Document:

EXHIBIT
10.1

     

    CLACENDIX,
INC.

     

    2009
INCENTIVE COMPENSATION PLAN

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    CLACENDIX,
INC.

     

    2009
INCENTIVE COMPENSATION PLAN

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  	
                                                          1.

                                                        	
                                                          Purpose

                                                        	 	
                                                          1

                                                        
	 	 	 	 
	
                                                          2.

                                                        	
                                                          Definitions

                                                        	 	
                                                          1

                                                        
	 	 	 	 
	
                                                          3.

                                                        	
                                                          Administration.

                                                        	 	
                                                          6

                                                        
	 	 	 	 
	
                                                          4.

                                                        	
                                                          Shares
      Subject to Plan.

                                                        	 	
                                                          7

                                                        
	 	 	 	 
	
                                                          5.

                                                        	
                                                          Eligibility;
      Per-Person Award Limitations

                                                        	 	
                                                          8

                                                        
	 	 	 	 
	
                                                          6.

                                                        	
                                                          Specific
      Terms of Awards.

                                                        	 	
                                                          9

                                                        
	 	 	 	 
	
                                                          7.

                                                        	
                                                          Certain
      Provisions Applicable to Awards.

                                                        	 	
                                                          14

                                                        
	 	 	 	 
	
                                                          8.

                                                        	
                                                          Code
      Section 162(m) Provisions.

                                                        	 	
                                                          16

                                                        
	 	 	 	 
	
                                                          9.

                                                        	
                                                          Change in
      Control.

                                                        	 	
                                                          18

                                                        
	 	 	 	 
	
                                                          10.

                                                        	
                                                          General
      Provisions.

                                                        	 	
                                                          20

                                                        

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    CLACENDIX,
INC.

     

    2009
INCENTIVE COMPENSATION PLAN

     

    1.           Purpose.  The
purpose of this CLACENDIX, INC. 2009 INCENTIVE COMPENSATION PLAN (the “Plan”) is
to assist Clacendix, Inc., a Delaware corporation (the “Company”) and its
Related Entities (as hereinafter defined) in attracting, motivating, retaining
and rewarding high-quality executives and other employees, officers, directors,
consultants and other persons who provide services to the Company or its Related
Entities by enabling such persons to acquire or increase a proprietary interest
in the Company in order to strengthen the mutuality of interests between such
persons and the Company's shareholders, and providing such persons with annual
and long term performance incentives to expend their maximum efforts in the
creation of shareholder value.

     

    2.           Definitions.  For
purposes of the Plan, the following terms shall be defined as set forth below,
in addition to such terms defined in Section 1 hereof and elsewhere
herein.

     

    (a)           “Award”
means any Option, Stock Appreciation Right, Restricted Stock Award, Deferred
Stock Award, Share granted as a bonus or in lieu of another Award, Dividend
Equivalent, Other Stock-Based Award or Performance Award, together with any
other right or interest, granted to a Participant under the Plan.

     

    (b)           “Award
Agreement” means any written agreement, contract or other instrument or
document evidencing any Award granted by the Committee hereunder.

     

    (c)           “Beneficiary”
means the person, persons, trust or trusts that have been designated by a
Participant in his or her most recent written beneficiary designation filed with
the Committee to receive the benefits specified under the Plan upon such
Participant's death or to which Awards or other rights are transferred if and to
the extent permitted under Section 10(b) hereof.  If, upon a
Participant's death, there is no designated Beneficiary or surviving designated
Beneficiary, then the term Beneficiary means the person, persons, trust or
trusts entitled by will or the laws of descent and distribution to receive such
benefits.

     

    (d)           “Beneficial
Owner” and “Beneficial
Ownership” shall have the meaning ascribed to such term in Rule 13d-3
under the Exchange Act and any successor to such Rule.

     

    (e)           “Board”
means the Company's Board of Directors.

     

    (f)           “Cause”
shall, with respect to any Participant, have the meaning specified in the Award
Agreement.  In the absence of any definition in the Award Agreement,
“Cause” shall have the equivalent meaning or the same meaning as “cause” or “for
cause” set forth in any employment, consulting, or other agreement for the
performance of services between the Participant and the Company or a Related
Entity or, in the absence of any such agreement or any such definition in such
agreement, such term shall mean (i) the failure by the Participant to perform,
in a reasonable manner, his or her duties as assigned by the Company or a
Related Entity, (ii) any violation or breach by the Participant of his or her
employment, consulting or other similar agreement with the Company or a Related
Entity, if any, (iii) any violation or breach by the Participant of any
non-competition, non-solicitation, non-disclosure and/or other similar agreement
with the Company or a Related Entity, (iv) any act by the Participant of
dishonesty or bad faith with respect to the Company or a Related Entity, (v) use
of alcohol, drugs or other similar substances in a manner that adversely affects
the Participant’s work performance, or (vi) the commission by the Participant of
any act, misdemeanor, or crime reflecting unfavorably upon the Participant or
the Company or any Related Entity.  The good faith determination by
the Committee of whether the Participant’s Continuous Service was terminated by
the Company for “Cause” shall be final and binding for all purposes
hereunder.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (g)           “Change in
Control” means a Change in Control as defined in Section 9(b) of the
Plan.

     

    (h)           “Code”
means the Internal Revenue Code of 1986, as amended from time to time, including
regulations thereunder and successor provisions and regulations
thereto.

     

    (i)           “Committee”
means a committee designated by the Board to administer the Plan; provided,
however, that if the Board fails to designate a committee or if there are no
longer any members on the committee so designated by the Board, or for any other
reason determined by the Board, then the Board shall serve as the
Committee.  While it is intended that the Committee shall consist of
at least two directors, each of whom shall be (i) a “non-employee director”
within the meaning of  Rule 16b-3 (or any successor rule) under the
Exchange Act, unless administration of the Plan by “non-employee directors” is
not then required in order for exemptions under Rule 16b-3 to apply to
transactions under the Plan, (ii) an “outside director” within the meaning of
Section 162(m) of the Code, and (iii) “Independent”, the failure of the
Committee to be so comprised shall not invalidate any Award that otherwise
satisfies the terms of the Plan.

     

    (j)           “Consultant”
means any Person (other than an Employee or a Director, solely with respect to
rendering services in such Person’s capacity as a director) who is engaged by
the Company or any Related Entity to render consulting or advisory services to
the Company or such Related Entity.

     

    (k)           “Continuous
Service” means the uninterrupted provision of services to the Company or
any Related Entity in any capacity of Employee, Director, Consultant or other
service provider.  Continuous Service shall not be considered to be
interrupted in the case of (i) any approved leave of absence, (ii) transfers
among the Company, any Related Entities, or any successor entities, in any
capacity of Employee, Director, Consultant or other service provider, or (iii)
any change in status as long as the individual remains in the service of the
Company or a Related Entity in any capacity of Employee, Director, Consultant or
other service provider (except as otherwise provided in the Award
Agreement).  An approved leave of absence shall include sick leave,
military leave, or any other authorized personal leave.

     

    (l)           “Covered
Employee” means the Person who, as of the end of the taxable year, either
is the principal executive officer of the Company or is serving as the acting
principal executive officer of the Company, and each other Person whose
compensation is required to be disclosed in the Company’s filings with the
Securities and Exchange Commission by reason of that person being among the
three highest compensated officers of the Company as of the end of a taxable
year, or such other person as shall be considered a “covered employee” for
purposes of Section 162(m) of the Code.

     

    
      
        
        

      

      
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    (m)           “Deferred
Stock” means a right to receive Shares, including Restricted Stock, cash
measured based upon the value of Shares or a combination thereof, at the end of
a specified deferral period.

     

    (n)           “Deferred Stock
Award” means an Award of Deferred Stock granted to a Participant under
Section 6(e) hereof.

     

    (o)           “Director”
means a member of the Board or the board of directors of any Related
Entity.

     

    (p)           “Disability”
means a permanent and total disability (within the meaning of Section 22(e) of
the Code), as determined by a medical doctor satisfactory to the
Committee.

     

    (q)           “Dividend
Equivalent” means a right, granted to a Participant under Section 6(g)
hereof, to receive cash, Shares, other Awards or other property equal in value
to dividends paid with respect to a specified number of Shares, or other
periodic payments.

     

    (r)           “Effective
Date” means the effective date of the Plan, which shall be May 15,
2009.

     

    (s)           “Eligible
Person” means each officer, Director, Employee, Consultant and other
person who provides services to the Company or any Related
Entity.  The foregoing notwithstanding, only Employees of the Company,
or any parent corporation or subsidiary corporation of the Company (as those
terms are defined in Sections 424(e) and (f) of the Code, respectively), shall
be Eligible Persons for purposes of receiving any Incentive Stock
Options.  An Employee on leave of absence may, in the discretion of
the Committee, be considered as still in the employ of the Company or a Related
Entity for purposes of eligibility for participation in the Plan.

     

    (t)           “Employee”
means any person, including an officer or Director, who is an employee of the
Company or any Related Entity.  The payment of a director’s fee by the
Company or a Related Entity shall not be sufficient to constitute “employment”
by the Company.

     

    (u)           “Exchange
Act” means the Securities Exchange Act of 1934, as amended from time to
time, including rules thereunder and successor provisions and rules
thereto.

     

    (v)           “Fair Market
Value” means the fair market value of Shares, Awards or other property as
determined by the Committee, or under procedures established by the
Committee.  Unless otherwise determined by the Committee, the Fair
Market Value of a Share as of any given date shall be the closing sale price per
Share reported on a consolidated basis for stock listed on the principal stock
exchange or market on which Shares are traded on the date immediately preceding
the date as of which such value is being determined (or as of such later
measurement date as determined by the Committee on the date the Award is
authorized by the Committee), or, if there is no sale on that date, then on the
last previous day on which a sale was reported.

     

    
      
        
        

      

      
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    (w)           “Good
Reason” shall, with respect to any Participant, have the meaning
specified in the Award Agreement.  In the absence of any definition in
the Award Agreement, “Good Reason” shall have the equivalent meaning or the same
meaning as “good reason” or “for good reason” set forth in any employment,
consulting or other agreement for the performance of services between the
Participant and the Company or a Related Entity or, in the absence of any such
agreement or any such definition in such agreement, such term shall mean (i) the
assignment to the Participant of any duties inconsistent in any material respect
with the Participant's duties or responsibilities as assigned by the Company or
a Related Entity, or any other action by the Company or a Related Entity which
results in a material diminution in such duties or responsibilities, excluding
for this purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company or a Related Entity promptly
after receipt of notice thereof given by the Participant; (ii) any material
failure by the Company or a Related Entity to comply with its obligations to the
Participant as agreed upon, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company or a Related Entity promptly after receipt of notice thereof given by
the Participant; or (iii) the Company's or Related Entity’s requiring the
Participant to be based at any office or location outside of fifty (50) miles
from the location of employment or service as of the date of Award, except for
travel reasonably required in the performance of the Participant’s
responsibilities.

     

    (x)           “Incentive Stock
Option” means any Option intended to be designated as an incentive stock
option within the meaning of Section 422 of the Code or any successor provision
thereto.

     

    (y)           “Independent”,
when referring to either the Board or members of the Committee, shall have the
same meaning as used in the rules of the Listing Market.

     

    (z)           “Incumbent
Board” means the Incumbent Board as defined in Section 9(b)(ii)
hereof.

     

    (aa)           “Listing
Market” means the OTC Bulletin Board or any other national securities
exchange on which any securities of the Company are listed for trading, and if
not listed for trading, by the rules of the Nasdaq Market.

     

    (bb)           “Option”
means a right granted to a Participant under Section 6(b) hereof, to purchase
Shares or other Awards at a specified price during specified time
periods.

     

    (cc)           “Optionee”
means a person to whom an Option is granted under this Plan or any person who
succeeds to the rights of such person under this Plan.

     

    (dd)           “Other Stock-Based
Awards” means Awards granted to a Participant under Section 6(i)
hereof.

     

    (ee)           “Participant”
means a person who has been granted an Award under the Plan which remains
outstanding, including a person who is no longer an Eligible
Person.

     

    (ff)           “Performance
Award” means any Award of Performance Shares or Performance Units granted
pursuant to Section 6(h) hereof.

     

    
      
        
        

      

      
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    (gg)           “Performance
Period” means 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.

     

    (hh)           “Performance
Share” means any grant pursuant to Section 6(h) hereof 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.

     

    (ii)           “Performance
Unit” means any grant pursuant to Section 6(h) hereof 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.

     

    (jj)           “Person”
shall have the meaning ascribed to such term in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof, and shall include a
“group” as defined in Section 13(d) thereof.

     

    (kk)           “Prior
Plan” means the ION Networks, Inc. 2006 Stock Option Plan.

     

    (ll)           “Related
Entity” means any Subsidiary, and any business, corporation, partnership,
limited liability company or other entity designated by the Board, in which the
Company  or a Subsidiary holds a  substantial ownership
interest, directly or indirectly.

     

    (mm)        “Restriction
Period” means the period of time specified by the Committee that
Restricted Stock Awards shall be subject to such restrictions on
transferability, risk of forfeiture and other restrictions, if any, as the
Committee may impose.

     

    (nn)           “Restricted
Stock” means any Share issued with the restriction that the holder may
not sell, transfer, pledge or assign such Share and with such risks of
forfeiture and 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.

     

    (oo)           “Restricted Stock
Award” means an Award granted to a Participant under Section 6(d)
hereof.

     

    (pp)           “Rule
16b-3” means Rule 16b-3, as from time to time in effect and applicable to
the Plan and Participants, promulgated by the Securities and Exchange Commission
under Section 16 of the Exchange Act.

     

    
      
        
        

      

      
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    (qq)           “Shares”
means the shares of common stock of the Company, par value $.001 per share, and
such other securities as may be substituted (or resubstituted) for Shares
pursuant to Section 10(c) hereof.

     

    (rr)           “Stock
Appreciation Right” means a right granted to a Participant under Section
6(c) hereof.

     

    (ss)           “Subsidiary”
means any corporation or other entity in which the Company has a direct or
indirect ownership interest of 50% or more of the total combined voting power of
the then outstanding securities or interests of such corporation or other entity
entitled to vote generally in the election of directors or in which the Company
has the right to receive 50% or more of the distribution of profits or 50% or
more of the assets on liquidation or dissolution.

     

    (tt)           “Substitute
Awards” means 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 (i) acquired by the
Company or any Related Entity, (ii) which becomes a Related Entity after the
date hereof, or (iii) with which the Company or any Related Entity
combines.

     

    3.           Administration.

     

    (a)           Authority of the
Committee.  The
Plan shall be administered by the Committee except to the extent (and subject to
the limitations imposed by Section 3(b) hereof) the Board elects to administer
the Plan, in which case the Plan shall be administered by only those members of
the Board who are Independent members of the Board, in which case references
herein to the “Committee” shall be deemed to include references to the
Independent members of the Board.  The Committee shall have full and
final authority, subject to and consistent with the provisions of the Plan, to
select Eligible Persons to become Participants, grant Awards, determine the
type, number and other terms and conditions of, and all other matters relating
to, Awards, prescribe Award Agreements (which need not be identical for each
Participant) and rules and regulations for the administration of the Plan,
construe and interpret the Plan and Award Agreements and correct defects, supply
omissions or reconcile inconsistencies therein, and to make all other decisions
and determinations as the Committee may deem necessary or advisable for the
administration of the Plan.  In exercising any discretion granted to
the Committee under the Plan or pursuant to any Award, the Committee shall not
be required to follow past practices, act in a manner consistent with past
practices, or treat any Eligible Person or Participant in a manner consistent
with the treatment of any other Eligible Persons or Participants.

     

    (b)           Manner of
Exercise of Committee Authority.   The
Committee, and not the Board, shall exercise sole and exclusive discretion (i)
on any matter relating to a Participant then subject to Section 16 of the
Exchange Act with respect to the Company to the extent necessary in order that
transactions by such Participant shall be exempt under Rule 16b-3 under the
Exchange Act, (ii) with respect to any Award that is intended to qualify as
“performance-based compensation” under Section 162(m), to the extent necessary
in order for such Award to so qualify; and (iii) with respect to any Award to an
Independent Director.  Any action of the Committee shall be final,
conclusive and binding on all persons, including the Company, its Related
Entities, Eligible Persons, Participants, Beneficiaries, transferees under
Section 10(b) hereof or other persons claiming rights from or through a
Participant, and shareholders.  The express grant of any specific
power to the Committee, and the taking of any action by the Committee, shall not
be construed as limiting any power or authority of the Committee.  The
Committee may delegate to officers or managers of the Company or any Related
Entity, or committees thereof, the authority, subject to such terms and
limitations as the Committee shall determine, to perform such functions,
including administrative functions as the Committee may determine to the extent
that such delegation will not result in the loss of an exemption under Rule
16b-3(d)(1) for Awards granted to Participants subject to Section 16 of the
Exchange Act in respect of the Company and will not cause Awards intended to
qualify as “performance-based compensation” under Code Section 162(m) to fail to
so qualify.  The Committee may appoint agents to assist it in
administering the Plan.

     

    
      
        
        

      

      
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    (c)           Limitation of
Liability.  The
Committee and the Board, and each member thereof, shall be entitled to, in good
faith, rely or act upon any report or other information furnished to him or her
by any officer or Employee, the Company's independent auditors, Consultants or
any other agents assisting in the administration of the Plan.  Members
of the Committee and the Board, and any officer or Employee acting at the
direction or on behalf of the Committee or the Board, shall not be personally
liable for any action or determination taken or made in good faith with respect
to the Plan, and shall, to the extent permitted by law, be fully indemnified and
protected by the Company with respect to any such action or
determination.

     

    4.           Shares Subject to
Plan.

     

    (a)           Limitation on
Overall Number of Shares Available for Delivery Under Plan.  Subject
to adjustment as provided in Section 10(c) hereof, the total number of Shares
reserved and available for delivery under the Plan shall be 30,000,000, plus any
Shares remaining available for delivery under the Prior Plan on the Effective
Date of the Plan.  Any Shares delivered under the Plan may consist, in
whole or in part, of authorized and unissued shares or treasury
shares.

     

    (b)           Application of
Limitation to Grants of Awards..  No
Award may be granted if the number of Shares to be delivered in connection with
such an Award exceeds the number of Shares remaining available for delivery
under the Plan, minus the number of Shares deliverable in settlement of or
relating to then outstanding Awards.  The Committee may adopt
reasonable counting procedures to ensure appropriate counting, avoid double
counting (as, for example, in the case of tandem or substitute awards) and make
adjustments if the number of Shares actually delivered differs from the number
of Shares previously counted in connection with an Award.

     

    (c)           Availability of
Shares Not Delivered under Awards and Adjustments to Limits.

     

    (i)           If
any Awards 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 to
which those Awards were subject, shall, to the extent of such forfeiture,
expiration, termination, cash settlement or non-issuance, again be available for
delivery with respect to Awards under the Plan, subject to Section 4(c)(iv)
below.

     

    
      
        
        

      

      
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    (ii)           In
the event that 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 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.

     

    (iii)           Substitute
Awards shall not reduce the Shares authorized for delivery under the Plan or
authorized for delivery to a Participant in any period.  Additionally,
in the event that a company acquired by the Company or any Related Entity or
with which the Company or any Related Entity combines has shares available under
a pre-existing plan approved by its shareholders, the shares available for
delivery 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 authorized for delivery under the Plan; if and to the
extent that the use of such Shares would not require approval of the Company’s
shareholders under the rules of the Listing Market.

     

    (iv)           Any
Share that again becomes available for delivery pursuant to this Section 4(c)
shall be added back as one (1) Share.

     

    (v)           Notwithstanding
anything in this Section 4(c) to the contrary but subject to adjustment as
provided in Section 10(c) hereof, the maximum aggregate number of Shares that
may be delivered under the Plan as a result of the exercise of the Incentive
Stock Options shall be 30,000,000
Shares.

     

    (d)           No Further Awards
Under Prior Plan.  In
light of the adoption of this Plan, no further awards shall be made under the
Prior Plan after the Effective Date.

     

    5.           Eligibility;
Per-Person Award Limitations.  Awards
may be granted under the Plan only to Eligible Persons.  Subject to
adjustment as provided in Section 10(c), in any fiscal year of the Company
during any part of which the Plan is in effect, no Participant may be granted
(i) Options or Stock Appreciation Rights with respect to more than 5,000,000 Shares or
(ii) Restricted Stock, Deferred Stock, Performance Shares and/or Other
Stock-Based Awards with respect to more than 5,000,000
Shares.  In addition, the maximum dollar value payable to any one
Participant with respect to Performance Units is (x) $2,000,000 with
respect to any 12 month Performance Period and (y) with respect to any
Performance Period that is more than 12 months, $4,000,000.

     

    
      
        
        

      

      
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    6.           Specific Terms of
Awards.

     

    (a)           General.  Awards
may be granted on the terms and conditions set forth in this Section
6.  In addition, the Committee may impose on any Award or the exercise
thereof, at the date of grant or thereafter (subject to Section 10(e)), such
additional terms and conditions, not inconsistent with the provisions of the
Plan, as the Committee shall determine, including terms requiring forfeiture of
Awards in the event of termination of the Participant’s Continuous Service and
terms permitting a Participant to make elections relating to his or her
Award.  Except as otherwise expressly provided herein, the Committee
shall retain full power and discretion to accelerate, waive or modify, at any
time, any term or condition of an Award that is not mandatory under the
Plan.  Except in cases in which the Committee is authorized to require
other forms of consideration under the Plan, or to the extent other forms of
consideration must be paid to satisfy the requirements of Delaware law, no
consideration other than services may be required for the grant (as opposed to
the exercise) of any Award.

     

    (b)           Options.  The
Committee is authorized to grant Options to any Eligible Person on the following
terms and conditions:

     

    (i)           Exercise
Price.  Other than in connection with Substitute Awards, the
exercise price per Share purchasable under an Option shall be determined by the
Committee, provided that such exercise price shall not be less than 100% of the
Fair Market Value of a Share on the date of grant of the Option and shall not,
in any event, be less than the par value of a Share on the date of grant of the
Option.  If an Employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than 10% of
the combined voting power of all classes of stock of the Company (or any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f) of the Code, respectively) and an Incentive Stock
Option is granted to such Employee, the exercise price of such Incentive Stock
Option (to the extent required by the Code at the time of grant) shall be no
less than 110% of the Fair Market Value of a Share on the date such Incentive
Stock Option is granted.

     

    (ii)           Time and Method
of Exercise.  The Committee shall determine the time or times
at which or the circumstances under which an Option may be exercised in whole or
in part (including based on achievement of performance goals and/or future
service requirements), the time or times at which Options shall cease to be or
become exercisable following termination of Continuous Service or upon other
conditions, the methods by which the exercise price may be paid or deemed to be
paid (including in the discretion of the Committee a cashless exercise
procedure), the form of such payment, including, without limitation, cash,
Shares (including without limitation the withholding of Shares otherwise
deliverable pursuant to the Award), other Awards or awards granted under other
plans of the Company or a Related Entity, or other property (including notes or
other contractual obligations of Participants to make payment on a deferred
basis provided that such deferred payments are not in violation of Section 13(k)
of the Exchange Act, or any rule or regulation adopted thereunder or any other
applicable law), and the methods by or forms in which Shares will be delivered
or deemed to be delivered to Participants.

     

    (iii)           Incentive Stock
Options.  The terms of any Incentive Stock Option granted under
the Plan shall comply in all respects with the provisions of Section 422 of the
Code.  Anything in the Plan to the contrary notwithstanding, no term
of the Plan relating to Incentive Stock Options (including any Stock
Appreciation Right issued in tandem therewith) shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code, unless the Participant has first requested, or
consents to, the change that will result in such
disqualification.  Thus, if and to the extent required to comply with
Section 422 of the Code, Options granted as Incentive Stock Options shall be
subject to the following special terms and conditions:

     

    
      
        
        

      

      
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    (A)           the
Option shall not be exercisable for more than ten years after the date such
Incentive Stock Option is granted; provided, however, that if a Participant owns
or is deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than 10% of the combined voting power of all classes of stock of the
Company (or any parent corporation or subsidiary corporation of the Company, as
those terms are defined in Sections 424(e) and (f) of the Code, respectively)
and the Incentive Stock Option is granted to such Participant, the term of the
Incentive Stock Option shall be (to the extent required by the Code at the time
of the grant) for no more than five years from the date of grant;
and

     

    (B)           The
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of the Shares with respect to which Incentive Stock Options
granted under the Plan and all other option plans of the Company (and any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f) of the Code, respectively) that become exercisable
for the first time by the Participant during any calendar year shall not (to the
extent required by the Code at the time of the grant) exceed
$100,000.

     

    (c)           Stock
Appreciation Rights.  The
Committee may grant Stock Appreciation Rights to any Eligible Person in
conjunction with all or part of any Option granted under the Plan or at any
subsequent time during the term of such Option (a “Tandem Stock Appreciation
Right”), or without regard to any Option (a “Freestanding Stock Appreciation
Right”), in each case upon such terms and conditions as the Committee may
establish in its sole discretion, not inconsistent with the provisions of the
Plan, including the following:

     

    (i)           Right to
Payment.  A Stock Appreciation Right shall confer on the
Participant to whom it is granted a right to receive, upon exercise thereof, the
excess of (A) the Fair Market Value of one Share on the date of exercise over
(B) the grant price of the Stock Appreciation Right as determined by the
Committee.  The grant price of a Stock Appreciation
Right  shall not be less than 100% of the Fair Market Value of a Share
on the date of grant, in the case of a Freestanding Stock Appreciation Right, or
less than the associated Option exercise price, in the case of a Tandem Stock
Appreciation Right.   

     

    (ii)           Other
Terms.  The Committee shall determine at the date of grant or
thereafter, the time or times at which and the circumstances under which a Stock
Appreciation Right may be exercised in whole or in part (including based on
achievement of performance goals and/or future service requirements), the time
or times at which Stock Appreciation Rights shall cease to be or become
exercisable following termination of Continuous Service or upon other
conditions, the method of exercise, method of settlement, form of consideration
payable in settlement, method by or forms in which Shares will be delivered or
deemed to be delivered to Participants, whether or not a Stock Appreciation
Right shall be in tandem or in combination with any other Award, and any other
terms and conditions of any Stock Appreciation Right.

     

    
      
        
        

      

      
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    (iii)           Tandem Stock
Appreciation Rights. Any Tandem Stock Appreciation Right may be granted
at the same time as the related Option is granted or, for Options that are not
Incentive Stock Options, at any time thereafter before exercise or expiration of
such Option.  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 exercise
price at which Shares can be acquired pursuant to the Option.  In
addition, 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. 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.

     

    (d)           Restricted Stock
Awards.  The
Committee is authorized to grant Restricted Stock Awards to any Eligible Person
on the following terms and conditions:

     

    (i)           Grant and
Restrictions.  Restricted Stock Awards shall be subject to such
restrictions on transferability, risk of forfeiture and other restrictions, if
any, as the Committee may impose, or as otherwise provided in this Plan during
the Restriction Period.  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.  The restrictions may lapse separately or in combination at
such times, under such circumstances (including based on achievement of
performance goals and/or future service requirements), in such installments or
otherwise, as the Committee may determine at the date of grant or
thereafter.  Except to the extent restricted under the terms of the
Plan and any Award Agreement relating to a Restricted Stock Award, a Participant
granted Restricted Stock shall have all of the rights of a shareholder,
including the right to vote the Restricted Stock and the right to receive
dividends thereon (subject to any mandatory reinvestment or other requirement
imposed by the Committee).  During the period that the Restriction
Stock Award is subject to a risk of forfeiture, subject to Section 10(b) below
and except as otherwise provided in the Award Agreement, the Restricted Stock
may not be sold, transferred, pledged, hypothecated, margined or otherwise
encumbered by the Participant.

     

    (ii)           Forfeiture.  Except
as otherwise determined by the Committee, upon termination of a Participant's
Continuous Service during the applicable Restriction Period, the Participant's
Restricted Stock that is at that time subject to a risk of forfeiture that has
not lapsed or otherwise been satisfied shall be forfeited and reacquired by the
Company; provided that, subject to the limitations set forth in Section 6(j)(ii)
hereof, the Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that forfeiture conditions
relating to Restricted Stock Awards shall be waived in whole or in part in the
event of terminations resulting from specified causes, and the Committee may in
other cases waive in whole or in part the forfeiture of Restricted
Stock.

     

    
      
        
        

      

      
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    (iii)           Certificates for
Stock.  Restricted Stock granted under the Plan may be
evidenced in such manner as the Committee shall determine.  If
certificates representing Restricted Stock are registered in the name of the
Participant, the Committee may require that such certificates bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Company retain physical possession
of the certificates, and that the Participant deliver a stock power to the
Company, endorsed in blank, relating to the Restricted Stock.

     

    (iv)           Dividends and
Splits.  As a condition to the grant of a Restricted Stock
Award, the Committee may require or permit a Participant to elect that any cash
dividends paid on a Share of Restricted Stock be automatically reinvested in
additional Shares of Restricted Stock or applied to the purchase of additional
Awards under the Plan.  Unless otherwise determined by the Committee,
Shares distributed in connection with a stock split or stock dividend, and other
property distributed as a dividend, shall be subject to restrictions and a risk
of forfeiture to the same extent as the Restricted Stock with respect to which
such Shares or other property have been distributed.

     

    (e)           Deferred Stock
Award.  The
Committee is authorized to grant Deferred Stock Awards to any Eligible Person on
the following terms and conditions:

     

    (i)           Award and
Restrictions.  Satisfaction of a Deferred Stock Award shall
occur upon expiration of the deferral period specified for such Deferred Stock
Award by the Committee (or, if permitted by the Committee, as elected by the
Participant).  In addition, a Deferred Stock Award shall be subject to
such restrictions (which may include a risk of forfeiture) as the Committee may
impose, if any, which restrictions may lapse at the expiration of the deferral
period or at earlier specified times (including based on achievement of
performance goals and/or future service requirements), separately or in
combination, in installments or otherwise, as the Committee may
determine.  A Deferred Stock Award may be satisfied by delivery of
Shares, cash equal to the Fair Market Value of the specified number of Shares
covered by the Deferred Stock, or a combination thereof, as determined by the
Committee at the date of grant or thereafter.  Prior to satisfaction
of a Deferred Stock Award, a Deferred Stock Award carries no voting or dividend
or other rights associated with Share ownership.

     

    (ii)           Forfeiture.  Except
as otherwise determined by the Committee, upon termination of a Participant's
Continuous Service during the applicable deferral period or portion thereof to
which forfeiture conditions apply (as provided in the Award Agreement evidencing
the Deferred Stock Award), the Participant's Deferred Stock Award that is at
that time subject to a risk of forfeiture that has not lapsed or otherwise been
satisfied shall be forfeited; provided that, subject to the limitations set
forth in Section 6(j)(ii) hereof, the Committee may provide, by rule or
regulation or in any Award Agreement, or may determine in any individual case,
that forfeiture conditions relating to a Deferred Stock Award shall be waived in
whole or in part in the event of terminations resulting from specified causes,
and the Committee may in other cases waive in whole or in part the forfeiture of
any Deferred Stock Award.

     

    (iii)           Dividend
Equivalents.  Unless otherwise determined by the Committee at
the date of grant, any Dividend Equivalents that are granted with respect to any
Deferred Stock Award shall be either (A) paid with respect to such Deferred
Stock Award at the dividend payment date in cash or in Shares of unrestricted
stock having a Fair Market Value equal to the amount of such dividends, or (B)
deferred with respect to such Deferred Stock Award and the amount or value
thereof automatically deemed reinvested in additional Deferred Stock, other
Awards or other investment vehicles, as the Committee shall determine or permit
the Participant to elect.  The applicable Award Agreement shall
specify whether any Dividend Equivalents shall be paid at the dividend payment
date, deferred or deferred at the election of the Participant.  If the
Participant may elect to defer the Dividend Equivalents, such election shall be
made within 30 days after the grant date of the Deferred Stock Award, but in no
event later than 12 months before the first date on which any portion of such
Deferred Stock Award vests.

     

    
      
        
        

      

      
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    (f)           Bonus Stock and
Awards in Lieu of Obligations.  The
Committee is authorized to grant Shares to any Eligible Persons as a bonus, or
to grant Shares or other Awards in lieu of obligations to pay cash or deliver
other property under the Plan or under other plans or compensatory arrangements,
provided that, in the case of Eligible Persons subject to Section 16 of the
Exchange Act, the amount of such grants remains within the discretion of the
Committee to the extent necessary to ensure that acquisitions of Shares or other
Awards are exempt from liability under Section 16(b) of the Exchange
Act.  Shares or Awards granted hereunder shall be subject to such
other terms as shall be determined by the Committee.

     

    (g)           Dividend
Equivalents.  The
Committee is authorized to grant Dividend Equivalents to any Eligible Person
entitling the Eligible Person to receive cash, Shares, other Awards, or other
property equal in value to the dividends paid with respect to a specified number
of Shares, or other periodic payments.  Dividend Equivalents may be
awarded on a free-standing basis or in connection with another
Award.  The Committee may provide that Dividend Equivalents shall be
paid or distributed when accrued or shall be deemed to have been reinvested in
additional Shares, Awards, or other investment vehicles, and subject to such
restrictions on transferability and risks of forfeiture, as the Committee may
specify.  Any such determination by the Committee shall be made at the
grant date of the applicable Award.

     

    (h)           Performance
Awards.  The
Committee is authorized to grant Performance Awards to any Eligible Person
payable in cash, Shares, or other Awards, on terms and conditions established by
the Committee, subject to the provisions of Section 8 if and to the extent that
the Committee shall, in its sole discretion, determine that an Award shall be
subject to those provisions.  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 twelve (12) months
nor longer than five (5) years.  Except as provided in Section 9 or as
may be provided in an Award Agreement, Performance Awards will be distributed
only after the end of the relevant Performance Period.  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 8(b), or in the case of an Award that the Committee determines
shall not be subject to Section 8 hereof, any other criteria that the Committee,
in its sole discretion, shall determine should be used for that
purpose.  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.

     

    
      
        
        

      

      
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    (i)           Other Stock-Based
Awards.  The
Committee is authorized, subject to limitations under applicable law, to grant
to any Eligible Person such other Awards that may be denominated or payable in,
valued in whole or in part by reference to, or otherwise based on, or related
to, Shares, as deemed by the Committee to be consistent with the purposes of the
Plan.  Other Stock-Based Awards may be granted 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.  The Committee
shall determine the terms and conditions of such Awards.  Shares
delivered pursuant to an Award in the nature of a purchase right granted under
this Section 6(i) shall be purchased for such consideration, (including without
limitation loans from the Company or a Related Entity provided that such loans
are not in violation of Section 13(k) of the Exchange Act, or any rule or
regulation adopted thereunder or any other applicable law) paid for at such
times, by such methods, and in such forms, including, without limitation, cash,
Shares, other Awards or other property, as the Committee shall
determine.

     

    7.           Certain
Provisions Applicable to Awards.

     

    (a)           Stand-Alone,
Additional, Tandem, and Substitute Awards.  Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
Related Entity, or any business entity to be acquired by the Company or a
Related Entity, or any other right of a Participant to receive payment from the
Company or any Related Entity.  Such additional, tandem, and
substitute or exchange Awards may be granted at any time.  If an Award
is granted in substitution or exchange for another Award or award, the Committee
shall require the surrender of such other Award or award in consideration for
the grant of the new Award.  In addition, Awards may be granted in
lieu of cash compensation, including in lieu of cash amounts payable under other
plans of the Company or any Related Entity, in which the value of Shares subject
to the Award is equivalent in value to the cash compensation (for example,
Deferred Stock or Restricted Stock), or in which the exercise price, grant price
or purchase price of the Award in the nature of a right that may be exercised is
equal to the Fair Market Value of the underlying Shares minus the value of the
cash compensation surrendered (for example, Options or Stock Appreciation Right
granted with an exercise price or grant price “discounted” by the amount of the
cash compensation surrendered), provided that any such determination to grant an
Award in lieu of cash compensation must be made in compliance with Section 409A
of the Code.

     

    (b)           Term of
Awards.  The
term of each Award shall be for such period as may be determined by the
Committee; provided that in no event shall the term of any Option or Stock
Appreciation Right exceed a period of ten years (or in the case of an Incentive
Stock Option such shorter term as may be required under Section 422 of the
Code).

     

    
      
        
        

      

      
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    (c)           Form and Timing
of Payment Under Awards; Deferrals.  Subject
to the terms of the Plan and any applicable Award Agreement, payments to be made
by the Company or a Related Entity upon the exercise of an Option or other Award
or settlement of an Award may be made in such forms as the Committee shall
determine, including, without limitation, cash, Shares, other Awards or other
property, and may be made in a single payment or transfer, in installments, or
on a deferred basis, provided that any determination to pay in installments or
on a deferred basis shall be made by the Committee at the date of
grant.  Any installment or deferral provided for in the preceding
sentence shall, however, be subject to the Company’s compliance with applicable
law and all applicable rules of the Listing Market, and in a manner intended to
be exempt from or otherwise satisfy the requirements of Section 409A of the
Code.  Subject to Section 7(e) hereof, the settlement of any Award may
be accelerated, and cash paid in lieu of Shares in connection with such
settlement, in the sole discretion of the Committee or upon occurrence of one or
more specified events (in addition to a Change in Control).  Any such
settlement shall be at a value determined by the Committee in its sole
discretion, which, without limitation, may in the case of an Option or Stock
Appreciation Right be limited to the amount if any by which the Fair Market
Value of a Share on the settlement date exceeds the exercise or grant
price.  Installment or deferred payments may be required by the
Committee (subject to Section 7(e) of the Plan, including the consent provisions
thereof in the case of any deferral of an outstanding Award not provided for in
the original Award Agreement) or permitted at the election of the Participant on
terms and conditions established by the Committee.  The Committee may,
without limitation, make provision for the payment or crediting of a reasonable
interest rate on installment or deferred payments or the grant or crediting of
Dividend Equivalents or other amounts in respect of installment or deferred
payments denominated in Shares.

     

    (d)           Exemptions from
Section 16(b) Liability.  It
is the intent of the Company that the grant of any Awards to or other
transaction by a Participant who is subject to Section 16 of the Exchange Act
shall be exempt from Section 16 pursuant to an applicable exemption (except for
transactions acknowledged in writing to be non-exempt by such
Participant).  Accordingly, if any provision of this Plan or any Award
Agreement does not comply with the requirements of Rule 16b-3 then applicable to
any such transaction, such provision shall be construed or deemed amended to the
extent necessary to conform to the applicable requirements of Rule 16b-3 so that
such Participant shall avoid liability under Section 16(b).

     

    (e)           Code Section
409A.

     

    (i)           The
Award Agreement for any Award that the Committee reasonably determines to
constitute a Section 409A Plan, and the provisions of the Plan applicable to
that Award, shall be construed in a manner consistent with the applicable
requirements of Section 409A, and the Committee, in its sole discretion and
without the consent of any Participant, may amend any Award Agreement (and the
provisions of the Plan applicable thereto) if and to the extent that the
Committee determines that such amendment is necessary or appropriate to comply
with the requirements of Section 409A of the Code.

     

    (ii)           If
any Award constitutes a “nonqualified deferred compensation plan” under Section
409A of the Code (a “Section 409A Plan”), then the Award shall be subject to the
following additional requirements, if and to the extent required to comply with
Section 409A of the Code:

     

    (A)           Payments
under the Section 409A Plan may not be made earlier than the first to occur of
(u) the Participant’s “separation from service”, (v) the date the Participant
becomes “disabled”, (w) the Participant’s death, (x) a “specified time (or
pursuant to a fixed schedule)” specified in the Award Agreement at the date of
the deferral of such compensation, (y) a “change in the ownership or effective
control of the corporation, or in the ownership of a substantial portion of the
assets” of the Company, or (z) the occurrence of an “unforeseeble
emergency”;

     

    
      
        
        

      

      
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    (B)           The
time or schedule for any payment of the deferred compensation may not be
accelerated, except to the extent provided in applicable Treasury Regulations or
other applicable guidance issued by the Internal Revenue Service;

     

    (C)           Any
elections with respect to the deferral of such compensation or the time and form
of distribution of such deferred compensation shall comply with the requirements
of Section 409A(a)(4) of the Code; and

     

    (D)           In
the case of any Participant who is “specified employee”, a distribution on
account of a “separation from service” may not be made before the date which is
six months after the date of the Participant’s “separation from service” (or, if
earlier, the date of the Participant’s death).

     

    For
purposes of the foregoing, the terms in quotations shall have the same meanings
as those terms have for purposes of Section 409A of the Code, and the
limitations set forth herein shall be applied in such manner (and only to the
extent) as shall be necessary to comply with any requirements of Section 409A of
the Code that are applicable to the Award.  The Company does not make
any representation to the Participant that any Awards awarded under this Plan
will be exempt from, or satisfy, the requirements of Section 409A, and the
Company shall have no liability or other obligation to indemnify or hold
harmless any Participant or Beneficiary for any tax, additional tax, interest or
penalties that any Participant or Beneficiary may incur in the event that any
provision of this Plan, any Award Agreement, or any amendment or modification
thereof, or any other action taken with respect thereto, is deemed to violate
any of the requirements of Section 409A.

     

    (iii)           Notwithstanding
the foregoing, the Company does not make any representation to any Participant
or Beneficiary that any Awards made pursuant to this Plan are exempt from, or
satisfy, the requirements of Section 409A, and the Company shall have no
liability or other obligation to indemnify or hold harmless the Participant or
any Beneficiary for any tax, additional tax, interest or penalties that the
Participant or any Beneficiary may incur in the event that any provision of this
Plan, or any Award Agreement, or any amendment or modification thereof, or any
other action taken with respect thereto, is deemed to violate any of the
requirements of Section 409A.

     

    8.           Code Section
162(m) Provisions.

     

    (a)           Covered
Employees.    Unless
otherwise specified by the Committee, the provisions of this Section 8 shall be
applicable to any Performance Award granted to an Eligible Person who is, or is
likely to be, as of the end of the tax year in which the Company would claim a
tax deduction in connection with such Award, a Covered Employee.

     

    
      
        
        

      

      
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    (b)           Performance
Criteria.  If
a Performance Award is subject to this Section 8, then the payment or
distribution thereof or the lapsing of restrictions thereon and the distribution
of cash, Shares or other property pursuant thereto, as applicable, shall be
contingent upon achievement of one or more objective performance
goals.  Performance goals shall be objective and shall otherwise meet
the requirements of Section 162(m) of the Code and regulations thereunder
including the requirement that the level or levels of performance targeted by
the Committee result in the achievement of performance goals being
“substantially uncertain.”  One or more of the following business
criteria for the Company, on a consolidated basis, and/or for Related Entities,
or for business or geographical units of the Company and/or a Related Entity
(except with respect to the total shareholder return and earnings per share
criteria), shall be used by the Committee in establishing performance goals for
such Awards: (1) earnings per share; (2) revenues or margins;
(3) cash flow; (4) operating margin; (5) return on net assets,
investment, capital, or equity; (6) economic value added; (7) direct
contribution; (8) net income; pretax earnings; earnings before interest and
taxes; earnings before interest, taxes, depreciation and amortization; earnings
after interest expense and before extraordinary or special items; operating
income or income from operations; income before interest income or expense,
unusual items and income taxes, local, state or federal and excluding budgeted
and actual bonuses which might be paid under any ongoing bonus plans of the
Company; (9) working capital; (10) management of fixed costs or
variable costs; (11) identification or consummation of investment
opportunities or completion of specified projects in accordance with corporate
business plans, including strategic mergers, acquisitions or divestitures;
(12) total shareholder return; (13) debt reduction; (14) market share;
(15) entry into new markets, either geographically or by business unit; (16)
customer retention and satisfaction; (17) strategic plan development and
implementation, including turnaround plans; and/or (18) the Fair Market Value of
a Share.  Any of the above goals may be determined on an absolute or
relative basis or as compared to the performance of a published or special index
deemed applicable by the Committee including, but not limited to, the Standard
& Poor’s 500 Stock Index or a group of companies that are comparable to the
Company.  In determining the achievement of the performance goals, the
Committee shall exclude the impact of any (i) restructurings, discontinued
operations, extraordinary items, and other unusual or non-recurring charges,
(ii) event either not directly related to the operations of the Company or not
within the reasonable control of the Company’s management, or (iii) change in
accounting standards required by generally accepted accounting
principles.

     

    (c)           Performance
Period; Timing For Establishing Performance Goals.  Achievement
of performance goals in respect of Performance Awards shall be measured over a
Performance Period no shorter than twelve (12) months and no longer than five
(5) years, as specified by the Committee.  Performance goals shall be
established not later than 90 days after the beginning of any Performance Period
applicable to such Performance Awards, or at such other date as may be required
or permitted for “performance-based compensation” under Section 162(m) of the
Code.

     

    (d)           Adjustments.  The
Committee may, in its discretion, reduce the amount of a settlement otherwise to
be made in connection with Awards subject to this Section 8, but may not
exercise discretion to increase any such amount payable to a Covered Employee in
respect of an Award subject to this Section 8.  The Committee shall
specify the circumstances in which such Awards shall be paid or forfeited in the
event of termination of Continuous Service by the Participant prior to the end
of a Performance Period or settlement of Awards.

     

    
      
        
        

      

      
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    (e)           Committee
Certification.  No
Participant shall receive any payment under the Plan that is subject to this
Section 8 unless the Committee has certified, by resolution or other
appropriate action in writing, that the performance criteria and any other
material terms previously established by the Committee or set forth in the Plan,
have been satisfied to the extent necessary to qualify as "performance based
compensation" under Section 162(m) of the Code.

     

    9.           Change in
Control.

     

    (a)           Effect of “Change
in Control.”  If
and only to the extent provided in any employment or other agreement between the
Participant and the Company or any Related Entity, or in any Award Agreement, or
to the extent otherwise determined by the Committee in its sole discretion and
without any requirement that each Participant be treated consistently, upon the
occurrence of a “Change in Control,” as defined in Section 9(b):

     

    (i)           Any
Option or Stock Appreciation Right that was not previously vested and
exercisable as of the time of the Change in Control, shall become immediately
vested and exercisable, subject to applicable restrictions set forth in Section
10(a) hereof.

     

    (ii)           Any
restrictions, deferral of settlement, and forfeiture conditions applicable to a
Restricted Stock Award, Deferred Stock Award or an Other Stock-Based Award
subject only to future service requirements granted under the Plan shall lapse
and such Awards shall be deemed fully vested as of the time of the Change in
Control, except to the extent of any waiver by the Participant and subject to
applicable restrictions set forth in Section 10(a) hereof.

     

    (iii)           With
respect to any outstanding Award subject to achievement of performance goals and
conditions under the Plan, the Committee may, in its discretion, deem such
performance goals and conditions as having been met as of the date of the Change
in Control.

     

    (b)           Definition of
“Change in Control”.  Unless
otherwise specified in any employment agreement between the Participant and the
Company or any Related Entity, or in an Award Agreement, a “Change in Control”
shall mean the occurrence of any of the following:

     

    (i)           The
acquisition by any Person of Beneficial Ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of more than fifty percent (50%) of
either (A) the value of then outstanding equity securities of the Company (the
“Outstanding Company 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) (the
foregoing Beneficial Ownership hereinafter being referred to as a "Controlling
Interest"); provided, however, that for purposes of this Section 9(b), the
following acquisitions shall not constitute or result in a Change in
Control:  (v) any acquisition directly from the Company; (w) any
acquisition by the Company; (x) any acquisition by any Person that as of the
Effective Date owns Beneficial Ownership of a Controlling Interest; (y) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Related Entity; or (z) any acquisition by any
entity pursuant to a transaction which complies with clauses (A), (B) and (C) of
subsection (iii) below; or

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    (ii)           During
any period of two (2) consecutive years (not including any period prior to the
Effective Date) individuals who constitute the Board on the Effective Date (the
“Incumbent Board”) cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the Effective Date 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

     

    (iii)           Consummation
of a reorganization, merger, statutory share exchange or consolidation or
similar transaction involving the Company or any of its Related Entities, a sale
or other disposition of all or substantially all of the assets of the Company,
or the acquisition of assets or equity of another entity by the Company or any
of its Related Entities (each 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 Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than fifty percent (50%) of the value of the then outstanding equity
securities and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of members of the board of
directors (or comparable governing body of an entity that does not have such a
board), as the case may be, of the entity resulting from such Business
Combination (including, without limitation, an entity 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 Stock and Outstanding Company Voting Securities, as
the case may be, (B) no Person (excluding any employee benefit plan (or related
trust) of the Company or such entity resulting from such Business Combination or
any Person that as of the Effective Date owns Beneficial Ownership of a
Controlling Interest) beneficially owns, directly or indirectly, fifty percent
(50%) or more of the value of the then outstanding equity securities of the
entity resulting from such Business Combination or the combined voting power of
the then outstanding voting securities of such entity 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 or other governing body of the
entity 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

     

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

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    10.           General
Provisions.

     

    (a)           Compliance With
Legal and Other Requirements.  The
Company may, to the extent deemed necessary or advisable by the Committee,
postpone the issuance or delivery of Shares or payment of other benefits under
any Award until completion of such registration or qualification of such Shares
or other required action under any federal or state law, rule or regulation,
listing or other required action with respect to the Listing Market, or
compliance with any other obligation of the Company, as the Committee, may
consider appropriate, and may require any Participant to make such
representations, furnish such information and comply with or be subject to such
other conditions as it may consider appropriate in connection with the issuance
or delivery of Shares or payment of other benefits in compliance with applicable
laws, rules, and regulations, listing requirements, or other
obligations.

     

    (b)           Limits on
Transferability; Beneficiaries.  No
Award or other right or interest granted under the Plan shall be pledged,
hypothecated or otherwise encumbered or subject to any lien, obligation or
liability of such Participant to any party, or assigned or transferred by such
Participant otherwise than by will or the laws of descent and distribution or to
a Beneficiary upon the death of a Participant, and such Awards or rights that
may be exercisable shall be exercised during the lifetime of the Participant
only by the Participant or his or her guardian or legal representative, except
that Awards and other rights (other than Incentive Stock Options and Stock
Appreciation Rights in tandem therewith) may be transferred to one or more
Beneficiaries or other transferees during the lifetime of the Participant, and
may be exercised by such transferees in accordance with the terms of such Award,
but only if and to the extent such transfers are permitted by the Committee
pursuant to the express terms of an Award Agreement (subject to any terms and
conditions which the Committee may impose thereon).  A Beneficiary,
transferee, or other person claiming any rights under the Plan from or through
any Participant shall be subject to all terms and conditions of the Plan and any
Award Agreement applicable to such Participant, except as otherwise determined
by the Committee, and to any additional terms and conditions deemed necessary or
appropriate by the Committee.

     

    (c)           Adjustments.

     

    (i)           Adjustments to
Awards.  In the event that any extraordinary dividend or other
distribution (whether in the form of cash, Shares, or other property),
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution or other similar corporate transaction or event affects the Shares
and/or such other securities of the Company or any other issuer such that a
substitution, exchange, or adjustment is determined by the Committee to be
appropriate, then the Committee shall, in such manner as it may deem equitable,
substitute, exchange or adjust any or all of (A) the number and kind of
Shares which may be delivered in connection with Awards granted thereafter,
(B) the number and kind of Shares by which annual per-person Award
limitations are measured under Section 4 hereof, (C) the number and kind of
Shares subject to or deliverable in respect of outstanding Awards, (D) the
exercise price, grant price or purchase price relating to any Award and/or make
provision for payment of cash or other property in respect of any outstanding
Award, and (E) any other aspect of any Award that the Committee determines to be
appropriate.

     

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    (ii)           Adjustments in
Case of Certain Transactions.  In the event of any merger,
consolidation or other reorganization in which the Company does not survive, or
in the event of any Change in Control, any outstanding Awards may be dealt with
in accordance with any of the following approaches, without the requirement of
obtaining any consent or agreement of a Participant as such, as determined by
the agreement effectuating the transaction or, if and to the extent not so
determined, as determined by the Committee: (a) the continuation of the
outstanding Awards by the Company, if the Company is a surviving entity, (b) the
assumption or substitution for, as those terms are defined in Section 9(a)(iv)
hereof, the outstanding Awards by the surviving entity or its parent or
subsidiary, (c) full exercisability or vesting and accelerated expiration of the
outstanding Awards, or (d) settlement of the value of the outstanding Awards in
cash or cash equivalents or other property followed by cancellation of such
Awards (which value, in the case of Options or Stock Appreciation Rights, shall
be measured by the amount, if any, by which the Fair Market Value of a Share
exceeds the exercise or grant price of the Option or Stock Appreciation Right as
of the effective date of the transaction).  The Committee shall give
written notice of any proposed transaction referred to in this Section 10(c)(ii)
at a reasonable period of time prior to the closing date for such transaction
(which notice may be given either before or after the approval of such
transaction), in order that Participants may have a reasonable period of time
prior to the closing date of such transaction within which to exercise any
Awards that are then exercisable (including any Awards that may become
exercisable upon the closing date of such transaction).  A Participant
may condition his exercise of any Awards upon the consummation of the
transaction.

     

    (iii)           Other
Adjustments.  The Committee (and the Board if and only to the
extent such authority is not required to be exercised by the Committee to comply
with Section 162(m) of the Code) is authorized to make adjustments in the terms
and conditions of, and the criteria included in, Awards (including Performance
Awards, or performance goals and conditions relating thereto) in recognition of
unusual or nonrecurring events (including, without limitation, acquisitions and
dispositions of businesses and assets) affecting the Company, any Related Entity
or any business unit, or the financial statements of the Company or any Related
Entity, or in response to changes in applicable laws, regulations, accounting
principles, tax rates and regulations or business conditions or in view of the
Committee's assessment of the business strategy of the Company, any Related
Entity or business unit thereof, performance of comparable organizations,
economic and business conditions, personal performance of a Participant, and any
other circumstances deemed relevant; provided that no such adjustment shall be
authorized or made if and to the extent that such authority or the making of
such adjustment would cause Options, Stock Appreciation Rights, Performance
Awards granted pursuant to Section 8(b) hereof to Participants designated by the
Committee as Covered Employees and intended to qualify as “performance-based
compensation” under Code Section 162(m) and the regulations thereunder to
otherwise fail to qualify as “performance-based compensation” under Code Section
162(m) and regulations thereunder.  Adjustments permitted hereby may
include, without limitation, increasing the exercise price of Options and Stock
Appreciation Rights, increasing performance goals, or other adjustments that may
be adverse to the Participant.

     

    (d)           Taxes.  The
Company and any Related Entity are authorized to withhold from any Award
granted, any payment relating to an Award under the Plan, including from a
distribution of Shares, or any payroll or other payment to a Participant,
amounts of withholding and other taxes due or potentially payable in connection
with any transaction involving an Award, and to take such other action as the
Committee may deem advisable to enable the Company or any Related Entity and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award.  This authority shall
include authority to withhold or receive Shares or other property and to make
cash payments in respect thereof in satisfaction of a Participant's tax
obligations, either on a mandatory or elective basis in the discretion of the
Committee.

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

     

    (e)           Changes to the
Plan and Awards.  The
Board may amend, alter, suspend, discontinue or terminate the Plan, or the
Committee's authority to grant Awards under the Plan, without the consent of
shareholders or Participants, except that any amendment or alteration to the
Plan shall be subject to the approval of the Company's shareholders not later
than the annual meeting next following such Board action if such shareholder
approval is required by any federal or state law or regulation (including,
without limitation, Rule 16b-3 or Code Section 162(m)) or the rules of the
Listing Market, and the Board may otherwise, in its discretion, determine to
submit other such changes to the Plan to shareholders for approval; provided
that, except as otherwise permitted by the Plan or Award Agreement, without the
consent of an affected Participant, no such Board action may materially and
adversely affect the rights of such Participant under the terms of any
previously granted and outstanding Award.  The Committee may waive any
conditions or rights under, or amend, alter, suspend, discontinue or terminate
any Award theretofore granted and any Award Agreement relating thereto, except
as otherwise provided in the Plan; provided that, except as otherwise permitted
by the Plan or Award Agreement, without the consent of an affected Participant,
no such Committee or the Board action may materially and adversely affect the
rights of such Participant under terms of such
Award.  [Notwithstanding anything to the contrary, the Committee shall
be authorized to amend any outstanding Option and/or Stock Appreciation Right to
reduce the exercise price or grant price without the prior approval of the
shareholders of the Company.  In addition, the Committee shall be
authorized to cancel outstanding Options and/or Stock Appreciation Rights
replaced with Awards having a lower exercise price without the prior approval of
the shareholders of the Company.]

     

    (f)           Limitation on
Rights Conferred Under Plan.  Neither
the Plan nor any action taken hereunder or under any Award shall be construed as
(i) giving any Eligible Person or Participant the right to continue as an
Eligible Person or Participant or in the employ or service of the Company or a
Related Entity; (ii) interfering in any way with the right of the Company
or a Related Entity to terminate any Eligible Person's or Participant's
Continuous Service at any time, (iii) giving an Eligible Person or
Participant any claim to be granted any Award under the Plan or to be treated
uniformly with other Participants and Employees, or (iv) conferring on a
Participant any of the rights of a shareholder of the Company including, without
limitation, any right to receive dividends or distributions, any right to vote
or act by written consent, any right to attend meetings of shareholders or any
right to receive any information concerning the Company’s business, financial
condition, results of operation or prospects, unless and until such time as the
Participant is duly issued Shares on the stock books of the Company in
accordance with the terms of an Award.  None of the Company, its
officers or its directors shall have any fiduciary obligation to the Participant
with respect to any Awards unless and until the Participant is duly issued
Shares pursuant to the Award on the stock books of the Company in accordance
with the terms of an Award.  Neither the Company nor any of the
Company’s officers, directors, representatives or agents is granting any rights
under the Plan to the Participant whatsoever, oral or written, express or
implied, other than those rights expressly set forth in this Plan or the Award
Agreement.

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

     

    (g)           Unfunded Status
of Awards; Creation of Trusts.  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 or obligation to deliver Shares pursuant to an Award, nothing
contained in the Plan or any Award shall give any such Participant any rights
that are greater than those of a general creditor of the Company; provided that
the Committee may authorize the creation of trusts and deposit therein cash,
Shares, other Awards or other property, or make other arrangements to meet the
Company's obligations under the Plan.  Such trusts or other
arrangements shall be consistent with the “unfunded” status of the Plan unless
the Committee otherwise determines with the consent of each affected
Participant.  The trustee of such trusts may be authorized to dispose
of trust assets and reinvest the proceeds in alternative investments, subject to
such terms and conditions as the Committee may specify and in accordance with
applicable law.

     

    (h)           Nonexclusivity of
the Plan.  Neither
the adoption of the Plan by the Board nor its submission to the shareholders of
the Company for approval shall be construed as creating any limitations on the
power of the Board or a committee thereof to adopt such other incentive
arrangements as it may deem desirable including incentive arrangements and
awards which do not qualify under Section 162(m) of the Code.

     

    (i)           Payments in the
Event of Forfeitures; Fractional Shares.  Unless
otherwise determined by the Committee, in the event of a forfeiture of an Award
with respect to which a Participant paid cash or other consideration, the
Participant shall be repaid the amount of such cash or other
consideration.  No fractional Shares shall be issued or delivered
pursuant to the Plan or any Award.  The Committee shall determine
whether cash, other Awards or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.

     

    (j)           Governing
Law.  The
validity, construction and effect of the Plan, any rules and regulations under
the Plan, and any Award Agreement shall be determined in accordance with the
laws of the State of Delaware without giving effect to principles of conflict of
laws, and applicable federal law.

     

    (k)           Non-U.S.
Laws.  The
Committee shall have the authority to adopt such modifications, procedures, and
subplans as may be necessary or desirable to comply with provisions of the laws
of foreign countries in which the Company or its Related Entities may operate to
assure the viability of the benefits from Awards granted to Participants
performing services in such countries and to meet the objectives of the
Plan.

     

    (l)           Plan Effective
Date and Shareholder Approval; Termination of Plan.  The
Plan shall become effective on the Effective Date, subject to subsequent
approval, within 12 months of its adoption by the Board, by shareholders of the
Company eligible to vote in the election of directors, by a vote sufficient to
meet the requirements of Code Sections 162(m) (if applicable) and 422, Rule
16b-3 under the Exchange Act (if applicable), applicable  requirements
under the rules of any stock exchange or automated quotation system on which the
Shares may be listed or quoted, and other laws, regulations, and obligations of
the Company applicable to the Plan.  Awards may be granted subject to
shareholder approval, but may not be exercised or otherwise settled in the event
the shareholder approval is not obtained.  The Plan shall terminate at
the earliest of (a) such time as no Shares remain available for issuance under
the Plan, (b) termination of this Plan by the Board, or (c) the tenth
anniversary of the Effective Date.  Awards outstanding upon expiration
of the Plan shall remain in effect until they have been exercised or terminated,
or have expired.

     

    
      
        
        

      

      
        23Execution Copy

    

    NEITHER THESE SECURITIES NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES
ACT”) AND APPLICABLE STATE
SECURITIES LAWS AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.  THESE SECURITIES
AND THE SECURITIES ISSUABLE UPON EXERCISE OF THESE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE
MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

     

    WARRANT
AGREEMENT

     

    Warrant
Agreement (the “Warrant”), dated as of May 21, 2009, between China Energy
Recovery, Inc., a Delaware company (the “Company”), and Hold And Opt Investments
Limited, a Bahamas company (the “Holder”).

     

    WITNESSETH:

     

    WHEREAS,
the Company has entered into a loan (“Loan”) with the Holder, and the Loan
provides for the issuance of this Warrant for the purchase of shares of common
stock of the Company, $.001 par value (“Common Stock”), as provided herein and
subject hereto; and

     

    WHEREAS,
the Holder is taking this Warrant in reliance on the representations of the
Company, set forth in the Loan agreement;

     

    WHEREAS,
this Warrant is being issued on a private placement basis, on the terms provided
herein, in conjunction with the Loan, and the Company is relying on the
representations of the Holder in the Loan agreement, and the Holder understands
the limitations and responsibilities of acquiring the restricted securities
comprising the Warrant and the underlying shares of Common Stock (“Warrant
Shares”) and the registration rights provided in a separate Registration Rights
Agreement (“Registration Rights Agreement”) between the Company and the Holder
of even date herewith.

     

    NOW,
THEREFORE, in consideration of the premises contained herein, including the Loan
by the Holder to the Company, the agreements set forth herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

     

    1.            Grant and
Period.

     

    1.1         Grant.  The
Holder is hereby granted the right to purchase from the Company, at any time
during the exercise period, up to an aggregate of 1,388,889 Warrant Shares of
the Company at an initial exercise price (subject to adjustment as provided in
Section 5 hereof) of $1.80 per Warrant Share (the “Exercise Price”), such
exercise to be subject to the terms and conditions of this Warrant.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    1.2         Period.  The
Warrant will be exercisable commencing on May 21, 2009, and expire at 5:00 PM on
May 21, 2014 (“Expiration Time”).  If the Expiration Time is not a
business day in the City of Shanghai, then the expiration date will be extended
to 5:00 PM on the next business day in the City of Shanghai.  Days on
which banks are generally closed for business and financial transactions in the
City of Shanghai, Saturdays and Sundays will be considered a non-business
day.

     

    2.           Exercise of
Warrant.

     

    2.1         Full
Exercise.  Except as provided in Section 2.3 below, the
Holder shall effect an exercise of the Warrant by surrendering to the Company
this Warrant, together with a Subscription in the form of Exhibit A attached
thereto, duly executed by such Holder, at any time prior to the Expiration Time,
at the Company’s principal office, accompanied by payment in cash or by
certified or official bank check payable to the order of the Company in the
amount of the aggregate purchase price (the “Aggregate Price”), subject to any
adjustments provided for in the Warrant. The Aggregate Price shall be the amount
that is the result of the Exercise Price multiplied by the number of Warrant
Shares that are the subject of the Warrant (as adjusted as hereinafter provided)
being purchased by the Holder.

     

    2.2         Partial
Exercise.  The Warrant may also be exercised from time to time
in part by surrendering the Warrant in the manner specified in Sections 2.1 or
2.3 hereof, except that the Purchase Price payable shall be the amount that is
the result of the number of Warrant Shares being purchased hereunder multiplied
by the Exercise Price, subject to any adjustments provided for in the Warrant.
Upon any such partial exercise, the Company, at its expense, will forthwith
issue to the Holder a new Warrant of like tenor for the aggregate number of
securities (as constituted as of the date hereof) for which the Warrant shall
not have been exercised, issued in the name of the Holder or as the Holder (upon
payment by such Holder of any applicable transfer taxes) may
direct.

     

    2.3         Conversion
Right.  The Holder may effect an exercise of the Warrants and
pay the Exercise Price through a conversion of the Warrant (“Conversion Right”);
provided, that
such conversion right shall exist only at such time that the Company has the
obligation to provide a resale registration statement for the underlying
securities of the Warrant, whether pursuant to the exercise of a demand right or
an exercised piggyback right, and the Company does not have a registration
statement effective and currently the available for the resale by the Holder of
the underlying securities of the Warrant as provided in the Registration Rights
Agreement. Subject to the foregoing limitation, the Holder may effect a
Conversion Right of the Warrant by surrendering to the Company this Warrant,
together with a Subscription in the form of Exhibit B attached hereto, duly
executed by such Holder, prior to the Expiration Time, at the Company’s
principal office, upon which the Company shall issue to the Holder the number of
Warrant Shares determined as follows:

     

    
      
        
          	 
      	
                  X

                	
                  =

                	
                  Y x
      (A-B)/A

                
	 
      	 
      	 
      	 
      
	
                  where

                	
                  X

                	
                  =

                	
                  the
      number of Warrant Shares to be issued to the Holder;

                
	 
      	 
      	 
      	 
      
	 
      	
                  Y

                	
                  =

                	
                  the
      number of Warrant Shares with respect to which this Warrant is being
      exercised;

                
	 
      	 
      	 
      	 
      
	 
      	
                  A

                	
                  =

                	
                  the
      Market Price of a share of Common Stock as of the Date of Exercise;
      and

                
	 
      	 
      	 
      	 
      
	 
      	
                  B

                	
                  =

                	
                  the
      Exercise Price.

                

        

      

    

    

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    2.4         Certain Defined
Terms.  “Market Price” of a share of Common Stock on any date
shall mean, (i) if the shares of Common Stock are traded on the NASDAQ Global
Market, NASDAQ Global Select Market or the NASDAQ Capital Market, the last bid
price reported on that date; (ii) if the shares of Common Stock are not quoted
on a NASDAQ market and are listed on any other national securities exchange, the
last sale price of the Common Stock reported by such exchange on that date;
(iii) if the shares of Common Stock are not quoted on any such market or listed
on any such exchange and the shares of Common Stock are traded in the
over-the-counter market, the last price reported on such day by the OTC Bulletin
Board; (iv) if the shares of Common Stock are not quoted on a any such market,
listed on any such exchange or quoted on the OTC Bulletin Board, then the last
price quoted on such day in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); or (v) if none of clauses
(i)-(iv) are applicable, then as determined, in good faith, by the Board of
Directors of the Company and the Holders. “Date of Exercise” means the date on
which the Holder shall have delivered to the Company (i) the Warrant, (ii) the
applicable Subscription form attached thereto, appropriately completed and duly
signed, and (iii) if applicable, payment of the Exercise Price.

     

    3.            Issuance of
Certificates.  Upon the exercise of the Warrant, the issuance
of certificates for Warrant Shares shall be made promptly (and, in any event
within five business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Section 4 and Section 5 hereof) be issued in the name of, or in such names as
may be directed by, the Holder thereof; provided, however, that the Company
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.

     

    4.           Restriction on
Transfer.  The Warrant and the Warrant Shares may be
transferred only pursuant to a registration statement filed under the Securities
Act of 1933, as amended (the “Securities Act”) and the applicable state
securities laws or an exemption from such registrations.  Subject to
such restrictions, the Company shall transfer the Warrant and the Warrant
Shares, from time to time, upon the books to be maintained by the Company for
that purpose, upon surrender thereof, for transfer properly endorsed or
accompanied by appropriate instructions for transfer and such other documents as
may be reasonably required by the Company, including, if required by the
Company, an opinion of its counsel to the effect that such transfer is exempt
from the registration requirements of the Securities Act, and to establish that
such transfer is being made in accordance with the terms hereof.  Upon
such surrender to the Company of this Warrant for its transfer, the Company
shall execute and deliver a new Warrant, representing the new Warrant or
Warrants in the name of the transferee or transferees and in the denomination or
denominations specified in such instructions, and shall issue to the transferor
a new Warrant evidencing the portion of the Warrant not so transferred, and this
Warrant shall promptly be cancelled.  A Warrant, if properly
transferred, may be exercised by a new holder without having a new Warrant
issued.

     

    5.           Adjustments to Exercise
Price and Number of Securities.

     

    5.1         Stock Dividends and
Splits.  If the Company, at any time while this Warrant is
outstanding: (i) pays a stock dividend or otherwise makes a distribution or
distributions to all its stockholders equally which are payable in shares of
Common Stock on shares of Common Stock or any Common Stock equivalents, (ii)
subdivides outstanding shares of Common Stock into a larger number of shares,
(iii) combines (including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of capital stock of
the Company, then the Exercise Rate shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding any
treasury shares of the Company) outstanding immediately before such event and of
which the denominator shall be the number of shares of Common Stock outstanding
immediately after such event.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    5.2         Extraordinary
Transactions.  If, (i) the Company effects any merger or
consolidation of the Company with or into another Person and the Company is not
the surviving entity, or (ii) the Company effects any reclassification of the
Common Stock or any compulsory share exchange pursuant to which the Common Stock
is effectively converted into or exchanged for other securities, (in either such
case, an “Extraordinary Transaction”), then the Warrant will become the right
thereafter to receive, upon exercise, the same amount and kind of securities as
the Holder would have been entitled to receive upon the occurrence of such
Extraordinary Transaction if it had been, immediately prior to such
Extraordinary Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of the Warrant (the “Alternate Consideration”) in
lieu of the Warrant Shares. The aggregate Exercise Price for each Warrant will
not be affected by any such Extraordinary Transaction, but the Company shall
apportion such aggregate Exercise Price to the Alternate Consideration in a
reasonable manner reflecting the relative value of any different components of
the Alternate Consideration. If holders of Common Stock are given any choice as
to the securities, to be received in an Extraordinary Transaction, then each
Holder, to the extent practicable, shall be given the same choice as to the
Alternate Consideration it receives upon any exercise of the Warrant following
such Extraordinary Transaction. In addition, at the request of the Holder, upon
surrender of the Warrant, any successor to the Company or surviving entity in
such Extraordinary Transaction shall issue to the Holder a new Warrant
consistent with the foregoing provisions and evidencing the Holder’s right to
purchase the Alternate Consideration for the aggregate Exercise Price upon
exercise thereof. Each Warrant (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Extraordinary
Transaction.

     

    5.3         Adjustment in Number of
Securities.  Upon each adjustment of the Exercise Price
pursuant to the provisions of Sections 5.1 and 5.2, the number of securities
issuable upon the exercise of the Warrant shall be adjusted to the nearest full
amount by multiplying a number equal to the Exercise Price in effect immediately
prior to such adjustment by the number of securities issuable upon exercise of
the Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.

     

    5.4         No Adjustment of Exercise
Price in Certain Cases.  No adjustment of the Exercise Price
shall be made if the amount of said adjustment shall be less than $.01 per
Warrant Share; provided, however, that in such case any adjustment that would
otherwise be required then to be made shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment which, together
with any adjustment so carried forward, shall amount to at least $.01 per
Warrant Share.

     

    5.5         Notice of
Adjustment.  In each case of an adjustment or readjustment of
the Exercise Price or the number and kind of any securities issuable upon
exercise of the Warrant, the Company at its expense will promptly calculate such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment, including a statement of the adjusted
Exercise Price and adjusted number of shares of Common Stock or type of
Alternate Consideration issuable upon exercise of the Warrant (as applicable),
describing the transactions giving rise to such adjustments and showing in
detail the facts upon which such adjustment is based. The Company will promptly
deliver to each Holder who makes a request in writing, a copy of each such
certificate.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    6.           Registration
Rights.  The shares of Common Stock issuable upon exercise of
this Warrant, whether by cash or conversion, are entitled to the registration
rights set forth in that separate Registration Rights Agreement.

     

    7.           Elimination of Fractional
Interest.  The Company shall not be required to issue
certificates representing fractions of securities upon the exercise of the
Warrant, nor shall it be required to issue script or pay cash in lieu of
fractional interests, it being the intent of the parties that all fractional
interests may be eliminated, at the Company’s option, by rounding any fraction
up to the nearest whole number of shares of Common Stock or other securities,
properties or rights issuable on exercise, or in lieu thereof paying cash equal
to such fractional interest.

     

    8.           Reservation, Validity and
Listing.  The Company covenants and agrees that during the
exercise period, the Company shall at all times reserve and keep available out
of its authorized shares of Common Stock, solely for the purpose of issuance
upon the exercise of the Warrant, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise under
this Warrant. The Company covenants and agrees that, upon exercise of the
Warrant, and payment of the Exercise Price therefore, all shares of Common Stock
and other securities issuable upon such exercise shall be duly authorized,
validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any shareholder. As long as the Warrant is outstanding, the Company
shall use its reasonable commercial efforts to cause all shares of Common Stock
issuable upon the exercise of the Warrant to be listed and quoted (subject to
official notice of issuance) on all securities exchanges and systems on which
the other outstanding shares of Common Stock are then listed and/or quoted,
including NASDAQ and the American Stock Exchange.

     

    9.           Notices to Warrant
Holder.  Nothing contained in this Warrant shall be construed
as conferring upon the Holder of the Warrant the right to vote or to consent or
to receive notice as a shareholder in respect of any meetings of shareholders
for the election of directors or any other matter, or as having any rights
whatsoever as a shareholder of the Company. If, however, at any time prior to
the Expiration Time of the Warrant and its exercise in full, any of the
following events shall occur:

     

    (a)           the
Company shall take a record of the holders of its shares of Common Stock for the
purpose of entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings, as indicated by the accounting
treatment of such dividend or distribution on the books of the Company;
or

     

    (b)           the
Company shall offer to all the holders of its Common Stock any additional shares
of capital stock of the Company or securities convertible into or exchangeable
for shares of capital stock of the Company, or any option, right or warrant to
subscribe therefore; or

     

    (c)           a
dissolution, liquidation or winding up of the Company (other than in connection
with a consolidation or merger) or a sale of all or substantially all of its
property, assets and business as an entirety shall be proposed;

     

    then, in
any one or more of said events, the Company to the extent practicable shall give
written notice of such event at least 15 days prior to the date fixed as a
record date of the date of closing the transfer books for the determination of
the shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notices shall
specify such record date or the date of closing the transfer books, as the case
may be.

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    10.           Notices.  All
notices, requests, consents and other communications hereunder shall be in
writing and shall be deemed to have been duly given when sent by (i) facsimile;
or (ii) delivered personally or by overnight courier or mailed by registered or
certified mail, return receipt requested:

     

    (a)           If
to the Company, to the address of below or as such may be changed from time to
time.

     

    
      	
              China
      Energy Recovery, Inc.

            
	
              7F,
      No. 267 Quyang Road

            
	
              Hongkou
      District

            
	
              Shanghai,
      China 200081

            
	
              Fax

            
	
              Tel:
      86-021-5556-0020

            
	 
      
	
              With
      a copy to:

            
	 
      
	
              Golenbock
      Eiseman Assor Bell & Peskoe LLP

            
	
              437
      Madison Avenue

            
	
              New
      York, NY  10022

            
	
              Attn:
      Andrew D. Hudders, Esq.

            
	
              Fax:
      (212) 754-0330

            
	
              Tel:
      (212) 907-7300

            

    

     

    
      	
               
      

            	
              (b)

            	
              If
      to the Holder, to the address set forth below or as shown on the books of
      the Company as such may be changed from time to
  time.

            

    

     

    
      	
              Hold
      And Opt Investments Limited

            
	
              Deltec
      House, Lyford Cay

            
	
              P.O.
      Box N-3229

            
	
              Nassau,
      Bahamas

            
	
              Fax:
      1242-362-4623

            
	
              Tel:
      1242-302-4100

            
	
              Email:
      tis@deltecbank.com

            

    

    

    
      
        
          	
                  With
      a copy to: Jean Chalopin

                
	
                  Beijing
      Media Plus

                
	
                  11F,
      Tower A, Building No. 1 GT International Center

                
	
                  Jia
      3 Yongandongli, Jianguomenwai Avenue

                
	
                  Chaoyang
      District, Beijing 100022 China

                
	 
      
	
                  Email:  jc@movieplus.com.cn

                

        

      

    

     

    11.           Entire Agreement:
Modification.  This Warrant contains the entire understanding
between the parties hereto with respect to the subject matter hereof, and the
terms and provisions of this Warrant may only be modified, waived or amended in
writing. Any modification, waiver or amendment executed by the Company and the
Holder (or the Holders holding a majority of the Warrant Shares or the other
securities, property or rights issuable upon exercise of the Warrants, as the
case may be) shall be binding on the Holder (or all Holders, as the case may
be). Notice of any modification, waiver or amendment shall be promptly provided
to any Holder not consenting to such modification, waiver or
amendment.

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    12.           Assignment.  The
Holder may assign to one or more assignees (each an “Assignee”) all, or any
part, of the Warrant, provide, the Company may continue to deal solely and
directly with the Holder in connection with the interest assigned to the
Assignee until (i) written notice of such assignment, has been given to the
Company by the Holder and the Assignee, and (ii) the Holder and its Assignee
have delivered to the Company a document reflecting the assignment and
acceptance, as reasonably acceptable to the Company.

     

    13.           Successors.  All
the covenants and provisions of the Warrant shall be binding upon and inure to
the benefit of the Company, the Holders and their respective permitted
successors and assigns hereunder.

     

    14.           Governing Law;
Submission to
Jurisdiction.  This Warrant shall be governed by and construed
in accordance with the internal laws of the State of Delaware without regard to
the conflicts of laws principles thereof. The parties hereto hereby irrevocably
agree that any suit or proceeding arising directly and/or indirectly pursuant to
or under this Warrant, shall be brought solely in a federal or state court
located in the State of Delaware. By its execution hereof, the parties hereby
covenant and irrevocably submit to the in personam jurisdiction of
the federal and state courts located in the City of Wilmington, State of
Delaware and agree that any process in any such action may be served upon any of
them personally, or by certified mail or registered mail upon them or their
agent, return receipt requested, with the same full force and effect as if
personally served upon them in the State of Delaware. The parties hereto waive
any claim that any such jurisdiction is not a convenient forum for any such suit
or proceeding and any defense or lack of in personam jurisdiction with
respect thereto. In the event of any such action or proceeding, the party
prevailing therein shall be entitled to payment from the other party hereto of
its reasonable counsel fees and disbursements in an amount judicially
determined.

     

    15.           Severability.  If
any provision of the Warrant shall be held to be invalid or unenforceable, such
invalidity or unenforceability shall not affect any other provision of the
Warrant.

     

    16.           Captions.  The
caption headings of the sections of the Warrant are for convenience of reference
only and are not intended, nor should they be construed as, a part of the
Warrant and shall be given no substantive effect.

     

    17.           Benefits of This
Warrant.  Nothing in the Warrant shall be construed to give to
any person or corporation other than the Company and any registered Holder(s) of
the Warrant(s) any legal or equitable right, remedy or claim under the Warrant;
and the Warrant shall be for the sole and exclusive benefit of the Company and
any Holder(s) of the Warrant.

     

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

     

    IN
WITNESS HEREOF, the parties hereto have caused this Warrant to be duly executed,
as of the day and year first above written.

     

    
      
        
          
            
              
                
                  	 
      	
                          China
      Energy Recovery, Inc.

                        
	 
      	 
      
	 
      	 
      
	 
      	
                          By:

                        	 
      
	 
      	
                                      Name:
      Qinghuan Wu

                        
	 
      	
                                      Title:
      Chief Executive
Officer

                        

                

              

            

          

        

      

    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    
      
        
          
            	
                  	
                    Holder:
      Hold And Opt Investments Limited

                  
	 	 	 
	 
      	
                    By:

                  	 
      
	 
      	
                    Name:

                  	
                    Timothy
      Fraser-Smith

                  
	 
      	
                    Title:

                  	
                    Authorized
      Signatory

                  

          

        

      

    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
A

     

    FORM
OF SUBSCRIPTION (CASH EXERCISE)

     

    (To be
signed only upon exercise of Warrant)

    

    
      	
              TO:

            	
              China
      Energy Recovery, Inc.

            
	 
      	
              7F.
      No. 267 Qu Yang Road

            
	 
      	
              Hongkou
      District

            
	 
      	
              Shanghai,
      China 200081

            

    

     

    The
undersigned holder of Warrant dated ________________ (the “Warrant”), of China
Energy Recovery, Inc. (the “Company”), which is being delivered herewith, hereby
irrevocably elects to purchase ______________ Warrant Shares (as defined in the
Warrant), and herewith makes payment of $ _________________ therefore, all
in accordance with the Warrant. Certificates for the Warrant Shares shall be
issued in the name of ________________ and delivered to the following
address:

     

    
      
        	
              	
                 
      

              
	 
      	 
      
	 
      	 
      

      

    

    

    
      
        
          
            
              
                	
                        By:

                      	 
      
	

                        Name:

                      	
                         

                      	 
      
	

                        Social
      Security Number or Tax Identification Number:

                      	 
      
	
                        Date:

                      	 
      
	 
      	 
      

              

            

          

        

      

    

    (Signature
must conform in all respects to name of Holder as specified in the
Warrant)

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
B

     

    FORM
OF SUBSCRIPTION (CASHLESS EXERCISE)

     

    
      	
              TO:

            	
              China
      Energy Recovery, Inc.

            	 
      
	 
      	
              7F.
      No. 267 Qu Yang Road

            	 
      
	 
      	
              Hongkou
      District

            	 
      
	 
      	
              Shanghai,
      China 200081

            	 
      

    

    

     

    The
undersigned holder of Warrant dated _________________ (the “Warrant”), of China
Energy Recovery, Inc. (the “Company”), which Warrant is being delivered
herewith, hereby irrevocably elects to exercise (on a conversion right basis, in
accordance with the formula set forth in Section 2.3 of the Warrant with respect
to __________________ Warrant Shares (as defined in the Warrant), all in
accordance with the Warrant. Certificates for the Warrant Shares shall be issued
in the name of _____________________ and delivered to the following
address:

     

    
      
        	
              	
                 
      

              
	 
      	 
      
	 
      	 
      

      

    

     

    
      
        
          
            	
                    By:

                  	 
      
	

                    Name:

                  	
                     

                  	 
      
	
                    Social
      Security Number or Tax Identification Number:

                  	 
      
	
                    Date:

                  	 
      
	 
      	 
      

          

        

      

    

    (Signature
must conform in all respects to name of Holder as specified on the face of the
Warrant)

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    FORM OF
ASSIGNMENT

     

    (To be
used by the registered holder if such Holder desires to transfer the
Warrant)

     

    FOR VALUE
RECEIVED ______________________________________________ hereby sells, assigns
and transfers unto:

     

    Print
Name of Transferee:
____________________________________________________

     

    Address:
__________________________________________________________________

     

    City
State Zip
Code:__________________________________________________________

     

    Social
Security or Federal Tax ID Number:
________________________________________

     

    this
Warrant, originally dated __________ 2009, and issued by China Energy Recovery,
Inc. (“Company”), together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ___________________________ as its
Attorney in Fact, to transfer the Warrant on the books of the Company, with full
power of substitution.

     

    
      
        
          	
                  Dated:                                                      

                	
                  Signature:

                
	 
      	 
      
	 	 
	 
      	
                  (Signature
      must conform in all respects to name of Holder as specified on the face of
      the Warrant)

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