Document:

CC Filed by Filing Services Canada Inc. 403-717-3898

OPTION AGREEMENT 

OPTION AGREEMENT dated this 1st day of April, 2004 between QSound Labs, Inc., a body corporate, continued under the laws of the Province of Alberta, having its head office at 400 – 3115 12th Street NE, Calgary, AB T2E 7J2 (the “Company”) and  AKSYS Networks, Inc., of Calgary, Alberta  (the “Optionee");

WHEREAS pursuant to the Development and License Agreement between the Optionee and the Company’s wholly owned subsidiary QTelNet Inc. (“QTelNet”) dated April 1, 2004 the Optionee provides services to QTelNet and the Company has agreed to grant an incentive option to the Optionee to purchase common shares without par value in the capital of the Company;

In consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereby covenant and agree each with the other as follows:

1.

Grant of Option.   Subject to approval by the shareholders of the Company and by applicable regulatory authorities, the Company  hereby grants to the Optionee outside of the 1998 Stock Option Plan ("Plan") the irrevocable option to purchase common shares without par value in the capital of the Company, or any part thereof, as follows (“Option”):

Number of shares:

50,000

Exercise price:

$2.05 U.S.  per share

Expiry Date:

April 1, 2009

Vesting:

at the rate of 4166 options per month commencing on the date of grant

2.

Exercise of Option.   Subject to section 5. hereof, the Optionee may exercise the Option at any time or from time to time by giving written notice to the Company substantially in the form attached hereto as Schedule "A" and delivering to the Company a certified cheque in an amount equal to the number of common shares in respect of which the Option is being exercised multiplied by the exercise price specified in section 1. hereof.

3.

Optionee's Representation. The Optionee hereby confirms and represents that it is a service provider to QTelNet at the date hereof.

4.

Other Remuneration.   This Agreement shall not preclude or limit the Company or QTelNet from paying, or the Optionee from accepting, compensation or other remuneration for any work or services performed by the Optionee for the Company or QTelNet.

5.

Entitlement to Exercise

Notwithstanding any other provision hereof, the Optionee shall only be entitled to exercise the Option on or before the Expiry Date.

6.

Intentionally Left Blank  

7.

Fully Paid Shares   All common shares purchased by the Optionee hereunder shall be fully paid and non-assessable common shares.

8.

Adjustment   The number of common shares subject to the Option shall be increased or decreased proportionately in the event of the subdivision or consolidation of common shares of the Company, and in any event a corresponding adjustment shall be made changing the number of shares deliverable upon the exercise of the Option without change in the total price applicable to the unexercised portion of the Option, but with a corresponding adjustment in the price for each share covered by the Option.  In case the Company is reorganized or merged or consolidated or amalgamated with another corporation, appropriate provisions shall be made for the continuance of the Option and to prevent its dilution or enlargement.

9.

No Registration  The Optionee understands that the common shares to be issued pursuant to the Option will not be registered under the United States Securities Act of 1933 (the "Act") in reliance upon an exemption from the registration requirements thereof pursuant to Section 4(2) of the Act.  The Optionee agrees to execute and deliver any and all documents at the time of exercise of the Option as may be necessary to assure compliance with U.S. 

federal and state securities laws.  The Optionee understands that the Company shall not be required to register any common shares acquired by the Optionee and that the Optionee may be required to hold such common shares indefinitely in the absence of registration or an exemption from registration under the United States federal or state securities laws.

10.

Legend The Optionee acknowledges that all common shares issued pursuant hereto may bear the following legends (which may be modified from time to time in such manner as the Company’s attorneys recommend):

"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER UNITED STATES FEDERAL OR STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR ASSIGNED FOR VALUE, DIRECTLY OR INDIRECTLY, NOR MAY THE SECURITIES BE TRANSFERRED ON THE BOOKS OF THE CORPORATION, WITHOUT REGISTRATION OF SUCH SECURITIES UNDER ALL APPLICABLE UNITED STATES FEDERAL OR STATE SECURITIES LAWS OR COMPLIANCE WITH AN APPLICABLE EXEMPTION THEREFROM, SUCH COMPLIANCE, AT THE OPTION OF THE CORPORATION, TO BE EVIDENCED BY AN OPINION OF SECURITYHOLDER'S COUNSEL, ACCEPTABLE TO THE CORPORATION, THAT NO VIOLATION OF SUCH REGISTRATION PROVISIONS WOULD RESULT FROM ANY PROPOSED TRANSFER OR ASSIGNMENT."

11.

Amendment   If the approval of the Company's shareholders to any amendment to this Agreement shall be required by the prevailing policies of the regulatory securities bodies having jurisdiction over the Company, then any amendment made to this agreement shall be subject to the approval of the shareholders of the Company.

12.

Time of the Essence  Time shall be essence hereof.

IN WITNESS WHEREOF the parties hereto have executed there presents on the day and year first above written.

QSOUND LABS, INC.

Per:  

/s/ David Gallagher

 

AKSYS Networks, Inc.

Per: 

/s/ Martin Sunstrum

OPTIONEE

SCHEDULE A

QSound Labs, Inc. 

400 – 3115 12th Street N.E.

Calgary, AB

T2E 7J2

Attention:  Secretary

Dear Sirs:

 Re:  Exercise of Stock Option

The undersigned, being the holder of an option to purchase common shares of QSound Labs, Inc. (the "Company") does hereby elect to exercise such option to the extent of the purchase of                         common shares at the exercise prices of $              per share  and does hereby tender to the Company the total purchase price of $                            therefor.

The undersigned acknowledges that if common shares issued pursuant hereto may not be registered pursuant to applicable securities laws of the United States, any certificate representing such shares will bear a legend in a form which may be approved by the Company's counsel and the undersigned consents to the imposition of any such legend.

Yours truly,

                                             

OPTIONEE

DATED this        day of                                 , 200

.Exhibit 10.25

    
      

    

    Exhibit
      10.25

    
      

      ANNUAL
        INCENTIVE PROGRAM

      

      The
        Company does not have a formal, written plan with respect to its annual
        incentive program applicable to all executive officers. The below summarizes
        the
        principal aspects of the Company’s annual incentive program. Each year the
        Company does notify, in writing, those executive officers selected to
        participate in the annual incentive program and, if awards are earned, the
        amount of annual incentive program compensation earning. Samples of those
        letters also appear below.

      

      The
        Compensation Committee (the “Committee”)
        believes that a significant portion of the compensation for each executive
        officer should be in the form of annual performance-based cash bonuses.
        Short-term incentives like our annual incentive program tie executive
        compensation to our immediate financial performance as well as, to a certain
        extent, individual performance. Each executive officer generally participates
        in
        our annual incentive program as it is our primary means of providing for
        an
        annual cash bonus. The annual incentive program is based on goals determined
        by
        the Committee.
        Outside of the annual incentive program, the Committee has and does exercise
        its
        discretion to grant bonuses for performance or for other circumstances in
        any
        year.

      

      Under
        our
        program we establish separate performance goals for each of Orthofix
        International N.V., Orthofix Inc., Breg, Inc., Blackstone Medical, Inc. and
        our
        international division based on a matrix of performance goals as set forth
        below. As a result, executive officers of any of our divisions may be treated
        differently according to the applicable objectives specific to them. The
        Chief
        Financial Officer oversees the process of determining proposed goals for
        Orthofix International N.V., Orthofix Inc. and Breg, Inc. The proposed goals
        for
        Blackstone Medical, Inc. and our international division are supervised by
        the
        President of Blackstone Medical, Inc. and the international division head,
        respectively. The
        proposed goals and related matrix are then provided to the Committee for
        review
        and approval. Typically, the goals are set in February for the current year
        and
        payments are made in March for the previous year. We set the performance
        goals
        with the intent that it will be challenging for a participant to receive
        100% of
        his potential bonus amount. Executive officers are notified in writing of
        the
        goals and bonus eligibility for any given year. The terms of the notice
        generally require that the executive officer be an employee on the date of
        payment in order to be paid any compensation under the annual incentive
        program.

      

      Although
        each entity and business unit generally has different performance goal amounts
        applicable to it, the annual incentive program consists of the following
        performance goal components and are weighted as follows:

       

      
        	 	
                ·

              	
                50%
                  - based on the attainment of a specified dollar amount of net income
                  or
                  operating income;

              

      

      
        	 	
                ·

              	
                40%
                  - based on attainment of specified dollar amount of sales;
                  and

              

      

      
        	 	
                ·

              	
                10%
                  - based on individual performance
                  goals.

              

      

       

      We
        developed these weightings with the intent of linking most of the bonus to
        quantifiable entity or business unit performance measures, but also to permit
        discretion to recognize individual performance. For 2007, the percent of
        attainment of the goals relating to corporate performance (net income or
        operating income and sales) have a floor and a ceiling ranging from 25% to
        150%.
        In 2006, the range was 0-150%, the percentage attainment of which is determined
        by the Committee at the February meeting. As indicated below, varying bonuses
        are paid for the attainment of specified goals within that range. The Committee
        has the discretion to review an entity's or business unit's actual results
        and
        consider certain mitigating factors, such as one-time costs or events such
        as
        acquisitions or other unique corporate events not contemplated at the time
        the
        goals were established. These may be excluded from the financial information
        used in connection with the determination of bonuses or the financial
        information may be otherwise adjusted in light of these mitigating factors.
        With
        respect to the individual performance component of the formula, each respective
        entity or business unit determines the appropriate percentage ranging from
        0% to
        100% and makes a recommendation to the Committee.

      

      To
        calculate the bonus amount, each percentage is multiplied by its component's
        percentage weight. The products are added together to produce a resulting
        weighted percentage. For each participant, this percentage is used to determine
        what amount of the pre-established bonus goal amount will be paid. The weighted
        percentage is then multiplied by the maximum amount of bonus for which that
        participant is eligible. For named executive officers the maximum bonus is
        a
        percentage of that person's salary. The following is an illustration of how
        this
        calculation may work using sample attainment percentages and maximum eligible
        bonus numbers:

      
        
           

        

        
           

          
            

          

        

        
           

        

      

       

      
        	
                Performance
                  Goal

              	
                Weighting

              	
                Attainment

              	
                Product

              
	
                Net/Operating
                  Income

              	
                50%

              	
                50%

              	
                25%

              
	
                Sales

              	
                40%

              	
                75%

              	
                30%

              
	
                Individual
                  Objectives

              	
                10%

              	
                100%

              	
                10%

              
	
                 

              	
                 

              	
                
                  Weighted Percentage:

                

              	
                65%

              

      

       

      Maximum
        Eligible Bonus:  40%
        of base salary of $200,000 = $80,000

      

      Bonus
        Calculation:
        65%
        multiplied by $80,000 = $52,000 bonus

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      [SAMPLE
        LETTER - AWARD OF BONUS UNDER ANNUAL INCENTIVE PROGRAM]

      

      [Orthofix
        Letterhead]

      

      [Date]

      

      [Participant]

      [Address]
        

      

      Dear
        [Participant]:

      

      As
        a key
        contributor included in the [year] incentive bonus program for [company name
        or
        business unit], I wish to report to you what we achieved against the bonus
        targets for sales and [net or operating] income during [year]. As you will
        recall, in addition to offering a sliding scale for performance achievement
        and
        individual objectives, this plan also offers an over achievement bonus. The
        achievement on sales resulted in a [percentage] bonus attainment and the
        achievement on [net or operating] income resulted in a [percentage] bonus
        attainment. The sales and [net or operating] income components represent
        [percentage] and [percentage] of the planned bonus payout respectively. You
        achieved [percentage] of the remaining [percentage] as determined by your
        manager’s review of your performance against individual objectives. This
        calculates out to an overall [percentage] payout against your bonus potential.
        

      

      [If
        applicable:] In addition, you were granted an incremental [amount] bonus
        award
        by the Compensation Committee in recognition of your efforts in contributing
        to
        _________________.

      

      You
        will
        find attached your bonus check. Federal withholding at the supplemental rate
        of
        25% plus any applicable state or benefits taxes were deducted. The designated
        percentages for both the Employee Stock Purchase Plan and the 401k were also
        deducted.

      

      Your
        inclusion is confidential and not a guarantee of future participation. During
        the next couple of months, management will be selecting and notifying
        participants for [following year].

      

      Thank
        you
        for your continued effort in [year].

      

      Best
        regards,

      

      Orthofix
        International NV

      

      Thomas
        Kester

      Chairman,
        Compensation Committee

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      [SAMPLE
        LETTER - SELECTION AS PARTICIPANT IN ANNUAL INCENTIVE
        PROGRAM]

      

      [Orthofix
        Letterhead]

      

      [Date]

      

      [Participant]

      [Address]

      

      Dear
        [Participant]:

      

      I
        am
        pleased to inform you that as a key contributor you have been selected to
        participate in the [year] bonus program at Orthofix International N.V. at
        [percentage] of your salary level.

      

      In
        addition to offering a sliding scale for performance achievement and individual
        objectives, this plan also offers an over achievement bonus. To qualify for
        any
        bonus, the [company name or business unit] has to meet the minimum [net or
        operating] income and sales objectives of [amount]* and [amount] respectively.
        Once these minimum objectives are achieved, either individually or collectively,
        the weighing of the bonus is 50% [net or operating] income, 40% sales and
        10%
        individual objectives. 

      

      This
        is a
        yearly program subject to change. Your inclusion is confidential and not
        a
        guarantee of future participation. To receive the bonus, you must be an employee
        at the time the bonus is paid.

      

      Thank
        you
        for your continued effort, and we look forward to the [company name or business
        unit] achieving this year’s targets. 

      

      Best
        regards,

      

      Orthofix
        International NV

      

      Thomas
        Kester

      Chairman,
        Compensation Committee

      

      *Before
        stock option expense

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