Document:

ex10ltip060310.htm

    FBR
CAPITAL MARKETS CORPORATION

     

    2006
LONG-TERM INCENTIVE PLAN

     

    (As
Amended and Restated Effective June 3, 2010)

     

    FBR
Capital Markets Corporation, a corporation existing under the laws of the
Commonwealth of Virginia (the “Company”), hereby establishes and adopts the
following 2006 Long-Term Incentive Plan (the “Plan”), as amended and restated
effective June 3, 2010.

     

    
      	
              1.

            	
              PURPOSE
      OF THE PLAN

            

    

     

    
      	
               
      

            	
              1.1.

            	
              Purpose. The purpose of
      the Plan is to assist the Company and its Affiliates in attracting and
      retaining selected individuals to serve as directors, employees,
      consultants and/or advisors of the Company who are expected to contribute
      to the Company’s success and to achieve long-term objectives which will
      inure to the benefit of all shareholders of the Company through the
      additional incentives inherent in the Awards
  hereunder.

            

    

     

    
      	
              2.

            	
              DEFINITIONS

            

    

     

    
      	
               
      

            	
              2.1.

            	
              “Accounting Firm” shall
      have the meaning set forth in
Section 11.4.

            

    

     

    
      	
               
      

            	
              2.2.

            	
              “Affiliate” shall mean
      (i) any person or entity that directly, or through one or more
      intermediaries, controls, or is controlled by, or is under common control
      with, the Company (including any Subsidiary) or (ii) any entity in
      which the Company has a significant equity interest, as determined by the
      Committee.

            

    

     

    
      	
               
      

            	
              2.3.

            	
              “Award” shall mean any
      Option, Stock Appreciation Right, Restricted Stock Award, Performance
      Award, Dividend Equivalent, Interest Equivalent, or Other Stock-Based
      Award granted pursuant to the provisions of the
  Plan.

            

    

     

    
      	
               
      

            	
              2.4.

            	
              “Award Agreement” shall
      mean any written agreement, contract or other instrument or document
      evidencing any Award granted by the Committee
  hereunder.

            

    

     

    
      	
               
      

            	
              2.5.

            	
              “Board” shall mean the
      board of directors of the Company.

            

    

     

    
      	
               
      

            	
              2.6.

            	
              “Change in Control”
      shall have the meaning set forth in
  Section 11.1.

            

    

     

    
      	
               
      

            	
              2.7.

            	
              “Code” shall mean the
      Internal Revenue Code of 1986, as amended from time to time, and any
      successor thereto.

            

    

     

    
      	
               
      

            	
              2.8.

            	
              “Committee” shall mean
      the Compensation Committee of the Board, or, if such committee of the
      Board has not been appointed, the
Board.

            

    

     

    
      	
               
      

            	
              2.9.

            	
              “Covered Employee” shall
      mean a “covered employee” within the meaning of Section 162(m)(3) of
      the Code, or any successor provision
thereto.

            

    

     

    
      	
               
      

            	
              2.10.

            	
              “Director” shall mean a
      non-employee member of the Board.

            

    

     

    
      	
               
      

            	
              2.11.

            	
              “Dividend Equivalents”
      shall have the meaning set forth in
  Section 12.5.

            

    

     

    
      	
               
      

            	
              2.12.

            	
              “Employee” shall mean
      any employee of the Company or any Affiliate. Solely for purposes of the
      Plan, an Employee shall also mean any consultant or advisor who provides
      services to the Company or any Affiliate, so long as such person
      (i) renders bona fide services that are not in connection with the
      offer and sale of the Company’s securities in a capital-raising
      transaction and (ii) does not directly or indirectly promote or
      maintain a market for the Company’s
securities.

            

    

     

    
      	
               
      

            	
              2.13.

            	
              “Exchange Act” shall
      mean the Securities Exchange Act of 1934, as
  amended.

            

    

     

    
      	
               
      

            	
              2.14.

            	
              “Fair Market Value”
      shall mean, with respect to any property other than Shares, the market
      value of such property determined by such methods or procedures as shall
      be established from time to time by the Committee. If the Shares are not
      listed on a stock exchange, the Fair Market Value of the Shares on any
      date shall be their fair market value as determined by the Committee using
      any reasonable method and in good faith. If the Shares are listed on a
      stock exchange, the Fair Market Value of Shares as of any date shall be
      the per Share closing price of the Shares as reported on such stock
      exchange (or the exchange selected by the Committee if the Shares are
      listed on more than one stock exchange), on the date prior to such date
      (or if there was no reported closing price on such date, on the last
      preceding date on which the closing price was
  reported).

            

    

     

    
      	
               
      

            	
              2.15.

            	
              “Freestanding Stock
      Appreciation Right” shall have the meaning set forth in
      Section 6.1.

            

    

     

    
      	
               
      

            	
              2.16

            	
              “Interest Equivalent”
      shall have the meaning set forth in
  Section 12.5

            

    

     

    
      	
               
      

            	
              2.17.

            	
              “Limitations” shall have
      the meaning set forth in
Section 10.5.

            

    

     

    
      	
               
      

            	
              2.18.

            	
              “Option” shall mean any
      right granted to a Participant under the Plan allowing such Participant to
      purchase Shares at such price or prices and during such period or periods
      as the Committee shall determine.

            

    

     

    
      	
               
      

            	
              2.19.

            	
              “Option Proceeds” shall
      mean the cash actually received by the Company for the option price in
      connection with the exercise of Options that are exercised after the
      effective date of the Plan, plus the maximum tax benefit that could be
      realized by the Company as a result of the exercise of such Options, which
      tax benefit shall be determined by multiplying (a) the amount that is
      deductible for Federal income tax purposes as a result of any such option
      exercise (currently, equal to the amount upon which the Participant’s
      withholding tax obligation is calculated), times (b) the maximum
      federal corporate income tax rate for the year of exercise. To the extent
      that a Participant pays the option price and/or withholding taxes with
      Shares, Option Proceeds shall not be calculated with respect to the
      amounts so paid in Shares.

            

    

     

    
      	
               
      

            	
              2.20.

            	
              “Other Stock-Based
      Award” shall have the meaning set forth in
      Section 8.1.

            

    

     

    
      	
               
      

            	
              2.21.

            	
              “Participant” shall mean
      an Employee or Director who is selected by the Committee to receive an
      Award under the Plan.

            

    

     

    
      	
               
      

            	
              2.22.

            	
              “Payee” shall have the
      meaning set forth in
Section 13.1.

            

    

     

    
      	
               
      

            	
              2.23.

            	
              “Performance Award”
      shall mean any Award of Performance Shares or Performance Units granted
      pursuant to Section 9.

            

    

     

    
      	
               
      

            	
              2.24.

            	
              “Performance Period”
      shall mean that period established by the Committee at the time any
      Performance Award is granted or at any time thereafter during which any
      performance goals specified by the Committee with respect to such Award
      are to be measured.

            

    

     

    
      	
               
      

            	
              2.25.

            	
              “Performance Share”
      shall mean any grant pursuant to Section 9 of a unit valued by
      reference to a designated number of Shares, which value may be paid to the
      Participant by delivery of such property as the Committee shall determine,
      including cash, Shares, other property, or any combination thereof, upon
      achievement of such performance goals during the Performance Period as the
      Committee shall establish at the time of such grant or
      thereafter.

            

    

     

    
      	
               
      

            	
              2.26.

            	
              “Performance Unit” shall
      mean any grant pursuant to Section 9 of a unit valued by reference to
      a designated amount of property (including cash) other than Shares, which
      value may be paid to the Participant by delivery of such property as the
      Committee shall determine, including cash, Shares, other property, or any
      combination thereof, upon achievement of such performance goals during the
      Performance Period as the Committee shall establish at the time of such
      grant or thereafter.

            

    

     

    
      	
               
      

            	
              2.27.

            	
              “Permitted Assignee”
      shall have the meaning set forth in
  Section 12.3.

            

    

     

    
      	
               
      

            	
              2.28.

            	
              “Purchase/Placement
      Agreement” shall mean that certain agreement by and between the
      Company and Friedman, Billings, Ramsey & Co., Inc., as initial
      purchaser/placement agent, dated July 14,
  2006.

            

    

     

    
      	
               
      

            	
              2.29.

            	
              “Restricted Stock” shall
      mean any Share issued with the restriction that the holder may not sell,
      transfer, pledge or assign such Share and with such other restrictions as
      the Committee, in its sole discretion, may impose (including any
      restriction on the right to vote such Share and the right to receive any
      dividends), which restrictions may lapse separately or in combination at
      such time or times, in installments or otherwise, as the Committee may
      deem appropriate.

            

    

     

    
      	
               
      

            	
              2.30.

            	
              “Restricted Stock Award”
      shall have the meaning set forth in
  Section 7.1.

            

    

     

    
      	
               
      

            	
              2.31.

            	
              “Restriction Period”
      shall have the meaning set forth in
  Section 7.1.

            

    

     

    
      	
               
      

            	
              2.32.

            	
              “Securities Act” shall
      mean the Securities Act of 1933, as
amended.

            

    

     

    
      	
               
      

            	
              2.33.

            	
              “Shares” shall mean the
      shares of common stock of the Company, par value $0.001 per
      share.

            

    

     

    
      	
               
      

            	
              2.34.

            	
              “Stock Appreciation
      Right” shall mean the right granted to a Participant pursuant to
      Section 6.

            

    

     

    
      	
               
      

            	
              2.35.

            	
              “Subsidiary” shall mean
      any corporation (other than the Company) in an unbroken chain of
      corporations beginning with the Company if, at the time of the granting of
      the Award, each of the corporations other than the last corporation in the
      unbroken chain owns stock possessing 50% or more of the total combined
      voting power of all classes of stock in one of the other corporations in
      the chain.

            

    

     

    
      	
               
      

            	
              2.36.

            	
              “Substitute Awards”
      shall mean Awards granted or Shares issued by the Company in assumption
      of, or in substitution or exchange for, awards previously granted, or the
      right or obligation to make future awards, by a company acquired by the
      Company or any Subsidiary or with which the Company or any Subsidiary
      combines.

            

    

     

    
      	
               
      

            	
              2.37.

            	
              “Tandem Stock Appreciation
      Right” shall have the meaning set forth in
      Section 6.1.

            

    

     

    In
addition, certain other terms used in the Plan have definitions provided to them
in the first place in which they are used herein.

     

    

     

    
      	
               
      

            	
              3.        SHARES
      SUBJECT TO THE PLAN

            

    

     

    
      	
               
      

            	
              3.1

            	
              Number of Shares.
      (a) Subject to adjustment as provided in Section 12.2, a total
      of 22,069,985 Shares shall be authorized for grant under the
      Plan.

            

    

     

    
      	
               
      

            	
              (b)

            	
              If
      any Shares subject to an Award are forfeited, expire or otherwise
      terminate without issuance of such Shares, or any Award is settled for
      cash or otherwise does not result in the issuance of all or a portion of
      the Shares subject to such Award, the Shares shall, to the extent of such
      forfeiture, expiration, termination, cash settlement or non-issuance,
      again be available for Awards under the
Plan.

            

    

     

    
      	
               
      

            	
              (c)

            	
              In
      the event that (i) any Option or other Award granted hereunder is
      exercised through the tendering of Shares (either actually or by
      attestation) or by the withholding of Shares by the Company, or
      (ii) withholding tax liabilities arising from such Option or other
      Award are satisfied by the tendering of Shares (either actually or by
      attestation) or by the withholding of Shares by the Company, then only the
      number of Shares issued net of the Shares tendered or withheld shall be
      counted for purposes of determining the maximum number of Shares available
      for grant under the Plan.

            

    

     

    

    
      	
               
      

            	
              (d)

            	
              Shares
      reacquired by the Company on the open market using Option Proceeds shall
      be available for Awards under the Plan. The increase in Shares available
      pursuant to the repurchase of Shares with Option Proceeds shall not be
      greater than the amount of such proceeds divided by the Fair Market Value
      of a Share on the date of exercise of the Option giving rise to such
      Option Proceeds.

            

    

     

    
      	
               
      

            	
              (e)

            	
              Substitute
      Awards shall not reduce the Shares authorized for grant under the Plan or
      authorized for grant to a Participant in any calendar year. Additionally,
      in the event that a company acquired by the Company or any Subsidiary or
      with which the Company or any Subsidiary combines has shares available
      under a pre-existing plan approved by shareholders and not adopted in
      contemplation of such acquisition or combination, the shares available for
      grant pursuant to the terms of such pre-existing plan (as adjusted, to the
      extent appropriate, using the exchange ratio or other adjustment or
      valuation ratio or formula used in such acquisition or combination to
      determine the consideration payable to the holders of common stock of the
      entities party to such acquisition or combination) may be used for Awards
      under the Plan and shall not reduce the Shares otherwise authorized for
      grant under the Plan; provided that Awards using such available shares
      shall not be made after the last date awards or grants could have been
      made under the terms of the pre-existing plan, absent the acquisition or
      combination, and shall only be made to individuals who were not Employees
      or Directors or any Affiliate prior to such acquisition or
      combination.

            

    

     

    
      	
               
      

            	
              (f)

            	
              Grants
      of Awards as a material inducement to a person becoming an employee of the
      Company or any Subsidiary, including new employees in connection with a
      merger or acquisition, or a former employee being rehired as an employee
      following a bona fide period of interruption of employment, shall not
      reduce the Shares authorized for grant under the Plan if the Committee so
      determines.

            

    

     

    
      	
               
      

            	
              (g)

            	
              Subject
      to adjustment as provided in Section 12.2, the aggregate number of
      Shares that may be issued under the Plan upon the exercise of Options is
      22,069,985 shares.

            

    

     

    
      	
               
      

            	
              3.2.

            	
              Character of Shares.
      Any Shares issued hereunder may consist, in whole or in part, of
      authorized and unissued shares, treasury shares or shares purchased in the
      open market or otherwise.

            

    

     

    

     

    
      	
              4.

            	
              ELIGIBILITY
      AND ADMINISTRATION

            

    

     

    
      	
               
      

            	
              4.1.

            	
              Eligibility. Any
      Employee or Director shall be eligible to be selected as a
      Participant.

            

    

     

    
      	
               
      

            	
              4.2.

            	
              Administration.
      (a) The Plan shall be administered by the Committee. The Directors
      may remove from, add members to, or fill vacancies on, the
      Committee.

            

    

     

    
      	
               
      

            	
              (b)

            	
              The
      Committee shall have full power and authority, subject to the provisions
      of the Plan and subject to such orders or resolutions not inconsistent
      with the provisions of the Plan as may from time to time be adopted by the
      Board, to: (i) select the Employees and Directors to whom Awards may
      from time to time be granted hereunder; (ii) determine the type or
      types of Awards, not inconsistent with the provisions of the Plan, to be
      granted to each Participant hereunder; (iii) determine the number of
      Shares to be covered by each Award granted hereunder; (iv) determine
      the terms and conditions, not inconsistent with the provisions of the
      Plan, of any Award granted hereunder; (v) determine whether, to what
      extent and under what circumstances Awards may be settled in cash, Shares
      or other property, subject to Section 8.1; (vi) determine
      whether, to what extent, and under what circumstances cash, Shares, other
      property and other amounts payable with respect to an Award made under the
      Plan shall be deferred either automatically or at the election of the
      Participant; (vii) determine whether, to what extent and under what
      circumstances any Award shall be canceled or suspended;
      (viii) interpret and administer the Plan and any instrument or
      agreement entered into under or in connection with the Plan, including any
      Award Agreement; (ix) correct any defect, supply any omission or
      reconcile any inconsistency in the Plan or any Award in the manner and to
      the extent that the Committee shall deem desirable to carry it into
      effect; (x) establish such rules and regulations and appoint such
      agents as it shall deem appropriate for the proper administration of the
      Plan; (xi) determine whether any Award will have Dividend Equivalents
      or Interest Equivalents; and (xii) make any other determination and
      take any other action that the Committee deems necessary or desirable for
      administration of the Plan.

            

    

    
      	
               
      

            	
               

            

    

    
      	
                                     
      (c)

            	
              Decisions of the Committee shall
      be final, conclusive and binding on all persons or entities, including the
      Company, any Participant, any shareholder and any Employee or any
      Affiliate. A majority of the members of the Committee may determine its
      actions and fix the time and place of its meetings.

            	
                

            	
                

            

    

     

    
      	
               
      

            	
              (d)

            	
              The
      Committee may delegate to a committee of one or more directors of the
      Company or, to the extent permitted by law, to one or more officers or a
      committee of officers the right to grant Awards to Employees who are not
      Directors or officers of the Company and to cancel or suspend Awards to
      Employees who are not Directors or officers of the
  Company.

            

    

     

    
      	
              5.

            	
              OPTIONS

            

    

     

    
      	
               
      

            	
              5.1.

            	
              Grant of Options.
      Options may be granted hereunder to Participants either alone or in
      addition to other Awards granted under the Plan. Any Option shall be
      subject to the terms and conditions of this Section 5 and to such
      additional terms and conditions, not inconsistent with the provisions of
      the Plan, as the Committee shall deem
desirable.

            

    

     

    
      	
               
      

            	
              5.2.

            	
              Award Agreements. All
      Options granted pursuant to this Section 5 shall be evidenced by a
      written Award Agreement in such form and containing such terms and
      conditions as the Committee shall determine which are not inconsistent
      with the provisions of the Plan. Granting of an Option pursuant to the
      Plan shall impose no obligation on the recipient to exercise such Option.
      Any individual who is granted an Option pursuant to this Section 5
      may hold more than one Option granted pursuant to the Plan at the same
      time.

            

    

     

    
      	
               
      

            	
              5.3.

            	
              Option Price. Other
      than in connection with Substitute Awards, the option price per each Share
      purchasable under any Option granted pursuant to this Section 5 shall
      not be less than 100% of the Fair Market Value of such Share on the date
      of grant of such Option. Other than pursuant to Section 12.2, the
      Committee shall not be permitted to (a) lower the option price per
      Share of an Option after it is granted, (b) cancel an Option when the
      option price per Share exceeds the Fair Market Value of the underlying
      Shares in exchange for another Award (other than in connection with
      Substitute Awards), and (c) take any other action with respect to an
      Option that may be treated as a repricing under the rules and regulations
      of a stock exchange on which the Shares are listed, without shareholder
      approval.

            

    

     

    
      	
               
      

            	
                  

            	
              Notwithstanding
      any other provision of the Plan to the contrary, upon approval of the
      inclusion of this paragraph in the Plan by the Company’s shareholders, the
      Committee may provide for, and the Company may implement, a one-time-only
      Option exchange program for employee Option holders (other than the named
      executive officers of the Company identified in the Company’s definitive
      proxy statement for the 2010 annual meeting of shareholders), pursuant to
      which certain outstanding Options granted at an exercise price of $15.00
      per Share in August 2006 could, at the election of the person holding such
      Options, be tendered to the Company for cancellation in exchange for the
      issuance of a lesser amount of Options with a lower exercise price per
      Share (but not less than 100% of the Fair Market Value per Share on the
      date of grant of such new Option), provided that such one-time-only option
      exchange program is commenced prior to June 3, 20113.

            

    

    

    
      	
               
      

            	
              5.4.

            	
              Option Period. The term
      of each Option shall be fixed by the Committee in its sole discretion;
      provided that no Option shall be exercisable after the expiration of ten
      years from the date the Option is granted, except in the event of death or
      disability as provided in
Section 12.4(a).

            

    

     

    
      	
               
      

            	
              5.5.

            	
              Exercise of Options.
      Vested Options granted under the Plan shall be exercised by the
      Participant or by a Permitted Assignee thereof (or by the Participant’s
      executors, administrators, guardian or legal representative, as may be
      provided in an Award Agreement) as to all or part of the Shares covered
      thereby, by the giving of written notice of exercise to the Company or its
      designated agent, specifying the number of Shares to be purchased,
      accompanied by payment of the full purchase price for the Shares being
      purchased. Unless otherwise provided in an Award Agreement, full payment
      of such purchase price shall be made at the time of exercise and shall be
      made (a) in cash or cash equivalents (including by certified check or
      bank check or wire transfer of immediately available funds), (b) by
      tendering previously acquired Shares (either actually or by attestation,
      valued at their then Fair Market Value), (c) with the consent of the
      Committee, by delivery of other consideration (including, where permitted
      by law and the Committee, other Awards) having a Fair Market Value on the
      exercise date equal to the total purchase price, (d) with the consent
      of the Committee, by withholding Shares otherwise issuable in connection
      with the exercise of the Option, (e) through any other method
      specified in an Award Agreement, or (f) any combination of any of the
      foregoing. The notice of exercise, accompanied by such payment, shall be
      delivered to the Company at its principal business office or such other
      office as the Committee may from time to time direct, and shall be in such
      form, containing such further provisions consistent with the provisions of
      the Plan, as the Committee may from time to time prescribe. In no event
      may any Option granted hereunder be exercised for a fraction of a Share.
      No adjustment shall be made for cash dividends or other rights for which
      the record date is prior to the date of such issuance. Except under
      certain circumstances contemplated by Section 11 or as may be set
      forth in an Award Agreement with respect to death or disability of a
      Participant, Options will not be exercisable before the expiration of one
      year from the date the Option is
granted.

            

    

     

    
      	
               
      

            	
              5.6.

            	
              Form of Settlement. In
      its sole discretion, the Committee may provide, at the time of grant, that
      the Shares to be issued upon an Option’s exercise shall be in the form of
      Restricted Stock or other similar securities, or may reserve the right so
      to provide after the time of grant.

            

    

     

    

     

    
      	
              6.

            	
              STOCK
      APPRECIATION RIGHTS

            

    

     

    
      	
               
      

            	
              6.1.

            	
              Grant and Exercise. The
      Committee may provide Stock Appreciation Rights (a) in conjunction
      with all or part of any Option granted under the Plan or at any subsequent
      time during the term of such Option (“Tandem Stock Appreciation Right”),
      (b) in conjunction with all or part of any Award (other than an
      Option) granted under the Plan or at any subsequent time during the term
      of such Award, or (c) without regard to any Option or other Award (a
      “Freestanding Stock Appreciation Right”), in each case upon such terms and
      conditions as the Committee may establish in its sole
      discretion.

            

    

     

    
      	
               
      

            	
              6.2.

            	
              Terms and Conditions.
      Stock Appreciation Rights shall be subject to such terms and conditions,
      not inconsistent with the provisions of the Plan, as shall be determined
      from time to time by the Committee, including the
    following:

            

    

     

    
      	
               
      

            	
              (a)

            	
              Upon
      the exercise of a Stock Appreciation Right, the holder shall have the
      right to receive the excess of (i) the Fair Market Value of one Share
      on the date of exercise or such other lesser amount as the Committee shall
      so determine at any time during a specified period before the date of
      exercise over (ii) the grant price of the right on the date of grant
      which, except in the case of Substitute Awards or in connection with an
      adjustment provided in Section 12.2, shall not be less than the Fair
      Market Value of one Share on such date of grant of the
    right.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Upon
      the exercise of a Stock Appreciation Right, the Committee shall determine
      in its sole discretion whether payment shall be made in cash, in whole
      Shares or other property, or any combination
  thereof.

            

    

     

    
      	
               
      

            	
              (c)

            	
              Any
      Tandem Stock Appreciation Right may be granted at the same time as the
      related Option is granted or at any time thereafter before exercise or
      expiration of such Option.

            

    

     

    
      	
               
      

            	
              (d)

            	
              Any
      Tandem Stock Appreciation Right related to an Option may be exercised only
      when the related Option would be exercisable and the Fair Market Value of
      the Shares subject to the related Option exceeds the option price at which
      Shares can be acquired pursuant to the Option. Any Option related to a
      Tandem Stock Appreciation Right shall no longer be exercisable to the
      extent the Tandem Stock Appreciation Right has been exercised and any
      Tandem Stock Appreciation Right shall no longer be exercisable to the
      extent the related Option has been exercised; provided, however, that if a
      Tandem Stock Appreciation Right exists with respect to less than the full
      number of Shares covered by a related Option, then an exercise or
      termination of such Option shall not reduce the number of Shares to which
      the Tandem Stock Appreciation Right applies until the number of Shares
      then exercisable under such Option equals the number of Shares to which
      the Tandem Stock Appreciation Right
applies,.

            

    

     

    
      	
               
      

            	
              (e)

            	
              The
      provisions of Stock Appreciation Rights need not be the same with respect
      to each recipient.

            

    

     

    
      	
               
      

            	
              (f)

            	
              The
      Committee may impose such other conditions or restrictions on the terms of
      exercise and the exercise price of any Stock Appreciation Right, as it
      shall deem appropriate. In connection with the foregoing, the Committee
      shall consider the applicability and effect of Section 162(m) of the
      Code. Notwithstanding the foregoing provisions of this
      Section 6.2(f), but subject to Section 12.2 and
      Section 12.4(a), a Freestanding Stock Appreciation Right shall not
      have a term of greater than ten years. Except under certain circumstances
      contemplated by Section 11 or as may be set forth in an Award
      Agreement with respect to death or disability of a Participant,
      Freestanding Stock Appreciation Rights will not be exercisable before the
      expiration of one year from the date the right is granted. In addition to
      the foregoing, but subject to Section 12.2, the base amount of any
      Stock Appreciation Right shall not be reduced after the date of grant,
      without shareholder approval.

            

    

     

    
      	
               
      

            	
              (g)

            	
              The
      Committee may impose such terms and conditions on Stock Appreciation
      Rights granted in conjunction with any Award (other than an Option) as the
      Committee shall determine in its sole
  discretion.

            

    

     

    

     

    
      	
              7.

            	
              RESTRICTED
      STOCK AWARDS

            

    

     

    
      	
               
      

            	
              7.1.

            	
              Grants. Awards of
      Restricted Stock may be issued hereunder to Participants either alone or
      in addition to other Awards granted under the Plan (a “Restricted Stock
      Award”). A Restricted Stock Award shall be subject to restrictions imposed
      by the Committee covering a period of time specified by the Committee (the
      “Restriction Period”). The provisions of Restricted Stock Awards need not
      be the same with respect to each recipient. The Committee has absolute
      discretion to determine whether any consideration (other than services) is
      to be received by the Company or any Affiliate as a condition precedent to
      the issuance of Restricted Stock

            

    

     

    
      	
               
      

            	
              7.2.

            	
              Award Agreements. The
      terms of any Restricted Stock Award granted under the Plan shall be set
      forth in a written Award Agreement which shall contain provisions
      determined by the Committee and not inconsistent with the
      Plan.

            

    

     

    
      	
               
      

            	
              7.3.

            	
              Rights of Holders of
      Restricted Stock. Beginning on the date of grant of the Restricted
      Stock Award and subject to execution of the Award Agreement, the
      Participant shall become a shareholder of the Company with respect to all
      Shares subject to the Award Agreement and shall have all of the rights of
      a shareholder, including the right to vote such Shares and the right to
      receive distributions made with respect to such Shares; provided,
      however, that any
      Shares or any other property (other than cash) distributed as a dividend
      or otherwise with respect to any Restricted Stock as to which the
      restrictions have not yet lapsed shall be subject to the same restrictions
      as such Restricted Stock.

            

    

     

    
      	
               
      

            	
              7.4.

            	
              Minimum Vesting Period.
      Except for certain limited situations (including the death,
      disability or retirement of the Participant or a Change in Control
      referred to in Section 11), Restricted Stock Awards subject solely to
      continued employment restrictions shall have a Restriction Period of not
      less than three years from date of grant (but permitting pro-rata vesting
      over such time); provided, that the provisions of this Section 7.4
      shall not be applicable to any Substitute Awards or grants of Restricted
      Stock in payment of Performance Awards pursuant to Section 9. Subject to the
      foregoing three-year or one-year minimum vesting requirement, as
      applicable, the Committee may, in its sole discretion and subject to the
      limitations imposed under Section 162(m) of the Code and the Treasury
      Regulations thereunder in the case of a Restricted Stock Award intended to
      comply with the performance-based compensation exception under Code
      Section 162(m), waive the forfeiture period and any other conditions
      set forth in any Award Agreement subject to such terms and conditions as
      the Committee shall deem
appropriate.

            

    

     

    
      	
              8.

            	
              OTHER
      STOCK–BASED AWARDS

            

    

     

    
      	
               
      

            	
              8.1.

            	
              Stock and
      Administration. Other Awards of Shares and other Awards that are
      valued in whole or in part by reference to, or are otherwise based on,
      Shares or securities convertible into Shares (“Other Stock-Based Awards”)
      may be granted hereunder to Participants, either alone or in addition to
      other Awards granted under the Plan, and such Other Stock-Based Awards
      shall also be available as a form of payment in the settlement of other
      Awards granted under the Plan. Other Stock-Based Awards shall be paid in
      Shares, cash or a combination, as determined by the Committee. Subject to
      the provisions of the Plan, the Committee shall have sole and complete
      authority to determine the Employees and Directors to whom and the time or
      times at which such Other Stock-Based Awards shall be made, the number of
      Shares to be granted pursuant to such Awards, and all other conditions of
      the Awards. The provisions of Other Stock-Based Awards need not be the
      same with respect to each recipient. Other Stock-Based Awards may be
      immediately vested, immediately transferable or both immediately vested
      and transferable. Except for certain limited situations (including the
      death, disability or retirement of the Participant or a Change in Control
      referred to in Section 11), Other Stock-Based Awards subject solely
      to continued employment restrictions shall be subject to restrictions
      imposed by the Committee for a period of not less than three years from
      date of grant (but permitting pro-rata vesting over such time); provided,
      that such restrictions shall not be applicable to any Substitute Awards,
      grants of Other Stock-Based Awards in payment of Performance Awards
      pursuant to Section 9, or grants of Other Stock-Based Awards on a
      deferred basis. In addition, the Committee may award unrestricted Shares
      to Participants in lieu of certain cash payments awarded under other
      compensation plans or programs of the
Company.

            

    

     

    
      	
               
      

            	
              8.2.

            	
              Terms and Conditions.
      Shares (including securities convertible into Shares) subject to Awards
      granted under this Section 8 may be issued for no consideration or
      for such minimum consideration as may be required by applicable law.
      Shares (including securities convertible into Shares) purchased pursuant
      to a purchase right awarded under this Section 8 shall be purchased
      for such consideration as the Committee shall determine in its sole
      discretion.

            

    

     

    

     

    
      	
              9.

            	
              PERFORMANCE
      AWARDS

            

    

     

    
      	
               
      

            	
              9.1.

            	
              Terms of Performance
      Awards. Performance Awards may be issued hereunder to Participants,
      for no consideration or for such minimum consideration as may be required
      by applicable law, either alone or in addition to other Awards granted
      under the Plan. The performance criteria to be achieved during any
      Performance Period and the length of the Performance Period shall be
      determined by the Committee upon the grant of each Performance Award;
      provided, however, that a Performance Period shall not be shorter than 12
      months nor longer than five years. Except as provided in Section 11
      or as may be provided in an Award Agreement, Performance Awards will be
      distributed only after the end of the relevant Performance Period.
      Performance Awards may be paid in cash, Shares, other property, or any
      combination thereof, in the sole discretion of the Committee at the time
      of payment. The performance goals to be achieved for each Performance
      Period shall be conclusively determined by the Committee and may be based
      upon the criteria set forth in Section 10.1. The amount of the Award
      to be distributed shall be conclusively determined by the Committee.
      Performance Awards may be paid in a lump sum or in installments following
      the close of the Performance Period or, in accordance with procedures
      established by the Committee, on a deferred
  basis.

            

    

     

    
      	
              10.

            	
              CODE
      SECTION 162(m) PROVISIONS

            

    

     

    
      	
               
      

            	
              10.1.

            	
              Performance Criteria.
      If any Award is intended to satisfy the performance-based compensation
      exception under Code Section 162(m), then the lapsing of restrictions
      on such an Award and the distribution of cash, Shares or other property
      pursuant thereto, as applicable, may be subject to the achievement of one
      or more objective performance goals established by the Committee, which
      shall be based on the attainment of specified levels of one or any
      combination of the following: revenues, revenue growth; asset growth;
      combined net worth; debt to equity ratio; debt to capitalization ratio;
      earnings before interest, taxes, depreciation and amortization; operating
      income; operating cash flow; pre- or after-tax net income; cash flow or
      free cash flow; cash flow or free cash flow per share; net earnings;
      earnings per share; return on equity; return on investment; return on
      total capital; return on capital employed; return on assets; return on
      revenue; economic value added (or an equivalent metric); share price
      performance; total shareholder return; improvement in or attainment of
      expense levels; improvement in or attainment of working capital levels of
      the Company or any Affiliate, division or business unit of the Company for
      or within which the Participant is primarily employed. Such performance
      goals also may be based solely by reference to the Company’s performance
      or the performance of an Affiliate, division or business unit of the
      Company, or based upon the relative performance of other companies or upon
      comparisons of any of the indicators of performance relative to other
      companies. The Committee may also exclude the impact of an event or
      occurrence which the Committee determines should appropriately be
      excluded, including (a) restructurings, discontinued operations,
      extraordinary items, and other unusual or non-recurring charges,
      (b) an event either not directly related to the operations of the
      Company or not within the reasonable control of the Company’s management,
      or (c) a change in accounting standards required by generally
      accepted accounting principles. Such performance goals shall be set by the
      Committee within the time period prescribed by, and shall otherwise comply
      with the requirements of, Section 162(m) of the Code, or any
      successor provision thereto, and the regulations
    thereunder.

            

    

     

    
      	
               
      

            	
              10.2.

            	
              Adjustments.
      Notwithstanding any provision of the Plan (other than Section 11),
      with respect to any Restricted Stock, Performance Award or Other
      Stock-Based Award that is subject to this Section 10, the Committee
      may adjust downwards, but not upwards, the amount payable pursuant to such
      Award, and the Committee may not waive the achievement of the applicable
      performance goals, except in the case of the death or disability of the
      Participant.

            

    

     

    
      	
               
      

            	
              10.3.

            	
              Restrictions. The
      Committee shall have the power to impose such other restrictions on Awards
      subject to this Section 10 as it may deem necessary or appropriate to
      ensure that such Awards satisfy all requirements for “performance-based
      compensation” within the meaning of Section 162(m)(4)(C) of the Code,
      or any successor provision thereto.

            

    

     

    
      	
               
      

            	
              10.4.

            	
              Limitations on Grants to
      Individual Participant. Subject to adjustment as provided in
      Section 12.2, no Participant may be granted Options or Stock
      Appreciation Rights during any calendar year with respect to more than
      1,000,000 Shares. Subject to adjustment as provided in Section 12.2,
      no Participant may be granted in any calendar year Restricted Stock,
      Performance Awards and/or Other Stock-Based Awards that are intended to
      satisfy the performance-based compensation exception under Code
      Section 162(m) and that are denominated in Shares with respect to
      more than 750,000 Shares (the “Limitations”). In addition to the
      foregoing, the maximum dollar value payable to any Participant in any
      calendar year with respect to Performance Awards and/or Other Stock-Based
      Awards that are intended to satisfy the performance-based compensation
      exception under Code Section 162(m) and that are valued with
      reference to property other than Shares is $25,000,000. If an Award is
      cancelled, the cancelled Award shall continue to be counted toward the
      applicable Limitations.

            

    

     

    

     

    
      	
               11.

            	
               

            	
              CHANGE
      IN CONTROL PROVISIONS

            

    

     

    
      	
               
      

            	
              11.1.

            	
              Definition of Change in
      Control. For purposes of the Plan, a “Change in Control” shall mean
      the happening of any of the following
events:

            

    

     

    
      	
               
      

            	
              (a)

            	
              acquisition
      by any individual, entity or group (with the meaning of
      Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
      as amended (the “Exchange Act”)) (a “Person”) of beneficial ownership
      (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
      50% or more of either (A) the then outstanding shares of common stock
      of the Company (the “Outstanding Company Common Stock”) or (B) the
      combined voting power of the then outstanding voting securities of the
      Company entitled to vote generally in the election of directors (the
      “Outstanding Company Voting Securities”); provided, however, that, for
      purposes of this subsection (a), the following acquisitions shall not
      constitute a Change in Control: (1) any acquisition directly from the
      Company, (2) any acquisition by the Company, (3) any acquisition
      by any employee benefit plan (or related trust) sponsored or maintained by
      the Company or any corporation controlled by the Company or (4) any
      acquisition by any corporation pursuant to a transaction which complies
      with clauses (A), (B) and (C) of subsection (c) of this
      Section 11.1; or

            

    

     

    
      	
               
      

            	
              (b)

            	
              Individuals
      who, as of the date hereof, constitute the Board (the “Incumbent Board”)
      cease to constitute at least a majority of the Board; provided, however,
      that any individual becoming a director subsequent to the date hereof
      whose election, or nomination for election by the Company’s shareholders,
      was approved by a vote of at least a majority of the directors then
      comprising the Incumbent Board shall be considered as though such
      individual were a member of the Incumbent Board, but excluding, for this
      purpose, any such individual whose initial assumption of office occurs as
      a result of an actual or threatened election contest with respect to the
      election or removal of directors or other actual or threatened
      solicitation of proxies or consents by or on behalf of a Person other than
      the Board; or

            

    

     

    
      	
               
      

            	
              (c)

            	
              Consummation
      of a reorganization, merger or consolidation or sale or other disposition
      of all or substantially all of the assets of the Company or the
      acquisition of assets or stock of another corporation (a “Business
      Combination”), in each case, unless, following such Business Combination,
      (A) all or substantially all of the individuals and entities who were
      the beneficial owners, respectively, of the Outstanding Company Common
      Stock and Outstanding Company Voting Securities immediately prior to such
      Business Combination beneficially own, directly or indirectly, more than
      60% of, respectively, the then outstanding shares of common stock and the
      combined voting power of the then outstanding voting securities entitled
      to vote generally in the election of directors, as the case may be, of the
      corporation resulting from such Business Combination (including, without
      limitation, a corporation which as a result of such transaction owns the
      Company or all or substantially all of the Company’s assets either
      directly or through one or more subsidiaries) in substantially the same
      proportions as their ownership, immediately prior to such Business
      Combination of the Outstanding Company Common Stock and Outstanding
      Company Voting Securities, as the case may be, (B) no Person
      (excluding any corporation resulting from such Business Combination or any
      employee benefit plan (or related trust) of the Company or such
      corporation resulting from such Business Combination or the Founders or
      Founder Affiliates) beneficially owns, directly or indirectly, 50% or more
      of, respectively, the then outstanding shares of common stock of the
      corporation resulting from such Business Combination or the combined
      voting power of the then outstanding voting securities of such corporation
      except to the extent that such ownership existed prior to the Business
      Combination and (C) at least a majority of the members of the board
      of directors of the corporation resulting from such Business Combination
      were members of the Incumbent Board at the time of the execution of the
      initial agreement, or of the action of the Board, providing for such
      Business Combination; or

            

    

     

    
      	
               
      

            	
              (d)

            	
              Approval
      by the shareholders of the Company of a complete liquidation or
      dissolution of the Company.

            

    

     

    
      	
               
      

            	
              (e)

            	
              In
      no event shall a Change in Control be deemed to have occurred under this
      Section 11.1 upon an initial public offering or a subsequent public
      offering of the common stock under the Securities
  Act.

            

    

    
       

    

     

    
      	
               
      

            	
              11.2.

            	
              Impact of Change in Control.
      Unless the Committee determines otherwise in an Award Agreement,
      upon a Change in Control, (a) Options and Stock Appreciation Rights
      outstanding as of the date of the Change in Control immediately vest and
      become fully exercisable, (b) restrictions and deferral limitations
      on Restricted Stock lapse and the Restricted Stock become free of all
      restrictions and limitations and become fully vested, (c) all
      Performance Awards shall be considered to be earned and payable (either in
      full or pro-rata based on the portion of Performance Period completed as
      of the date of the Change in Control), and any deferral or other
      restriction shall lapse and such Performance Awards shall be immediately
      settled or distributed, (d) the restrictions and deferral limitations
      and other conditions applicable to any Other Stock-Based Awards or any
      other Awards shall lapse, and such Other Stock-Based Awards or such other
      Awards shall become free of all restrictions, limitations or conditions
      and become fully vested and transferable to the full extent of the
      original grant, and (e) such other additional benefits as the
      Committee deems appropriate shall apply, subject in each case to any terms
      and conditions contained in the Award Agreement evidencing such Award.
      Notwithstanding any other provision of the Plan, the Committee, in its
      discretion, may determine that, upon the occurrence of a Change in Control
      of the Company, each Option and Stock Appreciation Right outstanding shall
      terminate within a specified number of days after notice to the
      Participant, and such Participant shall receive, with respect to each
      Share subject to such Option or Stock Appreciation Right, an amount equal
      to the excess of the Fair Market Value of such Share immediately prior to
      the occurrence of such Change in Control over the exercise price per share
      of such Option and/or Stock Appreciation Right; such amount to be payable
      in cash, in one or more kinds of stock or property (including the stock or
      property, if any, payable in the transaction) or in a combination thereof,
      as the Committee, in its discretion, shall
  determine.

            

    

     

    
      	
               
      

            	
              11.3.

            	
              Assumption Upon Change in
      Control. Notwithstanding the foregoing, if in the event of a Change
      in Control the successor company assumes or substitutes for an Option,
      Stock Appreciation Right, Share of Restricted Stock or Other Stock-Based
      Award, then each outstanding Option, Stock Appreciation Right, Share of
      Restricted Stock or Other Stock-Based Award shall not be accelerated as
      described in Sections 11.2(a), (b) and (d). For the purposes of this
      Section 11.3, an Option, Stock Appreciation Right, Share of
      Restricted Stock or Other Stock-Based Award shall be considered assumed or
      substituted for if following the Change in Control the award confers the
      right to purchase or receive, for each Share subject to the Option, Stock
      Appreciation Right, Restricted Stock Award or Other Stock-Based Award
      immediately prior to the Change in Control, the consideration (whether
      stock, cash or other securities or property) received in the transaction
      constituting a Change in Control by holders of Shares for each Share held
      on the effective date of such transaction (and if holders were offered a
      choice of consideration, the type of consideration chosen by the holders
      of a majority of the outstanding shares); provided, however, that if such
      consideration received in the transaction constituting a Change in Control
      is not solely common stock of the successor company, the Committee may,
      with the consent of the successor company, provide that the consideration
      to be received upon the exercise or vesting of an Option, Stock
      Appreciation Right, Restricted Stock Award or Other Stock-Based Award, for
      each Share subject thereto, will be solely common stock of the successor
      company substantially equal in fair market value to the per share
      consideration received by holders of Shares in the transaction
      constituting a Change in Control. The determination of such substantial
      equality of value of consideration shall be made by the Committee in its
      sole discretion and its determination shall be conclusive and binding.
      Notwithstanding the foregoing, on such terms and conditions as may be set
      forth in an Award Agreement, in the event of an involuntary termination
      without cause or a voluntary termination for good reason of a
      Participant’s employment in such successor company within a 24-month
      period following such Change in Control, each Award held by such
      Participant at the time of the Change in Control shall be accelerated as
      described in Sections 11.2(a), (b) and
  (d) above.

            

    

     

    
      	
               
      

            	
              11.4.

            	
              Limitations on
      Benefits.

            

    

     

    
      	
               
      

            	
              (a)

            	
              Subject
      to Section 11.4(e), but despite any other provision of this Plan, if
      it is determined that receipt of benefits or payments under this Plan,
      taking into account other benefits or payments provided under other plans,
      agreements or arrangements, would subject a Participant to tax under Code
      Section 4999, it must determine whether some amount of the benefits
      or payments would meet the definition of a “Reduced Amount.” If it is
      determined that there is a Reduced Amount, the total benefits and payments
      must be reduced to such Reduced Amount, but not below
  zero.

            

    

     

    
      	
               
      

            	
              (b)

            	
              If
      it is determined that the total benefits and payments should be reduced to
      the Reduced Amount, the Company must promptly notify the Participant of
      that determination, including a copy of the detailed calculations by the
      independent accounting firm engaged to audit the Company’s financial
      statements immediately before the Change in Control (the “Accounting
      Firm”). All determinations made by the Accounting Firm under this section
      are binding upon the Company and the
  Participant.

            

    

     

    
      	
               
      

            	
              (c)

            	
              It
      is the intention of the Company and the Participant to reduce the total
      benefits and payments under this Plan and any other plan, agreement or
      arrangement only if the aggregate Net After Tax Receipts to the
      Participant would thereby be increased. As a result of the uncertainty in
      the application of Code section 4999 at the time of the initial
      determination by the Company’s accounting firm under this section,
      however, it is possible that amounts will have been paid or distributed
      under the Plan to or for the benefit of a Participant which should not
      have been so paid or distributed (“Overpayment”) or that additional
      amounts which will not have been paid or distributed under the Plan to or
      for the benefit of a Participant could have been so paid or distributed
      (“Underpayment”), in each case, consistent with the calculation of the
      Reduced Amount. If the Accounting Firm, based either upon the assertion of
      a deficiency by the Internal Revenue Service against the Company or the
      Participant which the accounting firm believes has a high probability of
      success or controlling precedent or other substantial authority,
      determines that an Overpayment has been made, any such Overpayment must be
      treated (if permitted by applicable law) for all purposes as a loan ab
      initio for which the Participant must repay the Company together with
      interest at the applicable federal rate under Code section 7872(f)(2);
      provided, however, that no such loan may be deemed to have been made and
      no amount shall be payable by Participant to the Company if and to the
      extent such deemed loan and payment would not either reduce the amount on
      which Participant is subject to tax under Code section 1 or 4999 or
      generate a refund of such taxes. If the Accounting Firm, based upon
      controlling precedent or other substantial authority, determines that an
      Underpayment has occurred, the accounting firm must promptly notify the
      Administrator of the amount of the Underpayment and such amount, together
      with interest at the applicable federal rate under Code section
      7872(f)(2), must be paid to the
Participant.

            

    

     

    
      	
               
      

            	
              (d)

            	
              For
      purposes of this section, (i) “Net After Tax Receipt” means the
      Present Value of a payment or benefit under this Plan and all other plans,
      agreements and arrangements net of all taxes imposed on Participant with
      respect thereto under Code sections 1 and 4999, determined by applying the
      highest marginal rate under Code section 1 which applied to the
      Participant’s taxable income for the immediately preceding taxable year;
      (ii) “Present Value” means the value determined in accordance with
      Code section 280G(d)(4); and (iii) “Reduced Amount” means the
      smallest aggregate amount of all payments or benefit under this Plan which
      (a) is less than the sum of all payments or benefit under this Plan
      and (b) results in aggregate Net After Tax Receipts which are equal
      to or greater than the Net After Tax Receipts which would result if the
      aggregate payments or benefit under this Plan and all other plans,
      agreements and arrangements were any other amount less than the sum of all
      payments or benefit under this Plan and all other plans, agreements and
      arrangements.

            

    

     

    
      	
               
      

            	
              (e)

            	
              This
      section shall not apply to awards made to any Participant if an Award
      Agreement or other agreement between the Participant and the Company
      provides that the Company shall indemnify the Participant against any
      liability that the Participant may incur under Section 4999 of the
      Code.

            

    

     

    
      	
              12.

            	
              GENERALLY
      APPLICABLE PROVISIONS

            

    

     

    
      	
               
      

            	
              12.1.

            	
              Amendment and Modification of
      the Plan. The Board may, from time to time, alter, amend, suspend
      or terminate the Plan as it shall deem advisable, subject to any
      requirement for shareholder approval imposed by applicable law, including
      the rules and regulations of any stock exchange or quotation system on
      which Shares are listed or quoted; provided that the Board may not amend
      the Plan in any manner that would result in noncompliance with Rule 16b-3
      of the Exchange Act; and further provided that the Board may not, without
      the approval of the Company’s shareholders, amend the Plan to
      (a) increase the number of Shares that may be the subject of Awards
      under the Plan (except for adjustments pursuant to Section 12.2),
      (b) expand the types of awards available under the Plan,
      (c) materially expand the class of persons eligible to participate in
      the Plan, (d) amend any provision of Section 5.3,
      (e) increase the maximum permissible term of any Option specified by
      Section 5.4, or (f) amend any provision of Section 10.5. In
      addition, no amendments to, or termination of, the Plan shall in any way
      impair the rights of a Participant under any Award previously granted
      without such Participant’s consent.

            

    

     

    
      	
               
      

            	
              12.2.

            	
              Adjustments. In the
      event of any merger, reorganization, consolidation, recapitalization,
      dividend or distribution (whether in cash, shares or other property, but
      without regard to the payment of any cash dividends by the Company in the
      ordinary course), stock split, reverse stock split, spin-off or similar
      transaction or other change in corporate structure affecting the Shares or
      the value thereof, the terms of the Plan and Awards shall be adjusted and
      such adjustments shall be as the Committee, in its sole discretion, deems
      equitable or appropriate, including such adjustments in the aggregate
      number, class and kind of securities that may be delivered under the Plan
      and, in the aggregate or to any one Participant, in the number, class,
      kind and option or exercise price of securities subject to outstanding
      Awards granted under the Plan (including, if the Committee deems
      appropriate, the substitution of similar options to purchase the shares
      of, or other awards denominated in the shares of, another company) as the
      Committee may determine to be appropriate in its sole discretion;
      provided, however, that the number of Shares subject to any Award shall
      always be a whole number.

            

    

     

    
      	
               
      

            	
              12.3.

            	
              Transferability of
      Awards. Except as provided below, and except as otherwise
      authorized by the Committee in an Award Agreement, no Award and no Shares
      subject to Awards described in Section 8 that have not been issued or
      as to which any applicable restriction, performance or deferral period has
      not lapsed, may be sold, assigned, transferred, pledged or otherwise
      encumbered, other than by will or the laws of descent and distribution, or
      pursuant to a qualified domestic relations order, and such Award may be
      exercised during the life of the Participant only by the Participant or
      the Participant’s guardian or legal representative. Notwithstanding the
      foregoing, a Participant may assign or transfer an Award with the consent
      of the Committee (each transferee thereof, a “Permitted Assignee”);
      provided that such Permitted Assignee shall be bound by and subject to all
      of the terms and conditions of the Plan and the Award Agreement relating
      to the transferred Award and shall execute an agreement satisfactory to
      the Company evidencing such obligations; and provided further that such
      Participant shall remain bound by the terms and conditions of the Plan.
      The Company shall cooperate with any Permitted Assignee and the Company’s
      transfer agent in effectuating any transfer permitted under this
      Section 12.3.

            

    

     

    
      	
               
      

            	
              12.4.

            	
              Termination of
      Employment. Unless the Committee shall determine otherwise at or
      after the date of grant, the following termination provisions shall
      apply:

            

    

     

    
      	
               
      

            	
              (a)

            	
              Death or Disability.
      Upon a Participant’s termination due to death or disability, as
      those terms may be defined in the Award Agreement, (i) Options and
      Stock Appreciation Rights outstanding as of the date of termination shall
      immediately vest and become fully exercisable, and remain exercisable for
      one year, even if one year exceeds the original option term (except for
      Options that are incentive stock options under Code section 422 and
      related Tandem Stock Appreciation Rights that shall not be exercisable
      after the original term), and even if death occurs during a
      post-termination exercise period; (ii) Performance Awards shall be
      considered to be earned and payable (either in full or pro-rata based on
      the portion of Performance Period completed as of the date of termination
      and performance to such date), and any deferral or other restriction shall
      lapse and such Performance Awards shall be immediately settled or
      distributed; (iii) restrictions and deferral limitations on
      Restricted Stock, Other Stock-Based Awards, and any other Awards shall
      lapse and the Restricted Stock shall become free of all restrictions,
      limitations, or conditions and become fully vested and transferable to the
      full extent of the original grant; and (iv) such other additional
      benefits as the Committee deems appropriate shall apply, subject in each
      case to any terms and conditions contained in the Award Agreement
      evidencing such Award.

            

    

     

    
      	
               
      

            	
              (b)

            	
              Retirement. Upon a
      Participant’s retirement, as that term may be defined in the Award
      Agreement, and conditioned upon the Participant entering into non-compete,
      non-solicitation, non-disclosure, and non-disparagement agreements,
      (i) Options and Stock Appreciation Rights outstanding as of the date
      of termination and that are not vested shall continue to vest and, once
      vested, shall remain exercisable for the lesser of three (3) years
      from vesting date or their original terms; (ii) Options and Stock
      Appreciation Rights outstanding as of the date of termination and that are
      vested shall remain exercisable for the lesser of three (3) years
      from the date of termination or their original terms,
      (iii) Performance Awards shall continue to vest and shall be payable
      upon completion of the applicable Performance Period to the extent the
      associated performance goals are achieved; (iv) Restricted Stock,
      Other Stock-Based Awards, or any other Awards shall continue to vest, as
      applicable; and (v) such other additional benefits as the Committee
      deems appropriate shall apply, subject in each case to any terms and
      conditions contained in the Award Agreement evidencing such
      Award.

            

    

     

    
      	
               
      

            	
              (c)

            	
              Involuntary Termination
      Without Cause due to a Reduction in Force. Upon a Participant’s
      involuntary termination without cause due to a reduction in force, as that
      term may be defined in the Award Agreement, and conditioned upon the
      Participant entering into non-solicitation, non-disclosure, and
      non-disparagement agreements, (i) vested Options and Stock
      Appreciation Rights outstanding as of the date of termination shall remain
      exercisable for 90 days, and unvested Options and Stock Appreciation
      Rights shall be forfeited; (ii) Performance Awards shall be payable
      at the end of the applicable Performance Period, to the extent the
      associated performance goals are achieved, pro-rata based on the number of
      months of the Performance Period that have been completed as of the date
      of termination divided by the total number of months in the Performance
      Period; (iii) Restricted Stock, Other Stock-Based Awards or any other
      Awards subject to a cliff vesting or annual pro rata vesting provision
      shall vest pro-rata based on the number of months of the vesting period
      completed as of the date of termination divided by the total number of
      months in the vesting period, and unvested Restricted Stock, unvested
      Other Stock-Based Awards or any other unvested Awards shall be forfeited;
      and (iv) such other additional benefits as the Committee deems
      appropriate shall apply, subject in each case to any terms and conditions
      contained in the Award Agreement evidencing such
  Award.

            

    

     

    
      	
               
      

            	
              (d)

            	
              Termination for Cause.
      Upon a Participant’s termination for cause, as that term may be defined in
      the Award Agreement, (i) all Options and Stock Appreciation Rights
      outstanding as of the date of termination, whether vested or not vested,
      shall be immediately canceled, and (ii) any unvested awards of
      Restricted Stock, Performance Awards, Other Stock-Based Awards or other
      Awards shall be immediately
forfeited.

            

    

     

    
      	
               
      

            	
              (e)

            	
              Other Termination. Upon
      a Participant’s termination for any other reason, including voluntary
      resignation and involuntary termination without cause not due to a
      reduction in force, as those terms may be defined in the Award Agreement,
      (i) vested Options and Stock Appreciation Rights outstanding on the
      date of termination shall remain exercisable for 90 days, and unvested
      Options and Stock Appreciation Rights shall be forfeited, and
      (ii) unvested Restricted Stock, Performance Awards, Other Stock-Based
      Awards or other Awards shall be immediately
  forfeited.

            

    

     

    
      	
               
      

            	
              12.5.

            	
              Deferral; Dividend Equivalents and
      Interest Equivalents. The Committee shall be authorized to
      establish procedures pursuant to which the payment of any Award may be
      deferred. Subject to the provisions of the Plan and any Award Agreement,
      the recipient of an Award (including any deferred Award) may, if so
      determined by the Committee, be entitled to receive, currently or on a
      deferred basis, cash, stock or other property dividends, or cash payments
      in amounts equivalent to cash, stock or other property dividends on Shares
      (“Dividend Equivalents”) with respect to the number of Shares covered by
      the Award, as determined by the Committee, in its sole discretion, and the
      Committee may provide that such amounts (if any) shall be deemed to have
      been reinvested in additional Shares or otherwise reinvested. Any
      cash-based Award, including deferred Awards or accumulated cash Dividend
      Equivalents, may be credited with interest (“Interest Equivalents”) on the
      same basis as provided above.

            

    

     

    
      	
              13.

            	
              MISCELLANEOUS

            

    

     

    
      	
               
      

            	
              13.1.

            	
              Tax Withholding. The
      Company shall have the right to make all payments or distributions
      pursuant to the Plan to a Participant (or a Permitted Assignee thereof)
      (any such person, a “Payee”) net of any applicable Federal, State and
      local taxes required to be paid or withheld as a result of (a) the
      grant of any Award, (b) the exercise of an Option or Stock
      Appreciation Right, (c) the delivery of Shares or cash, (d) the
      lapse of any restrictions in connection with any Award or (e) any
      other event occurring pursuant to the Plan. The Company or any Affiliate
      shall have the right to withhold from wages or other amounts otherwise
      payable to such Payee such withholding taxes as may be required by law, or
      to otherwise require the Payee to pay such withholding taxes. If the Payee
      shall fail to make such tax payments as are required, the Company or its
      Affiliates shall, to the extent permitted by law, have the right to deduct
      any such taxes from any payment of any kind otherwise due to such Payee or
      to take such other action as may be necessary to satisfy such withholding
      obligations. The Committee shall be authorized to establish procedures for
      election by Participants to satisfy such obligation for the payment of
      such taxes by tendering previously acquired Shares (either actually or by
      attestation, valued at their then Fair Market Value) that have been owned
      for a period of at least six months (or such other period to avoid
      accounting charges against the Company’s earnings), or by directing the
      Company to retain Shares (up to the employee’s minimum required tax
      withholding rate) otherwise deliverable in connection with the
      Award.

            

    

     

    
      	
               
      

            	
              13.2.

            	
              Right of Discharge Reserved;
      Claims to Awards. Nothing in the Plan nor the grant of an Award
      hereunder shall confer upon any Employee or Director the right to continue
      in the employment or service of the Company or any Affiliate or affect any
      right that the Company or any Affiliate may have to terminate the
      employment or service of (or to demote or to exclude from future Awards
      under the Plan) any such Employee or Director at any time for any reason.
      Except as specifically provided by the Committee, the Company shall not be
      liable for the loss of existing or potential profit from an Award granted
      in the event of termination of an employment or other relationship. No
      Employee or Participant shall have any claim to be granted any Award under
      the Plan, and there is no obligation for uniformity of treatment of
      Employees or Participants under the
Plan.

            

    

     

    
      	
               
      

            	
              13.3.

            	
              Prospective Recipient.
      The prospective recipient of any Award under the Plan shall not, with
      respect to such Award, be deemed to have become a Participant, or to have
      any rights with respect to such Award, until and unless such recipient
      shall have executed an agreement or other instrument evidencing the Award
      and delivered a copy thereof to the Company, and otherwise complied with
      the then applicable terms and
conditions.

            

    

     

    
      	
               
      

            	
              13.4.

            	
              Cancellation of Award.
      Notwithstanding anything to the contrary contained herein, all outstanding
      Awards granted to any Participant shall be canceled if the Participant,
      without the consent of the Company, while employed by the Company or any
      Affiliate or after termination of such employment or service, establishes
      a relationship with a competitor of the Company or any Affiliate or
      engages in activity that is in conflict with or adverse to the interest of
      the Company or any Affiliate, as determined by the Committee in its sole
      discretion.

            

    

     

    
      	
               
      

            	
              13.5.

            	
              Stop Transfer Orders.
      All certificates for Shares delivered under the Plan pursuant to any Award
      shall be subject to such stop-transfer orders and other restrictions as
      the Committee may deem advisable under the rules, regulations and other
      requirements of the Securities and Exchange Commission, any stock exchange
      upon which the Shares are then listed, and any applicable federal or state
      securities law, and the Committee may cause a legend or legends to be put
      on any such certificates to make appropriate reference to such
      restrictions.

            

    

     

    
      	
               
      

            	
              13.6.

            	
              Nature of Payments. All
      Awards made pursuant to the Plan are in consideration of services
      performed or to be performed for the Company or any Affiliate, division or
      business unit of the Company. Any income or gain realized pursuant to
      Awards under the Plan and any Stock Appreciation Rights constitute a
      special incentive payment to the Participant and shall not be taken into
      account, to the extent permissible under applicable law, as compensation
      for purposes of any of the employee benefit plans of the Company or any
      Affiliate except as may be determined by the Committee or by the Board or
      board of directors of the applicable
Affiliate.

            

    

     

    
      	
               
      

            	
              13.7.

            	
              Other Plans. Nothing
      contained in the Plan shall prevent the Board from adopting other or
      additional compensation arrangements, subject to shareholder approval if
      such approval is required; and such arrangements may be either generally
      applicable or applicable only in specific
cases.

            

    

     

    
      	
               
      

            	
              13.8.

            	
              Severability. If any
      provision of the Plan shall be held unlawful or otherwise invalid or
      unenforceable in whole or in part by a court of competent jurisdiction,
      such provision shall (a) be deemed limited to the extent that such
      court of competent jurisdiction deems it lawful, valid and/or enforceable
      and as so limited shall remain in full force and effect, and (b) not
      affect any other provision of the Plan or part thereof, each of which
      shall remain in full force and effect. If the making of any payment or the
      provision of any other benefit required under the Plan shall be held
      unlawful or otherwise invalid or unenforceable by a court of competent
      jurisdiction, such unlawfulness, invalidity or unenforceability shall not
      prevent any other payment or benefit from being made or provided under the
      Plan, and if the making of any payment in full or the provision of any
      other benefit required under the Plan in full would be unlawful or
      otherwise invalid or unenforceable, then such unlawfulness, invalidity or
      unenforceability shall not prevent such payment or benefit from being made
      or provided in part, to the extent that it would not be unlawful, invalid
      or unenforceable, and the maximum payment or benefit that would not be
      unlawful, invalid or unenforceable shall be made or provided under the
      Plan.

            

    

     

    
      	
               
      

            	
              13.9.

            	
              Construction. All
      references in the Plan to “Section or Sections”
      are intended to refer to the Section or Sections, as the case may be, of
      the Plan. As used in the Plan, the words “include” and “including,” and
      variations thereof, shall not be deemed to be terms of limitation, but
      rather shall be deemed to be followed by the words “without
      limitation.”

            

    

     

    
      	
               
      

            	
              13.10.

            	
              Unfunded Status of the Plan.
      The Plan is intended to constitute an “unfunded” plan for incentive
      and deferred compensation. With respect to any payments not yet made to a
      Participant by the Company, nothing contained herein shall give any such
      Participant any rights that are greater than those of a general creditor
      of the Company. In its sole discretion, the Committee may authorize the
      creation of trusts or other arrangements to meet the obligations created
      under the Plan to deliver the Shares or payments in lieu of or with
      respect to Awards hereunder; provided, however, that the existence of such
      trusts or other arrangements is consistent with the unfunded status of the
      Plan.

            

    

     

    
      	
               
      

            	
              13.11.

            	
              Governing Law. The Plan
      and all determinations made and actions taken thereunder, to the extent
      not otherwise governed by the Code or the laws of the United States, shall
      be governed by the laws of the State of Virginia and construed
      accordingly.

            

    

     

    
      	
               
      

            	
              13.12.

            	
              Effective Date of Plan;
      Termination of Plan. The Plan, as amended and restated herein,
      shall be effective on the date of the approval of the Plan by the holders
      of a majority of the shares entitled to vote at a duly constituted meeting
      of the shareholders of the Company. The Plan, as amended and restated
      herein, shall be null and void and of no effect if the foregoing condition
      is not fulfilled. Awards may be granted under the Plan, as amended and
      restated herein, at any time and from time to time on or prior to
      April 20, 2019. Awards outstanding on such date shall remain in
      effect until they have been exercised or terminated, or have
      expired.

            

    

     

    
      	
               
      

            	
              13.13.

            	
              Foreign Employees.
      Awards may be granted to Participants who are foreign nationals or
      employed outside the United States, or both, on such terms and conditions
      different from those applicable to Awards to Employees employed in the
      United States as may, in the judgment of the Committee, be necessary or
      desirable in order to recognize differences in local law or tax policy.
      The Committee also may impose conditions on the exercise or vesting of
      Awards in order to minimize the Company’s obligation with respect to tax
      equalization for Employees on assignments outside their home
      country.

            

    

     

    
      	
               
      

            	
              13.14.

            	
              Captions. The captions
      in the Plan are for convenience of reference only, and are not intended to
      narrow, limit or affect the substance or interpretation of the provisions
      contained herein.Drawdown Equity Financing Agreement

AMENDMENT NO. 1 to

DRAWDOWN EQUITY FINANCING AGREEMENT

THIS AGREEMENT dated as of the day of May 14, 2010 (the “Agreement”) between Auctus Private Equity Fund, LLC a Massachusetts corporation (the “Investor”), and Capital Reserve Canada, Ltd. a corporation organized and existing under the laws of the Province of Alberta (the “Company”).

WHEREAS, the parties entered into that certain Drawdown Equity Financing Agreement providing for, among other things, the purchase and sale of the Company’s Common Stock as provided therein (the “DEFA”);

WHEREAS, the parties deem it necessary and appropriate to amend the DEFA as provided herein,

WHEREAS, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to the Investor, from time to time as provided herein, and the Investor shall purchase from the Company, up to Twenty Million Dollars ($20,000,000) of the Company’s common stock, no par value per share (the “Common Stock”); and

WHEREAS, the purchase and sale of the Company’s Common Stock by the Investor will be made in reliance upon the provisions of Regulation D (“Regulation D”) of the Securities Act of 1933, as amended, and the regulations promulgated thereunder (the “Securities Act”), and or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the investments to be made hereunder.

WHEREAS, contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a Registration Rights Agreement substantially in the form attached hereto (the "Registration Rights Agreement") pursuant to which the Company has agreed to provide certain registration rights under the 1933 Act, and the rules and regulations promulgated thereunder, and applicable state securities laws. 

NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I.

Certain Definitions

Section 1.1

“Advance” shall mean the portion of the Commitment Amount requested by the Company in the Drawdown Notice.

Section 1.2

“Advance Date” shall mean the first (1st) Trading Day after expiration of the applicable Pricing Period for each Advance.

Section 1.3

“Drawdown Notice” shall mean a written notice in the form of Exhibit A attached hereto to the Investor executed by an officer of the Company and setting forth the Advance amount that the Company requests from the Investor.

Section 1.4

“Drawdown Notice Date” shall mean each date the Company delivers (in accordance with Section 2.2(b) of this Agreement) to the Investor a Drawdown Notice requiring the Investor to advance funds to the Company, subject to the terms of this Agreement.  No Drawdown Notice Date shall be less than five (5) Trading Days after the prior Drawdown Notice Date.

Capital Reserve Canada, Ltd. DEFA Page 1 6/2/2010

Section 1.5

“Bid Price” shall mean, on any date, the closing bid price (as reported by Bloomberg L.P.) of the Common Stock on the Principal Market or if the Common Stock is not traded on a Principal Market, the highest reported bid price for the Common Stock, as furnished by the National Association of Securities Dealers, Inc.

Section 1.6

“Closing” shall mean one of the closings of a purchase and sale of Common Stock pursuant to Section 2.3.

Section 1.7

“Commitment Amount” shall mean the aggregate amount of up to Twenty Million Dollars ($20,000,000) which the Investor has agreed to provide to the Company in order to purchase the Company’s Common Stock pursuant to the terms and conditions of this Agreement.

Section 1.8

“Commitment Period” shall mean the period commencing on the earlier to occur of (i) the Effective Date, or (ii) such earlier date as the Company and the Investor may mutually agree in writing, and expiring on the earliest to occur of (x) the date on which the Investor shall have made payment of Advances pursuant to this Agreement in the aggregate amount of the Commitment Amount, (y) the date this Agreement is terminated pursuant to Section 10.2 or (z) the date occurring thirty-six (36) months after the Effective Date.

Section 1.9

“Common Stock” shall mean the Company’s common stock, no par value per share.

Section 1.10

“Condition Satisfaction Date” shall have the meaning set forth in Section 7.2.

Section 1.11

“Damages” shall mean any loss, claim, damage, liability, costs and expenses (including, without limitation, reasonable attorney’s fees and disbursements and costs and expenses of expert witnesses and investigation).

Section 1.12

“Effective Date” shall mean the date on which the SEC first declares effective a Registration Statement registering the resale of the Registrable Securities as set forth in Section 7.2(a). 

Section 1.13

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Section 1.14

“FINRA” shall mean the Financial Industry Regulatory Authority.

Section 1.15. “Floor” shall mean  Seventy-Five (75%) of the average closing bid price of the stock over the preceding ten (10) trading days prior to the Drawdown Notice Date “Floor Price”. The “Floor” can be waived at the discretion of the Company. The Company, in its sole and absolute discretion, may waive its right with respect to the Floor and allow the Investor to sell any shares below the Floor Price. In the event that the Company does not waive its right with respect to the Floor, the Investor shall immediately cease selling any shares within the Drawdown Notice if the price falls below the Floor Price.

Section 1.16.

“Material Adverse Effect” shall mean any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to enter into and perform any of its obligations under this Agreement or the Registration Rights Agreement in any material respect.

Section 1.17.

“Market Price” shall mean the lowest closing Bid Price of the Common Stock during the Pricing Period. 

Section 1.18.

“Maximum Advance Amount” shall not exceed One Hundred Fifty Thousand Dollars ($150,000) or two hundred (200%) percent of the average daily volume based 

Capital Reserve Canada, Ltd. DEFA Page 2 6/2/2010

on the trailing twenty (20) days preceding the Drawdown Notice date whichever is of a larger value.  

Section 1.19.

“Person” shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

Section 1.20.

“Pricing Period” shall mean the five (5) consecutive Trading Days after the Drawdown Notice Date.

Section 1.21.

“Principal Market” shall mean the Nasdaq National Market, the Nasdaq Capital Market, the American Stock Exchange, the OTC Bulletin Board, OTC Pink Sheets or the New York Stock Exchange, whichever is at the time the principal trading exchange or market for the Common Stock.

Section 1.22.

“Purchase Price” shall be set at Ninety-Five percent (95%) of the lowest closing bid price of the common stock during the Pricing Period.

Section 1.23.

“Registrable Securities” shall mean the shares of Common Stock to be issued hereunder (i) in respect of which the Registration Statement has not been declared effective by the SEC, (ii) which have not been sold under circumstances meeting all of the applicable conditions of Rule 144 (or any similar provision then in force) under the Securities Act (“Rule 144”) or (iii) which have not been otherwise transferred to a holder who may trade such shares without restriction under the Securities Act, and the Company has delivered a new certificate or other evidence of ownership for such securities not bearing a restrictive legend.

Section 1.24.

“Registration Rights Agreement” shall mean the Registration Rights Agreement dated the date hereof, regarding the filing of the Registration Statement for the resale of the Registrable Securities, entered into between the Company and the Investor.

Section 1.25.

“Registration Statement” shall mean a registration statement on Form F-1  (if use of such form is then available to the Company pursuant to the rules of the SEC and, if not, on such other form promulgated by the SEC for which the Company then qualifies and which counsel for the Company shall deem appropriate, and which form shall be available for the resale of the Registrable Securities to be registered thereunder in accordance with the provisions of this Agreement and the Registration Rights Agreement, and in accordance with the intended method of distribution of such securities), for the registration of the resale by the Investor of the Registrable Securities under the Securities Act.

Section 1.26.

“Regulation D” shall have the meaning set forth in the recitals of this Agreement.

Section 1.27.

“SEC” shall mean the United States Securities and Exchange Commission.

Section 1.28.

“Securities Act” shall have the meaning set forth in the recitals of this Agreement.

Section 1.29.

“SEC Documents” shall mean Annual Reports on Form 20-K, as supplemented to the date hereof, filed by the Company for a period of at least twelve (12) months immediately preceding the date hereof or the Advance Date, as the case may be, until such time as the Company no longer has an obligation to maintain the effectiveness of a Registration Statement as set forth in the Registration Rights Agreement.

Section 1.30.

“Trading Day” shall mean any day during which the New York Stock Exchange shall be open for business.

Capital Reserve Canada, Ltd. DEFA Page 3 6/2/2010

ARTICLE II.

Advances

Section 2.1

Advances.

(a)

Subject to the terms and conditions of this Agreement (including, without limitation, the provisions of Article VII hereof), the Company, at its sole and exclusive option, may issue and sell to the Investor, and, except for conditions outside of the Investor’s control, the Investor shall be obligated to purchase from the Company, shares of the Company’s Common Stock by the delivery, in the Company’s sole discretion, of Drawdown Notices.  The number of shares of Common Stock that the Investor shall purchase pursuant to each Advance shall be determined by dividing the amount of the Advance by the Purchase Price.  No fractional shares shall be issued. Fractional shares shall be rounded to the next higher whole number of shares.  The aggregate maximum amount of all Advances that the Investor shall be obligated to make under this Agreement shall not exceed the Commitment Amount.

(b)

 The Investor shall immediately cease selling any shares within the Drawdown Notice if the price falls below the Floor Price. The Company, in its sole and absolute discretion, may waive its right with respect to the Floor and allow the Investor to sell any shares below the Floor Price.  Only when the closing bid price of the stock is above the Floor Price (the price at the time when the Investor must immediately cease selling shares) may the Investor reinitiate selling of any shares without such waiver from the Company required under this subsection.

Section 2.2

Mechanics.

(a)

Drawdown Notice.  At any time during the Commitment Period, the Company may request the Investor to purchase shares of Common Stock by delivering a Drawdown Notice to the Investor, subject to the conditions set forth in Section 7.2; provided, however, the amount for each Advance as designated by the Company in the applicable Drawdown Notice shall not be more than the Maximum Advance Amount and the aggregate amount of the Advances pursuant to this Agreement shall not exceed the Commitment Amount.  The Company acknowledges that the Investor may sell shares of the Company’s Common Stock corresponding with a particular Drawdown Notice after the Drawdown Notice is received by the Investor.  There shall be a minimum of five (5) Trading Days between each Drawdown Notice Date.

(b)

Date of Delivery of Drawdown Notice.  A Drawdown Notice shall be deemed delivered on: (i) the Trading Day it is received by email to louposner@auctusfund.com and als@auctusfund.com if such notice is received prior to 5:00 pm Eastern Time; or (ii) the immediately succeeding Trading Day if Drawdown Notice is received by facsimile or otherwise after 5:00 pm Eastern Time on a Trading Day or at any time on a day which is not a Trading Day.  No Drawdown Notice may be deemed delivered on a day that is not a Trading Day or if positive receipt is not acknowledged by the Investor.

  

Section 2.3

Closings.  On each Advance Date (i) the Company shall deliver to the Investor such number of shares of the Common Stock registered in the name of the Investor as shall equal (x) the amount of the Advance specified in such Drawdown Notice pursuant to Section 2.1 herein, divided by (y) the Purchase Price and (ii) upon receipt of such shares, the Investor shall deliver to the Company the amount of the Advance specified in the Drawdown Notice by wire transfer of immediately available funds.  In addition, on or prior to the Advance 

Capital Reserve Canada, Ltd. DEFA Page 4 6/2/2010

Date, each of the Company and the Investor shall deliver to the other all documents, instruments and writings required to be delivered by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein.  To the extent the Company has not paid the fees, expenses, and disbursements of the Investor in accordance with Section 12.4, the amount of such fees, expenses, and disbursements may be deducted by the Investor (and shall be paid to the relevant party) directly out of the proceeds of the Advance with no reduction in the amount of shares of the Company’s Common Stock to be delivered on such Advance Date.  

(a)

Company’s Obligations Upon Closing.

(i)

The Company shall deliver to the Investor, through the use of a Deposit Withdrawal Agent Commission system from a Deposit Trust Company method or commonly referred to as “DWAC/DTC” of the Investor’s choosing, the shares of Common Stock applicable to the Advance in accordance with Section 2.3.  In the event that the Company or its transfer agent is not participating in the DWAC system or is not eligible to participate, the Company will endeavor to participate or become eligible to participate within a reasonable time from the date hereof, but in no event later than the effectiveness of the Registration Statement. Notwithstanding, the Investor may, in its sole discretion, accept physical certificates representing the Company’s Common Stock applicable to any Advance. Any such certificates shall be free of restrictive legends.  Upon receipt, Investor will perform a wire transfer on the same business day provided that the shares have been received in sufficient time to perform such transfer.  In the event that the Investor is no longer able, due to time constraints beyond his control, to perform a wire on the day of receipt, the wire will be promptly executed the following business day.

(ii)

the Company’s Registration Statement with respect to the resale of the shares of Common Stock delivered in connection with the Advance shall have been declared effective by the SEC;

(iii)

the Company shall have obtained all material permits and qualifications required by any applicable state for the offer and sale of the Registrable Securities, or shall have the availability of exemptions therefrom.  The sale and issuance of the Registrable Securities shall be legally permitted by all laws and regulations to which the Company is subject; 

(iv)

the Company shall have filed with the SEC in a timely manner all reports, notices and other documents required of a “reporting company” under the Exchange Act and applicable Commission regulations;

(v)

the fees as set forth in Section 12.4 below shall have been paid or can be withheld as provided in Section 2.3; and

(vi)

The Company’s transfer agent shall be DWAC eligible.

(b)

Investor’s Obligations Upon Closing.

  Upon receipt of the shares referenced in Section 2.3(a)(i) above and provided the Company is in compliance with its obligations in Section 2.3, the Investor shall deliver to the Company the amount of the Advance specified in the Drawdown Notice by wire transfer of immediately available funds.  

Section 2.4.

Hardship.  In the event the Investor sells shares of the Company’s Common Stock after receipt of an Drawdown Notice and the Company fails to perform its obligations as mandated in Section 2.3, and specifically the Company fails to deliver to the Investor on the Advance Date the shares of Common Stock corresponding to the applicable Advance pursuant to Section 2.3(a)(i), the Company acknowledges that the Investor shall suffer 

Capital Reserve Canada, Ltd. DEFA Page 5 6/2/2010

financial hardship and therefore shall be liable for any and all losses, commissions, fees, interest, legal fees or any other financial hardship caused to the Investor.

The Company understands that a delay in the delivery of the securities in the form required pursuant to this registration statement beyond the Closing could result in economic loss to the Investor.  After the Effective Date, as compensation to the Investor for late issuance of such shares (delivery of securities after the applicable closing), the Company agrees to make payments to the Investor in accordance with the schedule below where the number of days overdue is defined as the number of business days beyond the close with amount due being cumulative.  

The Company shall pay any payments incurred under this Section in immediately available funds upon demand.  Nothing herein shall limit the right of the Investor to pursue damages for the Company’s failure to comply with the issuance and delivery of securities to the Investor.

		
	Payments for Each Number of Days Overdue

	$10,000 Worth of Common Stock

	 
	 

	1

	$100

	2

	$200

	3

	$300

	4

	$400

	5

	$500

	6

	$600

	7

	$700

	8

	$800

	9

	$900

	10

	$1000

	Over 10

	$1000 + $200 for each Business Day beyond the tenth day

ARTICLE III.

Representations and Warranties of Investor

Investor hereby represents and warrants to, and agrees with, the Company that the following are true and correct as of the date hereof and as of each Advance Date:

Section 3.1

Organization and Authorization.  The Investor is duly incorporated or organized and validly existing in the jurisdiction of its incorporation or organization and has all requisite power and authority to purchase and hold the securities issuable hereunder.  The decision to invest and the execution and delivery of this Agreement by such Investor, the performance by such Investor of its obligations hereunder and the consummation by such Investor of the transactions contemplated hereby have been duly authorized and requires no other proceedings on the part of the Investor.  The undersigned has the right, power and authority to execute and deliver this Agreement and all other instruments (including, without limitations, the Registration Rights Agreement), on behalf of the Investor.  This Agreement has been duly executed and delivered by the Investor and, assuming the execution and delivery hereof and acceptance thereof by the Company, will constitute the legal, valid and binding obligations of the Investor, enforceable against the Investor in accordance with its terms.

Capital Reserve Canada, Ltd. DEFA Page 6 6/2/2010

Section 3.1.1

Evaluation of Risks.  The Investor has such knowledge and experience in financial, tax and business matters as to be capable of evaluating the merits and risks of, and bearing the economic risks entailed by, an investment in the Company and of protecting its interests in connection with this transaction.  It recognizes that its investment in the Company involves a high degree of risk. 

Section 3.2

No Legal Advice From the Company.  The Investor acknowledges that it had the opportunity to review this Agreement and the transactions contemplated by this Agreement with his or its own legal counsel and investment and tax advisors.  The Investor is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.

Section 3.3

Investment Purpose. The securities are being purchased by the Investor for its own account, and for investment purposes.   Any resale or other disposition of the Common Stock will be solely in accordance with the registration provisions of the Securities Act or pursuant to an exemption from such registration provisions.

Section 3.4

Accredited Investor.  The Investor is an “Accredited Investor” as that term is defined in Rule 501(a)(3) of Regulation D of the Securities Act.

Section 3.5

Information.  The Investor and its advisors (and its counsel), if any, have been furnished with all materials relating to the business, finances and operations of the Company and information it deemed material to making an informed investment decision.  The Investor and its advisors, if any, have been afforded the opportunity to ask questions of the Company and its management.  Neither such inquiries nor any other due diligence investigations conducted by such Investor or its advisors, if any, or its representatives shall modify, amend or affect the Investor’s right to rely on the Company’s representations and warranties contained in this Agreement.  The Investor understands that its investment involves a high degree of risk.  The Investor is in a position regarding the Company, which, based upon employment, family relationship or economic bargaining power, enabled and enables such Investor to obtain information from the Company in order to evaluate the merits and risks of this investment.  The Investor has sought such accounting, legal and tax advice, as it has considered necessary to make an informed investment decision with respect to this transaction.

Section 3.6

Receipt of Documents. The Investor and its counsel have received and read in their entirety:  (i) this Agreement and the Exhibits annexed hereto; (ii) all due diligence and other information necessary to verify the accuracy and completeness of such representations, warranties and covenants; and (iii) answers to all questions the Investor submitted to the Company regarding an investment in the Company; and the Investor has relied on the information contained therein and has not been furnished any other documents, literature, memorandum or prospectus.  

Section 3.7

Registration Rights Agreement.  The parties have entered into the Registration Rights Agreement dated the date hereof.

Section 3.8

Not an Affiliate.  The Investor is not an officer, director or a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with the Company or any “Affiliate” of the Company (as that term is defined in Rule 405 of the Securities Act). 

Section 3.9

Trading Activities

 

The Investor’s trading activities with respect to the Company’s Common Stock shall be in compliance with all applicable federal and state

Capital Reserve Canada, Ltd. DEFA Page 7 6/2/2010

securities laws, rules and regulations and the rules and regulations of the Principal Market on which the Company’s Common Stock is listed or traded and Investor will comply with any requests that the SEC makes in connection with the Filing of the Registration Agreement to ensure such compliance.

Neither the Investor nor its affiliates has an open short position in the Common Stock of the Company, the Investor agrees that it shall not, and that it will cause its affiliates not to, engage in any short sales of or hedging transactions with respect to the Common Stock, provided that the Company acknowledges and agrees that upon receipt of an Drawdown Notice the Investor has the right to sell the shares to be issued to the Investor pursuant to the Drawdown Notice

 during the applicable Pricing Period.

  

Section 3.11

No Registration as a Dealer

..

The Investor is not and will not be required to be registered as a "dealer" under the 1934 Act, either as a result of its execution and performance of its obligations under this Agreement or otherwise.

Section 3.12

Good Standing. The Investor is a limited liability company, duly organized, validly existing and in good standing under the laws of its state of formation and any jurisdiction in which it is conducting business.

ARTICLE IV.

Representations and Warranties of the Company

Except as stated below, on the disclosure schedules attached hereto or in the SEC Documents (as defined herein), the Company hereby represents and warrants to, and covenants with, the Investor that the following are true and correct as of the date hereof:

Section 4.1

Organization and Qualification.  The Company is duly incorporated or organized and validly existing in the jurisdiction of its incorporation or organization and has all requisite corporate power to own its properties and to carry on its business as now being conducted.  Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect on the Company and its subsidiaries taken as a whole.

Section 4.2

Authorization, Enforcement, Compliance with Other Instruments.  (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Registration Rights Agreement, the Placement Agent Agreement and any related agreements, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Registration Rights Agreement, the Placement Agent Agreement and any related agreements by the Company and the consummation by it of the transactions contemplated hereby and thereby, have been duly authorized by the Company’s Board of Directors and no further consent or authorization is required by the Company, its Board of Directors or its stockholders, (iii) this Agreement, the Registration Rights Agreement, the Placement Agent Agreement and any related agreements have been duly executed and delivered by the Company, (iv) this Agreement, the Registration Rights Agreement, the Placement Agent Agreement and assuming the execution and delivery thereof and acceptance by the Investor and any related agreements constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, 

Capital Reserve Canada, Ltd. DEFA Page 8 6/2/2010

insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors’ rights and remedies.

Section 4.2.1

Capitalization.  The authorized capital stock of the Company consists of Class A common stock, no par value per share: UNLIMITED authorized; 207,594,302 shares issued and outstanding with 130,671,549 shares restricted (144) as of December 31, 2009. All of such outstanding shares have been validly issued and are fully paid and nonassessable.  Except as disclosed in the SEC Documents, no shares of Common Stock are subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by the Company.  Except as disclosed in the SEC Documents, as of the date hereof, (i) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company or any of its subsidiaries, (ii) there are no outstanding debt securities (iii) there are no outstanding registration statements other than on Form F-1 and (iv) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of their securities under the Securities Act (except pursuant to the Registration Rights Agreement).  There are no securities or instruments containing anti-dilution or similar provisions that will be triggered by this Agreement or any related agreement or the consummation of the transactions described herein or therein.  The Company has furnished to the Investor true and correct copies of the Company’s Certificate of Incorporation, as amended and as in effect on the date hereof (the “Certificate of Incorporation”), and the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto.

Section 4.3

No Conflict.  The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby will not (i) result in a violation of the Certificate of Incorporation, any certificate of designations of any outstanding series of preferred stock of the Company or By-laws or (ii) conflict with or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of the Principal Market on which the Common Stock is quoted) applicable to the Company or any of its subsidiaries or by which any material property or asset of the Company or any of its subsidiaries is bound or affected and which would cause a Material Adverse Effect.  Except as disclosed in the SEC Documents, neither the Company nor its subsidiaries is in violation of any term of or in default under its Articles of Incorporation or By-laws or their organizational charter or by-laws, respectively, or any material contract, agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or order or any statute, rule or regulation applicable to the Company or its subsidiaries.  The business of the Company and its subsidiaries is not being conducted in violation of any material law, ordinance, regulation of any governmental entity.  Except as specifically contemplated by this Agreement and as required under the Securities Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under or contemplated 

Capital Reserve Canada, Ltd. DEFA Page 9 6/2/2010

by this Agreement or the Registration Rights Agreement in accordance with the terms hereof or thereof.  All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof.  The Company and its subsidiaries are unaware of any fact or circumstance which might give rise to any of the foregoing.

Section 4.4

SEC Documents; Financial Statements.   As of the date hereof, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act.    As of their respective dates, to the Company’s knowledge, the financial statements of the Company disclosed in the SEC Documents (the “Financial Statements”) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and, fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).  No other information provided by or on behalf of the Company to the Investor which is not included in the SEC Documents contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

Section 4.5

No Default.  Except as disclosed in Exhibit 4.5, the Company is not in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any indenture, mortgage, deed of trust or other material instrument or agreement to which it is a party or by which it is or its property is bound and neither the execution, nor the delivery by the Company, nor the performance by the Company of its obligations under this Agreement or any of the exhibits or attachments hereto will conflict with or result in the breach or violation of any of the terms or provisions of, or constitute a default or result in the creation or imposition of any lien or charge on any assets or properties of the Company under its Certificate of Incorporation, By-Laws, any material indenture, mortgage, deed of trust or other material agreement applicable to the Company or instrument to which the Company is a party or by which it is bound, or any statute, or any decree, judgment, order, rules or regulation of any court or governmental agency or body having jurisdiction over the Company or its properties, in each case which default, lien or charge is likely to cause a Material Adverse Effect on the Company’s business or financial condition.

Section 4.6

Absence of Events of Default.  Except for matters described in Exhibit 4.6 and/or this Agreement, no Event of Default, as defined in the respective agreement to which the Company is a party, and no event which, with the giving of notice or the passage of time or both, would become an Event of Default (as so defined), has occurred and is continuing, which would have a Material Adverse Effect on the Company’s business, properties, prospects, financial condition or results of operations.

Section 4.7

Intellectual Property Rights.  The Company and its subsidiaries own or possess adequate rights or licenses to use all material trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct their respective businesses as now conducted.   The Company and its subsidiaries do not have any knowledge of any infringement by the Company or its subsidiaries of trademark, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, 

Capital Reserve Canada, Ltd. DEFA Page 10 6/2/2010

service mark registrations, trade secret or other similar rights of others, and, to the knowledge of the Company, there is no claim, action or proceeding being made or brought against, or to the Company’s knowledge, being threatened against, the Company or its subsidiaries regarding trademark, trade name, patents, patent rights, invention, copyright, license, service names, service marks, service mark registrations, trade secret or other infringement; and the Company and its subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.  

Section 4.8

Employee Relations.  Neither the Company nor any of its subsidiaries is involved in any labor dispute nor, to the knowledge of the Company or any of its subsidiaries, is any such dispute threatened.  None of the Company’s or its subsidiaries’ employees is a member of a union and the Company and its subsidiaries believe that their relations with their employees are good.

Section 4.9

Environmental Laws.  The Company and its subsidiaries are (i) in compliance with any and all applicable material foreign, federal, state and local laws and regulations relating to the protection of human health and safety, the environment or hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”), (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (iii) are in compliance with all terms and conditions of any such permit, license or approval.

Section 4.10

Title.  Except as set forth in Exhibit 4.10, the Company has good and marketable title to its properties and material assets owned by it, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest other than such as are not material to the business of the Company.  Any real property and facilities held under lease by the Company and its subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company and its subsidiaries.

Section 4.11

Insurance.  The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its subsidiaries are engaged.  Neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company and its subsidiaries, taken as a whole.

Section 4.12

Regulatory Permits.  The Company and its subsidiaries possess all material certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, and neither the Company nor any such subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.

Section 4.13

Internal Accounting Controls.  The Company and each of its subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the 

Capital Reserve Canada, Ltd. DEFA Page 11 6/2/2010

existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Representation by the company relating to internal controls will be made at such time the registration filing has been approved.

Section 4.14

No Material Adverse Breaches, etc.  Except as set forth in Exhibit 4.14, neither the Company nor any of its subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries.  Except as set forth in the SEC Documents, neither the Company nor any of its subsidiaries is in breach of any contract or agreement which breach, in the judgment of the Company’s officers, has or is expected to have a Material Adverse Effect on the business, properties, operations, financial condition, results of operations or prospects of the Company or its subsidiaries.

Section 4.15

Absence of Litigation.  Except as set forth in Exhibit 4.15 , there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending against or affecting the Company, the Common Stock or any of the Company’s subsidiaries, wherein an unfavorable decision, ruling or finding would (i) have a Material Adverse Effect on the transactions contemplated hereby (ii) adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or any of the documents contemplated herein, or (iii) except as expressly disclosed in the SEC Documents, have a Material Adverse Effect on the business, operations, properties, financial condition or results of operation of the Company and its subsidiaries taken as a whole.

Section 4.16

Subsidiaries.  Except as disclosed in Exhibit 4.16, the Company does not presently own or control, directly or indirectly, any interest in any other corporation, partnership, association or other business entity.

Section 4.17

Tax Status.  Except as disclosed in Exhibit 4.17, the Company and each of its subsidiaries has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject and (unless and only to the extent that the Company and each of its subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply.  There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.

Section 4.18

Certain Transactions.  Except as set forth in Exhibit 4.18 none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

Section 4.19

Fees and Rights of First Refusal.  The Company is not obligated to offer the securities offered hereunder on a right of first refusal basis or otherwise to any third parties 

Capital Reserve Canada, Ltd. DEFA Page 12 6/2/2010

including, but not limited to, current or former shareholders of the Company, underwriters, brokers, agents or other third parties.

Section 4.20

Use of Proceeds.  The Company shall use the net proceeds from this offering for general corporate purposes, including, without limitation, the payment of loans incurred by the Company.  However, in no event shall the Company use the net proceeds from this offering for the payment (or loan to any such person for the payment) of any judgment, or other liability, incurred by any executive officer, officer, director or employee of the Company, except for any liability owed to such person for services rendered, or if any judgment or other liability is incurred by such person originating from services rendered to the Company, or the Company has indemnified such person from liability.

Section 4.21

Further Representation and Warranties of the Company.  For so long as any securities issuable hereunder held by the Investor remain outstanding, the Company acknowledges, represents, warrants and agrees that it will maintain the listing of its Common Stock on the Principal Market.

Section 4.22

Opinion of Counsel.  Investor shall receive an opinion letter from counsel to the Company on the date hereof.

Section 4.23

Opinion of Counsel.  The Company will obtain for the Investor, at the Company’s expense, any and all opinions of counsel which may be reasonably required in order to sell the securities issuable hereunder without restriction.

Section 4.24

Dilution.  The Company is aware and acknowledges that issuance of shares of the Company’s Common Stock could cause dilution to existing shareholders and could significantly increase the outstanding number of shares of Common Stock.  

Section 4.25

No General Solicitation.  Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the shares of Common Stock offered hereby.

ARTICLE V.

Indemnification

The Investor and the Company represent to the other the following with respect to itself:

Section 5.1

Indemnification.

(a)

In consideration of the Investor’s execution and delivery of this Agreement, and in addition to all of the Company’s other obligations under this Agreement, the Company shall defend, protect, indemnify and hold harmless the Investor, and all of its officers, directors, partners, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Investor Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Investor Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by the Investor Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement or the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement or the Registration Rights Agreement or any other certificate, instrument or 

Capital Reserve Canada, Ltd. DEFA Page 13 6/2/2010

document contemplated hereby or thereby, or (c) any cause of action, suit or claim brought or made against such Investor Indemnitee not arising out of any action or inaction of an Investor Indemnitee, and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Investor Indemnitees.  To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.

(b)

In consideration of the Company’s execution and delivery of this Agreement, and in addition to all of the Investor’s other obligations under this Agreement, the Investor shall defend, protect, indemnify and hold harmless the Company and all of its officers, directors, shareholders, employees and agents (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Company Indemnitees”) from and against any and all Indemnified Liabilities incurred by the Company Indemnitees or any of them as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Investor in this Agreement, the Registration Rights Agreement, or any instrument or document contemplated hereby or thereby executed by the Investor, (b) any breach of any covenant, agreement or obligation of the Investor(s) contained in this Agreement,  the Registration Rights Agreement or any other certificate, instrument or document contemplated hereby or thereby executed by the Investor, or (c) any cause of action, suit or claim brought or made against such Company Indemnitee based on  misrepresentations or due to a  breach by the Investor and arising out of or resulting from the execution, delivery, performance or enforcement of this Agreement or any other instrument, document or agreement executed pursuant hereto by any of the Company Indemnitees.  To the extent that the foregoing undertaking by the Investor may be unenforceable for any reason, the Investor shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities, which is permissible under applicable law.

(c)

The obligations of the parties to indemnify or make contribution under this Section 5.1 shall survive termination.

ARTICLE VI.

Covenants of the Company

Section 6.1

Registration Rights.  The Company shall cause the Registration Rights Agreement to remain in full force and effect and the Company shall comply in all material respects with the terms thereof.

Section 6.2

Listing of Common Stock.  The Company shall maintain the Common Stock’s authorization for quotation on the Principal Market.  

Section 6.3

Exchange Act Registration.  The Company will cause its Common Stock to continue to be registered under Section 12(g) of the Exchange Act, will file in a timely manner all reports and other documents required of it as a reporting company under the Exchange Act and will not take any action or file any document (whether or not permitted by Exchange Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under said Exchange Act.

Section 6.4

Transfer Agent Instructions.  Upon effectiveness of the Registration Statement the Company shall deliver instructions to its transfer agent to issue shares of Common Stock to the Investor free of restrictive legends on or before each Advance Date.

Section 6.5

Corporate Existence.  The Company will take all steps necessary to preserve and continue the corporate existence of the Company.

Capital Reserve Canada, Ltd. DEFA Page 14 6/2/2010

Section 6.6

Notice of Certain Events Affecting Registration; Suspension of Right to Make an Advance.  The Company will immediately notify the Investor upon its becoming aware of the occurrence of any of the following events in respect of a registration statement or related prospectus relating to an offering of Registrable Securities: (i) receipt of any request for additional information by the SEC or any other Federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to the registration statement or related prospectus; (ii) the issuance by the SEC or any other Federal or state governmental authority of  any stop order suspending the effectiveness of the Registration Statement or the initiation of any proceedings for that purpose; (iii) receipt of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; (iv) the happening of any event that makes any statement made in the Registration Statement or related prospectus of any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in the Registration Statement, related prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the related prospectus, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) the Company’s reasonable determination that a post-effective amendment to the Registration Statement would be appropriate; and the Company will promptly make available to the Investor any such supplement or amendment to the related prospectus.  The Company shall not deliver to the Investor any Drawdown Notice during the continuation of any of the foregoing events.

Section 6.7

Restriction on Sale of Capital Stock.  During the Commitment Period, the Company shall not, without the prior written consent of the Investor, (i) issue or sell any Common Stock or Preferred Stock without consideration or for a consideration per share less than the Bid Price of the Common Stock determined immediately prior to its issuance, (ii) issue or sell any Preferred Stock warrant, option, right, contract, call, or other security or instrument granting the holder thereof the right to acquire Common Stock without consideration or for a consideration per share less than the Bid Price of the Common Stock determined immediately prior to its issuance, or (iii) file any registration statement on Form S-8. Consent will not be unreasonably withheld.

Section 6.8.

Consolidation; Merger.  The Company shall not, at any time after the date hereof, effect any merger or consolidation of the Company with or into, or a transfer of all or substantially all the assets of the Company to another entity (a “Consolidation Event”) unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation to deliver to the Investor such shares of stock and/or securities as the Investor is entitled to receive pursuant to this Agreement.

Section 6.9.

Issuance of the Company’s Common Stock.  The sale of the shares of Common Stock shall be made in accordance with the provisions and requirements of Regulation D and any applicable state securities law.

Section 6.10.

Review of Public Disclosures.  All SEC filings  and other public disclosures made by the Company, including, without limitation, all press releases, investor relations materials, and scripts of analysts meetings and calls, shall be reviewed and approved for release by the Company’s attorneys and, if containing financial information, the Company’s independent certified public accountants.  

Capital Reserve Canada, Ltd. DEFA Page 15 6/2/2010

Section 6.11.

Market Activities.

The Company will not, directly or indirectly, (i) take any action designed to cause or result in, or that constitutes or might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Common Stock or (ii) sell, bid for or purchase the Common Stock, or pay anyone any compensation for soliciting purchases of the Common Stock.

ARTICLE VII.

Conditions for Advance and Conditions to Closing

Section 7.1

Conditions Precedent to the Obligations of the Company.  The obligation hereunder of the Company to issue and sell the shares of Common Stock to the Investor incident to each Closing is subject to the satisfaction, or waiver by the Company, at or before each such Closing, of each of the conditions set forth below.

(a)

Accuracy of the Investor’s Representations and Warranties.  The representations and warranties of the Investor shall be true and correct in all material respects.

(b)

Performance by the Investor.  The Investor shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions required by this Agreement and the Registration Rights Agreement to be performed, satisfied or complied with by the Investor at or prior to such Closing.

Section 7.2

Conditions Precedent to the Right of the Company to Deliver an Drawdown Notice.  The right of the Company to deliver an Drawdown Notice is subject to the fulfillment by the Company, on such Drawdown Notice (a “Condition Satisfaction Date”), of each of the following conditions:

(a)

Registration of the Common Stock with the SEC.  The Company shall have filed with the SEC a Registration Statement with respect to the resale of the Registrable Securities in accordance with the terms of the Registration Rights Agreement.  As set forth in the Registration Rights Agreement, the Registration Statement shall have previously become effective and shall remain effective on each Condition Satisfaction Date and (i) neither the Company nor the Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to the Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of the Registration Statement, either temporarily or permanently, or intends or has threatened to do so, and (ii) no other suspension of the use or withdrawal of the effectiveness of the Registration Statement or related prospectus shall exist.  The Registration Statement must have been declared effective by the SEC prior to the first Drawdown Notice Date.

(b)

Authority.  The Company shall have obtained all permits and qualifications required by any applicable state in accordance with the Registration Rights Agreement for the offer and sale of the shares of Common Stock, or shall have the availability of exemptions therefrom.  The sale and issuance of the shares of Common Stock shall be legally permitted by all laws and regulations to which the Company is subject.

(c)

Fundamental Changes. There shall not exist any fundamental changes to the information set forth in the Registration Statement which would require the Company to file a post-effective amendment to the Registration Statement.  

(d)

Performance by the Company.  The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement and the Registration Rights Agreement to be performed, satisfied or complied with by the Company at or prior to each Condition Satisfaction Date.

Capital Reserve Canada, Ltd. DEFA Page 16 6/2/2010

(e)

No Injunction.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction that prohibits or directly and adversely affects any of the transactions contemplated by this Agreement, and no proceeding shall have been commenced that may have the effect of prohibiting or adversely affecting any of the transactions contemplated by this Agreement.

(f)

No Suspension of Trading in or Delisting of Common Stock.  The trading of the Common Stock is not suspended by the SEC or the Principal Market (if the Common Stock is traded on a Principal Market).  The issuance of shares of Common Stock with respect to the applicable Closing, if any, shall not violate the shareholder approval requirements of the Principal Market (if the Common Stock is traded on a Principal Market).  The Company shall not have received any notice threatening the continued listing of the Common Stock on the Principal Market (if the Common Stock is traded on a Principal Market).

(g)

Maximum Advance Amount.  The amount of an Advance requested by the Company shall not exceed the Maximum Advance Amount.  In addition, in no event shall the number of shares issuable to the Investor pursuant to an Advance cause the aggregate number of shares of Common Stock beneficially owned by the Investor and its affiliates to exceed four and 99/100 percent (4.99%) of the then outstanding Common Stock of the Company.  For the purposes of this section beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. 

(h)

No Knowledge.  The Company has no knowledge of any event which would be more likely than not to have the effect of causing such Registration Statement to be suspended or otherwise ineffective.

(i)

Executed Drawdown Notice.  The Investor shall have received the Drawdown Notice executed by an officer of the Company and the representations contained in such Drawdown Notice shall be true and correct as of each Condition Satisfaction Date.

ARTICLE VIII.

Due Diligence Review; Non-Disclosure of Non-Public Information

Section 8.1.

Non-Disclosure of Non-Public Information.

(a)

The Company covenants and agrees that it shall refrain from disclosing, and shall cause its officers, directors, employees and agents to refrain from disclosing, any material non-public information to the Investor without also disseminating such information to the public, unless prior to disclosure of such information the Company identifies such information as being material non-public information and provides the Investor with the opportunity to accept or refuse to accept such material non-public information for review.

(b)

Nothing herein shall require the Company to disclose non-public information to the Investor or its advisors or representatives, and the Company represents that it does not disseminate non-public information to any investors who purchase stock in the Company in a public offering, to money managers or to securities analysts, provided, however, that notwithstanding anything herein to the contrary, the Company will, as hereinabove provided, immediately notify the advisors and representatives of the Investor and, if any, underwriters, of any event or the existence of any circumstance (without any obligation to disclose the specific event or circumstance) of which it becomes aware, constituting non-public information (whether or not requested of the Company specifically or generally during the course of due diligence by such persons or entities), which, if not disclosed in the prospectus 

Capital Reserve Canada, Ltd. DEFA Page 17 6/2/2010

included in the Registration Statement would cause such prospectus to include a material misstatement or to omit a material fact required to be stated therein in order to make the statements, therein, in light of the circumstances in which they were made, not misleading.  Nothing contained in this Section 8.2 shall be construed to mean that such persons or entities other than the Investor (without the written consent of the Investor prior to disclosure of such information) may not obtain non-public information in the course of conducting due diligence in accordance with the terms of this Agreement and nothing herein shall prevent any such persons or entities from notifying the Company of their opinion that based on such due diligence by such persons or entities, that the Registration Statement contains an untrue statement of material fact or omits a material fact required to be stated in the Registration Statement or necessary to make the statements contained therein, in light of the circumstances in which they were made, not misleading.

ARTICLE IX.

Choice of Law/Jurisdiction

Section 9.1

Governing Law.  This Agreement shall be governed by and interpreted in accordance with the laws of the Commonwealth of Massachusetts without regard to the principles of conflict of laws.  The parties further agree that any action between them shall be heard in Boston, MA. for the adjudication of any civil action asserted pursuant to this paragraph.

ARTICLE X.

Assignment; Termination

Section 10.1

Assignment.  Neither this Agreement nor any rights of the Company hereunder may be assigned to any other Person.  

Section 10.2

Termination.  

(a)

The obligations of the Investor to make Advances under Article II hereof shall terminate thirty-six (36) months after the Effective Date.

(b)

The obligation of the Investor to make an Advance to the Company pursuant to this Agreement shall terminate permanently (including with respect to an Advance Date that has not yet occurred) in the event that (i) there shall occur any stop order or suspension of the effectiveness of the Registration Statement for an aggregate of fifty (50) Trading Days, other than due to the acts of the Investor, during the Commitment Period, or (ii) the Company shall at any time fail materially to comply with the requirements of Article VI and such failure is not cured within thirty (30) days after receipt of written notice from the Investor, provided, however, that this termination provision shall not apply to any period commencing upon the filing of a post-effective amendment to such Registration Statement and ending upon the date on which such post effective amendment is declared effective by the SEC.

ARTICLE XI.

Notices

a.

Section 11.0.0.1

Notices.  Any notices, consents, waivers, or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed by U.S. certified mail, return receipt requested; (iii) three (3) days after being sent by U.S. certified mail, return receipt requested, or (iv) one (1) day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same.  The addresses and facsimile numbers for such communications shall be: 

Capital Reserve Canada, Ltd. DEFA Page 18 6/2/2010

		
	If to the Company, to:

	Capital Reserve Canada limited

	 
	 

	 
	18104 102 Avenue

Edmonton, AB T5S-1S7

	 
	Attention: Steve Claussen, CEO

	 
	Telephone: 780-701-4447

	 
	Facsimile: 780-701-4449

	 
	 

	With a copy to:

	 

	 
	 

	 
	 

	 
	 

	 
	 

	 
	 

	 
	 

	If to the Investor, to:

	Auctus Private Equity Fund, LLC

One Beacon St. 34th Floor

Boston, MA 02108

ATTN: Louis Posner, Director

Telephone: 617-532-6408

Facsimile: 617-532-6402

	 
	 

	With a copy to:

	 

	 
	 

	 
	 

	 
	 

	 
	 

	 
	 

Each party shall provide five (5) days’ prior written notice to the other party of any change in address or facsimile number.

ARTICLE XII.

Miscellaneous

Section 12.1

Counterparts.  This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party.  In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause four (4) additional original executed signature pages to be physically delivered to the other party within five (5) days of the execution and delivery hereof, though failure to deliver such copies shall not affect the validity of this Agreement.

Section 12.2

Entire Agreement; Amendments.  This Agreement supersedes all other prior oral or written agreements between the Investor, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Investor makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.

Capital Reserve Canada, Ltd. DEFA Page 19 6/2/2010

Section 12.3

Reporting Entity for the Common Stock.  The reporting entity relied upon for the determination of the trading price or trading volume of the Common Stock on any given Trading Day for the purposes of this Agreement shall be Bloomberg, L.P. or any successor thereto.  The written mutual consent of the Investor and the Company shall be required to employ any other reporting entity.

Section 12.4

Fees and Expenses.  The Company hereby agrees to pay the following fees:

(a)

Fees.  Each of the parties shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby.

(b)

Origination Fee. The Company has paid to the Investor a non-refundable origination fee equal to Fifteen Thousand ($15,000) Dollars in cash. 

Section 12.5. Confidentiality.  If for any reason the transactions contemplated by this Agreement are not consummated, each of the parties hereto shall keep confidential any information obtained from any other party (except information publicly available or in such party’s domain prior to the date hereof, and except as required by court order) and shall promptly return to the other parties all schedules, documents, instruments, work papers or other written information without retaining copies thereof, previously furnished by it as a result of this Agreement or in connection herein.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

Capital Reserve Canada, Ltd. DEFA Page 20 6/2/2010

IN WITNESS WHEREOF, the parties hereto have caused this Drawdown Equity Financing Agreement to be executed by the undersigned, thereunto duly authorized, as of the date first set forth above.

		
	 
	COMPANY:

	 
	Capital Reserve Canada, Ltd.

	 
	 

	 

	 

	 
	By: ___________________________________

	 
	Name:

Steve Claussen

	 
	Title: CEO

	 
	 

	 
	 

	 
	INVESTOR:

	 
	Auctus Private Equity Fund, LLC

	 
	 

	 

	 

	 
	By: ___________________________________

	 
	Name:

 Louis Posner

	 
	Title: Director

	 
	 

Capital Reserve Canada, Ltd. DEFA Page 21 6/2/2010

EXHIBIT A

DRAWDOWN NOTICE

Capital Reserve Canada, Ltd.

The undersigned, _______________________ hereby certifies, with respect to the sale of shares of Common Stock of Capital Reserve Canada, Ltd. (the “Company”) issuable in connection with this Drawdown Notice, delivered pursuant to the Drawdown Equity Financing Agreement (the “Agreement”), as follows: 

1.

The undersigned is the duly elected ______________ of the Company.

2.

There are no fundamental changes to the information set forth in the Registration Statement which would require the Company to file a post effective amendment to the Registration Statement. 

3. 

The Company has performed in all material respects all covenants and agreements to be performed by the Company and has complied in all material respects with all obligations and conditions contained in the Agreement on or prior to the Drawdown Notice Date, and shall continue to perform in all material respects all covenants and agreements to be performed by the Company through the applicable Advance Date.  All conditions to the delivery of this Drawdown Notice are satisfied as of the date hereof.

4.

The undersigned hereby represents, warrants and covenants that it has made all filings (“SEC Filings”) required to be made by it pursuant to applicable securities laws (including, without limitation, all filings required under the Securities Exchange Act of 1934, which include Forms 10-Q or 10-QSB, 10-K or 10-KSB, 8-K, etc.).  All SEC Filings and other public disclosures made by the Company, including, without limitation, all press releases, analysts meetings and calls, etc. (collectively, the “Public Disclosures”), have been reviewed and approved for release by the Company’s attorneys and, if containing financial information, the Company’s independent certified public accountants.  None of the Company’s Public Disclosures contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.

5.

The Advance requested is _____________________.

The undersigned has executed this Certificate this ____ day of _________________.

Capital Reserve Canada, Ltd.

By: _________________________________

Name: Steve Claussen

Capital Reserve Canada, Ltd. DEFA Page 22 6/2/2010

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