Document:

dutchessregsights.htm

    REGISTRATION
      RIGHTS
      AGREEMENT

    

    Registration
      Rights Agreement (the
“Agreement”),
      dated as of January 22, 2008, by and between Mezey Howarth Racing Stables,
      Inc. a corporation
      organized under the laws of State of Nevada, with its principal executive office
      at 405A Arenoso, San Clemente, CA 92672 (the “Company”), and
      Dutchess Private Equities Fund, Ltd., a Cayman Islands exempted company, with
      its principal office at 50 Commonwealth Avenue, Suite 2, Boston, MA 02116 (the
      “Holder”).

    

    Whereas, in
      connection with the
      Investment Agreement by and between the Company and the Investor of this date
      (the “Investment
      Agreement”), the Company has agreed to issue and sell to the Investor an
      indeterminate number of shares of the Company’s Common Stock, $.001 par value
      per share (the “Common
      Stock”), to be purchased pursuant to the terms and subject to the
      conditions set forth in the Investment Agreement; and

    

    Whereas, to
      induce the Investor
      to execute and deliver the Investment Agreement, the Company has agreed to
      provide certain registration rights under the Securities Act of 1933, as
      amended, and the rules and regulations thereunder, or any similar successor
      statute (collectively, the “1933 Act”), and
      applicable state securities laws, with respect to the shares of Common Stock
      issuable pursuant to the Investment Agreement.

    

    Now
      therefore, in consideration of the
      foregoing promises and the mutual covenants contained hereinafter and other
      good
      and valuable consideration, the receipt and sufficiency of which are hereby
      acknowledged, the Company and the Investor hereby agree as follows:

    

    

    

    

    

    

    Section
      1.  DEFINITIONS.

    

    As
      used
      in this Agreement, the following terms shall have the following meanings:

    

    “Execution
      Date” means
      the date of this Agreement set forth above.

    

    “Investor”
means
      Dutchess Private Equities Fund, Ltd., a Cayman Islands exempted company.

    

    “Person”
means
      a
      corporation, a limited liability company, an association, a partnership, an
      organization, a business, an individual, a governmental or political subdivision
      thereof or a governmental agency.

    

    “Potential
      Material
      Event” means any of the following: (i) the possession
      by the
      Company of material information not ripe for disclosure in the Registration
      Statement, which shall be evidenced by determinations in good faith by the
      Board
      of Directors of the Company that disclosure of such information in the
      Registration Statement would be detrimental to the business and affairs of
      the
      Company, or (ii) any
      material engagement or activity by the Company which would, in the good faith
      determination of the Board of Directors of the Company, be adversely affected
      by
      disclosure in the Registration Statement at such time, which determination
      shall
      be accompanied by a good faith determination by the Board of Directors of the
      Company that the Registration Statement would be materially misleading absent
      the inclusion of such information.

    

    “Principal
      Market”
shall mean The American Stock Exchange, National Association of Securities
      Dealer’s, Inc., Over-the-Counter electronic bulletin board, the Nasdaq National
      Market or The Nasdaq SmallCap Market whichever is the principal market on which
      the Common Stock of the Company is listed.

    

    “Register,”
“Registered,”
and
      “Registration”
refer to
      the Registration effected by preparing and filing one (1) or more
      Registration Statements in compliance with the 1933 Act and pursuant to Rule
      415
      under the 1933 Act or any successor rule providing for offering securities
      on a
      continuous basis (“Rule 415”), and the
      declaration or ordering of effectiveness of such Registration Statement(s)
      by
      the United States Securities and Exchange Commission (the “SEC”).

    

    “Registrable
      Securities” means (i)
the shares
      of Common Stock issued or issuable pursuant to the Investment
      Agreement, and (ii) any
      shares of capital stock issued or issuable with respect to such shares of Common
      Stock, if any, as a result of any stock split, stock dividend, recapitalization,
      exchange or similar event or otherwise, which have not been (x) included in the
      Registration Statement that has been declared effective by the SEC, or (y) sold under circumstances
      meeting all of the applicable conditions of Rule 144 (or any similar provision
      then in force) under the 1933 Act.

    

    “Registration
      Statement” means the registration statement of the Company filed under
      the 1933 Act covering the Registrable Securities.

    

    All
      capitalized terms used in this Agreement and not otherwise defined herein shall
      have the same meaning ascribed to them as in the Investment Agreement.

    

    
      	
              Section
                2.  REGISTRATION.
                

            

    

    

    (a)  The
      Company
      shall, within fifteen (15) days of the date of this Agreement, file with the
      SEC
      the Registration Statement or Registration Statements (as is necessary) on
      Form
      SB-2 (or, if such form is unavailable for such a registration, on such other
      form as is available for such registration), covering the resale of all of
      the
      Registrable Securities, which Registration Statement(s) shall state that, in
      accordance with Rule 416 promulgated under the 1933 Act, such Registration
      Statement also covers such indeterminate number of additional shares of Common
      Stock as may become issuable upon stock splits, stock dividends or similar
      transactions.  The Company shall initially register for resale
      ________ shares of Common Stock which would be issuable on the date preceding
      the filing of the Registration Statement based on the closing bid price of
      the
      Company’s Common Stock on such date and the amount reasonably calculated that
      represents Common Stock issuable to other parties as set forth in the Investment
      Agreement except to the extent that the SEC requires the share amount to be
      reduced as a condition of effectiveness.

    

    (b)  The
      Company
      shall use all commercially reasonable efforts to have the Registration
      Statement(s) declared effective by the SEC within ninety (90) calendar days
      after the Execution Date.

    

    (c)  The
      Company
      agrees not to include any other securities in the Registration Statement
      covering the Registrable Securities without Investor’s prior written consent
      which Investor may withhold in its sole discretion. Furthermore, the Company
      agrees that it will not file any other Registration Statement for other
      securities, until thirty calendar days after the Registration Statement for
      the
      Registrable Securities is declared effective by the SEC.

    

    
      	
              Section
                3.  RELATED
                OBLIGATIONS. 

            

    

    

    At
      such time as the Company is
      obligated to prepare and file the Registration Statement with the SEC pursuant
      to Section 2(a), the Company will effect the registration of the Registrable
      Securities in accordance with the intended method of disposition thereof and,
      with respect thereto, the Company shall have the following obligations:

    

    

    (a)  The
      Company
      shall use all commercially reasonable efforts to cause such Registration
      Statement relating to the Registrable Securities to become effective within
      ninety (90) days after the Execution Date and shall keep such Registration
      Statement effective until the earlier to occur of  the date on which
(A) the Investor shall
      have sold all the Registrable Securities; or (B) the Investor has
      no right
      to acquire any additional shares of Common Stock under the Investment Agreement
      (the “Registration
      Period”).  The Registration Statement (including any amendments
      or supplements thereto and prospectuses contained therein) shall 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 in which they were made, not misleading. The Company shall use
      all
      commercially reasonable efforts to respond to all SEC comments within seven
      (7)
      business days from receipt of such comments by the Company. The Company shall
      use all commercially reasonable efforts to cause the Registration Statement
      relating to the Registrable Securities to become effective no later than
      five  (5)  business days after notice from the SEC that the
      Registration Statement may be declared effective.  The Investor agrees
      to provide all information which it is required by law to provide to the
      Company, including the intended method of disposition of the Registrable
      Securities, and the Company’s obligations set forth above shall be conditioned
      on the receipt of such information.

    

    (b)  The
      Company
      shall prepare and file with the SEC such amendments (including post-effective
      amendments) and supplements to the Registration Statement and the prospectus
      used in connection with such Registration Statement, which prospectus is to
      be
      filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary
      to keep such Registration Statement effective during the Registration Period,
      and, during such period, comply with the provisions of the 1933 Act with respect
      to the disposition of all Registrable Securities of the Company covered by
      such
      Registration Statement until such time as all of such Registrable Securities
      shall have been disposed of in accordance with the intended methods of
      disposition by the Investor thereof as set forth in such Registration
      Statement.  In the event the number of shares of Common Stock covered
      by the Registration Statement filed pursuant to this Agreement is at any time
      insufficient to cover all of the Registrable Securities, the Company shall
      amend
      such Registration Statement, or file a new Registration Statement (on the short
      form available therefor, if applicable), or both, so as to cover all of the
      Registrable Securities, in each case, as soon as practicable, but in any event
      within thirty (30) calendar days after the necessity therefor arises (based
      on
      the then Purchase Price of the Common Stock and other relevant factors on which
      the Company reasonably elects to rely), assuming the Company has sufficient
      authorized shares at that time, and if it does not, within thirty (30) calendar
      days after such shares are authorized.  The Company shall use
      commercially reasonable efforts to cause such amendment and/or new Registration
      Statement to become effective as soon as practicable following the filing
      thereof.

    

    (c)  The
      Company
      shall make available to the Investor whose Registrable Securities are included
      in any Registration Statement and its legal counsel without charge (i) promptly after the
      same is
      prepared and filed with the SEC at least one (1) copy of such Registration
      Statement and any amendment(s) thereto, including financial statements and
      schedules, all documents incorporated therein by reference and all exhibits,
      the
      prospectus included in such Registration Statement (including each preliminary
      prospectus) and, with regards to such Registration Statement(s), any
      correspondence by or on behalf of the Company to the SEC or the staff of the
      SEC
      and any correspondence from the SEC or the staff of the SEC to the Company
      or
      its representatives; (ii) upon the effectiveness
      of
      any Registration Statement, the Company shall make available copies of the
      prospectus, via EDGAR, included in such Registration Statement and all
      amendments and supplements thereto; and (iii) such other documents,
      including copies of any preliminary or final prospectus, as the Investor may
      reasonably request from time to time in order to facilitate the disposition
      of
      the Registrable Securities.

    

    (d)  The
      Company
      shall use commercially reasonable efforts to (i) register and qualify
      the
      Registrable Securities covered by the Registration Statement under such other
      securities or “blue sky” laws of such states in the United States as the
      Investor reasonably requests; (ii) prepare and file
      in those
      jurisdictions, such amendments (including post-effective amendments) and
      supplements to such registrations and qualifications as may be necessary to
      maintain the effectiveness thereof during the Registration Period; (iii) take such other actions
      as may be necessary to maintain such registrations and qualifications in effect
      at all times during the Registration Period, and (iv) take all other actions
      reasonably necessary or advisable to qualify the Registrable Securities for
      sale
      in such jurisdictions; provided, however, that the
      Company shall not be required in connection therewith or as a condition thereto
      to (x) qualify to do
      business in any jurisdiction where it would not otherwise be required to qualify
      but for this Section 3(d), or (y) subject itself to
      general
      taxation in any such jurisdiction.  The Company shall promptly notify
      the Investor who holds Registrable Securities of the receipt by the Company
      of
      any notification with respect to the suspension of the registration or
      qualification of any of the Registrable Securities for sale under the securities
      or “blue sky” laws of any jurisdiction in the United States or its receipt of
      actual notice of the initiation or threatening of any proceeding for such
      purpose.

    

    (e)  As
      promptly as
      practicable after becoming aware of such event, the Company shall notify
      Investor in writing of the happening of any event as a result of which the
      prospectus included in the Registration Statement, as then in effect, includes
      an untrue statement of a material fact or omission 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 (“Registration
      Default”) and use all diligent efforts to promptly prepare a supplement
      or amendment to such Registration Statement and take any other necessary steps
      to cure the Registration Default (which, if such Registration Statement is
      on
      Form S-3, may consist of a document to be filed by the Company with the SEC
      pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act (as defined below)
      and to be incorporated by reference in the prospectus) to correct such untrue
      statement or omission, and make available copies of such supplement or amendment
      to the Investor. The Company shall also promptly notify the Investor (i) when a prospectus
      or any
      prospectus supplement or post-effective amendment has been filed, and when
      the
      Registration Statement or any post-effective amendment has become effective
      (the
      Company will prepare notification of such effectiveness which shall be delivered
      to the Investor on the same day of such effectiveness and by overnight mail),
      additionally, the Company will promptly provide to the Investor, a copy of
      the
      effectiveness order prepared by the SEC once it is received by the Company;
      (ii) of any request by
      the SEC for amendments or supplements to the Registration Statement or related
      prospectus or related information, (iii) of the Company’s
      reasonable determination that a post-effective amendment to the Registration
      Statement would be appropriate, (iv) in the event the
      Registration Statement is no longer effective, or (v) if the Registration
      Statement is stale as a result of the Company’s failure to timely file its
      financials or otherwise. The Company acknowledges that its failure to cure
      the
      Registration Default within ten (10) business days will cause the Investor
      to
      suffer damages in an amount that will be difficult to
      ascertain.  Accordingly, the parties agree that it is appropriate to
      include a provision for liquidated damages.  The parties acknowledge
      and agree that the liquidated damages provision set forth in this section
      represents the parties’ good faith effort to quantify such damages and, as such,
      agree that the form and amount of such liquidated damages are reasonable and
      will not constitute a penalty.  It is the intention of the parties
      that interest payable under any of the terms of this Agreement shall not exceed
      the maximum amount permitted under any applicable law. If a law, which applies
      to this Agreement, which sets the maximum interest amount, is finally
      interpreted so that the interest in connection with this Agreement exceeds
      the
      permitted limits, then: (1) any such interest
      shall be
      reduced by the amount necessary to reduce the interest to the permitted limit;
      and (2) any sums already
      collected (if any) from the Company which exceed the permitted limits will
      be
      refunded to the Company.  The Investor may choose to make this refund
      by reducing the amount that the Company owes under this Agreement or by making
      a
      direct payment to the Company.  If a refund reduces the amount that
      the Company owes the Investor, the reduction will be treated as a partial
      payment.

    

    (f)  The
      Company
      shall use all commercially reasonable efforts to prevent the issuance of any
      stop order or other  suspension of effectiveness of the Registration
      Statement, or the suspension of the qualification of any of the Registrable
      Securities for sale in any jurisdiction and, if such an order or suspension
      is
      issued,  to obtain the withdrawal of such order or suspension at the
      earliest possible moment and to notify the Investor holding Registrable
      Securities being sold of the issuance of such order and
      the  resolution thereof or its receipt of actual notice of the
      initiation or threat of any proceeding concerning the effectiveness of the
      registration statement.

    

    (g)  The
      Company
      shall permit the Investor and one (1) legal counsel, designated by the Investor,
      to review and comment upon the Registration Statement and all amendments and
      supplements thereto at least one (1) calendar day prior to their filing with
      the
      SEC.  However, any postponement of a filing of a Registration
      Statement or any postponement of a request for acceleration or any postponement
      of the effective date or effectiveness of a Registration Statement by written
      request of the Investor (collectively, the "Investor's Delay") shall not act
      to
      trigger any penalty of any kind, or any cash amount due or any in-kind amount
      due the Investor from the Company under any and all agreements of any nature
      or
      kind between the Company and the Investor.  The event(s) of an
      Investor's Delay shall act to suspend all obligations of any kind or nature
      of
      the Company under any and all agreements of any nature or kind between the
      Company and the Investor.

    

    (h)  At
      the request
      of the Investor, the Company's counsel shall furnish to the Investor an opinion
      letter confirming the effectiveness of the registration
      statement.  Such opinion letter shall be issued as of the date of the
      effectiveness of the registration statement and be in a form suitable to the
      Investor.

    

    (i)  The
      Company
      shall hold in confidence and not make any disclosure of information concerning
      the Investor unless (i)
disclosure of such
      information is necessary to comply with federal or
      state securities laws, (ii) the disclosure of
      such
      information is necessary to avoid or correct a misstatement or omission in
      any
      Registration Statement, (iii) the release of such
      information is ordered pursuant to a subpoena or other final, non-appealable
      order from a court or governmental body of competent jurisdiction, or (iv) such information
      has been
      made generally available to the public other than by disclosure in violation
      of
      this Agreement or any other agreement.  The Company agrees that it
      shall, upon learning that disclosure of such information concerning the Investor
      is sought in or by a court or governmental body of competent jurisdiction or
      through other means, give prompt written notice to the Investor and allow the
      Investor, at the Investor’s expense, to undertake appropriate action to prevent
      disclosure of, or to obtain a protective order covering such information.

    

    (j)  The
      Company
      shall use all commercially reasonable efforts to maintain designation and
      quotation of all the Registrable Securities covered by any Registration
      Statement on the Principal Market.  If, despite the Company’s
      commercially reasonable efforts, the Company is unsuccessful in satisfying
      the
      preceding sentence, it shall use commercially reasonable efforts to cause all
      the Registrable Securities covered by any Registration Statement to be listed
      on
      each other national securities exchange and automated quotation system, if
      any,
      on which securities of the same class or series issued by the Company are then
      listed, if any, if the listing of such Registrable Securities is then permitted
      under the rules of such exchange or system.  The Company shall pay all
      fees and expenses in connection with satisfying its obligation under this
      Section 3(j).

    

    (k)  The
      Company
      shall cooperate with the Investor to facilitate the prompt preparation and
      delivery of certificates representing the Registrable Securities to be offered
      pursuant to the Registration Statement and enable such certificates to be in
      such denominations or amounts, as the case may be, as the Investor may
      reasonably request (and after any sales of such Registrable Securities by the
      Investor, such certificates not bearing any restrictive legend).

    

    (l)  The
      Company
      shall provide a transfer agent for all the Registrable Securities not later
      than
      the effective date of the first Registration Statement filed pursuant
      hereto.

    

    (m)  If
      requested by
      the Investor, the Company shall (i) as soon as reasonably
      practical incorporate in a prospectus supplement or post-effective amendment
      such information as the Investor reasonably determines should be included
      therein relating to the sale and distribution of Registrable Securities,
      including, without limitation, information with respect to the offering of
      the
      Registrable Securities to be sold in such offering; (ii) make all required
      filings
      of such prospectus supplement or post-effective amendment as soon as reasonably
      possible after being notified of the matters to be incorporated in such
      prospectus supplement or post-effective amendment; and (iii) supplement or make
      amendments to any Registration Statement if reasonably requested by the
      Investor.

    

    (n)  The
      Company
      shall use all commercially reasonable efforts to cause the Registrable
      Securities covered by the applicable Registration Statement to be registered
      with or approved by such other governmental agencies or authorities as may
      be
      necessary to facilitate the disposition of such Registrable Securities.

    

    (o)  The
      Company
      shall otherwise use all commercially reasonable efforts to comply with all
      applicable rules and regulations of the SEC in connection with any registration
      hereunder.

    

    (p)  Within
      one (1)
      business day after the Registration Statement which includes Registrable
      Securities is declared effective by the SEC, the Company shall deliver to the
      transfer agent for such Registrable Securities, with copies to the Investor,
      confirmation that such Registration Statement has been declared effective by
      the
      SEC.

    

    (q)  The
      Company
      shall take all other reasonable actions necessary to expedite and facilitate
      disposition by the Investor of Registrable Securities pursuant to the
      Registration Statement.

    

    

    Section
      4.  OBLIGATIONS OF THE
      INVESTOR.

    

    (a)  At
      least five
      (5) calendar days prior to the first anticipated filing date of the Registration
      Statement  the Company shall notify the Investor in writing of the
      information the Company requires from the Investor for the Registration
      Statement.  It shall be a condition precedent to the obligations of
      the Company to complete the registration pursuant to this Agreement with respect
      to the Registrable Securities and the Investor agrees to furnish to the Company
      that information regarding itself, the Registrable Securities and the intended
      method of disposition of the Registrable Securities as shall reasonably be
      required to effect the registration of such Registrable Securities and the
      Investor shall execute such documents in connection with such registration
      as
      the Company may reasonably request.  The Investor covenants and agrees
      that, in connection with any sale of Registrable Securities by it pursuant
      to
      the Registration Statement, it shall comply with the “Plan of Distribution”
section of the then current prospectus relating to such Registration
      Statement.

    

    (b)  The
      Investor,
      by its acceptance of the Registrable Securities, agrees to cooperate with the
      Company as reasonably requested by the Company in connection with the
      preparation and filing of any Registration Statement hereunder, unless the
      Investor has notified the Company in writing of an election to exclude all
      of
      the Investor’s Registrable Securities from such Registration Statement.

    

    (c)  The
      Investor
      agrees that, upon receipt of written notice from the Company of the happening
      of
      any event of the kind described in Section 3(f) or the first sentence of 3(e),
      the Investor will immediately discontinue disposition of Registrable Securities
      pursuant to any Registration Statement(s) covering such Registrable Securities
      until the Investor’s receipt of the copies of the supplemented or amended
      prospectus contemplated by Section 3(f) or the first sentence of 3(e).

    

    
      	
              Section
                5.  EXPENSES
                OF REGISTRATION. 

            

    

    

    All
      expenses, other than underwriting
      discounts and commissions and other than as set forth in the Investment
      Agreement, incurred in connection with registrations including comments, filings
      or qualifications pursuant to Sections 2 and 3, including, without limitation,
      all registration, listing and qualifications fees, printing and accounting
      fees,
      and fees and disbursements of counsel for the Company or for the Investor shall
      be paid by the Company.

    

    
      	
              Section
                6.  INDEMNIFICATION.
                

            

    

    

    In
      the event any Registrable Securities
      are included in the Registration Statement under this Agreement:

    

    

    (a)  To
      the fullest
      extent permitted by law, the Company, under this Agreement, will, and hereby
      does, indemnify, hold harmless and defend the Investor who holds Registrable
      Securities, the directors, officers, partners, employees, counsel, agents,
      representatives of, and each Person, if any, who controls, any Investor within
      the meaning of the 1933 Act or the Securities Exchange Act of 1934, as amended
      (the “1934
      Act”) (each, an “Indemnified
      Person”),
      against any losses, claims, damages, liabilities, judgments, fines, penalties,
      charges, costs, attorneys’ fees, amounts paid in settlement or expenses, joint
      or several (collectively, “Claims”), incurred
      in
      investigating, preparing or defending any action, claim, suit, inquiry,
      proceeding, investigation or appeal taken from the foregoing by or before any
      court or governmental, administrative or other regulatory agency, body or the
      SEC, whether pending or threatened, whether or not an indemnified party is
      or
      may be a party thereto (“Indemnified
      Damages”), to which any of them may become subject insofar as such Claims
      (or actions or proceedings, whether commenced or threatened, in respect thereof)
      arise out of or are based upon: (i) any untrue statement
      or
      alleged untrue statement of a material fact in the Registration Statement or
      any
      post-effective amendment thereto or in any filing made in connection with the
      qualification of the offering under the securities or other “blue sky” laws of
      any jurisdiction in which the Investor has requested in writing that the Company
      register or qualify the Shares (“Blue Sky Filing”), or
      the omission or alleged omission to state a material fact required to be stated
      therein or necessary to make the statements therein, in light of the
      circumstances under which the statements therein were made, not misleading,
      (ii) any untrue
      statement or alleged untrue statement of a material fact contained in the final
      prospectus (as amended or supplemented, if the Company files any amendment
      thereof or supplement thereto with the SEC) or the omission or alleged omission
      to state therein any material fact necessary to make the statements made
      therein, in light of the circumstances under which the statements therein were
      made, not misleading, or (iii) any violation or
      alleged
      violation by the Company of the 1933 Act, the 1934 Act, any other law,
      including, without limitation, any state securities law, or any rule or
      regulation thereunder relating to the offer or sale of the Registrable
      Securities pursuant to the Registration Statement (the matters in the foregoing
      clauses (i) through (iii) being, collectively, “Violations”).  Subject
      to the restrictions set forth in Section 6(c) the Company shall reimburse the
      Investor and each such controlling person, promptly as such expenses are
      incurred and are due and payable, for any reasonable legal fees or other
      reasonable expenses incurred by them in connection with investigating or
      defending any such Claim. Notwithstanding anything to the contrary contained
      herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to
      a Claim
      arising out of or based upon a Violation which is due to the inclusion in the
      Registration Statement of the information furnished to the Company by any
      Indemnified Person expressly for use in connection with the preparation of
      the
      Registration Statement or any such amendment thereof or supplement thereto;
      (ii) shall not be
      available to the extent such Claim is based on (a) a failure of the
      Investor
      to deliver or to cause to be delivered the prospectus made available by the
      Company or (b) the
      Indemnified Person’s use of an incorrect prospectus despite being promptly
      advised in advance by the Company in writing not to use such incorrect
      prospectus;  (iii) any claims based
      on the
      manner of sale of the Registrable Securities by the Investor or of the
      Investor’s failure to register as a dealer under applicable securities laws;
(iv) any omission of the
      Investor to notify the Company of any material fact that should be stated in
      the
      Registration Statement or prospectus relating to the Investor or the manner
      of
      sale; and (v) any
      amounts paid in settlement of any Claim if such settlement is effected without
      the prior written consent of the Company, which consent shall not be
      unreasonably withheld.  Such indemnity shall remain in full force and
      effect regardless of any investigation made by or on behalf of the Indemnified
      Person and  shall survive the resale of the Registrable Securities by
      the Investor pursuant to the Registration Statement.

    

    (b)  In
      connection
      with any Registration Statement in which Investor is participating, the Investor
      agrees to severally and jointly indemnify, hold harmless and defend, to
      the  same extent and in the same manner as is set forth in Section
      6(a), the Company, each of its  directors, each of its officers who
      signs the Registration Statement, each Person, if any, who controls the Company
      within the meaning of the 1933 Act or the 1934 Act and the Company’s agents
      (collectively and together with an Indemnified Person, an “Indemnified Party”),
      against any Claim or Indemnified Damages to which any of them may become
      subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim
      or
      Indemnified Damages arise out of or are based upon any Violation, in each case
      to the extent, and only to the extent, that such Violation is due to the
      inclusion in the Registration Statement of the written information furnished
      to
      the Company by the Investor expressly for use in connection with such
      Registration Statement; and, subject to Section 6(c), the Investor will
      reimburse any legal or other expenses reasonably incurred by them in connection
      with investigating or defending any such Claim; provided, however, that the
      indemnity agreement contained in this Section 6(b) and the agreement with
      respect to contribution contained in Section 7 shall not apply to amounts paid
      in settlement of any Claim if such settlement is effected without the prior
      written consent of the Investor, which consent shall not be unreasonably
      withheld; provided, further, however, that the Investor shall only be liable
      under this Section 6(b) for  that amount of a Claim or Indemnified
      Damages as does not exceed the net proceeds to such Investor as a result of
      the
      sale of Registrable Securities pursuant to such Registration
      Statement.  Such indemnity shall remain in full force and effect
      regardless of any investigation made by or on behalf of such Indemnified Party
      and shall survive the resale of the Registrable Securities by the Investor
      pursuant to the Registration Statement. Notwithstanding anything to the contrary
      contained herein, the indemnification agreement contained in this Section 6(b)
      with respect to any preliminary prospectus shall not inure to the benefit of
      any
      Indemnified Party if the untrue statement or omission of material fact contained
      in the preliminary prospectus were corrected on a timely basis in the
      prospectus, as then amended or supplemented.  This indemnification
      provision shall apply separately to each Investor and liability hereunder shall
      not be joint and several.

    

    (c)  Promptly
      after
      receipt by an Indemnified Person or Indemnified Party under this Section 6
      of
      notice of the commencement of any action or proceeding (including any
      governmental action or proceeding) involving a Claim, such Indemnified Person
      or
      Indemnified Party shall, if a Claim in respect thereof is to be made against
      any
      indemnifying party under this Section 6, deliver to the indemnifying party
      a
      written notice of the commencement thereof, and the indemnifying party shall
      have the right to participate in, and, to the extent the indemnifying party
      so
      desires, jointly with any other indemnifying party similarly noticed, to assume
      control of the defense thereof with counsel mutually satisfactory to the
      indemnifying party and the Indemnified Person or the Indemnified Party, as
      the
      case may be; provided, however, that an Indemnified Person or Indemnified Party
      shall have the right to retain its own counsel with the fees and expenses to
      be
      paid by the indemnifying party, if, in the reasonable opinion of counsel
      retained by the Indemnified Person or Indemnified Party, the representation
      by
      counsel of the Indemnified Person or Indemnified Party and the indemnifying
      party would be inappropriate due to actual or potential differing interests
      between such Indemnified Person or Indemnified Party and any other party
      represented by such counsel in such proceeding.  The indemnifying
      party shall pay for only one (1) separate legal counsel for the Indemnified
      Persons or the Indemnified Parties, as applicable, and such counsel shall be
      selected by the Investor, if the Investor is entitled to indemnification
      hereunder, or the Company, if the Company is entitled to indemnification
      hereunder, as applicable.  The Indemnified Party or Indemnified Person
      shall cooperate fully with the indemnifying party in connection with any
      negotiation or defense of any such action or Claim by the indemnifying party
      and
      shall furnish to the indemnifying party all information reasonably available
      to
      the Indemnified Party or Indemnified Person which relates to such action or
      Claim.  The indemnifying party shall keep the Indemnified Party or
      Indemnified Person fully apprised at all times as to the status of the defense
      or any settlement negotiations with respect thereto.  No indemnifying
      party shall be liable for any settlement of any action, claim or proceeding
      affected without its written consent, provided, however, that the indemnifying
      party shall not unreasonably withhold, delay or condition its consent. No
      indemnifying party shall, without the consent of the Indemnified Party or
      Indemnified Person, consent to entry of any judgment or enter into any
      settlement or other compromise which does not include as an unconditional term
      thereof the giving by the claimant or plaintiff to such Indemnified Party or
      Indemnified Person of a release from all liability in respect to such
      Claim.  Following indemnification as provided for hereunder, the
      indemnifying party shall be subrogated to all rights of the Indemnified Party
      or
      Indemnified Person with respect to all third parties, firms or corporations
      relating to the matter for which indemnification has been made.  The
      failure to deliver written notice to the indemnifying party within a reasonable
      time of the commencement of any such action shall not relieve such indemnifying
      party of any liability to the Indemnified Person or Indemnified Party under
      this
      Section 6, except to the extent that the indemnifying party is prejudiced in
      its
      ability to defend such action.

    

    (d)  The
      indemnity
      agreements contained herein shall be in addition to (i) any cause of action
      or
      similar right of the Indemnified Party or Indemnified Person against the
      indemnifying party or others, and (ii) any liabilities the
      indemnifying party may be subject to pursuant to the law.

    

    Section
      7.  CONTRIBUTION.

    

    To
      the extent any indemnification by an
      indemnifying party is prohibited or limited by law, the indemnifying party
      agrees to make the maximum contribution with respect to any amounts for which
      it
      would otherwise be liable under Section 6 to the fullest extent permitted by
      law; provided, however,
      that: (i) no
      contribution shall be made under circumstances where the maker would not have
      been liable for indemnification under the fault standards set forth in Section
      6; (ii) no seller of
      Registrable Securities guilty of fraudulent misrepresentation (within the
      meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
      from
      any seller of Registrable Securities who was not guilty of fraudulent
      misrepresentation; and (iii)
contribution by any
      seller of Registrable Securities shall be limited in
      amount to the net amount of proceeds received by such seller from the sale
      of
      such Registrable Securities.

    

    
      	
              Section
                8.

            	
              REPORTS
                UNDER THE 1934
                ACT. 

            

    

    

    With
      a view to making available to the
      Investor the benefits of Rule 144 promulgated under the 1933 Act or any other
      similar rule or regulation of the SEC that may at any time permit the Investor
      to sell securities of the Company to the public without registration (“Rule 144”), provided
      that the Investor holds any Registrable Securities are eligible for resale
      under
      Rule 144 (k), the Company agrees to:

    

    (a)           
make
      and keep
      public information available, as those terms are understood and defined in
      Rule
      144;

    

    (b)           
file
      with the
      SEC in a timely manner all reports and other documents required of the Company
      under the 1933 Act and the 1934 Act so long as the Company remains subject
      to
      such requirements (it being understood that nothing herein shall limit the
      Company’s obligations under Section 5(c) of the Investment Agreement) and the
      filing of such reports and other documents is required for the applicable
      provisions of Rule 144; and

    

    (c)           
furnish
      to
      the Investor, promptly upon request, (i) a written statement
      by the
      Company that it has complied with the reporting requirements of Rule 144, the
      1933 Act and the 1934 Act, (ii) a copy of the most
      recent
      annual or quarterly report of the Company and such other reports and documents
      so filed by the Company, and (iii) such other information
      as may be reasonably requested to permit the Investor to sell such securities
      pursuant to Rule 144 without registration.

    

    Section
      9.  NO
      ASSIGNMENT OF REGISTRATION RIGHTS.

    

    The
      rights and obligations under this
      Agreement shall not be assignable.

     

    

    Section
      10.  AMENDMENT OF REGISTRATION
      RIGHTS.

    

    The
      provisions of this Agreement may be
      amended only with the written consent of the Company and Investor.

    

    Section
      11.  MISCELLANEOUS.

    

    (a)  Any
      notices or
      other communications required or permitted to be given under the terms of this
      Agreement that must be in writing will be deemed to have been delivered (i) upon receipt, when
      delivered personally; (ii)
upon receipt, when
      sent by facsimile (provided a confirmation of
      transmission is mechanically or electronically generated and kept on file by
      the
      sending party); or (iii)
      one (1) day after deposit with a nationally recognized overnight delivery
      service, in each case properly addressed to the party to receive the
      same.  The addresses and facsimile numbers for such communications
      shall be:

    

    If
      to the
      Company:

    

                          
      Mezey Howarth Racing Stables, Inc.

    405A
      Arenoso

    San
      Clemente, CA 92672

    Telephone:
(949)429-4001

    Facsimile:

    

    

    If
      to the
      Investor:

    

    Dutchess
      Private Equities Fund,
      Ltd.

    50
      Commonwealth Ave, Suite 2

    Boston,
      MA 02116

    Telephone:
      (617) 301-4700

    Facsimile:  (617)
      249-0947

    

    Each
      party shall provide five (5)
      business days prior notice to the other party of any change in address, phone
      number or facsimile number.

    

    (b)  Failure
      of any
      party to exercise any right or remedy under this Agreement or otherwise, or
      delay by a party in exercising such right or remedy, shall not operate as a
      waiver thereof.

    

    (c)   This
      Agreement and the Transaction Documents constitute the entire agreement among
      the parties hereto with respect to the subject matter hereof and
      thereof.  There are no restrictions, promises, warranties or
      undertakings, other than those set forth or referred to herein and
      therein.

    

    (d)  This
      Agreement
      and the Transaction Documents supersede all prior agreements and understandings
      among the parties hereto with respect to the subject matter hereof and
      thereof.

    

    (e)
The
      headings in this
      Agreement are for convenience of reference only and shall not limit or otherwise
      affect the meaning hereof.  Whenever required by the context of this
      Agreement, the singular shall include the plural and masculine shall include
      the
      feminine.  This Agreement shall not be construed as if it had been
      prepared by one of the parties, but rather as if all the parties had prepared
      the same.

    

    (f)  This
      Agreement
      may be executed in two or more identical counterparts, each of which shall
      be
      deemed an original but all of which shall constitute one and the same
      agreement.  This Agreement, once executed by a party, may be delivered
      to the other party hereto by facsimile transmission of a copy of this Agreement
      bearing the signature of the party so delivering this Agreement.

    

    (g)  Each
      party
      shall do and perform, or cause to be done and performed, all such further acts
      and things, and shall execute and deliver all such other agreements,
      certificates, instruments and documents, as the other party may reasonably
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated hereby.

    

    (h)
      In case any provision of
      this Agreement is held by a court of competent jurisdiction to be excessive
      in
      scope or otherwise invalid or unenforceable, such provision shall be adjusted
      rather than voided, if possible, so that it is enforceable to the maximum extent
      possible, and the validity and enforceability of the remaining provisions of
      this Agreement will not in any way be affected or impaired thereby.

    

    

    Section
      12.  DISPUTES SUBJECT
      TO
      ARBITRATION GOVERNED BY MASSACHUSETTS LAW

    

    All
      disputes arising under this
      agreement shall be governed by and interpreted in accordance with the laws
      of
      the Commonwealth of Massachusetts, without regard to principles of conflict
      of
      laws.  The parties to this agreement will submit all disputes arising
      under this agreement to arbitration in Boston, Massachusetts before a single
      arbitrator of the American Arbitration Association (“AAA”).  The
      arbitrator shall be selected by application of the rules of the AAA, or by
      mutual agreement of the parties, except that such arbitrator shall be an
      attorney admitted to practice law in the Commonwealth of
      Massachusetts.  No party to this agreement will challenge the
      jurisdiction or venue provisions as provided in this section.  Nothing contained herein shall
      prevent
      the party from obtaining an injunction.

    

    

    *.*.*

    

    SIGNATURE
      PAGE OF REGISTRATION RIGHTS AGREEMENT

    

     

    Your
      signature on this Signature Page
      evidences your agreement to be bound by the terms and conditions of the
      Investment Agreement and the Registration Rights Agreement as of the date first
      written above.

     

     

    The
      undersigned signatory hereby
      certifies that he has read and understands the Registration Rights Agreement,
      and the representations made by the undersigned in this Registration Rights
      Agreement are true and accurate, and agrees to be bound by its terms.

     

    

    DUTCHESS
      PRIVATE EQUITIES FUND,
      LTD.,

    

    

    

    By:
      /s/
      Douglas H. Leighton

    Douglas
      H. Leighton, Director

    

    

    

    MEZEY
      HOWARTH RACING STABLES, INC.

    

    

    By:
      /s/
      J. Wade Mezey

          J.
      Wade Mezey, CEOEXHIBIT 4.1 

 

PROPELL CORPORATION 

2008 STOCK OPTION PLAN

______________________________________ 

 

1.    Purpose.  The purpose of this Plan is to advance the interests of Propell Corporation, a Delaware corporation (the “Company”), by providing an additional incentive to attract, retain and motivate highly qualified and competent persons who are key to the Company, including key employees, consultants, independent contractors, Officers and Directors, and upon whose efforts and judgment the success of the Company and its Subsidiaries is largely dependent, by authorizing the grant of options to purchase Common Stock of the Company and other related benefits to persons who are eligible to participate hereunder, thereby encouraging stock ownership in the Company by such persons, all upon and subject to the terms and conditions of this Plan.

 

	
            2.
 	
            Definitions.  As used herein, the following terms shall have the meanings indicated:
 

 

	
            (a)
 	
            “Board” shall mean the Board of Directors of the Company.
 

 

	
            (b)
 	
            “Cause” shall mean any of the following:
 

 

(i)         a determination by the Company that there has been a willful, reckless or grossly negligent failure by the Optionee to perform his or her duties as an employee of the Company;

 

(ii)         any conduct by the Optionee that either results in his or her conviction of a felony under the laws of the United States of America or any state thereof, or of an equivalent crime under the laws of any other jurisdiction;

 

(iii)        a determination by the Company that the Optionee has committed an act or acts involving fraud, embezzlement, misappropriation, theft, breach of fiduciary duty or material dishonesty against the Company, its properties or personnel;

 

(iv)        any act by the Optionee that the Company determines to be in willful or wanton disregard of the Company’s best interests, or which results, or is intended to result, directly or indirectly, in improper gain or personal enrichment of the Optionee at the expense of the Company;

 

(v)        a determination by the Company that there has been a willful, reckless or grossly negligent failure by the Optionee to comply with any rules, regulations, policies or procedures of the Company, or that the Optionee has engaged in any act, behavior or conduct demonstrating a deliberate and material violation or disregard of standards of behavior that the Company has a right to expect of its employees; or

 

(vi)        if the Optionee, while employed by the Company and for two years thereafter, violates a confidentiality and/or noncompete agreement with the Company, or fails to  safeguard, divulges, communicates, uses to the detriment of the Company or for the benefit of any person or persons, or misuses in any way, any Confidential Information; provided, however, that, if the Optionee has entered into a written employment agreement with the Company which remains effective and which expressly provides for a termination of such Optionee’s employment for “cause,” the term “Cause” as used herein shall have the meaning as set forth in the Optionee’s employment agreement in lieu of the definition of “Cause” set forth in this Section 2(b).

 

1

 

(c)        “Change of Control” shall mean the acquisition by any person or group (as that term is defined in the Exchange Act, and the rules promulgated pursuant to that act) in a single transaction or a series of transactions of fifty percent (50%) or more in voting power of the outstanding stock of the Company and a change of the composition of the Board of Directors so that, within two years after the acquisition took place, a majority of the members of the Board of Directors of the Company, or of any corporation with which the Company may be consolidated or merged, are persons who were not directors or officers of the Company or one of its Subsidiaries immediately prior to the acquisition, or to the first of a series of transactions which resulted in the acquisition of fifty percent (50%) or more in voting power of
the outstanding stock of the Company.

 

	
            (d)
 	
            “Code” shall mean the Internal Revenue Code of 1986, as amended.
 

 

(e)        “Committee” shall mean the stock option committee appointed by the Board or, if not appointed, the Board.

 

(f)         “Common Stock” shall mean the Company’s Common Stock, no par value per share.

 

	
            (g)
 	
            “Director” shall mean a member of the Board.
 

 

(h)        “Employee” shall mean any person, including officers, directors, consultants and independent contractors employed by the Company or any parent or Subsidiary of the Company within the meaning of Section 3401(c) of the regulators promulgated thereunder.

 

(i)         “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

(j)         “Fair Market Value” of a Share on any date of reference shall be the Closing Price of a share of Common Stock on the business day immediately preceding such date, unless the Committee in its sole discretion shall determine otherwise in a fair and uniform manner.  For this purpose, the “Closing Price” of the Common Stock on any business day shall be (i) if the Common Stock is listed or admitted for trading on any United States national securities exchange, or if actual transactions are otherwise reported on a consolidated transaction reporting system, the last reported sale price of the Common Stock on such exchange or reporting system, as reported in any newspaper of general circulation, (ii) if the Common Stock is quoted on The Nasdaq Stock Market (“Nasdaq”), or any similar system of automated dissemination of quotations of securities prices in common use, the mean between the closing high bid and low asked quotations for such day of the Common Stock on such system, or (iii) if neither clause (i) nor (ii) is applicable, the mean between the high bid and low asked quotations for the Common Stock as reported by the National Quotation Bureau, Incorporated if at least two securities dealers have inserted both bid and asked quotations for the Common Stock on at least five of the 10 preceding days.  If the information set forth in clauses (i) through (iii) above is unavailable or inapplicable to the Company (e.g., if the Company’s Common Stock is not then publicly traded or quoted), then the “Fair Market Value” of a Share shall be the fair market value (i.e., the price at which a willing seller would sell a Share to a willing buyer when neither is
acting under compulsion and when both have reasonable knowledge of all relevant facts) of a share of the Common Stock on the business day immediately preceding such date as the Committee in its sole and absolute discretion shall determine in a fair and uniform manner.

 

2

 

(k)        “Incentive Stock Option” shall mean an incentive stock option as defined in Section 422 of the Code.

 

(l)         “Non-Statutory Stock Option” or “Nonqualified Stock Option” shall mean an Option which is not an Incentive Stock Option.

 

(m)       “Officer” shall mean the Company’s chairman, president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice-president of the Company in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company.  Officers of Subsidiaries shall be deemed Officers of the Company if they perform such policy-making functions for the Company.  As used in this paragraph, the phrase “policy-making function” does not include policy-making functions that are not significant.  Unless specified otherwise in a resolution by the Board, an “executive officer” pursuant
to Item 401(b) of Regulation S-K (17 C.F.R. § 229.401(b)) shall be only such person designated as an “Officer” pursuant to the foregoing provisions of this paragraph.

 

(n)        “Option” (when capitalized) shall mean any stock option granted under this Plan.

 

(o)        “Optionee” shall mean a person to whom an Option is granted under this Plan or any person who succeeds to the rights of such person under this Plan by reason of the death of such person.

 

(p)        “Plan” shall mean this 2008 Stock Option Plan of the Company, which Plan shall be effective upon approval by the Board, subject to approval, within 12 months of the date thereof by holders of a majority of the Company’s issued and outstanding Common Stock of the Company.

 

(q)        “Share” or “Shares” shall mean a share or shares, as the case may be, of the Common Stock, as adjusted in accordance with Section 10 of this Plan.

 

(r)         “Subsidiary” shall mean any corporation (other than the Company) in any unbroken chain of corporations beginning with the Company if, at the time of the granting of the Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

3.    Shares and Options.  Subject to adjustment in accordance with Section 10 hereof, the Company may issue up to five million (5,000,000) Shares from Shares held in the Company’s treasury or from authorized and unissued Shares through the exercise of Options issued pursuant to the provisions of this Plan.  If any Option granted under this Plan shall terminate, expire, or be canceled, forfeited or surrendered as to any Shares, the Shares relating to such lapsed Option shall be available for issuance pursuant to new Options subsequently granted under this Plan.  Upon the grant of any Option hereunder, the authorized and unissued Shares to which such Option relates shall be reserved for issuance to permit exercise under this Plan.  Subject to the provisions of Section 14 hereof, an Option granted hereunder shall be
either an Incentive Stock Option or a Non-Statutory Stock Option as determined by the Committee at the time of grant of such Option and shall clearly state whether it is an Incentive Stock Option or Non-Statutory Stock Option.  All Incentive Stock Options shall be granted within 10 years from the effective date of this Plan.  

 

3

 

4.    Limitations.  Options otherwise qualifying as Incentive Stock Options hereunder will not be treated as Incentive Stock Options to the extent that the aggregate Fair Market Value (determined at the time the Option is granted) of the Shares, with respect to which Options meeting the requirements of Code Section 422(b) are exercisable for the first time by any individual during any calendar year (under all stock option or similar plans of the Company and any Subsidiary), exceeds $100,000.

 

	
            5.
 	
            Conditions for Grant of Options.
 

 

(a)        Each Option shall be evidenced by an option agreement that may contain any term deemed necessary or desirable by the Committee, provided such terms are not inconsistent with this Plan or any applicable law.  Optionees shall be those persons selected by the Committee from the class of all regular Employees of the Company or its Subsidiaries, including Employee Directors and Officers who are regular or former regular employees of the Company, Directors who are not regular employees of the Company, as well as consultants to the Company.  Any person who files with the Committee, in a form satisfactory to the Committee, a written waiver of eligibility to receive any Option under this Plan shall not be eligible to receive any Option under this Plan for the duration of such waiver.

 

(b)        In granting Options, the Committee shall take into consideration the contribution the person has made, or is expected to make, to the success of the Company or its Subsidiaries and such other factors as the Committee shall determine.  The Committee shall also have the authority to consult with and receive recommendations from Officers and other personnel of the Company and its Subsidiaries with regard to these matters.  The Committee may from time to time in granting Options under this Plan prescribe such terms and conditions concerning such Options as it deems appropriate, provided that such terms and conditions are not more favorable to an Optionee than those expressly permitted herein; provided further, however, that to the extent not cancelled pursuant to Section 9(b) hereof, upon a Change in Control, any Options that have not yet vested, may, in the sole discretion of the Committee, vest upon such Change in Control.

 

(c)        The Options granted to employees under this Plan shall be in addition to regular salaries, pension, life insurance or other benefits related to their employment with the Company or its Subsidiaries.  Neither this Plan nor any Option granted under this Plan shall confer upon any person any right to employment or continuance of employment (or related salary and benefits) by the Company or its Subsidiaries.

 

6.    Price.  The exercise price per Share of any Option shall be any price determined by the Committee but in no event shall the exercise price per Share of any Option be less than the Fair Market Value of the Shares underlying such Option on the date such Option is granted and, in the case of an Incentive Stock Option granted to a 10% stockholder, the per Share exercise price will not be less than 110% of the Fair Market Value.  Re-granted Options, or Options which are canceled and then re-granted covering such canceled Options, will, for purposes of this Section 6, be deemed to have been granted on the date of the re-granting.

 

4

 

	
            7.
 	
            Exercise of Options.
 

 

(a)        An Option shall be deemed exercised when (i) the Company has received written notice of such exercise in accordance with the terms of the Option, (ii) full payment of the aggregate option price of the Shares as to which the Option is exercised has been made, (iii) the Optionee has agreed to be bound by the terms, provisions and conditions of any applicable stockholders’ agreement, and (iv) arrangements that are satisfactory to the Committee in its sole discretion have been made for the Optionee’s payment to the Company of the amount that is necessary for the Company or the Subsidiary employing the Optionee to withhold in accordance with applicable Federal or state tax withholding requirements.  Unless further limited by the Committee in any Option, the exercise price of any Shares purchased
pursuant to the exercise of such Option shall be paid in cash, by certified or official bank check, by money order, with Shares or by a combination of the above; provided, however, that the Committee in its sole discretion may accept a personal check in full or partial payment of any Shares.  The Company in its sole discretion may, on an individual basis or pursuant to a general program established by the Committee in connection with this Plan, lend money to an Optionee to exercise all or a portion of the Option granted hereunder.  If the exercise price is paid in whole or part with the Optionee’s promissory note, such note shall (i) provide for full recourse to the maker, (ii) be collateralized by the pledge of the Shares that the Optionee purchases upon exercise of such Option, (iii) bear interest at a rate no less than the rate of interest payable by the Company to its principal lender, and (iv) contain such other terms as the Committee in its sole
discretion shall require.

 

(b)        No Optionee shall be deemed to be a holder of any Shares subject to an Option unless and until a stock certificate or certificates for such Shares are issued to such person(s) under the terms of this Plan.  No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Section 10 hereof.

 

(c)        Any Option may, in the discretion of the Committee, be exercised pursuant to a “cashless” or “net issue” exercise.  In lieu of exercising the Option as specified in subsection (a) above, the Optionee may pay in whole or in part with Shares, the number of which shall be determined by dividing (a) the aggregate Fair Value of such Shares otherwise issuable upon exercise of the Option minus the aggregate Exercise Price of such Option by (b) the Fair Value of one such Share, or the Optionee may pay in whole or in part through a reduction in the number of Shares received through the exercise of the Option equal to the quotient of the (a) aggregate Fair Value of all the Shares issuable upon exercise of the Option minus the aggregate Exercise Price of such Option (b) divided by the Fair Value of one such
share.  If the exercise price is paid in whole or in part with Shares, the value of the Shares surrendered shall be their Fair Market Value on the date the Option is exercised.

 

8.    Exercisability of Options.  Any Option shall become exercisable in such amounts, at such intervals, upon such events or occurrences and upon such other terms and conditions as shall be provided in an individual Option agreement evidencing such Option, except as otherwise provided in Section 5(b) or this Section 8.

 

(a)        The expiration date(s) of an Option shall be determined by the Committee at the time of grant, but in no event shall an Option be exercisable after the expiration of 10 years from the date of grant of the Option.

 

5

 

(b)        Unless otherwise expressly provided in any Option as approved by the Committee, notwithstanding the exercise schedule set forth in any Option, each outstanding Option, may, in the sole discretion of the Committee, become fully exercisable upon the date of the occurrence of any Change of Control, but, unless otherwise expressly provided in any Option, no earlier than six months after the date of grant, and if and only if Optionee is in the employ of the Company on such date.

 

(c)        The Committee may in its sole discretion accelerate the date on which any Option may be exercised and may accelerate the vesting of any Shares subject to any Option or previously acquired by the exercise of any Option.

 

	
            9.
 	
            Termination of Option Period.
 

 

(a)        Unless otherwise expressly provided in any Option, the unexercised portion of any Option shall automatically and without notice immediately terminate and become forfeited, null and void at the time of the earliest to occur of the following:

 

(i)         three months after the date on which the Optionee’s employment is terminated for any reason other than by reason of (A) Cause, (B) a mental or physical disability (within the meaning of Section 22(e) of the Code) as determined by a medical doctor satisfactory to the Committee, or (C) death;

 

(ii)         immediately upon the termination by the Company of the Optionee’s employment for Cause;

 

(iii)        one year after the date on which the Optionee’s employment is terminated by reason of a mental or physical disability (within the meaning of Code Section 22(e)) as determined by a medical doctor satisfactory to the Committee or the later of three months after the date on which the Optionee shall die if such death shall occur during the one-year period specified herein; or

 

(iv)        the later of (a) one year after the date of termination of the Optionee’s employment by reason of death of the employee, or (b) three months after the date on which the Optionee shall die if such death shall occur during the one year period specified in Subsection 9(a)(iii) hereof.

 

(b)        The Committee in its sole discretion may, by giving written notice (“cancellation notice”), cancel effective upon the date of the consummation of any corporate transaction described in Subsection 10(d) hereof, any Option that remains unexercised on such date.  Such cancellation notice shall be given a reasonable period of time prior to the proposed date of such cancellation and may be given either before or after approval of such corporate transaction.

 

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(c)        Upon termination of Optionee’s employment as described in this Section 9, or otherwise, any Option (or portion thereof) not previously vested or not yet exercisable pursuant to Section 8 of this Plan or the vesting schedule set forth in such Option shall be immediately canceled.

 

	
            10.
 	
            Adjustment of Shares.
 

 

(a)        If at any time while this Plan is in effect or unexercised Options are outstanding, there shall be any increase or decrease in the number of issued and outstanding Shares through the declaration of a stock dividend or through any recapitalization resulting in a stock split, combination or exchange of Shares (other than any such exchange or issuance of Shares through which Shares are issued to effect an acquisition of another business or entity or the Company’s purchase of Shares to exercise a “call” purchase option), then and in such event:

 

(i)         appropriate adjustment shall be made in the maximum number of Shares available for grant under this Plan, so that the same percentage of the Company’s issued and outstanding Shares shall continue to be subject to being so optioned;

 

(ii)         appropriate adjustment shall be made in the number of Shares and the exercise price per Share thereof then subject to any outstanding Option, so that the same percentage of the Company’s issued and outstanding Shares shall remain subject to purchase at the same aggregate exercise price; and

 

(iii)        such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive.

 

(b)        Subject to the specific terms of any Option, the Committee may change the terms of Options outstanding under this Plan, with respect to the option price or the number of Shares subject to the Options, or both, when, in the Committee’s sole discretion, such adjustments become appropriate by reason of a corporate transaction described in Subsection 10(d) hereof, or otherwise.

 

(c)        Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into or exchangeable for shares of its capital stock of any class, either in connection with a direct or underwritten sale, or upon the exercise of rights or warrants to subscribe therefor or purchase such Shares, or upon conversion of obligations of the Company into such Shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of or exercise price of Shares then subject to outstanding Options granted under this Plan.

 

(d)        Without limiting the generality of the foregoing, the existence of outstanding Options granted under this Plan shall not affect in any manner the right or power of the Company to make, authorize or consummate (i) any or all adjustments, reclassifications, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business; (ii) any merger or consolidation of the Company or to which the Company is a party; (iii) any issuance by the Company of debt securities, or preferred or preference stock that would rank senior to or above the Shares subject to outstanding Options; (iv) any purchase or issuance by the Company of Shares or other classes of common stock or common equity securities; (v) the dissolution or liquidation of the Company; (vi) any sale,
transfer, encumbrance, pledge or assignment of all or any part of the assets or business of the Company; or (vii) any other corporate act or proceeding, whether of a similar character or otherwise.

 

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(e)        The Optionee shall receive written notice within a reasonable time prior to the consummation of such action advising the Optionee of any of the foregoing.  The Committee may, in the exercise of its sole discretion, in such instances declare that any Option shall terminate as of a date fixed by the Board and give each Optionee the right to exercise his or her Option.

 

11.  Transferability.  No Option or stock appreciation right granted hereunder shall be sold, pledged, assigned, hypothecated, disposed or otherwise transferred by the Optionee other than by will or the laws of descent and distribution, unless otherwise authorized by the Board, and no Option or stock appreciation right shall be exercisable during the Optionee’s lifetime by any person other than the Optionee.

 

12.  Issuance of Shares.  As a condition of any sale or issuance of Shares upon exercise of any Option, the Committee may require such agreements or undertakings, if any, as the Committee may deem necessary or advisable to assure compliance with any such law or regulation including, but not limited to, the following:

 

(i)         a representation and warranty by the Optionee to the Company, at the time any Option is exercised, that he is acquiring the Shares to be issued to him for investment and not with a view to, or for sale in connection with, the distribution of any such Shares; and

(ii)         an agreement and undertaking to comply with all of the terms, restrictions and provisions set forth in any then applicable stockholders’ agreement relating to the Shares, including, without limitation, any restrictions on transferability, any rights of first refusal and any option of the Company to “call” or purchase such Shares under then applicable agreements, and

(iii)        any restrictive legend or legends, to be embossed or imprinted on Share certificates, that are, in the discretion of the Committee, necessary or appropriate to comply with the provisions of any securities law or other restriction applicable to the issuance of the Shares. 

 

13.  Stock Appreciation Rights.  The Committee may grant stock appreciation rights to Employees, either or tandem with Options that have been or are granted under the Plan or with respect to a number of Shares on which an Option is not granted.  A stock appreciation right shall entitle the holder to receive, with respect to each Share as to which the right is exercised, payment in an amount equal to the excess of the Share’s Fair Market Value on the date the right is exercised over its Fair Market Value on the date the right was granted.  Such payment may be made in cash or in Shares valued at the Fair Market Value as of the date of surrender, or partly in cash and partly in Shares, as determined by the Committee in its sole discretion.  The Committee may establish a maximum appreciation value payable for stock appreciation rights.

 

14.  Restricted Stock Awards.   The Committee may grant restricted stock awards under the Plan in Shares or denominated in units of Shares.  The Committee, in its sole discretion, may make such awards subject to conditions and restrictions, as set forth in the instrument evidencing the award, which may be based on continuous service with the Company or the attainment of certain performance goals related to profits, profit growth, cash-flow or shareholder returns, where such goals may be stated in absolute terms or relative to comparison companies or indices to be achieved during a period of time.

 

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            15.
 	
            Administration of this Plan.
 

 

(a)        This Plan shall be administered by the Committee, which shall consist of not less than two Directors.  The Committee shall have all of the powers of the Board with respect to this Plan.  Any member of the Committee may be removed at any time, with or without cause, by resolution of the Board and any vacancy occurring in the membership of the Committee may be filled by appointment by the Board.

 

(b)        Subject to the provisions of this Plan, the Committee shall have the authority, in its sole discretion, to:  (i) grant Options, (ii) determine the exercise price per Share at which Options may be exercised, (iii) determine the Optionees to whom, and time or times at which, Options shall be granted, (iv) determine the number of Shares to be represented by each Option, (v) determine the terms, conditions and provisions of each Option granted (which need not be identical) and, with the consent of the holder thereof, modify or amend each Option, (vi) defer (with the consent of the Optionee) or accelerate the exercise date of any Option, and (vii) make all other determinations deemed necessary or advisable for the administration of this Plan, including re-pricing, canceling and regranting Options.

 

(c)        The Committee, from time to time, may adopt rules and regulations for carrying out the purposes of this Plan.  The Committee’s determinations and its interpretation and construction of any provision of this Plan shall be final, conclusive and binding upon all Optionees and any holders of any Options granted under this Plan.

 

(d)        Any and all decisions or determinations of the Committee shall be made either (i) by a majority vote of the members of the Committee at a meeting of the Committee or (ii) without a meeting by the unanimous written approval of the members of the Committee.

 

(e)        No member of the Committee, or any Officer or Director of the Company or its Subsidiaries, shall be personally liable for any act or omission made in good faith in connection with this Plan.

 

16.  Incentive Options for 10% Stockholders.  Notwithstanding any other provisions of this Plan to the contrary, an Incentive Stock Option shall not be granted to any person owning directly or indirectly (through attribution under Section 424(d) of the Code) at the date of grant, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or of its Subsidiary) at the date of grant unless the exercise price of such Option is at least 110% of the Fair Market Value of the Shares subject to such Option on the date the Option is granted, and such Option by its terms is not exercisable after the expiration of 10 years from the date such Option is granted.

 

	
            17.
 	
            Interpretation.
 

 

(a)        This Plan shall be administered and interpreted so that all Incentive Stock Options granted under this Plan will qualify as Incentive Stock Options under Section 422 of the Code.  If any provision of this Plan should be held invalid for the granting of Incentive Stock Options or illegal for any reason, such determination shall not affect the remaining provisions hereof, and this Plan shall be construed and enforced as if such provision had never been included in this Plan.

 

9

 

	
            (b)
 	
            This Plan shall be governed by the laws of the State of Delaware.
 

 

(c)        Headings contained in this Plan are for convenience only and shall in no manner be construed as part of this Plan or affect the meaning or interpretation of any part of this Plan.

 

(d)        Any reference to the masculine, feminine, or neuter gender shall be a reference to such other gender as is appropriate.

 

(e)        Time shall be of the essence with respect to all time periods specified for the giving of notices to the company hereunder, as well as all time periods for the expiration and termination of Options in accordance with Section 9 hereof (or as otherwise set forth in an option agreement).

 

18.  Amendment and Discontinuation of this Plan.  Either the Board or the Committee may from time to time amend this Plan or any Option without the consent or approval of the stockholders of the Company; provided, however, that, except to the extent provided in Section 9, no amendment or suspension of this Plan or any Option issued hereunder shall substantially impair any Option previously granted to any Optionee without the consent of such Optionee.

 

19.  Termination Date.  This Plan shall terminate ten years after the date of adoption by the Board of Directors

 

 

 

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