Document:

Exhibit 10.4 Form of Option (Non-Qualified)

    
      

    

    
      

    

    Exhibit
      10.4 Form of option (Non-Qualified)

     

      THE
        SECURITIES REPRESENTED BY THIS DOCUMENT HAVE NOT BEEN REGISTERED WITH THE
        UNITED STATES
        SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT OF 1933,
        AS
        AMENDED (THE “1933 ACT”), AND ARE “RESTRICTED SECURITIES” AS THAT TERM IS
        DEFINED IN RULE 144 UNDER THE 1933 ACT. THE SECURITIES MAY NOT BE OFFERED
        FOR
        SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
        STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
        UNDER THE 1933 ACT. 

       

      CHEMBIO
        DIAGNOSTICS, INC. 

       

      STOCK
        OPTION AGREEMENT

      (Directors’
        Non-Qualified Stock Option)

       

      THIS
        STOCK OPTION AGREEMENT (this “Agreement”) is made and entered into as of the
        _____________ day
        of
        _____________, ______________
        by and
        between Chembio Diagnostics, Inc., a Nevada corporation (the “Company”), and
_________________
        (the
“Optionee”).

       

      WITNESSETH:

       

      WHEREAS,
        the Optionee has received a non-qualified option to purchase shares of the
        Company’s common stock, par value $0.01 per share (the “Common Stock”), pursuant
        to the Company’s 1999 Stock Option Plan (the “Plan”) in order to provide the
        Optionee with an opportunity for investment in the Company and additional
        incentive to pursue the success of the Company, and this option is to be
        for the
        number of shares, at the price per share and on the other terms and conditions
        set forth in this Agreement; and

       

      WHEREAS,
        the Optionee desires to receive an option on the terms and conditions set
        forth
        in this Agreement.

      NOW,
        THEREFORE, the parties agree as follows:

       

      1. Grant
        Of Option.
        The
        Company hereby grants to the Optionee the right and option (the “Option”) to
        purchase all or any part of an aggregate of ______________
        (________________)
        shares of the authorized and unissued Common Stock (the “Option Shares”)
        pursuant to the terms and conditions set forth in this Agreement and the
        Plan.
        In the event that the terms and conditions in this Agreement are inconsistent
        with the terms and conditions in the Plan, the terms and conditions in the
        Plan
        shall control.

       

      2. Option
        Price.
        At any
        time that shares are to be purchased pursuant to the Option, the purchase
        price
        for each Option Share shall be $________
        (the
“Option Price”), subject to adjustment as provided in this
        Agreement.

       

      3. Exercise
        Period.
        Unless
        terminated earlier as provided in this Agreement, each portion of the Option
        will expire and terminate, if not exercised sooner, at 5:00pm, New York City,
        New York time, on the date hereof. Notwithstanding the foregoing, to the
        extent
        not earlier terminated, the Option shall terminate three months after the
        date
        the Optionee no longer serves on the Board of Directors of the
        Company.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      4. Vesting
        of Option. _________________
        of the
        Options (the right to purchase ________________ Option Shares) shall be
        immediately exercisable and __________________
        of the
        Options shall become exercisable on _____________
        of each
        of __________ and _____________.

       

      5. Exercise
        Of Option.

       

      (a) The
        Option may be exercised in whole or in part by delivering to the Treasurer
        of
        the Company (i) a Notice And Agreement Of Exercise Of Option, substantially
        in
        the form attached hereto as Exhibit
        A,
        specifying the number of Option Shares with respect to which the Option is
        exercised, and (ii) full payment of the Option Price for such shares.
        Payment shall be made by certified check or cleared funds. The Option may
        not be
        exercised in part unless the purchase price for the Option Shares purchased
        is
        at least $1,000 or unless the entire remaining portion of the Option is being
        exercised.

       

      (b) Promptly
        upon receipt of the Notice And Agreement Of Exercise Of Option together with
        the
        full payment of the Option Price, the Company shall deliver to the Optionee
        a
        properly executed certificate or certificates representing the Option Shares
        being purchased.

       

      6. Withholding
        Taxes.
        The
        Company may take such steps as it deems necessary or appropriate for the
        withholding of any taxes which the Company is required by any law or regulation
        or any governmental authority, whether federal, state or local, domestic
        or
        foreign, to withhold in connection with the Option, including, but not limited
        to, the withholding of all or any portion of any payment owed by the Company
        to
        the Optionee or the withholding of issuance of Option Shares to be issued
        upon
        the exercise of the Option.

       

      7. Securities
        Laws Requirements.
        No
        Option Shares shall be issued unless and until, in the opinion of the Company,
        there has been full compliance with, or an exemption from, any applicable
        registration requirements of the Securities Act of 1933, as amended (the
“1933
        Act”), any applicable listing requirements of any securities exchange on which
        stock of the same class has been listed, and any other requirements of law
        or
        any regulatory bodies having jurisdiction over such issuance and delivery,
        or
        applicable exemptions are available and have been complied with. Pursuant
        to the
        terms of the Notice And Agreement Of Exercise Of Option (Exhibit A) that
        shall
        be delivered to the Company upon each exercise of the Option, the Optionee
        shall
        acknowledge, represent, warrant and agree as follows:

       

      (a) Optionee
        is acquiring the Option Shares for investment purposes only and the Option
        Shares that Optionee is acquiring will be held by Optionee without sale,
        transfer or other disposition for an indefinite period unless the transfer
        of
        those securities is subsequently registered under the federal securities
        laws or
        unless exemptions from registration are available;

       

      (b) Optionee’s
        overall commitment to investments that are not readily marketable is not
        disproportionate to Optionee’s net worth and Optionee’s investment in the Option
        Shares will not cause such overall commitments to become excessive;

       

      (c) Optionee’s
        financial condition is such that Optionee is under no present or contemplated
        future need to dispose of any portion of the Option Shares to satisfy any
        existing or contemplated undertaking, need or indebtedness; 

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (d) Optionee
        has sufficient knowledge and experience in business and financial matters
        to
        evaluate, and Optionee has evaluated, the merits and risks of an investment
        in
        the Option Shares;

       

      (e) The
        address set forth on the signature page to this Agreement is Optionee’s true and
        correct residence, and Optionee has no present intention of becoming a resident
        of any other state or jurisdiction;

       

      (f) Optionee
        confirms that all documents, records and books pertaining to an investment
        in
        the Option and the Option Shares that have been requested by Optionee have
        been
        made available or delivered to Optionee. Without limiting the foregoing,
        Optionee has received and reviewed the Company’s periodic reports as filed with
        the Securities and Exchange Commission, and Optionee has had the opportunity
        to
        discuss the acquisition of the Option and the Option Shares with the Company,
        and Optionee has obtained or been given access to all information concerning
        the
        Company that Optionee has requested;

       

      (g) Optionee
        has had the opportunity to ask questions of, and receive the answers from,
        the
        Company concerning the terms of the investment in the Option Shares and to
        receive additional information necessary to verify the accuracy of the
        information delivered to Optionee, to the extent that the Company possesses
        such
        information or can acquire it without unreasonable effort or
        expense;

       

      (h) Optionee
        understands that the Options have not been, and the Option Shares issuable
        upon
        exercise of the Options will not be, registered under the 1933 Act or any
        state
        securities laws in reliance on an exemption for private offerings, and no
        federal or state agency has made any finding or determination as to the fairness
        of this investment or any recommendation or endorsement of the sale of the
        Option Shares;

       

      (i) The
        Option Shares that Optionee is acquiring will be solely for Optionee’s own
        account, for investment, and are not being purchased with a view to or for
        the
        resale, distribution, subdivision or fractionalization thereof. Optionee
        has no
        agreement or arrangement for any such resale, distribution, subdivision or
        fractionalization thereof;

       

      (j) Optionee
        acknowledges and is aware of the following:

       

      (i) The
        Company has a history of losses. The Option Shares constitute a speculative
        investment and involve a high degree of risk of loss by Optionee of Optionee’s
        total investment in the Option Shares.

       

      (ii) There
        are
        substantial restrictions on the transferability of the Option Shares. The
        Option
        is not transferable except by will or the laws of descent and distribu-tion,
        and
        any attempt to do so shall void the Option. The Option Shares cannot be
        transferred, pledged, hypothecated, sold or otherwise disposed of unless
        they
        are registered under the 1933 Act or an exemption from such registration
        is
        available and established to the satisfaction of the Company; investors in
        the
        Company have no rights to require that the Option Shares be registered; there
        is
        no right of presentment of the Option Shares and there is no obligation by
        the
        Company to repurchase any of the Option Shares; and, accordingly, Optionee
        may
        have to hold the Option Shares indefinitely and it may not be possible for
        Optionee to liquidate Optionee’s investment in the Company.

       

      (iii) Unless
        the issuance of the Option Shares is registered, each certificate issued
        representing the Option Shares shall be imprinted with a legend that sets
        forth
        a description of the restrictions on transferability of those securities,
        which
        legend will read substantially as follows:

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      “THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH
        THE
        UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES
        ACT
        OF 1933, AS AMENDED (THE “1933 ACT”), AND ARE ‘RESTRICTED SECURITIES’ AS THAT
        TERM IS DEFINED IN RULE 144 UNDER THE 1933 ACT. THE SECURITIES MAY NOT BE
        OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
        REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN EXEMPTION FROM
        REGISTRATION UNDER THE 1933 ACT.”

       

      The
        restrictions described in this Section 6, or notice thereof, may be placed
        on
        the certificates representing the Option Shares purchased pursuant to the
        Option, and the Company may refuse to issue the certificates or to transfer
        the
        shares on its books unless it is satisfied that no violation of such
        restrictions will occur.

       

      8. Adjustment
        By Stock Split, Stock Dividend, Etc.
        If at
        any time the Company increases or decreases the number of its outstanding
        shares
        of common stock, or changes in any way the rights and privileges of such
        shares,
        by means of the payment of a stock dividend or the making of any other
        distribution on such shares payable in its common stock, or through a stock
        split or subdivision of shares, or a consolidation or combination of shares,
        or
        through a reclassification or recapitalization involving its common stock,
        the
        numbers, rights and privileges of the shares of common stock included in
        the
        Option shall be in-creased, decreased or changed in like manner as if such
        shares had been issued and outstanding, fully paid and nonassessable at the
        time
        of such occurrence and the Option Price shall be correspondingly decreased,
        increased or otherwise changed. Whenever the number or kind of shares comprising
        the Option Shares or the Option Price is adjusted, the Company shall promptly
        give written notice to each holder of record of the outstanding Options,
        stating
        that such an adjustment has been effected and setting forth the number and
        kind
        of shares purchasable and the amount of the then-current Option Price, and
        stating in reasonable detail the facts requiring such adjustment and the
        calculation of such adjustment. 

       

      9. Reorganization
        And Reclassification.
        In case
        of any capital reorganization or any reclassification of the capital stock
        of
        the Company while the Options remain outstanding, the holder of the Options
        shall thereafter be entitled to purchase pursuant to the Options (in lieu
        of the
        kind and number of shares of Common Stock comprising Option Shares that such
        holder would have been entitled to purchase or acquire immediately before
        such
        reorganization or reclassification) the kind and number of shares of stock
        of
        any class or classes or other securities or property for or into which such
        shares of Common Stock would have been exchanged, converted, or reclassified
        if
        the Option Shares had been purchased immediately before such reorganization
        or
        reclassification. In case of any such reorganization or reclassification,
        appropriate provision (as determined by resolutions of the Board of Directors
        of
        the Company) shall be made with respect to the rights and interest thereafter
        of
        the holder of the Options, to the end that all the provisions of this Option
        Agreement (including adjustment provisions) shall thereafter be applicable,
        as
        nearly as reasonably practicable, in relation to such stock or other securities
        or property.

       

      10. Registration
        Rights.
        Optionee shall have no registration rights unless otherwise agreed by the
        Company.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      11. Common
        Stock To Be Received Upon Exercise.
        Optionee understands that (a) the Company is under no obligation to register
        the
        issuance of the Option Shares, and (b) in the absence of any such registration,
        the Option Shares cannot be sold unless they are sold pursuant to an exemption
        from registration under the 1933 Act. The Company is under no obligation
        to
        comply, or to assist the Optionee in complying, with any exemption from the
        registration requirement of the 1933 Act, including supplying the Optionee
        with
        any information necessary to permit routine sales of the Common Stock under
        Rule 144 of the Securities and Exchange Commission. Optionee also
        understands that routine sales of securities made in reliance upon Rule 144
        can
        be made only in limited amounts in accordance with the terms and conditions
        of
        the Rule, and that in cases in which the Rule is inapplicable, compliance
        with
        another exemption under the 1933 Act will be required. Thus, the Option Shares
        will have to be held indefinitely in the absence of registration under the
        1933
        Act or an exemption from registration. 

       

      Furthermore,
        the Optionee fully understands that issuance of the Option Shares will not
        be
        registered under the 1933 Act and that, because the issuance of the Option
        Shares will not be registered, the Option Shares will be issued in reliance
        upon
        an exemption which is available only if Optionee acquires such shares for
        investment and not with a view to distribution. Optionee is familiar with
        the
        phrase “acquired for investment and not with a view to distribution” as it
        relates to the 1933 Act and the special meaning given to such term in various
        releases of the Securities and Exchange Commission.

       

      12. Privilege
        Of Ownership.
        Optionee shall not have any of the rights of a stockholder with respect to
        the
        shares covered by the Option except to the extent that one or more certificates
        for those shares shall be delivered to him upon exercise of the
        Option.

       

      13. Relationship
        To Employment.
        Nothing
        contained in this Agreement (i) shall confer upon the Optionee any right
        with
        respect to continuance of Optionee’s employment by, or affiliation with, or
        relationship to, the Company, or (ii) shall interfere in any way with the
        right
        of the Company at any time to terminate the Optionee’s employment by, position
        or affiliation with, or relationship to, the Company.

       

      14. Notices.
        All
        notices, requests, demands, directions and other communications (“Notices”)
        concerning this Agreement shall be in writing and shall be mailed or delivered
        personally or sent by telecopier or facsimile to the applicable party at
        the
        address of such party set forth below in this Section 13. When mailed, each
        such
        Notice shall be sent by first class, certified mail, return receipt requested,
        enclosed in a postage prepaid wrapper, and shall be effective on the fifth
        business day after it has been deposited in the mail. When delivered
        personal-ly, each such Notice shall be effective when delivered to the address
        for the respective party set forth in this Section 13, provided that it is
        delivered on a business day and further provided that it is delivered prior
        to
        5:00 p.m., local time of the party to whom the notice is being delivered,
        on
        that business day; otherwise, each such Notice shall be effective on the
        first
        business day occurring after the date on which the Notice is delivered. When
        sent by telecopier or facsimile, each such Notice shall be effective on the
        day
        on which it is sent provided that it is sent on a business day and further
        provided that it is sent prior to 5:00 p.m., local time of the party to
        whom the Notice is being sent, on that business day; otherwise, each such
        Notice
        shall be effective on the first business day occurring after the date on
        which
        the Notice is sent. Each Notice shall be addressed to the party to be notified
        as shown below:

       

      (a) if
        to the
        Company: Chembio
        Diagnostics, Inc.

      3661
        Horseblock Road  

      Medford,
        New York, 11763

      Facsimile
        No. (631)
        924-6033

      Attention:
        Larry Siebert

       

      (b) if
        to the
        Optionee: ______________________

      ______________________

      ______________________

       

      Either
        party may change its respective address for purposes of this Section 13 by
        giving the other party Notice of the new address in the manner set forth
        above.

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      15. General
        Provisions. This
        instrument (a) contains the entire agreement between the parties, (b) may
        not be
        amended nor may any rights hereunder be waived except by an instrument in
        writing signed by the party sought to be charged with such amendment or waiver,
        (c) shall be construed in accordance with, and governed by the laws of New
        York,
        and (d) shall be binding upon and shall inure to the benefit of the parties
        and
        their respective personal representatives and assigns, except as above set
        forth. All pronouns contained herein and any variations thereof shall be
        deemed
        to refer to the masculine, feminine or neuter, singular or plural as the
        identity of the parties hereto may require.

       

      IN
        WITNESS WHEREOF, the parties have executed this Agreement on the dates set
        forth
        below to be effective on the date set forth in the first paragraph of this
        Agreement.

      

      CHEMBIO
        DIAGNOSTICS, INC.

      

      

      Date:
        ____________________    By:
        ___________________________

      

       

      ______________________________

      Name
        and
        Title

      

      OPTIONEE

       

      Date:
        ____________________    ______________________________

      Signature

       

      ______________________________

      Name
        and
        Title

       

      ______________________________

      Address

       

      ______________________________

      City,
        State and Zip Code

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      EXHIBIT
        A

      (To
        Chembio Diagnostics, Inc.

      Stock
        Option Agreement)

       

      CHEMBIO
        DIAGNOSTICS, INC.

       

      NOTICE
        AND AGREEMENT OF EXERCISE OF OPTION

       

      The
        undersigned, ________________
        (the
“Optionee”), hereby exercises the Optionee’s Option pursuant to the Stock Option
        Agreement (the “Option Agreement”) dated as of _________________
        between
        Optionee and Chembio Diagnostics, Inc. (the “Company”) as to ________ shares of
        the $.01 par value common stock (the “Option Shares”) of the Company at a
        purchase price of $_________
        per
        share. The total exercise price for these Option Shares is
        $________.

       

      Enclosed
        is the payment specified in Section 4 of the Option Agreement.

      

      The
        Optionee understands that no Option Shares will be issued unless and until,
        in
        the opinion of the Company, there has been full compli-ance with, or an
        exemption from, any applicable registration requirements of the Securities
        Act
        of 1933, as amended (the “1933 Act”), any applicable listing requirements of any
        securities exchange on which stock of the same class is then listed, and
        any
        other requirements of law or any regulatory bodies having jurisdiction over
        such
        issuance and delivery. The undersigned Optionee hereby acknowledges represents
        warrants and agrees to and with the Company as follows:

       

      (a) The
        Optionee is acquiring the Option Shares for investment purposes only and
        the
        Option Shares that Optionee is acquiring will be held by Optionee without
        sale,
        transfer or other disposition for an indefinite period unless the transfer
        of
        those securities is subsequently registered under the federal securities
        laws or
        unless exemptions from registration are available;

       

      (b) Optionee’s
        overall commitment to investments that are not readily marketable is not
        disproportionate to Optionee’s net worth and Optionee’s investment in the Option
        Shares will not cause such overall commitments to become excessive;

       

      (c) Optionee’s
        financial condition is such that Optionee is under no present or contemplated
        future need to dispose of any portion of the Option Shares to satisfy any
        existing or contemplated undertaking, need or indebtedness; 

       

      (d) Optionee
        has sufficient knowledge and experience in business and financial matters
        to
        evaluate, and Optionee has evaluated, the merits and risks of an investment
        in
        the Option Shares;

       

      (e) The
        address set forth on the signature page of this Notice is Optionee’s true and
        correct residence, and Optionee has no present intention of becoming a resident
        of any other state or jurisdiction;

       

      (f) Optionee
        confirms that all documents, records and books pertaining to an investment
        in
        the Option Shares that have been requested by Optionee have been made available
        or delivered to Optionee. Without limiting the foregoing, Optionee has received
        and reviewed the Company’s periodic reports as filed with the Securities and
        Exchange Commission, and Optionee has had the opportunity to discuss the
        acquisition of the Option and the Option Shares with the Company, and Optionee
        has obtained or been given access to all information concerning the Company
        that
        Optionee has requested;

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (g) Optionee
        has had the opportunity to ask questions of, and receive the answers from,
        the
        Company concerning the terms of the investment in the Option Shares and to
        receive additional information necessary to verify the accuracy of the
        information delivered to Optionee, to the extent that the Company possesses
        such
        information or can acquire it without unreasonable effort or
        expense;

       

      (h) Optionee
        understands that the Options have not been, and the Option Shares issuable
        upon
        exercise of the Options will not be, registered under the 1933 Act or any
        state
        securities laws in reliance on an exemption for private offerings, and no
        federal or state agency has made any finding or determination as to the fairness
        of this investment or any recommendation or endorsement of the sale of the
        Option Shares;

       

      (i) The
        Option Shares that Optionee is acquiring will be solely for Optionee’s own
        account, for investment, and are not being purchased with a view to or for
        the
        resale, distribution, subdivision or fractionalization thereof. Optionee
        has no
        agreement or arrangement for any such resale, distribution, subdivision or
        fractionalization thereof;

       

      (j) Optionee
        acknowledges and is aware of the following:

       

      (i) The
        Company has a history of losses. The Option Shares constitute a speculative
        investment and involve a high degree of risk of loss by Optionee of Optionee’s
        total investment in the Option Shares.

       

      (ii) There
        are
        substantial restrictions on the transferability of the Option Shares. The
        Option
        Shares cannot be transferred, pledged, hypothecated, sold or otherwise disposed
        of unless they are registered under the 1933 Act or an exemption from such
        registration is available and established to the satisfaction of the Company;
        investors in the Company have no rights to require that the Option Shares
        be
        registered; there is no right of presentment of the Option Shares and there
        is
        no obligation by the Company to repurchase any of the Option Shares; and,
        accordingly, Optionee may have to hold the Option Shares indefinitely and
        it may
        not be possible for Optionee to liquidate Optionee’s investment in the
        Company.

       

      (iii) Unless
        the issuance of the Option Shares is registered, each certificate issued
        representing the Option Shares shall be imprinted with a legend that sets
        forth
        a description of the restrictions on transferability of those securities,
        which
        legend will read substantially as follows:

       

      “THE
        SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH
        THE
        UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES
        ACT
        OF 1933, AS AMENDED (THE “1933 ACT”), AND ARE ‘RESTRICTED SECURITIES’ AS THAT
        TERM IS DEFINED IN RULE 144 UNDER THE 1933 ACT. THE SECURITIES MAY NOT BE
        OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
        REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN EXEMPTION FROM
        REGISTRATION UNDER THE 1933 ACT.”

       

      
        
           

        

        
           

          
            

          

        

        
           

        

      

      (k) The
        Optionee shall report all sales of Option Shares to the Company in writing
        on a
        form prescribed by the Company;

      

      (l) The
        Optionee will not sell or dispose of Optionee’s Option Shares in violation of
        the 1933 Act, or of any other applicable federal or state securities laws;
        and

      

      (m) The
        Optionee agrees that the Company may, without liability for its good faith
        actions, place legend restrictions upon Optionee’s Option Shares and issue “stop
        transfer” instructions requiring compliance with applicable securities laws and
        the terms of the Option Agreement.

      

      (n) If
        and so
        long as Optionee is subject to reporting requirements under Section 16(a)
        of the
        Securities Exchange Act of 1934, as amended (the “1934 Act”), Optionee
        recognizes that any sale by Optionee or Optionee’s immediate family of the
        Company’s $.01 par value common stock may create liability for Optionee under
        Section 16(b) of the 1934 Act (“Section 16(b)”). Therefore, Optionee has
        consulted with Optionee’s counsel regarding the application of Section 16(b) to
        this exercise of Optionee’s Option.

      

      (o) Optionee
        will consult with Optionee’s counsel regarding the application of
        Section 16(b) before Optionee can make any sale of the Company’s $.01 par
        value common stock, including the Option Shares, and Optionee will furnish
        the
        Company with a copy of each Form 4 filed by Optionee and will timely file
        all
        reports that Optionee may be required to file under the federal securities
        laws.

      The
        number of Option Shares specified above are to be issued in the name or names
        set forth below in the left-hand column.

       

      

                                                                

       (Print
        Your Name)        Signature
        of
        Optionee

      

      

      

      
                                                                  

      

      (Optionee
        - Print Name of Spouse       Address

      if
        you
        wish joint registration)   

                                           
                              City,
        State and Zip
        CodeExhibit 10.21

 

CONFIDENTIAL SETTLEMENT AGREEMENT AND MUTUAL RELEASE

 

This
Confidential Settlement Agreement and Mutual Release (hereinafter “Agreement”)
is made as of this 28th day of December, 2005, by and between Evans &
Sutherland Computer Corp. (hereinafter collectively “E&S”) on the one hand,
and Federal Insurance Company (hereinafter “Federal”) on the other.  E&S and Federal shall be referred to
collectively as “Parties” and each will be referred to singularly as “Party.”

 

WHEREAS,
Federal issued to E&S General Liability insurance and Electronic and  Information Technology Errors and Omissions
insurance policy, number 3529-82-42, effective April 1, 2000, through April 1,
2001, and a Federal Commercial Umbrella policy, number 7966-15-50, effective
April 1, 2000 through April 1, 2001 (the “Policies”); and

 

WHEREAS,
Lockheed Martin filed suit on May 23, 2000 against E&S in Florida state
court, which case was removed to the U.S. District Court for the Middle
District of Florida and assigned Case No. 6:00-CV-755-ORL-19C (the “Lockheed
Martin Action”); and

 

WHEREAS,
E&S tendered the Lockheed Martin Action to Federal and requested that
Federal defend and indemnify E&S in connection therewith under the
Information and Network Technology Errors or Omissions provisions and other
relevant provisions of the Policies; and

 

WHEREAS
Federal defended E&S in the Lockheed Martin Action; and

 

WHEREAS
E&S settled the Lockheed Martin Action on or about April 26, 2002 and
subsequently made a claim for indemnity to Federal for the value of E&S’
counterclaims that were dismissed  in
settlement of the Lockheed Martin Action as well as a claim for payment of
certain attorneys’ fees and expenses incurred by the law firms of Persons &
Craver and Kirkland & Ellis;

 

WHEREAS,
Federal denied the claim for indemnity and the claim for Kirkland & Ellis
attorneys’ fees and expenses under the Policies, and disputed coverage as to
the claims for both indemnity and fees and expenses on various grounds; and

 

WHEREAS,
E&S filed a Complaint for Breach of Contract, Breach of the Implied
Covenant of Good Faith and Fair Dealing, and Declaratory Relief against Federal
in San Francisco Superior Court, case no. CGC 03419926, seeking an adjudication
that Federal was obligated to indemnify E&S with respect to the Lockheed
Martin Action and pay the Kirkland & Ellis fees and expenses; and

 

CONFIDENTIAL SETTLEMENT AGREEMENT AND MUTUAL RELEASE

Evans & Sutherland Computer Corporation v. Federal Insurance
Company, et al.

San Francisco Superior Court, Case No. CGC 03-419926

 

 

WHEREAS,
E&S tendered a claim to Federal in connection with a settlement E&S
reached with its customer, CAE, memorialized in a settlement agreement dated
March 11, 2000, and whereas E&S also tendered numerous other matters to
Federal, including, but not limited to, those arising out of the following
contracts and/or projects:

 

1.  Sea
Harrier

2.  GR-4
Tornado

3. 
Nimrod

4. 
United Kingdom Attack Helicopter (UKAH)

5. 
Common Visual System (CVS) (H-60 type helicopters)

6.  STN
Atlas Elektronik GmbH, and

7.  8th
Army

 

All claims
and/or matters tendered by E&S to Federal including, but not limited to,
those listed above are collectively referred to herein as the “Tendered
Matters.”

 

WHEREAS,
E&S and Federal have maintained and provided support for their respective
positions on the disputed questions of insurance coverage pertaining to the
Lockheed Martin  Action, Kirkland &
Ellis fees and expenses and the Tendered Matters, and to their respective
rights and duties, if any, under and because of the Policies; and

 

WHEREAS,
E&S and Federal wish fully and finally to resolve, without admission or
adjudication of any issue of fact or law, all disputes that now exist or which
in the future may arise with respect to their respective rights and duties, if
any, under the Policies with respect to the Lockheed Martin Action, Kirkland
& Ellis fees and expenses and the Tendered Matters, and any other claims
that allege the same facts, circumstances and theories alleged to date;

 

NOW,
THEREFORE, in consideration of and in reliance upon the definitions, recitals,
mutual promises, covenants and obligations, which are hereby incorporated into
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, E&S and Federal agree as follows:

 

1.                                       DEFINITIONS

 

As used in
this Agreement and for the purpose of this Agreement only, the following terms
have the following meanings:

 

1.1                                 “E&S”
means Evans & Sutherland Computer Corp. and its predecessors, successors,
assigns, parent company(ies), subsidiaries, affiliates, agents, servants,
employees,

 

 

managers,
representatives, attorneys, officers, directors and shareholders, and any and
all other Persons who qualify as an (as herein defined) “insured” under the
Policies.

 

1.2                                 “Federal”
means Federal Insurance Company, its predecessors, successors, assigns, parent
company(ies), subsidiaries, affiliates, agents, servants, employees, managers,
representatives, attorneys, officers, directors and shareholders, and Chubb and
Son, a division of Federal Insurance Company.

 

1.3                                 “Person”
means an individual, a corporation, a partnership, an association, a
proprietorship, a trust or any other entity or organization, any federal, state
or local governmental or quasi-governmental body or political subdivision or
any agency or instrumentality thereof.

 

1.4                                 Each
term defined herein stated in a singular form shall include the plural form,
and each defined term stated in a plural form shall include the singular form.

 

2.                                       PAYMENT

 

2.1                                 On
or before December 30, 2005, or within two (2) business days of the date
E&S and its counsel execute this Agreement, whichever is later, Federal
shall pay to E&S the amount of EIGHT MILLION DOLLARS ($8,000,000.00), which
payment shall constitute full and complete settlement of all known, unknown and
potential claims which E&S has or may have against Federal with respect to
the Lockheed Martin Action, Kirkland & Ellis fees and expenses and the
Tendered Matters, and any other claims alleging the same facts, circumstances
and theories alleged to date.

 

2.2                                 Such
payment shall be made by wire transfer to the following account:

 

Wells Fargo
Bank

180 South Main

Salt Lake
City, UT  84101

ABA:  121000248

Acct.
No.:  4761055250

 

3.                                       DISMISSAL
OF CLAIMS

 

E&S shall
execute all documents necessary to effect the dismissal, with prejudice, of its
Action filed in the San Francisco Superior Court, Case No. CGC 03419926, which
the Parties shall file promptly after payment of the settlement specified in
Paragraph 2 above.

 

 

4.                                       RELEASES

 

4.1                                 Upon
the condition precedent that Federal makes the payment set forth in Paragraph 2
above, the Parties hereby forever release, acquit, and discharge each other
from any and all claims, demands, duties, obligations, liabilities, damages,
actions, and causes of action of any kind or nature whatsoever, whether in
contract, tort, or otherwise including any claims of “bad faith” or breach of
the implied covenant of good faith and fair dealing, that each Party now has,
had, or may have against the other Party with respect to the Lockheed Martin
Action, including, without limitation, any and all claims between the Parties
concerning Federal’s alleged but disputed obligation to indemnify E&S for
its settlement of the Lockheed Martin Action, to pay the Kirkland & Ellis
fees and expenses, and/or to contribute to any settlement, or any make any
other payments in connection with the Tendered Matters

 

4.2                                 With
respect to the Lockheed Martin Action and the Tendered Matters released herein,
the Parties agree that except as otherwise indicated in this Agreement, this
Agreement includes all claims of every kind and nature, past and present, known
or unknown, suspected or unsuspected. 
The Parties expressly waive the provisions of section 1542 of the
California Civil Code, which provides:

 

A general
release does not extend to claims which the creditor does not know or suspect
to exist in his favor at the time of executing the release, which if known by
him must have materially affected his settlement with the debtor.

 

The Parties
acknowledge that they have discussed with their legal counsel the significance
and effect of waiving Civil Code section 1542 and warrant that this waiver is
informed, knowing, and voluntary.  The
Parties acknowledge and understand that this waiver is an essential and
material term of this Agreement and that, without such waiver, the Parties
would not have entered into this Agreement.

 

5.                                       NO
ADMISSION OF LIABILITY OR RESPONSIBILITY

 

5.1                                 E&S
and Federal agree that the payment and acceptance of the settlement sum
provided in Paragraph 2 and the additional terms as set forth herein, and the
execution of this Settlement Agreement, are the result of a compromise of
disputed claims, and shall never for any purpose be considered an admission of
liability or responsibility by E&S or Federal concerning any of the claims
referred to herein.  This Agreement  is entered into without prejudice or
precedential value and is not intended to be, nor shall it be construed as, an
interpretation of any insurance policy and shall not be used as evidence or in
any other manner in any court or dispute resolution proceeding to create, prove
or interpret the obligations and rights of any party under or because of the
Policies, other than in a proceeding to enforce the terms of this
Agreement.  Accordingly, neither this
Agreement nor its substance may be used between the Parties with respect to any
other claim or dispute that may exist between the Parties.  Furthermore, E&S and

 

 

Federal deny
all liability and intend merely to avoid further litigation, and no past or
present wrongdoing shall be implied by virtue of this Agreement or the payment
of the settlement sum and the fact of this settlement cannot be used as a
precedent in any other matter.

 

5.2                                 This
Agreement shall not be admissible in any legal proceeding except to enforce its
terms.

 

6.                                       NO
OTHER CLAIMS

 

Other than the
Lockheed Martin Action, the Kirkland & Ellis fees and expenses and the
Tendered Matters, E&S warrants and represents that it is not aware of any
other claim(s) or potential claim(s) against E&S that give rise or may give
rise to any claim(s) by E&S for benefits under the Policies.  Further, E&S hereby agrees that it will
make no further claim of any kind to Federal for benefits under the Policies.

 

7.                                       MERGER
OF AGREEMENT

 

This Agreement is an integrated agreement and contains the entire
agreement regarding the matters herein between the signatories hereto.  No representations, warranties or promises
have been made or relied on by any signatory hereto other than as set forth
herein.  This Agreement supersedes and
controls any and all prior communications between the Parties or their
representatives relative to the matters contained herein.

 

8.                                       NO
RIGHTS CONFERRED UPON NONPARTIES

 

This Agreement is intended to confer rights and benefits on the
signatories hereto only and is not intended to confer any right or benefit upon
any other Person.  No Person other than
the signatories hereto shall have any legally enforceable right under this
agreement.  All rights of action for any
breach of this Agreement are hereby reserved to the signatories hereto.

 

9.                                       CONFIDENTIALITY

 

9.1                                 The
amount of consideration paid by Federal under this Agreement and the conditions
of this Agreement shall remain strictly confidential.  The Parties, their respective counsel and
representatives shall not disclose to any person in any context any of the
terms or conditions of this  Agreement,
except as specifically follows:  In case
of any subpoena or other application for a court order to request the
disclosure of any of the terms or conditions of this Agreement, the Party
shall, no less than fifteen (15) days prior to any disclosure pursuant thereto,
provide actual written notice to the other as provided in Paragraph 14, in a
manner so that it either may seek to quash the subpoena or otherwise object to
the disclosure order.  Further, the
Parties agree not to oppose any motion by one another requesting that any such
documents or

 

 

information be
produced only under seal of the court and pursuant only to a reasonable
protective order.

 

9.2                                 Nothing
in these paragraphs shall preclude E&S or Federal from sharing with their
respective accountants or their other paid tax preparers the amount of monies received
pursuant to this Agreement for the sole purpose of complying with duties and
obligations owed to the United States Internal Revenue Service and/or any and
all state or local tax authorities.

 

9.3                                 Nothing
in these paragraphs shall preclude E&S from making any disclosure of the
settlement required by the Securities and Exchange Commission and the laws and
regulations pertaining to disclosures required of publicly traded companies.  Notwithstanding any provision to the contrary
in this Settlement Agreement, Federal has relied on E&S’ Form 8-K report
dated December 30, 2005 regarding this settlement and the Parties agree that it
does not violate the confidentiality provisions of Paragraph 9 and its subparts.

 

9.4                                 Nothing
in these paragraphs shall preclude Federal from making any disclosure of the
settlement required by auditors, reinsurers or regulators.

 

9.5                                 
In the event that a Party, or any of its attorneys or representatives, violates
these confidentiality provisions, a sanction may be imposed by the court upon
the violator in breach of the provision(s) for each and every instance of
breach.

 

10.                                 CORPORATE REPRESENTATIONS OF THE PARTIES

 

The parties each represent and warrant to the extent applicable:

 

a.                                       That
they are each corporations duly organized and each validly existing in good
standing under the laws of one of the states of the United States;

 

b.                                      That
they have taken all necessary corporate and legal actions duly to approve the
making and performance of this Agreement and that no further corporate or other
approval is necessary;

 

c.                                       That
the making and performance of this Agreement will not violate any provisions of
law or of their respective articles of incorporation or by-laws; and

 

d.                                      That they have read this Agreement and know
the contents hereof, that the terms hereof are contractual and not by way of
recital, and that they have signed this Agreement of their own free act.

 

 

11.                                 BINDING NATURE OF TERMS

 

11.1                           Each of
the terms of this Agreement is binding upon each of the signatories hereto,
their respective predecessors, successors, transferees, assigns,
representatives, principals, agents, officers, directors and employees.

 

11.2                           If any
provision of this Agreement or any portion of any provision of this Agreement
is declared null and void or unenforceable by any court or tribunal having
jurisdiction, then such provision or such portion of such provision shall be
considered separate and apart from the remainder of this Agreement which shall
remain in full force and effect.

 

12.                                 AUTHORIZATION OF SIGNATORIES

 

The signatories to this Agreement represent and warrant that they are
duly authorized to execute this Agreement on behalf of the corporation on whose
behalf they are signing, and to bind said corporations, to the terms,
conditions, provisions, duties, and obligations set forth in this Agreement.

 

13.                                 DISPUTE RESOLUTION AND CONSTRUCTION OF
CONTRACT

 

13.1                           Any
dispute with respect to the enforcement of this Agreement shall first be
submitted to mediation pursuant to any method mutually agreeable to the
Parties.  Any Party requesting such
mediation shall provide to the other Party written notice of such request for
mediation.  The disputing Party shall
make a good faith effort to try to resolve the dispute by way of
mediation.  Any Party has the right to
institute legal proceedings, such as filing a lawsuit, with respect to any such
dispute, provided that at least sixty (60) calendar days have expired since the
date the written request for mediation was received by the other Party.

 

13.2                           This Agreement shall be deemed to have
been entered into, and shall be construed and interpreted in accordance with
the laws of the State of California.  Any
legal proceeding shall be filed in any court of competent jurisdiction in the
State of California.

 

14.                                 NOTICE

 

Any statements, communications or notices to be provided pursuant to
this Agreement shall be sent in writing to the attention of the persons
indicated below, via certified mail, electronic mail or facsimile, until such
time as notice of any change of person to be notified or change of address is
forwarded to all Parties:

 

 

	
  a.

  	
  Notice to
  Federal Insurance Company:

  
	
   

  	
   

  
	
   

  	
  Ms. Cynthia Hagedorn

  
	
   

  	
  Chubb Group of Insurance Companies

  
	
   

  	
  3090 Bristol St., Ste. 600

  
	
   

  	
  Costa Mesa, CA 92626

  
	
   

  	
  Fax: (714) 913-4991

  
	
   

  	
  E-mail: chagedorn@chubb.com

  
	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
  Marjie D. Barrows, Esq.

  
	
   

  	
  Rudloff Wood & Barrows LLP

  
	
   

  	
  2000 Powell Street, Suite 900

  
	
   

  	
  Emeryville, California 94608

  
	
   

  	
  Fax: (510) 740-1501

  
	
   

  	
  E-mail: mbarrows@rwblaw.com

  
	
   

  	
   

  
	
  b.

  	
  Notice to
  E&S:

  
	
   

  	
   

  
	
   

  	
  Mr. David Bateman

  
	
   

  	
  V.P., Business Operations

  
	
   

  	
  Evans & Sutherland Computer Corporation

  
	
   

  	
  600 Komas Drive

  
	
   

  	
  Salt Lake City, UT 84108

  
	
   

  	
  E-mail: dbateman@es.com

  
	
   

  	
   

  
	
   

  	
  With a copy to:

  
	
   

  	
   

  
	
   

  	
  Philip
  L. Pillsbury, Jr., Esq.

  
	
   

  	
  Pillsbury
  & Levinson, LLP

  
	
   

  	
  The
  Transamerica Pyramid

  
	
   

  	
  600
  Montgomery Street, 31st Floor

  
	
   

  	
  San
  Francisco, CA 94111

  
	
   

  	
  Fax:
  (415) 433-4816

  
	
   

  	
  E-mail:
  ppillsbury@pillsburylevinson.com

  
	
   

  	
   

  

 

15.                                 NO
FURTHER PAYMENT

 

Except as
otherwise indicated in this agreement, apart from the payment made under this
Agreement, each Party will bear its own costs, expenses, damages, and attorneys’
fees incurred in or arising out of or in any way related to the matters
released herein.

 

 

16.                                 INFORMED
NEGOTIATIONS

 

This Agreement
is the product of informed negotiations between the Parties and their
representatives, including counsel.  It
is agreed that all Parties shared equally in drafting the same and that no
Party shall be considered the sole drafting party.  It is further agreed that the rule of
interpreting ambiguities against the drafting party shall not apply to the
interpretation of this Settlement Agreement.

 

17.                                 WAIVER AND
AGREEMENT

 

No provision of this Agreement, or breach of any provision, can be
waived except in writing.  Waiver of any
provision or breach shall not be deemed to be a waiver of any other provision
or of any subsequent breach of the same or other provision.  This Agreement may be amended, modified, or
rescinded only in writing signed by the Party to be charged.

 

18.                                 MISCELLANEOUS

 

18.1                           All
headings contained herein are only for convenience and ease of reference and
are not to be considered in the construction or interpretation of any provision
of this Agreement.

 

18.2                           This
Agreement may be executed in counterparts, all of which together shall constitute
a single instrument.

 

In Witness Whereof, the Parties have signed this Agreement below by
their duly authorized representative.

 

THE UNDERSIGNED HAVE READ THE FOREGOING
SETTLEMENT AGREEMENT AND RELEASE, FULLY UNDERSTAND ITS TERMS AND AGREE TO IT.

 

 

	
  DATED: December 28, 2005

  	
  Evans & Sutherland Computer Corp.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/David
  H. Bateman

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name: 

  	
  David H.
  Bateman

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  V.P.,
  Business Operations

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  DATED: December 28, 2005

  	
  Pillsbury
  & Levinson, LLP

  	
   

  
						

 

 

	
   

  	
  Attorneys
  for Evans & Sutherland Computer Corp.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Philip L. Pillsbury, Jr.

  	
   

  
	
   

  	
   

  	
  Philip L.
  Pillsbury, Jr.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  DATED: December 29, 2005

  	
  Federal
  Insurance Company

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Donna Lombardi 

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
    Donna
  Lombardi

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
    VP
  & Claim Counsel

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  DATED: December 29, 2005

  	
  Rudloff Wood
  & Barrows LLP

  	
   

  
	
   

  	
  Attorneys
  for Federal Insurance Company

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
    /s/
  Marjie D. Barrows

  	
   

  
	
   

  	
   

  	
  Marjie D.
  Barrows

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