directors of SBH will consist of three directors, two
of which will be the nominees of SBH described in this Section 7.6 and one of
which will be a nominee of SBH.

7.7          
SBH Officers. All officers of SBH will have agreed to resign and
nominees of Naked will be appointed to all officer positions with SBH, with such
resignations and appointments to be effective as of the Closing.

7.8          
Name Change. In connection with the Closing, the board of
directors of SBH will cause the name of SBH to be changed to "Naked Brand Group
Inc.", or such other name as requested by Naked and available for reservation
and use as indicated by the Secretary of State.

7.9          
Stock Option Plan. In connection with the Closing, the board of
directors of SBH will adopt a stock option plan which provides for the grant of
stock options to acquire an aggregate of up to 5,400,000 SBH Shares.

- 31 -

7.10          
Subco. SBH and Subco covenant and agree that Subco will not
carry on any business and will not enter into any contracts, agreements,
commitments, indentures or other instruments prior to the Effective Time other
than with respect to effecting the Merger, or as otherwise contemplated
herein.

7.11          
Negative Covenants. Except as contemplated by, or in connection
with, the Transaction, SBH will not, without the prior written consent of Naked,
prior to the Closing Date:

	 	(a) 	
      issue any securities of SBH, except in connection with
      the SBH Private Placement;

	 	 	 
	 	(b) 	
      except in the ordinary course of business, sell,
      mortgage, pledge or dispose of any of the SBH Assets or subject any of the
      SBH Assets to any Encumbrance;

	 	 	 
	 	(c) 	
      acquire or agree to acquire (by merger, amalgamation,
      acquisition of securities or assets or otherwise) any Person or division
      or any assets or properties, other than in the ordinary course of
      business;

	 	 	 
	 	(d) 	
      make any expenditure, other than in connection with
      ongoing public filing requirements;

	 	 	 
	 	(e) 	
      terminate or default under any SBH Material
      Agreements;

	 	 	 
	 	(f) 	
      declare or pay any (i) dividends or distribute any SBH
      Assets to the SBH Shareholders or (ii) management or employee
    bonuses;

	 	 	 
	 	(g) 	
      enter into any contracts;

	 	 	 
	 	(h) 	
      alter or amend the Charter Documents of SBH or
    Subco;

	 	 	 
	 	(i) 	
      make any cash payments or incur any debt outside the
      ordinary course of business;

	 	 	 
	 	(j) 	
      enter into any agreement resulting in a change of control
      of SBH or Subco;

	 	 	 
	 	(k) 	
      make any material change in accounting procedures or
      practices;

	 	 	 
	 	(l) 	
      settle any outstanding claim, dispute, litigation matter
      or tax dispute; or

	 	 	 
	 	(m) 	
      enter into any agreement or understanding to do any of
      the foregoing.

7.12          
Standstill. From the date of execution of this Agreement until
completion of the transactions contemplated herein, or the earlier termination
hereof, SBH will not, directly or indirectly, solicit, initiate, assist,
facilitate, promote or encourage proposals or offers from, entertain or enter
into discussions or negotiations with, or provide information relating to the
securities, business, operations, affairs or financial condition of SBH to any
Person, entity or group in connection with the acquisition or distribution of
any securities of SBH or any amalgamation, merger, consolidation, arrangement,
restructuring, refinancing, sale of any material assets or part thereof, unless
such action, matter or transaction is part of the transactions contemplated in
this Agreement or is satisfactory to, and is approved in writing in advance by
Naked (with such approval not being unreasonably withheld or delayed) or is
necessary to carry on the normal course of business.

7.13          
Conditions Precedent. SBH will use commercially reasonable efforts to
cause each of the conditions precedent in Section 8.3 hereof to be complied
with.

- 32 -

7.14          
All Other Action. SBH will use commercially reasonable efforts
to satisfy each of the conditions precedent to be satisfied by it as soon as
practical and in any event before the Closing Date, and to take, or cause to be
taken, all other actions and to do, or cause to be done, all other things
necessary, proper or advisable that are commercially reasonable to permit the
completion of the Transaction in accordance with the terms and conditions of
this Agreement and Applicable Laws.

ARTICLE 8
 CONDITIONS PRECEDENT

8.1          
Mutual Conditions. The respective obligations of the Parties hereto to
consummate the transactions contemplated hereby are subject to the satisfaction,
on or prior to the Closing Date, unless otherwise specified herein, of the
following conditions, any of which may be waived by the mutual consent of the
Parties without prejudice to their rights to rely on any other of such
conditions: 

	 	(a) 	
      Shareholder Approval. The Continuance and the
      Merger will have been approved by (i) the Naked Shareholders, and (ii) if
      applicable, the Naked Shareholders holding a majority of each outstanding
      class of Naked securities, and the Merger will have been approved by SBH,
      as the sole shareholder of Subco, all in accordance with the terms of this
      Agreement, the provisions of the NRS and CBCA, and the provisions of the
      Charter Documents of Naked and Subco, as applicable.

	 	 	 
	 	(b) 	
      Board Approval. The board of directors of each of
      the Parties will have approved the Closing.

	 	 	 
	 	(c) 	
      No Orders. There will not be in force any Order or
      decree restraining or enjoining the consummation of the transactions
      contemplated by this Agreement.

	 	 	 
	 	(d) 	
      Approvals and Consents. All consents, Orders and
      approvals required, necessary or desirable for the completion of the
      transactions provided for in this Agreement will have been obtained or
      received from the Persons or Governmental Bodies having jurisdiction in
      the circumstances, all on terms satisfactory to each of the Parties
      hereto, acting reasonably.

	 	 	 
	 	(e) 	
      Employment Agreements. Each of Joel Primus and
      Alex McAulay will have entered into management services or employment
      agreements with SBH or Naked.

The foregoing conditions are for the mutual benefit of Naked
and SBH and may be asserted by Naked or by SBH regardless of the circumstances
or may be waived by Naked or SBH in their sole discretion, in whole or in part,
at any time and from time to time without prejudice to any other rights which
SBH or Naked may have. If any of such conditions shall not be complied with or
waived as aforesaid on or before the Closing Date or, if earlier, the date
required for the performance thereof, then, subject to Section 8.4 hereof, a
Party hereto may rescind and terminate this Agreement by written notice to the
other Parties in circumstances where the failure to satisfy any such condition
is not the result, directly or indirectly, of a material breach of this
Agreement by such rescinding Party hereto.

8.2          
Conditions for the Benefit of SBH. The transactions
contemplated herein are subject to the following conditions to be fulfilled or
performed on or prior to the Closing Date, which conditions are for the
exclusive benefit of SBH and may be waived, in whole or in part, by SBH in its
sole discretion:

	 	(a) 	
      Truth of Representations and Warranties. The
      representations and warranties of Naked contained in this Agreement will
      have been true and correct as of the date of
this Agreement and will be true and correct as of the Closing
      Date, with the same force and effect as if such representations and
      warranties had been made on and as of such Closing Date, save and except
      in any case which would not have a Material Adverse Effect on the business
  or financial condition of Naked.

- 33 -

	 	(b) 	
      Due Diligence. SBH and its agents and
      representatives will have conducted and completed to SBH's sole
      satisfaction, acting reasonably, a legal and financial due diligence
      investigation of Naked.

	 	 	 
	 	(c) 	
      Title. SBH and its agents and representatives will
      be satisfied with respect to the status of Naked's interest in the Naked
      Assets.

	 	 	 
	 	(d) 	
      Naked Financial Statements. Naked will have
      coordinated the preparation and delivery of the Naked Financial Statements
      to SBH, and the auditors of Naked will have approved the Naked Financial
      Statements and any pro forma financial statements required to comply with
      Applicable Securities Laws, in form and content satisfactory to SBH, and
      in accordance with Applicable Securities Laws.

	 	 	 
	 	(e) 	
      Naked Expenditures. From the date of this
      Agreement, Naked will not have incurred any Liabilities other than those
      reasonably incurred in connection with the transactions contemplated in
      this Agreement or those previously disclosed to SBH, and will have spent
      its cash on hand from the date of this Agreement exclusively in accordance
      with the Naked Material Agreements, in the ordinary course of business, or
      for the purpose of completing the Transaction and the matters contemplated
      in connection therewith.

	 	 	 
	 	(f) 	
      Naked Liabilities. At the Closing, Naked's
      Liabilities, as determined in accordance with GAAP, will not exceed
      $100,000, excluding: any credit facility against inventory or receivables
      of Naked, the Bridge Loan and all costs and expenses incurred in
      connection with the preparation of this Agreement and the
    Transaction.

	 	 	 
	 	(g) 	
      Voting Agreements. Voting Agreements will have
      been executed and delivered by Naked Shareholders holding a minimum of 51%
      of the issued and outstanding Naked Shares.

	 	 	 
	 	(h) 	
      Naked Continuance. The Continuance will have been
      completed.

	 	 	 
	 	(i) 	
      No Outstanding Claims. No claim will have been
      asserted or made that any Person is the holder or the beneficial owner of,
      or has the right to acquire or to obtain beneficial ownership of, any of
      the Naked Shares, or any other voting, equity, or ownership interest in
      Naked (other than the Naked Shareholders, the Naked Warrantholders or
      Naked, as applicable), or is entitled to all or any portion of the SBH
      Shares or the SBH Warrants.

	 	 	 
	 	(j) 	
      No Material Adverse Effect. No Material Adverse
      Effect will have occurred with respect to the business of Naked, the Naked
      Assets or the Naked Shares, however arising.

	 	 	 
	 	(k) 	
      Performance of Obligations. Naked will have
      performed, fulfilled or complied with, in all material respects, all of
      its obligations, covenants and agreements contained in this Agreement to
      be fulfilled or complied with by it at or prior to the Closing
  Date.

- 34 -

	 	(l) 	
      Deliveries. Naked will deliver or cause to be
      delivered to SBH the closing documents set forth in Section 9.2, in a form
      satisfactory to SBH acting reasonably.

	 	 	 
	 	(m) 	
      Proceedings. All Proceedings to be taken in
      connection with the transactions contemplated in this Agreement will be
      satisfactory in form and substance to SBH, acting reasonably, and SBH will
      have received copies of all instruments and other evidence as it may
      reasonably request from Naked or any other Person in order to establish
      the consummation or closing of such transactions and the taking of all
      necessary Proceedings in connection therewith.

	 	 	 
	 	(n) 	
      No Legal Action. No action or Proceeding will be
      pending or threatened by any Person in any jurisdiction, to enjoin,
      restrict or prohibit any of the transactions contemplated by this
      Agreement or the right of Naked to conduct its business after the
      Effective Time on substantially the same basis as operated immediately
      prior to the date hereof.

The conditions described in this Section 8.2 are for the
exclusive benefit of SBH and may be asserted by SBH, regardless of the
circumstances, or may be waived by SBH in its sole discretion, in whole or in
part, at any time and from time to time without prejudice to any other rights
which SBH may have. If any of such conditions shall not be complied with or
waived as aforesaid on or before the Closing Date or, if earlier, the date
required for the performance thereof, then, subject to Section 8.4 hereof, SBH
may rescind and terminate this Agreement by written notice to Naked in
circumstances where the failure to satisfy any such condition is not the result,
directly or indirectly, of a material breach of this Agreement by SBH.

8.3          
Conditions for the Benefit of Naked. The transactions contemplated
herein are subject to the following conditions to be fulfilled or performed on
or prior to the Closing Date, or such other date as provided for herein, which
conditions are for the exclusive benefit of SBH and may be waived, in whole or
in part, by SBH in its sole discretion:

	 	(a) 	
      Truth of Representations and Warranties. The
      representations and warranties of SBH contained in this Agreement will
      have been true and correct as of the date of this Agreement and will be
      true and correct as of the Closing Date, with the same force and effect as
      if such representations and warranties had been made on and as of the
      Closing Date, save and except in any case which would not have a Material
      Adverse Effect on the business or financial condition of SBH.

	 	 	 
	 	(b) 	
      Due Diligence. Naked and its agents and
      representatives will have conducted and completed, to Naked's
      satisfaction, acting reasonably, a legal and financial due diligence
      investigation of SBH.

	 	 	 
	 	(c) 	
      Title. Naked and its agents and representatives
      will be satisfied with respect to the status of SBH's interest in the SBH
      Assets.

	 	 	 
	 	(d) 	
      SBH Private Placement. The SBH Private Placement
      will have been completed and the board of directors of SBH will have
      approved the payment to Naked at the Closing of working capital in the
      amount of $650,000, after payment of all outstanding SBH
    Liabilities.

	 	 	 
	 	(e) 	
      SBH Capital Structure. Immediately prior to the
      Closing, SBH will have no more than 13,500,000 SBH Shares outstanding
      (including any SBH Shares to be issued in connection with the SBH Private Placement but excluding
      any SBH Shares to be issued to the Naked Shareholders), and no Persons
      will have any agreement or option or any right or privilege (whether by
      law, pre-emptive or contractual) capable of becoming an agreement or
      option for the purchase, subscription or issuance of any SBH Shares or
      other securities of SBH or Subco, or securities convertible into,
      exchangeable for, or which carry the right to purchase SBH Shares or other
      securities of SBH or Subco, except as contemplated in connection with the
  Transaction or the SBH Private Placement.

- 35 -

	 	(f) 	
      Performance of Obligations. SBH will have
      performed, fulfilled or complied with, in all material respects, all of
      its obligations, covenants and agreements contained in this Agreement to
      be fulfilled or complied with by SBH at or prior to the Closing
    Date.

	 	 	 
	 	(g) 	
      Deliveries. SBH will deliver or cause to be
      delivered to Naked the closing documents set forth in Section 9.3, in a
      form satisfactory to Naked acting reasonably.

	 	 	 
	 	(h) 	
      Proceedings. All Proceedings to be taken in
      connection with the transactions contemplated in this Agreement will be
      satisfactory in form and substance to Naked, acting reasonably, and Naked
      will have received copies of all instruments and other evidence as it may
      reasonably request in order to establish the consummation or closing of
      such transactions and the taking of all necessary Proceedings in
      connection therewith.

	 	 	 
	 	(i) 	
      No Legal Action. No action or Proceeding will be
      pending or threatened by any Person in any jurisdiction, to enjoin,
      restrict or prohibit any of the transactions contemplated by this
      Agreement.

	 	 	 
	 	(j) 	
      No Material Adverse Effect. No Material Adverse
      Effect will have occurred with respect to the business of SBH, Subco, the
      SBH Assets or the SBH Shares, however arising.

	 	 	 
	 	(k) 	
      SBH Expenditures. From the date of this Agreement,
      SBH will not have incurred any Liabilities other than those reasonably
      incurred in connection with the transactions contemplated in this
      Agreement, and will have spent its cash on hand from the date of this
      Agreement exclusively in the ordinary course of business and for the
      purpose of completing the Transaction and the matters contemplated in
      connection therewith.

The conditions described in this Section 8.3 are for the
exclusive benefit of Naked and may be asserted by Naked, regardless of the
circumstances, or may be waived by Naked in its sole discretion, in whole or in
part, at any time and from time to time without prejudice to any other rights
which Naked may have. If any of such conditions shall not be complied with or
waived as aforesaid on or before the Closing Date or, if earlier, the date
required for the performance thereof, then, subject to Section 8.4 hereof, Naked
may rescind and terminate this Agreement by written notice to SBH in
circumstances where the failure to satisfy any such condition is not the result,
directly or indirectly, of a material breach of this Agreement by Naked.

8.4          
Notice and Effect of Failure to Comply with Conditions.

	 	(a) 	
      Each of Naked and SBH will give prompt notice to the
      other of the occurrence, or failure to occur, at any time from the date
      hereof to the Closing Date, of any event or state of facts which
      occurrence or failure would be likely to: (i) cause any of
  the representations or warranties of any Party contained
      herein to be untrue or inaccurate in any material respect, or (ii) result
      in the failure to comply with or satisfy any covenant, condition or
      agreement to be complied with or satisfied by any Party hereunder,
      provided, however, that no such notification will affect the
      representations or warranties of the Parties or the conditions or
  obligations of the Parties hereunder.

- 36 -

	 	(b) 	
      If any of the conditions precedent set forth in Sections
      8.1, 8.2 or 8.3 are not complied with or waived by the Party for whose
      benefit such conditions are provided on or before the date required for
      the performance thereof, then a Party for whose benefit the condition
      precedent is provided may, in addition to any other remedies they may have
      at law or equity, rescind and terminate this Agreement (as further
      provided for in Section 10.2), provided that, prior to filing the Articles
      of Merger for the purpose of giving effect to the Merger, the Party
      intending to rely thereon has delivered a written notice to the other
      Parties specifying, in reasonable detail, all breaches of covenants,
      representations and warranties or other matters which the Party delivering
      such notice is asserting as the basis for the non-fulfillment of the
      applicable conditions precedent, and the Party or Parties in breach will
      have failed to cure such breach within three (3) Business Days of receipt
      of such written notice (except that no cure period will be provided for a
      breach which, by its nature, cannot be cured). More than one such notice
      may be delivered by a Party.

8.5          
Satisfaction of Conditions. The conditions set out in Sections
8.1, 8.2 and 8.3 will be conclusively deemed to have been satisfied, waived or
released on the filing by Naked of the Articles of Merger, and such other
documents as are required to be filed under the NRS for acceptance by the
Secretary of State to give effect to the Merger.

ARTICLE 9 
CLOSING

9.1          
Time of Closing. The Closing will be completed at the offices
of Clark Wilson LLP at 11:00 a.m. (Vancouver time) on the Closing Date. 

9.2          
Naked Closing Documents. On the Closing Date, Naked will deliver to SBH
the following documents:

	 	(a) 	
      all such instruments of transfer, duly executed, which,
      in the opinion of SBH acting reasonably, are necessary to effect and
      evidence the transfer of the Naked Shares and the Naked Warrants to SBH,
      free and clear of all Encumbrances;

	 	 	 
	 	(b) 	
      an executed Non-US Certificate from each of the Naked
      Shareholders and Naked Warrantholders;

	 	 	 
	 	(c) 	
      a certified copy of the resolutions of the board of
      directors of Naked and the Naked Shareholders approving and authorizing
      the entry into this Agreement and the completion of the transactions
      contemplated herein;

	 	 	 
	 	(d) 	
      a certificate of good standing for Naked, dated within
      two Business Days of the Closing Date, issued by the Secretary of
      State;

	 	 	 
	 	(e) 	
      a copy of the Charter Documents of Naked, certified by a
      duly authorized officer of Naked to be true and complete as of the Closing
      Date;

- 37 -

	 	(f) 	
      the corporate minute books and all other books and
      records of Naked and copies of all Naked Material Agreements;

	 	 	 
	 	(g) 	
      consents to act as directors and/or officers of SBH from
      each of the officer and director nominees of Naked;

	 	 	 
	 	(h) 	
      a certificate of a duly authorized officer of Naked,
      dated as of the Closing Date, certifying that the representations and
      warranties of Naked set out in this Agreement are true and correct in all
      material respects on and as of the Closing Date, and that all of the
      terms, covenants and conditions of Naked set out in this Agreement have
      been complied with or performed by Naked in all material respects on and
      as of the Closing Date; and

	 	 	 
	 	(i) 	
      such other closing documents as may be required by SBH,
      acting reasonably.

9.3          
SBH Closing Documents. On the day of Closing, SBH will deliver
to Naked the following documents:

	 	(a) 	
      share certificates in the respective names of the Naked
      Shareholders who are to receive SBH Shares pursuant to the Merger in
      accordance with Section 2.8(i);

	 	 	 
	 	(b) 	
      warrant certificates in the respective names of the Naked
      Warrantholders who are to receive SBH Warrants pursuant to the Merger in
      accordance with Section 2.8(ii);

	 	 	 
	 	(c) 	
      a certified copy of the resolutions of the directors of
      SBH and Subco, and of SBH as the sole shareholder of Subco, approving and
      authorizing the entry into this Agreement and the completion of the
      transactions contemplated herein, including the appointment of the
      nominees of Naked as directors of SBH, to be effective as of the Closing
      Date;

	 	 	 
	 	(d) 	
      certificates of good standing for SBH and Subco dated
      within two Business Days of the Closing Date, issued by the Secretary of
      State;

	 	 	 
	 	(e) 	
      a copy of the Charter Documents of SBH, certified by a
      duly authorized officer of SBH to be true and complete as of the Closing
      Date;

	 	 	 
	 	(f) 	
      a certificate of a duly authorized officer of SBH, dated
      as of the Closing Date, certifying that the representations and warranties
      of SBH and Subco set out in the Agreement are true and correct in all
      material respects on and as of the Closing Date, and that all of the
      terms, covenants and conditions of SBH and Subco set out in the Agreement
      have been complied with or performed by SBH and Subco in all material
      respects on and as of the Closing Date;

	 	 	 
	 	(g) 	
      a certified copy of the resolutions of the board of
      directors of SBH approving the name change of SBH to "Naked Brand Group
      Inc.", or such other name as requested by Naked and available for
      reservation and use as indicated by the Secretary of State;

	 	 	 
	 	(h) 	
      the corporate minute books and all other books and
      records of SBH and Subco; and

	 	 	 
	 	(i) 	
      such other closing documents as may be required by SBH,
      acting reasonably.

- 38 -

ARTICLE 10 
AMENDMENT AND TERMINATION

10.1          
Amendment. This Agreement may at any time and from time to time, before
or after receipt of approval of the Naked Shareholders, be amended by written
agreement of the Parties, subject to Applicable Laws, without further notice to
or authorization on the part of the Naked Shareholders, and any such amendment
may, without limitation:

	 	(a) 	
      change the time for performance of any of the obligations
      or acts of the Parties hereto;

	 	 	 
	 	(b) 	
      waive any inaccuracies or modify any representation or
      warranty contained herein or in any document delivered pursuant
    hereto;

	 	 	 
	 	(c) 	
      waive compliance with or modify any of the covenants
      contained in this Agreement and waive or modify performance of any of the
      obligations of the Parties; or

	 	 	 
	 	(d) 	
      waive compliance with or modify any other conditions
      precedent contained herein,

provided that no such amendment decreases the number of SBH
Shares to be received by the Naked Shareholders or the number of SBH Warrants to
be received by the Naked Warrantholders pursuant to the Merger without approval
by the Naked Shareholders given in the manner required for approval of the
Merger.

10.2          
Termination.

	 	(a) 	
      This Agreement may, prior to the filing of the Articles
      of Merger, be terminated by mutual written agreement of SBH and Naked,
      without further action on the part of the Naked Shareholders.

	 	 	 	 
	 	(b) 	
      This Agreement may, prior to the filing of the Articles
      of Merger, be terminated by either SBH or Naked if the Closing has not
      occurred on or before the Closing Date (provided, that the right to
      terminate this Agreement under this Section 10.2(b) will not be available
      to any Party whose failure to fulfill any of its obligations under this
      Agreement has been the cause of, or resulted in, the failure to consummate
      the Transaction by such date).

	 	 	 	 
	 	(c) 	
      Notwithstanding any other rights contained herein, SBH
      may terminate this Agreement, prior to the filing of the Articles of
      Merger, upon three (3) Business Days written notice to Naked,
if:

	 	 	 	 
	 		(i) 	
      the Continuance and/or the Merger are not approved by the
      Naked Shareholders at a meeting of the Naked Shareholders called to
      approve the Continuance and the Merger;

	 	 	 	 
	 		(ii) 	
      a Material Adverse Change in respect of Naked has
      occurred after the date of this Agreement;

	 	 	 	 
	 		(iii) 	
      Naked is in breach of any of its covenants, agreements or
      representations contained herein that would have a Material Adverse Effect
      on Naked or on the ability of Naked and SBH to consummate the transactions
      contemplated hereby and Naked fails to cure such breach within three (3)
      Business Days after receipt of written notice thereof from SBH (except that no cure
      period shall be provided for a breach which, by its nature, cannot be
  cured);

- 39 -

	 		(iv) 	
      a right of termination of this Agreement has arisen
      pursuant to Sections 8.1 or 8.2 hereof; or

	 	 	 	 
	 		(v) 	
      any permanent injunction or other Order of a Governmental
      Body of competent authority preventing the consummation of the Transaction
      has become final and non-appealable.

	 	 	 	 
	 	(d) 	
      Notwithstanding any other rights contained herein, Naked
      may terminate this Agreement, prior to the filing of the Articles of
      Merger, upon three (3) Business Days written notice to SBH, if:

	 	 	 	 
	 		(i) 	
      the Merger is not approved by the Naked
    Shareholders;

	 	 	 	 
	 		(ii) 	
      a Material Adverse Change in respect of SBH has occurred
      after the date of this Agreement;

	 	 	 	 
	 		(iii) 	
      SBH or Subco is in breach of any of its covenants,
      agreements or representations contained herein that would have a Material
      Adverse Effect on SBH or Subco or on the ability of the Parties to
      consummate the transactions contemplated hereby and SBH or Subco, as
      applicable, fails to cure such breach within three (3) Business Days after
      receipt of written notice thereof from Naked (except that no cure period
      shall be provided for a breach which, by its nature, cannot be
    cured);

	 	 	 	 
	 		(iv) 	
      a right of termination of this Agreement has arisen
      pursuant to Sections 8.1 or 8.3 hereof, or

	 	 	 	 
	 		(v) 	
      any permanent injunction or other Order of a Governmental
      Body of competent authority preventing the consummation of the Transaction
      has become final and non-appealable.

10.3          
Effect of Termination. In the event of the termination of this
Agreement as provided in Section 10.2, this Agreement will be of no further
force or effect and there will be no further obligations on the part of any of
the Parties to this Agreement, except with respect to Article 11, which will
survive such termination, provided however, that no termination of this
Agreement will relieve any Party of liability for any breaches of this Agreement
that are based on a wrongful refusal or failure to perform any obligations under
this Agreement.

10.4          
Waivers and Extensions. At any time prior to the Closing, each
of the Parties may (a) extend the time for the performance of any of the
obligations or other acts of another Party hereto; (b) waive any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto; or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver will be valid if set
forth in an instrument in writing signed by the Party to be bound thereby.

- 40 -

ARTICLE 11
 INDEMNITIES

11.1          
Agreement of SBH to Indemnify. SBH agrees to indemnify, defend,
and hold harmless Naked, to the full extent of the law, from, against, and in
respect of any and all Losses asserted against, relating to, imposed upon, or
incurred by Naked by reason of, resulting from, based upon or arising out
of:

	 	(a) 	
      the material breach by SBH or Subco of any representation
      or warranty of SBH or Subco contained in or made pursuant to this
      Agreement or any certificate or other instrument delivered pursuant to
      this Agreement; or

	 	 	 
	 	(b) 	
      the material breach or partial breach by SBH of any
      covenant or agreement of SBH made in or pursuant to this Agreement or any
      certificate or other instrument delivered pursuant to this
    Agreement.

11.2          
Agreement of Naked to Indemnify. Naked agrees to indemnify,
defend, and hold harmless SBH, to the full extent of the law, from, against, and
in respect of any and all Losses asserted against, relating to, imposed upon, or
incurred by SBH by reason of, resulting from, based upon or arising out of:

	 	(a) 	
      the material breach by Naked of any representation or
      warranty of Naked contained in or made pursuant to this Agreement or any
      certificate or other instrument delivered pursuant to this Agreement;
      or

	 	 	 
	 	(b) 	
      the material breach or partial breach by Naked of any
      covenant or agreement of Naked made in or pursuant to this Agreement or
      any certificate or other instrument delivered pursuant to this
      Agreement.

11.3          
Third Party Claims.

	 	(a) 	
      If any third party notifies a Party entitled to
      indemnification under Section 11.1 or 11.2 (each, an "Indemnified
      Party") with respect to any matter (a "Third-Party Claim")
      which may give rise to an indemnity claim against a Party required to
      indemnify such Indemnified Party under Section 11.1 or 11.2 (each an
      "Indemnifying Party"), then the Indemnified Party will promptly
      give written notice to Indemnifying Party; provided, however, that no
      delay on the part of the Indemnified Party in notifying the Indemnifying
      Party will relieve the Indemnifying Party from any obligation under this
      Article 11, except to the extent such delay actually and materially
      prejudices the Indemnifying Party.

	 	 	 
	 	(b) 	
      The Indemnifying Party will be entitled to participate in
      the defense of any Third-Party Claim that is the subject of a notice given
      by the Indemnified Party pursuant to Section 11.3(a). In addition, the
      Indemnifying Party will have the right to defend the Indemnified Party
      against the Third-Party Claim with counsel of its choice reasonably
      satisfactory to the Indemnified Party so long as (i) the Indemnifying
      Party gives written notice to the Indemnified Party within fifteen days
      after the Indemnified Party has given notice of the Third-Party Claim that
      the Indemnifying Party elects to assume the defense of such Third-Party
      Claim, (ii) the Indemnifying Party provides the Indemnified Party with
      evidence reasonably acceptable to the Indemnified Party that the
      Indemnifying Party will have adequate financial resources to defend
      against the Third-Party Claim and fulfill its indemnification
      obligations hereunder, (iii) if the Indemnifying Party is a Party to the
      Third-Party Claim or, in the reasonable opinion of the indemnified Party
      some other actual or potential conflict of interest exists between the
      Indemnifying Party and the Indemnified Party, the Indemnified Party
      determines in good faith that joint representation would not be
      inappropriate, (iv) the Third-Party Claim does not relate to or otherwise
      arise in connection with Taxes or any criminal or regulatory enforcement
      action, (v) settlement of, an adverse judgment with respect to or the
      Indemnifying Party's conduct of the defense of the Third-Party Claim is
      not, in the good faith judgment of the Indemnified Party, likely to be
      materially adverse to the Indemnified Party's reputation or continuing
      business interests (including its relationships with current or potential
      customers, suppliers or other parties material to the conduct of its
      Business) and (vi) the Indemnifying Party conducts the defense of the
      Third-Party Claim actively and diligently. The Indemnified Party may
      retain separate co-counsel at its sole cost and expense and participate in
      the defense of the Third-Party Claim; provided, however, that the
      Indemnifying Party will pay the reasonable fees and expenses of separate
      co-counsel retained by the Indemnified Party that are incurred prior to
      Indemnifying Party's assumption of control of the defense of the
  Third-Party Claim.

- 41 -

	 	(c) 	
      The Indemnifying Party will not consent to the entry of
      any judgment or enter into any compromise or settlement with respect to
      the Third-Party Claim without the prior written consent of the Indemnified
      Party unless such judgment, compromise or settlement (i) provides for the
      payment by the Indemnifying Party of money as sole relief for the
      claimant, (ii) results in the full and general release of the Indemnified
      Party from all Liabilities arising or relating to, or in connection with,
      the Third-Party Claim and (iii) involves no finding or admission of any
      violation of Applicable Laws or the rights of any Person and has no effect
      on any other claims that may be made against the Indemnified
  Party.

	 	 	 
	 	(d) 	
      If the Indemnifying Party does not deliver the notice
      contemplated by Section 11.3(b)(i), or the evidence contemplated by
      Section 11.3(b)(ii), within fifteen days after the Indemnified Party has
      given notice of the Third-Party Claim, or otherwise at any time fails to
      conduct the defense of the Third-Party Claim actively and diligently, the
      Indemnified Party may defend, and may consent to the entry of any judgment
      or enter into any compromise or settlement with respect to, the
      Third-Party Claim in any manner it may deem appropriate; provided,
      however, that the Indemnifying Party will not be bound by the entry of any
      such judgment consented to, or any such compromise or settlement effected,
      without its prior written consent (which consent will not be unreasonably
      withheld or delayed). In the event that the Indemnified Party conducts the
      defense of the Third-Party Claim pursuant to this Section 11.3(d), the
      Indemnifying Party will (i) advance the Indemnified Party promptly and
      periodically for the costs of defending against the Third-Party Claim
      (including reasonable attorneys' fees and expenses) and (ii) remain
      responsible for any and all other Losses that the Indemnified Party may
      incur or suffer resulting from, arising out of, relating to, in the nature
      of or caused by the Third-Party Claim to the fullest extent provided in
      this Article 11.

11.4          
Indemnifications Not Affected by Investigation. The right to
indemnification, payment of Damages or other remedy based on the
representations, warranties, covenants, and obligations contained herein will
not be affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant or obligation. The
waiver of any condition based on the accuracy of any representation or warranty,
or on the performance of or compliance with any covenant or obligation, will not
affect the right to indemnification, payment of Damages, or other remedy based
on such representations, warranties, covenants, and obligations.

- 42 -

ARTICLE 12 
GENERAL

12.1          
Expenses. All costs and expenses incurred in connection with the
preparation of this Agreement and the Transaction will be paid by the Party
incurring such expenses. 

12.2          
Assignment. No Parties to this Agreement may assign any of
their respective rights under this Agreement without the prior consent of each
of the other Parties. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of, the
successors and permitted assigns of each of the Parties, as applicable. Nothing
expressed or referred to in this Agreement will be construed to give any Person
other than the Parties to this Agreement any legal or equitable right, remedy or
claim under, or with respect to, this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the Parties to this Agreement and their successors
and assigns, as applicable.

12.3          
Notices. Any notice required or permitted to be given under
this Agreement will be in writing and may be given by delivering, sending by
electronic facsimile transmission or other means of electronic communication
capable of producing a printed copy, or sending by prepaid registered mail, the
notice to the following address or number:

	 	(a) 	
      If to SBH or Subco:

	 	Search by Headlines.com Corp. 
	 	3250 Oakland Hills Court 
	 	Fairfield, California 
	 	USA 94534 	  
	 	  	  
	 	Attention: 	James P. Geiskopf 
	 	Telephone: 	(604) 558-0022 
	 	Email: 	jgeiskopf@aol.com 

With a copy (which will not constitute
notice) to:

	 	Clark Wilson LLP 
	 	Barristers & Solicitors 
	 	800 – 885 West Georgia Street 
	 	Vancouver, British Columbia 
	 	Canada V6C 3H1 
	 	  	  
	 	Attention: 	Virgil Z. Hlus 
	 	Telephone: 	(604) 891-7707 
	 	Facsimile: 	(604) 687-6314 

- 43 -

	 	(b) 	
      If to Naked:

	 	Naked Boxer Brief Clothing Inc. 
	 	2 – 34346 Manufacturers Way 
	 	Abbotsford, British Columbia 
	 	Canada V2S 7M1 
	 	  	  
	 	Attention: 	Joel Primus 
	 	Telephone: 	(877) 592-4767 
	 	Facsimile: 	(877) 366-4767 

With a copy (which will not constitute
notice) to:

	 	Beadle Woods, Business Lawyers 
	 	600 – 1090 West Georgia Street 
	 	Vancouver, British Columbia 
	 	Canada V6E 3V7 
	 	  	  
	 	Attention: 	Michael R. Raven, Esq. 
	 	Telephone: 	(604) 899-6400 
	 	Facsimile: 	(604) 357-1030 

(or to such other address or number as any Party may specify by
notice in writing to another Party).

Any notice delivered or sent by electronic facsimile
transmission or other means of electronic communication capable of producing a
printed copy on a Business Day will be deemed conclusively to have been
effectively given on the day the notice was delivered, or the transmission was
sent successfully to the number set out above, as the case may be. Any notice
sent by prepaid registered mail will be deemed conclusively to have been
effectively given on the third Business Day after posting; but if at the time of
posting or between the time of posting and the third Business Day thereafter
there is a strike, lockout, or other labour disturbance affecting postal
service, then the notice will not be effectively given until actually
delivered.

12.4          
Governing Law; Venue. This Agreement, the legal relations between the
Parties and the adjudication and the enforcement thereof, will be governed by
and interpreted and construed in accordance with the substantive laws of the
Province of British Columbia without regard to applicable choice of law
provisions thereof. The Parties hereto agree that any Proceeding arising out of
or relating to this Agreement or the Transaction will be brought in a suitable
court located in the Province of British Columbia and each Party hereto
irrevocably submits to the exclusive jurisdiction of those courts.

12.5          
Severability. If any covenant or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by reason of any
rule of law or public policy, then such covenant or other provision will be
severed from and will not affect any other covenant or other provision of this
Agreement, and this Agreement will be construed as if such invalid, illegal, or
unenforceable covenant or provision had never been contained in this Agreement.
All other covenants and provisions of this Agreement will, nevertheless, remain
in full force and effect and no covenant or provision will be deemed dependent
upon any other covenant or provision unless so expressed herein.

12.6          
Independent Legal Advice. Each of the Parties acknowledges that
it has had independent legal advice regarding the execution of this Agreement,
or has been advised of its respective right to obtain independent legal advice,
and if it has not in fact obtained independent legal advice, such Party acknowledges herewith that it understands the contents of
this Agreement and that it is executing the same voluntarily and without
pressure from the other Parties or anyone on their behalf.

- 44 -

12.7          
Entire Agreement. This Agreement, the schedules attached hereto
and the other Transaction Documents contain the entire agreement between the
Parties with respect to the subject matter hereof and supersede all prior
arrangements and understandings, both written and oral, expressed or implied,
with respect thereto, including, without limitation, the Letter of Intent. Any
preceding correspondence or offers are expressly superseded and terminated by
this Agreement.

12.8          
Further Assurances. SBH, Naked and Subco, upon the request of any other
Party to this Agreement, whether before or after the Closing, will do, execute,
acknowledge and deliver or cause to be done, executed, acknowledged or delivered
all such further acts, deeds, documents, assignments, transfers, conveyances,
powers of attorney and assurances as may be reasonably necessary or desirable to
effect complete consummation of the Transaction.

12.9          
Regulatory Approval. This Agreement is subject to regulatory
approval.

12.10          
Time. Time is of the essence of this Agreement.

12.11          
Waiver. No failure on the part of any Party to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
Party in exercising any power, right, privilege or remedy under this Agreement,
will operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy will
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy. No Party will be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such Party; and any such waiver will not be applicable or have any
effect except in the specific instance in which it is given.

12.12          
Force Majeure. The obligations of the Parties and the time frames
established in this Agreement will be suspended to the extent and for the period
that performance is prevented by any cause beyond either Party's reasonable
control, whether foreseeable or unforeseeable, including, without limitation,
labour disputes, acts of God, laws, regulations, Orders, proclamations or
requests of any governmental authority, inability to obtain on reasonable terms
required permits, licenses, or other authorizations, or any other matter similar
to the above.

12.13          
Counterparts and Facsimile Transmission. This Agreement may be executed
in several counterparts, each of which will be deemed to be an original and all
of which will together constitute one and the same instrument and delivery of an
executed copy of this Agreement by electronic facsimile transmission or other
means of electronic communication capable of producing a printed copy will be
deemed to be execution and delivery of this Agreement as of the date set forth
on page one of this Agreement.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

- 45 -

IN WITNESS WHEREOF the Parties have duly executed this
Agreement as of the day and year first above written.

SEARCH BY HEADLINES.COM CORP.

	Per: 	/s/ James P. Geiskopf 	 
	  	Authorized Signatory 	 

SBH ACQUISITION CORP.

	Per: 	/s/ James P. Geiskopf 	 
	  	Authorized Signatory 	 

NAKED BOXER BRIEF CLOTHING INC.

	Per: 	/s/ Joel Primus 	 
	  	Authorized Signatory 	 

A-1

SCHEDULE A

FORM OF ARTICLES OF MERGER

[see attached]

B-1

SCHEDULE "B"

CERTIFICATE OF NON-U.S. SECURITYHOLDER

In connection with the closing of that certain Acquisition
Agreement dated February <>, 2012 (the "Agreement") among Search by
Headlines.com Corp ("SBH"), SBH Acquisition Corp. and Naked Boxer Brief
Clothing Inc. ("Naked") with respect to the acquisition of Naked by SBH,
the undersigned securityholder of Naked (the "Securityholder") is
required to deliver this certificate (this "Certificate"), together with
the certificates representing their securities of Naked (the "Naked
Securities") to SBH prior to the issuance of any securities of SBH (the
"SBH Securities") to the Securityholder in accordance with the terms of
the Agreement. Accordingly, the Securityholder hereby agrees, acknowledges,
represents and warrants to SBH that:

	1. 	
      the Securityholder is not a "U.S. Person", as such
      term is defined by Rule 902 of Regulation S ("Regulation S") under
      the United States Securities Act of 1933, as amended (the "U.S.
      Securities Act") (the definition of which includes, but is not limited
      to, an individual resident in the U.S., an estate or trust of which any
      executor or administrator is a U.S. Person, and any partnership or
      corporation organized or incorporated under the laws of the United
      States);

	 	 
	2. 	
      none of the SBH Securities have been or will be
      registered under the U.S. Securities Act, or under any state securities or
      "blue sky" laws of any state of the United States, and may not be offered
      or sold in the United States or, directly or indirectly, to any U.S.
      Person except in accordance with the provisions of Regulation S or
      pursuant to an exemption from, or in a transaction not subject to, the
      registration requirements of the U.S. Securities Act, and in compliance
      with any applicable state and foreign securities laws;

	 	 
	3. 	
      the Securityholder understands and agrees that offers and
      sales of any of the SBH Securities prior to the expiration of a period of
      six months after the date of original issuance of the SBH Securities (the
      six month period hereinafter referred to as the "Distribution Compliance
      Period") shall only be made in compliance with the safe harbor provisions
      set forth in Regulation S, pursuant to the registration provisions of the
      U.S. Securities Act or an exemption therefrom, and that all offers and
      sales after the Distribution Compliance Period shall be made only in
      compliance with the registration provisions of the U.S. Securities Act or
      an exemption therefrom and in each case only in accordance with applicable
      state and foreign securities laws;

	 	 
	4. 	
      the Securityholder understands and agrees not to engage
      in any hedging transactions involving any of the SBH Securities unless
      such transactions are in compliance with the provisions of the U.S.
      Securities Act, and in each case only in accordance with applicable state
      and provincial securities laws;

	 	 
	5. 	
      the Securityholder is acquiring the SBH Securities for
      investment only and not with a view to resale or distribution and, in
      particular, the Securityholder has no intention to distribute, either
      directly or indirectly, any of the SBH Securities in the United States or
      to any U.S. Person;

	 	 
	6. 	
      the Securityholder has been advised to consult the
      Securityholder's own legal, tax and other advisors with respect to the
      merits and risks of the acquisition of the SBH Securities and with respect
      to applicable resale restrictions, and it is solely responsible (and SBH
      is not in any way responsible) for compliance
with:

B-2

	 	(a) 	
      any applicable laws of the jurisdiction in which the
      Subscriber is resident in connection with the distribution of the Shares
      hereunder, and

	 	 	 
	 	(b) 	
      applicable resale
restrictions;

	7. 	
      the Securityholder has not acquired the SBH Securities as
      a result of, and will not itself engage in, any "directed selling
      efforts" (as defined in Regulation S) in the United States in respect
      of the SBH Securities, which directed selling efforts would include any
      activities undertaken for the purpose of, or that could reasonably be
      expected to have the effect of, conditioning the market in the United
      States for the resale of any of the SBH Securities; provided, however,
      that the Securityholder may sell or otherwise dispose of the SBH
      Securities pursuant to registration thereof under the U.S. Securities Act
      and any applicable state and provincial securities laws, or under an
      exemption from such applicable laws;

	 	 
	8. 	
      the statutory and regulatory basis for the exemption
      claimed for the issuance of the SBH Securities, although in technical
      compliance with Regulation S, would not be available if the issuance is
      part of a plan or scheme to evade the registration provisions of the U.S.
      Securities Act or any applicable state or provincial securities
    laws;

	 	 
	9. 	
      SBH has not undertaken to register, and will have no
      obligation to register, any of the SBH Securities under the U.S.
      Securities Act or any other applicable laws;

	 	 
	10. 	
      SBH is entitled to rely on the acknowledgements,
      agreements, representations and warranties of the Securityholder contained
      in this Certificate, and the Securityholder will hold harmless SBH from
      any loss or damage either one may suffer as a result of any such
      acknowledgements, agreements, representations and/or warranties made by
      the Securityholder not being true and correct;

	 	 
	11. 	
      the Securityholder and the Securityholder's advisor(s)
      have had a reasonable opportunity to ask questions of and receive answers
      from SBH in connection with the acquisition of the SBH Securities in
      connection with the Agreement and to obtain additional information to the
      extent possessed or obtainable by SBH without unreasonable effort or
      expense;

	 	 
	12. 	
      the books and records of SBH were available upon
      reasonable notice for inspection, subject to certain confidentiality
      restrictions, by the Securityholder during reasonable business hours at
      its principal place of business, and all documents, records and books in
      connection with the acquisition of the SBH Securities under the Agreement
      were made available by SBH for inspection by the Securityholder and/or the
      Securityholder's advisor(s);

	 	 
	13. 	
      the Securityholder is knowledgeable of, or has been
      independently advised as to, the applicable securities laws of the
      securities regulators having application in the jurisdiction in which the
      Securityholder is resident (the "International Jurisdiction") which
      would apply to the acquisition of the SBH Securities;

	 	 
	14. 	
      the Securityholder is acquiring the SBH Securities
      pursuant to exemptions from prospectus or equivalent requirements under
      applicable securities laws or, if such are not applicable, the
      Securityholder is permitted to acquire the SBH Securities under the
      applicable securities laws of the securities regulators in the
      International Jurisdiction without the need to rely on any
    exemptions;

B-3

	15. 	
      the applicable securities laws in the International
      Jurisdiction do not require SBH to make any filings or seek any approvals
      of any kind whatsoever from any securities regulator of any kind
      whatsoever in the International Jurisdiction in connection with the issue
      and sale or resale of the SBH Securities;

	 	 	 
	16. 	
      the acquisition of the SBH Securities by the
      Securityholder does not trigger:

	 	 	 
		(a) 	
      any obligation of SBH to prepare and file a prospectus or
      similar document, or any other report, with respect to such acquisition in
      the International Jurisdiction; or

	 	 	 
		(b) 	
      any continuous disclosure reporting obligation of SBH in
      the International Jurisdiction;

	 	 	 
	17. 	
      the Securityholder will, if requested by SBH, deliver to
      SBH a certificate or opinion of local counsel from the International
      Jurisdiction which will confirm the matters referred to in Sections 14, 15
      and 16 to the satisfaction of SBH, acting reasonably;

	 	 	 
	18. 	
      the Securityholder (i) is able to fend for itself in
      connection with the acquisition of the SBH Securities; (ii) has such
      knowledge and experience in business matters as to be capable of
      evaluating the merits and risks of its prospective investment in the SBH
      Securities; and (iii) has the ability to bear the economic risks of its
      prospective investment and can afford the complete loss of such
      investment;

	 	 	 
	19. 	
      the Securityholder is not aware of any advertisement of
      any of the SBH Securities and is not acquiring the SBH Securities as a
      result of any form of general solicitation or general advertising
      including advertisements, articles, notices or other communications
      published in any newspaper, magazine or similar media or broadcast over
      radio or television, or any seminar or meeting whose attendees have been
      invited by general solicitation or general advertising;

	 	 	 
	20. 	
      no Person (as defined in the Agreement) has made to the
      Securityholder any written or oral representations:

	 	 	 
		(a) 	
      that any Person will resell or repurchase any of the SBH
      Securities;

	 	 	 
		(b) 	
      that any Person will refund the purchase price of any of
      the SBH Securities;

	 	 	 
		(c) 	
      as to the future price or value of any of the SBH
      Securities; or

	 	 	 
		(d) 	
      that any of the SBH Securities will be listed and posted
      for trading on any stock exchange or automated dealer quotation system or
      that application has been made to list and post any of the SBH Securities
      on any stock exchange or automated dealer quotation system, except that
      currently certain market makers make market in the shares of common stock
      of SBH on the OTC Bulletin Board;

	 	 	 
	21. 	
      none of the SBH Securities are listed on any stock
      exchange or automated dealer quotation system except that, currently,
      certain market makers make market in the shares of common stock of SBH on
      the OTC Bulletin Board;

	 	 	 
	22. 	
      the Securityholder is outside of the United States when
      receiving and executing this Certificate and the SBH Securities and is
      acquiring the SBH Securities as principal for its own account, for
      investment purposes only, and not with a view to, or for, resale,
      distribution or fractionalization thereof, in whole or in part, and no other Person has a
  direct or indirect beneficial interest in the SBH Securities;

B-4

	23. 	
      neither the United States Securities and Exchange
      Commission nor any other securities commission or similar regulatory
      authority has reviewed or passed on the merits of the SBH
    Securities;

	 	 
	24. 	
      the SBH Securities are not being acquired, directly or
      indirectly, for the account or benefit of a U. S. Person or a person in
      the United States;

	 	 
	25. 	
      the Securityholder acknowledges and agrees that SBH shall
      refuse to register any transfer of SBH Securities not made in accordance
      with the provisions of Regulation S, pursuant to registration under the
      U.S. Securities Act, or pursuant to an available exemption from
      registration under the U. S. Securities Act;

	 	 
	26. 	
      the Securityholder understands and agrees that the SBH
      Securities will bear the following legend:

	
      "THE SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED IN
      AN OFFSHORE TRANSACTION TO A PERSON WHO IS NOT A U.S. PERSON (AS DEFINED
      HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF
      1933, AS AMENDED (THE "1933 ACT"). 

	
     

	
      NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN
      REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND,
      UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY,
      IN THE UNITED STATES (AS DEFINED HEREIN) OR TO U.S. PERSONS EXCEPT IN
      ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT,
      PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR
      PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT
      TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN
      ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION, HEDGING
      TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN
      COMPLIANCE WITH THE 1933 ACT. "UNITED STATES" AND "U.S. PERSON" ARE AS
      DEFINED BY REGULATION S UNDER THE 1933 ACT. 

	
     

	
      UNLESS OTHERWISE PERMITTED UNDER SECURITIES LEGISLATION,
      THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY IN OR FROM BRITISH
      COLUMBIA UNLESS THE CONDITIONS IN SECTION 12(2) OF BC INSTRUMENT 51-509
      ISSUERS QUOTED IN THE U.S. OVER-THE-COUNTER MARKET ARE MET.";
  

	27. 	
      the address of the Securityholder set out on the
      signature page hereto is the sole address of the Securityholder as of the
      date of this Certificate;

	 	 
	28. 	
      the Securityholder is the sole beneficial owner of their
      respective Naked Securities, free and clear of all liens, charges and
      encumbrances of any kind whatsoever;

B-5

	29. 	
      other than the constating documents of Naked, there are
      no written instruments, buy-sell agreements, registration rights or
      agreements, voting agreements or other agreements by and between or among
      the Securityholder and any other person, imposing any restrictions upon
      the transfer, prohibiting the transfer of, or otherwise pertaining to, the
      Naked Securities or the ownership thereof;

	 	 
	30. 	
      no Person has or will have any agreement or option or any
      right capable at any time of becoming an agreement to purchase or
      otherwise acquire the Naked Securities or require the Securityholder to
      sell, transfer, assign, pledge, charge, mortgage or in any other way
      dispose of or encumber any of the Naked Securities other than under the
      Agreement;

	 	 
	31. 	
      the Securityholder waives all claims and actions
      connected with the issuance of or rights attached to the Naked Securities,
      including without limitation, the benefit of any representations,
      warranties and covenants in favour of the Securityholder contained in any
      share purchase or subscription agreement(s) for such Naked Securities, and
      any registration, liquidation, or any other rights by and between or among
      the Securityholder and any other person, which may be triggered as a
      result of the closing of the Agreement;

	 	 
	32. 	
      pursuant to British Columbia Instrument 51-509 – Issuers
      Quoted in the U.S. Over –the-Counter Markets ("BCI 51-509"), as
      adopted by the British Columbia Securities Commission, a subsequent trade
      in any of the SBH Securities in or from British Columbia will be a
      distribution subject to the prospectus and registration requirements of
      applicable Canadian securities legislation (including the British Columbia
      Securities Act) unless certain conditions are met, which conditions
      include, among others, a requirement that any certificate representing the
      SBH Securities (or ownership statement issued under a direct registration
      system or other book entry system) bear the restrictive legend specified
      in BCI 51-509; and

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT
BLANK]

B-6

	33. 	
      the Securityholder undertakes not to trade or resell any
      of the SBH Securities in or from British Columbia unless the trade or
      resale is made in accordance with BCI 51-509.

IN WITNESS WHEREOF, the undersigned has executed this
Certificate of Non-U.S. Securityholder as of the ____ day of
______________________, 2012.

	 	 
	Signature of Securityholder 	 
	 	 
	 	 
	Name of Securityholder (print) 	 
	 	 
	 	 
	Title of Authorized Signatory if Securityholder is not an Individual 	 
	 	 
	 	 
	Jurisdiction of Incorporation of Securityholder if Securityholder is not an Individual 	 
	  	 
	 	 
	 	 
	 	 
	Address of Securityholder 	 
	 	 
	 	 
	Telephone Number of Securityholder 	 
	 	 
	 	 
	Number and Class of Naked Shares held 	 
	 	 
	 	 
	Number of Naked Warrants heldEXHIBIT 10.1

 

COMBIMATRIX CORPORATION

 

2006 STOCK INCENTIVE PLAN

 

(as amended December 6, 2011)

 

ARTICLE ONE

 

GENERAL PROVISIONS

 

I.                                        PURPOSE OF THE PLAN

 

This CombiMatrix Corporation 2006 Stock Incentive Plan is intended to promote the interests of CombiMatrix Corporation, a Delaware corporation, by providing eligible persons in the Corporation’s Service with the opportunity to acquire a proprietary interest, or otherwise increase their proprietary interest, in the Corporation as an incentive for them to remain in such Service.

 

Capitalized terms shall have the meanings assigned to such terms in the attached Appendix.

 

II.                                   STRUCTURE OF THE PLAN

 

A.                                    The Plan shall be divided into three separate equity incentive programs:

 

·      the Discretionary Option/Stock Appreciation Right Grant Program under which eligible persons may, at the discretion of the Plan Administrator, be granted options to purchase shares of Common Stock,

 

·                  the Stock Issuance Program under which eligible persons may, at the discretion of the Plan Administrator, be issued shares of Common Stock directly, either through the immediate purchase of such shares or as a bonus for services rendered the Corporation (or any Parent or Subsidiary),

 

·                  the Automatic Option Grant Program under which eligible non-employee Board members shall automatically receive option grants at designated intervals over their period of continued Board Service, and

 

B.                                    The provisions of Articles One and Five shall apply to all equity incentive programs under the Plan and shall govern the interests of all persons under the Plan.

 

III.                              ADMINISTRATION OF THE PLAN

 

A.                                    The Committee shall have sole and exclusive authority to administer the Discretionary Option Grant and Stock Issuance Programs with respect to Section 16 Insiders.

 

 

Administration of the Discretionary Option Grant and Stock Issuance Programs with respect to all other persons eligible to participate in those programs may, at the Board’s discretion, be vested in the Committee, or the Board may retain the power to administer those programs with respect to all such persons. Other than with respect to Section 16 Insiders, the Board may also appoint an Executive Officer Committee to administer the Discretionary Option Program and Stock Issuance Program, subject to the applicable limitations and requirements of the Delaware Corporate Law.  However, any discretionary option grants or stock issuances to members of the Committee must be authorized and approved by a disinterested majority of the Board.

 

B.                                    Members of the Committee or, if applicable, the Executive Officer Committee, shall serve for such period of time as the Board may determine and may be removed by the Board at any time.

 

C.                                    The Plan Administrator shall, within the scope of its administrative functions under the Plan, have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Discretionary Option Grant and Stock Issuance Programs and to make such determinations under, and issue such interpretations of, the provisions of those programs and any outstanding options or stock issuances thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator within the scope of its administrative functions under the Plan shall be final and binding on all parties who have an interest in the Discretionary Option Grant and Stock Issuance Programs under its jurisdiction or any stock option or stock issuance thereunder.

 

D.                                    Service on the Committee shall constitute Service as a Board member, and members of each such committee shall accordingly be entitled to full indemnification and reimbursement as Board members for their service on such committee. No member of the Committee or, if applicable, the Executive Officer Committee, shall be liable for any act or omission made in good faith with respect to the Plan or any option grants or stock issuances under the Plan.

 

E.                                     Administration of the Automatic Option Grant Program shall be self-executing in accordance with the terms of those programs, and no Plan Administrator shall exercise any discretionary functions with respect to any option grants or stock issuances made under those programs.

 

IV.                               ELIGIBILITY

 

A.                                    The persons eligible to participate in the Discretionary Option Grant and Stock Issuance Programs are as follows:

 

(i)                                     Employees,

 

(ii)                                  non-employee members of the Board or the board of directors of any Parent or Subsidiary, and

 

(iii)                               consultants and other independent advisors who provide services to the Corporation (or any Parent or Subsidiary).

 

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B.                                    The Plan Administrator shall, within the scope of its administrative jurisdiction under the Plan, have full authority to determine, (i) with respect to the option grants under the Discretionary Option Grant Program, which eligible persons are to receive such grants, the time or times when those grants are to be made, the number of shares to be covered by each such grant, the status of the granted option as either an Incentive Option or a Non-Statutory Option, if, and the extent to which, each option is to be exercisable at a different time or times than those times set forth in Section I.B.1. of Article Two of the Plan, the vesting schedule (if any) applicable to the option shares and the maximum term for which the option is to remain outstanding and (ii) with respect to stock issuances under the Stock Issuance Program, which eligible persons are to receive such issuances, the time or times when the issuances are to be made, the number of shares to be issued to each Participant, the vesting schedule (if any) applicable to the issued shares and the consideration for such shares.

 

C.                                    The Plan Administrator shall have the absolute discretion either to grant options in accordance with the Discretionary Option/Stock Appreciation Right Grant Program or to effect stock issuances in accordance with the Stock Issuance Program.

 

D.                                    The individuals who shall be eligible to participate in the Automatic Option Grant Program shall be limited to (i) those individuals who first become non-employee Board members after the Plan Effective Date, whether through appointment by the Board or election by the Corporation’s stockholders, and (ii) those individuals who continue to serve as non-employee Board members on the first business day in each calendar year following the Plan Effective Date and during the term of the Plan, including any individuals who first became non-employee Board members prior to such Plan Effective Date. A non-employee Board member who has previously been in the employ of the Corporation (or any Parent or Subsidiary) shall not be eligible to receive an option grant under the Automatic Option Grant Program at the time he or she first becomes a non-employee Board member, but shall be eligible to receive periodic option grants under the Automatic Option Grant Program while he or she continues to serve as a non-employee Board member.

 

V.                                    STOCK SUBJECT TO THE PLAN

 

A.                                    The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Corporation on the open market. The number of shares of Common Stock initially reserved for issuance over the term of the Plan shall not exceed 8,100,000 shares of Common Stock.  For purposes of clarification, the shares of Common Stock subject to the Assumed Options are not included in the 8,100,000 share of Common Stock reserved hereunder for issuance pursuant to this paragraph, though the shares of Common Stock subject to the Assumed Options may become available for grant under this Plan to the extent provided in Article One, Section V.D. below.

 

B.                                    The number of shares of Common Stock available for issuance under the Plan shall automatically increase on the first trading day of January each calendar year during the term of the Plan, beginning with calendar year 2007, by an amount equal to three percent (3%) of the total number of shares of Common Stock outstanding on the last trading day in December of the immediately preceding calendar year.  The maximum aggregate number of shares of Common Stock that may be issued under the Plan (as adjusted for all such annual increases) through Incentive Options shall be 30,000,000 shares of Common Stock.

 

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C.                                    At such time as stock option or stock appreciation rights granted under the Plan may qualify as performance-based compensation under Code Section 162(m), no one person participating in the Plan may receive stock options or separately exercisable stock appreciation rights for more than 200,000 shares of Common Stock in the aggregate per calendar year.  At such time as direct stock issuances or share right awards granted under the Plan may qualify as performance-based compensation under Code Section 162(m), no one person participating in the Plan may receive direct stock issuances or share right awards for more than 200,000 shares of Common Stock in the aggregate per calendar year. In addition, the maximum dollar value payable to any one Participant with respect to awards granted under Article Five, Section VIII.B. is $1,000,000 per calendar year.

 

D.                                    Shares of Common Stock subject to outstanding options, Assumed Options or stock appreciation rights shall be available for subsequent issuance under the Plan to the extent such shares are not issued pursuant to such options, Assumed Options or stock appreciation rights prior to the expiration, termination or cancellation of such options, Assumed Options or stock appreciation rights for any reason.  Shares of Common Stock subject to outstanding share right awards shall be available for subsequent issuance under the Plan to the extent those share right awards expire, terminate or are cancelled for any reason prior to the issuance of all shares of Common Stock subject to such share right awards. Unvested shares issued under the Plan and subsequently cancelled, forfeited or repurchased by the Corporation, at a price per share not greater than the original issue price paid per share, pursuant to the Corporation’s repurchase rights under the Plan shall be added back to the number of shares of Common Stock reserved for issuance under the Plan.  In addition, (i) should no shares of Common Stock be delivered upon the exercise of a stock appreciation right or (ii) should the exercise price of an option under the Plan or an Assumed Option be paid with shares of Common Stock (either shares previously held by the individual exercising the option or shares deducted from the option) or (iii) should shares of Common Stock otherwise issuable under the Plan or pursuant to or an Assumed Option be withheld by the Corporation in satisfaction of the withholding taxes incurred in connection with the exercise of an option, an Assumed Option or stock appreciation right or in connection with a stock issuance (including a share right award) under the Plan, then the number of shares of Common Stock available for issuance under the Plan shall be reduced by the net number of shares issued to the holder of the award, and not by the gross number of shares of Common Stock for which the option, Assumed Option or stock appreciation right is exercised or which vest or are issued pursuant to the stock issuance (including a share right award).

 

E.                                     If any change is made to the Common Stock by reason of any stock split, stock dividend, recapitalization, merger, reorganization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate adjustments shall be made by the Plan Administrator to (i) the maximum number, type and/or class of securities issuable under the Plan, (ii) the maximum number, type and/or class of securities for which any one person may be granted (x) stock options and separately exercisable stock appreciation rights and (y) direct stock issuances and share right awards under the Plan per calendar year, (iii) the number, type and/or class of securities for which grants are subsequently to be made under the Automatic Option Grant Program to new and continuing non-employee Board members, (iv) the number, type and/or class of securities and the exercise price per share in effect under each outstanding option and stock appreciation right under the Plan, (v) the number, kind and/or class of securities under each share right award, and (vi) the maximum number, type and/or class of securities by which the share reserve is to increase automatically each calendar year pursuant to the provisions of Section V.B. of this Article One.

 

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Such adjustments to the outstanding awards are to be effected in a manner which shall preclude the enlargement or dilution of rights and benefits under such options. The adjustments determined by the Plan Administrator shall be final, binding and conclusive.

 

ARTICLE TWO

 

DISCRETIONARY OPTION/STOCK APPRECIATION RIGHT GRANT PROGRAM

 

I.                                        OPTION TERMS

 

Each option shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below. Each document evidencing an Incentive Option shall, in addition, be subject to the provisions of the Plan applicable to such options.

 

A.                                    EXERCISE PRICE.

 

1.                                      The exercise price per share shall be fixed by the Plan Administrator but shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.

 

2.                                      The exercise price shall become immediately due upon exercise of the option and shall, subject to the provisions of the documents evidencing the option, be payable in one or more of the forms specified below:

 

(i)                                     cash or check made payable to the Corporation, or

 

(ii)                                  shares of Common Stock held for the requisite period necessary to avoid a charge to the Corporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date (including the cancellation of shares of Common Stock subject to the option), or

 

(iii)                               to the extent the option is exercised for vested shares, through a special sale and remittance procedure pursuant to which the Optionee shall concurrently provide irrevocable instructions to (a) a Corporation-designated brokerage firm to effect the immediate sale of the purchased shares and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate exercise price payable for the purchased shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) the Corporation to deliver the certificates for the purchased shares directly to such brokerage firm in order to complete the sale, or

 

(iv)                              Any other form of legal consideration, as determined by the Plan Administrator and specifically included in the stock option agreement.

 

Except to the extent such sale and remittance procedure is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.

 

5

 

B.                                    EXERCISE AND TERM OF OPTIONS.

 

1.                                      Each option shall vest and be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the option.

 

2.                                      Notwithstanding any other provision of the Plan, no option shall have a term in excess of ten (10) years measured from the option grant date.

 

C.                                    EFFECT OF TERMINATION OF SERVICE.

 

1.                                      The following provisions shall govern the exercise of any options held by the Optionee at the time of cessation of Service or death:

 

(i)                                     Termination of Service.  Subject to earlier termination of the option as otherwise provided in the Plan and unless otherwise specifically provided by the Plan Administrator with respect to an option and set forth in the award agreement (either at grant or by amendment at a later time), an option shall remain exercisable, to the extent vested, after a Optionee’s termination of Service only during the applicable time period determined in accordance with this Section and thereafter shall terminate and no longer be exercisable:

 

(A)                               Death or Permanent Disability.  If the Optionee’s Service terminates because of the death or Permanent Disability of the Optionee, the option, to the extent unexercised, vested and exercisable on the date on which the Optionee’s Service terminated, may be exercised by the Optionee (or the Optionee’s legal representative or estate, as applicable) at any time prior to the expiration of twelve (12) months (or such other period of time as determined by the Plan Administrator, in its discretion) after the date on which the Optionee’s Service terminated, but in any event only with respect to the unexercised and vested portion of the option and not after the maximum term of the option.

 

(B)                               Termination for Misconduct.  Notwithstanding any other provision of the Plan to the contrary, if the Optionee’s Service is terminated for Misconduct or should the Optionee otherwise engage in Misconduct while holding one or more outstanding options, then all such options shall terminate immediately and cease to be outstanding.

 

(C)                               Other Termination of Service.  If the Optionee’s Service terminates for any reason, except Permanent Disability, death or Misconduct, the option, to the extent unexercised, vested and exercisable by the Optionee on the date on which the Optionee’s Service terminated, may be exercised by the Optionee at any time prior to the expiration of ninety (90) days (or such longer or shorter period of time as determined by the Plan Administrator, in its discretion) after the date on which the Optionee’s Service terminated, but in any event only with respect to the unexercised and vested portion of the option and not the maximum term of the option.

 

(ii)                                  Any option held by the Optionee at the time of death and exercisable in whole or in part at that time may be subsequently exercised by the personal representative of the Optionee’s estate or by the person or persons to whom the option is transferred pursuant to the Optionee’s will or the laws of descent and distribution or by the Optionee’s designated beneficiary or beneficiaries of that option.

 

6

 

(iii)                               During the applicable post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares for which the option is exercisable on the date of the Optionee’s cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any vested shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee’s cessation of Service, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable for vested shares.

 

2.                                      The Plan Administrator shall have complete discretion, exercisable either at the time an option is granted or at any time while the option remains outstanding, to:

 

(i)                                     extend the period of time for which the option is to remain exercisable following the Optionee’s cessation of Service from the limited exercise period otherwise in effect for that option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the option term and in no event to such extent to make the option subject to Section 409A (unless given the prior consent of the Optionee), and/or

 

(ii)                                  permit the option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such option is exercisable at the time of the Optionee’s cessation of Service but also with respect to one or more additional installments in which the Optionee would have vested had the Optionee continued in Service.

 

D.                                    STOCKHOLDER RIGHTS. The holder of an option shall have no stockholder rights with respect to the shares subject to the option until such person shall have exercised the option, paid the exercise price and become a holder of record of the purchased shares.

 

E.                                     REPURCHASE RIGHTS.   The Plan Administrator shall have the discretion to grant options which are exercisable for unvested shares of Common Stock.  Should the Optionee cease Service while holding such unvested shares, the Corporation shall have the right, but not the obligation, to repurchase any or all of those unvested shares at a price per share equal to the lower of (i) the exercise price paid per share or (ii) the Fair Market Value per share of Common Stock at the time of the Optionee’s cessation of Service.  The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right.

 

F.                                      LIMITED TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, Incentive Options shall be exercisable only by the Optionee and shall not be assignable or transferable other than by will or the laws of descent and distribution following the Optionee’s death. Non-Statutory Options shall be subject to the same limitation, except as otherwise determined by the Plan Administrator, including an assignment to the Optionee’s Immediate Family.  To the extent that a Non-Statutory Option is assigned, the assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate.

 

7

 

Notwithstanding the foregoing, the Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding options under this Article Two, and those options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s death while holding those options. Such beneficiary or beneficiaries shall take the transferred options subject to all the terms and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited time period during which the option may be exercised following the Optionee’s death.

 

II.                                   INCENTIVE OPTIONS

 

The terms specified below shall be applicable to all Incentive Options. Except as modified by the provisions of this Section II, all the provisions of Articles One and Two shall be applicable to Incentive Options. Options which are specifically designated as Non-Statutory Options when issued under the Plan shall not be subject to the terms of this Section II.

 

A.                                    ELIGIBILITY. Incentive Options may only be granted to Employees.

 

B.                                    EXERCISE PRICE. The exercise price per share shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.

 

C.                                    DOLLAR LIMITATION. The aggregate Fair Market Value of the shares of Common Stock (determined as of the respective date or dates of grant) for which one or more options granted to any Employee under the Plan (or any other option plan of the Corporation or any Parent or Subsidiary) may for the first time become exercisable as Incentive Options during any one calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such options as Incentive Options shall be applied on the basis of the order in which such options are granted.  To the extent that the options exceed this limit, the excess amount shall be considered Non-Statutory Options.

 

D.                                    FAILURE TO QUALIFY AS INCENTIVE OPTION.  To the extent that any option governed by this Plan does not qualify as an Incentive Option, by reason of the dollar limitation described in Section II.C of this Article Two or for any other reason, such option shall be exercisable as a Non-Statutory Option under the Federal tax laws.

 

E.                                     10% STOCKHOLDER. If any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the exercise price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share of Common Stock on the option grant date, and the option term shall not exceed five (5) years measured from the option grant date.

 

8

 

III.          STOCK APPRECIATION RIGHT TERMS

 

The Plan Administrator may grant stock appreciation rights either in conjunction with all or part of any option or without regard to any option, in each case upon such terms and conditions as the Plan Administrator may establish in its sole discretion, not inconsistent with the provisions of the Plan.  Each stock appreciation right shall be evidenced by one or more documents in the form approved by the Plan Administrator; provided, however, that each such document shall comply with the terms specified below.

 

A.            RIGHT TO PAYMENT.

 

1.             Each stock appreciation right shall confer on the Participant to whom it is granted a right to receive, upon exercise thereof, the excess of (A) the Fair Market Value of one share of Common Stock on the date of exercise over (B) the per share strike price of the stock appreciation right.

 

2.             The Plan Administrator shall determine the method of settlement, form of consideration payable in settlement and method by or forms in which shares of Common Stock will be delivered or deemed to be delivered to Participants.

 

3.             The strike price per share shall be fixed by the Plan Administrator but shall not be less than one hundred percent (100%) of the Fair Market Value per share of Common Stock on the stock appreciation right grant date.

 

B.            EXERCISE AND TERM OF STOCK APPRECIATION RIGHTS.   Each stock appreciation right shall be exercisable at such time or times, during such period and for such number of shares as shall be determined by the Plan Administrator and set forth in the documents evidencing the stock appreciation right.  However, no stock appreciation right shall have a term in excess of ten (10) years measured from the stock appreciation right grant date.

 

C.            EFFECT OF TERMINATION OF SERVICE.

 

1.             The following provisions shall govern the exercise of any stock appreciation rights held by the Participant at the time of cessation of Service or death:

 

(i)            Any stock appreciation right outstanding at the time of the Participant’s cessation of Service for any reason shall remain exercisable for such period of time thereafter as shall be determined by the Plan Administrator and set forth in the documents evidencing the stock appreciation right, but no such stock appreciation right shall be exercisable after the expiration of the stock appreciation right term.

 

(ii)           Any stock appreciation right held by the Participant at the time of death and exercisable in whole or in part at that time may be subsequently exercised by the personal representative of the Participant’s estate or by the person or persons to whom the stock appreciation right is transferred pursuant to the Participant’s will or the laws of inheritance or by the Participant’s designated beneficiary or beneficiaries of that stock appreciation right.

 

9

 

(iii)          Should the Participant’s Service be terminated for Misconduct or should the Participant otherwise engage in Misconduct while holding one or more outstanding stock appreciation rights under this Article Two, then all those stock appreciation rights shall terminate immediately and cease to be outstanding.

 

(iv)          During the applicable post-Service exercise period, the stock appreciation right may not be exercised in the aggregate for more than the number of vested shares for which the stock appreciation right is exercisable on the date of the Participant’s cessation of Service.  Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the stock appreciation right term, the stock appreciation right shall terminate and cease to be outstanding for any vested shares for which the stock appreciation right has not been exercised.  However, the stock appreciation right shall, immediately upon the Participant’s cessation of Service, terminate and cease to be outstanding to the extent the stock appreciation right is not otherwise at that time exercisable for vested shares.

 

2.             The Plan Administrator shall have complete discretion, exercisable either at the time an stock appreciation right is granted or at any time while the stock appreciation right remains outstanding, to:

 

(i)            extend the period of time for which the stock appreciation right is to remain exercisable following the Participant’s cessation of Service from the limited exercise period otherwise in effect for that stock appreciation right to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the stock appreciation right term, and/or

 

(ii)                           permit the stock appreciation right to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested shares of Common Stock for which such stock appreciation right is exercisable at the time of the Participant’s cessation of Service but also with respect to one or more additional installments in which the Participant would have vested had the Participant continued in Service.

 

D.            STOCKHOLDER RIGHTS.  The holder of an stock appreciation right shall have no stockholder rights with respect to the shares subject to the stock appreciation right until such person shall have exercised the stock appreciation right, received shares of common stock in connection with such exercise and become a holder of record of the purchased shares.

 

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E.            LIMITED TRANSFERABILITY OF STOCK APPRECIATION RIGHTS.  During the lifetime of the Participant, stock appreciation rights shall be exercisable only by the Participant and shall not be assignable or transferable other than by will or the laws of inheritance following the Participant’s death, except that the Plan Administrator may structure one or more stock appreciation rights under the Discretionary Option/Stock Appreciation Right Grant Program so that each such stock appreciation right may be assigned in whole or in part during the Participant’s lifetime to one or more members of the Participant’s family or to a trust established exclusively for one or more such family members or to Participant’s former spouse, to the extent such assignment is in connection with the Participant’s estate plan or pursuant to a domestic relations order.  The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the stock appreciation right pursuant to the assignment.  The terms applicable to the assigned portion shall be the same as those in effect for the stock appreciation right immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate.  Notwithstanding the foregoing, the Participant may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding stock appreciation rights under this Article Two, and those stock appreciation rights shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Participant’s death while holding those stock appreciation rights.  Such beneficiary or beneficiaries shall take the transferred stock appreciation rights subject to all the terms and conditions of the applicable agreement evidencing each such transferred stock appreciation right, including (without limitation) the limited time period during which the stock appreciation right may be exercised following the Participant’s death.

 

IV.          CHANGE IN CONTROL/HOSTILE TAKE-OVER

 

A.            Except as otherwise provided in this Section IV, none of the outstanding options or stock appreciation rights under the Discretionary Option/Stock Appreciation Right Grant Program shall vest in whole or in part on an accelerated basis upon the occurrence of a Change in Control, and those options and stock appreciation rights may be assumed, continued or substituted for by any successor corporation in the Change in Control.

 

B.            Except as otherwise provided in this Section IV, none of the outstanding repurchase rights under the Discretionary Option/Stock Appreciation Right Grant Program shall terminate on an accelerated basis upon the occurrence of a Change in Control, and those rights shall be assignable to any successor corporation in the Change in Control.

 

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C.            Unless an option or stock appreciation right is assumed, continued or substituted for by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction, if a Change in Control occurs while the Optionee remains in Service, the shares of Common Stock at the time subject to each outstanding option or stock appreciation right held by such Optionee but not otherwise vested shall automatically accelerate so that each such option or stock appreciation right shall, immediately prior to the effective date of the Change in Control, vest and become exercisable for all the shares of Common Stock at the time subject to such option or stock appreciation right and may be exercised for any or all of those shares as fully vested shares of Common Stock.  The Corporation shall provide each holder of an option or a stock appreciation right that is accelerated in accordance with this paragraph at least five (5) business days notice of the vesting acceleration.  Immediately following the consummation of the Change in Control, each option or stock appreciation right shall terminate and cease to be outstanding, except to the extent assumed or substituted for by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the express terms of the Change in Control transaction.

 

D.            The Plan Administrator shall have the discretionary authority to structure one or more options or stock appreciation rights grants under the Discretionary Option/Stock Appreciation Right Grant Program so that the vesting and exercisability of each option or stock appreciation right shall automatically accelerate in whole or in part, either (i) immediately prior to the effective date of that Change in Control or Hostile Takeover, and become exercisable for all the shares of Common Stock at the time or (ii) upon an event occurring after the Change in Control or Hostile Takeover (including a termination of employment).  In addition, the Plan Administrator may structure one or more of the Corporation’s repurchase rights so that those rights shall immediately terminate, in whole or in part, with respect to any shares held by the Participant (and the shares subject to those terminated repurchase rights shall accordingly vest in full ) either (i) immediately prior to the effective date of that Change in Control or Hostile Takeover, or (ii) upon an event occurring after the Change in Control or Hostile Takeover (including a termination of employment).

 

E.            Each option which is assumed or substituted for in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate adjustments to reflect such Change in Control shall also be made to (i) the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same, (ii) the maximum number, type and/or class of securities available for issuance over the remaining term of the Plan, (iii) the maximum number, type and/or class of securities by which the share reserve is to increase each calendar year pursuant to the automatic share increase provisions of the Plan and (iv) the maximum number, type and/or class of securities for which any one person may be granted options, separately exercisable stock appreciation rights and direct stock issuances or share right awards under the Plan per calendar year.  To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control transaction, the successor corporation may, in connection with the assumption of the outstanding options under the Discretionary Option Grant Program, substitute one or more shares of its own common stock (or those of its parent) with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction.

 

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F.             Unless otherwise determined by the Plan Administrator and expressly set forth in the documents evidencing the option, each option outstanding under the Discretionary Option/Stock Appreciation Right Grant Program at the time of a Hostile Take-Over but not otherwise exercisable for all the shares of Common Stock subject to such option at that time shall, immediately prior to the effective date of a Hostile Take-Over, automatically vest and become exercisable for all the shares of Common Stock at that time subject to such options on an accelerated basis and may be exercised for any or all of such shares as fully vested shares of Common Stock. In addition, all of the Corporation’s repurchase rights under the Discretionary Option/Stock Appreciation Right Grant Program shall terminate automatically upon the consummation of such Hostile Take-Over, and the shares subject to those terminated rights shall thereupon immediately vest in full, except to the extent such accelerated vesting is precluded by limitations imposed by the Plan Administrator at the time the repurchase right is issued.  Each option so accelerated shall remain exercisable for fully vested shares of Common Stock until the expiration or sooner termination of the option term.

 

G.            The portion of any Incentive Option accelerated in connection with a Change in Control or Hostile Take-Over shall remain exercisable as an Incentive Option only to the extent the applicable One Hundred Thousand Dollar ($100,000) limitation is not exceeded. To the extent such dollar limitation is exceeded, the excess accelerated portion of such option shall be exercisable as a Non-Statutory Option under the Federal tax laws.

 

H.            The grant of options under the Discretionary Option/Stock Appreciation Right Grant Program shall in no way affect the right of the Corporation 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.

 

V.            CANCELLATION AND REGRANT OF OPTIONS

 

The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected option holders, the cancellation of any or all outstanding options under the Discretionary Option/Stock Appreciation Right Grant Program (including outstanding options incorporated from the Predecessor Plans) and to grant (i) in substitution new options or stock appreciation rights covering the same or a different number of shares of Common Stock but with an exercise price per share calculated based upon the Fair Market Value per share of Common Stock on the new grant date; (ii) stock issuances (including share right awards); (iii) cash; or (iv) other property.

 

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ARTICLE THREE

 

STOCK ISSUANCE PROGRAM

 

I.             STOCK ISSUANCE TERMS

 

Shares of Common Stock may be issued under the Stock Issuance Program through direct and immediate issuances without any intervening option grants. Each such stock issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to share right awards which entitle the recipients to receive those shares upon the attainment of designated performance goals.

 

A.            PURCHASE PRICE.

 

1.             The purchase price per share shall be fixed by the Plan Administrator, but shall not be less than any legal limit required under state law.

 

2.             Shares of Common Stock may be issued under the Stock Issuance Program for any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance:

 

(i)            cash or check made payable to the Corporation for one hundred percent of the Fair Market Value of the shares of Common Stock to be purchased,

 

(ii)           past services rendered to the Corporation (or any Parent or Subsidiary),

 

(iii)          services to be rendered to the Corporation (or any Parent or Subsidiary) during the vesting period, or

 

(iv)          any other form of legal consideration that may be acceptable to the Plan Administrator.

 

B.            VESTING PROVISIONS.

 

1.             Shares of Common Stock issued under the Stock Issuance Program may, in the discretion of the Plan Administrator, be fully and immediately vested upon issuance or may vest in one or more installments over the Participant’s period of Service or upon attainment of specified performance objectives. The elements of the vesting schedule applicable to any unvested shares of Common Stock issued under the Stock Issuance Program shall be determined by the Plan Administrator and incorporated into the Stock Issuance Agreement. Shares of Common Stock may also be issued under the Stock Issuance Program pursuant to share right awards which entitle the recipients to receive those shares upon the attainment of designated performance goals or in one or more installments over the Participant’s period of Service. Upon the attainment of such performance goals or Service period, fully vested shares of Common Stock shall be issued in satisfaction of those share right awards.

 

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2.             Any new, substituted or additional securities or other property (including money paid other than as a regular cash dividend) which the Participant may have the right to receive with respect to the Participant’s unvested shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration shall be issued subject to (i) the same vesting requirements applicable to the Participant’s unvested shares of Common Stock and (ii) such escrow arrangements as the Plan Administrator shall deem appropriate.

 

3.             The Participant shall have full stockholder rights with respect to any shares of Common Stock issued to the Participant under the Stock Issuance Program, whether or not the Participant’s interest in those shares is vested. Accordingly, the Participant shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.

 

4.             Should the Participant cease to remain in Service while holding one or more unvested shares of Common Stock issued under the Stock Issuance Program or should the performance objectives not be attained with respect to one or more such unvested shares of Common Stock, then those shares shall be immediately surrendered to the Corporation for cancellation, and the Participant shall have no further stockholder rights with respect to those shares.  To the extent the surrendered shares were previously issued to the Participant for consideration paid in cash or cash equivalent (including the Participant’s purchase-money indebtedness), the Corporation shall repay to the Participant the lower of (i) the cash consideration paid for the surrendered shares or (ii) the Fair Market Value of those shares at the time of cancellation.

 

5.             The Plan Administrator may in its discretion waive the surrender and cancellation of one or more unvested shares of Common Stock which would otherwise occur upon the cessation of the Participant’s Service or the non-attainment of the performance objectives applicable to those shares. Such waiver shall result in the immediate vesting of the Participant’s interest in the shares of Common Stock as to which the waiver applies. Such waiver may be effected at any time, whether before or after the Participant’s cessation of Service or the attainment or non-attainment of the applicable performance objectives.

 

6.             Outstanding share right awards under the Stock Issuance Program shall automatically terminate, and no shares of Common Stock shall actually be issued in satisfaction of those awards, if the performance goals or Service requirements established for such awards are not attained. The Plan Administrator, however, shall have the discretionary authority to issue shares of Common Stock under one or more outstanding share right awards as to which the designated performance goals or Service requirements have not been attained.

 

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II.            CHANGE IN CONTROL/HOSTILE TAKE-OVER

 

A.            Except as otherwise provided in this Section II, none of the outstanding repurchase rights under the Stock Issuance Program shall terminate on an accelerated basis upon the occurrence of a Change in Control, and those rights shall be assignable to any successor corporation in the Change in Control.  Except as otherwise provided in this Section II, none of the outstanding share right awards under the Stock Issuance Program shall vest in whole or in part on an accelerated basis upon the occurrence of a Change in Control, and those share right awards may be assumed, continued or substituted for by any successor corporation in the Change in Control.

 

B.            To the extent that the outstanding repurchase rights under the Stock Issuance Program are not assigned to any successor corporation in the Change in Control and are not continued by the Corporation, such outstanding repurchase rights under the Stock Issuance Program shall terminate immediately prior to and contingent upon the occurrence of the Change in Control.

 

C.            Unless a share right award is assumed or substituted for by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction, if a Change in Control occurs while the Participant remains in Service, the shares of Common Stock at the time subject to each a share right award held by such Participant but not otherwise vested shall automatically accelerate so that each such Participant shall, immediately prior to the effective date of the Change in Control, vest for all the shares of Common Stock at the time subject to such share right award and such fully vested shares of Common Stock shall be delivered to the Participant immediately prior to and contingent upon the Change in Control.  The Corporation shall provide each holder of a share right award that is accelerated in accordance with this paragraph at least five (5) business days notice of the vesting acceleration.  Immediately following the consummation of the Change in Control, each option or stock appreciation right shall terminate and cease to be outstanding, except to the extent assumed or substituted for by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the express terms of the Change in Control transaction.

 

D.            To the extent a share right award is not assumed, continued or substituted for by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction, then such share right award shall become fully vested and shares of Common Stock deliverable under the share right award shall be delivered immediately prior to and contingent upon the Change in Control.  The Corporation shall provide each holder of a share right award that is accelerated in accordance with this paragraph at least five (5) business days notice of the vesting acceleration.

 

E.            Immediately following the consummation of the Change in Control, all outstanding share right awards under the Stock Issuance Program shall terminate and cease to be outstanding, except to the extent assumed, continued or substituted for by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the terms of the Change in Control transaction.

 

F.             All of the Corporation’s outstanding repurchase rights under the Stock Issuance Program shall terminate automatically, and all the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Hostile Take-Over, except to the extent such accelerated vesting is precluded by other limitations imposed in the Stock Issuance Agreement.

 

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All the shares of Common Stock subject to outstanding share right awards shall immediately vest in full, in the event of any Hostile Take-Over, except to the extent such accelerated vesting is precluded by other limitations imposed in the Share Right Award Agreement.

 

G.            The Plan Administrator may, in its discretion, structure one or more of the Corporation’s repurchase rights so that those rights shall immediately terminate, in whole or in part, with respect to any shares held by the Participant (and the shares subject to those terminated repurchase rights shall accordingly vest in full) either (i) immediately prior to the effective date of that Change in Control or Hostile Takeover, or (ii) upon an event occurring after the Change in Control or Hostile Takeover (including a termination of a Participant’s Service).  In addition, the Plan Administrator shall have the discretionary authority to structure one or more share right awards grants under the Stock Issuance Program so that the vesting of each share right shall automatically accelerate in whole or in part, either (i) immediately prior to the effective date of that Change in Control or Hostile Takeover, or (ii) upon an event occurring after the Change in Control or Hostile Takeover (including a termination of employment).

 

H.            Each share right award which is assumed or substituted for in connection with a Change in Control or otherwise continued in effect shall be appropriately adjusted, immediately after such Change in Control, to convert the number and class of securities which would have been issuable to the Participant in consummation of such Change in Control had the shares of Common Stock subject to the share right award been issued immediately prior to such Change in Control to the type and amount of consideration received by the holders of Common Stock in the Change in Control.  To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control, the successor corporation may, in connection with the assumption or substitution of the outstanding share right awards under the Stock Issuance Program, substitute one or more shares of its own common stock or that of any parent or publicly traded Subsidiary, with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction.

 

III.          SHARE ESCROW/LEGENDS

 

Unvested shares may, in the Plan Administrator’s discretion, be held in escrow by the Corporation until the Participant’s interest in such shares vests or may be issued directly to the Participant with restrictive legends on the certificates evidencing those unvested shares.

 

ARTICLE FOUR

 

AUTOMATIC OPTION GRANT PROGRAM

 

I.             OPTION TERMS

 

A.            GRANT DATES. Option grants shall be made on the dates specified below:

 

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1.                                      Each individual who is first elected or appointed as a non-employee Board member at any time on or after the Plan Effective Date shall automatically be granted, on the date of such initial election or appointment, a Non-Statutory Option to purchase 20,000 shares of Common Stock, provided that individual has not previously been in the employ of the Corporation or any Parent or Subsidiary.

 

2.                                      On the first business day in each calendar year following the Plan Effective Date and during the term of the Plan, each non-employee Board member then in office, shall automatically be granted a Non-Statutory Option to purchase 20,000 shares of Common Stock, provided such individual has served as a non-employee Board member for at least six (6) months. There shall be no limit on the number of such option grants any one non-employee Board member may receive over his or her period of Service on the Board, and non-employee Board members who have previously been in the employ of the Corporation (or any Parent or Subsidiary) or who joined the Board prior to the Plan Effective Date shall be eligible to receive one or more such annual option grants over their period of continued Board Service.

 

B.                                    EXERCISE PRICE.

 

1.                                      The exercise price per share shall be equal to one hundred percent (100%) of the Fair Market Value per share of Common Stock on the option grant date.

 

2.                                      The exercise price shall be payable in one or more of the alternative forms authorized under the Discretionary Option Grant Program. Except to the extent the sale and remittance procedure specified thereunder is utilized, payment of the exercise price for the purchased shares must be made on the Exercise Date.

 

C.                                    OPTION TERM. Each option shall have a maximum term of ten (10) years measured from the option grant date.

 

D.                                    EXERCISE AND VESTING OF OPTIONS.

 

Each option granted pursuant to this Automatic Option Grant Program shall become exercisable in a series of four (4) equal annual installments upon the Optionee’s completion of each twelve (12) months of continuous Service as a Board member over the 48-month period measured from the option grant date.

 

E.                                     LIMITED TRANSFERABILITY OF OPTIONS. Each option under this Article Four may be assigned in whole or in part during the Optionee’s lifetime to one or more members of the Optionee’s Immediate Family or to a trust established exclusively for the Optionee or one or more Members of the Optionee’s Immediate Family or to Optionee’s former spouse, to the extent such assignment is in connection with the Optionee’s estate plan or pursuant to domestic relations order. The assigned portion may only be exercised by the person or persons who acquire a proprietary interest in the option pursuant to the assignment. The terms applicable to the assigned portion shall be the same as those in effect for the option immediately prior to such assignment and shall be set forth in such documents issued to the assignee as the Plan Administrator may deem appropriate. The Optionee may also designate one or more persons as the beneficiary or beneficiaries of his or her outstanding options under this Article Four, and those options shall, in accordance with such designation, automatically be transferred to such beneficiary or beneficiaries upon the Optionee’s death while holding those options.

 

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Such beneficiary or beneficiaries shall take the transferred options subject to all the terms and conditions of the applicable agreement evidencing each such transferred option, including (without limitation) the limited time period during which the option may be exercised following the Optionee’s death.

 

F.                                      TERMINATION OF BOARD SERVICE. The following provisions shall govern the exercise of any options held by the Optionee at the time the Optionee ceases to serve as a Board member for any reason:

 

(i)                                     The Optionee (or, in the event of Optionee’s death, the personal representative of the Optionee’s estate or the person or persons to whom the option is transferred pursuant to the Optionee’s will or the laws of descent and distribution or the designated beneficiary or beneficiaries of such option) shall have a six (6)-month period following the date of such cessation of Board Service in which to exercise each such option.

 

(ii)                                  During the six (6)-month post-Service exercise period, the option may not be exercised in the aggregate for more than the number of vested shares of Common Stock for which the option is exercisable at the time of the Optionee’s cessation of Board Service.

 

(iii)                               In no event shall the option remain exercisable after the expiration of the option term. Upon the expiration of the six (6)-month post-Service exercise period or (if earlier) upon the expiration of the option term, the option shall terminate and cease to be outstanding for any shares for which the option has not been exercised. However, the option shall, immediately upon the Optionee’s cessation of Board Service for any reason, terminate and cease to be outstanding to the extent the option is not otherwise at that time exercisable.

 

II.                                   CHANGE IN CONTROL/ HOSTILE TAKE-OVER

 

A.                                    In the event of any Change in Control while the Optionee remains a Board member, the shares of Common Stock at the time subject to each outstanding option held by such Optionee under the Automatic Option Grant Program but not otherwise vested shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Change in Control, vest and become exercisable for all the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully vested shares of Common Stock. Immediately following the consummation of the Change in Control, each automatic option grant shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the express terms of the Change in Control transaction.

 

B.                                    In the event of a Hostile Take-Over while the Optionee remains a Board member, the shares of Common Stock at the time subject to each option outstanding under the Automatic Option Grant Program but not otherwise vested shall automatically accelerate so that each such option shall, immediately prior to the effective date of the Hostile Take-Over, vest and become exercisable for all the shares of Common Stock at the time subject to such option and may be exercised for any or all of those shares as fully vested shares of Common Stock. 

 

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Each such option shall remain exercisable for such fully-vested option shares until the expiration or sooner termination of the option term or the surrender of the option in connection with that Hostile Take-Over.

 

C.                                    All outstanding repurchase rights under the Automatic Option Grant Program shall automatically terminate, and the shares of Common Stock subject to those terminated rights shall immediately vest in full, in the event of any Change in Control or Hostile Take-Over.

 

D.                                    Upon the occurrence of a Hostile Take-Over, the Optionee shall have a thirty (30)-day period in which to surrender to the Corporation each of his or her outstanding automatic option grants.  The Optionee shall in return be entitled to a cash payment from the Corporation in an amount equal to the excess of (i) the Take-Over Price of the shares of Common Stock at the time subject to each surrendered option (whether or not the Optionee is otherwise at the time vested in those shares) over (ii) the aggregate exercise price payable for such shares. Such cash payment shall be paid within five (5) days following the surrender of the option to the Corporation.  The Plan Administrator shall, at the time the option with such limited stock appreciation right is granted under the Automatic Option Grant Program, pre-approve any subsequent exercise of that right in accordance with the terms of this Paragraph D.  Accordingly, no further approval of the Plan Administrator or the Board shall be required at the time of the actual option surrender and cash payment.

 

E.                                     Each option which is assumed in connection with a Change in Control or otherwise continued in full force and effect shall be appropriately adjusted, immediately after such Change in Control, to apply to the number and class of securities which would have been issuable to the Optionee in consummation of such Change in Control had the option been exercised immediately prior to such Change in Control. Appropriate adjustments shall also be made to the exercise price payable per share under each outstanding option, provided the aggregate exercise price payable for such securities shall remain the same.  To the extent the actual holders of the Corporation’s outstanding Common Stock receive cash consideration for their Common Stock in consummation of the Change in Control transaction, the successor corporation may, in connection with the assumption of the outstanding options under the Automatic Option Grant Program, substitute one or more shares of its own common stock with a fair market value equivalent to the cash consideration paid per share of Common Stock in such Change in Control transaction.

 

F.                                      The grant of options under the Automatic Option Grant Program shall in no way affect the right of the Corporation 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.

 

III.                              REMAINING TERMS

 

The remaining terms of each option granted under the Automatic Option Grant Program shall be the same as the terms in effect for option grants made under the Discretionary Option Grant Program.

 

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ARTICLE FIVE

 

MISCELLANEOUS

 

I.                                        NO FRACTIONAL SHARES

 

No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan, and the Plan Administrator shall determine whether cash shall be paid in lieu of any fractional shares or whether such fractional shares or any rights thereto shall be canceled, terminated or otherwise eliminated.

 

II.                                   TAX WITHHOLDING

 

A.                                    The Corporation’s obligation to deliver shares of Common Stock upon a stock issuance, or the exercise of options or stock appreciation rights or the issuance or vesting of such shares under the Plan shall be subject to the satisfaction of all applicable income and employment tax withholding requirements.  The Corporation shall also make appropriate arrangements to satisfy all applicable foreign tax withholding requirements which may be imposed in connection with the grant or exercise of options or stock appreciation rights under the Plan or the issuance or vesting of shares of Common Stock under the Plan.

 

B.                                    The Plan Administrator may, in its discretion, provide in the respective award agreement that (i) the Corporation, in its discretion, may determine that shares of Common Stock from the award be withheld by the Corporation in satisfaction of all or part of the Withholding Taxes which may become payable in connection with the an award granted under the Plan (pursuant to Article Five Section II.B.1.) and (ii) any or all Optionees or Participants under the Plan (other than the non-employee Board members) with the right to use shares of Common Stock in satisfaction of all or part of the Withholding Taxes to which such individuals may become subject in connection with the grant or exercise of their options or stock appreciation rights or the issuance or vesting of their shares.  Such right to an individual may be provided to any such holder in either or both of the following formats:

 

1.                                      Stock Withholding:  The election to have the Corporation withhold, from the shares of Common Stock otherwise issuable upon the exercise of options or stock appreciation rights or the issuance or the vesting of such shares, a portion of those shares with an aggregate Fair Market Value equal to the percentage of the Withholding Taxes (not to exceed one hundred percent (100%) of the minimum Withholding Taxes required be law) designated by the holder.

 

2.                                      Stock Delivery:  The election to deliver to the Corporation, at the time the option or stock appreciation right is granted or exercised or the shares are issued or vest, one or more shares of Common Stock previously acquired by such holder (other than in connection with the option or stock appreciation right exercise or share vesting triggering the Withholding Taxes) with an aggregate Fair Market Value equal to the percentage of the Withholding Taxes (not to exceed one hundred percent (100%) of the minimum Withholding Taxes required be law) designated by the holder.

 

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III.                              EFFECTIVE DATE AND TERM OF THE PLAN

 

A.                                    The Plan shall become effective immediately upon the Plan Effective Date.  Options may be granted under the Discretionary Option/Stock Appreciation Right Grant Program at any time on or after the Plan Effective Date, and the initial option grants under the Automatic Option Grant Program shall be made on the Plan Effective Date to any non-employee Board members eligible for such grants at that time. However, no options granted under the Plan may be exercised, and no shares shall be issued under the Plan, until the Plan is approved by the Corporation’s stockholders. If such stockholder approval is not obtained within twelve (12) months after the Plan Effective Date, then all options previously granted under this Plan shall terminate and cease to be outstanding, and no further options shall be granted and no shares shall be issued under the Plan.

 

B.                                    The Plan shall terminate upon the earliest of (i) the tenth anniversary of the Plan Effective Date, (ii) the tenth anniversary of the approval of the Plan by the Corporation’s stockholders, (iii) the date on which all shares available for issuance under the Plan shall have been issued as fully-vested shares or (iv) the termination of all outstanding awards in connection with a Change in Control.  Upon such Plan termination, all option grants and unvested stock issuances outstanding at that time shall thereafter continue to have force and effect in accordance with the provisions of the documents evidencing such grants or issuances.

 

IV.                               AMENDMENT OF THE PLAN

 

A.                                    The Board shall have complete and exclusive power and authority to amend or modify the Plan or any outstanding award granted under the Plan in any or all respects.  However, no such amendment or modification shall adversely affect the rights and obligations with respect to stock options, stock appreciation rights or unvested stock issuances at the time outstanding, including share right awards, under the Plan unless the Optionee or the Participant consents to such amendment or modification.  Notwithstanding the foregoing, any amendment to either increase the number of shares that may be issued under the Plan or the Persons eligible to receive awards under the Plan shall require stockholder approval.  In addition, certain amendments may require stockholder approval pursuant to applicable laws or regulations.

 

B.                                    Options to purchase shares of Common Stock may be granted under the Discretionary Option/Stock Appreciation Right Grant Program and shares of Common Stock may be issued under the Stock Issuance Program that are in each instance in excess of the number of shares then available for issuance under the Plan, provided any excess shares actually issued under those programs shall be held in escrow until there is obtained stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock available for issuance under the Plan. If such stockholder approval is not obtained within twelve (12) months after the date the first such excess issuances are made, then (i) any unexercised options granted on the basis of such excess shares shall terminate and cease to be outstanding and (ii) the Corporation shall promptly refund to the Optionees and the Participants the exercise or purchase price paid for any excess shares issued under the Plan and held in escrow, together with interest (at the short term applicable federal rate) for the period the shares were held in escrow, and such shares shall thereupon be automatically cancelled and cease to be outstanding.

 

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V.                                    USE OF PROCEEDS

 

Any cash proceeds received by the Corporation from the sale of shares of Common Stock under the Plan shall be used for general corporate purposes.

 

VI.                               REGULATORY APPROVALS

 

A.                                    The implementation of the Plan, the granting of any stock option under the Plan and the issuance of any shares of Common Stock (i) upon the exercise of any granted option or (ii) under the Stock Issuance Program shall be subject to the Corporation’s procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the stock options granted under it and the shares of Common Stock issued pursuant to it.

 

B.                                    No shares of Common Stock or other assets shall be issued or delivered under the Plan unless and until there shall have been compliance with all applicable requirements of Federal and state securities laws, including the filing and effectiveness of the Form S-8 registration statement for the shares of Common Stock issuable under the Plan, and all applicable listing requirements of any stock exchange (or the Nasdaq National Market, if applicable) on which Common Stock is then listed for trading.

 

VII.                          NO EMPLOYMENT/SERVICE RIGHTS

 

Nothing in the Plan shall confer upon any Optionee or Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Parent or Subsidiary employing or retaining such person) or of any Optionee or Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service at any time for any reason, with or without cause.

 

VIII.                     SECTION 162(M)

 

A.                                    STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.

 

It is the intent of the Corporation that any options or stock appreciation rights granted under the Plan to a “covered employee” (as that term is defined in Section 162(m) of the Code) with an exercise price of not less than the Fair Market Value per share of Common Stock on the date of grant shall qualify as “qualified performance-based compensation” (within the meaning of Treas. Reg. § 1.162-27(e)) to the extent that options or stock appreciation rights granted under the Plan may qualify as “qualified performance-based compensation” and the Plan shall be interpreted consistently with such intent.  In furtherance of the foregoing, if and to the extent that the Corporation intends that an option or a stock appreciation right granted under the Plan to any covered employee shall qualify as qualified performance-based compensation, all decisions regarding the grant of such option or stock appreciation right shall be made only by members of the Committee who qualify as “outside directors” within the meaning of Treas. Reg. § 1.162-27(e)(3).

 

B.                                    PERFORMANCE AWARDS.

 

The Plan Administrator shall also have the discretionary authority, consistent with Code Section 162(m), to structure (i) cash bonuses, (ii) stock options, (iii) stock appreciation rights and (iv) stock issuances, including share right awards, so that (x) the cash bonuses are only payable, (y) the shares of Common Stock received upon exercise of the stock option or stock appreciation right and (z) the shares of Common Stock subject to such stock issuances shall only vest or be issuable upon the achievement of certain pre-established objective corporate performance goals based on one or more of the following criteria: (1) earnings per share; (2) revenues or margins; (3) cash flow; (4) operating margin; (5) return on net assets, investment, capital, or equity; (6) direct contribution; (7) net income; pretax earnings; (8) earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; earnings after interest expense and before extraordinary or special items; operating income; income before interest income or expense, unusual items and income taxes, local, state or federal and excluding budgeted and actual bonuses which might be paid under any ongoing bonus plans of the Company; (9) working capital; (10) management of fixed costs or variable costs; (11) identification or consummation of investment opportunities or completion of specified projects in accordance with corporate business plans, including strategic mergers, acquisitions or divestitures; (12) total shareholder return; and (13) debt reduction.

 

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In addition, such performance goals may be based upon the attainment of specified levels of the Corporation’s performance under one or more of the measures described above relative to the performance of other entities and may also be based on the performance of any of the Corporation’s business units or divisions or any Parent or Subsidiary. Performance goals may include a minimum threshold level of performance below which no award will be earned, levels of performance at which specified portions of an award will be earned and a maximum level of performance at which an award will be fully earned.  In furtherance of the foregoing, if and to the extent that the Corporation intends that an award granted under the Plan pursuant to this paragraph to any covered employee shall qualify as qualified performance-based compensation, all decisions regarding the grant of such award shall be made only by members of the Committee who qualify as “outside directors” within the meaning of Treas. Reg. § 1.162-27(e)(3).

 

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APPENDIX

 

The following definitions shall be in effect under the Plan:

 

A.                                    ASSUMED OPTIONS shall mean the stock options assumed by the Corporation from Acacia Research that were exercisable for Acacia Research - CombiMatrix stock and which include, but are not limited to, the options outstanding as of the date of the Transaction that were granted under the Acacia Research Corporation 2002 CombiMatrix Stock Incentive Plan, the CombiMatrix Corporation 1998 Stock Option Plan, the CombiMatrix Corporation 2000 Stock Awards Plan and the Acacia Research Corporation 1996 Stock Option Plan.

 

B.                                    AUTOMATIC OPTION GRANT PROGRAM shall mean the automatic option grant program in effect under Article Four of the Plan.

 

C.                                    BOARD shall mean the Corporation’s Board of Directors.

 

D.                                    CERTIFICATE OF INCORPORATION shall mean the Certificate of Incorporation of CombiMatrix Corporation filed with the Delaware Secretary of State on the Plan Effective Date and all subsequent amendments, supplements, modifications and replacements thereof.

 

E.                                     CHANGE IN CONTROL shall mean a change in ownership or control of the Corporation effected through any of the following transactions:

 

(i)                                     a stockholder-approved merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or

 

(ii)                                  a sale, transfer or other disposition of all or substantially all of the Corporation’s assets to an entity which is not a Subsidiary of the Corporation, or

 

(iii)                               the acquisition, directly or indirectly by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation), of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders.

 

F.                                      CODE shall mean the Internal Revenue Code of 1986, as amended.

 

G.                                    COMMITTEE shall mean the committee of two (2) or more non-employee Board members appointed by the Board to administer the Discretionary Option/Stock Appreciation Right Grant Program with respect to Section 16 Insiders.

 

H.                                   COMMON STOCK shall mean the Corporation’s Common Stock (as defined in the Certificate of Incorporation).

 

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I.                                        CORPORATION shall mean CombiMatrix Corporation, a Delaware corporation, and any corporate successor to all or substantially all of the assets or voting stock of CombiMatrix Corporation, which shall by appropriate action adopt the Plan.

 

J.                                        DISCRETIONARY OPTION/STOCK APPRECIATION RIGHT GRANT PROGRAM shall mean the Discretionary Option/Stock Appreciation Right Grant Program in effect under Article Two of the Plan.

 

K.                                   EMPLOYEE shall mean an individual who is in the employ of the Corporation (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

 

L.                                     EXECUTIVE OFFICER COMMITTEE  shall mean the committee comprised of two (2) or more executive officers of the Corporation appointed by the Board to administer the Discretionary Option/Stock Appreciation Right Grant Program and Stock Issuance Program with respect to persons other than Section 16 Insiders, but subject to the applicable limitations and requirements of the Delaware Corporate Law.

 

M.                                 EXERCISE DATE shall mean the date on which the Corporation shall have received written notice of the option exercise.

 

N.                                    FAIR MARKET VALUE per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

 

(i)                                     If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported on the Nasdaq National Market. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

 

(ii)                                  If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

 

(iii)                               If the Common Stock is at the time not traded on the Nasdaq National Market or listed on any Stock Exchange, but is regularly traded in any over-the-counter market, then the Fair Market Value shall be the average of the bid and asked prices per share of Common Stock in such over-the-counter market on the date in question.  If there are no bid and asked prices on the date in question, then the Fair Market Value shall be the average of the bid and asked prices in such over-the-counter market on the last preceding date for which such prices exist.

 

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(iv)                              If the Common Stock is at the time not traded as described in (i), (ii) or (iii) above, then the Fair Market Value of a share of Common Stock shall be determined by the Plan Administrator, after taking into account such factors as it deems appropriate.

 

O.                                    HOSTILE TAKE-OVER shall mean either of the following events effecting a change in control or ownership of the Corporation:

 

(i)                                     the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders which the Board does not recommend such stockholders to accept, or

 

(ii)                                  a change in the composition of the Board over a period of thirty-six (36) consecutive months or less such that a majority of the Board members ceases, by reason of one or more contested elections for Board membership, to be comprised of individuals who either (A) have been Board members continuously since the beginning of such period or (B) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (A) who were still in office at the time the Board approved such election or nomination.

 

P.                                      IMMEDIATE FAMILY shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law and shall include adoptive relationships.

 

Q.                                    INCENTIVE OPTION shall mean an option which satisfies the requirements of Code Section 422.

 

R.                                    MISCONDUCT shall, with respect to any Participant, have the meaning specified in the Participant’s award agreement.  In the absence of any definition in the award agreement, “Misconduct” shall have the equivalent meaning or the same meaning as “misconduct” or “cause” set forth in any employment, consulting or other agreement for the performance of services between the Participant and the Corporation or, in the absence of any such agreement or any such definition in such agreement, such term shall mean the commission of any act of fraud, embezzlement or dishonesty by the Optionee or Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Corporation (or any Parent or Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Corporation (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 Corporation (or any Parent or Subsidiary) may consider as grounds for the dismissal or discharge of any Optionee, Participant or other person in the Service of the Corporation (or any Parent or Subsidiary).

 

S.                                      1934 ACT shall mean the Securities Exchange Act of 1934, as amended.

 

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T.                                     NON-STATUTORY OPTION shall mean an option not intended to satisfy the requirements of Code Section 422.

 

U.                                    OPTIONEE shall mean any person to whom an option is granted under the Discretionary Option Grant Program, the Automatic Option Grant Program.

 

V.                                    PARENT shall mean any corporation (other than the Corporation) in an unbroken chain of corporations ending with the Corporation, provided each corporation in the unbroken chain (other than the Corporation) owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

W.                                 PARTICIPANT shall mean any person who is issued shares of Common Stock under the Stock Issuance Program.

 

X.                                    PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the inability of the Optionee or the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of continuous duration of twelve (12) months or more. However, solely for purposes of the Automatic Option Grant Program, Permanent Disability or Permanently Disabled shall mean the inability of the non-employee Board member to perform his or her usual duties as a Board member by reason of any medically determinable physical or mental impairment expected to result in death or to be of continuous duration of twelve (12) months or more.

 

Y.                                    PLAN shall mean the Corporation’s 2006 Stock Incentive Plan, as amended and as set forth in this document.

 

Z.                                     PLAN ADMINISTRATOR shall mean the particular body, whether the Committee or the Board, which is authorized to administer the Discretionary Option Grant and Stock Issuance Programs with respect to one or more classes of eligible persons, to the extent such entity is carrying out its administrative functions under those programs with respect to the persons under its jurisdiction.

 

AA.                           PLAN EFFECTIVE DATE shall mean the date on which the Plan is approved by the stockholders of the Corporation.

 

BB.                           SECTION 16 INSIDER shall mean an officer or director of the Corporation subject to the short-swing profit liabilities of Section 16 of the 1934 Act.

 

CC.                           SERVICE shall mean the performance of services for the Corporation (or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the option grant or stock issuance.

 

DD.                           STOCK EXCHANGE shall mean either the, Nasdaq National Market, the American Stock Exchange or the New York Stock Exchange.

 

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EE.                             STOCK ISSUANCE AGREEMENT shall mean the agreement entered into by the Corporation and the Participant at the time of issuance of shares of Common Stock under the Stock Issuance Program.

 

FF.                               STOCK ISSUANCE PROGRAM shall mean the stock issuance program in effect under Article Three of the Plan.

 

GG.                           SUBSIDIARY shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

HH.                         TAKE-OVER PRICE shall mean the greater of (i) the Fair Market Value per share of Common Stock on the date the option is surrendered to the Corporation in connection with a Hostile Take-Over or, if applicable, (ii) the highest reported price per share of Common Stock paid by the tender offeror in effecting the Hostile Take-Over through the acquisition of such Common Stock. However, if the surrendered option is an Incentive Option, the Take-Over Price shall not exceed the price per share described in clause (i) above.

 

II.                                   10% STOCKHOLDER shall mean the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation (or any Parent or Subsidiary).

 

JJ.                                   WITHHOLDING TAXES shall mean the minimum Federal, state and local income and employment withholding taxes to which the holder of options or unvested shares of Common Stock may become subject in connection with the exercise of those options or the vesting of those shares.

 

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