Document:

Filed by sedaredgar.com - Yaterra Ventures Corp. - Exhibit 10.3

OPTION AGREEMENT 

THIS AGREEMENT made as of the 14th day of July, 2009
(the “Effective Date”). 

BETWEEN: 

GEOFFREY GOODALL
an individual, having an address at Unit 154, 101 – 1001 West Broadway Street,
Vancouver, BC V6H 4E4 

(the "Optionor") 

OF THE FIRST PART 

AND: 

YATERRA VENTURES CORP. a
Nevada corporation, having an address at 1200 Dupont Street, Suite 2J,
Bellingham, WA 98225 

(the "Optionee") 

OF THE SECOND PART 

WHEREAS: 

A. The Optionor is the beneficial owner of a mineral claim
referred to as the “Frances Property” located in the Vancouver Mining District
of British Columbia, Canada. 

B. The Optionor has agreed to grant an exclusive option to the
Optionee to acquire an interest in and to the mineral claim on the terms
and subject to the conditions of this Agreement. 

NOW THEREFORE THIS AGREEMENT WITNESSES that in
consideration of the sum of Ten Dollars ($10.00) now paid by the Optionee to the
Optionor (the receipt of which is hereby acknowledged), the parties agree as
follows: 

1. DEFINITIONS

1.1 For the purposes of this Agreement the following words and
phrases shall have the following meanings, namely: 

	 	(a) 	
      "Exploration and Development" means any and all
      activities comprising or undertaken in connection with the exploration and
      development of the Property, the construction of a mine and mining
      facilities on or in proximity to the Property and placing the Property
      into commercial production;

	 	 	 	 
	 	(b) 	
      "Exploration Expenditures” means all reasonable and
      necessary monies expended on or in connection with Exploration and
      Development as determined in accordance with generally accepted accounting
      principles including, without limiting the generality of the
    foregoing:

	 	 	 	 
	 		(i) 	
      the cost of entering upon, surveying, prospecting and
      drilling on the Property;

	 	 	 	 
	 		(ii) 	
      the cost of any geophysical, geochemical and geological
      reports or surveys relating to the Property;

- 2 - 

	 	(iii) 	
      all filing and other fees and charges necessary or
      advisable to keep the Property in good standing with any regulatory
      authorities having jurisdiction;

	 	 	 
	 	(iv) 	
      all rentals, royalties, taxes (exclusive of all income
      taxes and mining taxes based on income and which are or may be assessed
      against any of the parties hereto) and any assessments whatsoever, whether
      the same constitute charges on the Property or arise as a result of the
      operation thereon;

	 	 	 
	 	(v) 	
      the cost, including rent and finance charges, of all
      buildings, machinery, tools, appliances and equipment and related capital
      items that may be erected, installed and used from time to time in
      connection with Exploration and Development;

	 	 	 
	 	(vi) 	
      the cost of construction and maintenance of camps
      required for Exploration and Development;

	 	 	 
	 	(vii) 	
      the cost of transporting persons, supplies, machinery and
      equipment in connection with Exploration and Development;

	 	 	 
	 	(viii) 	
      all wages and salaries of persons engaged in Exploration
      and Development and any assessments or levies made under the authority of
      any regulatory body having jurisdiction with respect to such persons or
      supplying food, lodging and other reasonable needs for such
  persons;

	 	 	 
	 	(ix) 	
      all costs of consulting and other engineering services
      including report preparation;

	 	 	 
	 	(x) 	
      the cost of compliance with all statutes, orders and
      regulations respecting environmental reclamation, restoration and other
      like work required as a result of conducting Exploration and Development;
      and

	 	 	 
	 	(xi) 	
      all costs of searching for, digging, working, sampling,
      transporting, mining and procuring diamonds, other minerals, ores, and
      metals from and out of the Property;

	 	(c) 	
      “Mineral Claim” means the mineral claim described in
      Schedule A to this Agreement, including: (i) any replacement or successor
      claims; and (ii) all mining leases and other mining interests derived from
      any such claims;

	 	 	 
	 	(d) 	
      "Option" means the option to acquire a 60% undivided
      interest in and to the Property as provided in this Agreement;

	 	 	 
	 	(e) 	
      "Option Period" means the period from the date of this
      Agreement to and including the date of exercise or termination of the
      Option;

	 	 	 
	 	(f) 	
      "Property" means the Mineral Claim and the Property
      Rights; and

	 	 	 
	 	(g) 	
      "Property Rights" means all licenses, permits, easements,
      rights-of-way, certificates and other approvals obtained by either of the
      parties either before or after the date of this Agreement in connection
      with the Mineral Claim and necessary for the exploration of the Mineral
      Claim.

1.2 Unless otherwise noted, all currency references contained
in this Agreement shall be deemed to be references to Canadian funds. 

- 3 - 

2. GRANT AND EXERCISE OF OPTION

2.1 The Optionor hereby grants to the Optionee the sole and
exclusive right and option to acquire a 60% undivided interest in and to the
Property free and clear of all charges, encumbrances and claims on the following
terms and subject to the following conditions: 

	 	(a) 	
      The Option shall be exercised by the Optionee:

	 	 	 	 	 
	 		(i) 	
      paying the Optionor $500 CDN on the execution of this
      Agreement, the receipt of which is hereby acknowledged by the
    Optionor;

	 	 	 	 	 
	 		(ii) 	
      paying the Optionor $15,000 CDN as follows:

	 	 	 	 	 
	 			(A) 	
      $2,000 CDN on or before the date that is three months
      after the Effective Date;

	 	 	 	 	 
	 			(B) 	
      an additional $3,000 CDN on or before the date that is
      six months after the Effective Date; and

	 	 	 	 	 
	 			(C) 	
      an additional $10,000 CDN on or before the first
      anniversary of the Effective Date.

	 	 	 	 	 
	 		(iii) 	
      incurring Exploration Expenditures of $160,000 CDN on the
      Property as follows;

	 	 	 	 	 
	 			(A) 	
      $10,000 CDN on or before the date that is six months
      after the Effective Date; and

	 	 	 	 	 
	 			(B) 	
      a further $150,000 CDN on or before the second
      anniversary of the Effective Date.

	 	 	 	 	 
	 		(iv) 	
      Issuing shares of the Optionee’s common stock (the
      “Shares”) to the Optionor as follows:

	 	 	 	 	 
	 			(A) 	
      2,000 Shares on or before the date that is three months
      after the Effective Date;

	 	 	 	 	 
	 			(B) 	
      an additional 3,000 Shares on or before the date that is
      six months after the Effective Date; and

	 	 	 	 	 
	 			(C) 	
      an additional 10,000 Shares on or before the first
      anniversary of the Effective Date.

	 	 	 	 	 
	 			
      (collectively referred to as the “Option
  Shares”)

	 	 	 	 	 
	 	(b) 	
      In the event that the Optionee spends, in any of the
      above periods, less than the specified sum, it may pay to the Optionor the
      difference between the amount it actually spent and the specified sum
      before the expiry of that period in full satisfaction of the Exploration
      Expenditures to be incurred. In the event that the Optionee spends, in any
      period, more than the specified sum, the excess shall be carried forward
      and applied to the Exploration Expenditures to be incurred in succeeding
      periods.

	 	 	 	 	 
	 	(c) 	
      Upon exercise of the Option, a 60% undivided right, title
      and interest in and to the Property shall vest in the Optionee free and
      clear of all charges, encumbrances and claims.

- 4 - 

3. TRANSFER OF TITLE

3.1 Upon execution of this Agreement, the Optionee shall be
entitled to record this Agreement against title to the Property. 

3.2 Upon exercise of the Option in accordance with Section 2.1,
the Optionor shall deliver to the Optionee a duly executed bill of sale or quit
claim deed and such other executed documents of transfer as required, in the
opinion of the Optionee's lawyers, for the transfer of an undivided 60% interest
in the Property to the Optionee. 

4. RIGHT OF ENTRY

4.1 During the Option Period, the Optionee, its servants,
agents and workmen and any persons duly authorised by the Optionee, shall have
the right of access to and from and to enter upon and take possession of and
prospect, explore and develop the Property in such manner as the Optionee in its
sole discretion may deem advisable for the purpose of incurring Exploration
Expenditures as contemplated by Section 2, and shall have the right to remove
and ship therefrom ores, minerals, metals, or other products recovered in any
manner therefrom. 

5. COVENANTS OF THE OPTIONEE 

5.1 The Optionee covenants and agrees that during the term of
this Agreement: 

	 	(a) 	
      the Optionee shall keep the Property clear of all liens,
      encumbrances and other charges;

	 	 	 
	 	(b) 	
      the Optionee shall carry on all operations on the
      Property in a good and workmanlike manner and in compliance with all
      applicable governmental regulations and restrictions including but not
      limited to the posting of any reclamation bonds as may be required by any
      governmental regulations or regulatory authorities;

	 	 	 
	 	(c) 	
      the Optionee shall pay or cause to be paid any rates,
      taxes, duties, royalties, workers’ compensation or other assessments or
      fees levied with respect to its operations thereon;

	 	 	 
	 	(d) 	
      the Optionee shall pay the yearly claim maintenance
      payments necessary to maintain the claims in good standing;

	 	 	 
	 	(e) 	
      the Optionee shall maintain books of account in respect
      of its expenditures and operations on the Property and, upon reasonable
      notice, shall make such books available for inspection by representatives
      of the Optionor;

	 	 	 
	 	(f) 	
      the Optionee shall allow any duly authorised agent or
      representative of the Optionor to inspect the Property at reasonable times
      and intervals and upon reasonable notice given to the Optionee;

	 	 	 
	 	(g) 	
      the Optionee shall allow the Optionor access at
      reasonable times to all maps, reports, sample results and other technical
      data prepared or obtained by the Optionee in connection with its
      operations on the Property; and

	 	 	 
	 	(h) 	
      the Optionee shall indemnify and save the Optionor
      harmless of and from any and all costs, claims, loss and damages
      whatsoever incidental to or arising out of any work or operations carried
      out by or on behalf of the Optionee on the Property, including any
      liability of an environmental nature.

- 5 - 

6. REPRESENTATIONS AND WARRANTIES

6.1 The Optionor hereby represents and warrants to the Optionee
and covenants with the Optionee that: 

	 	(a) 	
      the Property is in good standing with all regulatory
      authorities having jurisdictions and all required claim maintenance
      payments have been made;

	 	 	 
	 	(b) 	
      the Optionor is, and at all times during the term of this
      Agreement will be, the recorded holder and beneficial owner of all of the
      Property free and clear of all liens, charges and claims of others and no
      taxes or rentals are or will be due in respect of any of the mineral
      claims;

	 	 	 
	 	(c) 	
      the Mineral Claim has been duly and validly located and
      recorded pursuant to the laws of the jurisdiction in which the Property is
      situate;

	 	 	 
	 	(d) 	
      the Property is free and clear of any encumbrances, liens
      or charges and neither the Optionor nor, to the best of the Optionor’s
      knowledge, any of his predecessors in interest or title, have done
      anything whereby the Property may be encumbered;

	 	 	 
	 	(e) 	
      the Optionor has the right to enter into this Agreement
      and to deal with the Property in accordance with the terms of this
      Agreement, there are no disputes over the title to the Property, and no
      other party has any interest in the Property or the production therefrom
      or any right to acquire any such interest;

	 	 	 
	 	(f) 	
      there is no litigation, proceeding or investigation
      pending or threatened against the Assignor or, to the best of the
      knowledge of the Assignor after due inquiry, the Vendors, the Option
      Agreement or the Property, nor does the Assignor know, or have any grounds
      to know after due inquiry, of any basis for any litigation, proceeding or
      investigation which would affect the Option Agreement or the
    Property;

	 	 	 
	 	(g) 	
      the Option Shares will be “restricted securities” within
      the meaning of the Securities Act of 1933 (the “Securities Act”) and will
      be issued to the Optionor in accordance with Regulation S of the
      Securities Act. Any certificates representing the Option Shares will be
      endorsed with the following legend in accordance with Regulation S of the
      Securities Act:

	 	 	 
	 		
      “THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
      NOT BEEN REGISTERED UNDER THE SECURITIES ACT, AND HAVE BEEN ISSUED IN
      RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
      SECURITIES ACT PROVIDED BY REGULATION S PROMULGATED UNDER THE SECURITIES
      ACT. SUCH SECURITIES MAY NOT BE REOFFERED FOR SALE OR RESOLD OR OTHERWISE
      TRANSFERRED EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S,
      PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES ACT, OR
      PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
      ACT. HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE CONDUCTED
      UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.”

	 	 	 
	 	(h) 	
      the Optionor is not a “U.S. Person” as defined by
      Regulation S of the Securities Act and is not acquiring the Option Shares
      for the account or benefit of a U.S. Person;

	 	 	 
	 	(i) 	
      the Optionor is acquiring the Option Shares for
      investment purposes, only, with no present intention of dividing its
      interest with others or reselling or otherwise disposing of any or all of
      the Option Shares; and

- 6 - 

	 	(j) 	
      the Optionor was not in the United States at the time the
      offer to acquire the Option Shares was received.

6.2 The Optionee hereby represents and warrants that: 

	 	(a) 	
      it has full corporate power and authority to enter into
      this Agreement and the entering into of this Agreement does not conflict
      with any applicable laws or with its charter documents or any contract or
      other commitment to which it is party; and

	 	 	 
	 	(b) 	
      the execution of this Agreement and the performance of
      its terms have been duly authorised by all necessary corporate actions
      including the resolution of its board of
directors.

7. ASSIGNMENT 

7.1 The Optionee may at any time either during the Option
Period or thereafter, sell, transfer or otherwise dispose of all or any portion
of its interest in and to the Property and this Agreement provided that any
purchaser, grantee or transferee of any such interest shall have first delivered
to the Optionor its agreement relating to this Agreement and to the Property,
containing: 

	 	(a) 	
      a covenant to perform all the obligations of the Optionee
      to be performed under this Agreement in respect of the interest to be
      acquired by it from the Optionee to the same extent as if this Agreement
      had been originally executed by such purchaser, grantee or transferee;
      and

	 	 	 
	 	(b) 	
      a provision subjecting any further sale, transfer or
      other disposition of such interest in the Property and this Agreement or
      any portion thereof to the restrictions contained in this paragraph
      (a).

No assignment by the Optionee of any interest less than its
entire interest in this Agreement and in the Property shall, as between the
Optionee and the Optionor, discharge it from any of its obligations hereunder,
but upon the transfer by the Optionee of the entire interest at the time held by
it in this Agreement, whether to one or more transferees and whether in one or
in a number of successive transfers, the Optionee shall be deemed to be
discharged from all obligations hereunder save and except for the fulfilment of
contractual commitments accrued due prior to the date on which the Optionee
shall have no further interest in this Agreement. 

7.2 If the Optionor should receive a bona fide offer from an
independent third party (the "Proposed Purchaser") dealing at arm's length with
the Optionor to purchase all or a part of its interest in the Property, which
offer the Optionor desires to accept, or if the Optionor intends to sell all or
a part of its interest in the Property: 

	 	(a) 	
      The Optionor shall first offer (the "Offer") such
      interest in writing to the Optionee upon terms no less favourable than
      those offered by the Proposed Purchaser or intended to be offered by the
      Optionor, as the case may be.

	 	 	 
	 	(b) 	
      The Offer shall specify the price, terms and conditions
      of such sale, the name of the Proposed Purchaser and shall, in the case of
      an intended offer by the Optionor, disclose the person or persons to whom
      the Optionor intends to offer its interest and, if the offer received by
      the Optionor from the Proposed Purchaser provides for any consideration
      payable to the Optionor otherwise than in cash, the Offer shall include
      the Optionor's good faith estimate of the cash equivalent of the non-cash
      consideration.

	 	 	 
	 	(c) 	
      If within a period of 60 days of the receipt of the Offer
      the Optionee notifies the Optionor in writing that it will accept the
      Offer, the Optionor shall be bound to sell such interest
  to

- 7 - 

	 		
      the Optionee on the terms and conditions of the Offer. If
      the Offer so accepted by the Optionee contains the Optionor's good faith
      estimate of the cash equivalent of the non cash consideration as
      aforesaid, and if the Optionee disagrees with the Optionor's best
      estimate, the Optionee shall so notify the Optionor at the time of
      acceptance and the Optionee shall, in such notice, specify what it
      considers, in good faith, the fair cash equivalent to be and the resulting
      total purchase price. If the Optionee so notifies the Optionor, the
      acceptance by the Optionee shall be effective and binding upon the
      Optionor and the Optionee, and the cash equivalent of any such non-cash
      consideration shall be determined by binding arbitration and shall be
      payable by the Optionee, subject to prepayment as hereinafter provided,
      within 60 days following its determination by arbitration. The Optionee
      shall in such case pay to the Optionor, against receipt of an absolute
      transfer of clear and unencumbered title to the interest of the Optionor
      being sold, the total purchase price which is specified in its notice to
      the Optionor and such amount shall be credited to the amount determined
      following arbitration of the cash equivalent of any non-cash
      consideration.

	 	 	 
	 	(d) 	
      If the Optionee fails to notify the Optionor before the
      expiration of the time limited therefor that it will purchase the interest
      offered, the Optionor may sell and transfer such interest to the Proposed
      Purchaser at the price and on the terms and conditions specified in the
      Offer for a period of 60 days, but the terms of this paragraph shall again
      apply to such interest if the sale to the Proposed Purchaser is not
      completed within such 60 days.

	 	 	 
	 	(e) 	
      Any sale hereunder shall be conditional upon the Proposed
      Purchaser delivering a written undertaking to the Optionee, in form and
      substance satisfactory to its counsel, to be bound by the terms and
      conditions of this Agreement.

8. CONFIDENTIALITY OF INFORMATION 

8.1 Each of the Optionee and the Optionor shall treat all data,
reports, records and other information of any nature whatsoever relating to this
Agreement and the Property as confidential, except where such information must
be disclosed for public disclosure requirements of a public company. 

9. TERMINATION 

9.1 Until such time as the Option is exercised pursuant to
Section 2.1, this Agreement shall terminate upon any of the following events:

	 	(a) 	
      upon the failure of the Optionee to make a payment, incur
      Exploration Expenditures or issue the Option Shares required by and within
      the time limits prescribed by Section 2.1;

	 	 	 	 
	 	(b) 	
      in the event that the Optionee, not being at the time in
      default under any provision of this Agreement, gives 30 day’s written
      notice to the Optionor of the termination of this Agreement;

	 	 	 	 
	 	(c) 	
      in the event that the Optionee shall fail to comply with
      any of its obligations hereunder, other than the obligations contained in
      Section 2.1, and within 30 days of receipt by the Optionee of written
      notice from the Optionor of such default, the Optionee has not:

	 	 	 	 
	 		(i) 	
      cured such default, or commenced proceedings to cure such
      default and prosecuted same to completion without undue delay;
or

	 	 	 	 
	 		(ii) 	
      given the Optionor notice that it denies that such
      default has occurred.

	 	 	 	 
	 		
      In the event that the Optionee gives notice that it
      denies that a default has occurred, the Optionee shall not be deemed in
      default until the matter shall have been determined finally through such
      means of dispute resolution as such matter has been subjected to
  by

- 8 - 

either party. 

9.2 Upon termination of this Agreement under Section 9.1, the
Optionee shall: 

	 	(a) 	
      transfer any interest in title to the Property, if any,
      in good standing to the Optionor free and clear of all liens, charges, and
      encumbrances;

	 	 	 
	 	(b) 	
      turn over to the Optionor copies of all maps, reports,
      sample results, contracts and other data and documentation in the
      possession of the Optionee or, to the extent within the Optionee’s
      control, in the possession of its agents, employees or independent
      contractors, in connection with its operations on the Property;
  and

	 	 	 
	 	(c) 	
      ensure that the Property is in a safe condition and
      complies with all environmental and safety standards imposed by any duly
      authorised regulatory authority.

9.3 Upon the termination of this Agreement under Paragraph 9.1,
the Optionee shall cease to be liable to the Optionor in debt, damages or
otherwise save for the performance of those of its obligations which theretofore
should have been performed, including those obligations in Section 9.2. 

9.4 Upon termination of this Agreement, the Optionee shall
vacate the Property within a reasonable time after such termination, but shall
have the right of access to the Property for a period of six months thereafter
for the purpose of removing its chattels, machinery, equipment and fixtures.

10. FORCE MAJEURE 

10.1 The time for performance of any act or making any payment
or any expenditure required under this Agreement shall be extended by the period
of any delay or inability to perform due to fire, strikes, labour disturbances,
riots, civil commotion, wars, acts of God, any present or future law or
governmental regulation, any shortages of labour, equipment or materials, or any
other cause not reasonably within the control of the party in default, other
than lack of finances. 

11. NOTICES 

11.1 Each notice, demand or other communication required or
permitted to be given under this Agreement shall be in writing and shall be
delivered, telegraphed or telecopied to such party at the address for such party
specified above. The date of receipt of such notice, demand or other
communication shall be the date of delivery thereof if delivered or telegraphed
or, if given by telecopier, shall be deemed conclusively to be the next business
day. Either party may at any time and from time to time notify the other party
in writing of a change of address and the new address to which notice shall be
given to it thereafter until further change. 

12. GENERAL TERMS AND CONDITIONS 

12.1 The parties hereto hereby covenant and agree that they
will execute such further agreements, conveyances and assurances as may be
requisite, or which counsel for the parties may deem necessary to effectually
carry out the intent of this Agreement. 

12.2 This Agreement shall constitute the entire agreement
between the parties with respect to the Property. No representations or
inducements have been made save as herein set forth. No changes, alterations or
modifications of this Agreement shall be binding upon either party until and
unless a memorandum in writing to such effect shall have been signed by all
parties hereto. This Agreement shall supersede all previous written, oral or
implied understandings between the parties with respect to the matters covered
hereby. 

12.3 Time shall be of the essence of this Agreement. 

- 9 - 

12.4 The titles to the sections in this Agreement shall not be
deemed to form part of this Agreement but shall be regarded as having been used
for convenience of reference only. 

12.5 Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision shall be prohibited by or be invalid under applicable law,
such provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement. 

12.6 The Schedules to this Agreement shall be construed with
and as an integral part of this Agreement to the same extent as if they were set
forth verbatim herein.

12.7 Defined terms contained in this Agreement shall have the
same meanings where used in the Schedules. 

12.8 This Agreement shall be governed by and interpreted in
accordance with the laws of Nevada. 

12.9 This Agreement shall be governed by and interpreted in
accordance with the laws of Nevada. 

12.10 This Agreement shall enure to the benefit of and be
binding upon the parties hereto and their respective heirs, executors,
administrators, successors and assigns. 

WITNESS WHEREOF this Agreement has been executed by the
parties hereto as of the day and year first above written. 

/s/ Geoffrey Goodall 
______________________________

GEOFFREY GOODALL 

YATERRA VENTURES CORP. 
by its authorised signatory:

/s/ Jarrett Bousquet

______________________________
Signature of Authorised Signatory 

JARRETT BOUSQUET 
______________________________
Name of
Authorised Signatory 

President 
______________________________
Position of
Authorised Signatory 

- 10 - 

SCHEDULE A 

MINERAL CLAIM DESCRIPTION 

FRANCES PROPERTY 

VANCOUVER MINING DISTRICT 
BRITISH COLUMBIA 
CANADA 

Description of Claim 

	Claim Name 	Area (Ha) 	Claim Number 
	Frances 	206.17 	607425exhibit101_06292009.htm

    EXHIBIT
10.1

    

    NORTHERN
OIL AND GAS, INC.

     

    2009
EQUITY INCENTIVE PLAN

     

    (Adopted
by the Board of Directors on January 30, 2009)

     

    

     

    ARTICLE
I.

     

    PURPOSE

     

    The purpose of this Plan is to provide
a means whereby Northern Oil and Gas, Inc. (the “Company”) may be able, by
granting stock options (”Options”) and shares of restricted stock (“Restricted
Stock”), to attract, retain and motivate capable and loyal employees,
non-employee directors, consultants and advisors of the Company and its
subsidiaries, for the benefit of the Company and its
shareholders.  Options granted under the Plan may be either Incentive
Stock Options which qualify for favorable tax treatment under Section 422 of the
Internal Revenue Code (the “Code”), or Nonqualified Stock Options which do not
qualify for favorable tax treatment.  Options and Restricted Stock are
referred to collectively in this Plan as “Awards”.

     

    ARTICLE
II.

     

    RESERVATION OF
SHARES

     

    A total of 3,000,000
shares  (“Shares”) of the Company’s common stock, par value $0.001 per
share (the “Common Stock”) are reserved for issuance pursuant to Awards granted
under the Plan.  If any Shares included in an Award are not purchased
or are forfeited, or if an Award otherwise terminates without delivery of any
Shares, then the number of Shares included in the Award, to the extent of any
such forfeiture or termination, shall again be available for granting Awards
under the Plan.  Shares reserved for issue as provided herein shall
cease to be reserved upon termination of the Plan.

     

    The maximum number of Shares for which
any person may be granted Awards under the Plan in any calendar year shall be
limited to 500,000 Shares.  The maximum number of Shares for which
Awards may be granted under the Plan to all persons in any calendar year shall
be limited to ten percent (10%) of the total outstanding Shares.

     

    ARTICLE
III.

     

    ADMINISTRATION

     

    (a)           The
Plan shall be administered by the Compensation Committee of the Board of
Directors of the Company (the “Committee”).  The Committee shall be
appointed by the Board of Directors and shall be comprised solely of two or more
“non-employee directors” within the meaning of SEC Rule 16b-3 or any successor
rule or regulation.  Each member of the Committee shall also be an
“outside director” within the meaning of Internal Revenue Code Section 162(m) or
any successor provision.  Vacancies in the Committee shall be filled
by the Board.

     

    (b)           The
Committee shall have full power to construe and interpret the Plan and to
establish and amend rules and regulations for its administration, subject to the
express provisions of the Plan.

     

    (c)           The
Committee shall determine which persons shall be granted Awards under the Plan,
the types of Awards to be granted, the number of Shares included in each Award,
any limitations on the exercise or vesting of Awards in addition to those
imposed by this Plan, and any other terms and conditions of
Awards.  The Committee may also approve amendments to outstanding
Awards, provided there is no conflict with the terms of the Plan, applicable
law, or applicable stock market rules and regulations.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    ARTICLE
IV.

     

    ELIGIBILITY

     

    An Option may be granted to any
employee, non-employee director, consultant or advisor of the Company or its
subsidiaries, except that no consultant or advisor shall be granted Awards in
connection with the offer and sale of securities in a capital raising
transaction on behalf of the Company.  Restricted Stock may only be
granted to employees and any non-employee director.  A person who has
received an Award of an Option or Restricted Stock is referred to in this Plan
as a “Participant.”

     

    ARTICLE
V.

     

    CHANGES IN PRESENT STOCK AND
EFFECT OF CHANGE OF CONTROL

     

    (a)           In
the event of a recapitalization, merger, consolidation, reorganization, stock
dividend, stock split or other change in capitalization affecting the Company’s
present capital stock, appropriate adjustment may be made by the Committee in
the number and kind of shares included in any Award, and the exercise or
purchase price of any Award.

     

    (b)           All
outstanding Options shall immediately vest and become immediately exercisable in
full and all grants of Restricted Stock shall become immediately fully-vested
and free of all forfeiture and transfer restrictions upon any “change in
control” of the Company.  Any of the following shall constitute a
“change in control” for the purposes hereof:

     

    (i)           The
consummation of a reorganization, merger, share exchange, consolidation or
similar transaction, the acquisition of a majority of the outstanding Common
Stock by a person or group acting in concert or the sale or disposition of all
or substantially all of the assets of the Company, unless, in any case, the
persons beneficially owning the voting securities of the Company immediately
before that transaction beneficially own, directly or indirectly, immediately
after the transaction, at least seventy-five percent (75%) of the voting
securities of the Company or any other corporation or other entity resulting
from or surviving the transaction in substantially the same proportion as their
respective ownership of the voting securities of the Company immediately prior
to the transaction;

     

    (ii)           Individuals
who constitute the incumbent Board of Directors cease for any reason to
constitute at least a majority of the Board of Directors; or

     

    (iii)           The
Company’s shareholders approve a complete liquidation or dissolution of the
Company.

     

    ARTICLE
VI.

     

    OPTIONS

     

    (a)           Option Exercise
Price.  The per share exercise price for each Option shall be
determined by the Committee at the time of grant, provided that the per share
exercise price for any Incentive Stock Option shall be not less than the fair
market value of the Common Stock on the date the Option is
granted.  The “fair market value” of the Common Stock as of any date
shall be the closing sale price for the Common Stock on the most recent day on
which the Common stock traded prior to the grant date.  If there is no
closing sale price for the Common Stock, the Committee shall use such other
information deemed appropriate by the Committee to determine the fair market
value of the Common Stock on the date of any grant.  No Incentive
Stock Option shall be granted to any employee who at the time directly or
indirectly owns more than ten percent (10%) of the combined voting power of all
classes of stock of the Company or of a subsidiary, unless the exercise price is
not less than 110 percent (110%) of the fair market value of the Common Stock on
the date of grant, and unless the Option is not exercisable more than five (5)
years after the date of grant.

     

    (b)           Exercise of
Options.  An optionee shall exercise an Option by delivery of a
signed, written notice to the Company, specifying the number of Shares to be
purchased, together with payment of the full purchase price for the
Shares.  The Company may accept payment from a broker on behalf of the
optionee and may, upon receipt of signed, written instructions from the
optionee, deliver the Shares directly to the broker.  The date of
receipt by the Company of the final item required under this paragraph shall be
the date of exercise of the Option.

     

    (c)           Option Agreement
Provisions.  Each Option granted under the Plan shall be
evidenced by a Stock Option Agreement executed by the Company and the optionee,
and shall be subject to the following terms and conditions, and such other terms
and conditions as may be prescribed by the Committee:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    (i)           Incentive Stock Option
Dollar Limitation.  Each Option grant to an employee shall
constitute an Incentive Stock Option eligible for favorable tax treatment under
Section 422 of the Code, provided that no more than $100,000 of such Options
(based upon the fair market value of the underlying Shares as of the date of
grant) can first become exercisable for any employee in any calendar
year.  To the extent any Option grant exceeds the $100,000 dollar
limitation, it shall constitute a Nonqualified Stock Option.  Each
stock option agreement shall specify the extent to which it is an Incentive
and/or a Nonqualified Stock Option.  For purposes of applying the
$100,000 limitation, options granted under this Plan and under all other plans
of the Company and its subsidiaries which are qualified under Section 422 of the
Code shall be included.

    

    (ii)           Payment.  The
full purchase price of the Shares acquired upon exercise of any Option shall be
paid in cash, by certified or cashier’s check, or in the form of Shares of the
Company’s Common Stock with a fair market value equal to the full purchase price
and free and clear of all liens and encumbrances.

    

    The Committee in its sole discretion
may also permit the “cashless exercise” of an Option.  In the event of
a cashless exercise, the optionee shall surrender the Option to the Company, and
the Company shall issue the optionee the number of Shares determined as
follows:

    X = Y (A-B) /A where:

    X = the number of Shares to be issued
to the optionee.

    Y = the number of Shares with respect
to which the Option is being exercised.

    A = the
closing sale price of the Common Stock on the date of exercise, or in the
absence thereof, the fair market value on the date of exercise.

    B = the Option exercise
price.

    

    (iii)           Exercise
Period.  The period within which an Option must be exercised
shall be determined by the Committee at the time of grant.  The
exercise period for an Incentive Stock Option or a Nonqualified Stock Option
shall be subject to a maximum of ten (10) years, or five (5) years for an
Incentive Stock Option granted to an employee who directly or indirectly owns
more than ten percent (10%) of the combined voting power of all classes of stock
of the Company or a subsidiary.  Unless modified by the Committee,
each Option shall become exercisable to the extent of twenty-five percent (25%)
of the shares on each of the first four (4) anniversaries of the date of
grant.  To the extent exercisable, an Option may be exercised in whole
or in part.  The Committee may impose different or additional
conditions with respect to length of service or attainment of specified
performance goals which must be satisfied prior to exercise of all or any part
of an option.

    

    (iv)           Rights of Optionee Before
Exercise.  The holder of an Option shall not have the rights of
a shareholder with respect to the Shares covered by his or her Option until such
Shares have been issued to him or her upon exercise of the Option.

    

    (v)           Termination of
Employment.  If an optionee is an employee, and his or her
employment is terminated other than by death, disability, or for conduct which
is contrary to the employer’s best interests, the optionee may, within ninety
(90) days of such termination (or longer, if approved by the Committee),
exercise any unexercised portion of his or her Option to the extent he or she
was entitled to do so at the time of such termination.

    

    If
termination of employment is effected by death or disability of the optionee,
the Option, or any portion thereof, may be exercised to the extent the optionee
was entitled to do so at the time of his or her death or disability, by the
optionee or his or her personal representative, at any time within one year
subsequent to the date of his or her termination of employment.

    

    If an
optionee’s employment is terminated by his or her employer for conduct which is
contrary to the best interests of the employer, as determined by the employer in
its sole discretion, the unexercised portion of the optionee’s Option shall
expire automatically on the date of termination of his or her
employment.

    

    The
Committee may, in its discretion, amend or eliminate any one or more of the
provisions of this paragraph (v) in connection with the grant of any individual
Option(s).

    

    Notwithstanding
the foregoing, no Option shall be exercisable subsequent to the date of
expiration of the Option term and no Option shall be exercisable subsequent to
the termination of the optionee’s employment except as specifically provided in
this paragraph (v).

     

    (vi)           Termination of Service by
Directors, Consultants and Advisors.  If an optionee is a
director, consultant, or advisor, and his or her position with the Company
terminates for any reason, the optionee may, within ninety (90) days of such
termination, or within one (1) year of such termination if the optionee is a
director (or longer in either case, if approved by the Committee), exercise any
unexercised portion of his or her Option to the extent he or she was entitled to
do so at the time of such termination.  If termination is effected by
death of the optionee, the Option may be exercised for the applicable period to
the extent the optionee was entitled to do so at the time of his or her death by
the optionee’s personal representative.  No Option shall be
exercisable subsequent to the date of expiration of the Option term and no
Option shall be exercisable subsequent to the termination of the optionee’s
position with the Company, except as specifically provided in this paragraph
(vi).

     

    (vii)           Non-transferability of
Option.  No Option shall be transferable by the optionee
otherwise than by will or by the laws of descent and distribution, and each
Option shall be exercisable during the optionee’s lifetime only by the
optionee.  No Option may be attached or subject to levy by an
optionee’s creditors.

     

    (viii)           Date of
Grant.  The date on which the exercise price becomes fixed for
an Option shall be considered the date on which the Option is
granted.

     

    ARTICLE
VII.

     

    RESTRICTED
STOCK

     

    (a)           Grant of Restricted
Stock.  Each grant of Restricted Stock made under the Plan
shall be for such number of Shares as shall be determined by the Committee and
set forth in the agreement containing the terms of such grant.  The
agreement for each grant shall set forth any objective performance goals which
must be satisfied in order for the Restricted Stock to vest and the forfeiture
and transfer restrictions to lapse.  The Committee may base
performance goals on factors which the Committee determines appropriate from
time to time, including but not limited to the Company’s stock price, market
share, revenues, net income, and return on equity.  The agreement may
also set forth a period of time during which the employee must remain in the
continuous employment of the Company in order for the forfeiture and transfer
restrictions to lapse.  If the Committee so determines, the
restrictions may lapse during such restricted period in installments with
respect to specified portions of the shares covered by the Restricted Stock
grant.

     

    (b)           Agreements.  Awards
of Restricted Stock shall be evidenced by agreements in such form as the
Committee shall from time to time approve, which agreements shall be subject to
the terms and conditions contained in the Plan and any additional terms and
conditions established by the Committee that are consistent with the
Plan.

     

    (c)           Delivery of Common Stock and
Restrictions.  At the time of a Restricted Stock grant, a
certificate representing the number of Shares awarded thereunder shall be
registered in the name of the Participant.  Such certificate shall be
held by an escrow agent appointed by the Company for the account of the
Participant until vested subject to the terms and conditions of the Plan, and
shall bear such a legend setting forth the restrictions imposed thereon as the
Committee, in its discretion, may determine.  The Participant shall
have all rights of a shareholder with respect to the Shares, including the right
to receive dividends and the right to vote such shares, subject to the following
restrictions:

     

    (i)           the
Participant shall not be entitled to delivery of a stock certificate until the
expiration of the restricted period and the fulfillment of any other restrictive
conditions set forth in the agreement with respect to such Shares;

     

    (ii)           none
of the Shares may be sold, assigned, transferred, pledged, hypothecated or
otherwise encumbered or disposed of during such restricted period or until after
the fulfillment of any such other restrictive conditions; and

     

    (iii)           except
as otherwise determined by the Committee, all of the Shares to the extent not
vested shall be forfeited and all rights of the Participant to such Shares shall
terminate, without further obligation on the part of the Company, unless the
Participant remains in the continuous employment of the Company for the entire
restricted period in relation to which such Common Stock was granted and unless
any other restrictive conditions relating to the Restricted Stock Award are
met.

     

    Any
Common Stock, any other securities of the Company and any other property (except
for cash dividends) distributed with respect to the Shares subject to Restricted
Stock Awards shall be subject to the same restrictions, terms and conditions as
such Restricted Stock.

     

    (d)           Termination of
Restrictions.  At the end of the applicable restricted period
and provided that any other restrictive conditions of the grant of Restricted
Stock are met, or at such earlier time as otherwise determined by the Committee,
the Shares shall be considered vested and all restrictions set forth in the
agreement relating to the grant of Restricted Stock or in the Plan shall lapse
as to the Restricted Stock subject thereto, and a stock certificate for the
appropriate number of Shares, free of the restrictions and the Restricted Stock
legend, shall be delivered to the Participant or his or her beneficiary or
estate, as the case may be.

     

    ARTICLE
VIII.

     

    GENERAL

     

    (a)           No Cash Consideration for
Awards.  Awards shall be granted for no cash consideration or
for such minimal cash consideration as may be required by applicable
law.

     

    (b)           Awards May Be Granted
Separately or Together.  Awards may, in the discretion of the
Committee, be granted either alone or in addition to, in tandem with or in
substitution for any other Award.  Awards granted in addition to or in
tandem with other Awards may be granted either at the same time as or at a
different time from the grant of such other Awards.

     

    (c)           Term of
Awards.  The term of each Award shall be for such period as may
be determined by the Committee.

     

    (d)           Restrictions; Stock Market
Listing.  All certificates for Shares or other securities
delivered under the Plan pursuant to any Award or the exercise thereof shall be
subject to such stop transfer orders and other restrictions as the Committee may
deem advisable under the Plan, or the rules, regulations and other requirements
of the Securities and Exchange Commission and any applicable federal or state
securities laws, and the Committee may cause a legend or legends to be placed on
any such certificates to make appropriate reference to such
restrictions.  If the Shares are traded on a securities market, the
Company shall not be required to deliver any Shares covered by an Award unless
and until such Shares have been admitted for trading on such securities
market.

     

    (e)           No Right to Continued
Employment.  Nothing in the Plan or in any Award document shall
be construed to confer upon any employee any right to continue in the employ of
the Company or a subsidiary, or to interfere in any way with the right of the
Company or a subsidiary as employer to terminate his or her employment at any
time, nor to derogate from the terms of any written employment agreement between
such corporation and the optionee.

     

    (f)           Section 16
Compliance.  The Plan is
intended to comply in all respects with SEC Rule 16b-3, as amended, and in all
events the Plan shall be construed in accordance with the requirements of Rule
16b-3.  If any Plan provision does not comply with Rule 16b-3, the
provision shall be deemed inoperative.  The Board of Directors, in its
absolute discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan with respect to persons who are
officers or directors subject to Section 16 of the Securities and Exchange Act
of 1934, as amended, without so restricting, limiting or conditioning the Plan
with respect to other Participants.

     

    ARTICLE
IX.

     

    WITHHOLDING OF TAXES; TAX
BONUSES

     

    The
Company shall make such provisions and take such steps as it may deem necessary
or appropriate for the withholding of any taxes that the Company is required by
any law or regulation to withhold in connection with any Award including, but
not limited to, withholding a portion of the Shares issuable pursuant to the
Award, or requiring the Participant to pay to the Company, in cash, an amount
sufficient to cover the Company’s withholding obligations.

     

    The
Committee, in its discretion, shall have the authority, at the time of grant of
any Award under this Plan or at any time thereafter, to approve cash bonuses to
designated Participants to be paid upon their exercise or receipt of (or the
lapse of restrictions relating to) Awards in order to provide funds to pay all
or a portion of federal and state taxes due as a result of such exercise or
receipt (or the lapse of such restrictions).  The Committee shall have
full authority in its discretion to determine the amount of any such tax bonus
and the Company shall have the authority to withhold and pay such tax bonuses
over to the appropriate taxing authorities on the Participants’
behalf.

     

    ARTICLE
X.

     

    EFFECTIVE DATE OF
PLAN

     

    The
effective date of the Plan shall be the date of its original adoption by the
Board of Directors of the Company as indicated on the first page
hereof.

     

    ARTICLE
XI.

     

    DURATION OF THE
PLAN

     

    The Plan
shall terminate January 30, 2019, which is ten years after the date of its
approval by the Board of Directors, unless sooner terminated by issuance of all
Shares reserved for issuance hereunder.  No Award shall be granted
under the Plan after such termination date.

     

    ARTICLE
XII.

     

    TERMINATION OR AMENDMENT OF
THE PLAN

     

    The Board
of Directors of the Company may at any time terminate the Plan, or make such
modifications of the Plan as it shall deem advisable, subject to shareholder
approval to the extent required by applicable law or stock market rule or
regulation.  No termination or amendment of the Plan may, without the
consent of the Participants to whom any Awards shall previously have been
granted, adversely affect the rights of such Participants under such
Awards.

     

    ARTICLE
XIII.

     

    SHAREHOLDER
APPROVAL

     

    The Board
of Directors shall submit the Plan to the shareholders for their approval within
12 months of the date of its adoption by the Board.  Awards granted
prior to such approval are contingent on receipt of such approval, and shall
automatically lapse and become null and void ab initio if such
approval is not granted.  If any grants of Restricted Stock lapse due
to failure to obtain shareholder approval, the Company shall pay to the affected
Participants, in cash, an amount equal to the total fair market value of the
Shares of Restricted Stock granted to the Participant as of the grant date or
the date the shareholders fail to approve the Plan, whichever is
greater.  The Board shall also submit any amendments to the
shareholders for approval if required by applicable law or stock market rule or
regulation.

     

    ARTICLE
XIV.

     

    INTERPRETATION

     

    The Plan
shall be interpreted in accordance with Minnesota law.

     

    * * * * *
* * * * * * * * * * * * * * * *

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