Document:

exhibit_4-21.htm

EXHIBIT 4.21

FRAMEWORK SERVICES AGREEMENT

This FRAMEWORK SERVICES AGREEMENT (this “Agreement”) is made and entered this 30th day of December, 2010, (the “Effective Date”), by and between Tefron Ltd., an Israeli company whose principal place of business is in Misgav, Israel (“Tefron” or the “Company”) and Lamour Global Inc. Limited, a company incorporated and resident in Hong Kong (“Lamour”) (each a “Party”, and together, the “Parties”).

R E C I T A L S

WHEREAS, the Company wishes to engage Lamour as an independent contractor to provide the services described herein and Lamour is willing to be so engaged; and

WHEREAS, (i) Lamour, a global provider of merchandise and sales personnel, agrees to source for materials or subcontractors, introduce new customers and to perform other consulting services as may be requested from time to time by the Company and accepted by Lamour, and (ii) the Company agrees to source for materials or subcontractors, introduce new customers and to perform other consulting services as may be requested from time to time by Lamour and accepted by the Company (the “Services”), for the compensation (the “Services Fees”) and otherwise in accordance with the terms and conditions contained in this Agreement; and

WHEREAS, Lamour (i) has a global network of suppliers including suppliers in each of Bangladesh, China, India and the United States, who currently supply goods to Lamour and its affiliates, (ii) has a sales network in the US and Europe with a network of salespeople who are engaged in selling merchandise manufactured by Lamour’s affiliates, (iii) is prepared to offer these sales services to the Company and to manage and control the costs of its sales staff, and (iv) possesses the required experience, ability and skills necessary for rendering the Services to the Company; and

WHEREAS, the Company may introduce Lamour to its customers (the “Tefron Customers”), and Lamour may sell products to such Tefron Customers subject to the provisions of Section 5.1.

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, accepted and agreed to, the Company and the Consultant, intending to be legally bound, agree to the terms set forth below.

	
1.

	
SCOPE AND TERMS OF SERVICES

 

	
  

	
1.1.

	
Sales Services. The scope and terms of these Services, including without limitation the Services Fees, are set out in detail on Schedule I, attached hereto.  All sales will be subject to the acceptance of Tefron for sales to Tefron’s customers and subject to the acceptance of Lamour for sales to Lamour’s customers.  In the sales process, Lamour shall also engage in marketing services as it determines necessary for no additional fee. Lamour shall be responsible for the payment of commission to its sales staff.

 

  

  

  

 

	
  

	
1.2.

	
Sourcing Services. The scope and terms of these Services, including without limitation the Services Fees, are set out in detail on Schedule II, attached hereto.

 

	
  

	
1.3.

	
Any and all Services shall be the subject of purchase orders, to be executed by the Parties (the “Purchase Order”). The Party that issues any given Purchase Order will have sole discretion as to which Services, if any, it wishes to use.

 

	
  

	
1.4.

	
All of the terms and conditions of this Agreement herein shall be deemed incorporated by reference into each Purchase Order. The terms and conditions of this Agreement shall prevail over any conflicting terms in any Purchase Order, or any similar documentation provided by the Company or Lamour, or any other correspondence between Lamour and the Company.

 

	
  

	
1.5.

	
The Service Fees shall be paid to Lamour or the Company (as the case may be) against an invoice issued in accordance with applicable law. Such an invoice shall be paid within sixty (60) days following the date on which any such invoice was delivered, as per the corresponding Purchase Order. The paying Party may make payment by check, wire transfer, or any other method set forth in the Purchase Order.

 

	
  

	
1.6.

	
Any other Services not specified in the Purchase Order shall be preapproved in writing by the Party that is to provide such Services and shall be charged separately, subject to terms and conditions as agreed upon in writing by the Parties

 

	
  

	
1.7.

	
Each of the Parties shall reimburse the other for all expenses relating to the Sourcing Services including travel expenses (business class for flights overseas), up to an aggregate amount of US$100,000 per year, provided that such expenses above $1,000 must be agreed to in writing (including by email) by the other Party in advance.

 

	
  

	
1.8.

	
All stated prices are exclusive of any income taxes, fees and other duties or other amounts, including without limitation, value added taxes that are levied upon such Service Fees, except insofar as either Party is required to deduct the same to comply with applicable laws. In the event that pursuant to any law or regulation, tax is required to be withheld at source from any payment made to Lamour, the relevant Party shall withhold such tax at the rate set by the applicable tax authority, unless the other Party has presented a valid tax withholding exemption certificate issued by such authority.

	
2.

	
TERM, TERMINATION, EFFECT ON TERMINATION

	
  

	
2.1.

	
This Agreement shall commence on the Effective Date.

 

  

2

  

 

	
  

	
2.2.

	
Unless terminated earlier in accordance with the terms of this Agreement and unless the shareholders of the Company formally approve the extension of the term of this Agreement, this Agreement shall terminate automatically on the third anniversary of the Effective Date.

	
  

	
2.3.

	
Either Party, in its sole discretion, may immediately terminate this Agreement by written notice, upon the occurrence of any of the following events to, or in connection with, the other Party: (i) commencement of voluntary or involuntary bankruptcy (liquidation or reorganization), or receivership proceedings or commencement of a similar insolvency proceeding, which have not been dismissed or stayed after sixty (60) days from their commencement; or (ii) cessation of substantially all business operations or activities of the other Party.

	
  

	
2.4.

	
If either Party believes that the other Party is in breach of any material obligation contained this Agreement or in any Purchase Order (to the extent that the latter does not contradict this Agreement), that Party (the “Wronged Party”) shall notify the other Party (the “Party in Breach”) in writing of the breach and advise the Party in Breach that such breach must be remedied within sixty (60) days of the date thereof (the “Notice Period”). At the end of the Notice Period, this Agreement will terminate immediately, without further notice, and without prejudice to any other remedy that might be available to the Wronged Party, in the event that the Party in Breach has failed to remedy such breach. The Notice Period may be extended only with the written consent of the Wronged Party, provided that any such extension shall neither be deemed as acceptance by the Wronged Party of the breach nor a waiver by the Wronged Party of any rights hereunder or pursuant to any applicable law in connection with any such breach.

	
  

	
2.5.

	
The execution of this Agreement is subject to the prior written consent of the following banks: Bank Leumi L'Israel Ltd., Bank Hapoalim Ltd. and Bank Discount L'Israel Ltd.

	
  

	
2.6.

	
Sections 2 through 8 of this Agreement shall survive the termination of this Agreement and it is acknowledged and agreed that those rights and obligations which, by their nature, are intended to survive such termination of this Agreement shall also survive.

	
3.

	
LIMITED WARRANTY AND LIABILITY

 

	
  

	
3.1.

	
Lamour warrants that the Services provided by it to the Company will be of a professional nature and Lamour will perform its obligations in a professional manner, based on standards customary in the industry.

 

	
  

	
3.2.

	
The Company acknowledges that the Services to be provided by Lamour hereunder are based upon information supplied by the Company, among other elements, and that Lamour does not guarantee or warrant such Services to any specifications, function or other standards, except as specifically set forth hereunder.

  

3

  

 

	
4.

	
CONFIDENTIALITY

 

	
  

	
4.1.

	
Each Party agrees to hold in strict confidence, and not distribute or make available (other than to its directors, officers, employees, agents, financing sources, lenders, accountants, representatives and counsel (collectively, the “Representatives”) who need to know such information), any confidential or proprietary data or information of the other Party (and all information derived therefrom), except:

 

	
  

	
4.1.1.

	
data or information that such Party can demonstrate is already in its possession or available to it from a source other than the other Party or its Representatives, provided that such data or information is not and was not currently or hereafter known by such Party or its Representatives to be subject to another confidentiality agreement with or other obligation of secrecy to another party;

 

	
  

	
4.1.2.

	
data or information which is or becomes generally available or known to the public or within the business industry other than as a result of a disclosure by such Party or its Representatives; or

 

	
  

	
4.1.3.

	
data or information which is independently developed by such Party or its Representatives, or known through a party other than the other Party or its Representatives, which party has no duty of confidentiality to the other Party.

 

	
  

	
4.2.

	
In the event that a Party is requested or required (by deposition, interrogatories, requests for information or documents, subpoenas, civil investigative demands or similar processes) to disclose any such confidential or proprietary data or information, such Party agrees, to the extent permissible under any applicable law or regulation, to (i) provide the other Party with prompt notice of such request(s) and the documents requested so that the other Party may seek an appropriate protective order and/or waive compliance with the provisions of this Agreement, and (ii) consult with the other Party as to the advisability of taking legally available steps to resist or narrow such request.  The Parties further agree that, if in the absence of a protective order or the receipt of a waiver hereunder, a Party is nonetheless, in the written opinion of its legal counsel, compelled to disclose any of such confidential or proprietary data or information to any tribunal or else stand liable for contempt or suffer other censure or penalty, such Party may disclose such of the confidential or proprietary data or information that it is so compelled to disclose to such tribunal without liability hereunder; provided, however, that such Party shall give the other Party written notice of the confidential or proprietary data or information to be so disclosed as soon as is practicable and shall use its commercially reasonable efforts to obtain and cooperate with the other Party in seeking to obtain an order or other reliable assurance that confidential treatment will be accorded to such portions of the confidential or proprietary data or information required to be disclosed as the other Party designates.

 

  

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4.3.

	
Notwithstanding anything contained herein to the contrary, nothing herein shall preclude the disclosure of confidential or proprietary data or information as part of a Party’s claim or defense in any legal proceeding with the other Party, including, without limitation, any indemnification claim under this Agreement.

	
5.

	
NON SOLICITATION

 

	
  

	
5.1.

	
Each Party agrees that during the term of this Agreement and for a period of one (1) year after the termination or expiration of this Agreement  (for any reason whatsoever whether upon the initiative of Lamour or of the Company), such Party shall not, directly or indirectly: (i) solicit, induce, recruit, hire or encourage any employee or consultant of the other Party to leave such position, or attempt to do any of the foregoing, either for itself or for any other person or entity, (ii) contact any customers of the other Party for the purpose of selling to those customers any seamless products or services which are the same as or substantially similar to, or competitive with, the products or services sold and/or provided by such Party in relation to its business at such date, except as provided in the next sentence, or (iii) otherwise interfere in any manner with the contractual or employment relationship between the other Party and any of its employees, consultants, suppliers or customers.  Notwithstanding any provision herein, the Company acknowledges and agrees that the current ownership of any company in the same business and the continued representation of Vanity Fair Limited Brands, B.L. Intimate Apparel Canada Inc. and Fruit of the Loom in Canada and the United States shall not be deemed to be a breach of this Agreement.

	
6.

	
INDEMNIFICATION

 

	
  

	
6.1.

	
Each Party shall indemnify, defend and hold harmless the other Party, its agents and employees, from and against any and all liabilities’, losses, damages, costs and expenses (including, without limitation, reasonable attorneys fees and costs) incurred by the other Party as a result of or in connection with: (i) such Party’s negligence or willful misconduct, or (ii) in the event of any material breach or material misrepresentation of any covenant, warranty or representation made by such Party under this Agreement.

	
7.

	
MISCELLANEOUS

 

	
  

	
7.1.

	
The relationship between Lamour and the Company is that of independent contractors, and under no circumstances shall any of the employees of one Party be deemed to be employees of the other Party for any purpose. This Agreement shall not be construed as authority for either Party to act for the other in an agency or any other capacity or to make commitments of any kind for the account of or on behalf of the other.

 

	
  

	
7.2.

	
No failure to exercise, nor any delay in exercising, on part or either party, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof, nor the exercise of any other right or remedy.

 

  

5

  

 

	
  

	
7.3.

	
Each of the Parties agrees that any breach of Section 5 above by it would cause irreparable damage to the other Party and that, in the event of such breach, the other Party shall have, in addition to any and all remedies of law, the right to an injunction, specific performance or other equitable relief to prevent the violation or threatened violation of the other Party’s obligations hereunder.

 

	
  

	
7.4.

	
Nothing contained in this Agreement shall be construed as conferring any right to use in advertising, publicity, or other promotional activities any name, trade name, trademark, or other designation of either Party to this Agreement (including any contraction, abbreviation, or simulation of any of the foregoing) and each Party hereto agrees not to disclose to others the terms and conditions of this Agreement, except as may be required by law or governmental regulation, without the express written consent of the other Party.

 

	
  

	
7.5.

	
Neither Party shall be entitled to assign nor transfer all or any of its rights, benefits and obligations under this Agreement and/or the Purchase Orders without the prior written consent of  the other Party, such consent not to be unreasonably conditioned, withheld or delayed, provided however, that this Agreement may be assigned by each Party to a subsidiary, and upon a merger or the sale of such Party’s business or substantially all of such Party’s assets or voting stock, all without the consent of the other Party, upon providing notice to the other Party.

 

	
  

	
7.6.

	
All notices hereunder shall be in writing and may be served upon each Party at the address specified in the preamble of this Agreement or the Purchase Order. Notices shall be sent by telecopier, e-mail or mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger. Any notice sent in accordance with this section, shall be effective: (i) if mailed, 5 business days after mailing; (ii) if sent by messenger, upon delivery; and (iii) if sent by telecopier or e-mail, upon transmission and electronic confirmation of receipt, or if transmitted and received on a non-business day, on the first business day following transmission and electronic confirmation of receipt.

 

	
  

	
7.7.

	
This Agreement and the Purchase Orders shall be governed by the laws of the State Israel without reference to principles and laws relating to the conflict of laws. The competent courts of the District of Tel Aviv shall have exclusive jurisdiction over any matter in connection with this Agreement and the Purchase Orders.

 

	
  

	
7.8.

	
If any provision of this Agreement shall be deemed invalid, illegal or unenforceable, such finding shall not affect or modify any other provision herein and shall be confined to the provision as to which such finding is made. An invalid, unenforceable or illegal provision shall be replaced, upon mutual written agreement of the Parties, by an effective provision similar to such deleted provision which closely resembles the original intent of the Parties.

 

  

6

  

 

	
  

	
7.9.

	
The Company acknowledges that upon approval of any Purchase Order, the Company shall be bound by the terms thereof and this Agreement regardless of whether the employee or representative who executed such Purchase Order on behalf of the Company continues to be employed by or to represent the Company in any capacity.

 

	
  

	
7.10.

	
This Agreement, including the Schedules and Exhibits attached hereto, and/or the Purchase Orders state the entire agreement between the parties relating to the subject matter hereof and supersede all prior communications, written or oral, between the Parties with regards to the Services.

 

	
  

	
7.11.

	
Headings are used for the purposes of references only and shall not affect the interpretation of this Agreement. The preamble, exhibits and schedules to this Agreement constitute an integral part hereof. Words in the singular shall include the plural and vice versa.

 

	
  

	
7.12.

	
This Agreement may be executed in two or more counterparts, each of which shall constitute an original and all of which shall be deemed a single agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered on and as of the Effective Date.

	COMPANY	 	LAMOUR
	 	  	 	 	  	 
	TEFRON LTD.	 	LAMOUR GLOBAL INC. LIMITED	 
	 	  	 	 	  	 
	 By:  	
/s/ Amit Meridor

	 	By:	
 /s/ Martin Lieberman

	 
	 	  	 	 	  	 
	Title:	
Chief Executive Officer

	 	Title:	
President

	 
	 	  	 	 	  	 
	Date:	 	 	Date:	
December 27, 2010

	 

 

  

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SCHEDULE I

SALES SERVICES

 

Service

The sale of merchandise manufactured by or on behalf of the Company by Lamour’s network of salespeople in the US and Europe to existing customers of the Company and to new customers.

Fees

	
  

	
·

	
In connection with any Purchase Order for goods from a customer that was introduced to the Company by Lamour (a “Lamour Introduced Customer”) after the entering into by the Company and Lamour of the Framework Services Agreement to which this Schedule was first attached (a “Lamour Purchase Order”), where the sale was not made by Lamour and Lamour’s Services were limited to introducing such Lamour Introduced Customer, the Company shall pay Lamour 2.5% of the value of any Lamour Purchase Order and shall only apply in respect of Lamour Purchase Orders consummated during the period of 24 months following the date of the first Lamour Purchase Order (it being understood that said Services Fee shall also apply to such first Lamour Purchase Order).

 

	
  

	
·

	
In connection with any Lamour Purchase Order where the relationship with such customer is managed by Lamour (a “Lamour-Managed Customer”), The Company shall pay Lamour 4.0% of the value of any Lamour Purchase Order from such Lamour-Managed Customer during the term of the Framework Services Agreement.

 

	
  

	
·

	
For the avoidance of doubt, “Lamour-Introduced Customers” and “Lamour-Managed Customers” shall not include any customer that was an “Existing Customer”, as such term is defined in the Asset Purchase Agreement by and between the Company and Intimes Nouvelle Seamless Inc. dated as of November 16, 2010.

 

Tefron Customers

 

	
  

	
·

	
In connection with any Purchase Order for goods from a customer that was introduced to Lamour by the Company (a “Tefron Introduced Customer”) after the entering into by the Company and Lamour of the Framework Services Agreement to which this Schedule was first attached (a “Tefron Purchase Order”), where the sale was not made by the Company and the Company’s Services were limited to introducing such Tefron Introduced Customer, Lamour shall pay the Company 2.5% of the value of any Tefron Purchase Order, and shall only apply in respect of Tefron Purchase Orders consummated during the period of 24 months following the date of the first Tefron Purchase Order (it being understood that said Services Fee shall also apply to such first Tefron Purchase Order)

 

	
  

	
·

	
In connection with any Tefron Purchase Order where the relationship with such customer is managed by the Company (a “Tefron-Managed Customer”), Lamour shall pay the Company 4.0% of the value of any Tefron Purchase Orders from such Tefron-Managed Customer during the term of the Framework Services Agreement.

 

  

  

  

SCHEDULE II

SOURCING SERVICES

Services

Sourcing of goods and/or raw materials from new suppliers or sub-contractors with whom the Company had no commercial relationship as of the date that the Company and Lamour entered into the Framework Services Agreement to which this Schedule was first attached, including without limitation:

	
(i)

	
seek out the best supplier for the Company’s requirements;

	
(ii)

	
act as a buying agent of the Company and shall negotiate, among other things, price, quality, quantity, and shipping dates;

	
(iii)

	
provide inspection services for quality assurance and/or quality control; and

	
(iv)

	
ensure that the supplied merchandise is delivered to its destination.

Fees

For the performance of any or all of the Services described above (“Sourcing Services”), the Services Fee shall be:

	
  

	
·

	
Where Lamour provides all Sourcing Services with respect to a supplier or sub-contractor, Tefron shall pay 4%of the value of any Purchase Order for the supply of such goods and/or raw materials from new suppliers

 

	
  

	
·

	
Where Lamour merely introduces a supplier or sub-contractor to the Company, the Company shall pay 3% of the value of any Purchase Order for the supply of such goods and/or raw materials from new suppliers, only for the period of 24 months following the first purchase order from that supplier or sub-contractor to the Company, but in any event with respect to any individual Purchase Order for the supply of goods from such a new supplier, and only in the relevant period.

 

	
  

	
·

	
Where the Company provides all Sourcing Services with respect to a supplier or sub-contractor, Lamour shall pay 4% of the value of any Purchase Order for the supply of such goods and/or raw materials from new suppliers.

	
  

	
·

	
Where the Company merely introduces a supplier or sub-contractor to Lamour, Lamour shall pay 3% of the value of any Purchase Order for the supply of such goods and/or raw materials from new suppliers, only for the period of 24 months following the first purchase order from that supplier or sub-contractor to Lamour, but in any event with respect to any individual Purchase Order for the supply of goods from such a new supplier, and only in the relevant period.

 

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Exhibit 4.2

BALATON POWER INC.

(the "Company")

SHARE OPTION PLAN

Dated for Reference November 1, 2010

ARTICLE 1

PURPOSE AND INTERPRETATION

Purpose

1.1                 The purpose of this Plan is to advance the interests of the Company by encouraging equity participation in the Company through the acquisition of Common Shares of the Company.  It is the intention of the Company that this Plan will at all times be in compliance with TSX Venture Policies (or, if applicable, NEX Policies) and any inconsistencies between this Plan and TSX Venture Policies (or, if applicable, NEX Policies) will be resolved in favour of the latter.

Definitions

1.2                 In this Plan
(a)       Affiliate means a company that is a parent or subsidiary of the Company, or that is controlled by the same entity as the Company;

(b)       Associate has the meaning set out in the Securities Act;

(c)       Black-out Period means an interval of time during which the Company has determined that one or more Participants may not trade any securities of the Company because they may be in possession of undisclosed material information pertaining to the Company, or when in anticipation of the release of quarterly or annual financials, to avoid potential conflicts associated with a company's insider-trading policy or applicable securities legislation, (which, for greater certainty, does not include the period during which a cease trade order is in effect to which the Company or in respect of an Insider, that Insider, is subject);

(d)       Board means the board of directors of the Company or any committee thereof duly empowered or authorized to grant Options under this Plan;

(e)       Change of Control includes situations where after giving effect to the contemplated transaction and as a result of such transaction: 

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(i)       any one Person holds a sufficient number of voting shares of the Company or resulting company to affect materially the control of the Company or resulting company, or,

(ii)      any combination of Persons, acting in concert by virtue of an agreement, arrangement, commitment or understanding, holds in total a sufficient number of voting shares of the Company or its successor to affect materially the control of the Company or its successor, 

where such Person or combination of Persons did not previously hold a sufficient number of voting shares to materially affect control of the Company or its successor and, in the absence of evidence to the contrary, any Person or combination of Persons acting in concert by virtue of an agreement, arrangement, commitment or understanding, holding more than 20% of the voting shares of the Company or resulting company is deemed to materially affect control of the Company or resulting company;

(f)       Common Shares means the common shares without par value in the capital of the Company or, if the such common shares are listed on either the TSX Venture or the NEX, "Common Shares" means the common shares without par value in the capital of the Company providing such class is listed on the TSX Venture (or, NEX, as the case may be);

(g)       Company means the company named at the top hereof and includes, unless the context otherwise requires, all of its Affiliates and successors according to law;

(h)       Consultant means an individual or Consultant Company, other than an Employee, Officer or Director that: manual numbering 
(i)        provides on an ongoing bona fide basis, consulting, technical, managerial or like services to the Company or an Affiliate of the Company, other than services provided in relation to a Distribution;

(ii)       provides the services under a written contract between the Company or an Affiliate and the individual or the Consultant Company;

(iii)      in the reasonable opinion of the Company, spends or will spend a significant amount of time and attention on the business and affairs of the Company or an Affiliate of the Company; and

(iv)       has a relationship with the Company or an Affiliate of the Company that enables the individual or Consultant Company to be knowledgeable about the business and affairs of the Company;

(i)       Consultant Company means for an individual consultant, a company or partnership of which the individual is an employee, shareholder or partner;

(j)       Directors means the directors of the Company as may be elected from time to time;

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(k)       Discounted Market Price has the meaning assigned by Policy 1.1 of the TSX Venture Policies;

(l)       Disinterested Shareholder Approval means approval by a majority of the votes cast by all the Company's shareholders at a duly constituted shareholders' meeting, excluding votes attached to Common Shares beneficially owned by Insiders who are Service Providers or their Associates;

(m)       Distribution has the meaning assigned by the Securities Act, and generally refers to a distribution of securities by the Company from treasury;

(n)       Effective Date for an Option means the date of grant thereof by the Board;

(o)       Employee means: manual numbering 
(i)       an individual who is considered an employee under the Income Tax Act Canada (i.e. for whom income tax, employment insurance and CPP deductions must be made at source);

(ii)      an individual who works full-time for the Company or a subsidiary thereof providing services normally provided by an employee and who is subject to the same control and direction by the Company over the details and methods of work as an employee of the Company, but for whom income tax deductions are not made at source; or

(iii)     an individual who works for the Company or its subsidiary on a continuing and regular basis for a minimum amount of time per week providing services normally provided by an employee and who is subject to the same control and direction by the Company over the details and methods of work as an employee of the Company, but for whom income tax deductions need not be made at source;

(p)       Exercise Price means the amount payable per Common Share on the exercise of an Option, as determined in accordance with the terms hereof; 

(q)       Expiry Date means the day on which an Option lapses as specified in the Option Commitment therefor or in accordance with the terms of this Plan;

(r)       Insider means an insider as defined in the TSX Venture Policies or as defined in securities legislation applicable to the Company;

(s)       Investor Relations Activities has the meaning assigned by Policy 1.1 of the TSX Venture Policies;

(t)       Management Company Employee means an individual employed by a Person providing management services to the Company which are required for the ongoing successful operation of the business enterprise of the Company, but excluding a Person engaged in Investor Relations Activities;

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(u)       NEX means a separate board of the TSX Venture for companies previously listed on the TSX Venture or the Toronto Stock Exchange which have failed to maintain compliance with the ongoing financial listing standards of those markets;

(v)       NEX Issuer means a company listed on NEX;

(w)       NEX Policies means the rules and policies of NEX as amended from time to time;

(x)       Officer means a Board appointed officer of the Company;

(y)       Option means the right to purchase Common Shares granted hereunder to a Service Provider;

(z)       Option Commitment means the notice of grant of an Option delivered by the Company hereunder to a Service Provider and substantially in the form of Schedule A attached hereto;

(aa)     Optioned Shares means Common Shares that may be issued in the future to a Service Provider upon the exercise of an Option;

(bb)     Optionee means the recipient of an Option hereunder;

(cc)     Outstanding Shares means at the relevant time, the number of issued and outstanding Common Shares of the Company from time to time;

(dd)     Participant means a Service Provider that becomes an Optionee;

(ee)     Person includes a company, any unincorporated entity, or an individual;

(ff)     Plan means this share option plan, the terms of which are set out herein or as may be amended;

(gg)     Plan Shares means the total number of Common Shares which may be reserved for issuance as Optioned Shares under the Plan as provided in Section 2.2;

(hh)     Regulatory Approval means the approval of the TSX Venture, if the Common Shares are so listed on that exchange, and any other securities regulatory authority that has lawful jurisdiction over the Plan and any Options issued hereunder;

(ii)     Securities Act means the Securities Act, R.S.B.C. 1996, c. 418, or any successor legislation;

(jj)     Service Provider means a Person who is a bona fide Director, Officer, Employee, Management Company Employee, Consultant or Company Consultant, and also includes a company, 100% of the share capital of which is beneficially owned by one or more Service Providers;

(kk)     Share Compensation Arrangement means any Option under this Plan but also includes any other stock option, stock option plan, employee stock purchase plan or any other compensation or incentive mechanism involving the issuance or potential issuance of Common Shares to a Service Provider;

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(ll)     Shareholder Approval means approval by a majority of the votes cast by eligible shareholders of the Company at a duly constituted shareholders' meeting;

(mm)     Take Over Bid means a take over bid as defined in subsection 92(1) of the Securities Act (British Columbia) or the analogous provisions of securities legislation applicable to the Company;

(nn)     TSX Venture means the TSX Venture Exchange and any successor thereto; and

(oo)     TSX Venture Policies means the rules and policies of the TSX Venture as amended from time to time.

Other Words and Phrases

1.3                 Words and phrases used in this Plan but which are not defined in the Plan, but are defined in the TSX Venture Policies (and, if applicable, the NEX Policies), will have the meaning assigned to them in the TSX Venture Policies (and, if applicable, NEX Policies).

Gender

1.4                 Words importing the masculine gender include the feminine or neuter, words in the singular include the plural, words importing a corporate entity include individuals, and vice versa.

ARTICLE 2

SHARE OPTION PLAN

Establishment of Share Option Plan

2.1                 The Plan is hereby established to recognize contributions made by Service Providers and to create an incentive for their continuing assistance to the Company and its Affiliates. 

Maximum Plan Shares

2.2                 The maximum aggregate number of Plan Shares that may be reserved for issuance under the Plan at any point in time is 10% of the Outstanding Shares at the time Plan Shares are reserved for issuance as a result of the grant of an Option, less any Common Shares reserved for issuance under share options granted under Share Compensation Arrangements other than this Plan, unless, if the Common Shares are so listed on the TSX Venture or NEX, this Plan is amended pursuant to the requirements of the TSX Venture Policies (and, if applicable, NEX Policies).

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Eligibility

2.3                 Options to purchase Common Shares may be granted hereunder to Service Providers of the Company, or its affiliates, from time to time by the Board.  Service Providers that are not individuals will be required to undertake in writing not to effect or permit any transfer of ownership or option of any of its securities, or to issue more of its securities (so as to indirectly transfer the benefits of an Option), as long as such Option remains outstanding, unless the written permission of the TSX Venture, if the Common Shares are so listed on that exchange, and the Company is obtained.

Options Granted Under the Plan

2.4                 All Options granted under the Plan will be evidenced by an Option Commitment in the form attached as Schedule A, showing the number of Optioned Shares, the term of the Option, a reference to vesting terms, if any, and the Exercise Price.

2.5                 Subject to specific variations approved by the Board, all terms and conditions set out herein will be deemed to be incorporated into and form part of an Option Commitment made hereunder.

Limitations on Issue

2.6                 Subject to Section 2.10, the following restrictions on issuances of Options are applicable under the Plan:
(a)       no Service Provider can be granted an Option if that Option would result in the total number of Options, together with all other Share Compensation Arrangements granted to such Service Provider in the previous 12 months, exceeding 5% of the Outstanding Shares, unless the Company has obtained Disinterested Shareholder Approval to do so;

(b)       if the Common Shares are listed on the TSX Venture, the aggregate number of Options granted to all Service Providers conducting Investor Relations Activities in any 12-month period cannot exceed 2% of the Outstanding Shares, calculated at the time of grant, without the prior consent of the TSX Venture (or NEX, as the case may be); and

(c)       if the Common Shares are listed on the TSX Venture, the aggregate number of Options granted to any one Consultant in any 12 month period cannot exceed 2% of the Outstanding Shares, calculated at the time of grant, without the prior consent of the TSX Venture.

Options Not Exercised

2.7                 In the event an Option granted under the Plan expires unexercised or is terminated by reason of dismissal of the Optionee for cause or is otherwise lawfully cancelled prior to exercise of the Option, the Optioned Shares that were issuable thereunder will be returned to the Plan and will be eligible for re-issuance.

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Powers of the Board

2.8                 The Board will be responsible for the general administration of the Plan and the proper execution of its provisions, the interpretation of the Plan and the determination of all questions arising hereunder.  Without limiting the generality of the foregoing, the Board has the power to
(a)       allot Common Shares for issuance in connection with the exercise of Options;

(b)       grant Options hereunder;

(c)       subject to any necessary Regulatory Approval, amend, suspend, terminate or discontinue the Plan, or revoke or alter any action taken in connection therewith, except that no general amendment or suspension of the Plan will, without the prior written consent of all Optionees, alter or impair any Option previously granted under the Plan unless the alteration or impairment occurred as a result of a change in the TSX Venture Policies or the Company's tier classification thereunder; and

(d)       delegate all or such portion of its powers hereunder as it may determine to one or more committees of the Board, either indefinitely or for such period of time as it may specify, and thereafter each such committee may exercise the powers and discharge the duties of the Board in respect of the Plan so delegated to the same extent as the Board is hereby authorized so to do.

Amendment of the Plan by the Board of Directors
2.9                 Subject to the requirements of the TSX Venture Policies, if the Common Shares are so listed on that exchange, and prior to receipt of any necessary Regulatory Approval, as the case may be, the Board may in its absolute discretion, amend or modify the Plan or any Option granted as follows:
(a)       it may make amendments which are of a typographical, grammatical or clerical nature only;

(b)       it may change the vesting provisions of an Option granted hereunder, subject to prior written approval of the TSX Venture, if applicable;

(c)       it may change the termination provision of an Option granted hereunder which does not entail an extension beyond the original Expiry Date of such Option;

(d)       it may make amendments necessary as a result in changes in securities laws applicable to the Company;

(e)       if the Company becomes listed or quoted on a stock exchange or stock market senior to the TSX Venture, it may make such amendments as may be required by the policies of such senior stock exchange or stock market; and

(f)       it may make such amendments as reduce, and do not increase, the benefits of this Plan to Service Providers.

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Amendments Requiring Disinterested Shareholder Approval

2.10               The Company will be required to obtain Disinterested Shareholder Approval prior to any of the following actions becoming effective:
(a)       the Plan, together with all of the Company's other previous Share Compensation Arrangements, could result at any time in:
(i)       the aggregate number of Common Shares reserved for issuance under Options granted to Insiders exceeding 10% of the Outstanding Shares in the event that this Plan is amended to reserve for issuance more than 10% of the Outstanding Shares; 

(ii)      the number of Optioned Shares issued to Insiders within a one-year period exceeding 10% of the Outstanding Shares in the event that this Plan is amended to reserve for issuance more than 10% of the Outstanding Shares; or, 

(iii)     the issuance to any one Optionee, within a 12-month period, of a number of Common Shares exceeding 5% of the Outstanding Shares; or

(b)       any reduction in the Exercise Price of an Option previously granted to an Insider.

Options Granted Under the Company's Previous Share Option Plans

2.11               Any option granted pursuant to a stock option plan previously adopted by the Board which is outstanding at the time this Plan comes into effect shall be deemed to have been issued under this Plan and shall, as of the date this Plan comes into effect, be governed by the terms and conditions hereof.

ARTICLE 3

TERMS AND CONDITIONS OF OPTIONS

Exercise Price

3.1                 The Exercise Price of an Option will be set by the Board at the time such Option is allocated under the Plan, and cannot be less than the Discounted Market Price.

Term of Option

3.2                 An Option can be exercisable for a maximum of 10 years from the Effective Date.

Option Amendment

3.3                 Subject to Section 2.10(b), the Exercise Price of an Option may be amended only if at least six (6) months have elapsed since the later of:
(a)       the date of commencement of the term of the Option, 

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(b)       if the Common Shares are listed on the TSX Venture, the date the Common Shares commenced trading on the TSX Venture, or

(c)       the date of the last amendment of the Exercise Price.

3.4                 An Option must be outstanding for at least one year before the Company may extend its term, subject to the limits contained in Section 3.2.

3.5                 If the Common Shares are listed on the TSX Venture, any proposed amendment to the terms of an Option must be approved by the TSX Venture prior to the exercise of such Option.

Vesting of Options

3.6                 Subject to Section 3.7, vesting of Options shall be at the discretion of the Board and, with respect to any particular Options granted under the Plan, in the absence of a vesting schedule being specified at the time of grant, all such Options shall vest immediately.  Where applicable, vesting of Options will generally be subject to:
(a)       the Service Provider remaining employed by or continuing to provide services to the Company or any of its Affiliates as well as, at the discretion of the Board, achieving certain milestones which may be defined by the Board from time to time or receiving a satisfactory performance review by the Company or any of its Affiliates during the vesting period; or

(b)       the Service Provider remaining as a Director of the Company or any of its Affiliates during the vesting period.

Vesting of Options Granted to Consultants Conducting Investor Relations Activities

3.7                 Notwithstanding Section 3.6, Options granted to Consultants conducting Investor Relations Activities will vest:
(a)       over a period of not less than 12 months as to 25% on the date that is three months from the date of grant, and a further 25% on each successive date that is three months from the date of the previous vesting; or

(b)       such longer vesting period as the Board may determine.

Effect of Take Over Bid

3.8                 If a Take Over Bid is made to the shareholders generally then the Company shall immediately upon receipt of notice of the Take Over Bid, notify each Optionee currently holding an Option of the Take Over Bid, with full particulars thereof whereupon such Option may, notwithstanding Section 3.6 and Section 3.7 or any vesting requirements set out in the Option Commitment, be immediately exercised in whole or in part by the Optionee, subject to approval of the TSX Venture or the NEX, as the case may be, if the Common Shares are so listed on such an exchange, for vesting requirements imposed by the TSX Venture Policies.

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Extension of Options Expiring During Blackout Period

3.9                 Should the Expiry Date for an Option fall within a Blackout Period, or within nine (9) Business Days following the expiration of a Blackout Period, such Expiry Date shall, subject to approval of the TSX Venture or the NEX, as the case may be, if the Common Shares are so listed on such an exchange, be automatically extended without any further act or formality to that day which is the tenth (10th) Business Day after the end of the Blackout Period, such tenth Business Day to be considered the Expiry Date for such Option for all purposes under the Plan.  Notwithstanding Section 2.8, the tenth Business Day period referred to in this Section 3.9 may not be extended by the Board.

Optionee Ceasing to be Director, Employee or Service Provider

3.10               Options may be exercised after the Service Provider has left his/her employ/office or has been advised by the Company that his/her services are no longer required or his/her service contract has expired, until the term applicable to such Options expires, except as follows:
(a)       in the case of the death of an Optionee, any vested Option held by him at the date of death will become exercisable by the Optionee's lawful personal representatives, heirs or executors until the earlier of one year after the date of death of such Optionee and the date of expiration of the term otherwise applicable to such Option;

(b)       an Option granted to any Service Provider will expire 90 days (or such other time, not to exceed one year, as shall be determined by the Board as at the date of grant or agreed to by the Board and the Optionee at any time prior to expiry of the Option) after the date the Optionee ceases to be employed by or provide services to the Company, and only to the extent that such Option was vested at the date the Optionee ceased to be so employed by or to provide services to the Company; and

(c)       in the case of an Optionee being dismissed from employment or service for cause, such Optionee's Options, whether or not vested at the date of dismissal will immediately terminate without right to exercise same.

Non Assignable

3.11               Subject to Section 3.10, all Options will be exercisable only by the Optionee to whom they are granted and will not be assignable or transferable.

Adjustment of the Number of Optioned Shares

3.12               The number of Common Shares subject to an Option will be subject to adjustment in the events and in the manner following:
(a)       in the event of a subdivision of Common Shares as constituted on the date hereof, at any time while an Option is in effect, into a greater number of Common Shares, the Company will thereafter deliver at the time of purchase of Optioned Shares hereunder, in addition to the number of Optioned Shares in respect of which the right to purchase is then being exercised, such additional number of Common Shares as result from the subdivision without an Optionee making any additional payment or giving any other consideration therefor;

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(b)       in the event of a consolidation of the Common Shares as constituted on the date hereof, at any time while an Option is in effect, into a lesser number of Common Shares, the Company will thereafter deliver and an Optionee will accept, at the time of purchase of Optioned Shares hereunder, in lieu of the number of Optioned Shares in respect of which the right to purchase is then being exercised, the lesser number of Common Shares as result from the consolidation;

(c)       in the event of any change of the Common Shares as constituted on the date hereof, at any time while an Option is in effect, the Company will thereafter deliver at the time of purchase of Optioned Shares hereunder the number of shares of the appropriate class resulting from the said change as an Optionee would have been entitled to receive in respect of the number of Common Shares so purchased had the right to purchase been exercised before such change;

(d)       in the event of a capital reorganization, reclassification or change of outstanding equity shares (other than a change in the par value thereof) of the Company, a consolidation, merger or amalgamation of the Company with or into any other company or a sale of the property of the Company as or substantially as an entirety at any time while an Option is in effect, an Optionee will thereafter have the right to purchase and receive, in lieu of the Optioned Shares immediately theretofore purchasable and receivable upon the exercise of the Option, the kind and amount of shares and other securities and property receivable upon such capital reorganization, reclassification, change, consolidation, merger, amalgamation or sale which the holder of a number of Common Shares equal to the number of Optioned Shares immediately theretofore purchasable and receivable upon the exercise of the Option would have received as a result thereof.  The subdivision or consolidation of Common Shares at any time outstanding (whether with or without par value) will not be deemed to be a capital reorganization or a reclassification of the capital of the Company for the purposes of this Section 3.12;

(e)       an adjustment will take effect at the time of the event giving rise to the adjustment, and the adjustments provided for in this section are cumulative;

(f)       the Company will not be required to issue fractional shares in satisfaction of its obligations hereunder.  Any fractional interest in a Common Share that would, except for the provisions of this Section 3.12, be deliverable upon the exercise of an Option will be cancelled and not be deliverable by the Company; and

(g)       if any questions arise at any time with respect to the Exercise Price or number of Optioned Shares deliverable upon exercise of an Option in any of the events set out in this Section 3.12, such questions will be conclusively determined by the Company's auditors, or, if they decline to so act, any other firm of Chartered Accountants, in Vancouver, British Columbia (or in the city of the Company's principal executive office) that the Company may designate and who will be granted access to all appropriate records and such determination will be binding upon the Company and all Optionees.

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ARTICLE 4

COMMITMENT AND EXERCISE PROCEDURES

Option Commitment

4.1                 Upon grant of an Option hereunder, an authorized officer of the Company will deliver to the Optionee an Option Commitment detailing the terms of such Options and upon such delivery the Optionee will be subject to the Plan and have the right to purchase the Optioned Shares at the Exercise Price set out therein subject to the terms and conditions hereof.

Manner of Exercise

4.2                 An Optionee who wishes to exercise his Option may do so by delivering
(a)       a written notice to the Company specifying the number of Optioned Shares being acquired pursuant to the Option; and

(b)       a certified cheque, wire transfer or bank draft payable to the Company for the aggregate Exercise Price for the Optioned Shares being acquired.

Tax Withholding and Procedures

4.3                 Notwithstanding anything else contained in this Plan, the Company may, from time to time, implement such procedures and conditions as it determines appropriate with respect to the withholding and remittance of taxes imposed under applicable law, or the funding of related amounts for which liability may arise under such applicable law.  Without limiting the generality of the foregoing, an Optionee who wishes to exercise an Option must, in addition to following the procedures set out in 4.2 and elsewhere in this Plan, and as a condition of exercise:
(a)       deliver a certified cheque, wire transfer or bank draft payable to the Company for the amount determined by the Company to be the appropriate amount on account of such taxes or related amounts; or

(b)       otherwise ensure, in a manner acceptable to the Company (if at all) in its sole and unfettered discretion, that the amount will be securely funded;

and must in all other respects follow any related procedures and conditions imposed by the Company.

Delivery of Certificate and Hold Periods

4.4                 As soon as practicable after receipt of the notice of exercise described in Section 4.2 and payment in full for the Optioned Shares being acquired, the Company will direct its transfer agent to issue to the Optionee the appropriate number of Optioned Shares.  If the Common Shares are listed on the TSX Venture and either the Exercise Price is set below the then current market price of the Common Shares on the TSX Venture or the option is granted:
(a)       to directors, officers and promoters, or 

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(b)       to persons holding securities carrying more than 10% of the voting rights attached to the Company's securities both immediately before and after the transaction in which securities are issued, and who have elected or appointed or have the right to elect or appoint one or more directors or senior officer of the Company; or

(c)       at a discount of more than 10% to the Market Price;

the certificate representing the Optioned Shares or written notice in the case of uncertificated shares will include a legend stipulating that the Optioned Shares issued are subject to a four-month TSX Venture hold period commencing the date of the Option Commitment.

ARTICLE 5

GENERAL

Employment and Services

5.1                 Nothing contained in the Plan will confer upon or imply in favour of any Optionee any right with respect to office, employment or provision of services with the Company, or interfere in any way with the right of the Company to lawfully terminate the Optionee's  office, employment or service at any time pursuant to the arrangements pertaining to same.  Participation in the Plan by an Optionee is voluntary.

No Representation or Warranty

5.2                 The Company makes no representation or warranty as to the future market value of Common Shares issued in accordance with the provisions of the Plan or to the effect of the Income Tax Act (Canada) or any other taxing statute governing the Options or the Common Shares issuable thereunder or the tax consequences to a Service Provider.  Compliance with applicable securities laws as to the disclosure and resale obligations of each Participant is the responsibility of each Participant and not the Company.

Interpretation

5.3                 The Plan will be governed and construed in accordance with the laws of the Province of British Columbia.

Continuation of Plan

5.4                 The Plan will become effective from and after December 22, 2010, and will remain effective provided that the Plan, or any amended version thereof receives Shareholder Approval at each annual general meeting of the holders of Common Shares of the Company subsequent to December 22, 2010. 

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Amendment of the Plan

5.5                 The Board reserves the right, in its absolute discretion, to at any time amend, modify or terminate the Plan with respect to all Common Shares in respect of Options which have not yet been granted hereunder.  Any amendment to any provision of the Plan will be subject to any necessary Regulatory Approvals unless the effect of such amendment is intended to reduce (but not to increase) the benefits of this Plan to Service Providers.

 

 

SCHEDULE A

SHARE OPTION PLAN

OPTION COMMITMENT

Notice is hereby given that, effective this ________ day of ________________, __________ (the "Effective Date") BALATON POWER INC. (the "Company") has granted to ___________________________________________ (the "Optionee"), an Option to acquire ______________ Common Shares ("Optioned Shares") up to 5:00 p.m. Vancouver Time on the __________ day of ____________________, __________ (the "Expiry Date") at an Exercise Price of Cdn$____________ per share.

Optioned Shares are to vest immediately.

OR

Optioned Shares will vest [INSERT VESTING SCHEDULE AND TERMS]

The Option shall expire ________ days after the Optionee ceases to be employed by or provide services to the Company.

The grant of the Option evidenced hereby is made subject to the terms and conditions of the Plan, which are hereby incorporated herein and form part hereof.

To exercise your Option, deliver a written notice specifying the number of Optioned Shares you wish to acquire, together with a certified cheque, wire transfer or bank draft payable to the Company for the aggregate Exercise Price.  A certificate or written notice in the case of uncertificated shares for the Optioned Shares so acquired will be issued by the transfer agent as soon as practicable thereafter and, if the Common Shares are listed on the TSX Venture Exchange, may bear a minimum four month non-transferability legend from the date of this Option Commitment, the text of which is as follows. [Note:  A Company may grant stock options without a hold period, provided the exercise price of the options is set at or above the market price of the Company's shares and as long as the optionee is not a person listed in Sections 4.3(a) or (b) of the share option plan. If a four month hold period is applicable, the following legend must be placed on the certificate or the written notice in the case of uncertificated shares.]
"WITHOUT PRIOR WRITTEN APPROVAL OF THE TSX VENTURE EXCHANGE AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED ON OR THROUGH THE FACILITIES OF THE TSX VENTURE EXCHANGE OR OTHERWISE IN CANADA OR TO OR FOR THE BENEFIT OF A CANADIAN RESIDENT UNTIL 12:00 A.M. (MIDNIGHT) ON ".

 

The Company and the Optionee represent that the Optionee under the terms and conditions of the Plan is a bona fide Service Provider (as defined in the Plan), entitled to receive Options under TSX Venture Policies.

The Optionee also acknowledges and consents to the collection and use of Personal Information (as defined in the Policies of the TSX Venture Exchange) by both the Company and the TSX Venture or the NEX, as the case may be, if the Common Shares are listed on such an exchange, as more particularly set out in the Acknowledgement - Personal Information in use by the TSX Venture (or the NEX, as the case may be) on the date of this Option Commitment.

BALATON POWER INC.

________________________________________

Authorized Signatory

________________________________________

[insert name of optionee]

________________________________________

Signature of Optionee

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