Document:

skkynet_s1-ex1004.htm

Exhibit 10.4

 

AGREEMENT AND PLAN OF EXCHANGE

 

AGREEMENT AND PLAN OF EXCHANGE dated as of March 26, 2012, (the “Agreement”) between Skkynet Cloud Systems, Inc. (“SCSI”), a Nevada corporation, with its principal place of business at 162 Guelph Street, Suite 253, Georgetown, Ontario, L7G 5X7, Canada and Cogent Real-Time Systems Inc. (“CRTS”), a corporation organized under the federal laws of Canada, having its principal place of business at 162 Guelph Street, Suite 253, Georgetown, Ontario, L7G 5X7, Canada, and the stockholder(s) of CRTS listed on Schedule 1 hereto (the “CRTS Stockholders”).

 

RECITALS:

 

1. CRTS is an Ontario corporation, all of whose issued and outstanding shares are owned beneficially and of record by the CRTS Stockholders.

 

2. SCSI desires to exchange with the CRTS Stockholders a total of thirty million (30,000,000) restricted shares of its common stock that shall represent approximately sixty one percent (61.22%) of its issued and outstanding shares of common stock (the “CRTS SCSI Shares”) for all of the CRTS Shares (the “Exchange Transaction”), such that at the conclusion of the Exchange Transaction, CRTS will be a wholly owned subsidiary of SCSI.

 

3.  After the closing of the transaction in this Agreement and certain other contemplated issuances, SCSI shall have a total of forty-nine million (49,000,000) shares of common stock issued and outstanding (the “SCSI Shares”), of which 30,000,000 shares representing 61.22% shall be held in the aggregate by the CRTS Stockholders in the manner specified on Schedule 1 to this Agreement, and 38.78% or 19,000,000 shares shall be held in the aggregate by current shareholders of SCSI Shares.

 

NOW THEREFORE, in consideration of the foregoing recitals and the mutual covenants and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

 

ARTICLE I

 

THE EXCHANGE TRANSACTION

 

Section 1.1  The Closing of the Exchange Transaction. Subject to the provisions of this Agreement, the Exchange Transaction will occur within five (5) business days after the satisfaction or waiver of the last to be fulfilled of the conditions set forth in this Article I and in Article III that by their terms are to occur prior to the closing of the Exchange Transaction, but in all events within thirty (30) days from the execution and delivery of this Agreement (the “Closing Date”), at the offices of Sol V. Slotnik, P.C., 11 East 44th Street-19th Floor, New York, NY 10017 unless another time, date or place is agreed to in writing by the parties hereto (the “Closing”).  Any party to this Agreement, including such party’s representative may participate in the Closing by telephone.

 

Section 1.2  The Events at the Closing. At the Closing, all events shall be deemed to occur simultaneously and no event shall be deemed completed until all the events described below have been completed.  All parties to this Agreement acknowledge that certain numbers of shares and amounts are described in approximations, and that these numbers will be finalized between the execution date of this Agreement and the Closing; provided, however, that all parties agree that at the conclusion of the events described below at the Closing and certain share issuances subsequent to the Closing: (1) the CRTS Stockholders shall own 30,000,000 shares of SCSI Common Stock that shall represent 61.22% of all of the SCSI shares of Common Stock issued and outstanding, and (2) the current stockholders of SCSI shall own 19,000,000 shares of SCSI Common Stock that shall represent 38.78% of all of the SCSI shares of Common Stock issued and outstanding, and (3) SCSI shall own 100% of the issued and outstanding shares of stock of CRTS.

 

  

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Prior to the Closing, each of the designated parties shall have performed the actions described below:

 

(i) SCSI and CRTS shall each be in good standing under the regulatory authorities in their respective jurisdictions of formation and organization.

 

(ii) SCSI and CRTS each shall have satisfied the due diligence requests of the other party, and paid for their respective due diligence efforts and activities.

 

(iii) The current directors of SCSI and current SCSI stockholders holding of record and beneficially more than fifty-one percent (51%) of the issued and outstanding SCSI Shares shall vote in favor of the transactions described in this Agreement and give notice thereof to the remaining stockholders of SCSI in accordance with the requirements of the Nevada Private Corporations Law (“NPCL”).

 

(iv) SCSI shall file timely all regulatory filings as may be required under United States and foreign law in connection with the Exchange Transaction.

 

At the Closing:

 

(i) All the conditions to Closing enumerated above shall have been satisfied or waived by the party entitled to the benefit thereof.

 

(ii) The CRTS Stockholders shall deliver a stock certificate(s) for all of the CRTS Shares, duly endorsed for transfer with stock power and signature guaranteed and assigned to SCSI.  At the time of assignment, the CRTS Stockholders shall own the CRTS Shares of record and beneficially, free and clear of all claims, liens, encumbrances, taxes, charges, judgments, pledges, restrictions or other clouds on title of any kind (together “Claims”).

 

(iii) SCSI will issue certificates for the numbers of restricted shares of CRTS SCSI common stock to the CRTS Stockholders as shall comply with the issuance requirements in Recital 3 and Section 1.2 of this Agreement.

 

ARTICLE II

 

REPRESENTATIONS AND WARRANTIES OF SCSI

 

Section 2.1  Representations and Warranties of SCSI.  SCSI represents and warrants to CRTS and the CRTS Stockholders as follows, and to the extent there are any exceptions to the representations and warranties set forth below, SCSI will note them in the SCSI Disclosure Schedule attached to this Agreement:

 

  

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Section 2.1.1   Organization, Standing and Power.  SCSI is a corporation duly organized and validly existing and in good standing under the laws of the State of Nevada, has all requisite power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted, and is duly qualified and in good standing to do business in each jurisdiction in which a failure to so qualify would have a material adverse effect on the business of SCSI.

 

Section 2.1.2   Capital Structure.

 

(a) The authorized capital stock of SCSI consists of (i) 75,000,000 shares of SCSI Common Stock, $0.001 par value, (“SCSI Common Shares”) of which as at March 25, 2012, there are approximately 19,000,000 shares of SCSI common stock issued and outstanding before taking into account the share issuances contemplated by this Agreement and (ii) 5,000,000 preferred shares, of which 5,000 Series A Preferred Shares (the “Series A Preferred”) having the characteristics described in SCSI’s Certificate of Designation to be filed with the Nevada Secretary of State shall be issued and outstanding.

 

(b) All outstanding SCSI Shares are validly issued, fully paid, nonassessable and not subject to any preemptive rights, or to any agreement to which SCSI is a party or by which SCSI may be bound.  There are no options, warrants, calls, conversion rights, commitments, agreements, contracts, understandings, restrictions, arrangements or rights of any character to which SCSI is a party or by which SCSI may be bound (i) obligating SCSI to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the capital stock of SCSI, or (ii) obligating SCSI to grant, extend or enter into any such option, warrant, call, conversion right, conversion payment, commitment, agreement, contract, understanding, restriction, arrangement or right (iii) or obligating SCSI to issue any other form of debt or equity security.

 

           (c) All of the issued and outstanding SCSI Shares have been sold or granted in full compliance with all applicable federal and state securities laws, and SCSI has made all applicable federal and state securities laws filings required in connection with all such sales in a timely and complete manner.

 

Section 2.1.3  Authority.  The execution, delivery, and performance of this Agreement by SCSI and the transactions contemplated hereby have been duly authorized by all necessary action of the Board of Directors of SCSI, and are subject to ratification and approval by the shareholders of SCSI.  Certified copies of the resolutions adopted by the Board of Directors and shareholders of SCSI approving this Agreement and the Exchange Transaction will be provided to CRTS and the CRTS Stockholders.  SCSI has duly and validly executed and delivered this Agreement and each of the agreements contemplated hereby, and this Agreement and each of the agreements contemplated hereby constitutes a valid, binding, and enforceable obligation of SCSI in accordance with its terms.

 

Section 2.1.4  Compliance with Laws and Other Instruments.  Neither the execution and delivery of this Agreement by SCSI nor the performance by SCSI of its obligations under this Agreement will, in any material respect, violate any provision of laws or will conflict with, result in the material breach of any of the terms or conditions of, constitute a material default under, permit any party to accelerate any right under, renegotiate, or terminate, require consent, approval, or waiver by any party under, or result in the creation of any Claim upon any of the properties or assets of SCSI pursuant to, any of the Charter Documents or any agreement (including, without limitation, government contracts), promissory notes, indenture, mortgage, franchise, license, permit, lease or other instrument of any kind to which SCSI is a party or by which SCSI or any of its assets is bound or affected. No consent, approval, order or authorization of or registration, declaration or filing with or exemption by or notice to (collectively "Consents"), any court, administrative agency, commission or other governmental authority or instrumentality, whether domestic or foreign (each a “Governmental Entity”) or other third-party is required by or with respect to SCSI in connection with the execution and delivery of this Agreement by SCSI or the consummation by SCSI of the transactions contemplated hereby, except for (i) the approval of the required percentage of stockholders of SCSI to the Exchange Agreement and the issuances of the SCSI CRTS Exchange Shares, and (ii) except for such other Consents, which if not obtained or made would not affect SCSI’s  ability to close the Transaction.

 

  

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Section 2.2   Representations and Warranties of CRTS and the CRTS Stockholders.  CRTS and the CRTS Stockholders represent and warrant to SCSI as follows:

 

Section 2.2.1  Organization, Standing and Power.  CRTS is a corporation duly organized and validly existing under the Federal laws of Canada, and has all requisite power and authority to own, lease and operate its properties and to carry on its businesses as now being conducted, and is duly qualified and in good standing to do business in each jurisdiction in which a failure to so qualify would have a material adverse effect on the business of CRTS.  CRTS has delivered or made available to SCSI complete and correct copies of the certificate of incorporation, bylaws, and/or other primary charter and organizational documents (“Charter Documents”) of CRTS, in each case, as amended to the date hereof.

 

Section 2.2.1A   Subsidiaries; Investments.  CRTS has not made any investments in and does not own any capital stock or any other form of equity in any corporation or other entity regardless of its organizational form.

 

Section 2.2.2   Authority.  Each of CRTS and the CRTS Stockholder has duly and validly executed and delivered this Agreement, and this Agreement constitutes a valid, binding, and enforceable obligation of each of CRTS and the CRTS Stockholder in accordance with its terms.  The CRTS Stockholders have full power and authority to execute and deliver this Agreement and to perform their obligations hereunder.  CRTS and the CRTS Stockholders need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Entity in order to consummate the transactions contemplated by this Agreement including the Exchange Agreement.  The CRTS Stockholders hold of record and own beneficially all of the CRTS Shares, free and clear of any restrictions on transfer and Claims under the laws of the United States or Canada including the Province of Ontario.  Neither of the CRTS Stockholders is a party to any option, warrant, and purchase right, or other contract or commitment that could require the said CRTS Stockholder to sell, transfer, or otherwise dispose of any of the CRTS Shares.

 

Section 2.2.2A   Investment.  The CRTS Stockholders (i) understand that the CRTS SCSI Shares have not been, and will not be, registered under the Securities Act, or under any state securities laws, and are being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering, (ii) is acquiring the CRTS SCSI Shares solely for its own account for investment purposes, and not with a view to the distribution thereof, (iii) is a sophisticated investor with knowledge and experience in business and financial matters, (iv) has received certain information concerning SCSI and has had the opportunity to obtain additional information as desired in order to evaluate the merits and the risks inherent in holding the CRTS SCSI Shares, (v) is able to bear the economic risk and lack of liquidity inherent in holding the CRTS SCSI Shares, and (vi) understand that the certificates for the CRTS SCSI Shares will bear a restricted legend reflecting these restrictions on transfer except in conformity to applicable requirements under the Securities Act, applicable federal law of Canada and the Province of Ontario.

 

  

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Section 2.2.3    Compliance with Laws and Other Instruments.  Neither the execution and delivery of this Agreement by CRTS and the CRTS Stockholders nor the performance by CRTS and the CRTS Stockholders of their obligations under this Agreement will violate any material provision of law or will conflict with, result in the breach of any of the terms and conditions of, constitute a default under, permit any party to accelerate any right under, renegotiate or terminate, require consent, approval, or waiver by any party under, or result in the creation of any lien, charge, or encumbrance upon any of the properties, assets, or shares of capital stock of CRTS or the CRTS Stockholders pursuant to any charter document of CRTS or any agreement, indenture, mortgage, franchise, license, permit, lease, or other instrument of any kind to which CRTS or the CRTS Stockholders  are a party or by which CRTS or any of its assets are  bound or affected. No Consent is required by or with respect to CRTS or the CRTS Stockholders in connection with the execution and delivery of this Agreement by CRTS and the CRTS Stockholder or the consummation by CRTS of the transactions contemplated hereby.

 

Section 2.2.4   Financial Statements.  CRTS has delivered to SCSI its financial statements for the period ended October 31, 2011 prior to the closing of the Exchange Transaction.  CRTS and the CRTS Stockholders represent and warrant that there are no off-balance sheet liabilities, claims or obligations of any nature, whether accrued, absolute, contingent, anticipated, or otherwise, whether due or to become due, that are out of the ordinary course of CRTS’s business.

 

Section 2.2.5   Capital Structure.  The authorized capital stock of CRTS consists of shares of CRTS Common Stock, (“CRTS Common Shares”).  At the date of Closing of this Agreement, all shares issued and outstanding, are owned of record and beneficially by the CRTS Stockholders.  The CRTS Shares that are owned by the CRTS Stockholders have been duly and validly issued, are fully paid, nonassessable and are not subject to any preemptive rights.  There are no options, warrants, calls, conversion rights, commitments, agreements, contracts, understandings, restrictions, arrangements or rights of any character to which CRTS is a party or by which CRTS may be bound obligating CRTS to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the capital stock of CRTS, or obligating CRTS to grant, extend or enter into any such option, warrant, call, conversion right, conversion payment, commitment, agreement, contract, understanding, restriction, arrangement or right. CRTS does not have outstanding any bonds, debentures, notes or other indebtedness the holders of which (i) have the right to vote (or convertible or exercisable into securities having the right to vote) with holders of CRTS Shares on any matter. 

 

Section 2.2.6   Intellectual Property Rights.  (a) To the knowledge of CRTS, CRTS has, or has rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as necessary or material for use in connection with its business and for which the failure to so have could have a material adverse effect (collectively, the “Intellectual Property Rights”).

 

(b) CRTS has not received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement.  CRTS has not received written or oral notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as would not have a material adverse effect.

 

  

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(c) To the knowledge of the CRTS, there is no existing infringement by another Person of any of the Intellectual Property Rights.

 

(d) CRTS has taken reasonable security measures to protect the secrecy, confidentiality and value of all of its Intellectual Property Rights, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a material adverse effect.

 

(e)  As used in this Section only, references to the “knowledge” of CRTS shall mean only the actual knowledge of the officers of CRTS.

 

Section 2.2.7   Litigation and Other Proceedings.  Neither CRTS nor any of its officers, directors, or employees is a party to any pending or, to the knowledge of CRTS and the CRTS Stockholders, threatened action, suit, labor dispute (including any union representation proceeding), proceeding, investigation, crimination claim in or by any court or governmental board, commission, agency, department, or officer, or any arbitrator, arising from the actions or omissions of CRTS or, in the case of an individual, from acts in his or her capacity as an officer, director, or employee of CRTS which individually or in the aggregate would be materially adverse to CRTS.  CRTS is not subject to any order, writ, judgment, decree, or injunction.

 

Section 2.2.8   No Defaults.  CRTS is not, and has not received notice that it would be with the passage of time, in default or violation of any term, condition or provision of (i) the Charter Documents of CRTS; (ii) any judgment, decree or order applicable to CRTS; or (iii) any loan or credit agreement, note, bond, mortgage, indenture, contract, agreement, lease, license or other instrument to which CRTS is now a party or by which it or any of its properties or assets may be bound, except for defaults and violations which, individually or in the aggregate, would not have a material adverse effect on the business of CRTS .

 

Section 2.2.9   Existing Condition. [Intentionally omitted.]  

 

Section 2.2.10   Title to Properties: Leasehold Interests.  Except as set forth on the CRTS Disclosure Schedule, CRTS has good and marketable title to all properties and assets, real and personal, excluding Intellectual Property Rights, as may be required to operate its businesses, in each case free and clear of all Claims, except for Claims as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by CRTS. Any real property and facilities held under lease by CRTS is held under valid, subsisting and enforceable leases.

 

Section 2.2.11   Condition of Tangible Assets.  All material items of CRTS’s tangible personal property is in good condition and repair, subject to normal wear and tear, and is usable in the regular and ordinary course of business of CRTS.

 

Section 2.2.12   Contracts and Commitments.  Except as set forth on the CRTS Disclosure Schedule, CRTS is not in material default of the performance, observance or fulfillment of any obligations, covenants or conditions of any material agreement, contract or other commitment to which it is a party.

 

Section 2.2.13   No Broker or Finder.  Except as set forth on the CRTS Disclosure Schedule, CRTS has not dealt with or retained any finder or broker whose fees or expenses have been paid by CRTS or for whose fees or expenses they would be responsible in connection with this Agreement or the transactions contemplated hereby.

 

  

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Section 2.2.15   Employee Benefit Plans and Arrangements.  CRTS does not have or maintain any employee benefit plans except for certain health benefit plans.

 

Section 2.2.16   Tax Matters.  CRTS has filed or will file on a timely basis (including all extensions) all tax returns which were required to have been filed and such returns are complete and accurate in all respects.  CRTS has paid or provided for all taxes, interest or penalties which have been incurred or are due and payable pursuant to such returns or pursuant to any assessments received by either of them in connection with such returns. No taxing authority has provided CRTS with any notice of any questions relating to or claims asserted for taxes against CRTS for which it may be liable.  All taxes which CRTS is required by law to withhold or collect have been duly withheld or collected and, to the extent required, have been paid over to the proper governmental authorities.

 

Section 2.2.17   Disclosure.  The representations or warranties made by CRTS in this Agreement, and in the final CRTS Disclosure Schedule or any other certificate executed and delivered by CRTS pursuant to this Agreement, when taken together, do not contain any untrue statement of a material fact, or omit to state a material fact necessary to make the statements or facts contained herein or therein not misleading in light of the circumstances under which they were furnished.

 

Section 2.2.18   Reliance.  The foregoing representations and warranties are made by CRTS and the CRTS Stockholders with the knowledge and expectation that SCSI is placing reliance thereon.

 

Section 2.3   Survival of Representations and Warranties.  The representations and warranties made by the parties to this Agreement or in any certificate, exhibit, document or instrument furnished hereunder shall survive for one year from the Closing of the transactions contemplated hereby.

 

ARTICLE III

 

CONDITIONS PRECEDENT

 

Section 3.1   Conditions to Each Party’s Obligation to Effect the Exchange Transaction.  The respective obligation of each party to close the Exchange Transaction shall be subject to the satisfaction prior to the Closing Date of the following conditions:

 

Section 3.1.1   Governmental Filings and Approvals.  All Consents legally required for the consummation of the Exchange Transaction and the transactions contemplated by this Agreement, including all filings, consents and approvals shall have been filed, occurred, or been obtained, other than such Consents, for which the failure to obtain would have no material adverse effect on the consummation of the Exchange Transaction or the other transactions contemplated hereby or on the business of CRTS or SCSI.

 

Section 3.1.2   No Restraints.  No statute, rule, regulation, executive order, decree or injunction shall have been enacted, entered, promulgated or enforced by any United States court or other Governmental Entity of competent jurisdiction which enjoins or prohibits the consummation of the Exchange Transaction.

 

  

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Section 3.2   Conditions to Obligations of CRTS and the CRTS Stockholders.  The obligations of CRTS and the CRTS Stockholders to close the Exchange Transaction are subject to the satisfaction of the following conditions unless waived by CRTS and the CRTS Stockholders:

 

Section 3.2.1   Representations and Warranties of SCSI.  The representations and warranties of SCSI set forth in or required by this Agreement and the SCSI Disclosure Schedule shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except as otherwise contemplated by this Agreement.  CRTS shall have received a certificate signed by an officer of SCSI, to such effect on the Closing Date.

 

Section 3.2.2   SCSI Agreements.  CRTS shall have received documentary evidence satisfactory to CRTS and its counsel that SCSI has complied with all of the conditions listed in section 1.2 of this Agreement.

 

Section 3.2.3   Legal Action.  There shall not be overtly threatened or pending any action, proceeding or other application before any court or Governmental Entity brought by any person or Governmental Entity: (i) challenging or seeking to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or seeking to obtain any damages caused by such transactions which if successful would have a material adverse effect on the viability of such transactions; or (ii) seeking to prohibit or impose any limitations on CRTS’s ownership of the CRTS SCSI Shares or the operation and control of SCSI, or to compel CRTS to dispose of or hold separate all or any portion of its business or assets as a result of the transactions contemplated by the Agreement which if successful would have a material adverse effect on the viability of such transactions.

 

Section 3.2.4   Consents.  CRTS shall have received duly executed copies of all third-party consents, approvals, assignments, waivers, authorizations or other certificates contemplated by this Agreement or the SCSI Disclosure Schedule or reasonably deemed necessary by CRTS’s legal counsel to consummate the transactions contemplated hereby in form and substance reasonably satisfactory to CRTS and said counsel.

 

Section 3.3   Conditions of Obligation of SCSI.  The obligation of SCSI to effect the Transaction is subject to the satisfaction of the following conditions unless waived by SCSI:

 

Section 3.3.1   Representations and Warranties of CRTS.  The representations and warranties of CRTS and the CRTS Stockholders set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date, except as otherwise contemplated by this Agreement, and SCSI shall have received a certificate signed on behalf of CRTS by an officer of CRTS to such effect.

 

Section 3.3.2   Performance of Obligations of CRTS and the CRTS Stockholders.  CRTS and the CRTS Stockholders shall have performed in all material respects all agreements and covenants required to be performed by them under this Agreement prior to the Closing Date, and SCSI shall have received a certificate signed on behalf of CRTS by an officer of CRTS to such effect.

 

Section 3.3.3   CRTS and CRTS Stockholders Agreements.  SCSI shall have received documentary evidence satisfactory to SCSI and its counsel that CRTS and the CRTS Stockholders have complied with all of the conditions listed in section 1.2 of this Agreement.

 

  

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ARTICLE IV

 

MISCELLANEOUS

 

Section 4.1   Expenses.  Each party shall pay its own expenses incidental to the preparation of this Agreement and the consummation of the Exchange Transaction and other transactions contemplated by this Agreement.

 

Section 4.2   Entire Agreement; Parties in Interest; etc.  This Agreement, the attached exhibits, including the Disclosure Schedules of the respective parties hereto, attached hereto or subsequently delivered to the other parties sets forth the entire understanding of the parties with respect to the transactions contemplated by this Agreement. It shall not be amended or modified except by written instrument duly executed by SCSI, CRTS and the CRTS Stockholders.  Any and all previous agreements and understandings between or among the parties regarding the subject matter hereof, whether written or oral, are superseded by this Agreement.

 

Section 4.3   Assignments and Binding Effect.  This Agreement may not be assigned prior to the Closing by any party without the prior written consent of the other. Any such assignment or purported assignment shall be null and void and shall result in the termination of this Agreement.

 

Section 4.4   Waiver.  Any term or provision of this Agreement may be waived at any time by the party entitled to the benefit thereof by a written instrument duly executed by such party.

 

Section 4.5   Notices.  Any notice, request, demand, waiver, consent, approval or other communication which is required or permitted hereunder shall be in writing and shall be deemed given only if delivered personally or sent by overnight courier, delivery charges prepaid, or by registered or certified mail, postage prepaid, or by facsimile transmission, confirmation of transmission received, or by e-mail where so indicated as follows:

 

If to CRTS: c/o Paul Benford, paul.benford@cogent.ca, 162 Guelph Street, Suite 253, Georgetown, Ontario, Canada L7G 5X7; with a copy by Facsimile or e-mail (which shall not constitute notice) to Sol V. Slotnik, P.C. 11 East 44th Street-17th Floor, New York, New York 10017 Attn: Sol V. Slotnik, Esq. Facsimile (212) 986-2399 and slotnik@mindspring.com; and

 

If to SCSI c/o Paul E. Thomas, paul.thomas@skkynet.com, 24 Wellesley Street, Suite 2110, Toronto, Ontario, Canada M4Y 2X6; with a copy by Facsimile or e-mail (which shall not constitute notice) to Sol V. Slotnik, P.C. 11 East 44th Street-19th Floor, New York, New York 10017 Attn: Sol V. Slotnik, Esq. Facsimile (212) 986-2399 and slotnik@mindspring.com;

 

or to such other address as the addressee may have specified in a notice duly given to the sender as provided herein.  Such notice, request, demand, waiver, consent, approval or other communications will be deemed to have been given as of the date personally delivered or sent by facsimile, the next business day if sent by overnight courier, and the third business day if mailed.

 

Section 4.6   Governing Law; Jurisdiction and Venue.  THIS AGREEMENT WILL BE INTERPRETED, CONSTRUED, AND ENFORCED IN ALL RESPECTS IN ACCORDANCE WITH THE LAWS OF THE PROVINCE OF ONTARIO, WITHOUT REFERENCE TO ITS CHOICE OF LAW PRINCIPLES.  THE PARTIES HEREBY SUBMIT TO THE JURISDICTION OF THE  COURTS OF THE PROVINCE OF ONTARIO WITH SUBJECT MATTER JURISDICTION, AND WAIVE ANY VENUE OBJECTIONS AGAINST ANY SUCH COURT IN ANY LITIGATION ARISING UNDER THIS AGREEMENT.

 

  

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Section 4.7.   Arbitration.  (1) Any unresolved controversy or claim arising out of, in connection with, under or relating to this Agreement, shall be submitted to arbitration (the “Arbitration”) before the Toronto Commercial Arbitration Society (“TCA”) using the rules under the Ontario Arbitration Act then in effect, as modified by this Agreement. In the Arbitration Notice provided to the Respondent by the Claimant in accordance with this Section 4.7, the Claimant shall propose a single duly qualified arbitrator.  Within fifteen (15) Business Days thereafter, the Respondent shall give notice to the Claimant advising whether the Respondent accepts the arbitrator proposed by the Claimant, or suggest an alternative arbitrator. If notice is not given within the fifteen (15) Business Day period, the Respondent shall be deemed to have accepted the arbitrator proposed by the Claimant. In the event that the parties cannot agree on a single arbitrator within the fifteen (15) day period, the arbitrator shall be selected in accordance with the Ontario Arbitration Act.  No such arbitrator shall have previously been employed by either party and shall not have a direct or indirect interest in either party or the subject matter of the arbitration.

 

(2) The arbitration shall take place in Toronto, Ontario in English.  Judgment upon any award rendered in such arbitration will be binding and may be entered in any court having jurisdiction thereof including for this purpose the Superior Court of Justice of the Province of Ontario (“Superior Court”).  Both parties agree and consent to the personal jurisdiction of the Superior Court for all purposes relating to the Arbitration including any equitable relief, and the entry of judgment upon, and enforcement of, any award.

 

(3) There shall be limited discovery prior to the Arbitration hearing as follows: (i) exchange of witness lists and copies of documentary evidence and documents relating to or arising out of the issues to be arbitrated, (ii) depositions of all party witnesses and (iii) such other depositions as may be allowed by the arbitrator only upon a showing of good cause.  Depositions shall be conducted in accordance with the rules of the Act.

 

(4)  A court reporter shall record all hearings, with such record constituting the official transcript of such proceedings.  The arbitrator shall be required to provide in writing to the parties the basis for the award or order of such arbitrator.  The arbitrator shall have no power and authority to award punitive, exemplary, incidental and consequential (including without limitation lost profits) damages in favor of one party against the other party in the Arbitration.  Each party shall bear its own legal costs and expenses in connection with the Arbitration; provided, however, that the arbitrator shall make an award of legal fees, and all other costs and expenses of the Arbitration to the prevailing party as part of any Arbitration award including (i) the filing fees for the Arbitration and (ii) the stenographic costs of transcription.  The arbitrator’s fees shall be divided equally between the parties.

 

  

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(5) The parties hereto agree that all arbitration proceedings hereunder, as well as the fact of their occurrence, shall be kept confidential by the parties hereto and may only be disclosed to their personal representatives and legal and other professional advisors or as required by law and insofar as is necessary to obtain, confirm, correct, vacate or enforce the decision or award. In the event of a breach of the preceding sentence, the Arbitrator shall be authorized to assess damages and each of the parties hereto consents to the expansion of the scope of arbitration for such purpose.  The pendency of any arbitration under this Section 4.7 shall not relieve any party hereto from the performance of its obligations under this Agreement and nothing in this Section 4.7 shall preclude a party hereto from instituting legal action seeking relief in the nature of a restraining order, an injunction, an audit, the enforcement of any encumbrances or the like in order to protect his rights pending the outcome of an arbitration hereunder and, if any party hereto shall resort to legal action for such types of relief, such party shall not be deemed to have waived its rights to cause such matter or any other matter to be referred to arbitration pursuant to this Section 4.7.  The Arbitrator shall have authority to grant injunctive relief, award specific performance, and other forms of equitable relief,  and impose sanctions upon any party to any such arbitration; provided that, no party to the arbitration may seek, and the Arbitrator shall not (and shall not be entitled or authorized to) award, punitive, aggravated or exemplary damages.

 

Section 4.8   No Benefit to Others.  The representations, warranties, covenants and agreements contained in this Agreement are for the sole benefit of the parties hereto, and shall not give rise or be interpreted so as to give rise to any rights for the benefit of any third parties.

 

Section 4.9   Section Headings.  All section headings contained in this Agreement are for convenience of reference only, do not form a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement.

 

Section 4.10   Schedules and Exhibits.  All Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement and are incorporated herein by reference.

 

Section 4.11   Severability.  Any provision of this Agreement that is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions.

 

Section 4.12   Multiple Counterparts; Facsimile; Scanned Signatures.  This Agreement may be executed in any number of counterparts and any party hereto may execute any such counterpart, each of which when executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. This Agreement shall become binding when one or more counterparts taken together shall have been executed and delivered by all of the parties hereto. This Agreement may be signed in any number of counterparts or by facsimile signature, or by scanned pdf attached signature, each of which shall be an original, with the same effect as if all signatures were on the same instrument and were original signatures.

 

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement to be effective as of the date first above written.

 

 

[Remainder of Page Intentionally Left Blank]

 

  

11

  

 

SIGNATURE PAGE FOR EXCHANGE AGREEMENT DATED AS OF MARCH 26, 2012 BY AND AMONG SKKYNET CLOUD SYSTEMS INC., COGENT REAL-TIME SYSTEMS INC. AND THE STOCKHOLDERS OF COGENT REAL-TIME SYSTEMS INC.

 

 

SKKYNET CLOUD SYSTEMS INC.

 

 

By: /s/ Paul E. Thomas            

Paul E. Thomas, President

 

 

COGENT REAL-TIME SYSTEMS INC.

 

By: /s/ Andrew S. Thomas         

Andrew S. Thomas, President

 

 

 

THE CRTS STOCKHOLDERS:

 

 

BENFORD CONSULTANCY INC.

 

By: /s/ Paul Benford         

Paul Benford, President

 

 

 

SAKURA SOFTWARE INC.

 

By: /s/ Andrew S. Thomas      

Andrew S. Thomas, President

 

 

  

12

  

 

SCHEDULE 1

 

Benford Consultancy Inc. 8,298,000 shares of common stock of Skkynet.

 

Sakura Software Inc. 21,702,000 shares of common stock of Skkynet.

 

 

DISCLOSURE SCHEDULE

 

 

 

 

 

 

 

 

 

 

 

13Exhibit 10.5

 

SKKYNET
CLOUD SYSTEMS, INC.

2012
STOCK OPTION PLAN

 

WHEREAS,
the Stockholders of Skkynet Cloud Systems, Inc. desire to adopt a stock option plan for 2012 to be entitled the “Skkynet
Cloud Systems, Inc. 2012 Stock Option Plan” (the “Plan”).

NOW, THEREFORE, BE IT
RESOLVED, that the Plan is hereby adopted as follows:

 

 

I.Purpose

 

The
purpose of this Skkynet Cloud Systems, Inc. 2012
Stock Option Plan is to enable Skkynet Cloud Systems, Inc.
(the “Corporation”) to attract and retain qualified officers, other key employees and non-employee directors, and to
provide an incentive for such officers, key employers and directors of the Corporation to expand and improve the profits and prosperity
of the Corporation. 

The
2012 Stock Option Plan was approved by the Board of Directors on March 31, 2012, and was approved by a majority of the issued and
outstanding shares of the Company’s common stock entitled to vote thereon by majority written consent in lieu of a meeting
on April 10, 2012.

 

II.Definitions

 

The
following terms shall have the meanings shown:

 

2.1“Administrator”
shall mean the Board of Directors or, if the Board of Directors has delegated its authority to administer this Plan to a committee
pursuant to Article VIII hereof, the Committee.

 

2.2“Board
of Directors” shall mean the Board of Directors of the Corporation.

 

2.3“Code”
shall mean the Internal Revenue Code of 1986, as the same shall be amended from time to time.

 

2.4“Committee”
shall mean the Compensation Committee of the Board of Directors, or such other Committee as the Board may appoint to administer
this Plan. Grants to Named Executive Officers shall be approved by the Committee only if all members of the Committee are directors
who qualify as "non-employee directors” of the Corporation within the meaning of Rule 16b-3 and as “outside
directors” within the meaning of Treasury Regulation 1.162-27(e)(3).

 

2.5“Common
Stock” shall mean the common stock, par value $.001 per share, of the Corporation, except as provided in Section 6.2 of the
Plan.

 

2.6“Consultant”
shall mean any individual engaged to perform services for the Corporation or any of its Subsidiaries on a regular and on-going
basis who is not a common law employee of the Corporation.

 

2.7“Date
of Grant” shall mean the date specified by the Administrator on which a grant of Options shall become effective. The Date
of Grant shall not be earlier than the date on which the Administrator takes action with respect thereto.

    	1

    	 	

    
 

 

2.8“Employee”
means any person performing services for the Corporation or any Subsidiary as a common law employee. The Administrator may, in
its discretion, treat any individual as an Employee for purposes of this Plan even if he or she is not employed by the Corporation,
as long as he or she could properly be classified as a common law employee of the Corporation or a Subsidiary for payroll tax purposes.

 

2.9“Fair
Market Value” shall mean the fair market value of a share of Common Stock of the Corporation as determined by the Administrator.
For periods when the Common Stock is publicly traded, this shall be determined by reference to the average closing price for the
Common Stock, as reported on any stock exchange or electronic quotation system on which the Common Stock is then traded or quoted,
for the previous ten (10) trading days on which trades or quotations have been reported ending on the trading day immediately preceding
the day of determination of the Fair Market Value. For periods in which fewer than 10 trades
or quotations have been reported for the 30 calendar days preceding the day of determination of the Fair Market Value, the Fair
Market Value may be determined by reference to an average of the closing or trading prices reported during the prior month or in
such other manner as the Administrator may deem to be an appropriate method of estimating the current market value of the Common
Stock as permitted under Code.

 

2.10“ISOs”
shall mean stock options granted by the Corporation which are intended to qualify as incentive stock options under Section 422
of the Code.

 

2.11“Named
Executive Officer” shall mean the Corporation’s Chief Executive Officer and the four highest compensated officers (other
than the Chief Executive Officer), as determined pursuant to the executive compensation disclosure rules of Item 402 of Regulation
S-K under the Securities Exchange Act of 1934.

 

2.12“Nonemployee
Director” shall mean a member of the Board of Directors who is not an employee or Consultant of the Corporation or any Subsidiary.

 

2.13“Nonstatutory
Options” shall mean stock options which are not intended to qualify as ISOs.

 

2.14“Option
Agreement” shall mean a written agreement between the Corporation and a Participant who has been granted Options under this
Plan.

 

2.15“Option
Price” shall mean, with respect to any Option, the amount designated in a Participant's Option Agreement as the price per
share he or she will be required to pay to exercise the Option and acquire the shares subject to such Option. Except as otherwise
provided in Section 3.3, the Option Price shall not be less than 100% of the Fair Market Value of Common Stock as of the Date of
Grant.

 

2.16“Options”
shall mean any rights to purchase shares of Common Stock granted pursuant to Article IV of this Plan, including both ISOs and Nonstatutory
Options.

 

2.17“Participant”
shall mean any current or former employee, Consultant or director of the Corporation or a Subsidiary who has been granted Options
under the terms of this Plan.

 

2.18“Plan”
shall mean this Skkynet Cloud Systems, Inc.  2012
Stock Option Plan, as the same may be amended from time to time.

 

2.19“Rule
16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under Section 16 of the Securities Exchange
Act of 1934, as amended from time to time.

    	2

    	 	

    
 

 

2.20“Subsidiary”
shall mean any corporation which, on the date of determination, qualifies as a subsidiary corporation of the Corporation under
Section 425(f) of the Code.

 

2.21"Ten
Percent Stockholder" shall mean any Participant who at the time an ISO is granted owns (within the meaning of Section 425(d)
of the Code) more than ten percent of the voting power of all classes of stock of the Corporation.

 

 

III.Eligibility

 

3.1Key
Employees. The Administrator may grant Options under this Plan to any officer or other key employee of the Corporation or of
any Subsidiary. In granting such Options and determining their form and amount, the Administrator shall give consideration to the
functions and responsibilities of the individual, his or her potential contributions to profitability and sound growth of the Corporation
and such other factors as the Administrator may, in its discretion, deem relevant.

 

The
Administrator may also grant Options to Consultants. In granting such Options and determining their form and amount, the Administrator
shall consider the extent of the individual’s relationship to the Corporation, his or her potential contributions to its
financial success, the potential adverse accounting consequences to the Corporation of stock option grants to Consultants, and
such other factors as the Administrator may, in its discretion, deem to be relevant.

 

3.2Named
Executive Officers. Notwithstanding Section 3.1, no Named Executive Officer shall be granted Options unless the grant has been
approved in advance by the Compensation Committee of the Board of Directors or another Committee satisfying the requirements stated
in Section 2.4.

 

3.3Directors.
Members of the Board of Directors who are employees or Consultants of the Corporation shall be eligible for Options under this
Plan on the same terms as other officers. Other members of the Board of Directors shall be eligible for Options only to the extent
specified in this Section 3.3, as it may be amended from time to time by the Board of Directors.

 

(a)
Each Non-Employee Director who attends at least one of the four regularly scheduled meetings of the Board for each year shall automatically
be granted Nonstatutory Options to purchase 2,500 shares of Common Stock for each such meeting attended during the year. In addition,
each Non-Employee Director who attends a special meeting (i.e., not a regularly scheduled meeting) of the Board shall automatically
be granted Nonstatutory Options to purchase 1,250 shares of Common Stock for each special meeting of the Board attended; provided
that the maximum number of shares with respect to which a Non-Employee Director may be granted Options for attending either regular
or special Board meetings during any single calendar year shall be limited to 25,000 shares of Common Stock. Options granted to
a Non-Employee Director for attending Board meetings shall be granted on the date of the meeting, and the Option Price for all
such Options shall be equal to the Fair Market Value of the Common Stock on that date. Each such Option shall vest six (6) months
after the date of grant and shall expire (if not exercised or terminated at any earlier date) on the earlier of (i) the tenth anniversary
of grant and (ii) the day that is ninety (90) days after the date of termination of the Non-Employee Director’s service as
a director of the Corporation, unless such event is due to the death or total and permanent disability of such Non-Employee Director,
in which case such options shall terminate twelve (12) months from the date of termination of the Non-Employee Director’s
service as a director of the Corporation due to such death or total and permanent disability. Notwithstanding the foregoing, for
Options granted on or after January 1, 2012, the Option Price shall be equal to 100% of the Fair Market Value of Common Stock as
of the Date of Grant.

    	3

    	 	

    
 

 

IV.Options

 

4.1Terms
and Conditions. The Administrator may, in its sole discretion, from time to time grant Options to any officer, key employee
or Consultant of the Corporation or any one of its Subsidiaries. The grant of an Option to an eligible officer, employee or Consultant
shall be evidenced by a written Option Agreement in substantially the form approved by the Administrator. Such Option shall be
subject to the following express terms and conditions and to such other terms and conditions, not inconsistent with the terms of
this Plan, as the Administrator (or, in the case of a Named Executive Officer, the Compensation Committee) may deem appropriate.

 

(a)Shares
Covered. The Administrator shall, in its discretion, determine the number of shares of Common Stock to be covered by the Options
granted to any Participant. The maximum number of shares of Common Stock with respect to which Options may be granted to any Employee
during any one calendar year is 100,000 shares.

 

(b)Exercise
Period. The term of each Option shall be for such period as the Administrator shall determine (except as specifically provided
in Section 3.3 above), but for not more than ten years from the Date of Grant thereof. The Administrator shall also have the discretion
to determine when each Option granted hereunder shall become exercisable, and to prescribe any vesting schedule limiting the exercisability
of such Options as it may deem appropriate. The Administrator shall have the discretion to prescribe such vesting schedules based
on achievement of corporate or individual performance targets as it may deem to be appropriate, in addition to vesting schedules
based upon periods of continued employment. If no other vesting schedule is specified by the Administrator or provided pursuant
to Section 3.3 above, a grant of Options shall vest and become exercisable in five (5) equal annual installments, with successive
installments vesting, on the Date of Grant and the first four anniversaries of the Date of Grant.

 

(c)Option
Price. The Option Price payable for the shares of Common Stock covered by any Option shall be determined by the Administrator
but shall in no event be less than the Fair Market Value of a share of Common Stock on the Date of Grant (except as specifically
provided in Section 3.3 above). 

 

(d)Exercise
of Options. A Participant may exercise his or her Options from time to time by written notice to the Corporation of his or
her intent to exercise the Options with respect to a specified number of shares. The specified number of shares will be issued
and transferred to the Participant upon receipt by the Corporation of (i) such notice and (ii) payment in full for such
shares, and (iii) receipt of any payments required to satisfy the Corporation’s tax withholding obligations pursuant
to Article V.

 

(e)Payment
of Option Price Upon Exercise. Each Option Agreement shall provide that the Option Price for the shares with respect to which
an Option is exercised shall be paid to the Corporation at the time of exercise. This payment generally must be made in the form
of cash. Alternatively, if the Participant owns fewer than the lesser of either (i) 50,000 shares of the Corporation's Common
Stock, or (ii) one percent (1%) of the issued and outstanding shares of Common Stock of the Corporation calculated as of the date
of exercise (the “Amount Held”, and, for purposes of this paragraph, the calculation
of the Participant’s Amount Held shall include all vested Options), the Corporation
may accept as payment of the Option Price:

 

(1)delivery of stock certificates for whole shares
of Common Stock already owned by the Participant for at least six months (at the time of exercise), valued at their Fair Market
Value on the business day immediately preceding the date of exercise;

 

(2)delivery
of a signed, irrevocable notice of exercise, accompanied by payment in full of the Option Price by the Participant's stockbroker
and an irrevocable instruction to the Corporation to deliver the shares of Common Stock issuable upon exercise of the Option promptly
to the Participant's stockbroker for the Participant's account;

 

    	4

    	 	

    
 

 

(3)an
instruction to withhold as payment of the Option Price a portion of the shares of Common Stock issuable under the Option with a
Fair Market Value (valued as of the business day immediately preceding the date of exercise) equal to the Option Price (provided
that the amount paid in cash shall not be less than the par value of the shares issuable upon such exercise); or

 

(4)any
combination of the above methods equal to the total Option Price for the shares;

 

provided
that, the Corporation may refuse to accept any such alternative method of payment of the Option Price to the extent it determines
in good faith that such method of exercise would violate the federal securities laws, including Rule 16b-3, Section 402 of the
Sarbanes-Oxley Act or rules regulating margin loans.

 

4.2Effect
of Termination of Employment, Retirement, Disability or Death.

 

(a)If
a Participant’s employment (or other relationship, in the case of a Consultant or Director) with the Corporation is involuntarily
terminated, or is terminated by the Participant without the Corporation's express consent, for any reason other than retirement,
disability or death, his or her unvested Options shall terminate upon the date of the termination of employment, unless the Administrator
decides, in its sole discretion, to waive this termination and causes the Participant's Option Agreement to provide for an extended
exercise period after such termination. 

 

(b)Any
Option Agreement may include such provisions as the Administrator deems advisable with respect to the Participant’s right
to exercise his or her vested Options subsequent to termination of employment, provided that if the Participant’s Option
Agreement contains no other provision on this point, the Participant’s right to exercise the vested Options shall terminate
ninety (90) days after the date of termination of the Participant’s employment. No ISO shall be exercisable at any time more
than ninety (90) days after the date of termination of employment, except as provided in Section 4.2(c) or (d).

 

(c)Option
Agreements may provide for an extended period of continued exercisability following the Participant’s retirement or other
termination with the consent of the Corporation, or subsequent to termination of the Participant's employment by reason of total
and permanent disability (within the meaning of Section 22(e)(3) of the Code); provided, that, in no event shall any Option
be exercisable after the fixed termination date set forth in the Participant's Option Agreement pursuant to Section 4.1(b). No
ISO shall be exercisable at any time subsequent to the expiration of the period of ninety (90) days from the date of termination
of employment, or the period of twelve (12) months from the date of termination of the Participant's employment (or other relationship
with the Corporation) by reason of total and permanent disability, as the case may be. A termination of employment shall be considered
retirement if the Participant has reached normal retirement age under the Corporation’s retirement plan, or as otherwise
mutually agreed by the Participant and the Administrator.

 

(d)Any
Option Agreement may, in the Administrator’s sole discretion, provide that, in the event the Participant dies while in the
employ of the Corporation (or while serving as an active Consultant), or while he or she has the right to exercise his or her Options
under the preceding Sections 4.2(b) or (c), the Options may be exercised (to the extent it had become exercisable prior to the
time of the Participant's death), during such period of up to one year after date of the Participant's death as the Administrator
deems to be appropriate, by the personal representative of the Participant's estate, or by the person or persons to whom the Options
shall have been transferred by will or by the laws of descent and distribution.

    	5

    	 	

    
 

 

(e)For
purposes of this Section 4.2, a Participant’s employment with the Corporation shall be considered to terminate on the last
day for which the Participant is paid through the Corporation’s payroll, unless the Administrator expressly determines that
another date should be used as the date of termination of employment. The Administrator shall determine the date of termination
of any Participant, based on its judgment as to when the Participant is no longer employed as a common law employee or Consultant
of the Corporation or any Subsidiary. Part-time or non-exclusive employment by the Corporation may be considered employment by
the Corporation as long as the Participant is treated as an Employee for purposes of FICA and payroll taxes, as shall employment
by a Subsidiary. In addition, the Administrator shall have full discretion to determine whether a Participant’s reduction
in hours, medical or disability leave, FMLA leave, absence on military or government service, or other authorized leave of absence,
shall constitute a termination of employment for purposes of this Plan. Any such determination
of the Administrator shall be final and conclusive, unless overruled by the Board of Directors. 

 

4.3Designation
of Options as Incentive Stock Options. The Administrator may, in its discretion, specify that any Options granted to a Participant
who is an employee of the Corporation or any Subsidiary shall be ISOs qualifying under Code Section 422. Each Option Agreement
which provides for the grant of ISOs shall designate that such Options are intended to qualify as ISOs. Each provision of the Plan
and of each Option Agreement relating to an Option designated as an ISO shall be construed so that such Option qualifies as an
ISO, and any provision that cannot be so construed shall be disregarded. Options not otherwise designated shall be Nonstatutory
Options.

 

     Any
Options granted under this Plan which are designated as ISOs shall comply with the following additional requirements:

 

(a)The
aggregate Fair Market Value (determined at the time an ISO is granted) of the shares of Common Stock (together with all other stock
of the Corporation and all stock of any Subsidiary) with respect to which the ISOs may first become exercisable by an individual
Participant during any calendar year, under all stock option plans of the Corporation (or any Subsidiaries) shall not exceed $100,000.
To the extent this limitation would otherwise be exceeded, the Option shall be deemed to consist of an ISO for the maximum number
of shares which may be covered by ISOs pursuant to the preceding sentence, and a Nonstatutory Option for the remaining shares subject
to the Option.

 

(b)The
Option Price payable upon the exercise of an ISO shall not be less than the Fair Market Value of a share of Common Stock on the
Date of Grant; except as otherwise provided in Section 4.3(c) below.

 

(c)In
the case of an ISO granted to a Participant who is a Ten Percent Stockholder, the period of the Option shall not exceed five years
from the Date of Grant, and the Option Price shall not be less than 110 percent of the Fair Market Value of Common Stock on the
Date of Grant.

 

(d)The
maximum term of any ISO shall be ten years, except that the maximum term of any ISO granted to a Ten Percent Stockholder shall
be five years.

 

(e)No ISO granted
under this Plan shall be assignable or transferable by the Participant, except by will or by the laws of descent and distribution.
During the life of the Participant, any ISO shall be exercisable only by the Participant.

 

(f)Any ISO
granted under the Plan shall terminate no more than 90 days after termination of the Participant’s employment as an Employee
or one (1) year after termination of the Participant’s employment as an Employee or after the date of any termination of
employment by reason of the Participant’s death or disability.

    	6

    	 	

    
 

 

(g)ISOs shall
only be granted to Employees of the Company.

 

4.4Authority
to Make Adjustments.The Administrator may make such adjustments to the terms of such Options as it may deem necessary or
appropriate in connection therewith, including amending the Option Agreement to recognize that all or a portion of the Options
no longer qualify as ISOs under Section 4.3.

 

4.5Non-Assignability.
Options granted under this Plan shall generally not be assignable or transferable by the Participant, except by will or by the
laws of descent and distribution, or as described in the next paragraph. 

 

Notwithstanding
the foregoing, the Administrator may, in its discretion, permit a Participant to transfer all or a portion of his or her Options
to members of his or her immediate family, to trusts for the benefit of members of his immediate family, or to family partnerships
or limited liability companies in which immediate family members are the only partners, provided that the Participant may receive
no consideration for such transfers, and that such Options shall still be subject to termination in accordance with Section 4.2
above in the hands of the transferee.

 

4.6Covenants
Not to Compete. The Administrator may, in its discretion, condition any Option granted to an Employee, Consultant or director
on such Participant’s agreement to enter into such covenant not to compete with the Corporation as the Administrator may
deem to be desirable. Such covenant not to compete shall be set forth in the Participant’s Option Agreement, and the Option
Agreement shall provide that the Option shall be forfeited immediately, whether otherwise vested or not, if the Administrator
determines that the Participant has violated his or her covenant not to compete. In addition, in the Administrator’s discretion,
the Participant’s Option Agreement may also provide that if the Participant breaches his or her covenant not to compete,
the Corporation shall have the right to repurchase any shares of Common Stock previously issued to the Participant pursuant to
an exercise of the Option, at a repurchase price equal to the Option Price paid by the Participant.

 

V.Tax
Withholding

 

5.1Withholding
Taxes. The Corporation shall have the right to require Participants who are employees to remit to the Corporation an amount
sufficient to satisfy any federal, state and local withholding tax requirements prior to the delivery of any shares of Common Stock
under the Plan. If a Participant sells, transfers, assigns or otherwise disposes of shares of Common Stock acquired upon the exercise
of an ISO within two (2) years after the date on which the ISO was granted or within one (1) year after the receipt of the shares
of Common Stock by the Participant, the Participant shall promptly notify the Corporation of such disposition and the Corporation
shall have the right to require the Participant to remit to the Corporation the amount necessary to satisfy any federal, state
and local tax withholding requirements imposed on the Corporation by reason of such disposition.

 

5.2Methods
of Withholding. Amounts which the Corporation is entitled to withhold pursuant to Section 5.1, may, at the election of the
Participant and with the approval of the Administrator, be (i) paid in cash by the Participant, (ii) withheld from the
Participant's salary or other compensation payable by the Corporation, or (iii) withheld in the form of shares of Common Stock
otherwise issuable to the Participant upon exercise of an Option that have a Fair Market Value on the date on which the amount
of tax to be withheld is determined (the “Tax Date”) not less than the minimum amount of tax the Corporation is required
to withhold, or (iv) paid by means of the Participant’s delivery to the Corporation
of shares of Common Stock already held by the Participant that have a Fair Market Value on the Tax Date not greater than the minimum
amount of tax the Corporation is required to withhold, or (v) in any other form mutually satisfactory to the Administrator and
the Participant, provided that any such method of satisfying the Participant’s obligation does not violate any federal or
state law, including Section 402 of the Sarbanes-Oxley Act. A Participant's election
to have shares of Common Stock withheld that are otherwise issuable shall be in writing, shall be irrevocable upon approval by
the Administrator, and shall be delivered to the Corporation prior to the Tax Date with respect to the exercise of an Option.

    	7

    	 	

    
 

 

 

VI.Aggregate
Limitation on Shares of Common Stock

 

6.1Number
of Shares of Common Stock. Shares of Common Stock which may be issued pursuant to Options granted under the Plan may be either
authorized and unissued shares of Common Stock or of Common Stock held by the Corporation as treasury stock. The number of shares
of Common Stock which may be issued under this Plan shall not exceed a total of 7,000,000 shares of Common Stock, subject to such
adjustments as may be made pursuant to Section 6.2. Further, the Options granted to all Participants during a single calendar year
shall be limited so that such Options shall in no event cover more than a maximum of 1,000,000 shares of Common Stock (subject
to such adjustments as may be made pursuant to Section 6.2).

 

For
purposes of this Section 6.1, upon the exercise of an Option, the number of shares of Common Stock available for future issuance
under the Plan shall be reduced by the number of shares actually issued to the Participant, exclusive of any shares withheld for
payment of taxes.

 

Any
shares of Common Stock subject to an Option which for any reason is cancelled, terminates unexercised or expires shall again be
available for issuance under the Plan. 

 

6.2Adjustments
of Stock. The Administrator shall proportionately adjust the number of shares of Common Stock which may be issued under this
Plan, the number of shares of Common Stock subject to Options theretofore granted under this Plan and the Option Price of such
Options, in the event of any change or changes in the outstanding Common Stock of the Corporation by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up, combination or any similar transaction, and make any and all
other adjustments deemed appropriate by the Administrator to prevent substantial dilution or enlargement of the rights granted
to any Participant.

 

New
option rights may be substituted for the Options granted under the Plan, or the Corporation's duties as to Options outstanding
under the Plan may be assumed by another corporation or by a parent or subsidiary (within the meaning of Section 425 of the
Code) of such other corporation, in connection with any merger, consolidation, acquisition, separation, reorganization, liquidation
or like occurrence in which the Corporation is involved. In the event of such substitution or assumption, the term Common Stock
shall thereafter include the stock of the corporation granting such new option rights or assuming the Corporation’s duties
as to such Option.

 

6.3Dissolution
or Merger. Upon dissolution or liquidation of the Corporation, or upon a merger or consolidation in which the Corporation is
not the surviving corporation, all Options outstanding under the Plan shall terminate; provided, however, that each Participant
(and each other person entitled under this Plan to exercise an Option) shall have the right, immediately prior to such dissolution
or liquidation, or such merger or consolidation, to exercise such Participant’s Options in whole or in part, but only to
the extent that such Options are otherwise exercisable under the terms of the Plan.

    	8

    	 	

    
 

 

 

VII.Miscellaneous

 

7.1General
Restriction. Any Option granted under this Plan shall be subject to the requirement that, if at any time the Board of Directors
shall determine that any registration of the shares of Common Stock, or any consent or approval of any governmental body, or any
other agreement or consent, is necessary as a condition of the granting of an Option, or the issuance of Common Stock in satisfaction
thereof, such Option or Common Stock will not be issued or delivered until such requirement is satisfied in a manner acceptable
to the Administrator.

 

7.2Investment
Representation. If the Administrator determines that a written representation is necessary in order to secure an exemption
from registration under the Securities Act of 1933, the Administrator may demand that the Participant deliver to the Corporation
at the time of any exercise of any Option, any written representation that Administrator determines to be necessary or appropriate
for such purpose, including but not limited to a representation that the shares to be issued are to be acquired for investment
and not for resale or with a view to the distribution thereof. If the Administrator makes such a demand, delivery of a written
representation satisfactory to the Administrator shall be a condition precedent to the right of the Participant to acquire such
shares of Common Stock.

 

7.3No
Right to Employment. Nothing in this Plan or in any agreement entered into pursuant to it shall confer upon any participating
employee the right to continue in the employment of the Corporation or affect any right which the Corporation may have to terminate
the employment of such participating employee.

 

7.4Non-Uniform
Determinations. The Administrator’s determinations under this Plan (including, without limitation, its determinations
of the persons to receive Options, the form, amount and timing of such awards and the terms and provisions of such awards) need
not be uniform and may be made by it selectively among Participants who receive, or are eligible to receive, awards under this
Plan, whether or not such Participants are similarly situated.

 

7.5No
Rights as Stockholders. Participants granted Options under this Plan shall have no rights as stockholders of the Corporation
as applicable with respect thereto unless and until certificates for shares of Common Stock are issued to them.

 

7.6Transfer
Restrictions. The Administrator may determine that any Common Stock to be issued by the Corporation upon the exercise of Options
shall be subject to such further restrictions upon transfer as the Administrator determines to be appropriate.

 

7.7Fractional
Shares. The Corporation shall not be required to issue any fractional Common Shares pursuant to this Plan. The Administrator
may provide for the elimination of fractions or for the settlement thereof in cash.

 

 

VIII.Administration

 

(a)The
Plan shall be administered by the Board of Directors unless the Board has delegated its authority to a Committee consisting of
such members as may be appointed by the Board of Directors from time to time. Notwithstanding the preceding sentence, the Board
of Directors may delegate its authority with respect to Named Executive Officers only to the Compensation Committee. With respect
to other Participants, the members of the Committee need not be members of the Board of Directors, and shall serve at the pleasure
of the Board of Directors. 

    	9

    	 	

    
 

 

(b)Except
as provided in Section 3.2, the Committee shall have the authority, in its sole discretion, from time to time: (i) to grant
Options, to officers, key employees, and Consultants of the Company, as provided for in this Plan; (ii) to prescribe such
limitations, restrictions and conditions upon any such awards as the Committee shall deem appropriate; (iii) to determine
the periods during which Options may be exercised as it may deem appropriate; (iv) to modify, cancel, or replace any prior Options
and to amend the relevant Option Agreements with the consent of the affected Participants, including amending such agreements to
amend vesting schedules, extend exercise periods or increase or decrease the Option Price for Options, as it may deem to be necessary;
and (v) to interpret the Plan, to adopt, amend and rescind rules and regulations relating to the Plan, and to make all other
determinations and to take all other action necessary or advisable for the implementation and administration of the Plan. With
respect to any Named Executive Officer, this authority shall be transferred to the Compensation Committee, or may be exercised
by the Board of Directors subject to the condition that the express approval of the Compensation Committee must be obtained.

 

(c)All
actions taken by the Board of Directors or Committee shall be final, conclusive and binding upon any eligible employee. No member
of the Board of Directors or Committee shall be liable for any action taken or decision made in good faith relating to the Plan
or any award thereunder.

 

(d)Each
member of the Committee shall be entitled, in good faith, to rely or act upon any report or other information furnished to him
or her by any officer or other employee of the Corporation or any Subsidiary, the Corporation’s independent certified public
accountants, or any executive compensation consultant, counsel, or other professional retained by the Corporation to assist in
the administration of the Plan. No member of the Board of Directors or the Committee shall be liable for any action or determination
made by him or her in good faith.

 

 

IX.Amendment
and Termination

 

9.1Amendment
or Termination of the Plan. The Board of Directors may at any time terminate this Plan or any part thereof and may from time
to time amend this Plan as it may deem advisable; provided, however the Board of Directors shall obtain stockholder approval of
any amendment for which stockholder approval is required under Section 422 of the Code, or the stockholder approval requirements
imposed on the Corporation by the listing rules of any stock exchange on which the Common Stock is listed. The termination or amendment
of this Plan shall not, without the consent of the Participant, affect such Participant's rights under an award previously granted.

 

9.2Term
of Plan. Unless previously terminated pursuant to Section 9.1, the Plan shall terminate on the tenth anniversary of the Plan's
original effective date, and no Options may be granted on or after such date.

	
         

 

 

 

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