Document:

EX 10.1

     

     

    EXHIBIT
      10.1

    EMPLOYMENT
      AGREEMENT

    

    This
      Employment Agreement is effective the 1st
      day of
      February, 2008, between South Dakota Soybean Processors, LLC, a South Dakota
      limited liability company, and Rodney G. Christianson (“Employee”).

    

    THE
      PARTIES AGREE AS FOLLOWS: 

    

    1.    Definitions.
      The
      following terms shall have these meanings:

    

    a.    “Affiliate”
      or “Affiliates” shall mean any Person who controls, is controlled by, or is
      under common control with, either directly or indirectly, or through one or
      more
      intermediaries, the Employer. For purposes of this Agreement, the term Affiliate
      shall include Urethane Soy Systems Co. 

    

    b.    “Base
      Salary” shall mean Employee’s annual compensation as

    set
      forth
      in paragraph 6 of this Agreement.

    

    c.    “Confidential
      Information” shall mean any and all information disclosed by Employer or
      Affiliate to Employee, whether prior to or during the term of this Agreement,
      relating to those matters not generally known to the public or the industry
      in
      which Employer and/or an Affiliate is or may become engaged and which pertain
      to
      the operations, processes, methods, and accumulated experience incidental to
      the
      manufacture, processing, sale, and distribution of Employer’s and/or an
      Affiliate’s Products, regardless of whether Employer and/or an Affiliate
      provides such information to Employee in tangible form or the information is
      retained in the memory of Employee. Confidential Information includes, for
      example, and without limitation: (i) sales records, pricing manuals, training
      manuals, selling and pricing procedures, and financing methods, (ii) trade
      secrets and other know-how regarding businesses, products and services, (iii)
      personnel and salary information, including wages, bonuses, commissions, and
      fringe benefits, (iv) production and processing procedures, formulae and
      systems, (v) vendor and supplier information, (vi) Customer lists and
      Prospective Customer Lists including, without limitation, names of contacts,
      products and services purchased, quantities purchased, credit histories, timing
      of purchases, payment histories, special demands of particular Customers, and
      current and anticipated requirements of Customers generally for products or
      services, (vii) marketing information, including without limitation, research,
      development, testing and customer surveys, and any specifications of any new
      products or services under development, and (viii) business projections,
      strategic plans, marketing systems and procedures, and inventory procedures
      and
      systems.

    

    d.    “Control,”
      “Controlled by” and “under common control with” shall mean the power, directly
      or indirectly, to direct or cause the direction of the management and policies
      of a Person whether through the ownership of voting securities or by contract
      or
      otherwise.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    e.    “Customer”
      shall mean an individual, business or entity with which Employer or an Affiliate
      did business during the two (2) year period preceding the termination of
      Employee’s employment as provided in this Agreement.

    

    f.    “Incentive
      Compensation” shall mean compensation paid to Employee as set forth in paragraph
      7 of this Agreement.

    

    g.    “Person”
      means an individual, partnership, limited partnership, limited liability
      company, trust, estate, corporation, cooperative, custodian, trustee, executor,
      administrator, nominee or entity in a representative capacity.

    

    h.    “Products”
      shall mean all products manufactured and/or sold by Employer or an Affiliate,
      including polyurethane, plastics, resins, soybeans, soybean meal, soybean oil
      and other soybean products.

    

    i.    “Prospective
      Customer” shall mean a potential customer of Employer or an Affiliate, which has
      been contacted by Employer or an Affiliate and for which Employer or an
      Affiliate has made a financial investment, such as time, travel, equipment
      or
      material during the two (2) year period preceding the termination of Employee’s
      employment as provided in this Agreement.

    

    2.    Employment.
      Employer agrees to employ Employee and Employee accepts employment upon the
      terms and conditions set forth in this Agreement.

    

    3.    Duties
      and Review.
      Employee shall be engaged in full-time employment by Employer as its Chief
      Executive Officer and shall devote sufficient time and attention to the business
      of Employer, including general management and oversight of Affiliates, as shall
      be necessary to complete Employee's obligations. Employer, through its Board
      of
      Managers, shall have the power to determine the specific duties to be performed
      by Employee and the time of performance. Employee shall undergo performance
      reviews from time to time during the term of this Agreement at the request
      of
      Employer’s Board of Managers.

    

    4.    Other
      Activities.
      Employee shall devote substantially all of his working time and efforts during
      Employer’s normal business hours to the business of Employer, including the
      general management and oversight of Affiliates. Employee shall be free to invest
      his assets in a manner that will not require any substantial services by
      Employee in the conduct of the business of the entities or in the management
      of
      the properties in which he invests.

    

    5.    Term.
      This
      Agreement is for a term of four (4) years commencing on the 1st
      day of
      February, 2008, and terminating on the 31st
      day of
      January, 2012, unless sooner terminated pursuant to the provisions of this
      Agreement.

    

    6.    Base
      Salary.
      For all
      services to be rendered by Employee pursuant to this Agreement, Employer agrees
      to pay Employee compensation at an annual rate of:

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    (a)
      $300,000.00 until January 31, 2009 (year 1);

    (b)
      $325,000.00 from February 1, 2009 until January 31, 2010 (year 2); and

    (c)
      $350,000.00 from February 1, 2010 until January 31, 2012 (year 3 and year 4).
      

    

    This
      Base
      Salary shall be paid in periodic installments in accordance with the Employer’s
      regular payroll practices. Each installment shall be reduced by deductions
      for
      the withholding of federal income tax, FICA contributions, and all other
      deductions required by law or agreed to by Employee.

    

    7.    Incentive
      Compensation.
      In
      addition to the Base Salary, Employee shall be paid a bonus equal to one-half
      (1/2) of one percent (1%) of Employer’s net income before taxes and member
      distributions on net income from $2,000,000.00 up to $5,000,000.00 If the net
      income is $5,000,001.00 to $7,500,000.00, Employee shall be paid a bonus equal
      to one percent (1%) of Employer’s net income. If net income is greater than
      $7,500,000.00, Employee shall still be paid a bonus equal to one percent (1%)
      of
      Employer’s net income and will also be paid an additional bonus equal to one
      percent (1%) of the amount of the excess of Employer’s net income over
      $7,500,000.00. If net income is below $2,000,000.00, no bonus will be paid.
      Examples: $1,825,000.00 net income = no bonus; $4,386,000.00 net income x .5%
      =
      $21,930.00; $6,500,000.00 net income x 1% = $65,000.00; or $8,500,000.00 net
      income x 1% = $85,000.00 plus $8,500,000.00 - $7,500,000.00 = $1,000,000.00
      x 1%
      = $10,000.00 for a total bonus of $95,000.00. This incentive bonus may be paid
      directly or deferred at Employee’s option. The calculation of Employer’s net
      income shall include the net income of all of Employer’s subsidiaries for which
      combined and audited financial statements must be prepared for GAAP (“Generally
      Accepted Accounting Principles”) purposes. Net income shall be calculated under
      the GAAP method of accounting utilized by Employer for its audited financial
      statements and shall exclude any items of income or expense that would be
      considered to be extraordinary and not arising in the ordinary course of
      business. Such items could include but are not limited to the
      following:

    

    
      	 	
              i.

            	
              Capital
                gains or losses from the sale of marketable securities or other
                investments of Employer.

            

    

    
      	 	
              ii.

            	
              Gains
                or losses on the sales or dispositions of fixed
                assets.

            

    

    
      	 	
              iii.

            	
              Insurance
                proceeds received by Employer for the loss of property, capital assets,
                or
                other assets of Employer.

            

    

    
      	 	
              iv.

            	
              Investment
                income from securities held by Employer, e.g., interest income, dividend
                income, etc.

            

    

    
      	 	
              v.

            	
              Payment
                of a legal settlement, or receipt of monies relating to Employer’s
                involvement in litigation or other
                disputes.

            

    

    

    Such
      items shall be determined by Employer’s Financial Audit Committee and
      subsequently adjusted out of net income for purposes of the calculation of
      this
      incentive bonus. The incentive bonus shall be paid in full within thirty (30)
      days following completion of Employer’s audited financial statements in the year
      following the year for which the net income is calculated. 

    

    8.    Holidays
      and Vacations.
      Employee shall be entitled to nine (9) paid holidays: New Year’s Day, Easter,
      Memorial Day, Fourth of July, Labor Day, Thanksgiving, the day after
      Thanksgiving and Christmas, and a personal floating holiday. Employee shall
      be
      entitled to

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    twenty
      (20) days paid vacation during each fiscal year of employment. Employee shall
      take his vacation at such time or times as shall be approved by Employer’s Board
      of Managers. Employee’s vacation time will be administered in accordance with
      Employer’s current vacation policies for all employees. 

    

    9.    Benefits.
      Employee shall receive the benefits, including participation in insurance
      benefits and retirement plans, that are provided to Employer’s employees,
      provided Employee meets the qualification provisions of each plan.

    

    10.    Life
      Insurance.
      Employer may, in its discretion, purchase or renew insurance on the life of
      Employee. Employee agrees to submit to reasonable medical examinations and
      otherwise reasonably cooperate with Employer in connection with obtaining such
      insurance.

    

    11.    Expenses.
      During
      the term of this Agreement, Employee shall be entitled to prompt reimbursement
      by Employer of all reasonable travel, entertainment, and other expenses incurred
      by Employee in accordance with the policies and procedures established by
      Employer’s Board of Managers and in the performance of his duties and
      responsibilities under this Agreement; provided, that Employee shall properly
      account for such expenses and present receipts as required by IRS
      guidelines.

    

    12.    Vehicle.
      During
      the term of this Agreement, Employee shall be provided a vehicle for use for
      company business. The type and cost of the vehicle as well as its replacement
      date will be determined by Employer’s Board of Managers.

    

    
      	 	
              13.
                

            	
              Termination
                and Severance Pay.
                

            

    

    

    a.    Termination.
      This
      Agreement shall terminate immediately: (i) upon Employee’s death, (ii) upon
      Employee becoming disabled, which determination shall be made by Employer’s
      Board of Managers on the basis of medical evidence satisfactory to it, in its
      sole discretion, that Employee is so mentally or physically disabled as to
      be
      unable to fulfill Employee’s duties and responsibilities and that such
      disability is likely to be permanent; (iii) upon written notice from Employer
      that Employee’s employment is being terminated for “Cause” as defined in
      paragraph 13(c) below; (iv) upon written notice from Employer that Employee’s
      employment is being terminated without “Cause” as defined in paragraph 13(c)
      below; or (v) upon Employee’s resignation of employment. In the event of
      Employee’s termination under this paragraph 13(a), he or his estate shall be
      entitled to receive the Base Salary and other benefits to which he is entitled
      under this Agreement up to the date of termination. Employee or his estate
      shall
      have no rights pursuant to this Agreement to any benefits or compensation for
      any period after the date of termination.

    

    b.    Severance
      Pay.
      If
      Employer terminates the employment of Employee for any reason other than as
      provided below in this subparagraph b, Employer shall pay Employee a sum equal
      to 1.5 times Employee’s Base Salary (at the annual rate then existing under
      paragraph 6) calculated for a one year period. Payment shall be made
      in

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    eighteen
      (18) equal monthly installments or as otherwise mutually agreed by the parties
      beginning on the first day of the month following termination of employment.
      For
      example, if Employer terminates Employee’s employment without “Cause” on August
      1, 2009, Employee shall be entitled to severance pay of $487,500.00 ($325,000.00
      x 1.5) to be paid in 18 equal monthly installments of $27,083.33 each. For
      example, if Employer terminates Employee’s employment without “Cause” on
      September 1, 2010, Employee shall be entitled to severance pay of $525,000.00
      ($350,000.00 x 1.5) to be paid in 18 equal monthly installments of $29,166.66
      each. Despite anything in this Agreement to the contrary, Employee shall not
      be
      eligible to receive the severance pay described in this paragraph 13(b) if:
      (i)
      Employee’s employment is terminated due to Employee’s death; (ii) Employee’s
      employment is terminated due to Employee’s disability; (iii) Employee’s
      employment is terminated for “Cause”; (iv) Employee voluntarily resigns his
      employment with Employer, (v) Employee’s employment is terminated because
      Employer has ceased all business activities, become insolvent and/or has filed
      a
      voluntary petition in bankruptcy, or has had filed against it an involuntary
      petition in bankruptcy; (vi) Employee is employed in a similar position by
      a
      successor company that has purchased substantially all of the assets of
      Employer, or (vii) Employer is merged into another company and Employee is
      retained by the surviving company in a similar position.

    

    c.    For
      “Cause” Termination.
      Justifications for the Employer to terminate Employee’s employment for “Cause”
shall include: (i) Employee’s confession or conviction of theft, fraud,
      embezzlement, or any other crime involving dishonesty with respect to Employer,
      or any Affiliate, (ii) Employee’s excessive absenteeism (other than by reason of
      physical injury, disease, or mental illness) without reasonable cause, (iii)
      Employee's act or omission constituting a material breach of any provision
      of
      this Agreement or any non-compliance with Employee's obligations under
      paragraphs 14, 17 and 18 of this Agreement, (iv) habitual and material
      negligence by Employee in the performance of his duties under this Agreement,
      (v) abusing, misusing or destroying Employer's property or the property of
      Customers or other employees, (vi) making or publishing false, vicious or
      malicious statements concerning Employer, its operations, employees or members
      of the Board of Managers, (vii) habitually reporting for work under the
      influence of intoxicants or drugs, or (viii) Employee’s intentional violation of
      any law directly impacting Employer’s business, including any law prohibiting
      discriminatory conduct, or the direction of another employee to violate any
      such
      law. The preceding list is not intended to be exhaustive; other conduct of
      similar nature may result in termination of Employee. However, the results
      of
      Employer’s or Affiliates’ operations or any business judgment made in good faith
      by Employee shall not constitute an independent basis for termination of
      Employee's employment for Cause under this Agreement.

    

    14.    Limitation
      of Competitive Activities.
      During
      the term of Employee’s employment with Employer and for a period of two (2)
      years after termination of Employee’s employment, with or without cause,
      Employee will not, alone or with others, directly or indirectly, own or have
      an
      interest in another company (except for an ownership interest not to exceed
      2%
      of the outstanding securities of a company that is required to report to the
      United

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    States
      Securities and Exchange Commission under the Securities Exchange Act of 1934),
      work in, plan, or engage in any employment, consulting, or other business
      activity, whether or not for compensation, that is competitive with Employer
      or
      its Affiliates within a five hundred (500) mile radius from Volga, South Dakota.
      Employee will not engage in any other activity that conflicts with Employee’s
      obligations to Employer during the term of this Agreement. The provisions of
      this paragraph 14 shall survive the termination of Employee’s employment under
      this Agreement for any reason whatsoever.

    

    15.    Other
      Solicitation and Interference Limitations.
      For a
      period of two (2) years after termination of Employee’s employment, with or
      without cause, Employee shall not directly or indirectly solicit or aid in
      the
      solicitation of any Customers or Prospective Customers, and shall not interfere
      with the relationship between Employer and its Affiliates, or any of their
      respective employees, vendors, or suppliers. Employee agrees not to solicit
      or
      assist others in soliciting any Customers or Prospective Customers, employees,
      vendors, or suppliers of Employer and/or its Affiliates, directly or indirectly,
      even if participating in a business outside of the five hundred (500) mile
      radius from Volga, South Dakota. The provisions of this paragraph 15 shall
      survive the termination of Employee's employment under this Agreement for any
      reason whatsoever.

    

    16.    Ownership
      of Confidential Information.
      Employee acknowledges and agrees that all Confidential Information disclosed
      to
      Employee is and remains the exclusive property of Employer and/or its
      Affiliates. Employee acknowledges that the Confidential Information was and
      will
      continue to be developed and acquired by Employer and/or its Affiliates at
      great
      effort and expense, is valuable to the owner thereof and constitutes trade
      secrets unique to the owner thereof.

    

    17.    Non-Disclosure
      of Confidential Information.
      Employee shall treat Confidential Information in a secret and confidential
      manner. Employee shall comply with Employer’s and its Affiliates’ procedures for
      maintaining the confidentiality of Confidential Information and agrees not
      to
      make use of or disclose Confidential Information without the owner’s written
      consent, directly or indirectly, for any purpose whatsoever, to any person
      or
      entity outside of the owner’s business, either during the term of Employee’s
      employment or after termination of Employee’s employment, whether with or
      without cause. The provisions of this paragraph 17 shall survive the termination
      of Employee's employment under this Agreement for any reason
      whatsoever.

    

    18.    Delivery
      of Confidential Information and Employer Property.
      Upon
      request of Employer and/or an Affiliate and in any event upon termination of
      Employee’s employment, with or without cause, Employee shall promptly deliver to
      the Employer or any Affiliate all Confidential Information, including, without
      limitation, all originals, copies, summaries or extracts of books, catalogues,
      sale brochures, Customer lists, Prospective Customer lists, price lists,
      employee manuals, notes, photographs, tape recordings, specifications,
      operations manuals and all other documents or tangible materials reflecting
      or
      referencing Confidential Information, as well as all other materials furnished
      to or acquired by Employee as a result of or during the course of Employee’s
      employment. The provisions of this paragraph 18 shall survive the termination
      of
      Employee’s employment under this Agreement for any reason
      whatsoever.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

    19.    Reasonableness
      of Restrictions and Enforcement.
      Employee acknowledges that he has carefully read and considered the provisions
      of this Agreement and, having done so, agrees that the restrictions and
      limitations in this Agreement are reasonable as to geographic scope and duration
      and are necessary to protect Employer’s and its Affiliates’ proprietary
      interests in their respective Confidential Information and to preserve for
      Employer and its Affiliates the competitive advantages necessary for their
      success.

    

    
      
        20.    Remedies.
          Employee acknowledges and agrees that it is impossible to measure
          in money the damages which will accrue to Employer and/or its Affiliates
          if
          Employee should breach or is in default of any of Employee's covenants
          or
          representations set forth in this Agreement, and that Employer and/or its
          Affiliates would be irreparably damaged by such breach or default by Employee.
          Accordingly, if any action or proceeding is instituted by or on behalf
          of any of
          the foregoing to enforce any term of this Agreement, Employee waives any
          claim
          or defense that Employer and/or its Affiliates have an adequate remedy
          at law or
          that Employer and/or its Affiliates have not been, or are not being, irreparably
          injured. The rights and remedies of Employer and/or its Affiliates pursuant
          to
          this paragraph are cumulative and shall not be deemed to exclude any other
          right
          or remedy which Employer and/or its Affiliates may have pursuant to this
          Agreement or otherwise, at law or in equity.

      

    

    

    21.    Indemnification.
      Employee shall indemnify and hold harmless Employer, its Affiliates, and their
      respective owners, officers, managers, directors, other employees, agents,
      and
      assigns from any and all claims, damages, liabilities, attorneys’ fees and
      expenses arising out of Employee’s violation of any of the terms and conditions
      of this Agreement.

    

    22.    Expenses
      of Enforcement.
      If
      Employee breaches or threatens to breach any of the covenants described in
      this
      Agreement, then, in addition to any of the rights and remedies which Employer
      and/or its Affiliates may have against Employee, Employee will be liable to
      pay
      Employer’s court costs and reasonable attorneys' fees incurred in enforcing this
      Agreement.

    

    23.    Termination
      of Prior Agreements and Modification.
      Employee acknowledges that any prior agreement with Employer as to employment
      was rightfully terminated at Employer’s discretion prior to execution of this
      Agreement. This Agreement constitutes the entire Agreement between Employer
      and
      Employee. It is independent of and supplants all oral or written agreements
      entered prior to or contemporaneously with this Agreement, except for the First
      Amended and Restated Deferred Compensation Plan made effective February 1,
      2004.
      This Agreement may not be modified except by written agreement dated subsequent
      to the date of this Agreement and signed by both Employer and
      Employee.

    

    24.    Severability.
      If any
      provision of this Agreement shall be held by a court of competent jurisdiction
      to be unenforceable or invalid, the remaining provisions will remain in full
      force and effect. In the event that any of the restrictions or limitations
      contained in paragraphs 14 and 15 of this Agreement are held to exceed the
      time
      or geographic limitations permitted by applicable law, then such restrictions
      or
      limitations shall be deemed to be reformed to the maximum time and geographic
      limitations permitted by law. If any other provision of this

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    Agreement
      is held to be overbroad as written, the provision shall be deemed amended to
      narrow its application to the extent necessary to make it enforceable to the
      fullest extent allowable.

    

    25.    Successors
      and Assigns.
      This
      Agreement is personal to Employee and is not assignable in whole or in part
      by
      Employee without the express written consent of Employer. Any purported
      assignment by Employee without Employer's consent will constitute a breach
      for
      which Employer has the right to terminate this Agreement.

    

    26.    Presumptions.
      In
      construing the terms of this Agreement, no presumption shall operate in either
      party’s favor as a result of counsel's role in drafting the Agreement's terms or
      provisions. 

    

    27.    Waiver
      of Breach.
      The
      waiver by Employer of breach of any covenant of this Agreement or the failure
      of
      Employer to take action against any other employee for similar breaches on
      their
      part, shall not operate or be construed as a waiver of any subsequent or later
      breach by Employee. No waiver by Employer shall be effective unless in
      writing.

    

    28.    Text
      Controls.
      The
      headings of paragraphs and sections are included solely for convenience. If
      a
      conflict exists between any heading and the text of this Agreement, the text
      shall control.

    

    29.    Governing
      Law.
      All
      rights and obligations arising out of or relating to this Agreement shall be
      governed by and construed in accordance with the laws of the State of South
      Dakota.

    

    30.    Dispute
      Resolution.
      All
      disputes between Employer and Employee arising out of or relating to this
      Agreement and/or Employee’s employment shall be exclusively and finally resolved
      through the dispute resolution process set forth in Exhibit A.

     

     

    [Signature
      page follows]

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF,
      the
      parties have executed this Agreement as of the 25th day of April,
      2008.

     

    SOUTH
      DAKOTA SOYBEAN PROCESSORS,
      LLC

     

     

    By: 
      /s/
      Ronald Gorder

      
        

      

    

    Its
      President

     

    /s/
      Rodney Christianson

      
        

      

    

    Rodney
      G.
      Christianson

     

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    EXHIBIT
      A

    

    DISPUTE
      RESOLUTION PROCESS

    

    1.    Arbitration.
      All
      disputes between Employer and Employee arising out of or relating to this
      Agreement and/or Employee’s employment shall be exclusively and finally resolved
      through binding arbitration by a single arbitrator. The arbitrator shall also
      exclusively and finally resolve all issues relating to the operation of this
      Process, including but not limited to all disputes relating to the validity
      or
      enforceability of this Process, the timeliness of an arbitration demand made
      pursuant to subparagraph 1.a.ii, the applicability of this paragraph to a
      dispute between Employer and Employee, and the exclusion of other remedies
      pursuant to paragraph 3.

    

    a.    Demand
      for Arbitration.
      Either
      party to this Agreement may initiate arbitration pursuant to this paragraph
      by
      delivering, by certified mail, a written demand for arbitration to the other
      party at such party’s current business address. 

    

    i.    Contents
      of Demand.
      The
      demand for arbitration shall bear a current date and shall state the name of
      the
      initiating party, a brief description of the matter sought to be arbitrated,
      and
      the amount of damages or other relief sought by the initiating party.

     

    ii.    Time
      for Demand.
      A
      demand for arbitration relating to any claim by Employee or Employer shall
      be
      made within the time within which commencement of legal or equitable proceedings
      based on such claim could be made under the South Dakota statute of limitations
      or repose applicable to such claim. Any claim not initiated by a demand for
      arbitration within the times provided in this paragraph 1.a.ii shall be deemed
      waived and forever barred.

    

    b.    Qualifications
      and Appointment of Arbitrator.
      Unless
      otherwise agreed by the parties, the arbitrator shall be an attorney licensed
      to
      practice law in the State of South Dakota and shall have experience in resolving
      or litigating the type of claim, dispute or matter at issue in the arbitration.
      The parties shall mutually agree upon an arbitrator. If the parties are unable
      to so agree, each party shall designate an attorney licensed to practice law
      in
      the State of South Dakota and that is unaffiliated with Employer, Employee,
      and
      their respective attorneys, and such third party attorneys shall mutually agree
      upon an arbitrator. 

    

    c.    Cash
      Undertaking.
      Within
      ten (10) days following the appointment of an arbitrator by the parties or
      their
      representatives, each party asserting a claim or counterclaim in the arbitration
      shall deposit with the arbitrator a cash undertaking in the amount of $5,000.00,
      which undertaking shall be applied to any costs, fees or expenses awarded
      against the party pursuant to subparagraph 1.g.

    

    d.    Governing
      Law.
      The
      arbitrator shall resolve all claims solely on the basis of South Dakota law.
      The
      arbitrator shall also resolve all issues relating to the operation

     

    
      
         

      

      
         

        
          

        

      

      
         

      

       

    

    of
      this
      Process solely on the basis of South Dakota law, including but not limited
      to
      all disputes identified in paragraph 1 above. The parties shall be permitted
      to
      conduct discovery pursuant to SDCL §§ 15-6-26 through 15-6-37; all discovery
      disputes shall be resolved by the arbitrator pursuant to these provisions and
      applicable case law. The arbitrator shall conduct all arbitration proceedings
      pursuant to the South Dakota Rules of Evidence, codified at SDCL Chapters 19-9
      through 19-18, and applicable case law. 

    

    e.    Location.
      All
      arbitration proceedings shall take place in Brookings, South Dakota, unless
      otherwise agreed by the parties.

    

    f.    Form
      of Award; No Appeal; Entry of Award.
      The
      arbitrator shall issue a written award setting forth the arbitrator’s findings
      of fact, conclusions of law, decision and monetary award. Except as otherwise
      permitted by SDCL Chapter 21-25A, no party shall appeal to any court an award
      of
      an arbitrator issued under this paragraph 1.f, and the decision of the
      arbitrator shall be the final, binding and conclusive resolution of the dispute.
      Any party to the arbitration may apply to a court of competent jurisdiction
      for
      entry or confirmation of the arbitration award. Notwithstanding the foregoing,
      the issuance of an award pursuant to this subparagraph 1.f shall not preclude
      a
      party from applying to the arbitrator for costs, fees and expenses as provided
      in subparagraph 1.g, nor shall it preclude the arbitrator from modifying the
      award to provide for the recovery of such costs, fees and expenses. Any
      application for costs, fees and expenses shall be delivered to the arbitrator
      within thirty (30) days of the date of the arbitration award.

    

    g.    Allocation
      of Costs, Fees and Expenses.
      The
      arbitrator shall award to the prevailing party, as determined by the arbitrator
      pursuant to this subparagraph 1.g, all costs, fees and expenses relating to
      the
      arbitration, including reasonable expert witness and attorneys’ fees, unless the
      arbitrator finds a substantial reason for not doing so, which reason shall
      be
      explained in writing by the arbitrator. As used in this subparagraph, a party
      that is seeking an affirmative damage award shall constitute a “prevailing
      party” only if such party is awarded damages, exclusive of costs, fees and
      expenses relating to the arbitration (including reasonable expert witness and
      attorneys’ fees), in excess of the last written settlement demand made by such
      party. A party against whom damages are sought shall constitute a “prevailing
      party” only if such party is ordered to pay damages, exclusive of costs, fees
      and expenses relating to the arbitration (including reasonable expert witness
      and attorneys’ fees), in an amount less than the last written settlement offer
      made by such party. If no party constitutes a prevailing party pursuant to
      the
      preceding two sentences, the arbitrator may award costs, fees and expenses
      relating to the arbitration, including reasonable expert witness and attorneys’
fees, in the arbitrator’s discretion. Where parties are asserting affirmative
      claims against one another, any separate written settlement demands or offers
      made on such claims shall be combined for purposes of this subparagraph. No
      written demand or offer made less than ten (10) days prior to the arbitration
      hearing shall be considered for purposes of this subparagraph. All settlement
      demands or offers shall be kept confidential and shall not be disclosed to
      the
      arbitrator, except in connection with an application for costs, fees and
      expenses made pursuant to this subparagraph and subparagraph 1.f.

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    2.    Mediation.
      At any
      time after a demand for arbitration has been made pursuant to paragraph 1.a,
      any
      party to the arbitration may request mediation. A mediation shall be conducted
      only if all parties to the arbitration consent to mediation. 

    

    a.    Request
      for Mediation.
      The
      request for mediation shall be in writing and shall be delivered by certified
      mail to the current business address of each unrepresented party to the
      arbitration and to counsel of each represented party to the arbitration. The
      request shall bear a current date and shall state the name of the requesting
      party and a brief description of the matter sought to be mediated.

    

    b.    Qualifications
      and Appointment of Mediator.
      Unless
      otherwise agreed by the parties, the mediator shall be an attorney licensed
      to
      practice law in the State of South Dakota and shall have experience in resolving
      or litigating the type of claim, dispute or matter at issue in the mediation.
      The parties shall mutually agree upon a mediator. If the parties are unable
      to
      so agree, each party shall designate an attorney licensed to practice law in
      the
      State of South Dakota and that is unaffiliated with Employer, Employee, and
      their respective attorneys, and such third party attorneys shall mutually agree
      upon a mediator. The mediator of any dispute submitted to mediation under this
      paragraph 2 shall not be the same person serving as arbitrator of such dispute,
      unless otherwise agreed by the parties. 

    

    c.    Location.
      The
      mediation shall take place in Brookings, South Dakota, unless otherwise agreed
      by the parties.

    

    d.    Allocation
      of Mediation Costs.
      Costs
      of the mediation shall be borne equally by the parties, unless otherwise agreed
      by the parties.

    

    3.    Exclusive
      Remedy.
      This
      Exhibit A contains and shall constitute the sole and exclusive remedy of the
      parties with respect to any and all disputes, claims or other matters arising
      out of or relating to this Agreement and/or Employee’s employment. The parties
      hereby waive any and all other remedial rights with respect to such disputes,
      claims or other matters, whether in law or in equity.EXHIBIT
      4.1

    

    THE
      SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN
      REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR STATE
      SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR
      HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE ACT AND UNDER
      APPLICABLE STATE SECURITIES LAW OR SPO MEDICAL GROUP, LTD. (THE “COMPANY”) SHALL
      HAVE RECEIVED AN OPINION IN FORM, SCOPE AND SUBSTANCE REASONABLY ACCEPTABLE
      TO
      COUNSEL FOR THE COMPANY, THAT REGISTRATION OF SUCH SECURITIES UNDER THE ACT
      AND
      UNDER PROVISIONS OF SUCH APPLICABLE FEDERAL AND STATE SECURITIES LAWS IS NOT
      REQUIRED.

    

    COMMON
      STOCK PURCHASE WARRANT

    

      
        	
                No.:____________

              	
                Number
                  of shares: ______

              
	
                Date
                  of Issuance: ________

              	 

      

    

    

    1. Issuance.
      In
      consideration of good and valuable consideration, the receipt of which is hereby
      acknowledged by SPO Medical Inc., a Delaware corporation (the “Company”) that
__________________,
      or
      their registered assigned (the “Holder”) is hereby granted the right to purchase
      at any time until 5:00 P.M., New York City time, on March 26, 2011 (the
“Expiration Date”), ________ fully paid and nonassessable shares (the “Warrant
      Shares”) of the Company’s common stock, par value $0.01 per share (the “Common
      Stock”), at an exercise price (the “Exercise Price”) per share equal to
      $0.60.
      The
      Exercise Price and the number of shares for which the Warrant is exercisable
      shall be subject to adjustment as provided herein. 

    

    2. Exercise
      of Warrants.
      Exercise of the purchase rights represented by this Warrant may be made at
      any
      time or times, on or before 5:00 P.M. New York City time on the Expiration
      Date,
      or such earlier date on which this Warrant may terminate as provided in this
      Warrant, by (i) the surrender of this Warrant and the Notice of Exercise Form
      annexed hereto duly executed, at the office of the company (or such other office
      or agency of the Company as it may designate by notice in writing to the
      registered holder hereof at the address of such holder appearing on the books
      of
      the Company) and upon payment of an amount of consideration therefore payable
      by
      certified check or cashier’s check or by wire transfer to an account designated
      by the Company in an amount equal to the Exercise Price multiplied by the number
      of Warrant Shares purchased, or (ii) by "cashless exercise" in accordance with
      the provisions below, but only when a registration statement under the
      Securities Act providing for the resale of the Warrant Shares is not then in
      effect, or (iii) by a combination of the foregoing methods of payment selected
      by the Holder of this Warrant. This Warrant may be exercised in whole or in
      part
      and such exercise shall be accompanied by written notice from the Holder of
      this
      Warrant showing the number of Warrant Shares with respect to which rights are
      being surrendered thereunder (the “Surrendered Shares”) and the net number of
      shares of Common Stock to be issued after giving effect to such surrender.
      The
      Company shall cancel this Warrant with respect to any Surrendered Shares. In
      the
      event of an exercise of this Warrant in accordance with this Section 2, the
      Holder shall be entitled to receive a certificate for the number of shares
      of
      Common Stock so purchased.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    3. Cashless
      Exercise.
      Notwithstanding any provisions herein to the contrary if (i) the Per Share
      Market Value (defined below) of one share of Common Stock is greater than the
      Per Share Exercise Price (at the date of calculation as set forth below) and
      (ii) a registration statement under the Securities Act providing for the resale
      of the Warrant Stock is not then in effect, in lieu of exercising this Warrant
      by payment of cash, the Holder may exercise this Warrant by a cashless exercise
      and shall receive the number of shares of Common Stock equal to an amount (as
      determined below) by surrender of this Warrant at the principal office of the
      Issuer together with the properly endorsed Notice of Exercise in which event
      the
      Issuer shall issue to the Holder a number of shares of Common Stock computed
      using the following formula:

    

    X
      = Y -
(A)(Y)

                    
      B

    

    Where   
      X
      =          the
      number of shares of Common Stock to be issued to the Holder.

    

    
      	 	
              Y
                =

            	
              the
                number of shares of Common Stock purchasable upon exercise of all
                of the
                Warrant or, if only a portion of the Warrant is being exercised,
                the
                portion of the Warrant being exercised.

            

    

    

    
      	 	
              A
                =

            	
              the
                Per Share Warrant Price. 

            

    

    

    
      	
            	B
              =	
              the
                Per Share Market Value of one share of Common
                Stock.

            

    

    

    “Per
      Share Market Value” shall mean the average closing price of the Common Stock for
      the three (3) Trading Days ending on the Trading Day immediately prior to the
      exercise date

    

    4. Reservation
      of Shares.
      The
      Company hereby covenants that at all times during the term of this Warrant
      there
      shall be reserved a sufficient number of shares of its Common Stock as shall
      be
      required for issuance upon exercise of this Warrant (the “Warrant
      Shares”).

    

    5. No
      Fractional Shares of Scrip.
      No
      fractional shares or script representing fractional shares shall be issued
      upon
      the exercise of this Warrant.

    

    6. Loss,
      Theft, Destruction or Mutilation of Warrant.
      Upon
      receipt by the Company of evidence satisfactory to it of the loss, theft,
      destruction or mutilation of this Warrant, and (in the case of loss, theft
      or
      destruction) receipt of reasonably satisfactory indemnification, and (in the
      case of mutilation) upon surrender and cancellation of this Warrant, the Company
      will execute and deliver a new Warrant of like tenor and date and any such
      lost,
      stolen, destroyed or mutilated Warrant shall thereupon become void.

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

       

    

    7. Rights
      of the Holder.
      The
      Holder shall not, by virtue hereof, be entitled to any rights of a stockholder
      in the Company, either at law or equity, and the rights of the Holder are
      limited to those expressed in this Warrant and are not enforceable against
      the
      Company except to the extent set forth herein.

    

    8. Capital
      Adjustments.
      In case
      of any stock split or reverse stock split, stock dividend, reclassification
      of
      the Common Stock, recapitalization, merger or consolidation (where the Company
      is not the surviving entity), the provisions of this Section 7 shall be applied
      as if such capital adjustment event had occurred immediately prior to the date
      of this Warrant and the original Exercise Price had been fairly allocated to
      the
      stock resulting from such capital adjustment; and in other respects the
      provisions of this Section shall be applied in a fair, equitable and reasonable
      manner so as to give effect, as nearly as may be, to the purposes hereof.

    

    8.1
      Adjustment
      Mechanism.
      If an
      adjustment of the Exercise Price is required pursuant to this Section 7, the
      Holder shall be entitled to purchase such number of shares of Common Stock
      as
      will cause (i) (x) the total number of shares of Common Stock Holder is entitled
      to purchase pursuant to this Warrant following such adjustment, multiplied
      by
      (y) the adjusted Exercise Price per share, to equal the result of (ii) (x)
      the
      dollar amount of the total number of shares of Common Stock Holder is entitled
      to purchase before adjustment, multiplied by (y) the total Exercise Price before
      adjustment.

     

    An
      adjustment made pursuant to this Section 7 shall become effective immediately
      after the effective date of such event retroactive to the record date, if any,
      for such event.

    

    9.
      Notice
      of Adjustment.
      Whenever the number of Warrant Shares or number or kind of securities or other
      property purchasable upon the exercise of this Warrant or the Exercise Price
      is
      adjusted as herein provided, the Company shall promptly mail by registered
      or
      certified mail, return receipt requested, to the Holder notice of such
      adjustment or adjustments setting forth the number of Warrant Shares (and other
      securities or property) purchasable upon the exercise of this Warrant and the
      Exercise price of such Warrant Shares (and other securities or property) after
      such adjustment, setting forth a brief statement of the facts requiring such
      adjustment and setting forth the computation by which such adjustment was made.
      Such notice, in absence of manifest error, shall be conclusive evidence of
      the
      correctness of such adjustment.

    

    10.
      Transfer
      to Comply with the Securities Law.
      This
      Warrant has not been registered under the Securities Act of 1933, as amended
      (the “Act”) and has been issued to the Holder for investment and not with a view
      to the distribution of either the Warrant or the Warrant Shares. Neither this
      Warrant nor any of the Warrant Shares or any other security issued or issuable
      upon exercise of this Warrant may be sold, transferred, pledged or hypothecated
      in the absence of an effective registration statement under the Act relating
      to
      such security or an opinion of counsel satisfactory to the Company that
      registration is not required under the Act. Each certificate for the Warrant,
      the Warrant Shares and any other security issued or issuable upon exercise
      of
      this Warrant shall contain a legend on the face thereof, in form and substance
      satisfactory to counsel for the Company, setting forth the restrictions on
      transfer contained in this Paragraph as well as any other restriction on sale
      or
      transfer such as would be contained in a lock-up agreement. The warrant is
      also
      subject to a lock-up. 

    

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

       

    

    11.
      Notices.
      Any
      notice or other communication required or permitted hereunder shall be in
      writing and shall be delivered personally, telegraphed, telexed, sent by
      facsimile transmission or sent by certified, registered or express mail, postage
      pre-paid. Any such notice shall be deemed given when so delivered personally,
      telegraphed, telexed or sent by facsimile transmission, or, if mailed, two
      days
      after the date of deposit in the Untied States mails. The addresses for such
      communications shall be with respect to the Holder of this Warrant or of Warrant
      Shares issued pursuant hereto, addressed to such Holder at its last known
      address or facsimile number appearing on the books of the Company maintained
      for
      such purposes, or with respect to the Company, addressed to:

    

    SPO
      Medical Inc.

    POB
      2454,
      Kfar Saba, Israel 44425

    

    Attention:
      Michael
      Braunold

    Fax:
      011-972-764-3571

    with
      a
      copy to:

     

    Aboudi
      & Brounstein

    Attn:
      David Aboudi, Esq.

    Rechov
      Gavish 3, POB 2432

    Kfar
      Saba
      Industrial Zone 44641 Israel

    Telephone
      No.: (011-972-9) 764-4833

    Telecopier
      No.: (011-972-9) 764-4834

    

    Or
      to
      such other address or addresses or facsimile number or numbers as any such
      party
      may most recently have designated in writing to the other party hereto by notice
      given in accordance with this Section. 

    

    12.
      Supplements
      and Amendments; Whole Agreement.
      This
      Warrant may be amended or supplemented only by an instrument in writing signed
      by the parties hereto. This Warrant of even date herewith contain the full
      understanding of the parties hereto with respect to its subject matter and
      there
      are no representations, warranties, agreements or understandings other than
      expressly contained herein.

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

       

    

    13.
      Governing
      Law.
      This
      Warrant shall be governed by and construed in accordance with the laws of the
      State of New York without regard to its conflicts of laws principles. The Holder
      hereby irrevocably submits to the jurisdiction of any United States district
      court located in the City of New York over any action or proceeding arising
      out
      of or relating to this Agreement. The Holder further agrees that any action
      or
      proceeding brought against the Company shall be brought only in the United
      States district courts located in the City of New York. 

    

    14.
      Counterparts.
      This
      Warrant may be executed in any number of counterparts and each of such
      counterparts shall for all purposes be deemed to be an original, and all such
      counterparts shall together constitute but one and the same
      instrument.

    

    15.
      Descriptive
      Headings.
      Descriptive headings of the several Sections of this Warrant are inserted for
      convenience only and shall not control or affect the meaning or construction
      of
      any of the provisions hereof.

    

    IN
      WITNESS WHEREOF, the parties hereto have executed this Warrant as of
      _____________________.

    

      
        	
                SPO
                  MEDICAL INC.

              
	 	 
	
                By:

              	 
	
                 

              	
                Name:
                  Michael Braunold

              
	
                 

              	
                Title:
                  CEO

              

      

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

    

    NOTICE
      OF
      EXERCISE OF WARRANT

    

    The
      undersigned hereby irrevocably elects to exercise the right, represented by
      the
      Warrant certificate dated as of ___________, to purchase ___________ shares
      of
      the Common Stock, stated value $0.60 per share, of SPO Medical Inc. and tenders
      herewith payment.

    

    By
      certificate check, cashier’s check or wire transfer of
      $_____________.

    

    Number
      of
      Warrant Shares Surrendered for Cancellation:________

     

    Number
      of
      Warrant Shares to be Issued: ___________________________

    

    In
      exercising this Warrant, the undersigned hereby confirms and acknowledges that
      the shares of Common Stock are being acquired solely for the account of the
      undersigned and not as a nominee for any other party, and for investment, and
      that the undersigned will not offer, sell or otherwise dispose of any such
      shares of Common Stock, except under circumstances that will not result in
      a
      violation of the Untied States Securities Act of 1933, as amended, or any
      foreign or state securities laws.

    

    Please
      issue a certificate or certificates representing said shares of Common Stock
      in
      the name of the undersigned or in such other name as is specified
      below:

    

    

    ________________________________

    
      (Name)

    

    ________________________________

    (Address)
      

    

    ________________________________

    

    

    

    By:___________________________

    Name:

    

    Dated:___________________

     

    
      
        
        

      

      
        6

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