Document:

Agreement of Research and Development

Exhibit 10.1

CONFIDENTIAL TREATMENT

REQUESTED

RESEARCH/DEVELOPMENT AND LICENSE AGREEMENT

          This Agreement, made and entered into on September 1, 2002 by and between

xxxxxxxxxxxxx  having its registered office at  xxxxxxxxxxxxxxxxxxxx 
(hereafter referred to as
“xxxxx”), and APPLIED NANOTECH, Inc., formerly FEPET, Inc., having its registered office at 3006 Longhorn
Blvd., Suite 107, Austin, TX 78758, USA (hereafter referred to as “ANI”), jointly referred to as Parties,

WITNESSETH:

WHEREAS, pursuant to AGREEMENT OF RESEARCH AND DEVELOPMENT dated January 1, 2001,

xxxxxxx has entrusted ANI with the R& D program to develop PET;

WHEREAS, pursuant to EXTENSION OF AGREEMENT OF RESEARCH AND DEVELOPMENT dated
xxxxxxxxxxxx,  xxxxxx has continued to entrust ANI with R&D program to develop PET;

WHEREAS, in spite of the above extension, both Parties have not achieved a manufacturing
PET and desire to terminate the trust of PET development. Both Parties, however, desire to start a new R&D program and decide
the terms and conditions of license of Patent portfolio for  xxxxxxx  manufacturing PET.

NOW, THEREFORE, in consideration of the mutual agreements contained herein, the parties
hereto agree as follows:

1.         
DEFINITIONS

            “Field” shall mean flat panel displays using ANI’s carbon film/nanotubes electron emission
technology.

           “R&D program” shall mean the research and development of picture element tube (PET) in the
field and the development of manufacturing engineering technology thereof.

           “PET” shall mean
a 10mm pitch, 8x8 or 2.5mm pitch, 96x96 color pixels picture element tube.

           “Subsidiary
company” shall mean the company, over 50% of whose voting stocks is owned by
xxxxxx.

           “SIDT, Inc.” is
the parent company of ANI, Inc.

           “Patent
portfolio” shall mean all SIDT/ANI owned and assigned patents in the field (see appendix 1).

           “Life of patent
portfolio” shall mean the date of expiration of the latest issued patent belonging in the patent portfolio.

           “Nanotechnology
specific R&D program” shall mean research and development program in developing Palladium-based hydrogen sensors
according to the milestones described in the appendix entitled “Nanotechnology Specific R&D Program” (Appendix
2).

          
“Product part”
shall not mean a product itself, but mean a part of a product.

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CONFIDENTIAL TREATMENT

REQUESTED

	2.	RESEARCH AND DEVELOPMENT
	

2.1

    	

xxxxxx shall entrust ANI with the nanotechnology specific R&D program as set forth in
Article 1 hereof and ANI shall pursue the entrusted nanotechnology specific R&D program.

    
	

2.2

    	

In no case shall ANI perform a similar nanotechnology specific R&D program jointly
with other xxxxxxxx companies for the period set forth in Article 3 hereof (except companies that already have a license to the
specific nanotechnology from ANI before the date of execution of this agreement).

    

	

3.

    	

      Term

    
	3.1	The term of the nanotechnology specific R&D program shall be 6 (six) months starting
September 1, 2002.

	

      4.	

      COMPENSATION
	4.1	The compensation for the execution of the nanotechnology specific R&D program shall be
US $900,000.00.
	4.2	xxxxxx shall pay $500,000.00 within 15 days after the effective date of this Agreement and
$400,000.00 within 15 days after receipt of the second report set forth in Article 5.
	4.3	When making the payment set forth above,
      
      xxxxxx shall bear the tax to be paid to xxxxx Tax
Office.

	

      5.	

      RECORD AND REPORT
		ANI shall record every progress and achievement of the nanotechnology specific R&D
program and deliver to xxxxxx full and true reports of its record within a week after every two month commencing from the effective
date of this Agreement.

	

      6.	

      NON-EXCLUSIVE USE
		xxxxxx
      and its subsidiary companies can use the technical information in the report
submitted by ANI according to article 5 on a royalty-free non-exclusive basis.

	

      7.	

      TRANSFER OF ACHIEVED TECHNOLOGIES
		During the term of this nanotechnology specific R&D program in order to ensure the
transfer of technical information achieved, ANI shall not only admit  xxxxxx engineers into ANI facility, but also dispatch ANI
engineers to  xxxxxx  when reasonably necessary.

	

      8.	

      PATENT APPLICATION
	8.1	During the term of this agreement ANI shall apply for patents on the inventions, ideas and
designs made by ANI in pursuit of the nanotechnology specific R&D program (hereafter collectively referred to as
“Inventions”) at its own expense in any country, which it considers necessary.

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CONFIDENTIAL TREATMENT

REQUESTED

 
	8.2	Within 3 (three) months after making a patent application as stated in the preceding
paragraph, ANI shall report to xxxxxx in writing explaining the fact of application, the country applied and the content of
application. Based on this report, xxxxxx will respond in 10 (ten) working days in writing to ANI if
      
      xxxxxx wants to co-own the
future patent with ANI.
	8.3	During the period of this agreement starting at a date of signing this agreement, all the
inventions that will be filed as patents by ANI according to paragraph 8.1 and agreed by
      
      xxxxxx according to paragraph 8.2, will be
co-owned by  xxxxxx  and ANI with respect to the subject of the nanotechnology specific R&D program.
      
      xxxxxx and ANI will share
equally the cost of filing these patents and their prosecution.

	

      9.	

      JOINT APPLICATION
		 With respect to inventions, which have
been made jointly by  xxxxxx’s and ANI’s engineers in pursuit of the nanotechnology specific R&D program, both
parties shall jointly apply for a patent and equally bear the fee incurred for such patent application. In case either party
decides not to apply for a patent on the jointly made inventions, then the other party may apply for a sole patent right at its own
expense, and the other party will assign its ownership rights to the party seeking the patent.

	

      10.	

LICENSE OF PATENT PORTFOLIO IN THE FIELD

    
	10.1	Once this agreement is executed and  xxxxxx pays the first installment to ANI set forth in Article 4.2,
      
      xxxxxx and its subsidiary
companies shall have immediately a non-exclusive irrevocable license to manufacture and sell worldwide (see below) to all the
patent portfolio of ANI in the field (appendix 1).  xxxxxx is obliged to pay for a royalty of 2% for the product parts manufactured
by  xxxxxx  in the field using the patent portfolio.
	10.2	In the case that  xxxxxx starts manufacturing utilizing ANI’s licensed technology in the field, the semiannual payments of
royalty to ANI will start after  xxxxxx recoups all the payments to ANI for research and development programs executed during the
period from January 1, 2001 until February 28, 2003.
	10.3	ANI agrees to add to the patent portfolio all the patents issued and filed in the field until December 2005. ANI will update the
patent portfolio until December 31, 2005 on a semiannual basis.
	10.4	The license shall terminate at the life of patent portfolio.

	

      11.	

RECORDATION OF LICENSE

    
		During the term of this agreement and for a period of five (5) years after termination, in
the case that  xxxxxx records the grant of license in xxxxx and other countries in official patent offices with respect to
intellectual property (IP) bound and confined to this agreement, ANI shall cooperate with
      
      xxxxxx  in recording and supply  xxxxxx  with documents in accordance with
       xxxxxx
      instructions.

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CONFIDENTIAL TREATMENT

REQUESTED

 
	12.	CONFIDENTIALITY
	12.1	

During the term of this agreement and for a period of five (5) years after termination, both

xxxxxx and ANI agree not to
disclose to third parties the confidential information of the other party.

    
	12.2	During the term of this agreement and for a period of one (1) year after termination, ANI shall not disclose to third parties,
without  xxxxxx’s prior consent, the technical information and know-how acquired in pursuit of the nanotechnology R&D
program according to this agreement.
	12.3	Notwithstanding of 12.1 and 12.2, the obligation of receiving party shall not apply to information that on the effective date of
this Agreement has been or thereafter is: (a) independently developed by the receiving party, (b) is or become generally know to
the public without violation of this Agreement by the receiving party, (c) is rightfully obtained by the receiving parity from a
third party without restriction, (d) was in the possession of or was known by the receiving party without an obligation to maintain
as confidentiality prior to its receipt, or (e) is publicly available set forth in 12.4 and 12.5.
	12.4	ANI is allowed to make the necessary reporting requested by Stock Exchange Commission (SEC) through SIDT, Inc. as a public
company in the United, provided that ANI shall notify  xxxxxx of the contents of reporting immediately.
	12.5	ANI shall consult with  xxxxxx prior to publishing the press release regarding this Agreement and technology hereof. 
      xxxxxx has a right to modify the contents of the press release.

	

      13.	

      NOTIFICATION
		ANI shall notify  xxxxxx
      
      of any material change including, but not limited to, the
ownership, important restructuring, Patent portfolio, change in the name of company, the address of its registered
office.

	

      14.	

      ASSIGNMENT
		Neither this Agreement nor any obligations hereunder may be assigned by either party
without the prior written consent of the other party, which consent will not be unreasonably withheld. In the event of such
assignment, the assignor shall remain in all respects responsible to the non-assigning party for performance of the
assignor’s set forth in this Agreement.

 

	

      15.	

      TERMINATION
	15.1	The nanotechnology specific R&D program shall terminate after the final reports are submitted to
      
      xxxxxx as set forth in
Article 3 and Article5.
	15.2	This Agreement may be terminated by either party upon the occurrence of any event that the other party: (a) file a petition in
bankruptcy, (b) becomes insolvent or bankrupt, (c) goes into liquidation or receivership, or (d) makes an arrangement for the
benefit or creditors, provided that the rights and obligations of this Agreement shall survive and continue after the above events
and shall bind the parties and legal representatives, successors, heirs and assigns.

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CONFIDENTIAL TREATMENT

REQUESTED

 

	16.	SURVIVAL
	16.1	The following sections shall survive any termination or expiration of this Agreement: 6 (Non-exclusive use), 13 (Notification),
14 (Assignment), 15.2 (Termination), 16 (Survival) and 17 (Miscellaneous).
	16.2	Article 10 (License of patent portfolio in the field) shall survive any termination or expiration of this Agreement.
	16.3	Article 11 (Recordation) and 12.1 (Confidentiality) shall survive any termination or expiration of this Agreement for five (5)
years.
	16.4	12.2 (Confidentiality) shall survive any termination or expiration of this Agreement for one (1) years.

	

      17.	

      MISCELLANEOUS
		This Agreement (including attachments) constitutes the entire agreement between the
      Parties hereto as to the subject hereof, and expressly supercedes all prior to contemporaneous agreements, written or oral. 
      No addition to or modification of this Agreement shall effective unless in writing signed by an authorized representative of each
of the Parties hereto. The failure of either party to enforce at any time or for any period the provisions hereof shall not be
construed to be a waiver of such provisions or of the rights of such party thereafter to enforce each and every provision. Any
provision of this Agreement which shall prove to be invalid, void, or illegal shall in no way affect, impair or invalidate any
other provision hereof, and such remaining provisions shall remain in full force and effect. Each party shall ensure compliance
with laws and regulations in each country and shall be responsible for law procedures by each government.

 

 

IN WITNESS WHEREOF,  xxxxxx and ANI have caused this Agreement to be executed by their duly
authorized representatives as of the date first above written.

 

	

xxxxxx
 Corporation

    	

 ANI, Inc.

    
	

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

    	

 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

    
	By: xxxxxxxxxxxxxxxxxxxxxxxxxxx

    	 By:       Dr. Zvi Yaniv   

    
	

Title: xxxxxxxxxxxxxxxxxxxx

    	
Title:    President and CEO

    
	

Date: xxxxxxxxxxxx, 2002

    	

 Date:   September 6, 2002

    

 

 

5EX-4.1

	

Exhibit 4.1  

AMERICAN INTERNATIONAL
PETROLEUM CORPORATION
AIPC LONG TERM PERFORMANCE PLAN — 2002 

1.           Objectives.  

The American International Petroleum
Corporation AIPC Long-Term Performance Plan — 2002 (the “Plan”) is
designed to attract, motivate and retain selected employees of, and other individuals
providing services to, American International Petroleum Corporation (the “Company”).
These objectives are accomplished by making long-term incentive and other awards under
the Plan, thereby providing Participants with a proprietary interest in the growth and
performance of the Company.  

2.           Definitions.  

(a)           “Awards” — The
grant of any form of stock option, stock           appreciation right, stock or cash
award, whether granted singly, in combination           or in tandem, to a Participant
pursuant to such terms, conditions, performance           requirements, limitations and
restrictions as the Committee may establish in           order to fulfill the objectives
of the Plan.  

(b)           “Award Agreement” — An
agreement between the Company and a           Participant that sets forth the terms,
conditions, performance requirements,           limitations and restrictions applicable
to an Award.  

(c)           “Board” — The
Board of Directors of American International           Petroleum Corporation.  

(d)           “Capital Stock” or
“stock” — Authorized and issued or           unissued Capital Stock of the
Company, at such par value as may be established           from time to time.  

(e)           “Code” — The
Internal Revenue Code of 1986, as amended from time           to time.  

(f)           “Committee” — The
committee designated by the Board to administer           the Plan.  

(g)           “Company” — American
International Petroleum Corporation and its           subsidiaries.  

(h)           “Fair Market Value” — The
average of the high and low prices of           Capital Stock on the Nasdaq SmallCap
Market or other principal stock exchange or           automated quotation service
(including the OTC Bulletin Board) on which the           Capital Stock is then listed or
quoted for the date in question, provided that,           if no sales of Capital Stock
were made on said exchange or automated quotation           service on that date, the
average of the high and low prices of Capital Stock as           reported for the most
recent preceding day on which sales of Capital Stock were           made on said exchange
or quotation service.  

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(i)           “Participant” — An
individual to whom an Award has been made           under the Plan. Awards may be made to
any employee of, or any other individual           or entity providing services to, the
Company. However, incentive stock options           may be granted only to individuals
who are employed by the Company or by a           subsidiary corporation (within the
meaning of section 424(f) of the Code) of the           Company, including a subsidiary
that becomes such after the adoption of the           Plan.  

(j)           “Performance
Period” — A multi-year period of no more than five           consecutive
calendar years over which one or more of the performance criteria           listed in
Section 6 shall be measured pursuant to the grant of Long-Term           Performance
Incentive Awards (whether such Awards take the form of stock, stock           units or
equivalents or cash). Performance Periods may overlap one another, but           no two
Performance Periods may consist solely of the same calendar years.  

3.           Capital Stock Available
for Awards.  

The number of shares that may be
issued under the Plan for Awards granted wholly or partly in stock during the term of the
Plan is 10,000,000. Shares of Capital Stock may be made available from the authorized but
unissued shares of the Company or from shares held in the Company’s treasury and not
reserved for some other purpose. For purposes of determining the number of shares of
Capital Stock issued under the Plan, no shares shall be deemed issued until they are
actually delivered to a Participant, or such other person in accordance with Section 10.
Shares covered by Awards that either wholly or in part are not earned, or that expire or
are forfeited, terminated, canceled, settled in cash, payable solely in cash or exchanged
for other awards, shall be available for future issuance under Awards. Further, shares
tendered to or withheld by the Company in connection with the exercise of stock options,
or the payment of tax withholding on any Award, shall also be available for future
issuance under Awards.  

4.           Administration.  

The Plan shall be administered by
the Committee, which shall have full power to select Participants, to interpret the Plan,
to grant waivers of Award restrictions, to continue, accelerate or suspend
exercisability, vesting or payment of an Award and to adopt such rules, regulations and
guidelines for carrying out the Plan as it may deem necessary or proper. These powers
include, but are not limited to, the adoption of modifications, amendments, procedures,
subplans and the like as necessary to comply with provisions of the laws and regulations
of the countries in which the Company operates in order to assure the viability of Awards
granted under the Plan and to enable Participants regardless of where employed to receive
advantages and benefits under the Plan and such laws and regulations.  

5.           Delegation of
Authority.  

The Committee may delegate to
officers of the Company its duties, power and authority under the Plan pursuant to such
conditions or limitations as the Committee may establish, except that only the Committee
or the Board may select, and grant Awards to, Participants who are subject to Section 16
of the Securities Exchange Act of 1934.  

6.           Awards.  

The Committee shall determine the
type or types of Award(s) to be made to each Participant and shall set forth in the
related Award Agreement the terms, conditions, performance requirements, and limitations
applicable to each Award. Awards may include but are not limited to those listed in this
Section 6. Awards may be granted singly, in combination or in tandem. Awards may also be
made in combination or in tandem with, in replacement or payment of, or as alternatives
to, grants, rights or compensation earned under any other plan of the Company, including
the plan of any acquired entity.  

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(a)           Stock Option — A
grant of a right to purchase a specified number of shares           of Capital Stock the
exercise price of which shall be not less than 100% of Fair           Market Value on the
date of grant of such right, as determined by the Committee,           provided that, in
the case of a stock option granted retroactively in tandem           with or as
substitution for another award granted under any plan of the Company,           the
exercise price may be the same as the purchase or designated price of such
          other award. A stock option may be in the form of an incentive stock option
          (“ISO”) which, in addition to being subject to applicable terms,
          conditions and limitations established by the Committee, complies with section
          422 of the Code; provided this Plan is approved by the affirmative vote of the
          holders of a majority of the outstanding shares of Capital Stock entitled to
          vote thereon within one year before or after adoption of the Plan by the Board
          of Directors. All of the shares that may be issued under the Plan are available
          for issuance under ISOs granted under the Plan.  

(b)           Stock Appreciation
Right — A right to receive a payment, in cash and/or           Capital Stock, equal
in value to the excess of the Fair Market Value of a           specified number of shares
of Capital Stock on the date the stock appreciation           right (SAR) is exercised
over the grant price of the SAR, which shall not be           less than 100% of the Fair
Market Value on the date of grant of such SAR, as           determined by the Committee,
provided that, in the case of a SAR granted           retroactively in tandem with or as
substitution for another award granted under           any plan of the Company, the grant
price may be the same as the exercise or           designated price of such other award.  

(c)           Stock Award — An
Award made in stock and denominated in units of stock. All           or part of any stock
award may be subject to conditions established by the           Committee, and set forth
in the Award Agreement, which may include, but are not           limited to, continuous
service with Company, achievement of specific business           objectives, increases in
specified indices, attaining growth rates, and other           comparable measurements of
Company performance. An Award made in stock or           denominated in units of stock
that is subject to restrictions on transfer and/or           forfeiture provisions may be
referred to as an Award of “Restricted           Stock,” “Restricted Stock
Units” or “Long-Term Performance           Incentive” units.  

(d)           Cash Award — An
Award denominated in cash with the eventual payment amount           subject to future
service and such other restrictions and conditions as may be           established by the
Committee, and as set forth in the Award Agreement,           including, but not limited
to, continuous service with the Company, achievement           of specific business
objectives, increases in specified indices, attaining           growth rates, and other
comparable measurements of Company performance.  

(e)           Performance Criteria
under section 162(m) of the Code for Long-Term Performance           Incentive Awards
— The performance criteria for Long-Term Performance           Incentive Awards
(whether such Awards take the form of stock, stock units or           equivalents or
cash) made to any “covered employee” (as defined by           section 162(m) of
the Code) shall consist of objective tests based on one or           more of the
following: earnings, cash flow, customer satisfaction, revenues,           financial
return ratios, market performance, shareholder return and/or value,           operating
profits (including EBITDA), net profits, earnings per share, profit           returns and
margins, stock price and working capital. Performance criteria may           be measured
solely on a corporate, subsidiary or business unit basis, or a           combination
thereof. Further, performance criteria may reflect absolute entity           performance
or a relative comparison of entity performance to the performance of           a peer
group of entities or other external measure of the selected performance
          criteria. The formula for any Award may include or exclude items to measure
          specific objectives, such as losses from discontinued operations, extraordinary
          gains or losses, the cumulative effect of accounting changes, acquisitions or
          divestitures, foreign exchange impacts and any unusual, nonrecurring gain or
          loss. Nothing herein shall preclude the Committee from making any payments or
          granting any Awards whether or not such payments or Awards qualify for tax
          deductibility under section 162(m) of the Code.  

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7.           Payment of Awards.  

Payment of Awards may be made in the
form of cash, stock or combinations thereof and may include such restrictions, as the
Committee shall determine. Further, with Committee approval, payments may be deferred,
either in the form of installments or as a future lump-sum payment, in accordance with
such procedures as may be established from time to time by the Committee. Any deferred
payment, whether elected by the Participant or specified by the Award Agreement or the
Committee, may require the payment to be forfeited in accordance with the provisions of
Section 13. Dividends or dividend equivalent rights may be extended to and made part of
any Award denominated in stock or units of stock, subject to such terms, conditions and
restrictions as the Committee may establish. The Committee may also establish rules and
procedures for the crediting of interest on deferred cash payments and dividend
equivalents for deferred payments denominated in stock or units of stock. At the
discretion of the Committee, a Participant may be offered an election to substitute an
Award for another Award or Awards of the same or different type.  

8.           Stock Option Exercise.  

The price at which shares of Capital
Stock may be purchased under a stock option shall be paid in full in cash at the time of
the exercise or, if permitted by the Committee, by means of tendering Capital Stock or
surrendering another Award or any combination thereof. The Committee shall determine
acceptable methods of tendering Capital Stock or other Awards and may impose such
conditions on the use of Capital Stock or other Awards to exercise a stock option as it
deems appropriate.  

9.           Tax Withholding.  

Prior to the payment or settlement
of any Award, the Participant must pay, or make arrangements acceptable to the Company
for the payment of, any and all federal, state and local tax withholding and employment
taxes that in the opinion of the Company is required by law. The Company shall have the
right to deduct applicable taxes from any Award payment and withhold, at the time of
delivery or vesting of shares under the Plan, an appropriate number of shares for payment
of taxes required by law or to take such other action as may be necessary in the opinion
of the Company to satisfy all obligations for withholding of such taxes or for payment of
employment taxes.  

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10.           Transferability.  

No Award shall be transferable or
assignable, or payable to or exercisable by, anyone other than the Participant to whom it
was granted, except (i) by law, will or the laws of descent and distribution, (ii) as a
result of the disability of a Participant or (iii) that the Committee (in the form of an
Award Agreement or otherwise) may permit transfers of Awards by gift or otherwise to a
member of a Participant’s immediate family and/or trusts whose beneficiaries are
members of the Participant’s immediate family, or to such other persons or entities
as may be approved by the Committee. Notwithstanding the foregoing, in no event shall
ISOs be transferable or assignable other than by will or by the laws of descent and
distribution.  

11.           Amendment,
Modification, Suspension or Discontinuance of the Plan.  

The Board may amend, modify, suspend
or terminate the Plan for the purpose of meeting or addressing any changes in legal
requirements or for any other purpose permitted by law. Subject to changes in law or
other legal requirements that would permit otherwise, the Plan may not be amended without
the consent of the holders of a majority of the shares of Capital Stock then outstanding,
to (i) increase the aggregate number of shares of Capital Stock that may be issued under
the Plan (except for adjustments pursuant to Section 14 of the Plan), or (ii) permit the
granting of stock options or SARs with exercise or grant prices lower than those
specified in Section 6.  

12.           Termination of
Employment.  

If the employment of a Participant
terminates, other than as a result of the death or disability of a Participant, all
unexercised, deferred and unpaid Awards shall be canceled immediately, unless the Award
Agreement provides otherwise. In the event of the death of a Participant or in the event
a Participant is deemed by the Company to be disabled and eligible for benefits under the
terms of any long-term disability plan or policy maintained by the Company, the
Participant’s estate, beneficiaries or representative, as the case may be, shall
have the rights and duties of the Participant under the applicable Award Agreement.  

13.           Cancellation and
Rescission of Awards.  

(a)           Unless the Award
Agreement specifies otherwise, the Committee may cancel,           rescind, suspend,
withhold or otherwise limit or restrict any unexpired, unpaid,           or deferred
Awards at any time if the Participant is not in compliance with all           applicable
provisions of the Award Agreement and the Plan, or if the Participant           engages
in any “Detrimental Activity.” For purposes of this Section           13, “Detrimental
Activity” shall include: (i) the rendering of           services for any
organization or engaging directly or indirectly in any business           which is or
becomes competitive with the Company, or which organization or           business, or the
rendering of services to such organization or business, is or           becomes otherwise
prejudicial to or in conflict with the interests of the           Company; (ii) the
disclosure to anyone outside the Company, or the use in other           than the Company’s
business, without prior written authorization from the           Company, of any
confidential information or material relating to the business of           the Company,
acquired by the Participant either during or after employment with           the Company;
(iii) the failure or refusal to disclose promptly and to assign to           the Company
all right, title and interest in any invention or idea, patentable           or not, made
or conceived by the Participant during employment by the Company,           relating in
any manner to the actual or anticipated business, research or           development work
of the Company or the failure or refusal to do anything           reasonably necessary to
enable the Company to secure a patent where appropriate           in the United States
and in other countries; (iv) activity that results in           termination of the
Participant’s employment for cause; (v) a violation of           any rules,
policies, procedures or guidelines of the Company; (vi) any attempt           directly or
indirectly to induce any employee of the Company to be employed or           perform
services elsewhere or any attempt directly or indirectly to solicit the           trade
or business of any current or prospective customer, supplier or partner of           the
Company; (vii) the Participant being convicted of, or entering a guilty plea
          with respect to, a crime, whether or not connected with the Company; or (viii)
          any other conduct or act determined to be injurious, detrimental or prejudicial
          to any interest of the Company.  

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(b)           Upon exercise, payment
or delivery pursuant to an Award, the Participant shall           certify in a manner
acceptable to the Company that he or she is in compliance           with the terms and
conditions of the Plan. In the event a Participant fails to           comply with the
provisions of paragraphs (a)(i)-(viii) of this Section 13 prior           to, or during
the six months after, any exercise, payment or delivery pursuant           to an Award,
such exercise, payment or delivery may be rescinded within two           years
thereafter. In the event of any such rescission, the Participant shall pay           to
the Company the amount of any gain realized or payment received as a result           of
the rescinded exercise, payment or delivery, in such manner and on such terms
          and conditions as may be required, and the Company shall be entitled to set-off
          against the amount of any such gain any amount owed to the Participant by the
          Company.  

14.           Adjustments.  

In the event of any change in the
outstanding Capital Stock of the Company by reason of a stock split, stock dividend,
combination or reclassification of shares, recapitalization, merger, or similar event,
the Committee may adjust proportionately: (a) the number of shares of Capital Stock (i)
available for issuance under the Plan, (ii) available for issuance under ISOs, (iii) for
which Awards may be granted to an individual Participant set forth in Section 6, and (iv)
covered by outstanding Awards denominated in stock or units of stock; (b) the exercise
and grant prices related to outstanding Awards; and (c) the appropriate Fair Market Value
and other price determinations for such Awards. In the event of any other change
affecting the Capital Stock or any distribution (other than normal cash dividends) to
holders of Capital Stock, including a spin-off of the capital stock of a subsidiary, such
adjustments in the number and kind of shares and the exercise, grant and conversion
prices of the affected Awards as may be deemed equitable by the Committee, including
adjustments to avoid fractional shares, shall be made to give proper effect to such
event. In the event of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the Company or its successor shall
issue or assume stock options, whether or not in a transaction to which section 424(a) of
the Code applies, by means of substitution of new stock options for previously issued
stock options or an assumption of previously issued stock options. In such event, the
aggregate number of shares of Capital Stock available for issuance under Awards under
Section 3, including the individual Participant maximums set forth in Section 6 will be
increased to reflect such substitution or assumption.  

6 

	

15.           Miscellaneous.  

(a)           Any notice to the
Company required by any of the provisions of the Plan shall be           addressed to the
chief financial officer of the Company in writing, and shall           become effective
when it is received.  

(b)           The Plan shall be
unfunded and the Company shall not be required to establish           any special account
or fund or to otherwise segregate or encumber assets to           ensure payment of any
Award.  

(c)           Nothing contained in
the Plan shall prevent the Company from adopting other or           additional
compensation arrangements or plans, subject to shareholder approval           if such
approval is required, and such arrangements or plans may be either           generally
applicable or applicable only in specific cases.  

(d)           No Participant shall
have any claim or right to be granted an Award under the           Plan and nothing
contained in the Plan shall be deemed or be construed to give           any Participant
the right to be retained in the employ of the Company or to           interfere with the
right of the Company to discharge any Participant at any time           without regard to
the effect such discharge may have upon the Participant under           the Plan. Except
to the extent otherwise provided in any plan or in an Award           Agreement, no Award
under the Plan shall be deemed compensation for purposes of           computing benefits
or contributions under any other plan of the Company.  

(e)           Except as may
otherwise be required by federal law, the Plan and each Award           Agreement shall
be governed by the laws of the State of California, excluding           any conflicts or
choice of law rule or principle that might otherwise refer           construction or
interpretation of the Plan to the substantive law of another           jurisdiction.
Unless otherwise provided in the Award Agreement, recipients of an           Award under
the Plan are deemed to submit to the exclusive jurisdiction and           venue of the
federal or state courts of Texas, County of Harris, to resolve any           and all
issues that may arise out of or relate to the Plan or any related Award
          Agreement.  

(f)           In the event that a
Participant or the Company brings an action to enforce the           terms of the Plan or
any Award Agreement and the Company prevails, the           Participant shall pay all
costs and expenses incurred by the Company in           connection with that action,
including reasonable attorneys’ fees, and all           further costs and fees,
including reasonable attorneys’ fees incurred by           the Company in connection
with collection.  

(g)           The Committee and any
officers to whom it may delegate authority under Section 5           shall have full
power and authority to interpret the Plan and to make any           determinations
thereunder, including determinations under Section 13, and the           Committee’s
or such officer’s determinations shall be binding and           conclusive.
Determinations made by the Committee or any such officer under the           Plan need
not be uniform and may be made selectively among individuals, whether           or not
such individuals are similarly situated.  

7 

	

(h)           If any provision of
the Plan is or becomes or is deemed invalid, illegal or           unenforceable in any
jurisdiction, or would disqualify the Plan or any Award           under any law deemed
applicable by the Committee, such provision shall be           construed or deemed
amended or limited in scope to conform to applicable laws           or, in the discretion
of the Committee, it shall be stricken and the remainder           of the Plan shall
remain in full force and effect.  

(i)           The Plan shall become
effective upon adoption by the Board of Directors of the           Company.  

(j)           The Plan is not a
Contract of Employment or for Services.  

     Nothing
contained in the Plan or in any option agreement executed pursuant hereto shall be deemed
to confer upon any individual to whom an Option is or may be granted hereunder any right
to remain in the employ of the Company or of a subsidiary or parent of the Company or in
any way limit the right of the Company, or of any parent or subsidiary thereof, to
terminate the employment of any employee.  

8

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