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  Exhibit 10.40    
    

 
    EMPLOYMENT AGREEMENT    
    

        This EMPLOYMENT AGREEMENT (the "Employment Agreement") is made effective as of
                        , 2009 (the "Effective Date") by and among Cloud Peak
Energy Inc., a Delaware corporation (the
"Company") and James Orchard (the "Executive"). 

 
 

  RECITALS    
    

        WHERAS, the Executive currently serves as Vice-President—Marketing, Government Affairs & Communications
of Rio Tinto Energy America Inc., pursuant to an employment agreement with Rio Tinto Energy America Inc. dated December 21, 2007 (the "Previous
Agreement"); 

        WHEREAS,
the Executive possesses skills, experience and knowledge that are of value to the Company; and 

        WHEREAS,
the Company and the Executive desire to enter into this Employment Agreement in connection with the proposed initial public offering of shares of Cloud Peak Energy Inc.
(the "IPO"). 

        NOW,
THEREFORE, in consideration of the mutual covenants contained herein and other valid consideration the sufficiency of which is acknowledged, the parties hereto agree as follows: 

        Section 1.    Employment.    

        1.1.    Term.    Subject to Section 3 hereof, the Company agrees to employ the Executive, and the Executive
agrees to be employed by the Company, in each case pursuant to this Employment Agreement, for a period commencing on the completion of the IPO (the "Closing
Date") and ending on the earlier of (i) the third (3rd) anniversary of the Closing Date and (ii) the termination of the Executive's employment in accordance with
Section 3 hereof (the "Initial Term"); provided that, commencing at the end of the Initial Term
and at the end of each year thereafter, this Employment Agreement will extend automatically for an additional year (the initial term and any renewals, collectively the
"Term") unless ninety (90) day's advance written notice of nonrenewal is given by either party and upon receipt of such notice by the
Company or the Executive, as the case may be, no further automatic renewals of this Employment Agreement shall occur. For all purposes of this Employment Agreement, the Executive shall be considered
to have terminated employment with the Company when the Executive incurs a "separation from service" with the Company within the meaning of Section 409A(a)(2)(A)(i) of the Internal Revenue Code
of 1986, as amended (the "Code"), and applicable administrative guidance issued thereunder. 

        1.2.    Title; Duties; Place of Performance.    During the Term, the Executive shall serve as
Vice-President, Marketing and Government Affairs of the Company and in such other positions as an officer or director of affiliates of the Company as the Executive, the Chief Executive
Officer and the board of directors of the Company (the "Board"), shall mutually agree to from time to time. In such positions, the Executive shall have
during the Term such authority, duties, functions and responsibilities as are typically accorded to and consistent with the Executive's position as Vice-President, Marketing and Government
Affairs and such other duties and responsibilities commensurate with such position as may be reasonably assigned by the Chief Executive Officer and the Board in consultation with Executive. The
Executive's principal places of employment during the Term shall be in the Denver, Colorado region. 

        1.3.    Reporting.    During the Term, the Executive shall report to the Chief Executive Officer. 

        1.4.    Exclusivity.    During the Term, the Executive shall devote substantially all of his time and attention during
normal business hours to the business and affairs of the Company and its affiliates, shall faithfully serve them, and shall conform to and comply with the lawful and reasonable directions and
instructions given to him by the Chief Executive Officer and the Board, consistent with Section 1.2 hereof. During the Term, the Executive shall use his best efforts to promote and serve the
interests of the Company and its affiliates and shall not engage in any other 

 

business
activity that significantly detracts from the performance of his duties hereunder, whether or not such activity shall be engaged in for pecuniary profit;  provided that the Executive may (i) engage
in charitable and community activities, including serving on the board of directors of
not-for-profit entities, and (ii) manage personal and family investments and affairs, in each case so long as such other activities do not violate the terms of this
Employment Agreement or significantly interfere with the performance of his duties hereunder. Without limiting the generality of the foregoing, during the Term the Executive shall not serve on the
boards of directors of any for-profit entity without the prior written consent of the Board, not to be unreasonably withheld. 

        1.5.  Notwithstanding
anything to the contrary in this Section 1, this Agreement and the Executive's employment under it is conditioned on the completion of the IPO.
Until the completion of the IPO, this Agreement will have no effect (including on the terms of the Executive's employment with Rio Tinto). 

        Section 2.    Compensation.    

        2.1.    Salary.    As compensation for the performance of the Executive's services hereunder, during the Term, the
Company shall pay to the Executive a salary at an annual rate of Three Hundred Thousand Dollars ($300,000), payable in accordance with the Company's standard payroll policies but not less frequently
than monthly installments and such salary shall be reviewed annually and may be adjusted upward by the Compensation Committee (the "Committee") of the
Board in its sole discretion (as adjusted, the "Base Salary"). 

        2.2.    Annual Bonus.    For each fiscal year ending during the Term, the Executive shall be eligible to receive an
annual cash bonus (the "Annual Bonus"). The target annual bonus shall be 60% of the Base Salary with a maximum annual bonus opportunity of 120% of the
Base Salary. In the year in which the IPO occurs (the "IPO Year"), such annual bonus will be pro rated for the number of days worked for Cloud Peak in the fiscal year and adjusted accordingly. The
actual Annual Bonus in respect of any fiscal year
is to be based upon such individual and/or Company performance criteria established for each such fiscal year by the Committee. 

        2.3.    Equity Grants.    

        (a)   During
the Term, the Executive shall be eligible to participate in the Company's equity incentive plans. 

        (b)   Upon
completion of the IPO, and in accordance with the terms of a long term incentive equity plan to be established by the Board for Executive, the Executive will be
entitled to a one-time grant (the "IPO Grant") determined as follows; the IPO Grant will consist of (x) $450,000 of restricted common
stock of the Company, the number of shares being determined based on the price at which the Company's common stock is sold to the public in the IPO (the "IPO
Price") on the terms and conditions set forth on Appendix A and (y) stock options in respect of the Company's
common stock having an exercise price of the IPO Price on the terms and conditions set forth on Appendix B with a black-scholes value of $450,000
based on the assumptions set forth on Appendix C. 

        (c)   Beginning
in 2011, at the time equity grants are made to the Company's senior executives generally, and in accordance with the terms of a long term incentive equity plan
to be established by the Board for Executive, the Executive shall receive annual equity grants, in the form and subject to such terms as may be determined by the Board. For 2011, the Executive will
receive a grant of performance share units with a target value equal to an estimated grant date fair value (as determined by the Board or Committee in good faith) of 50% of the Executive's then Base
Salary. For 2012 and calendar years following, the Executive's equity grants will have a target value equal to an estimated grant date fair value (as determined by the Board or Committee in good
faith) of 100% of the Executive's then 

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Base
Salary and such grants shall consist of performance share units and stock options (as determined by the Board or Committee) in respect of the Company's common stock. 

        2.4.    Employee Benefits.    During the Term, the Executive shall be eligible to participate in the health insurance,
retirement and other perquisites and benefits of the Company as in effect from time to time, including the Company's equity incentive plans, on terms no less favorable than those provided to other
senior executives of the Company. 

        2.5.    Vacation.    The Executive will be entitled to no less than four (4) weeks of paid vacation per year
during the Term, subject to (but not reduced by) the terms and conditions of the Company's vacation policy as in effect from time to time. 

        2.6.    Business and Entertainment Expenses.    The Company shall pay or reimburse the Executive for all commercially
reasonable business out-of-pocket fees and expenses that the Executive incurs during the Term in performing his duties under this Employment Agreement upon presentation of
documentation in accordance with the expense reimbursement policy of the Company as in effect from time to time. Any reimbursement pursuant to this Section 2.6 or Section 3 shall be made
by the Company as soon as administratively practicable following receipt of supporting documentation reasonably satisfactory to the Company (but in any event not later than the close of the
Executive's taxable year following the taxable year in which the fee or expense is incurred by the Executive). 

        Section 3.    Employment Termination.    

        3.1.    Termination of Employment.    The Company may terminate the Executive's employment for any reason during the
Term upon not less than ninety (90) days' notice to the Executive. The Executive may voluntarily terminate his employment for any reason during the Term upon not less than ninety
(90) days' notice to the Company. Upon the termination of the Executive's employment with the Company for any reason, the Executive shall be entitled to (i) any unpaid Base Salary
through the date of termination, (ii) any unreimbursed expenses in accordance with Section 2.6 hereof, (iii) accrued vacation pay through the date of termination, and
(iv) any amounts that the Executive (or his legal representative) is entitled to receive under any employee benefit plan (including equity incentive plans) in accordance with the terms of any
such plan (collectively, items (i) through (iv), the "Accrued Amounts"). 

        3.2.    Termination due to death or Disability.    If the Executive's employment hereunder is terminated due to his
death or Disability, then, in addition to the Accrued Amounts, the Executive, his estate or his beneficiaries (as the case may be) shall be entitled to the Pro Rata Annual Bonus. The Pro Rata Annual
Bonus to be paid as promptly as practicable after the applicable year end audit is complete but in no event later than 120 days following the end of the Performance Period. 

        3.3.    Termination by the Company without Cause; Termination by the Executive for Good Reason.    If (i) the
Executive's employment is terminated by the Company during the Term without Cause, or (ii) the Executive resigns for Good Reason, then, in addition to the Accrued Amounts, the Executive shall
be entitled to the following payments and benefits: (x) a lump-sum payment equal to one times the sum of (A) Base Salary and (B) target Annual Bonus for the year of
termination and (y) the Pro Rata Annual Bonus. In the event that during the period of time after which the Company has given notice that it will not renew the Agreement, the Company terminates
the Executive's employment without Cause or the Executive terminates the Agreement for Good Reason, he shall receive the full amount set forth in this paragraph, provided that the amount payable
pursuant to clause (x) shall be reduced by any amount paid in lieu of notice. Any amounts payable under this Section shall be paid within thirty (30) days after the date of the
Executive's date of termination and the payment described in clause (y) shall be paid as promptly 

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as
practicable after the applicable year end audit is complete but in no event later than 120 days following the end of the Performance Period. The Executive is also entitled to the
continuation on the same terms as an active employee of medical benefits that the Executive would otherwise be eligible to receive as an active employee of the Company for twelve (12) months
or, if sooner, until such time as the Executive becomes eligible for substantially equivalent or greater medical benefits from a subsequent employer without exclusion of any pre-existing
condition. It is agreed that the continuation of benefits provided hereunder following any termination of employment shall be in satisfaction of the Company's obligation to provide continuation
coverage under COBRA. All of the payments and benefits provided in this Section 3.3 shall be subject to the execution of the Waiver and Release of Claims attached hereto as  Appendix D within
thirty (30) days after the Executive's date of termination. 

        3.4.  It
is intended that the amounts payable pursuant to clauses (x) and (y) in Section 3.3 shall be treated as "separate payments" for purposes of
Section 409A of the Code. Moreover, if the Executive is a "specified employee" within the meaning of Section 1.409A-1(i) of the Treasury regulations as of the date of
termination, then payments required to be made pursuant to this Section 3 which are subject to Section 409A of the Code, if any, shall not commence until six (6) months from the
date of termination (or if earlier, the date of death of Executive); provided, however, that during such six (6) month period, to the extent permitted without the imposition of an excise tax,
the Company shall have the right to make any and all payments contemplated hereunder to the extent such payments do not exceed two times the lesser of an amount as determined under Treasury
Regulation 1.409A-1(b)(9)(iii)(A)(i); or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code for
the year of Executive's separation from service; and provided further that any amounts deferred hereunder shall be paid in a lump-sum amount at the expiration of such six (6) month
period. 

        For
purposes of this Employment Agreement: 

        (a)   "Cause" means (1) any conviction of, or plea of guilty or nolo contendere to (x) any felony (except for
vehicular-related felonies, other than manslaughter or homicide) or (y) any crime (whether or not a felony) involving dishonesty, fraud, or breach of fiduciary duty; (2) willful
misconduct by the Executive
in connection with the performance of services to the Company; (3) ongoing failure or refusal after written notice, other than by reason of Disability or ill health, to faithfully and
diligently perform the usual and customary duties of his employment; (4) failure or refusal after written notice to comply with the reasonable written policies, standards and regulations of the
Company which, from time to time, may be established and disseminated; or (5) a material breach by the Executive of any terms related to his employment in any applicable agreement including
this Employment Agreement; provided that the conduct described in clauses (3) through (5) shall not constitute Cause unless the Company
has provided the Executive with written notice of such conduct within ninety (90) days of any senior officer of the Company (other than the Executive) having knowledge of such conduct, and the
Executive has failed to cure such conduct within sixty (60) days of receiving such notice. 

        (b)   "Disability" occurs when the Executive is entitled to receive payments under the Company's long-term
disability insurance plan, if one is in effect at the time. If there is no long term disability insurance plan in effect, then Disability shall occur when the Executive is unable to perform his duties
hereunder as a result of illness or mental or physical injury for a period of at least 180 days. 

        (c)   "Good Reason" means (A) one of the following (each, a "Resignation
Condition") has occurred: (i) a material breach by the Company of any of the covenants in this Employment Agreement, (ii) any material reduction in the Base
Salary, (iii) the relocation of the 

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Executive's
principal place of employment that would increase the Executive's one-way commute by more than seventy-five (75) miles, or (iv) a material diminution
in the Executive's authority, duties, or responsibilities; (B) the Executive has given the Company written notice of the occurrence of the Resignation Condition within
ninety (90) days after the Resignation Condition first occurred; (C) the Company has not cured the Resignation Condition within sixty (60) days of receiving notice from the
Executive required by clause (B) of this paragraph; and (D) the Executive's termination of employment for "Good Reason" occurs on the later of (i) ninety (90) days after
the Resignation Condition first occurred or (ii) 10 days after the sixty (60) day period if, in the event of (D)(i) or (D)(ii) the Company has not cured such Resignation
Condition. 

        (d)   "Pro Rata Annual Bonus" means an amount equal to the product of (i) the Executive's actual Annual Bonus he would
have earned for the full year in which his employment hereunder terminates based on the Company's actual performance and bonus plan in effect at such time and (ii) a fraction, the numerator of
which is the number of days on which the Executive was employed by the Company during such year and the denominator of which is 365, reduced by any pro rata bonus paid or payable under the applicable
annual incentive plan of the Company for the relevant performance period in which the termination of employment occurred. 

        3.5.    Exclusive Remedy.    The payments under this Agreement which become due following termination of the
Executive's employment shall constitute the exclusive payments due the Executive upon a
termination of his employment under this Employment Agreement, except that the Executive will remain entitled to the provisions of Section 2.6. 

        3.6.    Resignation from All Positions.    Upon the termination of the Executive's employment with the Company for any
reason the Executive shall be deemed to have resigned, as of the date of such termination, from all positions he then holds as an officer, director, employee and member of the board of directors (and
any committee thereof) of the Company and all of its subsidiaries. 

        3.7.    Cooperation.    Following the termination of the Executive's employment with the Company, for any reason, the
Executive agrees to cooperate with the Company upon reasonable request of the Board and to be reasonably available to the Company with respect to matters arising out of the Executive's services to the
Company and its subsidiaries. The Company shall reimburse the Executive for out-of-pocket expenses reasonably incurred in connection with such matters, including attorney's
fees; provided that prior to engaging an attorney, the Executive provided written notice to the Company of his intention to do so, and the Company
consented to such engagement. The Company may, in its discretion, withhold such consent and release the Executive from his obligations under this Section 3.7. 

        3.8.    No Mitigation.    In no event shall the Executive be obligated to seek other employment or take any other
action to mitigate the amounts or benefits payable to the Executive under any of the provisions of this Employment Agreement, and there shall be no offset against amounts or benefits due the Executive
under this Employment Agreement or otherwise on account of any claim (other than preexisting debts then due in accordance with their terms) the Company or its affiliates may have against him or any
remuneration or other benefit earned or received by the Executive after any termination of employment. 

        Section 4.    Unauthorized Disclosure; Non-Solicitation; Non-Competition; Proprietary
Rights.    

        4.1.    Unauthorized Disclosure.    The Executive agrees and understands that in the Executive's position with the
Company, the Executive has been and will be exposed to and has and will receive information relating to the confidential affairs of the Company and its affiliates, including, without limitation,
technical information, intellectual property, business and marketing plans, strategies, 

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customer
information, software, other information concerning the products, promotions, development, financing, expansion plans, business policies and practices of the Company and its affiliates and
other forms of information considered by the Company and its affiliates to be confidential and in the nature of trade secrets (including, without limitation, ideas, research and development,
know-how, formulas, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals)
(collectively, the "Confidential Information"). The Executive agrees that at all times during the Executive's employment with the Company and
thereafter, the Executive shall not disclose, communicate, or furnish to any other person any information that the Company and its affiliates have identified to the Executive in writing as
confidential or proprietary information or that, even without such identification, the Executive knows or should know to be confidential or proprietary information except for Permitted Disclosures (as
defined below). This confidentiality covenant has no temporal, geographical or territorial restriction. Upon termination of the Executive's employment with the Company, the Executive shall promptly
supply to the Company all property including computers, keys, notes, memoranda, writings, lists, files, reports, customer lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines,
technical data and any other tangible product or document which has been produced by, received by or otherwise submitted to the Executive during or prior to the Executive's employment with the
Company, and any copies thereof in his (or capable of being reduced to his) possession. "Permitted Disclosure" means the disclosure of confidential or
proprietary information that (i) is made with the prior written consent of the Company, (ii) is required to be disclosed by law or legal process, or (iii) is made in the course of
the Executive's employment with the Company, but only to the extent the Executive reasonably deemed such disclosure necessary or appropriate to perform the Executive's responsibilities on behalf of
the Company or otherwise advance the interests of the Company. 

        4.2.    Non-Competition.    By and in consideration of the Company entering into this Employment Agreement
and the payments to be made and benefits to be provided by the Company hereunder, and in further consideration of the Executive's exposure to the Confidential Information of the Company and its
affiliates, the Executive agrees that the Executive shall not, (i) for purposes of any covenant protecting the Rio Tinto Group, one (1) year following the completion of the IPO or
(ii) for purposes of covenants protecting the Company's, during the Executive's employment with the Company (whether during the Term or thereafter) and for a one (1) year period
following the termination of the Executive's employment, whether such termination is by the Company or by the Executive (the "Restriction Period"),
directly or indirectly, own, manage, operate, join, control, be employed by, or participate in the ownership, management, operation or control of, or be connected in any manner with, including,
without limitation, holding any position as a stockholder, director, officer, consultant, independent contractor, employee, partner, or investor in, any Restricted Enterprise (as defined below);  provided that in no event shall ownership of two percent (2%) or less of the outstanding securities of any class of any issuer whose securities are
registered under the Securities Exchange Act of 1934, as amended, standing alone, be prohibited by this Section 4.2, so long as the Executive does not have, or exercise, any rights to manage or
operate the business of such issuer other than rights as a stockholder thereof. For purposes of this paragraph, "Restricted Enterprise" shall mean any of the Companies listed on  Appendix E. During
the Restriction Period, upon request of the Company, the Executive shall notify the Company of the Executive's
then-current employment status. 

        4.3.    Non-Solicitation of Employees.    During the Restriction Period, the Executive shall not solicit
or assist any person to solicit for employment or hire any person who is, or within twelve (12) months prior to the date of such solicitation or hire was, a director, officer or employee of the
Company or any of its affiliates or any member of the Rio Tinto Group, provided that this Section 4.3 shall not apply to solicitation of a person who responds to general advertising. 

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        4.4.    Non-Solicitation of Customers.    During the Restriction Period, the Executive shall not, on
behalf of himself or any other Person, 

        (a)   Call
upon any of the U.S. customers or U.S clients of the Company or its affiliates or any member of the Rio Tinto Group (or potential U.S. customers or U.S. clients
whose business the Executive solicited on behalf of the Company or its affiliates or any member of the Rio Tinto Group or about whose needs the Executive gained information during his employment with
the Company or with any member of the Rio Tinto Group) for the purpose of soliciting or providing any product or service that competes or could compete with any product or service provided by the
Company or its affiliates or any member of the Rio Tinto Group. 

        (b)   Divert
or take away, or attempt to take away any of the U.S. customers, U.S. clients, businesses or patrons of the Company or its affiliates or any member of the Rio
Tinto Group (or potential customers or clients whose business the Executive solicited on behalf of the Company or its affiliates or about whose needs the Executive gained information during his
employment with the Company). 

        4.5.    Extension of Restriction Period.    The Restriction Period applicable to any particular restriction shall be
tolled for any period during which the Executive is in breach of that restriction under any of Sections 4.2, 4.3 and 4.4 hereof. 

        4.6.    Blue Pencil.    If any court of competent jurisdiction shall at any time deem the duration or the geographic
scope of any of the provisions of this Section 4 unenforceable, the other provisions of this Section 4 shall nevertheless stand and the duration and/or geographic scope set forth herein
shall be deemed to be the longest period and/or greatest size permissible by law under the circumstances, and the parties hereto agree that such court shall reduce the time period and/or geographic
scope to permissible duration or size. 

        4.7.    Remedies.    The Executive agrees that any breach of the terms of this Section 4 would result in
irreparable injury and damage to the Company for which the Company would have no adequate remedy at law; the Executive therefore also agrees that in the event of said breach or any threat of breach,
the Company shall be entitled to an immediate injunction and restraining order to prevent such breach and/or threatened breach and/or continued breach by the Executive, without having to prove
damages, in addition to any other remedies to which the Company may be entitled at law or in equity, including without limitation, the obligation of the Executive to return to the Company the portion
of the Severance Payments paid pursuant to Section 2.2 or 2.3. The terms of this Section 4.7 shall not prevent the Company from pursuing any other available remedies for any breach or
threatened breach
hereof, including, without limitation, the recovery of damages from the Executive. The Executive and the Company further agree that the provisions of the covenants contained in this Section 4
are reasonable and necessary to protect the businesses of the Company and its affiliates and any member of the Rio Tinto Group because of the Executive's access to Confidential Information and his
material participation in the operation of such businesses. 

For
purposes of this Employment Agreement, "Rio Tinto Group" means Rio Tinto plc, Rio Tinto Limited and any other corporation wherever situated in which Rio Tinto plc or Rio Tinto
Limited owns or controls, directly or indirectly, more than 50% of the shares of stock carrying the right to vote at a general meeting (or its equivalent) or such corporation. 

        Section 5.    Representations.    The Executive represents and warrants that he (i) is not subject to
any contract, arrangement, policy or understanding, or to any statute, governmental rule or regulation, that in any way limits his or its ability to enter into and fully perform his or its obligations
under this Employment Agreement and (ii) is not otherwise unable to enter into and fully perform his or its 

7

 

obligations
under this Employment Agreement. The Company represents and warrants that this Employment Agreement will, by its effective date, have been duly authorized, executed and delivered by the
Company. 

        Section 6.    Withholding; Taxes.    All amounts paid to the Executive under this Employment Agreement during
or following the Term shall be subject to any required withholding and other employment taxes imposed by applicable law. 

        Section 7.    Miscellaneous.    

        7.1.    Amendments and Waivers.    This Employment Agreement and any of the provisions hereof may be amended, waived
(either generally or in a particular instance and either retroactively or prospectively), modified or supplemented, in whole or in part, only by written agreement signed by the parties hereto;  provided
that the observance of any provision of this Employment Agreement may be waived in writing by the party that will lose the benefit of such
provision as a result of such waiver. The waiver by any party hereto of a breach of any provision of this Employment Agreement shall not operate or be construed as a further or continuing waiver of
such breach or as a waiver of any other or subsequent breach, except as otherwise explicitly provided for in such waiver. Except as otherwise expressly provided herein, no failure on the part of any
party to exercise, and no delay in exercising, any right, power or remedy hereunder, or otherwise available in respect hereof at law or in equity, shall operate as a waiver thereof, nor shall any
single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy. 

        7.2.    Assignment; No Third-Party Beneficiaries.    This Employment Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive or the Company, and any purported assignment by the Executive or the Company shall be null and void;  provided, however, the Company is authorized to assign this Employment Agreement to a successor to
substantially all of its assets by merger or otherwise. Nothing in this Employment Agreement shall confer upon any person not a party to this Employment Agreement (other than pursuant to
Section 7.6), or the legal representatives of such person, any rights or remedies of any nature or kind whatsoever under or by reason of this Employment Agreement. 

        7.3.    Notices.    Unless otherwise provided herein, all notices, requests, demands, claims and other communications
provided for under the terms of this Employment Agreement shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be sent by (i) personal delivery
(including receipted courier service) or overnight delivery service, (ii) facsimile during normal business hours, with confirmation of receipt, to the number indicated, (iii) reputable
commercial overnight delivery service courier or (iv) registered or certified mail, return receipt requested, postage prepaid and addressed to the intended recipient as set forth below: 

	(a)
	If
to the Executive, to the most recent home address that the Company maintains in its records for the Executive

	(b)
	If
to the Company, to: 

Cloud
Peak Energy LLC

505 S. Gillette Ave.

Gillette, WY 82716

Attention: Company Secretary

Facsimile: (307) 687-6000

Telephone: (307) 687-6059 

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	(c)
	With
a copy (which shall not constitute notice) to: 

Fried,
Frank, Harris, Shriver & Jacobson LLP

One New York Plaza

New York, NY 10004

Attention: Donald P. Carleen, Esq.

Facsimile: (212) 859-4000 

        All
such notices, requests, consents and other communications shall be deemed to have been given when received. Any party may change its facsimile number or its address to which notices,
requests, demands, claims and other communications hereunder are to be delivered by giving the other parties hereto notice in the manner then set forth. 

        7.4.    Governing Law.    This Employment Agreement shall be construed and enforced in accordance with, and the rights
and obligations of the parties hereto shall be governed by, the laws of the state of Colorado, without giving effect to the conflicts of law principles thereof. 

        7.5.    Severability.    Whenever possible, each provision or portion of any provision of this Employment Agreement,
including those contained in Section 4 hereof, will be interpreted in such manner as to be effective and valid under applicable law but the invalidity or unenforceability of any provision or
portion of any provision of this Employment Agreement in any jurisdiction shall not affect the validity or enforceability of the remainder of this Employment Agreement in that jurisdiction or the
validity or enforceability of this Employment Agreement, including that provision or portion of any provision, in any other jurisdiction. In addition, should a court or arbitrator determine that any
provision or portion of any provision of this Employment Agreement, including those contained in Section 4 hereof, is not reasonable or valid, either in period of time, geographical area, or
otherwise, the parties hereto agree that such provision should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable or valid. 

        7.6.    Entire Agreement.    This Employment Agreement constitutes the entire agreement between the parties and
supersedes all prior representations, agreements and understandings (including any prior course of dealings), both written and oral, between the parties with respect to the subject matter hereof;
including, without limitation, the Previous Agreement. The Previous Agreement shall be terminated without any further liability of the Executive or Rio Tinto Energy America thereunder, other than the
payment by Rio Tinto Energy America of all salary and benefits then accrued thereunder and reimbursement of any reimbursable expenses thereunder. The Executive acknowledges that Rio Tinto Energy
America is intended as a third party beneficiary to the provisions of this 7.6. 

        7.7.    Counterparts.    This Employment Agreement may be executed in any number of counterparts, each of which shall
be deemed an original, but all such counterparts shall together constitute one and the same instrument. 

        7.8.    Binding Effect.    Subject to Section 7.2, this Employment Agreement shall inure to the benefit of, and
be binding on, the successors and assigns of each of the parties, including, without limitation, the Executive's heirs and the personal representatives of the Executive's estate and any successor to
all or substantially all of the business and/or assets of the Company. Unless the same shall occur by operation of law, the Company shall require any such successor to assume and agree in writing to
perform all obligations under this Agreement. 

        7.9.    General Interpretive Principles.    The headings of the sections, paragraphs, subparagraphs, clauses and
subclauses of this Employment Agreement are for convenience of reference only and shall not in any way affect the meaning or interpretation of any of the provisions hereof. Words of inclusion shall
not be construed as terms of limitation herein, so that references to "include", "includes" and "including" shall not be limiting and shall be regarded as references to non-exclusive and
non-characterizing illustrations. 

9

 

        IN
WITNESS WHEREOF, the undersigned have executed this Employment Agreement as of the date first written above. 

 

 

					
	 	 	THE COMPANY
	
  

  James Orchard	
 	
By:	
 	
 

  Name:

Title:

 

 10

 

 

 
 

  Appendix A    
    

 
    IPO RESTRICTED STOCK AGREEMENT    
    

11

 
 
 

  Appendix B    
    

 
    IPO STOCK OPTION AGREEMENT    
    

12

 
 
 

  Appendix C    
    

 
    BLACK-SCHOLES ASSUMPTIONS    
    

	•
	To develop a Black-Scholes value for the Company, the average volatility of the peer group over 3, 5 and 10 year
periods and the expected life of the options of 6.5, 5.5 and 4.5 years.   

	•
	For purposes of the calculation, volatility has been capped at 50%.   

	•
	For purposes of expected life, a safe-harbor (equal to the full term plus 3 years, divided by two) was
used, which results in a 6.5 years expected life on a 10 year option. 

 

 

														
	 
	 	Expected Life 	 	 
	 
	 
	 	Avg.

Black-Scholes 	 
	Volatility

 
	 	6.5 Years 	 	5.5 Years 	 	4.5 Years 	 
	 3-Yr
	 	 	53.0	%	 	48.5	%	 	43.6	%	 	48.4	%
	 5-Yr
	 	 	53.0	%	 	48.5	%	 	43.6	%	 	48.4	%
	 10-Yr
	 	 	53.0	%	 	48.5	%	 	43.6	%	 	48.4	%

 

 13

 
 
 

  Appendix D    
    

 
    WAIVER AND RELEASE OF CLAIMS    
    

        1.    General Release.    In consideration of the payments and benefits to be made under the Employment Agreement,
dated as of August     , 2009, to which Cloud Peak Energy Inc. (the "Company") and James Orchard (the
"Executive") are parties (the "Employment Agreement"), the Executive, with the intention of binding the
Executive and the Executive's heirs, executors, administrators and assigns, does hereby release, remise, acquit and forever discharge the Company and each of its subsidiaries and affiliates (the
"Company Affiliated Group"), their present and former officers, directors, executives, agents, shareholders, attorneys, and employees, and the
successors, predecessors and assigns of each of the foregoing (collectively, the "Company Released Parties"), of and from any and all claims, actions,
causes of action, complaints, charges, demands, rights, damages, debts, sums of money, accounts, financial obligations, suits, expenses, attorneys' fees and liabilities of whatever kind or nature in
law, equity or otherwise, whether accrued, absolute, contingent, unliquidated or otherwise and whether now known, unknown, suspected or unsuspected which the Executive, individually or as a member of
a class, now has, owns or holds, or has at any time heretofore had, owned or held, against any Company Released Party (an "Action") arising out of or in
connection with the Executive's employment by any member of the Company Affiliated Group (or the predecessors thereof), including (i) the termination of such service in any such capacity,
(ii) for severance or vacation benefits, unpaid wages, salary or incentive payments, (iii) for breach of contract, wrongful discharge, impairment of economic opportunity, defamation,
intentional infliction of emotional harm or other tort and (iv) for any violation of applicable state and local labor and employment laws (including, without limitation, all laws concerning
harassment, discrimination, retaliation and other unlawful or unfair labor and employment practices), and any and all Actions arising under the civil rights laws of any federal, state or local
jurisdiction, including, without limitation, Title VII of the Civil Rights Act of 1964 ("Title VII"), the Americans with Disabilities Act
("ADA"), Sections 503 and 504 of the Rehabilitation Act, the Family and Medical Leave Act and the Age Discrimination in Employment Act
("ADEA"), excepting only: 

        (a)   rights
of the Executive under this Waiver and Release of Claims and the Employment Agreement, including, but not limited to, the Executive's rights to payments under
Section 3 of the Employment Agreement; 

        (b)   rights
of the Executive relating to equity and equity compensatory awards of the Company held by the Executive as of his date of termination and rights under the
Company's equity incentive plans; 

        (c)   the
right of the Executive to receive COBRA continuation coverage in accordance with applicable law and the Employment Agreement; 

        (d)   rights
to indemnification the Executive may have under the by-laws or certificate of incorporation of the Company or otherwise; 

        (e)   claims
for benefits under any health, disability, retirement, deferred compensation, life insurance or other employee benefit plan or arrangement of the Company
Affiliated Group or any thereof; and 

        (f)    claims
for the reimbursement of un-reimbursed business expenses incurred prior to the date of termination pursuant to applicable Company policy. 

        2.    No Admissions, Complaints or Other Claims.    The Executive acknowledges and agrees that this Waiver and Release
of Claims is not to be construed in any way as an admission of any liability whatsoever by any Company Released Party, any such liability being expressly denied. The Executive also acknowledges and
agrees that he has not, with respect to any transaction or state of facts existing 

14

 

prior
to the date hereof, filed any Actions against any Company Released Party with any governmental agency, court or tribunal or, if he has, that he will promptly withdraw the same with prejudice. 

        3.    Application to all Forms of Relief.    This Waiver and Release of Claims applies to any relief no matter how
called, including, without limitation, wages, back pay, front pay, compensatory damages, liquidated damages, punitive damages, damages for pain or suffering, costs and attorney's fees and expenses. 

        4.    Specific Waiver.    The Executive specifically acknowledges that his acceptance of the terms of this Waiver and
Release of Claims is, among other things, a specific waiver of any and all Actions under Title VII, ADEA, ADA and any state or local law or regulation in respect of discrimination of any kind;  provided,
however, that nothing herein shall be deemed, nor does anything herein purport, to be a waiver
of any right or Action which by law the Executive is not permitted to waive. 

        5.    Voluntariness.    The Executive acknowledges and agrees that he is relying solely upon his own judgment; that
the Executive is over eighteen years of age and is legally competent to sign this Waiver and Release of Claims; that the Executive is signing this Waiver and Release of Claims of his own free will;
that the Executive has read and understood the Waiver and Release of Claims before signing it; and
that the Executive is signing this Waiver and Release of Claims in exchange for consideration that he believes is satisfactory and adequate. The Executive also acknowledges and agrees that he has been
informed of the right to consult with legal counsel and has been encouraged to do so. 

        6.    Complete Agreement/Severability.    This Waiver and Release of Claims constitutes the complete and final
agreement between the parties and supersedes and replaces all prior or contemporaneous agreements, negotiations, or discussions relating to the subject matter of this Waiver and Release of Claims. All
provisions and portions of this Waiver and Release of Claims are severable. If any provision or portion of this Waiver and Release of Claims or the application of any provision or portion of the
Waiver and Release of Claims shall be determined to be invalid or unenforceable to any extent or for any reason, all other provisions and portions of this Waiver and Release of Claims shall remain in
full force and shall continue to be enforceable to the fullest and greatest extent permitted by law. 

        7.    Acceptance and Revocability.    The Executive acknowledges that he has been given a period of 21 days
within which to consider this Waiver and Release of Claims, unless applicable law requires a longer period, in which case the Executive shall be advised of such longer period and such longer period
shall apply. The Executive may accept this Waiver and Release of Claims at any time within this period of time by signing the Waiver and Release of Claims and returning it to the Company. This Waiver
and Release of Claims shall not become effective or enforceable until seven calendar days after the Executive signs it. The Executive may revoke his acceptance of this Waiver and Release of Claims at
any time within that seven calendar day period by sending written notice to the Company. Such notice must be received by the Company within the seven calendar day period in order to be effective and,
if so received, would void this Waiver and Release of Claims for all purposes. 

        8.    Governing Law.    Except for issues or matters as to which federal law is applicable, this Waiver and Release of
Claims shall be governed by and construed and enforced in accordance with the laws of the state of Colorado without giving effect to the conflicts of law principles thereof. 

        Date:                               
     ,
20    

 

 

			
	 
	 	  

  James Orchard

 

 15

 
 
 

  Appendix E    
    

 
    RESTRICTED ENTERPRISES    
    

	•
	Peabody Energy Corporation;   

	•
	CONSOL Energy Inc.;   

	•
	Arch Coal, Inc.;   

	•
	Massey Energy Company;   

	•
	Alpha Natural Resources, Inc.   

	•
	Foundation Coal Holdings, Inc.;   

	•
	Patriot Coal Corporation;   

	•
	Alliance Resource Partners, L.P.;   

	•
	International Coal Group, Inc.   

	•
	James River Coal Company; and   

	•
	Westmoreland Coal Company. 

16

QuickLinks

Exhibit 10.40

EMPLOYMENT AGREEMENT

RECITALS

Appendix A

IPO RESTRICTED STOCK AGREEMENT

Appendix B

IPO STOCK OPTION AGREEMENT

Appendix C

BLACK-SCHOLES ASSUMPTIONS

Appendix D

WAIVER AND RELEASE OF CLAIMS

Appendix E

RESTRICTED ENTERPRISESFiled by sedaredgar.com - Passport Arts Inc. - Exhibit 10.1

NONE OF THE SECURITIES TO WHICH THIS PRIVATE PLACEMENT SUBSCRIPTION RELATES HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, MAY NOT BE
OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES (AS DEFINED HEREIN) OR TO U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.  IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE
SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE 1933 ACT. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED BY REGULATION S UNDER THE 1933 ACT. 

 PRIVATE PLACEMENT SUBSCRIPTION

  FOR NON U.S. SUBSCRIBERS 

 PASSPORT ARTS INC.

 PRIVATE PLACEMENT OF COMMON STOCK

 INSTRUCTIONS TO SUBSCRIBER:

	
1. 		
COMPLETE the information on page 11 of this Subscription.

	
	 	 
	
2. 		
IF you are not subscribing as a close personal friend, family member, or close business associate of a director, officer, founder or control person of the Company as indicated on page 4, COMPLETE the Quebec
Accredited Investor Questionnaire attached as Schedule A to this Subscription (the "Quebec Questionnaire").

	
	 	 
	
3. 		
DELIVER the Subscription Proceeds to the President, Asbed Palakian, at the address of the Company set out below.

	
	 	 
	
4. 		
COURIER the originally executed copy of the entire Subscription to the President, Asbed Palakian, at:

	

 PASSPORT ARTS INC. 

  5147 Mountain Sights 

  Montreal, Quebec H3W 2Y1

NONE OF THE SECURITIES TO WHICH THIS PRIVATE PLACEMENT
SUBSCRIPTION RELATES HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY U.S. STATE SECURITIES LAWS, AND,
UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE
UNITED STATES (AS DEFINED HEREIN) OR TO U.S. PERSONS EXCEPT IN ACCORDANCE WITH
THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION
FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES
LAWS. IN ADDITION, HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE
CONDUCTED UNLESS IN COMPLIANCE WITH THE 1933 ACT. "UNITED STATES" AND "U.S.
PERSON" ARE AS DEFINED BY REGULATION S UNDER THE 1933 ACT. 

PRIVATE PLACEMENT SUBSCRIPTION

  (Non U.S. Subscribers Only) 

	TO: 	PASSPORT ARTS INC. (the
      "Company") 
	  	5147 Mountain Sights 
	 	Montreal, Quebec
      H3W 2Y1 

Purchase of Shares

1.                       
Subscription 

1.1                     
The undersigned (the "Subscriber") hereby irrevocably subscribes for and agrees
to purchase the number of shares of the Company's common stock (the "Shares") as
set out on page 11 of this Subscription at a price of US$0.001 per Share
(such subscription and agreement to purchase being the "Subscription"), for the
total subscription price as set out on page 11 of this Subscription (the
"Subscription Proceeds"), which Subscription Proceeds are tendered herewith, on
the basis of the representations and warranties and subject to the terms and
conditions set forth herein. 

1.2                     
The Company hereby agrees to sell, on the basis of the representations and
warranties and subject to the terms and conditions set forth herein, to the
Subscriber the Shares. Subject to the terms hereof, the Subscription will be
effective upon its acceptance by the Company. 

1.3                     
Unless otherwise provided, all dollar amounts referred to in this Subscription
are in lawful money of the United States of America. 

2.                       
Payment 

2.1                     
The Subscription Proceeds must accompany this Subscription and shall be sent
directly to the Company. 

2.2                     
Where the Subscription Proceeds are paid to the Company, the Company may treat
the Subscription Proceeds as a non-interest bearing loan and may use the
Subscription Proceeds prior to this subscription being accepted by the Company.

2.3                     
The Subscriber shall complete, sign and return to the Company as soon as
possible, on request by the Company, any documents, questionnaires, notices and
undertakings as may be required by regulatory authorities. 

- 2 -

3.              
         Closing

3.1                     
Closing of the purchase and sale of the Shares shall occur on such date as may
be determined by the Company in its sole discretion (the "Closing Date"). The
Subscriber acknowledges that Shares may be issued to other subscribers under
this offering (the "Offering") before or after the Closing Date. 

4.                       
Acknowledgements of Subscriber 

4.1                     
The Subscriber acknowledges and agrees that: 

	 	(a) 	
      the Shares have not been registered under the Securities
      Act of 1933, as amended (the "1933 Act"), or under any state securities or
      "blue sky" laws of any state of the United States, and are being offered
      only in a transaction not involving any public offering within the meaning
      of the 1933 Act, and, unless so registered, may not be offered or sold in
      the United States or to U.S. Persons (as defined herein), except pursuant
      to an effective registration statement under the 1933 Act, or pursuant to
      an exemption from, or in a transaction not subject to, the registration
      requirements of the 1933 Act, and in each case only in accordance with
      applicable state securities laws;

	 	 	 
	 	(b) 	
      the Company will refuse to register any transfer of the
      Shares not made in accordance with the provisions of Regulation S,
      pursuant to an effective registration statement under the 1933 Act or
      pursuant to an available exemption from, or in a transaction not subject
      to, the registration requirements of the 1933 Act;

	 	 	 
	 	(c) 	
      by completing the Quebec Questionnaire, if applicable,
      the Subscriber is representing and warranting that the Subscriber is an
      "Accredited Investor", as the term is defined in National Instrument
      45-106 ("NI 45-106") adopted by the Autorité Des Marchés Financiers (the
      "ADMF");

	 	 	 
	 	(d) 	
      the Subscriber and the Subscriber's advisor(s) have had a
      reasonable opportunity to ask questions of and receive answers from the
      Company regarding the Offering;

	 	 	 
	 	(e) 	
      the books and records of the Company were available upon
      reasonable notice for inspection, subject to certain confidentiality
      restrictions, by the Subscriber during reasonable business hours at its
      principal place of business and that all documents, records and books
      pertaining to this Offering have been made available for inspection by the
      Subscriber, the Subscriber's attorney and/or advisor(s);

	 	 	 
	 	(f) 	
      by execution hereof the Subscriber has waived the need
      for the Company to communicate its acceptance of the purchase of the
      Shares pursuant to this Subscription;

	 	 	 
	 	(g) 	
      the Company is entitled to rely on the representations
      and warranties and the statements and answers of the Subscriber contained
      in this Subscription and the Quebec Questionnaire, if applicable, and the
      Subscriber will hold harmless the Company from any loss or damage it may
      suffer as a result of the Subscriber's failure to correctly complete this
      Subscription and the Quebec Questionnaire, if applicable;

	 	 	 
	 	(h) 	
      the Subscriber will indemnify and hold harmless the
      Company and, where applicable, its respective directors, officers,
      employees, agents, advisors and shareholders from and against any and all
      loss, liability, claim, damage and expense whatsoever (including, but not
      limited to, any and all fees, costs and expenses whatsoever reasonably
      incurred in investigating, preparing or defending against any claim,
      lawsuit, administrative proceeding or investigation whether commenced or
      threatened) arising out of or based upon any
  acknowledgment,

- 3 -

	 		
      representation or warranty of the Subscriber contained
      herein, the Quebec Questionnaire, if applicable, or in any other document
      furnished by the Subscriber to the Company in connection herewith, being
      untrue in any material respect or any breach or failure by the Subscriber
      to comply with any covenant or agreement made by the Subscriber to the
      Company in connection therewith;

	 	 	 
	 	(i) 	
      the issuance and sale of the Shares to the Subscriber
      will not be completed if it would be unlawful or if, in the discretion of
      the Company acting reasonably, it is not in the best interests of the
      Company;

	 	 	 
	 	(j) 	
      that resale of any of the Shares in Canada is restricted
      except pursuant to an exemption from applicable securities
    legislation;

	 	 	 
	 	(k) 	
      the Subscriber has not acquired the Shares as a result
      of, and will not itself engage in, any "directed selling efforts" (as
      defined in Regulation S under the 1933 Act) in the United States in
      respect of any of the Shares which would include any activities undertaken
      for the purpose of, or that could reasonably be expected to have the
      effect of, conditioning the market in the United States for the resale of
      any of the Shares; provided, however, that the Subscriber may sell or
      otherwise dispose of any of the Shares pursuant to registration of any of
      the Shares pursuant to the 1933 Act and any applicable state securities
      laws or under an exemption from such registration requirements and as
      otherwise provided herein;

	 	 	 
	 	(l) 	
      the Subscriber is outside the United States when
      receiving and executing this Subscription and is acquiring the Shares as
      principal for its own account, for investment purposes only, and not with
      a view to, or for, resale, distribution or fractionalization thereof, in
      whole or in part, and no other person has a direct or indirect beneficial
      interest in such Shares;

	 	 	 
	 	(m) 	
      none of the Shares may be offered or sold to a U.S.
      Person or for the account or benefit of a U.S. Person (other than a
      distributor) prior to the end of the expiration of a period of one year
      after the date of original issuance of the Shares;

	 	 	 
	 	(n) 	
      the statutory and regulatory basis for the exemption
      claimed for the offer and sale of the Shares, although in technical
      compliance with Regulation S, would not be available if the offering is
      part of a plan or scheme to evade the registration provisions of the 1933
      Act;

	 	 	 
	 	(o) 	
      the Subscriber has been advised to consult its own legal,
      tax and other advisors with respect to the merits and risks of an
      investment in the Shares and with respect to applicable resale
      restrictions and it is solely responsible (and the Company is in any way
      responsible) for compliance with applicable resale restrictions;

	 	 	 
	 	(p) 	
      the Company has advised the Subscriber that the Company
      is relying on an exemption from the requirements to provide the Subscriber
      with a prospectus to sell the Shares and, as a consequence of acquiring
      the Shares pursuant to such exemption certain protections, rights and
      remedies provided by the applicable securities legislation of Quebec
      including statutory rights of rescission or damages, will not be available
      to the Subscriber;

	 	 	 
	 	(q) 	
      the Shares are not listed on any stock exchange or
      automated dealer quotation system and no representation has been made to
      the Subscriber that any of the Shares will become listed on any stock
      exchange or automated dealer quotation system;

	 	 	 
	 	(r) 	
      neither the SEC nor any other securities commission or
      similar regulatory authority has reviewed or passed on the merits of the
      Shares;

- 4 -

	 	(s) 	
      no documents in connection with this Offering have been
      reviewed by the SEC or any state securities administrators;

	 	 	 
	 	(t) 	
      there is no government or other insurance covering any of
      the Shares; and

	 	 	 
	 	(u) 	
      this Subscription is not enforceable by the Subscriber
      unless it has been accepted by the Company, and the Subscriber
      acknowledges and agrees that the Company reserves the right to reject any
      Subscription for any reason.

5.                       
Representations, Warranties and Covenants of the
Subscriber 

5.1                     
The Subscriber hereby represents and warrants to and covenants with the Company
(which representations, warranties and covenants shall survive the Closing Date)
that: 

	 	(a) 	
      the Subscriber is not a resident in the Provinces of
      Ontario or Saskatchewan, and the Subscriber is purchasing the Shares as
      principal for its own account for investment purposes only, not for the
      benefit of another person and not with a view to the resale or
      distribution of all or any of the Shares and it is (circle one of the
      following):

	 	(i) 	
      a director, executive officer or control person of the
      Company, or of an affiliate of the Company,

	 	 	 
	 	(ii) 	
      a spouse, parent, grandparent, brother, sister or child
      of ________________________________, (insert applicable name) a director,
      executive officer or control person of the Company, or of an affiliate of
      the Company,

	 	 	 
	 	(iii) 	
      a parent, grandparent, brother, sister or child of the
      spouse of ___________________________, (insert applicable name) a
      director, executive officer or control person of the Company, or of an
      affiliate of the Company,

	 	 	 
	 	(iv) 	
      a close personal friend or business associate of
      _________________________________ , (insert applicable name) a director,
      executive officer or control person of the Company, or of an affiliate of
      the Company, whose relationship with that person is such that the
      Subscriber would not be considered to be a member of the public in respect
      of such person or the Company and the Subscriber does not require the
      protection of receiving a prospectus before making an investment in the
      Shares,

	 	 	 
	 	(v) 	
      a founder of the Company or a spouse, parent,
      grandparent, brother, sister, child, close personal friend or close
      business associate of a founder of the Company
      ________________________________ (insert applicable name),

	 	 	 
	 	(vi) 	
      a parent, grandparent, brother, sister or child of a
      spouse of a founder of the Company ________________________________
      (insert applicable name),

	 	 	 
	 	(vii) 	
      a person or company of which a majority of the voting
      securities are beneficially owed by, or a majority of the directors are,
      persons or companies described in paragraphs (i) to (vi),

	 	 	 
	 	(viii) 	
      a trust or estate of which all of the beneficiaries or a
      majority of the trustees are persons or companies described in paragraphs
      (i) to (vi), or

	 	 	 
	 	(ix) 	
      an “Accredited Investor” as defined in Schedule A
      attached hereto; (complete Schedule A if subscribing as an Accredited
      Investor);

	 	(b) 	
      the Subscriber is not a U.S.
Person;

- 5 -

	 	(c) 	
      the Subscriber is not acquiring the Shares for the
      account or benefit of, directly or indirectly, any U.S. Person;

	 	 	 	 	 
	 	(d) 	
      the Subscriber is resident in the jurisdiction set out on
      page 11 of this Subscription;

	 	 	 	 	 
	 	(e) 	
      the issuance of the Shares to the Subscriber as
      contemplated by the delivery of this Agreement, the acceptance of it by
      the Company and the issuance of the Shares to the Subscriber complies with
      all applicable laws of the Subscriber's jurisdiction of residence or
      domicile and will not cause the Company to become subject to or comply
      with any disclosure, prospectus or reporting requirements under any such
      applicable laws;

	 	 	 	 	 
	 	(f) 	
      the Subscriber:

	 	 	 	 	 
	 		(i) 	
      is knowledgeable of, or has been independently advised as
      to, the applicable securities laws of the securities regulators having
      application in the jurisdiction in which the Subscriber is resident (the
      “International Jurisdiction”) which would apply to the acquisition of the
      Shares,

	 	 	 	 	 
	 		(ii) 	
      is purchasing the Shares pursuant to exemptions from
      prospectus or equivalent requirements under applicable securities laws or,
      if such is not applicable, the Subscriber is permitted to purchase the
      Shares under the applicable securities laws of the securities regulators
      in the International Jurisdiction without the need to rely on any
      exemptions,

	 	 	 	 	 
	 		(iii) 	
      acknowledges that the applicable securities laws of the
      authorities in the International Jurisdiction do not require the Company
      to make any filings or seek any approvals of any kind whatsoever from any
      securities regulator of any kind whatsoever in the International
      Jurisdiction in connection with the issue and sale or resale of the
      Shares, and

	 	 	 	 	 
	 		(iv) 	
      represents and warrants that the acquisition of the
      Shares by the Subscriber does not trigger:

	 	 	 	 	 
	 			A. 	
      any obligation to prepare and file a prospectus or
      similar document, or any other report with respect to such purchase in the
      International Jurisdiction, or

	 	 	 	 	 
	 			B. 	
      any continuous disclosure reporting obligation of the
      Company in the International Jurisdiction, and

	 	 	 	 	 
	 			
      the Subscriber will, if requested by the Company, deliver
      to the Company a certificate or opinion of local counsel from the
      International Jurisdiction which will confirm the matters referred to in
      subparagraphs (ii), (iii) and (iv) above to the satisfaction of the
      Company, acting reasonably;

	 	 	 	 	 
	 	(g) 	
      the Subscriber is acquiring the Shares as principal for
      investment only and not with a view to, or for, resale, distribution or
      fractionalization thereof, in whole or in part, and, in particular, it has
      no intention to distribute either directly or indirectly any of the Shares
      in the United States or to U.S. Persons;

	 	 	 	 	 
	 	(h) 	
      the Subscriber is outside the United States when
      receiving and executing this Subscription;

	 	 	 	 	 
	 	(i) 	
      the Subscriber has received and carefully read this
      Subscription;

- 6 -

	 	(j) 	
      the Subscriber understands and agrees not to engage in
      any hedging transactions involving any of the Shares unless such
      transactions are in compliance with the provisions of the 1933 Act and in
      each case only in accordance with applicable state securities
  laws;

	 	 	 
	 	(k) 	
      the Subscriber acknowledges that it has not acquired the
      Shares as a result of, and will not itself engage in, any "directed
      selling efforts" (as defined in Regulation S under the 1933 Act) in the
      United States in respect of any of the Shares which would include any
      activities undertaken for the purpose of, or that could reasonably be
      expected to have the effect of, conditioning the market in the United
      States for the resale of any of the Shares; provided, however, that the
      Subscriber may sell or otherwise dispose of any of the Shares pursuant to
      registration of any of the Shares pursuant to the 1933 Act and any
      applicable state securities laws or under an exemption from such
      registration requirements and as otherwise provided herein;

	 	 	 
	 	(l) 	
      the Subscriber has the legal capacity and competence to
      enter into and execute this Subscription and to take all actions required
      pursuant hereto and, if the Subscriber is a corporation, it is duly
      incorporated and validly subsisting under the laws of its jurisdiction of
      incorporation and all necessary approvals by its directors, shareholders
      and others have been obtained to authorize execution and performance of
      this Subscription on behalf of the Subscriber;

	 	 	 
	 	(m) 	
      the Subscriber (i) has adequate net worth and means of
      providing for its current financial needs and possible personal
      contingencies, (ii) has no need for liquidity in this investment, and
      (iii) is able to bear the economic risks of an investment in the Shares
      for an indefinite period of time, and can afford the complete loss of such
      investment;

	 	 	 
	 	(n) 	
      the Subscriber has the requisite knowledge and experience
      in financial and business matters as to be capable of evaluating the
      merits and risks of the investment in the Shares and the Company, and the
      Subscriber is providing evidence of knowledge and experience in these
      matters through the information requested in the Quebec Questionnaire, if
      applicable;

	 	 	 
	 	(o) 	
      the Subscriber is aware that an investment in the Company
      is speculative and involves certain risks, including the possible loss of
      the investment;

	 	 	 
	 	(p) 	
      the entering into of this Subscription and the
      transactions contemplated hereby do not result in the violation of any of
      the terms and provisions of any law applicable to, or, if applicable, the
      constating documents of, the Subscriber, or of any agreement, written or
      oral, to which the Subscriber may be a party or by which the Subscriber is
      or may be bound;

	 	 	 
	 	(q) 	
      the Subscriber has duly executed and delivered this
      Subscription and it constitutes a valid and binding agreement of the
      Subscriber enforceable against the Subscriber;

	 	 	 
	 	(r) 	
      all information contained in this Subscription and the
      Quebec Questionnaire, if applicable, is complete and accurate and may be
      relied upon by the Company, and the Subscriber will notify the Company
      immediately of any material change in any such information occurring prior
      to the Closing Date;

	 	 	 
	 	(s) 	
      the Subscriber is purchasing the Shares for its own
      account for investment purposes only and not for the account of any other
      person and not for distribution, assignment or resale to others, and no
      other person has a direct or indirect beneficial interest is such Shares,
      and the Subscriber has not subdivided his interest in the Shares with any
      other person;

- 7 -

	 	(t) 	
      the Subscriber is not an underwriter of, or dealer in,
      the shares of the Company's common stock, nor is the Subscriber
      participating, pursuant to a contractual agreement or otherwise, in the
      distribution of the Shares;

	 	 	 	 
	 	(u) 	
      the Subscriber has made an independent examination and
      investigation of an investment in the Shares and the Company and has
      depended on the advice of its legal and financial advisors and agrees that
      the Company will not be responsible in anyway whatsoever for the
      Subscriber's decision to invest in the Shares and the Company;

	 	 	 	 
	 	(v) 	
      if the Subscriber is acquiring the Shares as a fiduciary
      or agent for one or more investor accounts, the Subscriber has sole
      investment discretion with respect to each such account, and the
      Subscriber has full power to make the foregoing acknowledgements,
      representations and agreements on behalf of such account;

	 	 	 	 
	 	(w) 	
      the Subscriber is not aware of any advertisement of any
      of the Shares and is not acquiring the Shares as a result of any form of
      general solicitation or general advertising including advertisements,
      articles, notices or other communications published in any newspaper,
      magazine or similar media or broadcast over radio or television, or any
      seminar or meeting whose attendees have been invited by general
      solicitation or general advertising;

	 	 	 	 
	 	(x) 	
      no person has made to the Subscriber any written or oral
      representations:

	 	 	 	 
	 		(i) 	
      that any person will resell or repurchase any of the
      Shares,

	 	 	 	 
	 		(ii) 	
      that any person will refund the purchase price of any of
      the Shares,

	 	 	 	 
	 		(iii) 	
      as to the future price or value of any of the Shares,
      or

	 	 	 	 
	 		(iv) 	
      that any of the Shares will be listed and posted for
      trading on any stock exchange or automated dealer quotation system or that
      application has been made to list and post any of the Shares of the
      Company on any stock exchange or automated dealer quotation system;
    and

	 	 	 	 
	 	(y) 	
      the Subscriber acknowledges and agrees that the Company
      shall not consider the Subscriber's Subscription for acceptance unless the
      undersigned provides to the Company, along with an executed copy of this
      Subscription:

	 	 	 	 
	 		(i) 	
      a fully completed and executed Quebec Questionnaire in
      the form attached hereto as Schedule A if the Subscriber is subscribing as
      an Accredited Investor, and

	 	 	 	 
	 		(ii) 	
      such other supporting documentation that the Company or
      its legal counsel may request to establish the Subscriber's qualification
      as an accredited investor.

5.2                     
In this Subscription, the term "U.S. Person" shall have the meaning ascribed
thereto in Regulation S promulgated under the 1933 Act and for the purpose of
the Subscription includes any person in the United States. 

6.                      
 Waiver 

6.1                     
The Subscriber hereby waives, to the fullest extent permitted by law, any rights
of withdrawal, rescission or compensation for damages to which the Subscriber
might be entitled in connection with the distribution of any of the Shares. 

- 8 - 

7.                       
Representations and Warranties will be Relied Upon by the Company

7.1                     
The Subscriber acknowledges that the acknowledgements, representations and
warranties contained herein are made by it with the intention that they may be
relied upon by the Company and its legal counsel in determining the Subscriber's
eligibility to purchase the Shares under applicable securities legislation, or
(if applicable) the eligibility of others on whose behalf it is contracting
hereunder to purchase the Shares under applicable securities legislation. The
Subscriber further agrees that by accepting delivery of the certificates
representing the Shares, it will be representing and warranting that the
acknowledgements representations and warranties contained herein are true and
correct as of the date hereof and will continue in full force and effect
notwithstanding any subsequent disposition by the Subscriber of such Shares.

8.                       
Resale Restrictions 

8.1                     
The Subscriber acknowledges that any resale of the Shares will be subject to
resale restrictions contained in the securities legislation applicable to the
Subscriber or proposed transferee. The Subscriber acknowledges that the Shares
have not been registered under the 1933 Act or the securities laws of any state
of the United States. The Shares may not be offered or sold in the United States
unless registered in accordance with federal securities laws and all applicable
state securities laws or exemptions from such registration requirements are
available. 

9.                       
Quebec Resale Restriction 

9.1                     
The Subscriber acknowledges that the Shares are subject to resale restrictions
in Quebec and may not be traded in Quebec except as permitted by the Securities
Act (Quebec) (the "Quebec Act") and the rules made thereunder. 

9.2                     
Pursuant to National Instrument 45-102, as adopted by the ADMF, a subsequent
trade in the Shares will be a distribution subject to the prospectus and
registration requirements of applicable Canadian securities legislation
(including the Quebec Act) unless certain conditions are met, which conditions
include a hold period (the "Canadian Hold Period") that shall have elapsed from
the date on which the Shares were issued to the Subscriber and, during the
currency of the Canadian Hold Period, any certificate representing the Shares is
to be imprinted with a restrictive legend (the "Canadian Legend"). 

9.3                     
By executing and delivering this Subscription, the Subscriber will have directed
the Company not to include the Canadian Legend on any certificates representing
the Shares to be issued to the Subscriber. 

9.4                     
As a consequence, the Subscriber will not be able to rely on the resale
provisions of National Instrument 45-102, and any subsequent trade in any of the
Shares during or after the Canadian Hold Period will be a distribution subject
to the prospectus and registration requirements of Canadian securities
legislation, to the extent that the trade is at that time subject to any such
Canadian securities legislation. 

10.                     
Legending and Registration of Subject Shares 

10.1                   
The Subscriber hereby acknowledges that upon the issuance thereof, and until
such time as the same is no longer required under the applicable securities laws
and regulations, the certificates representing any of the Shares will bear a
legend in substantially the following form: 

  
    
      
        THE SECURITIES REPRESENTED HEREBY HAVE BEEN OFFERED
          IN AN OFFSHORE TRANSACTION TO A PERSON WHO IS NOT A U.S. PERSON (AS
          DEFINED HEREIN) PURSUANT TO REGULATION S UNDER THE UNITED STATES SECURITIES
          ACT OF 1933, AS AMENDED (THE "1933 ACT"). 

      

    

  

- 9 - 

  
    
      
        NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN
          REGISTERED UNDER THE 1933 ACT, OR ANY U.S. STATE SECURITIES LAWS, AND,
          UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY,
          IN THE UNITED STATES (AS DEFINED HEREIN) OR TO U.S. PERSONS EXCEPT IN
          ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT
          TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT
          TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
          THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY
          IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. IN ADDITION, HEDGING
          TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED UNLESS IN
          COMPLIANCE WITH THE 1933 ACT. "UNITED STATES" AND "U.S. PERSON" ARE
          AS DEFINED BY REGULATION S UNDER THE 1933 ACT. 

      

    

  

10.2                   
The Subscriber hereby acknowledges and agrees to the Company making a notation
on its records or giving instructions to the registrar and transfer agent of the
Company in order to implement the restrictions on transfer set forth and
described in this Subscription. 

11.                    
 Collection of Personal Information 

11.1                   
The Subscriber acknowledges and consents to the fact that the Company is
collecting the Subscriber's personal information for the purpose of fulfilling
this Subscription and completing the Offering. The Subscriber's personal
information (and, if applicable, the personal information of those on whose
behalf the Subscriber is contracting hereunder) may be disclosed by the Company
to (a) stock exchanges or securities regulatory authorities, (b) the Company's
registrar and transfer agent, (c) Canadian tax authorities, (d) authorities
pursuant to the Proceeds of Crime (Money Laundering) and Terrorist Financing
Act (Canada) and (e) any of the other parties involved in the Offering,
including legal counsel, and may be included in record books in connection with
the Offering. By executing this Subscription, the Subscriber is deemed to be
consenting to the foregoing collection, use and disclosure of the Subscriber's
personal information (and, if applicable, the personal information of those on
whose behalf the Subscriber is contracting hereunder) and to the retention of
such personal information for as long as permitted or required by law or
business practice. Notwithstanding that the Subscriber may be purchasing Shares
as agent on behalf of an undisclosed principal, the Subscriber agrees to
provide, on request, particulars as to the identity of such undisclosed
principal as may be required by the Company in order to comply with the
foregoing. 

12.                    
 Costs 

12.1                    The
Subscriber acknowledges and agrees that all costs and expenses incurred by the
Subscriber (including any fees and disbursements of any special counsel retained
by the Subscriber) relating to the purchase of the Shares shall be borne by the
Subscriber. 

13.                     
Governing Law 

13.1                   
This Subscription is exclusively governed by the laws of the State of Nevada.
The Subscriber, in its personal or corporate capacity and, if applicable, on
behalf of each beneficial purchaser for whom it is acting, irrevocably attorns
to the exclusive jurisdiction of the Courts of the State of Nevada. 

- 10 - 

14.                     
Survival 

14.1                    This
Subscription, including without limitation the representations, warranties and
covenants contained herein, shall survive and continue in full force and effect
and be binding upon the parties hereto notwithstanding the completion of the
purchase of the Shares by the Subscriber pursuant hereto. 

15.                     
Assignment 

15.1                    This
Subscription is not transferable or assignable. 

16.                    
 Severability 

16.1                    The
invalidity or unenforceability of any particular provision of this Subscription
shall not affect or limit the validity or enforceability of the remaining
provisions of this Subscription. 

17.                     
Entire Agreement 

17.1                    Except
as expressly provided in this Subscription and in the agreements, instruments
and other documents contemplated or provided for herein, this Subscription
contains the entire agreement between the parties with respect to the sale of
the Shares and there are no other terms, conditions, representations or
warranties, whether expressed, implied, oral or written, by statute or common
law, by the Company or by anyone else. 

18.                    
 Notices 

18.1                    All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Subscriber shall be directed to the address on
page 11 and notices to the Company shall be directed to it at the first page of
this Subscription. 

19.                    
 Counterparts and Electronic Means 

19.1                    This
Subscription may be executed in any number of counterparts, each of which, when
so executed and delivered, shall constitute an original and all of which
together shall constitute one instrument. Delivery of an executed copy of this
Subscription by electronic facsimile transmission or other means of electronic
communication capable of producing a printed copy will be deemed to be execution
and delivery of this Subscription as of the date hereinafter set forth. 

20.                     
Language 

20.1                    The
Subscriber acknowledges that it has consented to and requested that all
documents evidencing or relating in any way to the sale of the Shares be drawn
up in the English language only. Le souscripteur reconnaît par les présentes
avoir consenti et exigé que tous les documents faisant foi ou se rapportant de
quelque manière à la vente des bons de souscription achets soient rédigés en
anglais seulement. 

- 11 - 

IN WITNESS WHEREOF the Subscriber has duly executed this
Subscription as of the date hereinafter set forth. 

DELIVERY AND REGISTRATION INSTRUCTIONS

	1. 	
      Delivery - please deliver the Share certificates
    to:

	 	 
		
       

	 	 
	 	 
	 	 
	2. 	
      Registration - registration of the certificates which are
      to be delivered at closing should be made as follows:

	 	 
		
       

	 	 (name)
	 	 
		
      (address)

	 	 
	3. 	
      The undersigned hereby acknowledges that he or she will
      deliver to the Company all such additional completed forms in respect of
      the Subscriber’s purchase of the Shares as may be required for filing with
      the appropriate securities commissions and regulatory
  authorities.

	 	Asbed
      Palakian 
	 	(Name of Subscriber – Please type or print)
  
	 	  
	 	/s/
      Asbed Palakian 
	 	(Signature and, if applicable, Office) 
	 	  
	 	 
	 	(Address of Subscriber) 
	 	  
	 	 
	 	(City, State, and Zip Code of Subscriber)

	 	  
	 	 
	 	(Country of Subscriber) 
	 	  
	 	  
	 	(Fax Number) 
	 	  
	 	2,887,500 
	 	(Number of Shares to be Purchased) 
	 	  
	 	$2,887.50 
	 	(Total Subscription Price)

- 12 -

A C C E P T A N C E 

The above-mentioned Subscription in respect of the Shares is
hereby accepted by PASSPORT ARTS INC.

DATED at Montreal, the 2 day of December, 2008. 

PASSPORT ARTS INC.

	Per: 	/s/ Constantina Kefallinos 	 
	  	Authorized Signatory 	 .

SCHEDULE A

QUEBEC ACCREDITED INVESTOR QUESTIONNAIRE

All capitalized terms herein, unless otherwise defined, have
the meanings ascribed thereto in the Subscription. 

The purpose of this Quebec Questionnaire is to assure the
Company that the Subscriber will meet certain requirements of National
Instrument 45-106 ("NI 45-106"). The Company will rely on the information
contained in this Quebec Questionnaire for the purposes of such determination.

The Subscriber covenants, represents and warrants to the
Company that: 

	 	1. 	
      The Subscriber has such knowledge and experience in
      financial and business matters as to be capable of evaluating the merits
      and risks of the transactions detailed in the Subscription and the
      Subscriber is able to bear the economic risk of loss arising from such
      transactions;

	 	 	 	 
	 	2. 	
      The Subscriber satisfies one or more of the categories of
      "accredited investor" (as that term is defined in NI 45-106) indicated
      below (please check the appropriate box):

	 	 	 	 
	 		
      [  ]
	
      (a) a Canadian financial institution as defined in
      National Instrument 14-101, or an authorized foreign bank listed in
      Schedule III of the Bank Act (Canada);

	 	 	 	 
	 		
      [  ]
	
      (b) the Business Development Bank of Canada incorporated
      under the Business Development Bank Act (Canada);

	 	 	 	 
	 		
      [  ]
	
      (c) a subsidiary of any person referred to in any of the
      foregoing categories, if the person owns all of the voting securities of
      the subsidiary, except the voting securities required by law to be owned
      by directors of that subsidiary;

	 	 	 	 
	 		
      [  ]
	
      (d) an individual registered or formerly registered under
      securities legislation in a jurisdiction of Canada, as a representative of
      a person or company registered under securities legislation in a
      jurisdiction of Canada, as an adviser or dealer, other than a limited
      market dealer registered under the Securities Act (Ontario) or the
      Securities Act (Newfoundland);

	 	 	 	 
	 		
      [  ]
	
      (e) an individual registered or formerly registered under
      the securities legislation of a jurisdiction of Canada as a representative
      of a person referred to in paragraph (d);

	 	 	 	 
	 		
      [  ]
	
      (f) the government of Canada or a province, or any crown
      corporation or agency of the government of Canada or a province;

	 	 	 	 
	 		
      [  ]
	
      (g) a municipality, public board or commission in Canada
      and a metropolitan community, school board, the Comite de gestion de la
      taxe scholaire de l'ile de Montreal or an intermunicipal management board
      in Québec;

	 	 	 	 
	 		
      [  ]
	
      (h) a national, federal, state, provincial, territorial
      or municipal government of or in any foreign jurisdiction, or any agency
      thereof;

	 	 	 	 
	 		
      [  ]
	
      (i) a pension fund that is regulated by either the Office
      of the Superintendent of Financial Institutions (Canada) or a pension
      commission or similar regulatory authority of a jurisdiction of
    Canada;

- 2 -

		[  ]	
      (j) an individual who either alone or with a spouse
      beneficially owns, directly or indirectly, financial assets (as defined in
      NI 45-106) having an aggregate realizable value that, before taxes but net
      of any related liabilities, exceeds CDN$1,000,000; 

	 	  	
       

		[  ]	
      (k) an individual whose net income before taxes exceeded
      CDN$200,000 in each of the two more recent calendar years or whose net
      income before taxes combined with that of a spouse exceeded $300,000 in
      each of those years and who, in either case, reasonably expects to exceed
      that net income level in the current calendar year; 

	 	  	
       

		[  ]	
      (l) an individual who, either alone or with a spouse, has
      net assets of at least CDN $5,000,000; 

	 	  	
       

		[  ]	
      (m) a person, other than a person or investment fund,
      that had net assets of at least CDN$5,000,000 as reflected on its most
      recently prepared financial statements; 

	 	  	
       

		[  ]	
      (n) an investment fund that distributes it securities
      only to persons that are accredited investors at the time of distribution,
      a person that acquires or acquired a minimum of CDN$150,000 of value in
      securities, or a person that acquires or acquired securities under
      Sections 2.18 or 2.19 of NI 45-106; 

	 	  	
       

		[  ]	
      (o) an investment fund that distributes or has
      distributed securities under a prospectus in a jurisdiction of Canada for
      which the regulator or, in Québec, the securities regulatory authority,
      has issued a receipt; 

	 	  	
       

		[  ]	
      (p) a trust company or trust corporation registered or
      authorized to carry on business under the Trust and Loan Companies Act
      (Canada) or under comparable legislation in a jurisdiction of Canada
      or a foreign jurisdiction, acting on behalf of a fully managed account
      managed by the trust company or trust corporation, as the case may be;
    

	 	  	
       

		[  ]	
      (q) a person acting on behalf of a fully managed account
      managed by that person, if that person (i) is registered or authorized to
      carry on business as an adviser or the equivalent under the securities
      legislation of a jurisdiction of Canada or a foreign jurisdiction, and
      (ii) in Ontario, is purchasing a security that is not a security of an
      investment fund; 

	 	  	
       

		[  ]	
      (r) a registered charity under the Income Tax Act
      (Canada) that, in regard to the trade, has obtained advice from an
      eligibility advisor or an advisor registered under the securities
      legislation of the jurisdiction of the registered charity to give advice
      on the securities being traded; 

	 	  	
       

		[  ]	
      (s) an entity organized in a foreign jurisdiction that is
      analogous to any of the entities referred to in paragraphs (a) to (d) or
      paragraph (i) in form and function; 

	 	  	
       

		[  ]	
      (t) a person in respect of which all of the owners of
      interests, direct, indirect or beneficial, except the voting securities
      required by law are persons or companies that are accredited investors;
      

	 	  	
       

		[  ]	
      (u) an investment funds that is advised by a person
      registered as an advisor or a person that is exempt from registration as
      an advisor; or 

	 	  	
       

		[  ]	
      (v) a person that is recognized or designated by the
      securities regulatory authority or, except in Ontario and Québec, the
      regulator as (i) an accredited investor, or (ii) an
exempt purchaser in Alberta or British Columbia after this instrument comes into force. 

- 3 -

The Subscriber acknowledges and agrees that the Subscriber may
be required by the Company to provide such additional documentation as may be
reasonably required by the Company and its legal counsel in determining the
Subscriber's eligibility to acquire the Shares under relevant legislation. 

             
           IN WITNESS WHEREOF, the
  undersigned has executed this Quebec Questionnaire as of the ________ day of
  __________________, 200__. 

	If an Individual: 	 	If a Corporation, Partnership or Other Entity:
    
	 	 	 
	 	 	 
	Signature 	 	Print or Type Name of Entity 
	 	 	 
	 	 	 
	Print or Type Name 	 	Signature of Authorized Signatory 
	 	 	 
	 	 	 
	  	 	Type of Entity

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