Document:

Exhibit 10.31

 

LTIP UNIT VESTING AGREEMENT

 

UNDER THE MORGANS HOTEL GROUP CO. 

2006 OMNIBUS STOCK INCENTIVE PLAN

 

	
  Name of Grantee:

  	
   

  	
  (“Grantee”)

  
	
  No. of LTIP Units:

  	
   

  	
   

  	
   

  
	
  Grant Date:

  	
   

  	
   

  	
  (the “Grant Date”)

  
	
  Final Acceptance Date:

  	
   

  	
   

  	
  (the “Final Acceptance Date”)

  
							

 

Pursuant to the Morgans Hotel Group Co. 2006 Omnibus
Stock Incentive Plan (the “Plan”) and the Limited Liability Company
Agreement (the “LLC Agreement”) of Morgans Group LLC (the “LLC”),
a Delaware limited liability company, Morgans Hotel Group Co. (the “Company”),
a Delaware corporation and the managing member of the LLC, hereby grants to the
Grantee named above an Other Award (as defined in the Plan, referred to herein
as an “Award”) in the form of, and by causing the LLC to issue to the
Grantee, the number of LTIP Units (as defined in the LLC Agreement) set forth
above (the “Award LTIP Units”) having the rights, voting powers,
restrictions, limitations as to distributions, qualifications and terms and
conditions of redemption and conversion set forth herein and in the LLC
Agreement.  Upon the close of business on
the Final Acceptance Date, if this LTIP Unit Vesting Agreement (this “Agreement”)
is accepted, the Grantee shall receive the number of LTIP Units specified
above, subject to the restrictions and conditions set forth herein, in the Plan
and in the LLC Agreement.  Unless
otherwise indicated, capitalized terms used herein but not defined shall have
the meanings given to those terms in the Plan.

 

1.             Acceptance of Agreement.  The Grantee shall have no rights with respect
to this Agreement unless it has accepted this Agreement prior to the close of
business on the Final Acceptance Date by (i) signing and delivering to the LLC
a copy of this Agreement and (ii) unless the Grantee is already a Member (as defined
in the LLC Agreement), signing, as a Member, and delivering to the LLC a
counterpart signature page to the LLC Agreement (attached hereto as Exhibit
A).  Upon the close of business on the
Final Acceptance Date, if this Agreement is accepted by the Grantee as provided
above, the Grantee shall be admitted as a Member of the LLC with beneficial
ownership of the number of LTIP Units specified above, the LLC Agreement shall
be amended to reflect the issuance to the Grantee of the Award LTIP Units and the
LLC shall deliver to the Grantee a certificate of the Company certifying the
number of LTIP Units then issued to the Grantee.  Thereupon, the Grantee shall have all the
rights of a Member of the LLC with respect to the number of LTIP Units
specified above, as set forth in the LLC Agreement, subject, however, to the
restrictions and conditions specified herein and in the LLC Agreement.

 

 

2.             Vesting of LTIP Units.

 

(a)           Except as provided in Sections 2(b)
and 2(c) below, the Award LTIP Units shall become vested as follows: (i)
one-third (1/3) of the LTIP Units granted herein shall vest on the first (1st)
anniversary of the Grant Date; and (ii) the remaining two-thirds (2/3) of the
LTIP Units granted herein shall vest in equal monthly installments on the last
day of each month over the twenty-four (24) month period thereafter (the first
anniversary of the Grant Date and the last day of each month of the twenty-four
(24) month period thereafter are referred to herein as a “Vesting Date”);
provided that upon termination of Grantee’s employment with, cessation of
consulting relationship with or cessation of service to the Company and its
Subsidiaries for any reason, the LTIP Units that have not yet vested shall,
without payment of any consideration by the LLC, automatically and without
notice terminate, be forfeited and be and become null and void, and neither the
Grantee nor any of his successors, heirs, assigns, or personal representatives
will thereafter have any further rights or interests in such LTIP Units.  In the event Grantee becomes a consultant,
advisor or Non-Employee Director, such change in status shall not be deemed a
termination of employment or service with the Company at the time of such
change in status or thereafter so long as the Grantee continues in one of such
positions.

 

(b)           Notwithstanding any other term or
provision of this Agreement, if a Change in Control occurs, any restrictions
and conditions on all LTIP Units subject to this Agreement shall be deemed
waived by the Company and all LTIP Units granted hereby that have not
previously been forfeited shall automatically become fully vested.

 

(c)           Other Vesting Terms.  Notwithstanding anything to the contrary in
this Section 2, to the extent the Grantee is a party to another agreement or
arrangement with the Company that provides accelerated vesting of the Award
LTIP Units in the event of certain types of employment terminations or any
other applicable vesting-related events or provides more favorable vesting
provisions than provided for in this Agreement, the more favorable vesting
terms of such other agreement or arrangement shall control.

 

3.             Distributions.  Distributions on the LTIP Units shall be paid
currently to the Grantee in accordance with the terms of the LLC Agreement.

 

4.             Rights with Respect to LTIP
Units.  If (i) the Company shall at
any time be involved in a merger, consolidation, dissolution, liquidation,
reorganization, exchange of shares, sale of all or substantially all of the
assets or stock of the Company or a transaction similar thereto, (ii) any stock
dividend, stock split, reverse stock split, stock combination,
reclassification, recapitalization, significant repurchases of stock or other
similar change in the capital structure of the Company, or any distribution to
holders of Common Stock other than regular cash dividends, shall occur or (iii)
any other event shall occur which in the judgment of the Administrator
necessitates action by way of adjusting the terms of the Agreement, then and in
that event, the Administrator shall take any such action as in its discretion
shall be necessary to maintain the Grantee’s rights hereunder so that they are
substantially proportionate to the rights existing under this Agreement prior
to such event, including but not limited to, adjustments in the number of LTIP
Units then subject to this Agreement.

 

2

 

5.             Legend.  The records of the LLC evidencing the Award
LTIP Units shall bear an appropriate legend, as determined by the LLC in its
sole discretion, to the effect that such LTIP Units are subject to restrictions
as set forth herein, in the Plan and in the LLC Agreement.

 

6.             Restrictions on Transfer.  None of the Award LTIP Units shall be sold,
assigned, transferred, pledged, hypothecated, given away or in any other manner
disposed of, encumbered, whether voluntarily or by operation of law (each such
action a “Transfer”), or converted into Membership Units in accordance
with the LLC Agreement (a) prior to vesting, or (b) unless such Transfer is in
compliance with all applicable securities laws (including, without limitation,
the Securities Act of 1933, as amended (the “Securities Act”)), and such
Transfer is in accordance with the applicable terms and conditions of the LLC
Agreement; provided that, upon the approval of, and subject to the terms and
conditions specified by, the Administrator, unvested Award LTIP Units may be
Transferred to members of the Grantee’s Immediate Family, which for purposes of
this Agreement shall include family limited partnerships and similar entities
which are primarily for the benefit of the Grantee and his or her Immediate
Family, provided that the transferee agrees in writing with the Company and the
LLC to be bound by all of the terms and conditions of this Agreement.  In connection with any Transfer of Award LTIP
Units, the LLC may require the Grantee to provide an opinion of counsel,
satisfactory to the LLC, that such Transfer is in compliance with all federal
and state securities laws (including, without limitation, the Securities
Act).  Any attempted Transfer of Award
LTIP Units not in accordance with the terms and conditions of this Section 6
shall be null and void, and the LLC shall not reflect on its records any change
in record ownership of any LTIP Units as a result of any such Transfer, shall
otherwise refuse to recognize any such Transfer and shall not in any way give
effect to any such Transfer of any LTIP Units.  
This Agreement is personal to the Grantee, is non-assignable and is not
transferable in any manner, by operation of law or otherwise, other than by
will, the laws of descent and distribution or the transfer provisions specified
above in this Section 6.

 

7.             Incorporation of Plan.  The provisions of the Plan are hereby
incorporated by reference as if set forth herein.  If and to the extent that any provision
contained in this Agreement is inconsistent with the Plan, this Agreement shall
govern.

 

8.             Investment Representation;
Registration  The Grantee hereby
makes the covenants, representations and warranties set forth on Exhibit B
attached hereto as of the date of acceptance of this Agreement and each Vesting
Date.  All of such covenants, warranties
and representations shall survive the execution and delivery of this Agreement
by the Grantee.  The Grantee shall
immediately notify the LLC upon discovering that any of the representations or
warranties set forth on Exhibit B were false when made or have, as a
result of changes in circumstances, become false.  The LLC will have no obligation to register under
the Securities Act any LTIP Units or any other securities issued pursuant to
this Agreement or upon conversion or exchange of the LTIP Units.

 

9.             Section 83(b) Election.  The Grantee hereby agrees to make an election
to include in gross income in the year of transfer the Award LTIP Units
pursuant to Section 83(b) of the Code substantially in the form attached hereto
as Exhibit C and to supply the necessary information in accordance with
the regulations promulgated thereunder.

 

3

 

10.           Amendment.  The Grantee acknowledges that the Plan may be
amended or discontinued in accordance with Section 12 thereof and that this
Agreement may be amended or canceled by the Administrator of the Plan, on
behalf of the LLC, for the purpose of satisfying changes in law or for any
other lawful purpose, provided that no such action shall impair the Grantee’s
rights under this Agreement without the Grantee’s written consent.

 

11.           Withholding and Taxes.  No later than the date as of which an amount
first becomes includible in the gross income of the Grantee for income tax
purposes or subject to the Federal Insurance Contributions Act withholding with
respect to the Award LTIP Units, the Grantee will pay to the Company or, if appropriate,
any of its affiliates, or make arrangements satisfactory to the Administrator
regarding the payment of, any United States federal, state or local or foreign
taxes of any kind required by law to be withheld with respect to such amount.  The obligations of the Company under this
Agreement will be conditional on such payment or arrangements, and the Company
and its affiliates shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Grantee.

 

12.           No Obligation to Continue
Employment.  Neither the Company, the
LLC nor any subsidiary of any of them is obligated by or as a result of the
Plan or this Agreement to continue to have the Grantee provide services to it
or to continue the Grantee in employment and neither the Plan nor this
Agreement shall interfere in any way with the right of the Company, the LLC or
any subsidiary of any of them to terminate its relationship with the Grantee or
the employment of the Grantee at any time.

 

13.           Notices.  Notices hereunder shall be mailed or
delivered to the LLC at its principal place of business and shall be mailed or
delivered to the Grantee at the address on file with the LLC or, in either
case, at such other address as one party may subsequently furnish to the other
party in writing.

 

14.           Section 409A. If any
compensation provided by this Agreement may result in the application of
Section 409A of the Code, the Company shall, in consultation with the
Executive, modify the Agreement in the least restrictive manner necessary in order
to, where applicable, (a) exclude such compensation from the definition of
“deferred compensation” within the meaning of such Section 409A or
(b) comply with the provisions of Section 409A, other applicable
provision(s) of the Code and/or any rules, regulations or other regulatory
guidance issued under such statutory provisions and to make such modifications,
in each case, without any diminution in the value of the payments to the Executive

 

15.           Governing Law.  This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, applied
without regard to conflict of law principles. 
The parties hereto agree that any action or proceeding arising directly,
indirectly or otherwise in connection with, out of, related to or from this
Agreement, any breach hereof or any action covered hereby, shall be resolved
within the State of New York and the parties hereto consent and submit to the
jurisdiction of the federal and state courts located within the City of New
York, New York.  The parties hereto
further agree that any such action or proceeding brought by either party to
enforce any right, assert any claim, obtain any relief whatsoever in connection
with this Agreement shall be brought by such party exclusively in federal or
state courts located within the State of New York.

 

4

 

(Signature
Page Follows)

 

5

 

IN
WITNESS WHEREOF, the undersigned have caused this Agreement to be executed as
of the      day of                 ,
2006.

 

	
   

  	
  MORGANS HOTEL GROUP CO.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MORGANS GROUP LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Morgans Hotel Group Co., its

  managing member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GRANTEE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Address:

  
						

 

6

 

EXHIBIT A

 

FORM OF MEMBER SIGNATURE PAGE

 

The Grantee, desiring to become one of the within
named Members of Morgans Group LLC, hereby accepts all of the terms and conditions
of, and becomes a party to, the Limited Liability Company Agreement of Morgans
Group LLC (the “LLC Agreement”). 
The Grantee agrees that this signature page may be attached to any
counterpart of the LLC Agreement.

 

Signature Line for Member:

 

	
   

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Date:

  
	
   

  	
   

  
	
   

  	
  Address of Member:

  

 

 

EXHIBIT B

 

GRANTEE’S COVENANTS, REPRESENTATIONS AND
WARRANTIES

 

The Grantee hereby represents, warrants and covenants
as follows:

 

(a)           The Grantee has received and had an
opportunity to review the following documents (the “Background Documents”):

 

(i)            The
Company’s latest Annual Report to Stockholders that has been provided to
stockholders after the Company’s initial public offering, if available;

 

(ii)           The
Company’s Proxy Statement for its most recent Annual Meeting of Stockholders
following the Company’s initial public offering, if available;

 

(iii)          The
Company’s Report on Form 10-K for the fiscal year most recently ended following
the Company’s initial public offering, if available;

 

(iv)          If
any of the documents described in clauses (i) – (iii) above or (v) or (vi)
below is not available, the Company’s Registration Statement on Form S-1
registering the Company’s initial public offering of its common stock;

 

(v)           The
Company’s Form 10-Q for the most recently ended quarter if one has been filed
by the Company with the Securities and Exchange Commission since the filing of
the Form 10-K described in clause (iii) above or, if a Form 10-K has not been
filed by the Company, since the filing of the Form S-1 described in clause (iv)
above;

 

(vi)          Each
of the Company’s Current Report(s) on Form 8-K, if any, filed since the later
of the end of the fiscal year most recently ended for which a Form 10-K has
been filed by the Company or the filing of the Form S-1 described in clause (iv)
above;

 

(vii)         The
LLC Agreement;

 

(viii)        The
Plan; and

 

(ix)           The
Company’s Certificate of Incorporation, as amended.

 

The Grantee also acknowledges that any delivery of the
Background Documents and other information relating to the Company and the LLC
prior to the determination by the LLC of the suitability of the Grantee as a
holder of LTIP Units shall not constitute an offer of LTIP Units until such
determination of suitability shall be made.

 

(b)           The Grantee hereby represents and
warrants that

 

 

(i)            The
Grantee either (A) is an “accredited investor” as defined in Rule 501(a) under
the Securities Act of 1933, as amended (the “Securities Act”), or
(B) by reason of the business and financial experience of the Grantee,
together with the business and financial experience of those persons, if any,
retained by the Grantee to represent or advise him, her or it with respect to
the grant to him, her or it of LTIP Units, the potential conversion of LTIP
Units into common units of the LLC (“Common Units”) and the potential
redemption of such Common Units for shares of common stock (“Shares”),
has such knowledge, sophistication and experience in financial and business
matters and in making investment decisions of this type that the Grantee (I) is
capable of evaluating the merits and risks of an investment in the LLC and
potential investment in the Company and of making an informed investment
decision, (II) is capable of protecting his, her or its own interest or has
engaged representatives or advisors to assist him, her or it in protecting his,
her or its interests, and (III) is capable of bearing the economic risk of such
investment.

 

(ii)           The
Grantee understands that (A) the Grantee is responsible for consulting his, her
or its own tax advisors with respect to the application of the U.S. federal
income tax laws, and the tax laws of any state, local or other taxing
jurisdiction to which the Grantee is or by reason of the award of LTIP Units
may become subject, to his, her or its particular situation; (B) the Grantee has
not received or relied upon business or tax advice from the Company, the LLC or
any of their respective employees, agents, consultants or advisors, in their
capacity as such; (C) the Grantee provides or will provide services to the LLC
on a regular basis and in such capacity has access to such information, and has
such experience of and involvement in the business and operations of the LLC,
as the Grantee believes to be necessary and appropriate to make an informed
decision to accept this Award of LTIP Units; and (D) an investment in the LLC
and/or the Company involves substantial risks. 
The Grantee has been given the opportunity to make a thorough
investigation of matters relevant to the LTIP Units and has been furnished
with, and has reviewed and understands, materials relating to the LLC and the
Company and their respective activities (including, but not limited to, the
Background Documents).  The Grantee has
been afforded the opportunity to obtain any additional information (including
any exhibits to the Background Documents) deemed necessary by the Grantee to
verify the accuracy of information conveyed to the Grantee.  The Grantee confirms that all documents,
records, and books pertaining to his, her or its receipt of LTIP Units which
were requested by the Grantee have been made available or delivered to the
Grantee.  The Grantee has had an
opportunity to ask questions of and receive answers from the LLC and the
Company, or from a person or persons acting on their behalf, concerning the
terms and conditions of the LTIP Units. The Grantee has relied
upon, and is making its decision solely upon, the Background Documents and
other written information provided to the Grantee by the LLC or the Company.  The Grantee did not receive any tax, legal or
financial advice from the LLC or the Company and, to the extent it deemed
necessary, has consulted with its own advisors in connection with its
evaluation of the Background Documents and this Agreement and the Grantee’s
receipt of LTIP Units.

 

(iii)          The
LTIP Units to be issued, the Common Units issuable upon conversion of the LTIP
Units and any Shares issued in connection with the redemption of

 

 

any
such Common Units will be acquired for the account of the Grantee for
investment only and not with a current view to, or with any intention of, a
distribution or resale thereof, in whole or in part, or the grant of any
participation therein, without prejudice, however, to the Grantee’s right
(subject to the terms of the LTIP Units, the Plan and this Agreement) at all times
to sell or otherwise dispose of all or any part of his or her LTIP Units,
Common Units or Shares in compliance with the Securities Act, and applicable
state securities laws, and subject, nevertheless, to the disposition of his or
her assets being at all times within his or her control.

 

(iv)          The
Grantee acknowledges that (A) neither the LTIP Units to be issued, nor the
Common Units issuable upon conversion of the LTIP Units, have been registered
under the Securities Act or state securities laws by reason of a specific
exemption or exemptions from registration under the Securities Act and
applicable state securities laws and, if such LTIP Units or Common Units are
represented by certificates, such certificates will bear a legend to such
effect, (B) the reliance by the LLC and the Company on such exemptions is
predicated in part on the accuracy and completeness of the representations and
warranties of the Grantee contained herein, (C) such LTIP Units, or Common
Units, therefore, cannot be resold unless registered under the Securities Act
and applicable state securities laws, or unless an exemption from registration
is available, (D) there is no public market for such LTIP Units and Common
Units and (E) neither the LLC nor the Company has any obligation or intention
to register such LTIP Units or the Common Units issuable upon conversion of the
LTIP Units under the Securities Act or any state securities laws or to take any
action that would make available any exemption from the registration
requirements of such laws, except, that, upon the redemption of the Common
Units for Shares, the Company currently intends to issue such Shares under the
Plan and pursuant to a Registration Statement on Form S-8 under the Securities
Act, to the extent that (I) the Grantee is eligible to receive such Shares
under the Plan at the time of such issuance, (II) the Company has filed an
effective Form S-8 Registration Statement with the Securities and Exchange
Commission registering the issuance of such Shares.  The Grantee hereby acknowledges that because
of the restrictions on transfer or assignment of such LTIP Units acquired
hereby and the Common Units issuable upon conversion of the LTIP Units which
are set forth in the LLC Agreement or this Agreement, the Grantee may have to bear
the economic risk of his, her or its ownership of the LTIP Units acquired
hereby and the Common Units issuable upon conversion of the LTIP Units for an
indefinite period of time.

 

(v)           The
Grantee has determined that the LTIP Units are a suitable investment for the
Grantee.

 

(vi)          No
representations or warranties have been made to the Grantee by the LLC or the
Company, or any officer, director, shareholder, agent, or affiliate of any of
them, and the Grantee has received no information relating to an investment in
the LLC or the LTIP Units except the information specified in Paragraph (b)
above.

 

(c)           So long as the Grantee holds any LTIP
Units, the Grantee shall disclose to the LLC in writing such information as may
be reasonably requested with respect to ownership

 

 

of LTIP Units as the LLC may deem reasonably necessary
to ascertain and to establish compliance with provisions of the Internal
Revenue Code of 1986, as amended (the “Code”), applicable to the LLC or
to comply with requirements of any other appropriate taxing authority.

 

(d)           The Grantee hereby agrees to make an
election under Section 83(b) of the Code with respect to the LTIP Units
awarded hereunder, and has delivered with this Agreement a completed, executed
copy of the election form attached hereto as Exhibit C.  The Grantee agrees to file the election (or
to permit the LLC to file such election on the Grantee’s behalf) within
thirty (30) days after the Award of the LTIP Units hereunder with the IRS
Service Center at which such Grantee files his or her personal income tax
returns, and to file a copy of such election with the Grantee’s U.S. federal
income tax return for the taxable year in which the LTIP Units are awarded to
the Grantee.

 

(e)           The address set forth on the
signature page of this Agreement is the address of the Grantee’s principal
residence, and the Grantee has no present intention of becoming a resident of
any country, state or jurisdiction other than the country and state in which
such residence is sited.

 

(f)            The representations of the Grantee
as set forth above are true and complete to the best of the information and
belief of the Grantee, and the LLC shall be notified promptly of any changes in
the foregoing representations.

 

 

EXHIBIT C

 

ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF

TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)

OF THE INTERNAL REVENUE CODE

 

The undersigned hereby makes an election pursuant to
Section 83(b) of the Internal Revenue Code with respect to the property
described below and supplies the following information in accordance with the
regulations promulgated thereunder:

 

1.                                       The name, address and taxpayer
identification number of the undersigned are:

 

Name:
                                       
(the “Taxpayer”)

 

Address: 

 

Social Security No./Taxpayer Identification No.:

 

2.                                       Description of property with respect to
which the election is being made:

 

The election is being
made with respect to               
LTIP Units in Morgans Group LLC (the “LLC”).

 

3.                                       The date on which the LTIP Units were
transferred is                   ,
2006.  The taxable year to which this
election relates is calendar year 2006.

 

4.                                       Nature of restrictions to which the LTIP
Units are subject:

 

(a)                                  With limited exceptions, until the LTIP
Units vest, the Taxpayer may not transfer in any manner any portion of the LTIP
Units without the consent of the LLC.

 

(b)                                 The Taxpayer’s LTIP Units vest in
accordance with the vesting provisions described in the Schedule attached
hereto.  Unvested LTIP Units are
forfeited in accordance with the vesting provisions described in the Schedule
attached hereto.

 

5.                                       The fair market value at time of transfer
(determined without regard to any restrictions other than restrictions which by
their terms will never lapse) of the LTIP Units with respect to which this
election is being made was $0 per LTIP Unit.

 

6.                                       The amount paid by the Taxpayer for the
LTIP Units was $0 per LTIP Unit.

 

 

7.                                       A copy of this statement has been
furnished to the LLC and to its managing member, Morgans Hotel Group Co.

 

	
  Dated:                      ,
  2006

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  

 

 

Schedule to Section 83(b) Election -Vesting
Provisions of LTIP Units

 

LTIP Units are subject to time-based vesting with
one-third (1/3) vesting on the first (1st) anniversary of the date
of grant and the remaining two-thirds (2/3) vesting in equal monthly
installments over the twenty-four (24) month period thereafter, provided that
the Taxpayer remains an employee of the Morgans Hotel Group Co. (the “Company”)
or its subsidiaries through such dates, subject to acceleration in the event of
certain extraordinary transactions. 
Unvested LTIP Units are subject to forfeiture in the event of failure to
vest based on the passage of time and continued employment with the Company or
its subsidiaries.Filed by Automated Filing Services Inc. (604) 609-0244 - Garuda Capital Corp. - Exhibit 10.1

	Exhibit 10.1 
	 
	GARUDA CAPITAL CORP. 
	 
	2005 INCENTIVE
      STOCK OPTION PLAN 

SECTION 1 
INTRODUCTION 

1.1         
Establishment. Garuda Capital Corp. (the “Company”), a Nevada
corporation, hereby establishes the Garuda Capital Corp. 2005 Stock Option Plan
(the “Plan”) for employees, consultants, directors, and other persons associated
with the Company and any of the Company’s subsidiaries, whom the Board wishes to
incentivise. Garuda Capital Corp., together with its affiliated corporations, as
defined in Section 2.1 hereafter, are referred to as the “Company”, except where
the context otherwise requires. 

1.2          
Purposes. The purposes of this Plan are to (i) attract and retain the
best available personnel for positions of responsibility within the Company (ii)
provide incentives to employees, officers, and management of the Company, (iii)
provide Directors, Consultants and Advisors of the Company with an opportunity
to acquire a proprietary interest in the Company to encourage their continued
provision of services to the Company, and to provide such persons with
incentives and rewards for superior performance more directly linked to the
profitability of the Company's business and increases in shareholder value, and
(iv) generally to promote the success of the Company's business and the
interests of the Company and all of its stockholders, through the grant of
options to purchase shares of the Company's Common Stock.

                 Incentive
benefits granted hereunder may be either Incentive Stock Options, Non-qualified
Stock Options, stock awards, Restricted Shares or cash awards. The types of
options or other incentives granted shall be determined by the board or the
Compensation Committee and reflected in the terms of written agreements. 

SECTION 2 
DEFINITIONS 

2.1          
Definitions. The following terms will have the meanings set forth
below: 

“Affiliated Corporation” means any corporation or other
entity (including, but not limited to, a partnership) that is affiliated with
the Company through stock ownership or otherwise, and includes subsidiaries of
the Company. 

“Board” means the Board of Directors of the
  Company.

“Code” means the Internal Revenue Code of the USA or the
Income Tax Act of Canada, as it may be amended form time to time, and as
appropriate to the context and as applies to the Eligible Participant.

“Effective Date” means the effective date of the Plan,
which will be upon approval of the shareholders of the Company. 

“Eligible Participants” means any employees
  (including, without limitation, all officers), directors, consultants and any
  other persons whom the Board wishes to incentivise to contribute to the fortunes
  of the Company and permitted by law or policy to receive options.

“Fair Value” means the value of a Share of Stock as
determined by the Stock Option Committee acting in good faith and in its sole
discretion in accordance with this Agreement. Notwithstanding 

2

the above, if the Stock is actively traded in an established
stock or quotation market, “Fair Value” will mean the officially quoted
closing price of the Stock on such exchange (a “National Exchange”) on a
particular date selected by the Stock Option Committee in establishing the
purchase price of Shares of the Option.

“Stock Option Committee” means the Compensation
Committee of the Company, unless the Board strikes a separate committee, and in
the absence of an empowered committee shall mean the Board. 

“Non-Statutory Option” means an Option granted under
this Plan in accordance with the requirements of the Code, as amended from time
to time. 

“Option” means a right to purchase Stock of the Company
granted under this Plan at a stated price for a specified period of time. 

“Option Price” means the price at which shares of Stock
subject to an Option may be purchased, determined in accordance with this
Agreement and as established by the Stock Option Committee and contracted by the
Option contract. 

“Option Holder” means an Eligible Participant designated
by the Stock Option Committee from time to time during the term of the Plan to
receive one or more Options under the Plan. 

“Plan Limit” shall have the meaning set forth
  in section 4.1. 

“Share” or “Shares” means a
  share or shares of Stock. 

“Stock” means the common stock of the Company.

2.2          
  Gender and Number.  Except where otherwise indicated by the context,
  the masculine gender also will include the feminine gender, and the definition
  of any term herein in the singular also will include the plural.

SECTION 3 
PLAN ADMINISTRATION 

3.1          
Stock Option Committee. The Stock Option Committee will administer the
Plan. In accordance with the provisions of the Plan, the Stock Option Committee
will, in accordance with policies ordered by the Board but in the absence of
board direction in its sole discretion, select the Eligible Participants to whom
Options will be granted, the form of each Option, the amount of each Option, and
any other terms and conditions of each Option as the Stock Option Committee may
deem necessary and consistent with the terms of the Plan. The Stock Option
Committee will determine the form or forms of the agreements with Option
Holders. The agreements will evidence the particular provisions, terms,
conditions, rights and duties of the Company and the Option Holders with respect
to Options granted pursuant to the Plan, which provisions need not be identical
except as may be provided herein. The Stock Option Committee may from time to
time adopt such rules and regulations for carrying out the purposes of the Plan
as it may deem proper and in the best interests of the Company. The Stock Option
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any agreement entered into hereunder in the
manner and to the extent it may deem expedient and it will be the sole and final
judge of such expediency. No member of the Stock Option Committee will be liable
for any action or determination made in good faith, and all members of the
Committee will, in addition to their rights as directors, be fully protected by
the Company with respect to any such action, determination or interpretation.
The determinations, interpretations and other actions of the Stock Option
Committee pursuant to the provisions of the Plan will be binding and conclusive
for all purposes and on all persons. 

3

SECTION 4 
STOCK SUBJECT TO THE PLAN AND EXCEPTIONS 

4.1          
Plan limit. A maximum of 8,000,000 Shares (“Plan Limit”) are
authorized for issuance under the Plan in accordance with the provisions of the
Plan. Shares that are issued upon the exercise of Options will be deducted from
the Plan Limit and such Plan Limit shall not be increased without approval of
the board or, if shareholders of the Company have so required, without approval
of the shareholders of the Company. While any Options are outstanding, the
Company will retain as authorized and unissued Stock at least the number of
Shares from time to time required under the provisions of the Plan or otherwise
assure itself of its ability to perform its obligations hereunder. 

4.2          
Unused and Forfeited Stock. Any Shares that are subject to an Option under
this Plan that are not used because the terms and conditions of the Option are
not met or any Shares that are used for full or partial payment of the purchase
price of Shares with respect to which an Option is exercised or any Shares
retained by the Company for any purpose of this Plan automatically will be
returned to the Plan Limit and become available for again for use under the
Plan. 

4.3          
Adjustments for Stock Split, Stock Dividend, Etc. If the Company at any time
increases or decreases the number of its outstanding Shares of Stock, or changes
in any way the rights and privileges of such Shares by means of the Payment of a
Stock dividend or any other distribution upon such Shares payable in Stock, or
through a stock split, subdivision, consolidation, combination, reclassification
or recapitialization involving the Stock, then, in relation to the Stock that is
affected by the above events, the provisions of this Section 4.3 will apply. In
such event, the numbers, rights and privileges of the following will be
increased, decreased or changed in like manner as if such shares had been issued
and outstanding, fully paid and nonassessable at the time of such event: 

(i)          
adjustment to the Shares of Stock as to which Options may be granted under
the Plan; and

(ii)          adjustment
to the exercise price of each outstanding Option granted hereunder. 

4.4          
General Adjustment Rules. If any adjustment or substitution provided for in
this Section 4 will result in the creation of a fractional Share under any
Option, the number of Shares subject to the Option will be rounded to the next
higher Share. 

4.5          
Determination by Stock Option Committee, Etc. Adjustments under this
Section 4 will be made by the Stock Option Committee, whose determinations with
regard thereto will be final and binding upon all parties. 

4.6          
Options Exceptional to Plan. With the concurrence of the board, the Stock
Option Committee may grant Options outside the Plan or within the Plan but in
excess of the Plan Limit, such that the available Plan Limit is not diminished,
for exceptional circumstances or to acquire or retain personnel or achieve
important goals or strategic targets considered important to the Company but
which cannot reasonably be fit into the Plan Limit or the Plan due to
insufficiency of available Plan Options, legal impediments whereby the recipient
cannot or is best not included in the Plan, or other purposes or reasons
considered appropriate to the board. 

4

SECTION 5 
REORGANIZATION OR LIQUIDATION 

5.1          
Reorganization and Options. In the event that the Company is merged or
consolidated with another corporation (other than a merger or consolidation in
which the Company is the continuing corporation and that does not result in any
reclassification or change of outstanding Shares), or if all or substantially
all of the assets or control of the outstanding voting stock of the Company is
acquired by any other corporation, business entity or person (other than by a
sale or conveyance in which the Company continues as a holding company of an
entity or entities that conduct the business of businesses formerly conducted by
the Company), or in case of a reorganization (other than a reorganization under
the United States Bankruptcy Code) or liquidation of the Company, the Stock
Option Committee will have the power and discretion to prescribe the terms and
conditions for the exercise or modification of any outstanding Options granted
hereunder. By way of illustration, and not by way of limitation, the Stock
Option Committee may provide for the complete or partial acceleration of the
dates of exercise of the Options, or may provide that such Options will be
exchanged or converted into options to acquire securities of the surviving or
acquiring cooperation, or may provide for a payment or distribution in respect
of outstanding Options (or the portion thereof that currently is exercisable) in
cancellation thereof. The Stock Option Committee may provide that Options must
be exercised in connection with the closing of such transaction and that if not
so exercised such Options will expire. Any such determinations by the Stock
Option Committee may be made generally with respect to all Option Holders, or
may be made on a case-by-case bases with respect to particular Option Holders.
The provisions of this Section 5 will not apply to any transaction undertaken
for the purpose of reincorporating the Company under the laws of another
jurisdiction, if such transaction does not materially affect the beneficial
ownership of the Company’s capital stock. Any determination by the Stock Option
Committee hereunder shall not amend the terms of any Option without the consent
of the Option Holder unless, in the opinion of the Committee acting reasonably,
such amendment is necessary to permit the alterations to the Company to be
effected and such is in the interest of shareholders generally. 

SECTION 6 
STOCK OPTIONS 

6.1          
Grant of Options. An Eligible Participant may be granted one or more
Options. Options granted under the Plan will be Non-Statutory Options. 

6.2          
Option Agreements. Each Option granted under the Plan will be evidenced by a
written stock option agreement that will be entered into by the Company and the
Eligible Participant to whom the Option is granted (the “Option Holder”), and
will be deemed to contain the following terms and conditions, unless other terms
and conditions inconsistent therewith have been entered into the Option
agreement. In the event of inconsistency between the provisions of the Plan and
any Option agreement entered into, the provisions of the Option agreement will
be considered to have been determined to be exceptional from the below and such
Option Agreement shall govern where not inconsistent with law. However, the
provisions of the Plan will govern where the agreement omits to provide for a
matter governed by the Plan and the agreement will not be incomplete nor
unenforceable if it fails to provide for a matter provided by the terms of this
Plan as such shall be incorporated by reference: 

(a) Number of Shares. Each Stock option agreement will
state that it covers a specified number of Shares, as determined by the Stock
Option Committee and the agreement. If the agreement fails to state the number
then it shall be the number set forth in the minutes of the Stock Option
Committee. 

(b) Price. The price at which each Share covered by an
Option may be purchased will be determined by the Stock Option Committee and set
forth in the Stock Option agreement. Where 

5

the price shall be omitted the price shall be the Fair Market
Value of the Stock on the date set forth at the beginning of the Option
agreement. 

(c) Vesting Period. Each Stock Option will state the
time and the amount of the Shares of the Option which vest, and are exercisable
thereafter, at specified times during the Option Period. Unless otherwise
provided in the Option agreement, Options will vest and be exercisable for types
of Option Holders as follows: 

(i)          
Directors and senior officers to Vice-President - 50% of the amount of the
Shares under Option upon granting and 50% twelve months thereafter; 

(ii)          Employees
Generally - 10% at the end of the later of any probation period pursuant to
which the Employee is continued or three months from the date of engagement and
5% at the end of each calendar month thereafter; and 

(iii)         Other
Option Holders - 10% at the end of the first 30 days of engagement, 20% upon
completion of 50% of the term, where a particular term, or upon 50% of project
completion, where project contract specific, and the remainder upon, and for a
period of 30 days thereafter, the Company certifying substantial satisfaction,
acting reasonably, with contract and/or project completion.

(d) Duration of Options. Each Stock option agreement
will state the period of time within which the Option may be exercised by the
Option Holder (the “Option Period”). The Option Period shall expire not more
than five years from the date an Option is granted. Unless otherwise stated,
director and senior officer Options shall be the lesser of five years or the
term of their office plus 90 days, Employee Options the lesser of five years or
the term of their employment plus 30 days, and other Option Holders the lesser
of five years or the term of the engagement agreement plus 30 days. 

(e) Termination of Employment, Death, Disability Etc.
Except as otherwise determined by the Stock Option Committee, each Stock
Option agreement will provide as follows with respect to the exercise of the
Option upon termination of the employment or the death of the Option Holder:

(i)          
Termination. If the Option Holder’s employment or office with the Company
is terminated within the Option Period for cause, as determined by the Company
in its sole discretion, or if the Option Holder resigns without appropriate or
agreed notice and agreed termination terms, the Option will be void for all
purposes immediately upon notice of termination or resignation, as the case may
be, unless otherwise agreed solely at the discretion of the Company. Unless
specified in an engagement agreement, “cause” means a material violation, as
determined by the Company, of the Company’s established policies and procedures
and the terms of engagement and a failure to rectify within 15 days of notice.
If the Option Holder is terminated for another reason, not provided for below or
in the engagement agreement or the Option agreement, then the Option shall be
exercisable, as to the vested portion only on the date of termination, for a
period of 30 days after termination, except as otherwise permitted by the sole
discretion of the Stock Option Committee but not to exceed the Option Period.
The effect of this Section will be limited to determining the consequences of a
termination and nothing in this Section will restrict or otherwise interfere
with the Company’s discretion with respect to the termination of any Employee.

(ii)          Death
or Disability. If the Option Holder’s employment with the Company is
terminated within the Option Period because of the Option Holder’s death or
disability the Option will remain exercisable, to the extent that it was vested
and exercisable on the date of the Option Holder’s death or disability, for a
period of six months after such date; provided, however, that in no event may
the Option be exercised after the expiration of the Option Period. 

6

(iii)         Non-Employees
or non-Office Holders. For all purposes under this Section, an Eligible
Participant who is not an Employee or office holder of the Company will be
considered to have a termination at the conclusion of the relevant contract or
upon notice by the Company of termination for default or breach of agreement. If
the contract is terminated for breach or default then the Option shall terminate
immediately. Otherwise the Option shall terminate in accordance with its terms
or section 6.2(d) above. 

(f) Transferability of Option. Each stock option
agreement will provide that the Option and exercise rights granted therein are
not transferable or subject to assignment or lien for security purposes by the
Option Holder except to the Option Holder’s legal representative, his estate, a
family corporation or personal holding corporation, a bona fide lender or in
such other circumstance as the Stock Option Committee may approve in its sole
discretion, which may be exercised contrary without reason. Each assignment of
an interest in an Option must be approved before such will be enforceable. 

(g) Exercise, Payments, Etc. Unless otherwise provided
by the Stock Option agreement the method for exercising the Option granted will
be by delivery to the office of the Company of written notice specifying the
particular Option (or portion thereof) that is being exercised and the number of
Shares with respect to which such Option is exercised, together with payment of
the Option Price. The exercise of the Option will be deemed effective upon
actual receipt of such notice and payment to the Company of the Option Price in
a form satisfactory to the Company, acting reasonably. The purchase of such
Stock will take place at the principal offices of the Company upon delivery of
such notice. A properly executed certificate or certificates representing the
Stock will be issued by the Company and delivered to the Option Holder with
reasonable dispatch. Unless restricted by the Option agreement, the exercise
price shall be paid by any of the following methods or any combination of the
following methods: 

(i)          
in cash; 

(ii)          by
cashier’s check, certified cheque, or other acceptable banker’s note payable to
the order of the Company; 

(iii)         by
delivery to the Company of a properly executed notice of exercise together with
irrevocable instructions (referred to in the industry as ‘delivery against
payment’) to a broker to deliver to the Company promptly the amount of the
proceeds of the sale of all or a portion of the Stock or of a loan from the
broker to the Option Holder necessary to pay the exercise price; or 

(iv)         such
other method as the Option Holder and the Stock Option Committee may determine
as adequate including delivery of acceptable securities (including securities of
the Company), set-off for wages or invoices due, property, or other adequate
value. 

In the discretion of the Stock Option Committee, the Company
may grant a loan or guarantee a third-party loan obtained by an Option Holder to
pay part or all of the Option Price of the Shares provided that such loan or the
Company’s guaranty is secured by the Shares. 

(h) Date of Grant. An Option will be considered as
having been granted on the date specified in the grant resolution of the Stock
Option Committee. 

6.3          
Stockholder Privileges. Prior to the exercise of the Option and the transfer
of Shares to the Option Holder, an Option Holder will have no rights as a
stockholder with respect to any Shares subject to any Option granted to such
person under this Plan and, until the Option Holder becomes the holder of the
record of such Stock, no adjustments, other than those described in Section 4,
will be made for dividends or other distributions or other rights to which there
is a record date preceding the date such Option Holder becomes the holder of
record of such Stock. 

7

SECTION 7 
RIGHTS OF EMPLOYEES AND OPTION HOLDERS 

7.1          
Employment. Nothing contained in the Plan or in any Option will confer upon
any Eligible Participant any right with respect to the continuation of
employment by the Company, or interfere in any way with the right of the
Company, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of such Eligible Participant form the rate in existence at the
time of the grant of an Option.

SECTION 8 
GENERAL RESTRICTIONS 

8.1          
Investment representations. The Company may require any person to whom an
Option is granted, as a condition of exercising such Option or receiving Stock
under the Option, to give written assurances, in substance and form satisfactory
to the Company and its counsel, to the effect that such person is acquiring the
Stock subject to the Option for his own account for investment and not with any
present intention of selling and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
and provincial securities laws. Legends evidencing such restrictions may be
placed on the certificates evidencing the Stock. 

8.2          
Compliance with Securities Laws. Each Option will be subject to the
requirement that if at any time counsel to the Company determines that the
listing, registration or qualification of the Shares subject to such Option upon
any securities exchange or under any state, provincial or federal law, or the
consent or approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with, the issuance or purchase of Shares
thereunder, such Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval will have been
effected or obtained on conditions acceptable to the Stock Option Committee.
Nothing herein will be deemed to require the Company to apply for or to obtain
such listing, registration or qualification. However, where available to the
circumstances of an Option Holder the Company will include the Option with any
other filings that the Company elects, at its sole discretion, to file under S-8
or any other filings with the SEC but the Company shall not be obliged to make
an individual filing for a particular Option, unless such shall have been
required pursuant to the specific Option agreement. 

SECTION 9 
OTHER EMPLOYEE BENEFITS 

9.1          
Benefits and Taxes. The amount of any compensation deemed to be received by
an Option Holder as a result of the exercise of an Option will not constitute
“earnings” with respect to which any other employee benefits of such Option
Holder are determined, including, without limitation, benefits under any
pension, profit sharing, life insurance or salary continuation plan. Any taxable
consequences of any Option are entirely the responsibility of the Option Holder
and no contribution shall be required of the Company and, further, if the
Company should suffer liability for unpaid taxes of an Option Holder then the
full amount of such shall be a debt of the Option Holder to the Company payable
immediately and for which the Company may seek judgment and, before judgment or
process, may set-off against any amounts due to the Option Holder or may
recover, again before judgment or process, by exercise of any Options of the
Option Holder on the Option Holder’s behalf, at the discretion of the Stock
Option Committee.

8

SECTION 10 
PLAN AMENDMENT, MODIFICATION AND TERMINATION 

10.1          Amendment.
The Board may at any time terminate and, from time to time, may amend or
modify the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the stockholders
where stockholder approval is required to enable the Plan to satisfy any
applicable statutory requirements, or if the Company, on the advice of counsel,
determines that stockholder approval otherwise is necessary or desirable. 

No amendment, modification or termination of the Plan will in
any manner adversely affect any Options theretofore granted under the Plan,
without the consent of the Option Holders holding such Options. 

SECTION 11 
WITHHOLDING 

11.1          Withholding
Requirement. The Company’s obligations to deliver Shares upon the exercise
of an Option will be subject to the Option Holder’s satisfaction of all
applicable federal, state and local income and other tax withholding
requirements and applicable securities requirements. 

11.2          
  Withholding With Stock. At the time an Option is granted the Stock Option
  Committee, in its sole discretion, may permit the Option Holder to pay all such
  amounts of tax withholding, or any part thereof, that is due upon exercise of
  the Option by such adjustments as the Stock Option Committee determines, including
  adjustment to a net exercise price or adjustment to the Option Price.

SECTION 12 
BROKERAGE ARRANGEMENTS 

12.1           Brokerage.
The Stock Option Committee, in its discretion, may enter into arrangements
with one or more banks, brokers or other financial institutions to facilitate
the disposition of shares acquired upon exercise of Stock Options, including,
without limitation, arrangements for the simultaneous exercise of Stock Options
and sale of the Shares acquired upon such exercise. 

SECTION 13 
NONEXCLUSIVITY OF THE PLAN 

13.1           Other
Plans. The adoption of this Plan by the Board will not be construed as
creating any limitations on the power or authority of the Board to adopt such
other or additional incentive or other compensation arrangements of whatever
nature as the Board may deem necessary or desirable or preclude or limit the
continuation of any other plan, practice or arrangement for the payment of
compensation or fringe benefits to employees generally, or to any class or group
of employees, or any other persons that the Company or any Affiliated
Corporation now has lawfully put into effect, including, without limitation, any
retirement, pension, savings and stock purchase plan, insurance, death and
disability benefits and executive short-term incentive plans. 

9

SECTION 14 
REQUIREMENTS OF LAW 

14.1           Requirements
of Law. The insurance of Stock and the payment of cash pursuant to the Plan
will be subject to all applicable laws, rules and regulations. 

14.2           Governing
Law. The Plan and all agreements hereunder will be construed in accordance
with and governed by the laws of the State of Nevada. 

SECTION 15 
DURATION OF THE PLAN 

15.1           Termination.
The Plan will terminate at such time as may be determined by the Board, and no
Option will be granted after such termination. If not sooner terminated under
the preceding sentence, the Plan will fully cease and expire on the earlier of
one year from the date that the Plan Limit has been exhausted and all Options
exercised or expired or January 30, 2011. Options outstanding at the time of the
Plan termination may continue to be exercised in accordance with their terms.

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