Document:

Exhibit 10.1

 

WAIVER AND AMENDMENT NO. 1

TO SECOND AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT

 

 

This Waiver
and Amendment No. 1 to Second Amended and Restated Credit and Security Agreement (this “Amendment”), dated
as of March 8, 2012, is made by and among STONERIDGE, INC., an Ohio corporation (the “Parent”), STONERIDGE
ELECTRONICS, INC., a Texas corporation (“Electronics”), STONERIDGE CONTROL DEVICES, INC., a Massachusetts
corporation (“Controls”, and together with Parent and Electronics, the “Borrowers”), various
financial institutions which are a party to this Agreement (the “Lenders”), PNC Bank,
National Association, a national banking association (“PNC Bank”),
as Lead Arranger and Issuer (as hereinafter defined), and as administrative agent and collateral agent (the “Agent”)

 

WITNESSETH:

 

WHEREAS,
the Borrowers (as hereinafter defined) have been extended certain financial accommodations pursuant to that certain Second Amended
and Restated Credit and Security Agreement, dated as of December 1, 2011 (as further amended, supplemented, amended and restated
or otherwise modified from time to time, the “Credit Agreement”), among the Borrowers, various financial institutions
(the “Lenders”) and PNC Bank, as Lead Arranger, Issuer, and Agent;

 

WHEREAS,
the Borrowers consummated the PST Acquisition as of January 5, 2012;

 

WHEREAS,
the Borrowers have failed to deliver to the Agent within the time periods set forth for delivery in the Credit Agreement certain
documents in connection with the PST Acquisition in compliance with Section 7.1(g)(ii) (A), (B), (C) and (D), Section 9.16
and Section 9.17 of the Credit Agreement, which failures constitute Events of Default under Section 10.5 of the Credit
Agreement (collectively, the “PST Defaults”); 

 

WHEREAS,
the Borrowers have failed to deliver, within 30 days of the Closing Date, evidence to the Agent that the Scottish Borrower has
filed a form DTTP2 with the proper Governmental Body in the United Kingdom in accordance with Section 3.13(c) of the Credit
Agreement, which failure constitutes an Event of Default under Section 10.5 of the Credit Agreement (the “Filing
Default”, and collectively with the “PST Defaults”, the “Existing Defaults”);

 

WHEREAS,
the Borrowers have requested that the Lenders and the Agent waive the Existing Defaults;

 

WHEREAS,
the parties hereto desire to amend certain provisions of the Credit Agreement as outlined herein;

 

NOW THEREFORE,
in consideration of the mutual promises and agreements contained herein and other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, each of the parties hereto hereby agrees as follows:

 

    	 

    	 	

    
 

 

Section 1.DEFINED TERMS.

 

Each defined term
used herein and not otherwise defined herein shall have the meaning ascribed to such term in the Credit Agreement, as amended by
this Amendment.

 

Section 2AMENDMENT TO THE
CREDIT AGREEMENT

 

The Credit Agreement is
hereby amended as follows:

 

2.1 Amendment
to Section 3.13(c) -- Taxes; Withholding; Tax Indemnification. Section 3.13(c) of the Credit Agreement shall be amended
by deleting the penultimate paragraph thereof in its entirety.

 

2.2Amendment
to Section 7.1(g)(ii) -- Merger, Consolidation, Acquisition and Sale of Assets. Section 7.1(g)(ii) of the Credit Agreement
shall be amended by deleting subsections (A), (B), (C) and (D) thereof in their entirety and replacing them with the following
subsections (A), (B), (C) and (D) to read as follows:

 

(A)[Reserved.]

 

(B)by
March 2, 2012, a pro forma consolidated balance sheet of the Parent and its consolidated Subsidiaries (the “PST Acquisition
Pro Forma”), based on recent financial data from the fiscal quarter ending September 30, 2011, which shall be accurate
and complete in all material respects and shall fairly present the assets, liabilities and financial condition of the Parent and
its consolidated Subsidiaries in accordance with GAAP consistently applied, but taking into account the PST Acquisition and the
funding of all Advances in connection therewith, and (y) the PST Acquisition Pro Forma, together with the Pro Forma Borrowing Base
Certificate dated as of November 30, 2011, shall reflect that Undrawn Availability as of any day after the PST Acquisition
Date would be equal to or greater than Thirty Million Dollars ($30,000,000) on a pro forma basis (giving effect to the PST Acquisition
and all Advances made and Letters of Credit issued in connection therewith as if made or issued on the PST Acquisition Date), and
(z) on a pro forma basis (giving effect to the PST Acquisition and all Advances made and Letters of Credit issued in connection
therewith as if made on or before December 31, 2010), the Loan Parties would be in compliance with the financial covenant
regarding Fixed Charge Coverage Ratio set forth in Section 6.4, as if such financial covenant would be applicable notwithstanding
the fact that Undrawn Availability may be in excess of Twenty Million Dollars ($20,000,000), for a period of four trailing fiscal
quarters ending with each of the following fiscal quarters: the fiscal quarter ending December 31, 2010, the fiscal quarter
ending December 31, 2011, and the fiscal quarter ending December 31, 2012;

 

(C)by
March 2, 2012, updated versions of the most recently delivered projections under Section 9.11 covering a period of four
fiscal quarters, commencing with the fiscal quarter in which the PST Acquisition Date will occur and otherwise prepared in accordance
with the projections required to be delivered under Section 9.11 (the “PST Acquisition Projections”) and based
upon the financial statements (I) of the Parent and its consolidated Subsidiaries for Parent’s most recently completed fiscal
year and each fiscal quarter during the current fiscal year for which financial statements have been provided (or are required
to have been provided) pursuant to Sections 9.7 and 9.8, respectively, in relation to the date of such required delivery of
the PST Acquisition Projections, taking into account the PST Acquisition and (II) of PST for a period similar to the period described
in clause (I) above, with such projections being based on underlying assumptions and estimates which Parent reasonably believes
in good faith based on present circumstances of the most likely set of conditions and course of action for such projected period;
and

 

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(D)by
March 6, 2012, a certificate of the chief financial officer of the Borrowing Agent to the effect that: (x) the Loan Parties
were solvent upon the PST Acquisition Date, (y) the PST Acquisition Pro Forma fairly presents the financial condition of the Parent
and its consolidated Subsidiaries as of the PST Acquisition Date thereof after giving effect to the PST Acquisition and the projected
repayment of a portion of the Obligations as of the PST Acquisition Date, and (z) the PST Acquisition Projections are based on
underlying assumptions and estimates which Parent reasonable believes in good faith based on present circumstances of the most
likely set of conditions and course of action for such projected period.

 

2.3Amendment
to Section 8.2 -- Conditions to Loans to Foreign Borrowers. Section 8.2 of the Credit Agreement shall be amended
by (i) deleting the last word (“and”) from subsection (o) thereof and (ii) by deleting subsection (p) thereof
in its entirety and replacing it with the following subsections (p) and (q) to read as follows:

 

		(p)	Form DTTP2. With respect to Revolving Advances to the Scottish Borrower only, the Agent
shall have received evidence, in form and substance reasonably satisfactory to the Agent, that the Scottish Borrower has completed
and filed a form DTTP2 with the proper Governmental Body in the United Kingdom; and

 

		(q)	Other. All corporate and other proceedings, and all documents, instruments and other legal
matters in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the Agent
and its counsel.

 

2.4Amendment
to Schedules to the Credit Agreement. Each of Schedule 4.14(j) (Securities Accounts), 5.2 (Incorporation/Organization/Formation),
5.5 (FEINS/Tax Returns), and 7.4 (Permitted Investments) to the Credit Agreement shall be amended by deleting each such existing
schedule in its entirety and replacing it with the respective corresponding schedule attached as Annex I to this Amendment.

 

Section 3WAIVER OF EXISTING DEFAULTS.

 

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Upon satisfaction
of the conditions set forth in Section 5 hereof, the [Required] Lenders hereby waive the Existing Defaults and agree not to
enforce their rights and remedies under the Credit Agreement with respect to the Existing Defaults. In all other respects, each
of the Borrowers shall be and remain in full compliance with the Credit Agreement as amended by the provisions of this Amendment
and the foregoing waiver shall not extend to prejudice any rights of the Agent or the Lenders in respect of any other breach, if
any, by any Borrower of any other provisions of the Credit Agreement. The execution of this Amendment by each of the Borrowers
shall serve as an acknowledgment (i) that the foregoing waiver shall not affect the continued legality, validity and binding effect
of the Credit Agreement in its entirety and (ii) that the Credit Agreement continues to be fully enforceable in each case, except
as otherwise waived herein or as amended by the provisions of this Amendment.

 

Section 4REPRESENTATIONS AND WARRANTIES.

 

Each Borrower hereby
represents and warrants to the Lenders, the Agent and the Issuer as follows:

 

4.1The
Amendment. This Amendment has been duly and validly executed by an authorized executive officer of such Borrower and constitutes
the legal, valid and binding obligation of such Borrower enforceable against such Borrower in accordance with its terms. The Credit
Agreement, as amended by this Amendment, remains in full force and effect and remains the valid and binding obligation of such
Borrower enforceable against such Borrower in accordance with its terms, except as such enforceability may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor’s rights generally
or by equitable principles including principles of commercial reasonableness, good faith and fair dealing (whether enforceability
is sought by proceedings in equity or at law).

 

4.2No Default
or Event of Default. Except for the Existing Defaults, no Default or Event of Default exists under the Credit Agreement as
of the date hereof and no Default or Event of Default will occur as a result of the effectiveness of this Amendment.

 

4.3Restatement
of Representations and Warranties. The representations and warranties of such Borrower contained in the Credit Agreement, as
amended by this Amendment, and the Other Loan Documents are true and correct on and as of the Amendment Effective Date (as defined
below) of this Amendment as though made on the Amendment Effective Date, unless and to the extent that any such representation
and warranty is stated to relate solely to an earlier date, in which case such representation and warranty shall be true and correct
as of such earlier date.

 

Section 5CONDITIONS TO EFFECTIVENESS.

 

The date and
time of the effectiveness of this Amendment (the “Amendment Effective Date”) is subject to the satisfaction
of the following conditions precedent:

 

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5.1Execution.
The Agent shall have received counterparts to this Amendment duly executed and delivered by an authorized officer of each other
party hereto;

 

5.2Certified
Copies of the PST Charter Documents. The Agent shall have received copies of the articles of association of PST certified by
the applicable Brazilian Governmental Body, and a copy of all other charter documents of PST, certified as being true, correct
and complete by an officer of the Parent;

 

5.3Certified
Copies of the PST Acquisition Documents. The Agent shall have received copies of the final executed and delivered PST Acquisition
Documents, each in form and substance reasonably satisfactory to the Agent, and certified as being true, correct and complete by
an officer of the Parent;

 

5.4Payment
of Costs and Expenses. The Borrowers shall have paid all outstanding and reasonable costs, expenses and the disbursements of
the Agent and its advisors, service providers and legal counsels incurred in connection with the documentation of this Amendment,
to the extent invoiced, as well as any other fees payable on or before the Amendment Effective Date pursuant to any fee letter
or agreement, if any, with the Agent; and

 

5.5Other.
All corporate and other proceedings, and all documents, instruments and other legal matters in connection with the transactions
contemplated by this Amendment shall be reasonably satisfactory in form and substance to the Agent and its counsel.

 

Section 6 COVENANTS.

 

The Borrowers
shall deliver to the Agent as soon as possible, and in any event within the time periods (unless extended by the Agent in its sole
discretion) specified below, the following, each in form and substance satisfactory to the Agent:

 

(a) No later than
April 30, 2012, evidence that the Borrowers have complied with the requirements in Section 6.8 of the Credit Agreement within
the time period set forth therein;

 

(b) No later than
April 30, 2012, to the extent required under applicable law, either (i) an executed amendment to the Amended and Restated Pledge
Agreement, dated as of December 15, 2011, among Alphabet Brasil, the Agent, and PST, such amendment to be in substantially the
same form as the amendment to the pledge agreement used to secure the 2010 Note Collateral Agent for the benefit of the 2010 Noteholders
or (ii) an executed pledge agreement among Alphabet Brasil, the Agent and PST, in substantially the same form as the pledge agreement
used to secure the 2010 Note Collateral Agent for the benefit of the 2010 Noteholders;

 

(c)Contemporaneously
with the execution and delivery of the documentation set forth in clause (b) above, a favorable opinion of counsel to Alphabet;
and

 

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(d) All corporate
and other proceedings, and all documents, instruments and other legal matters in connection with the transactions contemplated
by this Section 6 shall be satisfactory in form and substance to the Agent and its counsel.

 

The failure of the Borrowers to
satisfy the requirements in this Section 6 on or before the time period applicable thereto as set forth herein (or such later date
as shall be consented to by the Agent in its sole discretion) shall constitute an immediate “Event of Default” under
the Credit Agreement, without the need for demand or notice of any kind.

 

Section 7 MISCELLANEOUS.

 

7.1Governing
Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Ohio with out giving effect
to the conflict of laws rules thereof.

 

7.2Severability.
Any provision of this Amendment which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Amendment.

 

7.3Counterparts.
This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be deemed to be an original, and all of which taken together shall constitute but one
and the same instrument.

 

7.4Headings.
Section headings used in this Amendment are for the convenience of reference only and are not a part of this Agreement for any
other purpose.

 

7.5Negotiations.
Each Borrower acknowledges and agrees that all of the provisions contained herein were negotiated and agreed to in good faith after
discussion with the Agent, the Issuer and the Lenders.

 

7.6Nonwaiver.
The execution, delivery, performance and effectiveness of this Amendment shall not, except as set forth in Section 3 of this
Amendment with respect to the Existing Defaults, operate as, or be deemed or construed to be, a waiver: (i) of any right, power
or remedy of the Lenders, the Issuer or the Agent under the Credit Agreement or the Other Loan Documents, or (ii) of any term,
provision, representation, warranty or covenant contained in the Credit Agreement or any Other Loan Document. Further, other than
as set forth in Section 3 of this Amendment with respect to the Existing Defaults, none of the provisions of this Amendment
shall constitute, be deemed to be or construed as, a waiver of any Default or Event of Default under the Credit Agreement as amended
by this Amendment.

 

7.7Reaffirmation.
Each Borrower hereby (i) ratifies and reaffirms all of its payment and performance obligations, contingent or otherwise, under
the Credit Agreement and each of the Other Loan Documents to which it is a party and (ii) ratifies and reaffirms its grant of security
interests and Liens under such documents and confirms and agrees that such security interests and Liens hereafter secure all of
the Obligations.

 

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7.8 Release
of Claims. In consideration of the Lenders’, the Issuer’s and the Agent’s agreements contained in this Amendment,
each Borrower hereby irrevocably releases and forever discharge the Lenders, the Issuer and the Agent and their Affiliates, subsidiaries,
successors, assigns, directors, officers, employees, agents, consultants and attorneys (each, a “Released Person”)
of and from any and all claims, suits, actions, investigations, proceedings or demands, whether based in contract, tort, implied
or express warranty, strict liability, criminal or civil statute or common law of any kind or character, known or unknown, which
such Borrower ever had or now has against Agent, any Lender or any other Released Person which relates, directly or indirectly,
to any acts or omissions of Agent, any Lender or any other Released Person relating to the Credit Agreement or any Other Loan Document
on or prior to the date hereof.

 

7.9Reference
to and Effect on the Credit Agreement. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to
“this Agreement,” “hereunder,” “hereof,” “herein,” or words of like import shall
mean and be a reference to the Credit Agreement as amended by this Amendment and each reference to the Credit Agreement in any
other document, instrument or agreement executed and/or delivered in connection with the Credit Agreement shall mean and be a reference
to the Credit Agreement, as amended by this Amendment.

 

[SIGNATURES FOLLOW]

 

 

 

 

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Each of the
parties has signed this Amendment as of the day and year first above written.

 

 

	 	BORROWERS:
	 	 	 
	 	STONERIDGE, INC.
	 	 	 
	 	By:	/s/ George E. Strickler
	 	Name:	George E. Strickler
	 	Title: 	Executive Vice President, Chief Financial
	 	           	Officer and Treasurer
	 	 	 
	 	 	 
	 	STONERIDGE CONTROL DEVICES, INC.
	 	 	 
	 	By:	/s/ George E. Strickler
	 	Name:	George E. Strickler
	 	Title:  	Vice President and Treasurer
	 	 	 
	 	 	 
	 	STONERIDGE ELECTRONICS, INC.
	 	 	 
	 	By:	/s/ George E. Strickler
	 	Name:	George E. Strickler
	 	Title:   	Vice President and Treasurer
	 	 	 
	 	 	 
	 	 	 
	 	 	 

 

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	 	AGENT:
	 	 	 
	 	PNC BANK, NATIONAL ASSOCIATION, as Agent
	 	 	 
	 	 	 
	 	By:	/s/ Joseph G. Moran
	 	Name:	Joseph G. Moran
	 	Title:	Senior Vice President
	 	 	 
	 	 	 
	 	ISSUERS:
	 	 	 
	 	PNC BANK, NATIONAL ASSOCIATION, as Issuer
	 	 	 
	 	 	 
	 	By:	/s/ Joseph G. Moran
	 	Name:	Joseph G. Moran
	 	Title:	Senior Vice President
	 	 	 
	 	 	 
	 	JPMORGAN CHASE BANK, N.A., as an Issuer
	 	 	 
	 	 	 
	 	By:	/s/ Katherine C. Cliffel
	 	Name:	Katherine C. Cliffel
	 	Title:	Vice President and Authorized Signor
	 	 	 

 

 

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	 	LENDERS:
	 	 	 
	 	PNC BANK, NATIONAL ASSOCIATION, as a Lender
	 	 	 
	 	 	 
	 	 	 
	 	By:	/s/ Joseph G. Moran
	 	Name:	Joseph G. Moran
	 	Title: 	Senior Vice President
	 	 	 
	 	 	 
	 	COMERICA BANK., as a Lender
	 	 	 
	 	 	 
	 	By:	/s/ Brandon Welling
	 	Name:	Brandon Welling
	 	Title: 	Vice President
	 	 	 
	 	 	 
	 	J PMORGAN CHASE BANK, N.A., as a Lender
	 	 	 
	 	 	 
	 	By:	/s/ Katherine C. Cliffel
	 	Name:	Katherine C. Cliffel
	 	Title: 	Vice President and Authorized Signor
	 	 	 
	 	 	 
	 	FIFTH THIRD BANK, as a Lender
	 	 	 
	 	 	 
	 	By:	/s/ Marty McGinty
	 	Name: 	Marty McGinty
	 	Title:	Vice President

 

 

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ANNEX I

 

[Updated Schedules to the Credit
Agreement]Exhibit 10.22

 

CHINA ENERGY CORPORATION

 

INDEPENDENT DIRECTOR AGREEMENT

 

 

This INDEPENDENT DIRECTOR AGREEMENT (the “Agreement”)
is made and entered into as of this 5th day of September 2011, effective as of the 1st day of June 2011 (the
“Effective Date”), by and between China Energy Corporation., a Nevada corporation whose shares are publicly
traded (the “Company”), and Steven Markscheid, a citizen of the United States, with the following address: 419 Washington
Avenue Wilmette, Illinois 60091 U.S.A. (the “Independent Director”).

 

WHEREAS, the Company desires to re-engage
the Independent Director, and the Independent Director desires to serve, as a non-employee director of the Company, subject to
the terms and conditions contained in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual
promises and covenants contained herein, the receipt of which is hereby acknowledged, the Company and the Independent Director,
intending to be legally bound, hereby agree as follows:

 

1.DEFINITIONS.

 

(a)“Corporate Status”
describes the capacity of the Independent Director with respect to the Company and the services performed by the Independent Director
in that capacity.

 

(b)“Entity” shall
mean any corporation, partnership, limited liability company, joint venture, trust, foundation, association, organization or other
legal entity.

 

(c)“Proceeding” shall
mean any threatened, pending or completed claim, action, suit, arbitration, alternate dispute resolution process, investigation,
administrative hearing, appeal, or any other proceeding, whether civil, criminal, administrative or investigative, whether formal
or informal, including a proceeding initiated by the Independent Director pursuant to Section 12 of this Agreement to enforce the
Independent Director’s rights hereunder.

 

(d)“Expenses” shall
mean all reasonable fees, costs and expenses, approved by the Company in advance and reasonably incurred in connection with any
Proceeding, including, without limitation, attorneys’ fees, disbursements and retainers, fees and disbursements of expert
witnesses, private investigators, professional advisors (including, without limitation, accountants and investment bankers), court
costs, transcript costs, fees of experts, travel expenses, duplicating, printing and binding costs, telephone and fax transmission
charges, postage, delivery services, secretarial services, and other disbursements and expenses.

 

(e)“Liabilities”
shall mean judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement.

 

    	

    	 

    
 

 

(f)“Parent” shall
mean any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities ending with
the Company, if each of the corporations or entities, other than the Company, owns stock or other interests possessing 50% or more
of the economic interest or the total combined voting power of all classes of stock or other interests in one of the other corporations
or entities in the chain.

 

(g)“Subsidiary” shall
mean any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities beginning
with the Company, if each of the corporations or entities, other than the last corporation or entity in the unbroken chain, owns
stock or other interests possessing 50% or more of the economic interest or the total combined voting power of all classes of stock
or other interests in one of the other corporations or entities in the chain.

 

2.SERVICES OF INDEPENDENT DIRECTOR.
While this Agreement is in effect, the Independent Director shall perform duties as an independent director and/or a member of
the committees of the Board, be compensated for such and be reimbursed expenses in accordance with the Schedule A attached to this
Agreement, subject to the following.

 

(a)The Independent Director will
perform services as is consistent with Independent Director’s position with the Company, as required and authorized by the
By-Laws and Articles of Incorporation of the Company, and in accordance with high professional and ethical standards and all applicable
laws and rules and regulations pertaining to the Independent Director’s performance hereunder, including without limitation,
laws, rules and regulations relating to a public company.

 

(b)The Independent Director is
solely responsible for taxes arising out of any compensation paid by the Company to the Independent Director under this Agreement,
and the Independent Director understands that he/she will be issued a U.S. Treasury form 1099 for any compensation paid to him/her
by the Company. The Independent Director acknowledges and agrees that because he is not an employee of the Company the Company
will not withhold any amounts for taxes from any of his payments under the Agreement.

 

(c)The Company may offset any
and all monies payable to the Independent Director to the extent of any monies owing to the Company from the Independent Director.

 

(d)The rules and regulations
of the Company notified to the Independent Director, from time to time, apply to the Independent Director. Such rules and regulations
are subject to change by the Board in its sole discretion. Notwithstanding the foregoing, in the event of any conflict or inconsistency
between the terms and conditions of this Agreement and rules and regulations of the Company, the terms of this Agreement control.

 

3.REQUIREMENTS OF INDEPENDENT DIRECTOR.
During the term of the Independent Director’s services to the Company hereunder, Independent Director shall observe all applicable
laws and regulations relating to independent directors of a public company as promulgated from to time, and shall not: (1) be an
employee of the Company or any Parent or Subsidiary; (2) accept, directly or indirectly, any consulting, advisory, or other compensatory
fee from the Company other than as a director and/or a member of a committee of the Board; (3) be an affiliated person of the Company
or any Parent or Subsidiary, as the term “affiliate” is defined in 17 CFR 240.10A-3(e)(1), other than in his capacity
as a director and/or a member of a committee of the Board; (4) possess an interest in any transaction with the Company or any Parent
or Subsidiary, for which disclosure would be required pursuant to 17 CFR 229.404(a), other than in his capacity as a director and/or
a member of a committee of the Board committees; (5) be engaged in a business relationship with the Company or any Parent or Subsidiary,
for which disclosure would be required pursuant to 17 CFR 229.404(b), except that the required beneficial interest therein shall
be modified to be 5% hereby.

 

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4.REPORT OBLIGATION. While this
Agreement is in effect, the Independent Director shall immediately report to the Company in the event: (1) the Independent Director
knows or has reason to know or should have known that any of the requirements specified in Section 3 hereof is not satisfied or
is not going to be satisfied; and (2) the Independent Director simultaneously serves on an audit committee of any other public
company.

 

5.TERM AND TERMINATION. The term
of this Agreement and the Independent Director’s services hereunder shall be from the Effective Date to the one-year anniversary
of the Effective Date, unless terminated as provided for in this Section 5 (the “Term”). This Agreement and the Independent
Director’s services hereunder shall terminate upon the earlier of the following:

 

(a)Removal of the Independent
Director as a director of the Company, upon proper Board or stockholder action in accordance with the By-Laws and Articles of Incorporation
of the Company and applicable law;

 

(b)Resignation of the Independent
Director as a director of the Company upon written notice to the Board of Directors of the Company; or

 

(c)Termination of this Agreement
by the Company, in the event any of the requirements specified in Section 3 hereof is not satisfied, as determined by the Company
in its sole discretion.

 

6.LIMITATION OF LIABILITY. In no
event shall the Independent Director be individually liable to the Company or its shareholders for any damages for breach of fiduciary
duty as an independent director of the Company, unless the Independent Director’s act or failure to act involves intentional
misconduct, fraud or a knowing violation of law.

 

7.AGREEMENT OF INDEMNITY. The Company
agrees to indemnify the Independent Director as follows:

 

(a)Subject to the exceptions
contained in Section 8(a) below, if the Independent Director was or is a party or is threatened to be made a party to any Proceeding
(other than an action by or in the right of the Company) by reason of the Independent Director’s Corporate Status, the Independent
Director shall be indemnified by the Company against all Expenses and Liabilities incurred or paid by the Independent Director
in connection with such Proceeding (referred to herein as “Indemnifiable Expenses” and “Indemnifiable Liabilities,”
respectively, and collectively as “Indemnifiable Amounts”).

 

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(b)Subject to the exceptions
contained in Section 8(b) below, if the Independent Director was or is a party or is threatened to be made a party to any Proceeding
by or in the right of the Company, to procure a judgment in its favor by reason of the Independent Director’s Corporate Status,
the Independent Director shall be indemnified by the Company against all Indemnifiable Amounts.

 

(c)For purposes of this Agreement,
the Independent Director shall be deemed to have acted in good faith in conducting the Company’s affairs as an independent
director of the Company and/or a member of a committee of the Board of the Company, if the Independent Director: (i) exercised
or used the same degree of diligence, care, and skill as an ordinarily prudent man would have exercised or used under the circumstances
in the conduct of his own affairs; or (ii) took, or omitted to take, an action in reliance upon advise of counsels or other professional
advisors for the Company, or upon statements made or information furnished by other directors, officers or employees of the Company,
or upon a financial statement of the Company provided by a person in charge of its accounts or certified by a public accountant
or a firm of public accountants, which the Independent Director had reasonable grounds to believe to be true.

 

8.EXCEPTIONS TO INDEMNIFICATION.
Director shall be entitled to indemnification under Sections 7(a) and 7(b) above in all circumstances other than the following:

 

(a)If indemnification is requested
under Section 7(a) and it has been adjudicated finally by a court or arbitral body of competent jurisdiction that, in connection
with the subject of the Proceeding out of which the claim for indemnification has arisen, (i) the Independent Director failed to
act in good faith and in a manner the Independent Director reasonably believed to be in or not opposed to the best interests of
the Company, (ii) the Independent Director had reasonable cause to believe that the Independent Director’s conduct was unlawful,
or (iii) the Independent Director’s conduct constituted willful misconduct, fraud or knowing violation of law, then the Independent
Director shall not be entitled to payment of Indemnifiable Amounts hereunder.

 

(b)If indemnification is requested
under Section 7(b) and

 

(i)it has been adjudicated finally
by a court or arbitral body of competent jurisdiction that, in connection with the subject of the Proceeding out of which the claim
for indemnification has arisen, the Independent Director failed to act in good faith and in a manner the Independent Director reasonably
believed to be in or not opposed to the best interests of the Company, including without limitation, the breach of Section 4 hereof
by the Independent Director, the Independent Director shall not be entitled to payment of Indemnifiable Amounts hereunder; or

 

(ii)it has been adjudicated finally
by a court or arbitral body of competent jurisdiction that the Independent Director is liable to the Company with respect to any
claim, issue or matter involved in the Proceeding out of which the claim for indemnification has arisen, including, without limitation,
a claim that the Independent Director received an improper benefit or improperly took advantage of a corporate opportunity, the
Independent Director shall not be entitled to payment of Indemnifiable Expenses hereunder with respect to such claim, issue or
matter.

 

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9.WHOLLY OR PARTLY SUCCESSFUL.
Notwithstanding any other provision of this Agreement, and without limiting any such provision, to the extent that the Independent
Director is, by reason of the Independent Director’s Corporate Status, a party to and is successful, on the merits or otherwise,
in any Proceeding, the Independent Director shall be indemnified in connection therewith. If the Independent Director is not wholly
successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues
or matters in such Proceeding, the Company shall indemnify the Independent Director against those Expenses reasonably incurred
by the Independent Director or on the Independent Director’s behalf in connection with each successfully resolved claim,
issue or matter. For purposes of this section, the termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

 

10.ADVANCES AND INTERIM EXPENSES.
The Company may pay to the Independent Director all Indemnifiable Expenses incurred by the Independent Director in connection with
any Proceeding, including a Proceeding by or in the right of the Company, in advance of the final disposition of such Proceeding,
if the Independent Director furnishes the Company with a written undertaking, to the satisfaction of the Company, to repay the
amount of such Indemnifiable Expenses advanced to the Independent Director in the event it is finally determined by a court or
arbitral body of competent jurisdiction that the Independent Director is not entitled under this Agreement to indemnification with
respect to such Indemnifiable Expenses.

 

11.PROCEDURE FOR PAYMENT OF INDEMNIFIABLE
AMOUNTS. The Independent Director shall submit to the Company a written request specifying the Indemnifiable Amounts for which
the Independent Director seeks payment under Section 7 hereof and the Proceeding of which the Independent Director has previously
notified the Company and approved by the Company for indemnification hereunder. At the request of the Company, the Independent
Director shall furnish such documentation and information as are reasonably available to the Independent Director and necessary
to establish that the Independent Director is entitled to indemnification hereunder. The Company shall pay such Indemnfiable Amounts
within thirty (30) days of receipt of all required documents.

 

12.REMEDIES OF INDEPENDENT DIRECTOR.

 

(a)RIGHT TO PETITION COURT. In
the event that the Independent Director makes a request for payment of Indemnifiable Amounts under Sections 7, 9-11 above, and
the Company fails to make such payment or advancement in a timely manner pursuant to the terms of this Agreement, the Independent
Director may petition the appropriate judicial authority to enforce the Company’s obligations under this Agreement.

 

(b)BURDEN OF PROOF. In any judicial
proceeding brought under Section 12 (a) above, the Company shall have the burden of proving that the Independent Director is not
entitled to payment of Indemnifiable Amounts hereunder.

 

    	5

    	 

    
 

 

(c)EXPENSES. The Company agrees
to reimburse the Independent Director in full for any Expenses incurred by the Independent Director in connection with investigating,
preparing for, litigating, defending or settling any action brought by the Independent Director under Section 12 (a) above, or
in connection with any claim or counterclaim brought by the Company in connection therewith.

 

(d)VALIDITY OF AGREEMENT. The
Company shall be precluded from asserting in any Proceeding, including, without limitation, an action under Section 12 (a) above,
that the provisions of this Agreement are not valid, binding and enforceable or that there is insufficient consideration for this
Agreement and shall stipulate in court that the Company is bound by all the provisions of this Agreement.

 

(e)FAILURE TO ACT NOT A DEFENSE.
The failure of the Company (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders)
to make a determination concerning the permissibility of the payment of Indemnifiable Amounts or the advancement of Indemnifiable
Expenses under this Agreement shall not be a defense in any action brought under Section 12 (a) above.

 

13.PROCEEDINGS AGAINST COMPANY.
Except as otherwise provided in this Agreement, the Independent Director shall not be entitled to payment of Indemnifiable Amounts
or advancement of Indemnifiable Expenses with respect to any Proceeding brought by the Independent Director against the Company,
any Entity which the Company controls, any director or officer thereof, or any third party, unless the Company has consented to
the initiation of such Proceeding. This section shall not apply to counterclaims or affirmative defenses asserted by the Independent
Director in an action brought against the Independent Director.

 

14.INSURANCE. The Company will
use commercially reasonable efforts to obtain and maintain a policy or policies of director and officer liability insurance, in
an amount not less than $5,000,000, of which the Independent Director will be named as an insured, providing the Independent Director
with coverage for Indemnifiable Amounts and/or Indemnifiable Expenses in accordance with said insurance policy or policies (“D&O
Insurance”). Notwithstanding the foregoing, while the D&O Insurance is valid and effective, the Company agrees that it
shall indemnify the Independent Director for the Indemnifiable Amounts and Indemnifiable Expenses, to the extent that any Proceedings
are coverable by D&O Insurance, but in excess of the policy amount, or otherwise not covered by the D&O Insurance, in accordance
with Sections 7-13 of this Agreement.

 

15.SUBROGATION. In the event of
any payment of Indemnifiable Amounts under this Agreement or the D&O Insurance, the Company or its insurance carrier(s), as
the case may be, shall be subrogated to the extent of such payment to all of the rights of contribution or recovery of the Independent
Director against other persons, and the Independent Director shall take, at the request of the Company, all reasonable action necessary
to secure such rights, including the execution of such documents as are necessary to enable the Company to bring suit to enforce
such rights.

 

 

    	6

    	 

    
 

 

16.AUTHORITY. Each party has all
necessary power and authority to enter into, and be bound by the terms of, this Agreement, and the execution, delivery and performance
of the undertakings contemplated by this Agreement have been duly authorized by each party hereto:

 

17.SUCCESSORS AND ASSIGNMENT. This
Agreement shall (a) be binding upon and inure to the benefit of all successors and assigns of the Company (including any transferee
of all or a substantial portion of the business, stock and/or assets of the Company and any direct or indirect successor by merger
or consolidation or otherwise by operation of law), and (b) be binding on and shall inure to the benefit of the heirs, personal
representatives, executors and administrators of the Independent Director. The Independent Director has no power to assign this
Agreement or any rights and obligations hereunder.

 

18.CHANGE IN LAW. To the extent
that a change in applicable law (whether by statute or judicial decision) shall mandate broader or narrower indemnification than
is provided hereunder, the Independent Director shall be subject to such broader or narrower indemnification and this Agreement
shall be deemed to be amended to such extent.

 

19.SEVERABILITY. Whenever possible,
each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if
any provision of this Agreement, or any clause thereof, shall be determined by a court of competent jurisdiction to be illegal,
invalid or unenforceable, in whole or in part, such provision or clause shall be limited or modified in its application to the
minimum extent necessary to make such provision or clause valid, legal and enforceable, and the remaining provisions and clauses
of this Agreement shall remain fully enforceable and binding on the parties.

 

20.MODIFICATIONS AND WAIVER. Except
as provided in Section 18 hereof with respect to changes in applicable law which broaden or narrow the right of the Independent
Director to be indemnified by the Company, no supplement, modification or amendment of this Agreement shall be binding unless executed
in writing by each of the parties hereto. No delay in exercise or non-exercise by the Company of any right under this Agreement
shall operate as a current or future waiver by it as to its same or different rights under this Agreement or otherwise.

 

21.NOTICES. All notices, requests,
demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered by
hand, (b) when transmitted by facsimile and receipt is acknowledged, or (c) if mailed by certified or registered mail with postage
prepaid, on the third business day after the date en which it is so mailed:

 

If to Independent Director, to: Steven Markscheid,
419 Washington Avenue Wilmette, Illinois 60091

 

If to the Company, to: WenXiang Ding,
President, China Energy Corporation, No. 57 Xinhua East Street, Hohhot, Inner Mongolia, People’s Republic of China, 010010,
or to such other address as may have been furnished in the same manner by any party to the others.

 

    	7

    	 

    
 

 

22.GOVERNING LAW. This Agreement
shall be governed by and construed and enforced under the laws of the State of Delaware.

 

23.CONSENT TO JURISDICTION. The
parties hereby consent to the jurisdiction of the courts having jurisdiction over matters arising in Delaware for any proceeding
arising out of or relating to this Agreement. The parties agree that in any such proceeding, each party shall waive, if applicable,
inconvenience of forum and right to a jury.

 

24.AGREEMENT GOVERNS. This Agreement
is to be deemed consistent wherever possible with relevant provisions of the By-Laws and Articles of Incorporation of the Company;
however, in the event of a conflict between this Agreement and such provisions, the provisions of this Agreement shall control.

 

25.INDEPENDENT CONTRACTOR. The
parties understand, acknowledge and agree that the Independent Director’s relationship with the Company is that of an independent
contractor and nothing in this Agreement is intended to or should be construed to create a relationship other than that of independent
contractor. Nothing in this Agreement shall be construed as a contract of employment/engagement between the Independent Director
and the Company or as a commitment on the part of the Company to retain the Independent Director in any capacity, for any period
of time or under any specific terms or conditions, or to continue the Independent Director’s service to the Company beyond
any period.

 

26. ARBITRATION. Any dispute, controversy
or claim arising out of or relating to this Agreement or the breach thereof, shall be settled by arbitration, before one arbitrator
in accordance with the rules of the American Arbitration Association then in effect and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. The arbitrator will be selected, by the parties, from a panel of attorney
arbitrators. The parties agree that any arbitration shall be held in New York, New York. The language of the arbitration shall
be in English. The arbitrator will have no authority to make any relief, finding or award that does not conform to the terms and
conditions of this Agreement. Each party shall bear its own attorneys’ or expert fees and any and all other party specific
costs. Either party, before or during any arbitration, may apply to a court having jurisdiction for a restraining order or injunction
where such relief is necessary to protect its interests. Prior to initiation of arbitration, the aggrieved party will give the
other party written notice, in accordance with this Agreement, describing the claim as to which it intends to initiate arbitration.

 

27.ENTIRE AGREEMENT. This Agreement
constitutes the entire agreement between the Company and the Independent Director with respect to the subject matter hereof, and
supersedes all prior understandings and agreements with respect to such subject matter.

 

 

    	8

    	 

    

 

IN WITNESS WHEREOF, the parties hereto have
executed this Independent Director Agreement as of the day and year first above written.

 

 

	 	 
	AGREED	AGREED
	 	 
	China Energy Corporation	Independent Director
	 	 
	 	 
	 	 
	/s/ WenXiang Ding                           	/s/ Steven Markscheid                      
	Name:  WenXiang Ding	Name: Steven Markscheid
	Title:   President and CEO	 
	 	 

 

 

 

    	9

    	 

    

 

SCHEDULE A

 

I.COMPENSATION:

 

A. Fees. For all services rendered
by the Independent Director pursuant to this Agreement, both during and outside of normal working hours, including but not limited
to, attending all required meetings of the Board or applicable committees thereof, executive sessions of the independent directors,
reviewing filing reports and other corporate documents as requested by the Company, providing comments and opinions as to business
matters as requested by the Company, the Company agrees to pay to the Independent Director a fee in cash of Ten Thousand Dollars
($10,000) during the Term (the “Base Fee”), so long as the Independent Director is serving on the Board of Directors.
The Base Fee (or such prorated portion thereof) shall be paid in cash to the Independent Director in equal, quarterly installments
no later than the 30th  day following the end of the Company’s fiscal quarter during the Term (beginning the fiscal
quarter ending August 31, 2011).

 

In addition to the Base Fee, the Company
agrees to pay the Independent Director (i) a Eight Hundred Dollar ($800)
fee for each board or committee meeting attended by telephone; (ii) a Two Thousand Five Hundred Dollar ($2,500) fee for each board
or committee meeting attended in person. The fees in Section I(A)(i) and (ii), above, shall be paid no later than the 30th
day following the end of the Company’s fiscal quarter in which those fees are accrued.

 

B.
Stock Option. Upon execution of this Agreement the Independent Director shall be granted a 10-year option to purchase
Twenty Thousand (20,000) shares of common stock of the Company, with an exercise price equal to the fair market value of a share
of the Company’s common stock on the date of the grant of the option. Such option shall vest in equal, quarterly installments
on the last of the Company’s fiscal quarter during the Term (beginning with the fiscal quarter ending August 31, 2011). The
Independent Director must be actively serving as a member of the Board of Directors of the Company as of any applicable vesting
date to receive any stock grant as of such date. The Independent Director’s rights in respect to any grant shall be determined
solely by the Board or, if applicable, the Compensation Committee thereof, and are subject to execution by Independent Director
of any applicable agreements as established and requested by the Company.

 

C. Expenses. During the term of the
Independent Director’s service as a director of the Company, the Company shall promptly reimburse the Independent Director
for all expenses incurred by him in connection with attending (a) all meetings of the Board or applicable committees thereof, (b)
executive sessions of the independent directors, and (c) stockholder meetings, as a director or a member of any committee of the
Board, which are approved by the Company in advance. The Company will only reimburse the Independent Director for economy class
airplane tickets. In addition, the Independent Director shall rely on the Company to arrange all hotel accommodations in connection
with any such meetings the Independent Director must attend. The amount of such expenses eligible for reimbursement by the Company
during a calendar year shall not affect such expenses eligible for reimbursement by the Company in any other calendar year, and
the reimbursement of these expenses shall be made on or before the 30th day following the end of the Company’s fiscal quarter
in which the expense was incurred.

 

    	10

    	 

    
 

 

D. No Other Benefits Or Compensation.
The Independent Director acknowledges and agrees that he is not granted and is not entitled to any other benefits or compensation
from the Company for the services provided under this Agreement except expressly provided for in this Schedule A.

 

 

	 	 
	AGREED	AGREED
	 	 
	China Energy Corporation.	Independent Director
	 	 
	 	 
	 	 
	_/s/ WenXiang Ding                        	_/s/ Steven Markscheid                              
	Name:  WenXiang Ding	Name: Steven Markscheid
	Title:   President and CEO	 
	 	 

 

 

 

 

    	11

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