ETERNAL TECHNOLOGIES GROUP, INC.
2004 STOCK OPTION PLAN
1. Purpose. The purpose of this Eternal Technologies Group, Inc. 2004
Stock Option Plan ("Plan") is to encourage ownership of common stock, $.001 par
value ("Common Stock"), of Eternal Technologies Group, Inc., a Nevada
corporation (the "Company"), by eligible key employees, consultants and
directors of the Company and its Affiliates (as defined below) and to provide
increased incentive for such employees, consultants and directors to render
services and to exert maximum effort for the business success of the Company. In
addition, the Company expects that this Plan will further strengthen the
identification of employees, consultants and directors with the shareholders.
Certain options to be granted under this Plan are intended to qualify as
Incentive Stock Options ("ISOs") pursuant to Section 422 of the Internal Revenue
Code of 1986, as amended ("Code"), while other options granted under this Plan
will be nonqualified options which are not intended to qualify as ISOs
("Nonqualified Options"), either or both as provided in the agreements
evidencing the options as provided in Section 6 hereof. As used in this Plan,
the term "Affiliates" means any "parent corporation" of the Company and any
"subsidiary corporation" of the Company within the meaning of Sections 424(e)
and (f), respectively, of the Code.
2. Administration.
2.1 Administration by the Board or the Compensation Committee.
This Plan shall be administered by the Board of Directors (the "Board") unless
the Board establishes a committee comprised of one or more of its members to
carry out such administration, in which case administration of the Plan shall be
by a Compensation Committee (the "Committee") designated by the Board of the
Company, which shall also designate the Chairman of the Committee.
2.2 Board or Committee Action. The Board, or the Committee as
appropriate, shall hold its meetings at such times and places as it may be
determine. A majority of the members of such Board or Committee shall constitute
a quorum, and all determinations of the Board or Committee shall be made by not
less than a majority of its members. Any decision or determination reduced to
writing and signed by a majority of the members shall be fully effective as if
it had been made by a majority vote of its members at a meeting duly called and
held. The Board or Committee may designate the Secretary of the Company or other
Company employees to assist the Board or Committee in the administration of this
Plan, and may grant authority to such persons to execute award agreements or
other documents on behalf of the Board or the Committee and the Company. Any
duly constituted committee of the Board satisfying the qualifications of this
Section 2 may be appointed as the Committee.
2.3 Expenses. All expenses and liabilities incurred by the
Board or the Committee in the administration of this Plan shall be borne by the
Company. The Board or the Committee may employ attorneys, consultants,
accountants or other persons.
3. Stock Reserved. Subject to adjustment as provided in Section 6.11
hereof, the aggregate number of shares of Common Stock that may be optioned
under this Plan is 500,000. The shares subject to this Plan shall consist of
authorized but unissued shares of Common Stock and such number of shares shall
be and is hereby reserved for sale for such purpose. Any of such shares which
may remain unsold and which are not subject to outstanding options at the
termination of this Plan shall cease to be reserved for the purpose of this
Plan, but until termination of this Plan or the termination of the last of the
options granted under this Plan, whichever last occurs, the Company shall at all
times reserve a sufficient number of shares to meet the requirements of this
Plan. Should any option expire or be canceled prior to its exercise in full, the
shares theretofore subject to such option may again be made subject to an option
under this Plan.
4. Eligibility. The persons eligible to participate in this Plan as a
recipient of options ("Optionee") shall include only key employees, consultants
and directors of the Company or its Affiliates at the time the option is
granted. An employee or consultant who has been granted an option hereunder may
be granted an additional option or options, if the Board or the Committee, as
appropriate, shall so determine.
5. Grant of Options.
5.1 Discretion. The Board or Committee, as appropriate, shall
have sole and absolute discretionary authority (i) to determine, authorize, and
designate those key employees, consultants and directors of the Company or its
Affiliates who are to receive options under this Plan, (ii) to determine the
number of shares of Common Stock to be covered by such options and the terms
thereof, and (iii) to determine the type of option granted: ISOs, Nonqualified
Options or a combination of ISOs and Nonqualified Options; provided that
consultants and directors who are not employees of the Company may not receive
any ISOs. The Board or Committee shall thereupon grant options in accordance
with such determination as evidenced by a written option agreement. Subject to
the express provisions of this Plan, the Board or the Committee shall have
discretionary authority to prescribe, amend and rescind rules and regulations
relating to this Plan, to interpret this Plan, to prescribe and amend the terms
of the option agreements (which need not be identical) and to make all other
determinations deemed necessary or advisable for the administration of this
Plan.
5.2 Shareholder Approval. All options granted under this Plan
are subject to, and may not be exercised before, the approval of this Plan by
the shareholders prior to the first anniversary date of the Board meeting held
to approve this Plan, by the affirmative vote of the holders of a majority of
the outstanding shares of the Company present, or represented by proxy, and
entitled to vote thereat or written consent in accordance with the laws of the
State of Nevada; provided that if such approval by the shareholders of the
Company is not forthcoming, all options previously granted under this Plan shall
be void.
5.3 Limitation on Incentive Stock Options. The aggregate fair
market value (determined in accordance with Section 6.2 of this Plan at the time
the option is granted) of the Common Stock with respect to which ISOs may be
exercisable for the first time by any Optionee during any calendar year under
all such plans of the Company and its Affiliates shall not exceed $100,000.
6. Terms and Conditions. Each option granted under this Plan shall be
evidenced by an agreement, in a form approved by the Board or the Committee,
which shall be subject to the following express terms and conditions and to such
other terms and conditions as the Board or the Committee may deem appropriate.
6.1 Option Period. The Board or the Committee shall promptly
notify the Optionee of the option grant and a written agreement shall promptly
be executed and delivered by and on behalf of the Company and the Optionee,
provided that the option grant shall expire if a written agreement is not signed
by said Optionee (or his agent or attorney) and returned to the Company within
60 days from date of receipt by the Optionee of such agreement. The date of
grant shall be the date the option is actually granted by the Board or the
Committee, even though the written agreement may be executed and delivered by
the Company and the Optionee after that date. Each option agreement shall
specify the period for which the option thereunder is granted (which in no event
shall exceed ten years from the date of grant in the case of an ISO) and shall
provide that the ISO shall expire at the end of such period. If the original
term of an option is less than ten years from the date of grant, the option may
be amended prior to its expiration, with the approval of the Board or the
Committee and the Optionee, to extend the term so that the term as amended is
not more than ten years from the date of grant. However, in the case of an ISO
granted to an individual who, at the time of grant, owns stock possessing more
than 10 percent of the total combined voting power of all classes of stock of
the Company or its Affiliate ("Ten Percent Stockholder"), such period shal 9
Stock Option Plan (3/04) l not exceed five years from the date of grant.
6.2 Exercise Price. The exercise price of each share of Common
Stock subject to each option granted pursuant to this option is granted and, in
the case of ISOs, shall not be less than 100% of the fair market value of a
share of Common Stock on the date the option is granted, as determined by the
Board or the Committee. In the case of ISOs granted to a Ten Percent
Stockholder, the exercise price shall not be less than 110% of the fair market
value of a share of Common Stock on the date the option is granted. The exercise
price of each share of Common Stock subject to a Nonqualified Option under this
Plan shall be determined by the Board or the Committee prior to granting the
option. The Board or the Committee shall set the exercise price for each share
subject to a Nonqualified Option at such price as the Board or the Committee in
its sole discretion shall determine, provided that the exercise price of each
share of Common Stock subject to a Nonqualified Option shall not be less than
85% of the fair market value of a share of Common Stock on the date the option
is granted as determined by the Board or the Committee.
For all purposes under this Plan, the fair market value of a share of
Common Stock on a particular date shall be equal to the mean of the reported
high and low sales prices of the Common Stock on the principal market on which
the Common Stock is listed on that date, or if no prices are reported on that
date, on the last preceding date on which such prices of the Common Stock are so
reported. If the Common Stock is not traded on public market at the time a
determination of its fair market value is required to be made hereunder, its
fair market value shall be deemed to be equal to the average between the closing
bid and ask prices of the Common Stock on the most recent date the Common Stock
was publicly traded. In the event the Common Stock is not publicly traded at the
time a determination of its value is required to be made hereunder, the
determination of its fair market value shall be made by the Board or the
Committee in such manner as it deems appropriate.
6.3 Exercise Period. The Board or the Committee may provide in
the option agreement that an option may be exercised immediately or over the
period of the grant and in whole or in increments. However, no portion of any
option may be exercisable by an Optionee prior to the approval of this Plan by
the shareholders of the Company.
6.4 Procedure for Exercise. Options shall be exercised by the
delivery by the Optionee of written notice to the Secretary of the Company
setting forth the number of shares of Common Stock with respect to which the
option is being exercised. The notice shall be accompanied by, at the election
of the Optionee and as permitted by the Board or the Committee in the Agreement
granting such options, (i) cash, cashier's check, bank draft, or postal or
express money order payable to the order of the Company, (ii) certificates
representing shares of Common Stock theretofore owned by the Optionee duly
endorsed for transfer to the Company, (iii) an election by the Optionee to have
the Company withhold the number of shares of Common Stock the fair market value,
less the exercise price, of which is equal to the aggregate exercise price of
the shares of Common Stock issuable upon exercise of the option, or (iv) any
combination of the preceding, equal in value to the full amount of the exercise
price. Notice may also be delivered by telecopy provided that the exercise price
of such shares is received by the Company via wire transfer on the same day the
telecopy transmission is received by the Company. The notice shall specify the
address to which the certificates for such shares are to be mailed. An option to
purchase shares of Common Stock in accordance with this Plan, shall be deemed to
have been exercised immediately prior to the close of business on the date (i)
written notice of such exercise and (ii) payment in full of the exercise price
for the number of share for which options are being exercised, are both received
by the Company and the Optionee shall be treated for all purposes as the record
holder of such shares of Common Stock as of such date.
As promptly as practicable after receipt of such written notice and
payment, the Company shall deliver to the Optionee certificates for the number
of shares with respect to which such option has been so exercised, issued in the
Optionee's name or such other name as Optionee directs; provided, however, that
such delivery shall be deemed effected for all purposes when a stock transfer
agent of the Company shall have deposited such certificates in the United States
mail, addressed to the Optionee at the address specified pursuant to this
Section 6.4.
6.5 Termination of Employment. If an employee to whom an
option is granted ceases to be employed by the Company or its affiliates for any
reason other than death or disability or if a director or consultant to whom an
option is granted ceases to serve on the Board or as a consultant for any reason
other than death or disability, any option which is exercisable on the date of
such termination of employment or cessation of serving on the Board or cessation
of service as a consultant shall expire three-months from the date of such
termination or cessation but in no event may the option be exercised after its
expiration under the terms of the option agreement.
6.6 Disability or Death. In the event the Optionee dies or is
determined under this Plan to be disabled while the Optionee is employed by the
Company or its Affiliates, acts as consultant or while serves on the Board of
the Company, the options previously granted to the Optionee may be exercised (to
the extent the Optionee would have been entitled to do so at the date of death
or the determination of disability) at any time and from time to time, within a
three-month period after such death or determination of disability, by the
Optionee, the guardian of the Optionee's estate, the executor or administrator
of the Optionee's estate or by the person or persons to whom the Optionee's
rights under the option shall pass by will or the laws of descent and
distribution, but in no event may the option be exercised after its expiration
under the terms of the option agreement. An Optionee shall be deemed to be
disabled if, in the opinion of a physician selected by the Board or the
Committee, the Optionee is incapable of performing services for the Company of
the kind the Optionee was performing at the time the disability occurred by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or to be of long, continued and indefinite duration.
The date of determination of disability for purposes hereof shall be the date of
such determination by such physician.
6.7 Transferability. An option granted pursuant to this Plan
shall not be assignable or otherwise transferable by the Optionee otherwise than
by Optionee's will or by the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined in the code or Title I of the
Employee Retirement Income Security Act, as amended, or the rules thereunder.
During the lifetime of an Optionee, an option shall be exercisable only by such
Optionee. Any heir or legatee of the Optionee shall take rights granted herein
and in the option agreement subject to the terms and conditions hereof and
thereof. No such transfer of any option to heirs or legatees of the Optionee
shall be effective to bind the Company unless the Company shall have been
furnished with written notice thereof and a copy of such evidence as the Board
or the Committee may deem necessary to establish the validity of the transfer
and the acceptance by the transferee or transferees of the terms and conditions
hereof.
6.8 Incentive Stock Options. Each option agreement may contain
such terms and provisions as the Board or the Committee may determine to be
necessary or desirable in order to qualify under the Code of option designated
as an incentive stock option.
6.9 No Rights as Shareholder. No Optionee shall have any
rights as a shareholder with respect to shares covered by an option until the
option is exercised by written notice and accompanied by payment as provided in
Section 6.4 above.
6.10 Extraordinary Corporate Transactions. The existence of
outstanding options shall not affect in any way the right or power of the
Company or its shareholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, exchanges, or other changes in the Company's
capital structure or its business, or any merger or consolidation of the
Company, or any issuance of Common Stock or other securities or subscription
rights thereto, or any issuance of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Common Stock or the rights thereof,
or the dissolution or liquidation of the Company, or any sale or transfer of all
or any part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise. If the Company recapitalizes or
otherwise changes its capital structure, or merges, consolidates, sells all of
its assets or dissolves (each of the forgoing a "Fundamental Change"), then
thereafter upon any exercise of an option theretofore granted the Optionee shall
be entitled to purchase under such option, in lieu of the number of shares of
Common Stock as to which option shall then be exercisable, the number and class
of shares of stock and securities to which the Optionee would have been entitled
pursuant to the terms of the Fundamental Change if, immediately prior to such
Fundamental Change, the Optionee had been the holder of record of the number of
shares of Common Stock as to which such option is then exercisable. If (i) the
Company shall not be the surviving entity in any merger or consolidation (or
survives only as a subsidiary of another entity), (ii) the Company sells all or
substantially all of its assets to any other person or entity (other than a
wholly-owned subsidiary), (iii) any person or entity (including a "group" as
contemplated by Section 13(d)(3) of the Exchange Act) acquires or gains
ownership or control of (including, without limitation, power to vote) more than
50% of the outstanding shares of Common Stock, (iv) the Company is to be
dissolved and liquidated, or (v) as a result of or in connection with a
contested election of directors, the persons who were directors of the Company
before such election shall cease to constitute a majority of the Board (each
such event in clauses (i) through (v) above is referred to herein as a
"Corporate Change"), the committee, in its sole discretion, may accelerate the
time at which all or a portion of an Optionee's options may be exercised for a
limited period of time before or after a specified date.
6.11 Changes in Capital Structure. If the outstanding shares
of Common Stock or other securities of the Company, or both, for which the
option is then exercisable shall at any time be changed or exchanged by
declaration of a stock dividend, stock split, combination of shares or
recapitalization, the number and kind of shares of Common Stock or other
securities which are subject to this Plan or subject to any options theretofore
granted, and the exercise prices, shall be appropriately and equitably adjusted
so as to maintain the proportionate number of shares or other securities without
changing the aggregate exercise price.
6.12 Acceleration of Options. Except as hereinbefore expressly
provided, (i) the issuance by the Company of shares of stock of any class of
securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, (ii) the payment of a dividend
in property other than Common Stock, or (iii) the occurrence of any similar
transaction, and in any case whether or not for fair value, shall not affect,
and no adjustment by reason thereof shall be made with respect to, the number of
shares of Common Stock subject to options thereto fore granted or the purchase
price per share, unless the Board or the Committee shall determine in its sole
discretion that an adjustment is necessary to provide equitable treatment to
Optionee. Notwithstanding anything to the contrary contained in this Plan, the
Board or the Committee may in its sole discretion accelerate the time at which
any option may be exercised, including, but not limited to, upon the occurrence
of the events specified in this Section 6.
7. Amendments or Termination. The Board may amend, alter or discontinue
this Plan, but no amendment or alteration shall be made which would impair the
rights of any Optionee, without his consent, under any option theretofore
granted, or which, without the approval of the shareholders, would: (i) except
as is provided in Section 6.11 of this Plan, increase the total number of shares
reserved for the purposes of this Plan, (ii) change the class of persons
eligible to participate in this Plan as provided in Section 4 of this Plan,
(iii) extend the applicable maximum option period provided for in Section 6.1 of
this Plan, (iv) extend the expiration date of this Plan set forth in Section 14
of this Plan, (v) except as provided in Section 6.11 of this Plan, decrease to
any extent the exercise price of any option granted under this Plan or (vi)
withdraw the administration of this Plan from the Board or the Committee.
8. Compliance With Other Laws and Regulations. This Plan, the grant and
exercise of options thereunder, and the obligation of the Company to sell and
deliver shares under such options, shall be subject to all applicable federal
and state laws, rules and regulations and to such approvals by any governmental
or regulatory agency as may be required. The Company shall not be required to
issue or deliver any certificates for shares of Common Stock prior to the
completion of any registration or qualification of such shares under any federal
or state law or issuance of any ruling or regulation of any government body
which the Company shall, in its sole discretion, determine to be necessary or
advisable. Any adjustments provided for in Sections 6.10, .11 and .12 of this
Plan shall be subject to any shareholder action required by Nevada corporate
law.
9. Purchase for Investment. Unless the options and shares of Common
Stock covered by this Plan have been registered under the Securities Act of
1933, as amended, or the Company has determined that such registration is
unnecessary, each person exercising an option under this Plan may be required by
the Company to give a representation in writing that such person is acquiring
such shares for his or her own account for investment and not with a view to, or
for sale in connection with, the distribution of any part thereof.
10. Taxes.
10.1 The Company may make such provisions as it may deem
appropriate for the withholding of any taxes which it determines is required in
connection with any options granted under this Plan.
10.2 Notwithstanding the terms of Section 10.1, each Optionee
must pay all taxes required to be withheld by the Company or paid by the
Optionee in connection with the exercise of a Nonqualified Option.
11. Replacement of Options. The Board or the Committee from time to
time may permit an Optionee under this Plan to surrender for cancellation any
unexercised outstanding option and receive from the Company in exchange an
option for such number of shares of Common Stock as may be designated by the
Board or the Committee. The Board or the Committee may, with the consent of the
person entitled to exercise any outstanding option, amend such option, including
reducing the exercise price of any option to not less than the fair market value
of the Common Stock at the time of the amendment and extending the term thereof.
12. No Right to Employment. Employees shall be considered to be in the
employment of the Company so long as they remain employees of the Company or its
Affiliates. Any questions as to whether and when there has been a termination of
such employment and the cause of such termination shall be determined by the
Board or the Committee, and its determination shall be final. Nothing contained
herein shall be construed as conferring upon the Optionee the right to continue
in the employ of the Company or its Affiliates, nor shall anything contained
herein be construed or interpreted to limit the "employment at will"
relationship between the Optionee and the Company or its Affiliates. The option
agreements may contain such provisions as the Board or the Committee may approve
with reference to the effect of approved leaves of absence.
13. Liability of Company for Non-Issuance of Shares and Tax
Consequences. The Company and any Affiliates that are in existence or hereafter
come into existence shall not be liable to an Optionee or other persons as to:
13.1 The non-issuance or sale of shares as to which the
Company has been unable to obtain from any regulatory body having jurisdiction
the authority deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any shares hereunder; and
13.2 Any tax consequence expected, but not realized, by any
Optionee or other person due to the exercise of any option granted hereunder.
14. Effectiveness and Expiration of Plan. This Plan shall be effective
on the date of adoption by the Board. If the shareholders of the Company fail to
approve this Plan within twelve months of the date of the Board adoption, this
Plan shall terminate and all options previously granted under this Plan shall
become void and of no effect. This Plan shall expire ten years after the date of
the Board adopts this Plan and thereafter no option shall be granted pursuant to
this Plan.
15. Non-Exclusivity of this Plan. Neither the adoption by the Board nor
the submission for approval of this Plan to the shareholders of the Company
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including
without limitation, the granting of restricted stock or stock options otherwise
than under this Plan, and such arrangements may be either generally applicable
or applicable only in specific cases.
16. Governing Law. This Plan and any agreements hereunder shall be
interpreted and construed in accordance with the laws of the State of Nevada and
applicable federal law.
17. Cashless Exercise. The Board or the Committee also may allow
cashless exercises as permitted under the Federal Reserve Board's Regulation T,
subject to applicable securities law restrictions, or by any other means which
the Board or the Committee determines to be consistent with this Plan's purpose
and applicable law. The proceeds from such a payment shall be added to the
general funds of the Company and shall be used for general corporate purposes.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing by directors of the Company, Eternal Technologies Group, Inc. has
caused these presents to be duly executed in its name and behalf by its proper
officers thereunto duly authorized as of this 15th day of June, 2004.
ETERNAL TECHNOLOGIES
GROUP, INC.
ATTEST:
By: /s/ Jijun Wu
-------------------
/s/ Garfield Hu Name: Jijun Wu
- --------------------- Title: President
Secretary